The Burden v. The Benefit of Bank Secrecy Act Regulations

By Dennis Lormel

There has been an ongoing debate concerning the burden versus the benefit of Bank Secrecy Act reporting requirements. There are a number of factors which have driven this debate and that have caused serious concerns and confusion throughout the financial services industry. Reports that the Treasury Department is considering a plan to give the government access to international banking records has sharpened rhetoric and intensified the debate. Industry and the government must work together to establish a middle ground to develop a sense of balance between the burden and the benefit.

. In view of stringent anti-money laundering and terrorist financing reporting requirements, there has been an ongoing debate concerning the burden versus the benefit of Bank Secrecy Act (BSA) reporting requirements. On each side of the debate, there are valid issues and concerns. Media articles in recent days have reported that a working group within the Treasury Department is considering a plan to give the government access to international banking records in accordance with the Intelligence Reform Bill passed by Congress in December 2004. The provision would require financial institutions to turn over �certain cross-border electronic transmittals of funds� in furtherance of anti-money laundering and terrorist financing initiatives. These reports have energized the debate and anxiety in all segments of the financial community.

We should take a step back and remember that the stringent BSA reporting requirements were implemented through the USA Patriot Act as a direct result of the events of 9/11. We have had to live with the realization that we as a society are vulnerable to terrorist attack and that our financial system is vulnerable to exploitation.

Interests on both sides of this debate must be sensitive to the legitimate concerns of the opposing viewpoint and strive to establish a middle ground that can best balance the burden versus the benefit of reporting. There will always be a burden on financial institutions due to the risk of their inherent vulnerability to exploitation. The government sector and the financial community must work together to establish systemic controls that help justify the burdens imposed relative to the benefits attained. They must also establish clear and consistent examination and review protocols. Financial institutions have valid concerns ranging from regulatory actions taken against banks to a lack of consistency and direction from federal regulators. In addition, there are issues of privacy concerns. The American Bankers Association (ABA), in partnership with the Financial Crimes Enforcement Network (FinCEN), is addressing these issues through the Bank Secrecy Act Advisory Group. The ABA and FinCEN have been engaged in identifying mechanisms to reduce the burden of reporting requirements.

By way of background, I established the Terrorist Financing Operations Section at the FBI in the aftermath of 9/11. Prior to that, I oversaw the FBI�s Financial Crimes Program. In both capacities, I was a direct beneficiary of Suspicious Activity Reporting and BSA Compliance. Notably, in the post 9/11 environment, there were numerous successes in disrupting and dismantling terrorist activity through financial tracking. Unfortunately, most of these successes cannot be publicized due to investigative and intelligence considerations.

Finance and communications are the two key vulnerabilities to terrorists. We must ensure every available tool is used to exploit these vulnerabilities. Tactical and strategic investigative strategies have been implemented based on BSA reporting. The government clearly must do a better job of providing information and guidance to the financial sector.

To reiterate an earlier comment, I was a direct beneficiary of financial tracking and BSA reporting. Based on my experience and in this context, I believe the benefit outweighs the burden. However, the government needs to articulate clear guidance to relieve undue burden. In addition, the government must develop and implement consistent mechanisms to provide information to the financial sector to demonstrate the value and importance of strong anti-money laundering programs. The financial community would better justify the burden and the expense of BSA requirements if they truly understood their contributions

TrackBack