Bank Secrecy Act
The Bank Secrecy Act of 1970 (or BSA, or otherwise known as the Currency and Foreign Transactions Reporting Act) requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. Many banks will no longer sell negotiable instruments when they are purchased with cash, requiring the purchase to be withdrawn from an account at that institution.
The BSA was originally passed by the Congress of the United States in 1970, and amended several times since then, including provisions in title III of the USA PATRIOT Act. (See 31 USC 5311–5330 and 31 CFR Chapter X.) The BSA is sometimes referred to as an "anti-money laundering" law ("AML") or jointly as "BSA/AML".
- 1 Types of reports
- 2 Affected transactions
- 3 Sanctions
- 4 How it affects American citizens
- 5 Additional information
- 6 Notable cases
- 7 See also
- 8 References
- 9 External links
Types of reports
The BSA regulations require all financial institutions to submit five types of reports to the government. The following is not an exhaustive list of reports to be filed. The FBAR has an individual filing requirement, as detailed below.
- FinCEN Form 112 (formerly Form 104) Currency Transaction Report (CTR): A CTR must be filed for each deposit, withdrawal, exchange of currency, or other payment or transfer, by, through or to a financial institution, which involves a transaction in currency of more than $10,000. Multiple currency transactions must be treated as a single transaction if the financial institution has knowledge that: (a) they are conducted by or on behalf of the same person; and, (b) they result in cash received or disbursed by the financial institution of more than $10,000.
- FinCEN Form 105 Report of International Transportation of Currency or Monetary Instruments (CMIR): Each person (including a bank) who physically transports, mails or ships, or causes to be physically transported, mailed, shipped or received, currency, traveler's checks, and certain other monetary instruments in an aggregate amount exceeding $10,000 into or out of the United States must file a CMIR.
- Department of the Treasury Form 90-22.1 Report of Foreign Bank and Financial Accounts (FBAR): Each person (including a bank) subject to the jurisdiction of the United States having an interest in, signature or other authority over, one or more bank, securities, or other financial accounts in a foreign country must file an FBAR if the aggregate value of such accounts at any point in a calendar year exceeds $10,000. A recent District Court case in the 10th Circuit has significantly expanded the definition of "interest in" and "other Authority".
- Treasury Department Form 90-22.47 and OCC Form 8010-9, 8010-1 Suspicious Activity Report (SAR): Banks must file a SAR for any suspicious transaction relevant to a possible violation of law or regulation.
- FinCEN Form 110 Designation of Exempt Person: Banks must file this form to designate an exempt customer for the purpose of CTR reporting under the BSA. In addition, banks use this form biennially (every two years) to renew exemptions for eligible non-listed business and payroll customers.
It also requires any business receiving one or more related cash payments totalling $10,000 or more to file IRS/FinCEN Form 8300.
Currency Transaction Report (CTR)
The CTR must report cash transactions in excess of $10,000 during the same business day. The amount over $10,000 can be either in one transaction or a combination of cash transactions. It is filed with the Internal Revenue Service.
Monetary Instrument Log (MIL)
The MIL must indicate cash purchases of monetary instruments, such as money orders, cashier's checks and traveler's checks, in value totaling $3,000 to $10,000, inclusive. This form is required to be kept on record at the financial institution, and produced at the request of examiners or audit to verify compliance. A financial institution must maintain a Monetary Instrument Log for five years.
Suspicious Activity Report (SAR)
The SAR must report any cash transaction where the customer seems to be trying to avoid BSA reporting requirements by not filing CTR or MIL, for example. A SAR must also be filed if the customer's actions suggest that he is laundering money or otherwise violating federal criminal laws and committing wire transfer fraud, check fraud or mysterious disappearances. The bank should not let the customer know that a SAR is being filed. These reports are filed with the Financial Crimes Enforcement Network ("FinCEN").
There are heavy penalties for individuals and institutions that fail to file CTRs, MILs, or SARs. There are also penalties for a bank which discloses to its client that it has filed a SAR about the client. Penalties include heavy fines and prison sentences.
