4.26.5  Bank Secrecy Act History and Law

Manual Transmittal

October 03, 2012

Purpose

(1) This transmits revised text for IRM 4.26.5, Bank Secrecy Act, Bank Secrecy Act History and Law.

Material Changes

(1) This updates text to reflect changes in the law occurring since the previous revision.

(2) Changed the term "stored value" to "prepaid access."

(3) Changed the term "currency exchanger" to "dealer in foreign exchange."

(4) Citations were renumbered from 31 CFR Part 103 to 31 CFR Chapter X, effective March 1, 2011. See Exhibit 4.26.5-1, 31 CFR Chapter X General Cross Reference Index. An overview of the results of renumbering and reorganization of the regulations is available in Exhibit 4.26.5-2, 31 CFR Chapter X Subpart Index. A link to the Chapter X regulations is provided in Exhibit 4.26.5-3.

(5) Previously existing exhibits are renumbered.

(6) Web site links were updated.

Effect on Other Documents

This supersedes IRM 4.26.5 dated December 12, 2006.

Audience

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

Effective Date

(10-03-2012)


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

4.26.5.1  (12-12-2006)
Overview

  1. This section discusses the history of anti-money laundering law and its important concepts. It provides a brief history of the legislation, regulations, and case law that have developed around federal anti-money laundering efforts under the Bank Secrecy Act (BSA). A timeline of important laws, cases, and regulations appears as an exhibit. See Exhibit 4.26.5-4.

4.26.5.2  (10-03-2012)
History of the Bank Secrecy Act

  1. On October 26, 1970, in response to increasing reports of people bringing bags full of currency of doubtful origin into banks for deposit, Congress passed Public Law 91-508. This law is often cited as the BSA because Part I, codified mostly in Title 12 of the United States Code (USC), was intended to address a concern by Congress that U.S. citizens may have been using the bank secrecy laws of other countries to conceal illegal activities. Part II of the law is cited as the Currency and Foreign Transactions Reporting Act. It is codified now at 31 USC, Money and Finance, Chapter 53, Monetary Transactions, Part II, Records and Reports on Monetary Instruments Transactions.

  2. When the BSA is referred to in this IRM section, "BSA" means that part of the BSA for which IRS has responsibilities, that is, 31 USC 5311 through 5332, except 5315.

  3. The BSA gives the Secretary of the Treasury (sometimes jointly with the Federal Reserve Board) broad discretion to define the entities subject to the law and detail the reports and records to be made and retained. Treasury issued detailed regulations to implement the BSA. They appear in the Code of Federal Regulations (CFR) at Title 31, Money and Finance, Chapter X, Parts 1000 - 1099, Financial Recordkeeping and Reporting of Currency and Foreign Transactions (formerly 31 CFR Part 103).

4.26.5.2.1  (10-03-2012)
1970s

  1. The BSA required the filing of reports designed to create a paper trail for currency transactions. The principal reports required were Currency Transaction Reports (CTRs) filed by financial institutions on their customers and reports filed by persons on their own activities such as the Report of Foreign Bank and Financial Accounts (FBAR) for persons having accounts abroad and the Currency and Monetary Instruments Report (CMIR), for persons moving currency and monetary instruments into and out of the United States.

  2. Initially, the requirements for these reports and records were challenged as an unconstitutional infringement of privacy rights. Judicial decisions established BSA's constitutionality.

4.26.5.2.2  (10-03-2012)
1980s

  1. An important lower court decision, United States v. Deak Perera & Co., 566 F. Supp. 1398 (D.D.C. 1983), held that examiners could not conduct tax examinations under the guise of a BSA examination.

  2. Congress expanded civil and criminal penalties. Treasury issued regulations detailing the circumstances under which geographical "targeting orders" would be issued.

4.26.5.2.3  (10-03-2012)
1990s

  1. As a result of the millions of CTRs being filed, mostly by banks on legitimate business activities, Congress directed Treasury to research the uses made of BSA reports. Legislative focus then shifted from reporting all transactions to reducing, through exemptions, the number of CTRs filed and to requiring reports on suspicious transactions, known as Suspicious Activity Reports (SARs). Laws were passed to specifically address money laundering by and through nonbank financial institutions (NBFIs). Registration of money services businesses (MSBs) was required, with the regulations setting the effective date as 12/31/2001. More emphasis was placed on requiring financial institutions to retain records.

4.26.5.2.4  (10-03-2012)
2000s

  1. A terrorist attack in the U.S. on September 11, 2001 led to intense Congressional interest in terrorist financing. On October 26, 2001, the President signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT Act) of 2001, Public Law No.107-56. Congress mandated anti-money laundering compliance programs for all financial institutions as defined in the BSA. Suspicious activity reporting requirements were enhanced. All nonfinancial trades and businesses were required to report receipt of coins or currency greater than $10,000 under BSA as well as under IRC 6050I. This dual Form 8300 filing requirement effectively released Form 8300 information, except for Clerk of Court reports, from the disclosure protections of the IRC. Civil and criminal penalties for money laundering were increased. The Secretary of the Treasury received expanded powers for geographical targeting orders. FinCEN was elevated to Bureau status within Treasury. Information sharing by financial institutions with Federal law enforcement agencies and voluntary information sharing among financial institutions was encouraged and protected.

  2. The American Jobs Creation Act of 2004, Public Law No. 108-357, increased the amount of civil penalties that could be assessed for violation of the FBAR requirements. This amendment to the BSA also established a new FBAR penalty for nonwillful violations. The law is effective for violations occurring after October 22, 2004.

  3. Treasury issued regulations requiring money services business to register. SARs, previously required from banks, were required from money services businesses, casinos, brokers or dealers in securities, and from futures commission merchants and introducing brokers in commodities. New BSA regulations mirrored existing IRC Form 8300 regulations reflecting that the Form 8300 was now required under both the BSA and the IRC.

  4. Regulations addressed the USA PATRIOT Act detailed requirements for anti-money laundering (AML) programs, customer identification, and due diligence.

    • In addition to the existing requirements for anti-money laundering programs for banks, casinos, and certain self-regulatory organizations, new regulations were issued. At the time of this writing, regulations for AML programs had been issued for money services businesses, mutual funds, and operators of credit card systems as well as insurance companies, and dealers in precious metals, precious stones, and jewels. More regulations detailing appropriate AML programs for other types of financial institutions listed in the BSA are expected to be issued. Until then, the regulations provide that the remaining financial institutions are not required to have AML programs.

    • Customer identification programs were separately required for banks, savings associations, credit unions, and certain non-Federally regulated banks as well as for brokers and dealers in securities, futures commission merchants and introducing brokers, and mutual funds.

    • Due diligence requirements for correspondent accounts and private banking were expanded for some financial institutions including credit unions. Correspondent accounts with foreign entities were banned in certain situations such as failure of the foreign bank to comply with a U.S. summons or subpoena. Information exchanges between all financial institutions were facilitated by providing a safe harbor from civil suit.

4.26.5.2.5  (10-03-2012)
2010s

  1. Effective March 1, 2011, Treasury reorganized, renumbered, and reissued the BSA regulations to 31 CFR Chapter X, Parts 1000-1099 , from 31 CFR Part 103. See Exhibit 4.26.5-1 for the Chapter X General Cross-Reference Index. See Exhibit 4.26.5-2 for the Chapter X Subpart Index. A link to the full text of the regulations is found in Exhibit 4.26.5-3.

  2. Effective March 28, 2011, FinCEN published expanded regulations for the Report of Foreign Bank and Financial Accounts (FBAR). 31 CFR 1010.350. The Form TD F 90-22.1 instructions were also revised.

  3. Effective September 19, 2011, FinCEN issued a final rule changing the definitions of money services businesses (MSBs). 31 CFR Parts 1010, 1021, and 1022. The rule clarifies that certain foreign-located MSBs with a U.S. presence, such as having U.S. customers or recipients, are subject to the BSA rules and must provide a U.S. contact on their registration with FinCEN. In addition, the rule provides new nomenclature for MSBs, as follows:

    1. Dealer in Foreign Exchange (formerly Currency Dealer or Exchanger),

    2. Check Casher,

    3. Issuer or Seller of Traveler’s Checks or Money Orders (formerly included in Issuer of Traveler’s Checks, Money Orders, or Stored Value and former Seller or Redeemer of Traveler’s Checks, Money Orders, or Stored Value; stored value was renamed as prepaid access),

    4. Provider of Prepaid Access (formerly under Issuer, Seller, or Redeemer of Stored Value),

    5. Seller of Prepaid Access (formerly under Issuer, Seller, or Redeemer of Stored Value),

    6. Money Transmitter, and

    7. U.S. Postal Service.

  4. The Credit Card Accountability, Responsibility and Disclosure Act of 2009 mandated regulation of prepaid access providers. Effective September 27, 2011, FinCEN issued definitions of prepaid access providers and sellers (31 CFR 1010.100(ff)(4) and (7)) and required providers to register as MSBs (31 CFR 1022.380). Both providers and sellers are required to have AML programs (31 CFR 1022.210(d)(1)(iv)) and maintain records (31 CFR 1022.420).

