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Bank Secrecy Act &
Anti-MoneyLaundering Program
Central Virginia Chapter
Annual Training Session2011
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Primary Information Sources
www.fincen.gov
31 CFR Chapter XBSAs new home. As of
March 1, 2011 the BSA has moved from 31CFR 103 to its new home in Chapter X.
FFIEC BSA Examiners Manual
NCUA ARIES Exam Questionnaire
http://www.fincen.gov/http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?sid=0e5f6b55b62248a15f8ba11d1c561443&c=ecfr&tpl=/ecfrbrowse/Title31/31cfrv3_02.tplhttp://www.ffiec.gov/bsa_aml_infobase/default.htmhttp://www.ncua.gov/Resources/CreditUnionResources/aries/index.aspxhttp://www.ncua.gov/Resources/CreditUnionResources/aries/index.aspxhttp://www.ffiec.gov/bsa_aml_infobase/default.htmhttp://ecfr.gpoaccess.gov/cgi/t/text/text-idx?sid=0e5f6b55b62248a15f8ba11d1c561443&c=ecfr&tpl=/ecfrbrowse/Title31/31cfrv3_02.tplhttp://www.fincen.gov/ -
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BSA/AML Legislative History
A group of laws designed to assist the governmentin its efforts to monitor, prevent, and prosecutemoney laundering and other financial crimes.
1970Bank Secrecy Act (aka Currency & Foreign
Transactions ActEstablished recordkeeping andreporting requirements for individuals and financialinstitutions.
1986Money Laundering Control ActImposedcriminal liability on individuals and financial
institutions that knowingly support or assist in moneylaundering activities. Required the establishment ofprograms to monitor and report such activities.
1990Financial Crimes Enforcement Network(FinCEN) is created.
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BSA/AML Legislative History
1992Annunzio-Wylie Anti-MoneyLaundering ActStrengthened sanctions andTreasurys enforcement role.
1994Money Laundering Suppression ActFurther enhanced Treasurys enforcementrole.
1996The development of the SuspiciousActivity Report.
2001USA PATRIOT ActResponse to theterrorist attacks of 9/11. Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept andObstruct Terrorism
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BSA/AML Basics
A policy approved by Board of Directors Must be commensurate with an institutions BSA/AML risk
level
Must be reviewed and approved annually
A regular periodic BSA/AML risk assessment(generally performed annually)
Annual independent review of the credit unionsBSA/AML compliance program Can be conducted by in-house personnel, if independent
from BSA/AML processes (e.g. Supervisory Committee)
Can be conducted by outside audit firm or League staff
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BSA/AML Basics
An individual designated as BSA ComplianceOfficer
Must be provided the tools and training toeffectively manage the institutions BSA/AMLprogram
Must be in a position of authority sufficient tomanage the BSA/AML program
Annual training for all staff and volunteers asappropriate for job duties and responsibilities
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BSA/AML Basics
Internal policies, procedures, and controls to ensurecompliance with all aspects of the BSA/AML laws.
Transaction Monitoring & Information Reporting
Currency Transaction Reports Suspicious Activity Reports
Monetary Instrument Log
PATRIOT ACT Section 314(a)
Member Identification Requirements PATRIOT ACT Section 326
Customer (Member) Due Diligence
Record Retention Requirements
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BSA/AML Basics
Enforcement by Financial Crimes EnforcementNetwork (FinCEN), an agency of the TreasuryDepartment
Regulatory oversight by NCUA and BFI, dependingon charter type. Often the NCUA will take the leadon BSA examinations even in state-chartered creditunions for reasons of safety and soundness
Penalties can be civil, criminal, or both and mayrange from $500 into the millions for specific andsystemic BSA violations
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Recent Enforcement Actions
Pacific National Bank - $355,000,000 inassets, bank owned by the government ofEcuador
Ordered to pay Civil Money Penalty of $7,000,000for failure to:
Adequately identify, monitor, and report suspiciousactivity
Conduct sufficient due diligence
Adequately audit high risk areas and transactions
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Recent Enforcement Actions
Zions First National Bank - $56,000,000,000in assets
Ordered to pay $8,000,000 penalty for:
Failure to implement effective AML program withregard to foreign accounts
Failure to establish internal policies and controls
Failure to designate individual responsible for day-to-day compliance with BSA/AML rules
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Recent Enforcement Actions
Pamrapo Savings Bank$593,000,000 inassets
Forfeited $5,000,000 to US Government and
Ordered to pay penalty of $1,000,000 for:
Failure to maintain and effective BSA/AML programincluding:
Lack of internal controls
Unqualified BSA personnel
Lack of training
Deficient independent testing
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BSA/AML Policy & Program
Each credit union is required to have a compliance program thatincludes:
a system of internal controls to ensure ongoing compliance
testing for compliance by the credit union or outside party
a compliance officer responsible for monitoring day-to-daycompliance
training for appropriate employees.
