Section 6, FinCEN & USA PATRIOT Act

What is FinCEN and its mission?

FinCEN (Financial Crimes Enforcement Network) is a bureau of the U.S. Treasury that safeguards the financial system from illicit use, combats money laundering, and promotes national security through financial intelligence collection and analysis.

Under what statute does FinCEN exercise regulatory functions?

The Bank Secrecy Act (BSA), the federal anti-money laundering and counter-terrorism statute.

What is Money Laundering?

The acceptance of large amounts of cash from individuals or businesses where the money is suspected of being used for illegal purposes, such as drug trafficking, fraud, or terrorism.

What are the required components of a financial firm’s Anti-Money Laundering (AML) program?

Policies and procedures to detect suspicious activity, compliance with BSA, compliance testing, a designated AML Compliance Officer, and ongoing personnel training.

What are the three stages of money laundering?

1. Placement (cash enters the financial system)

2. Layering (funds moved into other accounts)

3. Integration (funds reintroduced into the economy to purchase legitimate assets).

When must a Currency Transaction Report (CTR) be filed?

For transactions involving currency over $10,000 for one person in a single business day.

What information must be collected for wire transfers of $3,000 or more?

Name and address of transmitter and recipient, recipient's financial institution, account number, and amount; must verify identity if not an established customer.

What are the customer identification requirements under the Money Laundering Abatement Act?

Verify identity within 5 business days, maintain customer identity records, confirm the customer is not on terrorist or embargoed lists (OFAC/SDNs).

What is a Suspicious Activity Report (SAR) and when must it be filed?

A report for transactions of $5,000 or more involving suspected illegal activity, evasion of regulations, or no apparent lawful purpose; must be filed within 30 days.

What are some examples of suspicious activity?

Lack of concern for risk or losses, frequent trading, strange fund transfer requests, repeated journal entries between unrelated accounts.

What are the consequences of failing to report money laundering?

Termination of employment, fines, criminal prosecution, and imprisonment.

What is the USA PATRIOT Act?

A law to deter, detect, and prevent terrorism, update laws for new threats/technology, increase penalties for terrorist crimes, and require collection of basic customer info including SSN/Tax ID.

What is the Federal Trade Commission (FTC) Red Flags Rule?

Requires businesses to implement a written Identity Theft Prevention Program to detect warning signs (red flags) of identity theft.

What are common categories of red flags in accounts?

1) Alerts/notifications from credit reporting agencies,

2) Suspicious documents,

3) Suspicious personal identifying info (e.g., address change),

4) Unusual use of the account,

5) Notifications from customers or law enforcement regarding possible identity theft.

FinCEN

Financial Crimes Enforcement Network, a bureau of the U.S. Treasury that combats money laundering and protects the financial system.

Bank Secrecy Act (BSA)

Federal law that requires financial institutions to help detect and prevent money laundering.

Money Laundering

The process of concealing the origins of illegally obtained funds through placement, layering, and integration.

AML Program

Anti-Money Laundering program with policies, procedures, compliance officer, training, and testing to detect and prevent money laundering.

Currency Transaction Report (CTR)

Report filed by financial firms for cash transactions exceeding $10,000 in one business day.

Suspicious Activity Report (SAR)

Report filed when transactions of $5,000 or more are suspected of illegal activity, evasion, or no apparent lawful purpose.

USA PATRIOT Act

Law to prevent terrorism, enhance inter-agency cooperation, increase penalties, and require customer identification information.

FTC Red Flags Rule

Requires businesses to detect warning signs of identity theft through a written Identity Theft Prevention Program.

Specially Designated Nationals (SDNs)

Individuals or entities on terrorist or embargoed lists maintained by the Office of Foreign Assets Control (OFAC).

Placement Stage

First stage of money laundering where cash enters the financial system.

Layering Stage

Second stage of money laundering where funds are moved into other accounts to obscure origins.

Integration Stage

Final stage of money laundering where illicit funds are reintroduced into the economy as legitimate assets.