Posts tagged ‘FinCEN’

If You’re Responsible For Your CUs BSA Compliance, You Are On The Hook If Things Go Bad

If your credit union does not have adequate staff to appropriately identify and respond to suspicious activity it may be violating federal law and putting both the credit union and its BSA compliance officer at risk of being fined.

That’s my major takeaway after FinCEN recently announced a $475,000 fine against the individual who had been responsible for U.S. Bank’s AML/BSA program. This fine is in addition to a separate civil penalty already imposed on the bank. It’s a strong warning to financial institutions and should be reviewed by anyone responsible for implementing and overseeing your AML/BSA program, including your board.

The order is a not too subtle warning to all institutions that they are expected to maintain staff levels commensurate with their level of BSA risk and that they can’t rely on software to demonstrate good faith compliance. It is also a reminder that whoever is in charge of BSA compliance at your credit union has an obligation to advocate for appropriate resources.

First a quick reminder. Pursuant to 31 U.S.C. § 5318 (h) your credit union must have an anti-money laundering program that includes, at a minimum: internal policies, procedures, and controls; has a designated compliance officer; an ongoing employee training program; and an independent audit function to test its BSA programs.

Michael LaFontaine was the former chief operational risk officer at U.S. Bank National Association. In this capacity he had overall authority and responsibility for BSA compliance. FinCEN determined that he willfully violated these core responsibilities.

Most importantly, he capped the number of alerts that the bank’s BSA monitoring software would generate resulting in thousands of potential BSA violations going unreported. He did this even after Wachovia was fined by FinCEN for engaging in almost identical activity and despite being told by employees that capping reports was inappropriate.

Secondly, he was repeatedly warned by regulators and staff that the size of the bank’s BSA staff was not commensurate with its level of risk. FinCEN explains that “While he did take certain steps to upgrade the AML Program, including advocating for and receiving funding for the replacement of the system in its entirety, his actions were inadequate to correct the deficiencies.” This is a reminder to you BSA compliance people out there to document the efforts you take in the event you conclude that your staffing levels and resources are not commensurate with the credit union’s BSA risk profile.

Will The Fed’s Rate Cuts Do Any Good?

With the Dow Jones Industrial Average declining quicker than Democrats are exiting the presidential primaries, the Fed announced an emergency 50 Basis Points cut in the Fed Fund Rate on Tuesday. Let’s call this the Corona Cut. Far be it for me to question the aggregate wisdom of the Fed, but this one is a bit of a head-scratcher. My sentiments are summed up nicely by Greg Ip of the WSJ who wrote (subscription required):

“The Fed cannot save the U.S. economy from the coronavirus, for two reasons. First, it can’t restart factories that are missing parts as the virus disrupts supply chains, nor can it persuade worried vacationers to fly. Second, and potentially more important, central banks are losing their grip on the business cycle.”

March 5, 2020 at 9:50 am Leave a comment

Time to update your CTR Reporting Procedures

Ok, so it’s not the most exciting topic in the world, but there are few BSA requirements as fundamental as filing transaction reports for currency transfers (CTRs) in excess of $10,000. On February 10th the Financial Crimes Enforcement Network (FinCEN) issued an administrative ruling updating CTR procedures when filing CTRs involving DBAs and Sole Proprietorships. The issue is trickier than it might seem at first because a sole proprietorship is a single person operating as a separate legal entity but in a personal capacity. This ruling is intended to codify precisely who the legal entity is for purposes of filing the CTR. The ruling also addresses similar concerns regarding businesses operating under a “doing business as” designation.

By the way, every time I deal with CTRs I’m reminded of just how antiquated this requirement is. Since everyone knows a financial institution has to report these cash transactions, then how useful is this requirement in terms of catching the bad guys? Everyone agrees that it’s time to update the reporting threshold, but unfortunately the threshold is embedded in statute. Perhaps this is smoothening we can talk about when we go to meet with our Congressional Representatives in a week and a half.

Again, I know this is not the most exciting issue in the world but on a practical level, it would be a big help for financial institutions big and small.

February 12, 2020 at 9:11 am Leave a comment

Devastating Toll of Elder Financial Crimes Highlighted in FinCEN Report

The last six years have seen a dramatic rise in the filing of Suspicious Activity Reports (SARs) related to elder financial crimes according to a report released by FinCEN on Wednesday, which tracked the number of SARs tracked between 2013 and August 2019. Even assuming that part of this rise reflects increased sensitivity to the issue by financial institutions, the statistics underscore just how sickening this trend is, and how it is likely to continue for the foreseeable future.

