Anti-Money Laundering Compliance's Practical Realities

JUL 20, 2012 1:52pm ET
Comment (1)

By now, most lenders have either developed an anti-money laundering policy and trained their employees or are in the process of doing so. What many have not thought about are some of the practical implications of AML compliance as it pertains to the actual business of selling loans to investors. 

For instance, can investors require lenders to certify that a particular loan or group of loans is not the subject of a SAR report? The answer appears to be that due to the strict confidentiality rules pertaining to SAR reports, investors cannot require specific representations. Of course, this does not prevent investors from placing provisions in their investor contracts that prohibit the submission of loans for sale that are the subject of SAR reports. Notwithstanding all of this, from a practical perspective, since (a) lenders should not be closing loans where fraud is strongly suspected and/ (b) because investors can never discover whether a SAR report was filed, this should be of little practical concern.

On the other hand, lenders must remember that in the event of a repurchase due to fraud, a lender must file a suspicious activity report. This is true even if the loan was closed years before. Indeed, as soon as it is discovered that fraudulent information was submitted in connection with a loan, it triggers an obligation to issue a SAR report no matter how long ago the loan was closed.  Again, the investor cannot know or ask wither a SAR was filed.  Accordingly, the issuance of a SAR in the context of a repurchase dispute will not impact the ultimate resolution.

Finally, lenders must remember to advise loan officers that merely submitting a loan to the SAR committee does not necessarily mean the loan cannot be ultimately closed. Indeed, if the committee does not find a basis for concluding fraud occurred, it is possible the loan may proceed. What you do not want occurring, however, is having loan officers reluctant to report possible fraud or illegality for fear that it will mean the loss of a customer even if ultimately nothing improper has occurred.  In other words, you do not want loan officers in essence performing the job of the committee and effectively making final decisions on SAR reporting or only referring blatantly illegal activities to the SAR committee. Loan officers must understand their importance as gatekeeper and the need to broadly identify possible illegal or fraudulent activity. 

The compliance deadline is only a few weeks away. If you have not begun to address AML compliance concerns, you must do so right away. 

Comments (1)
RMLOs can get a turnkey AML program for $59 (including required updates during the year) at:

Posted by | Tuesday, August 28 2012 at 3:59PM ET
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