Management Reduced by One-Third; Focus Is Shifted to Identifying Trends

WASHINGTON -- The Financial Crimes Enforcement Network, admitting it needed a clearer strategy and fewer managers, is reorganizing to better fight money laundering.

Last week, Stanley E. Morris, the agency's director, cut its management by a third and eliminated the Office of Financial Enforcement, which had been the banking industry's main Treasury Department contact.

The agency also will switch its focus to identifying patterns of financial crime rather than just catching individual money launderers.

In an interview, Mr. Morris said a muddled management structure and lack of a clear game plan kept the agency from doing its job.

"As long as we're spinning our wheels... the bad guys are beating our brains in," Mr. Morris said.

Too much time was spent reacting to specific cases or congressional hearings, Mr. Morals said. He compared the way the agency was operating to an old car sorely in need of maintenance.

"We were floundering around without a clear, coherent strategy," he said. "Everyone was just trying to make the car run."

The agency, a four-year-old arm of the Treasury Department, collects data from banks under the Bank Secrecy Act and uses it to identify illegal activity. Next year, its resources will be increased 10% to 12% from its current annual budget of $18.2 million.

The agency has about 200 people, the same amount it had before the reorganization. But the ranks of management have been thinned as 15 executives have been demoted. Peter Djinis, who ran the enforcement office, is now an associate director of the agency.

The new structure will enable the agency to give bankers quicker decisions on rules and more information about how their reports are used, Mr. Morris said.

As if to illustrate that point, the agency sent long-awaited final wire transfer rules to the Federal Reserve Board last week.

The Treasury Department has struggled for five years to come up with rules to regulate the reporting of electronic currency transactions. Those rules will be discussed at the Fed's Dec. 16 meeting.

But the Financial Crimes Enforcement Network's new philosophy also will mean more work for bankers.

The agency wants banks' help in identifying new patterns in crime, rather than just tips on catching individual crooks.

Banks will start by following new "know your customer" rules. Mr. Morris would not say when the rules, expected by the industry for many months, would be proposed. But he said bankers will be expected to follow the spirit more than the letter of the law.

"We want banks to exercise their own judgment," he said.

Since he started as director in May, Mr. Morris has been saying he plans to make banks allies in the fight against money launderers. His reason is simple: "Banks know about money," he said.

Because of banks' financial expertise, it was clear they would make good partners, he said. "It would be stupid for us to come in and say, 'We're the government and we have all the answers,'" Mr. Morris said. "Only the first part is right."

But it's one thing to tell banks they will have more breathing room in Bank Security Act compliance and another to really change the way banks are examined.

"We have to make sure the folks who carry out the law are adjusting their attention," Mr. Morris acknowledged.

That, said Mr. Morris, is Pamela Johnson's job. Ms. Johnson, who worked in the Office of Financial Enforcement, is an assistant director of the agency and its primary contact with the industry.

Banks will see a difference in the way they are examined, Ms. Johnson promised. There will be more focus on finding patterns of money laundering than on fining a bank for a single mistake, she said.

"We will be spending less time on minutiae," she said.

Ms. Johnson said she will be working with the bank regulatory agencies to get that message across.

Mr. Morris said his agency doesn't measure compliance success by arrests, seizures, or penalties. "We don't want to play that number game," he said.

In fact, the most valuable pan of the agency's high-tech artificial intelligence data base, said Mr. Morris, is its ability to identify patterns of money laundering, not to catch individual criminals.

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