Bankrupting the banks? Historic trial may find financial institutions liable for the terrorist acts of customers

By Christine Duhaime | August 25th, 2014

Banks and financial institutions around the world are closely watching the Linde v. Arab Bank case unfold in New York City. It’s the first civil trial against a bank for alleged violations of the AntiTerrorism Act of 1990 (“ATA“), 18 USC 2331. The litigation seeks to hold the Arab Bank, a third party, liable for injuries resulting from acts of terrorism. Liability, potentially in the billions of dollars for financial institutions, may come down to whether the Arab Bank had a competent anti-money laundering compliance regime in place to assess terrorist financing risks, including from non-listed entities.

Whether we like it or not, unfortunately every terrorist organization at some point uses financial institutions, directly or indirectly. Many are unlisted or undesignated. And the numbers keep increasing. Unfortunately, acts of terrorism increased 69% from 2011 to 2012 and then a further 43% from 2012 to 2013. From a risk perspective, that equates to significantly more exposure for banks. We’re not seeing is a corresponding change at financial institutions to address increased risks by improvements to counter-terrorist financing programs.

Close to 300 victims of terrorist attacks committed in Israel, Gaza and the West Bank from 2001 to 2004 are suing the Arab Bank under the ATA for damages for injuries caused by terrorism, alleging that the Arab Bank provided terrorist financing by, among other things, providing wire transfer services to non-listed and listed organizations some of whom, in turn, paid terrorists and their families for committing terrorist acts. The Arab Bank says that it processed wire transfers in the normal course, consistent with its AML policies and procedures and did not knowingly provide financial services to persons affiliated with terrorism.

If the plaintiffs are successful, banks around the world may face exposure for similar claims in the tens of billions of dollars for dealing with funds that ultimately benefit terrorists or terrorist organizations (whether listed or not), not just in the Middle East but wherever terrorists receive financial services in the world, including the Middle East, Canada and the EU.

How perfect does your counter-terrorist regime have to be?

The litigation will focus minutely on wire transfers processed by the Arab Bank and on the steps the Arab Bank took to mitigate against terrorist financing activities to non-listed entities. Generally, under anti-money laundering and sanctions law, banks cannot provide financial services to listed terrorist groups, or deal in funds directly or indirectly controlled by a listed terrorist group. It’s the detection of the indirect provision of financial services and indirect ownership of funds that is often difficult for banks to reconcile within their compliance regimes. In this case, a novel aspect is the alleged provision of services to non-listed entities.

The Arab Bank’s anti-money laundering compliance regime will either be a billion dollar liability or a billion dollar defence, depending upon the extent to which it adequately addressed preventing terrorist financing.

$50 million for not doing look-backs

In 2005, the Arab Bank New York, which acted as a correspondent bank, was penalized by FinCEN for, inter alia, clearing funds for beneficiaries or originators that were listed entities even though at the time of the processing of the funds, they were not listed. The Arab Bank failed to complete a “look-back” program. A “look-back” is performed by a financial institution after a person, group or entity is sanctioned or listed and it involves the financial institution completing a retroactive review of recent activity to identify potential suspicious activity. FinCEN found that if the Arab Bank had undertaken a look back, it would have discovered that it had cleared funds for persons that were subsequently listed and would have filed suspicious activity reports. It did neither and was penalized for failing to retroactively monitor transactions for sanctions and terrorist financing.

The litigation has already raised many areas of concern for international banking including:

(a) Liability for providing financial services to a non-listed entity

The Arab Bank is being sued for providing financial services to an organization named the Saudi Committee that was not listed as a terrorist organization but that allegedly had, as one of its purposes, the payment to families for completion of acts of terrorism. The Arab Bank allegedly permitted that organization to maintain bank accounts, receive funds from banks overseas and to make payments from its accounts for acts of terrorism. The Arab Bank argued that it properly screened clients and wire transfers and it is not liable for the downstream use of funds deposited and processed if it later emerges those funds were used for terrorism.

(b) Ruling that foreign banks cannot rely on national privacy laws 

The Arab Bank was prevented by its national privacy laws in Jordan from providing documents it was ordered to produce in the litigation. It sought Jordanian Court approval to provide customer account documents to the plaintiffs, which was denied. The failure to produce documents resulted in a US Court sanction order that will allow the jury to make a negative inference on the failure to produce, namely that the Arab Bank provided financial services to listed terrorist organizations and distributed payments to terrorists for the Saudi Committee.

