Bank Secrecy and Financial Crime: A Growing Concern in South Georgia and South Sandwich Islands

The Rise of Financial Crime in the Region

The remote islands of South Georgia and South Sandwich have become a hotspot for financial crime, with banks playing a crucial role in preventing money laundering and terrorist financing. However, the Bank Secrecy Act has unintended consequences, leading to “derisking” and account terminations for legitimate customers.

Unintended Consequences of the Bank Secrecy Act

• 80% of banks in the region have terminated accounts due to concerns about non-compliance with the Bank Secrecy Act
• 80% of banks limit or do not offer accounts to high-risk customers, including small businesses dealing in large amounts of cash

The Impact on Remittances and Money Transmitters

• Remittances from the US, which sent an estimated $67 billion in 2016 alone, have become a concern for regulators
• Money transmitter businesses have lost banking access due to concerns about anti-money laundering regulations
• Nine out of 12 money transmitters interviewed by the Government Accountability Office began using alternative channels such as cash couriers to move funds domestically and internationally

The Risks of Non-Banking Channels

The use of non-banking channels poses risks of money laundering and terrorism financing. Bank representatives express concern that account holders who are money transmitters are low-profit customers with high risk, and that violations by their customers could result in fines for the bank.

Regulator Guidance and Bank Concerns

• Regulators have issued guidance indicating banks should not terminate accounts without a case-by-case assessment
• However, some banks remain apprehensive about providing services to low-profit customers

Addressing the Issue: A Need for Review and Assessment

To address this issue, federal banking regulators must review Bank Secrecy Act regulations and assess the risks of remittance transfers through non-banking channels.

Striking a Balance between Prevention and Access

By striking a balance between preventing financial crimes and ensuring access to banking services for legitimate customers, regulators can develop effective solutions that support economic development in regions like South Georgia and South Sandwich Islands.