Skip to content

Suspicion Versus Discrimination

The Bank Secrecy Act with the added momentum of the USA PATRIOT Act, requires financial institutions to scrutinize their customers and their banking activities. Financial institutions must sort customers based on a risk analysis and identify those customers that are higher risk than others. The higher risk customers must be closely watched for possible suspicious activity.

At the same time, financial institutions do business under a series of broad and powerful anti-discrimination mandates. The Fair Housing Act, the Equal Credit Opportunity Act and the Civil Rights Act of 1866 dictate fairness and equal treatment of all customers. These mandates are the very foundation of our democracy and are based on the presumption that we all have equal opportunities, whether educational, social, or commercial, under the law.

BSA has always raised a possible conflict with equal opportunity laws. How does a lender treat all customers equally while wondering whether certain customers, perhaps because of their ethnic background, may be involved in mortgage fraud? How does a CSR open accounts giving all customers equal treatment but wondering whether to ask extra questions of three unrelated men speaking English as a second language and opening a single account together?

Different treatment is discrimination. Period. But CIP and all the elements of BSA are always hanging around every account opening and every loan transaction.

FinCEN advises that you should not file a SAR based solely on a customer's ethnicity. Nor should you file a SAR because the customer has a name that is the same as or similar to a name on the OFAC list. (You should, of course, check with OFAC to be sure your customer isn't the one on the list.) This information, and even transactions with entities such as charities that may have affiliations with terrorist activities, should prompt scrutiny but not differential treatment. What on earth does this mean and how on earth do we do this?

The solution lies in objectivity. It lies in facts. When we look at customers and evaluate their intentions and their qualifications, we look at the facts. We do not look at subjective factors that are immaterial. The applicant's accent, style of dress, or country of origin do not affect their qualifications. Questions and considerations about race and ethnicity have been eradicated from underwriting. They became irrelevant years ago. In fact, these factors always were irrelevant.

When underwriting, we look at facts about the applicant, facts about the intended use of the money, and facts about any relevant security for the loan. These facts do not include the race, color, gender, ethnicity or religion of the applicant. Nor do they include whether the applicant can walk, hear or see without help. The underwriting facts relate to the loan, not to the person.We follow a similar process when opening an account. We look at the type of account, the documents produced by the customer to establish the legalities and we look at the source and uses of the money. We do not look at the personal attributes or capabilities of the customer.

When we evaluate consumers for credit or for any other service, we do so to determine the consumer's qualifications. We do not do so to decide who or what they are, much less what we think about that.

But when we are thinking about BSA compliance and using CIP procedures, we evaluate the consumer in a slightly different context - but not to treat the person differently. Perhaps the best way to avoid discrimination - differential treatment - is to consider all of the BSA-related concerns in a careful business context. Do not make assumptions about a person because of the manner of dress or language. Make all evaluations based on fact, on what you know. If you don't know enough, ask more questions. But do not jump to conclusions. That may be discriminatory and it won't help with BSA compliance.

Copyright © 2005 Compliance Action. Originally appeared in Compliance Action, Vol. 10, No. 7, 6/05

First published on 06/01/2005

Banker Store View All

From training, policies, forms, and publications, to office products and occasional gifts, it’s available here:

Banker Store

hot right now

image description

Looking for effective, convenient training on a particular subject?

BOL Learning Connect offers more than 200 courses ON-DEMAND or on CD ROM from AML to Reg Z and every topic in between.

Search Topics