Reported by Greg Baer and Gregg Rozansky

Debanking, the practice of banks closing customer accounts due to compliance concerns, has garnered attention recently. A key driver of this issue is the Currency Transaction Report (CTR) regime, which requires banks to report large cash transactions of $10,000 or more. This system, designed to combat financial crimes, has not evolved since its introduction over 50 years ago and now encompasses many legitimate transactions, draining resources from more effective anti-money laundering (AML) efforts. Critics argue that CTRs should be replaced with smarter approaches to identifying criminal activity.

The CTR regime dates back to 1970, when it was intended to provide “highly useful” data for investigations. However, its usefulness has diminished over time. Originally focused on $10,000 cash transactions—a significant sum in 1945 dollars—the regime expanded in 1987 to include aggregated transactions and later incorporated Suspicious Activity Reports (SARs) in 1992. Banks are now required to file “structuring SARs” for transactions deliberately kept under $10,000 to avoid detection. Despite the effort, most of these reports reflect innocent activity and rarely lead to law enforcement action.

Advances in technology have made CTRs increasingly obsolete. Unlike the manual systems of the past, banks now utilize sophisticated algorithms and monitoring tools that far surpass the capabilities of CTRs. Criminals, too, have adapted, using methods like shell companies to bypass these outdated requirements. Although some law enforcement officials still support CTRs for their historical significance, the data shows they are largely ineffective. Between 2014 and 2023, only 5% of nearly 170 million CTRs were accessed by law enforcement, with even fewer leading to actionable results.

The inefficiency of the CTR system has significant costs. Compliance efforts required for CTRs divert resources from more effective crime detection methods, such as AI-driven systems and investigations into complex criminal networks. Furthermore, the practice contributes to debanking, as banks are pressured to close accounts flagged for suspicious activity to avoid regulatory scrutiny. This process harms innocent individuals and small businesses, while offering little tangible benefit in combating financial crimes.

Reform is urgently needed. The 2020 Anti-Money Laundering Act directed the Treasury to modernize the system, encouraging innovation and eliminating redundant compliance burdens. Yet, these recommendations remain unimplemented. CTRs, once a useful tool, now exemplify outdated bureaucracy. Redirecting resources to advanced detection methods would better target criminals and reduce the burden on honest customers, paving the way for a more effective and fair AML regime.

Read full report: https://www.americanbanker.com/opinion/its-time-to-do-away-with-the-obsolete-currency-transaction-report