Regulatory Efficiency and Effectiveness - 2008
January 2008
FinCEN and the Department of Justice announced on January 28 concurrent actions against a money services business headquartered in California. FinCEN assessed a $12 million civil money penalty against Sigue Corporation and Sigue, LLC for violations of the Bank Secrecy Act. Sigue entered into a deferred prosecution agreement with the Department of Justice for failing to maintain an effective anti-money laundering program. FinCEN’s penalty was deemed satisfied by a portion of Sigue’s $15 million payment to the Department of Justice. “Principals of money services businesses must exercise effective oversight and control over the authorization, transactional activity and operations of their agents to ensure compliance with the BSA and prevent money laundering,” FinCEN Director Freis said. “Operations with sound programs minimize the risk of being misused by criminals and unscrupulous or non-compliant agents."
- News release on Penalties Assessed as a Result of Sigue’s Anti-Money Laundering Program Deficiencies
As part of an increased emphasis on the importance of feedback, FinCEN issued guidance on the application of correspondent account rules, in addition to three separate rulings.
- Guidance on the Application of Correspondent Account Rules to the Presentation of Negotiable Instruments Received by a Covered Financial Institution for Payment
- FinCEN Ruling on Reporting of Certain Currency Transactions for Sole Proprietorships and Legal Entities Operating Under a “Doing Business As” (“DBA”) Name
- FinCEN Ruling on Whether a Business that Cashes Checks Payable to Customers to Apply Proceeds to the Repayment of Customers’ Obligations is a Money Services Business
- FinCEN Ruling on Whether a Publicly Traded Company that Cashes its own Checks Issued to Loan Customers is a Money Services Business
February 2008
During a speech to the Florida International Bankers Association, Director Freis further emphasized FinCEN’s commitment to providing feedback to the financial institutions subject to the BSA. “The sound public policy choices made over time relating to our BSA regulatory regime reaffirm the significance of an effective partnership between the government and private sector that Congress intended,” Freis said. “We both have essential roles to play as we work together to fight money laundering, terrorist financing and other illicit activity.”
- Remarks by Director Freis at the 8th Annual FIBA AML Compliance Conference
FinCEN issued the latest edition of The SAR Activity Review – By the Numbers, a feedback product published twice a year as a companion piece to The SAR Activity Review – Trends, Tips & Issues.
- News release on The SAR Activity Review – By the Numbers, Issue 9
Every issue of The SAR Activity Review contains case examples in which Bank Secrecy Act (BSA) data supported law enforcement investigations. Law enforcement officials use BSA records to help investigate a variety of crimes, including tax evasion, narcotics trafficking and identity theft. FinCEN has released an archive of all of the case examples that have been published in the current and previous editions of The SAR Activity Review. The list is organized according to type of BSA form used in the investigation, type of industry involved, and type of violation committed.
- Archive of Law Enforcement Cases Published in the SAR Activity Review
The cases described in the archive demonstrate the usefulness of BSA reports to law enforcement. FinCEN is committed to ensuring that requirements on covered financial industries are efficient in their application, yet remain extremely effective in their service to law enforcement investigators. As the Government Accountability Office (GAO) found in its recent report, Currency Transaction Reports (CTRs) provide unique and reliable information essential to supporting investigations and detecting criminal activity. CTR information contributes to pattern and trend analysis that may be indicative of money laundering and other financial crimes.
- GAO recommendations on Currency Transaction Reporting
March 2008
As part of an increased emphasis on the importance of feedback, FinCEN issued guidance to both the insurance industry and the jewelry industry. Director Freis gave a keynote speech March 10 at the Jewelers Vigilance Committee’s AML Seminar, where he announced the release of guidance to U.S. dealers and retailers in precious metals, stones and jewels. The guidance is intended to clarify the criteria this industry may use when evaluating a foreign supplier.
