Anti-money laundering efforts examined at House subcommittee hearing

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At a hearing last week by the House Financial Institutions and Consumer Credit Subcommittee, lawmakers and experts examined the federal government’s anti-money laundering (AML) efforts under the Bank Secrecy Act (BSA).

Much of the commentary focused on the compliance challenges facing financial institutions, including compliance trends, the effectiveness of current reporting requirements, and opportunities to improve and enhance the federal government’s ability to combat money laundering and terrorist financing.

“The goals of the Bank Secrecy Act and anti-money laundering (BSA/AML) legal regime are laudable: financial institutions and government agencies should work together to prevent money laundering and terrorist financing. However, aspects of this regulation have spiraled out-of-control and resulted in a breakdown between law enforcement, financial regulators, and institutions. The de-risking seen throughout the financial services space, in part because of BSA/AML regulation, actually increases risk to the system,” Rep. Blaine Luetkemeyer (R-MO), subcommittee chair, said. “We cannot afford to have an ineffective BSA/AML regime.”

Experts said the consequences of money laundering are significant to both financial systems and governments worldwide. They also said the BSA and the U.S. economic sanctions regime impose substantial compliance burdens on financial institutions, especially smaller financial institutions with limited staffing and resources. Further, they said that while combatting money laundering and terrorist financing is critical, efforts to improve outcomes and reduce unnecessary costs should be considered.

“While credit unions support laws and regulations that prevent terrorists and criminals from using their institutions to launder money or otherwise engage in illegal activity, the compliance burden of the current regulatory environment often unnecessarily takes away from our ability to serve our members,” Faith Lleva Anderson, senior vice president and general counsel at the American Airlines Credit Union, said, speaking on behalf of the Credit Union National Association

“Since the 2008 economic crisis and the resulting regulations that followed, credit unions have been required to devote more resources for regulatory and legal compliance particularly for mortgage loans and other consumer products, services, and protections. Given these new requirements, it has become difficult for credit unions to absorb their current total compliance burden. The new regulatory regime makes Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) regulatory compliance even more daunting,” Anderson added.

Greg Baer, president of The Clearing House Association, said the largest firms collectively spend billions of dollars each year on anti-money laundering efforts.

“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,” Baer, who is also executive vice president and general counsel at the The Clearing House Payments Company, said. “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.”

Lloyd DeVaux, president and CEO of Sunstate Bank, said the world has drastically changed since the BSA was adopted in 1970.

“Criminals keep evolving and staying one step ahead of banks and law enforcement. As the United States takes steps to combat terrorism and financial crime, now would be a good time to update the compliance requirements to develop a system suited to the twenty-first century,” DeVaux said, speaking on behalf of the Florida Bankers Association.

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