I am working on an update to our BSA policy and procedures to implement AML "enhanced customer due diligence" procedures. As part of the process, I am assembling a team from various bank departments. Is there a need for representation from, for example, residential mortgage lending or consumer (auto, HELOCs etc.) lending?
I don't want to include people who don't really need to be involved in development of our program - but don't want to leave out anyone who should be involved. Any suggestions on all the departments to be included?
Thanks!

It probably would make your examiners happy to include representatives from the various lending departments. Their level of involvement and training could be adjusted to coincide with the lower risk as compared to, say, tellers and wire room employees. That way you involve them but don't overburden them with concepts and responsibilities that don't really apply to their world.

IMO, the higher risks in the lending world are auto, especially indirect, and cash-secured loans.

Real Estate transactions can also be used to launder money. While BSA has, in the past, focused on the deposit side, I think you will find more and more focus on the lending side.

I will post here some of the "older" BSA flags for lenders. I think I pullled these out of the older version of the OCC Money Laundering booklet. The newer version doesn't seem to have as many of the "older" red flags, but it's still a useful guide: http://www.occ.treas.gov/moneylaundering2002.pdf

BSA – Lenders

1. Watch out for situations where a borrower or prospective borrower shows an inordinate amount of income relative to earning assets. Something’s not right.

2. Look very carefully at situations where the proposed or actual transaction makes little economic sense – in these situations, figure out what the borrower’s motivation is.

3. Verify that loan proceeds are actually used for intended purpose. Example: A borrower may take out a second mortgage to add on a room but actually use the funds for something else.

4. Be aware that one form of identity theft is the creation of loans in an unsuspecting person’s name. These loans come in all types – including short-term unsecured loans where the borrower leaves the bank with the cash never to be heard from again. The can also include credit cards in the victim’s name, and even mortgage refinances or second mortgages with cash out to the criminal.

5. Certificates of deposits used as collateral. An individual buys certificates of deposit and uses them as loan collateral. Illegal funds can be involved in either the CD purchase or utilization of loan proceeds.

6. Sudden/unexpected payment on loans . A customer may suddenly pay down or pay off a large loan, with no evidence of refinancing or other explanation.

7. Reluctance to provide the purpose of the loan, or the stated purpose is ambiguous. A customer seeking a loan with no stated purpose may be trying to disguise the true nature of the loan. The Bank Secrecy Act requires the bank to document the purpose of all loans over $10,000, with the exception of those secured by real property.

8. Inconsistent or inappropriate use of loan proceeds . There may be cases of inappropriate disbursement of loan proceeds, or disbursements for purposes other than the stated loan purpose.

9. Overnight loans. A customer may use “overnight” loans to create high balances in
accounts.

10. Loan payments by third parties. Loans that are paid by a third party could indicate that the assets securing the loan are really those of a third party, who may be attempting to hide the ownership of illegally, gained funds.

11. Loan proceeds used to purchase property in the name of a third party, or collateral
pledged by a third party. A customer may use loan proceeds to purchase, or may pledge as collateral, real property in the name of a trustee, shell corporation, etc.

12. Permanent mortgage financing with an unusually short maturity. Permanent financing of a large mortgage on an unusually short term.

13. Structured down payments or escrow money transactions . An attempt to “structure” a down payment or escrow money transaction may be made in order to conceal the true source of the funds used.

14. Attempt to sever the paper trail. Attempts may be made by the customer or bank to sever any paper trail connecting a loan with the security for that loan.

15. Wire transfer of loan proceeds . A customer may request that loan proceeds be wire transferred for no apparent legitimate reason.

16. Disbursement of loan proceeds by multiple bank checks. A customer may request
disbursement of loan proceeds in multiple bank checks, each under $10,000. The customer can then negotiate these checks elsewhere for currency. He/she avoids the currency transaction reporting requirements and severs the paper trail.

17. Loans to companies outside the U.S. Unusual loans to offshore customers, and loans to companies incorporated in so-called “secrecy havens” are higher risk activities.

18. Financial statement. Financial statement composition of a business differs greatly from those of similar businesses.

Agree w/Bonnie & Guitar Dude - cash/deposit secured lending should definitely be representted, or consumer lending in general, and I don't think RE or cml lending should be excluded either.

Thanks everyone - this helps.
Steve

That was a great list Bonnie - thanks!
I printed it to share with my lenders.

Thanks for the list Bonnie. This will very helpful. I am also working on EDD procedures and have a question. We have identified the potentially "high-risk" customers, including those businesses that have the potential of being high risk. We have started monitoring them; however, we are a small bank with limited resources and we have a lot of "high-risk" customers...too many to fully review. Is there any particular sequence we need to follow in order to monitor the businesses with the highest risk (example: those with foreign wires; wires in excess of $500,000, etc.)?