Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) Policy and Program for BancStar, Inc. Affiliated Banks

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1 Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) Policy and Program for BancStar, Inc. Affiliated Banks Reviewed and Approved by Board of Directors on: Bank Star One 09/18/14 Bank Star 09/26/14 Bank Star of the BootHeel 09/29/14 1

2 Table of Contents PURPOSE AND POLICY STATEMENT... 3 BOARD OF DIRECTOR RESPONSIBILITY... 3 DESGINATION OF BANK SECRECY ACT OFFICER... 4 INDEPENDENT TESTING OF BSA/AML PROGRAM... 5 TRAINING FOR PERSONNEL... 5 NOTICE TO EMPLOYEES... 5 RISK ASSESSMENT... 6 CURRENCY REPORTING REQUIREMENTS (CTRs)... 6 EXEMPT TRANSACTIONS FROM CTR REQUIREMENTS... 7 MONETARY INSTRUMENT RECORDKEEPING... 9 WIRE TRANSFER RECORDKEEPING REQUIREMENTS CUSTOMER IDENTIFICATION PROGRAM (CIP) MONEY LAUNDERING CUSTOMER DUE DILIGENCE (CDD)/ENHANCDED DUE DILIGENCE (EDD) POTENTIAL HIGH RISK ENTITIES BENEFICIAL OWNERSHIP (COLLECTED ON ALL APPLICABLE ACCOUNTS) OFFICE OF FOREIGN ASSETS CONTROL (OFAC) POLICY AUTOMATED CLEARING HOUSE (ACH/IATs) - THIRD PARTY PROCESSORS SUSPICIOUS ACTIVITY REPORTS (SAR) SAR FILING ON CONTINUING ACTIVITY DECISIONS NOT TO FILE SARs LAW ENFORCEMENT REQUESTS INFORMATION SHARING- 314(a) INFORMATION SHARING- 314(b) MONEY SERVICES BUSINESSES (MSBs)

3 PURPOSE AND POLICY STATEMENT It is the purpose of this policy to serve as a guide to each of BancStar, Inc. Affiliated Banks: Bank Star, Bank Star One and Bank Star of the BootHeel (the Bank) personnel in developing an understanding of and an approach to compliance with the Bank Secrecy Act (BSA) regulation and Anti-Money Laundering (AML) related laws and requirements. The BSA mandates financial institutions to maintain reports and information as follows: Currency Transaction Reports (CTRs) Suspicious Activity Reports (SARs) Customer identification information (CIP) Cash purchases of monetary instruments of between $3, to $10, (Monetary Instrument Log) Funds transfer recordkeeping (Wire Transfers) in amounts above $3, Information sharing requests pursuant to 314(a) and 314(b) It is the policy of this Bank to comply with the BSA and related laws and regulations as applicable. The BSA requires financial institutions to obtain information, maintain records, and file specific reports for various types of financial transactions. These reports are filed in accordance with applicable law and are used by the federal government and other law enforcement agencies in the prevention of criminal, tax, and regulatory evasion and investigations or legal proceedings in the prosecution process. Additionally, the requirements of the BSA are ultimately intended to detect, report, and prevent money laundering activities at, to, or through a financial or other institution. This Bank will not knowingly be used for money laundering activities; will require proper identification of all persons conducting business with the institution; will conduct the Bank s business in conformity with high ethical standards to ensure risks are mitigated; will not provide banking services to any non U.S. bank that does not have a physical presence in any country and that is not a regulated affiliate; and will co operate with law enforcement authorities within the confines of applicable law. Personnel under the Bank s employ are to report any known or suspected violations to the Bank Secrecy Act Officer so appropriate action can be taken. The Bank has a written compliance program to monitor compliance with the record keeping and reporting requirements of said act and regulations which program may be amended by the Compliance Officer from time to time upon the advice and consent of the Board of Directors. BOARD OF DIRECTOR RESPONSIBILITY The Bank s BSA program, including any policy or procedure, will be reviewed and approved at least annually by the Board of Directors ( the Board or Board ). The Board is ultimately responsible for the BSA policy and procedure oversight, implementation, and execution. 3

