Agenda Background and Purpose

Money Laundering and Terrorist Financing

BSA Program Requirements

Risk Based Program Management

Suspicious Activity Reports

Board of Directors’ Responsibilities

Penalties for Non-Compliance

Background and Purpose

Enacted in 1970 to help law enforcement officials track and prevent the laundering of money obtained through illegal activities

Amended many times over the years

Significant changes occurred with the passage of the USA PATRIOT Act in 2001.

Money Laundering“Money laundering is the process by which one conceals the existence, illegal source, or illegal application of income, and then disguises that income to make it appear legitimate.”

The Three Stages of Money Laundering:

Placement

Layering

Integration

PlacementMoney is physically moved away from the scene of the crime and is first introduced into the banking system.

Cash deposits

Cash purchase of monetary instruments

Cash loan payments

Currency exchange

LayeringMoney is transferred from account to account, institution to institution and country to country in an attempt to stymie investigators with a complex paper trail that loops through different legal jurisdictions.

Wire Transfers

Electronic Payments

IntegrationIntegration happens when washed cash becomes part of the legal economy and is effectively untraceable.

Purchase and sale of real estate or other assets

Obtaining business or personal loans

Legitimate or illegitimate business operations

Legitimate or illegitimate charitable operations

Terrorist FinancingTerrorist financing is often described as reverse money laundering in that it takes money that comes from “clean” sources and channels it to the “dirty” purposes of terrorism.

Sources of funds can include:

Wealthy Sympathizers

Fundraising at places of worship or cultural centers

Drug Trafficking

Official State Sponsorship (Sudan,Syria,Iran, Iraq)

Money Laundering is often a critical component of terrorist financing.

Four Main Program Requirements

Independent testing of BSA compliance.

A specifically designated person or persons responsible for managing BSA compliance (BSA compliance officer).

Training for appropriate personnel.

A system of internal controls to ensure ongoing compliance

Independent Testing Qualified

Independent

Transaction Testing

Comprehensive work papers

BSA Officer Authority

Adequate Staffing

Other Resources

Training

Training New employees upon hire

All employees periodically (annually)

Tailored to specific business lines

Employee accountability for compliance

Maintenance of training records and materials

Coverage of credit union policies, procedures, processes, and new rules and regulations.

Coverage of different forms of money laundering and terrorist financing

Penalties for noncompliance with internal policies and regulatory requirements.

Internal ControlsMinimum Requirements:

Customer/Member Identification Program

Customer/Member Due Diligence

Suspicious Activity Reporting

Currency Transaction Reporting

CTR Exemptions

Information Sharing under the USA Patriot Act

Monetary Instrument Recordkeeping

Funds Transfer Recordkeeping

Office of Foreign Assets Control (Can be a separate policy)

Internal ControlsBasic products and services offered:

Electronic Banking

Funds Transfers

ACH Transactions

Lending

Sale of Monetary Instruments

Internal ControlsExpanded products and services offered:

Third Party Payment Processing

Foreign accounts/branches/services

Correspondent Accounts

Brokered Deposits

Non-Deposit Investment Products

Insurance

Private Banking

Internal ControlsAccounts offered to certain individuals and organizations:

Nonresident Aliens and Foreign Individuals

Non-Bank Financial Institutions (MSBs)

Professional Service Providers (Doctors, Attorneys, Accountants, Real Estate Brokers)

Non-Governmental Organizations and Charities

Business Entities (Domestic and Foreign)

Cash-Intensive Businesses

Risk Assessment Considerations

Risk assessment not required

Examiners will complete one if the credit union does not

Tell your own story

BSA program should be based on the risk assessment

Risk Assessment Components

Assess the following areas: Products and Services Members Geographic Locations

Change as new products and services are introduced, strategic plans change, or field of membership changes.

Periodic updating

Address risks factors outlined in the FFIEC Exam Manual appendix J

Risk Assessment Considerations

The risk assessment should answer the following questions:

What types of products and services does the credit union offer?

Who is using them?

Where is the potential exposure to money laundering?

What steps have been taken to mitigate risk?

Suspicious Activity Reports

Credit unions are required to file a SAR if the institution knows or suspects that a transaction:

Involves illegal activity

Is designed to evade BSA regulations

Has no business or apparent lawful purpose

Reporting Limits

Insider abuse in any amount

Aggregate transactions of $5,000 or more when a suspect can be identified

Aggregate transactions of $25,000 or more regardless of a potential suspect

SAR Examples Insufficient or suspicious member information

Activity inconsistent with the member’s business

Unusual cash transactions

Unexpected or frequent funds transfers

Avoiding reporting or record keeping requirements (structuring)

Board of Directors’ Responsibilities

Approve the BSA Program annually

Appoint a BSA Officer

Review the BSA Risk Assessment as applicable

Review periodic BSA program updates

Ensure BSA officer has adequate staffing and resources

Review reports of filed Suspicious Activity Reports

Champion policy and procedure

For the Credit UnionCivil Money Penalties:

Failure to file CTRs - $25,000 to $100,000 per violation

Failure to file SARs - $25,000 to $100,000 per violation

Compliance Program violations - $25,000 per day

Record-keeping violations - $1,000 per violation

Pattern of Negligence - $50,000

Negligence - $500 per violation

Structuring – Dollar amount involved in transactions

For the Credit UnionRegulator Citations and Restrictions:

Cease & Desist orders

Delay or rejection of new applications

Revocation of federal deposit insurance coverage

For Individuals Generally: $250,000

and/or five years in prison for willful violations

If conducted to facilitate other criminal acts: $500,000 or ten years in prison

Heather LineCompliance SpecialistUtah Credit Union Associationheather@utahscreditunions.org