4.26.9  Examination Techniques For Bank Secrecy Act Industries (Cont. 1)

4.26.9.4 
Credit Unions Overview

4.26.9.4.2 
Law

4.26.9.4.2.3  (06-01-2006)
AML Program Requirements

  1. All federally insured credit unions must establish and implement a written, risk-based AML Program reasonably designed to prevent the business from being used to facilitate money laundering and the financing of terrorism.. Non-federally insured credit unions have been temporarily exempted from the requirement to establish anti-money laundering programs (31 CFR 103.170(b)(2)).

4.26.9.4.3  (06-01-2006)
Records Commonly Found

  1. Credit unions vary significantly in size and the types of services offered. Therefore, the nature of the credit union’s books and records vary.

  2. Smaller institutions, whose services are limited to share deposit and share loan accounts may not conduct any currency transactions. These institutions often have very simple handwritten transaction records and manual bookkeeping systems.

  3. Larger institutions may have several branches and offer extensive financial services. These institutions usually have on line data processing systems, detailed currency control policies, and sophisticated internal control procedures.

  4. In addition to the required records listed in 4.26.9.4.2.2, records commonly found at credit unions include:

    1. Daily teller drawer and vault reconciliations,

    2. Customer deposit, withdrawal and payment vouchers,

    3. Summary reports of outstanding loans, certificates of deposit etc.,

    4. Cashier’s check, money order, traveler’s check and other negotiable instrument logs, and

    5. Credit union bank statements, deposit slips and canceled checks.

  5. Additional records may include:

    1. A journal and cash record/daily transactions report which is a permanent record of daily transactions. All member transactions conducted during the day are individually posted to this journal. It may be summarized on a daily basis, depending on the accounting system.

    2. A large currency transaction report or suspicious transaction report which lists all cash transactions over a management defined dollar limit. Supervisory personnel review this report to ensure all required CTRs are prepared each day.

  6. An example of a BSA examination audit trail is shown in Exhibit 4.26.9-17.

4.26.9.4.3.1  (06-01-2006)
Terminology

  1. Cash Control System - A centralized recordkeeping and control system to monitor cash transfers within the credit union and cash sent to and received from correspondent banks.

  2. Cash Received Voucher/Cash Payment Voucher - Individual receipts for transactions conducted with members that reflect activities conducted with both currency and negotiable instruments, such as checks.

  3. Cash In/Out Slips - Individual documents prepared by the teller to reflect currency taken in and paid out.

  4. Exempt Customer - A credit union member who meets the requirements of 31 CFR 103.22(d) to be excluded from the CTR reporting requirement.

  5. Share - Ownership interest in a credit union. A typical par value is $5.

  6. Share Draft Account - This is similar to a checking account with a bank. The member may write drafts (checks) to 3rd parties.

  7. Share Savings Account - The member’s savings account with the credit union. The interest earned on the savings account is called a dividend.

4.26.9.4.3.2  (06-01-2006)
Cash Control System

  1. Operating cash is ordered and received from a correspondent bank. Source documents which support this transaction include credit union checks made to cash, bank account debit memos, and currency order sheets.

  2. When the cash is received, the cash control teller makes an entry in the credit union’s cash control system. The appropriate debit and credit is recorded in the cash in bank and cash on hand account.

  3. Cash is then disbursed to each teller for conducting daily transactions. An entry is made in the cash control system to record the amount of cash issued.

  4. Each teller maintains an individual teller cash control sheet to record daily transactions. The teller cash control sheet details the amount of cash received by denomination. The teller also records additional internal cash transfers that occur during the day.

  5. Tellers conduct cash in transactions for share deposits, sales of money orders, traveler’s checks and cashier’s checks and loan payments. All deposits and sales are not conducted with cash. Members may deposit checks into share accounts and may use share drafts or share savings withdrawals to purchase negotiable instruments.

  6. Tellers conduct cash out transactions for share withdrawals and check cashing. Share withdrawals may be paid by cash or a credit union share draft.

  7. When cash is used during a teller transaction, a document for cash in/out should be prepared. This could include a cash in slip or computer coding for cash transactions on a cash received/payment voucher.

  8. At the end of the day, tellers reconcile their cash control sheets to their ending cash balance and source records. The control sheet, source records and currency are turned into the cash control teller.

  9. The cash control teller then enters all ending currency balances into the cash control system log. The ending cash on hand is then reconciled to the daily activities. A cash control system reconciliation proof/report is prepared to account for the financial institution’s total cash on hand.

  10. If cash on hand exceeds the operating requirements of the credit union, the excess funds are deposited into the bank. If the currency amount is less than the required amount, a currency request is prepared and sent to the bank. At this point, the daily currency cycle has ended.

4.26.9.4.4  (06-01-2006)
Interview

  1. An interview should be conducted at the credit union’s main location, with a credit union officer, BSA compliance officer and/or other key personnel who have knowledge of the credit union’s operations, policies and internal control procedures. Determine who is responsible for compliance with the BSA recordkeeping and reporting requirements.

  2. Document the credit union’s background history, the number of branches operated and affiliated organizations.

  3. Identify the BSA compliance officer and all other personnel who are responsible for conducting, recording and reporting of BSA transactions and evaluate their understanding of the BSA recordkeeping and reporting requirements. It is important to determine the extent of the interviewee's knowledge of the BSA requirements should any violations be noted during the examination. These individuals should be identified by name, title and specific responsibilities.

  4. Tellers handling currency transactions should be interviewed. The examiner should ascertain:

    1. The types of records maintained by the tellers;

    2. Their knowledge of currency transaction reporting requirements;

    3. Their dollar limit for cashing checks without approval and the procedures for cashing large checks; and

    4. Their procedures for preparing CTRs.

  5. Responsible officers and supervisory personnel, who approve large currency transactions and/or are responsible for filing CTRs, should be interviewed. These individuals may include the BSA compliance officer, manager and/or head teller. The examiner should ascertain:

    1. The procedures for recording currency transactions and the filing of CTRs, CMIRs, FBARs and SARs, and

    2. Their knowledge of structuring or if any suspicious transactions have occurred.

      Note:

      This question also must be asked while interviewing employees who have customer contact

      .

  6. Each interview should be documented in the case file.

  7. Interview the AML compliance officer, as well as compliance program employees. Determine level of familiarity with internal compliance programs and internal controls.

  8. Ask specific questions to determine the financial services offered by the credit union. The examiner must consider all financial services or products offered by the credit union such as money remittance, check cashing, and sales of money orders and/or traveler’s checks.

  9. Ask open-ended questions throughout the interview. Do not ask questions that require only a yes or no answer.

  10. For examples of possible initial interview questions, See Exhibit 4.26.9-19. This is only a guide that should be expanded or contracted as each BSA examination warrants.

4.26.9.4.5  (06-01-2006)
Review of the Records

  1. Any records the credit union maintains that are relevant to the BSA examination can be requested and reviewed. The examiner will determine if the credit union is maintaining adequate records and must document any recordkeeping violations.

  2. Ask to see the credit union’s policy and procedures manual regarding the BSA identification, recordkeeping, reporting and exemption requirements. The examiner should determine if the institution’s BSA information is correct and its procedures are adequate.

  3. Review in house training programs and inspect retained training records. The examiner should inspect records of external training such as certificates of course completion. Most individual state credit union leagues and trade associations offer BSA training courses for all levels of personnel, and provide documentation of attendance.

  4. Identify dates during which large currency transactions occurred. The examiner should review currency received from or shipped to the correspondent bank using:

    1. Bank statements and reconciliations, deposit tickets and source documents for currency withdrawals such as debit memoranda;

    2. Cash on hand ledger account or other summary currency reports; and,

    3. Cash control system records which reflect daily cash reconciliations, change fund ledger account, bank statements or other activity summary records to determine dates during which large transactions may have occurred.

  5. Review relevant audit reports or reviews that address BSA policies, procedures or operations for BSA-relevant issues.

  6. Inspect the tellers’ cash control proofs and supporting cash in/out documents to identify specific large currency transactions. Based on the information obtained from the preplan, interviews, and review of written records, select a sample of transactions consisting of amounts ranging from a minimum of $3,000 to greater than $10,000.

  7. Trace the sampled transactions through the internal control system to CTR filings for amounts greater than $10,000. If there is a transaction over $10,000 and no CTR was filed, check to see if the customer has been designated as an exempt person before determining if an apparent reporting violation has occurred.

  8. Review the credit union’s retained copies of CTRs for accuracy and completeness.

  9. Compare the credit union’s retained copies of CTRs to the CBRS record to insure they have been filed.

  10. Review Forms 90-22.1 (FBAR) if the credit union maintains foreign bank accounts or has signature authority or financial interests in foreign countries.

  11. Review FinCEN Form 105(CMIR) if the credit union is involved with the transportation of currency into or out of the U.S.

  12. Review the credit union’s records maintained for the sale of bank checks or drafts, cashier’s checks, money orders, and/or traveler’s checks for amounts involving currency in amounts of $3,000 to $10,000, inclusive. Ensure all required information has been obtained pursuant to the recordkeeping requirements of 31 CFR 103.29.

  13. Review the credit union’s records to determine if all the required information on money transmittals (such as wire transfers) of $3,000 or more has been obtained and retained pursuant to the recordkeeping requirements of 31 CFR 103.33.

