On September 21, 2010 at the National Association of Federal Credit Unions (NAFCU) Washington D.C. conference, Financial Crimes Enforcement Network (FinCEN) Director James H. Freis addressed federal credit union representatives on the importance of following BSA / AML regulatory rules and guidance as a way to protect against financial fraud.
In a previous speech to the NAFCU, Freis addressed the various ways that law enforcement utilizes Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs) to fight criminal activity particularly in the field of mortgage fraud and its connection with money laundering (ie: foreclosure rescue scams, home equity loan conversion schemes, toxic loans). According to FinCEN, mortgage fraud-related SAR filings increased by over 44% from the last period in the 12-month timeframe ending June 2008 and have since continued to grow. Historically, federal credit unions have built residential mortgage lending as a major focus of their institutions’ services.
On July 16, 2009, as a response to the increase of SAR filings involving mortgage fraud, FinCEN issued guidance on USA PATRIOT Act 314(b) Information Sharing indicating the importance of fighting mortgage fraud as a FinCEN initiative which stated, “314(b) permits participating financial institutions, upon providing notice to FinCEN, to avail themselves of statutory safe harbor from civil liability for sharing information with one another to identify and report activities, such as mortgage fraud, that they feel may involve possible terrorist activity or money laundering,” Freis additionally explains, “in order to be used by a criminal, that money needs to be cleaned and integrated into the legitimate financial system. The more information bankers and brokers can share, the more the integrity of our financial system will be protected and law enforcement can gain additional sources of valuable information.”
ICS Compliance President, former FDIC Review Examiner, and member of the Credit Union Internal Auditors Association, John Soffronoff believes, “developing a risk-based AML compliance program that meets regulatory guidelines and follows industry best practices is vital to the success and integrity of any financial institution, including credit unions.” He also states that “mortgage fraud risks and red flags can be caught early with the implementation of effective AML Know Your Customer (KYC) and transaction monitoring implementation.”
Mortgage fraud and AML have a strong relationship which has only been accentuated by the current mortgage crisis. With the increasing amount of mortgage fraud SAR filings, subsequent regulatory initiatives, and increased Regulator outreach in these areas, it is apparent that the financial community will be increasing its efforts addressing AML and the prevention of mortgage fraud exposure.
By: Aaron Kahler, CFE, CAMS
Assistant Director, ICS Compliance
