FinCen’s AML and SAR Requirements for Non-Bank Lenders

What is it?
The Financial Crimes Enforcement Network (FinCen), a Bureau of the Department of the Treasury, recently published final rules regarding the requirements for Residential Mortgage Lenders and Originators (RMLO) to establish a Customer Identification Program (CIP) anti money laundering program (AML) and file suspicious activity reports (SAR) under the Bank Secrecy Act (BSA).

The Bank Secrecy Act authorizes the Secretary of the Treasury to require financial institutions to keep records and file reports that have a high degree of usefulness in criminal,tax or regulatory investigations or in the conduct of intelligence or counterintelligence activities relating to international terrorism.This has excluded non-bank RMLO’s until recently.

Who must comply?
Financial institutions, Loan or Finance companies and Mortgage Lenders. The definition of “Financial Institutions” shall include a mortgage broker, brokerage and loan originator. This is regardless of their form of organization, number of employees, or the dollar amount or volume of transactions they conduct.

FinCen is addressing vulnerabilities in the U.S. financial system and it will help reduce the amount of mortgage fraud, which is the most significant operational risk facing a Loan Officer (LO). The purpose of SAR is to report known or suspected violations of law or suspicious activity.

The rules became effective April 16, 2012 and everyone must be compliant by August 13, 2012.

What if you don’t comply?

Failure to comply constitutes a violation of the BSA, exposing the company to civil and criminal penalties. The severity of these depends on the specific circumstances. Civil penalties can include a fine of $25,000 per day from the date of compliance, August 13, 2012, and criminal penalties can include imprisonment for up to five years.

There are 3 main groups of polices and procedures that must be created:
1. An Anti-money Laundering (AML) program
2. A Customer Identification Program (CIP) program
3. A program for how and when to submit Suspicious Activity Reports (SAR)

The AML and CIP program should also include policies and procedures for monitoring your own
employees and LO’s for suspicious activity.

The AML program must include:

  •  The development of detailed policies and procedures
  •  The designation of a compliance officer to oversee the policies
  •  An on-going employee training program, which includes:

o What is loan fraud?
o Real Estate Fraud
o Money Laundering
o Customer identification verification

The role of the compliance officer includes:

  • Staying up to date on BSA rules/regulations
  • Distributes announcements from BSA to management and LO’s
  • Can be relied on to answer questions from LO’s regarding any requirements
  • Maintains a list of LO’s that have taken education on BSA/AML issues
  • Files SARs within the time limits (within 30 days of suspected suspicious activity)

The CIP program must include ways of verifying for each person:

  •  Name
  •  Date of Birth
  •  Address
  •  Identification number

Each company will need written policies covering every anticipated issue pertaining to
BSA, money laundering, and real estate and mortgage fraud.
All policies must include a detailed step-by-step check list and customized for your company:

  •  Company size
  •  Location
  •  Number of employees
  •  Number of LO’s
  •  FHA, VA, Conventional, Farm Home Loans
  •  Private money used to fund loans
  •  Who will be providing training to your staff?
  •  How often

The SAR is filed electronically by the compliance officer directly with FinCen through the
BSA e-filing system. A loan or finance company is required to report a transaction if it knows,
suspects, or has reason to suspect that the transaction or a pattern of transactions of which the
transaction is a part of:
Involves funds derived from illegal activity or is intended or conducted to hide or disguise
funds or assets derived from illegal activity
 Is designed, whether through structuring or other means, to evade the requirements of the BSA
 Has no business or apparent lawful purpose, and the loan or finance company know of no reasonable explanation for the transaction after examining the available facts; or  Involves the use of the loan or finance company to facilitate criminal activity
Once the policies and procedures have been established, written and approved by management, all employees of the company need to have a copy easily accessible to them. The Consumer Financial Protection Bureau (CFPB) will be policing this and performing random audits of companies. If they ask any employee of a company to produce a copy of the policies, the employee should be able to do so. If audited you must be able to prove to FinCen that your
policies and procedures work. Doing random internal and external audits of your policies is advised to ensure being able to prove that they do work and are being followed.

For questions about these new regulations, guidelines and how to set up policies, companies can contact the FinCen Regulatory Help Line at 800-949-2732. You can also visit their website at:

How Advantage Credit can help you:
 We provide Office of Foreign Assets Control (OFAC) as an alert on all reports
 We provide Fraud Services that instantly recognize the warning signs of potential fraud
which supports your SAR and CIP programs.