2. Agenda  Background and Purpose  Money Laundering and Terrorist Financing  BSA Program Requirements  Risk Based Program Management  Suspicious Activity Reports  Board of Directors’ Responsibilities  Penalties for Non-Compliance

4. Background and Purpose  Enacted in 1970 to help law enforcement officials track and prevent the laundering of money obtained through illegal activities  Amended many times over the years  Significant changes occurred with the passage of the USA PATRIOT Act in 2001.

6. Money Laundering “Money laundering is the process by which one conceals the existence, illegal source, or illegal application of income, and then disguises that income to make it appear legitimate.” The Three Stages of Money Laundering:  Placement  Layering  Integration

7. Placement Money is physically moved away from the scene of the crime and is first introduced into the banking system.  Cash deposits  Cash purchase of monetary instruments  Cash loan payments  Currency exchange

8. Layering Money is transferred from account to account, institution to institution and country to country in an attempt to stymie investigators with a complex paper trail that loops through different legal jurisdictions.  Wire Transfers  Electronic Payments

9. Integration Integration happens when washed cash becomes part of the legal economy and is effectively untraceable.  Purchase and sale of real estate or other assets  Obtaining business or personal loans  Legitimate or illegitimate business operations  Legitimate or illegitimate charitable operations

10. Terrorist Financing Terrorist financing is often described as reverse money laundering in that it takes money that comes from “clean” sources and channels it to the “dirty” purposes of terrorism. Sources of funds can include:  Wealthy Sympathizers  Fundraising at places of worship or cultural centers  Drug Trafficking  Official State Sponsorship (Sudan,Syria,Iran, Iraq) Money Laundering is often a critical component of terrorist financing.

12. Four Main Program Requirements  Independent testing of BSA compliance.  A specifically designated person or persons responsible for managing BSA compliance (BSA compliance officer).  Training for appropriate personnel.  A system of internal controls to ensure ongoing compliance

13. Independent Testing  Qualified  Independent  Transaction Testing  Comprehensive work papers

14. BSA Officer  Authority  Adequate Staffing  Other Resources  Training

15. Training  New employees upon hire  All employees periodically (annually)  Tailored to specific business lines  Employee accountability for compliance  Maintenance of training records and materials  Coverage of credit union policies, procedures, processes, and new rules and regulations.  Coverage of different forms of money laundering and terrorist financing  Penalties for noncompliance with internal policies and regulatory requirements.

16. Internal Controls Minimum Requirements:  Customer/Member Identification Program  Customer/Member Due Diligence  Suspicious Activity Reporting  Currency Transaction Reporting  CTR Exemptions  Information Sharing under the USA Patriot Act  Monetary Instrument Recordkeeping  Funds Transfer Recordkeeping  Office of Foreign Assets Control (Can be a separate policy)

17. Internal Controls Basic products and services offered:  Electronic Banking  Funds Transfers  ACH Transactions  Lending  Sale of Monetary Instruments

18. Internal Controls Expanded products and services offered:  Third Party Payment Processing  Foreign accounts/branches/services  Correspondent Accounts  Brokered Deposits  Non-Deposit Investment Products  Insurance  Private Banking

19. Internal Controls Accounts offered to certain individuals and organizations:  Nonresident Aliens and Foreign Individuals  Non-Bank Financial Institutions (MSBs)  Professional Service Providers (Doctors, Attorneys, Accountants, Real Estate Brokers)  Non-Governmental Organizations and Charities  Business Entities (Domestic and Foreign)  Cash-Intensive Businesses

21. Risk Assessment Considerations  Risk assessment not required  Examiners will complete one if the credit union does not  Tell your own story  BSA program should be based on the risk assessment

22. Risk Assessment Components  Assess the following areas:  Products and Services  Members  Geographic Locations  Change as new products and services are introduced, strategic plans change, or field of membership changes.  Periodic updating  Address risks factors outlined in the FFIEC Exam Manual appendix J

23. Risk Assessment Considerations The risk assessment should answer the following questions:  What types of products and services does the credit union offer?  Who is using them?  Where is the potential exposure to money laundering?  What steps have been taken to mitigate risk?

25. Suspicious Activity Reports Credit unions are required to file a SAR if the institution knows or suspects that a transaction:  Involves illegal activity  Is designed to evade BSA regulations  Has no business or apparent lawful purpose Reporting Limits  Insider abuse in any amount  Aggregate transactions of $5,000 or more when a suspect can be identified  Aggregate transactions of $25,000 or more regardless of a potential suspect

26. SAR Examples  Insufficient or suspicious member information  Activity inconsistent with the member’s business  Unusual cash transactions  Unexpected or frequent funds transfers  Avoiding reporting or record keeping requirements (structuring)

28. Board of Directors’ Responsibilities  Approve the BSA Program annually  Appoint a BSA Officer  Review the BSA Risk Assessment as applicable  Review periodic BSA program updates  Ensure BSA officer has adequate staffing and resources  Review reports of filed Suspicious Activity Reports  Champion policy and procedure

30. For the Credit Union Civil Money Penalties:  Failure to file CTRs - $25,000 to $100,000 per violation  Failure to file SARs - $25,000 to $100,000 per violation  Compliance Program violations - $25,000 per day  Record-keeping violations - $1,000 per violation  Pattern of Negligence - $50,000  Negligence - $500 per violation  Structuring – Dollar amount involved in transactions

31. For the Credit Union Regulator Citations and Restrictions:  Cease & Desist orders  Delay or rejection of new applications  Revocation of federal deposit insurance coverage

32. For Individuals  Generally: $250,000 and/or five years in prison for willful violations  If conducted to facilitate other criminal acts: $500,000 or ten years in prison

33. Heather Line Compliance Specialist Utah Credit Union Association heather@utahscreditunions.org