Gavin Howe
Anti-money laundering (AML) laws are an international web of regulations and procedures aimed at uncovering money that has been disguised as legitimate income. Money laundering is a process where money is moved around to create confusion, and integrated into the financial system through additional transactions until the dirty money appears clean. The first AML laws in the US were created in 1970 with the Bank Secrecy Act (BSA), which helped formalize a federal framework for AML. 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. The European Union (EU) adopted its first anti-money laundering directive in 1990, and has since strengthened its AML rules across the EU.
| Characteristics | Values |
|---|---|
| Basis for AML laws in the US | Bank Secrecy Act (BSA) of 1970 |
| Purpose of BSA | Help detect and report suspicious activity, including predicate offenses to money laundering and terrorist financing |
| BSA requirements | Banks to identify customers, maintain records of transactions, and file CTRs for cash transactions exceeding $10,000 |
| Federal law making money laundering a crime | Money Laundering Control Act of 1986 |
| First anti-money laundering Directive in the EU | Adopted in 1990 |
| US global Anti-Money Laundering efforts | Financial Action Task Force (FATF) |
| Latest US AML law | Anti-Money Laundering Act of 2020 |
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What You'll Learn
The Bank Secrecy Act (BSA) of 1970
Anti-money laundering (AML) laws are an international web of regulations and procedures aimed at uncovering money disguised as legitimate income. AML laws have been in place for centuries, but the first modern AML law in the US was the Bank Secrecy Act (BSA) of 1970.
The BSA was established to combat money laundering and has since been enhanced and amended by numerous other laws to provide law enforcement and regulatory agencies with the most effective tools. The BSA requires businesses to keep records and file reports that are useful in criminal, tax, and regulatory matters. These records and reports are heavily used by law enforcement agencies, both domestic and international, to identify, detect, and deter money laundering in furtherance of criminal enterprises, terrorism, tax evasion, or other unlawful activity. The BSA also requires banks to report cash transactions over $10,000 using the Currency Transaction Report, properly identify persons conducting transactions, and maintain a paper trail by keeping appropriate records of financial transactions.
The Financial Crimes Enforcement Network (FinCEN), a bureau of the US Department of the Treasury, acts as the designated administrator of the BSA. FinCEN issues guidance and regulations that interpret and implement the BSA and other AML laws, providing financial institutions with detailed instructions on how to comply with AML requirements. FinCEN also works with other agencies, such as the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the National Credit Union Administration, to encourage banks to meet their BSA/AML compliance obligations and strengthen the financial system.
The OCC prescribes regulations, conducts supervisory activities, and takes enforcement actions to ensure that national banks have the necessary controls in place to deter and detect money laundering, terrorist financing, and other criminal acts. The OCC's implementing regulations can be found at 12 CFR 21.11 and 12 CFR 21.21. The BSA was amended to incorporate the provisions of the USA PATRIOT Act, which requires banks to adopt a customer identification program as part of their BSA compliance. As of April 1, 2013, financial institutions must use the Bank Secrecy Act BSA E-Filing System to submit Suspicious Activity Reports within 30 calendar days of initial detection.
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The Money Laundering Control Act of 1986
Section 1956 prohibits individuals from engaging in financial transactions involving proceeds from specific crimes, known as "specified unlawful activities" (SUAs). It criminalizes the active engagement in money laundering, including the laundering of monetary instruments like currency, personal checks, and money orders. This section applies to both individuals and legal entities, such as financial institutions. It is important to note that there is no minimum threshold of money specified in this section, nor is there a requirement for the transaction to successfully disguise the funds.
Section 1957 makes it a crime to knowingly engage in financial transactions through a U.S. or foreign bank or financial institution involving property derived from specified unlawful activities if the transaction amount is greater than $10,000. This section specifically targets the practice of "structuring," where large cash deposits are broken down into smaller amounts to avoid bank reporting requirements, such as the filing of Currency Transaction Reports (CTRs).
To further strengthen anti-money laundering efforts, financial institutions are subject to various laws and regulations specifically designed to prevent and detect money laundering. Compliance professionals play a vital role in assisting these institutions, and AML software offers additional support in combating money laundering activities.
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The USA PATRIOT Act
Anti-money laundering (AML) laws are an international network of laws, regulations, and procedures aimed at uncovering money that has been disguised as legitimate income. AML laws have been in place for centuries, but their enforcement gained greater global prominence in 1989 when several countries and non-governmental organizations (NGOs) formed the Financial Action Task Force (FATF). The FATF is an intergovernmental body that promotes the adoption of international standards to prevent money laundering.
