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Money Laundering

What is money laundering?
How much money is laundered per year?
How is money laundered?
Where does money laundering occur?
How does money laundering affect business?
What influence does money laundering have on economic development?
What is the connection with society at large?
How does fighting money laundering help fight crime?
What should individual governments be doing about it?
Should governments with measures in place still be concerned?
What about multilateral initiatives?
Who can I contact if I suspect a case of money laundering?

OFAC

What is OFAC and what does it do?
How long has OFAC been around?
What does one mean by the term "prohibited transactions"?
Are there exceptions to the prohibitions?
How do I determine if I have a valid OFAC match?
Where can I find the specific details about the embargoes?
Can I get permission from OFAC to transact or trade with an embargoed country?
What must I do to get permission to trade with an embargoed country?
What do you mean by "blocking?".
Who must comply with OFAC regulations?
How much are the fines for violating these regulations?
What countries do I need to worry about in terms of U.S. sanctions?

Patriot Act

What is the USA Patriot Act?

Bank Secrecy Act

What is the Bank Secrecy Act?
Where can I find Bank Secrecy Act (BSA) Statutes and Regulations?
What are the reports required by the BSA regulations?

Which transactions are affected by the Bank Secrecy Act and what are the Sanctions?
How it affects American citizens?




ANSWERS


Money Laundering

What is Money Laundering?
The goal of a large number of criminal acts is to generate a profit for the individual or group that carries out the act. Money laundering is the processing of these criminal proceeds to disguise their illegal origin. This process is of critical importance, as it enables the criminal to enjoy these profits without jeopardizing their source. Illegal arms sales, smuggling, and the activities of organized crime, including for example drug trafficking and prostitution rings, can generate huge amounts of proceeds. Embezzlement, insider trading, bribery and computer fraud schemes can also produce large profits and create the incentive to “legitimize” the ill-gotten gains through money laundering. When a criminal activity generates substantial profits, the individual or group involved must find a way to control the funds without attracting attention to the underlying activity or the persons involved. Criminals do this by disguising the sources, changing the form, or moving the funds to a place where they are less likely to attract attention. In response to mounting concern over money laundering, the Financial Action Task Force on money laundering (FATF) was established by the G-7 Summit in Paris in 1989 to develop a co-ordinate international response. One of the first tasks of the FATF was to develop Recommendations, 40 in all, which set out the measures national governments should take to implement effective anti-money laundering programmes.
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How much money is laundered per year?
By its very nature, money laundering is an illegal activity carried out by criminals which occurs outside of the normal range of economic and financial statistics. Along with some other aspects of underground economic activity, rough estimates have been put forward to give some sense of the scale of the problem. The International Monetary Fund, for example, has stated in 1996 that the aggregate size of money laundering in the world could be somewhere between two and five percent of the world’s gross domestic product. Using 1996 statistics, these percentages would indicate that money laundering ranged between US Dollar (USD) 590 billion and USD 1.5 trillion. The lower figure is roughly equivalent to the value of the total output of an economy the size of Spain. However it must be said that overall it is absolutely impossible to produce a reliable estimate of the amount of money laundered and therefore the FATF does not publish any figures in this regard.


How is money laundered?
In the initial - or placement - stage of money laundering, the launderer introduces his illegal profits into the financial system. This might be done by breaking up large amounts of cash into less conspicuous smaller sums that are then deposited directly into a bank account, or by purchasing a series of monetary instruments (cheques, money orders, etc.) that are then collected and deposited into accounts at another location. After the funds have entered the financial system, the second – or layering – stage takes place. In this phase, the launderer engages in a series of conversions or movements of the funds to distance them from their source. The funds might be channeled through the purchase and sales of investment instruments, or the launderer might simply wire the funds through a series of accounts at various banks across the globe. This use of widely scattered accounts for laundering is especially prevalent in those jurisdictions that do not co-operate in anti-money laundering investigations. In some instances, the launderer might disguise the transfers as payments for goods or services, thus giving them a legitimate appearance. Having successfully processed his criminal profits through the first two phases the launderer then moves them to the third stage – integration – in which the funds re-enter the legitimate economy. The launderer might choose to invest the funds into real estate, luxury assets, or business ventures.


