Bank Secrecy Act

Last updated
Bank Secrecy Act of 1970
Great Seal of the United States (obverse).svg
Other short titles
  • Currency and Foreign Transactions Reporting Act
  • Reports of Currency and Foreign Transactions
  • Domestic Currency Transactions
  • Reports of Exports and Imports of Monetary Instruments
  • Foreign Transactions
Long titleAn Act to amend the Federal Deposit Insurance Act to require insured banks to maintain certain records, to require that certain transactions in U.S. currency be reported to the Department of the Treasury, and for other purposes.
Acronyms (colloquial)BSA
NicknamesFederal Deposit Insurance Act Amendments
Enacted bythe 91st United States Congress
EffectiveOctober 26, 1970
Citations
Public law 91-508
Statutes at Large 84  Stat.   1114-2 aka 84 Stat. 1118
Codification
Titles amended
U.S.C. sections amended
Legislative history
  • Introduced in the House as H.R. 15073
  • Passed the House on May 25, 1970 (302-0)
  • Signed into law by President Richard Nixon on October 26, 1970
Major amendments
USA PATRIOT Act
United States Supreme Court cases

The Bank Secrecy Act of 1970 (BSA), also known as the Currency and Foreign Transactions Reporting Act, is a U.S. law requiring financial institutions in the United States to assist U.S. government agencies in detecting and preventing money laundering. [1] Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, file reports if the daily aggregate exceeds $10,000, and report suspicious activity that may signify money laundering, tax evasion, or other criminal activities. [2]

Contents

The BSA is sometimes referred to as an anti-money laundering law (AML) or jointly as BSA/AML. [3]

History

The BSA was originally passed by the U.S. Congress in 1970 and signed by President Richard Nixon into law on October 26, 1970. Shortly after passage, several groups attempted to have the courts rule the law unconstitutional, claiming it violated both Fourth Amendment rights against unwarranted search and seizure, and Fifth Amendment rights of due process. Several cases were combined before the Supreme Court in California Bankers Assn. v. Shultz , 416 U.S. 21 (1974), which ruled that the Act did not violate the Constitution. Until the 1980s, there was a "prolonged period of inaction", but financial institutions eventually complied with the BSA's reporting requirements. [4]

The statute has been amended several times, including provisions in Title III of the USA PATRIOT Act, which amended the BSA to require financial institutions to establish anti-money-laundering programs by establishing internal policies, procedures, and controls, designating compliance officers, providing ongoing employee training, and testing their programs through independent audits. There was an attempt to include another amendment in 2018, called the Illicit Arts and Antiquities Trafficking Prevention Act (IAATP). As the name implies, its aim was to restrict illegal trafficking of art in the United States which has the highest rates of money laundering in the world. [5] It was not passed in the United States House of Representatives. This was because the aim of the IAATP did not directly correspond with the aim of the BSA which, according to Congressman Luke Messer, sponsor of the bill, is to "counteract terrorist financing and crack down on terrorist organizations like ISIS". [6] [4]

Reports

BSA regulations require all financial institutions to submit five types of reports. Individuals must file an individual filing requirement.

Currency transaction reports

A currency transaction report (CTR) reports cash transactions exceeding $10,000 in one business day, regardless of whether it's in one transaction or several cash transactions. It is filed electronically with the Financial Crimes Enforcement Network (FinCEN) and is identified as FinCEN Form 112 (formerly Form 104). [7]

CTRs include an individual's bank account number, name, address, and social security number. SAR reports, required when transactions indicate behavior designed to elude CTRs (or many other types of suspicious activities), include somewhat more detailed information and usually include investigation efforts on the part of the financial institution to assess the validity or nature of the transactions. A single CTR filed for a client's account is usually of no concern to the authorities, while multiple CTRs from varying institutions or a SAR suggest that activity may be suspicious.

Suspicious activity report

A suspicious activity report (SAR) must report any cash transaction where the customer seems to be trying to avoid BSA reporting requirements by not filing CTR or monetary instrument log (MIL), for example. A SAR must also be filed if the customer's actions suggest that they are laundering money or otherwise violating federal criminal laws and committing wire transfer fraud, check fraud, or mysterious disappearances. These reports are filed with FinCEN and are identified as Treasury Department Form 90-22.47 and OCC Form 8010-9, 8010-1. [8] This requirement and its accompanying implied gag order was added by the Annunzio-Wylie Anti-Money Laundering Act § 1517(b) (part of the Housing and Community Development Act of 1992, Pub. L.   102–550, 106  Stat.   3762, 4060).

