Money laundering has been a worldwide issue for decades, and the reality is that money laundering is a common practice and a big problem in South Florida. Due to the international nature of our city, Miami is being targeted by law enforcement and other regulatory agencies in an effort to crackdown on money laundering.
The past few years have been a busy time for regulators and government agencies throughout the U.S., and especially in South Florida. From the three Geographic Targeting Orders (GTOs) issued by FinCEN, one of the U.S. Department of Treasury’s lead agencies in the fight against money laundering, targeting South Florida businesses, to the Panama Papers, the bottom line is that banks are required to ask more questions.
The three GTOs issued in South Florida impacted title companies handling all cash deals in real estate purchased by entities in Miami-Dade County, businesses cashing tax refund checks in Miami-Dade and Broward counties, and importers and exporters of electronics accepting cash payments in Doral.
More recently, the Panama Papers exposed how wealthy individuals, political officials, and criminals may use offshore entities for illegal purposes, such as avoiding taxes, avoiding sanctions, and laundering money. While creating offshore entities is not an automatic indicator of illegal activity -- they can have legitimate tax and estate planning purposes; their use should trigger some additional questions. For banks, these types of entities require additional scrutiny around the purpose, control, and beneficial owners.
The U. S. government is one of the world’s strongest advocates for cracking down on money laundering, yet the U.S. is one of the easiest places in the world to set up the anonymous companies that facilitate it. However, times are changing. On May 11, 2016, the U.S. Department of Treasury finalized the Customer Due Diligence (CDD) rule, requiring financial institutions to collect and verify the personal information of beneficial owners who own or control 25 percent or more of an entity opening an account. The three core requirements of the final rule include:
1. Identifying and verifying the identity of the beneficial owners of companies opening accounts;
2. Understanding the nature and purpose of customer relationships to develop customer risk profiles; and
3. Conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.
This is not a surprise to most financial institutions in South Florida; rather, it formalizes the expectations of our regulators in this area and makes non-compliance a violation of law.
Additional legislation has also been proposed by the Treasury Department related to beneficial ownership, requiring all companies to report beneficial ownership information at the time of a company’s creation to FinCEN, so it can be made available to law enforcement. Furthermore, the U.S. Treasury has proposed regulations for foreign-owned single-member LLCs and other foreign-owned “disregarded entities” to force them to obtain an Employer Identification Number from the IRS and report information to determine if there is any tax liability. The IRS will also share this information with other tax authorities around the world. This proposed regulation is another step toward global tax governance.
During 2015 alone, U S banks were fined more than $173 million related to BSA issues. South Florida banks must remain vigilant and ask the necessary questions to avoid potential regulatory scrutiny or possible fines. South Florida banks receive more attention from regulators than others as a result of several factors including the international nature of our area and the prevalence of fraud and identity theft.
Banks are required to possess accurate information regarding the identities of customers, the purpose and expected usage of an account, and the financial activity going through the bank. This requires asking more questions in the beginning and throughout the relationship, digging deeper and thoroughly documenting activity. We will continue to see more regulations and regulatory scrutiny in the future as criminals are constantly finding new ways to launder money. Banks must remain in the forefront of these efforts to be successful.
Mindy Baer is the SVP BSA / AML Officer for Sabadell United Bank. She is responsible for overall compliance with the Bank Secrecy Act and anti-money laundering efforts of the Bank. She oversees OFAC compliance, CIP/KYC/EDD for customers, transaction monitoring, investigations, and suspicious activity reporting. She also strategizes with executive management to determine an acceptable customer risk level for the Bank, and fosters ongoing relationships with other departments to ensure an understanding of AML responsibility and accountability. She earned a bachelor’s degree from USF in accounting, an MBA from FAU and is a Certified Anti-Money Laundering Specialist (CAMS), Certified Internal Auditor (CIA), and Certified Financial Services Auditor (CFSA). Baer can be reached at Mindy.firstname.lastname@example.org - www.sabadellbank.com