[Congressional Record Volume 152, Number 85 (Tuesday, June 27, 2006)]
[House]
[Pages H4576-H4582]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SEASONED CUSTOMER CTR EXEMPTION ACT OF 2006
Mr. BACHUS. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 5341) to amend section 5313 of title 31, United States Code,
to reform certain requirements for reporting cash transactions, and for
other purposes, as amended.
The Clerk read as follows:
H.R. 5341
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SEC. 1. SHORT TITLE.
This Act may be cited as the ``Seasoned Customer CTR
Exemption Act of 2006''.
SEC. 2. EXCEPTION FROM CURRENCY TRANSACTION REPORTS FOR
SEASONED CUSTOMERS.
(a) Findings.--The Congress finds as follows:
(1) The completion of and filing of currency transaction
reports under section 5313 of title 31, United States Code,
poses a compliance burden on the financial industry.
(2) Due to the nature of the transactions or the persons
and entities conducting such transactions, some reports as
currently filed may not be relevant to the detection,
deterrence, or investigation of financial crimes, including
money laundering and the financing of terrorism.
(3) However, the data contained in such reports can provide
valuable context for the analysis of other data derived
pursuant to subchapter II of chapter 53 of title 31, United
States Code, as well as investigative data, which provide
invaluable and indispensable information supporting efforts
to combat money laundering and other financial crimes.
(4) An appropriate exemption process from the reporting
requirements for certain currency transactions that are of
little or no value to ongoing efforts of law enforcement
agencies, financial regulatory agencies, and the financial
services industry to investigate, detect, or deter financial
crimes would continue to fulfill the compelling need to
produce and provide meaningful information to policy-makers,
financial regulators, law enforcement, and intelligence
agencies, while potentially lowering the compliance burden
placed on financial institutions by the need to file such
reports.
(5) The Secretary of the Treasury has by regulation, and in
accordance with section 5313 of title 31, United States Code,
implemented a process by which institutions may seek
exemptions from filing certain currency transaction reports
based on appropriate circumstances; however, the financial
industry has not taken full advantage of these provisions and
has contended that they are unduly burdensome.
(6) The act of providing notice to the Secretary of the
Treasury of designations of exemption--
(A) provides meaningful information to law enforcement
officials on exempt customers and enables law enforcement to
obtain account information through appropriate legal process;
and
(B) complements other sections of title 31, United States
Code, whereby law enforcement can locate financial
institutions with relevant records relating to a person of
investigative interest, such as information requests made
pursuant to regulations implementing section 314(a) of the
USA PATRIOT Act of 2001.
(7) A designation of exemption has no effect on
requirements for depository institutions to apply the full
range of anti-money laundering controls required under
subchapter II of chapter 53 of title 31, United States Code,
and related provisions of law, including the requirement to
apply the customer identification program pursuant to section
5326 of such title, and the requirement to identify, monitor,
and, if appropriate, report suspicious activity in accordance
with section 5318(g) of such title.
(8) The Federal banking agencies and the Financial Crimes
Enforcement Network have recently provided guidance through
the Federal Financial Institutions Examination Council Bank
Secrecy Act/Anti-Money Laundering Examination Manual on
applying appropriate levels of due diligence and identifying
suspicious activity by the types of cash-intensive businesses
that generally will be subject to exemption.
(b) Seasoned Customer Exemption.--Section 5313(e) of title
31, United States Code, is amended to read as follows:
``(e) Qualified Customer Exemption.--
``(1) In general.--Before the end of the 270-day period
beginning on the date of the enactment of the Seasoned
Customer CTR Exemption Act of 2006, the Secretary of the
Treasury shall prescribe regulations that exempt any
depository institution from filing a report pursuant to this
section in a transaction for the payment, receipt, or
transfer of United States coins or currency (or other
monetary instruments the Secretary of the Treasury
prescribes) with a qualified customer of the depository
institution.
``(2) Qualified customer defined.--For purposes of this
section, the term `qualified customer', with respect to a
depository institution, has such meaning as the Secretary of
the Treasury shall prescribe, which shall include any person
that--
``(A) is incorporated or organized under the laws of the
United States or any State, including a sole proprietorship
(as defined in 31 C.F.R. 103.22(d)(6)(vii), as in effect on
May 10, 2006), or is registered as and eligible to do
business within the United States or a State;
``(B) has maintained a deposit account with the depository
institution for at least 12 months; and
``(C) has engaged, using such account, in multiple currency
transactions that are subject to the reporting requirements
of subsection (a).
[[Page H4577]]
``(3) Regulations.--
``(A) In general.--The Secretary of the Treasury shall
prescribe regulations requiring a depository institution to
file a 1-time notice of designation of exemption for each
qualified customer of the depository institution.
``(B) Form and content of exemption notice.--The Secretary
shall by regulation prescribe the form, manner, content, and
timing of the qualified customer exemption notice and such
notice shall include information sufficient to identify the
qualified customer and the accounts of the customer.
``(C) Authority of secretary.--
``(i) In general.--The Secretary may suspend, reject, or
revoke any qualified customer exemption notice, in accordance
with criteria prescribed by the Secretary by regulation.
``(ii) Conditions.--The Secretary may establish conditions,
in accordance with criteria prescribed by regulation, under
which exempt qualified customers of an insured depository
institution that is merged with or acquired by another
insured depository institution will continue to be treated as
designated exempt qualified customers of the surviving or
acquiring institution.''.
(c) 3-Year Review and Report.--Before the end of the 3-year
period beginning on the date of the enactment of this Act,
the Secretary of the Treasury, in consultation with the
Attorney General, the Secretary of Homeland Security, the
Federal banking agencies, the banking industry, and such
other persons as the Secretary deems appropriate, shall
evaluate the operations and effect of the provisions of the
amendment made by subsection (a) and make recommendations to
Congress as to any legislative action with respect to such
provision as the Secretary may determine to be appropriate.
SEC. 3. PERIODIC REVIEW OF REPORTING THRESHOLD AND ADJUSTMENT
FOR INFLATION.
