tag:blogger.com,1999:blog-43457411566147590242024-02-20T16:43:59.653-05:00BSA News ForumBSA News Forum is for Residential Mortgage Lenders and Originators (RMLOs) that are mandated to comply with the Bank Secrecy Act (BSA) guidelines pertaining to the Anti-Money Laundering Program required by the Financial Crimes Enforcement Network (FinCEN).Jonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-4345741156614759024.post-39208938411416954012014-08-13T06:00:00.000-04:002014-08-13T06:00:01.420-04:00Culture of Compliance: FinCEN’s ViewI have been promoting the concept of a Culture of Compliance
(“Compliance Culture”) for some time. Indeed, I have written rather extensively
about it and lectured on the subject. As recently as February 2014, I
published a full length article entitled <a href="http://lenderscompliancegroup.com/20.html">“Creating a Culture of
Compliance.”</a> This article covers most of the need-to-know information to
establish a Compliance Culture.<br />
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Every company has its own culture, of course; but firms
should also recognize the need for maintaining a certain attitude and
commitment to compliance. In my own firm's client relationships, we continually
reinforce the importance of the Compliance Culture, both through our policy and
procedures documents, compliance management system reviews, quality assurance monitoring,
examination readiness, due diligence and audit engagements, and also through
our overall regulatory compliance support. The need to monitor a client’s
dedication to a Culture of Compliance is central to our mission.</div>
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Do federal and state regulatory agencies want their
supervised entities to adopt a Culture of Compliance? Most certainly! Within
minutes of a regulator entering a financial institution’s premises, the
Compliance Culture there presents itself. Even emails sent to regulators
may disclose a company’s Compliance Culture, as signatures that lack protective disclosure may be indicative of compliance defects. Regulators are used to looking at
actions and attitude, by-passing the words and smiling affirmations. </div>
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The most recent example of the regulator’s view comes to us
from the Financial Crimes Enforcement Network (FinCEN). Issued on August 11,
2014, FinCEN published its <a href="http://www.fincen.gov/statutes_regs/guidance/pdf/FIN-2014-A007.pdf">“Advisory
to U.S. Financial Institutions on Promoting a Culture of Compliance”</a>
(“Advisory”).<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_edn1" name="_ednref1" style="mso-endnote-id: edn1;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[i]</span></span></span></span></a>
The Advisory is remarkable for its insights and recommendations. Although
predicated on actualizing BSA/AML requirements, the Advisory may be applied to
any regulatory compliance implementation. </div>
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FinCEN boldly declares at the very top of the Advisory: </div>
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“BSA/AML shortcomings have
triggered recent civil and criminal enforcement actions - FinCEN seeks to
highlight the importance of a strong culture of BSA/AML compliance for senior
management, leadership and owners of all financial institutions subject to
FinCEN’s regulations regardless of size or industry sector.”<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_edn2" name="_ednref2" style="mso-endnote-id: edn2;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[ii]</span></span></span></span></a></div>
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The word “shortcomings” is the operative word in this
preamble. It is precisely in the area of <i style="mso-bidi-font-style: normal;">shortcomings</i>
that a Culture of Compliance may act as a safety net, preemptively catching
potential regulatory violations. As FinCEN states, “regardless of its size and
business model, a financial institution with a poor culture of compliance is
likely to have shortcomings in its BSA/AML program.”<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_edn3" name="_ednref3" style="mso-endnote-id: edn3;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[iii]</span></span></span></span></a>
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For the words “BSA/AML” in the remainder of this article,
substitute any regulatory framework. </div>
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The message is the same!</div>
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<b style="mso-bidi-font-weight: normal;">Components of a Culture of Compliance</b></div>
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FinCEN suggests that a financial institution can strengthen
its BSA/AML Compliance Culture by ensuring that:</div>
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(1) Its <b style="mso-bidi-font-weight: normal;">leadership </b>actively supports and understands compliance efforts; </div>
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(2) Efforts to manage and mitigate
BSA/AML <b style="mso-bidi-font-weight: normal;">deficiencies and risks are not
compromised by revenue interests</b>; </div>
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(3) Relevant <b style="mso-bidi-font-weight: normal;">information from the various departments within the organization is
shared</b> with compliance staff to further BSA/AML efforts; </div>
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(4) The institution devotes <b style="mso-bidi-font-weight: normal;">adequate resources</b> to its compliance
function; </div>
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(5) The <b style="mso-bidi-font-weight: normal;">compliance program is effective</b> by, among other things, ensuring
that it is tested by an independent and competent party; and </div>
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(6) Its leadership and staff
understand <b style="mso-bidi-font-weight: normal;">the purpose of its BSA/AML
efforts and how its reporting is used</b>.<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_edn4" name="_ednref4" style="mso-endnote-id: edn4;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[iv]</span></span></span></span></a>
(My emphases.)</div>
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Let’s take each of the ways, enumerated above, that a preeminent
regulatory agency such as FinCEN understands the components of a Culture of
Compliance.</div>
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<b style="mso-bidi-font-weight: normal;">Leadership Should Be Engaged</b><span style="mso-bidi-font-weight: normal;"><a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_edn5" name="_ednref5" style="mso-endnote-id: edn5;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="mso-bidi-font-weight: normal;"><span style="font-family: "Calibri","sans-serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[v]</span></span></span></span></span></a></span></div>
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FinCEN places the performance of regulatory compliance
requirements at the core of management’s responsibilities. The best way to
understand this core feature is by the term ‘leadership’ – which is like the
“Tone at the Top” concept used by accounting firms for many years.<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_edn6" name="_ednref6" style="mso-endnote-id: edn6;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[vi]</span></span></span></span></a>
Leadership includes the board of directors, senior and executive management,
owners and operators. </div>
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The leaders are “responsible for understanding an
institution’s responsibilities regarding compliance with the BSA and creating a
culture of compliance at that institution.”<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_edn7" name="_ednref7" style="mso-endnote-id: edn7;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[vii]</span></span></span></span></a>
The key to the attitude and commitment of an organization’s leaders is to be <i style="mso-bidi-font-style: normal;">visible</i>, because “such commitment
influences the attitudes of others within the organization.”<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_edn8" name="_ednref8" style="mso-endnote-id: edn8;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[viii]</span></span></span></span></a></div>
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If there is no “demonstrable support” from the leadership
for the compliance program, it will not be effective. An example of <i style="mso-bidi-font-style: normal;">demonstrable support</i> would be where an institution’s
leaders receive periodic BSA/AML training that is “tailored to their roles,”<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_edn9" name="_ednref9" style="mso-endnote-id: edn9;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[ix]</span></span></span></span></a>
which should include an appropriate understanding of BSA/AML obligations and
compliance needs. In this way, the leadership may make informed decisions with
regards to the allocation of resources to the BSA/AML function. So, regarding
BSA/AML, the leaders of an organization should be informed of the state of BSA/AML
compliance within the institution, and, to broaden this point, they should also
be given regular updates of all pertinent matters handled by the compliance
department.</div>
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<b style="mso-bidi-font-weight: normal;">Compliance Should Not Be Compromised By Revenue Interests</b></div>
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It is FinCEN’s view that compliance staff should be “empowered
with sufficient authority and autonomy to implement an institution’s AML
program.”<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_edn10" name="_ednref10" style="mso-endnote-id: edn10;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[x]</span></span></span></span></a>
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When it comes to compliance, don’t cut corners!
Specifically, “an institution’s interest in revenue should not compromise efforts
to effectively manage and mitigate BSA/AML deficiencies and risks.” In
actuality, the BSA/AML compliance function should work independently, in order
to take “take any appropriate actions to address and mitigate any risks that
may arise from an institution’s business line and to file any necessary reports.”<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_edn11" name="_ednref11" style="mso-endnote-id: edn11;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[xi]</span></span></span></span></a>
If compliance staff is compromised by the loss of autonomy, the data provided
to management may be inaccurate or unreliable. Furthermore, removing autonomy
from the compliance department may lead to significant failures in compliance
implementation throughout a company.</div>
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<b style="mso-bidi-font-weight: normal;">Information Should Be Shared Throughout the Organization</b></div>
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It is necessary to share compliance specific information
with the compliance staff. FinCEN mentions several recent enforcement actions where
the subject institution had “relevant information in its possession that was
not made available to BSA/AML compliance staff.”<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_edn12" name="_ednref12" style="mso-endnote-id: edn12;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[xii]</span></span></span></span></a>
In FinCEN’s view, the incidences may have resulted from at least three
failures: (1) a “lack of an appropriate mechanism for sharing information;” (2)
a “lack of appreciation of the significance or relevance of the information to
BSA/AML compliance;” or (3) an “intentional decision to prevent compliance
officers or staff from having access to the information.”<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_edn13" name="_ednref13" style="mso-endnote-id: edn13;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[xiii]</span></span></span></span></a></div>
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There is information in various departments within a financial
institution that may be useful and should be shared with the compliance staff. As
an example, FinCEN notes that:</div>
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“In formation developed by those in
the organization combating and preventing fraud could also assist a financial
institution in complying with its BSA/AML obligations. Similarly, legal departments
should alert compliance departments to subpoenas received issued by government
agencies to trigger reviews of related customers’ risk ratings and account
activity for suspicious transactions. Additionally, in a larger organization
there may be multiple affiliated institutions that could benefit from sharing
of relevant information across the organization.”<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_edn14" name="_ednref14" style="mso-endnote-id: edn14;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[xiv]</span></span></span></span></a></div>
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FinCEN offers a note of caution that applies to BSA/AML, but
really applies also to implementing virtually all regulatory compliance
requirements in a financial institution: </div>
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However the “information is
derived, it should be provided to the compliance staff to assist in conducting
customer <b style="mso-bidi-font-weight: normal;">due diligence</b> and <b style="mso-bidi-font-weight: normal;">monitoring</b> customers for suspicious
activity.”<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_edn15" name="_ednref15" style="mso-endnote-id: edn15;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[xv]</span></span></span></span></a>
(My emphases.) </div>
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Broadly, that is, relevant information - whether the due
diligence involves a customer, affiliate, lender, broker, or a correspondent
relationship, or monitoring the foregoing and third-party service providers,
employees, or any activity controlled by regulations and rules - <i style="mso-bidi-font-style: normal;">due diligence</i> and <i style="mso-bidi-font-style: normal;">monitoring</i> must be conducted through the auspices of the compliance
staff. </div>
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<b style="mso-bidi-font-weight: normal;">Leadership Should Provide Adequate Human and Technological Resources</b></div>
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A required element of any BSA/AML compliance program is the
designation of an individual responsible for coordinating and monitoring
day-to-day compliance with the BSA. Many companies call this individual the BSA
Officer or the AML Officer. As is the case of the AML Officer, who should be
knowledgeable of the BSA guidelines and have sufficient authority to administer
the program, each regulatory compliance requirement makes certain demands on
appropriate compliance implementation by a particular person who accepts this
responsibility, whether called a Compliance Manager or a Compliance Officer or
a VP/Compliance, and so forth. The key is, according to FinCEN, that a
compliance program can only be fully effective if an “institution should devote
appropriate support staff” based on its risk profile.<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_edn16" name="_ednref16" style="mso-endnote-id: edn16;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[xvi]</span></span></span></span></a></div>
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The failure of an institution’s leaders to devote sufficient
staff to the compliance function causes what I have called the “cascade effect”
– a set of incidences, beginning with the first failure, that cascades into
another failure, and thence to other failures. </div>
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Here is FinCEN’s worthwhile observation: </div>
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“Devoting insufficient staff or
other resources to this [compliance] function may result in alerts not being
reasonably designed to capture appropriate risks or being dismissed improperly,
or create a backlog of alerts that may result in the untimely reporting of suspicious
activity.”<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_edn17" name="_ednref17" style="mso-endnote-id: edn17;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[xvii]</span></span></span></span></a></div>
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Appropriate technological resources should also be allocated
to the compliance function. For FinCEN, this means that institutions with
higher risk profiles, including those with substantially higher volumes of
activity, “may need to utilize automated systems for identifying and monitoring
suspicious activity.”<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_edn18" name="_ednref18" style="mso-endnote-id: edn18;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[xviii]</span></span></span></span></a></div>
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<b style="mso-bidi-font-weight: normal;">The Program Should Be Effective and </b></div>
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<b style="mso-bidi-font-weight: normal;">Tested By an Independent and
Competent Party</b></div>
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Obviously, from FinCEN’s point of view, the financial
institution should expect the kind of involvement of the leadership that is “commensurate”
with BSA/AML risk exposure. As intimated above, in the first component,
appropriate leadership leads to an effective compliance management system.</div>
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Indeed, although FinCEN is delegated with concerns relating
to an effective BSA/AML compliance program, its advice regarding testing centers
on the need to include the very same features of all regulatory compliance
management features, such as “a proper ongoing risk assessment, sound
risk-based customer due diligence,”<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_edn19" name="_ednref19" style="mso-endnote-id: edn19;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[xix]</span></span></span></span></a>
appropriate detection and reporting, as well as an independent testing.</div>
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While recognizing that all the components of an effective
compliance program are important,</div>
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FinCEN stresses the independence that any compliance test program
should have established. From the test should flow corrective actions, if
needed. A financial institution’s leadership should ensure that the party
testing the program (whether internal or external) is independent, qualified,
unbiased, and does not have conflicting business interests that may influence
the outcome of the compliance program test. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Our firm provides a written statement that there are no
conflicts of interest preventing us from conducting the engagement for which we
have been retained and, indeed, we include our actual method to resolve any
perceived conflicts of interest during the course of an engagement. Financial
institutions should seek similar provisions in their relationships with
independent, compliance support firms.</div>
<div class="MsoNormal">
<br /></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<b style="mso-bidi-font-weight: normal;">Leadership and Staff Should Understand How Their BSA Reports are Used</b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Ultimately, there needs to be a viable metric, a set of
measurements, guiding compliance decisions and corrective actions. This is the
critical role of reports. Requests for various reports are amongst the very
first set of documents requested by regulators prior to an examination. During
an examination, the absence of key reports reflects poorly on management and
demonstrates the failure of leadership, if not in some cases causing the violation
of certain reporting requirements pursuant to statutory mandates.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
FinCEN has the emphasis on reports exactly right, where it
states:</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="margin-left: .5in;">
“Leadership and staff at all levels
in a financial institution should understand that they are not simply
generating reports for the sake of compliance, but rather recognize the purpose
that BSA reports serve and how the information is used.”<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_edn20" name="_ednref20" style="mso-endnote-id: edn20;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[xx]</span></span></span></span></a></div>
<div class="MsoNormal" style="margin-left: .5in;">
<br /></div>
<div class="MsoNormal">
Reporting, of course, is not unique to BSA/AML. FinCEN
believes that “reporting and the transparency that financial institutions
provide under FinCEN’s regulations result in some of the most important
information available to law enforcement and others safeguarding the nation.”<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_edn21" name="_ednref21" style="mso-endnote-id: edn21;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[xxi]</span></span></span></span></a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Whether reports are used in the fight against serious
threats from terrorist organizations, rogue nations, foreign corruption and,
increasingly, some cyber-related threats, or against transnational criminal
organizations, such as drug trafficking and massive fraud schemes, or reports
are used to inform management regarding the quality of loan performance and
servicing, or provide insights into fair lending initiatives, or determine the
effectiveness of systemic compliance requirements – whatever the case, reports
are central to a viable compliance management system.</div>
<div class="MsoNormal">
<br /></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<b style="mso-bidi-font-weight: normal;">Conclusion</b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Having reviewed the components of a Culture of Compliance
from FinCEN’s vantage point, it is certainly the case that we can expect a
similar understanding from the Consumer Financial Protection Bureau, the
federal agencies and prudential regulators, and state banking departments. Establishing
a Compliance Culture is really not negotiable: regulators will be looking to
see just how seriously management sets the tone at the top and how management
effectuates the appropriate attitude and commitment toward compliance
throughout an organization. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;"><a href="http://lenderscompliancegroup.com/2.html">Jonathan Foxx</a></span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">President & Managing
Director</span></div>
<div class="MsoNormal">
<span style="font-size: 10.0pt;">Lenders Compliance Group</span></div>
<div style="mso-element: endnote-list;">
<br clear="all" />
<hr align="left" size="1" width="33%" />
<div id="edn1" style="mso-element: endnote;">
<div class="MsoEndnoteText">
<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_ednref1" name="_edn1" style="mso-endnote-id: edn1;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[i]</span></span></span></span></a>
<i style="mso-bidi-font-style: normal;">Advisory to U.S. Financial Institutions
on Promoting a Culture of Compliance</i>, FIN-2014-A007, August 11, 2014</div>
</div>
<div id="edn2" style="mso-element: endnote;">
<div class="MsoEndnoteText">
<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_ednref2" name="_edn2" style="mso-endnote-id: edn2;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[ii]</span></span></span></span></a>
Idem.</div>
</div>
<div id="edn3" style="mso-element: endnote;">
<div class="MsoEndnoteText">
<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_ednref3" name="_edn3" style="mso-endnote-id: edn3;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[iii]</span></span></span></span></a>
Idem.</div>
</div>
<div id="edn4" style="mso-element: endnote;">
<div class="MsoEndnoteText">
<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_ednref4" name="_edn4" style="mso-endnote-id: edn4;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[iv]</span></span></span></span></a>
Idem. Exact text.</div>
</div>
<div id="edn5" style="mso-element: endnote;">
<div class="MsoEndnoteText">
<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_ednref5" name="_edn5" style="mso-endnote-id: edn5;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[v]</span></span></span></span></a>
Section headings of the components in a Culture of Compliance will be those
given in the Advisory.</div>
</div>
<div id="edn6" style="mso-element: endnote;">
<div class="MsoEndnoteText">
<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_ednref6" name="_edn6" style="mso-endnote-id: edn6;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[vi]</span></span></span></span></a>
The concept is also rooted in the Sarbanes–Oxley Act of 2002, where it refers
to internal financial controls.</div>
</div>
<div id="edn7" style="mso-element: endnote;">
<div class="MsoEndnoteText">
<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_ednref7" name="_edn7" style="mso-endnote-id: edn7;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[vii]</span></span></span></span></a>
Op. cit. 1, p 2</div>
</div>
<div id="edn8" style="mso-element: endnote;">
<div class="MsoEndnoteText">
<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_ednref8" name="_edn8" style="mso-endnote-id: edn8;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[viii]</span></span></span></span></a>
Ibid.</div>
</div>
<div id="edn9" style="mso-element: endnote;">
<div class="MsoEndnoteText">
<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_ednref9" name="_edn9" style="mso-endnote-id: edn9;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[ix]</span></span></span></span></a>
Ibid.</div>
</div>
<div id="edn10" style="mso-element: endnote;">
<div class="MsoEndnoteText">
<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_ednref10" name="_edn10" style="mso-endnote-id: edn10;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[x]</span></span></span></span></a>
Ibid.</div>
</div>
<div id="edn11" style="mso-element: endnote;">
<div class="MsoEndnoteText">
<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_ednref11" name="_edn11" style="mso-endnote-id: edn11;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[xi]</span></span></span></span></a>
Ibid.</div>
</div>
<div id="edn12" style="mso-element: endnote;">
<div class="MsoEndnoteText">
<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_ednref12" name="_edn12" style="mso-endnote-id: edn12;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[xii]</span></span></span></span></a>
Op. cit. 1, p 3</div>
</div>
<div id="edn13" style="mso-element: endnote;">
<div class="MsoEndnoteText">
<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_ednref13" name="_edn13" style="mso-endnote-id: edn13;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[xiii]</span></span></span></span></a>
Ibid.</div>
</div>
<div id="edn14" style="mso-element: endnote;">
<div class="MsoEndnoteText">
<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_ednref14" name="_edn14" style="mso-endnote-id: edn14;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[xiv]</span></span></span></span></a>
Ibid.</div>
</div>
<div id="edn15" style="mso-element: endnote;">
<div class="MsoEndnoteText">
<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_ednref15" name="_edn15" style="mso-endnote-id: edn15;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[xv]</span></span></span></span></a>
Ibid.</div>
</div>
<div id="edn16" style="mso-element: endnote;">
<div class="MsoEndnoteText">
<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_ednref16" name="_edn16" style="mso-endnote-id: edn16;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[xvi]</span></span></span></span></a>
Ibid.</div>
</div>
<div id="edn17" style="mso-element: endnote;">
<div class="MsoEndnoteText">
<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_ednref17" name="_edn17" style="mso-endnote-id: edn17;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[xvii]</span></span></span></span></a>
Op. cit. 1, p 4</div>
</div>
<div id="edn18" style="mso-element: endnote;">
<div class="MsoEndnoteText">
<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_ednref18" name="_edn18" style="mso-endnote-id: edn18;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[xviii]</span></span></span></span></a>
Ibid.</div>
</div>
<div id="edn19" style="mso-element: endnote;">
<div class="MsoEndnoteText">
<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_ednref19" name="_edn19" style="mso-endnote-id: edn19;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[xix]</span></span></span></span></a>
Ibid.</div>
</div>
<div id="edn20" style="mso-element: endnote;">
<div class="MsoEndnoteText">
<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_ednref20" name="_edn20" style="mso-endnote-id: edn20;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[xx]</span></span></span></span></a>
Op. cit. 1, p 5</div>
</div>
<div id="edn21" style="mso-element: endnote;">
<div class="MsoEndnoteText">
<a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_ednref21" name="_edn21" style="mso-endnote-id: edn21;" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote;"><span class="MsoEndnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[xxi]</span></span></span></span></a>
Ibid.</div>
</div>
</div>
Jonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.comtag:blogger.com,1999:blog-4345741156614759024.post-85868994454789519352014-07-24T12:09:00.001-04:002014-07-24T13:41:49.160-04:00Bitcoins and SAR Narratives<!--[if !mso]>
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<span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"></span><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"><span style="letter-spacing: .05pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">You probably know about
Bitcoin, unless you have been living in total seclusion for the last few
years. The big controversy usually centers on determining if it is legal
tender. But imagine if you are confronted with a transaction involving Bitcoin.
