Bank Secrecy Act (BSA) of 1970
The Bank Secrecy Act works to prevent money laundering and terrorist financing in the USA. With many facets, the Act covers regulatory requirements for banks and financial institutions, ensuring they raise red flags when suspicious activity occurs.
What is the Bank Secrecy Act?
The Bank Secrecy Act was introduced as one of two initial strategies to prevent money laundering.
Ever since the prohibition era, cases of money laundering had been growing, and by the mid-1960s, it was reaching new heights of popularity. Therefore, in 1970, the government passed the Bank Secrecy Act (BSA) in order to halt some of the suspicious financial activity.
Authorized by the Treasury Department, the BSA is regulated by a collection of regulators. The Office of the Comptroller of the Currency oversees the majority of regulations, however enforcement agencies and the IRS are also regularly involved in investigations.
As mentioned, the initial purpose of the BSA was to prevent money laundering. However, since its inception in 1970, the Act has expanded. In particular after the events of 9/11, the BSA also focused on identifying and preventing terrorist financing.
Thanks to the BSA AML compliance, financial institutions have a standardized criteria for ‘suspicious’ behavior, and the authorities can get automatically notified when it happens. This means that the BSA works to streamline and integrate the various financial and criminal systems. Moreover, the Act creates barriers for large criminal organizations to operate internationally, and helps to create a log of evidence for court proceedings.
Principles of the Bank of Secrecy Act?
While the BSA has 35 different sections, we’ll focus on the most impactful for financial institutions. These include:
Currency and Transaction Reports
The most common association with the Bank Secrecy Act is Form 8300. This form must be filled out by financial institutions when any person in a business receives $10,000 or more from one source. This could be from a single transaction, or through two or more.
The currency transaction report must be completed within 15 days of the transactions, although some exceptions do apply. It’s a type of suspicious activity report (SAR), which is used by banks all over the world to signal red flags in financial behavior. The currency and transaction BSA requirement exists to ensure that these transactions are raised and monitored. Although many won’t signal illicit activity, the threshold means that every qualifying transaction is double-checked. This makes it harder for suspicious transactions to fall through the cracks, helping to prevent money laundering and terrorist financing.
Ownership and Control
The Bank Secrecy Act also involves two rules around making ownership and control more transparent;
Enhanced customer due diligence
Enhanced customer due diligence (EDD) refers to a version of Know Your Vendor (KYV). This involves collecting specific fields of information to create higher identity assurance and insight, and monitoring financial transactions in compliance with the anti money laundering act.
It is different to customer due diligence, because EDD focuses on third party and business relationships. Controlling transactions to and from high-risk organizations is important as financial crime could affect State security, as deemed by the 2001 Patriot Act.
For example, Enhanced Due Diligence must be collected on the following categories of organization:
- Businesses or individuals from the High Risk Third Countries list
- Politically exposed persons
- Those in industries at a high risk of money laundering or criminal activity (such as gambling)
- Ultimate beneficial owners
- Companies that appear on blacklists
- Private banking associates
Ultimate Beneficial Ownership (UBO)
UBOs are the individuals who stand to benefit from company profits and relationships. While this typically refers to the CEO and board members, some UBOs are hidden from public view. By verifying UBOs, firms can participate in third party validation.
In order to comply with anti money laundering regulations like the BSA, UBOs must be reported to the register, alongside any supporting documentation that can back up the extent of ownership. And if anything changes, the records must be updated within one year.
Banks are required to supervise UBOs and their financial activity on an ongoing basis to ensure that suspicious activity can be flagged and investigated.
Whistleblower Incentives and Protections
Finally, a section of the Bank Secrecy Act is dedicated to encouraging financial institution employees to speak out (and protecting them from maltreatment) about unethical or illegal financial practices – whistleblowing.
This section was actually expanded in 2023 to further incentivize employees into blowing the whistle on bad practices at their workplaces. The Consolidated Appropriations Act (2023) established a fund from which to pay whistleblowers, and created a minimum payment. This also tied in awards to the enforcement decisions of claims.
Recent changes in 2020 also increased the maximum recovery amount, and increased the guidance on judicial or administrative actions for the whistleblowers themselves.
Application for Compliance
BSA compliance applies to the likes of:
- National banks
- Federal Savings Associations
- Federal Branches
- Foreign Bank Agencies (with locations or customers in the US)
Those that fall under the regulation must demonstrate their compliance, and can get ahead of the rules by partnering with a regulatory intelligence platform like Global Relay.
As one of the most trusted names in financial services, we support regulated entities to put compliance at the heart of their business – without diverting all of your resources. With fully-integrated surveillance and AI-assisted data classification, we enable financial firms to escalate or report with ease.
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