Posts tagged ‘FinCEN.’

FinCEN’s Bad BSA Idea and Why It Matters to Your Credit Union

Nudged on by congress, FinCEN has announced that it is moving ahead with plans to establish a framework that would effectively allow it to provide preclearance to corporations and financial institutions subject to Bank Secrecy Act oversight. This is a lousy idea that could negatively impact your credit union, here’s why:

No-action letters are generally letters issued by regulators which review a regulated entity’s proposed actions and determine whether or not they would comply with applicable regulations. For example, the CFPB has issued no-action letters detailing how certain financial products can be offered in compliance with federal regulations. Under the anti-money laundering law passed by congress last year FinCEN was ordered to assess whether it should implement a no-action letter process in which it would state whether or not FinCEN or any relevant functional regulator intends to take enforcement action based on the specified activity. Ostensibly, this could create a streamline process for providing regulatory guidance. In fact, it would do just the opposite.

Most importantly, your credit union is subject to BSA compliance oversight not just from FinCEN but from the NCUA and in the case of New York State chartered institutions, New York State’s Department Of Financial Services. A no-action letter issued by FinCEN would have no binding effect on NCUA or, by implication, the actions of your credit union. As FinCEN notes in its report, currently there is not a single example of a no-action letter which is binding on multiple agencies. As a result, in a best case scenario, no-action letters will simply provide potential precedents to banks and credit unions seeking to take different approaches to BSA compliance.

Why is this such a bad thing, Henry? After all, doesn’t FinCEN issue interpretive letters all the time? Because a no-action letter would give a green light to the company that receives its blessing. On a practical level what this process will do is give some entities a BSA compliance advantage over others. For instance, I can already see lawyers for FinTech charters explaining why they need not comply with BSA requirements to the same extent as their brick-and-mortar counterparts.

In short, if FinCEN goes forward and starts issuing no-action letters it will create greater compliance confusion for the vast majority of regulators and regulated entities while providing a get out of jail free card for a relative handful of corporations which are most likely already going to have numerous advantages over traditional credit unions, and banks for that matter.

If congress really wants to lessen the BSA compliance burden it would have to amend the law to clarify that no-action letters are binding on all agencies that share in BSA compliance. Good luck getting that passed. Of course, congress could take an even bigger look at existing law and categorically exempt small to medium-sized financial institutions from many BSA requirements. This makes sense but I’m not holding my breath.

July 14, 2021 at 9:53 am Leave a comment

New York Goes To Pot, What It Means For Your CU

With yesterday’s announcement that the Legislature reached agreement on legalizing the recreational use of marijuana in New York State, it is time for all credit unions to hurry up and wait when it comes to deciding how aggressively they are going to engage in this emerging field.  The hurry up part applies to all credit unions that, within months, will have to adjust HR policies, review BSA frameworks and generally engage their Boards so that everyone is in agreement on how to operate in this brave new world.  The wait part comes from the need to recognize that even as New York State goes forward with its plans, the stubborn fact remains that the sale and distribution of marijuana remains illegal as a matter of federal law, and that credit unions that ignore this reality are putting themselves at risk of serious legal, reputational and operational consequences.

There is no need to take my word for it.  Just the other day, the American Banker reported that Live Life Federal Credit Union was subject to this administrative order for its non-compliance in relation to its marijuana banking practices.  Among the deficiencies cited by NCUA was the credit union’s lack of automated systems to comply with its requirements to monitor red flags regarding Marijuana-Related Businesses as detailed by FinCEN. 

NCUA’s action is a well-timed cautionary tale to any New York credit union that rushes into the space.  No matter how legal marijuana is made on the State level, there are still numerous additional safeguards that must be put in place such as enhanced due diligence requirements and being able to periodically file up to three different types of Suspicious Activity Reports (SARs) on an ongoing basis.  And remember, you are dealing with a highly specialized business for which your credit union will have to have demonstrable expertise.  Last, but not least, certain Federal Reserve Banks have signaled an uneasiness to provide access to the Federal Reserve System to credit unions that engage in banking marijuana.  Clearly, this system needs to clarify where it stands on this issue.

