Banks Face 120-Hour Compliance Rule

Banks are in a quandary over the USA PATRIOT Act's tough deadlines for compliance with information requests from law enforcement agencies under the Bank Secrecy Act. The USA PATRIOT Act places a 120-hour time limit on a bank's response to such requests.

The deadline is especially troublesome for smaller banks which, typically lacking an automated solution, must instead plow through paper records for occurrences of a suspect's name.

"To record a wire transfer is one thing, but to retrieve it is another," said Dave Kvederis, president and CEO of Bankserv, a San Francisco-based software firm. "You can record it on hunks of paper and put it in file cabinets, but if you need to find history on two years of transactions that can be more problematic."

The final U.S. Treasury ruling on Section 314 of the USA PATRIOT Act requires banks to search through the prior six months of funds transfers, and the prior twelve months of active accounts.

"It's becoming increasingly difficult, particularly for community banks and even larger regional banks, to continue to support the technology that's needed to run a sophisticated wire room," added Kvederis.

The new USA PATRIOT Act laws make it impossible for a financial institution to rely solely on manual processing.

"With the increased emphasis on terrorist activity and anti-money laundering, they really do need to have automation that addresses at least the BSA Bank Secrecy Act and the OFAC Office of Foreign Asset Control filtering," said Kvederis.

Cutting down on manual processing has its own rewards, however. For example, a typical wire transfer requires information from both inside and outside the financial institution. The wire transfer process is complex, including ascertaining funds availability in the demand deposit accounting (DDA) system, determining whether to issue a daylight overdraft, etc.

In their zeal to please customers, banks sometimes make hasty decisions.

"Banks have a lot of pressure to get their wires out the door in that last 30 minutes before Fedwire closes," said Kvederis.

"There's a temptation to skip some of the manual steps, in the interest of serving their customers."

Bankserv has introduced a solution in the form of GFXN Defender, a wire system for banks originating or receiving under 100 wires per day.

"This system takes that pressure off," Kvederis said.

Bankserv has 40 bank holding company clients, representing 120 banks. About half have outsourced wire transfer operations to Bankserv's data center.

Bankserv also offers plug-and-play capability to several major DDA processors, and is a Fiserv alliance partner. The company provides links to cash management front-end systems including Banklink, Magnet and Politzer & Haney.

As a result, financial entities can offer fully-compliant wire transfer services to corporate customers.

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Volume of Money Laundering Activity

Total US $193 bn

Drugs: US$66bn

Other Crime: US $89.9bn

Terrorism: US $0.5bn

Smuggling: US $37bn

Source: Celent Communications