Deregulation Doesn't Mean Lower Risk

QUESTION 

My main concern is that AI is about to take over my human responsibilities. It may come as a surprise, but I am a lawyer who serves as internal counsel for a lender in 35 states. You might think that a lawyer should have nothing to worry about when it comes to AI. I started here two years ago. The company continues to grow. There were four lawyers in our legal department. Yet, now there are three. One of them was fired, and in her place is an AI tool. I have a feeling that I am next to go! 

What are we doing to ourselves? Why are we allowing AI to put us out of work and take our livelihoods from us? These are not humans, yet they can take our human knowledge, pose as humans, and replace us. I see the downsizing of AI replacing humans. 

We are using your AI Policy Program to help us navigate AI’s compliance risks. It looks like AI is here to stay. AI regulations should protect consumers, and AI should not threaten our jobs! 

I see slow-to-no AI regulations and very little understanding of how it will adversely affect humans.   

What is being done to regulate artificial intelligence? 

OUR COMPLIANCE SOLUTION

AI POLICY PROGRAM FOR MORTGAGE BANKING™    

Our AI Policy Program aligns with Freddie Mac's and Fannie Mae’s requirements.   

Our AI Policy Program consists of the following policies:  

1.       AI Governance Policy 

2.       AI Use Policy  

3.       AI Workplace Policy  

4.       AI Credit Underwriting Policy  

5.       AI Do & Do Not Policy  

6.       AI Ethics Policy  

7.       AI Vendor Management Policy 

8.       AI Mortgage Fraud Policy 

9.       AI Anti-Money Laundering Policy

Contact us for Information! 

RESPONSE 

You say AI is not human, and it certainly isn't. Indeed, the Internet and its derivatives, such as social media, are not human. The Internet, social media, and AI are all inanimate, lifeless, insentient, spiritless, uninhabited, inorganic, labyrinthine, concatenating chains that are composed of winding strands of human meaning. 

These chains have no significance other than the understanding we invent for them. They are not our essence. We follow those chains, each of them like endless sands on a vast beach. The sands are unlimited, but the ones in our hourglass are finite. 

We are Hansel and Gretel, following breadcrumbs that lead to the cannibalistic witch. Inevitably, these brute, cold, insensate vessels into which we pour our being do not know we are there. They are numb, dumb, and oblivious, soullessly mimicking us, like an alien intelligence whose center is everywhere. 

Attempts to regulate AI technologies have not shown much foresight. Some of this negligence is by design and stems from an inability to recognize its implications. The mad dash into a new, unregulated, or semi-regulated technology is hubris borne of money, politics, and ego. AI technologies are expanding at a rate that outpaces the development of regulatory frameworks to mitigate their risks. 

The alien intelligence is ready for us. Are we ready for it? 

Over the past year, federal regulators have sharply pulled back on AI-related enforcement, including fair lending. The CFPB has scaled back liability for disparate impact under ECOA. Bank examiners are conducting fewer fair lending risk assessments. The administration has made deregulation its explicit policy goal. It would be easy to read this as a green light. It isn't. 

"Deregulation" Doesn't Mean Lower Risk 

What's actually happening is a shift in venue, not a reduction in exposure. Enforcement is moving from Washington to state attorneys general, private litigation, and a separate federal statute that nobody has rolled back. For mortgage originators and servicers using AI in underwriting, pricing, marketing, or servicing, the practical compliance burden hasn't gone away. It is just coming from different directions, and those directions are harder to predict than a single federal rulebook ever was.

CFPB Eliminates Disparate Impact

YOUR QUESTION 

YouTube

You may have heard about a major change to Regulation B. They eliminated disparate impact. I also learned that they changed a few other areas that were working to reduce discrimination. As an underwriter, I think this is wrong-headed. I think this reduces fair lending protection. 

We met with our lawyer because we have a second review process, which weeds out potential discrimination in our loan process. Our lawyer says there is a shift away from not having to prove intent to discriminate to now having to prove intent. She says that this is a problem because proving intent is extremely difficult. In other words, discrimination is now possible without having to prove intent to discriminate – only the outcome matters. 

