AML and SAR Resource Guide for Mortgage Lenders

The Anti-Money Laundering
(AML) and Suspicious Activity
Reports (SAR) Resource Guide
UPDATED: FEBRUARY 2017
Benjamin W. Hutten
Associate
BuckleySandler, LLP
Amy Davine Kim
Counsel
BuckleySandler, LLP
Jeffrey P. Naimon
Partner
BuckleySandler, LLP
James Parkinson
Partner
BuckleySandler, LLP
Thomas A. Sporkin
Partner
BuckleySandler, LLP
Daniel P. Stipano
Partner
BuckleySandler, LLP
Michael F. Zeldin
Special Counsel
BuckleySandler, LLP
MBA COMPLIANCE ESSENTIALS℠
mba.org/compliance
ONE VOICE. ONE VISION. ONE RESOURCE.
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BuckleySandler LLP ii
Copyright .........................................................................................................................................iv
Disclaimer.........................................................................................................................................v
Author Biographies ..........................................................................................................................vi
I. Introduction & Regulatory Overview....................................................................................1
II. Bank Secrecy Act / Anti-Money Laundering Compliance Program and Suspicious
Activity Reporting Requirements Compliance Program Requirements...............................2
A. Policies, Procedures, and Internal Controls .......................................................... 3
1. Risk Assessment...................................................................................... 3
2. Customer Onboarding and Due Diligence................................................ 4
3. Suspicious Activity Reporting Requirements............................................ 5
4. Information Sharing .................................................................................. 8
B. Designation of BSA Compliance Officer.............................................................. 10
C. Training................................................................................................................ 11
D. Independent Testing............................................................................................ 11
III. OFAC.................................................................................................................................11
IV. Emerging Trends in Regulation of Real Estate Companies..............................................12
V. Introduction – BSA/AML Model Policies And Procedures.................................................13
Appendix A: Model Policies and Procedures ...............................................................................A-1
A. General Provisions .............................................................................................A-1
B. Annual Review & Update of AML Program ........................................................A-1
C. Effective Date .....................................................................................................A-2
D. Risk Assessment................................................................................................A-2
E. Minimum Program Requirements.......................................................................A-3
1. Designation of BSA Compliance Officer................................................A-3
2. Training..................................................................................................A-4
3. Independent Testing of BSA / AML Compliance...................................A-5
4. Policies, Procedures & Internal Controls...............................................A-7
F. Customer Onboarding and Due Diligence..........................................................A-8
G. Suspicious Activity Reporting Systems ............................................................A-10
H. Voluntary Filing.................................................................................................A-10
I. Mandatory Filing...............................................................................................A-10
J. Notifications to Law Enforcement.....................................................................A-11
K. Miscellaneous Provisions .................................................................................A-11
L. Identifying Sources of Suspicious Activity........................................................A-12
1. Red Flags ............................................................................................A-12
2. Confidentiality / Handling Requests for SAR Information....................A-12
3. Reports to the Board ...........................................................................A-12
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BuckleySandler LLP iii
4. Account Closure Policy........................................................................A-13
M. The SAR Process.............................................................................................A-13
N. Information Sharing with the Government........................................................A-15
1. Section 314(a) Requests from FinCEN...............................................A-15
2. Subpoenas, Warrants & National Security Letters under
Section 314(a)&(b) ..............................................................................A-16
O. Information Sharing Between Financial Institutions .........................................A-16
P. Reporting of Receipt of Currency in Excess of $10,000 – Form 8300.............A-17
Q. OFAC Policy .....................................................................................................A-18
R. Board Conclusion .............................................................................................A-18
Appendix B: Customer Identification Program ...........................................................................B-1
A. General CIP Requirements ................................................................................B-1