Section 5318 of title 31, United States Code, is amended by
adding at the end the following new subsection:
``(o) Periodic Review of Reporting Threshold and Adjustment
for Inflation.--
``(1) In general.--Before the end of the 90-day period
beginning on the date of the enactment of the Seasoned
Customer CTR Exemption Act of 2006 and at least every 5 years
after the end of such period, the Secretary of the Treasury
shall--
``(A) review the continuing appropriateness, relevance, and
utility of each threshold amount or denomination established
by the Secretary, in the Secretary's discretion, for any
report required by the Secretary under this subchapter; and
``(B) adjust each such amount, at such time and in such
manner as the Secretary considers appropriate, for any
inflation that the Secretary determines has occurred since
the date any such amount was established or last adjusted, as
the case may be.
``(2) Report.--Before the end of the 60-day period
beginning upon the completion of any review by the Secretary
of the Treasury under paragraph (1), the Secretary shall
submit a report to the Congress containing the findings and
conclusions of the Secretary in connection with such review,
together with an explanation for any adjustment, or lack of
adjustment, of any threshold amount or denomination by the
Secretary as a result of such review, including the
adjustment for inflation.''.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Alabama (Mr. Bachus) and the gentlewoman from New York (Mrs. Maloney)
each will control 20 minutes.
The Chair recognizes the gentleman from Alabama.
Mr. BACHUS. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, for some 14 years the Congress of the United States has
known and identified a problem, and that is the number of currency
transaction reports required by the Bank Secrecy Act.
The Internal Revenue Service, which administers this program, as
early as 1993 made this statement. It said that 30 to 40 percent of
these reports, and I quote, of routine deposits by large, well-
established retail businesses have no likelihood of identifying
potential money laundering or other currency violations.
The GAO in 1994 published a report which says, our analysis of CTR
filing confirms that the volume of CTRs could be substantially reduced
without jeopardizing law enforcement needs.
{time} 1200
The GAO, the Internal Revenue, FinCEN, have all recommended that what
we do to reduce the number of CTRs by 30 to 40 percent is simply to
exempt large well-established customers, what are so-called ``seasoned
customers.''
In fact, I want to read into the Record and introduce into the Record
a report by William Fox, who headed up FinCEN, the government's top law
enforcement agency charged with coordinating money laundering and
terrorist financing activities.
Here is what he said: ``We know that some of the currency transaction
reports filed by financial institutions are of little relevance in the
investigation of financial crimes. We also know that depository
institutions, especially our community banks, identify the time and
expense of filing CTRs as the number one regulatory expense. It is
clear that our efforts to encourage the exemption of routine filings on
certain customers has not brought about the reductions of filings that
were sought.''
Working with William Fox, members of this committee, Mr. Frank, Mrs.
Maloney, myself, Mr. Hensarling, Mr. Moore, Ms. Hooley, and several
others, we actually fashioned legislation which we introduced and have
passed out of this House on two different occasions over the past year.
That legislation has died or was not acted on in the Senate. In the
last case, it was simply because it was included in part of the reg
relief bill.
So the purpose of this legislation is to break it out, isolate it
into specific legislation dealing with that and nothing else, and send
it over to the other body in hopes that they will save our financial
institutions from what the GAO in 1994 said was a cost of up to $15 per
report, maybe as little as $3, but as much as $15, and save our law
enforcement agencies $2 to $3 per report, an overall savings of tens of
millions of dollars which will allow law enforcement and our financial
institutions to concentrate on the bad guys, not well-established
routine business transactions by their customers.
Mr. Speaker, at this time I reserve the balance of my time.
Mrs. MALONEY. Mr. Speaker, I yield myself such time as I may consume.
I rise in strong support of H.R. 5341, the Seasoned Customer CTR
Exemption Act of 2006. This bill is similar to an amendment I authored
with Congressman Renzi at the committee markup of H.R. 3505, the
regulatory relief bill that the House passed overwhelmingly in March.
Because the Senate version of regulatory relief does not include this
provision, we are passing it as a separate bill.
I am delighted to be a cosponsor of this bill along with my
colleagues, Congressman Bachus and Ranking Member Frank. With 22
bipartisan cosponsors, it is a good example of the cooperative work of
the Financial Services Committee.
This bill is intended to relieve financial institutions from
unnecessary filings of currency transactions. This provision would
reduce CTR filings by 70 to 90 percent for most financial institutions,
saving many, many hours each year. By freeing financial institutions
from filing useless CTRs, this bill enables them to concentrate on the
more useful suspicious activity reports, which are those reports that
financial institutions file when they believe a particular transaction
of any sort or size warrants further review by law enforcement. More
important, this also enables the regulators to concentrate on the
important SAR filings, rather than CTRs from repeat trusted customers.
The bill would require banks to provide a one-time notice to FinCEN,
the lead money laundering agency, of a proposed exemption for a
particular well-known customer, and to describe the customer's
relationship with the bank as the grounds for such exemption if FinCEN
feels that the customer should not be in the reports or CTRs.
At present, a CTR must be filed for every single transaction of over
$10,000, which results in more than 13 million CTRs being filed
annually. Many of these CTRs, particularly those from business
customers well known to the banks, are of absolutely no use to law
enforcement. It is a waste of the bank's time and of law enforcement's
time to file and to review them.
The CTR filings that distract both the banks and regulators from
using their resources to find terrorists and money launderers are
counterproductive. To relieve this problem, this bill instructs the
Secretary of the Treasury to prescribe regulations that exempt a
depository institution from filing a CTR if the transaction is with a
seasoned customer, that is, a business which has kept a deposit account
at the bank for a year and is engaged in multiple currency transactions
subject to the CTR requirements.
The idea was first proposed by the Internal Revenue Department, and
also in the GAO report that my colleague has cited in his remarks; and
it was also proposed by the Treasury Department and law enforcement for
exactly
[[Page H4578]]
this reason. FinCEN Director Bill Fox strongly endorsed this seasoned
customer exemption saying, and I quote, ``This change will make the
exemption more effective, while still ensuring that currency
transaction reporting identification, critical to identifying criminal
financial activity, is made available to law enforcement.''
