4.26.8  Special Procedures

4.26.8.1  (06-01-2006)
Overview

  1. The Bank Secrecy Act (BSA) and related regulations at 31 CFR Part 103 are an entirely different group of laws from Title 26, the Internal Revenue Code, with which IRS examiners are familiar. Some procedures used in a BSA examination are substantially different from those used in an income tax examination.

  2. Important differences exist at the beginning of the examination when the financial institution under examination may want representation and a power of attorney may have to be completed. A summons under BSA is completely different from the Title 26 summons. At the conclusion of the examination, a completely different set of procedures must be followed.

  3. Guidelines have been established for referrals to CI or FinCEN.

  4. Procedures for securing delinquent BSA forms vary depending on whether there is a referral to CI or FinCEN, or there is no referral.

4.26.8.2  (06-01-2006)
Power of Attorney

  1. During the course of the BSA compliance examination, the financial institution may request representation.

  2. The use of Form 2848, Power of Attorney and Declaration of Representative, is not appropriate for BSA examinations. Form 2848was developed to meet the requirements of the law relating to Title 26 tax matters. Where a related statute determination has been made linking a tax examination with an examination for compliance with the Report of Foreign Bank and Financial Accounts, examiners should refer to Section 16 of this Chapter.

  3. The BSA examiner may accept a general power of attorney valid under state law.

  4. The original general power of attorney should be retained in the compliance examination file.

  5. Where a related statute determination has been made linking a tax examination with a BSA examination, a Form 2848may be used. Line 3 on Form 2848 should reflect either income tax in the first column or Form 1040 in the second column.

4.26.8.3  (06-01-2006)
Title 31 Summons

  1. During the course of a BSA, examination it may be necessary to summons books, records and/or testimony. The summons form is Treasury Form TD F 90-22.31 ( See Exhibit 4.26.8-1. It is not available electronically but may be ordered from Tax Forms sources. The income tax summons (IRS Form 2039) is not used in a BSA examination.

  2. Every effort should be made to obtain the information needed without resorting to a summons.

  3. 31 CFR 103.72 lists the persons who may issue a summons. IRS officials who can issue the summons within BSA are the Commissioner, SB/SE Division Commissioner, Director Fraud/BSA, Chief BSA Policy and Operations, and BSA Field Territory Managers. Neither the BSA Group Manager nor BSA examiners are authorized to issue a summons. Comparable BSA summons authority exists down to the Territory Manager level for other IRS operating units.

  4. A Title 31 Summons may be issued for the examination of books and records and for witnesses to:

    • A financial institution (as defined in 31 CFR 103.11(n));

    • An officer or employee of a financial institution, including a former officer or employee; or,

    • Any person having possession, custody, or care of any other records and reports required under the BSA

  5. The Title 31 summons is subject to the Right to Financial Privacy Act. Title 12 USC 3401–3422. Title 12 USC 3405 requires that:

    1. There is reason to believe that the records sought are relevant to a legitimate law enforcement inquiry;

    2. Notice be given to the customer whose financial records are sought, in order to allow an opportunity for filing of a motion to challenge the summons; and

    3. The relevant time to file a motion to quash has expired.

  6. Title 12 USC 3409 provides that the customer notice can be delayed up to 90 days upon the granting of a delay order by a judge or magistrate under certain conditions, such as when notice would seriously jeopardize an investigation.

4.26.8.3.1  (06-01-2006)
Completion of Summons

  1. The portions to be completed on a Title 31 summons, including the certificate of service are self-explanatory. A summons for books and records requires that the place for appearance shall not exceed 500 miles from where the financial institution operates or conducts business in the United States. 31 U.S.C. section 5318(c)(1).

4.26.8.3.1.1  (06-01-2006)
Attachments to the Summons

  1. Three attachments are prepared as part of a Title 31 summons package.

  2. Attachment One lists the documents and records being summonsed.

  3. Attachment Three includes the explanation regarding the reimbursement of expenses for Title 31 summonses.

  4. Attachment Two must include the following mandatory language:

    DEFINITIONS


    The term " document" shall mean the original and any nonidentical copy of written, typed, printed, recorded, transcribed, punched, taped, filmed, or graphic matter, or sound production, however produced or reproduced, of any kind, in the possession, custody, or control of the summons parties, regardless of where located, and includes, but is not limited to contracts, agreements, orders, diaries, correspondence, communications, memoranda, messages, reports, studies, drawings, papers, agenda, bulletins, notices, announcements, estimates, data, instructions, graphs, charts, books, manuals, vouchers, brochures, schedules, computer printouts, statements, price lists, journals, ledgers, films, film clips, telegrams, teletypes, and magnetic or recorded tapes. In all cases where any original is not in the possession, custody or control of the summons party/parties, the term "document" shall include any copy of the original and any nonidentical copy thereof.



    IDENTIFYING AND GROUPING DOCUMENTS


    In order to facilitate the handling of documents submitted pursuant to this summons, to preserve their identity, and to ensure their accurate and expeditious return, the following procedures should be observed for all such documents:

    1. Documents should be numbered consecutively.

    2. Documents should be grouped according to the individual paragraph of this summons to which they are responsive, and, within each such group, the documents should be arranged, to the extent possible in chronological order. Multi-paged documents should remain intact.

4.26.8.3.1.2  (06-01-2006)
Summons Package Memoranda Prepared by the Examiner

  1. A summons memorandum narrative is prepared for the summons package by the examiner. The narrative describes:

    1. The types of BSA regulated services or activities provided;

    2. The business location;

    3. The type of customers served;

    4. The entity’s registration status if the entity is a money services business;

    5. The entity’s compliance efforts regarding suspicious activities;

    6. Whether SARs have been filed;

    7. Whether the entity has an individualized AML policy; and

    8. Any potential BSA violations.

  2. A transmittal memorandum is prepared for the summons package by the examiner.

    1. The memorandum is addressed from the BSA examiner through the BSA Group Manager and BSA Territory Manager to the SB/SE Liaison to the Financial Crimes Enforcement Network (FinCEN).

