U.S. Treasury to lead review of anti-money laundering rules

Mon Nov 12, 2012 6:56pm EST

* Treasury Department to lead task force of regulators and enforcement agencies

* Review of anti-money laundering rules follows industry complaints of complexity, regulatory burden

* Crackdown has fueled cases against big banks

By Brett Wolf

WASHINGTON, Nov 12 (Thomson Reuters Accelus) - The Obama administration will review a sprawling net of anti-money laundering rules and seek to correct "gaps, redundancies or inefficiencies," in the U.S. system now more than 40 years old, the Treasury Department's top official overseeing the issue said on Monday.

David Cohen, Treasury undersecretary for terrorism and financial intelligence, said the department had launched an anti-money laundering task force along with federal regulators and law enforcement agencies. The initiative comes as federal authorities crack down harder on anti-money laundering lapses, with high profile cases against financial institutions.

In 2010, the Wachovia Bank unit of Wells Fargo & Co agreed to pay $160 million to settle charges that its weak compliance with the rules allowed the laundering of Mexican drug money. And HSBC, which is under investigation by a slew of U.S. government agencies, announced earlier this month that it could face fines in excess of $1.5 billion for anti-money laundering lapses that reportedly permitted it to take in large sums of drug money in Mexico and other compliance failures.

Such enforcement only shows signs of increasing. A Justice Department official said in August that prosecutors plan to step up their efforts to target financial institutions that fail to meet their anti-laundering obligations.

Financial institutions in turn have complained that they have become overburdened by a growing tangle of rules that has significantly increased their workload over the years.

For instance, bankers have long argued that the requirement they report all cash transactions involving more than $10,000 -- a figure set decades ago that prompts many millions of reports each year -- is overly burdensome. They say a much higher reporting threshold, or a simple exemption process for longtime customers, would make more sense and prevent them from wasting their time.

Most recently, Treasury officials have been meeting with members of the banking and securities industries to discuss a rule that would oblige financial institutions to devote even more resources to knowing their customers by requiring them to ascertain the "beneficial," or true, owners of accounts.

The panel's goal is to "look under the hood and take stock of which components of our AML regime are working well, which are not, how the different parts are working together, and to assess how the entire enterprise is operating," Cohen told an anti-money laundering conference.

U.S. anti-money laundering (AML) regulations are largely governed by the 42-year-old Bank Secrecy Act (BSA). The rules require financial institutions to take steps to combat money laundering and other financial crime. For instance, financial institutions must report large cash transactions, and those deemed suspicious, to the Treasury Department.

The USA Patriot Act of 2001, passed after the Sept. 11 attacks, added BSA rules aimed at combating terrorist financing, including obligations to find out more about customers of private banking and correspondent banking units.

Regulatory enforcement actions against HSBC and other financial institutions deemed to have failed to properly address correspondent banking risks suggest financial institutions have struggled to comply.

Cohen noted the passage of time since the Bank Secrecy Act was enacted.

"While the BSA has been amended several times  it has been a long time since the federal policymaking, compliance and enforcement community stepped back and took a hard and comprehensive look at the AML statutory, regulatory, compliance and enforcement structure," Cohen told the audience at a conference put on by the American Bankers Association and the American Bar Association.

An impetus for creation of the task force was the "remarkable" change in the financial industry "driven by technological innovation, financial innovation, and a desire to include broader segments of the population in the formal financial sector," Cohen said.

"Money laundering schemes themselves are also becoming increasingly sophisticated and international in nature. The same hugely beneficial technological and financial advancements have had the unfortunate side effect of amplifying potential AML risk," Cohen said.

"That is why we have created an AML task force among the federal policymakers, the federal functional regulators and the enforcement agencies - so that we can take a step-back look at what we're doing, how we're doing it, and what we are asking of you, to combat money laundering and other forms of financial crime," he said.

"It is my hope that we will succeed in developing recommendations to address any gaps, redundancies or inefficiencies in our framework."

During a conference panel earlier in the day, Richard Small, a veteran anti-money laundering officer who currently is with American Express, made brief mention of the Treasury task force. He described it as "a great step forward."

The task force is expected to do its work "in the course of the next year or so," a Treasury spokesman said.

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