March 1, 2023
Estimated reading time: 4 minutes
What is the Bank Secrecy Act?
The Bank Secrecy Act is designed to make it easier for financial institutions to monitor and flag suspicious transactions. It was first introduced in 1970 as part of the US government’s plan to fight money laundering and terrorist financing.
What is the BSA?
The Bank Secrecy Act (BSA) aims to protect the integrity of our cash.
Under the Act, businesses must alert the Internal Revenue Service (IRS) if they receive $10,000 or more from a single customer. This money can be acquired through a single transaction, or two or more. Businesses are required to file form 3800 within 15 days of receiving the payments.
There are some exceptions to this BSA rule of alerting authorities. The regulator has produced a list of exceptional cases or sources, which can be found here. For example, $10,000 transactions from government agencies do not have to be declared. Likewise, business deals worth more than $10,000 with companies listed on North American exchanges are exempt from IRS notification.
The second section of the BSA focuses on suspicious activity. Financial institutions such as banks or credit unions must monitor their customers’ activity and keep a record of any suspicious transactions. This is known as a Suspicious Activity Report (SAR).
What is a Suspicious Activity Report (SAR)?
SARs are a document that banks and other financial institutions must file if they suspect unusual financial activity. They are confidential documents that are filed with the Financial Crimes Enforcement Network (FinCEN).
Here are two examples of when a SAR must be filed:
- When an employee of a financial institution is suspected of insider activity.
- When a customer deposits, withdraws or spends an unusual amount compared to their normal pattern of financial activity.
This concept is similar to the EU version of Suspicious Transaction and Order Reports, known as STOR. Financial services companies must file a SAR within 30 days of noticing suspicious activity and must keep the records for at least five years.
It’s important to note that SARs are not direct accusations of a crime. Although they used to be called a ‘criminal referral form,’ they simply exist to alert authorities about an unusual pattern of activity.
Why was the Bank Secrecy Act introduced?
The primary purpose of the BSA was to combat money laundering.
In the 1960s, it was much easier to generate cash through criminal activity. Without the same detection and tracking technology that we have today, it was easy to ‘clean’ ‘dirty money’ through a legitimate business to disguise the origins of the funds. Thus, before BSA regulations, laundered money could sit in financial accounts without detection and insider trading was common within financial institutions.
Nowadays, most enterprises have a money laundering reporting officer.
One of the most famous examples of this is the Texas Gulf Sulphur, a firm that was sued by the Securities and Exchange Commission. In the 1960s, the company bought land and discovered that it had huge deposits of copper. Their executives were the only people privy to this information and bought a significant amount of shares. Once this information was released publicly, the shares shot up in value by almost triple the price.
The Bank Secrecy Act also helps to combat terrorist financing. By requiring each institution to build an AML program, the regulator increases the transparency of financial activity. Features like the identification of beneficial owners mean that law enforcement agencies can easily ‘follow the money trail’ when required.
BSA challenges since 1970
Since the introduction of the Bank Secrecy Act, there have been a few updates. This helps the BSA to stay relevant and match the capabilities of twenty-first-century money launderers.
However, many industry leaders still don’t find that the BSA is competent enough to deal with financial criminals. Moreover, there is a gap in the guidance for what is considered ‘suspicious activity.’ While the list of exceptions exists, it’s up to financial institutions to create their own AML strategies. This means that between different financial services companies, there is no single standard of reporting.
Who must comply?
The BSA applies to all businesses that trade in the United States, operate with US-based partners, or sell to US-based companies. These businesses must comply with form 3800 filings when transactions are above the $10,000 limit.
Moreover, the BSA applies to banks and financial institutions, including any foreign bank that operates in the US. As regulated by the Office of the Comptroller of the Currency, financial firms can expect regular auditing and investigation from a BSA officer with reference to BSA compliance.
While the Bank Secrecy Act has been around for decades, new anti-money laundering regulations are still being introduced. Automated Regulatory Intelligence can help your firm to comply with AML regulations compliance
Check out CUBE’s RegPlatform to see how your firm can benefit from horizon scanning technology to stay ahead of AML and BSA regulations.
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