Monday, March 20, 2006

When checks began bouncing at Holy Name Monastery of the Benedictine Sisters last year, Sister Jean Abbott knew something was fishy.

Her calls to the bank revealed that the St. Leo, Fla., account was frozen for five days because one of the account’s signatories — an 80-year-old nun — didn’t have an identification card on file.

The bank blamed the USA Patriot Act for the account freeze.

“The local bank said it was the Patriot Act,” said Sister Abbott, who declined to identify the bank. “Someone at the main office of the bank had done, according to the local bank, a spot check on the account, which they do periodically.”

The Patriot Act strengthened the Bank Secrecy Act, which requires financial institutions, including banks, creditors and even casinos, to inform the U.S. Treasury Department of transactions they find to be out of the ordinary. But even the Patriot Act cannot close an account — only a bank can do that.

The number of suspicious transactions that financial institutions are reporting to the government has nearly tripled since the Patriot Act was passed in 2001.

A suspicious act could be a business that doesn’t normally use cash but suddenly starts making large cash deposits, or a person who normally deposits just a paycheck and suddenly makes a few deposits of tens of thousands of dollars.

Both could be legitimate transactions, but they also could be a sign of money laundering or other illegal activity.

So both cases will draw a red flag from a bank, prompting it to file a Suspicious Activity Report (SAR), which is sent to the Treasury Department to determine whether the transaction is fraudulent and to start a paper trail that investigators can use later if necessary.

Most consumers will never have their accounts frozen and likely will never know if a report is filed on them, according to the Treasury Department and the American Bankers Association (ABA). It’s illegal for a bank to tell consumers that a SAR has been filed on them.

The average consumer “should not be concerned as long as the transactions they’re doing are legit,” said Anne Marie Kelly, a spokeswoman for the Financial Crimes Enforcement Network, the Treasury Department bureau responsible for administering the Bank Secrecy Act.

Privacy groups say the law is invasive without being effective.

“This law is causing so many problems without any demonstrable successes,” said J. Bradley Jansen, director of the Center for Financial Privacy and Human Rights, part of the Liberty and Privacy Network in the District. “The Banking Secrecy Act has been on the books since the 1970s. It did not prevent 9/11. It’s not designed to prevent anything.”

Ten years ago, banks filed 62,473 SARs annually. By 2000, that figure reached 163,184, and two years later, after the Patriot Act revisions, the number of SARs nearly doubled. It reached a peak of 689,414 in 2004 and dropped to 435,167 last year.

More financial institutions are required to file now, boosting the number of SARs. But regulators also have cracked down on banks over noncompliance — Riggs Bank N.A. faced a $16 million fine last year for failing to file timely and accurate SARs.

“The banks take it very seriously,” said John Hall, a spokesman for ABA. “Since those fines were enacted, some regulators feel that the banks are filling them out a little too often.”

In Texas, where bankers deal with many immigrants sending money back to their countries, bankers think they have to file SARs on transactions even if they don’t look too suspicious.

“Bankers know that even though the Washington regulators say they’re not going to second-guess the bankers, the bankers are getting second-guessed,” said Karen Neeley, general counsel of the Independent Bankers Association of Texas. “If you want to be safe, you have to file.”

After the SAR is filed, it’s up to the bank to determine whether to let the transaction proceed, freeze the funds or even close the account, Ms. Kelly said.

“We don’t do anything about whether an account is closed or open. That’s a business decision by the financial institution,” she said.

The Treasury Department refers suspicious transactions to the appropriate law-enforcement agency.

The ABA says banks don’t give out account information unless ordered to by law.

“Banks do guard the privacy of their customers. Customer trust is paramount to our industry,” Mr. Hall said.

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