U.S. regulators signaled their intention to continue aggressive enforcement of anti-money laundering (AML) laws by using the Bank Secrecy Act — a law generally used to target large banks and financial institutions — to charge the owners of two companies that sell fake-hair products with AML violations. Shake-N-Go Fashion and Model Hair Fashion, which share the same owners, agreed to pay $15 million to settle allegations that they allowed customers to structure payments in a way that avoided federal reporting requirements.
The government alleges that the companies — bulk distributors of hair extensions, wigs and other hair accessories — allowed customers to split payments into amounts less than $10,000 and deposit them directly into the companies' bank accounts. Although some employees were aware of the structured deposits, neither company took action to correct the problem, and no reports of suspicious activity were filed.
The Bank Secrecy Act helps prevent money laundering — the process of making ill-gotten gains (i.e. "dirty money") appear legal (i.e. "clean") — by helping to identify the source, volume and movement of currency. It requires businesses that receive more than $10,000 in cash in one or more related transactions to report that information to the Internal Revenue Service. Businesses are also required to properly identify persons making transactions and keep appropriate records to maintain a paper trail of financial transactions.
The Bank Secrecy Act and other AML laws and regulations impose substantial compliance obligations on businesses not only to prevent them from intentionally breaking the law, but from unknowingly being used by criminals to further illicit activities. A comprehensive anti-money laundering program is crucial to preventing AML violations, but can only be effective if its policies and procedures are understood and implemented by employees on a daily basis.