Pub. 10 2020 Issue 4

12 www.azbankers.org BSA/AML Compliance Strategies in a COVID-19 Environment T HE FORMAL STUDY OF RISK management has been around since World War II and involves learning how to identify, assess and manage financial risks for an organiza - tion. It has long been associated with mar - ket insurance, protections from accidents and the use of derivatives. It evolved into contingency planning, analyzing various risk prevention activities and portfolio management. Operational and liquidity risks emerged as a formalized concept in the 1990s as financial institutions intensi - fied their market risk and credit risk man - agement 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 manage - ment, technological risk management models and operational risk. And as the identification 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 arising from inadequate or failed internal processes or systems, human error or misconduct, or adverse external events. Fraud histori - cally has been known to increase during disaster-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 per - petrator achieving gains. 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 keep up an anti-money laundering compliance pro - gram and process. Meeting BSA and AML obligations during a pandemic has proven challenging. It has forced financial insti - tutions to adopt a new “business-as-usual process” that magnified challenges for fi - nancial crime management programs within institutions of all asset sizes. Financial institutions, despite any differ - ences in scale, are all facing work from home shifts, evolving customer behaviors and expectations, along with a rise in pan - demic-related fraud patterns. The combi - nation of financial and health risks opens vulnerabilities and creates more opportuni - ties for fraudsters. The Agencies recog - nize that the current environment is (1) unprecedented and (2) requires flexibilities. Back on March 16, 2020, FinCEN released a state to financial institutions regarding the impact of the COVID-19 pandemic. It encouraged financial institutions to com - municate their concerns related to the pan - demic and, above all things, to remain alert to illicit financial activity. It encouraged financial institutions that had concerns over potential delays in filing any required BSA reports (CTRs and SARs) to contact By Elizabeth K. Madlem, Compliance Alliance