  14. Evaluate the credit union’s recordkeeping procedures relating to customer account activities and certificates of deposits pursuant to the recordkeeping requirements of 31 CFR 103.34.

  15. Review the SAR file to determine if there are recurring patterns of activity by the same or related members of the credit union. If patterns are noted, question the appropriate personnel as to the actions taken with regard to the transactions. A detailed analysis of suspicious transactions may be warranted to determine if the individuals are utilizing the credit union for structuring activities. Contact the BSA Workload Selection coordinator to determine whether a referral is warranted or whether to expand the review of the SAR file.

  16. If weak internal controls were noted or lack of management oversight was determined, the examiner should consider expanding the scope of the BSA examination. The examiner should also consider expanding the scope to other branches/offices, if applicable.

  17. If potential reporting and recordkeeping violations are noted, the examiner should discuss the violations with the BSA group manager prior to expanding the scope. Depending on the frequency and nature of the violations, the examiner may not need to expand the scope, i.e. minor recordkeeping violations. The manager will decide whether or not to refer the violation to the Financial Crimes Enforcement Network for possible enforcement action.

  18. Other considerations for expanding a BSA examination include prior violations, management cooperation and the filing history recorded on CBRS.

  19. When expanding the BSA examination, the examiner should consider performing the following:

    1. Review the credit union’s bank statements for activities conducted on the dates selected. Inspect deposit tickets for currency and currency withdrawal source documents such as debit memos and checks.

    2. Trace currency withdrawals and deposits from the bank deposit slips and currency withdrawal source documents to the cash control system reconciliation reports.

    3. Reconcile the individual teller cash control sheets to the cash control system reconciliation report totals. Reconcile the cash control system reconciliation beginning/ending cash on hand balances to prior and subsequent cash on hand balances.

    4. Review individual teller daily cash control sheets and supporting cash in/cash out slips for currency transactions in excess of $3,000.

  20. If the credit union has one teller who conducts all large currency transactions, the examiner should focus on the transactions conducted by that teller.

  21. Trace transactions for the purchase of money orders, traveler’s checks, bank drafts, and cashier’s checks involving currency in amounts of $3,000 to $10,000, inclusive, to the records required by 31 CFR 103.29.

  22. Trace all transactions for currency deposited or withdrawn in excess of $10,000 to the retained copies of CTRs or to the exempt customer list.

  23. If questionable transactions are identified as being conducted by a customer designated as an exempt person, the examiner may want to review the suitability of the exemption.

  24. The examiner should be alert to transactions or patterns that may indicate potential structuring activities. If structuring is suspected, the examiner should:

    1. Review the specific member accounts where unusual patterns of activity have occurred. Statements of account transactions for all accounts held by the member should be inspected.

    2. Related members accounts should be reviewed for transactions occurring in the same general time period.

  25. If potential violations are being conducted through the purchase of traveler’s checks, money orders, bank drafts, and cashier’s checks, the examiner should review the specific control register used for the negotiable instrument sales to determine the extent of the potential violations.

  26. When apparent violations have been detected, the examiner should interview management and any other personnel involved. All discussions should be documented in the case file.

  27. Follow procedures in IRM 4.26.6 to timely conclude the BSA examination.

  28. Consider preparing Form(s) 5346, Examination Information Report, when information is obtained during the BSA examination that indicates a possible income tax violation warranting referral. (Refer to IRM 4.26.6.)

4.26.9.4.5.1  (06-01-2006)
Review of Exempt Customers

  1. The examiner will ensure that the credit union is properly designating customers as exempt persons by filing a FinCEN Form 110 (Formerly TD F 90-22.53), Designation of Exempt Person, by the close of the 30 day period beginning after the day of the first reportable transaction in currency with that person is sought to be exempted.

  2. Verify the credit union’s procedures for exempting transactions of certain depositors from the CTR reporting requirement conform to the requirements of 31 CFR 103.22(d).

  3. Obtain copies of FinCEN Form 110 (Formerly TD F 90-22.53) filed by the credit union. Customers designated as exempt persons need to meet the specific requirements of 31 CFR 103.22(d)(2).

  4. Review those customers designated as exempt persons which are non-listed businesses (as defined in 31 CFR 103.22(d)(vi) since money launderers would most likely try to use this type of business to disguise the source of their funds. Verify the following:

    1. The credit union has only exempted customers meeting the requirements of an exempt person as defined in 31 CFR 103.22(d)(2). Pay close attention to non-listed businesses to ensure that they are not primarily engaged in ineligible businesses as set forth in 31 CFR 103.22(d)(6)(viii).

    2. The credit union annually reviews the information supporting each designation of an exempt person and the application to each account of a non-listed business or payroll customer of the monitoring system required to be maintained to detect suspicious transactions (31 CFR 103.22(d)(4)).

    3. That a biennial renewal for the continuation of treatment as an exempt customer that is a non-listed business or a payroll customer has been made (31 CFR 103.22(d)(5)).

    4. The required documentation has been maintained that shows how the customer was determined to be an exempt person (31 CFR 103.229(d)(6)).

    5. All suspicious transactions have been reported, whether or not the customer has been designated as an exempt person (31 CFR 103.22(d)(9)).

4.26.9.4.5.2  (06-01-2006)
Review of Customer Identification Program

  1. Verify that the credit union has implemented a written Customer Identification Program (CIP) (31 CFR 103.121(b)(1)).

  2. Verify that the CIP has been approved by the Board of Directors.

  3. Verify that the written CIP is appropriate for the size and type of business of the credit union, and includes each of the requirements of 31 CFR 103.121(b)(1) specifically:

    1. General requirements;

    2. Identity verification procedures;

    3. Recordkeeping;

    4. Comparison with government lists; and,

    5. Customer notice.

4.26.9.4.6  (06-01-2006)
Evidence

  1. The examiner must obtain adequate supporting documentation for each type of the following violations:

    1. Reporting - The date of the transaction, the amount, the individuals involved and a detailed statement regarding the violation, including copies of source documents such as cash in/out slips, control registers and teller cash proofs which support the violation.

    2. Recordkeeping - The details of the specific records which were not maintained or were determined to be inadequate, including management’s response to the violations.

    3. Exempt Customers - The nature of the violation, the account history, type of business and the frequency of exempt transactions

    .

  2. The credit union's knowledge of BSA requirements must be determined before determining whether violations should be formally referred to FinCEN.

    1. The key officers and employees should be interviewed again to document the credit unions response to any apparent violations.

    2. The existence of an internal compliance program may indicate knowledge. For example, if knowledge of the reporting and recordkeeping requirements is limited to upper management and the tellers are not similarly educated, the credit union may be at least negligent (for not properly instructing the tellers.) The tellers need to know what their BSA obligations are. The tellers are the initial contact point where the information is obtained. Failure by upper management to ensure that factual information is correctly gathered may indicate the credit union’s intent not to comply.

  3. Some factors indicating the financial institution’s knowledge of the BSA reporting and recordkeeping requirements and its compliance intentions are:

    1. Prior BSA violations and BSA related contact with the IRS

    2. Training programs operated by the credit union

    3. The MSBs formal BSA compliance procedures

    4. Active involvement of management in oversight and internal control activities.

  4. In situations where knowledge or intent cannot be established within the scope of selected records, the examiner should expand the period to include recent transactions that occurred after knowledge can be clearly documented. For example, the examiner selected records from January, February, and March. The inspection of these records discloses currency transactions that appear to be structured and which should have been reported. The credit union denied knowledge of the structuring regulations during the initial interview. In April, the examiner informed the credit union about the suspicious transactions and of the structuring regulations. The examiner later expanded the examination period to include May and June transactions. The examiner found violations in May and June. The credit union’s knowledge was documented during the notification of the structuring violations and took no action to prevent the recurrence of violations. The credit union’s intent to not comply should be documented.

  5. Because willfulness is a state of mind, generally only circumstantial evidence of willfulness will be available. A willful violation is the intentional violation of a known legal duty.

  6. Since BSA penalties are assessed by the FinCEN, which does not have any field examiners, the examiner must thoroughly document all facts on the issue of the intent. After the examiner secures the necessary information and documents the apparent violations, the examiner should follow the procedures as detailed in IRM 4.26.8.

4.26.9.4.7  (06-01-2006)
Credit Union’s Position

  1. After documenting the potential violations, the examiner should provide a list of the violations to the credit union and solicit a written explanation for each of the violations identified. The list should include:

    1. Date of the transaction;

    2. Customer name;

    3. Account number (if any);

    4. Amount of the currency transaction(s); and,

    5. Description of the transaction(s).

  2. The examiner should advise the credit union of any recordkeeping deficiencies as well as any deficiencies in their policies, procedures, internal controls, and compliance programs that might result in noncompliance with the BSA.

  3. Any additional documents or information, provided by the credit union in response, should be reviewed and a determination should be made as to whether any items should be removed from the list of violations.

  4. When the credit union contends that a CTR was filed, and provides its retained copy as evidence, the examiner should query the CBRS database and conduct an exhaustive search before concluding that a CTR was not received. In conducting the search, the examiner should query all customer numerical identification on the CTR such as account number (if applicable), SSN, and identification credential number.