B. Applicability of CIP Requirements......................................................................B-2
C. Customer Identification.......................................................................................B-2
D. Customer Verification .........................................................................................B-2
E. Record Retention Specific to CIP.......................................................................B-3
F. CIP Internal Controls ..........................................................................................B-3
Appendix C: Red Flags................................................................................................................B-1
A. FFIEC Guidance.................................................................................................C-1
B. Fannie Mae Guidance ........................................................................................C-3
Appendix D: AML Program Compliance Checklist......................................................................D-1
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BuckleySandler LLP iv
COPYRIGHT
©2016 BuckleySandler LLP. This book is being provided to you with a limited
license for use solely within your organization. This book, its content, and the
link to it may be accessed by up to fifteen (15) members of your organization for
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not be downloaded, reproduced, forwarded, or otherwise distributed in any form
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copyrighted work is subject to criminal and civil penalties under federal law. For
information about extending this license to additional members of your
organization, please contact:
David Upbin
Associate Vice President, Education Operations and Programming, and MBA
Strategy
Mortgage Bankers Association
1919 M Street, NW
Washington, DC 20036
202-557-2931
www.mba.org
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BuckleySandler LLP v
DISCLAIMER
PLEASE TAKE NOTE: These materials have been produced by BuckleySandler
LLP. These materials provide an overview of Anti-Money Laundering (AML)
program requirements and Suspicious Activity Reports (SAR) filing requirements
for non-bank residential mortgage lenders and originators (RMLOs). These
materials are designed to provide the reader with a general overview and
understanding of those requirements as set forth in the Financial Crimes
Enforcement Network’s (FinCEN) Anti-Money Laundering Program and
Suspicious Activity Report Filing Requirements for Residential Mortgage
Lenders and Originators, Final Rule, effective April 16, 2012, along with model
policies and procedures and other materials to help implement the Rule. These
materials are not intended to and do not provide legal advice, and do not create
an attorney-client relationship between the recipient of the materials and
BuckleySandler LLP or its attorneys. Provisions of the Rule described herein are,
in many instances, paraphrased, and a careful reading of the Rule and any
formal interpretations thereof may reveal exceptions or different interpretations
that may be applicable to a particular set of facts. The materials are not a
substitute for consultation with qualified legal counsel regarding the manner in
which the laws and regulations referenced herein may be interpreted and applied
to particular facts or to particular business models. These materials are for
informational and educational purposes only. These materials are not a
solicitation and should not be construed as such.
MBA is not responsible for the content of these materials.
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MBA Compliance Essentials℠:
Anti-Money Laundering and Suspicious Activity Reports Resource Guide
BuckleySandler LLP vi
AUTHOR BIOGRAPHIES
Jeffrey P. Naimon is a Partner in the Washington, DC office of
BuckleySandler LLP. Mr. Naimon has more than 20 years of experience
assisting banks and other financial services providers with regulatory,
enforcement, transactional, and litigation matters.
Mr. Naimon provides regulatory and enforcement counseling on fair lending
issues, including unfair, deceptive, and abusive acts and practices (UDAAP).
He defends banks and other financial services companies facing regulatory
enforcement matters before the Consumer Financial Protection Bureau
(CFPB), the Office of the Comptroller of the Currency (OCC), the Federal
Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System
(FRB), and state banking and mortgage regulators. Mr. Naimon also provides regulatory advice
on consumer operations and assists in drafting legislative and regulatory advocacy papers on
consumer protection issues.
Mr. Naimon also performs fair lending and other regulatory due diligence on acquisition targets
and outsourcing counterparties to mitigate and/or value possible risk involving loan portfolios or
other lending operations. He also assists companies with structuring acquisition and investment
transactions in the financial services arena to minimize the time necessary to close the
transaction, and assists in obtaining necessary change of control approvals.
Mr. Naimon advises on the entire panoply of banking and consumer finance statutes, including
the Dodd-Frank Act, National Bank Act, Truth in Lending Act, Real Estate Settlement Procedures
Act, Servicemembers Civil Relief Act, Fair Credit Reporting Act, Equal Credit Opportunity Act,
Fair Housing Act, Fair Debt Collection Practices Act, the privacy provisions of the Gramm-Leach-
Bliley Act, and state laws governing lending, servicing, collections, and unfair and deceptive acts
and practices. He has assisted many servicers in the interpretation of the Fannie Mae/Freddie
Mac Uniform Security Instrument.
Mr. Naimon is Co-Chair of the Truth in Lending Subcommittee of the American Bar Association’s
Consumer Financial Services Committee and has authored numerous articles on consumer
financial services. Mr. Naimon received his J.D. from the University of Virginia School of Law and
his B.A. from Yale University (magna cum laude).