The banking regulators also expressed strong support for this
proposal. OCC and OTS both agreed with FinCEN that the CTR filing
process had become counterproductive in terms of national security
because so many CTRs are filed that important data is lost in the
haystack.
In the new Bank Secrecy Act provisions, we asked our financial
institutions to take a front-line position in the war on money
laundering and terrorist financing and we need to give them the ability
to use their resources to their best advantage.
As a Representative of New York City, which is both an important
financial center of the United States and a city that is very concerned
about terrorism, I am concerned not only about giving the regulators
the proper tools which they need, but I am also concerned that burdens
are not placed on financial institutions that are redundant,
particularly for midsized and smaller banks.
I know the vast majority of my colleagues on both sides of the aisle
share this concern, and we worked hard together to pass carefully
balanced legislation addressing it, so I urge my colleagues to continue
that effort and vote for this underlying bill.
I rise in support of H.R. 5341, the Seasoned Customer CTR Exemption
Act of 2006.
This bill is a reiteration of the amendment I offered with
Congressman Renzi at the Committee markup of H.R. 3505, the reg relief
bill that the House passed by a 415 to 2 vote in March. Because the
Senate version of reg relief does not include this provision, we are
passing it as a separate bill. I am delighted to cosponsor this bill
with my colleague Congressman Bachus. With 22 bipartisan cosponsors, it
is a good example of the bipartisan work of the Financial Services
Committee.
This bill is intended to relieve banks from unnecessary filings of
Currency Transaction reports, or CTRs. At present, a CTR must be filed
for every single transaction over $10,000, which results in more than
13 million CTRs being filed annually. Many of these CTRs, particularly
those from business customers well known to their banks, are of no use
to law enforcement. It is a waste of the banks' time to file them and a
waste of law enforcement time to review them. CTR filings that distract
both the banks and regulators from using their resources to find
terrorists and money launderers are counterproductive.
To relieve this problem, this bill instructs the Secretary of the
Treasury to prescribe regulations that exempt a depository institution
from filing a CTR if the transaction is with a ``seasoned'' customer,
that is, a business which has kept a deposit account at the bank for a
year and has engaged in multiple currency transactions subject to the
CTR requirements.
This provision would reduce CTR filings by 70 to 90 percent for most
banks, saving banks many hours each year.
By freeing banks from filing useless CTRs, this bill enables them to
concentrate on the more useful Suspicious Activity Reports, which are
those reports bank file when they believe a particular transaction of
any sort or size warrants further review by law enforcement.
More important, this also enables the regulators to concentrate on
the important SAR filings rather than CTRs from repeat customers.
The bill would require banks to provide a one-time notice to FinCEN,
the lead money laundering agency, of a proposed exemption for a
particular well-known customer, and to describe the customer's
relationship with the bank as the grounds for such exemption. If FinCEN
feels that the customer should not be exempted, then it can reject the
proposed exemption. And the exemption can be revoked by FinCEN at any
time. The government remains in complete control of the exemption
process.
Indeed, this measure was proposed by the Treasury Department and law
enforcement for exactly this reason. FinCEN Director Bill Fox strongly
endorsed this seasoned customer exemption, stating that: ``This change
will make the exemption more effective while still ensuring that
currency transaction reporting information critical to identifying
criminal financial activity is made available to law enforcement.''
The banking regulators also expressed strong support for this
proposal. OCC and OTS both agreed with FinCEN that the CTR filing
process had become counterproductive in terms of national security
because so many CTRs are filed that important data is lost in the
haystack.
In the new Bank Secrecy Act provisions, we asked our financial
institutions to take a frontline position in the war on money
laundering and terrorist financing. We need to give them the ability to
use their resources to best advantage.
As a representative of New York City, the financial center of the
United States, I am particularly concerned about the burdens the Bank
Secrecy Act puts on our financial institutions, particularly those that
are not megainstitutions but are mid-size and smaller.
I know the vast majority of my colleagues on both sides of the aisle
share this concern and we worked hard together to pass carefully
balanced legislation addressing it.
I urge my colleagues to continue that effort and vote for this bill.
Mr. Speaker, I reserve the balance of my time.
Mr. BACHUS. Mr. Speaker, I would like to inquire as to how much time
remains.
The SPEAKER pro tempore. The gentleman from Alabama has 16 minutes
remaining and the gentlewoman from New York has 14\1/2\ minutes
remaining.
Mr. BACHUS. Mr. Speaker, last September, William Fox, at that time
head of FinCEN, made this statement at a hearing before the Financial
Services Committee. He said: ``The Congress has in the past recognized
the need to reduce the number of currency transaction reports that may
not have a high degree of usefulness to law enforcement and ordered us
to find a way to do so.''
As a result of that hearing, Chairman Oxley, the chairman of the full
committee, made as a priority the committee working in a bipartisan way
to find a way, working with law enforcement, to reduce the number of
CTRs. It was a result of that hearing and numerous statements by both
law enforcement, by financial regulators, by financial institutions,
and by Members of Congress in both bodies to work out a solution to
this long-existing problem. So I would like to commend Chairman Oxley.
As a result of those hearings, there was introduced 3505, the
Financial Services Regulatory Relief Act, by Congressman Renzi and Mrs.
Maloney, who of course just spoke on this bill. They included a
provision that was specifically drafted by Mr. Frank, Mrs. Maloney, Mr.
Hensarling and Mr. Moore, which included a seasoned customer exemption.
We passed 3505 out of this body by a vote of 415-2 back in March.
More recently, the bill before us, 5341, which has 22 bipartisan
supporters on the Financial Services Committee, passed the Financial
Services Committee on a unanimous vote, and H.R. 5341 seeks to reduce
the regulatory burden caused by the Bank Secrecy Act. Specifically, the
legislation requires that the regulators promulgate new regulations and
streamline the process by which financial institutions may be exempted
from filing CTRs for seasoned customers.
CTRs are required to be filed for cash transactions of $10,000 or
more. This filing is required even in the case of seasoned customers
who are long-time bank customers that routinely file large volumes of
cash and whose business dealings are well known and understood by the
institution to the extent to rule out the possibility of money
laundering or the financing of terror. Unfortunately, the current
process by which a financial institution seeks an exemption under such
a scenario is both cumbersome, hard to understand, and requires annual
renewals.