4.26.9.4.8  (06-01-2006)
Money Laundering Trends

  1. The financial institution and/or the customer can be involved in potential money laundering schemes. The examiner must focus on both the financial institution and the transactor(s) during the BSA examination.

  2. Money laundering techniques which could be used by the financial institution include:

    1. Failing to maintain complete records

    2. Failing to maintain copies of FinCEN Forms 110 and related records

    3. Failing to record specific transactions

    4. Failing to obtain the required information to comply with the recordkeeping requirements

    5. Failing to file CTRs and SARs on reportable transactions

    6. Filing incomplete CTRs or SARs

    7. Structuring a transaction by breaking one transaction into several to circumvent the reporting requirements

    8. Designating an ineligible business as an exempt person

    9. Failing to maintain a monitoring system to detect suspicious transactions of exempt persons

    10. Failing to conduct annual reviews of information supporting each designation of exempt persons.

  3. Money laundering trends which could be used by the customer or transactor include:

    1. Using several individuals at one or more locations to conduct a transaction

    2. Making currency deposits into their member’s account(s) on consecutive days which are below the reporting threshold

    3. Splitting currency deposits between one or more members’ accounts in which each are below the reporting threshold but when combined would require a CTR

    4. Check cashing by the same individual or business on a frequent or continuous basis in amounts below the reporting threshold

    5. Obtaining designation as an exempt person for which they do not qualify

    6. Using aliases when conducting transactions

    7. Conducting numerous transactions at the same location at different times during one day

    8. Splitting currency transactions by purchasing a variety of financial services (i.e., money orders, traveler’s checks and/or funds transmittals)

  4. For money laundering trends pertaining to check cashing refer to IRM 4.26.9.3.

  5. For money laundering trends pertaining to money orders refer to IRM 4.26.9.6.

  6. For money laundering trends pertaining to traveler’s checks refer to IRM 4.26.9.8.

  7. For money laundering trends pertaining to fund transmittals refer to IRM 4.26.9.7.

  8. When evidence of a money laundering scheme is uncovered, a referral should be made on Form 5104. (Refer to IRM 4.26.8 for referral procedure.)

4.26.9.4.8.1  (06-01-2006)
Examination Techniques

  1. The following techniques can be useful in uncovering money laundering schemes:

    1. Identify dates in which large currency transactions have occurred paying particular attention to currency transactions that are just below the CTR reporting threshold.

    2. Review all financial services offered on these dates to see if customers are structuring transactions by using a variety of financial products,

    3. Inspect retained copies of CTRs and SARs to determine if there are any recurring patterns of activity by the same or related members of the credit union.

  2. The BSA examiner should enter all suspicious transactions recorded for a selected period, into a database. Use of the database isolates patterns of suspicious transactions. If transactions are conducted by a specific member, inspect account statements for all accounts held by that member and any other related members.

  3. Review retained copies of FinCEN Forms 110 looking for any unusual requests for exempt status or ineligible businesses, which have been granted exempt status, which could be used as a front for money laundering.

  4. For examination techniques pertaining to check cashing refer to IRM 4.26.9.3.

  5. For examination techniques pertaining to money orders refer to IRM 4.26.9.6.

  6. For examination techniques pertaining to traveler’s checks refer to IRM 4.26.9.8.

  7. For examination techniques pertaining to fund transmittals refer to IRM 4.26.9.7.

4.26.9.5  (06-01-2006)
Currency Dealers or Exchangers Overview

  1. Currency dealers or exchangers provide many of the same services as banks and other regulated financial institutions. In addition to currency exchange these services may include:

    1. Fund transmittals (domestic and foreign)

    2. Check cashing

    3. Temporary custody of funds on deposit

    4. Selling money orders or other monetary instruments

    5. Other related financial services.

  2. Currency dealers or exchangers operate along international borders, in port of entry cities (where international flights land), or near communities of resident aliens.

  3. A currency dealer or exchanger near the Southwest border may be known as a"Casa de Cambio," Spanish for house of exchange. "Casas de Cambio" deal in exchanging U.S. dollars and Mexican pesos and are found on both sides of the border. Personal exchanges of routine amounts are commonly referred to as "front window" operations. Large and or unusual transactions are referred to as "back room " operations.

  4. The examiner should consider concentrating BSA examinations of numerous currency dealers or exchangers in a geographic area to encompass businesses that compete directly with one another. In some situations, currency dealers or exchangers that are secretive about their own operations are more willing to discuss competitors.

  5. Currency dealers or exchangers are one of the five distinctive types of financial services providers known as "money services businesses " or MSBs. (Refer to IRM 4.26.5 for a discussion on MSBs)

4.26.9.5.1  (06-01-2006)
Law

  1. A currency dealer or exchanger (other than a person who does not exchange currency in an amount greater than $1,000 in currency or monetary or other instruments for any person on any day in one or more transactions) is defined as a money services business. (31 CFR 103.11(uu)(1))

4.26.9.5.1.1  (06-01-2006)
Reporting Requirements

  1. FinCEN Form 104, CTR must be filed for all currency transactions of more than $10,000 by or on behalf or any one person in one business day. (31 CFR 103.22 (b)(1))

  2. Multiple currency transactions must be aggregated, and a CTR is required, if the business knows or has reason to know that the multiple transactions are by or on behalf of any person and result in either cash in or cash out totaling more than $10,000 in one business day. (31 CFR 103.22(c)(2))

  3. The CTR must be filed within 15 calendar days following the day the reportable transaction occurs. (31 CFR 103.27(a)(1))

  4. Treasury Department Form TD 90-22.56, SAR-MSB, is required to be made by currency dealers or exchangers if they suspect or have reason to suspect suspicious activities have occurred (31 CFR 103.20(a)).

  5. A SAR-MSB must be filed for suspicious transactions of at least $2,000 in funds or other assets conducted or attempted by, at, or through the money services business (31 CFR 103.20(a)(2)).

  6. A money services business is required to file the SAR-MSB with the FinCEN, through the DCC, no later than 30 calendar days after the date of detection (31 CFR 103.20(b)(3)).

  7. A money services business is prohibited from notifying any person involved in the transaction that a SAR has been filed (31 CFR 103.20(d)).

  8. FinCEN Form 105 (CMIR) must be filed by any person who transports, mails, or ships or has someone else transport, mail, or ship currency or monetary instruments in excess of $10,000 into or out of the country or who receives such items into the United States from abroad (31 CFR 103.23).

  9. FinCEN Form 105 must be filed with the U.S. Customs Service at the time of entry into the United States or at the time of departure, mailing, or shipping from the United States (31 CFR 103.27(b)(1)).

  10. Any person receiving currency or monetary instruments in excess of $10,000 from outside the United States is required to file FinCEN Form 105 within 15 days (31 CFR 103.27(b)(2)).

  11. Treasury Department Form TD F 90-22.1 (FBAR) must be filed for any financial interest in or signature or other authority over a foreign bank, securities, or other financial account which exceeds $10,000 at any time during the calendar year (31 CFR 103.24).

  12. The FBAR must be filed by June 30th of the succeeding year (31 CFR 103.27(c)).

4.26.9.5.1.2  (06-01-2006)
Registration Requirements

  1. A currency dealer or exchanger is required to register on a FinCEN Form 107, (formerly TD F 90-22.55), Registration of Money Services Business and biannually renew their registration if they are not acting in an agent capacity and are not a branch location (31 CFR 103.41).

  2. Certain events require re-registration which is different from a renewal registration (31 CFR 103.41(b)(4)).

4.26.9.5.1.3  (06-01-2006)
Recordkeeping Requirements

  1. For records required of all financial institutions, refer to IRM 4.26.5.

  2. Copies of all filed CTRs must be retained by the financial institution for five years from the date of the report (31 CFR 103.27(a)(3)).

  3. Copies of all filed SAR-MSBs and the original or record of any supporting documentation shall be maintained for five years from the date of filing the SAR (31 CFR 103.20(c)).

  4. Currency dealers or exchangers are required to make and retain additional records (31 CFR 103.37).

  5. A currency dealer or exchanger is required to secure and maintain a record of the taxpayer identification number of each person who opens a transaction account or is extended a line of credit within 30 days after an account is opened or credit line extended.

    1. If the person is a non-resident alien, a record of the person’s passport number or description of some other government document used to verify identity is required.

    2. If the account or credit line is in the names of two or more persons, a currency dealer or exchanger is required to secure the taxpayer identification number of a person having a financial interest in the account or credit line. (31 CFR 103.37(a)(1))

  6. If a currency dealer or exchanger is unable to secure a person’s identification within the 30-day period, they will not be in violation if:

    1. A reasonable effort was made to secure the identification, and

    2. A list is maintained containing the names, addresses, and account or credit line numbers of those persons for which they were unable to secure the required identification. (31 CFR 103.37(a)(1))

  7. The 30-day period may be extended if the person opening an account or credit line has applied for a taxpayer identification or social security number. (31 CFR 103.37(a)(2)).