The plaintiffs maintained that the Arab Bank had previously disclosed some of the same documents that were part of the orders for production and it was unwilling, not prohibited, from producing them. Some of those documents were provided to the Department of Justice in connection with an investigation of another entity.

(c) Relevant to FATCA

The decision is relevant, win or lose, to the implementation of FATCA in places such as Canada where privacy laws do not trump anti-money laundering laws. The Arab Bank unsuccessfully appealed to the US Supreme Court on the issue of a foreign financial institution’s ability to rely on sovereign privacy laws to avoid producing documents. The US Treasury weighed in the debate arguing that foreign banks could not rely on bank secrecy laws to trump certain activities such as the global efforts to combat terrorism or tax evasion. Tax evasion (FATCA), like anti-money laundering law, appears to trump privacy law.

(d) By implementing anti-money laundering laws, countries have subordinated other legal interests

The US Courts held that countries such as Jordan and Lebanon have “subordinated” the privacy rights of their natural and legal persons (banks and their clients) to their national interest in fighting terrorism by adopted the FATF Recommendations, and entered into agreements in respect of anti-money laundering laws in which they renounced reliance on bank secrecy as a basis for refusing MLA assistance of other governments in terrorist investigations. Fighting terrorism through private rights of action under the ATA is the greater protected interest. This would apply theoretically to any foreign bank sued in the US advancing the foreign privacy legal impediment versus terrorism argument.

II. Terrorist financing litigation against Canadian banks may increase in & outside Canada

Litigation in US

The decision will cause an increase in litigation against Canadian banks with branches in the US in cases with similar facts, namely an international act of terrorism with a US connection in which a Canadian correspondent or branch processed financial transactions that benefitted the terrorist organization that injured the victim.

The use of correspondent accounts in a US state is sufficient to assert personal jurisdiction over foreign financial institutions for terrorism-related injury claims by victims. The inability of foreign banks to rely on criminal and civil penalties imposed on them for disclosure of confidential client information as a result of the Arab Bank case, further erodes defences available to foreign banks in the US.

Litigation in Canada

Banks (Canadian and foreign) can also expect an increase in claims in Canada pursuant to the Justice to Victims of Terrorism Act (the “Act“) implemented a year ago because Canadian plaintiffs will similarly look to banks in Canada for recovery of damages for acts of terrorism.

The Act creates a cause of action that allows victims of terrorism to sue natural and legal persons and certain foreign states, in a Canadian court for loss or damages suffered as a result of acts or omissions that are punishable under Part II.1 of the Criminal Code (the terrorism offences). The cause of action is available to victims who are Canadian, permanent residents or if none of those, to a person who can demonstrate a real and substantial connection between their claim and Canada.

Although any “person” (such as a bank, law firm, association, corporation, broker, private equity fund) is a potential defendant under the Act, the threshold is seemingly high in that claimants have to establish that the defendant committed one of the following acts or omissions:

  • Knowingly collected or provided property for terrorist activities (such as financing);
  • Knowingly possessed property to facilitate terrorist activities;
  • Knowingly dealt in property owned or controlled by a terrorist group;
  • Knowingly facilitated a transaction in respect of property controlled by a terrorist group;
  • Provided financial or other services in respect of property controlled by a terrorist group;
  • Failed to disclose property (assets, bank accounts, funds, etc.) in which the person has possession or control to the RCMP or CSIS; and
  • Relevant to brokers, banks, financial institutions, trust companies, or any other deposit taking institution, failed to report to the RCMP that it is (or is not) in control of funds or other property controlled by a listed entity.

US courts have established on language substantially similar to Canadian provisions, above, that providing financial or other services to a terrorist group is an act of international terrorism.

Claims are available whether the loss occurred inside or outside Canada after January 1, 1985, however, if the loss occurs outside Canada, there must be a real and substantial connection to Canada. With respect to prospective defendants, under the Act a defendant is presumed to have committed the terrorist act if the listed entity caused or contributed to the loss or damage and the defendant committed the act for the listed entity.

The Act also suspends limitation periods where the victim is incapable of commencing an action because of physical, mental and psychological conditions, or when the victim is unable to ascertain the identity of a perpetrator.

State Immunity Act

The Act amends the State Immunity Act to create a new exception to state immunity, the general rule that prevents states from being sued in Canada’s domestic courts. The exception removes state immunity only if the state in question has been placed on a list established by Cabinet on the basis that there are reasonable grounds to believe that it has supported or currently supports terrorism.

