FinCEN defines dealers/retailers of precious metals, precious stones, jewels or other money substitutes

[EXCERPT]

Dealers and certain retailers engaging in the purchase and sale of precious metals, precious stones, or jewels are financial institutions under FinCEN regulations. FinCEN defines a dealer as “a person engaged within the United States as a business in the purchase and sale of covered goods and who, during the prior calendar or tax year (i) purchased more than $50,000 in covered goods; and (ii) received more than $50,000 gross proceeds from the sale of covered goods.” 11 FinCEN includes in the definition of “dealer” those persons “… engaged within the United States in the business of sales primarily to the public of covered goods… who during the prior calendar or tax year… purchased more than $50,000 in covered goods from persons other than dealers or other retailers (such as members of the general public or foreign sources of supply.”12 The term “covered goods” includes precious metals as listed in 31 CFR § 1027.100(d). Based on your letter, and subject to the monetary threshold and type of supplier considerations explained above, the purchases and sales the Company entered into on its own account would make the Company a dealer in precious metals, and therefore a financial institution subject to FinCEN regulations.

When acting as either a money transmitter or a dealer in precious metals, precious stones, or jewels, the Company must assess the money laundering risk involved in its non-exempt transactions, and implement an anti-money laundering program to mitigate such risk. In addition, the Company must comply with the recordkeeping, reporting, and transaction monitoring requirements under FinCEN regulations. Examples of such requirements include the filing of reports relating to currency in excess of $10,000 received in a trade or business (31 CFR § 1027.330) whenever applicable, general recordkeeping maintenance (31 CFR § 1027.410), and recordkeeping related to the sale of negotiable instruments (31 CFR § 1010.415). Furthermore, to the extent that any of the Company’s transactions constitute a “transmittal of funds” (31 CFR § 1010.100(ddd)) under FinCEN’s regulations, then the Company must also comply with the “Funds Transfer Rule” (31 CFR § 1010.410(e)) and the “Funds Travel Rule” (31 CFR § 1010.410(f)). Additionally, as a money transmitter, the Company must register with FinCEN within 180 days of starting to engage in convertible virtual currency transactions as an exchanger (31 CFR § 1022.380).


Do you agree with this inclusive definition of dealers/retailers as well as precious metals, precious stones, jewels or other money substitutes?


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.



 

Cyber Attacks Compromising Credentials

731px-US-FFIEC-Logo.svgOn Monday, the Federal Financial Institutions Examination Council (FFIEC) released a statement warning and advising financial institutions about hacking and phishing that is leading to stealing credentials to bank accounts, credit card accounts and other financial accounts. This is an issue that has been around a while but the advice has generally been going to consumers. This message was to institutions. There was a special note for community banks. Rightfully so since community banks tend to have less resources available to protect themselves from these attempts. The attempts are not being made to the institutions, but it is still in their interest to protect their customers as best as they can. Detecting fraudulent transactions early will mitigate risks, reduce liabilities and keep insurance premiums down.

The highlights can be found HERE and the full statement can be found HERE.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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PayPal’s $7.7 million fine is a boost to CompliTech

PayPal Logo
PayPal Logo

Last week, PayPal, the eBay owned online payment company, was fined $7.7 Million for 486 OFAC violations. And that was a reduced fine just for 2013. 2014 investigations have not been completed at this time. That comes to nearly $16,000 per violation. Considering the number of transactions PayPal does, 486 is nothing. But then again, if fines were applied to a larger number of transactions, PayPal wouldn’t have a viable business model. And these violations were made with a strong compliance and anti-money laundering department. Imagine the violations without such a department in place.

PayPal and other Financial Technology (FinTech) firms are categorized as Money Service Businesses (MSB’s), not banks, because they do not offer depository services. this categorization does not absolve them from regulations pertaining to transactions and sanctions, like banks. Last week, they found out what it will cost them to stay compliant.

Generally, FinTech firms consider themselves to be the new alternative to banks. So, they don’t work with banks unless forced. So, compliance is not something FinTech spends a lot of time worrying about, resulting in less compliance experience.

Banks, however, despite their effort to reduce the effects of regulations, have been beefing up their compliance departments as well as vendor services. Some of the vendors are in the new sector of Compliance Technology, or CompliTech.

