4.26.9 Examination Techniques For Bank Secrecy Act Industries

Overview

  1. This section discusses basic information and examination and auditing techniques for several types of financial institutions that fall under the Bank Secrecy Act (BSA). The information is intended to assist BSA examiners in conducting a BSA examination. All cases are subject to factual development. BSA examiners should adapt the procedures in this section, as necessary, to each particular situation.

  2. The primary goals of any BSA examination are to:

    1. Determine whether the financial institution has established and implemented an effective anti-money laundering compliance program;

    2. Determine whether the financial institution is in compliance with all recordkeeping and reporting requirements;

    3. Determine if there are weaknesses or violations, assist the financial institution to understand the BSA requirements and encourage compliance; and,

    4. Refer serious or repeated BSA violations to the Financial Crimes Enforcement Network (FinCEN) or Criminal Investigation (CI), as appropriate.

Casino and Card Clubs Overview

  1. Casinos and card clubs duly licensed or authorized to do business as casinos or card clubs and which have gross annual gaming revenues (GAGR) in excess of $1,000,000 are financial institutions subject to the requirements of the BSA provisions of Title 31. Casinos and card clubs which have revenues of $1,000,000 or less are not financial institutions subject to the BSA, and are instead subject to the requirements of IRC 6050I.

  2. Pursuant to a 1985 memorandum of agreement with the Department of Treasury, certain casinos in Nevada are exempted from direct application of BSA recordkeeping and currency transaction reporting requirements. Instead, these casinos are subject to Nevada Gaming Commission Regulation 6A, if they have GAGR of $10,000,000 or more and have table games statistic win of $2,000,000 or more. Nevada casinos which have over $1,000,000 in GAGR are not subject to Nevada Gaming Commission Regulation 6A and are instead subject to the reporting, recordkeeping and compliance program requirements of the BSA. Nevada casinos with a GAGR of $1,000,000 or less are subject to the reporting requirements of IRC 6050I.

  3. Whenever the term casino is used in the regulations or in this IRM, the term expressly includes card clubs, and the same requirements therefore apply, unless a different treatment for card clubs is explicitly stated in 31 CFR Part 103.

  4. Unlike other financial institutions, which exist solely for the purpose of conducting financial transactions, casinos primarily function as entertainment and recreational facilities. However, as with other financial institutions, casinos provide a wide range of financial services to their customers including:

    1. Acceptance of funds for deposit and withdrawals of funds on deposit,

    2. Issuance of credit and receipts of payments on credit,

    3. Check cashing services,

    4. Issuance of checks,

    5. Wire transfers of funds, and

    6. Currency exchanges.

  5. Casinos vary in size and sophistication from small one owner gambling parlors, offering a limited number of games and services, to large corporate luxury mega facilities offering a full range of games, services and entertainment. In addition to a gambling casino, the larger resort type casino complex may include hotel facilities, restaurants, bars and lounges, theaters and showrooms, sports and health facilities, convention space, and various exclusive shops and stores.

  6. The requirements of the BSA apply only to transactions taking place between the gambling casino and its customers. Currency transactions between the hotel and/or other outlets within the casino complex and their customers are subject to the requirements covered under IRC 6050I.

  7. Casinos often maintain branch offices in cities around the nation that primarily serve as marketing offices. Occasionally, these offices will accept currency for deposit to a customer’s casino account or in payment of markers. The funds are usually placed on deposit in the branch office’s bank account and wire transferred to the casino. The BSA applies not only to the casino, but also to its branch offices and other places of business.

  8. Authority to examine casinos to determine compliance with the BSA reporting, recordkeeping, and compliance program requirements has been delegated by Treasury to the IRS in 31 CFR 103.56(b)(8).

Organization

  1. Casinos that are duly licensed or authorized to do business are regulated by state, tribal, or local governments. As such, their organizational structure may vary depending upon applicable laws and regulations as well as the needs of management within each individual casino. Generally, however, a typical gambling casino is organized into two separate, yet related, operations; the casino floor and the casino cage. Larger casinos may have more than one casino floor and/or more than one casino cage. See Exhibit 4.26.9-1.

  2. The casino floor is the area of the casino where all gaming activities occur. It is usually organized into Gaming Pits and Slot Zones and operates under the direction of the Casino Manager.

  3. A pit is an area of the casino floor enclosed or encircled by gaming tables in which casino personnel administer and supervise the games being played at those tables. Pits may be comprised of tables offering only one type of game or may be made up of tables offering a number of different types of games. Pit personnel may include the following:

    1. Pit Boss - A management employee who has supervisory authority over all gaming activity taking place in the pit.

    2. Floor person - A management employee who has supervisory authority over all gaming activity taking place at a given number of tables within the pit.

    3. Dealer - A casino employee who conducts the gaming activity at a single gaming table within the pit.

    4. Pit Clerk – An employee in a table game pit who documents, fills, and credits player credit instruments (e.g. markers) and player rating forms.

  4. A Slot Zone is an area of the casino floor, usually separated from the gaming pits, where slot machines are grouped into rows, circles and banks of machines. A slot zone may also include slot booths and coin redemption stations where coins and tokens can be purchased or redeemed, slot markers can be issued or redeemed, and slot jackpots can be paid. Slot personnel may include slot managers, slot supervisors, and slot attendants.

  5. Some casinos may also maintain separate rooms or parlors that offer other games such as Keno, Bingo, Poker, Race Betting, Sports Betting, etc. Each room or parlor operates under the direction of a room manager who reports to the shift manager on duty.

  6. The casino cage houses the cashiers and the cage’s inventory, provides banking services for players and other casino banks, and records, tracks and monitors all financial transactions. It is the financial center of the entire casino operation and is the point at which all currency, chips and other funds are ultimately accounted for. In this capacity it is the casino’s in-house bank where customers can open deposit and credit accounts, deposit and withdraw funds, receive and pay off credit (e.g. markers), purchase and cash checks, wire transfer funds, redeem chips, exchange currency and more. Larger casinos may also maintain satellite cages in slot areas, high roller areas or betting parlors. Under the supervision of the Casino Cage Manager, the casino cage operates much like a commercial bank and is generally organized into five components:

    1. Main bank - The area of the casino cage where all currency is stored. It is through the main bank that currency is transferred from the gaming tables, to and from the cashier’s windows and to or from the casino’s commercial banking institution. The main bank maintains an inventory of coins and chips.

    2. Chip bank - The area of the casino cage where all of the gaming chips are stored. It is through the chip bank that chips are transferred to and from the gaming tables and to or from the cashiers’ windows.

    3. Marker bank - The area of the casino cage where all marker activity related to credit accounts is recorded, processed and stored.

    4. Credit management - The area of the casino cage where customer credit accounts are managed.

    5. Cashier (Teller) windows - The area of the casino cage where financial transactions between the casino cage and its customers occur. The windows are staffed by cashiers who conduct the financial transactions and prepare source documents.

  7. The casino marketing department is responsible for retaining and bringing new business into the casino. Within the marketing department, casino hosts, who cater to high roller's needs, may assist players in opening deposit and credit accounts and issuing complimentary gifts and services to customers.

  8. The casino surveillance department is an important resource in deterring and detecting suspicious or criminal activities. Surveillance employees monitor casino activities using a variety of technologies, including video cameras, monitors, recorders, video printers, switches, selectors and other equipment. Monitored activities that are unusual, suspicious, or potentially criminal in nature are noted in a surveillance log. Videotapes and/or CD-ROMs generally will be maintained for a period of time established by the casino's state, tribal or local regulator.

  9. Card rooms offer no house-banked games. Instead, players gamble against each other. Card rooms usually offer games in two broad categories: poker games, and California games. In California games, one player acts as the bank and other players bet against the bank. The banker collects all winning bets and pays all losing bets from his/her bankroll. There are a fixed number of seats at each table, but other players ("backline bettors" ) can place bets from behind each seat location.

  10. The gaming floor of a card room operates much like the gaming floor of a traditional casino, although there exists operational differences.

    1. Generally, poker and California games are located in separate rooms.

    2. As with casinos, individual tables are organized into pits where dealers conduct the games under the supervision of pit bosses or floor persons.

    3. Card clubs do not rate customer gaming transactions because card club income is based solely on table fee collections and not on player wins and/or losses. Instead, card clubs maintain currency transaction logs (or multiple transaction logs, MTLs) for currency transactions in excess of specified amounts, typically $2,500 or $3,000. However, a customer's name will be recorded on such logs, only ‘if known’.

    4. Card clubs do not provide "comps" to customers.

    5. Dealers typically purchase the inventory of their own chip tray from the card room. Since dealers typically own the inventory of chips and currency in their trays, they often are allowed to gamble at the tables during breaks, or even while dealing the game.

    6. Card clubs employ chip runners who sell and redeem chips directly to the customers.

  11. Card clubs can offer the same types of financial services to their customers as traditional casinos (e.g., deposit accounts, credit accounts, check cashing, wire transfers, and currency exchange services). As with casinos, card rooms maintain cages where cashiers conduct financial transactions. The cage of a card room operates much like the cage of a traditional casino (that is, it is made up of front windows and a cage vault.)

Law

  1. Casinos and card clubs in the United States, its territories and possessions, and on Indian lands, with gross annual gaming revenue in excess of $1,000,000 are defined as financial institutions under 31 CFR 103.11(n)(5)(i) (for casinos) and 31 CFR 103.11(n)(6)(i) (for card clubs). A separate location is a branch if it is operating under the same casino license or tribal compact. If the additional casino location has a separate and distinct casino license or tribal compact, then it is a separate financial institution.

  2. For special rules pertaining to casinos including the development of a written compliance program and special terms relating to casinos, refer to 31 CFR 103.64.

Reporting Requirements
  1. FinCEN Form 103 (CTRC) must be filed by certain casinos and card clubs on each transaction in currency involving cash-in or cash-out of more than $10,000. (31 CFR 103.22(b)(2))

  2. Transactions in currency involving cash-in include, but are not limited to:

    1. Purchases of chips, tokens and other gaming instruments

    2. Front money deposits

    3. Safekeeping deposits

    4. Payments on any form of credit, including markers and counter checks

    5. Bets of currency

    6. Currency received by a casino for transmittal of funds through wire transfer for a customer

    7. Purchases of a casino’s check

    8. Exchanges of currency for currency, including foreign currency. (31 CFR 103.22(b)(2)(i)

  3. Transactions in currency involving cash-out include, but are not limited to:

    1. Redemptions of chips, tokens, and other gaming instruments

    2. Front money withdrawals

    3. Safekeeping withdrawals

    4. Advances on any form of credit, including markers and counter checks

    5. Payments on bets, including slot jackpots

    6. Payments by a casino to a customer based on receipt of funds through wire transfer for credit to a customer

    7. Cashing of checks or other negotiable instruments h. Exchanges of currency for currency, including foreign currency

    8. Reimbursements for customers’ travel and entertainment expenses by the casino

    9. Payment for tournament, contest or other promotions. (31 CFR 103.22(b)(2)(ii))

  4. Multiple currency transactions shall be treated as a single transaction if the casino has knowledge that they are by or on behalf of any person and result in either cash-in or cash-out totaling more than $10,000 during any gaming day. (31 CFR 103.22(c)(3))

  5. A CTRC must be filed within 15 calendar days following the day the reportable transaction occurs. (31 CFR 103.27(a)(1))

  6. FinCEN Form 105, Report of International Transportation of Currency or Monetary Instruments (CMIR), must be filed by any person who transports, mails, ships, 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)

  7. FinCEN Form 105 must be filed at the time of entry into the United States or at the time of departure, mailing or shipping from the United States. (31 CFR 10327(b)(1))

  8. 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))

  9. Treasury Department Form TD F 90.22.1, Report of FBAR must be filed for any financial interest in or signature or other authority over a bank, securities, or other financial account which exceeds $10,000 at any time during the calendar year. (31 CFR 103.24)

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

  11. Pursuant to an agreement with the Department of Treasury, Nevada casinos are exempt from the BSA, but are instead subject to recordkeeping and currency transaction reporting requirements under the Nevada Gaming Commission Regulation 6A. Casinos in Nevada are required to file the following reports:

    1. FinCEN Form 103-N, Currency Transaction Report by Casinos - Nevada (CTRC-N) must be filed by Nevada casinos for each transaction in currency involving cash-in or cash-out of more than $10,000.

