Amla 5607 ' Unit 1

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U1 Bank Secrecy Act

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Bank Secrecy Act: Anti-Money Laundering RegulationsDEPARTMENT OF THE TREASURYFinancial Crimes Enforcement Network 31 CFR Parts 1010 and 1029http://www.fincen.gov/news_room/nr/html/20120206.html FinCEN's rule on the anti-money laundering program and Suspicious Activity Report (SAR) filing requirements for non-bank residential mortgage lenders and originators. -Effective April 16, 2012 All mortgage companies including banks and non-bank lenders and brokers are required to comply the Financial Crimes Enforcement Network (FinCEN) regulations that requires all non-bank institutions to comply with laws regarding Anti-Money Laundering (AML) and Suspicious Activity Reports (SARs). This lesson will provide information on the Red Flags to alert your employees and the policy requirements and anti money laundering program that all mortgage companies must have.

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U1 Bank Secrecy Act QUESTION

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All mortgage brokers are required to comply the Financial Crimes Enforcement Network (FinCEN) regulations that requires all non-bank institutions to comply with laws regarding Anti-Money Laundering (AML) and Suspicious Activity Reports (SARs). ( )True( )False ← Wrong answer Explanation:U1 Bank Secrecy ActAll mortgage companies including banks and non-bank lenders and brokers are required to comply the Financial Crimes Enforcement Network (FinCEN) regulations that requires all non-bank institutions to comply with laws regarding Anti-Money Laundering (AML) and Suspicious Activity Reports (SARs).

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1 Definitions

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Definitions: http://www.materialsmanagement.net/aml_terms.htm AML- Anti-Money Laundering.CTR-Currency Transaction Report. Report filed with FinCEN to report cash transactions of over $10,000.Money Laundering- In general, hiding the existence, origin, use, movement or disposition of illegally derived funds to make them appear legitimate. The USA PATRIOT Act mentions three stages of the process--placement, layering and integration. Conducting a financial transaction with a person or business “KNOWING” that the funds or property are proceeds of illegal or criminal activities.Red Flag-An alert that signals possible money-laundering or terrorist financing. Red flags require investigation and possibly filing an SAR.Safe harbor-protects persons or agencies disclosing or reporting suspicious activity in good faith from civil liability to person that was reported.Suspicious Activity Report - (SAR) Report filed with FinCEN to report suspected money laundering activity.USA Patriot Act-as an acronym, stands for "Uniting and Strengthening America by providing Appropriate Tools Required to Intercept and Obstruct Terrorism" (October 25, 2001)Willful blindness-Deliberate avoidance of knowledge of the facts. Permitting illegal activity knowing it was taking place.

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1 Definitions QUESTION

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Willfull Blindness is when one is conducting a financial transaction with a person or business “KNOWING” that the funds or property are proceeds of illegal or criminal activities.( )True( )False ← Wrong answer Explanation:1 Definitions· Money Laundering- In general, hiding the existence, origin, use, movement or disposition of illegally derived funds to make them appear legitimate. The USA PATRIOT Act mentions three stages of the process--placement, layering and integration. Conducting a financial transaction with a person or business “KNOWING”that the funds or property are proceeds of illegal or criminal activities.

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2 3 Stages of Money Laundering

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3 Stages of Money Launderinghttp://www.fincen.gov/financial_institutions/msb/materials/en/prevention_guide.htmlPlacement involves physically placing illegally obtained money into the financial system or the retail economy. Money is most vulnerable to detection and seizure during placement.Layering involves separating the illegally obtained money from its criminal source by layering it through a series of financial transactions, which makes it difficult to trace the money back to its original source.Integration involves moving the proceeds into a seemingly legitimate form. Integration may include the purchase of automobiles, businesses, real estate, etc.

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3 Anti-Money Laundering Program

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Anti-Money Laundering ProgramThe Bank Secrecy Act (BSA) in 31 CFR Chapter X, Parts 1010 and 1029 Perform a risk assessment for the types of business that your company does. A risk assessment should include risks unique to your company:1. Customer base2. Products and Services3. Geographic areas of operation and market area4. Size5. How loan applications are taken (Face to Face, Telephone, Internet, Mail) Company officers are responsible for ensuring that the program fits your firm’s risk level and that you implement the programDevelop company policies and procedures to handle potential fraud and to stay compliant with regulations. Your company’s AML Program should be written document available for employees presenting the company policy on anti-money laundering and other topics. See next page for a sample Policy and Risk Assessment. FINRA has provided a template for creating the anti-money laundering program and it can be found athttp://www.anmi.in/seminar/aml_template%5b2%5d%20FINRA.pdf

