BSA-AML Examiner School eBook

BSA/AML Examiner School

April 7-11, 2025 San Francisco, CA

@ www.csbs.org ♦ @csbsnews

CONFERENCE OF STATE BANK SUPERVISORS 1300 I Street NW / Suite 700 / Washington, DC 20005 / (202) 296-2840

BSA/AML Examiner School San Francisco, California April 7 - 11, 2025

Hyatt Centric Fisherman's Wharf San Francisco

Monday, April 7, 2025 7:30 AM – 8:30 AM

Registration and Breakfast North Point Lounge

Opening Remarks and Course Discussion

8:30 AM – 9:00 AM

Review of Pre-Course Materials

9:00 AM – 10:00 AM

Case Study Introduction

10:00 AM – 10:15 AM

10:15 AM – 10:30 AM

Break

BSA Examination Planning

10:30 AM – 11:45 AM

11:45 AM – 1:00 PM

Lunch (on your own)

BSA Examination Planning

1:00 PM – 2:30 PM

2:30 PM – 2:45 AM

Break

BSA Examination Planning

2:45 PM – 4:00 PM

Wrap-Up Session

4:00 PM – 4:30 PM

Networking Reception North Point Lounge

5:30 PM – 7:30 PM

Tuesday, April 8, 2025 7:30 AM – 8:30 AM

Breakfast North Point Lounge

Prior Day Review

8:30 AM – 9:00 AM

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

1:00 PM – 2:15 PM

2:15 PM – 2:30 PM

Break

Core BSA Exam Procedures

2:30 PM – 4:00 PM

Wrap-Up Session

4:00 PM – 4:30 PM

Wednesday, April 9, 2025 7:30 AM – 8:30 AM

Breakfast North Point Lounge Prior Day Review

8:30 AM – 9:00 AM

Core BSA Exam Procedures

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

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

Thursday, April 10, 2025 7:30 AM – 8:30 AM

Breakfast North Point Lounge Prior Day Review

8:30 AM – 9:00 AM

BSA Officer Meeting Preparation

9:00 AM – 11:00 AM

BSA Officer Meetings

11:00 AM – 11:30 AM

11:30 AM – 1:00 PM

Lunch (On your own)

BSA Officer Meetings

1:00 PM – 1:30 PM

Developing your Conclusions

1:30 PM – 2:30 PM

2:30 PM – 2:45 PM

Break

Case Study – Exam Results

2:45 PM – 3:00 PM

Writing Report Comments

3:00 PM – 4:00 PM

Wrap-Up Session

4:00 PM – 4:30 PM

Friday, April 11, 2025 7:30 AM – 8:30 AM

Breakfast North Point Lounge Emerging Issues

8:30 AM – 10:00 AM

10:00 AM – 10:15 AM

Break

Final Assessment

10:15 AM – 10:45 AM

Wrap-Up Session

10:45 AM – 11:00 AM

BSA/AML Examiner School April 7-11, 2025 San Francisco, CA

ATTENDEES Alaska Division of Banking and Securities Marshall, Chelsea

chelsea.marshall@alaska.gov

California Department of Financial Protection and Innovation Calixtro, Kevin

kevin.calixtro@dfpi.ca.gov tony.chiang@dfpi.ca.gov veronica.cortez@dfpi.ca.gov imani.dhahabu@dfpi.ca.gov

Chiang, Tony

Cortez, Veronica Dhahabu, Imani

Mei, Lila Yi, Daniel

lila.mei@dfpi.ca.gov daniel.yi@dfpi.ca.gov

Kansas Office of the State Bank Commissioner Baugh, Michael

michael.baugh@osbckansas.org

Maryland Department of Labor Office of Financial Regulation Estrada, Darouvone

darouvone.estrada@maryland.gov michelle.pendleton@maryland.gov

Pendleton, Michelle

Mississippi Department of Banking and Consumer Finance Pitts, Nicholas

nicholas.pitts@dbcf.ms.gov kara.smith@dbcf.ms.gov

Smith, Kara

New York State Department of Financial Services Chen, Jack

jack.chen@dfs.ny.gov huisi.fung@dfs.ny.gov oneil.harford@dfs.ny.gov george.kuriakose@dfs.ny.gov douglas.schenk@dfs.ny.gov

