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hello and welcome to your 2021 bank secrecy act and anti-money laundering training my name is alicia member engagement consultant with the league of southeastern credit unions now let's get started this theme is a bsa compliance can be broken down into three main categories including analyzing and managing your risk and understanding that every credit union's risk is going to be different from the next due to the number of factors that go into your bsa program second is knowing your members we're already very proud of this from a relationship banking perspective but it also can help us with bsa concerns as well and the third piece is documenting everything as we'll learn there are two documents that we are required to complete along with our bsa program and we'll go through the ins and outs of those so the purpose of the bank secrecy act was designed to identify the source volume and movement of currency across the united states as well as creating a record-keeping obligation that we'll discuss as we get into our reports and all of these efforts are done to prevent money laundering so what in the world is money laundering this chart explains it very nice for us so over in the top left we have the collection of dirty money and dirty money is defined any funds that are coming from any illegal source so they then want to place those funds into the financial system they're going to be using lots of sneaky techniques called layering some examples of these are around the globe for you pretty much anything that's creating all sorts of twists and turns so by that the time those funds arrive at your credit union it's impossible for you to tell what the original source was examples include wire transfers offshore bank accounts loans from a fake company to a legitimate company creating a false invoice and submitting that for payment again anything that takes those funds and it's impossible to tell what the original source was if we're able to successfully use these tactics and integrate those funds into the financial system that's when we make it over to the bottom left of the chart where they're able to purchase real tangible assets with those funds exactly what we are trying to avoid the bank secrecy act moves through so many different departments and organizations that this chart at the bottom explains the flow very nicely for us on the left we see fins in which is the financial crimes enforcement network of the u.s treasury department they're the ones that create the statute and tell us that we need to be compliant with it in the middle we have credit unions we talk about the front line a lot in credit union land but in this case we are literally the front line against anti-money laundering and that is why we are seen as the experts due to this level of experience and also where our compliance requirement comes from it has been enforced upon us by the ncua through our examination process and then any of the data that we collect through our bsa program can then be used by law enforcement for analysis and prosecution when necessary the next few slides come from the bsa exam manual and various fencing advisories this 2014 a007 stated there was a poor culture of compliance existing in part due to a lack of leadership around bank secrecy act items and luckily they defined what exactly a culture of compliance is for us just to touch on a few compliance not compromised by revenue interest that may seem very self evident but we just have to make sure that no matter what it is compliance should never be compromised by revenue in any situation leadership providing adequate resources both human and technological to be able to fulfill your bsa duties programs should be tested by an independent third party which would be your audit which we'll discuss when we get to our pillars of compliance and then a basic understanding of how bsa reports are used and how they can help out with both statewide local and national efforts the bsa exam manual also states that the board and senior management should be informed of changes and new developments in bsa luckily for us bsa changes are very few and far between so that makes that element very easy for us to satisfy as well as what can happen when we are non-compliant and what risks do we open up the credit union to section 748.2 reviews our policy making requirements the purpose is that we ensure all credit unions establish and maintain procedures designed to assure and monitor bsa compliance and you see in red here your absolute minimum which states that the compliance program must be written down which would be your policy which i'm sure you have that policy that needs to be approved by the credit union's board and then reflected in the credit union's minutes even on months when you don't have any bsa activity it can be extremely helpful just to add one line item that states such in section two our member identification program which we will get into as we continue throughout the presentation our next section are our bill pillars of bsa compliance if you have these five things incorporated into your bsa program then you have set your credit union up with the proper tools for success in our first pillar of internal controls we see on this slide that the board of directors acting through your senior management team for the party who is ultimately responsible for ensuring the credit union maintains an effective bsa structure and the level of internal controls that can be put in place for your credit union should always go along with your credit union's characteristics such as the size of the credit union how complex is your credit union what does your field of membership look like what unique risks do you have that other credit unions may or may not have some examples of some common internal controls around bsa include providing for dual control when possible there are also sufficient controls and monitoring systems that can also assist in detecting when activity may be suspicious anytime you have new employees or new board members it's always a good idea to incorporate bsa compliance into those job descriptions or provide some initial training and always reach out to the league if we can help out with this and also run policy pro policy pro is one of my favorite values of lsd affiliation that if you are in need of updating your bsa policy or any other policy for that matter ensure you check out lscu.com