According to reporting in Reuters, the biggest banks in the U.S. will soon be floating a complete overhaul of the rules governing how financial institutions investigate and report potential criminal activity.
The banks are arguing that rules imposed in the years after the Sept. 11, 2001 attacks and strengthened during the Obama administration are not merely expensive and onerous — they also have the distinction of being ineffective.
The push for reform represents the first time The Clearing House has publicly advocated for a revamp of the rules — though they have long complained that the rules as written are not useful or terribly productive. The Clearing House is a trade association that represents such major players in banking as JPMorgan Chase & Co, Bank of America, and Citigroup. A massive lobbying push is expected to follow the proposed rule change — a push that will likely target bank regulators and members of the Senate and House of Representatives finance committees.
But it could be a case of lobbying on friendly ground, as Republicans in the House and Senate have long pushed for a financial regulation overhaul — and President Trump has made cutting costly regulations a signature issue of his administration.
The regs at issue surround the Suspicious Activity Report, which bank employees are required by federal law to file if they suspect transactions could be part of a crime. The problem, banks say, is that because they fear the fine and the bad PR from not filing, they've gone the other way — they now over-report, filing hundreds of thousands of SARs out of fear of later falling foul of regulators.
“Now we tell banks to file a (report) on everything that might be criminal," said Gary Shiffman, CEO of compliance software maker Giant Oak. “But when everything is a priority, nothing ends up being a priority.”
In 2013, suspicious activity reports clocked in at around 669,000 — by 2016, that figure had gone up by a million, according to U.S. Treasury’s Financial Crimes Enforcement Network (FINCEN).
Plus, compliance with anti-money laundering is expensive — according to the Heritage Foundation, it costs U.S. companies as much as $8 billion a year to stay on the right side of the regs. The Clearing House will reportedly propose an alternate system that will not force banks to investigate any and every transaction that could possibly have a question associated with it — instead, the regs would focus on investigating and reporting transactions based on specific concerns pulled from law enforcement.
The Clearing House will also call for the creation of an information-sharing platform that would allow banks to share data among themselves about possible criminal transactions.
A FinCEN spokesman pointed out dozens of criminal cases made with the help of SARs listed on the agency’s website — and it remains to be seen if there is any appetite for this change.
Critics say banks have only themselves to blame for greater scrutiny of the sector, given their less than stellar history in policing themselves. In 2012, HSBC had to pay $1.9 billion in U.S. fines for failing to prevent money laundering violations by Mexican drug traffickers. In 2014, JPMorgan paid out $2.6 billion over allegations it failed to tell authorities about its suspicions of fraud at Bernie Madoff’s fund.
“I have concerns with the banks even doing what they are supposed to do now,” said Heather Lowe, director of government affairs at Global Financial Integrity, an organization that pushes for stricter anti-money laundering enforcement, as to why she was not a fan of a regulatory shift.