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Anti-money laundering

Reform in U.S. anti-money laundering rules grows more likely, but could take time

Brett Wolf  Senior Financial Crime Correspondent

Brett Wolf  Senior Financial Crime Correspondent

U.S. financial regulators say they are working diligently to reform the country’s anti-money laundering (AML) rules.

Nonetheless, such assertions are reminiscent of vows made seven years ago by U.S. Treasury Department officials, which failed to yield results.

The question now is: Will U.S. financial institutions finally see an easing of AML demands which have grown dramatically in scope since the Bank Secrecy Act (BSA) was enacted in 1970 as the country’s main anti-money laundering law?

The answer: There is reason for optimism thanks to interest by top regulatory officials and members of Congress.

Overly-prescriptive compliance?

Some senior bank compliance officers have worried that examiners are being overly prescriptive and are failing to let institutions manage their compliance strategies based on their risks. The purported goal of the BSA and its rules are to ensure that banks report suspicious activity so law enforcement agents can investigate and hold criminals to account. But bankers say sound anti-laundering decisions are being second-guessed, and they spend too much time satisfying mundane regulatory complaints and demands when they should be rooting out criminals.

Regulators have heard the banking industry’s complaints. “We have absolutely heard you all on the discussion and the need for BSA reform, that the current state of our regulations may be something of a miss to the value to law enforcement, that the BSA regime may not be as efficient as it could be,” Koko Ives, a Federal Reserve compliance official, said during a March industry conference in Miami.

An AML regulatory “working group” is addressing the issue, Ives said. It involves senior officials of all federal banking regulators that examine for BSA compliance as well as the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), which writes and enforces BSA regulations.

The group’s goal? “(We are) looking at where can we make meaningful changes to reduce cost, and to enhance efficiency and effectiveness,” said Spencer Doak, director for BSA compliance policy with the Office of the Controller for the Currency, at the event.

But to those who have long been involved in AML compliance, such remarks harken back to late-2012, when the Treasury and FinCEN officials touted nearly identical promises, but achieved nothing. David Cohen, then-Treasury undersecretary for terrorism and financial intelligence, said at the time that the department had launched an AML reform task force that included federal banking regulators. He said the effort aimed to “address any gaps, redundancies, or inefficiencies in our framework.”


“We have absolutely heard you all on the discussion and the need for BSA reform, that the current state or our regulations may be something of a miss to the value to law enforcement, that the BSA regime may not be as efficient as it could be.”


Jennifer Shasky Calvery, at the time the director of FinCEN, seconded Cohen’s statements, saying the agency would also involve the private sector, in seeking a “smarter, more cost-efficient” AML regime.

But the Cohen-led effort yielded no report or changes to AML rules. No public explanation for the project’s evident abandonment was offered.

Frustrations over inaction

Senior bank AML executives then began challenging regulators, questioning why AML compliance had become a “paper chase” and “check-the-box exercise.” They complained of examiner criticism stemming from what they consider menial oversights in required reports. Meanwhile, over the last decade, penalties against banks accused of failing to meet their AML obligations have grown from hundreds of millions of dollars to billions. The number of non-public regulatory criticisms also soared. All of this has fueled tensions between regulators and the industry.

The banking industry went public with its frustrations in 2017. The Clearing House (now known as the Bank Policy Institute), a trade association representing the largest U.S. banks, issued an unprecedented report calling for BSA reform. These banks, which collectively spend billions of dollars each year on anti-laundering compliance, said regulatory oversight had become “counterproductive.”

Such industry pressure has helped persuade top regulatory officials to take up AML reform in 2019. A bipartisan consensus also is emerging on Capitol Hill that after five decades of heaping new AML and sanctions compliance obligations on financial institutions without withdrawing unproductive requirements, something must be done. Law enforcement authorities who once pushed back against any easing of AML rules now seem willing to concede that bank resources might be better used. It is widely believed that new technology such as artificial intelligence could help spot criminal transactions, but banks are unlikely to innovate unless existing mandated tasks are eased.

Perhaps the most significant development is the attention of the U.S. House Financial Services committee led this year by Rep. Maxine Waters (D-Calif.). Although Rep. Waters typically has favored tough rules on banks, her recent interest in AML reform has brought much-needed momentum. The committee is considering several proposals that could ease the BSA compliance burden on banks. The focus is in part due to interest in expanding AML rules to industries that have avoided such obligations to date, such as real estate firms and art and antiquity dealers.

Congressional scrutiny may start to shake up the AML status quo and make it hard for the current regulatory reform effort to fade away. Furthermore, top bank regulatory officials have named anti-laundering reform a priority, placing pressure on their policy staff.

Still, any process is unlikely to move quickly, and some compliance professionals are skeptical. FinCEN director Kenneth Blanco said in March that BSA reform could take “some time.” He added that he is “not going to be pressured by anybody to rush it through.”

“We’re looking forward to seeing where we are a year from now… when we’ve got more information,” he said.