Bank Secrecy Act
Encyclopedia
The Bank Secrecy Act of 1970 (or BSA, or otherwise known as the Currency and Foreign Transactions Reporting Act) requires financial institution
s in the United States
to assist U.S. government agencies
to detect and prevent money laundering
. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instrument
s, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion
, or other criminal activities. Many banks will no longer sell negotiable instruments when they are purchased with cash, requiring the purchase to be withdrawn from an account at that institution.
The BSA was originally passed by the Congress of the United States in 1970, and amended several times since then, including provisions in title III
of the USA PATRIOT Act
. (See 31 USC
5311-5330 and 31 CFR
Chapter X.) The BSA is sometimes referred to as an "anti-money laundering" law ("AML") or jointly as “BSA/AML”.
It also requires any business receiving one or more related cash payments totalling $10,000 or more to file form 8300.
.
s, cashier's check
s and travelers checks, in value totaling $3,000 to $10,000, inclusive. This form is required to be kept on record at the financial institution, and produced at the request of examiners or audit to verify compliance. A financial institution must maintain a Monetary Instrument Log for 5 years.
("FinCEN").
number, name, address, and social security number
. SAR reports, required when transactions indicate behavior designed to elude CTRs (or many other types of suspicious activities), include somewhat more detailed information and usually include investigation efforts on the part of the financial institution to assess the validity or nature of the transactions. A single CTR filed for a client's account is usually of no concern to the authorities, while multiple CTRs from varying institutions or a SAR suggest that activity may be suspicious. A financial institution is not allowed to inform a business or consumer that a SAR is being filed, and all the reports mandated by the BSA are exempt from disclosure under the Freedom of Information Act
.
Businesses that deal primarily in cash, such as bars and restaurants, can be exempted from having their deposits and withdrawals reported on CTRs, although this exemption is rarely granted. Instead, most banks have computer systems which retain information on CTRs and allow duplicate CTRs to be created seamlessly.
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 2011 the Observer reported that Wachovia
, at one time a major US bank, was implicated in laundering money for Mexican drug lords
, through its lax laundering controls, a violation of the Bank Secrecy Act. It moved money in and out of casas de cambio without proper due diligence.
The Bank Secrecy Act of 1970 (or BSA, or otherwise known as the Currency and Foreign Transactions Reporting Act) requires financial institution
s in the United States
to assist U.S. government agencies
to detect and prevent money laundering
. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instrument
s, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion
, or other criminal activities. Many banks will no longer sell negotiable instruments when they are purchased with cash, requiring the purchase to be withdrawn from an account at that institution.
The BSA was originally passed by the Congress of the United States in 1970, and amended several times since then, including provisions in title III
of the USA PATRIOT Act
. (See 31 USC
5311-5330 and 31 CFR
Chapter X.) The BSA is sometimes referred to as an "anti-money laundering" law ("AML") or jointly as “BSA/AML”.
It also requires any business receiving one or more related cash payments totalling $10,000 or more to file form 8300.IRS article.
.
s, cashier's check
s and travelers checks, in value totaling $3,000 to $10,000, inclusive. This form is required to be kept on record at the financial institution, and produced at the request of examiners or audit to verify compliance. A financial institution must maintain a Monetary Instrument Log for 5 years.
("FinCEN").
number, name, address, and social security number
. SAR reports, required when transactions indicate behavior designed to elude CTRs (or many other types of suspicious activities), include somewhat more detailed information and usually include investigation efforts on the part of the financial institution to assess the validity or nature of the transactions. A single CTR filed for a client's account is usually of no concern to the authorities, while multiple CTRs from varying institutions or a SAR suggest that activity may be suspicious. A financial institution is not allowed to inform a business or consumer that a SAR is being filed, and all the reports mandated by the BSA are exempt from disclosure under the Freedom of Information Act
.
Businesses that deal primarily in cash, such as bars and restaurants, can be exempted from having their deposits and withdrawals reported on CTRs, although this exemption is rarely granted. Instead, most banks have computer systems which retain information on CTRs and allow duplicate CTRs to be created seamlessly.
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 2011 the Observer reported that Wachovia
, at one time a major US bank, was implicated in laundering money for Mexican drug lords
, through its lax laundering controls, a violation of the Bank Secrecy Act. It moved money in and out of casas de cambio without proper due diligence.
The Bank Secrecy Act of 1970 (or BSA, or otherwise known as the Currency and Foreign Transactions Reporting Act) requires financial institution
s in the United States
to assist U.S. government agencies
to detect and prevent money laundering
. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instrument
s, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion
, or other criminal activities. Many banks will no longer sell negotiable instruments when they are purchased with cash, requiring the purchase to be withdrawn from an account at that institution.
The BSA was originally passed by the Congress of the United States in 1970, and amended several times since then, including provisions in title III
of the USA PATRIOT Act
. (See 31 USC
5311-5330 and 31 CFR
Chapter X.) The BSA is sometimes referred to as an "anti-money laundering" law ("AML") or jointly as “BSA/AML”.