So, if I get this right, even if the outcome is discrimination, the company that discriminated won't be held responsible if you can't prove an intent to discriminate. I don't understand why disparate impact protection is being weakened. It’s scary! 

Do the changes to Regulation B basically eliminate disparate impact? 

OUR COMPLIANCE SOLUTION 

Policies and Procedures 

OUR RESPONSE 

I am going to be blunt: the CFPB's April 2026 Final Rule ("Rule") amending Regulation B eliminates the "effects test" – that is, "disparate impact" – of the Equal Credit Opportunity Act (ECOA), while also restricting special-purpose credit programs (SPCPs), and narrowing the definition of "discouragement" of applicants or prospective applicants. This is clearly a significant regulatory shift away from fair lending restrictions. 

However, saying it eliminates disparate impact and fair lending is not accurate. The Rule eliminates disparate impact liability specifically under ECOA and Regulation B. That's significant, but ECOA is only one of several legal frameworks that govern lending discrimination. The Rule does not affect several others that remain fully intact. 

The Fair Housing Act (FHA) still recognizes disparate impact for mortgage lending. The Supreme Court confirmed this in Texas Department of Housing v. Inclusive Communities Project (2015), and the Rule expressly does not touch FHA liability. So a mortgage lender whose policies produce racially skewed outcomes can still face a disparate impact challenge under the FHA, which is a completely separate statute.

State fair lending laws are arguably the bigger remaining protection. Many states – for instance, California, New York, Illinois, and others – have their own anti-discrimination statutes that incorporate disparate impact standards, and federal rulemaking cannot preempt those. State attorneys general were among the most vocal opponents of the Rule precisely because they intend to continue using their own authorities. 

The Department of Justice retains independent enforcement tools. And the Community Reinvestment Act, which addresses lending patterns in lower-income communities, operates on its own separate framework. 

HOW DID THIS HAPPEN? 

The CFPB received over 64,500 public comments, including ours. The overwhelming majority of comments opposed the Rule. Nevertheless, the Rule is now law. The compliance effective date is July 21, 2026. Whatever the comments offered, pro or con, the Rule largely finalizes a November 2025 proposal, with only clarifying edits rather than substantive revisions. 

Since your question specifically involves the change to disparate impact, I will discuss it primarily. The other changes are also very significant and should be incorporated into your policies and procedures. 

Eliminating the “effects test,” a change supposedly meant to lower compliance costs, actually gives lenders greater freedom to target protected groups. 

WHAT IS THE EFFECTS TEST? 

The purpose of the “effects test” is ultimately to protect against disparate impact. The "effects test" is actually a legal doctrine used to determine if a lender’s facially neutral policy creates a discriminatory, disproportionate impact on a protected class (for instance, race, gender, or age). It means a creditor can be liable for discrimination, even without discriminatory intent, if their practices have a discriminatory effect. 

Most regulators know full well that they can challenge lending policies that, while appearing neutral, create a negative impact on protected groups. Most compliance lawyers know full well that a financial institution can expose itself to a disparate impact violation by creating a pattern or practice that results from defective lending policies. And most financial institutions know, or should know, that if a policy has a discriminatory effect, they must prove that a legitimate business necessity justifies it. 

What the CFPB has done is to remove the “effects test” from Regulation B, thereby promulgating that ECOA does not recognize disparate impact liability. The focus now is on the intent to discriminate.

Staying Ahead of Regulatory Changes

YOUR QUESTION 

We are a small broker in the West. There are only four people in our company. We are licensed in three states. Every year, we get slammed with new compliance requirements from state and federal agencies. It's too much! Sometimes I think compliance is first and sales are second. Every year it gets worse and worse. 

Surely there is a way to keep track of these regulations without spending a ton of money on search engines and lawyers. I don't know what I don't know, and that is the problem. You don't have to give me every chapter and verse about what to do. I just need some advice on what I can do, given my limited means and staff. 

I need to get back to sales, but too much of my day is consumed by compliance. 

So, please let me know how to stay ahead of changing regulations. 

A Frustrated Broker 

OUR COMPLIANCE SOLUTION 

We recommend: 

BROKERS COMPLIANCE GROUP, the first full-service, mortgage risk management firm in the United States, specializing exclusively in outsourced mortgage compliance and offering a full suite of services to mortgage brokers, mini-correspondents, and independent mortgage professionals. 

