The U.S. House of Representatives on October 25, 2019, passed a bill designed to update the Bank Secrecy Act for the first time since the PATRIOT Act. The bill contains report language that could add valuable data to the body of knowledge on the drivers and consequences of derisking, ultimately benefitting nonprofit organizations (NPOs) struggling with access to financial services.
The Coordinating Oversight, Upgrading and Innovating Technology, and Examiner Reform Act of 2019 (COUNTER Act, H.R. 2514) directs the Secretary of the Treasury, in consultation with the Federal functional regulators and other relevant stakeholders, including those in the private sector, to undertake a formal review and issue a report on the “adverse consequences of financial institutions de-risking entire categories of relationships, including charities, embassy accounts, money services businesses”; the reasons why financial institutions are engaging in derisking; the association with and effects of derisking on money laundering and financial crime actors and activities; and the most appropriate ways to promote financial inclusion while maintaining compliance with the Bank Secrecy Act (Section 111).
The review will include an assessment of policy options to “more effectively tailor Federal actions and penalties to the size of foreign financial institutions”; reduce compliance costs that may lead to derisking; “formal and informal feedback provided by examiners that may have led to de-risking”; and any best practices from the private sector that facilitate correspondent bank relationships.
A new provision in the bill directs the Secretary of Treasury to develop a strategy to reduce derisking and its adverse consequences. A report on the review and the strategy must be issued within one year of the bill’s passage.
The bill that passed the full House appears to have dropped a provision, supported by Charity & Security Network, that would have required 10 hours of annual training for federal bank examiners on anti-money laundering (AML) and the countering of the financing of terrorism (CFT), including, among other items, “de-risking and its effect on the provision of financial services.”
Earlier this year, Charity & Security Network sent a letter to House Financial Services committee leadership, thanking the committee for its efforts to tackle the derisking crisis and suggesting language to enhance the bill in ways that would benefit NPOs. In particular, the letter highlighted the bill’s language on bank examiner training and noted, “We hope that the committee will also direct the federal financial regulators to update the sections of the Bank Examination Manual that refer to nonprofit organizations, to bring it in line with the Financial Action Task Force’s 2016 revision to its Recommendation 8. That revision shed the perception of nonprofits as uniformly vulnerable to terrorist abuse and emphasized the importance of a risk-based approach. These changes were echoed in U.S. Treasury’s 2018 update to its National Terrorist Financing Risk Assessment.” A group of nonprofit organization and financial institution representatives met in 2017 to rewrite the NPO sections in the Bank Examination Manual. Those suggested changes were submitted to regulators in October 2017 but have not yet been implemented. The House-passed bill did not take up this suggestion.
It is unclear whether this House-passed bill, or the Senate’s Bank Secrecy Act reform effort, known as the ILLICIT CASH Act (S. 2563), will move through the Senate. The Senate bill was introduced on September 26, 2019. Charity & Security Network sent a letter to the Senate on a discussion draft of the bill last summer.
We will continue to monitor developments on these important bills.