Iowa Banking Law Blog

FINCEN DISCLOSES COMMON SAR MISTAKES

On October 10, 2007, FinCEN issued a statement titled “Suggestions for Addressing Common Errors Noted in Suspicious Activity Reporting.”  While the report does not propose any new requirements, it is intended to be informative and helpful for correcting some of the most common mistakes concerning SAR narratives and the entry of certain fields for analyzing where activity has occurred and fields that identify the type, category, and character of the suspicious activity.

Regarding SAR narratives  –  which ideally identify as fully as possible why the activity is suspicious – the most common mistakes are leaving the narrative field blank, attaching supporting documentation even though it is prohibited or else failing to fully describe the contents of the supporting documentation, and failing to supply adequate narratives.

Regarding the fields of critical value – which are examined by users to track activity and follow-up on leads and used by FinCEN to develop analytical products that are distributed to law enforcement – the common mistakes include failing to include specific special responses where required when data is unavailable (e.g., the entry, “N/A,” would be inappropriate in these particular fields where a specific response is desired) and failing to include such information as Employer Identification Numbers, telephone numbers, social security numbers or government issued identification.

Regarding the fields where the category and character of suspicious activity is identified, the common mistakes are failing to include the category, type, or characterization of the suspicious activity (otherwise, FinCEN cannot determine why the activity is being reported as suspicious) and providing an incorrect characterization of the suspicious activity.

A copy of the FinCEN statement can be reviewed here. 

Penalties Abound When Bank's Fail to Comply With the Bank Secrecy Act

One Iowa bank recently consented to the issuance of an Order to Cease and Desist by the FDIC as a result of the bank’s failure to comply with certain provisions under the Bank Secrecy Act (“BSA”).  The bank’s violations and unsound banking practices were numerous: 

• operating without adequate oversight by the bank’s board of directors and management to prevent violations of the BSA;
• failing to develop and administer a BSA compliance program;
• operating without an effective system of internal controls or independent testing to ensure compliance with the BSA;
• operating without adequate BSA training program;
• operating without an effective customer identification system;
• failing to develop and implement a system for detecting and reporting suspicious activity;
• failing to comply with the Financial Recordkeeping and Reporting of Currency and Foreign Transactions regulation; and
• failing to file Suspicious Activity Reports.

As a result, the bank was given specific orders to designate an officer to coordinate the bank’s BSA compliance program, review high-risk accounts and transactions and file any necessary CTRs and SARs, and report its findings to the FDIC.  The bank was further required to perform an assessment of its banking operations regarding attempts to launder money and conduct criminal activities, review its BSA risk assessment annually and record that in its board of directors minutes, develop a BSA program and provide for training, and establish policies and procedures.  The bank was also mandated to develop written policies regarding its Customer Identification Program and policies to report suspicious activities.

The Board of Directors was required to document violations which were not eliminated or corrected within a 90-day period and, perhaps most embarrassingly of all, the bank was required to furnish a copy of the Cease and Desist Order to all of its shareholders.

While the order did not indicate a monetary penalty, one would assume it would be forthcoming if the bank continued to fail to comply.  This is posted not to ostracize any particular bank, but merely to show common BSA violations and the remedies for those violations. The lesson learned here is to ensure that your bank has developed and implemented adequate policies and procedures for compliance with the BSA and SAR filing requirements, among other things. 

For more information, please contact Mary A. Zambreno.

FinCEN Releases Suggestions for Addressing Common Errors in SARs

This succint release identifies common errors in the filing of Suspicious Activity Reports and offers suggestions to remedy these errors.  The release notes that these errors were common primarily in SARs filed by Money Service Businesses but that the errors and strategies presented apply equally to financial institutions.  A PDF of the release can be found here.

Interagency Statement on Bank Secrecy Act

Last week, the federal banking agencies issued a Statement with an important reminder to banks: Stay on top of Bank Secrecy Act compliance!

            Specifically, the Statement reiterates that at minimum, all BSA Compliance Programs must include five key elements:

1.      A system of internal controls capable of assuring BSA compliance;

2.      Independent tests that monitor BSA compliance;

3.      A designated individual responsible for monitoring BSA compliance;

4.      Training programs that educate employees about BSA compliance; and

5.      A customer identification procedure that enables banks to form reasonable beliefs as to the true identity of its customers.

            The Statement states that federal banking agencies will issue cease and desist order to banks that fail to maintain adequate BSA Compliance Programs.  Before a cease and desist order is issued, however, the problem must be identified in a written document that is communicated to the institution’s board of directors.   

            This Statement serves as a reminder of the importance of a strong BSA Compliance Program.  It also emphasized the serious implications that can result from failing to correct a problem that a federal banking agency has brought to your attention.  As an example, it states that if in an examination an agency finds an inadequate BSA training program, and at the next examination the training program problem is fixed, but another BSA compliance problem is discovered, a cease and desist order will ordinarily not be issued.  If, however, the training program is still deficient at the second examination and steps have not been taken to remedy the problem, the agency may issue a cease and desist order.

If you have any questions regarding BSA Compliance Programs contact Howard Hagen.