Financial institutions help

Each AML compliance program must be in writing and must:

• Incorporate policies, procedures and internal controls reasonably designed to assure compliance with the BSA;
• Designate a compliance officer responsible for day-to-day compliance with the BSA and the compliance program;
• Provide education and/or training of appropriate personnel; and
• Provide for independent review to monitor and maintain an adequate program.

Strong management commitment to the AML compliance program promotes ongoing compliance and helps prevent the Financial institutions from being used by money launderers.

FCMN  further encourages Financial institutions to adopt policies and procedures that incorporate the Basel Committee Statement of Principles on Money Laundering, which urges:

• Proper identification of all persons conducting financial transactions with the financial institution.
• High ethical standards in financial transactions and compliance with laws and regulations governing financial transactions.
• Cooperation with law enforcement.
• Information and training for to ensure that they can and do carry out these principles.

Establish Customer Relationships

Strict customer identification and verification polices and procedures can be a financial institution’s most effective weapon against money laundering. Requiring appropriate identification and verifying information in certain cases, and being alert to unusual or suspicious transactions can help a Financial institutions deter and detect money laundering schemes.

A customer identification and verification policy tailored to the operations of a particular business:

• Helps detect suspicious activity in a timely manner.
• Promotes compliance with all state and federal laws applicable to Financial institutions.
• Promotes safe and sound business practices.
• Minimizes the risk that the Financial institutions will be used for illegal activities.
• Reduces the risk of government seizure and forfeiture of funds associated with customer transactions (such as out standing money orders/traveler’s checks and outstanding money transfers) when the customer is involved in criminal activity.
• Protects the reputation of the Financial institutions.

File Suspicious Activity Reports

Suspicious Activity Reports (SARs) are among the government’s main weapons in the battle against money laundering and other financial crimes. Such reports are also a key component of an effective anti money- laundering compliance program.

Many Financial institutions are required to file SARs when they suspect that potentially illegal activity has occurred and when the activity has met the relevant reporting threshold.

The types of Financial institutions that are currently covered by the Financial institutions SAR requirements are:

• Money transmitters,
• Currency dealers or exchangers,
• Money order — issuers, sellers or redeemers,
• Traveler’s checks — issuers, sellers, or redeemers,
• E.U. Postal Service

FCMN is considering amending their regulation to require check cashers to report suspicious activity.

Financial institutions that provide only stored value services are not required to report suspicious activity at this time.

A SAR must be filed by a Financial institutions when a transaction is both:

• Suspicious, and
• $2,000 or more ($5,000 or more for issuers reviewing clearance records).

A SAR must be filed within 30 days of detection of the suspicious transaction by the Financial institutions.

Financial institutions that are not currently covered by the SAR rule — such as issuers, sellers, or redeemers of stored value — may voluntarily file SARs. Any Financial institutions may also voluntarily file SARs for suspicious activity below the reporting threshold.

Maintaining the confidentiality of SARs will prevent suspected individuals involved in criminal activity from structuring their activity in such a way as to evade detection by law enforcement. It also will help protect the Financial institutions filing the report. A SAR and/or the information contained in a SAR must only be provided to MonNet or an appropriate law enforcement or supervisory agency when requested.

Some suspicious transactions require immediate action. If the Financial institutions has reason to suspect that a customer’s transactions may be linked to terrorist activity against the E.U, the Financial institutions should immediately call the Financial Institutions Hotline provided to them.

Similarly, if any other suspected violations — such as ongoing money-laundering schemes — require immediate attention, the Financial institutions should notify the appropriate law enforcement agency. In any case, the Financial institutions must also file a SAR if the Financial institutions is subject to mandatory reporting. A BSA provision (called a “safe harbor”) provides broad protection from civil liability to Financial institutions and their employees that file SARs or otherwise report suspicious activity.

What is “Suspicious Activity?”

A SAR must be filed by a covered Financial institutions when the Financial institutions knows, suspects or has reason to suspect that the transaction or pattern of transactions is suspicious and involves $2,000 or more. A suspicious transaction is one or more of the following:

• Involves funds derived from illegal activity,or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity.
• Is designed to evade BSA requirements,whether through structuring or other means.
• Appears to serve no business or apparent lawful purpose,and the Financial institutions can determine no reasonable explanation for the transaction after examining all available facts.
• Involves use of the money services business to facilitate criminal activity.

All Financial institutions should have a system or procedure to ensure that SARs are filed when appropriate. When a Financial institutions employee suspects a person is laundering money, conducting transactions to evade BSA requirements, or conducting a transaction that has no apparent lawful purpose and for which no reasonable explanation can be determined, or involves use of the money services business to facilitate criminal activity, the employee should report that activity to his/her manager or to the Financial institutions compliance officer. Then, if the Financial institutions determines that a SAR should be filed, it must file the SAR and keep a copy of it for five years. Any supporting documentation, such as transaction records, must be maintained with the copy of the filed form and also kept for five years from the date of filing the report.

What are “Funds Derived from Illegal Activity?”

