Civil libertarians and small-government conservatives are the loudest critics of the Patriot Act, the anti-terrorism measure adopted after Sept. 11. These critics contend the law infringes on personal liberty and privacy by expanding the investigative powers of law enforcement officials.
Now another complaint is emerging, though one more quietly expressed.
Banks and other financial institutions have begun to lobby to change how federal and state regulators implement the provisions of the Patriot Act that strengthened the Bank Secrecy Act, a measure passed in 1970 to combat money laundering.
Financial-services officials contend that regulators have yet to clarify what is required of them, even as they levy fines for failing to comply with the anti-terror laws. The complaints prompted 48 House members to write a letter to banking regulators Friday asking them to clarify the rules that implement provisions of the Patriot Act and the Bank Secrecy Act, or BSA.
The implementation of these acts “may be creating results that are both counterproductive and damaging to the banking industry,” the lawmakers wrote.
Rep. Tom Feeney (R-Fla.), a member of the House Financial Services Committee, which has jurisdiction over banks, sent the letter to colleagues after hearing from banks about the lack of clarity to rules, said his spokesman Myal Green.
Green said that Feeney’s efforts aren’t designed to overturn the Patriot Act or Bank Secrecy Act but that the congressman wants to open a dialogue between the banks and the six federal regulatory bodies.
“There are communication problems among all involved,” Green said.
Banking lobbyists said rules can change almost on a monthly basis.
“We still have no idea what is expected from us,” one banking lobbyist said. “This is a huge issue for bankers.”
In October, the Financial Crimes Enforcement Network, a division of the Treasury Department, and the board of governors of the Federal Reserve System announced they had fined AmSouth Bank of Birmingham, Ala., $10 million for failing to comply with the Bank Secrecy Act.
Regulators said the bank, which paid the fine without admitting guilt, failed to establish an adequate anti-money-laundering program and failed to file “accurate, complete and timely” suspicious-activity reports.
In addition, regulators fined Riggs Bank $25 million for failing to develop an adequate program to prevent money laundering.
The burden placed on banks by suspicious-activity reports was specifically noted in the House members’ letter. The liabilities banks face, as shown by the AmSouth case, have prompted an “overfiling” of the reports, the letter states. That undercuts their effectiveness: “As one banker put it, ‘we are already searching for a needle in a haystack, and the behavior encouraged is to add more hay,’’ the letter stated.
Molly Millerwise, a Treasury Department spokeswoman, wrote in an e-mail response to questions that the department is “working aggressively towards addressing” the concerns raised in the letter.
The Financial Crimes Enforcement Network and a Bank Secrecy Act advisory group held a public meeting March 8 to discuss the need to clarify the rules.
One of the main problems is how the anti-terrorism laws have affected so-called money-services business. These include money-transfer companies such as Western Union and check-cashing operations.
Facing financial penalties for allowing the transfer of cash to terrorist groups, banks are more often refusing to do business with money-services businesses. The House letter notes reports that the new laws have led to the closing of legitimate businesses and “defensive compliance.”
Millerwise said Treasury officials were aware of the problem and called money-services businesses “key components to a healthy financial sector.”
Today, Financial Crimes Enforcement Network Director William Fox is expected to discuss the Bank Secrecy Act and money-services businesses in testimony before the Senate Banking Committee.
After the March 8 meeting, Treasury officials released additional clarification over how banks should work with money-services businesses. In a joint statement, the six regulating agencies said the view that such businesses present a “uniform and unacceptably high risk of money laundering or other illicit activity” was “erroneous.”
Still, the Financial Crimes Enforcement Network plans to issue “more specific guidance” soon, Millerwise said.
But she added that the fines that have been levied against banks were for “systematic BSA compliance failures.”