Do you file a Suspicious Activity Report (“SAR”)?</span> </span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span><span style="color: black; letter-spacing: -.15pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span><span style="letter-spacing: .05pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"></span></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other;">
<br /></div>
<div class="MsoNormal" style="line-height: 16pt; text-align: justify; vertical-align: baseline;">
<span style="letter-spacing: .05pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">It so happens that the
Financial Crimes Enforcement Network (“FinCEN”) has been giving that very
concern laser-like attention! In July 2014’s “SAR Stats,” FinCEN observed that
the</span><span style="letter-spacing: .15pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> “</span><span style="letter-spacing: .05pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">rapid</span><span style="letter-spacing: .15pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span><span style="letter-spacing: .05pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">adoption</span><span style="letter-spacing: .15pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span><span style="letter-spacing: .05pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">and</span><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> price fluctuation of Bitcoin”
has put <i style="mso-bidi-font-style: normal;">convertible virtual currencies</i>
in the spotlight over the past year.</span><span style="color: black; font-family: ""sans-serif"","serif"; font-size: 7.5pt; mso-fareast-font-family: "Palatino Linotype";">[1]</span><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> The same attributes of
virtual currencies that attract lawful users, such as the capacity for
anonymity as well as their speed and global reach, attract criminal actors
engaged in illicit financing. FinCEN is observing a rise in the number of SARs
flagging virtual currencies as a component of suspicious activity. Bitcoin is
considered one of the “emerging payment methods.” Consequently, it is important
to understand virtual currencies in order to properly complete the SAR
Narrative. </span><span style="color: black; letter-spacing: -.15pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"></span></div>
<div class="MsoNormal" style="line-height: 16.0pt; mso-line-height-rule: exactly; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other; vertical-align: baseline;">
<br /></div>
<div class="MsoNormal" style="line-height: 16.0pt; mso-line-height-rule: exactly; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other; vertical-align: baseline;">
<span style="color: black; letter-spacing: -.15pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">So let’s define
Bitcoin.</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span><span style="color: black; letter-spacing: -.15pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span></div>
<div class="MsoNormal" style="line-height: 16.0pt; mso-line-height-rule: exactly; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other; vertical-align: baseline;">
<br /></div>
<div class="MsoNormal" style="line-height: 16.0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other; vertical-align: baseline;">
<span style="color: black; letter-spacing: -.15pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">Bitcoin is
a type of virtual currency. It is also known as a crypto-currency or a
math-based currency or digital currency. A virtual currency is considered
“decentralized” because it allows users to conduct transactions peer-to-peer
without a central administrator. It is a software-based payment system
described by one Satoshi Nakamoto in 2008,</span><span style="color: black; font-family: ""sans-serif"","serif"; font-size: 7.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Palatino Linotype";">[2]</span><span style="color: black; letter-spacing: -.15pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> and introduced as open-source software in 2009.
Payments are recorded in a “public ledger” using its own unit of account, which
naturally is also called Bitcoin. Payments work peer-to-peer without a central
repository or single administrator - which has led the US Treasury to call
Bitcoin a “decentralized virtual currency.”</span><a href="https://www.blogger.com/null" name="_ednref3"></a><a href="https://www.blogger.com/blogger.g?blogID=4345741156614759024#_edn3" title=""><span style="mso-bookmark: _ednref3;"><span style="color: black; font-family: ""sans-serif"","serif"; font-size: 7.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Palatino Linotype";">[3]</span></span><span style="mso-bookmark: _ednref3;"></span></a><span style="mso-bookmark: _ednref3;"></span><span style="color: black; letter-spacing: -.15pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span><span style="color: black; letter-spacing: -.15pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span></div>
<div class="MsoNormal" style="line-height: 16.0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other; vertical-align: baseline;">
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<div class="MsoNormal" style="line-height: 16.0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other; vertical-align: baseline;">
<span style="color: black; letter-spacing: -.15pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">In keeping
with the general architecture of the Internet, transactions and new currency
issuances are conducted without a central administrator or trusted third party.
Instead, as an open-source software, its protocol links users into a network
that: (1) secures the network from attack; (2) broadcasts transactions; (3)
verifies and settles transactions; (4) issues new currency; and (5) publishes
new transactions to a shared, “distributed ledger of all transactions” called
the “block chain.”</span><span style="color: black; font-family: ""sans-serif"","serif"; font-size: 7.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Palatino Linotype";">[4]</span><span style="color: black; letter-spacing: -.15pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> The rate
of coin creation, the total Bitcoin to be created (say, 21 million), and other
variables (viz., network difficulty adjustments), are also in the software
protocol. Other crypto-currencies may differ on the basis of these and other
variables.</span><span style="color: black; font-family: ""sans-serif"","serif"; font-size: 7.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Palatino Linotype";">[5]</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span><span style="color: black; letter-spacing: -.15pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span></div>
<div class="MsoNormal" style="line-height: 16.0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other; vertical-align: baseline;">
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<div class="MsoNormal" style="line-height: 16.0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other; vertical-align: baseline;">
<span style="color: black; letter-spacing: -.15pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">Besides
“mining,” Bitcoins can be obtained in exchange for fiat money, products, and
services. Users send and receive Bitcoins electronically for an optional
transaction fee using wallet software on a personal computer, mobile device, or
a web application.</span><span style="color: black; font-family: ""sans-serif"","serif"; font-size: 7.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">[6]</span><span style="color: black; letter-spacing: -.15pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> Mining is
the maintaining of the block chain, and those who do so are rewarded with newly
created Bitcoins and transaction fees. Miners may be located anywhere in the
world; they process payments by verifying each transaction as valid and adding
it to the block chain.</span><span style="color: black; font-family: ""sans-serif"","serif"; font-size: 7.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">[7]</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span>
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<br /></div>
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<b style="mso-bidi-font-weight: normal;"><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: Garamond; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin; text-transform: uppercase;">FinCEN’s
view of SAR data and Bitcoin transactions</span></b><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<br /></div>
<div class="MsoNormal" style="line-height: 16.0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other; vertical-align: baseline;">
<span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">Financial institutions,
including, but not limited to, Virtual Currency Exchangers, other Money
Transmitters, other types of Money Services Businesses, and Depository Institutions
may all be involved in the chain of transactions making up the lifecycle of a
user’s purchase, use and sale of Bitcoin for currency of legal tender.</span><span style="color: black; font-family: ""sans-serif"","serif"; font-size: 7.5pt; mso-fareast-font-family: "Palatino Linotype";">[8]</span><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">
FinCEN regards SAR data “crucial in assessing transactions involving Bitcoin or
other virtual currencies.”</span><span style="color: black; font-family: ""sans-serif"","serif"; font-size: 7.5pt; mso-fareast-font-family: "Palatino Linotype";">[9]</span><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> Indeed, any financial
institution that is required to file a SAR and accepts transactions in Bitcoin
should be giving consideration not only to the SAR filing mandates but also
sharing information relating to such virtual currency transactions. FinCEN
encourages the use of information sharing under 314(b) in this context.</span><span style="color: black; font-family: ""sans-serif"","serif"; font-size: 7.5pt; mso-fareast-font-family: "Palatino Linotype";">[10]</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span></div>
<div class="MsoNormal" style="line-height: 16.0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other; vertical-align: baseline;">
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<div class="MsoNormal" style="line-height: 16.0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other; vertical-align: baseline;">
<span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">Bitcoin has seen its share of
black market activity. There has been increasing FinCEN and law enforcement
scrutiny regarding the use of Bitcoin for illegal activities.</span><span style="color: black; font-family: ""sans-serif"","serif"; font-size: 7.5pt; mso-fareast-font-family: "Palatino Linotype";">[11]</span><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> In
October 2013 the FBI shut down the “Silk Road”, allegedly an online black
market, and seized 144,000 Bitcoins worth $28.5 million at the time.</span><span style="color: black; font-family: ""sans-serif"","serif"; font-size: 7.5pt; mso-fareast-font-family: "Palatino Linotype";">[12]</span><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">
Although the United States is still considered “Bitcoin-friendly” compared to
other governments, in China buying Bitcoins with Yuan is subject to
restrictions, and Bitcoin exchanges are not allowed to hold bank accounts.</span><span style="color: black; font-family: ""sans-serif"","serif"; font-size: 7.5pt; mso-fareast-font-family: "Palatino Linotype";">[13]</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span></div>
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<div class="MsoNormal" style="line-height: 16.0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other; vertical-align: baseline;">
<span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">Different financial institutions
are more likely to see different elements of the same suspicious activity due to
their participation in and perspective on the transaction chain. </span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span></div>
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<div class="MsoNormal" style="line-height: 16.0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other; vertical-align: baseline;">
<span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">According to FinCEN, while
Depository Institutions do not currently interact directly with the Bitcoin
economy (i.e., accepting deposits in Bitcoin, conducting transactions in
Bitcoin, and so forth), they may see cash, ACH, or Wire and Funds Transfer
deposits and withdrawals associated with the following entities, as outlined in
the SAR Stats.</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span><b style="mso-bidi-font-weight: normal;"><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span></b><br />
<a name='more'></a></div>
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<b style="mso-bidi-font-weight: normal;"><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">Users</span></b><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span>
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<div class="MsoNormal" style="line-height: 16.0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other; vertical-align: baseline;">
<span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">FinCEN claims that information on
users of crypto-currency - even when their participation in the transaction is
not considered suspicious - is very useful for the analysis of the narrative,
and may be supplemented with the ACH or wire data related to transactions
conducted to or from known virtual currency exchangers. Some of these users may
be engaged in illicit marketplace activity that is indicated in other
corroborating data.</span><span style="color: black; font-family: ""sans-serif"","serif"; font-size: 7.5pt; mso-fareast-font-family: "Palatino Linotype";">[14]</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span><b style="mso-bidi-font-weight: normal;"><span style="color: black; letter-spacing: -.15pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span></b></div>
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<b style="mso-bidi-font-weight: normal;"><span style="color: black; letter-spacing: -.15pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">Speculators</span></b><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span>
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<div class="MsoNormal" style="line-height: 16.0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other; vertical-align: baseline;">
<span style="color: black; letter-spacing: -.15pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">Depository
institutions may also see user or entity activity that is associated with
speculative activity. The example given by FinCEN is where, “following a rapid
rise in the relative value of a crypto-currency to the dollar, an institution
may see high value deposits originating from foreign or domestic virtual
currency exchangers.”</span><span style="color: black; font-family: ""sans-serif"","serif"; font-size: 7.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Palatino Linotype";">[15]</span><span style="color: black; letter-spacing: -.15pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> Although
speculation in a volatile asset is not a criminal activity, “speculation can
share a transaction footprint with other activities that might be suspicious
(such as activity associated with High Yield Investment Programs (HYIP), or
outright criminal, such as Ponzi Schemes involving Bitcoin.”</span><span style="color: black; font-family: ""sans-serif"","serif"; font-size: 7.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Palatino Linotype";">[16]</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span><b style="mso-bidi-font-weight: normal;"><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span></b></div>
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<b style="mso-bidi-font-weight: normal;"><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">Dealers
</span></b><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span>
</div>
<div class="MsoNormal" style="line-height: 16.0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other; vertical-align: baseline;">
<span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">Depository institutions may also
observe variable cash deposits into bank branches in many different states
followed by either an ACH or wire to known virtual currency exchangers. FinCEN
believes that these may denote individuals or entities acting as virtual
currency dealers that may be acting as unregistered MSBs.</span><span style="color: black; font-family: ""sans-serif"","serif"; font-size: 7.5pt; mso-fareast-font-family: "Palatino Linotype";">[17]</span><b style="mso-bidi-font-weight: normal;"><span style="color: black; letter-spacing: -.1pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span></b><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span><b style="mso-bidi-font-weight: normal;"><span style="color: black; letter-spacing: -.1pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span></b></div>
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<b style="mso-bidi-font-weight: normal;"><span style="color: black; letter-spacing: -.1pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">Correspondent
Banks</span></b><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span>
</div>
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<span style="color: black; letter-spacing: -.1pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">FinCEN
maintains that Correspondent Banks have a “unique vantage point” because they
are able to see aggregate fund transfers to and from foreign-based virtual
currency exchangers. According to FinCEN, “information in this data may be
related to exchanger account ownership and high-value transactions from other
businesses, dealers, individuals, and both domestic and foreign entities.”</span><span style="color: black; font-family: ""sans-serif"","serif"; font-size: 7.5pt; letter-spacing: -.1pt; mso-fareast-font-family: "Palatino Linotype";">[18]</span><b style="mso-bidi-font-weight: normal;"><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span></b><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span><b style="mso-bidi-font-weight: normal;"><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span></b></div>
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<div class="MsoNormal" style="line-height: 16.0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other; vertical-align: baseline;">
<b style="mso-bidi-font-weight: normal;"><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">Money Transmitters, Other MSBs,
and Funding Intermediaries</span></b><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span>
</div>
<div class="MsoNormal" style="line-height: 16.0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other; vertical-align: baseline;">
<span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">These entities also have a unique
vantage point on transactions associated with dealers and their customers
(viz., domestic and international). Dealers may accept a wide variety of
payment mechanisms in exchange for Bitcoin (and other virtual currencies).
These “payment mechanisms,” acting through different funding intermediaries in
a dealer to customer transaction, may be able to identify customers and the
dealers of crypto-currency in and outside the United States.</span><span style="color: black; font-family: ""sans-serif"","serif"; font-size: 7.5pt; mso-fareast-font-family: "Palatino Linotype";">[19]</span><b style="mso-bidi-font-weight: normal;"><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span></b><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span><b style="mso-bidi-font-weight: normal;"><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span></b></div>
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<div class="MsoNormal" style="line-height: 16.0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other; vertical-align: baseline;">
<b style="mso-bidi-font-weight: normal;"><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">Hacker, Identity Fraud, and
Account Takeover</span></b><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span>
</div>
<div class="MsoNormal" style="line-height: 16.0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other; vertical-align: baseline;">
<span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">Virtual currencies may be used as
part of schemes to layer funds or obfuscate financial trails associated with
stolen funds from account takeovers. FinCEN states that “MSBs may be uniquely
placed to see the funds originating from a compromised bank account destined
for a virtual currency exchanger, other MSB, to other compromised accounts,”
such as MSBs or other financial institutions or for the purchase of virtual
currency.</span><span style="color: black; font-family: ""sans-serif"","serif"; font-size: 7.5pt; mso-fareast-font-family: "Palatino Linotype";">[20]</span><b style="mso-bidi-font-weight: normal;"><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span></b><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span><b style="mso-bidi-font-weight: normal;"><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span></b></div>
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<div class="MsoNormal" style="line-height: 16.0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other; vertical-align: baseline;">
<b style="mso-bidi-font-weight: normal;"><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">Virtual Currency Exchangers</span></b><span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span>
</div>
<div class="MsoNormal" style="line-height: 16.0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other; vertical-align: baseline;">
<span style="color: black; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Palatino Linotype"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">Virtual Currency Exchangers and
other virtual currency entities may have a unique view of the activities of
their users and counterparties as they enter and exit the virtual currency economy
and conduct transactions within that economy. FinCEN’s example is where
“exchangers may know when users send Bitcoin to other users who are customers
of that same exchange or may be able to compare Bitcoin addresses associated
with illicit activity against the activity of addresses they have issued to
their customers.”</span><span style="color: black; font-family: ""sans-serif"","serif"; font-size: 7.5pt; mso-fareast-font-family: "Palatino Linotype";">[21]</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span><b style="mso-bidi-font-weight: normal;"><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin; text-transform: uppercase;"> </span></b></div>
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<b style="mso-bidi-font-weight: normal;"><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin; text-transform: uppercase;">Is bitcoin legit?</span></b><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span></div>
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<br /></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other;">
<span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">A Bitcoin documentary film, called “The Rise
and Rise of Bitcoin” made its debut at the Tribeca Film Festival in New York on
April 23, 2014. The film chronicles the Bitcoin's origins to its explosive
growth in 2013.</span><span style="font-family: ""sans-serif"","serif"; font-size: 7.5pt; mso-fareast-font-family: "Times New Roman";">[22]</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span></div>
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<br /></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other;">
<span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">In the 2014 Fall semester, undergraduate
students at the Massachusetts Institute of Technology will be receiving $100 in
Bitcoins "to better understand this emerging technology". A student
had the idea of a Bitcoin Club and raised more than half a million dollars from
a high frequency trader.</span><span style="font-family: ""sans-serif"","serif"; font-size: 7.5pt; mso-fareast-font-family: "Times New Roman";">[23]</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span></div>
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<br /></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other;">
<span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">Some US political candidates, including New
York City Democratic Congressional candidate Jeff Kurzon, have said they would
accept campaign donations in Bitcoin.</span><span style="font-family: ""sans-serif"","serif"; font-size: 7.5pt; mso-fareast-font-family: "Times New Roman";">[24]</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span></div>
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<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: widow-orphan; text-align: justify; text-autospace: ideograph-numeric ideograph-other;">
<span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">Is the Bitcoin legit? You decide!</span></div>
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<span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span>
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<span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";">
</span><br />
<hr align="left" size="1" width="33%" />
<span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";">
</span></div>
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<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[1]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> SAR Stats, Technical Bulletin, July 2014,
Financial Crimes Enforcement Network</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
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<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[2]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> <i style="mso-bidi-font-style: normal;">Quantitative
Analysis of the Full Bitcoin Transaction Graph</i>, Dorit, Ron and Adi Shamir
(2012), Cryptology ePrint Archive. Also see <i style="mso-bidi-font-style: normal;">Bitcoin:
A Peer-to-Peer Electronic Cash System</i>, </span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"><a href="http://www.bitcoin.org/"><span style="color: blue; font-family: "Calibri","sans-serif"; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">www.bitcoin.org</span></a></span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">, October 2008. </span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[3]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> <i style="mso-bidi-font-style: normal;">Statement
of Jennifer Shasky Calvery, Director Financial Crimes Enforcement Network
United States Department of the Treasury Before the United States Senate
Committee on Banking, Housing, and Urban Affairs Subcommittee on National
Security and International Trade and Finance Subcommittee on Economic Policy</i>,
Financial Crimes Enforcement Network, November 19, 2013</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[4]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> See: </span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"><a href="https://blockchain.info/"><span style="color: blue; font-family: "Calibri","sans-serif"; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">https://blockchain.info</span></a></span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[5]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> Op. cit. 1, p 15</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[6]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> <i style="mso-bidi-font-style: normal;">How do
I get Bitcoins? (For Beginners)</i>, The Bitcoin Bulletin, March 11, 2011</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[7]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> Source: Wikipedia</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[8]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> Op. cit. 1, p 15</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[9]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> Ibid</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[10]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> USA PATRIOT Act, Section 314(b). In general,
Section 314(b) permits financial institutions, upon providing notice to the
United States Department of the Treasury, to share information with one another
in order to identify and report to the federal government activities that may
involve money laundering or terrorist activity.</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[11]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> Tracy, Ryan, <i style="mso-bidi-font-style: normal;">Bitcoin Comes Under Senate Scrutiny</i>, November 5, 2013, The Wall
Street Journal</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[12]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> Greenberg, Andy, <i style="mso-bidi-font-style: normal;">FBI Says It's Seized $28.5 Million In Bitcoins From Ross Ulbricht,
Alleged Owner Of Silk Road</i>, October 23, 2013, blog, Forbes.com</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[13]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> Peterson, Andrea, <i style="mso-bidi-font-style: normal;">This map shows which countries are friendly to Bitcoin</i>, January 27,
