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BSA AML OFAC Flashcards

1
Q

8.1 BSA / AML / OFAC

What is the purpose of BSA?

A

To require United States (U.S.) financial institutions to maintain appropriate records and file certain reports involving currency transactions and a financial institution’s customer relationships.

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2
Q

8.1 BSA / AML / OFAC

What are the two primary mean used by banks to satisfy the requirements of BSA?

A
  • Currency Transaction Reports (CTRs)

* Suspicious Activity Reports (SARs)

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3
Q

8.1 BSA / AML / OFAC

What are the two parts that BSA consists of?

A
  • Title I Financial Recordkeeping

* Title II Reports of Currency and Foreign Transactions.

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4
Q

8.1 BSA / AML / OFAC

What does Title I Financial Recordkeeping authorize?

A

Title I authorizes the Secretary of the Department of the Treasury (Treasury) to issue regulations, which require insured financial institutions to maintain certain records.

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5
Q

8.1 BSA / AML / OFAC

What is Title II Reports of Currency and Foreign Transactions prescribe?

A

Title II directed the Treasury to prescribe regulations governing the reporting of certain transactions by and through financial institutions in excess of $10,000 into, out of, and within the U.S. The Treasury’s implementing regulations under the BSA, issued within the provisions of 31 CFR Part 103, are included in the FDIC’s Rules and Regulations and on the FDIC website.

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6
Q

8.1 BSA / AML / OFAC
Name several acts and regulations that expanded and strengthened the scope and enforcement of the BSA, AML, and counter-terrorist financing measures.

A
  • Money Laundering Control Act of 1986;
  • Annuzio-Wylie Anti-Money Laundering Act of 1992;
  • Money Laundering Suppression Act of 1994; and
  • Money Laundering and Financial Crimes Strategy Act of 1998;
  • USA PATRIOT Act (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act) of 2001
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7
Q

8.1 BSA / AML / OFAC

Who are CTR’s filed and maintained with?

A

Filed with the IRS, and are maintained in the FinCEN database, which is made available to Federal Banking Agencies and law enforcement

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8
Q

8.1 BSA / AML / OFAC

How long do you have to file a CTR?

A
  • 15 days following the date of the reportable transaction, if written and mailed;
  • 25 calendar days of the date of the reportable transaction, if electronic;
  • The third option is to file using the Patriot Act Communication System (PACS), which also allows up to 25 calendar days to file the CTR following the reportable transaction
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9
Q

8.1 BSA / AML / OFAC

What are phase I BSA exemptions for CTR Filing Requirements?

A
  • Bank;
  • Federal, State, or local government agency or department;
  • Any entity established by US includes District of Columbia, Territories, and Indian tribal lands;
  • Any listed entity other than a bank with stock traded on New York, American, or NASDAQ stock exchanges;
  • Any US domestic subsidiary (other than a bank) of any “listed entity” that is organized under US law, and at least 51% is owned by the listed entity
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10
Q

8.1 BSA / AML / OFAC

What are the Phase II exemptions that may be granted for CTR Filing Requirements?

A

A “non-listed business,” which includes commercial enterprises that do not have more than 50% of the business gross revenues derived from certain ineligible businesses,
> Gross revenue has been interpreted to reflect what a business actually earns from an activity conducted by the business, rather than the sales volume of such activity,
> “Non-listed businesses” must also be incorporated or organized under U.S. laws and be eligible to do business in the U.S. and may only be exempted to the extent of its domestic operations,
• A “payroll customer,” which includes any other person not covered under the “exempt person” definition that operates a firm that regularly withdraws more than $10,000 in order to pay its U.S. employees in currency,
> “Payroll customers” must also be incorporated and eligible to do business in the U.S.,
> “Payroll customers” may only be exempted on their withdrawals for payroll purposes from existing transaction accounts,
• Commercial transaction accounts of sole proprietorships can qualify for “non-listed business” or “payroll customer” exemption.

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11
Q

8.1 BSA / AML / OFAC

What is the additional requirement for Phase II Exemptions from CTR Filing Requirements?

A

Non listed Business and payroll customer if:
• Had account for 2 months
• Makes regular (5 per year) transactions of > $10M
• Be registered in US
• Note: Non-listed business must not have more than 50% of gross revenues derived from ineligible businesses.