It also requires any business receiving one or more related cash payments totalling $10,000 or more to file form 8300.IRS article.
.
s, cashier's check
s and travelers checks, in value totaling $3,000 to $10,000, inclusive. This form is required to be kept on record at the financial institution, and produced at the request of examiners or audit to verify compliance. A financial institution must maintain a Monetary Instrument Log for 5 years.
("FinCEN").
number, name, address, and social security number
. SAR reports, required when transactions indicate behavior designed to elude CTRs (or many other types of suspicious activities), include somewhat more detailed information and usually include investigation efforts on the part of the financial institution to assess the validity or nature of the transactions. A single CTR filed for a client's account is usually of no concern to the authorities, while multiple CTRs from varying institutions or a SAR suggest that activity may be suspicious. A financial institution is not allowed to inform a business or consumer that a SAR is being filed, and all the reports mandated by the BSA are exempt from disclosure under the Freedom of Information Act
.
Businesses that deal primarily in cash, such as bars and restaurants, can be exempted from having their deposits and withdrawals reported on CTRs, although this exemption is rarely granted. Instead, most banks have computer systems which retain information on CTRs and allow duplicate CTRs to be created seamlessly.
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 2011 the Observer reported that Wachovia
, at one time a major US bank, was implicated in laundering money for Mexican drug lords
, through its lax laundering controls, a violation of the Bank Secrecy Act. It moved money in and out of casas de cambio without proper due diligence. How a big US bank laundered billions from Mexico's murderous drug gangs Ed Vulliamy, The Observer, Sunday 3 April 20, 2011, guardian.co.uk
Financial institution
In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries...
s in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
to assist U.S. government agencies
Government agency
A government or state agency is a permanent or semi-permanent organization in the machinery of government that is responsible for the oversight and administration of specific functions, such as an intelligence agency. There is a notable variety of agency types...
to detect and prevent money laundering
Money laundering
Money laundering is the process of disguising illegal sources of money so that it looks like it came from legal sources. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount...
. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instrument
Negotiable instrument
A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time. According to the Section 13 of the Negotiable Instruments Act, 1881 in India, a negotiable instrument means a promissory note, bill of exchange or cheque payable either...
s, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion
Tax evasion
Tax evasion is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability,...
, or other criminal activities. Many banks will no longer sell negotiable instruments when they are purchased with cash, requiring the purchase to be withdrawn from an account at that institution.
The BSA was originally passed by the Congress of the United States in 1970, and amended several times since then, including provisions in title III
USA PATRIOT Act, Title III
The USA PATRIOT Act was passed by the United States Congress in 2001 as a response to the September 11, 2001 attacks. It has ten titles, each containing numerous sections...
of the USA PATRIOT Act
USA PATRIOT Act
The USA PATRIOT Act is an Act of the U.S. Congress that was signed into law by President George W. Bush on October 26, 2001...
. (See 31 USC
United States Code
The Code of Laws of the United States of America is a compilation and codification of the general and permanent federal laws of the United States...
5311-5330 and 31 CFR
Code of Federal Regulations
The Code of Federal Regulations is the codification of the general and permanent rules and regulations published in the Federal Register by the executive departments and agencies of the Federal Government of the United States.The CFR is published by the Office of the Federal Register, an agency...
Chapter X.) The BSA is sometimes referred to as an "anti-money laundering" law ("AML") or jointly as “BSA/AML”.
Types of reports
The BSA regulations require all financial institutions to submit five types of reports to the government. The following is not an exhaustive list of reports to be filed. The FBAR has an individual filing requirement, as detailed below.- FinCEN Form 104 Currency Transaction ReportCurrency transaction reportA currency transaction report is a report that U.S. financial institutions are required to file for each deposit, withdrawal, exchange of currency, or other payment or transfer, by, through, or to the financial institution which involves a transaction in currency of more than $10,000...
(CTR): A CTR must be filed for each deposit, withdrawal, exchange of currency, or other payment or transfer, by, through or to a financial institution, which involves a transaction in currency of more than $10,000. Multiple currency transactions must be treated as a single transaction if the financial institution has knowledge that: (a) they are conducted by or on behalf of the same person; and, (b) they result in cash received or disbursed by the financial institution of more than $10,000. (31 CFR 103.22) - FinCEN Form 105 Report of International Transportation of Currency or Monetary Instruments (CMIR): Each person (including a bank) who physically transports, mails or ships, or causes to be physically transported, mailed, shipped or received, currency, traveler’s checks, and certain other monetary instruments in an aggregate amount exceeding $10,000 into or out of the United States must file a CMIR.