    2. FinCEN Form 102, Suspicious Activity Report by Casinos and Card Clubs (SARC), must be filed for any suspicious transaction that may be relevant to the possible violation of any law or regulation and involves or aggregates at least $3,000 in funds or other assets.

  12. Transactions are to be separately aggregated on a currency received and currency paid out basis.

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

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

  3. Copies of all filed SARCs and the original or record of any supporting documentation shall be maintained for five years from the date of filing the SARC. (31 CFR 103.18(d))

  4. All records created from the AML Program Requirements must be retained by casinos for five years.

  5. For additional records to be made and retained by casinos, refer to 31 CFR 103.33(f) and (g) (which generally applies to wire transfers in amounts of $3,000 or more by all nonbank financial institutions), and 31 CFR 103.36 (which applies to casinos).

AML Program Requirements
  1. All casinos 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 103.120(d), 31 CFR 103.64).

Records Commonly Found

  1. Casino records that can be used to identify currency transactions will vary depending upon state, tribal, and local laws and regulations, as well as the needs of casino management. Generally, transactions occurring at the gaming tables may be identified through casino Player Rating Systems and/or Multiple Transaction Logs (MTLs), while transactions occurring at the cage may be identified through casino Credit Management Systems and other cage records which may also include MTLs. See Exhibit 4.26.9-2.

  2. A Player Rating System is a method used by many casinos to monitor the gaming activity of its customers for purposes of determining the amount of complimentary services and items to be extended to individual customers. It is primarily a marketing tool used to identify and reward good customers. A separate player rating card is prepared for each rated customer at the table by the "Rater" (usually a Floor person) assigned to that table. In addition to the customer’s name and account number, the date, time, pit and table number, the rater generally records the amount of currency received from the customer for the purchase of chips and cash bets.

  3. A Credit Management System is a financial accounting system used by many casinos to record and monitor the account-related activity of customers who maintain deposit and/or credit accounts with the casino. Unlike the rating system, which is primarily a marketing tool, the credit management system consists of financial accounting records. Transactional records are prepared by Cage Cashiers and are generally recorded and summarized by cage personnel on Customer Action Cards. Transactional records prepared by the cashiers include the following:

    1. Deposit slips - Record each separate deposit made into the customer’s account (front money or safekeeping) and will usually show whether any portion of the deposit occurred in the form of currency.

    2. Withdrawal slips - Record each separate withdrawal from the customer’s account (front money or safekeeping) and will usually show whether any portion of the withdrawal occurred in the form of currency.

    3. Payment/Redemption vouchers - Record payments on credit (a.k.a. marker redemptions) and may also be used to record other receipts or disbursements of funds such as reimbursements of customer travel expenses and foreign currency exchanges. The payment voucher will usually show whether any portion of the transaction occurred in the form of currency.

    4. Markers Issued (a.k.a. Counter Checks) - Record the extension of credit to customers in the form of chips, tokens, or currency.

  4. Multiple Transaction Logs (MTLs) (a.k.a. Action Control Logs - ACLs) are often maintained in the Pit, Cage, or Slot areas pursuant to state, tribal, or local laws. MTLs are used to record currency transactions above a given threshold, usually $2,500 - $3,000. On these logs, casinos typically record customers’ purchases of chips or tokens with currency or wagers in currency. Because BSA regulations do not specifically require the creation of MTLs (although the retention of these records, if made, is required), their use, format, and required information will vary from jurisdiction to jurisdiction.

  5. Other cage records and documents which may assist in identifying currency transactions include:

    1. Cash equivalents and related logs or registers

    2. Casino checks issued and related logs or registers

    3. Wire transfer devises and related logs or registers

    4. Slot jackpot pay out slips

    5. Forms 1099 issued for prizes, promotions or tournaments without entry fees

    6. Forms W-2G issued and logs of these forms.

  6. In many larger casinos, these systems may be highly computerized and the records may be computer generated. (Refer to IRM 4.26.9.2.7, Computer Auditing Techniques.) Casino records that are processed by or through a computer must be retained by the casino in machine-readable form. (31 CFR 103.36(c)(1))

  7. Casinos and card clubs typically maintain Surveillance Logs of activities that are unusual, suspicious or potentially criminal.

Terminology
  1. Action Card (a.k.a. Bucket) - A record maintained by the cage for deposit and credit customers that is used to record each account transaction in chronological order. Separate cards are maintained for each customer and each type of account.

  2. Buy-in – The amount of funds a player uses to purchase casino chips when commencing play. A buy-in can occur in cash, credit, or as a deposit withdrawal.

  3. Cash Equivalent - All negotiable monetary instruments exclusive of currency (e.g., certified checks, cashier’s checks, travelers checks, money orders, personal checks, business checks (including casino checks), etc.)

  4. Chips (a.k.a. Checks, Tokens) - A gaming instrument issued in various denominations and used as a substitute for currency at table games in a casino.

  5. Chip Redemption - The exchanging of chips by a customer for cash, casino check, or outgoing wire transfer.

  6. Front Money (Deposits and Withdrawals) - Money deposited by a customer into his or her account at the casino that can be withdrawn either at the cage or at a gaming table.

  7. Gaming Day - The normal business day of the casino by which it maintains its books and records for business, accounting, and tax purposes. A casino may have only one gaming day common to all of its divisions.

  8. Jackpot Payout (a.k.a. Hand Paid Jackpot) - The portion of a jackpot paid manually by a slot employee to a player. It represents the difference between the amount paid directly by the slot machine and the total amount due to the player based on a winning combination.

  9. Marker (a.k.a. Counter Check) - Credit extended by a casino to a customer in exchange for chips, tokens, or currency.

  10. Marker Redemption - The redemption or paying off of a previously issued marker by a customer.

  11. Rated Player - A customer whose gaming activities on the casino floor are tracked through the casino’s player ratings system.

  12. Safekeeping (Deposits/Withdrawals) - Funds in a customer’s casino account that can only be deposited in or withdrawn at a cage.

  13. Token - A gaming instrument issued in various denominations and used as a substitute for currency to play slot machines.

Interview

  1. The initial interview should be held at the casino's place of business and should be attended by all IRS personnel who will be involved in the examination including the examining agent(s), the CAS, and their respective managers.

  2. The appointment letter should request that the following casino personnel attend the meeting:

    1. Vice President Finance;

    2. Casino Controller;

    3. Casino Manager;

    4. Casino Cage Manager;

    5. Director of Information Systems (Computers);

    6. Title 31 Compliance Coordinator (if applicable); and,

    7. Any others directly involved in Title 31 compliance.

  3. The casino should be advised of the purpose of the examination, and any questions should be answered. Physical arrangements should be made for adequate work space and access to necessary equipment. A principal contact person from the casino should be identified for both the examining agent and the CAS.

  4. The casino should be advised that examining agent(s) will only review information relative to BSA compliance. However, it should also be advised that if in the course of the examination, information relative to possible violations of other laws or regulations is discovered, a referral must be made. This notification should be documented.

  5. The interview should identify any related institutions, branches, entities, or other NBFIs operating within the casino including ownership and relationship of MSBs and ATMs. The BSA examiner should immediately submit the information to the BSA Workload Selection coordinator to be added to the Title 31 database.

  6. Determine the gaming day used by the casino for aggregating reportable currency transactions. Record whether the casino cage and gaming floor are both using the same gaming day cut-off time (including the computerized player rating system) as required by 31 CFR 103.64(b)(4). Request that the casino provide a document at the start of the examination that cites the opening and ending times for the gaming day that are in effect during the period being examined.

    Note:

    For purposes of aggregating reportable currency transactions, a casino must have only one gaming day which is common to all its gambling operating divisions or departments (i.e., cage and floor)

    .

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

  8. For an example of initial interview questions, See Exhibit 4.26.9-5.. This is only a guide that should be expanded or contracted as each BSA examination warrants.

  9. The examination should include several interviews. Each interview should be documented in the case file. Owners/operators, shareholders, directors, floor and cage managers, and employees responsible for preparing currency reports and securing and maintaining records pertaining to the reporting requirements under the BSA should be questioned as to their knowledge and training of the BSA recordkeeping and reporting requirements. Knowledge is one of the elements needed to prove willfulness with respect to a violation of the regulations.

Systems Analysis

  1. Because casino records will vary depending upon applicable laws and regulations, as well as the needs of casino management, a complete systems analysis should be conducted of the casino accounting system used to record and process records related to customer transactions. This analysis will establish the audit trail and the casino’s knowledge of BSA requirements pertaining to reportable transactions. The analysis should include:

    1. Identifying the flow of information through the system;

    2. Determining what kinds of original source documents and records are prepared relative to customer transactions, who prepares them, and how they are stored and organized;

    3. Determining what records are prepared by the casino that specifically identify customer currency transactions;

    4. Determining the kinds of reports prepared by the casino in the ordinary course of its business that may identify and/or summarize recorded, customer transactions, particularly currency transactions; and,

    5. Determining what kind of records and reports are prepared by the casino that identify customers who may be structuring transactions to evade CTRC reporting requirements, or who are engaging in other unusual or suspicious transactions or patterns of such transactions.

  2. If the casino accounting systems are computerized, the Computer Audit Specialist (CAS) should determine:

    1. What computer files and records are maintained relative to customer transactions and what information is stored in those files and records;

    2. What computer files and records are prepared that specifically identify customer currency transactions;

    3. Whether the casino has retained those records in accordance with the BSA recordkeeping and record retention requirements; and,

    4. What kinds of computer generated reports are prepared by the casino in the ordinary course of its business that may identify and/or summarize recorded customer transactions, particularly currency transactions and potentially suspicious transactions.

  3. Examiners should familiarize themselves with state, tribal, and local laws and regulations related to casinos in their jurisdictions. Particular attention should be placed on casino records, documents, and reports required by those laws and regulations which may assist in detecting currency transactions, suspicious transactions, and establishing the casino’s knowledge of those transactions.

Manual Examination Techniques

  1. Examination techniques used to conduct BSA examinations of casinos will vary significantly depending upon whether the casino inputs and processes its customer transaction records by or through a computer system, and has retained those records in machine readable form as required by the BSA.

  2. If casino records are computerized and have been retained by the casino, the examiner should use the computer auditing techniques described in IRM 4.26.9.2.7.

  3. If computerized records are available for some transactions but not for others, a combination of manual examination techniques and computer auditing techniques should be utilized.

  4. The following manual examination techniques should be used when there are no computer records available.

Review of Currency Transaction Report by Casinos (CTRCs)
  1. The examiner should inspect the casino’s retained copies of CTRCs to determine the level of accuracy and completeness of the reports. See Exhibit 4.26.9-6for an example CTRC analysis and the key elements that should be included on each CTRC.

    Note:

    Examiners should not include missing SSNs on nonresident aliens or missing account numbers on non-account related transactions in the analysis of incomplete CTRCs. Records not requiring a SSN should have a non-US country code, a passport number, or an alien registration number.

  2. The examiner should compare the casino’s retained copies of CTRCs to the CBRS records to ensure they have been filed.

  3. When the casino has filed CTRCs that are missing any of the critical elements required, the examiner should review or test check the casino’s supporting documentation to identify those that include one or more single transactions in currency greater than $10,000.

