Compliance Update with Amy K

​NCUA and IRS webinar on VITA; “Ask the Regulators” webinar for commercial real estate loan accommodations; a FinCEN advisory on payroll tax evasion, and more. 

NCUA Webinar - Volunteer Income Tax Assistance Program
The National Credit Union Administration (NCUA) and IRS will be co-hosting a free webinar “Make a Difference in Your Community by Participating in the IRS Volunteer Income Tax Assistance (VITA) Program.” VITA is an IRS initiative designed to support free tax preparation services for underserved communities.

The webinar is September 7, 2023, at 1 p.m. Eastern and Registration is now open.

Per the NCUA announcement, “The webinar will educate and inspire credit unions to provide free tax preparation for lower-income, elderly, disabled, Native American, limited English proficient, and rural populations. An IRS representative will describe how credit unions can get involved in free tax preparation, and a representative from the NCUA’s Office of Consumer Financial Protection will moderate a discussion with credit unions currently supporting VITA programs in their communities.”
 
Webinar - Commercial Real Estate Loan Accommodations and Workout Guidance
Another free learning opportunity on September 14 during an “Ask the Regulators” webinar with representatives from the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation and National Credit Union Administration.

The webinar will explain the revisions and additions to the policy statement, Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts, that was issued on June 20, 2023.

The agencies will review best practices for managing deteriorating and problem commercial real estate loans and workout arrangements, describe how supervisors assess the management of commercial real estate loan accommodations and workouts, and review supervisory expectations for valuations.
Register now: Ask the Regulator Registration Link
 
FinCEN Advisory - Payroll Tax Evasion, Workers’ Compensation Fraud in Construction Sector
The Financial Crimes Enforcement Network recently issued FIN-2023-NTC1 concerning payroll tax evasion and workers’ compensation fraud in the construction sector.

As discussed in the Notice, “Every year across the United States, state and federal tax authorities lose hundreds of millions of dollars to these schemes, which are perpetrated by illicit actors primarily through banks and check cashers. As described in this Notice, many payroll tax evasion and workers’ compensation fraud schemes involve networks of individuals and the use of shell companies and fraudulent documents.”

The notice walks through the steps of the workers’ compensation fraud schemes and the evasion of worker payroll taxes and includes discussion of a case from Portland Oregon of a construction company operator that was sentenced to federal prison and ordered to pay $29.9 million in restitution to the Internal Revenue Service for his role a multiyear scheme to evade the payment of payroll and income taxes on the wages of construction workers.

The Notice includes several red flag indicators regarding this fraud – to highlight a few:

• The company’s bank account has minimal to no tax- or payroll-related payments to the IRS, state and local tax authorities, or a third-party payroll company despite a large volume of deposits from clients.
• The account holder or company representative makes statements to bank tellers or check cashers that the purpose of the cash withdrawals, negotiation of checks for cash, or check cashing activity is for payroll and the volume, amount, and frequency of transactions are uncharacteristic for a construction company with a small number of employees.
• The customer is a new (i.e., less than two years old) small construction company specializing in one type of construction trade (e.g., framing, drywall, stucco, masonry, painting, etc.) with minimal to no online presence and has indicators of being a shell company for illicit activity.
• A representative of the construction company conducts large or unusual volumes of cash withdrawals or negotiation of checks for cash when accompanied by another involved person(s) or using an armored car service to deliver bulk cash.

FinCEN provides these special filing instructions, should the credit union file a SAR related to this Notice - FinCEN requests that financial institutions indicate a connection between the suspicious activity being reported and the activities highlighted in this Notice by including the key term “FIN-2023-NTC1” in SAR field 2 (Filing Institution Note to FinCEN), as well as in the narrative. Financial institutions should select SAR Field 34(z) (FRAUD-Other) as the associated suspicious activity type and include the term “Payroll tax evasion” and/or “workers compensation” in the text box. Financial institutions also should select all other relevant suspicious activity fields, such as those in SAR Fields 36 (Money Laundering) and 38 (Other Suspicious Activities), if applicable.
 
CFPB Enforcement Action
The Consumer Financial Protection Bureau (CFPB) recently announced two enforcement actions against two entities for illegal kickbacks in violation of Section 8 of the Real Estate Settlement Procedures Act (RESPA). In the Consent Order against Freedom Mortgage Corporation, a privately held residential mortgage loan originator and servicer headquartered in Boca Raton, Florida, CFPB found that Freedom paid for several subscription services and then gave free access to real estate agents and brokers. Many of the real estate agents and brokers who accepted free access to these subscription services made mortgage referrals to Freedom’s Traditional Retail loan officers. An example of one of the subscription services provided information concerning property reports, sales comparables, and foreclosure data—and over 2,000 real estate agents accepted subscriptions through Freedom’s account.

The real estate agents who received free access to these subscription services made more than 1,000 mortgage referrals to Freedom’s Traditional Retail Unit during the Relevant Period, as part of a pattern, practice, or course of conduct of giving free access to the subscription services to create, maintain, and strengthen mortgage referral relationships, in violation of RESPA Section 8(a).

Another area of violation that the CFPB found was Freedom’s practice of hosting and subsidizing events for certain real estate brokers and agents. Freedom would pay for the real estate brokers and agents’ food, beverages, and alcohol. Some of the events also included entertainment paid for by Freedom. Other situations involved free tickets to sporting events, charity galas, or other events where the real estate agents and brokers would have otherwise needed to pay for their own admission, food, and alcohol.

The CFPB enforcement action also discussed issues with Freedom’s marketing services agreements (MSAs) it had with more than 40 real estate brokerages. CFPB concluded that Freedom gave numerous things of value to real estate brokers and agents—including monthly MSA payments, subscription services, and meals, beverages, and entertainment—under an agreement or understanding to receive referrals of mortgage origination business for federally related mortgage loans, in violation of RESPA Section 8(a), 12, U.S.C. § 2607(a) and Regulation X, 12 C.F.R. § 1024.14(b), (e). The company has been ordered to pay a civil money penalty of $1.75 million to the CFPB.

Another Consent Order was issued against Realty Connect USA Long Island, Inc. for accepting things of value for referrals of business incident to or part of a settlement service involving federally related mortgage loans in violation of Section 8(a) of RESPA.

The CFPB found that Realty Connect real estate agents and brokers accepted a subscription service that was paid for by Freedom and given to Realty Connect without charge. Many of the Realty Connect real estate agents and brokers who accepted free access to the subscription service made mortgage referrals to Freedom. The Realty Connect real estate agents and brokers who accepted free access to the subscription service made more than 400 mortgage referrals to Freedom during the Relevant Period.

CFPB cited to an example of past conduct in which Realty Connect brokers and agents attended an event hosted and paid for by Freedom in June 2019, at a bar-restaurant on Long Island. Freedom paid more than $6,300 for the food, drinks (including alcohol), and rented sports simulators. Fifty Realty Connect agents attended (out of about 500 total Realty Connect agents active at that time). Freedom’s selected guest list included agents who were invited because they referred the most business to Freedom, and some newer agents that Freedom hoped would develop a referral relationship with their assigned Freedom loan officer.

CFPB has ordered Realty Connect to pay a civil money penalty of $200,000.

As always, DakCU members may contact Amy Kleinschmit with any compliance related questions.