4 DESGINATION OF BANK SECRECY ACT OFFICER The Bank has designated the following employees as the Bank Secrecy Act Officers: Bank Star Tammy LaCrone Bank Star One Meagan Kick Bank Star of the BootHeel Tracie Wagner Each BSA Officer will have reporting responsibility directly to the Bank s President or Cashier. This designated Officer, or any successor who may be appointed by the President is responsible for all matters pertaining to the requirements and regulations of the BSA and has the authority to conduct internal audits to insure compliance with the Act. These audit procedures are in addition to the Bank s normal BSA audit, which is generally performed by an outside consultant or firm, and for which the BSA Officer is responsible for overseeing. Duties include, but are not limited to: Review of all exemptions granted by the bank for the filing of Currency Transaction Reports (CTRs) Oversight of the BSA compliance program, including policies and procedures, in order to recommend any necessary changes in the Bank s compliance program and report such deficiencies to the Bank s Board of Directors Review CTRs either before or shortly after they are submitted to the IRS to ensure accuracy Implement changes in the written compliance program, when necessary, to maintain compliance with the Act (subject to Board review and approval) Assist in developing an employee training program and monitoring to ensure appropriate personnel are trained through materials adequate to carry their responsibilities under the Act Monitoring various reports and activities conducted at, to, or through the Bank to ensure actual or possible violations are identified for reporting purposes Assist any and all Bank personnel to ensure adherence to the policies and procedures herein Periodically verify daily teller transaction reports are reviewed by appropriate supervisor for detection of reportable transaction or possible suspicious activity Periodically review transactions conducted at, to, or through the Bank regarding exempt customers allowed under the provisions of the Act to ensure suspicious activity is monitored appropriately and all activity is reported as necessary Periodically review and analyze the totals of cash shipments to and from the Federal Reserve Bank or correspondent banks. The analysis should disclose unusual currency flows which should be further investigated, for example, a significant increase in the use of large bills over the past twelve months Periodically review the monetary instrument log to insure that required entries have been recorded Ensure all reports filed and maintained by the Bank are restricted to appropriate personnel responsible to the requirements of the BSA 4

5 INDEPENDENT TESTING OF BSA/AML PROGRAM Independent testing of the BSA program will be conducted at least annually by an independent party. This party could be an internal employee of the Bank or Holding Company as long as that individual remains independent of the BSA program. TRAINING FOR PERSONNEL As required, all Bank personnel and the Bank s Board will receive on-going training pursuant to their responsibilities regarding the Bank Secrecy Act and other applicable laws implementing the BSA. This training will be provided to ensure personnel has an adequate understanding of their responsibilities under the BSA and, as a general matter, will be required at least annually. New employees should receive BSA training, sufficient for their job duties, within a reasonable time of their hire date. Documentation of these meetings will be maintained by the Bank Secrecy Act Officer or designee. The training will also convey this Bank s policies and procedures pertaining to its and its employees responsibilities under the BSA. Practical exercises on situations the employees may face will be a part of the training. Employees will be given information on the characteristics of money laundering schemes and the importance of the currency transaction reporting requirements. Employees will be trained to handle not only routine situations but also problem cases. Personnel will also be informed of the severe penalties for violations of the BSA and their individual liability under those provisions. NOTICE TO EMPLOYEES Penalties for money laundering and terrorist financing can be severe. A person convicted of money laundering can face up to 20 years in prison and a fine of up to $500, Any property involved in a transaction or traceable to the proceeds of the criminal activity, including property such as loan collateral, personal property, and, under certain conditions, entire bank accounts (even if some of the money in the account is legitimate), may be subject to forfeiture. Pursuant to various statutes, banks and individuals may incur criminal and civil liability for violating anti-money laundering and terrorist financing laws. For instance, pursuant to 18 USC 1956 and 1957, the U.S. Department of Justice may bring criminal actions for money laundering that may include criminal fines, imprisonment, and forfeiture actions. In addition, the Bank may be at risk for losing its charter and Bank employees risk being removed and barred from banking. Moreover, there are criminal penalties for willful violations of the BSA and its implementing regulations under 31 USC 5322 and for structuring transactions to evade BSA reporting requirements under 31 USC 5324(d). For example, a person, including a Bank employee, willfully violating the BSA or its implementing regulations is subject to a criminal fine of up to $250,000 or five years in prison, or both. A person who commits such a violation while violating another U.S. law, or engaging in a pattern of criminal activity, is subject to a fine of up to $500, or 10 years in prison, or both. If the Bank violates certain BSA provisions, including sections 31 USC 5318(i) or (j), or special measures imposed under section 31 USC 5318A, it could face criminal money penalties up to the greater of $1 million or twice the value of the transaction. 5

6 The penalties for violations are enumerated by the Internal Revenue Service (a department of the Treasury Department) at the following website address: RISK ASSESSMENT The Bank has adopted an AML Risk Assessment and OFAC Risk Assessment that are consistent with the FFIEC BSA/AML Examination Manual and consider the Bank s products, services, customer base and geographic locations. These risk assessments shall be maintained by the BSA Officer. The risk assessment is an on-going process and will be updated and adjusted when new account types/products are introduced, existing products change, new geographic locations are served either through expansion or through mergers/acquisitions, and, absent such changes, at least every months. CURRENCY REPORTING REQUIREMENTS (CTRs) The Bank must file a Currency Transaction Report (CTR) for each transaction in currency (deposit, withdrawal, exchange, or other payment or transfer) of more than $10, by, through, or to the Bank. Certain types of currency transactions need not be reported, such as those involving exempt persons, a group which can include retail or commercial customers meeting specific criteria for exemption. Multiple currency transactions totaling more than $10, during any one business day are treated as a single transaction if the Bank has knowledge that they are by or on behalf of the same person. Transactions throughout the Bank should be aggregated when determining multiple transactions. Types of currency transactions subject to reporting requirements individually or by aggregation include, but are not limited to, denomination exchanges, individual retirement accounts (IRA), loan payments, automated teller machine (ATM) transactions, purchases of certificates of deposit, deposits and withdrawals, funds transfers paid for in currency, and monetary instrument purchases. A FinCEN CTR must be filed by the 15th calendar day after the day of the transaction and in accordance with FinCEN Currency Transaction Report (FinCEN CTR) Electronic Filing Requirements. More Specific Procedures for Personnel Preparing the Filing of CTRs 1. Transactions which involve more than $10, in currency must be reported using the Currency Transaction Report (CTR) through the e-filing system 2. A currency transaction is defined as a transaction involving the physical transfer of currency from one person to another. A transaction in currency does not include a transfer of funds by means of bank draft, wire transfer, or other written order that does not include the physical transfer of currency. 6

