InfoBytes Blog

Senate Subcommittee Explores Money Laundering Vulnerabilities at Global Institutions

On July 17, the Senate Homeland Security and Government Affairs Committee, Permanent Subcommittee on Investigations, held a hearing to review money laundering and terrorist financing vulnerabilities that can emerge from certain international banking activities. In connection with the hearing, the Subcommittee released a report about its investigation into past money laundering and terrorist financing compliance failures at one multinational financial institution. The report notes that despite congressional efforts to strengthen anti-money laundering laws (AML), and financial institutions’ diligence in bolstering AML controls, money laundering risks associated with correspondent banking persist. Using the investigation and its findings as a case study, the report reiterates that effective AML compliance programs at U.S. banks should include written standards, sufficient and knowledgeable staff, effective training, and a positive compliance culture. With regard to specific issues that U.S. banks might face with regard to correspondent banking, the report recommends that U.S. banks implement programs that effectively (i) screen high-risk affiliates, (ii) prevent circumvention of OFAC prohibitions, (iii) avoid providing U.S. correspondent services to banks with links to terrorism, (iv) ensure traveler check controls restrict acceptance of suspicious bulk travelers checks, and (v) eliminate bearer share accounts. The report also identifies regulatory gaps and recommends that the OCC (i) treat AML deficiencies as a safety and soundness matter, (ii) develop a policy to coordinate internal divisions conducting AML examinations, (iii) consider the use of formal or informal enforcement actions to address mounting AML failures, and (iv) strengthen AML examinations by citing violations and focusing on specific business units and a bank’s AML program as a whole.

Anti-Money Laundering Bank Secrecy Act Bank Compliance

Spotlight on Anti-Money Laundering (Part 3 of 3): SAR Reporting for RMLOs

For the first time, all non-bank residential mortgage lenders and originators (RMLOs) are required to file mandatory and voluntary Suspicious Activity Reports (SARs) with the government through the e-filing system established by FinCEN. Similar to the establishment of an AML program, compliance for this regulation is August 13, 2012. A company may file a voluntary report with FinCEN to alert them of any suspicious transaction they have reason to believe is a possible violation of any law or regulation, without any de minimus amount. A company must file a SAR once they have become aware of a transaction that:

• Is conducted or attempted by, at, or through a RMLO
• Involves or aggregates funds or assets of at least $5,000
• The RMLO knows, suspects, or has reason to suspect that the transaction or pattern of transactions:
  • Involves funds derived from illegal activity or conducted to hide funds or assets derived from illegal activity
  • Is designed to evade BSA requirements
  • Has no business or apparent lawful purpose, i.e., “doesn’t look right”
  • Involves the use of the company to facilitate criminal activity

According to Howard Eisenhardt, Counsel in BuckleySandler’s Washington, DC office, “At the heart of a company’s AML program is compliance with the requirement to file SARs to report known, attempted, or suspected crimes and suspicious transactions that involve money laundering or other illegal activity.” There isn’t a checklist available to help you determine when a SAR should be filed. Instead, the determination is based on all the facts and circumstances relating to the transaction and customer of the RMLO in question. The FFIEC and Fannie Mae both have lists of red flags for mortgage transactions that can be reviewed. Should a company file a SAR, the SAR and the information provided must be kept confidential and must not be disclosed except as authorized. “FinCEN wanted RMLOs to have the requirement to file SARs,” explains Eisenhardt. “SARs provide the government with the ability to gather information and open an investigation. The government is anticipating that the filing of additional SARs identifying potential mortgage fraud will lead to a greater ability stop or control money laundering and mortgage fraud.” FinCEN believes that much of the effort necessary to meet these regulatory obligations of implementing an AML program and filing SARs will be accomplished through business operations already taking place, including SAFE Act requirements and fraud monitoring tools that are already in place.  However, Eisenhardt  cautions, “there are several challenges for RMLOs to overcome, including the short timeframe, limited financial resources,  new training requirements, and inexperienced personnel who must learn a completely new area which they’ve never faced before.”

Anti-Money Laundering Bank Secrecy Act

FinCEN Extends Proposed Customer Due Diligence Program Comment Period, Issues Electronic Filing Reminder

On May 4, FinCEN extended the comment period for its proposal to establish a customer due diligence regulation that would require covered financial institutions to institute defined programs to identify the real or beneficial owners of customer accounts. The proposed regulation is designed to enhance federal anti-money laundering and counterterrorism efforts. Interested parties will have an additional thirty days to comment from the time the extension is published in the Federal Register.  On May 7, FinCEN reminded financial institutions subject to the Bank Secrecy Act that certain BSA-required filings must be filed electronically beginning July 1, 2012.

FinCEN Bank Secrecy Act