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12
Q

8.1 BSA / AML / OFAC

With regard to CTR Filing exemptions, what is considered an ineligible business? BEAT IT “PRANO”

A
  • Businesses that charter ships, aircraft, or buses;
  • Entities involved in gaming;
  • Auto dealers, BOAT DEALERS;
  • Engaged in the practice of law, medicine, or accountancy;
  • Investment bankers/advisors;
  • Trade union activities;
  • Pawn brokers;
  • Real estate brokerage, closing, or title insurance;
  • Auction services;
  • Non-bank financial institutions;
  • Others specified by FinCEN
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13
Q

8.1 BSA / AML / OFAC

How often must CTR filing exemptions be filed?

A
  • Phase I - only once
  • Phase II - persons need to be renewed and filed every two years, assuming that the “exempt person” continues to meet all exemption criteria, as verified and documented in the required annual review process
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14
Q

8.1 BSA / AML / OFAC

Who / what else might also be ineligible for CTR exemptions?

A
  • Transactions conducted by an “exempt person” as agent or on behalf of another person are not eligible to be exempted based on being transacted by an “exempt person;
  • An entity earning more than 50% of its revenue from ineligible businesses.
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15
Q

8.1 BSA / AML / OFAC

How often must companies exempt from CTR filing be reviewed?

A
  • Phase II CTR Exemptions - At least annually for all Phase II and for companies listed on an exchange under Phase I;
  • Banks and government related entities no longer need to be verified annually
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16
Q

8.1 BSA / AML / OFAC

What is the primary purpose of reporting SARs to FinCEN?

A

To assure that the information needed by investigators and prosecutors is provided in an orderly and timely fashion.

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17
Q

8.1 BSA / AML / OFAC

Banks are required by 31 CFR 103.121 to do what?

A

Develop and implement a written, board-approved CIP, appropriate for its size and type of business that includes, at a minimum, procedures for:
• Verifying a customer’s true identity and defining the methodologies used for verification;
• Collecting specific identifying information from each customer when opening an account;
• Responding to circumstances and defining actions to be taken when a customer’s true identity cannot be appropriately verified with “reasonable belief;
• Maintaining appropriate records during the collection and verification of a customer’s identity;
• Verifying a customer’s name against specified terrorist lists; and
• Providing customers with adequate notice that the bank is requesting identification to verify their identities.
• Specifying when it will rely on another financial institution (including an affiliate) to perform some or all of the elements of the CIP.

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18
Q

8.1 BSA / AML / OFAC

A bank must incorporate what into it’s BSA/AML program?

A
  • written board-approved CIP;
  • Internal policies, procedures, and controls;
  • Designation of a compliance officer;
  • Ongoing employee training programs; and
  • An independent audit function to test program.
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19
Q

8.1 BSA / AML / OFAC

With regard to the CIP, what is the definition of a person?

A

A person is generally an individual or other legal entity (such as registered corporations, partnerships, and trusts).

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20
Q

8.1 BSA / AML / OFAC

With regard to the CIP, what is the definition of a customer?

A
  • A person that opens a new account;
  • An individual acting with “power of attorney” who opens a new account to be owned by or for the benefit of a person lacking legal capacity, such as a minor;
  • An individual who opens an account for an entity that is not a legal person, such as a civic club or sports boosters;
  • An individual added to an existing account or one who assumes an existing debt at the bank; or
  • A deposit broker who brings new customers to the bank (as discussed in detail later within this section).
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21
Q

8.1 BSA / AML / OFAC

With regard to the CIP, what is the definition of an account?

A

An account is defined as a formal, ongoing banking relationship established to provide or engage in services, dealings, or other financial transactions including;
• Deposit accounts;
• Transaction or asset accounts;
• Credit accounts, or any other extension of credit;
• Safety deposit box or other safekeeping services;
• Cash management, custodian, and trust services; or
• Any other type of formal, ongoing banking relationship.

22
Q

8.1 BSA / AML / OFAC

What is the minimum information required when opening an account for a person of the US?

A

• Name,
• Date of birth, for an individual,
• Physical address, which shall be:
> Individual: a residential or business street address,
> Person other than an individual (such as corporations, partnerships, and trusts): a principal place of business, local office, or other physical location,
• Identification number including a SSN, TIN, Individual Tax Identification Number (ITIN), or Employer Identification Number (EIN).

