BSA/AML Examination Manual - ffiec

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CHIPS Funds Transfers — Overview CHIPS is a privately operated, real-time, multilateral payments system typically used for large-dollar payments. CHIPS is owned by banks, and any banking organization with a regulated U.S. presence may become a participant in the system. Banks use CHIPS for the settlement of both interbank and customer transactions, including, for example, payments associated with commercial transactions, bank loans, and securities transactions. CHIPS also plays a large role in the settlement of USD payments related to international transactions, such as foreign exchange, international commercial transactions, and off-shore investments. Continuous Linked Settlement (CLS) Bank CLS Bank is a private-sector, special-purpose bank that settles simultaneously both payment obligations that arise from a single foreign exchange transaction. The CLS payment-versus-payment settlement model ensures that one payment segment of a foreign exchange transaction is settled if and only if the corresponding payment segment is also settled, eliminating the foreign exchange settlement risk that arises when each segment of the foreign exchange transaction is settled separately. CLS is owned by global financial institutions through shareholdings in CLS Group Holdings AG, a Swiss company that is the ultimate holding company for CLS Bank. CLS Bank currently settles payment instructions for foreign exchange transactions in the following currencies: Australian dollar, Canadian dollar, Danish krone, euro, Hong Kong dollar, Japanese yen, New Zealand dollar, Norwegian krone, Singapore dollar, South African rand, South Korean won, Swedish krona, Swiss franc, UK pound sterling, and U.S. dollar, and is expected to add more currencies over time. SWIFT The SWIFT network is a messaging infrastructure, 166 not a payments system, that provides users with a private international communications link among themselves. The actual funds movements (payments) are completed through correspondent bank relationships, Fedwire, or CHIPS. Movement of payments denominated in foreign currencies occur through correspondent bank relationships or over funds transfer systems in the relevant country. In addition to customer and bank funds transfers, SWIFT is used to transmit foreign exchange confirmations, debit and credit entry confirmations, statements, collections, and documentary credits. Informal Value Transfer Systems An informal value transfer system (IVTS) (e.g., hawalas) is a term used to describe a currency or value transfer system that operates informally to transfer money as a 166 The Wolfsberg Group and The Clearing House Association LLC have issued a statement endorsing message standards to enhance the transparency of international funds transfers to promote the effectiveness of global AML and anti-terrorist financing programs. Refer to Wolfsberg, Clearing House Statement on Payment Message Standards, April 2007. FFIEC BSA/AML Examination Manual 194 8/24/2007
Funds Transfers — Overview business. 167 In countries lacking a stable financial sector or with large areas not served by formal banks, IVTS may be the only method for conducting financial transactions. Persons living in the United States may also use IVTS to transfer funds to their home countries. Payable Upon Proper Identification Transactions One type of funds transfer transaction that carries particular risk is the payable upon proper identification (PUPID) service. PUPID transactions are funds transfers for which there is no specific account to deposit the funds into and the beneficiary of the funds is not a bank customer. For example, an individual may transfer funds to a relative or an individual who does not have an account relationship with the bank that receives the funds transfer. In this case, the beneficiary bank may place the incoming funds into a suspense account and ultimately release the funds when the individual provides proof of identity. Risk Factors Funds transfers may present a heightened degree of risk, depending on such factors as the number and dollar volume of transactions, geographic location of originators and beneficiaries, and whether the originator or beneficiary is a bank customer. The size and complexity of a bank’s operation and the origin and destination of the funds being transferred will determine which type of funds transfer system the bank uses. The vast majority of funds transfer instructions are conducted electronically; however, examiners need to be mindful that physical instructions may be transmitted by other informal methods, as described earlier. IVTS pose a heightened concern because they are able to circumvent the formal system. The lack of recordkeeping requirements coupled with the lack of identification of the IVTS participants may attract money launderers and terrorists. IVTS also pose heightened BSA/AML concerns because they can evade internal controls and monitoring oversight established in the formal banking environment. Principals that operate IVTS frequently use banks to settle accounts. The risks of PUPID transactions to the beneficiary bank are similar to other activities in which the bank does business with noncustomers. However, the risks are heightened in PUPID transactions if the bank allows a noncustomer to access the funds transfer system by providing minimal or no identifying information. Banks that allow noncustomers to transfer funds using the PUPID service pose significant risk to both the originating and 167 Sources of information on IVTS include: • FinCEN Advisory 33, Informal Value Transfer Systems, March 2003. • U.S. Treasury Informal Value Transfer Systems Report to the Congress in Accordance with Section 359 of the Patriot Act, November 2002. • Financial Action Task Force on Money Laundering (FATF), Interpretative Note to Special Recommendation VI: Alternative Remittance, June 2003. • FATF, Combating the Abuse of Alternative Remittance Systems, International Best Practices, October 2002. FFIEC BSA/AML Examination Manual 195 8/24/2007
