Failed NY Credit Union Fined For BSA violations
Good Morning from the great Northeast where the only things lower than the temperature are Chris Christie’s poll numbers. Suffice it to say that this is one of those day that makes those of us who don’t ski or skate wonder why the heck we live here.
I can feel my fingers now so it’s on with the blog.
Yesterday FinCen imposed a $500,000 fine against Bethex Federal Credit Union for “significant violations of anti-money laundering (AML) regulations.” This is an understatement.
The fine is a reminder of the dangers of working with Money Service Businesses. Mishandled programs pose real risks. After all, Bethex no longer exists.
Bethex was a low-income credit union in NYC that did some really great work in the community. Starting in 2011, however, it began servicing MSBs. (Businesses such as check cashers and money transmitters). By 2012 it had established relationships with over 70 money transmitters and check cashing companies. Its transaction volume increased from $657 million in 2010, all of which were domestic, to over $4 billion in domestic and international transactions processed in 2012.
Of course, credit unions can and do service these businesses provided they are within their fields of membership. But, as NCUA has correctly warned, these relationships pose heightened compliance risks of which credit unions have to be aware and account for.
Remember that MSB’s are transferring cash funds for customers who may not have any relationship to your field of membership For example, according to FINCen many of the MSBs the credit union worked with were located in high-risk jurisdictions outside New York and engaged in high-risk activity, including wiring millions of dollars per month to foreign jurisdictions at risk for money laundering.
It’s incumbent on credit unions that service these businesses to have adequate oversight in place to make sure that MSBs are performing customer due diligence before transferring large amounts of cash. Bethex farmed out oversight to third-party vendors and failed to improve its BSA program despite being repeatedly put on notice by NCUA to do so. The result was that the credit union grew fast but it participated in money transfers to over thirty countries without basic BSA controls.
Don’t be surprised to see your examiners taking a hard look at vendor relationships in general and any MSB relationships in particular. Just make sure that you can show you understand how to construct and implement a BSA compliance program that is adequate to account for the risks to which the your credit union is exposed. Remember, too, that third-party vendors don’t relieve you of the ultimate responsibility to know what you are doing.
I know all of this is much easier said than done. The bottom line for me is that is that not all credit unions or banks for that matter should be working with MSB’s. I know the transaction growth can be tempting but at the end of the day a mishandled MSB relationship just isn’t worth it.