Bank Secrecy Act The Currency and Foreign Transactions
Bank Secrecy Act The Currency and Foreign Transactions Reporting Act of 1970 Choice Lending Corp Training
What is the BSA? • The Bank Secrecy Act (BSA) requires all financial institutions, casinos, and certain other businesses to: – – Monitor customer behavior File reports on transactions that meet certain dollar amounts Identify possible fraudulent activity in mortgage transactions Maintain records of certain transactions • The Currency Transaction Report (CTR), which records cash transactions that exceed $10, 000. • The Suspicious Activity Report (SAR), which records any known or suspected federal violation of federal law. • The BSA aids law enforcement by uncovering criminal activities such as money laundering, drug trafficking, tax fraud, and possible terrorist financing.
Who Regulates BSA? The Financial Crimes Enforcement Network (Fin. CEN) is a bureau of the United States Department of Treasury which collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing and other financial crimes.
Why Mortgage Companies? • RMLOs are primary providers of mortgage finance-in most cases dealing directly with the consumer-and are in a unique position to assess and identify money laundering risks and fraud while directly assisting consumers with their financial needs and protecting them from the abuses of financial crime.
Residential Mortgage Lender or Originator Includes: (a)The person/entity to whom the debt arising from a residential mortgage loan is initially payable on the face of the evidence of indebtedness (or by agreement) or to whom the obligation is initially assigned at or immediately after settlement. (b)A person who accepts a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan.
Types of Mortgage Loan Fraud Identified by Law Enforcement • • • Occupancy fraud: Occurs when borrowers, to obtain favorable loan terms, claim that subject properties will be their primary residences instead of vacation homes or investment properties. It also occurs when subjects apply for loans for properties that others, such as family members, will actually occupy. Income fraud: Includes both overstating income to qualify for larger mortgages and understating income to qualify for hardship concessions and modifications. Appraisal fraud: Includes both overstating home value to obtain more money from a sale of property or cash-out refinancing, and understating home value in connection with a plan to purchase a property at a discount to market value. Employment fraud: Includes misrepresenting whether, where, and for how long borrowers have been employed; whether borrowers are unemployed or collecting unemployment benefits; and whether borrowers are independent contractors or business owners. Liability fraud: Occurs when borrowers fail to list significant financial liabilities, such as other mortgages, car loans, or student loans, on mortgage loan applications. Without complete liability information, lenders cannot accurately assess borrowers' ability to repay debts. Home Equity Conversion Mortgage (HECM): Financial institutions need be aware of illegal "reverse mortgage" schemes, which targets seniors who own a home or who are coerced into taking title to a home, for the purpose of stealing or otherwise acquiring some or all of the funds the senior receives from a government HECM program. HECM fraud may involve other frauds, including appraisal fraud (to increase the stated value of the home), investment fraud to acquire the HECM funds from the senior under the guise of future profits for the senior, and identify theft to acquire HECM funds without the knowledge of the senior who owns the property.
Suspicious Transaction Form • When you suspect activity which violates the BSA/AML mandate you are required to complete a Suspicious Transaction Form. Once completed submit the form to the Choice Lending Corp Legal and Compliance Department. • It is not your responsibility to determine whether fraud has transpired but rather to report suspicious activity. The BSA officer will conduct an investigation to determine if further reporting of the incident is warranted.
Suspicious Activity Report (SAR) • A Suspicious Activity Report is a report made by a financial institution to Fin. CEN an agency of the United States Department of the Treasury, regarding suspicious or potentially suspicious activity. • A Suspicious Activity Report (SAR) must be filed on any suspicious activity by any parties involved in the mortgage transaction.
SAR - Time To Report • The SAR must be filed with Fin. CEN no later 30 calendar days after the date of the initial detection by the reporting company of facts that may constitute a basis for filing a SAR. If no suspect is identified on the date of initial detection, the company may delay filing a SAR for an additional 30 calendar days to identify a suspect. However, in no case shall reporting be delayed more than 60 calendar days after the date of initial detection. In situations involving violations that require immediate attention (such as suspected terrorist financing or ongoing money laundering schemes), a loan or finance company must immediately notify an appropriate law enforcement authority by telephone in addition to filing a SAR.
