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Tuesday, December 06, 2016 7:00 AM ET
Seeking a better way on BSA/AML


Bank Secrecy Act and Anti-Money Laundering compliance could be done in a more effective manner, experts say.

Speaking during a panel at The Clearing House Annual Conference in New York, industry observers said banks and regulators alike have dedicated time and resources toward BSA/ASL compliance in recent years, and while the current system does a good job of disrupting the financing of illegal activities, some changes to the approach could yield better results.

One of the main frustrations for experts on illegal financing and other money-laundering issues is that bank regulators have taken an "additive" approach to enforcement by continually and incrementally expanding the types of activities and actors the compliance regimes should seek out.

"In the AML regime it seems like we add requirements year after year, but we never de-prioritize," said Gary Shiffman, the CEO of data analysis firm Giant Oak. Shiffman, who has a deep background focusing on illegal financing in both law enforcement and as a policy adviser, argued that regulators could, along with law enforcement agencies, establish clear priorities on which regulators, law enforcement and the banks themselves could coordinate to achieve more wide-ranging results.

"If you prioritize everything you end up prioritizing nothing," Shiffman added. He said that bringing all the parties together on a regular basis to choose and clearly outline enforcement priorities would be a useful step toward a better system.

Another area of potential improvement is finding a better balance between pushing bad actors out of the system and helping law enforcement track and prosecute those actors; Sharon Cohen Levin, the moderator of the panel and a partner with WilmerHale, noted that there was a distinct tension between those two overarching goals of anti-money laundering regulations at financial institutions. "The regulatory framework emphasizes pushing out those suspicious actors, but that necessarily cuts off the source of information," Levin said.

Jennifer Calvery, a former head of asset forfeiture and the money laundering section at the U.S. Department of Justice, and now the global head of financial crime compliance with threat mitigation for HSBC Holdings Plc, said the compliance regime is built mainly to keep bad actors out of the financial system. It is does not function as well when they inevitably slip through the net, Calvery said, adding that she would like to see law enforcement and banks coordinate more closely on mitigating breaches of the system. She added that her group's function within HSBC is in part to go "spear-fishing" by utilizing the bank's internal investigative resources to identify potentially major and unseen breaches. Not only will finding those breaches help law enforcement, she said, but it will also keep the bank from suffering a costly reputation hit.

Calvery pointed out, though, that banks – especially global ones like HSBC - are often punished by a bevy of regulators for money-laundering issues.

That is one major factor that disincentivizes banks from sharing information with each other and other financial firms more readily and in a fashion which could boost the overall success of money-laundering enforcement efforts, panelists agreed. Chip Poncy, the president and co-founder of Financial Integrity Network, and senior adviser for the Center on Sanctions and Illicit Finance at the Foundation for Defense of Democracies, agreed that incentives under the current system were far from ideal for banks. "The banks that are doing the most aggressive work are getting penalized for it. Not only because they're not getting credit, but because everyone understands there's something going on here and here comes subpoenas from all over the world," Poncy said.

Levin noted that U.K. regulators had introduced a program to encourage better information sharing between the private and public sectors that represented a step toward moving enforcement toward a more collaborative approach.

Still, these potential changes could be quite far down the road, if they occur at all. Suzanne Williams, the deputy associate director of bank supervision and regulation for the Federal Reserve, oversees BSA/AML supervision and cautioned against imagining too broad of a change to the current regime. She noted that the ramifications for banks under information-sharing programs with law enforcement remained unclear both in the U.S. and U.K.

And while she said prioritizing enforcement was fundamentally different from the supervisory work of making sure banks have adequate compliance programs, she expressed skepticism about the practicalities of a regular process of priority agreement among regulators and law agencies. That is in part because broad re-prioritization would require intense negotiation between regulators and among law enforcement agencies themselves, the Fed official argued. "There are so many players and these kinds of decisions about prioritization become very difficult," Williams said.

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