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Get Rid Of Your Exempt Lists!

After several meetings and considerable research, the American Bankers Association's (ABA) Money Laundering Task Force made a formal recommendation to bankers at the annual ABA Security and Risk Management Conference in New Orleans.

The bottom line of the recommendation was: "Do away with your exempt lists."

Last year a bill was introduced into Congress that dictated the mandatory loss of charter or insurance to a financial institution convicted of violation of the Bank Secrecy Act. This bill, nicknamed the "Death Penalty", was defeated.

It has been proposed again in the present session of Congress.

With the reintroduction of the "Death Penalty" provision, it simply is too much risk for a financial institution to maintain an exempt list, according to the study and evaluation done by the task force. (The members of the ABA Money Laundering Task Force appear at the end of this article.)

The statement issued on the use of exemptions under the Bank Secrecy Act (BSA) makes note of the fact that U.S. financial institutions continue to be at the forefront of efforts to combat the laundering of profits from illegal drug trafficking.

The Bank Secrecy Act permits, but does not require, financial institutions to "exempt" certain transactions and the accounts of certain customers from the BSA's reporting requirements.

However, the task force goes on to point out that "exemptions" are not a "safe harbor" from criminal liability even for institutions that have complied with the Treasury Department's regulations and Exemption Handbook.

There is increased suspicion and concern being voiced in Congress and by federal law enforcement agencies that "exemptions" may be concealing the activities of money launderers and other white collar criminals who prey on financial institutions.

Therefore, the task force recommends that financial institutions do not create BSA "exemptions" unless they meet three very clear criteria.

First, it must pose no risk of inadvertently concealing a customer engaged in criminal activity. This means, of course, that the institution knows the source of the funds a customer is depositing-clearly a difficult if not impossible knowledge.

Second, maintaining an "exemption" should offer a significant net cost reduction. There is a definate cost involved in getting the signature and doing the evaluation and investigation of a customer to exempt them. Add this to the cost of deposit limit surveillance, and the necessity of filling out a Currency Transaction Report (CTR) if the limits are exceeded. Compare to the cost of filling out a CTR. You may find it is cost effective to simply fill out a CTR with each deposit.

Third, maintaining the "exemption" list should improve the quality of service to the depositor. Customer service people have found, not so much to their surprise, that legitimate customers making legitimate deposits do not mind the CTR too much. Like other government requirements, they have become accustomed to them after a short time. And if they are frequent depositors, those people responsible for filling out the 4789 find it convenient to have the "repeat" information filled out ahead of time, better servicing these important customers.

How Many?

It has been estimated that sending CTRs for each "over $10,000" transaction would boost the number of 4789s being sent to IRS from 7 million per year to over 21 million. The representatives from IRS at the New Orleans conference indicated this would be no problem, as they are hiring outside vendors to enter the data from the forms into the system in order to stay current. They are also optimistic that the electronic filing will better enable them to keep current.

The number of exemptions vary with each institution. For instance, a major New York bank, one of the ten largest in the country, has just 40. A major west coast bank, (also in the top ten) on the other hand, has 476.

One of the questions frequently asked of us at our compliance seminars in the past has been, "How many exemptions is the average number for an institution the size of mine?"

The task force recommendation makes our answer easier..."None!"

ABA Money Laundering Task Force:
Boris F. Melnikoff, ChairmanSr. V.P., First Wachovia Corp.
John J. Byrne, Senior Federal Legislative Counsel, ABA
Cliff E. Cook, V.P. & Compliance Officer, Puget Sound National Bank
Phillips G. Gay, Jr., V.P. & Regulatory Compliance, First Union Corp.
Richard Insley, V.P., Signet Bank, VA
Julius L. Loeser, (Jerry), Sr. V.P. & Director of Government Affairs, First Interstate Bancorp
Robert MacAllister, V.P. & Senior Counsel, Chase Manhattan Bank
D. Gordon Murphy, Executive V.P., Arizona Bankers Association
Jane Wexton, V.P. & Senior Attorney, Citibank, N.A.

Copyright © 1991 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 2, No. 2, 3/91

First published on 03/01/1991

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