Financial Institutions and Businesses Regulated by Bank Secrecy Act

A “financial institution” subject to regulation under the BSA is a term of art that covers a much wider array of businesses and institutions than what one would normally think of as a financial institution. See 31 CFR Section 5312(a)(2).  The definition includes:

1. An insured bank;
2. A commercial bank or trust company;
3. A private banker;
4. An agency or branch of a foreign bank in the United States;
5. Any credit union;
6. A thrift institution;
7. A broker or dealer registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934;
8. A broker or dealer in securities or commodities;
9. an investment banker or investment company;
10. A currency exchange;
11. An issuer, redeemer, or cashier of travelers’ checks, checks, money orders, or similar instruments;
12. An operator of a credit card system;
13. An insurance company;
14. A dealer in precious metals, stones, or jewels;
15. A pawnbroker;
16. A loan or finance company;
17. A travel agency;
18. A licensed sender of money or any other person who engages as a business in the transmission of funds, including any person who engages as a business in an informal money transfer system or any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside of the conventional financial institutions system;
19. A telegraph company;
20. A business engaged in vehicle sales, including automobile, airplane, and boat sales;
21. Persons involved in real estate closings and settlements;
22. The United States Postal Service;
23. An agency of the United States Government or of a State or local government carrying out a duty or power of a business described in this paragraph; and
24. A casino, gambling casino, or gaming establishment with an annual gaming revenue of more than $1,000,000.

The definition also includes two ‘catch all’ provisions that empower FinCEN to consider any business or agency as a financial institution if it engages in any activity that is similar to, related to, or a substitute for any activity in which any business described above is authorized to engage.   31 CFR Section 5312(a)(2)(Y).

The second ‘catch all’ also authorizes FinCEN to designate any other business as a financial institution if that business has cash transactions that have “a high degree of usefulness in criminal, tax, or regulatory matters.” See 31 CFR Section 5312(a)(2)(Z).

As is evident from the list above, the regulations and reporting requirements implemented pursuant to the BSA apply broadly to the financial activities of many businesses and not just banks. As such, the financial activities of a very broad cross-section of the economy can come under the scrutiny of the federal government. Every customer at a car dealership, travel agency, casino, insurance company, or bank is at risk of having a SAR be secretly filed about their financial activities. Given the existence of such scrutiny, all financial institutions and their customers should be cognizant of BSA and FinCEN regulations. Compliance with all regulations is critical to protecting oneself and one’s business. Moreover, making finance arrangements that lessen risk, such as avoiding the use of unlicensed money transmitters, is another way to avoid unwarranted investigatory attention.