    Note:

    Box 29 on a CTRC is required to be checked by the casino if none of the transactions individually are greater than $10,000. Conversely, the use of the multiple transaction indicator is different on CTRs filed by other financial institutions such as MSBs and banks.

Receipt of Currency by the Casino (Cash-in)
  1. When reviewing casino records to determine if a CTRC is required to be filed for a cash-in transaction, all cash-in transactions are to be aggregated together regardless of the type of transaction involved.

  2. In jurisdictions where MTLs are required, review the MTLs to identify single and/or aggregated reportable currency transactions.

  3. The following items should be considered and reviewed when examining casino transactions where MTLs are not required, or when testing the validity of MTL entries.

    1. Chips Purchased and Cash Bets - If the casino tracks or monitors certain customer’s gaming activities through the use of a player rating system or similar process, review the player ratings reports which may summarize individual customer transactions. These reports will generally identify the total amount of currency received from the customer during a particular gaming day. Such reports may include Daily Player Rating Audit Reports, Trip History Summary Reports, and Player Complementary Reports.

      Note:

      The trip history summary records only summarize the total funds from a customer's multi-day trip and the most recent trips, usually between three and nine trips. Because a trip includes any number of continuous days of gaming activity in which there is not a break in play, the player trip history is only a limited summarized record that typically does not provide all of the information contained on the original rating card, such as the specific amounts of the customer's currency transactions conducted for each gaming day. Therefore, examiners should use the Daily Player Rating Audit Reports which are more useful records for identifying currency transactions for BSA purposes.

    2. Customer Deposits (Front Money and Safekeeping) - Review individual Customer Action Cards or Buckets for deposit account activity. This card will show, in chronological order, the date and amount of each separate deposit and will generally identify the medium used (e.g., cash, chips, check, wire transfer, etc.).

    3. Marker Redemptions - Review individual Customer Action Cards or Buckets for credit account activity. This card will show, in chronological order, the date and amount of each separate marker issued and each marker redeemed and will generally identify the medium used (e.g., cash, chips, check, wire transfer, etc.).

    4. Checks Purchased - Review records of casino checks issued to customers. Such records will usually include check registers or logs (for example, the record of monetary instruments of $3,000 or more (required by 31 CFR 103.36 (b)(9)), as well as the casino checks themselves, and will generally identify the purpose for which the check was issued.

    5. Wire Transfers Out - Review records of wire transfers out of the casino which were made on behalf of a customer. Such records will include the actual advices, requests, or instructions given by the casino (for example, a record of transmittals of funds in excess of $3,000 is required by 31 CFR 103.33 (f) and (g)). The transactions may also be recorded in a wire transfer log or register. Potential reportable transactions should be traced back to the original source documentation to determine if currency was received in exchange for the wire transfer.

    6. Exchange of Currency for Currency (including foreign currency) – Many casinos do not maintain records relating to currency exchanges, which includes both the conversion of small bills into large bills and the conversion of foreign currency into U.S. currency and vice versa, that identify the customer conducting the transaction. However, when such records exist they are more commonly found for foreign currency exchanges and typically consist of a tally sheet that describes the exchange that occurred between a casino cage cashier and a customer. Whenever any such records exist, examiners should review them to identify currency transactions conducted by customers. Note that a currency exchange is both a cash-in and a cash-out transaction at the same time.

Payment of Currency by the Casino (Cash-out)
  1. When reviewing casino records to determine if a CTRC is required to be filed for a cash-out transaction, all cash-out transactions are to be aggregated together regardless of the type of transaction involved.

  2. In jurisdictions where Multiple Transaction Logs (MTLs) are required, review the MTLs to identify single and/or aggregated reportable currency transactions.

  3. The following items should be considered and reviewed when examining casino transactions where MTLs are not required, or when testing the validity of MTL entries.

    1. Chip Redemptions - Most casinos do not prepare or maintain records of customer chip redemptions. However, if records are prepared, examiners should review those records to determine if a report is required.

    2. Customer Withdrawals (Front Money and Safekeeping) - Review individual Customer Action Cards or Buckets for deposit account activity. This card will show, in chronological order, the date and amount of each separate withdrawal and will generally identify the form of the payment (e.g., cash, check, wire transfer, etc.). When the form of payment is not recorded, examiners should review casino checks issued and wire transfers to determine if payment was made in a form other than currency.

    3. Markers Issued (Credit advance in the form of cash) - Review individual Customer Action Cards or Buckets for credit account activity. This card will show, in chronological order, the date and amount of each separate marker issued and will generally identify the form of the funds advanced (e.g., cash, chips, etc.).

    4. Checks Cashed - Review records of cash equivalents received by the casino from its customers. Such records may include check registers or logs, the record of monetary instruments of $3,000 or more, as well as copies of the cash equivalents themselves. Examiners should test check large cash equivalents to determine whether they were cashed or used for some other purpose (e.g., placed on deposit, used to redeem markers, etc.).

    5. Wire Transfers In - Review records of wire transfers into the casino, which were made on behalf of a customer. Such records will include the actual advices, requests, or instructions received by the casino (for example, a record of transmittals of funds in excess of $3,000). The transactions may also be recorded in a wire transfer log or register. Potential reportable transactions should be traced back to original source documentation to determine if the wire transfer resulted in currency being given to the customer.

    6. Exchange of Currency for Currency (including foreign currency) – Many casinos do not maintain records relating to currency exchanges that identify the customer conducting the transaction. However, when such records exist they are more commonly found for foreign currency exchanges and typically consist of a tally sheet that describes the exchange that occurred between a casino cage cashier and a customer. Whenever any such records exist, examiners should review them to identify currency transactions conducted by customers. Note that a currency exchange is both a cash-in and a cash-out transaction at the same time.

    7. Paid Outs - A Paid Out is a cash payment made by the casino to a customer that generally represents a cash complimentary or reimbursement of the customers travel, entertainment, and related expenses. Vouchers are usually prepared for the paid out and entered into a Cage Disbursements log. Examiners should review such records to determine if a report is required.

    8. Slot Machine Jackpots Paid - Review the casino’s retained copies of Form W-2G, Certain Gambling Winnings, to identify slot machine jackpot payments that total over $10,000 during a gaming day. Review casino checks issued to customers to determine the amount of slot jackpots that were paid by way of check. If no checks were issued, determine whether any portion of the slot jackpot win was paid in tokens. Any amount remaining should have been paid in currency. A casino files Form W-2G to report payments made to customers for slot jackpot wins of $1,200 or more. The total of each customer’s slot jackpot winnings should be added together with any other type of cash-out transaction to determine if $10,000 or more in currency was paid out.

    9. Keno Wins Paid – Review the casino’s retained copies of Form W-2G to identify keno win payments that total over $10,000 during a gaming day. A casino files Form W-2G to report payments made to customers for keno wins of $1,500 or more (the latter reduced by the amount of the wager). Review casino checks issued to customers to determine the amount of keno winnings that were paid by way of check. Any amount remaining should have been paid in currency. The total of each customer’s keno wins should be added together with any other type of cash-out transaction to determine if $10,000 or more in currency was paid out.

    10. Forms 1099 issued for prizes and awards -- Review the checks and the MIL to determine how the amount was paid. If paid by check, compare to the MIL to determine if the casino cashed the check for the customer.

Single vs. Multiple Transactions
  1. In the case of all reporting violations, the examiner must determine whether the total transaction amount includes one or more single transactions in currency greater than $10,000 or whether the amount is comprised exclusively of multiple transactions of less than $10,000 where the casino had knowledge that the aggregated amount totaled to more than $10,000.

  2. A single transaction is one that involves a physical transfer of currency between the casino and a customer in one event, even though the currency may be intended for more than one purpose and may appear in the casino’s records as more than one transaction.

    1. Example #1 - A customer redeems three markers of $5,000 each by making one payment, at one time, of $15,000 at the cage. This represents a single transaction even though it may appear in the casino’s records as three separate transactions.

    2. Example #2 - A customer redeems a marker of $5,000 and makes a deposit of $10,000, at the same time, using $15,000 in currency. This represents a single transaction even though the funds are intended for separate purposes and result in two separate records.

  3. Multiple transactions consist of discrete single currency transactions between the casino and a customer, which occur at various times during a gaming day, but when aggregated exceed the $10,000 reporting threshold. It is necessary that the casino had actual knowledge of the aggregate total for the transaction to be considered reportable.

    1. Example #1- A customer purchases chips through a series of buy-ins which a casino employee records on a single casino record, such as a player rating card or a pit Multiple Transaction Log (MTL), that shows a running balance of the currency that totals in excess of $10,000. While each buy-in is a separate transaction, the records show a running balance, which may indicate actual knowledge on the part of a casino employee.

    2. Example #2- A customer redeems chips at different times at the casino cage and the redemptions are recorded on a single MTL that shows a running balance of the currency that totals in excess of $10,000. While each buy-in is a separate transaction, the records show a running balance, which may indicate actual knowledge on the part of a casino.

Review of Recordkeeping
  1. For each deposit of funds, extension of credit, or account opened by the casino, the BSA requires that the casino obtain the customer’s name, permanent address and SSN. (31 CFR 103.36(a)) The name and address must be verified and recorded in the manner described in 31 CFR 103.28.

  2. If the casino is unable to obtain the SSN, the casino is not deemed to be in violation of this recordkeeping requirement if:

    1. A reasonable effort was made to secure the number and

    2. It maintains a list containing the names and permanent address of those customers without SSNs and makes the list available to the Secretary upon request. (31 CFR 103.36(a))

  3. Examiners should determine whether the casino’s procedures for opening deposit and credit accounts include requirements for securing the customer’s name, permanent address, and social security number and verifying the name and address. Additionally, customer deposit and credit accounts should be reviewed or test checked to determine if the required information has been obtained.

  4. Examiners should determine whether the casino’s retention policies call for it to retain all the records described in 31 CFR 103.36(b) and if the required records are being retained. If required records are not being retained or are being destroyed prior to the BSA’s five year retention period, document in the workpapers, and then cite in the referral report the relevant facts (e.g., time frames) and circumstances. Examples may include, but are not limited to:

    1. Failure to maintain the $3,000 monetary instrument log;

    2. Destruction of player rating records reflecting currency transactions;

    3. Destruction of pit worksheets reflecting currency transactions; and,

    4. Purging of computerized daily customer trip detail records pertaining to table game transactions.

  5. Examiners should determine whether the casino procedures with respect to the requirement in 31 CFR 103.36(b)(9) to maintain a list of monetary instruments having a face value of $3,000 or more meet the requirements for recording transaction information related to each instrument cashed or disbursed. The information required is: the time, date, amount; customer name, and permanent address; the type of instrument; the name of the drawee or issuer of the instrument; all reference numbers such as casino account number, personal check number; and the employee name or business license number. Also, the procedures should include entering transactions on the list in the order in which they occur (31 CFR 103.36(b)(9)). The list should be reviewed or tested to determine if the required information has been obtained. Also, examiners can compare the recorded log information against the casino’s computerized records of customer account transactions to identify whether large transactions recorded in the computer as potential "cash" transactions have been accounted for instead as check transactions. In addition, log entries can help identify a customer who may be structuring transactions to evade CTRC reporting through currency purchases of multiple checks in amounts of $3,000 to $10,000 at different times during a gaming day. Lastly, the instrument list can be used in conjunction with each day’s player rating records to determine if chips that were redeemed for a casino check, in excess of $5,000, came from transactions involving minimal gaming.

