Smaller banks pay more for BSA compliance, report finds; better policies would help share more AML info

Costs to financial institutions for complying with Bank Secrecy Act/anti-money laundering (BSA/AML) requirements generally tend to be proportionally greater for smaller banks than for larger banks, the congressional watchdog said in a report issued Tuesday.

In its report that touched on a variety of BSA/AML issues, the Government Accountability Office (GAO) asserted that such costs related to BSA compliance comprised about 2% of the operating expenses for each of the three smallest banks (out of the 11 it reviewed, of varying sizes) in 2018, but less than 1% for each of the three largest banks reviewed.

“At the same time, costs can differ between similarly sized banks (e.g., large credit union A and B), because of differences in their compliance processes, customer bases, and other factors,” the agency said.

In addition, GAO said requirements to verify a customer’s identity and report suspicious and other activity generally were the most costly areas – accounting for 29% and 28%, respectively, of total compliance costs on average for the 11 selected financial institutions.

“Federal banking agencies routinely examine banks for BSA compliance,” GAO said. “FinCEN data indicate that the agencies collectively cited about 23% of their supervised banks for BSA violations each year in their fiscal year 2015–2018 examinations,” GAO said. “A small percentage of these violations involved weaknesses in a bank’s BSA/anti-money laundering compliance program, which could require the agencies by statute to issue a formal enforcement action.”

In another aspect of the report, GAO said law enforcement agencies could be doing much more with the AML information and reports produced by the Treasury’s financial law enforcement unit (the Financial Crimes Enforcement Network [FinCEN]), and that unit should develop better policies and procedures to let them do that.

According to the report, some law enforcement agencies without direct access to reports of the FinCEN may be underutilizing the reports “to the detriment of their investigations,” according to the GAO report.

“The Director of FinCEN should develop and implement written policies and procedures to help promote the greater use of BSA reports by law enforcement agencies that do not have direct access to the BSA database,” the GAO recommendation stated. “Such policies and procedures could include outreach strategies and educational or training materials.”

The report notes that while the majority of federal and state law enforcement agencies and some local agencies have direct access to FinCEN’s Bank Secrecy Act (BSA) database, which allows them to conduct searches to find relevant BSA reports, relatively few agencies without such direct access failed to use the information. That’s because, the GAO said, “agencies without direct access may not know about BSA reports or may face other hurdles that limit their use of BSA reports.”

“One of FinCEN’s goals is for law enforcement to use BSA reports to the greatest extent possible,” GAO wrote. “However, FinCEN lacks written policies and procedures for assessing which agencies without direct access could benefit from greater use of BSA reports, reaching out to such agencies, and distributing educational materials about BSA reports.”

Developing the policies and procedures, GAO said, would allow FinCEN to help ensure law enforcement agencies are using BSA reports to the greatest extent possible to combat money laundering and other crimes.

Anti-Money Laundering: Opportunities Exist to Increase Law Enforcement Use of Bank Secrecy Act Reports, and Banks’ Costs to Comply with the Act Varied