  5. FinCEN developed the BSA E-File System and, effective July 1, 2012, FinCEN mandated electronic filing (e-filing) of most forms on this site. All FinCEN forms including Suspicious Activity Reports, Currency Transaction Reports, Designations of Exempt Persons, and Registrations for Money Services Businesses must be e-filed. FBAR forms have been exempted until June 30, 2013, after which time electronic filing becomes mandatory. Exceptions may be requested from FinCEN by certain smaller entities. In order to meet the needs of electronic filers, FinCEN changed the requirements for filing FBAR and Form 8300 amended returns.

  6. Residential Mortgage Lenders and Originators (RMLOs) are required to establish anti-money laundering programs and file SARs effective April 16, 2012, with a compliance deadline of August 13, 2012, under regulations at 31 CFR 1010 and 1029. The Final Rule does not require RMLOs to comply with any other BSA reporting or recordkeeping regulations, such as CTRs. As noted in the Notice of Proposed Rule Making, any transactions involving the receipt of over $10,000 will continue to be subject to reporting on Form 8300.

4.26.5.3  (10-03-2012)
Entities Subject to BSA

  1. Many BSA requirements apply only to financial institutions. The statutory definition of financial institution in 31 USC 5312(a) lists many types of businesses, including many not offering financial services. The definition of financial institutions includes such diverse businesses as vehicle dealers and "any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside of the conventional financial institutions system."

  2. Regulations in 31 CFR 1010.100 (formerly 103.11) identify only some of these businesses as financial institutions for regulatory purposes. The regulations make clear that each agent, branch, and office of a financial institution is considered a separate financial institution. The regulatory definition applies to requirements such as filing a CTR. MSBs are an important subset of the regulatory definition of a financial institution.

  3. All nonfinancial trades and businesses are now required to file Form 8300 not only under IRC 6050I but also under 31 USC 5331 making this form a "dual purpose" form.

  4. Individuals as well as businesses are responsible for some requirements such as filing the FBAR and the CMIR.

4.26.5.3.1  (10-03-2012)
Financial Institutions Defined in 31 CFR 1010.100(t) (formerly 103.11(n))

  1. Financial institutions as defined in 31 CFR 1010.100(t) (formerly 103.11(n)) include:

    • A bank. The definition of a bank in 31 CFR 1010.100(d) (formerly 103.11(c)) includes most depository institutions including credit unions.

    • A broker or dealer in securities.

    • A money services business as defined in 31 CFR 1010.100(ff) (formerly 103.11(uu)).

    • A telegraph company.

    • An authorized casino or card club that has gross annual gaming revenue in excess of $1 million.

    • A person subject to supervision by any state or Federal bank supervisory authority.

    • A futures commission merchant.

    • An introducing broker in commodities.

    • A mutual fund.

4.26.5.3.2  (10-03-2012)
Money Services Business (MSB) Defined

  1. A money services business is a person, wherever located, doing business, whether or not on a regular basis or as an organized or licensed business concern, wholly or in substantial part within the United States, in one or more of the capacities listed below under "Types of Money Services Businesses" . This includes but is not limited to maintenance of any agent, agency, branch, or office within the United States. Note that this definition clarifies that the person may be located outside the United States.

  2. A money services business does not include

    1. A bank or foreign bank;

    2. A person registered with, and functionally regulated or examined by, the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC), or a foreign financial agency that engages in financial activities that, if conducted in the United States, would require the foreign financial agency to be registered with the SEC or CFTC; or

    3. A natural person who engages in money services (other than as a seller of prepaid access without verification of identity or access to funds that exceed $10,000 to any person during one day) on an infrequent basis and not for gain or profit.

4.26.5.3.3  (10-03-2012)
Types of Money Services Businesses

  1. A dealer in foreign exchange is a person that accepts the currency, or other monetary instruments, funds, or other instruments denominated in the currency, of one or more countries in exchange for the currency, or other monetary instruments, funds, or other instruments denominated in the currency, of one or more other countries in an amount greater than $1,000 for any other person on any day in one or more transactions, whether or not for same day delivery.

  2. A check casher is a person that accepts checks (as defined in the Uniform Commercial Code), or monetary instruments (as defined at section 1010.100(dd)(1)(ii), (iii), (iv), and (v)) in return for currency or a combination of currency and other monetary instruments or other instruments, in an amount greater than $1,000 for any person on any day in one or more transactions. There are a number of exclusions:

    1. A person that sells prepaid access in exchange for a check (as defined in the Uniform Commercial Code), monetary instrument or other instrument;

    2. A person that solely accepts monetary instruments as payment for goods or services other than check cashing services;

    3. A person that engages in check cashing for the verified maker of the check who is a customer otherwise buying goods and services;

    4. A person that redeems its own checks; or

    5. A person that only holds a customer’s check as collateral for repayment by the customer of a loan.

  3. An issuer or seller of traveler’s checks or money orders is a person that (i) issues traveler’s checks or money orders that are sold in an amount greater than $1,000 to any person on any day in one or more transactions; or (ii) sells traveler’s checks or money orders in an amount greater than $1,000 to any person on any day in one or more transactions.

  4. A provider of prepaid access is the participant within a prepaid program that agrees to serve as the principal conduit for access to information from its fellow program participants. The participants in each prepaid access program must determine a single participant within the prepaid program to serve as the provider of prepaid access. Until this is done, the provider is the person with principal oversight and control over the prepaid program. Prepaid access does not include:

    1. Closed loop access not to exceed $2,000 any day;

    2. Access to domestic government or tribal funds;

    3. Access to pre-tax flexible spending arrangements for health reimbursement or child and dependent care; or

    4. Access solely to employment-related funds or funds not to exceed $1,000 any day that do not permit value to be transmitted internationally, transfers among users within a prepaid program, or loading value from non-depository sources.

  5. A seller of prepaid access is a person that receives funds or the value of funds in exchange for loading of prepaid access if that person:

    1. Sells prepaid access offered under a prepaid program that can be used before verification of customer identification under section 1022.210(d)(1)(iv); or

    2. Sells prepaid access (including closed loop prepaid access) to funds that exceed $10,000 to any person during any one day, and has not implemented policies and procedures reasonably adapted to prevent such a sale.

  6. A money transmitter is a person engaged in the transfer of funds or other value that substitutes for currency to another location or person by any means. There is no dollar threshold. Exclusions include:

    1. Transmission support services used by transmitters;

    2. Payment processors of sellers or creditors;

    3. Intermediary clearance and settlement solely between BSA regulated institutions such as Fedwire;

    4. Custodians of funds being physically transported, such as armored cars;

    5. Providers of prepaid access; or

    6. Acceptors and transmitters of funds only integral to the sale of goods or the provision of services, other than money transmission services, by the person who is accepting and transmitting the funds.

  7. The US Postal Service except for the sale of postage or philatelic products.

4.26.5.3.4  (10-03-2012)
Agents and Offices of Financial Institutions

  1. The definition of financial institution under 31 CFR 1010.100 (formerly 103.11) also includes each agent, agency, branch, or office within the United States of an included financial institution. Each is separately required to follow the reporting and recordkeeping requirements of the BSA.

  2. Where the reports to be filed or records to be kept would be duplicates, only one report is required to be filed. This means that the principal office and the branches can determine who files the report and where the records will be retained. Each is separately responsible if the requirements of the law are not met.

4.26.5.3.5  (10-03-2012)
Nonfinancial Trades or Businesses

  1. A nonfinancial trade or business that receives more than $10,000 in cash in a single transaction (or two or more related transactions) is now required to file a Form 8300, under section 5331 of the BSA, as well as under IRC 6050I. Form 8300 reflects this dual statutory purpose in its heading. A primary purpose of enacting section 5331 was to free the Form 8300 information from the disclosure protections applicable to information returns required by the IRC. Nonfinancial trade or business is defined in section 5312(a)(4) to mean any trade or business other than a financial institution that is subject to the reporting requirements of section 5331 and regulations prescribed under such section.

  2. There are a number of differences between the two statutes. Section 5331 did not carry over two important IRC 6050I requirements.

    • Under section 5331, there was no requirement that criminal court clerks file Form 8300 until December 23, 2011. (Compare IRC 6050I(g)).

    • There is no requirement under section 5331 that the filer provide a statement to the person from whom the cash was received. (Compare IRC 6050I(e)).

  3. Other differences between the two statutes arise because supporting sections were not changed in the BSA. For example:

    • A BSA summons, not a Title 26 summons, must be used if the examination is under Title 31.

    • The statutes of limitations differ depending on whether or not the case is under Title 31 or Title 26.

    • Penalties differ.