- Department of the Treasury Form 90-22.1 Report of Foreign Bank and Financial Accounts : Each person (including a bank) subject to the jurisdiction of the United States having an interest in, signature or other authority over, one or more bank, securities, or other financial accounts in a foreign country must file an FBAR if the aggregate value of such accounts at any point in a calendar year exceeds $10,000. (31 CFR 103.24)
- Treasury Department Form 90-22.47 and OCC Form 8010-9, 8010-1 Suspicious Activity ReportSuspicious activity reportIn United States financial regulation, a suspicious activity report is a report made by a financial institution to the Financial Crimes Enforcement Network , an agency of the United States Department of the Treasury, regarding suspicious or potentially suspicious activity.The purpose of a...
(SAR): Banks must file a SAR for any suspicious transaction relevant to a possible violation of law or regulation. (31 CFR 103.18 − formerly 31 CFR 103.21) (12 CFR 12.11) - "Designation of Exempt Person" FinCEN Form 110: Banks must file this form to designate an exempt customer for the purpose of CTR reporting under the BSA (31 CFR 103.22(d)(3)(i)). In addition, banks use this form biennially (every two years) to renew exemptions for eligible non-listed business and payroll customers. (31 CFR 103.22(d)(5)(i))
It also requires any business receiving one or more related cash payments totalling $10,000 or more to file form 8300.
Currency Transaction Report (CTR)
The CTR must report cash transactions in excess of $10,000 during the same business day. The amount over $10,000 can be either in one transaction or a combination of cash transactions. It is filed with the Internal Revenue ServiceInternal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...
.
Monetary Instrument Log (MIL)
The MIL must indicate cash purchases of monetary instruments, such as money orderMoney order
A money order is a payment order for a pre-specified amount of money. Because it is required that the funds be prepaid for the amount shown on it, it is a more trusted method of payment than a cheque.-History of money orders:...
s, cashier's check
Cashier's check
A cashier's check is a check guaranteed by a bank. They are treated as guaranteed funds and are usually cleared the next day. It is the customer's right to request "next-day availability" when depositing a cashier's check in person...
s and travelers checks, in value totaling $3,000 to $10,000, inclusive. This form is required to be kept on record at the financial institution, and produced at the request of examiners or audit to verify compliance. A financial institution must maintain a Monetary Instrument Log for 5 years.
Suspicious Activity Report (SAR)
The SAR must report any cash transaction where the customer seems to be trying to avoid BSA reporting requirements by not filing CTR or MIL, for example. A SAR must also be filed if the customer's actions suggest that he is laundering money or otherwise violating federal criminal laws and committing wire transfer fraud, check fraud or mysterious disappearances. The bank should not let the customer know that a SAR is being filed. These reports are filed with the Financial Crimes Enforcement NetworkFinancial Crimes Enforcement Network
The Financial Crimes Enforcement Network is a bureau of the United States Department of the Treasury that collects and analyzes information about financial transactions in order to combat money laundering, terrorist financiers, and other financial crimes.As reflected in its name, the Financial...
("FinCEN").
Sanctions
There are heavy penalties for individuals and institutions that fail to file CTRs, MILs, or SARs. 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.How it affects American citizens
CTRs include the individual's bank accountBank account
A Bank account is a financial account recording the financial transactions between the customer and the bank and the resulting financial position of the customer with the bank .-Account types:...
number, name, address, and social security number
Social Security number
In the United States, a Social Security number is a nine-digit number issued to U.S. citizens, permanent residents, and temporary residents under section 205 of the Social Security Act, codified as . The number is issued to an individual by the Social Security Administration, an independent...
. SAR reports, required when transactions indicate behavior designed to elude CTRs (or many other types of suspicious activities), include somewhat more detailed information and usually include investigation efforts on the part of the financial institution to assess the validity or nature of the transactions. A single CTR filed for a client's account is usually of no concern to the authorities, while multiple CTRs from varying institutions or a SAR suggest that activity may be suspicious. A financial institution is not allowed to inform a business or consumer that a SAR is being filed, and all the reports mandated by the BSA are exempt from disclosure under the Freedom of Information Act
Freedom of Information Act (United States)
The Freedom of Information Act is a federal freedom of information law that allows for the full or partial disclosure of previously unreleased information and documents controlled by the United States government. The Act defines agency records subject to disclosure, outlines mandatory disclosure...
.
Businesses that deal primarily in cash, such as bars and restaurants, can be exempted from having their deposits and withdrawals reported on CTRs, although this exemption is rarely granted. Instead, most banks have computer systems which retain information on CTRs and allow duplicate CTRs to be created seamlessly.
