Endorse a Priority-Focused,
Risk-Based Approach
BY ROBERT S. PASLEY
LMOST FOUR DECADES since
the passage of the Bank Secrecy Act
(BSA), the board of the American
Bankers Association (ABA) decided
it was time to take a fresh look at the
accumulated compliance obligations
and the growing regulatory burden they represent.
Accordingly, the board impaneled a chairman’s
committee on BSA reform made up of leading BSA
professionals within the banking industry. This effort
culminated on October 16, 2008, when the ABA is-
sued a report, “A New Framework for Partnership,”
in which it made five recommendations for reform
of the country’s BSA and anti–money laundering
(AML) regime. The report and its recommendations
establish a basis for both a discussion of possible BSA
reform and an enhanced partnership between the
banking industry and the government.
In the last issue of ABA Bank Compliance, the first
and fifth recommendations—pertaining to the need
for a BSA gatekeeper and the need for revisions with
regard to the prosecution of BSA violations—were
summarized and analyzed. This article addresses the
second, third, and fourth recommendations, which
deal with the need for an explicitly articulated risk-based BSA regime, the need for enhanced BSA-related
feedback and transparency, and the need for streamlining and providing enhanced quality control over BSA-related reports and recordkeeping requirements.
While it is reassuring that the Financial Crimes
Enforcement Network (FinCEN) recently made some
minor modifications to the cumbersome exemption
requirements to currency transaction reports (CTRs),
1
this effort was far too meager and cautious to accomplish
much. The ABA report envisions much bolder changes.
Recommendation 2
The second recommendation of the ABA report is
that the bank regulatory agencies should explicitly
endorse a priority-focused, risk-based approach to
BSA regulation, coupled with deference to each bank’s
risk assessment and assignment of priorities for its
BSA compliance program. As set forth in the report,
each bank, understanding its particular operations
and customers, is uniquely positioned to design a BSA
program that focuses resources where there is the greatest opportunity for addressing and mitigating the risk
posed by money laundering and terrorist financing.
While many BSA examinations and administrative enforcement actions are priority-based in that
they tend to focus on high-risk transactions and
activity and on the most serious risks and instances
of noncompliance, this is not always the case. According to the ABA report, too often the approach
to BSA compliance takes every risk identified in an
assessment and marries it to an expectation that that
risk must be minimized without regard to its overall
significance. To counter this, the report recommends
that there be a formal and explicit statement issued by
all bank regulatory agencies espousing the need for,
and importance of, priority-focused BSA compliance,
examinations, and enforcement actions.
In 2007, the Financial Action Task Force (FATF)
explained the risk-based approach as follows:
By adopting a risk-based approach, competent authorities and financial institutions are able to ensure
the measures to prevent or mitigate money laundering
and terrorist financing are commensurate to the risks
identified. This will allow resources to be allocated in
the most efficient ways. The principle is that resources
