Bank Secrecy Act | B2B Finance Glossary

What is the Bank Secrecy Act?

The Bank Secrecy Act (BSA) is a common name for the Currency and Foreign Transactions Reporting Act of 1970, created under President Nixon. The BSA is also called an anti-money laundering (AML) law or the BSA/AML. This act was the first set of laws designed to fight money laundering in the US, and it was put in place to prevent financial institutions from being used by criminals as vehicles for laundering money or hiding funds that were procured illegally. The BSA requires banks and financial institutions to report suspicious activity that could indicate that financial crimes are taking place.

The rules instituted through this act increase oversight of business transactions and increase the recognition and reporting of illicit behavior. On top of that, the BSA has allowed for the creation and collection of more data around illegal financial activity and has resulted in the analysis of patterns that have revealed the types of accounts involved in fraud and money laundering and how these accounts typically behave. That information has been essential to recognizing and preventing other instances of financial crime.

What Does the BSA Require?

The BSA requires financial institutions to help US government agencies detect and prevent money laundering and other criminal behavior of the same nature.

Cash is easier to hide illicit activity than electronic transfers since it is much more difficult to trace. As a result, money laundering tactics can be used to hide illegal cash transactions and make it seem like the cash is being used for legitimate business purposes. Because of this, the BSA specifically requires financial institutions to provide documentation to regulators if their clients are dealing with suspicious cash transactions over $10,000.

Businesses must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if these businesses receive over $10,000 in cash from a single buyer in one transaction or two or more related transactions. However, the law does not require documentation for every transaction over $10,000 – just cash transactions over $10,000.

The rule applies to individuals, corporations, associations, trusts, estates, and partnerships. Form 8300 must be filed no later than 15 days after the cash transaction took place. However, there are some exempt parties from this rule, including government departments or agencies and certain companies listed on major North American exchanges.

The BSA also requires financial institutions to report any suspicious activity that might indicate money laundering and other criminal activities in addition to cash transactions over $10,000.

What is a Suspicious Activity Report?

When a financial institution notices a suspicious transaction, the institution must file a suspicious activity report (SAR) to comply with the BSA. This document is the vehicle that is used to report suspicious behavior to the US authorities. In other words, the SAR alerts regulators of potential illegal activity.

If a financial institution fills out a SAR to report something suspicious, the customer being reported is not alerted. These reports are confidential, so federal laws prohibit the ability of the financial institution to notify anyone listed in the report. Any following legal actions might occur, such as subpoenas or court orders. Government agencies might also intervene to protect the institution that filed the initial SAR.

Many major banks, including JPMorgan Chase, Barclays, HSBC Bank, Deutsche Bank, Standard Chartered Bank, and Bank of New York Mellon, have collectively filed over 85% of all SARs.

What Are the Effects of the BSA?

The BSA has been instrumental in reporting and reducing money laundering and cybercrimes. It has also been very helpful in limiting the amount of crime from these situations and the exploitation of individuals exposed to this kind of illicit activity. The Financial Crimes Enforcement Network (FinCEN) recognizes agencies that have complied with the BSA in an attempt to successfully track down criminals and prosecute them to the full extent of the law.

Criticism of the BSA

Some have suggested that the BSA needs to be updated since it was written before computer use became mainstream. Today, financial institutions are working with technology that updates rapidly, and it would be beneficial if the tools used to fight financial criminals could be updated at the same pace as certain banking technologies.

Additionally, some have argued that the burden required to collect and maintain the volume of data required by the BSA is too great for financial institutions, and some anti-money-laundering experts say that the way this data is collected and used is currently not as effective as it could be to get the job done.