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Anti-money laundering

U.S. banks cannot afford to ease AML demands on business lines during pandemic, experts say

Brett Wolf  Regulatory Intelligence

Brett Wolf  Regulatory Intelligence

As banks scramble to make loans under the U.S. government's massive Payroll Protection Program (PPP) and face a deluge of customer phone calls resulting from branch closures, a debate has emerged regarding whether anti-money laundering (AML) units can ease compliance-related demands on customer-facing business partners.

While at least one large bank reportedly has offered such relief to its business lines, experts say fraud risk stemming from the massive PPP obliges AML units to be aggressive in addressing concerns, regardless of any burden on the business lines.

A report released last month by consultancy Aite Group, which was based on interviews with 13 fraud and anti-money laundering executives, sought to learn how the COVID-19 pandemic has affected AML practices. One revelation was that an unidentified AML executive reported a decision to provide the lines of business some relief from information demands. “His department has stopped its AML requests for information to the lines of business so they can focus on customer-facing priorities,” wrote Julie Conroy, Aite’s research director. “Whereas the lines of business previously had 60 days to resolve Know Your Customer discrepancies, the deadline has now been pushed to 90 days, and they are currently contemplating extending that time frame to 120 days.

“Engagements in which the AML team tests business-line policies and procedures have stopped for the duration of the crisis,” Conroy wrote.

The banker in question, Conroy told Thomson Reuters Regulatory Intelligence (TRRI), “really did not seem concerned that they would be missing things, they were just relaxing time scales in order to allow their business partners to focus on the immediate task of meeting customer needs.

“The types of customer-facing priorities included things like fulfilling PPP loans (and) addressing the call volumes which spiked 40% as a result of branch shutdowns,” she said in an email.

An AML executive at another large financial institution reported taking a different approach. “On the other hand, an AML executive at another large financial institution states that as of yet, his financial institution does not feel that it has the ability to give any reprieves to business partners,” the report states.

Concern over easing demands

Other AML experts contacted by TRRI had a similar outlook. For example, a senior executive at a large U.S. bank said that relieving the business lines of their obligation to provide information in a timely matter when COVID-19 related fraud schemes are spiking and PPP loans are precipitously dumping hundreds of billions of government dollars into the private sector “sounds kind of risky to me.”

While there may be instances where the timelines for requests for information from businesses lines “can be stretched out a little bit,” if an issue arises and the AML unit needs information to ensure the legitimacy of a PPP loan or other activity, questions must be asked immediately, the source said.

“There are a lot of unusual circumstances developing very quickly, new situations because of the pandemic, so if anything, it probably requires follow-up (with business line) more quickly,” the source added.

U.S. banks moved the government’s first tranche of PPP funds into businesses across the country in less than a business week, Dan Wager, vice president for financial crime compliance with LexisNexis Risk Solutions, told TRRI. “So how can we claim that (AML checks) are slowing this down?” Wagner said. “If banks delay or don’t ask the customer to provide additional documentation or explanation, authorities will never have the evidence to go back and claim it was willful, to charge fraud and recover funds.”

Wager, who formerly was both a senior Homeland Security investigatory official and a top AML executive at a global bank, added that fraud “still leads the way” among predicate acts that prompt the filing of Suspicious Activity Reports.

“The most important thing is obtaining information from customers and stopping the (fraud-tainted) money before it goes out, if possible, and if not, collecting sufficient information to make a proper notification to authorities so they can act later,” he said. “And how much narcotics money could you wash through false receivables and payrolls if there was no requirement for due diligence and AML review?

“AML shouldn’t get in the way of (loan) issuance,” Wagner added. “But we certainly need accountability.”


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