Tags: FinCEN | regulation | US | financial

Proposed Regulation Puts US Financial Industry at Risk

By Denis Kleinfeld
Monday, 11 Aug 2014 07:47 AM Current | Bio | Archive

The Treasury has proposed a new regulation that threatens the entire financial industry of the United States.

The Treasury's Financial Crimes Enforcement Network (FinCEN) has issued a proposed regulation that would require all financial institutions to dramatically increase the customer due diligence on both existing accounts and new accounts.

FinCEN explains that this action is an important tool to track down the real people behind companies that abuse our financial system to secretly move and launder illicit gains.

Who are all these criminals?

Presumably everyone in the United States. That includes you.

The process was described by one commentator as the "indiscriminate gathering of sensitive information on everyone in a NSA-style dragnet for perusal by authorities."

Banks, credit unions, securities brokers and insurance companies are but a few who would collect your personal information and report it all into the bowels of the federal bureaucracy. What is more they will continue to monitor your financial activity and continue reporting to the government.

How would this affect most people?

If you have a trust account, they will need to know who the beneficiaries are and get due diligence on them. If there is a company account, then everyone who owns 25 percent or more of the company must come clean. No doubt "structuring" to avoid this intrusion would be a criminal violation. Whether money goes in or out, all would be subject to scrutiny.

Your life is not your own any longer. This proposed regulation would make it an open book subject to public examination.

To be fair, the problem is not a creation of the Treasury. The underlying problem lies, as it usually does, with Congress.

FinCen is responsible for implementing the Bank Secrecy Act of 1970 (BSA, or as it is commonly known the Anti-Secrecy Act) as amended by the USA Patriot Act of 2001. The Patriot Act was another of those political knee-jerk reaction laws where Congress expressed the best of intentions and promptly enacted the worst possible legislation to achieve them.

Determining whether the BSA and Patriot Act have worked out as Congress intended should be a good indicator of whether more of the same will make things better or worse.

FinCEN regulations require banks and other financial institutions — like jewelry stores and automobile dealerships — to file something called a "Suspicious Activity Report" (SAR). Basically, any business that involves a financial transaction with a customer of more than $5,000 must file a SAR on whatever it is they think is suspicious.

Without telling the customer.

Since this system has been in place for over a decade, it's reasonable to examine the effectiveness of this methodology.

Do SARs prevent terrorist financing, drugs, illegal transportation of women and children, tax fraud, mortgage scams and Ponzi schemes?

The answer is no.

There have been millions of SARs filed with the government. According to the Government Accountability Office, the government cannot point to a single instance where the SARs have "helped inform actions to deter terrorists' threats or led to arrests or convictions."

Remarkably, they blame this on the fact they have two reporting systems not linked.

Significant parts of the financial industry are already screaming at Congress that this form of regulation would drive them out of business. Numerous credible observers have said it would force trillions of dollars of foreign financial investment out of the United States and keep dearly needed capital from flowing in.

The United States is already experiencing a volatile time in all the financial markets. Many prominent financial gurus say there is a growing risk of another repeat of the 2008 financial meltdown.

This new proposed regulation puts the U.S. financial industry at even greater risk.

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The Treasury has proposed a new regulation that threatens the entire financial industry of the United States.
FinCEN, regulation, US, financial
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2014-47-11
 

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