In January, my colleagues on the House Financial Services Committee and I began 2007 on a bipartisan note by bringing to the floor an important piece of unfinished business remaining from the 109th Congress–legislation that would relieve financial institutions from having to file Currency Transaction Reports for "seasoned customers." H.R. 323, the "Seasoned Customer Exemption Act," was swiftly approved by the House of Representatives on a voice vote and now awaits action in the Senate.
Under the federal Bank Secrecy Act financial institutions must file CTRs for cash transactions of $10,000 or greater. This filing is required even in the case of "seasoned customers": long-time bank customers that routinely deal in large volumes of cash, but whose business dealings are well enough understood to rule out the possibility of money laundering or the financing of terror.
While Suspicious Activity Reports have largely replaced CTRs as a law enforcement tool, the filing of CTRs is still required. Unfortunately, the current guidance for exempting seasoned customers from CTR filing requirements is rarely invoked because it is confusing, cumbersome, and redundant.
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Filing of these superfluous forms imposes an unnecessary cost on both the financial services industry and the law enforcement community.
With respect to the financial services industry, according to data released last year the number of CTRs filed on an annual basis now tops 13.1 million. The Financial Crimes Enforcement Network, which administers the CTR requirement, has conservatively estimated that it takes financial institutions 25 minutes to process a single CTR, which suggests that the banking industry as a whole devoted about 5.5 million staff hours to handling CTRs in 2005. Further, based on a survey by the American Bankers Association, the industry paid around $187 million in wages for this staff time. A typical bank with $2 billion of assets filed 1,400 CTRs in 2005. These filings took 583 staff-hours, with 438 of the staff-hours simply to report on long-standing customers.
With respect to the law enforcement community, not only do these superfluous reports add nothing to its efforts, they actually make it more difficult for the law enforcement community to track suspicious activity by requiring it to wade through millions of pages of unnecessary paperwork.
In 1994, the Government Accountability Office published a report, which concluded, based upon an extensive analysis of CTRs, that the volume of reports could be substantially reduced without jeopardizing law enforcement priorities. The GAO report cited Federal government estimates that 30 to 40% of these reports of routine deposits by large, well-established retail businesses had no likelihood of identifying potential money laundering or other currency violations.
H.R. 323 will reduce the number of CTRs by clarifying the exemption process, thereby freeing financial institutions from having to file CTRs for routine cash transactions with their long-time customers, i.e. supermarkets, fast food restaurants or warehouse stores. This will enable law enforcement to target its resources on CTRs where criminal or terrorist activity is suspected. Moreover, under the legislation, banks are still required to report suspicious transactions engaged in by exempted businesses pursuant to the Suspicious Activity Reporting regime administered by FinCEN. Last year, legislation similar to H.R. 323 passed the House on two occasions: once as a freestanding bill, and once as language included in the regulatory relief legislation (H.R. 3505), which passed the House last March by a vote of 415 to 2. However, the Senate failed to pass CTR reform in any form.
CTRs still have a role to play, but the current system lends itself to excessive cost, duplication, and outright waste, and serves neither the regulated community nor law enforcement interests well. Hopefully, the fact that the House acted so early on in the 110th Congress will give our Senate counterparts ample time to act. Working with the Senate and the new FinCEN Director, I hope my colleagues in the House and I can finally get this done.
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