* * *
Daniel P. Stipano is a Partner in BuckleySandler’s Washington, DC office
where he brings more than three decades of bank regulatory and enforcement
experience to his position as a partner in BuckleySandler LLP’s Washington
DC office. In his practice he advises on all aspects of bank regulatory and
compliance issues, represents clients in state, federal, and foreign banking
enforcement actions, and provides assistance in establishing, maintaining,
and monitoring Bank Secrecy Act and Anti-Money Laundering (BSA/AML)
compliance programs.
Prior to joining the firm, Mr. Stipano was at the Office of the Comptroller of the
Currency (OCC), where he served as Deputy Chief Counsel for 16 years, after joining the agency
as a staff attorney 30 years ago. In his role as Deputy Chief Counsel, including serving two stints
as Acting Chief Counsel, he was extensively involved in every major OCC enforcement action
over the last 20 years up until the time of his departure. In addition, he played a key role in every
major BSA/AML post-USA PATRIOT Act rulemaking and policy issuance.
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BuckleySandler LLP vii
Over the course of his career at the OCC, Mr. Stipano oversaw three Supreme Court cases that
resulted in victories for the agency and the banking industry, supervised more than a dozen
successful appeals of lower court decisions, and was instrumental in bringing the first fair lending
action taken against a bank by a federal banking agency, as well as the first Unfair or Deceptive
Acts or Practices action taken against a bank. Mr. Stipano has testified before Congress six
times on enforcement and BSA/AML matters, and prepared dozens of OCC witnesses to do the
same.
A recognized leader in his field, Mr. Stipano has spoken at more than 100 conferences and
industry events, and over the course of his career has established strong working relationships
with his former colleagues in law enforcement and in other regulatory agencies. He received his
J.D. from the College of William & Mary, and his B.A. from Union College.
*Admitted only in Virginia; supervised by John Kromer.
* * *
James Parkinson is Partner in Residence in the firm’s London office, focuses
on international anti-corruption and financial crimes compliance counseling,
corporate internal investigations, and enforcement defense litigation, often
involving multiple international jurisdictions. He advises on compliance with
the U.S. Foreign Corrupt Practices Act (FCPA), the U.S. sanctions regimes
administered by OFAC, and anti-money laundering regulation pursuant to the
Bank Secrecy Act, and he represents clients in criminal and civil enforcement
actions – both litigated and settled – involving FCPA, extradition, securities
fraud, insider trading, false statements, and environmental issues.
Mr. Parkinson has counseled companies in the financial services (fund management, hedge
funds, insurance, investment banking, retail banking), pharmaceutical, oil and gas, logistics,
petrochemical, technology, retail food service, real estate, energy, manufacturing and power
generation sectors. Mr. Parkinson has also participated in a diverse range of criminal and civil
enforcement defense matters, including two criminal and one civil environmental enforcement
trials and matters involving anti-trust, accounting irregularities, wire fraud, mail fraud, RICO, and
the “material support” statutes.
Mr. Parkinson writes and speaks frequently on anti-corruption and financial crime topics, and has
made in-person presentations in Kiev, Tokyo, Johannesburg, Dubai, Hong Kong, New Delhi,
Singapore, Shanghai, Seoul, London, Brussels, Madrid, and Vancouver, as well as numerous
U.S. cities. He has also served as a visiting lecturer on anti-corruption issues at law schools in
Mexico, Chile and the United States (Universidad Panamericana, University of Chile, and the
Washington College of Law at the American University). He is a member of the City of London
Law Society, the Fraud Lawyer’s Association, the Anti-Corruption Committees of the American
Bar Association (Vice-Chair, 2007-08 term), the International Bar Association and the American
Chamber of Commerce in India, and is an associate-at-large with the Edward Bennett Williams
American Inn of Court. Mr. Parkinson opened the Firm’s London office in 2014.
Prior to joining BuckleySandler, Mr. Parkinson was a partner in the Washington, D.C. office of
Mayer Brown LLP, and was an associate with Beveridge & Diamond PC. Mr. Parkinson received
his J.D. from The American University, Washington College of Law (magna cum laude), where he
served as Senior Editor on the Administrative Law Review. He received an M.S. from the
University of Pennsylvania and a B.A. from Gettysburg College.
