Money-Laundering Rule Issued, to Lessen Red Tape

Responding to industry complaints, the federal government issued an anti-money-laundering rule Monday designed to drastically reduce paperwork for banks.

The regulation-which was proposed a year ago and revised at least twice under industry pressure-would widen exceptions to mandatory reporting on banks' cash dealings with customers.

Banks could be exempted more easily from filing currency transaction reports, or CTRs, with the Treasury Department on nonpublic companies and small businesses provided they have been customers for at least a year. The new system is voluntary and begins Oct. 21, though the old rules will be phased out over nearly two years.

"It is a very fair compromise which I believe will result in massive savings for the industry if banks take advantage," said John J. Byrne, senior counsel for the American Bankers Association. "I think most will."

The Treasury unit that collects these reports, the Financial Crimes Enforcement Network, "has given the industry almost everything we wanted," said Margaret S. Silvers, vice president and compliance manager for Bank of America.

Bankers are trying to adapt to a host of new anti-money-laundering rules as the government tries to crack down on international criminals while at the same time reducing regulatory burden.

Besides Fincen's efforts to trim reporting requirements, financial regulators are separately developing rules that would explain how banks and other institutions should verify the identity of their clients to make sure they are not criminals. The so-called "know-your-customer" regulation, which regulators have been developing since May 1996, could be unveiled in November, sources predicted.

Yesterday's rule is the third and final step by Fincen to respond to a 1994 federal law that ordered the agency to slash the annual number of CTR reports by 30% within a reasonable but unspecified time period. The agency cut the size of the reports in late 1995 and issued a rule last year that freed banks from filing reports on cash transactions with companies listed on major stock exchanges, other banks, and government agencies. Banks must still report suspicious transactions.

The goal of policymakers is to eliminate extraneous reports in favor of more useful information for law enforcement authorities, said William F. Baity, Fincen's acting director. He predicted the number of CTRs could be cut "at least 50% or better."

Banks are now required to file CTRs each time a U.S.-based retail, service, and wholesale company deposits or withdraws more than $10,000. Exemptions have long been allowed, but bankers said the old rules were too complex and required them to file CTRs even on an exempt customer if that company's cash transactions increased slightly above average.

Bankers balked at the agency's first proposal because they complained that a new annual report disclosing how much their established customers deposited and withdrew each year would require them to install extensive tracking systems. When Fincen tried to replace that with a requirement that banks certify customers were regularly monitored and that none of their transactions were suspicious, the industry feared potential legal liabilities.

Under the new rule, an institution would have to perform an internal audit at least once a year to show it had an adequate suspicious activity monitoring system in place. A bank also would have to file a report every two years verifying its systems had been audited and that its exemptions remained valid. About 20 categories of business cannot be exempted, including law offices, casinos, and real estate agents.

Exemptions would only require a notice instead of formal approval, but Fincen could challenge them. "This new exemption system will keep us from sending paper in that is bogging down the Fincen system and causing extra busywork for our employees," said Anna M. Rentschler, vice president of First National Bank of Audrain County in Mexico, Mo. However, she and other bankers said the requirement that a company must be a customer for at least 12 months was too long.

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