For example, FinCEN reports that the amount of money stolen by individuals in on the rise. According to studies, FinCEN cites “$50,084 as the average activity amount and $15,964 as the median amount.” In other words, billions of dollars are being stolen annually from vulnerable seniors, precisely when they are most in need of these funds.

While the report is instructive and important, there is little else in it that will come as a surprise to anyone who has tracked the issue. For example, financial crimes often involve manipulation by trusted third parties or relatives. Statistically, these are the types of circumstances that will most likely involve your credit union. In contrast, scams such as those, in which a friend or relative calls in need of transferred funds typically utilize money service businesses.

Reports like these understandably pull at the heartstrings, and many legislators have taken steps to deal with the issue. However, let’s keep in mind that the report also underscores that we already have a framework in place to report suspected abuse. What I would like to see is stricter distribution of SARs involving elder financial crimes to law enforcement and district attorney offices. There is no need to reinvent the wheel, and these types of changes can be done without the need for additional legislation.

Georgia Senate Pick has FinTech and NY Connection

Georgia Governor Brian Kemp announced that he has chosen Kelly Loeffler to be Senator Isakson’s replacement following his retirement from the United States Senate. Once you get beyond all the standard political gobbledygook, the pick is intriguing because, as Law360 pointed out this morning (subscription required), she comes to the Senate with extensive knowledge of digital coin issues. She secured a trust charter from New York’s Department of Financial Services to offer bitcoin future contracts that were traded on the Intercontinental Exchange. As one legal observer commented to the website, it “will be very powerful to have a Senator who is absolutely conversant in this area and really knows the details.” Of course, no matter how knowledgeable she is about one of the most important emerging fields, it remains doubtful that her expertise will be utilized in creating legislation anytime soon given the tribalism that has consumed national politics.

December 5, 2019 at 8:41 am Leave a comment

Important Guidance on Issues Ranging from Data Underwriting to Hemp

It may be December, but yesterday was one of the busiest days in months for those of us who specialize in tracking regulatory issues. Here are some of the most important developments.


Joint “Statement” on the Use of Alternative Data Released

The federal financial banking regulators, including the NCUA and CFPB, issued an important guidance yesterday detailing baseline expectations for the use of alternative data in underwriting decisions. The statement is not important so much for what it says, but simply because it says anything at all. It represents the first attempt by regulators to establish regulatory expectations for the use of alternative data as computer algorithms make it possible for financial institutions to consider a huge volume of seemingly unrelated data points in making underwriting decisions.

Not surprisingly, the regulators stressed that while the use of alternative data provides new opportunities for both borrowers and lenders alike, “as with prior developments in the evolution of underwriting … data and analytical methods also raises questions regarding how to effectively leverage new technological developments” that are consistent with applicable consumer protection and fair lending laws.

Interestingly, the regulators highlight the increasing use of cash flow analysis, which they state “may be particularly beneficial for consumers who demonstrate reliable income patterns over time from a variety of sources rather than from a single job.”

Readers of this blog should not be surprised to know that regulators expect financial institutions using data analytics to undertake a “thorough analysis” of the data being used and the potential risks of not complying with relevant consumer protection laws. Whether or not it is actually possible to strike that balance remains to be seen, but that is a blog topic for another day.

By the way, I put “statement” in quotes because it is not entirely clear to me whether a statement is to be given even less deference than a guidance, and if so, whether or not it is prudent for any of you to even worry about this distinction.

Another Day, Another CU-Bank Merger

Here is another log for credit union opponents to throw on the fire. The American Banker is reporting this morning that Suncoast Credit Union in Tampa, FL has agreed to a purchase and assumption of the assets of $747 million Apollo Bank in Miami. The American Banker points out that this relatively large transaction marks the 16th credit union acquisition of bank assets this year. Predictions suggest that even larger banks will be purchased by credit unions next year. Although this trend reflects the individual decisions of credit unions and their boards, the consequences will affect the industry as a whole. It is time for all of us to better refine those talking points when it comes to explaining why these mergers are occurring, and why they are consistent with the credit union charter.

Guidance Issued on Hemp Banking

The NCUA was not among a group of regulators who issued a joint guidance with FinCEN yesterday detailing BSA obligations for financial institutions that provide services to hemp-related businesses. Most importantly, the guidance emphasizes that hemp banking is now subject to the same SAR reporting requirements as any other type of business. That being said, a well-run compliance program involving hemp growers is much more complicated than your average business.

