BSA/AML and SARs
When must the CTR be filed on FinCEN Form 105?
Must be filed 15 calendar days after the date of the transaction or 25 days if filed electronically
The bank must obtain and retain the following records for any purchase of bank checks, drafts, cashier's checks, money orders, or traveler's checks for $3,000 or more in currency
Name and address of originator Amount of the payment order Date of the payment order Any payment instructions Identity of the beneficiary's institution As many as the following items are received: -Name and address of beneficiary -Account number if beneficiary -Any other specific identifier of the beneficiary
Name some high risk products or sevices
Private banking Correspondence banking US dollar drafts Payable through accounts Electronic banking Funds transfers ACH Purchases and sales of monetary instruments Trusts
National Security Letters (NSLs)
Written investigative demands that may be issued by local Federal Bureau of Investigations (FBI) and other federal governmental counterintelligence and counterterrorism investigative authorities. They are highly confidential documents.
SAR Narrative should identify these essential elements of information
-Includes introduction and conclusion
SAR Filing Timing Guidelines with FinCEN
-Within 30 calendar days after initial detection of facts that may constitute a basis for filing a SAR -May be extended to 60 calendar days if no suspect can be identified -Bank should also call appropriate law enforcement agency and its supervisory agency if the violation requires immediate attention -Should include only the information required on the form itself -Documentation and other evidence should not be attached to the SAR, but retained in the bank's case file for future reference -Legitimate transactions can cause a significant debit or credit that is inconsistent with normal activity -The 30 or 60 calendar day period after initial detection begins after an appropriate review of a transaction and a determination that it is suspicious under the SAR regulation
Requirements for a CTR filed with FinCEN
-must be submitted within 15 calendar days from the transaction business date -banks must retain copies for 5 years from the date of the report
CTR exemptions Phase I (exempt from CTR reporting)
-transactions in currency by banks (domestic operations), government departments or agencies (federal, state, or local), and listed public companies and their subsidiaries (organized under US law and at least 51% of whose common stock or analogous equity interest is owned by the listed entity)
What are the stages of money laundering?
1-Placement: goal is to introduce the funds into the financial system 2-Layering: moving funds around the financial system, often in complex series of transactions to create confusion and complicate the paper trail 3-Integration: used to create the appearance of legality through additional transactions
What are the 5 pillars of BSA?
1. A system of internal controls to ensure ongoing compliance 2. Independent testing of BSA compliance 3. A specifically designated person or persons responsible for managing BSA compliance (BSA Compliance Officer) 4. Training for appropriate personnel 5. Customer due diligence (CDD) requirements (Beneficial ownership was added in 2016. The rule took effect in 2018
SAR Record Retention
Banks must retain copies of SARs and supporting documentation for 5 years from date of filing. Retained copies can be in paper or electronic format.
Failure to comply with BSA can lead to:
Civil penalties FIRREA penalties Criminal prosecution Cease and desist orders
What are the due diligence requirements for foreign shell banks?
The US Patriot Act prohibits accounts with foreign shell banks. It also requires the covered financial institution to take reasonable steps to ensure that it is not providing banking services to shell banks directly or indirectly through a foreign correspondence account maintained in behalf of a foreign bank.
Are there any record keeping requirements in the funds transfers travel rule?
No
What are the 2 types of information sharing under the Patriot Act?
-314(a) Law Enforcement and Financial Institutions: upon receiving this request from FinCEN, a financial institution will conduct a one-time search of its records to identify accounts or transactions of a named subject, and will report any positive matches to FinCEN within the timeframe specified. Required to search for records for any account maintained for a named subject during the preceding 12 months. -314(b) Voluntary: encourages financial institutions in the IS to share info with other qualifying institutions to identify and report activities that may involve terrorist activity or money laundering. Institutions that want to share must provide notice to FinCEN. Notices are effective for 1 year.
