Compliance and Reporting of Financial Exploitation of Older Adults | Wolters Kluwer
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  • Compliance and Reporting of Financial Exploitation of Older Adults

    by Leslie McNally, J.D.

    Published May 03, 2019

    As published in ABA Bank Compliance magazine

     

    Abuse and exploitation of the elderly is statutorily defined in state law and as codified in the United States Code. However, the abuse often referred to as “elder financial exploitation” (EFE) has become the most common form of elder abuse in the United States. Under the Older Americans Act of 1965, as amended, “financial exploitation” is the fraudulent or otherwise illegal, unauthorized, or improper act or process of an individual, including a caregiver or fiduciary, who uses the resources of an older individual for monetary or personal benefit, profit, or gain, or that results in depriving an older individual of rightful access to, or use of, benefits, resources, belongings, or assets (42 U.S.C. 3002). Reports of EFE at both the federal level (through identification of elder financial abuse in the designated reporting field and narratives in Suspicious Activity Reports (SARs) and state level (through reports to local Adult Protective Services agencies (APS), local law enforcement and other local agencies) have increased substantially over the years and show no signs of slowing down. According to the National Conference of State Legislatures (NCSL), a recent study estimates that one in five older Americans are victims of EFE, losing $3 billion annually. 

    Older adults can be attractive targets for abusers and fraudsters because they may have significant assets, higher equity in their homes, and be recipients of recurring sources of income (i.e., Social Security, pensions and other retirement accounts). Older adults may also be particularly susceptible to this abuse due to isolation, cognitive decline, physical disability or other health issues. In addition, they may be dependent on care from their abuser in order to remain independent. Examples of EFE include, but are not limited to: identity theft; check fraud; counterfeit debit/credit cards; misuse of caretakers, including theft of property and money; lottery and sweepstakes scams; grandparent/imposter scams; tax and debt collection scams; and home improvement scams. 

    Perpetrators include, but are not limited to: family members, caregivers, financial advisors, home repair contractors, fiduciaries (such as agents under power of attorney or guardians), scam artists, charitable organizations, and friends or neighbors. Of additional consequence, many losses go unreported due to embarrassment or fear that revealing the truth will lead to further restrictions on the individual’s independence.

    On federal and state levels, financial institutions have been recognized as those that can play a key role in detecting and preventing EFE. Financial institutions know their customers and members and, perhaps even more so with their older customers, often have the opportunity for face-to-face interaction with customers making transactions. In addition to having established relationships that may provide opportunities to educate customers on the topic of EFE, they may also be in a unique position to spot irregular account transactions and unusual customer behavior. Financial institutions that suspect EFE may then pass that information along to the proper authorities, such as APS, local law enforcement, and long-term care ombudsmen, as well as by filing appropriate SARs. 

    On a federal level, the Financial Crimes Enforcement Network (FinCEN) issued an Advisory on February 22, 2011, to assist financial institutions in reporting instances of EFE (FIN-2011-A003). The advisory contained several examples of “red flags” financial institution personnel should look for that may reveal EFE or at least initiate further inquiry with the customer. The advisory stated that “if a financial institution knows, suspects, or has reason to suspect that a transaction has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the financial institution knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction, the financial institution should then file a SAR.” The advisory further emphasized that financial institutions should report all forms of EFE according to its internal policies and the requirements of state and local laws and regulations, where applicable. 

    In May 2013, FinCEN published The SAR Activity Review: Trends, Tips & Issues. This publication reported there was a significant increase in SARs with narratives relating to EFE filed after issuance of the above Advisory. It also reported that such filings suggested that many filers had incorporated the FinCEN guidance into their Bank Secrecy Act/Anti-Money Laundering (BSA/AML” programs, and that reports of questioning a customer’s out-of-character transactions had saved SAR filers and their customers from incurring significant losses. This publication also included a message from the Consumer Financial Protection Bureau (CFPB). The message stated the CFPB’s Office for Older Americans’ intention to work with FinCEN on raising the awareness of the use of SARs to report EFE, and on communicating that Federal law generally permits financial institutions to report suspected EFE to—or respond to requests for personal identification from—law enforcement, APS and other relevant entities. Further, this publication included an article from FinCEN’s Office of Outreach in which it was noted that the new FinCEN electronic filing SAR included a check box specific for indicating that the filer suspects EFE. 