2014, The Switch, The Washington Post</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[14]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> Op. cit. 1, p 15</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[15]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> Op. cit. 1, p 16</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[16]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> Ibid</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[17]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> Ibid</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[18]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> Ibid</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[19]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> Ibid</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[20]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> Ibid</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[21]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> Ibid</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[22]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"><a href="http://newsbtc.com/2014/03/17/bitcoin-documentary-film-rise-rise-bitcoin-debut-tribeca-film-festival"><span style="color: blue; font-family: "Calibri","sans-serif"; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">http://newsbtc.com/2014/03/17/bitcoin-documentary-film-rise-rise-bitcoin-debut-tribeca-film-festival</span></a></span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> </span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[23]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> Hern, Alex, <i style="mso-bidi-font-style: normal;">MIT students to get $100 worth of bitcoin from Wall Street donor</i>,
April 30, 2014, The Guardian</span><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";"></span></div>
<div class="MsoNormal" style="mso-pagination: widow-orphan; text-autospace: ideograph-numeric ideograph-other;">
<span style="font-size: 10.0pt; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;">[24]</span><span style="mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin;"> Smith IV, Jack, <i style="mso-bidi-font-style: normal;">NY Congressio</i></span><i style="mso-bidi-font-style: normal;"><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";">nal
Candidate Jeff Kurzon</span></i><span style="font-family: "Times New Roman","serif"; mso-fareast-font-family: "Times New Roman";">, June 3, 2014, BetaBeat</span></div>
<div class="MsoNormal">
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" SemiHidden="true" UnhideWhenUsed="true"
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<w:LsdException Locked="false" Priority="62" Name="Light Grid"/>
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<w:LsdException Locked="false" Priority="73" Name="Colorful Grid"/>
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<w:LsdException Locked="false" SemiHidden="true" Name="Revision"/>
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<w:LsdException Locked="false" Priority="60" Name="Light Shading Accent 6"/>
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<w:LsdException Locked="false" Priority="19" QFormat="true"
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<w:LsdException Locked="false" Priority="21" QFormat="true"
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<w:LsdException Locked="false" Priority="31" QFormat="true"
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<w:LsdException Locked="false" Priority="32" QFormat="true"
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<w:LsdException Locked="false" Priority="33" QFormat="true" Name="Book Title"/>
<w:LsdException Locked="false" Priority="37" SemiHidden="true"
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<w:LsdException Locked="false" Priority="39" SemiHidden="true"
UnhideWhenUsed="true" QFormat="true" Name="TOC Heading"/>
<w:LsdException Locked="false" Priority="41" Name="Plain Table 1"/>
<w:LsdException Locked="false" Priority="42" Name="Plain Table 2"/>
<w:LsdException Locked="false" Priority="43" Name="Plain Table 3"/>
<w:LsdException Locked="false" Priority="44" Name="Plain Table 4"/>
<w:LsdException Locked="false" Priority="45" Name="Plain Table 5"/>
<w:LsdException Locked="false" Priority="40" Name="Grid Table Light"/>
<w:LsdException Locked="false" Priority="46" Name="Grid Table 1 Light"/>
<w:LsdException Locked="false" Priority="47" Name="Grid Table 2"/>
<w:LsdException Locked="false" Priority="48" Name="Grid Table 3"/>
<w:LsdException Locked="false" Priority="49" Name="Grid Table 4"/>
<w:LsdException Locked="false" Priority="50" Name="Grid Table 5 Dark"/>
<w:LsdException Locked="false" Priority="51" Name="Grid Table 6 Colorful"/>
<w:LsdException Locked="false" Priority="52" Name="Grid Table 7 Colorful"/>
<w:LsdException Locked="false" Priority="46"
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<w:LsdException Locked="false" Priority="47" Name="Grid Table 2 Accent 1"/>
<w:LsdException Locked="false" Priority="48" Name="Grid Table 3 Accent 1"/>
<w:LsdException Locked="false" Priority="49" Name="Grid Table 4 Accent 1"/>
<w:LsdException Locked="false" Priority="50" Name="Grid Table 5 Dark Accent 1"/>
<w:LsdException Locked="false" Priority="51"
Name="Grid Table 6 Colorful Accent 1"/>
<w:LsdException Locked="false" Priority="52"
Name="Grid Table 7 Colorful Accent 1"/>
<w:LsdException Locked="false" Priority="46"
Name="Grid Table 1 Light Accent 2"/>
<w:LsdException Locked="false" Priority="47" Name="Grid Table 2 Accent 2"/>
<w:LsdException Locked="false" Priority="48" Name="Grid Table 3 Accent 2"/>
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<![endif]-->Jonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.comtag:blogger.com,1999:blog-4345741156614759024.post-3215774749148294982013-10-10T06:30:00.000-04:002013-10-10T06:30:02.927-04:00Anti-Money Laundering Program–Requirements<b><span style="color: #cc0000;"><span style="font-size: small;">QUESTION</span><span style="font-size: small;"> </span></span></b><br />
<span style="font-size: small;">I am the Anti-Money Laundering Program officer. I want to know three things: what are the required sections of the program, how to determine the core procedures that need to be in the program, and what are my responsibilities as the AML officer?</span><br />
<br />
<b><span style="color: #cc0000;"><span style="font-size: small;">ANSWER</span><span style="font-size: small;"> </span></span></b><br />
<div style="text-align: justify;">
<span style="font-size: small;">There are four elements to the Anti-Money Laundering Program (“AML”) required by Financial Crimes Enforcement Network (“FinCEN”).</span><span style="font-size: small;"> </span></div>
<br />
<span style="font-size: small;">These are:</span> <br />
<span style="font-size: small;">1. Policy and Procedures</span> <br />
<span style="font-size: small;">2. AML Compliance Officer</span> <br />
<span style="font-size: small;">3. Training</span> <br />
<span style="font-size: small;">4. Independent Testing</span><br />
<br />
<div style="text-align: justify;">
<span style="font-size: small;">In order to determine the core procedures that an organization requires, it is necessary to assess its size, complexity, and risk profile, with respect to exposure to money laundering activity and terrorist financing schemes. Generally, the policy statement should contain actionable and measurable implementations in accordance with the Bank Secrecy Act (“BSA”). For instance, if the residential mortgage lender or originator obtains its loan applications not only through a retail channel but also through a wholesale or correspondent channel, or any other channel, its agents, brokers, or any similarly situated entity, must be included in the operational structure of its AML compliance requirements. Methodologies for reviewing all internal and agent relationships for compliance with the AML guidelines are part of the AML program.</span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-size: small;">The AML officer’s responsibilities are considerable. The primary responsibility is to oversee the implementation of the AML program. To accomplish this, the AML officer monitors compliance with AML guidelines in all loan origination channels as well as internally among employees, promptly updating and ratifying the program, when required, implementing training initiatives, and ensuring that independent testing is effectuated. Additionally, the AML officer’s oversight includes taking actions to assure that Safe Harbor guidelines are always followed.</span></div>
<br />
<span style="font-size: small;">Jonathan Foxx<br />President & Managing Director<br />Lenders Compliance Group</span><br />
<span style="font-size: x-small;"></span><br />
<br />
<br />
<br />
<br />
<br />
<br />
<br />
<br />Jonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.comtag:blogger.com,1999:blog-4345741156614759024.post-50831040966573612722013-08-23T15:39:00.000-04:002013-08-23T15:40:16.511-04:00Mortgage Fraud: Data Confirms Spike in 2006-2007<div align="justify">
The Financial Crimes Enforcement Network (FinCEN) has released an analysis of <b>Mortgage Fraud SAR Filings in Calendar Year 2012</b>. The report was issued on August 20, 2013. This publication updates FinCEN’s prior Mortgage Loan Fraud (MLF) assessments examines Suspicious Activity Report (SAR) filings from January through December 2012 (CY 2012).</div>
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<br /></div>
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The report provides new information on the volume of SAR filings, geographic locations of subjects, and other filing trends in CY 2012. Tables covering non-geographic aspects are compared with filings from corresponding periods in2011. A section provides updated statistics on foreclosure rescue-related SARs during 2012, and filers’ voluntary use of the new FinCEN SAR e-filing report for voluntary mortgage fraud reporting through March 31, 2013.</div>
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<br /></div>
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This article offers an outline of the FinCEN report. <a href="http://lenderscompliancegroup.com/42.html">Please visit our Library to download it.</a></div>
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<span style="color: red;"><b>IN THIS ARTICLE</b></span></div>
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<br /></div>
<div align="center">
<b><span style="color: #c0504d;">MLF SAR Filings by Year SAR Received, 2001-2012</span></b></div>
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<br /></div>
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<b><span style="color: #c0504d;">Mortgage Loan Fraud (MLF) SARs <br />Time Elapsed from Activity Date to Reporting Date</span></b></div>
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<br /></div>
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<b><span style="color: #c0504d;">Number of Mortgage Loan Fraud SAR Filings by Year <br />with and without the Term “Repurchase” in Narrative</span></b></div>
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<br /></div>
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<span style="color: #c0504d;"><b>Mortgage Loan Fraud SAR Subjects - Top 20 States and Territories</b></span></div>
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<br /></div>
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<b><span style="color: #c0504d;">Foreclosure Rescue Scams</span></b></div>
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<br /></div>
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<span style="color: #c0504d;"><b>Number of Mortgage Loan Fraud SAR Filings by Year <br />with Term “Foreclosure Rescue” in Narrative, 2003-2012</b></span></div>
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<span style="color: #a5a5a5;">__________________________________________________________________________</span></div>
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<br /></div>
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<b><span style="color: #c0504d;">MLF SAR Filings by Year SAR Received, 2001-2012</span></b></div>
<div align="center">
<a href="http://lh3.ggpht.com/-hocw-GHRrZQ/Uhe4pbImhPI/AAAAAAAACQM/nsAPiL4vgZ0/s1600-h/Chart-1-MLFSAR-2001-20124.png"><img alt="Chart-1-MLFSAR-2001-2012" border="0" height="279" src="http://lh6.ggpht.com/-IIBmABUaNJ0/Uhe4pr4YC3I/AAAAAAAACQQ/gNLq8b86N7g/Chart-1-MLFSAR-2001-2012_thumb2.png?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Chart-1-MLFSAR-2001-2012" width="504" /></a></div>
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FinCEN’s data on suspected mortgage fraud shows that reports declined 25% in 2012 (from 92,561 to 69,277) as compared to the previous year. The past three years of suspected mortgage fraud suspicious activity reports (MLF SARs), if counted by the date they were received by FinCEN, accounted for approximately 46% of the past decade’s mortgage fraud SARs. </div>
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<br /></div>
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We take this to mean that filing increases or decreases are not necessarily indicative of overall increases or decreases in MLF activities over a bracketed period, as the volume of SAR filings in any given period does not directly correlate to the number or timing of suspected fraudulent incidents in that period. </div>
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However, <b>one of the inherent features of mortgage fraud is that the suspicious activity associated with it is often only recognized and reported years after loan origination</b>, after a review of origination documents is prompted by a loan default, repurchase demand, or other factors. As a result, many mortgage fraud SARs are filed much later than the date that the suspicious activity actually began. Thus, in 2012, 57% of SARs reported mortgage loan fraud (MLF) activities that started more than 5 years before the SAR was filed.</div>
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<br /></div>
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The bulk of FinCEN’s MLF SARs, regardless of filing date, references suspicious activity that the filers believe began in calendar years 2006 and 2007. </div>
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<br /></div>
<div align="center">
<span style="color: #c0504d;"><b>Mortgage Loan Fraud (MLF) SARs <br />Time Elapsed from Activity Date to Reporting Date</b></span></div>
<a href="http://lh4.ggpht.com/-jmJkn0y3rXQ/Uhe4qHKM7QI/AAAAAAAACQc/F9yKceghxxk/s1600-h/Chart-2-Time-Elapsed-MLFSARs-20123.png"><img alt="Chart-2-Time Elapsed-MLFSARs-2012" border="0" height="171" src="http://lh5.ggpht.com/-zY1bQuHwx0c/Uhe4s_Y6ftI/AAAAAAAACQk/qNgxRjjBL8M/Chart-2-Time-Elapsed-MLFSARs-2012_th.png?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: block; float: none; margin-left: auto; margin-right: auto; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Chart-2-Time Elapsed-MLFSARs-2012" width="504" /></a><br />
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This chart depicts the number of annual mortgage fraud SAR filings based on the year FinCEN received the SAR versus the year that the filer believed the suspicious activity actually began (which was usually at the time of the loan origination). </div>
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It should be noted that the chart shows <b>there was an extraordinary concentration of suspicious mortgage origination activity beginning in 2006 and 2007</b>, the years immediately preceding the financial crisis of 2008.</div>
<a name='more'></a><br />
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Depository institutions filed 37,457 MLF SARs in 2006 and 52,862 in 2007. At the time, those numbers represented huge increases over previous years, but they it may now be presumed that they seriously underrepresented the amount of suspicious mortgage fraud activity that could have potentially been reported in those years if the suspicious activity had been detected closer to loan origination. </div>
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<span style="color: #c0504d;"><b>Number of Mortgage Loan Fraud SAR Filings by Year <br />with and without the Term “Repurchase” in Narrative</b></span></div>
<div align="center">
<a href="http://lh6.ggpht.com/-t1fTZfvKMh4/Uhe4tVbV7fI/AAAAAAAACQs/jLYKz9esZLs/s1600-h/Chart-3-Repurchases-MLFSARs-20123.png"><img alt="Chart-3-Repurchases-MLFSARs (2012)" border="0" height="206" src="http://lh4.ggpht.com/-IJi9aZ6m21w/Uhe4uIzsMkI/AAAAAAAACQ0/rL2l8ChDzj0/Chart-3-Repurchases-MLFSARs-2012_thu.png?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Chart-3-Repurchases-MLFSARs (2012)" width="504" /></a></div>
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“Repurchase” SARs were filed by banks addressing fraud in individual mortgages that were originated during the housing bubble and quickly bundled into mortgage pools or securities. When these mortgages later defaulted, the mortgage security holder could request the “repurchase” of an individual loan by the originator when it could document fraud or other defects not detected at origination. After receiving a repurchase request, the investor would often file a “repurchase” SAR addressing fraud by individual borrowers that apparently existed, but was not caught, during the investor’s loan origination due diligence.</div>
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So, it is especially useful to drill down into the statistics on “repurchase” SARs. FinCEN queried the number of MLF SARs by year since 2003 containing the term “repurchase” in the narrative. The chart shows that the number of such SARs spiked to 40,861 last year, up from 8,625 SARs in 2010 and down to 13,132 SARs in 2012. Without the “repurchase” SARs, MLF reports could have peaked at 61,847 in 2010.</div>
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<span style="color: #c0504d;"><b>Mortgage Loan Fraud SAR Subjects - Top 20 States and Territories</b></span></div>
<div align="center">
<a href="http://lh6.ggpht.com/-KMMXvk_ITNQ/Uhe4xJF-nYI/AAAAAAAACSA/TnqdeeRKhcI/s1600-h/Chart-4-MLFSAR-2012-States2.png"><span style="color: #c0504d;"></span></a><span style="color: #c0504d;"><a href="http://lh6.ggpht.com/-KMMXvk_ITNQ/Uhe4xJF-nYI/AAAAAAAACSE/R9iVPG6VKdA/s1600-h/Chart-4-MLFSAR-2012-States3.png"><img alt="Chart-4-MLFSAR-2012-States" border="0" height="223" src="http://lh6.ggpht.com/-n8-PsKwRyUM/Uhe4xnp0Z8I/AAAAAAAACRI/WWFniwohnyU/Chart-4-MLFSAR-2012-States_thumb1.png?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Chart-4-MLFSAR-2012-States" width="504" /></a></span></div>
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The chart lists the top 20 states in ranked order, based on the number of subjects per capita in CY 2012 MLF SARs with relatively recent suspicious activity (viz., dates starting after January 1, 2010). It also shows each state’s rank based on the total number of SARs, without factoring population into account. </div>
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California was the number one ranked state for MLF subjects per capita and in total MLF SAR volume for CY 2012, as it was in CY 2011. For the 2012 calendar year, California was followed in the per capita rankings by Nevada, Florida, Arizona, and Washington, D.C. While Florida and Washington, D.C. held the same ranks in 2011, Nevada moved up from fourth last year, and Arizona moved up from seventh last year. Last year’s number two ranked state, Hawaii, dropped to 15th in CY 2012. </div>
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<br /></div>
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<b><span style="color: #c0504d;">Foreclosure Rescue Scams</span></b></div>
<div align="center">
<a href="http://lh5.ggpht.com/-mYS5usV-07k/Uhe40K_ZNUI/AAAAAAAACRU/DUFTKoywcr4/s1600-h/Chart-5-Foreclosure-Rescue-Scams-201%25255B1%25255D.png"><img alt="Chart-5-Foreclosure Rescue Scams-2012" border="0" height="302" src="http://lh6.ggpht.com/-tw-AfLnsqvc/Uhe41anx9QI/AAAAAAAACRY/isx3xqosLc4/Chart-5-Foreclosure-Rescue-Scams-201.png?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Chart-5-Foreclosure Rescue Scams-2012" width="504" /></a></div>
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<a href="http://publications.lenderscompliancegroup.com/">As has been discussed in previous notices</a>, "foreclosure rescue" scams are a persistent problem. The updated statistics are now available for “foreclosure rescue” SARs filed during CY 2012, which includes filers’ voluntary use of the FinCEN SAR for mortgage fraud reporting through March 31, 2013. </div>
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In its October 2012 mortgage fraud report, FinCEN addressed the dramatic growth in the number of SARs referencing “foreclosure rescue” scams in the narrative. FinCEN hypothesized that this substantial increase was partly a function of individuals or organized groups finding greater opportunities to commit fraud within the distressed portion of the mortgage market, compared with the opportunities to commit fraud within new loan originations. The increase in foreclosure rescue fraud may also have resulted from the greater attention that various government agencies have given to foreclosure rescue issues since 2009. </div>
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The October 2012 predicted that if “foreclosure rescue” SAR reporting continued at its first half of 2012 pace, FinCEN would receive more than 4,720 such reports for the entire year. </div>
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As the chart illustrates, the actual number of MLF SARs indicating “foreclosure rescue” in the narrative was 4,427 in CY 2012, up 58% from 2011 despite an overall decline in MLF SAR filings. </div>
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<br /></div>
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It should be noted that FinCEN designed the “suspicious activity” section of the new FinCEN SAR to more clearly identify various types of mortgage fraud. According to FinCEN, the re-designed SAR will make it easier for FinCEN and its law enforcement and regulatory partners to find and analyze SARs relevant to their specific mortgage fraud cases and projects.</div>
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<br /></div>
<div align="center">
<b><span style="color: #c0504d;">Number of Mortgage Loan Fraud SAR Filings by Year <br />with Term “Foreclosure Rescue” in Narrative, 2003-2012</span></b></div>
<div align="center">
<a href="http://lh3.ggpht.com/-b3amgS4W4E0/Uhe41kUFtpI/AAAAAAAACRc/Orjau6uRuXc/s1600-h/Chart-6-MLFSARs-3.31.133.png"><img alt="Chart-6-MLFSARs-3.31.13" border="0" height="306" src="http://lh3.ggpht.com/-fK-J3Hv7u0A/Uhe411AM2KI/AAAAAAAACRk/UDkFg3eTcL8/Chart-6-MLFSARs-3.31.13_thumb1.png?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Chart-6-MLFSARs-3.31.13" width="504" /></a></div>
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Finally, it is worth noting that FinCEN now provides a breakdown of suspicious activity relating to mortgage fraud. This is accomplished through the new SAR.</div>
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The <b>new FinCEN SAR has five fields in the mortgage fraud category</b>, in order to highlight types of activity most actionable for law enforcement. </div>
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In the mortgage fraud category, the new SAR contains these fields:</div>
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<b>-appraisal fraud, <br />-foreclosure fraud, <br />-loan modification,</b> and <br />
<b>-reverse mortgage fraud.</b> </div>
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It also includes a fifth field for <b>“other”</b> MLF, thereby allowing filers to provide a description of the fraudulent activity.</div>
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The chart shows that filers categorized the type of mortgage fraud based on these five new activity fields. In the vast majority of filings (87%), filers selected the “other” field. Filers also identified “appraisal” fraud in 13% of filings, “loan modification” fraud in 6%, “foreclosure” fraud in 3 percent, and “reverse mortgage” fraud in less than 1%. (Because filers could choose more than one category, these figures total more than 100%.) </div>
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The "other" category is more than a catch-all statistic, really. Most of the fraud described in this category was related to loan origination and borrower misrepresentations, which is consistent with FinCEN analysis of mortgage fraud in previous reports.</div>
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Statistically speaking, 38% of the FinCEN SAR filings specifically spelled out “origination fraud” in the “other” field. </div>
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Filers frequently used words describing other common types of origination-related fraud, including borrower misrepresentations of tax identification numbers (Social Security numbers and individual tax identification numbers), income tax records, employment, and occupancy of the loan property.</div>
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In addition, filers used some statistically less common phrases in the “other” field that may be of greater interest to law enforcement. For instance, according to FinCEN, filers spelled out “debt elimination” (a type of foreclosure rescue scam), in 3% of the “other” mortgage fraud filings. Filers addressed short sales, including the terms “short sale fraud” and “short sale collusion,” in 4% of these filings. While less common statistically, but presumably useful for law enforcement or regulatory purposes, filers also used phrases such as “strawbuyer,” “property value misrepresentation,” and “altered” (documents, bank statements, tax returns, etc.) each in 1% of the “other” mortgage fraud filings. Filers also identified fraud related to loan servicing, bogus payoffs, post-funding fraud, and FHA documents. </div>
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<span style="color: #c0504d;"><b>Library</b></span></div>
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<a href="http://lenderscompliancegroup.com/42.html"><img alt="Law Library Image" border="0" height="139" src="http://lh5.ggpht.com/-qQQFhUAkSOk/Uhe42UpkooI/AAAAAAAACRo/JNB8G_WPRs0/Law-Library-Image5.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Law Library Image" width="139" /></a></div>
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<b>Mortgage Fraud SAR Filings in Calendar Year 2012</b> <br />
Financial Crimes Enforcement Network (FinCEN) <br />
August 20, 2013</div>
Jonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.comtag:blogger.com,1999:blog-4345741156614759024.post-26621978028035398622013-05-18T15:48:00.001-04:002013-05-18T15:48:41.973-04:00FinCEN: Accountant and Elder Abuse<div align="justify">
We have been <a href="http://lenderscompliancegroup.com/42.html">keeping track</a> of <span style="color: #c0504d;">FinCEN's SAR Activity Review – Trends, Tips & Issues</span> virtually from its inception.</div>
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<br />
In its just issued May 2013 report, FinCEN provides new information regarding two areas of importance:</div>
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<br />
1) The Suspicious Activity Report (SAR) filing patterns related to <span style="color: #c0504d;">elder financial exploitation</span> before and after the publication of FinCEN's <a href="http://www.fincen.gov/statutes_regs/guidance/html/fin-2011-a003.html">Advisory to Financial Institutions on Filing Suspicious Activity Reports Regarding Elder Financial Exploitation</a> ("Advisory"), in February 2011, and</div>
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2) An analysis of trends related to <span style="color: #c0504d;">SAR filings involving accountants</span> and involving insider abuse within depository institutions.</div>
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<br />
In this newsletter, I would like to provide you with some insights regarding each of these areas of concern reviewed in the FinCEN report, with a brief review of elder abuse trends and a much more extensive review of suspicious financial activity involving accountants.*</div>
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<span style="color: #a5a5a5;">_______________________________________________________</span></div>
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<br />
<span style="color: #c0504d;">Elder Abuse - Trends <br />Accountant Abuse - The Gatekeeper <br />Sampling the Data <br />Separating the Wheat from the Chaff <br />Accountants Abuse - Trends <br />Conclusion <br />Library</span></div>
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<span style="color: #a5a5a5;">_______________________________________________________</span></div>
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<b><span style="color: #c0504d;">Elder Abuse - Trends</span></b></div>
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A comparison of the filing rates pre- and post-advisory of SARs with narratives containing the two key search phrases “elder financial exploitation” and “elder financial abuse,” shows a very significant increase in relevant filings post-Advisory.<br />
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Between March 1, 2011, and August 31, 2012, filers submitted 7,651 total SARs, a 382 percent increase from the 12-month period prior to the release of the Advisory during which filers completed 1,589 relevant SARs. Post-Advisory filing trends showed continued increases in filing incidences.<br />
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SARs generally reported patterns of financial exploitation perpetrated by a relative or caregiver against elderly victims. Narratives most frequently described the perpetrator coercing or cajoling the victim into completing financial transactions that benefited the perpetrator at the expense of the victim.<br />
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There are reported instances where the perpetrator reportedly abused a power of attorney over the victim’s account.<br />
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Furthermore, so-called <span style="color: #c0504d;">"sweetheart scams"</span> were on the rise. A “sweetheart scam” involves the fraudster feigning romantic intentions towards a victim, thus gaining the victim’s affection. The perpetrator then uses the goodwill engendered to defraud the victim. This fraud may impact the victim’s financial accounts and/or identity security, and may even cause the victim to unwittingly facilitate financial fraud against others on the perpetrator’s behalf.<br />
