'WSJ: Treasury’s Bank Regulation Takeover Has New Goal: Anti-Money-Laundering Rules'

 The Trump administration is preparing a shake-up of anti-money-laundering rules, in an effort to overhaul a system for catching illicit transactions by drug traffickers, terrorists and other criminals that banks complain is costly and ineffective.

In a draft term sheet circulated to the nation’s banking regulators, the Treasury Department has proposed taking a more central role in the enforcement of anti-money-laundering rules.

The current system provides law-enforcement officials with some insight into the murky world of illicit finance, but it isn’t necessarily effective at stopping money laundering before it happens. The Wall Street Journal earlier this year reported how one money-laundering group in Los Angeles County was able to launder more than $50 million for the Sinaloa cartel, including by making six-figure deposits at JPMorgan Chase and Bank of America branches.

Banks have pressed for changes like the ones in the proposal and criticized regulators for being too focused on technical compliance and not the spirit of the money-laundering laws. The industry broadly has been cheering the administration’s efforts to cut regulations on everything from how much capital they hold to how much they can lend, while also reining in federal watchdogs. The Trump administration, and Treasury Secretary Scott Bessent, think the restrictions on banks have inhibited economic growth.

The AML proposal could give the Treasury’s Financial Crimes Enforcement Network the ability to veto a finding by another regulator that a bank has infringed on the Bank Secrecy Act. If finalized, it could allow banks in some cases to avoid being penalized by regulators for what the Treasury views as mere technical violations of their anti-money-laundering systems.

The Treasury’s proposal could change, and the rule it envisions would undergo a public comment period before going into effect. The proposal is meant to establish a right of consultation for FinCEN and won’t necessarily lead to the agency vetoing other regulators, a person familiar with the matter said.

Early in the administration, Trump officials were seeking to combine some of the nation’s banking agencies, the Journal reported. Since then, Bessent has staked out a leading role for the Treasury Department, saying it would work to ensure regulators were operating in parallel with each other and the industry.

The latest proposal puts the Treasury Department in a similar position on AML laws. In October, Bessent had foreshadowed the change, saying future revisions would “position FinCEN as a gatekeeper” over AML enforcement.

The Bank Secrecy Act, enacted in 1970, essentially deputizes banks to act as the first line of defense against money laundering. Under the law, banks are required to screen customers and build systems for detecting activity that could represent money laundering. Suspicious transactions and large cash deposits are reported to the government, where they become a part of a database maintained by FinCEN.

Tens of millions of reports are filed each year, but few spark investigations, critics contend.

Congress has given both FinCEN and the nation’s banking regulators—the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.—authority to independently enforce parts of the Bank Secrecy Act.

Regulators conduct periodic examinations of the bank’s anti-money-laundering programs. Under the Treasury proposal, regulators would essentially have to ask FinCEN for permission to bring an enforcement action if they found a violation.

FinCEN then would take into consideration the extent to which a bank had previously provided useful information to law enforcement. Under the proposal, FinCEN would presume any suspicious-activity report to be “highly useful” if it fell under a set of priorities articulated by the agency.

Congress enacted a series of anti-money-laundering revisions in 2021, and required FinCEN to establish a list of national priorities that would allow banks to more efficiently allocate resources toward screening for higher risk threats.

Kevin Toomey, a lawyer at Arnold & Porter, said the Trump administration appears intent on giving banks a clearer picture of what constitutes an effective AML program.

“I can’t tell you how many clients spend millions of dollars on technical violations that have nothing to do with the effectiveness of the program,” he said.

https://finance.yahoo.com/news/treasury-bank-regulation-takeover-goal-120000911.html