What Is the Bank Secrecy Act (BSA)?Also known as the Currency and Foreign Transactions Reporting Act, the Bank Secrecy Act (BSA) is U.S. legislation created in 1970 to prevent financial institutions from being used as tools by criminals to hide or launder their ill-gotten gains. Show
The law requires banks and other financial institutions to provide documentation, such as currency transaction reports, to regulators. Such documentation can be required from banks whenever their clients deal with suspicious cash transactions involving sums of money in excess of $10,000. The law grants authorities the ability to more easily reconstruct the nature of the transactions. Key Takeaways
Currency Transaction Report (CTR) GuideUnderstanding the Bank Secrecy Act (BSA)The BSA was put into action to better identify when money laundering is used to further a criminal enterprise, support terrorism, cover up tax evasion, or disguise other unlawful activities. The legislation saw early use to counteract the funding of criminal organizations but soon also came into use to address the funding of terrorist groups. Criminals and fraudsters use money laundering to hide their illicit actions under the cover of legitimacy. Cash, rather than traceable electronic transactions, tends to be the preferred means of buying illicit goods and services. Money laundering tactics are employed to disguise those cash sources of revenue as legitimate transactions. How the Bank Secrecy Act WorksThe law does not require every transaction exceeding $10,000 to be documented. According to the Internal Revenue Service (IRS), there is a general rule that any person in a trade or business must file Form 8300 if their business receives more than $10,000 in cash from one buyer. This can be the result of a single transaction or of two or more related transactions. The rule can apply to an individual; a company, corporation, partnership, association, or trust; or an estate. Form 8300 must be filed by the 15th day after the cash transaction took place. This requirement is applicable if any part of the cash transactions occurs within the United States, its possessions, or territories. The legislation maintains a list of exceptions that do not call for such scrutiny. Government departments or agencies and companies listed on major North American exchanges are examples of exempt parties. While the BSA can be useful in fighting criminal activity, it has drawn criticism because very few guidelines define what is considered suspicious. Also, law enforcement agencies do not need to obtain a court order to gain access to the information. The Office of the Comptroller of the Currency (OCC) regularly examines banks, federal savings associations, and other institutions for compliance with the BSA. Criticism of the Bank Secrecy ActThe burdens of collecting, producing, and maintaining the huge volume of data required by the BSA are weighing down financial institutions and law enforcement across the United States. Many anti-money-laundering experts have expressed doubt that the government has the ability to find the “needle in the haystack” when investigating illicit financial transactions. It has been suggested that the BSA needs to be updated, as it was written during a time before the first laptop computer was introduced. Financial institutions are continually fighting ever-changing technologies in payments and transactions. Updates to tools to fight criminal activities would address evolutions in 21st century banking technology. Effects of the Bank Secrecy ActFinCEN, the Financial Crimes Enforcement Network, recognizes agencies that have used BSA data to successfully track and prosecute criminal inquiries. The value of the BSA is in protecting the
public from cybercrime, fraud, and other illegal finance threats that the U.S. confronts. Reducing crime and exploitation of people exposed to these schemes has been a key effort of both the BSA and law enforcement. What is a suspicious activity report?When a bank observes a seemingly suspect transaction—for example, something that could point to corruption or money laundering—the institution will file a suspicious activity report (SAR), a document used by financial institutions to report the activity to U.S. authorities. An SAR is not an accusation. It’s a way to alert government regulators and law enforcement to irregular activity and possible crime. Does a customer know when a suspicious activity report is filed?No. Suspicious activity reports are confidential. Federal law prohibits the notification of any person who is involved in the activity being reported on a SAR. The individual who is the subject of the SAR will not be aware that the activity has been reported. Legal actions such as subpoenas or court orders may require guidance from FinCEN (Financial Crimes Enforcement Network) to know how to proceed. Government agencies may intervene to protect the organization that filed the report and to keep the integrity of the data in the SAR database. Which banks have filed suspicious activity reports most often?A few large banks—Deutsche Bank, Bank of New York Mellon, Standard Chartered Bank, JPMorgan Chase, Barclays, and HSBC Bank—together filed more than 85% of all SARs. The Bottom LineThe Bank Secrecy Act (BSA) was created in 1970 to prevent financial institutions from being used as tools by criminals to hide or launder their ill-gotten gains. Rules were instituted that increased oversight and reporting of specific bank and money service business transactions to flag illicit transactions to domestic and foreign law enforcement agencies. Patterns are studied that show the frequency, amounts, and accounts involved that could indicate fraud, money laundering, and other illegal activity. What are the major risk faced by financial institutions?The major risks faced by banks include credit, operational, market, and liquidity risks. Prudent risk management can help banks improve profits as they sustain fewer losses on loans and investments.
What are five risks common to financial institutions?There are five generic risks to these financial institutions: systematic, credit, counterparty, operational, and legal. Systematic risk is the risk of asset value change associated with systemic factors. As such, it can be hedged but cannot be completely diversified.
What are the 3 types of risk in banking?When handling our money, the three largest risks banks take are credit risk, market risk and operational risk.
What is the biggest threat to the banking industry?Social engineering. One of the biggest threats to banking and finance is social engineering. People are often the most vulnerable link in the security chain – they can be tricked into giving over sensitive details and credentials. This can equally affect a bank's employees or its customers.
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