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Tuesday, May 21, 2013

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SRC Insights: Fourth Quarter 2005

Bank Secrecy Act Regulation…A Coordinated Effort

The Bank Secrecy Act was passed in 1970 to combat money laundering and other financial crimes.1 Over the past several decades, additional anti-money laundering legislation has been passed to reinforce and expand on the original law. Several government agencies play a role in implementing the Bank Secrecy Act (BSA), and each has responsibility for a variety of activities. Together they work to ensure compliance with the BSA and to fight financial crimes.

The BSA authorizes the Secretary of the Treasury to require financial institutions, as defined under the act, to establish anti-money laundering programs, file certain reports, and keep records of transactions. A bureau within the U.S. Treasury, the Financial Crimes Enforcement Network (FinCEN), is the delegated administrator of the BSA.

FinCEN issues regulations and interpretive guidance, provides outreach, and has responsibility for civil enforcement of the BSA. In addition, FinCEN provides support to law enforcement, fosters cooperation with its international counterparts, and reports on trends and patterns of financial crimes.

The federal banking agencies (the agencies) have the responsibility for regulating and supervising financial institutions. In their supervisory role, the agencies are required to review an institution’s BSA/AML compliance program at every examination, and they have authority to enforce compliance with the BSA and related anti-money laundering regulations.

The Office of Foreign Assets Control (OFAC) has requirements that are separate and distinct from the BSA. OFAC is an office of the U.S. Treasury, and it administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals. However, the goals of the BSA and OFAC overlap in certain areas, and therefore there is a strong connection between supervision of an institution’s compliance with OFAC and BSA requirements.

How do all of these government agencies collaborate effectively to achieve the goals of the BSA? Currently, there are various information sharing agreements in place. The first is an agreement between FinCEN and the federal banking agencies to share BSA related examination data. Aggregate data is submitted to FinCEN on a quarterly basis, and FinCEN then provides periodic updates to the Secretary of the Treasury.

FinCEN also has information sharing agreements with the individual state banking authorities to share BSA related examination data. As of September 2005, FinCEN had finalized agreements with 33 state banking authorities. In addition to the information sharing agreements, FinCEN has created an Office of Compliance within its Regulatory Division to provide ongoing monitoring of its BSA Regulatory Program.

These and other ongoing process improvements help to promote clear and consistent regulations. All of the government agencies continue to fulfill their BSA responsibilities and to strive to improve their implementation and effectiveness.

  • 1 The Currency and Foreign Transactions Reporting Act is commonly known as the Bank Secrecy Act.

The views expressed in this article are those of the author and are not necessarily those of this Reserve Bank or the Federal Reserve System.