Treasury, Fincen Try to Quell Fears over Money-Laundering Enforcement

Federal authorities on Monday sought to assuage critics who say banks are cutting ties with entire business sectors, such as check cashers and money transmitters, because of a blunt governmental approach to stamping out money laundering.

In coordinated statements, the Treasury Department and the Financial Crimes Enforcement Network both said that banks should evaluate on a case-by-case basis the risks associated with opening their doors to so-called money service businesses.

"Fincen does not support the wholesale termination of MSB accounts without regard to the risks presented or the bank's ability to manage the risk," the financial crime-fighting agency said in a written statement.

Speaking at a conference later on Monday, Fincen Director Jennifer Shasky Calvery sought to drive the point home.

"There is this expectation there for banks to be able to assess the risk and be able to bank money services businesses," she told an American Bankers Association conference. "We are trying to set the tone of industry and our dedicated examiners so we thought it was important to show that leadership and set that tone."

That message is not exactly new, and Fincen's statement broadly echoed a similar one it issued a decade ago. It's also not clear whether the new statement will have a meaningful impact on bankers' decision-making. But it does suggest that authorities are on the defensive over charges that they're taking an overly broad approach to the money laundering crackdown.

Industry representatives have coined a term — "de-risking" — to describe the reluctance of some bankers to do business with business segments that authorities view with suspicion. High on that list of industries are money services businesses, a category that includes check cashers and money transmitters. Many bankers say that examiners often take a negative view of all such businesses, regardless of the safeguards in place.

Treasury Undersecretary David Cohen addressed de-risking in a speech Monday, saying that he's not yet convinced that there's cause for concern.

"A financial institution that refuses to do business with customers that present a risk profile that the institution cannot manage is doing the right thing. That is not 'de-risking,'" Cohen told the ABA conference. "So, is 'de-risking' actually occurring? The evidence is decidedly mixed."

At the same time, Cohen, who is undersecretary for terrorism and financial intelligence, promised a deeper level of engagement between Treasury and the banking industry. The Treasury Department is planning a Jan. 13 public forum on money services businesses and banking access, he said.

The statements from Treasury and Fincen follow an international regulatory group's warning that banks are overreacting to recent anti-money-laundering enforcement actions. The Financial Action Task Force said in October that banks should not be cutting ties with entire sectors in response to egregious cases involving banks that deliberately broke the law.

Here in the United States, bankers have said that enforcement of the Bank Secrecy Act's anti-money laundering rules is only one factor in the de-risking trend. Another contributor may be efforts by various federal agencies to crack down on payments fraud; those initiatives are often referred to as "Operation Choke Point," the name of a Department of Justice investigation.

It's often hard for outside observers to determine whether a bank's decision to exit a specific business is the result of general anxiety about the regulatory environment or specific problems uncovered by the bank's regulators.

In April, Capital One Financial said that it would stop doing business with check cashers, and that decision was seized on as evidence of the de-risking trend. But in August, Capital One disclosed that it had received subpoenas from the New York District Attorney's Office related to certain check casher clients and the bank's anti-money laundering program.

For those who have been following money-laundering enforcement for a long time, the reassuring statement from Fincen on Monday may have felt like déjà vu.

In 2005, Fincen released a statement that read, "Money-service businesses are losing access to banking services as a result of concerns about regulatory scrutiny, the risks presented by money-service business accounts, and the costs and burdens associated with maintaining such accounts."

It continued: "Concerns may stem, in part, from a misperception of the requirements of the Bank Secrecy Act, and the erroneous view that money-service businesses present a uniform and unacceptably high risk of money laundering or other illicit activity."

Speaking to reporters after her speech on Monday, Calvery acknowledged that the statement issued Monday and the one in 2005 were broadly the same.

"There is actually more that is probably similar than different in many respects," she said.

But she argued that bankers had asked Fincen to restate its views on the matter.

"Quite frankly, industry told us they thought it would be important for us to come out again and make this statement," Calvery said. "It is an issue that has now been cyclical on two occasions, It was an issue in 2005 and it has become an issue again recently."

Ian McKendry contributed to this article.