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An increased trend in elder financial abuse was noted in the 18 month period after the issuance of the Advisory. Depository Institutions filed 6,026 elder financial exploitation-related SARs in this period. FinCEN determined that institution filers identified “abuse by a relative or caregiver” as the most reported months post-Advisory.<br />
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<a href="http://lh4.ggpht.com/-DxwCqw7R10I/UZfYRoPiPSI/AAAAAAAAB9U/J1eStXfpGMI/s1600-h/Chart-A-SAR-Review-5-20134.jpg"><img alt="Chart-A-SAR Review-5-2013" border="0" height="325" src="http://lh3.ggpht.com/-OoZ4dS50iQE/UZfYSAoDRoI/AAAAAAAAB9c/wKjWlvZVgk4/Chart-A-SAR-Review-5-2013_thumb2.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Chart-A-SAR Review-5-2013" width="504" /></a></div>
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Monthly post-Advisory filing numbers indicate that filers continued to increase their submissions of SARs related to elder financial exploitation more than a year and a half after issuance of the Advisory. FinCEN reports that this trend suggests that many filers have incorporated FinCEN’s elder financial exploitation guidance into their AML monitoring programs. Sample narratives showed filers checked “Other” most often as the characterization of suspicious activity when describing suspicious transactions involving elderly customers. <br />
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Most narratives described the perpetrator engaged in identity theft, misuse of position or self-dealing, check kiting, counterfeit checks, or embezzlement/theft, to defraud elderly victims. Many SAR narratives revealed that filers were careful to assess suspicious transactions, often questioning an elderly customer if his transactions appeared out of character. These precautions usually spared the filer and the customer any significant losses.<br />
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<span style="color: #a5a5a5;">_______________________________________________________</span></div>
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<span style="color: #c0504d;"><b>Accountant Abuse - The Gatekeeper</b></span></div>
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Dubbed euphemistically as the "gatekeeper" type, FinCEN places accountants in the group of scammers that, due to their position, have the ability to furnish access (knowingly or unwittingly) to the various financial transactions that might help a criminal move or conceal illicitly obtained funds.<br />
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Gatekeepers have been of concern to the U.S. Department of the Treasury, due to their ability to facilitate or assist in money laundering while engaged in their professional duties for a client. Going all the way back to 1996, the Financial Action Task Force noted the increasing number of professionals, including accountants, whose services were used to effectuate the placement and layering aspects of money laundering.<br />
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To be clear, in addition to accountants, other professions identified as gatekeepers include attorneys, trustees, and service providers, notaries and other fiduciaries that assist clients with certain activities like buying and selling real estate, managing assets, or creating, operating or managing companies.<br />
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Accountants are not defined as “financial institutions” under the Bank Secrecy Act (BSA). Thus, they have no responsibility to report suspicious activities conducted by their clients, including knowledge or suspicion that the purpose of a client’s transaction is to launder funds. Accountants have asserted that such reporting could potentially encroach on the customer-client relationship, including the duty of client confidentiality.<br />
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Nevertheless, the accountancy profession has developed <a href="http://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AU-00317.pdf">codes of conduct and business ethics</a> <span style="color: red; font-size: xx-small;">(PDF)</span> by which their members abide, including <a href="http://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AU-00316.pdf">specifying exactly how a professional can provide specific information to law enforcement</a> <span style="color: red; font-size: xx-small;">(PDF)</span> without divulging confidential client information when he or she reasonably believes that certain client transactions represent an undue risk of money laundering.<br />
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According to Federal Financial Institutions Examination Council (FFIEC), the definition of accountants includes not only accountants and CPAs but also lawyers, investment brokers and other third-parties that act as financial liaisons for their clients as “professional service providers,” whose participation in illegal or questionable financial transactions may produce increased risk to financial institutions.<br />
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A <span style="color: #c0504d;">professional service provider</span> may have access to multiple accounts of multiple clients, but a financial institution may not have a direct relationship with or knowledge of the beneficial owners of those accounts. Thus, transactions involving professional service providers present third-party risks that can raise a financial institution’s vulnerability to money laundering, structuring, or hiding beneficial ownership of an account holder.<br />
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As mentioned above, accountants have no suspicious activity reporting requirements; however, depository institutions holding accounts for accountants may detect financial activities and transactions that the institution knows or suspects may require reporting to FinCEN.<br />
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I would add that the degree of control attorneys and accountants hold over their clients’ finances in routine transactions can be quite different. For instance, attorneys generally conduct financial transactions on their clients’ behalf, and assume control over the clients’ funds to do so. Lawyers must <a href="http://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_1_15_safekeeping_priority.html">“hold property of clients or third persons that is in a lawyer’s possession in connection with a representation separate from the lawyer’s own property.”</a> Except in unusual circumstances, client funds are pooled in a general client trust account over which the attorney acts as trustee. The accounts are referred to as “interest on lawyers trust accounts” (IOLTAs) and the interest earned on these accounts is transferred to state funds established to cover legal expenses for indigent people.<br />
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Although accountants do sometimes hold client funds in trust accounts over which they serve as trustee (which, FinCEN reports, can result in some of the most egregious suspicious financial activities involving accountants), most general activities by an accountant are done in an advisory capacity, or in preparation of financial reports, which do not require the accountant or CPA to take control of client funds. Consequently, there is no legally mandated accountant-client fund pooling in the accounting industry equivalent to IOLTA accounts for attorneys.<br />
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<span style="color: #a5a5a5;">_______________________________________________________</span> </div>
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<span style="color: #c0504d;"><b>Sampling the Data</b></span></div>
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FinCEN recently undertook an assessment of depository institution SAR filings which described possible money laundering activities involving accountants, certified public accountants (CPAs) and others within the accountancy profession. The range of accountants’ improper financial activities runs the gamut of illicit financial activities which, states FinCEN, involves "every category of activity available on the SAR form, facilitated both on their own behalf as well as in assisting others."<br />
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In addition some SARs alleged that accountants or CPAs embezzled money from legal trusts over which they had been legitimately appointed as fiduciary to administer the funds, established bogus trusts for various nefarious purposes (i.e., such as to entice terminally ill or elderly persons to enter into joint investments that only benefitted the accountant trustees or other co-investors), or sold bogus documents that promised to declare mortgages illegal and void a borrower’s obligation under his mortgage.<br />
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SARs filed by depository institutions during 2011 where the word “accountant” or “CPA” appeared in either the subject or narrative section of the SAR showed up in nearly 10,000 relevant SARs. To build a statistical review, FinCEN selected a random sample of 350 SARs for in-depth analysis.<br />
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The research focused on accountants or CPAs, who (1) act in their capacity as professional service provider, trustee, or fiduciary; (2) manage, direct, organize, establish or conduct transactions for their clients or on their own behalf in matters involving; and (3) were involved in trust accounts, shell companies, real estate transactions, incorporations, and other matters.<br />
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A search in the FinCEN database, using key search terms, shows hits related to accountants and CPAs as 9,631 SARs filed in CY 2011. Banks, savings institutions or credit unions filed the majority of the SARs. However, mortgage companies, mortgage service companies, credit card servicers and processors, and other financial service companies indicates a sizeable percentage of the 9,631 accountant or CPA-related SARs.<br />
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</div>
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<a href="http://lh6.ggpht.com/--_nO4KuH84I/UZfYSqn4P5I/AAAAAAAAB9k/tfi2jIiyVBM/s1600-h/Chart-B-SAR-Review-5-20133.jpg"><img alt="Chart-B-SAR Review-5-2013" border="0" height="271" src="http://lh3.ggpht.com/-JVQV0CU6zQk/UZfYTUbiFJI/AAAAAAAAB9s/uIQRLTYwhUY/Chart-B-SAR-Review-5-2013_thumb1.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Chart-B-SAR Review-5-2013" width="504" /></a></div>
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Note that the second larges category, nearly 21 percent reported (Category P) was Mortgage Loan Fraud, after over 62 percent of all SARs filed in BSA/Structuring/Money Laundering as the characterization of suspicious activity (Category A).<br />
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</div>
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<a href="http://lh6.ggpht.com/-MKz7t7jf_Bw/UZfYUI_u7sI/AAAAAAAAB90/TxkEJkvTZYg/s1600-h/Chart-C-SAR-Review-5-20133.jpg"><img alt="Chart-C-SAR Review-5-2013" border="0" height="271" src="http://lh6.ggpht.com/-xceAYf_RmZ4/UZfYU23HriI/AAAAAAAAB94/h-IfAlWzDAs/Chart-C-SAR-Review-5-2013_thumb1.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Chart-C-SAR Review-5-2013" width="504" /></a></div>
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In the random sample of 350 SARs filed, filers most frequently cited the suspicious activity characterization BSA/Structuring/Money Laundering (52 percent). Twenty-six percent reported fell into Other. Yet the third largest activity category, at almost 19 percent, was Category P, Mortgage Loan Fraud. The table above identifies total filings in the most significant activity categories.<br />
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</div>
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<span style="color: #a5a5a5;">_______________________________________________________</span></div>
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<span style="color: #c0504d;"><b>Separating the Wheat from the Chaff</b></span></div>
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Note that the SARs in the random sample mimic the same top three activity categories in the statistical review of all 9,631 SARs filed in 2011 (which mentioned accountants or CPAs in either the occupation or the narrative field). The following table identifies the percentages of the top three activity categories in the original search of 9,631 compared to the 350 SARs which were reviewed in their entirety for this analysis.<br />
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</div>
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<a href="http://lh6.ggpht.com/-ag1gqQdADvY/UZfYVX55DHI/AAAAAAAAB-E/4HPliyeIMfc/s1600-h/Chart-D-SAR-Review-5-20133.jpg"><img alt="Chart-D-SAR Review-5-2013" border="0" height="150" src="http://lh4.ggpht.com/-q2QB6qFDLP8/UZfYWC8QKDI/AAAAAAAAB-M/QMonW8xoJS0/Chart-D-SAR-Review-5-2013_thumb1.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Chart-D-SAR Review-5-2013" width="504" /></a></div>
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The involvement in accountants in mortgage loan fraud is unusually high, given that “Other” (Category S) tends to be a broader category for suspicious activity. FinCEN found in this review that some SARs reported accountants or CPAs committed money laundering transactions for their own benefit, such as simple structuring or tax evasion. Other SARs, as well as indictments and other legal documents, also show that accountants or CPAs facilitated money laundering on behalf of others by helping to hide aspects of transactions through various schemes. (Accountants or CPAs may sometimes also act as directors, trustees or partners in these transactions.)<br />
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</div>
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<span style="color: #a5a5a5;">_______________________________________________________</span></div>
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<span style="color: #c0504d;"><b>Accountants Abuse - Trend</b></span></div>
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Let's now turn to an evaluation of the trends associated with suspicious financial activities that filers described in SARs involving accountants. I will provide a selected outline of the types of such actions by accountants, in order to highlight the scope of these illicit activities.<br />
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<span style="color: red;">BSA/Structuring/Money Laundering</span><br />
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-Wire transfers to and from foreign countries, including high-risk countries and professions; inconsistent account activity; multiple transfers between accounts; transaction purposes that could not be verified; shell company activities; and improper trust activities.</div>
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-Non-accountant subjects structure in order to deceive their accountant from full facts about a transaction or having been done on the advice of their accountant.</div>
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<span style="color: red;">Tax Fraud or Evasion</span> <br />
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-Improperly received electronic deposits of income tax refunds that were due to other persons. (Filers sometimes identified this activity as ACH fraud. In other cases, accountants submitted tax returns for deceased persons and deposited the tax refund to their own account.)</div>
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-Withholding tax information from the subject's accountant. </div>
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-A group of individuals, several of whom were current or former CPAs, conducted seminars where they sold “tax-exempt trusts” for $500-$1,000. </div>
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<span style="color: red;">Mortgage Loan Fraud</span><br />
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-Accountant borrowers committed mortgage loan fraud on their own behalf by providing false financial or occupancy information with their loan application.</div>
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-Non-accountant borrowers committed mortgage fraud by altering documents that had been prepared by their accountant (in order to appear better qualified for a mortgage loan).</div>
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-Altered or falsified “CPA letters,” a requirement for approval of some mortgage loans. </div>
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-Accountants or CPAs involved loan modification, debt elimination or short sale fraud schemes in cases of pending foreclosure.</div>
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-Accountant/owner of a tax preparation business suspected of structuring cash deposits and withdrawals. (According to the indictment, the accountant helped clients of complicit realtors to obtain mortgage loans by creating fraudulent tax letters stating the borrowers had self-employment income and owned their own businesses, by preparing, among other things, fraudulent tax returns with the knowledge that they were not intended to be filed with IRS.) <br />
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<br />
<span style="color: red;">Defalcation/Embezzlement/Theft</span></div>
<div align="justify">
-Accountant customer involved in money laundering, check fraud, credit card fraud, and embezzlement. (The customer, employed in a CPA firm, obtained access to the business checking accounts of one of the firm’s clients. The accountant forged several of the client’s checks, payable to the filer, and used the funds to pay a personal credit card.)</div>
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-CPA allegedly embezzled and mishandled funds of over $500,000 due to access to multiple trust accounts. (The subject also served as Chairman of the Board of another local bank.)</div>
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-A bank filed a SAR against its own accountant employee upon discovering that the accountant embezzled funds by making transfers from the bank’s general ledger account into a personal account. </div>
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-A large bank filed several SARs on its customer, a United Arab Emirates (UAE) trading company with affiliate companies, stating that the affiliate companies are apparent shells using addresses in offshore jurisdictions about which no information could be found.</div>
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<br />
<span style="color: red;">Improper Trust Activities</span><br />
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BSA filings and indictments show that some of the most egregious and expensive financial crimes involving accountants or CPAs occur when they steal from clients or investors to whom they owe a fiduciary duty based on access to or control of the clients’ funds held in trust.</div>
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<br />
<span style="color: red;">Investments with Terminally-Ill Persons</span><br />
<div align="justify">
Subjects included attorneys, accountants, CPAs, end-of-life care companies, and investors. The subjects coerced terminally ill or elderly persons to agree to participate in transactions in which the dying person received cash payments or other concessions. Instead, subjects used the individuals’ personal information to establish joint investment vehicles with unknown conspirator investors.</div>
<br />
<br />
<span style="color: red;">Theft and Embezzlement from Trustee Accounts</span><br />
<div align="justify">
-A CPA sometimes worked with a close relative. For nearly a decade, the CPA, while living a lavish lifestyle, wrote unauthorized checks to himself or his company from the receiverships or accounts over which he served as trustee. </div>
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-An investment advisor and CPA, who had many high profile and high net worth clients, including socialites and well known entertainment and business figures - managed his clients’ finances, paid their bills, provided tax advice and made investments on their behalf - misappropriated over $7 million from client accounts over which he had access. The CPA’s attorney was charge with aiding and abetting the CPA’s fraud by using his own attorney trust account to hide the scheme. The complaint stated that millions of dollars belonging to the CPA’s clients flowed through the attorney’s accounts. To perpetuate the scheme, the CPA stole money and transferred funds without authorization from the client funds into the attorney trust accounts. The attorney subsequently transferred the stolen funds to the CPA and entities controlled by him. </div>
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-One bank filed several SARs to report an accountant and auditor’s activities involving defalcation/embezzlement, larceny, BSA/Structuring/Money Laundering and other actions regarding multiple businesses and trusts of various individuals of which he was a signer or associated with. The subject also served as chairman of another local bank, and institutions had filed previous SARs on him for kiting funds between the two financial institutions. He was arrested and charged with multiple offenses. <br />
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<span style="color: red;">Elder Fraud</span></div>
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Multiple SARs reported situations in which accountants or CPAs acted as trustee on behalf of an elderly individual and diverted trust assets to themselves. According to FinCEN, the following are several patterns detected from the activities described by filers.</div>
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-CPA prepared tax returns for an elderly individual. sing this individual’s personal information, the CPA established a trust whose purpose was to purchase investment rental properties. He then fraudulently established himself as trustee. In this capacity, the subject obtained a loan in a significant dollar amount for investment purchases. The CPA’s fraudulently prepared tax returns inflated his elderly client’s income and assets in order to create the appearance that the trust qualified for the loan. The SAR filer further reported that a relative of the CPA, a realtor, received a commission from one of the purchases.</div>
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-Another SAR described a CPA who opened an account as trustee for a family life insurance trust account, the owner of which was an elderly female. The subject deposited forged checks payable to the trust and subsequently wrote a check against the trust payable to him. He also made online transfers to his account at another bank. There is no indication in the SAR that the subject was related to the elderly victim or her family.<br />
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</div>
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<span style="color: #c0504d;"><b>Challenges</b></span></div>
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The FinCEN report may help to identify trends, patterns or possible “red flag” indicators obtained from SARs reporting suspected money laundering activities by accountants or CPAs. FinCEN clearly has demonstrated that accountants and CPAs may be involved in all aspects of money laundering, facilitated both on their own behalf as well as in assisting others. They may knowingly participate in suspected money laundering activities, or unwittingly be used to give an appearance of legitimacy to a transaction.<br />
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Furthermore, the reported activities are similar to at least nine of the IRS’ <a href="http://www.irs.gov/uac/IRS-Releases-the-Dirty-Dozen-Tax-Scams-for-2012">“Dirty Dozen Tax Scams for 2012.”</a><br />
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<span style="color: #a5a5a5;">_______________________________________________________</span> </div>
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<span style="color: #c0504d;"><b>Library</b></span><br />
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<a href="http://lenderscompliancegroup.com/42.html"><img alt="Law Library Image" border="0" height="139" src="http://lh3.ggpht.com/-4L-bYXUAUDU/UZfYWqGV4PI/AAAAAAAAB-U/5c8T3SRUa8w/Law-Library-Image5.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Law Library Image" width="139" /></a></div>
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<br />
<b>The Activity Review – Trends, Tips & Issues <br />Issue 23</b></div>
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BSA Advisory Group</div>
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Financial Crimes Enforcement Network</div>
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<span style="color: #a5a5a5;">_______________________________________________________</span></div>
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<span style="font-size: xx-small;">*Jonathan Foxx is the President & Managing Director of Lenders Compliance Group</span></div>
Jonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.comtag:blogger.com,1999:blog-4345741156614759024.post-83452994280702220042013-02-14T12:36:00.000-05:002013-02-14T15:26:49.566-05:00Anti-Money Laundering–Red Flags and the SAR Narrative<div align="justify">
Even though AML compliance for nonbanks has been in effect since August 13, 2012, many <span style="color: #c0504d;">Residential Mortgage Lenders and Originators</span> (RMLO) still seem to have considerable difficulty in two specific areas: how to determine when a <span style="color: #c0504d;">Suspicious Activity Report</span> (SAR) should be filed, and which suspicious activity events or features may trigger the SAR filing requirement.</div>
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In one article, entitled <span style="color: blue;"><span style="background-color: white;"><a href="http://blog.lenderscompliancegroup.com/"><i>Anti-Money Laundering Debuts for Nonbanks</i></a></span>,</span> I unpack the AML Program in a way that will provides some familiarity with the AML Compliance scope, while perhaps also making its implementation a bit less daunting than it might otherwise seem to be.</div>
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In another article, entitled <span style="color: blue;"><a href="http://blog.lenderscompliancegroup.com/"><i>Anti-Money Laundering Program: Preparation is Protection</i></a></span>, I outlined many of the so-called Red Flags and other triggering events. In addition, I offered a way to construct a SAR narrative - the description to FinCEN about the alleged suspicious activity - that, based on years of experience auditing and implement AML compliance on behalf of our clients, best meets FinCEN's expectations of an informative statement. </div>
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To give you an idea of the size and complexity of a well-constructed AML Program, my firm’s AML Program is well over fifty pages – which consists of a policy statement and numerous appendices for applicable procedures. This should give you some idea of the depth and detail needed for properly implementing AML compliance. The absence of or any inaccuracies in required program components may indicate a defective policy and procedures – the very tools needed to assist in detecting and preventing money laundering or other illegal activities conducted through mortgage banking conduits.</div>
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So, a <span style="color: red;">word of caution</span> is due: <u>do not take the chance of buying an abbreviated or defective AML Program</u>, in the hope of merely satisfying the “basic” FinCEN requirements. Obtaining a boilerplate document with your company’s name on it is regressive, and it is a tactic that Examiners are now regularly criticizing in adverse findings. </div>
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These days, regulators are fully aware of this ‘short cut’ to compliance. An insufficient AML Program may cause adverse examination findings. Indeed, in some cases, template-driven policy and procedures may cause Examiners to escalate their regulatory review of an RMLO’s anti-money laundering implementation. </div>
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AML compliance is a specialized area of mortgage compliance, necessitating genuine, practical, hands-on, regulatory compliance and experiential knowledge, and an AML Program must reflect precise policies and procedures that not only implement the SAR regulations but also conform to a company’s way of doing business. </div>
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Therefore, an AML Program is one policy statement and set of procedures where the purchase price should not be an operative consideration. Caveat Emptor!</div>
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This is why I want to further outline the descriptive process of completing the SAR narrative, emphasizing a simple method I call <span style="color: #c0504d;">The 5 W's and the How</span>, and I will also provide details regarding both so-called Red Flags and triggering events. So, even if a company has a skimpy or defective AML policy and procedures, at least those who implement AML Compliance may be offered some rudimentary guidelines to consider in the practical experience of actually filing a SAR.</div>
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<span style="color: red;">IN THIS ARTICLE</span></div>
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<span style="color: #c0504d;">The 5 W's and the How</span></div>
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<span style="color: #c0504d;">Triggering Events</span></div>
