BPI Statement for the Record for House Oversight Hearing of FinCEN and the Office of Terrorism and Financial Intelligence

The Bank Policy Institute welcomes the opportunity to provide input to the Committee on its hearing on “Oversight of the Financial Crimes Enforcement Network and the Office of Terrorism and Financial Intelligence.” Over the years, BPI and its members have devoted considerable resources to improving the AML/CFT regime, thus far with little success. We hope today’s hearing can serve to jumpstart reform and allow banks to be more innovative, creative and efficient in detecting and reporting illicit activity.

Background

In 2017, BPI, in concert with many noted experts in the field, released a report on the effectiveness of the regime for detecting money laundering and terrorist financing. That report described how examination mandates from the federal banking agencies, and the compliance regime they produced, were significantly impeding the ability of banks to detect illicit activity.

We reported at the time:

Under the current AML/CFT regime, the nation’s financial firms are effectively deputized to prevent, identify, investigate, and report criminal activity, including terrorist financing, money laundering and tax evasion. The largest firms collectively spend billions of dollars each year, amounting to a budget somewhere between the size of the ATF and the FBI. Yet the conclusion of the vast majority of participants in the process is that many if not most of the resources devoted to AML/CFT by the financial sector have limited law enforcement or national security benefit, and in some cases cause collateral damage to other vital U.S. interests – everything from U.S. strategic influence in developing markets to financial inclusion. Thus, a redeployment of those resources has the potential to substantially increase the national security of the country and the efficacy of its law enforcement and intelligence communities, and enhance the ability of the country to assist and influence developing nations.[1]

In a subsequent 2018 report, we presented the first reliable statistics on the extent of the problem: tens of thousands of people employed by the banking agencies, billions being spent, but most of that effort being wasted by a check-the-box, documentation-focused regime driven by an almost total disconnect between the demands of examiners and the needs of law enforcement, intelligence and national security communities with whom they practically never communicated.[2]

This work and resulting testimony[3] helped to shape the Anti-Money Laundering Act of 2020.

Four years since the enactment of the Anti-Money Laundering Act, the AML/CFT examination process remains dysfunctional — focused more on process than substance, more on immaterial matters than material ones. Irrespective of the responsiveness of FinCEN staff and their willingness to promote the exchange of information, the Treasury Department has delegated to the federal banking agencies contrary to Congressional intent, leading to an examination function that has proven resistant to modernization and reform.

To read the full congressional letter, click here or the download button below.


[1] A New Paradigm: Redesigning the U.S. AML/CFT Framework to Protect National Security and Aid Law Enforcement (February 2017) available at 20170216_tch_report_aml_cft_framework_redesign.pdf (bpi.com).

[2] Getting to Effectiveness – Report on U.S. Financial Institution Resources Devoted to BSA/AML & Sanctions Compliance (October 29, 2018)available atGetting to Effectiveness – Report on U.S. Financial Institution Resources Devoted to BSA/AML & Sanctions Compliance – Bank Policy Institute (bpi.com).

[3] Testimony of Greg Baer, President The Clearing House Association, Before the Senate Committee on Banking, Housing, and Urban Affairs, “Combating Money Laundering and Other Forms of Illicit Finance: Opportunities to Reform and Strengthen BSA Enforcement,” (January 9, 2018) available at https://www.banking.senate.gov/imo/media/doc/Baer%20testimony%201-9-18.pdf.