Financial institutions see increased reporting requirements

by Becky Gillette

Published: June 7,2004

There is certainly no guarantee that the U.S. won’t once again be targeted by a terrorist attack. But changes made to the Bank Secrecy Act (BSA) as a result of the passage of the USA Patriot Act are designed to prevent foreign terrorists from using U.S. financial institutions to funnel money to fund illegal activities.

The BSA required adoption of minimum standards for financial institutions regarding the identity of customers who open accounts. Commissioner John Allison, Mississippi Department of Banking and Finance, said the BSA and the Patriot Act dovetail to track movements of currency. Allison said that $10,000 is the threshold for reporting requirements for banks. There are some exemptions, but those have been strengthened.

Tough regs

The regulations apply not only to banks, but other types of financial institutions regulated by the Mississippi Department of Banking and Finance and the Mississippi Department of Insurance such as payday lenders, pawn shops, insurance companies and money transfer businesses such as Western Union.

Since the new tracking requirements have been put in place, there have not been any major violations of the money laundering law unearthed in Mississippi. But there are prominent examples elsewhere of the penalties for a financial institution failing to follow the law.

“It has become a big-ticket item with the federal regulators, “Allison said. “They have been grilled pretty hard by several congressional committees about not doing what they are supposed to do. So they have taken a more serious approach going into some procedures to track the movement of currency.”

Allison said the “poster child” for not properly following procedures and freezing accounts when it was supposed to is Riggs National Bank located in Washington, D.C. The bank was recently fined a record $25 million for what federal regulators called a “willful, systemic” violation of the anti-money-laundering law.

In a press release, Riggs said it fully recognizes that all financial institutions must make changes to operate effectively and securely in the post-9/11 environment.

“Riggs takes regulatory matters very seriously,” the bank said. “For some time now, we have been adapting and vigorously putting in place the appropriate expertise, compliance systems and technology to fulfill the increased responsibilities that have been placed on banks and financial institutions. We are confident that we are on track to achieve this commitment.”

Efforts Riggs has taken to comply include working closely with banking regulators and outside experts. It hired a nationally recognized anti-money-laundering expert, and retained the services of outside experts to assist Riggs with developing and implementing a rigorous security and compliance programs. A team of former senior Secret Service Agents who specialized in money laundering and financial crimes investigations for more than 20 years were hired to build and run an investigations team.

Getting used to it

Allison said he doesn’t believe the new reporting requirements have been a big burden on banks.

“The banking industry per se has been used to this,” Allison. “The other industries are getting more used to it now. Those include pawns shops, payday lenders, check cashers and car dealers — anyone who deals with a lot of cash. There is a learning curve to conform with the new regulations. Dealing with banks, it goes back to the bank knowing their customers. I think banks are a lot more sensitive now to opening accounts and requiring the proper identification to open those accounts.”

There were currency reporting requirements prior to 9/11 put in place to detect money laundering for drug trafficking or other illegal activities. But the reporting requirements were strengthened because of the terrorism attack on America.

“Reporting currency transactions in and of themselves has been around at least 10 years,” Allison said. “They were put in place primarily to detect drug money laundering operations concentrated mostly in South Florida, the Texas border and Southern California. This is just a continuation of some of those procedures, but more directed at terrorism.”

Information reported to banks is then passed on to Homeland Security, which determines if the activity is suspicious and warrants investigation.

The full text of the law can be obtained at www.access.gpo.gov/congress. Information summarizing the law can be found at http://www.dbcf.state.ms.us/ USA_Patriot_Act_of_2001.htm.

Contact MBJ contributing writer Becky Gillette at bgillette@bellsouth.net.

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