Banking Law Prof Blog

Alive and well, maybe. . . . . . at FinCEN

Just when I was beginning to think the whole agency had gone AWOL, three new items appeared from FinCEN - two not so interesting and one to consider:

1.  Director Freis gave a very basic talk to the Association of Certified Fraud Examiners on July 13, 2009.  Really, if they didn't know this stuff already, they should look for another line of work.

2.  FinCEN announced that electronic filers of Suspicious Activity Reports can now get acknowledgment of their filings.  Makes you wonder what was happening to filings before.

3.  Here's the interesting item:  FinCEN Seeks Comments on AML Plan for Non-Bank Mortgage Lenders and Originators.  This is noteworthy first because they're still only proposing to make non-banks comply with AML requirements -- and second, for financial institution lawyers who have struggled with the paperwork burden for so long, we remark on this only because "misery loves company."

(ag) July 15, 2009, in BSA/AML

FinCEN MIA??

If you check the Financial Crimes Enforcement Network (FinCEN) website, you won't find a lot of current substance.  There are three links to statements justifying all the paperwork involved in filing Suspicious Activity Reports (SARs):  "Bank SARs Lead to Discovery of Predatory Certificate of Deposit Fraud Scheme," "Bogus Life Insurance Investment Vehicles Identified through SAR Filing," and "Case for Mortgage Fraud Involving Straw Buyers Supported by SARs."  OK.  That's three examples out of how many expensive pieces of paper filed and submitted into a black hole??

On the site, you'll also find statistics (SAR Activity Review - By the Numbers) issued in July to back up their May 2009 SAR Activity Review - Trends, Tips, and Issues.  There's a lot of mortgage fraud -- well, that's informative.

In 2009, Director James Freis has given one speech back in March and provided testimony to the House Committee on Financial Services Subcommittee on Housing and Community Opportunity on May 6, 2009, that is mostly background about FinCEN and fluff about working with law enforcement and the states.  That's all for speeches and testimony this year.  No News Releases since March. 

No mention at all that I can find about the UBS tax issues.  Wouldn't you think that would relate to moneylaundering on a big scale?

Just wondering about this agency . . . . 

Link to FinCEN Home Page: http://www.fincen.gov/

(ag) July 13, 2009, in BSA/Anti-Money Laundering

The SAR Activity Report - May 2009

Advising clients about Bank Secrecy Act compliance?  Check out Issue 15 of "The SAR Activity Report:  Trends, Tips, and Issues," published by the Financial Crimes Enforcement Network (FinCEN).  This issue focuses on the Securities and Futures Industries.

Link:  http://www.fincen.gov/news_room/rp/files/sar_tti_15.pdf

(ag) June 2, 2009, in BSA/AML

Foreclosure Rescue Scams

Not surprisingly, scammers are taking advantage of the current economic crisis to bilk the unsuspecting.  Have they no shame?  Apparently not!

The Financial Crimes Enforcement Network (FinCEN) is instructing banks to file Suspicious Activity Reports (SARs) about any such activity they discover and to use the term "Foreclosure Rescue Scam" in the SAR filing.

FinCEN also provides a list of "red flags" that may indicate a foreclosure rescue scam, including:

• Homeowners who have been tricked into making payments to an entity other than the mortgage holder;
• Unscrupulous ploys to convince a homeowner to sign a quitclaim deed in return for mortgage help;
• Third party "foreclosure specialists" who:
  •  chargeup-front fees,
  • accept payment only in cash or by cashier's check or wire transfer,
  •  pressure homeowners to sign documents they don't understand, 
  • charge homeowners to get help from a federal affordable housing program,
  • offer to buy the house and rent it back to the homeowner,
  • guarantee that they can stop foreclosure,
  • falsely claim to be affiliated with the government, or
  • instruct the homeowner not to contact the lender, a lawyer or a financial counselor.
• Homeowners who appear to be committing fraud, for example, by claiming that they do not have to repay a loan because the loan contract is invalid.

