Leaders Credit UnionBoard Presentation

Bank Secrecy ActApril 2007

BANK SECRECY ACTPassed by Congress in 1970Requires financial institutions to report information and keep records of certain monetary transactionsReferred to as an “Anti-Money Laundering” lawDesigned to identify the source, volume, and movement of currency and other monetary instruments into or out of the U.S. or deposited into financial institutionsThe BSA was put into place to safeguard the U.S. financial system from the abuses of financial crimes, including money laundering, terrorist financing, and other illicit financial transactions

BANK SECRECY ACT

Money Laundering Control Act of 1986Anti-Drug Abuse Act of 1986Currency and Foreign Transactions Reporting ActFinancial Recordkeeping and the Department of Treasury’s Reporting of Currency and Foreign Transactions rulesUSA Patriot Act, 2001

Source: Financial Crimes

Enforcement Network (FinCEN)

BANK SECRECY ACT12 USC 1818(s)(2) requires that the NCUA include a review of the BSA compliance program at each examination of a credit union. The NCUA may use their authority to enforce compliance with the BSA.Regulatory agencies may take a range of actions in the event of a BSA violation

Criticism in examination reportMemorandum of UnderstandingCease and Desist order Civil money penaltiesReferral to Treasury

BANK SECRECY ACTCivil Penalties for Violations

Federal banking agencies and FinCEN, respectively, can bring civil money penalty actions for violations of the BSA. In addition, to criminal and civil money penalty actions taken against them, individuals may be removed pursuant to 12 USC 1818(e)(2) for a violation of the AML laws under Title 31 of the U.S. Code.

Significant Enforcement Actions

FinCEN issued two large civil money penalties in December 2006; Beach Bank in Miami, Florida for $800,000.00 and Foster Bank in Chicago, Illinois for $2,000,000.00. Violations included inadequate AML program, inadequate internal controls, failure to report suspicious activity, lack of independent testing, etc.NCUA issued a “Cease and Desist Order” against the Dover N.J. Spanish American Federal Credit Union in February 2007 for substantial BSA compliance problems. ($15,000,000.00 with 4,000 members)

BANK SECRECY ACT

Money Laundering – filtering money from illegal activities through the financial system to conceal illegal sources of incomeLaundered money may be deposited or withdrawn in a series of transactions to hide the illegal activity

BANK SECRECY ACT

Terrorist FinancingIntended to intimidate through the threat of violenceGoal – to compel a government or organization to do something, or refrain from doing something that will result in furthering the terrorist’s agendaIdeological motivationLegitimate, as well as unlawful, sources

BANK SECRECY ACT

Terrorist illegal activities include:ExtortionKidnappingNarcotics traffickingSmugglingFraud schemes, such as identity theft

BANK SECRECY ACT

Money Laundering Control Act of 1986:Imposes criminal liability on a person or institution that knowingly assists in money laundering or who structures transactions to avoid reporting itFinancial Institutions must establish and maintain procedures designed to meet compliance guidelines according to BSA requirements

BANK SECRECY ACT

Money Laundering Methods:Currency smugglingStructured deposits or withdrawals from accountsPurchases of various types of monetary instrumentsCredit, debit or stored value cardsFunds transfers

BANK SECRECY ACT

BSA reportable transactions include:Deposits or withdrawals of more than $10,000 in cash in a dayPurchase of monetary instruments (money orders, cashiers checks, travelers cheques) with more than $3,000 in cashIf member inquires about how to do the transaction without being reported, LCU must file a “Suspicious Activity Report”

BANK SECRECY ACT

LCU complies with BSA as outlined in Board policyCash transactions exceeding $10,000 will be reported on a Currency Transaction Report form FinCEN104Suspicious Activity Reports are filed as required

BANK SECRECY ACT

SUSPICIOUS ACTIVITY REPORTSNCUA established thresholds for credit unions:

No threshold – If credit union is certain that an insider is connected with the known or suspected crime, reporting is required, regardless of the amount involved

BANK SECRECY ACT

$5,000 threshold – Credit union will report crimes of $5,000 or more if it knows the identity of the suspect or suspects the following:

Transaction involves money launderingTransaction is designed to specifically evade the BSATransaction has no apparent lawful purpose or is not the sort of transaction in which the account holder usually engages, and the credit union can determine no reasonable explanation for the transaction

BANK SECRECY ACT$25,000 threshold – The credit union must report all known or suspected crimes of $25,000 or more even if it does not know the identity of the suspect.SAR reports are confidential. The member can NOT be told that a report has been filed.Employees who are subpoenaed or requested to disclose a SAR must decline unless it is by FinCEN, an appropriate law enforcement agency, or supervisory agencyDisclosure of a SAR is a FELONY and could land the discloser in jail.

BANK SECRECY ACTLCU does not sell monetary instruments to non-membersLCU reviews a report daily, which tracks all transactions that require a Currency Transaction Report be filed when a member makes single or multiple deposits on the same business day equaling $10,000.01 or more. The report also tracks transactions between $3,000 and $10,000 for tracking purposes of monetary instrumentsRecords are retained for all originated Wire TransfersAll records are retained for the required 5 year period

BANK SECRECY ACT

USA Patriot Act-Customer Identification Program (Board policy 10/1/2003)Verify identity of any person seeking to open an accountMaintain records of documents usedCheck for OFAC listing and SDN listingID Flag Verification through PAC

BANK SECRECY ACT

Compliance Programs and ProceduresInternal controls, policies and procedures to assure ongoing complianceIndependent AuditDesignate a BSA Compliance OfficerOngoing training for Staff and Board

Facilitated byRita McCaslin, EVP

Bank Secrecy ActLeaders Credit Union

Board Presentation