On January 9, 2018, the United States Senate Banking Committee held the first of two hearings on the potential opportunities to reform and strengthen Bank Secrecy Act (BSA) enforcement. There was disagreement among the suggestions for improvement by those testifying at the committee, as some of the proposed solutions would have the effect of hindering law enforcement’s ability to uncover and investigate criminal activity.
Let’s face it. It is not likely that financial institutions will see any real regulatory relief in this area as a result of these hearings…and maybe that is okay. Why? The purposes of the BSA are understandably too valuable to water down.
However, the frustrations for financial institutions are real and understandable as well. The system encourages, and will continue to encourage, over-reporting of suspicious activity reports (SARs) as a “cover your financial institution” strategy to avoid being deemed to have ignored potential crimes or financial support of terrorism at the expense of valuable time and resources.
Additionally, regulatory enforcement actions will continue to look backward at what financial institutions should have known, even though the BSA Examination Manual states the decision-making process is what is important, and individual SAR decisions will not be scrutinized “unless the failure is significant or [is] accompanied by bad faith.” “Significance” and “bad faith” can and will be determined years later once a crime is discovered by someone outside the financial institution, even when a decision-making process may have been in place at your financial institution and examiners may not have found any deficiencies during the examination (see the civil money penalty assessed against First National Community Bank of Dunmore for an example of a “should have known” enforcement action).
So what do financial institutions do? Rise above the frustrations of the current state of BSA-related affairs and create/manage an effective BSA Compliance Program. To paraphrase from the “Paradoxical Commandments of Leadership”:
Yes, it is frustrating to continually review reports highlighting certain transactions that are required or could be involved in money laundering operations or other suspicious activity. Review anyway.
Yes, it is frustrating to spend all that time and other resources on suspicious activity investigations when it is highly likely nothing will ever come of them. Investigate anyway.
Yes, it is frustrating that the documentation of SAR-filing decisions is tedious and time-consuming, and very little credit will be given where credit is due. Document anyway.
Yes, it is frustrating that the system is geared toward over-reporting, and only a very small percentage of filed SARs result in prosecution of criminal or terroristic activity. File anyway.
Yes, it is frustrating that your financial institution will receive very little to no positive feedback from FinCEN or law enforcement regarding the effectiveness of your SAR narratives…and only a small percentage of SAR narratives result in prosecution. Spend the necessary time and effort drafting effective SAR narratives anyway.
Yes, it is frustrating that your financial institution can receive a civil money penalty even years after examiners find no particular fault with the failure to file SARs related to certain transactions. And yes, it is frustrating that the system is set up so that you have to expend more time and effort justifying the lack of filing than filing. Well for this one…what can you do? It is better to spend the time justifying why a SAR should not be filed instead of spending the time investigating why it should. If you cannot defend the decision not to file a SAR, file it. The consequences are much greater for not filing than for filing.
There are no easy answers that can more effectively balance the cost and burden of BSA compliance and the value of suspicious activity reporting for law enforcement, and the outcome of these hearings may not result in any action taken. The only thing to be done is to spend the time and effort to make your financial institution’s BSA Compliance Program the best it can be and a model for the rest of your industry anyway.