Banks that close suspicious accounts are unlikely to lose customer lawsuits on the issue, according to money laundering experts.
"As long as you're not discriminating, you can shut off a customer whenever you want to," said Richard A. Small, special counsel in the Federal Reserve's supervision and regulation division.
Nothing can prevent a customer whose account was closed from filing a lawsuit, but the bank should win the case, Mr. Small said at the American Bankers Association's National Regulatory Compliance Conference June 14.
At Chase Manhattan Bank, an employee suspicious of a customer reports it to the legal department, according to Lynne Federman, Chase vice president and senior counsel. If the lawyers decide to close an account, Chase sends a Short letter to the customer, explaining the bank's concerns and notifying the customer that the account will be closed.
Besides litigious customers, banks also have to worry about interfering with the government's ability to monitor criminals.
Although it might seem like a patriotic thing to help the government in a sting operation, Mr. Small said it's the banks that might end up getting stung. Banks should keep accounts open only if they get a letter requesting they do so from the government, he said.
"If you think you should shut the account, do it," he said, "unless you get it in writing." Mr. Small said banks should protect themselves from any inference that they were aiding or abetting a criminal by keeping the account open.
That's how Chase handles these cases, according to Ms. Federman. The bank helps the government, but always gets a letter first.