Individual filing requirement
U.S. citizens must file the FBAR if they have a financial interest in, or authority over, foreign bank accounts that have an aggregate value of $10,000 at any point in a year. Additionally, they must report the accounts on Schedule B of the Form 1040 tax form. The FBAR should be filed separately with the U.S. Treasury by June 30.Additional information
An entire industry has developed around providing software to analyze transactions in an attempt to identify transactions or patterns of transactions called structuring, which requires SAR filing. Financial institutions are subject to penalties for failing to properly file CTRs and SARs, such as heavy fines and regulatory restrictions, including charter revocation.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
Anti-money laundering software
Anti-money laundering software is a term mainly used in the finance and legal industries to describe the legal controls that require financial institutions and other regulated entities to prevent or report money laundering activities. Anti money-laundering guidelines came into prominence globally...
".
Notable Cases
this section needs to be expandedIn 2011 the Observer reported that Wachovia
Wachovia
Wachovia was a diversified financial services company based in Charlotte, North Carolina. Before its acquisition by Wells Fargo in 2008, Wachovia was the fourth-largest bank holding company in the United States based on total assets...
, at one time a major US bank, was implicated in laundering money for Mexican drug lords
Mexican Drug War
The Mexican Drug War is an ongoing armed conflict taking place among rival drug cartels who fight each other for regional control, and Mexican government forces who seek to combat drug trafficking. However, the government's principal goal has been to put down the drug-related violence that was...
, through its lax laundering controls, a violation of the Bank Secrecy Act. It moved money in and out of casas de cambio without proper due diligence.
The Bank Secrecy Act of 1970 (or BSA, or otherwise known as the Currency and Foreign Transactions Reporting Act) requires financial institution
Financial institution
In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries...
s in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
to assist U.S. government agencies
Government agency
A government or state agency is a permanent or semi-permanent organization in the machinery of government that is responsible for the oversight and administration of specific functions, such as an intelligence agency. There is a notable variety of agency types...
to detect and prevent money laundering
Money laundering
Money laundering is the process of disguising illegal sources of money so that it looks like it came from legal sources. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount...
. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instrument
Negotiable instrument
A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time. According to the Section 13 of the Negotiable Instruments Act, 1881 in India, a negotiable instrument means a promissory note, bill of exchange or cheque payable either...
s, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion
Tax evasion
Tax evasion is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability,...
, or other criminal activities. Many banks will no longer sell negotiable instruments when they are purchased with cash, requiring the purchase to be withdrawn from an account at that institution.
The BSA was originally passed by the Congress of the United States in 1970, and amended several times since then, including provisions in title III
USA PATRIOT Act, Title III
The USA PATRIOT Act was passed by the United States Congress in 2001 as a response to the September 11, 2001 attacks. It has ten titles, each containing numerous sections...
of the USA PATRIOT Act
USA PATRIOT Act
The USA PATRIOT Act is an Act of the U.S. Congress that was signed into law by President George W. Bush on October 26, 2001...
. (See 31 USC
United States Code
The Code of Laws of the United States of America is a compilation and codification of the general and permanent federal laws of the United States...
5311-5330 and 31 CFR
Code of Federal Regulations
The Code of Federal Regulations is the codification of the general and permanent rules and regulations published in the Federal Register by the executive departments and agencies of the Federal Government of the United States.The CFR is published by the Office of the Federal Register, an agency...
Chapter X.) The BSA is sometimes referred to as an "anti-money laundering" law ("AML") or jointly as “BSA/AML”.
Types of reports
The BSA regulations require all financial institutions to submit five types of reports to the government. The following is not an exhaustive list of reports to be filed. The FBAR has an individual filing requirement, as detailed below.- FinCEN Form 104 Currency Transaction ReportCurrency transaction reportA currency transaction report is a report that U.S. financial institutions are required to file for each deposit, withdrawal, exchange of currency, or other payment or transfer, by, through, or to the financial institution which involves a transaction in currency of more than $10,000...
(CTR): A CTR must be filed for each deposit, withdrawal, exchange of currency, or other payment or transfer, by, through or to a financial institution, which involves a transaction in currency of more than $10,000. Multiple currency transactions must be treated as a single transaction if the financial institution has knowledge that: (a) they are conducted by or on behalf of the same person; and, (b) they result in cash received or disbursed by the financial institution of more than $10,000. (31 CFR 103.22) - FinCEN Form 105 Report of International Transportation of Currency or Monetary Instruments (CMIR): Each person (including a bank) who physically transports, mails or ships, or causes to be physically transported, mailed, shipped or received, currency, traveler’s checks, and certain other monetary instruments in an aggregate amount exceeding $10,000 into or out of the United States must file a CMIR.
- Department of the Treasury Form 90-22.1 Report of Foreign Bank and Financial Accounts : Each person (including a bank) subject to the jurisdiction of the United States having an interest in, signature or other authority over, one or more bank, securities, or other financial accounts in a foreign country must file an FBAR if the aggregate value of such accounts at any point in a calendar year exceeds $10,000. (31 CFR 103.24)
- Treasury Department Form 90-22.47 and OCC Form 8010-9, 8010-1 Suspicious Activity ReportSuspicious activity reportIn United States financial regulation, a suspicious activity report is a report made by a financial institution to the Financial Crimes Enforcement Network , an agency of the United States Department of the Treasury, regarding suspicious or potentially suspicious activity.The purpose of a...
