BSA/AML Compliance Issues

1
BSA/AML Compliance Issues

• Jane A. Green
• Relationship Manager
• Foreign Banking Organizations
• Federal Reserve Bank of New York

2
Agenda

1. Guidance Minimum Standards
2. BSA/AML Issues
3. Enforcement Action Triggers

3
BSA/AML Compliance Issues

• BSA/AML Compliance Program
• Regulatory guidance Examination Manual
• Minimum requirements for a BSA compliance program
• Internal controls to assure ongoing compliance
  with BSA
• Independent testing for BSA/AML compliance
• Compliance Officer responsible for coordinating
  and monitoring BSA/AML compliance and
• Training for appropriate personnel

4
BSA/AML Compliance Issues

• Where are the issues?
• Internal Controls
• AML Risk Assessment Methodology
• Details of the risk assessment and explanations
  for ratings must be well documented covering
  clients, products, and geography
• Methodology needs to contain objective measurable
  factors
• Controls to mitigate risk for each risk factor
  should be documented
• Changes to client risk rating need to be formally
  justified
• Also required is an overall risk assessment of
  branch/bank
• Risk-based Transaction Monitoring Program
• Transaction monitoring system must be
  sufficiently sophisticated to capture the risks
  in transactions (unusual patterns) and have the
  capacity to handle the volume of daily
  transactions.
• Clients expected level of activity must be
  factored into the monitoring process

5
BSA/AML Compliance Issues

• Where are the issues?
• Internal Controls
• Investigation/Reporting of Unusual Activity
• Well documented case investigation process
• Appropriate MIS surrounding the case
  investigation process to assess its effectiveness
  
• Decisions to file or not file Suspicious Activity
  Reports must be formally explained
• Client due diligence
• Include detailed information such as beneficial
  ownership, suppliers and expected transaction
  pattern.
• Files must contain sufficient documentation to
  adequately identify the client and to conform to
  branch/bank policy.

6
BSA/AML Compliance Issues

• Where are the issues?
• Internal Controls
• Enhanced Due Diligence (EDD)
• EDD focuses on clients that pose high inherent
  risk of money laundering, i.e. foreign officials,
  politically exposed persons, correspondent
  accounts, private banking clients, money service
  businesses etc.
• EDD rules should be defined in policies and
  procedures and approved by senior management and
  board of directors
• EDD needs to be applied to all high risk clients

7
BSA/AML Compliance Issues

• Where are the issues?
• Compliance Officer
• Knowledgeable regarding laws and regulations
• Number and quality of AML compliance resources
  commensurate with the level of risk
• Independent Testing
• Follow up on prior audit and regulatory
  examination weaknesses
• Track outstanding issues for resolution and
  escalate when not addressed in a timely manner
• Comprehensive testing program
• Degree of testing must be commensurate with the
  level of risk
• Work papers must document the testing methodology
  and rationale
• Coverage of all critical elements of the BSA
  program

8
BSA/AML Compliance Issues

• Where are the issues?
• Training
• All employees must be trained on the importance
  of AML compliance.
• Training must be tailored to each employees
  function and department.
• Coverage of all laws and regulations that pertain
  to the institutions activities
• Management Oversight
• Head office and local management need to be
  supportive of BSA/AML initiatives.
• Head office must also be familiar with U.S.
  sanction laws so that entries are not passed
  through US that are in violation of US law.
  Altering or deleting message fields to avoid OFAC
  filters is unacceptable.
• Compliance culture must be firm-wide as it is
  every employees job. Appraisals and performance
  incentives for employees should reflect how well
  units meet compliance expectations.

9
BSA/AML Compliance Issues

• Enforcement Actions for BSA/AML
• Fails to implement and maintain a BSA compliance
  program that contains the required elements
• Failure to correct a previously reported problem
  with the BSA Compliance Program
• Other enforcement actions for BSA compliance
  program deficiencies