The Fear of Filing with FinCEN

FinCEN provides regulatory oversight of the Bank Secrecy Act (BSA), also known as the Currency and Foreign Transactions Reporting Act, which was enacted by Congress in 1970. BSA was created to prevent financial institutions from being used by criminals to hide or launder money obtained illegally.

Fear of FinCEN: The Cost of Non-Compliance

The Financial Crimes Enforcement Network (FinCEN) is a bureau of the U.S. Department of the Treasury. Founded on April 25, 1990, FinCEN’s mission is “to safeguard the financial system from illicit use, combat money laundering and its related crimes including terrorism, and promote national security through the strategic use of financial authorities and the collection, analysis, and dissemination of financial intelligence.”

FinCEN provides regulatory oversight of the Bank Secrecy Act (BSA), also known as the Currency and Foreign Transactions Reporting Act, which was enacted by Congress in 1970. BSA was created to prevent financial institutions from being used by criminals to hide or launder money obtained illegally.

Criminals typically use cash, rather than electronic transactions that can be traced, to purchase illegal goods and services. Then they use money laundering to “hide their tracks” and make the money appear like it came from lawful sources.

What is the BSA?

The BSA is one of the most important pieces of legislation concerning anti-money laundering (AML). Banks and other financial institutions are obligated to comply with the regulatory requirements of the BSA.

The BSA requires these institutions to document suspicious client cash transactions when the amounts exceed $10,000. This documentation allows FinCEN to more easily “follow the money trail” and reconstruct the suspicious transaction.

The law does not require documentation for every transaction over $10,000, but any business that receives more than $10,000 in cash from a single buyer must file IRS Form 8300 within 15 days from the day that the cash transaction occurred.

The BSA was amended on October 26, 2001 with Title III of the USA PATRIOT Act, a response to the September 11th terrorist arracks. The Patriot Act gave U.S. law enforcement agencies additional powers to address financial crimes associated with terrorism that included money laundering and the financing of terrorism.

Establishing an Anti-Money Laundering Program

The USA PATRIOT Act requires financial institutions to develop an approved Anti-Money Laundering (AML) program consisting of processes and procedures to detect incidences of money laundering, according to the risk potential of the institution. They are required to report any suspicious activities to FinCEN. 

An approved AML program consists of the following four pillars:

  • A system of internal AML processes, procedures and controls
  • A BSA/AML compliance officer with oversight for the AML program
  • Ongoing employee AML training
  • Regular audits by an independent entity to test the program

The High Cost of BSA Violations

Failure to have an efficient AML program can result in a variety of damages, and not just financial ones. There’s the cost of reputational damage to the financial institution, costs related to bringing the AML program into compliance, enough to satisfy regulators, and then there are penalties and fines — fines that could literally “break the bank.”

The BSA imposes a legal obligation on banks and other financial institutions to know their customers’ business, the source of their funds and their customers’ typical transactions. 

FinCEN can issue an enforcement action for any violations of the reporting, recordkeeping and other requirements of the BSA. These penalties can range from $50,000 for a negligent activity that is in violation of the BSA to $1 million for violations that involve international money laundering.

In addition, the financial institution can face criminal penalties imposed by the Department of Justice for willful violations of the BSA. Criminal penalties for individuals can be severe:

  • Any individual, including a credit union employee, found guilty of a willful BSA regulation violation is subject to criminal fines of up to $250,000 or five years in prison, or both. 
  • If the individual commits a willful BSA violation while breaking another law or committing other criminal activity, he or she is subject to a fine of up to $500,000 or 10 years in prison, or both. 
  • Violations of certain BSA provisions or special measures can make an institution subject to a criminal money penalty up to the greater of $1million or twice the value of the transaction.

Recent (2020) High-Profile AML Fines

Goldman Sachs (U.S., Malaysia)

In 2020, Goldman Sachs’ Malaysian unit paid the largest AML fine of the year — $2.3 billion in the U.S. and $2.55 billion in Malaysia due to senior management’s involvement in money laundering, bribery and egregious misuse of funds by the company’s clients. This was the first time in the company’s 151-year history that it ever pleaded guilty in a financial crime investigation, and the company paid dearly — the highest fine that the U.S. has ever imposed.

Westpac Bank (Australia)

Based in Sydney, Westpac is the leading Australian banking and financial service firm; Westpac was fined $900 million for AML violations that involved 19 million global transactions. To add further damage to the bank’s reputation, many of the transactions involved a pedophile network in Southeast Asia.

Deutsche Bank (USA)

2020 saw the bank involved in scandals on two fronts — the U.S. and the EU. In Europe, the bank paid a $16 million penalty for compliance violations related to the Nordic banks’ scandal, which involved illicit cash flows, to the tune of $200 billion, that originated in Russia and Eastern Europe.

In the U.S., Deutsche Bank’s dealings with the late Jeffrey Epstein, who was convicted of sex trafficking, demonstrated a lack of risk monitoring and Know Your Customer (KYC) compliance.

Unit21 Can Help You Remain Compliant

It’s a fact that money laundering tactics and names associated with it are constantly changing. Given the sheer volume of money movement through the financial system, AML investigators need a flexible and responsive platform, one with a high degree of automation.

Unit21’s world-class AML Regulatory Technology (RegTech) combines Know Your Customer (KYC) and Transaction Monitoring to vet potential customers, mitigate risks and avoid onboarding bad actors. With our Transaction Monitoring process, you can create rules to flag suspicious transactions and build risk profiles that are based on rule violations. You can then create allowlists and denylists to provide you with automatic alerts regarding specific transactions.

Once an alert is triggered, you can build sophisticated and accurate cases, add images and documents and file a Suspicious Activity Report (SAR).

BSA compliance is a serious matter and we help you give it the attention it deserves. Staying constantly ahead requires a unified risk, fraud and compliance platform that fights financial crime and is ever-ready to adapt to new regulations. Let Unit21 show you how we can help.

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