    On September 23, 2013, the Board of Governors of the Federal Reserve, Commodity Futures Trading Commission (CFTC), CFPB, Federal Deposit Insurance Corporation (FDIC), Federal Trade Commission (FTC), National Credit Union Administration (NCUA), Office of the Comptroller of the Currency (OCC), and Securities and Exchange Commission (SEC), together issued the Interagency Guidance on Privacy Laws and Reporting Financial Abuse of Older Adults (the Guidance). The Guidance was issued to clarify the applicability of the Gramm-Leach-Bliley Act (GLBA) privacy provisions to a financial institution’s reporting of suspected EFE. 

    Under the Guidance, for financial institutions subject to the GLBA, reporting suspected EFE to appropriate federal, state and local agencies does not, in general, violate the privacy provisions of the GLBA, and its implementing regulations permit the sharing of this type of information under appropriate circumstances without complying with notice and opt-out requirements. Section 502(e) of the GLBA, 15 U.S.C. 6802(e), provides several exceptions to the notice and opt-out requirements. The Guidance states that disclosure of non-public personal information for purposes of reporting suspected EFE will fall within one or more of the exceptions, and that these disclosures may be made either at the financial institution’s initiative or in response to an agency’s request. The Guidance also referenced a resource tool available to financial institutions and other organizations for raising awareness about preventing, identifying and responding to EFE. The newest version of Money Smart for Older Adults Resource Guide is available at www.consumerfinance.gov, under Consumer Tools, Frauds and Scams, Elder Financial Exploitation. 

    On March 23, 2016, the CFPB simultaneously published an Advisory and a Recommendations and Report for financial institutions on preventing and responding to EFE. In these documents the CFPB’s Office for Older Americans identifies best practices for banks and credit unions to assist in preventing EFE and intervening effectively when it occurs. The broad scope of recommendations includes: 

     

    • Train management and staff to prevent, detect, and respond to EFE, as well as watch for “red flag” categories of possible EFE. In doing so, also be aware of the possible fear an elder person may have in making these explanations, and try to find a comfortable way he or she can talk with the banker. Ask customers to explain and confirm transactions that raise these red flags: 
      • Transaction pattern changes, such as: increase in total monthly cash withdrawals compared to historical patterns, atypical ATM card use, uncharacteristic attempts to wire large sums of money, uncharacteristic non-sufficient funds activity or overdraft fees, missing recurring deposits, closing CDs or accounts without regard to penalties, or unusual gaps in check numbers. 
      • Identity theft and coercion, such as: a new third party suddenly begins conducting financial transactions on behalf of the older customer without proper documentation or does not allow the customer to speak for themselves, the customer is confused by or unaware of account changes, or customer requests to send account statements to a third party’s address. 
      • Behavioral changes, such as: the older customer shows an unusual degree of fear or submissiveness towards a caregiver, the customer shows a sudden reluctance to discuss financial matters, or the customer requests information about how to conduct unusual money transactions or mentions lottery or sweepstakes opportunities or winnings. 
      • Signs of diminishing capacity such as, the older customer appears newly distressed, unkempt or unhygienic, or is unable to clearly communicate with staff. 
       
