1. What is the Bank Secrecy Act (BSA) and what is its primary purpose?
The Bank Secrecy Act (BSA), also known as the Currency and Foreign Transactions Reporting Act, is a U.S. federal law enacted to combat money laundering, financial crime, and the financing of terrorism. Its primary purpose is to require financial institutions to keep records and file reports on certain transactions, making it harder for criminals to conceal illicit financial activities. This helps law enforcement and regulatory agencies to track suspicious financial activities and identify potential illegal operations.
2. What types of financial transactions are subject to reporting and record-keeping requirements under the BSA?
Several types of financial transactions are subject to BSA requirements, including:
Currency transactions over $10,000: Financial institutions must report cash transactions (deposits, withdrawals, etc.) that exceed $10,000 in a single day using a Currency Transaction Report (CTR).
Purchases of monetary instruments:
The purchase of financial instruments like bank checks, cashier's checks, money orders, and traveller's checks totalling $3,000 or more with cash requires the institution to record identifying information about the purchaser.
Funds transfers: Transfers of $3,000 or more, including wire transfers, are subject to record-keeping requirements.
International transportation of currency: The transportation, mailing, or shipping of more than $10,000 in monetary instruments into or out of the United States requires filing a report with U.S. Customs.
Foreign bank accounts: U.S. persons with a financial interest in, or signature authority over, a foreign financial account (including bank and securities accounts) with a value exceeding $10,000 at any point during the calendar year must file a Report of Foreign Bank and Financial Accounts (FBAR).
Suspicious Activity: Financial Institutions are required to file Suspicious Activity Reports (SARs) when they observe transactions that are inconsistent with known or legitimate business, or that appear designed to circumvent BSA reporting requirements.
3. What is "structuring" and why is it illegal under the BSA?
"Structuring" refers to the act of breaking down large transactions into smaller ones to evade reporting requirements. For example, making multiple deposits of slightly less than $10,000 in order to avoid triggering a CTR. The BSA prohibits structuring with the intent to evade reporting requirements. It's illegal because it undermines the purpose of the BSA by making it difficult to detect illegal financial activities. Even if no single transaction exceeds the reporting threshold, if a series of transactions are designed to bypass that threshold, this can be flagged as suspicious.
4. What are some examples of 'suspicious activities' that financial institutions are required to report under the BSA?
Financial institutions must monitor for and report suspicious activities, some examples include:
Transactions that have no apparent business or lawful purpose, or are unusual for the customer.
Transactions designed to evade reporting requirements. This could include structuring, unusual movements of funds in and out of an account, or frequent purchase of monetary instruments with no obvious reason.
Unusual activity related to wire transfers.
Structuring monetary instrument purchases.
Transactions where a customer uses third-party instruments.
Multiple transactions conducted below the reporting threshold by related parties.
The use of payable through accounts (PTAs) and pouch services in suspicious ways.
Transactions with or to countries or individuals identified by OFAC.
5. What is a "Payable Through Account" (PTA) and what risks do they pose under the BSA?
A Payable Through Account (PTA) is an account offered by a U.S. bank to a foreign bank, which then provides sub-accounts to its own customers. The foreign bank's customers can then effectively access and use the U.S. banking system. While PTAs can offer legitimate business benefits, they pose significant risks under the BSA due to their complex nature and the potential for abuse. PTAs allow foreign banks' customers to conduct transactions through the U.S. system without the direct oversight of a U.S. bank, and they also obscure the origin and destination of funds, making them a prime target for money laundering. Sub-account holders of PTAs may include other foreign banks, which can create multiple layers of financial activity, further obscuring the source of funds.
6. What record-keeping requirements do financial institutions have concerning customers under the BSA?
Financial institutions must retain various records to comply with the BSA, including:
Customer identification information: For each new account or certificate of deposit, banks must collect and verify the customer's taxpayer identification number, address, and other identifying information.
Transaction records: Records of sales of monetary instruments, fund transfers over $3,000, and other specific transactions.
Account documentation: Records of signature authority over accounts.
International transfers: Records of funds, monetary instruments, or securities sent or received from outside the United States, over a certain threshold, usually $10,000. These records must be kept for at least five years, unless a longer period is specified. Additionally, financial institutions need to keep records of any exemptions they grant and make these records available to regulatory authorities.
7. What are the consequences for violating the BSA?
Violations of the BSA can result in severe penalties, including:
Civil penalties: Financial institutions and individuals can be fined for violating BSA requirements. Penalties can be quite substantial and depend on the nature and severity of the violation.
Criminal penalties: Willful violations of the BSA can lead to criminal charges, fines, and imprisonment. This can include the individuals working at the institutions, as well as customers or other parties who actively engage in money laundering or structuring.
Reputational damage: Violations can cause damage to the reputation of a financial institution, which can affect its business and its relationships with customers and regulators.
8. Who is responsible for enforcing the Bank Secrecy Act?
The Bank Secrecy Act is enforced by several entities within the U.S. Department of the Treasury, including the Financial Crimes Enforcement Network (FinCEN), which has overall responsibility for administering and enforcing the BSA and its regulations, and the Internal Revenue Service (IRS) which has the power to investigate potential criminal violations.
However, specific enforcement and examination duties are delegated to various federal agencies:
The Comptroller of the Currency is responsible for examining national banks.
The Board of Governors of the Federal Reserve System is responsible for examining state-chartered banks that are members of the Federal Reserve System.
The Federal Deposit Insurance Corporation (FDIC) is responsible for examining state-chartered banks that are not members of the Federal Reserve System.
The Customs and Border Protection agency handles violations related to the transportation of currency into or out of the U.S. These agencies, under guidance from FinCEN, are all responsible for ensuring that financial institutions comply with the requirements of the BSA.
The Office of Foreign Assets Control (OFAC) also plays an enforcement role by ensuring that transactions are not being conducted with Specially Designated Nationals or Blocked Persons (SDNs).
Play / Stop Audio