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4 CASE STUDY 1: Sample of AML Policy

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CASE STUDY 1: Sample of AML PolicyFINRA’s TEXT EXAMPLE for The Policy including the Risk Assessment part of the AML program It is the policy of the firm to prohibit and actively prevent money laundering and any activity that facilitates money laundering or the funding of terrorist or criminal activities by complying with all applicable requirements under the Bank Secrecy Act (BSA) and its implementing regulations. Money laundering is generally defined as engaging in acts designed to conceal or disguise the true origins of criminally derived proceeds so that the proceeds appear to have derived from legitimate origins or constitute legitimate assets. Generally, money laundering occurs in three stages. Cash first enters the financial system at the "placement" stage, where the cash generated from criminal activities is converted into monetary instruments, such as money orders or traveler's checks, or deposited into accounts at financial institutions. At the "layering" stage, the funds are transferred or moved into other accounts or other financial institutions to further separate the money from its criminal origin. At the "integration" stage, the funds are reintroduced into the economy and used to purchase legitimate assets or to fund other criminal activities or legitimate businesses. Terrorist financing may not involve the proceeds of criminal conduct, but rather an attempt to conceal either the origin of the funds or their intended use, which could be for criminal purposes. Legitimate sources of funds are a key difference between terrorist financiers and traditional criminal organizations. In addition to charitable donations, legitimate sources include foreign government sponsors, business ownership and personal employment. Although the motivation differs between traditional money launderers and terrorist financiers, the actual methods used to fund terrorist operations can be the same as or similar to methods used by other criminals to launder funds. Funding for terrorist attacks does not always require large sums of money and the associated transactions may not be complex. Our AML policies, procedures and internal controls are designed to ensure compliance with all applicable BSA regulations and FINRA rules and will be reviewed and updated on a regular basis to ensure appropriate policies, procedures and internal controls are in place to account for both changes in regulations and changes in our business. Rules: 31 C.F.R. § 103.120(c); FINRA Rule 3310.

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4 CASE STUDY 1: Sample of AML Policy QUESTION

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Generally Money Laundering occurs in ­­­­­______ stages.( )2( )3( )5( )10Explanation:4 CASE STUDY 1: Sample of AML PolicyMoney laundering is generally defined as engaging in acts designed to conceal or disguise the true origins of criminally derived proceeds so that the proceeds appear to have derived from legitimate origins or constitute legitimate assets. Generally, money laundering occurs in three stages. Cash first enters the financial system at the"placement" stage, where the cash generated from criminal activities is converted into monetary instruments, such as money orders or traveler's checks, or deposited into accounts at financial institutions. At the "layering" stage, the funds are transferred or moved into other accounts or other financial institutions to further separate the money from its criminal origin. At the "integration" stage, the funds are reintroduced into the economy and used to purchase legitimate assets or to fund other criminal activities or legitimate businesses.

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5 Designate a compliance officer & describe their duties

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Designate a compliance officer & describe their duties. The compliance officer is responsible for:Establishing and maintaining procedures designed to ensure compliance with AML;Provide periodic updates on AML Policy to all staff;Ensure proper record retention;Ensure proper training of all staff;Ensure that SAR is filed with FinCEN when applicable;Ensure proper reporting to Executive Management;Act as liaison with Regulator, law enforcement, IRS, FinCEN when applicable;Implementation of AML PolicyAdd any other duties your firm will assign to the AML Compliance Person; review NASD Rules 1021 and 1031 for any applicable registration requirements.

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6 Compliance Person Requirements

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The company must provide FINRA with contact information for the AML Compliance Person, including:Name;Title;Mailing address;Email address;Telephone number; andFacsimile number through the FINRA Contact System (FCS). To register a compliance officer, visit: http://bsaefiling.fincen.treas.gov/main.html The company will promptly notify FINRA of any change in this information through FCS and will review, and if necessary update, this information within 17 business days after the end of each calendar year. “The annual review of FCS information will be conducted by [Name] and will be completed with all necessary updates being provided no later than 17 business days following the end of each calendar year.” “In addition, if there is any change to the information, [Name] will update the information promptly, but in any event not later than 30 days following the change.” Rules: 31 C.F.R. § 103.120; FINRA Rule 3310, NASD Rule 1160.Resources: NTM 06-07; NTM 02-78. Firms can submit their AML Compliance Person information through FINRA's FCS Web page.FINRA has provided a template for creating the anti-money laundering program and it can be found at http://www.anmi.in/seminar/aml_template%5b2%5d%20FINRA.pdf

