Senior Honors Projects, 2020-current

The Banking Secrecy Act's effect on community banks

Alexis Renee Kakar, James Madison University
Manushree Dharmdev Bhatt, James Madison University
Daniel Alan Horowitz, James Madison University
Henry Drayer Haas, James Madison University


In this case study, we examine how the 1970 Banking Secrecy Act affects community banks and recommend newly proposed legislation, the Illicit Cash Act, to modernize the outdated BSA. We do this by looking specifically at a community bank, Farmers & Merchants (F&M) Bank. We observed its current compliance framework and interviewed staff members on what they believe are the best practices versus the bank’s current capabilities. We also spoke to a Capitol Hill staff member who is working on getting the Illicit Cash Act passed. Based upon these conversations we find the main issues of the BSA as a lack of communication between the involved parties (financial institutions, FinCEN, and law enforcement), not enough flexibility, access, and affordability for modern BSA software, and too stringent of a regulatory threshold that has not had an update since the BSA’s creation. This research will be submitted to a nationwide, community banking, case study competition put on by the Conference of State Bank Supervisors (CSBS). Our research on this new topic will aid CSBS in its future decision-making. Community banks touch nearly every town in America by reinvesting in their communities and allowing those they bank to thrive. More efficient allocation of their limited resources will directly benefit each community as they spend more time on their goals of bettering said communities and less time on the obstacles of regulatory compliance.