  4. For a detailed discussion of Form 8300 law, see IRM 4.26.10.

4.26.5.3.6  (10-03-2012)
Individuals

  1. Individual owners, officers, or employees of the financial institution act on behalf of the financial institution. The knowledge, intent, or negligence of these individuals may be attributed to the financial institution. The individuals themselves are separately liable as individuals for additional penalties for willful violations. Examples of individual responsibility include:

    • 31 CFR 1022.380(c) (formerly 103.41(c)) makes any person owning or controlling a money services business responsible for registering the business. Ownership or control is determined by the instructions on the registration form. A person who fails to comply with the section is liable for a civil penalty. 31 CFR 1022.380(e) (formerly 103.41(e)).

    • 31 CFR 1010.820(c) (formerly 103.57(c)) states "For any willful violation of any recordkeeping requirement for financial institutions, except [those relating to foreign bank accounts] the Secretary may assess upon any domestic financial institution, and upon any partner, director, officer, or employee thereof who willfully participates in the violation, a civil penalty…"

    • 31 CFR 1010.820(f) (formerly 103.57(f)) further states "For any willful violation committed after October 27, 1986, of any reporting requirement for financial institutions under this part [except reports related to foreign financial accounts, reports of transactions with foreign financial agencies and records relating thereto] the Secretary may assess upon any domestic financial institution, and upon any partner, director, officer, or employee thereof who willfully participates in the violation, a civil penalty…"

    • 31 CFR 1010.820(g) (formerly 103.57(g)) provides for a penalty for willful violation of the FBAR, which may be asserted against individuals who are required to file because they have signature or other authority over an account titled to their employer.

  2. Individuals as well as financial institutions are also directly required to report transportation of currency or monetary instruments, under 31 CFR 1010.340 (formerly 103.23), and foreign financial accounts and reports of transactions with foreign financial agencies under 31 CFR 1010.350 (formerly 103.24). Individuals are also required to keep records related to 31 CFR 1010.350 (formerly 103.24) reports under 31 CFR 1010.340 (formerly 103.23). See IRM 4.26.16.

4.26.5.4  (10-03-2012)
Reports

  1. Both individuals and financial institutions are required to obtain and/or retain information about certain financial transactions. Some of this information must be filed in reports transmitted to the United States Treasury and generally collected on the Web Currency and Banking Retrieval System (WebCBRS) database at the Enterprise Computing Center-Detroit (ECC-DET). Reports must generally be retained for five years.

  2. Reporting requirements depend on the type of entity, the type of transaction, and amount of the transaction. In some cases, the information to be reported must be verified and the document used to verify the information must be described on the report. Current BSA forms are available on the Financial Crimes Enforcement Network (FinCEN) web site at fincen.gov under Forms.

  3. 31 CFR 1010.370 (formerly 103.26) authorizes the Secretary of the Treasury to issue orders for additional special reporting and recordkeeping requirements as necessary. These are commonly called geographical targeting orders although they can also target a type of transaction. Their form and related requirements depend on the particular order issued.

  4. Form 8300 is a dual purpose form. The same form is required by two U.S. Code titles. The IRS usually conducts Form 8300 examinations under 26 USC 6050I. In some circumstances, Form 8300 exams are conducted under the BSA, 31 USC 5331. Legal requirements for this form are discussed in IRM 4.26.10.

  5. Failure to report, not only includes a complete failure to file a report, it also includes a failure to timely file a report and filing a report with material false statements or omissions.

4.26.5.4.1  (10-03-2012)
Currency Transaction Reports

  1. There are two types of Currency Transaction Report (CTRs and CTRCs). Most financial institutions file the Currency Transaction Report (CTR), FinCEN Form 104 (formerly Form 4789). It can be downloaded from the FinCEN web site under Forms.

  2. Certain casinos and card clubs file the Currency Transaction Report by Casinos (CTRC), FinCEN Form 103 (formerly Form 8362). It can be downloaded from the FinCEN web site under Forms. Casinos and card clubs for this purpose are defined by 31 CFR 1010.100(t)(5) and (6) (formerly 103.11(n) (5) and (6)) as those having gross annual gaming revenue in excess of $1 million. The term includes the principal headquarters and every domestic branch or place of business of the casino or card club.

  3. Effective July 1, 2007 Nevada casinos, which previously filed the Currency Transaction Report by Casinos - Nevada (CTRC-N), FinCEN Form 103-N (formerly Form 8852), file the same CTRC as other casino and card clubs with filing requirements.

  4. Electronic filing (e-filing) is mandatory for both CTRs and CTRCs, effective July 1, 2012.

  5. The following chart details these Currency Transaction Reports and related verification requirements. Exemptions from these requirements are detailed after the chart.

    Entity and Form Transaction and Amount Verification Requirements
    Financial Institutions Currency Transaction Report (CTR), FinCEN Form 104

    Note:

    E-filing for this form is mandatory, effective July 1, 2012.

    Transaction (cash in or cash out) in currency over $10,000 31 CFR 1010.312 (formerly 103.28)
    Verify and record:
    • Name and address of person conducting the transaction.


    Record:
    • Type and number of verification document

    • Presenter’s taxpayer identification number (TIN)

    • Identity and (TIN) of any other person on whose behalf the transaction is conducted

    Certain Casinos and Card Clubs Currency Transaction Report by Casinos (CTRC), FinCEN Form 103

    Note:

    E-filing for this form is mandatory, effective July 1, 2012.

    Transaction (cash in or cash out) in currency over $10,000 31 CFR 1010.312 (formerly 103.28)
    Verify and record:
    • Name and address of person conducting the transaction.


    Record:
    • Type and number of verification document

    • Presenter’s taxpayer identification number (TIN)

    • Identity and (TIN) of any other person on whose behalf the transaction is conducted

    Nevada Casinos prior to July 1 2007 Currency Transaction Report by Casinos-Nevada (CTRCN), FinCEN Form 103-N Transaction (cash in or cash out) in currency over $10,000 Nevada Gaming Commission Regulation 6-A
    Verify and record:
    • Name and address of person conducting the transaction.


    Record:
    • Type and number of verification document

    • Presenter’s taxpayer identification number (TIN)

    • Identity and (TIN) of any other person on whose behalf the transaction is conducted

4.26.5.4.2  (10-03-2012)
CTR Exemptions

  1. Nonbank financial institutions (NBFIs) may not exempt customers from filing a CTR on the customer's transactions.

  2. Banks, including credit unions, are not required to file CTRs on transactions with certain entities and are allowed, at the discretion of the bank, to exempt certain types of business transactions. Exemption law changed rapidly in the late 1990s. Some banks were not exercising their discretion to exempt customers and filed numerous CTRs, many of which related to normal business transactions. In 1994, Congress charged Treasury with reducing the number of CTRs filed. Treasury issued new regulations amending 31 CFR 103.22 (now found at 1020.315).

  3. Under the regulations, banks must exempt other banks, government entities, and listed entities, that is, businesses appearing on a recognized stock exchange and their subsidiaries. Since a 2009 amendment to the regulations, depository institutions are no longer required to make an initial report designating exemption for these customers. The bank should take the same steps to assure itself of the customer’s initial eligibility for exemption, and to document the basis of its conclusions, that a reasonable and prudent bank would take to protect itself from loan or other fraud or loss based on misidentification of a person’s status. Beginning January 5, 2009, an annual review is only required for entities that are listed entities or their subsidiaries.

  4. Banks can exempt customers who are either non-listed businesses that regularly withdraw or deposit more than $10,000 or payroll customers that regularly withdraw more than $10,000 to meet payroll. Most NBFIs cannot be exempted by the bank.

  5. Three requirements must be met for this exemption. The entity must have:

    • Maintained a transaction account at the exempting bank for at least two months unless, in less time, the bank or credit union performs a risk-analysis showing that exemption is appropriate (Prior to January 5, 2009, the period was 12 months);

    • Frequently engaged in transactions in currency with the bank in excess of $10,000; (Frequently for this purpose is now defined as five or more such transactions within the previous year); and,

    • Incorporated or organized under the laws of the United States or a state, or be registered as and eligible to do business within the United States or a state.

  6. Biennial refiling for non-listed and payroll customers is not required beginning January 5, 2009. A change in control of such customers also need not be reported to FinCEN.

  7. The Designation of Exempt Person, FinCEN Form 110, (formerly Treasury Department Form 90-22.53) must be filed by any bank that wishes to designate a customer as an exempt person for purposes of CTR reporting, 31 CFR 1020.315(c) (formerly 103.22(d)(3)(i)). It can be downloaded from the FinCEN web site under Forms. Effective July 1, 2012, this form must be filed electronically (e-filed).

  8. Reporting a revocation of exemption is not mandatory.

  9. The CTR exemption provision does not relieve a bank from its obligation to file Suspicious Activity Reports.

4.26.5.4.3  (10-03-2012)
Nonbank Financial Institutions and Exemptions

  1. The exemption rule of 31 CFR 1010.315 (formerly 103.22(d)) applies to banks. It generally does not apply to Nonbank Financial Institutions (NBFIs). An NBFI must file a CTR on an appropriate transaction regardless of the customer involved because NBFIs are not included in the overall exemption language.