7 3. Currency includes the coin and currency of the United States or of any other country, which circulates in, and is customarily used and accepted as money in the country in which it is issued. 4. Currency transactions over $10, with foreign financial agencies such as banks, currency exchange dealers, and securities dealers must also be reported. 5. Multiple transactions by or for any person which in any one day total more than $10, should be treated as a single transaction if the bank is aware of them and therefore must be reported. The Bank must make a reasonable effort to obtain the information required to complete the CTR. FinCEN released the FinCEN Currency Transaction Report Electronic Filing Requirements which provides detailed instruction for completing the fields on the CTR. 6. Banks must also report shipments outside or into the United States of more than $10, in currency or other monetary instruments; and any interest in financial accounts in a foreign country. For these rare instances, contact the BSA Officer for guidance Recordkeeping: copies of CTRs shall be maintained for a period of 5 years from the date of the report. EXEMPT TRANSACTIONS FROM CTR REQUIREMENTS Exempt Transactions: U.S. Treasury regulations have historically recognized that the routine reporting of some types of large currency transactions does not necessarily aid law enforcement authorities and may place unreasonable burdens on banks. Consequently, a bank may exempt certain types of customers from currency transaction reporting. There are two types of exemptions allowed under the BSA. They are commonly referred to as Phase I and Phase II exemptions. When certain conditions and criteria are met, the Bank is not required to file CTRs on those customers meeting the criteria. The Bank will keep a record of each exemption granted and the reason for each exemption in a centralized list. The "exemption list" must include the name, complete street address, type of business, taxpayer identification number, and account number of each customer (whether a business entity or a government agency) whose transactions have been exempted. Phase I FinCEN s rule identifies 5 categories of Phase I exempt persons: 1. A bank, to the extent of its domestic operations 2. A federal, state, or local government agency or department 3. Any entity exercising governmental authority within the United States 4. Any entity (other than a bank) whose common stock or analogous equity interests are listed on the New York Stock Exchange or the American Stock Exchange or have been designated as a NASDAQ National Market Security listed on the NASDAQ Stock 7

8 Market (with some exceptions) 5. Any subsidiary (other than a bank) of any listed entity that is organized under U.S. law and at least 51% of whose common stock or analogous equity interest is owned by the listed entity Filing an Exemption: Banks must file a one-time Designation of Exempt Person form (FinCEN Form 110) to exempt each eligible listed public company or eligible subsidiary from currency transaction reporting. The form must be filed with the IRS within 30 days after the first transaction in currency that the bank wishes to exempt. Banks do not need to file a Designation of Exempt Person form for Phase I-eligible customers that are banks, federal, state, or local governments, or entities exercising governmental authority. Nevertheless, a bank should take the same steps to assure itself of a customer s initial eligibility for exemption, and document the basis for the conclusion, that a reasonable and prudent bank would take to protect itself from loan or other fraud or loss based on misidentification of a person s status. Exemption of a Phase I entity covers all transactions in currency with the exempted entity, not only transactions in currency conducted through an account. Annual Review: The information supporting each designation of a Phase I-exempt listed public company or subsidiary must be reviewed and verified by the Bank at least once per year. Annual reports, stock quotes from newspapers, or other information, such as electronic media will be used to document the review. Banks does not need to confirm the continued exemption eligibility of Phase I customers that are banks, government agencies, or entities exercising governmental authority. Phase II A business that does not fall into any of the Phase I categories may still be exempted under the Phase II exemptions if it qualifies as either a non-listed business or as a payroll customer. A non-listed business is defined as a commercial enterprise to the extent of its domestic operations and only with respect to transactions conducted through its exemptible accounts and that: (i) has maintained a transaction account at the exempting bank for at least two months or prior to the passing of two months time if the bank undertakes a risk-based analysis of that customer that allows it to form and document a reasonable belief that the customer has a legitimate business purpose for conducting frequent large currency transactions; (ii) frequently engages in transactions in currency with the bank in excess of $10,000.00; and (iii) is incorporated or organized under the laws of the United States or a state, or is registered as and eligible to do business within the United States or a state. FinCEN has identified the following businesses or types of businesses that cannot qualify for an exemption under the BSA (commonly referred to as Ineligible Businesses ) if 51% or more of the business s revenue is derived from the following activities: Serving as a financial institution or as agents for a financial institution of any type 8

