AllRegs Compliance Commentary: FinCEN Requires Anti-Money Laundering and SAR Filing for Non-Bank Lenders

by Anna DeSimone*, February 21, 2012 

Related Topics: Mortgage Compliance, Flipping, AML

On February 7, 2012, the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, finalized regulations that require non-bank residential mortgage lenders and originators to establish anti-money laundering (AML) programs and file suspicious activity reports (SARs).   This requirement parallels FinCEN's requirements of depository institutions and continues the effort to close the regulatory gap between the two types of mortgage lenders. According to FinCEN Director James H. Freis, Jr., "Suspicious activity reports are a critical source of information to law enforcement and regulatory agencies in their investigation and prosecution of mortgage fraud and a wide range of other financial crimes."

President Obama created the Financial Fraud Enforcement Task Force by Executive Order in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys' Offices and state and local partners, it is the broadest collection of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.

Since its formation, the Task Force has made great strides in facilitating increased investigation and prosecution of financial crimes, enhancing coordination and cooperation among federal, state and local authorities. Task force members have charged a record number of mortgage fraud cases in the past two years, trained more than 100,000 professionals responsible for awarding and overseeing Recovery Act funds.

Based on FinCEN's ongoing work directly supporting criminal investigations and prosecutions, including connection with the Financial Fraud Enforcement Task Force and the Residential Mortgage-Backed Securities Working Group, FinCEN believes that the new regulations will help mitigate some of the risks and minimize some of the vulnerabilities that criminals have exploited in the non-bank residential mortgage sector.

Analysis of SARs reported in FinCEN's annual, quarterly and special fraud reports, shows that independent mortgage lenders and brokers originated many of the mortgages that were the subject of bank SAR filings.

Among the many mortgage related scams FinCEN has identified in its reports are:

• False statements
• Use of straw buyers
• Fraudulent flipping
• Flopping
• Identity theft

The new regulations likely will significantly increase the number of mortgage related SAR filings, give law enforcement and regulators more comprehensive data on specific crimes, and provide government and industry a more complete perspective on mortgage related crime trends nationwide.

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*Anna DeSimone is President and founder of Bankers Advisory, Inc., a quality control and compliance audit services company. Bankers Advisory authors state compliance matrices, policy manual templates and compliance commentaries exclusively for AllRegs.

Disclaimer: The information presented in this article represents the opinion of the author and not that of AllRegs. This article is not meant to be nor should it be construed as advice of legal counsel. The applicability of the information contained herein will vary based on the nature of each lending institution's business, under what law it was created, and its loan products and procedures. Readers are strongly urged to consult with their legal counsel and/or contact local counsel as appropriate in the various states and jurisdictions to determine the applicability of the materials contained herein to the specific facts and circumstances of each organization's programs and products and to identify other law applicable to its business operations. The information contained herein was not reviewed or approved by counsel in the respective jurisdictions.