2014 bsa update · 2014-11-12 · 2014 bsa update presented by cathy martin tower federal credit...

2014 BSA Update

Presented by

Cathy Martin

Tower Federal Credit Union

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Agenda

• Marijuana guidance

• MSBs/De-Risking

• Culture of Compliance guidance

• Proposed CDD regulation

• SAR Stats/Bitcoin/§314(a) sharing

• Funnel Accounts

• Elder Financial Exploitation

• OFAC Sectoral Sanctions

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Marijuana Businesses

• 2/14/14, 20 states and DC have legalized

some marijuana-related activity.

• Rec. marijuana is permitted in Colorado

and Washington.

• Colorado per AP 9/10/14

– $29.7 M rec. marijuana in July.

– $28.9 M med. marijuana in June.

– 500 med. shops and 200 rec shops.

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Marijuana Businesses, cont’d

• Sales are most often made in cash.

• Visa and MasterCard both have policies

prohibiting the use of their card networks

for the purchase of marijuana, but Visa

has stated it will not be strictly enforced.

(as of 12/2013)

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DOJ Guidance: Cole Memo

8/29/2013 - Provides guidance to federal

prosecutors to focus their enforcement

resources on persons or organizations

whose conduct interferes with the following

important priorities:

• Preventing the distribution to minors;

• Preventing revenue from going to criminal

enterprises, gangs, and cartels;

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Cole Memo, cont’d

• Preventing the diversion to other states;

• Preventing its use as a cover or pretext for

the trafficking of other illegal drugs or other

illegal activity;

• Preventing violence and the use of

firearms in the cultivation and distribution;

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Cole Memo, cont’d

• Preventing drugged driving and the

exacerbation of other adverse public

health consequences;

• Preventing the growing on public lands

and the attendant public safety and

environmental dangers; and

• Preventing possession or use on federal

property.

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FinCEN’s Guidance:

FIN-2014-G001

BSA Expectations Regarding Marijuana-Related Businesses; February 14, 2014

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FIs serving marijuana-related businesses should conduct CDD by:

• Verifying the state license;

• Reviewing the license application, etc.;

• Requesting information about the business and related parties from the state;

• Developing an understanding of the normal and expected activity, including the types of products to be sold and the type of customers to be served (e.g., medical versus recreational customers);

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FIs serving marijuana-related businesses should conduct CDD by:

• Monitoring publicly available sources for adverse information about the business and related parties;

• Monitoring for suspicious activity, including for any of the red flags described in the guidance; and

• Updating CDD on a periodic basis and commensurate with the risk.

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FIs serving marijuana-related businesses should:

• Consider whether a business is involved in activity outlined in the Cole Memo or violates state law.

Note: Because federal law prohibits the distribution and sale of marijuana, transactions involving a marijuana-related business would involve funds derived from illegal activity. Only Congress can resolve the conflict.

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FIs serving marijuana-related businesses should:

• File SARs for activity that

– involves funds derived from illegal activity or is an attempt to disguise funds derived from illegal activity;

– is designed to evade regulations promulgated under the BSA, or

– lacks a business or apparent lawful purpose.

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Financial institutions serving marijuana-related businesses should:

• File “Marijuana Limited” SAR Filings if the FI reasonably believes that the business does not implicate a Cole Memo priority

• Use the term “MARIJUANA LIMITED” in the narrative section.

• Follow existing FinCEN guidance about timing of continuing activity reports.

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• File “Marijuana Priority” SAR Filings if the FI reasonably believes based on CDD that the business implicates Cole Memo priorities or violates state law.

• Use the term “MARIJUANA PRIORITY” in the narrative section to help law enforcement distinguish these SARs.

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• File a “Marijuana Termination” SAR if FI decides to terminate a relationship with a business in order to maintain an effective anti-money laundering compliance program, including:

– the basis for the termination, and

– the term “MARIJUANA TERMINATION” in the narrative.

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Marijuana Termination, cont’d

• If the FI learns that the business seeks to move to a 2nd FI, FinCEN urges the 1st FI to use Section 314(b) voluntary information sharing (if it qualifies) to alert the 2nd FI of potential illegal activity.

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FIs serving marijuana-related

businesses indirectly: • Examples: a landlord, another FI providing

services to the business, etc.