  6. Some casinos may have contracts with companies that provide money transfer services to act as their agents for money transfers conducted on casino properties. If the casino wires, or otherwise transfers funds for its customers (or receives wired funds or other such fund transfers on behalf of its customers), and the amount of the transfer is $3,000 or more, the casino is required to maintain certain records of the funds transfer. 31 CFR 103.33(f) and (g). Examiners should determine whether the casino's procedures for recording funds transfers in amounts of $3,000 or more include requirements for verifying customer identification, and for recording customer and transaction information for each money transfer sold or redeemed. The records should be reviewed or tested to determine if the required information has been obtained. Also, examiners can review the recorded information to help identify customers who may be structuring transactions to evade BSA reporting and recordkeeping requirements through currency purchases of multiple money transfers or receipt of multiple transfers in a gaming day. In addition, the funds transfer records can be used in conjunction with each day’s player rating records to determine if chips that were redeemed for an outgoing funds transfer, in excess of $5,000, came from transactions involving minimal gaming.

Special Issues
  1. Examiners should review branch office transactions to ensure that the casino has filed all required CTRCs.

  2. The BSA applies only to casino transactions, therefore, examiners should be alert to unusual transfers of currency between the casino cage and the hotel and other outlets of the casino complex. These outlets may routinely use the cage as a "bank" for depositing and withdrawing excess currency. An unusual transfer may indicate an attempt to circumvent the BSA reporting requirements. This is particularly important for cash-out transactions because the other outlets of the casino complex, which are subject to IRC Section 6050I reporting requirements, are only required to report cash-in transactions over $10,000.

  3. The BSA applies to all casino currency transactions, whether or not the transactions are related to the gaming activities being offered by the casino. Therefore, examiners should be alert to currency transactions between the casino and its vendors that may occur at the casino cage. Examples include the following:

    1. Entertainment groups, who are usually paid with a casino check, may immediately cash the check at the casino cage to disburse the currency to the individual members.

    2. Outside businesses, which are not related to the casino, may maintain booths in the casino complex for purposes of advancing currency to individuals by cashing checks, using credit cards, etc. These businesses often use the casino cage as their "bank" for depositing and withdrawing the currency needed to operate the booth.

  4. Surveillance logs are a chronological log of activities that are unusual, suspicious or potentially criminal in nature that occur in a casino or card club. Surveillance logs typically contain the date and time each surveillance commenced; the name and license number of each employee who initiates, performs, or supervises the surveillance; the reason for surveillance including the name, if known, alias, or description of each individual being monitored, and a brief description of the activity in which the individual being monitored is engaging; the times at which each video or audio recording is commenced and terminated; the time at which each activity which is unusual, suspicious or potentially criminal in nature is observed along with a notation of the reading on the control meter, counter, or device in the electronic surveillance system that identifies the point on the recording device (e.g.,, audio or video tape, CD-ROM disc, DVD disc, etc.) at which such activity was recorded; the time surveillance was terminated; and summary of the results of the surveillance.

Computer Auditing Techniques

  1. If casino records are computerized and have been retained by the casino, examiners should use the techniques described in this subsection to identify potential reportable currency transactions. As previously stated, if computerized records are available for some transactions but not for others, a combination of these computer auditing techniques and the manual examination techniques described in IRM 4.26.9.2.6should be utilized.

  2. The CAS should develop application programs to identify reportable currency transactions using the casinos retained machine-readable files and records. The computer auditing techniques and sample computer generated reports included in this section are to be used as a guide and are not intended to limit the CAS’ ability to customize applications to the casino records being examined. However, computer generated reports should provide the basic information described in the following sections.

  3. The CAS should secure machine-readable records of all CTRCs filed by the casino during the examination period from the DCC. The records should be used to produce reports listing all CTRCs filed by the casino in chronological date order and also in alphabetical order by customer name. In addition to the date, customer name, amount, and type of transaction, the report should state whether any of the key items of identifying information was missing from the CTRC. See Exhibit 4.26.9-7. See Exhibit 4.26.9-8.and See Exhibit 4.26.9-12. These reports will be used in conjunction with the other reports generated by the CAS to eliminate correctly filed CTRCs and to identify potential reporting violations.

Review of Currency Transaction Report by Casinos (CTRCs)
  1. Using the machine-readable records of filed CTRCs, provided by the DCC, the CAS should analyze the records to determine both the number and percentage of filed CTRCs, which are missing key items of required information. See Exhibit 4.26.9-9.

  2. The CAS should not include missing SSNs of nonresident aliens or missing account numbers on non-account related transactions in the analysis of incomplete CTRCs.

  3. The CAS should not include customer PO Box addresses listed on CTRCs in the analysis of incomplete CTRCs. Starting with the July 1997 revision of the CTRC form, casinos and card clubs are permitted to use a PO Box as the permanent address if the customer has no other street address.

  4. The CAS should not include CTRCs filed within 30 calendar days from the date of transaction unless the signature date is more than 15 days past the date of transaction. Although the BSA regulations require filing within 15 days of the date of the transaction, the CAS should take into account the time it might take the Post Office to deliver the mail and the fact that DCC batch processes CTRCs on a weekly basis. Therefore, a CAS should be focusing on CTRCs filed with DCC that are over 30 calendar days after the date of transaction. For any CTRCs that were filed more than 30 days after the date of transaction, determine whether any were amending previously filed CTRCs with a higher amount of transaction occurring in the same directional flow (i.e., both CTRCs are for cash-ins or both are for cash-outs), with a data element (e.g., a SSN) that was previously missing, etc. If a casino was amending previously filed CTRCs, the CAS also should not include these CTRCs as untimely filed.

Review of Suspicious Activity Report by Casinos
  1. The Examiner should inspect the casino’s retained copies of SARCs to determine the level of accuracy and completeness of the reports. Determine if all the required fields are filled out as fully as possible and accurately, including the correct spelling of proper names, the specific type(s) of suspicious activity, and the completion of the "narrative" portion of the form. Identify narratives that do not explain why the activity is suspicious or identify all the activity that occurred.

  2. The examiner should compare the casino’s retained copies of SARCs to the CBRS records to ensure they have been filed.

  3. When the casino has filed SARCs that are missing any of the critical elements required, the examiner should review or test check the casino’s supporting documentation or records to determine if the casino had information that would have allowed it to provide more complete SARCs.

  4. The examiner should review prepared but not filed SARCs if the casino has a policy for additional analysis and review prior to filing. The examiner should review documentation that supports the conclusion that the transactions were not suspicious but were legitimate.

Receipt of Currency by the Casino (Cash-in)
  1. Using the casino’s machine-readable records of customer account transactions, the CAS should produce a report that will list, in chronological order and in summary form, all of the potential reportable currency transactions related to currency received by the casino from each of its customers during the review period. The report should identify the aggregated total of all currency received from the customer without regard to where in the casino the transaction occurred or the type of transaction that was conducted.

  2. For each potential reportable transaction listed, the report should identify the gaming date of the transaction, the name and account number of the customer, and the total amount of currency received by the casino. The report should also identify the types of transactions being conducted and provide information as to the number of single transactions included within each category. See Exhibit 4.26.9-9.and See Exhibit 4.26.9-12.

  3. When aggregating cash-in transactions, the CAS should include as many of the types of cash-in transactions described in IRM 4.26.9.2.6.2 as are processed through the computer, and for which there are common customer identifying fields. Generally, player rating records and transactions related to deposit and credit accounts are recorded using the same account number. This report can be produced by sorting these transactions by account number within a gaming day, aggregating the total currency received as recorded in the account, and then printing out the accounts with aggregated total cash-in greater than $10,000.

  4. Before aggregating cash-in slot machine transactions, the CAS should determine if the casino’s slot data system separates the dollar amount of paper money received from the dollar value of winning slot paper tickets (which both can be put through a slot machine bill validator), as well as separates the paper money from slot tokens and coins dropped into such machines. Since slot data systems track customer gambling activities at the slot machines through the use of magnetic "slot club membership cards" which are inserted into a receptacle in such machines, the system’s software may aggregate the paper money by customer account number. If the system is able to provide such information, the paper money becomes an identifiable customer cash-in transaction. In this situation, the CAS should include the slot data system’s tally of paper money by customer number with other types of cash-in transactions described in IRM 4.26.9.2.6.2.

  5. Examiners should compare this report to the report of CTRCs actually filed to identify potential failures to file as well as failures to report the correct amount of currency on filed CTRCs.

Payment of Currency by the Casino (Cash-out)
  1. Using the casino’s machine-readable records of customer account transactions, the CAS should produce a report that will list, in chronological order and in summary form, all of the potential reportable currency transactions related to currency payments by the casino to each of its customers during the review period. The report should identify the aggregated total of all currency payments to the customer without regard to where in the casino the transaction occurred or the type of transaction that was conducted.

  2. For each potential reportable transaction listed, the report should identify the gaming date of the transaction, the name and account number of the customer, and the total amount of currency paid by the casino. The report should also identify the types of transactions being conducted and provide information as to the number of single transactions included within each category. See Exhibit 4.26.9-10 and See Exhibit 4.26.9-12.

  3. When aggregating cash-out transactions, the CAS should include as many of the types of cash-out transactions described in IRM 4.26.9.2.6.3 as are processed through the computer, and for which there are common customer identifying fields. This report can be produced by sorting deposit and credit account withdrawals by account number within a gaming day, aggregating the total currency payments recorded in the account, and then printing out the accounts with aggregated total cash-out greater than $10,000.

  4. Examiners should compare this report to the report of CTRCs actually filed to identify potential failures to file as well as failures to report the correct amount of currency on filed CTRCs.

Detail Listings of Transactions
  1. For all potential reporting violations identified, the CAS should prepare a report listing every transaction conducted by the customer during that gaming day. The report, which will be used to document the violations and to provide necessary audit trail information back to the casino’s original source documentation, should only be prepared for those transactions where potential violations exist. The report should list, in chronological order and in detail form, all of the customer’s individual account transactions, whether or not conducted in currency.

  2. The report should be prepared for all potential reporting violations including failures to file CTRCs, filing of CTRCs with incorrect amounts and filings of incomplete CTRCs on single transactions. Separate reports may be prepared for cash-in, cash-out and incorrect CTRC violations, or a single report may be prepared that includes all types of reporting violations.

  3. In addition to listing every account related transaction conducted by the customer that day, the report should include:

    1. The customer’s name;

    2. The customer's complete address;

    3. The customer's SSN;

    4. The customer's account number; and,

    5. Information relating to documents used to verify the customer’s identity (e.g., drivers license number, passport number, etc.) to the degree that such identifying information is recorded in the system.

  4. For each account related transaction listed, the report should include all information needed to document the nature of the transaction, establish knowledge on the part of an employee, and locate the original source documentation. Such information will generally include:

    1. The time and location of the transaction;

    2. Document numbers;

    3. The identities of the casino employees who conducted and approved the transaction;

    4. The type and amount of the transaction; and,

    5. The medium used to conduct the transaction (e.g.,. cash, chips, check, etc.). See Exhibit 4.26.9-11.and See Exhibit 4.26.9-12.

Review of Recordkeeping
  1. The CAS should analyze the casino’s deposit and credit master files and produce a report listing all customer accounts for which the casino does not have on record the customer's name, permanent address, and SSN.

  2. When identifying the number of deposit and credit accounts that are missing both an SSN and a permanent address, the CAS should only include accounts that were opened, or in which there was activity, during the compliance examination period.

  3. Based on a test conducted on the $3,000 monetary instrument log, examiners should produce a report listing any entries for which the casino did not obtain all the required information.

  4. Based on a test conducted on the $3,000 record for funds transfers received or sent by, through, or to a casino on behalf of a customer, examiners should produce a report listing any record for which the casino did not obtain all the required information.

Additional Analysis
  1. Depending upon the results of the cash-in and cash-out analysis, examiners may wish to expand the scope of the examination to include additional testing of transactions, particularly when the casino’s compliance program is totally dependent on data entered into the computer.

