4.26.1  Introduction

Manual Transmittal

May 23, 2014

Purpose

(1) This transmits revised text for IRM 4.26.1, Bank Secrecy Act, Introduction.

Material Changes

(1) Terminology was updated.

(2) Web site addresses were updated.

(3) Style and punctuation was updated to conform to the IRM Style Guide and the Plain Writing Act of 2010.

Effect on Other Documents

This supersedes IRM 4.26.1 dated April 5, 2011.

Audience

The Intended audience is employees of the Bank Secrecy Act Program in the Small Business/Self-Employed (SB/SE) Division, and can be referenced by all field compliance personnel.

Effective Date

(05-23-2014)

William P. Marshall
Director, Fraud/BSA
Small Business/Self-Employed

4.26.1.1  (05-23-2014)
Overview of Introduction to Bank Secrecy Act

  1. This section contains information about the IRS Bank Secrecy Act (BSA) Program.

  2. Anti-money laundering statutes are found in two separate titles of the United States Code:

    • 31 USC 5311, et seq. (Title 31), excluding section 5315, commonly referred to as the Bank Secrecy Act (BSA)

    • 26 USC 6050I (Title 26), Internal Revenue Code

  3. Congressional intent behind the various anti-money laundering statutes, as stated in 31 USC 5311, is to "require certain reports or records where they have a high degree of usefulness in criminal, tax or regulatory investigations or proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism."

4.26.1.1.1  (04-05-2011)
Mission of Bank Secrecy Act Program

  1. The mission of BSA Program is to safeguard the financial system from the abuses of financial crime, including terrorist financing, money laundering, and other illicit activity by providing the financial community top quality service to help them understand their obligations under the BSA and to ensure BSA compliance with integrity and fairness to all.

4.26.1.1.2  (04-05-2011)
Definition of Money Laundering

  1. Money laundering is the process of converting funds from illegal activities to conceal their origin, true nature, or ownership; into funds that appear to have a legal source. See 31 USC 5340(2)(B).

  2. Once money becomes "dirty," it must be converted into a legitimate form before it can be spent. Money is laundered using a three-step process:

    1. Placement is the physical movement of cash or cash equivalents derived from illegal or illicit activities and its introduction into traditional or nontraditional financial institutions, into the retail economy, or into foreign countries (e.g. smuggling). The goal of the launderer is to move cash from its source and transform it to another asset without being detected. The cash is vulnerable to detection and seizure during the placement stage.

    2. Layering is conducting multiple complex financial transactions to make it difficult to trace the proceeds from illegal or illicit sources. Layering disguises or eliminates the audit trail of the funds. The purpose of layering is to hide the audit trail as well as the source and ownership of funds.

    3. Integration is the introduction of funds derived from illegal or illicit activities back into the economy with the appearance of normal business earnings or providing a seemingly legitimate explanation for financial wealth. It is extremely difficult to distinguish between legitimate and illicit or illegal funds at this stage.

4.26.1.2  (04-05-2011)
Authority for Bank Secrecy Act

  1. Authority for the IRS to conduct BSA examinations includes the following sources:

    1. 31 USC 5318(a) provides the Secretary of the Treasury with authority to administer provisions of the BSA.

    2. 31 CFR 1010.810(b)(8) (formerly CFR 103.56(b)(8)) gives the Commissioner, IRS, the delegated authority to examine certain financial institutions to determine compliance with BSA requirements. See Exhibit 4.26.1-1.

    3. Treasury Directive 15-41 delegates to the Commissioner the authority to conduct BSA examinations of certain financial institutions and to "assure compliance." See Exhibit 4.26.1-2.

    4. A Memorandum of Agreement dated April 8, 2003 delegates examination and penalty authority for the Report of Foreign Bank and Financial Accounts (FBAR) from FinCEN to IRS. See Exhibit 4.26.1-3.

    5. Related authority: 26 USC 7601 authorizes the Secretary of the Treasury to inquire into taxpayers' tax liability. 26 USC 7602 authorizes the Secretary to examine books and witnesses for specific purposes including determining and collecting federal tax liabilities.

4.26.1.3  (05-23-2014)
Bank Secrecy Act Program Goals

  1. As a partner in Department of Treasury national anti-money laundering efforts, the goal of the IRS is to detect violations of and increase compliance with the BSA anti-money laundering laws and regulations. See also IRM 4.26.2.3.3.

  2. This goal is accomplished by:

    1. Identifying those financial institutions and non-financial trades or businesses that have responsibilities under the BSA or IRC 6050I.

    2. Assisting financial institutions (not federally regulated) and non-financial trades and businesses, which IRS oversees, in understanding their roles in combating money laundering and meeting their financial obligations under the BSA or IRC 6050I.

    3. Conducting BSA and IRC 6050I examinations, ensuring appropriate BSA programs are established and implemented, and ensuring the compliance of financial institutions with all applicable BSA anti-money laundering program, recordkeeping, and reporting requirements. This includes the filing of Currency Transaction Reports (CTRs), FBAR, Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, and Suspicious Activity Reports (SARs).

