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ABA urging Treasury to create compliance ombudsman as AML ‘knowledge-base,’ enforcement mediator

Thursday, August 3, 2017   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
bmonroe@acfcs.org
August 3, 2017

The U.S. banking industry’s chief lobbying group is pressing the U.S. Treasury to create a new compliance ombudsman to better unite banks, regulators and investigators, improve profits and reduce penalties, along with other moves to lessen financial crime control redundancies.

The American Bankers Association, representing the nation’s $17 trillion banking industry, is urging changes in a comment letter covering several key areas of anti-money laundering (AML) compliance, chiefly in the areas of how banks monitor customer transactions and report suspicious activities, the depth of investigations and related regulatory punitive measures.  

The ABA laid out the changes as a response to a “Request for Information on Department of the Treasury Regulations that Can Be Eliminated,” issued in June under an executive order signed in February. The order was designed to review what laws were unnecessarily burdening the U.S. banking industry and inhibiting growth and commerce.

Some of the ideas proffered by the ABA include creating an AML compliance “gatekeeper,” an independent entity that would act as a go-between between the various competing interests that banks must juggle under current compliance structures: regulators, law enforcement, auditors, customers and shareholders.  

This gatekeeper, or ombudsman, would have oversight of broad AML regulatory priorities, communicating those objectives to banks, while at the same time giving feedback from what regulators are seeing on the ground and what law enforcement sees in terms of criminal risks and what agents need related to critical intelligence.

Part and parcel of that initiative would be better feedback to banks from law enforcement on what SARs were actually the foundation of important cases. A common refrain from banks now is they feel their cumulative herculean efforts to monitor and report on aberrant activities go into a blackhole, because they never know if their SARs were looked at or how they supported active investigations and cases.

Such feedback would be welcome validation for AML compliance houses.  

The ombudsman would allow banks to “have one source across the agencies to turn to for” guidance and questions that aren’t clearly covered in current regulations or formal guidance.

“In other words, the ombudsman could serve as the knowledge-base for AML/CFT issues,” according to the ABA.  

“Another benefit from such a resource is that it would be a single source to collect all the questions being raised by both bankers and examiners,” according to the group. “The ombudsman could then identify issues that require additional guidance from regulators and could also post the questions and answers on a website where they are accessible to all as a resource.”

But one of the major goals of the ombudsman would be as a mediator between banks and regulators to prevent costly enforcement actions and monetary penalties – figures in the AML context that have soared into the billions of dollars.

“The ombudsman also could serve as a resource to settle disputes between examiners and bankers and between agencies,” according to the ABA. “Having an independent expert to address these situations would go a long way to eliminate the disparities that have crept into the system in the last twelve years while also expediting the flow of relevant and useful information to enforcement agencies to fight crime.”

In that same vein, the ABA is pressing the U.S. Treasury to allow federal investigators to do the investigating to fight crime – rather than putting a lot of that burden on the shoulders of bank AML analysts, the current paradigm.

Banks right now are viewed as the first line of defense against criminal gangs attempting to launder ill-gotten gains, though they don’t have the swagger that comes with a badge and gun.

That could reduce the need for banks to rely on third-parties in a bid to outsource and lower compliance costs. The ABA is asking to more freely rely on third parties and other banks for certain pieces of customer due diligence – rather than being on the hook for mistakes made by other entities.

The ABA is also asking anew for the U.S. government to review the thresholds for customer transaction and suspicious activity reports, to determine if they could be raised, a move that could save enormous bank resources.

Congress also pushing to update, upgrade AML laws

The responses from the ABA give more momentum to public and private efforts to update and upgrade the laws around money laundering and AML compliance.

In June, a bipartisan group of lawmakers introduced a new bill that would modernize and strengthen U.S. money laundering laws, bolster corporate transparency by criminalizing concealment of beneficial owners and allow money laundering charges to be tacked on to tax crimes.

Those are just some of the agenda items in the “Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017,” or S. 1241. The draft legislation is an effort to batten down many longstanding gaps in the country’s financial crime countermeasures, improve the timeliness and quality of intelligence to law enforcement and gain insight into virtual currency hoards when anyone leaves or enters the country.  

But the bill is remiss in addressing some of the biggest holes in U.S. financial crime defenses, including trade-based money laundering (TBML), subjecting attorneys, accountants and certain real estate professionals to AML obligations, and similarly snaring hedge and private equity funds with financial crime compliance requirements.

To read the full text of the bill, click here. To peruse a general summary of the bill, click here. To review a more detailed summary of each section of the proposed bill, click here.

Treasury, regulators already working to improve AML

Prior to that effort, in March, federal agencies stated they were working on improving the country’s AML regime, with plans to expand bank information sharing safe harbors to all crimes and better standardize financial crime compliance exams in addition to creating a new program to more rigorously review cybersecurity countermeasures for the most at-risk institutions. 

That preview of current and upcoming changes for entities subject to AML rules came as part of a joint report to Congress tied to reducing paperwork and repetitive or outdated regulations.

Among the many financial crime compliance issues noted in the 440-page report, the U.S. Treasury and related banking regulatory agencies stated they were analyzing current filing thresholds for customer identification and suspicious activity, the high costs and technical sophistication of monitoring systems and more consistency in AML exams across multiple examiners and regulators.

On the AML side, some 40 commenters addressed financial crime compliance issues, with a recurring theme being a desire to raise the current threshold for currency transaction reports and suspicious activity reports (CTRs and SARs), from their current $10,000 and $5,000 levels.

That request was denied by the Treasury agency with purview over CTR and SAR thresholds, the Financial Crimes Enforcement Network (FinCEN), stated it wouldn’t budge because the filings had too much law enforcement value, even though they were considered a wrote task by banks in some cases.

As well, regulators stated they didn’t expect program perfection, but controls that were commensurate with the risks. Regulators also stated they gave annual training across different agencies to ensure consistency and that banks could improve outcomes on their own by collaborating more in sharing monitoring systems, training and compliance best practices. 


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