Is the partnership between Fincen and Bank Secrecy Act-regulated financial institutions, a partnership designed to protect our nation's financial system from criminal abuse, working as Congress intended?
This is a critical question and one that Fincen, the Financial Crimes Enforcement Network, has sought to answer through our Outreach Initiative to financial institutions and active dialogue about examples of issues that arise in the daily course of business for a teller when a customer comes to the window, a compliance officer when reviewing transactions or a CEO in making recommendations to the board of directors. The whole point is to see and understand the perspective of depository institutions in their home environment.
We frequently hear from professionals at financial institutions that our public guidance and feedback from our outreach helped them gain a better understanding of regulatory compliance expectations and the importance of their contributions to protecting the country and financial system from criminal abuse. That does not suggest that Fincen has achieved all that we can do, but it does suggest that the partnership that Congress intended between government and the financial industry is working as intended.
We can make that partnership better through a dialogue about ways to make both government and financial institutions more efficient and effective in focusing on the areas of greatest risk. Fincen welcomes suggestions from industry about how to promote our partnership.
Earlier this year, Fincen released "Outreach to Depository Institutions with Assets Under $5 Billion," its third report since the start of its Outreach Initiative in 2008. Since that time, Fincen completed a round robin of sorts, meeting individually and in town hall-style settings with about a hundred financial institutions from the nation's largest banks, smaller regional and community banks, credit unions and money-services businesses.
The objective of Fincen's Outreach Initiative is to enhance the partnership between government and the financial industry in our shared goal of protecting the financial system from criminal abuse. Depository institutions have told us that as a result of the Outreach Initiative, their understanding about how they contribute to deterring and helping law enforcement bodies detect crime has grown. For our part, Fincen came away with a better understanding of the business implications of Bank Secrecy Act compliance which helps to align regulatory requirements where possible with business incentives.
Such understanding is vital to the relationship between Fincen and the BSA-regulated industries. During our discussions, we found strong agreement with the principles behind Fincen's mission and with the need for partnership to protect against the abuses of the financial system. We also heard a strong desire to learn more about how data reported to the government is used and what resources Fincen makes available.
With respect to suspicious activity reports and currency transaction reports, BSA information can provide a tip that starts or makes an investigation. A financial institution employee's good instincts can, and do, result in the contribution of critical information that sets investigatory wheels in motion to track down suspected criminal activity. While depository institutions indicated that "alerts" generated by automated transaction-monitoring systems help them identify and report suspicious activity, in the retail banking context, banks indicated that they believe their best source of information on suspicious activity comes from referrals by front-line branch personnel and relationship managers.
BSA information can add significant value when an investigation is underway by pointing to the identities of previously unknown subjects, exposing accounts and other hidden financial relationships, or unveiling items of identifying information like common addresses or phone numbers that connect seemingly unrelated individuals and, in some cases, even confirming locations of suspects at certain times.
For example, in one of the largest mortgage fraud cases ever prosecuted in Southern California, investigators found that the leader was a known street gang member. The scheme included co-conspirators employed at virtually every level of the mortgage loan process and involved 220 properties with a total sales price of more than $100 million. This case was initiated from an SAR that law enforcement investigators found during a routine review. The investigation was aided by additional SARs and ultimately led to the indictment.
While Fincen's website is continually updated with new case examples of BSA data leading to the discovery of instances of fraud and money laundering, the usefulness of the data in identifying trends is equally important.
Fincen analysts use technology to examine the entire BSA information base more broadly. When expertly queried, the data reveals trends and patterns that hold the telltale signs of criminal or terrorist networks and emerging threats. These trends and patterns help connect seemingly isolated reports of mortgage fraud, check fraud, identity theft, bribery, counterfeiting, insider abuse and other suspected crimes to a broader scope of criminal activity where a connection would not otherwise be apparent.
Much of this information is shared with depository institutions in the form of guidance, advisories, twice-yearly SAR reviews, and strategic analytical reports, which are available at www.fincen.gov. Trend analysis reports covering mortgage fraud, identity theft, and home equity conversion and other criminal activity provide information that becomes part of advisories and calls attention to red flags, new or re-emerging fraudulent practices and other illicit activity. Fincen advisories and analytic reports help to focus resources of a depository institution to better minimize risk and protect your customers and your institution's reputation.
Over the past year, as we sat down with individual financial institutions, my colleagues at Fincen and I have begun many discussions with, first, "Please tell me about your institution and how you seek to serve your customers," and second, "How can we work together to help you focus on serving your customers and keeping out the criminals who neither you nor I want to serve?" This is how we open the dialogue to ensure the partnership that Congress intended is working.
