BSA/AML Examiner School - October 2023

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BSA/AML Examiner School

October 16 - 20, 2023 Embassy Suites by Hilton - Minneapolis Downtown

@ www.csbs.org

CONFERENCE OF STATE BANK SUPERVISORS

1300 I Street NW / Suite 700 / Washington, DC 20005 / (202) 296-2840

♦

@csbsnews

BSA/AML Examiner School Minneapolis, Minnesota October 16 - 20, 2023

Embassy Suites by Hilton – Minneapolis Downtown Meeting Room: Plymouth Ballroom A

Monday, October 16, 2023 7:30 am – 8:30 am

Registration Outside Plymouth Ballroom

Opening Remarks and Course Discussion

8:30 am – 9:00 am

Review of Pre-Course Material

9:00 am – 10:00 am

Case Study Introduction

10:00 am – 10:15 am

10:15 am – 10:30 am

Break

BSA Exam Planning (Risk Assessment, Exam Manual, FinCEN database)

10:30 am – 11:45 am

11:45 am – 1:00 pm

Lunch on your own

BSA Exam Planning (Continued)

1:00 pm – 2:30 pm

2:30 pm – 2:45 pm

Break

BSA Exam Planning (Continued)

2:45 pm – 4:00 pm

Wrap-Up Session

4:00 pm – 4:30 pm

4:30 pm

Adjourn

Networking Reception Outside Plymouth Ballroom

5:30 pm – 7:30 pm

Tuesday, October 17, 2023 8:30 am – 9:00 am

Prior Day Review

BSA Officer Initial Interview

9:00 am – 10:15 am

10:15 am – 10:30 am

Break

Core BSA Exam Procedures

10:30 am – 11:45 am

11:45 am – 1:00 pm

Lunch on your own

Core BSA Exam Procedures Continued

1:00 pm – 2:15 pm

2:15 pm – 2:30 pm

Break

Core BSA Exam Procedures Continued

2:30 pm – 4:00 pm

Wrap-Up Session

4:00 pm – 4:30 pm

4:30 pm

Adjourn

Wednesday, October 18, 2023 8:30 am – 9:00 am

Prior Day Review

Core BSA Exam Procedures (Continued)

9:00 am – 10:15 am

10:15 am – 10:30 am

Break

Core BSA Exam Procedures (Continued)

10:30 am – 11:45 am

11:45 am – 1:00 pm

Lunch on your own

Core BSA Exam Procedures (Continued)

1:00 pm – 2:15 pm

2:15 pm – 2:30 pm

Break

Money Transmitters & Prepaid Access Cards

2:30 pm – 4:00 pm

Wrap-Up Session

4:00 pm – 4:30 pm

4:30 pm

Adjourn

Thursday, October 19, 2023 8:30 am – 9:00 am

Prior Day Review

BSA Examination Results

9:00 am – 10:15 am

10:15 am – 10:30 am

Break

BSA Officer Meeting Preparation

10:30 am – 11:45 am

11:45 am – 1:00 pm

Lunch on your own

BSA Officer Meetings

1:00 pm – 2:30 pm

2:30 pm – 2:45 pm

Break

Case Study – Exam Results

2:45 pm – 3:00 pm

Emerging Issues

3:00 pm – 4:30 pm

4:30 pm

Adjourn

Friday, October 20, 2023 8:30 am – 9:00 am

Assessment of Learning Objectives

Law Enforcement Speaker Edward Oslica, Intelligence Specialist, US Attorney’s Office - Nebraska

9:00 am – 10:30 am

10:30 am – 10:45 am

Break

Wrap-Up Session

10:45 am – 11:00 am

11:00 am

Adjourn

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BSA/AML Examiner School Introduction

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Introductions

NAME

STATE AGENCY

YEARS OF EXAMINATION EXPERIENCE & WITH BSA

FUN FACT ABOUT YOU

SOMETHING YOU HOPE TO LEARN DURING THIS CLASS

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Instructor Contact Information

Senior Financial Institutions Examiner, Banking Division California Department of Sandra Khatchadourian

Financial Protection & Innovation sandra.khatchadourian@dfpi.ca.gov

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Instructor Contact Information