Where does money laundering occur?
As money laundering is a consequence of almost all profit generating crime, it can occur practically anywhere in the world. Generally, money launderers tend to seek out countries or sectors in which there is a low risk of detection due to weak or ineffective anti-money laundering programmes. Because the objective of money laundering is to get the illegal funds back to the individual who generated them, launderers usually prefer to move funds through stable financial systems. Money laundering activity may also be concentrated geographically according to the stage the laundered funds have reached. At the placement stage, for example, the funds are usually processed relatively close to the under-lying activity; often, but not in every case, in the country where the funds originate. With the layering phase, the launderer might choose an offshore financial centre, a large regional business centre, or a world banking centre – any location that provides an adequate financial or business infrastructure. At this stage, the laundered funds may also only transit bank accounts at various locations where this can be done without leaving traces of their source or ultimate destination. Finally, at the integration phase, launderers might choose to invest laundered funds in still other locations if they were generated in unstable economies or locations offering limited investment opportunities.


How does money laundering affect business?
The integrity of the banking and financial services marketplace depends heavily on the perception that it functions within a framework of high legal, professional and ethical standards. A reputation for integrity is the one of the most valuable assets of a financial institution. If funds from criminal activity can be easily processed through a particular institution – either because its employees or directors have been bribed or because the institution turns a blind eye to the criminal nature of such funds – the institution could be drawn into active complicity with criminals and become part of the criminal network itself. Evidence of such complicity will have a damaging effect on the attitudes of other financial intermediaries and of regulatory authorities, as well as ordinary customers. As for the potential negative macroeconomic consequences of unchecked money laundering, one can cite inexplicable changes in money demand, prudential risks to bank soundness, contamination effects on legal financial transactions, and increased volatility of international capital flows and exchange rates due to unanticipated cross-border asset transfers. Also, as it rewards corruption and crime, successful money laundering damages the integrity of the entire society and undermines democracy and the rule of the law.


What influence does money laundering have on economic development?
Launderers are continuously looking for new routes for laundering their funds. Economies with growing or developing financial centers, but inadequate controls are particularly vulnerable as established financial centre countries implement comprehensive anti-money laundering regimes. Differences between national anti-money laundering systems will be exploited by launderers, who tend to move their networks to countries and financial systems with weak or ineffective countermeasures. Some might argue that developing economies cannot afford to be too selective about the sources of capital they attract. But postponing action is dangerous. The more it is deferred, the more entrenched organized crime can become. As with the damaged integrity of an individual financial institution, there is a damping effect on foreign direct investment when a country’s commercial and financial sectors are perceived to be subject to the control and influence of organized crime. Fighting money laundering and terrorist financing is therefore a part of creating a business friendly environment which is a precondition for lasting economic development.


What is the connection with society at large?
The possible social and political costs of money laundering, if left unchecked or dealt with ineffectively, are serious. Organized crime can infiltrate financial institutions, acquire control of large sectors of the economy through investment, or offer bribes to public officials and indeed governments. The economic and political influence of criminal organizations can weaken the social fabric, collective ethical standards, and ultimately the democratic institutions of society. In countries transitioning to democratic systems, this criminal influence can undermine the transition. Most fundamentally, money laundering is inextricably linked to the underlying criminal activity that generated it. Laundering enables criminal activity to continue.


How does fighting money laundering help fight crime?
Money laundering is a threat to the good functioning of a financial system; however, it can also be the Achilles heel of criminal activity. In law enforcement investigations into organized criminal activity, it is often the connections made through financial transaction records that allow hidden assets to be located and that establish the identity of the criminals and the criminal organization responsible. When criminal funds are derived from robbery, extortion, embezzlement or fraud, a money laundering investigation is frequently the only way to locate the stolen funds and restore them to the victims. Most importantly, however, targeting the money laundering aspect of criminal activity and depriving the criminal of his ill-gotten gains means hitting him where he is vulnerable. Without a usable profit, the criminal activity will not continue.