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Bank Secrecy Act / Anti-Money Laund
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Table of Contents EXPANDED EXAMINAT
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INTRODUCTION Introduction This Fede
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Background Introduction In 1970, Co
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Introduction institutions, such as
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Introduction proliferation of weapo
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Introduction Although the motivatio
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Scoping and Planning — Overview C
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Scoping and Planning — Overview T
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Scoping and Planning — Examinatio
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Scoping and Planning — Examinatio
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BSA/AML Risk Assessment — Overvie
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Analysis of Specific Risk Categorie
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BSA/AML Risk Assessment — Examina
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BSA/AML Compliance Program — Over
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BSA/AML Compliance Program — Exam
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Developing Conclusions and Finalizi
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Developing Conclusions and Finalizi
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Customer Identification Program —
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Customer Information Required Custo
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Transaction Testing Customer Identi
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Customer Due Diligence — Overview
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Customer Due Diligence — Examinat
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Suspicious Activity Reporting — O
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Law Enforcement Inquiries and Reque
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Timing of a SAR Filing Suspicious A
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Suspicious Activity Reporting — E
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Suspicious Activity Reporting — E
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Currency Transaction Reporting —
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Currency Transaction Reporting —
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Currency Transaction Reporting Exem
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• Operating a pawn brokerage. Cur
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Currency Transaction Reporting Exem
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Information Sharing — Overview In
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Information Sharing — Overview su
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Information Sharing — Overview es
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Copies of section 314(a) requests.
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Purchase and Sale of Monetary Instr
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Funds Transfers Recordkeeping — O
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Funds Transfers Recordkeeping — O
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Responsibilities of Beneficiary’s
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Funds Transfers Recordkeeping — E
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Foreign Correspondent Account Recor
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Private Banking Due Diligence Progr
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Special Measures — Overview minim
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Examination Procedures Special Meas
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Foreign Bank and Financial Accounts
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International Transportation of Cur
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Office of Foreign Assets Control
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Page 147 and 148: Office of Foreign Assets Control
Page 153 and 154: Enterprise-Wide BSA/AML Compliance
Page 159 and 160: Corporate management. Enterprise-Wi
Page 161 and 162: Foreign Branches and Offices of U.S
Page 167 and 168: Examination Procedures Parallel Ban
Page 169 and 170: Correspondent Accounts (Domestic)
Page 175 and 176: Correspondent Accounts (Foreign)
Page 177 and 178: Correspondent Accounts (Foreign)
Page 179 and 180: U.S. Dollar Drafts — Overview U.S
Page 181 and 182: U.S. Dollar Drafts — Examination
Page 183 and 184: Payable Through Accounts — Overvi
Page 185 and 186: Payable Through Accounts — Examin
Page 187 and 188: Payable Through Accounts — Examin
Page 189 and 190: Risk Mitigation Pouch Activities
Page 191 and 192: Pouch Activities — Examination Pr
Page 193 and 194: Electronic Banking — Overview lin
Page 195 and 196: Examination Procedures Electronic B
Page 197: Funds Transfers — Overview and on
Page 201 and 202: Examination Procedures Funds Transf
Page 203 and 204: Automated Clearing House Transactio
Page 209 and 210: Transaction Testing Automated Clear
Page 211 and 212: Electronic Cash — Overview Using
Page 213 and 214: Third-Party Payment Processors —
Page 215 and 216: Third-Party Payment Processors —
Page 217 and 218: Purchase and Sale of Monetary Instr
Page 219 and 220: Brokered Deposits — Overview Brok
Page 221 and 222: Examination Procedures Brokered Dep
Page 223 and 224: Privately Owned Automated Teller Ma
Page 225 and 226: • Expected account activity, incl
Page 227 and 228: Privately Owned ATMs — Examinatio
Page 229 and 230: Nondeposit Investment Products —
Page 231 and 232: Nondeposit Investment Products —