    2. The memorandum provides a brief history of the case, describes the potential BSA violations, states why the summons is being sought, and whether or not the party being summoned indicated whether he or she will or will not comply with the summons.

4.26.8.3.2  (06-01-2006)
Review of Title 31 Summons Prior to Issuance

  1. Prior to issuance of a Title 31 summons, a review process must be completed.

  2. The BSA examiner forwards the summons package for review through his/her BSA Group Manager to the BSA Territory Manager.

  3. The BSA Territory Manager signs the transmittal memorandum and then faxes the summons package to the designated program analyst, currently the SB/SE Liaison to FinCEN. The fax number is available on the BSA web site at http://sbse.web.irs.gov/FR.

  4. The summons package forwarded for review includes:

    1. The transmittal memorandum and any attachments to it;

    2. The summons memorandum narrative;

    3. Copy of the first page of the summons (TDF 90-22.31);

    4. The listing of documents and records being summoned (Attachment One);

    5. The definitions (Attachment Two); and

    6. Information on reimbursement of expenses (Attachment Three).

  5. After reviewing and approving the package, the Liaison to FinCEN will prepare a memorandum approving the issuance of the summons and send it to the Territory Manager and Group Manager.

  6. Only after receipt of the approval memorandum will the BSA Territory Manager sign and issue the summons.

  7. The summons package is then returned through the BSA Group Manager to the BSA examiner for service of the summons.

4.26.8.3.3  (06-01-2006)
Service of a Summons

  1. Any delegate of the Secretary authorized to issue a Title 31 summons, or any other person authorized by law to serve summonses, or other process may serve a Title 31 summons. The person summoned is given Part A of a Title 31 summons.

  2. Service of a Title 31 summons may be made on any person by registered mail; on any natural person by personal delivery; or upon any other person by delivery to an officer, managing or general agent, or any other agent authorized to receive process of service.

4.26.8.3.3.1  (06-01-2006)
Customer Notice Requirements

  1. Notice to a customer whose records are being sought via a Title 31 summons applies only to records of customers of any office of the following institutions located in any state or territory of the United States, Puerto Rico, Guam, American Samoa, or the Virgin Islands:

    1. Bank

    2. Credit Card Issuer

    3. Loan or Trust Company

    4. Savings and Loan

    5. Building and Loan

    6. Homestead Association (including cooperative banks)

    7. Credit Union

    8. Consumer Finance Institution

  2. If customer notice is required, the customer must be given in person or by registered mail, on or before the date of service of the summons (except if a delay of notice order was granted), the following parts of the Title 31 summons:

    1. Part B (Copy of summons)

    2. Part C (Customer Notice)

    3. Part C–1 (Instructions for completing and filing the attached motion and sworn statement)

    4. Part C–2 (Customer’s Motion to Challenge Government’s Access to Financial Records)

    5. Part C–3 (Customer’s Sworn Statement for Filing a Challenge)

4.26.8.3.3.2  (06-01-2006)
Delay Customer Notice

  1. If the customer whose records are being sought is expected to take action to jeopardize the investigation, Title 12 USC 3409 provides that the required customer notice can be delayed for up to 90 days upon the granting of a delay order by a judge or magistrate judge. The application for a delay order is made through an Assistant U.S. Attorney.

  2. The customer must be notified of the summons upon expiration of the period of time stated in the delay order by being given, in person or by registered mail, a completed Part E along with Part B of the summons. Parts C, C–1, C–2, and C–3 are not given to the customer. The time and place of examination must still be adhered to in obtaining the records.

4.26.8.3.3.3  (06-01-2006)
Certificate of Compliance with the Right to Financial Privacy Act 1978

  1. If customer notice is required prior to obtaining records, a completed Part D of the summons must be given to the financial institution prior to receiving the financial records.

4.26.8.3.3.4  (06-01-2006)
Date When Records Can be Obtained After Issuance of Summons

  1. If customer notice is required prior to obtaining records, the customer has 10 days to file a motion to quash the summons if the customer notice was handed to the customer, or 14 days from the date of a registered mailing.

  2. The records may be obtained from the financial institution upon expiration of the applicable time frame, if the customer has not filed a motion with the court and served the issuing agency.

4.26.8.3.3.5  (06-01-2006)
Notice That No Legal Proceedings are Contemplated

  1. If customer notice is required prior to obtaining records, the completed Part F of the summons must be given promptly to the customer if and when a determination is made that no legal proceeding against the customer is contemplated.

4.26.8.3.3.6  (06-01-2006)
Notice of Transfer of Financial Records to Another Department or Agency and Certification for Transferring Records

  1. If customer notice is required and the records obtained are transferred to another department or agency pursuant to 12 U.S.C. 3412(a), a notice of transfer must be given to the customer by completing Part H of the summons and handing or mailing it (registered) to the customer.

  2. A certificate of the transfer is made by completing Part G and keeping it with the original summons.

4.26.8.3.3.7  (06-01-2006)
Certificate of Service and Certificate of Notice

  1. These certificates, which appear on the reverse side of page one of the original summons, are completed to authenticate the actual service of the summons and the sending of notice if required. Complete immediately after service of notice.

4.26.8.3.4  (06-01-2006)
Examination of Books and Witnesses

  1. Any person authorized to issue a Title 31 summons, or any officer or employee of the Treasury Department who is designated by that person, may receive evidence and examine witnesses pursuant to the summons.

