Generally, compliance officers do not like gray areas. Gray areas call for judgments, judgments lead to errors and errors lead to bad situations for financial institutions and, at times, the customers. The gray areas in addressing elder financial exploitation1 go far beyond the color of a customer’s hair. From defining who qualifies as an “elder”—to whether the elder is “exploitable”—to reporting requirements, an anti-money laundering (AML) program manager must take a comprehensive view of the problem she or he is attempting to solve in order to develop a sustainable holistic solution.
Financial exploitation of the elderly has garnered a lot of press in recent years. According to Senator Claire McCaskill in her opening statement to the Senate Special Committee on Aging, “Approximately one in five seniors will be a target of some form of financial exploitation, to the tune of billions in losses each year.”2 The incidence of elder financial exploitation will likely increase as our population ages with 10,000 people turning 65 every day for the next 15 years.3 Assuming the incidence rate remains constant at one in five, which works out to approximately 73,000 new victims each year. Add to that startling statistic the fact that most victims do not come forward for a myriad of reasons (embarrassment, fear of criminal charges against a relative or caregiver, fear of loss of independence), it is quite easy to understand why addressing the financial exploitation of the elderly has taken on a sense of urgency. As the economy struggles to recover, older adults become more attractive to scammers because they hold tangible assets such as real estate, cash savings, pensions and other retirement income.
Though not a new issue, the increased exposure of the role that financial institutions play in the phenomena can likely be traced to the Financial Crime Enforcement Network (FinCEN) Advisory FIN-2011-A003 Advisory to Financial Institutions on Filing Suspicious Activity Reports Regarding Elder Financial Exploitation. The Advisory makes it very clear to financial institutions that suspected financial exploitation of an elderly individual is a suspicious activity report (SAR) reportable offense. Financial institutions are advised to use the phrase “elder financial exploitation” in the SAR narrative when reporting suspected incidents. In addition, the Advisory states that a potential victim of financial exploitation should never be listed as the subject of the SAR, but rather identifying information should be added to the SAR narrative.
Interestingly, the FIN-2011-A003 Advisory goes on to state that “Elder abuse, including financial exploitation, is generally reported and investigated at the local level, with Adult Protective Services [APS], District Attorney’s offices, sheriff’s offices and police departments taking key roles. We emphasize that filers should continue to report all forms of elder abuse according to institutional policies and the requirements of state and local laws and regulations, where applicable.” The statement is interesting because a 2011 General Accounting Office study on Elder Abuse4 indicates that only 10 of the 50 states have mandatory reporting of suspected elder abuse (including financial exploitation) to APS. Reports indicate that many financial institutions in states without mandatory APS reporting struggle to balance the desire to report suspected financial exploitation with requirements under various privacy laws to protect customer non-public information.
In a stroke of genius, seven regulatory authorities came together in 2013 to issue NR 2013-1485 Interagency Guidance on Privacy Laws and Reporting Financial Abuse of Older Adults. The Guidance is clear in its message: “reporting suspected financial abuse of older adults to appropriate local, state or federal agencies does not, in general, violate the privacy provisions of GLBA (Gramm-Leach-Bliley Act) or its implementing regulations.”
Employees of financial institutions are often well-placed to be the first, and sometimes the only, independent parties able to view and analyze potential red flags of financial exploitation (see Appendix A). While the regulators have not specifically documented in the Federal Financial Institutions Examination Council (FFIEC) Bank Secrecy Act/anti-money laundering (BSA/AML) Examination manual the expectation to weave red flag indicators of elder financial exploitation into an AML program, the topic has been covered extensively by industry webinars and conferences.
Red Flags: Elder Financial Exploitation10, 11, 12
- Large or unexplained withdrawals from bank accounts
- Changes in spending patterns, large dollar purchases or debit transactions inconsistent for the older adult
- Uncharacteristic nonpayment of services (safe deposit box fees, utility payments, mortgage/rent)
- Non-sufficient funds activity
- Uncharacteristic wire transfers
- Closing of CDs or accounts without regard to penalties
- Unfamiliar signatures on checks
Documentation (due diligence):
- Bank statements and canceled checks no longer going to the elder’s home address
- Change in power of attorney
- Changes in banks or attorneys
- Addition of one or more names to a customer’s account
- Lack of personal amenities such as clean clothes and grooming
- Unusual degree of fear or submissiveness to a caregiver; signs of intimidation and threats by another
- A caregiver or other individual shows excessive interest in the older adult’s finances or assets, does not allow the older adult to speak for himself, or is reluctant to leave the older adult’s side during conversations
- Indication of isolation from family, friends, community and other stable relationships (no longer mentions children or grandchildren)
- Missed appointments
- Anxiety about personal finances or lack of knowledge about financial status
- Mentions new “best friend”
- The financial institution is unable to speak directly with the older adult, despite repeated attempts to contact him or her
Comprehensive coverage of elder financial exploitation in an AML program requires a thoughtful approach to the subject. While automated or manual reporting may incorporate certain typologies into the surveillance program, an AML program manager should think twice about relying solely on the surveillance program to fully cover the risk. There are other areas of an AML program which merit equal consideration: know your customer (KYC), customer due diligence (CDD), higher risk business classification and training, to name a few.
