InfoBytes Blog

Senate Subcommittee Explores Money Laundering Vulnerabilities at Global Institutions

On July 17, the Senate Homeland Security and Government Affairs Committee, Permanent Subcommittee on Investigations, held a hearing to review money laundering and terrorist financing vulnerabilities that can emerge from certain international banking activities. In connection with the hearing, the Subcommittee released a report about its investigation into past money laundering and terrorist financing compliance failures at one multinational financial institution. The report notes that despite congressional efforts to strengthen anti-money laundering laws (AML), and financial institutions’ diligence in bolstering AML controls, money laundering risks associated with correspondent banking persist. Using the investigation and its findings as a case study, the report reiterates that effective AML compliance programs at U.S. banks should include written standards, sufficient and knowledgeable staff, effective training, and a positive compliance culture. With regard to specific issues that U.S. banks might face with regard to correspondent banking, the report recommends that U.S. banks implement programs that effectively (i) screen high-risk affiliates, (ii) prevent circumvention of OFAC prohibitions, (iii) avoid providing U.S. correspondent services to banks with links to terrorism, (iv) ensure traveler check controls restrict acceptance of suspicious bulk travelers checks, and (v) eliminate bearer share accounts. The report also identifies regulatory gaps and recommends that the OCC (i) treat AML deficiencies as a safety and soundness matter, (ii) develop a policy to coordinate internal divisions conducting AML examinations, (iii) consider the use of formal or informal enforcement actions to address mounting AML failures, and (iv) strengthen AML examinations by citing violations and focusing on specific business units and a bank’s AML program as a whole.

Anti-Money Laundering Bank Secrecy Act Bank Compliance

Spotlight on Anti-Money Laundering (Part 3 of 3): SAR Reporting for RMLOs

For the first time, all non-bank residential mortgage lenders and originators (RMLOs) are required to file mandatory and voluntary Suspicious Activity Reports (SARs) with the government through the e-filing system established by FinCEN. Similar to the establishment of an AML program, compliance for this regulation is August 13, 2012. A company may file a voluntary report with FinCEN to alert them of any suspicious transaction they have reason to believe is a possible violation of any law or regulation, without any de minimus amount. A company must file a SAR once they have become aware of a transaction that:

• Is conducted or attempted by, at, or through a RMLO
• Involves or aggregates funds or assets of at least $5,000
• The RMLO knows, suspects, or has reason to suspect that the transaction or pattern of transactions:
  • Involves funds derived from illegal activity or conducted to hide funds or assets derived from illegal activity
  • Is designed to evade BSA requirements
  • Has no business or apparent lawful purpose, i.e., “doesn’t look right”
  • Involves the use of the company to facilitate criminal activity

According to Howard Eisenhardt, Counsel in BuckleySandler’s Washington, DC office, “At the heart of a company’s AML program is compliance with the requirement to file SARs to report known, attempted, or suspected crimes and suspicious transactions that involve money laundering or other illegal activity.” There isn’t a checklist available to help you determine when a SAR should be filed. Instead, the determination is based on all the facts and circumstances relating to the transaction and customer of the RMLO in question. The FFIEC and Fannie Mae both have lists of red flags for mortgage transactions that can be reviewed. Should a company file a SAR, the SAR and the information provided must be kept confidential and must not be disclosed except as authorized. “FinCEN wanted RMLOs to have the requirement to file SARs,” explains Eisenhardt. “SARs provide the government with the ability to gather information and open an investigation. The government is anticipating that the filing of additional SARs identifying potential mortgage fraud will lead to a greater ability stop or control money laundering and mortgage fraud.” FinCEN believes that much of the effort necessary to meet these regulatory obligations of implementing an AML program and filing SARs will be accomplished through business operations already taking place, including SAFE Act requirements and fraud monitoring tools that are already in place.  However, Eisenhardt  cautions, “there are several challenges for RMLOs to overcome, including the short timeframe, limited financial resources,  new training requirements, and inexperienced personnel who must learn a completely new area which they’ve never faced before.”

