By: Alexis Whitley, Esq. and reviewed by Tatum Perez , Esq.
The Bank Secrecy Act (“BSA”) is a collection of laws enacted to detect and deter money laundering, prevent the financing of terrorism and tax evasion, and protect the financial system of the United States. At its enactment, the BSA addressed two issues hindering law enforcement agencies’ ability to investigate criminal activity: the inadequacy of financial institution records and the use of foreign bank accounts in locations that had secrecy laws. To achieve its goals, the BSA and its regulations authorized the Treasury Department to issue regulations requiring compliance programs and reporting obligations on financial institutions and others. The information reported under the BSA is used by law enforcement agencies to monitor, detect, and deter both money laundering and tax evasion . This article overviews compliance programs and reporting requirements under the BSA, as well as non-compliance implications.
The BSA mandates that financial institutions develop and implement compliance programs for transaction monitoring, customer identification, large cash transactions, and suspicious transactions. These compliance programs must include internal frameworks that ensure consistent compliance, independent compliance testing, compliance training, and an appointed person to oversee compliance efforts.
In addition to developing and implementing compliance programs, financial institutions must report certain transactions to identify large cash transactions that could represent money laundering or tax evasion. Specifically, banks must submit a Currency Transaction Report (“CTR”) (also referred to as FinCEN Form 104) for cash transactions that exceed $10,000. The CTR must be submitted electronically to the Financial Crimes Enforcement Network (“FinCEN”) within 15 calendar days of the reported transaction, and if not submitted, banks could face fines of up to $100,000.
Financial institutions must also submit a Suspicious Activity Report (“SAR”) within 30 days of identifying a transaction that, based on its facts, is suspicious. SARs are required in certain instances , such as when transactions involve $5,000 or more in the aggregate and indicate potential money laundering or other legal violations. If a suspect was not labeled as of the date of identification of the suspicious transaction, the financial institution can wait an additional 30 days before filing the SAR in an effort to identify a suspect. However, the SAR must be filed within 60 days of the initial identification of the suspicious transaction.
The BSA also mandates that businesses, including financial institutions, submit Form 8300 , Report of Cash Payments Over $10,000 Received in a Trade or Business, to the Internal Revenue Service (“IRS”). Form 8300 must be filed by individuals, companies, corporations, partnerships, associations, trusts, and estates within 15 days of the reported transaction. If an entity has a weak compliance program in place, it could be required to complete a “look back” review to identify potential SARs that were not previously submitted.
Implementing compliance programs that track and report large cash transactions prevents illegal activity, including tax evasion. Generally, the IRS’s power to access financial information is contained in the Internal Revenue Code, which authorizes the agency to examine books and records and summon individuals, among other powers. The BSA expands the IRS’s authority to review financial information by requiring CTRs and SARs, which the IRS uses to identify potential tax evasion.
While requirements imposed under the BSA are targeted at making enforcement actions more efficient and impactful, they also result in detailed and intensive demands from those individuals and entities that are regulated under the BSA. Failure to comply with these requirements can result in penalties and fines being imposed. Those subject to the BSA should ensure they have robust compliance programs in place and should maintain consistent and timely reporting of all required information.
For questions about the Bank Secrecy Act and its requirements, reach out to Matt Schiller at [email protected] .
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