“The fight against money laundering and terrorist financing is a pillar of U.S. national security and a strong financial system.” – Adam J. Suzbin, Department of the Treasury
Money launderers will go to great lengths to use the normal activities of legitimate banks, credit unions, and money service businesses to help them “clean” ill-gotten gains. The Bank Secrecy Act (BSA) sets forth AML rules, to help financial institutions identify and report potential money laundering and terrorist financing activities.
Our latest infographic highlights the typical 3-step money laundering cycle and outlines key components of an effective anti-money laundering program. Use this infographic as a quick reference to educate your employees and stakeholders on the importance of finely-tuned AML controls. … Continue reading
Both the Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC) mandate that covered financial entities—and this includes all banking institutions, virtually all money service businesses, and many cash-intensive non-bank businesses—establish an Anti Money Laundering (AML) compliance program.
Compliance is not an optional choice, and that imposes costs. The good news is that the costs of compliance can be managed relative to each business’ risk profile with respect to money laundering. In other words, a smaller business with limited risk can establish an effective compliance program that will stand up to scrutiny at a lower cost than a big bank with lots of foreign transactions. FinCEN and OFAC promote risk-based compliance programs in recognition of this reality.
However, every business that is covered by BSA/AML requirements should be looking at similar factors in building a risk profile, the first step toward a compliance program. The risk factors common to all financial businesses include business lines (type of business function), customers (meaning any person or entity that can engage in financial transactions), products and services, and location. … Continue reading
One of the hottest—and hardest—topics in BSA/AML compliance is managing the risks due to third parties. Regulatory agencies including FinCEN, OFAC, and others have expanded the definition of “third party” to include any business relationship between a financial entity and another party, except a customer. This includes the subcontractors of your contractors or vendors.
At the same time, changes in the financial system have greatly expanded the kinds and frequencies of third party relationships. Financial institutions may now outsource or contract for entire departments or key banking functions that used to be entirely in-house. Globalization increases the number of these relationships that are international, with related parties in two or more countries, and may trigger the scrutiny of the (OFAC) in addition to the other regulatory agencies operating within the U.S. … Continue reading
One of the most important components of BSA/AML compliance is a Customer Identification Program (CIP). After all, money laundering is done by people who do not want to be discovered, and most of them pose as legitimate customers. The shorthand phrase “Know Your Customer” (KYC) means that a financial institution has to have a reasonable belief based on due diligence that its customers are who they say they are and are acting within the legal framework.
The first requirement is to have a thorough understanding of BSA requirements, broadly conceived to include all the applicable laws and regulations. Knowing these will enable you to investigate potential customers for relevant risk factors. Beyond basic identity and records requirements, applicable regulations may target certain currency transactions, potential structuring techniques, identifying types of suspicious activity, and so forth.
A compliant CIP has three major components to due diligence: planning and implementation, oversight and accountability, and independent auditing. Each of these may be more or less complex depending on the financial institution’s business lines, size, structure, and risk profile. The regulatory agencies, such as FinCEN, expect your institution’s compliance program to be unique to it on a risk-adjusted basis, but they will look at the components of a CIP to ensure they are effective. … Continue reading
By their very nature, money launderers will go to great lengths to cover their tracks. In the process, they use the normal activities of legitimate businesses like banks, credit unions, money service businesses, and other financial services organizations to help them “clean” ill-gotten gains. One of the strongest tools financial institutions have in combating the covert use of their services for illegal ends is to Know Your Customer (KYC).
The Mandate for BSA/AML Compliance
The problem is that the legitimate businesses used for money laundering may inadvertently fall into non-compliance with Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) requirements. Since the flow of funds through money laundering can be used to finance drug-related, terrorist, or other illegal activities, the issue has been raised to the level of national security policy. There is little wriggle room: virtually all financial services businesses are responsible for designing and implementing risk-based anti-money laundering controls.
Several units of the U.S. Department of the Treasury are charged with promoting, monitoring, and enforcing compliance with anti-money laundering rules, including the Financial Crimes Enforcement Network (FinCEN), which has oversight of the system as designated administrator for BSA/AML compliance. Financial institutions that are found to have facilitated money laundering, even if inadvertently, can be heavily fined. … Continue reading