The Bank Secrecy Act (BSA)
The Bank Secrecy Act (BSA), officially known as the Currency and Foreign Transactions Reporting Act of 1970, is a crucial piece of legislation used by government agencies in combating money laundering, tax evasion, and other illicit activities that could potentially undermine the integrity of the U.S. financial system.
For this reason, the BSA is also commonly called the "anti-money laundering law." More recently, the BSA has been used to track financial transactions related to possible terrorist activities. The provisions of the BSA are embodied in Chapter 31 of the U.S. Code, Sections 5311-5336. It is also codified in 12 U.S.C. 1829b, 12 U.S.C. 1951-1960.
The BSA contains many regulations regarding how financial institutions must keep records and report transactions to ensure transparency. Violations of these rules can result in stiff civil and criminal penalties, including fines and prison time.
The BSA authorizes the Department of the Treasury to impose reporting requirements on financial institutions and other businesses to identify and prevent money laundering.
The regulations implementing the BSA require financial institutions to keep records of cash purchases of negotiable instruments, file reports of cash transactions over $10,000, and report suspicious activity that might look like money laundering, tax evasion, or other illegal activity.
31 U.S. Code 5311 Declaration of Purpose says, “It is the purpose of this subchapter to—
(1) require specific reports or records that are highly useful in—
(A) criminal, tax, or regulatory investigations, risk assessments, or proceedings; or
(B) intelligence or counterintelligence activities, including analysis, to protect against terrorism,
(2) prevent the laundering of money and the financing of terrorism through the establishment by financial institutions of reasonably designed risk-based programs to combat money laundering and the financing of terrorism,
(3) facilitate the tracking of money that has been sourced through criminal activity or is intended to promote criminal or terrorist activity,
(4) assess the money laundering, terrorism finance, tax evasion, and fraud risks to financial institutions, products, or services to—
(A) protect the financial system of the United States from criminal abuse, and
(B) safeguard the national security of the United States, and
(5) establish appropriate frameworks for information sharing among financial institutions, their agents and service providers, their regulatory authorities, associations of financial institutions, the Department of the Treasury, and law enforcement authorities to identify, stop, and apprehend money launderers and those who finance terrorists.”
What is the Historical Background and Purpose of the BSA?
Growing concerns over the misuse of the U.S. financial system for illicit purposes primarily drove the enactment of the BSA. The law was designed to prevent and detect financial crimes, particularly money laundering and tax evasion.
It sought to achieve this by imposing stringent recordkeeping and reporting requirements on designated financial institutions and certain businesses.
What Are the Key Provisions of the Law?
The BSA lays down numerous critical obligations for entities covered under its ambit, including banks, credit unions, money services businesses (MSBs), securities brokers, casinos, and specific non-financial firms and trades.
Recordkeeping Obligations
One of the central tenets of the BSA is the requirement for financial institutions to maintain meticulous records of specific transactions. These include cash purchases of negotiable instruments, wire transfers, and transactions exceeding $10,000.
Reporting Requirements
Along with keeping detailed records, financial institutions must report certain types of transactions. The most well-known is the Currency Transaction Report (CTR), which must be filed for any cash transaction exceeding $10,000.
Additionally, if a financial institution suspects a transaction may be connected to illegal activity, it must file a Suspicious Activity Report (SAR). These reports are filed with the Financial Crimes Enforcement Network (FinCEN).
The CTR must be filed for cash transactions exceeding $10,000 within a business day. This includes multiple transactions that cumulatively exceed the threshold.
The SAR, on the other hand, is required for any transaction, regardless of the amount, that the institution suspects involves funds derived from illegal activities or is intended to hide funds derived from illicit activities.
The BSA also mandates other forms of reporting. For instance, the Report of International Transportation of Currency or Monetary Instruments (CMIR) must be filed by individuals and institutions that transport, mail, ship, or receive currency or monetary instruments exceeding $10,000 into or out of the United States.
These reporting requirements are vital in creating a financial paper trail that law enforcement agencies can use to investigate and prosecute financial crimes. As such, non-compliance with these regulations can result in severe penalties for the financial institutions, employees, or officers behind the violations.