OUR ANSWER 

I understand how you feel. It's the main reason why I started Lenders Compliance Group twenty years ago. 

Our Brokers Compliance Group supports the unique compliance needs of mortgage brokers. We have hundreds of brokers who let us handle their compliance so they can focus on sales and operations. 

Let me say this: there was a time, ages ago, when sales and compliance were separate activities, though they continually overlapped and coalesced. Now sales and compliance are cemented together. I know that's not what you want to hear, but it's true. 

Our industry is highly regulated, but given the tally of federal and state restrictions, it is not as regulated as others. Mortgage banking is categorically grouped within the finance and banking industries. It is certainly amongst the most highly regulated industries in the country. 

So, you will need to stay alert and proactive. However, there are several things you can do to reduce the time you give to monitoring and implementing regulations. It may seem daunting, but once you build momentum, you will be able to focus much more on sales. 

To prepare for regulatory changes, you should develop a proactive framework. By "framework," I mean a plan to closely monitor regulatory changes and, where needed, assess their impact on your origination processes. This plan should include feedback to update policies, provide training, test the loan flow process, maintain documentation, use methods to track changes, and audit ongoing compliance. You'll continually tweak the plan over the years. 

I'm going to break it down for you so that you get a feel for what I'm suggesting.

 

MONITOR

 

Develop a means to monitor court cases, enforcement actions, and regulatory bulletins. Because you have a small office, designate colleagues to track these early signals.

 

RESEARCH

 

Join, subscribe, or partner with industry associations and compliance advisors, such as Brokers Compliance Group. These resources usually provide content, updates, and specialized training.

 

TECHNOLOGY

 

Reduce research costs by using a cloud-based platform to alert you to regulatory changes. If you do not have the resources, you can partner with our compliance firm to get real-time feedback.

 

ASSESS & EVALUATE

 

Determine which business areas (for instance, lending, technology, operations) are affected by new rules (such as digital signage and AVMs). Identifying the impact strengthens compliance.

 

CONDUCT AUDITS

 

Perform internal audits or external audits to review your compliance management system. For a close look at a department, function, or regulation, use our inexpensive Compliance Tune-up.

AI Policy Program for Mortgage Banking

QUESTION 

We need guidance on using artificial intelligence in our mortgage banking and servicing operations. Unfortunately, we have not found anything of much value. As the President and CEO of our company, I have met with our Board for almost a year to discuss governance and the utilization of AI. Being present in all states and territories, we require guidance on both state and federal requirements nationwide. 

Our lawyers provide us with white papers and legal guidance, but we have yet to receive policies based on mortgage banking experience and expertise. The last policy we got from them was basically useless. I'm a lawyer myself, but I don't need citations or case law. Why is it taking so long for professionals to provide us with the guidance we need to ensure compliance with AI-related issues? 

We need your help. For years, we have been following you. Recently, we decided to use your firm to support our compliance department. I spoke to you recently about this AI challenge, and you told me that your team is working on a comprehensive AI policy. I believe you said it would be published this month. Please share your AI policy with the mortgage community. 

What is the policy on artificial intelligence you are offering? 

COMPLIANCE SOLUTION 

Artificial Intelligence Policy Program for Mortgage Banking

ANSWER 

I enjoyed our call. We look forward to working with your compliance personnel. Indeed, we assembled a team of our compliance experts to develop policies and procedures for artificial intelligence. It quickly became clear that one policy would not do. In fact, several policies are needed. We realized that a comprehensive policy program was required, rather than just a single policy. A programmatic structure best meets the compliance demands. 

Today, we are issuing the first set of AI policies and procedures specifically designed for the mortgage banking industry. Consistent with its comprehensive approach, we have structured it as a policy program. Thus, there is a cost-effective base policy, as well as several supporting policies. At no additional cost, we maintain and expand the policy program for the first twelve months, as needed, and extensions are available. Updating is necessary in response to the rapidly changing regulatory environment associated with artificial intelligence. 

