WASHINGTON/ST LOUIS (Reuters) - U.S. banks should not cut ties with foreign clients over money- laundering worries unless officials have concrete cause for concern, a leading U.S. regulator is telling staff and lenders.
The message has come through phone calls, speeches and an uncommon notice from the Office of the Comptroller of the Currency, the top regulator for national banks, banking and regulatory sources said.
A four-page memorandum sent to bank examiners last month said foreign lenders and their customers are hurt when Wall Street turns its back.
“Customers that cannot make alternative banking arrangements elsewhere may effectively be cut off from the regulated financial system altogether,” according to the “supervision tips” memo obtained by Reuters.
The OCC typically issues only a few such memos each year to help examiners navigate complex banking issues.
Policymakers have become increasingly concerned that banks are ejecting broad swaths of customers from the financial system out of fear of being penalized over money-laundering violations.
For example, customers with ties to Yemen or Syria have a harder time maintaining accounts and banks have ended such relationships, according to a senior compliance officer at a major U.S. bank.
To steer clear of violations, JPMorgan Chase & Co stopped doing business with 18,000 customers in 2015 and pulled back from 500 foreign partner banks, CEO Jamie Dimon told investors in a letter last year.
Regulators want to prevent terrorists from swapping cash through U.S. banks or their foreign partners. Banks must file a “suspicious activity report” when they encounter a transaction that could be criminal - like a series of small-dollar transfers.
But the rules can hamper ordinary money transfers or charitable giving.
U.S. firms have warned that they cannot vouch for the customers of their foreign partner banks.
That is one reason fewer banks will handle transfers of funds Somalis living in the United States want to send to relatives at home.
More Somalis live in Minnesota than anywhere else in the United States and Rep. Keith Ellison of Minneapolis is among leading Democrats who have called for easing banking rules.
The “know your customer” standard expects banks to understand their clients’ business. But there are limits.
“There is no general requirement to know your customers’ customer,” Thomas Curry, the OCC chief, said in September.
The OCC conveyed that message to examiners in a January conference call, as well as the “tips” memo.
On the call, “we were told we would no longer be asking for customer lists for foreign correspondent banking relationships for the banks we oversee,” said one official who was on the call but not authorized to speak to the media.
Foreign firms that partner with U.S. lenders are known as “correspondent” banks.
A spokesman for the OCC declined to comment on the examiner phone call or the “supervision tips” sheet.
Banks waste billions of dollars each year satisfying money- laundering rules, a leading Wall Street trade group said last month, asking for a complete overhaul of the “know your customer” rules.
The number of special activity reports rose to almost a million last year from 669,000 three years earlier, according to the U.S. Treasury’s Financial Crimes Enforcement Network, which collects such data.
(This version of the story corrects to add dropped word “suspicious” in paragraph 9)
Additional reporting by Joel Schectman in Washington; Editing by Dan Grebler
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