What should individual governments be doing about it?
A great deal can be done to fight money laundering, and, indeed, many governments have already established comprehensive anti-money laundering regimes. These regimes aim to increase awareness of the phenomenon – both within the government and the private business sector – and then to provide the necessary legal or regulatory tools to the authorities charged with combating the problem. Some of these tools include making the act of money laundering a crime; giving investigative agencies the authority to trace, seize and ultimately confiscate criminally derived assets; and building the necessary framework for permitting the agencies involved to exchange information among themselves and with counterparts in other countries. It is critically important that governments include all relevant voices in developing a national anti-money laundering programme. They should, for example, bring law enforcement and financial regulatory authorities together with the private sector to enable financial institutions to play a role in dealing with the problem. This means, among other things, involving the relevant authorities in establishing financial transaction reporting systems, customer identification, record keeping standards and a means for verifying compliance.


Should governments with measures in place still be concerned?
Money launderers have shown themselves through time to be extremely imaginative in creating new schemes to circumvent a particular government’s countermeasures. A national system must be flexible enough to be able to detect and respond to new money laundering schemes. Anti-money laundering measures often force launderers to move to parts of the economy with weak or ineffective measures to deal with the problem. Again, a national system must be flexible enough to be able to extend countermeasures to new areas of its own economy. Finally, national governments need to work with other jurisdictions to ensure that launderers are not able to continue to operate merely by moving to another location in which money laundering is tolerated.


What about multilateral initiatives?
Large-scale money laundering schemes invariably contain cross-border elements. Since money laundering is an international problem, international co-operation is a critical necessity in the fight against it. A number of initiatives have been established for dealing with the problem at the international level. International organizations, such as the United Nations or the Bank for International Settlements, took some initial steps at the end of the 1980s to address the problem. Following the creation of the FATF in 1989, regional groupings – the European Union, Council of Europe, and Organization of American States, to name just a few – established anti-money laundering standards for their member countries. The Caribbean, Asia, Europe and southern Africa have created regional anti-money laundering task force-like organizations, and similar groupings are planned for western Africa and Latin America in the coming years.


Who can I contact if I suspect a case of money laundering?
The FATF is a policy-making body and has no investigative authority. In respect to investigating a company and persons involved in money laundering, individuals need to contact their local investigative authorities.




OFAC


What is OFAC and what does it do?
The Office of Foreign Assets Control administers and enforces economic sanctions programs primarily against countries and groups of individuals, such as terrorists and narcotics traffickers. The sanctions can be either comprehensive or selective, using the blocking of assets and trade restrictions to accomplish foreign policy and national security goals.


How long has OFAC been around?
The Treasury Department has a long history of dealing with sanctions. Dating back prior to the War of 1812, Secretary of the Treasury Gallatin administered sanctions imposed against Great Britain for the harassment of American sailors. During the Civil War, Congress approved a law which prohibited transactions with the Confederacy, called for the forfeiture of goods involved in such transactions, and provided a licensing regime under rules and regulations administered by Treasury. OFAC is the successor to the Office of Foreign Funds Control (the ``FFC''), which was established at the advent of World War II following the German invasion of Norway in 1940. The FFC program was administered by the Secretary of the Treasury throughout the war. The FFC's initial purpose was to prevent Nazi use of the occupied countries' holdings of foreign exchange and securities and to prevent forced repatriation of funds belonging to nationals of those countries. These controls were later extended to protect assets of other invaded countries. After the United States formally entered World War II, the FFC played a leading role in economic warfare against the Axis powers by blocking enemy assets and prohibiting foreign trade and financial transactions. OFAC itself was formally created in December 1950, following the entry of China into the Korean War, when President Truman declared a national emergency and blocked all Chinese and North Korean assets subject to U.S. jurisdiction.


What does one mean by the term "prohibited transactions"?
Prohibited transactions are trade or financial transactions and other dealings in which U.S. persons may not engage unless authorized by OFAC or expressly exempted by statute. Because each program is based on different foreign policy and national security goals, prohibitions may vary between programs.


Are there exceptions to the prohibitions?
Yes. OFAC regulations often provide general licenses authorizing the performance of certain categories of transactions. OFAC also issues specific licenses on a case-by-case basis under certain limited situations and conditions. Guidance on how to request a specific license is found below and at 31 C.F.R. 501.801.


