Spitzer's Downfall, Part II: More on Banking Laws and Regulations By Andrew Cochran Kourtney McCarty of the Association of Certified Anti-Money Laundering Specialists (ACAMS) sent the following short summary on the banking laws applied and enforced in the Eliot Spitzer matter. ACAMS is an international organization which performs the vital service of educating and certifying anti-money laundering officials. As I wrote on Wednesday, these same laws and regulations are at the heart of anti-money laundering and counter-terrorist financing efforts, so I am posting most of that discussion below with her permission. The pros in the business already know all of this; the Spitzer matter is an opportunity, however unfortunate in nature, to educate the general public. The ACAMS discussion clarifies a point about the term "politically exposed persons" that I added near the end of my post and might have confused readers. Commonly misunderstood AML concepts currently in the news include: 1. CTRs, SARs: What's the difference? In short, a Currency Transaction Report (CTR) is required for reporting a single currency transaction, or multiple transactions within one day, of an amount of $10,000 or more. A Suspicious Activity Report (SAR) is required to be reported to the Financial Crimes Enforcement Network (FinCEN) on transactions that have been identified as suspicious by the financial institution regardless of the amount of the transaction.
2. What is "structuring"? Structuring is dividing payments into a set of transactions where each individual transaction does not exceed the $10,000 reporting threshold. This method of structuring payments is designed to evade the reporting requirements for a CTR. Under recent amendments to the Bank Secrecy Act, structuring is now considered a felony. Transactions meeting the definition of structuring under the Bank Secrecy Act require the filing of a Suspicious Activity Report.
3. Does the government screen every banking transaction of every customer? No - the government's review of banking transactions rarely occurs at the individual level. Of the more than one million SARs filed by banks, government agencies physically review only a small portion. With the number of duplicates accounted for, SAR filings on individuals represent a small fraction of the total banking population with reviews representing an even smaller fraction.
All SARs are entered into a government database that is accessible by government agencies including law enforcement, which will review patterns in SAR filings. Nevertheless, the idea of "Big Brother" watching every American’s banking activity is grossly overstated.
4. What’s the difference between a politician and a “PEP”? The term “PEP” means different things in different jurisdictions. In the U.S, under the USA PATRIOT Act, a “PEP” (politically exposed person) is a “senior foreign political figure,” such as a foreign head of state or member of a royal family. Under the Act, banks are required to conduct enhanced due diligence on the private banking relationships of “senior foreign political figures.” Thus, enhanced scrutiny of U.S. politicians’ private banking relationships is not required by the law. According to the Wolfsberg Group, an international organization of banks dedicated to curbing money laundering, “PEPs” include persons whose current or former position can attract publicity beyond the borders of the country concerned and whose financial circumstances may be the subject of additional public interest.
5. What are "shell companies"? Shell companies are entities without a physical presence in any country or jurisdiction, are legal, and can serve a legitimate purpose. The risk is that many are created to conceal the beneficial owners and can be used for illicit purposes. They pose a major threat to the security of the U.S. and global financial systems by making them vulnerable to money laundering and terrorist financing. Due to this increased threat, the government has provided guidance to institutions on the importance of managing the risk associated with shell companies.
The ACAMS discussion also notes that “a SAR is required by law to be maintained confidential by the institution and by government agencies involved. Any investigation should never be publicized as being a result from a filing of SAR.” Dennis Lormel has posted twice on the use of "shell companies" and his recommendations for increased federal oversight: "Shell Companies: Contemplated Legislation an Encouraging Sign," February 22 "Shell Companies…Facilitation Tool for Money Laundering and Terrorist Financing," April 22, 2007 March 14, 2008 11:16 AM
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