(SAR): Banks must file a SAR for any suspicious transaction relevant to a possible violation of law or regulation. (31 CFR 103.18 − formerly 31 CFR 103.21) (12 CFR 12.11) - "Designation of Exempt Person" FinCEN Form 110: Banks must file this form to designate an exempt customer for the purpose of CTR reporting under the BSA (31 CFR 103.22(d)(3)(i)). In addition, banks use this form biennially (every two years) to renew exemptions for eligible non-listed business and payroll customers. (31 CFR 103.22(d)(5)(i))
It also requires any business receiving one or more related cash payments totalling $10,000 or more to file form 8300.IRS article.
Currency Transaction Report (CTR)
The CTR must report cash transactions in excess of $10,000 during the same business day. The amount over $10,000 can be either in one transaction or a combination of cash transactions. It is filed with the Internal Revenue ServiceInternal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...
.
Monetary Instrument Log (MIL)
The MIL must indicate cash purchases of monetary instruments, such as money orderMoney order
A money order is a payment order for a pre-specified amount of money. Because it is required that the funds be prepaid for the amount shown on it, it is a more trusted method of payment than a cheque.-History of money orders:...
s, cashier's check
Cashier's check
A cashier's check is a check guaranteed by a bank. They are treated as guaranteed funds and are usually cleared the next day. It is the customer's right to request "next-day availability" when depositing a cashier's check in person...
s and travelers checks, in value totaling $3,000 to $10,000, inclusive. This form is required to be kept on record at the financial institution, and produced at the request of examiners or audit to verify compliance. A financial institution must maintain a Monetary Instrument Log for 5 years.
Suspicious Activity Report (SAR)
The SAR must report any cash transaction where the customer seems to be trying to avoid BSA reporting requirements by not filing CTR or MIL, for example. A SAR must also be filed if the customer's actions suggest that he is laundering money or otherwise violating federal criminal laws and committing wire transfer fraud, check fraud or mysterious disappearances. The bank should not let the customer know that a SAR is being filed. These reports are filed with the Financial Crimes Enforcement NetworkFinancial Crimes Enforcement Network
The Financial Crimes Enforcement Network is a bureau of the United States Department of the Treasury that collects and analyzes information about financial transactions in order to combat money laundering, terrorist financiers, and other financial crimes.As reflected in its name, the Financial...
("FinCEN").
Sanctions
There are heavy penalties for individuals and institutions that fail to file CTRs, MILs, or SARs. 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.How it affects American citizens
CTRs include the individual's bank accountBank account
A Bank account is a financial account recording the financial transactions between the customer and the bank and the resulting financial position of the customer with the bank .-Account types:...
number, name, address, and social security number
Social Security number
In the United States, a Social Security number is a nine-digit number issued to U.S. citizens, permanent residents, and temporary residents under section 205 of the Social Security Act, codified as . The number is issued to an individual by the Social Security Administration, an independent...
. SAR reports, required when transactions indicate behavior designed to elude CTRs (or many other types of suspicious activities), include somewhat more detailed information and usually include investigation efforts on the part of the financial institution to assess the validity or nature of the transactions. A single CTR filed for a client's account is usually of no concern to the authorities, while multiple CTRs from varying institutions or a SAR suggest that activity may be suspicious. A financial institution is not allowed to inform a business or consumer that a SAR is being filed, and all the reports mandated by the BSA are exempt from disclosure under the Freedom of Information Act
Freedom of Information Act (United States)
The Freedom of Information Act is a federal freedom of information law that allows for the full or partial disclosure of previously unreleased information and documents controlled by the United States government. The Act defines agency records subject to disclosure, outlines mandatory disclosure...
.
Businesses that deal primarily in cash, such as bars and restaurants, can be exempted from having their deposits and withdrawals reported on CTRs, although this exemption is rarely granted. Instead, most banks have computer systems which retain information on CTRs and allow duplicate CTRs to be created seamlessly.
Individual filing requirement
U.S. citizens must file the FBAR if they have a financial interest in, or authority over, foreign bank accounts that have an aggregate value of $10,000 at any point in a year.FAQs Regarding Report of Foreign Bank and Financial Accounts (FBAR) - Filing RequirementsIRS Publication 4261 Additionally, they must report the accounts on Schedule B of the Form 1040 tax form. The FBAR should be filed separately with the U.S. Treasury by June 30.Additional information
An entire industry has developed around providing software to analyze transactions in an attempt to identify transactions or patterns of transactions called structuring, which requires SAR filing. Financial institutions are subject to penalties for failing to properly file CTRs and SARs, such as heavy fines and regulatory restrictions, including charter revocation.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
Anti-money laundering software
Anti-money laundering software is a term mainly used in the finance and legal industries to describe the legal controls that require financial institutions and other regulated entities to prevent or report money laundering activities. Anti money-laundering guidelines came into prominence globally...
