Rules Designed to Catch Terrorists Cost This Unsuspecting Customer Her Bank Account

[question everything]

The 75-year-old Ms. Liegey discovered that Citigroup Inc. had blocked her checking and trust accounts after she didn’t respond to a notice asking her for personal information to verify the accounts—part of the bank’s efforts to comply with government-mandated rules referred to as “know your customer,” or KYC.

The rules are designed to make it harder for money launderers, terrorists and other criminals to finance illicit activities, hide funds or move dirty money around the globe.

(snip)

Banks have been obligated to collect identification information on their customers for decades to help law enforcement track possible criminal activity. The 2001 USA Patriot Act, adopted after the Sept. 11 terrorist attacks, added new requirements. More recently, regulators have fined or cited a number of large banks for having insufficient procedures to monitor customers and transactions. The U.S. Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, has adopted new due-diligence guidelines as recently as May.

(snip)

Ms. Liegey, who opened her Citigroup account in 2013, went to her local branch and provided her drivers’ license. Her Citi banker apologized in a letter, saying her accounts were blocked “due to BANK ERROR,” adding that the accounts “have always been in good standing and remain so.”

Later, Ms. Liegey got another warning from Citi that her accounts would be frozen if she didn’t provide the signatory page of her trust account—which someone at her branch said the bank already had. Then, she said United Parcel Service delivered a letter saying Citi had closed her accounts, and included a check with her funds.

She recalled being frightened that she couldn’t get access to her money if she needed it, adding: “They don’t have the right to do that...or do they?” She since has deposited her funds at Apple Bank for Savings.

https://www.wsj.com/articles/rules-designed-to-catch-terrorists-cost-this-unsuspecting-customer-her-bank-account-1531495802 (paid subscription)

[safeinOhio]

1. I'm happy to be on a first name bases

with my local bank. When I walk in they all say hello and I don't need any ID or my account number. Got a call from my SO that she needed some $ while out of town. Walked in a ask to transfer a couple of hundred to her account. Didn't have my account # or hers, no problem.
One good reason to deal deal with local banks.

[ProfessorGAC]

2. Same Here

I use an indie 3 blocks away and a big CU. My wife has extra $ in another indie 10 blocks away
Much more comfortable.

[wonkwest]

3. Chase constantly wants my ID

Which I’m fine with. I haven’t thought about it in awhile. Bank wanting verification is just an everyday fact of life.

This poor woman, though. Sounds like she got caught up in the bureaucracy.

[progree]

4. Hopefully they didn't fuck her royally tax-wise

"Then, she said United Parcel Service delivered a letter saying Citi had closed her accounts, and included a check with her funds."

If some of it was a traditional IRA, this could be considered an early distribution, meaning she would have to declare it as income (the IRS will) and pay taxes on it. If a Roth IRA, she loses the tax free status as they become ordinary funds. If she's swift, she might be able to roll it over to another IRA in the 60 day time window...if it is allowed in a situation like this...

If it included some investments with capital gains, e.g. mutual funds and ETFs, and if they liquidated them ("and included a check with her funds" ), of course she would have to pay capital gains taxes...

[mythology]

5. I would assume at 75, it wouldn't be an early distribution on a retirement account

[progree]

6. Well, its early if she doesn't want the whole IRA distributed and wants most of it to remain a

tax-deferred account as long as possible, which is usually what one wants their traditional IRA to be (so the magic of tax-deferred compounding will last as long as possible).

Yes, she has to take RMDs, (Required Minimum Distributions) beginning at age 70.5, but that's only 1/27.4 = 3.6% of the account value in the first year, 1/26.5 = 3.8% of the account in the 2nd year, 3.9% in the 3rd year, 4.0% in the 4th year, 4.2% in the 5th year, and so on at a slowly increasing but ever increasing percentage each year. And one pays taxes each year on the RMD for that year.

https://www.bankrate.com/finance/money-guides/ira-minimum-distributions-table.aspx

That's a lot less taxes at age 75 than paying 100% of the account value (whatever the account value is) at age 75. Which could be a sizable amount that pushes one up into another tax bracket, besides ending the tax-deferred compounding forever.

A 75 year old woman has a life expectancy of 16 more years, according to https://www.johnhancockinsurance.com/life/life-expectancy-tool.aspx

[question everything]

7. Hope her new bank will alert her

Though I suspect that she just kept a regular checking account

[progree]

8. "I suspect that she just kept a regular checking account". Me too

and/or a regular savings account

[Ilsa]

9. Doesn't she have 6 months to roll over the bulk of it into a qualified

retirement account? I've done that. And you keep the paperwork and copy of the the checks forever.

And at what age are you required to start drawing down your IRA?

[progree]

10. 60 days to roll over per this --

https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions

and hopefully the bank didn't screw up in some way and violate some obscure rule and all that, and that she knows what to do ... assuming it's a traditional IRA account (question everything was probably right that it's probably a regular checking or savings account. I haven't read the entire Wall Street Journal article, which is paywalled, I've only read the OP excerpt. But question everything, who posted the OP, presumably read it all. I'm just operating on my imagination and worst case fears, when I read something like "they closed her account and sent her a check with her funds" ).

I haven't heard of any 6 month rule for rollovers.

And at what age are you required to start drawing down your IRA?

You must take your first required minimum distribution for the year in which you turn age 70½. However, the first payment can be delayed until April 1 of the year following the year in which you turn 70½. For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31 of the year.

Source: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions

[Ilsa]

11. I knew it was 6-something. LOL. nt