A few days ago, we conducted a demonstration for several regulators, examiners, and our money center bank clients. The feedback was enormously encouraging, and we were grateful for their interest. 

Order as soon as possible. There is already considerable demand! We will schedule collaborative support! 

Request Information Form

New Issuance 

Here is the Press Release! 

Outline 

Artificial Intelligence Policy Program for Mortgage Banking™

1.     Artificial Intelligence Policy Program for Mortgage Banking – Overview

2.     Artificial Intelligence Policy – Foundational Guidelines

3.     Artificial Intelligence Workplace Policy

4.     Artificial Intelligence Credit Underwriting Policy

5.     Artificial Intelligence - Do & Do Not Policy

6.     Artificial Intelligence - Ethics Policy

Each of these policies interacts with and complements the others.

It is essential to work with our LCG Compliance Managers to conform the texts to ensure the policies accurately reflect the financial institution's actual use of Artificial Intelligence in its operations.

• Policies are reviewed as stand-alone documents. A consolidated version of the policies is available.

• LCG Compliance Manager support is included in the purchase price of the policy documents.

• LCG will maintain the subject policies and procedures for 12 months from the purchase date.

Every effort will be made to conform the policies to the institution's compliance management system.

Upon reaching the final version, the Master is kept in our encrypted extranet for your use. The Master version is retained in the extranet and updated for substantive changes in applicable laws and Best Practices.

Request Information Form

For additional support or information, please email compliance@lenderscompliance group.com. 

Contact Us via our website.

For more articles on this topic, please visit: Artificial Intelligence.

________________________ 

This article, Artificial Intelligence Policy Program for Mortgage Banking, published on October 30, 2025, is authored by Jonathan Foxx, PhD, MBA, the Chairman & Managing Director of Lenders Compliance Group, the first and only full-service, mortgage risk management firm in the United States, specializing exclusively in residential mortgage compliance.

GENIUS Act: Fool's Gold

QUESTION 

In the last few weeks, you have been dealing with the controversial subject of cryptocurrency and the GENIUS Act regarding its impact on mortgage banking. I have been worrying about something since the legitimization of cryptocurrency started. 

I am probably the least likely to bring up my concerns about it since I am the CEO of a large lender that would definitely make thousands of mortgage loans if crypto can be used in the loan transaction. But I do not want to originate unstable mortgages! 

I'm not a fool, and I do not want to originate loans based on the modern equivalent of Fool's Gold. 

I sense there is a rat in this stablecoin initiative. And, like so many other things in our government, I think that rat may be people who are going to get superrich, and especially the president of the United States. By the way, I am not a Democrat. I have voted Republican my whole life. I'm sure both Democrats and Republicans are also going to make significant profits in crypto transactions. 

My spider-sense is telling me this is all more than a stablecoin solution to a problem that, as far as I can tell, doesn't exist. I am concerned about politicians profiting at the risk of mortgage lenders. So, I am hoping you could tell us your view of how President Trump and other politicians will benefit financially in the stablecoin era. 

How can the President and other politicians benefit personally from the GENIUS Act? 

SOLUTION 

CMS Tune-up®

Compliance Management System
Second Line of Defense

RESPONSE 

In the huge response I have gotten to my recent articles on cryptocurrency and the GENIUS Act – respectively, Cryptocurrency: Risks to Mortgage Banking and GENIUS Act: Mortgage Banking Ambush – several commenters frame their concerns as "controversial." My view, though, is that controversy can be a fearful way to avoid truth. We should stay calm, not get angry, and rationally evaluate an issue. 

Thomas Carlyle paraphrased the Buddha when he said

In a controversy, the instant we feel anger, we have already ceased striving for the truth and have begun striving for ourselves. 

Ultimately, the essence of disputes and our reactions to them can be understood better when we emphasize the importance of seeking truth over personal gain. Thus, I am not concerned about controversy because I strive to resolve issues in a clear, unbiased, factual, and rational way. 

