Regulators are targeting banks for Bank Secrecy Act and anti-money laundering violations more aggressively than ever, and account holders can expect more questions from their financial institutions.
The enforcement actions announced Nov. 30 against two Miami-based banks, Helm Bank USA and Great Eastern Bank of Florida, were examples of the regulatory focus on the issue. Helm Bank has good capital levels and has been profitable, but its primary focus on international depositors gave it a higher-than-normal risk for suspicious transactions. The Federal Deposit Insurance Corp. spent most of the enforcement action telling Helm Bank how to conduct customer due diligence, screen for high-risk transactions and do a forensic audit of transactions starting in the beginning of 2011.
The FDIC had already flagged Great Eastern Bank for safety and soundness issues regarding losses and problem loans, and the new order added BSA violations to that. Even the smallest bank in Miami, with $48 million in assets, has to keep close watch over its accounts.
Regulators have been warning banks that once the economy turns around and they aren’t consumed with safety and soundness issues, their examinations will refocus on BSA and anti-money laundering, said Clemente Vazquez-Bello, a senior partner with the Miami office of Gunster and a board member of the Florida International Bankers Association. The U.S. Department of Justice has said it’ll pursue more criminal cases against individuals at banks where serious BSA violations are found, he added.
“That scares the heck out of the banks,” Vazquez-Bello said.
Regulators can also fine BSA violators millions of dollars.
After the recession, a lot of local banks that were on thin ice looked the other way to get deposits because they were in survival mode and needed the funds, said Gustavo Pena, a partner with the Coral Gables office of Ascendo Resources, which helps banks find staff for BSA compliance. Now, those banks are paying the price because some of those accounts shouldn’t have been brought in, he said.
“In banking, everybody is guilty until you demonstrate that you are not,” Pena said. “Now they are going to smaller banks that maybe were under the radar and haven’t been reviewed extensively.”
While BSA compliance is a cost center for banks, Pena said it becomes much more expensive when an enforcement action is issued. A high-level BSA consultant is paid $120,000 to $150,000 a year, and the overall training and forensic account review can run into the millions of dollars. It’s much less expensive to tackle compliance proactively, he added.
“The lawyers are cheap in comparison to the forensic accountants for look backs,” Vazquez-Bello said.
FIBA Director David Schwartz said he expects a huge turnout at its annual Anti-Money Laundering Compliance Conference in Miami, Feb. 13-14, because so many banks are concerned about the issue. He recently attended a Miami roundtable hosted by the U.S. Department of the Treasury about even tougher rules proposed for account identification.
Vazquez-Bello said regulators want to require all financial institutions – including banks, securities brokerages and insurance companies – to disclose the ultimate beneficiaries of all accounts. International banks have been doing this for years, but this rule could expand that to domestic customers starting in late 2013, he said. That means domestic corporations could face lots of questions.
Right now, there’s no monetary threshold for the rule, so it could have a big impact on banks with many small deposits, Vazquez-Bello said. He’d prefer a risk-based approach so banks spend time examining accounts with a greater likelihood of suspicious activity.
“In the case of domestic retail banks, this could have a very significant effect,” he said. “It will have big effect on broker-dealers because they have been doing even less.”