A financial institution is not allowed to inform a business or consumer that a SAR is being filed, and all the reports mandated by the BSA are exempt from disclosure under the Freedom of Information Act.

FBAR

U.S. citizens and residents with a financial interest in or authority over foreign bank accounts or "foreign financial accounts" with an aggregate value of $10,000 or more are required to file a Foreign Bank Account Report (FBAR) with the U.S. Treasury by October 15 every year. It is identified as FinCEN Form 114 (formerly Treasury Department Form 90-22.1). [9] [10] Additionally, they must report the interest or dividend income from the accounts on Schedule B of the Form 1040 tax form and, if a higher threshold is exceeded, also report the amounts and interest on Form 8938. Proponents of FBAR argue that it helps the United States deter financial crimes and encourage whistle-blowing for financial crimes, [11] while critics argue that FBAR wastes time and money, "perversely discouraging compliance" without focusing on "likely criminal activity". [12]

Other reports

A MIL must indicate cash purchases of monetary instruments, such as money orders, cashier's checks, and traveler's checks valued between $3,000 and $10,000. This form is required to be kept on record at the financial institution for at least five years, and produced at the request of examiners or audit to verify compliance. [13]

The "Report of International Transportation of Currency or Monetary Instruments", also referred to as a Currency and Monetary Instrument Report (CMIR), must be filed by each person or institution that physically transports, mails, or ships, or causes to be physically transported, mailed, shipped, or received, currency, traveler's checks, and certain other monetary instruments in an aggregate amount exceeding $10,000 into or out of the United States must file a CMIR. [14] It is identified as FinCEN Form 105 Report.

Banks are required to file a Designation of Exempt Person (FinCEN Form 110) to designate an exempt customer for the purpose of CTR reporting under the BSA. [15] In addition, banks use this form once every two years to renew exemptions for eligible non-listed business and payroll customers. [16]

It also requires any business receiving one or more related cash payments totaling more than $10,000to file IRS/FinCEN Form 8300. [17]

Sanctions

There are heavy penalties for individuals and financial institutions that fail to file CTRs, MILs, or SARs. There are also penalties for banks who disclose to its client that it has filed a SAR about the client. Penalties include heavy fines and prison sentences. IRC §6038D requires that all U.S. persons, individuals, corporations, partnerships, LLCs, and trusts, provide timely information regarding their foreign accounts, otherwise a $10,000 penalty will result for every month it is late (subject to a certain maximum penalty). [18] [19]

In 1998, the Supreme Court ruled in United States v. Bajakajian that the government may not confiscate money from an individual for failure to report it on a Currency and Other Monetary Instruments Report (CMIR), as such punishment would be "grossly disproportional to the gravity of [the] offense" and unconstitutional under the Excessive Fines clause of the Eighth Amendment. Bajakajian and his family had tried to take $357,144 out of the United States in their luggage, and the government had seized it under the Bank Secrecy Act, which allows forfeiture of "any property, real or personal, involved in such offense". [20] It was the first time the Supreme Court struck down the federal government's "aggressive use of forfeiture". [21]

In March 2010, Wachovia admitted to "serious and systemic" violations of the Bank Secrecy Act for laundering $378 billion between 2004 and 2007, the largest violation in terms of a dollar amount. [22] It allowed Mexican and Colombian drug cartels to launder money through casas de cambio by willfully failing to set up an effective anti-money-laundering program. [23] [24] [25]

In 2022, Arthur Hayes, entrepreneur and co-founder and former CEO of cryptocurrency exchange BitMEX, pled guilty to Bank Secrecy Act violations and was sentenced to six months of home detention, two years of probation, and a $10 million fine. [26]

Additional information

An entire industry has developed around providing software to analyze transactions in an attempt to identify transactions or patterns of transactions called structuring, which requires SAR filing. Financial institutions are subject to penalties for failing to properly file CTRs and SARs, such as heavy fines and regulatory restrictions, including charter revocation.[ citation needed ]

These software applications effectively monitor customer transactions on a daily basis and, using a customer's past transactions and account profile, provide a "whole picture" of the customer to the bank management. Transaction monitoring can include cash deposits and withdrawals, wire transfers, and ACH activity. In the banking industry, these applications are known as "BSA software" or "anti-money laundering software".

