What is anti-money laundering (AML) in the US?

Anti-money laundering (AML) in the US

Money laundering involves concealing the origins of illegally obtained funds to make them appear legitimate. Similarly, terrorism financing involves providing financial support to terrorist organizations or facilitating terrorist activities. AML regulations in the US are designed to identify and deter these illicit activities by establishing stringent compliance requirements for financial institutions and other businesses.

The primary legislation governing AML in the United States is the Bank Secrecy Act (BSA) of 1970. The Bank Secrecy Act (BSA) encompasses a set of laws and regulations implemented in the United States to combat money laundering and terrorism financing. It serves as a cornerstone for fostering financial transparency and deterring individuals and entities attempting to exploit the US financial system for illicit activities such as money laundering, terrorist financing or other unlawful purposes. 

The BSA requires financial institutions to maintain records of certain transactions and report suspicious activities to the appropriate authorities. Additionally, the USA PATRIOT Act of 2001 expanded the scope of AML regulations to enhance efforts in combating terrorism financing. It introduced obligations concerning customer due diligence (CDD) for US private banking and correspondent bank accounts involving non-US persons, as well as the requirement for financial institutions to have customer identification programs for new customers, among other measures.

The Financial Crimes Enforcement Network (FinCEN), a bureau of the US Department of the Treasury, is the primary regulatory authority responsible for enforcing AML laws and regulations. FinCEN oversees the collection, analysis and dissemination of financial intelligence to combat money laundering and terrorist financing activities.

Obligations under AML regulations in the United States

Financial institutions and certain businesses, known as “covered entities,” are subject to AML regulations. These entities include banks, credit unions, securities firms, money services businesses (MSBs), foreign exchange dealers, casinos, crypto exchanges and insurance companies, among others.

The key obligations that covered entities must comply with under AML regulations include:

1. Customer Identification Program (CIP). Covered entities must establish and implement CIP procedures to verify the identity of customers opening accounts or conducting transactions.
2. Suspicious Activity Reporting (SAR). Covered entities must file SARs with FinCEN for transactions or activities that raise suspicion of money laundering or terrorism financing.
3. Currency Transaction Reporting (CTR). Covered entities must report cash transactions exceeding a certain threshold to FinCEN through CTR filings.
4. Enhanced Due Diligence (EDD). In cases involving higher-risk customers or transactions, covered entities are expected to conduct enhanced due diligence to mitigate potential money laundering or terrorism financing risks.

Penalties for non-compliance with AML regulations

Failure to comply with AML regulations can result in severe penalties for covered entities. Penalties may include civil fines, regulatory sanctions, enforcement actions and reputational damage. Regulatory agencies such as FinCEN and the Office of the Comptroller of the Currency (OCC) enforce AML regulations and may impose sanctions for non-compliance.

AML regulations play a vital role in safeguarding the integrity of the US financial system and protecting it from abuse by criminals and terrorist organizations. Covered entities must remain vigilant and ensure compliance with AML obligations to detect and prevent illicit financial activities effectively. By upholding AML standards, financial institutions and businesses contribute to maintaining a secure and transparent financial environment.

Summary

• The Bank Secrecy Act (BSA) of 1970 serves as the primary AML legislation. It focuses on detecting and preventing money laundering and terrorism financing activities.
• The USA PATRIOT Act of 2001 expanded AML efforts to combat terrorism financing and enhance financial transparency.
• The Financial Crimes Enforcement Network (FinCEN), under the US Department of the Treasury, is the primary regulatory authority overseeing AML enforcement.
• Covered entities subject to AML regulations include banks, credit unions, securities firms, money services businesses and others.
• Obligations under AML regulations include Customer Identification Program (CIP), Suspicious Activity Reporting (SAR), Currency Transaction Reporting (CTR) and Enhanced Due Diligence (EDD).
• Failure to comply with AML regulations can result in severe penalties, including civil fines, regulatory sanctions and reputational damage.

Sources:

Financial Industry Regulatory Authority (FINRA). Anti-Money Laundering (AML). 

FinCEN. History of Anti-Money Laundering Laws. 

Sanction Scanner. Anti-Money Laundering (AML) in United States of America. 

Federal Deposit Insurance Corporation. Bank Secrecy Act / Anti-Money Laundering (BSA/AML).

US Department of the Treasury. Money Laundering.