Basics of Anti Money Laundering and Bank Secrecy Act Compliance

Money laundering should be understood as the set of mechanisms or procedures to give the appearance of legitimacy or legality to goods or assets of criminal origin. Thus, for money laundering to exist, it is necessary to have previously committed a serious criminal act (with an associated prison sentence) and to have obtained illegal profits that are to be introduced into the financial markets or other economic sectors.

Although the concealment of profits from illicit activities has always existed, the fact is that money laundering took on a significant dimension in the 1980s, when it became (inextricably) linked to drug trafficking. From this moment on, the phenomenon acquires an extraordinary relevance and hence a more significant concern on the part of the authorities, which has resulted in continuous legislative efforts to try to put an end to it.

Drug trafficking has experienced significant development in the 21st century, a growth that two events of great importance have favored: western economic development and the process of economic globalization. As a result, drug traffickers have achieved an enormous accumulation of capital and consequent development of structures and organizations that allow them to continue and expand their activity and, at the same time, evade the action of justice since it is more difficult for the authorities to combat them. Therefore, laundering began to be prosecuted more forcefully from this moment on, and mainly as a measure to prevent the expansion of drug trafficking. In addition, the realization that money laundering was carried out through the financial system and with great ease due to a series of circumstances led the international community to begin to legislate on the matter.

The Bank Secrecy Act, also called the Foreign Transactions and Currency Information Act was enacted in 1970 by President. Richard Nixon. This law requires banks and other financial institutions in the United States to keep records and file reports on currency transactions and suspicious activities with the government. The Bank Secrecy Act (BSA), some of the time alluded to as the AML (anti-money laundering), was defined to examine suspected money laundering and misrepresentation cases and identify unlawful monetary activities by following dubious cash transactions. The BSA is used by various U.S. government agencies, including the Internal Revenue Service (IRS) and the Federal Bureau of Investigation (FBI). This law has been amended several times, and its scope has been expanded.

The BSA requires all financial institutions to comply with specific provisions and requires bank officials to formulate internal compliance programs. In its most straightforward structure, an inside compliance program should be drafted, supported by the chiefs, and incorporate a design of internal controls to guarantee compliance with the BSA, outer or inward examining of the establishment’s compliance, day-to-day management by a predefined individual, and preparing for money observing staff. The BSA also requires detailed tracking of accounts that have been opened or closed. In addition, senior management employees of a financial institution should be updated periodically with audit and compliance reports to ensure anti money laundering and bank secrecy act compliance knowledge.

Money laundering and terrorist financing typically take place in an international context. Therefore, if measures were only accepted at the national or regional level without considering this international aspect, it would not be possible to combat these problems effectively.