• SAR can be filed without using the “Marijuana Limited” or “Marijuana Priority” labels.

• FI should make a risk-based decision about whether to provide the indirect services.

Requirements to file CTRs are unchanged.

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Red Flags of Priority SARs:

• The business is used as a front or pretext to launder money derived from other criminal activity.

– More revenue than may reasonably be expected.

– The business is unable to demonstrate that its revenue is derived exclusively from state licensed sale of marijuana.

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Red Flags of Priority SARs (cont’d):

– Structured cash transactions.

– Deposits by unconnected 3rd parties.

– Co-mingling of funds with individuals or seemingly unrelated businesses.

– Financial statements provided by the business are inconsistent with actual account activity.

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– Not licensed or violating state law.

– Disguising involvement in marijuana-related business activity, but depositing cash that smells like marijuana.

– The business/owners, etc. are subject to actions by the state or local authorities.

– Cash deposits or transfers from out of state.

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– The owner(s) or manager(s) of a marijuana-related business reside outside the state in which the business is located.

– A marijuana-related business is located on or the marijuana sold by the business was grown on federal property.

– A marijuana-related business’s proximity to a school is not compliant with state law.

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Risks of Marijuana Businesses

• Financial institutions who suspect illicit activity are required to file a suspicious activity report (SAR). This obligation is unaffected by any state law legalizing marijuana-related activity, according to FinCEN's guidance.

• SARs must be filed when violations of federal (narcotics) laws are identified.

• Financial institutions may be aiding and abetting a federal offense by accepting deposits.

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FinCEN Director

Jennifer Shasky Calvery • FinCEN’s Feb 2014 guidance is working.

Facilitating access to regulated financial

institutions with appropriate AML

safeguards.

– Received more than 1,000 SARs as of 8/8/14.

– Currently 105 individual financial institutions

from states in more than one third of the

country engaged in banking relationships with

marijuana related businesses.

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FinCEN Director

Jennifer Shasky Calvery

• Since Feb 2014, 502 SARs were filed

marked as “Marijuana Limited.”

• 123 SARs filed as “Marijuana Priority.”

• Just over 475 SARs filed as “Marijuana

Termination.”

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FinCEN: “De-Risking”

• MSBs are losing access to banking

services because of perceived risks and

concerns about regulatory scrutiny.

• FinCEN goal: Provide banking services to

legitimate businesses by managing risk.

• In 2013, MSBs filed more than 490,000

SARs, compared to 713,000 filed by banks

with valuable counterterrorism information.

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Treasury’s Work to Support Money Transmitters By: Daniel L. Glaser 10/8/2014

“In our effort to foster financial inclusion and combat

money laundering and terrorist financing, Treasury has led

inter-governmental efforts over the last 15 years to

establish domestic and international standards for the

regulation and supervision of money transmitters. Our

efforts have helped create international standards and a

domestic regulatory framework that protect consumers,

expand financial access, and curtail money transmitter

abuse by criminal actors and terrorist financiers. Due to

these efforts, record volumes of remittances are being

transmitted through legitimate and transparent channels.” (Emphasis added).

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Treasury’s Work to Support Money Transmitters By: Daniel L. Glaser 10/8/2014

“We have also conducted outreach to banks

to reiterate that providing services to a wide

range of MSBs – even those deemed high-

risk – is possible while still remaining in

compliance with the Bank Secrecy Act.

Additionally, we have worked with state

governments to help achieve greater

transparency and consistent oversight of the

industry.” http://www.treasury.gov/connect/blog/Pages/Treasury%E2%80%99s-Work-to-Support-Money-

Transmitters.aspx

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http://www.treasury.gov/connect/blog/Pages/Treasury%E2%80%99s-Work-to-Support-Money-Transmitters.aspx











MSB Penalty: Mian, Inc.

• 7/15/14 – FinCEN/IRS CMP $45,000

– No written AML policy.

– From 12/10 to 11/11, filed only 60% of

CTRs which were late and inaccurate.

(IRS SB/SE)

– From 12/11 to 11/13 91% of CTRs were

filed late.

