Money Laundering refers to any act or attempted act conducted to conceal or disguise the identity of illegally obtained funds so that they appear to have originated from legitimate sources. In other words, it is the process through which criminals convert “dirty” money appear “clean”.
International Monetary Fund (IMF) estimates that atleast 3-5% of the worldwide global economy involves money laundering. Money laundering is also associated with terrorist financing.
To combat money laundering and terrorist financing, various initiatives such as Financial Action Task Force (FATF) have been setup. Various laws have been enacted or amended to specifically deal with money laundering.
In the United States, the Bank Secrecy Act (BSA) requires banks and financial institutions to help the government in preventing and detecting money laundering.
For example, as per the act, the financial institutions are required to keep records of cash purchases of negotiable instruments. It is mandatory to file reports of cash purchases of these instruments that are more than $10,000 in value. The financial institutions are also required to report any suspicious activity that may show any signs of money laundering, tax evasion, etc.
The Bank Secrecy Act (BSA) was originally enacted in 1970 and subsequently amended many times. It is also known as money-laundering act, or jointly referred to as BSA/AML.
Compliance Training Requirements
When the USA Patriot Act was passed in 2002, it also amended certain sections (section 5318(h)(1)) of the bank Secrecy Act, which deal with terrorist financing.
As amended, section 5318(h) (1) requires financial institutions to establish anti-money laundering compliance programs. This includes establishing an “ongoing training program” for anti-money laundering.
According to this, the financial institution should provide ongoing training for appropriate personnel concerning their responsibilities under the program, including training in the detection of suspicious transactions.
BSA/AML Examination Manual
This examination manual provides guidance to examiners for carrying out BSA/AML and Office of Foreign Assets Control (OFAC) examinations. It also provides guidance to the banking industry on identifying and controlling risks associated with money laundering and terrorist financing. The manual contains an overview of BSA/AML compliance program requirements, BSA/AML risks and risk management expectations, industry sound practices, and examination procedures.
The “BSA /AML Examination Manual” sets forth the following as the minimum requirement for training as a part of the BSA/AML Compliance Program.
- Banks should ensure that the required personnel are training in the aspects of BSA/AML as applicable to them.
- The training should include the banks internal BSA/AML policies procedures and processes and other regulatory requirements.
- The training should be tailored to the requirements of the personnel according to their roles and responsibilities.
- For new hires, as a part of their orientation/induction, an overview of AML requirements should be provided.
- The training should include information to specific business lines, such as such as trust services, international, and private banking.
- The BSA compliance officer should receive periodic training that is relevant and appropriate given changes to regulatory requirements as well as the activities and overall BSA/AML risk profile of the bank.
- The board of directors and senior management should be kept informed about any amendments in the BSA.
- The board of directors does not need detailed training. However, they should understand the importance of the regulatory requirements, the ramifications of noncompliance, and the risks posed to the bank. They must have a basic understanding of the BSA.
- This should be an ongoing training program and should incorporate current developments and changes to the BSA and any related regulations.
- The training program should ensure that all employees understand their role in maintaining an effective BSA/AML compliance program.
- The training should include examples of money laundering activity and suspicious activity monitoring and reporting. These examples can be tailored for different audience. For example, training for tellers should focus on examples involving large currency transactions or other suspicious activities; training for the loan department should provide examples involving money laundering through lending arrangements.
- The training programs should be well documented. The records of training, including the training and testing material, training session dates, attendance, etc must be maintained, and made available for examiner’s review.