  2. Any person authorized by law may administer any required oaths and affirmations. Testimony of any person may be taken under oath, and shall be written down or transcribed if under oath. A transcript copy shall be given to a witness upon request, unless for good cause the person issuing the summons determines, under Title 5 USC 555, that a copy should not be provided, in which case the witness may only inspect the official transcript.

4.26.8.3.4.1  (06-01-2006)
Time and Place of Examination

  1. Sections 31 CFR 103.71 through 103.77 do not state how much time a person summoned should be given to produce records or to give testimony. A reasonable length of time should be given to comply with the summons.

  2. If customer notice is required prior to obtaining the records, then the records cannot be obtained before the expiration of the time allowed for the customer to file a motion to challenge the summons.

4.26.8.3.5  (06-01-2006)
Payment of Title 31 Summons Expense

  1. 31 CFR 103.77 states that persons summoned with a Title 31 summons shall be paid the same fees and mileage reimbursements for travel in the United States that are paid witnesses in the U.S. courts.

  2. The government is not liable for any other expenses incurred for the production of documents. The summons server should explain this to the person summoned.

4.26.8.3.6  (06-01-2006)
Summons Enforcement

  1. In the case of noncompliance with a Title 31 summons, notification will be made from the BSA examiner to the BSA Group Manager to the BSA Territory Manager to the Chief, BSA Policy and Operations. The matter shall be referred by the Chief, BSA Policy and Operations to the U.S. Attorney who may bring an action to compel compliance in any U.S. court within the jurisdiction:

    1. In which the investigation that gave rise to the summons is or has been carried on;

    2. In which the person summoned is a resident; or

    3. In which the person summoned carries on business or may be found.

  2. When a referral is made for enforcement of a Title 31 summons, prompt notification must be made through the SB/SE Liaison to FinCEN’s Associate Director, Office of Regulatory Policy and Programs Division.

  3. Prepare requests for enforcement of a Title 31 summons using a memorandum report format, to include the following information:

    1. The name and full address of the person being summonsed;

    2. A summary of the pertinent facts in the investigation;

    3. Exactly what the Service employee is seeking to obtain;

    4. The relevancy of the records sought, including the relevancy of records pertaining to third parties;

    5. The need or importance of such evidence to the success or completion of the investigation;

    6. If a corporation was summoned, a statement of whether service of the summons has been made on a responsible officer and, if not, why;

    7. The circumstances surrounding contacts with the person summoned, explaining the defense(s) claimed for refusing to comply with the summons, and the circumstances under which the person summoned claimed the defense(s);

    8. A transcript (if recorded) or memorandum of interview of the questions asked to the person summoned and the person’s responses;

    9. A description of any problems involving the imminent expiration of the statutes of limitation;

    10. A statement as to any known criminal investigations by other federal agencies of the individual, and, in the case of a corporation, its officers or employees; and

    11. A statement as to any other known requests for summons or subpoena enforcement against the person or related parties;

  4. The memorandum is to be signed by a BSA Territory Manager. Transmit the original and one copy of the summons to the U.S. Attorney’s office in which venue lies.

  5. The court may issue an order requiring the person summoned to appear before the Secretary or delegate to produce documentation or to give testimony explaining how the documentation was compiled and maintained, and to pay the costs of the proceeding. Any failure to obey the order of the court may result in a contempt charge. All processes in any case under this section may be served in any judicial district in which such person is found.

4.26.8.3.7  (06-01-2006)
Disclosure

  1. Except as noted below, no officer or employee of the Treasury Department or any component thereof shall:

    1. Publicly name any person to whom a summons has been issued, or release any information to the public concerning that person or the issuance of a summons prior to the time and date set for the appearance or production or records.

    2. Disclose any testimony taken or material summoned (including the name of the witness) to anyone other than an officer or employee of the Department of Treasury. This nondisclosure position does not preclude any officer or employee of the Department of Treasury from disclosing material presented to obtain necessary information for investigative purposes.

  2. Except as provided above, disclosures must be approved by FinCEN. A written request for disclosure must be submitted to the Chief, BSA Policy and Operations, for forwarding to the Associate Director, Office of Regulatory Policy and Programs, FinCEN

4.26.8.4  (06-01-2006)
Delinquent BSA Forms

  1. During the course of a BSA initial interview, the examiner should educate the entity about completing and filing BSA forms in a timely manner. The examiner should document this on the examiner’s activity record so that the date of education can be established.

  2. During the BSA compliance examination, the examiner may uncover transactions in which a report should have been filed but was not.

  3. Before recommending any penalties, the BSA examiner should check the Currency and Banking Retrieval System (CBRS) to verify the filing compliance status of the entity.

  4. Whether or not the examiner should secure the delinquent form depends on whether the examiner is considering a criminal referral.

4.26.8.4.1  (06-01-2006)
Delinquent Forms When A Warning Letter 1112 Is Issued

  1. If the examiner has uncovered the fact that a BSA form has not been filed as required, but does not plan to refer the case, the examiner will issue a BSA warning letter, Letter 1112.

  2. The original delinquent BSA form should be secured. The examiner should date stamp the secured form with the date received and write in red on the top of the form "Delinquent Report Secured by SB/SE BSA" .

  3. The original form should be forwarded immediately to the Detroit Computing Center (DCC) at the address shown on the delinquent form. A copy should be kept in the case file. For processing purposes, DCC will process all such delinquent reports secured by the examiner with a Saturday Julian date to distinguish them from regular receipts. This will ensure that correspondence is stopped.

  4. If the delinquent report secured is a Suspicious Activity Report (SAR, SAR-MSB or SAR-C) that relates to possible terrorist financing, the examiner should also immediately call FinCEN’s Financial Institutions Hotline at 1-866-556-3974.