Politicians of both parties seem to be quite bewitched by digital assets in general, and stablecoins in particular. Indeed, one hundred Democrats in the House voted for the Genius Act, many in the Democratic Party leadership. And in the Senate, eighteen Democrats voted for it. Virtually all the Republicans voted for the Genius Act in the House and Senate.[i] 

I can't blame you for being skeptical of the crypto legislation. However, as I stated in my previous articles, there are several positive and negative aspects to consider. That said, unfortunately, some persons may stand to benefit financially. Just like on Wall Street, sometimes insiders can exploit financial opportunities. Congress is no exception. There have been several legislative attempts to prohibit congressional members from trading individual stocks and to prevent financial conflicts of interest. The Democrats have introduced each of them, and nearly all Republicans have opposed them. The most recent legislative effort was introduced by Democrats again in May 2025, called the Ban Congressional Stock Trading Act. 

I'm not so sure you should single out President Trump for special attention. Perhaps his potential gain from the stablecoin legislation is an example of how a system can lead to undesirable consequences. 

Stafford Beer, the British theorist, famously said 

The purpose of a system is what it does. 

In other words, a system can have unintended consequences, it can have undesirable consequences, and just relying on its stated goals can be misleading because rhetoric and intentions may be outweighed by actual behavior and outcomes.

GENIUS Act: Mortgage Banking Ambush

QUESTION 

In your recent article, Cryptocurrency: Risks to Mortgage Banking, you said that you received many inquiries about the GENIUS Act. I was one of those who requested your view. You shared that you would respond to our questions soon. I am writing you again to urge you to offer an article on the GENIUS Act. 

I am a former federal regulator. I read the whole Act. It bothers me that the Act does not adequately protect consumers. And, I am concerned that it adds an element of instability to our banking system. Also, I do not think the mortgage market can be stable if it comes to depend on digital assets. 

So, I am asking you not to wait. I think the GENIUS Act is ambushing the banking sector. We need to know your view of the GENIUS Act since you are an expert in mortgage compliance. Please consider the following questions. 

In layperson's terms, what is the GENIUS Act? 

What are some of the general features of the Act? 

How does the GENIUS Act affect mortgage loans? 

SOLUTION 

CMS Tune-up

RESPONSE 

We received a huge response to the article we published on August 7^th. The article, Cryptocurrency: Risks to Mortgage Banking, sought to answer these two posed questions: 

·       Should cryptocurrency be accepted in lieu of dollars for a down payment on mortgage loans? 

·       How has the Trump Administration supported cryptocurrency? 

Apropos of your being a former federal regulator, in my summary, I wrote:

 

The regulatory uncertainty is extremely concerning. The regulatory environment for crypto-backed mortgages is still evolving and lacks uniformity across jurisdictions. A sudden shift in regulations or government policy regarding digital assets could significantly impact how these loans are structured, taxed, or regulated. 

I'm sure you understand the implications. 

I will provide a brief outline of the GENIUS Act (the acronym of Guiding and Establishing National Innovation for US Stablecoins Act), which was signed into law on July 18, 2025. The hype about it is that it represents the first comprehensive federal legislation in the United States addressing the regulation of stablecoins. 

By the way, I wish Congress would stop naming bills and acts in acronyms. It's really kind of silly. Supposedly, it is done for mnemonic reasons, but I see it more as branding, salesmanship, and maybe practical convenience. While acronyms may be helpful, they can also be misleading. Some acronyms are created to sound good, like the GENIUS Act, even if they don't accurately reflect the content of the bill. I wonder if there's a whole department in Congress set up to devise acronyms for legislation. But let's move on! 

KEY ASPECTS OF THE GENIUS ACT 

Purpose 

Ostensibly, the GENIUS Act is being promoted to foster innovation, maintain the dollar's global standing, and combat illicit activity. 

The Act has the preliminary makings of a potential regulatory framework that provides some clarity to encourage innovation and adoption in the stablecoins industry. But details matter, which I'll get to shortly. 

As to maintaining the US dollar's global standing, if you read my article on cryptocurrency's risk to mortgage banking (cited above), you probably already know my view of this aspiration. By requiring stablecoin reserves to be backed with US dollars and Treasuries, the Act seeks to strengthen the dollar's role as the global reserve currency. However, among other things, the government does not back cryptocurrency accounts and holdings in online wallets. They are not insured by the government like US bank deposits. It is prone to scams, thefts, and cyber hacks. And, there are no organizations that protect against crypto losses. I'm not convinced that the Act overcomes these challenges sufficiently to protect the consumer.

