In 1970, Congress passed the Bank Secrecy Act. At the time, the BSA was the first legislation created to specifically fight money laundering in the United States. The BSA requires businesses to keep records and file reports that are determined to have a high degree of usefulness in criminal, tax and regulatory matters.

Since its inception, the BSA remains the primary U.S. anti-money laundering, or AML, law, but it has been amended, updated, and refined, particularly since the 9-11 attacks, to help law enforcement to better detect, deter and disrupt the financing of terrorist networks.

Today, this crucial regulation requires every national bank and savings association to have a written, board-approved program that is reasonably designed to assure and monitor compliance with the BSA.

The U.S. Department of the Treasury's Financial Crimes Enforcement Network has been working diligently to improve BSA/AML to not only more effectively combat terrorism, but also, to make it easier for financial institutions to comply with the regulations.

As new regulations are updated, it can make it difficult for many financial institutions to keep up with the changes and modify their BSA/AML programs accordingly. Yet it is incumbent upon them to do so, particularly here in the Miami area, which has been recognized as a hotbed of international money laundering activities.

For many years, South Florida has been on the list of high intensity financial crime areas as well as the list of the high intensity drug trafficking areas.

It is critical for banks and other financial institutions in the Miami area to evaluate domestic risk appropriately and be able to apply the appropriate risk mitigation. This is the goal of some of the latest modifications to BSA — developing an approach that is based more on a particular organization's level of risk, instead of a more blanket approach for all institutions.

Improved Approach to BSA/AML

According to the recent joint statement issued by FINCEN on July 22, "The extent of examination activities necessary to evaluate a bank's BSA/AML compliance program generally depends on a bank's risk profile and the quality of its risk management processes to identify, measure, monitor, and control risks, and to report potential money laundering, terrorist financing, and other illicit financial activity. A bank's well-developed risk assessment is a critical part of sound risk management that will not only assist regulator to in conducting their examination but also financial institution to allocate efforts in those riskier areas."

That same joint statement also said that taking a more risk-focused approach to BSA/AML enables federal agencies to better tailor examination plans and procedures based on the unique risk profile of each bank.

The risk-focused approach has been designed to allow the agencies to more effectively allocate resources by allotting more resources to higher-risk areas and fewer resources to lower-risk areas when conducting BSA/AML examinations.

Why Are These New Rules So Important?

Updating the BSA rules and issuing these kinds of joint statements are so important because it shows how the agencies are open to engaging with financial institutions to improve communication, transparency and effectiveness of the AML program.

This is particularly important for our local community banks because they don't have the same resources as larger financial institutions. Understanding the risk profile of the bank enables a bank to allocate compliance resources commensurate with its risk.

Any error can result in a fine resulting in a huge reputational risk for the financial institution. Also, having the right technology and using artificial intelligence and machine learning to attack human traffickers, terrorist activities, and money launders can aid many financial institution to potentially bring efficiencies and effectiveness into the BSA/AML.

Financial institutions, specifically executive management, need to ensure that their employees have the appropriate tools, training, resources, information and technology necessary to continue to uphold the highest standards of compliance.

And that means financial institutions must stay abreast of all recent changes in the regulatory environment to not only aid in the "War on Terror," but to also minimize their organization's reputational risk.

Frank Gonzalez is a managing principal and Heidy Duarte is a director with accounting firm MBAF.