  5. If the entity refuses to provide delinquent forms or has not provided them within thirty days after receipt of the Letter 1112, the examiner and manager should make a determination about the advisability of forwarding the case for penalty consideration by FinCEN. These considerations include the likelihood of prevailing in the civil case and collectibility.

  6. In cases in which the entity refuses to complete and file delinquent SARs, such as disagreements on whether a transaction, or set of transactions, constitutes suspicious activity under the BSA, the BSA examiner can complete and file the SAR with DCC.

4.26.8.4.2  (06-01-2006)
Delinquent Forms When Civil Referral to FinCEN is Considered

  1. If the BSA examiner is considering a civil referral to the Financial Crimes Enforcement Network (FinCEN), the original delinquent BSA form should be secured. The examiner should date stamp the secured form with the date received and write on the top of the form "Delinquent Report Secured by SB/SE BSA."

  2. The original form should be forwarded immediately to the DCC and a copy kept in the case file. For processing purposes, DCC will process all such delinquent reports secured by the examiner with a Saturday Julian date to distinguish them from regular receipts. This will ensure that correspondence is stopped.

  3. If the delinquent report secured is a Suspicious Activity Report (SAR) that relates to possible terrorist financing, the examiner should also immediately call FinCEN’s Financial Institutions Hotline at 1-866-556-3974.

  4. If the entity refuses to provide the delinquent forms or has not provided them within thirty days after receipt of the examiner’s request to provide the delinquent forms, the matter should be fully documented in the referral to FinCEN. The work papers should memorialize the date that the entity was educated about filing and the filing compliance status at the date of the referral.

  5. In cases in which the entity refuses to complete and file delinquent SARs, such as disagreements on whether a transaction, or set of transactions, constitutes suspicious activity under the BSA, the BSA examiner can complete and file the SAR with DCC.

4.26.8.4.3  (06-01-2006)
Delinquent Forms When Criminal Referral is Considered

  1. If the BSA examiner is considering a criminal referral to IRS Criminal Investigation (CI):

    1. Delinquent reports will NOT be solicited by the BSA examiner.

    2. The Form 2797 Referral to CI and the work papers should memorialize the date that the entity was educated about filing and the filing compliance status at the date of the referral.

  2. If the entity offers the delinquent forms to the examiner, the examiner should accept the forms. The examiner should date stamp each secured form with the date received and write on the top of the form "Delinquent Report Secured by SB/SE BSA."

  3. The original form should be forwarded immediately to DCC and a copy kept in the case file. For processing purposes, DCC will process all such delinquent reports secured by the examiner with a Saturday Julian date to distinguish them from regular receipts. This will ensure that correspondence is stopped.

  4. If the delinquent report secured is a Suspicious Activity Report (SAR) that relates to possible terrorist financing, the examiner should also immediately call FinCEN’s Financial Institutions Hotline at 1-866-556-3974.

  5. The examiner should clearly explain in the activity record that the delinquent forms were offered by the entity, but were not solicited by the examiner.

4.26.8.5  (06-01-2006)
Letter 1112

  1. Notification of Apparent Violation, Letter 1112, is issued when violations are technical, minor, infrequent, isolated, or not substantive and such violations do not meet the criteria for referral to FinCEN under the Referral Guidelines. See Exhibit 4.26.8-2.

4.26.8.5.1  (06-01-2006)
Review of Violations Prior to Issuance of Letter 1112

  1. Whenever an examiner discovers an apparent violation, prior to issuing a Letter 1112 or a referral, the examiner should discuss the violations with the BSA Group Manager. (Possible criminal violations should also be discussed with the Fraud Technical Advisor.) The BSA Group Manager can help to determine whether the case meets Title 31 civil referral guidelines.

  2. If a decision is made to issue a Letter 1112 the examiner should secure any delinquent forms following the procedures in IRM 4.26.8.4.1.

4.26.8.5.2  (06-01-2006)
Completion of Form 13726

  1. Form 13726, is an attachment to Letter 1112 and details the apparent violations and necessary corrective actions. The examiner should present each violation in sufficient detail so that the recipient of the letter can easily determine which transaction is involved and the reason for asserting the violation. Each violation should be tied to the entity’s anti-money laundering compliance program, to the extent relevant. Corrective actions should be listed.

  2. Copies of the Letter 1112 and attachments should be kept in the file.

  3. Follow up should occur at regular intervals until either the delinquent forms are secured or the entity has refused to do so for 30 days after the Letter 1112 was sent.

4.26.8.5.3  (06-01-2006)
Closing the Letter 1112

  1. After the delinquent forms are received, the case should be closed through the group manager.

  2. If the financial institution refuses to return the acceptance statement, Form 13727, and/or delinquent returns and thirty days have elapsed, the BSA examiner should discuss how to proceed with the BSA group manager. The examiner and manager should make a determination about the advisability of forwarding the case for penalty consideration by FinCEN. These considerations include the likelihood of prevailing in the civil case and collectibility.

  3. The group manager should update the case on the Title 31 database on the Letter 1112tab.

4.26.8.6  (06-01-2006)
Form 5104, Report of Apparent Violation of Financial Recordkeeping and Reporting Regulations

  1. When an examiner determines that apparent BSA violations exist, the examiner should discuss the violations with the BSA Group Manager.

  2. The examiner will follow the procedures for willful violations ( See IRM 4.26.8.7. if there are indications of a willful BSA violation.

  3. Report of Apparent Violation of Financial Recordkeeping and Reporting Regulations, Form 5104, is completed when apparent violations warrant a referral to FinCEN for civil penalty determination. This may occur when there is no willful violation or where it has been determined, following the procedures in IRM 4.26.8.7, that a referral to IRS Criminal Investigation is not appropriate.

