WASHINGTON — Given the chance to weigh in on the Financial Crimes Enforcement Network's plan to broaden exemptions to currency transaction report requirements, bankers have responded with the equivalent of a "Thanks, but no thanks."
Financial institutions say they support the intent behind the agency's proposal, but they also say it complicates the process further and does not remove their No. 1 risk: second-guessing by examiners.
"The proposal does not create significant savings of time or effort," John Byrne, the enterprise regulatory relations executive for Bank of America Corp., wrote in a June 20 letter. "There is still a perception in the industry that the exemption process is fraught with peril, as it is easy for an examiner to review the most current facts against an institution's decisions made on older information."
B of A is the largest source of CTRs, filing more than 2 million last year alone. It said it used the current exemptions to such filings only 3,650 times that year.
Bankers have argued for years that the filings are costly and do relatively little to help investigators thwart money laundering, and that exemptions designed to reduce useless filings do not work as intended. The industry has pushed for a bill that would exempt banks from filing CTRs on any well-known business customer — an approach that, according to Mr. Byrne, would make more sense than Fincen's proposal.
Fincen Director James H. Freis Jr. opposes the bill, which has cleared the House three times but not gained traction in the Senate. In an interview last week, he called the agency's plan a compromise.
"It will significantly facilitate the ability to use the exemptions available without harming the needs of law enforcement that rely on the information every day," Mr. Freis said.
Under current rules, banks and thrifts may exempt from CTR filings large transactions made by other depository institutions, governmental agencies, and public companies whose shares are listed on one of three major exchanges.
The financial institution must file an exemption form for those entities and renew it every year. The Fincen proposal would drop that requirement for all but public companies. Bankers said by distinguishing public companies this way, the agency is unnecessarily complicating the process.
"The amendments draw an unnecessary distinction and impose separate requirements for the 'listed companies' currently included in Phase I exemption class, thereby creating a third category of exempt clients and increasing the risk and burden faced by financial institutions who exempt such clients," wrote Brian Wimpling, senior vice president and senior Bank Secrecy Act officer for the $2.7 billion-asset Capital City Bank of Tallahassee, Fla.
The proposal also would eliminate a requirement that certain nonpublic business and payroll customers maintain an account for a year before a bank can exempt it from CTR filings. Instead, Fincen said, banks can determine if a customer is exempt on the basis of their risk. But bankers said that approach could leave them open to regulatory scrutiny.
Mr. Byrne wrote that even though he generally supports the risk-based approaches to preventing laundering, that approach to exemptions concerns him.
"The ability to review additional facts and circumstances that are available after the initial decision has been made often results in questioning the appropriateness of exemptions," he wrote. "In this case, the risk-based approach will not encourage exemptions and may, in fact, discourage institutions from making exemptions if they feel that regulators will formally criticize exemption decisions."
Jason Lamb, assistant vice president and anti-laundering officer for Central Progressive Bank, a $508.7 million-asset Lacombe, La., unit of Blossman Bancshares Inc., wrote that the risk-based approach would "impose on institutions some significant obligations that would outweigh the benefits" of applying for exemptions.
"These new risk-related obligations for institutions are likely to achieve the opposite of the stated intention, further reducing the number of institutions willing to file CTR exemptions," he wrote.
In addition, institutions said the fear of regulatory scrutiny remains the major reason banks shy away from using the exemptions, and they wrote that the proposal ignores this concern.
"The risk of improperly using exemptions or not correctly monitoring, documenting, and filing is far outweighed by simply filing a CTR, especially for community banks," Rob Rowe, senior regulatory counsel for the Independent Community Bankers of America, wrote in a June 20 letter.
Cheryl Nakashige, vice president and compliance BSA officer for the $75 million-asset Bank of Central Florida in Lakeland, also argued that the risk of not filing was too great.
"Many banks still do not utilize the exemption process due to the risk of being cited by examiners for violations (based on experience as a previous bank compliance examiner) and the less burdensome nature of filing CTRs rather than exempting customers," she wrote in a June 16 letter.
The Fincen plan would require institutions to notify Fincen of any change in control of an exempt company, and it would eliminate the biannual renewal of certain exemptions. But bankers said it was unclear what would constitute a change in ownership.
BB&T Corp. "certainly does not have the resources in place nor does it have the ability to determine and report if a Phase II exemption (i.e. client) reorganizes his/her business within 30 days of the reorganization or change in control," Marc Geeting, senior vice president and BSA officer there, wrote in a June 20 letter.
Fincen also proposed requiring banks to notify the agency if they stop exempting a customer from CTR filings. Currently such notices are voluntary. Bankers said this change would only add to their compliance burden.
"BB&T feels that this is not necessary and will only increase the burden placed on all financial institutions and therefore not encourage depository institutions to take advantage of the Phase II exemption process," Mr. Geeting wrote.
Bankers asked Fincen to look into reducing the paperwork burden for filing exemptions. The proposal would increase the documentation banks would have to maintain for any exemption.
"With regard to documentation, the proposed amendments make it evident that Fincen will still require banks to thoroughly document exemption decisions and renewals, and in some cases substantially increase the overall process," wrote Anna Rentscheler, vice president and BSA officer of the $8.5 billion-asset Central Bancompany in Jefferson City, Mo. "The increased requirements have the effect of limiting the relief that the amendments were believed to have initially targeted."
