Non-depository mortgage lenders and originators have a deadline looming of August 13 to ensure compliance with Federal Anti-Money Laundering (AML) regulations, as mandated by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). As outlined in the regulations, mortgage lenders and originators must:
- Develop internal policies, procedures, and controls
- Designate a compliance officer
- Institute an ongoing employee training program
- Employ an independent audit function to test programs
Hand in hand with the AML requirements, mortgage lenders and originators will be required to file Suspicious Activity Reports (SAR’s). The SAR component requires reporting of suspicious activity, including but not limited to fraudulent attempts to obtain a mortgage or launder money by using ‘dirty money’ to purchase residential real estate.
Anti-money laundering statutes are certainly not a novel idea. FinCEN is the designated administrator of the Bank Secrecy Act (BSA), enacted in 1970. Referred to by FinCEN as “one of the most important tools in the fight against money laundering,” the BSA implemented requirements for recordkeeping and reporting by private individuals, banks and other financial institutions. The BSA also instituted the requirement that banks report cash transactions over $10,000 and the identities of the individuals conducting such transactions.
Next, in 1986, Congress enacted the Money Laundering Control Act, establishing money laundering as a federal crime, prohibiting structured transactions to avoid the $10,000 cash transaction reporting necessity, and introducing civil and criminal forfeiture for BSA violations. This Act came with a host of compliance requirements for banks to establish and maintain procedures reporting and recordkeeping requirements under the BSA.
Because money laundering and organized crime, including drug trafficking, are often related crimes, Congress expanded compliance requirements in 1988 with the Anti-Drug Abuse Act. This Act expanded the definition of financial institution to include businesses such as car dealers and real estate closing personnel, requiring them to report cash transactions over $10,000 and the identities of the individuals conducting such transactions.
Since 1992, five additional bodies of legislation have been enacted, specifically targeting money laundering discovery and prevention, in an effort to keep up with the increasing sophistication and technological advancements of our financial sector.
In the face of a growing mountain of compliance issues, banks and other related entities often created new ‘compliance departments’ to meet new and changing legal requirements. A whole new industry has grown around ensuring compliance with federal regulations.
While most would agree that the evolving regulations meant to suppress money laundering are intended to serve a legitimate purpose, the challenge for businesses is to continually remind Congress of the need to balance regulation with ease of commerce. The reason is simple: the more complicated and intensive the compliance, reporting and recordkeeping requirements are, the more it costs to do business. Higher overhead for businesses means higher prices for consumers. In the end, banks and other included entities, by and large, will comply with state and federal requirements, adjusting their business models and product prices accordingly.
If you are a bank or another business facing compliance requirements, consult with legal counsel to ensure compliance or to help you develop a compliance plan. The attorneys at Glass & Goldberg provide high quality, cost-effective legal services and advice for clients in all aspects of business litigation and transactional law. Call us at (818) 888-2220, email us at firstname.lastname@example.org, or visit us on the web at www.glassgoldberg.com to learn more about the firm and to sign up for future newsletters.
 Compliance with AML and SAR regulations is already mandatory for depository institutions.