Link to FinCEN Advisory 2009-A001 (April 6, 2009), Guidance to Financial Institutions on Filing Suspicious Activity Reports regarding Loan Modification/Foreclosure Rescue Scams:  http://www.fincen.gov/statutes_regs/guidance/html/fin-2009-a001.html

(ag) April 6, 2009, in BSA/AML, Lending Issues

Two Recent Supreme Court Cases on Money Laundering Issues

Karen Neeley, one of Texas' best banking lawyers, recently called my attention to two recent U.S. Supreme Court cases.  Here's what she has to say:

"The Supreme Court decided two money-laundering cases on June 2, 2008. These cases do not relate to cases against financial institutions or Suspicious Activity Reports, but rather relate to the burden imposed on prosecutors in money-laundering cases. Although it is too early to tell the impact these cases will have on other contexts of money-laundering, the Court’s rulings are instructive of how it will interpret certain requirements in the federal money-laundering statutes."

"In Cuellar v. United States, the Court held that money-laundering cannot be proven merely by showing funds were concealed during transportation. Rather, the government must show the purpose of transporting the funds was "to conceal or disguise the nature, location, the source, the ownership, or the control" of the funds. Furthermore, the Court observed that the government is not required to prove a defendant attempted to create an appearance of legitimate wealth. Even though the defendant concealed money in a hidden, specialized compartment in his car, bundled it in plastic bags sealed with duct tape, and used animal hair to mask any scent from drugs, the Court found there was not sufficient evidence to show a purpose, plan, or "design" for transporting concealed funds. The bottom-line of this case is that conviction for transporting laundered money requires proof of the purpose, not the effect, of the transportation is to conceal the nature, location, source, ownership, or control of the money."

"The other money-laundering case decided on June 2nd, United States v. Santos, relates to the term "proceeds" and its interpretation in the money-laundering statutes. The Supreme Court decided the term "proceeds" means "profits" but not "receipts." Therefore, paying off winners and employees in an illegal gambling operation did not qualify as money-laundering because there was no proof the pay-offs were made with profits from an illegal operation. Because the term "proceeds" is not defined in the statute, the term’s ordinary meaning has been defined as both "receipts" and "profits," and the money-laundering statutes make sense under either definition, the Court applied the rule of lenity, which instructs the statute be read in favor of the defendant."

Karen Neeley practices banking law with Cox Smith's Financial Institutions Practice Group, in the Austin office.

(ag) June 10, 2008, in BSA/AML

Suspicious Activity Report News

FDIC Financial Institution Letter FIL-32-2008 (April 10, 2008) notifies banks that they can access the Financial Crimes Enforcement Network (FinCEN) publication "The SAR Activity Report by the Numbers."

Highlights of the report include the following:
1.  During 2007, Depository Institutions filed 324,694 SARs, down from more than 500,000 in both 2005 and 2006.
2.  In the first six months of 2007, Check Kiting filings increased 58% from the corresponding six months in 2006.
3.  Mortgage Loan Fraud SARs increased 35% from 2006.
4.  Identity Theft SARs are increasing.
5.  Texas depository institutions ranked third in number of filings for 2007, behind California at #1 (740,553 SARs) and New York (341,426).  Texas depository institutions filed 191,600 SARs in 2007).

List of top 10 categories of SARs for 2007:
1.  BSA/Structuring/Money Laundering - 48.02%
2.  Check Fraud - 10.54%
3.  Other - 8.87%
4.  Counterfeit Check - 4.93%
5.  Credit Card Fraud - 4.79%
6.  Mortgage Loan Fraud - 3.90%
7.  Check Kiting - 3.34%
8.  Identity Theft - 2.41%
9.  False Statement - 2.38%
10.  Defalcation/Embezzlement - 1.91%

Link to FinCEN Report:  http://www.fincen.gov/sars/sar_by_numb_09.pdf

(ag) April 22, 2008, in BSA/AML

BSA Update

What's hot in the Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) arena?

1.  When the USA PATRIOT Act Correspondent Account Rules don't apply:  FinCEN's Jan. 30, 2008 Guidance says that financial institutions don't have to worry about those rules if they process negotiable instruments drawn on foreign banks.  No matter how many checks drawn on a single foreign bank you (as a bank) may process for customers, that foreign bank is not your correspondent.  That is not a "formal relationship."

