The process of money laundering attempts to release criminally based funds into the legal financial system. Per the United Nations, a global estimate of $800 million is laundered into the system on an annual basis.
While it can be difficult to pinpoint an exact number, financial institutions worldwide adhere to a certain set of rules and regulations. They do so in an attempt to identify and stop these transactions before they happen.
In 1970, the United States Congress passed the first laws to fight money laundering and other criminal financial acts. The first law to pass the threshold is known as the Bank Secrecy Act. Let's look at this formative piece of legislation and how it has evolved since its early days of detecting unlawful activity.
In an effort to fight money laundering schemes in the United States, Congress passed the Bank Secrecy Act of 1970. The Bank Secrecy Act (BSA) is structured by heavily enforced requirements that are used to identify unlawful financial activity. Both international and domestic law enforcement agencies operate under the BSA requirements to identify criminal acts such as terrorism or tax evasion.
Financial institutions also operate under the BSA’s requirements to assist these government agencies with the prevention of financial crimes. Since the detection and prevention of money laundering are the main priorities by which financial institutions operate, how exactly do banks implement the controls as laid out under this law?
The BSA establishes recordkeeping requirements for individuals and banks alike. It is designed to identify 3 major components of currency within the U.S. financial system. These identifiers are:
Banks follow a specific set of parameters to identify properly conducted transactions. This includes reporting transactions over $10,000.00 using a Currency Transaction Report. The reports are required to remain in compliance with this law and cooperate with anti-money laundering, or AML, regulations.
The BSA was a precursor to more stringent measures, and then the Money Laundering Control Act followed in 1986. It officially made money laundering activity a federal crime. This act helped ensure banks stayed compliant with recordkeeping requirements previously set forth by the BSA.
Further amendments and laws have been passed to strengthen measures to prevent criminals from hiding or laundering criminally based finances. AML programs are strictly followed by financial institutions today. Requirements include parameters such as:
Under the BSA and related AML laws, banks must take appropriate action through various systems and monitoring procedures. One of the reporting procedures used by banks is known as a Suspicious Activity Report (SAR). This report must get filed within 30 days from initial activity detection.
A suspicious transaction could be anything that might point to money laundering. A suspicious activity report is a confidential document used to alert the government and authorities to irregular activity and potential crimes.
Another form used by business to comply with the BSA is known as a Form 8300. This form gets used when businesses receive large payment amounts in a single transaction. Typically, in amounts of $10,000.00 or more.
Many of these reports get filed electronically under the BSA's e-Filing system.
Requirements today include expanded anti-money laundering laws that help strengthen sanctions for violations under the BSA. In an effort to more thoroughly enforce measures, banks must also adhere to a compliance program to verify new customers. This process is called Know Your Customer (KYC).
This process helps establish a new customer's identity. It also helps re-confirm current customer information on a regular basis. The process establishes the following:
New bank customers get screened against a list of potential crime suspects and foreign public officials. The due diligence necessary to screen individuals is crucial to this process. Due diligence performed helps banks to verify potential customers and ongoing customer relationships.
Due diligence is an integral part of the BSA. It helps assess the risk each customer may pose to the financial institution at hand. Requirements to confirm accuracy include:
Implementation of due diligence is part of the wider AML policy as a whole. Implementing due diligence requirements must be overseen by a compliance officer.
Full compliance is understandably a large administrative undertaking. Complying with the BSA is of utmost importance. Financial institutions risk reputational damage if not. They also risk the potential of loss of customers, clients, and employees.
Industry tools are available for banks to utilise in order to make the process more manageable. Certain due diligence workflows can help with compliance items such as:
Since 1970, the Bank Secrecy Act has evolved to include many amendments. Regulations are being updated regularly in order to keep up with the fast-moving financial landscape we live in.
Streamlining compliance processes is made possible through online consulting services. At MemberCheck, we provide crucial help with important screening items.
We help companies comply with global KYC regulations and AML legislation. Why not request a demo with us today? We'll help you screen potential customers and seamlessly integrate necessary compliance tools