Cryptocurrency: Risks to Mortgage Banking

QUESTION 

My bank's management is deciding whether to accept cryptocurrency in down payments on mortgage loans. We have a large third-party originator channel. These TPOs are both banks and nonbanks, and some of them want to accept cryptocurrency rather than dollars. Frankly, I am very concerned about it. I don't think crypto is stable. 

On top of that, the Trump Administration wants to make crypto a legitimate asset, like the dollar. I believe they want to use it as part of our reserve currency. I know how Bitcoin works. A reliable, inherent standard, such as the GDP or other statistical metrics, does not influence it directly. There's no underlying metric other than market demand. 

As my bank's CFO, I do not feel that cryptocurrency should have the same fungibility as the dollar. I am worried that we are diminishing our reserve currency status. I know your newsletter is widely read and you don't shy from controversy, so I am hoping that your feedback will provide more perspective than all the pros and cons we're hearing in the news. 

Should cryptocurrency be accepted in lieu of dollars for a down payment on mortgage loans? 

How has the Trump Administration supported cryptocurrency? 

SOLUTION 

Policies Tune-up® 

RESPONSE 

Thank you for your kind words. I've been told the newsletter is popular. The subscriber base is very large. As to shying away from controversy, sometimes people would rather go to their silos than consider different viewpoints. Fortunately, based on the feedback, almost all our subscribers are genuinely interested in exploring various perspectives on legal and regulatory compliance. There is a political tint to regulations and legislation that is unavoidable. These do not get promulgated in a vacuum. And, if you're expressing concern, you can be sure that many other individuals are expressing similar concerns, whatever the topic. 

So, I do not shy away from controversy. And I ask you also not to be shy of controversy in your questions and comments. I read every one of them and answer most! 

Let's first discuss whether cryptocurrency is safe versus the dollar. Conceptually, I think it's possible to outline a response based on four categories: backing and regulation, volatility and potential for loss, insurance and consumer protections, and security and scams. This composite may be helpful in establishing a comparison, given that the dollar is a worldwide reserve currency that investors in dollar-denominated assets continually evaluate in terms of the foregoing categories. 

The following sets forth a brief comparative outline. We will provide a table of this outline if you request it here. 

Backing and Regulation 

US Dollar (Fiat Currency) 

The US dollar is a centralized fiat currency, meaning it's issued, backed, and maintained by the government and is considered legal tender. It's regulated by central authorities like the Federal Reserve, which works to minimize inflation and maintain economic stability. It is not backed by a physical commodity such as gold or silver. Instead, its value is derived from the trust and confidence that people place in the issuing government and the stability of the economy it represents. 

Characteristics of a fiat currency are that it is government-issued, not backed by a commodity, its value is based on trust and confidence, it is always a controlled supply, and it is legal tender. 

As I see it, any fiat currency has pros and cons. On the pro side, it offers economic stability, especially by governments and central banks controlling the money supply and interest rates, the goal of which would be to reduce economic downturns. It is flexible, too, because governments can expand or contract the money supply to combat inflation and stimulate economic growth. And, as I said above, it can support international trade, because it facilitates international transactions without necessitating trading partners and countries to stockpile physical commodities like gold to back their currencies. 

Raided by ICE - Employees Detained

QUESTION 

Our company was raided by ICE last week. Two of our loan officers were taken away in handcuffs. They were not read any rights. They were just taken from their desks, put in cuffs, and walked out. Our HR Department notified their families. 

It was a shock to all of us. I am a loan officer and asked our lawyer for permission to write to you about it. We have no guidelines on what to do if ICE shows up, but we’re trying to figure out what to do if ICE shows up. We do not want any trouble, and there is a lot of fear. 

Our lawyer, compliance people, and HR manager are putting together some guidelines. But many of us here get your newsletter, and we would like you to provide a few guidelines to follow if ICE comes back. 

What should we do if ICE raids our company? 

Do our employees have any rights? 

