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Fall 2020 Brings Increased Regulatory Focus on Financial Institution Detection of Human Trafficking | Moore & Van Allen PLLC

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On October 15, 2020, the Financial Crimes Enforcement Network of the U.S. Department of Treasury (FinCEN) released its Supplemental Advisory on Identifying and Reporting Human Trafficking and Related Activity (Supplemental Advisory). The last time FinCEN provided guidance on identifying trafficking in anti-money laundering (AML) processes was in Guidance on Recognizing Activity that May be Associated with Human Smuggling and Human Trafficking – Financial Red Flags on September 11, 2014. The evolving tactics of human traffickers and behaviors of victims required updated guidance in order for financial institutions to better meet Bank Secrecy Act (BSA) obligations to assist the government in detecting and preventing money laundering. 

The Supplemental Advisory focuses on four emerging tactics used by human traffickers to carry out and hide the proceeds from their illicit operations: front companies, exploitative employment practices, funnel accounts, and alternative payment methods. Front companies are lawful, licensed, and registered businesses which are used by traffickers to comingle the illicit proceeds generated from their scheme of human exploitation with that of a legitimate business. Examples include massage parlors, nail salons, even electrician services, and faith-based mission work. 

Labor trafficking can be harder to detect than sex trafficking for AML departments. FinCEN’s Supplemental Advisory alerts financial institutions to examples of exploitative labor practices, including visa fraud, wage withholding, and recruitment fee advances. Note that in 2019, the Federal Acquisition Regulation: Combating Trafficking in Persons was amended to address prohibited recruitment fees and broadened contractor responsibility for violative recruitment fees in supply chains. 

Funnel accounts continue to be a common tactic wherein a trafficker coerces a victim to open one or more bank accounts in their own name, and then directs them to deposit, transfer, wire, and withdraw monies in amounts below a reporting threshold, for the benefit the trafficker or the enterprise. Because the accounts are often held exclusively in the victims’ names, the trafficker remains anonymous. 

Such account activity may lead to an Unusual Activity Report or Suspicious Activity Report but that would erroneously target the victim, not the perpetrator. Accounts may be closed by the financial institution, or at the direction of the trafficker, following overdraft or low balances, which can cause victims to incur bad credit status and prevent them from accessing financial services in the future. 

The Supplemental Advisory further alerts financial institutions to the prolific use of prepaid cards, virtual currencies, smartphone cash applications, and third-party payment processors to advertise their sex trafficking business and receive payment. 

Although the indicators list addended to the Supplemental Advisory is not significantly different than past iterations, it adds a set of case studies. Specific perpetrator and victim vignettes are effective in modernizing detection tools as they allow financial institutions to keep their pulse on real life examples relayed by law enforcement and survivor advocates. The Supplemental Advisory also reminds financial institutions that they are protected from liability for information sharing afforded under Section 314(b) of the USA Patriot Act. Traffickers often implicate multiple financial institutions and only through a wider lens and open communication can otherwise lawful-appearing activity be identified as suspicious.  

Finally, the Supplemental Advisory notes FinCEN’s Customer Due Diligence Rule, promulgated in 2018, which generally requires some financial institutions to identify beneficial owners of commercial customers. Under the Trafficking Victims Protection Act, “whoever knowingly benefits, financially or by receiving anything of value” may be subject to criminal and civil liability. Therefore, diligence and monitoring processes are to include potential third-party participants in an exploitive scheme.  

FinCEN’s advisory on human trafficking is timely. In the last few months, regulators have signaled increased attention on financial institution responses to human trafficking. This past summer, Deutsche Bank was fined $150M by The New York State Department of Financial Services (“NYDFS”) for compliance failures related to client Jeffrey Epstein, his sex trafficking enterprise and correspondent banks. In the Consent Order, NYDFS found the Deutsche Bank “conducted business in an unsafe and unsound manner [and] failed to maintain an effective and compliant anti-money laundering program.” This September, Westpac Bank was fined $920M USD by the Australian Transaction Reports and Analysis Centre (Australia’s financial intelligence, anti-money laundering and counter-terrorism regulator) for failures in AML reporting, record keeping and detection, including transfers indicative of child sex trafficking. This fine is the largest paid to an Australian regulator for violation of money laundering laws to date. Also in September, the United Kingdom announced that the U.K. Modern Slavery Act of 2015 will be strengthened to (i) allocate more funding to enforce its requirements and (ii) mandate that companies’ modern slavery statements cover certain topics ranging from due diligence to risk assessment. 

Increased regulatory focus on financial institution responses to human trafficking deserves attention.

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Martin Lewis issues guidance on using credit cards to build ratings – best deals | Personal Finance | Finance

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Martin Lewis regularly urges savers to use caution when utilising debt themed products but at the same time, he acknowledges the need for a decent credit rating to get by financially. Today, the Money Saving Expert was questioned by viewer Miranda on how one can build their credit rating in difficult circumstances.

“What I’d then like you to do is go and do £50 a month of normal spending on it, things you’d buy anyway.

“[Then] Make sure you pay the card off in full every month, preferably by direct debit so you’re never missing it because the interest rate is hideous.

“That way you won’t pay any interest.

“You do that for a year, you’ll start to build that credit history, showing them you’re a good credit citizen.

“Then you’ll be able to move into the sort of more normal credit card range.

“So, bizarrely, to get credit you need credit. What credit will you get? Bad credit, go get the bad credit just make sure it doesn’t cost you.”

Consumers of all kinds may not have the best options at the moment as recent analysis from moneyfacts.co.uk revealed.