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BuckleySandler LLP viii
* * *
Michael F. Zeldin is Special Counsel in BuckleySandler’s Washington, DC,
office where he helps lead the firm’s Anti-Money Laundering and Economic
and Trades Sanctions (AML/ETS) practice. Prior to joining BuckleySandler,
Mr. Zeldin was the global leader of the anti-money laundering/economic and
trade sanctions practice at a Big Four accounting firm.
Mr. Zeldin counsels financial institutions and non-financial companies as well
as individual Board members and senior executives with respect to their
responsibilities under AML and sanctions laws, with a particular focus on the
Bank Secrecy Act (BSA), Title 18 criminal money laundering laws, and Office of Foreign Assets
Control (OFAC). He has served as the Independent Consultant appointed by federal and state
banking regulators on numerous occasions for a wide array of domestic and global financial
institutions. This work also has, in particular occasions, involved federal and state law
enforcement agencies including the United States Department of Justice as well as the
Manhattan District Attorney’s Office.
Mr. Zeldin is experienced in conducting corporate internal investigations, Know Your Customer
(“KYC”) forensic reviews, evaluating, designing and testing compliance programs and policies
relating to the BSA and OFAC, Board and Compliance staff training, as well as due
diligence/enhanced due diligence in relation to mergers and acquisitions, joint ventures, agency
relationships, and key person hires. Mr. Zeldin is called upon as an expert witness on behalf of
private litigants in AML and related matters. In 1997, he testified before the United States House
of Representatives, Committee on the Judiciary Subcommittee on Crime on the topic of
international money laundering. Earlier in his career, Mr. Zeldin served in various leadership
positions in the Criminal Division of the U.S. Department of Justice, including Director of the
Money Laundering and Asset Forfeiture Offices; Special Counsel to the Criminal Division for
money laundering matters. As Special Counsel, he advised the Assistant Attorney General and
the Deputy Attorney General on the drafting of money laundering and asset forfeiture legislation
as well as the implementation of federal money laundering policy. Mr. Zeldin served as Deputy
Majority Counsel for the House Foreign Affairs Committee, October Surprise Task Force in 1992
where he investigated the events surrounding the holding and eventual release of the American
hostages in Iran. Mr. Zeldin later served as the court appointed Independent Counsel charged
with investigating allegations of impropriety by the administration of President George H.W. Bush
with respect to then candidate Bill Clinton’s privacy rights (known as the “Passport Investigation”).
Mr. Zeldin is a board member of the Association of Certified Financial Crimes Specialists, as well
as a member of the American Bar Association and the International Bar Association.
Mr. Zeldin has lectured throughout the U.S. and internationally on financial crime topics. He is an
often quoted subject matter expert and appears frequently as a commentator on network news,
cable television, and radio. He has testified in federal courts and before the United States House
of Representatives.
* * *
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BuckleySandler LLP ix
Amy Davine Kim is Counsel in the Washington, DC office of BuckleySndler
LLP. Her practice focuses on U.S. regulation of financial services and
international business with a focus on BSA/AML compliance and digital
payments. As Counsel in the Washington, DC office of Buckley Sandler LLP,
she advises financial institutions, lenders, money transmitters, payments
innovators, and other clients on matters involving federal and state regulatory
compliance, particularly those involving anti-money laundering (AML) for
banks and non-bank financial institutions regulated under the Bank Secrecy
Act (BSA) and by the Financial Crimes Enforcement Network (FinCEN) and
the Office of Foreign Assets Control (OFAC).
Ms. Kim advises banks on all aspects of BSA/AML compliance, including customer identification
programs, customer due diligence, review of potentially suspicious activities, preparing for
examinations, responding to matters identified during examinations, and other strategic
considerations involved in implementing and maintaining a BSA/AML program. She has also
counseled clients on navigating the constantly changing landscape of sanctions compliance,
assisting financial institutions as well as U.S. and non-U.S. businesses in assessing compliance
obligations and restrictions on commerce.
Ms. Kim has a particular focus on payments matters involving money services businesses
(MSBs) and loan and finance companies, both in helping banks assess risks and risk mitigation
when providing services to these customers, as well as advising payments innovators, MSBs and
loan and finance companies on their compliance obligations under the BSA and state money
transmitter laws. Where state money transmitter licensing obligations are implicated, she assists
companies in assessing licensing requirements and exemptions from licensing, outreach to
regulators, maneuvering the licensing process, developing associated compliance programs, and
conducting training.
