As the financial landscape changes, regulators are increasingly making sure that all financial institutions are following the same rules. This includes creating a framework for how to prevent money laundering and keep consumers safe. Here’s a look at some of the key laws that have changed financial institutions over many years:
Bank Secrecy Act
The Bank Secrecy Act (BSA) is a law that requires banks, financial institutions, and non-financial businesses to assist government agencies in detecting and preventing money laundering activities. The BSA was enacted in 1970 to help deter money laundering, which often involves the movement of large amounts of cash through legitimate businesses such as casinos or real estate companies.
The BSA has been amended several times since its introduction and now carries penalties for failure to comply with its provisions.
The Patriot Act was passed by the US Congress in 2001 in response to the September 11 attacks. The act laid out new rules for law enforcement agencies, helping them track down terrorists and prevent future attacks.
The Patriot Act changed the way financial institutions work by requiring them to identify their customers more accurately and monitor transactions more closely than they did before 9/11.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
As you might guess from its name, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) was passed to restore public confidence in the banking system. The act created the Office of Thrift Supervision (OTS), which became responsible for all national banks that were not members of the Federal Reserve System. It also created FinCEN and imposed new reporting requirements on financial institutions.
FinCEN is an agency under the Treasury’s Departmental Offices within its Office of Terrorism and Financial Intelligence (TFI). FinCEN’s mission is to analyze and combat money laundering activities across the U.S., foreign jurisdictions as well as other countries’ financial systems.
The goal is to prevent terrorists from accessing funds or raising illicit funds through international wire transfers or other methods, such as cash smuggling schemes using prepaid cards, etc.
The Money Laundering Control Act of 1986
The Money Laundering Control Act of 1986 (MLCA) was enacted in 1986 to address the problem of money laundering. The MLCA regulations made it a federal crime to engage in monetary transactions that conceal the source, ownership, and control of funds.
While this law doesn’t require financial institutions to report suspicious activity, it does require them to have written policies and procedures for identifying suspicious activity and implementing an effective program for AML (anti-money laundering) in banks. That’s why it is crucial for financial institutions to keep themselves updated with the current AML regulations.
As time went on, financial institution regulators such as the FDIC began issuing guidance requiring banks and other CIP-covered entities to develop AML programs designed to detect potential money laundering activities or related violations involving their accounts or customers.
According to Statista, there were 4,236 FDIC-insured commercial banks in the U.S. in 2021. Though the number of such banks has been declining since 2000, when it was over 8,300 such banks.
Monetary Control Act
The Monetary Control Act of 1980, passed in November of that year and signed into law by President Jimmy Carter, gave the Federal Reserve Board the authority to regulate financial institutions and required them to report suspicious activity.
The act also required financial institutions to maintain and report currency transaction records for transactions exceeding $10,000 in any one day or multiple transactions totaling more than $10,000 during any one business day.
It mandated that banks keep records on cash purchases over $10k and established reporting requirements for such activities by customers who had been suspected of criminal activity.
Racketeer Influenced and Corrupt Organizations (RICO) Act
The Racketeer Influenced and Corrupt Organizations (RICO) Act was enacted in 1970 to combat organized crime. It allows for the prosecution of fraud and other crimes as acts of racketeering. The law also allows prosecutors to seize property obtained through criminal activities, even if the perpetrator does not own it.
In a financial context, this law can be used to prosecute fraud perpetrated by an individual or organization on an institutional level rather than just focusing on individuals committing fraud against their employers individually.
As per PwC’s global economic crime and fraud survey, 51% of organizations surveyed said that they have experienced fraud in the last two years, which is the highest in the last 20 years of research.
If you run a financial institution in the US, you have been following a set of laws that aims to prevent money laundering. According to Zippia, money laundering in the U.S. is 15% to 38% of the money laundered worldwide. Globally, money laundering amounts to as much as 800 billion USD to 2 trillion USD annually.
The laws mentioned above are mandatory and apply to all financial institutions to stop money laundering. The Financial Crimes Enforcement Network (FinCEN), which is part of the US Department of Treasury, regulates these laws and issues guidance to financial institutions on how they should implement them.