  2. NBFIs are not required to file CTRs on transactions in currency between the NBFI and a commercial bank under 31 CFR 1010.315 (formerly 103.22(d) (1)), since commercial banks report such transactions.

  3. Banks must apply special exemption rules to NBFIs.

    • NBFIs that are listed entities are exempt only to the extent of domestic operations. 31 CFR 1020.315 (formerly 103.22(d) (2) (iv)).

    • A business engaged primarily as a financial institution or agent of a financial institution may not be treated as a non-listed (a type of exempted) business by a bank. 31 CFR 1020.315 (formerly 103.22(d) (5)(viii)).

    • If the NBFI‘s regulated financial service(s) is less than 50% of its gross receipts, it may be exempted. 31 CFR 1020.315 (formerly 103.22(d)(5)(viii)).

4.26.5.4.4  (10-03-2012)
Report of International Transportation of Currency or Monetary Instruments (CMIR) and Report of Foreign Bank and Financial Accounts (FBAR)

  1. To provide information on foreign activities, Congress included requirements in the BSA that some persons must file reports on transportation of currency or monetary instruments into or out of the United States and/or on foreign financial accounts. Both of these reports are filed by the person who is the subject of the report.

  2. The Report of International Transportation of Currency or Monetary Instruments (CMIR), FinCEN Form 105 (formerly Customs Form 4790), is examined by Customs, not IRS. It must be filed by

    • Each person who physically transports, mails, or ships, or causes to be physically transported, mailed, or shipped currency or other monetary instruments in an aggregate amount exceeding $10,000 at one time from the United States to any place outside the United States or into the United States from any place outside the United States, and

    • Each person who receives in the United States currency or other monetary instruments in an aggregate amount exceeding $10,000 at one time that has been transported, mailed, or shipped to the person from any place outside the United States.

  3. The CMIR can be downloaded from the FinCEN web site under Forms. Because the form is physically filed by persons crossing U.S. borders, it is exempted from the e-filing mandate.

  4. The Report of Foreign Bank and Financial Accounts (FBAR), TD F 90-22.1 is the only BSA form for which IRS has the delegated authority to assess penalties as well as to examine. FBAR law is fully discussed in IRM 4.26.16 and the relevant procedures are discussed in IRM 4.26.17. The FBAR can be downloaded from the IRS Document Repository searching for Catalog # 12996D or on the FinCEN web site under Forms.

  5. Electronic filing (e-filing) of the FBAR is available now, becoming mandatory June 30, 2013.

  6. The following table details these reports.

    Entity and Form Transaction Type and Amount Authority and Report Content Verification Requirements
    Person

    FBAR Report, Treasury Form TD F 90-22.1

    Note:

    E-filing is mandatory, effective after June 30, 2013.




    Foreign bank or financial account(s) aggregating over $10,000
    31 CFR 1010.350 (formerly 103.24)
    • Name on the account

    • Account Number

    • Type

    • Maximum Value

    • Foreign Financial Name and Address

    None / Self filed
    Person

    Report of International Transportation of Currency or Monetary Instruments (CMIR), FinCEN Form 105

    Note:

    This form is not e-filed.




    Transportation of currency or monetary instruments over $10,000
    31 CFR 1010.340 (formerly 103.23)
    31 CFR 1010.360 (formerly 103.25)
    • Name

    • Address

    • Identifying State Number

    • Date of Birth

    • Type and Amount of Currency

    • Import or export

    • Name of Principal if any

    None / Self filed

4.26.5.4.5  (10-03-2012)
Suspicious Activity Reports

  1. Many financial institutions are required to file Suspicious Activity Reports (SARs). Such forms require information about the reporting financial institution, the person conducting the transaction, the suspicious activity, and the person to contact for assistance.

  2. There are currently four different types of SARs for different types of filers.

    • The Suspicious Activity Report for Depository Institutions (SAR-DI), TD F 90-22.47, can be downloaded from the FinCEN web site under Forms.

    • The Suspicious Activity Report by Casinos and Card Clubs (SAR-C), FinCEN form 102, can be downloaded from the FinCEN web site under Forms. The instructions to the SAR-C are attached to the form as FinCEN Form 102-A.

    • The Suspicious Activity Report by Money Services Businesses (SAR-MSB), FinCEN Form 109 (formerly TD F 90-22.56), can be downloaded from the FinCEN web site under Forms. The instructions are attached to the form as FinCEN Form 109-A.

    • The Suspicious Activity Report by the Securities and Futures Industries (SAR-SF), FinCEN Form 101, can be downloaded from the FinCEN web site under Forms. The instructions are attached to the form as FinCEN Form 101-A. This Report is used by mutual funds, insurance companies, futures commission merchants and introducing brokers in commodities, and brokers or dealers in securities

  3. SARs must be electronically filed (e-filed), effective July 1, 2012.

  4. Form 8300 can be used voluntarily by any trade or business to report suspicious activity by checking the Suspicious Transaction box at the top of the form. If the filing is suspicious, there is no filing threshold. However, if the entity is required to file a SAR, checking the Suspicious Transaction box is not a substitute for filing a SAR. The entity must still file a SAR.

    Entity and Form Transaction Type and Amount Regulatory Authority Verification Requirements
    Depository Institutions including credit unions under IRS examination authority.
    Suspicious Activity Report (SAR -DI), Form TD F 90-22.47.

    Note:

    E-filing is mandatory, effective July 1, 2012.

    Suspicious activity involving funds of at least $5,000 in value where the transaction:
    • Involves funds derived from illegal activities or is intended or conducted in order to hide or disguise funds or assets derived from illegal activities as part of a plan to violate or evade any federal law or regulation or to avoid any transaction reporting requirement under federal law or regulation;

    • Is designed to evade any BSA requirements; or,

    • Has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the bank knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction.

    31 CFR 1020.320 (formerly 103.18) Only if verification is possible.
    All casinos defined in 31 CFR 103.11(n)(5) and (6) including certain casinos in Nevada.
    Suspicious Activity Report by Casinos and Card Clubs (SARC), FinCEN Form 102.

    Note:

    E-filing is mandatory, effective July 1, 2012.

    Suspicious activity if it is conducted or attempted by, at or through a casino involves or aggregates funds of at least $5,000, and the casino knows, suspects, or has reason to suspect that the transaction (or pattern of transactions):
    • Involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds derived from illegal activity as part of a plan to violate or evade Federal law or regulation;

    • Is designed, whether through structuring or other means, to evade any BSA requirements;

    • Serves no business or apparent lawful purpose, and the reporting casino knows of no reasonable explanation for the transaction after examining available facts; or,

    • Involves use of the casino to facilitate criminal activity.

    31 CFR 1021.320 (formerly 103.21) Only if verification is possible.
    All MSBs Except Check Cashers File Suspicious Activity Report –Money Services Businesses (SAR-MSB) Form TD F 90-22.56.

    Dealer in Foreign Exchange

    Issuer or seller of traveler's checks or money orders

    Provider of prepaid access

    Money Transmitter

    U.S. Postal Service

    Seller of Prepaid Access

    Note:

    E-filing is mandatory, effective July 1, 2012.

    Suspicious activity if conducted by, at, or through a MSB, involves or aggregates funds of at least $2,000, and the MSB knows, suspects, or has reason to suspect that the transaction (or pattern of transactions):
    • Involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds derived from illegal activity as part of a plan to violate or evade Federal law or regulation;

    • Is designed, whether through structuring or other means, to evade any BSA requirements;

    • Serves no business or apparent lawful purpose, and the reporting MSB knows of no reasonable explanation for the transaction after examining available facts; or,

    • Involves use of the money services business to facilitate criminal activity.



    To the extent that the identification of transactions required to be reported is derived from a review of clearance records or other similar records of money orders or traveler’s checks that have been sold or processed, an issuer of money orders or traveler’s checks shall only be required to report a transaction or a pattern of transactions that involves or aggregates funds or other assets of at least $5,000.
    31 CFR 1022.320 (formerly 103.20) Only if verification is possible.
    Mutual Funds, Brokers and Dealers in Securities and Futures Commission Merchant or Introducing Broker in Commodities.

    Suspicious Activity Report by the Securities and Futures Industries (SAR SF), FinCEN Form 101.
    Also until further notice, insurance companies should use the suspicious activity reporting form used by the securities and futures industries (FinCEN Form 101, SAR-SF) to report suspicious activity. A new Report SAR-IC is under development at this time.

    Note:

    E-filing is mandatory, effective July 1, 2012.

    Suspicious activity involving funds of at least $5,000 where the transaction:
    • Involves funds derived from illegal activities or is intended or conducted in order to hide or disguise funds or assets derived from illegal activities as part of a plan to violate or evade any federal law or regulation or to avoid any transaction reporting requirement under federal law or regulation;

    • Is designed to evade any BSA requirements;

    • Has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the broker-dealer, futures commission merchant, introducing broker in commodities, insurance company, or mutual fund knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction; or,

    • Involves use of the broker-dealer, futures commission merchant, introducing broker in commodities, insurance company, or mutual fund to facilitate criminal activity.