Ms. Kim regularly speaks and writes on AML and sanctions risks. She received her J.D. from the
University of Notre Dame and her B.A. from Pepperdine University (cum laude).
* * *
Benjamin W. Hutten is an Associate in the New York office of
BuckleySandler LLP. He provides regulatory and compliance counsel, as well
as internal investigative and enforcement defense services, to foreign and
domestic financial institutions regarding federal and state financial services
issues.
Mr. Hutten has a deep understanding of AML and sanctions regulations and
enforcement. In addition to his client work he has participated in numerous
financial industry group regulatory initiatives related to sanctions and AML
issues, including The Clearing House Guiding Principles for Anti-Money
Laundering Policies and Procedures in Correspondent Banking, initiatives to address “de-risking,”
and initiatives related to information sharing.
His experience includes:
 Representing numerous financial institutions in cross-border, multiagency criminal and
regulatory investigations into past compliance with U.S. sanctions
 Drafting a global U.S. sanctions compliance program for a global systemically important
banking organization
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BuckleySandler LLP x
 Advising foreign and domestic financial institutions in public and non-public regulatory
examinations and enforcement actions by the Federal Reserve, OCC, and New York
State Department of Financial Services
 Assisting financial institutions to conduct AML and sanctions-related internal
investigations and look-back reviews
 Advising financial institutions in the areas of sanctions and anti-money laundering, such
as assessing proposed transactions for sanctions compliance, improving compliance
programs to meet regulatory expectations, advising on money services business
licensing requirements and preparing voluntary self-disclosures to the Office of Foreign
Assets Control
Prior to joining BuckleySandler Mr. Hutten was an associate at Sullivan & Cromwell LLP. He
received his J.D. from New York Law School (summa cum laude) and his B.A. from Vassar
College (Phi Beta Kappa).
* * *
Thomas A. Sporkin is a Partner in the Washington, DC office of
BuckleySandler LLP and advises financial institutions on best practices
regarding anti-money laundering policies and procedures. Prior to joining
BuckleySandler LLP in June 2012, Mr. Sporkin served for nearly 20 years in
the Securities and Exchange Commission’s Division of Enforcement,
spending considerable time investigating potential Bank Secrecy Act (BSA)
violations and conducting surveillance using BSA data.
In January 2010, Mr. Sporkin was selected to lead the SEC’s efforts to build
and manage the Office of Market Intelligence, a new office established in the
aftermath of the Madoff fraud to detect unlawful conduct spanning all SEC program areas. In that
role, Mr. Sporkin oversaw the SEC’s BSA review group. By January of 2012, more than half of all
Division of Enforcement investigations were being sourced out of OMI, certain of which arose out
of SAR reviews, including those relating to insider trading, investment schemes, and market
manipulations.
During the time he led the Office of Market Intelligence, Mr. Sporkin took part in leading the
efforts to launch the SEC’s Whistleblower Office and to embed FBI agents within the Enforcement
Division. He also served on the Whistleblower Rule Writing Team, the Consolidated Audit Trail
rule writing team, and the team charged with investigating the causes and effects of the May 6,
2010 Flash Crash.
Before becoming Chief of the Office of Market Intelligence, Mr. Sporkin spent nearly 17 years in
the SEC’s Division of Enforcement, first serving as an investigative attorney and later as a
supervisory attorney, co-managing a staff of 20 enforcement lawyers, leading investigations
involving the Foreign Corrupt Practices Act, financial fraud, insider trading, and market
manipulations.
Mr. Sporkin received his J.D. from American University Washington College of Law and his B.S.
from the University of Maryland.