under our compliance section where you will find a library of sample policies that can further be customized to your credit union pillow number two is ad training which at a minimum credit union employees whose job duties involve bsa all need to ensure we have an annual bsa training program the most important piece of this program is that you have documentation of completion so if you are listening to this recording today and you are needing those certificates please feel free to shoot your member engagement consultant email and we'll be happy to provide those for you and also any new employees should also be given training during orientation and your bsa officer should have another deeper level of training to review any changes or additional regulatory requirements pillar number three is an audit which is recommended of your bsa program once every 12 to 18 months and this independent testing should include some of the bullet points that you see on the slide here they'll include ensuring you have a policy that's up to date that then matches an up-to-date procedure they'll review your credit union's risk assessment which we'll take a look at on the following slides if you've had any bsa violations or deficiencies ensuring those have been fixed in a timely manner but also ensure that your staff has completed training and sufficiency of your suspicious activity monitoring systems if you are in need of a bsa audit the credit union audit and compliance group is always happy to help with that and please reach out to a member of that team or your member engagement consultant for more information floor number four is a bsa officer so while everyone at every credit union whose job duties touch bsa has this training on an annual basis there is also one individual that gets to add another job title to their name as bsa officer and it's important that this person has the sufficient authority and resources to administer an effective bsa program based on your credit union's risk profile the bsa officer is also responsible for ensuring that a regular as in monthly update to the board of directors of any bsa issues or reports that have been filed or anything that has to do with bsa is completed on a regular monthly basis next we get into our risk assessment which is simply a two-step process where we're identifying our different categories of risks and understanding what we can do to help mitigate those risks step one involves identifying risk categories that you see on the screen here these can be broken down into products and services members and in red you see msbs so msbs are money service businesses and they can pose a huge risk to credit unions so ensure that you know what your accounts are truly being used for and vincent also breaks it down into geography in two different areas we have high intensity drug trafficking areas and also high intensity financial crime areas and once we've identified what our risk categories are we can then move down into step two and use the data available through our credit union's core processor and other business systems to analyze some of these categories and some helpful questions you can see on the screen here but really digging into what is the purpose of this account what type of activity do we anticipate the member to be running through this account as credit unions we have a lot of safeguards around member location and also depending on your field of membership also sometimes occupation but really understanding that every member has a different level of risk based on their attributes as well just like our product services and geography so once we've decided these it's always important to use the available technology to help mitigate this risk and here you see an example of a simple risk matrix moving from low to high left to right we see that if we are working with a stable known base this is a much lower risk than if we were opening up our field of membership into a brand new state or a brand new county or whatever it may be the same thing on the next line here the more that we move into e and online services the higher risk that you pick up as well and just like with anything in business or in life you can place anything on a risk matrix it doesn't say that it's bad to be low or high it's just simply understanding where you fall and knowing what tools you have the ability to put in place to mitigate this risk once we've developed our risk assessment we can then use that information to customize our bsa program anytime that we are introducing a new product service expansion or any field of membership change it's always a great idea to review your risk assessment and if not simply once every 12 to 18 months along the same timeline as your audit this is a listing of some of the high-intensity drug trafficking areas in the lcu footprint if your credit union has a branch in any of these hidta counties that should be addressed in your risk assessment and here we have the high intensity financial crime areas for this classification it is only south florida that falls into here next we have our member identification program the purpose of this program is to be able to form a reasonable belief that we know the identity of each member we do this through a two-step process the first piece is collecting the four items of identifying info which include name date of birth an address a physical address and a social so name birthday address social security number in all cases without exception and it's not good enough for them to call us and we write it down or they submit it online we also must always move into step two and collect our verifying info 99 of the time you'll use the top option the documentary method and that is simply a government issued id that has a photo on it that is not yet expired so a driver's license an id card a passport a military id all of those items would fit the documentary method to collect name birthday address and social as long as they are unexpired and contain a photo one percent of the time you can also use the non-documentary method which includes information obtained from a credit bureau tax return information but always remember we have to include these four pieces of information and if for some reason they don't have the documentary definitely definitely be wary of that there are ways around it with the non-documentary method but the non-documentary method is actually a better way to confirm some of the documentary information