U.S. AML Anti-Money Laundering Laws And How They Apply To Fintech

Anti-money laundering laws keep the financial system protected in the United States. For fintech companies who want to grow in this space, keeping up with AML laws as a small entity can be taxing on both the business staff and budget.

As a software-as-a-service in financial services, we regularly navigate the AML laws and regulations that bind money transfer services nationwide. Here’s what you need to know about AML laws and the ones that apply to fintech.

Brief Overview of AML Laws

As a fintech startup, there’s no need to have a comprehensive understanding of AML laws. This is even more so when you build your fintech app with Sila. Our app comes complete with compliance features like Know Your Customer (KYC) and Know Your Business (KYB), secure bank account linking (so you don’t have to store sensitive banking data), stablecoin money transfers, and an FDIC-insured pass through online banking wallet so that you don’t have to manage the interweaving regulations with complicated fintech coding.

However, just because you go with the reliability of our SDK platform and compliance experts, it does not mean that you can completely forget about AML laws and AML compliance. Here’s a brief overview so you can grasp these laws:

History of Anti-Money Laundering Laws in the U.S.

Money laundering has long plagued the reliability and security of money transfers in the United States. Money laundering is the financial crime of making large amounts of money through illegal activity and making it appear to come from a legal and legitimate source. These activities might include drug trafficking, and terrorist funding, among other things. There are many ways to launder money, and this is the main inspiration for anti-money laundering laws (AML laws).

AML laws were first established in 1970 with the Bank Secrecy Act (BSA). This Act remains in place and is the primary U.S. AML law. It continues to be amended and improved upon. Currently, it includes provisions from the Title III of the USA Patriot Act, with aims to detect, deter and disrupt terrorist financing networks. For legal references, you can find all of the related regulations here.

2020 saw the passing of the Anti-Money Laundering Act (AMLA 2020) as part of the National Defense Authorization Act (NDAA). AMLA 2020 is the most significant overhaul since the USA Patriot Act of 2001 and represents a major evolution for stopping financial crimes. The implications of these changes are still impacting the financial networks, but in general, AMLA 2020 does the following:

  • Expansion of BSA/AML in antiquities and art trade
  • Broadens subpoena powers for law enforcement
  • Emphasizes new technologies
  • Establishes a beneficial ownership database

Regulations were also extended to cryptocurrencies, including digital assets and virtual currency.

Common Features of AML Laws and the BSA

The elements of the AML Act and BSA are widespread, but largely they are a basis of reporting to U.S. government agencies to detect red flags associated with money laundering. The U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) requires that financial institutions keep records of cash purchases of negotiable items, file reports of cash transactions exceeding $10,000, and report suspicious activity that might signify money laundering and other illegal activities.

In order to regulate this Act, the Office of the Comptroller of the Currency (OCC) conducts regular examinations of financial institutions (such as national banks, federal branches, and federal savings associations) to ensure compliance under BSA. The OCC must report to the U.S. Treasury Department (FinCEN) and the Office of Foreign Assets Control (OFAC).

A financial institution like Evolve Bank & Trust, who Sila is a bank agent of, must handle the following items for AML rules compliance:

  • Establish effective BSA compliance programs
  • Establish effective customer due diligence systems and monitoring programs
  • Screen against Office of Foreign Assets Control (OFAC) and other government lists
  • Establish an effective suspicious activity monitoring and reporting process
  • Develop risk-based anti-money laundering programs

Evolve Bank & Trust must also use the BSA E-Filing Systems to fill out a Suspicious Activity Report (SAR). SARs filing is a regular requirement under BSA and includes the following records:

  • Keep records of cash purchases of negotiable instruments,
  • File reports of cash transactions exceeding $10,000 (daily aggregate amount), and
  • Report suspicious activity that might signal criminal activity (e.g., money laundering, tax evasion)

What the BSA Means for Fintech

Financial services companies must comply with the necessary regulations in order to a) continue operations as a financial technology company and to b) keep the financial national payments systems in the U.S. secure.

Commonly, fintech banking apps want to provide financial services like peer-to-peer (P2P) money transfers, bank transfers, secure bank account linking, automated clearing house (ACH) payment transactions, checking accounts, savings accounts, bank account reporting, and so much more.

However, in order to do any of these things, fintech banking apps need access to the national payment system:

  • The Automated Clearing House (ACH) Network
  • The banking system, with access to a routing transit number (RTN)
  • The Electronic Payments Network (EPN)

To access any part of the banking network (even to send international money transfers from the U.S.), fintech companies and individuals both must be eligible under the Federal Reserve Bank and abide by AML compliance. This includes having a U.S. address, a bank in the U.S., and being able to complete Know Your Customer (KYC) or Know Your Business (KYB) due diligence. Banks have other requirements as well.

So if fintech companies want to provide banking services, they have two options: 1) become a bank or 2) partner with a bank. Becoming a bank, naturally, takes a lot of work and is extremely expensive to do. Not only that, but it requires a lot of documentation with a Compliance Officer, meetings with lawyers, and more. While this is all possible, it’s not ideal for the motivated fintech entrepreneur.

Moreover, banks aren’t altogether accepting of the motivated fintech entrepreneur model. They often require histories of successful transactions and revenue, which does not exist for a startup, and they don’t like to support nontraditional models (that are not traditionally reliable, for good reasons).

This leaves entrepreneurs with online banks, and this is where Sila comes in.

How Sila Supports AML Regulation and Other Banking Needs

Fintech firms that decide to partner with a bank service will come across a number of different types of suppliers: those who are vendors and those who are partners. Certain vendors will give a fintech company the tools that they need to build an app and set up their features, but often these tools are lacking in a number of ways:

  • They aren’t built with AML laws in design, by default
  • BSA and AML compliance falls almost 100% on the client
  • Things like SARs filings and other reporting falls onto the client
  • The client might have trouble with things like data security when hosting sensitive client data

Unfortunately, you still have to follow applicable U.S. financial regulatory requirements. Sila helps you in every regard here. In contrast to the other guys, Sila:

  • Is designed with AML laws and customer due diligence (KYC/KYB) by default
  • Comes with embedded compliance for BSA and AML in the code
  • Also supports clients around compliance regulations and best practices
  • Completes SARs filings and other AML reporting
  • And offloads data security and hosting through its third-party partnership with Plaid

This means that while all of these AML requirements and compliance regulations are still extremely important, Sila is here to help lower your financial crime risk. We want to help our clients navigate this murky water by offloading as much of the compliance as we possibly can. So while we can’t do everything, we will try. If we can’t do it for you, then our customer support team will be here to help you.

When you put the AML laws, BSA, and compliance needs in terms of how Sila is positioned, then choosing Sila as your financial partner just makes sense. Interested? See our weekly demo. Or head over to Sila documentation to dive in. Setting up your Sandbox is always free; you can build your app without paying a dime. Then launch when it makes sense.