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BuckleySandler LLP 1
I. INTRODUCTION & REGULATORY OVERVIEW
The Bank Secrecy Act (BSA) and its implementing regulations issued by the Financial Crimes
Enforcement Network (FinCEN) require Non-Bank Residential Mortgage Lenders and Originators
(RMLOs), as a category of “loan or finance company”, to establish Anti-Money Laundering
programs (AML Programs) and to file Suspicious Activity Reports (SAR) when appropriate.1
Who are RMLOs? The consideration is activities-based and applies to residential mortgage
lenders and residential mortgage originators:
(i) Residential mortgage lender. The person to whom the debt arising from a residential
mortgage loan is initially payable on the face of the evidence of indebtedness or, if there
is no such evidence of indebtedness, by agreement, or to whom the obligation is initially
assigned at or immediately after settlement. The term “residential mortgage lender” shall
not include an individual who finances the sale of the individual’s own dwelling or real
property.
(ii) Residential mortgage originator. A person who accepts a residential mortgage loan
application or offers or negotiates terms of a residential mortgage loan.2
In the preamble to the Final Rule, FinCEN explained that it intended “the [RMLO] Final
Rule to cover any business that, on behalf of one or more lenders, accepts a completed
mortgage loan application, even if the business does not in any manner engage in
negotiating the terms of a loan.”3
The RMLO Final Rule also covers “businesses that
offer or negotiate specific loan terms on behalf of either a lender or borrower, regardless
of whether they also accept a mortgage loan application.”4
Historically, these requirements did not extend to RMLOs, but the continual yearly increase in
fraud in the lending process catalyzed the change. Mortgage fraud, in particular, is a crime often
interconnected with other types of money laundering.
FinCEN noted that, based on their analysis of SAR filings, there has been a significant increase in
mortgage fraud during the past several years. As a result of their analytical studies and work with
law enforcement, it became clear to FinCEN that a regulatory gap existed where residential
mortgage lenders and originators were not subject to SAR reporting and other FinCEN
requirements.
5
The Department of Justice acknowledged this gap in its comment on the
Advanced Notice of Proposed Rulemaking leading to the regulation, stating: “The proposal to
require non-bank residential mortgage lenders and originators to file SARs would assist the
Department’s ability to uncover large-scale mortgage fraud schemes and would help to deter
criminal conduct, as criminals may be less likely to risk providing false information to a lender that
1
Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Residential
Mortgage Lenders and Originators, Final Rule, 77 Fed. Reg. 8148 (Feb. 14, 2012) (effective Aug. 2012)
(codified at 31 C.F.R. pts. 1010 and 1029).
2
31 C.F.R. § 1010.100(lll).
3
Mortgage Lenders and Originators, Final Rule, 77 Fed. Reg. 8152 (Feb. 14, 2012) (effective Aug. 2012)
(codified at 31 C.F.R. Parts 1010 and 1029).
4
Id.
5 Prepared Remarks of James H. Freis, Jr., Director, Financial Crimes Enforcement Network, U.S.
Department of the Treasury, Delivered at the Mortgage Bankers Association’s National Fraud Issues
Conference 2012, April 23, 2012.
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has an obligation to report such suspicious conduct.”
6
It is apparent that ongoing mortgage fraud
and its various offshoots are the major drivers of this regulation. Fraud and money laundering
prevention are key goals of these regulations.
Though it is apparent that ongoing mortgage fraud and its various offshoots were major drivers of
this rulemaking, bank secrecy and money laundering prevention remain key goals of the new
regulations. FinCEN believes that mandating BSA/AML compliance programs across RMLOs will
enable these companies to address potential money laundering and bank secrecy issues
previously overlooked and will facilitate increased prevention, detection, and reporting of general
crimes against the treasury.
In light of the weight regulators place on sufficient SAR processes, it is essential that RMLOs
develop systems for their institutions and employees to follow. The AML Program established
must be set forth in writing, known by all employees, and made available to examiners that review
the company. In 2013, Fannie Mae published a document identifying “red flags” to look for at
each stage of the real estate transaction process to raise awareness that the risk of mortgage
fraud and money laundering is always present.7
That document, which is an excellent source of
information, is provided in Appendix B, along with an excerpt from the Federal Financial
Institutions Examination Council (FFIEC) BSA/AML Examination Manual, which likewise provides
a comprehensive list of potential risk factors.8
Being the primary providers of mortgage finance, RMLOs are the first line of defense against
mortgage fraud and money laundering situations. They are normally the first contact with the
potential borrower and, in many cases, are the only ones who ever have face-to-face contact.