  2. Examiners may want to include testing of transactions that have been recorded in the computer as having occurred in a form other than currency. If CTRCs are prepared from computer records of transactions, casino employees may attempt to conceal currency transactions by recording them in the system as non-currency transactions. The purpose of these analyses would be to ensure that transactions have not been incorrectly entered into the computer, whether by intent or accident, thereby circumventing the casino’s compliance programs. Such analyses may include the following:

    1. Cash Equivalents Analysis - Using the casino’s machine-readable records of customer account transactions, the CAS can produce a report, similar to the cash-in report, that will list all of the potential reportable currency transactions that would result from a combining of currency with cash equivalents. By matching the transactions to the monetary instrument log required by 31 CFR 103.36(b)(9)(i), or the actual equivalents themselves, misrecorded currency transactions can be identified.

    2. Cage Withdrawals Analysis - Using the casino’s machine-readable records of customer account transactions, the CAS can produce a report, similar to the cash-out report, that will list all of the potential reportable currency transactions that would result from a combining of currency with cage checks. By matching the transactions to the cage check register, or the actual checks themselves, misrecorded currency transactions can be identified.

Evidence

  1. Examiners should obtain supporting documentation for each potential reporting, recordkeeping, and compliance program violation identified.

  2. In the case of failures to file required CTRCs, the supporting documentation may consist of copies of casino documents, prepared at the time of the transaction, that identify the type and amount of the transaction, the character of the transaction and the identity of the persons conducting the transaction. Such documents may include, but are not limited to, player rating cards, deposit and withdrawal slips, payment and redemption vouchers, customer action cards (a.k.a. buckets), computer generated reports and printouts of the preceding documents, Multiple Transaction Logs (MTLs), Form W-2Gs, computerized W-2G records, etc. The documentation must support each finding that a reportable currency transaction has occurred, but was not filed with the IRS.

  3. In the case of incomplete CTRCs, supporting documentation should consist of a duplicate of the casino’s retained copy of the CTRC.

  4. In addition, examiners should obtain supporting documentation establishing that the casino had knowledge that the transaction occurred in an amount greater than $10,000 and in the form of currency.

    1. Single transactions - In the case of a single transaction, there is prima facie evidence of the casino’s knowledge because one employee conducted the transaction with the customer.

    2. Multiple transactions - In the case of multiple transactions, knowledge must be established through casino reports and procedures.

  5. If a report is prepared, manually or by computer, that aggregates and summarizes multiple currency transactions at the end of the gaming day, the casino has knowledge of any reportable transactions identified in the report, even if the report is not specifically used for BSA reporting purposes.

  6. If the casino has procedures in place to aggregate multiple currency transactions, the casino has knowledge of any reportable transactions that are identifiable through those procedures, whether or not the procedures are actually followed.

  7. If it cannot be shown that the casino's employees had knowledge of any potential reporting or recordkeeping violations, the potential violations should be documented to support identified deficiencies in the casino’s compliance program.

  8. In the case of failures to file required Suspicious Activity Report by Casinos and Card Clubs (SARCs), the supporting documentation may consist of copies of casino documents, prepared at the time of the transaction, that identify the type and amount of the transaction, the character of the transaction and the identity of the person(s) conducting the transaction. Such documents may include, but are not limited to, credit slips/redemption vouchers, deposit/withdrawal slips, player rating records, computer generated reports and printouts of the preceding documents, canceled checks, credit bureau reports, identification credentials, multiple transaction logs, $3,000 monetary instrument list, money transfer records, slot club records, spreadsheets, photographs, surveillance audio and/or video recording media, surveillance logs, Forms W-2G, computerized W-2Gs, etc. The documentation must support each finding that a reportable suspicious transaction has occurred, but was not filed with the IRS.

  9. In addition, for failures to file SARCs, examiners should obtain supporting documentation establishing that the casino knew, suspected, or had reason to suspect that the transaction:

    1. Involved funds derived from illegal activity, or was intended or conducted in order to hide or disguise funds or assets derived from illegal activity;

    2. Designed to evade BSA requirements, whether through structuring or other means;

    3. Appeared to serve no business or apparent lawful purpose, and the reporting business knew of no reasonable explanation for the transaction after examining all available facts; or,

    4. Involved use of the reporting business to facilitate criminal activity, and met reporting threshold of $5,000 or more (in the single event or when aggregated).

  10. In the case of incomplete SARCs, supporting documentation should consist of a duplicate of the casino’s retained copy of the SARC showing the failure to include all available and relevant information about the transaction found in the casino's records described in subparagraph (8) above.

  11. In the case of incomplete records, supporting documentation should consist of a duplicate of the casino’s retained copy of the records (e.g., credit slips/redemption vouchers, deposit/withdrawal slips, and $3,000 monetary instrument list).

  12. In the case of the failure to establish or implement a compliance program, the examination workpapers should contain the examiner's findings with respect to whether the casino failed to develop and/or maintain programs to detect and report large currency transactions or suspicious activities or keep required records. Also, the workpapers should contain the examiner's findings with respect to any systemic breakdown of internal controls to assure compliance that was observed. In addition, the workpapers should contain the examiner's findings with respect to whether the appropriate casino officials were aware of compliance problems or deficiencies, but did not take corrective action.

  13. Examiners should also obtain supporting documentation that may show the casino employee’s knowledge of the BSA reporting and recordkeeping requirements and the duty to file. Such documentation may include, but is not limited to, internal memoranda, minutes of meetings, training materials, notification letter from the IRS, prior compliance reviews, etc.

  14. 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.

Casino’s Position

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

    1. Gaming date of the transaction(s);

    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 casino 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 casino in response, should be reviewed and a determination made as to whether any items should be removed from the list of violations.

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

Money Laundering Trends

  1. Examiners should be alert to situations where casinos or their customers may structure transactions in amounts of $10,000 or less to circumvent the reporting requirements of the BSA, particularly if the casino does not have a system of aggregation in place.

  2. Examples of how casino employees may structure transactions or advise customers how to avoid a CTRC filing include the following:

    1. Employees may fragment larger currency transactions into amounts of $10,000 or less, when preparing source documentation.

    2. Employees may advise customers to limit their cash activity to amounts of $10,000 or less per transaction.

    3. Employees at the gaming tables may advise customers, who are buying chips with cash, that they are approaching the reporting threshold thereby suggesting or implying that they should move to another table. This action could be viewed as potentially assisting in structuring transactions.

  3. Examples of how customers may structure transactions, with or without the knowledge of the casino, to avoid a CTRC filing include the following:

    1. A customer may move from table to table limiting their cash buy-ins to amounts of less than $10,000 per table.

    2. A customer may conduct currency transactions at the casino cage in increments of $10,000 or less. They may conduct the transactions at different windows or at different times of the day using different cashiers.

    3. A customer may maintain more than one account with the casino, sometimes using an alias, and limit their currency transactions to $10,000 or less per account.

    4. A customer may fragment his or her transactions into amounts of $10,000 or less when redeeming or exchanging chips for cash at the casino cage and may use others as agents to conduct the transactions.

    5. A customer may find out what time of day the casino’s business or gaming day is concluded and structure currency transactions around the cut-off time to avoid the filing of a CTRC.

    6. A customer could purchase a large amount of chips with currency (in amounts just below the reporting threshold) at a table, engage in minimal gaming and then go to the cage and redeem the chips for a casino check.

    7. A customer could make a large deposit using numerous small denomination bills, engage in minimal gaming and then withdraw the funds in large denomination bills, a casino check or a wire transfer.

    8. A customer could insert currency into a slot machine bill validator, accumulate credits with minimal or no gaming activity and then cash out the credits for large denomination bills or a casino check.

    9. A customer may furnish an identification document that is false or altered (e.g., address changed, photograph substituted, etc.) in connection with the completion of a CTRC, or the opening of a deposit, credit or check cashing account.

    10. A customer may draw large casino markers to purchase chips, engage in minimal or no gaming activity, and then pay off the markers in currency and subsequently redeem the chips for a casino check.

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

Examination Techniques
  1. In addition to the examination techniques outlined in this section, the following techniques can be useful in uncovering money laundering schemes:

    1. When reviewing customer currency transactions, if an examiner identifies transactions at or near the reporting threshold, the examiner should review all other activity by that customer for that day (and prior and subsequent days) to determine if the customer was attempting to structure transactions and whether a CTRC was required.

  2. Examiners should be alert to customers who may be using the casino to facilitate structuring at other financial institutions. Examples include:

    1. Depositing multiple bank checks of $10,000 drawn on various banks or on consecutive days at the same bank.

    2. Depositing or paying off markers with multiple instruments (e.g., cashier's checks, money orders, traveler’s checks, or foreign drafts) that appear to have been purchased in a structured manner or were issued by several different financial institutions, and none of the instruments is greater than $3,000.

    3. Issuing casino checks, each less than $3,000, made out to third parties or checks without a specified payee.

    4. Withdrawing a large amount of funds from a deposit account and requesting that multiple casino checks be issued each of which is less than $3,000.

    5. Redeeming chips or withdrawing large amounts from a deposit account and requesting multiple casino checks of $10,000 or less.

  3. When reviewing computerized player-rating records, the examiner should be alert for patterns in which a customer purchases large amounts of chips with currency, engages in minimal gaming and then leaves the table.

Check Casher Overview

  1. A check casher is any individual or financial institution that provides a check cashing service regardless of whether or not check cashing is the primary business.

  2. Check cashers are used by individuals who may not have a bank account or want to cash checks without the delays and restrictions imposed by a conventional bank. Check cashers can cash checks immediately without waiting for funds to be collected as banks often require. The degree of risk involved is significant, and the check casher must take measures to reduce the risk in cashing checks.

  3. In addition to cashing checks, check cashers may provide additional services such as:

    1. Issuing or selling money orders, (refer to IRM 4.26.9.6 )

    2. Processing motor vehicle and title registration forms,

    3. Accepting utility bill payments,

    4. Selling public transportation tokens,

    5. Transmitting funds, (Refer to IRM 4.26.9.7)

    6. Providing cash advances on VISA or Master Charge,

    7. Offering "Payday loans,"

    8. Selling lottery tickets,

    9. Faxing services, and

    10. Exchanging currency.

  4. Businesses which may conduct check cashing services as a secondary part of their business operations include (list is not all inclusive):

    1. Truck stops

    2. Bars, taverns, or liquor stores

    3. Wire services

    4. Supermarkets and convenience stores.

  5. The location of the check casher may be a key element in identifying the type of transactions conducted. Some examples are:

    1. Check cashers located in economically depressed areas usually cash checks for state aid, Social Security, unemployment, disability and life insurance, federal and state tax refunds, and support payments for dependent children. Money orders sold, if applicable, are for basic living expenses, such as rent, car loans, insurance, etc.

    2. Check cashers located in business and financial districts usually cash checks for payroll, professional fees, businesses, escrow checks, legal fees, insurance settlements, wire transfer drafts, travelers checks, and other money orders or cashier checks. Money orders sold, if applicable, in business and financial districts are frequently in larger denominations. They also sell money orders to "cash" businesses, which do not maintain a security service for transportation of currency. These businesses will purchase a money order to take to their bank instead of cash. Check cashers refer to this type of money order as a "safety check" .

    3. Check cashers, located in middle class areas, tend to be fewer and to have larger but fewer transactions. The money orders sold, if applicable, are more frequently sold in "blank" , meaning the remitter is not identified. Many large transactions are conducted with well-known patrons.

  6. Check cashers 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.

Organization

  1. Check cashing businesses can range from large sophisticated chains with interstate franchised facilities to small one owner store front operations.

