Risk Management Manual of Examination Policies - FDIC

BANK SECRECY ACT, ANTI-MONEY LAUNDERING,
AND OFFICE OF FOREIGN ASSETS CONTROL
paper trail for law enforcement to investigate money
laundering schemes and other illegal activities.
Industry best practices dictate that domestic institutions
should encourage all foreign countries to attach the identity
of the originator to wire information as it travels to the U.S.
and to other countries. Furthermore, the financial
institution sending or receiving the wire cannot ensure
adequate OFAC verification if they do not have all of the
appropriate originator and beneficiary information on wire
transfers.
Necessary Due Diligence on Wire Transfer Customers
To comply with these standards and regulations, a financial
institution needs to know its customers. The ability to
trace funds and identify suspicious and unusual
transactions hinges on retaining information and a strong
knowledge of the customer developed through
comprehensive CDD procedures. Financial institution
personnel must know the identity and business of the
customer on whose behalf wire transfers are sent and
received. Wire room personnel must be trained to identify
suspicious or unusual wire activities and have a strong
understanding of the bank’s OFAC monitoring and
reporting procedures.
Review and monitoring activity should also take place
subsequent to sending or receiving wires to further aid in
identification of suspicious transactions. Reviewers should
look for:
• Unusual wire transfer activity patterns;
• Transfers to and from high-risk countries; or
• Any of the “red flags” relating to wire transfers (refer
to the “Identification of Suspicious Transactions”
discussion included within this chapter.)
Risks Associated with Wire Transfers Sent with “Pay
Upon Proper Identification” Instructions
Financial institutions should also be particularly cautious
of wire transfers sent or received with “Pay Upon Proper
Identification” (PUPID) instructions. PUPID transactions
allow the wire transfer originator to send funds to a
financial institution location where an individual or
business does not have an account relationship. Since the
funds receiver does not have an account at the financial
institution, he/she must show prior identification to pick up
the funds, hence the term PUPID. These transactions can
be legitimate, but pose a higher than normal money
laundering risk.
Electronic Banking
Section 8.1
Electronic banking (E-Banking) consists of electronic
access (through direct personal computer connection, the
Internet, or other means) to financial institution services,
such as opening deposit accounts, applying for loans, and
conducting transactions. E-banking risks are not as
significant at financial institutions that have a stand-alone
“information only” website with no transactional or
application capabilities. Many financial institutions offer a
variety of E-banking services and it is very common to
obtain a credit card, car loan, or mortgage loan on the
Internet without ever meeting face-to-face with a financial
institution representative.
The financial institution should have established policies
and procedures for authenticating new customers obtained
through E-banking channels. Customer identification
policies and procedures should meet the minimum
requirements of the USA PATRIOT Act and be sufficient
to cover the additional risks related to customers opening
accounts electronically. New account applications
submitted over the Internet increase the difficulty of
verifying the application information. Many financial
institutions choose to require the prospective customer to
come into an office or branch to complete the account
opening process, while others will not. If a financial
institution completes the entire application process over the
Internet, it should consider using third-party databases or
vendors to provide:
• Positive verification, which ensures that material
information provided by an applicant matches
information from third-party sources;
• Negative verification, which ensures that information
provided is not linked to previous fraudulent activity;
and
• Logical verification, which ensures that the
information is logically consistent.
In addition to initial verification, a financial institution
must also authenticate the customer’s identity each time an
attempt is made to access his/her private information or to
conduct a transaction over the Internet. The authentication
methods involve confirming one or more of these three
factors:
• Information only the user should know, such as a
password or personal identification number (PIN);
• An object the user possesses, such as an automatic
teller machine (ATM) card, smart card, or token; or
• Something physical of the user, such as a biometric
characteristic like a fingerprint or iris pattern.
Bank Secrecy Act (12-04) 8.1-30 DSC Risk Management Manual of Examination Policies
Federal Deposit Insurance Corporation