Take This to the Bank

• By Ralph C. Jensen
• Dec 01, 2007

You may not know this, but financial institutions are required by the federal government to spy on their customers. It’s all part of the Bank Secrecy Act, which requires financial institutions to keep records of personal financial transactions that might be useful in determining criminal activities.

The Treasury Department also is authorized to require financial institutions to report suspicious transactions that might violate laws or regulations. Called suspicious activity reports, this data is filed with the department’s financial crimes enforcement network.

This isn’t a new phenomenon, nor does it have anything to do with 9/11. Congress passed the Bank Secrecy Act in 1970 to fight money laundering in the United States. Among its requirements are that businesses comply with law enforcement agencies, domestic and international, and to identify, detect and deter money laundering to further criminal enterprise, terrorism, tax evasion or other unlawful activity. It also means that financial institutions must report cash payments of more than $10,000 received in a trade or business. If you have a foreign bank account, brokerage account, mutual fund, unit trust or other financial account, you also might be required to report such payments yearly to the IRS.

Financial institutions fight money laundering by filing suspicious activity reports, one of the government’s main weapons in the fight against money laundering, as well as other financial crimes. The government is very serious about its security reporting and anti-money laundering program. In September, Union Bank of California, N.A., a wholly-owned subsidiary of UnionBanCal Corp., based in San Francisco, entered into a deferred prosecution agreement regarding charges of failure to maintain an effective antimoney laundering program. The bank will forfeit $21.6 million to the government and hand over $10 million to the Financial Crimes Enforcement Network.

In its investigation, the government determined that Union Bank failed to implement an adequate anti-money laundering program reasonably designed to identify and report transactions that exhibited indicia of money laundering or other suspicious activity. The bank also failed to monitor Mexican casa de cambio transactions and report suspicious activity, despite knowing of the heightened risk of money laundering posed by bank customers. It was an expensive mistake for Union Bank. It was charged with one count of failure to maintain an effective anti-money laundering program. The bank acknowledged its responsibility and agreed to file the information.

According to the U.S. attorney general’s office, banks that knowingly disregard the legal obligation under the Bank Secrecy Act are easily exploited by drug cartels and other criminals. The illegal drug market is a multi-billion-dollar market, and the law requires that financial institutions know their customers and practice due diligence.

It’s all part of a well-planned and well-executed security plan. When banks fail to uphold their responsibilities, they turn their legitimate business into a currency stash house used by international drug traffickers to line their pockets, fuel more trafficking and corrupt government officials and global economies. The fact is, our economy depends on the integrity of financial institutions and the work these institutions do to ensure compliance with anti-money laundering regulations.

Excuses for not doing so only lead to questionable security practices.