The written BSA compliance policies and procedures should be
updated to reflect changes in the credit unions BSA riskassessment as well as any changes to the regulations.
NCUA ARIES Exam Questionnaire
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Risk Assessment
The credit unions risk assessment should consider the followingfactors during the risk identification process:
Customers Products
Services Geographic locations
The risk assessment should be periodically reviewed and updated,particularly when new products, services, members and geographiclocations are added.
The risk assessment process should determine the credit unionsinherent risk (quantity of risk), how internal controls mitigate (reduce)risk exposure, and whether the remaining level of risk exposure isappropriate for the credit union. While fully offsetting all BSA/AMLrisk would be prohibitively expensive for most financial institutions,
there should be a reasonable relationship between the level ofunmitigated risk and resources devoted to BSA/AML.NCUA ARIES Exam Questionnaire
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Currency Transaction Reports
Report all currency transactions over $10,000
Must be filed within 25 days of the transaction
Report must include:
Name
Social Security Number & ID number
Physical address
Occupation
Date of transaction
Type of transaction
Amount of transaction(s) rounded up to nearest dollar
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CTR Continued
Deposits aggregated for any business day
Withdrawals aggregated for any business day
Deposits and withdrawals NOTaggregated
All joint owners of an account into which a deposit ismade must appear on the CTR.
True also for businesses. All beneficial owners of thebusiness should appear on the CTR.
A recent conversation with FinCEN revealed that forwithdrawals from joint accounts only the member weknow will benefit must appear on the CTR.
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CTR Filing Exemptions
Automatically exempt, no paperwork necessary:
Financial institutions operating in the US
Federal or state governments
Entities acting with governmental authority Filing of Designation of Exempt Person form and
annual review required:
Entities traded on major exchanges
Non-listed businesses Payroll customers
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Exemption Criteria
Entities listed on major national exchanges must beexempted using a form DOEP. An annual review ofeligibility must be conducted and suspicious activitymonitoring is still required
Non listed businesses must meet the following: Conduct at least 5 reportable transactions per year Maintain an account for two months (less if based on
detailed risk analysis No more than 50% of gross income from prohibited
activities File DOEP Annual review of eligibility Ongoing suspicious activity monitoring and reporting
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Prohibited Activities
Serving as a financialinstitution or agents of afinancial institution
Purchase or sale of motor
vehicles, aircraft, or farmequipment
Chartering of ships, buses,or aircraft
Gaming of any kind (exceptlicensed parimutuel bettingat race tracks)
Auctioning of goods
Practice of law,accountancy, or medicine
Investment advisoryservices & banking
Real estate brokerage
Pawn brokerage
Title insurance and realestate closing services
Trade union activities
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Suspicious Activity Report
Credit unions are required to file SuspiciousActivity Reports under the followingconditions:
Insider abuse of any amount Any Federal criminal violations of $5,000 or
greater when a suspect can be identified
Any Federal criminal violations of $25,000 when a
suspect cannot be identified Computer IntrusionTell the govt if someone tries to steal your treats!
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Suspicious Activity Report
Transactions of $5,000 or more involving potentialmoney laundering and/or Bank Secrecy Act
violations if: The credit union knows, suspects, or has reason to
suspect that:
The transaction involves funds from illegal activities and isdesigned to hide or disguise the true nature of the funds
The transaction is designed to avoid BSA reporting
The transaction has no apparent business purpose andcannot be adequately explained by investigation
Things are not always what they seem!
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Suspicious Activity Report -Timing
If a suspect is identified30 days from thedate activity is determined to be suspicious
If no suspect was identified60 days fromthe date activity is determined to besuspicious.
If the activity giving rise to the SAR
continues, new SARs must be filed every 90days
Always keep an eye out for suspicious activity!
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SAR Examples
A business member who suddenly starts making large cash deposits. A member who asks about the limit on filing a CTR report and then
makes a transaction for an amount just under $10,000.00. A member who frequently exchanges small bills for large bills. Frequent cash deposits under $10,000 into accounts with low average
balances. ATM cash deposits that are below the specified threshold. Businesses that do not normally generate cash in normal course of
operation, making numerous cash transactions. An unusual cash deposit for a member given their account history and
activity. The transaction has no business purpose or apparent lawful purpose or
is not one that the member would normally be engaged in and the CreditUnion knows of no reasonable explanation for the transaction afterexamining all available facts.
Loan fraud, including large payment amounts, lies on loan applications,mortgage (both residential and business) loan fraud
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SARs AreSecret!
