Managing BSA/AML Duties in the Midst of

Chaos

Presented byMary Meile, President

The Anti-Money Laundering AssociationFebruary 16, 2011

The Financial Woes• 2010, 157 banks failed, up from 140 in 2009. • As of 2/14/2011 18 Failures

The Blaming Game

• The Financial Crisis Inquiry Report: Final Report Of The National Commission On The Causes Of The Financial And Economic Crisis In The United States-January 2011

• Government Blames Both Regulators and Financial Institutions for Economic Collapse

The Blaming Game

• Their Answer: Transparency, More Regulation and Oversight

The Businessman

• A man in a business suit is standing on a wooden bridge. He walks out on the bridge and the bridge breaks in half and he starts to sink in the water. He is up to his neck in water, a hand is extended to help pull him out; but he chooses to drown! He has lost HOPE.

• Don’t be that person………..

Strength and Unity

• The American flag represents strength and unity. The flag colors are symbolic: Red symbolizes Hardiness and Valor, White symbolizes Purity and Innocence and Blue represents Vigilance, Perseverance and Justice.

• He loves his country best who strives to make it best.  ~Robert G. Ingersoll

Characteristics

• Hardiness: the capacity for enduring or sustaining hardship; capability of surviving under unfavorable conditions.

• Valor: boldness or determination in facing great danger, especially in battle; heroic courage; bravery. You all deserve a medal for valor.

Characteristics

• Purity: the condition or quality of being pure; freedom from anything that debases, contaminates, pollutes.

• Innocence: the quality or state of being innocent; freedom from sin or moral wrong.

• Justice: the quality of being just; righteousness, equitableness, or moral rightness: to uphold the justice of a cause.

Characteristics

• Vigilance: state or quality of being vigilant; watchfulness.

• Perseverance: steady persistence in a course of action, a purpose, a state, etc., especially in spite of difficulties, obstacles, or discouragement.

The Compliance Professional

• Do you SEE the similarities in your role?

• Every compliance professional strives to maintain and uphold the laws and regulations within their organization.

• You survive under unfavorable conditions, endure, are not thin skinned or timid, must walk in boldness, hardiness and valor daily.

The Compliance Professional

• Be set apart, pure, higher standard, not corrupt.

• Be vigilant and watchful. You are the gatekeeper, monitor.

• Press in, steady persistence, especially in spite of difficulties, obstacles, or discouragement.

• Seek justice and moral righteousness, help the laws be fulfilled.

Strength and Unity

• There is much strength when we walk as a team in unity. Don’t try to be a lone ranger and get the job done. You can not do it all.

• Talk to other peers, share, ask how they are handling their set of challenges.

• Stop banging your head up against the wall and accepting the chaos. Remember WHO you are.

A Nation of Laws

• BSA/AML and related laws provide us with standards, guidance, and benchmarks.

• Take seriously the obligation to comply with federal laws and regulations.

• Honor and respect the laws and lawmakers.• Obey those that enforce. They are just like

us-trying to get things done, accomplish their duties to deter crime and see justice served against law breakers.

A Nation of Laws

• Look for the good that comes from implementing laws and regulations and focus on that aspect.

• Change mindset from over regulated and burdensome to add value!

• Cleans up our communities and society.

• Protects our freedom’s and rights.

You Make a Difference

• Your role is vital and important for our nation’s security.

• Your work ethics and diligence are needed and admirable.

• Others depend on your work results: board, law enforcement and regulators.

• Your position will not be eliminated!

You Make a Difference

• When you stay current on emerging issues and teach others you are enabling them to help and make a difference.

• Every effort that you make to improve on your existing program, to educate others from the Board to Senior Management makes an impact.

• It is not enough to just obtain the knowledge, you must share with those that have a need to know.

You Make a Difference

• FACT: The more knowledgeable and confident you are in what you are doing the better performance, less frustration, LESS CHAOS and no Confusion.

Why Are You In This Role?

• The more passionate about a cause, the more apt we are to give it our very best effort and time.

• Patriotic and Love of Country• National Security • You want to be a soldier in the war

against crime, injustices, expose the criminals, clean up our communities, states, and Nation.

Why Are You In This Role?

• FLIP SIDE: Because my boss assigned it to me. I hate compliance, I hate my job, our nation is messed up and the leaders are dragging us all down.