US Patriot Act Section 314(a)
-A law enforcement agency may request financial institutions to search their records through FinCEN for information about an individual, entity, or organization -Upon receiving a request from FinCEN, a financial institution must conduct a one time search of its records to determine whether it maintains or has maintained accounts or engaged in transactions with specified names -Each bank is required to have a 314(a) point of contact to receive notifications from FinCEN
Enforcement and Penalties for money laundering and terrorist financing
-A person can face up to 20 yrs in prison and a fine of up to $500,000 -Any property involved in a transaction or traceable to the proceeds of the criminal activity may be subject to forfeiture -Banks and individuals may incur criminal and civil liability >DOJ may bring criminal actions that may include criminal fines, imprisonment, and forfeiture actions >Banks risk losing their charters >Bank employees risk being removed and barred from banking
Criminal Penalties for violating BSA
-A person is subject to a criminal fine of up to $250,000 or five years in prison or both. -A person who commits such a violation while violating another US law is subject to a fine of up to $500,000 or ten years in prison, or both. -A bank that violates certain BSA provisions faces criminal money penalties up to the greater of $1 million or twice the value of the transaction.
What are the 2 prongs for beneficial ownership requirement under BSA?
-Applies to natural persons who are in positions of ownership and/or control over a legal entity -Ownership prong: each individual, up to 4 and as few as 0, who directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, owns 25% or more of the equity interests of a legal entity customer Control prong: an individual with significant responsibility to control, manage, or direct a legal entity customer; or any other individual who regularly performs similar functions. This includes an executive officer or senior manager (CEO, CFO, COO, managing member, general partner, president, vice president, or treasurer)
Reportable Suspicious Activity (SAR)
-Criminal violations involving insider abuse in any amount -Criminal violations aggregating $5,000 or more when a suspect can be identified -Criminal violations aggregating $25,000 or more regardless of a potential suspect -A SAR must be filed if the bak or affiliate knows or suspects that the transaction: >May involve potential money laundering or other illegal activities (terrorism financing) >Is designed to evade the BSA or its implementing regulations (such as structuring) >Has no business or apparent lawful purpose, or is not the type of transaction that the particular customer would normally be expected to engage in
What does BSA require?
-Established requirements for record keeping and reporting by private individuals, banks, and other financial institutions in order to allow law enforcement to better identify the source, volume and movement of currency and other monetary instruments transported or transmitted into or out of the US or deposited in financial institutions. -Require individuals, banks, and other financial institutions to file currency reports with the US Dept of Treasury, properly identify persons conducting transactions, and maintain a proper paper trail by keeping appropriate records of certain financial transactions.
Banks must comply with statutory and regulatory reporting and records retention requirements for:
-Foreign bank and financial accounts (FBARs): bank must file a report on its own or its customers' accounts that represent interest in, signature or authority over any financial account exceeding $10,000 in a foreign country. -Currency or monetary instruments (CMIRs): report shipments of currency or monetary instruments of more than $10,000 into or out of US -Funds transfers: retain for 5 years for funds transfers and payment orders from a person instructing a financial institution to pay $3,000 or greater to a recipient -Monetary instruments: any purchase of bank checks, drafts (including foreign), cashier's checks, money orders, or traveler's checks for $3,000 to $10,000 in currency and retain for 5 years; must verify the identity of the purchaser
Filing SAR on the Bank Secrecy Act Suspicious Activity Report (BSAR) through FinCEN BSA E-Filing System
-If suspicious activity continues over a period of time, this information should be made known to law enforcement and the federal banking agencies -Banks report continuing suspicious activity by filing a SAR at least every 90 calendar days with the filing deadline being 120 calendar days after the date of the previously related SAR.
What are the BSA program requirements?
-In writing -Approved by the board of directors -Based on institution's risk assessment, periodically updated (products and services, customers and entities, geographies served) -System of internal controls -Independent testing for compliance -Designated individual for coordinating and monitoring on a day-to-day-bases -System for training employees
Money Laundering Control Act (MCLA)
-Introduces civil and criminal forfeiture for BSA violations -Criminalizes money laundering for the first time
What are the compliance requirements for MSBs?
-Money Services Businesses (MSBs) are a type of NBFI (NonBank Financial Institution). MSBs may pose a risk of being used for drug trafficking, money laundering, and terrorist financing. Because if this risk, MSB customers require special due diligence at the time of account opening and ongoing due diligence during the life of their accounts. -MSBs must register with FinCEN and if required, licensed in their state
What are required for the customer identification program (CIP) under the Patriot Act?
-Must implement a written program that that is appropriate for its size and type of business -Must have risk based procedures for verifying the identity of the customer before the account is opened -Must collect the following before account opening: 1) name 2) date of birth 3) address and 4) identification number
What are reporting requirements for a SAR?