    31 CFR 1024.320 (formerly 103.15)(Mutual Funds)
    31 CFR 1025.320 (formerly 103.16) (Insurance Companies)
    31 CFR 1026.320 (formerly 103.17) (Futures)
    31 CFR 1023.320 (formerly 103.19) (Securities)
    Only if verification is possible.

4.26.5.4.6  (10-03-2012)
Retention of Reports

  1. Currency Transaction Reports (CTRs, CTRCs, and CTRC-Ns) must be retained for five years from the date of filing the report. 31 CFR 1010.306(a)(2) (formerly 103.27(a)(3)).

  2. Suspicious Activity Reports (including SAR-DI, SAR-C, SAR-SF, and SAR-MSB) and supporting documentation must be retained for five years from the date of filing the report. These regulations for retaining a SAR include:

    • 31 CFR 1024.320(c) (formerly 103.15(c)) requiring retention of the SAR-SF filed by a mutual fund

    • 31 CFR 1025.320(d) (formerly 103.16(e)) requiring retention of the SAR-IC by insurance companies

    • 31 CFR 1026.320(d) (formerly 103.17(d)) requiring retention of the SAR-SF filed by a futures commission merchant or introducing broker in commodities

    • 31 CFR 1020.320(d) (formerly 103.18(d)) requiring retention of the SAR-DI

    • 31 CFR 1023.320(d) (formerly 103.19(d)) requiring retention of the SAR for brokers and dealers in securities

    • 31 CFR 1022.320(c) (formerly 103.20(c)) requiring retention of the SAR-MSB filed by money services businesses

    • 31 CFR 1021.320(d) (formerly 103.21(d)) requiring retention of the SAR-C filed by casinos and card clubs

  3. There is no report retention period in the regulations for the CMIR or the FBAR reports, although certain records underlying the FBAR must be maintained for five years, 31 CFR 1010.420 (formerly 103.32).

  4. Reports required for geographic targeting orders are retained for the period set forth in the order not to exceed five years. 31 CFR 1010.430(d) (formerly 103.38(d)).

  5. Copies of Forms 8300 are also required to be retained for five years. See Treas. Reg. 1-6050I-1(e)(3)(iii).

4.26.5.5  (10-03-2012)
Money Services Business Registration Procedures

  1. MSBs, with some exceptions, must register with the Federal government. 31 CFR 1022.380(a) and (b) (formerly 103.41(a) and (b)).

    • Registration is accomplished by filing FinCEN Form 107 (formerly TD Form 90-22.55). E-filing is mandatory, effective July 1, 2012.

    • A copy of the registration form and registration number assigned must be retained for five years according to the instructions.

  2. MSBs not required to register include:

    • The US Postal Service

    • Agencies of the United States, of any State, or of any political subdivision of a State

    • A person that is a MSB solely because that person serves as an agent of another money services business or a branch office of a MSB.

4.26.5.5.1  (10-03-2012)
Money Services Business Renewal and Re-registration Procedures

  1. Registration must be renewed every two calendar years beginning with the first calendar year in which the MSB is required to register. The form must be filed on or before the last day of the calendar year preceding the next two year renewal period. The same filing and retention rules for the MSB registration form apply to the renewal.

  2. Re-registration is required when:

    • The business must be registered under state law because of a change in ownership or control

    • The business experiences a transfer of more than 10 per cent of its voting power or equity interests unless this must be reported to the Securities and Exchange Commission.

  3. Required supporting documentation includes:

    • Copy of registration form(s)

    • Registration number assigned by Enterprise Computing Center - Detroit

    • Estimate of volume of business for the coming year

    • Name and address of any greater than 5% shareholder, general partner, trustee, director, or officer

    • Agent List

4.26.5.5.2  (10-03-2012)
Money Services Business Agent List

  1. Under 31 CFR 1022.380(d) (formerly 103.41(d)), certain MSBs must also prepare and maintain a list of agents. The agent list must be revised each January 1st for the immediately preceding 12 month period and retained for five years.

  2. The agent list must include the information specified in 31 CFR 1022.380(d)(2) (formerly 103.41(d)(2)):

    • The agent’s name, address, telephone number, and type of financial services offered;

    • A listing of the months during the preceding 12 months in which the gross transaction amount of the agent for financial products or services issued by the MSB maintaining the agent list exceeded $100,000;

    • The name and address of the agent’s bank having an account for part of the funds received as an agent of the listing principal; and,

    • The year the agent first became an agent.

  3. The number of subagents or branches it has must be made available on request, but need only be included in the list for agents whose agency began after March 1, 2000.

4.26.5.6  (10-03-2012)
Recordkeeping

  1. Recordkeeping requirements depend on the type of business making the record, the type of transaction, and amount of the transaction. In some cases, the information to be recorded must be verified and the document used to verify the information must be described in the record. Ordinary business records may be used. If business records are not ordinarily kept, they must be prepared by the financial institution, 31 CFR 1010.430(b) (formerly 103.38(b)). There are no official forms for records.

  2. Individuals, as well as financial institutions, may be required to keep certain records. For example, an entity with a foreign financial account is required not only to file a report under 31 CFR 1010.350 (formerly 103.24), but also to maintain a record to back up the report, 31 CFR 1010.420 (formerly 103.32).

  3. Entities must create or maintain records when required by a special targeting order, 31 CFR 1010.410 (formerly 103.33).

  4. All financial institutions are required to keep records on extensions of credit over $10,000 and instructions regarding transfers over $10,000 into or out of the United States, 31 CFR 1010.410 (formerly 103.33).

  5. Financial institutions engaging in specified business activities must maintain certain records. There are some differences between records required of banks and those required for nonbank financial institutions.

    • A record of the issuance or sale of a bank check or draft, cashier’s check, money order, or traveler’s check for $3,000 or more in currency is required under 31 CFR 1010.415 (formerly 103.29). There is no required Federal format for this record.

    • A record of money transfers must be maintained under 31 CFR 1010.410 (formerly 103.33).

  6. Large financial institutions may maintain centralized records for their agents.

  7. Banks are required to keep many additional records. (Generally, banks are not under IRS jurisdiction.)

4.26.5.6.1  (10-03-2012)
Recordkeeping Requirements by Financial Institution

  1. Specific records that must be kept by financial institutions are shown in the following table.

    Recordkeeping Requirements
    Entity Transaction Amount and Type Authority and Record Verification Record
    Financial Institutions.

    Requirements vary slightly depending on whether the purchaser has a deposit account
    Insurance or sale of money orders, traveler's checks, or certain other negotiable instruments for $3,000 or more in currency. 31 CFR 1010.415 (formerly 103.29)
    • Purchaser's name, address, Identification Number, and date of birth

    • Transaction date and type

    • Serial number and amount of instruments

    31 CFR 1010.415 (formerly 103.29)
    Verification of Purchaser's name and Address.

    Record State of Issuance and Number of the person's driver's license or other document that was accepted for identification purposes.

    Or, verification that the individual is a deposit account holder.
    Banks or Nonbank Financial Institutions.

    Requirements vary slightly.
    Transmittals of funds of $3,000 or more
    No currency requirement
    31 CFR 1010.410 (formerly 103.33) If sent, record:
    • Transmitter’s name, address, and Taxpayer Identification Number

    • Execution date, amount, instructions

    • Identity of recipient’s financial institution.

    If received, record:
    • Recipient’s name, address and specific identifier as well as "Any form relating to the transmittal of funds that is completed or signed by the person placing the transmittal order."

    31 CFR 1010.410 (formerly 103.33)
    Verification of Transmitter’s Name and Address

    Record of identification and the number of the identification document.
    Banks The lowest dollar amount is over $100 31 CFR 1020.410 (formerly 103.34).
    • Identifying information on opening an account

    • Records needed to trace a check in excess of $100

    • Many more requirements. See regulations

    31 CFR 1020.410 (formerly 103.34)
    "Any notations, if such are normally made, of specific identifying information verifying the identity of the signer (such as a driver’s license number or credit card number)" .
    Brokers or Dealers in Securities Additional information is generally required for transactions over $10,000 31 CFR 1023.410 (formerly 103.35)
    Identifying information on opening an account
    31 CFR 1023.410 (formerly 103.35)
    Verification of identity of a nonresident alien.
    Recordation of government document used to verify identity.
    Casinos
    1. When an account is opened, a line of credit extended, or a deposit of funds made, the casino shall collect identifying information 31 CFR 1021.410(a) (formerly 103.36(a))

    2. In addition the casino shall retain a record of:

    • Each receipt of funds for the account of any person including identifying information, date, and amount.

    • Each bookkeeping entry comprising a debit or credit to customer account(s).

    • Any record showing each transaction for a customer’s deposit or credit account.

    • Each extension of credit in excess of $2,500 including identifying information, date, amount, and repayments.

    • Advice, request, or instruction received or given for a transaction involving a person, account, or place outside the United States. Identifying information for third parties, as well as date and amount must be included.

    • Records prepared or received in the ordinary course of business needed to reconstruct a person’s deposit or credit account or to trace a check through the casino’s records to the bank of deposit.