    4. Actively participating in coordinated multi-agency anti-money laundering initiatives such as Geographic Targeting Orders(s) (GTOs), High Intensity Drug Trafficking Areas (HIDTAs), and High Intensity Money Laundering and Related Financial Crimes Areas (HIFCAs), which are designed to disrupt and dismantle money laundering organizations.

    5. Focusing on those institutions most non-compliant.

    6. Balancing the BSA and IRC 6050I programs.

    7. Ensuring geographic and industry coverage.

    8. Coordinating with other business operating divisions and state and federal enforcement agencies.

    9. Making best use of and leveraging available resources.

    10. Providing adequate training.

    11. Assigning responsibility.

    12. Measuring results.

    13. Setting milestones.

  3. The annual Fraud/BSA Program Letter should be referred to for specific annual program goals. This letter is tied directly to the Internal Revenue Service overall Strategic Plan and can be found on the Fraud/BSA Director's Corner of the IRS SB/SE BSA web site: http://mysbse.web.irs.gov/AboutSBSE/FRDBSA/default.aspx.

4.26.1.4  (11-17-2006)
Information Sources

  1. Internal and external sources of information are available to assist examiners in accomplishing program goals.

4.26.1.4.1  (05-23-2014)
Training Materials

  1. IRS training materials include:

    • Title 31 Training

    • Form 8300 Training

    • Casino Training for BSA Examiners

    • Insurance Training for BSA Examiners

    • Centralized Examination Training

    • On-the-Job-Instructor Training

    • Dealers in Precious Metal, Precious Stones, and Jewels Training for BSA Examiners

    • Credit Union Training for BSA Examiners

    • Prepaid Access Training

    • Intermediate (in development)

    • BSA Functional Managers Training

4.26.1.4.2  (05-23-2014)
Anti-Money Laundering Related Government Web Sites

  1. The IRS SB/SE BSA web site, http://mysbse.web.irs.gov/AboutSBSE/FRDBSA/default.aspx, provides information about the operation and administration of the BSA Program.

  2. The IRS SB/SE BSA SharePoint web site, https://organization.ds.irsnet.gov/sites/dcse/sbse/fraudbsa/BankSecrecyAct/SitePages/Home.aspx, is accessible by BSA examiners only.

  3. The IRS Criminal Investigation web site is http://ci.web.irs.gov/about_ci/default.htm.

  4. For information on issues related to tribal entities, the Tax Exempt/Government Entities (TEGE) Indian Tribal Governments web site is http://tege.web.irs.gov/home.asp. Select "Government Entities" under "Organization" ; then select the" Indian Tribal Governments" tab.

  5. The U.S. Department of the Treasury, Financial Crimes Enforcement Network (FinCEN) web site is http://www.fincen.gov.

  6. The U.S. Department of the Treasury, Office of Foreign Asset Control (OFAC) web site is http://www.treas.gov/offices/enforcement/ofac/.

  7. The Financial Action Task Force (FATF) is an inter-governmental body whose purpose is the development and promotion of national and international policies to combat money laundering and terrorist financing: http://www.fatf-gafi.org/.

4.26.1.4.3  (04-05-2011)
Publications

  1. Other BSA publications include:

    • Government Accounting Office (GAO) reports relating to BSA are available at http://www.gao.gov/ . Search the web site using "BSA" or "AML. "

    • FinCEN publications are available on its web site at http://www.fincen.gov .

    • Treasury Inspector General for Tax Administration (TIGTA) reports relating to BSA are available at http://www.treas.gov/tigta/. Search the web site using "BSA" or "AML" .

4.26.1.4.4  (05-23-2014)
Commercial Sources

  1. Commercial sources include:

    • Research services, for example, Commerce Clearing House (CCH), Lexis-Nexis, and Westlaw

    • Trade association publications, for example, Money Laundering Alert, National Money Transmitters Association,Association of Certified Anti-Money Laundering Specialists, Financial Intelligence Units - Egmont, etc.

Exhibit 4.26.1-1 
31 CFR 1010.810

Section 1010.810 Enforcement.

(a) Overall authority for enforcement and compliance, including coordination and direction of procedures and activities of all other agencies exercising delegated authority under this chapter, is delegated to the Director, FinCEN.
(b) Authority to examine institutions to determine compliance with the requirements of this chapter is delegated as follows:

(1) To the Comptroller of the Currency with respect to those financial institutions regularly examined for safety and soundness by national bank examiners;

(2) To the Board of Governors of the Federal Reserve System with respect to those financial institutions regularly examined for safety and soundness by Federal Reserve bank examiners;

(3) To the Federal Deposit Insurance Corporation with respect to those financial institutions regularly examined for safety and soundness by FDIC bank examiners;

(4) To the Federal Home Loan Bank Board with respect to those financial institutions regularly examined for safety and soundness by FHLBB bank examiners;

(5) To the Chairman of the Board of the National Credit Union Administration with respect to those financial institutions regularly examined for safety and soundness by NCUA examiners.