  8. There are certain instances when a taxpayer identification number need not be secured. (31 CFR 103.37(a)(3).

  9. In addition, currency dealers or exchangers are required to retain either the original, microfilm or other copy of the following records pursuant to 31 CFR 103.37(b):

    1. Statements of bank accounts, including paid checks, deposit slips, charges, or other debit or credit memoranda.

    2. Daily work records, including purchase and sales slips or other memoranda needed to identify and reconstruct currency transactions with customers and foreign banks.

    3. A record of each exchange of currency involving transactions in excess of $1,000 including the customer’s name and address, passport number or taxpayer identification number, date and amount of the transaction, and currency name, country and total amount of each foreign currency.

    4. Signature cards or other documents evidencing signature authority over each deposit or security account, containing the name, address, TIN or EIN of the depositor, the signature of the depositor or other person authorized to sign on the account (if customer accounts are maintained in a code name, a record of the actual owner of the account).

    5. Each item, including checks, drafts, or transfers of credit of more than $10,000 remitted or transferred to a person, account or place outside the United States.

    6. A record of each receipt of currency, other monetary instruments, investment securities, and checks, and of each transfer of funds or credit, or more than $10,000 received on any one occasion directly and not through a domestic financial institution, from any person, account or place outside the United States.

    7. Records prepared or received by a dealer in the ordinary course of business, that would be needed to reconstruct an account and trace a check in excess of $100 deposited in such account through its internal recordkeeping system to its depository institution, or to supply a description of a deposited check in excess of $100.

    8. A record maintaining the name, address and TIN, if available, of any person presenting a certificate of deposit for payment, a description of the instrument, and date of the transaction.

    9. A system of books and records that will enable the currency dealer or exchanger to prepare an accurate balance sheet and income statement.

  10. If a currency dealer or exchanger has a financial interest in or signature or other authority in foreign financial accounts, records of these accounts must be retained. The records must contain:

    1. The name in which each account is maintained;

    2. The number or other designation of such account;

    3. The name and address of the foreign bank or other person with whom such account is maintained;

    4. The type of such account; and,

    5. The maximum value of each such account during the reporting period. (31 CFR 103.32)

  11. A currency dealer or exchanger must retain these records for five years pursuant to 31 CFR 103.38(d) and 31 CFR 103.32, if applicable.

  12. Copy of registration and renewal must be retained for five years, if applicable.

  13. Current annual agent list and agent list(s) for the past five years (back to January 2002) must be retained, if applicable (31 CFR 103.41(d)).

4.26.9.5.1.4  (06-01-2006)
AML Program Requirements

  1. All money services businesses must establish and implement a written, risk-based AML Program reasonably designed to prevent the business from being used to facilitate money laundering and the financing of terrorism.

  2. At a minimum, the program shall:

    1. Incorporate policies, procedures, and internal controls reasonably designed to assure compliance with the BSA and its implementing regulations;

    2. Designate a compliance officer;

    3. Provide for education or training of appropriate personnel; and.

    4. Provide for independent review to monitor and maintain the adequacy of the program (31 CFR 103.125).

4.26.9.5.2  (06-01-2006)
Records Commonly Found

  1. A currency dealer’s or exchanger’s records usually include:

    1. Daily cash drawer and vault reconciliations;

    2. Bank statements, deposit slips, and debit/credit memoranda;

    3. Wire transmittal confirmations;

    4. Customer records (either hard copy or electronic);

    5. Invoices and purchase orders; and,

    6. Summary sheets.

  2. An example of a BSA examination audit trail is shown in Exhibit 4.26.9-20.

4.26.9.5.3  (06-01-2006)
Interview

  1. The initial interview of a currency dealer or exchanger should include questions to ascertain:

    1. Historical/background information

    2. Management and employee knowledge of the BSA registration, recordkeeping, reporting, and AML compliance program requirements

    3. Information about related currency dealers or exchangers and domestic and foreign agents or nominees

    4. Information on domestic and foreign books and records including records of agents or nominees, especially any bank account records that are maintained on behalf of the currency dealer or exchanger.

    5. The types of transactions conducted and the records maintained. The examiner may want to prepare a flowchart of the cash in cycle, the cash out cycle, and the records maintained for each type of transaction.

    6. Procedures for recording currency transactions over $1,000 and identification of customers.

    7. Procedures for recording currency transactions over $10,000 and filing of CTRs. Also, procedures for filing SAR-MSBs, CMIRs and FBARs (if applicable).

  2. The examiner must consider additional services or products offered by a currency dealer or exchanger such as money transmitting, check cashing, and sales of money orders.

  3. A copy of the written BSA compliance procedures should be requested and included in the case file. An explanation of the BSA training of employees should also be documented.

  4. Interview all individuals conducting currency transactions and those responsible for compliance with the BSA recordkeeping and reporting requirements.

  5. Each interview should be documented in the case file.

  6. Ask the owners or management if they have knowledge of any structuring transactions having occurred or if any suspicious transactions have occurred. This question also must be asked while interviewing employees who have customer contact.

  7. Interview former employees if appropriate.

  8. The examiner should ask to be shown how all "window" and "back room" transactions are conducted and recorded.

  9. Ask open-ended questions throughout the interview. Do not ask questions that require only a "yes" or "no" answer.

  10. An example of possible initial interview questions for currency dealers or exchangers is shown in Exhibit 4.26.9-22. It is only a guide that should be expanded or contracted as each BSA examination warrants.

4.26.9.5.4  (06-01-2006)
Review of the Records

  1. Conduct the BSA examination at the currency dealer’s or exchanger’s place of business.

  2. Some currency dealers or exchangers, especially Casas de Cambio, maintain inadequate or no records.

  3. A currency dealer's or exchanger's records may often include the following:

    1. Annual Summary Sheet: a record of monthly transaction totals.

    2. Monthly Summary Sheet: a record of daily transaction totals for the month and the source document for preparing the annual summary sheet.

    3. Client Ledger Cards: a record of transactions with regular clients (larger currency dealers or exchangers may maintain this record).

    4. Daily Transactions Log: a record summarizing daily transactions. This is the source document for preparing the monthly summary sheet and includes the beginning and ending cash balances. If cash balances are not maintained on this record, a separate cash (vault) inventory record is usually maintained.

    5. Transaction Vouchers: a record of each transaction that shows the date, amount and rate of exchange. This record may, but usually does not, include customer identification for transactions over $1000. This is the source document for preparing the daily transaction log.

    6. Domestic Bank Records: these should include all account statements, duplicate deposit tickets, canceled checks, wire transfer confirmation statements, and other debit and credit memoranda.

    7. Copies of CTRs and SAR-MSBs.

    8. Other books and records may include a general ledger, receipt and disbursement journals, and invoices and receipts.

  4. Records may include foreign bank account records and the records of domestic and foreign agents or nominees.

  5. Review the bank account records for all the domestic and foreign bank accounts over which the currency dealer or exchanger has authority. Many currency dealers or exchangers have foreign bank accounts or use foreign bank accounts held in agent or nominee names to facilitate conducting their financial services. The examiner should probe and ask for foreign bank account records.

  6. Determine if the records include all financial services provided by the currency dealer or exchanger that have been identified during interviews and from visual observation of the business operations. Pursue any records that have not been provided.

  7. Select records from a current period to evaluate. The period with the highest money flow should be considered.

  8. Select dates within the period and reconcile the transaction vouchers, daily transaction log, client ledger, and the monthly and annual summary sheets.

  9. Analyze the summary and transaction records for cash in and cash out for transactions conducted by the currency dealer or exchanger. All large or unusual items should be pursued.

  10. Trace daily transactions through the daily transaction log. Reconcile the transaction log’s beginning and ending cash balances to prior and subsequent logs. Also, trace the transaction log cash balances to the cash (vault) inventory balances and then to the balance sheets and books. Any unexplained variations should be investigated. If cash balances are not entered on the transaction log, the examiner should ask how the currency dealer or exchanger reconciles the cash on hand.

  11. Trace transactions to the transaction vouchers, checking for compliance with 31 CFR 103.37(b)(3) requirements, and trace all transactions over $10,000 to CTRs.

  12. Review the currency dealer’s or exchanger’s copies of CTRs, SAR-MSBs, CMIRs (if applicable) and FBARs (if applicable) for accuracy and completeness. The CBRS should also be checked to verify that the reports were actually filed.

  13. Review relevant audit reports or reviews that address BSA policies, procedures, or operations for BSA relevant issues.

  14. Review fund transmittal documents. Records for the transmission of funds abroad should include copies of receipts issued to customers and records evidencing interbank transfers (i.e., wire confirmations or drafts.)

  15. Review the currency dealer’s or exchanger’s written BSA procedures (policy letter) from its AML compliance program and obtain a copy for the case file.

  16. Consider using a database to input information from the transaction records, for purposes of detecting structuring and other money laundering schemes.

  17. Analyze database sorts of the name, address and phone number fields to detect possible structured transactions, unreported transactions, errors and/or deficiencies in the financial institution’s BSA compliance system.

  18. If structured transactions or BSA violations are detected, the examiner should interview the responsible person or employee who conducted the transaction. Based on the responses, the examiner should consider expanding the scope of the examination. (Refer to IRM 4.26.6.) All facts should be discussed with the BSA Group Manager.