New York State’s SAFE Act Guidance

Last but not least, on November 24th, an important provision of S2155 took effect. Specifically, section 12 U.S.C. 5117 grants federally registered mortgage loan originators who are seeking state-level licenses or seeking to be qualified in another state temporary authority to act as loan originators. Currently, someone who originates for a federally chartered bank or credit union must be registered with New York State, but does not have to be licensed as a mortgage loan originator. The problem is that when these individuals become employed by mortgage bankers, there can often be a delay of several months before their state-level licensing takes effect. The law now permits individuals licensed in other states and individuals previously employed in federally chartered institutions to obtain a temporary license. New York State has not promulgated formal regulations, but here is a link to a very concise guidance the state has issued on the subject.

December 4, 2019 at 9:18 am Leave a comment

NCUA Wants To Give CU’s Greater Compensation Flexibility

Responding to what it sees as a need to update “outdated and burdensome” regulations, the NCUA on Thursday issued an Advanced Notice of Proposed Rulemaking requesting information on how to update regulations related to how senior executives are compensated. Remember, this is an Advanced Notice of Proposed Rulemaking, meaning it is just the informational stage during which NCUA will gather information which it will use to come out with proposed amendments. It is the latest in a series of proposed amendments the agency has made to update its regulations and provide greater clarity.

The NCUA’s focus is 12 CFR 701.21(c)(8)(iii) which authorizes federal credit unions to pay an incentive or bonus to an employee “based on the credit union’s overall financial performance.” I have not dug in and done independent research yet on this provision. According to NCUA, the language has caused confusion for credit unions to provide appropriate incentives to their executives.

This regulation applies not only to executives but employees as well. For those of you who provide mortgage loans and are looking for greater flexibility regarding sales incentives, keep in mind that whatever you propose also has to comply with the CFPB’s wonderfully nuanced and complicated loan originator compensation rule. The Association will be coming out with a survey on this ANPR and I am curious how much interest it generates.

FinCen Stakes A Claim to Cryptocurrency Oversight

Although it doesn’t directly impact credit unions, it’s worth noting that FinCen took regulatory action against an individual who executed peer-to-peer exchanges of virtual currency without registering as a money service business or complying with Bank Secrecy Act requirements such as filing CTR’s. In announcing the fine, FinCen wanted everyone to know that “this is its first enforcement action against a peer-to-peer virtual currency exchanger and the first instance in which it has penalized an exchanger of virtual currency for failure to file CTRs.” While we are a long way away from a settled regulatory framework when it comes to virtual currencies – after all, there is still a debate about what a virtual currency is in the first place – it’s inevitable that as the industry matures, credit unions will have to incorporate procedures and policies related to virtual currencies into their regulatory frameworks.

Good Work Governor Cuomo

With the caveat that this has nothing to do with credit unions, on Friday my wife and I dropped my kids off at LaGuardia Airport so that they could fly down to North Carolina. For years the Governor has talked about the need to renovate LaGuardia. I didn’t realize how right he was. I’m not exaggerating when I say the place is a dump. The renovation can’t get done quick enough.

Having blown off some steam, have a pleasant day.

April 22, 2019 at 8:45 am Leave a comment

Five Things To Think About On A Monday Morning

Yours truly won’t be blogging tomorrow and there is a bunch of mildly important things I think you should know about, so here it goes.

CIP Exemption Issued By Regulators

Late last week, FinCen joined by the other financial regulators including NCUA issued an executive order exempting financial institutions from having to perform Customer Identification Program (CIP) when they provide loans for businesses entering into premium finance arrangements.

The basic idea is this. Most businesses need property and casualty insurance but many find it easier to spread out the payment for such costs rather than pay a single lump sum premium. When companies enter into agreements with premium finance companies, the finance company advances the cost of the insurance and the company repays for the financing over a set period of time. The regulators agreed that these types of loans are already highly regulated and present a low-risk of money laundering.

First Monday In October Is A Bust

You wouldn’t know it by all the commotion surrounding a certain nomination battle that’s going on but this year’s Supreme Court docket is shaping up to be the lamest – that’s a legal term – in years. I’ve gone over it a few times and I just can’t find anything that will have much of an impact on your credit union. That being said, the court hasn’t decided on all the cases it will review this year so hope springs eternal for legal geeks everywhere.

Equifax Mishaps

With so many talented hackers in so many countries seeking to get so much money from buying and selling our personal identities, I’m occasionally tempted to conclude that there is really nothing anyone can do to prevent data breaches: Then I read up on the post-mortems of so many of these breaches and what I’m reminded of is how sloppy companies still are when it comes to protecting our personal information.

