Bank Secrecy Act: Born from Risk, Built for Control

The Bank Secrecy Act (BSA), formally known as the Currency and Foreign Transactions Reporting Act of 1970, is a key anti-money laundering (AML) law enforced in the United States. This legislation mandates financial institutions to assist in detecting and preventing financial crimes, such as money laundering, tax evasion, and terrorism financing. By instituting stringent documentation, monitoring, and reporting protocols, the BSA forms the foundation of AML strategies within the U.S.  

For instance, if a customer deposits cash exceeding $10,000 into a bank account, the bank must file a Currency Transaction Report (CTR) under the BSA's rules. This ensures traceability and monitoring of unusually large cash flows.

The BSA was introduced to strengthen financial oversight and make illicit financial activities easier to detect. Below are its core objectives:

• Combat money laundering: Detect and deter the laundering of proceeds from illicit activities.
• Fight terrorism financing: Prevent funds from flowing into terrorist organisations.
• Promote tax compliance: Discourage tax evasion by introducing transparency.
• Mandate the timely reporting of suspicious activities: Assist law enforcement and financial regulators in investigating financial crimes.

Application:

By ensuring financial institutions file Suspicious Activity Reports (SARs), BSA regulations establish a vital link between institutions and federal authorities for combating organised financial crime.

The BSA imposes several mandatory requirements on financial institutions. Understanding these obligations is critical for ensuring compliance and avoiding severe penalties.

Institutions must report any suspected transactions that indicate criminal behaviour. For example, unusual patterns such as multiple smaller transactions below reporting thresholds could trigger a SAR.

Any cash transaction exceeding $10,000 must be reported. For instance, if a business customer deposits $12,000 in cash, a CTR is necessary.

Under the BSA, banks are obligated to verify customer identities at account opening. This reduces fraud risk and ensures institutions conduct sufficient due diligence during transactions.

Additional Requirements:

• Monitoring Transactions: Apply ongoing, risk-based transaction scrutiny to identify irregularities.
• Record Retention: Maintain records of transactions and reports for at least five years.
• Training Programs: Train employees on AML processes and BSA compliance.
• Compliance Officer: Appoint a dedicated officer to oversee BSA compliance standards.

LSEG Risk Intelligence solutions support BSA compliance through data-driven tools that aid in identity verification, streamline onboarding processes, and provide advanced monitoring and records management capabilities to help detect risk anomalies in real time, enhancing overall compliance procedures.

Institutions must establish strong internal governance to mitigate risks. This includes durable processes against abuse that comply with existing regulations.

A senior official should be invested with the authority to ensure compliance adherence, such as enforcing SAR guidelines and liaising with regulators.

Adequate training on AML measures is integral to understanding compliance responsibilities.

Periodic reviews by independent testers or auditors ensure BSA adherence is robust.

Post-2018 reforms introduced the mandatory identification of beneficial owners to combat shell companies used for money laundering. (via Fed. Reg.)

The Financial Crimes Enforcement Network (FinCEN), under the U.S. Treasury, oversees the enforcement of the BSA. Partner agencies such as the IRS, OCC, and FDIC also participate in compliance reviews and regulatory issuance.

Penalties for Non-compliance:

• Civil penalties can range up to $25,000 per violation. (via Fed. Reg.)
• Institutions may face criminal charges for intentional neglect.
• Potential loss of federal charters or operating licences.

For example, a financial institution failing to file SARs related to suspected human trafficking can incur multimillion-dollar fines.

This legislation aligns with international standards, such as the Financial Action Task Force (FATF) recommendations. Many global regulators benchmark BSA regulations for their local AML laws, demonstrating the statute's global impact.

Context:

Post-September 11, the USA PATRIOT Act strengthened the BSA, expanding its provisions to combat terrorism with greater accountability in international banking.