North Fork Bancorp. Inc. of Melville, N.Y., has added itself to a growing list of banks that have cut ties to money service businesses.
John Adam Kanas, North Fork's president and chief executive, said Wednesday that the $60 billion-asset company had recently sent discontinuance letters to about two dozen wire-transfer businesses - he described them as "small versions of Western Union" - because compliance issues had become a burden.
The decision to close the accounts was among the most difficult of his career, Mr. Kanas said.
"I felt personally awful," he said. "These are good businesses with employees who work hard. A lot of them are family-owned."
At the same time, Mr. Kanas said, the government's aggressive anti-laundering campaign has made serving wire-transfer companies "so expensive and so cumbersome that we have had to back away from the table."
Wire-transfer businesses are not the only ones smarting. Rick Lyke, a spokesman for the Financial Service Centers of America, which represents more than 5,000 check cashers, said banks have been preemptively closing check cashers' accounts for several years and that the problem has grown increasingly acute over the past year.
For example, Provident Bankshares Corp. of Baltimore closed the accounts of about 36 check cashing businesses earlier this year, said Brian I. Satisky, the president of the Maryland Association of Financial Service Centers.
"It was a business decision we didn't make lightly," said Provident spokeswoman Vicki Cox. "Banks are caught between a rock and a hard place when it comes to banking" money-service businesses.
Mr. Satisky said all the companies whose accounts it closed were able to find new banks. But those institutions that still serve money service providers are getting jittery, he said.
"They're looking at all the ones that have stopped and saying, 'Why are we still doing this?' " Mr. Satisky said in an interview Tuesday.
Combating money laundering has been at the top of regulators' agenda since the 9/11 attacks. But even senior government officials acknowledge that the fight may have been taken too far when regulators singled out check cashers, wire-transfer firms, and other money service businesses for special scrutiny.
Gerald Goldman, the Financial Service Centers of America's general counsel, said many banks dealt with the matter by severing ties with clients in the money service business. The number of check cashers alone whose accounts have been terminated over the past few years is well into the hundreds, he said.
"It's been like a train going downhill," Mr. Goldman said. "It's picking up steam. Someone has got to get to the brakes before it's too late."
Last week Treasury Secretary John W. Snow told attendees of the Independent Community Bankers of America's annual convention in San Antonio that the government plans to make compliance less of a headache for banks.
"We want to minimize those burdens," he said. "I know you're concerned that innocent mistakes can be interpreted in a way that brings serious consequences. … Innocent mistakes shouldn't bring the wrath of God down on you."
William J. Fox, the director of the Financial Crimes Enforcement Network, an agency of the Treasury Department, said bank examiners have contributed to the bank discontinuance problem by discouraging banks from doing business with check cashers and wire-transfer firms, even though most have never been tainted by money laundering.
Examiners are advising banks to monitor the transactions of money-service-business clients extremely closely "or jettison them entirely," Mr. Fox said. As a result, banks are "making the logical business decision" that serving these businesses "isn't worth it, and they're cutting them loose," he said.
Mr. Fox said cutting money service providers off from banks might force them into the underground economy and make it all but impossible for the government to keep tabs on them.
On March 8 he hosted a meeting of bankers, money service providers, and regulators to discuss bank discontinuance. After the all-day session, he said that Fincen would move quickly to draft guidelines detailing the controls required of banks that serve check cashers and other money service providers.
The hope is that added clarity will give banks confidence that they can keep serving money service clients without incurring exorbitant costs or a heightened risk of regulatory action.
Check cashers said bolder moves are needed. Mr. Lyke said they wanted Mr. Fox and other officials to join them in publicly calling for a moratorium on wholesale shutdowns of money service businesses' bank accounts.
Mr. Goldman said he worried that without some kind of firm action, bank discontinuance may get even worse. "We have to stop the bleeding," he said. "We're on a precipice."
Even so, Mr. Goldman called the Fincen meeting "one of the best government-sponsored meetings I've ever been to." He said he was hopeful the new guidelines and improved examination procedures that Mr. Fox promises will eventually help remedy the bank discontinuance problem.
"We really believe that with clarity, there will be a greatly reduced chance that banks will opt to discontinue services to money service businesses," Mr. Goldman said.
Mr. Fox said he is determined to find a solution that satisfies all three constituencies - banks, regulators, and money service businesses.
"The last thing in the world I want for a money service business is for it to be thrown out of the transparent world of financial services and go underground," he said.
