“Bank Discontinuance” Issues and Strategies for avoiding this devastating occurrence in your small dollar lending business.

 NOTE: This document is intended to outline steps you can take to ensure that your compliance program is adequate. Perhaps you were sleeping? You somehow missed this:

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Justice Department Hits Community Bank in Second Choke Point Case

by Victoria Finkle

MAR 10, 2015 5:04pm ET

WASHINGTON — The Department of Justice announced a $4.9 million settlement Tuesday with CommerceWest Bank over charges that the Irvine, Calif., bank knowingly worked with a third-party processor to make illegal withdrawals from consumer accounts.

The deal is the latest development in the law enforcement agency’s initiative to combat crime and consumer fraud through the banking system, known as Operation Choke Point. It’s the second case associated with the effort, which has come under fire in recent months from Republican lawmakers and the banking industry.

“CommerceWest Bank ignored a parade of red flags indicating that a third-party payment processor was defrauding hundreds of thousands of innocent victims,” said Benjamin Mizer, acting assistant attorney general of the Justice Department’s Civil Division, in a press release. “[W]e will hold financial institutions accountable when they choose unlawfully to look the other way while fraudsters use the bank’s accounts to steal millions of dollars from American consumers.”

The move is a win for government officials who have faced considerable pushback from bankers and lawmakers concerned that Operation Choke Point is chilling business activity for legal but controversial industries like gun dealers and payday lenders.

The Federal Deposit Insurance Corp. told banks in January that they should carefully evaluate the activities of businesses they contract with, but clarified that they don’t need…” READ MORE.

BANK SECRECY ACT (BSA)/ANTI-MONEY LAUNDERING (AML) COMPLIANCE PROGRAMS

INTRODUCTION

Given the importance of compliance with the anti-money laundering requirements to the protection of our financial system and our national security, MSBs that fail to comply with even the most basic requirements of the Bank Secrecy Act, such as registration with FinCEN if required, not only are subject to regulatory and law enforcement scrutiny, but also are likely to lose banking services that enable them to function.

Like other financial institutions subject to the Bank Secrecy Act, MSBs must assess the risks of their operations as a step in developing effective anti-money laundering programs. MSBs seeking to obtain or maintain account relationships with banking organizations should be prepared to provide information or explanation to their banking organizations about the risks associated with the services offered, the customer base, the markets served, and the locations of the money services business.

Department examiners will assess the adequacy of your AML compliance program to determine whether you have developed, administered, and maintained an effective program for compliance with the BSA and all of its implementing regulations.  Review of the MSB’s written policies, procedures, and processes is a first step in determining the overall adequacy of the BSA/AML compliance program.  The document provides guidance and elements for designing an effective MSB compliance program. The degree to which elements should be implemented are dependent upon the MSB’s risk profile.

ANTI-MONEY LAUNDERING COMPLIANCE PROGRAMS 

Each MSB is required by law to have an effective anti-money laundering (AML) compliance program.  An effective anti-money laundering program is one that is reasonably designed to prevent the MSB from being used to facilitate money laundering and the financing of terrorist activities.  The regulation requiring MSBs to develop and maintain an AML compliance program is contained in 31 CFR103.125.  Each program must be commensurate with the risks posed by the location, size, nature and volume of the financial services provided by the MSB.  For example, a large money transmitter with a high volume of business located in large metro area is at higher risk than a small check casher with a low volume of business located in a rural area.  Therefore, the large money transmitter would be expected to have Continue Reading..