  4. If a decision is made to refer the case to FinCEN for civil penalty consideration, the examiner should secure any delinquent forms following current delinquent forms procedures. See IRM 4.26.8.4.2.

  5. Examiners do not inform the financial institution that a referral to FinCEN has been made.

  6. Civil BSA referrals to FinCEN will not be first referred to local Criminal Investigation.

4.26.8.6.1  (06-01-2006)
Guidelines for Referrals to FinCEN

  1. To improve the quality of referrals to FinCEN and assure a uniform application of law, FinCEN and IRS prepared "IRS Standards for Title 31 Referrals to FinCEN," the Referral Guidelines.

  2. In order to refer a case, the violations must be of the type referred to in the Referral Guidelines. See Exhibit 4.26.8-3.

4.26.8.6.2  (06-01-2006)
Preparing the 5104 Narrative

  1. A well-developed Form 5104 narrative should contain sections on:

    1. Scope and depth of the BSA examination;

    2. History of the financial institution;

    3. A description of its BSA policy and its compliance with BSA;

    4. The exact nature of the program deficiency(s) (internal controls, training, audit, designated personnel), along with the BSA reporting/recordkeeping violations that resulted from these program deficiencies. This will allow both the IRS and FinCEN to identify the root case of the problem and facilitate corrective action. In egregious cases, this will also enable FinCEN to establish civil willfulness and proceed against an institution in an enforcement action for program-related and/or reporting violations, as appropriate of each reporting and recordkeeping violation;

    5. A ratio of the total unfiled forms to the total forms that should have been filed is mandatory;

    6. Name(s) and TIN(s) of the financial institution and responsible officers;

    7. Financial institution’s response to the BSA examiner’s findings;

    8. Examination results, which includes the analysis made by the BSA examiner;

    9. Any and all mitigating factors; and

    10. An assessment of collection potential.

  2. The examiner does not recommend the type of penalty or dollar amount.

4.26.8.6.3  (06-01-2006)
Preparation of Form 5104

  1. Download the current version of Form 5104 from http://publish.no.irs.gov/catlg.htm .

  2. Items to consider in completing Form 5104include:

    1. The trade name. Businesses will usually retain trade names even when sold. A history of compliance is easier to follow when the trade name is entered in addition to the legal name.

    2. All BSA financial services offered. All should be checked, not just the principal one.

    3. Date the financial institution was first notified that it was subject to BSA requirements. If this is not completed, the referral will be returned. Usually this is the date the first Letter 1052was issued. This may be in an earlier case.

4.26.8.6.4  (06-01-2006)
Procedures for Forwarding the Form 5104 Package

  1. The examiner prepares a Form 5104package which consists of:

    1. Form 5104;

    2. The supporting narrative; and

    3. Copies of the evidence which support the violations which are being referred, or if such documentation is too voluminous, a statement describing the volume of the evidence, its location, and who is in custody of the evidence.

  2. The examiner prepares the original and three copies of the Form 5104 package after consultation with the BSA Group Manager and prepares the transmittal memorandum. One copy of the Form 5104 package is retained in the case file.

  3. There are several steps in the forwarding procedure:

    1. The Group Manager reviews the package using the Title 31 Referral Guidelines. If the referral is not complete and fully developed, it is returned for development. After approval, the Group Manager forwards the referral to the Territory Manager. The Group Manager is responsible for ensuring that the Title 31 database is updated to reflect the Form 5104 referral to FinCEN.

    2. The Territory Manager reviews the package and, if approved, forwards the original and one of the copies remaining, one having been retained for the file, to the SB/SE Liaison to FinCEN.

    3. The SB/SE Liaison to FinCEN reviews the package. If approved, the Liaison retains one copy for the BSA Policy files, forwards the original Form 5104 package to FinCEN, and advises the Group Manager that the referral to FinCEN has been made.

4.26.8.6.5  (06-01-2006)
Updating the Title 31 Database

  1. The Form 5104 referral may be counted as a closed case only after FinCEN recommends an action, the final action is taken, and the examiner closes the case to the BSA coordinator. Pending these actions, the case will be suspended in the group.

  2. It is the responsibility of the Group Manager to update the Title 31 database to reflect the referral to FinCEN, any responses from FinCEN, and the case closure.

4.26.8.6.6  (06-01-2006)
Contact with the Financial Institution

  1. Examiners do not inform the financial institution that a referral has been made to FinCEN.

  2. No oral or written communication should be given to the financial institution respecting whether the violations appear to have been willful.

  3. After referral through the SB/SE Liaison to FinCEN, the examiner should not contact the financial institution concerning the compliance examination unless requested to do so by FinCEN.

4.26.8.6.7  (06-01-2006)
Contact with FinCEN

  1. The Financial Crimes Enforcement Network (FinCEN) may contact the examiner for additional information or documentation on referrals; however, the examiner should not contact FinCEN.

4.26.8.7  (06-01-2006)
Willful Violation Procedures in General

  1. If the examiner considers that the case warrants referral for possible criminal investigation, the examiner, with the approval of the group manager, will involve a Fraud Technical Adviser (FTA) as soon as possible. If the examiner is considering only a civil referral to FinCEN, the involvement of the FTA is at the discretion of the examiner and manager. Civil referrals to FinCEN are no longer reviewed by the local CI office.

  2. See Exhibit 4.26.8-3," IRS Standards for Title 31 Referrals to FinCEN," for guidance regarding when a referral to FinCEN is appropriate. The referral to FinCEN will be forwarded to the appropriate BSA policy analyst, currently the SB/SE Liaison to FinCEN, for review. The SB/SE Liaison will arrange for review by the CI Liaison to FinCEN prior to referral of the Form 5104 to FinCEN for penalty consideration.

