Risk Management Manual of Examination Policies - FDIC

BANK SECRECY ACT, ANTI-MONEY LAUNDERING,
AND OFFICE OF FOREIGN ASSETS CONTROL
into the banking system and may be used by money
launderers for that purpose.
Investment management services have many similar
characteristics to trust accounts. The accounts may be
discretionary or nondiscretionary. Transactions from
clients through a private banking department relationship
manager should be properly documented and able to be
independently verified. The portfolio manager should also
document the investment objectives.
Custodial services offered to private banking customers
include securities safekeeping, receipts and disbursements
of dividends and interest, recordkeeping, and accounting.
Custody relationships can be established in many ways,
including referrals from other departments in the financial
institution or from outside investment advisors. The
customer, or designated financial advisor, retains full
control of the investment management of the property
subject to the custodianship. Sales and purchases of assets
are made by instruction from the customer, and cash
disbursements are prearranged or as instructed, again by
the customer. In this case, it is important for the financial
institution to know the customer. Procedures for proper
administration should be established and reviewed
frequently.
Numbered Accounts
A numbered account, also known as a pseudonym account,
is opened not under an individual or corporate name, but
under an assigned number or pseudonym. These types of
numbered accounts are typically services offered in the
private banking department or the trust department, but
they can be offered anywhere in the institution.
Numbered accounts present some distinct customer
advantages when it comes to privacy. First, all of the
computerized information is recorded using the number or
pseudonym, not the customer’s real name. This means that
tellers, wire personnel, and various employees do not know
the true identity of the customer. Furthermore, it protects
the customer against identity theft. If electronic financial
records are stolen, the number or pseudonym will not
provide personal information. Statements and any
documentation would simply show the number, not the
customer’s true name or social security number.
However, numbered accounts offered by U.S. financial
institutions must still meet the requirements of the BSA
and specific customer identification and minimum due
diligence documentation should be obtained. Account
opening personnel must adequately document the customer
due diligence performed, and access to this information
Section 8.1
must be provided to employees reviewing transactions for
suspicious activity.
If the financial institution chooses to use numbered
accounts, they must ensure that proper procedures are in
place. Here are some minimum standards for numbered or
pseudonym accounts:
• The BSA Officer should ensure that all required CIP
information is obtained and well documented. The
documentation should be readily available to
regulators upon request.
• Management should ensure that adequate suspicious
activity review procedures are in place. These
accounts are considered to be high risk, and, as such,
should have enhanced scrutiny. In order to properly
monitor for unusual or suspicious activities, the
person(s) responsible for monitoring these accounts
must have the identity of the customer revealed to
them. All transactions for these accounts should be
reviewed at least once a month or more frequently.
• The financial institution’s system for performing
OFAC reviews, Section 314(a) Requests, or any other
inquiries on its customer databases, must be able to
check the actual names and relevant information of
these individuals. Typically the software will screen
just the account name on the trial balance.
Consequently, if the name is not on the trial balance,
then it could be overlooked in this process.
Management should thoroughly document how it will
handle such situations, as well as each review that is
performed.
Examiners should include the fact that the financial
institution’s policy allows for numbered accounts on the
“Confidential – Supervisory Section” page of the Report of
Examination. Given the high risk nature of this account
type, examiners should review them at every examination
to ensure that management is adequately handling these
accounts.
Pouch Activities
Pouch activities involve the use of a common carrier to
transport currency, monetary instruments, and other
documents usually from outside the U.S. to a domestic
bank account. Pouches can originate from an individual or
another financial institution and can contain any kind of
document, including all forms of bank transactions such as
demand deposits and loan payments. The contents of the
pouch are not always subject to search while in transport,
and considerable reliance is placed on the financial
institution’s internal control systems designed to account
DSC Risk Management Manual of Examination Policies 8.1-27 Bank Secrecy Act (12-04)
Federal Deposit Insurance Corporation