The relaxation of state immunity is controversial. Under international law, states have customarily enjoyed complete immunity from being sued in the domestic courts of other states. This arises from the international law principle of the sovereign equality of states, which includes the principle that no one state be subject to the courts of another. This principle has been modified for years in the context of maritime law as a result of commercial necessity.

Questionable constitutionality

The Act is of questionable constitutionality because it allows victims to recover for tortious conduct which is a matter purely of provincial, not federal, competence under §92(13) of the Constitution Act, 1867.

No doubt the first bank defendant in Canada will challenge the constitutionality of the Act, although for policy reasons, it would be arguably better for a banking association to challenge it in advance of the filing of a claim.

From an anti-money laundering perspective, it is advisable for global banks to ensure that the counter-terrorist financing components of their procedures are consistent with, inter alia, the FATF, the UN Security Council resolutions and sanctions laws and that, from the top down, their personnel have been adequately trained on terrorist financing counter measures.

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Casino employee fined by FinCEN over anti-money laundering compliance issues

By Christine Duhaime | August 21st, 2014

The Financial Crimes Enforcement Network (“FinCEN“) has fined a former manger of a US casino over anti-money laundering compliance violations. According to the Wall Street Journal, George Que, a former manger of VIP services at Tinian Dynasty Hotel & Casino, assisted high rollers at the casino to gamble outside of the Bank Secrecy Act reporting regime by agreeing not to file suspicious activity reports and currency transaction reports for the players.

During an undercover operation, Mr. Que allegedly promised a representative of a Russian businessman that if his client brought large amounts of cash to the casino, he wouldn’t file money laundering reports.

According to the Wall Street Journal, FinCEN has stated that it plans to focus its attention on the casino industry and registered gaming employees who fail to undertake the requisite anti-money laundering compliance obligations. In casinos in the US that involves, inter alia, reporting suspicious activity, terrorist financing activity and currency transaction reports; having an adequate compliance regime in place with an appointed qualified compliance officer; and providing training on the requirements of the BSA.

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FINRA ramps up anti-money laundering compliance actions at securities firms

By Christine Duhaime | August 18th, 2014

The Financial Industry Regulatory Authority (“FINRA“) announced today that it filed a  Complaint against Wedbush Securities Inc. for alleged egregious and systemic anti-money laundering compliance infractions. According to the Wall Street Journal’s Risk & Compliance Journal, FINRA has made enforcement of securities anti-money laundering a priority. According to securities firms in Toronto, so have Canadian securities regulators.

Wedbush is one of the largest independent securities brokerage firms in the US.

According to the Complaint, Wedbush allegedly failed to develop and implement written anti-money laundering policies, procedures and internal controls that were risk-based to its market-access business and that could achieve compliance with the Bank Secrecy Act.

Apparently, it also failed to investigate suspicious activity in financial transactions or to file many SARs as and when required.

According to the Complaint, no one appears to have been in charge of the firm’s AML compliance function. That function apparently was delegated to an AML officer and a Senior VP of Correspondent Services who allegedly was not adequately trained on AML and whose department was understaffed to perform the AML function. This latter person allegedly sub-delegated the AML function to another untrained person who then delegated the task to a fourth untrained analyst.

You can read the Complaint here.

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PwC settles with New York bank regulator over anti-money laundering and sanctions advice

By Christine Duhaime | August 18th, 2014

The New York Department of Financial Services (“NYDFS“) has announced that it has entered into a settlement with the advisory firm of PricewaterhouseCoopers Regulatory Advisory Services (“PwC“) over anti-money laundering and sanctions compliance advice it provided to the Bank of Tokyo Mitsubishi (“Bank of Tokyo“).

PwC is suspended for two years from accepting consulting work with financial institutions regulated by the NYDFS. Pursuant to the settlement, PwC will make a $25 million payment and undertake a remediation program.

The regulatory involvement stemmed from a look-back assignment undertaken by PwC for the Bank of Tokyo which involved a historical review of wire transfers completed by OFAC listed countries and entities. According to the announcement, the Bank of Tokyo had a policy of falsifying wire transfer information. Under pressure from the Bank of Tokyo, PwC removed information in a report to regulators regarding the wiring practices, including references to business with “enemy countries” in the U.S. Moreover, a partner apparently informed employees that Bank of Tokyo attorneys would get “all twisted up” about OFAC alerts language in a memorandum to the client.

The Settlement Agreement is available here.

