Smurfs and your bank account _ sand hill global advisors why anti money laundering is important

There are no limitations on how much money you can take out of your own bank account—it is your money after all—but there are governmental reporting requirements that need to be made by banks for transactions of certain type and size. The bank secrecy act of 1970 was passed to help detect and prevent money laundering by requiring financial institutions to document and report large cash transactions (over $10,000) and other suspicious activity. This involves not only withdrawals, but also deposits, currency exchanges, and purchases of traveler’s checks. These rules were put in place in order to help protect banks from being used to hide or “launder” money acquired from criminal activity such as drug trafficking, weapons trading, terrorism, prostitution, and sales of counterfeit or stolen goods or pirated copyrighted products.

Interestingly, the term “smurf”—as in the popular blue cartoon character—is often used as slang for a money launderer.Why anti money laundering is important

In the past decade or so, international and domestic terrorism—and the potential financing of it from successfully laundered and therefore seemingly legitimate sources at reputable institutions—has only served to further heighten the concerns and issues originally addressed by anti-money-laundering laws. Even more routine and so-called victimless money laundering—without the terrorist motive—can damage the economy by skewing natural money flows, reducing money supply and causing more printing of money. This in turn can adversely affect purchasing power and ultimately lead to unwelcome inflation. In the extreme, if not controlled, this can beget hyper-inflation and harm economic activity.

Under the law, banks must consider the aggregated total of all transactions made on the same day and count them as one single amount and report this accordingly, if necessary.Why anti money laundering is important even a series of otherwise allowable single day transactions made repeatedly over the course of a number of days or weeks could be enough to invite scrutiny. Banks must also report what are called “structured transactions” – such as taking out only $9,950 – which they believe are deliberately chosen to avoid triggering the $10,000 threshold amount. Even a husband and wife might unwittingly withdraw separate permissible large amounts on the same day—perhaps in preparation for a lengthy trip—and in combination trigger a red flag and a related report. Indeed, any transaction that a bank considers suspicious, regardless of size, could trigger a report especially if the activity is significantly different and contrary to one’s long-term pattern of banking behavior.

Of course, there are some sensible and welcome stated exceptions to these rules. For example, banks do not need to file a report for any transactions that occur between themselves and other banks or government agencies which thus excludes the rather common use of customer wire transfers and overnight electronic fund transfers (efts).Why anti money laundering is important furthermore, banks can request exemptions (that must be renewed annually) to these types of reporting requirements for any regular business customers who engage in large routine cash transactions like grocery stores that regularly need large sums of cash on hand for their registers. Admittedly, all of the above issues and circumstances are not likely to impact most people, but as an informed consumer it does not hurt to be aware of these general conditions.

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