Bank Secrecy Act/ Anti-money Laundering (BSA/AML)
October 22, 2019
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The views that I express in this presentation are strictly my own and do not necessarily represent those of the Federal Reserve Bank of New York or the Federal Reserve System
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Agenda
• Background• International and USA BSA/AML Regulatory Framework• BSA/AML Program Requirements and Examination Processes• Recent Trends and Emerging Issues
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The process of making funds derived from criminal activity appear as though they have no connection with the illicit activity and were generated from legitimate sources.
Money Laundering
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Challenges to Effective AML
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Key AML/CFT International Bodies
Financial Action Task Force(Global AML/CFT standard setter)
Basel Committee on Banking Supervision
(Supervisory coordination)
Egmont Group(Financial Intelligence Unit
coordination)
World Bank and IMF(Development organizations)
Wolfsberg Group(Global banking standards)
Financial Stability Board(AML/CFT coordinating role)
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US BSA/AML Supervision
The mission of the Financial Crimes EnforcementNetwork is to safeguard the financial system from illicituse, combat money laundering, and promote nationalsecurity through the strategic use of financial authoritiesand the collection, analysis, and dissemination offinancial intelligence.
The tax administrator for the US. The role of theInternal Revenue Service is to help the large majorityof compliant taxpayers with the tax law, while ensuringthat the minority who are unwilling to comply pay theirfair share.
The Office of the Comptroller of the Currency charters,regulates, and supervises all national banks andfederal savings associations as well as federalbranches and agencies of foreign banks. Ensures thatnational banks and federal savings associationsoperate in a safe and sound manner, provide fairaccess to financial services, treat customers fairly, andcomply with applicable laws and regulations.
Administers and enforces economic and trade sanctionsbased on US foreign policy and national security goalsagainst targeted foreign countries and regimes, terrorists,international narcotics traffickers, those engaged inactivities related to the proliferation of weapons of massdestruction, and other threats to the national security,foreign policy or economy of the United States.
Under the US Department of Treasury:
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US Supervisory Agencies
Federal Banking Agencies Other Agencies
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Federal Reserve System Oversight Responsibilities
Bank, Financial and
Thrift (Savings and Loan) Holding
Companies
Nonbank subsidiaries of
Holding Companies
Foreign Banking
Organizations with U.S. offices
State Member Banks
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Federal Reserve System – Reserve Banks
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Evolution of US BSA/AML legislation
1970Bank
Secrecy Act – 1st AML
Law
1984Tax Reform Act of 1984-included in
Tax Law
1986Money
Laundering Act of 1986-Criminalized
Money Laundering
1988Anti-Drug
Abuse Act of 1988-
increased penalties
1992Annunzio-
Wylie Money Laundering Act of 1992-Established Safe Harbor
2001USA
PATRIOT Act
2018CDD Final
Rule
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USA PATRIOT Act of 2001
311 Special Measures
312 Enhanced Due
Diligence
313 Restrictions on Shell
Bank Account
314(a & b) Information Sharing
319 Availability of
Recordkeeping Requirements
326 Customer
Identification
351 Safe Harbor
352 Anti-Money
Laundering Program Requirements
355SAR
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Examination Approach
BSA/AML Examination Mandate General Examination Approach
Statutory Mandate: Under 12 USC §1818(s)(2)(A), a review of compliance with BSA is required for all insured depository institutions, as defined by the statute, which includes state member banks, branches and agencies of foreign banking organizations, and Edge and Agreement corporations.
In practical terms – The Federal Reserve, along with other supervisors, is responsible for meeting the statutory mandate for these institutions.
