Exploring the Bank Secrecy Act and Essential Reports You Need to Submit for Compliance
In the United States, financial institutions are required to adhere to strict anti-money laundering (AML) regulations to prevent financial crimes such as money laundering and terrorist financing. The Bank Secrecy Act (BSA), a U.S. law against money laundering, mandates financial institutions to cooperate with the government in the fight against financial crimes.
The key components of an AML compliance program for financial institutions include:
1. **Written AML Program and Governance** Financial institutions must establish a risk-based, institution-specific AML program with documented policies, procedures, and internal controls tailored to their risk profiles. A qualified AML Compliance Officer must oversee and manage the program, and institutions are required to have independent testing (audit) of the AML program annually or biennially. Ongoing AML training for relevant staff is also mandatory to ensure awareness and compliance.
2. **Customer Due Diligence (CDD)** This involves verifying the identity of customers and beneficial owners through a Customer Identification Program (CIP), assessing and documenting the risk profile of each customer, and applying ongoing monitoring to detect any changes in risk or suspicious activities. This is foundational to preventing money laundering and terrorist financing.
3. **Transaction Monitoring, Reporting, and Recordkeeping** Financial institutions must monitor transactions and file Currency Transaction Reports (CTRs) for cash transactions over $10,000 in one business day, and Suspicious Activity Reports (SARs) if any transaction appears related to illegal activity regardless of amount. Records of transactions, customer verification, and due diligence must be retained for at least 5 years.
4. **Independent Audit or Testing** Periodic independent reviews of the AML program are required to assess the effectiveness of internal controls and compliance. This can be performed by internal audit or third parties, at least annually or as required by risk level or regulatory changes.
5. **Training** Institutions must provide ongoing AML training to all employees involved in compliance functions to keep them updated on regulations, typologies, and institutional policies.
6. **Risk-Based Approach** The program must be tailored to the specific risks associated with the institution’s customers, products, services, and geographic locations, aligning with the Bank Secrecy Act (BSA) and other federal regulations like the USA PATRIOT Act.
In addition, certain persons or institutions that routinely use currency might be granted an exemption from filing a CTR, helping them to reduce the reporting burden. However, structuring, breaking up a transaction into smaller amounts to avoid being reported to the government, is a crime punishable by a fine of up to $250,000 or imprisonment of up to five years.
U.S. citizens and residents must file a Foreign Bank Account Report (FBAR) if they have over $10,000 in a foreign bank account. Many of these reports can be filed online through the BSA E-Filing System, which also supports various forms for filing reports. Businesses such as art galleries must file a similar CTR report called Form 8300 if they receive $10,000 in cash from one buyer as a result of a single transaction or several related transactions.
Recently, U.S. Bank was fined over 600 million dollars for failing to report thousands of suspicious cases for four years. Failure to detect and report a potential crime by a financial institution can result in civil money penalties imposed by FinCEN. The penalty for structuring can be doubled if the person in question also broke another law or if the amount involved was more than $100,000.
The implementation of these AML regulations is crucial in ensuring the integrity of the U.S. financial system and combating financial crimes. Newer regulations, effective in 2026, will expand AML obligations to certain investment advisers and private funds, emphasizing the importance of a risk-based tailored program across financial sectors.
[1] FinCEN. (n.d.). BSA/AML Compliance Manual. Retrieved from https://www.fincen.gov/resources/statutes-regulations/bank-secrecy-act-bsa-amls [2] FinCEN. (2021). AML/CFT Examination Manual. Retrieved from https://www.fincen.gov/resources/statutes-regulations/amlctf-examination-manual [3] FinCEN. (2021). Frequently Asked Questions on the Covered Financial Institutions Rule. Retrieved from https://www.fincen.gov/news/news-releases/frequently-asked-questions-covered-financial-institutions-rule [4] FinCEN. (2021). AML/CFT Training Requirements. Retrieved from https://www.fincen.gov/resources/statutes-regulations/amlctf-training-requirements [5] FinCEN. (2021). Risk-Based Approach. Retrieved from https://www.fincen.gov/risk-based-approach
- To meet AML requirements in the U.S., financial institutions must establish a risk-based, comprehensive wealth-management program, including strategies like investing in personal-finance training for staff, to ensure ongoing compliance with regulations and counter potential financial crimes.
- In the realm of business operations, art galleries are obligated to adhere to AML regulations, such as filing Currency Transaction Reports (CTRs) for cash transactions over $10,000, mirroring the duty of financial institutions to detect and report suspicious activity to prevent money laundering and terrorist financing.