once we've collected these items these identifying info must be kept for five years after the account is closed and a full description of the documents used must be included here we also must include lacrosse reference with the federal terrorist list which we'll talk about as we continue moving through the presentation and we must also provide notice to the applicant that the credit union will be requesting information to identify their identification next we have our two reports starting off with our currency transaction reports or ctr and if you read it backwards it defines it for you so a report of a transaction that was done in currency in this case cash so ctrs apply to cash only and we are required to file a ctr for each transaction in currency of more than ten thousand dollars there's multiple ways in which we can reach this over ten thousand dollar threshold including multiple transactions in any one business day or on behalf of the same person if they went to one of your branches and then went to a different branch within the same day that also counts towards the totals shared branching transactions also count towards these thresholds as well for currency transaction reports we must file these reports within 15 calendar days after the date of transaction they are filed online and a five-year record retention again currency is coin and paper money checks do not count towards our ctr thresholds and again it is anytime there is money coming over to the credit union in cash they can use it as a deposit or they could try to be sneaky and put it towards a loan payment or even try to open it up with a cd we always make sure that we consolidate cash in and cash out separately without adding them together or offsetting them then for our second report we have our suspicious activity reports or abbreviated as a sar we have to file these anytime we have a criminal violation with these three specific thresholds here including insider abuse of any amount aggregating five thousand dollars or more for an identifiable suspect and aggravating 20 aggregating 25 000 or more for an unknown suspect but we also have the rest of these clarifications down here where the majority of star reporting comes from so may involve potential money laundering or other illegal activity we reviewed the definition of money laundering at the beginning number two designed to evade the bsa so let's skip back for just one moment currency transaction reports are required for more than ten thousand dollars so if we have ten thousand dollars even we don't have to file a ctr if we have ten thousand dollars and one penny now we would be required to file a ctr however if we had transactions that came in at 9999 that is pretty suspicious that they are that close to their ctr threshold so in that instance they may be structuring that transaction specifically to evade the bsa laws which would actually result in a sar and our last one in bold has no business or a parent lawful purpose not the type of transaction the member would be expected to engage in and the credit union knows of no reasonable explanation for the transaction the workpiece goes back to knowing your members and knowing what is and what is out of the ordinary for them can be pretty difficult to tell if a transaction is the type that the member would be expected to engage in if we don't know normal patterns for our members so knowin your members is important on many levels outside of just the member experience piece stars are also filed electronically but we do have a little bit longer to file them we have no later than 30 days from the detection effects to file a sr and detection of facts does not mean the very moment the transaction occurs that may be in 20 minutes it may be at the end of the day and maybe at the end of the week that we have that light bulb go off in our head that something may not be right with that transaction at that point in time is when our 30-day timeline to file our sar begins if we're working on identifying a suspect that filing can be extended out to 60 days and fencing also asks that you re-report on continuing suspicious activity at least every 90 days there is a five-year record retention that we keep all of our sars for and the board should be kept aware of sarah filings as a summary stars are incredibly confidential disclosing this existence or non-existence of a star is prohibited especially to a member so we never talk about filing a sar we never even discuss names or dollar amounts or dates or suspicions around what we think would happen but only people who know that you filed a star or your bsa officer and your board and the extent of the information that they discuss is that we had a star this month that is it the only time we would have something we would not file a star for as you see would be for robbery because it is a different sort of investigation outside of vincent so some red flags for suspicious activity i always like to preface this by saying that you in credit unions your employees your people your front line know your members and their patterns better than anyone else so really rely on them to be able to identify these red flags but some general red flags include if a member is trying to use an id that you've never seen before it doesn't look quite right maybe the stock or the thickness or the clarity of the photo just doesn't seem right that's definitely a red flag if you have a member who's trying to persuade an employee not to file the report asking numerous questions about how much money they can give to the credit union before the report be very wary of these situations um and be aware for possible red flags you have additional fund transfers coming in and large round dollar hundred dollar or thousand dollar amounts that can be a sign of layering and micro layering and any of those transfers occurring from high risk geographic locations without an apparent business reason for many small incoming transfers received and almost immediately going right back out monetary instruments credit unions are also required to maintain a record for each traveler's check cashiers check or money order sold for more than three thousand dollars to ten thousand dollars in cash inclusive our record should always include the name date serial number type of instrument amount and identifying information if your credit union allows for the sale of these items to non-members even more additional information is required