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<span style="color: #c0504d;">Documentation Red Flags</span></div>
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<span style="color: #c0504d;">Applicant Red Flags</span></div>
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<span style="color: #c0504d;">RMLO's Employee Red Flags</span></div>
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<span style="color: #c0504d;">Library Resources</span></div>
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<span style="color: #a5a5a5;">_________________________________________________________</span></div>
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<span style="color: #c0504d;"><b>The 5 W's and the How</b></span></div>
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If I were to choose the central feature of the SAR, I would select the SAR narrative. </div>
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Each SAR requires a narrative to be provided by the SAR filer. </div>
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Over time, my firm has compiled numerous examples of common patterns of suspicious activities from our audit and due diligence reviews. Based on our experience and FinCEN’s own stated guidance, we believe that there are <span style="color: black;"><u>five interrogative categories</u></span> to be considered when writing a SAR narrative: <span style="color: #c0504d;">who? what? when? where? and why?</span></div>
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The method of operation (or how?) is also very important and should be included in the SAR narrative. </div>
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<b>HERE ARE “THE 5 WS” TO THE SAR NARRATIVE:</b></div>
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1. <span style="color: #c0504d;">Who</span> is conducting the suspicious activity?</div>
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2. <span style="color: #c0504d;">What</span> instruments or mechanisms are being used to identify the suspicious activity?</div>
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3. <span style="color: #c0504d;">When</span> did the suspicious activity take place?</div>
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4.<span style="color: #c0504d;"> Where</span> did the suspicious activity take place?</div>
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5. <span style="color: #c0504d;">Why</span> does the filer think the activity is suspicious?</div>
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FinCEN suggests that the RMLO describe briefly its industry or business (i.e., mortgage banker, mortgage broker). Then describe, as fully as possible, why the activity or transaction is unusual, considering the types of products and services that the mortgage industry or the RMLO offers, and the nature and normally expected, transactional activities of customers.</div>
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<b>HERE IS THE “HOW” TO THE SAR NARRATIVE:</b></div>
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<span style="color: #c0504d;">Always include the How!</span> This is an important feature of a SAR narrative. </div>
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• <span style="color: #c0504d;">How</span> did the suspicious activity occur?</div>
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The narrative section of the SAR should describe the <i>modus operandi</i> or the method of operations of the subject conducting the suspicious activity. In a concise, accurate, and logical manner, the filer should provide a description of how the suspect transaction or pattern of transactions was committed. As completely as possible, the SAR narrative should offer a full picture of the suspicious activity.</div>
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At all costs, avoid long, rambling, and circuitous descriptions. When completing the narrative section of the SAR, many clients actually state the forgoing questions and then answer each question. Consequently, FinCEN is able to quickly understand the predicate conditions for filing the SAR.</div>
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<span style="color: #c0504d;"><b>Triggering Events</b></span></div>
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FinCEN has made it clear that certain triggering events constitute the appearance of mortgage loan fraud. Perpetrators seem to invent new scams all the time. Indeed, FinCEN continues to issue reports periodically about the most current methods to commit mortgage fraud. </div>
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Some salient schemes:</div>
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<span style="color: #c0504d;">Occupancy Fraud</span> <br />
In order to obtain favorable loan terms, claiming that subject properties will be the primary residences instead of vacation homes or investment properties. Also: when applying for loans for properties that others (i.e., family members) will actually occupy.</div>
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<span style="color: #c0504d;">Income Fraud</span> <br />
Overstating income to qualify for larger mortgages and understating income to qualify for hardship concessions and modifications.</div>
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<span style="color: #c0504d;">Appraisal Fraud</span> <br />
Overstating home value to obtain more money from a sale of property or cash-out refinancing and understating home value in connection with a plan to purchase a property at a discount to market value.</div>
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<span style="color: #c0504d;">Employment Fraud</span> <br />
Misrepresenting whether, where, and for how long the applicants have been employed, whether they are unemployed or collecting unemployment benefits, and whether they are independent contractors or business owners.</div>
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<span style="color: #c0504d;">Liability Fraud</span> <br />
Failing to list significant financial liabilities on the loan application (i.e., other mortgages, car loans, or student loans). </div>
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<span style="color: #c0504d;">Debt Elimination</span> <br />
Faking legal documents and alternative payment methods to argue that existing mortgage obligations are invalid or illegal, or to purport to extinguish mortgage balances. Individuals orchestrating debt elimination schemes typically charge borrowers a fee for these debt elimination "services".</div>
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<span style="color: #c0504d;">Foreclosure Rescue </span>Financially distressed homeowners are targeted with fraudulent offers of services or advice aimed at stopping or delaying the foreclosure process. Some of these scams require homeowners to transfer title - or make monthly mortgage payments - to the purported "rescuer," rather than the real holder of the mortgage. Some foreclosure rescue scams require homeowners to pay fees before receiving "services," and are known as "advance fee" schemes.</div>
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<span style="color: #c0504d;">Social Security Number (SSN) and Identify Theft</span> <br />
An SSN or other government identification card or number that belongs to someone other than the applicant in a loan application is used by the perpetrator. Identity Theft includes broader use of another's identity or identifiers (beyond an SSN) to obtain a mortgage or perpetrate a "fraud for profit" scheme.</div>
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<span style="color: #c0504d;">Home Equity Conversion Mortgage (HECM)</span> <br />
Financial institutions need be aware of illegal "reverse mortgage" schemes, which unfortunately targets seniors who own a home or who are coerced into taking title to a home. The purpose of this scam is to steal or otherwise acquire some or all of the funds which senior receives from a government HECM program. This fraud has other nefarious features, such as appraisal fraud (i.e., increasing the stated value of the home), investment fraud to acquire the HECM funds from the senior under the guise of future profits for the senior, and identify theft to acquire HECM funds without the knowledge of the senior who owns the property.</div>
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<span style="color: #c0504d;"><b>Documentation Red Flags</b></span></div>
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In our AML policy and procedures, we have addenda for Red Flags. We continually add to them, as needed, because the inventiveness of the perpetrators seems endless. So any list provided herein cannot realistically be taken as comprehensive. Red Flags do not only pertain to the documentation process but also extend to the way a loan officer or even the applicant behaves. I know - the latter items seem highly subjective, and surely they are! Some inherent subjectivity may play a role in identifying mortgage fraud.</div>
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• Applicant submits invalid documents in order to cancel mortgage obligations or to pay off loan balances.</div>
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• Same notary public and/or other "authorized representative" prepares, signs, and sends packages of nearly identical debt elimination documents for multiple borrowers with outstanding mortgage balances.</div>
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• Same notary public and/or other "authorized representative" working with and/or receiving payments from unusually large numbers of borrowers.</div>
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• Falsification of certified checks, cashier's checks or "non-cash item checks" drawn against a borrower/buyer's account, rather than from the account of a financial institution.</div>
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• Applicant applies for a loan for a "primary residence" but does not reside in the new primary residence as indicated on the loan application; that is, other individuals occupy the borrower's new primary residence, thereby indicating the property is being used as a secondary residence or income-generating property.</div>
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• Applicant of a younger age purchases his or her "primary residence" in a senior citizen residential development.</div>
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• Applicant requests refinancing for "primary residence" when public and personal documents indicate that the applicant resides somewhere other than the address on the loan application.</div>
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• Language included in a short sale contract indicates the property could be resold promptly. This possibly illegal "flipping" may occur regardless of whether the Federal Housing Administration (FHA) has re-enacted or waived its arms-length resale regulations to FHA buyers. </div>
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• Low appraisal values, non-arms length relationships between short sale buyers and sellers, or previous fraudulent sale attempts in short-sale transactions.</div>
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• Agent of the buyer and/or seller in mortgage transaction is unlicensed.</div>
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• Past misrepresentations made by applicant in attempts to secure funding, property, refinance, and/or shorts sales.</div>
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• Improper and/or incomplete file documentation, including borrower/buyer reluctance to provide more information and/or unfulfilled promises to provide more information.</div>
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• Apparent resubmission of a rejected loan application with key applicant details changed or modified. </div>
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• Applicant attempts to structure currency deposits and/or withdrawals, or otherwise to hide or disguise the true value of assets, in order to qualify for loan modification programs intended for those homeowners in financial distress.</div>
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• Request from third party affiliates on behalf of distressed homeowners to pay fees in advance of the homeowner receiving mortgage counseling, foreclosure avoidance, a loan modification, or other related services.</div>
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• Third party solicitation of distressed homeowners for purported mortgage counseling, foreclosure avoidance, loan modification, or other related services. These third parties may also claim to be associated with legitimate mortgage lenders, the U.S. government, or a U.S. government program.</div>
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<span style="color: #c0504d;"><b>Applicant Red Flags</b></span></div>
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<span style="color: #c0504d;">The applicant:</span></div>
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• Appears nervous for no good reason.</div>
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• Avoids eye contact.</div>
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• Asks about reporting rules.</div>
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• Asks that rules be ‘bent’.</div>
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• Questionable source of funds.</div>
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• ‘Forgot’ driver’s license claim, lost due to drunk driving, had wallet (purse) stolen.</div>
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• Driver’s license is outdated or picture is smudged beyond recognition.</div>
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• Address on driver’s license is different from one on RMLO form.</div>
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• Comes in just before closing and asks for ‘paper work’ to be skipped.</div>
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• Is impatient and tries to hurry.</div>
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• Offers a cash bonus (aka 'bribe') for to skip required information.</div>
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• Pretends to be sick or very tired and just ‘wants to get the application over with.’</div>
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• Provides incomplete or suspicious information.</div>
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• Evinces an abnormal or irregular way of doing business or behaving.</div>
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• Claims the application is for a friend and does not have the required information.</div>
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• Lists funds that are inconsistent with applicant’s financial or economic situation.</div>
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• Causes suspicion of attempting a straw buyer transaction.</div>
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• Elicits suspicion of structuring.</div>
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• Provides liquid funds information from an unusual or suspicious source.</div>
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• Provides apparently fraudulent documentation.</div>
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<span style="color: #c0504d;"><b>RMLO's Employee Red Flags</b></span></div>
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<span style="color: #c0504d;">The RMLO's Employee:</span></div>
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• Never or almost never takes a vacation. </div>
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• Does not want supervisory personnel to see or be aware of transactions with an applicant.</div>
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• Behavior changes to secretive with certain applicants.</div>
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• Acts guilty. (Whatever that means!)</div>
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• Does not want supervisors to see forms filled out by an applicant.</div>
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• Whispers with certain applicants.</div>
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• Asks certain applicants to come back later when nobody is in the office.</div>
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• Lives beyond means. </div>
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The Applicant and RMLO’s Employee Red Flags are obviously somewhat "intuitive" in that these are evoked feelings that something is amiss. None of these categories of Red Flags, just by themselves, constitute collusion with a perpetrator. Still, these types of indicia have appeared on SARs filed with FinCEN.</div>
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<span style="color: #c0504d;"><b>Summary</b></span></div>
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It is important to develop a reliable understanding about when an RMLO should be required to file a particular SAR. In my view, a determination as to whether a SAR is required must be based on all the facts and circumstances relating to the transaction and customer of the RMLO. Different fact patterns will require different judgments. </div>
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The techniques of money laundering and mortgage fraud are continually evolving, and there is no way to provide an exhaustive list of suspicious activity transactions. A strong AML Program should be sufficiently comprehensive in its understanding of the RMLO’s organizational structure, business practices, products, services, affiliates, consumers, and vendors, to be able to monitor for suspicious activity that may involve fraud, money laundering, and other financial crimes, without becoming a burden to the effective and cost-efficient operations of all affected departments throughout the loan flow process. </div>
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Be sure to document SAR decisions, including the specific reason for filing or not filing a SAR. Thorough documentation provides a record of the SAR decision-making process, including final decisions not to file a SAR. However, due to the variety of systems used to identify, track, and report suspicious activity, as well as the fact that each suspicious activity reporting decision will be based on unique facts and circumstances, no single type of documentation is required when a company decides not to file.</div>
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The decision to file a SAR may indeed be viewed as an inherently subjective judgment. During banking examinations the Examiner will focus on whether the company has a comprehensive AML policy and set of procedures, and an effective SAR decision-making process, utilizing such tools as Red Flags, that will lead to a cogent SAR Narrative. Examiners may review individual SAR decisions as a means to test the effectiveness of the SAR monitoring, reporting, and decision-making process outlined in the AML Program.</div>
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<span style="color: #a5a5a5;">_________________________________________________________</span></div>
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<b><span style="color: #c0504d;">Library</span></b></div>
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<a href="http://lenderscompliancegroup.com/42.html"><img alt="Law Library Image" border="0" height="129" src="http://lh5.ggpht.com/-fjR9-sPAm8s/UR0ZkvfhXWI/AAAAAAAAB2A/A2xJ-jSL88I/Law%252520Library%252520Image%25255B5%25255D.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Law Library Image" width="129" /></a></div>
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<b>Anti-Money Laundering</b></div>
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<b>Residential Mortgage Lenders and Originators</b></div>
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<span style="color: #a5a5a5;">_________________________________________________________</span></div>
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<span style="font-size: xx-small;">*Jonathan Foxx is the President & Managing Director of Lenders Compliance Group</span></div>
Jonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.comtag:blogger.com,1999:blog-4345741156614759024.post-4955019872541479992012-11-05T12:09:00.000-05:002012-11-05T12:09:03.145-05:00FinCEN: SAR Narrative, PowerPoint, and Mortgage Loan Fraud<div align="justify">
On September 18, 2012 FinCEN held an Informational Webinar regarding the new FinCEN Suspicious Activity Report (SAR).</div>
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The corresponding, full PowerPoint presentation of the recorded version of this Webinar is available <a href="http://lenderscompliancegroup.com/42.html">HERE</a>.</div>
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For those interested in actually viewing the Webinar, <a href="http://treas.yorkcast.com/webcast/Viewer/?peid=2f93fd0fe8344ca98fe6b45c9ac312191d">HERE</a> is the link to the FinCEN webpage.</div>
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Recently, FinCEN issued two important reports (available in our <a href="http://lenderscompliancegroup.com/42.html">Library</a>):<span style="color: #c0504d;"> </span></div>
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<span style="color: #c0504d;">- SAR Activity Review – Trends, Tips & Issues (Issue 22)</span></div>
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<span style="color: #c0504d;">- Mortgage Loan Fraud Update - Suspicious Activity Report Filings in 2nd Quarter 2012</span> </div>
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The first report offers significant insight and guidance in monitoring suspicious activity, and the second report provides important insights regarding SAR filings related to mortgage loan fraud. For years we have worked with our bank clients on auditing their SAR filings and AML compliance, and I can vouch for the practical advantages of reading these on-going FinCEN reports to enhance your risk management responsibilities.</div>
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<span style="color: red;">IN THIS ARTICLE</span></div>
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<span style="color: #c0504d;">SAR Narrative: "5 W's and the How"</span></div>
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<span style="color: #c0504d;">Mortgage Loan Fraud - Statistics and Charts</span></div>
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<span style="color: #c0504d;">Foreclosure Rescue Scams on the Rise</span></div>
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<span style="color: #c0504d;">California: Highest 2012-Q2 Foreclosure Rescue SARs</span></div>
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<b><span style="color: #c0504d;">SAR Narrative: "5 W's and the How"</span></b></div>
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In the recent SAR Activity Review, sections are provided that outline the basic aspects toward filing a SAR. In particular, the section on writing an effective SAR Narrative is important to consider.</div>
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FinCEN rightly states that the narrative "is a critical part of the SAR because it is where the filer can summarize and provide a more detailed description of the activity being reported." For that reason, it is essential that the narrative be clear, complete and thorough.</div>
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This section of the FinCEN report offers the <b>"5 W's"</b> that I have written about extensively as a way to develop the SAR narrative. (See, for instance, my article, <i><a href="http://lenderscompliancegroup.com/20.html">Anti-Money Laundering Program - Preparation is Protection</a></i>, August 2012.) </div>
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Our clients have learned how to use this narrative method. The FinCEN report does not mention the <b>"How"</b> narrative that I have advocated - and which I will discuss below. In my view, the <u>Anti-Money Laundering Program</u> should have an appendix devoted exclusively to the SAR Narrative procedures, especially outlining the <span style="color: #c0504d;"><u>"5 W's and the How"</u></span> method of writing it.</div>
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The narrative must be clear, complete and thorough and the method I advocate is an effective means toward accomplishing these goals. </div>
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FinCEN's outline is rather brief, so I will provide a much more extensive set of action steps for you to follow.</div>
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The following are the <span style="color: #c0504d;">"5 W's"</span> method provided by FinCEN, after which I will add some remarks about narrating the <span style="color: #c0504d;">"How".</span></div>
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<span style="color: #c0504d;"><b><u>Who</u> is conducting the suspicious activity?</b></span></div>
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While one section of the SAR form calls for specific suspect information, the narrative should be used to further describe the suspect or suspects, including occupation, position or title within the business, and the nature of the suspect’s business(es). If more than one individual or business is involved in the suspicious activity, identify all suspects and any known relationships amongst them in the Narrative Section. </div>
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While detailed suspect information may not always be available (i.e., in situations involving non-account holders), such information should be included to the maximum extent possible. Addresses for suspects are important: filing institutions should note not only the suspect’s primary street addresses, but also, other known addresses, including any post office box numbers and apartment numbers when applicable. Any identification numbers associated with the suspect(s) other than those provided earlier are also beneficial, such as passport, alien registration, and driver’s license numbers.</div>
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<b><span style="color: #c0504d;"><u>What</u> instruments or mechanisms are being used to facilitate the suspect transaction(s)?</span></b></div>
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An illustrative list of instruments or mechanisms that may be used in suspicious activity includes, but is not limited to, wire transfers, letters of credit and other trade instruments, correspondent accounts, casinos, structuring, shell companies, bonds/notes, stocks, mutual funds, insurance policies, travelers checks, bank drafts, money orders, credit/debit cards, stored value cards, and/or digital currency business services. Specific suspect identifying information is provided in the relevant Suspicious Activity Report for RMLO filings.</div>
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In addition, a number of different methods may be employed for initiating the negotiation of funds such as the Internet, phone access, mail, night deposit box, remote dial-up, couriers, or others. In summarizing the flow of funds, always include the source of the funds (origination) that lead to the application for, or recipient use of, the funds (as beneficiary). </div>
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In documenting the movement of funds, identify all account numbers at the financial institution affected by the suspicious activity and when possible, provide any account numbers held at other institutions and the names/locations of the other financial institutions, including MSBs and foreign institutions involved in the reported activity.</div>
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<b><span style="color: #c0504d;"><u>When</u> did the suspicious activity take place?</span></b></div>
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If the activity takes place over a period of time, indicate the date when the suspicious activity was first noticed and describe the duration of the activity. Filers will often provide a tabular presentation of the suspicious account activities (transactions in and out). </div>
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While this information is useful and should be retained, do not insert objects, tables, or pre-formatted spreadsheets when filing a SAR. </div>
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These items may not convert properly when keyed in or merged into the SAR System. Also, in order to better track the flow of funds, individual dates and amounts of transactions should be included in the narrative rather than just the aggregated amount.</div>
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<b><span style="color: #c0504d;"><u>Where</u> did the suspicious activity take place?</span></b></div>
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Use the Narrative Section to indicate that multiple offices of a single financial institution were involved in the suspicious activity and provide the addresses of those locations. Specify if the suspected activity or transaction(s) involve a foreign jurisdiction. If so, provide the name of the foreign jurisdiction, financial institution, address and any account numbers involved in, or affiliated with the suspected activity or transaction(s).</div>
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<b><span style="color: #c0504d;"><u>Why</u> does the filer think the activity is suspicious?</span></b></div>
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FinCEN suggests that the financial institution first describe briefly its industry or business – depository institution, casino, mortgage broker, mortgage banker, securities broker, insurance, real estate, investment services, money remitter, check casher, and so forth. Then describe, as fully as possible, why the activity or transaction is unusual for the customer: consider the types of products and services offered by the industry, and the nature and normally expected activities of similar customers.</div>
