BSA Regulations, Compliance and Penalties
FINANCIAL SERVICES DEPT.
The Bank Secrecy Act of 1970 (BSA), also referred to as the Currency and Foreign Transactions Reporting Act
requires U.S.A. financial institutions to assist U.S.government agencies in detecting and preventing money laundering.
The Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, administers and issues regulations pursuant to the Bank Secrecy Act (BSA).Through certain BSA reporting and recordkeeping requirements, paper trails of transactions are created that law enforcement and others can use in criminal tax and regulatory investigations.
The reporting and recordkeeping provisions of the BSA apply to banks, savings and loans, credit unions and other depository institutions (collectively referred to as "banks") and to other businesses defined as financial institutions, including casinos, brokers and dealers in securities, and money services businesses (collectively referred to as "non-banks").
BSA regulations require certain Money Services Businesses (MSBs) to register with FinCEN and prepare and maintain a list of agents, if any. In addition, BSA regulations require certain MSBs to report suspicious activity to FinCEN.
Summary of Certain BSA Regulations1. Registration - each business that meets the definition of an MSB must register, except for the following:
A business that is an MSB solely because it serves as an agent of another MSB;
A business that is an MSB solely as an issuer, seller, or redeemer of stored value;
The U.S. Postal Service and agencies of the U.S., of any State, or of any political subdivision of any State.
A branch office of an MSB is not required to file its own registration form.
2. Agent List -
MSBs that are required to register must prepare and maintain a list of their agents, if any, each January 1 for the preceding 12-month period.
Upon request, MSBs must make their list of agents available to FinCEN and any other appropriate law enforcement or supervisory agencies (including the IRS in its capacity as BSA examination authority).
3. Suspicious Activity Report (SAR) -
MSBs required to file SARs are:
MSBs serving as money transmitters;
Currency dealers or exchangers;
Issuers, sellers, or redeemers of money orders;
Issuers, sellers, or redeemers of traveler's checks; and
U.S. Postal Service.
MSBs must maintain a copy of all SARs filed as well as the original or business record equivalent of any supporting documentation for a period of five years from the date of the report. Supporting documentation must be identified as such, and, although it is not to be filed with the report, supporting documentation is deemed to have been filed with the report. Upon request, MSBs must make all supporting documentation available to FinCEN and any other appropriate law enforcement or supervisory agencies (including the IRS in its capacity as BSA examination authority).
4. Anti-Money Laundering (AML) Compliance Program - all MSBs, including issuers, sellers, or redeemers of stored value, are required to develop and implement an AML compliance program as required by section 352 of the USA PA-
TRIOT Act and implemented by regulation at 31 CFR 103.125.
5. Currency Transaction Report (CTR) - MSBs must file CTRs on transactions in currency involving more than $10,000, in either cash-in or cash-
out, conducted by, through, or to the MSB on any one
day by or on behalf of the same person.
6. Monetary Instrument Log - MSBs
must maintain certain information on the cash sale of monetary instruments - such as money orders or traveler's checks - from $3,000 to $10,000, inclusive.
7. Funds Transfer Rules - MSBs must
maintain certain information for funds transfers, such as sending or receiving a payment order for a money transfer, of $3,000 or more, regardless of the method of payment.
8. Currency Exchange Record - MSBs must maintain certain records for each currency exchange in excess of $1,000.
9. Record Retention - All BSA records must be retained for a period of five years and must be filed or stored in such a way as to be accessible within a reasonable period of time.
BSA regulations require certain MSBs to have registered with FinCEN by December 31, 2001. An MSB established after that date must register by the end of the 180-day period beginning on the day after the date it was established.
A branch or an agent of an MSB is not required to file its own registration form. The U.S. Postal Service and Federal or State government agencies are not required to register. Also, MSBs that provide only stored value services are not required to register at this time.
MSBs are required to renew their registration every two years by December 31 at the end of the two-calendar year period following their initial registration.
In addition, MSBs that are required to register are also required to prepare and maintain a list of agents, if any, each January 1 for the preceding 12-month period.
MSBs must reister by filing Form TD F 90-22.55, Registration of Money Services Business, which is available at www.msb.gov of by calling the IRS Forms Distribution Center at 1-800-829-3676. Registration is the responsibility of the owner or controlling person of the MSB, who must sign and file the completed registration form.
