This Week in AML

Do You Know How to Serve Complex Clients?

This week, Executive Vice President John Byrne, and Creative Director Elliot Berman of the AML RightSource staff talk about the NCUA’s recent Cease and Desist Order to Live Life Federal Credit Union. John and Elliot discuss the complexities of providing services to marijuana-related businesses and dealing in virtual currency; and the lessons that all FIs can glean from the Order.


Do You Know How to Serve Complex Clients? TRANSCRIPT


Elliot Berman: Hi, John, how are you today?

John Byrne: Hi, Elliot and fine, you?

Elliot Berman: [I’m] Good too, thanks. This week I thought it would be interesting to talk about an order that actually came out last late last month from the NCUA and it related to live life federal credit union. I wondered if you saw that order?

John Byrne: Yeah, I did - and I think it's interesting on a couple of levels. Obviously, credit unions do get examined and the oversight is, as it is with traditional banks, there's always been some question by the AML world, “how strong is NCUA[?]”, but I think they should. They've shown certainly in the past decade that they (NCUA) oversee their members or their regulated entities.

[So} that’s one thing, but the second part of it is the C and D relates to some control issues and some systems issues for a credit union that banks marijuana related businesses. That's not the only reason, but that certainly was something that we both flagged. Thought we should spend a couple of minutes talking about.

Elliot Berman: Agreed. There's - and we won't take the time to read everybody the list of consent actions and things that have to be done - but the thing that jumps out when you read them is that this organization, (and I'm thinking there are others out there) may not have fully assessed the risk of taking on a complex client like an MRB.

And therefore, may not also have done an internal assessment of whether they had the infrastructure systems and capabilities to actually handle it. Another interesting part of the order, in addition to the MRV piece, is there's actually a piece related to MSBs and the reference that is in the order is to the FinCEN 2019 directive on illicit activity involving convertible virtual currency.

So again, not that there's anything wrong with having customers who use virtual currency or even banking companies that are involved in a virtual currency economy but understanding the complexities and in doing an internal assessment, to see if you really know how to handle it - what things you ought to be watching for, when the risk alarm should be going off… appeared not to have occurred at this institution.

John Byrne: Right. And there's two other things in here for just all of us as AML professionals: one of the items that they're required to do is to monitor the red flags. In one or the other FinCEN advisories, the 2014 one on BSA expectations regarding marijuana related businesses.

[So] why is that relevant? Whenever FinCEN issues something, whether it's an advisory on human trafficking on virtual currency, on marijuana related businesses, [etc.…] there is an unspoken obligation, frankly, that you're doing something with that. I mean, it sounds obvious to us that are in the space, but I think when you're talking to your business lines and have people outside of compliance, when something is issued, what you need to do is go to separate from the consent, or you need to summarize what's in there, get it out to the lines of businesses and say, “we need to map this to what we currently do”. So, by telling them that - and the one you mentioned on the advisory on convertible virtual currency and illicit activities - they want you to do some things with this. So, I think that's important as well.

And they also say in the order [to] immediately file SARs - because obviously they (NCUA) felt that wasn't going on - and to immediately stop opening MRB accounts.

I think, like I said, even though the marijuana related businesses caught our eye, this is both, this is real, this is relevant for two reasons. One is: credit unions are small, right? Most of them this small (so like a small community bank) - if you take on complicated products, you have to be able to oversee them and comply with all the various requirements. And this is a perfect example of that, I think.

Elliot Berman: I agree. The order indicated that the institution has $69 million in assets, which means modest resources. And so, taking on more complex customers requires a significant commitment to infrastructure - having the right staff and those kinds of things. I think this was the other big [one].

But John, I absolutely agree with you - when FinCEN issues guidance, or when you see a consent order like this, it's important for compliance and others to say, “what is this telling us, and let's do a quick gut check and see, do we have these holes?”. And I mean, not a full gap analysis, but if any of this bothers you, when you read it about your own institution, then you need to make an inquiry.

John Byrne: I agree. And we're not going to leave you hanging - we actually have scheduled for May 27th, a webinar on banking marijuana related businesses.

So, we'll have a vendor on there that'll talk about systems that they have. We'll have practitioners, and we'll give you some great, up-to-the-minute advice because this thing continues to change. Obviously, the distinction between marijuana businesses and hemp businesses, but we've got all your bases covered on May 27th  - hold the date, and we'll send more information as we get closer.

Elliot Berman: Thanks, John. Have a great rest of your week and a weekend and we will talk next week.

John Byrne: Take care of Elliot. Stay safe.

Elliot Berman: Yep, you too. Bye.