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UK issues binding guidance for MSBs imposing personal liability on directors / officers for terrorist financing and money laundering compliance failures

By Christine Duhaime | August 17th, 2014

Unlimited monetary fines at stake for compliance failures

By Christine Duhaime, B.A., J.D., Financial Crime and Certified Anti-Money Laundering Specialist

The UK HM Revenue and Customs (“HMRC“) has issued revised guidance (the “Guidance“) for money services businesses (“MSBs“) that renders directors, officers, partners, managers, secretaries and members of the management committee of a MSB personally liable for money laundering and terrorist financing compliance failures.

On conviction, directors and officers are liable to a term of incarceration for up to two years and to an unlimited monetary fine.

Summary of Guidance

The Guidance explains to MSBs in a lengthy 65 pages what their obligations are in respect of anti-money laundering and counter terrorist financing law which include in brief:

  • Anti-money laundering training of staff including receptionists, administrative and finance staff,  nominated officer and senior managers.
  • Understanding beneficial ownership (the natural persons who own shares in private entities).
  • Undertaking CDD in respect of persons and companies.
  • Conducting non face-to-face CDD that requires taking additional steps such as obtaining verification by a bank or lawyer or using reputable, certified third party software.
  • Undertaking enhanced due diligence for high risk situations such as when dealing with politically exposed persons.
  • Record keeping.
  • Nomination of officer who has responsibility for reporting.
  • Filing of mandatory reports.
  • Preparation of internal reports on suspected or known instances of money laundering or terrorist financing.
  • Relying on 3rd parties for CDD only in cases where the 3rd party agrees to the reliance and is a lawyer, financial institution, auditor, accountant or other approved regulated person.
  • Having adequate procedures and controls in place to manage identified risks.
  • Identifying risks to the business and developing a risk profile.
  • Preparing a policy statement for the business on how it will prevent money laundering and terrorist financing.
  • Ensuring the enterprise has sufficient resources (people and financial) to effectively operate its compliance program.

In terms of personal liability, it is the senior managers of the MSB who are personally liable, not the nominee officer who reports transactions to the government, unless that nominee is also a senior manager of the MSB.

The Guidance took effect on August 8, 2014.

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New beneficial ownership rules in the US to require disclosure of shareholders of private entities in a move towards G20/G8 financial transparency

By Christine Duhaime | August 17th, 2014

New Beneficial Ownership Rules

By Christine Duhaime, B.A., J.D., Financial Crime and Certified Anti-Money Laundering Specialist

FinCEN has released draft rules under the Bank Secrecy Act to identify the legal and beneficial shareholders (the natural persons) of private corporate entities (also known as legal persons). In other words – the disclosure of natural persons involved in all legal persons. The rule will take effect within a year after coming into force to allow for systems changes and training of compliance personnel on what corporate beneficial ownership means.

Purposes of Rules

The purposes of the proposed rules are to facilitate reporting by foreign banks and institutions pursuant to FATCA; promote consistency and enforcement of CDD requirements across financial sectors; facilitate investigations and prosecutions, particularly for tax evasion involving offshore bank accounts; to monitor sanctions compliance; and to implement the financial transparency commitments of the US to the G8 and G20 in respect of requiring the disclosure of beneficial ownership information.

Applicability 

The proposed rules apply to all the customers of:

  1. Banks.
  2. Brokers and dealers of securities.
  3. Mutual funds.
  4. Futures commission merchants and introducing brokers in commodities.

Private companies, LLPs, partnerships, funds, entities, foundations, etc. wherever incorporated or formed, including Canada, that open a new account are caught, except funds and assets in a payable-through account.

Also exempted are entities, inter alia, that are exempt from the customer identification requirements under the US CIP rules; issuers who issue securities under §12 of the Securities Exchange Act; majority owned US subsidiaries of US listed entities; investment companies that are registered; certain investment advisors; exchange clearing houses; and public accounting firms.

No Look Backs

Entities will not be required to look back for compliance, in other words, retroactively undertake reviews of accounts to determine beneficial ownership.

Requirements

1. Identification of Beneficial Ownership

The proposed rules will require the identification and verification of all natural persons (shareholders) of all legal entities, subject to certain exemptions at the time an account is opened. The verification will be in respect of identification, not beneficial status. Obviously, the latter would be too onerous.

