Bert Ely's FARM CREDIT WATCH®
Shedding Light on the Farm Credit System, America's Least Known GSE
©2017 Bert Ely
To contact Bert Ely: Email: bert@ely-co.com; Fax: 703-836-1403; Phone: 703-836-4101
Mail: P.O. Box 320700, Alexandria, Virginia 22320
September 2017 (No. 234)
FinCEN should direct the FCA to enforce the Bank Secrecy Act
A banker recently posed a most interesting question: Is the FCS subject to FinCEN's final rule on beneficial
ownership with respect to customer due diligence requirements? Bankers are becoming painfully aware of
the burdens imposed by this new rule. According to a memorandum from Covington & Burling, a
Washington law firm, "the final rule requires covered financial institutions to adopt due diligence procedures
to identify and verify a legal entity customer's beneficial owner(s) at the time a new account is opened." The
new rule is intended to counter money laundering, corruption, and tax evasion. The legal basis for the rule is
the Bank Secrecy Act (BSA), which is administered by the Treasury Department's Financial Crimes
Enforcement Network (FinCEN). The bank regulatory agencies along with other financial regulators are
charged with ensuring that the financial institutions they regulate comply with the BSA and FinCEN's rules.
As bankers know all too well, the bank regulators are very diligent in enforcing these rules.
Most interestingly, the Farm Credit Administration (FCA), the FCS's regulator, stated in an email that
"[FCS] institutions are not subject to the [BSA]." That is an extremely dubious assertion given that FCS
institutions are financial institutions. Additionally, although FCS institutions are not authorized under the
Farm Credit Act to accept deposits, in recent years a number of FCS associations, in cooperation with the
FCS banks funding those associations, have become very aggressive in offering "cash management services"
to FCS member/borrowers; those "services" include accepting deposits. For example, Compeer Financial,
which serves portions of Minnesota, Wisconsin, and Illinois, advertises its offering of remote deposit
services to its member/borrowers. In this most important regard, Compeer is no different than the
commercial banks it competes against. Because Compeer and many other FCS associations now accept
deposits, they can easily facilitate the laundering of illicitly obtained funds into farmland and other
agricultural assets.
That the FCA believes FSC institutions are exempt from the BSA reflects FinCEN's misinterpretation of the
BSA. Specifically the beneficial ownership rule applies to "covered financial institutions," which includes
FDIC-insured banks and savings associations. The BSA, however, does not define the term "covered
financial institution." Instead, this statute defines "financial institutions" to encompass a broad range of
financial institutions, including any "agency of the Unites States government . . . carrying out a duty or
power of a business" that is described as a financial institution. In other words, because FCS institutions,
which effectively are government agencies, lend money and, in some cases, also accept deposits, they should
be subject to the same rules and requirements of the BSA as any FDIC-insured bank. Therefore, FinCEN
needs to expand its regulatory definition of "covered financial institution" to include FCS institutions. More
importantly, it needs to direct the FCA to implement rules and compliance procedures to ensure that FCS
institutions are as vigilant as FDIC-insured banks in blocking money-laundering transactions as well as other
activities that would violate the BSA.
In 2013, the FCA adopted four regulations which the FCA might argue approximate what the FCS would be
subject to if was determined that FCS institutions fall within the jurisdiction of FinCEN with regard to
enforcing the BSA. Essentially, the regulations provide that "to ensure public confidence in the [FCS], to
ensure the reporting of known or suspected criminal activity, to reduce potential losses to institutions, and to

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