Reviewing FinCEN's new rules and regulations

Raymond Fleischmann, associate editor

As published in Scotsman Guide's Residential Edition, July 2012.

Since 2002, suspicious activity reports (SARs) have been on the rise. This past May, for instance, the Financial Crimes Enforcement Network (FinCEN) reported that SARs filed by financial institutions reached an all-time high in 2011. This past year, 1.5 million SARs were filed, a 13.5 percent increase from the previous year. The number of mortgage fraud reports increased by even greater numbers — climbing more than 30 percent from 2010.

These figures either are a blight or a blessing, depending on how you look at them. On the one hand, the recent rise in mortgage-related SARs potentially indicates a distressing trend: As other types of financial institutions improve their crime-prevention methods, mortgage banks and brokerages may be more appealing to fraudsters.

“What the bad guys are trying to do now is figure out other ways to launder money, and they’ve figured out that mortgages are one of those ways,” says Sai Huda, vice president and general manager of FIS Compliance Solutions.

On the Web ___________________________ To learn more about FinCEN’s new requirements, visit the following sites: To read a copy of the new regulations, visit: sctsm.in/FinCENregs. To access a variety of FinCEN forms, including the SAR, visit: sctsm.in/FinCENforms. To read FinCEN director James H. Freis’ remarks delivered at a Mortgage Bankers Association conference this past April, visit: sctsm.in/Freis.

Although an increase in mortgage crime is never good, an increase in SARs may not necessarily be a bad thing. Even if mortgage crime is on the rise, at least those crimes now are being more actively reported. SARs, after all, are designed to help law enforcement agencies track criminal activity and prosecute the individuals behind it. More SARs mean more resources for cracking down on crime — resources that are about to become even more abundant.

That’s because, beginning Aug. 13, all nonbank residential mortgage lenders and originators (RMLOs) will be subjected to FinCEN’s SAR filing requirements, in addition to being required to establish anti-money-laundering (AML) programs for their companies. Brokers and originators should make sure that they’re familiar with all the specifics of FinCEN’s new regulations, in terms of filing SARs and establishing effective AML programs. Here’s a look at what these new requirements may mean for you.

AML programs

With regards to the AML half of FinCEN’s new regulations, mortgage brokers and originators should be aware of four key requirements. FinCEN asks that any established AML program include, at a minimum: “the development of internal policies, procedures and controls; the designation of a compliance officer; an ongoing employee training program; and an independent audit function to test programs.”

The final two stipulations are most intriguing: the need for ongoing employee-training and the need for independent testing to ensure an AML program’s effectiveness. Although mortgage companies may take a variety of approaches when it comes to the training aspect of their AML programs, it’s safe to say that cost and efficiency always will be top of mind.

In that regard, taking advantage of technology may be something for RMLOs to seriously consider, according to Bill Heyman, a principal with the law firm Offit Kurman and co-host of several recent webinars on the new regulations. “There has to be written materials that go out to employees,” Heyman says, “but we think that web-based training, depending on the size of the organization, can be very cost-effective.”

Jonathan Foxx, president and managing director of Lenders Compliance Group, echoes a similar sentiment, emphasizing the need for mortgage companies to carefully track their programs. Regardless of a program’s specific design, Foxx says that AML training should be something that’s continuously monitored.

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