SOLUTION 

ICE Tune-up® 

RESPONSE 

If ICE raids your company, remain calm and cooperate with the agents. However, you can protect your legal rights and those of your employees. The first action to take is to immediately contact legal counsel and have a designated employee accompany ICE agents during the raid. If you have not selected such an employee liaison, do so now. 

Document everything, including the names of agents, areas searched, and items seized. But, do not obstruct or interfere with the search, and also do not provide false information or hide employees. 

I will offer some suggestions for immediate actions and a few things to consider. The following list is not meant to be comprehensive (and I am not providing legal advice). Facts and circumstances often dictate the response and appropriate legal actions. If you have questions, you can contact us. 

If you want to be prepared for an ICE visit, you should consider our ICE Tune-up®, a mini-audit that determines whether you are ready for such a visit. Our pioneering Compliance Tune-up is in considerable demand. If you need this audit soon, I urge you to contact us to schedule it. 

IMMEDIATE ACTIONS

·    Contact Counsel

I suggest you notify legal counsel about the raid.

 

·    ICE Team

Designating an ICE Team is essential. Whoever has first contact with ICE agents should know to contact the company’s designated ICE Team members so they can start implementing the ICE raid protocols.

 

·    Document

Designate an employee to take detailed notes, including agent names, badge numbers, areas searched, and persons or items seized.

 

·    Stay with the Agents

Select an employee to accompany ICE agents during the search to observe and document.

 

·    Verify Warrants

Request and review any warrants presented by ICE agents. Many ICE raids are being conducted using administrative warrants. Ensure they are judicial warrants (viz., signed by a judge) and understand their scope.

o   Court Warrant – A federal or state court judge issues a judicial (or court) warrant. It gives ICE access to non-public spaces of the facility in accordance with the terms of the warrant. Even if ICE has a court warrant, it is important to review the warrant to ensure it has the correct company name and address, is properly signed and dated by a judge, includes a timeframe within which the search must be conducted, any restrictions, and contains a description of the premises to be searched and a list of items or people to be seized (i.e., equipment, records, workers).

o   Administrative (or No Warrant) – If ICE has no warrant or only an administrative warrant (i.e., signed by ICE on Forms I-200 or I-205), the warrant does not permit ICE to access non-public spaces.

But if ICE proceeds, do not argue with or impede ICE. Instead, document your objections, which can be used later in a court challenge.

Common Red Flags in Money Laundering

QUESTION

I am the COO of a mid-sized lender in the Midwest. We have contacted your firm to do an Anti-Money Laundering Risk Assessment. One of the big issues we have is trying to identify the most common red flags. 

In streamlining our system AML reporting, we are using AI to determine common red flags. Unfortunately, AI is not able to provide real-world data. We need practical experience, which is why I would like you to let me know the kinds of common red flags you find in your audits. 

What are the common red flags for money laundering in mortgage banking? 

SOLUTIONS 

• AML TESTING
• AML TRAINING
• AML RISK ASSESSMENT 
• AML PROGRAM [Written Policy]

RESPONSE 

Since 2003, FinCEN has issued a number of analyses, reports, and advisories regarding emerging trends in mortgage fraud, money laundering, and terrorist financing activity involving residential mortgage loans. 

While FinCEN publishes a list of potential red flags, we often find that our list of activities that could trigger the filing of Suspicious Activity Reports continues to expand. At this point, we have hundreds of such findings. 

Thank you for retaining us to provide the AML Risk Assessment. 

Lenders Compliance Group was the first compliance firm in the country to provide AML audit tests to non-bank residential mortgage lenders and originators. Of course, we have also offered AML audits to banks involved in residential mortgage banking for many years. 

So, by this point, we have rock-solid indicia and identifiers that help us review for AML compliance. There are many common red flags. I am going to provide a half-dozen of them that keep turning up in our audits with the proviso that the list is not comprehensive. 

Activities considered red flags in mortgage banking include: 

(1) A loan secured by pledged assets held by a third party unrelated to the borrower. 

(2) A loan secured by deposits or other readily marketable assets, such as securities, when owned by apparently unrelated third parties. 

(3) A borrower default on a case-secured loan or any loan that is secured by assets that are readily convertible into currency. 

(4) A loan made for, or paid on behalf of, a third party with no reasonable explanation. 