BSA Examiner Specialist Nebraska Department of Banking & Finance Jaunita.Koerner@nebraska.gov Jaunita Koerner

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Instructor Contact Information

Senior Examiner West Virginia Division of Financial Institutions TMcVey@wvdob.org Tom McVey

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Instructor Contact Information

Training Coordinator Kentucky Department of Financial Institutions Jessica.Southworth@ky.gov Jessica Southworth

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Go to www.kahoot.it and enter Game PIN provided

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Questions

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BSA/AML Examiner School Exam Manual

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Session Learning Objectives: 1. Utilize the Bank Secrecy Act/ Anti-Money Laundering Examination Manual

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Presentation

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April 2020 Updates

1.Risk Focused Supervision 2.Assessing Compliance 3.Risk Assessment 4.Developing Conclusions & Finalizing the Exam

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February 2021 Updates

1. Introduction – Assessing Compliance with BSA Regulatory Requirements

2. Customer Identification Program

3. Currency Transaction Reporting

4. Transactions of Exempt Persons

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June 2021 Updates

International Transportation of Currency or Monetary Instrument Reporting

Purchase and Sale of Monetary Instrument Recordkeeping

Reports of Foreign Financial Accounts

Special Measures

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December 2021 Updates

Introduction – Customers (new) Charities and Nonprofit Organizations Independent Automated Teller Machine Owners or Operators

Politically Exposed Persons

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August 2023 Updates

1. Special Information Sharing Procedures to Deter Money Laundering and Terrorist Activity (Updated and Retitled) 2. Due Diligence Programs for Correspondent Accounts for Foreign Financial Institutions (Updated and Combined) 3. Due Diligence Programs for Private Banking Accounts (Updated and Combined) 4. Prohibition on Correspondent Accounts for Foreign Shell Banks. Records Concerning Owners of Foreign Banks and Agents for Service ofLegal Process (New) 5. Summon or Subpoena of Foreign Bank Records; Termination of Correspondent Relationship; Records Concerning Owners of Foreign Banks and Agents of the Legal Process (New) 6. Reporting Obligations on Foreign Bank Relationships with Iranian Linked Financial Institutions (New)

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Check-in Question

True or False: The FFIEC BSA/AML examination manual is updated at least quarterly.

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FFIEC BSA/AML Examination Manual

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Introduction

• Bank Secrecy Act of 1970 (aka Bank Records and Foreign Transaction Act)

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Introduction

• Money Laundering Control Act of 1986

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Introduction

• Annunzio-Wylie Anti Money Laundering Act (1992)

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Introduction

• USA PATRIOT Act (2001)

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Introduction

• AML Act 2020* - Aims to improve: • Laws relating to ML • Beneficial ownership reporting

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Check-in Question

True or False: FinCEN was created in relation to the Money Laundering Control Act of 1986.

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Compliance Program Section

1.Scoping and Planning 2.Risk Assessment 3.Assessing the Compliance Program 4.Developing Conclusions and Finalizing the Exam

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Compliance Program Section

1.Scoping and Planning 2.Risk Assessment 3.Assessing the Compliance Program 4.Developing Conclusions and Finalizing the Exam

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Compliance Program Section

1.Scoping and Planning 2.Risk Assessment 3.Assessing the Compliance Program 4.Developing Conclusions and Finalizing the Exam

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Compliance Program Section

1.Scoping and Planning 2.Risk Assessment 3.Assessing the Compliance Program 4.Developing Conclusions and Finalizing the Exam

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Check-in Question

True or False: The Scoping and Planning section of the manual is an important step in determining what items will be scoped in or out of an examination.

