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Regulators fined Chase and other big banks for "weak controls". One way to show that these big banks have "strong controls" is to change parameters for these al

Regulators fined Chase and other big banks for "weak controls". One way to show that these big banks have "strong controls" is to change parameters for these algorithms. Many legitimate transactions fall under structuring, layering, smurfing, laundering. After all, any goal of money laundering is to make their transactions appear "legitimate". Now almost all transactions (except for big businesses and people with few bills and pay stubs) come under scrutiny. Strong controls = more false positives, more account closures, more SAR reports. That's what regulators want, and politicians don't want to rein on these regulators either by amending laws or by reducing "too much discretion" given to regulators. Of course, those affected by debanking (ordinary citizens and small businesses) don't have that kind of lobbying power to bring any such changes. Big businesses instead can own small banks in fly over states, and run their transactions through those banks. Maybe, it is time to bank with local credit unions, as the latter allow mobile deposits. Once FedNow takes hold across credit unions, better switch to credit unions. Another lesson: every one should have at least three checking accounts (one or two big banks; one or two credit unions).

kornhole 3y ago
All the examples cited in the article were with big banks who are probably the ones most likely to be employing these automated systems and getting pressure from regulators. For the benefit of decentralization and avoidance of CBDC's I am moving my accounts more to the smaller regional banks.
ClumsyPilot 3y ago
> One way to show that these big banks have "strong controls" is to change parameters for these algorithms imagine if some bank knowingly facilitated money laubdering, and needed to show they gave strong controls. What eould you do? Thats right, you would close 10k minor accounts of random schmucks for 'suspicious activity', report 'job done' to the regulator, and continue your corrupt practices
- AnthonyMouse 3y ago
  The fundamental problem here is that these regulations are totally useless. Look into the effectiveness of KYC laws -- they're basically zero percent effective. And the reason for that is that if anybody knew that somebody was engaged in criminal activity, they wouldn't have their bank account closed, they would be arrested and their finances seized by court order. So the bank account closures only happen to people for whom there is not enough evidence to charge them with a crime. In other words, a ton of innocent people. Conversely, the bank is not a law enforcement agency and has no real way to distinguish between the kind of criminals who know how not to be obvious and the aforementioned totally innocent people, and if anything the practiced criminals are the ones who know how not to trigger the fraud detection algorithms, unlike the innocent people. So the criminals don't get caught and the government blames the banks for this, but the banks still don't have any good way to know who the criminals actually are, so all they can ever do is round up random innocent people to put on a show of punishing somebody. The fraud is that law enforcement should be an obligation of the banking system and that fraud needs to be eliminated.
- autoexec 3y ago
  > imagine if some bank knowingly facilitated money laundering You won't have to imagine very hard, HSBC was caught laundering money, told they had to strengthen their controls, but ultimately all the Justice Department wanted was a small cut of the action in the form of fines and HSBC has been allowed to continue their corrupt practices even after being caught laundering money again and again (in addition to all kinds of other crimes). It seems like as long as they can pay the fines, banks are basically above the law.
tyrfing 3y ago
One way to prove weak controls is also to show that low-level branch employees have the ability to override AML/KYC flags, and regularly do so. That's not just poor controls, it's demonstrating knowledge of the transactions being suspicious while enabling them anyway. GP says "monitoring transactions should not be sufficient to satisfy KYC" - of course monitoring transactions is required to satisfy AML, flagging any transactions indicates specific knowledge of them being suspicious, and failing to act in any cases where it was warranted will be used as proof of lax controls, with fines starting in the hundreds of millions.
- creer 3y ago
  Isn't this where documentation of actual KYC would come in? "Flagged for reason X; Overridden by local manager - follows 10 lines of CYA justification"? Normally that's good enough for administrations. The second time it's flagged for reason X+1, include 10 lines from rank 2 manager.
  - YawningAngel 3y ago
    That probably would be acceptable but it's not clear it is worth the bank's while to do that
    - creer 3y ago
      It seemed in these reports that the local manager was surprised. ... But it may be that they were only "suprised", i.e. not about to say that the system did prompt them but they ignored the prompt. Possible. It is also possible that the bank only prompts the local manager if the client has enough estimated net worth or estimated lifetime client business value. The kind of thing that might make sense but wouldn't be disclosed until there is a lawsuit.
zlg_codes 3y ago
Wrt keeping multiple accounts, what is the benefit of that compared to the overhead of monitoring and managing them? Is it just a contingency? Banks in particular have no real reason to give you your money back or respect your privacy. Why would I put my money in an institution that I can't trust?
- staunton 3y ago
  In this context, the implied reason is that your still have a bank account if one of the banks decides to close or freeze your account. If you can do without an account altogether (how??), good for you, I guess.
- raincom 3y ago
  Banks send out a cashier check upon closing accounts. I was pointing out some edge cases (last deposited check being the culprit of closure; however, this check was cleared by the payee bank). Contingency is one reason. It also depends on what you use banks for. If it is direct deposit from jobs and paying bills, big banks are okay. The moment you start use Zelle heavily, one of those zelle recipients is linked with suspicious activity, that's a problem (btw, Zelle is owned by big banks). Banks find so many things suspicious: many check deposits, many zelle transfers, low balances, many cash/money order deposits, asking for cashier checks, wires(both domestic and foreign), any crypto activity, being a public figure, names similar to those on OFAC list, etc. Basically, they want normal customers (4 pay stubs, paying 10 bills a month) or extremely wealthy clients. Otherwise, you don't fit the average profile, and whatever you do is construed as not being legitimate.
- robertlagrant 3y ago
  > Banks in particular have no real reason to give you your money back Of course they do. If they didn't have a reason, why would they do it?
pc86 3y ago
> Maybe, it is time to bank with local credit unions, as the latter allow mobile deposits. I've never used a credit union and have had access to mobile deposits at everything from large multinational banks to small local ones for well over a decade.

kornhole 3y ago

All the examples cited in the article were with big banks who are probably the ones most likely to be employing these automated systems and getting pressure from regulators. For the benefit of decentralization and avoidance of CBDC's I am moving my accounts more to the smaller regional banks.

