BSA/AML Examination Manual - ffiec

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BSA/AML Risk Assessment — Overview BSA/AML Risk Assessment — Overview Objective. Assess the BSA/AML risk profile of the bank and evaluate the adequacy of the bank’s BSA/AML risk assessment process. Evaluating the BSA/AML risk assessment should be part of scoping and planning the examination, and the inclusion of a section on risk assessment in the manual does not mean the two processes are separate. Rather, risk assessment has been given its own section to emphasize its importance in the examination process and in the bank’s design of effective risk-based controls. The same risk management principles that the bank uses in traditional operational areas should be applied to assessing and managing BSA/AML risk. A well-developed risk assessment will assist in identifying the bank’s BSA/AML risk profile. Understanding the risk profile enables the bank to apply appropriate risk management processes to the BSA/AML compliance program to mitigate risk. This risk assessment process enables management to better identify and mitigate gaps in the bank’s controls. The risk assessment should provide a comprehensive analysis of the BSA/AML risks in a concise and organized presentation, and should be shared and communicated with all business lines across the bank, board of directors, management, and appropriate staff; as such, it is a sound practice that the risk assessment be reduced to writing. There are many effective methods and formats used in completing a BSA/AML risk assessment; therefore, examiners should not advocate a particular method or format. Bank management should decide the appropriate method or format, based on the bank’s particular risk profile. Whatever format management chooses to use for its risk assessment, it should be easily understood by all appropriate parties. The development of the BSA/AML risk assessment generally involves two steps: first, identify the specific risk categories (i.e., products, services, customers, entities, transactions, and geographic locations) unique to the bank; and second, conduct a more detailed analysis of the data identified to better assess the risk within these categories. In reviewing the risk assessment during the scoping and planning process, the examiner should determine whether management has considered all products, services, customers, entities, transactions, and geographic locations, and whether management’s detailed analysis within these specific risk categories was adequate. If the bank has not developed a risk assessment, this fact should be discussed with management. For the purposes of the examination, whenever the bank has not completed a risk assessment, or the risk assessment is inadequate, the examiner must complete a risk assessment based on available information. 18 Evaluating the Bank’s BSA/AML Risk Assessment An examiner must review the bank’s BSA/AML compliance program with sufficient knowledge of the bank’s BSA/AML risks in order to determine whether the program is 18 Refer to “Examiner Development of a BSA/AML Risk Assessment,” page 25, for guidance. FFIEC BSA/AML Examination Manual 18 8/24/2007
BSA/AML Risk Assessment — Overview adequate and provides the controls necessary to mitigate risks. For example, during the examination scoping and planning process, the examiner may initially determine that the bank has a high-risk profile, but during the examination, the examiner may determine that the bank’s BSA/AML compliance program adequately mitigates these risks. Alternatively, the examiner may initially determine that the bank has a low- or moderate- risk profile; however, during the examination, the examiner may determine that the bank’s BSA/AML compliance program does not adequately mitigate these risks. In evaluating the risk assessment, an examiner should not necessarily take any single indicator as determinative of the existence of a lower or higher BSA/AML risk. The assessment of risk factors is bank-specific, and a conclusion regarding the risk profile should be based on a consideration of all pertinent information. Banks may determine that some factors should be weighed more heavily than others. For example, the number of funds transfers is certainly one factor to be considered in assessing risk; however, in order to effectively identify and weigh the risks, the examiner should look at other factors associated with those funds transfers, such as whether they are international or domestic, the dollar amounts involved, and the nature of the customer relationships. Identification of Specific Risk Categories The first step of the risk assessment process is to identify the specific products, services, customers, entities, and geographic locations unique to the bank. Although attempts to launder money, finance terrorism, or conduct other illegal activities through a bank can emanate from many different sources, certain products, services, customers, entities, and geographic locations may be more vulnerable or have been historically abused by money launderers and criminals. Depending on the specific characteristics of the particular product, service, or customer, the risks are not always the same. Various factors, such as the number and volume of transactions, geographic locations, and nature of the customer relationships, should be considered when the bank prepares its risk assessment. The differences in the way a bank interacts with the customer (face-to-face contact versus electronic banking) also should be considered. Because of these factors, risks will vary from one bank to another. In reviewing the bank’s risk assessment, examiners should determine whether management has developed an accurate risk assessment that identifies the significant risks to the bank. The expanded sections in this manual provide guidance and discussions on specific lines of business, products, and customers that may present unique challenges and exposures for which banks may need to institute appropriate policies, procedures, and processes. Absent appropriate controls, these lines of business, products, or customers could elevate aggregate BSA/AML risks. The examiner should expect the bank’s ongoing risk assessment process to address the varying degrees of risk associated with its products, services, customers, entities, and geographic locations, as applicable. Products and Services Certain products and services offered by banks may pose a higher risk of money laundering or terrorist financing depending on the nature of the specific product or service offered. Such products and services may facilitate a higher degree of anonymity, FFIEC BSA/AML Examination Manual 19 8/24/2007
