By Heather Trew
Let’s set the record straight.
No bank wants to involuntarily close a customer account or takes such a decision lightly. Any decision to shut an account down must be based on prudent and thoughtful risk management, guided by strict rules from regulators and law enforcement. For reasons you will see below, banks may not be in a position to provide all the information a customer may want.
First, some important perspective. Banks want to attract and retain customers and have been extremely successful at doing so, increasing both the availability of banking services and customer satisfaction. Approximately 95.5 percent of U.S. households have a checking or savings account at a bank or credit union — the highest percentage since the FDIC started tracking the data in 2009. As positive as this development is, there is still work to be done, and ABA strongly supports inclusive banking, including through the Bank On movement, which has already helped drive the unbanked numbers to today’s record lows. Competition in the banking system is intense and banks compete aggressively for customers. Customer service is one of the important ways they compete, and according to a recent survey of American customers, banks are succeeding. More than 84 percent of Americans say they are “very satisfied” or “satisfied” with their primary bank, and 94 percent rate their bank’s customer service as “excellent,” “very good” or “good.”
The financial crimes oversight framework
However, making sure their customers are happy is not the only role that banks must play. Congress has determined that financial institutions are critical to preventing money laundering and terrorist financing, helping track the proceeds of crime and helping combat fraud. These roles for banks and credit unions are designed to protect the U.S. financial system from criminal abuse and safeguard U.S. national security. These laws and rules are generally administered by the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury’s Office of Terrorism and Financial Intelligence. Although recently affirmed and the subject of major reforms (supported by ABA), these are not new obligations; banks have had a version of these responsibilities not just since 1970 with the enactment of Bank Secrecy Act laws but since 1945.
As a result, banks must comply with a number of mandatory legal obligations issued by FinCEN and their primary regulator. (Banks also play a critical role in defending the U.S. financial system from those who would violate sanctions and U.S. export controls.) Two important but frequently misunderstood requirements are Suspicious Activity Reports and Currency Transaction Reports. While ABA supports important AMLA reforms directing Treasury to formally review “unnecessarily burdensome” reporting requirements, recommend improvements, and provide more information on how SARs are used — all of which will help banks — this reporting framework provides invaluable assistance to law enforcement and victims of crimes. In the past few years, for example, more than 83 percent of IRS criminal investigations recommended for prosecution had a primary subject with a related BSA filing. According to the IRS Criminal Investigation chief, “hundreds of millions of dollars in restitution have been awarded to crime victims because [IRS-CI] agents were able to use BSA data to prove a crime was committed.”
Why account closures happen
This legal framework should make clear that banks do not act carelessly, hastily or imprudently. Instead, banks manage and mitigate risks based on what they know and can learn about their individual customers as well as a careful determination regarding the level and type of risks they can assume. When they detect unusual activity, banks must follow their own written internal policies and procedures to investigate, assess and review such activity. Banks’ SAR filing obligations are not themselves the basis for terminating customer relationships. No account closure decision is made in a vacuum, by an algorithm without human review, or without following established (and tested) procedures. Regulators also can review these decisions, ask questions and take action, when warranted.
No bank is in business to terminate customer relationships. So why might banks close an account? Because they think something is wrong — often very wrong — based on several factors. It is a regrettable fact that criminals and other illicit actors misuse our banking system — engaging in transactions and creating accounts at banks that are used to steal very large sums of money from Americans’ bank accounts, attempt to hide their criminal activity from banks, launder criminal proceeds, commit check fraud and even potentially fund terrorism.
To combat these harms, FinCEN, law enforcement and other sources provide banks with information about financial transactions associated with crimes and other illicit activity. (These activities may include terrorist financing, pig butchering (not the agricultural variety), mail theft-related check fraud schemes, human smuggling, elder financial exploitation, ransomware attack facilitation, COVID-19-related frauds and financial crimes, workers’ compensation fraud, online child sexual exploitation, export control and sanctions evasion, just to name a few.) Some of these red flags and typologies are vague — or may also sweep in innocent activity. And therein lies the problem — as Treasury put it, “[a]n additional challenge for banks is that many transactions associated with terrorism or [terrorist financing]are often hard to distinguish from legitimate day-to-day transactional activity without additional information about the sender or recipient, or other indicia of illicit activity.” In other words, sometimes a red flag looks more like a gray smudge.
Dedicated bankers, who lack the tools and information available to law enforcement officers, intelligence agencies or prosecutors, must figure out how to distinguish patterns of transactions by bad actors from patterns of transactions that look awfully similar. They work very hard, use available technology, including machine learning, to help sift through data, and often hire former law enforcement officials and prosecutors to help them conduct inquiries. For example, banks are obliged to look closely at customers that have cash-intensive businesses with high currency volume, regularly receive from or send money to a country on Treasury’s Financial Action Task Force’s black or grey lists, frequently transact with a marijuana-related business (possession, distribution or dispensing of marijuana are still federal crimes), seem to have more money than a stated occupation would suggest, transfer funds in large round dollar amounts or operate shell companies with a high volume of transactions, among other typologies identified by FinCEN. And banks must also monitor transactions under the $10,000 CTR threshold, since it is also a federal crime (structuring) to attempt to evade CTR reporting.
As part of these inquiries, banks will typically ask follow-up questions, and if they are still concerned after careful review of all available facts and circumstances, including a customer’s response (or lack thereof), only then would they consider closing accounts. If a legitimate customer mimics these characteristics — for innocent reasons — that customer might consider proactively reaching out to his or her bank to clearly explain their business model or pattern of transactions, provide documentation, answer questions and keep an open dialogue. This won’t guarantee a particular result, but it can help.
But after all this, banks may determine a particular account poses a risk they are not in a position to mitigate. If so, they can close the account pursuant to the account agreement they have with all of their customers. The government publicizes the fact that banks are allowed to do this, and former customers have recourse to file complaints (and, for example, speak to a customer assistance specialist) if they believe a closure was wrongful.
And while an account closure may come as a surprise, there are reasons why banks may not be able to disclose everything. For example, law enforcement doesn’t want the bad guys to know they are under scrutiny, and banks do not want to inadvertently help bad actors cover their tracks and hide from law enforcement. And yes, federal law and regulation prohibit banks from disclosing to customers any information that could reveal the existence of a SAR.
Consumers and businesses will always be understandably dismayed when an account is unexpectedly closed as the recent New York Times reporting documented, and banks, like anyone, can occasionally make judgment calls that may look different in retrospect, especially from outside. But such decisions are never random, rash or automatic, they represent banks’ efforts to do their best, quickly, with limited information, and they are rooted in an important legal and regulatory framework designed to protect our financial system and U.S. national security.
The next time the New York Times tackles this topic, remember that hundreds of millions of account holders in this country will never experience an involuntary account closure because they’re not doing anything with their money that raises questions. Hopefully, the paper will consider writing about the ways banks protect their customers who can be targeted by criminals and fraudsters, and the thousands of dedicated bank employees doing their best every day to keep the banking system safe for all of us, even if it means occasionally losing a customer.
Heather Trew is SVP and senior counsel for Bank Secrecy Act, anti-money laundering and sanctions issues at ABA. Before joining ABA in 2023, she held roles at the Treasury Department and the Justice Department’s National Security Division.