By Amy Kleinschmit, Chief Compliance Officer, Dakota Credit Union Association
The Financial Crimes Enforcement Network (FinCEN) recently announced a $390 million enforcement action against a large bank headquartered in McLean, Virginia. FinCEN determined that the bank violated various provisions of the BSA primarily with regards to a particular business unit within the bank, its check cashing group (CCG). The activity leading to this enforcement action occurred from 2008 until 2014.
FinCEN found that the bank willfully failed to establish and maintain an effective anti-money laundering (AML) program to guard against money laundering within the CCG. The bank willfully failed to accurately and timely file suspicious activity reports (SARs) on suspicious transactions associated with the CCG and the bank failed to timely file currency transaction reports (CTRs) for the CCG.
Some of the bank’s issues started with the acquisition of two banks in 2005 and 2006. Prior to the bank’s acquisitions and mergers, federal and state bank regulators identified deficiencies in the AML programs at both banks, including weaknesses in transaction monitoring, suspicious activity identification, and CTR filing. The bank internally acknowledged having significant “residual AML risk attributable to inadequate AML internal controls” following acquisition of the mergers.
The bank’s check cashing group customer base included a range of between approximately 90 and 150 New York and New Jersey area check cashers that usually operated storefront locations and conducted check cashing as their primary business.
The bank’s BSA program included the development of a specialized tool and process unique to the CCG business unit which came to be known as the Large Item Report (LIR). However, in 2010 the bank made a change to the way its transactional data streams were coded for all customers, which caused checks cashed at several CCG customers, including Dependable Check Cashing Corporation (Dependable) and all of Pucillo’s check cashing businesses (despite his status as the highest risk customer in the CCG and among the highest risk customers at CONA overall) to not appear on the LIR until 2013. As a sidenote, in May 2019 Pucillo pleaded guilty to conspiring to commit money laundering in connection to loan sharking and illegal gambling proceeds that flowed through his accounts with the bank as an associate of the Genovese organized crime family.
FinCEN found the bank’s process for investigating suspicious transactions to be weak and resulted in the failure to fully investigate and report suspicious conduct. For example, from at least January 2009 through December 2013, AML analysts repeatedly identified suspicious activity—variously described as “a medical fraud ring,” “excessive corporate check cashing,” “high dollar checks,” and “structured third-party checks”— within at least 30 CCG customers’ accounts. When the AML analysts reached out to the bank’s relationship manager for the CCG businesses, their responses were vague and implausible explanations for CCG activity. The analysts accepted these vague responses and did not perform effective AML scrutiny or file SARs.
Regarding CTRs, the bank failed to properly code cash shipments to CCGs which resulted in approximately 50,000 reportable cash transactions totaling over $16 billion in cash to the CCG over the course of over three years to go unreported to FinCEN.
Reviewing the various enforcement actions from FinCEN can be good resource, i.e. learn from other’s mistakes. For example, if you have software to assist with BSA make sure it is set up correctly, capturing the information/transaction you want reported, and also that it is functioning correctly. A final reminder: If you are the BSA officer and you are investigating an unusual/suspicious transaction and get a vague response from staff, don’t let that be the final answer in your investigation.
IRS - Eligible Paycheck Protection Program expenses now deductible
The Internal Revenue Service (IRS) has issued guidance that allows deductions for the payments of eligible expenses when such payments would result (or be expected to result) in the forgiveness of a loan (covered loan) under the Paycheck Protection Program (PPP). Revenue Ruling 2021-02 reflects changes to law contained in the COVID-related Tax Relief Act of 2020, enacted as part of the Consolidated Appropriations Act, 2021 (Act), Public Law 116-260, which was signed into law on Dec. 27, 2020.
The COVID-related Tax Relief Act of 2020 amended the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to say that no deduction is denied, no tax attribute is reduced, and no basis increase is denied by reason of the exclusion from gross income of the forgiveness of an eligible recipient’s covered loan. This change applies for taxable years ending after March 27, 2020.
Revenue Ruling 2021-02 obsoletes Notice 2020-32 and Revenue Ruling 2020-27. This obsoleted guidance disallowed deductions for the payment of eligible expenses when the payments resulted (or could be expected to result) in forgiveness of a covered loan.
InfoSight Highlight – Updates
Loans and Leasing Channel Updates
Amy Kleinschmit, Chief Compliance Officer
firstname.lastname@example.org | 701-250-3964
As Chief Compliance Officer, Amy peruses vast amounts of proposed rules, final rules, and guidance before summarizing in her weekly “Compliance Update” articles in the Memo. She is the author behind DakCU’s many comment letters, weighing in on issues that have the potential to affect credit unions. She also fields compliance questions; performs BSA reviews and training; reviews North Dakota and South Dakota state-specific content on the dues-supported resource InfoSight; and is the “point” person for AffirmX, DakCU’s compliance solution for credit unions.
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