Pub. 10 2020-2021 Issue 5

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S — H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S www.coloradobankers.org 4 FEATURE ARTICLE T he formal study of risk management has been around since World War II and involves learning how to iden- tify, assess and manage financial risks for an organi - zation. It has long been associated with market insurance, protections from accidents and use of derivatives. It evolved into contingency planning, analyzing various risk prevention activities and portfolio management. Operational and liquid- ity risks emerged as a formalized concept in the 1990s as financial institutions intensified their market risk and credit risk management activities. Risk management has become a corporate affair — it is a major player in an institution’s management and monitoring policy decisions. The concept of risk began to cover pure risk management, technological risk management models and operational risk. And as the identi- fication of new risks emerged, so did an expanded concept of operational risk. Fraud risk is a form of operational risk. It is the risk to current or projected financial conditions and resiliency aris - ing from inadequate or failed internal processes or systems, human error or misconduct, or adverse external events. Fraud historically has been known to increase during disas- ter-related events. The unprecedented COVID-19 pandemic is no exception to this increase. Fraud can be characterized as an international act, a misstatement or omission to deceive others with the sole purpose of a victim suffering a loss or a perpetrator achieving a gain. It can be internal or external, but the key takeaway with fraud is that financial institutions subject to the Bank Secrecy Act are mandated to upkeep an anti-money laundering compliance program and process. Meeting BSA and AML obligations during a pandemic has proven challenging. It has forced financial institutions to adopt a new “business-as-usual process” that magnified challenges for financial crime management programs within institutions of all asset sizes. Financial institutions, despite any differences in scale, are all facing work from home shifts, evolving customer behav- iors and expectations, along with a rise in pandemic-related fraud patterns. The combination of financial and health risks opens vulnerabilities and creates more opportunities for fraudsters. The Agencies recognize that the current environ- ment is (1) unprecedented and (2) requires flexibilities. Back on March 16 2020, FinCEN released a statement to financial institutions regarding the impact of the COVID-19 pandemic. It encouraged financial institutions to communicate their concerns related to the pandemic and to, above all things, re- main alert to any illicit financial activity. It encouraged finan - cial institutions that had concerns over potential delays in filing any required BSA reports (CTRs and SARs) to contact FinCEN and their functional regulator as soon as practicable. Second, FinCEN outlined the emerging trends connected with COVID-19: impostor scams, investment scams, product scams and insider trading. Financial institutions are remind- ed to review FinCEN’s 2017 advisory FIN-2017-A007 for descriptions of other relevant typologies, which included benefits fraud, charities fraud and cyber-related fraud. Enter - ing “COVID19” in Field 2 of the SAR-template when report- ing suspicious transactions linked to COVID-19 was highly BSA/AML Compliance Strategies in a COVID-19 Environment BY ELIZABETH K. MADLEM, VICE PRESIDENT OF COMPLIANCE OPERATIONS