Bank Secrecy Act/ Anti-Money Laundering (BSA/AML) 2014 FDIC Directors College

Transcription

1 Bank Secrecy Act/ Anti-Money Laundering (BSA/AML) 2014 FDIC Directors College

2 Discussion Topics Marijuana-Related Businesses Human Smuggling & Trafficking Third Party Payment Processors (TPPPs) BSA/AML Program Breakdowns that have led to Civil Money Penalties Promoting a Culture of Compliance Suspicious Activity Identification, Monitoring, and Reporting SAR Confidentiality

3 Marijuana-Related Businesses Conflict between Federal and state laws: Under Federal law, it is illegal to manufacture, distribute, or dispense marijuana. Notwithstanding the Federal ban, at least 23 states and D.C. have legalized certain marijuana-related activity (e.g., MD, DE, NJ, NY). The Department of Justice has issued guidance to federal prosecutors, and FinCEN has issued guidance to financial institutions.

4 Marijuana-Related Businesses FinCEN Guidance issued February 14, 2014 (FIN-2014-G001): Clarifies how banks can provide services to marijuana-related businesses consistent with their BSA obligations; Aligns the information provided by banks in BSA reports with law enforcement priorities; Specifies customer due diligence expectations and reporting requirements of banks (e.g., SARs).

5 Marijuana-Related Businesses Customer Due Diligence Expectations: Verify state licensure/registration; Review license application & related documents; Request from state authorities information about the business & related parties; Develop understanding of normal & expected activity for the business; Ongoing monitoring of publicly available sources; Ongoing monitoring for suspicious activity; Periodically refresh information obtained; Consider whether business implicates a Cole Memo priority or violates state law.

6 Marijuana-Related Businesses Reporting Requirements: Suspicious Activity Reports (SARs) - required to be filed on activity involving a marijuana-related business Marijuana Limited SARs Marijuana Priority SARs Marijuana Termination SARs Currency Transaction Reports (CTRs) - required if CTR cash threshold is met Not eligible for CTR exemption

7 Human Smuggling & Trafficking FinCEN issued guidance on 9/11/2014 to financial institutions on recognizing activity that may be associated with human smuggling and human trafficking. (FIN-2014-A008) All financial institutions can play a critical role in identifying and reporting transactions related to these unlawful activities based on their observations when interacting with customers and their monitoring processes. FinCEN identifies red flags to assist financial institutions in identifying and reporting suspicious financial activity connected to this activity.

8 Human Smuggling & Trafficking Human Smuggling - Acts or attempts to bring unauthorized aliens to or into the United States, transport them within the U.S., harbor unlawful aliens, encourage entry of illegal aliens, or conspire to commit these violations, knowingly or in reckless disregard of illegal status. Human Trafficking - The act of recruiting, harboring, transporting, providing or obtaining a person for forced labor or commercial sex acts through the use of force, fraud or coercion.

9 Human Smuggling & Trafficking Stages of Human Smuggling Solicitation Transportation Payment o Pay In Advance o Partial Payment o On Arrival Stages of Human Trafficking Recruitment or Abduction Transportation Exploitation

10 Human Smuggling & Trafficking FinCEN Guidance to Financial Institutions Evaluate indicators of potential human smuggling or trafficking activity in combination with other red flags and factors, such as expected transaction activity, before making determinations of suspiciousness. Reference previous FinCEN guidance and advisories when evaluating suspicious activity. Consider sharing information with other banks, as appropriate, under Section 314(b) of the USA PATRIOT Act.

11 Human Smuggling & Trafficking SAR Filing Consistent with the standard for reporting suspicious activity as provided for in 31 CFR Chapter X, the financial institution should file a Suspicious Activity Report (SAR). Include one or both of the following terms in the Narrative and the Suspicious Activity Information section: ADVISORY HUMAN SMUGGLING and/or ADVISORY HUMAN TRAFFICKING. Do not include the potential victim as the subject of the SAR. Rather, include all available information on the victim in the narrative.

12 TPPP Regulatory Guidance FDIC Clarifying Supervisory Approach to Institutions Establishing Account Relationships with Third Party Payment Processors (FIL ), dated July 28, 2014 FinCEN Advisory on Risk Associated with Third-Party Payment Processors (FIN-2012-A010), dated October 22, 2012 FDIC Revised Guidance on Payment Processor Relationships (FIL ), dated January 31, 2012 FDIC Guidance on Payment Processor Relationships (FIL ), dated November 7, 2008

13 In the News Joint FDIC & FinCEN Press Release, November 19, 2012 FDIC and FinCEN assess a $15 million civil money penalty against First Bank of Delaware for violations of BSA/AML laws and regulations. Bank also settled civil charges brought by the U.S. Department of Justice. Specifically, the bank failed to adequately oversee third-party payment processor relationships and related products and services in a manner commensurate with associated risks.

14 Third Party Payment Processors TPPPs: What are they? A TPPP is a deposit customer that uses its banking relationship to process payments for merchant clients. TPPPs serve as intermediaries between merchants and banks. Merchant Clients Legitimate? High Risk? Illegal?

15 Third Party Payment Processors TPPPs: What are they not? TPPPs are not technology service providers performing work on behalf of financial institutions. Currently, TPPPs generally are not subject to BSA/AML regulatory requirements; therefore, they are not required to monitor for suspicious activity.