See also

Related Research Articles

<span class="mw-page-title-main">Money laundering</span> Process of concealing the origin of money

Money laundering is the process of illegally concealing the origin of money obtained from illicit activities such as drug trafficking, underground sex work, terrorism, corruption, embezzlement, and Treason, and converting the funds into a seemingly legitimate source, usually through a front organization. As financial crime has become more complex and financial intelligence is more important in combating international crime and terrorism, money laundering has become a prominent political, economic, and legal debate. Money laundering is ipso facto illegal; the acts generating the money almost always are themselves criminal in some way.

<span class="mw-page-title-main">Financial Crimes Enforcement Network</span> Bureau of the U.S. Treasury Department

The Financial Crimes Enforcement Network (FinCEN) is a bureau within the United States Department of the Treasury that collects and analyzes information about financial transactions to combat domestic and international money laundering, terrorist financing, and other financial crimes.

<span class="mw-page-title-main">Offshore bank</span> Bank located outside the country of residence of the depositor

An offshore bank is a bank that is operated and regulated under international banking license, which usually prohibits the bank from establishing any business activities in the jurisdiction of establishment. Due to less regulation and transparency, accounts with offshore banks were often used to hide undeclared income. Since the 1980s, jurisdictions that provide financial services to nonresidents on a big scale can be referred to as offshore financial centres. OFCs often also levy little or no corporation tax and/or personal income and high direct taxes such as duty, making the cost of living high.

Structuring, also known as smurfing in banking jargon, is the practice of executing financial transactions such as making bank deposits in a specific pattern, calculated to avoid triggering financial institutions to file reports required by law, such as the United States' Bank Secrecy Act (BSA) and Internal Revenue Code section 6050I. Structuring may be done in the context of money laundering, fraud, and other financial crimes. Legal restrictions on structuring are concerned with limiting the size of domestic transactions for individuals.

In financial regulation, a Suspicious Activity Report (SAR) or Suspicious Transaction Report (STR) is a report made by a financial institution about suspicious or potentially suspicious activity as required under laws designed to counter money laundering, financing of terrorism and other financial crimes. The criteria to decide when a report must be made varies from country to country, but generally, it is any financial transaction that either a) does not make sense to the financial institution; b) is unusual for that particular client; or c) appears to be done only for the purpose of hiding or obfuscating another, separate transaction. The report is filed with that country's Financial Intelligence Unit, which is typically a specialist agency designed to collect and analyse transactions and then report these to relevant law enforcement teams.

Australian Transaction Reports and Analysis Centre (AUSTRAC) is an Australian government financial intelligence agency responsible for monitoring financial transactions to identify money laundering, organised crime, tax evasion, welfare fraud and terrorism financing. AUSTRAC was established in 1989 under the Financial Transaction Reports Act 1988. It implements in Australia the recommendations of the Financial Action Task Force on Money Laundering (FATF), which Australia joined in 1990.

<span class="mw-page-title-main">Currency transaction report</span>

A currency transaction report (CTR) is a report that U.S. financial institutions are required to file with FinCEN for each deposit, withdrawal, exchange of currency, or other payment or transfer, by, through, or to the financial institution which involves a transaction in currency valued at more than $10,000. Used in this context, currency means the coin and/or paper money of any country that is designated as legal tender by the country of issuance. Currency also includes U.S. silver certificates, U.S. notes, Federal Reserve notes, and official foreign bank notes. Contrary to popular misunderstanding, these reports do not apply to, and are not used for, non-currency transactions such as checks, nor for electronic transfers such as wire and ACH/EFT.

The USA PATRIOT Act was passed by the United States Congress in 2001 as a response to the September 11, 2001 attacks. It has ten titles, each containing numerous sections. Title III: International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 is actually an act of Congress in its own right as well as being a title of the USA PATRIOT Act, and is intended to facilitate the prevention, detection and prosecution of international money laundering and the financing of terrorism. The title's sections primarily amend portions of the Money Laundering Control Act of 1986 and the Bank Secrecy Act of 1970.

