Federal and state laws require banks and depository institutions to maintain controls aimed at preventing criminals from engaging in money laundering and terrorist financing.
Money laundering is the criminal practice of processing ill-gotten gains, or “dirty” money, through a series of transactions. In this way, the funds are “cleaned” so that they appear to be proceeds from legal activities.
The "four pillars" of Anti-Money Laundering compliance, as set forth by the U.S. Treasury's FinCEN, or Financial Crimes Enforcement Network, are straightforward:
But interpretation of what passes for compliance falls to examiners of the Federal Financial Institutions Examination Council (FFIEC), and their interpretation can be very subjective.
Throughout the FFIEC Examiners Manual are terms like "appropriate," "large complex banks," "tailored to manage risks," "timely updates," "sufficient controls and systems," "fully knowledgeable," "regularly apprise," "objective independent evaluation," "reasonableness given the bank's risk profile" and "appropriate processes to mitigate risk."
The descriptions are inexact but the risks are high: Criminal and civil penalties can be imposed, individuals can be barred from banking, and banks can lose their charters.
How can a bank successfully reconcile broad regulatory requirements with subjective examiners' assessments, risks of criminal and civil penalties, and high costs of compliance?
Best Practices are detailed here for addressing each of the "four pillars" (see Best Practices 2-5) and for fully meeting other requirements for compliance with Anti-Money Laundering (AML) provisions of the Bank Secrecy Act (BSA).
EDITOR'S NOTE: Unless indicated otherwise, descriptions of government regulations, legal definitions and guidelines for compliance used in this topic are taken in part or in full from the Bank Secrecy Act Anti-Money Laundering Examination Manual, published by the Federal Financial Institutions Examination Council. http://www.ffiec.gov/bsa_aml_infobase/pages_manual/manual_online.htm