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<b><span style="color: #c0504d;">And the "How" - Always Include!</span></b></div>
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<b><span style="color: #c0504d;"><u>How</u> did the suspicious activity occur?</span></b></div>
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Use the Narrative Section to describe the “modus operandi” or the method of operation of the subject conducting the suspicious activity. In a concise, accurate and logical manner, describe how the suspect transaction or pattern of transactions was committed. </div>
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Provide as completely as possible a full picture of the suspicious activity involved. For example, if what appears to be structuring of currency deposits is matched with outgoing wire transfers from the accounts, the SAR narrative should include information about both the structuring and outbound transfers (including dates, destinations, amounts, accounts, frequency, and beneficiaries of the funds transfers).</div>
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<span style="color: #c0504d;"><b>Mortgage Loan Fraud - Statistics and Charts</b></span></div>
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The new update - it is Issue 22 - to FinCEN’s prior Mortgage Loan Fraud (MLF) report looks at SAR filings from April through June 2012 (2012-Q2). It provides new information on reporting activities, geographic locations, and other filing trends in 2012-Q2. We have been tracking these reports from their inception.</div>
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Let's take a closer look at some statistics and charts of SAR filings to better understand the impact on MLF activity.</div>
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<b><span style="color: #c0504d;">Overall Filings</span></b></div>
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In 2012-Q2, filers submitted 17,476 Mortgage Loan Fraud SARs (MLF SARs), which is a 41 percent decrease over the same period in 2011. The total number of all SARs filed in 2012-Q2 increased by 9 percent. Eight percent of all SARs filed in 2012-Q2 indicated MLF as an activity characterization, down from 15 percent in the year ago Q2.</div>
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<a href="http://lh4.ggpht.com/-6QouJlll8_E/UJfwNffjv5I/AAAAAAAABu0/ssnHGsXK_gM/s1600-h/Chart%2525201-MLF-Q2%25255B4%25255D.jpg"><img alt="Chart 1-MLF-Q2" border="0" height="79" src="http://lh6.ggpht.com/-feMoo0UuvwI/UJfwNgo4naI/AAAAAAAABu8/dMcxuV0Socg/Chart%2525201-MLF-Q2_thumb%25255B2%25255D.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Chart 1-MLF-Q2" width="504" /></a></div>
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<span style="color: #c0504d;">Mortgage Loan Fraud SAR Filings<br />Relative to All SAR Filings</span></div>
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<b><span style="color: #c0504d;">Time Elapsed from Activity Date to Reporting Date</span></b></div>
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For both periods, more than 80 percent of MLF SARs involved suspicious activity amounts under $500,000. Filers disclosed loss amounts in only 14 percent of 2012-Q2 MLF SARs, up from 11 percent in 2011 Q2; most reported amounts were under $500,000. </div>
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Consistent with previous years, a relatively small number of MLF SARs (42 filings) included recovered amounts in 2012-Q2.</div>
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<a href="http://lh5.ggpht.com/-PiNNJXg-mkM/UJfwOdng0uI/AAAAAAAABvE/ieUZIJuSlJk/s1600-h/Chart%2525202-MLF-Q2%25255B3%25255D.jpg"><img alt="Chart 2-MLF-Q2" border="0" height="171" src="http://lh6.ggpht.com/--xTlFBDkAm4/UJfwPJg2b7I/AAAAAAAABvM/4jw1LXZGkYQ/Chart%2525202-MLF-Q2_thumb%25255B1%25255D.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Chart 2-MLF-Q2" width="504" /></a></div>
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<span style="color: #c0504d;">During both 2012 and 2011 Q2, <br />a majority of reported activities<br />actually began during or before 2008.</span></div>
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<span style="color: #c0504d;"><b>Top 20 States and Territories</b></span></div>
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Based on per capita rankings, California and Nevada remained the top ranked states, as they were in Q1 2012 and as California was in CY 2011. Florida’s 3rd place ranking was consistent with its showings between 2nd and 5th in the 2011 quarterly reports. </div>
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Arizona and Colorado rounded out the top five per capita rankings. </div>
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Colorado jumped into 5th from rankings in the 13th through 23rd range during 2011. Arizona, which had ranked 11th in 2011 Q1, maintained the 4th ranking it established during 2012 Q1.</div>
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<a href="http://lh6.ggpht.com/-HX-c2s1Gr9Q/UJfwPXFdvvI/AAAAAAAABvU/3MTlXDW4pzk/s1600-h/Chart%2525203-MLF-Q2%25255B3%25255D.jpg"><img alt="Chart 3-MLF-Q2" border="0" height="210" src="http://lh3.ggpht.com/-egImpakFndg/UJfwPy843AI/AAAAAAAABvY/jBTctLPCs74/Chart%2525203-MLF-Q2_thumb%25255B1%25255D.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Chart 3-MLF-Q2" width="504" /></a></div>
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<span style="color: #c0504d;">California and Florida remained the highest ranked states<br />based on the number of mortgage loan fraud subjects,<br />followed by New York, Illinois, and Texas.</span></div>
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<b><span style="color: #c0504d;">Foreclosure Rescue Scams on the Rise</span></b></div>
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When filing a SAR, I would encourage you to identify foreclosure rescue scams, inasmuch as FinCEN has encouraged SAR filers to use one common term, “foreclosure rescue scam,” in the narrative portion of the SAR form. By using this specific term, FinCEN’s advisories and reports have facilitated the identification and isolation of pertinent SARs by FinCEN analysts and agencies with access to FinCEN’s database of SARs and other FinCEN filings. </div>
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SARs that included these key search terms also assisted with the identification of SARs on loan modification and advance fee scams, two other types of suspicious activity addressed in FinCEN’s analytical reports and guidance. FinCEN has determined that the terms “loan modification scam” and “advance fee scam” are keywords with immaterial with respect to MLF filings using either the term “loan modification scam” or “advance fee scam” both before and after issuance of the FinCEN advisories and reports.</div>
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Foreclosure rescue scams target homeowners facing foreclosure with services or advice to purportedly stop or delay the foreclosure process. Some of these scams require homeowners to transfer title or make monthly mortgage payments to the purported “rescuer.” </div>
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Some foreclosure rescue scams require homeowners to pay fees before receiving services, which are known as “advance fee” schemes.</div>
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Foreclosure rescue scam SAR filings continue to be tracked closely by Federal and state law enforcement and regulatory agencies, as these SARs provide insight into crime trends, as well as leads for the initiation and support of investigations and enforcement efforts. </div>
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Foreclosure rescue and similar schemes were a key focus of recent mortgage fraud summits held by the Financial Fraud Enforcement Task Force (FFETF) in which FinCEN actively participated.</div>
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According to FinCEN, during 2012-Q2, FinCEN received 1,325 MLF SARs containing the term “foreclosure rescue” in the narrative part of the form, or eight percent of the total 17,476 MLF SAR reports it received during the quarter. Foreclosure rescue SAR filings continued to grow in the first half of 2012, even as the total number of MLF SARs declined. FinCEN has stated that "if the current pace of foreclosure rescue SAR reporting continues through 2012 Q3 and Q4, the total for 2012 will far exceed the total for 2011."</div>
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<a href="http://lh6.ggpht.com/-3oKAGiIp1hQ/UJfwQX15ebI/AAAAAAAABvg/nBCK2Mi3dro/s1600-h/Chart%2525204-MLF-Q2%25255B3%25255D.jpg"><img alt="Chart 4-MLF-Q2" border="0" height="273" src="http://lh5.ggpht.com/-MHTvC66zBBY/UJfwQhj7ELI/AAAAAAAABvs/SZ19PY4a1O8/Chart%2525204-MLF-Q2_thumb%25255B1%25255D.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Chart 4-MLF-Q2" width="504" /></a></div>
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<span style="color: #c0504d;">Number of MLF SAR Narratives <br />Foreclosure Rescue Scams<br />2003-2012 Projected</span></div>
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Note: the chart indicates each year containing the term “foreclosure rescue” in the narrative. Thus, the 4,720 SARs filed in 2012 is an estimate based on the 2,360 SARs received in the first half of 2012.</div>
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A number of factors may be influencing this upward SAR filing trend. </div>
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Reports, bulletins, and guidance by the Departments of Treasury, Justice, and Housing and Urban Development have likely increased awareness of the scams. A number of well-publicized government investigations and enforcement actions underscored the importance of preventing and reporting these scams.</div>
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FinCEN believes that another factor driving the increase in foreclosure rescue related SARs may be the real estate market itself. </div>
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Given some recent trends in the residential housing markets (i.e., underwater mortgages, lower turnover of existing homes, and less new home construction) there may simply be more opportunity for fraudsters to develop schemes related to existing mortgages in distress, as opposed to schemes related to new loan origination.</div>
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<span style="color: #c0504d;"><b>California: Highest 2012-Q2 Foreclosure Rescue SARs</b></span></div>
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Comparing the statistics of 2012-Q2 foreclosure rescue SARs to all MLF SARs received during 2012 Q2 on two variables where FinCEN observed clear differences, geography and suspicious activity amount, in terms of geography, foreclosure rescue SAR subjects were disproportionately concentrated in California. </div>
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While 12 percent of the U.S. population resides in California, and the geographic analysis indicates California was the number one state per capita for mortgage fraud again in 2012 Q2, the foreclosure rescue figures stood out even against this backdrop. </div>
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<a href="http://lh4.ggpht.com/-uVsSLjgspHU/UJfwRlvmZaI/AAAAAAAABv0/c-SP90zN1Ro/s1600-h/Chart%2525205-MLF-Q2%25255B3%25255D.jpg"><img alt="Chart 5-MLF-Q2" border="0" height="306" src="http://lh5.ggpht.com/-j3xG-DU9Q-Q/UJfwSH8dr4I/AAAAAAAABv8/a66a0HV3be0/Chart%2525205-MLF-Q2_thumb%25255B1%25255D.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Chart 5-MLF-Q2" width="504" /></a></div>
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<span style="color: #c0504d;">Percentage of 2012 Q2 MLF SAR Subjects Located in California</span></div>
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The chart shows that 49 percent of the 2012-Q2 subjects in foreclosure rescue SARs resided in California, while 37 percent of all 2012-Q2 MLF SAR subjects had a California address. This is consistent with FinCEN’s past research on debt elimination scams, a type of foreclosure rescue scam, in which a disproportionate number of the subjects were also located in California. (Debt elimination schemes involve the use or purported use of bogus documents and payment methods to invalidate mortgage obligations or pay off mortgage balances. Individuals orchestrating debit elimination schemes typically charge borrowers fees for debt elimination services.)</div>
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<b><span style="color: #c0504d;">Library</span></b></div>
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<a href="http://lenderscompliancegroup.com/42.html"><img alt="Law Library Image" border="0" height="129" src="http://lh6.ggpht.com/-N_VIc4eIxD4/UJfwSpZATeI/AAAAAAAABwE/DbZNheVe6Zk/Law%252520Library%252520Image%25255B5%25255D.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Law Library Image" width="129" /></a></div>
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<b>SAR Activity Review</b> – <br />Trends, Tips & Issues (Issue 22) (10/10/12)</div>
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<b>Mortgage Loan Fraud Update</b> - <br />Suspicious Activity Report Filings in 2nd Quarter 2012 (10/9/12)</div>
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<b>FinCEN Suspicious Activity Report and Filing Instructions</b> -<br />PowerPoint Presentation (9/18/12</div>
Jonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.comtag:blogger.com,1999:blog-4345741156614759024.post-29554558975777197412012-08-24T08:30:00.001-04:002012-08-24T08:30:01.687-04:00Mortgage Fraud and SARs<div align="justify">On August 16, 2012, the <u>Financial Crimes Enforcement Network</u> (<b>FinCEN</b>) issued an Advisory to highlight activity related to mortgage loan fraud, especially as it pertains to <span style="color: #c0504d;">Residential Mortgage Lenders and Originators</span> (<b>RMLOs</b>). The issuance serves to further clarify suspicious financial activity that may require filing <span style="color: #c0504d;">Suspicious Activity Reports</span> (<b>SARs</b>).*</div><div align="justify"><br />
</div><div align="justify">The issuance consolidates certain information from previously issued FinCEN reports, and contains <b>examples of common fraud schemes and potential<span style="color: black;"> "red flags" for</span> activity related to mortgage loan fraud</b>. </div><div align="justify"><br />
</div><div align="justify">This Advisory, which consolidates certain information from previously issued FinCEN reports, contains examples of common fraud schemes and potential <span style="color: #c0504d;">Red Flags</span> for activity related to mortgage loan fraud. Furthermore, the data gathered supports the efforts of the <i>Financial Fraud Enforcement Task Force</i> (FFETF), the Treasury's broader initiative to ensure that U.S. financial institutions are not used as conduits for illicit activity, as well as the OIG's mortgage fraud initiatives of FinCEN and the Department of Housing and Urban Development (HUD).</div><div align="justify"><br />
</div><div align="center"><span style="color: red;">IN THIS ARTICLE</span></div><div align="center"><br />
</div><div align="center"><span style="color: #c0504d;">Types of Mortgage Loan Fraud</span></div><div align="center"><br />
</div><div align="center"><span style="color: #c0504d;">Possible Red Flags</span></div><div align="center"><br />
</div><div align="center"><span style="color: #c0504d;">Suspicious Activity Reporting</span></div><div align="center"><br />
</div><div align="center"><span style="color: #c0504d;">Contacting FinCEN</span></div><div align="center"><br />
</div><div align="center"><span style="color: #c0504d;">Library</span></div><div align="center"><br />
</div><div align="center"><span style="color: #a5a5a5;">____________________________________________________________</span></div><div align="center"><br />
</div><div align="center"><span style="color: #c0504d;"><b>Types of Mortgage Loan Fraud</b></span></div><div align="center"><br />
</div><div align="justify">Based on the Advisory and previous mortgage fraud reports issued by FinCEN, the following list identifies certain types of mortgage loan fraud. These are primarily based upon schemes and scams frequently reported or described in SARs or identified by law enforcement authorities. </div><div align="justify"><br />
</div><div align="justify"><span style="color: #c0504d;">Occupancy Fraud</span> </div><div align="justify">Occurs when borrowers, to obtain favorable loan terms, claim that subject properties will be their primary residences instead of vacation homes or investment properties. It also occurs when subjects apply for loans for properties that others, such as family members, will actually occupy.</div><div align="justify"><br />
</div><div align="justify"><span style="color: #c0504d;">Income Fraud</span></div><div align="justify">Includes both overstating income to qualify for larger mortgages and understating income to qualify for hardship concessions and modifications.</div><div align="justify"><br />
</div><div align="justify"><span style="color: #c0504d;">Appraisal Fraud</span></div><div align="justify">Includes both overstating home value to obtain more money from a sale of property or cash-out refinancing, and understating home value in connection with a plan to purchase a property at a discount to market value.</div><div align="justify"><br />
</div><div align="justify"><span style="color: #c0504d;">Employment Fraud</span></div><div align="justify">Includes misrepresenting whether, where, and for how long borrowers have been employed; whether borrowers are unemployed or collecting unemployment benefits; and whether borrowers are independent contractors or business owners.</div><div align="justify"><br />
</div><div align="justify"><span style="color: #c0504d;">Liability Fraud</span></div><div align="justify">Occurs when borrowers fail to list significant financial liabilities, such as other mortgages, car loans, or student loans, on mortgage loan applications. Without complete liability information, lenders cannot accurately assess borrowers' ability to repay debts.</div><div align="justify"><br />
</div><div align="justify"><span style="color: #c0504d;">Debt Elimination Schemes</span></div><div align="justify">Involves the use of fake legal documents and alternative payment methods to argue that existing mortgage obligations are invalid or illegal, or to purport to extinguish mortgage balances. Individuals orchestrating debt elimination schemes typically charge borrowers a fee for these debt elimination "services."</div><div align="justify"><br />
</div><div align="justify"><span style="color: #c0504d;">Foreclosure Rescue Scams</span></div><div align="justify">Targets financially distressed homeowners with fraudulent offers of services or advice aimed at stopping or delaying the foreclosure process. Some of these scams require homeowners to transfer title - or make monthly mortgage payments - to the purported "rescuer," rather than the real holder of the mortgage. Some foreclosure rescue scams require homeowners to pay fees before receiving "services," and are known as "advance fee" schemes.</div><a name='more'></a><br />
<div align="justify"><br />
</div><div align="justify"><span style="color: #c0504d;">Social Security Number (SSN) Fraud and Other Identify Theft</span></div><div align="justify">Includes the use of an SSN or other government identification card or number that belongs to someone other than the applicant in a loan application. Identity Theft includes broader use of another's identity or identifiers (beyond an SSN) to obtain a mortgage or perpetrate a "fraud for profit" scheme.</div><div align="justify"><br />
</div><div align="justify"><span style="color: #c0504d;">Home Equity Conversion Mortgage (HECM)</span></div><div align="justify">Financial institutions need be aware of illegal "reverse mortgage" schemes, which targets seniors who own a home or who are coerced into taking title to a home, for the purpose of stealing or otherwise acquiring some or all of the funds the senior receives from a government HECM program. HECM fraud may involve other frauds, including appraisal fraud (to increase the stated value of the home), investment fraud to acquire the HECM funds from the senior under the guise of future profits for the senior, and identify theft to acquire HECM funds without the knowledge of the senior who owns the property.</div><div align="justify"><br />
</div><div align="center"><span style="color: #c0504d;"><b>Possible Red Flags</b></span></div><div align="justify"><br />
</div><div align="justify">The following is a list of potential red flag indicators of illicit activity related to mortgage fraud. These only indicate <i><span style="color: #c0504d;">possible signs</span></i> of fraudulent activity and should not be considered to constitute an exhaustive list of common fraud schemes. </div><div align="justify"><br />
</div><div align="justify">No single red flag will be definitive proof of such activity and many apply to multiple fraud schemes. Instead, it is important to view any red flag(s) in the context of other indicators and facts, such as the specific role of the RMLO within mortgage loan-related transaction(s), as well as the institution's knowledge of any associated fraud schemes. The presence of any of these red flags in a given residential mortgage loan transaction may indicate a need for further due diligence and a decision whether to file a SAR.</div><div align="justify"><br />
</div><ul><li> <div align="justify">Borrower/buyer submits invalid documents in order to cancel his or her mortgage obligations or to pay off his or her loan balance(s).<br />
</div></li>
<li> <div align="justify">Same notary public and/or other "authorized representative" preparing, signing, and sending packages of nearly identical debt elimination documents for multiple borrowers with outstanding mortgage balances.<br />
</div></li>
<li> <div align="justify">Same notary public and/or other "authorized representative" working with and/or receiving payments from unusually large numbers of borrowers.<br />
</div></li>
<li> <div align="justify">Falsification of certified checks, cashier's checks or "non-cash item checks" drawn against a borrower/buyer's account, rather than from the account of a financial institution.<br />
</div></li>
<li> <div align="justify">Borrower/buyer applies for a loan for a "primary residence " but does not reside in the new primary residence as indicated on the loan application; other individuals occupy the borrower/buyer's new primary residence indicating the property is being used as a secondary residence or income-generating property.<br />
</div></li>
<li> <div align="justify">Borrower/buyer of a younger age purchases his or her "primary residence" in a senior citizen residential development.<br />
</div></li>
<li> <div align="justify">Borrower/buyer requests refinancing for "primary residence" when public and personal documents indicate that the borrower/buyer resides somewhere other than the address on the loan application.<br />
</div></li>
<li> <div align="justify">Language included in a short sale contract indicates the property could be resold promptly. This possibly illegal "flipping" may occur regardless of whether the Federal Housing Administration (FHA) has re-enacted or waived its arms-length resale regulations to FHA buyers.<br />
</div></li>
<li> <div align="justify">Low appraisal values, non-arms length relationships between short sale buyers and sellers, or previous fraudulent sale attempts in short-sale transactions,.<br />
</div></li>
<li> <div align="justify">Agent of the buyer and/or seller in mortgage transaction is unlicensed.<br />
</div></li>
<li> <div align="justify">Past misrepresentations made by borrower/buyer in attempts to secure funding, property, refinance, and/or shorts sales.<br />
</div></li>
<li> <div align="justify">Improper/incomplete file documentation, including borrower/buyer reluctance to provide more information and/or unfulfilled promises to provide more information.<br />
</div></li>
<li> <div align="justify">Apparent resubmission of rejected loan application with key borrower/buyer details changed or modified from individual borrower to company/corporation. This activity may identify the same person attempting to secure a loan fraudulently through a straw-borrower or non-existent person.<br />
</div></li>
<li> <div align="justify">Borrower/buyer attempts to structure currency deposits/withdrawals, or otherwise to hide or disguise the true value of assets, in order to qualify for loan modification programs intended for those homeowners in financial distress.<br />
</div></li>
<li> <div align="justify">Request from third party affiliates on behalf of distressed homeowners to pay fees in advance of the homeowner receiving mortgage counseling, foreclosure avoidance, a loan modification, or other related services.<br />
</div></li>
<li> <div align="justify">Third party solicitation of distressed homeowners for purported mortgage counseling, foreclosure avoidance, loan modification, or other related services. These third parties may also claim to be associated with legitimate mortgage lenders, the U.S. government, or a U.S. government program.</div></li>
</ul><div align="justify"><br />
</div><div align="center"><span style="color: #c0504d;"><b>Suspicious Activity Reporting</b></span></div><div align="justify"><br />
</div><div align="justify">If an RMLO knows, suspects, or has reason to suspect that a transaction conducted or attempted by, at, or through the financial institution involves funds derived from illegal activity or an attempt to disguise funds derived from illegal activity, is designed to evade regulations promulgated under the Bank Secrecy Act, or lacks a business or apparent lawful purpose, the financial institution may be required to file a SAR. </div><div align="justify"><br />
</div><div align="justify">When completing SARs on suspected mortgage loan fraud, RMLOs should indicate the type of mortgage loan fraud by entering the appropriate code in the FinCEN SAR and provide a detailed description in the SAR narrative. For activity that does not have a corresponding code, financial institutions should identify "Other" and describe the activity in the narrative.</div><div align="justify"><br />
</div><div align="justify">When an RMLO files a SAR, it should, where available, include its NMLS Unique Identifier. (The the NMLS Unique Identifier is recognized by the Federal Housing Finance Agency (FHFA) and HUD. Both federal agencies require that any loan purchased or securitized by Fannie Mae and Freddie Mac, or submitted for insurance by the FHA, must include the NMLS Unique Identifier for the company and individual MLO that originated the mortgage loan.)</div><div align="justify"><br />
</div><div align="center"><span style="color: #c0504d;"><b>Contacting FinCEN</b></span></div><div align="justify"><br />
</div><div align="justify">There are several ways to contact FinCEN. The following list provides useful contact information that my firm has used when providing compliance guidance to our clients. The nature of the inquiry would determine the selection of the contact.</div><div align="justify"><br />
</div><blockquote><div align="justify"><b>GENERAL INQUIRIES:</b> (703) 905-3591 (Monday thru Friday, 8:30 a.m. - 5:00 p.m., E.T.). For the general public with questions about the Financial Crimes Enforcement Network, its policies and programs.</div></blockquote><blockquote><div align="justify"> <b>REGULATORY INQUIRIES:</b> Regulatory Toll-Free Helpline, (800) 949-2732 (Monday thru Friday, 8:00 a.m. - 5:00 p.m., E.T.). For financial institutions with questions relating to Bank Secrecy Act and USA Patriot Act requirements and forms.</div></blockquote><div align="justify"><br />
</div><blockquote><div align="justify"><b>SECTION 314 INQUIRIES:</b> (866) 326-8314 (Monday thru Friday, 8:30 a.m. - 5:00 p.m., E.T.)</div></blockquote><div align="justify"><br />
</div><blockquote><div align="justify"><b>SECTION 314 PROGRAM OFFICE:</b> <a href="mailto:sys314a@fincen.gov">sys314a@fincen.gov</a> or (866) 326-8314</div></blockquote><div align="justify"><br />
</div><blockquote><div align="justify"><b>LAW ENFORCEMENT INQUIRIES:</b> (703) 905-3591 (Monday thru Friday, 8:30 a.m. - 5:00 p.m., E.T.)</div></blockquote><div align="justify"><br />
</div><blockquote><div align="justify"><b>FINANCIAL INSTITUTIONS TOLL-FREE HOTLINE:</b> (866) 556-3974 (7 days a week, 24 hours a day). For financial institutions wanting to report suspicious transactions that may relate to terrorist activity. The purpose of the hotline is to facilitate the advance notice of this information to law enforcement.</div></blockquote><div align="justify"><br />
</div><div align="center"><span style="color: #c0504d;"><b>Library</b></span></div><div align="justify"><br />
</div><div align="justify"><a href="http://lenderscompliancegroup.com/42.html"><img alt="Law Library Image" border="0" height="139" src="http://lh5.ggpht.com/-7BDADmJ1AGU/UDZy74vL8MI/AAAAAAAABp0/67C1AppwXnI/Law%252520Library%252520Image%25255B5%25255D.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: block; float: none; margin-left: auto; margin-right: auto; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Law Library Image" width="139" /></a></div><br />
<div align="center"><b>Suspicious Activity Related to Mortgage Loan Fraud</b> </div><div align="center"><br />
</div><div align="center">August 16, 2012</div><div align="center"><br />
</div><div align="center">FIN-2012-A009</div><br />
