Segment 7 - Fraud & Money Laundering

If a negotiable instrument is purchased using at least __________ in cash, the Bank Secrecy Act requires the lender to report the transaction. - $100 - $1,000 - $10,000 - $100,000

$10,000

What are the stages of money laundering?

- Placement: placing multiple cash deposits into banks under the threshold limit - Layering: Separating the proceeds of criminal activity from their source through the use of layers of complex financial transactions - Integration: Placing the laundered proceeds back into the economy in such a way that the funds re-enter the financial system as apparently legitimate funds

What are the required reports under BSA?

- Report of International Transportation of Currency or Money Instruments (CMIR) - Foreign Bank and Financial Accounts Report (FBAR) - Currency Transaction Report (CTR) - Suspicious Activity Report (SAR) - Designation of Exempt Persons Report (DOEP)

What are the major provisions of MARS?

- Upfront fees are prohibited - Required upfront disclosures - Notice regarding consequences of not making further mortgage payments - Advice to stop communicating with lender or service provider is prohibited - Offers of mortgage relief from a lender or loan servicer - Misrepresentation of services

When was BSA enacted?

1970

When was the USA Patriot Act enacted?

2001

Suspicious Activity Report (SAR)

A SAR is filed with FinCEN by a financial institution's compliance officer for any suspicious transaction that exceeds $5,000 and might involve funds or assets from illegal activities, structured to attempt to avoid BSA regulations, and has no apparent lawful purpose. If such activities are suspected, financial institution employees will file a preliminary SAR with their BSA compliance officer, who will then review the preliminary report. If the report appears to be valid, the BSA compliance officer will then electronically file a SAR with FinCEN within 30 days of the suspicious transaction. Since SARs are confidential, information contained on the report is only communicated to those who need to know; the employee who initially filed the preliminary SAR might never learn about the outcome of the report.

Employment Fraud

A borrower claims a higher position in their employing company than the position that the borrower actually holds

Payable-through Account

A checking account generally marketed to foreign banks that allows such banks to offer their customer's access to the U.S. banking system.

Who is exempt from the MARS rule?

Accountants, financial planners, attorneys, lenders, or loan servicers

Section 312

Amends the BSA by requiring enhanced due diligence by U.S. financial institutions that maintain private banking accounts for non- U.S. persons or correspondent accounts for foreign financial institutions.

Correspondent Account

An account established to receive deposits from, or make payments on behalf of, a foreign financial institution or the handle other financial transactions related to such an institution

Concentration Account

An internal account established to facilitate the processing and settlement of multiple or individual customer transactions with the bank, usually on the same day. These accounts are also known as special use accounts, suspense accounts, or collection accounts.

AML Law

Anit-Money Laundering Law

A mortgage company is required to have __________ that are in compliance with FinCEN rules. - loan originator compensation plans - policies on employment practices - yield spread premiums - anti-money laundering programs

Anti-money laundering programs

Report of International Transportation of Currency or Money Instruments (CMIR)

Any entity or person that physically transports, mails, or ships currency greater than $10,000 at one time into or out of the United States must file a CMIR with the appropriate customs bureau or border patrol agency at the time of entry or departure from the US. If an entity receives $10,000 or more that originated from a source outside of the US, the CMIR must be filed with the customs bureau or border patrol agency within 15 days. The CMIR does not relieve financial institutions of their responsibility to file Currency Transaction Reports (CTRs). Banks are not required to file a CMIR if the currency or monetary instruments are mailed or shipped through the postal service or by common carrier; however, banks will be required to file a CMIR if the currency is transported to a foreign office directly by bank personnel.

Foreign Bank and Financial Accounts Report (FBAR)

Any entity with a financial interest in or signature authority over a foreign bank, securities, or has a financial account in a foreign institution must file a FBAR with FinCEN if the aggregate limit in any of these accounts exceeds $10,000 at any time during the calendar year. An FBAR must be filed on or before June 30 of each calendar year.

Who does the MARS rule apply to?

Any for-profit business that provides mortgage assistance relief services

Currency Transaction

Any transaction involving the physical transfer of currency from one person to another and covers deposits, withdrawals, exchanges, or transfers of currency or other payments

Identity Theft

Assuming the identity of another person and uses that identity to obtain a mortgage loan without the knowledge or consent of the victim

Section 325

Authorizes the Secretary of the Treasury to issue regulations relating to concentration accounts.

BSA

Bank Secrecy Act

What is another name for BSA?

Currency and Foreign Transactions Reporting Act

Appraisal Fraud

Deliberately overstates or understates the property value. Any attempt to interfere or influence the independent opinion of an appraiser often results in an appraisal fraud.

Section 313

Designed to prevent foreign shell banks from having access to the U.S. financial system. This is accomplished by a prohibition on banks and broker-dealers from maintaining correspondent accounts for any foreign bank that does not have a physical presence in any country

Section 311

Enhances requirements for correspondent accounts by requiring verification and information collection similar to that for domestic customers. It also establishes guidelines for the opening and maintenance of U.S. correspondent accounts or payable-through accounts

Section 351

Expands immunity from liability for reporting suspicious activities and the prohibition against notifying an individual who is the subject of a SAR

Which one of the following activities are permitted under the mortgage assistance relief services rule? - Using federal emblems and logos to promote client trust with their services - Charging a borrower $500 to accept an application for mortgage relief assistance - Explaining the differences between a lender's loan relief offer and the loan terms the borrower currently has - Recommending a borrower to stop making loan payments until the refinance is approved

Explaining the differences between a lender's loan relief offer and the loan terms the borrower currently has

FinCEN

Financial Crimes Enforcement Network

Structuring

Making cash deposits or withdrawals at dollar values of $10,000 or less, at multiple teller windows on a single banking day, or at multiple branch locations or by multiple individuals into a single account on a single day.

