FinCEN Issues Joint Advisory on Non-Work Authorized Populations and Their Employers and Risks to the Integrity of the US Financial System

On June 5, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued an advisory, jointly with the Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and National Credit Union Administration, urging financial institutions to be vigilant against fraud schemes and other suspicious or potentially criminal activities involving the unlawful employment of non-work authorized populations and associated risks to the integrity of the US financial system. The advisory follows Executive Order 14406 (Restoring Integrity to America’s Financial System).

The advisory identifies identity theft and payroll fraud as central features of schemes across the agriculture, construction, domestic service, hospitality, and other industries, and explains that such schemes commonly involve complicit labor brokers that establish shell companies, often unregistered money services businesses, to launder funds and distribute off-the-books payments to unauthorized workers via cash, checks, or peer-to-peer platforms, without withholding required payroll taxes. The advisory also encourages banks to treat an Individual Taxpayer Identification Number presented in lieu of a Social Security number as a potential risk factor warranting enhanced due diligence and notes 18 red-flag indicators to assist financial institutions in detecting and reporting suspicious activity.

On June 8, the Consumer Financial Protection Bureau (CFPB) published guidance in the Federal Register reminding creditors of their existing obligations under the Truth in Lending Act and its implementing Regulation Z when assessing a consumer’s ability to repay certain mortgage and open-end credit products. The statement explains that, in certain circumstances, creditors may be required to consider information related to a consumer’s immigration status when that information bears on the consumer’s current or reasonably expected income. According to the CFPB, if information available to the creditor at the time of underwriting indicates that immigration-related factors could affect a consumer’s current or reasonably expected income, the creditor should take that information into account when making a reasonable ability-to-repay determination.

On June 2, the Board of Governors of the Federal Reserve System, the FDIC, and the OCC jointly announced updates to certain interagency supervisory materials to remove additional references to reputation risk. The agencies stated that the changes are intended to complement prior actions eliminating the use of reputation risk in supervision and to help ensure supervisory decisions are based on material financial risks rather than concerns that could be used to restrict access to financial services based on lawful activities, speech, or constitutionally protected beliefs. The agencies indicated that they will continue reviewing supervisory materials and may make additional updates as appropriate.

On June 9, the OCC published an interpretive letter (dated May 12) affirming that uninsured national banks with operations limited to those of a trust company or related activities (i.e., a national trust bank) may not be required to hold an Iowa money transmitter license nor to satisfy an exemption from such requirements. The letter reasons that the National Bank Act grants the OCC exclusive visitorial authority over national banks, including national trust banks, and that Iowa’s money transmitter licensing regime is inconsistent with such authority and significantly interferes with a national bank’s exercise of its federally authorized powers. The OCC affirmed any similar state requirements would also be preempted.