Fung, Huisi

Harford, O'Neil Kuriakose, George Schenk, Douglas

North Carolina Office of the Commissioner of Banks Galyon, Derek

dgalyon@nccob.gov jhobson@nccob.gov jmarrero@nccob.gov mprince@nccob.gov

Hobson, Jacob Marrero, John Prince, Mary

South Dakota Department of Labor and Regulation Division of Banking Burson, Macyn

macyn.burson@state.sd.us carter.cavanaugh@state.sd.us brianna.torkelson@state.sd.us

Cavanaugh, Carter Torkelson, Brianna

INSTRUCTORS California Department of Financial Protection and Innovation Khatchadourian, Sandra

sandra.khatchadourian@dfpi.ca.gov

Philpott, Cathy

cathy.philpott@dfpi.ca.gov

West Virginia Department of Banking McVey, Tom

tmcvey@wvdob.org

CSBS STAFF Hoyle, Katie

khoyle@csbs.org

Richardson, Amy Romano, Chris Yardley, Kevin

arichardson@csbs.org cromano@csbs.org kyardley@csbs.org

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BSA/AML Examiner School Introduction

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Schedule • Breakfast will be available at 7:30 AM each day. • Begin at 8:30 AM each day. • Lunch on your own • Reception tonight at 5:30-7:30 PM. Guests are welcome!

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Attendance Policy In order to receive a certificate of completion for a CSBS in-person training, an attendee may not miss more than 1 hour throughout the duration of the training. Attendees must also participate in all training activities to receive the credit hours (CEHs) and certificate including: 1. Case Study Assignments/Exercises 2. BSA Officer Meetings 3. Final Assessment 4. OJT Progress Updates

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Instructor Contact Information

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

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Instructor Contact Information

Senior Financial Institutions Examiner California Department of Financial Protection & Innovation Sandra.Khatchadourian@dfpi.ca.gov Sandra Khatchadourian

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Instructor Contact Information

Senior Financial Institutions Examiner California Department of Financial Protection & Innovation Cathy.Philpott@dfpi.ca.gov Cathy Philpott

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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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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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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 BankingAccounts (Updated and Combined) 4. Prohibition on Correspondent Accounts for Foreign Shell Banks. Records Concerning Owners of Foreign Banks and Agents for Service of Legal 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 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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FinCEN Database

 Knowledge Library  Highly Confidential  Examination Assistance Tool

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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 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

• Were there issues? • What was management's response?

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Prior Exam Report & Workpapers

What level of transaction testing was done?

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Prior Exam Report & Workpapers

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Prior Exam Report & Workpapers

Do they use an automated, manual, or hybrid monitoring system?

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Prior Exam Report & Workpapers

Follow your Department’s process, but if appropriate contact BSA Officer to discuss: • BSA/AML compliance program • Risk assessment • Suspicious activity monitoring & repor Ɵ ng systems • Changes since prior exam – staff, products/services, BSA program, etc.

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Correspondence/Monitoring File

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Correspondence/Monitoring File

Has there been communication with FinCEN?

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Correspondence/Monitoring File

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Request List Items

Review the entry letter or request list items provided by the bank.

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Request List Items

1

•Risk

Assessment

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Request List Items

2 •Most recent Board approved BSA/AML compliance program

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Request List Items

3 •Independent testing

results and responses

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Request List Items

4 •Training Documentation

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Request List Items

5 •BSA Officer Information

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FinCEN Data

Review the BSA transaction reports obtained from FinCEN Portal

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Transaction Testing Level Determine transac Ɵ on tes Ɵ ng level • Needed to evaluate adequacy of the compliance program • FFIEC BSA/AML Examina Ɵ on manual includes tes Ɵ ng procedures • Transaction testing is required • Should be risk based

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Automated Monitoring Systems

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Examination Scope Some things to consider: • Types of high-risk customers/accounts • Staffing • Exam time allocated? On/Off-site? • Ways to test efficiently • New or updated regulations since last exam

