Overview of BSA/AML, OFAC Regulations, and the Regulatory Bodies

Money laundering is rampant globally. 'The estimated amount of money laundered globally in one year is 2 - 5% of global GDP, or $800 billion - $2 trillion in current US dollars.' (UNDOC). The staff of financial institutions, must be aware of their responsibilities in preventing the 'dirty money' entering into the system. They must also understand the Anti-money laundering regulations to ensure compliance as individuals and institutions.

Sadly, some corporates and professionals fail to comply with the regulations due to negligence. Others intentionally violate the regulations. The cost of noncompliance is too high.


Corporate penalties for noncompliance include:

  • Loss of Licensing
  • Insurance revocation
  • Cease and Desist order
  • Formal written agreement
  • Fines up to $500,000 or 2x the amount involved in the transaction
  • Monetary loss from the asset forfeiture actions, fraud, or charge off
  • Loss of company value
  • Substantial legal fees
  • Reputation risks

Personal penalties for violations include:

  • Imprisonment up to 20 years
  • Personal fines to employees
  • Money loss from asset forfeiture action, fraud, or charge off
  • Substantial legal fees
  • Reputation risk
  • Fired or barred from the financial industry

The bottom line: Directors, Management and Staff of financial institutions, Make sure you full understand your regulations and comply!

This article provides an overview of the pertaining BSA/AML and OFAC regulations to help financial professionals comply. It also discusses the regulatory bodies, their functions in brief and directs you to useful resources for compliance.

  1. Acronyms used in context

  2. Acronyms

  3. What is money laundering?

  4. "Money-laundering is the process that disguises illegal profits without compromising the Criminals who wish to benefit from the proceeds."

    money laundering
    Source: UNODC

  5. Why have the Anti-Money Laundering Regulation?

  6. Talking about the purpose of the money laundering regulations on 23rd April, 2013, James H. Freis, Jr., the FinCen Director, identified why the AML regulations are needed.

    "The Financial Crimes Enforcement Network ("FinCEN") believes that Residential Mortgage Lenders and Originators ("RMLOs" (e.g., independent mortgage loan companies and mortgage brokers) "are primary providers of mortgage finance - in most cases dealing directly with the consumer and are in a unique position to assess and identify money laundering risks and fraud while directly assisting consumers with their financial needs and protecting them from the abuses of financial crime."

    The AML helps in:

    • Identifying the money laundering risks and fraud
    • Protecting consumers from the abuses of financial crime
    • Preventing money laundering or the financing of terrorist activities

    OFAC overview

    The key regulatory bodies and their functions are discussed in the last section of this article.

  7. AML regulatory requirements - What is expected of financial institutions?

  8. Effective August 13, 2012, Lenders (regardless of company size and type of company) must be in compliance and have an AML Program IN FORCE. In accordance with B'1029.210 they should:

    1. 'Incorporate policies, procedures, and internal controls based upon the loan or finance company's assessment of the money laundering and terrorist financing risks associated with its products and services. Policies, procedures, and internal controls developed and implemented by a loan or finance company under this section shall include provisions for complying with the applicable requirements of subchapter II of chapter 53 of title 31, United States Code and this part, integrating the company's agents and brokers into its anti-money laundering program, and obtaining all relevant customer-related information necessary for an effective anti-money laundering program.'
    2. 'Designate a compliance officer'
    3. 'Provide for on-going training of appropriate persons concerning their responsibilities under the program. A loan or finance company may satisfy this requirement with respect to its employees, agents, and brokers by directly training such persons or verifying that such persons have received training by a competent third party with respect to the products and services offered by the loan or finance company.'
    4. 'Provide for independent testing to monitor and maintain an adequate program, including testing to determine compliance of the company's agents and brokers with their obligations under the program. The scope and frequency of the testing shall be commensurate with the risks posed by the company's products and services. Such testing may be conducted by a third party or by any officer or employee of the loan or finance company, other than the person designated in paragraph (b)(2) of this section.'
  9. Bank Secrecy Act (BSA) - 31 USC 5311

  10. The Bank Secrecy Act (BSA) is the primary U.S. anti-money laundering (AML) law.

    The Act is designed to aid federal government in detecting illegal activity through tracking certain cash-based transactions.

