To identify and trace criminal activity, federal law enforcementrelies on the mandatory filing of suspicious activity reports byfinancial institutions subject to the Bank Secrecy Act. Because ofthe importance of SARs to law enforcement efforts, regulators donot require — and indeed have no interest in requiring — thatfinancial institutions refuse to maintain accounts for clients withhigher risk profiles, such as certain money servicesbusinesses.

In January 2015, Treasury Under Secretary David Cohen made thisvery point, remarking that through MSBs, the government has “accessto crucial information that regulators and law enforcement dependon every day to prevent the abuse of the financial system.” He wenton to express concern that “banks have been indiscriminatelyterminating the accounts of all MSBs, or refusing to open accountsfor any MSBs.” Pointing out that regulators do not — contrary to aconclusion that some may draw from recently enhanced enforcementefforts — expect banks to be “infallible,” Cohen said that whatregulators do expect “is that [banks] take seriously the variety ofillicit finance risks that different clients present, and assessand address those risks on a client-by-client basis.” In theory,such assessment and monitoring should benefit both the institution,which is thus in a better position to comply with its SARs filingobligations, and the government, which can put the filed SARs tolaw enforcement use.

In practice, a heightened AML enforcement atmosphere has ledfinancial institutions to worry that servicing higher risk clientsentails a commensurate increased risk that suspicious transactionswill occur without being flagged and reported, potentially leadingto massive fines and other penalties. Because regulators have notimposed a bright-line prohibition on servicing high-riskbusinesses, financial institutions must weigh a number of factorsin deciding how to service such clients without unintentionallyrunning afoul of their BSA/anti-money laundering obligations.