The BSA is a law against money laundering in the U.S. It requires U.S. financial institutions to cooperate with the government to prevent financial crimes.
It is worth mentioning that though we tend to think only banks are financial institutions, the term encompasses several other businesses that deal with financial and monetary transactions such as money exchange, deposits, and loans. Therefore, insurance companies and investment firms, to name a few, are also considered financial institutions.
If a person conducts a transaction in a currency that exceeds $10,000, his or her financial institution must provide a FinCEN with a Currency Transaction Report (CTR). This transaction can be, for instance, a money exchange, deposit or withdrawal of currency regardless of the reason. Notice that we talk about a transaction performed in cash or coin. The amount mentioned can be a result of a single transaction or several made within a 24-hour period by one person.
To file a CTR, a financial institution must obtain information about the person who carried out a transaction. This is usually their social security number and some kind of government-issued document like a driver’s license.
Note that a person cannot break up the transaction into smaller amounts to avoid being reported to the government. This is a crime called structuring and can lead to a fine of up to $250,000 or imprisonment of up to five years. In addition, the penalty can be doubled if the person in question also broke another law when conducting the transaction or if the amount involved was more than $100,000.
Imagine you sold your car and received $18,000 in cash. You want to deposit the money, but for some reason, you don’t want to have a CTR filed on you. So, you decide to split the money and deposit $9,000 first. Then you wait a day, go to your bank and deposit the rest. Unfortunately, if you do this, you will be breaking the law since you received this money from one transaction from one person in a single day. Hence, you must notify your financial institution that you received this money from a single or connected transaction conducted in 24 hours, and the financial institution must file a CTR.
Some businesses should file a similar CTR report called Form 8300 if they receive $10,000 in cash from one buyer as a result of a single transaction or several related transactions. An art gallery is an example of such a business. If the gallery owner sells an art piece and receives cash for it exceeding $10,000, he or she must submit Form 8300.
It is worth noting that certain persons or institutions that routinely use currency might be granted an exemption from filing a CTR. This undoubtedly helps those individuals/institutions to reduce the reporting burden.
The BSA also requires financial institutions to report any suspicious activity that they notice by filing a Suspicious Activity Report (SAR). If the institution fails to detect and report a potential crime, it faces civil money penalties imposed by FinCEN. Take the example of U.S. Bank that failed to report thousands of suspicious cases for four years and was fined over 600 million dollars.
A financial institution has 30 days to submit a report from the time it detects suspicious activity. If it cannot identify the suspect, it can postpone submitting the report for a further 30 days, but it must be filed no later than 60 days in any case. Of course, in the case of an emergency, the financial institution must contact FinCEN immediately.
There are three more types of reports. One is a Foreign Bank Account Report (FBAR). U.S. citizens and residents have to file an FBAR every year if they have over $10,000 in a foreign bank account.
One has to submit a Money Instrument Log (MIL) if they purchase any monetary instrument that is valued between $3,000 and $10,000. What is a money instrument? In short, a money instrument is what represents money. It can be a cashier’s or traveler’s check, for instance.
If you decide to transfer out of the U.S. over $10,000 in currency or monetary instruments valued over $10,000, you must submit a Currency and Monetary Instrument Report (CMIR).
To file various reports and be able to identify any suspicious activity, a financial institution must develop a well-thought-out BSA-AML compliance program. It should be unique to the institution and take into account its needs and risk profiles that it faces.