David L. Hall

De-Risking: FinCEN Has Your Cake and Eats it Too

March 1, 2015 Published Work
American Bar Association Business Law Section White-Collar Crime Committee Newsletter, Winter 2015

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The Department of the Treasury's Financial Crimes Enforcement Center ("FinCEN") wants to have its cake and eat it too, if a recent FinCEN statement is any indication.

FinCEN and Risk

FinCEN, among other duties, is responsible for investigating and penalizing financial institutions that violate the Bank Secrecy Act's ("BSA") anti-money laundering ("AML") rules. Violations of the BSA can be costly. Over the past few years, FinCEN has pursued violators with vigor, assessing hundreds of millions of dollars in penalties for AML lapses or failures to file suspicious activity reports ("SARs").1 Outside of monetary fines, the reputational damage for financial institutions implicated in money laundering investigations can also be high. And it is not just the institutions themselves feeling the brunt of regulatory scrutiny, as FinCEN recently assessed a $1 million penalty against MoneyGram's former chief compliance officer, in his individual capacity, for his role in his employer's BSA violations.2 To avoid these penalties, financial institutions must incur the increasing costs – in human resources, software systems, and time – of monitoring an increasingly complex customer base.

On the other hand, FinCEN needs the very entities it regulates to be partners: SARs help regulators identify crimes, including money laundering, smuggling, and terrorist financing. However, as both the penalties for BSA violations and compliance costs rise, banks are faced with a business decision: in light of the risk and expense, should they provide banking services to customers that present higher risks of BSA noncompliance? For a growing number of banks, the answer is no. These banks have started to "de-risk" – that is, they are terminating or declining to open accounts for entities—such as money services businesses ("MSBs") -- perceived to be high AML risks.

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