Bank Secrecy Act
Staying One Step Ahead of Your BSA Examiner
September 2009 AMLA
Chicago Chapter Event
Session Agenda
• Most frequent apparent violations cited during exams
• Technical violations, including best practices related to CIP / enhanced due diligence
• Part 353 violations
• Pillar violations, including best practices for suspicious activity monitoring systems and the independent test
• Program violations
• Questions
Apparent Violations
0
50
100
150
200
250
Chicago Region Exams
CTR Related
Exemptions
Monetary Instr. Sales
Funds Transfers
CIP Issues
314 (a)
SARs
Pillars
Program
Hierarchy of Violations
• Technical violations
• Part 353 violations
• Pillar violations
• Program violations
CTR Related Violations
• Failure to file / aggregate
• Incomplete filing
• Lack of identification
• Untimely filing
Exemption Related Violations
• Lack of monitoring and review
- Confirm eligibility for exempt status
- Review for suspicious activity
- Document the review
Monetary Instrument Sales & Funds Transfers Records Related Violations
• Monetary Instruments– Missing activity / aggregation
• Funds transfers– Lacking the required information on the
transmittal
CIP Related Violations
• Failure to obtain minimum information
• Failure to document resolution of discrepancy in identification information
• Failure of CIP to contain procedures for verifying customer identity
Enhanced Due Diligence - Best Practices
• Individual customer
– occupation and source of funds
• Business customers
– Basic information: location, ownership, business structure, anticipated level of activity, primary products and services
Enhanced Due Diligence (continued)
• Business customers (continued)
- Enhanced information: financial services providers
Sources of Cash: selling of money orders, traveler’s checks, stored value cards
Uses of Cash: check cashing, lending activities, ATMs
High Risk Customers – Best Practices
• List should be periodically updated
• Documentation of enhanced monitoring needed
Money Service Businesses – Best Practices
• Determination of MSB status
• Registration requirements
• Risk-based additional due diligence
314 (a) Related Violations
• Lack of searching all required records:
- Monetary instrument sales to
non-customers
- Funds transfers by non-customers
- Trust, insurance subsidiary activity
• Inadequate continuity plans for performing searches
Suspicious Activity Reporting Related Apparent Violations
• Lack of filing SARs for transactions designed to evade reporting requirements
• Lack of filing SARs for transactions with no business or apparent lawful purpose
• Untimely filing
• Failure to notify Board
Pillar Apparent Violations
0
5
10
15
20
25
30
Chicago Region Exams
Internal Controls
Independent Testing
BSA Officer
Training
CIP Program
Internal Controls Pillar Violations
• Lack of effective suspicious activity monitoring and reporting systems
• Lack of adequate large currency transaction identification / aggregation
• Failure to search records as required by 314 (a)
• Various other deficiencies, such as the failure to implement an effective CIP program
Suspicious Activity Monitoring – Best Practices
All banks should have monitoring systems for the following:
1) Large cash transactions
2) Monetary instrument sales
3) Funds transfers
4) ACH activity
Large Cash Transaction Monitoring – Best Practices
• Monitoring systems – automated versus manual
• Automated reports – periodic review of filtering criteria and thresholds
• Activity should be compared to CDD information
Large Cash Transaction Monitoring (continued)
• Incoming Currency– Structuring– Activity with no business or apparent
lawful purpose
• Outgoing Currency– Structuring– Activity with no business or apparent
lawful purpose
Monetary Instrument Sales Monitoring – Best Practices
• Cash purchases
• Non-cash purchases:
1) Structuring
2) No business or lawful purpose
Monetary Instrument Sales Monitoring (continued)
• Uses of non-cash sales – Non-suspicious
• Moving of funds to another institution
• Hiding funds from spouse
– Suspicious• Tax evasion
• Hiding funds from court system (bankruptcy, judgments, divorce)
• Medicaid fraud
Funds Transfers Monitoring – Best Practices
• Log of activity containing originator, beneficiary, name and location of outside institution
• Monitor periodically for unusual activity, including the review of international wires
ACH Monitoring - Best Practices
• Capabilities of ACH reporting system– Controls for outgoing ACH activity– Review of incoming ACH activity
• Automated system benefits
• Review of cross-border activity
Independent Testing Pillar Violations
Inadequate scope:
- the lack adequate transaction testing
- the review of suspicious activity
monitoring and reporting
- customer due diligence / enhanced due
diligence
- review and verify the accuracy of
reporting systems
Independent Testing FIL-38-2008
• Risk-based, incorporating the bank’s BSA/AML risk assessment
• Internal auditor, outside auditor, consultant, or other qualified individual independent of the BSA/AML function
• Agreements should grant examiners access to workpapers
• Examiners will request workpapers during exams
BSA Officer Pillar Violations
• Lack of appropriate training – outside training generally needed annually
• Lack of BSA Officer involvement in the
day-to-day activity
Training Pillar Violations
• Over-reliance on on-line training
• Lack of documentation
• Failure to cover bank’s CIP procedures
CIP Pillar Violations
• Missing CIP program in an area – loans, insurance subsidiary, trust department
• Lack of CIP policy
Program Violations
• Lack of an effective BSA program
• Program reflects such systemic or pervasive deficiencies that the BSA/AML program is deemed ineffective at assuring and monitoring compliance with the BSA
Resources
• FFIEC BSA Exam Manual available at http://www.fdic.gov/regulations/examinations/bsa/
• MSB information available at:
http://www.fincen.gov/financial_institutions/msb/
Contacts
Regional FDIC BSA Contact:
John Lombardo
Case Manager Special Activities
312-382-7516
Questions?