Good to know!  Here's the link:  http://www.fincen.gov/fin-2008-g001.html

2.  New Guidance about how to fill out a Currency Transaction Report (CTR) when there's a sole proprietor involved:  Previously, CTR instructions said to file two Section A's (Persons on whose behalf the  transaction is conducted) as if Multiple Persons are involved in the transaction.  This is still permissible, but the new instructions recognize that the individual is the sole proprietorship, calling for the completion of only one Section A which indicates the individual's name and places the sole proprietorship name in the DBA box.  Use the individual's address.

LInk to new CTR instructions:  http://www.fincen.gov/fin-2008-r001.html

3.  NOT A MONEY SERVICES BUSINESS (MSB): If a business cashes its own employees' payroll checks or cashes checks for customers and applies a portion of the check proceeds to obligations owed to the business it is not a "check casher" and is not required to register as an MSB with FinCEN.

Link to Letter Ruling:  http://www.fincen.gov/FIN-2007-R002.pdf

4.  We really mean it!  FinCEN assessed a $12 Million fine against Sigue Corporation and Sigue, LLC, money service businesses (MSBs) in San Fernando, California.  This civil money penalty was assessed pursuant to a consent order.  At the same time, the Justice Department hit Sigue with $15 Million forfeiture under a deferred prosecution agreement for failing to maintain an effective Anti-Money Laundering (AML) program.  FinCEN's $12 M is included in payment of $15M under the Justice Department forfeiture.

Link: http://www.fincen.gov/20080128.pdf

5.  The Federal Reserve Board and the Indiana Dept. of Financial Institutions announced Monday that they had entered into a Written Agreement with Salin Bank & Trust, Indianapolis, Indiana.  The Written Agreement requires Salin Bank & Trust to bring its BSA/AML Program up to standard.

Link:  http://www.federalreserve.gov/newsevents/press/enforcement/20080201a.htm

(ag) Feb. 5, 2008, in BSA/AML

5. 

FinCEN Director Tells Financial Institutions That BSA Burden Yields Results

For years, financial institutions have complained about the paperwork and cost of BSA/AML compliance -- and most are of the opinion that thousands of CTRs and SARs are sent into the enforcement void every day.  For the past several years, FinCEN and the federal financial institution regulators have been engaged in a PR campaign to convince banks that all this BSA burden is worth the pain because it does produce results in terms of catching the real bad guys (money launderers, tax evasionists, drug lords, terrorists, etc.) and not just financial institutions whose tellers can't fill out a CTR form properly.

Relatively new FinCEN Director James Freis, Jr., continues the effort to demonstrate the value of BSA reporting.  In a speech to the ABA Money Laundering Conference on Oct. 22, 2007, Director Freis summarized the following uses for BSA-relating filings:  1.  Initial tip off to begin investigation; 2.  Additional information, especially in identifying wrongdoers, for an existing investigation; 3.  Trend analysis to indicate new money laundering or terrorist financing schemes; and 4.  Deterrence.

Link to speech:  http://www.fincen.gov/aba_102207.html

(ag) Oct. 23, 2007, in BSA/AML

How to File Better SARs

Bank Secrecy Act and Anti-Money Laundering issues continue to be a major focus for examiners.  FinCEN has posted "Suggestions for Addressing Common Errors Noted in Suspicious Activity Reporting".  Check it out and be guided accordingly. 

Also, if the examiners identify problems in one examination cycle, be sure to fix them before the examiners return.  Failure to correct BSA/AML issues previously cited is frequently mentioned by the regulators as a reason to invoke penalties.

BSA/AML compliance is a big burden for banks -- and bankers often complain not only about the time and expense but also about their perception that these filings do not produce enforcement results against the real wrongdoers, only against the banks.  However unpalatable this regulatory burden may be, banks cannot afford to slight compliance.

Link:  http://www.fincen.gov/SAR_Common_Errors_Web_Posting.pdf

(ag) Oct. 15, 2007, in BSA/AML

New BSA/AML Exam Manual

The Federal Financial Institutions Examinations Council ("FFIEC"), the multi-agency group that harmonizes regulatory policies and includes the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration,
Office of the Comptroller of the Currency, Office of Thrift Supervision, Financial Crimes Enforcement Network, and Conference of State Bank Supervisors, announces a new Bank Secrecy Act/Anti-Money Laundering Examination Manual. 

