Ingenium Chicago can help with financial fraud investigations

Wall Street institutions and retail banks are not the only targets for money launderers. Real estate loans are one of the top schemes used by criminals, fraudsters and money launders as an end to execute their plans. Banks and other institutional financial institutions dedicate substantial resources to ensure they are not taken advantage of by these types of schemes. Lately, criminals have been targeting private businesses as a means to launder their money. For example, in 2014, the FBI, IRS and US Treasury Department uncovered a multi-million dollar money laundering scheme in downtown Los Angeles’ fashion district in which drug money had been laundered through retail and wholesale fashion businesses.

In 2012, the U.S. Treasury Department, through the Financial Crimes Enforcement Network (“FinCEN”) expanded the applicability of the Bank Secrecy Act (“BSA”) and Anti-Money Laundering (“AML”) regulations to include loan and financial institutions including non-bank residential mortgage loan originators (“Lenders”). This expansion imposes specific BSA and AML protocols to any Lender who makes or acquires loans secured by deeds of trust or mortgages on residential properties. This includes mortgage Lenders, bridge Lenders, and other investment purpose loans secured by residential property. Lenders are at clear risk for money laundering, fraud and tax evasion. In general loans provide a straightforward and simple artifice to launder money.

Specifically, FinCEN imposed these obligations on Lenders because Lenders, like banks, are at risk for fraud, money laundering, tax evasion and even criminal / terrorist financing. Many criminal and terrorist organizations can defraud Lenders by creating seemingly legitimate businesses and obtain substantial sums from Lenders and other financial institutions.

FinCEN also requires all loan and finance companies, including Lenders to create and implement an anti-money laundering internal compliance program which establishes certain company guidelines dictated by FinCEN. The core tenets of an AML program are the following: (1) establish internal controls and procedures compliance with AML regulations; (2) designate a compliance officer; (3) compliance training; and (4) independent testing.

Penalties for Non-Compliance

Many Lenders and other financial institutions are unaware they are subject to BSA/AML regulations. Some disregard the requirements because it is inconvenient and others disregard them because it is cost prohibitive. FinCEN has dictated specific penalties for non-compliance. Further, they can be applied retroactively. In other words, if FinCEN discovers fraud and/or money-laundering that implicates Lenders, FinCEN can impose civil penalties up to $1,000 per day for each day of non-compliance. Willful violations may result in civil penalties of up to $100,000 for the RMLO, its owners, officers and possibly its employees. Furthermore, any property involved in a transaction or traceable to the proceeds of the criminal activity including property secured as collateral for a loan can be seized and/or subject to forfeiture. Unfortunately, Lenders that do not establish these BSA/AML protocols will be unaware of any money-laundering or fraudulent activity until it is too late. Not only does this risk civil penalties, but they risk complete forfeiture of collateral and potential criminal penalties.

Conclusion

Financial institutions are all subject to risks of fraud and money-laundering. Lenders are no different. As the primary means of residential financing, Lenders are high risk targets for mortgage fraud and money laundering. To ensure Lenders comply with the BSA/AML regulations, they must establish an AML program that includes a regularly updated manual on AML regulations and SAR filings; and they must ensure they file SARs for various types of suspicious transactions or activity. These basic requirements will ensure the Lender is well equipped to identify, report and avoid potential fraudulent activity including money-laundering and mortgage fraud. Furthermore, federal law provides protection for Lenders from civil liability for all reports of suspicious transactions made to the appropriate authorities, regardless of whether such reports are filed pursuant to the SAR instructions.

Creating the compliance program, updating the manual, educating employees and filing SARs can be a confusion and daunting task. The Ingenium Consulting Group can assist you in establishing your compliance program, educating your employees. We have the expertise necessary to identify money laundering activities, fraudulent transactions and potentially dangerous borrowers.