But even with all these legitimate concerns, it is also time for your credit union to hurry up and start preparing for this new reality.  Even if your credit union decides it wants no part of marijuana banking, it will still have to determine its risk tolerance for banking individuals associated with this industry.  For example, if your credit union decides not to provide banking services to Marijuana-Related Businesses, will it extend this prohibition to employees of these businesses who come to the credit union for a mortgage loan? 

Then, of course, there are a multitude of HR issues.  Is your credit union prepared for the employee who claims that she needs to take marijuana during the day because of a medical condition?  And just how hard a line are you going to take against employees who appear to be working under the influence?  Will your stance change if there is no related diminution in their work product?  These are the type of issues that you can thoughtfully consider in the coming months or be forced to confront for the first time when they occur once recreational marijuana is legal.

March 25, 2021 at 8:59 am Leave a comment

What’s Old is New Again – BSA Takes Center Stage

Let’s face it – these are heady days for cyber criminals. Crypto currencies provide an ideal means to facilitate illicit payments, an unprecedented number of people are working from home, the worldwide economic slowdown ensures a steady supply of potential fraudsters, particularly in countries that look the other way at this type of crime, and you have the US government throwing unprecedented amounts of money to consumers in as quick a way as possible. Put this all together and, in my ever so humble opinion, (at least in the short term) your credit union has to dedicate more of its compliance resources to ensure it is taking the steps necessary to detect and react to nefarious cyber activities, i.e. the “red flags” of criminal activity. 

Recently, there has been a sharp increase in the number of advisories of which your credit unions should be aware. With regard to PPP loans, FinCEN recently sent updated guidance reiterating your due diligence requirements and confirming what procedures can be used when assisting individuals applying for “second draw” PPP loans. This guidance is particularly useful for navigating your beneficial owner obligations. Remember that the PPP loan application requires you to identify any owner with a 20 percent stake in an applicant’s business, whereas FinCEN’s beneficial owner requirements kick in for individuals with a 25 percent stake. 

Just yesterday, FinCEN issued this guidance providing examples of how fraudsters are gaming the system to facilitate healthcare fraud. One of the examples it provided involved an individual who set up several shell pharmaceutical companies to get reimbursement for transactions that never took place. It looks like somebody better call Saul (for the uninformed, that is a Breaking Bad reference). 

The Anti-Money Laundering Act of 2020 contained in the National Defense Authorization Act ordered FinCEN to provide guidance to financial institutions that are asked by law enforcement to keep an account open, even though they suspect or know that it is being used to facilitate criminal activities. The statute provides that financial institutions honoring such “keep open requests” shall not be liable for maintaining the account. This guidance, which was issued jointly by all the federal financial regulators, including the NCUA, implements this language. Finally, I want to remind you all of the guidance issued in October related to financial institutions that facilitate ransomware payments. Statistically speaking, there is a very good chance that many of your credit unions will either facilitate a ransomware payment, or be victimized by a ransomware attack. As I explained in this blog from the fall, OFAC is reminding third parties like insurance companies, banks and credit unions that they could find themselves subject to strict liability penalties for facilitating these payments if they are going to individuals on the OFAC list. While yours truly continues to believe that this is a woefully misguided warning, you should all have contingency plans for dealing with a ransomware scenario, and be cognizant of its potential OFAC implications.

February 3, 2021 at 9:26 am Leave a comment

NCUA Releases Annual Meeting Guidance

NCUA yesterday released much needed guidance to Federal credit unions informing them that they had the right to postpone their annual meetings.  NCUA’s clarification is a welcome relief to many credit unions which have been wondering how to both comply with their annual meeting obligations and  state level orders limiting the number of persons who can gather at one space.  In addition, NCUA explained that board members whose terms expire prior to the annual meeting can continue to serve until the rescheduled meeting is held.

In the guidance NCUA also announced that, effective March 16th to March 30th,“all examination related staff are required to be offsite”.  Information will be transmitted through NCUA’s Secure File Transfer Portal.

