WASHINGTON—Federal banking officials have agreed to consider revising money-laundering regulations that a new report blames for a rash of bank closures along the Mexican border in recent years.
The regulations are having the unintended consequence of prompting banks along the border to close branches and terminate accounts, according to a report released this week by the U.S. Government Accountability Office.
“The branch closures and account terminations, which are called ‘de-risking,’ are creating headaches for small businesses and forcing some residents to go without bank accounts from San Ysidro to parts of Arizona, New Mexico and Texas,” The San Diego Tribune reported.
The 117-page report, the result of a 16-month investigation, said the Federal Reserve, Federal Deposit Insurance Corporation and other agencies must conduct comprehensive, retrospective reviews of the regulations, the Tribune stated in its analysis.
“The reviews, which the agencies immediately agreed to conduct, will aim to determine how the regulations can be loosened without sacrificing their ability to curb money-laundering activities associated with drug dealing and terrorism,” the Tribune said.
“The regulations have helped detect money laundering and other financial crimes, but there are also real concerns about the unintended effects, such as de-risking,” the report says. “We have found that reduced access to banking services can have consequential effects on local communities.”
Branch closures and account terminations have been prompted by the regulations because they require time-consuming and expensive compliance measures, and banks risk large federal fines if they don’t catch money-laundering activity, the Tribune explained.
The report says branches along the border filed nearly 30% more currency transaction reports than branches elsewhere in their state, and about 60% more than branches in other counties outside the region considered “high-risk.”
In addition, the report says 80% of border banks had terminated personal or business accounts for reasons related to the Bank Secrecy Act and money-laundering regulations, the Tribune explained.