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How do anti-money laundering laws work?

Passed in 1970, the Bank Secrecy Act (BSA) was one of the first money laundering laws in the US. Since then, various laws, regulations, rules, and guidance have updated the BSA or clarified its implementation. Collectively, these are sometimes referred to as BSA law, AML law, or BSA/AML law. At a high level, AML laws require financial institutions to create, document, and abide by an AML program to help detect and prevent money laundering. Some requirements for the programs are clearly laid out. But organizations also have discretion with how they create or implement other aspects of AML programs — with the relevant regulatory authorities’ approval. The US is also part of global AML efforts and the Financial Action Task Force (FATF), which sets international standards for AML and helps combat money laundering and terrorist financing

What are key components of AML laws

The key components of AML programs are understanding who you’re doing business with and the risks they pose, and monitoring transactions for suspicious activity. If you can trace the source of funds back to an original transaction — and identify who authorized that transaction — then you can better foil attempts to launder money. In practice, organizations use know your employee (KYE) processes for verifying employees’ identities and conducting background checks. Continuous monitoring of employees’ activity for suspicious behavior or potential contact with criminals is also important, as is limiting access to systems based on responsibilities. Turning outward, AML programs take a risk-based approach to identifying and monitoring customers and reporting certain transactions to government agencies. These are broadly broken down into two areas.

Transaction monitoring and reporting requirements

The BSA also requires financial institutions to monitor transactions, maintain records, and report activities that could correspond with money laundering. Some of the main BSA reports include:

  • Suspicious activity report (SAR): Filed when a financial institution detects concerning activity or transactions, such as suspected insider trading, an unusual volume of transactions, or certain international wire transfers.
  • Foreign bank account report (FBAR): Technically, customers have to file this report annually if they have over $10,000 in foreign bank accounts. However, financial professionals may file the report on a client’s behalf.
  • Currency transaction reports (CTR): Filed to report when a customer deposits or withdraws over $10,000 in cash in a single day in one or multiple transactions.
  • International Transportation of Currency or Monetary Instruments Report (CMIR):Filed to report when over $10,000 worth of monetary instruments, such as cash, gets physically transported, shipped, or mailed.

Contact Sanjay Law For Assistance With Your Fraud and Money Laundering Issues

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