(6) To the Securities and Exchange Commission with respect to brokers and dealers in securities and investment companies as that term is defined in the Investment Company Act of 1940 (15 USC 80–1 et seq.);

(7) To the Commissioner of Customs and Border Protection with respect to 31 CFR 1010.340 and 1010.830;

(8) To the Commissioner of Internal Revenue with respect to all financial institutions, except brokers or dealers in securities, futures commission merchants, introducing brokers in commodities, and commodity trading advisors, not currently examined by Federal bank supervisory agencies for soundness and safety; and

(9) To the Commodity Futures Trading Commission with respect to futures commission merchants, introducing brokers in commodities, and commodity trading advisors.


(c) Authority for investigating criminal violations of this part is delegated as follows:

(1) To the Commissioner of Customs and Border Protection with respect to 31 CFR 1010.340;

(2) To the Commissioner of Internal Revenue except with respect to 31 CFR 1010.340.


(d) Authority for the imposition of civil penalties for violations of this chapter lies with the Director of FinCEN.
(e) Periodic reports shall be made to the Director, FinCEN by each agency to which compliance authority has been delegated under paragraph (b) of this section. These reports shall be in such a form and submitted at such intervals as the Director, FinCEN may direct. Evidence of specific violations of any of the requirements of this part may be submitted to the Director, FinCEN at any time.
(f) The Director, FinCEN or his delegate, and any agency to which compliance has been delegated under paragraph (b) of this section, may examine any books, papers, records, or other data of domestic financial institutions relevant to the recordkeeping or reporting requirements of this chapter.
(g) The authority to enforce the provisions of 31 USC 5314 and 31 CFR 1010.350 and 1010.420 has been redelegated from FinCEN to the Commissioner of Internal Revenue by means of a Memorandum of Agreement between FinCEN and IRS. Such authority includes, with respect to 31 USC 5314 and §§1010.350 and 1010.420 of this chapter, the authority to: assess and collect civil penalties under 31 USC 5321 and 31 CFR 1010.820; investigate possible civil violations of these provisions (in addition to the authority already provided at paragraph (c)(2) of this section); employ the summons power of subpart I of this part 1010; issue administrative rulings under subpart G of this part 1010; and take any other action reasonably necessary for the enforcement of these and related provisions, including pursuit of injunctions.

Exhibit 4.26.1-2 
Department of the Treasury Directive 15–41

TREASURY DIRECTIVE 15-41


Date: December 1, 1992


Sunset Review: TBD


Expiration Date: TBD


SUBJECT: Bank Secrecy Act -- Internal Revenue Service

1. DELEGATION. This directive delegates to the Commissioner of Internal Revenue the following functions, rights, privileges, powers and duties necessary to carry out the Department of the Treasury responsibilities under the Bank Secrecy Act Regulations:

a. Authority to:
(1) initiate investigations of any person, including banks and brokers or dealers in securities, for possible criminal violations of 31 Code of Federal Regulations (CFR) Part 103 (except violations of section 103.23);
(2) grant exemptions from the reporting requirement contained in 31 CFR 103.22;
(3) issue requests for lists of financial institution customers whose currency transactions have been exempted from the reporting requirement in 31 CFR 103.22;
(4) direct banks to file currency transaction reports as prescribed in 31 CFR 103.22(a) with respect to customers whose transactions had been previously exempted or otherwise not filed;
(5) disseminate copies of the reports required under the provisions of the Department of the Treasury regulations (31 CFR Part 103) subject to the guidelines and procedures which have been approved by the Assistant Secretary (Enforcement);
(6) investigate possible violations of the regulations with respect to violations of 31 CFR 103.24 and 103.32, the regulations on reporting and record keeping on foreign bank accounts;
(7) issue requests to financial institutions for chronological logs required to be maintained by 31 CFR 103.29; and (8) issuance of summons as authorized by 31 CFR 103.61 and 103.62(b), except with respect to section 103.23. b. Responsibility to examine and assure compliance with the requirements of 31 CFR Part 103 by all financial institutions, except brokers or dealers in securities and the U.S. Postal Service, not currently examined by Federal bank supervisory agencies for safety and soundness.

2. REDELEGATION. The Commissioner may redelegate this authority.

3. CANCELLATION. This directive supersedes the following Treasury Directives (TD):
a. TD 15-41, "Currency and Foreign Transactions Reporting Act -- Internal Revenue Service, dated December 8, 1987; and
b. TD 15-03, "Delegation of Authority of Analysis Function of Bank Secrecy Act Data," dated November 10, 1988.

4. OFFICE OF PRIMARY INTEREST. Office of the Assistant Secretary (Enforcement).

Peter K. Nunez
Assistant Secretary (Enforcement)

Exhibit 4.26.1-3 
FBAR Delegation to IRS

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