Evolving regulation—from the Bank Secrecy Act through the USA Patriot Act: who are your customers, what are they doing, and why should you care?

RMA Journal, The,  July-August, 2004  by Michael I. Frachioni

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In particular, the OCC handbook provides examples of potentially suspicious activities that should alert institutions to the need for further investigation. These are broken into several categories:

1. Activities inconsistent with the customer's business.

* Numerous accounts opened for a particular business with frequent transactions among the accounts.

* Numerous cash deposits or withdrawals inconsistent with the customer's business.

* Numerous cash purchases of traveler's checks, money orders, cashier's checks or wire transfers, or deposits of same into customer's accounts, inconsistent with the customer's business.

* Sudden and inconsistent changes in transaction patterns from the customer's normal activities.

Obviously, it is important to be familiar with customers' business and banking practices.

2. Avoiding reporting or record-keeping requirements.

* A business or new customer that asks to be exempted.

* A customer who is reluctant to provide necessary report information, or to proceed with the transaction after being informed that a report must be filed.

* Numerous currency deposits or withdrawals in teller or ATM transactions that appear to be intended to keep such transactions under reporting thresholds.

3. Wire transfers.

* International wire transfer activity, particularly to or from financial-secrecy haven countries, without an apparent business reason or that are inconsistent with customer history.

* Large, round-dollar amounts.

* Funds transferred in and out of an account on the same day or within a short period.

The above examples of efforts to avoid reporting requirements and suspicious wire activity demonstrate the need for comprehensive and continuing training of all bank personnel involved in any way with such activities.

A recent example of non-compliance. In April 2004, the Wall Street Journal reported that Riggs Bank of Washington, DC, failed to properly report dozens of substantial withdrawals from the personal accounts of the Saudi Arabian ambassador to the U.S., totaling more than $20 million in cash. The bank acknowledged that it failed to file SARs on the withdrawals, which were made with sequentially numbered checks. In addition, the bank has been classified as a "troubled institution" by the OCC for failing to adequately strengthen its controls against money laundering, despite a 2003 OCC order to do so.

Finally, the bank apparently failed to report deposits of more than $300 million by Exxon Mobil Corporation into accounts of Equatorial Guinea that were controlled by that country's president.

At the very least, such failures are acts of nonfeasance that evidence a lack of appropriate compliance policies and procedures, training, and oversight. At worst, such acts are examples of intentional malfeasance, which should be dealt with even more harshly.

In this case, regulatory action was swift and severe. On May 13, the OCC announced the assessment of a $25 million civil money penalty against the bank for BSA violations, then further directed it to assess the competence of management and staff and to implement an audit program to determine its level of compliance with applicable laws and regulations and detect irregularities in operation.