By Jim Vilker
In February, the U.S. Government Accountability Office (GAO) published a report to Congress based on reports of businesses and residents of Southwest border communities whose financial services were terminated—and in some cases whole branches closed—due to the perceived Bank Secrecy Act risk.
Here is the final recommendation: “GAO recommends that FinCEN and the federal banking regulators conduct a retrospective review of BSA regulations and their implementation for banks. The review should focus on how banks' regulatory concerns may be influencing their willingness to provide services. The federal banking regulators agreed to the recommendation. FinCEN did not provide written comments.”
They preface the study by defining derisking as “the practice of banks limiting certain services or ending their relationships with customers to, among other things, avoid perceived regulatory concerns about facilitating money laundering.”
Not Limited to the Border
My contention is this is not limited to border communities and has spread to both rural and urban America, coast to coast.
The topic of catering to marijuana-related businesses (illegal in the minds of the Justice Department) is on many credit unions’ minds and in a recent discussion I had with 45 compliance professionals I asked how many were catering to Money Service Businesses (legal in all states and at the federal level). Interestingly, not one credit union raised their hands. They have derisked these organizations for years due to the perceived risk posed by regulators and regulatory guidance.
The fact that credit unions and CUSOs have derisked money service businesses poses a dilemma to one of the most important cooperative principles around which credit unions exist: community. We have been led to believe that money service businesses are the devil incarnate. For those that do serve their community, primarily in more rural settings, where the local grocery store, convenience stores, or small money transmitters required financial services, in many cases these types of businesses are registered as money service businesses that perform vital financial services to the community such as cashing checks or transmitting money for the unbanked. These businesses do pose elevated risk—to manage the relationship does take additional time and effort—but are viewed in the same vein as those performing cross border transactional activities.
Ingrained in the Psyche
Derisking has been going on for so long it has become ingrained in the psyche of risk professionals and rarely if ever challenged in the world of bank secrecy. This has subsequently led to communities losing vital services to those unbanked citizens when in all reality we could have supported and serviced these businesses allowing them to provide vital services to those in desperate need. I applaud the GAO for this report to Congress and look forward to the NCUA evaluating its regulatory guidelines and tactics relative to the GAO’s recommendations.
Jim Vilker is VP Professional Services with AuditLink.