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Examination Plan

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Examination Plan

• Scoping & planning • BSA/AML risk assessment • BSA/AML compliance program • Developing conclusions & fi nalizing the exam

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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

Our goal is to confirm the individual designated is qualified

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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 1. Preparedness 2. Control of discussion 3. Confidence 4. Focus on the most important issues 5. Organization

6. Follow up questions 7. Minimize distractions

8. Etiquette for effective web meetings 9. Consideration for time constraints 10.Close the meeting

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Assignment

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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

The BSA/AML compliance program must provide for the following: • A system of internal controls • Independent testing • Designate an individual or individuals responsible for managing BSA compliance (BSA compliance officer) • Training for appropriate personnel • The CDD Rule

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BSA/AML Compliance Program Internal controls are the bank’s policies, procedures, and processes designed to limit and control risks and to achieve compliance with the BSA.

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BSA/AML Compliance Program

Independent testing should be conducted by the internal audit department, outside auditors, consultants, or other qualified independent parties.

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BSA/AML Compliance Program

The BSA Compliance Officer is responsible for coordinating and monitoring day-to-day BSA/AML compliance.

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BSA/AML Compliance Program

Banks must ensure that appropriate personnel are trained in applicable aspects of the BSA.

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BSA/AML Compliance Program

CDD Requirements: •Obtaining and analyzing sufficient customer information to understand the nature and purpose of customer relationships; and •Conducting ongoing monitoring to identify and report suspicious transactions.

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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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Questions

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BSA/AML Examiner School OFAC Update

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Session Learning Objectives: 1. Understand OFAC compliance

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OFAC Review Go to www.kahoot.it

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OFAC Sanctions Update

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OFAC – Sanctions Update

Afghanistan not comprehensively sanctioned

Step 1. Check parties against SDN List

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OFAC – Sanctions Update

Afghanistan not comprehensively sanctioned

Step 2. If corporation/legal entities and not on list: KYC If not name of entity on SDN list: Is it owned 50% or more by SDN?

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OFAC – Sanctions Update

Afghanistan not comprehensively sanctioned

Step 3. Is there a general license?

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OFAC – Sanctions Update

Is Russia a comprehensive program?

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OFAC – Sanctions Update U.S. has limited trade activity with Russia

Designed a three-pronged search: 1. Check to see if on SDN list 2. Sanctions on parts of Ukraine – transactions should be rejected 3. Directive – making it hard for businesses

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OFAC – Sanctions Update

Blocked No access to money

Rejected Sent back to customer

Vs.

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OFAC – Sanctions Update

Russia incident ever evolving

Cuba June 9

Biden back to Obama’s administration

OFAC website categorized by country/program

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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 Decision Flowchart Example

Should You File Suspicious Activity Report?

YES

Do transactions support the account’s stated purpose?

NO Is there a reasonable explanation for the unusual transaction? Candidate for SAR filing Contact BSA/AML Officer

Customer less likely to be involved in criminal activity

Is the customer associated with any adverse media?

NO

YES

NO

Transaction Alert

YES

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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 21, 2019- in- 700 Oct 2, 2019- out- 900 Sept 17, 2019- out- 1,200 Sept 25, 2019- out- 2,100 Oct 4, 2019-in- 1,900 Sept 17, 2019- in- 1,700 Sept 25, 2019- in- 1,300 Oct 5, 2019- out 1,900 Sept 18, 2019- out- 1,800 Oct 1, 2019- out- 1,300 Oct 8, 2019- in- 2,100 Sept 21, 2019- out- 1,100 Oct 1, 2019- in- 1,000

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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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MSB’s, Money Transmitters & Prepaid Access

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Session Learning Objectives: 1. Understand how to

assess systems managing risks related to money transmitters & prepaid access

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Session Learning Objectives: 2. Understand how to formulate conclusions about the BSA/AML compliance program

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Money Transmitters & Prepaid Access

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Money Services Businesses (MSB) Definition Doing business in one or more of the following:

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Money Services Businesses (MSB)

