March 1, 2018

The Morning Risk Report: Watchdog Examines De-Risking Concerns on U.S. Border

A congressional watchdog found banks closing accounts or branches along the southwestern U.S. border at high rates due to elevated money-laundering risks, and said regulators haven’t fully assessed the factors causing financial institutions to make those decisions.

The Southwest border region is a high-risk area for money-laundering activity, partly because of a high volume of cash and cross-border transactions, the U.S. Government Accountability Office said this week in a report. These types of transactions “may create challenges” for Southwest border banks when complying with anti-money-laundering rules because they require more extensive monitoring, the GAO said.

 Bank branches along the border in 2016 filed more than two-and-a-half times as many suspicious activity reports as those in high-risk counties outside the region, the GAO found. Some residents and businesses along the border have reported difficulties accessing banking services in the region due to the de-risking decisions by financial institutions, the report said.

The U.S. Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, which enforces bank compliance with anti-money laundering rules, said in a Feb. 23 response letter to the GAO it believes banks are restricting access to certain customers “because of misunderstandings about their compliance responsibilities.”

FinCEN took issue with some of GAO’s findings, including that banks are closing branches due to compliance burdens. It said its analysis doesn’t support a finding border communities have lost access at higher rates than other comparable areas. FinCEN said it’s pursuing “sustained public outreach” to address misconceptions or uncertainty about regulatory expectations, noting Treasury has been addressing de-risking for several years.

The GAO surveyed banks in the region for its report, finding 80% of them said they terminated accounts for anti-money-laundering risk reasons. Eighty percent said they didn’t offer accounts to customers considered high risk because the client could draw heightened regulatory oversight, behavior the GAO said is indicative of de-risking.

The GAO recommended FinCEN and the federal banking regulators “conduct a retrospective review” of anti-money-laundering regulations and their implications for banks. The review should focus on how banks’ regulatory concerns may be influencing their willingness to offer services, the GAO said.

FinCEN said in its letter it’s already working on a review of its regulatory and supervisory framework, incorporating de-risking as an area of discussion as part of a broader examination.

“This comprehensive review seeks no predetermined outcome other than to ensure that our [anti-money-laundering framework remains as effective as possible for all stakeholders, while acknowledging technical innovation and evolving risk,” FinCEN said.