– Mian failed to meet its deadlines to

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Best Practices – High Risk

Accounts • Closely monitor the business, its activity

and its owners

• Develop expertise in that type of business

• Customer due diligence should include

– visits to the business

– reviews of license and licensing status

– reviews of financial statements

– an appropriate transaction monitoring system

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Advisory to U.S. Financial Institutions on Promoting a Culture of Compliance

FIN-2014-A007; August 11, 2014

BSA/AML shortcomings have triggered recent civil and criminal enforcement actions — FinCEN seeks to highlight the importance of a strong culture of BSA/AML compliance for senior management, leadership and owners of all FIs.

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The BSA/AML Culture of Compliance can be strengthened by ensuring that

(1) Leadership actively supports and understands compliance efforts;

(2) Efforts to mitigate BSA/AML deficiencies and risks are not compromised by revenue interests;

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OFAC Violations

• Royal Bank of Scotland – December 2013

– Willful violation of OFAC and BSA/AML

by removing identifying information from

wires relating to Iran, Burma, Cuba and

Sudan sanctions.

– Settlement of $33.1 million.

– 4 employees dismissed; 8 subject to

bonus claw backs.

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OFAC Violations BNP Paribas – June 2014

• Willful violation of OFAC and BSA/AML by

hiding info which violated Sudan, Iran and

Cuba sanctions.

• Pled guilty and settled with US Attorney:

• Almost $9 billion payment

• No dollar clearing for 1 year.

• Termination of 13 employees,

including COO and other senior

executives.

8/2/14 –Tinian Dynasty Hotel & Casino,

Northern Mariana Islands

• George Que, VIP Services Manager, helped high-end gamblers avoid detection of large cash transactions by agreeing not to file either Currency Transaction Reports (CTRs) or Suspicious Activity Reports (SARs) that were required under the BSA.

– FinCEN imposed $5,000 CMP.

– Barred from working in any financial institution in the US.

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Culture of Compliance, cont’d

(3) Information from the various departments within the organization is shared with compliance staff to further BSA/AML efforts;

(4) The institution devotes adequate resources to its compliance function;

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9/23/13 – TD Bank FinCEN and SEC imposed $52.5M in penalties for failure to detect and file SARs on a Ponzi scheme in 2008 and 2009. Also $600M in restitution.

• Repeated AML alerts over 18 months without action because staff either poorly trained or focused on revenue.

• FinCEN Director Jennifer Shasky Calvery: It is not acceptable to have a poorly resourced and trained staff overseeing such a critical function.

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9/24/2013 – Saddle River Valley Bank, NJ $4.1M CMP; ($10M assets); Closed.

• Set up foreign correspondent accounts for Mexican and Dominican casas de cambio (money transmitters).

• Executed $1.5 billion worth of high risk transactions without adequate monitoring.

• More than 190 SARs were filed after the C&D.

• FinCEN conclusion: the bank willfully violated BSA by lacking an effective AML program to manage the risks of money laundering and other illicit activity.

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1/7/2014 – JPMorgan Chase Bank, $2B+ CMPs and forfeiture from FinCEN, OCC, US Atty SDNY

• 2007, JPMorgan had concerns that Madoff could be engaged in fraud.

• Fall of 2008, JPMorgan cashed out its investments ($250M) yet failed to notify FinCEN or file any SARs.

• October 2008, JPMorgan’s UK division filed a SAR-equivalent with FinCEN’s counterpart in the UK.

• December 2008, JPMorgan did not file a SAR with FinCEN until after his arrest.

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Culture of Compliance, cont’d

(5) The compliance program is effective by, among other things, ensuring that it is tested by an independent and competent party;

(6) Leadership and staff understand the purpose of its BSA/AML efforts and how its reporting is used.

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7/24/14 – Bank of America

OFAC Penalty

• Filtering issue from 2005-2009 permitted

hundreds of transactions for SDNs.

• Settlement Agreement:

– Pay $16,562,700 to the US Treasury.

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1/14/2014 – Old National Bank, Evansville, IN; $500,000 CMP from OCC

Inadequate BSA Program: (1) Failed to conduct adequate risk assessments.

(2) Failed to obtain more than the minimum information required for CIP purposes.

(3) Failed to implement an adequate suspicious activity monitoring system.

(4) Failed to properly identify high-risk customers.

(5) The internal audit review failed to identify the deficiencies in the program.

