Magazine article American Banker

To Catch Money Launderers, Fed Proposes Flexible Rule for Bank Customer Profiles

Magazine article American Banker

To Catch Money Launderers, Fed Proposes Flexible Rule for Bank Customer Profiles

Article excerpt

The Federal Reserve Board on Thursday proposed a long-awaited rule to help banks spot illegal activity by customers.

The six-page proposal calls for banks to develop a profile of each customer's typical transactions and to keep an eye out for deviations. But institutions would be given broad latitude on the specifics, and they would not be required to monitor each and every customer transaction on a daily basis. "Board staff believes that there are numerous means by which a system can be developed to carry out the ongoing monitoring," the Fed wrote in the 35-page preamble to the proposed know-your-customer rule.

"This is not a checklist," said John J. Byrne, senior counsel at the American Bankers Association. "They're saying, 'Here's the items we're looking for, it's up to you to put it together.' If you have to have a regulation, that's the way it should be crafted."

The Fed has consulted extensively with the industry since May 1996, when Governor Edward W. Kelley Jr. instructed the staff to develop a rule. In fact, many banks have a program in place that would satisfy the Fed's requirements. But this would be the first time that such a program was actually required.

Richard A. Small, the Fed's anti-money laundering expert, predicted the agency would approve a final rule by April 1. Around the same time, he said, the Fed would issue a detailed guidebook for setting up a compliant system. Banks would have six months-until Oct. 1, 1999-to put a program in place. Mr. Small said it was unlikely that any bank would receive a citation during its first exam, unless it showed blatant disregard for the rule. …

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