The NAFCU Journal July - August 2017 - 24

''

The credit union's job is not
to police its members' activity,
but the credit union is expected
to notice suspicious activity and
report it to authorities.

''

- TIM SEGERSON, DEPUTY DIRECTOR, NCUA OFFICE OF
EXAMINATION AND INSURANCE

federal law that has been expanded over
the past 47 years.

SARs - necessary paperwork whenever
suspicious money enters a credit union.

What exactly was Bethex
accused of doing?

So Bethex paid the price. And that message could not be ignored by other credit
unions. The warning is clear: Ignore
FinCEN requirements, and liquidation
may be the consequence.

FinCEN, in its announcement, said
Bethex - a low-income-designated,
community development credit union -
had started doing business with money
services businesses (MSBs), such as
check-cashing storefronts and currency
converters. Nothing wrong with that,
except such businesses are believed by
regulators to be inherently risky.
And Bethex apparently did not take the
appropriate precautions. Said FinCEN:
"Many of these MSBs were located in
high-risk jurisdictions outside New
York and engaged in high-risk activity,
including wiring millions of dollars per
month to countries at risk for money
laundering. When Bethex began to service these MSBs, it did not take steps to
update its AML programs. As a result,
Bethex was unable to adequately monitor, detect and report suspicious activity
or mitigate the associated risks, leaving
the credit union particularly vulnerable
to money laundering."
FinCEN also alleged, "Among other
violations, Bethex failed to timely
detect and report suspicious activity to
FinCEN and did not file any Suspicious
Activity Reports (SARs) from 2008
through 2011."
Boil this down, and FinCEN is saying
that Bethex had inadequate controls
on money laundering - so it was
exploited by bad actors. It also did not
file timely or properly documented
24

Know this: FinCEN and the NCUA are
on the lookout for credit unions that
run afoul of the BSA and PATRIOT Act
requirements. Pertinent oversight now
is a significant part of the routine exams
by regulators.
Know, too, that although President
Donald Trump has vowed to trim
regulation, nobody thinks this will
extend to BSA, anti-money laundering measures and related provisions.
"BSA is not a political thing, it's not
Democratic or Republican," says John
Podvin, a lawyer with Shapiro Bieging
Barber Otteson in Dallas, whose specialty is BSA-related issues. His point:
Both sides of the aisle support federal
efforts to contain money movement by
criminals and terrorists, and nobody
should plan on these requirements
going away.

A sliver of good news

In the past five years, there have been
two formal enforcements by FinCEN
against credit unions for BSA/money
laundering issues, says Tim Segerson,
deputy director of the NCUA Office
of Examination and Insurance. In
addition to Bethex, he points to North
Dade Community Development Federal Credit Union (fined and liquidated
in 2015).

The $3.6 million North Dade was fined
$300,000 for repeated violations of BSA
requirements regarding money movement to high-risk areas such as the Middle East and Central America. Multiple
violations were alleged to have occurred
over a period of several years.

More bad news

Very possibly more credit unions could
run afoul of BSA and related provisions,
not out of bad intent, but because the
business model of many credit unions is
rapidly changing. Says Segerson, "When
a credit union shifts from an exclusive
focus on consumers to providing more
services to small businesses, the risks go
up. And not every institution successfully adjusts. They need to modernize
controls and processes."
Segerson's point is that small businesses
- at least some of them - handle a lot of
money, often in the form of cash. And it
is right there that risks soar. That requires
stepped-up policies and processes at
credit unions to stay in compliance.
Banks have also found themselves running afoul of BSA, says Pam Perdue, chief
regulatory officer at Continuity, a developer of automated compliance tools and
a former federal examiner. She notes that
while credit unions have had two enforcement actions in recent years, in the same
periods banks have had "hundreds."
That may be a troubling omen.
Segerson notes that although compliance
actions against credit unions have been
rare, what isn't uncommon are what he
calls "directives" that are followed by
"letters of understanding and agreement." Those documents are issued when
an examiner finds a situation that the
examiner believes warrants corrective
action by the credit union.
How many are issued? Segerson does
not offer a specific number, but he does
say "lots."