9 Purchasing or selling motor vehicles of any kind, vessels, aircraft, farm equipment, or mobile homes Practicing law, accounting, or medicine Auctioning of goods Chartering or operation of ships, buses, or aircraft Operating a pawn brokerage Engaging in gaming of any kind (other than licensed pari-mutuel betting at race tracks) Engaging in investment advisory services or investment banking services Operating a real estate brokerage Operating in title insurance activities and real estate closings Engaging in trade union activities Engaging in any other activity that may, from time to time, be specified by FinCEN Payroll Customers A payroll customer is defined solely with respect to withdrawals for payroll purposes (meaning deposit activity is not exempt) from existing exemptible accounts and as a person who: (i) has maintained a transaction account at the bank for at least two months or prior to the passing of two months time if the bank undertakes a risk-based analysis of that customer that allows it to form and document a reasonable belief that the customer has a legitimate business purpose for conducting frequent large currency transactions; (ii) operates a firm that regularly withdraws more than $10, in order to pay its U.S. employees in currency; and (iii) is incorporated or organized under the laws of the United States or a state, or is registered as and is eligible to do business within the United States or a state. Filing Time Frames: After the Bank has decided to exempt a Phase II customer, the Bank must file a Designation of Exempt Person form with the IRS within 30 days after the first transaction in currency that the Bank plans to exempt. Annual Review: The information supporting each designation of a Phase II exempt person must be reviewed and verified by the Bank at least once per year. The Bank will document the annual review. Moreover, consistent with this annual review, the Bank will review and verify at least once each year that management continually monitors these Phase II accounts for suspicious transactions. Revoking Exempt Status: In the event a designated Phase I or Phase II customer loses their exempt status, the Bank will begin filing CTRs for applicable transactions beginning on the date the Bank became aware of or had knowledge to the customer s loss of status. A form revoking such status is no longer required by FinCEN and filing CTRs on previously exempted customers is indication of the loss of the status. MONETARY INSTRUMENT RECORDKEEPING The Bank is required to verify the identity of persons purchasing monetary instruments using currency (cash) in amounts between $3, and $10,000.00, inclusive, and to maintain records of all such sales. The Bank will either verify that the purchaser is a customer with a CIP profile including identifying information on record or verify the identity of the purchaser by 9

10 viewing a form of identification that contains the customer s name and address and that the Bank accepts as a means of identification when opening an account for a new customer. Additionally, the Bank must obtain additional information for purchasers who do not have a CIP profile including identifying information on record. When the purchaser is a customer with a CIP profile including identifying information the following will be recorded: 1. Name of the purchaser 2. Date of purchase 3. Types of instruments purchased 4. Serial numbers of each of the instruments purchased 5. Dollar amounts of each of the instruments purchased in currency 6. Specific identifying information, if applicable (i.e. current customer or CIP on file ) When the purchaser is not a customer with a CIP profile including identifying information the following will be obtained recorded: 1. Name of the purchaser 2. Address of the purchaser 3. Social Security or alien identification number of the purchaser 4. Date of birth of the purchaser 5. Date of the purchase 6. Types of instruments purchased 7. Serial numbers of each of the instruments purchased 8. Dollar amounts of each of the instruments purchased 9. Specific identifying information for verifying the purchaser s identity (e.g., state of issuance and number on driver s license) If the purchaser cannot provide the required information at the time of the transaction or through the Bank s own previously verified records, the transaction should be refused. Recordkeeping: The records of monetary instrument sales must be retained for 5 years and be available to the appropriate agencies upon request. WIRE TRANSFER RECORDKEEPING REQUIREMENTS For each payment order in the amount of $3, or more that the Bank accepts as the originating party, the Bank must obtain and retain the following records: Name and address of the originator Amount of the payment order Date of the payment order Any payment instructions Identity of the beneficiary s institution As many of the following items as are received with the payment order: 1. Name and address of the beneficiary 10

11 2. Account number of the beneficiary 3. Any other specific identifier of the beneficiary If the originator is not an established customer of the Bank, the Bank must collect and retain the additional information depending on if the payment order was submitted in person or not. Wire Payment Orders For Non-Established Customer (Not Made In Person) If a payment order is not made in person, the Bank must obtain and retain the following records: Name and address of the person placing the payment order The person s TIN (e.g., SSN or EIN) or, if none, the alien identification number or passport number and country of issuance, or a notation in the record of the lack thereof, and a copy or record of the method of payment (e.g., check or credit card transaction) for the funds transfer. If the Bank has knowledge that the person placing the payment order is not the originator, the Bank must obtain and record the originator s TIN (e.g., SSN or EIN) or, if none, the alien identification number or passport number and country of issuance, or a notation of the lack thereof Wire Payment Orders For Non-Established Customer (Made In Person) If the payment order is made in person, the Bank must verify the identity of the person placing the payment order before it accepts the order. If it accepts the payment order, the Bank must obtain and retain the following records: Name and address of the person placing the order Type of identification reviewed Number of the identification document (e.g., driver s license) The person s taxpayer identification number (TIN) (e.g., Social Security number (SSN) or employer identification number (EIN)) or, if none, the alien identification number or passport number and country of issuance, or a notation in the record of the lack thereof. If the Bank has knowledge that the person placing the payment order is not the originator, the Bank must obtain and record the originator s TIN (e.g., SSN or EIN) or, if none, the alien identification number or passport number and country of issuance, or a notation of the lack thereof Generally, it is the policy of this Bank NOT to place or accept wire transfers for non-customers. The above referenced guidelines are applicable in the rare event that a wire transfer is conducted for a non-customer. 11

