1 Bank Secrecy, Anti-Money Laundering & OFAC * BSA/AML and Compliance Officer:Jonathan Gwin, Esq.
2 Training Outline & Objective Rationale for the new regulationsAML Program: Four componentsWhen to File Suspicious Activity Reports (SARs)
3 Why Have This Regulation? The Financial Crimes Enforcement Network (“FinCEN”) believes that Residential Mortgage Lenders and Originators (“RMLOs” (e.g., independent mortgage loan companies and mortgage brokers) “are primary providers of mortgage finance—in most cases dealing directly with the consumer—and are in a unique position to assess and identify money laundering risks and fraud while directly assisting consumers with their financial needs and protecting them from the abuses of financial crime.”Speech by James H. Freis, Jr., FinCen Director, April 23, 2012
4 Effective Date August 13, 2012 is the Effective Date Lenders must be in compliance and have an AML Program IN FORCE as of this date.No exceptions based on company size or type of company will be made.
5 Non-Compliance Penalties? Failure to comply with the AML requirements is a violation of the regulations and of the Bank Secrecy Act and could lead to criminal penalties and large fines.FinCEN has designated the IRS to perform audits to check for compliance – this designee may change in the future.
6 AML PENALTIES (Anti-Money Laundering) What are the Penalties for violating AML laws?Corporate Penalties:Loss of LicensingInsurance revocationCease and Desist orderFormal written agreementFines up to $500,000 or 2x the amount involved in the transactionMonetary loss from the asset forfeiture actions, fraud, or charge offLoss of company valueSubstantial legal feesReputation risks
7 AML PERSONAL PENALTIES Imprisonment up to 20 yearsPersonal fines to employeesMoney loss from asset forfeiture action, fraud, or charge offSubstantial legal feesReputation riskFired or barred from the financial industry
8 AML Requirements Each AML program must include: Policies, procedures and internal controls based on the company’s assessment of the money laundering and terrorist financing risks associated with its products and services. The policies, procedures and controls must include provisions for complying with integrating the company’s agents and brokers into the AML program, and obtaining all relevant customer-related information necessary for an affective AML program. The policy must be approved by senior management and be in writing.Designation of an AML program compliance officer.Provisions for ongoing training of staff concerning their responsibilities under the AML program. Training should at least be annual and materials should be distributed as needed.For example, a mortgage fraud scheme in the RMLO’s area should be brought to the company’s employees’ attention.Independent testing of the AML program to monitor its structure.
9 AML PREVENTION POLICIES (Anti-Money Laundering) What are the requirements of AFN’s policy?To comply with the letter and spirit of applicable money laundering laws, the AML Policy and operating procedures.To make reasonable efforts to determine a customer’s identity.To perform adequate due diligence.To maintain high ethical standards and avoid suspect transactions.If necessary, cooperate with law enforcement agencies, subject to customer confidentiality constraints.To remain alert to unusual or suspicious activities that may indicate laundering of illegal proceeds or other criminal conduct and report such activities to the AFN’s BSA Officers.
10 GOALS of AML (Anti-Money Laundering) The Regulations require RMLOs to develop and implement a risk-based AML program reasonably designed to prevent their being used to facilitate money laundering or the financing of terrorist activities.This isn’t just about catching the bad guys. Mortgage fraud is also an operational risk and FinCEN has said that preventing fraud should be a result of an AML program.
11 Focus on AML (Anti-Money Laundering) AFN does not allow cash transactions to occur and maintains a NO TRUST ACCOUNT policy. As such, no employee shall collect cash from a borrower.AFN will provide a Bank Secrecy Act overview for currency transactions, but will focus this presentation on Suspicious Activity Reports.
12 Bank Secrecy Act (BSA)Designed to aid federal government in detecting illegal activity through tracking certain cash-based transactions.Requires Lenders to file reports of daily transactions conducted in currency in amounts over $10,000.Requires recordkeeping on beneficiaries and originators of funds transfers in amounts over $3,000.Requires information gathering and recordkeeping on sales of money orders, cashier’s checks, and traveler’s checks in amounts between $3,000 and $10,000 via escrow or from the company.Establishes certain exemptions to the currency transaction reporting requirements.
