"Debanking"
Thus far, most attention has focused on how the $10,000 threshold for such reporting has not risen over time, and thus sweeps in a lot of innocent activity. The truth is even worse: CTRs made sense when first adopted over 50 years ago, but they are now next to useless as a tool for
In 1970, Congress authorized the Treasury to impose a Currency Transaction Report regime to provide information to the government that was "highly useful" in criminal, tax or regulatory investigations. The forerunner to the CTR requirement was a law enacted in 1945 requiring the reporting of $10,000 currency transactions — $175,000 in today's dollars. The $10,000 threshold was effectively reduced in 1987, when regulators required banks to aggregate cash transactions across the entire bank. That includes all loan payments in cash, repayments of credit cards in cash, cash deposits and other currency transactions.
Furthermore, in 1992, banks were required to begin filing suspicious activity reports, or SARs, when they detect potentially illicit behavior. Under that authority, banking agency examiners now require banks to file so-called "structuring SARs" when a customer engages in a series of cash transactions that add up to $10,000. Fincen reports that over 500,000 such SARs were filed last year. History shows that these structuring SARs rarely elicit any response from law enforcement because they overwhelmingly reflect honest activity. However, structuring SARs remains a major examination focus, and banks are penalized if they achieve less than 100% accuracy in filing them.
In 1945 or even 1970, the benefits of a simple cash reporting system probably exceeded its costs. However, in 1945 there were no commercially available computers; in 1970 the first commercially produced microprocessor was still a year away. Banks now have sophisticated account monitoring systems that were unimaginable to those who created the CTR. Those algorithms of course include the use of cash but also multitudes of other behavioral factors to identify suspicious activity. The CTR requirement is thus akin to requiring today's accountants to do all their addition by hand as a backup to spreadsheets or calculators.
Furthermore, over the last 50 years, sophisticated criminals have learned how to evade the CTR reporting requirement. They use shell companies or proxies to move cash.
While those who administer AML programs understand that CTRs are obsolete, they still have support among some in the law enforcement community who remember long-ago cases when CTRs proved useful, or conflate CTR reports and SARs. And, of course, movies and television shows still show criminals carefully making $9,000 deposits, implicitly suggesting that a $10,000 deposit would trigger immediate arrest.
The Supreme Court nullified one of two nationwide injunctions on the Corporate Transparency Act, a law requiring corporations to disclose their beneficial owners. A separate injunction in another circuit remains in effect, however.
The numbers demonstrate otherwise. Nearly 170 million CTRs were filed from 2014 to 2023. According to the Government Accountability Office, only 5% were ever accessed by a law enforcement agency; there is no record of what percentage yielded useful information, much less an arrest, much less a conviction. There is also no record of how many were duplicative of a SAR filing.
Still, one could argue that even a tiny marginal yield on CTRs would be acceptable if it helped to catch any wrongdoing. But that ignores the opportunity cost of the CTR complex.
First, the compliance bureaucracy required to support CTR reporting is a distraction from the business of detecting crime. Banks could use those resources to hire more investigators for their financial intelligence units and invest in AI technology that is far more effective in detecting sophisticated criminal behavior and terrorist financing. Banks could spend more time researching shell companies founded by oligarchs or terrorist networks if they were not tracking and filing duplicative reports on innocent small businesses.
Second, "debanking" would be significantly reduced. When a bank files a structuring SAR on a customer, that customer generally becomes designated as "high risk" under banking agency guidance, and agency examiners begin asking the bank why the account remains at the bank. While examiners are careful never to directly order a bank to close an account — a point they frequently make publicly — they make very clear that retaining customers with past SAR filings not only can result in an examination downgrade but also puts the bank at risk of a debilitating enforcement action if anything goes wrong with the account. Thus, the bank must devote resources to further researching and monitoring the account. The cost of doing so generally is not worth the value of the account, so the logical course of action is often to close it.
Reform is overdue. In 2020, Congress passed the Anti-Money Laundering Act, which among other things directed the Treasury Department to adopt rules encouraging innovation, reallocating bank resources away from lower-risk targets and eliminating unnecessary compliance obligations. The act specifically directed Treasury to consider where the CTR framework had been made redundant or obsolete by SAR filing requirements. While those recommendations were required to be reported to Congress within a year of enactment, they were never adopted.
As Congress suspected, CTRs are no longer "highly useful" but rather are a prime example of government bureaucracy on autopilot, immune from any cost-benefit or common-sense analysis. It is time to shift resources to more sophisticated means of identifying criminal or terrorist activity, and leave honest citizens and businesses out of the crosshairs of a dysfunctional AML regime.