12 Travel Rule Requirements For Wire Transfers Of $3, Or More For funds transmittals of $3, or more, the Bank must include the following information in the transmittal order at the time that a transmittal order is sent to a receiving financial institution: Name of the transmittor, and, if the payment is ordered from an account, the account number of the transmittor Address of the transmittor Amount of the transmittal order Date of the transmittal order Identity of the recipient s financial institution Either the name and address or the numerical identifier of the transmittor s financial institution As many of the following items as are received with the transmittal order: 1. Name and address of the recipient 2. Account number of the recipient 3. Any other specific identifier of the recipient Retrievability of Wire Transfers: Information retained must be retrievable by reference to the name of the originator. When the originator is an established customer of the Bank and has an account used for funds transfers, information retained must also be retrievable by account number (31 CFR (e)(4)). Recordkeeping: Records will be maintained for 5 years from date of transmittal. See Wire Transfer Procedures for additional information. CUSTOMER IDENTIFICATION PROGRAM (CIP) The Customer Identification Program of this Bank has been adopted and implemented as required by Section 326 of the USA PATRIOT Act of The BSA officer will be responsible for the ongoing oversight of the Customer Identification Program. Bank Star has established and implemented the following procedures: A. Identity Verification Procedures This Bank has reviewed and considered the types of accounts available, methods available for opening accounts and the types of identification available and has established the following riskbased procedures in an effort to form a reasonable belief that the Bank knows the true identity of each customer. 12

13 For purposes of this policy, a customer is defined as a person (whether an individual or entity) that opens a new account and an individual who opens a new account for (a) a person who lacks legal capacity, such as a minor; or (b) an entity that is not a legal person, such as a civic club. Each named person on a joint account is considered a customer under this policy. However, a customer does not include the following types of persons: a person that has an existing account with this Bank provided that the Bank has a reasonable belief that it knows the true identity of the person a financial institution regulated by a federal functional regulator or a bank regulated by a state bank regulator a department or agency of the United States, of any State, or of any political subdivision of any State any entity established under the laws of the United States, of any State, or of any political subdivision of any State, or under an interstate compact between two or more States, that exercises governmental authority on behalf of the United States or any such State or political subdivision any entity whose common stock or analogous equity interests are listed on the New York Stock Exchange or the American Stock Exchange or whose common stock or analogous equity interests have been designated as a Nasdaq National Market Security listed on the Nasdaq Stock Market (except stock or interests listed under the separate Nasdaq Small- Cap Issues heading). Signatories on non-individual accounts, unless the non-individual customer cannot be verified in accordance with the procedures described below. An account, for purposes of this policy, is defined as a formal banking relationship established to provide or engage in services, dealings, or other financial transactions including a deposit account, a transaction account, a credit account, or other extension of credit. An account also includes a relationship established to provide a safety deposit box or other safekeeping services, or cash management, custodian and trust services. Accounts acquired through merger, acquisition or purchase, will generally not be covered under this policy unless circumstances dictate that additional due diligence is warranted. Identifying Information Required to be Obtained Prior to opening a new account, this Bank will obtain and record the following identifying information from each customer: For individuals* - For CIP purposes, the Bank will obtain the customer s: Name Date of birth Residential street address. The Bank may also rely on an Army Post Office or Fleet Post Office box number. Identification number. For U.S. citizens, the identification number must consist of their taxpayer identification number. For non-u.s. citizens, the identification number may be 13

