GAO: 80% of Southwest banks, concerned with money laundering, ‘de-risking’ by dropping accounts

A “retrospective review” by banks of their enforcement of anti-money laundering laws is recommended by a congressional watchdog after its survey found an estimated four out of every five (80%) banks near the Southwest U.S. border have terminated customer accounts – which the agency said could indicate “de-risking” by the banks.

Additionally, the survey by the congressional Government Accountability Office (GAO) found, an estimated 80% of the banks limited or did not offer accounts to customers that are considered at high risk for money laundering because the customers drew heightened regulatory oversight, GAO said.

In both cases, the margin of error was +/- 11%, the watchdog agency said.

Although counties in the Southwest border region, similar to national and regional trends, have been losing bank branches since 2012, the GAO survey said that money laundering-related risks (related to Bank Secrecy Act/anti-money laundering regulations, or BSA/AML) were likely to have been relatively more important drivers of branch closures in the Southwest border region.

Nationally, GAO said its econometric analysis generally found that counties that were urban, younger, had higher income or had higher money laundering-related risk were more likely to lose branches.

“Regulators have not fully assessed the BSA/AML factors influencing banks to derisk,” the agency said in its summary of the survey. “Executive orders and legislation task the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) and the federal banking regulators [Federal Reserve, Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corp. (FDIC)] with reviewing existing regulations through retrospective reviews to determine whether they should be retained or amended, among other things.”

GAO said that, although FinCEN and bank regulators have conducted retrospective reviews of parts of BSA/AML regulations, the reviews have not evaluated how banks’ BSA/AML regulatory concerns may influence them to de-risk or close branches.

GAO said its findings indicate that banks do consider BSA/AML regulatory concerns in providing services. However, it added, “without assessing the full range of BSA/AML factors that may be influencing banks to derisk or close branches, FinCEN, the federal banking regulators, and Congress do not have the information needed to determine if BSA/AML regulations and their implementation can be made more effective or less burdensome.”

GAO said it recommends that (FinCEN) and the federal banking regulators conduct a retrospective review of BSA regulations and their implementation for banks.

“The review should focus on how banks’ regulatory concerns may be influencing their willingness to provide services,” GAO said, noting that the federal banking regulators agreed to the recommendation; FinCEN did not provide written comments.

GAO said it conducted the survey after Southwest border residents and businesses reported difficulties accessing banking services in the region. GAO said it was asked to review if the border residents and businesses were losing access to banking services because of de-risking and branch closures.

Derisking along the Southwest Border Highlights Need for Regulators to Enhance Retrospective Reviews