AML regulations make it much harder for criminals to hide profits they've generated from criminal activities. Discover how the legislation has been amended, the rules that businesses need to follow, and the types of businesses that the regulations cover.
Anti-money laundering regulations (AML) are laws and procedures that aim to uncover efforts to disguise illicit funds as legitimate income. As a result, AML regulations make it much harder for criminals to hide profits they've generated from criminal activities.
In this blog, we’ll take a detailed look at AML regulations. We’ll cover the regulations that currently apply in the US, how these policies have changed and developed over time, and who is responsible for enforcing AML regulations.
The Bank Secrecy Act (which is otherwise known as the Currency and Foreign Transaction Reporting Act), is a piece of US legislation. It was created in 1970 and aims to prevent financial institutions from being used as tools by criminals to hide or launder their ill-gotten gains.
Overall, the BSA:
Under the Bank Secrecy Act, financial institutions are required to assist US government agencies in detecting and preventing money laundering. They must:
One of the key requirements of the BSA is that financial institutions must report cash currency transactions exceeding $10,000. This applies regardless of whether the money was moved in one transaction or several cash transactions in a short span of time. These currency transaction reports (CTRs) are filed electronically with the Financial Crimes Enforcement Network (FinCEN).
In addition to this, suspicious activity reports (SARs) must be filed for any cash transactions where the customer appears to be trying to avoid BSA reporting requirements.
Let’s take a look at the reporting and record keeping obligations of financial institutions in greater detail:
The BSA states that a currency transactions report must be filed when a cash transaction exceeds $10,000 in value. This requirement concerns only the physical exchange of money (cash and paper) between persons.
In addition to this, certain regulated entities must also submit Form 8300 when they receive more than $10,000 in cash in a single transaction, or in multiple related transactions within 24 hours.
Businesses that need to submit Form 8300 include art galleries, car dealerships, and insurance firms.
Transactions that involve suspected BSA violations, or terrorist financing activities, and which aggregate more than $5,000, must be detailed in a suspicious activity report.
If the transaction is for less than the $5,000 threshold, then a suspicious activity report can still be filed - but this is voluntary.
This is an annual filing requirement for individuals holding accounts with foreign banks that contain at least $10,000. The foreign bank and financial account report is usually filed by the account holder, but financial professionals can file on behalf of a client if they register to do so.
In addition to Bank Secrecy Act filing requirements, financial institutions must keep detailed records of suspicious activities.
Institutions must maintain a log of purchases of monetary instruments of between $3,000 and $10,000. In doing this, the log must record and verify the identities of purchasers, and aggregate the value of their transactions.
Section 311 of the USA PATRIOT Act allows the Treasury to find that a foreign jurisdiction, institution, class of transaction, or type of account is of ‘primary money laundering concern’.
If the Treasury takes this step, then domestic financial institutions must take certain ‘special measures’ against it. The first four special measures impose information gathering, reporting, and recordkeeping requirements on financial institutions that deal either directly or indirectly with the designated jurisdiction or entity. Under special measure five, a financial institution may be prohibited from opening or maintaining a correspondent account or a payable-through account.
The Financial Crimes Enforcement Network (FinCEN) has either currently designated or previously designated each of the following as a primary money laundering concern and has imposed, proposed imposing, or recently rescinded special measures:
If you’re a financial institution, then you should monitor FinCEN’s 311 Special Measures website, or subscribe for updates. This way, you can monitor the status of any current findings or special measures that are not listed here.
As we mentioned before, the Bank Secrecy Act (BSA) came into force in 1970. Since then, the Financial Crimes Enforcement network (FinCEN) has carried out its mission to ‘safeguard the financial system from the abuses of financial crime, including terrorist financing, money laundering, and other illicit activity’.
Since the BSA was established, it has become one of the most important tools in the fight against money laundering. However, since then, numerous other laws have enhanced and amended the BSA to provide law enforcement and regulatory agencies with the most effective tools to combat money laundering. Let’s take a look at each of these in greater detail:
The Bank Secrecy Act applies to:
Please be aware that a foreign subsidiary or branch of a US financial institution must also comply with the AML regulations of the jurisdictions where it operates.
It must also be noted that the Money Laundering Control Act’s (MLCA) money laundering provisions apply to all US persons and foreign persons when the conduct occurs in whole or in part in the US and when the transaction involves property in which the US has an interest pursuant to a forfeiture order; or when the foreign person is a financial institution with a US bank account.
The MLCA’s criminal spending provision applies to US persons and foreign persons when the offense takes place in the US or a special maritime or territorial US jurisdiction.
In the US, there are two primary AML regulatory agencies. They are:
FinCEN is the primary AML regulator and operates under the Treasury Department. It is responsible for combating money laundering, the financing of terrorism, and financial crime.
The Office of Foreign Assets Control (OFAC) administers US economic and trade sanctions and works to prevent sanctions-targeted countries and individuals from perpetrating financial crimes.
However, in addition to federal laws, it’s also worth pointing out that many states also have their own AML regulations that define the penalties for AML violations.
In addition to this, the US is also a member of the Financial Action Task Force (FATF), which is an intergovernmental organization that aims to develop policies that will combat money laundering. Due to this, the US follows FATF standards to ensure that the global response to money laundering remains coordinated.
Here at Veriff, we understand the importance of adhering to AML regulations. If you’d like help fulfilling your requirements, then enlist the help of our AML and KYC compliance solution. By deploying our identity verification platform alongside PEP and sanctions checks, adverse media screening, and ongoing monitoring, you can fight financial crime.