November 12, 2013 / 8:43 PM / 5 years ago

U.S. banks may get power to challenge money laundering exams

WASHINGTON (Reuters) - Wall Street banks could get greater power to fight back against bad report cards on their efforts to combat money laundering under a proposal being discussed by U.S. regulators and the financial industry.

The logo of HSBC bank is seen at its office in the Canary Wharf business district of London April 1, 2013. REUTERS/Chris Helgren

The bank examiner reports can form the basis of multimillion-dollar enforcement actions, and banks complain that they currently have little ability to appeal them.

The proposal, which is in early stages, would create an ombudsman to adjudicate disagreements between financial institutions and regulatory examiners, according to several people familiar with the talks.

The idea was raised by the Treasury’s Financial Crimes Enforcement Network, or FinCEN, anti-money laundering arm, to an advisory group of regulators, law enforcement personnel and industry representatives that FinCEN created last year to identify more efficient ways of combating financial crime.

The move could give banks greater power amid a crackdown on how financial institutions vet their customers for illegal drug activity, terrorism or other crimes.

Some of the world’s biggest banks have been hit with hundreds of millions of dollars in fines for failing to catch unlawful proceeds moving through their systems and many more have invested comparable sums to improve their compliance efforts.

The largest settlement to date was with HSBC, which paid a record $1.9 billion last year for its failure to stop huge sums of drug money routed through it from Mexico.

It is unclear whether the idea for an independent arbiter will turn into a formal proposal, or how long it would take to adopt such a proposal.


Regulators at the agencies that examine financial institutions - the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Federal Reserve - in the past have said the firms have access to the agencies’ ombudsman to report any grievances about their examiners.

But bank officials say they feel that avenue is limited since those officials sit within the agencies themselves.

“The industry sits there and chuckles because nobody is going to go to the regulator’s ombudsman on their examiner - they’d be dead,” said one money-laundering executive at a top bank who is part of the group.

The exam process is a confidential one. Disputes between institutions and their examiners rarely emerge in public, although a few recent incidents have shown the tension.

Last month a former Fed examiner sued her former employer and said she had been fired because she refused to change findings critical of Goldman Sachs. Documents released by a Senate committee last year showed JPMorgan clashing with its regulator, the OCC, with its executives yelling at their examiners and calling them “stupid.”

FinCEN Spokesman Stephen Hudak declined to comment on specific ideas generated by the group but said the efforts involved a “very significant undertaking,” and that “parallel work streams” developing the ideas were underway.

“I think the fact we are having these conversations is a good sign,” said Rob Rowe, a lawyer with the American Bankers Association’s Center for Legal and Regulatory Compliance, who has participated in the meetings.

The advisory group, established last November and known as the Delta Team, has been off to a relatively slow start. It has met only twice to date, and a meeting was canceled due to the government shutdown.

In addition to the independent arbiter idea, the group has explored more fundamental logistical issues, according to officials who have attended the meetings.

The group has discussed allowing financial institutions to share official reports about suspicious activity by their clients with their foreign affiliates, which they cannot do under current law.

As a result of the discussions, FinCEN has also encouraged the institutions to share certain types of information that they are currently allowed to share with each other, including specific information about certain customers and transactions.

Reporting by Brett Wolf in St. Louis and Aruna Viswanatha in Washington; Editing by Karey Van Hall and Dan Grebler

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