The Bank Secrecy Act of 1970 (BSA), also known as the Currency and Foreign Transactions Reporting Act, is a U.S. law requiring financial institutions in the United States to assist U.S. government agencies in detecting and preventing money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, file reports if the daily aggregate exceeds $10,000, and report suspicious activity that may signify money laundering, tax evasion, or other criminal activities.
|Other short titles|
|Long title||An Act to amend the Federal Deposit Insurance Act to require insured banks to maintain certain records, to require that certain transactions in U.S. currency be reported to the Department of the Treasury, and for other purposes.|
|Nicknames||Federal Deposit Insurance Act Amendments|
|Enacted by||the 91st United States Congress|
|Effective||October 26, 1970|
|Statutes at Large||84 Stat. 1114-2 aka 84 Stat. 1118|
|U.S.C. sections amended|
The BSA was originally passed by the U.S. Congress in 1970 and signed by President Richard Nixon into law on October 26, 1970. Shortly after passage, several groups attempted to have the courts rule the law unconstitutional, claiming it violated both Fourth Amendment rights against unwarranted search and seizure, and Fifth Amendment rights of due process. Several cases were combined before the Supreme Court in California Bankers Assn. v. Shultz, 416 U.S. 21 (1974), which ruled that the Act did not violate the Constitution. Until the 1980s, there was a "prolonged period of inaction", but financial institutions eventually complied with the BSA's reporting requirements.
It has been amended several times, including provisions in Title III of the USA PATRIOT Act, which amended the BSA to require financial institutions to establish anti-money-laundering programs by establishing internal policies, procedures, and controls, designating compliance officers, providing ongoing employee training, testing their programs through independent audits.
BSA regulations require all financial institutions to submit five types of reports. Individuals must file an individual filing requirement.
A currency transaction report (CTR) reports cash transactions exceeding $10,000 in one business day, regardless of whether it's in one transaction or several cash transactions. It is filed electronically with the Financial Crimes Enforcement Network (FinCEN) and is identified as FinCEN Form 112 (formerly Form 104).
CTRs include an 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 suspicious activity report (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 FinCEN and are identified as Treasury Department Form 90-22.47 and OCC Form 8010-9, 8010-1. This requirement and its accompanying implied gag order was added by the Annunzio-Wylie Anti-Money Laundering Act § 1517(b) (part of the Housing and Community Development Act of 1992, Pub.L. 102–550, 106 Stat. 3762, 4060).
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.
U.S. citizens and residents with a financial interest in or authority over foreign bank accounts or "foreign financial accounts" with an aggregate value of $10,000 are required to file a Foreign Bank Account Report (FBAR) with the U.S. Treasury by October 15 every year. It is identified as FinCEN Form 114 (formerly Treasury Department Form 90-22.1). Additionally, they must report the accounts on Schedule B of the Form 1040 tax form. Critics argue that FBAR wastes time and money, "perversely discouraging compliance" without focusing "likely criminal activity". A recent district court case in the Tenth Circuit has significantly expanded the definition of "interest in" and "other Authority".
A monetary instrument log (MIL) must indicate cash purchases of monetary instruments, such as money orders, cashier's checks, and traveler's checks valued between $3,000 and $10,000. This form is required to be kept on record at the financial institution for at least five years, and produced at the request of examiners or audit to verify compliance.
The "Report of International Transportation of Currency or Monetary Instruments", also referred to as a Currency and Monetary Instrument Report (CMIR), must be filed by each person or institution that 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. It is identified as FinCEN Form 105 Report.
Banks are required to file a Designation of Exempt Person (FinCEN Form 110) to designate an exempt customer for the purpose of CTR reporting under the BSA. In addition, banks use this form once 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 totaling more than $10,000 to file IRS/FinCEN Form 8300.
There are heavy penalties for individuals and financial 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. IRC §6038D requires that all U.S. persons, individuals, corporations, partnerships, LLCs, and trusts, provide timely information regarding their foreign accounts, otherwise a $10,000 penalty will result for every month it is late (subject to a certain maximum penalty).
