Financial institutions that operate in the United States are subject to several anti-money laundering (AML) laws and regulations designed to deter terrorist financing and crime.
What illegal activities are they trying to uncover? Money laundering is when you mask the proceeds of illegal activity so that they appear to come from legitimate. Terrorist financing can involve the use of legally obtained money to carry out terrorist goals or objectives. The idea in both situations is to conceal the connection between the money launderers and/or terrorists and the money's sources. These threats led us to the current regulatory framework, which places great emphasis and responsibility on the banking system to implement adequate procedures to detect and prevent such practices.
The Bank Secrecy Act (BSA) creates an administrative body (FinCEN) that produces regulations and administrates under: 31 U.S.C. § 5311 et seq; 31 C.F.R. 1010.100 et seq.
Now, obviously the BSA has been amended a number of times since its enactment in 1970, most notably by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), 107 P.L. 56, 115 Stat. 272.
Lawyers for banks need to know the BSA's requirement that they maintain an AML compliance program, the reporting requirements/penalties under both the BSA and the OFAC sanctions regime, as well as the BSA's requirement to establish a "Know Your Customer" (KYC) program and perform various forms of due diligence.
Financial and many other institutions must maintain AML compliance programs to support federal, and increasingly state, anti-money laundering objectives. AML compliance programs have four main elements:
The BSA and Office of Foreign Asset Control regulations also require institutions to report certain specific types of transactions and activities, and also requires maintenance of records and policies to ensure reporting obligations are met.
Violations of Anti Money Laundering law can result in federal criminal penalties. 18 U.S.C. §§ 1956 and 1957. And even worse/better, FinCEN has the authority to bring enforcement actions for violations of the BSA and has delegated examination authority under the BSA to banking institutions' respective primary federal regulator, who may bring their own supervisory and enforcement actions against institutions.
All Americans moving money around overseas need to be aware that Office of Foreign Asset Control has the authority to assess civil and criminal penalties against any U.S. person for violations of the anti-terrorism and sanctions regime.
An effective compliance program should address the money laundering risk specific to that institution. That risk assessment will vary by factors such as the types of products the financial institution offers, the geographical location, and its customers. Institutions have to give additional scrutiny to transactions that present a higher risk probability of being involved in terrorist financing or money laundering. These high risk transactions include things like cash transactions, over the phone or online transactions, international transfers or customers, and particular types of negotiable instruments.
The risk assessment process should be in writing, and institutions are encourage to document the risk assessment process.