By Terri Luttrell, CAMS-Audit, Senior Manager of Strategy and Evangelism, Banker’s Toolbox 

BSA/AML Reform

Weighing Opposing Views on BSA/AML Reform Legislation

For several months now, the AML community has been watching the progress of H.R. 6068, the Counter Terrorism and Illicit Finance Act (CTIFA or the bill), the legislation that proposes regulatory reform for the Bank Secrecy Act (BSA) reporting requirements. The bill proposes increasing reporting thresholds for certain currency transaction reports (CTRs) and suspicious activity reports (SARs). If passed, CTIFA would be the biggest reform in BSA since the USA PATRIOT Act in 2001.

The bill proposed increases in reporting thresholds for CTRs and SARs, the most important parts to financial institutions. Those increases include increasing:

  • CTRs from greater than $10,000 reporting requirement to greater than $30,000
  • SARs from a $5,000 to $10,000 reporting requirement.

H.R. 6068 calls for streamlining the BSA burden to the financial institutions and ensures a “high degree of usefulness” to law enforcement. The bill suggests a review of the current BSA requirements including:

  • Whether the timeframe for SAR reporting should increase from 30 days
  • If CTR and SAR reporting thresholds should be tied to inflation
  • Whether the requirements for filing continuation of SARs can be narrowed
  • Analyzing “critical” fields on the SAR and whether the number of fields can be reduced
  • Greater use of the CTR exemption provisions
  • How to address the adverse consequences of financial institutions de-risking higher risk relationships, such as charities, embassy accounts, money services businesses, and correspondent banks

Broader issues of interest in the proposal include:

  • Sharing of SARs within a financial group – foreign branches, subsidiaries, and affiliates of financial institutions
  • FinCEN No-Action Letters – to establish a process for FinCEN to issue No-Action letters in response to inquiries to indicate whether or not FinCEN intends to take enforcement or other regulatory action
  • Annually assessing the usefulness of BSA reporting to enable continued streamlining
  • Safe Harbor from CDD rule violations for 18 months following the May 11, 2018, mandatory compliance date as long as good faith effort has been made
  • Encouraging the use of technological innovations

On November 29, 2018, the Financial Crimes Enforcement Network (FinCEN), the Office of the Comptroller of the Currency (OCC), and the Federal Bureau of Investigation (FBI) testified before the U.S. Senate Committee on Banking, Housing, and Urban Affairs about H.B. 6808 and its possible ramifications. It appears the OCC and law enforcement (including FinCEN) are at opposite corners in support of the bill.

The OCC, representing the collective regulatory agencies, is at the forefront of support in easing the BSA burden and compliance costs to financial institutions, particularly small to medium sized community banks. Grovetta Gardineer, Senior Deputy Comptroller for Compliance and Community Affairs of the OCC, testified that the 50-year-old BSA/AML reporting requirements must be updated along with increasing the use of innovative technology in order to protect the U.S. financial system from illicit activity, such as money laundering and terror financing. Although Gardineer acknowledged the importance of BSA reporting and particularly that SAR filings are an important part of protecting our financial system, he stated that there are millions of SARs in FinCEN’s centralized database, which represents a significant workload for the industry. Resources should be focused on what is truly useful to law enforcement. Gardineer goes further in his testimony to state that artificial intelligence (AI) and machine learning will be key for banks to manage their costs and valuable resources while continuing to identify suspicious activity.

FinCEN and the FBI, however, both testified that easing the BSA requirements could significantly impact law enforcement’s ability to follow the flow of funds in critical investigations. Their position on the bill, based on detailed analysis, is that the financial institution’s efforts in fully complying with the current BSA laws and regulations are a key component to detecting terrorist financiers, cybercriminals, human traffickers, fraudsters, weapons proliferators, rogue regimes and other illicit actors.

FinCEN Director Kenneth A. Blanco testified that BSA reporting, particularly CTRs and SARs, is critical in ensuring the protection of the U.S. financial system and in keeping our country strong and prosperous, and our families and communities safe from harm. Financial institutions have long argued that the value of the dollar is not what it was 50 years ago and that current CTR and SAR thresholds are small amounts in today’s terms. FinCEN disagrees, and Blanco reminds us that a $10,000 cash transaction can be a valuable source of information in the day where electronic payment means is more the norm.

The value of the current BSA reporting shows in FinCEN’s analytics. Data shows that a significant percentage of law enforcement investigations begin with a BSA data source, including:

  • 24% of Internal Revenue Service (IRS) investigations
  • 21% of FBI investigations; some, such as organized crime, are as high as 60%
  • 20% of FBI terrorism cases.

Although FinCEN is in favor of reform in general, Blanco testified that FinCEN has initial concerns with increasing the reporting thresholds. Their analysis, along with input from law enforcement agencies, shows that the proposed threshold increases could reduce the amount of valuable financial intelligence received from financial institutions. For example, a review of CTR filings revealed that if the reporting threshold is raised to $30,000, law enforcement would lose 80% of currently provided data. Blanco states that losing 80% of the data is irresponsible and could cost lives.

Instead, Blanco stated FinCEN is more in favor of using AI and machine learning to analyze the data to streamline the burden on the financial institutions and states that innovation is one of his main priorities. He enforced that statement earlier this month when FinCEN and the Federal Banking Agencies issued a joint statement encouraging financial institutions to adopt innovative approaches to AML, including using emerging technologies to bolster their BSA programs.

Steven D’Antuono, Section Chief of the FBI’s Financial Crimes Section testified with the same concerns as FinCEN. The FBI heavily relies on BSA data as analysis shows 25% of their pending investigations used BSA data, up from just 8.9% in 2012. D’Antuono emphasized that small dollar transactions are increasingly important as they are used to move funds easier, faster, cheaper and with more frequency. These small transactions are closely tied to terrorism and certain other illicit activity and need to continue to be reported. He added that maintaining the current dollar thresholds for BSA reporting is key to our fight against ISIS.

The one thing that rang true on both sides of the issue during this hearing was passion. There is debate for and against this bill and the Senate Committee now must   decide what shape BSA reform will take. It is clear that streamlining is necessary and innovative technology must be embraced, especially at the community bank level where budgets and resources are thin. H.B. 6808 is something to keep a close eye on as if passed, it is almost certain to morph into a final regulation in a form different than the proposed bill. BSA assistance is on the way, but the form and impact of it are still unknown. If you align strongly with either side of the debate, contact your senator through your institution or personally.  Let your voice be heard.

– Terri Luttrell, CAMS-Audit

Luttrell is a seasoned AML professional with over 20 years in the banking industry, working both in medium and large community and commercial banks ranging from $2 billion to $330 billion in asset size. Terri is currently Senior Manager of Strategy & Evangelism at Banker’s Toolbox. Banker’s Toolbox is the leading enterprise risk management solution for financial institutions, offering a suite of products to help mitigate risk and streamline compliance. The Banker’s Toolbox team is a unique combination of seasoned bankers, former regulators, and information technology consultants who specialize in designing, developing, and implementing risk management solutions while providing unparalleled customer service.