The Treasury Department and federal financial institution regulators are charged in a recent executive order to take action aimed at mitigating potential credit risks post by the “non-work authorized population.”
“My Administration will not tolerate national security and public safety risks caused by illicit cross-border financial activity,” states the order, issued Tuesday by President Donald Trump, “nor will it permit risks to our financial system posed by the extension of credit or financial services to the inadmissible and removable alien population.”
The order, titled “Restoring Integrity to America’s Financial System,” lists the actions that Treasury and the various regulators – the Federal Reserve Board, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corp. (FDIC), the National Credit Union Administration (NCUA), and the Consumer Financial Protection Bureau (CFPB) – are expected to take over the coming six months. They include:
- Within 60 days of the date of the order, that the Treasury Department issue a formal advisory (details further below) to financial institutions regarding the risks associated with the exploitation of the United States financial system by non-work authorized populations and their employers;
- Within 90 days, that Treasury, in consultation with the appropriate federal functional financial regulators, propose changes to applicable Bank Secrecy Act (BSA) implementing regulations to strengthen risk-based customer due diligence requirements for covered financial institutions;
- Within 180 days, that Treasury and the functional regulators consider changes to applicable BSA implementing regulations to strengthen risk-based customer identification program requirements for covered financial institutions (which should account for the risks foreign consular identification cards “pose to the integrity of the United States financial system”);
- Within 60 days of the date of the order, that the CFPB consider clarifying that potential deportation and loss of wages are factors that could adversely affect a non-work authorized borrower’s ability to repay an extension of credit under the “ability-to-repay” standards in 12 CFR Part 1026 and its appendices and supplements, and that lenders may consider such factors as part of a reasonable and good-faith underwriting determination; and
- Within 60 days of the date of the order, that each appropriate federal functional financial regulator issue guidance regarding the management of the potential credit risks posed by the non-work authorized population.
The Treasury advisory noted above should, the order states, describe specific red flags and typologies associated with the following categories of suspicious activity:
- evidentiary patterns of payroll tax evasion by employers or labor brokers, including the systematic failure to withhold or remit Federal employment taxes for non-work authorized individuals;
- the utilization of certain foreign-identity documents, nominee accounts, shell companies, or complex “funnel” structures designed to obfuscate the identity of the ultimate beneficial owners or conceal the true nature of payroll disbursements;
- the strategic use of unregistered money services businesses, third-party payment processors, or peer-to-peer platforms to facilitate “off-the-books” wage payments intended to bypass Bank Secrecy Act reporting thresholds or tax obligations;
- patterns of repetitive, sub-threshold cash withdrawals or deposits that correlate with payroll cycles conducted outside of regulated payroll processing systems, also known as “structuring and micro-structuring”;
- financial activity indicative of labor trafficking or forced labor (as defined in 18 U.S.C. 1589), where proceeds are commingled with legitimate business revenue or transferred to foreign jurisdictions; and
- the use of an individual taxpayer identification number (ITIN) to obtain credit products or open depository accounts where the applicant lacks verified lawful immigration status. Although an ITIN facilitates tax compliance, its use in lieu of a Social Security number or valid work-authorized visa may be identified as a risk factor requiring enhanced due diligence to ensure the account is not being utilized to facilitate the unlawful employment of unauthorized aliens.
The order was issued the same day as another which tasks federal financial regulators to identify potential rule and process changes to make it easier for financial technology (fintech) firms to partner with federally regulated financial institutions; and for “eligible” fintechs to apply for bank charters, credit union charters, deposit or share insurance “and other Federal licenses, registrations, and authorizations.” (See story.)
Executive order – “Restoring Integrity to America’s Financial System“
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