Definition Doing business in one or more of the following: • Money Transmitter

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Money Services Businesses (MSB) Definition Doing business in one or more of the following: • Money Transmitter • IVTS

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Money Services Businesses (MSB) Definition Doing business in one or

more of the following: • Money Transmitter • IVTS • Currency dealer/exchanger

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Money Services Businesses (MSB) Definition Doing business in one or more of the following: • Money Transmitter • IVTS • Currency dealer/exchanger • Check casher

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Money Services Businesses (MSB) Definition Doing business in one or more of the following: • Money Transmitter • IVTS • Currency dealer/exchanger • Check casher • Issuer/seller of monetary instruments or prepaid access

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Money Services Businesses (MSB) Definition Doing business in one or more of the following: • Money Transmitter • IVTS • Currency dealer/exchanger • Check casher • Issuer/seller of monetary instruments or prepaid access • U.S. Postal Service

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Money Services Businesses (MSB) Thresholds

>$1,000 for any person on any day in currency, monetary or other instruments: • Foreign exchange dealers • Check cashers • Issuer/seller of monetary instruments

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Money Services Businesses (MSB)

Thresholds >$10,000 to any person during one day without policies and procedures to prevent such a sale: • Seller of prepaid access

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Money Services Businesses (MSB) Money Transmitting Occurs when funds are

transferred on behalf of the public by any and all means, including, but not limited to, transfers within the United States or to locations abroad by wire, check, draft, facsimile, or courier.

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Money Services Businesses (MSB)

Money Transmitting • FinCEN Registration Requirement

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Money Services Businesses (MSB)

Money Transmitting • Unlicensed activity

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Money Services Businesses (MSB)

Money Transmitting • No activity threshold

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Money Services Businesses (MSB) Exceptions

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Money Services Businesses (MSB)

Exceptions • Bank

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Money Services Businesses (MSB)

Exceptions • SEC/CFTC regulated

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Money Services Businesses (MSB)

Exceptions • Regulatory

oversight already in place

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Money Services Businesses (MSB)

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Money Services Businesses (MSB) Examinations • IRS

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Money Services Businesses (MSB) Examinations • States

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Money Services Businesses (MSB) Examination Materials • Fincen.gov/msb examination-materials

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Money Services Businesses (MSB)

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Money Transmitters

Basic Business Model:

Money Transmitter

Sender

Recipient

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Money Transmitters

Business Model –Agent Included:

Money Transmitter

Branch or Agent

Sender

Receiving Agent

Recipient

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MSB BSA Requirements

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MSB BSA Requirements

FinCEN Registration: • Initial 180 days after established or money transmission began

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MSB BSA Requirements

FinCEN Registration: • Renew every 2 years

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MSB BSA Requirements

FinCEN Registration: • Re-registration requirements • Ownership or control changes • Transfer of voting power • Increase in agents • Within 180 days of change

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MSB BSA Requirements

AML Program: • Internal Controls • Individual Responsible • Training • Independent Review

(look familiar?)

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MSB BSA Requirements

Reporting - CTRs • Currency transactions >$10,000

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MSB BSA Requirements

Reporting - CTRs • 15 days after

transaction date

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MSB BSA Requirements

Reporting - SARs • Involves at least $2,000

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MSB BSA Requirements

Reporting - SARs • MT knows or suspects no

business/lawful purpose

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MSB BSA Requirements

Reporting - SARs • 30 days after initial detection

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MSB BSA Requirements

Reporting - SARs • Issuers of

money orders or traveler’s checks

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MSB BSA Requirements

Reporting - Other

• Report of International Transportation of Currency or Monetary Instruments (CMIRs) • Report of Foreign Bank and Financial Accounts (FBARs)

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MSB BSA Requirements

• Guidance • Risk Considerations • Recordkeeping • Law Enforcement Requests

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MSB BSA Requirements

• Guidance • Risk Considerations • Recordkeeping • Law Enforcement Requests

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MSB BSA Requirements

• Guidance • Risk Considerations • Recordkeeping • Law Enforcement Requests

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MSB BSA Requirements

• Guidance • Risk Considerations • Recordkeeping • Law Enforcement Requests

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Prepaid Access • Definition • Open Loop • Closed Loop

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Prepaid Access • Definition • Open Loop • Closed Loop

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Prepaid Access • Definition • Open Loop • Closed Loop

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Bank Exam Procedures

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Bank Exam Procedures

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Bank Exam Procedures

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Bank Exam Procedures

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Questions

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MSB’s, Money Transmitters & Prepaid Access

Remember – these types of customers are not bad, just can be higher risk and must be managed!