The latest example comes courtesy of British regulators who last week fined Equifax over its data handling process. As explained in this blog, British regulators were particularly flabbergasted by the company’s use of unprotected personal identifiable information in testing new procedures. As explained by the blogger, “Compared to Equifax’s poor information security and patch management practices, which led to the loss of personally identifiable information for at least 145.5 million U.S. consumers, 15.2 million U.K. consumers and 8,000 Canadian consumers, using live data in a testing environment might seem to be a footnote. But it’s not.”

This finding comes on top of this recent report issued by our GAO outlining many basic mistakes made by Equifax by its handling of the data breach.

Remember, these reports are coming out even as companies such as Equifax continue to argue that legally speaking, consumers suffer no real harm from data breaches unless they can actually show that their data was misused. If their argument wins the day, it simply underscores why Congress must do more to hold companies accountable for their inexcusably sloppy handling of consumer identities. Full disclosure: The Association is among a group of plaintiffs suing Equifax over the data breach.

A Level Playing Field for FinTechs?

Speaking of Congressional action, CUNA and NAFCU both weighed in with their thoughts on how FinTechs should be properly regulated as they enter into the financial arena. Here’s how CUNA put it in a letter to a House sub-committee: “A regulatory scheme that ensures consumers receive the same protections and those offering these services are subject to similar regulations and supervision credit unions and banks is important to safeguard consumers and the banking system.” This sentiment is very similar to the concerns that have been expressed by New York credit unions in past discussions with our Government Affairs Committee. No one wants to keep helpful innovation out of the hands of consumers. We just want to provide it to them in a way that protects them to the same extent as they would be protected when they work with credit unions.

Jeffries’ Star Continues to Rise

Back when I used to know something about politics, about two years ago, I used to predict among friends that former Assemblyman turned Congressman from Brooklyn, Hakeem Jeffries would be New York State’s Governor one day. Maybe I had my sights set too low for the Congressman.

He is the subject of this Lexington column in the Economist magazine which argues that Jeffries has been able to position himself as a deal making pragmatist while at the same time attracting large numbers of supporters among the activist class of the Democratic Party. All this suggests that if the gossip about replacing Nancy Pelosi as Speaker if the Dems take the majority in November becomes reality, the Congressman’s name will be on the list of potential replacements.

October 1, 2018 at 9:05 am Leave a comment

4 Things You Need To Know On Wednesday Morning

Image result for things you need to knowA surprisingly busy Wednesday morning, just a few weeks from Christmas. So here are four things you should know:

Reg Relief Bill Advances

More good news on the legislative front. The Senate Banking Committee voted out a bipartisan reg relief bill, which I talked about in this blog. If the bill goes forward, it could really provide some much needed relief from some of the more onerous mortgage lending requirements imposed by the CFPB as well as give credit unions greater flexibility to finance second homes. This is really a bill that is worth pushing for, so follow-up on those calls to action.

WSJ Highlights CU Lobbying Success

I don’t want to say too much about this yet because we’re not quite past the finish line, but yesterday the Wall Street Journal ran this article, highly complementary of the credit union industry’s lobbying efforts to remain tax exempt. It pointed out that in contrast to the last major tax overhaul, this time the industry was so effective that no serious proposal to tax CU’s was put on the table. If you have a Board that wonders if paying for the trades is worth it, you should have them read this article.

NY Credit Union Sues Trump Administration

Lower East Side People’s Federal Credit Union has filed a lawsuit in Federal court in Manhattan seeking to block President Trump from naming Mick Mulvaney as the interim head of the Bureau. In a press release announcing the lawsuit, Linda Levy, CEO of the credit union explained that in contrast to Mulvaney, who has described the CFPB as a “sick joke,” the credit union supports the CFPB as a protector of its members.

FinCEN: Let’s Chat

Sigal P. Mandelker, Treasury Under Secretary for Terrorism and Financial Intelligence laid out a plan on Monday for more briefings between FinCEN and financial institutions to help enhance efforts to further restrict money laundering and terrorist financing. Under this enhanced framework, FinCEN will be holding live briefings throughout the country with law enforcement and financial institutions to give more direct and up-to-date information on emerging threats. The program is the outgrowth of a series of more than a dozen such meetings FinCEN has held over the last couple of years. These are not brown bag lunch invitations open to everyone. Instead, FinCEN will be reaching out to financial institutions to participate based on a variety of factors, including whether they may possess information relevant to a particular topic.

December 6, 2017 at 9:15 am Leave a comment

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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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