CompliTech has been around a decade or more but its recognition as a sector of its own is brand new. CompliTech is made up of a handful of firms across the US and Europe as well as groups within existing large bank systems providers. Their products are not yet fully tested, still require incredible amounts of human intervention and are expensive. Small financial players like community banks, credit unions and FinTech cannot afford their services.

But these are the very firms that need CompliTech services the most. If an organization is trying to provide inexpensive products and services with convenience without compliance programs afforded by economies of scale afforded at large institutions, they run a greater risk of serving cash-based businesses and immigrant populations with ties to foreign businesses. These providers face all of the threats of global banking without the benefits. To make matters worse, when a few CompliTech firms emerge as the leaders in the industry, big banks, bank systems providers and large consulting firms are more likely to snatch them up, leaving fewer options for FinTech to fend for themselves.

PayPal is an exception to all of this, as it is an exception in FinTech. It has been a round a while, it is large, and, these afford it a sophisticated compliance program. It hires PhD’s to do statistical analyses and ex-military intelligence officers to execute counter-terror financing. What startup can afford such programs?

CompliTech will eventually get around to serving FinTech. But until then, FinTech is far from taking over the transaction space.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


FFIEC Means Federal Financial Institutions Examination Council

The Council is a formal interagency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions by the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), and the Consumer Financial Protection Bureau (CFPB), and to make recommendations to promote uniformity in the supervision of financial institutions. In 2006, the State Liaison Committee (SLC) was added to the Council as a voting member. The SLC includes representatives from the Conference of State Bank Supervisors (CSBS), the American Council of State Savings Supervisors (ACSSS), and the National Association of State Credit Union Supervisors (NASCUS). – FFIEC

FFIEC, recently, has been very much focused on information technology and cybercrime resilience.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


CAR Mean Capital Adequacy Ratio

Capital Adequacy Ratio is both a calculation and a standard. The calculation is:
(Tier 1 Capital + Tier 2 Capital) ÷ Risk Weighted Assets

The standard is 10%.

Accounting becomes very important in the final steps of this calculation because of the classification defined by Basel III.

  • Tier 1 Capital are common stock, retained earnings and non-redeemable preferred stock.
  • Tier 2 Capital are subordinated debt, hybrid instruments, revaluation reserves and undisclosed reserves.
Photoshopped image of Alan Greenspan, former Chairman of the Federal Reserve Board

Essentially, Tier 1 are what most people think of as shares of a corporation and what the bank has earned and retained over the years. Retaining the earnings rather than using it to provide dividends is a way to increase the assets of the organization, build a reserve to be deployed when needed. Tier 2 are preferred equity and long term debt the bank borrows, leverage.

The Capital is there to fund the business when business takes a sudden downturn. The 10% standard means that business can suddenly take a 10% dive and the bank will still be solvent. When CAR is 0%, the bank must start selling its assets to pay for its debts. One way to reduce the likelihood of avoiding this level is to be able to deploy borrowed funds that are due later to pay for the ones that are due currently. While this doesn’t mean the bank is healthy, but this gives the bank time to rebuild its reserves.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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DFAST Means Dodd-Frank Annual Stress Test

Dodd-Frank Annual Stress Test is a simulation that tests the financial system’s ability to remain solvent. It was enacted when Congress enacted Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly know as the Dodd-Frank Act, named for its sponsors Senators Chris Dodd (Connecticut) and Barney Frank (Massachusetts).

Scenarios simulated are not arbitrary. There are 28 variables and they are based on historical economic crises. The variables are such things as rise in unemployment, rise in oil prices, rise in interest rates, fall of the GDP or a sudden equity market crash. National banks and federal savings associations are categorized into two for the simulation: those with more that $50 Billion in assets and those with less. Those with less than $10 Billion are exempt from participating in the Test.

Dodd-Frank Update.com Logo
Dodd-Frank Update.com Logo

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About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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BHC Mean Bank Holding Company

Bank Holding Company is a company that owns one or more subsidiary banks. There is no regional designations for such a company, but often they are interstate and international. These companies are usually interstate because there is no reason to hold multiple bank brands within a given state. Many of these companies are international, reaching both investors and clients abroad.

Bank Holding Companies are supervised by the Federal Reserve.

chevy chase capital one

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About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.