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The banking industry and federal regulators are struggling to find a middle ground between financial inclusion and preventing bad guys from gaining access to the mainstream financial system but it doesn't appear a solution is coming anytime soon.
December 29 -
The head of the Financial Action Task Force, an international group that sets money-laundering standards, warns that many foreign institutions are now feeling the effects of the push inside American banks to cut off large swaths of customers.
December 29 -
The Treasury Department and its anti-money laundering unit find themselves on the defensive as bankers say they're cutting ties with entire business sectors as a result of blunt enforcement efforts.
November 10
WASHINGTON Bank fears that regulators will crack down on any relationship with a money-services business are overblown, a top Treasury anti-money-laundering official said Tuesday.
Many banks have shied away from providing bank accounts to MSBs because they feel they are in the middle of a tug-of-war between regulators who simultaneously want them to provide credit to a broad array of customers and cut off illicit businesses from the mainstream financial system.
But David Cohen, Treasury undersecretary for terrorism and financial intelligence, said regulators will not frown on all MSB relationships.
"I know there are concerns that regulatory risk has gone beyond actual illicit finance risk" he said in prepared remarks at a roundtable focused on financial access for MSBs at the Treasury Department.
Cohen said the notion that regulators have created a "zero-tolerance regulatory environment" is fabricated and that "the risk-based approach we expect of financial institutions does not imply a zero-tolerance regulatory regime."
"What we ask is that [financial institutions] take seriously the variety of illicit finance risks that different clients present, and assess and address those risks on a client-by-client basis," Cohen said. "Individual MSBs, like any other kind of customer, present varying degrees of risk, and it is hardly the case that all MSBs are high-risk."
Bank regulators' goals of financial inclusion and cracking down on bad actors are not in conflict, Cohen said.
"We see inclusion and transparency as complementary goals both of which are served by MSBs and their customers," Cohen said.
The notion that the regulatory risk of banking MSBs is greater than the actual risk of illicit activity sprang from a number of high profile enforcement actions, but Cohen said penalties in those cases were the result of egregious oversight rather than minor slip-ups.
Leslie Caldwell, assistant attorney general at the Department of Justice who was speaking alongside Cohen at the roundtable, highlighted two cases, one of which involved a $100 million penalty against MoneyGram, the second-largest money-services business in the world. The other involved a New York-based check-cashing business that resulted in the owner's paying nearly $1 million in restitution.
"The criminal division is committed to investigating and prosecuting cases involving entities and individuals who willfully violate the BSA the integrity of our financial system depends on it," Caldwell said, referring to the Bank Secrecy Act. "The criminal division does not seek to discourage financial institutions from serving money services business, or other lawful industries or businesses."
While Caldwell highlighted the utility that MSBs provide, including "invaluable" information to law enforcement she added that financial institutions need to be diligent in monitoring them.
"Financial institutions that have money-services businesses as customers have a particular responsibility to be attuned to the risks involved and not turn a blind eye to suspicious conduct," Caldwell said.
Cohen said while regulators assess which MSBs they can bank safely, "we have no problem with financial institutions that, after applying a risk-based approach to their decision-making, say 'no' to some customers in fact, that's what we expect of them. "
But Cohen added that "we take very seriously concerns that banks have been indiscriminately terminating the accounts of all MSBs, or refusing to open accounts for any MSBs, thereby eliminating them as a category of customers."