- Remarks by Director Freis before the Jewelers Vigilance Committee AML Seminar
- Guidance for Dealers, Including Certain Retailers, of Precious Metals, Precious Stones, or Jewels, on Conducting a Risk Assessment of Their Foreign Suppliers
FinCEN’s guidance for insurance companies is intended to clarify their BSA/AML responsibilities.
- Guidance on AML Program and Suspicious Activity Reporting Requirements for Insurance Companies
April 2008
Director Freis addressed members of the insurance industry at the American Council of Life Insurers’ Anti-Money Laundering and Critical Infrastructure Committee on April 2. He discussed BSA/AML issues facing the industry, and announced the release of a new FinCEN report assessing the first year of mandatory suspicious activity filings for the insurance industry.
- Remarks by Director Freis before the American Council of Life Insurers
- Insurance Industry Suspicious Activity Reporting
FinCEN also released another strategic analytical report. On April 3, FinCEN issued an update to its November 2006 mortgage loan fraud assessment, based upon analysis of SARs provided by the financial industry. The previous study examined a statistical sample of SARs reporting mortgage fraud filed between April 1996 and March 2006. The updated study continues the analysis through March 2007.
FinCEN announced April 23 a proposal to simplify significantly the current requirements for depository institutions to exempt their eligible customers from currency transaction reporting. In a Notice of Proposed Rulemaking and request for comments, FinCEN is seeking to amend the BSA regulation allowing depository institutions to exempt certain persons from the requirement to report transactions in currency in excess of $10,000, in accordance with the Government Accountability Office’s (GAO’s) recent recommendations and FinCEN’s independent research on the underlying issues.
- News release on Proposal to Amend Currency Transaction Reporting Exemption Regulations
FinCEN and the Office of the Comptroller of the Currency announced April 28 the assessment of concurrent civil money penalties, each $15 million, against the New York branch of United Bank for Africa, PLC, for violations of the Bank Secrecy Act. Without admitting or denying the allegations, the branch consented to the payment of the civil money penalties, which will be satisfied by a single payment of $15 million to the U.S. Department of the Treasury. "A financial institution that recklessly disregards its obligations under the Bank Secrecy Act and continues to operate without an effective anti-money laundering program, despite repeated warnings and a business focus on areas of recognized high risk, should expect to be penalized,” FinCEN Director Freis said. “The severity of this joint enforcement action is reflective of just such conduct. This is not a case of interpretation of technical issues or about minor lapses in compliance."
- News release on Assessment of Civil Money Penalties Against the New York Branch of the United Bank for Africa
May 2008
On May 1, FinCEN released a report on money laundering methods and trends in the residential real estate industry. The latest in a series of reports based upon analysis of SARs, it is intended to help raise awareness of the vulnerability and assist financial institutions to better recognize risk, and thus provide better information to law enforcement in order to combat criminal activity. FinCEN’s report identifies several transactional typologies and associated illicit activities that may be perpetrated by individuals or groups seeking to launder funds via residential property transactions.
FinCEN also issued both the latest editions of The SAR Activity Review – Trends, Tips & Issues and its companion piece, The SAR Activity Review – By the Numbers.
- News release on The SAR Activity Review – By the Numbers, Issue 10
- The SAR Activity Review, Trends, Tips and Issues – Issue 13
During the semi-annual plenary meeting of the Bank Secrecy Act Advisory Group on May 14, 2008, Director Freis announced the launch of FinCEN’s redesigned website. The enhanced website emphasizes FinCEN’s commitment to providing quality feedback and useful information to both the users and providers of Bank Secrecy Act (BSA) information. Informational content was extensively reorganized and supplemented to provide a more user-friendly, informative, and educational communications tool.
"We have listened to the suggestions and comments from our partners in the financial industry and we have implemented the changes that they have requested to make a better website," said Director Freis. "Efficient, effective, and timely communication is vital to achieving our common mission of protecting the financial system."