    BSA requirements:

    • Lenders are required to file reports of daily transactions conducted in currency in amounts over $10,000.
    • Keep records on beneficiaries and originators of funds transfers in amounts over $3,000
    • Gather information and keep records on sales of money orders, cashier's checks, and traveler's checks in amounts between $3,000 and $10,000 via escrow or from the company

    pillers of bank Secrecy

    Compliance officer:

    The BSA / AML / OFAC Compliance Officer is responsible for developing, implementing and administering all aspects of the Bank Secrecy Act Compliance Program, and for assuring that the bank is in compliance with the Bank Secrecy Act, USA Patriot Act, OFAC, and all other applicable laws.

    Internal controls:

    'The board of directors, acting through senior management, is ultimately responsible for ensuring that the bank maintains an effective BSA/AML internal control structure, including suspicious activity monitoring and reporting. The board of directors and management should create a culture of compliance to ensure staff adherence to the bank's BSA/AML policies, procedures, and processes. Internal controls are the bank's policies, procedures, and processes designed to limit and control risks and to achieve compliance with the BSA. The level of sophistication of the internal controls should be commensurate with the size, structure, risks, and complexity of the bank. Large complex banks are more likely to implement departmental internal controls for BSA/AML compliance. Departmental internal controls typically address risks and compliance requirements unique to a particular line of business or department and are part of a comprehensive BSA/AML compliance program.' - Bank Secrecy Act, Anti-Money Laundering Examination Manual

    Education and Training:

    Well-designed training programs are an integral part of the BSA/AML and OFAC compliance program. While the staff training should be ongoing, it is also important to ensure that it is documented and incorporates the current developments and changes to the BSA/AML regulations. Everyone attending the training must understand their part in maintaining compliance.

    Independent Testing:

    Testing should include all of the entity's activities and the results to help the Board of Directors and or/Executive management identify gaps, make improvements and establish additional controls. Also, the Company's written policies and procedures, the qualifications of the AML officer, the training materials and attendance logs must be reviewed.

    Cyber security:

    The Final Rule for Customer Due Diligence (CDD), effective July 11, 2016 for banks and other covered financial institutions to identify and verify the identity of the natural persons behind the legal entity customers - the beneficial owners.

  11. Key AML Regulators

    Office of Foreign Asset Control (OCC)
    • Administers and enforces economic sanctions Targeted foreign countries, terrorists and terrorism sponsored organizations, International narcotic traffickers.
    • Authority over every financial transactions
    • Prohibits business with those on the OFAC lists
    Financial Crimes Enforcement Network (FinCEN)
    • Administers BSA/AML
    • Recommends and finalizes rules
    • Provides guidance, issue advisories, bulletins and fact sheets
    • Gathers and provides information to financial institutions, law enforcement and Insurance companies and others.
    • Administers 314 (a) program and 314 (b) voluntary program
    Office of the Comptroller of Currency (OCC)
    • Regulates and supervises all national banks and thrift institutions and the federally licensed branches and agencies of foreign banks in the United States to determine whether or not the bank is operating safely and soundly, providing fair access and treatment to customers, and complying with all applicable laws and regulations.
    Federal Reserve
    • The Board of Governors, the Federal Reserve Banks, and the Federal Open Market Committee work together to promote the health of the U.S. economy and the stability of the U.S. financial system.
    • Conducts Monetary policy
    • Promotes Financial system stability
    • Supervises and regulates financial institutions and activities
    • Fosters payment and settlement system safety and efficiency
    • Promotes consumer protection and community development.
    Office of the Thrift Supervision (OTS)
    • Primary federal regulator of all federal and state-chartered savings institutions across the nation that belong to the Savings Association Insurance Fund (SAIF).
    • OTS issues federal charters for savings and loan associations and savings banks.
    • This Bureau also adopts and enforces regulations to ensure that both federal and state-chartered thrift institutions operate in a safe and sound manner.
    Federal Deposit Insurance Corporation (FDIC)
    • Provides deposit insurance to depositors in U.S. commercial banks and savings institutions.
    • Examines and supervises certain financial institutions for safety and soundness, performs certain consumer-protection functions, and manages receiverships of failed banks.
    Securities and Exchange Commission (SEC)
    • Responsible for enforcing the federal securities laws, proposing securities rules, and regulating the securities industry, the nation's stock and options exchanges, and other activities and organizations, including the electronic securities markets in the United States
    • Enforces the Securities Act of 1933, the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Sarbanes-Oxley Act of 2002, and other statutes.
    Internal Revenue Service (IRS)
    • Responsible for collecting taxes and administering the Internal Revenue Code, the main body of federal statutory tax law of the United States.
    • Provides tax assistance to taxpayers and pursuing and resolving instances of erroneous or fraudulent tax filings
    • Oversees various benefits programs, and enforces portions of the Affordable Care Act.

