Financial Crime Prevention Acts In The US

Financial crime is a long list of illegal acts that abuse financial systems to achieve personal gain at the detriment of persons, businesses, and even whole economies. These crimes relate to money laundering, fraud, bribery, corruption, tax evasion, embezzlement, and financing of terrorism.

For a deeper understanding of financial crime, check out our blog on “What is Financial Crime.”

Against such threats, governments and regulatory bodies have framed strong legal provisions that work to counteract such activities. The most prominent among them is the Financial Crime Prevention Act. It offers a broad palette of provisions in the global fight against financial crime, starting from the detection and reporting of unlawful financial activities to bringing responsible parties to justice. It is for this very reason that the Compliance and Prevention of Financial Crime Act enhances transparency and accountability within a financial institution, corporation, or other entity to a great extent by setting up stringent compliance requirements and enforcement mechanisms.

This legislation safeguards not only the financial system from the exploitation of organized criminal groups but also ensures the integrity of business ventures, which is relevant to the general stability and security of the global economic landscape. The Financial Crime Prevention Act helps governments secure the integrity of financial systems so they remain less vulnerable to the threat of financial crime.

Financial Crime Prevention Acts in the United States

1. Financial Crime Prevention Act (FCPA) - United States

Introduced in 1977, the Financial Crime Prevention Act is one of the pillars of fighting corruption and bribery worldwide. Under the FCPA, the major target is U.S. companies that do business overseas, it ensures that there is honesty and transparency in all business transactions. Here are two provisions that play a crucial role: anti-bribery provisions and accounting provisions.

The anti-bribery provisions of the FCPA criminalize the act of offering, promising, or authorizing the payment of any money or thing of value by U.S. persons and businesses to foreign officials to obtain or retain business. This statute does not apply only to U.S. entities but extends further to cover foreign firms and individuals who commit corrupt acts on U.S. soil. The FCPA also has accounting provisions that compel corporations and any other entity to come up with records and books that exhibit a true reflection of their transactions. Furthermore, the corporation must establish internal accounting controls that will ensure accountability and compliance.

Among the unique things about FCPA is its extraterritorial jurisdiction. That is, the Act applies to all U.S. publicly-listed companies and nationals and other registered foreign-listed companies or such a company whose interests it placed or transacted on U.S. soil. The same act is enforced criminally by the DOJ and civil by the SEC, ensuring that criminal and civil violations are prosecuted at levels suitable for providing a sufficient deterrent against financial crimes.

2. Bank Secrecy Act (BSA) — United States

The Bank Secrecy Act is one of the underlying bases that make up frameworks for the prevention of money laundering and other financial crimes in the United States. Enacted in 1970, it places the onus on financial institutions with very strict record-keeping and reporting requirements, thereby enhancing their capacity for noting and reporting suspicious activities.

According to the BSA, every cash purchase of any negotiable instrument has to be recorded by a financial institution, and forms for CTRs need to be filed for every such transaction that is above $10,000 in value. Furthermore, a SAR should be submitted for those transaction reports that could identify possible money laundering and other financial crimes. The BSA also requires U.S. persons to report foreign bank account balances over $10,000 through FBARs.

The BSA is enforced by FinCEN in coordination with several law enforcement agencies in their collective battle against financial crimes. Under its very vast reporting and record-keeping requirements, the BSA forms quite a substantial part of the detection, identification, and deterrence of suspected money laundering or other associated illicit financial activities.

3. Anti-Money Laundering Act (AMLA) - United States

The United States, in 2021, enacted the Anti-Money Laundering Act, a law that significantly broadened the previous AML regulatory coverage. The Act extended the reach of the Bank Secrecy Act and introduced various measures to boost the prevention of financial crime.

One of the more important impending provisions within the AMLA is the extension of BSA requirements, which, by and large, obliges a financial entity to institute sturdy anti-laundering schemes. The AMLA also more clearly defines financial institutions, bringing within the scope non-bank financial institutions, and binds a broader range of entities to anti-money laundering obligations, including virtual asset service providers.

The AMLA tightened the violations of sanctions and imposed the disclosure of beneficial owners by the companies to make them more transparent. Businesses are now required to have proper sanctions checks in their compliance procedure. These steps prevent misdeeds of a financial nature through increases in the cost of non-compliance and improvement in monitoring and enforcement authorities' abilities. FinCEN enforces the AMLA with other relevant authorities empowered with greater resources and authority to detect money laundering.

4. USA PATRIOT Act – United States

The USA PATRIOT Act was passed in 2001 in response to the attack on September 11, which dramatically increased the powers the U.S. Government already had, and even pro-actively prevented, money laundering and financing terrorists. The Act brought in measures to increase the effectiveness of the existing anti-money laundering framework.

The USA PATRIOT Act contains an important section that requires covered financial institutions to establish appropriate AML programs, which include customer identification programs that are supposed to identify the customers of these institutions. The thought here is an assurance that the financial institutions are not unwittingly used as a vehicle for a person's money, especially ill-gotten money. The act also mandates suspicion of the laundering of money to be reported, and particular detailed records of financial transactions are to be kept.

The USA PATRIOT Act FinCEN, FBI, and Treasury Department each enforce the Act, with one another working in concert, which will be why financial crimes, are to be fought and in doing so, the Act enforced correctly.

5. Foreign Corrupt Practices Act (FCPA) - United States

The Foreign Corrupt Practices Act was passed in 1977 and is one of the principal legislations that help prevent U.S. companies or individuals from bribing foreign officials. Its provisions are quite similar to those designed for the Financial Crime Prevention Act and require a tightened check on corrupt practices in international business transactions.

The anti-bribery sections of the FCPA make it unlawful for US companies to bribe foreign officials to influence them in their efforts to obtain or retain business. The act also requires accurate management books and records and reasonable internal controls to ensure the anti-bribery features at firm transactions.

The enforcement of the FCPA is only through the hands of the DOJ and the SEC. The act makes sure that companies comply with the criminal and civil provisions of the act. The importance of the FCPA Act is evident in the encouragement of ethical businesses and the discouragement of corruption around the world.

Summing Up

The Financial Crime Prevention Act, along with other key legislations like the FCPA, BSA, AMLA, and the UK Bribery Act, plays a crucial role in safeguarding financial systems from various illegal activities such as money laundering, fraud, bribery, and terrorism financing. These laws establish stringent compliance requirements, enhance transparency, and ensure that those responsible for financial crimes are brought to justice.

It's also essential to emphasize the importance of reporting financial crimes, as timely and accurate reporting helps detect and prevent illegal activities while holding accountable those who exploit financial systems for personal gain.

Additionally, it's crucial to emphasize the importance of reporting financial crimes. Timely and accurate reporting not only helps in detecting and preventing illegal activities but also ensures that those responsible are held accountable, further reinforcing the effectiveness of these legal frameworks.