Catching the Bad Guys: The Intersection of Financial Privacy and National Security
The balance between privacy and national security has been a longstanding challenge for the United States government. From the passage of the Bank Secrecy Act (BSA) in 1970 to the Anti-Money Laundering Act of 2020, this article delves into the evolving landscape covering the extent to which financial institutions must report customer data to safeguard national security.
Striking a Balance: The Birth of the Bank Secrecy Act (BSA):
In 1970, Congress introduced the Bank Secrecy Act (BSA), laying the foundation for financial institutions to implement “Know Your Customer” requirements. This legislation mandated the collection of specific customer information and the reporting of suspicious activities to combat money laundering and financial crimes. Additionally, the United States Supreme Court, in 1976, ruled that bank customers had no constitutional right to privacy for their account information.
The Right to Financial Privacy Act (1978):
In response to concerns regarding privacy violations, Congress passed the Right to Financial Privacy Act in 1978, imposing due process procedural requirements for the federal government to access account information. This Act aimed to strike a balance between the government’s need for information and the individual’s right to financial privacy.
The USA Patriot Act of 2001: A Paradigm Shift in National Security:
The devastating events of September 11, 2001, marked a significant turning point in the balancing act between privacy and national security. In the aftermath of the 9/11 attacks, the USA Patriot Act was swiftly enacted, amending the Money Laundering Control Act of 1986, which criminalizes money laundering, and the Bank Secrecy Act of 1970. This legislation paved the way for current anti-money laundering programs and customer identification verification requirements.
The Anti-Money Laundering Act of 2020: Enhancing Oversight and Reporting:
The evolution continued with the Anti-Money Laundering Act of 2020, which introduced several measures to strengthen oversight and reporting requirements. Notably, the Act included provisions for new whistleblower procedures and enhanced penalties for Anti-Money Laundering and BSA violations. However, the most consequential aspect of this Act was the mandate for financial institutions to report beneficial ownership information of their customers.
Reporting Beneficial Ownership: The Key Challenge:
Under the Anti-Money Laundering Act of 2020, financial institutions must identify and report beneficial ownership data to the Financial Crimes Enforcement Network (FinCEN) unless customers qualify for an exemption. This requirement aims to combat the use of offshore entities designed to conceal ownership. While this provision seeks to enhance national security, it also places a burden on financial institutions to gather and report ownership data of small business borrowers, even those unrelated to offshore activities.
The challenge of balancing privacy and national security for financial institutions has been one of continuous evolution from the early implementation of the Bank Secrecy Act to the latest provisions of the Anti-Money Laundering Act of 2020. It is essential for professionals in the industry to stay abreast of regulations and guidance to ensure compliance. Just last week, for example, the Federal Financial Institutions Examination Council (FFIEC”) announced that it released updates to several sections of the Bank Secrecy Act/Anti-Money Laundering Examination Manual. While no new requirements are established, the updated sections are intended to provide further transparency into the BSA/AML examination process.
The information contained herein is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information contained in this blog should be construed as legal advice from Shumaker Williams P.C. or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. This blog is current as of the date of original publication.
August 06, 2023