The announcement of this new manual highlights the changes in Customer Due Diligence, Suspicious Activity Reporting, Foreign Correspondent Account Recordkeeping and Due Diligence, OFAC and ACH transactions, Electronic Banking, Money Laundering and Terrorist Financing "Red Flags", and more.

Link:  http://www.ffiec.gov/pdf/bsa_transmittal.doc

(ag) Sept. 4, 2007, in BSA/AML

What Kind of BSA Problems Will Result in a C&D?

The Federal Banking Agencies -- FDIC, FRB, OCC, OTS, and NCUA -- issued a joint statement today setting forth "the Agencies' policy on the circumstances in which an Agency will issue a cease and desist order to address noncompliance with certain Bank Secrecy Act/Anti-Money Laundering ("BSA/AML") requirements".

The Statement reiterates the four key BSA requirements:

1. Internal Controls
2. Independent Testing
3. Designated BSA/AML Officer
4. Training

The Statement also restates what one former FDIC Regional Director used to call the "bigger stick" process, that is, the bank regulators will start politely but escalate to an increasingly bigger stick until they get the attention of the financial institution's board of directors.  Another no brainer is the Statement's reminder that one of the biggest no-nos is "failure to correct a previously reported problem with the BSA Compliance Program".

Still, it's helpful for "transparency" purposes to review this reminder about how to stay out of trouble.

Link: http://www.fdic.gov/news/news/press/2007/pr07061a.html

(ag) July 19, 2007, in BSA/AML

Reducing the Burden of BSA Compliance?

Treasury Secretary Henry Paulson conducted a visit to FinCEN -- basically a press opportunity -- last week and announced a new intiative for a more risk-based approach to examining community banks for anti-money laundering compliance.  Sounds good.  We'll see.

(ag) June 25, 2007, in BSA/AML

When Law Enforcement Asks the Bank to Keep that Sleazy Account Open

FinCEN has provided Guidance about how financial institutions should handle Requests by Law Enforcement for Financial Institutions to Maintain Accounts (FIN-2007-G002 - June 13, 2007).

The Guidance recognizes that the decision to maintain or close accounts should be made by the financial institution in accordance with its own standards and guidelines.  However, the Guidance reminds institutions that maintaining a suspicious account may allow law enforcement to gather crucial evidence to pursue action to counter money laundering, terrorist financing or other illegal activities.  The Guidance also advises financial institutions to get the request in writing and for a specified duration.  If the institution decides to honor the law enforcement request to keep the account open, it must still comply with all BSA requirements, including filing SARS.

Link:  http://www.fincen.gov/Maintaining_Accounts_Guidance.pdf

(ag) June 19, 2007, in BSA/AML

No Subpoena Required

On June 13, 2007, FinCEN released Guidance relating to Suspicious Activity Report Supporting Documentation.  The Guidance is very instructive for financial insitutions, their lawyers, and compliance officers.

The Guidance reiterates the Bank Secrecy Act (BSA) requirement to retain documentation to back up Suspicious Activity Reports (SARs) for five years and emphasizes that the Right to Financial Privacy Act (RFPA) provisions that require a federal government agency to provide a financial institution with evidence of appropiate legal process, including notice to the customer, before obtaining financial records clearly DO NOT APPLY to Suspicious Activity Reports and Supporting Documentation provided to FinCEN, law enforcement, or supervisory agencies in the exercise of their "supervisory, regulatory or monetary functions".  There is safe harbor protection in the BSA for both mandatory and voluntary disclosure of SAR-related information.

What is the practical implication of this Guidance?  It's a red flag to review bank policies and procedures.  It is important to designate a central receipt and response center, coordinated by the Bank Secrecy Act Officer.  The Guidance points out that it is imperative to establish procedures, within the BSA policies and procedures, for verifying that the request does, in fact, come from FinCEN or a supervisory agency.  The Guidance suggests that such verification procedures might include independent employment verification with the requestor's field office or face-to-face review of the requestor's credentials. Also make sure that BSA training includes information about the verification procedures and the fact that no subpoena is required from FinCEN, law enforcement, or the banking agencies for SARs and Supporting Documentation. 