Diligence and vigilance by RMLOs at each stage of the loan transaction are essential to detecting
and reporting instances of potential money laundering.
The regulation is limited to residential mortgage lenders and originators, generally known as
“mortgage companies” or “mortgage brokers,” but the definition of “loan or finance company” is
intentionally structured so that the regulations could be extended to other types of non-bank loan
and finance companies in the future. See the discussion of potential for future expansion in the
section “Emerging Trends”. Mortgage servicers are excluded unless they engage in these types
of transactions.
II. BANK SECRECY ACT / ANTI-MONEY LAUNDERING COMPLIANCE
PROGRAM AND SUSPICIOUS ACTIVITY REPORTING
REQUIREMENTS COMPLIANCE PROGRAM REQUIREMENTS
The establishment of an AML Program will aid the RMLO in detecting suspicious activity and
provide the company with a mechanism for reporting such activity. Implementation can
complement anti-fraud and general compliance programs already in place to protect the RMLO’s
business operations. In its preamble to the proposed rules, FinCEN specifically noted that
“[m]any residential mortgage lenders and originators may be able to integrate risk-based AML
reporting programs in a complementary manner that utilizes efficiencies and commonalities and
6
Letter from Gary G. Grindler, Deputy Assistant Attorney General, U.S. Department of Justice, to Financial
Crimes Enforcement Network, Regulatory Policy and Programs Division (Aug. 19, 2009),
http://www.regulations.gov/#!documentDetail;D=FINCEN-2009-0003-0008.
7
Fannie Mae, Common Red Flags: Resources to Help You Combat Mortgage Fraud (Jan. 2013),
https://www.fanniemae.com/content/tool/common-red-flags.pdf.
8
Federal Financial Institutions Examination Council, Bank Secrecy Act / Anti-Money Laundering
Examination Manual (2014),
https://www.ffiec.gov/bsa_aml_infobase/documents/BSA_AML_Man_2014_v2.pdf.
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enhances the effectiveness of a business’s compliance measures.” 9
An AML program should
also include a sanctions compliance component. The U.S. imposes sanctions against persons,
entities, territories, and countries pursuant to the authority of the U.S. Office of Foreign Assets
Control (OFAC).
General AML Requirements for RMLOs
 RMLOs must conduct a risk assessment covering all business lines, products, services,
customers, and geographic locations.
 AML Program itself must be in writing.
 AML Program must be approved by Board of Directors or comparable governance body.
 AML Program must be reviewed / updated annually.
AML Program Minimum Requirements – “Four Pillars”
The AML Program established must, at minimum, embody the “four pillars” identified below:
1. The incorporation of policies, procedures, and internal controls based on the company’s
risk assessment of the money laundering and terrorist financing risks associated with its
products and services into the company’s compliance management system.
2. Appointment of a designated BSA Compliance Officer responsible for ensuring that the
AML Program is implemented effectively and updated as necessary and that the
appropriate people are educated and trained.
3. Ongoing training for appropriate personnel concerning their responsibilities under the
AML Program.
4. Independent testing and audit to monitor and maintain the AML Program.
A. Policies, Procedures, and Internal Controls
1. Risk Assessment
RMLOs should conduct AML and OFAC risk assessments to identify inherent AML and OFAC
risks, taking into consideration a wide variety of factors including geographic locations, products
and services offered, and customer types.
As part of the risk assessment process, inherent risks (products, services, customer types,
geography, etc.) are measured against internal controls in order to establish the Company’s
residual risks. Monitoring these residual risks is the core of the AML/OFAC compliance effort.
The AML and OFAC Risk Assessment will be updated at least annually and may, at the discretion
of the BSA Compliance Officer, be updated as new products and services are identified, mergers
or acquisitions occur, or industry information, trends and alerts emerge. The results of this AML
and OFAC risk assessment along with the AML Program form the foundation of the AML Program
and are utilized to drive key decisions related to developing policies, procedures and processes,
9
Mortgage Lenders and Originators, Proposed Rules, 75 Fed. Reg. 35830 (Jan. 21, 2009),
http://www.gpo.gov/fdsys/pkg/FR-2009-07-21/pdf/E9-17117.pdf.
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ba.org/com
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AML and SAR Resource Guide for Mortgage Lenders

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