How do I determine if I have a valid OFAC match?
Please take the following “due diligence” steps in determining a valid OFAC match.
If you are calling about a wire transfer or other “live” transaction:
1. Is the “hit” or “match” against OFAC’s SDN list or targeted countries, or is it “hitting” for some other reason (i.e., “Control List” or “PEP,” “CIA,” “Non-Cooperative Countries and Territories,” “Canadian Consolidated List (OSFI),” “World Bank Debarred Parties,” “Blocked Officials File,” or “government official of a designated country”), or can you not tell what the “hit” is?

  • If it’s hitting against OFAC’s SDN list or targeted countries, continue to 2 below.
  • If it’s hitting for some other reason, you should contact the “keeper” of whichever other list the match is hitting against. For questions about:
  • The Denied Persons List and the Entities List, please contact the Bureau of Industry and Security at the U.S. Department of Commerce at 202-482-4811.
  • The FBI’s Most Wanted List or any other FBI-issued watch list, please contact the Federal Bureau of Investigation (http://www.fbi.gov/contact/fo/fo.htm).
  • The Debarred Parties list, please contact the Office of Defense Trade Controls at the U.S. Department of State, 202-663-2700.
  • The Bank Secrecy Act and the USA PATRIOT Act, please contact the Financial Crimes Enforcement Network (FinCEN), 1-800-949-2732.
  • If you are unsure whom to contact, please contact your interdict software provider which told you there was a “hit.”
  • If you can’t tell what the “hit” is, you should contact your interdict software provider which told you there was a “hit.”

2. Now that you’ve established that the hit is against OFAC’s SDN list or targeted countries, you must evaluate the quality of the hit. Compare the name in your transactions with the name on the SDN list. Is the name in your transaction an individual while the name on the SDN list is a vessel, organization or company (or vice-versa)?

  • If yes, you do not have a valid match.*
  • If no, please continue to 3 below.

3. How much of the SDN’s name is matching against the name in your transaction? Is just one of two or more names matching (i.e., just the last name)?

  • If yes, you do not have a valid match.*
  • If no, please continue to 4 below.

4. Compare the complete SDN entry with all of the information you have on the matching name in your transaction. An SDN entry often will have, for example, a full name, address, nationality, passport, tax ID or cedula number, place of birth, date of birth, former names and aliases. Are you missing a lot of this information for the name in your transaction?

  • If yes, go back and get more information and then compare your complete information against the SDN entry.
  • If no, please continue to 5 below.

5. Are there a number of similarities or exact matches?

  • If yes, please call the hotline at 1-800-540-6322.
  • If no, you do not have a valid match.*

If you are calling about an account:
1. Is the “hit” or “match” against OFAC’s SDN list or targeted countries, or is it “hitting” for some other reason (i.e., “Control List” or “PEP,” “CIA,” “Non-Cooperative Countries and Territories,” “Canadian Consolidated List (OSFI),” “World Bank Debarred Parties,” or “government official of a designated country”), or can you not tell what the “hit” is?

  • If it’s hitting against OFAC’s SDN list or targeted countries, continue to 2 below.
  • If it’s hitting for some other reason, you should contact the “keeper” of whichever other list the match is hitting against. For questions about:
  • The Denied Persons List and the Entities List, please contact the Bureau of Industry and Security at the U.S. Department of Commerce at 202-482-4811.
  • The FBI’s Most Wanted List or any other FBI-issued watch list, please contact the Federal Bureau of Investigation (http://www.fbi.gov/contact/fo/fo.htm).
  • The Debarred Parties list, please contact the Office of Defense Trade Controls at the U.S. Department of State, 202-663-2700.
  • The Bank Secrecy Act and the USA PATRIOT Act, please contact the Financial Crimes Enforcement Network (FinCEN), 1-800-949-2732.
  • If you are unsure whom to contact, you should contact your interdict software provider which told you there was a “hit.”
  • If you can’t tell what the “hit” is, you should contact your interdict software provider which told you there was a “hit.”

2. Now that you’ve established that the hit is against OFAC’s SDN list or targeted countries, you must evaluate the quality of the hit. Compare the name of your account holder with the name on the SDN list. Is the name of your account holder an individual while the name on the SDN list is a vessel, organization or company (or vice-versa)?

  • If yes, you do not have a valid match.*
  • If no, please continue to 3 below.

3. How much of the SDN’s name is matching against the name of your account holder? Is just one of two or more names matching (i.e., just the last name)?

  • If yes, you do not have a valid match.*
  • If no, please continue to 4 below.