<div align="center"><span style="color: #a5a5a5;">____________________________________________________________</span></div><div align="center"><span style="font-size: xx-small;">*Jonathan Foxx is the President & Managing Director of Lenders Compliance Group</span></div>Jonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.comtag:blogger.com,1999:blog-4345741156614759024.post-54697758678068991472012-08-10T13:02:00.000-04:002012-08-10T13:02:22.550-04:00Interview: Anti-Money Laundering Program for Nonbanks<div align="justify">Monday, August 13, 2012, marks the commencement of the <span style="color: #c0504d;">Anti-Money Laundering Program</span>. </div><div align="justify"> </div><div align="justify">Specifically, this is the effective date for implementing the regulatory compliance requirements for <span style="color: #c0504d;">Residential Mortgage Lenders and Originators</span> (RMLOs). </div><div align="justify"> </div><div align="justify">From <span style="color: #c0504d;">August 13, 2012</span> forward, RMLOs must have established an Anti-Money Laundering Program (AML Program) and, as required, file <span style="color: #c0504d;">Suspicious Activity Reports</span> (SARs). </div><div align="justify"> </div><div align="justify">The Financial Crimes Enforcement Network (FinCEN), a bureau of the Department of the Treasury, issued regulations earlier this year that require RMLOs to establish AML Programs and report suspicious activities under the mandates of the Bank Secrecy Act.</div><div align="justify"><br />
</div><div align="justify">For additional background information, please refer to my March 2012 article, entitled <a href="http://lenderscompliancegroup.com/resources/Anti-Money+Laundering+Debuts+For+Nonbanks+-+Magazine+Article+-+$28Foxx.NMP-March+2012$29.pdf">Anti-Money Laundering Debuts for Nonbanks.</a> *</div><div align="justify"><br />
</div><div align="justify">This month, I am publishing yet another article on AML compliance, this time the subject is about drafting the Anti-Money Laundering Program. The article is entitled <i><span style="color: #c0504d;">Anti-Money Laundering Program - Preparation is Protection</span></i>. When published, I will notify you and send you the download link. </div><div align="justify"><br />
</div><div align="center"><u><span style="color: #c0504d;"><b>INTERVIEW: ANTI-MONEY LAUNDERING COMPLIANCE</b></span></u></div><div align="justify"><br />
</div><div align="justify">Recently, I was interviewed by Paul Donohue, the Founder of <a href="http://abacusmortgagetraining.com/index.html">Abacus Mortgage Training and Education</a>, for his highly-regarded <span style="color: #c0504d;">Abacus Mortgage Mastery Series</span>. </div><div align="justify"><br />
</div><div align="justify">I discussed at considerable length the many compliance features and guidelines of the Anti-Money Laundering Program. We had a detailed and engaging discussion about anti-money laundering as it relates to RMLOs.</div><div align="justify"><br />
</div><div align="justify">I suggest that you listen to this interview, because it covers a broad range of issues and will help you to be prepared for implementing FinCEN's Anti-Money Laundering Program for RMLOs. </div><div align="justify"><br />
</div><div align="justify">There are two ways for you to listen to the interview:</div><div align="justify"><br />
</div><ul><li> <div align="justify">Listen to the full Interview. </div><ul><li> <div align="justify">Click the <u><span style="color: red;">Interview</span></u> button on our website.</div></li>
</ul></li>
</ul><div align="justify"><br />
</div><ul><li> <div align="justify">Download the full interview (<span style="color: red;">MP3</span>) to save for future reference and AML training plans. </div><ul><li> <div align="justify">Click the <u><span style="color: red;">MP3</span></u> button on our website.</div></li>
</ul></li>
</ul><br />
<div align="center"><b><span style="color: #c0504d;">INTERVIEW</span></b> </div> <br />
<div align="center"><span style="color: #c0504d;">Anti-Money Laundering Compliance</span> </div><div align="center"><span style="color: #c0504d;"></span> </div><div align="center"><a href="http://lenderscompliancegroup.com/20.html"><img alt="Interview-1 (140x53)-RED-2-Border" border="0" height="70" src="http://lh3.ggpht.com/-7HyhLALF26c/UCU-XN0JouI/AAAAAAAABow/6gFYp4aYeL0/Interview-1%252520%252528140x53%252529-RED-2-Border%25255B61%25255D.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Interview-1 (140x53)-RED-2-Border" width="179" /></a> </div><div align="center"><span style="color: red; font-size: xx-small;">CLICK</span></div><div align="center"><span style="color: #a5a5a5;">____________________________________________________________</span></div><div align="center"><span style="font-size: xx-small;">* Jonathan Foxx is the President & Managing Director of Lenders Compliance Group</span></div><div align="center"><span style="color: #a5a5a5;"></span></div>Jonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.comtag:blogger.com,1999:blog-4345741156614759024.post-59734016507690074212012-06-28T11:58:00.000-04:002012-06-28T11:58:35.015-04:00Mortgage Fraud in California, Nevada, and Florida<div align="justify">The Financial Crimes Enforcement Network (FinCEN) released its First Quarter 2012 on June 26, 2012, entitled Mortgage Loan Fraud Update - Suspicious Activity Report Filings in 1st Quarter 2012.*</div><div align="justify"><br />
</div><div align="justify">This update of mortgage loan fraud suspicious activity reports, known as MLF SARs, shows that California, Nevada, and Florida lead the nation in the number of MLF SAR subjects per capita.</div><div align="justify"><br />
</div><div align="justify">Of the 50 most populous Metropolitan Statistical Areas (MSAs) ranked by the number of MLF SAR subjects reported, the top nine are MSAs located in California, Nevada, and Florida. The Californian cities of Los Angeles, Long Beach, and Santa Ana ranked first in the nation for mortgage loan fraud SARs. </div><div align="justify"><br />
</div><div align="justify">A closer look indicates that 19% of Q1 MLF SARs report activity that occurred within the past two years. Of this more recent activity, there were sharp increases in debt elimination schemes: comparatively, 14% reported in Q1-2012 versus 9% in Q1-2011. Foreclosure rescue scams show a dramatic increase: comparatively, 8% of these Q1-2012 filings versus less than 2% in Q1-2011. </div><div align="justify"><br />
</div><div align="justify">In total, financial institutions filed 17,651 MLF SARs in the first quarter of 2012, which is down from 25,485 filed in the same quarter of 2011. According to the report, previous record levels were attributable to mortgage loan repurchase demands prompting reviews of dated mortgages. I would expect this trend to continue, inasmuch as 72% of Q1 filings are still reporting suspicious activity that occurred more than four years ago. </div><div align="justify"><br />
</div><div align="justify">An interesting statistic is the extent to which mortgage fraud was prevented: 41% of the mortgage loan transactions were spotted and stopped before completion, up slightly from 40% in the CY 2011. However, that also means 59% of the subject transactions were not prevented before completion. </div><div align="justify"><br />
</div><div align="justify">Let's look at some charts, sourced from the FinCEN report.</div><br />
<div align="center"><span style="color: red;">IN THIS ARTICLE</span></div><div align="center"><br />
</div><div align="center"><span style="color: #c0504d;"><u>CHART 1:</u><br />
Quarterly MLF Filings, Q1 2006 through Q1 2012 <br />
<u>CHART 2:</u> <br />
Mortgage Loan Fraud - MLF SAR<br />
<u>CHART 3:</u> <br />
Mortgage Loan Fraud SAR Subjects-Top 20 States & Territories <br />
<u>CHART 4:</u> <br />
Categories of Fraud Addressed in MLF SAR Narratives</span></div><div align="center"><br />
</div><div align="center"><span style="color: #c0504d;">New Fraud Patterns</span></div><div align="center"><br />
</div><div align="center"><span style="color: #dd8484;">____________________________________________</span></div><br />
<div align="center"><a href="" name="Non"><b><span style="color: #c0504d;">Chart 1: Quarterly MLF Filings, Q1 2006 through Q1 201</span></b></a><b><span style="color: #c0504d;">2</span></b></div><div align="center"><a href="http://lh5.ggpht.com/-gxGays5jaa4/T-x-Lh_-0-I/AAAAAAAABf0/lqknEH-bjC4/s1600-h/MLF-Chart%2525201%25255B82%25255D.jpg"><img alt="MLF-Chart 1" border="0" height="250" src="http://lh5.ggpht.com/-pQYL8o6dkFU/T-x-MDSkEMI/AAAAAAAABf8/fnc159Nq9nI/MLF-Chart%2525201_thumb%25255B80%25255D.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="MLF-Chart 1" width="454" /></a></div><div align="justify">FinCEN reported an unusual spike in MLF SAR filings during 2011 Q1 through Q3, primarily due to mortgage repurchase demands on banks. Those repurchase demands prompted review of mortgage loan origination and refinancing documents, where filers discovered fraud, which was then reported on SARs.</div><br />
<div align="center"><b><span style="color: #c0504d;">Chart 2: Mortgage Loan Fraud - MLF SARs</span></b></div><div align="center"><a href="http://lh4.ggpht.com/-2wY3ugh1hRc/T-x-MXvykSI/AAAAAAAABgE/522qb-BaCvI/s1600-h/MLF-Chart%2525202%25255B3%25255D.jpg"><img alt="MLF-Chart 2" border="0" height="154" src="http://lh6.ggpht.com/-bKcM5ffThiU/T-x-MnsvuJI/AAAAAAAABgM/ktiePWUsJHE/MLF-Chart%2525202_thumb%25255B1%25255D.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="MLF-Chart 2" width="454" /></a></div><div align="justify">During both 2012 and 2011 Q1, a majority of reported activities actually began during or before 2008.</div><br />
<div align="center"><span style="color: #c0504d;"><b>Chart 3: Mortgage Loan Fraud SAR Subjects - </b><b><b>Top 20 States and Territories</b></b></span> </div><div align="center"><a href="http://lh6.ggpht.com/-OyCy9rkraLw/T-x-NPs985I/AAAAAAAABgU/La556DujFEU/s1600-h/MLF-Chart%2525203%25255B3%25255D.jpg"><img alt="MLF-Chart 3" border="0" height="190" src="http://lh4.ggpht.com/-xxXni2362yE/T-x-NkDRdTI/AAAAAAAABgc/_BuncpfsRcs/MLF-Chart%2525203_thumb%25255B1%25255D.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="MLF-Chart 3" width="454" /></a></div><div align="justify">Based on per capita rankings, California remained the top ranked state, as it was in Q4 and CY 2011. Nevada ranked 2nd, rising from its 5th place ranking in 2011 Q4. Florida's 3rd ranking was consistent with its showings between 2nd and 4th in the 2011 quarterly reports. Arizona and New York rounded out the top five per capita rankings. Arizona jumped into 4th from rankings in the 6th through 11th range during 2011, while New York jumped into 5th from rankings in the low to mid-teens during 2011.</div><br />
<div align="center"><span style="color: #c0504d;"><b>Chart 4: Categories of Fraud Addressed </b><b><b>in MLF SAR Narratives</b></b></span> </div><div align="center"><b><a href="http://lh6.ggpht.com/-_RxggWwZKjI/T-x-OG1hLhI/AAAAAAAABgk/d7aAS3QEw20/s1600-h/MLF-Chart%2525204%25255B3%25255D.jpg"><img alt="MLF-Chart 4" border="0" height="278" src="http://lh5.ggpht.com/-gmY2nS8beV8/T-x-OWPj8GI/AAAAAAAABgs/a0B8Nbu-afI/MLF-Chart%2525204_thumb%25255B1%25255D.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="MLF-Chart 4" width="454" /></a></b></div><div align="justify">Some noteworthy changes from CY 2011 include an increase in debt elimination schemes, which were addressed in 14% of 2012 Q1 sample SARs, up from 9% in CY 2011. In addition, foreclosure rescue scams (other than debt elimination) were noted in 8% of 2012 Q1 sample SARs, but had been described in less than 2% of CY 2011 reports. Appraisal fraud was described in 3% of 2011 Q1 reports, down from 12% of CY 2011 reports. </div><div align="justify"> </div><div align="center"><b><span style="color: #c0504d;">New Fraud Patterns</span></b> </div><div align="center"> </div><div align="justify"><span style="color: #c0504d;">Homeowners' Insurance Fraud <br />
</span>FinCEN noted two SARs describing homeowners' insurance fraud related to mortgage fraud in the aftermath of home fires. In one instance, a home with two mortgages burned down. The borrower asked that the insurance check be payable to him instead of the mortgage lender, and did repay the first mortgage. But the subject ignored payment requests and subsequent demand letters from the filer on the second mortgage. In the other case, the filer suspected arson on a rental property insured for several times the mortgaged value. This subject repaid his mortgage loan with insurance proceeds and pocketed the additional insurance money.</div><div align="justify"><span style="color: #c0504d;">Keys for Cash<br />
</span>One filer was notified by local law enforcement, based on a confirmed lead from a local realtor, about persons illegally occupying bank owned properties ("REOs"). The subjects moved into various bank owned properties claiming to have long term leases. However, the subjects' true objective appeared to be inducing lenders into paying them to vacate the premises.</div><div align="justify"></div><div align="center"><b><span style="color: #c0504d;">Library</span></b> </div><div align="center"><a href="http://lh5.ggpht.com/-XLA10Mjupsk/T-x-O83pwDI/AAAAAAAABg0/qNkodFD_hgo/s1600-h/Law%252520Library%252520Image%25255B6%25255D.jpg"><img alt="Law Library Image" border="0" height="154" src="http://lh3.ggpht.com/-OsYL-noPhrc/T-x-PPzusOI/AAAAAAAABg8/_yXQ41CnDFc/Law%252520Library%252520Image_thumb%25255B3%25255D.jpg?imgmax=800" style="background-image: none; border-bottom-width: 0px; border-left-width: 0px; border-right-width: 0px; border-top-width: 0px; display: inline; padding-left: 0px; padding-right: 0px; padding-top: 0px;" title="Law Library Image" width="154" /></a></div><div align="center">Financial Crimes Enforcement Network</div><div align="center">Mortgage Loan Fraud Update - <br />
Suspicious Activity Report Filings in 1st Quarter 2012<br />
<br />
June 26, 2012</div><div align="center"><span style="color: #dd8484;">____________________________________________</span></div><div align="center"><span style="font-size: xx-small;">* Jonathan Foxx is the President & Managing Director of Lenders Compliance Group</span></div>Jonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.comtag:blogger.com,1999:blog-4345741156614759024.post-52197408565060246022012-03-28T08:25:00.001-04:002012-03-28T08:25:00.923-04:00Anti-Money Laundering Program for RMLOs<div align="justify">A new era in filing requirements is about to begin. For the first time, the <span style="color: #c0504d;"><b>Financial Crimes Enforcement Network</b>, known as “<b>FinCEN</b>,”</span> will require nonbank mortgage lenders and originators to implement an <span style="color: #c0504d;"><b>Anti-Money Laundering program (“AML Program”)</b></span> and file <span style="color: #c0504d;"><b>Suspicious Activity Reports (“SARs”)</b></span> for certain loan transactions.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn1" name="_ednref1">[i]</a> FinCEN is establishing this AML program in accordance with the <span style="color: #c0504d;"><b>Bank Secrecy Act (“BSA”)</b></span>.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn2" name="_ednref2">[ii]</a> The guidelines relating to the AML requirement become effective on April 16, 2012, and the AML Program’s effective compliance date is August 13, 2012.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn3" name="_ednref3">[iii]</a> The AML program and SAR filing regulations, which I will refer to as “FinCEN’s rule,” are considered to be “the first step in an incremental approach to implementation of regulations for the broad loan or finance company category of financial institutions.” <a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn4" name="_ednref4">[iv]</a> </div><div align="justify"> </div><div align="justify">The Bank Secrecy Act defines the term "financial institution" to include, in part, a loan or finance company. This terminology, however, can reasonably be construed to extend to any business entity that makes loans to or finances purchases on behalf of consumers and businesses. Thus, nonbank residential mortgage lenders and originators, and mortgage brokers, are grouped into the "loan or finance company" category.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn5" name="_ednref5">[v]</a> However, the term ‘‘loan or finance company’’ is actually not concisely defined in any FinCEN regulation, and there is no legislative history on the term itself. Nevertheless, FinCEN is applying this term to extend to any business entity that makes loans to or finances purchases on behalf of consumers and businesses. <a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn6" name="_ednref6">[vi]</a> Therefore, <b><span style="color: #c0504d;">residential mortgage lenders and originators</span></b> (<span style="color: #c0504d;"><b>“RMLOs”</b></span>) are covered by the scope of the ‘‘loan or finance company’’ term. I will use the acronym “RMLO” in this article, inasmuch as my principal focus herein relates to residential mortgage lenders and originators. </div><div align="justify"> </div><div align="justify">FinCEN can issue regulations requiring financial institutions to keep records and file reports that are determined to have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism. Federally regulated depository institutions have been required to have AML Programs,<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn7" name="_ednref7">[vii]</a> and now, as of the aforementioned effective compliance date, RMLOs must also comply with FinCEN’s regulations relating to implementing an AML Program and the filing of SARs. </div><div align="justify"> </div><div align="justify">Over the last few years,<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn8" name="_ednref8">[viii]</a> FinCEN has issued studies and analyses that used SARs to discover suspected mortgage fraud and money laundering that involved both banks and residential mortgage lenders and originators.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn9" name="_ednref9">[ix]</a> According to FinCEN, these reports “underscore[d] the potential benefits of AML and SAR regulations for a variety of businesses in the primary and secondary residential mortgage markets.”<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn10" name="_ednref10">[x]</a> </div><div align="justify"> </div><div align="justify">Residential mortgage lenders and originators, the RMLOs, are considered to be the primary providers of mortgage finance, and have a unique position with respect to direct contact with the consumer. Thus, they are presumably able to assess and identify money laundering risks and fraud.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn11" name="_ednref11">[xi]</a> At this time, FinCEN is not proposing a definition of “loan or finance company’’ that would encompass other types of consumer or commercial finance companies, or real estate agents and other entities involved in real estate closings and settlements. </div><div align="justify"> </div><div align="justify">In this article, I am going to unpack the AML Program for you in a way that will give you some familiarity with its scope, while perhaps also making its implementation a bit less daunting than it might otherwise seem to be. Nevertheless, many RMLOs will find that setting up the AML Program will be a challenging endeavor. Information, issuances, and <b><a href="http://lenderscompliancegroup.com/42.html">relevant documentation are available in the FinCEN section of my firm’s website Library.</a></b> </div><div align="justify"> </div><div align="justify">Please keep in mind that, as is the case with many applications of legal and regulatory compliance, there are aspects and nuances that will require recourse to a competent risk management professional to obtain comprehensive guidance and reliable information.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn12" name="_ednref12">[xii]</a> </div><div align="justify"><b></b> </div><div align="center"><b><span style="color: #c0504d;">AML PROGRAM</span></b> </div><div align="justify"> </div><div align="justify">Residential mortgage lenders and originators, the RMLOs, are required to establish an AML Program that includes, at a minimum: </div><div align="justify"> </div><div align="justify" style="color: #990000;">(1) Development of internal policies, procedures, and controls. </div><div align="justify" style="color: #990000;">(2) Designation of a compliance officer. </div><div align="justify" style="color: #990000;">(3) Ongoing employee training program. </div><div align="justify" style="color: #990000;">(4) Independent audit function to test for compliance. </div><a name='more'></a><br />
<div align="justify"> </div><div align="justify">To effectuate the AML Program, FinCEN has given a definition of an RMLO that is broad in scope and covers most nonbank residential mortgage originators. </div><div align="justify"> </div><div align="justify"><span style="color: #c0504d;">The AML Program covers any business that, on behalf of one or more lenders, <b>accepts</b> a completed mortgage loan application,<b> <i>even if the business does not in any manner engage in negotiating the terms of a loan</i>.</b> Also covered are businesses that <b>offer or negotiate</b> specific loan terms on behalf of either a lender or borrower, <b><i>regardless of whether they also accept a mortgage loan application</i>.</b></span> </div><div align="justify"> </div><div align="justify">Note that the word “accept” is intended to differentiate the FinCEN rule from the SAFE Act. FinCEN is ensuring that <span style="color: #c0504d;"><b>persons who</b> <b>either accept an application or offer or negotiate the terms of a loan are covered</b>.</span> Furthermore, the AML rule applies to residential mortgage originators<i>, regardless of whether they receive compensation or gain for acting in that capacity</i>. </div><div align="justify"> </div><div align="justify">Obviously, these changes create differences between the definitions in the FinCEN rule and those used in the SAFE Act and other federal mortgage-related statutes. Clearly, this was done intentionally to differentiate the FinCEN requirements from those other statutes, so that FinCEN’s interpretation is not based on the interpretation of those statutes.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn13" name="_ednref13">[xiii]</a> Moreover, FinCEN has taken the position that the registration and training requirements under the SAFE Act are not sufficient to address all of the concerns and accomplish all of the goals related to AML and SAR programs. In any event, FinCEN has announced that it intends to dialogue with the Conference of State Bank Supervisors (“CSBS”) to coordinate the identification and examination of mortgage originators subject to FinCEN’s rule.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn14" name="_ednref14">[xiv]</a> </div><div align="justify"> </div><div align="justify">The AML Program applies to businesses, including sole proprietorships, but does not contemplate coverage of an individual employed by a financial institution.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn15" name="_ednref15">[xv]</a> To state this precisely: FinCEN’s rule does not incorporate any exceptions for businesses based on their form of organization. </div><div align="justify"> </div><div align="justify">There are no exceptions for a certain arbitrary number of employees or net worth, nor is there a “small business” exclusion or exception for businesses with fewer than five employees, or for businesses that satisfy some other arbitrary size, net worth or similar criteria. Similarly, there is no <i>“de minimis”</i> exception for businesses that lend or broker loans under a relatively low value, or low aggregate volume of transactions within a set time period. The only exclusion is given to individuals financing the sale of their own real estate. </div><div align="justify"> </div><div align="justify">Generally, purchase money mortgage loans and traditional refinancing transactions facilitated by RMLOs are covered in the AML Program. Yet, because any transactions conducted by the RMLO could reasonably be considered to be extending a residential mortgage loan or offering or negotiating the terms of a residential mortgage loan, within the meaning of the definitions of ‘‘residential mortgage lender’’ and ‘‘residential mortgage originator,’’ as provided in FinCEN’s rule, the AML Program would seem to apply to transactions involving funds or programs under the Troubled Asset Relief Program and similar Federal programs, or any similar state housing authority or housing assistance program. However, to the contrary, FinCEN’s rule does not directly apply to the Federal or state housing authorities and agencies administering such programs. Therefore, excluded from the AML Program is any Federal or state agency or authority administering mortgage or housing assistance, fraud prevention or foreclosure prevention program, though RMLOs participating in such programs must comply with FinCEN's rule to the extent that any transactions could reasonably be considered to be extending a residential mortgage loan or offering or negotiating the terms of a residential mortgage loan.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn16" name="_ednref16">[xvi]</a> </div><div align="justify"> </div><div align="justify">Interestingly, the AML Program does apply to foreclosure prevention actions and counseling services performed by legitimate, non-profit organizations, to the extent any such organizations may reasonably be deemed to be extending a residential mortgage loan (including a short-term mortgage loan), or offering or negotiating the terms of a residential mortgage loan. However, FinCEN’s rule does not require implementation of the AML Program rules for non-profit organizations that (1) limit their activities to assisting with the preparation of loan applications or referral of prospective borrowers to qualified lenders, for free or for a fee, (2) provide short-term, non-mortgage loans to qualified borrowers or homeowners, or (3) otherwise “facilitate” the extension of a residential mortgage loan (but do not make the loan or offer or negotiate the terms of the loan). </div><div align="justify"> </div><div align="justify">Apparently, mortgage servicers are in a grey area with respect to complying with the FinCEN rule. Although FinCEN seems to agree that the typical activities of mortgage servicing companies do not fall within the definition of residential mortgage originator, FinCEN will not make a “blanket exclusion or exception” for mortgage servicers. That is, because the broad definition is based on the activity in which an entity is engaged, <i>as long as a mortgage servicer does not</i> <i>extend residential mortgage loans or offer or negotiate the terms of a residential mortgage loan application</i>, it will not fall under of the definition of residential mortgage loan originator. </div><div align="justify"> </div><div align="justify">Loan modification programs, such as the Home Affordable Modification Program (“HAMP”) are covered by FinCEN’s rule only to the extent that the modifications do not involve extending new residential mortgage loans or offering or negotiating the terms of a residential mortgage loan application. Such programs nonetheless are vulnerable to fraud and money laundering; in fact, since 2009, FinCEN has warned financial institutions and consumers about the fraud and money laundering risks associated with foreclosure prevention and loan modification programs.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn17" name="_ednref17">[xvii]</a> </div><div align="justify"><b></b> </div><div align="center"><b><span style="color: #c0504d;">SUSPICIOUS ACTIVITY REPORT</span></b> </div><div align="justify"> </div><div align="justify">Before we move on to an outline of the AML Program, let us take a close look at the form that must be filed with FinCEN. This form is called the Suspicious Activity Report, known as a SAR. FinCEN had considered requiring RMLOs to use Treasury SAR Form TD F 90-22.47, the form presently used by banks and other insured depository institutions.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn18" name="_ednref18">[xviii]</a> For FinCEN’s purposes, the information required for a SAR from an RMLO would be substantially the same as that required of banks and other depository institutions that make mortgage loans and use SAR Form TD F 90-22.47.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn19" name="_ednref19">[xix]</a> </div><div align="justify"> </div><div align="justify">The Federal financial institutions’ regulatory agencies, the U S Departments of Justice, and the Treasury, may use and share the information collected on a SAR. </div><div align="justify"> </div><div align="justify">In my experience with bank clients, the time required for collecting information averages thirty to forty-five minutes per SAR response, and that includes the time to gather and maintain data in the required SAR report, review the instructions, and complete the report’s fields. I think the same time frame will likely apply to nonbank SARs. </div><div align="justify"> </div><div align="justify">However, FinCEN is modernizing its SAR filing system and intends to establish a uniform electronic form for use by all financial institutions with a SAR filing obligation.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn20" name="_ednref20">[xx]</a> Accordingly, FinCEN promulgated the aforementioned, effective compliance date for SAR filing in order to allow time for the nonbank industry to implement programs and systems and for FinCEN to implement the new filing system using a uniform SAR. </div><div align="justify"> </div><div align="justify">In addition, FinCEN intends to phase out the manual filing of paper SAR forms.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn21" name="_ednref21">[xxi]</a> Therefore, RMLOs will be required to use FinCEN’s electronic, web-based E-Filing system, which is currently under development, for the filing of the SAR form. The E-Filing system will be web-based and will not require automated systems to be integrated into the loan origination systems. </div><div align="justify"> </div><div align="justify">The current SAR consists of five parts, as follows: </div><div align="justify"> </div><ul><li> <div align="justify"><span style="color: #c0504d;">Part I: Reporting Financial Institution Information </span></div></li>
