By Julie Stackhouse, Executive Vice President
This post is part of a series titled “Supervising Our Nation’s Financial Institutions.” The series, written by Julie Stackhouse, executive vice president and officer-in-charge of supervision at the St. Louis Federal Reserve, appears at least once each month.
Almost 50 years ago, concerns about large amounts of cash coming into the country from the drug trade led Congress to pass what’s become known as the Bank Secrecy Act (BSA).The legislation’s formal name is “The Financial Record Keeping and Reporting of Currency and Foreign Transactions Act of 1970.” The BSA was designed to help identify the source, volume and movement of currency and other monetary instruments transported or transmitted into or out of the U.S.
To meet the law’s objectives, the BSA assigned requirements for record keeping and reporting by private individuals, banks and other institutions involved in the money transfer business. These records provide evidence used by law enforcement agencies in prosecuting money laundering and other financial crimes.
The BSA has been modified several times through various pieces of legislation, including the USA PATRIOT Act.The formal name of the legislation is the “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001.” The USA PATRIOT Act, passed in response to the Sept. 11 terrorist attacks, criminalized the financing of terrorism and strengthened the existing BSA framework.
The Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury, is the delegated administrator of the BSA. FinCEN, in turn, entrusts the federal banking agencies with reviewing BSA compliance as part of their regular examination processes.
Every bank must maintain a written BSA compliance program commensurate with its respective risk profile. The program must include:
The sophistication of compliance programs varies significantly across the spectrum of banks because of their differing risk profiles.
For example, larger banks with diverse customer bases and higher risk operations are expected to devote considerably more resources and managerial attention to money laundering. Automated monitoring systems are typically used, and any suspicious behavior is closely investigated.
Smaller institutions, on the other hand, use simpler tools that often consist of a few automated reports and manual tracking systems. The simpler approach is warranted by their often local and well-known customer bases.
Bank regulators are frequently asked how anti-money laundering standards apply to cryptocurrencies, such as bitcoin. Cryptocurrencies offer the promise of payments efficiencies, but they have also been at the center of several well-documented cases of criminal activity.
FinCEN addressed this issue in 2014 when it issued guidance that designated an administrator or exchanger of cryptocurrencies as a “money transmitter,” and thus a “money services business” (MSB) under the regulations. These MSBs are required to register with FinCEN and implement a BSA compliance program. They are subject to regulatory review by FinCEN in the same manner as banks.
Yes. Although the requirements can be onerous and generally require significant financial and staffing resources to comply, BSA programs and the information they generate have proven valuable in combating a variety of financial crimes.
The reports that banks are required to submit to FinCEN have prompted numerous criminal investigations, connected ongoing investigations and helped fill in the pieces on others. In addition, the records that banks are required to maintain have proven to be an important tool for law enforcement.
1The legislation’s formal name is “The Financial Record Keeping and Reporting of Currency and Foreign Transactions Act of 1970.”
2 The formal name of the legislation is the “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001.”