When Small Credit Unions Take on Big BSA Responsibilities

December 1, 2014 at 8:25 am 1 comment

If you were sitting around the Thanksgiving table struggling to come up with things to be thankful for, then here’s one for you, after the fact:  be thankful you are not associated with the North Dade Community Development Federal Credit Union located in Miami, Florida.

The Tuesday before Thanksgiving the $4 million credit union was slapped with a $300,000 fine for significant Bank Secrecy Act (BSA) violations.  According to FinCEN, from 2009-2014, the credit union had significant deficiencies in all aspects of its anti-money laundering (AML) program, even as it processed close to $2 billion in transactions for money service businesses (MSB).  FinCEN’s fine follows a 2013 Cease and Desist order issued against the credit union by NCUA.

If this were simply the story of one rogue credit union that let the income it was generating from MSBs blind it to its regulatory obligations, the story wouldn’t be worth a second look.  But that’s not all that is going on here.  Most importantly, regulators are increasingly concerned about credit unions that work with MSBs within their fields of membership. For instance, in January of this year, the NCUA listed oversight of credit union MSB relationships as one of its top regulatory priorities.  In addition, a BSA Webinar hosted by the Office of Small Credit Union Initiatives emphasized the enhanced obligations that credit unions have when their membership includes MSBs.  More generally, since 2005, regulators have stressed that when any financial institution provides services to an MSB, it takes on additional due diligence obligations.

But wait, there’s more.  The credit union was also cited for its disregard of 314(a) FinCEN information requests.  Under the Patriot Act, law enforcement officials at both the state and federal level are authorized to request that FinCEN forward the names of individuals about whom they are seeking information.  These requests come out approximately once every two weeks.  Credit unions are obligated to check their own accounts to see if they have any information FinCEN is seeking.  This obligation is independent of a credit union’s responsibilities under OFAC (31 CFR 1010.520).

I’ve been quick to criticize financial regulators for their tepid approach to BSA enforcements.  Don’t let the large fines fool you.  Large institutions are able to get away with blatant BSA violations for years before anyone acknowledges that the inmates are running the asylum.  But the fact that BSA may be enforced unfairly doesn’t change the fact that in today’s interconnected world a five person credit union that doesn’t follow through on its BSA obligations can pose a real and dramatic threat to the Country’s AML efforts.

Those of you who choose to take on more sophisticated accounts have an obligation to the entire industry to ensure that you conform with basic BSA requirements.  This is one of those areas where the missteps of one credit union reflect on the industry as a whole.

Shoppers Not Feeling Jolly

If the initial press reports are any indication, Black Friday is loosing its appeal to shoppers.  The National Retail Federation reported that 55.1% of consumers shopped between Thursday and Sunday.  That is down from 58.7% last year.  It also reported that total spending was $50.9 billion, a decrease of 11% from last year.  The Meier family took its annual sojourn into the city and based on our experience the statistics matched the reality:  the train ride from Manhasset on the LIRR was notably less crowded and the store fronts were not as jammed.  On that note, have a nice day.

Entry filed under: Compliance, Regulatory. Tags: , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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