How it affects American citizens
CTRs include the individual's bank account number, name, address, and social security number. SAR reports, required when transactions indicate behavior designed to elude CTRs (or many other types of suspicious activities), include somewhat more detailed information and usually include investigation efforts on the part of the financial institution to assess the validity or nature of the transactions. A single CTR filed for a client's account is usually of no concern to the authorities, while multiple CTRs from varying institutions or a SAR suggest that activity may be suspicious. A financial institution is not allowed to inform a business or consumer that a SAR is being filed, and all the reports mandated by the BSA are exempt from disclosure under the Freedom of Information Act.
Businesses that deal primarily in cash, such as bars and restaurants, can be exempted from having their deposits and withdrawals reported on CTRs, although this exemption is rarely granted. Instead, most banks have computer systems which retain information on CTRs and allow duplicate CTRs to be created seamlessly.
Individual filing requirement
U.S. citizens must file the FBAR if they have a financial interest in, or authority over, foreign bank accounts that have an aggregate value of $10,000 at any point in a year. Additionally, they must report the accounts on Schedule B of the Form 1040 tax form. The FBAR should be filed separately with the U.S. Treasury by June 30 of each year.
An entire industry has developed around providing software to analyze transactions in an attempt to identify transactions or patterns of transactions called structuring, which requires SAR filing. Financial institutions are subject to penalties for failing to properly file CTRs and SARs, such as heavy fines and regulatory restrictions, including charter revocation.
These software applications effectively monitor customer transactions on a daily basis, and using a customer's past transactions and account profile, provide a "whole picture" of the customer to the bank management. Transaction monitoring can include cash deposits and withdrawals, wire transfers and ACH activity. In the banking industry, these applications are known as "BSA software" or "anti-money laundering software".
|This section requires expansion. (January 2013)|
In 1998, the Supreme Court ruled in United States v. Bajakajian that the government may not confiscate any money from an individual for failure to report it on a CMIR, as such punishment would be "grossly disproportional to the gravity of [the] offense" and thus unconstitutional under the Excessive Fines clause of the Eighth Amendment.
In 2011 the Observer reported that Wachovia, at one time a major US bank, was implicated in laundering money for Mexican drug lords, through its lax laundering controls, a violation of the Bank Secrecy Act. It moved money in and out of casas de cambio without proper due diligence.
- Bank secrecy
- Anti-money laundering
- Anti-money laundering software
- Bank regulation
- Central bank
- Continuing Criminal Enterprise
- Customer Identification Program
- FATF Blacklist
- Financial Action Task Force on Money Laundering
- Financial Crimes Enforcement Network
- Financial Services Authority
- Know your customer
- Mann Act
- Money Laundering
- Money Laundering Control Act
- Organized crime
- Offshore banking
- Racketeer Influenced and Corrupt Organizations Act (RICO)
- Suspicious activity report
- Terrorist financing
- USA PATRIOT Act
- White collar crime
- 31 CFR 1010.311 (formerly 31 CFR 103.22)
- 31 USCA 5316(a)
- 31 CFR 1010.350
- Anthony E. Parent. "The Hidden Side to the McBride FBAR Judgment". Retrieved 2012-12-11.
- 31 CFR 1020.320 (formerly 31 CFR 103.21); 12 CFR 12.11
- 31 CFR 103.22(d)(3)(i)
- 31 CFR 103.22(d)(5)(i)
- "Publication 1544 (Rev. September 2012). Reporting Cash Payments of Over $10,000". IRS. 2012-09-21. Retrieved 2013-06-28.
- FAQs Regarding Report of Foreign Bank and Financial Accounts (FBAR) – Filing Requirements
- IRS Publication 4261
- Vulliamy, Ed (2011-04-02). "How a big US bank laundered billions from Mexico's murderous drug gangs". The Observer. Retrieved 2013-06-28.
- Banking Secrecy Act Comptroller's Handbook Department of the Treasury, Comptroller of the Currency, Administrator of the National Banks December 2000.
- 31 USC Sec 5311–5332
- Patterns of Abuse: Assessing Bank Secrecy Act Compliance and Enforcement: Hearing before the Committee on Banking, Housing, and Urban Affairs, United States Senate, One Hundred Thirteenth Congress, First Session, March 7, 2013