    • Detect EFE by harnessing technology, including the use of sophisticated automated fraud detection systems and predictive analytics. 
    • Report all cases of suspected exploitation to relevant federal, state and local authorities: 
      • Be aware of and stay current with all state reporting mandates, and implement and monitor any state EFE training requirements (see more about state-specific information in the State EFE Mandates section below); 
      • File SARs; 
      • Understand that the GLBA is not a barrier to reporting suspected EFE; 
      • Understand the roles of first responders (i.e., APS, law enforcement, long-term care ombudsmen); 
      • Include core components in reports to state and local authorities; and 
      • Expedite documentation requests. 
       
    • Protect older account holders: 
      • Comply with EFTA and Regulation E (rules for extending time limits for consumers for extenuating circumstances, rules for accepting notices of unauthorized EFTs, and confirm conditions are met before imposing any liability on a consumer for unauthorized EFTs); 
      • Offer account holders the opportunity to consent to disclosure of account information to trusted third parties when the financial institution suspects EFE; and 
      • Offer age-friendly services that can enhance protections against EFE (such as offer information about planning for incapacity, honoring powers of attorney, offer protective opt-in account features, and offer convenience accounts as an alternative to traditional joint accounts). 
       
    • Collaborate with other stakeholders: 
      • Work with law enforcement and APS; 
      • Participate in and support coordinated efforts to educate older account holders, caregivers and the public; and 
      • Participate in and support local or regional multidisciplinary network initiatives (such as the voluntary Senior$afe program that was launched in Maine and used as the model for the federal Senior Safe Act of 2018.) 
       
    On August 30, 2017, FinCEN and the CFPB published a Memorandum on Financial Institution and Law Enforcement Efforts to Combat EFE. In addition to reconfirming all the above advisories and guidance, this memorandum emphasized collaboration between financial institutions, law enforcement and APS, and especially how SARs may aid law enforcement’s investigations of EFE, even at the local level. As access to SARs and their use is restricted by federal law, the memorandum stated that if a law enforcement agency does not have direct access to FinCEN’s database, the agency can contact FinCEN at frc@fincen.gov for referral to an appropriate state or regional point of contact, who can assist the investigator with a SAR-related inquiry. 

     

    On February 27, 2019, the CFPB’s Office of Financial Protection for Older Americans released a report on a study of SAR EFE-specific filings. The report presented findings based on selected data fields from all EFE SARs filed between 2013 and 2017 and representative samples of SARs transcripts (which include narrative information provided by the filers). Among the key findings in the report are: EFE SAR filings quadrupled from 2013 to 2017. 

    In the report period, filers reported 176,700 EFE SARs involving more than $6 billion in actual losses to the older adult or to the filer (i.e., the financial institution), attempts to steal the older adults’ funds, or both. In 2014, actual losses and attempts totaled $931 million. In 2017, there were 63,500 EFE SAR filings that included $1.7 billion in suspicious activities. Overall, only 15 percent of the EFE SARs described solely an attempt with no resulting monetary loss (transactions that were blocked, rescinded, or refunded). 

    The average amount lost by an older adult was $34,200, but a monetary loss was more common and the losses were even greater (average $50,000) when the older adult knew the suspect or the suspect was a fiduciary. In seven percent of the EFE SARs, the loss to the older adult exceeded $100,000. The average amount of loss to the filer was $16,700. 

    The most common financial product used to move funds involved a money transfer, but checking or savings accounts used to move funds had the highest monetary losses. 

    Unfortunately, fewer than one-third of the EFE SARs indicated that the filer had reported the suspicious activity to state or local adult protective services, law enforcement or other authorities. 

    In addition to all of the agency action, Congress recently passed the Economic Growth, Regulatory Relief, and Consumer Protection Act (SF 2155, Public Law No. 115-174). This legislative package included the Senior Safe Act (Section 303), which strengthens protection against liability as may be provided under state law for reporting EFE. Effective May 24, 2018, covered financial institutions and their employees who receive specialized training are immune from civil and administrative liability for good faith reporting of suspected exploitation of senior citizens. The Act also provides guidance regarding the content, timing and record-maintenance requirements of such training. 

