The Financial Crimes Enforcement Network (FinCEN), a bureau of the Department of the Treasury, has announced that as of August 13, 2012, non-bank residential mortgage lenders and originators are required to have implemented anti-money laundering (AML) programs that are reasonably designed to prevent them from being used to facilitate money laundering or the financing of terrorist activities. FinCEN has previously issued regulations defining non-bank residential mortgage lenders and originators as loan or finance companies for the purpose of requiring them to establish anti-money laundering programs and report suspicious activities under the Bank Secrecy Act (BSA).
Pursuant to previous guidance, FinCEN interprets the term “loan or finance company” under the BSA to include any non-bank residential mortgage lenders and originators (RMLOs – generally known as “mortgage companies” and “mortgage brokers” in the residential mortgage business sector).
Under the rule, FinCEN had stated that the AML programs to be implemented by RMLOs must include:
Any AML program established by an RMLO must be approved by senior management. A copy of the AML program must at all times be available for inspection by FinCEN or its designee upon request.
Pepper Points: (1) Although FinCEN’s release does not define what “implement” means, we recommend that all action with respect to implementation of an AML program, including appointment of a compliance officer, approval of the AML program by senior management, and training of appropriate personnel be completed by the August 13, 2012 deadline. Additionally, it is imperative that RMLOs ensure that that their AML compliance programs have been implemented before they represent in any legal document that they are in full compliance with all applicable laws and regulations. It is equally crucial that depository institutions ensure that an RMLO with which it deals has an AML program before accepting a representation from an RMLO that it is in full compliance with all applicable laws and regulations.
(2) RMLOs who work with Government Sponsored Enterprises, the Federal Housing Administration or other federal government entities may find themselves exposed to lawsuits under the False Claims Act should they represent to those organizations that they are in compliance with all applicable laws and regulations, but have inadequate or non-existent AML programs.
Frank A. Mayer III, Richard J. Zack, Andrew C. Maher, Daniel G. Murray and Audrey D. Wisotsky