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Developing A Successful Bank Secrecy Program: To Catch A Crook, Think Like One
When working on a compliance program, we tend to focus on compliance. The goal of the program is to get it right, to do what the regulation says, and make sure we have no "exceptions" to compliance. However, there are occasions when this approach may not produce the desirable result.
We have had this experience with the long and painful implementation of privacy programs. There is universal agreement that the notices that were so carefully prepared failed to communicate. Some even feel that privacy notices backfired. Our attention was so directed at complying that little consideration was given to communication. Ultimately, the purpose of the privacy notice was to communicate; to explain the privacy policy to customers. Notices failed when attention was given to compliance but not to the actual message.
We face similar issues in developing and managing our bank secrecy compliance programs. There are two ways to approach an anti-money laundering program. The first is to make sure that all CTRs and SARs are correctly filled out and filed on time. Such a program gives full attention to compliance with the goal of having no violations. It is, in effect, looking straight down the highway, gauging traffic, and controlling the speed of the vehicle. The program eliminates speeding and illegal maneuvers. This is laudable, but does it accomplish the real goal?
The second way to approach an anti-money laundering program is to think about how to catch a crook. Rather than concentrating on compliance, this approach gives attention to how someone with criminal intentions could use your financial institution for their own illicit ends. In the driving analogy, it means looking around you, at the whole environment. It means driving a vehicle or designing a compliance program that takes into account the entire landscape. And like it or not, that landscape includes criminals and terrorists.
Why Have A BSA Program?
Aside from the obvious fact that regulations require banks to have a BSA program, it is useful to step back and look at the general picture. As drivers, we can maintain speed and control of the vehicle but have no idea where we are, where we have been, or where we are going. In the same way, we can give too much attention to compliance technicalities and lose sight of the goal.
A good BSA program should be founded in purpose and need. It should take into account the environment in which the bank operates, the size and capacity of the bank, and the group of people we anticipate as customers. It should take into account the entire landscape.
One important thing we have learned since September 11, 2001, is that there are a variety of criminal activities, ranging from drug sales to terrorism, that share the common denominator of the need to launder money. A bank's anti-money laundering program should account for and anticipate the possibility of these activities.
The purpose of the program should be to prevent criminals or terrorists from using the bank or the financial system to achieve their ends. Your program, therefore, should have methods for recognizing and preventing this type of use or activity. Because the criminal activity you must target may be unique to your market, you should develop an understanding of the issues in your community and then develop a program that responds to them.
Building Blocks
Take a realistic look at your market, including the part that doesn't abide by the law. Understand the forces that may be at work. Also look at the extent to which your market may be vulnerable to terrorist activity. Sometimes the most innocent can be the most vulnerable.
If your market has drug dealing, and there are very few markets that don't, try to find out as much as you can about the nature of drug dealing in your market and what concerns and suggestions law enforcement may have. If your local police force has an "Officer Friendly," the officers who fill that function may have some interesting perspectives.
Next, look at the real risk of harboring terrorists in your community. If any part of your community could or does harbor transients, it could provide cover and shelter for people who shouldn't be here. Remember that the flight schools were the reason for terrorists locating, at least temporarily, in some Florida communities.
Find out what resources there may be in your market for terrorists. Access to documents and temporary jobs or covers such as being a student, together with ease of communications and travel made certain communities ideal for terrorist bases.
Building A Program
How should you build this information about possible criminal activity into your program? Your Anti-money laundering program should be built from the top down, with bottom-to-top knowledge of the organization. A complete skeleton is necessary for a compliance program, and BSA is no exception. It should also be built with a thorough understanding of the bank's products, services, and customer base.
The regulations direct that the program must be adopted by the Board of Directors. With the implementation of the USA PATRIOT Act, involvement of the Board should be more than a rubber stamping activity.
But BSA in today's world calls for something else. It calls for taking the entire landscape into account. This takes creativity and some unusual steps.
Building A BSA Program In The Real World
Building the perfect compliance program using the tried and true steps is probably not enough in today's world. To develop an effective program and really get it working takes more than following a formula.
The goal of an effective BSA program is to anticipate and prevent. This means that you need to think like the criminals and stay at least one step ahead.
While compliance classics stress board involvement and top-down policies, your BSA program involves making use of the base of the structure. Your best source of information is your front line. Tellers, customer service representatives, and branch managers are the people who have actual contact with customers you want and customers you don't want. They are your best source of information and your best weather vane.
When designing your program, build from the bottom up. Your program is no better than what you know. In most institutions, the people who observe suspicious behavior are on the front line. Consult them in developing your program. No one knows better than a customer service representative or a teller what you want to know about a customer. No one knows better than they what questions should have been asked.
The front line sees the suspicious or out-of-the-ordinary behavior. They are the first ones to become suspicious. Use this. Involve them in your program development. Building procedures for filing reports and tracking findings is the easy part. The hard part is coming up with the fact situations as they occur. It is your front line that does this for you.
Be sure your program has a mechanism for reporting anything suspicious. The most serious weakness in most BSA programs is that the people who see suspicious activity - tellers and CSRs - are not encouraged to report it. Make this an important piece of your program.
ACTION STEPS
- Meet with branch managers, tellers, and CSRs to discuss what information your institution should collect to determine the identity of new and existing customers.
- Discuss ways to collect and verify this information while giving excellent service.
- Conduct training on suspicious activity and ask staff attending the class to describe any customer behavior they think could be suspicious. You may be surprised what comes out!
- Bring your training program up to speed by including stories from the news, enforcement actions, and even things that have happened in your institution.
Copyright © 2003 Compliance Action. Originally appeared in Compliance Action, Vol. 8, No. 4, 4/03
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