As a fintech, crypto, or blockchain company, complying with the Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) requirements of the Financial Crimes Enforcement Network (FinCEN) can be downright overwhelming. From technical requirements for reporting transactions to advanced concepts like “risk based” compliance, learning the route to compliance can feel a lot like solo-skydiving without any training. Layer in the ever-present threat of enforcement actions, civil money penalties (CMPs), and possible jail time, and you can see why your business can’t afford to be non-compliant. However there are three magic words that can help anyone struggling with AML standards: source, volume, and movement.
AML regimes across the globe center around these three simple words because they’re the key phrases used to describe and rationalize the first formal AML regulation enacted in 1970 in the U.S. known as the Bank Secrecy Act (BSA). FinCEN states that the BSA is “designed to help identify the source, volume, and movement of currency and other monetary instruments transported or transmitted into or out of the United States or deposited in financial institutions.” Now, although BSA and AML laws aren’t necessarily as exciting as Rock ‘n’ Roll, you can start to comprehend the complexities of FinCEN’s guidance with a little help from the King of Rock himself (Elvis Presley)—because source, volume, and movement can be thought of just “like a river flows to the sea.”
Legal experts can argue the technical details of FinCEN’s rules and guidance, but let’s break down what this means for your fintech, crypto, or blockchain company.
Like a river flows to the sea, the currency that flows in, through, and out of the U.S. has to start somewhere. When trying to prevent financial crimes, monitoring the source of the funding is crucial and can include asking questions such as:
- Where did this money come from?
- Who is the person or entity that first had this money?
- How did the person or entity who has this money come to possess it?
- Why does this person or entity have this money?
If you’re unable to answer these questions as they apply to your business when you onboard a customer or conduct transactions, you’re already non-compliant.
Like a river flows to the sea, the amount of currency that’s flowing at any one time can be determined through basic math. In the context of financial crimes and prevention, volume is all about knowing the size of a drop of water (the amount of currency in one specific transaction) and then figuring out how many drops are in the river (how much total currency is in your total monetary flow). Consider having answers to all of the following questions:
- How much money do I accept, hold, or process?
- In any one transaction?
- In a day? In a week? In a month? In a lifetime?
- For any one customer?
- For all customers?
To be honest, this is the “easy” one if you’re a for-profit business. If you don’t know the answer to any of these questions, you run a severe risk of being non-compliant.
Like a river flows to the sea, currency will take many twists and turns on its journey from the source to its final destination.
In the context of financial crimes and prevention, movement is all about the cartography of your process flow. All the twists, bends, falls, rapids, shoals, confluences, forks, tributaries, and branches need to be understood and mapped out. Consider having answers to some or all of the following questions:
- Why do people use our flow instead of another flow?
- How does the money enter the flow?
- Can money flow in midstream?
- Can money flow out midstream?
- Can money flow from our stream into another nearby stream that isn’t ours?
- Can our flow be diverted?
- Can I trace the flow of every cent from how and where it enters the flow, to how and where it exits the flow?
Without question, movement is the most difficult element to keep track of. People often find themselves lost in AML compliance here because to effectively understand movement, you also need to have very clear understanding of the source and volume of the money.
While there aren’t any shortcuts when it comes to fully complying with BSA and AML laws, keeping track of source, volume, and movement should keep your business from metaphorically going over the waterfall in a barrel, pushing you over the edge into dangerous non-compliance.