November 10, 2014 / 4:15 PM / 6 years ago

U.S. rules would expand white collar crime informers

WASHINGTON, Nov 10 (Reuters) - U.S. regulators are working on rules that would require investment advisers, credit card firms and check cashers, among others, to serve as informers on white collar crime, a senior U.S. official said on Monday.

The Financial Crimes Enforcement Network, known as FinCEN, is working on rules that would require those entities to file formal reports notifying U.S. authorities of any suspicious trading by employees or outside parties, said David Cohen, U.S. Treasury undersecretary for terrorism and financial intelligence.

Banks, brokerages and mutual funds are already required to file suspicious activity reports, or SARs, with FinCEN to fight insider trading and money laundering.

But U.S. regulators have been working for several years on how to expand the rules to hedge funds and others to close a big gap in U.S. anti-money laundering enforcement.

Cohen said there was an “expanding universe” of entities that are important to the financial sector and have insight into financial crime, including commodity hedge funds and retail foreign exchange dealers.

“If we are to be as effective as possible in countering illicit finance, we must begin applying appropriate record-keeping, reporting and program requirements to those entities,” Cohen said in a speech at an American Bankers Association conference.

The filing of SARs took on new urgency for the financial industry in the wake of the Sept. 11, 2001 attacks on the United States as federal lawmakers moved to require banks to become more aggressive in tracking money flows by terror groups.


Greater regulator scrutiny has also prompted some banks to stop dealing with risky clients entirely, even if such business is legal, a process known as “de-risking.”

A top Bank of England regulator warned last week that the over-zealous application of anti-money laundering rules is hampering British banks abroad and cutting off poorer countries from global financial markets.

Banks, including HSBC and Standard Chartered , have been fined hundreds of millions of dollars by U.S. regulators in recent years, and banks fear they could be held liable even if they are only indirectly connected to someone involved in money laundering.

In response, many banks have shut down accounts for clients they view as risky, such as money service businesses that transfer billions of dollars in remittances to economies, from Somalia to South America, for fear the cash-dealing firms could be exploited by money launderers.

Cohen urged financial institutions to continue dealing with risky clients, despite the recent large fines against banks.

“These enforcement actions were not taken because of minor mistakes,” he said. “So even as we promote financial integrity through regulatory and enforcement actions, financial institutions need not ‘de-risk’ to protect themselves.”

FinCEN is set to issue a statement later on Monday that should help the financial industry maintain accounts with money transfer businesses despite their risks, Cohen said. The Treasury also plans to hold a public forum in January to address compliance with regard to money service businesses. (Reporting by Anna Yukhananov; Additional reporting by Brett Wolf; Editing by Dan Grebler)

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