Prior to the passage of the Bank Secrecy Act, there was no legislation of its kind that existed in the United States, offering limited oversight in regard to anti-money laundering (AML). As a result, this lack of regulation provided criminal enterprises with the opportunity to make illicit financial transactions mostly under the radar.
Thus, as a way to bolster the integrity of the financial system and provide the government with a way to monitor such suspicious activity, the Bank Secrecy Act was passed in 1970 by President Richard Nixon.
What is the Bank Secrecy Act?
The Bank Secrecy Act of 1970, sometimes referred to as the Currency and Foreign Transactions Reporting Act, requires financial institutions in the United States to help government agencies detect and prevent money laundering.
Why Was the Bank Secrecy Act Passed?
The act was created as a way to combat money laundering. More specifically, it is supposed to prevent financial institutions’ involvement in such criminal activity.
The Bank Secrecy Act gives the government a way to crack down on money laundering that is used to fuel criminal enterprises and activities such as terrorism, human trafficking, drug trafficking, tax evasion, and more.
Those involved in illicit activities tend to prefer cash as a way of payment instead of electronic payments as a way to avoid traceability. However, the Bank Secrecy Act puts guidelines in place for financial institutions to flag cash transactions that appear suspicious or have a value over a specific threshold to curtail these activities and keep criminal enterprises from accessing funding.
What Are the Implications of the Bank Secrecy Act?
Under the Bank Secrecy Act, financial institutions must keep records of all cash transactions of negotiable instruments, file a report if the daily transaction volume is more than $10,000, and report suspicious transactions that could be related to criminal activity like money laundering or tax fraud.
Such reports must be made in a timely manner following the transaction, and the reporting party could face fines or penalties if they fail to do so within a certain time frame, typically within 15 days.
Specifically, there are five different types of reports that financial institutions must file to adhere to the Bank Secrecy Act, shown below.
- Currency Transaction Report (CTR): Any cash transaction exceeding $10,000 within one business day must be reported to the Financial Crimes Enforcement Network (FinCEN). The report includes the individual’s name, address, bank account number, and Social Security number. Receiving a single CTR is generally not cause for further investigation, though receiving multiple CTRs from multiple institutions within a certain time frame will likely raise some flags.
- Suspicious Activity Report (SAR): Covers any cash transactions where the individual appears to be avoiding certain BSA reporting requirements. If the institution believes the individual is involved in money laundering or other federal crimes, a SAR must be filed with FinCEN. Institutions are not permitted to notify the customer when there is a SAR being filed against them.
- Report of Foreign Bank and Financial Accounts (FBAR): This report must be filed each year for any US citizens or residents who have a financial interest or authority over foreign bank accounts with a value of over $10,000.
- Report of International Transportation of Currency or Monetary Instruments (CMIR): Any person or institution that transports currency or monetary instruments totaling more than $10,000 or causes them to be transported in or out of the United States must file this report.
- Designation of Exempt Person Form: Financial institutions must file this report as a way to designate an exempt individual for CTR reporting.
Further, this act has additional requirements for financial institutions. It requires all national banks and savings associations to have a program in place that helps to assure and monitor compliance with the act. Some of the guidelines for such programs include:
- A system of internal controls to monitor ongoing compliance with the BSA
- Independent testing for compliance with the regulation
- An individual who is responsible for monitoring the institution’s compliance with the BSA on an ongoing basis
- Adequate training for employees involved with the transactions described in the BSA
- A customer identification program
Possible Penalties Under the Bank Secrecy Act
Financial institutions that fail to comply with the reporting requirements of the Bank Secrecy Act can face significant penalties and fines–even including prison time in certain cases. This includes banks or other financial institutions that do not make the proper reports as needed, or if they notify a customer when a SAR has been filed.
Notable Amendments to the Bank Secrecy Act
Since the Bank Secrecy Act was enacted over 50 years ago, the act of money laundering has not been entirely mitigated, and many criminals’ tactics have only grown more sophisticated as a result.
In order to keep up with new developments and capabilities of criminals who partake in money laundering, there have been a number of notable amendments made to the law that are worth mentioning.
- Annunzio-Wylie Anti-Money Laundering Act of 1992: This amendment requires financial institutions to establish anti-money laundering programs internally, and expands the reporting requirements for currency transactions.
- Money Laundering Suppression Act of 1994: This amendment enhanced the penalties for money laundering convictions as a way to further strengthen the country’s anti-money laundering efforts. It also estabilshes reporting requirements for suspicious activities, though this has drawn some criticism in regards to what/how something is considered to be suspicious.
- USA PATRIOT Act of 2001: Arguably the most significant amendment to the Bank Safety Act, and considered to be one of the most crucial pieces of legislation passed in the country’s modern history, this act expanded the scope of anti-money laundering efforts to combat terrorism financing. It calls for financial institutions to establish customer identification programs and allows for the sharing of information between financial institutions and law enforcement, among other provisions.
- The USA PATRIOT Act Reauthorization Act of 2006: This extended/expanded certain provisions of the USA PATRIOT Act, like those related to SAR, information sharing, and correspondent accounts