Here's what happened when Bank of America debanked my business

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My business was debanked by Bank of America last year.

This costly and upsetting problem had nothing to do with politics, religion, crypto or anything else for which President Donald Trump recently criticized BofA's CEO.

Rather, it was because BofA's anti-money-laundering efforts, at least in my case, apparently relied on overzealous artificial intelligence or algorithms combined with a shortage of human intelligence, also known as common sense.

If a bank has a long history serving a local business, especially one in a highly regulated financial space, regular large wire transfers should not trigger a suspicious activity report. That is, unless BSA AI is being interpreted and acted upon by someone who fails to employ common sense.

This seems to be exactly what happened in January 2024 after BofA sent me a form letter asking for standard information about my business — information I have repeatedly given them since I opened my business account there nearly 10 years ago. I thought I had properly responded to this request, until I realized my main checking account and credit card and other payments tied to it were frozen.

My business had been debanked!

I first learned about this not from BofA, but from my insurance carrier and other vendors emailing, texting or, worse, calling me about missing monthly automatic bill payments. When they started with "How's business?" I knew why they were calling.

And, then there was the in-person embarrassment when BofA credit cards tied to that frozen account were declined as I held up the line at retailers. The absolute worst: restaurant servers returning with the dreaded news in front of guests.

Debanking made me feel like a deadbeat.

Bankers are not allowed to disclose why a bank account was frozen or closed for AML reasons. However, as a longtime bank compliance consultant and community bank board member, I quickly confirmed my new "high risk" status by asking the right questions of BofA customer service representatives, one of whom privately admitted what I already knew.

Fortunately, I had some senior contacts at BofA who made fixing this problem a top priority. It was still very time-consuming and frustrating filling out multiple application forms for new credit cards, identifying automatic payees, etc., and the matter was not totally resolved until nearly six months later.

Importantly, I continue to bank with BofA because they took responsibility for this problem and helped me get rebanked.

It's easy to point my finger at them for this debanking, but they will properly reply, like a TSA agent randomly selecting you for a full-body pat down, that they were "just doing their job." In fact, BofA's CEO replied to Trump that "We are required to follow extensive government rules and regulations that sometimes result in decisions to exit client relationships."

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BSA compliance has become the single most costly banking regulation, at 22% of all compliance expenses, three times more than CRA, according to the Federal Reserve Bank of St. Louis. Despite these costs, 23% of banks are annually cited for BSA violations according to a GAO report citing Fincen data.

No one knows this better than bankers in my South Florida home, where prudential regulators, Fincen, and other federal and state enforcement agencies cannot forget Scarface's money-laundering negotiation scene with a Miami banker.

There was so much drug money, or "narcobucks," in South Florida during the '80s Cocaine Cowboys days that the Federal Reserve Bank of Atlanta's Miami branch had a currency surplus of $5 billion in 1981, mostly in drug-generated $50 and $100 bills, more than all other Federal Reserve banks combined. Miami banks, at least four being controlled by drug dealers at the time, were so awash in cash that some charged a fee to take deposits.

Instead of a bank shutting down a customer's account, debanking in Miami in the '80s meant the government shutting down a money-laundering bank. For example, the $100 million Great American Bank of Dade County laundered $60 million of cash in one year for one drug lord alone in the early '80s. That community bank, serving the needs of drug lords rather than its North Miami neighborhood, was indicted for money laundering and later shut down.

The only debanked person I ever knew was also in Miami but in the '90s. O.J Simpson was in line with me at my local First Union branch, and we briefly chatted about football. The following month I was telling the branch manager about my chance encounter with O.J., and she told me "You won't be seeing him here anymore!" I then learned a bank can refuse service to anyone for legitimate business reasons, in O.J.'s case multiple complaints by female customers feeling uncomfortable in his presence.

I can understand drug lords, money launderers and even O.J. being debanked, but I never thought it would happen to me.

But, then again, I live and work in The 305.

No other market in the nation gets such intense AML scrutiny as South Florida. In fact, an unwritten rule of thumb among some local bankers is that you should think about selling when AML staff make up 10% or more of your employees.

It is not uncommon for a legitimate South Florida customer with a six-figure bank account regularly sending mid-five figure wires to be red flagged by BSA algorithms. However, this is where old-fashioned common sense must come into play to exclude AI "false positives" based on a bank's knowing its customers.

However, whether a TSA agent, bank examiner or BSA officer, a job can be done with or without common sense.

Trump and his deregulatory team, including the new Department of Government Efficiency, has made it a top priority to reduce banking's immense regulatory burden and bring back common sense in the federal government. I don't see this happening anytime soon, unless someone invents a commonsense chemical, like fluoride, that can be added to D.C.'s water supply.

Based on my debanking experience, perhaps the best place to start reducing the regulatory burden is by reforming BSA compliance, so bankers can better serve small businesses instead of holding them hostage because of overzealous and misdirected AML AI and personnel.