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To the relief of Florida bankers, federal regulators are backing off their zero-tolerance anti-money laundering enforcement, a policy that some think contributed to questionable disciplinary actions in the last year against some banks in South Florida. At the urging of the banking industry’s Washington lobbyists, regulators visited five cities to announce their shift in oversight and conduct an educational overview targeting both bankers and examiners. The two-week road show ended last week near Miami at the Hotel Inter-Continental in Doral, where a standing-room-only crowd of about 500 bankers, compliance officers and consultants turned out. The conference was organized to explain a newly released manual establishing consistent policies and procedures for enforcing the Bank Secrecy Act and anti-money laundering laws. The top decision-makers from the five bank regulatory agencies in Washington joined panel discussions and answered questions from a crowd that ranged from large international institutions to small domestic banks. “All of this is focused on building a sound compliance program,” said Susan Schmidt Bies, a governor of the Federal Reserve System. “None of us has any intention of enforcing a zero-tolerance mentality.” Regulators repeatedly stressed their goal is not to threaten institutions with zero tolerance for violations of regulatory requirements under the Bank Secrecy Act, but rather to help banks establish appropriate policies, procedures and safeguards to minimize money laundering and terrorist financing. BSA establishes rules for banks to report questionable transactions by its customers and for knowing the identities of people who transact money through their institutions. The goal of the federal law is to crack down on money laundering and terrorist financing. But the regulations that were instituted by regulators created much confusion in the industry, and bankers complained that gray areas of the rules were being interpreted differently by the various regulatory agencies and even by different levels within each agency. “There was a recognition that what we were complaining about was legitimate,” said John Byrne, the American Bankers Association’s director of regulatory compliance, who lobbied for a consistent enforcement. Florida Bankers Association chief executive Alex Sanchez, who led the industry charge in Florida for clear and consistent enforcement by regulatory agencies, welcomed the formal dismissal of a zero-tolerance approach. He was optimistic the declaration would help renew the “cooperative relationship” between bankers and regulators to eliminate illicit activity from the U.S. financial systems. “I have asked the regulators to leave the baseball bats in the car when they go to first examine our banks on BSA,” Sanchez said. “If our banks are not in compliance … five months, six months or eight months later when they come back, then take the baseball bat out. But don’t swing it on the first go-around, because zero tolerance is not realistic. It is idealistic, but not realistic.” Regulators said they were committed to a more fair compliance policy and have trained their field examiners to follow the guidelines they presented to bankers last week. Presentations at the event were made from top level regulators from the Federal Reserve System, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, the Office of Thrift Supervision, Financial Crimes Enforcement Network and the Florida Division of Financial Institutions. Bankers applauded the training for examiners because it could help address a central industry complaint — that Washington policymakers say one thing and field agents do something else. “I am impressed with what I heard,” Seno Bril, president of the Florida International Bankers Association, told regulators during a question-and-answer session. “It is much better than I thought it was going to be. It is very concise and very clear. God willing, it will filter down to the examiners.” Linda Charity, Florida’s top banking regulator, is confident a uniform understanding of the compliance requirements is sure to emerge for both bankers and examiners. “The word is out now and it applies to everyone whether you are a banker, a federal regulator, state regulator or enforcement agent,” said Charity, who traveled from Tallahassee for the session. “We are all playing by the same book now.” Bankers say federal regulators in the field went on the offensive with zero tolerance after a July 2004 congressional hearing took aim at examiners for not detecting systemic compliance problems at the former Riggs Bank in Washington. Bankers say examiners responded by reprimanding institutions for any and all violations. In South Florida, eight banks were disciplined publicly for laundering violations ranging from small community banks with assets of less than $100 million to $1 billion institutions. Regulators deny institutions reprimanded in the last year might not be disciplined under the updated policy. Linda D. Arquette, the FDIC’s anti-money laundering chief in Washington, noted a single examiner lacks the power to impose a penalty and said disciplinary actions result only after an extensive process that includes many checks and balances. “There are many ways to address issues that you have had with a specific examiner or the examination process,” Arquette said. “Almost always they get resolved during the examination, so I don’t think we have moved from one area to another. I don’t think that we moved from an area of intense scrutiny to an area of less scrutiny. I think that we are just making sure that the message that we are delivering is consistency among the agencies, and the examiners are hearing exactly what they need to hear from us.”

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