Bank Secrecy Act - Wikipedia
The events of September 11, , ultimately gave rise to the USA Patriot Act, which resulted in significant amendments to the Bank Secrecy. Enacted in , the Bank Secrecy Act requires financial institutions to assist U.S. with the USA PATRIOT Act enacted in the wake of 9/11—the BSA “is towards compliance expectations that bear little relationship to the. to more efficiently and effectively manage their Bank Secrecy Act an association for purposes of Section (b) of the USA PATRIOT Act.”.
FBAR[ edit ] U. Treasury by October 15 every year.Tax Law History - Bank Secrecy Act and Patriot Act
Critics argue that FBAR wastes time and money, "perversely discouraging compliance" without focusing "likely criminal activity".
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. There are also penalties for a bank which discloses to its client that it has filed a SAR about the client.
Penalties include heavy fines and prison sentences. Bajakajian that the government may not confiscate money from an individual for failure to report it on a Currency and Other Monetary Instruments Report CMIRas such punishment would be "grossly disproportional to the gravity of [the] offense" and unconstitutional under the Excessive Fines clause of the Eighth Amendment.
Financial institutions are subject to penalties for failing to properly file CTRs and SARs, such as heavy fines and regulatory restrictions, including charter revocation.
The Evolution of the Bank Secrecy Act | Carr, Riggs & Ingram
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 ".
In Januaryall federal banking agencies issued essentially similar regulations requiring banks to develop procedures for complying with the BSA and other AML requirements.
Agencies address benefits of bank resource sharing for Bank Secrecy Act compliance - Lexology
Two years later, Congress passed the Money Laundering Suppression Act that primarily addressed Treasury's role in combating money laundering. Among other things, the Patriot Act criminalized the financing of terrorism and augmented the existing BSA framework by strengthening customer identification requirements for banks and other financial institutions, prohibiting banks from engaging in business with foreign shell banks, requiring banks to enhance their due diligence procedures concerning foreign correspondent and private banking accounts, and improving information sharing between banks and with the U.
The Patriot Act and its implementing regulations also: A number of government agencies play a critical role in promulgating BSA regulations, developing examination guidance, and ensuring compliance with and enforcing the BSA. With respect to banks, these agencies include the U. The Department of Justice administers any prosecutions for money laundering or for criminal violations of the BSA.
Department of the Treasury The U. In this capacity, FinCEN promulgates regulations, provides outreach and guidance to the regulated industries, and pursues civil enforcement actions in certain circumstances.
FinCEN has authority to examine institutions for compliance with the BSA, but has delegated this examination authority to other federal agencies--including the Federal Reserve--for institutions within their respective jurisdictions.
As we explain below, the bank supervisory agencies use their own examination authority to assess compliance with the Bank Secrecy Act by organizations within their jurisdiction. While Treasury has delegated its examination authority, it remains the overall administrator of the BSA. The role has become all the more important as BSA requirements have expanded beyond traditional financial service providers to include not only other federally functionally related financial services providers, but also casinos, money services businesses, insurance providers, and others.
To enhance coordination of the administration of the BSA across industry sectors, FinCEN has entered into, or is in the process of entering into, memoranda of understanding for information sharing with each of the federal agencies that examine for BSA compliance--that is, the federal banking agencies, the U. The MOU with the banking agencies, which was executed in September, details the types of information that will now be shared among the banking agencies and FinCEN with the goal of assisting FinCEN to fulfill its role as administrator of the BSA and to enhance the banking agencies' examination efforts in this area.
Bank Secrecy Act
Federal Banking Agencies The federal banking agencies expect the banking organizations they supervise to take reasonable and prudent steps to combat money laundering and terrorist financing in order to minimize their vulnerability to such activities. The agencies require banking organizations under their supervision to establish and maintain an anti-money laundering compliance program that addresses the risks presented by the nature, extent, and complexity of the banking products and services offered, by an organization's customer base, and other factors.
Today, it is abundantly clear that banking organizations face legal, reputational, and operational risks when they do not perform appropriate due diligence and safeguard their institutions with adequate internal controls to mitigate risks. For this reason, the commitment of the federal banking agencies to ensuring compliance with the BSA continues to be a high supervisory priority.
The federal banking agencies work to ensure that the banking organizations they supervise understand the importance of having in place effective AML compliance programs. This obligation is "dynamic"--that is, a bank's policies and procedures must reflect any expansion of business operations and new products and services. An organization's AML program should also take into account developments within the industry, as new regulatory standards are introduced, as industry best practices evolve to better manage risks, as law enforcement authorities provide feedback about laundering and terrorist funding schemes, and as improved systems and software become available to enhance compliance.
Office of Foreign Assets Control Treasury's OFAC administers and enforces economic and trade sanctions against targeted foreign countries, terrorism-sponsoring jurisdictions and organizations, and international narcotics traffickers based on U.
OFAC acts under presidential wartime and national emergency powers and authority granted by specific legislation to impose controls on transactions and freeze foreign assets under U. Acting under authority delegated from the Secretary of the Treasury, OFAC promulgates, develops, and administers the sanctions under its statutes and executive orders.
Examiners focus on a banking organization's compliance processes and evaluate the sufficiency of a banking organization's implementation of policies, procedures and systems to ensure compliance with OFAC regulations. Anti-Money Laundering Programs Under the Bank Secrecy Act, all financial institutions must develop, administer, and maintain a program that ensures compliance with the BSA and its implementing regulations, including reporting and recordkeeping requirements, and each federal banking agency, including the Federal Reserve, has specific rules requiring such programs.