".
Notable Cases
this section needs to be expandedIn 2011 the Observer reported that Wachovia
Wachovia
Wachovia was a diversified financial services company based in Charlotte, North Carolina. Before its acquisition by Wells Fargo in 2008, Wachovia was the fourth-largest bank holding company in the United States based on total assets...
, at one time a major US bank, was implicated in laundering money for Mexican drug lords
Mexican Drug War
The Mexican Drug War is an ongoing armed conflict taking place among rival drug cartels who fight each other for regional control, and Mexican government forces who seek to combat drug trafficking. However, the government's principal goal has been to put down the drug-related violence that was...
, through its lax laundering controls, a violation of the Bank Secrecy Act. It moved money in and out of casas de cambio without proper due diligence.
The Bank Secrecy Act of 1970 (or BSA, or otherwise known as the Currency and Foreign Transactions Reporting Act) requires financial institution
Financial institution
In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries...
s in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
to assist U.S. government agencies
Government agency
A government or state agency is a permanent or semi-permanent organization in the machinery of government that is responsible for the oversight and administration of specific functions, such as an intelligence agency. There is a notable variety of agency types...
to detect and prevent money laundering
Money laundering
Money laundering is the process of disguising illegal sources of money so that it looks like it came from legal sources. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount...
. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instrument
Negotiable instrument
A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time. According to the Section 13 of the Negotiable Instruments Act, 1881 in India, a negotiable instrument means a promissory note, bill of exchange or cheque payable either...
s, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion
Tax evasion
Tax evasion is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability,...
, or other criminal activities. Many banks will no longer sell negotiable instruments when they are purchased with cash, requiring the purchase to be withdrawn from an account at that institution.
The BSA was originally passed by the Congress of the United States in 1970, and amended several times since then, including provisions in title III
USA PATRIOT Act, Title III
The USA PATRIOT Act was passed by the United States Congress in 2001 as a response to the September 11, 2001 attacks. It has ten titles, each containing numerous sections...
of the USA PATRIOT Act
USA PATRIOT Act
The USA PATRIOT Act is an Act of the U.S. Congress that was signed into law by President George W. Bush on October 26, 2001...
. (See 31 USC
United States Code
The Code of Laws of the United States of America is a compilation and codification of the general and permanent federal laws of the United States...
5311-5330 and 31 CFR
Code of Federal Regulations
The Code of Federal Regulations is the codification of the general and permanent rules and regulations published in the Federal Register by the executive departments and agencies of the Federal Government of the United States.The CFR is published by the Office of the Federal Register, an agency...
Chapter X.) The BSA is sometimes referred to as an "anti-money laundering" law ("AML") or jointly as “BSA/AML”.
Types of reports
The BSA regulations require all financial institutions to submit five types of reports to the government. The following is not an exhaustive list of reports to be filed. The FBAR has an individual filing requirement, as detailed below.- FinCEN Form 104 Currency Transaction ReportCurrency transaction reportA currency transaction report is a report that U.S. financial institutions are required to file for each deposit, withdrawal, exchange of currency, or other payment or transfer, by, through, or to the financial institution which involves a transaction in currency of more than $10,000...
(CTR): A CTR must be filed for each deposit, withdrawal, exchange of currency, or other payment or transfer, by, through or to a financial institution, which involves a transaction in currency of more than $10,000. Multiple currency transactions must be treated as a single transaction if the financial institution has knowledge that: (a) they are conducted by or on behalf of the same person; and, (b) they result in cash received or disbursed by the financial institution of more than $10,000. (31 CFR 103.22) - FinCEN Form 105 Report of International Transportation of Currency or Monetary Instruments (CMIR): Each person (including a bank) who physically transports, mails or ships, or causes to be physically transported, mailed, shipped or received, currency, traveler’s checks, and certain other monetary instruments in an aggregate amount exceeding $10,000 into or out of the United States must file a CMIR.
- Department of the Treasury Form 90-22.1 Report of Foreign Bank and Financial Accounts : Each person (including a bank) subject to the jurisdiction of the United States having an interest in, signature or other authority over, one or more bank, securities, or other financial accounts in a foreign country must file an FBAR if the aggregate value of such accounts at any point in a calendar year exceeds $10,000. (31 CFR 103.24)
- Treasury Department Form 90-22.47 and OCC Form 8010-9, 8010-1 Suspicious Activity ReportSuspicious activity reportIn United States financial regulation, a suspicious activity report is a report made by a financial institution to the Financial Crimes Enforcement Network , an agency of the United States Department of the Treasury, regarding suspicious or potentially suspicious activity.The purpose of a...
