The Cost of AML Compliance for US Banks

US banks spent between 0.4% and 2.4% of their total 2018 operating expenses on anti-money laundering and Bank Secrecy Act compliance, according to a new study from the Government Accountability Office (GAO).

The GAO assessed a sample of banks of varying sizes and how much they spent on compliance with anti-money laundering (AML) rules and the Bank Secrecy Act (BSA).

Banks in the GAO’s study spent an average of $15 per new account on due diligence requirements – although the actual cost ranged from $5 to $44 depending on where banks were based and where their customers were.

The largest banks on the study – which were not named – spent much larger absolute sums on compliance, but this amounted to a lower percentage of overall expenses, the GAO found.

Within their AML and BSA spending, banks spent the most on customer due diligence – 29% of total compliance costs on average. Reporting costs accounted for 28% on average, while 18% was attributed to training, testing and internal controls. Software and third-party costs accounted for 17% of AML/BSA costs on average.

No banks imposed direct fees to recoup these expenses, but one large credit union reported that it did levy a charge. However, banks reported to the GAO that they had restricted access to higher-risk products and services in an effort to manage both risks and costs.

In addition, the GAO’s report suggested that the AML/BSA requirements placed on banks could increase the cost of offering online account opening services.

In a sample of 11 banks and credit unions analyzed by the GAO, AML/BSA costs ranged from 0.4% of operating expenses for a large community bank to 2.4% for a small community bank. For one large credit union, compliance with the rules accounted for 4.9% of operating expenses.

The two “very large” banks in the sample reported costs of $15 million and $21 million, although in both cases this was less than 1% of total expenses.

The Financial Times reported last month that regulators had levied more in anti-money laundering fines in the first half of 2020 than they did in the whole of 2019.

Citing data from consultancy group Duff & Phelps, the FT said total global AML fines hit $706 million between January and June, compared to $444m across the whole of 2019.

However, fewer large fines were levied in the US, which Duff & Phelps said could reflect US banks getting up to speed with the rules.

The GAO’s study is available here.