In light of the Recent enforcement action against Riggs National Bank of Washington, D.C., Congress is strongly questioning why regulators like the Office of the Comptroller Currency and the Financial Crimes Enforcement Network have not been more active in cracking down earlier on Bank Secrecy Act violations. During congressional hearings, legislators have asked if recent violations represent a pattern of noncompliance by the industry. Congress is seriously considering whether BSA enforcement authority should be taken from banking regulators and placed with another agency. The resulting environment is one in which organizations, regardless of charter or size, can expect thorough BSA examinations.
Specifically, regulators found that Riggs had failed to design programs tailored to the organization's business risks that would ensure appropriate reporting; to implement procedures the organization did have; and to respond to classic red flags of suspicious conduct. The recent enforcement action does provide compliance lessons from which every financial organization can learn. These lessons track BSA regulations and can help create procedures reasonably designed to assure and monitor compliance with BSA reporting and record-keeping requirements.
Regulators expect every organization to develop and implement a system of internal controls that ensures compliance with the BSA across all business lines. From the standpoint of a SAR, or suspicious activity report, these internal controls should identify the types of transactions or accounts that pose a high risk for money laundering or show signs of suspicious activity based on a risk assessment of the types of accounts, products and services offered and the nature of the organization's customers. Depending on your organization's risk assessment, internal controls should include procedures for actually identifying, reviewing and reporting suspicious transactions.
Financial services firms also need to maintain a system for detecting structuring, which is one of the most basic types of activity an effective SAR program should detect and report. Under the law, structuring is when a person attempts to conduct one or more transactions in any currency, in any amount, at one or more financial institutions, on one or more days, to evade currency-transaction reporting requirements. Banks are required by law to report transactions of more than $10,000. Detecting structuring on a manual basis is tough even for the smallest of organizations, and most rely on automated systems to track it.
Providing for independent testing of your organization's SAR process and other BSA compliance programs is also a good idea. Regulators will look for a SAR audit that is timely and effective for the level of risk identified by the organization.
A BSA officer should be designated to adequately monitor, identify, investigate, analyze and report suspicious activity. This position warrants a high-ranking officer that can command the respect and resources needed to perform the role adequately. An organization of any size that attempts to accomplish this with low-ranking employees or on an ad hoc basis will be in trouble at examination time.
A common frustration for examiners is that SAR narratives are often sparse and conclusory, so mandating more descriptive ones works to your advantage. Without sufficient detail, it is difficult for law enforcement to evaluate whether the activity being reported requires further scrutiny. Train your staff to write narratives that provide details in a clear and understandable manner.
Based on job descriptions, employees should be trained on how to monitor and detect suspicious activity. This training should be customized, depending upon the business unit involved. For assistance in training on the latest money laundering schemes, consider FinCEN's SAR Activity Review.
As the government continues its march to combat money laundering and terrorist financing, it is clear the SAR process plays a key role. Although SAR requirements have been a part of the Bank Secrecy Act for years, compliance with these provisions is now more important than ever. With thorough BSA examinations on the horizon, every organization is compelled to verify it has an effective AML program in place.
