In the US, the Bank Secrecy Act (BSA) was implemented in 1970 as an anti-money laundering law for financial institutions. BSA mandates currency transaction reports from banks and other related financial institutions, which is also called the AML Bank Secrecy Act. The US Department of Treasury requires data and documents from financial institutions to report suspicious transactions. The financial institutions assist regulatory bodies in the prevention and combating of financial transnational crimes. It remains mandatory for an organization to file relevant reporting in order to keep its status legitimate for the US Department of Treasury. This quick two-minute read will introduce the potential of the Bank Secrecy Act.
What is the Bank Secrecy Act?
The Bank Secrecy Act (BSA) is a law that requires financial institutions and entities engaged in facilitating money transfers to report any suspicious activity that involves the risk of money laundering. The primary goal associated with the Bank Secrecy Act regulations was to fight money laundering and terrorist financing. Money laundering is used by criminals to mask illicit funding activities, attempt to legally avoid the payment of taxes, or attempt to cover up other unlawful operations. Financial crimes most often involve the use of digital tools, whereby the activity is shown as a genuine transaction. To meet this challenge, organizations have to report suspicious activities to the US Department of Treasury so that their authenticity can be checked.
Bank Secrecy Act Regulations
BSA’s primary purpose is to report or avoid various suspicious activities and money laundering; thus, it is called an anti-money laundering compliance program. Money launderers do not leave the record that a money trail can be followed; they exert a lot of effort to launder money. The reliable way to detect criminals is to seek the loopholes in paperwork. This act was enforced to allow the regulating authorities to look for inconsistencies in documentation to find unlawful activities.
Five Pillars of the Bank Secrecy Act
The newest version of the Bank Secrecy Act identifies five key compliance pillars: appointment of a compliance officer, establishment of a compliance program for the company, and designing compliance procedures based on risks. Here are the five pillars of AML compliance:
1. Designate a Compliance Officer
The first element to an effective program of AML compliance is the appointment of a compliance officer. This individual is the go-to for all things AML and BSA — they need to assess what companies are doing now, create that new policy, and then guarantee the new strategy conforms with AML regulation.
2. Develop Internal Policies
Internal policies need to be created to detect suspicious activity and ensure the proper reporting of data to various agencies like FinCEN. It involves the deployment of procedures for confirming the authenticity of information either before a transaction takes place or otherwise. It helps in transaction monitoring AML checks and balances and check-ups that may be conducted to confirm that an organization’s AML procedures meet standards.
3. Training Program for the Employees
Once the company has an AML policy, the compliance officer and this officer’s team members must develop a training program to maintain BSA compliance amongst the staff. This training should involve awareness of contemporary processes in the finance market. Also, educate about some definite issues like big purchases, distinguishable personal data, or changing account behavior.
4. To maintain Independent Testing and Auditing
Internal training and internal and external evaluation of the AML program are essential. To align with BSA obligations, compliance programs must be tested and audited by a third-party professional. These third-party tests can be a source of information on potential flaws in the compliance program. It is a way to demonstrate the effectiveness of the compliance program in independent verification.
5. Deploy in-depth Risk Assessment
In May 2018, the final customer due diligence rule was implemented by FINCEN, and it became one of the five functioning pillars of AML strategies. Under the CDD rule, it is mandatory for companies to assess the identity of a customer and oversee the transactions to note and report possible fraudulent ones.
Final Words
The BSA Bank Secrecy Act is the law that must be followed to fight financial crimes. The reporting process of BSA is quite efficient in identifying criminals by reporting to the relevant departments. The entities undergo penalties and sanctions as brought about by money laundering and other financial crimes. When an entity is convicted of money laundering, a person is subject to a fine of fifty US dollars and or imprisonment for a period not exceeding twenty years. A bank or financial organization can also be penalized to an amount not exceeding one million units or twice the amount if it is held guilty. Hence, the BSA assists regulating bodies in achieving the overall aim of the organization through identifying crimes to financial transparency.