A strong anti-money laundering compliance program that is tailored to a bank's business operations and risks, and rigorously followed by bank personnel, should ensure full compliance with all legal requirements, as well as effective risk management. At a minimum, a banking organization's anti-money laundering compliance program must be documented in writing, approved by the board of directors or its equivalentand noted in the minutes of board meetings.
By law, the program must include the following four components: The CIP must be incorporated into the institution's anti-money laundering compliance program and must be approved by the institution's board of directors. The CIP must include account-opening procedures that specify the identifying information that will be obtained from each customer, and it must include reasonable and practical risk-based procedures for verifying the customer's identity.
These procedures must enable the institution to form a reasonable belief that it knows the true identity of each customer.
Suspicious Activity Reporting Requirements and Customer Due Diligence Under the Bank Secrecy Act and the suspicious activity reporting rules promulgated by the Federal Reserve, the other federal banking agencies, and Treasury inbanking organizations are required to report to the government any instances of known or suspected criminal or suspicious activity by filing a Suspicious Activity Report, or SAR.
To ensure that it will be able to identify suspicious activity, a banking organization should have in place a customer due diligence CDD program under which the organization 1 assesses the risks associated with a customer account or transaction, and 2 gathers sufficient information to evaluate whether a particular transaction warrants the filing of a SAR. In addition, appropriate systems, processes, and controls should be in place to monitor and identify suspicious or unusual activity.
Common processes include employee referrals, manual systems, automated systems, or any combination, which vary based on the risk and size of the banking organization.
The concept of CDD incorporates and builds upon the CIP requirements for identifying and verifying customer identification. The goal of a CDD program is to conduct a risk assessment to develop and maintain an awareness of the unique financial details of the banking organization's customers joined with an ability to generally predict the type and frequency of transactions in which its customers are likely to engage.
In doing so, banking organizations can better identify, research, and report suspicious activity as required by the BSA and the agencies' regulations. It is important to note that sound practices in the banking industry and statutory and regulatory standards for specific CDD protocols vary depending on the activities associated with different types and volumes of banking transactions and their risk.
In the former, it is easier to understand the nature of the transactions undertaken by General Motors or IBM and identify what may be suspicious--for example, new requests for loans to fund transactions that are inconsistent with the normal, routine business activities of the customer.
With respect to the foreign correspondent banking business, given the special risks associated with this activity it is expected that the U. In higher risk cases, U. It includes work in the areas of bank supervision, enforcement, applications, investigations, and coordination with the law enforcement and intelligence communities.
This afternoon, I will touch on some of these aspects of the Federal Reserve's anti-money laundering program, but will concentrate on bank supervision efforts and our enforcement and applications approaches. The other federal banking agencies work in similar ways. Our examinations are conducted at the state member banks, bank holding companies, Edge Act corporations, and U. The Federal Reserve supervision process includes both on-site examinations and off-site surveillance and monitoring.
On-site examinations of banks generally occur once every twelve to eighteen months, and, at each examination, examiners review the institution's anti-money laundering procedures and its compliance with the BSA, as amended by the Patriot Act and recent Treasury regulations. Banking organizations with problems generally are examined more frequently.
For large, complex banking organizations, safety and soundness examination is a continuous process, and anti-money laundering and BSA compliance is incorporated into examinations conducted throughout the year.
A key component of anti-money laundering examinations is the banking organization's compliance with the anti-money laundering program rule that was already described. To properly evaluate the effectiveness of a banking organization's anti-money laundering compliance program, the Federal Reserve has developed comprehensive examination procedures and manuals, and regularly provides training for its examiners.
The Evolution of the Bank Secrecy Act
As part of such an examination, bank examiners also review a banking organization's fraud detection and prevention capabilities, and its policies and procedures for cooperating with law enforcement whether through responding to subpoenas, acting on information requests under the Patriot Act, or otherwise.
Examiners also conduct a review of the databases of SARs and Currency Transaction Reports to determine if the banking organization that is about to be examined has filed such reports and that they appear complete and timely. Testing of sample transactions is generally conducted to verify these procedures and systems.
In those instances where there are deficiencies in the anti-money laundering program, including failures to adequately document self-testing or training, obvious breakdowns in operating systems, or failures to implement adequate internal controls, examiners conduct a more intensified second-stage examination that would include the review of source documents and expanded transaction testing, among other steps.
Enforcement Federal Reserve supervisory staff makes every effort to assist banking organizations to identify and address anti-money laundering deficiencies as early as possible.
The Federal Reserve focuses significant resources on the prevention and early resolution of deficiencies within the supervisory framework. When problems are identified at a banking organization, they are communicated to the management and directors. The management and directors are requested to address identified problems voluntarily and to take measures to ensure that the problems are corrected and will not recur. Most problems are resolved promptly after they are brought to the attention of a banking organization's management and directors.
In the event that anti-money laundering problems are pervasive, repeated, unresolved by management, or otherwise of serious concern, the Federal Reserve may exercise its enforcement authority by taking an action against a supervised institution. In general, problems that give rise to enforcement actions relate to compliance with the four-part anti-money laundering program rule and with suspicious activity reporting requirements.
The provisions of each action are tailored to the organization to address particular violations and weaknesses identified by examiners.