Mortgage Bankers Association

1. Mortgage Bankers Association Complying with the USA PATRIOT Act Vicki Vidal, Mortgage Bankers Association Jacob Thiessen, Buckley Kolar LLP Legal Issues and Regulatory Compliance Conference April 28, 2004

2. What Is the USA PATRIOT Act? • Passed October 26, 2001 • Title III significantly amends Bank Secrecy Act • Definition of covered financial institutions expands • Existing definition already lengthy • USA PATRIOT adds new categories • New urgency to existing BSA responsibilities • Regulations required for all covered financial institutions • Firm deadlines for regulations • New BSA responsibilities 2

3. Key Provisions of USA PATRIOT Act • Section 352: Anti-Money Laundering Program   • Section 326: Customer Identification Program • Section 314: Information Sharing & Safe Harbor 3

4. Institutions Subject to USA PATRIOT Act • All Final Regulations in Place • Banks, thrifts, credit unions, broker-dealers, mutual funds, money services businesses • Operating subsidiaries of banks & thrifts • Some Proposed Regulations Issued • Insurance Companies • Investment Advisors • Advanced Noted of Proposed Rulemaking • “persons involved in real estate closings and settlements” • No Regulatory Action Yet • “loan and finance companies” • Independent mortgage companies 4

5. Section 352 – StatutoryRequirements • Internal policies, procedures, and controls to detect and prevent money laundering • Internal compliance officer • Employee training program • Independent audit function to test and review programs 5

6. Section 352 – Regulatory Requirements • Policies/Procedures/Controls • Reasonably designed to prevent money laundering or terrorist financing • Achieve and monitor compliance • “Independent” Compliance Testing • AML Officer • Training for Appropriate Persons • Procedural elements: • Written policy • Approved by Board or equivalent • Available to FinCEN, regulator on request 6

7. Section 352 – Next Institutions to be Covered • ANPR published for “Persons Involved in Real Estate Closings and Settlements” • Categorical Definition • Closing agent • Real estate agent(s) • Attorney(s) representing buyer and/or seller • Financing entity (bank/mortgage broker/other) • Title insurer, escrow agent, appraiser, other? • Functional Definition: any person whose products/services can be abused by money launderers • Operative Definition: any person well-positioned to identify suspicious conduct • Regulators have not yet made any public statements about what “Loan and Finance Companies” means 7

8. Customer Identification Program • Board of Directors approval (day-to-day administration can be delegated to management) • Program must be in writing & part of institution’s Section 352 program • CIP program can be tailored to particular business: • * risk-based procedures to verify every customer • * to extent reasonable and practicable • * enable the institution to form a reasonable belief that it knows the true identity of the customer 8

9. CIP: Basic Elements • Obtain customer identification information (name, DOB, address; identification number) prior to opening an account; • Verify the identity of each customer who opens an account; • ·   Retain identifying customer information and information used to verify the person's identity; • ·   Determine if person is on any list of known or suspected terrorists/terrorist organizations; • ·Give customer notice that identity information will be collected and verified 9

10. CIP: Basic Elements • What Is an Account? • Who Is a Customer? • Data Gathering • Name • Date of Birth • Street Address • Identification Number • Verification of Information • Recordkeeping 10

11. Ways to Verify Information 11

12. Recordkeeping Requirements 12

13. CIP: Miscellaneous Provisions • Notice to Customers of Collection & Verification Requirement • Financial Institutions May Rely on Other Financial Institutions to Perform their CIP Functions • No Lists Specified (independently check the OFAC list) 13

14. Section 314– Information Sharing • Government Can Demand Information from Financial Institutions • Demand must come through FinCEN • Only applies to FIs required to have Section 352 Anti-Money Laundering Programs • Financial Institutions Can Share Information With Each Other for Counter-Terrorist Purposes • File Notice of Intent to Share with FinCEN • Check Information Before Sharing • Share only with Financial Institutions that: • have completed the Notice of Intent to Share • have a mandated money laundering program • Refile Notice Annually 14

15. OFAC Rules • Sanctions Programs • Communist Dictatorships (Cuba, North Korea) • Terrorist Sponsors (Iran, Sudan) • Other Foreign Policy Goals (Zimbabwe, Myanmar) • Executive Order 13224: Specially-Designated Nationals and Blocked Persons • Narco-Traffickers • Terrorists • Global Terrorists 15

16. Applicability of OFAC Rules • All financial relationships • Customer relationships • Vendor relationships • Partnerships • Employment • All U.S. Persons • U.S. citizens anywhere in the world • Persons residing in U.S. • U.S. corporations 16

17. Blocking, Rejecting and Freezing • U.S. Persons must block all prohibited transactions • Includes all transactions involving SDNs • Includes most transactions associated with sanctioned countries (check sanctions program) • U.S. Persons must reject all prohibited payments • Can’t deposit checks • Can’t accept thing of value • U.S. Persons must freeze all assets in their possession belonging to SDNs or subject to country sanctions • Notify OFAC • Apply for license to unfreeze 17

18. Compliance With the OFAC Rules • Check names before accepting money • Strict liability • Cost of freeze • Regular check of customers, vendors, employees • OFAC list changes frequently • Enforcement and liability • Mitigating and aggravating factors 18

19. Sources of Additional Information • Financial Crimes Enforcement Network (FinCEN): • www.fincen.gov • helpline: 800-949-2732 • Office of Foreign Assets Control (OFAC):http://www.ustreas.gov/offices/eotffc/ofac/ • Presenters’ Contact Information: • Jacob Thiessen Vicki Vidal • Buckley Kolar LLP Mortgage Bankers Association • 1250 24th Street, N.W., Suite 700 1919 Pennsylvania Avenue, N.W. • Washington, DC 20036 Washington, D.C. 20006 • Phone: (202) 349-8062 phone: (202) 557-2861 • Email: jthiessen@buckleykolar.com email: vvidal@mortgagebankers.org 19