ALEXANDRIA, Va. — Credit unions are all for combating terrorist financing and money laundering, but they would like to see the fruits of their labor when they look at the benefits versus the headaches of all their required documentation under the Bank Secrecy Act.

The Financial Crimes Enforcement Network is working to change that. NCUA Chairman JoAnn Johnson and FinCEN Associate Director of Regulatory Policy and Programs Jamal El-Hindi co-hosted a Webinar Feb. 6 to help familiarize credit unions with BSA basics and how the information gained from those recordkeeping requirements is used.

“While no one disputes the merits of protecting the financial system from abuse, we all know that there are costs and benefits associated with the imposition of any kind of requirement both on the private sector and on law enforcement…The burdens imposed on the financial system have to be justified in light of the benefits gained,” El-Hindi acknowledged. “The transparency we strive for also has to be achieved with an eye to protecting the privacy of individuals as well as the equities of the institutions providing financial information.”

He added, “We know we have to accomplish our mission without overwhelming our partners in the private sector. You and law enforcement are both in the front lines in the fight against misuse of the financial system.” He acknowledged the need to better show financial institutions that all the paperwork is doing some good.

El-Hindi also noted two issues of particular concern to credit unions. He stated that FinCEN was working with NCUA to help clear up BSA responsibilities under credit unions' shared branching business model. Secondly, he encouraged credit unions to do their due diligence and work with money services businesses, which have been frequently denied services due to misperceptions about the risk involved. Bird's Eye View of BSA Exam

Even though NCUA examinations are risk-focused and BSA requirements are risk-based, certain things are required and need to be examined at every safety and soundness review, NCUA Examination and Insurance Program Officer Matt Biliouris said. “That doesn't mean our examiners do not develop a risk-based examination scope as it relates to the Bank Secrecy Act, but BSA compliance is in fact reviewed during every examination,” he explained. Credit unions can look to NCUA's BSA questionnaire and FinCEN BSA/AML manual for details of what examiners will be looking for.

Of particularly high priority is a risk assessment preformed by the credit union. “The first thing I want to clarify regarding a risk assessment is although there is no explicit statutory requirement to perform one, it is considered to be a critical foundation of an effective BSA compliance program,” Biliouris emphasized. “A well thought out risk assessment can help to assist a credit union in distributing resources more effectively to areas of higher risk as opposed to spending a lot of time further mitigating lower risk issues.” Developing a risk profile is a two-step process, he said. First, credit unions should identify risk categories, looking at products, services, membership and geographic location. Next, credit unions should perform a more detailed analysis of the risks involved in each category. He stressed that the risk profile should be updated at least every 12 to 18 months or times when it is likely to change, such as when offering new products and services or there is a change in field of membership.

Under NCUA's new Suspicious Activity Report rule on board notification, Biliouris acknowledged that “prompt” notification of the credit union board is not specifically defined, but the preamble says monthly at the board meeting if notification is not necessary sooner. Responding to a question about the new rule, he added that board members that are subjects of the SAR should not be notified, but the others should.

The most common problems examiners are encountering with BSA compliance are independent testing, insufficient training, internal controls, lack of an up-to-date compliance program, and filing errors. He suggested that most employees should get BSA training commensurate with their responsibilities in the area, as well as board members, and to document it.

Biliouris' advice in preparing for BSA review:

o Document everything;

o Prioritize issues and track resolution;

o Think in cycles, compliance is not an “event”;

o Foster communication with examiner; and

o Sign up for periodic e-mail alerts from NCUA, FinCEN and others.

In 2007, a drafting group comprised of FinCEN and the federal banking agencies are meeting to update the manual and by June, credit unions should see a new SAR form. NCUA consumer compliance subject matter examiners are undergoing additional special BSA training and the BSA portion of NCUA's Web site (www.NCUA.gov) is being made more user friendly. No 'Black Hole' of Government

“Today, I would like to try to correct the misperception that the BSA forms submitted by you and others in the industry go into a government black hole and are rarely used,” Nona Tiedge, assistant director of FinCEN's Office of Regulatory Analysis, said. BSA filing information is housed in a database called the Currency and Banking Retrieval System that 235 agencies use. Of those, 195 are law enforcement. In 2006, participating agencies queried 68,000 subjects and almost 24,000 cases through the system, using the records to initiate or support investigations, according to Tiedge.

She described a specific situation where an individual held meetings with small businesses and churches to encourage them to invest their money with him, but instead spent the funds on a lavish lifestyle for himself and his employees. He was caught within a few months based on suspicious activity reports, including one from a credit union where he had opened an account and deposited forged checks. He recently pleaded guilty to money laundering and faces prison and multi-million dollar fines.

“The prosecutor in this case noted that the BSA information and the diligence of the reporting institutions played a critical role in the investigation to help stop the problem in a few months, possibly saving losses of millions of dollars to hundreds of potential investors,” Tiedge said.

While this case was cleared up relatively quickly, sometimes they can take months and years, she noted, or the information can be used for other purposes. Aside from matching names from law enforcement to filings or identifying potential targets from them, FinCEN performs strategic analysis of the information to identify trends and patterns in reporting or vulnerabilities to institutions, products, or services to develop guidance or regulatory policy. Additionally, statistical analysis, such as that included in the FinCEN publication By the Numbers, can be helpful in studying overall filing volume, historical trends, and geographic assessments to locate hot zones or help with allocation of resources.

In 2007, FinCEN plans to unveil a new interactive By the Numbers using the year-end 2006 data to be released in the spring. Additionally, FinCEN has an initiative in the hopper for state filings.

Over 2,000 joined the NCUA/FinCEN BSA Webinar, which will be made available at NCUA's Web site (www.ncua.gov) in the next week or two, with over 180 questions in queue at the end of the live session. Questions can still be sent over the next several weeks to [email protected]. –[email protected]