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Anti-Money Laundering: The Financial Industry

Started ‎11-15-2023 by
Modified ‎11-15-2023 by
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This article is the second part of a three-part series that discusses Anti-Money Laundering.

            • The Basics
            • The Financial Industry (this article!)
            • Real Life Examples


Remember in Part 1, the Bank Secrecy Act (BSA) and Money Laundering Control Act (MLCA) required financial institutions to report:

  • cash transactions over $10,000 with the Currency Transaction Report (CTR)
  • suspicious activity with the Criminal Referral Form, later replaced with the Suspicious Activity Report (SAR)


While previous regulations required financial institutions to establish recordkeeping and reporting requirements, it wasn’t until the USA PATRIOT ACT in 2001 that the regulations for financial institutions started piling up. An example of some of those new requirements are as follows:

Four Pillars

Section 352 defined the minimum requirements for an anti-money laundering program as:


    • the development of internal policies, procedures, and controls.
    • designation of a compliance officer.
    • an ongoing employee training program.
    • an independent audit function to test programs.


Well yeah, if you are going to have an AML program, it should have someone in charge and be documented and tested. But this means purchasing software for monitoring transactions and funding a department of investigators to ensure the bank isn’t accidentally (or intentionally) allowing money laundering to occur. And by the way, if you aren’t monitoring well or your investigators aren’t reporting correctly, the bank can be fined and/or be closed. Uh oh.

Customer Identification Program

Section 326 requires financial institutions to establish procedures for account opening that include:


    • verifying the identity of any person seeking to open an account,
    • maintaining records of the information used to verify the person's identity, including name, address, and other identifying information.
    • determining whether the person appears on any lists of known or suspected terrorists or terrorist organizations.

Can you even imagine opening an account anywhere without confirming your identity? I think I had to verify my identity to get the reward card at my grocery store! But in the “old days”, banks didn’t have any rules around verifying that a person was who they said they were.

Information Sharing

Section 314 permits financial institutions to share information, for the purposes of identifying and reporting activity that may be related to money laundering or terrorist financing, with:


    • another financial institution
    • law enforcement

So, if you think your bank is talking about you behind your back, they might be.

SAR Disclosure

Section 351 strengthened the confidentiality of the SAR by prohibiting a financial institution from disclosing to any person involved that the transaction was reported.

And if I, as a banker, did happen to reveal to a long-time client that the bank filed an SAR on them, I could face a civil penalty up to $100,000, a criminal penalty up to $250,000 and up to 5-year imprisonment. (I do remember using that little tidbit as a footer in emails in a past career.)

Financial institutions were originally what we knew as a banks or credit unions but with the passing of new regulations, came an expanded definition of financial institution. So now we are talking about not only banks, savings associations, credit unions, registered brokers and dealers in securities, futures commission merchants, and casinos but also insurance companies, loan or finance companies, automobile and other vehicle dealers, and persons involved in real estate closings and settlements. This is because ill-gotten gains have to be integrated back into the economy for the cycle to be complete.



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‎11-15-2023 03:39 PM
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