Banks Face Increased Risks under Secrecy Act

Article excerpt

MANY BANKERS are frightened by the Reagan administration bill making it a crime for a banker knowingly to assist in a banking transaction involving direct or indirect proceeds of any unlawful activity.

They ought to be. Never before has there been legislation backed by an administration that strikes so directly at the heart of traditional banking relationships.

No one knows whether the bill in its current form will become law. But the administration effort reflects a hardened attitude that will undoubtedly lead to a move vigorous enforcement of the current law.

There is little question that banks will now be facing unprecedented scrutiny from enforcement-minded bank regulators, the Treasury, the Internal Revenue Service, the Securities and Exchange Commission, and others.

The Comptroller has promised to undertake a program of corrective action to improve the Comptroller's evaluation of national banks' compliance with the Bank Secrecy Act. Treasury representatives have testified before Congress that Treasury "intends to resolve" the problem of gaining independent access to bank records and that it considers it critical that "legal barriers that inhibit voluntary reporting by bank employees of suspicious financial transactions be removed."

Vigorous enforcement efforts are already under way. Treasury has directed particular enforcement attention to certain regions of the country where banks have not filed currency transaction reports commensurate with the level of financial activity. More than 140 banks are under review by Treasury and the IRS for civil or criminal penalties, and grand juries across the country have numerous banks under review.

Penalties for even technical noncompliance can be severe. For example, First National Bank of Boston was fined $500,000 under the criminal provisions of the Bank Secrecy Act. A recent court decision held that the law permits fines of up to $500,000 for each violation.

Moreover, under 1984 amendments, an act that is indictable under the Bank Secrecy Act constitutes a "racketeering activity" under the Racketeer-Influenced and Corrupt Organizations Act, and subjects a violator of RICO to a $25,000 fine and a prison term of up to 20 years.

Given that the penalties for even technical noncompliance with the Bank Secrecy Act can be severe, it is essential that bank personnel have a clear understanding of the law and related regulations. Many of the violations disclosed by major banks have been the result of simple ignorance of the applicable law. The following is a basic exposition of the reporting requirements (but not the record-keeping and other requirements) of the law.

The act requires three reports to be filed:

* A currency transaction report, or CTR, must be filed with the Internal Revenue Service by financial institutions within 15 days of a deposit, withdrawal, exchange of currency, purchase or cashing of cashier's checks, or other payment or transfer that involves a transaction in currency of more than $10,000 by, through, or to the financial institution.

A bank has authority to exempt from the currency transaction report filing requirements specific size and type of transactions with certain customers if 1) the amounts sought to be exempted are reasonable and customary in the course of the customer's business or activities, and 2) the transactions fall within the limits for that customer on the bank's current exemption list.

* The Bank Secrecy Act and its regulations also provide that a currency or monetary instrument report, or CMIR, must be filed with the commissioner of customs whenever currency or monetary instruments exceeding $10,000 are physically transported into or out of the United States.

* The third report -- a foreign bank account report, or FBAR -- must be filed with the Treasury Department on or before June 30 each calendar year whenever a United States person has a bank account in a foreign country of more than $1,000. …