Garrett Supports Bill to Make Banks More Effective Partners in War on Terror

Garrett Supports Bill to Make Banks More Effective Partners in War on Terror

Today, Congressman Scott Garrett, a member of the House Financial Services Committee, voted in favor of H.R. 5341, the Seasoned Customer Currency Transaction Report (CTR) Exemption Act of 2006. Congressman Garrett has long been an advocate of reducing excess regulatory burdens on banks and making required reporting more effective tools for routing out terrorism.

The number of CTRs filed annually has reached over 13.1 million and requires preparatory work of 5.5 million staff hours at a cost of $187 million in wages. The resulting sea of paperwork makes it nearly impossible for law enforcement officials to preemptively find authentic threats of terror, all the while draining the financial industry of resources. H.R. 5341 improves the existing process under the Bank Secrecy Act by allowing financial institutions to be exempted from filing reports on large cash transaction by well-known customers. The House passed the bill by voice vote.

Congressman Garrett wrote the following op-ed, which appeared in Commerce magazine, a publication of the Commerce and Industry Association of New Jersey, earlier this month:

Shrinking the Haystack: Lessen the Burden on Banks and They'll Be More Effective Partners in the War on Terror

In 1970, with growing complexity in our financial system and with the number of ways for criminals to move money around rapidly increasing, Congress passed the anti-money laundering statute known as the Bank Secrecy Act (BSA). The statute was put in place to prevent criminals, particularly drug dealers, from using our financial institutions like Laundromats where they wash their dirty money. The BSA was both necessary and good, and it served its purpose well.

But a lot has changed in 36 years. The new money laundering threat is terrorist organizations. Modern times have found some of the BSA's provisions antiquated and inefficient - not adjusted for contemporary threats or even for inflation. What was once a law created to help catch drug traffickers has now morphed into a law that lies on the front lines of the war on terror. And, while the BSA was modified by the Patriot Act after September 11th, there are still changes that must be enacted to maintain the law's effectiveness.

In fact, two provisions that should be updated relate to reports the BSA requires financial institutions to file - Currency Transaction Reports (CTRs) and Suspicious Activity Reports (SARs). Both reports, while well-intentioned, have imposed a tremendous regulatory burden on financial institutions and have provided an over-abundance of information to law enforcement agencies without a corresponding increase in benefit to our efforts to thwart terrorist networks. For the most part, the reports are not effective tools for preventing crimes and terrorist attacks but the corresponding burden on banks in terms of filing costs and regulatory requirements is enormous.

The Currency Transaction Reports were created to follow any large transaction through financial institutions to catch money laundering before it became a fait accompli. But, the BSA provision that created them is outdated. What was considered a large amount of money in 1970 is hardly so by today's standards. In fact, the threshold for filing a CTR is $10,000. In today's standards, that's about $50,000. With the provision caught in time, banks are locked in a situation by which they are filing CTRs for many everyday transactions. And, because of the frequency of these filings, paper overflows and the actual tracking of criminal activity is severely hampered. Potentially criminal transactions that should set off alarms with banks and law enforcement are drowned out in a sea of paperwork.
Significantly, the transactions made by the terrorists prior to their September 11th attacks did not even reach the $10,000 threshold. Terrorists have shown time and time again that they know how to exploit our laws, and the Bank Secrecy Act is no different. The CTR is not an effective tool for fighting today's threats and it is a drain on financial institutions. Banks spend valuable resources on filing these reports - resources that could be better directed towards more efficient, convenient services, such as hiring new employees, building new branches, originating loans, or opening new ATMs. The real costs and opportunity costs on financial institutions are enormous.

Suspicious Activity Reports, also mandated by the BSA, have also posed a substantial burden on financial institutions. Banks are forced to file extensive paperwork on trusted clients who have held accounts with them for years out of fear that the banks will face penalties for failing to meet unclear requirements for what activity is actually "suspicious." And, like the CTRs, the sheer number of SARs filed each year has made it nearly impossible for the government agencies responsible for the country's security to supply the manpower necessary to comb through these reports for signs of actual criminal activity. Identifying a terrorist transaction is already like finding a needle in a haystack; and because of the broadness of these reports and their requirements, we've created a haystack the size of a barn.

Ultimately, we must help our financial institutions be better partners with law enforcement in protecting our homeland. And, we can only do this by easing the burden on financial institutions and updating the requirements of current law. The House of Representatives has passed some improvements, but they remain under consideration in the Senate and they are only minor improvements. Congress must consider raising the threshold for which CTRs must be filed and clarifying the suspicious activities that trigger SARs. These simple changes would allow banks to direct their resources to more effective ends and would allow law enforcement agencies to better identify truly suspicious transactions. Our economy is a legitimate target of terrorism and our financial institutions can be unwittingly used by terrorists to fund their attacks. We must empower financial institutions to be real partners in the war on terror, not bog them down with unnecessary paper-pushing requirements.

http://garrett.house.gov/News/DocumentSingle.aspx?DocumentID=46176