Financial Regulators Seek Increased Recordkeeping for Funds Transfers

By Andrew Cochran

Last Friday the Federal Reserve Board and the Treasury Department's Financial Crimes Enforcement Network (FinCEN) asked for public comments on a proposed rule which would require financial institutions to increase recordkeeping requirements for funds transfers. The recordkeeping requirement was established in the Bank Secrecy Act, as amended by the Annunzio-Wylie Anti-Money Laundering Act of 1992, and doesn't require reporting of the transfers to federal regulators. The current threshhold for maintaining records is $3,000, set back in 1995; the proposed rule would lower it to $1,000, in accordance with recommendations by the international Financial Action Task Force to prevent terrorist financing or money laundering, or perhaps eliminate the floor altogether.

As with all BSA regulations, this one balances a cost burden on business with a law enforcement justification. I've discussed these issues here and here recently. The regulators have asked both sides to prove their assertions with case information. The rule would increase concerns in the industry and in Congress that BSA compliance is overly burdensome for small money service businesses (MSBs), leading the banks which service them to increasingly drop them as clients. The proposed rule discusses law enforcement's side also (Acrobat file). The entire issue will be the subject of a hearing tomorrow at the U.S. House Financial Services Committee, at which a FinCEN official will testify. Here's an excerpt from the section citing law enforcement concerns:

Representatives from the United States Drug Enforcement Administration, the State of Arizona, the Puerto Rico High Intensity Financial Crime Area, the Office of the New York State Attorney General, and the civil and criminal investigatory functions of the Internal Revenue Service have all indicated that the additional information collected as a result of lowering or eliminating the threshold would prove beneficial to investigations of money laundering, terrorist financing, and other financial crime. These representatives of law enforcement have indicated that lowering or eliminating the threshold would promote the disruption of illegal activity and make illegal activity more expensive for perpetrators by forcing them to use costlier alternative means of transferring funds to avoid higher risks of detection for funds transfers and transmittals of funds beneath the current threshold. Law enforcement has stated that criminals are aware of the current threshold and conduct transactions in amounts under the threshold to avoid providing identification.

One agency, for instance, indicated that transactions in a money laundering and drug case involved amounts between $2,600 to $2,900. Another agency pointed to a money laundering incident – with a total value of over $1 million in laundered funds – that involved human trafficking and forced labor. All of the transactions in the money laundering incident involved amounts less than $3,000. One agency observed that the laundering of illegal proceeds from human smuggling involves transactions in amounts that average approximately $1,800. The agency also observed that money launderers have started to structure these amounts, using multiple transactions in amounts that range from $500 to $1,000. The same agency analyzed data it collected – on nearly 100,000 transactions in amounts of $750 or more – and determined that 97 percent involved amounts less than $3,000.

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