    • Materials required to be kept by local or tribal law.

    • Records prepared/used by the casino to monitor a customer’s gaming activity.

    • A separate record containing a list of each transaction with customers involving certain negotiable instruments having a face value of $3,000 or more. These include checks, traveler’s checks, and money orders.

    • A copy of the compliance program required by 31 CFR 1021.210(b) (formerly 103.64(a)).

    31 CFR 1021.410 (formerly 103.36)
    Identifying information includes: Name, address, Social Security Number of transactor.

    Transaction information includes date and amount.

    Separate negotiable instrument list that includes date, amount, and type of instrument including all reference numbers and name of drawee, identifying customer information, and name or number of casino employee conducting the transaction.
    31 CFR 1021.410 (formerly 103.36)
    Refers to 31 CFR 1010.312 (formerly 103.28)
    Verification of name and address of transactor.

    Record the type of identification and the number of the identification document.
    Card Clubs
    • Must meet casino rules. 31 CFR 1010.100(t)(5)(iii) and 1010.100(t)(6)(i) (formerly 103.11(n)(5)(iii) and 103.11(n)(6)(i)).

    • Must make a record of all currency transactions by customers. 31 CFR 1021.410(b)(11) (formerly 103.36(b)(11)).

    31 CFR 1010.100(t)(5)(III) (formerly 103.11(n)(5)(iii))  
    Additional Records To Be Made And Retained By Dealers In Foreign Exchange

    This section does not apply to banks that offer services in dealing or changing currency to their customers as an adjunct to their regular service
    Under 31 CFR 1022.410(a) (formerly 103.37(a)).When a transaction account is opened or a line of credit is extended, the dealer must record the taxpayer identification number and government document used to verify the identity of any non-resident alien.
    There are numerous exemptions including governments, foreign diplomats, aliens temporarily in the United States (under 180 days or in college), and unincorporated tax exempt units that are covered by a group exemption letter.

    Under 31 CFR 1022.410(b) (formerly 103.37(b)), the currency dealer or exchanger must also retain a record of:
    • Bank statements, cancelled checks etc.

    • Daily work records needed to reconstruct currency transactions with customers and foreign banks

    • Signature cards that must contain the name of the depositor, street address, and TIN as well as the signature.



    In addition they must retain records of certain transactions including:
    • Each exchange of currency involving transactions in excess of $1,000

    • Each item greater than $10,000 transferred to a person, outside the United States or from any person, account, or place outside the United States

    • Records needed to trace a check received over $100

    • Records of the certificate and transaction of a certificate of deposit presented for payment

    • A system of books and records that will enable the dealer in foreign exchange to prepare an accurate balance sheet and income statement.

    31 CFR 1022.410 Verification of Identity is Required
    Additional Records To Be Maintained By Providers And Sellers Of Prepaid Access All providers of prepaid access shall retain access to transactional records for a period of five years. The person with principal oversight shall maintain access to transactional records generated in the ordinary course of business that would be needed to reconstruct prepaid access activation, loads, reloads, purchases, withdrawals, transfers, or other prepaid-related transactions. The seller maintains records of transactional records offered under a prepaid program that can be used before verification of identity or when it sells access to funds that exceed $10,000 to one person during any one day. 31 CFR 1022.420  

4.26.5.6.2  (10-03-2012)
Retention of Records

  1. 31 CFR 1010.430(d) (formerly 103.38(d)) is the overall authority for record retention. Generally, records must be retained for five years from the date of the transaction. This five year period is reaffirmed in sections 1010.420 (formerly 103.32) and 1010.415 (formerly 103.29) for foreign financial account records maintained by persons and for issuers and agents of money orders, travelers’ checks, etc. Records required under a targeting order are maintained according to the terms of the order. The five year record retention for suspicious activity reports and supporting documentation is found in the regulations that establish a Suspicious Activity Reporting requirement.

  2. Failure to retain records is considered to be a recordkeeping violation for penalty application purposes.

4.26.5.7  (10-03-2012)
Structuring and Other Actions Taken to Evade BSA

  1. 31 USC 5324 prohibits certain actions taken for the purpose of evading

    1. reporting requirements under section 5313 (CTRs, etc.), or

    2. special reports that may be required under 31 USC 5325(b) relating to the sale of monetary instruments, or

    3. reports or records required under a geographical targeting order, or

    4. certain recordkeeping requirements, or

    5. reporting requirements under section 5331 ( Form 8300), or

    6. reporting requirements under section 5316 (Currency and Monetary Instrument Reporting (CMIR)).

  2. The prohibited actions include causing or attempting to cause a domestic financial institution to fail to file a report or to maintain a record or to file a report or to maintain a record with a material omission or misstatement of fact or to structure the transaction. See IRM 4.26.13 for a discussion of structuring.

4.26.5.8  (10-03-2012)
Anti-Money Laundering (AML) Compliance Program

  1. 31 USC 5318(h) requires all financial institutions as defined in 31 USC 5312(a) (2) to establish AML compliance programs. The financial institutions required to comply include such diverse businesses as insurance companies and dealers in precious metals, precious stones, or jewels. Each money services business shall also develop, implement, and maintain a written effective anti-money laundering program commensurate with the risks posed by the location and size of, and the nature and volume of the financial services it provides. These compliance programs must include at a minimum:

    • The development of internal policies, procedures and controls;

    • The designation of a compliance officer:

    • An ongoing training program for employees; and

    • An independent audit function to test programs.

  2. On April 29, 2002, FinCEN temporarily deferred the AML program requirement contained in 31 USC 5318(h) in order to implement regulations specific to each industry covered by the requirement. Therefore, unless FinCEN has promulgated an anti-money laundering compliance program requirement specific to a particular category of financial institution, the statutory requirement does not apply. See 31 CFR 1010.205 (formerly 103.170).

  3. AML compliance program regulations have been issued for:

    • Financial Institutions regulated only by a Federal functional regulator including banks, savings associations, and credit unions, 31 CFR 1020.210 (formerly 31 CFR 103.120). State chartered credit unions that are not insured by the National Credit Union Administration are not required to have an anti-money laundering program at this time.

    • Casinos and card clubs, 31 CFR 1021.210 (formerly 31 CFR 103.120).

    • Money services businesses, 31 CFR 1022.210 (formerly 31 CFR.125). Note that a provider of prepaid access is considered to be a money services business and therefore is required to have an effective written anti-money laundering program.

    • Brokers or dealers in securities, 31 CFR 1023.210 (formerly 31 CFR 103.120).

    • Mutual funds, 31 CFR 1024.210 (formerly 31 CFR 103.130).

    • Insurance companies, 31 CFR 1025.210 (formerly 31 CFR 103.137).

    • Futures Commission merchants and introducing brokers in commodities, 31 CFR 1026.210 (formerly 103.120).

    • Dealers in precious metals, precious stones, or jewels, 31 CFR 1027.210 (formerly 31 CFR 103.140).

    • Operators of credit card systems, 31 CFR 1028.210 (formerly 31 CFR 103.135).

  4. These regulations require that the AML program be in writing and be effective.

  5. Violation of the AML compliance program requirements of 31 USC 5318(h) and the related regulations under it may result in civil or criminal penalties set out in 31 USC 5321 and 5322.

4.26.5.9  (10-03-2012)
Customer Identification Program (CIP)

  1. In addition to anti-money laundering program rules, 31 USC 5318(l) provides that regulations must be issued requiring financial institutions to prescribe identification procedures that shall apply in connection with the opening of an account at a financial institution. The regulations shall, at a minimum, require financial institutions to implement, and customers (who must be given adequate notice) to comply with, reasonable procedures for:

    • Verifying the identity of any person seeking to open an account to the extent reasonable and practicable;

    • Maintaining records of the information used to verify a person's identity, including name, address, and other identifying information; and

    • Consulting lists of known or suspected terrorists or terrorist organizations provided to the financial institution by any government agency to determine whether a person seeking to open an account appears on any such list.

  2. CIP regulations have been issued for:

    • Banks, savings associations, credit unions, and certain non-Federally regulated banks, including credit unions under IRS examination authority, 31 CFR 1020.220 (formerly 103.121).

    • Broker-Dealers, 31 CFR 1023.220 (formerly 103.122).

    • Futures Commission merchants and introducing brokers, 31 CFR 1026.220 (formerly 103.123).

    • Mutual funds, 31 CFR 1024.220 (formerly 103.131).

  3. A limited CIP is required for providers and sellers of prepaid access. 31 CFR 1022.210.

  4. A CIP is considered part of an AML program if an AML program is required. It must be in writing. The procedures must be risk based.

  5. In addition to meeting the statutory minimum requirements, the CIP must include procedures for responding to circumstances in which the financial institution cannot form a reasonable belief that it knows the true identity of a customer. These procedures should describe:

    • When the entity should not open an account;

    • The terms under which a customer may use an account while the entity attempts to verify the customer's identity;

    • When the entity should close an account, after attempts to verify a customer's identity have failed; and

    • When the entity should file a Suspicious Activity Report in accordance with applicable law and regulation.