14 one or more of the following: a taxpayer identification number; passport number and country of issuance; alien identification card number; or number and country of issuance of any other government-issued document evidencing nationality or residence and bearing a photograph or similar safeguard For persons other than individuals, such as corporations, partnerships and trusts* - For CIP purposes, the Bank will obtain the customer s: Name Address of principal place of business, local office or other physical location Taxpayer identification number. If the Bank opens an account for a foreign business or enterprise that does not have a identification number, the Bank must request alternative government-issued documentation certifying the existence of the business or enterprise. NOTE: Additional information may be obtained by the Bank on CIP and/or account opening forms that are used for numerous reasons, but should not be considered information obtained under this portion of the policy. Under certain circumstances, this Bank may allow customers that have applied for, but have not received, a taxpayer identification number to open accounts. In doing so, the Bank requires that a copy of the taxpayer identification number application be obtained from the customer before the account is opened. In addition, the customer must provide the Bank with their taxpayer identification number within 45 days or the account will be closed. Document Verification of Customer Information for Individuals and DBAs Accounts requiring the collection of information under this policy will generally be opened at a facility of the Bank. Prior to opening an account for a customer that is an individual, each individual owner of the account must provide an unexpired primary identification document. If an unexpired primary identification document cannot be provided, the account will typically not be opened. However, for elderly (an individual aged 62 or older) or handicapped individuals, or members of other groups that would not normally possess traditional identification documents, the Bank may allow an account to be opened upon presentation of two secondary identification documents. Primary Identification Documents for Individuals 1 State-issued driver s license or photo identification card Immigration and Naturalization Services documents Valid United States Passport Active Duty, Retiree or Reservist Military Identification Card Microfilmed copy or image portfolio of a driver s or identification card. (Must be certified by the issuing agency with an embossed seal of the issuing agency.) 1 All documents must be valid and unexpired 14

15 Secondary Identification Documents for Individuals 1 Certificate of birth. (Must be original or certified copy, have a seal and be issued by an authorized government agency.) Court order. (Must contain full name, date of birth and court seal. Examples include adoption or name change documents.) Social security card Medical records from doctor/hospital Marriage certificate/license Employer photo identification card Student identification card Pilots License Health insurance card Military discharge/separation card Utility bill showing current residence Medicare card Credit card 1 All documents must be valid and unexpired Document Verification of Customer Information for Non-Individuals Accounts of non-individuals requiring the collection of information under this policy will generally be opened at a facility of the Bank. Prior to opening an account for a customer that is not an individual, the Bank must obtain at least one of the following documents showing the legal existence of the entity: Identification Documents for Non-individuals Type of Entity Documentation Required Corporations (for profit and not-for-profit) Certified Articles of Incorporation Verification of Good Standing (e.g. S.O.S. Website) Fictitious Name Registration (if applicable) Partnerships 1 Partnership Agreement Fictitious Name Registration (if applicable) Trusts Trust Agreement Limited Liability Company Estates Certified Articles of Organization Verification of Good Standing (e.g. S.O.S Website) Fictitious Name Registration (if applicable) Estate Agreement 1 For informal partnerships, where two or more individuals are opening an account for business purposes without a formal partnership agreement, all partners must be identified in accordance the procedures established for individuals. 15

16 Additional Verification and Non-Documentary Procedures (if necessary) If a customer or individual opening an account for a non-individual customer that is present at the Bank cannot provide the aforementioned identification, or if other documents are presented with which the Bank is not familiar, the account will generally not be opened at that time. However, in certain situations, and with the approval of an officer of the Bank, the account may be opened provided additional non-documentary procedures are followed. The additional nondocumentary procedures include obtaining a written explanation signed by the customer describing why the required documentation cannot be provided. The written explanation must also be approved and signed by an officer of the Bank. The customer must also provide written consent allowing the Bank to obtain a credit report. Information presented on the credit report will then be used to confirm the identifying information provided by the customer. The customer will also be asked to confirm other information provided on the credit report including, for example, previous address and credit accounts maintained. If the Bank can conclude that it knows the true identity of the customer, the account may then be opened without restriction. For individual customers, if one or more, but not all, of the customers that will be named on the account are present at the Bank, the account will generally not be opened at that time. However, if approved by an officer of the Bank, the account may be opened provided the customers present can provide the required identification. Any customer that will be named on the account that is not present at the Bank must either visit the Bank with the required identification, or fax a notarized copy of their driver s license to the Bank within 60 days. If this time frame is not met the individual must be removed from the account or the account must be closed. For non-individual customers, if additional circumstances increase the risk that the Bank may not know the true identity of the customer, the account will generally not be opened. However, the Bank may open the account if identifying information is obtained from each individual signatory and their identity is verified under the procedures for individuals. If the Bank is otherwise presented with circumstances that increase the risk that the bank will be unable to verify the true identity of a customer through documents, the account will be referred to the BSA officer for further review. The BSA officer must make a determination as to whether the Bank knows the true identity of each customer. If this conclusion cannot be reached, the account will not be opened at that time. The BSA officer may use any additional nondocumentary identification methods that will assist in this determination. These additional nondocumentary methods may include, but are not limited to the following: verifying the information provided by the customer with information obtained from a consumer reporting agency contacting the customer checking references with other financial institutions any other methods deemed appropriate in consideration of the circumstances presented 16

