Risk Management Manual of Examination Policies - FDIC

BANK SECRECY ACT, ANTI-MONEY LAUNDERING,
AND OFFICE OF FOREIGN ASSETS CONTROL
Financial institutions use two wire transfer systems in the
U.S., the Fedwire and the Clearing House Interbank
Payments System (CHIPS). A telecommunications
network, the Society for Worldwide Interbank Financial
Telecommunications (SWIFT), is often used to send
messages with international wire transfers.
Fedwire transactions are governed by the Uniform
Commercial Code Article 4a and the Federal Reserve
Board’s Regulation J. These laws primarily facilitate
business conduct for electronic funds transfers; however,
financial institutions must ensure they are using procedures
for identification and reporting of suspicious and unusual
transactions.
Wire Transfer Money Laundering Risks
Although wire systems are used in many legitimate ways,
most money launderers use wire transfers to aggregate
funds from different sources and move them through
accounts at different banks until their origin cannot be
traced. Money laundering schemes uncovered by law
enforcement agencies show that money launderers
aggregate funds from multiple accounts at the same
financial institution, wire those funds to accounts held at
other U.S. financial institutions, consolidate funds from
these larger accounts, and ultimately wire the funds to
offshore accounts in countries where laws are designed to
facilitate secrecy. In some cases the monies are then sent
back into the U.S. with the appearance of being legitimate
funds.
It can be challenging for financial institutions to identify
suspicious transactions due to the:
• Large number of wire transactions that occur in any
given day;
• Size of wire transactions;
• Speed at which transactions move and settle; and
• Weaknesses in identifying the customers (originators
and/or beneficiaries) of such transactions at the
sending or receiving banks.
A money launderer will often try to make wire transfers
appear to be for a legitimate purpose, or may use “shell
companies” (corporations that exist only on paper, similar
to shell banks discussed above in the section entitled
“Foreign Correspondent Banking Relationships”), often
chartered in another country. Money launderers usually
look for legitimate businesses with high cash sales and high
turnover to serve as a front company.
Mitigation of Wire Transfer Money Laundering Risks
Section 8.1
Familiarity with the customer and type of business enables
the financial institution to more accurately analyze
transactions and thereby identify unusual wire transfer
activity. With appropriate CDD policies and procedures,
financial institutions should have some expectation of the
type and volume of activity in accounts, especially if the
account belongs to a high-risk entity or the customer uses
higher-risk products or services. Consideration should be
given to the following items in arriving at this expectation:
• Type and size of business;
• Customer’s stated explanation for activity;
• Historical customer activity; and
• Activity of other customers in the same line of
business.
Wire Transfer Recordkeeping Requirements
BSA recordkeeping rules require the retention of certain
information for funds transfers and the transmittal of funds.
Basic recordkeeping requirements are established in 31
CFR 103.33 and require the maintenance of the following
records on all wire transfers originated over $3,000:
• Name and address of the originator,
• Amount of the payment order,
• Execution date of the payment order,
• Payment instructions received from the originator,
• Identity of the beneficiary’s financial institution, and
• As many of the following items that are received with
the transfer order:
o Name and address of the beneficiary,
o Account number of the beneficiary, and
o Any other specific identifier of the beneficiary.
In addition, as either an intermediary bank or a beneficiary
bank, the financial institution must retain a complete record
of the payment order. Furthermore, the $3,000 minimum
limit for retention of this information does not mean that
wire transfers under this amount should not be reviewed or
monitored for unusual activity.
Funds Transfer Record Keeping and
Travel Rule Regulations
Along with the BSA recordkeeping rules, the Funds
Transfer Recordkeeping and Travel Rule Regulations
became effective in May of 1996. The regulations call for
standard recordkeeping requirements to ensure all
institutions are obtaining and maintaining the same
information on all wire transfers of $3,000 or more. Like
the BSA recordkeeping requirements, these additional
recordkeeping requirements were put in place to create a
DSC Risk Management Manual of Examination Policies 8.1-29 Bank Secrecy Act (12-04)
Federal Deposit Insurance Corporation