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Banking sector upbeat on anti-money laundering bills despite impeachment uproar

Despite an impeachment inquiry into President Donald Trump that threatens to harden partisan divisions, the banking industry is confident that efforts to modernize anti-money laundering rules in Congress will yield results.

Momentum seemed to build after an unlikely bipartisan Senate couple introduced a comprehensive, sweeping bill Sept. 26 that would update the Bank Secrecy Act, or BSA, for the first time in decades.

The ILLICIT CASH Act, introduced by Sen. Mark Warner, D-Va., and Sen. Tom Cotton, R-Ark., would require shell companies to disclose their owners and mandate inter-government data sharing of potential money laundering and other illicit financial activity.

The bill also seeks to bar foreign banks from obstructing investigations into money laundering or terrorist financing by requiring those banks to supply records establishing their authenticity and reliability as proof. The measure would also authorize contempt sanctions for banks that fail to comply and increase penalties on repeat violators.

But while most of Washington is focused on the impeachment inquiry, there is cautious optimism among industry observers that this bill, in concert with a House bill, could reach the finish line.

"The chances of this bill going into law were better than they were a week or a month ago," Ed Mills, public policy analyst for Raymond James, said. "But there isn't an urgent need in Congress to get this done."

The House bill, passed by the House Financial Services Committee in May, was not as comprehensive as the recent Senate bill, but it gathered more bipartisan support in a unanimous committee vote.

Missing from the House measure is the major provision on the beneficial ownership of shell companies, but Rep. Carolyn Maloney, D-N.Y., and Rep. Blaine Luetkemeyer, R-Mo., have been working on adding that element to the bill when it arrives on the floor for a vote.

Industry leaders, meanwhile, are encouraged by the unlikely partnership of Sens. Cotton and Warner, who sit on opposite ends of the ideological spectrum in the Senate. Their bipartisan rollout of the bill signals a seriousness that the measure, a top item for the banking industry, could make it to the White House.

The most likely legislative vehicle the bill could ride on is the SAFE Banking Act, which aims to provide a safe harbor for financial services companies to offer services to the cannabis industry. The House version of that bill passed Sept. 25 with overwhelming bipartisan support.

However, Mills warned, the mounting impeachment inquiry introduces more uncertainty into the legislative process, given that the president is being investigated by the same people who aim to send bills to his desk.

"You have to start with the premise that we're in the middle of an impeachment inquiry, so if legislating is not dead, it's mostly dead," Mills said. "Is that an opportunity for a lesser-known bill to pass? Maybe, but it's hard to get overly optimistic [of legislation] passing in this type of political environment we are in."

Industry shows support

The measures have garnered support from major banking industry groups seeking clarity, interagency coordination and efficiency that will help ease the burden that banks' compliance departments bear.

"The ILLICIT CASH Act is a thoughtful approach in response to the growing threat that terrorists, human traffickers, and drug smugglers pose to the U.S.," Institute of International Bankers CEO Briget Polichene wrote in a statement to S&P Global Market Intelligence.

"We support ending the ability of anonymous shell companies to be a safe harbor for criminals and encourage lawmakers to continue to assist law enforcement and national security personnel in these efforts," Polichene wrote.

The same day the Senate bill was introduced, the Government Accountability Office released a 94-page report detailing the need for interagency communication and coordination when monitoring illicit financial activity.

The report said some federal agencies have taken steps to provide metrics and institution-specific feedback on the usefulness of BSA reporting to industry, but those metrics were "not provided regularly, and feedback efforts were provided on a small scale."

In addition, the GAO identified a host of serious feedback challenges, like measuring the usefulness of BSA reporting, providing feedback to thousands of individual institutions and the sensitive nature of ongoing law enforcement investigations.

"Increasing the feedback on BSA reporting could help make the BSA reporting of financial institutions more targeted and effective and enhance collaboration among key stakeholders in U.S efforts to combat illicit financial crime," the report said.