Start with the basics—KYC. There are so many aspects of this fundamental tenet of the BSA that can be applied to building a solid elder financial exploitation program. To begin, your institution should clearly define “elder” in its AML program. Is an elder any person over 50 (think AARP) or is it anyone eligible for Social Security Administration payments (e.g., 62 or older)? Each state provides its own definition of “elder.” Financial institutions who do business in multiple states would do well to firmly ground and document its definition of elder to provide maximum guidance to customer-facing and investigative associates. Ensure you are comfortable with how your surveillance software vendor is defining “elder” and that the definition is consistent with guidance provided in other program documentation and/or training.
For customers who fall into the institution’s definition of elderly, the institution should consider whether added CDD and/or enhanced due diligence (EDD) is warranted. Does the customer live alone? Does the customer have a family or non-family caretaker who helps with daily tasks or finances? Has the customer assigned power of attorney? Expected transactional activity is critical information when determining whether funds leaving the elderly customer’s account is unusual or suspicious. Understandably, many customers (or their family members/caretakers) may view questions such as these as an invasion of privacy or the bank exceeding the scope of its need for information. Unfortunately, too few people will view the detailed questions as a tool for protection of assets or the financial institution taking their fiduciary responsibility seriously.
Philip Marshall, grandson of philanthropist and elder financial exploitation victim Brooke Astor, stated quite eloquently in his prepared remarks to the U.S. Senate’s Special Committee on Aging on February 4, 2015, “Fiscal monitoring must match physical monitoring to ensure elders’ wellbeing.” The issue at hand is that customers may not appreciate the “fiscal monitoring” a robust CDD or EDD program offers. Training of our customer-facing and back-office associates is crucial to the successful identification, referral and reporting of potential elder financial exploitation cases.
Higher risk business classification can also play an important part of a comprehensive AML program to combat elder financial exploitation. AML program managers are aware of the traditional “higher risk” businesses such as money services businesses (MSBs) and other cash-intensive businesses. Non-bank financial institutions (NBFIs) also represent a higher risk of money laundering to a financial institution.6 The FFIEC BSA/AML Examination Manual states, “NBFIs are broadly defined as institutions other than banks that offer financial services.” The Manual lists seven industries which may be considered as NBFIs, including casinos and insurance companies. Appendix D of the Manual lists 25 different businesses/industries which are statutorily considered “financial institutions.” One business that provides banking services, that is clearly not a bank and often does not make it into NBFI discussions (and is not listed in Appendix D) is nursing homes. Nursing homes may be an unidentified threat to an AML program that is hiding in plain sight.
Many nursing homes keep accounts for residents. Residents who have exhausted their own funds and are receiving Medicaid generally have to apply all of their Social Security checks (except an allotment for personal expenses) to the costs of their nursing home care with Medicaid paying the balance. In 2013, residents in nursing homes were entitled to keep approximately $50 of their monthly Social Security checks for personal expenses. In these cases, Social Security checks are signed over to the nursing home upon admittance, the nursing home then “returns” the personal allotment amount each month to the resident. Often the return of the funds to the resident is accomplished by opening an “account” at the nursing home where the resident can ask for a withdrawal of funds in cash or can apply funds to various services offered by the home such as hairdressing or laundry. In addition, residents or their family members can make deposits to the account. Furthermore, in New York (and potentially other states) the Mental Hygiene Law7 permits nursing homes to gain legal power of residents’ funds by filing guardianship petitions. The residents or family members are oftentimes not aware that the petition has been filed until after guardianship has been granted.