Page 1 and 2: Bank Secrecy Act / Anti-Money Laund
Page 3 and 4: Table of Contents EXPANDED EXAMINAT
Page 5 and 6: INTRODUCTION Introduction This Fede
Page 7 and 8: Background Introduction In 1970, Co
Page 9 and 10: Introduction institutions, such as
Page 11 and 12: Introduction proliferation of weapo
Page 13 and 14: Introduction Although the motivatio
Page 15 and 16: Scoping and Planning — Overview C
Page 17 and 18: Scoping and Planning — Overview T
Page 19 and 20: Scoping and Planning — Examinatio
Page 21: Scoping and Planning — Examinatio
Page 25 and 26: BSA/AML Risk Assessment — Overvie
Page 27 and 28: Analysis of Specific Risk Categorie
Page 29 and 30: BSA/AML Risk Assessment — Overvie
Page 31 and 32: BSA/AML Risk Assessment — Examina
Page 33 and 34: BSA/AML Compliance Program — Over
Page 39 and 40: BSA/AML Compliance Program — Exam
Page 45 and 46: Developing Conclusions and Finalizi
Page 47 and 48: Developing Conclusions and Finalizi
Page 49 and 50: Customer Identification Program —
Page 51 and 52: Customer Information Required Custo
Page 57 and 58: Transaction Testing Customer Identi
Page 61 and 62: Customer Due Diligence — Overview
Page 63 and 64: Customer Due Diligence — Examinat
Page 65 and 66: Suspicious Activity Reporting — O
Page 67 and 68: Suspicious Activity Reporting — O
Page 69 and 70: Law Enforcement Inquiries and Reque
Page 71 and 72: Timing of a SAR Filing Suspicious A
Page 73 and 74:
Suspicious Activity Reporting — O
Page 75 and 76:
Suspicious Activity Reporting — O
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Suspicious Activity Reporting — E
Page 79 and 80:
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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Page 103 and 104:
Funds Transfers Recordkeeping — O
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Funds Transfers Recordkeeping — O
Page 107 and 108:
Responsibilities of Beneficiary’s
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Funds Transfers Recordkeeping — E
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Foreign Correspondent Account Recor
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Page 119 and 120:
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Private Banking Due Diligence Progr
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Special Measures — Overview minim
Page 135 and 136:
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:
Page 149 and 150:
Page 151 and 152:
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Enterprise-Wide BSA/AML Compliance
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Page 159 and 160:
Corporate management. Enterprise-Wi
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Foreign Branches and Offices of U.S
Page 163 and 164:
Page 165 and 166:
Page 167 and 168:
Examination Procedures Parallel Ban
Page 169 and 170:
Correspondent Accounts (Domestic)
Page 171 and 172:
Page 173 and 174:
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
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Funds Transfers — Overview and on
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Funds Transfers — Overview busine
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Examination Procedures Funds Transf
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Automated Clearing House Transactio
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Page 207 and 208:
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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:
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
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• Expected account activity, incl
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Privately Owned ATMs — Examinatio
Page 229 and 230:
Nondeposit Investment Products —
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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
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Concentration Accounts — Overview
Page 241 and 242:
Concentration Accounts — Examinat
Page 243 and 244:
Lending Activities — Overview bus
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Trade Finance Activities — Overvi
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Risk Mitigation Trade Finance Activ
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Trade Finance Activities — Overvi
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Private Banking — Overview Privat
Page 253 and 254:
Customer Risk Assessment Private Ba
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Private Banking — Overview determ
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Offshore entities. Cash-intensive b
Page 259 and 260:
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
Page 265 and 266:
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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Page 309 and 310:
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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,
Page 391 and 392:
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
Page 405:
U United Nations, 7, 137 Updating O
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