In 1998, the Supreme Court ruled in United States v. Bajakajian that the government may not confiscate money from an individual for failure to report it on a Currency and Other Monetary Instruments Report (CMIR), as such punishment would be "grossly disproportional to the gravity of [the] offense" and unconstitutional under the Excessive Fines clause of the Eighth Amendment. Bajakajian and his family had tried to take $357,144 out of the United States in their luggage, and the government had seized it under the Bank Secrecy Act, which allows forfeiture of "any property, real or personal, involved in such offense". It was the first time the Supreme Court struck down the federal government's "aggressive use of forfeiture".
In March 2010, Wachovia admitted to "serious and systemic" violations of the Bank Secrecy Act for laundering $378 billion between 2004 and 2007, the largest violation in terms of a dollar amount. It allowed Mexican and Colombian drug cartels to launder money through casas de cambio by willfully failing to set up an effective anti-money-laundering program.
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".
California Bankers Assn. v. Shultz, 416 U.S. 21 (1974), was a United States Supreme Court case in which the Court held that the Bank Secrecy Act passed by Congress in 1970, requiring banks to record all transactions and report certain domestic and foreign transactions of high dollar amounts to the United States Treasury, did not violate the First, Fourth and Fifth Amendment of the Constitution.Casino regulations under the Bank Secrecy Act
Casinos in the United States which generate more than $1,000,000 in annual gaming revenues are required to report certain currency transactions to assist the Financial Crimes Enforcement Network (FinCEN) of the Internal Revenue Service (IRS) in uncovering money laundering activities and other financial crimes (including terrorist financing).
Although Title 31, also known as the Bank Secrecy Act, was originally focused on financial institutions, criminal use of banking services located within casinos created a need for additional regulations that were specific to casinos. Because large sums of currency are transacted through slot machines, gaming tables, automatic change machines, retail operations and the cage (banks), and with high frequency, the regulations were targeted at transactions in excess of $10,000. Casino regulation has been a topic of debate, prompting the United States Senate to have a hearing before the United States Congress in which Title 31 topics were discussed through testimony by industry experts such as Grant Eve, CPA and partner at Joseph Eve, Certified Public Accountants and Ernest Stevens Jr., Chairman of the National Indian Gaming Association.Currency transaction report
A currency transaction report (CTR) is a report that U.S. financial institutions are required to file with FinCEN for each deposit, withdrawal, exchange of currency, or other payment or transfer, by, through, or to the financial institution which involves a transaction in currency of more than $10,000. Used in this context, currency means the coin and/or paper money of any country that is designated as legal tender by the country of issuance. Currency also includes U.S. silver certificates, U.S. notes, Federal Reserve notes, and official foreign bank notes.Customer Identification Program
A Customer Identification Program (CIP) is a United States requirement, where financial institutions need to verify the identity of individuals wishing to conduct financial transactions with them and is a provision of the USA Patriot Act. More generally known as know your customer the CIP requirement was implemented by regulations in 2003 which require US financial institutions to develop a CIP appropriate to the size and type of its business. The CIP must be incorporated into the bank's Bank Secrecy Act/Anti-money laundering compliance program, which is subject to approval by the financial institution's board of directors.Financial Crimes Enforcement Network
The Financial Crimes Enforcement Network (FinCEN) is a bureau of the United States Department of the Treasury that collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing, and other financial crimes.Financial intelligence
Financial intelligence (FININT) is the gathering of information about the financial affairs of entities of interest, to understand their nature and capabilities, and predict their intentions. Generally the term applies in the context of law enforcement and related activities.
One of the main purposes of financial intelligence is to identify financial transactions that may involve tax evasion, money laundering or some other criminal activity. FININT may also be involved in identifying financing of criminal and terrorist organisations.
Financial intelligence can be broken down into two main areas, collection and analysis. Collection is normally done by a government agency, known as a financial intelligence organisation or Financial Intelligence Unit (FIU). The agency will collect raw transactional information and Suspicious activity reports (SAR) usually provided by banks and other entities as part of regulatory requirements. Data may be shared with other countries through intergovernmental networks.