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Other Sections of the Manual

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Regulatory Requirements

• Assessing Compliance with BSA Regulatory Requirements

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OFAC

• Office of Foreign

Assets Control (OFAC)

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Program Structures

1. BSA/AML Compliance Program Structures 2. Foreign Branches and Offices of U.S. banks 3. Parallel Banking

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Regulatory Requirements (Other Risks)

• Risks Associated with Money Laundering & Terrorist Financing

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Appendices

• Appendix 1 • Appendix A • Appendix C • Appendix D

• Appendix E • Appendix F • Appendix J & M • Appendix Q

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FFIEC BSA/AML InfoBase https://bsaaml.ffiec.gov

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Examination Manual Exercise Go to www.menti.com and use the code provided

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Questions

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BSA/AML Examiner School Risk Assessment

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Session Learning Objective:

Discuss risk assessment and its role in BSA/AML compliance

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Presentation

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Appendix I: Risk Assessment Link to the BSA/AML Compliance Program

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Risk Assessment Development:

1. Identify risk categories 2. Analyze risk categories

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Identification of risk categories: • Products & services • Customers • Geographic locations • Other areas • Size & complexity of the institution

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Product & service risk:

• Funds transfers • Prepaid access

• Electronic banking • Non-customer sales

• Private banking • Pouch activities

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Customer base risk: • Money Service Businesses (MSBs) • Cash-intensive • Non-governmental organizations (NGOs) • Private ATMs

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Geographic risk: •

High Intensity Drug Trafficking Areas (HIDTA) High Intensity Financial Crime Areas (HIFCA)

•

• •

Transient populations

Border proximity

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Appendix J: Quantity of Risk Matrix

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Develop a risk assessment? • FinCEN Database • Prior exam reports • Entry letter items • Discussions with management • Call Report & UBPR • Bank’s website

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Risk Assessment Exercise

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Questions

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BSA/AML Examiner School FinCEN Download

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Session Learning Objective: Understand tools provided by the FinCEN database and

how they can assist with exam planning

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Presentation

FinCEN Database

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FinCEN Database

What is FinCEN?

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FinCEN Database

How does the database help examiners?

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FinCEN Database

FinCEN Knowledge Library

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FinCEN Database

Highly Confidential Information

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FinCEN Database

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FinCEN Database Exercise

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Questions

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BSA/AML Examiner School Exam Planning

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Session Learning Objectives:

1. Identify

BSA/AML risks

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Session Learning Objectives:

2. Apply concepts by developing an exam scope and documenting the plan

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Presentation

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Go to www.menti.com and use the code provided

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Examination Scope

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Prior Exam Report & Workpapers

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Prior Exam Report & Workpapers

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Prior Exam Report & Workpapers

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Prior Exam Report & Workpapers

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Prior Exam Report & Workpapers

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Correspondence/Monitoring File

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Correspondence/Monitoring File

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Correspondence/Monitoring File

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Request List Items

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Request List Items

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Request List Items

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Request List Items

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Request List Items

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Request List Items

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FinCEN Data

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Transaction Testing Level

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Automated Monitoring Systems

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Examination Scope

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Examination Plan

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Examination Plan

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Examination Plan

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Work Program

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Staff Responsibilities

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Document the Plan

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Questions

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BSA/AML Examiner School BSA Officer Interviews

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Session Learning Objectives: 1. Prepare to

conduct effective interviews of the BSA Officer

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Session Learning Objectives:

2. Identify

techniques for BSA Officer meetings

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Session Learning Objectives:

3. Apply concepts by interviewing and evaluating the BSA Officer

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BSA Officer Interviews

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BSA Officer Interviews

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BSA Officer Interviews

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BSA Officer Interviews

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BSA Officer Interviews

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BSA Officer Interviews

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Assignment

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BSA/AML School Chatbot

Text “ bsaschool ” to (240) 226 -1778

• Training Reinforcement • Knowledge check questions • Helpful resources and tips

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Questions

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BSA/AML Examiner School Compliance Program

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Session Learning Objectives:

1. Discuss core Bank Secrecy Act/Anti-Money Laundering concepts

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Session Learning Objectives: 2. Understand how to

assess compliance with statutory and regulatory requirements

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Session Learning Objectives:

3. Apply concepts to exam exercises

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Presentation

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BSA/AML Compliance Program

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BSA/AML Compliance Program

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BSA/AML Compliance Program

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BSA/AML Compliance Program

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BSA/AML Compliance Program

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BSA/AML Compliance Program

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Core Examination Procedures

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Questions

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BSA/AML Examiner School Core Procedures

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Session Learning Objectives: 1. Understand how to

assess compliance with statutory and regulatory requirements

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Session Learning Objectives:

2. Apply concepts to exam exercises

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Core Examination Procedures

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BSA/AML School Chatbot

Text “ bsaschool ” to (240) 226 -1778

• Training Reinforcement • Knowledge check questions • Helpful resources and tips

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Questions

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BSA/AML Examiner School

SAR Exercise

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Reliable BSA Information is Key

Effective SAR Narrative

Who What Where When Why

Clear Concise Chronological Comprehensive

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SAR Decisions

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Example 1:

On 7/6/17 Gene Smith had an ATM Point of Sale at 8:00 pm at Marathon 6857 Versailles, West Virginia, for the amount of

35.89.

On 7/10/17 a transaction was blocked as fraud for use at Marathon 1887 Versailles, West Virginia, Gene Smith.

On 4/23/17 Mitch Lee had an ATM Point of Sale at 10:44 pm at Marathon 6857 Versailles, West Virginia, for the amount of

25.10.

On 5/4/17 2:15 pm Marathon 1887 Versailles, West Virginia ATM Point of Sale for 55.00 Mitch Lee. A dispute was filed.

On 4/29/17 Berry Levey had ATM Point of Sale for 53.90 at 8:27 am McDonalds 415 Versailles, West Virginia, which is the

same store as Marathon 6857 Versailles West Virginia.

On 5/15/17 a transaction was blocked as fraud at Marathon 1887 Versailles, West Virginia, Berry Levey.

On 7/14/17 an ATM Point of Sale at 7:22 pm Marathon Petro 6857 Versailles, West Virginia for 33.99 Mitch Lee.

On 7/20/17 ATM Point of Sale at 8:26 pm Marathon 6857 Versailles, West Virginia for 55.00 Mitch Lee. A dispute was filed.

All debit Cards for each member has been blocked and new ones ordered.

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Example 2: On 4/10/2019 Bethany Walker came into the branch and wanted to withdraw $20,000 from her IRA. She requested a cashier’s check payable to Tashia Braden in the amount of $19,500 and the remaining amount was deposited into her checking account. Linda Mulberry, the BSA officer, questioned Bethany about the recipient of the cashier’s check to make sure that Liz knew the recipient. She stated, “everything was good and there was nothing to worry about.” On 4/15/2019 Bethany Walker came into the branch and wanted to withdraw $22,000 from her IRA. Bethany requested the cashier’s check payable line be left blank. Mulberry explained to her that we must make the cashier’s check payable to someone. She then requested it to be made payable to herself from her IRA. She asked Donna Taylor, the cashier, if this cashier’s check would be accepted at any other financial institution. Donna said that it would. On the same day, our bank was contacted by XX Bank to verify that the cashier check was issued to Bethany. She stated it was red flagged because it was issued payable to herself from her IRA and she was attempting to deposit it into an account for Tashia Braden. Tashia Braden is a customer at XX Bank, but the person verifying the check was not familiar with this customer or activity.

On 4/16/2019 Bethany Walker came into the branch and deposited the $22,000 cashier’s check made payable to herself into her checking account and had a cashier’s check issued to Tashia Braden for the amount of $22,000.

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Example 3: Steve Garrett has been an established customer since July 22, 2012. He is the director of the Bracken County Council. Mr. Garrett’s account was showing up on the Check Kitting report through the bank’s automated monitoring system that is looked at daily. The BSA Officer Linda Mulberry pulled his activity on his account for January 2020 and February 2020 and a lot of cash was involved. The month of January 2020 a total of $28,689.00 in cash and for February 2020 a total of $18,630.00 of cash was deposited into his account. When reviewing the activity on his account the deposit would include a check from XX Bank or YY Bank, or it would only be a cash deposit. Then when reviewing the account, he would write a check from the ZZ Bank, which he would always go through the drive thru window. On February 25, the BSA Officer Mulberry contacted Steve and told him we would no longer accept check on XX Bank or YY Bank. Once he was contacted on the 25th couple days later he hasn’t shown up on the Check Kitting report through the automated monitoring system.

