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Apr. 02, 2013 - BSA Compliance - Identity Theft Verification

Sean Trundy

80 bsa compliance investigatio resized 600Bank Secrecy Act compliance is more important than ever to companies that deal with “covered transactions”.  The cost of fraud has exceeded one trillion dollars and is on the rise.  The Bank Secrecy Act (BSA) was put in place to assist government agencies with stopping money laundering. 

There are three main requirements that the BSA insists of financial institutions to maintain Bank Secrecy Act compliance:

  • 1. Keep records for cash purchases of negotiable instruments
  • 2. File reports of these purchases
  • 3. Report any activity that may be indicative of tax evasion, money laundering or other illegal activities

However, the BSA reaches beyond simply banking and credit unions because it defines any business that handles “covered accounts” as a “financial institution”.  “Covered transactions” as defined by the BSA include creating or managing a credit account, opening a safety deposit box or similar safekeeping service, offering trust and custodian services, facilitating money-order payments or money transfers, or opening a transaction or asset account.

This means that it applies to casinos, securities dealers, retail stores, any businesses that issue credits, stock brokers, money transfer centers, businesses that sell money orders and cashiers checks and more.  All of these places that deal with "covered transactions" must maintain their Bank Secrecy Act compliance.

Such institutions have to file various reports and maintain logs of transactions that meet certain criteria in order to maintain Bank Secrecy Act Compliance.  Cash transactions involving more than $10,00 in a single business day have to be filed in a Currency Transaction Report (CTR).  Cash purchases of monetary instruments (like money orders, traveler’s checks and cashier’s checks) between $3,000-$10,000 have to be recorded in a Monetary Instrument Log (MIL).  A Suspicious Activity Report (SAR) must be filed anytime a cash transaction where the customer seems to be trying to avoid these requirements. 

Because these institutions are required by law to keep track of major transactions, they must also be sure of the identity of the borrower to prevent identity fraud.  Failing to do so results in a lack of Bank Secrecy Act compliance and can lead to massive fines and even lengthy prison sentences.

All financial institutions, even those that handle “covered transactions” have to set up a Customer Identification Program (CIP) that is appropriate for the scope and type of its business in order to keep up Bank Secrecy Act compliance.  This has to include specific instructions that details how identity information will be obtained from customers as well as a reliable way to verify their authenticity to maintain their Bank Secrecy Act compliance.

Performing a risk assessment of your customer base and product offers will help you determine how much information you will need to verify an identity in a covered transaction.  When assessing your risk consider the following factors:

  • Methods offered for opening accounts
  • Types of accounts available
  • Size, customer base and location of institution
  • Types of identifying information available

All of the procedures to verify customer identity must be laid out with legal and regulatory frameworks.  The minimum amount of information required includes the basic name, address, TIN, and date of birth if with an individual.

So with identity document authentication and identity theft protection playing such a huge role in Bank Secrecy Act compliance it is vital to understand which methods are most reliable. 

As mentioned in previous posts, “knowing” your customer is a very valuable way to understand more about your customer’s business profile and potential risks.  But this can take a while to develop and is a less immediate solution to sustain Bank Secrecy Act compliance.

Machine-verifiable identification is the most convenient and instant means of customer identification that helps you keep up your Bank Secrecy Act compliance.  The best solutions are multi-layered, incorporating several state-of-the-art devices that can detect if the identification documents are forgeries. 

Compliance To The Bank Secrecy Act

Most financial institutions have multiple points of vulnerability to their Bank Secrecy Act compliance.  Each company is different and thus their solutions to fraud protection must be tailored to their particular needs.  There are no out-of-the-box solutions you can simply buy at a store, you need to consult with professionals who understand where the potential problems could arise. 

Take, for example, a small chain of grocery stores that also provides money orders, a type of covered transaction, and thus needs to be sure of their Bank Secrecy Act compliance.  Some of their vulnerabilities include potentially fraudulent money orders, minors trying to purchase alcohol or tobacco or even the sale of ephedrine (a base ingredient for the production of methamphetamines) to a suspicious person. 

A multi-tiered solution to uphold your Bank Secrecy Act compliance may include devices to confirm the authenticity of IDs used, Image Capture devices to store images of such IDs for money order purchases, a database that will document the purchase of Class I narcotics and an electronic currency verifier to prevent counterfeit money from being used.   

There are 100’s of types of identification so the best devices will be able to work on all sorts of documents including driver’s licenses, state ID cards, passports and special government-issued IDs from all 50 states as well as international IDs.  Using computerized accuracy, there will be no potential for man-made mistakes when verifying identification.

Unfortunately, counterfeiters are always innovating and finding new ways to thwart new technology developed to stop them.  This means that you, as a financial institute, need to stay ahead of the curve and be familiar with all the trends and practices that have become obsolete so that you uphold your Bank Secrecy Act compliance.  The processes and standards you put in place three years ago may not be enough to prevent fraud today. 

To protect your business from such threats and ensure your Bank Secrecy Act compliance, partner with a leader in counterfeit detection to ensure you stay up to date and have the most efficient fraud prevention software.   Bank Secrecy Act compliance can be an overwhelming task but if you protect yourself by using the best in the business, it can be one less thing to worry about. 


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