<span class="mw-page-title-main">Anti–money laundering</span> Financial integrity policy framework

Anti-Money Laundering (AML) refers to a set of policies and practices to ensure that financial institutions and other regulated entities prevent, detect, and report financial crime and especially money laundering activities. Anti-Money Laundering is often paired with the action against terrorism financing, or Combating the Financing of Terrorism, using the acronym AML-CFT. In addition arrangements intended to ensure that banks and other relevant firms duly report suspicious transactions, the AML policy framework includes financial intelligence units and relevant law enforcement operations.

The USA PATRIOT Act was passed by the United States Congress in 2001 as a response to the September 11 attacks in 2001. It has ten titles, with the third title written to prevent, detect, and prosecute international money laundering and the financing of terrorism.

A Customer Identification Program (CIP) is a United States requirement, where financial institutions need to verify the identity of individuals wishing to conduct financial transactions with them and is a provision of the USA Patriot Act. More commonly known as know your customer, the CIP requirement was implemented by regulations in 2003 which require US financial institutions to develop a CIP proportionate to the size and type of its business. The CIP must be incorporated into the bank's Bank Secrecy Act/Anti-money laundering compliance program, which is subject to approval by the financial institution's board of directors.

Virtual currency, or virtual money, is a digital currency that is largely unregulated, issued and usually controlled by its developers, and used and accepted electronically among the members of a specific virtual community. In 2014, the European Banking Authority defined virtual currency as "a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat currency but is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically." A digital currency issued by a central bank is referred to as a central bank digital currency.

Anti-money laundering (AML) software is software used in the finance and legal industries to help companies comply with the legal requirements for financial institutions and other regulated entities to prevent or report money laundering activities. AML software can facilitate faster and more accurate compliance and investigations.

Bank regulation in the United States is highly fragmented compared with other G10 countries, where most countries have only one bank regulator. In the U.S., banking is regulated at both the federal and state level. Depending on the type of charter a banking organization has and on its organizational structure, it may be subject to numerous federal and state banking regulations. Apart from the bank regulatory agencies the U.S. maintains separate securities, commodities, and insurance regulatory agencies at the federal and state level, unlike Japan and the United Kingdom. Bank examiners are generally employed to supervise banks and to ensure compliance with regulations.

An identity verification service is used by businesses to ensure that users or customers provide information that is associated with the identity of a real person. The service may verify the authenticity of physical identity documents such as a driver's license, passport, or a nationally issued identity document through documentary verification. Additionally, also involve the verification of identity information (fields) against independent and authoritative sources, such as a credit bureau or proprietary government data.

Casinos in the United States which generate more than $1,000,000 in annual gaming revenues are required to report certain currency transactions to assist the Financial Crimes Enforcement Network (FinCEN) of the Internal Revenue Service (IRS) in uncovering money laundering activities and other financial crimes.

<span class="mw-page-title-main">Bitcoin ATM</span> Kiosks facilitating the purchase of Bitcoin

A Bitcoin ATM is a kiosk that allows a person to purchase Bitcoin and other cryptocurrencies by using cash or debit card. Some Bitcoin ATMs offer bidirectional functionality, enabling both the purchase of Bitcoin and the sale of Bitcoin for cash. In some cases, Bitcoin ATM providers require users to have an existing account to transact on the machine.

United States virtual currency law is financial regulation as applied to transactions in virtual currency in the U.S. The Commodity Futures Trading Commission has regulated and may continue to regulate virtual currencies as commodities. The Securities and Exchange Commission also requires registration of any virtual currency traded in the U.S. if it is classified as a security and of any trading platform that meets its definition of an exchange.

The FinCEN Files are documents from the U.S. Treasury's Financial Crimes Enforcement Network (FinCEN), that have been leaked to BuzzFeed News and then shared with the International Consortium of Investigative Journalists (ICIJ), and published globally on 20 September 2020. The 2,657 leaked documents include 2,121 suspicious activity reports (SARs) covering over 200,000 suspicious financial transactions between 1999 and 2017 valued at over US$2 trillion by multiple global financial institutions.

<span class="mw-page-title-main">Anti-Money Laundering Improvement Act</span> United States antimony laundering law

The Anti-Money Laundering Improvement Act (AML) is a collection of regulations and laws in the United States aimed at combating money laundering and terrorist financing. The act builds upon the Bank Secrecy Act (BSA), the first anti-money laundering enforcement law.

