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Money Laundering

Somebody's watching you.
Tim Reason, CFO Magazine
December 1, 2002

If you're looking to launder money, a pawnbroker is a better bet than a bank--at least for now.

While banks labor under the strict guidelines of the anti-money-laundering Patriot Act, the Treasury Department is still laboring to set rules for small businesses that deal with large purchases, such as used-car dealers, pawnbrokers, jewelers, travel agencies, and a host of others.

The Patriot Act, passed in October 2001 in hopes of tripping up terrorist financing, requires all such institutions to establish anti-money-laundering programs within six months. In April, the Treasury Department issued regulations to the traditional financial-services sector, but so far it has failed to do so for the odd coterie of remaining companies.

Why the delay? The rules for banks are absurd for certain small businesses, which typically don't even have CFOs. "Having an individual trained in [money-laundering] compliance makes sense if you're American Express, but not if you're two guys with a jewelry cart at the mall," explains Karen Shaw Petrou, managing partner at consulting firm Federal Financial Analytics Inc.

But large financial institutions aren't complaining about the disparity. Instead, they're in overdrive to avoid "reputational accidents" that could prove far worse than the money-laundering scandals that plagued some major banks in recent years, says Alan Abel, head of PricewaterhouseCoopers's money-laundering compliance practice. "September 11 put money laundering and terrorist activity high in everyone's thoughts." That means even corporate banking customers will find themselves under tighter scrutiny.

"Customers are going to have to provide lots more information to banks and broker/dealers," agrees Petrou. "Banks want to determine not only that their own customers and counterparties are reputable, but that their customers in turn deal only with reputable people. There is a lot of contagion risk that everyone wants to insulate themselves from."




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