(SAR): Banks must file a SAR for any suspicious transaction relevant to a possible violation of law or regulation. (31 CFR 103.18 − formerly 31 CFR 103.21) (12 CFR 12.11) - "Designation of Exempt Person" FinCEN Form 110: Banks must file this form to designate an exempt customer for the purpose of CTR reporting under the BSA (31 CFR 103.22(d)(3)(i)). In addition, banks use this form biennially (every two years) to renew exemptions for eligible non-listed business and payroll customers. (31 CFR 103.22(d)(5)(i))
It also requires any business receiving one or more related cash payments totalling $10,000 or more to file form 8300.IRS article.
Currency Transaction Report (CTR)
The CTR must report cash transactions in excess of $10,000 during the same business day. The amount over $10,000 can be either in one transaction or a combination of cash transactions. It is filed with the Internal Revenue ServiceInternal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...
.
Monetary Instrument Log (MIL)
The MIL must indicate cash purchases of monetary instruments, such as money orderMoney order
A money order is a payment order for a pre-specified amount of money. Because it is required that the funds be prepaid for the amount shown on it, it is a more trusted method of payment than a cheque.-History of money orders:...
s, cashier's check
Cashier's check
A cashier's check is a check guaranteed by a bank. They are treated as guaranteed funds and are usually cleared the next day. It is the customer's right to request "next-day availability" when depositing a cashier's check in person...
s and travelers checks, in value totaling $3,000 to $10,000, inclusive. This form is required to be kept on record at the financial institution, and produced at the request of examiners or audit to verify compliance. A financial institution must maintain a Monetary Instrument Log for 5 years.
Suspicious Activity Report (SAR)
The SAR must report any cash transaction where the customer seems to be trying to avoid BSA reporting requirements by not filing CTR or MIL, for example. A SAR must also be filed if the customer's actions suggest that he is laundering money or otherwise violating federal criminal laws and committing wire transfer fraud, check fraud or mysterious disappearances. The bank should not let the customer know that a SAR is being filed. These reports are filed with the Financial Crimes Enforcement NetworkFinancial Crimes Enforcement Network
The Financial Crimes Enforcement Network is a bureau of the United States Department of the Treasury that collects and analyzes information about financial transactions in order to combat money laundering, terrorist financiers, and other financial crimes.As reflected in its name, the Financial...
("FinCEN").
Sanctions
There are heavy penalties for individuals and institutions that fail to file CTRs, MILs, or SARs. 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.How it affects American citizens
CTRs include the individual's bank accountBank account
A Bank account is a financial account recording the financial transactions between the customer and the bank and the resulting financial position of the customer with the bank .-Account types:...
number, name, address, and social security number
Social Security number
In the United States, a Social Security number is a nine-digit number issued to U.S. citizens, permanent residents, and temporary residents under section 205 of the Social Security Act, codified as . The number is issued to an individual by the Social Security Administration, an independent...
. SAR reports, required when transactions indicate behavior designed to elude CTRs (or many other types of suspicious activities), include somewhat more detailed information and usually include investigation efforts on the part of the financial institution to assess the validity or nature of the transactions. A single CTR filed for a client's account is usually of no concern to the authorities, while multiple CTRs from varying institutions or a SAR suggest that activity may be suspicious. A financial institution is not allowed to inform a business or consumer that a SAR is being filed, and all the reports mandated by the BSA are exempt from disclosure under the Freedom of Information Act
Freedom of Information Act (United States)
The Freedom of Information Act is a federal freedom of information law that allows for the full or partial disclosure of previously unreleased information and documents controlled by the United States government. The Act defines agency records subject to disclosure, outlines mandatory disclosure...
.
Businesses that deal primarily in cash, such as bars and restaurants, can be exempted from having their deposits and withdrawals reported on CTRs, although this exemption is rarely granted. Instead, most banks have computer systems which retain information on CTRs and allow duplicate CTRs to be created seamlessly.
Individual filing requirement
U.S. citizens must file the FBAR if they have a financial interest in, or authority over, foreign bank accounts that have an aggregate value of $10,000 at any point in a year.FAQs Regarding Report of Foreign Bank and Financial Accounts (FBAR) - Filing RequirementsIRS Publication 4261 Additionally, they must report the accounts on Schedule B of the Form 1040 tax form. The FBAR should be filed separately with the U.S. Treasury by June 30.Additional information
An entire industry has developed around providing software to analyze transactions in an attempt to identify transactions or patterns of transactions called structuring, which requires SAR filing. Financial institutions are subject to penalties for failing to properly file CTRs and SARs, such as heavy fines and regulatory restrictions, including charter revocation.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
Anti-money laundering software
Anti-money laundering software is a term mainly used in the finance and legal industries to describe the legal controls that require financial institutions and other regulated entities to prevent or report money laundering activities. Anti money-laundering guidelines came into prominence globally...
".