Analysis, may consist of scrutinizing a large volume of transactional data using data mining or data-matching techniques to identify persons potentially engaged in a particular activity. SARs can also be scrutinized and linked with other data to try and identify specific activity.Financial privacy laws in the United States
Financial privacy laws regulate the manner in which financial institutions handle the nonpublic financial information of consumers. In the United States, financial privacy is regulated through laws enacted at the federal and state level. Federal regulations are primarily represented by the Bank Secrecy Act, Right to Financial Privacy Act, the Gramm-Leach-Bliley Act, and the Fair Credit Reporting Act. Provisions within other laws like the Credit and Debit Card Receipt Clarification Act of 2007 as well as the Electronic Funds Transfer Act also contribute to financial privacy in the United States. State regulations vary from state to state. While each state approaches financial privacy differently, they mostly draw from federal laws and provide more stringent outlines and definitions. Government agencies like the Consumer Financial Protection Bureau and the Federal Trade Commission provide enforcement for financial privacy regulations.Financial technology
Financial technology, often shortened to FinTech or fintech, is the new technology and innovation that aims to compete with traditional financial methods in the delivery of financial services. It is an emerging industry that uses technology to improve activities in finance. The use of smartphones for mobile banking, investing services and cryptocurrency are examples of technologies aiming to make financial services more accessible to the general public. Financial technology companies consist of both startups and established financial institutions and technology companies trying to replace or enhance the usage of financial services provided by existing financial companies. Many existing financial institutions are implementing Fintech solutions and technologies in order to improve and develop their services, as well as gaining an improved competitive stance.Geographic targeting order
A Geographic targeting order (or GTO) is an order issued by the United States Secretary of Treasury requiring any United States domestic financial institutions that exist within a geographic area to report on transactions any greater than a specified value. GTOs are defined in the Bank Secrecy Act in 31 U.S.C. § 5326(a). They only last for a limited period of time — originally each order lasted 60 days however section 353 of the USA PATRIOT Act extended such orders to 180 days.IRS Criminal Investigation Division
Internal Revenue Service, Criminal Investigation (IRS-CI) investigates potential criminal violations of the U.S. Internal Revenue Code and related financial crimes in a manner intended to foster confidence in the tax system and deter violations of tax law. While other federal agencies also have investigative jurisdiction for money laundering and some bank secrecy act violations, the Internal Revenue Service (IRS) is the only federal agency that can investigate potential criminal violations of the Internal Revenue Code.
Chief Don Fort oversees a worldwide staff of approximately 3,124 CI employees as of June 13, 2017, including approximately 2,217 special agents who investigate and assist in the prosecution of criminal tax, money laundering, and Bank Secrecy Act related crime cases.According to the 2016 Annual Report, Criminal Investigation initiated 3,395 investigations in fiscal year 2016. In addition, the IRS-CI conviction rate (which is the percentage of convictions compared to the total number of convictions, acquittals, and dismissals) was 91.7% in fiscal year 2018.Patriot Act, Title III
The USA PATRIOT Act was passed by the United States Congress in 2001 as a response to the September 11, 2001 attacks. It has ten titles, each containing numerous sections. Title III: International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 is actually an act of Congress in its own right as well as being a title of the USA PATRIOT Act, and is intended to facilitate the prevention, detection and prosecution of international money laundering and the financing of terrorism. The title's sections primarily amend portions of the Money Laundering Control Act of 1986 and the Bank Secrecy Act of 1970.
The provisions of Title III are divided into three subtitles. The first deals primarily with strengthening banking rules specifically against money laundering, especially on the international stage. Communication between law enforcement agencies and financial institutions, as well as among institutions, is expanded by the second subtitle, which also increases record keeping and reporting requirements. The final portion of the title deals with currency smuggling and counterfeiting, including quadrupling the maximum penalty for counterfeiting foreign currency.Patriot Act, Title III, Subtitle B
The USA PATRIOT Act was passed by the United States Congress in 2001 as a response to the September 11 attacks in 2001. It has ten titles, with the third title ("Title III: International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001") written to prevent, detect, and prosecute international money laundering and the financing of terrorism.
