Table of Contents
I. In a Nutshell: What is the Bank Secrecy Act?
II. Why does the Bank Secrecy Act exist?
III. The Details: Bank Secrecy Act Requirements & Compliance
IV: How does the Bank Secrecy Act affect your business?
V: Bank Secrecy Act Information Resources
The Bank Secrecy Act of 1970, or BSA for short, is the primary U.S. anti-money laundering (AML) law. The BSA is essentially an act that specifies the financial transactions that must be recorded and/or reported by financial institutions in order to prevent money laundering and fraud. The BSA is also commonly referred to as the Currency and Foreign Transactions Reporting Act.
The purpose of this act is to detect and prevent money laundering, which describes activities that criminals use to attempt to hide the illicit source and/or destination of their funds. Ultimately, the criminals want to spend the money they obtained illicitly by funneling the money through legal channels, which is why it’s called money laundering – the money’s past sins are washed away. There are many different kinds of activities that qualify as ‘money laundering’: tax evasion, using shell companies, and manipulating financial records are some examples of money laundering.
There are three basic elements that money launderers incorporate in their schemes:
It is the first element – placement – that the BSA hopes to eliminate; by preventing ‘placement’ from ever taking place, the theory is that the rest of the elements needed to successfully launder money will also be prevented. And the gateway to successfully ‘place’ money in the financial system is through a financial institution, such as a bank. And so, the BSA’s rules are imposed on financial institutions, such as banks, and regulate the transactions made through them.
The most prominent BSA rule is perhaps what is commonly referred to as the “$10,000 Rule”. It is widely known that financial institutions will report transactions that are over $10,000 - which under BSA regulations is partially true. Not all transactions over $10,000 need to be reported, however, and in certain cases, transactions under $10,000 can be reported.
Generally, when a transaction meets the following two criteria, it needs to be reported:
Reports on BSA regulated transactions are given to and managed by the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). Financial institutions are required to electronically file their reports via the BSA E-Filing System.
In order to comply with BSA regulations, financial institutions need to file the necessary and correct forms for every qualifying transaction. The following forms are used to report transactions that are regulated by the BSA:
There is another form – the Monetary Instrument Log (MIL) – that is required to be filled out, but not necessarily reported. The MIL is a form that keeps track of cash purchases of monetary instruments – such as cashier’s checks, bank drafts, traveler’s checks, and money orders – that have a face value of $3,000 - $10,000, inclusive. Each MIL is required to be kept for at least 5 years; although the MIL does not need to be reported, it needs to be made accessible in the event of an audit.
In the event a transaction is under $10,000 or the total of related transactions within a 24-hour period is under $10,000, financial institutions are still required to report these transactions under BSA regulations if they are simply deemed suspicious.
In order to make sure that financial institutions can monitor whether they are BSA compliant or not, BSA regulations require each and every financial institution to have a written, board-approved BSA compliance program. This program must contain the following elements:
It is worth mentioning that the passage of the Patriot Act also amended the BSA to include a provision for the Secretary of the Treasury to classify a foreign jurisdiction, institution, class of transaction, or type of account as being a ‘primary money-laundering concern’. In other words, BSA regulations provide the Secretary of the Treasury the power to enhance the definition of what is considered ‘suspicious’ under the rules of the BSA.
It isn’t as widely known, but BSA regulations also cover regular businesses – any cash payment more than $10,000 needs to be reported to the government via the IRS’s Form 8300: Report of Cash Payments Over $10,000 Received in a Trade or Business. Unlike banks, however, that’s where the BSA’s regulations reach stops – there are no other forms that need to be filled out.
BUT, businesses listed on North American exchanges – e.g. the American Stock Exchange – are exempt from BSA regulations. In other words, if a company is not listed under such exchanges, BSA regulations apply.
For businesses, BSA regulations mandate that cash payments over $10,000 need to be reported if the following criteria are met:
*It should be noted that a personal check that has been drawn on the account of the customer does not qualify as ‘cash’ under BSA regulations*
In addition, according to BSA regulations, businesses must file Form 8300 for transactions that are suspicious, regardless of whether or not they meet the above 5 criteria. ‘Suspicious’ transactions are those in which the customer attempts to prevent the filing of Form 8300 or attempts to falsify information on Form 8300.
*It is important to make the distinction between trade/business transactions and other transactions. For regular trade/business transactions, the BSA rules apply. But for other types of transactions – for example, the selling and buying of an automobile over $10,000 between two individuals – are not regulated by the BSA because the seller is not involved in the actual trade/business of selling cars.*
There are two actions a business must complete in order to comply with BSA regulations once a customer’s transaction(s) meets the above criteria:
Businesses have 15 days within the receipt of the cash (or when total payments pass the $10,000 threshold) to file Form 8300. Filing Form 8300 for a customer means the cash total resets from that point for that customer.
Businesses can file Form 8300 electronically via the Bank Secrecy Act (BSA) Electronic Filing (E-Filing) Systemor by mailing the completed form to:
IRS Detroit Computing Center
P.O. Box 32621
Detroit, MI 48232
Companies need to inform their any customer that meets the BSA $10,000 threshold requirements that Form 8300 was filed. Customers need to be notified by January 31 the year following the year the customer met the BSA requirements.
1Under BSA regulations, cashier’s checks, bank drafts, traveler’s checks, and money orders that are under $10,000 in face value should be considered as ‘cash’, and therefore necessary to report via Form 8300 once the total amount of those monetary instruments passes $10,000 per customer within a 12-month period. This is because any monetary instrument with a face value of more than $10,000 has already been documented and reported by the financial institution that issued the monetary instrument.
2Under BSA regulations, ‘related transactions’ describe two or more transactions that, all together, total more than $10,000 and occur within a 24-hour period. If a business knows, or has reason to know, that two or more payments that do not occur within a 24-hour period but are nonetheless connected, those payments are considered a single transaction and need to be reported.
Although the main BSA rules and compliance procedures have been discussed here, there are many more BSA nuances that are too extensive to fully cover.
Both financial institutions and businesses need to file their BSA forms on the US Department of Treasury's Financial Crimes Enforcement Network (FinCEN) E-Filing System. Click here to access the E-Filing system.