Mr. Speaker, at this time I would like to recognize the gentleman
from Texas (Mr. Hensarling), who helped draft this legislation and the
original legislation which was included in H.R. 3505, for such time as
he may consume.
Mr. HENSARLING. Mr. Speaker, I thank the gentleman for yielding, and
I certainly thank him for his leadership in this area.
I have the honor and privilege of representing the Fifth District of
Texas here on the floor of the United States House. There are a lot of
great communities, small communities, in east Texas that I represent,
places like Canton, and Forney, and Athens. And part of the bedrock of
these communities is their local financial institution, their small
community bank or their credit union. Over the last decade, Mr.
Speaker, we have seen the number of small community banks drop by
almost a full
[[Page H4579]]
third. By almost a full third. And the major reason that we have seen
this incredible drop in the number of our community banks is because of
the high cost of Federal regulation.
The number one item that community bankers cite in the cost of
regulation is the regulation associated with the Bank Secrecy Act. Now,
nobody in the House will deny that clearly the number one priority of
this institution is to fight and win the war on terror, and there is a
very important role that the BSA, the Bank Secrecy Act, regime plays in
that. But, Mr. Speaker, there has to be in the language of the statute
itself a high degree of usefulness to law enforcement for all of these
reports that are turned in. Sooner or later, there has to be a balance.
There has to be a rule of reason.
So what we see on the one hand with our local financial institutions
is that every new Federal regulation somewhere at the margin is raising
the cost of credit. That means some family is going to struggle in
trying to send a child to college. It means some family is going to
struggle and maybe they are not able to borrow the money and make a
downpayment on that first home. Maybe some family that wants to live
the American Dream and finally amass enough capital to start their own
business, they can't do it.
{time} 1215
They can't do it because of the imposition of a Bank Secrecy Act that
many of us believe, and apparently by a count of 415-2, is duplicative.
So, again, we have to ask ourselves, at what cost does this
information come? For example, we received testimony from just one
community banker.
Mr. Speaker, I ask unanimous consent that the testimony of Mr.
Bradley Rock of the Bank of Smithtown, New York, be entered into the
Record.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Texas?
There was no objection.
Testimony of Bradley E. Rock on behalf of the American Bankers
Association before the Committee on Financial Services Subcommittee on
Financial Institutions and Consumer Credit United States House of
Representatives, May 18, 2006
Chairman Bacchus and members of the Committee, my name is
Bradley Rock. I am Chairman, President, and CEO of Bank of
Smithtown, a $950 million community bank located in
Smithtown, New York, founded in 1910. I am also the Vice
Chairman of the American Bankers Association (ABA). ABA, on
behalf of the more than two million men and women who work in
the nation's banks, brings together all categories of banking
institutions to best represent the interests of this rapidly
changing industry. Its membership--which includes community,
regional and money center banks and holding companies, as
well as savings associations, trust companies and savings
banks--makes ABA the largest banking trade association in the
country.
I have been honored to testify before this committee on
prior occasions to present the views of the ABA on the need
to eliminate unnecessary, redundant, or inefficient
regulatory burdens that increase costs for banks, reduce the
amount of credit available to our communities and fail to
make meaningful contributions to the welfare of our citizens.
Among the largest of regulatory burdens is the regime of
surveillance and reporting on the financial activity of our
customers that has been imposed on banks under the Bank
Secrecy Act and subsequent anti-money laundering statutes and
regulations. I therefore welcome the opportunity to appear
again before you--this time to address the particular issues
of regulatory cost versus policy benefit that attend the
current state of currency transaction reporting (CTR)--and to
advocate for your consideration an overdue option to reform
the system for the mutual advantage of bankers, law
enforcement and the American public we all serve.
We support a simplified, meaningful seasoned business
customer exemption. We commend you, Mr. Chairman, and the
members of this Committee for adopting that straightforward
approach as part of H.R. 3505, the Financial Services
Regulatory Relief Act, adopted by the House of
Representatives on March 8, 2006, by a vote of 415-2. We
congratulate you on continuing to pursue this sensible and
timely reform in the legislation being considered today,
Seasoned Customer CTR Exemption Act of 2006, H.R. 5341.
From the Bank Secrecy Act passed a generation ago to Title
III of the USA PATRIOT Act adopted in the wake of the heinous
terrorist attacks of September 11, 2001, legislation has
united bankers and the government in the battle to combat
abuse of our financial system by those who would pervert it
to commit criminal offenses, to launder the proceeds of
illegal conduct or, more recently, to support the means and
ends of terrorism. The ABA and its members share the policy
goals of Congress in passing these laws. However,
increasingly complex or redundant compliance requirements
render these laws far less effective than they might be
otherwise.
When establishing the BSA regulatory regime, Congress
sought to require reports or records when they have, in the
Act's very words, ``a high degree of usefulness'' for the
prosecution and investigation of criminal activity, money
laundering, counter-intelligence and international terrorism.
Unfortunately, in the focus on systems, programs, and
procedures, the standard of ``high degree of usefulness''
seems to have been neglected. The result has been more
reports and paper, with declining usefulness. ABA and its
members strongly believe that the current CTR requirements
have long departed from this standard of utility and in large
measure serve more to distract and impede efforts against
crooks and terrorists than to help to expose and stop them.
In my testimony, I would like to make three key points:
Congress has already recognized that the original currency
transaction reporting obligations imposed on banks have
become unduly burdensome, generate voluminous data on
legitimate routine business transactions adding little to law
enforcement's efforts at meaningful analysis, and therefore
need to be refocused to restore the reports to a level of
value more closely approximating ``a high degree of
usefulness.''
Previously enacted relief to reduce reporting to a more
useful volume has been unsuccessful. While Congress wisely
recognized that banks don't need to collect, and the
government does not need to receive and process volumes of
records on legitimate business activity by well-known
customers, the reform has not been successful in practice
because procedures to exercise it are cumbersome and carry
significant procedural and supervisory risks.
