Bank Secrecy Act (BSA)

1
Bank Secrecy Act (BSA)

• For Lenders

2
USA Patriot Act

• After September 11th, President Bush signed into
  law the Uniting and Strengthening America by
  Providing Appropriate Tools Required to Intercept
  and Obstruct Terrorism Act
• Provides additional tools to prevent, detect, and
  prosecute international money laundering and the
  financing of terrorism.

3
What is the BSA?

• The Bank Secrecy Act (BSA) requires all financial
  institutions, casinos, and certain other
  businesses to
• Monitor customer behavior
• File reports on transactions that meet certain
  dollar amounts
• Maintain records of certain transactions
• The BSA aids law enforcement and the IRS by
  uncovering criminal activities such as money
  laundering, drug trafficking, tax fraud, and
  possible terrorist financing.

4
The Paper and Information Trail

• The BSA requires financial institutions to
  perform certain reporting and recordkeeping.
  These include
• The Currency Transaction Report (CTR), which
  records cash transactions that exceed 10,000.
• The Suspicious Activity Report (SAR), which
  records any known or suspected federal violation
  of federal law.

5
Office of Foreign Assets Control

• OFAC is part of the US Treasury Dept and enforces
  economic and trade sanctions based on US foreign
  policy and national security goals against
  targeted foreign countries, terrorists, and
  international narcotics traffickers
• Parties subject to the OFAC sanctions are
• Specially Designated Nationals
• Specially Designated Terrorists
• Specially Designated Narcotics Traffickers
• Blocked Persons
• Blocked Vessels
• OFAC laws require banks to identify any
  transactions and property subject to the economic
  sanctions
• Once identified, the asset must be blocked or the
  transaction may be rejected
• Frozen assets may not be released without the
  authorization of OFAC

6
Customer Information Program (CIP)

• Three basic rules
• Verify identity of the customer (may be
  individual or business)
• Maintain records for 5 years after account is
  closed
• Check government lists (OFAC)
• To verify identity, we must obtain five important
  pieces of information prior to opening an
  account
• Name
• Date of birth
• Residential or business street address
• Numbers (US Tax ID or foreign issued alien ID
  card )
• Document (Place of Issuance, Number, Issue
  Expiration Date)
• Notice displayed on each new account and loan
  officer desk explaining our customer
  identification program
• For every new business venture, the CSR completes
  a risk assessment form

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Customer Information Program (CIP)

• The same attention and verifying identification
  must also be given to individuals obtaining
  business loans.
• The following must be obtained depending on the
  type of business
• Employee Identification Number (EIN)
• Corporate resolution
• Fictitious business name statement
• Partnership agreement
• We may process a loan for a borrower that has
  applied for, but has not yet received, an EIN.
  However in such cases, we must obtain a copy of
  the application before booking the loan and
  obtain the EIN within a reasonable period of
  time.
• The Loan Officer is responsible for following up
  to ensure the EIN is received.

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What Is Money Laundering?

• Money Laundering is when illegal money is brought
  into the mainstream circulation.
• Launderers hide the source of these illegal funds
  by making a series of intricate transactions. The
  true source of the money is washed away.

• Step 1 Integration. This is the step where the
  laundered funds are legitimized, using various
  means such as checking accounts opened with
  illegal cash that is then used to draw a check
  and purchase a car.
• Step 2 Placement. This is how the funds are
  first introduced into the financial system. There
  are many different methods of placement.
• Step 3 Layering. This involves moving funds
  into multiple accounts and/or ventures to hide
  activity and business ownership. This is often a
  series of complex transactions designed to shift
  the money, while leaving a difficult or
  impossible trail to follow.

9
Suspicious Activity Report (SAR)

• A Suspicious Activity Report (SAR) must be filed
  on any known or suspected federal violation of
  law. Suspicious activity requires reporting if it
  involves at least 5,000 aggregate, and the
  institution knows or suspects that (for example)
• The funds are derived from illegal activities
• The funds are part of a plan to violate or evade
  any federal law or regulation
• The transaction is designed to evade other
  reporting requirements
• The transaction is not the sort in which the
  particular customer would normally be expected to
  engage, and the institution knows of no
  reasonable explanation for the transaction.