The filing and content of SARs are to beconsidered secret. The Bank Secrecy Actregulations prohibit the disclosure of the
existence and/or content of any SAR filing.
Discussions within the credit union should belimited to those with a direct involvement in
the identification of the activity or thepreparation of the SAR.
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SAR Resources
www.fincen.gov
SAR Narrative Guidance
SAR Tips and Trends
SAR Powerpoint Presentation
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Money Services Businesses(MSBs)
Currency dealer or exchanger Check Casher Issuer of travelers checks, money orders, stored
value Seller or redeemer of travelers checks, money
orders, stored value Money transmitter All except money transmitters subject to $1,000 for
any person on any day rule. All money transmittersare MSBs regardless of activity level day = business day = day communicated to
members that their transactions will normally post
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Why We Care About MSBs
FinCEN requires all MSBs to be registered
If an MSB is not registered and is a memberof your credit union you have a SAR filingresponsibility.
Check the MSB list athttp://www.fincen.gov/financial_institutions/m
sb/msbstateselector.html
http://www.fincen.gov/financial_institutions/msb/msbstateselector.htmlhttp://www.fincen.gov/financial_institutions/msb/msbstateselector.htmlhttp://www.fincen.gov/financial_institutions/msb/msbstateselector.htmlhttp://www.fincen.gov/financial_institutions/msb/msbstateselector.html -
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Monetary Instrument Log
Record all cash purchases of cashiers checks, travelers checksand money orders in the amounts of $3,000 - $10,000
Required info: Name Address Date of Birth ID # Amount of transaction Type of instrument Number of instrument Date of purchase
Most credit unions do not have to keep a physical log becausethey do not offer these products to non-members. If you do, youwill probably need to keep a log.
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PATRIOT ACT 314(a)
Requires financial institutions to respond to periodicrequests for account/member information from theinternational law enforcement community.
Credit unions must: Identify an employee as the 314(a) point of contact. This
person is listed as such on the 5300.
Compare the 314(a) biweekly list against the CUs
membership. Any matches must be communicated to therequesting officer/agent within 12 days of the request.
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PATRIOT ACT 314(b)
Section 314(b) provides for voluntary sharingof information with other financial institutions.A CU must complete a free registration
process. There is no requirement toparticipate in this program.
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PATRIOT Act 326
Requires financial institutions to:
Implement reasonable procedures to verify the identity ofany person seeking to open an account.
Maintain records of the information used to verify thepersons identity.
Determine whether the person appears on any lists ofknown or suspected terrorists or terrorist organizationsprovided to the FI by any government agency.
Provide the consumer opening a new account with noticeof the information collection requirement.
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PATRIOT Act 326 continued
At a minimum, must obtain and maintain records of the followingfor each new member:
Name
Date of birth (for individuals)
Address (physical address is required) Identification number
Social Security Number
Individual Tax Identification Number
Passport Number and Country of Issuance An Alien Identification Card Number
Number and Country of Issuance of any other foreigngovernment issued ID
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Member Due Diligence
From the FFIEC BSA/AML Exam Manual:
"The cornerstone of a strong BSA/AMLprogramis adoption and implementation of comprehensive
MDD policies, procedures, and processes for allmembers, particularly those that present a higherrisk for money laundering or terrorist financing.The objectiveshould be to allow the credit union
the predict with relative certainty the types oftransactions the member is likely to engage.
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Member Due Diligence
The concept of MDD begins with verifyingthe members identity and assessing the risksassociated with the member.
Processes should also include enhancedMDD for higher risk members and ongoingdue diligence for the entire membership.
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Record Retention
BSA generally requires recordretention of 5 years from thedate of creation of the record
MIP (PATRIOT ACT 326)
requires Member name, address, date of
birth, ID number must be kept for 5years following the closing of theaccount
Documents relied upon to verifythe members identity must beretained for 5 years from the dateof the creation of the record
Records do not have to bephysical
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Money Laundering
What is money laundering?
Moving dirty money (funds from illegalenterprises) through financial systems to disguise
the origin of the funds and make them appearlegal or clean.
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The Stages of MoneyLaundering
Placement: Physically placing bulk cash proceeds.(e.g. making a deposit into a credit union account)
Layering: Separating the proceeds of criminalactivities from their origins through layers of complexfinancial transactions. (e.g. buying big ticket itemssuch as securities, cars, travel tickets often placed insomeone elses name to further distance thecriminal from the cash.)
Integration: Providing an apparent legitimateexplanation for the proceeds. (e.g. businessinvestments or transactions)
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Money Laundering and YourCredit Union
Financial institutions are prime targets for moneylaunderers based on the many products andservices offered that can be used to facilitate allthree stages of money laundering.