Title III is itself divided into three subtitles. The second subtitle, entitled Subtitle B: Bank Secrecy Act Amendments and Related Improvements, largely modifies the Bank Secrecy Act (BSA) to make it harder for money launderers to operate, and to make it easier for law enforcement and regulatory agencies to police money laundering operations. The BSA was amended to allow the designated officer or agency who receives suspicious transaction reports to notify U.S. intelligence agencies. It also addresses issues of record keeping and reporting by making it easier to undertake the reporting of suspicious transactions; by making it a requirement that financial institutions report suspicious transactions; through the creation of anti-money laundering programs and by better defining anti-money laundering strategy; and by making it a requirement that anyone who does business file a report for any coin and foreign currency receipts that are over US$10,000. The subtitle increases civil and criminal penalties for money laundering and introduces penalties for violations of geographic targeting orders and certain recordkeeping requirements.
Subtitle B legislated for the creation of a secure network which can be used by financial institutions to report suspicious transactions and which can also give them alerts of relevant suspicious activities. Subtitle B also makes FinCEN a bureau of the United States Department of Treasury. The subtitle allows the Board of Governors of the Federal Reserve System to authorize personnel to act as law enforcement officers to protect the premises, grounds, property and personnel of any U.S. Federal reserve bank, and allows them to delegate this authority to U.S. Federal Reserve Banks. It instructs any United States Executive Directors of international financial institutions to use their voice and vote to support any country that has taken action to support the U.S.'s War on Terrorism, and to require such Executive Directors to provide ongoing auditing of disbursements made from their institutions to ensure that no funds are paid to persons who commit, threaten to commit, or support terrorism.Structuring
Structuring, also known as smurfing in banking jargon, is the practice of executing financial transactions such as making bank deposits in a specific pattern, calculated to avoid triggering financial institutions to file reports required by law, such as the United States' Bank Secrecy Act (BSA) and Internal Revenue Code section 6050I (relating to the requirement to file Form 8300). Structuring may be done in the context of money laundering, fraud, and other financial crimes. Legal restrictions on structuring are concerned with limiting the size of domestic transactions for individuals.Suspicious activity report
In financial regulation, a Suspicious Activity Report (SAR) or Suspicious Transaction Report (STR) is a report made by a financial institution about suspicious or potentially suspicious activity. The criteria to decide when a report must be made varies from country to country, but generally is any financial transaction that does not make sense to the financial institution; is unusual for that particular client; or appears to be done only for the purpose of hiding or obfuscating another, separate transaction. The report is filed with that country's financial crime enforcement agency, which is typically a specialist agency designed to collect and analyse transactions and then report these to relevant law enforcement. Front line staff in the financial institution have the responsibility to identify transactions that may be suspicious and these are reported to a designated person that is responsible for reporting the suspicious transaction. The financial institution is not allowed to inform the client or parties involved in the transaction that a SAR has been lodged.
For example, in the United States, suspicious transaction reports must be reported to the Financial Crimes Enforcement Network (FinCEN), an agency of the United States Department of the Treasury. In Australia the SAR must be reported to Australian Transaction Reports and Analysis Centre (AUSTRAC), an Australian government agency. Most countries have laws that require financial institutions to report suspicious transactions and will have a designated agency to receive them. The agency to which a report is required to be filed for a given country is typically part of the law enforcement or financial regulatory department of that country.TCF Bank
TCF Bank is the wholly owned banking subsidiary of TCF Financial Corporation, a bank holding company headquartered in Wayzata, Minnesota. As of November 2017, TCF Bank had nearly 321 branches in Minnesota, Illinois, Michigan, Colorado, Wisconsin, Arizona and South Dakota.United States v. Bajakajian
United States v. Bajakajian, 524 U.S. 321 (1998), is a U.S. Supreme Court case holding that asset forfeiture is unconstitutional when it is "grossly disproportional to the gravity of the defendant’s offense", citing the Excessive Fines clause of the Eighth Amendment. It was the first time the Court struck down the federal government's "aggressive use of forfeiture" and the only time it has held that an imposed fine was unconstitutional under the Eighth Amendment.United States v. Miller (1976)
United States v. Miller , 425 U.S. 435 (1976), was a United States Supreme Court case in which the Court held that bank records are not subject to protection under the Fourth Amendment to the United States Constitution. The case, along with Smith v. Maryland, established the principal of the third-party doctrine in relation to privacy rights.