Pre-examination Process: Review bank’s risk profile and define the scope of the examination including areas to conduct transaction testing
Examination:Conduct the examination to evaluate and test the effectiveness of the bank’s AML risk management program and determine compliance with legal and regulatory requirements
Examination Conclusions:Present findings verbally at exit meeting and provide a written examination report to management
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BSA/AML Program Requirements
System of Internal Controls
Independent Testing of
the Program
Designate a Responsible Individual(s)
Training for Appropriate Personnel
CDD Rule
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AML Lifecycle
Risk Assessment
Customer Identification & Due Diligence
Enhanced Due Diligence
Suspicious Activity
Monitoring
Filing of SARs
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BSA Officer, Management Oversight & Governance
Lines of Authority/Empowerment
Appropriate Staffing and Resources
Control Structure
•Culture of Compliance•Board of Director/Compliance Committee Oversight
•BSAO authority and independence•Board ultimately responsible•Program Continuity
•Adequate staffing for risk profile•Comprehensive training to staff and Board•Appropriate MIS to execute program
•Dual controls •Segregation of duties•Controls and Systems for detecting suspicious activity and regulatory reporting
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Internal Controls—Risk Assessment
Identify Risk Categories
• Products, services, customers, types of entities, transactions, jurisdictions
Analyze each category to
assess level of risk
• Factors that affect each categories level of risk:• Transaction value & volumes, delivery channels,
legal restrictions, regulatory environment and requirements, law enforcement concerns, product complexity
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Internal Controls—Customer Due Diligence
KYC
Customer Identification
Program
Customer Due Diligence and
Beneficial Ownership
Enhanced Due Diligence
Customer Due Diligence & Beneficial Ownership Rule (May, 2018)
• Identify and verify the identity of customers;
• Identify and verify the identity of the beneficial owners of companies opening accounts;
• Understand the nature and purpose of customer relationships to develop customer risk profiles; and
• Conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.
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Internal Controls—Suspicious Activity Monitoring
Identification or alert of unusual activity
Managing Alerts & Cases
SAR Decision Making
SAR Completion and Filing
Monitoring and SAR filing on
continuing Activity
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Independent Testing
Provide an overall AML program assessment
Evaluates ability to identify and control high-risk areas
Assesses AML system’s ability to monitor, detect, report suspicious
activity
Reports all findings to the board of directors and senior management
Follows up to ensure corrective action
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Training
Continuous and updated Documented
Tailored and directed to appropriate employees
Customer Contact
Personnel
Operational
staff
Board and Senior
Management
Compliance Officer and
Staff
Internal Auditors
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OFAC - Office of the U.S. Treasury Administers and enforces economic and trade sanctions
based on U.S. foreign policy and national security goals. OFAC Requirements: Block Accounts Reject Transactions
Risk-based OFAC Compliance Program
Office of Foreign Assets Control
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Review Risk Assessment Review Global Policies and Procedures Test Internal Controls Reference data screening & alert disposition Transaction screening & alert disposition Blocked/Rejected reporting
Independent Testing Training OFAC Compliance Officer
OFAC Examination
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Penalties for Non-Compliance
Damage to Reputation
Limitations on Activities
& Bank Applications
Enforcement Actions
Civil Money Penalties
Criminal Penalties
Revocation of Banking
License
RatingDowngrades
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Penalties for Non-Compliance
2002: Fined $1.9 billion for allowing itself to be used to launder a river of drug money flowing out of Mexico and other banking lapses.
2007: Fined $65 million for failure to detect drug-related money transactions laundered through a subsidiary over several years.
2010: Fined $60 million for failure to stop more than $100 million of Colombian and Mexican drug traffickers’ money being laundered through accounts at the bank.
2015: Fined $8.9 billion for violations of U.S. economic sanctions concerning Sudan, Cuba and Iran.
2017: Fined $97 million for willfully failing to maintain an effective anti-money-laundering compliance program at Banamex USA.
2019: Fined $1.1 billion for poor money-laundering controls and breaching sanctions against countries including Iran.
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Cryptocurrencies as money laundering vehicle Fintech/Regtech Advanced Data Analytics/Machine Learning Evolution of Sanctions requirements BSA regulatory reform
Emerging AML Risks & Issues
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Examination Resources
• Primary source of guidance for examiners
• Provides guidance on risks associated with money laundering and terrorist financing
• Contains:• Overview of BSA/AML
compliance program requirements
• BSA/AML risks and risk management expectations
• Industry sound practices• Examination Procedures
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Questions?
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