-Must report within 30 calendar days after initial detection or can be delayed 30 days if need to identify a suspect -Reported to the bank's board of directors -If suspicious activity continues, file every 90 days
SAR Confidentiality
-No bank, no director, employee, or agent of a bank that reports a suspicious transaction may notify any person involved in the transaction that the transaction has been reported. -A SAR and any information that would reveal the existence if a SAR, are confidential
Three stages of money laundering
-Placement -Layering -Integration
What are the due diligence requirements for private banking?
-Requires a minimum aggregation of funds or other assets of not less than $1,000,000 -Is established on behalf of, or for the benefit of, one or more non US persons who are the direct or beneficial owners of the account -Is assigned to, or administered by, in whole, or in part, an officer, employee, or agent of a bank acting as a liaison between a financial institution covered by the regulation and the direct or beneficial owner of the account
What are 5 types of inquiries fir information to assist with suspicious activity investigations that banks may receive from law enforcement or other financial institutions?
-SAR requests -Grand jury subpoenas -NSL (National Security Letters) -314(a) requests -314(b) requests
Government agencies involved in supporting the enforcement of BSA/AML
-Treasury/FinCEN: require financial institutions to establish AML programs, file certain reports, and keep particular records of transactions; FinCEN (Financial Crimes Enforcement Network), a bureau of the US Treasury, issues regulations and interpretive guidance, and can take enforcement action for BSA violations. Other agencies take enforcement actions under their statutes. FinCEN takes civil actions. -Federal functional regulators:: Federal Reserve, FDIC, OCC, NCUA (National Credit Union Administration), SEC, CFTC (Commodity Futures Trading Commission -State banking regulators: responsible for the oversight of various banking entities operating in the US, including foreign branch offices of US banks -Department of Justice (DOJ): Money Laundering Asset Recovery Section (MLARS) leads DOJ's asset forfeiture and anti-money laundering enforcement efforts. DOJ takes criminal actions.
SAR Requests
Any person requested to disclose a SAR or the information contained in a SAR, shall decline to produce the SAR or to provide any information that would disclose that a SAR has been prepared or filed, except when requested by: -FinCEN -Appropriate law enforcement or -Federal banking agency FinCEN and the bank's federal banking agency should be notified of any such request and of the bank's response
What types of institutions/businesses does BSA apply?
Banks (Commercial, savings & loans, thrifts, and credit inions) Broker/dealers MSBs Telegraph companies Currency exchangers Credit card system operators Insurance companies Precious metal, stone, or jewel dealers Pawnbrokers Travel agencies Casinos and other gaming Motor vehicle dealers Insurance companies
CTR Phase I Filing Time Frame
Banks must file a one time Designation of Exempt Person Report (DOEP) through the BSA E-Filing System within 30 days after the 1st transaction in currency that the bank wishes to exempt. The information must be reviewed and verified by the bank at least once per year.
What is pouch activity?
Entails the use of a carrier, courier (wither independent or common), or a referral agent by the courier to transport currency, monetary instruments, and other documents from outside the US to a bank in the US
CTR Exemptions Phase II
Exempt a "non-listed business" or "payroll customers" after two month/five transaction and no more than 50% of the business gross revenues derived from 1 or more of the ineligible business activities listed in the rule
When must a SAR be filed?
Fraud SARs must be filed when: -Identified insider of committing/aiding to commit a crime, regardless of dollar amount -Detects a crime involving $5,000 or more and can identify a suspect -Detects a crime involving $25,000 or more and have no basis for identifying a suspect BSA/Money Laundering SARs must be filed when: -Detects transactions aggregating $5,000 or more that involve money laundering
What are the due diligence requirements for foreign correspondence accounts?
It is an account established by a bank for a foreign bank. Due diligence requires a covered financial institution to establish appropriate, specific, and when necessary, enhanced due diligence policies, procedures, and controls that are reasonably designed to enable it to detect and report instances of money laundering through these accounts.
CTR exemptions
Phase I and Phase II for certain businesses, not insividuals
What is a FBAR?
Report of Foreign Bank and Financial Accounts is a tool to help the US govt identify persons who may be using foreign financial accounts to circumvent US law. Investigators use FBARs to help identify or trace funds used for illicit purposes, or to identify unreported income maintained or generated abroad.. FBAR form TD-F 90.22.1 must be reported by June 30?for preceding calendar year if aggregate amount in foreign accounts exceeds $10,000.
Annunzio-Wylie Anti-Money Laundering Act
introduced the Suspicious Activity Report (SAR)
