Money Laundering, Terrorism and Financial Institutions - USA Patriot Act Monitor

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8/16/2006 Revised Manual for Bank Examiners Describes Risks of Automated Clearing House Transactions, Trade Financing

Automated clearing house (ACH) systems, traditionally used for direct deposits of payroll and government benefits and direct payments on loans, have expanded to include check conversions and other transactions that can be batch-processed. Use of third-party service providers (TPSPs) to create ACH files for an originator or an originating depository financial institution (ODFI) makes it difficult for an ODFI to underwrite and review transactions for BSA/AML compliance, such as detecting suspicious activities. The FFIEC BSA/AML Examination Manual (revised July 2006) states “it is essential that all parties have a strong CDD [customer due diligence] program for regular ACH customers.” Where a bank is heavily reliant upon the TPSP, it “may want to review the TPSP’s suspicious activity monitoring and reporting program, either through its own or an independent inspection.” The revised Exam Manual also contains an expanded section on trade finance activities, which provides considerable detail on a bank’s risks and responsibilities in providing letters of credit. These and other expanded sections of the manual will be described in the November issue of the USA Patriot Act Monitor, and will be incorporated into forthcoming revisions of Money Laundering, Terrorism, and Financial Institutions and the checklists posted at http://www.civicresearchinstitute.com/moneylaundering/index.html.

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