16 TPPP Warning Signs/Red Flags Consumer complaints (i.e., unauthorized transactions, misrepresentations, merchant strong-armed consumer into providing account information, etc.) High volume activity (may be low volume initially and then significant increase) High rates of charge backs/returns, including RCCs or ACH debits returned as unauthorized or due to insufficient funds High fee income associated with activity

17 TPPP Warning Signs/Red Flags TPPPs have been targeting troubled institutions with the promise of income and capital. TPPP is likely to use more than one financial institution to process payments, and activity may periodically move between financial institutions (because one or more of the relationships may be terminated as a result of suspicious activity).

18 TPPP Potential Risks to Banks Reputational Risk Legal Risk Compliance Risk Fraud Risk Money Laundering Risk Credit Risk Other risks associated with high customer complaints, returned items, and the potential for claims of unfair or deceptive practices

19 TPPP - Expectations of Banks Risk Assessment Due Diligence Ongoing Monitoring Policies and Procedures Oversight Risk Management

20 TPPP - Expectations of Banks Perform background checks (FTC, BBB, internet searches, fraud databases, public records, etc.) on TPPPs, principal owners, and merchant clients. Review TPPP promotional materials, including websites, to determine target clientele. Identify TPPP s major customers. Review information on merchant clients.

21 TPPP - Expectations of Banks Monitor for consumer complaints. Determine, to the extent possible, if there are any external investigations of or legal actions against a TPPP or its owners and operators. Monitor for high rates of charge backs or returns, including high levels of RCCs or ACH debits returned as unauthorized or due to insufficient funds. Monitor for other types of suspicious activity.

22 TPPP - Expectations of Banks When bank suspects fraudulent activity: File a Suspicious Activity Report (SAR); Require the TPPP to cease processing for that specific merchant; Freeze certain deposit account balances to cover anticipated charge backs; and/or Terminate the relationship with the TPPP.

23 Civil Money Penalties Assessed for BSA/AML Program Breakdowns First Bank of Delaware - $15 Million November 19, 2012 TD Bank, N.A. - $37.5 Million September 23, 2013 Saddle River Valley Bank - $4.1 Million September 24, 2013 JPMorgan Chase Bank, N.A. - $461 Million January 7, 2014

24 BSA/AML Program Breakdowns that have led to Civil Money Penalties Failure to implement internal controls reasonably designed to detect and report suspicious activity; Failure to adequately oversee relationships/products/services in a manner commensurate with the risks; Poorly resourced and/or trained staff (e.g., to recognize suspicious activity); Failure to file SARs (or to file timely).

25 Promoting a Culture of Compliance FinCEN Advisory to U.S. Financial Institutions on Promoting a Culture of Compliance (FIN-2014-A007), dated 8/11/2014 Leadership should be engaged. Compliance should not be compromised by revenue interests. Information should be shared throughout the organization Leadership should provide adequate human and technological resources. The Program should be effective and tested by an independent and competent party. Leadership and staff should understand how their BSA reports are used.

26 Suspicious Activity Identification, Monitoring, and Reporting When must a SAR be filed? If the bank knows, suspects, or has reason to suspect that a transaction conducted or attempted by, at, or through the bank: involves funds derived from illegal activity or is an attempt to disguise funds derived from illegal activity, is designed to evade BSA regulations, or lacks a business or apparent lawful purpose or is not the sort of transaction in which the customer would normally be expected to engage.

27 Suspicious Activity Identification, Monitoring, and Reporting Controls Necessary for Effective Suspicious Activity Detection: Customer Due Diligence/Enhanced Due Diligence Transaction Monitoring Oversight of Relationships/Products/Services Training and Resources

28 Each SAR is a piece of the puzzle Bank A SAR filed - Cash deposits not consistent with nature of business. Orient Express Authorized signer Joe Chan SSN DOB 4/12/78 Bank B SAR filed - Multiple funds transfers to account. Joe Lee SSN DOB 4/12/78 Authorized signer on Express Orient Bank C SAR filed - Jan Lee makes multiple deposits in amounts just under $10,000 and says she makes money at Casinos. Frequently wires funds to Bank D into account of Chan Lee who she says is her brother who resides in San Francisco. Joe Chan Lee Without SSN your DOB 4/12/78 piece the puzzle won t be solved. Opened acct at MY BANK; Wired funds to Bad Drugs Co. at Foreign Bank E. Bank D SAR filed - MOs & wires just under report thresholds from Bank A, B & C into account of Chan Lee. SSN DOB 4/12/78 Wires funds to MY BANK monthly.

29 SAR Confidentiality Financial institutions, and their current and former directors, officers, employees, agents, and contractors, are prohibited from disclosing SARs, or any information that would reveal the existence of a SAR. Consequences for failing to maintain SAR confidentiality could include civil and criminal penalties.

30 SAR Confidentiality Maintain confidentiality of SAR itself. Maintain confidentiality of information that would reveal the existence (or nonexistence) of a SAR.

31 SAR Confidentiality SAR Confidentiality Reminder for Internal and External Counsel of Financial Institutions [FIN-2012-A002 issued March 2, 2012] Maintaining the Confidentiality of SARs [FIN-2010-A014 issued November 23, 2010] SAR Supporting Documentation [FIN-2007-G003 issued June 13, 2007]

32 Questions? Jill Apa Senior Risk Examiner FDIC Harrisburg, PA Field Office (717)