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7 Train employees

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Train employees based on your policies and procedures. Training should include, at a minimum:How to identify red flags and signs of money laundering that arise during the course of the employees’ duties;What to do once the risk is identified (including how, when and to whom to escalate unusual customer activity or other red flags for analysis and, where appropriate, the filing of sar-sfs);What employees' roles are in the firm's compliance efforts and how to perform them;The firm's record retention policy; andThe disciplinary consequences (including civil and criminal penalties) for non-compliance with the BSA.All companies should develop a training program including any of the followingEducational pamphlets,Videos,Intranet systems,In-person lectures andExplanatory memosThis training is required annually for current employees and within 30 days for all new hires (regardless if they had the training at another company or bank) Rule: FINRA Rule 3310.Resources: See NTM 02-21, FinCEN SAR Narrative Guidance Package (11/2003), FinCEN Suggestions for Addressing Common Errors Noted in Suspicious Activity Reporting (10/10/2007) FINRA has provided a template for creating the anti-money laundering program and it can be found at http://www.anmi.in/seminar/aml_template%5b2%5d%20FINRA.pdf

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7 Train employees QUESTION

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Annual Anti-Money Laundering training is required( )New Hires only( )Company Officers only( )Current employees and new hires( )Current and new hire Mortgage Loan Originators onlyExplanation:7 Train employeesAll companies should develop a training program including any of the followingEducational pamphlets,Videos,Intranet systems,In-person lectures andExplanatory memosThis training is required annually for current employees and within 30 days for all new hires (regardless if they had the training at another company or bank)

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8 Annual AML Education Program

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Annual AML Education Program for ALL company employees A regular AML Compliance Training Program is required. The purpose is to educate employees on the company policies. Your AML training program must:1. Include all employees, including management and board of directors.2. Be performed EVERY year.3. Include new employees within the first 30 days of hire.4. Maintain training records which must include names, dates, and test scores5. Disseminate information on AML law changes and policy changes and must keep records of these communications.

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9 Annual Testing of AML program

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Annually Testing of AML program for ALL company employees Independent Testing of PolicyHow testing is done should depend on the organization’s size and risk. Testing should be done annually (obviously after the education), additional testing may be required if significant changes or updates are made to the AML policy. Testing should be conducted by an “independent third party”. This does not mean it has to be an outside company. Testing may be done by a company employee, as long as:They do not work for or report to the compliance officerThey do not perform any of the AML functions to be tested (such as an MLO, company officer, basically anyone that is required to participate in the education and testing) Annual test should test employee knowledge of your company AML compliance program including the following;1. Company procedures for BSA reporting and record keeping requirements;2. Company Consumer Identification Program (CIP);3. Company staff training program;4. Company systems, whether automated or manual, for identifying suspicious activity; (RED FLAGS)5. Company system for reporting suspicious activity; (chain of command in management to report to)6. Company policy for reviewing accounts that generate multiple SAR-SF filings;7. Company response to previously identified deficiencies. Rules: 31 C.F.R. § 103.120; FINRA Rule 3310.Resource: NTM 06-07. FINRA has provided a template for creating the anti-money laundering program and it can be found at http://www.anmi.in/seminar/aml_template%5b2%5d%20FINRA.pdf

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9 Annual Testing of AML program QUESTION

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Testing must be done by an “independent third party”.( )True( )False ← Wrong answer Explanation:9 Annual Testing of AML programAnnually Testing of AML program for ALL company employees Independent Testing of PolicyHow testing is done should depend on the organization’s size and risk. Testing should be done annually (obviously after the education), additional testing may be required if significant changes or updates are made to the AML policy. Testing should be conducted by an “independent third party”. This does not mean it has to be an outside company. Testing may be done by a company employee, as long as:They do not work for or report to the compliance officerThey do not perform any of the AML functions to be tested(such as an MLO, company officer, basically anyone that is required to participate in the education and testing)

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10 Consumer Identification Program

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Consumer Identification Program (CIP) http://www.fincen.gov/news_room/nr/html/20120206.html Driver’s licenseMilitary and military/dependent identification cardsPassportState issued identification cardCedular card (foreign)Non-resident alien identification cards Or any other identification document or documents, which contain name and preferably address and a photograph and are normally acceptable by financial institutions as a means of identification when cashing checks for persons other than established customers.