Though not typically classified as a “cash-intensive business,” there may be more cash changing hands in a nursing home than a banker may initially imagine. From an AML program perspective, when banking a nursing home, consideration should be given to whether the activity represents a hidden risk of money laundering or elder financial exploitation. Can you think of any easier target for theft of funds than elders who may be mentally or physically impaired or both? The possibilities for theft include embezzlement from the nursing home (who would miss these funds?) to the “helpful” aide who offers to run out for a few needed items for a resident and either never purchases the items or over-invoices for items purchased. This paragraph should not be construed to mean all nursing homes are criminal havens nor that all people serving our elderly in nursing homes are thieves, but rather that the unregulated (by federal bank examiners) accounts held at nursing homes presents a higher risk for theft, fraud and elder financial exploitation.
Training on elder financial exploitation must be more than a “check the box” exercise. Upon designing a holistic program to address elder financial exploitation, an AML program manager should follow up with thoughtful, and if possible, targeted training to address the program enhancements. Customer-facing associates should be exposed to red flags of potential elder abuse and exploitation. Back-office associates should know whether mandatory reporting to APS is required in your state. Many states are participating in the training effort by recognizing financial institutions as an integral part to a solution to the exploitation issue. Increasingly, financial institutions are invited by state organizations to training dedicated to the issue. For instance, Maine has developed a program titled Senior$afe that is being used as a model for other state programs. “Senior$afe was created to increase identification and reporting of suspected cases of elder financial exploitation—specifically, by financial institutions.”8 Senior$afe includes training for tellers and other customer-facing associates and focuses on red flags for elder abuse and financial exploitation. A second training under the program is for managers and compliance staff and focuses on the development of a documented program to address identified cases of potential elder abuse and financial exploitation. AML program managers would do well to consider a similar two-tiered approach to training.
Some compliance professionals may believe the final step in the process of building a holistic AML program to address elder financial exploitation is to document the decisions that have been made. While documenting decisions is clearly a vital step in any AML program, in this case it is not the “final” step. The final step is to stay abreast of the ever-changing landscape of laws and regulations affecting elders. If the definition of “elder” changes in any state in which you do business, as an AML compliance officer, you need to be aware of the change and to have processes in place to update your program as needed. An AML elder financial exploitation program must be flexible enough to change with regulatory expectations. Once you have implemented a holistic AML program to address elder financial exploitation, you have not reached the end—you have merely reached a new beginning. “To be complacent about elder justice is to be complicit in elder abuse.”9
- The National Center on Elder Abuse’s definition of exploitation is “the illegal taking, misuse, or concealment of funds, property, or assets of a vulnerable elder.”
- Claire McCaskill, Senate Special Committee on Aging, February 4, 2015, http://www.aging.senate.gov/imo/media/doc/SCA_CMC_2_4_15.pdf
- Kathleen M. Quinn, Broken Trust: Combatting Financial Exploitation of Vulnerable Seniors, February 4, 2015, http://www.aging.senate.gov/imo/media/doc/SCA_Quinn_2_4_15.pdf
- General Accounting Office, Elder Justice: Stronger Federal Leadership Could Enhance National Response to Elder Abuse, March 21, 2011, http://www.gao.gov/new.items/d11208.pdf
- The Office of the Comptroller of the Currency, “Federal Regulators Issue Guidance on Reporting Financial Abuse of Older Adults,” September 24, 2013, http://www.occ.gov/news-issuances/news-releases/2013/nr-ia-2013-148.html
- The Federal Financial Institutions Examination Council, Bank Secrecy Act/Anti-Money Laundering Examination Manual, November, 17, 2014, http://www.ffiec.gov/bsa_aml_infobase/documents/BSA_AML_Man_2014.pdf
- The New York Mental Hygiene Law, http://www.nycourts.gov/ip/gfs/Article_81_Law_2008.pdf
- Judith M. Shaw, Broken Trust: Combating Financial Exploitation of Vulnerable Seniors, February 4, 2015, http://www.aging.senate.gov/imo/media/doc/SCA_Shaw_2_4_15.pdf
- Philip C. Marshall, Broken Trust: Combating Financial Exploitation of Vulnerable Seniors, February 4, 2015, http://www.aging.senate.gov/imo/media/doc/SCA_Marshall_2_4_15.pdf
- “Preventing Financial Abuse of the Elderly,” Consumer Reports, November 4, 2009, http://www.specialneedsnewyork.com/pdf/consumer-reports-october-2009.pdf
- Marion Trelle, “Financial Exploitation of the Elderly: A Critical Review,” http://www.uwplatt.edu/files/urce/BigMTrelleVI.pdf
- The Office of the Comptroller of the Currency, “Interagency Guidance on Privacy Laws and Reporting Financial Abuse of Older Adults,” http://www.occ.gov/news-issuances/news-releases/2013/nr-ia-2013-148a.pdf