Compliance Programs
In addition to the recordkeeping and reporting requirements, the BSA mandates financial institutions to develop robust anti-money laundering (AML) programs.
These programs must include internal policies, procedures, and controls designed to ensure BSA compliance, a designated compliance officer responsible for managing these controls, continuous employee training programs, and an independent audit function to test the program's effectiveness.
What Are Related Federal Laws?
Numerous federal laws are associated with the Bank Secrecy Act (BSA), such as the following:
- 12 U.S.C. 1829b - Retention of records by insured depository institutions,
- 12 U.S.C. 1951 - Congressional findings and declaration of purpose,
- 12 U.S.C. 1952 - Reports on ownership and control,
- 12 U.S.C. 1953 - Recordkeeping and procedures,
- 12 U.S.C. 1954 – Injunctions,
- 12 U.S.C. 1955 - Civil penalties,
- 12 U.S.C. 1956 - Criminal penalty,
- 12 U.S.C. 1957 - Additional criminal penalty in some instances,
- 12 U.S.C. 1958 – Compliance,
- 12 U.S.C. 1959 - Administrative procedure,
- 12 U.S.C. 1960 - Safe harbor with respect to keeping open directives,
- 31 U.S.C. 5311 - Declaration of Purpose,
- 31 U.S.C. 5312 - Definitions and application,
- 31 U.S.C. 5313 - Reports on domestic coins and currency transactions,
- 31 U.S.C. 5314 - Records and reports on foreign financial agency transactions,
- 31 U.S.C. 5316 - Reports on exporting and importing monetary instruments,
- 31 U.S.C. 5317 - Search and forfeiture of monetary instruments,
- 31 U.S.C. 5318 - Compliance, exemptions, and summons authority,
- 31 U.S.C. 5318A - Special measures for jurisdictions, financial institutions, international transactions, or types of accounts of primary money laundering concern,
- 31 U.S.C. 5319 - Availability of reports,
- 31 U.S.C. 5320 – Injunctions,
- 31 U.S.C. 5321 - Civil penalties,
- 31 U.S.C. 5322 - Criminal penalties,
- 31 U.S.C. 5323 - Whistleblower incentives and protections,
- 31 U.S.C. 5324 - Structuring transactions to evade reporting requirements prohibited,
- 31 U.S.C. 5325 - Identification required to purchase certain monetary instruments,
- 31 U.S.C. 5326 - Records of certain domestic transactions,
- 31 U.S.C. 5329 - Staff commentaries,
- 31 U.S.C. 5330 - Registration of money-transmitting businesses,
- 31 U.S.C. 5331 - Reports relating to coins and currency received in nonfinancial trade or business,
- 31 U.S.C. 5332 - Bulk cash smuggling into or out of the United States,
- 31 U.S.C. 5333 - Safe harbor with respect to keeping open directives,
- 31 U.S.C. 5334 - Training regarding anti-money laundering and countering the financing of terrorism,
- 31 U.S.C. 5335 - Prohibition on concealment of the source of assets in monetary transactions,
- 31 U.S.C. 5336 - Beneficial ownership information reporting requirements.
What Are Penalties for Non-Compliance?
Violations of BSA regulations can lead to severe civil and criminal penalties, including hefty fines and potential imprisonment.
Civil Penalties
Civil penalties typically involve monetary fines, which can be substantial. The actual penalties vary widely based on the nature of the violation and the person/entity responsible. Civil fines for individuals may generally range between $10,000-$100,000 per violation, while financial institutions can be fined up to $1 million per violation.
Criminal Penalties
Criminal penalties for BSA violations are even more severe. They can include fines of up to $500,000 and imprisonment for up to ten years. In some cases, both may be imposed.
The type and severity of penalties imposed depend on several factors, including the nature and extent of the violation, the harm caused to the public or the financial system, the history of prior violations by the individual or institution, and the level of cooperation with regulatory authorities.
Contact our law firm for more information and to discuss legal options. Eisner Gorin LLP has offices in Los Angeles, California.
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