23
Q

8.1 BSA / AML / OFAC

What is the minimum information required when opening an account for a non-US person?

A
  • Same as for the US person, plus
  • Customer’s TIN,
  • Passport number and country of issuance,
  • Alien identification card number, and
  • Number and country of issuance of any other (foreign) government-issued document evidencing nationality or residence and bearing a photograph or similar safeguard.
24
Q

8.1 BSA / AML / OFAC

If the bank cannot identify the person, procedures should include what?

A
  • Circumstances when the bank should not open an account;
  • The terms or limits under which a customer may use an account while the bank attempts to verify the customer’s identity (for example, minimal or no funding on credit cards, holds on deposits, limits on wire transfers);
  • Situations when an account should be closed after attempts to verify a customer’s identity have failed; and
  • Conditions for filing a SAR in accordance with applicable laws and regulations.
25
Q

8.1 BSA / AML / OFAC

What are the benefits of an effective CDD Program?

A
  • Preventing unusual or suspicious transactions in a timely manner that potentially exposes the institution to financial loss or increased expenses;
  • Avoiding criminal exposure from individuals who use the institution’s resources and services for illicit purposes; and
  • Ensuring compliance with BSA regulations and adhering to sound and recognized banking practices
26
Q

8.1 BSA / AML / OFAC

All institutions should adopt and follow an appropriate CDD program. An effective CDD program should include what?

A
  • Be commensurate with the institution’s BSA/AML risk profile, paying particular attention to higher risk customers,
  • Contain a clear statement of management’s overall expectations and establish specific staff responsibilities, and
  • Establish monitoring systems and procedures for identifying transactions or activities inconsistent with a customer’s normal or expected banking activity.
27
Q

8.1 BSA / AML / OFAC

What are considered higher risk areas within the BSA/AML program? (NEW SPN PFP)

A
  • Non-bank financial institutions (NBFIs), including money service businesses (MSBs);
  • Electronic banking;
  • Wire transfer activities;
  • Special use accounts;
  • Payable-through accounts;
  • Numbered accounts;
  • Private banking activities;
  • Foreign correspondent banking relationships;
  • Pouch activities
28
Q

8.1 BSA / AML / OFAC

What do non-bank financial institutions include?

A 
•   Casinos or card clubs;
•   Securities brokers/dealers; and
•   Money Service Businesses (MSBs)
    >>  Currency dealers or exchangers;
    >>  Check cashers;
    >>  Issuers, sellers, or redeemers of traveler's checks, money orders, or stored value cards;
    >>  Money transmitters; and
    >>  U.S. Post Offices (money orders).
29
Q 
8.1  BSA / AML / OFAC
Section 8(s) of the FDI Act, which implements 12 U.S.C. 1818, requires the FDIC to do what with regard to BSA Compliance?
A
  • Develop regulations that require insured financial institutions to establish and maintain procedures reasonably designed to assure and monitor compliance with the BSA;
  • Review such procedures during examinations; and
  • Describe any problem with the procedures maintained by the insured depository institution within reports of examination.
30
Q

8.1 BSA / AML / OFAC
Section 326.8 of the FDIC’s Rules and Regulations establishes the minimum BSA program requirements for all state nonmember banks, which are necessary to assure compliance with the financial recordkeeping and reporting requirements set forth within the provisions of the Treasury regulation 31 CFR 103, what are these minimum requirements?

A

• A system of internal controls;
• Independent testing for compliance with the BSA and Treasury’s regulation 31 CFR Part 103
;• The designation of an individual or individuals responsible for coordinating and monitoring day-to-day compliance with BSA;
• Training for appropriate personnel.

31
Q

8.1 BSA / AML / OFAC

What are some specific issues that apparent BSA violations generally consist of?

A
  • Failure to adequately identify and report large cash transactions in a timely manner;
  • Failure to report Suspicious Activities, such as deposit layering or structuring cash transactions;
  • Failure to reasonably identify and verify customer identity; and
  • Failure to maintain adequate documentation of financial transactions, such as the purchase or sale of monetary instruments and originating or receiving wire transfers.
32
Q

8.1 BSA / AML / OFAC

What are the levels and amounts of CMP’s that can be assessed?

