The Bank Secrecy Act (BSA) is a law against money laundering in the US. It entails US financial institutions to cooperate with the government to prevent financial crimes.
It is worth mentioning that not only banks can be a financial institution as we tend to think. The term encompasses several other businesses that deal with financial and monetary transactions such as money exchange, deposits, loans, etc. Therefore, insurance companies and investment firms, to name a few, are also considered financial institutions.
How to stay compliant with the BSA? File reports.
As we mentioned, under the BSA financial institutions must help the government to prevent money laundering, terrorist financing, and other crimes. To do this, they are supposed to submit the government with reports on huge currency transactions of various kind and they must notify the government if they detect anything suspicious.
Though usually the reports are filed by financial institutions only, they are still filed on an individual, so we think it is useful to understand what reports can be submitted on a person and in what situation. Hence, let us talk about them in detail.
If a person conducts a transaction in currency that exceeds $10,000, his or her financial institution must provide the government 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 singular transaction or several ones made in 24 hours by one person.
To file a CTR, a financial institution must get information about a person who conducts a transaction. This is usually the 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 called “structuring” and it is a crime. It can lead to a fine of up to $250,000 or even to imprisonment for up to 5 years. Actually, the penalty can be doubled if a person also broke another law when conducting a transaction or if the amount of money involved was more than $100,000.
Let us give you an example of structuring. Imagine you have sold your car and received $18,000 in cash. You want to deposit the money but, for some reason, you do not want to have a CTR filed on you. So, you decide to break up the sum and deposit $9,000 first. Then you wait a day, come to your bank and deposit $9,000 more. Unfortunately, if you do this, you will break 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 singular or connected transaction conducted in 24 hours and a financial institution must file a CTR.
It is worth noticing that certain persons or institutions that routinely use currency might be granted an exemption from filing a CTR. This undoubtedly helps institutions to reduce the reporting burden.
Some businesses should file a similar to CTR report called Form 8300. Those are companies that receive $10,000 in cash from one buyer as a result of a singular transaction or several related transactions. An art gallery can be an example of such a business. When its owner sells a work of art and receives a sum of money in cash that exceeds $10,000, he or she must submit Form 8300.
The BSA also demands banks to report any suspicious activity that they notice. In this case, they file a Suspicious Activity Report (SAR). If a financial institution fails to detect and report a potential crime, it faces civil money penalties imposed by FinCEN. Take an example of US Bank National Association that failed to report thousands of suspicious cases for 4 years. It got fined 185 million dollars.
A financial institution has 30 days to submit a report since the detection of suspicious activity. If it cannot identify a suspect, it can postpone submitting for 30 days more, but it should be filed no later than 60 days in any case. Of course, in the case of an emergency, a financial institution must contact FinCEN immediately.
FBAR, MIL, and CMIR
There are three more types of reports. One of them is a Foreign Bank Account Report (FBAR). US citizens and residents have to file FBAR every year if they have over $10,000 on 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 cheque, for instance.
If you decide to transport out of the US over $10,000 in currency or some monetary instruments valued over $10,000, you must submit a Currency and Monetary Instrument Report (CMIR).
Luckily, many of these reports can be filed online.
As you have already understood, there are many things to which a financial institution should pay attention. It has to file various reports and be able to identify any suspicious activity. To do this, it must develop a well-thought BSA-AML (Anti-Money Laundering) compliance program. It should be unique to this institution and take into account its needs and risk profiles that it faces.
Want to know about the key components of an AML compliance program? Check out our article.