1.10 Bank Secrecy Act and Anti-Money Laundering (BSA/AML)
Key Takeaways
- BSA requires financial institutions to report suspicious activities and large cash transactions
- Currency Transaction Reports (CTRs) required for cash transactions over \$10,000
- Suspicious Activity Reports (SARs) required when MLOs detect potential fraud or money laundering
- Customer Identification Program (CIP) requires verifying borrower identity before opening accounts
- USA PATRIOT Act enhanced BSA requirements after 9/11
- MLOs play critical role in detecting and reporting suspicious activity during loan origination
The Bank Secrecy Act (BSA), also known as the Currency and Foreign Transactions Reporting Act, is the primary anti-money laundering (AML) law in the United States. The USA PATRIOT Act significantly expanded BSA requirements after the September 11, 2001 attacks.
Why BSA/AML Matters for MLOs
Mortgage transactions can be used for money laundering — the process of disguising illegally obtained funds as legitimate. MLOs are on the front line for detecting:
- Fraud (inflated appraisals, straw buyers, false income)
- Money laundering (criminal proceeds used for down payments)
- Terrorist financing (funds supporting terrorist activities)
Customer Identification Program (CIP)
The CIP requirement under the USA PATRIOT Act requires financial institutions to:
Required Identity Verification
| Requirement | Details |
|---|---|
| Obtain information | Name, date of birth, address, identification number (SSN or Tax ID) |
| Verify identity | Using documents, non-documentary methods, or combination |
| Maintain records | Keep identity verification records for 5 years after account closed |
| Check OFAC lists | Screen against Office of Foreign Assets Control sanctions lists |
Acceptable Identification Documents
| Primary Documents | Secondary Methods |
|---|---|
| Driver's license | Credit bureau verification |
| State ID card | Database searches |
| Passport | Financial statement review |
| Military ID | Reference from another institution |
Currency Transaction Reports (CTR)
Financial institutions must file a CTR with FinCEN for:
| CTR Requirement | Threshold |
|---|---|
| Cash transactions | Exceeding $10,000 in a single business day |
| Multiple transactions | Combined cash transactions exceeding $10,000 by same person |
| Structuring detection | Attempts to break up transactions to avoid $10,000 threshold |
CTR Filing Requirements
| Requirement | Details |
|---|---|
| Filing deadline | Within 15 days of transaction |
| Filed with | FinCEN (Financial Crimes Enforcement Network) |
| Record retention | 5 years from date of report |
| Customer notification | Not required (and may be prohibited) |
Suspicious Activity Reports (SAR)
A SAR must be filed when the institution knows, suspects, or has reason to suspect:
SAR Filing Triggers
| Trigger | Description |
|---|---|
| Funds from illegal activity | Proceeds from crime used in transaction |
| Transaction to evade reporting | Structured to avoid CTR or other reporting |
| No lawful purpose | Transaction has no business or legal purpose |
| Unusual activity | Not the sort of activity expected from customer |
| Criminal violation | Transaction involves violation of law |
SAR Thresholds and Filing
| Scenario | Threshold |
|---|---|
| Insider involvement | Any amount |
| Criminal violation identified | $5,000 or more |
| Suspicious activity | $5,000 or more ($25,000 for institutions w/o federal regulator) |
SAR Filing Requirements
| Requirement | Details |
|---|---|
| Filing deadline | Within 30 days of detection (60 days if no suspect identified) |
| Filed with | FinCEN |
| Record retention | 5 years from date of report |
| Confidentiality | Cannot disclose SAR filing to subject of report |
WARNING: It is a federal crime to "tip off" a customer that a SAR has been or will be filed.
Red Flags for MLOs
MLOs should watch for these suspicious activity indicators:
Application Red Flags
| Red Flag | Potential Issue |
|---|---|
| Large cash down payment with no clear source | Money laundering |
| Income inconsistent with employment | Income fraud |
| Reluctance to provide documentation | Identity fraud |
| Property flipping with rapid price increases | Appraisal fraud |
| Straw buyer indicators | Fraud scheme |
Transaction Red Flags
| Red Flag | Potential Issue |
|---|---|
| Multiple transactions just under $10,000 | Structuring |
| Rush to close with minimal documentation | Fraud |
| Wire from unknown third party | Money laundering |
| Significant last-minute changes to closing | Fraud |
| Power of attorney for all transaction activity | Straw buyer |
MLO Responsibilities
As a mortgage loan originator, you must:
| Responsibility | Action |
|---|---|
| Know Your Customer | Verify identity, understand transaction purpose |
| Document | Maintain records of identity verification |
| Report | Notify compliance if suspicious activity detected |
| Cooperate | Support institution's AML program |
| Train | Complete required AML training |
Penalties for Violations
| Violation Type | Penalty |
|---|---|
| Failure to file CTR | Up to $500,000 fine and/or 10 years imprisonment |
| Failure to file SAR | Civil money penalties up to $1 million per day |
| Structuring | Up to $500,000 fine and/or 10 years imprisonment |
| SAR tip-off | Criminal penalties, termination, industry bar |
| Willful violations | Enhanced penalties, potential prosecution |
At what cash transaction threshold must a Currency Transaction Report (CTR) be filed?
An MLO notices a borrower making multiple $9,500 cash deposits over several days. What should the MLO do?
When a SAR is filed, what must the financial institution do regarding customer notification?