(6) The BSA officer and staff lacked the necessary resources and expertise, including knowledge of regulatory requirements.

After conducting a review, the bank filed 110 new SARs and 172 supplemental SARs.

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6/26/2014 – Associated Bank, N.A., Green Bay, WI $500,000 CMP from OCC

Inadequate BSA Program: (1) Failed to conduct adequate risk assessments.

(2) Failed to conduct sufficient customer due diligence.

(3) Failed to implement an adequate suspicious activity monitoring system.

(4) Failed to properly identify high-risk customers.

(5) The independent testing was inadequate.

(6) The BSA officer and staff lacked the necessary resources and expertise, including knowledge of regulatory requirements.

(7) The BSA training for staff was inadequate.

After conducting a review, the bank filed 670 new SARs.

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FinCEN Notice of Proposed

Rulemaking July 2014 • Effective date 1 year from final rule.

• Updates 31 CFR Chapter X, Part 1020

• Minimum standard of CDD

• 2 rule changes

– Collect beneficial ownership information for

legal entities.

– Add explicit CDD requirement to core AML

program requirements. (prev 4 pillars)

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Proposed CDD Key Elements

1. Identifying and verifying the identities of customers

– Already an existing regulatory/NCUA requirement: Customer Identification Program (CIP)

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Proposed CDD Key Elements 2. Identifying and verifying beneficial owners of legal entity customer

• Currently required only for private and correspondent banking accounts.

• Collect beneficial owner information for natural persons

• Definition of beneficial ownership: 2 prongs

– Ownership – 25% or more equity ownership OR

– Control – actual managerial control

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CDD Element #2 cont’d

• Verify the identities of owners/managers (CIP)

• OK to rely on customer statements about status as beneficial owners

– false information demonstrates unlawful intent.

• Standard Form Certification in Appendix A must be completed.

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• Includes: corporations, LLCs, partnerships, etc.

• Exemptions:

– Existing accounts

– Customers exempt from CIP (regulated FIs, publicly held companies, government agencies, charities, trusts)

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3. Understanding the nature and purpose of customer relationships

– In order to develop a customer risk profile.

– No need to change current process.

– No need to ask each customer for the purpose of the account. Just need to be able to ID activity that is not expected.

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• Gather this information from:

– Customer type

– Product type

– Annual income, net worth, occupation,

business, history of activity.

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– May require updating beneficial ownership.

– Needed to determine what activity is unusual or suspicious to meet the existing requirement to report suspicious activity.

– Not a new requirement.

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4. Conducting ongoing monitoring to maintain and update customer information and to identify and report suspicious activity

– Should update beneficial ownership,

– Needed to determine what activity is unusual or suspicious to meet the existing requirement to report suspicious activity.

– Not a new requirement.

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FinCEN’s SAR Stats – July 2014

• http://www.fincen.gov/news_room/rp/files/SAR01/SAR_Stats_proof_2.pdf

• Statistics

• Trends: usage of “Other” field

• Bitcoin

• Securities/Futures Sector

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http://www.fincen.gov/news_room/rp/files/SAR01/SAR_Stats_proof_2.pdf





Note: Statistics based on Filer Branch Address

FinCEN Suspicious Activity Report by Depository Institutions

Geographic Distribution for the State of Maryland

For the Period January 1, 2013 through December 31, 2013

FinCEN SARs by Depository Institutions

Number within parenthesis represents total

ZIP Codes in listed range

250 to 651 (12)

100 to 249 (48)

40 to 99 (57)

10 to 39 (58)

0 to 9 (447)

