Comply With This: Watch Closely, But Also Don't Watch

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I finally understand why it's called the Bank Secrecy Act-because how it works appears to be something of a secret. The same holds true for anti-money laundering rules, which can be grasped almost as readily as the instructions for assembling a washing machine. But there's good news in both cases: the federal government is coming to the rescue.

That much was clear to anyone attending last week's annual meeting of the National Association of State Credit Union Supervisors (NASCUS) in Chicago. The days of regulators and examiners coming together to discuss basic safety-and-soundness issues seem as cozily archaic as some of the archive photos NASCUS showed as part of a video marking its 40th birthday. Last week regulators and the regulated were debating such questions as whether to file a suspicious activity report (SAR) on the member who bounces a check for a car repair.

It isn't often you can identify the precise end of an era, but for regulators, the date is Sept. 11, 2001. As the comprehensive report The Credit Union Journal offers up in this issue on compliance makes clear, the terrorist attacks of that fateful Autumn day have changed the responsibilities of credit unions and created their own twin towers of paperwork.

Listening to a couple of experts discuss the Bank Secrecy Act and anti-money laundering rules was enough to explain why compliance officers are always muttering to themselves, and why, when they hold their own meetings, the bar is always open. NASCUS' Brian Knight, who has a comprehensive knowledge of BSA, readily acknowledged the "majority of the statutes are so subjective. I don't think I've ever seen a rule (BSA) with so much gray area."

Jeffrey Pratt, senior regulatory specialist with the Financial Crimes Enforcement Network (FinCEN), later observed, "There is very little black and white to be found in BSA." In the Feds' Check-Your-Logic-At-The-Front-Door World, Pratt didn't seem to be particularly struck by the fact his agency writes many of those gray-area rules, nor did he pause when noting there are 300-plus-page updates available for convenient downloading.

During the NASCUS meeting I kept waiting for some frustrated credit union president or state regulator to jump to their feet and shout, "Have you ever thought of not issuing any new regulations until you clarify the current ones?"

And the voluminous PDFs are hardly the only bad news. Pratt offered this observation, "I'm not saying credit unions are the only weak link in the system, but they are one of them." For his part, Knight said he believes credit unions that don't believe the rules apply to them are in for a "rude, and perhaps expensive, awakening." Not to be left out, Carol Van Cleef, a BSA expert with the law firm Bryan Cave, offered this: "FinCEN, I predict, is going to make an example out of a credit union. As we've seen in other industries and other areas, to get an industry to really wake up and pay attention it often takes an enforcement action to cause that."

State regulators, along with NCUA, have been left to find their own way through the fog coming out of Washington. Linda Jekel, NASCUS' new chairman and director of credit unions for the Department of Financial Institutions for the State of Washington, called all the rules surrounding the Bank Secrecy Act and money laundering a "moving target. (The feds) provide the guidance and we distill that into exam questions. The difficulty is in trying to keep credit unions up to date. We spend a lot of of our exam time on BSA and we have found some weaknesses. But we get them fixed within 90 days."

The oft-quoted axiom is "if it ain't broke, don't fix it." With BSA and money-laundering, however, the real questions become "is it broke? Should we fix it?" There is probably no better example than that question of whether a Suspicious Activity Report should be filed on every member who bounces a check.

FinCEN's Pratt, demonstrating he may have a future in elected politics, answered the question of filing SARs on bounced checks by responding, "We do not delineate what you should or should not file for. What we say is 'Is the activity suspicious? Is there no reasonable explanation for the activity?' We have a $5,000 threshold. SARS do not relate to loss. The federal government doesn't care if you lose money in a transaction. The question is 'Do you suspect they are abusing their relationship?' You can always voluntarily file a SAR."

So the new axiom becomes, "If you don't know, file it." And there appears to be plenty of opportunity for filing SARs. CUs are supposed to know if members are somehow involved in illegal activities, whether a transfer of funds to someone in a foreign country also involves lawbreaking, whether the member is a "politically exposed person," and whether those direct deposits in a member's account seem unusual.

And of course, after you know more about your own members than their proctologist, keep in mind the other directive from Washington - it's of utmost importance that you protect your members' privacy.

As Jo Anne Fillwock, president of Michigan's Financial Health Credit Union and new chair of NASCUS' CU Advisory Council, sanguinely observed, "It's the government."

Frank J. Diekmann is Editor of The Credit Union Journal. He can be reached at fdiekmann

It is very easy to forgive others their mistakes. It takes more gut and gumption to forgive them for having witnessed your own. - Jessamyn West

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