ARLINGTON, Va. — The Bank Secrecy Act appears likely to continue as a source of extra work and anxiety for credit unions in 2008, and legal experts expect its enforcement to steadily tighten as the year goes on.
That was one of the messages underlying a presentation two of NCUA's BSA specialists made to CU executives attending a meeting of the Metropolitan Area Credit Union Management Association. During the event, Diane Wiltshire and Mary Bashore, BSA specialists and supervision analysts for NCUA's Region II, walked roughly 50 executives through what it takes to become compliant with BSA regulations.
"Credit unions have to do this because it's the law," said Wiltshire. "And because no one wants to go through the enforcement process. But we also do it because no one wants a credit union to ever be implicated in some sort of financing for Bin Laden or other terrorist group."
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Wiltshire and Bashore emphasized that the BSA requires credit unions to establish a BSA and anti-money laundering program reflective of its risk profile that includes processes to detect and report financially suspicious activity on the parts of their members.
This can be somewhat complicated for credit unions to do, they acknowledged, because there is no generally accepted model for what such a program would look like.
"A lot depends on your membership," Wiltshire explained. "If your credit union [membership] is essentially closed, if it doesn't have a huge turnover of members, and if there are not a lot of cash transactions, you are going to have one sort of risk profile. But if your credit union has a community charter, or if there are any members who have high cash volume businesses or a lot of new members regularly, you will have a different risk profile and need a different program."
The two analysts said, at a minimum, a compliant BSA program must have internal controls to make sure that BSA requirements are being met; there must be a BSA officer in place and there must be independent testing of the systems the CU puts into place to comply with the law. This includes ongoing training of CU staff and a customer identification program, they said.
While all this presents a formidable challenge, particularly for a smaller institution, the pair's presentation highlighted how much of the BSA compliance can seem like an art more than a science.
For example, Wiltshire said the most commonly reported suspicious activity is structuring–the deposit of sums of currency in any amount on one or more days with an intent to avoid currency reporting laws. Difficulty can arise in trying to ascertain whether a member had really only sold a car or held a good yard sale or whether they were trying to launder the proceeds of illegal activity, Wiltshire observed.
On the other hand, awareness of the BSA requirements will make it easier to detect most structuring, she said. As an example, Wiltshire described a credit union member who had a restaurant–usually a high cash business–and was routinely depositing large numbers of checks that approached the $10,000 cap for mandatory reporting but never crossed it. "That was clearly suspicious, especially when I don't think I have written a check at a restaurant in years," she said. "We reported it as suspicious activity."
Further, it appears that the U.S. Treasury and Justice Departments are poised to step up BSA enforcement. Larry Hart, a retired Treasury officer whose career centered on fighting financial crime and has since co-founded Creative Compliance Solutions, LLC, a consulting firm specializing in BSA issues, pointed out recently that nine more financial institutions–all banks–have received cease and desist orders from their regulators regarding BSA issues. The largest of the nine, Hart reported, was over $400 million but the smallest was only $40 million, shooting down the myth that BSA compliance is really only a responsibility of larger financial institutions.
Three of the nine, Hart also noted, were ordered to perform "look back" reviews of their transactions for the last five years to identify occasions where suspicious financial activity took place but was not reported. In these cases the regulator ordered the bank to hire a consultant to conduct the look backs, a service which Hart said could cost as much as $25 million per month.
These enforcement actions should grab the attention of credit unions, Hart explained, because his work with credit unions suggests that very few of them could withstand a significant BSA examination and NCUA is not the only enforcement agency with which credit unions need to be concerned.
He also observed that the approaching Nov. 1, 2008 deadline for compliance with regulations on identity theft require credit unions to completely and accurately collect and verify personal information on all members, current and future.
"The requirements are the responsibility of the institution not the customers," Hart wrote in an email to his firm's credit union clients. "It also requires the financial institutions to resolve any information discrepancies such as an address conflict, and report it to the credit reporting agency for inclusion in their databases."
"In essence we have jumped from checking databases…to the point where we must collect, verify, conflict resolve and then possibly report the findings to be shared with others by the credit reporting agencies," he added.
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