The world of regulations can seem like a bowl of alphabet soup at times. US money laundering regulations are no exception. We have compiled a list of the top ten money laundering acronyms and their definitions.
AML – Anti money laundering is the term for activities aimed at curbing the practice of money laundering. Money laundering is an area of focus for regulators, and a major tool in the fight against drug trafficking and terrorist financing.
BSA – The Bank Secrecy Act was the original US regulation targeting money laundering. In the beginning the regulation was primarily focused on tax evasion and organized crime. BSA focused on establishing a paper trail for cash transactions over $10,000. Many people refer to the entire collection of anti money laundering regulations as the BSA.
KYC – Know your customer is the concept of understanding who your customer is. Various aspects of the law require financial institutions to verify the identity of customers. Banks must also understand what normal activity is for given customers. Without knowing what behavior to expect it is difficult to identify what activity is suspicious.
CIP – Part of KYC, the Customer Identification Program was introduced in the USA PATRIOT Act. CIP requires financial institutions to gather five pieces of information on new customers. They must collect name, date of birth, a physical address, social security number (or tax id number), and proof of identity. CIP programs make it more difficult for criminals to open accounts without attracting attention.
CTR – A Currency Transaction Report is filed for any cash transaction greater than $10,000. CTRs will also be filed for multiple transactions by the same person that total $10,000 in a given period. People who break transactions up to avoid the reporting threshold raise suspicion. So long as the source of funds is legitimate, there are no negative consequences to a CTR filing. For example a cash intensive business such as a bar that deposits business receipts will not be suspicious.
SAR – When a financial institution (very broadly defined) suspects that a transaction may be the proceeds of illegal activity, they are required to file a Suspicious Activity Report. An individual will not be notified if a SAR is filed against them, so as to avoid tipping off potential criminals. SAR filings are sent to the Financial Crimes Enforcement Network, who determine if further investigation is warranted.
FinCEN – The Financial Crimes Enforcement Network is the US Government entity tasked with fighting financial crimes including money laundering. SAR reports are filed with FinCEN. Periodically FinCEN provides analysis based on the information provided in SAR reports.
USA PATRIOT Act – The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act was enacted shortly after 9/11/2001. As the name implies, the law provided extensive tools for law enforcement in the fight against terrorism. The law also made significant enhancements to money laundering laws. Notably it required the creation of CIP programs.
PEP – Politically Exposed Persons are very high-ranking foreign government officials and their associates. Because of their high-ranking the logic follows that they are a higher risk for corruption. There is no standard list of PEPs like there is for OFAC specific designated nationals. Financial institutions must take a risk based approach to dealing with PEPs and are not expressly forbidden from having them as customers. At a minimum, financial institutions must perform enhanced due diligence on PEPs.
OFAC – The Office of Foreign Asset Control is not directly related to money laundering. OFAC enforces economic sanctions against foreign countries. Under OFAC rules, banks are prohibited from conducting monetary transactions with certain foreign countries. Assets of specific individuals and organizations may also be frozen. As OFAC rules deal with the transmission of money in relation to terrorist financing, many institutions combine these functional departments. OFAC also maintains a list of specific designated nationals which financial institutions are prohibited from doing business with.