See Defined Term for USA Patriot Act below.

Examiners review the institution’s risk exposure in six component areas, using what is known as the Uniform Financial Institution Rating System (UFIRS), commonly referred to as the CAMELS rating system -- (Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity to market risk).  Evaluations of CAMELS components consider the institution’s size and sophistication, the nature and complexity of its activities, and its risk profile. At risk management examinations, an institution is rated for each of the CAMELS components and assigned a composite rating, which generally bears a close relationship to the component ratings. The component and composite ratings are scored on a scale of 1 (best) to 5 (worst).

The objective of CDD is to enable the bank to predict the types of transactions in which a customer is likely to engage. These processes assist the bank in determining when transactions are potentially suspicious. The concept of CDD begins with verifying the customer’s identity and assessing the risks associated with that customer. See also EDD – Enhanced Due Diligence.

As a result of the USA Patriot Act, persons who are or are required to be registered as Futures Commission Merchants (FCMs), Introducing Brokers (IBs), Commodity Pool Operators (CPOs) and Commodity Trading Advisors (CTAs) are subject to requirements for establishing AML programs, reporting suspicious activity, verifying the identity of customers (see CIP), and applying Enhanced Due Diligence (see EDD) to certain types of accounts involving foreign persons. (Source: http://www.cftc.gov/IndustryOversight/AntiMoneyLaundering/index.htm)

Customer Identification Program is intended to enable the bank to form a reasonable belief that it knows the true identity of each customer. The CIP must include account opening procedures that specify the identifying information that will be obtained from each customer. It must also include reasonable and practical risk-based procedures for verifying the identity of each customer.

A bank must file a Currency Transaction Report (CTR) for each transaction in currency (deposit, withdrawal, exchange, or other payment or transfer) of more than $10,000 by, through, or to the bank.

Multiple currency transactions totaling more than $10,000 during any one business day are treated as a single transaction if the bank has knowledge that they are by or on behalf of the same person. Transactions throughout the bank should be aggregated when determining multiple transactions.  

Customers that pose higher money laundering or terrorist financing risks present increased exposure to banks. Enhanced Due Diligence (EDD) for higher-risk customers is critical in understanding their anticipated transactions and implementing a suspicious activity monitoring system. Higher-risk customers and their transactions should be reviewed more closely at account opening and more frequently throughout the term of their relationship with the bank. 

Federal Financial Institutions Examination Council 

 Financial Institution Letters (FIL) are BSA/AML Directves addressed to the chief executive officers of the financial institutions on the FILs distribution list — generally, FDIC-supervised banks.

FILs announce new regulations and policies, new FDIC publications, and other matters of interest to those responsible for operating a bank or savings association. The FILs are available at: www.fdic.gov/news/news/financial/index.html.

A section of the U.S. Department of the Treasury that which administers the BSA and is charged with safeguarding the financial system from the abuses of financial crime, including terrorist financing, money laundering, and other illicit activity.  FinCEN’s mission is to safeguard the financial system through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities.

A high risk indicator for AML.

A high risk indicator for AML.

Integration creates the appearance of legality through additional transactions. Integration provides an explanation for the source of funds.

These transactions further shield the criminal from a recorded connection to the funds by providing a plausible explanation for the source of the funds.

Examples of integration techniques include the purchase and resale of real estate, investment securities, foreign trusts, or other assets. 

KYC = CIP + EDD + SEDD

Know Your Customer = Customer Identification Program + Enhanced Due Diligence + Super Enhanced Due Diligence

Note that EDD may be required and, in a small number of situations, SEDD may also be required.  In most situations KYC = CIP.

Layering involves moving funds around the financial system, often in a complex series of transactions to create confusion and complicate the paper trail. Layering involves moving funds to, through, or between many different accounts and many different financial institutions.

Examples of layering techniques include exchanging monetary instruments for larger or smaller amounts, or wiring or transferring funds to and through numerous accounts in one or more financial institutions.

The National Credit Union Administration (NCUA) publishes Letters to Credit Unions (LCU) and Regulatory Alerts (RA) addressed to credit union boards of directors. LCUs and RAs are used to share information, announce new policies, and provide guidance for credit unions and credit union examination staff.

The NCUA’s Examiner’s Guide provides overall guidance for the risk-focused examination and supervision of federally insured credit unions. NCUA’s risk-focused program evaluates the degree to which credit union management identifies, measures, monitors, and controls (i.e., manages) existing and potential risks in their operations, including risk associated with AML programs. (See www.ncua.gov)

NSLs are written investigative demands that may be issued by the local Federal Bureau of Investigation (FBI) and other federal governmental authorities in counterintelligence and counterterrorism investigations.

Banks that receive NSLs must take appropriate measures to ensure the confidentiality of the letters and should have procedures in place for processing and maintaining the confidentiality of NSLs. 

The OCC prescribes regulations, conducts supervisory activities and, when necessary, takes enforcement actions to ensure that national banks have the necessary controls in place and provide the requisite notices to law enforcement to deter and detect money laundering, terrorist financing and other criminal acts and the misuse of our nation's financial institutions.

The OCC conducts regular examinations of national banks and federal branches and agencies of foreign banks in the U.S. to determine compliance with the BSA.

(Source: http://www.occ.gov/topics/compliance-bsa/bsa/index-bsa.html) 

A PEP is a current or former senior foreign political figure, a member of their immediate family, or their close associates.  Those individuals are more likely to be exposed to corruptions, due to their positions and influences.

PEP accounts are not limited to large or internationally focused banks. A PEP can open an account at any bank, regardless of its size or location.  

 Placement introduces the unlawful proceeds into the financial system without attracting the attention of financial institutions or law enforcement. Placement techniques include structuring currency deposits in amounts to evade reporting requirements or commingling currency deposits of legal and illegal enterprises.

Examples of placement techniques include: dividing large amounts of currency into less-conspicuous smaller sums that are deposited directly into a bank account, depositing a refund check from a canceled vacation package or insurance policy, or purchasing a series of monetary instruments (e.g., cashier’s checks or money orders) that are then collected and deposited into accounts at another location or financial institution. 

A high risk indicator for AML.

A high risk indicator for AML.

A high risk indicator for AML.

Suspicious Activity Report

The Office of Thrift Supervision issues Regulatory Bulletins and CEO Letters to clarify regulations and to specify guidelines and procedures. These directives keep examiners as well as savings associations continuously updated on BSA/AML issues. Specific BSA/AML Regulatory Bulletins and CEO Letters are available at the following Web site: www.ots.treas.gov.

 The U.S.A. PATRIOT Act and the U.S. Bank Secrecy Act require all financial institutions to have a comprehensive AML Compliance Program.  The Compliance Program must include was is known as "the four pillars":

1. Comprehensive policies and procedures
2. Qualified Compliance Officer
3. Training program for all relevant employees
4. Independent Review process

Several government agencies play a critical role in implementing BSA regulations, developing examination guidance, ensuring compliance with the BSA, and enforcing the BSA. These agencies include the U.S. Treasury, FinCEN, and the federal banking agencies (Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, and Office of Thrift Supervision). 

For international private banking relationships. Bank policy will be to prevent the use of its worldwide operations for criminal purposes. The bank will endeavor to accept only those clients whose source of wealth and funds can be reasonably established to be legitimate.

The primary responsibility for this lies with the private banker who sponsors the client for acceptance. Mere fulfilment of internal review procedures does not relieve the private banker of this basic responsibility.

(Source: The Wolfsberg Group - http://www.wolfsberg-principles.com/privat-banking.html)