  3. If the decision to involve the FTA is made, the examiner will initiate completion of the Fraudulent Intent Referral Memorandum (FIRM), Form 13639, catalog number 39203S. See Exhibit 4.26.8-5. The FIRM documents the involvement of the FTA, the plan for further developing the case with respect to the willfulness issue, and the referral recommendations of the FTA.

  4. The examiner documents affirmative acts that may indicate willfulness in Part 3 of the FIRM. The FTA documents the referral recommendations by checking one of the boxes in Part 6 of the FIRM and listing the reason(s) for certain recommendations in the Explanation section of the FIRM.

4.26.8.7.1  (06-01-2006)
Showing of Wilfulness

  1. If it has not been adequately established that the violations were willful:

    1. The FTA will so indicate in Part 6 of the FIRM. In the Explanation part of the FIRM, the FTA will provide a written explanation of the reason that further development of willfulness is not appropriate and include any recommendations with respect to civil penalties.

    2. The Examiner will then proceed with the BSA case under civil procedures, including issuance of Letter 1112or preparation of Form 5104 and referral of the BSA case to FinCEN for civil penalty consideration.

  2. If the FTA considers that additional examination is warranted:

    1. The FTA will prepare a plan of action for establishing whether the violations were willful in the Explanation section of the FIRM and return a copy of the FIRM to the examiner through the examiner’s group manager.

    2. The examiner and the FTA will work together following the examination plan.

    3. If firm indications of willfulness are discovered after further examination, the examiner will immediately contact the FTA for guidance. Contact with CI should be coordinated through the FTA.

  3. At the conclusion of the additional examination steps outlined in the FTA's plan of action, the examiner, group manager and FTA will discuss the results and reach a conclusion respecting criminal referral. The FTA may memorialize this conclusion on the initial FIRM or a second follow-up FIRM may be completed and stapled to the initial FIRM.

    1. The FTA will indicate in Part 6 of the FIRM (original or follow-up) the final referral recommendation (either that criminal investigation is recommended or criminal investigation is not appropriate). The FTA will provide in the Explanation section the reason(s) why criminal referral is not appropriate or, if criminal referral is recommended, the FTA will detail in the Explanation section the firm indications (as may be evidenced by affirmative acts) of willfulness.

4.26.8.7.2  (06-01-2006)
Where a Referral to Criminal Investigation is Not Recommended

  1. If the FTA determines that a referral for criminal investigation is not appropriate, the FTA will provide a written recommendation respecting a civil referral to FinCEN and return the FIRM to the examiner through the group manager.

  2. The examiner will then proceed with issuance of Letter 1112or a referral to FinCEN for civil penalty consideration on Form 5104, as appropriate.

4.26.8.7.3  (06-01-2006)
Referral Procedures Where a Referral to Criminal Investigation is Recommended

  1. If firm indications (as may be evidenced by affirmative acts) of willful BSA violations exist and criminal criteria (criteria used by CI for case acceptance) are met, the FTA will:

    1. Recommend preparation of the Referral Report of Potential Fraud Cases (Form 2797) in Part 8 or the FIRM;

    2. Indicate in the Explanation Section of the FIRM the firm indications (as may be indicated by affirmative acts) of willfulness that exist and that criminal criteria are met; and

    3. Return a copy of the FIRM to the examiner through the examiner's group manager.

  2. The examiner will suspend all civil examination activity and retain the civil file.

  3. The examiner’s manager will record the suspense on the BSA database by entering the date that the Form 2797 was sent to CI in the appropriate field.

  4. The appropriate BSA Workload Identification, Selection, Delivery and Monitoring (WISDM, formerly PSP) coordinator will monitor the statute of limitations and advise the manager and examiner when there is one year left on the statute. The primary responsibility for protecting the statute rests with the examiner and manager.

  5. A decision meeting will be held at that time between CI, FTA, the examiner and the examiner’s manager as to whether or not the BSA statute of limitations should be allowed to expire.

4.26.8.7.4  (06-01-2006)
Preparing and Processing Form 2797

  1. When preparing Form 2797 for a BSA violation, the examiner will use the most current version of Form 2797. See Exhibit 4.26.8-6. If a related tax examination is ongoing and the tax case is also being referred for criminal investigation consideration, a joint referral will be prepared. Both the tax and BSA violation issues may be placed on one Form 2797. The examiner will follow the instructions attached to the form and insert BSA Violation in Item 2 (f).

  2. Forward the completed Form 2797, to the group manager, via Microsoft Outlook/Secured Messaging, for consideration. A copy of the form will be retained in the case file.

  3. The group manager will review the referral and approve it by entering his/her name and date. The form will then be forwarded to the FTA, via Microsoft Outlook/Secured Messaging, for consideration.

  4. The FTA will review the referral and approve it by entering his/her name and date. The FTA will also prepare a one page narrative (used to describe additional facts and/or the willfulness development process). The form and narrative will then be forwarded to the FTA manager, via Microsoft Outlook/Secured Messaging, for consideration.

  5. The FTA manager will review the referral and approve it by entering his name and date. The form and narrative will then be forwarded to the appropriate CI field office for consideration.

  6. Procedures thereafter are governed by the instructions for the Form 2797. A disposition conference will be held within thirty (30) workdays of receipt of the referral by the CI field office to discuss CI’s decision to accept or decline the referral. If the referral is declined, CI will provide a statement indicating the reason(s) for the declination.

4.26.8.7.5  (06-01-2006)
Parallel Civil & Criminal Referrals

  1. Prior to the disposition conference, it may be helpful for the participants to contact the SB/SE and/or CI Liaisons to FinCEN for assistance in determining whether parallel civil and criminal action may be appropriate.