• Where does that lead to? DEAD END. • If that is you, change your mindset

OR consider other job options.• You are leading a cause of chaos and

confusion. Down the wrong path.

Managing the Task

• Organization: manageable when you take appropriate steps to organize daily work load.

• Preparation: Procrastination has no place in the duties of a BSA or AML Compliance Officer or assistant.

• Leads to the 1,000 cuts by death-little at a time, cut by cut. You get farther behind until you are drowning and want to give up. Don’t be like the businessman…..

Strategies That Do Work

• If you are underwater then start 2011 with the attitude and determination to change the old way of doing things.

• Tap into some wisdom: Be smart and work smart!

• Create work strategies that allow you and your team to work at a comfortable pace-no last minute fire drills.

Strategies That Do Work• Review current processes and operating

procedures. How can you make them better? Are they burdensome and causing more work or as efficient as they can be?

• Consider your third party auditor to do the transaction testing that you are not able to get to.

• Ask other department managers for helpers! If you can not afford additional help pull from another area that have free time.

Strategies That Do Work

• Decide to do the overtime yourself knowing that you will reap a reward and benefit.

• Pass on authority: Assign and delegate some of your duties to others. A good manager will delegate and promote. There are always those that are willing to do more.

• Use a BSA/AML Committee to help maintain your program momentum and help you get those resources that you need.

Strategies That Do Work

• When you are training others, look for those that ask questions and show a desire to learn more.

• Develop a MUST Have List for your BSA program and resources. Make this part of your risk assessment and include when you report to the Board.

• If you do not have adequate resources to do the job then you are already opening the door for regulatory criticism.

• Be persistent and respectful.

Work Strategies

• The board of directors is responsible for ensuring that the BSA compliance officer has sufficient authority and resources (monetary, physical, and personnel) to administer an effective BSA/AML compliance program based on the bank’s risk profile. Page 36 FFIEC BSA/AML Examination Manual

Strategies That Do Work

• Plan to work off-site at least once a week to get caught up with no distractions or shut door.

• Do your homework before you ask for resource. Be prepared and ready to show the why and how it will benefit the company overall.

• Approach with all facts (what the regulation states, costs, solution, etc) and include a statement of concern for the organization.

• If you don’t get it now, keep it on your risk assessment for resources needed.

Strategies That Do Work

• You need FAVOR!! How do you receive favor?

• Establish unity and willingness to give and take. When you approach with a solution already in hand you have a listening audience!

• A humble and sincere heart along with respect for those in authority over you accomplishes more than demanding, screaming and kicking.

Look for the Changes

• A city was not built overnight. • Little changes in your program and

processes will start to surface. You will notice better attitudes, people wanting to help, an easy flow of things.

• Changes in procedures, attitude, management style, and how you see and handle others make a BIG difference.

Focus

• With the current economy day to day operations are probably not focused on BSA/AML Compliance.

• Senior Management focus is staying in business and maintaining adequate capital levels.

• You understand that BSA Compliance MUST GO ON. Pick up the slack and stay focused. Here is another reason why.

Zion’s First National Bank Fined $8 Million

• Federal agencies said the penalty should be a warning to other banks to maintain effective anti-money-laundering programs.

• "With these actions, we are sending another strong message that banks need to be vigilant and ensure that they have effective AML programs in place," said John Walsh, acting comptroller of the currency.

Zion’s First National Bank

• Bank failed to adequately monitor activity and transactions totaling more than $5.4 billion, most of which related to a new remote deposit capture service.

• Wire activity totaling more than $7.9 billion with foreign customers also was not sufficiently monitored.

Lesson from Zion’s

• It is always better to admit when wrong, correct action, and accept the consequences.

• It is better to take action than to REACT. Do not react out of FEAR. FEAR causes some to react in harmful ways that they normally would not.

• Stay on top of your program. The word “lax” is not in our vocabulary. When you implement a new product or service you MUST monitor and audit.

• Be well prepared, consult with legal counsel and others, be ready for those fiery darts!

Training Is SMART

• Training is a profitable tool and a smart work strategy.

• Training is VITAL. Breathes life into your program policy and procedures.

• Who and How often are you training? • Are you leaving anyone out that

needs teaching on the program and contents?

Training Is SMART

• Is training tailored to your organization or just a template of a law and regulation?

• What type of resources and material are you using? Can you do it better and perhaps cheaper?

