North Dade CDFCU, shuttered.
WASHINGTON—A new report by the Treasury’s Financial Crimes Enforcement Network (FinCEN) shines a light on money services businesses (MSBs) and their interactions with financial institutions—particularly credit unions.
The “confidential” February report obtained by the Wall Street Journal lists more than 50 credit unions that have been identified as vulnerable to potential money laundering, but does not assert any wrongdoing by the CUs, the Journal stated.
The FinCEN report, according to the Journal, says CUs’ vulnerability to potential money laundering is increasing, and points to MSBs turning to more to credit unions as they are turned away from banks for services. The trend was previously reported by CUToday.info in an investigative series covering the problems at tiny North Dade Community Development FCU in Miami Gardens, Fla.
The $3-million North Dade was liquidated by NCUA in March following its heavy involvement with MSBs. It had partnered at one time with 56 MSBs.
CU Violated Charter Provisions
NCUA stated in a release that it made the decision to liquidate North Dade and discontinue operations after determining the credit union had violated various provisions of its charter, bylaws and federal regulations.
North Dade was fined $300,000 last year by FinCEN for significant Bank Secrecy Act (BSA) violations. That $300,000 fine represented almost half of the CU’s net worth at the time. North Dade’s Call Report data revealed a credit union whose direction markedly shifted over the last three to four years—away from providing typical credit union services to relying heavily on income from wire transactions. The tiny CU did more than $1 billion in outgoing wires in 2013.
As noted in previous CUToday.info reports, marriages of MSBs and small CUs may be increasing, as they both need each other—small CUs need the revenue and MSBs need an FI partner.
CUToday.info reported that many MSBs are simply searching for banking partners, while others with more nefarious motivations are in search of small financial institutions without strong internal controls.
The Wall Street Journal noted that FinCEN’s report said “criminal groups and drug trafficking organizations may be actively targeting vulnerable credit unions to access the formal financial system,” in part by moving money through money services businesses. The analysis was based on a review of currency-transaction reports from credit unions from February 2012 to January 2014 and suspicious-activity reports filed by other banks and financial institutions from April 2013 to January 2014.
Actors FCU Partnering With MSBs
The Journal article lists the $210-million Actors FCU in New York as among those credit unions working with MSBs, quoting CU executives as saying the credit union is increasingly approached by money services businesses, with 29 currently as customers.
“We definitely turn down more than we accept,” Chuck Brown, director of development at Actors, told the publication. He said the businesses can generate substantial fees for the credit union, but that it scrutinizes those clients closely, in part because those businesses can be dangerous if they aren’t vetted.
The Journal article reminded that the attention MSBs are giving CUs is an unintended consequence of the crackdown against big banks. “After large settlements over money-laundering controls at J.P. Morgan Chase & Co. and HSBC Holdings PLC, among others, many banks are rebuffing customers who are considered higher risk. J.P. Morgan and HSBC admitted to a statement of facts in the settlements,” the Journal reported.
The publication also noted that Citigroup Inc. is expected to shut its Banamex USA unit and is in discussions to settle probes related to anti-money-laundering controls at the division.
Besides shuttering North Dade, NCUA has taken action to ensure CUs don’t get into more trouble with MSBs. Following North Dade receiving its $300,000 fine, NCUA provided guidance to CUs that create MSB partnerships.
NCUA issued a Letter to Credit Unions (14-CU-10) on working with MSBs and developed examiner guidance on evaluating credit unions that provide account services to MSBs.
Remittances Webinar
The agency is also holding a “Remittances and Other Money Transfer Services” webinar on June 17. Among several topics, experts will cover how to choose the appropriate remittance partner, and BSA and other regulatory issues to consider.
NAFCU SVP of Government Affairs and General Counsel Carrie Hunt, responding to the FinCEN report and Wall Street Journal article, stated that, “Financial services today are filled with complex challenges to which credit unions are not immune, and NAFCU supports sensible regulation and exams that are tailored to actual risks. NCUA, jointly with FinCEN and other financial regulators, has issued clear guidance relative to money service businesses to identify and address potential risks.
“I will note that NAFCU has expressed concern and questions to FinCEN as to circumstances of the release of confidential information – even though, based on the article, it does not appear that any credit union is accused of wrongdoing or an activity that would require regulatory action,” continued Hunt. “NAFCU opposes any regulation that unnecessarily impedes credit union operations.”