Testimony recommends mandated, regular review of anti-money laundering, BSA regulations (but FinCEN disagrees)

Legislative changes to the anti-money laundering Bank Secrecy Act (BSA) – including a requirement that a regular review of implementing regulations be conducted – designed to reduce regulatory burden and compliance costs for national banks were suggested by the witness from the regulator of national banks before a Senate committee Thursday.

But that suggestion does not apparently sit well with some elements of law enforcement, who spoke out strongly against the recommendation calling it “another layer of bureaucracy.”

Grovetta N. Gardineer, the Office of the Comptroller of the Currency’s (OCC) senior deputy comptroller for compliance and community affairs told the Senate Banking Committee that the changes she recommended would reduce the compliance burden for national banks, but still ensure that regulators and law enforcement have information they need to address illicit finance.

“Our experience has demonstrated that there is no shortage of ideas to reform the BSA and reduce the burden of BSA/AML (anti-money laundering) regulations,“ Gardineer said. “Therefore, Congress could consider legislation requiring a regular review of the BSA/AML regulations, similar to the EGRPRA (Economic Growth and Regulatory Paperwork Reduction Act rule review) process, to identify those regulations that may be outdated, redundant or unnecessarily burdensome,” she added.

She said that, as noted in the Federal Financial Institution Examination Council’s (FFIEC) Joint Report to Congress on EGRPRA in March 2017, BSA/AML was one of the three most discussed issues during the agencies’ review of regulations affecting the entities that the OCC regulates. “This is consistent with the significant number of comments the agencies received during the previous EGRPRA review in 2007, an indicator that BSA/AML is regularly a top priority for stakeholders. As the agency with rule-writing authority for most of the current BSA/AML regulatory regime, FinCEN (the Financial Crimes Enforcement Network) could benefit from recommendations for regulatory improvement and to respond to public concerns about BSA/AML regulations,” she said.

But FinCEN Director Kenneth A. Blanco disagreed emphatically with Gardineer’s views, implying such a review would insert a time-consuming, bureaucratic element to law enforcement (see the 5-minute video for their exchange).

“We oppose that recommendation for a couple of reasons,” Blanco told Banking Committee Chairman Mike Crapo (R-Idaho) in response to a question. “Let’s be frank here: I think it just adds on another layer of bureaucracy that is not necessary. Congress and the Senate have put on us the BSA obligations, and we report and communicate with law enforcement, other regulators and our stakeholders – private and industry – through what we call the BSAAG (Bank Secrecy Act Advisory Group).

“We don’t need an EGRPRA process, which is not necessary,” he said.

Among the additional recommendations made by the OCC witness:

  • A technical clarification to the BSA’s existing safe harbor to correct uncertainty caused by court decisions. Currently, she told the committee, the BSA provides protection from civil liability for SARs made to appropriate authorities, including supporting documentation, regardless of whether such reports are filed pursuant to the SAR instructions. “Because the SAR safe harbor does not address intent and some courts have imposed a ‘good faith’ requirement, there is considerable uncertainty among institutions about the potential liability for filing SARs, if the suspicions underlying those SARs are not later fully investigated or proven through a criminal proceeding,” she said. “As a result, many institutions are reluctant to file SARs voluntarily and even are concerned about liability for SARs filed pursuant to BSA requirements, which makes an already burdensome process more complicated. Legislation could clarify that an institution may file a SAR without running the risk that it will be exposed to civil litigation for simply complying with federal law,” she said.
  • A modification to the existing BSA safe harbor to encourage institutions to share information without incurring liability. “The OCC would support legislation to expand the information-sharing safe harbor in Section 314(b) of the USA PATRIOT Act beyond money laundering and terrorist financing to include mortgage fraud, cyber fraud and other financial crimes, and to eliminate or modify the notice requirement to FinCEN, which may limit the ability of financial institutions to share information,” she said.

Grovetta N. Gardineer (OCC) testimony before the Senate Banking Committee