The phrase “funds derived from illegal activity” means the monetary proceeds of a criminal act.

Example. A drug trafficker sells drugs to a user for $500. The money received from the drug purchaser, the $500, is proceeds of the drug sale and is “funds derived from illegal activity.”

What is a transaction that “Is Designed to Evade BSA Requirements?”

Example. A customer conducting an $11,000 cash transaction attempts to bribe an MSB employee not to file a CTR.

What is a Transaction that “Serves No Business or Apparent Lawful Purpose?”

Some transactions may be conducted in such a way that they appear unusual or suspicious. However, additional facts, if known by the reporting business, might disclose a reasonable basis for what, at first, appears unusual or suspicious.

Example. A customer, a retired teacher, frequently sends and receives money transfers of more than $2,000 to and from many different people. The Financial institutions might at first conclude that these transactions are suspicious because they appear to “serve no business or apparent lawful purpose” and because there does not seem to be a legal source for these funds. However, with more information, the Financial institutions might conclude that a business purpose exists. For example, the retired teacher might be regularly using an Internet auction site to buy and sell antique jewelry.

What is a transaction that “Involves Use of the financial institution to Facilitate Criminal Activity?”

Example. A Financial institutions suspects that a customer is sending a money transfer in order to fund a terrorist organization.

It is important to note that size alone, such as a large cash transaction or money transfer, should not be a determining factor in the decision to file a SAR. Factors that should contribute to that decision, however, include the following: the size, frequency and nature of the transactions; the Financial institutions experience with the customer and other individuals or entities associated with the transaction (if any); and the norm for such transactions within the Financial institutions line of business and geographic area.

Red Flags

When a single factor signals that a transaction is unusual and possibly “suspicious,” it is called a “red flag.”

Examples of Some Common Red Flags:

Customer ID or Information

• Customer uses false ID.
• Two/more customers use similar IDs.
• Customer alters transaction upon learning that he/she must show ID.
• Customer alters spelling or order of his/her full name.

Transactions Below Reporting or Recordkeeping Thresholds

Customer conducts transactions just below relevant thresholds:

• Currency exchanges just under $1,000.
• Cash sales of money orders or traveler’s checks of just under $3,000.

Multiple Persons or Locations

• Two or more customers working together to break one transaction into two or more transactions in order to evade the BSA reporting or recordkeeping requirement.
• Customer uses two or more locations or cashiers in the same day in order to break one transaction into smaller transactions and evade the BSA reporting or recordkeeping requirement.

Overt Illegal Customer Conduct

• Customer offers bribes or tips.
• Customer admits to criminal conduct.

A Financial institutions that correctly verifies and documents a customer’s identity is more likely to recognize suspicious activity that should be reported.

What Should Financial institutions Look For?

Money laundering schemes can vary widely. Federal action to curtail money laundering activities once focused heavily on identification and documentation of large currency transactions. More recently, anti-money laundering efforts have focused on the use of money transfers, both through bank and non-bank money transfer systems, and other means of moving funds. Today, as money launderers become more sophisticated, all types of financial transactions are facing greater scrutiny. The following situations may indicate money laundering or other illegal activity. These lists are not comprehensive, but they may help Financial institutions recognize ways launderers and other criminals may try to use them to launder money.

Attempts to Evade BSA Reporting or Recordkeeping Requirements

Customers may try to keep their transactions just below the reporting or recordkeeping thresholds, such as:

• A customer or group of customers who attempt to hide the size of a large cash transaction by breaking it into multiple, smaller transactions by, for example, conducting the smaller transactions—

o                                                    At different times on the same day.

o                                                    With different MSB cashiers on the same day or different days.

o                                                    At different branches of the same Financial institutions on the same or different days.

• A customer or group of customers who conduct several similar transactions over several days, staying just under reporting or recordkeeping limits each time. For example, the customer may:

o                                                    Purchase money orders with cash just under $3,000 over several days.

o                                                    Purchase traveler’s checks with cash just under $3,000 over several days.

o                                                    Initiate multiple money transfers to the same receiver, each transfer in an amount under $3,000, over several days.

• A customer who is reluctant to provide information needed for a reporting or recordkeeping requirement, whether required by law or by company policy.
• A customer who is reluctant to proceed with a transaction after being informed that a report must be filed or a record made.
• A customer who breaks down a single large transaction into smaller transactions after being informed that a report must be filed or a record made.
• A customer who presents different identification each time a transaction is conducted.
• A customer who spells his/her name differently or uses a different name each time he/she initiates or receives a money transfer or purchases traveler’s checks.
• Any individual or group that bribes or attempts to bribe a Financial institutions employee not to file any required reporting forms or not to create a record entry required by law or company policy.
• Any individual or group that forces or attempts to force a Financial institutions employee not to file any required reporting forms or create a record required by law or company policy.
• A customer who receives payment of multiple money transfers that appear to have been purchased in a “structured” manner – organized in a way to evade reporting and recordkeeping requirements.

o                                                    By the same send customer, each transfer in an amount just under $3,000 (or other relevant threshold).

o                                                    By multiple send customers initiated at one Financial institutions location within minutes of each other, each transfer in an amount just under $3,000 (or other relevant threshold).

