AML/CFT BSA Rules and Regulation Customer Due Diligence SAR Fraud Prevention Card Fraud Financial Cybersecurity Fraud Trends Lending & Credit Risk SBA Lending

5 Things BSA Officers Need to Know in COVID-19

August 18, 2020

Read Time: 0 min

Key Takeaways

BSA officers need to stay aware of emerging fraud trends that are a result of the pandemic.
Consider a risk-based lookback for your PPP portfolio to fight fraud.
Embrace technology to help your department and institution successfully shift to remote work.

The coronavirus pandemic has created a “new normal” for many industries, including the financial industry. As Bank Secrecy Act (BSA) professionals shift to working from home while trying to maintain compliance, it can be harder to stay on top of the unexpected.

In a recent webinar, “BSA Market Update – Five Things You Need to Know in COVID-19,” Abrigo’s Terri Luttrell, Compliance and Engagement Director, and Brooke Hamrick, Vice President of Sales, were joined by Eli Dominitz, CEO of Q6 Cyber, to discuss the obstacles BSA professionals are currently facing as a result of the pandemic. Here are five things BSA officers need to stay aware of during these uncharted times.

Be aware of emerging fraud schemes

Any time there is a large-scale, global issue, you can expect to see a rise in fraud, and COVID-19 is no different. Fraud professionals have seen an uptick in fraud schemes targeting the most vulnerable populations – the elderly and unemployed – in money mule schemes, imposter scams, and phishing attacks. Money mule schemes require someone to deposit a fraudulent check into their account and wire a certain amount back to the fraudster. These schemes are marketed as “get rich quick” ploys, usually targeted at the unemployed. Imposter scams involve someone pretending to be a government agent or representative, trying to sell a fake vaccine or COVID-19 test to the victim. Fraudsters target the elderly population with this scam, preying on their health and age.

“You have higher levels of anxiety and an opportunity to manipulate people into picking up the phone or answering an email when they normally wouldn’t,” said Dominitz. “Couple that with the anxiety of COVID and messages around test results or stimulus checks, and it’s become very easy to manipulate people into responding to phishing schemes.”

FinCEN released an advisory of red flags for these fraud trends to bring additional awareness to the situation.

Consider a risk-based lookback for your Paycheck Protection Program (PPP) portfolio

The government was quick to roll-out PPP loans to offer relief to small businesses and communities. Despite the speed and urgency of the loans, financial institutions were not exempt from normal BSA requirements. However, FinCEN has attempted to find a middle ground for financial institutions, and has offered a concession to institutions, exempting them from collecting beneficial ownership information if it is already on file.

As with all loans and transactions, financial institutions must know their customers when it comes to PPP loans because those loans are at a heightened risk for fraud. Financial institutions should have researched their borrowers and their respective companies to see if there is a potential for fraud. Look at the customer due diligence (CDD) information or run a credit check to look for loan stacking, and make sure the number of employees makes sense for their payroll. Ensure the business was established prior to February 15, 2020.

BSA officers should complete regular suspicious activity monitoring on these loans and follow the use of funds. “If you’re a small institution that only did PPP lending to your existing customers and decided not to do a lookback based on a risk-based approach, document that in your policies and procedures,” said Luttrell. PPP loans are heightened risk because of the fraud we’re seeing. “If you carefully document all of this, you will be proactive and prepared for your exam.”

Tap into technology to help prevent and detect financial crime.

Learn more

Digitization is vital

As with shifting their work environment to a digital one, institutions are quickly adapting and implementing new technology to meet their customers or members in a similar digital-first space. There is a greater emphasis on person-to-person payments over debit card use and online account opening instead of visiting a branch. While digital payments are more convenient, especially in today's environment, they can be more difficult to spot fraud and financial crime using manual processes. BSA/anti-money laundering (AML) programs should utilize technology to detect and prevent financial crime through digital payment channels. This is also helping institutions look at technology to enhance their CDD and enhanced due diligence (EDD).

“Fraud departments are making investments in new digital technologies and digitizing some of the processes they have,” said Dominitz. “We’ve also seen a lot of institutions embrace technology by outsourcing certain areas.”

Whether institutions are considering digitizing the lending, portfolio, fraud, or BSA/AML departments, involve senior management in the process to get their buy-in. They might find a specific ROI in the software, specifically if hard-dollar losses are tied to it as they are in the fraud department. If there are no hard-dollar losses tied to it, remind them of the civil penalties that exist for BSA violations.

Review your business continuity plan

When you originally wrote your business continuity plan as required by the Federal Financial Institutions Examination Council (FFIEC), there were probably one or two sentences related to a pandemic and how your institution would react. “If you haven’t written about ‘I have lost 80% of my employees due to the pandemic,’ you need to revise your plan,” said Luttrell. “It’s not ‘what can we do in the short term?’ It’s going to be what are we going to do with the security and IT issues as we work from home? What are we going to do about approving SARs and getting CTRs done? What are we going to replace with that gut instinct we get at the teller line? These should all be in your business continuity plan, not just your policies and procedures.” Now is the time to revise your plan and test it to make sure it works should those “what ifs” happen in the future.

Embracing a remote workforce

The majority of offices around the country have shifted their employees to a remote/in-person hybrid for the foreseeable future. This applies to financial institutions, which have traditionally been conservative in adopting new technologies in the workplace and implementing remote work. BSA officers used to rely on bank tellers to aid in thwarting money laundering and fraud. Now more than ever, financial institution employees need to open more lines of communication across the board. There is no more running into someone in the hallway or break room to discuss potential financial crime or fraud. Employees need to make a conscious effort to communicate with each other and help bring red flags to light to prevent bad actors. From a staffing standpoint, institutions can search for talent without geographical limits or restrictions or concerns about the cost of living in their city. Instead, institutions can hire the best people for a job, regardless of their location. This hiring mindset is new territory for institutions, and it provides flexibility not often seen in the financial sector.

“Early adopters will benefit from a competitive advantage,” Hamrick said. “They’ll retain better talent because people don’t have to commute, and they’re able to be more flexible with their schedules while working from home, which is something people look for now.”

Financial institutions are navigating new territory thanks to the COVID-19 pandemic that is causing them to revisit and reevaluate certain business practices. No longer is the status quo enough. Just as the rest of the world has had to shift to embrace a more digital world, banking is no different. If financial institutions can focus on these five things as they maintain their compliance, they will come out of this pandemic stronger and ready to serve their customers and members better.