The Bank Secrecy Act (BSA)—also known as the Currency and Foreign Transactions Reporting Act—is a piece of legislation designed to help prevent fraud. More specifically, the BSA is designed to help financial institutions avoid being used by criminals to hide or launder money, support criminal enterprises or terrorist groups, evade taxes, or otherwise participate in unlawful acts.
The Bank Secrecy Act requires banks and other financial institutions to document to regulators whenever their clients deal with suspicious cash transactions, and helps to identify the source, volume, and movement of currency that is transported or transmitted into or out of the United States. While there is no clear definition of “suspicious cash transactions” included in the BSA, documentation is required for any transactions over $10,000.
While generally considered a positive piece of legislation, there is some criticism of the Bank Secrecy Act. For example, the BSA does not provide clear guidelines on what deems a cash transaction suspicious or not. In addition, the BSA requires a huge amount of collecting and maintaining data on the part of financial institutions. There is also a large time burden placed on law enforcement agencies and officers who are responsible for sorting through that data to identify true instances of fraud.
History of the Bank Secrecy Act
The Bank Secrecy Act was originally passed in 1970 and signed into law by President Richard Nixon. Since then, it has been updated and amended several times to strengthen anti-money-laundering programs at financial institutions across the country.
How does the Bank Secrecy Act work?
Businesses and financial institutions adhere to the BSA by filing different types of reports.
As a general rule, the Internal Revenue Service (IRS) requires that Form 8300 be filed if a business receives more than $10,000 in cash from an individual buyer through a single transaction or two or more related transactions. Form 8300 is required if any part of the transaction occurred within the United States or its territories. This IRS rule applies to everyone: individuals, companies, corporations, partnerships, associations, trusts, and estates all must file Form 8300 by the 15th day after the transaction takes place.
On the bank’s side, banks and financial institutions are required to complete a Currency Transaction Report (CTR) for cash transactions that exceed $10,000 in a single day. CTRs are required for that $10,000 amount even if the amount is exceeded by multiple transactions. A CTR will include the name of the individual completing the transaction, as well as their bank account number, address, and social security number. There are also penalties for financial institutions that fail to file a Currency Transaction Report when required.
Additionally, when a transaction seems suspicious—meaning it could point to money laundering or the client appears to be trying to avoid BSA reporting—the financial institution is required to file a suspicious activity report (SAR). An SAR reports the suspicious activity to the Financial Crimes Enforcement Network (FinCEN). Suspicious Activity Reports are filed by banks confidentially, and there are penalties for banks who disclose to a client that they have filed an SAR.
The Office of the Comptroller of the Currency (OCC) conducts regular examinations of banks, federal savings associations, federal branches, agencies of foreign banks in the US, and other financial institutions to ensure compliance with the BSA.