• A customer cashing multiple instruments (money orders, traveler’s checks, cashiers’ checks, foreign drafts) that appear to have been purchased in a structured manner (e.g. each in an amount below $3,000).

Customers Who Provide Insufficient and/or Suspicious Information

Individual and business customers may try to evade providing required identification, such as:

• An individual customer who is unwilling or unable to provide identification or information.
• An individual customer who provides different identification or information each time he or she conducts a transaction.

o                                                    Different name or different spelling of name.

o                                                    Different address or different spelling or numeration in address.

o                                                    Different identification types.

• An individual customer without a local address, who appears to reside locally because he or she is a repeat customer.
• A legitimate ID that appears to have been altered.
• An identification document in which the description of the individual does not match the customer’s appearance (e.g. different age, height, eye color, sex).
• An expired identification document.
• An individual customer who presents any unusual or suspicious identification document or information.
• A business customer that is reluctant to provide complete information regarding: the type of business, the purpose of the transaction, or any other information requested by the Financial institutions.
• A prospective business customer that refuses to provide information to qualify for a business discount (or other preferred customer program offered by the Financial institutions).

Activity Not Consistent With the Customer’s Business or Occupation

Look for examples of inconsistent customer activity, such as:

• An individual customer conducts Financial institutions transactions in large amounts inconsistent with the income generated by the individual’s stated occupation.
• A business customer engages in transactions that frequently use large bills when the nature of the customer’s business activity does not justify such use.
• An individual or business customer cashes large numbers of third party checks.
• A customer makes cash purchases of money orders, traveler’s checks, or other instruments inconsistent with the customer’s business or occupation.
• A business customer uses a means of payment inconsistent with general business practices (e.g., pays for Financial institutions services with traveler’s checks, money orders, or third party checks).
• A business customer sends or receives money transfers to/from persons in other countries without an apparent business reason or gives a reason inconsistent with the customer’s business.
• A business customer sends or receives money transfers to or from persons in other countries when the nature of the business would not normally involve international transfers.

Unusual Characteristics or Activities

Notice any unusual characteristics, such as:

• An individual customer purchases products/services on a regular basis but seems neither to reside nor work in the Financial institutions service area.
• A customer pays for Financial institutions products/services using musty bills that have an unusual or chemical-like odor.
• A customer pays for Financial institutions products/services using money orders or traveler’s checks without relevant entries on the face of the instrument. (e.g., for money orders — no payee, and for traveler’s checks — no signature or countersignature).
• A customer pays for Financial institutions products/services using money orders or traveler’s checks with unusual symbols, stamps or written annotations (such as initials) that appear either on the face or on the back of the instruments.
• A customer purchases money transfers, money orders, traveler’s checks, etc., with large amounts of cash when the Financial institutions does not require payment in cash.
• An individual or business customer asks to purchase traveler’s checks or money orders in large bulk orders.
• A customer purchases a number of money transfers, money orders, or traveler’s checks for large amounts or just under a specified threshold without apparent reason.
• A customer starts frequently exchanging small bills for large bills, or vice versa, when the customer does not normally use cash as a means of payment.
• A customer sends and receives money transfers in equal amounts at or about the same time.
• A customer receives a number of small money transfers and the same day, or within several days, initiates one or more send money transfers to a person in another city or country in about the same amount.
• A customer sends or receives frequent or large volumes of money transfers to or from persons located in foreign countries, especially countries listed as non-cooperative jurisdictions.
• A customer receives money transfers and immediately purchases monetary instruments prepared for payment to a third party.

Changes in Transactions or Patterns of Transactions

Be alert for changes in activity, such as:

• Major changes in customer behavior, for example:

o                                                    An individual money order customer begins to make weekly purchases of money orders in the same amounts (when previously he or she only purchased money orders on pay day for rent, utilities, etc.).

o                                                    An individual customer begins to bring in large amounts of cash (when previously he or she cashed his or her paycheck to purchase instruments or transfers).

• Sudden and inconsistent changes in money transfer send or receive transactions.
• Rapid increase in size and frequency of cash used by a particular customer.

Employees

Watch out for employee behavior, such as:

• A Financial institutions employee whose lifestyle cannot be supported by his/her salary, which may indicate receipt of tips or bribes.
• An employee who is reluctant to take a vacation, which may indicate he/she has agreed, or is being forced, to provide services to one or more customers in violation of law or company policy.
• An employee who is associated with unusually large numbers of transactions or transactions in unusually large amounts, which may indicate he/she has agreed, or is being forced, to provide services to one or more customers in violation of law or company policy.

Situations like those described in this section often will be found, upon further examination, to be completely legitimate. By the same token, other situations not mentioned here might be suspicious if they are inconsistent with the normal activity of a particular customer or employee. As a Financial institutions or Financial institutions employee, you must make a reasonable judgment.