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State Abbrev. County

2013

Filings

2014

Filings

MD Allegany County 54 41

MD Anne Arundel County 1,318 1,414

MD Baltimore County 2,558 2,705

MD Baltimore city 1,484 1,612

MD Calvert County 81 70

MD Caroline County 9 15

MD Carroll County 164 152

MD Cecil County 121 95

MD Charles County 277 297

MD Dorchester County 17 28

MD Frederick County 367 358

MD Garrett County 37 30

MD Harford County 487 489

MD Howard County 872 883

MD Kent County 25 18

MD Montgomery County 3,422 3,619

MD Prince George's County 3,886 3,966

MD Queen Anne's County 61 62

MD Somerset County 22 23

MD St. Mary's County 107 150

MD Talbot County 44 52

MD Washington County 182 172

MD Wicomico County 184 172

MD Worcester County 104 97

2013 and 2014 FinCEN SUSPICIOUS ACTIVITY REPORT BY DEPOSITORY INSTITUTIONS

Depository Institution Filings from Branch Offices per County

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Month 2012 2013 2014**

January - 12,232 72,201

February - 21,088 67,184

March 24 45,719 70,226

April 609 67,278 78,925

May 1,210 72,255 80,569

June 1,713 63,579 74,499

July 2,505 70,857 78,528

August 3,115 74,312 73,576

September 2,947 68,751 73,444

October 5,561 79,201 -

November 7,954 69,631 -

December 10,098 69,027 -

Subtotal 35,736 713,930 669,152

Total Filings

The statistics include Suspicious Activity Reports filed since March 1, 2012 on FinCEN Form 111 where the type of financial

institution is depository institutions (i.e., banks, thrifts, savings and loans, and credit unions).

Exhibit 1: Filings by Year & Month by Depository Institutions*

Section 2 - Bank Secrecy Act Suspicious Activity Report FinCEN Form 111

March 1, 2012 through September 30, 2014

1,418,818

Bitcoin/Virtual Currencies • More SARs are being filed on suspicious

activity relating to bitcoin by banks/CUs.

• FIN-2014-R001 – Ruling: Bitcoin miners are users. Transfers of bitcoins to 3rd parties on behalf of others may qualify as MSB activity.

• FIN-2014-R002 – Ruling: Companies that act as bitcoin exchangers are money transmitters and must register with FinCEN and comply with BSA.

• FIN-2014-R011 & R012 – 10/27/14

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Bitcoin/Virtual Currencies

• Speculation in a volatile asset is not a criminal activity. However, speculation can share a transaction footprint with other activities that might be suspicious, such as money laundering or Ponzi Schemes involving Bitcoin. (From FinCEN’s SAR Stats July 2014)

• August 2014 – CFPB will take complaints about virtual currency.

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Best Practices

• Monitor MSBs for virtual currency activity

(transactions and CDD)

• Monitor consumer accounts for virtual

currency activity. For example, BSA

software or core system reports can

identify major virtual currency transactors

in ACH, debit card and wire transactions.

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Some Exchangers:

Blockchain; My Coin Solution; CoinBox;

BIPS; BitPay; xCoinMoney; BitPagos;

BTCMerch; BitMerch; Coinbase; Coinkite;

XBTerminal; MTGOX; OKPAY; Fasterco;

Snowcron; GoCoin; Coinvoice; CoinPip;

Apicoin; Dwolla Silk Road

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Effectiveness of § 314(a) Sharing

• To date, the 314 Program Office has processed many requests: – Terrorism/Terrorist Financing – 435 cases – Money Laundering – 1,788 cases

• Total of 25,109 subjects of interest and FI responses of 150,028.

• 95% of 314(a) requests have contributed to arrests or indictments.

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Funnel Accounts

• Funnel Account: An individual or business account in one geographic area that receives multiple cash deposits, often in amounts below the cash reporting threshold, and from which the funds are withdrawn in a different geographic area with little time elapsing between the deposits and withdrawals.

• FIN-2014-A005

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Funnel Accounts

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Funnel Account Benefits

• Funds move quickly

• Withdrawals can be made in larger bills.

• Withdrawn funds have no drug smell.

• More secure than bulk cash transfers.

• No bank fees.

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Funnel Account Red Flags

• Account opened in one state (Southwest border) receives multiple cash deposits in other states.

• Deposits take place in a different region from where the business operates.

• Depositors don’t know the source of the cash.

• The debits appear unrelated to the account holder’s business.

• Funds go to U.S. correspondent account of a Mexican bank.

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Funnel Accounts

• Include the following in the SAR:

– “M X Restriction”

– “Funnel Account” and/or

– “TBML” as applicable.