  6. Records of the identity, verification documents and other processes, and discrepancy resolution must be made and retained for five years.

4.26.5.10  (10-03-2012)
Statute of Limitations

  1. 31 USC 5321(b) provides for the statute of limitations on the assessment of penalties and civil actions to collect the assessments based on violations of 31 USC Chapter 53 and the regulations of 31 CFR Part X (formerly 103). The Secretary of the Treasury may assess a civil penalty for violation of 31 USC Chapter 53 and the regulations of 31 CFR X (formerly 103) at any time before the end of the six year period beginning on the date of the transaction for which the penalty is assessed.

  2. A civil action to recover the civil penalty assessed may be commenced at any time before the end of the two-year period beginning on the later of:

    • The date the penalty was assessed, or

    • The date any judgment becomes final in any criminal action under 31 USC 5322 in connection with the same transaction for which the penalty is assessed.

  3. A civil money penalty may be imposed for any BSA violation notwithstanding the fact that a criminal penalty has been imposed for the same violation. 31 USC 5321(d).

4.26.5.11  (10-03-2012)
Delegation of Authority and IRS Jurisdiction

  1. When it enacted the BSA, Congress gave the Secretary of the Treasury the authority to interpret, prescribe regulations, examine, summon, assess civil penalties, bring court action through the Department of Justice, and delegate these functions. 31 USC 5318.

  2. The authority of the Secretary to administer the BSA has been delegated to the Director of the FinCEN in Treasury Order 180-01, 67 FR 64697. FinCEN has retained some authorities but delegated examination authority.

  3. Civil examination authority is delegated at 31 CFR 1010.810(b) (formerly 103.56(b)) to:

    • Various Federal banking agencies for the banks that they examine for safety and soundness.

    • The Securities and Exchange Commission examines brokers or dealers in securities and investment companies.

    • The Commissioner of Customs for Reports of Transportation of Currency or Monetary Instruments (CMIRs).

    • The Commodity Futures Trading Commission for futures commission merchants, introducing brokers in commodities, and commodity trading advisors.

    • The Commissioner of Internal Revenue at 31 CFR 1010.810(b)(8) (formerly 103.56(b)(8)) to examine for BSA compliance all financial institutions not currently examined by a Federal functional regulator.

  4. Most entities under IRS jurisdiction are commonly referred to as NBFIs. Some definitions found in 31 CFR 1010.100 (formerly 103.11) contain dollar thresholds that determine whether the business is an NBFI for BSA purposes. NBFIs currently include:

    1. Money Services Businesses (MSBs), subject to certain transaction thresholds

    2. Casinos and Card Clubs (including Indian tribal casinos)

    3. Insurance companies subject to the AML compliance program requirements of the BSA

    4. Dealers in precious metals, precious stones, and jewels subject to the AML compliance program requirements of the BSA.

  5. MSBs (subject to certain threshold amounts) under IRS jurisdiction include a:

    1. Dealer in Foreign Exchange ($1,000 threshold)

    2. Check Casher ($1,000 threshold)

    3. Issuer or Seller of Traveler's Checks or Money Orders ($1,000 threshold)

    4. Provider of Prepaid Access ($2,000 closed loop threshold; $1,000 limited open loop threshold)

    5. Seller of Prepaid Access (in certain specified situations)

    6. Money Transmitter.

  6. Banking entities currently under IRS jurisdiction include:

    1. Agents of foreign banks;

    2. Nonfederally supervised banks; and

    3. Credit unions that are state-chartered but not federally insured.

  7. The definition of financial institution in the statute at 31 USC 5312 is much broader than the regulatory definition. It applies to statutory requirements unless the Secretary of the Treasury is given the authority to exempt entities. In particular, it applies to the requirement for anti-money laundering programs and customer identification programs where there is no federal functional regulator. FinCEN has exempted the majority of the 5312 entities until it can develop appropriate regulations for them.

  8. Authority for investigating criminal violations is delegated to IRS Criminal Investigation by 31 CFR 1010.810(c)(2) (formerly 103.56(c)(2)), except that Customs retains authority for reports of transportation of currency or monetary instruments.

  9. All FBAR enforcement authority was delegated in April 2003 to IRS, 31 CFR 1010.810(g) (formerly 103.56(g)). IRS can now interpret FBAR law, issue administrative rulings, examine FBAR cases, and assess FBAR penalties. The Financial Management Service (FMS) collects FBAR penalties assessed by the IRS.

  10. Treasury Directive 15-41 (See Exhibit 4.26.1-2), implements 31 CFR 1010.810 (formerly 103.56) by providing that:

    • The US Postal Service is outside IRS examination authority.

    • The IRS Commissioner may redelegate his authority. The Commissioner has done so in authorizing IRS employees to conduct BSA examinations.

Exhibit 4.26.5-1 
31 CFR Chapter X General Cross-Reference Index

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Exhibit 4.26.5-2 
31 CFR Chapter X Subpart Index

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Exhibit 4.26.5-3 
Link to Chapter X Regulations

Here is the link to Chapter X Regulations: http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?sid=0e5f6b55b62248a15f8ba11d1c561443&c=ecfr&tpl=/ecfrbrowse/Title31/31cfrv3_02.tpl#1000

Exhibit 4.26.5-4 
Timeline of Important BSA Laws, Cases, and Regulations

Timeline of Important BSA Laws, Cases, and Regulations
Year Citation Rule
1974 California Bankers Association v. Schultz, 416 US 21 (1974) BSA reporting requirements do not violate 4th Amendment.
1978 US v.Fitzgibbon , 576 F.2d 279 (10th Cir.), cert. den. 439 U.S. 910 (1978) BSA reporting requirements do not violate 1st Amendment.
1979 US v. Dichne , 612 F.2d 632 (2nd Cir), cert. den. 445 U.S. 928 (1980) BSA reporting requirements do not violate 5th Amendment.
1979 US v. Thompson , 603 F.2d 1200 (5th Cir. 1979) Multiple transactions in any one day for any one person must be treated as single transaction.
1983 US v. Deak Perera, 566 F. Supp. 1398 (DDC 1983) In Deak-Perera, the revenue agent gathered information for tax examination purposes under the pretense of gathering the information for a BSA examination. The court held that the IRS could not gather information by the use of false or misleading representations during the course of an examination.
1986 Anti Drug Abuse Act of 1986, Public Law 99-570 Money laundering is itself a crime. 18 USC 1956 and 1957.

Structuring to evade BSA reporting requirements is prohibited. 31 USC 5324.
1989 31 CFR 103.26 (now 1010.370) Circumstances when Secretary of the Treasury may issue "targeting orders" requiring special additional reports and records in geographical and business areas where necessary to meet the overall purposes of the BSA.
1990 Crime Control Act of 1990, Public Law 101-647 Required reports on the uses made of CTRs.
1990 31 CFR 103.29 (now 1010.415) Financial institutions must record sale or issuance of certain monetary instruments of $3,000 or more.
1992 Annunzio-Wylie Anti-Money Laundering Act of 1992, Public Law 102-550 Authorized Secretary to require mandatory suspicious transaction reports.

Enhanced penalties for conspiracy to launder money.
1994 The Money Laundering Suppression Act (MLSA) of 1994, Public Law 103-325 Some key sections highlights:

Directed Treasury to reduce filed CTRs by 30%.

Mandated registration of money transmittal businesses.

Requested states to implement local registration.

Clarified intent needed to criminally violate anti-structuring laws. The government need not prove the defendant knew that structuring was illegal. Legislation overturned 1994 Ratzlaff case.
1996 31 CFR 103.21 (now 1021.320) Banks must report suspicious transactions.
1996 31 CFR 103.22 (now 1010.315) Banks exempted from reporting transactions with certain businesses.
1996 31 CFR 103.11 (now 1010.100) Tribal casinos included under BSA.
1997 31 CFR 103.33 (now 1010.410) Wire transfers of $3,000 or more require that records be kept and that the transactor's identity be verified.
1997 31 CFR 103.22 (now 1010.315) Revised exemptions by banks to reflect mandatory exemptions required by MLSA of 1994.
1998 The Money Laundering and Financial Crimes Strategy Act of 1998, Public Law 105-310 Set up a new strategy to coordinate Federal and State anti-money laundering programs. 31 USC 5340 et seq.
1998 31 CFR 103.11 (now 1010.100) Card Clubs included as financial institutions and are treated like casinos.
1998 31 CFR 103.22 (now 1010.315) Revised. Banks are further permitted to exempt certain "unlisted business" and "payroll customers" from the CTR reporting requirement.
1999 Uniform Money Services Business Act of March 1999 National Conference of Commissioners on Uniform State Laws creates uniform law for state adoption in response to 1994 Act.
1999 Money Service Business (MSB): Definition (31 CFR 103.11(n) and (gg)) (now 1010.100(n) and (gg)) and Registration (31 CFR 103.41 (now 1022.380)) 31 CFR 103 is renumbered. (Now 31 CFR Part X.) New numbering gives Subpart D (103.41) to MSBs and renumbers all sections thereafter.

