The Bank Secrecy Act (BSA): What It Is and How to Comply

What Is the Bank Secrecy Act?

The Bank Secrecy Act (BSA), also known as the ‘Currency and Foreign Transactions Reporting Act,' was introduced in 1970, and is the United States’ most valuable anti-money laundering (AML) regulation. It is administered by the Financial Crimes Enforcement Network (FinCEN) and requires that financial institutions, including banks, both meet the compliance obligations involved, and work with the US government to fight against financial crime. 

The BSA’s main job is to prevent money laundering. However, it was amended by the Patriot Act and other legislation to also include the prevention of terrorist financing.

It also ensures that banks are not used to facilitate money laundering. The BSA requires all financial institutions, banks and fintechs to monitor transactions and events, flag suspicious activity, review for possible money laundering, and report any suspicious activity to FinCEN.

Senior management must have a detailed understanding of the legislation to meet obligations imposed by FinCEN.

Bank Secrecy Act Compliance

Financial Institutions must navigate regulatory requirements which focus on building internal Anti-Money Laundering (AML) controls and liaising with and reporting to the authorities, in order to achieve compliance with the BSA.

AML Compliance Program

It is required by the BSA, that all financial institutions develop their own AML program. An effective BSA and AML compliance program should suit the individual needs, including the risk profile, of the financial institution it serves. The main aspects of an AML compliance program are:

  • Internal systems and controls: An AML program should help employees detect and monitor financial crime and money laundering activities through a set of written policies and procedures.
  • Compliance Officer: A main employee would be responsible for arranging independent audits and examinations of their institutions’ AML compliance program and should oversee the development and implementation of their institution’s program.
  • BSA training: All employees must receive basic BSA-AML compliance training, however, advanced training or certification may be needed for employees with a greater level of responsibility. 
  • Independent audits: To test the ongoing effectiveness of an ALM program, institutions should establish a regular schedule of independent audits, which must be conducted by qualified third-parties.  

Reporting & Record Keeping

The BSA involves many reporting and filing mandates with FinCEN. These mandates relate to specific risk profiles, including:

  • Currency Transaction Reports (CTR): Whenever a cash transaction exceeding $10,000 takes place, transaction reports must be filed, however this concerns only the physical exchange of money (cash and paper) between persons.
  • Form 8300: Certain businesses, which receive more than $10,000 in cash in a single transaction, or in multiple related transactions within a 24 hour time period, such as car dealerships, art galleries or insurance firms, must file Form 8300.
  • Suspicious Activity Reports (SAR): When a transaction involving terrorist financing activities, or suspected BSA violations, that also aggregates more than $5,000, it must be detailed in a Suspicious Activity report, however they can be filed voluntarily even if they are below the $5,000 threshold. 
  • Foreign Bank and Financial Account Report (FBAR): When individuals have foreign banks of $10,000 and over, they must complete an annual fling requirement, the FBAR, either themselves, or have a financial professional file on their behalf. However, financial professionals must register to file as an institution. 

Most FinCEN reports must now be filed online using the BSA e-filing system. Companies must submit an application to FinCEN and be approved before they are allowed to file electronically.

Financial institutions must carefully document suspicious activities. In particular, they must keep logs of purchases of monetary instruments (such as a travelers, cashiers, and bank checks) between $3,000 – $10,000. In these instances, the log must record and verify the identities of purchasers, and classify the value of their transactions. They must do all of this in addition to BSA filing requirements.

The Importance of Bank Secrecy Act Compliance

Companies who achieve and maintain BSA compliance are helping to ensure the integrity of global financial systems by supporting the investigation and prosecution of financial crimes.

In it’s commitment to against fight money laundering, the US government imposed statutory penalties for BSA violations ranging from $10,000 for record-keeping violations up to $200,000 and over for more serious infractions. Companies can, however, be fined millions and even billions of dollars in particularly sever cases, like in 2018, where US Bancorp was fined $613 million for BSA violations or in 2012 when HSBC paid a record $1.9 billion as settlement for money laundering activities.

Companies may also lose the confidence of clients, customers, and employees, and irrevocably damage their reputation and brand for violating the BSA. 

To make the challenging process of BSA compliance easier, transaction monitoring and case management tools can dramatically reduce the time and resources involved to comply.

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