The Financial Crimes Enforcement Network (FinCEN), federal banking agencies and the Consumer Financial Protection Bureau (CFPB) issued advisories for financial services providers related to immigration. These were issued in response to President Donald Trump’s May 19 executive order (EO) on the matter.
The EO called for federal regulators to push for lenders to strengthen protocols for verifying a loan applicant’s immigration status as a means of safeguarding the stability of the U.S. financial markets.
Specifically, the order proposed changes to Bank Secrecy Act regulations to strengthen customer due diligence requirements. It also recommended regulators issue guidance on managing the credit risks of extending loans and financial services to immigrants without work authorization.
One of the two advisories responding to the EO was issued jointly by FinCEN, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the National Credit Union Administration, in coordination with the Internal Revenue Service (IRS).
The agencies cautioned financial institutions to “be vigilant against fraud schemes and other suspicious or potentially criminal activities involving the unlawful employment of illegal aliens and the associated risks to the integrity of the U.S. financial system.”
Under the Immigration Reform and Control Act of 1986, it is illegal to knowingly hire, recruit or refer unlawful aliens for employment, and employers are required to verify and document the identity and employment eligibility status of their employees through the Employment Eligibility Verification Form I-9.
The joint advisory noted that there have been various instances where complicit employers have pleaded guilty to knowingly hiring employees they knew to be in the country illegally, as well as instances where stolen personal identification information has been used to obtain employment illegally.
“These schemes often start with complicit employers contracting with a complicit labor broker,” the advisory states. “The labor broker will set up a shell company either directly or through a nominee owner purporting to be involved in the agriculture, construction, domestic service, hospitality or staffing industries. The shell company will often be an unregistered money services business (MSB) providing off-the-books payroll or payment processor services for the complicit employers.”
The joint advisory includes a list of 18 “red flags” for entities to refer to when attempting to mitigate the types of illegal activities described in the EO. These red flags pertain to a customer who:
- Uses a Social Security Number that, upon verification, does not match or is inconsistent with the Social Security Administration’s records.
- Opens an account using a non-U.S. passport or Individual Taxpayer Identification Number (ITIN), claiming to be self-employed or operating a small business in the agriculture, construction, domestic service, hospitality or staffing industries, and receives a significant volume of recurring check deposits from multiple companies before making significant and repetitive structured cash withdrawals or issuing low-dollar checks to multiple individuals.
- Cashes a significant volume of checks drawn on accounts owned by companies in the agriculture, construction, domestic service, hospitality or staffing industries on a recurring basis at an MSB, including a check casher.
- Receives recurring peer-to-peer payments from a small, recently established company in the agriculture, construction, domestic service, hospitality or staffing industries.
- Works in the agriculture, construction, domestic service, hospitality or staffing industries and opens a bank account with an ITIN, with little to no transactional activity other than remittances to foreign jurisdictions.
- Opens an account for a company in the agriculture, construction, domestic service, hospitality, or staffing industries and attempts to use a Commercial Mail Receiving Agency (instead of a business address.
- Has no known prior involvement in the agriculture, construction, domestic service, hospitality, or staffing industries and provides a non-U.S. passport or ITIN when opening an account for a new company in those industries.
- States to bank tellers or check cashers that cash withdrawals, check negotiation, or check-cashing activity is for payroll purposes, but the volume, amount and frequency of transactions are inconsistent with a company of that size in the agriculture, construction, domestic service, hospitality or staffing industries.
- Has been identified through ICE worksite enforcement news releases or open-source reporting as having a history of worksite compliance violations.
- Has significant business operations and transactional activity but little to no payroll activity commensurate with its profile.
- Makes federal and state payroll tax deposits that are significantly lower than expected based on business operations and workforce size.
- Issues a significant and repetitive number of checks to one or a small number of recently established companies with little to no online presence.
- Recently acquired a workers’ compensation policy covering a small number of workers that is inconsistent with its customer profile and transactional activity.
- Has beneficial owners with no known prior involvement in the company or industry and who may have prior fraud convictions.
- Has minimal or no history of tax- or payroll-related payments to the IRS, state or local tax authorities, or a third-party payroll provider despite receiving a large volume of client deposits.
- Conducts large or unusual cash withdrawals or cashes checks while accompanied by other involved individuals or using armored car services to deliver bulk cash (i.e., informal or off-the-books payroll).
- Issues recurring, high volumes of checks under $1,000 payable to numerous individuals who cash those checks.
- Is a new customer (less than two years old) with minimal or no online presence and exhibits indicators of being a shell company.
The CFPB issued a separate advisory reminding creditors of their responsibilities under the Truth in Lending Act and Regulation Z to consider a borrower’s immigration status in determining their ability to repay before offering mortgages and certain open-end credit products.
“In making lending decisions, creditors are permitted to take into account a wide range of information in order to make a reasonable assessment of a consumer’s ability to repay,” the guidance states. “Regulation B, which implements the Equal Credit Opportunity Act, expressly states that ‘[a] creditor may take the applicant’s immigration status into account,’ and that a creditor ‘may consider the applicant’s immigration status or status as a permanent resident of the United States, and any additional information that may be necessary to ascertain the creditor’s rights and remedies regarding repayment.’”
Dodd Frank Update spoke to a pair of former regulators after the EO was issued, who explained that verifying a loan applicant’s citizenship status is already a common practice among financial services providers as there are no statutes prohibiting it, provided it is not done in a discriminatory manner under applicable fair lending laws.