New Banking Regulations Seen Impacting Data Gathering On Clients
Written by Jaime Levy on November 8, 2001
By Jaime Levy
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A federal anti-terrorism law that includes tougher regulations for financial institutions may force banks to strengthen their data-gathering techniques, said local banking experts.
Proponents said the anti-terrorism law highlights the monitoring of financial transactions as a way to halt possible terrorist activity by cutting off funds and preventing money-laundering.
"Before, there were money-laundering laws on the books that were very broad," said Angela de Rocha, a spokeswoman for the US Senate Banking Committee, which wrote the legislation that was signed Oct. 26. "They tried to narrow the focus so they get the really big, bad actors."
Although regulators have not yet outlined rules, local experts are expecting banks to examine closely any irregularities instead of just doing the paperwork.
"Historically, what has happened is regulators have looked at bank security on a very technical level – have you done all the record-keeping and are you following all the rules? If they found something, it would be a record-keeping mistake," said Michael Sontag, an attorney who specializes in banking, real estate and commercial transactions and who spent 12 years working for the Department of the Treasury.
"We need to do more than have people look for technicalities. More thought needs to go into it. You need people at executive levels of banks thinking about it as being more than a technicality – to do some analysis."
That scrutiny, said BankAtlantic’s compliance director, will clash with a recent trend favoring client privacy.
"What you’re going to see now from regulators is more emphasis and encouragement to institutions to ensure they have enhanced due diligence – make sure we know who we’re doing business with," said Gerald Oliver, the bank’s manager of regulatory affairs. "If you have a business with low cash flow and few transactions, does that match? Does it make sense? Ask more questions."
For the average individual or business owner, the new regulations may result in tougher inquiries when opening accounts – particularly for businesses identified as high-risk. According to the Office of the Comptroller of the Currency, "certain types of businesses, transactions or geographic locations may lend themselves more readily than others to potential criminal activities."
Included in a list of possibly suspicious business types are non-traditional financial entities such as currency-exchange houses or check-cashing facilities; offshore corporations and banks; leather goods stores; car, boat and plane dealers; travel agencies; import-export companies; pawnbrokers; professional service providers, and cash intensive businesses such as convenience stores, restaurants, retail stores and parking garages.
With a long list of possibly suspicious kinds of companies, the more complex a client’s financial situation is, the more difficult it could become for a small bank to take that client’s account.
"Frankly, if smaller banks have a customer with a relatively complex operation, they may be forced to turn that customer away. It will mean every bank will not be able to take every deposit customer in the same way, every bank won’t be able to take any loan customer," said Michael Basile, banking regulation specialist with Stroock & Stroock & Lavan’s Miami office.
Local banks may not be shocked by the guidelines, which could essentially be notched-up versions of current laws being enforced in South Florida.
"Money-laundering laws are always applied more stringently in South Florida because of drug-smuggling considerations," said Mr. Sontag of Fort Lauderdale-based Shapiro Sontag. "Are we going to be pushed more by regulators here? Yes. Are we going to be as taken aback as people in middle America? Probably not."
Although they say new regulations will help stop dirty money from going through US institutions, local bankers were skeptical about how much influence the changes will have.
"It’ll make it more difficult for them, for sure – more difficult for people seeking to hide funds," Mr. Oliver said. Still, he said, "it’s very much a cat-and-mouse game. Anyone who understands the laws will be able to understand how to circumvent it and hide."
Besides, Mr. Sontag said, US regulations can only go so far. Countries such as Switzerland are much more concerned about client privacy, he said, making it possible for information provided by banks to "lead us into a black hole.
"Bankers and bank regulators aren’t spies. People at the justice department need to do their job, too – find out who the bad guys are and get them on the list," he said. "The question is whether it’s going to turn back into a paperwork exercise or is real, hard groundwork going to be done?"