(5) A customer, to secure a loan, purchases a certificate of deposit using an unknown source of funds, particularly when funds are provided via currency or multiple monetary instruments. 

(6) A loan that lacks a legitimate business purpose, provides the depository institution with significant fees for assuming little or no risk, or tends to obscure the movement of funds (i.e., loans made to a borrower and immediately sold to an entity related to the borrower). 

It is important to ensure that your system solution requires the reporting of any activity that is suspected of violating a criminal statute. Additionally, the federal money laundering criminal statutes consider money laundering to be the handling of the proceeds of criminal activity, with mortgage fraud considered to be a predicate offense for the money laundering criminal statutes. Mortgage-related criminal activity is a specific predicate offense. 

Jonathan Foxx PhD., MBA
Chairman & Managing Director

Lenders Compliance Group

Cryptocurrency Dilemma

QUESTION 

Our compliance department notified us that the government has stopped criminal, regulatory, anti-money laundering enforcement of the crypto sector. We are a bank that accepts cryptocurrency transactions. For instance, we accept cryptoassets such as Bitcoin. 

One of my tasks is to monitor the cryptocurrency exchange platforms. I want to know the extent to which it is necessary to monitor these platforms if there is not going to be any enforcement. Are we wasting our time? I realize that government officials want to deregulate crypto, but it seems a stretch to allow the exchange platforms to bear no accountability. I hope you can shed some light on this subject. 

If there is not going to be enforcement of regulations involving cryptocurrency, to what extent is it necessary to monitor exchange platforms? 

SOLUTION 

- AML TESTING
- AML TRAINING
- AML RISK ASSESSMENT 
- AML PROGRAM [Written Policy]

RESPONSE 

On April 7, 2025, Todd Blanche, the Deputy Attorney General in the DOJ, issued a memorandum containing the following statement: 

''The Department of Justice is not a digital assets regulator.''[i] 

The memorandum was issued a couple of weeks after President Donald Trump pardoned several cryptocurrency executives and a company that had pleaded guilty to anti-money laundering compliance violations.[ii] 

The Justice Department has decided to stop pursuing those cases altogether. That means, in substance, that the DOJ will no longer pursue litigation or enforcement actions that effectively superimpose regulatory frameworks on the digital assets sector. 

In other words, there is a focus on deregulating the cryptocurrency industry. The Justice Department will no longer target virtual currency exchanges, "mixing and tumbling" services, and offline wallets for the acts of their end users and unwitting violations of regulations. 

Furthermore, the memorandum makes clear that prosecutors are directed not to charge regulatory violations in cases involving digital assets, including unlicensed money transmitting, violations of the Bank Secrecy Act, unregistered securities offering violations, and other registration requirements under the Commodity Exchange Act. When there are cases involving digital assets, prosecutors are now directed to pursue illicit financing by the culpable individuals and enterprises themselves – but not against the platforms they use to conduct the illegal activity. 

DISBANDED OVERSIGHT

Mr. Blanche also disbanded the Justice Department's National Cryptocurrency Enforcement Team, effective immediately, and directed the Market Integrity and Major Frauds Unit to cease cryptocurrency enforcement and instead focus on other priorities, such as immigration and procurement frauds. 

You mention that your task is to monitor the cryptocurrency exchange platforms. It appears the DOJ has changed its focus away from regulating the platforms themselves, seemingly interested in only the illicit transactions of bad actors who use the platforms. To me, this seems like going after bad drivers while doing nothing to put stop signs on the road itself to protect pedestrians. 

Cryptoasset exchange platforms are subject to certain regulatory oversight, but the level and nature of that oversight vary depending on the specific jurisdiction and the nature of the cryptoassets being traded. In the US, platforms that trade cryptoassets that are securities are subject to registration and regulation as national securities exchanges. Additionally, platforms may need to register as Money Services Businesses (MSBs) with the Financial Crimes Enforcement Network (FinCEN). The Commodity Futures Trading Commission (CFTC) also regulates crypto derivatives. A regulatory referral about an cryptocurrency exchange platform to the DOJ may now not be prosecuted with respect to illicit activity conducted by the platform itself.