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Example 4:

Bobbie Dayton opened his account online, has never been into the banking center, and told the credit union that he was disabled and would be getting social security. Since December 15th he has made $8,998 in deposits and $6,971 in withdraws. He has never had a social security deposit. December 15th, he made a $2,800 shared branch check deposit at XX Bank in Springfield, Ct. The next day he had trial deposits coming into his account from YY Bank. On December 27th he made a mobile deposit for $900.00 and withdrew a check from home banking for $3,400. January 2 the mobile deposit came back as NSF. January 2nd, we placed a stop payment on the home banking check he withdrew and then same day he did multiple ATM branch deposit again at XX Bank. The next day he did a cash withdraw at the ATM in Springfield, Ct. He is now having trial deposits from YY Bank and ZZ Bank.

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Example 5: I was notified by staff from the Virginia Branch that a member was making cash deposits out of her usual deposit pattern. It has continued that she is coming into the Virginia branch and making large cash deposits the same day or next day using a cash app to send the money back out of the account. Looking at the transactions she is occasionally keeping a small amount of the funds. Listed below is a list of the cash transactions activity in and out. I will continue to monitor this member’s activity.

Sept 16, 2019- in- 1,200 Sept 17, 2019- out- 1,200 Sept 17, 2019- in- 1,700 Sept 18, 2019- out- 1,800 Sept 21, 2019- out- 1,100

Sept 21, 2019- in- 700 Sept 25, 2019- out- 2,100 Sept 25, 2019- in- 1,300 Oct 1, 2019- out- 1,300 Oct 1, 2019- in- 1,000

Oct 2, 2019- out- 900 Oct 4, 2019-in- 1,900 Oct 5, 2019- out 1,900 Oct 8, 2019- in- 2,100

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SAR Quality

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Example 1: SUSPECTED STRUCTURING - DEPOSITS WITHIN A WEEK OF EACH OTHER IN AMOUNTS OF $9,000.00 Suspected Structuring – On April 20, 2019, when reviewing daily reports for the Bank Secrecy Act, there was a new savings account that had been opened in the name of Grant Thomas #35456 with a cash deposit in the amount of $9,000.00. A week later on April 27, 2019, there was another cash deposit to the same savings account of Grant Thomas #35456, in the amount of $9,000.00. The account was flagged for potential structuring, with a review for the next week ending May 8, 2019, showing no additional cash deposits. Due to the initial cash deposit being in an amount right under the CTR threshold, with an additional cash deposit the very next week right under the CTR threshold, structuring was suspected, and this SAR was filed. Supporting documentation is located at the bank's main office.

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Example 2: Suspicious Activity - customer, Jeffery Smith, opened checking account #33611440 on January 25, 2020 with an initial deposit of $34,300.00. The deposit consisted of $34,000.00 cash and a foreign check in the amount of $300.00. A CTR was filed for this deposit on February 6, 2020, with a Tracking ID of XXXXXXX and a BSA ID of XXXXXX. Our records indicate that Mr. Smith's date of birth is October 16, 2000, making him 19 years old. He is currently employed by Southern Lakes Trucking, LLC as a truck driver, and when the account was opened on January 25, 2020, our records indicate he was employed at Southern Lakes Farm, Southern Lakes, GA, as a farm hand. When our New Accounts Representative asked where he got this much cash from, he stated he had been saving up. On February 5, 2020 he made a cash deposit of $2,500.00. On February 12, 2020 he deposited $700 cash along with a foreign check drawn on Mark Berton Trucking, LLC, in the amount of $300.00, for a total deposit of $900.00. The check was drawn on XX Bank, routing number XXXXXXX, account number XXXXXX, check number 6500. The other transactions on the account are debit card transactions. Due to the fact that Mr. Smith deposited a large amount of cash when he opened the account and is at such a young age, this activity has been deemed suspicious, and a SAR is being filed. Supporting documentation can be located at the bank's main office.