  19. Obtain copies of all source documents that show any apparent BSA violations.

  20. Issue a Letter 1112 or referral on Form 5104 for all failures to file FinCEN Form 104, FinCEN Form 105,and Form TD F 90-22.1 and any recordkeeping violations. Prepare the referral in accordance with the examination referral guidelines. (Refer to IRM 4.26.8. )

  21. Follow the procedures in IRM 4.26.6 to timely conclude the BSA examination.

  22. Consider preparing a Form 5346, Examination Information Report when:

    1. There are inadequate or few records,

    2. Only "window" transactions are reflected in the records, or

    3. Other information is obtained during the BSA examination that indicates a possible income tax violation warranting referral. (Refer to IRM 4.26.6.)

  23. Review filed registrations (if applicable) for accuracy and completeness.

  24. Verify applicability of requirement to register.

  25. Review agent list (if applicable) for all required elements.

  26. Forward agent list to BSA Workload Selection coordinator separate from your case file.

  27. Review agent contracts and terms for acceptance and termination as an agent.

  28. Review all agents rejected or terminated as an agent and forward list to BSA Workload Selection coordinator separate from your case file.

4.26.9.5.5  (06-01-2006)
Evidence

  1. The examiner must obtain adequate supporting documentation for each type of the following violations:

    1. Reporting – The date of the transaction, the amount, the individuals involved, and a detailed statement regarding the violation, including copies of source documents such as cash in/out slips, control registers, and teller cash proofs which document the violation.

    2. Recordkeeping – The details of the specific records which were not maintained or were inadequate, including management’s response to the violations.

  2. The money services business' knowledge of BSA requirements must be determined before determining whether violations should be formally referred to FinCEN.

    1. The key officers and employees should be interviewed again to document the money services business’ response to any apparent violations.

    2. The existence of an internal compliance program may indicate knowledge. For example, if knowledge of the reporting and recordkeeping requirements is limited to upper management and the other employees are not similarly educated, the money services business may be at least negligent (for not properly instructing the employees.) The employees need to know what their BSA obligations are. The employees are the initial contact point where the information is obtained. Failure by upper management to ensure that factual information is correctly gathered may indicate the money services business’ intent not to comply.

  3. Other factors indicating the money services business’ knowledge of the BSA registration, reporting, recordkeeping, and compliance program requirements and its compliance intentions are:

    1. Prior BSA violations and BSA-related contacts with the IRS

    2. Training programs offered by the money services business

    3. The MSB's formal BSA compliance procedures

    4. Active involvement of management in oversight and internal control activities.

  4. In situations where knowledge or intent cannot be established within the scope of selected records, the examiner should expand the period to include recent transactions that occurred after knowledge can be clearly documented. For example, the examiner selected records from January, February, and March. The inspection of these records discloses currency transactions that appear to be structured and which should have been reported. The money services business denied knowledge of the structuring regulations during the initial interview. In April, the examiner informed the money services business about the suspicious transactions and of the structuring regulations. The examiner later expanded the examination period to include May and June transactions. The examiner found violations in May and June. The money services business’ knowledge was documented during the notification of the structuring violations and took no action to prevent the recurrence of violations. The money services business’ intent to not comply should be documented.

  5. Because willfulness is a state of mind, generally only circumstantial evidence of willfulness will be available. A willful violation is the intentional violation of a known legal duty.

  6. Since BSA penalties are assessed by the FinCEN, which does not have any field examiners, the examiner must thoroughly document all facts on the issue of intent. After the examiner secures the necessary information and documents the apparent violations, the examiner should follow the procedures detailed in IRM 4.26.8.

4.26.9.5.6  (06-01-2006)
Currency Dealer or Exchanger’s Position

  1. After documenting the potential violations, the examiner should provide a list of the violations to the money services business and solicit a written explanation for each of the violations identified. The list should include:

    1. Date of the transaction;

    2. Customer name;

    3. Account number (if any);

    4. Amount of the currency transaction(s); and,

    5. Description of the transaction(s).

  2. The examiner should advise the money services business of any recordkeeping deficiencies as well as any deficiencies in their policies, procedures, internal controls, and compliance programs that might result in noncompliance with the BSA.

  3. Any additional documents or information, provided by the money services business in response, should be reviewed and a determination should be made as to whether any items should be removed from the list of violations.

  4. When the money services business contends that a CTR was filed, and provides its retained copy as evidence, the examiner should query the CBRS database and conduct an exhaustive search before concluding that a CTR was not received. In conducting the search, the examiner should query all customer numerical identification on the CTR such as account number (if applicable), SSN, and identification credential number.

4.26.9.5.7  (06-01-2006)
Money Laundering Trends

  1. Money launderers may use the bank accounts and the investment and financial contacts of a currency dealer or exchanger on both sides of an international border to break the paper trail between their currency and themselves. This permits them to transport, convert or invest currency in the legitimate international financial system. A currency dealer or exchanger involved in money laundering may assist in converting the currency into non-monetary assets, and/or physically transporting currency, and/or making wire transfers, and/or otherwise disguising the ownership of funds.

  2. Common methods used by currency dealers or exchangers involved in laundering money include:

    1. Failing to maintain records or record specific transactions.

    2. Failing to file reports of currency or foreign transactions.

    3. Disguising transactions with false identification or structuring them to avoid the BSA reporting requirements.

    4. Commingling transactions of clients with those of other clients or of the currency dealer or exchanger.

    5. Commingling transactions with those of other currency dealers or exchangers, frequently claiming that transactions with other currency dealers or exchangers are merely "accommodations" or loans and failing to record the details.

    6. Using foreign bank accounts, agents, or nominees.

    7. Issuing cashier’s checks, money orders, personal checks, or other monetary instruments in exchange for currency.

  3. Some examples of tactics used by currency dealers or exchangers involved in money laundering are:

    1. Fictitious names, addresses, and passport numbers are used in the currency dealer’s or exchanger’s records and on CTRs filed. Foreign governments issue passports, which are usually untraceable.

    2. Dollars are physically smuggled out of the U.S. and deposited into a foreign bank account. The money is then wired back to the U.S. or elsewhere with the appearance of a legitimate business transaction. Some currency dealers or exchangers along the Canadian border receive U.S. or foreign currency through U.S. Post Office boxes in border cities. Couriers transport the currency into Canada for exchange or further transmission to anywhere in the world.

    3. Currency may be transported into a foreign country and repatriated through a foreign bank. Even though a transaction may appear as foreign currency in the cash flow of the currency dealer or exchanger, it may still be from an illegal source.

  4. The examiner may find instances where international funds transfers occurred without the money crossing the international border. This is accomplished by offsetting different client transactions through book entry systems shared with the currency dealer’s or exchanger’s foreign office, or with other currency dealers or exchangers, agents, or nominees located on either side of the border. This process is similar to the check clearing operation of the banking industry.

  5. When evidence of a money laundering scheme is uncovered, a referral should be made on Form 5104. (Refer to IRM 4.26.8 for referral procedures.)

4.26.9.5.7.1  (06-01-2006)
Examination Techniques

  1. The following techniques can be useful in uncovering money laundering schemes:

    1. Prepare flowcharts of cash in and cash out for each type of financial transaction conducted by the currency dealer or exchanger to identify records that may exist but have not been provided.

    2. Review all bank statements to determine the currency dealer or exchanger is withdrawing enough funds to meet the amounts of currency exchanged. If not sufficient, then sources of cash should be investigated in greater depth.

    3. Review the transaction logs and client ledger sheets for large or suspicious transactions. If the paper trail ends before the conclusion of a transaction, ask the currency dealer or exchanger to explain the transaction. Record the explanation and if necessary obtain additional documents.

    4. Review the list of foreign beneficiaries for large amounts, few destinations, or any other factors that may indicate money laundering or other illegal activities by the currency dealer or exchanger or clients.

    5. Review wire transfer confirmations for suspicious items.

    6. Review bank account documents for large or unusual items. Trace these items to the transaction and summary documents. Try to identify records that are not provided for the examination, such as foreign bank accounts or agent and nominee records.

    7. Review the records for transactions with other currency dealers or exchangers. Money laundering often occurs with the cooperation of more than one currency dealer or exchanger.

    8. Isolate and trace all transactions through the records. Client transactions may be commingled to conceal currency transactions. If the transactions cannot be separated, ask the currency dealer or exchanger to provide a complete breakdown of the individual transactions. Document the currency dealer’s or exchanger’s response.

    9. Identify the profits on all large, structured or suspicious transactions. If individual profits cannot be identified, ask how profits on the transactions are determined and have the currency dealer or exchanger reconstruct them.

    10. Group unusual items to identify any common or similar features such as names or addresses. Once any large, structured or suspicious transactions are identified, all similar transactions within the compliance examination period should be identified and reviewed.

4.26.9.6  (06-01-2006)
Money Orders Overview

  1. Money orders are issued by national companies such as Travelers Express, American Express, or the U.S. Post Office. In addition, there are small regional or local money order companies such as Global Express. Some businesses, e.g.,. check cashers, may issue their own money orders.

  2. Money orders are negotiable monetary instruments. Money orders are usually purchased by individuals, who do not have a bank checking account to pay their everyday bills.

  3. Sales agents of money orders usually provide other services such as check cashing, wire services, or operate a business such as a grocery store, truck stop, or a convenience store.

  4. Rather than run the risk of robbery, some businesses in high-risk areas will buy money orders throughout the day instead of transporting cash to the bank.

