FinCEN urges banks to flag suspicious immigrant activity

Dive Brief:

Federal financial regulators issued a joint advisory Friday encouraging banks and credit unions to “be vigilant against” fraudulent or suspicious activity connected to the employment of immigrants lacking permanent legal status and the associated risks to the financial system.
In the advisory, FinCEN shared 18 “red flags” designed to help lenders detect and report activity tied to the employment of unlawful workers, and specifically called out the agriculture, construction, domestic service, hospitality or staffing industries.
The advisory, which instructs banks to file suspicious activity reports related to the issue or contact Immigration and Customs Enforcement, follows a May 19 executive order aimed at getting banks to gather more information on their customers’ immigration status.

Dive Insight:

The advisory was issued by the Treasury Department’s Financial Crimes Enforcement Network, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the National Credit Union Administration, in coordination with the Internal Revenue Service.

“Non-work authorized populations and their employers often rely on access to the U.S. financial system,” the FinCEN advisory said. “In certain instances, the access to financial services and unlawfully obtained wages can be leveraged to facilitate the financing of transnational criminal organizations — several of which have been designated as Foreign Terrorist Organizations — and their global criminal enterprises, including drug trafficking, human trafficking, and other illegal activity in the United States.”

The May 19 executive order directed the Treasury Department, the Consumer Financial Protection Bureau and other federal financial regulators to change Bank Secrecy Act regulations “to strengthen risk-based customer due diligence requirements” for banks, ensuring lenders have the authority to pursue additional customer information including their immigration status.

The executive order “sets in motion a series of regulatory actions that could materially affect compliance obligations under anti-money laundering laws and credit underwriting practices,” Mayer Brown attorneys wrote in a May 27 web post. “It will require financial institutions to devote significant attention and resources” to implementing regulators’ guidance over the coming months.

Comptroller of the Currency Jonathan Gould, on May 20, called the executive order “a common-sense set of reforms that give us the tools that we need and preserve bank flexibility around how they establish the identities, that is, how they know their customers.”

Banks have an important obligation to know their customer and “the identities of their customer,” Gould said last month, and are held to a regulatory expectation that they’re not helping facilitate financial fraud, money laundering or terrorism finance.

The FinCEN advisory specifically mentions identity theft and payroll fraud as features of schemes undertaken by “complicit employers” in some industries.

“According to ICE, many employers across the agriculture, construction, domestic service, hospitality, and other industries are knowingly — or through willful negligence — facilitating the hiring, concealment, and in some cases, exploitation of unlawful alien labor in their workforce to reduce labor costs and gain an unfair advantage over competitors,” the advisory said.

FinCEN said red flags indicating such activity include an individual customer’s Social Security number not matching Social Security Administration records; a customer receiving recurring peer-to-peer payments from a small or newly established company in the agriculture, construction, domestic service, hospitality or staffing industries; or a customer cashing a large volume of checks drawn on accounts owned by companies in those industries at a check casher or money transmitter.

FinCEN also wants banks monitoring its business customers operating in those industries. Red flags of “complicit employers” include a company with a history of worksite compliance violations from ICE; one that has sizable business operations and transactional activity but lacks corresponding payroll activity; or a company issuing recurring and large volumes of checks for less than $1,000 made payable to a large number of people cashing the checks.

If an individual taxpayer identification number is presented in lieu of a Social Security number or valid employment authorization document during the account opening process, banks are “encouraged to assess” whether the ITIN’s use “may be a relevant risk factor,” FinCEN said.

ITINs are used by the IRS for individuals requiring identification for federal taxpayer purposes but who aren’t eligible for a Social Security number.

Meanwhile, the CFPB filed a statement Monday that “reminds” banks of their Truth in Lending Act obligations in connection with the May 19 executive order, and emphasizes banks’ ability to consider an applicant’s immigration status as it relates to repayment abilities.

Creditors are required to “assess consumers’ ability to repay before offering mortgages and certain open-end credit products. This statement emphasizes to creditors that these requirements may obligate consideration of a consumer’s immigration status, especially where removal from the United States may disrupt the consumer’s income,” the CFPB said.

If a borrower’s immigration status indicates they could be removed from the U.S., there’s a risk that a bank extending credit wouldn’t be repaid, the bureau said.

“Considering whether information regarding an applicant's immigration status indicates a reasonably expected change in future income is a matter of sound compliance practice,” the CFPB said.