The big questions

How do credit unions run afoul of examiners when it comes to BSA and money
THE NAFCU JOURNAL  JULY-AUGUST 2017



Table of Contents for the Digital Edition of The NAFCU Journal July - August 2017

Our First 50 Years
Events Calendar
From the Chair
Inside NAFCU
The Digital Download
How Secure Is Your Credit Union?
The Bank Secrecy Act
2017 Annual NAFCU Award Winners
2016 NAFCU Annual Report
Getting to Know …
Management Insight
Compliance Central
Inside NAFCU Services
From the President’s Desk
The NAFCU Journal July - August 2017 - Cover1
The NAFCU Journal July - August 2017 - Cover2
The NAFCU Journal July - August 2017 - 1
The NAFCU Journal July - August 2017 - Our First 50 Years
The NAFCU Journal July - August 2017 - Events Calendar
The NAFCU Journal July - August 2017 - From the Chair
The NAFCU Journal July - August 2017 - 5
The NAFCU Journal July - August 2017 - Inside NAFCU
The NAFCU Journal July - August 2017 - 7
The NAFCU Journal July - August 2017 - 8
The NAFCU Journal July - August 2017 - 9
The NAFCU Journal July - August 2017 - 10
The NAFCU Journal July - August 2017 - 11
The NAFCU Journal July - August 2017 - 12
The NAFCU Journal July - August 2017 - 13
The NAFCU Journal July - August 2017 - The Digital Download
The NAFCU Journal July - August 2017 - 15
The NAFCU Journal July - August 2017 - How Secure Is Your Credit Union?
The NAFCU Journal July - August 2017 - 17
The NAFCU Journal July - August 2017 - 18
The NAFCU Journal July - August 2017 - 19
The NAFCU Journal July - August 2017 - 20
The NAFCU Journal July - August 2017 - 21
The NAFCU Journal July - August 2017 - The Bank Secrecy Act
The NAFCU Journal July - August 2017 - 23
The NAFCU Journal July - August 2017 - 24
The NAFCU Journal July - August 2017 - 25
The NAFCU Journal July - August 2017 - 26
The NAFCU Journal July - August 2017 - 27
The NAFCU Journal July - August 2017 - 28
The NAFCU Journal July - August 2017 - 29
The NAFCU Journal July - August 2017 - 2017 Annual NAFCU Award Winners
The NAFCU Journal July - August 2017 - 31
The NAFCU Journal July - August 2017 - 32
The NAFCU Journal July - August 2017 - 33
The NAFCU Journal July - August 2017 - 34
The NAFCU Journal July - August 2017 - 35
The NAFCU Journal July - August 2017 - 36
The NAFCU Journal July - August 2017 - 2016 NAFCU Annual Report
The NAFCU Journal July - August 2017 - 38
The NAFCU Journal July - August 2017 - 39
The NAFCU Journal July - August 2017 - 40
The NAFCU Journal July - August 2017 - 41
The NAFCU Journal July - August 2017 - 42
The NAFCU Journal July - August 2017 - 43
The NAFCU Journal July - August 2017 - 44
The NAFCU Journal July - August 2017 - 45
The NAFCU Journal July - August 2017 - 46
The NAFCU Journal July - August 2017 - 47
The NAFCU Journal July - August 2017 - Getting to Know …
The NAFCU Journal July - August 2017 - 49
The NAFCU Journal July - August 2017 - Management Insight
The NAFCU Journal July - August 2017 - 51
The NAFCU Journal July - August 2017 - Compliance Central
The NAFCU Journal July - August 2017 - 53
The NAFCU Journal July - August 2017 - Inside NAFCU Services
The NAFCU Journal July - August 2017 - 55
The NAFCU Journal July - August 2017 - From the President’s Desk
The NAFCU Journal July - August 2017 - Cover3
The NAFCU Journal July - August 2017 - Cover4
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