Placement = deposit accounts (savings, money market,share certificates) Layering = purchase of monetary instruments for use in
purchasing big ticket items (money orders, cashierschecks, travelers checks) and using wire transfers to movemoney around the country and the world
Integration = cash used as down payment for real estate(loan obtained through credit union), investments insecurities offered through CUSOs, obtaining businessaccounts for front businesses
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Money Laundering Red Flags
Refusal or reluctance to proceed with or abruptwithdrawal of a transaction after learning of CTRfiling
Refusal or reluctance to provide required informationor identification
Structured or recurring non-reportable transactions
Multiple transactions in even dollar amounts
Transactions structured to lose the paper trail Suspicious movement of funds between institutions
Non-local address
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Money Laundering Red Flags
Multiple accounts for a single member
High activity volume with low balances
Share certificates used as collateral for loans
Loan payments by third parties Disbursement of loan proceeds by multiple credit
union checks
Replacement of monetary instruments (e.g.
purchasing travelers checks with a money order) Monetary instruments purchased with large amounts
of cash
Offi f F i A t
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Office of Foreign AssetsControl (OFAC)
OFAC is a division of the U.S. TreasuryDepartment.
OFAC administers and enforces economicand trade sanctions based on U.S. foreignpolicy and national security goals againsttargeted foreign countries, terrorist,
international narcotics traffickers, and thoseengaged in activities related to theproliferation of weapons of mass destruction.
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OFAC continued
OFAC can impose controls on transactionsand freeze foreign assets in U.S. jurisdiction.
In order to accomplish these goals OFAC has
compiled a number of lists of nationals andother entities with whom FIs are prohibitedfrom doing any sort of business.
Each OFAC enforced sanction has differentrestrictions as determined by the federalgovernment and often by order of thePresident.
C t OFAC S ti
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Current OFAC SanctionPrograms
Balkans Related
Belarus
Burma
Cote dIvoire
Counter NarcoticsTrafficking
Counter Terrorism
Cuba
Democratic Republic ofCongo
Diamond Trading
Iran
Iraq Related
Former Liberian Regime ofCharles Taylor
Lebanon
Libya Non Proliferation
Somalia
Sudan
Syria Zimbabwe
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OFAC continued
Non-compliance with OFAC sanctions canresult in personal penalties of up to$1,000,000 or 12 years in jail!
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How to Stay Outof Trouble
Include OFAC compliance in your BSA/AMLprogram
Checks the names of payees for all Cashiers
Checks and Wire Transfers against the OFACmaster list(s).
All new account applicants are checked against themaster list(s) prior to providing services.
The entire membership is checked against theOFAC master list(s) periodically, or as frequently asthe list(s) are updated.
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Recent Developments
Trends & Changes in BankSecrecy Act and Anti-Money
Laundering Regulations,
Requirements, and Procedures
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BSA Rules Get New Home
BSA formerly lived at 31 CFR 103
As of March 1, 2011 can now be found at 31CFR Chapter X New CTR and SAR forms are required
No substantive change to the forms or filingprocedure. The only update is to code citations in theinstructions.
For info on the change go to fincen.gov NO CHANGE TO FILING REQUIREMENTS
OR METHODS
N D t Fi ld P d f
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New Data Fields Proposed forCTR and DOEP
Technical changes were proposed to bothforms, with a comment period that endedMarch 28th.
The changes are made to support FinCENsmove to all electronic processing.
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SAR Confidentiality Rules
New guidance allows SAR informationsharing with domestic affiliates provided thatthe affiliate is also subject to SAR filing
requirements, is linked to the filing entity bycommon ownership and is not itself thesubject of the SAR.
BSA &M L d i i
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BSA &Money Laundering inthe News
Former Speaker of the House Tom DeLay convicted on moneylaundering and conspiracy charges. Sentenced to three years inprison
Utah bank official charged with money laundering for acceptingpayments from online gambling companies to processtransactions
South Korean police say they've arrested a farmer for allegedlyhiding about $10 million in cash in a garlic field. Police say hisrelatives made the money by running an illegal Internet gamblingsite.
Digital currency, stored value cards, internet gambling, virtual lifeall possible avenues for money laundering
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Summary
BSA Requirements Board approved policy
Annual risk assessment
Annual training
BSA Officer Annual independent review
Non-compliance penalties?
Record retention?
CTR filing limit?
CTR timing?
SAR filing reasons? Insider abuseany $$
$5,000 when suspect idd
$25,000 w/o suspect
Computer intrusion Money Laundering,
Terrorist Financing, BSAavoidance
SAR timing?
SAR Sharing? MIP minimums?
OFAC?
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The End
Contact: Jason [email protected]
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