  5. Most money order transactions occur at the $200 - $300 level.

  6. An issuer, seller, or redeemer of money orders is one of the five distinctive types of financial services providers known as "money services businesses" or MSBs. (Refer to IRM 4.26.5 for a discussion on MSBs.)

4.26.9.6.1  (06-01-2006)
Nationwide Money Orders

  1. Financial institutions that sell money orders for national companies are agents. The agent’s relationship to the issuer of the money orders is governed by a trust agreement.

  2. The agent is allowed to advertise that it sells the national company’s money orders and is authorized to fill in the dollar amount on behalf of the national companies.

  3. Money orders are drawn on the national company’s bank account and the transaction is not complete until the national company receives the face amount from the agent and the money order clears the bank.

  4. The dollar value of money orders sold by an agent can be limited by the bonding company’s trust agreement or by the agent’s policy, but in theory they can be in any denomination.

  5. The national company issues and the agent maintains sales records, of money orders using a sequential numbering system.

  6. An agent’s summary sales report is sent daily to the national company and the correspondent bank sends a clearing report. Using these reports, the national company keeps a record of all money orders sold and cashed. Agents are sent a discrepancy statement for money orders cashed but not reported as sold.

  7. Money received from the sale of money orders is usually deposited, by the agent, into a separate bank account. Payment is made to the national company by check, wire transfer, electronic mail or draft.

  8. National money order companies either collect their fee up front when the money orders are given to the agents or have their agents remit the fee together with the face amount of the money orders sold.

  9. Agents may receive commission statements or reconciliations of money orders sold. The agent’s commission can be accounted for this way.

  10. Identification of persons purchasing money orders in amounts under $3,000 is often left to the individual agents, and in many instances, little or no identification is requested from the purchaser.

  11. National companies keep a copy of the front and back of all cashed and canceled money orders.

4.26.9.6.1.1  (06-01-2006)
Private Money Orders

  1. Generally, private companies maintain and reconcile daily records of money orders sold and cashed. Like checks, money orders are cleared by a correspondent bank. If adequate records are not maintained, additional information should be obtained from the correspondent bank.

  2. Traditionally, private companies do not require identification to purchase money orders.

4.26.9.6.2  (06-01-2006)
Law

  1. An issuer of money orders (other than a person who does not issue such money orders in an amount greater than $1,000 in currency or monetary or other instruments to any person on any day in one or more transactions) is defined as a money services business (31 CFR 103.11(uu)(3)).

  2. A seller or redeemer of money orders (other than a person who does not sell or redeem such money orders in an amount greater than $1,000 in currency or monetary or other instruments to any person on any day in one or more transactions) is defined as a money services business (31 CFR 103.11(uu)(4)).

4.26.9.6.2.1  (06-01-2006)
Reporting Requirements

  1. FinCEN Form 104,CTR, must be filed for all currency transactions of more than $10,000 (31 CFR 103.22(b)(1)).

  2. Multiple currency transactions must be aggregated, and a CTR is required, if the business has knowledge that the multiple transactions are by or on behalf of any person and result in either cash in or cash out totaling more than $10,000 in one business day. (31 CFR 103.22(c)(2))

  3. The CTR must be filed within 15 calendar days following the day the reportable transaction occurs. (31 CFR 103.27(a)(1))

  4. Treasury Department Form TD 90-22.56, SAR-MSB, is required to be made by the money services business if they suspect or have reason to suspect suspicious activities have occurred (31 CFR 103.20(a)).

  5. A SAR-MSB must be filed for suspicious transactions of at least $2,000 in funds or other assets conducted or attempted by, at, or through the money services business (31 CFR 103.20(a)(2)).

  6. To the extent that the identification of suspicious transactions required to be reported is derived from a review of clearance records or other similar records of money orders that have been sold or processed, an issuer of money orders shall only be required to report a suspicious transaction or pattern of transactions that involves or aggregates funds or other assets of at least $5,000 (31 CFR 103.20(a)(3))

  7. An MSB is required to file the SAR-MSB with FinCEN, through the DCC, no later than 30 calendar days after the date of detection (31 CFR 103.20(b)(3)).

  8. A money services business is prohibited from notifying any person involved in the transaction that a SAR has been filed (31 CFR 103.20(d)).

  9. FinCEN Form 105 (CMIR) must be filed by any person who transports, mails, or ships or has someone else transport, mail, or ship currency or monetary instruments in excess of $10,000 into or out of the country or who receives such items in the United States from abroad. (31 CFR 103.23)

4.26.9.6.2.2  (06-01-2006)
Registration Requirements

  1. A money order issuer, seller, or redeemer is required to register on a FinCEN Form 107, (formerly TD F 90-22.55), Registration of Money Services Business and biannually renew their registration if they are not acting in an agent capacity and are not a branch location (31 CFR 103.41).

  2. Certain events require re-registration which is different from a renewal registration (31 CFR 103.41(b)(4)).

4.26.9.6.2.3  (06-01-2006)
Recordkeeping Requirements

  1. For records required of all financial institutions, refer to IRM 4.26.5.

  2. Copies of all filed CTRs must be retained by the financial institution for five years from the date of the report. (31 CFR 103.27(a)(3))

  3. Copies of all filed SAR-MSBs and the original or record of any supporting documentation shall be maintained for five years from the date of filing the SAR (31 CFR 103.20(c)).

  4. Certain records are required to be maintained for the issuance or sale of money orders which involve currency in amounts of $3,000 to $10,000, inclusive, by or on behalf of one individual in one business day.

  5. The following information must be obtained for the records:

    1. The purchaser’s name and address;

    2. The purchaser’s social security number or alien identification number;

    3. The purchaser’s date of birth;

    4. The date of purchase;

    5. The type of instruments purchased;

    6. The serial numbers of the instruments purchased; and,

    7. The amount in dollars of each instrument purchased. (31 CFR 103.29(a)(2)(i))

  6. The financial institution is required to verify the purchaser’s name and address and record the specific identifying information (e.g., State of issuance and purchaser’s drivers license number). (31 CFR 103.29(a)(2)(ii))

  7. These records must be retained by the financial institution for five years. (31 CFR 103.29(c))

  8. Copy of registration and renewal if applicable.

  9. Current annual agent list and agent list(s) for the past five years (back to January 2002) if applicable (31 CFR 103.41(d)).

4.26.9.6.2.4  (06-01-2006)
AML Program Requirements

  1. All money services businesses must establish and implement a written, risk-based AML program reasonably designed to prevent the business from being used to facilitate money laundering and the financing of terrorism.

  2. At a minimum, the program shall:

    1. Incorporate policies, procedures, and internal controls reasonably designed to assure compliance with the BSA and its implementing regulations;

    2. Designate a compliance officer;

    3. Provide for education or training of appropriate personnel; and,

    4. Provide for independent review to monitor and maintain the adequacy of the program (31 CFR 103.125)

    .

4.26.9.6.3  (06-01-2006)
Records Commonly Found

  1. Money order agent records usually include:

    1. Bank statements and deposit slips

    2. Daily sales summaries

    3. Customer records (electronic or hard copies)

    4. Carbons or duplicates of money orders

    5. Commission statements.

  2. An example of a BSA examination audit trail is shown in Exhibit 4.26.9-23.

4.26.9.6.4  (06-01-2006)
Interview

  1. Interview the officers, owners and employees to determine their knowledge of the BSA and the financial institution’s procedures to comply with the reporting and recordkeeping requirements. The duties and responsibilities of the officers and employees should be documented along with a description of the financial institution’s records and an explanation of the flow of transactions through the records. Knowledge is one of the elements needed to prove willfulness with respect to apparent violations of the regulations.

  2. Ask specific questions relating to the business, area, and services offered. The examiner must consider all services offered by the business, such as money transmitting, check cashing, and sales of money orders. For example, a customer could attempt to launder $15,000 by sending a wire transfer for $8,000 and purchasing $7,000 in money orders.

  3. Ask the owners or management of the financial institution if they have knowledge of any structured transactions having occurred, or if any suspicious transactions have occurred. This question should be asked again while interviewing employees who have customer contact.

  4. Interview all individuals who handle currency transactions. Question their knowledge and training of the BSA recordkeeping and reporting requirements.

  5. Ask open-ended questions throughout the interview. Do not ask questions that require only a yes or no answer.

  6. An example of initial interview questions for issuers, sellers, or redeemers of money orders is shown in Exhibit 4.26.9-25. It is only a guide and should be expanded or contracted as each BSA examination warrants.

4.26.9.6.5  (06-01-2006)
Review of the Records

  1. Any records the financial institution maintains that are relevant to the BSA examination can be requested and reviewed. The examiner will determine if the financial institution is maintaining adequate records and must document any recordkeeping violations.

  2. Review the written policy statements, procedures, etc. of the financial institution as they relate to the BSA.

  3. Analyze the records of the financial institution for all types of financial services offered. Each type of financial service should be examined separately.

  4. Determine the money order register completeness by reconciling this to the summary sales reports sent to the issuing company, the discrepancy report from the issuing company, and the bank deposits.

