AML

1. AML and Fraud: Both Are Bottom Line Issues
By James H. Freis Jr.
Financial institutions often associate the Financial Crimes Enforcement Network’s
(FinCEN) mission exclusively with our regulatory mission in the anti-money laundering
(AML) arena. In reality, the breadth of financial crimes and FinCEN’s mission is much
broader and includes a necessary focus on a broad category of financial crimes that is of
keen interest, namely fraud.
With good reason, depository institutions keep a watchful eye on and take essential
precautions to prevent and root out fraud. FinCEN recognizes that community banks have
a commercial interest in combating fraud because its impact can be readily seen in an
institution’s reputation and bottom line. Indeed, half of all FinCEN’s Suspicious Activity
Reports generally cite money laundering and Bank Secrecy Act violations, but the largest
categories of specific types of illegal activity noted by banks in their filings are for fraud,
including check and mortgage loan fraud.
FinCEN and law enforcement officials view Bank Secrecy Act information as invaluable,
whether the information stems from money laundering or fraud. In this context, a
criminal’s addresses or telephone number or a co-conspirator detected through a fraud-
related Suspicious Activity Report has the same value to law enforcement as those
detected through structuring SARs. Interestingly, fraud and money laundering are often
interconnected because proceeds of any large scale fraud will ultimately need laundering.
To achieve FinCEN’s and depository institutions’ common goal of preventing terrorist
financing and criminal abuse of the financial system, each of the anti-money laundering
and the anti-fraud efforts can—and should—build upon and inform the other. I believe
community banks can harness their efforts, not just to fight fraud, but to help fight
financial crime across the spectrum.
The Business Case
When criminals perpetrate financial scams, they can leave lives in ruins. Business
relationships can collapse, and losses can accumulate for a fraud victim’s financial
institution as well. No banker wants a scam artist profiting at the expense of the bank or
its customers—that’s common sense. This makes it easier to sell the need for a fraud
specialist to bank executives because of the tangible impact on an institution’s bottom
line.
Meanwhile, over in the bank’s marketing department, it is prudent to know customers’
expected activity and business needs, not just to direct them to the product lines that are
best suited for them, but also to spot opportunities to offer them other beneficial financial
products.
FinCEN understands that banks often view their anti-money laundering programs as
purely a cost-center driven by regulatory requirements.

2. The direct benefits of a strong anti-money laundering program are hard to measure on the
balance sheet; but no reputable financial institution wants allegations of money
laundering to damage its reputation once the scheme is exposed. In addition, having
criminals as customers runs counter to community bankers’ code of ethics.
In many cases, I believe that the information community banks are required to collect to
comply with anti-money laundering requirements is the same as that already gathered for
both business and anti-fraud purposes. Thus, resources spent on fraud detection and
prevention within an institution can be harnessed for anti-money laundering purposes,
and vice versa.
As for the customer identification protocol requirements, many of these may be of
interest to the institutions’ sales and marketing department. FinCEN knows that these
overlaps won’t produce enough savings to offset all of the costs of complying with its
regulations, but financial institutions can reap benefits by leveraging their anti-fraud and
marketing resources with their anti-money laundering efforts.
The Proof: Mortgage Fraud
There are many examples of depository institutions—including community banks—
whose vigilant employees filed Suspicious Activity Reports that provided leads to law
enforcement involving both money-laundering and fraud, ultimately resulting in
successful prosecutions, and these do benefit the bank’s bottom line.
In November 2006, FinCEN published its first report on trends in mortgage fraud based
on analysis of Suspicious Activity Reports. The interconnectedness of financial crime
was clear. About 20 percent of the more than 37,000 mortgage-fraud-related Suspicious
Activity Reports filed in 2006 describe suspicious structuring and/or money laundering.
Moreover, 11 percent of the mortgage fraud-related reports were associated with some
other illicit activity, such as tax evasion or identity theft.
In a subsequent report in April 2008, FinCEN found that because of heightened
awareness of these problems, institutions were catching more fraud before funds left the
institution, thereby preventing a loss before it had even occurred.
Conclusion
How can an anti-money laundering program directly help your community bank? Astute
reporting by community bankers of suspicious activity has a multiplying effect: helping
the government get criminals off the streets and out of your institutions; helping protect
your own institution from financial losses; protecting your institution’s reputation; and
protecting your customers from becoming victims of crime.
But I firmly believe that the benefits go beyond its face value, and that the systems
community bankers have in place to both effectively market their products and to detect

3. fraud can be used in concert with programs to comply with FinCEN regulations. Simply
put, the effort expended to comply with BSA requirements is consistent with your
business goals.
Your efforts protect your bank, your customers, the financial system as a whole and the
nation’s economy. Thank you for the continued partnership toward our common goals.
James H. Freis Jr. is director of the Treasury Department’s Financial Crimes
Enforcement Network (FinCEN), which administers the Bank Secrecy Act.