Community Bankers' Testimony Before House Financial Services Committee

STATEMENT OF

[2] Community bankers vigorously support any effective measures that will help dry up the funds that terrorists depend on. As President Bush and others have said, the war on terrorism will take place on many fronts, and the financial system will play a key role. We look forward to doing whatever we can to help.

[3] Congress is now drafting a variety of legislative proposals to better target money laundering. Given the pace of events, it is difficult to be aware of and comment on all the individual provisions being considered. However, we understand that provisions of two bills that were introduced before September 11 are receiving serious consideration. These are H.R. 1114/S. 398, the International Counter-Money Laundering and Foreign Anticorruption Act of 2001, introduced by Rep. John LaFalce (D-NY) and Sen. John Kerry (D-MA), respectively, and S. 1371, the Money Laundering Abatement Act, introduced by Sen. Carl Levin (D-MI). Other provisions are likely to be considered in the days ahead.

[4] Most of these provisions are targeted towards international transactions, though some may have broader application. Generally, community bankers focus on serving domestic consumers and businesses in their local areas. However, this legislation raises issues that concern all banks, not just a few large ones. Community bankers near international borders or in areas with significant immigrant populations are more likely to engage in international business. Other community banks may engage in international transactions for small and medium-sized businesses that operate in international markets. Virtually any bank will conduct an occasional international transaction on behalf of a local customer.

[5] No matter what the level of international business, each community banker will have to be prepared to comply with whatever new rules Congress enacts. That will involve implementing new procedures, retraining of tellers and other personnel and buying new software. ACB and ICBA members are fully prepared to make those investments in our nation's security.

[6] Congress and the Administration can help by making the new rules clear, understandable, and workable, not just for the most sophisticated international bank, but for community banks in towns and neighborhoods across the country.

[7] Most of the provisions of legislation currently under consideration appear to pass that test. For example, S. 1371 prohibits maintaining a correspondent account for "a foreign bank that does not have a physical presence in any country." This offers a fairly bright line, though to be implemented bankers would need access to information to help them determine whether a given institution fell into this category. Similarly, S. 1371 requires a financial institution to terminate a correspondent relationship that fails to comply with a subpoena. This would be triggered by a notice from the Treasury or the Attorney General. Again, this presents no ambiguity.

[8] Other requirements in these bills that require banks to obtain the names of the beneficial owners of correspondent accounts may be difficult to implement. We do note that H.R. 1114 and S. 398 direct that the required steps be "reasonable and practicable." That is helpful. However, S. 1371 includes broad language that requires financial institutions to establish "enhanced due diligence policies, procedures, and controls to prevent, detect, and report" money laundering. If language like this is included in the final bill, community banks would benefit from regulatory guidance to help them comply.

[9] One thing that all bankers can do under current law is implement the Treasury Department's strong recommendation to reduce substantially the number of currency transaction reports (CTRs) that we file. In Congressional testimony last week and in its 2001 National Money Laundering Strategy, the Treasury recommended that banks more fully use the exemptions that Congress provided in 1994. Under that law, banks need not report the currency transactions of "qualified business customers" that operate cash-intensive businesses. However, the Treasury reports that many banks are continuing to file CTRs on these customers.

[10] ICBA and ACB pledge to work with the Treasury and our member institutions to educate and encourage them to make better use of these exemptions in order to avoid filing unnecessary CTRs. We strongly endorse the Treasury's goal to reduce the number of CTRs by 30 percent, and we encourage Treasury to continue to review and refine the exemption system to make it as workable as possible and eliminate unnecessary reporting. The exemption system will decrease the paperwork burden both for them and for law enforcement, so that efforts can be focused where they can most bear fruit.

[11] As Congress considers this legislation and regulators and bankers implement it, we must all recognize that banks also have substantial responsibilities under current laws, including those that prohibit improper discrimination and protect privacy. ICBA and ACB believe that the new provisions should be harmonized with these requirements and we will diligently work to achieve that goal.

[12] In conclusion, the Independent Community Bankers of America and America's Community Bankers strongly endorse the efforts of Congress and the President to enact carefully crafted legislation that will take additional steps to prevent terrorists' use of the banking system.

² ICBA is the primary voice for the nation's community banks, representing 5,000 institutions at nearly 17,000 locations nationwide. Community banks are independently owned and operated and are characterized by attention to customer service, lower fees and small business, agricultural and consumer lending. ICBA's members hold more than $486 billion in insured deposits, $592 billion in assets and more than $355 billion in loans for consumers, small businesses and farms. They employ nearly 239,000 citizens in the communities they serve. For more information, visit www.icba.org.