One of the most important components of BSA/AML compliance is a Customer Identification Program (CIP). After all, money laundering is done by people who do not want to be discovered, and most of them pose as legitimate customers. The shorthand phrase “Know Your Customer” (KYC) means that a financial institution has to have a reasonable belief based on due diligence that its customers are who they say they are and are acting within the legal framework.

The first requirement is to have a thorough understanding of BSA requirements, broadly conceived to include all the applicable laws and regulations. Knowing these will enable you to investigate potential customers for relevant risk factors. Beyond basic identity and records requirements, applicable regulations may target certain currency transactions, potential structuring techniques, identifying types of suspicious activity, and so forth.

A compliant CIP has three major components to due diligence: planning and implementation, oversight and accountability, and independent auditing. Each of these may be more or less complex depending on the financial institution’s business lines, size, structure, and risk profile. The regulatory agencies, such as FinCEN, expect your institution’s compliance program to be unique to it on a risk-adjusted basis, but they will look at the components of a CIP to ensure they are effective. … Continue reading

By their very nature, money launderers will go to great lengths to cover their tracks. In the process, they use the normal activities of legitimate businesses like banks, credit unions, money service businesses, and other financial services organizations to help them “clean” ill-gotten gains. One of the strongest tools financial institutions have in combating the covert use of their services for illegal ends is to Know Your Customer (KYC).

The Mandate for BSA/AML Compliance

The problem is that the legitimate businesses used for money laundering may inadvertently fall into non-compliance with Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) requirements. Since the flow of funds through money laundering can be used to finance drug-related, terrorist, or other illegal activities, the issue has been raised to the level of national security policy. There is little wriggle room: virtually all financial services businesses are responsible for designing and implementing risk-based anti-money laundering controls.

Several units of the U.S. Department of the Treasury are charged with promoting, monitoring, and enforcing compliance with anti-money laundering rules, including the Financial Crimes Enforcement Network (FinCEN), which has oversight of the system as designated administrator for BSA/AML compliance. Financial institutions that are found to have facilitated money laundering, even if inadvertently, can be heavily fined. … Continue reading