Pub. 5 2015 Issue 1

implement Operation Choke Point. That law gave the DOJ tools to fight fraud against banks, but not against private companies operating legal businesses. Because of the lack of evidence of an increased risk in providing basic banking services such as deposit accounts, payroll processing, or check clearing services to any of these businesses compared to most other legitimate businesses, the FDIC has acknowledged wrongdoing and is now trying to stop this activity, clarifying that “reputational risk” alone is not enough reason to cut off banking relations. The FDIC retracted the list fueling Operation Choke Point, and released the following statement in Financial Institution Letter 5-2015 on January 28, 2015: The FDIC encourages insured depository institutions to serve their communities and recognizes the importance of the services they provide. Individual customers within broader customer categories present varying degrees of risk. Accord- ingly, the FDIC encourages institutions to take a risk-based approach in assessing individual customer relationships rather than declining to provide banking services to entire catego- ries of customers, without regard to the risks presented by an individual customer or the financial institution’s ability to manage the risk. Financial institutions that can properly manage customer relationships and effectively mitigate risks are neither prohibited nor discouraged from providing services to any category of customer accounts or individual customer operating in compliance with applicable state and federal law. The FDIC is aware that some institutions may be hesitant to provide certain types of banking services due to concerns that they will be unable to comply with the associated require- ments of the Bank Secrecy Act (BSA). The FDIC and the other federal banking agencies recognize that as a practical matter, it is not possible for a financial institution to detect and report all potentially illicit transactions that flow through an institution. Isolated or technical violations, which are limited instances of noncompliance with the BSA that occur within an otherwise adequate system of policies, procedures, and processes, generally do not prompt serious regulatory concern or reflect negatively on management’s supervision or commitment to BSA compliance. When an institution follows existing guidance and establishes and maintains an appropri- ate risk-based program, the institution will be well-positioned to appropriately manage customer accounts, while generally detecting and deterring illicit financial transactions. The changes regarding Operation Choke Point are adminis- trative so far, but more reactions are to come, including from politicians who will introduce bills to deal the final blows to Operation Choke Point and seek the support of the Consumer Financial Protection Bureau and the Federal Reserve. Earlier this year, two congressional committees held hearings on Op- eration Choke Point. Banks should be aware that some bills may provide a legal basis for citizens to take action against banks or regulatory institutions. With the FDIC playing such an integral role in promulgating Operation Choke Point, its recent actions against the operation will greatly influence other agencies and the industry to follow its lead. Compliance Alliance offers a comprehensive suite of com- pliance management solutions. To learn how to put them to work for your bank, call (888) 353-3933, visit complianceal- liance.com, or email info@compliancealliance.com . w Pamela Stockwell is an Associate General Counsel for Compliance Alliance, where she is an integral part in the development of compliance solutions for banks. She assists members with compliance concerns on the Compliance Al- liance Hotline, writes articles for publication in various state banking magazines, and facilitates member events on a variety of consumer and regulatory issues concerning banks. Pamela has spent her career working in banking regulatory compliance. Financial institutions that can properly manage customer relationships and effectively mitigate risks are neither prohibited nor discouraged from providing services to any category of customer accounts or individual customer operating in compliance with applicable state and federal law. - Financial Institution Letter 5-2015, FDIC, January 28, 2015 21 WINTER 2015