Unit
- History of AML Laws: The Bank Secrecy Act of 1970 established the foundation for U.S. anti-money laundering regulations, requiring financial institutions to maintain records and report large cash transactions. Subsequent legislation like the USA PATRIOT Act expanded these requirements to combat terrorist financing.
- International Standards: The Financial Action Task Force sets global standards for AML/CFT, issuing 40 recommendations that member countries implement into national laws. These recommendations cover customer due diligence, record keeping, and suspicious transaction reporting.
- Key U.S. Regulations: The Money Laundering Control Act of 1986 criminalized money laundering as a separate offense, while the Anti-Money Laundering Act of 2020 modernized reporting requirements and increased penalties for non-compliance.
- EU AML Directives: The European Union has issued several AML Directives, the most recent being the 6th AML Directive, which harmonizes definitions of money laundering offenses across member states and enhances cooperation between national authorities.
- Suspicious Activity Report Requirement: Under the Bank Secrecy Act, financial institutions must file a SAR with the Financial Crimes Enforcement Network for any transaction that they suspect involves funds derived from illegal activity or attempts to disguise such funds.
- Reporting Entities: Banks, credit unions, money services businesses, securities brokers, casinos, and insurance companies are among the entities legally obligated to file SARs. Each sector may have specific regulatory guidance.
- Penalties for Non-Compliance: Failure to file SARs or filing incomplete reports can result in significant fines, regulatory sanctions, and in severe cases, criminal liability for compliance officers and senior management.
- Confidentiality Requirements: The law prohibits tipping off any person involved in the suspicious transaction that a SAR has been filed. This confidentiality extends to legal proceedings and requires secure handling of SAR records.
- Filing Timelines: Financial institutions must file a SAR within 30 calendar days of detecting the suspicious activity. If no suspect is identified, an additional 30 day extension is allowed, requiring a maximum of 60 days from initial detection to complete the filing.
- Suspicious Activity Indicators: Common red flags include unusually large transactions inconsistent with customer profiles, rapid movement of funds through multiple accounts, structuring deposits below reporting thresholds, and transactions involving high risk jurisdictions without clear business rationale.
- CTR versus SAR Distinction: A Currency Transaction Report is filed for cash transactions exceeding USD 10,000 in a single business day, while a SAR covers any transaction regardless of amount that appears suspicious. Both reports serve different regulatory purposes and have distinct filing thresholds and triggers.
Regulatory Requirement
Regulation: FATF Recommendation 20
Requires financial institutions to report suspicious transactions to the Financial Intelligence Unit without delay, regardless of the transaction amount.
Decision Logic
Q: Is the transaction above the threshold and lacks a clear economic purpose?
If yes: Initiate internal review and prepare SAR.
If no: Document rationale and continue monitoring.
Formula
Regulatory Compliance Score
RCS = (I / T) x 100
RCS = (I / T) x 100
Where:
- I: Number of implemented regulatory requirements
- T: Total applicable regulatory requirements
- RCS: Percentage score indicating compliance level
Quick Revision
- The Bank Secrecy Act forms the backbone of U.S. AML reporting obligations.
- FATF provides international standards that shape national laws.
- Key regulations include the USA PATRIOT Act, Money Laundering Control Act, and EU AML Directives.
- Financial institutions must file SARs for any suspicious transaction.
- Reporting entities span across multiple financial sectors.
- Non-compliance can lead to severe penalties and criminal liability.
- Confidentiality and no-tipping-off are critical legal requirements.