2025 Risk Series:  BSA/AML and Financial Crimes Compliance Risks

The Regulatory Risks

Regulatory agencies continue to crack down on Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) violations. As financial crime schemes grow more sophisticated, community banks must strengthen their compliance programs or risk fines, enforcement actions, and reputational damage.

This is not just a compliance formality—it’s a high-stakes issue. Regulators expect banks to implement dynamic and adaptive risk-based compliance programs, leveraging real-time transaction monitoring, advanced analytics, and enhanced customer due diligence to combat increasingly complex financial crimes. While regulators do not mandate the use of AI-driven analytics, they encourage the adoption of technology that enhances transaction monitoring and risk management, provided it is well-calibrated, explainable, and properly supervised.

Example Enforcement Actions

These enforcement actions targeting BSA/AML deficiencies underscore the consequences of failure to maintain robust risk detection and compliance oversight:

• TD Bank, N.A. & TD Bank USA, N.A. – Fined $450 million for deficiencies in the bank’s BSA/AML program including those related to internal controls and risk management practices; risk assessments; customer due diligence; customer risk ratings; suspicious activity identification, evaluation, and reporting; governance; staffing; independent testing; and training.

• CBW Bank – Fined $20.4 million for failures to establish and maintain an effective CDD program; to perform sufficient independent testing; to effectively monitor and manage money laundering/terrorist financing risks; and, to maintain robust and effective internal controls.

• Sterling Bank and Trust, FSB – Fined $6 million for deficiencies including failures to implement an adequate system of BSA/AML internal controls and to file Suspicious Activity Reports (SARs) in a timely manner.

• Stearns Bank National Association – Fined $1 million for failures to adhere to its own policies governing monitoring and reporting suspicious activity and failures to file SARs timely

• Neighborhood National Bank – Fined $100,000 for failure to comply with a 2016 Consent Order that among other things, cited failures to implement the required BSA/AML compliance program and file suspicious activity reports.

Key Risks to Address Now

• Inadequate Suspicious Activity Monitoring – Banks must establish clear escalation protocols for SARs. Frontline staff should be well-trained to recognize and report suspicious transactions. Automated transaction monitoring tools should be implemented to flag high-risk transactions, and SAR filings should be regularly audited to confirm compliance with regulatory requirements.

• Weak Customer Due Diligence (CDD) Compliance – A risk-based approach to customer due diligence (CDD) should be in place, ensuring enhanced due diligence (EDD) for high-risk clients. Customer risk assessments should be regularly updated based on transaction behaviors and any changes in risk profiles. Compliance documentation must be retained and audited to ensure compliance with regulatory requirements. 

• Ineffective Transaction Monitoring Systems – Banks should consider adopting advanced analytics and technology-driven monitoring tools to detect complex money laundering schemes. Automated alerts should be implemented, dynamically adjusting based on real-time risk factors. However, any technology used must be well-calibrated, explainable, and supervised to ensure its effectiveness and regulatory compliance. Transaction monitoring thresholds should be regularly reviewed to minimize false positives and ensure accuracy.

• Lack of Board & Senior Management Oversight – Institutions must conduct annual and role-specific BSA/AML training for employees. The Board and senior management should understand their compliance responsibilities and take an active role in oversight. Detailed records of all training sessions should be maintained for examiner review.

• Failure to Conduct Independent BSA Audits – Banks should engage third-party auditors to conduct comprehensive, independent assessments of BSA/AML programs. Audit findings should be promptly addressed with corrective action plans. Internal controls should be tested regularly to identify potential weaknesses before regulators do.

BSA/AML Compliance Priorities

• Suspicious Activity Reporting (SARs)
  • Ensure SAR filing procedures are up to date and meet regulatory timelines.
  • Implement automated alerts to flag unusual transactions effectively.
  • Train staff to recognize and escalate suspicious activity appropriately.
• Customer Due Diligence (CDD) 
  • Verify all customer identities and maintain updated risk profiles.
  • Verify compliance documentation retention processes including periodic audits.
  • Implement ongoing monitoring for high-risk customers and transactions.
• Transaction Monitoring & Risk-Based Controls
  • Use AI-driven analytics to detect suspicious activity patterns.
  • Review and update transaction monitoring thresholds to align with emerging risks.
  • Conduct periodic audits of monitoring systems for effectiveness.
• Board & Staff Training
  • Provide ongoing BSA/AML training for all employees, tailored to their roles.
  • Ensure the Board and senior management understand their oversight responsibilities.
  • Keep records of all training sessions for regulatory review.
• Independent BSA/AML Audits & Risk Assessments
  • Schedule regular independent audits to assess program effectiveness.
  • Conduct annual risk assessments to identify and address compliance gaps.
  • Implement corrective action plans promptly for any deficiencies found.

Take Action Now

Regulators continue to closely scrutinize BSA/AML compliance failures, and community banks are not exempt. Now is the time to assess gaps, strengthen internal controls, and avoid costly enforcement actions.

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Stay tuned for the next post in our blog series:  "Third-Party and FinTech Relationships."