A
  • Negligent violations of any regulations under 31 CFR 103 shall not exceed $500;
  • Willful violations for any reporting requirement for financial institutions under 31 CFR 103 can be assessed a civil penalty up to $100,000 and no less than $25,000;
  • In the of C&D violations cases, the penalty is established by Section 8(i)(2) of the FDI Act can be up to $5,000 per day for each day the violation continues
33
Q

8.1 BSA / AML / OFAC
Section 363 of the USA PATRIOT Act increases the maximum civil and criminal penalties from $100,000 to up to $1,000,000 for violations of what sections of the USA PATRIOT Act?

A
  • Section 311: Special measures enacted by the Treasury for jurisdictions, financial institutions, or international transactions or accounts of primary money laundering concern;
  • Section 312: Special due diligence for correspondent accounts and private banking accounts; and
  • Section 313: Prohibitions on U.S. correspondent accounts with foreign shell banks.
34
Q

8.1 BSA / AML / OFAC

What is the most common suspicious activity that is reported to FinCEn?

A
  • Structuring is the most common suspicious activity reported to FinCEN;
  • Structuring is defined as breaking down a sum of currency that exceeds the $10,000
  • CTR reporting level per the regulation, into a series of transactions at or less than $10,000.
35
Q

8.1 BSA / AML / OFAC

What are the three stages of money laundering?

A
  • Placement,
  • Layering, and
  • Integration
36
Q

8.1 BSA / AML / OFAC

What is the first stage of money-laundering “placement” entail?

A
  • Involves the placement of bulk cash into the financial system without the appearance of being connected to a criminal activity;
  • The simplest way is to deposit cash into a financial institution;
  • To avoid notice, banking transactions involving cash are likely to be conducted in amounts under the CTR reporting thresholds; this activity is referred to as “structuring.”
37
Q

8.1 BSA / AML / OFAC

What is the second stage of money-laundering “layering” entail?

A
  • The process of moving and manipulating funds to confuse their sources as well as complicating or partially eliminating the paper trail;
  • Layering may involve moving funds in various forms through multiple accounts at numerous financial institutions, both domestic and international, in a complex series of transactions
38
Q

8.1 BSA / AML / OFAC

What is the third stage of money-laundering “integration” entail?

A
  • Typically follows the layering stage;
  • Integration can be accomplished simultaneously with the placement of funds;
  • The integration phase is used to create the appearance of legality through additional transactions such as loans, or real estate deals;
  • These transactions provide the criminal with a plausible explanation as to where the funds came from to purchase assets and shield the criminal from any type of recorded connection to the funds.
39
Q

8.1 BSA / AML / OFAC

What are examples of layering?

A
  • Transferring funds by check or monetary instrument;
  • Exchanging cashier’s checks and other monetary instruments for other cashier’s checks, larger or smaller, possibly adding additional cash or other monetary instruments in the process;
  • Performing intrabank transfers between accounts owned or controlled by common individuals (for example, telephone transfers);
  • Performing wire transfers to accounts under various customer and business names at other financial institutions;
  • Transferring funds outside and possibly back into the U.S. by various means such as wire transfers, particularly through “secrecy haven” countries;
  • Obtaining certificate of deposit (CD) secured loans and depositing the loan disbursement check into an account (when the loan is defaulted on, there is no loss to the bank); and
  • Depositing a refund check from a canceled vacation package or insurance policy.
40
Q

8.1 BSA / AML / OFAC

During the integration stage, what are various schemes that are used to return funds in a usable format?

A
  • Inflating business receipts,
  • Overvaluing and undervaluing invoices,
  • Creating false invoices and shipping documents,
  • Establishing foreign trust accounts,
  • Establishing a front company or phony charitable organization, and
  • Using gold bullion schemes.
41
Q

8.1 BSA / AML / OFAC

What can be identified as general money laundering red flags?

A
  • Refusal or reluctance to proceed with a transaction, or abruptly withdrawing a transaction,
  • Customer refusal or reluctance to provide information or identification,
  • Structured or recurring, non-reportable transactions,
  • Multiple third parties conducting separate, but related, non-reportable transactions. (This activity is often referred to as “smurfing.”),
  • Even dollar amount transactions,
  • Transactions structured to lose the paper trail,
  • Significant increases in the number or amount of transactions,
  • Transactions which are not consistent with the customer’s business, occupation, or income level,
  • Transactions by non-account holders.
42
Q

8.1 BSA / AML / OFAC

When should Suspicious Activity Reports be filed?

