Remote Deposit Capture – Why is it a BSA Concern?   

One of the areas of focus of BSA/AML examinations of late has been Remote Deposit Capture and to a lesser extent mobile banking customers.  We have seen our customers receive criticism for having insufficient risk assessments and risk control programs in both of these areas.  One of the ongoing and interesting questions that we get is “What ARE the BSA concerns with RDC?”  It is true that it is easier to see the obvious risks or fraud in RDC (forged endorsements, double use of checks, altered MICR numbers, etc.), but the BSA/AML risks may not be as evident.   This article discusses some of the “sneaky BSA” issues associated with the RDC.  

 The Unintentional MSB

Once a commercial deposit relationship is established, it can be difficult for a bank to keep up with all that its clients are doing.  Many a bank has been one of the last to find out that one of its clients has decided to change its business line.  For example, a laundry mat client that has been sold on the idea of cashing checks and has “forgotten” to let its bank know!   What was once a simple commercial relationship is now an MSB!  

When a customer has an RDC setup, there is less contact and less opportunity to have discussions about the business and how it is going.  Without close monitoring, a simple RDC relationship can become an unintentional and unknown MSB.  

The $30K Bicycle

Without proper Customer Identification and Know Your Customer procedures that allow the Bank to clearly identify the expected line of business and anticipated activity for a customer, it is of course difficult to determine whether or activity in an account is unusual or suspicious.  RDC activity heightens the ability of an unscrupulous actor to hide fraudulent transactions within deposits.   The bank has to conduct complete analysis of the expected activities of its RDC customers to ensure that deposit activity is in line with the business of the customer.   Without proper documentation, the Bank can unknowingly allow a customer to sell a $30k bicycle!  

Smurfs Everywhere

Along the same lines, knowing the business lines of the customer will allow the bank to recognize what is and isn’t an acceptable level of activity.   The Bank must be able to analyze the level of activity with its customer and determine whether the level of deposits is in line with sales.   Excess activity that is not justified by the type of business, the maturity of the business, the market penetration of the business is the strong indication of “smurfing”.  This activity can easily go unnoticed when the customer is an RDC client.   The BSA program is critical to getting all of the information necessary to monitor the customer’s activity.  

Check Kiting

Because checks are deposited remotely and not under the gaze of bank staff, the temptation and the opportunity for customers to attempt to take advantage of float through “kiting” checks is heightened.  Bank must be able to notice the type of checks that are being deposited and be willing to contact customers when there are questions. 

 Its 11pm-Do you know where your RDC equipment is? 

Due to the nature of the RDC equipment, it is small and easy to move.  For most equipment the technology does not exist to allow the Bank to track its exact location.   An RDC customer may pledge not to move his/her equipment, but in truth, it is an honor system.   The possibility exists that an RDC customer may move to a restricted or undesirable area to transact business.  It is only with strong monitoring that a Bank can be fully aware of the possibility that equipment has been moved.  

While the above list does not purport to include all of the possibilities, the issues here are enough for us to take notice.  RDC is indeed a critical component of a strong BSA/AML program!