Beneficial ownership has a two prong meaning in this context and in some ways is reflective of both AML law and securities law. In order to comply, financial institutions will be required to undertake identification and verification pursuant to one of the prongs, as follows:

(a) Ownership – natural persons who own 25% or more of the shares of every private legal entity whether held directly or indirectly or by way of contract, arrangement, understanding, or other arrangement, or

(b) Control – natural persons with significant responsibility to control, manage or direct the entity including the CEO, CFO, COO, Managing Partner, General Partner, President, Vice-President or Treasurer and anyone who performs those functions however titled.

De Jure and De Facto Determinations Required

Several comments provided to FinCEN noted that with complex legal structures, especially with private or hedge fund financings or pledges of shares, for example, determining the control person may be challenging. FinCEN’s expectation pursuant to the rulemaking guidance is that financial institutions will have to undertake more analytical steps to make those determinations. The proposed rule does not make determining beneficial ownership any less or more complex – it will remain a legally complex issue and in particular because the guidance notes that FinCEN expects that financial institutions will determine de jure and de facto nominees that give a natural person ownership of 25% of the shares of a private entity.

2. Nature and Purpose of Relationship

The financial institution must also understand the nature and purpose of the client’s business in order to develop a risk profile. This requirement is not intended to change onboarding practices, or to require that customers be asked questions about the nature and purpose of their business but rather it is intended to make sure financial institutions understand the relationship to be able to catch transactions that are out of pattern.

3. Ongoing Monitoring

Finally, it is expected that there will be ongoing monitoring of accounts for suspicious activity. Nothing is necessarily new in this aspect and in fact, it is merely intended to introduce consistency. Notably, it is intended to codify the rules promulgated by the FINRA’s broker-dealer program in any event that are meant to detect suspicious transactions and the reporting thereof pursuant to 31 USC §5318(g).

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US banks driving improved money laundering controls at casinos

By Christine Duhaime | August 16th, 2014

Banks driving compliance changes

By Christine Duhaime, B.A., J.D., Financial Crime and Certified Anti-Money Laundering Specialist

According to this story in Reuters, banks in the US are reluctantly driving American casinos towards greater anti-money laundering compliance. Casinos are bank clients and pursuant to anti-money laundering legislation, banks have to monitor their clients’ transactions for risks in any event and report certain transactions regardless of the sources, including clients that are themselves reporting entities. In Canada, money services businesses are usually independently audited by AML specialists at least once a year in order to maintain bank accounts – a condition imposed on them by banks because of the heightened risks some of them pose. The Department of Justice recently subpoenaed 50 banks that process transactions for several industries such as payday lenders and apparently is looking for compliance by the banks with anti-money laundering requirements in respect of its clients that are high risk.

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Standard Chartered Plc completing massive “look back” program

By Christine Duhaime | August 15th, 2014

Months of Look Backs Required

By Christine Duhaime, B.A., J.D., Financial Crime and Certified Anti-Money Laundering Specialist

According to this article in Reuters, as a result of non-functioning anti-money laundering software, Standard Chartered Plc will be undertaking the monumental task of reviewing millions of processed transactions to determine if such transactions should have been reported or subjected to enhanced due diligence under anti-money laundering laws but were not.

The exercise, known as “look backs” will take months to complete and will likely cost more money in terms of analysts’ time than the faulty software itself. The review will have to look at suspicious activity, terrorists lists, politically exposed persons, and sanctioned persons and entities. Subsequent to the look back review, however, identified transactions will then have to be reported and addressed.

Apparently, the software glitch may result in a fine of more than $100 million against the bank for anti-money laundering compliance failures.

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FedEx charged with money laundering over alleged drug shipments

By Christine Duhaime | August 14th, 2014

Additional Charges

By Christine Duhaime, B.A., J.D., Financial Crime and Certified Anti-Money Laundering Specialist

FedEx Corp. has been indicted over allegations of money laundering in connection with five shipments it made of alleged illegal prescription drugs from online pharmacies in which several persons are alleged to have died. According to ABC News, FedEx faces a $1.6 billion fine if found guilty.

According to the indictment, online pharmacies sent controlled drugs without legal prescriptions to consumers and used proceeds of crime (from their illegal drug sales) to pay their FedEx bills. The money laundering charges were added to an existing indictment against the company in respect of the shipment of drugs and controlled substances that was the result of a nine-year investigation. The original indictment charged FedEx with conspiracy to distribute controlled substances and distribution of controlled substances.

The FedEx case is unlikely to be settled because the larger issues of the liability of federal carriers in respect of the carriage of illegal substances and acceptance of proceeds of crime (all as alleged) for payment won’t be resolved by settlement. It raises numerous parallel issues for Internet and other carriers in similar circumstances. FedEx is not an industry subject to the BSA and yet the charges in the revised indictment in some respects may suggest that it is being held to anti-money laundering CDD standards applicable to industries that do report under the BSA.

