WASHINGTON — After six years of delays, the Financial Crimes Enforcement Network issued a proposal Monday that would require banks and money-services businesses to report international wire transfers to the government.
The proposal could result in a massive new reporting burden for the roughly 300 banks and 700 MSBs it targets, with Fincen estimating it would spur 500 million to 700 million new reports a year.
Although apparently abandoned nearly four years ago amid concerns about the potential cost of such a requirement, the proposal is set to be more expansive than originally discussed. Fincen Director Jim Freis said the data was critical in the fight against money laundering.
"With this broader data source, for the first time Fincen will have the ability for the government to essentially create baselines of what is normal activity when you are talking about funds flows between the United States and jurisdictions," Freis said in an interview. "Today, what we focus on is what banks focus on for suspicious activity for the jurisdiction, but we as the government don't have the ability to compare to what is the average for that jurisdiction."
Under the rule, which will be published Monday in the Federal Register, banks will be required to report all international wire transfers to Fincen.
While wire transfers can bounce domestically from bank to bank, only the institution that transmits or receives the transfer overseas — so-called gatekeeper banks — have to report the transfer.
The proposal would also require banks to create an annual report detailing the account number and account holder's tax identification number for all accounts used to originate or receive international wire transfers.
The agency expects to issue a final rule in 2012 to allow time for banks to ensure they have the necessary systems in place to comply with the new requirements.
"The purpose [of this new data] is to look at the big picture and understand more what the legitimate activity is," Freis said. "Once you understand, explain more the legitimate activity … then the illegal activity is what you can stick out as anomalies."
Bankers are unlikely to welcome such a reporting requirement. They have long complained about the burden of Bank Secrecy Act reporting requirements and questioned the practice of trying to detect crime through a document load.
When regulators first suggested an international wire transfer requirement six years ago, the American Bankers Association said it would be impractical and overly burdensome.
"It will end up being a big dump of information on Fincen," Carmina Hughes, managing director of Navigant Consulting and a former top anti-laundering official at the Federal Reserve Board, said in an interview Friday. "I think that Fincen may well gain some benefit from this, but I think it will primarily be useful to the law enforcement community to obtain information on some transaction."
A 2004 intelligence reform law required Fincen to study cross-border wire transfers and determine if such reporting was necessary. On Jan. 17, 2007, the Treasury announced a plan to require gatekeeper banks to report all international wire transfers to the government, but the agency said it would cost $32 million to build a system to collect and process the data. At the time, the agency lacked the funds to continue the study and the plan was put on indefinite hold.
But Fincen is now financially in a position to move forward, having obtained $60 million of a planned $120 million modernization of its IT system from Congress.
Freis said that, by rebuilding all of Fincen's IT system, it will better be able to handle the wire transfers rather than having to build a standalone new system.
Bankers have fought the reporting over concerns about privacy and usefulness of the data and the chore of collection.
In the plan, Fincen assured institutions that it would use proper privacy controls to protect the data.
"We take the privacy issues extremely seriously and the facts that all data that is reported to Fincen is sensitive data both commercially sensitive," the agency said in the proposal.
But Bob Serino, a partner at Buckley Kolar and former anti-laundering official at the Office of the Comptroller of the Currency, was skeptical.
"It sounds like extraordinary invasion of privacy," he said.