FinCEN Releases COVID-19 Guidance

Underscoring just how seriously FinCEN takes the reporting responsibilities of financial institutions, it issued this guidance yesterday telling financial institutions to contact FinCEN “as soon as possible” if they have any concerns about reporting delays as a result of the COVID-19 virus.  FinCEN also said to be on the lookout for an increase in scams related to the COVID-19 pandemic.

White House Issues Voluntary Guidance

The White House issued voluntary guidance yesterday which I would strongly suggest making a good faith effort to comply with.  Among the recommendations that caught my eye are ones to not congregate in groups of 10 people or more and to work from home if you can work from home.

On that note, Happy St. Patrick’s Day.  Fortunately, I was able to get a bottle of Jameson before my neighbors hoarded that as well.  Unfortunately, the same cannot be said for toilet paper.  By the way, unless you want to drink a lot, don’t read about yesterday’s stock market.

March 17, 2020 at 9:08 am Leave a comment

Too Little Too Late for Taxi Medallions?

Image result for taxi hailing

Too Little Too Late for Taxi Medallions?

I have a train to catch this morning, but there’s a couple of things I wanted to give you all a heads up on. Yesterday the NYC Council passed legislation that will put a temporary cap on new drivers for Uber and Lyft type services. This is of course good news for those of you either holding or impacted by the price of medallions, which I would suggest is basically every credit union that contributes to the Share Insurance Fund.

It remains to be seen how big of an impact this will have in stabilizing the value of medallions, but at the very least it can only help create a floor. Let’s face it, temporary bans like the one enacted by the city council tend to become permanent.

Limited Beneficial Owner Exemption Extended For 90 days

Speaking of renewals, yesterday FinCEN announced that it was extending to 90 days an exemption from the Beneficial Owner Due Diligence requirements for certain accounts, including certificate of deposits and certain loan accounts that were created before the Beneficial Owner rule took effect on May 11, 2018. Remember, just to be absolutely clear, this is just a limited exemption for certain products.

New York’s House of Cards

If House of Cards were based on a New York Congressman, he would represent the 27th District, which includes a combination of suburban and rural areas outside of Buffalo.

Yesterday, Congressman Chris Collins was indicted on federal charges of insider trading. He has vowed to stay in the race for the heavily Republican District. The 27th District has one of the most colorful histories in New York. Previous Congressmen included Christopher Lee, who resigned after it was discovered that he liked emailing shirtless pictures of himself to people other than his wife.


August 9, 2018 at 9:32 am 1 comment

FINCen Issues Q&A On Beneficial Owner Regulation

My time for posting a blog today is running a little short, courtesy of Albany’s woefully inconsistent  transportation system. For me,  Uber can’t come soon enough.  But I wanted to give you a heads-up on a Q&A guidance issued by FINCEN  yesterday  clarifying  the Customer Due Diligence requirements obligations of financial institutions that open accounts for entities such as corporations  and trusts  with beneficial owners. The rule has taken effect but you have until May 11 , 2018 to comply.

To demystify this regulation it’s important to put it in context. There have been a series of articles in the New York Times reporting on how corporations often act as fronts for shall we say, individuals with questionable backgrounds. Setting  up corporations to open up accounts where   ill-gotten gains can be stored and from which  a Manhattan  penthouse can be purchased is a classic form of money laundering.  After all, public  pensions  only go so far and  any prudent  dictator has to put aside funds for safe keeping in the event of an ill- timed coup. In addition, businesses  can be controlled by persons not  readily  identifiable.

It didn’t get all that much attention in the compliance world but in May FINCen finalized regulations requiring  credit unions and banks to extend account opening customer identification  due diligence procedures to the beneficial owners of legal entities.  The Q & A is intended to further clarify these obligations.

By the way, a beneficial owner is:

“each individual, if any, who, directly or indirectly, owns 25% or more of the equity interests of a legal entity customer (i.e., the ownership prong); and  a single individual with significant responsibility to control, manage, or direct a legal entity customer, including an executive officer or senior manager (e.g., a Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Managing Member, General Partner, President, Vice President, or Treasurer); or any other individual who regularly performs similar functions (i.e., the control prong). This list of positions is illustrative, not exclusive, as there is significant diversity in how legal entities are structured. ”

Hoping your journey to work was better than mine,  your faithful blogger wishes you all a good day.

