The Bank Secrecy Act, or BSA, is the centerpiece of the federal government’s regulatory and statutory web of anti-money laundering laws. These financial crimes carry steep penalties for violations, and not just for the bad actors who are actually laundering their dirty money – the financial institutions that these actors use to move their money around can also face repercussions if the institution does not take the proper precautions to prevent or combat money laundering, terrorist financing, and other illicit financial activity from happening. 

Because of the risk of legal liability, the executives at the financial institutions covered by the BSA need to at least be familiar with how the law is enforced to strengthen the financial system further. Dr. Nick Oberheiden is the founding partner of the national corporate compliance law firm Oberheiden P.C. Here is a summary of the types of BSA violations that can lead to enforcement actions, the penalties that they can lead to, and the factors that are taken into account when imposing one or more of those penalties. 

The Three Types of Violations That Can Lead to BSA Enforcement

Financial institutions are required to file reports regarding suspicious financial transactions under the Bank Secrecy Act (BSA), which is administered by the Financial Crimes Enforcement Network (FinCEN). There are numerous ways for a financial institution to run afoul of the Bank Secrecy Act (BSA) and face enforcement action by the Financial Crimes Enforcement Network (FinCEN). The Federal Deposit Insurance Corporation (FDIC), however, breaks these diverse violations down into three different categories:

1. A missing component, or pillar, in the financial institution’s compliance program, or the complete lack of a compliance program

2. A systemic and recurring failure to comply with the BSA and its attendant regulations

3. Isolated and technical non-compliance

Each of these types of violations identified by the Federal Deposit Insurance Corporation (FDIC) is worth diving into, as they all have varying degrees of repercussions for a financial institution that commits them.

Incomplete or Missing Compliance Programs

One of the most serious violations that financial institutions can be accused of by the Financial Crimes Enforcement Network (FinCEN) is that their BSA AML compliance programs are missing essential elements, or “pillars,” or that they do not exist, at all. This is an especially common allegation to face for financial institutions that have just gotten off the ground or that have expanded into new fields of business. Nevertheless, even an innocent oversight can lead to substantial legal liability and a scramble to create a suitable compliance plan.

Systemic and Recurring Failures to Comply

Another serious lack of compliance issue is when a financial institution is found to have adequate programs in place, but they are not following them. This leads to constant violations because the internal rules that the institution has in place are being ignored or have been forgotten.

This can happen for a variety of reasons, including:

• Poor worker training

• An employee has forgotten their compliance obligations

• Inadequate retraining protocols

• An employee is deliberately committing misconduct, whether for personal gain or to hurt the company

Regardless of the cause, the results can be dire and can expose the financial institution to significant risks of liability for noncompliance with the BSA.

“Because it generally happens without an executive’s knowledge, the potential for this type of BSA violation is present in all financial institutions,” Dr. Nick Oberheiden, a BSA enforcement lawyer at Oberheiden P.C., often tells his clients. “Only with a dedicated auditing program can the negligence and misconduct that often leads to these systemic and recurring errors be detected, isolated, and corrected before the potential for liability gets out of hand.”

Isolated and Technical Noncompliance

Finally, there are isolated and relatively small instances of noncompliance with BSA obligations. Just because they are small, though, does not mean that they are insignificant. While FinCEN is unlikely to impose sanctions for these isolated incidents, they will likely pay closer attention to the financial institutions that commit them. That increased scrutiny can be inconvenient and intrusive, and can lead to a subsequent finding of noncompliance that might not have been noticed, had it not been for the earlier incident.

Potential Penalties in a BSA Enforcement Action

If FinCEN finds a violation of the BSA, or even suspects that there is one, at a financial institution, it can take any of the following six approaches to enforcement:

1. Do nothing. It is within FinCEN’s authority to decide to not take action against a financial institution for a violation or a potential instance of noncompliance. However, FinCEN is known for keeping records of investigations that led to non-action and then using them to buttress subsequent investigations.

2. Send a warning letter. FinCEN can send warning letters to financial institutions that notify the company of a potential BSA violation and advises them on how to correct it. This is most commonly done when the agency has detected an isolated and technical incident of noncompliance.

3. Demand equitable remedies. If FinCEN thinks that a financial institution is violating the BSA or is about to do so, it can request a court order or injunction to keep it from happening.

4. Settle the case. FinCEN can also settle BSA enforcement actions. The settlement can impose monetary or civil money penalties and can require financial institutions to take remedial measures to rectify their BSA noncompliance.

5. Impose civil penalties. If the enforcement action is for a significant BSA violation, the FinCEN can impose a civil penalty against the financial institution. In many cases, these are imposed on a per-violation basis, so if the problem was systemic or recurring, the penalty can quickly run into millions of dollars.

6. Refer the case for criminal investigation. In extreme cases, FinCEN can refer the case to criminal law enforcement agencies, like the Department of Justice (DOJ) or the Federal Bureau of Investigation (FBI) for further investigation. 

As you can see, the range of these penalties is extremely broad. Some of the factors that FinCEN takes into account when imposing them are:

• The nature and seriousness of the violations, particularly whether they could harm the public

• Whether the violation would prevent FinCEN from preventing money laundering and protecting national security

• The level of intent behind the lack of compliance

• Whether the financial institution has a history of similar violations

• How effectively the financial institution remediated the situation and cooperated with enforcement agencies

• Whether the violation was voluntarily and timely disclosed to FinCEN

• How systemic the violations were

• Whether an agency other than FinCEN has already penalized the financial institution for the violation

These factors are extremely important to keep in mind when deciding how to react to an allegation of a BSA violation. There are a lot of different ways for financial institutions to mitigate their losses. Understanding which avenue is the best one to take can take the legal advice of an experienced BSA enforcement lawyer.