Money laundering is a heinous crime affecting millions of lives every year. It is the process of incorporating illegally obtained money into the legitimate financial system using various techniques. According to UN estimates, the size of money laundering every year is equivalent to 2-5% of global annual gross domestic product (GDP), translating to about US$800 billion to US$2 trillion per year.
In order to counter money laundering, governments and intergovernmental agencies have formulated certain rules, recommendations and procedures for subject entities and individuals. These together form anti-money laundering (AML) frameworks for regions and countries. AML frameworks are necessary for the safety of economies and societies, as they work as guidelines for detecting and preventing money laundering and related crimes.
Nations across the globe have come up with various legislations to counter money laundering. In general, these legislations define how financial institutions within a country will work with government agencies to protect clients, societies and the country. Some examples of these legislations include the Bank Secrecy Act (BSA) in the US, the USA Patriot Act, the Anti-money Laundering Directives (AMLDs) in Europe, the Sanctions and Anti-Money Laundering Act (SAMLA) in the UK and the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) in Canada.
Anti-Money Laundering (AML) Laws in the US
Being an economically developed country, the US finds money laundering as a serious problem affecting its financial system. It is estimated that about half of the money being laundered across the globe is done via financial institutions in the US. The country is among the first in the world to formulate effective laws to counter money laundering. It enacted the BSA in 1970 and the act has become one of the most important tools in the fight against money laundering. Since then, numerous other laws have enhanced and amended the BSA to provide law enforcement and regulatory agencies with the most effective tools to combat money laundering. Given below are the important AML laws in the US.
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Bank Secrecy Act (BSA) 1970
The Bank Secrecy Act (BSA) was introduced in the US in 1970 and is still the country’s most important anti-money laundering law. Administered by the Financial Crimes Enforcement Network (FinCEN), the BSA was formed to ensure that financial institutions in the US do not facilitate money laundering. It is the main authority that is entrusted with the formulation of regulations and policies to combat financial crime in the country. The major provisions of the BSA are the following:
- Recordkeeping and reporting requirements by private individuals, banks and other financial institutions
- Measures to identify the source, volume, and movement of currency and other monetary instruments transported or transmitted into or out of the US or deposited in financial institutions
- Requirements for banks to (1) report cash transactions over $10,000 using the Currency Transaction Report (CTR); (2) properly identify persons conducting transactions; and (3) maintain a paper trail by keeping appropriate records of financial transactions
Money Laundering Control Act 1986
The Money Laundering Control Act of 1986 designated money laundering as a federal crime and prohibited structuring transactions to evade CTR filings. The act also introduced civil and criminal forfeiture for BSA violations. Further, it directed banks to establish and maintain proper AML procedures to ensure and monitor compliance with the reporting and recordkeeping requirements of the BSA.
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Anti-Drug Abuse Act of 1988
The Anti-Drug Abuse Act of 1988 expanded the definition of a financial institution to include businesses such as car dealers and real estate closing personnel and required them to file reports on large currency transactions. It also required the verification of the identity of purchasers of monetary instruments over $3,000.
Annunzio-Wylie Anti-Money Laundering Act 1992
The Annunzio-Wylie Anti-Money Laundering Act of 1992 strengthened the sanctions for BSA violations and required Suspicious Activity Reports (SARs) and eliminated previously used Criminal Referral Forms (CRFs). The act also required from financial institutions verification and recordkeeping for wire transfers. It further established the Bank Secrecy Act Advisory Group (BSAAG).
Money Laundering Suppression Act 1994
The Money Laundering Suppression Act of 1994 required banking agencies to review and enhance training and develop anti-money laundering examination procedures. The act also required banking agencies to review and enhance procedures for referring cases to appropriate law enforcement agencies. Other major provisions of the act include:
- Streamlined CTR exemption process
- Registration requirements for each Money Services Business (MSB) by an owner or controlling person
- Requirements for every MSB to maintain a list of businesses authorized to act as agents in connection with the financial services offered by the MSB
- Operating an unregistered MSB became a federal crime
Money Laundering and Financial Crimes Strategy Act 1998
The Money Laundering and Financial Crimes Strategy Act of 1998 required banking agencies to develop AML training for examiners. The act also required the Department of the Treasury and other agencies to develop a National Money Laundering Strategy. It further created the High-Intensity Money Laundering and Related Financial Crime Area (HIFCA) Task Forces to concentrate law enforcement efforts at the federal, state and local levels in zones where money laundering is prevalent. HIFCAs may be defined geographically or they can also be created to address money laundering in an industry sector, a financial institution, or a group of financial institutions.
USA PATRIOT Act 2001
After the September 11, 2001 attacks, the US revamped the BSA and introduced the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act) that requires all financial institutions to establish their own AML programs. Title III of the act is referred to as the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001. The act criminalized the financing of terrorism and augmented the existing BSA framework by strengthening customer identification procedures. It also prohibited financial institutions from engaging in business with foreign shell banks. Other provisions of the act include:
- Requirements for financial institutions to have due diligence procedures and enhanced due diligence procedures for foreign correspondent and private banking accounts
- Improved information sharing between financial institutions and the US government by requiring government-institution information sharing and voluntary information sharing among financial institutions
- Expansion of the anti-money laundering program requirements to all financial institutions
- Higher civil and criminal penalties for money laundering
- Authorization for the Secretary of the Treasury to impose "special measures" on jurisdictions, institutions, or transactions that are of "primary money laundering concern"
- Requirement for banks to respond to regulatory requests for information within 120 hours
- Federal banking agencies started considering a bank's AML record when reviewing bank mergers, acquisitions, and other applications for business combinations
Intelligence Reform & Terrorism Prevention Act 2004
The Intelligence Reform & Terrorism Prevention Act of 2004 amended the BSA to require the Secretary of the Treasury to prescribe regulations requiring certain financial institutions to report cross-border electronic transmittals of funds.
Anti-Money Laundering Act (AMLA) 2020
The US Senate passed the National Defense Authorization Act (NDAA) 2021 on January 1, 2021. As part of the NDAA, the Anti-Money Laundering Act of 2020 (AML Act) is poised to amend the Bank Secrecy Act (BSA) for the first time since 2001. The AML Act will modernize the BSA. Specifically, it is intended to prevent money launderers from using shell companies to evade detection. Further, the Act will address emerging financial threats, encourage coordination and information sharing, and promote technological innovation. The AML Act provisions the creation of an Ultimate Beneficial Ownership (UBO) register and strengthens the enforcement’s ability to seek foreign bank records.
The PATRIOT Act and the Bank Secrecy Act provide a layer of protection to the USA’s economy and financial institutions against money laundering and other financial crimes. These laws encompass the procedure to recognize suspicious activity, flag off concerned authorities, and trigger the necessary legal action required to charge the criminals. These laws have the power to have suspicious financial institutions investigated by the Federal Reserve and the Office of the Comptroller of Currency. Financial institutions in the US should proper AML compliance programs to ensure compliance with these laws.
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