To Dream The Impossible Dream

It's not as if we didn't see this coming.

According to yesterday's American Banker (paid subscription required), the US Justice Department is about to hit money services business Sigue Corp "with a record money laundering fine that experts said signals more aggressive enforcement of the Bank Secrecy Act."

To date the Justice Department has fined companies for failing to have an effective anti-laundering program, but according to a copy of the settlement obtained by American Banker, the government went further by accusing Sigue of failing to prevent laundering or investigate suspicious activity for which it filed reports.

"They're reinterpreting, redefining what their [BSA] expectations are," said Robert Pargac, Sigue's general counsel. "Under the Justice order, I think they are saying you just don't have to have your AML compliance program, detect suspect activity, and report it to law enforcement, but it goes a step further, and they are requiring institutions to prevent money laundering."

Outsiders, including Peter Djinis, the former executive assistant director for regulatory policy at the Financial Crimes Enforcement Network, backed up Mr. Pargac's interpretation.

"I don't think any institution could meet the standards that are now being imposed by this agreement," Mr. Djinis, now a lawyer in Sarasota, Fla., said in an interview Friday. "Aggressiveness is fine as long as it's fair. This is changing the rules after the activity is covered and I think that is unfair."

The Justice Department "went too far," he said. Under this standard, even a financial institution that filed a suspicious activity report could be held criminally liable "if they have not done an effective job of uncovering the entire money laundering operation."

Ralph Sharpe, a partner at the Washington law firm Venable LLP and a former enforcement official at the Office of Comptroller of the Currency, agreed with that assessment.

"It has implications not just for MSBs, but also banks and anyone else subject to the SAR filing requirements or BSA requirements, and that is it is not enough to file a SAR or a good SAR, but you've got to take the next step to see if there is something there — some pattern, some abuse — and you have to act on it," he said.

Here's the rub: the company detected the potential money laundering, filed SARs, yet still was fined.

Sigue had an anti-laundering program in place and filed suspicious activity reports on some of the transactions. But in the settlement order, the Justice Department held it liable for not adequately investigating the suspicious activity and for not preventing the broader pattern of laundering.

In all, Sigue identified more than $47 million of structured transactions, but the order said it "failed to take action to prevent from reoccurring."

"Failed to take action to prevent from recurring"? It's bad enough that banks feed SARs into the black hole that is FinCen, where they're eaten by FinCen's pet goat. Now, banks not only have to do law enforcement's job of detecting crimes, they have to prevent them, too. They have to stop the criminals in their tracks, or they'll be hit with a record fine and a deferred criminal prosecution, if they're lucky. If they're not lucky, then what? They get "rendered" to a foreign intelligence service? Waterboarded? Forced to go on a drug free, alcohol free, sex free date with Lindsay Lohan?

We've been yapping like a wee bitty Pekingese for some time now about the ridiculously onerous BSA requirements that are being placed upon banks. Of course, we felt like the canary in the coal mine. Now, the big dogs, ex-FinCen officials and ex-federal banking regulators, are starting to bark loudly. Do you think the US government and federal banking regulators will listen, or just grab a baseball bat and start beating all of us like a pack of mangy curs? Neither. They'll ignore us, as they always do.

Here's an idea for bankers: no matter what your political persuasion, start contributing to a Democratic Party war chest near you and hope that a change in administration and a clean sweep of the Justice Department and the federal banking agencies, at the top levels at least, imposes a modicum of reality on the powers that be. I thought that I'd seen the peak of jack-booted thuggery in the late 1980s and early 1990s, during two previous Republican administrations that I helped vote into power, but they had nothing on the latest circus clowns in D.C. The old boys at least extended you the courtesy of listening to you before they ignored you and proceeded to stone your clients to death like enraged Imams after a teenage girl who left her eyelids uncovered.  The current crop of bank cops doesn't even pretend to listen to voices of reason, even to their ex-cohorts. The only thing a bully understands is power. In this case, it's got to be the power of the ballot box.

Of course, there's always the risk that faces any special interest group when dealing with the boys and girls in D.C.: too many politicians turn out not to be "good politicians," i.e., those who, once they are bought, "stay bought."

Thus, banks may be forced to continue to attempt to do the impossible. And fail, naturally.

So, how are those money service businesses looking to all you commercial banks out there?

Comments

[DonD]

The BSA fetish has gone over the borderline into the realm of psychosis. Banks have to pray that the federal agencies move into the next new thing before banks start going all "Saw IV" on bank examiners.

[MessengerBoy]

I think you are right on target. Although I've voted Republican in every presidential election since 1976, I'm seriously considering voting Democrat for the first time.

The Bush adminstration (with the initial support of Congress) has opened the kennel doors and taken off DOJ's leash when it comes to the domestic "fight against terrorism." They have conviced most Americans that "the fight" is above liberty.

A recent article I read on Wired.com stated that over 50% of Americans feel that security is more important than privacy.

Now we can add "preventing money laundering" to the list to the things that are above everything else.

Many banks think that the majority of MSBs are good folks. Many banks regularly file SARs on customers who appear to be structuring transactions to evade CTRs. If this mess created by DOJ spills over to affect banks who provide services to MSBs, then the MSBs might as well close up shop because *nobody* will take them as customers. If banks are expected to "prevent laundering" then the result will be that any customers who even smell like they are structuring transactions will find themselves kicked out the door.

This situation has the potential to be a much bigger deal than most people realize.