Federal banking regulators also cannot prohibit banks from closing  branches. 1). 2). Southwest Border Banks’ High-Risk Customers Require More Intensive Due Diligence and Monitoring

The volume of high-risk customers and cross-border transactions can  lead to more intensive account monitoring and investigation of suspicious  transactions, Southwest border bank representatives said. Nationally, our econometric analysis  suggests that counties that were urban, younger, had higher income, or  had higher money laundering-related risk were more likely to lose  branches. Other Account Terminations and Limitations Raise Concerns about Derisking

The second most common reason—cited by 80 percent of Southwest  border banks—for limiting, or not offering, accounts to certain types of  businesses considered high risk for money laundering and terrorist  financing, was that the customer type drew heightened BSA/AML  regulatory oversight—behavior that could indicate derisking. Southwest Border Bank Branch Closures Have Been Concentrated in a Small Number of Communities

Counties in the Southwest border region have been losing bank branches  since 2012, similar to national and regional trends, as well as trends in  other high-risk financial crime or drug trafficking counties that are outside  the region. Regulators Have Not Fully Assessed the BSA/AML Factors Influencing Banks to Reduce Services

The results of our survey (for both Southwest border banks and non- Southwest border banks) and discussions with Southwest border bank  representatives indicate that banks are terminating accounts and limiting  services, in part, as a way to manage perceived regulatory concerns  about facilitating money laundering. In addition, the econometric models  we developed and estimated also generally found that money laundering- related risk factors that could be reflective, in part, of BSA/AML  compliance effort and risks, were an important predictor of national bank  branch closures, and likely to have been relatively more important in the  Southwest border region. Regulators have also conducted retrospective reviews  on some BSA/AML requirements. Executive orders encourage and legislation requires agencies to review  existing regulations to determine whether they should be retained,  amended, or rescinded, among other things. Without assessing the full range of BSA/AML factors  that may be influencing banks to derisk or close branches, FinCEN, the  federal banking regulators, and Congress do not have the information  they need to determine if adjustments are needed to ensure that the  BSA/AML regulations and their implementation are achieving their  regulatory objectives in the most effective and least burdensome way. However, without evaluating how banks’ regulatory concerns may be  affecting their decisions to provide services, the federal banking  regulators, FinCEN, and Congress do not have the information to  determine if BSA/AML regulations and their implementation can be made  more effective or less burdensome in achieving their regulatory  objectives. Treasury/FinCEN did not  provide a written response to the report. We  agree that using existing interagency efforts is an appropriate means for  conducting a retrospective review of BSA/AML regulations that focuses  on evaluating how banks’ BSA/AML regulatory concerns may be  influencing their willingness to provide services. Appendix I: Objectives, Scope, and Methodology

The objectives of this report were to (1) describe the types of heightened  Bank Secrecy Act/anti-money laundering (BSA/AML) compliance risks  that Southwest border banks may face and the BSA/AML compliance  challenges they may experience; (2) determine the extent to which banks  are terminating accounts and closing bank branches in the Southwest  border region and their reasons for any terminations or closures; (3)  describe what Southwest border banking customers and others told us  about any effects of account terminations and branch closures on  Southwest border communities; and (4) evaluate how the Department of  the Treasury’s (Treasury) Financial Crimes Enforcement Network  (FinCEN) and the federal banking regulators—the Board of Governors of  the Federal Reserve System (Federal Reserve), Federal Deposit  Insurance Corporation (FDIC), and Office of the Comptroller of the  Currency (OCC)—have assessed and responded to concerns about  derisking in the Southwest border region and elsewhere, and the  effectiveness of those efforts. We defined “derisking” to mean the practice of banks limiting certain  services or ending their relationships with customers to, among other  things, avoid perceived regulatory concerns about facilitating money  laundering. We focused our  selection on banks that operate fewer branches in the region because we  interviewed four of the five largest banks in the region that operate many  branches in the region.
Why GAO Did This Study

Some Southwest border residents and businesses have reported difficulties accessing banking services in the region. GAO was asked to review if Southwest border residents and businesses were losing access to banking services because of derisking and branch closures.
This report (1) describes the types of heightened BSA/AML compliance risks that Southwest border banks may face and the BSA/AML compliance challenges they may experience; (2) determines the extent to which banks have terminated accounts and closed branches in the region and the reasons for any terminations and closures; and (3) evaluates how regulators have assessed and responded to concerns about derisking in the region and elsewhere, and how effective their efforts have been; among other objectives. GAO surveyed a nationally representative sample of 406 banks, which included the 115 banks that operate in the Southwest border region; analyzed Suspicious Activity Report filings; developed an econometric model on the drivers of branch closures; and interviewed banks that operate in the region.

What GAO Found

“Derisking” is the practice of banks limiting certain services or ending their relationships with customers to, among other things, avoid perceived regulatory concerns about facilitating money laundering. The Southwest border region is a high-risk area for money laundering activity, in part, because of a high volume of cash and cross-border transactions, according to bank representatives and others. These types of transactions may create challenges for Southwest border banks in complying with Bank Secrecy Act/anti-money laundering (BSA/AML) requirements because they can lead to more intensive account monitoring and investigation of suspicious activity. GAO found that, in 2016, bank branches in the Southwest border region filed 2-1/2 times as many reports identifying potential money laundering or other suspicious activity (Suspicious Activity Reports), on average, as bank branches in other high-risk counties outside the region (see figure).
According to GAO's survey, an estimated 80 percent (+/- 11 percent margin of error) of Southwest border banks terminated accounts for BSA/AML risk reasons. Further, according to the survey, an estimated 80 percent (+/- 11) limited or did not offer accounts to customers that are considered high risk for money laundering because the customers drew heightened regulatory oversight—behavior that could indicate derisking. Counties in the Southwest border region have been losing bank branches since 2012, similar to national and regional trends. Nationally, GAO's econometric analysis generally found that counties that were urban, younger, had higher income or had higher money laundering-related risk were more likely to lose branches. Money laundering-related risks were likely to have been relatively more important drivers of branch closures in the Southwest border region.
Regulators have not fully assessed the BSA/AML factors influencing banks to derisk. Executive orders and legislation task the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) and the federal banking regulators with reviewing existing regulations through retrospective reviews to determine whether they should be retained or amended, among other things. FinCEN and federal banking regulators have conducted retrospective reviews of parts of BSA/AML regulations. The reviews, however, have not evaluated how banks' BSA/AML regulatory concerns may influence them to derisk or close branches. GAO's findings indicate that banks do consider BSA/AML regulatory concerns in providing services. Without assessing the full range of BSA/AML factors that may be influencing banks to derisk or close branches, FinCEN, the federal banking regulators, and Congress do not have the information needed to determine if BSA/AML regulations and their implementation can be made more effective or less burdensome.

What GAO Recommends

GAO recommends that FinCEN and the federal banking regulators conduct a retrospective review of BSA regulations and their implementation for banks. The review should focus on how banks' regulatory concerns may be influencing their willingness to provide services. The federal banking regulators agreed to the recommendation. FinCEN did not provide written comments.