12 June | 2007
Fighting Money Laundering in the United States
Bank Secrecy Act Requirements
Reflecting upon the September 11, 2001, tragedy, the emphasis on financial transaction reporting and identifying suspicious activity is apparent. The laws governing financial institutions are not new—the Bank Secrecy Act (BSA) was passed in 1970. Subsequent to the passage of the BSA, Congress enacted a series of laws to prevent the laundering of illegal proceeds. Here is a chronology reflecting the evolution of the United States’ attempts to control transactions involving illegal funds:
- 1970: Congress enacts the Bank Secrecy Act.
- 1986: Money Laundering Control Act criminalizes money laundering and prohibits
structuring transactions to avoid currency reporting requirements.
- 1990: Financial Crimes Enforcement Network (FinCEN) was created.
- 1994: FinCEN is given responsibility to administer the BSA.
- 2001: Congress enacts the USA Patriot Act.
The Bank Secrecy Act was one of the first laws to fight money laundering in the United States, but this law does not require banks to maintain their financial records in secret as the name implies. The BSA does require financial institutions to keep records and file reports that are determined to have a high degree of usefulness in criminal, tax and regulatory matters. The documents filed by businesses under the BSA requirements are used heavily by law enforcement agencies, both domestic and international, to identify, detect and deter money laundering, whether it is in furtherance of a criminal enterprise, terrorism, tax evasion or other unlawful activity.
All financial institutions are subject to strict reporting requirements regarding currency transactions, including the filing of Currency Transaction Reports for one or more related transactions exceeding $10,000 as well as the filing of Suspicious Activity Reports for transactions that appear to be suspicious, even though the amounts of the transaction(s) may be less than $10,000. The threshold amount requiring the filing of a Suspicious Activity Report varies
according to the type of business. For example, a threshold for money service businesses can be as low as $2,000. Penalties for failure to comply with these regulations can be severe, ranging from substantial monetary penalties to imprisonment in instances where the laws were willfully violated.
Many financial institutions, including banks, money service businesses, casinos and precious metals dealers are required by the BSA to establish anti-money laundering programs to include:
- Development of internal policies, procedures and controls
- Designation of a compliance officer
- Independent compliance review to assess anti-money laundering procedures
The BSA was one of the first laws to fight money laundering in the United States.
Other Financial Institutions
In addition to banks, numerous businesses are defined as financial institutions:
- Credit unions
- Thrift institutions
- Securities or commodities brokers or dealers
- Money service businesses (currency exchanges, issuers of cashiers checks, money orders or traveler’s checks)
- Operators of credit card systems
- Insurance companies
- Dealers in precious metals, stones or jewels
- Pawnbrokers|
- Loan companies
- Travel agencies
- Money transmitters
- Telegraph companies
- Businesses engaged in the sale of automobiles, boats or airplanes
- Businesses engaged in real estate sales or closings
- A licensed casino or gaming establishment if gross revenues exceed $1 million annually
- Many Indian gaming operations
Financial institutions can also be any other business that engages in business activities determined by the Secretary of the Treasury to be similar or related to the above described business activities, or whose cash transactions have a high degree of usefulness in criminal, tax or regulatory matters.
Ronald Wise is a manager within Rachlin’s Advisory Services division.
rwise@rachlin.com
The Rachlin Advisory Services division offers seminars nationwide on BSA requirements.
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