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BANK SECRECY ACT REQUIREMENTSFOR
RESIDENTIAL MORTGAGE LOAN ORIGINATIORS:AN OVERVIEW
June 6, 2012
Marjorie A. Corwin, EsquireGordon Feinblatt LLC
233 East Redwood StreetBaltimore, Maryland 21202
410-576-4041mcorwin@gfrlaw.com
BSA Background
The Bank Secrecy Act (BSA) is a group of federalstatutes that require certain persons to keeprecords and file reports that “have a high degreeof usefulness in criminal, tax, or regulatoryinvestigations or proceedings . . . .”
Part of the BSA requires these certain persons todevelop anti-money laundering (AML) programs.
The authority to administer the BSA has beendelegated to the Director of the Financial CrimesEnforcement Network (FinCEN).
New FinCEN Regulations
On February 14, 2012, FinCEN issued BSAregulations that impose obligations on non-depository “residential mortgage lenders andoriginators” (RMLOs)
Found at: 31 C.F.R. § 1010.100 and 31 C.F.R.Part 1029
Compliance Date: August 13, 2012
Coverage
RMLOs: Persons engaged in the activitiesof a residential mortgage lender and/orresidential mortgage originator, whether ornot on a regular basis or as an organizedbusiness concern.
Excluded: Individuals employed by RMLO
Penalties for Noncompliance
Violations of BSA requirements may result in civil penalties:
Civil penalties of $1,000 per day for each day ofnoncompliance.
Willful violations may result in civil penalties for the RMLOor its employees, officers, or owners in an amount of thetransaction (up to $100,000) or $25,000, whichever isgreater.
Civil penalties of up to $500 may be imposed for negligentviolations, but if the RMLO engages in a pattern ofnegligent violations, then civil penalty could go up to$50,000.
Criminal penalties also are possible.
Examinations
Overall authority for enforcement and compliance of therule is with FinCEN.
FinCEN can further delegate this authority, and it plans towork with “relevant regulatory agencies” to developconsistent compliance exam procedures.
So, who will conduct examinations of RMLOs? Staytuned, but it could include:
FinCEN
IRS
State regulatory agencies
CFPB
Federal banking agencies
New FinCEN Regulations
What is required?
AML Written Program
Filing Suspicious Activity Reports
AML Program
Each RMLO must develop and implement a written AMLprogram designed to prevent the RMLO from being usedto facilitate money laundering or the financing of terroristactivities.
Based on commentary to the regulation, FinCEN expects theAML program also to prevent the RMLO from being used tofacilitate mortgage fraud or other criminal activity.
The AML program must be commensurate with the size,location, and activities of the RMLO.
The program must be approved by senior management.
The RMLO must make a copy of its AML programavailable to the FinCEN or its designee upon request.
AML Program Requirements
Written program is based on 4 core actions (pillars):
Develop policies, procedures, and controls based onRMLO’s own assessment of mortgage fraud, moneylaundering, and terrorist financing risks associated with itsproducts and services (“know your customer”)
Designate a responsible person (compliance officer) toensure proper implementation and update of the program
Ensure employees, agents, and brokers receive on-goingtraining about the program
Independently monitor to know that the program isadequate
AML Program
Suggestions:
Build on your existing risk managementprocedures and prudential business practices
Focus on your current due diligence of borrowersand collateral associated with credit risk
Document what you already do when situations“don’t smell right”
Suspicious Activity Reports (SARs)
Every RMLO must file with FinCEN areport of any suspicious transactionrelevant to a possible violation of law orregulation.
SARs must be filed through FinCEN’sE-Filing system
http://bsaefiling.fincen.treas.gov
When to File SARs
A SAR must be filed no later than 30 daysafter initial detection by the RMLO of factsthat may constitute a basis for filing aSAR.
If no suspect is identified on the date of suchinitial detection, RMLO may delay filing a SARfor an additional 30 days to identify a suspect,but in no case may reporting be delayed morethan 60 days after the date of initial detection.
Types of Reportable Activity
Bribery
Check Fraud
Check Kiting
Computer Intrusion
Counterfeit Check
Counterfeit Credit/DebitCard
Credit/Debit Card Fraud
Embezzlement
Mortgage Fraud
False Statement
Loan Fraud
Misuse of Position
MysteriousDisappearance
Wire Transfer Fraud
Tax Evasion
Terrorist Financing
Identity Theft
When SAR Filing is Required
RMLO must report a transaction if it involves funds orother assets of at least $5,000, and the RMLO knows,suspects, or has reason to suspect that the transaction:
Involves funds derived from illegal activity or is intendedor conducted in order to hide or disguise funds orassets derived from illegal activity as part of a plan toviolate or evade any federal law or regulation;
Is designed to evade BSA requirements;
Has no business or apparent lawful purpose or is notthe sort in which the particular customer would normallybe expected to engage; or
Involves use of the RMLO to facilitate criminal activity.
When SAR Filing is Permitted
RMLO may file a SAR regarding any suspicioustransaction that it believes is relevant to thepossible violation of any law or regulation, butwhose reporting is not required.
Red Flags for “SAR” Filings
Unusual or Suspicious Applicant Activity
Obvious over-pricing or under-pricing ofproperty.
Customer requests payment of loan proceedsto an unrelated third party with no reasonableexplanation.
Schemes (such as property flipping, flopping,and straw buyers) to generate equity for animmediate subsequent purchase.
Red Flags for “SAR” Filings
Unusual or Suspicious Applicant Activity
Questionable refinance or loan modificationattempts targeting distressed homeowners(e.g., purported loan modification orforeclosure rescue specialists).
Customer provides unusual or suspiciousidentification documents that cannot bereadily verified.
Customer provides conflicting information.
Red Flags for “SAR” Filings
Unusual or Suspicious Borrower Activity
Borrower makes “Freeman-style” debtrenunciation.
Repurchase requests and buy back demandsare made under mortgage loan saleagreements.
Questionable activity related to early defaults.
Insurer notifies RMLO of investigationsuspicious claim on a borrower’s hazardpolicy.
Red Flags for “SAR” Filings
Suspicious employee activities
Employee exhibits a lavish lifestyle thatcannot be supported by his or her salary.
Employee fails to conform to recognizedpolicies, procedures, and processes.
Employee is reluctant to take a vacation.
Retention of Records
A copy of the SAR and the originalsupporting documentation for the SARmust be maintained for 5 years.
Confidentiality of SARs
A SAR, and any information that wouldreveal the existence of a SAR, areconfidential and shall not be disclosedexcept to FinCEN, federal, State, or locallaw enforcement agencies, and regulatoryagencies.
Safe Harbor
Liability protection for:
Disclosures pursuant to BSA requirements;and
Failure to provide notice of such disclosuresto any persons identified in the disclosures.
Questions?
Thank you!
Marjorie A. Corwin, Esquire
Gordon Feinblatt LLC
233 East Redwood Street
Baltimore, Maryland 21202
410-576-4041 mcorwin@gfrlaw.com
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