How Good Are You at Reasonable Explanations?
by Barbara Hurst, BOL GuruGuru Bios
208.62 Suspicious Activity Reports
(c)(4)(iii) "...or is not the sort in which the particular customer would normally be expected to engage, and the bank knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction."
Situation: Single name account. Signature card indicates the individual is unemployed. The new data reports you just started getting recently show $35,000 in cash deposited over the last three months.
Holy cow! Quick! File a Suspicious Activity Report! You may even want to make a call to the local DEA on this one!
But wait! You've had this account for over ten years. This man and his wife have loans with you. You debit the account for his mortgage, and the checks going out of the account are the regular ones he's been writing for car payment, electric company, taxes and so forth for the last ten years. They have trust accounts for their kids. Maybe he's not a drug dealer who is laundering money after all.
So you talk to the customer. You learn that he works with his wife who is a real estate broker who runs her real estate proprietorship account at another bank. She splits commission checks, and gives him cash to deposit They've been doing this for years with no problem. But with the new system you had put in that shows aggregated cash deposits, the report indicates suspected money laundering activity.
Situation: Your Amish customer comes in every Monday with big cash deposits from weekend sales at the farmer's markets. Data reports say large aggregate sums. Is it really suspicious?
Do you file a Suspicious Activity Report?
FinCEN says no - because it really is not suspicious activity. It's simply the way your customer is running his account. It has a reasonable explanation.
Your examiner will say…?
And you know the answer there is "Yes." And if you don't file with such evidence in your data, you are very likely to be criticized - or worse.
Do you suggest to your customer that his wife would do better to give him a check to deposit so all those cash deposits don't show up? Do you tell your Amish customer to buy money orders to deposit?
Better not. That could be viewed as suggesting and encouraging structuring.
Do you get a letter of explanation from your customer and/or his wife and keep it on file to give to the examiner, thus justifying not filing? And will that satisfy your regulator?
Maybe - maybe not. Depending what kind of heat they're taking. The Riggs situation is being felt all through the industry in stiffer adherence to filing requirements, and more thorough BSA reviews.
What will happen to your depositors if you file?
More than likely, nothing at all. That report will go in with the millions of others we've filed. But if the deposits continue, now you have to file every 90 days.
This is truly a "damned-if-you-do-damned-if-you-don't" situation. A no-win situation. We found if you go to FinCEN you'll get one answer - from your examiner you'll get a different one.
We think you should start learning how to write up a "reasonable explanation" and take a stand. If you truly know your customer, you should be able to do that with no trouble at all.
Copyright © 2004 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 14, No. 07, 10/04
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