Credit Unions Face Growing Threats from Money Laundering Risks
In recent years, credit unions have become increasingly attractive to money launderers and other illicit financial operators. The lack of stringent compliance procedures and outdated regulatory technologies at many credit unions has made them vulnerable to exploitation by these groups.
The Rising Concern of Anti-Money Laundering (AML) Risks
According to a confidential report from the Financial Crimes Enforcement Network (FinCEN), 50 credit unions were identified as having significant AML concerns in 2015. This number is likely higher now, given the growing trend of money laundering activities in the financial sector.
Large Money Service Businesses Pose Greatest Risks
Large money service businesses (MSBs), such as international money transmitters and large financial institutions, pose the greatest off-balance-sheet risks to credit unions. These MSBs generate significant transaction volumes that can overwhelm smaller credit unions, making it difficult for them to manage high volumes of cash flows.
Weak Vetting and Monitoring Systems Exacerbate Risks
Credit unions with weak vetting and monitoring systems are particularly vulnerable to money laundering risks. Many credit unions lack the controls to authenticate the legitimacy of counterparties, which can magnify AML risks associated with large MSB clientele.
Mitigating Risks through Investigative Public-Records Tools
To mitigate adverse selection during onboarding, credit unions should invest in modern investigative public-records tools that optimize customer identification. These tools can autonomously cross-reference prospects with FinCEN’s MSB registry, ensure good standing with state or local licensing requirements, and confirm agent status.
Essential AML Programs for Credit Unions
Credit unions must adopt formal AML programs to mitigate the threat of operational disruption and criminal prosecution for their personnel. This includes:
- Designating a chief compliance officer
- Implementing reasonable policies and procedures
- Timely currency transaction tracking and suspicious activity reporting functionalities
Self-Reporting Compliance Failures: A Crucial Step
In today’s punitive regulatory regime, credit unions must self-report compliance failures before regulators respond. Reluctance to do so can lead to disastrous consequences for both the organization and risk management personnel it employs.
By implementing best practices highlighted above, credit unions will mitigate the threat of operational disruption and criminal prosecution for their personnel. The time to act is now, given the growing number of credit unions on FinCEN’s radar and the increasing sophistication of transnational organized crime groups.