What does OFAC do?

Manages trade and economic sanctions placed on foreign countries. The office also maintains a list of suspected and known terrorists, drug traffic organizations, and others who may be a threat to US national security.

The method by which a criminal attempts to make illegal-gotten gains pass through a series of financial transactions in an effort to make the money appear to be from the proceeds of legal activity is called __________ . - loan origination - mortgage fraud - employment fraud - money laundering

Money laundering

MARS

Mortgage Assistance Relief Services

Zack is applying for a mortgage loan to purchase a beach house. He claims on his application that it will be his primary residence when he actually plans to rent the beach house to vacationing beach goers. This is an example of __________ . - occupancy fraud - income fraud - investment fraud - property fraud

Occupancy fraud

Multiple Simultaneous Loans (Shotgunning)

Occurs when multiple loans for the same home are obtained simultaneously for a total amount greatly in excess of the actual property value.

OFAC

Office of Foreign Assets Control

Failing to Disclose Liabilities

Omission of liabilities artificially lowers the debt-to-income ratio, which is an important underwriting criterion in evaluating a borrower's loan eligibility. By not disclosing these liabilities, the borrower may obtain a loan that they would not otherwise qualify for or may obtain a loan amount greater than they would otherwise qualify for.

Income Fraud

Overstating of a borrower's income with the intent to obtain a loan or loan amount larger than would be approved if the actual income was known.

Foreclosure Rescue Scheme

Perpetrators solicit homeowners and promise to save the home from foreclosure.

Straw Buyer

Person whose credit profile is used to serve as a cover in a loan transaction. Also known as nominee borrower or a straw borrower

Which one of the following does NOT match the definition of money laundering? - Conducting financial transactions and/or taking the proceeds from an illegal activity. - Utilizing a series of transactions, transferring the proceeds to a bank secrecy act country, and later returning those funds to their original source. - Placing financial transaction within the reach of the government. - Making financial transactions appear to be from a legal source.

Placing financial transaction within the reach of the government

The mortgage assistance relief services (MARS) rules apply to mortgage brokers who: - promote loan origination or refinancing as a way for homeowners to avoid foreclosure. - work for nonprofit organizations that provide down payment assistance. - receive compensation from the refinance of subprime loans. - originate more than 100 loans during the previous calendar year.

Promote loan origination or refinancing as a way for homeowners to avoid foreclosure.

What did BSA do?

Required United States financial institutions to keep records of cash purchases of negotiable instruments and file reports for currency transactions that were of $10,000 or more. In addition, the financial institutions were to report suspicious activity that might indicate tax evasion, money laundering, or other forms of criminal activity.

Section 314

Requires information sharing from financial institutions and regulators to law enforcement when formally requires through FinCEN. This section also established requirements for institutions that participate in voluntary information sharing.

Section 326

Requires that a customer verify their identity at the time an account is opened.

Section 319(b)

Requires that a financial institution maintain records for correspondent accounts that identifies a legal agent upon which the Attorney General or Secretary of the Treasury may issue and serve subpoenas for records related to such correspondent accounts.

Section 352

Requires that financial institutions establish an anti-money laundering program.

__________ occurs when multiple loans for the same property are obtained simultaneously for a total amount greater than the actual property value. - Shotgunning - Short payoff fraud - Liability fraud - Mortgage relief

Shotgunning

Designation of Exempt Persons Report (DOEP)

Some companies may frequently exceed the CTR $10,000 transaction limit in their course of business. Financial institutions may file a DOEP with FinCEN to apply for an exemption from the currency transaction reporting for an eligible entity. Phase I exempt entities can include other banks, government agencies, entities that have common stock listed on the New York Stock Exchange, and subsidiaries of previously exempted entities. Another group of exempt entities (Phase II entities) include companies that have accounts with the financial institution for at least two months, have gone through a risk assessment by the financial institution, and regularly have transactions exceeding $10,000. Entities that do NOT qualify for CTR exemption include title companies and real estate brokerages.

SDN

Specially Designated Nationals

Occupancy Fraud

Stating on the loan application that they will occupy the property as a primary residence or as a second home.

A __________ is an individual whose personal profile is used to serve as a cover for a loan transaction. - straw borrower - masked funder - power of attorney - mock signer

Straw borrower

SAR

Suspicious Activity Report

What does FinCEN have authority of?

The USA Patriot Act and subsequently, the BSA

Money Laundering

The process in which a criminal is attempting to make illegal-gotten gains (dirty money) process through a series of financial transactions in an effort to make the money appear to be from the proceeds of legal activity (clean money)

Which one of the following is NOT required as part of a company's AML program? - The reporting of SARs to the Consumer Financial Protection Bureau - Ongoing training of personnel about their due diligence - Policies and procedures based upon the company's money laundering risk assessment - The designation of a compliance officer

The reporting of SARs to the Consumer Financial Protection Bureau

Currency Transaction Report (CTR)

This report must be electronically filed with FinCEN within 15 days of any transaction (e.g., deposit, withdraw, etc.) of $10,000 or more during any one business day unless the person or entity is part of an exempt group. The financial institution must keep a copy of the CTR for five years from the reporting date.

What was the USA Patriot Act designed to do?

Uncover financial activities that are related to terrorist activities. Better prevent, detect, and prosecute money laundering related to terrorist financing. Enhanced law enforcement investigatory tools and imposed special scrutiny on high-risk customers, products, and geographic locations that may be susceptible to criminal abuse