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?