4. Compare the complete SDN entry with all of the information you have on the matching name of your account holder An SDN entry often will have, for example, a full name, address, nationality, passport, tax ID or cedula number, place of birth, date of birth, former names and aliases. Are you missing a lot of this information for the name of your account holder?

  • If yes, go back and get more information and then compare your complete information against the SDN entry.
  • If no, please continue to 5 below.

5. Are there a number of similarities or exact matches?

  • If yes, please call the hotline at 1-800-540-6322.
  • If no, you do not have a valid match.*

* If you have reason to know or believe that processing this transfer or operating this account would violate any of the Regulations, you must call the hotline and explain this knowledge or belief.


Where can I find the specific details about the embargoes?
A summary description of each particular embargo or sanctions program may be found in the Sanctions Program and Country Summaries area and in the Regulations by Industry area on OFAC's website. The text of Legal documents may be found in the Legal Documents area of OFAC's website which contains the text of 31 C.F.R. Chapter V and appropriate amendments to that Chapter which have appeared in the Federal Register.


Can I get permission from OFAC to transact or trade with an embargoed country? OFAC usually has the authority by means of a specific license to permit a person or entity to engage in a transaction which otherwise would be prohibited. In some cases, however, legislation may restrict that authority.


What must I do to get permission to trade with an embargoed country?
In some situations, authority to engage in certain transactions is provided by means of a general license. In instances where a general license does not exist, a written request for a specific license must be filed with OFAC. The request must conform to the procedures set out in the regulations pertaining to the particular sanctions program. Generally, application guidelines and requirements must be strictly followed, and all necessary information must be included in the application in order for OFAC to consider an application.


What do you mean by "blocking?"
Another word for it is "freezing." It is simply a way of controlling targeted property. Title to the blocked property remains with the target, but the exercise of powers and privileges normally associated with ownership is prohibited without authorization from OFAC. Blocking immediately imposes an across-the-board prohibition against transfers or dealings of any kind with regard to the property.


Who must comply with OFAC regulations?
All U.S. persons must comply with OFAC regulations, including all U.S. citizens and permanent resident aliens regardless of where they are located, all persons and entities within the United States, all U.S. incorporated entities and their foreign branches. In the cases of certain programs, such as those regarding Cuba and North Korea, all foreign subsidiaries owned or controlled by U.S. companies also must comply. Certain programs also require foreign persons in possession of U.S. origin goods to comply.


How much are the fines for violating these regulations?
The fines for violations can be substantial. Depending on the program, criminal penalties can include fines ranging from $50,000 to $10,000,000 and imprisonment ranging from 10 to 30 years for willful violations. Depending on the program, civil penalties range from $250,000 or twice the amount of each underlying transaction to $1,075,000 for each violation.


What countries do I need to worry about in terms of U.S. sanctions?
OFAC administers a number of U.S. economic sanctions and embargoes that target geographic regions and governments. Comprehensive sanctions programs include Burma (Myanmar), Cuba, Iran and Sudan. Other non-comprehensive programs include the Western Balkans, Belarus, Cote d'Ivoire, Democratic Republic of the Congo, Iraq, Liberia (Former Regime of Charles Taylor), Persons Undermining the Sovereignty of Lebanon or Its Democratic Processes and Institutions, North Korea, Sierra Leone, Syria and Zimbabwe as well as other programs targeting individuals or entities that could be anywhere. Those programs currently relate to foreign narcotics traffickers, foreign terrorists, WMD proliferators. In addition to targeted countries, it is very important to note that OFAC publishes a list of Specially Designated Nationals and Blocked Persons ("SDN list") which includes over 6,000 names of companies and individuals who are connected with the sanctions targets and are located throughout the world. A number of the named individuals and entities are known to move from country to country and may end up in locations where they would be least expected. U.S. persons are prohibited from dealing with SDNs wherever they are located and all SDN assets are blocked. Because OFAC's programs are dynamic and constantly changing, it is very important to check OFAC's website on a regular basis to ensure that your SDN list is current and you have complete information regarding current restrictions affecting countries and parties with which you plan to do business.



USA Patriot Act

What is the USA Patriot Act
The official title of the USA PATRIOT Act is "Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001."

