Anti-Money Laundering Enforcement Needs Update, Senator Says

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By Jacob Rund

Congress should change the U.S. anti-money laundering reporting requirements to ensure law enforcement has more targeted data on potential bad actors, a bank executive and former financial crime enforcement officials told a Senate subcommittee June 20.

Modernizing the current AML regime is “vital” to financial institutions that must spend millions on “sometimes unnecessary” reporting requirements, Sen. Ben Sasse (R-Neb.) said.

“Our current AML system falls short in many regards,” he said. “We can and must do better than this.”

Enforcement officials and financial institutions need to communicate better to improve the usefulness of suspicious activity reports (SARs), the witnesses told the Senate Banking Committee’s subcommittee on national security and international finance, which Sasse leads. Banks and other financial institutions are required to report suspicious deposits worth $5,000 or more that could be linked to criminal activity to the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN.

Their comments come as the House Financial Services Committee prepares to vote on a bill ( H.R. 6068) that would update the 1970 Bank Secrecy Act, which established anti-money laundering reporting requirements. The subcommittee has held multiple hearings on the issue, as well.

Among other changes, the House bill would raise the suspicious activity reporting level to $10,000, which would reduce banks’ reporting burden. Some law enforcement officials are opposed, however.

The witnesses also said FinCEN needs to better guide banks on reporting about “beneficial ownership,” or tracking the true owner of an account.

‘Unnecessary’ Reporting

It’s difficult for banks to know how useful their SARs are because post-filing feedback is often nonexistent, Tracy Woodrow, M&T Bank’s senior vice president and anti-money laundering director, told the subcommittee. She cited an internal study conducted by The Clearing House that showed the government’s rate of response to SARs was less than 5 percent.

This lack of data sharing could mean there’s a “disconnect” between how institutions are deploying their AML resources and the needs of law enforcement, Woodrow said.

Dennis Lormel, CEO of consulting firm DML Associates and the former chief of the FBI’s Financial Crimes Program, said it’s crucial that SARs are made more efficient through “targeted monitoring.”

There should be a “consistent feedback mechanism” to boost the quality of reported information, Lormel said. The top priority should be how to report on the true owners of an account, he said.

Lormel also pressed Congress not to raise the dollar threshold for triggering SARs, something House members are considering, because it would reduce the amount of data available for law enforcement review.

AML regimes must be “constantly innovating” to keep up with criminals that continuously update their methods of accessing the U.S. financial system for illicit gain. “We don’t have enough of that innovation right now,” Sasse said.

Sen. Joe Donnelly of Indiana, the subcommittee’s ranking Democrat, said several gaps remain in the U.S. AML regime that make it too easy for criminals to open and use shell companies to move funds. It’s also “imperative” to increase communication and coordination between banks and government agency with the goal of improving the SAR success rate, he said.

To contact the reporter on this story: Jacob Rund in Washington at jrund@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com

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