Anti-Money Laundering Bank Secrecy Act

FinCEN Offers Guidance on Application of BSA Regulations to Daily Money Management Services and Prepaid Card Vendors

Recently, FinCEN released two Administrative Rulings, FIN-2012-R003 and FIN-2012-R004, that provide guidance on the application of Bank Secrecy Act (BSA) regulations to certain types of businesses. In the first ruling, FinCEN analyzed a prepaid access arrangement where a bank exercises primary control over the arrangement, while a bank vendor distributes and sells the prepaid access (via prepaid cards). FinCEN determined that the vendor would not be required to register as a prepaid access provider. Still, the vendor may be a seller of prepaid access—who would be required to register—in certain listed circumstances. In the second ruling, FinCEN advised that companies that offer daily money management services may be subject to FinCEN’s regulations implementing the BSA. The company that requested the ruling facilitated the payment of monthly expenses for its customers and managed customers’ day-to-day finances. FinCEN concluded that the company was a “money transmitter” under FinCEN regulations because (i) the company disbursed company checks on its customers’ behalf, (ii) the company was not engaged in core debt management services, and (iii) the disbursements were not ancillary to some other good or service.

Anti-Money Laundering FinCEN

DOJ Obtains Guilty Verdict in Haitian Money Laundering and FCPA Case

On March 12, the Department of Justice announced a guilty verdict in the case of a foreign official accused of laundering bribes paid to him by two Miami-based telecommunications companies. Following a week-long trial, the jury convicted the former director of Haiti’s state-owned telecommunications company on all counts, including nineteen counts of money laundering and two counts of conspiracy to commit money laundering. The laundered funds were alleged to be proceeds of bribes paid by U.S. companies to the defendant to obtain a preference in telecommunications rates and other favorable treatment in violation of the Foreign Corrupt Practices Act. The jury found that the defendant concealed the payments through subsequent transactions and by falsely characterizing the nature of the payments as “commissions” and “payroll.”

FCPA Anti-Money Laundering

FinCEN Seeks Input on Proposed Customer Due Diligence Program, Finalizes Electronic Filing Rule

On February 29, the Financial Crimes Enforcement Network (FinCEN) released an advance notice of proposed rulemaking (ANPRM) to obtain stakeholder input regarding a proposed customer due diligence regulation that would require covered financial institutions to institute defined programs to identify the real or beneficial owners of customer accounts. The proposed regulation is designed to enhance federal anti-money laundering and counterterrorism efforts. According to FinCEN, financial institutions are not addressing beneficial ownership in a uniform and consistent manner. As a result, FinCEN is beginning a regulatory process that could eventually require banks, broker-dealers, mutual funds, futures commission merchants, and introducing brokers in commodities to develop customer due diligence programs. The programs would include requirements to (i) conduct initial due diligence and verify customer identities at the time of account opening, (ii) understand the purpose and intended nature of the account, (iii) identify and verify all customers’ beneficial owners, and (iv) monitor the customer relationship and conduct additional due diligence as needed. In the ANPRM, FinCEN states that it will consider extending such a program in the future to cover all financial institutions currently subject to FinCEN’s anti-money laundering requirements, including casinos, money services businesses, nonbank mortgage lender and originators, and others. Consequently, in addition to input from the types of institutions that would be subject to an initial rulemaking, FinCEN is specifically requesting comments from these additional institutions that may later become subject to the rules. FinCEN is accepting comments on the ANPRM for sixty days from the date of publication in the Federal Register.

On the same day, FinCEN published a final rule mandating electronic filing of nearly all Bank Secrecy Act filings. The rule takes effect July 1, 2012. Although it largely mirrors a September 2011 proposal, it was modified in response to comments received, including a change to provide certain limited hardship exemptions for institutions that cannot begin electronic filing on time.

Anti-Money Laundering

FinCEN Issues Advisory Regarding Foreign-Located Money Services Businesses

On February 15, the Financial Crimes Enforcement Network (FinCEN) issued guidance regarding anti-money laundering (AML) programs for financial institutions that provide services to foreign-located money services businesses (MSB) or engage in transactions with such businesses. The guidance follows FinCEN’s July 2011 regulations issued under the Bank Secrecy Act that amended the definition of MSB to include businesses that conduct activities in the U.S. even if the business does not have any agents, agencies, branches, or offices physically located in the U.S. The advisory reviews the July regulations, reminds institutions about their obligations to file suspicious activity reports, and suggests that financial institutions update their AML programs using prior guidance on doing business with MSBs and on informal value transfer systems.

Anti-Money Laundering