June 2008
Risk Scoping Evaluation
Commitment
Secretary Henry M. Paulson, Jr. visited FinCEN on June 22, 2007, to launch the Bank Secrecy Act regulatory efficiency and effectiveness initiative. The first portion of this initiative focused on enhancing the risk-based approach to Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) examination, in keeping with the evolution of our risk-based system, through the development of new tools and guidance.
Our Approach
We reached out to study how different regulatory agencies approach risk scoping, holding meetings with the Federal banking agencies to better understand how they identify risks through the scoping process and direct their examination resources appropriately. We have also looked internationally to see how our foreign counterparts approach the challenges of a risk-based system. This collaborative exchange of information about risk scoping tools and processes presented an understanding of the strengths of various approaches, providing opportunities to identify short-term enhancements with a view towards longer-term possibilities.
Results
This evaluation has identified several ways to enhance the risk-based approach to BSA/AML examination by leveraging opportunities for IT modernization and increased, risk-focused analysis. For example, we evaluated tools and processes that allow examiners to analyze information and patterns in BSA data from a specific institution to help identify areas that may require closer review, and we jointly identified ways to enhance these tools that will foster more effective use. Incorporating this type of information as part of the pre-examination scoping process enables the banking agencies to more accurately identify areas to focus examination resources. In addition, we have identified ways that FinCEN can increase our analytical support to those responsible for ensuring compliance with the BSA by providing products to regulatory partners that provide useful information on macro-level risks.
These results build upon the successes of Federal banking agencies’ and FinCEN’s efforts to ensure a more consistent approach to conducting BSA/AML examinations through the FFIEC BSA/AML Examination Manual. We are working together to provide examiners with additional objective information to aid them in the risk scoping process, with a view towards concentrating both examiner and financial institution resources where risks are greatest, which will help to avoid expenditures by the government and the institutions that are not commensurate with actual risk.
Looking Ahead
Our review of this process has helped confirm the importance of certain key elements that are necessary to implement an effective risk-based approach: high-quality information tools and processes to highlight this information, and BSA/AML examination flexibility that focuses resources on areas of highest risk. In addition, we have identified possible ways that we may be able to extend information gained through this process to the non-bank context. We are committed to striving to continually looking for opportunities to enhance the risk-based approach. This is not a one-time initiative, but rather is a long-term commitment to continuous improvement. We have taken important steps down this road, and we invite a continued dialogue with industry on how we can work together to continue to achieve our common goals.
July 2008
In keeping with its efforts to make BSA filing requirements more secure, efficient, and effective, FinCEN announced its intention to retire the BSA Magnetic Media Filing Program. Current Magnetic Media filers must transition to BSA Electronic Filing (E-Filing) no later than December 31, 2008.
- News Release on Intended Retirement of BSA Magnetic Media Filing Program
August 2008
Supporting its commitment to provide feedback to the financial institutions subject to the reporting and recordkeeping requirements of the BSA, FinCEN issued guidance to the casino and card club industry. This guidance is intended to assist casinos and card clubs with the reporting of suspicious activity, and contains examples of circumstances or "red flags" that may indicate the presence of money laundering, terrorist financing, and related financial crimes.
- Guidance on Recognizing Suspicious Activity - Red Flags for Casinos and Card Clubs
September 2008
FinCEN issued interpretive guidance to clarify whether a person who conducts transactions in currency or other commodities is a money services business, for purposes of complying with the BSA and its implementing regulations.
- Guidance on the Application of the Definition of Money Transmitter to Brokers and Dealers in Currency and Other Commodities
In late September, Director Freis attended the Florida Bankers Association’s Town Hall Meeting in Tampa, Florida, where he gave a keynote address, focused on the connection between fraud and money laundering, and the value of BSA reports.