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Other Types of Reportable Activity

• Bribery
• Check Fraud
• Check Kiting
• Computer Intrusion
• Counterfeit Check
• Counterfeit Credit/Debit Card
• Credit/Debit Card Fraud
• Embezzlement

• False Statement
• Loan Fraud
• Misuse of Position
• Mysterious Disappearance
• Wire Transfer Fraud
• Tax Evasion
• Terrorist Financing
• Identity Theft

11
Penalties for Noncompliance

• Failure to comply with the BSA can have serious
  consequences for you and for your institution.

• Civil Penalties
• Your institution and its employees may be levied
  daily fines. A separate violation occurs for each
  day a violation continues. The funds involved are
  subject to government seizure and forfeiture.
• Criminal Penalties
• Your institution and its employees are liable for
  criminal penalties of fines from 250,000 to
  500,000 and imprisonment of 5 years to 10 years.
  The funds involved are subject to government
  seizure and forfeiture.
• Intangible Penalties
• Your institution and its employees may suffer a
  decline in public confidence from highly
  publicized accounts of civil and criminal actions
  taken against your institution. Also, an
  unsatisfactory BSA rating during a federal
  examination may delay or cancel expansion or
  acquisition plans.

12
Seizure and Forfeiture

• Real or personal property traceable to illegal
  drug sales or purchased with laundered money is
  subject to government seizure and forfeiture.
• Occasionally, seized property is collateral for
  bank loans. Therefore, a bank must obtain and
  confirm enough information about its customers to
  protect its loan collateral from loss due to
  government forfeiture.
• Banks should use caution when accepting
  collateral to ensure there is no reason to
  believe the customer or the collateral might be
  involved in any unusual or suspicious activity.
• KNOW YOUR CUSTOMER!
• If you fund a loan with a CD as collateral
  notify the BSA Officer for tracking.

13
Your Responsibility

• The loan process can and has been used to launder
  money and to shelter other illegal activities.
  Lending personnel must be knowledgeable in CIP
  and must be alert to the types of situations
  described below
• Cash collateral used for loan for which purpose
  or source of cash would not be disclosed
• The customers stated purpose of the loan does
  not make economic sense or is inconsistent with
  the borrowers background, nature of business,
  previous statements, or similar businesses.
• CDs purchased with undisclosed source of cash and
  used as loan collateral
• A sudden payment of cash on a loan, especially if
  the loan is delinquent
• Loan payments by third parties.
• A loan request by an offshore company or proceeds
  wired or otherwise transferred offshore
• Although an incident may not be suspicious by
  itself, you may need to refer it to the BSA
  Officer or your immediate supervisor for further
  investigating. The final determination of
  whether a transaction is suspicious also will
  depend on whether the facts, circumstances, and
  your knowledge of the customer provide a
  reasonable explanation for the transaction.

14
LOAN OFFICER SENTENCED TO 15 MONTHS IN FEDERAL
PRISON.

• PHILLIP GRACE, 44, was charged in a three-count
  indictment and convicted of a felony charge of
  disclosing a federal grand jury subpoena with the
  intent to obstruct justice.
• "Bank officials are aware that leaking knowledge
  of a grand jury subpoena is against the law,"
  stated Alice H. Martin, United States Attorney.
  "This significant prison sentence should serve as
  a deterrence to others contemplating an attempt
  to obstruct a grand jury investigation.
• "Disclosing a federal grand jury subpoena is a
  matter that is taken seriously by the FBI,"
  states Carmen Adams, FBI, Birmingham Field
  Division.
• Grace said he was concerned that the bank's more
  than 3 million in loans to the customer could be
  jeopardized by a federal investigation.

15
TAX FRAUD SCHEME SENDS FIVE TO FEDERAL PRISON

• Al Morton, Jr., 37, was sentenced to 72 months in
  prison for his role in an elaborate scheme to
  file false Income Tax Returns.  Morton, along
  with five others were charged in February 2007
  with conspiracy, filing false claims, bank fraud,
  and witness tampering.  In addition to the prison
  term, the Court entered a forfeiture order for
  694,447.
• From January 2002 until May 2002, the listed
  defendants caused the preparation and filing of
  false, fictitious and fraudulent tax returns in
  their own names and in the names of others they
  recruited.  The false tax returns were then filed
  with the IRS, and  submitted to Bank One, a
  federally insured financial institution, for the
  purpose of acquiring Refund Anticipation Loans. 
  The defendants then obtained the proceeds of
  these Refund Anticipation Loans, giving a small
  portion to the individuals they recruited to file
  the fraudulent returns, and divided the remainder
  among themselves.