“Risk Comes from Not Knowing What You Are Doing.” -Warren Buffet
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5/5/2016 Bank Secrecy Act GBA Compliance School Athens, GA Thomas Williams, CRCM, CCBIA SVP, Senior Compliance Manager United Bank May 5, 2016 Definition of Risk “Risk comes from not knowing what you are doing.” -Warren Buffet 2 Background What is Money Laundering? 3 1 5/5/2016 Background October 1970 • Congress enacted the Currency and Foreign Transactions Reporting Act , which is now what we know as the Bank Secrecy Act. • Granted the Secretary of the Treasury authority to impose regulations on insured banks. • Required U.S. financial institutions to assist U.S. government agencies to detect and prevent money laundering. 4 Background Money Laundering Control Act (1986) o Established money laundering as a federal crime o Prohibited structuring transactions to evade CTR filings o Introduced civil and criminal forfeiture for BSA violations o Directed banks to establish and maintain procedures to ensure and monitor compliance with the reporting and recordkeeping requirements of the BSA 5 Background Anti-Drug Abuse Act of 1988 o Expanded the definition of financial institution to include businesses such as car dealers and real estate closing personnel and required them to file reports on large currency transactions o Required the verification of identity of purchasers of monetary instruments over $3,000 6 2 5/5/2016 Background Annunzio-Wylie Anti-Money Laundering Act (1992) o Strengthened the sanctions for BSA violations o Required Suspicious Activity Reports and eliminated previously used Criminal Referral Forms o Required verification and recordkeeping for wire transfers 7 Background Money Laundering Suppression Act (1994) o Required banking agencies to review and enhance training, and develop anti-money laundering examination procedures o Required banking agencies to review and enhance procedures for referring cases to appropriate law enforcement agencies o Streamlined CTR exemption process o Required each Money Services Business (MSB) to be registered by an owner or controlling person of the MSB o Required every MSB to maintain a list of businesses authorized to act as agents in connection with the financial services offered by the MSB o Made operating an unregistered MSB a federal crime o Recommended that states adopt uniform laws applicable to MSBs 8 Background Money Laundering and Financial Crimes Strategy Act (1998) o Required banking agencies to develop anti-money laundering training for examiners o Required the Department of the Treasury and other agencies to develop a National Money Laundering Strategy o Created the High Intensity Money Laundering and Related Financial Crime Area (HIFCA) Task Forces to concentrate law enforcement efforts at the federal, state and local levels in zones where money laundering is prevalent. HIFCAs may be defined geographically or they can also be created to address money laundering in an industry sector, a financial institution, or group of financial institutions. 9 3 5/5/2016 Background Other Major AML Laws: • USA Patriot Act (2001) • Intelligence Reform and Terrorism Prevention Act of 2004 o Required certain financial institutions to report cross-border electronic transmittals of funds • USA Freedom Act 2015 10 Background OFAC • Beginnings can be traced by to early 1800s. • Officially renamed Office of Foreign Assets Control in 1962. • Administers and enforces targeted country- and regime-based sanctions programs against hostile countries such as Iran, Syria, etc. • Maintains a watchlist of well over 5,000 individuals and entities to which no U.S. person or entity can do business. 11 Background FinCEN • Established in 1990 as a bureau of the US Treasury. • Initial goal was to analyze data and track financial criminals. • Played a key role in establishing the joint examination manual first released by the FFIEC in 2005 • Today works closely with federal and state law enforcement authorities as BSA Administrator. 12 4 5/5/2016 Background Purpose • Assist in criminal , tax, and regulatory investigations. • Established requirements for recordkeeping and reporting by private individuals, banks, and other financial institutions. • Designed to help identify the source, volume, and movement of currency and other monetary instruments transported or transmitted into or out of the US. 13 Impact to Financial Institutions FI’s must put systems in place to assist with: • Prevention • Detection • Prosecution 14 Money Laundering Defined Money Laundering • At the time mafias in the U.S. used laundromats as fronts in order to facilitate and disguise their illegal activity. • Due to the cash intensive nature of the business, these criminals were able to easily avoid taxation as well as mix illicit earnings with legitimate ones from the laundry business. 