Change in Bank Secrecy Act Prosecutions of Banks?

By Andrew Cochran

Last year, a U.S. Attorney in Mississippi stunned the financial services sector by criminally prosecuting AmSouth Corp. for violations of the Bank Secrecy Act without a prior regulatory action by the Treasury Department and Federal Reserve System. AmSouth settled the charges, admitting to "systemic and serious" violations of the Bank Secrecy Act and other anti-laundering laws, and paying $50 million in fines. A former general counsel of the Tresury Department was quoted in the American Banker as calling it "a Justice Department hijacking of a regulatory issue." That issue continues to reverberate through the sector and in Washington. The Sunday New York Times story on the Bush Administration's plan to access international banking records (registration required) indicated that the Federal Reserve System "is seeking changes that would require such prosecutions to be overseen by Justice Department officials at headquarters in Washington, rather than at the discretion of federal prosecutors in the field..." Not only is that true, but that effort might have more potential than was indicated in the story.

The statement in the NYT story is based on comments by a senior Federal Reserve anti-money laundering official at a conference in March. But elements of the Treasury Department, as well as key players in the industry, are believed to strongly agree with the Federal Reserve System, in part to resolve a basic inconsistency in prosecutorial procedures. In contrast to BSA criminal cases such as the AmSouth matter, criminal money laundering cases involving banks brought under the Annunzio-Wylie Money Laundering Act of 1992 have always been overseen by Justice Department headquarters, not by U.S. Attorneys acting individually. The Justice Department established the Annunzio-Wylie Act case oversight policy in 1993 in consideration of the considerable impact that such a case could have on the banking system. The same consideration is leading the Federal Reserve, possibly with backing by the Treasury Department and industry, to request a similar shift in BSA criminal case oversight policy. I think it is safe to predict that they would find support inside DOJ headquarters and on Capitol Hill.

Longtime CT Blog readers will recall that I posted comments during the Riggs investigation to the effect that nobody in Washington wants to see an American corporation taken down, a la Arthur Andersen, even for numerous violations of the anti-money laundering laws. Centralizing BSA criminal case oversight in Washignton would sharply reduce the odds of an AmSouth-like prosecution without prior civil action by the regulators. The proponents would call that intelligent banking policy in the face of extremely costly regulation (see Dennis Lormel's post today). Opponents would label it undeserved protection for egregious and repeat BSA violators during the war on terror.

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