A
  • DOE or IAP / Any Amount
  • Known Suspect / $5M
  • Unknown Suspect / $25M
  • Note: Part 353 says transaction of $5M or $25M, not potential loss.
  • If you file a SAR, you must also file a CTR if the cash transaction is over $10M.
43
Q

8.1 BSA / AML / OFAC

Financial institutions are required to file a SAR within ____ days of detecting the criminal activity.

A
  • 30 calendar days; however,
  • If management is unable to identify a suspect within 30 days, reporting may be delayed until the earlier of an additional 30 calendar days or until a suspect is identified,
  • Cannot be delayed more than 60 calendar days
44
Q

8.1 BSA / AML / OFAC

Define a “known suspect” for which a SAR may be filed.

A

A known or suspected crime is committed against the institution, there is actual or potential loss to the institution of $5M or more, and possible suspect(s) (not an employee, officer, director, agent, or IAP) can be identified

45
Q

8.1 BSA / AML / OFAC

Define a “unknown” suspect for which a SAR may be filed.

A

A unknown or suspected crime is committed against the institution, there is actual or potential loss to the institution of $25M or more, and a potential suspect cannot be identified.

46
Q

8.1 BSA / AML / OFAC

SAR’s shall be filed if:

A
  • DOE or IAP
  • Known or suspected crime with potential loss of = > $5M
  • Unknown or suspected crime with potential loss of = > $25M
47
Q

8.1 BSA / AML / OFAC

What is the other category for which to file a SAR?

A
  • Criminal Activity / $5M - A financial transaction of $5M or more was conducted or attempted using the institution as a conduit for criminal activity,
  • The funds involved in the transaction were derived from illicit activity, the purpose of the transaction was to hide or disguise funds from illicit activities, or the purpose of the transaction was to evade the BSA requirements.
48
Q

8.1 BSA / AML / OFAC

What should take place if an examiner identifies that a SAR should have been filed?

A
  • The examiner should instruct the financial institution to immediately file the SAR,
  • If the financial institution refuses, the examiner should complete the SAR and cite violations of Part 353 of the FDIC’s Rules and Regulations, providing limited details of suspicious activity or the SAR in the Report of Examination,
  • In instances involving a senior officer or director of the financial institution, examiners may prepare the SAR, rather than request the financial institution to do so in order to ensure that the SAR explains the suspicious activity accurately and completely,
  • Each Regional Office is responsible for monitoring SARs filed within that region,
  • Examiner-prepared SARs should be forwarded to their Regional Special Activities Case Manager to ensure timely and proper filing,
  • Any examiner-prepared SARs and all supporting documents should be maintained in the field office files for five years.
49
Q

8.1 BSA / AML / OFAC

What is the purpose of OFAC?

A
  • OFAC administers laws that impose economic and trade sanctions based on foreign policy and national security objectives,
  • Sanctions have been established against various entities and individuals such as targeted foreign countries, terrorists, international narcotics traffickers, and those engaging in activities relating to the proliferation of weapons of mass destruction,
  • Collectively, such individuals and companies are called Specially Designated Nationals (SDNs) and Blocked Persons.
50
Q

8.1 BSA / AML / OFAC

What types of OFAC Sanctions are there?

A
  • Blocking of assets,
  • Trade embargoes,
  • Prohibition on unlicensed trade and/or financial transactions,
  • Travel bans, and
  • Other financial and commercial prohibitions.
51
Q

8.1 BSA / AML / OFAC

What are the OFAC reporting requirements?

A
  • OFAC imposes reporting requirements for blocked property and blocked or rejected transactions.
  • It requires financial institutions to report all blocked property to OFAC annually by September 30th.
  • Financial institutions must notify OFAC of blocked or rejected transactions within 10 days of their occurrence.
  • When an institution identifies an entity that is an exact match, or has many similarities to a subject listed on the SDN and Blocked Persons List, the institution should contact OFAC Compliance for verification.
  • Unless a transaction involves an exact match, it is recommended that the institution contact OFAC Compliance before blocking assets.

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