The Trouble with Cash

Besides bringing the burden of more paperwork, the regulations have also required banks to hire experts on the federal requirements and spend more money on technology to monitor transactions. The Federal Deposit Insurance Corporation conducts periodic exams of a bank’s procedures to determine compliance with the rulings.

“We’ve had to hire some more people in the last two years to help us monitor account activity,” says Ann Hengel, chief risk officer and executive vice president for St. Paul– based Bremer Financial Services. “We’ve definitely had to invest more money into people and systems to step up to the increased regulatory scrutiny.”

Highland Bank in St. Paul has decided that the risks of working with MSBs are not worth the rewards, and the bank has stopped taking these accounts. “The new regulations required us to do things that we didn’t think we could do effectively and efficiently enough to meet regulations,” says Rick Wall, Highland’s CEO. “It was that additional burden of scrutiny that made us feel that we couldn’t comply with the regulations over the long haul. The risks of not being able to meet these new obligations were greater than the amount of resources we could invest.”

Hengel’s bank hasn’t stopped working with MSBs, but she admits those businesses get more careful evaluation before they open accounts. “We’ve looked at the regulatory guidance, and I can’t say that we’ve stopped our business with MSBs, but we look at those businesses more closely.”

Banks that violate the new regulations risk incurring large fines and even losing their charters. Financial institutions are surely looking to Riggs Bank N.A., based in Washington, D.C., as a cautionary tale: The bank was fined $25 million in 2004 for Bank Secrecy Act violations and forced into sale.