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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

• CRBs • Beneficial Ownership • Novel Banking and FinTech at FIs • Human Trafficking • Elder Financial Exploitation • FinCEN Priorities

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Cannabis-Related Businesses (CRBs)

Terminology: • Cannabis • Marijuana • Hemp

• THC • CBD

Internal Use Only

March 5, 2025

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Cannabis-Related Businesses (CRBs)

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Cannabis-Related Businesses (CRBs)

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Cannabis-Related Businesses (CRBs)

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Corporate Transparency Act (CTA)

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

• 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.

Internal Use Only

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. FinCEN has until 2025 to develop new CDD rules – until then the same requirements need to be met by FIs

Internal Use Only

BaaS – Banking as a Service BaaS partnerships differ from traditional vendor relationships in a variety of ways, notably in that they can present substantially higher degrees of risk. Accordingly, fintech partner oversight will form the core of the Bank’s future Third Party Risk Managment program. The FI should develop robust governing documentation to support the program. In particular, policy and program documents relating to Bank’s fintech partner oversight program should clearly address: • Roles and responsibilities • Reporting lines (board oversight and governance) • Testing and ongoing monitoring • Risk assessments • Partner due diligence and onboarding • Contractual safeguards • Contingency plans • Internal and external audits

Internal Use Only

AI & Machine Learning Technological advances in AML monitoring systems • AI, Machine Learning, other forms

• AML Software • Fintech Partner • Fintech Customer • BSA Officer responsibility • Trends • Discussion with examiners

STATE OF CALIFORNIA Department of Financial Protection and Innovation GOVERNOR Gavin Newsom · 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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Human Trafficking in Financial Accounts

Internal Use Only

https://traffickingresourcecenter.org/

Internal Use Only

Elder Financial Exploitation Advisory issued on June 15, 2022 Interagency Statement on Elder Financial Exploitation on December 4,2024. https://www.fincen.gov/sites/default/files/2024 12/Interagency-Statement-on-EFE-FINAL-508C.pdf DEFINED: Illegal or improper use of older adult's funds, property, or assets.

Do you have State laws that protect against this type of fraud and abuse?

Internal Use Only

California Elder Financial Exploitation Law Cal. Welf. & Inst. Code § 15610.30: defines financial abuse of an elder. Subsection (a) provides that financial abuse of an elder occurs when a person does any of the following:(1) takes the property of an elder for a wrongful use or with intent to defraud(2) assists in taking the property of an elder for a wrongful use or with intent to defraud(3) takes or assists in taking the property of an elder by undue influence Subsection (b) provides that a person is considered to have taken for a wrongful use if they take the property and they knew or should have known that the conduct would likely to be harmful to the elder. Cal. Welf. & Inst. Code §15657.5: defines the damages that are available in the event that the defendant is liable for financial elder abuse. California Financial Institution are required to perform the following : BE Mandated Reporters o The mandated reporter must have had direct contact with the elder or dependent adult o Or he or she must have reviewed or approved the elder or dependent adult’s financial document, records, or transaction. o And the contact or review or approval must occur “in connection with providing financial services with respect to an elder or dependent adult.” Have a Duty to Report o The Act requires mandated reporters to notify either the local adult protective services agency or the local law-enforcement agency by telephone and in writing of suspected incidents of financial abuse. Suspected incidents must be reported by telephone immediately or as soon as practicably possible. And written reports must be sent to local authorities within two working days Exceptions to the Duty to Report o An allegation by an elder or dependent adult of financial abuse will not trigger the duty to report if two conditions are met: • One, the mandated reporter is not aware of any corroborating or independent evidence of financial abuse that supports the allegation. Mandated reporters have no duty to investigate an accusation.) • And two, the mandated reporter reasonably believes that financial abuse of an elder or dependent adult did not occur. State laws and procedures will vary by State. Slides are based on California law.