and same thing with our cprs and adding those amounts together multiple purchases during one business day totaling three thousand dollars or more on monetary instruments are also treated as one purchase and we have a five year record retention on monetary instruments the artificial owner's rule was enacted back in 2018 credit unions are required to have written procedures designed to identify and verify legal entity members legal entity members are designed as corporations llcs or other entities created by filing a public document with the secretary of state but does not include financial institutions federal or state governments publicly traded companies non-us government entities that don't engage in commercial activities and the procedures will contain the same elements of your member identification program so what we need to do on this piece is that anytime we have a beneficial owner which is defined for you down here so anyone who owns 25 or more equity interest in a legal entity those in a position of power or control a legal entity such as ceo cfo president or treasurer of a business and also those trusts that own 25 of an entity we will also have to collect their identification including the four pieces of information from our member identification program including name birthday address and social for anyone opening these accounts even if your credit union does not serve business accounts that is recommended to continue to develop a policy there is a sample located in policy pro for your convenience and if we can assist in anything around this policy please don't hesitate to let us know so while the information that we collect as part of our bank secrecy act program is supposed to be kept quiet and we don't discuss any of our suspicions as to what be going on with any of the transactions section 314a of the u.s patriot act which was enacted after 9 11 allows for a level of information sharing so if law enforcement is working on a money laundering case at another financial institution in your area they have the ability to send out a 314a request and you pretty much do everything you see in step three so you're reviewing to see if you also have an account for that member at your credit union if you have had one within the past 12 months and any history of transactions for the past six months you would then have 14 days to report these matches back to finson and always make sure if you receive one of these requests that you document the receipt review and response speaker quest can be pretty rare as you see in green they only send them out when they are very solid on an existing case as 95 percent of 314 314a requests have contributed to arrests or indictments there's often the voluntary information sharing portion which comes from 314 b of the u.s patriot act the requirements of it are a little bit more stringent than 314 a maybe one day we'll be able to use this an expanded capacity next we have ofac which is the office of foreign asset control different department than fenton benson is concerned about an individual or group of individuals who are money laundering for their own financial gain and opec is a little bit different they are the ones who are enforcing sanctions on people nations and entities piece that we have to pick up in this is that credit unions must regularly review the specially designated national list against their membership and we're also required to block or reject people or entities on the list and report those transactions to ofac within 10 business days we also send an annual list by september 30th as of june 30th of these transactions and we are also required to perform a risk assessment around international fund transfers non-resident alien accounts foreign member accounts anything of that nature we do like to review ofac because the compliance pillars are essentially the same as for bsa ensuring that we're always collecting the pieces of information from our members being aware of red flags and ensuring that we meet our reporting requirements so just activities and products can fall between low risk and high risk for our credit union we also have to ensure that we realize that our members could also be categories as low risk high risk or somewhere in between so it's recommended that you develop policies for investigations responsibilities and chain of command and member due diligence is an ongoing process that goes along with your credit union's risk portfolio so we collect info on everyone for low risk members which would be the majority most likely we just want to make sure we have regularly updated contact info for many reasons of importance outside of just bsa and if you do have high risk members ensure that you are able to dedicate the time to review those accounts make sure that you're asking some of the questions you see on the bottom of the screen here if you have any questions what is the source of these funds does that match with the occupation that we can find online or through social media does it match what we're finding on where the business is organized and other employment documents if we have any questions or concerns about this ensure that we thoroughly document the decision and analysis and what did we learn from recent fincin enforcement actions around our same pillars for internal controls avoid wiring money abroad and servicing money service businesses unless we can create the business case that states that the risk is less than the reward but do ensure that we update our controls annually especially if we're introducing any new products services expanding our field of membership or really making any changes whatsoever to the credit union for your bsa officer continue to hire sufficient and competent staff we also have our further in-depth bsa training workshop for bsa officers for training ensure that we continue to complete this training on an annual basis for your board and relevant employees and also ensure that if you're in your bsa audit if they come back with any recommendations ensure that you give them some thought and consideration from that independent audit and with that you have completed your 2021 bank secrecy act and anti-money laundering training if you have any questions on today's information or any further assistance that the league of southeastern credit unions can provide please don't hesitate to contact myself the compliance department or your member engagement consultant thanks so much take care