9/11 and Patriot Act changed the way you bank
The 2001 Patriot Act, which expanded the federal government’s wiretapping and surveillance powers, also outlawed the funding of terrorism, and has banks facing greater scrutiny from regulators.
This is especially true in northern New Jersey, which not only has a reputation as a hotbed of organized crime and money laundering, but is the former home of Hudson United Bank, and according to the 9/11 Commission, was one of the banks used by the airplane hijackers who perpetrated the deadliest attack on American soil.
The commission report noted that about $300,000 in funding used to support the terrorist attacks flowed through “formal banking channels” and the hijackers used branches of “major international banks, such as Bank of America and SunTrust [Bank],” and “smaller regional banks, such as the Hudson United Bank and Dime Savings Bank in New Jersey.” Money-laundering safeguards at that time were not designed to detect or disrupt commonplace deposits, withdrawals and wire transfers that helped facilitate the attacks, the report said.
The Patriot Act, passed by Congress about a month and a half after 9/11, tries to address those issues by adding provisions to the 1970 Bank Secrecy Act that set standards for banks to identify customers, maintain records required them to report cash transactions over $10,000.
The expanded anti-money laundering law also has had the unintended effect of contributing to the demise of at least two North Jersey community banks, and has made it more difficult for some banks to merge.
Checking the list
The federal law requires banks to have customer-identification programs approved by their boards. When opening accounts for customers, banks must collect and verify customer-provided information, such as birth dates, addresses and copies of drivers’ licenses or passports. They must check names of customers against lists of known or suspected terrorists. The changes also include new “due diligence” obligations to determine risk levels posed by customers and to report suspicious persons, organizations and transactions to the federal government.
In addition, U.S. banks are no longer allowed to do business with foreign shell banks, which are known to be adept at concealing the identities of their customers. Civil and criminal penalties for money laundering were increased, and banks can face enforcement actions for shoddy anti-money laundering practices, whether or not actual money-laundering crimes by their customers are alleged.
Anti-money laundering compliance is “a very high priority for banks and the regulators,” said John McWeeney, president of the New Jersey Bankers Association. “You really have to know your customer.”
Most banks have faced increased regulatory compliance costs, in part because they must do more to verify who their customers are, and try to get a sense of what they do, and with whom they may be doing it. Bankers say the added expenses have accelerated the pace of industry consolidation, especially among small banks.
In March 2010, Pamrapo Savings Bank in Bayonne pleaded guilty to conspiracy to violate the Bank Secrecy Act and was fined $5 million over failure to file suspicious-activity and cash-transaction reports. Pamrapo was acquired a few months later by BCB Community Bank.
Saddle River Valley Bank was ordered to shut down a large international wire transfer business because of deficiencies in monitoring for suspicious transactions. The bank later closed down voluntarily after it was hit with $8 million in fines over those poorly monitored transfers. Saddle River Valley Bank’s assets and deposits were eventually bought by Union Center National Bank in 2012.
The changes, which include requiring regulators to consider anti-money laundering performance when reviewing banks’ merger applications, also caused long delays in M&T Bank Corp.’s $5.4 billion acquisition of Paramus-based Hudson City Savings Bank. That deal was first announced in 2012 but not completed until November of last year. Buffalo-based M&T has said it spent more than $200 million to beef up its defenses against money laundering.