References

  1. ↑ Vértesy, László (2007). "The Place and Theory of Banking Law – Or Arising of a New Branch of Law: Law of Financial Industries". Collega. 2-3. XI. Rochester, New York. SSRN   3198092.
  2. ↑ Meltzer, P. E. (1991). "Keeping Drug Money from Reaching the Wash Cycle: A Guide to the Bank Secrecy Act". Banking Law Journal. 108 (3): 230–255.
  3. ↑ "FinCEN's Mandate From Congress". Financial Crimes Enforcement Network. Archived from the original on 2021-09-07. Retrieved August 30, 2021.
  4. 1 2 Linn, Courtney J. (2010). "Redefining the Bank Secrecy Act: Currency Reporting and the Crime of Structuring". Santa Clara Law Review. 50 (2): 407–513.
  5. ↑ Purkey, Hannah (April 2010). "The Art of Money Laundering". Florida Journal of International Law.
  6. ↑ Nicyper, Dean; Lauren, Bursey (30 April 2019). "How Anti-Money Laundering Legislation Could Impact the Art Market". Artsy. Withers. Retrieved 29 April 2020.
  7. ↑ "Forms". Archived from the original on 2013-06-26. Retrieved 2013-06-28.
  8. ↑ 31 CFR 1020.320 (formerly 31 CFR 103.21); 12 CFR 12.11
  9. ↑ "Report of Foreign Bank and Financial Accounts (FBAR)". Archived from the original on 2016-05-16. Retrieved 2022-07-11.
  10. ↑ IRS Publication 4261
  11. ↑ "Bittner v. United States (BRIEF OF AMICUS CURIAE NATIONAL WHISTLEBLOWER CENTER SUPPORTING RESPONDENT）" (PDF). Supreme Court of the United States. Retrieved 23 November 2022.
  12. ↑ Christians, Allison (October 13, 2014). "Paperwork and Punishment: It's Time to Fix FBAR". Tax Notes International. 73. SSRN   2510544.
  13. ↑ "31 CFR 1010.415 -- Purchases of bank checks and drafts, cashier's checks, money orders and traveler's checks". www.ecfr.gov. Retrieved 2024-11-01.
  14. ↑ 31 USCA 5316(a)
  15. ↑ 31 CFR 103.22(d)(3)(i)
  16. ↑ 31 CFR 103.22(d)(5)(i)
  17. ↑ "Publication 1544 (Rev. September 2012). Reporting Cash Payments of Over $10,000" (PDF). IRS. 2012-09-21. Retrieved 2013-06-28.
  18. ↑ "Getting into Compliance with Your Foreign Account Reporting". 22 March 2017.
  19. ↑ "FATCA and FBAR Reporting & 7 Practical Implications". Tax Attorney. 2014-03-27. Retrieved 2019-02-22.
  20. ↑ Savage, David G. (4 November 1997). "U.S. Supreme Court to Hear Forfeiture Case". Los Angeles Times. Retrieved 6 February 2018.
  21. ↑ Greenhouse, Linda (23 June 1998). "Supreme Court Roundup; Justices Narrow the Uses of Forfeiture". New York Times. Retrieved 6 February 2018.
  22. ↑ Sanati, Cyrus (29 June 2010). "Money Laundering: The Drug Problem at Banks". New York Times. Retrieved 6 February 2018.
  23. ↑ Voreacos, David. "Wachovia to Pay $160 to End Money Laundering Probe". Businessweek. Archived from the original on March 23, 2010.
  24. ↑ Evan Perez; Glenn R. Simpson (26 April 2008). "Wachovia Is Under Scrutiny In Latin Drug-Money Probe". Wall Street Journal. Archived from the original on 6 February 2018. Retrieved 6 February 2018.
  25. ↑ Vulliamy, Ed (2 April 2012). "How a big US bank laundered billions from Mexico's murderous drug gangs". The Guardian . Retrieved 6 February 2018.
  26. ↑ "Founder And CEO Of Off-Shore Cryptocurrency Derivatives Platform Sentenced For Violating The Bank Secrecy Act". U.S. Attorney’s Office Southern District of New York. 20 May 2020. Retrieved 17 December 2022.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.