BSA/AML Examiner School - Case Study Oct 2023

BSA/AML EXAMINER SCHOOL MSB Examination Scenario

Financial Institution Information Community bank with total assets of $1.5 billion. Located in a medium size metro city with 15 branch locations.

For the last two years the bank’s independent test (performed by an external firm) has been critical of the bank’s risk assessment and internal controls. The last independent test states the bank has implemented a program that generally covers required BSA/AML/OFAC program elements. Joni Smith is the board appointed Bank Secrecy Act and OFAC Officer, overseeing the day-to-day compliance administration, along with lending compliance and other duties. Excerpts from the most recent independent test: Management has established internal controls that facilitate compliance with the BSA which are commensurate with the bank’s risk profile. Customer identification is appropriate for the institution’s size and location. We identified moderate risk CDD/Beneficial Ownership issues, and lower risk issues with Enhanced Due Diligence (EDD) processes, regulatory reporting, Designations of Exempt Persons (DOEPs), the level of detailed used to support the risk assessment, and OFAC verifications. There are also general suggestions for BSA Program improvements. The bank has established a process to conduct annual EDD reviews on high-risk accounts. We sampled 10 high risk customers and 11 other customer types that the bank considers higher risk. EDD reviews on high-risk customers were not performed by management in 2021 or 2022 due to time constraints and reallocation of resources brought on by the acquisition of River City Bank ($500 million). The bank developed Money Service Business (MSB) Profile and Privately Owned ATM (POATM) Checklist documents to collect additional due diligence at account opening; however, that same due diligence has not been obtained on most MSB or POATM customers. Specific EDD issues were identified as follows: • 4 of 8 MSB customer’s 2020 (last formal reviews performed) EDD reviews did not evidence current FinCEN registrations. • None of the MSB customers evidenced state MSB registration. • 3 MSB customer’s MSB Profile specifically noted that the customer did not have a state registration, and not all questions on the form were answered. • 2 of 3 privately owned ATM businesses did not have a completed ATM Checklist on file. As noted previously, in most cases, additional customer due diligence has not been collected for a majority of MSB and POATM customers. As a result, most EDD reviews do not include an analysis of anticipated MSB or POATM activity to actual activity or cash levels. While some reviews included statements that a particular account’s activity is consistent, the customer’s volumes of MSB and POATM activity and related cash are not included in the assessment of whether activity is reasonable.

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