Preventive Legislations ML/FT - Major Countries/Regions : USA

 In 1970, Congress passed the Currency and Foreign Transactions Reporting Act – known as the Bank Secrecy Act (BSA) – introducing specific record-keeping and reporting obligations for US banks and financial institutions. 

In its mission to "safeguard the financial system from the abuses of financial crime, including terrorist financing, money laundering and other illicit activity," the Financial Crimes Enforcement Network acts as the designated administrator of the Bank Secrecy Act (BSA). The BSA and has become one of the most important tools in the fight against money laundering. Since then, numerous other laws have enhanced and amended the BSA to provide law enforcement and regulatory agencies with the most effective tools to combat money laundering.

 The U.S. Supreme Court upheld the Bank Secrecy Act's constitutionality in 1974, the same year "money laundering" entered wide use amid the Watergate scandal.

 Money laundering and crime have had deep roots in the United States of America. The drug culture and the mafia have generated illegal funds which are impossible to calculate. The U.S. has imposed many legislative and regulatory standards to help deter money laundering. The most significant of these are:

1.1  The Bank Secrecy Act 1970;

1.2  The Money Laundering Control Act of 1986;

1.3  The Anti-Drug Abuse Act of 1988;

1.4  Section 2532 of the Crime Control Act of 1990;

1.5  Section 206 of the Federal Deposit Insurance Corporation Improvement Act of 1991;

1.6  The Annunzio-Wylie Anti-Money Laundering Act27,

1.7  The Money Laundering Suppression Act of 1994 and

1.8  The Money Laundering and Financial Crimes Strategy Act of 1998.

 

The Financial Crimes Enforcement Agency (FinCEN) was created in 1990 to support federal, state, local and international law enforcement by analyzing the information required under the BSA. 

Suspicious Activity Reports 

 In 1996, reporting suspicious activity was standardized in an amendment to the BSA. Suspicious Activity Reports (SARs) have replaced the criminal referral reporting system since 1984. 

While SARs were initially filed on paper, the Financial Crimes Enforcement Network (FinCEN) – the designated administrator of the BSA –  transitioned to online filing in the 21st century. As of April 2013, financial institutions must use FinCEN reports, which are only available electronically through the BSA E-Filing System. 

 

In 1998, the Money Laundering and Financial Crimes Strategy Act required the Department of the Treasury and other agencies to develop a national money laundering financial crimes strategy. It also created the seven High Intensity Financial Crime Areas. 

Firms must comply with the Bank Secrecy Act and its implementing regulations (“AML rules”). The purpose of the AML rules is to help detect and report suspicious activity including the predicate offenses to money laundering and terrorist financing, such as securities fraud and market manipulation.

FINRA (The Financial Industry Regulatory Authority) reviews a firm’s compliance with AML rules under FINRA

Rule 3310, which sets forth minimum standards for a firm’s written AML compliance program. The basic tenets of an AML compliance program under FINRA 3310 include the following.

1. The program has to be approved in writing by a senior manager.
2. It must be reasonably designed to ensure the firm detects and reports suspicious activity.
3. It must be reasonably designed to achieve compliance with the AML Rules, including, among others, having a risk-based customer identification program (CIP) that enables the firm to form a reasonable belief that it knows the true identity of its customers.
4. It must be independently tested to ensure proper implementation of the program.
5. Each FINRA member firm must submit contact information for its AML Compliance Officer through the FINRA Contact System (FCS).
6. Ongoing training must be provided to appropriate personnel.
7. The program must include appropriate risk-based procedures for conducting ongoing customer due diligence, including

(i) understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile; and,

(ii) conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information, including information regarding the beneficial owners of legal entity customers.

 After the September 11 attack in New York, the US Senate passed the Patriot Act. The official title of the USA PATRIOT Act is "Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001.” The purpose of the Act is to deter and punish terrorist acts in the United States and around the world, to enhance law enforcement investigatory tools, and other purposes, some of which include:

  

 1. To strengthen U.S. measures to prevent, detect and prosecute international money laundering and financing of terrorism;

2. To subject to special scrutiny foreign jurisdictions, foreign financial institutions, and classes of international transactions or types of accounts that are susceptible to criminal abuse;

3. To require all appropriate elements of the financial services industry to report potential money laundering; and

4. To strengthen measures to prevent use of the U.S. financial system for personal gain by corrupt foreign officials and facilitate repatriation of stolen assets to the citizens of countries to whom such assets belong.