  2. The organization of a check casher can vary. There is no uniform management structure. However, check cashing chains and franchises are usually structured into several organizational levels to minimize the risks. Each level is authorized to approve certain size transactions. The number of levels may vary depending on the size of the check cashed and the number of branches. A typical structure has a minimum of three levels for approving large currency transactions. See Exhibit 4.26.9-13.

    1. Director/Manager — Oversees the daily operation of the check casher. Normally the manager approves the largest currency transactions and is responsible for maintaining the internal control and records of the operations.

    2. Head Cashier/Teller Supervisor — Reviews all teller reconciliations. Usually the supervisor will approve medium size transactions (between $3,000 and $5,000) and often receives shipments of currency to and from the correspondent bank.

    3. Teller — Responsible for conducting all transactions including reconciling the total currency transactions to the teller’s beginning and ending cash balances. The teller usually will have the lowest authorization for conducting currency transactions. The teller is the front line employee of the check cashing institution who must secure identification from individuals conducting currency transactions.

    4. AML/BSA Compliance Officer — Responsible for implementing and monitoring the operation and internal controls of the program. In a small business with only a few employees, this person may execute all the tasks himself. In a large, multi-state business, this person may have responsibility for overseeing the system and program.

  3. Many check cashers belong to the Financial Service Centers of America (FiSCA, formerly NaCCA - web site address: www.fisca.org), and/or to state or local associations. FiSCA members receive a BSA compliance manual as part of their membership.

Law

  1. A person engaged in the business of a check casher (other than a person who does not cash checks 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 engaged in one type of Money Services Business (MSB) for BSA purposes. 31 CFR 103.11(uu)(2). To the extent that a check casher also redeems either money orders or traveler’s checks for currency or other monetary or negotiable instruments, the check casher may also be engaged in another type of MSB: that of a redeemer of money orders or traveler’s checks. (Refer to IRM 4.26.9.6, Money Order Overview and IRM 4.26.9.8, Traveler’s Checks Overview.) Redemptions of money orders or traveler's checks are not check cashing transactions.

Reporting Requirements
  1. A CTR, FinCEN Form 104, must be filed for all single currency transactions of more than $10,000 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 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.

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

  4. Although Check Cashers are not required to file TDF 90-22.56, Suspicious Activity Report by Money Services Business (SAR-MSB), they may elect to voluntarily file SAR-MSBs if they suspect or have reason to suspect suspicious activities have occurred (31 CFR 103.20).

  5. Check Cashers are subject to the suspicious activity rules to the extent they redeem either money orders or traveler’s checks for currency or other monetary or negotiable instruments and hence qualify as redeemers of money orders or traveler’s checks, or to the extent that check cashers also offer money transmission, money orders, or traveler’s check products, which are subject to SAR reporting.

  6. MSBs generally are required to file SAR-MSBs to report suspicious transactions of at least $2,000 in funds or other assets conducted or attempted by, at or through an MSB (31 CFR 103.20(a)(2)).

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

  8. The financial institution may be required to file additional reports, such as FinCEN Form 105 (CMIR) or Treasury Department Form TD F 90-22.1 (FBAR.) Refer to IRM 4.26.5 for BSA reporting requirements.

Registration Requirements
  1. A check casher is required to register on 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)).

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. All records created from the AML Program Requirements must be retained for five years.

  5. Check cashers are not required to maintain any additional records under BSA regulations. They may be required to maintain additional records if providing other money services, in addition to check cashing, regulated by the BSA.

  6. Copy of registration, if applicable, must be retained for five years.

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

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).

Records Commonly Found

  1. A check casher’s records, when the check casher is a chain or franchise include:

    1. Daily Cash Reconciliation: a record summarizing the total currency transactions during the day which reconciles to the beginning and ending cash on hand;

    2. Teller Reconciliation: a record detailing individual teller transactions, for both currency and monetary transactions. It reconciles beginning and ending cash on hand and is used to prepare the daily cash reconciliation;

    3. Daily Bank Reconciliation: reconciles the daily cash transactions to various bank account balances;

    4. Income Statement: a record of fees received from money order sales, wire transfers, and checks cashed;

    5. Canceled money orders or cashiers check;

    6. Bank Statements;

    7. Signature Cards;

    8. Transaction Account detailing an individual’s record of checks cashed; and,

    9. Microfilm or photocopies of checks cashed.

  2. Records may be stored on microfilm and other medium.

    1. The check casher may retain microfilm, a copy, or a reproduction in lieu of the original document. The microfilm of checks cashed is often maintained instead of a check register.

    2. Offsite microfilm records are often maintained by an outside contractor. The examiner should ask the check casher to provide a written release to access the records.

  3. If the records are maintained off site, the check casher must make the records accessible within a reasonable period of time, taking into consideration the nature of the records, and the amount of time expired since each record was made.

  4. Use of a CAS should be considered if records are voluminous.

  5. An example of a BSA compliance audit trail is shown in Exhibit 4.26.9-14.

Interview

  1. The BSA examination should include several interviews. Each interview should be documented in the case file. Owners/operators, shareholders, directors, managers, tellers, and employees responsible for preparing currency reports, and securing and maintaining records pertaining to the reporting requirements under the BSA should be questioned as to their knowledge and training of the BSA recordkeeping and reporting requirements. Knowledge is one of the elements needed to prove intent for any apparent violation of the regulations.

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

    1. The types of records maintained by the tellers

    2. The tellers' knowledge of currency transaction reporting requirements

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

    4. The procedures and records maintained for large money orders or cashiers checks sold

    5. Their procedures for preparing CTRs.

  3. Responsible officers and supervisory personnel, who approve large currency transactions and/or are responsible for filing CTRs, should be interviewed. Examples may include the head cashier, the manager, the compliance officer, or the owner/operator.

  4. The examiner should document the responsibilities and duties of the officers, and secure the officers’ identifying information including SSN.

  5. During the interview of selected employees, the examiner should determine if the check casher maintains an internal compliance program and whether the program is written. If it is written, a copy of the procedures should be secured. The individual responsible for the internal compliance program must be interviewed.

  6. The interview should document sufficient information to describe the operations of the check casher including:

    1. Internal Control

    2. Internal Audits

    3. Chart of Accounts

    4. Currency Controls

    5. On-Site Records

    6. Offsite Records on medium other than hard copy

    7. Training

  7. The interview should identify any related institutions, branches, entities, or lists of other related check cashing facilities. The BSA examiner should submit the information to the BSA Workload Selection coordinator to be added to the Title 31 database.

  8. 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.

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

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

  11. For an example of initial interview questions, refer to Exhibit 4.26.9-14. This is only a guide that should be expanded or contracted as each BSA examination warrants.

Review of the Records

  1. Any records the check casher maintains for his own business that are relevant to the BSA examination can be requested and reviewed. The BSA examiner will determine whether the check casher maintains adequate records to ascertain if multiple transactions or structuring are taking place. Major recordkeeping inadequacies must be documented in a Letter 1112 or Form 5104.

  2. BSA examiners should review the records to familiarize themselves with the check casher’s business transactions. The examiner will determine the scope of the records review based on the initial interview. When determining the scope of the examination, the examiner should consider that check cashers who are part of a chain or franchise have internal controls for the handling, recording, and summarizing of cash transactions.

  3. The examiner should consider the following steps when reviewing the check casher’s records:

    1. Become familiar with the components of the summary records including both the daily cash reconciliation and teller reconciliations,

    2. Trace the teller reconciliation totals to the teller summary,

    3. Trace the teller summary totals to the daily cash reconciliation,

    4. Trace the daily cash reconciliation totals to the vault reconciliation, bank reconciliation, and bank statements,

    5. Trace deposit slips to the teller summary totals and the correspondent bank records. Determine if the total amount of checks deposited agree with amount of checks cashed. The check casher’s transactions for " cash in" and "cash out" are frequently netted against each other before being deposited into the correspondent bank. Therefore, the items of deposit often reflect the netted transactions for the day. Monetary instruments are deposited, and currency is returned to the check casher’s vault.

    6. The above records should allow the examiner to determine specific dates when money orders were sold (if applicable) or checks were cashed that require a CTR.

    7. Verify that summary documents accurately record information from source documents for the selected period.

    8. Inspect filed copies of CTRs for accuracy and completeness of information and verify they were timely filed. A copy of each CTR filed must be retained by the financial institution for a period of five years from the date of the report (31 CFR 103.27(a)(3)).

    9. Determine if all the required information for purchases of money orders involving currency in amounts of $3,000 to $10,000, inclusive, is maintained, if applicable.

    10. Test check signature cards.

  4. Analyze the bank reconciliations, the cash on hand records, and the teller reconciliations to identify large transactions. The examiner should look for decreases in the amount of ending cash on hand or amounts withdrawn from the correspondent bank. Large decreases or withdrawals of cash could indicate large checks were cashed. The examiner should note the dates when amounts could exceed $10,000 or transactions appear to be structured to avoid the $10,000 threshold.

  5. Review the check register or the microfilm or photocopies of cashed checks for transactions over $10,000 that may indicate money laundering and/or structuring. The examiner may elect to select a dollar cutoff for inspecting cashed checks. Because of the dollar amounts involved, the majority of checks cashed by a typical check casher may not be relevant to the BSA examination. These generally include social security checks, welfare checks, payroll checks, etc.

  6. If a database is used to input the data from selected cashed checks for sorting purposes.

  7. If a determination is made that records are inadequate, destroyed, or not maintained, the examiner should:

    1. Expand the scope of the BSA examination;

    2. Document all problem areas and findings in the workpapers; and,

    3. Consider issuing a summons to a third party recordkeeper for missing or incomplete information. If the third party recordkeeper is a bank, sample periods should be selected carefully based on existing records. (Refer to IRM 4.26.8 for summons procedures.)

  8. If the examiner determines a CTR should have been filed or the required recordkeeping or reporting requirements are not met, the transaction should be traced to the internal compliance program. The examiner should:

    1. Determine the reason the internal procedures failed, and

    2. Verify that adequate identification was required by the check casher by inspecting the appropriate signature card or similar record.

  9. Review any SARs filed by the NBFI.

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

  11. Prepare a Letter 1112 or a Form 5104 referral for all failures to file FinCEN Form 104, CTR, and any recordkeeping violations. Prepare in accordance with the examination guidelines . (Refer to IRM 4.26.8 for Letter 1112 and referral procedures.)

  12. Only the apparent violations, which have actually been detected during the time period of the BSA examination, are considered for inclusion on a Letter 1112 or Form 5104 referral. At no time, should the examiner include any apparent violations that have possibly occurred in time periods outside the scope of the current BSA examination without expanding the scope.

  13. Follow procedures in IRM 4.26.6 to conclude the BSA examination.

  14. 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.)

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

  16. Determine whether the check casher is required to register.

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

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

  19. Review agent contracts for terms for acceptance and termination of an agent.

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

Evidence

  1. The examiner must obtain 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 inadequate, including management’s response to the violations.

  2. The financial institution's knowledge of the BSA requirements must be determined before deciding whether violations should be formally referred to Treasury.

    1. The key officers and employees should be interviewed again to document the check casher’s 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 check casher 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.

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

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

    2. Training programs offered by the money services business

    3. The MSBs formal BSA compliance procedures

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

  4. In situations where knowledge can not 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 for January, February, and March. The inspection of these records disclosed currency transactions that appear to be structured and which should have been reported. The check casher denied knowledge of the structuring regulations during the initial interview. In April, the examiner informed the check casher 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 check casher’s knowledge was documented during the notification of the structuring violations and took no action to prevent the recurrence of violations. The check casher’s intent not to 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.

Check Casher’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. Check number (if any);

    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 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.

