Click on a tab for further information to understand various acronyms and terms pertaining to Bank Secrecy Act compliance.
AML – Anti-Money Laundering
Anti-Money Laundering (AML) is a term used frequently to describe efforts to comply with the Bank Secrecy Act and USA PATRIOT Act. Program to prevent a business from being used to facilitate money laundering and terrorist financing activities.
BMPE / Black Market Peso Exchange
The Black Market Peso Exchange (BMPE) is an informal exchange system designed to convert United States dollars or other hard currencies into Colombian pesos and Colombian pesos into U.S. dollars. Originally used as an alternative and less expensive method for Colombian investors and exporters to convert U.S. dollars into local currency by exchanging them through intermediaries for pesos, the system became widely exploited by Colombian drug traffickers to convert drug proceeds to Colombian currency.
An intermediary typically sells the dollars to a Colombian importer at a small profit who pays for goods and services outside Colombia. The BMPE continues to be used by drug traffickers as a means to convert their drug proceeds. The method is also used by non-criminal exporters, importers and investors as an alternative method of exchanging currencies. The method is used with many countries other than Colombia too.
BSA – Bank Secrecy Act
The Financial Recordkeeping and Reporting of Currency and Foreign Transactions Act of 1970 (31 U.S.C 5311 et seq.) is referred to as The Bank Secrecy Act (BSA). The regulation issued by the Department of the Treasury (31 C.F.R. 103) under the BSA was originally intended to aid investigations into an array of criminal activities, from income tax evasion to laundering of money by organized crime.
The Bank Secrecy Act imposes a duty on financial institutions, which includes MSBs, to identify and report potential money-laundering activities, terrorist financing, illegal activities, and certain other suspicious transactions conducted by or through the business, and also to make and retain certain records regarding customers, transactions and accounts.
Currency Transaction Reports (CTRs) and Suspicious Activity Reports (SARs) are the primary means used by banks to satisfy the requirements of the BSA.
The BSA also requires records be maintained sufficient to enable transactions and activity in customer accounts to be reconstructed if necessary; such records are very useful in any subsequent criminal, tax or regulatory investigations or proceedings. The BSA was originally intended to aid in the investigation of criminal investigations, e.g. income tax evasion and money laundering.
A number of acts and regulations have been added over the years to expand and strengthen the scope and enforcement of the BSA, implement more stringent anti-money laundering (AML) measures, and counter terrorism. Such acts include:
• Money Laundering Control Act of 1986
• Anti-Drug Abuse Act of 1988
• Annuzio-Wylie Anti-Money Laundering Act of 1992
• Money Laundering Suppression Act of 1994
• Money Laundering and Financial Crimes Strategy Act of 1998
• The USA PATRIOT Act (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act)
CMIR – Currency and Monetary Instrument Report
The “Report of International Transportation of Currency or Monetary Instrument”, FinCEN 105 form, is known as a CMIR. The form provides for a declaration by persons transporting or sending currency or monetary instruments into or out of the United States. The report must be filed with the Bureau of Immigration and Customs Enforcement by the person transporting or sending more than $10,000 into or out of the United States.
CTR – Currency Transaction Report
The Currency Transaction Report, FinCEN Form 104, must be filed by all financial institutions, including MSBs, when the aggregate amount of a transaction made by or on behalf of another exceeds $10,000.00 in currency in a single banking day.
FBAR – Report of Foreign Bank and Financial Accounts
The Report of Foreign Bank and Financial Accounts – Form TD F 90-22.1 or FBAR is used by U.S. residents to report a financial interest in, signature authority or other authoriy in one or more financial accounts in foreign countries. The report is not required if the aggregate value of he accounts did not exceed $10,000.00 at any time during the previous calendar year.
FinCEN – Financial Crimes Enforcement Network
The Financial Crimes Enforcement Network (FinCEN) is a separate federal agency within the U.S. Treasury Department. It is responsible for overseeing the implementation and compliance of the Bank Secrecy Act through all federal agencies and financial regulatory bodies. FinCEN is also responsible for the application of certain civil penalties under the Bank Secrecy Act.
KYC – Know Your Customer
Know Your Customer (KYC) is a term that came into vogue prior to the USA PATRIOT Act as part of regulatory initiatives that did not become law due to various privacy and other concerns. After the horrific events of 9/11 many of the KYC concepts became law through the implementation of the USA PATRIOT Act.
KYC is commonly used along with Customer Identification Program (CIP), Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD). These concepts all speak to forming a reasonable belief that your customer is who he or she claims to be (CIP) and that transaction activity is reasonable, to be expected for your customer and likely derived from legitimate sources (CDD and EDD).
CIP – Customer Identification Program
The US Patriot Act requires various financial institutions to implement a customer identification program to verify the identities of persons with whom it does business. CIP (Customer Identification Program) standards require that certain minimum information be obtained prior to establishing a customer account relationship; the institution is to verify through documentary and non-documentary means that a person is who he/she claims to be or that an entity exists and the person representing it has authority.
Money Services Businesses are not currently required to have a CIP program. This is in recognition of the fact that MSBs do not have “customers” in the same sense that other financial institutions have “customers”; there is no ongoing “account” relationship and no “account” is being opened and maintained as defined in the regulations and pertaining to institutions having federal financial regulators.
