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.
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:
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:
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.
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