2020 Journal of Community Bank Studies

2020 COMMUNITY BANK CASE STUDY COMPETITION

overwhelming amount of reports in the system make it even more difficult to filter through and find those that will lead to criminal activities. Another piece of BSA legislation is the Illicit Cash (Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings) Act. Introduced in September 2019, it is still under consideration by the Senate Committee on Banking, Housing, and Urban Affairs. Like the Counter-Terrorism and Illicit Finance Act, it hopes to modernize both BSA and AML requirements by establishing federal beneficial ownership requirements. It also hopes to improve the coordination between supervisors, intelligence agencies, and law enforcement. Effectiveness Key factors in reducing the burden of BSA/ AML include efficiency and automatization. To do this all, the manual effort on behalf of the banks has to decrease. Therefore, the resources saved by not manually filling out the reports can be spent in other important functions. Artificial Intelligence can help with monitoring transactions for suspicious activities that occur. Even with a software program, the research and analysis of the transactions require a large amount of manual effort and time. For this process to improve, a software program is necessary to produce fewer false positive alerts for suspicious activity. Generally, community banks spend a greater percentage on BSA compliance costs because they do not have the capital to invest in expensive software that uses more Artificial Intelligence. A survey of more

than 1,000 different community banks showed that those with less than $100 million in assets spent 9.8% of their noninterest expenses on BSA/AML compliance costs, while those with at least $1 billion in assets spent 5.3% (Dahl et al.). This shows how significant the compliance costs are, especially to the smallest banks in the country. To be more effective, FinCEN should consider reforming the process of how banks file SARs. Institutions must go through the same process when filing SARs, no matter the level of potential risk. To save more time, it would be more efficient to offer different filing options when reporting SARs, depending on how major or minor the potential risk may be. This would also improve the quality of information reported because law enforcement could quickly identify the reports that banks believed to be at a significant likelihood of a potential crime. When the system becomes too overcrowded with too much information, it is harder to find what is most important. Banks should be recognized more for their actions that lead to the right outcomes, rather than how well they fill out reports that often do not lead to further developments. FinCEN and law enforcement can better inform the bank on the effectiveness of SAR and CTR submissions by keeping the bank up-to-date once it hands over a case to be used in an investigation. For example, after C&N provides law enforcement with a suspicious activity report, it usually does not receive feedback after submitting the case. To improve this, law enforcement should give the financial

56