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AML Regulatory Initiatives Highlighted at ABA/ABA Money Laundering Enforcement Conference
Last week, Treasury Under Secretary for Terrorism and Financial Intelligence, David Cohen, and new FinCEN Director Jennifer Shasky Calvery addressed the American Bankers Association/American Bar Association Money Laundering Enforcement Conference. Ms. Calvery and Mr. Cohen announced the formation of an interagency anti-money laundering (AML) task force comprised of Treasury officials, federal banking regulators, and enforcement agencies charged with conducting a comprehensive review of the AML regulatory and enforcement structure to address any gaps, redundancies or inefficiencies in the framework. Ms. Calvery further explained that the Bank Secrecy Act Advisory Group is exploring ways to reduce the variance between compliance risk and illicit financing risk. Ms. Calvery also stressed the importance of electronic filings, and urged financial institutions to adopt the new FinCEN reports before the April 1, 2013 deadline. Mr. Cohen discussed a proposed customer due diligence regulation, which would extend customer due diligence obligations by requiring institutions to collect information on an account’s beneficial owner. In connection with that rulemaking, FinCEN this week announced the last in a series of roundtable discussions to gather information from stakeholders and discuss key issues relating to the proposed rule. This final roundtable will be held on December 3, 2012, at the Miami Branch of the Federal Reserve Bank of Atlanta.
DOJ Obtains $100 Million Money Laundering Settlement from Money Services Business
On November 9, the DOJ announced that a money services business (MSB) agreed to enter into a deferred prosecution agreement (DPA) and pay $100 million for failing to maintain an effective anti-money laundering program and for aiding and abetting wire fraud. The DOJ alleged that over a roughly five year period (2004-2009) the MSB profited on thousands of transactions processed on behalf of agents known to be involved in an international fraud scheme. The MSB’s senior management deferred to sales department executives and ignored recommendations from the MSB’s fraud department that certain agents known to be engaged in fraud be terminated, according to the DOJ. Moreover, the DOJ states that the MSB systematically and willfully failed to meet AML obligations under the Bank Secrecy Act, including by failing to (i) implement policies or procedures to file the required Suspicious Activity Reports (SARs) when victims reported fraud on transactions over $2,000, (ii) file SARs on agents known to be involved in the fraud, (iii) conduct effective AML audits of its agents and outlets, (iv) conduct adequate due diligence on prospective and existing agents by verifying that a legitimate business existed, and (v) sufficiently resource and staff its AML program.
Pursuant to the DPA, the MSB must (i) create an independent compliance and ethics committee of the board of directors with direct oversight of the chief compliance officer and the compliance program, (ii) adopt a global anti-fraud and anti-money laundering standard to ensure that their agents throughout the world will, at a minimum, be required to adhere to U.S. anti-fraud and anti-money laundering standards, (iii) adopt a bonus system that rates all executives on success in meeting compliance obligations, with failure making the executive ineligible for any bonus for that year, and (iv) adopt enhanced due diligence for agents deemed to be high risk or operating in a high-risk area. The MSB also agreed to retain an independent monitor that will oversee implementation and maintenance of these enhanced compliance obligations, evaluate the overall effectiveness of its anti-fraud and anti-money laundering programs, and report regularly to the DOJ.
FinCEN Publishes Mortgage Fraud Update and SAR Activity Review, Updates Electronic Filing Specifications
This week FinCEN published a new SAR Activity Review and a Mortgage Loan Fraud Update. This issue of the semiannual SAR Activity Review provides (i) the results of a survey of readers of the Trends, Tips & Issues and By the Numbers publications, (ii) an article on foreign-located money services businesses that have registered with FinCEN, (iii) feedback on FinCEN data from state and local law enforcement agencies, and (iv) articles focused on changes to SAR reports and tips for writing more effective narratives. The SAR Activity Review also provides an industry perspective on the AML risks presented by business funded prepaid cards. In the Mortgage Loan Fraud Update, FinCEN provides data regarding recent mortgage SAR activity during the second quarter of 2012. Overall, FinCEN experienced a 41% decrease in mortgage fraud SARs over the previous year, but SARs regarding foreclosure rescue scams continued to grow. FinCEN believes the growth in foreclosure-related filings could be attributed to a growing awareness of such scams and real estate market conditions.
On October 10, FinCEN issued updates to its electronic filing requirements for Currency Transaction Reports, Suspicious Activity Reports, and Designation of Exempt Person Forms. The updates do not include any new or deleted fields but do provide clarifications in the instructions for certain fields and other technical changes.
