American Banker


December 30, 2004


SECTION: No. 249, Vol. 169; Pg. 1 ; ISSN: 0002-7561

IAC-ACC-NO: 126572624

LENGTH: 788 words

HEADLINE: Laundering's New Bind -- Terminating The Account; Industry Overview

BYLINE: Paletta, Damian

BODY:


Tougher enforcement of anti-laundering rules all year has put banks in a tight spot with federal regulators, and now the crackdown is making customer relationships more awkward, too.

Banks have wide latitude to close suspicious accounts, and industry officials say bankers are doing so more often in response to federal pressure. However, bankers complain that the rules are vague and come with strings attached -- such as limits on what customers can be told when an account is shut down.

"The agencies classify something as high-risk but don't give you a road map as to what is appropriate due diligence," said John Byrne, the director of the American Bankers Association's Center for Regulatory Compliance. "Rather than risk regulatory wrath, you close accounts."

Estimates were not available, but Mr. Byrne and several others said anecdotal reports from across the country suggest that the number of account closures has risen sharply.

An Associated Press story Dec. 18 said AmSouth Bancorp of Birmingham, Ala. -- which was hit with a large fine this year for inadequate suspicious-activity reporting -- had recently closed at least four bank accounts held by customers of Middle Eastern descent living in Alabama and Mississippi.

At least two of the account holders "routinely sent cash in relatively small amounts to family in the Middle East," the story said.

The account holders say they got short letters with no explanation. Several experts said that practice is standard procedure at most banks.

"I think every bank is looking at accounts on the basis of activity and sometimes closes accounts," Rick Swagler, an AmSouth spokesman, said in an interview. He would not discuss the account closings mentioned in the AP report, nor would he say if AmSouth had closed more accounts this year than last.

The story raised questions about possible discrimination, but Mr. Byrne said the increase in closings is not targeted at any specific ethnic group.

In general, account closings are a reflection of the nervousness some bankers feel about retaining high-risk accounts, he said. "These are things that aren't taken lightly, but you have to weigh all of the ramifications."

Bankers have seen the consequences of noncompliance up close this year. Federal authorities fined Riggs National Corp. $ 25 million in May and AmSouth $ 40 million in October for lapses in their compliance programs.

In cases where the account might have been closed because the bank filed a suspicious-activity report, the bank cannot alert the customer that such a report was filed. The bank simply closes the account and either writes a check to the customer for the remainder of the balance or wires the money, said Peter Djinis, a former top Financial Crimes Enforcement Network official, who now runs his own law firm.

Account closings can occur for a wide variety of reasons. Mr. Djinis said if a bank cannot confirm a customer's personal information, or if it cannot obtain certain identification from the customer, the account must be closed.

But the more difficult decision for bankers comes when they identify a high-risk customer but do not legally have to close the account, he said.

"Most of the tough calls occur when you just don't have enough information to say the customer is problematic," he said. "You are seeing a lot of banks today identify what are their high-risk accounts. High-risk could be anything from an offshore account to a domestic account. It could be a check cashing facility, money transmitter, or casino."

But since bankers have a lot of leeway to close an account, more could be opting to avoid the regulatory pressure down the road. This concept is not lost on regulators.

"The termination of accounts is a decision for each financial institution, and Fincen does not direct the closure of accounts," William D. Langford Jr., the agency's associate director for regulatory policy and programs, wrote in an e-mail response to a reporter's questions. "Fincen continues, as we always have, to pursue the policy of ensuring that banking services and accounts are available to everyone."

Retail customers are not the only ones complaining about account closures this year. Many money services businesses and check cashers said they have also been cut off from their banks because of increased concerns about money laundering.

Mr. Byrne said more direction is needed from regulators about what constitutes proper due diligence before bankers feel more comfortable and close fewer accounts.

David Boraks contributed to this article.

Copyright 2004 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com http://www.americanbanker.com

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