Internal Use Only

California Elder Financial Exploitation Law Penalties for Failure to Report o A civil penalty of up to $1,000 may be imposed for failure to report a suspected incident of financial abuse of an elderly or dependent adult. But if the failure is willful, the penalty may increase up to $5,000. The financial institution that employs the mandated reporter must pay the fine. Penalties for Unlawful Disclosures o Under the Act, reports of suspected incidents of financial abuse of an elderly or dependent adult are confidential. They may not be disclosed to the financial institution’s other employees unless they are trained and qualified to serve on a multidisciplinary personnel team. And the disclosure is relevant to the team’s educational efforts to identify, prevent and detect financial abuse. Outside the financial institution, reports may be disclosed only to certain specified public agencies, such as an adult protective services agency and law-enforcement authorities. Unlawful disclosure is a misdemeanor (up to six months in county jail) and may also result in a $500 fine, or both. But the Act does not specify who may be punished or how culpability is determined. California examiners, review policy and procedures, training for all bank employees, Adult Protective filed reports and any SARs file with regards to Elder Abuse.

State laws and procedures will vary by State. Slides are based on California law.

Internal Use Only

FinCEN Priorities

Internal Use Only

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

Internal Use Only

Questions

Examination Conclusions and Comments (Continued)

Bank Secrecy Act The bank is subject to numerous BSA-related provisions in the Consent Order due to the deficient BSA/Anti Money Laundering (AML) compliance program identified at the May 2014 risk management examination. While it appears that some efforts had been made to address the BSA deficiencies as of the prior examination, the findings of this examination indicate that oversight of this area has significantly deteriorated. As a result, the BSA/ AML program and compliance with related laws and regulations is inadequate. The BSA/AML compliance program does not provide for a system of internal controls to ensure ongoing compliance with BSA/AML laws and regulations. Former, Board-approved BSA Officer lacked the appropriate qualifications, was not properly overseen, and did not fulfill the Board's expectations of the position, which contributed to an inadequate BSA/ AML compliance program. Furthermore, the Board and management failed to comply with the BSA-related provisions of the Consent Order. Former BSA Officer, the Board, and senior management failed to implement corrective action for the deficiencies identified at the December 2015 BSA Independent Review. The BSA training program is inadequate and ineffective, as the Board and senior management have not ensured that employees with BSA duties have received adequate training. As a result of the lack of training, numerous deficiencies were identified with the Customer Identification Program (CIP), Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD), suspicious activity monitoring and reporting, and recordkeeping requirements of sales of monetary instruments. Refer to the Bank Secrecy Act Assessment pages for additional information. Apparent violations of five sections of Part 326 of the FDIC Rules and Regulations are cited due to the weaknesses in the system of internal controls, training program, CIP, overall compliance with the BSA, and the BSA Officer's failure to oversee the program appropriately. Apparent violations of two sections of Part 353 of the FDIC Rules and Regulations are cited for failing to file Suspicious Activity Reports (SAR). Additionally, apparent violations of five sections of the Treasury Department's Financial Crimes Enforcement Network (FinCEN) 31 CFR Chapter X are cited due to weaknesses in obtaining customer information prior to account opening, failure to maintain minimum recordkeeping requirements under the CIP, failure to keep CIP records for required timeframes, failure to maintain records of sales of monetary instruments, and failure to search records upon receiving a request from FinCEN. Refer to the Violations of Laws and Regulations pages for additional information. CEO terminated BSA Officer when it became apparent that she was unable to adequately perform her role as BSA Officer. BSA Officer was assigned these duties before CEO was hired. CEO stated that back-up BSA Officer and Compliance Officer has assumed BSA Officer duties and will receive appropriate training to ensure her success. CEO also stated that Compliance Officer will receive assistance from Operations Officer, as well as from Head Teller.

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