AUTHORED BY EKATERINA LONG
Domestic financial institutions and agencies of foreign banks operating in the U.S. must comply with the requirements of the Bank Secrecy Act. [1] The BSA broadly defines financial institution, encompassing, brokers or dealers in securities or commodities, credit unions, commercial banks, and trust companies. [2]
The BSA obligates these institutions to maintain records and report certain monetary transactions so law enforcement can more easily identify and combat money laundering as well as conduct terrorist financing investigations.
Enforcement of BSA compliance rests with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) and its delegates. [3]
On August 18, 2020, FinCEN released a statement clarifying its enforcement procedure with respect to actual and potential BSA violations. FinCEN first identifies a statute or regulation that a financial institution either violated or is about to violate. It then determines the appropriate action to remediate the violation or prompt the institution to fully comply with the BSA.
Several factors help FinCEN implement its enforcement procedure. Some of these factors may be more important than others, depending on the circumstances of a case. FinCEN may consider:
- The violation’s nature and gravity, including the extent of possible harm to the public;
- The violation’s harm on FinCEN’s mission to safeguard the financial system from the illicit use, combat money laundering, and promote national security;
- The wrongdoing’s pervasiveness within an entity, including management’s complicity in and enabling or awareness of the conduct underlying the violation;
- History of similar violations or misconduct in general, including past criminal, civil, and regulatory actions;
- Financial gain or other benefit resulting from or attributable to the violation;
- Presence or absence of prompt effective action to end the violation upon discovery, including self-initiated remediation;
- Timely and voluntary disclosure of the violation to FinCEN;
- Quality and extent of cooperation with FinCEN and other relevant agencies;
- Systematic nature of the violation, including the number, extent, and duration of the violation and failure rates; and
- Whether another agency took enforcement action for related activity and amount of any fine, penalty, forfeiture, or remediation ordered.
FinCEN stressed the non-exclusivity of the factors. The underlying tenor evinces FinCEN’s concern with discerning the level of intent an institution may have had in violating the BSA and foreshadows other factors that might guide FinCEN in its enforcement procedure.
FinCEN may be more likely to find a violation, for example, if an institution has a pattern of financial misconduct or is slow to comply with the investigation.
Regulated institutions can contest FinCEN’s findings. If an institution is successful, FinCEN may close the case and take no action or, in some cases, may issue a warning letter.
If FinCEN later discovers information about the case that would lead it to believe a violation occurred, FinCEN can reopen the case for further investigation—including a referral to a criminal law enforcement agency for criminal investigation and prosecution.
Less grave remedies available to FinCEN include a settlement and an assessment of a civil money penalty. At any time during its investigation of an institution involving a past or future violation, FinCEN may obtain an injunction to secure the institution’s BSA compliance.
FinCEN’s statement should prompt financial institutions’ legal departments to reassess the adequacy of their AML programs as well as their compliance with BSA’s registration, recordkeeping, and reporting requirements.
[1] 31 U.S.C. § 5311 et seq.
[2] 31 U.S.C. § 5312(a)(2).
[3] 31 C.F.R. § 1010.810.