OCC Refines Consideration of BSA/AML Examination Findings
On September 28, the OCC issued Bulletin 2012-30 to refine how examiners consider Bank Secrecy Act/Anti-Money Laundering (BSA/AML) examination findings in the FFIEC Uniform Ratings System and the OCC’s risk assessment system for national banks and federal savings associations, and in the Risk Management, Operational Controls, Compliance, and Asset Quality ratings and risk assessment system for federal branches and agencies of foreign banking organizations. To align OCC practices with those of other federal regulators, OCC examiners no longer consider BSA/AML findings when assigning consumer compliance ratings. However, the findings still are considered when assessing overall compliance risk. Additionally, the current practice of considering such findings in the safety and soundness context will continue, and serious compliance deficiencies create a presumption that a bank’s management component rating will be hurt. Similarly, current practices regarding consideration of findings with regard to foreign banks remain applicable.
FinCEN Plans Roundtable on Customer Due Diligence Proposal, Releases Materials from July Hearing
On September 17, FinCEN announced that it will host a roundtable discussion on its proposed customer due diligence requirements on September 28, 2012 in Chicago, Illinois. The announcement identifies a series of “key issues” on which the roundtable discussion will focus, including (i) how institutions currently identify, collect, and verify beneficial ownership information, (ii) the costs associated with collecting and verifying such information, and (iii) how institutions currently conduct due diligence on trust accounts. Last week, FinCEN released a summary of a public hearing held in July on its customer due diligence proposal. The summary provides the final agenda for the hearing, a general summary of topics covered, and statements and other materials submitted for the record.
FinCEN Launches New Data Portal for Law Enforcement Authorities
On September 10, FinCEN announced that its new search application providing access to data collected and maintained by FinCEN is now available for use by authorized users from other state and federal law enforcement and regulatory authorities. FinCEN has completed a series of meetings with other law enforcement officials to introduce them to FinCEN Query, a tool that will allow those authorities to access and analyze eleven years of data collected by FinCEN through its enforcement of the Bank Secrecy Act. The new tool replaces the existing database with updated technology to provide more complex search and analysis capabilities.
New FinCEN Director Announced
On August 20, the U.S. Department of Treasury announced that next month Jennifer Shasky Calvery will replace James Fries as the Director of FinCEN. Ms. Calvery joins FinCEN after a fifteen year career with the U.S. Department of Justice. Most recently she served as Chief of the Asset Forfeiture and Money Laundering Section.
New York Financial Regulator Obtains Settlement on AML Charges
On August 14, the New York Superintendent of Financial Services announced the resolution of recent charges that a British bank and its U.S. subsidiary engaged in deceptive and fraudulent misconduct in order to move substantial funds on behalf of client Iranian financial institutions that were subject to U.S. sanctions. While the details of the settlement have not been released, the Superintendent stated that the bank must (i) pay a civil penalty of $340 million to the New York State Department of Financial Services (DFS), (ii) install a monitor for a term of at least two years who will report directly to DFS and who will evaluate the money-laundering risk controls in the New York branch and implementation of appropriate corrective measures, (iii) allow DFS examiners to be placed on site at the bank, and (iv) permanently install personnel within its New York branch to oversee and audit the bank’s offshore money-laundering due diligence and monitoring program.
FinCEN Issues Reminder Regarding New AML Compliance Obligations for Non-Bank Residential Mortgage Lenders and Originators
On August 13, FinCEN reminded non-bank residential mortgage lenders and originators (RMLOs) that their obligation to comply with new anti-money laundering (AML) regulations started this week. In February, FinCEN finalized a rule to extend to RMLOs certain AML regulations already applicable to other types of financial institutions, requiring non-bank RMLOs to establish AML compliance programs and file suspicious activity reports (SARs). The rule took effect April 16, 2012, but non-bank RMLOs had until August 13, 2012 to comply. This week’s announcement, as well as an advisory issued by FinCEN on August 16, remind covered companies that all FinCEN reports must be filed electronically and provide other compliance guidance. For additional information and compliance tips, please check out BuckleySandler’s three-part Spotlight Series on these new requirements for non-bank RMLOs.
New York Banking Regulator Orders Bank to Defend License Over Money Laundering Allegations
On August 6, the New York Department of Financial Services (NY DFS) ordered the U.S. subsidiary of a British bank to appear on August 15 to respond to allegations of money laundering that, if true, could cost the bank its license to conduct business in New York. The order alleges that the bank engaged in deceptive and fraudulent misconduct in order to move at least $250 billion through its New York branch on behalf of client Iranian financial institutions in contravention of U.S. sanctions. While the bank acknowledges that it has been conducting a historical review of its money laundering compliance, and that it has voluntarily disclosed that review to federal agencies, it argues that the NY DFS is misinterpreting the transactions at issue and strongly refutes the allegations.