To view this law in its entirety, click on the USA PATRIOT Act link below.
USA PATRIOT Act

The purpose of the USA PATRIOT Act is to deter and punish terrorist acts in the United States and around the world, to enhance law enforcement investigatory tools, and other purposes, some of which include:
• To strengthen U.S. measures to prevent, detect and prosecute international money laundering and financing of terrorism;
• To subject to special scrutiny foreign jurisdictions, foreign financial institutions, and classes of international transactions or types of accounts that are susceptible to criminal abuse;
• To require all appropriate elements of the financial services industry to report potential money laundering;
• To strengthen measures to prevent use of the U.S. financial system for personal gain by corrupt foreign officials and facilitate repatriation of stolen assets to the citizens of countries to whom such assets belong.

Below is a brief, non-comprehensive overview of the sections of the USA PATRIOT Act that may affect financial institutions.
Section 311: Special Measures for Jurisdictions, Financial Institutions, or International Transactions of Primary Money Laundering Concern This Section allows for identifying customers using correspondent accounts, including obtaining information comparable to information obtained on domestic customers and prohibiting or imposing conditions on the opening or maintaining in the U.S. of correspondent or payable-through accounts for a foreign banking institution.
Listed Rulemaking
Section 312: Special Due Diligence for Correspondent Accounts and Private Banking Accounts This Section amends the Bank Secrecy Act by imposing due diligence & enhanced due diligence requirements on U.S. financial institutions that maintain correspondent accounts for foreign financial institutions or private banking accounts for non-U.S. persons.
• Special Due Diligence Programs for Certain Foreign Accounts
Section 313: Prohibition on U.S. Correspondent Accounts with Foreign Shell Banks To prevent foreign shell banks, which are generally not subject to regulation and considered to present an unreasonable risk of involvement in money laundering or terrorist financing, from having access to the U.S. financial system. Banks and broker-dealers are prohibited from having correspondent accounts for any foreign bank that does not have a physical presence in any country. Additionally, they are required to take reasonable steps to ensure their correspondent accounts are not used to indirectly provide correspondent services to such banks.
Section 314: Cooperative Efforts to Deter Money Laundering Section 314 helps law enforcement identify, disrupt, and prevent terrorist acts and money laundering activities by encouraging further cooperation among law enforcement, regulators, and financial institutions to share information regarding those suspected of being involved in terrorism or money laundering.
• Section 314(a)
• Section 314(b)
Section 319(b): Bank Records Related to Anti-Money Laundering Programs To facilitate the government's ability to seize illicit funds of individuals and entities located in foreign countries by authorizing the Attorney General or the Secretary of the Treasury to issue a summons or subpoena to any foreign bank that maintains a correspondent account in the U.S. for records related to such accounts, including records outside the U.S. relating to the deposit of funds into the foreign bank. This Section also requires U.S. banks to maintain records identifying an agent for service of legal process for its correspondent accounts.
Section 325: Concentration Accounts at Financial Institutions Allows the Secretary of the Treasury to issue regulations governing maintenance of concentration accounts by financial institutions to ensure such accounts are not used to obscure the identity of the customer who is the direct or beneficial owner of the funds being moved through the account.
Section 326: Verification of Identification Prescribes regulations establishing minimum standards for financial institutions and their customers regarding the identity of a customer that shall apply with the opening of an account at the financial institution.
Section 351: Amendments Relating to Reporting of Suspicious Activities This Section expands immunity from liability for reporting suspicious activities and expands prohibition against notification to individuals of SAR filing. No officer or employee of federal, state, local, tribal, or territorial governments within the U.S., having knowledge that such report was made may disclose to any person involved in the transaction that it has been reported except as necessary to fulfill the official duties of such officer or employee.
Section 352: Anti-Money Laundering Programs Requires financial institutions to establish anti-money laundering programs, which at a minimum must include: the development of internal policies, procedures and controls; designation of a compliance officer; an ongoing employee training program; and an independent audit function to test programs.
Section 356: Reporting of Suspicious Activities by Securities Brokers and Dealers; Investment Company Study Required the Secretary to consult with the Securities Exchange Commission and the Board of Governors of the Federal Reserve to publish proposed regulations in the Federal Register before January 1, 2002, requiring brokers and dealers registered with the Securities Exchange Commission to submit suspicious activity reports under the Bank Secrecy Act.
Section 359: Reporting of Suspicious Activities by Underground Banking Systems This amends the BSA definition of money transmitter to ensure that informal/underground banking systems are defined as financial institutions and are thus subject to the BSA.
Section 362: Establishment of Highly Secure Network Requires FinCEN to establish a highly secure network to facilitate and improve communication between FinCEN and financial institutions to enable financial institutions to file BSA reports electronically and permit FinCEN to provide financial institutions with alerts.




