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Serving Customers, Not Criminals

By: James H. Freis Jr.

In one fraud investigation lasting more than five years, FinCEN data (data derived from suspicious activity reports) and the law enforcement investigation that followed led to the convictions of 15 defendants and the seizure of more than $2 million in cash. The fraud targeted victims through churches around the country. Prosecutors noted that Bank Secrecy Act records, filed by astute bank employees, played a key role in the investigation, and were in fact the decisive tool that led to the successful prosecution of the defendants.

Another case illuminates the scourge of mortgage fraud. In one of the largest mortgage fraud cases ever prosecuted in Southern California, investigators found that the leader was a known gang member. The scheme included co-conspirators employed at virtually every level of the mortgage loan process and involved 220 properties with a total sales price of more than $100 million dollars. This case was initiated from a SAR found by law enforcement investigators during a routine review. The investigation was aided by several additional SARs and ultimately led to the indictment of the defendant.

And a third case has been called the largest organized casino-cheating scheme ever uncovered in the United States; agents and analysts relied on more than 2,000 BSA records, including currency transaction reports, or CTRs, and 150 SARs, to support their multi-year investigation. In addition, investigators initiated a request through FinCEN under Section 314(a) of the USA PATRIOT Act to identify additional accounts and assets not found in BSA records. In this case, the results of the 314(a) request included responses from more than 75 institutions identifying more than 100 additional leads. Investigators noted that the information available through FinCEN helped identify which casinos the defendants targeted, as well as pinpoint casino accounts and other assets. In all, 35 defendants, who cheated numerous casinos across the United States, were charged in the case, and one subject alone was ordered to serve almost six years in prison and pay more than $8 million in forfeiture and restitution.

The cases discussed above are just three facilitated by the partnership between financial institutions and the government to provide information and enable law enforcement to launch or advance investigations.

Outreach Initiative

FinCEN recently completed a round robin of sorts, meeting individually and in town hall-style settings with about 100 financial institutions from the nationís largest banks, smaller regional and community banks, credit unions and money services businesses.

The objective of FinCENís outreach initiative was to enhance that partnership in its shared goal of protecting the financial system from criminal abuse. Depository institutions have told us that as a result of the outreach initiative, their understanding about how they contribute to deterring and helping law enforcement detect crime has grown. For its part, FinCEN came away with a better understanding of the business implications of compliance with its rules, which helps to align regulatory requirements where possible with business incentives.

Such understanding is critical to the relationship between FinCEN and the industries regulated under the BSA. During discussions with depository institutions, FinCEN found strong agreement with the principles behind its mission and with the need for partnership between financial institutions and government to protect against the abuses of the financial system. Officials also heard a strong desire to learn more about how the data reported to the government is used and what resources FinCEN makes available to financial institutions.

With respect to SARs and CTRs, FinCEN data can provide a key tip that starts or makes an investigation. A bank employeeís good instincts can, and do, result in the contribution of critical information that serves to set investigatory wheels in motion to track down suspected criminal activity.
While depository institutions indicated that alerts generated by automated transaction monitoring systems help them identify and report suspicious activity, in the retail banking context, banks indicated that they believe their best source of information on suspicious activity comes from referrals by front-line branch personnel and relationship managers.

FinCEN information can add significant value when an investigation is underway by pointing to the identities of previously unknown subjects, exposing accounts and other hidden financial relationships, or unveiling items of identifying information like common addresses or phone numbers that connect seemingly unrelated individuals and, in some cases, even confirming locations of suspects at certain times.

FinCEN analysts use technology to examine the entire set of information reported, often together with other data sets available to the government. When expertly queried, the data reveals trends and patterns that hold the telltale signs of criminal or terrorist networks and emerging threats. The information base also contains links to a broader scope of criminal activity otherwise undetected or unconnected to the reliable and credible reports of mortgage fraud, check fraud, identity theft, bribery, counterfeiting and insider abuse.

Much of this information is shared with depository institutions in the form of guidance, advisories ó twice-yearly SAR Activity Review reports and strategic analytical reports, which are available at Trend analysis reports covering mortgage fraud, identity theft and home equity conversion, among other criminal activity, provide information that becomes part of advisories and calls attention to red flags, new or re-emerging fraudulent practices and other illicit activity.

FinCEN advisories and analytical reports can and should be used to focus resources of a depository institution to better minimize risk and protect customers and the institutionís reputation.

Also, of particular importance is the feedback FinCen consistently receives from experienced financial institutions that, as a result of its public guidance and outreach efforts, have a greater understanding of regulatory compliance expectations and the importance of their contributions to protecting the country and financial system from criminal abuse. That does not suggest that FinCEN has achieved all that it can do, but it does suggest that the partnership that Congress intended between government and the financial industry is working as intended. That partnership can be made better through an ongoing dialogue about ways to make government and financial institutions more efficient and effective in focusing on the areas of greatest risk.
FinCEN welcomes suggestions from the industry regarding how to promote this ongoing partnership.

James H. Freis Jr. is director of the Financial Crimes Enforcement Network.

Copyright © July 2011 BankNews Media


By the Numbers

A review of the data generated for the 16th edition of FinCenís By the Numbers report revealed that the total volume of all SARs within the Bank Secrecy Act database increased 3.5 percent in 2010 as compared with the previous 12 months in 2009. In 2010, the number of depository institution SARs decreased 3 percent in contrast to the prior year, while non-depository institution SARs increased 12 percent for the corresponding 12 months. Non-depository institutions filed about 47 percent of SARs during the 2010 calendar year, representing an increase of 3 percent over the same period in the prior year.

Suspicious Activity Reports by Depository Institutions

Following a first-time decline in calendar year 2009 for the summary characterization BSA/structuring/money laundering, 2010 revealed a 9 percent increase compared to the prior annual reporting period for this category.

Reports of Terrorist Financing increased 30 percent, from 545 instances in the 12 months of 2009 to 711 during the same period in 2010.

The number of depository institution SARs identifying mortgage loan fraud as a characterization of suspicious activity continues to rise (up 5 percent in calendar year 2010). Mortgage loan fraud is the only summary characterization that has experienced an increase every year since 2001, with the past two years (2009 and 2010) accounting for 39 percent of all noted instances of this specific activity. Note that depository institutions may submit mortgage loan fraud SARs well past the actual date of the activity.

Depository institution SARs characterizing computer intrusion (in whole or in part) decreased 26 percent in 2010 as compared to those filed in 2009. This decrease is among the largest declines for the year and is in significant contrast with the 52 percent growth in reported instances from 2008 to 2009.