Revised MSB definitions effective 09/20/1999.

Registration required.
2000 Suspicious activity reporting mandatory for certain MSBs (31 CFR 103.20 (now 1022.320)) Suspicious activity rules become effective for MSBs.
2001 USA PATRIOT Act, Public Law 107-56, October 2001.

Amends BSA in many important respects
Amended the purpose of the BSA, 31 USC 5311, to include reports and records useful in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism.

Broadened BSA scope to apply to nonfinancial trades and businesses (all businesses except those required to file CTRs) in several sections including summons authority, penalty application, geographical targeting orders and whistle-blower protections.

Added 31 USC 5331 making Form 8300 a dual filing requirement.

Added 31 USC 5318(h) to require all financial institutions (31 USC 5312 definition) to set up anti-money laundering programs.

Encouraged information sharing by U.S. financial institutions.

Improved law enforcement access to foreign bank records.
2001 - 2004 Regulations were issued to clarify the anti-money laundering (AML) program requirements for
• Financial institutions regulated by an FFR, SRO and casinos, 31 CFR 103.120 (now 1022.320)
• Money services businesses, 31 CFR 103.125 (now 1022.210)
• Mutual Funds, 31 CFR 103.130 (now 1024.210)
• Operators of Credit Card Systems, 31 CFR 103.135 (now 1028.100)
• AML programs meeting existing regulatory requirements of Federal functional regulators and certain self regulatory organizations are deemed compliant. Casinos meeting existing BSA AML program requirements are deemed compliant, 67 FR 21112, Apr. 29, 2002.
• Nonbank financial institutions generally are exempted until regulations are issued, 67 F.R. 21110, See also 31 CFR 103.170 (now 1010.205).
• New regulations now require AML programs for money services businesses, mutual funds, and operators of credit card systems
2001 - 2004 Regulations were issued detailing customer identification programs for certain financial institutions • Customer Identification programs are required for banks, savings associations, credit unions, and certain non-Federally regulated banks, securities brokers and dealers, futures commission merchants and Banks, savings associations, credit unions, and certain non-Federally regulated banks, 31 CFR 103.121 (now 1020.100)
• Brokers and dealers in securities, 31 CFR 103.122 (now 1023.100)
• Futures commission merchants and introducing brokers, 31 CFR 103.123 (now 1026.100)
• Mutual funds, 31 CFR 103.131 (now 1024.100) introducing brokers, and mutual funds
2001 - 2004 Regulations were issued to clarify due diligence requirements for certain financial institutions, 31 CFR 103.175 - 183 (now 1010.605 - 630) • Special due diligence programs are required for banks including credit unions, securities brokers and dealers, and futures commission merchants and introducing brokers
2003 31 CFR 103.56(g) (now 1010.810(g)) Delegates all FBAR enforcement authority to the IRS.
2004 American Jobs Creation Act of 2004, Public Law 108-357. Amends 31 USC 5321(a)(5) for FBAR penalties. The creation of non-willful FBAR penalties and FBAR penalties are increased.
2005 31 CFR 103.137 (now 1025.100) Requires Anti-Money Laundering Programs for Insurance companies. 70 FR 66760, Nov 3, 2005
2005 31 CFR 103.140 (now 1027.100) Requires Anti-Money Laundering Programs for Dealers in Precious Metals, Stones or Jewels. 70 FR 33716, June 9, 2005
2006 31 CFR 103.15 (now 1024.320) Requires Reports by Mutual Funds of Suspicious Transactions 71 FR 26219, May 4, 2006
2006 -2007 Regulations were issued documenting special measures against certain entities • 103.188 (now 1010.653) Special measures against commercial Bank of Syria, 71 FR 13267, Mar. 15, 2006
• 103.192 (now 1010.654) Special measures against VEF Bank, 71 FR 39560, July 13, 2006
• 103.193 (now 1010.655) Special Measures against Banco Delta Asia, 72 FR 12739, Mar 19, 2007
2006 31 CFR 103.120 (now 1020.210 (banks),1023.210 (brokers or dealers in securities), 1026.210 (futures commission merchants and introducing brokers in commodities) and 1021.210 (casinos and card clubs)) regarding AML programs was amended AML programs for financial institutions regulated by a Federal functional regulator or a self-regulatory organization (SRO) must meet the requirements of 31 CFR 103.176 (now 1010.610) regarding correspondent accounts and 103.178 (now 1010.620) regarding private banking accounts, 71 FR 512, Jan 4, 2006.
2006 31 CFR 103.176 (now 1010.610) Covered financial institutions (federally regulated/SRO) must have Due Diligence programs for Correspondent Accounts for Foreign Financial Institutions, 71 FR 514, Jan 4, 2006 as amended at 71 FR 16041 Mar 30, 2006, 72 FR 44774, Aug 9, 2007
2006 31 CFR 103.178 (now 1010.620) Covered financial institutions (federally regulated/SRO) must have Due Diligence programs for private banking accounts, 71 FR 515, Jan 4, 2006 as amended at 71 FR 16041, Mar 30 2006
2007 31 CFR 103.22 (now 1021.210) • Casinos exempted from filing CTRs on certain transactions, 72 FR 35013 June 26, 2007 including
• Transactions with an on site dealer in foreign exchange or check casher
• Refund of cash played at same table
• Bills inserted into electronic gaming devices
• Jackpots from slot machines or video lottery terminals.
2007 Berger v. IRS 487 F Supp 2d 482 (D.N.J. 2007) In response to request under Freedom of Information Act and Privacy Act, IRS properly withheld material constituting Bank Secrecy Act reports or information derived or extracted from such reports because this type of information was restricted from release by 31 USC 5319, and therefore, exempt from disclosure under 5 USC 552(b)(3).
2008 United States v e-Gold, Ltd. 550 F Supp 2d 82 (D.D.C. 2008) "Money transmitting business" for purposes of 31 USC 5330 is not limited to businesses that engage in cash transactions.
2008 - 2009 31 CFR 103.22 (now 1020.315) • Effective January 2009 “Designation of exempt person” rules were substantially relaxed, 73 FR 74016, Dec. 5, 2008.
• Filing is not required on “Phase 1” customers except listed entities.
• Time for a non-listed business transaction account or payroll account was reduced from 12 months to two months or less if a risk assessment allows this.
• Filing renewal is not required although annual reviews are still required.
2009-2010 31 CFR 103.80 – 103.87 (now 31 CFR 1010.710-1010.717) • Effective December 17, 2009, FinCEN amended the procedures for requesting an administrative ruling and began to publish them on its website, not in the federal register.
2010 31 CFR 103.11 (now 1010.100) • April 14, 2010, mutual funds included in the definition of financial institutions
2011 31 CFR 103 various (now 31 CFR 1000 various) • 75 FR 75593, December 3, 2010. Effective January 3, 2011, SAR disclosure prohibitions specifically include disclosure of information that could indicate that a SAR was filed, not just disclosure of the SAR itself.
• The prohibition against disclosure to the subject is broadened to include anyone not authorized to receive SAR information.
• Entities entitled to access SAR information are detailed.
2011 31 CFR 103 (now 31 CFR 1000 to 1099) • Published 75 FR 65812, Oct. 26, 2010, as amended at 76 FR 10517, Feb. 25, 2011 and Effective March 1, 2011. BSA regulations were expanded, reorganized, and moved from 31 CFR Chapter I part 103 to 31 CFR Chapter X parts 1000 – 1099. The reorganization results in separate parts applicable to specified industries. The same topics generally have the same section number within each industry.
2011 31 CFR 103.24 (now 31 CFR 1010.350) • Effective March 28, 2011, FBAR regulations were expanded and revised. The 2008 FBAR instructions were also revised.
2011 31 CFR Parts 1010, 1021, and 1022 • Effective September 19, 2011, MSB definitions and nomenclature were revised. Clarified that certain foreign-located MSBs with a U.S. presence, such as having U.S. customers or recipients, are subject to the BSA rules and must provide a U.S. contact on their registration with FinCEN.
2011 31 CFR 1010 and 1022 • The Credit Card Accountability, Responsibility and Disclosure Act of 2009 mandated regulation of prepaid access providers. Effective September 27, 2011, FinCEN issued definitions of prepaid access providers and sellers, 31 CFR 1010.100(ff)(4) and (7), and required registration as MSBs, 31 CFR 1022.380, AML programs, 31 CFR 1022.210(d)(1)(iv) and record maintenance, 31 CFR 1022.420.
2012 31 CFR 1010 and 1029 • Effective April 16, 2012, Residential Mortgage Lenders and Originators (RMLOs), as now defined in 31 CFR 1010.11(lll)(1), are required to establish anti-money laundering programs and to file SARs, 31 CFR 1029.210 and .320. They continue to file Form 8300 for receipt of currency in excess of $10,000, 31 CFR 1029.330, but are exempted currently from other BSA requirements.

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