Banks that get penalized by regulators for helping law enforcement track bad guys through their accounts could get a reprieve in the form of new legislation.
Rep. French Hill, R-Ark., a member of the House Financial Services Committee and a former banker, introduced legislation last week to provide a “safe harbor” for financial firms that keep open a suspicious account at the request of law enforcement so that they don’t get penalized for doing so.
Under the Bank Secrecy Act and anti-money laundering regulations, banks face strict rules for managing accounts so that they cannot facilitate money laundering, terrorism financing, drug running, and other illegal activities.
But sometimes banks receive notices from law enforcement agencies, known as “keep open” letters, requesting them to keep an account open so that they can track payments and better monitor criminals. Such requests could come from the FBI, the Drug Enforcement Administration, Department of Homeland Security, Treasury’s Financial Crimes Enforcement Network, local police, or any other law enforcement agency.
If banks help out law enforcement and comply, though, they face the risk of being penalized by regulators for allowing an account to be used for criminal purposes. Law enforcement agencies are supposed to provide a written notice that they requested that they account be kept open, but bankers say there are no guarantees.
It’s not clear how widespread the problem is, because both customer accounts and the law enforcement requests are supposed to remain confidential. Banks are reluctant to discuss the problems.
But banking industry participants who asked to speak on the issue anonymously suggested that the problem is fairly widespread.
“Sometimes banks are between a rock and a hard place,” said one banker.
Hill, who was the CEO of a Little Rock community bank, said he had experienced the conflict of wanting to help law enforcement by keeping an account open but was unable to because it would have hurt the bank.
His bill “enables partnerships without repercussions between law enforcement agencies and our local financial institutions by allowing law enforcement to monitor cash flows associated with criminal investigations,” he said.
The legislation, the Cooperate with Law Enforcement Agencies and Watch Act, is not part of a bank regulatory relief package that faces a final vote in the House this week and appears to be headed to President Trump’s desk.
Instead, proponents hope that it can move on its own, earning bipartisan support, on the grounds that it would aid the government in tracking and stopping money launderers, drug dealers and so forth, by helping banks help them.
“The whole idea is to support law enforcement,” said one bank industry official.