“We know that no bank executive wants a fraudster in the bank, trying to profit at the expense of the bank or a customer – that’s common sense,” Director Freis said. “And we know that no reputable financial institution wants money laundering taking place within their business, not just because of the reputational risk, but because serving criminals is not part of a solid long-term business strategy. This is why Secretary Paulson has been noted for saying that those who run our nation’s financial institutions feel strongly about protecting the integrity of the financial system and want no part of illegal activity. … I want to emphasize that financial institutions can benefit by leveraging their fraud resources with their AML efforts and starting to take advantage of the significant efficiencies that I see being available through this leverage.”
- Prepared Remarks on the Intersection of Anti-Money Laundering and Anti-Fraud Efforts
October 2008
Speaking at an international seminar on anti-money laundering and the counter-financing of terrorism, Director Freis addressed the issue of SAR sharing, and announced FinCEN’s intention to clarify the confidentiality regulations surrounding the issue.
“…We will soon be taking two steps to clarify the confidentiality of SARs and at the same time permit certain sharing of SARs within a corporate organizational structure to promote greater enterprise-wide risk management,” Director Freis said. “The first step entails issuing a proposed rule to update our regulations on SAR confidentiality. When finalized, these updates will clarify, among other things, the scope of the statutory prohibition against the disclosure by a financial institution or by a government agency of a SAR or any information that would reveal the existence of a SAR. The second step entails proposing guidance to accompany the new rule change. This guidance will clarify that for certain financial institutions, the sharing of a SAR with a domestic affiliate is consistent with the purposes of the BSA (including the confidentially provisions) and will therefore be permitted. … The issues surrounding SAR sharing are challenging. This point has been reiterated by banks and government officials around the world. FinCEN has been engaging in dialogue with some of our largest financial institutions in the United States, and it is clear that this remains a significant issue for which additional guidance is needed.”
- Prepared Remarks on Initiatives for Increased Sharing of AML/CFT Information Domestically and Globally
In a speech before the American Bankers Association / American Bar Association annual Money Laundering Enforcement Conference, Director Freis provided feedback on FinCEN’s authority to assess civil money penalties.
“Effective enforcement is based on the just and consistent application of the rules and enforcement penalties,” Director Freis said. “Misperceptions about these matters will erode the trust and confidence in our financial system that the BSA seeks to protect. In this regard, FinCEN’s general policy is to reserve civil money penalties for the most significant and systemic violations of the BSA. This is a view that I believe the banking industry shares. While lesser BSA infractions should not be ignored, FinCEN has other vehicles to address these deficiencies outside of the context of enforcement. By way of example, FinCEN’s enforcement statistics reflect that FinCEN penalizes financial institutions rarely, and only when appropriate. To illustrate further, FinCEN has assessed three civil money penalties under the BSA this year, and only one involved a bank. In 2007, FinCEN assessed five civil money penalties, two against banks. To put these figures into context, there are tens-of-thousands of financial institutions subject to the BSA, including over 17,000 depository institutions.”
- Prepared Remarks on the Objectives and Conduct of Bank Secrecy Act Enforcement
On October 24, 2008, the Bank Secrecy Advisory Group held its semi-annual plenary meeting. Treasury Secretary Paulson attended, and reminded attendees of the BSAAG’s importance to the security of the financial system. “As representatives of the financial industry, regulatory community, and law enforcement, the advisory group is an important voice in the financial system,” Secretary Paulson said. “We will continue to work as partners to ensure that our financial system is safe, sound, and secure from abuse.”
- Paulson Statement on the BSAAG Plenary
The Secretary of the Treasury was directed by Congress in 1992 to establish the BSAAG to actively solicit advice on the administration of the Bank Secrecy Act. The BSAAG consists of representatives from state and federal regulatory and law enforcement agencies, financial institutions, and trade groups. It is chaired by the director of FinCEN, and BSAAG membership is solicited via public notice in the Federal Register. The BSAAG also co-chairs publication of The SAR Activity Review—Trends, Tips & Issues. At the October Plenary, Director Freis announced the release of the fourteenth issue.