Penalties for Noncompliance Violations of BSA requirements may hold civil and/or criminal penalties, such as: *Civil penalties of $1000 per day for each day of noncompliance *A penalty of $500 per violation of the recordkeeping requirements of the BSA *Willful violations may cause civil penalties in an amount equivalent to that of the transaction or $25, 000, whichever is greater *Continued noncompliance can result in the issuance of a “Cease & Desist” order from the FDIC Any individual who willfully violates the structuring provisions may be fined $250, 000 and/or imprisoned for five (5) years Any individual who willfully violates the structuring provisions while violating another federal law, may be fined $500, 000 or imprisoned for ten (10) years
Mortgage Loan Fraud SAR Subjects Top 20 States and Territories State Rank by total subjects Rank by subjects per capita CA 1 1 UT 21 11 NV 16 2 NJ 8 12 FL 2 3 DC 40 13 AZ 7 4 WA 12 14 CO 14 5 DE 38 15 MD 10 6 MI 9 16 NM 25 7 ID 32 17 NY 3 8 HI 35 18 IL 4 9 SC 23 19 GA 6 10 NC 13 20
Number of Mortgage Loan Fraud SAR Filings by Year with and without the Term “Repurchase” in the Narrative Repurchase SARs Non-Repurchase SARs Total SARs 2003 318 9, 221 9, 539 2004 832 17, 540 18, 372 2005 1, 226 24, 762 25, 988 2006 2, 342 35, 115 37, 457 2007 3, 932 48, 930 52, 862 2008 5, 449 59, 555 65, 004 2009 6, 353 61, 154 67, 507 2010 8, 625 61, 847 70, 472 2011 40, 861 51, 700 92, 561 2012 13, 132 56, 145 69, 277
Recent Mortgage Fraud Cases • $100 Million Mortgage Fraud and Foreclosure Rescue Scheme • Mortgage Fraud Involving Straw Buyers • “Cash Back” Mortgage Fraud Scheme • Elaborate Reverse Mortgage Scheme
SAR Filing Trend • Elder Financial Exploitation • Elder Financial Abuse • Example: Two men were arrested via a Fin. CEN investigation because they were taking funds from an elderly woman illegally and trying to avoid the CTR by depositing smaller amounts into bank accounts.
High Profile Fin. CEN Actions • Fined J. P. Morgan Chase $461 million for neglecting their AML program in the Madoff case • Fin. CEN shut down Michigan MSB for transporting funds to Yemen without BSA/AML controls in place • TD Bank, HSBC, First Bank of Delaware and many more institutions fined for neglect of Fin. CEN regulations regarding the application and maintenance of a BSA/AML control program
Other Updates • All Housing GSE’s file SAR reports directly to Fin. CEN instead of FHFA to facilitate a more efficient and thorough investigation process • Watch for Ukrainian/Russian officials looking to move assets out of Ukraine via multiple financial instruments
Fin. CEN Embargoed Countries Angola Bangladesh Brunei Cuba Ethiopia Honduras Kenya Lebanon Morocco Nepal North Korea Philippines Sudan Tanzania Turkey Ukraine Venezuela Zimbabwe Antigua & Barbuda Belarus Cambodia Dubai Gambia Indonesia Kenya Moldova Myanmar Nicaragua Pakistan Sao Tome Syria Thailand Turkmenistan Argentina Bolivia China Ecuador Ghana Iran Latvia Mongolia Namibia Nigeria Paraguay Sri Lanka Tajikistan Trinidad Vietnam Yemen
For further assistance with any BSA/AML questions or concerns please contact: Patricia Robinson – Legal and Compliance Officer (760) 780 -4622 Steven Taylor – BSA Officer (760) 780 -4626
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