Title III of the Act, titled "International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001," is intended to facilitate the prevention, detection and prosecution of international money laundering and the financing of terrorism. Title III is further divided into three subtitles which deal with strengthening banking rules specifically against money laundering on the international stage, improve communication between law enforcement agencies and financial institutions and currency smuggling and counterfeiting, including quadrupling the maximum penalty for counterfeiting foreign currency.

The Department of Treasury, Department of Justice, Department of Homeland Security, Board of Governors of the Federal Reserve System and the United States Postal Service are together responsible for checking the menace of money laundering and terrorist financing in the United States and abroad. To be guilty of money laundering under the Money Laundering Control Act, the defendant must act with the intent to

(1) promote the carrying on of a specified unlawful activity,

(2) engage in tax fraud,

(3) conceal or disguise the nature, location, source, ownership or control of the property, or

(4) avoid a transaction reporting requirement.

Thus, this section criminalized smurfing. Treasury and the federal functional regulators have greatly expanded the scope and reach of regulations under the Bank Secrecy Act since Congress passed the USA Patriot Act.

The Office of Foreign Assets Control ("OFAC") of the US Department of the Treasury administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United​States.

In enhancing the BSA’s record-keeping requirements, the Patriot Act emphasized the need for firms to verify the identity of the customers with whom they were doing business. It also required them to collect identifying information – such as names, addresses, and dates of birth – and to check that information against international sanctions and watch lists, such as OFAC’s Specially Designated Nationals List (SDNL).  

The Patriot Act also introduced new information-sharing requirements between financial institutions and safe-harbor provisions that protected institutions from criminal liability when sharing information for AML/CFT purposes. 

The subsequent Intelligence Reform & Terrorism Prevention Act of 2004, amended the BSA to require some financial institutions to report cross-border electronic transmittals of funds if the Secretary of the Treasury decides it is “reasonably necessary” to aid in the fight against ML/TF.

Preparing for the requirements set out in the Corporate Transparency Act (CTA) 2021 was – and continues to be – a major focus area for financial institutions (FIs) operating within the US. A key change that was introduced via this act was the requirement for firms to submit beneficial ownership information (BOI),  to ie.., full name, date of birth, current address, and a distinctive identification number to the Financial Crimes Enforcement Network (FinCEN). The Corporate Transparency Act (CTA) introduces requirements around beneficial ownership transparency in the US and came into force on January 1, 2024.

The Act applies to US and foreign entities doing business in the US. Company directors who do not comply could pay up to $500 per day (up to $10,000) and face jail time of up to two years. Businesses will need to update FinCEN with any material changes. 

 In the past, businesses created in the United States were not obliged to publicly disclose or maintain a record of the names of their shareholders or ultimate beneficial owners (UBOs). This lack of transparency meant it was possible for anonymous shareholders to have control over businesses and create shell companies as a tool to disguise and move illicit funds.

 

To deter such activity, Congress deemed federal legislation necessary to collect beneficial ownership information (BOI) for entities formed under US state laws. Known as the Corporate Transparency Act, this legislation was passed by Congress in January 2021 and came into effect on January 1, 2024.

The Corporate Transparency Act (CTA) is a US federal law aimed at increasing transparency in corporate ownership. The regulation requires certain individuals who establish a company in the United States to provide the Financial Crimes Enforcement Network (FinCEN) with specific information relating to the company’s beneficial owner(s), including:

·         Full name.

·         Date of birth.

·         Current address.

·         A distinctive identification number, such as from a passport or driver’s license.

Those subject to the law, known as “reporting companies”, must also update FinCEN with any changes to previously reported information. 

 

The CTA falls under the scope of the Anti-Money Laundering Act of 2020 (AMLA) refine AML/CFT programs by codifying the risk assessment requirement, emphasizing the risk-based approach, and focusing on effective outcomes.

the AMLA 2020 is part of the National Defense Authorization Act 2021 (NDAA), which required FinCEN to create a beneficial ownership registry that would oblige over 32 million businesses to file details of their beneficial owner with the US government.