An MSB that is required to register and that has agents must prepare and maintain a list of those agents. This list must be updated by January 1 of each year. An MSB must make its list of agents available to FinCEN, as well as other appropriate law enforcement agencies, including the IRS, upon request.
Generally, the agent list must include:
Name: The name of the agent, including any trade names or doing-business-as names.
Address: The address of the agent, including street address, city, state, and ZIP code.
Type of Services: The type of MSB services the agent provides on behalf of the MSB maintaining the list.
Gross Transaction Amount: A listing of the individual months in the 12 months preceding the date of the
agent list in which the agent's gross transaction amount, for financial products or services issued by the MSB maintaining the agent list, exceeded $100,000.
Depository Institution: Name and address of any depository institution at which the agent maintains a transaction account for any of the funds received in
or for the MSB services the agent provides on behalf of the MSB maintaining the list.
Year Became Agent: The year in which the agent first became an agent of the MSB.
Branches: The number of branches and sub-agents the agent has, if any.
Supporting DocumentationSupporting documentation, including a copy of the filed registration form, an estimate of business volume, information regarding ownership or control, and the
agent list must be retained by the MSB for a period of
Each MSB is required by law to have an effective anti-money laundering (AML) compliance program. The regulation requiring MSBs to develop and maintain an AML compliance program is contained in 31 CFR 103.125.Each program must be commensurate with the risks posed by the location, size, nature and volume of the financial services provided by the MSB. For example, a large money transmitter with a high volume of business located in the Los Angeles area is at higher risk than a small check casher with a low volume of business located in Boise. Therefore, the large California money transmitter would be expected to have a more complex AML compliance program, commensurate with its higher risk, than the smaller Idaho check casher, who is at lower risk of being used to facilitate money laundering. An effective program is one designed to prevent the MSB from being used to facilitate money laundering.
Each AML compliance program must be in writing and must:
Incorporate policies, procedures and internal controls reasonably designed to assure compliance with the BSA;
Designate a compliance officer responsible for day-to-day compliance with the BSA and the compliance program;
Provide education and/or training of appropriate personnel; and
Provide for independent review to monitor and maintain an adequate program.
Strong management commitment to the AML compliance program promotes ongoing compliance and helps prevent the MSB from being used by money launderers.
FinCEN further encourages MSBs to adopt policies and procedures that incorporate the Basel Committee Statement of Principles on Money Laundering, which urges:
Proper identification of all persons conducting financial transactions with the financial institution;
High ethical standards in financial transactions and compliance with laws and regulations governing financial transactions;
Cooperation with law enforcement;
Information and training for staff to ensure that they can and do carry out these principles.
Establish Customer Relationships
Strict customer identification and verification policies
and procedures can be a financial institution's most effective weapon against money laundering. Requiring appropriate identification and verifying information in certain cases, and being alert to unusual or suspicious transactions can help an MSB deter and detect money laundering schemes.
A customer identification and verification policy tailored
to the operations of a particular business:
Helps detect suspicious activity in a timely manner:
Promotes compliance with all state and federal laws applicable to MSBs;
Promotes safe and sound business practices;
Mimimizes the risk that the MSB will be used for illegal activities;
Reduces the risk of government seizure and forfeiture
of funds associated with customer transactions (such
as out-standing money orders/traveler's checks and outstanding money transfers) when the customer is involved in criminal activity; and protects the reputation
of the MSB.
Civil and criminal penalties can be imposed for violations of anti-money laundering laws and regulations. Penalties can result in substantial fines and in prison terms.
Any MSB that fails to comply with BSA reporting and recording keeping requirements faces possible civil penalties of up to $500 for negligent violations and the greater of the following two amounts for willful violations: the amount involved in the transaction (up to $100,000) or $25,000.
Under certain circumstances, businesses can also be held criminally liable for the acts of their employees.
The maximum criminal penalty for violating a BSA requirement is a fine of up to $500,000 or a term of imprisonment of up to 10 years, or both.It is therefore important that employees are thoroughly trained on how to comply with BSA regulations and that a system is in place to ensure that employees are following all anti-money laundering laws and regulations.
MSBs can do a great deal to help the federal
government in its anti-money laundering efforts.
At a minimum, MSBs should file all BSA reports accurately and in a timely fashion, create and maintain accurate BSA records for the requisite time period, establish and maintain appropriate compliance programs and follow all Treasury Department guidance related to the BSA.
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