13 Bank Secrecy Act (BSA) Identifying Reportable Transactions AFN is required to fill out a Currency Transaction Report (CTR) for ANY cash transaction that totals over $10,000.A cash transaction is one that involves the physical transfer of actual cash between any customer.A cash transaction can be the combination of several transactions throughout the day or one specific transaction such as:A deposit/withdrawal of more than $10,000 in cashThe cashing of a check or group of checks that total more than $10,000 in cashAn exchange of currency, for example, the exchanging of smaller bills for larger ones for more than $10,000A loan payment of more than $10,000 in cashThe cashing or redeeming of Savings Bonds that is more than $10,000 in cashThe purchase of money orders, bank checks, gift checks or travelers checks for more than $10,000
14 Bank Secrecy Act (BSA)Conclusion: AFN does not accept cash from borrowers under any circumstances!AFN must complete a CTR:Complete a CTR immediately for any transaction over $10,000 cash to escrow. No MLO should accept cash at any time.Make sure there is proper ID (driver’s license, passport, armed forces card, government ID or alien registration card).Be as exact as possible.Complete a Log-Entry for purchase of negotiable items for currency of $3,000 or greater.Forward completed CTRs to the BSA Compliance Officer.Questions about BSA should be directed to the BSA or Compliance Officer.
15 Suspicious Activity Report (SAR) Employees that have a reasonable, substantial basis for believing that a customer, an employee, or a director has committed, attempted or is involved in a crime, should report the activity to the Bank Secrecy Officer.Types of activity:No apparent business purposeInvolves funds derived from illegal activityDesigned to evade BSA reporting requirementsAppears to be an abnormal business transaction for a customerAppears to be a known or suspected federal criminal violationEstablishes a pattern of violations committed or attempted against AFN, in which AFN appears to be an actual or potential victim of a crime
16 Suspicious Activity Report (SAR) Suspicious Activity can include but is not limited to:False oral or written statements made to the Lender by loan applicants or borrowers in connection with lending, or material omissions intended to conceal pertinent facts; orTheft, embezzlement, or misapplication of funds by an employee, officer, director, or agent of the Bank; orStructuring transactions to avoid BSA reporting; orUnusual activity indicative of money laundering; orKickbacks or bribes solicited, accepted, or given by (or to) an employee, officer, director, or agent of the Bank in connection with services.Involve funds derived from illegal activity.Are designed to avoid BSA requirements.Have no business or apparent lawful purpose or are not for the sort of purpose in which the customer would be expected to engage, and there is no reasonable explanation for the transaction after examining the available facts, including the possible purpose and background of the transaction.Involves the use of the RMLO to facilitate criminal activity.
17 SAR Filing DeadlinesA SAR must be filed no later than 30 calendar days after the date of the initial detection by the reporting RMLO of the facts that may constitute a basis for the SAR’s filing.If a suspect is not known at the outset, the RMLO may wait another 30 calendar days to identify a suspect, but the SAR must be filed 60 calendar days after initial detection.If an emergency (money laundering or terrorist financing for example), the RMLO should call FinCEN’s Financial Institutions Hotline and, if the RMLO believes it is necessary, the appropriate law enforcement agencies. A timely SAR still needs to be filed.
18 Suspicious Activity Report What should the AFN do to combat suspicious activities?Make reasonable efforts to determine a customer’s true identity.Remain alert to unusual or suspicious activities (such as wires, deposits, loan activities).NEVER inform any individual in the transaction that a Suspicious Activity Report has been filed. This is prohibited by law!!!!Avoid “Willful Blindness” at all costs. Willful Blindness is the “intentional disregard” of the facts, which could have led to the discovery of an unlawful activity. The Bank can be held liable for not reporting the suspicious activity.
19 SAR Recent Example•“A former Federal agent was found guilty at trial on various charges related to the purchase of real estate. The former agent allegedly fabricated information provided to financial institutions regarding his position and income. The case began when a Federal analyst was proactively examining SARs in connection with mortgage loan fraud investigations and recognized the subject of a SAR as a current Federal agent.”•“The SAR narrative indicated that the defendant provided the filer with fraudulent statements concerning income and employment when applying for a mortgage loan. The institution claimed a loss of more than $200,000. According to subsequent SARs, the defendant claimed to be president of a company, which did not exist. Other SARs on the defendant alleged suspected mortgage fraud, bank fraud, and wire transfer fraud. According to law enforcement officials investigating the case, the defendant’s criminal activity could have gone undetected without the information that was made available in the SARs.”
20 SAR ExamplesHigh Cash Deposit (even though CTR’s are not required as they are for banks, but someone walking in with little income or assets and with $40,000 in cash would be suspicious unless he/she has a VERY GOOD explanation).Irregularities in loan documentation.Employee theft.Money being transferred (or attempted to be transferred) to a country that raises questions, i.e., Nigeria., combined with some sort of deceptive behavior – often a straw buyer issue.False ID and other false documentation.Falsified requests for verification of assets or deposits (FinCEN reports that this is engaged in by mortgage brokers seeking to qualify customers for a loan)Attempted bribe(s).Check or wire fraud.
