On top of the regulations imposed by the CFPB, by Aug. 13, all mortgage banks will need to become compliant with Federal Anti-Money Laundering ("AML") regulations. "FinCEN," the Financial Crimes Enforcement Network, created through the Patriot Act in response to the Sept. 11, 2011 attacks, requires lenders (including non-depository institutions) to comply with AML regulations.
Specifically, to remain compliant, companies must have a cohesive set of policies and practices that are reasonably designed to prevent the entity from being used to facilitate money laundering or the financing of terrorist activities. Importantly, FinCEN has indicated that fraud prevention-as well as money laundering prevention-must be part of the key goals for such policies and practices. In addition, all employees must receive training on AML policies and practices and the institution must appoint a compliance person to oversee the AML policies. Moreover, lenders must now file a Security Assessment Report (SAR) if it has reason to suspect that the transaction (1) involves funds derived from illegal activity; (2) is designed to evade Bank Secrecy Act requirements; (3) has no apparent legitimate explanation for the transaction; and (4) involves the use of the loan to facilitate illegal activity. Independent testing of compliance with the AML practices is also mandated.
The intention of these laws is primarily to address the possibility that terrorists, drug dealers, and organized criminals could use real estate purchases to "clean" funds that would otherwise have been considered fruits of illegal activity. Nevertheless, FinCEN's broader focus on "fraud" in the mortgage context certainly ensures that these laws may be used to attack common mortgage fraud, including but not limited to equity stripping schemes and loan modification scams. There are also requirements for immediate reporting to law enforcement if there are suspected terrorist activities at issue.
According to FinCEN, it is expected that, through the cooperation of lenders, the detection of criminal and fraudulent mortgage activity will be greatly enhanced. Companies should already be underway in establishing a their AML policies and procedures. Aug. 13 is right around the corner.