July 21, 2016 at 8:51 am Leave a comment

Congress Not Regulators Must Address Pot Banking

Congressmen and women continue to confuse the issue surrounding why so many banks and credit unions remain reluctant to open accounts for marijuana businesses, even though the DOJ and FinCEN have both issued guidance explaining the circumstances under which institutions will not be accused of violating the law or regulations if they do. THE SALE, DISTRIBUTION, AND POSSESSION OF POT REMAINS ILLEGAL AS A MATTER OF FEDERAL LAW. Rather than prodding regulators to overlook this fact, they should be working on amending federal law so that it is consistent with the law in the many states that have chosen to legalize pot to varying degrees.

What has me going this morning is a letter sent by Oregon’s Senator Jeff Merkley, Senator Patty Murray (D-WA), Senator Michael Bennet (D-CO) and Senator Ron Wyden (D-OR) urging federal financial regulators, including Debbie Matz and Janet Yellen, “to issue clear guidance for financial institutions serving legal marijuana businesses, making it easier for those businesses to access banking services rather than operating on an all-cash basis.”

To be clear, FinCEN has already issued detailed guidance explaining how financial institutions can service these businesses, and DOJ has explained the circumstances under which it will not prosecute them; but, what neither FinCEN, NCUA nor any other federal regulator can do is amend federal law. Last I checked, only Congress can do that. All regulators can do is explain the circumstances under which they will not enforce the law, a troubling enough proposition without Congressmen further confusing the issues with letters seeking guidance.

This isn’t just the Monday morning rant of a father who just hours ago was stuck on the world’s greatest parking lot, otherwise known as the Long Island Expressway on a holiday weekend, with a seven year old who had to go to the bathroom. Perhaps the legislators should take another look at United State’s District judge R. Brooke Jackson’s decision upholding the right of the Federal Reserve to deny Four Corners Credit Union access to the federal reserve system despite the existing guidance. In short, these guidance documents simply suggest that prosecutors and bank regulators might “look the other way” if financial institutions don’t mind violating the law. A federal court cannot look the other way. I regard the situation as untenable and hope that it will soon be addressed and resolved by Congress. Fourth Corner Credit Union v. Fed. Reserve Bank of Kansas City, No. 15-CV-01633-RBJ, 2016 WL 54129, at *4 (D. Colo. Jan. 5, 2016).

Nevertheless, the Senators note with approval that yet more guidance might be forthcoming. We don’t need more guidance; what we need is federal law that explicitly sanctions activities that states have already permitted. Here is the letter.


March 28, 2016 at 9:13 am 1 comment

The Perfect Blend of Compliance and Politics

Good morning.  Today’s blog contains what I humbly believe is the perfect blend of compliance and a little politics.  Here goes.

FinCEN Issues Further MSB Guidance

Mishandled MSB accounts have resulted in high profile disasters for credit unions.  Consequently, for those of you who continue to have Money Service Business accounts or may open them, take a look at this recent guidance issued by FinCEN.

Money Service Businesses (MSB) are exactly what they are called.  They are basically businesses that specialize in handling money such as check cashers and money transmitters.  Because they are such cash intensive businesses and they provide money services for a wide range of individuals, they present special BSA/AML risks for credit unions and banks that open accounts for them.  One of these challenges is the way larger ones tend to be structured.  There may be a single principal money transmitter but with several agents acting on its behalf.  This is a model you see, for example, with many money transmitters down in New York City.

The guidance released by FinCEN is directed at MSB principals.  It stresses that to establish effective AML policies and procedures, principals must monitor the procedures and practices of their agents.  They simply can’t rely on contract language making their agents responsible for engaging in BSA compliant activities.

Now I know some of the more observant compliance brethren out there are wondering how this applies to them.  After all, as NCUA has expressed in its own MSB guidance, it expects credit unions to manage risks associated with all accounts, “including MSB accounts.  However, credit unions are not responsible for their members’ compliance with BSA and other applicable federal and state laws and regulations.”

