Big Banks Want Changes to Financial Crime Fighting System

By Jeff Bater

An industry group for the biggest banks in the U.S. wants to revamp how financial firms fight money laundering and terror financing, suggesting changes that include legislation requiring identification of the true owners of companies.

The Clearing House, which is owned by such companies as JPMorgan Chase and Bank of America, issued a report Feb. 16 flagging problems with the current framework for anti-money laundering/countering the financing of terrorism (AML/CFT).

“Most of the resources devoted to AML/CFT compliance by the financial sector have limited law enforcement or national security benefit,” the report said. “A redeployment of these resources could substantially increase the national security of the country and the efficacy of its law enforcement and intelligence communities, and enhance the ability of the country to assist and influence developing nations.”

Among the recommendations included in The Clearing House report is for Congress to pass legislation requiring the reporting of beneficial owner information. A beneficial owner is a person who enjoys the benefits of ownership even though title to some form of property is in another name.

Beneficial Ownership

A key agency in the fight against money laundering is the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Its new customer due diligence rule will soon require financial institutions to collect beneficial ownership information from certain legal entity customers.

”Yet there is currently no requirement that states record the beneficial ownership of the legal entities they incorporate,” the report said. “This makes it easier for money launderers and terrorist financiers to obscure their identities from both law enforcement and the financial institutions with which they deal.”

Another goal is to “de-prioritize” the investigation and reporting of activity of limited law enforcement or national security consequence. The report said FinCEN should review all existing guidance on suspicious activity reports (SARs) to ensure it establishes “appropriate priorities.”

Suspicious Activity Reports

Banks are required to file SARs with FinCEN. The reports include detailed information about transactions that appear to be suspicious. One of the purposes of the reports to identify violations or potential violations of law to the appropriate law enforcement authorities for criminal investigation.

“Unfortunately, the current regime promotes the filing of SARs that may never be read, much less followed up on as part of an investigation,” the report said. “Any diversion of resources from creating quality SARs does not truly serve the interest of law enforcement. The SAR regime should produce SAR filings that actually advance law enforcement and other national security goals.”

Costs of Compliance

The Heritage Foundation estimated in a 2016 report that the cost of compliance with the Bank Secrecy Act and anti-money laundering rules ranges from $4.8 billion to $8 billion a year. Part of those costs include efforts companies must make to file SARs.

The Clearing House report also suggests an enhancement of the legal certainty regarding the use and disclosure of SARs.

FinCEN guidance does not permit U.S. banks to share SAR information with foreign branches. The report says FinCEN should clearly authorize banks to share SARs with a foreign branch or affiliate as long as the branch or affiliate is located in a country that is a member of the Financial Action Task Force (FATF).

FATF is an intergovernmental body that seeks to promote legal, regulatory and operational measures to combat money laundering, terrorist financing, and other threats to the international financial system.

To contact the reporter on this story: Jeff Bater in Washington at jbater@bna.com

To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com

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