15 5 5/5/2016 Money Laundering Defined Three primary means: • Placement • Layering • Integration 16 Money Laundering Defined How to Launder Money 17 Money Laundering Defined 18 6 5/5/2016 USA PATRIOT ACT Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act 19 USA PATRIOT ACT • The single most significant AML law that Congress has enacted since BSA itself. • Signed into law by President George W. Bush October 26, 2001. • Reaction to the September 11, 2001 attack, (filed 45 days after the attack on the World Trade Center). 20 USA PATRIOT ACT Significance • Allowed law enforcement and financial institutions the ability to more freely share information. • Allows law enforcement agencies greater freedom in the searching of communications; specifically telephone and email communications. 21 7 5/5/2016 The Facts • Cost and estimated $400,000 to $500,000 to plan and execute the 9/11 attacks. • $300,000 of these funds passed through the hijackers bank accounts in the US. • Money used in the attacks went towards travel, flight training, and living expenses. • The 9/11 hijackers returned $26,000 to a facilitator in the UAE days prior to the attacks. 22 The Facts • None of the 9/11 attackers received any domestic financial support. • The financial transactions were not complex in nature. 23 Funding 3 Primary Methods: • Wire transfers, • Physical transport of cash and travelers checks into the US, and • Debit cards. 24 8 5/5/2016 USA FREEDOM ACT Uniting and Strengthening America by Fulfilling Rights and Ending Eavesdropping, Dragnet- collection and Online Monitoring Act 25 USA FREEDOM ACT • Signed into law by President Obama June 2, 2015 and extends Patriot Act through 2019. • Reauthorizes parts of the USA Patriot Act but dissolves its notorious bulk data collection of Americans’ phone records and Internet metadata. • Increases the maximum penalty for material support to terrorism from 15 years to 20 years. 26 USA FREEDOM ACT 27 9 5/5/2016 Bank Secrecy Act Applicability • Banks; • Money Services Businesses (including check cashers and money transmitters); • Casinos; • Insurance companies; • Precious metals dealers; and • Loan or finance companies and pawnbrokers. 28 Bank Secrecy Act 1 2 3 4 5 System of Internal Controls of Internal System Audit Independent for Appropriate Training Personnel Identification Customer Program Board Appointed BSA Officer 29 Bank Secrecy Act System of Internal Controls • Policies, procedures, and processes to manage, monitor, and control risks; • Ensures compliance with BSA regulations; • Establishes controls commensurate with BSA risk profile; and • Includes recordkeeping and reporting requirements. 30 10 5/5/2016 Bank Secrecy Act Bank Secrecy Act Officer • Must be approved annually by the Board of Directors; • Must be qualified; • Must have significant authority, knowledge, and resources; and • Responsible for ensuring overall BSA compliance. 31 Bank Secrecy Act Independent Audit • Must be completed by a qualified party; • Must be independent (in-house or external); • Conducted every 12 to 18 months (based on risk profile); and • Can be a risk based process. 32 Bank Secrecy Act Training for Appropriate Personnel • Should be documented; • Be tailored to specific job duties; • Address regulatory requirements; • Reference bank policies, procedures, and processes; • Be on-going; • Reiterate employee responsibilities. 33 11 5/5/2016 Bank Secrecy Act Customer Identification Program • Must form a reasonable belief of customer identity; • Must include account opening procedure and verification methods; • Must ensure collection of minimum data elements; and • May use risk-based procedures for additional documentation and verification of customer identity. 34 Bank Secrecy Act ABA Money Laundering Enforcement Conference, November 16, 2015 “A bank will want to know about an MSB’s geographic and demographic focus, the nature of its products and services, and its anticipated volume of activity, among other things. But this does not mean that a bank is responsible for knowing its customers’ customers. Understand a customers’ customer base is one thing, but knowing a customers’ customer is another, and we have repeatedly confirmed that the latter is not an obligation under the BSA.” - Jennifer Shasky Calvery, FinCEN Director 35 Bank Secrecy Act Importance • Enables law enforcement and regulatory agencies to pursue investigations of criminal, tax and regulatory violations. • Provides evidence useful in prosecuting money laundering and other financial crimes. 36 12 5/5/2016 Regulatory Requirements • Record • Report • Identify 37 Regulatory Requirements Recordkeeping and Reporting: • Currency Transaction Reports (CTRs) • Designation of Exempt Persons; and • Suspicious Activity Reports (SARs)