Key Takeaways
- BSA requires financial institutions to report suspicious activities and large cash transactions
- Currency Transaction Reports (CTRs) required for cash transactions over \$10,000
- Suspicious Activity Reports (SARs) required when MLOs detect potential fraud or money laundering
- Customer Identification Program (CIP) requires verifying borrower identity before opening accounts
- USA PATRIOT Act enhanced BSA requirements after 9/11
- MLOs play critical role in detecting and reporting suspicious activity during loan origination
Bank Secrecy Act and Anti-Money Laundering (BSA/AML)
The Bank Secrecy Act (BSA), also known as the Currency and Foreign Transactions Reporting Act, is the primary anti-money laundering (AML) law in the United States. The USA PATRIOT Act significantly expanded BSA requirements after the September 11, 2001 attacks.
Why BSA/AML Matters for MLOs
Mortgage transactions can be used for money laundering — the process of disguising illegally obtained funds as legitimate. MLOs are on the front line for detecting:
- Fraud (inflated appraisals, straw buyers, false income)
- Money laundering (criminal proceeds used for down payments)
- Terrorist financing (funds supporting terrorist activities)
Customer Identification Program (CIP)
The CIP requirement under the USA PATRIOT Act requires financial institutions to:
Required Identity Verification
| Requirement | Details |
|---|---|
| Obtain information | Name, date of birth, address, identification number (SSN or Tax ID) |
| Verify identity | Using documents, non-documentary methods, or combination |
| Maintain records | Keep identity verification records for 5 years after account closed |
| Check OFAC lists | Screen against Office of Foreign Assets Control sanctions lists |
Acceptable Identification Documents
| Primary Documents | Secondary Methods |
|---|---|
| Driver's license | Credit bureau verification |
| State ID card | Database searches |
| Passport | Financial statement review |
| Military ID | Reference from another institution |
Currency Transaction Reports (CTR)
Financial institutions must file a CTR with FinCEN for:
| CTR Requirement | Threshold |
|---|---|
| Cash transactions | Exceeding $10,000 in a single business day |
| Multiple transactions | Combined cash transactions exceeding $10,000 by same person |
| Structuring detection | Attempts to break up transactions to avoid $10,000 threshold |
CTR Filing Requirements
| Requirement | Details |
|---|---|
| Filing deadline | Within 15 days of transaction |
| Filed with | FinCEN (Financial Crimes Enforcement Network) |
| Record retention | 5 years from date of report |
| Customer notification | Not required (and may be prohibited) |
Suspicious Activity Reports (SAR)
A SAR must be filed when the institution knows, suspects, or has reason to suspect:
SAR Filing Triggers
| Trigger | Description |
|---|---|
| Funds from illegal activity | Proceeds from crime used in transaction |
| Transaction to evade reporting | Structured to avoid CTR or other reporting |
| No lawful purpose | Transaction has no business or legal purpose |
| Unusual activity | Not the sort of activity expected from customer |
| Criminal violation | Transaction involves violation of law |
SAR Thresholds and Filing
| Scenario | Threshold |
|---|---|
| Insider involvement | Any amount |
| Criminal violation identified | $5,000 or more |
| Suspicious activity | $5,000 or more ($25,000 for institutions w/o federal regulator) |
SAR Filing Requirements
| Requirement | Details |
|---|---|
| Filing deadline | Within 30 days of detection (60 days if no suspect identified) |
| Filed with | FinCEN |
| Record retention | 5 years from date of report |
| Confidentiality | Cannot disclose SAR filing to subject of report |
WARNING: It is a federal crime to "tip off" a customer that a SAR has been or will be filed.
Red Flags for MLOs
MLOs should watch for these suspicious activity indicators:
Application Red Flags
| Red Flag | Potential Issue |
|---|---|
| Large cash down payment with no clear source | Money laundering |
| Income inconsistent with employment | Income fraud |
| Reluctance to provide documentation | Identity fraud |
| Property flipping with rapid price increases | Appraisal fraud |
| Straw buyer indicators | Fraud scheme |
Transaction Red Flags
| Red Flag | Potential Issue |
|---|---|
| Multiple transactions just under $10,000 | Structuring |
| Rush to close with minimal documentation | Fraud |
| Wire from unknown third party | Money laundering |
| Significant last-minute changes to closing | Fraud |
| Power of attorney for all transaction activity | Straw buyer |
MLO Responsibilities
As a mortgage loan originator, you must:
| Responsibility | Action |
|---|---|
| Know Your Customer | Verify identity, understand transaction purpose |
| Document | Maintain records of identity verification |
| Report | Notify compliance if suspicious activity detected |
| Cooperate | Support institution's AML program |
| Train | Complete required AML training |
Penalties for Violations
| Violation Type | Penalty |
|---|---|
| Failure to file CTR | Up to $500,000 fine and/or 10 years imprisonment |
| Failure to file SAR | Civil money penalties up to $1 million per day |
| Structuring | Up to $500,000 fine and/or 10 years imprisonment |
| SAR tip-off | Criminal penalties, termination, industry bar |
| Willful violations | Enhanced penalties, potential prosecution |
At what cash transaction threshold must a Currency Transaction Report (CTR) be filed?
An MLO notices a borrower making multiple $9,500 cash deposits over several days. What should the MLO do?
When a SAR is filed, what must the financial institution do regarding customer notification?