  2. During the disposition conference, the participants should discuss the possibility of parallel civil and criminal actions. A civil money penalty may be imposed notwithstanding the fact that a criminal penalty is imposed with respect to the same violation. Parallel referrals may be desirable in order to protect the statute of limitations or for other reasons.

  3. If it is determined to have parallel civil and criminal actions, the fact should be noted in the Form 5104 Referral Package.

  4. Before the civil referral package is considered by FinCEN, the CI FinCEN liaison will have reviewed the package for compatibility with CI needs, as noted above. FinCEN will not receive the file for civil penalty action until this review is completed.

Exhibit 4.26.8-1  (06-01-2006)
Treasury Summons, TD F 90-22.31

You can find a description of the TD F 90-22.31 on the IRS publishing web site at http://publish.no.irs.gov/. The form is not currently available electronically and must be ordered from NDC at 800-829-2437.

Exhibit 4.26.8-2  (06-01-2006)
Letter 1112, Title 31 Violation Notification Letter

Here is the link to Letter 1112.

Exhibit 4.26.8-3  (06-01-2006)
IRS Standards for Title 31 Referrals to FinCEN

The BSA, in general, requires financial institutions to maintain certain records and to file certain reports that are useful in criminal, tax, or regulatory investigations, such as money laundering cases. Failure to file BSA reports can result in criminal and/or civil penalties, depending on the nature of the violation. Criminal investigations are the responsibility of IRS Criminal Investigation. Civil penalties are assessed by FinCEN except FBAR penalties for which assessment authority has been delegated to the IRS.

IRS' BSA conducts compliance examinations of casinos; money transmitters; check cashers; currency exchangers; issuers or redeemers of money orders, traveler's checks, and other similar instruments; state chartered non federally insured credit unions; stored value and individuals who attempt to evade reporting or record-keeping requirements.

Civil violations include the following sections of Title 31 and applicable regulations:

CFR Cite Civil Violation
31 CFR 103.20 Failure to File SAR-MSB
31 CFR 103.21 Failure to File SARC
31 CFR 103.22 Failure to File CTR or CTRC
31 CFR 103.24 Failure to File FBAR
31 CFR 103.27 Failure to File Timely and Accurate Forms
31 CFR 103.28 Failure to Secure Identification
31 CFR 103.29 Failure to Keep Records MO/TC
31 CFR 103.33 Failure to Keep Records Money Transmission
31 CFR 103.36 Failure to Keep Records Casinos
31 CFR 103.37 Failure to Keep Records Currency Exchangers
31 CFR 103.38 Failure to Retain Records
31 CFR 103.41 Failure to Comply with Registration Requirements
31 CFR 103.63 Structuring
31 CFR 103.64 Failure to Comply with AML Compliance Program Requirement for Casinos
31 CFR 103.125 Failure to Comply with AML Compliance Program Requirement by MSBs
31 CFR 103.135 Failure to Comply with AML Compliance Program Requirement by Operators of Credit Card Systems
31 CFR 103.140 Failure to Comply with AML Compliance Program Requirement by Dealers in Precious Metals, Precious Stones or Jewels

These guidelines are intended to assist BSA management and examiners in determining when BSA violations warrant referral to FinCEN. A key consideration is the reasonable assumption that the effectiveness of any penalty as a deterrent to prevent future violations is directly related to the action taken.

After receiving a referral, FinCEN's role includes evaluating the circumstances of the alleged violation(s) and determining whether some type of civil action, including seeking the imposition of a civil monetary penalty, should be taken against the person or financial institution. Generally, FinCEN disposes of the majority of its civil penalty cases with one of three courses of action: (1) close the case without contacting the subject of the referral, (2) issue a letter of warning or caution to the subject institution or individual, or (3) assess a civil monetary penalty FinCEN's final disposition of a BSA case, including the dollar amount of the civil penalty, is determined by considering several factors. These include the severity, volume, willfulness, and longevity of the BSA violations; the subject's overall BSA compliance program; self-discovery and acknowledgment of the BSA violations to Treasury versus external discovery and notification, among other considerations.

During the course of an examination for compliance with the requirements of the BSA, if the examiner determines there are indications of a willful BSA violation(s), the examiner will discuss the potentially willful violation(s) with their group manager and, with the agreement of the manager, the examiner may contact the designated Fraud Technical Adviser (FTA). If the FTA agrees that indications or affirmative acts of willfulness and intent are present to warrant a fraud referral to criminal Investigation, the examiner will initiate completion of the Fraudulent Intent Referral Memorandum (FIRM), Form 13639. The FIRM documents the involvement of the FTA, the plan for developing willfulness, and the referral recommendations of the FTA.

During the course of an examination for compliance with the requirements of the BSA, if the examiner discovers an apparent violation the examiner should discuss the violations with their Group Manager. Generally, once an apparent violation is identified and it is determined that the violation(s) does not warrant a referral to CI, there are primarily two courses of action. The examiner can issue Notification of Apparent Violation, Letter 1112, or make a referral to FinCEN. In determining the appropriate course of action, consideration should be given as to whether the violation(s) were willful, negligent, or mere oversights.

The examiner should issue a Notification of Apparent Violation, Letter 1112, when the violations are technical, minor, infrequent, isolated, or not substantive. If the examiner has uncovered the fact that a BSA form has not been filed as required, but does not plan to refer the case to FinCEN or Criminal Investigation, the original delinquent BSA form(s) should be secured and immediately forwarded to the IRS Detroit Computing Center for processing. If the delinquent report secured is a Suspicious Activity Report that relates to possible terrorist financing, the examiner should also immediately call FinCEN’s Financial Institutions Hotline at 1-866-556-3974.

