Bank Secrecy Act/Anit Money Laundering

Thesis statement

The 1970 Bank Secrecy Act (BSA), as amended by the U.S.A. Patriot Act, forms the legal framework for governmental bodies to implement the country's anti-money laundering (AML) policies. Initially, U.S. AML's focus was combating organized crime groups (OCGs), in particular, albeit not exclusively, the socalled “War on Drugs.” After 9/11, U.S. AML declaratory objective shifted to terrorist financing. This change in emphasis had several motivations, some well-intentioned (in part, motivated by a heightened sense of fear) and others more cynical — simply seizing on anxiety over national security to strengthen U.S. AML that many specialists had been seeking for years.

Introduction

The Bank Secrecy Act (BSA) of 1970 introduced a number of monetary transaction reporting requirements designed to prevent criminal organizations from exploiting the U.S. financial system by moving and stockpiling their illicit funds. These reporting requirements are invaluable tools for law enforcement and are the backbone of the United States' anti-money laundering program. Each reporting requirement provides a layer of defense, and the Currency Transaction Report (CTR) is the first line of that defense. The August 2005 Cornerstone Report focused specifically on Suspicious Activity Reports (SARs). In this article, we will explore from a law enforcement perspective the value of CTRs and their role in preventing and detecting illicit financial transactions. Financial institutions are required to file a CTR for cash transactions of more than $10,000.

The placement of funds into the financial system is recognized by law enforcement as the criminal's most vulnerable stage of the money laundering process, and CTR reporting requirements play a major role in combating the infusion of illicit proceeds into our legitimate financial system. Drug dealers, arms traffickers, alien smugglers and countless other criminal organizations know about CTR reporting requirements—forcing them to operate outside of legitimate business practices which raise “red flags” in the financial and law enforcement communities, making them vulnerable to detection. To avoid these red flags, criminal organizations sometimes establish cash-intensive businesses in an attempt to legitimize the filing of CTRs by financial institutions on their illegitimate cash transactions. However, once law enforcement becomes aware of these criminal organizations through sources of information or other investigative leads, these CTRs become invaluable and establish a trail that documents the movement of their illicit funds.

Background

The objective of the Customer Due Diligence, (CDD), is to assess the appropriateness and comprehensiveness of its policies, procedures, and processes for obtaining customer information and assess the value of this information in detecting, monitoring, and reporting suspicious activity. The FFIEC considers that the cornerstone of a strong BSA/AML compliance program is adoption and implementation of comprehensive CDD policies, procedures, and processes for all customers, particularly those that present a high risk for money laundering and terrorist financing. The CDD should enable the bank to predict the types of transactions in which a customer is likely to engage. Effective CDD policies, procedures, and processes can aid in detecting and reporting unusual or suspicious transactions, avoiding criminal exposure from persons who use or attempt ...