Text of Letter from ABA to Federal Agencies – January 2005

This letter details a number of problems created by a lack of clear specifications and requirements given to banks – particularly when it comes to “SARs” (Suspicious Activity Reports).

Text of Letter from ABA to Federal Agencies – January 2005
Source: American Bankers Association
January 10, 2005

Federal Deposit Insurance Corporation
Chairman Donald E. Powell
550 – 17th Street, NW
Washington, DC 20429

Office of Thrift Supervision
Director James E. Gilleran
1700 G Street, NW
Washington, DC 20552

Federal Reserve Board
Chairman Alan Greenspan
Board of Governors
20th Street & Constitution Ave., NW
Washington, DC 20551

Department of the Treasury
John W. Snow
Secretary of the Treasury
1500 Pennsylvania Ave., NW
Washington, DC 20220

Office of the Comptroller of the Currency
Julie Williams
First Senior Deputy Comptroller and Chief Counsel
250 E. Street, SW
Washington, DC 20219

Financial Crimes Enforcement Network
Director William J. Fox
P.O. Box 39
Vienna, VA 22183

Ladies and Gentlemen:

The ABA and the undersigned state banking associations have been long-time partners with the Treasury Department and the federal banking regulators in the effort to prevent money laundering and, more recently, terrorist financing. We are proud of the commendations our industry has received from a number of agency and Administration officials, such as Treasury Under Secretary for Terrorism and Financial Intelligence, Stuart Levey, who stated: “The financial industry has been tremendously helpful in combating terrorist financing and is eager and willing to do more.� However, we are concerned that our industry’s efforts are being complicated, and in some cases undermined, by a lack of clarity in regulatory examination and enforcement.

While we recognize that there are individual instances where financial institutions may have fallen short and needed to improve their AML (anti-money laundering) and BSA (Bank Secrecy Act) programs and procedures, the lack of consistency in examination oversight and compliance guidance is a major theme of regulatory complaints received by ABA and the state banking associations.

In general, our members report that no standard appears to exist for a proper AML compliance program. What we hear from the regulatory leadership in Washington is often at odds with the information banks receive from field examiners. During conferences, seminars, and examinations throughout the country, bankers have heard language that indicates a “zero tolerance policy� for AML deficiencies. With the millions of daily transactions in the banking industry, a zero tolerance threshold is simply unachievable, as has been recognized by Administration and regulatory officials in Washington.

Certainly the federal banking agencies and the Treasury Department understand that there is a strong “culture of compliance� in the U.S. banking industry. Our bankers want to work with regulators to address deficiencies wherever they occur, although it is difficult to do this when the standards are unclear and moving. Our compliance professionals are well trained in a variety of regulatory areas, but they are being overwhelmed by the sheer volume of obligations for regulatory compliance.

It must be emphasized that this massive regulatory burden has been so exacerbated by mandates such as Sarbanes-Oxley and the unclear rules on BSA that it is literally driving some community banks to sell to larger institutions. In addition, the difficulty of attracting individuals to serve on bank boards of directors has been increasing due to concerns about regulatory costs and the potential for punitive enforcement actions. It is clear that guidance and communication are essential.

One major area in need of guidance is the filing of suspicious activity reports (SARs). SARs, a major tool for law enforcement to investigate crimes against banks, are in danger of becoming routine filings that simply dilute FinCEN’s database. The increase can be attributed to “defensive filing� by banks that fear regulatory criticism or, worse, enforcement actions because of failing to file a SAR. FinCEN Director William Fox has also recognized this problem and urged that BSA compliance be handled correctly by bank examiners. 1

To achieve that goal, Director Fox has directed the Treasury’s Bank Secrecy Act Advisory Group (BSAAG) to look at methods to improve the current examination process. ABA cochairs this subcommittee and continues to compile examples of what we believe to be erroneous interpretations of the BSA and AML requirements by bank examiners. These examples will be used by the BSAAG subcommittee. We are pleased to note that one crucial goal – to achieve consistent, common examination procedures – is currently being pursued by the bank regulatory agencies through interagency procedures, due mid-year 2005. We respectfully recommend that this process be completed as quickly as possible.

In addition, ABA and the undersigned associations urge the Treasury Department and the bank regulators, to also consider:

  • joint industry/government training of bankers and examiners on BSA/AML obligations when the procedures are released;
  • a BSA staff commentary, FAQs and/or centralized regulatory guidance to achieve consistency in BSA/AML interpretations; and
  • establishment of a BSAAG subcommittee to look at the variety of issues arising from the SAR process, particularly the problem of defensive filing.

The banking industry remains committed to work with the government in any way possible to further our joint goal of fighting money laundering and terrorist financing. The banking industry has always been a willing partner in stemming the flow of illegal funds through legitimate financial institutions. Continued joint efforts in this area must, and will, continue. However, we urge the Administration and the regulatory agencies to address the inconsistency and uncertainty that the industry is facing. Thank you for considering our concerns.

Sincerely,

    American Bankers Association
    Alabama Bankers Association
    Alaska Bankers Association
    Arizona Bankers Association
    Arkansas Bankers Association
    California Bankers Association
    Colorado Bankers Association
    Connecticut Bankers Association
    Delaware Bankers Association
    Florida Bankers Association
    Georgia Bankers Association
    Hawaii Bankers Association
    Idaho Bankers Association
    Illinois Bankers Association
    Indiana Bankers Association
    Iowa Bankers Association
    Kansas Bankers Association
    Kentucky Bankers Association
    Louisiana Bankers Association
    Maine Bankers Association
    Maryland Bankers Association
    Massachusetts Bankers Association
    Michigan Bankers Association
    Minnesota Bankers Association
    Mississippi Bankers Association
    Missouri Bankers Association
    Montana Bankers Association
    Nebraska Bankers Association
    Nevada Bankers Association
    New Hampshire Bankers Association
    New Jersey Bankers Association
    New Mexico Bankers Association
    New York Bankers Association
    North Carolina Bankers Association
    North Dakota Bankers Association
    Ohio Bankers League
    Oregon Bankers Association
    Pennsylvania Bankers Association
    Puerto Rico Bankers Association
    Rhode Island Bankers Association
    South Carolina Bankers Association
    South Dakota Bankers Association
    Tennessee Bankers Association
    Texas Bankers Association
    Utah Bankers Association
    Vermont Bankers Association
    Virginia Bankers Association
    Washington Bankers Association
    West Virginia Bankers Association
    Wisconsin Bankers Association
    Wyoming Bankers Association
    Oklahoma Bankers Association

    1 Director Fox spoke to the American Bankers Association and American Bar Association in October 2004 and addressed defensive filing of SARs: “We all know this phenomenon is occurring – we have both empirical and anecdotal evidence we can cite. We have seen financial institutions file reports in ever increasing numbers – often upon the recommendation of their lawyers or risk management teams – when the facts as presented do not meet this standard. I suspect that this over compliance is occurring for a reason. It is occurring because financial institutions are – justifiably in my view – unwilling to accept the regulatory or reputational risk associated with an action by the government that would make it appear that the institution is soft on anti-money laundering or, even worse, on terrorist financing.�

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