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Thoughts on FinCEN Director’s speech on bank de-risking and the refusal of banking services to MSBs (and by implication, Bitcoin)

By Christine Duhaime | August 12th, 2014

De-risking that results in unbankable businesses 

By Christine Duhaime, B.A., J.D., Financial Crime and Certified Anti-Money Laundering Specialist

In a speech delivered to the anti-money laundering legal and law enforcement community, the Director of FinCEN, Jennifer Shasky Calvery, made some interesting and compelling comments that touch on the economic costs of anti-money laundering (“AML“) law, namely the costs of compliance. As a result of massive AML compliance fines in the US and EU, many global financial institutions have eliminated certain so-called high risk accounts such as money services businesses (“MSBs“) and those belonging to politically exposed persons in a banking practice called “de-risking”.

De-risking from a legal perspective involves advising banks and other financial institutions on minimizing legal risks associated with certain business lines, or in some cases, not adopting a certain business line of services because of heightened legal risks. That advice is normally subject to the caveat that financial institutions may incur legal risks by de-risking decisions if those decisions result in the deprivation of services to certain persons, groups or sectors.

De-risking from the banking perspective involves the decision to de-risk a product, service or business line or the institution itself.

In the past year, de-risking has resulted in the almost wholesale elimination of banking services for certain legitimate business sectors in Canada, Australia and the US that are engaged in providing MSB services, including some digital currency businesses like Bitcoin exchanges, that may be competently managed and legally compliant.

Besides the business problem with that approach from the MSB’s perspective, the denial of services to MSBs is not a desirable outcome from an anti-money laundering and financial crime perspective. That’s because the ultimate purposes of the Bank Secrecy Act and in Canada the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, is to create a reporting mechanism for suspicious transactions to government agencies to: (a) prevent significant financial crimes from continuing; (b) facilitate criminal prosecution; and (c) prevent terrorism before it commences. Those purposes cannot be accomplished when financial institutions de-risk to the point of eliminating an entire business sector, such as MSB services. It may sound counter-intuitive, but the AML/CTF regime could not function without the requisite reporting of suspicious activity transactions. If we created a massive shadow banking regime such as exists in China and Vietnam, we would be more at risk from terrorist financing and other threats to the financial system and, not to be diminished, our democratic way of life generally.

Ms. Shasky Calvery spoke about the issue of de-risking of MSBs and the consequent denial of banking services, which by implication includes Bitcoin exchanges, although she did not mention Bitcoin or digital currencies.

The whole of Ms. Shasky Calvery’s speech is excellent. Relevant excerpts are below:

“I would like to discuss some of the challenges we need to address together as we work to combat … threats. While we might not leave here today with all of the answers, sometimes the hardest part is just starting the dialogue.

We have been hearing about instances of “de-risking,” where money services businesses (MSBs) are losing access to banking services because of perceived risks with this category of customer and concerns about regulatory scrutiny…But just because a particular customer may be considered high risk does not mean that it is “unbankable” and it certainly does not make an entire category of customer unbankable.

It is not the intention of the AML regulations to shut legitimate business out of the financial system. I think we can all agree that it is not possible for financial institutions to eliminate all risk. Rather, the goal is to provide banking services to legitimate businesses by understanding the applicable risks and managing them appropriately.

MSBs play a vital role in our economy and provide valuable financial services, especially to individuals who may not have easy access to the formal banking sector… banking organizations may provide banking services to MSBs that operate lawfully. The guidance [2005 Federal Banking Agencies Joint Guidance] is intended to assist banks in the decision to open and maintain accounts for legitimate businesses by identifying the programs and procedures they should have in place to perform customer due diligence and monitoring of these customers for suspicious activity.

MSBs play an important role in implementing procedures to thwart serious illicit activity that, left unchecked, could jeopardize the U.S. financial system. MSBs also play an important role in providing crucial reporting used to combat a wide range of criminal and security threats.

While we are hearing reports of de-risking, we do not yet know how widespread it is, and we are still working to gauge the impact. FinCEN continues to meet informally with industry representatives and other experts to explore additional ways to gather feedback on the issue.

One idea that has been discussed is the possibility of MSBs, depository institutions, and their respective trade associations coming together and developing a set of industry best practices, which if adopted by an MSB, could provide a depository institution with more comfort in offering banking services.”

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