  13. Useful Resources to help you comply

  14. AML/BSA Boot Camp - This course is approved by NASBA (National Association of State Boards of Accountancy). Seminar attendees are eligible for 16.5 CPE credits upon completion of this workshop.

    BSA/AML Contextual Awareness of High Risk Customers - This webinar will highlight the steps to identify and evaluate high-risk customers. Learn how to perform BSA, AML risk assessments.

    Bank Secrecy Act (BSA) Audit Best Practices - This BSA audit training will explain how the best practices in a BSA audit have evolved over the years. It will cover the major components of an effective BSA program that the audit focuses on and the specifics of each area as it pertains to BSA audits.

    AML Model Validation: A Critical Need in the New Regulatory Environment - This training program will discuss the history and origin of a model validation. It will also discuss the requirements by the OCC for a model validation, and what exactly a model validation should include. The session will also analyze the elements of a model validation to know what to look for in an RFP, and detail the requirements included in Final Rule 504.

    FinCEN's New CDD Rule - The New Fifth Prong of the AML - This course is focused beyond the initial customer acceptance step, requiring updating and ongoing monitoring against baseline "normal" activity for the customer type. This course is approved by NASBA (National Association of State Boards of Accountancy). Attendees of Live Webinar are eligible for 1.2 CPE credit up on full completion of the course.

    Banking MSBs: BSA/AML Risks, Mitigation of Risks and Rewards - This course is designed to assist Financial Institutions in formulating their strategy for banking MSBs, regulatory bodies overseeing MSB compliance, income and expense characteristics in banking MSBs, balance sheet impacts, perceptions and misperceptions of MSBs, risk between MSB entities and how to strengthen your financial institution's BSA/AML program.

    Tax Evasion and Tax Fraud - What it means to you when monitoring BSA and filing SARs -This training on BSA compliance will help you understand the concept of tax evasion and tax fraud and the difference between the two. Learn the best practices to identify tax fraud and how to report suspicious activity.

    FinCEN Final Rule on Customer Due Diligence Requirements | BSA/AML Policy, CIP Procedure - The instructor will help Interpreting key definitions and type of information your institution will need to obtain from customers. He will also discuss how to identify potential changes/updates you may need to make to your BSA Policy, including CIP procedures, and account opening processes.

    Preparing for a BSA/OFAC Regulatory Examination - This webinar will address steps a company can take in advance to optimize the progress of a BSA/OFAC regulatory examination. It will provide guidelines for positively and accurately representing your AML and OFAC programs to regulators for the most efficacious outcome.

    BSA/AML Compliance Checklists - This training on the Bank Secrecy Act will highlight the development and implementation of BSA/AML Compliance Checklists. Attendees will learn the best practices to avoid BSA violations.