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Example 3: Ben Tallwood stole $3000 from his teller drawer. He told his supervisor that a gentleman came to his home the first week of April and mentioned his brother Laney Tallwood (who has been in a lot of trouble and is currently in jail) owed his employer a lot of money. The gentleman knew Tallwood’s name, his girlfriend’s name, parents’ names and even his dog’s name. He even had everyone's addresses. He knew that Tallwood worked at a bank and a lot of other personal information on all of them. The gentleman gave him 2 weeks to try and get the money. Tallwood was scared and didn't know where to turn to so he attempted to get loans to cover the debt but due to time limitations and complications on getting approved for the loan he panicked. Over the course of a week or so he took $4000 from his teller drawer. He paid the gentleman and hasn't seen or heard anything else. Tallwood had paid back $110.00 and was going to receive money next week to pay the rest. The supervisor had done a surprise audit on all the teller drawers and his came up $3890.00 short. He would force balance his drawer each day showing he had more strapped money than he had.

The bank did contact the Police Department to press charges against Mr. Tallwood. Documentation available upon request.

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Example 4: Unknown suspect applied for membership with the Credit Union through website using DocuSign. Unknown suspect provided driver’s license using the name Bryn Todd address 123 Brightwood Drive. After becoming a member of the credit union, the unknown suspect applied for an unsecured loan in the amount of 9,000. The suspect was able to answer out of pocket security questions that only the true Bryn Todd should have been able to answer. He provided credit union with a paystub from ABC Factory. On October 1, 2019, the credit union received a call from the real Bryn Todd that he had received an alert on his credit report that we had pulled credit on him, and he was not aware of it or was not affiliated with the credit union and had not applied for membership or a loan. He also went on to inform the credit union that someone had tried to secure a loan the week before at another credit union using his information. At this point, I called the number listed on the paystub to verify employment to find out that they do not have anyone working for them named Bryn Todd. The loan officer working on the loan said she had contacted the unknown suspect because there was a freeze on his credit report. HE called her back and was able to have the freeze removed and tried to proceed with the loan. I ended up having a conversation that I requested he come into the branch for additional verification before we could proceed. HE stopped calling after that. I talked to the real Bryn Todd, and he sent me a copy of his DL just to see the different person on the DL with the different address. Unknown was using his SS# and Date of Birth. Filed a police report for identity theft.

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Example 5:

SAR filed for suspicion concerning source of funds regarding a cash deposit by Linda Bryant into account 69654 at the main office.

Bryant deposited $25,000 cash into account 69654 on 7-10-2019. The deposit was entirely comprised of $100s. Bryant is a retired county clerk. She told branch staff that the cash had been in a safe at her home and that her daughter advised she bring it in to the bank to deposit it.

Regardless of whether or not the cash had been in a safe in her home, it still doesn’t explain how a retired county clerk had $25,000 in $100s to deposit.

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Emerging Issues

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Session Learning Objectives:

1. Discuss current issues relevant to BSA/AML

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Emerging Issues

• • • • • •

Beneficial Ownership

FinCEN Priorities

AI & Machine Learning

CRBs

Human Trafficking

Elder Financial Exploitation

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Corporate Transparency Act (CTA)

• Law enacted on January 1, 2021 • Part of the National Defense Authorization Act • Aims to enhance transparency & combat ML, TF, corruption, tax fraud, and other illicit activities.

Requirements: • Certain companies in the U.S. to report their BOI to FinCEN. • Reporting requirement will begin on January 1, 2024.

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Beneficial Ownership Information (BOI)

Three Phases: 1. Who needs to register with FinCEN's national database? 2. Who has access to the national database? 3. Are beneficial ownership

requirements still going to be required by our FI's?? Risk-based??

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FinCEN Priorities

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FinCEN Priorities

1. Corruption 2. Cybercrime 3. Terrorist Financing 4. Fraud 5. Transnational Criminal Organization Activity 6. Drug Trafficking Organization Activity 7. Human Trafficking & Human Smuggling 8. Proliferation Financing

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AI & Machine Learning Technological advances in AML monitoring systems • AI, Machine Learning, other forms • BSA Officer responsibility • AML Software • Fintech Partner • Fintech Customer • Trends • Discussion with examiners

STATE OF CALIFORNIA Department of Financial Protection and Innovation GOVERNOR Gavin Newsom ꞏ COMMISSIONER Clothilde V. Hewlett

The information discussed today does not represent the direct views or opinions of DFPI, but rather the examiner’s interpretation and opinion.

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