FFIEC releases updated BSA/AML manual

Aug 27 2007 Brett Wolf

The Federal Financial Institutions Examination Council has released its annual updates to the Bank Secrecy Act/Anti-Money Laundering Examination Manual. The manual contained a number of noteworthy revisions, including changes to sections on "customer due diligence," money laundering "red flags" and suspicious activity reporting.

The BSA/AML manual was initially released in 2005 and the first update came in July of last year. This latest version comes almost two months to the day after Treasury Secretary Henry Paulson's declaration that BSA compliance obligations should be treated in a manner that avoids expenditures that are not commensurate with actual risk. His stated goal was and is to ease the BSA compliance burden faced by small US banks that do not do business internationally.

When Paulson embarked on his crusade, a spokeswoman for the Financial Crimes Enforcement Network said that related changes would be made to the BSA/AML manual "within a year." Of course, such changes do not appear in the manual released on Friday. The statement accompanying the release, however, offers some hope.

"Any resulting changes in the BSA/AML examination process will be incorporated into future versions of the manual," the FFIEC equivocated.

The 2007 updates

The sections of the updated manual that feature the most significant revisions are highlighted in the table of contents by a "2007" notation. These include:

  • Customer Due Diligence: the tome contains more about how to distinguish between lower-risk and higher-risk customers and the intensity of "due diligence" that each type merits.
  • Suspicious Activity Reporting: it contains more details about law enforcement inquiries and requests and includes new guidelines to do with the maintenance of accounts and supporting documents.
  • Foreign Correspondent Account Recordkeeping and Due Diligence: this updated section covers new "enhanced due diligence" requirements with respect to correspondent accounts established or maintained for certain foreign banks.
  • Office of Foreign Assets Control: there are new and more detailed guidelines to do with screening responsibilities in connection with automated clearing house transactions and corresponding revisions to the automated clearing house section.
  • Foreign Correspondent Accounts: contains more details about risk mitigation.
  • Electronic Banking: adds details regarding Remote Deposit Capture. RDC is a service that allows a user to scan checks and transmit the scanned images and/or automated clearing house data to a bank for posting and clearing. The Federal Reserve has referred to it as the most important development in the US banking industry for years.
  • Trade Finance: the guidelines are clearer than before about regulators' expectations, they interpret jargon more accurately and they go into greater detail about risk mitigation practices.
  • Non-Bank Financial Institutions: the manual contains more about the provision of banking services to money services businesses.
  • Appendix F: Money Laundering and Terrorist Financing "Red Flags": the manual expands on last year's examples of "red flags" for trade finance, automated clearing house transactions, shell company activity and other potentially suspicious customer activity, also adding new examples of suspicious lending activity.
  • Appendix R: Enforcement Guidance: here the manual adds recently issued interagency enforcement guidance to do with firms' BSA/AML shortcomings.



A new index

It should also be noted that the FFIEC, in an effort to make the manual more user-friendly, has added a detailed, cross-referenced index with a glossary of important terms and lists of subject matter.