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 on reportable transactions

    5. Filing incomplete CTRs or SARs

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

    7. Issuing money orders, drafts or IOU’s to keep transactions under the $10,000 reporting requirement

    8. Receiving currency from an outside source in exchange for checks received from the check casher’s customers.

  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 numerous transactions at the same location at different times during one day

    5. Requesting money orders, drafts or IOU’s when cashing checks to circumvent a reporting requirement

    6. Check cashing conducted by the same customer in which the payee name varies

  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.)

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

    1. Review all bank statements to ensure the check casher is withdrawing sufficient currency to meet the requirements of any checks cashed. If not sufficient, then sources of cash should be investigated in greater depth.

    2. Review records for any indications of false recordkeeping entries, i.e. IOU’s, backdating or post dating transactions, or multiple transactions during one day in which the books and records indicate different posting days.

    3. Determine if the business has paid out funds for cashed checks in excess of what it has withdrawn from its bank. This might indicate that the business is laundering funds for someone else by exchanging their cash for checks. Compare the cash withdrawn for a period to the amount of checks deposited. The amounts should be close in value unless the business has significant sales of other products or services. Also, compare fees actually earned from cashing checks for a period to the fees that should have been earned from the amount of checks deposited.

    4. Review all financial services offered to see if the financial institution and/or customers are structuring transactions by using a variety of financial services.

Credit Unions Overview

  1. Credit unions are financial cooperatives which are owned by their respective members. The members must share a common characteristic such as belonging to the same organization, work for a common employer, or live within a specific geographic area.

  2. The primary function of a credit union is to provide savings accounts and make low interest loans to its members. Larger credit unions provide other financial services for their members including:

    1. Share draft/demand deposit accounts

    2. Share certificate/money market accounts

    3. Check cashing services

    4. Sales of traveler’s checks

    5. Sales of money orders

    6. Sales of cashier’s checks or credit union drafts

    7. Wire transfer services

    8. Credit card services

  3. The members’ transactions with the credit union include share deposits, share drafts and share loans.

  4. Most credit unions are not members of the Federal Reserve System. Therefore, they require commercial bank accounts to conduct transactions within the Federal Reserve System such as clearing share drafts written on member accounts and currency withdrawals and deposits.

  5. Credit unions operate under a charter issued by either the Federal Government or the State where they are located. The National Credit Union Shares Insurance Fund (NCUSIF), which is administered by the National Credit Union Administration (NCUA), provides federal share insurance for all of the nations federally chartered and most state chartered credit unions. Federal insurance can be obtained by those institutions that are state chartered. Several states require state chartered credit unions to maintain federal share insurance.

  6. The NCUA, an independent federal agency, is responsible for the examination and supervision of federally chartered credit unions.

  7. There are three types of credit unions:

    1. Federally Chartered, Federally Insured - The NCUA is the primary regulator for these financial institutions and examines these annually for safety and soundness.

    2. State Chartered, Federally Insured - The NCUA has jurisdiction over these financial institutions, but a state regulator agency is typically the primary regulator.

    3. State Chartered, Non-Federally Insured - The NCUA has no jurisdiction over these financial institutions and state agencies are the primary regulators.

  8. There are gaps in the responsibility for examining credit unions for BSA compliance. The NCUA has no authority over state chartered, non-federally insured credit unions and only partial responsibility for state chartered, federally insured credit unions. IRS examination has the responsibility for conducting BSA examinations of state chartered, non-federally insured credit unions.

  9. The Federal Credit Union Act, promulgated by Congress on June 26, 1934, requires the NCUA to adopt regulations requiring federally insured credit unions to establish and maintain procedures designed to assure and monitor compliance with the requirements of Subchapter II of Chapter 53 of Title 31, United States Code (the BSA reporting and recordkeeping requirements).

  10. Every state except Delaware, South Dakota, Wyoming, and the District of Columbia has enabling legislation, which allow states to charter credit unions.

  11. The NCUA examines federally chartered and federally insured credit unions for compliance with the BSA reporting and recordkeeping requirements.

  12. The Credit Union National Association (CUNA) is a national trade association for credit unions and provides various services to member institutions.

Organization

  1. The operating parameters and limitations of a credit union are defined by its charter and bylaws. Strategic planning and direction of operations is performed by a Board of Directors and various committees. The Board and committee members are directly elected by the shareholders/members of the credit union.

  2. A supervisory committee oversees operations. The committee usually reviews books and records at least every 6 months and makes a complete verification of records at least every two years. The committee’s task may include testing of internal control procedures for BSA compliance.

  3. Since the members directly elect the Board and oversight committees, failures associated with privately owned institutions may not occur. However, the examiner should be alert to failures on the part of the officers and employees.

  4. Operations Personnel:

    1. BSA Compliance Officer - Is designated by the Board to implement BSA control procedures. The compliance officer performs oversight review of the books and records to insure compliance with the BSA. BSA training for personnel, if any, is normally conducted by this function.

    2. Manager/Branch Manager - Oversees the day to day operations of the credit union and is responsible for BSA compliance.

    3. Cash Control/Head Teller - Monitors currency in and out of the cash control system and currency transfers between tellers. This individual monitors all currency received and currency shipped by the credit union. This teller’s approval is usually required on all large dollar transactions conducted with members. Credit unions may require that all large dollar transactions be conducted by this teller.

    4. Teller - Conducts transactions with and provides services to members. Tellers are usually responsible for initiating the BSA reporting and recordkeeping requirements such as verifying the customer’s identification and soliciting required information.

Law

  1. Credit unions are defined as banks or depository institutions per 31 CFR 103.11(c)(6).

  2. Credit unions are allowed to exempt, from the CTR reporting requirements, certain transactions between themselves and customers which meet the qualifications of an exempt person as defined in 31 CFR 103.22(d) effective October 21, 1998.

  3. Federally insured credit unions (federally chartered and state chartered) are required to implement and maintain an anti-money laundering program (31 CFR 103.120 and 12 CFR 748.2).

  4. Although 31 CFR 103.121(b)(1) requires credit unions, including non-federally insured credit unions, to implement written Customer Identification Programs, non-federally insured credit unions have been temporarily exempted from the requirement to establish anti-money laundering programs (31 CFR 103.170(b)(2)).

  5. All credit unions (federally chartered or state charted and federally insured or privately insured) are required to implement a written Customer Identification Program (31 CFR 103.121).

Reporting Requirements
  1. A CTR (FinCEN Form 104) must be filed for all currency transactions of more than $10,000 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 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. Deposits made at night or over a weekend or holiday shall be treated as if received on the next business day following the deposit (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. 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).

  5. A CMIR 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)).

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

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

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

  9. Treasury Department Form TD F 90-22.47 (SAR) is required to be made by banks or other depository institutions if they suspect or have reason to suspect suspicious activities have occurred (31 CFR 103.18).

  10. This report applies to suspicious transactions of at least $5,000 in funds or other assets conducted or attempted by, at or through banks or other depository institutions (31 CFR 103.18(a)(2)).

  11. Generally, a bank is required to file the SAR with FinCEN, through DCC, no later than 30 calendar days after the date of detection, or 60 calendar days after the date of detection but, if no suspect was identified on the date of detection, the bank may delay filing the SAR for an additional 30 calendar days to identify the suspect. (31 CFR 103.18(b)(3)).

  12. A bank or other financial institution is prohibited from notifying any person involved in the transaction that the transaction has been reported. (31 CFR 103.18(e))

  13. FinCEN Form 110(Formerly TD F 90-22-53), Designation of Exempt Person, must be filed on each person being designated as exempt by the close of the 30-day period beginning after the day of the first reportable transaction in currency with that person sought to be exempted (31 CFR 103.22(d)(3)).

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 SARs and the original or record of any supporting documentation shall be maintained by the financial institution for five years from the date of filing the SAR (31 CFR 103.18(d)).

  4. For additional records to be made and retained by credit unions, refer to 31 CFR 103.34.

  5. For records required to be maintained for exempt customers, including FinCEN Form 110(Formerly TD F90-22.53), refer to 31 CFR 103.22(d).

  6. For records required to be maintained for the issuance or sale of credit union checks, cashier’s checks, money orders or traveler’s checks which involve currency in amounts of $3,000 to $10,000, inclusive, refer to 31 CFR 103.29.

  7. For records required to be maintained for funds transfers (wires) of $3,000 or more, refer to 31 CFR 103.33.

  8. For records required to be maintained by persons having a financial interest in or signature or other authority in foreign financial accounts, refer to 31 CFR 103.32.

  9. Records must be retained by the financial institution for five years (31 CFR 103.38(d)).

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)).

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.

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.

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.

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.

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.)

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)).

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.

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.

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.

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.)

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.

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)

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))

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)).

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)).

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)).

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).

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.

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.

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.

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.

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.

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.)

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.

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.)

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.

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.

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)).

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)

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)).

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)).

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)

    .

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.

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.

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.

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.

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.

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.)

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.

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.)

Law

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

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)).

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)).

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)).

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).

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.

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.

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.

Review of the Records

  1. Any records the financial institution maintains for the business 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. Ask to see the money transmission company’s policy and procedures manual regarding the BSA registration, recordkeeping, reporting, and AML compliance program requirements. The examiner should review the information for completeness and determine if AML compliance program procedures are adequate. Determine how risk of money laundering was assessed and how this risk assessment figured into the establishment of the compliance program.

  3. Inspect a sample of copies of CTRs and SAR-MSBs filed by the money services business to ensure they are accurate and complete. Ensure filed CTRs and SAR-MSBs have been retained by the financial institution for the required five-year period. Use the CBRS database to verify that the CTRs and SAR-MSBs were timely filed and contain the same information as the copies maintained by the financial institution.

  4. Review internal audits and external agency audits and reviews specific to BSA policies, procedures, or operations for BSA issues.

  5. Review monthly commission statements to detect large daily transactions or transactions conducted over a period of several days (multiple transactions) which appear to be related. (Each money transmitter receives commission statements from their respective money transmission business center or home office).

  6. Review the daily cash reports and reconcile these to the bank deposit slips. Generally, a money transmitter will deposit all monies received each day. The daily cash reports can be traced to the daily summary sheets and the deposit slips to the monthly bank statements.

  7. Review the daily summary sheets for all send and receive transactions. If the daily summary sheet has 20 transactions recorded, there should be 20 transaction documents to support them. The amounts listed on the daily summary sheet can be reconciled to the original send or receive documents. Review the original send and receive transaction forms for completeness. Determine if all the required information has been obtained and recorded on the forms. The examiner may use a dollar amount criteria for selecting forms for inspection.

  8. Review the original send and receive transaction forms for completeness. Determine if all the required information has been obtained and recorded on the forms. The examiner may elect to select a dollar criteria for inspection of these forms.

  9. Look at the transaction and fee amounts recorded on the transaction forms. The total amount collected line should include both the transaction amount and fees collected. These totals can be traced to the daily summary sheets.

  10. Scan each group of records for possible structured transactions occurring on the same day or over a period of several days. For example, a 5:00 PM transaction with the transactor sending $6,000, and again at the same location on the same day a 5:10 PM transaction with the transactor sending $5,000, could be structured transactions. Examiners should be aware of these or similar situations and must be prepared to discuss suspicious transactions with the money transmitter.

  11. When reviewing money transmitter transactions, note the telephone numbers given. A sender may give a false name and address, but may use a correct telephone number. The reason is that if the money cannot be delivered, the sender will want to be notified. Also watch for repetitive addresses, and senders and/or receivers names.

  12. Review the financial institution's records to determine if all the required information on money transmittals of $3,000 or more has been obtained and retained pursuant to the recordkeeping requirements of 31 CFR 103.33.

  13. The examiner may elect to use a database to input information from the transaction records for purposes of detecting structuring and other money laundering schemes.

  14. 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.