Bank Secrecy Act


What is the Bank Secrecy Act?
The Bank Secrecy Act of 1970 (or BSA, or otherwise known as the Currency and Foreign Transactions Reporting Act) requires U.S.A. financial institutions 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, file reports of cash transactions exceeding $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. It was passed by the Congress of the United States in 1970. The BSA is sometimes referred to as an "anti-money laundering" law ("AML") or jointly as “BSA/AML”. Several anti-money laundering acts, including provisions in title III of the USA PATRIOT Act, have been enacted up to the present to amend the BSA. (See 31 USC 5311-5330 and 31 CFR 103.)


Where can I find Bank Secrecy Act (BSA) Statutes and Regulations?
U.S. Code - Title 31 - Subtitle IV - Chapter 53 - Subchapter II - Sections 5311-5314e
Sections 5316-5330

Section 5331
Section 5332e

U.S. Code - Title 12 - Chapter 16 - Section 1829b
Chapter 21 - Sections 1951-1959e

What are the reports required by the BSA regulations?
The BSA regulations require all financial institutions to submit five types of reports to the government. (not an exhaustive list of reports)
1. FinCEN 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. (31 CFR 103.22)
2. 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
3. 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 $5,000. (31 CFR 103.24)
4. 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. (31 CFR 103.18 − formerly 31 CFR 103.21) (12 CFR 12.11)
5. "Designation of Exempt Person" FinCEN Form 110: Banks must file this form to designate an exempt customer for the purpose of CTR reporting under the BSA (31 CFR 103.22(d)(3)(i)). In addition, banks use this form biennially (every two years) to renew exemptions for eligible non-listed business and payroll customers. (31 CFR 103.22(d)(5)(i))

It also requires any business receiving one or more related cash payments totalling $5,000 or more to file form 8300.

Which transactions are affected by the Ban Secrecy Act (BSA)?
Currency Transaction Report (CTR)
Cash transactions in excess of $10,000 during the same business day. The amount over $10,000 can be either from one transaction or a combination of cash transactions. Filed with the Internal Revenue Service.
Monetary Instrument Log (MIL)
Cash purchases of monetary instruments, such as money orders, cashier's checks and travelers checks, totaling from $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 5 years.
Suspicious Activity Report (SAR)
Any cash transaction where the customer seems to be trying to avoid BSA reporting requirements (e.g., CTR, MIL). A SAR must also be filed if the customer's actions indicate that s/he is laundering money or otherwise violating federal criminal law. The customer must not know that a SAR is being filed. These reports are filed with the Financial Crimes Enforcement Network ("FinCEN").
Sanctions
There are stiff penalties for individuals and institutions that fail to file CTRs, MILs, or SARs. There are also penalties for those that disclose to its clients that it has filed a SAR about a client. Penalties include extremely high fines and long prison sentences if found guilty.

How it affects American citizens?
Currency Transaction Reports 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 your account is usually of no concern to the authorities, while multiple CTRs from varying institutions or a SAR indicates 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 primarily deal in cash, such as bars and restaurants can be exempted from having their deposits and withdrawals reported as CTRs, although this exemption is rarely granted. Instead, most banks have computer systems which retains the CTR information and allows duplicate CTRs to be created seamlessly.

Additional information 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 a SAR filing, that qualify for reporting. Financial institutions face penalties for failing to properly file CTR and SAR reports, including heavy fines and regulatory restrictions, even to the point of charter revocation. These software applications effectively monitor bank customer transactions on a daily basis and, using customer historical information and account profile, provide a "whole picture" to the bank management. Transaction monitoring can include cash deposits and withdrawals, wire transfers and ACH activity. In the bank circles, these applications are known as "BSA software" or "Anti-money laundering software."





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