The nature of money laundering has evolved over the years as criminals adapted their techniques to avoid detection. Launderers continue to alter their strategies to circumvent new laws and regulations as well as find ways to use new and emerging technologies to carry out illicit schemes. Likewise, legislation designed to combat money laundering also continues to change as lawmakers strive to address the latest criminal methodologies. When the Bank Secrecy Act (BSA) was enacted in 1970, it was strictly a reporting and record-keeping law focused on banking institutions. Since then, various laws have come into force, expanding the scope and reach of the BSA, including clarifying its obligations, strengthening enforcement and penalties, and streamlining reporting requirements, in order to more effectively address money laundering threats. The Money Laundering Suppression Act (MLSA) is one such piece of anti-money laundering (AML) legislation that resulted in notable updates to the BSA and constitutes an important addition to the U.S. AML regime. The purpose of AML rules, such as the MLSA and others, is to help detect and report suspicious activity in the financial sector, including predicate offenses to money laundering and terrorist financing. These laws serve as important tools in ferreting out and preventing financial crime and help protect the integrity of our financial system.
The Money Laundering Suppression Act and Money Service Businesses
Congress enacted the Money Laundering Suppression Act on September 23, 1994. The MLSA amended the BSA in several ways, one of which included placing greater scrutiny on money services businesses (MSBs). MSBs are any persons or businesses that, whether on a regular basis or not, transmit or convert money. The term includes banks as well as non-bank financial institutions that deal in currency (i.e., currency dealers or exchangers), cash checks, or issue traveler’s checks, money orders, or stored value instruments, such as gift cards or other prepaid cards or instruments that carry monetary value stored on the instrument itself rather than being connected to an external account. MSBs also include businesses that serve as money transmitters. Money transmitters are businesses that receive and transfer funds on behalf of a customer. For example, Venmo, PayPal, and Western Union are licensed money transmitters. The term also includes the United States Postal Service. MSBs are considered high risk for money laundering due to their cash-intensive nature and because MSBs offer one-off transactions that are very difficult to track. In fact, although most MSBs are legitimate businesses that provide valuable services to their customers, the types of isolated transactions enabled by MSBs have also been widely used by terrorist groups and drug cartels to launder illicit funds. To help mitigate these financial crime risks, the MLSA requires the owner or controlling person of an MSB to register the MSB with the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury Department which oversees and enforces compliance with the BSA. The Act also requires that MSBs maintain a list of businesses that are authorized to act as agents of the MSB in connection with the financial services it offers. Furthermore, the MLSA makes it a federal crime to operate an unregistered MSB and recommends that states adopt uniform laws applicable to MSBs. With the level of scrutiny MSBs receive from regulatory agencies, it is vital to have a robust compliance program in place. For more information, view our overview of MSB AML program requirements and our MSB compliance software.Other Key Requirements of the Money Laundering Suppression Act
Besides bringing MSBs within the purview of AML regulations, the MLSA imposed other requirements on financial institutions in an effort more effectively combat money laundering. More specifically, the Act prescribed the following obligations:- Required banking agencies to review and enhance training to improve the identification of money laundering schemes and develop AML examination procedures;
- Required banking agencies to review and enhance procedures for referring cases of suspicious activity to appropriate law enforcement agencies; and
- Streamlined the Currency Transaction Report (CTR) exemption process to ease the filing burden on financial institutions by reducing the number of repetitive reports of recurring currency transactions made by legitimate businesses and instead, focus the reporting of transactions on those that are the most relevant and provide the most value to law enforcement and regulators.
- Note that the CTR requirement mandates that financial institutions and certain types of business file a CTR for each deposit, withdrawal, exchange, or other payment or transfer by, through, or to such financial institutions or businesses involving more than $10,000 USD in currency.