In the United States, one of the most important tools in the fight against money laundering is the Bank Secrecy Act (BSA), established in 1970. Since then, numerous laws have been passed to enhance and amend the BSA, providing law enforcement and regulatory agencies with more effective tools to combat money laundering.
One such law is the USA PATRIOT Act, which was enacted in 2001. The official title of the act is "Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001." The purpose of the USA PATRIOT Act is to deter and punish terrorist acts, enhance law enforcement investigatory tools, and strengthen the United States' ability to combat terrorism and money laundering.
Additionally, the USA PATRIOT Act prescribes regulations establishing minimum standards for financial institutions and their customers regarding customer identification and the opening of accounts. Section 351 expands immunity from liability for reporting suspicious activities and prohibits the notification of individuals involved in suspicious transactions. The Act also requires financial institutions to establish anti-money laundering programs, including the development of internal policies, procedures, controls, and employee training programs.
Overall, the USA PATRIOT Act is a comprehensive piece of legislation that plays a crucial role in the United States' efforts to combat terrorism and money laundering by enhancing the tools available to law enforcement and financial institutions.
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The Anti-Money Laundering Act of 2020
Anti-Money Laundering (AML) laws are an international web of regulations and procedures aimed at uncovering money disguised as legitimate income. AML laws have been in place for decades, with the Bank Secrecy Act (BSA) established in 1970 as one of the most important tools in the fight against money laundering. Since then, numerous laws have enhanced and amended the BSA, providing law enforcement with effective tools to combat money laundering.
One of the key provisions of the Act is the requirement for financial institutions to establish, implement, and maintain effective, risk-based, and reasonably designed AML/CFT programs. These programs include a mandatory risk assessment process and the incorporation of government-wide AML/CFT priorities. The Act also notes that these programs should be ''risk-based" and "reasonably designed to assure and monitor compliance" with the BSA requirements.
The Act also addresses the challenges posed by the decentralized nature of cryptocurrency markets. While traditional AML frameworks were not initially adequate for the cryptocurrency ecosystem, regulators have made significant progress. Blockchain analysis and monitoring tools enable financial institutions and law enforcement to identify and investigate suspicious cryptocurrency transactions. Crypto forensic services can flag crypto wallets, exchanges, and transactions tied to designated terrorist organizations, sanctions lists, and other criminal activities.
The Financial Crimes Enforcement Network (FinCEN) is responsible for implementing many of the Act's requirements. FinCEN has been tasked with assessing how new technologies can help detect financial crimes and establishing standards for financial institutions to test anti-money laundering-related technology. However, as of June 2024, FinCEN has yet to provide a full update on its progress in meeting these requirements.
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AML/CFT policies
Anti-money laundering (AML) laws are an international network of laws, regulations, and procedures aimed at uncovering money that has been disguised as legitimate income. AML laws have been in place since 1970, with the establishment of the Bank Secrecy Act (BSA) in the United States, which serves as one of the most important tools in the fight against money laundering. Since then, numerous other laws have been enacted to enhance and amend the BSA, providing law enforcement and regulatory agencies with more effective tools to combat money laundering.
The implementation of AML/CFT policies involves various sectors, including banking, insurance, money services businesses, electronic money providers, and non-financial sectors. These policies establish requirements for record-keeping, reporting, and customer identification to ensure compliance and detect potential money laundering or terrorist financing activities.
For example, on September 15, 2013, several AML/CFT policy documents were issued for different sectors. These documents provided guidelines and regulations for banking institutions, insurance companies, money services businesses, and electronic money providers. Additionally, supplementary documents and technical notes have been released to provide further guidance and address specific aspects of AML/CFT compliance.
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Frequently asked questions
The Bank Secrecy Act (BSA) of 1970 was the first AML law in the US.
I cannot find the information on the first AML law globally. However, the US passed the first AML law in 1970, and dedicated anti-money laundering legislation was only implemented in the 1980s.
AML laws are intended to stop criminals from disguising illegally obtained funds as legitimate income.
Some examples of AML laws include the Money Laundering Suppression Act of 1994, the Money Laundering and Financial Crimes Act of 1998, and the Anti-Money Laundering Act of 2020.
Many countries have implemented AML laws, including the United States, Australia, Canada, the United Kingdom, and Switzerland.