• A way to develop the full potential of the staff. Give someone else the opportunity to train so they can learn more.

• Many people want additional training and desire to advance.

Training Is SMART

• Are you helping them advance or waiting to get the time to train?

• Make the time, make it interesting. All benefit in the end!

• Board of Directors• Invite others to attend our AMLA

meetings. Gives them opportunity to network and hear what others are doing.

The Power & Authority

• You have been delegated the power and authority to get the work done.

• How are you using that position of power and authority in your organization?

• Do not rule with a rod (tyrant boss, hands off) engage your team and encourage daily. You will accomplish more!

Manage and Delegate

• Your manage style is important! Can build up or tear down.

• Develop a reputation as a department that is a good place to work and opportunity for promotion.

• Spend time to train up those under you so they can take on more and excel in their position.

The On-Going Challenge

• The criminal methods and players may change some. Range from complex financial transactions, carried out through webs of wire transfers and networks of shell companies, to old fashioned suitcase of money (bulk cash smuggling).

The On-Going Challenge

• Law enforcement learns of a new laundering technique, takes action to disrupt, the launderers replace the scheme with another more sophisticated method.

• Your best weapon is to STAY Informed.

• Complete task by using the means you have and with greater zeal.

The On-Going Challenge

•Remember: There will be some major victories which demoralize and deflate the opposition.

•We are making a difference. A little light is better than none at all!

The On-Going ChallengeThe battle is on-going but VICTORY is

YOURS.

FinCEN and Chapter X

• March 2011 is around the corner. • Regulations remain under 31 CFR Part 103

until then. • To help facilitate the transition for financial

institutions, Chapter X page on FinCEN website which includes helpful information

• Chapter X Frequently Asked Questions.• FinCEN is also making available a Web tool

which will translate a regulatory citation from 31 CFR Part 103 to 31 CFR Chapter X and vice versa.

CTR and SAR Data

• FinCEN is continuing the design of a new Bank Secrecy Act database and invites comment on the list of proposed data fields within the Database that will be required to support unified CTR and SAR filings by seeking input from the financial community on technical matters.

• FinCEN transitions from a paper system to a dynamic IT environment for electronic reporting.

Upcoming BSA Challenges• Info from FinCEN speaker Jamal El-Hindi, Associate Director

for Regulatory Policy and Programs, event hosted by Deloitte on Jan 12, 2011.

• SAR confidentiality and concerns. The fact that in California a conviction was announced in disclosing a SAR.

• FinCEN takes seriously and works with Justice on these issues. Quote from director Freis (at DOJ) about how serious they take the issue of all parties having responsibility (government and FI’s) for keeping confidential.

BSA Challenges

• Not a problem as you have adequate controls in place for SAR confidentiality and sharing with law enforcement and regulators.

• SAR sharing between affiliates. A phase approach…left room for situations for future, more comfortable being more permissive of sharing within FI, affiliates.

BSA Challenges

• Clarified that SAR sharing in domestic affiliates only (currently engaging in international work with Egmont and others to be comfortable with SARs being shared across border affiliates).

• Makes sense to me.

BSA Challenges

•Not a problem: For now we are to share in accordance to the regulatory guidance that the sharing is consistent with the BSA. Domestic only and not international affiliates.

BSA Challenges

• Status of unified SARS-one consolidated format.

• Will enhance FinCEN capability to sort through the data points. Making some progress based on input from the private sector and government officials. Period closed for comments.

BSA Challenges

• Time to respond and work with form for the industry to develop software needed to start using form.

• Taking longer than anticipated. SAR modernization target date is still June 2012 to make new form live.

BSA Challenges

• I like this approach: This spring will do next phase and will provide coding and software to the industry instead of them purchasing on their own.

• Intend to provide the industry with more to work with so they will have to do less this time around when putting in place their systems to work on their forms. Will be easier and fewer problems!

BSA Challenges

• Phase in approach for those using the old form.

• Those that are doing the E-filing now it is going to be easier for the transition down the road!

• Helpful for FinCEN and industry transition will be easier. Do E-Filing if you are not. Now is the time.

BSA Challenges

• Cross Border Proposal: Reporting process is reasonable. There is a Congressional directive to determine if this is feasible.

• Timing and FinCEN capacity to receive and to certify to congress that they have the capacity. Business planning for FI’s, in process of modernizing their IT systems at FinCEN. 2012 at least a time period as far as moving forward.