Evolution of the BSA reporting regime has further reduced
the purpose and value of currency transaction reporting.
Requirements for rigorous customer identification programs,
suspicious activity reporting, and the availability of
focused and detailed information under section 314(a) of the
PATRIOT Act leave little value to be added by collecting
millions of CTRs on legitimate routine business activity.
Congress Endorses and Law Enforcement Recognizes the Need To Reduce
Reporting on Legitimate Business Activity
In 1994, Congress included in the Money Laundering
Suppression Act a statutory exemption system for currency
transaction reporting. The new two-phase system was intended
to address concerns that the number of CTRs being filed for
routine business activity adversely affected law
enforcement's ability to use the data. As the GAO's testimony
in March 1994 stated, ``CTRs that report normal business
transactions are of no value to law enforcement and
regulatory agencies in detecting money laundering activity.''
Expectations at the time anticipated that a revised exemption
process would result in a reduction of CTR filings in the
range of 30%. Unfortunately, we should all be disturbed that
time has witnessed the number of CTRs overall grow from
slightly more than 11 million in 1994, when the two-phase
exemption process was passed, to the latest estimate of over
13 million annually, with no signs of abating.
Using FinCEN's conservative estimate of around 25 minutes
per report for filing and record-keeping, the banking
industry as a whole devoted around 5\1/2\ million staff hours
of work to handling CTRs in 2005. Our review of ABA members
indicates that three-quarters of the filings were for
business customers who had been with the bank for over a
year. That means that the industry spent around four million
staff hours last year filing notices on well-established
customers! A similar story can surely be told by the
government agencies that receive and process these reports.
In my bank, during the past year, we filed 2,766 CTRs, and
we do not have any public companies as customers. In fact,
most of these CTRs were flied for ordinary transactions by an
ice cream parlor, a clam bar, a restaurant and a high-volume
Amoco dealer, all of whom have done business with us for
many, many years. My tellers spent more than 460 hours in the
branches preparing the CTR forms, and one person in our main
office spent more than 1,000 hours checking the forms for
accuracy, checking them against computer printouts, and
filing the forms with the appropriate government office.
Having watched this process for years, and being thoroughly
familiar with the businesses that are the subject of these
filings, I can tell you with firm assurance that all of this
time and paper did absolutely nothing to advance our
collective efforts to thwart money laundering and terrorism.
This trend is only likely to accelerate and demand more and
more staff to report on more and more harmless transactions,
further burying the real needles of money laundering under an
exponentially growing mound of the hay of legitimate business
transactions mindlessly recorded at great expense and
increasing opportunity cost. Surely neither business nor the
government can afford this wasted effort.
We have passed the time of studying what to do--GAO did
that in 1994 and concluded then, as we all would now, that
unnecessary reporting is taking place. It is about time to
take effective action to make the system
[[Page H4580]]
better. We must find a way to realize the policy objective of
focusing on reporting with ``a high degree of usefulness,''
and to successfully exempt reports on the financial
transactions of law-abiding American businesses.
The Current Exemption Process Is Irretrievably Mired in Red Tape
ABA worked cooperatively with FinCEN and the federal
banking regulators to encourage institutions to make better
use of statutory exemptions when they were changed in the
late 1990's. Our Association did extensive outreach to our
members, and while some institutions adjusted their CTR
filing policies and utilized the two-tier exemption process,
the general response was lukewarm at best.
Unfortunately, the compliance technicalities for, and
examiner second-guessing of, banker use of the exemption and
the renewal processes have discouraged many institutions from
utilizing the discretionary exemptions. The current Phase II
exemptions make distinctions among types of cash intensive
businesses or exemptible accounts and require statutorily
mandated annual reviews plus resubmission obligations. These
specifications generate difficulties in determining whether a
customer is eligible for exemption, produce fear of
regulatory retribution for misapplying criteria and incur
costly additional due diligence. ABA has even received
reports from members that examiners have threatened penalties
and other formal criticisms for simple late filing of
biennial renewal forms, a regulatory climate that shouts,
``Warning'' more than it does ``Welcome.'' There should be
little wonder then that banks are reluctant to try swimming
in these waters.
We have heard it suggested that bankers do not use the
exemption process because they have computerized systems that
make filing CTRs a snap. I am here to tell you that the snap
you hear is the floor boards in my file room straining under
the load of my required five years worth of retained CTRs and
related BSA compliance records. First, let me note for the
record that not all banks can afford computerized CTR filing
systems. Second, adopting technological efficiency in the
cause of compliance may have value as a cost control effort,
but it is no virtue when it only expedites filing useless
data about legitimate business activity. Indeed, the
suggestion to automate demonstrates a recognition that the
vast majority of these reports are repetitive and routine and
therefore likely to be of small value in combating money
laundering.
A reporting regime that presents us with the choice of
suffering the gauntlet of exemption qualification paperwork
and concomitant auditor or examiner second-guessing or
instead filing numerous useless CTRs, is not sound public
policy. That is why tinkering with the current exemption
process will not make an appreciable dent in the overwhelming
number of CTRs filed each year. As FinCEN conceded in its
Report to Congress in October 2002, recommendations for
improving the exemption process regulatorily are at best
incremental. Instead, we must start anew an updated
Congressional mandate that clears away the convoluted
structure of the present exemption process and substitutes a
direct and simplified standard.
Newer Tools Allow Us To Eliminate CTR Filings for Seasoned Customers
The current cash transaction reporting program has been
rendered virtually obsolete by several developments: enhanced
customer identification programs, more robust suspicious
activity reporting, and the use of the more focused and
intensive 314(a) inquiry/response process.
In light of these developments, to continue to require CTR
filings for business customers whose identity has been
verified under a bank's Customer Identification Program (CIP)
and tested under a period of experience with the bank and
that remain subject to risk-based suspicious activity
reporting is an inefficient use of limited resources by
bankers and law enforcement. In the field, it diverts scarce
examiner resources, focusing on compliance with technical
reporting standards rather than carefully evaluating bank
programs for detecting transactions that possess a likelihood
of involving money laundering and terrorist financing.
