This blog was originally created by RDC and published on rdc.com.
Congress passed the Bank Secrecy Act (BSA), also known as the Anti-Money Laundering (AML) law, in 1970 to combat money laundering in the United States. Since then, the BSA has required financial institutions to work with government agencies to protect their clients, communities, and country. Financial institutions must keep detailed records and report suspicious activity that could indicate money laundering or other crimes.
Who enforces BSA AML compliance?
To assist with BSA AML compliance and to hold financial institutions accountable, the United States Treasury Department established the Financial Crimes Enforcement Network (FinCEN) in 1990. FinCEN’s mission to “safeguard the financial system from the abuses of financial crime, including terrorist financing, money laundering and other illicit activity” allows it to implement, administer, and enforce BSA AML compliance.
FInCEN works to ensure banks adhere to the three main AML requirements of the BSA:
- Report cash transactions over $10,000 using the Currency Transaction Report
- Properly identify those conducting transactions
- Keeping appropriate records of financial transactions to maintain an accurate paper trail
What are the pillars of BSA AML compliance?
To ensure BSA AML compliance, financial institutions must follow the BSA AML pillars. Initially, there were four pillars of compliance. In 2018, following the CDD Rule, a fifth pillar was added. The pillars of BSA AML compliance are:
- Internal controls
- Designation of a BSA AML officer
- Establishment of BSA AML training program
- Independent testing of compliance program
- Customer due diligence
All five pillars work together to lay the framework for a successful BSA AML compliance program. Effective internal controls examine factors like geographic location, types of services offered, and customers served to mitigate risk of money laundering. Internal controls are always unique to the specific financial institution they serve. A small-town credit union will have different internal controls than a national banking chain.
An institution’s designated compliance officer should have experience in BSA AML compliance and be able to identify weak points in the institution’s business plan and operations. It is also the designated compliance officer’s job to establish a BSA AML training program and to train all institutional staff. Not all employees need to be experts on BSA AML compliance, but all employees should be able to identify potentially suspicious activity and understand how to properly report it if necessary.
All financial institutions should independently test their BSA AML compliance policy annually with the help of a third party. An objective third party can more easily spot gaps in the compliance policy and direct institutions towards resources, like RDC, to fill those gaps.
The new fifth pillar, customer due diligence, requires financial institutions to verify a customer’s identity, assess their risk, understand their general financial habits, and have the necessary procedures in place to catch abnormalities. Read our post about AML KYC compliance to learn more about customer due diligence.
The RDC platform can help your institution establish a comprehensive BSA AML compliance program. Our market-leading, network-based platform combines deep datasets, risk analytics, human expertise, and AI technology to precisely identify key counterparty risks and eliminate them before they materialize.
We can help protect your customers and your institution.