  5. Trace large block sales or large dollar single transaction sales of money orders in the money order register or money order close out reports to the records required for recordkeeping, SAR reporting and CTR reporting. Block sales are a group of sequentially numbered money orders sold concurrently for the maximum denomination, or right below the maximum dollar amount. The maximum amount allowed for each money order is usually set at $300, $500 or $1,000 by the issuing company. The review should identify:

    1. Blocks of money orders at $2,000 or right below for SAR reporting;

    2. Blocks of money orders at $3,000 to $10,000, inclusive, for recordkeeping requirements; and,

    3. Blocks of money orders greater than $10,000 for CTR reporting.

  6. Inspect any copies of money orders retained by the financial institution.

  7. Request that the financial institution obtain copies of money orders from the money order issuer for any questionable or suspicious transactions. It may be necessary to issue a Title 31 summons to obtain this information. Refer to IRM 4.26.8 before issuing any Title 31 summons.

  8. Review the financial institution’s records to determine if all the required information on the purchaser of money order involving currency in amounts of $3,000 to $10,000, inclusive, has been maintained and verified pursuant to the recordkeeping requirements of 31 CFR 103.29.

  9. It is recommended that a computer database be used when the compliance examination is part of a multiple location local project or there are a large number of block sales or large dollar sales. All single or block transactions, exceeding a dollar amount cutoff should be entered in the database from source documents to see if the transactions are related.

  10. Analyze database sorts of the name field and the address field to detect possible structured transactions, unreported transactions, errors, and deficiencies in the financial institution’s BSA compliance system.

  11. The databases, if applicable, of BSA examinations of nearby financial institutions in geographical targeting projects should be consolidated and sorted to detect related structuring activity occurring at more than one location.

  12. Review copies of CTRs filed by the financial institution to ensure they are accurate and complete. Ensure filed CTRs have been retained by the financial institution for the required five-year period. Use the CBRS database to verify that the CTRs were timely filed and contain the same information as the copies maintained by the financial institution.

  13. Query the CBRS database for transactions conducted by owners, managers, and employees of the financial institution to detect possible unreported transactions of the financial institution that were instead reported under the individual’s name.

  14. If structured transactions or other BSA violations are detected, the examiner should interview the responsible person or employee who conducted the transaction. Based on the answers given, the examiner should consider expanding the scope of the examination. (Refer to IRM 4.26.6.) All facts should be discussed with the BSA Group Manager.

  15. Review relevant audit reports or reviews that address BSA policies, procedures, or operations for BSA issues.

  16. Issue a Letter 1112 or prepare a referral on Form 5104for all failures to file FinCEN Form 104 and any recordkeeping violations. Prepare in accordance with the examination guidelines. (Refer to IRM 4.26.8.)

  17. Follow procedures in IRM 4.26.6 to timely conclude the BSA examination.

  18. Prepare Form(s) 5346, Examination Information Report, when information is obtained during the BSA examination that indicates a possible income tax violation warranting referral. (Refer to IRM 4.26.6.)

  19. Review copies of filed MSB registrations and renewals (if applicable) for accuracy and completeness.

  20. Determine whether the business was required to register as an MSB.

  21. Review agent list (if applicable) for all required elements.

  22. Forward agent list to BSA Workload Selection coordinator in a separate shipment from the case file.

  23. Review agent contracts and terms for acceptance and termination as an agent.

  24. Review all agents rejected or terminated as an agent and forward list to BSA Workload Selection coordinator in a separate shipment from the case file.

4.26.9.6.6  (06-01-2006)
Evidence

  1. The examiner must obtain documentation for each type of the following violations:

    1. Reporting – The date of the transaction, the amount, the individuals involved, and a detailed statement regarding the violation, including copies of source documents such as cash in/out slips, control registers, and teller cash proofs which support the violation.

    2. Recordkeeping – The details of the specific records which were not maintained or were inadequate, including management’s response to the violations.

  2. The knowledge of the MSB must be established before determining whether violations should be formally referred to FinCEN.

    1. The key officers and employees should be interviewed again to document the money services business’ to any apparent violations.

    2. The existence of an internal compliance program may indicate knowledge. For example, if knowledge of the reporting and recordkeeping requirements is limited to upper management and the other employees are not similarly educated, the money services business may be at least negligent (for not properly instructing the employees.) The employees need to know what their BSA obligations are. The employees are the initial contact point where the information is obtained. Failure by upper management to ensure that factual information is correctly gathered may indicate the money services business’ intent not to comply.

  3. Other factors that may indicate the MSB had knowledge of the BSA registration, reporting, recordkeeping, and compliance program requirements, and its compliance intentions are:

    1. Prior BSA violations and BSA compliance related contacts with the IRS;

    2. Training programs offered by the business;

    3. The MSB's formal BSA compliance procedure; and,

    4. Active involvement of management in oversight and internal control activities.

  4. In situations where knowledge cannot be established within the scope of selected records, the examiner should expand the period to include recent transactions that occurred after knowledge and intent can be clearly documented. For example, the examiner selected records from January, February, and March. The inspection of these records discloses currency transactions that appear to be structured and which should have been reported. The MSB denied knowledge of the structuring regulations during the initial interview. In April, the examiner informed the MSB about the suspicious transactions and of the structuring regulations. The examiner later expanded the examination period to include May and June transactions. The examiner found violations in May and June. The MSB’s knowledge was documented during the notification of the structuring violations and took no action to prevent the recurrence of violations. The MSB’s intent to not comply should be documented.

  5. ) Because willfulness is a state of mind, generally only circumstantial evidence of willfulness will be available. A willful violation is the intentional violation of a known legal duty.

  6. Since BSA penalties are assessed by FinCEN, which does not have any field examiners, the examiner must thoroughly document all facts on the issue of intent. After the examiner secures the necessary information and documents the apparent violations, the examiner should follow the procedures detailed in IRM 4.26.8.

4.26.9.6.7  (06-01-2006)
Money Order Business’ Position

  1. After documenting the potential violations, the examiner should provide a list of the violations to the MSB and solicit a written explanation for each of the violations identified. The list should include:

    1. Date of the transaction;

    2. Customer name;

    3. Account number (if any);

    4. Serial number of money order(s) involved;

    5. Amount of the currency transaction(s); and;

    6. Description of the transaction(s).

  2. The examiner should advise the money services business of any recordkeeping deficiencies as well as any deficiencies in their policies, procedures, internal controls, and compliance programs that might result in noncompliance with the BSA.

  3. Any additional documents or information provided by the money services business in response should be reviewed and a determination should be made as to whether any items should be removed from the list of violations.

  4. When the money services business contends that a CTR was filed, and provides its retained copy as evidence, the examiner should query the CBRS database and conduct an exhaustive search to ensure that a CTR was not received. In conducting the search, the examiner should query all customer numerical identification on the CTR such as account number (if applicable), SSN, and identification credential number.

4.26.9.6.8  (06-01-2006)
Money Laundering Trends

  1. The financial institution and/or the customer can be involved in potential money laundering schemes. The examiner must focus on both the financial institution and the transactor(s) during the BSA compliance examination.

  2. Money laundering techniques which could be used by the financial institution include:

    1. Failing to maintain complete records

    2. Failing to record specific transactions

    3. Failing to obtain the required information to comply with the recordkeeping requirements

    4. Failing to file CTRs or CMIRs on reportable transactions

    5. Structuring a transaction by breaking one transaction into several to circumvent the reporting requirements f. Issuing money orders, instead of cash (e.g., a check casher) to avoid the $10,000 reporting requirement.

  3. Money laundering techniques which could be used by the customer/transactor include:

    1. Using multiple locations to conduct transactions

    2. Using several individuals at one or more locations to conduct a transaction

    3. Using aliases when conducting transactions

    4. Conducting several transactions at the same location at different times during one day

    5. Requesting money orders, instead of cash, when cashing checks to circumvent a reporting requirement.

  4. When evidence of a money laundering scheme is uncovered, a referral should be made on Form 5104. (Refer to IRM 4.26.8 for referral procedures.)

4.26.9.6.8.1  (06-01-2006)
Examination Techniques

  1. The following techniques can be useful in uncovering money laundering schemes:

    1. Review the financial institution’s sales logs and /or daily summaries for block purchases. Trace these purchases to records of sales of $3,000 or more,

    2. Request copies of money orders from the issuer, if necessary, to determine if transactions have been structured,

    3. Conduct BSA examinations of financial institutions within the same geographical area, and

    4. Create a database to consolidate transactions of the financial institutions, which can be sorted to identify related transactions.

4.26.9.7  (06-01-2006)
Money Transmitter Overview

  1. There are currently several major and many regional money transmission companies that operate within the United States. Some of the largest include, but are not limited to, Western Union, Vigo Remittance, Travelers Express/Money Gram. In addition, many banks are aggressively competing in this business.

  2. A money transmitter may allow customers to send and receive money throughout the United States or anywhere in the world. A customer can send money by visiting any participating outlet, filling out a money transfer form and paying for the transaction. The same is true for the receiving side of the transaction.

  3. Each money transmitter has a home office, a transaction clearing center or service center, and several regional offices.

  4. Each major money transmission company contracts with independent agents. These agents include individuals, as well as, businesses such as grocery stores, truck stops, check cashers, pharmacists, travel agents, and supermarket chains.