As part of its efforts to make the administration of the BSA more efficient and effective, FinCEN completed a proposal to reorganize regulations under Chapter X of the Code of Federal Regulations (CFR). The proposal would simplify BSA rules and regulations by centralizing them in a new chapter of the CFR, and would streamline the BSA regulations into general and industry-specific parts, ensuring that a financial institution will be able to identify its obligations under the BSA in a more organized and understandable manner. FinCEN’s regulations are currently included in the CFR as Part 103 in Chapter I under “Title 31, Money and Finance: Treasury.” FinCEN is proposing to reorganize and renumber its regulations into a new tenth chapter of Title 31 which would appear as “Title 31 Chapter X – Financial Crimes Enforcement Network.”
- News Release on FinCEN’s Regulatory Simplification Proposal
In another example of its commitment to efficiency and effectiveness, FinCEN withdrew its proposed AML program rules for unregistered investment companies, commodity trading advisors, and investment advisers. The withdrawals of the proposed program rules have been published in the Federal Register. Given the passage of time since these rules were first proposed in 2002 and 2003, FinCEN determined that it will not proceed with BSA requirements for these entities without publishing new proposals and allowing for industry comments. FinCEN will continue to consider whether, and to what extent, it should impose requirements under the BSA on these entities.
- News Release on Withdrawal of AML Rule Proposals for Unregistered Investment Companies, Commodity Trading Advisors, and Investment Advisers
November 2008
As part of its efforts to provide more value in the feedback products created for the financial industry, FinCEN released the 11th issue of theSAR Activity Review - By the Numbers. In the first six months of 2008, the total volume of SARs within the Bank Secrecy Act database increased five percent, compared to the corresponding six-month period in 2007. The first two quarters of 2008 reiterated the continuing trend upward of mortgage loan fraud and identity theft. These two summary characterizations are ranked sixth and ninth by depository institutions, respectively. Similarly, during the same period, reported instances of terrorist financing continued to decline, as they have every year since 2004.
December 2008
In early December, FinCEN announced a final rule simplifying the current requirements for depository institutions to exempt their eligible customers from currency transaction reporting. In finalizing and issuing the rule, FinCEN is amending the BSA regulation that allows depository institutions to exempt certain persons from the requirement to report transactions in currency in excess of $10,000. As the Government Accountability Office highlighted in its February 2008 report, CTRs provide unique and reliable information essential to supporting investigations and detecting criminal activity.
- News Release on Final Rule Amending Currency Transaction Reporting Exemption Regulations
Upholding FinCEN’s commitment to provide feedback to its regulated industries within 18 months of the effective date of new rules or changes to existing regulations, FinCEN released an assessment of CTRs filed by casinos between July 1, 2006 and June 30, 2008. FinCEN reported in its new study that the number of CTR-Cs filed by casinos fell by more than a third after FinCEN reduced reporting requirements on certain categories of transactions that it had determined do not pose a significant risk for money laundering, terrorist financing or tax evasion.
- News Release on FinCEN’s Assessment of CTR-Cs
In direct support of FinCEN’s commitment to working with the IRS, state regulators, and Federal functional regulators to address many issues dealing with MSB oversight and MSBs’ access to banking services, FinCEN announced the release of examination materials for MSBs. The manual provides guidance to officials examining MSBs for compliance with the requirements of the BSA. Several organizations collaborated on this manual to ensure consistency in the application of BSA requirements, including: the IRS, state agencies responsible for MSB regulation, the Money Transmitter Regulators Association (MTRA), the Conference of State Bank Supervisors (CSBS), and FinCEN. The manual aims to enhance BSA examiners’ ability to perform risk-based examinations of MSBs, provide a resource to enhance the consistency of BSA examination procedures, provide a summary of BSA compliance requirements and exam procedures to the MSB industry, and facilitate the efficient allocation of exam resources between federal and state BSA regulators.
- News Release on Manual to Aid Examiners of MSBs