New Report Demonstrates AML Regime Not Producing Significant Results

New Report Demonstrates AML Regime Not Producing Significant Results

Washington, D.C. – Today, the Bank Policy Institute (BPI), released a new report, Getting to Effectiveness – Report on U.S. Financial Institution Resources Devoted to BSA/AML & Sanctions Compliance, which provides results from an empirical study undertaken to better understand the effectiveness of the current Bank Secrecy Act, anti-money laundering and sanctions regime. The report measures the resources U.S. financial institutions are devoting to compliance, and whether these resources are efficiently and effectively supporting law enforcement and national security efforts. The data shows that, presently, there are very few instances in which banks’ required regulatory compliance efforts yield results, such as law enforcement follow-up.

“Financial institutions are required to devote thousands of employees and billions of dollars to BSA/AML and sanctions compliance, but this report shows that these efforts aren’t producing the intended results,” said Angelena Bradfield, Vice President, AML/BSA, Sanctions & Privacy at BPI. “The data makes it clear that the current US compliance regime is broken and failing at its core mission of catching criminals. The banking industry is committed to helping law enforcement detect and catch criminals, but the current regime is limiting banks’ ability to effectively deploy resources to this end. Both the public and private sector must work together to modernize the AML/CFT regime.”

The purpose of the Bank Secrecy Act, which was enacted in 1970, is to require certain reports or records that have a “high degree of usefulness” to law enforcement or national security officials. Yet very little is known about what records and reports are highly useful to law enforcement. Neither FinCEN nor any other agency has gathered data sufficient to analyze the effectiveness of the regime and thus this industry-led data gathering offers the best assessment. In addition, while the focus of this study was on the resources financial institutions devote to BSA/AML compliance, there are many places in which sanctions compliance efforts coincide with these investments; therefore, BPI also collected data on institutions’ sanctions compliance programs.

This study is intended to prompt public sector efforts to resolve the outdated and misaligned nature of the current AML/CFT regime as well as any subsequent reviews of the sanctions regime that may be contemplated by the U.S. Department of the Treasury. Nineteen BPI members participated in this study, with asset sizes ranging from approximately $50 billion to over $500 billion. To better understand institutional resources devoted to effectiveness, where appropriate, responses were categorized and analyzed based on the following categories: (i) small institutions were defined as having approximately $50 to 200 billion in U.S. assets; (ii) midsize institutions were defined as having $200 to 500 billion in U.S. assets; and (iii) large institutions were defined as having over $500 billion in U.S. assets. The survey targeted areas where empirical data could be sought to better understand the performance of the AML/CFT and sanctions regimes.

The most notable results were:

  • Survey participants are employing over 14,000 individuals, investing approximately $2.4 billion and utilizing as many as over 20 different I.T. systems per institution to assist them with BSA/AML compliance;
  • In 2017, survey participants reviewed approximately 16 million alerts, filed over 640,000 suspicious activity reports (SAR) and more than 5.2 million currency transaction reports (CTR), and institutions that record data regarding law enforcement inquiries reported that a median of 4% of SARs and an average of 0.44% of CTRs warranted follow-up inquiries from law enforcement; (there is no data on how many prompted an arrest or conviction, or whether SAR data proved important when sought, as the industry does not have such data.)
  • In 2017, survey participants that recorded alerts by activity type reported that 18% of their alerts related to structuring, but few structuring SARs warranted follow-up inquiries from law enforcement;
  • In 2017, survey participants reported that of approximately 2.36 million customers designated “high risk” pursuant to agency guidance, a median of roughly 6% were subject to SAR filings while 0.3% of these SAR filings warranted follow-up inquiries from law enforcement; and
  • Survey participants are employing over 915 individuals, investing roughly $173 million, and utilizing 3 to 6 I.T. systems at each institution to assist them with U.S.-based sanctions compliance, yet when screening wires and customer and related party accounts for potential OFAC matches, institutions reported true matches with an overall median of 0.00004%, with some institutions reporting no true customer matches at all.

About the Bank Policy Institute. The Bank Policy Institute (BPI) is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s small business loans, and are an engine for financial innovation and economic growth.

Follow us on Twitter @BankPolicy and and subscribe to our BPInsights weekly newsletter (at the bottom of our homepage), which summarizes our latest research, comment letters, and blog posts, and links to notable developments of the week.