BSA Highlights and Insights

The Financial Crimes Enforcement Network (FinCEN) has been busy over the past several weeks and has recently issued two alerts. The first alert addresses a new scam called “pig butchering.” Yes, you’ve read that correctly, and just when you think you’ve heard it all. Apparently, this new pig-butchering scam has become a serious problem. On September 8, FinCEN issued Fin-2023-Alert005, providing guidance to banks on how to address the problem and create awareness.

So, what in the world is pig butchering, and what does it have to do with banking? According to FinCEN, pig butchering is a scam using investments in virtual currency that “resemble the practice of fattening a hog before slaughter.” Victims of these scams are encouraged to invest with the scammer after developing a seemingly legitimate business relationship via text messages or social media messaging. After initial investments, the victims will receive returns, which typically entices them to continue making investments on the promise of even greater returns. At some point during the relationship, the scammers will stop all communications with the investor victims and take the entire investment.

FinCEN developed multiple red flags to help banks recognize these schemes while conducting account monitoring. Bank employees should take note and inform the BSA officer of any communications relating to new or increased use of virtual currency, mentions of investment opportunities learned about through text messages or social media, and customer distress related to meeting a deadline for an investment. Banks may also recognize certain activity while monitoring customer accounts that may be indicative of potential pig butchering, including unexplained and unusual liquidation of a savings account or CD; loan proceeds being used for the purchase of virtual currency; incoming and outgoing transfers of virtual currency in similar amounts; and a significant increase in activity on the account, including large transfers, multiple transfers to a virtual asset service provider, and other abrupt changes in account activity.

If a bank discovers suspicious activity potentially related to pig butchering and decides to file a Suspicious Activity Report (SAR), then the key term “FIN-2023-PIGBUTCHERING” should be included in SAR field 2 and in the narrative. The SAR preparer should also select “Fraud-Other” under SAR field 34(z).

The second recent FinCEN alert, FIN-2023-Alert006, was issued on October 20 to help banks in identifying financing to Hamas and other terrorist organizations. FinCEN has asked that financial institutions pay special attention to customers conducting transactions with Office of Foreign Assets Control (OFAC)-designated entities and individuals or transactions with email addresses, physical addresses, phone numbers, passport numbers, or virtual currency addresses related to OFAC-designated areas or individuals; information included in a transaction that indicates support for any terrorist mission; potentially suspicious activity related to charities or nonprofits; and any other indication or suspicion that an account, a person, an entity or a transaction is connected to an OFAC-designated area, terrorist organization, or an individual or entity that supports terrorist activity in any way.

If a bank discovers suspicious activity potentially related to Hamas or other terrorist activities, then the key term “FIN-2023-TFHAMAS” should be included in SAR field 2 and in the narrative. The SAR preparer should also select SAR Field 33(a)(Terrorist Financing-Known or suspected terrorist/terrorist organization).

Fraud — in all forms — is rampant right now, and it is very important for the bank to train not only its BSA staff, but also frontline employees such as tellers and customer service representatives as well as lenders. Customers say the “darndest” things, and knowing what to look for may save your customer and the bank from being scammed. Additionally, while fraud is on the rise, preventing the funding of terrorist organizations is always the top BSA priority. Train employees to look for the red flags included in both FinCEN alerts, and make sure the lines of communication to your bank’s BSA staff are always open and easy to access. And, importantly, don’t forget to report any issues and incidents to the bank’s board of directors, as they have the ultimate responsibility for BSA compliance and should be kept aware of what is going on at the bank.

Community Development Act Highlights

On October 24, 2023, the long-awaited final rules modernizing the Community Reinvestment Act (CRA) were approved and released by the Office of the Comptroller of Currency (OCC), the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (FDIC). The final rule becomes effective on April 1, 2024, but compliance dates are January 1, 2026, and January 1, 2027, depending on the specific provisions. We plan to fully address the specifics of the final rule and its applicability to small, intermediate, and large institutions in future articles and trainings.