Exempt Seasoned Customers From CTRs
Accordingly, we support H.R. 5341, embodying the
recognition that the best way to improve the utility of cash
transaction reporting is to eliminate the valueless reports
being filed on legitimate transactions by law-abiding
American businessmen and businesswomen. This improvement can
be achieved by establishing a seasoned customer exemption for
business entities, including sole proprietorships, as
endorsed by FinCEN last year in testimony before Congress and
now embodied in H.R. 5341. (ABA proposed a similar concept in
its response of May 4, 2005 to the banking agencies' request
for comment for burden reduction suggestions under the
Economic Growth and Regulatory Paperwork Reduction Act.)
The exemption, as proposed in the bill and supported by
ABA, is comprised of three elements: Existence as an
authorized business, maintenance of a deposit account at a
depository institution for 12 months, and use of the account
to engage in multiple reportable currency transactions. The
simplicity of this standard avoids the unnecessary compliance
barbs that have previously snagged past efforts to make
effective use of prior exemption systems. This
straightforward definition is essential for the exemption to
work and to reduce filing reports on routine business
activity.
It is important to remember that cash transaction data will
not be lost, but rather will continue to reside in the bank
account records. It will, therefore, be available to law
enforcement whenever sought in connection with a targeted
inquiry from government enforcement entities. In particular,
by using the USA PATRIOT Act 314(a) inquiry process, law
enforcement will be able to locate transaction data and other
relevant information on a broad range of accounts of
suspects. That more targeted approach is working and
producing tangible results today.
As FinCEN reported on April 25, the 314(a) process has been
used by fifteen federal agencies from November 2002 to April
2006 covering over 500 significant money laundering or
terrorist financing cases identifying more than 4,000
subjects of interest. The 314(a) process has yielded the
identification of 1,932 new accounts, leading to 1196 Grand
Jury Subpoenas, producing 90 indictments, 79 arrests and 10
convictions. Although the process has been in place less than
four years and many money laundering or terrorist financing
cases take several years to develop before they are actually
prosecuted, the indictments, arrests and convictions are
impressive. To put it mildly, there are no comparable
measures of success for cases initiated through CTRs.
It has been suggested that the 314(a) process is flawed
because it ``can only be used on the most significant
terrorism and money laundering investigations.'' However, ABA
believes that requirement is one of its great strengths
because it better matches the benefit of the information
collected with the burden imposed on the banks. At least now
when banks are called on every two weeks under 314(a) to
search for and report all accounts maintained by a subject of
interest, they are doing so for an investigation that is
considered a significant terrorism or money laundering
matter--not a fishing expedition.
As H.R. 5341 makes clear, all seasoned business customers
would continue to be subject to suspicious activity
monitoring and reporting. SARs provide precise account and
related transaction information as well as extensive
narrative detail not available in CTRs. This reporting
enables law enforcement to focus resources on conduct or
activities where there is a greater likelihood of genuine
risk and where investigative resources can be used more
productively. In addition, the SAR procedures permit law
enforcement to obtain the bank's entire supporting
investigative file upon request, without needing a subpoena.
As FinCEN reported in 2002, SARs have replaced CTRs as the
primary tool for identifying suspicious activity. CTRs are
now used to locate financial activity of already identified
subjects of interest--the same purpose for which 314(a)
inquiries are made. Although there have been examples cited
by law enforcement of the continued use of CTRs, they do not
specifically rebut the wisdom of a seasoned customer
exemption. Talk about ``connecting the dots'' amounts to
nothing more than anecdotal illustrations of how spotty the
utility of CTRs on American businesses has become. They do
not demonstrate that CTRs on seasoned customers meet the
statutory requirement of ``a high degree of usefulness.''
After all, CTRs on non-seasoned entities would still be
filed, reporting the movement of cash that does not go
through an established business account relationship. In
addition, law enforcement will have all the identifying
information in the seasoned customer designation wherever and
whenever that business has seasoned status. In other words,
law enforcement will continue to have access to information
on where subjects of interest are conducting their financial
affairs.
As former FinCEN Director William Fox stated in a September
2005 testimony on the seasoned customer proposal before this
Subcommittee, ``We believe this language addresses many of
the issues with our current exemption regime that were
causing it not to have its intended effect. Due to its
complexity and the burden involved in exempting customers,
financial institutions were not taking advantage of the
exemption regime. This proposal seeks to streamline the
exemption process by focusing on a one-time notice to
[FinCEN] of an exemption and focusing on the customer's
relationship with the bank as the grounds for such exemption.
We believe that these changes will make the exemptions more
effective while still ensuring that currency transaction
reporting information critical to identifying criminal
financial activity is made available to law enforcement.''
ABA joins in those sentiments and strongly supports the
Seasoned Customer CTR Exemption Act, H.R. 5341 that seeks to
follow through on former Director Fox's endorsement.
Conclusion
Eliminating CTR filings for seasoned customers would have
the following benefits:
The vast majority of the over 13 million CTRs filed
annually would stop, saving the time, money, and labor
expended by businesses to fill out forms, and consumed by law
enforcement to process them.
There would be an improvement in the quality of SARs,
eliminating those that are filed today in connection with
innocent, idiosyncratic deposit activity. Banks would be able
to focus their energies on detecting genuinely suspicious
currency transactions, regardless of artificial thresholds.
[[Page H4581]]
We would make an enormous stride forward in focusing our
anti-money laundering efforts--by both law enforcement and
the banking industry--on the real crooks and terrorists with
far greater likelihood of detecting and stopping their
activities.
I thank the Chairman and his colleagues for their
commitment to improving the BSA system and assure you that
ABA and its members share that commitment. We are all
striving to make the system work best, to protect the
security of our banking system from abuse by money launderers
and terrorists, and to safeguard the confidence that our
customers have that the integrity of their legitimate
business conduct is respected.