The Europol report cited ICIJ’s 2021 Pandora Papers investigation as an example of how criminal enterprises have found ways to hide beneficial ownership and evade sanctions through the use of intermediaries and offshore firms. The report also highlighted the criminal use of third countries to move money connected to Russia in defiance of Western sanctions levied against the country following the 2014 invasion of Ukraine.

The global nature of money laundering was further exposed in ICIJ’s 2020 FinCEN Files investigation, a collaboration with BuzzFeed News, that showed how transactions through U.S.-based banks allowed over $2 trillion in suspicious transactions to flow internationally.

The investigation found that banks like JPMorgan, the largest bank in the United States, moved money for individuals and entities connected to the theft of public funds in Malaysia, Venezuela and Ukraine.

Following outcry from ICIJ’s investigation, U.S. lawmakers introduced a wide-ranging anti-money-laundering bill that required the Treasury’s financial crimes unit, FinCEN, to increase transparency and weed out anonymously-owned shell companies by creating a registry of company owners.

The key BSA provisions of AMLA 2020 include:  

·         Beneficial ownership disclosure requirements for US firms to prevent money launderers from using shell companies to disguise their identities 

·         New compliance obligations for cryptocurrencies, bringing cryptocurrency wallets and exchange service providers under the scope of the BSA’s existing AML/CFT legislation 

·         Increased penalties for money laundering such as new $1m fines for compliance violations involving g Politically exposed Persons(PEPs) 

In March 2022, President Biden issued an Executive Order (EO) detailing comprehensive plans to create a framework for regulating crypto assets in the US. The EO represented the first whole-of-government approach by the US to address the emerging risks and harness the potential benefits of digital assets and their underlying technology.

The Responsible Financial Innovation Act 2022 (or Lummis-Gillibrand Bill – named for its sponsors) plans a comprehensive regulatory framework for digital assets. 

The Bill addresses the jurisdiction of the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), tax treatment of digital assets, stablecoin regulation, and interagency coordination. It aims to provide clarity for regulators and the financial industry while delivering the necessary flexibility to operate within the fast-changing virtual asset space.

 

Formalised AML Public - Private Partnerships

In recent years, several countries have established formal PPPs, including the US, UK, Canada, Australia, Germany, Singapore, and others. These partnerships are all designed to mobilize intelligence from across the public and private sectors to tackle economic crime more effectively. 

 

In the US, the FinCEN Exchange is one such formal AML PPP established to facilitate voluntary information-sharing between law enforcement agencies, national security agencies, financial institutions, and the US Treasury’s Financial Crime Enforcement Network (FinCEN) 

FinCEN Exchange is an invitation-based program whereby invited FIs are encouraged to register under the USA PATRIOT ACT 2001 Section 314(b) and to share information voluntarily with other authorized FIs, as appropriate. In this program, FinCEN, in close coordination with law enforcement, provides participating FIs with actionable typologies and other specific information to help them identify illicit activity. According to FinCEN’s website, the “objective of FinCEN Exchange is to develop, deliver, and sustain innovative public-private information sharing in order to enable the private sector to better identify risks and provide FinCEN and law enforcement with critical information to disrupt money laundering, terrorism financing, and other financial crimes.” 

 

The goals of FinCEN Exchange, which are typical of anti-financial crime PPPs generally, include:

 

• Enhancing communication, collaboration, and partnerships among regulatory agencies, law enforcement, and financial institutions
• Supporting national security and anti-financial crime investigations and policies
• Improving the utility of suspicious activity reports and sharing feedback with the private sector
• Focusing on high-value and high-impact activities
• Conducting proactive outreach to better prioritize industry efforts and utilize resources

AML Authorities, USA

U

• The Federal Reserve
• The Federal Deposit Insurance Corporation
• The National Credit Union Administration and
• The Office of the Comptroller of the Currency

These authorities conduct oversight and examine entities under their supervision for compliance with BSA/AML requirements.

They are responsible for the safety-and-soundness examinations of the institutions they supervise and generally conduct BSA examinations concurrently with those routine inspections. When there is cause to do so, any of the regulators may carry out a special BSA examination.