Notable Cases
this section needs to be expandedIn 2011 the Observer reported that Wachovia
Wachovia
Wachovia was a diversified financial services company based in Charlotte, North Carolina. Before its acquisition by Wells Fargo in 2008, Wachovia was the fourth-largest bank holding company in the United States based on total assets...
, at one time a major US bank, was implicated in laundering money for Mexican drug lords
Mexican Drug War
The Mexican Drug War is an ongoing armed conflict taking place among rival drug cartels who fight each other for regional control, and Mexican government forces who seek to combat drug trafficking. However, the government's principal goal has been to put down the drug-related violence that was...
, through its lax laundering controls, a violation of the Bank Secrecy Act. It moved money in and out of casas de cambio without proper due diligence. How a big US bank laundered billions from Mexico's murderous drug gangs Ed Vulliamy, The Observer, Sunday 3 April 20, 2011, guardian.co.uk
See also
- Bank secrecyBank secrecyBank secrecy is a legal principle in some jurisdictions under which banks are not allowed to provide to authorities personal and account information about their customers unless certain conditions apply...
- Anti-money laundering
- Anti-money laundering softwareAnti-money laundering softwareAnti-money laundering software is a term mainly used in the finance and legal industries to describe the legal controls that require financial institutions and other regulated entities to prevent or report money laundering activities. Anti money-laundering guidelines came into prominence globally...
- Bank regulationBank regulationBank regulations are a form of government regulation which subject banks to certain requirements, restrictions and guidelines. This regulatory structure creates transparency between banking institutions and the individuals and corporations with whom they conduct business, among other things...
- Central bankCentral bankA central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
- Continuing Criminal EnterpriseContinuing Criminal EnterpriseThe Continuing Criminal Enterprise Statute is a United States federal law that targets large-scale drug traffickers who are responsible for long-term and elaborate drug conspiracies...
- Customer Identification ProgramCustomer Identification ProgramAccording to provisions of the USA Patriot Act, all financial institutions must verify the identity of individuals wishing to conduct financial transactions. The law was implemented by regulations in 2003 which require financial institutions to develop a Customer Identification Program ...
- FATF BlacklistFATF BlacklistThe FATF blacklist was the common shorthand description for the Financial Action Task Force list of "Non-Cooperative Countries or Territories" ; that is, countries which it perceived to be non-cooperative in the global fight against money laundering and terrorist financing...
- Financial Action Task Force on Money LaunderingFinancial Action Task Force on Money LaunderingThe Financial Action Task Force , also known by its French name, Groupe d'action financière , is an intergovernmental organization founded in 1989 on the initiative of the G7. The purpose of the FATF is to develop policies to combat money laundering and terrorist financing...
- Financial Crimes Enforcement NetworkFinancial Crimes Enforcement NetworkThe Financial Crimes Enforcement Network is a bureau of the United States Department of the Treasury that collects and analyzes information about financial transactions in order to combat money laundering, terrorist financiers, and other financial crimes.As reflected in its name, the Financial...
- Financial Services AuthorityFinancial Services AuthorityThe Financial Services Authority is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government. Its main...
- Know your customerKnow your customerKnow Your Customer refers to both:* The activities of customer due diligence that financial institutions and other regulated companies must perform to identify their clients and ascertain relevant information pertinent to doing financial business with them* And the bank regulation which governs...
- Mann ActMann ActThe White-Slave Traffic Act, better known as the Mann Act, is a United States law, passed June 25, 1910 . It is named after Congressman James Robert Mann, and in its original form prohibited white slavery and the interstate transport of females for “immoral purposes”...
- Money LaunderingMoney launderingMoney laundering is the process of disguising illegal sources of money so that it looks like it came from legal sources. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount...
- Organized crimeOrganized crimeOrganized crime or criminal organizations are transnational, national, or local groupings of highly centralized enterprises run by criminals for the purpose of engaging in illegal activity, most commonly for monetary profit. Some criminal organizations, such as terrorist organizations, are...
- Offshore banking
- Racketeer Influenced and Corrupt Organizations ActRacketeer Influenced and Corrupt Organizations ActThe Racketeer Influenced and Corrupt Organizations Act, commonly referred to as the RICO Act or simply RICO, is a United States federal law that provides for extended criminal penalties and a civil cause of action for acts performed as part of an ongoing criminal organization...
(RICO) - Terrorist financingTerrorist FinancingTerrorist financing came into limelight after the events of terrorism on 9/11. The US passed the USA PATRIOT Act to, among other reasons, attempt thwarting the financing of terrorism and anti-money laundering making sure these were given some sort of adequate focus by US financial institutions...
- USA PATRIOT ActUSA PATRIOT ActThe USA PATRIOT Act is an Act of the U.S. Congress that was signed into law by President George W. Bush on October 26, 2001...
- White collar crime
External links
- Banking Secrecy Act Comptroller's Handbook Department of the Treasury, Comptroller of the Currency, Administrator of the National Banks December 2000.
- 31 USC Sec 5311-5332