- What BSA and AML are
- How they apply to cryptocurrency businesses
- Why both are essential to good compliance
That said, let’s jump right into this lesson.
What Is BSA?
The term BSA is an acronym for the “Bank Secrecy Act,” a U.S. law passed in 1970. You might also see people refer to it as the Currency and Foreign Transactions Reporting Act.
This act requires financial institutions to collaborate with the U.S. government in money laundering and fraud cases.
The BSA’s Role In Traditional Finance
The BSA has several requirements which financial institutions must meet to operate legally in the United States. There are a few specific mandates on that list of musts. According to these requirements, financial institutions must:
- Create BSA compliance programs (e.g. hire a BSA compliance officer, perform risk assessments, etc.)
- Track and report suspicious activity
- Develop effective AML policies (more on this later)
Needless to say, there are several more requirements on the list. For more information about the BSA, please visit the U.S. Department of the Treasury’s official BSA page.
The BSA And Cryptocurrency Businesses
Some of you are probably confused about how the Bank Secrecy Act affects crypto businesses, if at all. After all, we’ve only focused on traditional financial institutions thus far. So here’s the deal:
The BSA does, in fact, affect many crypto operations because most are considered money services businesses (MSBs).
That’s because any administrator or exchanger of currency is an MSB according to the law. Most cryptocurrency businesses fall into this category.
The BSA affects many cryptocurrency businesses like it affects traditional financial institutions. Crypto businesses must also develop effective compliance programs and report suspicious activity.
Crypto businesses aren’t regulated exactly like banks or other traditional financial institutions. We’re not suggesting that crypto businesses must behave exactly like other MSBs. But it’s complicated enough that we recommend a consultation with a BitAML compliance expert.
What Is AML?
We often hear BSA and AML mentioned in the same context. While the two share some similarities, they aren’t the same thing.
First, the term AML stands for “Anti-Money Laundering.” Anti-money laundering initiatives are geared toward preventing money laundering and punishing offenders.
We’ll explain why the law requires financial institutions to develop AML plans. But first, let’s briefly discuss where our current AML laws got their start.
The History Of AML Regulations In The United States
Fun fact: Money laundering wasn’t always illegal in the United States at the federal level. In fact, it didn’t become illegal in all 50 states until after the U.S. government passed the Money Laundering Control Act of 1986.
When the government initially passed this law, its scope was limited. The law simply forbade money laundering and laid out a few examples of “specified unlawful activities.”
Over time, the government realized that the existing laws weren’t extensive enough. And that leads us to our next point…
AML Requirements For Financial Institutions
As we said, the Money Laundering Control Act’s initial scope was limited. Consequently, many money launderers were still successfully evading discovery. It was all just a matter of concealing information about their transactions well enough.
And this was somewhat easy to do because financial institutions at the time either:
- Didn’t report suspicious activities
- Aided money launderers at times
After some time, the U.S. government realized that they could effectively use financial institutions as scouts. Since so much currency passed through these institutions, monitoring and reporting activities would be a breeze for them. And reporting these activities would help government agencies catch criminals who frequently laundered money (such as human traffickers and drug lords).
How Are BSA And AML Related?
Now for the money question:
How are BSA and AML related?
In truth, one can’t exist without the other. BSA initiatives require that financial institutions collaborate with the government to punish financial crimes while AML initiatives directly seek to combat money laundering.
If you built, for example, an amazing AML program without a BSA program, your compliance would still fall short. Yes, you’d be well-equipped to handle money laundering, but perhaps you wouldn’t have a solid risk assessment strategy.
Why BSA/AML Compliance Is Essential In Crypto
You probably have some idea of what makes compliance programs essential in the finance space by now. But what makes them so essential to the cryptocurrency industry?
Well, here are a few of the strongest points to be made:
- The crypto industry is a nascent, growing industry, which makes it attractive to money launderers. As a result, you’ll have to take special care to protect your consumers. And BSA and AML protocols are highly effective at protecting your consumers.
- The cryptocurrency space currently lacks legitimacy in the eyes of some investors and top analysts. An industry-wide adoption of BSA and AML protocols would bolster the industry’s reputation.
- Having a compliance program in place will keep you out of legal trouble in the long run. Especially since several government agencies (FinCEN, the IRS, etc.) are eyeing the crypto space right now.
How Is Your BSA/AML Program Coming Along?
So how is your BSA/AML program coming along? Hopefully, you’re making a strong effort to get those programs up and running as soon as possible.
If you need help designing and implementing your compliance program, contact us to speak with a cryptocurrency compliance expert today.