Enforcement actions for AML violations may result in civil and/or criminal penalties.

Suspicious Activity Reports filed by US banks with the watchdog agency, the Financial Crimes Enforcement Network (FinCEN)

The Department of Treasury, Department of Justice, Department of Homeland Security, Board of Governors of the Federal Reserve System and the United States Postal Service are together responsible for checking the menace of money laundering and terrorist financing in the United States and abroad.

US Treasury Department to provide regulations for which financial institutions doing business in the US and beyond are supposed to comply with

It allows the US to designate non-compliant financial institutions and countries to be placed on blacklists and sanctioned

Provisions related to correspondent banking, customer and enhanced due diligence, AML programs, private banking, shell banks, PEPs, etc

OFFICE OF FOREIGN ASSETS CONTROL  (OFAC) Administers and enforces economic and trade sanctions based on US Foreign Policy and national security goals. This is done against targeted foreign countries, terrorists, international narcotics traffickers and people engaged in the proliferation of WMDs. The US State Department, Treasury Department and Presidency are responsible for such actions

·       Other federal agencies with AML responsibilities

The Securities and Exchange Commission and

The Commodity Futures Trading Commission.

The Internal Revenue Service also enforces BSA compliance, particularly for nonbank financial institutions not regulated by other federal agencies, such as money service businesses, casinos and charities

While changes to AML/CFT legislation in the US have been substantial over the past decades, the shifting global AML landscape and technological innovation mean regulators and financial institutions must be proactive about criminal and terrorist money laundering threats. 

For that response to be effective, ongoing, innovative partnership between lawmakers and financial institutions in the US, as well as collaboration with other nations, will be vital to developing new AML laws that remain fit for purpose. 

In addition to requiring banks to report cash deposits of more than $10,000 under BSA 1970, the legislation also required banks to identify individuals conducting transactions and to maintain records of transactions under Patriot act 2001.

FACTA  2010 and India

In 2010, USA enacted a law known as “Foreign Account Tax Compliance Act” (FATCA) with the objective of tackling tax evasion through obtaining information in respect of offshore financial accounts maintained by USA residents and citizens. The provisions of FATCA essentially provide for 30% withholding tax on US source payments made to Foreign Financial Institutions unless they enter into an agreement with the Internal Revenue Service (US IRS) to provide information about accounts held with them by USA persons or entities (firms/companies/trusts) controlled by USA persons. Since domestic laws of sovereign countries (including India) may not permit sharing of client confidential information by FIs directly with USA, USA has entered into Inter Governmental Agreement (IGA) with various countries. The IGA between India and USA was signed on 9th July, 2015. It provides that the Indian FIs will provide necessary information to the Indian tax authorities, which will then be transmitted to USA periodically. Under the IGA, USA will also provide substantial information about Indians having financial assets in USA.

Draft Travel ban 2.0 : 2025

The countries on the list would be sorted into three different tiers: red, orange, and yellow for imposing travel ban from the point of view of terrorist risks .

Citizens from the 11 countries in the “red” category would reportedly be flatly barred fromentering the United States. The 11 countries listed include Afghanistan, Bhutan, Cuba, Iran, Libya, North Korea, Somalia, Sudan, Syria, Venezuela, and Yemen. The Times reported, though, that this list was formed by the State Department a few weeks ago and changes could well be made.

Citizens from the countries in the “orange” category—which includes Haiti, Russia, and Pakistan, would have their visas heavily restricted. Per the Times' reporting, citizens traveling to the U.S. from these countries would be subjected to “mandatory in-person interviews” in order to receive a visa. The third category includes countries in the “yellow” group—meaning they have 60 days to address concerns from the Administration, or else each country risks being moved up to the other categories. Countries reportedly listed under this category include Cambodia, Zimbabwe, and The Republic of Congo.

Trump made promises on his campaign trail, stating his intention to restore the travel ban which caught much attention during its initial introduction during his first term. His signing of an Executive Order titled “Protecting The United States From Foreign Terrorists And Other National Security And Public Safety Threats” on Jan. 20, 2025 only served to reaffirm his intentions.

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