21 Suspicious Activity Report (SAR) Conclusion In Summary:Understand what are “normal” and “expected” loan transactions of your customers.Identify and report unusual or suspicious activities to management.Evaluate concerns, monitor and/or terminate relationships as a result of suspicious or unusual activity.Understand the Bank’s policy and procedures.Avoid “Willful Blindness” at all costs.*Never* disclose to your customers that you are filing a SAR.
22 The Office of Foreign Assets Control (OFAC) What are the Office of Foreign Assets Control Requirements? (And why should you care?)The U.S. Treasury Department’s OFAC regulations block and prohibit various transactions with designated foreign countries. Banks are required to comply with OFAC as a part of their BSA/AML program.OFAC administers economic sanctions and trade embargoes against these certain countries.Sanctions are imposed based on U.S. foreign policy and national security concerns.They can involve prohibiting trade, blocking assets, prohibiting certain types of commercial and financial transactions or a combination thereof.Sanctions also have been used frequently against dangerous groups, such as narcotics traffickers and terrorists.These sanctions apply to all individuals and entities that are subject to U.S. jurisdiction regardless of their location as well as all U.S.-based financial institutions, including their subsidiaries and foreign branches.
23 The Office of Foreign Assets Control (OFAC) What are the OFAC-Restricted Countries?They include:BalkansBurma (Myanmar)CubaIranIraqLiberiaLibyaNorth KoreaSierra LeoneSudanTalibanUNITA (Angola)Yugoslavia (The Federal Republic)
24 The Office of Foreign Assets Control (OFAC) Other Sanctions Programs Include:Narcotics – Foreign Narcotics Kingpin Designation Act and the Narcotics Trafficking Sanctions RegulationNon Proliferation – Weapons of Mass Destruction Trade Control RegulationsTerrorists – Terrorism Sanctions Regulations, the Terrorism List Governments Sanctions Regulations and the Foreign Terrorist Organizations Sanctions Regulations
25 The Office of Foreign Assets Control (OFAC) The Trap….identifying only officially sanctionedcountries may be risky!Terrorism (Syria and, in general the Middle East): Certain individuals, entities, and organizations in Syria, the government of Syria, or entities owned or controlled by the government of Syria.Narcotics Kingpin (Many Latin American Countries): Certain individuals and entities in many Latin American countries, such as Colombia.Nuclear Proliferation (Russian Federation, Iran & N. Korea): Certain individuals, and entities in Russia, Iran & N. Korea, or that government including entities owned or controlled by that government.
26 The Office of Foreign Assets Control (OFAC) Important AcronymsSpecially Designated Nationals (“SDN”) are individuals, entities, organizations, or vessels owned or controlled by, or act on behalf of, OFAC-restricted governments. Persons subject to U.S. jurisdiction, wherever located, are prohibited from conducting business with these individuals, entities, organizations, or vessels who are identified on the SDN list, published by OFAC.SDT is a Specially Designated TerroristSDNT is a Specially Designated Narcotics TraffickerFTO is a Foreign Terrorist Organization
27 The Office of Foreign Assets Control (OFAC) When should AFN check the SDN List?The names of all new customersPeriodic review of all existing customersWhen facilitating a transaction between several parties all parties should be checked (including named vessels) Ex. Wire transfersNew employeesWhat to do if you find a match?If you find a name, phrase, country, entity, organization, or vessel that is an exact or partial match to a name on the SDN list, escalate the matter to the BSA Officer immediately.
28 The Office of Foreign Assets Control (OFAC) Why should you care?Penalties for Non-ComplianceFailure to comply with OFAC Regulations can expose employees and AFN to severe civil and criminal penalties, including jail. Additional risks include:License forfeiture or loss of insured statusMonetary losses resulting from asset forfeiture actionsSubstantial legal fees
29 Employee Responsibilities Protect AFN from being used for illegal purposes.Be aware of AFN’s BSA/AML programs and activities.Support management in BSA/AML efforts.Don’t ignore or downplay indications that AFN’s customers (including friends) may be involved in illegal or illicit activities.Keep BSA/AML matters confidential.Conduct an annual review and approval of all BSA/AML (and related) policies, along with the appointment of the BSA Officer(s).REMEMBER – The penalties for non-compliance can be costly to YOU and to AFN.
30 ConclusionUpon completing this self-guided Presentation on AFN’s policies and procedures, please complete the “Test Your Knowledge” Certification and send it to the Human Resources department.Questions? Please contact your manager or Jon Gwin at