Magazine article American Banker

Divisions Still Deep on Launder Enforcement: A Sharp Exchange between Justice and Fed Officials

Magazine article American Banker

Divisions Still Deep on Launder Enforcement: A Sharp Exchange between Justice and Fed Officials

Article excerpt

HOLLYWOOD, Fla. -- The debate over whether anti-laundering efforts are doing more harm than good to the industry and its regulatory regimes is by now a familiar one to many bankers.

But when top officials charged with enforcing the rules weighed in here Wednesday, their comments highlighted how tense the debate can get, and just how far off a consensus may still be.

On one side, the Federal Reserve Board's Herbert Biern argued that formal or threatened prosecutions of banks was actually serving to undermine the anti-laundering system.

"Quite frankly, the environment is troubled, strained, and dangerously close to being broken," he said. "Unfortunately, we are in a situation where law enforcement is -- in my words -- shooting the messenger. ... If you shoot the messenger, you stop getting messages. Period."

Justice Department's Les Joseph countered with an equally pointed observation: that regulators' shortcomings had brought about the participation of law enforcement agencies.

"Sometimes prosecutors are wondering why they are discovering problems that weren't already discovered by bank regulators," he said, pointing specifically to the case that resulted in $50 million of fines levied against AmSouth Bancorp. in October.

In that case, the biggest portion of the fines -- $40 million -- came from a deferred prosecution agreement with the U.S. Attorney's Office for the Southern District of Mississippi. Federal officials said AmSouth failed to file suspicious-activity reports on two customers who were allegedly involved in an investment scam. Mr. Biern and Mr. Joseph made their comments during a panel discussion at a conference sponsored by the newsletter Money Laundering Alert.

Mr. Biern said the AmSouth case had had several negative effects. It caused banks to begin "defensive" filings -- submitting reports, even when they are not necessary, to avoid any second-guessing by regulators or the Justice Department.

Such filings are an increasing problem, but the concerns run even deeper, Mr. Biern said. Six or seven years ago banking regulators had a good working relationship with law enforcement agencies, but that relationship has evaporated, he said.

"Law enforcement is ignoring the views of regulators and is attempting to establish corrective programs for banks without our input and relying on their own expertise to the extent that it exists," he said. "Law enforcement in this current environment thinks that banks can have systems in place that will catch every problem. We all know that is not correct."

According to Mr. Biern, law enforcement officials have "criminalized" SAR violations, which have traditionally been treated as civil infractions. The criminalization is damaging what had been a very successful public-private partnership, he said.

"We don't want to have this high level of anxiety," Mr. Biern said. "We need to return to the partnership."

Susan Galli, the senior anti-laundering coordinator for Citigroup Inc., who was moderating the panel, said Mr. Biern's comments deserved a round of applause. …

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