So for a new job, I’m having to learn about finance law – specifically, BSA, ECOA reg B, FCRA, FDCPA, GLB Privacy, TILA reg Z, and UDAP reg AA.
Woah there spaceman that’s a whole lot of alphabet soup
Yeah I know. So what I’m going to do to help myself learn this a bit better and study for an upcoming test, is I am going to attempt to explain in blog posts just what all that stuff ACTUALLY MEANS in terms that ACTUAL HUMANS use.
PART ONE: BSA – BANK SECRECY ACT
The Bank Secrecy Act was enacted in 1970 (and further amended and modified in 1986 by the Money Laundering Control Act, in 1992 by the Annunzio-Wylie Money Laundering Act, and in 2001 by the US PATRIOT Act section 326) basically to combat money laundering. In a general sense, it requires banks and other financial institutions to verify the identiy of their customers, keep records of those identities, keep records of certain transactions, and report details of certain other transactions to the IRS and other regulatory agencies.
Specifically, this means that when you go to the bank to open an account (or certain other types of financial transactions at other financial institutions), you have to bring solid ID. Driver’s license, current or expired passport, state ID card, these all work JUST FINE. If you’re a business, then you should bring the articles of incorporation, business licenses, etc etc. Specific documentation requirements can vary slightly but will be pretty close to one another.
Also, if you’re depositing, changing, withdrawing, or otherwise doing SOMETHING with more than $10,000.00 of cash (or cash-similar negotiable instruments, like certified checks or foreign currency), the bank (or financial institution) has to collect certain details and report the details of the transaction to the IRS. The details they have to collect are similar to the details collected when you open an account – name, address, SSN, accounts affected by the transaction, that sort of thing. Note that deposits and withdrawals are counted seperately – you can’t avoid a CTR (Cash Transaction Report, the report we’re talking about here) by depositing $5,000.00 and withdrawing $11,000.00. Depositing twelve grand in cash or certified funds to your bank account? CTR. Walking in with a crate of $50 bills and changing them into a trunkload of singles? CTR (assuming we’re talking over $10,000.00 here). Paying off your mortgage with a $15,000.00 bank draft? CTR.
Note that this applies to all transactions in a day – two $6,000.00 deposits in the same business day will trigger a CTR just the same as a single $12,000.00 deposit. Transactions that happen after close of business (hitting the ATM after hours, using the night deposit, etc.) are treated as happening on the next business day – so if you cram $6,000.00 into the ATM after hours, then deposit another $6,000.00 in the bank the next day, a CTR would be triggered. It also applies to transactions across different accounts at the same institution or at different branches of the same institution – so a $6,000.00 deposit to your checking account in the bank branch near your house and a $6,000.00 deposit to your money market account in the bank branch near your office would still trigger a CTR.
This is not the only recordkeeping requirement – activity that seems ‘out of place’ from your regular account activity would trigger what’s called a SAR or Suspicious Activity Report. There are a number of scenarios that can trigger this, but here’s a common one: If you maintain a pretty regular balance with paychecks coming in and bills and whatnot going out, and suddenly you’re depositing $8,000.00 every other day without some sort of explanation being volunteered, the bank is going to notice and they are going to make a note of it. The SAR is sent to the proper regulatory agency, and they’ll take a look at it, and if they smell a rat, they’ll find out what the scoop is. The first step of this is usually your bank contacting you – ‘Hey we noticed that you’ve been depositing 24 grand a week just like clockwork lately, what’s up with that? Did you get a raise?’ – and only if you can’t come up with anything that sounds good will the feds get involved. Mysteriously having huge amounts of money dropped into your lap isn’t illegal by any means – heck, maybe you’ve just reunited with a long-lost and pathologically generous uncle – but it can be a pretty strong indicator of shady behavior, so the feds are going to want to know what’s up. There aren’t really hard and fast rules of what triggers an SAR and what does not – sure there are guidelines, but an SAR can be triggered by something as simple as a teller thinking something’s a bit weird. Note that not only does your bank not have to tell you that it has filed an SAR, but it is specifically forbidden from doing so.
Purchases of certified funds over $3,000.00 are also recorded. If you buy a cashier’s check for $4,500.00, the bank is going to need your name, address, SSN, and date of birth; and is also going to have to make a note of the details of the transaction (date, number of instruments purchased, their type and serial numbers, etc etc) in a logbook.
Like I said before, making large transactions isn’t illegal, but it can potentially be indiciative of illegal behavior. Nobody is going to throw you in prison for paying off your mortgage all at once, but some dudes in suits might be a little curious as to where you got the bankroll for it, that’s all.
IV: WHAT ELSE?
Oh, there’s special rules for foreign shell accounts too – those are basically accounts maintained in US financial institutions by foreign banks that don’t have branches in the US to help facilitate US operations. Foreign banks are required to, you know, EXIST before shell accounts are allowed. This prevents funds being hidden or laundered by claiming they’re the assets of a foreign ‘bank’ that exists only on paper and is really a fancy construct for someone’s hidden bank account. They also have to show that they have an agent that is a US resident that is authorized to access the account and recieve legal service (subpoenas and whatnot) on behalf of the foreign bank, and keep contact information on file for that agent. This way, they can’t get around reporting and other legal requirements by putting the government in the position of having nobody to ask questions of or hand legal process papers to.
V. WHAT DOES THIS MEAN TO ME?
If you’re opening an account at a bank, bring ID. If you’re depositing or withdrawing some serious cash, don’t get steamed when it takes a little longer and you have to sign some extra stuff. If your banking habits change significantly and suddenly, don’t be surprised if your bank gives you a holla to find out why. (And no, nobody will think less of you if you quietly fantasize to yourself that somewhere, there’s a guy in a suit CONVINCED that you’re a James Bond villain maintaining a secret identity in suburban Poughkeepsie.) And finally, if you’re a foreign bank, you need to jump through a couple extra hoops to open an account in the US – but if you’re a foreign bank, why are you reading my blog?