However, it is clearly important and prudent for an MSB to know with whom it is conducting business. In order to prevent loss, comply with state requirements, comply with the requirements of principal MSBs for whom the business is selling money orders or initiating/receiving wire transfers, a money services business should, and often must, implement CIP as part of its compliance regimen. Obtaining documentation to verify the true identity of each customer is a necessary step in protecting the business from loss and liability.
It is prudent and appropriate for money services businesses to:
• Implement a written risk-based customer identification program;
• Maintain records, including customer information and methods, used to verify customers’ identities
OFAC – Office of Foreign Asset Control
The U.S. Treasury Department’s Office of Foreign Asset Controls (“OFAC”) issues regulations pursuant to a series of laws that authorize economic sanctions against hostile targets. These targets include countries deemed to be hostile to the interests of the United States (“target countries”) and those individuals and entities listed on the Treasury Department’s Specially Designated Nationals and Blocked Persons list. Financial institutions, including the business, are prohibited from engaging in any transaction, in violation of the OFAC regulations, involving target countries or individuals or entities listed on the Specially Designated Nationals and Blocked Persons list.
USA PATRIOT Act
The USA PATRIOT Act (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act) of 2001 was enacted as a response to the terrorists’ attacks against the United States on September 11, 2001. The Act significantly expanded the scope of the Bank Secrecy Act in order to better protect the United States from further terrorist activities.
PEP – Politically Exposed Person
PEPs or Politically Exposed Persons include high ranking members of foreign governments, their families, friends, and close business associates. All financial institutions, including MSBs, must carefully review transactions with or on behalf of PEPs to ensure that the funds involved in the transaction are not the proceeds of foreign corruption (a specified unlawful activity under U.S. anti-money laundering laws). Knowingly processing or assisting in the processing of transactions involving the proceeds of foreign corruption may result in prosecution, imprisonment and/or criminal and/or civil fines.
SAR-MSB – Suspicious Activity Report
The Suspicious Activity Report by Money Services Business or SAR-MSB is used by MSBs to report any transaction conducted or attempted by, at or through an MSB involving or aggregating to funds of at least $2,000 when the MSB knows, suspects or has reason to suspect that:
1. Funds or Assets Involve an Illegal Activity
The business believes or has reason to suspect that a transaction or series of transactions:
• Involves funds derived from illegal activity; or,
• Is intended or conducted in such as manner as to attempt to hide or disguise the fact that the funds or assets involved are derived from an illegal activity, including the ownership, nature, source or control of the funds or assets; or,
• Is intended to evade legal reporting requirements, such as tax reporting or BSA reporting.
Illegal Activity (definition): For SAR purposes, this does not extend to all illegal activity but only to known or suspected violation of federal law or related to money laundering activity or a violation of the BSA.
2. Evading Bank Secrecy Act Regulations
The business believes or has reason to suspect that a transaction or series of transactions is designed to evade ANY provision of the Bank Secrecy Act.
3. Transaction with NO Business or Apparent Lawful Purpose
The business is expected to have an effective “know your customer” policy in place and be capable of identifying those transactions or series of transactions that:
• Have no apparent business purpose;
• Have no apparent lawful purpose; or,
• Are not the type of transactions in which the particular customer would normally be expected to engage.
SDN – Specially Designated Nationals
Specially Designated Nationals (SDNs) are individuals or companies that have been named as targets of sanctions by OFAC either due to drug trafficking, terrorism or some other illegal activity.
Named from the cartoon characters, Smurfs refer to low level runners used to assist in money laundering. The verb smurfing describes the process of using individuals to structure many small currency transactions to avoid the filing of a Currency Transaction Report. For example, a criminal may employ numerous persons to convert cash to monetary instruments for subsequent transportation and integration into other transaction activities.
Structuring is a means used to circumvent or evade a filing requirement and/or to launder money. Structured transactions involve breaking up a large currency transaction (over $10,000 and therefore reportable) into amounts below the reporting threshold. Transactions may be distributed to one or more individuals and conducted at one or more financial institutions (including MSBs) over a period of one or more days. Smurfs may structure transactions at MSBs in small dollar amounts to avoid identification requirements.
Examples of “structuring” include a customer dividing transactions between multiple financial services providers, multiple locations of a single financial services provider or multiple Tellers or Cashiers of a provider, or conducting transactions on different banking days, to avoid CTR reporting requirements. Impermissible structuring also would include dividing transactions between multiple accounts when the transactions are in fact by or on behalf of the same person or persons; an MSB could potentially identify such structuring in cashing multiple checks for a customer on the same day drawn from the same payor but at different banks.
SUA – Specified Unlawful Activity
Specified Unlawful Activities (SUA) are defined by statute at 18 USC 1956 and 18 USC 1957. In order to be in violation of an anti-money laundering statute, funds must be derived from a list of specified unlawful activities. In the event that money is moved into or out of the United States, the funds may have a legitimate origin but be intended to promote a specified unlawful activity.
Willful blindness involves a conscious disregard for or ignoring of facts and circumstances that would lead a competent adult to suspect or conclude that funds being offered in a monetary transaction are the proceeds of an illegal activity, intended for an illegal activity or that the person offering the funds is structuring the transactions to avoid a reporting requirement.
Persons choosing the path of willful blindness may be held criminally accountable for what they should have known had they not intentionally chosen to look the other way.