Coming Soon: 'Know Your Customer' Rules to Fight Money Laundering

The Financial Crimes Enforcement Network expects to release long- awaited "know your customer" rules in May and plans to finish them by September.

Bankers have been waiting nearly a year for the rules, which are supposed to help law enforcement officers combat money laundering.

Although most banks already have policies to identify customers, these rules would spell out what the government expects from banks.

Stanley Morris, director of the network, which is known as Fincen, has made a pitch during the last year for banks to help catch financial criminals. In exchange, the agency has tried to reduce bankers' paperwork.

The know your customer rules will be broad, said Pamela Johnson, an associate director. The rules will be a wide framework within which banks can design their own programs based on size, customer base, and other factors, she said.

"You will not see a rule that says every account over $3,000 must be looked at three times a week," she said at the Bank Administration Institute's regulatory compliance conference in New Orleans this month.

The rules will focus on a positive identification of each customer as well as anyone hired to open an account for them.

Banks will be expected to gather such information not only on currency transactions but also on wire transfers, which money launderers are using more, according to Fincen.

While the rules will clearly be a burden, they will also protect banks from money laundering prosecutions, said Rick Small, special counsel at the Federal Reserve Board.

"The prime objective is to keep yourselves out of trouble," he told bankers at the conference.

Because money launderers have become more sophisticated, banks and the government must keep up, Ms. Johnson said. "You just don't see the guy with the bag of money coming up to the teller window anymore," she said.

Fincen has been working on other regulatory projects, including revamping the currency transaction report exemption process so banks will actually use it.

In April, the enforcement network will publish guidance on which companies to exempt. These will include all the federal government and all state and local governments, Ms. Johnson said.

Right now banks must file CTRs on deposits over $10,000. While that amount may indicate suspect activity by some customers, other companies routinely do high-volume cash business.

Few banks, however, take advantage of the system for exempting these latter companies because it is unclear which ones are eligible. Banks would rather file too many forms than be fined or prosecuted for not reporting enough.

Banks will see a definitive list of exempted businesses from Fincen in June, Ms. Johnson said.

The list will include many publicly traded businesses that are well capitalized, she said. Public companies are considered safer risks because they must be audited and publish their financial results, Ms. Johnson said.

The enforement network's goal in publishing the list would be to cut down on its own paperwork burden as well as the banks', Ms. Johnson said. She asked bankers at the conference to let her know what it would take to make them use the exemption.

To get feedback on the know your customer rules, the exemption process, and other regulatory projects, Fincen plans to hold meetings with bankers in five cities in April.

Mr. Morris will conduct the meetings April 4 through April 26 in New Orleans; Portland, Maine; Charlotte, N.C.; Atlanta; and Phoenix. Regulators, law enforcement officers, and nonbank financial services providers also will attend.

Bankers interested in attending any of the meetings can call Fincen at 800-949-2732.

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