UPDATED – Cryptocompliance 101: What Is BSA/AML? How It Applies To Cryptocurrency MSBs Explained

What Is BSA?

The term BSA is an acronym that stands 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 to detect and prevent money laundering and financial fraud.

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 to which we’ll draw your attention in this post. According to these requirements, financial institutions must:

1. Appoint and dedicate a BSA Compliance Officer
2. Perform an AML risk assessment
3. Track and report suspicious activity
4. Retain customer and transaction records for a period of at least five years
5. Develop and implement an effective AML Program (more on this one 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 a money services business (MSB), money transmitter.

We wrote a separate blog article dedicated to this topic specifically: Cryptocompliance 101: How To Know If Your Cryptocurrency Business Is An MSB In The Eyes Of Regulators

In short, any administrator or exchanger of currency is an MSB, money transmitter. Most cryptocurrency businesses fall into this category according to guidance published by FinCEN in March 2013.

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, detecting, deterring, and reporting money laundering and illicit actors.

We’ll explain why financial institutions are required to develop AML strategies. 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. Indeed, it didn’t become illegal in all 50 states until after the U.S. government passed the Money Laundering Control Act of 1986. (Yes, 1986, that’s not a typo.)

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 (sadly) 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:

1. Didn’t report suspicious activities;
2. Unintentionally facilitated money launderers; or
3. Were willfully blind

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 and they kept detailed transaction ledgers, monitoring and reporting activities should be a breeze for them, so went the thinking. 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?

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.

Why BSA/AML Compliance Is Essential In Crypto

You probably have some idea of what makes compliance programs essential in the financial services sector by now. But what makes them so essential to the cryptocurrency industry?

Well, here are a few of the strongest points to be made:

1. Crypto 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.
2. The cryptocurrency space currently lacks legitimacy in the eyes of some consumers and top analysts. An industry-wide commitment to the adoption of robust BSA and AML protocols would bolster the industry’s reputation.
3. Having a compliance program in place will keep you out of trouble in the long run. Especially since several government agencies (FinCEN, the IRS, etc.) are eyeing the crypto space now more than ever.
4. Absent BSA and AML protocols, illicit actors could effectively overtake your customer base. If you think consumer word-of-mouth is a powerful tool, word spreads even faster amongst the bad guys. Think about the types of customers you want to serve; now think about the types of customers you want no part of.

For more information on AML compliance in crypto, watch our short video on the topic:

How Is Your BSA/AML Program Coming Along?

Hopefully, you’re making a strong effort to get your BSA/AML program up and running as soon as possible.

If you need help designing and implementing your BSA/AML program, need your current program reviewed, or just have questions related to BSA/AML, contact us to speak with a cryptocurrency compliance expert today.