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Rank Supicious Activity TypeFilings

(Overall)

Percentage

(Overall)

1 Multiple transactions below CTR threshold 403,141 11.19%

2 Suspicion concerning the source of funds 382,106 10.61%

3 Transaction with no apparent economic, business, or lawful purpose 224,623 6.24%

4 Suspicious use of multiple locations 207,462 5.76%

5 Transaction out of pattern for customer(s) 204,820 5.69%

6 Check 158,054 4.39%

7 Suspicious EFT/wire transfers 154,283 4.28%

8 Two or more individuals working together 145,810 4.05%

9 Identity theft 135,926 3.77%

10 Other suspicious activities-Other 135,699 3.77%

11 Consumer Loan 131,102 3.64%

12 Provided questionable or false documentation 125,718 3.49%

13 Credit/Debit Card 110,958 3.08%

14 Fraud-Other 93,894 2.61%

15 Suspicious use of multiple accounts 76,983 2.14%

16 Identification documentation-Other 71,316 1.98%

17 Multiple transactions below BSA recordkeeping threshold 70,072 1.95%

18 Counterfeit Instrument (other) 63,585 1.77%

19 Alters transactions to avoid CTR requirement 62,499 1.74%

20 Mortgage fraud-Other 60,165 1.67%

21 Money laundering-Other 53,026 1.47%

22 Multiple individuals with same or similar identities 50,157 1.39%

23 Refused or avoided request for documentation 44,614 1.24%

24 Suspicious use of noncash monetary instruments 44,196 1.23%

25 ACH 37,177 1.03%

26 Wire transfer 35,607 Less than 1%

27 Forgeries 29,773 Less than 1%

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Suspicious inquiry by customer regarding BSA reporting or

recordkeeping requirements 28,409 Less than 1%

29 Account takeover 26,522 Less than 1%

30 Elder financial exploitation 23,293 Less than 1%

31 Structuring-Other 22,835 Less than 1%

32 Embezzlement/theft/disappearance of funds 19,604 Less than 1%

33 Single individual with multiple identities 19,199 Less than 1%

Exhibit 4: Number of Filings by Type of Suspicious Activity by Depository Institutions*

March 1, 2012 through September 30, 2014

Elder Financial Exploitation

• FIN-2011-A003

• valuable role financial institutions can play

in alerting appropriate authorities to

suspected elder financial exploitation

• High concentration of wealth and declining

cognitive or physical abilities can make the

elderly particularly vulnerable.

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Red Flags

• Frequent large cash withdrawals, including

max ATM withdrawals.

• Sudden NSF or delinquent loans.

• Uncharacteristic debits or wires.

• Caregiver does not allow elder to speak.

• Elder is fearful and submissive to

caregiver.

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SAR Reporting

• Select “elder financial exploitation”

characterization.

• Explain why the activity is suspicious.

• Potential victim should NOT be reported

as the subject of the SAR. Victim’s

information should be part of the narrative.

• Report to local law enforcement.

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OFAC Sectoral Sanctions Identifications

(SSI) 9/12/14; FAQs 370-375; 391-396; 404-416

• Apply to Russia and separatist movement in Ukraine.

• Coordinated with Europe/G7.

• Carefully tailored instead of broad.

• Russia

• 8th or 10th largest economy

• 3rd largest oil/energy producer

• Close economic ties with Europe

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• Sanctions focus on financial, energy and defense sectors of the economy.

• Not a blocking action.

• Debt or equity with maturity of 30/90 days are prohibited.

• U.S. persons should reject transactions.

• Allow daily functioning, but no growth of key companies.

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• Message: Russia’s actions have not expanded its influence. Instead Russia has been isolated.

• Result:

– Decrease in GDP growth

– Increase in inflation

– Decrease in Dollar/Ruble exchange rate

• Note that entities identified by Sectoral

Sanctions are not included in SDN list.

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OFAC

Included in the New Consolidated Sanctions

List Data Files (October 2014):

• Foreign Sanctions Evaders (FSE) List

• Sectoral Sanctions Identifications (SSI) List

• Palestinian Legislative Council (NS-PLC) list

• The List of Foreign Financial Institutions Subject

to Part 561 (the Part 561 List)

• Non-SDN Iranian Sanctions Act (NS-ISA) List

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Any Questions?

If you have any questions regarding this

presentation, please contact

Cathy Martin

[email protected]

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2014 bsa update · 2014-11-12 · 2014 bsa update presented by cathy martin tower federal credit...

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