Ease banks’ AML reporting burden? FBI, Fincen say not so fast

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WASHINGTON — Recent bipartisan discussions among Senate Banking Committee members may raise hopes for reforming anti-money-laundering rules, but a hearing Thursday revealed that policymakers still have a ways to go to reach consensus.

Lawmakers as well as witnesses from regulatory and law enforcement agencies debated whether Congress, in any revamp of the Bank Secrecy Act, should reduce the required amount of suspicious transactions that banks report to regulators.

Financial institutions, Republican lawmakers and some regulators support raising thresholds for currency transaction reports and suspicious activity reports. A recent GOP House bill would triple the CTR threshold to $30,000, and double it for SARs to $10,000.

But Democrats, law enforcement officials and others worry that raising the thresholds would be a gift to criminals.

“Bipartisan committee staff have been told by” the Financial Crimes Enforcement Network and the FBI that the threshold “levels contained in the House Republican bill would eliminate around 80% of the data available to federal law enforcement,” said Sen. Sherrod Brown, D-Ohio, the committee’s ranking member, in his opening remarks. “We cannot throw 80% of the data, including on suspicious activity, out the window. That is irresponsible; it makes no sense.”

Yet others say data is needed on whether current AML reporting amounts are effective in catching criminals, or simply impose costs on banks without much benefit.

“Is there data about the number of prosecutions, the effectiveness of prosecutions, the number of investigations that arise because you’re getting the [CTR] transactions between [$10,000 and $30,000]?” said Sen. Pat Toomey, R-Pa. “I get that that’s a big volume, but I don’t know how useful that data is.”

The hearing came against the backdrop of private talks between staffs of four committee members — Thom Tillis, R-N.C., Tom Cotton, R-Ark., Mark Warner, D-Va., and Doug Jones, D-Ala. — trying to reach consensus on an AML reform package. In addition to the reporting requirements, a key issue is whether Congress will require incorporating businesses to identify their “beneficial owners.” The House AML reform bill failed to gain enough support because it lacked a beneficial ownership provision.

Testifying at the hearing Thursday, Fincen Director Kenneth Blanco and Steven D’Antuono, financial crimes section chief at the FBI, said they do not collect the data on SARs and CTRs, but they warned that raising the thresholds would reduce the amount of valuable information they are able to use.

“Significant increases in the respective thresholds could reduce the amount of valuable financial intelligence available to Treasury, law enforcement, and other key domestic and international partners,” said Blanco.

D’Antuono suggested that higher thresholds would make it easier for money launderers to game the reporting system.

“Criminals may structure cash deposits to avoid threshold reporting requirements, or seek out complicit merchants who will accept their illicit proceeds without reporting the transactions,” he said. “When criminals successfully deploy these techniques, they are one step closer to ‘cleaning’ their illicit proceeds.”

Warner suggested that lawmakers could explore more effective technological means to pinpoint suspicious transactions than the reporting thresholds. During the hearing, he noted estimates that the transaction reporting process currently costs roughly $8 billion, but he raised the prospect that those resources could be deployed more efficiently.

“I’m not sure the thresholds are the right metric,” he said in an interview outside the hearing, but he noted that data on the effect of a higher reporting thresholds would be helpful. “How much of the volume of actually meaningful actionable reports fall in the delta between [$10,000 and $30,000] for example?”

Meanwhile, some lawmakers on the panel and witnesses at the hearing appeared to agree that stronger beneficial ownership rules are needed, even though some Republicans have expressed concern that that would slow startup activity.

The bipartisan group trying to negotiate a BSA package in the Senate have expressed interest in including a beneficial ownership provision, according to aides familiar with the discussions. Law enforcement officials at Thursday’s hearing urged the committee to strengthen rules requiring businesses to reveal their true owners.

“Beneficial ownership, as I mentioned earlier in my opening statement, that’s a national security issue,” said Blanco. “We’re not asking for brain surgery here. We’re asking for just quick information. That’s what it is. And it’s not a burden, it’s an investment.”

A third witness at the hearing, Grovetta Gardineer, senior deputy comptroller for compliance and community affairs at the Office of the Comptroller of the Currency, appeared open to congressional steps to ease the AML regulatory burden on banks.

While financial institutions use “all available resources to protect their institutions and the sanctity of the financial system,” Gardineer said, the OCC would like to see Fincen “study … what are appropriate thresholds, if there are changes that could be made.”

In her opening remarks, Gardineer said the OCC intends “to explore opportunities to tailor the content of these important reports and to evaluate the appropriateness of current thresholds in order to maximize their usefulness for law enforcement."

She also called for legislative reform requiring regulators to periodically review AML rules for possible changes. The banking agencies currently review other rules every 10 years under a law known as the Economic Growth and Regulatory Paperwork Reduction Act.

“Congress could consider legislation requiring a regular review of the BSA/AML regulations, similar to the EGRPRA process, to identify those regulations that may be outdated, redundant or unnecessarily burdensome,” she said.

But Blanco said such a review process for the BSA regime would be redundant.

“It adds on another layer of bureaucracy which is not necessary. ... We report and we communicate with law enforcement, and our other regulators and our stakeholders, private industry, through what we call the BSAAG, the Bank Secrecy Act Advisory Group,” he said. “We don’t need an EGRPRA process, which is not necessary.”

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AML Regulatory relief Regulatory reform KYC Sherrod Brown Mark Warner Pat Toomey FinCEN Senate Banking Committee FBI OCC
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