17 Information Required to be Documented In addition to obtaining and reviewing the required information, the Bank shall also record a description of any document and/or other method that was relied on in verifying the identity of the customer. The description should include the following information: the type or types of documents used the place of issuance the identification number of each document the date of issuance (if any) the expiration date (if any) a description of any non-documentary methods used and their resolution. Lack of Verification If this Bank is unable to form a reasonable belief that it knows the true identity of a customer, and non-documentary verification attempts have failed to provide the necessary confirmation, the Bank will not open the account. If an account has already been opened and the Bank subsequently determines that it may not know the true identity of its customer then the account must be closed. For credit accounts where funds have already been disbursed, repayment of the outstanding balance will be accelerated as allowed by the terms of the promissory note. If a Bank employee encounters suspicious activity during or subsequent to the account opening process, the details of the transaction will be reported to the BSA officer. The BSA officer will then determine whether the situation merits the filing of a suspicious activity report (SAR). Employees will be trained to refer all of these situations to the BSA officer in a timely manner. Situations which should be referred to the BSA officer for the potential filing of a SAR include, but are not limited to the following: False or suspicious information provided by the customer Customers that are reluctant to provide information requested for proper identification Initial deposits that are clearly inconsistent with the customer s occupation or business activity B. Recordkeeping All identifying information provided by the customer when opening an account will be maintained by the Bank for at least five years after the date the account is closed. In addition, the following information will be retained for no less than 5 years after the record was made. a description of the documents (as previously addressed) used to verify the identity of each customer a description of the methods and results of any non-documentary or additional verification procedures used a description of the resolution of any substantive discrepancy discovered when verifying the identifying information obtained 17

18 C. Comparison With Government Lists In addition to requesting and obtaining identifying information, this Bank will determine whether each customer appears on any list of known or suspected terrorists or terrorist organizations issued by any Federal government agency and designated as such by Treasury. If a customer does appear on any of the aforementioned government agency a list, this Bank will follow all Federal directives issued in connection with such lists. D. Customer Notice The Bank will satisfy the customer notice requirement by providing a disclosure to each new customer prior to the time the account is opened. This notice will be similar to the following: IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. What This Means For You When you open an account we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver s license or other identifying documents. MONEY LAUNDERING As part of the Bank s overall compliance with the BSA and suspicious activity reporting, it is the Bank s policy to identify and report to appropriate agencies any suspected money laundering conducted through the Bank. Money laundering is the process to disguise the source or ownership of illegally gained funds to make them appear legitimate or hiding lawfully acquired money to avoid taxation. Money laundering goes hand-in-hand with criminal activity and typically involves the following three basic steps: Placement Physically placing bulk cash into the banking system or legitimate commerce. Layering Separating the source of cash from its criminal origins by passing it through several financial transactions. Integration Which is aggregating the funds or cash with legitimately obtained funds and providing a legitimate explanation for its ownership. 18

19 The Bank has established internal controls for money laundering and reporting to cover such areas as large currency transactions, unusual funds transfers, customer identification policies, insufficient or suspicious information from customers, and unusual employee or bank to bank transactions. The Bank will review transactions to insure proper suspicious activity reporting and employee training effectiveness. The Bank has an ongoing training program for personnel in all departments, including new employees. CUSTOMER DUE DILIGENCE/ENHANCDED DUE DILIGENCE (EDD)- Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) are ongoing risk-based processes whereby the Bank obtains and maintains customer information. These procedures assist Bank personnel in detecting, monitoring, assessing and reporting the risk of related accounts and determination of suspicious activity. Through the analysis of products and services, coupled with the geographical outreach of the Bank, the CDD/EDD process was established in order to be commensurate with the bank s BSA/AML risk profile, paying particular attention to high-risk customers at account opening and throughout the customer relationship. The CDD and EDD processes enable the Bank to predict, with relative certainty, the types of transactions in which a customer is likely to engage. These procedures assist BSA personnel in determining whether transactions are potentially suspicious. Under this approach, the bank obtains information at account opening sufficient to develop an understanding of normal and expected activity for the customer s occupation or business operations. The degree of risk, unless information to the contrary has been established, shall be based upon the account type or customer classification. The CDD and EDD processes, when properly instituted, are critical to the risk-based BSA program which is instrumental in: Detecting and reporting unusual or suspicious transactions that potentially expose the bank to financial loss, increased expenses, or reputation risk; Avoiding criminal exposure from persons that use, or attempt to use, the bank s products and services for illicit purposes; and Adhering to safe and sound banking practices. The CDD and EDD Processes shall allow the Bank to differentiate between lower-risk customers and higher-risk customers at account opening and throughout the account relationship. It is recognized by the Bank s Board of Directors that customers that pose high money laundering, terrorist financing risks and other illegal activities present increased exposure. As it is recognized that due diligence is an ongoing process, the Bank shall take measures to ensure account profiles are current and monitoring is risk-based. Based upon the risk assessment and knowledge of the customer base, the Bank should consider whether risk profiles should be 19

20 adjusted or suspicious activity reported when the activity is inconsistent with the profile. POTENTIAL HIGH RISK CUSTOMERS Although attempts to launder money through a legitimate financial institution can come from many different sources, certain kinds of businesses, transactions, or geographic locations may lend themselves more readily than others to potential criminal activity. During the account opening process, the Bank will collect necessary information under the CDD and EDD procedures, as applicable, to ensure proper monitoring of associated risk with the account and the activity associated with the customer s activity. The following are examples of customers that may pose a greater risk of money laundering or other illicit activity and may warrant closer attention at account opening and throughout the account relationship: Potential Non-Individual High Risk Customers Cash intensive businesses Convenience store Gas station Grocery store Restaurants Retail stores Liquor stores Vending machine operators Parking garages Private owners/operators of ATMs Recycler/scrap metal dealer Nonbank financial institutions Money service businesses (MSB) Jewelers or other dealers in precious metals, stones or jewels Casino or card club Securities brokers or dealers Nongovernmental organizations or charities Professional service providers Attorneys Accountants Doctors Real estate brokers Deposit brokers 20

