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2012 AML ISSUES AND TRENDS

Presented by Connie Fenchel

President

AML Experts, Inc.

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2012 REGULATORS’ EXPECTATIONS

Address, correct and document prior exam findings

If issues not addressed, explain at onset of exam before examiner finds again

Lack of staff or funding = no excuse

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2012 REGULATORS’ EXPECTATIONS

Heightened CIP/Due Diligence Procedures

•Non-US residents•Commercial/Business•High Volume/Velocity•Third party verification

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2012 REGULATORS’ EXPECTATIONS

•Customized Risk Assessment (not cookie cutter)

•Enterprise-wide•Qualitative and quantitative analysis•Clearly defined inherent and residual risks•Update - particularly with new products

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2012 REGULATORS’ EXPECTATIONS

•Monitoring

•Internal/External Account Transfers •ACH Transactions•Loan and Trade Finance Transactions•Geographic Location •Volume/Velocity•ATM Activity

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2012 REGULATORS’ EXPECTATIONS

• Monitoring

•Active involvement in establishing thresholds and criteria•Based on Risk Assessment – But don’t just monitor High Risk

Accounts (Ocean Bank)•Not based on staffing restraints•Regular tuning based on documented methodology

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2012 REGULATORS’ EXPECTATIONS

•Training

•Documented and Current•Company-Wide•Board of Directors•Relevant

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2012 REGULATORS’ EXPECTATIONS

•Independent Review

•Adequate scope (enterprise-wide, all LOB’s, etc.)•Qualified, independent reviewer•Timely•Addressed prior exam/review deficiencies•Transaction testing and sample sizes

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2012 REGULATORS’ EXPECTATIONS

•Internet Banking Authentication Procedures

•Identify risks•Mitigating risks•Testing•Employee and customer awareness

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2012 REGULATORS’ EXPECTATIONS

•Third Party Payment Processor Accounts

•Background check of processors and merchants•Underwriting and review of merchants (telemarketers = high

risk)•Fraud monitoring (i.e. high return rate of remotely created

checks – Wachovia penalty)

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2012 REGULATORS’ EXPECTATIONS

•FinCEN Mandated Electronic Filing of BSA Forms

•Proposal – stay tuned•Effective 6/30/12•New forms extension until 3/31/13

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2012 ISSUES AND TRENDS

OFAC

•Written Policy/Procedures•Separate Risk Assessment•Cautionary Letters•Civil Money Penalties

• Egregious/Non-egregious• Voluntary Self-disclosure• Other Enforcement Actions

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2012 ISSUES AND TRENDS

Consumer Financial Protection Bureau (CFPB)

•Supervise certain consumer financial services companies and large depository institutions and their affiliates for consumer protection purposes

•Supervision and Examination Manual http://www.consumerfinance.gov/guidance/supervision/manual/

•Recent news re Payday Loans, Wire Remittances

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2012 ISSUES AND TRENDS

Prepaid Access Rule

•Exclusions• Closed-loop with max of $2,000 in one day, defined merchant• Access to funds provided by government agency• Health Reimbursement Arrangements (HRA)

•Providers – primary responsibility•Sellers – AML awareness

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2012 NEW FRONTIERS

Mobile Payments

•Remote payments• SMS text messaging• Wireless internet on mobile device

•Proximity payments• Chip on mobile device• Barcode displayed on mobile device• Access device readers plugged into mobile device

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2012 NEW FRONTIERS

Social Payments

•Prepaid, virtual “currency”• Usable within a defined, social networking environment• Dollar based/points based

•“Daily deal” prepaid vouchers

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2012 NEW FRONTIERS

Mobile and Social Payments•Compliance Concerns

• May or may not be a money transmitter – ask them to get legal opinion• May be a payment processor (EDD)• Determine who is responsible for CIP on customers• Ensure partner is required by agreement to comply with your AML/KYC

standards• Review AML controls/Independent Reviews• Include contractual right to request periodic audits

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2012 THREATS

Investment Fraud (Ponzi)•Scott Rothstein Case (Miami) $1.2B Fraud, 50 years jail

• Gibraltar – Julie Ansari = my idol!

• TD $67M

•Victims of schemes suing banks•Be aware of red flags ($200,000 in overdraft fees - $64M overdraft,

volume/velocity wires- $15M, “wined, dined and bullied execs” )•Document action•Regulator attention

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RECENT PENALTIES

Frank Mendoza $25,000 – Bribery – SAR disclosureOcean Bank $11M

•FDIC C&D 4 yrs prior•Prior lookback = $259M SARS – 100,000 alerts•No Documentation foreign customers

Mohamed Sheikh $25,000 •MSB xfers to West Africa•Credit Union account