  15. 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. The BSA Group Manager will decide whether or not to refer the violation to the Financial Crimes Enforcement Network for possible enforcement action.

  16. Obtain copies of all source documents that document any apparent BSA violations.

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

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

  19. Prepare Form(s) 5346, Examination Information Report, when information is obtained during the BSA examination that indicates a possible income tax violation warranting referral. Keep in mind, however, that the primary purpose of the BSA exam is not to detect Title 26 violations. (Refer to IRM 4.26.6.)

  20. If warranted, extend the examination to more than one business location in the area. If several money transmitters are in the same geographical area, concentrate in that area.

  21. The databases of BSA examinations in the same geographical area should be consolidated and sorted to detect possible related structuring activity occurring at more than one location.

  22. Review copies of filed MSB registration and renewal forms (if applicable) for accuracy and completeness.

  23. Determine if the business is required to register as an MSB.

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

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

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

  27. 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.

  28. During a BSA compliance examination of a national money transmitter's headquarters, obtain and review information on the agent network, sales/transmission and commission records, compliance program records, and internal processes for money transmission and reconciliation. Exams at the corporate level should focus on: compliance monitoring of operations, compliance training of issuer personnel and of agents, and internal reporting of compliance issues or of unusual transaction activity.

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 money services business 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’ 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 establish evidence of 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 compliance related contacts with the IRS

    2. Training programs offered by the business

    3. The MSBs formal BSA compliance procedures

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

  4. In situations where knowledge cannot be determined 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 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.

Money Transmitter’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.

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 record specific transactions

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

    4. Failing to file CTRs or SAR-MSBs on reportable transactions

    5. Filing incomplete CTRs or SAR-MSBs

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

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

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

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

    1. Review electronic records if available. If not, review transmittal forms to ensure the financial institution is obtaining all the required information and verification, and for indications of fictitious information.

    2. Review transmittal forms looking for handwriting similarities. If similarities are noted, compare signatures on the forms. (Are different names being used?)

    3. Review send and receive forms, looking for transactions at nearby locations. It could be an indication of money laundering (i.e. paying wire transfer fees to convert cash into a check.)

    4. Review electronic records if available. If not, review transmittal forms looking for similar names and addresses for both senders and recipients,

    5. Review electronic records if available, if not, transmittal forms for similar phone numbers. (Are different customers using the same phone number?)

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

    7. Create a database to consolidate transactions of the financial institutions, which can be sorted to identify any related transactions, possible structuring.

    8. Review all financial services offered to see if customers are structuring transactions by using multiple financial services.

Traveler’s Checks Overview

  1. Traveler’s checks are issued by national companies such as American Express, Thomas Cook, or VISA. There are also privately issued traveler’s checks.

  2. Traveler’s checks are negotiable monetary instruments. Individuals usually purchase them when they are traveling on vacations or business trips, instead of carrying cash.

  3. Sales agents of traveler’s checks may sometimes provide other services such as check cashing, wire services, or may operate a business such as a credit union or travel agency.

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

  5. An issuer, seller, or redeemer of traveler’s checks 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.)

Nationwide Traveler’s Checks

  1. Financial institutions typically sell traveler’s checks as agents for national companies. The agent’s relationship to the issuer of the traveler’s checks is governed by a trust agreement.

  2. The agent is allowed to advertise that it sells the national company's traveler’s checks.

  3. Traveler’s checks 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 traveler’s check clears the bank.

    Note:

    The issuer could consider the transaction complete for accounting purposes when the check is sold, or when the check is transferred to the agent, and/or when it receives the funds for the check sale from the agent. The key is that the issuer always sets aside an amount equal to the amount of the face value of the check sold to cover redemption of the check, upon transfer of the check to the agent, prior to the check’s redemption (though the check may not be cashed until some time later after the sale.

  4. The dollar value of traveler’s checks sold by an agent can be limited by the issuing company’s trust agreement or by the agent’s policy, but in theory they can be in any denomination. Most domestic issuers tend to limit the denominations of traveler’s checks sold in U.S. currency to $100, or at most $1,000. It should be noted that traveler’s checks may be issued in any of several currencies by issuers. Some of the most common currencies for traveler’s check issuers include the U.S. dollar, the Canadian dollar, the Euro, the Japanese yen, and the Saudi rial. When examining agents that issue traveler’s checks in foreign currency, one should be aware of current exchange rates in order to evaluate compliance against BSA reporting and recordkeeping requirements.

  5. The national company issues and maintains records of traveler’s check issuance or sales to agents, as well as records of cashed traveler’s checks. The agent maintains sales records of traveler’s checks using a sequential numbering system.

  6. An agent’s summary sales report is sent to the national company daily and the correspondent bank sends a clearing report. Using these reports, the national company keeps a record of all traveler’s checks sold and cashed. The issuer maintains, and agents are sent, a discrepancy statement for traveler’s checks cashed but not reported as sold. If the agent is a nationwide entity with many outlets, the agent may consolidate its reporting records so that the national issuer may receive the same information regarding traveler’s check transactions, but in a manner that does not report sales at the individual outlet location.

  7. Money received from the sale of traveler’s checks 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 traveler’s checks companies either collect their fee up front when the traveler’s checks are given to the agents, or have their agents remit the fee together with the face amount of the traveler’s checks sold.

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

  10. Although identification of persons purchasing traveler’s checks in amounts under $3,000 is often left to the individual agents, in many instances, the MSB requires identification from the purchaser.

  11. At a minimum, national companies keep a copy of the front and back of all cashed and canceled traveler’s checks.

Private Traveler’s Checks
  1. Generally, private companies maintain and reconcile daily records of traveler’s checks sold. Like checks, traveler’s checks 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 traveler’s checks.

Law

  1. An issuer of traveler’s checks (other than a person who does not issue such checks 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 an MSB (31 CFR 103.11(uu)(3)).

  2. A seller or redeemer of traveler’s checks (other than a person who does not sell or redeem such checks 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 an MSB (31 CFR 103.11(uu)(4)).

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))

  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 an MSB 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 traveler’s checks that have been sold or processed, an issuer of traveler’s checks shall only be required to report a 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 DCC, no later than 30 calendar days after the date of detection (31 CFR 103.20(b)(3)).

  8. An MSB 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)

Registration Requirements
  1. Traveler’s check issuers, sellers, or redeemers are required to register by filing a FinCEN Form 107(formerly TD F 90-22.55), Registration of Money Services Business, and to renew their registration biannually 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)).

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 by the financial institution for five years from the date of filing the SAR-MSBs (31 CFR 103.20(c)).

  4. Certain records are required to be maintained for the issuance or sale of traveler’s checks involving currency in amounts between $3,000 and $10,000, inclusive, by or on behalf of one individual in one business day. The following information must be obtained:

    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)).

  5. 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))

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

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

  8. 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)).

AML Program Requirements
  1. All MSBs 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).

Records Commonly Found

  1. Traveler’s checks agents records usually include, but are not limited to:

    1. Inventory sheets of traveler’s checks sold,

    2. Inventory sheets of traveler’s checks received from the issuer,

    3. Inventory sheets of traveler’s checks currently in stock

    4. Bank statements and deposit slips

    5. Teller drawer reconciliations or summaries, and

    6. A copy of the executed trust agreement between the agent and the issuer.

  2. An example of a BSA examination audit trail is shown in Exhibit 4.26.9-29.

Interview

  1. 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 traveler’s checks.

  2. Interview the AML compliance officer and compliance program employees, as well as the officers and employees of the traveler’s check issuer, seller, or redeemer 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 violations of the regulations.

  3. Ask the owners or management of the financial institution if they have knowledge of any structuring 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 possible initial interview questions for issuers, sellers, or redeemers of traveler’s checks is shown in Exhibit 4.26.9-31. It is only a guide and should be expanded or contracted as each BSA examination warrants.

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 traveler’s check register completeness by reconciling it 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 traveler’s checks in the traveler’s check register or close out reports to the records required for recordkeeping, SAR reporting and CTR reporting. Block sales are a group of sequentially numbered traveler’s checks sold concurrently for the maximum denomination. The review should identify: a. Blocks of traveler’s checks at $2,000 or right below for SAR reporting; b. Blocks of traveler’s checks at $3,000 to $10,000, inclusive, for recordkeeping requirements; and, c. Blocks of traveler’s checks greater than $10,000 for CTR reporting.

  6. Inspect any copies of traveler’s checks retained by the NBFI.

  7. Request that the NBFI obtain copies of traveler’s checks from the traveler’s check 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 NBFIs records to determine if all the required information on the cash purchasers of traveler’s check sales 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 examination is part of a multiple location local project or there are a large number of block sales or large dollar sales. All transactions exceeding the elected dollar 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 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. Follow procedures in IRM 4.26.6 to timely conclude the BSA examination.

  17. Prepare Form(s) 5346, Examination Information Report, when information is obtained during the BSA examination that indicates a possible income tax violation warranting referral. (See IRM 4.26.6.) Keep in mind, however, that the primary purpose of the BSA exam is not to detect Title 26 violations.

  18. Review copies of filed MSB registration and renewal forms (if applicable) for accuracy and completeness.

  19. Determine if the business is required to register.

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

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

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

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

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 MSBs 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 business’ response to any apparent violations.

    2. The existence of an internal compliance program may indicate of 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 business may be at least negligent (for not properly instructing their 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 business’ intent not to comply.

  3. Other factors that may indicate the MSB's 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 business;

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

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

  4. In situations where knowledge cannot be determined 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, an examiner initially selects records from January, February, and March. Inspection of these records discloses currency transactions that appear to be structured and which should have been reported. The business denies knowledge of the structuring regulations during the initial interview. In April, the examiner informs the business about suspicious transactions and of the structuring regulations. The examiner then expands the examination period to include May and June transactions. The examiner finds violations in May and June. The business’ knowledge was documented during the April notification, yet it took no action to prevent the recurrence of violations. The business’ intentional noncompliance 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 willfulness. After the examiner secures the necessary information and documents the apparent violations, the examiner should follow the procedures detailed in IRM 4.26.8.

Traveler’s Check Business’ 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. Serial number of the traveler’s check(s) involved;

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

    6. Description of the transaction(s).

  2. The examiner should advise the MSB 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 MSB 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 MSB 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.

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 record specific transactions

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

    4. Failing to file CTRs, SAR-MSBs, or CMIRs on reportable transactions

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

  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.

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

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

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

    2. Request copies of traveler’s checks from the issuer, if necessary, to determine if transactions have been structured.

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

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

Organizational Structure of a Gambling Casino

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Computerized Casino Management System

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Letter 3494, Appointment Letter for Casinos

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Information Document Request for Casino

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Interview for Casino

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Analysis of Incomplete CTRCs Filed

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Daily Listing of CTRCs Filed

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Daily Listing of CTRCs Actually Filed

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Daily Listing of Customers’ Cash-In Transactions

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Daily Listing of Customers’ Cash-Out Transactions

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Daily Listing of Customers with Cash-In Transactions

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Meanings of Abbreviations

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Typical Organization Chart for a Check Casher

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Check Casher Audit Trail

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Information Document Request for a Check Casher

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Interview for a Check Casher

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Credit Union Audit Trail

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Information Document Request for a Credit Union

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Interview for a Credit Union

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Currency Dealer or Exchanger Audit Trail

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Information Document Request for a Currency Dealer or Exchanger

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Interview for a Currency Dealer or Exchanger

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Money Order Audit Trail

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Information Document Request for a Money Order Business

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Interview for a Money Order Business

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Money Transmitter Audit trail

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Information Document Request for a Money Transmitter

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Interview for a Money Transmitter

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Traveler's Check Audit Trail

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Information Document Request for a Traveler's Check Business

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Interview for a Traveler's Check Business

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