Mr. HENSARLING. Quoting from his testimony, Mr. Speaker, ``In my bank
during the past year, we filed 2,766 cash transaction reports, and we
do not have any public companies as customers. In fact, most of these
CTRs were filed for ordinary transactions by an ice cream parlor, a
clam bar, a restaurant and a high-volume Amoco dealer, all of whom have
done business with us for many, many years. My tellers spent more than
460 hours in the branches preparing the CTR forms, and one person in
our main office spent more than 1,000 hours checking the forms for
accuracy, checking them against computer printouts, and filing the
forms with the appropriate government office. Having watched this
process for years, and being thoroughly familiar with the businesses
that are the subject of these filings, I can tell you with firm
assurance that all of this time and paper did absolutely nothing to
advance our collective efforts to thwart money laundering and
terrorism.''
That is just one small community banker in America. We know they are
spread throughout the Nation. In fact, it was over a decade ago, Mr.
Speaker, that the GAO concluded that unnecessary reporting was taking
place. I am sorry to say that, 10 years later, it still is taking
place.
So many of these banks are filing these cash transaction reports
defensively, and yet we know that we still have the know-your-customer
regime that is in place. The suspicious activity reports are still in
place, and these are better enforcement tools for law enforcement than
the CTRs.
In addition, by passing this particular piece of legislation, the
information doesn't disappear. It is still available for law
enforcement. The cash transaction data will continue to reside in bank
account records and be available to law enforcement when they need it,
when they are following up a lead. We have heard from law enforcement
itself that, in many cases, what we see is that they are searching for
a needle in a haystack. The excessive CTR reports are putting more hay
on the haystack.
As former FinCEN Director William Fox stated, quote, we believe this
language, really talking about the legislation at hand, addresses many
of the issues with our current exemption regime that were causing it
not to have its intended effect.
In many respects, Mr. Speaker, I think we are going to be able, by
passing this legislation, to really help in two different areas. Number
one, make sure law enforcement has the right amount of information in
the proper form that they need to do their job, but, at the same time,
to make sure that we don't drive any more of our community banks out of
business, the lifeblood, at least in my district, of our rural
communities that are out there creating the jobs necessary to sustain
those rural communities.
So the House has really spoken on this matter once before in a very
resounding fashion, in a very resounding bipartisan fashion. I
certainly want to thank Ranking Member Frank for his leadership in this
area as well.
But we need a rule of reason. It is a question of balance.
Particularly when we have our know-your-customer routine, when the
suspicious activity report requirements are still in place, the CTR
process as presently envisioned is not working, and that is why it is
so necessary that we pass the legislation brought to us by the chairman
and the gentleman from Alabama; and I commend him for his work.
Mrs. MALONEY. Mr. Speaker, there are no further speakers on our side
of the aisle, and I yield back the balance of my time.
Mr. BACHUS. Mr. Speaker, in conclusion, I simply want to say to the
Members who may be listening to this discussion, what we are talking
about here is a restaurant, a movie theater, a corner drugstore, a
retail establishment. These are businesses that have been in the
community for years and years. As a matter of course, every week,
sometimes every day, they file large sums of cash.
The very idea that we would impose, as we did in the Bank Safety Act,
a requirement that the banks, every time this happens, file a report.
As FinCEN estimated last year, it takes 25 minutes to prepare these
reports, to review them, to catalog them and to file them. Then it
takes the FBI or others, IRS, who administers this program, 5 to 6
minutes. So you are talking about, for the average small bank in a
medium-sized town, as Mr. Hensarling said, you are talking about
hundreds of hours of wages, not to speak of the time.
As we have been hearing for 10 or 12 years, these reports have
absolutely no usefulness in identifying money laundering, serious
financial crimes, terrorist financing. It is past time that this
Congress lifts what is a multimillion dollar burden on our financial
institutions and, at the same time, allows law enforcement, directs law
enforcement, in fact, to go after the bad guys. Focus attention on
those nonroutine, nonstandard transactions.
Remember, the banks still must require, any time something is out of
the ordinary to the routine, causes any type of questions, they
actually have rules and regulations where they are required, in those
cases, even if it is an established customer, if it is an out-of-the-
ordinary transaction or raises suspicion, they have to file a report.
That is the purpose of this legislation, to streamline that process.
Mr. Speaker, in closing, for the record, I would like to introduce
the September 2005 testimony of William J. Fox, Director of the
Financial Crimes Enforcement Network at the United States Department of
Treasury.
Statement of William J. Fox, Director, Financial Crimes Enforcement
Network, United States Department of the Treasury
Chairman Bachus, Ranking Member Sanders and distinguished
members of the Subcommittee, I appreciate the opportunity to
appear before you today to discuss your efforts to balance
the burdens imposed on the financial industry by the
requirements of the Bank Secrecy Act of 1970, specifically,
providing the government with highly relevant information
that assists law enforcement in making our financial system
more transparent and our country safer. I am the Director of
the Financial Crimes Enforcement Network, which has been
delegated the responsibility by the Secretary of the Treasury
to administer the Bank Secrecy Act. The Financial Crimes
Enforcement Network is part of Treasury's new Office of
Terrorism and Financial Intelligence, led by Under Secretary
Stuart Levey. The creation of this office has greatly
enhanced Treasury's efforts and accomplishments on issues
relating to money laundering, terrorist financing and other
financial crime.
As the administrator of the Bank Secrecy Act, we bear
responsibility for ensuring that the Bank Secrecy Act is
implemented in a way that achieves the policy aim intended by
the Congress, which is, simply stated, to safeguard the
United States financial system from the abuses of financial
crime, including money laundering and terrorist or other
illicit financing. This is a day-to-day challenge in a
financial system where we generally promote the unfettered,
free-flow of commerce and where criminals strive to
manipulate the system with the same ingenuity and
sophistication of the very best in the industry.
Ensuring that we strike the right balance between the cost
and benefit of this regulatory regime is, in my view, a
central responsibility for my agency. While I do not believe
this cost/benefit analysis can be reduced to a mathematical
formula, I believe we must constantly study how we can more
effectively tailor this regime to minimize the costs and
other burdens imposed on our financial institutions while at
the same time ensuring that the law enforcement community
receives the information it needs to combat financial crime
and terrorism.
This effort is particularly important because I am more
certain than ever that compliance with the Bank Secrecy Act's
regulatory regime is a critical component to our country's
ability to utilize financial information to combat terrorism,
terrorist financing, money laundering, and other serious
financial crime. Moreover, the systems and programs that are
mandated by the Bank Secrecy Act make our financial system
safer and more transparent.