  5. The money transmission home office pays its agents using a " fee schedule" that provides predetermined charges (fees) for money transfers.

  6. Agents (agencies) receive a commission on the fees charged for transferring money.

  7. Agents (agencies) are located in the 50 States, Puerto Rico, the U.S. Virgin Islands, and Guam. Some are open 24 hours a day.

  8. Each money transmission company has its own forms to send and receive money. General characteristics include, but are not limited to:

    1. The date of transaction

    2. The amount of the transaction

    3. The name of the person sending money (sender/payer)

    4. The name of the person receiving the money (recipient/receiver/pay to)

    5. The reference (transaction) number assigned by the service center.

  9. When a transaction to send or to receive money is initiated by a customer, the money transmitter will contact the service center. This can be done by either dialing a toll-free telephone number or using an on-line computer system (optional equipment for agent). The information from the customer transaction form is entered into the service center computer system.

  10. The original transaction documents to send or to receive money are kept by the money transmitter anywhere from six months to several years. The retention period is usually determined by the money transmission home office.

  11. Identification and verification of identification on certain thresholds of transactions are governed by 31 CFR 103.22, 31 CFR 103.28, and 31 CFR 103.33(f)(2). Below the thresholds that trigger identification and verifications requirements, identification may not be required by the companies for either the person sending the money or the person receiving the money. There is a " test question" on some sending forms that waives identification on the recipient side of the transaction if the recipient knows the correct answer.

  12. Money transmission companies usually give policy and procedure guidelines to each of their agents through periodic newsletter updates.

  13. Money transmitters are one of the five distinctive types of financial services providers known as "money services businesses" or MSBs. (Refer to IRM 4.26.5for a discussion on MSBs.)

4.26.9.7.1  (06-01-2006)
Law

  1. A money transmitter is defined as an MSB under 31 CFR 103.11(uu)(5).

4.26.9.7.1.1  (06-01-2006)
Reporting Requirements

  1. FinCEN Form 104(CTR) must be filed for all currency transactions of more than $10,000 in one business day. (31 CFR 103.22(b)(1)) Currency received from the sender through a money transmitter or paid to the receiver through a money transmitter can trigger the reporting requirement.

  2. Multiple currency transactions must be aggregated and a CTR is required if the business has knowledge that the multiple transactions are by or on behalf of any one person and result in either cash in or cash out totaling more than $10,000 in one business day. (31 CFR 103.22(c)(2))

  3. The CTR must be filed within 15 calendar days following the day the reportable transaction occurs. (31 CFR 103.27(a)(1))

  4. Treasury Department Form TD 90-22.56, SAR-MSB, is required to be made by the money services business if they suspect or have reason to suspect suspicious activities have occurred (31 CFR 103.20(a)).

  5. A SAR-MSB must be filed for suspicious transactions of at least $2,000 in funds or other assets conducted or attempted by, at, or through the money services business (31 CFR 103.20(a)(2)).

  6. An MSB is required to file the SAR-MSB with FinCEN, through DCC, no later than 30 calendar days after the date of detection (31 CFR 103.20(b)(3)).

  7. An MSB is prohibited from notifying any person involved in the transaction that a SAR has been filed (31 CFR 103.20(d)).

4.26.9.7.1.2  (06-01-2006)
Registration Requirements

  1. A money transmitter is required to register on a FinCEN Form 107, (formerly TD F 90-22.55), Registration of Money Services Business and biannually renew their registration if they are not acting in an agent capacity and are not a branch location (31 CFR 103.41).

  2. Certain events require re-registration which is different from a renewal registration (31 CFR 103.41(b)(4)).

4.26.9.7.1.3  (06-01-2006)
Recordkeeping Requirements

  1. For records required of all financial institutions, refer to IRM 4.26.5.

  2. Copies of all filed CTRs must be retained by the financial institution for five years from the date of the report. (31 CFR 103.27(a)(3))

  3. Copies of all filed SAR-MSBs and the original or record of any supporting documentation shall be maintained for five years from the date of filing the SAR (31 CFR 103.20(c)).

  4. Certain records are required to be retained for funds transfers (wires) of $3,000 or more sent or received by or for an individual on any one business day. (31 CFR 103.33(f))

  5. The following information must be obtained for the records (31 CFR 103.33(f)):

    1. The transmitter’s name and address.

    2. The amount of the transmittal order.

    3. The execution date of the transmittal order.

    4. Any payment instructions received from the transmitter.

    5. The identity of the recipient’s financial institution.

    6. Any of the following items received with the transmittal order:

    1. The name and address of the recipient

    2. The account number of the recipient

    3. Any other specific identifier of the recipient

    4. Any form relating to the transmittal of funds that is completed or signed by the person placing the order.

  6. If the transmitter is not an established customer, generally the following records also must be retained (31 CFR 103.33(f)(2)):

    1. Verification of the transmitter’s name and address.

    2. The type and number of identification reviewed (e.g., driver’s license).

    3. The transmitter’s taxpayer identification number (e.g., social security number, or, if none, alien identification number, passport number, and country of issuance, or notation in the record of the lack thereof).

  7. If the recipient is not an established customer, the following records must be retained:

    1. The original, microfilm, other copy, or electronic record of the transmittal order.

    2. Verification of the recipient’s name and address.

    3. The type and number of the identification reviewed (e.g., driver’s license).

    4. The recipient’s taxpayer identification number (e.g., social security number, alien identification number, passport number, and country of issuance).

  8. These records must be retained by the financial institution for five years. (31 CFR 103.38(d))

  9. Copy of MSB registration form, if applicable.

  10. Current annual agent list and agent list(s) for the past five years (back to January 2002) if applicable (31 CFR 103.41(d)).

4.26.9.7.1.4  (06-01-2006)
AML Program Requirements

  1. All money services businesses must establish and implement a written, risk-based AML program reasonably designed to prevent the business from being used to facilitate money laundering and the financing of terrorism.

  2. At a minimum, the program shall:

    1. Incorporate policies, procedures, and internal controls reasonably designed to assure compliance with the BSA and its implementing regulations;

    2. Designate a compliance officer;

    3. Provide for education or training of appropriate personnel; and,

    4. Provide for independent review to monitor and maintain the adequacy of the program (31 CFR 103.125).

4.26.9.7.2  (06-01-2006)
Records Commonly Found

  1. In addition to the required information listed in 4.26.9.7.1.3, a money transmitter’s records usually include

    1. Bank statements and deposit slips;

    2. The money transmitter’s send and receive forms completed by the customers;

    3. Commission statements;

    4. Agent records of $3,000 transactions; and,

    5. Teller’s daily reconciliations.

  2. An example of a BSA examination audit trail is shown in Exhibit 4.26.9-26.

4.26.9.7.2.1  (06-01-2006)
Terminology

  1. Date - The date of the transaction.

  2. Destination - Where the money is being sent.

  3. Draft Number - A number assigned by the money transmitter on its pre-numbered forms.

  4. Identification - This is generally required of the person receiving the wire transfer.

    Note:

    the identification of the recipient can be avoided by answering the test question.

  5. Message - Additional remarks given by the sender for the recipient.

  6. Method of Payment - Cash, Visa, MasterCard, etc.

  7. Origin of Transaction - The city where the transaction originated.

  8. Pay To - The person designated as the one to receive the money transfer.

  9. Payee’s Name - The person designated to receive the money.

  10. Receiver - This is the name of the person receiving the money transfer.

  11. Recipient’s Name/Receiver - The person designated to receive the money.

  12. Reference Number - A number assigned by the agent’s service center to each specific transaction being sent. It can be used to trace a specific transaction.

  13. Sender -The customer sending the money.

  14. Test Answer - This is the response required for the test question.

  15. Test Question - Secret password or words provided by the sender wherein identification is waived for the recipient.

  16. Transaction Number - Number assigned to the transaction for tracing.

4.26.9.7.3  (06-01-2006)
Interview

  1. Ask specific questions relating to the business, area, and services offered. The examiner must consider all financial services or products offered by the business, such as money remittance, check cashing, and sales of money orders. For example, a customer could attempt to launder $15,000 by sending a wire transfer for $8,000 and purchasing $7,000 in money orders.

  2. Identify the BSA compliance officer and all other personnel who are responsible for conducting, recording, and reporting of BSA transactions and evaluate their understanding of the BSA recordkeeping and reporting requirements. It is important to establish knowledge of the BSA should any violations be noted during the examination. These individuals should be identified by name, title, and specific responsibilities.

  3. Ask the owners or management of the financial institution if they have knowledge of structuring transactions having occurred, or if any suspicious transactions have occurred. This question also must be asked while interviewing employees who have customer contact.

  4. Interview all individuals who handle currency transactions (i.e., prepare currency reports, maintain records, etc.). Determine their knowledge and amount of training received on the BSA recordkeeping and reporting requirements.

  5. Ask open-ended questions throughout the interview. Do not ask questions that require only a yes or no answer.

  6. Each interview should be documented in the case file.

  7. Interview the AML compliance officer, as well as compliance program employees. Determine the level of familiarity with internal compliance programs and internal controls.

  8. For examples of possible initial interview questions for a money transmitter, see Exhibit 4.26.9-28. This is only a guide that should be expanded or contracted as each BSA examination warrants.


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