Federal law enforcement governs and regulates the banking industry as per money laundering regulations. The Bank Secrecy Act (BSA) is a federal law that regulates financial institutions in the United States. Basically, it assists US law enforcement in identifying and preventing Money Laundering and other Fincrime.
Today, we shall discuss BSA AML by learning about the following:
- What is BSA
- BSA AML compliance
- 5 pillars of BSA
History of BSA AML
Initially, the law of the Bank Secrecy Act (BSA) was passed in 1970 and then termed BSA AML. Commonly, it is also written as BSA/AML or BSA & AML. This law has been amended several times over the years. Here is a brief history over time:
- 1970: The Bank Secrecy Act was passed by Congress.
- 1986: The Money Laundering Control Act was passed
- 1990: The Annunzio-Wylie Anti-Money Laundering Act was passed
- 2001: The USA Patriot Act was passed
- 2016: The FinCEN’s final ruling under the BSA was issued
- 2019: The FinCEN issued
- 2021: FinCEN issued a final ruling on FIs to submit the SARs. Furthermore, there is a list of BSA legislation available. Click to view the BSA Statute.
BSA AML Compliance
Theoretically, the concept remains the same. Mainly, the purpose is to combat Money Laundering, where Bank Secrecy Act is a regulation that defines the guidelines for Financial Institutions. It mainly states the following:
- The Bank Secrecy Act (BSA) requires financial institutions to assist U.S. government agencies against money laundering.
- It requires financial institutions to keep records and file reports that are deemed necessary or appropriate to prevent illegal activities.
- It requires financial institutions to implement internal controls, including a customer identification program, to ensure compliance with the law.
- Financial institutions are also required to file Suspicious Activity Reports (SARs) when they detect transactions that may involve illegal activities.
- Also, it requires FIs to file Currency Transaction Reports (CTRs) for all transactions involving more than $10,000 in cash.
- It is enforced by the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.
5 pillars of BSA
Basically, the BSA AML or OFAC compliance program has five pillars. In 1987, the Federal System’s Board of Governors issued the final ruling that became the benchmark for BSA AML compliance. The first four pillars strengthen the Anti-Money Laundering regulations further. Whereas the fifth pillar strengthens the CDD (customer due diligence) requirements. The summary of the 5 pillars of BSA is as follows:
1. Designation of a Compliance Officer
Generally, a Compliance Officer has the know-how and understanding of outlined BSA/AML/OFAC compliance program. Also, he has a sound knowledge of policies & procedures that relates to the Money Service Business (MSB).
2. Development of Internal Policies, Procedures & Control Measures
The foundation of all pillars lies in the establishment of internal regulations, protocols, and mechanisms. Specifically, this pillar delves into the management of operations, adherence to legal requirements, and the enforcement of established policies and protocols. It may vary the most among businesses as each one may have its unique offerings, transaction volume, and target audience. Thus, it is crucial for the policies and procedures of a BSA/AML/OFAC program to align with the specific business model and operations.
3. Relevant T&D of Employees
Employees shall receive ongoing training and development that shall be relevant to their skills & expertise. So, the main purpose of training shall be AML compliance. Also, the MSBs should train their employees once per year.
4. Testing & Review of BSA AML
Essentially, an independent review shall be done to identify any deficiencies in a business's compliance program. Moreover, the review shall make recommendations to improve them. The person conducting the review must not be the Compliance Officer or report to them. Likewise, a risk assessment should also be conducted to determine the level of risk for the business. Then, hire a third-party consultant for medium to high-risk businesses.
5. Customer Due Diligence (CDD)
Originally, the fifth rule that amends the BSA is for Customer Due Diligence (CDD). Notably, it has improved financial transparency & boosted the CDD. Also, the CDD rule is useful in the prevention of Criminal/Terrorist Activities in FIs.
The CDD has four main postulates:
- Identification & Verification of Customer’s Identity.
- Identification & Verification of Beneficial Owners.
- Understanding the customer’s relationship for risk assessment.
- Conducting ongoing monitoring to identify suspicious activity.
The BSA AML is necessary for the prevention of Money Laundering. The 5 pillars of BSA strengthen the Anti-Money Laundering regulations and the CDD. Moreover, BSA AML compliance is imperative for the Banks & FIs in the US. Customers must do their KYC in order to supplement the AML procedure. For this purpose, the BSA is a necessary requirement in the US. Lastly, the Board of Directors of the Bank or the Financial Institution is responsible for enforcing the BSA.
Frequently Asked Questions
The BSA AML Audit is the assessment of the effectiveness of the Bank’s compliance with Anti-Money Laundering that also includes a risk assessment.
Associated with the anti-money laundering regulations, the BSA KYC is the supervisory activity where KYC (Know Your Customer) supports all the 5 pillars of BSA.