21 Foreign corporations and their domestic business entities including foreign financial institutions Individual High Risk Customers Non-resident alien Senior foreign political figures and their immediate family members and close associates (collectively known as politically exposed persons (PEP)) BENEFICIAL OWNERSHIP (COLLECTED ON ALL APPLICABLE ACCOUNTS) Heightened risks can arise with respect to beneficial owners of accounts because nominal account holders can enable individuals and business entities to conceal the identity of the true owner of assets or property derived from or associated with criminal activity. Moreover, criminals, money launderers, tax evaders, and terrorists may exploit the privacy and confidentiality surrounding some business entities, including shell companies and other vehicles designed to conceal the nature and purpose of illicit transactions and the identities of the persons associated with them. Consequently, identifying the beneficial owner(s) of some legal entities may be challenging, as the characteristics of these entities often effectively shield the legal identity of the owner. However, such identification may be important in detecting suspicious activity and in providing useful information to law enforcement. Therefore, the Bank will make every attempt to collect at account opening and throughout the account relationship the following information from entities that pose a heighted risk of illicit activities: 1. Determining whether the customer is acting as an agent for or on behalf of another, and if so, obtaining information regarding the capacity in which and on whose behalf the customer is acting 2. Where the customer is a legal entity that is not publicly traded in the United States, such as an unincorporated association, a private investment company (PIC), or trust or foundation obtaining information about the structure or ownership of the entity so as to allow the institution to determine whether the account poses heightened risk 3. Where the customer is a trustee, obtaining information about the trust structure to allow the institution to establish a reasonable understanding of the trust structure and to determine the provider of funds and any persons or entities that have control over the funds or have the power to remove the trustees OFFICE OF FOREIGN ASSETS CONTROL (OFAC) POLICY As a part of the Bank s compliance with the OFAC requirements, the Bank will include in its risk assessment, a determination of its specific product lines, customer base, and nature of transactions and identification of higher-risk areas for OFAC transactions. OFAC is an office of the U.S. Treasury that administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against entities such as 21

22 targeted foreign countries, terrorists, international narcotics traffickers, and those engaged in activities related to the proliferation of weapons of mass destruction. OFAC acts under Presidential wartime and national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and to freeze assets under U.S. jurisdiction. Many of the sanctions are based on United Nations and other international mandates; therefore, they are multilateral in scope, and involve close cooperation with allied governments. Other sanctions are specific to the interests of the United States. OFAC has been delegated responsibility by the Secretary of the Treasury for developing, promulgating, and administering U.S. sanctions programs. Violations for the OFAC requirements can lead to significant penalties. Some enforcement responses may result in the issuance of a civil penalty that, depending on the sanctions program affected, may be as much as $250, per violation or twice the amount of a transaction, whichever is greater. OFAC rules apply to all financial institutions through which funds might travel. The Bank is responsible for blocking transactions and freezing assets of specially designated nationals (SDNs) and blocked persons. The Bank is prohibited from facilitating any funds transfers from or to the specified countries, their SDNs, SDTs, or SDNTs. U.S. law requires that assets and accounts of an OFAC-specified country, entity, or individual be blocked when such property is located in the United States, is held by U.S. individuals or entities, or comes into the possession or control of U.S. individuals or entities. For example, if a funds transfer comes from offshore and is being routed through a U.S. bank to an offshore bank, and there is an OFAC-designated party on the transaction, it must be blocked. The definition of assets and property is broad and is specifically defined within each sanction program. Assets and property includes anything of direct, indirect, present, future, or contingent value (including all types of bank transactions). The Bank will block transactions that: Are by or on behalf of a blocked individual or entity Are to or go through a blocked entity Are in connection with a transaction in which a blocked individual or entity has an interest. In some cases, an underlying transaction may be prohibited, but there is no blockable interest in the transaction (i.e., the transaction should not be accepted, but there is no OFAC requirement to block the assets). In these cases, the transaction is simply rejected, (i.e., not processed). For example, the Sudanese Sanctions Regulations prohibit transactions in support of commercial activities in Sudan. Therefore, a U.S. bank would have to reject a funds transfer between two companies, which are not Specially Designated Nationals or Blocked Persons (SDN), involving an export to a company in Sudan that also is not an SDN. Because Sudanese Sanctions would only require blocking transactions with the Government of Sudan or an SDN, there would be no blockable interest in the funds between the two companies. However, because the transactions would constitute support of Sudanese commercial activity, which is prohibited, the U.S. bank cannot process the transaction and would simply reject the transaction. 22