Bank Secrecy Act & Best Practices For Compliance

The Bank Secrecy Act (BSA) is an important anti-money laundering (AML) law in the US, initially passed in 1970. The act is essential for regulatory compliance in the global financial system. Its immediate goal is to safeguard financial companies from being utilized as a means for money laundering and other illicit financial activities. In addition, the Bank Secrecy Act requires organizations to recognize and observe possible money laundering actions in companies and inform the higher authorities for further investigation. Read this article and discover the history of the BSA and its importance in fraud prevention.

History of the Bank Secrecy Act

The Bank Secrecy Act (BSA) was initially passed in 1970 and marked into regulation officially by President Richard Nixon. Since its legislation, the act has been revised and amended multiple times to support anti-money laundering strategies at financial associations.

Furthermore, It has a significant role and share in battling challenges like money laundering and financing terrorism along with the Patriot Act. Additionally, the FinCEN administers the BSA and sets various duties for financial organizations to comply with its requirements. Senior administrations in institutions must also ensure they fully understand the ruling to meet their responsibilities effectively. Moreover, it further helps safeguard the financial system of companies from criminal activity and encourages a more fair and safe financial environment.

How does the BSA Work?

Businesses and financial organizations must adhere to the BSA by filing different types of reports. The Internal Revenue Service (IRS) demands that Form 8300 be filed when a business acquires more than $10,000 currency from an individual buyer via a sole transaction or two. 

On the bank’s part, a Currency Transaction Report (CTR) is needed for cash transactions that surpass $10,000 in a day, even if numerous transactions transcend the amount. A CTR contains the name of the person, bank account details, and address of the individual conducting the transaction. Financial organizations that fail to submit a Currency Transaction Report when directed may encounter penalties.

How To Comply with the Bank Secrecy Act? 

Companies must comply with the BSA to combat money laundering and terrorist financing. Especially, financial institutions, to prevent scammers from entering the global economy system. Given below are the best practices for compliance with BSA: 

Verify the Business 

For business verification, companies must collect partner’s data, such as their license, registration number, account information, or owner’s data. They should validate the business’s identity by attesting the security features depending on the papers. According to records, these features include borders, signatures, fonts, etc. Furthermore, they have to validate the data written on the documents by cross-checking them against the original papers. 

Risk Assesment 

Conduct a risk assessment to determine the amount of risk associated with the onboarding business. The risk assessment results identify the money laundering companies in the initial step. This directly assists them in protecting against financial crimes and securing the integrity of the global economy. Remember to update the risk assessment monthly to reflect changes in jurisdictions. 

Compliance 

While complying with the BSA, keep in mind that the company has to uphold other regulations of the national law enforcement agencies. Financial institutes should orchestrate measures to verify the business’s compliance with different rules. These obligations differ according to company policies and the country’s laws. 

Monitor Transactions

After verifying the business’s identity, companies should monitor the transactions. They must ensure their services aren’t being used illegally and report any questionable transactions. Financial institutions must have a procedure to alert the appropriate authorities about questionable transactions. 

Centralized Reports 

Financial institutes must verify the company and then secure a report of their transactions related to their partner’s business. They must save the report and present the partner’s complex ownership transparently. Financial institutes also have internal auditors or verification platforms to ensure BSA compliance.

BSA Non-compliance Penalties  

Complying with the BSA is essential for companies; it ensures that financial institutes onboard legal entities. Nonetheless, severe fines and punishments exist for any organization that breaches the BSA. No entity is released without paying fines, even if these costs change according to the organization’s state and the act’s severity. Under the BSA, standard civil and federal fines vary from $5,000 to $1,000,000 per infraction, or 1% of a financial institution’s assets, for each day the infraction persists if the original punishment is exceeded. In addition, when it comes to specific punishments, a banking industry member who breaches the BSA faces a maximum fine of $250,000 and a maximum sentence of five years in jail. 

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