Law Enforcement Criticizes Proposed Relief From Bank Secrecy Act Mandates

By Andrew Cochran

The news quotes emanating from yesterday's U.S. Senate Banking Committee hearing (testimony and statements available there) centered around the North Korean regime's worldwide money laundering activities and the usual official comments about the Saudi Kingdom's insufficiencies at stopping terrorist financing. But for the financial services industry, the bad news from the hearing was the sharp criticism by law enforcement of proposed legislation to reduce Bank Secrecy Act reporting mandates for currency transaction reports ("CTRs"). The U.S. House passed a banking bill which included a change to the BSA relaxing CTR requirements for a financial institution's "seasoned customers" (e.g., with whom the institution had done business for at least 12 months). Before the committee yesterday, the FBI and ICE testified to the importance of CTRs to investigations and the rationale behind the current filing level of $10,000. They also objected to any new CTR filing exemption for "sole proprietorships," because they are a prime vehicle for smuggling, money laundering, and terrorist financing. You can quotes from the hearing at the end of this post. The financial services industry should realize that the criticism almost certainly reflects the opinions of the committee chairman, Sen. Shelby, and senior committee counsels - otherwise, the FBI and ICE wouldn't have been invited to testify. Thus, the BSA relief provision is probably dead in this session of Congress, unless it is folded into appropriations language.

Another note: the FBI witness was Michael Morehart, who succeeded Dennis Lormel as Chief of the Terrorist Financing Operations Section. Mr. Morehart discussed the enormous investigative benefits of the "Investigative Data Warehouse" program that Dennis developed at TFOS and described it as "Google on steroids." This is one FBI computer program which works very well, and the FBI and Justice Department should take public credit for it as often as possible.

Quotes from the testimony and Q&A (unofficial transcript) on possible changes to CTRs:

FBI:

"BSA data has proven its great utility for counterterrorism matters, and any contemplated change to the underlying reporting requirements of the BSA should be measured and carefully considered before such action is taken. Either increasing the transaction amount at which a Currency Transaction Report (CTR) would be generated or abolishing the recordation requirement altogether would deprive law enforcement of what has proven to be valuable intelligence....

The practical effect on law enforcement activities of an increase to the CTR threshold reporting amount would be to severely limit or even preclude law enforcement access to financial data associated with cash transactions that are not otherwise documented. In other words, the filing of CTRs, at the current reporting threshold, ensures a degree of transparency in the financial system that would not otherwise be available. Another topic of importance with respect to the filing of CTRs is the �seasoned customer� exemption. As you are aware, the BSA allows financial institutions to seek CTR filing exemptions pursuant to the �Designated Exempt Persons� (DEP) protocol. We are opposed to any such exemptions for long-term, well-established, and documented customers that would be for a class of customer beyond the current regulatory regime, which includes ineligible non-listed business, such as money service businesses....

Any decision to change the working of the seasoned customer exemption should be undertaken with great care, so as not to deprive our law enforcement and intelligence personnel of highly valuable data points. This is particularly so because of the steadily increasing ability of the Bureau to use these data points to meaningfully track national security threats and criminal activity. Though information on the evolution of this capability is not appropriate for public discussion, we are happy to provide nonpublic briefings on it and have done so already for some members of your staffs."

"The CTR data is extremely important. Each one of these Bank Secrecy Act databases is not a separate stovepipe. They all work hand in hand, whether it's the CMIR process, the SAR or the CTR...In a case in point, we had a SAR that was filed at a casino about somebody wiring money in and then cashing it out for chips playing poker for a little bit, and then coming back and converting the money back to cash. And it seemed suspicious, but what really got the investigators into the investigation was when they started looking at the CTRs associated with this person and found that that casino, as well as other casinos, had filed over $10 million in CTRs. That was the wow factor that said, 'Hey, we need to investigate this.'...

But also, in the legislation as proposed, they talk about sole proprietors, which can take in a lot of types of businesses that are of concern to law enforcements: electronics business, appliance businesses -- things that individuals and companies that are selling products that are the type of products that are used in the black market peso exchange, for instance. So you don't want to lose that whole sector of the CTRs."

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