Page 233 and 234: − Holdings in excess of the custo
Page 235 and 236: Insurance — Overview its insuranc
Page 237 and 238: Examination Procedures Insurance In
Page 239 and 240: Concentration Accounts — Overview
Page 241 and 242: Concentration Accounts — Examinat
Page 243 and 244: Lending Activities — Overview bus
Page 245 and 246: Trade Finance Activities — Overvi
Page 247 and 248: Risk Mitigation Trade Finance Activ
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Trade Finance Activities — Overvi
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Private Banking — Overview Privat
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Customer Risk Assessment Private Ba
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Private Banking — Overview determ
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Offshore entities. Cash-intensive b
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Trust and Asset Management Services
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• The type of trust or agency acc
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Transaction Testing Trust and Asset
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Nonresident Aliens and Foreign Indi
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Nonresident Aliens and Foreign Indi
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Politically Exposed Persons — Ove
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Politically Exposed Persons — Ove
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Politically Exposed Persons — Exa
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Embassy and Foreign Consulate Accou
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Embassy and Foreign Consulate Accou
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Non-Bank Financial Institutions —
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Professional Service Providers —
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Professional Service Providers —
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Non-Governmental Organizations and
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Non-Governmental Organizations and
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Business Entities (Domestic and For
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Risk Factors Business Entities (Dom
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Cash-Intensive Businesses — Overv
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Appendix A: BSA Laws and Regulation
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Appendix B: BSA/AML Directives Appe
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Web Sites Appendix C: BSA/AML Refer
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Appendix C: BSA/AML References •
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Appendix D: Statutory Definition of
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Appendix E: International Organizat
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Appendix F: Money Laundering and Te
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Privately Owned Automated Teller Ma
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Funds Transfers Appendix F: Money L
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Appendix G: Structuring However, tw
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Appendix H: Request Letter Items (C
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Expanded Examination Procedures App
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Parallel Banking _ List any paralle
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Appendix I: Risk Assessment Link to
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Appendix J: Quantity of Risk Matrix
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Appendix K: Customer Risk versus Du
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When did the suspicious activity ta
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Low No history of OFAC actions. No
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Appendix O: Examiner Tools for Tran
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Appendix O: Examiner Tools for Tran
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Signature Cards Appendix P: BSA Rec
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Name and address of the beneficiary
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Appendix P: BSA Record Retention Re
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Acronym or abbreviation Full name E
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Acronym or abbreviation Full name N
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Appendix R: Enforcement Guidance Ap
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Appendix R: Enforcement Guidance As
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Appendix R: Enforcement Guidance ex
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Appendix R: Enforcement Guidance FF
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Backfiling. See Currency Transactio
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overview, 165-167 request letter it
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money services businesses, 279 nond
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Export Administration Act of 1979,
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Index 314(a) record searches, 88 Cu
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Index for a BSA/AML compliance prog
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guidance on providing banking servi
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247, 253, H-15 Offshore Financial C
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trade finance activities, H-14 trus
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enterprise-wide, 149-150, 152, 153
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U United Nations, 7, 137 Updating O
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