2020 Journal of Community Bank Studies

FIRST PLACE: Mississippi State University

institution. Banks have no access to what the payments are used for or where they come from. Individuals using these apps can also easily misrepresent what they are using the money for by using misleading short statements and descriptions connected with each payment. Although most of these platforms’ “User Agreements” state that cash transactions for illegal drugs and activities are prohibited, they are unable to effectively verify those restrictions. A survey done by LendEDU, an online marketplace for financial products, showed that 32.6% of Venmo users have performed transactions on its platform to pay for some type of drug (LendEDU). These platforms allow individuals to more easily launder and use cash for nefarious activities. This regulatory burden should not fall on banks, but instead fall on these electronic payment platforms. As these electronic payment platforms fail to restrict their users from illicit activities, and the transfer and use of these funds are done through their platform, these companies should be held to the same standard and expectations as banks to prevent such activities. These platforms should meet similar regulations and requirements that banks meet to ensure that money laundering is fully prohibited. They should also face similar penalties for failing to meet these requirements as banks do. In addition, these platforms should provide and share information concerning illicit and suspicious activities to the banks their users’ accounts are connected with. These actions would further reduce money laundering activities and show the progression

of regulations in conjunction with progressing technology. Burdens of BSA/AML Reporting Top management at CNB recognizes that a major issue facing community banks is the difficulty to meet the same rules and regulations that are also required for larger banks. Larger banks, with the ability to spread costs over larger pools of capital, are better suited to handle the increased costs and heightened regulatory burdens set by BSA and AML compliance. Community banks, such as CNB, have to follow these same laws with a vastly smaller budgets and less staff. CNB designates $50,000 annually for their compliance system, Verafin, along with a dedicated department of multiple staff members to effectively meet BSA and AML requirements. Many small institutions are unable to dedicate staff to these duties and must resort to allocating the duties among several employees with other primary responsibilities. FDIC-insured community banks undergo the same examination as their larger counterparts, which takes valuable time and extensive resources to comply. These expenses account for a larger percent of income in community banks than larger banks, thus restricting a larger percent of investment into profitable areas. Research presented at the jointly sponsored conference by the Federal Reserve Bank (FRB), the FDIC, and the Conference of State Banks Supervisors at the FRB of St. Louis and replicated below, displays the higher percent of spending that compliance cost fills in smaller

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