Well, this is just my opinion, but the fact that businesses are responsible for their own BSA compliance will be scant consolation for those credit unions that find themselves holding high volume MSB accounts administered by businesses that aren’t complying with basic regulatory requirements.  Depending on the size and complexity of the MSB, I would certainly subject them to greater due diligence before opening their account.  That due diligence should be ongoing and include an assessment of what steps the business is taking to ensure proper agent oversight.

The Better Angels of Our Mercy?

I don’t know if Abraham Lincoln is rolling over in his grave or on the edge of his seat watching the reality TV show called the Republican Primary.  I do know that last night’s results provide some good news for New York Republicans.  The primary is normally an afterthought on the political calendar, but the State’s 96 delegates are now a very tempting target for Republican candidate John Kasich, whose plans of keeping Trump from getting the nomination before the Republican convention are predicated on winning West and East Coast primaries where Republicans are believed to be more responsive to his moderate brand of Conservatism.  It just so happens that April 19 is the same day on which a special election to fill the seat vacated by convicted former Senate Majority Leader Dean Skelos is taking place.  It is safe to assume that a highly contested primary will bring out more Republican votes.

Incidentally, the battle for control of the State Senate took another interesting twist yesterday with the announcement that Mark Panepinto (D-Buffalo) won’t seek re-election.  He won the seat in 2014 in a highly contested race.

March 16, 2016 at 9:01 am Leave a comment

Getting Dopey in New York?

As early as this week, New York is expected to take its next big step toward legalizing the distribution of marijuana for medical purposes. Its Department of Health is expected to announce the five companies that will be responsible for producing and distributing cannabis throughout the State. These five entities will be authorized to establish up to four “dispensing facilities,” meaning that if all goes according to plan, on January 5, 2016, qualified ailing New Yorkers will be able to purchase and use cannabis.

Regardless of whether you think medical marijuana is the greatest wonder drug since penicillin or that legalizing drugs will unleash refer madness across the state, New York is entering into a legal haze, which is unlikely to clear any time in the near future. Most importantly, cannabis remains illegal as a matter of federal law. This has several implications for states such as New York that have legalized marijuana. Most importantly, as I’ve discussed in previous blogs, credit unions are still responsible for filing Suspicious Activity Reports (SARS) on institutions with accounts that engage in the business of legally selling marijuana pursuant to state law. The Department of Justice and FinCEN have issued guidance authorizing credit unions and banks to issue so-called “marijuana limited SAR filings.”

The basic idea is that the Department of Justice and FinCEN will not prosecute certain types of legal marijuana businesses so long as they do not, among other things: distribute marijuana to minors; facilitate distribution of drug money to criminal gangs, facilitate the distribution of marijuana to states where it is not legal; use legal marijuana sales as a pretext to sell illegal drugs; or aid in the growing of marijuana on public land where it poses public safety or environmental risk. Institutions that choose to help legal marijuana dispensaries take on a huge oversight responsibility. They will have to have the ability to monitor these companies on an ongoing basis to make sure that they are complying with the federal government’s criteria. The amount of paper work and staff is enough to prevent all but the largest institutions from aiding these organizations.

Does this mean that New York’s law will not impact your credit union? Not by a long shot. For example, your HR department will have to decide how to deal with the employee who informs you that she uses medical marijuana. In addition, even though there are only a total of 20 dispensaries at this point, many of you may have business accounts with doctors who may become certified prescribers of marijuana. In my opinion, such activities will require your credit union to exercise increased oversight of these accounts.

Now I don’t mean to scare anyone away. New York is implementing one of the most tightly regulated medical marijuana industries in the country. As a result, it should be easier to comply with oversight requirements. However, at the end of the day cannabis remains illegal as a matter of federal law. Until Congress takes a serious look at this issue, there is nothing to stop a future President from ordering the DOJ to prosecute businesses that legally dispense drugs on the state level.

July 20, 2015 at 8:35 am Leave a comment

When Small Credit Unions Take on Big BSA Responsibilities

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.

December 1, 2014 at 8:25 am 1 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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