Bank Secrecy Act

The Bank Secrecy Act is a piece of legislation enacted in 1970, which is meant to keep banks from being used by criminals to hide their dirty money. Under the Bank Secrecy Act, U.S. banks are required to submit documentation for any transactions that add up to $10,000 or more. This enables authorities to track suspicious banking activity. To explore this concept, consider the following Bank Secrecy Act definition.

Definition of Bank Secrecy Act

Noun

1. Legislation requiring banks to document any transaction that is substantial in nature (over $10,000) so as to create a record for authorities to track suspicious transactions.

Origin

1970    U.S. Legislation

What is the Bank Secrecy Act

The Bank Secrecy Act, originally the “Currency and Foreign Transactions Reporting Act,” is a federal law that was created in 1970, in order to keep tabs on and report any suspicious banking activity. Under the Act, any transaction consisting of $10,000 or more, in cash, that seems suspicious, is to be reported to the proper governmental authorities so that it can be investigated further. The objective of the Act is to limit the places that criminals can hide their ill-gotten monies, such as those earned from money laundering, fraud, or other crimes. In fact, the Bank Secrecy Act is often referred to as the “Anti-Money Laundering Act.”

The report that banks must file is called a Currency Transaction Report, and it is filed after any transaction exceeding $10,000 takes place. These transaction types include deposits, withdrawals, and exchanges of currency. For an example of the Bank Secrecy Act at work, consider the following:

Sarah walks into a bank with $11,000 in cash, and wants to make a deposit. The bank teller, with a quick review of Sarah’s account, knows that Sarah does not normally deposit such large sums of cash into her account. This transaction raises the bank teller’s suspicions, so the teller fills out the proper documentation, and submits it to the authorities for further investigation.

While the Bank Secrecy Act was established to detect potential illegal activity, it is also a law that was created to protect banks. In the past, banks have become involved unknowingly in otherwise criminal activity. By having regulations in place that require banks to report larger-than-normal transactions, so long as the bank follows the rules, it cannot be implicated in a potential crime.

Interestingly, the number of bank transactions that exceeded $10,000 in the 1970s, when the Bank Secrecy Act was enacted, was considerably lower than today. Each year, millions of Currency Transaction Reports are filed. Because so many large transactions are reported, it may be more difficult for law enforcement to investigate these reports in a timely fashion.

Structured Transactions

Structured transactions may sound legitimate at first, but they can actually become illegal, depending on the motivation. Structured transactions are a series of transactions that could have been treated as a single transaction, but which were broken to remain under the mandatory bank reporting limit. The purpose of this is to slip the transactions under the bank’s radar, not to be called into question under the Bank Secrecy Act.

Note that there are legitimate reasons as to why someone may structure a transaction. However, if the sole motivation for structuring a transaction is to avoid reporting to the government, it becomes an illegal activity, and the person is committing a crime.

Structured transactions became popular in the 1980s. Businesses and individuals would break up their transactions so that they would be lower than the $10,000 threshold that requires banks to report them. Structured transactions were common among those who did not want to alert the government to their financial activities, and who did not want the government to find out just how they came to own that much cash. Those participating in money laundering or tax evasion in particular would take advantage of structured transactions.

Should someone be found guilty of structuring a transaction, the crime is punishable by up to five years in jail and a maximum fine of $250,000. However, if the crime concerned an amount exceeding $100,000 over a 12-month period, or if the structuring was performed in connection with another crime, then these maximum penalties can and probably will be doubled.

Bank Secrecy Act Regulations

Banks are not the only ones governed by Bank Secrecy Act regulations. While not being banks per se, institutions that regularly deal in financial transactions are also required by law to report any activity they may find to be suspicious. Such institutions include, but are not limited to, any business that either issues or cashes money orders, casinos, and jewelers specializing in precious metals or gems.

Insofar as banks are concerned, however, Bank Secrecy Act regulations require that all banks submit five separate reports to the government when a transaction totaling more than $10,000 takes place. Note, however, that depending on the financial institution, and the type of transaction that takes place, the bank may also have to fill out additional reports aside from those that appear on this list.

• Currency Transaction Report – This report must be filed for any transaction involving currency of $10,000 or more. In an effort to combat structured transactions, if the bank is aware that multiple transactions are being filed by the same person, and those transactions add up to $10,000 or more, the transactions must be treated as one combined transaction.

• Report of International Transportation of Currency or Monetary Instruments – This report must be filed by someone who physically mails or otherwise ships currency into or out of the United States that totals over $10,000.

• Report of Foreign Bank and Financial Accounts – Anyone who lives or works in the United States – including banks – must fill out this report if they have an interest in an account in a foreign country that totals over $10,000.

• Suspicious Activity Report – This report must be filed out, as its name would suggest, whenever a bank finds a transaction to be suspicious. Suspicious transactions are those that may have broken the law or violated some or another regulation.

• Designation of Exempt Person Report – Bank Secrecy Act regulations dictate that banks must file this form if one of their customers is exempt from being reported on the Currency Transaction Report for any reason. Banks also use this form every two years to renew any present exemptions for their customers who may be eligible for ongoing exemptions.

The Bank Secrecy Act regulations also require that any business that receives cash payments totaling over $10,000 file what is called a Form 8300 with the IRS to account for that income. Additional information about compliance with the Bank Secrecy Act can be found on the IRS website.

Bank Secrecy Act Example in Federal Conviction

An example of the Bank Secrecy Act being a key component to a criminal case occurred back in the 1970s. On December 18, 1972, a deputy sheriff in Houston County, Georgia received a tip on a truck that was carrying alcohol distilling equipment and whiskey. The law became involved as it was discovered this was a conspiracy to avoid paying the required liquor tax.

Three transactions in particular were looked at closely: (1. Miller’s rental of the truck that was pulled over on December 18; (2) his purchase of related radio equipment; and (3) his purchase of sheet metal and metal pipe to be used in the construction of the distillery.

Unbeknownst to Miller, the Bureau of Alcohol, Tobacco, and Firearms (ATF) had subpoenaed two banks where Miller held accounts in order to request his records. The banks complied, as they had records of his activities as required under the Bank Secrecy Act, and the evidence was used against Miller during his criminal trial. Such evidence consisted of microfilm records of the accounts, as well as copies of deposit slips, checks, financial statements, and even Miller’s monthly statements.

The check copies that were shown at trial provided proof of the purchases Miller had made. Miller was ultimately convicted of several federal crimes. He appealed the convictions, alleging that the bank records were illegally obtained, and that his rights under the Fourth Amendment had been violated. The Fourth Amendment protects American citizens from unlawful searches and seizures of their property. The Court of Appeals for the Fifth Circuit found in his favor.

However, the Supreme Court did not. The Court reversed the Fifth Court’s decision and held that Miller did not, in fact, have a right to privacy insofar as his bank records were concerned. Justice Powell wrote that the documents that were subpoenaed were not Miller’s “private papers,” but were instead papers that belonged to the banks as part of their records. Therefore, Miller’s rights were not violated when his banks provided his information to the government as the Bank Secrecy Act dictated they do. This is an example of the Bank Secrecy Act’s importance when determining whether or not someone’s financial activities are fraudulent.

Related Legal Terms and Issues

• Regulations – A set of rules that outline a particular procedure that must be followed.
• Transaction – The act of buying or selling something, or otherwise conducting business.