Bank Secrecy Act BSA Examinations

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Bank Secrecy Act (BSA) Examinations
Mitchell Braverman email mitchell.braverman_at_irs.g
ov Telephone [phone]
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IRS BSA Jurisdiction

• Money Services Businesses (MSBs)
• Casinos Tribal and Non-Tribal
• Some Credit Unions
• Entities subject to Section 352 of USA PATRIOT
  Act
• Insurance companies
• Dealers in precious metals, gems, jewels

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Selection Process

• Methods to select BSA cases for examination is
  changing
• Using a more top-down approach such as
• Examine MSB principals
• Examine principal agents

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Selection Process

• Testing a selection process that uses
  statistically valid risk factors
• Working with FinCEN and the States to effectively
  use exchanged MSB information

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Selection Process

• Also leads from
• Published services
• Internet research
• Analysis of Currency and Banking Retrieval System
  (CBRS) information
• Information received during exams competitor
  lists
• IRS Criminal Investigation
• Other Federal law enforcement agencies

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Managing Risk

• The Government seeks to manage risk by
  requiring MSBs to have an Anti-Money Laundering
  (AM)L Program that will help the MSB
• deter
• identify
• report, and
• record activity
• that may indicate money laundering or terrorist
  financing.

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AML Program Requirements for MSBs

• Establish and implement a written, risk-based AML
  program
• Incorporate policies/procedures/internal controls
  reasonably designed to assure BSA compliance
• Designate a compliance officer
• Provide education/training of personnel
• Have independent review to monitor and maintain
  an adequate program

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EXAMINATION FOCUS

• Identify the entitys Anti-Money Laundering (AML)
  risks and develop the examination scope and plan
• Assess effectiveness of the AML program
• Determine whether the AML program elements have
  been effectively implemented
• Assess whether breakdowns in the AML program
  place the institution at risk

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BSA Examination Approach

• Risk analysis is the required approach when
• Starting the exam
• Evaluating the AML compliance program
• Expanding/contracting the scope and depth of the
  exam
• Risk analysis is used to determine the
• Risk of money laundering
• Risk of non-compliance

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EXAMINATION STEPS

• Preplan
• Initial Contact / Appointment
• Set Scope and Depth - Risk Analysis
• Evaluate Program, Policies, Procedures, and
  Internal Control
• Interviews
• Determine Effectiveness of AML Program
• Transactional Testing
• Closing the Examination

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Preplan and Contact

• Analyze Currency and Banking Retrieval System
  (CBRS) records
• Initial contact to schedule appointment
• Request copy of AML Program, Training Program,
  and Independent Audit
• Preliminary evaluation of AML Program Policies,
  procedures, and internal control

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Scope

• The examiner
• Assesses strengths and weaknesses of the AML
  program AND business practices of the MSB
• Assesses how the MSB manages the risk posed by
  the customer base
• Tests for implementation

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Scope

• Since most reports and records are the result of
  a customer initiated action, the scope for the
  BSA exam must consider

• The customer model,
• Any deviations from it, and
• How the AML program manages that risk

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Examiner Risk Analysis Components

• AML Program
• Internal Controls
• Business Practices
• Customers
• Initial Interview
• Agency Contracts
• Business Volume
• Money Services Offered
• Geographic Location

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Examiner Risk Analysis Components

• Significant changes in
• Products and Services
• Senior Management
• Change in Control
• Business Focus
• Growth

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Risk Analysis

• For each BSA service, determine
• Who are the customers?
• Why do they use the service?
• How do they pay for the service?
• What is the average transaction?
• What is the typical monthly volume?

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Interviews

• The foundation of the examination process
• Determine the knowledge level individuals have of
  BSA laws and regulations
• Indicates their ability and intent to adhere to
  their AML program and the BSA requirements.

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Who Should Be Interviewed

• Officers, managers, or employees responsible for
  BSA compliance who
• Handle cash transactions and money transmissions
• File Currency Transaction Reports (CTRs) and
  Suspicious Activity Reports (SARs)
• Review day to day compliance
• Operate or supervise the AML compliance program

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Transactional Testing

• Tests the effectiveness of the AML program and
  determines if there are any weaknesses that
  impact compliance
• Initially includes the most current 3 month
  period
• Done on a sample basis

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Next Steps

• The examiner
• Provides a list of potential violations to the
  MSB
• Advises MSB of program deficiencies
• Solicits a written response from MSB
• Considers additional documents/information
  provided by the MSB

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MSB Circumvents BSA

• Files incomplete CTRs or SARs
• Fails to maintain complete records
• Fails to record specific transactions
• Fails to obtain the required information to
  comply with the recordkeeping requirements
• Fails to file on reportable transactions
• Structures a transaction by breaking one into
  several to circumvent the BSA

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Examination Outcomes
No Violations No Issue
Letter Technical, minor, infrequent,
isolated, or non-substantive Violation
Letter violations Significant BSA
Refer to FinCEN for violation or deficiency
penalty /warning consideration Willful
criminal violation Refer to IRS Criminal
Investigation
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Questions
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Thank you very much