ClumsyPilot 3y ago

> One way to show that these big banks have "strong controls" is to change parameters for these algorithms imagine if some bank knowingly facilitated money laubdering, and needed to show they gave strong controls. What eould you do? Thats right, you would close 10k minor accounts of random schmucks for 'suspicious activity', report 'job done' to the regulator, and continue your corrupt practices

AnthonyMouse 3y ago
The fundamental problem here is that these regulations are totally useless. Look into the effectiveness of KYC laws -- they're basically zero percent effective. And the reason for that is that if anybody knew that somebody was engaged in criminal activity, they wouldn't have their bank account closed, they would be arrested and their finances seized by court order. So the bank account closures only happen to people for whom there is not enough evidence to charge them with a crime. In other words, a ton of innocent people. Conversely, the bank is not a law enforcement agency and has no real way to distinguish between the kind of criminals who know how not to be obvious and the aforementioned totally innocent people, and if anything the practiced criminals are the ones who know how not to trigger the fraud detection algorithms, unlike the innocent people. So the criminals don't get caught and the government blames the banks for this, but the banks still don't have any good way to know who the criminals actually are, so all they can ever do is round up random innocent people to put on a show of punishing somebody. The fraud is that law enforcement should be an obligation of the banking system and that fraud needs to be eliminated.
autoexec 3y ago
> imagine if some bank knowingly facilitated money laundering You won't have to imagine very hard, HSBC was caught laundering money, told they had to strengthen their controls, but ultimately all the Justice Department wanted was a small cut of the action in the form of fines and HSBC has been allowed to continue their corrupt practices even after being caught laundering money again and again (in addition to all kinds of other crimes). It seems like as long as they can pay the fines, banks are basically above the law.

tyrfing 3y ago

One way to prove weak controls is also to show that low-level branch employees have the ability to override AML/KYC flags, and regularly do so. That's not just poor controls, it's demonstrating knowledge of the transactions being suspicious while enabling them anyway. GP says "monitoring transactions should not be sufficient to satisfy KYC" - of course monitoring transactions is required to satisfy AML, flagging any transactions indicates specific knowledge of them being suspicious, and failing to act in any cases where it was warranted will be used as proof of lax controls, with fines starting in the hundreds of millions.

creer 3y ago
Isn't this where documentation of actual KYC would come in? "Flagged for reason X; Overridden by local manager - follows 10 lines of CYA justification"? Normally that's good enough for administrations. The second time it's flagged for reason X+1, include 10 lines from rank 2 manager.
- YawningAngel 3y ago
  That probably would be acceptable but it's not clear it is worth the bank's while to do that
  - creer 3y ago
    It seemed in these reports that the local manager was surprised. ... But it may be that they were only "suprised", i.e. not about to say that the system did prompt them but they ignored the prompt. Possible. It is also possible that the bank only prompts the local manager if the client has enough estimated net worth or estimated lifetime client business value. The kind of thing that might make sense but wouldn't be disclosed until there is a lawsuit.

zlg_codes 3y ago

Wrt keeping multiple accounts, what is the benefit of that compared to the overhead of monitoring and managing them? Is it just a contingency? Banks in particular have no real reason to give you your money back or respect your privacy. Why would I put my money in an institution that I can't trust?

staunton 3y ago
In this context, the implied reason is that your still have a bank account if one of the banks decides to close or freeze your account. If you can do without an account altogether (how??), good for you, I guess.
raincom 3y ago
Banks send out a cashier check upon closing accounts. I was pointing out some edge cases (last deposited check being the culprit of closure; however, this check was cleared by the payee bank). Contingency is one reason. It also depends on what you use banks for. If it is direct deposit from jobs and paying bills, big banks are okay. The moment you start use Zelle heavily, one of those zelle recipients is linked with suspicious activity, that's a problem (btw, Zelle is owned by big banks). Banks find so many things suspicious: many check deposits, many zelle transfers, low balances, many cash/money order deposits, asking for cashier checks, wires(both domestic and foreign), any crypto activity, being a public figure, names similar to those on OFAC list, etc. Basically, they want normal customers (4 pay stubs, paying 10 bills a month) or extremely wealthy clients. Otherwise, you don't fit the average profile, and whatever you do is construed as not being legitimate.
robertlagrant 3y ago
> Banks in particular have no real reason to give you your money back Of course they do. If they didn't have a reason, why would they do it?

pc86 3y ago

> Maybe, it is time to bank with local credit unions, as the latter allow mobile deposits. I've never used a credit union and have had access to mobile deposits at everything from large multinational banks to small local ones for well over a decade.