    State EFE Mandates:

    As briefly mentioned above, it is recommended that one pay attention to state mandates. Currently, many states require financial institutions to report suspected EFE to APS, law enforcement, or both. There are also states that require “any person” with knowledge or suspicion of EFE to make official reports. EFE may violate a state’s criminal laws, which could trigger further state reporting requirements. Almost all states provide immunity for good faith reporting of EFE, and financial institutions normally do not need proof that actual EFE has occurred before filing reports. There are also states that require financial institutions to conduct EFE training for their employees and to establish written policies for reporting EFE. Clearly, filing EFE SARs is a good start, but not enough to ensure compliance with all laws. Current examples show the wide range of state EFE mandates: 

     

    • Delaware: Financial institution employees who have direct contact with the elderly person are mandated reporters; and a bank must establish internal written policies, programs, plans or procedures for reporting EFE. 
    • Nevada: Officers and employees of financial institutions are mandated reporters; each institution must designate a person or persons to whom an officer or employee must report known or suspected EFE; and each institution must provide EFE training to officers and employees. 
    • North Carolina: Financial institutions or officers or employees thereof are mandated reporters; and the institutions are encouraged, but not required, to offer disabled and older adult customers the opportunity to submit a list of trusted persons to be contacted in case of financial exploitation. 
    • Louisiana: Covered financial institutions are named as permissive reporters; but all covered institutions must make a reasonable effort, at least annually, to notify all employees of their ability to report potential EFE to personnel within the institution. 
    • West Virginia: Employees of financial institutions are among those named as permissive reporters; and institutions and their employees who are required to file SARs and currency transaction reports are also permitted to disclose the SARS and reports to the prosecuting attorney of the county in which the underlying transactions occurred. 
    • Washington: Employees of financial institutions are among those named as permissive reporters; when an institution believes that financial exploitation of a vulnerable person has occurred or is being attempted, the institution may refuse certain transactions (which may then involve notice requirements); and institutions must provide EFE training to employees. The WA attorney general and the Department of Social and Health Services will develop standardized training that the institutions may offer, or the institution may develop its own training. 
    • Illinois: Financial institutions are not mandated reporters and statute does not specifically identify them as permissive reporters. However, any person may report. Also, the Illinois Department of Aging, by joint rulemaking with the Illinois Department of Financial and Professional Regulation (IDFPR), has developed required minimum EFE training standards for financial institution employees and officers that directly interact, in person or over the phone, with an Older Person. The IDFPR is responsible for ensuring compliance with these standards. 
    • Oregon: Financial institutions are not mandated reporters, however, reporting instances involving abuse or neglect of older adults is highly encouraged for non-mandated reporters. Also, when a financial institution believes that financial exploitation of a vulnerable person has occurred, the institution may refuse certain transactions (which may then involve notice requirements). 
    • Indiana: Statute does not specifically refer to financial institutions as mandatory reporters, however, all individuals who believe or have reason to believe that another person is an endangered adult are required to make a report. 
    However, state EFE mandates are also subject to quick change. The NCSL reports that bills introduced by state legislators to combat EFE increased to more than 140 bills in 2017, up from 130 bills in 2016, 106 bills in 2015, and 89 in 2014. Therefore, consult with one’s own legal counsel to ensure full compliance with all state requirements. 

     

    Wolters Kluwer is closely monitoring the topic of elder financial abuse. Readers interested in the state research conducted for this article are welcomed to contact CCOEProgramServicesInbox@wolterskluwer.com, Attn: State EFE Mandates, to learn more. 

     

     

    Learn more about regulatory change management.


    ABOUT THE AUTHOR 

    Leslie McNally, J.D., is a compliance analyst with Wolters Kluwer’s Compliance Solutions group, where she provides regulatory analysis and compliance direction for Wolters Kluwer banking products used by institutions of all sizes. She can be reached at leslie.mcnally@wolterskluwer.com.



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