Over the past year I have traveled quite a bit around the
country listening to the frustrations members of the
financial industry have with the Bank Secrecy Act. Many of
those frustrations relate to how the Act is being
implemented. Many in the financial industry complained about
the lack of clarity in requirements and consistency in
examination. At the same time, the Congress has
[[Page H4582]]
questioned the effectiveness of our collective ability to
implement this regime in light of several highly publicized
and significant regulatory failures by certain financial
institutions. Mr. Chairman, I am pleased to report that by
working diligently with my colleagues at this table, we have
made significant progress on these issues. In the past year:
We have signed groundbreaking information-sharing
agreements with the five Federal Banking Agencies, the
Internal Revenue Service and thirty-three (33) state
authorities. We are working to finalize similar agreements
with the Securities and Exchange Commission and the
Commodities Futures Trading Commission.
We have assisted the Federal Banking Agencies with the
development of a comprehensive Bank Secrecy Act examination
manual that we believe will ensure greater consistency in
examinations for depository institutions, and will provide a
significant source of guidance and help for those
institutions.
We are together issuing more and better guidance to ensure
greater clarity and consistency of regulatory policy. A good
example of this is the recent guidance we issued jointly with
the Federal Banking Agencies on the provision of banking
services to money services businesses.
We have created and staffed an Office of Compliance within
our Regulatory Division to ensure better clarity and
consistency in how the Bank Secrecy Act is implemented and
provide us with an assessment of the overall success of our
Bank Secrecy Act Regulatory Program.
We are--for the first time--devoting nearly 25 percent of
our analytic muscle to regulatory issues and programs. These
analysts are not only identifying compliance problems and
targeting problematic institutions for examination, they will
also develop and provide information to the financial
industry to help them better understand and assess the risks
posed by their business lines and customer base.
We believe these steps and the steps we have planned have
helped improve the overall implementation and effectiveness
of the Bank Secrecy Act. Ensuring that we present the
financial industry with regulatory requirements that are both
clear and consistent is, in my view, one of the best ways we
can reduce the burden associated with Bank Secrecy Act
compliance.
Consistency is a crucial element of the effective
implementation of the Bank Secrecy Act, and, indeed, is one
of our core objectives. While we, of course, stand ready to
assist the Committee and this Congress by examining any
aspect of the Bank Secrecy Act, I would emphasize that over
the past year, the level of cooperation between my agency and
the Federal Banking Agencies has grown significantly. As
reflected in the steps we have taken together, we all
recognize the need for a consistent voice on these important
regulatory issues, and are building the necessary
coordination mechanisms.
The focus of my testimony before the subcommittee today is
on H.R. 3505, specifically, how that bill would affect the
Bank Secrecy Act. I would like to focus on one key concept in
this legislation; your effort to reduce the burden imposed on
the financial industry of filing Currency Transaction
Reports. We have been grappling with the issue of how to
improve the Currency Transaction Report regime for some time.
We know that Currency Transaction Reports are valuable to law
enforcement. These reports--often coupled with other
information--are used every day to identify and locate
criminals and terrorists. However, we also know that some of
the Currency Transaction Reports filed by financial
institutions are of little relevance in the investigation of
financial crime. We also know that depository institutions,
especially our community banks, identify the time and expense
of filing Currency Transaction Reports as the number one
regulatory expense. Indeed, the Congress has in the past
recognized the need to reduce the number of Currency
Transaction Reports that may not have a high degree of
usefulness to law enforcement, ordering us to find a way to
do so. However, it is clear that our efforts to encourage the
exemption of routine filings on certain customers have not
brought about the reductions in filing that were sought.
Two years ago we turned to the Bank Secrecy Act Advisory
Group, bringing in the viewpoints of the industry, law
enforcement, and regulatory communities, to address this
question. Through this process, we learned that our
colleagues in law enforcement have made significant strides
recently in their ability to utilize currency transaction
reporting data, marrying this data with other law enforcement
data to maximize its benefit. We also have enhanced our
analytic capability to exploit this data source on both micro
and macro levels. Such innovations enhance the utility of our
analysis, and it is essential that we not reduce the flow of
critical information just as the technical firepower to
exploit this information is reaching new heights.
This Committee now is considering language that would amend
current exemptions by allowing banks to qualify certain
customers as exempt from routine currency transaction
reporting. We believe this language addresses many of the
issues with our current exemption regime that were causing it
not to have its intended effect. Due to its complexity and
the burden involved in exempting customers, financial
institutions were not taking advantage of the exemption
regime. This proposal seeks to streamline the exemption
process by focusing on a one-time notice to my agency of an
exemption and focusing on the customer's relationship with
the bank as the grounds for such exemption. We believe that
these changes will make the exemptions more effective while
still ensuring that currency transaction reporting
information critical to identifying criminal financial
activity is made available to law enforcement.
However, we also recognize that we need to monitor these
changes to ensure that they do not result in a reduction in
information that would be highly useful to our law
enforcement clients, and accordingly the proposal contains a
wise requirement to conduct a study after some time has
elapsed to ensure that we are striking the proper balance.
In conclusion, Mr. Chairman, I hope that my testimony today
conveys the sense of commitment, energy, and balance with
which all of us at the Financial Crimes Enforcement Network
are addressing the challenging issues that confront our
administration of the Bank Secrecy Act. The importance of
your personal and direct support of these efforts cannot be
overstated. Your oversight will ensure that we meet the
challenges that we are facing. I know how critical it is that
we do so, and we hope you know how committed we are to
meeting those challenges. Thank you.
Mr. BACHUS. Mr. Speaker, I yield back the balance of my time and urge
all Members to vote in favor of this legislation.
The SPEAKER pro tempore. The question is on the motion offered by the
gentleman from Alabama (Mr. Bachus) that the House suspend the rules
and pass the bill, H.R. 5341, as amended.
The question was taken; and (two-thirds having voted in favor
thereof) the rules were suspended and the bill, as amended, was passed.
A motion to reconsider was laid on the table.
____________________