Link:  http://www.fincen.gov/Supporting_Documentation_Guidance.pdf

(ag) June 19, 2007, in BSA/AML

Suspicious Activity Reports - What Are the Trends?

FinCEN has released Issue 11 of The SAR Activity Review - Trends, Tips & Issues.  Highlights of this issue include an article on Debt Elimination Schemes as a reportable suspicious activity; information about unregistered money service businesses (MSBs) and BSA Compliance; discussion of money laundering and suspicious activities in the insurance industry; short reports of successful law enforcement proceedings resulting from SARs; and a great summary of questions from FinCEN's Regulatory Helpline which can be very informative about how to fill out SARs.

Financial Institutions in California (1,986), Texas (632), and Florida (588) filed the most number of SARs.

Link:  http://www.fincen.gov/sarreviewissue11.pdf

(ag) June 14, 2007, in BSA/AML

Link: 

Filing SARs is as Useless as . . . .

Bank Lawyer's Blog gave me a laugh today while I was checking trackbacks.  It's the animated goat I really love.  Check out his post on "The Circular File", posted May 3, 2007:  http://www.banklawyersblog.com/3_bank_lawyers/2007/05/the_circular_fi.html

(ag) May 10, 2007, in BSA/AML

FinCEN's New Leader

Hadn't had a chance to mention it, but FinCEN acquired a new Director this spring:  James H. Freis, Jr.  This has been a very high turnover job, so let's hope for some stability.

Link to Announcement:  http://www.treasury.gov/press/releases/hp292.htm

(ag) May 10, 2007 in BSA/AML

2007 National Money Laundering Strategy

On May 3, 2007, The U.S. Departments of Treasury, Justice, and Homeland Security jointly issued the 2007 National Money Laundering Strategy.

Link:  http://www.treas.gov/press/releases/hp386.htm

(ag) May 7, 2007, in BSA/AML

FinCEN: Don't Use Those New SAR Forms Until We Say So!

The Financial Crimes Enforcement Network (FinCEN) has issued a press release delaying the implementation date for new Suspicious Activity Report (SAR) Forms from June 30, 2007, until further notice. The reason for this delay is to allow time for FinCEN, acting jointly with the IRS, to implement a "data quality management program".  (Well, that's good news if it works!)

The extension applies to depository institutions, casinos and card clubs, insurance companies, and the securities and futures industries.

This indefinite extension does NOT alter the effective date for the revised forms for Money Service Businesses (MSBs).  For MSBs, the requirement to use the new SAR Forms became effective March 31, 2007, and will be mandatory Oct. 1, 2007.

Link:  http://www.fincen.gov/sar_revised_form_implementation.pdf

(ag) May 3, 2007, in BSA/AML

Sumitomo & the Latest Anti-Money Laundering Enforcement Initiative

The Federal Reserve Board and the New York Banking Department signed a Written Agreement with Sumitomo Mitsui Banking Corp. of Japan, dated Jan. 22, 2007.  The Written Agreement, an enforcement action with no civil money penalty component, requires the bank to correct anti-money-laundering violations and deficiencies. 

Sumitomo Mitsui is the third largest bank in Japan.  The Bank agrees: 

1. Within 120 days, to conduct a Management Review of Anti-Money Laundering Policies, oversight, accountability and staffing in  the New York Branch's correspondent banking and funds transfer clearing business lines; and within 30 days of the resulting Report, to implement appropriate oversight measures;
2. Within 60 days, to submit an acceptable BSA/AML Compliance Program;
3. Within 60 days, to submit a Customer Due Diligence Program, including risk identification and SAR reporting;
4. Within 60 days, to submit a written plan for Independent Testing of AML compliance;
5. Within 45 days, to submit a written plan for an improved Transaction Monitoring System;
6. Within 30 days, to hire an independent firm to conduct an Account and Transaction Review covering the last calendar year to determine compliance with SAR requirements.
7. To provide Monthly Progress Reports to the FRB and the NY Banking Dept.

This is the most recent in a string of BSA/AML enforcement actions.  Anti-Money Laundering Compliance is obviously a hot compliance topic.  Be warned.

(ag) Jan. 24, 2007, in BSA/AML