BSA Challenges

• ITIN information reporting-others (IRS) involved, considering tax revenue and cross border.

• Prudent business practice to put the two concepts together in one system to collect the ITIN information.

• Working together, collective effort as a matter of good government.

BSA Challenges

• Rulemaking: many comments and do not know which direction it will be headed.

• Recap: More work to be done in this area. Stay Tuned.

BSA Challenges

• Prepaid Access Proposal timing and significant issues.

• A phase approach because of all the complex issues related to this product. Tough issue and a lot of focus on the definitions and preciseness. Who the provider will be? Looking at this seriously.

• Concern on how folding sellers into the program will work and how they can approach. Under considerable time crunch and pressure to work on as fast as they can.

BSA Challenges

• Hedge fund and investment advisors: plans for these two sectors and rules. Investment advisors is the focus now.

• FinCEN will propose a NPR to bring the IA in the scope of the regulations. Dodd Frank and SEC Rulemaking will have an effect and FinCEN looking at these now.

• Gaps in the hedge funds that are remaining they will have to consider.

BSA Challenges

• Beneficial Ownership: FinCEN issued guidance March 5, 2010 on the types of documents and information that you may want to obtain in order to identify and verify certain customer accounts and relationships

• A need for a rule : considering that now. Hearing from industry a need for greater clarity in the form of a rule and the need for a level playing field. A regulation is needed…perhaps?

BSA Challenges

• OTHER: 314a-revised to international LE….has that gone as expected.

• Not overwhelmed on the International front and outreach from colleagues on how this can work.

• Have done some non-federal requests. Had to set up in accordance to our treaties.

BSA Challenges

• Enforcement action against MSBs failing to register with FinCEN. Baltic Financial Services, Inc. Montclair, NJ ($12M)

• A different approach now then before. • Will continue to do outreaches. • Actors that are choosing not to

register. They do need to take action. A failure to register will be acted upon and a civil penalty can be assessed.

MSB-FinCEN Site

• There nonetheless remain some MSBs that continue to flout the law and ignore the basic registration requirements. In appropriate cases, FinCEN will seek to exercise its regulatory authority to issue civil money penalties for failure to register as an MSB.

MSB-FinCEN Site

• Law enforcement and regulatory authorities are encouraged to report to FinCEN persons suspected of being an unregistered MSB by contacting FinCEN through normal channels or by calling Fincen's Regulatory Helpline at 1-800-949-2732.

MSB FinCEN Site

• "Whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business, shall be fined in accordance with this title or imprisoned not more than 5 years, or both."[18 U.S.C. 1960 (a)]

BSA Challenges

• SEC no action letter Broker-dealers that rely on investment advisers (IA) to perform customer identification program (“CIP”) requirements now have new conditions that must be met before May 1, 2011. FinCEN supportive of that process issued for IA for reliance in relationship to CIP.

BSA Challenges

• Letter identifies some additional conditions, clarification of some issues.

• Broker-dealers need to ensure that their procedures and reliance agreements address each of the conditions imposed in the 2011 Letter.

BSA Challenges

• FinCEN has to focus on other areas such as non bank mortgage brokers.

• Will have to leverage others to help enforce rules.

• Seeking industry comments on how this should work. Challenge for FinCEN.

FinCEN Thanks You

•Closing Comment: FinCEN is very appreciative that you are supporting their mission as you stand in the forefronts.

Do You Have Some Ideas?

• I bet you ALL do!• Please share some of your work

strategies and ideas with your peers! We are in this together.

• Post on our AMLA website under the user forum.

• SHARE, SHARE, SHARE. That is why we are here.

Other Important Items

• The monthly regulatory updates are posted on website at www.theamla.com under the user forum tab.

• We are meeting in Virginia next month with their ¼ BSA Roundtable Group. A speaker from FinCEN is being scheduled. Webinar will be available.

Save the Date

• Planning one day fraud event in the SE region August 12, 2011. Central Florida area in conjunction with Saltmarsh, Cleaveland & Gund, PA.

• Planning one day event in the Chicago IL area on May 6, 2011.

• March 11, 2011 MidAtlantic Chapter Event

Sponsors

•Thank you to Old Florida National Bank for sponsoring today’s event.

Thank you

•Have a wonderful day. Go forth in confidence and courage to press in and fight the good fight!