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Recent Developments with the Bank Secrecy Act

July 13, 2016

By: Jim Swanson, CEO


On May 5, 2016, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued final Customer Due Diligence (CDD) rules under the Bank Secrecy Act.   The rules, which has been under development for several years, are part of FinCEN’s efforts “to strengthen financial transparency and augment the ability of financial institutions and law enforcement to identify the assets and accounts of criminals and national security threats.”  The final rules come on the heels of the disclosure of the “Panama Papers”, millions of leaked documents that have increased the public spotlight on illicit financial activity and tax evasion. 


According to FinCEN’s Deputy Director Jamal El-Hindi, the final rules “harmonizes BSA program rules and makes explicit several components of customer due diligence that have long been expected under existing regulations.”  What this effectively means is that banks and other covered entities will need to add a fifth required component to their BSA/AML compliance programs relative to conducting customer due diligence, in addition to the four long-standing required components which include:  (1) a system of internal controls to ensure ongoing compliance; (2) independent testing for compliance; (3) an individual designated as responsible for coordinating and monitoring day-to-day compliance; and (4) training for appropriate personnel.  While customer due diligence has been an expected component of complying with the Bank Secrecy Act’s suspicious activity reporting requirements, it is now being codified into the Act. 


Specifically, the rules contain three core requirements relative to CDD: (1) identifying and verifying the identity of the beneficial owners of companies opening accounts; (2) understanding the nature and purpose of customer relationships to develop customer risk profiles; and (3) conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.  With respect to the new requirement to obtain beneficial ownership information, financial institutions will have to identify and verify the identity of each individual who owns 25 percent or more of a legal entity as well as an individual with significant responsibility to control, manage, or direct the entity.  The issuance of the final CDD rules dovetails with a simultaneous announcement that the Treasury was sending beneficial ownership legislation to Congress to require that legal entities formed or qualified to do business within the United States file beneficial ownership information with FinCEN, or else face penalties for failure to comply.


While the final CDD rules include a two-year transition period for mandatory compliance (May 2018), as with most regulatory changes it pays to be proactive in updating your bank’s policies and procedures and providing appropriate training to ensure your institution is adequately prepared.


Please contact the Bank Strategies team if we can be of assistance to your institution in your efforts to manage or update your BSA/AML compliance program.


About Bank Strategies LLC 

Bank Strategies, LLC is a Denver, Colorado based consulting firm founded in 1982 that provides a wide array of enterprise-wide risk management solutions which assist executive management teams and Boards of Directors of mid- and lower-tier size financial institutions in improving overall performance and profitability, assessing and controlling risk profile, and strengthening shareholder value.   Bank Strategies LLC and its team of professionals are well known and respected in the community banking sphere of banking institutions, attorneys, CPAs, trade association executives, and the press due to their quality of service, expertise and knowledge. More information is available at www.bankstrategiesllc.com.

To learn how the Bank Strategies LLC team can put more than 100 years of collective industry experience to work in helping your institution reach its potential as a high performing bank, call 303-903-9369. Or email Jim Swanson at jim@bankstrategiesllc.com.


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Contact Information

Phone: 303-903-9369

Mail: 75 S. Joyce Street, Golden CO 80401

EMail: Jim@bankstrategiesllc.com