If the entity refuses to provide delinquent forms or has not provided them within thirty days after receipt of the Letter 1112, the examiner and manager should make a determination about the advisability of forwarding the case to FinCEN for review and possible action.

To provide consistency on when a referral should be made to FinCEN, the following guidelines are provided to assist you in taking the appropriate action.

For purposes of referring matters to FinCEN a "significant BSA violation or deficiency" includes: a systemic or pervasive BSA compliance program deficiency; systemic or pervasive BSA reporting or recordkeeping violations, or a situation where an organization fails to respond to regulatory actions concerning BSA compliance program deficiencies or systemic or pervasive recordkeeping or reporting deficiencies, even when such deficiencies or violations are dissimilar to those previously identified in Letters 1112 or other IRS/FinCEN correspondence. A significant BSA violation or deficiency also includes a non-technical, one-time BSA violation that demonstrates willful or reckless disregard for the requirements of the BSA, or that creates a substantial risk of money laundering or the financing of terrorism within the institution.

As stated earlier, technical, minor, infrequent, isolated, and non-substantive violations will generally not be referred to FinCEN.

First time violations may be appropriate for referral depending upon their nature, severity, number and circumstance. Normally, isolated first incidences of noncompliance should not be referred. If an entity is cited subsequently for the same types of violations, the examiner should closely scrutinize the continued lack of compliance in determining whether a referral is appropriate.

Any violation committed in furtherance of a criminal activity warrants referral regardless of the number, severity, or the fact that it was a first time violation.

If, during a BSA examination, it is discovered that a bank or other financial institution not covered under IRS examination authority may have violated the BSA, a memorandum to FinCEN should be prepared outlining the circumstances. The memorandum is to be routed through the Territory Manager and forwarded to the IRS FinCEN Liaison and to FinCEN’s Office of Compliance.

General Civil Penalty Referral Guidelines

Many of the BSA civil penalties require that the violation be "willful" Willfulness requires an intentional violation of a known legal duty. In many situations there will not be direct evidence to establish willfulness; therefore examiners will often need to establish willfulness through circumstantial evidence. An examiner should consider the following factors in determining whether willfulness exists and whether violations should be formally referred to FinCEN:

  • Pattern of reckless disregard towards, or systemic breakdown in, compliance with the anti-money laundering program requirements of the BSA

  • Evidence that the violation has or may have facilitated or concealed illegal activity by the institution, its employees, its customers, or others

  • Evidence that suggests the violation was flagrant, demonstrated bad faith, or was committed with disregard for the law or the consequences to the institution

  • Frequency or reoccurrence of violations

  • Continuation of violations after the institution became aware of them and made no efforts to correct the deficiencies which led to the violations

  • Failure to cooperate with the Service to correct the violation

  • Evidence of concealment of the violation

  • Evidence that financial institution insiders were participants in the currency transaction, or that their associates directly or indirectly benefited as a result of the violation

  • History of prior violations and/or poor compliance

  • Previous written criticism of the institution for similar violations

  • Absence of/severe inadequacies in/or failure to adhere to the requirements of internal control policies and procedures or compliance program

  • Issuance of a previous warning letter or other previous written notification of a violation to the financial institution

  • The practice of preparing but not filing CTRs or SARs

  • Repeated late filings of CTRs or SARs

  • Filing CTRs with incomplete or false information

  • Failures to verify identification

  • Failure to keep records

  • False recordkeeping entries

  • Officers and employees of the financial institution making false statements, refusing to cooperate, and/or withholding records from the examiner

The above listing is not all inclusive

Examples of situations that might also warrant a referral:

  • Failure to file FinCEN Form 104, Currency Transaction Report, Form TD F 90-22.56 Suspicious Activity Report by Money Services Businesses (SAR-MSB), FinCEN Form 102 Suspicious Activity Report by Casinos and Card Clubs (SAR-C), or Form 103, Currency Transaction Report by Casinos (CTR-C)

  • A significant number of reportable transactions that were not reported as a pattern or practice at a certain location or as a pattern or practice for one or more specific customers or accounts

  • A significant number of technical violations i.e., incomplete or inaccurate FinCEN Form 104 or Form 8362. For example, referral may be warranted if samples of CTRs filed reveal error rates that exceed a certain percentage or a systemic breakdown

  • Failure to maintain a centralized exempt customer list by a credit union/bank under IRS jurisdiction that exempts certain customer accounts from Title 31 reporting requirements

  • Inclusion of ineligible entities on the exemption list by credit union/bank under IRS jurisdiction in situations that would otherwise require that filings be made

  • Lack of adequate internal controls or audit coverage or inaccuracies in the financial institution’s training materials regarding Title 31, in combination with violations of Title 31 reporting and recordkeeping requirements

  • Continued violation of the financial recordkeeping and reporting regulations of Title 31 despite notification of violations.

Systemic or Pervasive Violations Customarily Warranting Civil Referral

  • Pattern of reckless disregard towards, or systemic breakdown in, compliance with the anti-money laundering program requirements of the BSA

  • Repeated failures to file required CTRs or SARs

  • Repeated failures to verify the identification of the transactor

  • Repeated filing of incomplete CTRs lacking key information

  • Flagrant indifference by the financial institution or aiding the customer in structuring transactions to avoid the reporting requirements

  • Suspected money laundering activity

Exhibit 4.26.8-4  (06-01-2006)
Form 5104, Report of Apparent Violation of financial Recordkeeping and Reporting Regulations

Here is the link to Form 5104.

Exhibit 4.26.8-5  (06-01-2006)
Form 13649, Fraudulent Intent Referral Memorandum (FIRM)

Here is the link to Form 13649.

Exhibit 4.26.8-6  (06-01-2006)
Form 2797, Referral Report of Potential Fraud Cases

Here is the link to Form 2797.


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