Identify Fraud Red Flags - Nationwide Multistate Licensing System NMLS

1. Identify the correct action if a customer directly asks whether a SAR has been filed on them.

   Refuse to confirm or deny; follow SAR confidentiality policy. BSA prohibits disclosure to maintain investigation integrity and avoid legal penalties for tipping off.

2. Identify the red flag when the same phone number is used for multiple unrelated borrowers or employers.

   Red flag: shared contact details suggesting a fraud ring. Shared details across unrelated parties often indicate organized fraud rings coordinating applications.

3. What is the extended SAR filing deadline when no suspect is identified?

   Within $60$ calendar days of initial detection. The extension provides additional time for thorough investigation when identifying suspects proves challenging.

4. What record retention period is commonly required for SAR supporting documentation under BSA rules?

   Retain SAR and supporting records for $5$ years. BSA mandates this period to ensure availability for audits, investigations, or compliance reviews.

5. Identify the term for breaking up cash deposits to evade the $10{,}000$ CTR threshold.

   Structuring (smurfing). This evasion tactic involves dividing transactions to avoid triggering CTR requirements, signaling potential illicit intent.

6. Identify the red flag when a borrower uses an address that is a mail drop or appears fictitious.

   Red flag: suspicious or unverifiable address. Fictitious addresses can obscure true identity or location, facilitating anonymity in fraudulent activities.

7. What is the purpose of a Suspicious Activity Report (SAR) in an AML program?

   Report suspected money laundering or other suspicious activity. SARs are required under BSA to alert authorities to potential illicit activities without tipping off suspects.

8. What is the red flag when the borrower is unusually concerned with AML reporting thresholds or forms?

   Red flag: interest in evading reporting requirements. Excessive focus on thresholds suggests intent to structure transactions and evade detection.

9. Identify the reporting obligation when cash deposits of $12{,}000$ occur in one business day.

   File a CTR (cash over $10{,}000$ in one business day). Transactions exceeding the threshold must be reported to monitor potential money laundering activities.

10. What is the red flag when documents show signs of alteration, mismatch, or inconsistent fonts?

    Red flag: possibly forged or altered documentation. Alterations or inconsistencies in documents often point to fraud attempts to misrepresent qualifications or values.

11. What is the red flag when a borrower rapidly pays points and fees without regard to loan economics?

    Red flag: fee insensitivity suggesting illicit funds. Indifference to costs implies funds are not earned legitimately, as typical borrowers seek to minimize expenses.

12. What is the typical SAR filing deadline after initial detection of suspicious activity?

    Within $30$ calendar days of initial detection. BSA regulations require prompt reporting to allow timely investigation of potential money laundering.

13. Identify the red flag when the applicant cannot reasonably explain the source of down payment funds.

    Red flag: unexplained or unverifiable source of funds. Inability to verify funds source raises suspicions of illicit origins, requiring enhanced due diligence.

14. Identify the red flag: customer makes $9{,}900$ cash deposits on consecutive days and asks about limits.

    Structuring to evade CTR reporting. Multiple sub-threshold deposits with inquiries about limits indicate deliberate evasion of reporting requirements.

15. What federal law is the primary U.S. statute requiring AML controls and suspicious activity reporting?

    Bank Secrecy Act (BSA). This legislation mandates financial institutions to establish AML programs and report suspicious activities to prevent money laundering.

16. Which option is a red flag: borrower insists on using a third party to deliver funds with no clear purpose?

    Red flag: unexplained third-party involvement in funds flow. Involvement without legitimate reason suggests layering in money laundering or other fraudulent schemes.

17. Which option best describes the SAR confidentiality rule for employees and institutions?

    Do not disclose that a SAR was filed or will be filed. Confidentiality protects investigations by preventing suspects from altering behavior or destroying evidence.

18. What is the red flag when the borrower is a politically exposed person (PEP) with opaque wealth sources?

    Red flag: elevated corruption risk requiring enhanced due diligence. PEPs pose higher risks due to potential access to corrupt funds, necessitating stricter scrutiny under AML rules.

19. What is the red flag when appraisal value appears inflated with unsupported comparable sales?

    Red flag: potential appraisal fraud or value inflation. Inflated values without evidence may involve collusion to overstate property worth for larger loans.

20. What must an employee do first upon identifying suspicious activity in a mortgage transaction?

    Escalate internally per AML policy to the designated compliance contact. Internal escalation ensures proper review and compliance with institutional AML procedures before external reporting.

21. What is the standard CTR threshold for reporting cash transactions in one business day?

    Cash transactions over $10{,}000$ in one business day. CTR filing is mandated under BSA to track large cash movements that could indicate money laundering.

22. Which federal agency receives SAR filings from most financial institutions?

    FinCEN (Financial Crimes Enforcement Network). As part of the U.S. Department of the Treasury, this agency oversees BSA compliance and collects SARs for analysis.

23. What is the red flag when the borrower requests disbursement to an unrelated entity at closing?

    Red flag: unusual or unjustified disbursement instructions. Requests to unrelated parties without justification may signal fund diversion or layering in laundering schemes.

24. Which option is a red flag: customer refuses to provide SSN/ITIN for required identification?

    Red flag: refusal to provide required identifying information. Such refusal may indicate attempts to conceal identity, a common indicator of fraudulent or laundering activities.

25. What is the red flag when income documentation conflicts with stated employment or job duties?

    Red flag: inconsistent employment or income information. Discrepancies may indicate fabricated information to qualify for loans or hide true financial status.

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