Could Deutsche Bank probe be an opening for AML reform?
The increasing interest in Deutsche Bank’s connections to the Trump Organization is primarily about Russia’s election meddling. But a focus on money-laundering violations might also bring more attention to policy reforms sought by banks.
The financial industry has been raising concerns about the current state of anti-money-laundering policy for years — complaining that the process results in huge amounts of oversight and paperwork without doing much to help law enforcement track down criminals. Yet despite agreement across the aisle that change is needed, the issue has remained on the political back burner for years.
Given the conventional wisdom in Washington that Congress responds most readily to deadlines and crises, it’s fair to ask: Could House Democrats’ focus on the Russia probe spur a broader debate about the role of the financial system in catching international criminals?
Deutsche Bank was thrust back in the spotlight this week as the House Intelligence and Financial Services committees issued subpoenas aimed at the bank’s ties to President Trump’s business interests. Several other major banks, including JPMorgan Chase, Bank of America and Citigroup, were also subpoenaed over possible money-laundering violations by actors in Russia and Eastern Europe, according to news reports.
To be fair, the odds of this investigation resulting in a bipartisan AML bill aren’t great.
Bad actors continue to use the financial system for their own gain to the tune of billions, if not trillions, of dollars each year. Despite that, AML reform still faces big obstacles and Congress doesn’t seem in the mood to legislative substantive policy changes.
But that doesn’t mean those seeking change shouldn’t try to take advantage of the current moment.
After all, Financial Services Chairwoman Maxine Waters, D-Calif., said Monday in a statement announcing the subpoenas that “the potential use of the U.S. financial system for illicit purposes is a very serious concern.”
The focus on problems at Deutsche “could help catalyze action” around reforming the Bank Secrecy Act and other AML provisions, said Isaac Boltansky, an analyst with Compass Point Research & Trading. “If Deutsche Bank is a catalyst for a serious conversation regarding BSA/AML issues, then we could see actual legislative progress in this Congress.”
Deutsche has been in the hot seat for years over alleged AML violations, raising significant questions about whether the current regulatory regime, including the annual filing of millions of suspicious activity reports, or SARS, is effective.
In terms of legislative reforms, banks want Congress to raise the monetary threshold for transactions requiring institutions to submit SARs and currency transaction reports.
Yet political hurdles, of course, still loom large.
“If Deutsche Bank is only viewed within the context of its affiliation with the Trump Organization, then the underlying BSA/AML issues are likely to be engulfed by political posturing,” Boltansky said.
Indeed, senior Republicans appeared skeptical in response to news about the subpoenas. Rep. Patrick McHenry, R-N.C., the ranking member of the House Financial Services Committee described the action as “driven solely by a political agenda.”
And more broadly, legislative efforts that might be perceived as easing the burden for banks could be a difficult lift at a time when major financial institutions are under investigation.
“Trying to change AML laws while at the same time conducting congressional investigations into international banks that may or may not be involved in money laundering or violating AML laws is difficult to reconcile — it's just bad optics,” said Brian Gardner, a KBW analyst.
Still, some industry observers remain hopeful that the spotlight on Deutsche’s dealings will prove to be an opportunity for reform on which lawmakers can capitalize.
“The vast majority of suspicious activity report submissions are absolutely useless to law enforcement,” said J.W. Verret, a law professor at George Mason University and former chief economist for the Financial Services Committee. “I think there’s a bipartisan consensus emerging to lift the SARs threshold significantly — I would hate for this effort to distract from that.”
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