In mid-November, they detailed that a number of high street banks have cut the perks and interest on a number of their current account deals.

On top of this, the Bank of Scotland and Lloyds Bank made credit interest cuts of up to 0.5 percent.

Rachel Springall, a Finance Expert at moneyfacts.co.uk commented on the few options consumers and savers currently have available: “Clearly, it is vital consumers decide carefully if now is the time to switch, but if they wait too long, they may well miss out on a free cash switching perk.

“At present, providers will be assessing how they can sustain any lucrative offers in light of the pandemic.

“With this in mind, we could well see more changes in the months to come and if this does indeed occur, consumers would be wise to review whether their account is still worth keeping.”



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Should you use a balance transfer to pay off debt?

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Should you use a balance transfer to pay off debt?
Image source: Getty Images.


A balance transfer might be the solution if you have debts and want to gain control over your finances. But whether a balance transfer is right for you will depend on a number of factors.

Things to consider before using a balance transfer

The size of your debt

If you want to apply for a balance transfer credit card, be aware that most providers will allow you to transfer up to 90% of your credit limit.

Your credit limit will be dependent on your own personal circumstances, including your salary, your credit history and your residential status (homeowner or renter).

Be realistic about your debt. For example, if you earn £25,000 per year and you have a debt of more than £15,000, a balance transfer might not be cheapest way to pay the debt.

The time taken to pay the debt

The main advantage of a balance transfer credit card is that many offer an interest-free period on the balance. So, if you can pay off your balance in that period, you won’t accrue any further interest charges.

However, these periods typically range from 18 to 24 months, so if you think you will need more time to pay the debt, you may need to factor in additional interest charges when the interest-free period ends.

Whether or not a balance transfer is the right debt payment solution will depend on your personal circumstances. Check our balance transfer calculator if you want to work out how much a balance transfer could save you in interest payments.

Your credit score

The advantage of a good credit score cannot be underestimated in this situation.

When applying for a balance transfer credit card, the company will check your credit score. Based on this score, they could refuse your application.

Even if you are accepted, if you have a bad credit score they could reduce your credit limit. Ultimately, this will determine the benefit of a balance transfer as a suitable debt payment solution.

If you think your credit score might be a problem, it’s worth checking with the credit reference agencies before applying. That way you can avoid any nasty surprises.

There are three main consumer credit reference agencies in the UK. They are Equifax, Experian and TransUnion (Noodle).

Alternative solutions to balance transfers

You could still use a balance transfer even if the size of your debt is bigger than the credit limit.

Transferring part of the debt would enable you to benefit from any interest-free period, where applicable.

Alternatively, if you have multiple debts, you could consolidate all of your debts so that you can make a single regular payment. If necessary, you could do this using an unsecured personal loan over a period longer than 24 months.

Take home

Look at your own personal circumstances with a critical eye. Remember that you need to factor in living expenses when thinking about how long it will take you to pay off your debt.

Balance transfers are a useful method for debt repayment, but be aware that credit cards are an expensive way to borrow money. Take full advantage of any 0% deals wherever possible. Check out our list of the best 0% credit cards.


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Turn credit declines into a win-win | 2020-11-20

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The pandemic has left millions of people needing credit at a time when lending standards are tightening. The result is a lose-lose situation—the consumer gets a bad credit decline experience and the credit union misses out on a lending opportunity. How can this be turned into a win-win?

The case for coaching

Let’s start by deconstructing the credit decline process: The consumer is first encouraged to apply. The application process can be invasive, requiring significant time commitment and thoughtful inputs from the applicant.

After all that, many consumers are declined with a form letter with little to no advice on actions the applicant can take to improve their credit strength. It is no wonder that credit declines receive a poor Net Promoter Score (NPS) of 50 or often much worse.

On the flip side, forward-looking credit unions provide post-decline credit advice. This is a compelling opportunity for several reasons:

  • Improved customer satisfaction. One financial institution learned that simply offering personalized coaching, regardless of whether or not consumers used it, increased their customer satisfaction by double digits.
  • Future lending opportunities. Post-decline financial coaching can position members for borrowing needs even beyond the product for which they were initially declined.
  • Increased trust. Quality financial advice helps build trust. A J.D. Power study noted that, of the 58% of customers who desire advice from financial institutions, only 12% receive it. When consumers do receive helpful advice, more than 90% report a high level of trust in their financial institution.

Provide cost-effective, high-quality advice

AI-powered virtual coaching tools can help credit unions turn declines into opportunities. Such coaches can deliver step-by-step guidance and personalized advice experiences. The added benefit is easy and consistent compliance, enabled by automation.

AI-based solutions are even more powerful when they follow coaching best practices:

  • Bite-sized simplicity. Advice is most effective when it is reinforced with small action steps to gradually nurture members without overwhelming them. This approach helps the member build momentum and confidence.
  • Plain language. Deliver advice in friendly, jargon-free language.
  • Behavioral nudges. Best-practice nudges help customers make progress on their action plan. These nudges emulate a human coach, providing motivational reminders and celebrating progress.
  • Gamification. A digital coach can infuse fun into the financial wellness journey with challenges and rewards like contests, badges, and gifts.

Virtual financial coaching, starting with reversing credit declines, represents a huge market opportunity for credit unions. To help credit unions tap into that opportunity, eGain, an award-winning AI and digital engagement pioneer, and GreenPath, a leading financial wellness nonprofit, have partnered to create the industry’s first virtual financial coach. To learn more, visit egain.com.

EVAN SIEGEL is vice president of financial services AI at eGain.

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