<li> <div align="justify"><span style="color: #c0504d;">Part II: Suspect Information </span></div></li>
<li> <div align="justify"><span style="color: #c0504d;">Part III: Suspicious Activity Information </span></div></li>
<li> <div align="justify"><span style="color: #c0504d;">Part IV: Contact for Assistance </span></div></li>
<li> <div align="justify"><span style="color: #c0504d;">Part V: Suspicious Activity Information Explanation/Description</span> </div></li>
</ul><div align="justify"> </div><div align="justify">Completing the SAR correctly is essential to compliance with FinCEN’s rule. A whole cottage industry of independent auditors has built up over the years to review a bank’s compliance with respect to SAR filings. This auditing is essential, however, as there is a requisite independent testing component to any valid AML Program, whether bank or nonbank. </div><div align="justify"> </div><div align="justify">For an example of meticulous due diligence in completing a SAR, the SAR’s Part V section itself requires careful explanation and/or description of “known or suspected violation of law or suspicious activity” and the care with which it is completed may make the difference in whether or not the described conduct and its possible criminal nature are clearly understood and recorded. Thus, the SAR form’s preparation and filing, although conducted by the RMLO’s employees, often requires independent auditors to determine and report on the enforcement of the AML Program and the accuracy, completeness, and timeliness of the SAR filings. </div><div align="justify"> </div><div align="justify">My firm conducts such audits and I can attest to the wide range of understanding on the part of our clients regarding, among other things, the comprehensiveness of the AML Program, what information requires a SAR filing, the obligation of filing a SAR in a particular instance, how and when a SAR must be or should have been filed, and the extent to which employees are adequately educated in Bank Secrecy Act mandates. </div><div align="justify"><b></b> </div><div align="left"><b><span style="color: #c0504d;">Safe Harbor</span></b> </div><div align="justify"> </div><div align="justify">There are some features of filing a SAR that have stirred controversy and provoked litigation over the years, especially in the areas of the “Safe Harbor,” limitation on liability, and notification to the suspect of a subject SAR being filed. </div><div align="justify"> </div><div align="justify">There is a “Safe Harbor” under Federal law<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn22" name="_ednref22">[xxii]</a> that provides complete protection from civil liability for all reports of suspicious activity transactions made to appropriate authorities, including supporting documentation, regardless of whether such reports are filed pursuant to the SAR’s instructions or are filed on a voluntary basis. Specifically, the law provides that a financial institution, and its directors, officers, employees and agents, that make a disclosure of any possible violation of law or regulation, including in connection with the preparation of suspicious activity reports, “shall not be liable to any person under any law or regulation of the United States, any constitution, law, or regulation of any state or political subdivision of any state, or under any contract or other legally enforceable agreement (including any arbitration agreement), for such disclosure or for any failure to provide notice of such disclosure to the person who is the subject of such disclosure or any other person identified in the disclosure”. </div><div align="justify"> </div><div align="justify">An RMLO, and any director, officer, employee, or agent of any loan or finance company, that makes a voluntary disclosure of any possible violation of law or regulation to a government agency or makes a disclosure pursuant to FinCEN’s rule or any other authority, including a disclosure made jointly with another institution, is protected from liability for any such disclosure, or for failure to provide notice of such disclosure to any person identified in the disclosure, or both.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn23" name="_ednref23">[xxiii]</a> </div><div align="justify"><b></b> </div><div align="left"><b><span style="color: #c0504d;">Notifying the Suspect of Suspicious Activity</span></b> </div><div align="justify"> </div><div align="justify">Notification to the suspect is prohibited under Federal law<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn24" name="_ednref24">[xxiv]</a> and a financial institution, and its directors, officers, employees and agents that, voluntarily or by means of filing a SAR, report suspected or known criminal violations or suspicious activities<i> may not notify any person involved in the transaction that the transaction has been reported.</i> </div><div align="justify"> </div><div align="justify">Indeed, any RMLO, and any director, officer, employee, or agent of an RMLO, if subpoenaed or otherwise requested to disclose a SAR or any information that would reveal the existence of a SAR, must decline to produce the SAR or any information relating to the subject SAR. The required response of the RMLO to such circumstances is to notify FinCEN of any such request and reporting to FinCEN the response thereto made thus far by the RMLO.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn25" name="_ednref25">[xxv]</a> </div><div align="justify"> </div><div align="justify">Furthermore, <span style="color: #c0504d;">there is a prohibition to sharing by an RMLO, or any director, officer, employee, or agent of the RMLO, of a SAR, or any information that would reveal the existence of a SAR, <i>within the RMLO’s own corporate organizational structure</i>.</span><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn26" name="_ednref26">[xxvi]</a> </div><div align="justify"> </div><div align="justify">There are even prohibitions involving government entities with respect to SAR disclosure. A Federal, state, local, territorial, or tribal government authority, or any director, officer, employee, or agent of any of the foregoing, may not disclose a SAR, or any information that would reveal the existence of a SAR, except as necessary to fulfill official duties consistent with the Bank Secrecy Act.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn27" name="_ednref27">[xxvii]</a> <i>Official duties, however, do not include the disclosure of a SAR, or any information that would reveal the existence of a SAR</i>, in response to a request for disclosure of non-public information or a request for use in a private legal proceeding.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn28" name="_ednref28">[xxviii]</a> <b></b> </div><div align="justify"><b></b> </div><div align="center"><b><span style="color: #c0504d;">AML PROGRAM – COMPONENTS</span></b> </div><div align="justify"> </div><div align="justify">I propose now to provide an overview of the components of the AML Program, as mandated in FinCEN’s rule. Please keep in mind that each component contains numerous integrative subsets and various compliance elements that must be coherently and logistically enforced, each of which is subject to independent testing and verification. </div><div align="justify"> </div><div align="justify">The AML Program for RMLOs requires, in the first place, a written anti-money laundering program that is reasonably designed to prevent the RMLO from being used to facilitate money laundering or the financing of terrorist activities. Senior Management must approve the AML Program and, upon request, a copy of it must be made available to FinCEN (or its designee). </div><div align="justify"> </div><div align="justify">The following <u><span style="color: #c0504d;"><b>four components</b></span></u> constitute the core requirements of the AML Program. Failure to comply fully with implementing these components on and after August 13, 2012 may constitute a violation of the Bank Secrecy Act. I have titled each component to reflect its essential significance. </div><div align="justify"><b></b> </div><div align="left"><b><span style="color: #c0504d;">Internal Control Plan</span></b> </div><div align="justify"> </div><div align="justify">Incorporate policies, procedures, and internal controls based upon the RMLO’s assessment of the money laundering and terrorist financing risks associated with its products and services. Policies, procedures, and internal controls developed and implemented by an RMLO must include provisions for complying with the applicable requirements<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn29" name="_ednref29">[xxix]</a> of integrating the company’s agents and brokers into its AML Program, and obtaining all relevant customer-related information necessary for an effective AML Program. </div><div align="justify"><b></b> </div><div align="justify"><b><span style="color: #c0504d;">BSA Officer</span></b> </div><div align="justify"> </div><div align="justify">Designate a compliance officer who will be responsible for ensuring that: </div><div align="justify"> </div><div align="justify">1. The RMLO’s AML Program is implemented effectively, including monitoring compliance by the company’s agents and brokers with their obligations under the program; </div><div align="justify">2. The AML Program is updated, as necessary; and, </div><div align="justify">3. Appropriate persons are educated and properly trained. </div><div align="justify"><b></b> </div><div align="justify"><b><span style="color: #c0504d;">Training</span></b> </div><div align="justify"> </div><div align="justify">Provide for on-going training of appropriate persons concerning their responsibilities under the AML Program. An RMLO may satisfy this requirement with respect to its employees, agents, and brokers by directly training such persons or verifying that such persons have received training by a competent third party with respect to the products and services offered by the RMLO. </div><div align="justify"><b></b> </div><div align="justify"><b><span style="color: #c0504d;">Independent Testing</span></b> </div><div align="justify"> </div><div align="justify">Provide for independent testing to monitor and maintain an adequate AML Program, including testing to determine compliance of the company’s agents and brokers with their obligations under the AML Program. The scope and frequency of the testing must be commensurate with the risks posed by the RMLO’s products and services. Such testing may be conducted by a third party or by any officer or employee of the RMLO, other than the person designated as the BSA officer. </div><div align="justify"><b></b> </div><div align="center"><b><span style="color: #c0504d;">FILING THE SAR</span></b> </div><div align="justify"> </div><div align="justify">Commencing with the compliance date of August 13, 2012, every RMLO is required to file a SAR with FinCEN, pursuant to the FinCEN’s rule. An RMLO may also file a SAR that it believes is relevant to the possible violation of any law or regulation, but whose reporting is not actually required. The AML Program should provide clear and unambiguous procedures to identify such instances. </div><div align="justify"> </div><div align="justify">A transaction<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn30" name="_ednref30">[xxx]</a> requires reporting if it is conducted or attempted by, at, or through an RMLO, it involves or aggregates funds or other assets of at least $5,000, and the RMLO knows, suspects, or has reason to suspect that the transaction (or a pattern of transactions of which the transaction is a part): </div><div align="justify"> </div><ol><li> <div align="justify">Involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity (including, without limitation, the ownership, nature, source, location, or control of such funds or assets) as part of a plan to violate or evade any Federal law or regulation or to avoid any transaction reporting requirement under Federal law or regulation. </div></li>
<li> <div align="justify">Is designed, whether through structuring or other means, to evade any requirements of this part or any other regulations promulgated under the Bank Secrecy Act.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn31" name="_ednref31">[xxxi]</a></div></li>
<li> <div align="justify">Has no business or apparent lawful purpose or is not the sort of purpose in which the particular customer would normally be expected to engage, and the RMLO knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction. </div></li>
<li> <div align="justify">Involves use of the RMLO to facilitate criminal activity. </div></li>
</ol><div align="justify"> </div><div align="justify">It should be noted that more than one RMLO may have an obligation to report the same transaction, and actually other financial institutions may have separate obligations to report suspicious activity with respect to the same transaction pursuant to other FinCEN provisions. In those instances, no more than one report is required to be filed by the RMLO and other financial institutions involved in the transaction, provided that the filed report contains all relevant facts, including the name of each financial institution involved in the transaction, the SAR complies with all instructions applicable to joint filings, and each institution maintains a copy of the filed SAR, along with any supporting documentation. </div><div align="justify"> </div><div align="justify">The SAR must be filed no later than thirty (30) calendar days after the date of the initial detection by the reporting RMLO of facts that may constitute a basis for filing a SAR. If no suspect is identified on the date of such initial detection, an RMLO may delay filing a SAR for an additional thirty (30) calendar days to identify a suspect, but in no case may the reporting be delayed more than sixty (60) calendar days after the date of the initial detection. </div><div align="justify"> </div><div align="justify">There are mechanisms in place to handle urgent circumstances. In situations involving violations that require immediate attention, such as suspected terrorist financing or ongoing money laundering schemes, an RMLO is required to immediately notify by telephone an appropriate law enforcement authority, obviously in addition to the timely filing of a SAR. And voluntary notification to FinCEN of suspicious transactions that may relate to terrorist activity may be directed to FinCEN’s Financial Institutions Hotline at 1-866-556-3974; and, of course, such notification would still require the RMLO to file the subject SAR in a timely manner. </div><div align="justify"><b></b> </div><div align="center"><b><span style="color: #c0504d;">RECORD RETENTION</span></b> </div><div align="justify"> </div><div align="justify">Record Retention provisions must be included in the AML Program. The RMLO must maintain a copy of any SAR filed by the RMLO or on its behalf (including joint reports), and the original (or business record equivalent) of any supporting documentation concerning any SAR that it files (or is filed on its behalf), for a period of five (5) years from the date of filing the SAR. Supporting documentation should be identified as such and maintained by the RMLO, and would in any event be deemed to have been filed with the SAR. </div><div align="justify"> </div><div align="justify">The RMLO is required to make all supporting documentation available to FinCEN, or any Federal, state, or local law enforcement agency, or any Federal regulatory authority that examines the RMLO for compliance with the Bank Secrecy Act, or any state regulatory authority administering a state law that requires the RMLO to comply with the Bank Secrecy Act or otherwise authorizes the state authority to ensure that the RMLO complies with the Bank Secrecy Act, upon request. </div><div align="justify"><b></b> </div><div align="center"><b><span style="color: #c0504d;">EXAMINATIONS</span></b> </div><div align="justify"> </div><div align="justify">Federal prudential regulators have delegated authority to examine certain financial institutions they oversee for compliance with FinCEN’s regulations.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn32" name="_ednref32">[xxxii]</a> The Internal Revenue Service (‘‘IRS’’) has also been delegated the authority to examine for compliance with FinCEN’s regulations those financial institutions that are not examined by a Federal functional regulator.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn33" name="_ednref33">[xxxiii]</a> </div><div align="justify"> </div><div align="justify">SARs filed pursuant to FinCEN’s regulations go into a database that is accessible to regulatory agencies and law enforcement on the Federal, state and local levels. </div><div align="justify"> </div><div align="justify">FinCEN has been considering various options for delegating complete or partial examination authorities over RMLOs for compliance with the AML Program. In addition to the IRS authority, some entities under consideration that may have delegated supervision, examination, and enforcement authority are state regulatory agencies, the Consumer Financial Protection Bureau (“CFPB”), and the Federal banking agencies (particularly with respect to RMLOs affiliated with banks or insured depository institutions and their holding companies). </div><div align="justify"> </div><div align="justify">A regulatory issuance from FinCEN is forthcoming on the designated authorities. FinCEN has announced that it plans to work with other relevant regulatory agencies in the development of consistent compliance examination procedures, and in the future it will provide public notice of other agencies that will exercise delegated compliance examination authority with respect to certain classes of RMLOs and other loan or finance companies. </div><div align="justify"><b></b> </div><div align="center"><b><span style="color: #c0504d;">PREPARATION AND READINESS</span></b> </div><div align="justify"> </div><div align="justify">It is important to develop a reliable understanding about when an RMLO should be required to file a particular SAR. In my view, a determination as to whether a SAR is required must be based on all the facts and circumstances relating to the transaction and customer of the RMLO. Different fact patterns will require different judgments. </div><div align="justify"> </div><div align="justify">Some examples of red flags are referenced in previous FinCEN reports on mortgage fraud and money laundering in the residential and commercial real estate sectors. There are many identifiers and special information procedures that FinCEN has provided to identify suspicious activity.<a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_edn34" name="_ednref34">[xxxiv]</a> Most RMLOs, in order to remain viable, already have in place policies and procedures to prevent and detect fraud, insider abuse, and other crimes. Established anti-fraud measures should assist RMLOs in reporting suspicious transactions. </div><div align="justify"> </div><div align="justify">The techniques of money laundering and mortgage fraud are continually evolving, and there is no way to provide an exhaustive list of suspicious activity transactions. A strong AML Program should be sufficiently comprehensive in its understanding of the RMLO’s organizational structure, business practices, products, services, affiliates, consumers, and vendors, to be able to monitor for suspicious activity that may involve fraud, money laundering, and other financial crimes, without becoming a burden to the effective and cost-efficient operations of all affected departments throughout the loan flow process. </div><div align="justify"> </div><div align="center"><span style="font-size: xx-small;">* </span><a href="http://lenderscompliancegroup.com/2.html"><span style="font-size: xx-small;">Jonathan Foxx</span></a><span style="font-size: xx-small;"> is the President and Managing Director of Lenders Compliance Group</span> </div><div align="center"><span style="font-size: xx-small;">Published in: </span><a href="http://nationalmortgageprofessional.com/"><span style="font-size: xx-small;">National Mortgage Professional Magazine</span></a><span style="font-size: xx-small;">, March 2012.</span> </div> <br />
<hr align="left" size="1" width="33%" /><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref1" name="_edn1">[i]</a> See Federal Register sources for this article: <i>Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Residential Mortgage Lenders and Originators</i>, Financial Crimes Enforcement Network, Department of the Treasury, 31 CFR Parts 1010 and 1029, <u>Final Rule</u>, Federal Register, Vol. 77, No. 30, 2/14/2012; <i>Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Residential Mortgage Lenders and Originators</i>, Financial Crimes Enforcement Network, Department of the Treasury, 31 CFR Part 103, <u>Notice of Proposed Rulemaking</u>, Federal Register, Vol. 75, No. 236, 12/9/2010<i>; Anti-Money Laundering Program and Suspicious Activity Report Requirements for Non-Bank Residential Mortgage Lenders and Originators</i>, Financial Crimes Enforcement Network, Department of the Treasury, 31 CFR Part 103, <u>Advance Notice of Proposed Rulemaking</u>, Federal Register, Vol. 74, No. 138, 7/21/2009 </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref2" name="_edn2">[ii]</a> ‘‘Bank Secrecy Act’’ is the name that has come to be applied to the Currency and Foreign Transactions Reporting Act (Titles I and II of Public Law 91–508), its amendments, and the other statutes referring to the subject matter of that Act. These statutes are codified at 12 U.S.C. 1829b, 12 U.S.C. 1951–1959, and 31 U.S.C. 5311–5314 and 5316–5332, and notes thereto. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref3" name="_edn3">[iii]</a> See 31 CFR 1029.210 </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref4" name="_edn4">[iv]</a> <i>FinCEN Requires AML Program and SAR Filing for Non-Bank Mortgage Lenders and Originators</i>, News Release, Financial Crimes Enforcement Network, 02/07/2012 </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref5" name="_edn5">[v]</a> 31 U.S.C. 5312(a)(2)(P) </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref6" name="_edn6">[vi]</a> The definition of "loan or finance company" initially includes only these businesses, but is broad enough to permit the addition of other types of loan and finance related businesses and professions in future rulemaking. Though not included in the definition of “loan and finance companies,” FinCEN has also proposed AML and SAR reporting rules for the GSEs. Where fraud is suspected by a GSE, there is an established procedure, currently set forth in a Memorandum of Understanding between FinCEN and the Federal Housing Finance Agency (‘‘FHFA’’) for the GSE to report to the FHFA, which then reports the suspicious activity to FinCEN. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref7" name="_edn7">[vii]</a> A depository’s AML Program, as now constituted, is more robust with respect to BSA mandates than that required for nonbanks. For instance, included in a bank’s FinCEN Compliance is the filing of a Currency Transaction Report (CTR). It is FinCEN’s view that filing a Currency Transaction Report ("CTR") is unnecessary for loan or finance companies. Therefore, RMLO's do not need to adopt CTR filing requirements into their AML Programs. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref8" name="_edn8">[viii]</a> FinCEN commenced in 2006 its reporting on mortgage fraud and RMLO money laundering. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref9" name="_edn9">[ix]</a> See, for instance, <i>Mortgage Loan Fraud Update (SARs January 1-March 31, 2011), </i>June 2011; <i>Mortgage Loan Fraud Update (SARs January 1-December 31, 2010)</i>, March 2011; <i>Mortgage Loan Fraud Update (SARs July 1-September 30, 2010)</i>, January 2011; <i>Mortgage Loan Fraud Update (SARs April 1-June 30, 2010)</i>, December 2010; and, <i>Mortgage Loan Fraud Update: SAR Filings January 1-March 31, 2010</i>. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref10" name="_edn10">[x]</a> Op. Cit. 4 </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref11" name="_edn11">[xi]</a> FinCEN’s position is that the new regulations will help mitigate some of the risks and minimize some of the vulnerabilities that criminals have exploited in the non-bank residential mortgage sector, based on FinCEN’s criminal investigations and prosecutions, other anti-fraud efforts, the Financial Fraud Enforcement Task Force, and recently the Residential Mortgage-Backed Securities Working Group. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref12" name="_edn12">[xii]</a> For more information, <a href="http://lenderscompliancegroup.com/42.html">visit the FinCEN section of my firm’s website Library</a> or contact us for assistance. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref13" name="_edn13">[xiii]</a> FinCEN has stated that it intends the definitions in the its rule and subsequent amendments thereto to be “consistent with definitions in the SAFE Act and other federal mortgage-related statutes, only to the extent deemed appropriate to advance FinCEN’s mission, strategic goals, and policies.” Op. Cit. 1, Final Rule, 8152 </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref14" name="_edn14">[xiv]</a> Op. Cit. 1, 8151 </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref15" name="_edn15">[xv]</a> Some individuals covered by the SAFE Act definition of ‘‘loan originator,’’ pursuant to 12 U.S.C. 5102(3)(A)(ii), would not be covered by the AML Program. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref16" name="_edn16">[xvi]</a> FinCEN’s proposed definition of ‘‘loan or finance company’’ has been revised to exclude ‘‘any Federal or state agency or authority administering mortgage or housing assistance, fraud prevention or foreclosure prevention programs.” </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref17" name="_edn17">[xvii]</a> See <i>Advisory to Financial Institutions on Filing Suspicious Activity Reports Regarding Home Equity Conversion Mortgage Fraud Schemes, </i>FIN-2010-A005, 4/27/2011; <i>Guidance to Financial Institutions on Filing Suspicious Activity Reports regarding Loan Modification/Foreclosure Rescue Scams</i>, FIN-2009-A001, 4/6/2009 </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref18" name="_edn18">[xviii]</a> This report is required by law, pursuant to authority contained in the following statutes. Board of Governors of the Federal Reserve System: 12 U.S.C. 324, 334, 61 1a, 1844(b) and (c), 3105(c) (2) and 3106(a). Federal Deposit Insurance Corporation: 12 U.S.C. 93a, 1818, 1881-84, 3401-22. Office of the Comptroller of the Currency: 12 U.S.C. 93a, 1818, 1881-84, 3401-22. Office of Thrift Supervision: 12 U.S.C. 1463 and 1464. National Credit Union Administration: 12 U.S.C. 1766(a), 1786(q). Financial Crimes Enforcement Network: 31 U.S.C. 5318)(g). </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref19" name="_edn19">[xix]</a> For a copy of <a href="http://www.fincen.gov/forms/files/f9022-47_sar-di.pdf">SAR Form TD F 90-22.47.</a> </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref20" name="_edn20">[xx]</a> See 75 FR 63545, 10/15/2010 </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref21" name="_edn21">[xxi]</a> See 76 FR 57799, 9/16/2011. Paper SARs may be filed at this time through the Detroit Computing Center, P.O. Box 33980, Detroit, Ml 48232-0980 </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref22" name="_edn22">[xxii]</a> See 31 U.S.C. 5318(g)(3) </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref23" name="_edn23">[xxiii]</a> Such limitation on liability is granted to the full extent provided by 31 U.S.C. 5318(g)(3) </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref24" name="_edn24">[xxiv]</a> See 31 U.S.C. 5318(g)(2) </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref25" name="_edn25">[xxv]</a> In declining a request for SAR information, an RMLO may cite the FinCEN rule itself as well as 31 U.S.C. 5318(g)(2)(A)(i) in its defense for not providing information contained in or even admitting the very existence of the SAR. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref26" name="_edn26">[xxvi]</a> Title II of the Bank Secrecy Act as determined by regulation or in guidance. </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref27" name="_edn27">[xxvii]</a> Idem </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref28" name="_edn28">[xxviii]</a> Including a request pursuant to 31 CFR 1.11 </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref29" name="_edn29">[xxix]</a> See United States Code: Subchapter II, Chapter 53, Title 31 </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref30" name="_edn30">[xxx]</a> Op. Cit. 1, <u>Final Rule</u>, Subpart C-<i>Reports Required To Be Made by Loan or Finance Companies</i> </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref31" name="_edn31">[xxxi]</a> Public Law 91–508, as amended; codified at 12 U.S.C. 1829b, 12 U.S.C. 1951–1959, and 31 U.S.C. 5311–5314, 5316–5332 </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref32" name="_edn32">[xxxii]</a> See 31 CFR 1010.810(a) </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref33" name="_edn33">[xxxiii]</a> See 31 CFR 1010.810(b)(8) </div><div align="justify"><a href="file:///C:/Users/Jonathan%20Foxx/Desktop/PUBLISHED%20WORK/2012/FinCEN%20-%20SARs/#_ednref34" name="_edn34">[xxxiv]</a> See Subpart E of 31 CFR Part 1010. Also <i>Mortgage Loan Fraud Update (SARs April 1-June 30, 2010)</i>, December 2010; <i>Commercial Real Estate Financing Fraud (SARs by Depository Institutions, January 1, 2007 to December 31, 2010)</i> March 2011; <i>Advisory: Activities Potentially Related to Commercial Real Estate Fraud (March 30, 2011)</i></div>Jonathan Foxxhttp://www.blogger.com/profile/11176318536334393246noreply@blogger.com