| Attachment
Distribution: FDIC-Supervised Banks (Commercial and Savings)
US Department of the Treasury
Financial Crimes Enforcement Network
INTERIM EXEMPTION PROCEDURE FOR
CURRENCY TRANSACTION REPORTING
INTRODUCTION
This document is intended to answer general, basic questions
about how to implement the new CTR exemption procedures. It
is not meant to be comprehensive and does not replace or supplement
the regulations.
The existing administrative exemption process is being amended
to revise, expand and simplify the exemption procedures. We
welcome comments on how to simplify or otherwise improve the
procedures still further.
Copies of this FinCEN document "New Exemption Procedures
for Currency Transaction Reporting "(publishing in April 1996)
may be obtained: via computer by a modem from the Treasury
Bank Secrecy Act (BSA) Bulletin Board at 313-234-1453.
New Procedures
Q1.
What new exemption procedures are in effect?
A1.
The Financial crimes Enforcement Network has issued
an interim rule that eliminates the requirement that banks
file currency transaction reports (CTR, Internal Revenue Service
Form 4789) for transactions by "exempt persons."
Q2.
What is an interim rule?
A2.
An interim rule becomes effective immediately, without
a notice and comment period. One reason for its use is to
grant immediate relief from an existing regulatory requirement.
Q3.
Are banks required to adopt the new exemption procedures?
A3.
No. This interim rule permits but does not require
banks to use the new simplified exemption procedure for certain
types of customers. This rule implements Bank Secrecy Act
mandatory exemption requirements, and grants significant relief
to banks. The Financial Crimes Enforcement Network believes
that the benefits of this rule will motivate banks to adopt
this new procedure voluntarily.
Q4.
Is there a transition period between the old exemption
procedures, and the new exemption procedure, for currency
transaction reporting by banks?
A4.
No. There is no formal transition period, because
banks are not required to implement these new exemption procedures.
A bank may continue to operate under the previous, more labor-intensive
and cumbersome procedures if it wishes. But, if a bank does
so, the bank remains subject to all the requirements, and
to the penalty rules governing that system. The Financial
Crimes Enforcement Network anticipates that banks will use
the new exemption procedures because they require significantly
less effort and afford banks a limitation on liability.
Q5.
Will this interim rule become permanent?
A5.
The Financial Crimes Enforcement Network is seeking
public comment on this rule. The comments will be analyzed
and any appropriate amendments will be made. The rule will
then be published as a final (or permanent) rule in the Federal
Register. Again, comments are welcome regarding this rule
and any suggestions to improve or clarify it.
Suspicious Transaction Reporting and Other Bank Secrecy
Act Reporting
Q6.
If a customer is exempt from currency transaction
reporting, is it then also exempt from other BSA requirements?
A6.
No. This especially important for banks to remember,
because of the new suspicious transaction reporting requirements.
A customer that is exempt from currency transaction reporting
is, nonetheless, fully subject to the suspicious transaction
reporting requirements.
If a bank knows, suspects, or has reason to suspect that
a currency transaction constitutes a suspicious transaction,
as defined in the suspicious transaction reporting rules
that became effective April 1, 1996, a Suspicious Activity
Report is required. Thus, for example, if a bank suspects
that a government is engaged in suspicious activity, the
bank must file a suspicious activity report. Similarly,
if a customer is engaged in frequent, large currency transactions
that lack any apparent business purpose and bank knows of
no reasonable explanation for the transactions,the bank
may be required to file a Suspicious Activity Report.
Exempt Person
Q7.
What is an "exempt person"?
A7.
An "exempt person" is:
a) a bank (wherever chartered) to the extent of
its United States activities;
b) federal, state, or local government department or agency
c) any entity exercising governmental authority (such as
the power to tax, to exercise eminent domain, or to exercise
police powers); and
d) any corporation whose common stock is listed on the New
York Stock Exchange or the American Stock Exchange (but
not the Emerging Company Market) or the NASDAQ National
Market (but not the NASDAQ Small-Cap Issues Market).
e) any subsidiary of any 'listed' exempt corporation if
it filed a consolidated federal income tax return with the
publicly traded corporation.
Q8.
What documentation do I need to show that an entity
is exempt?
A8.
In general, a bank must take steps to assure itself
that a customer is exempt comparable to those that a reasonable
and prudent bank would take to protect itself from fraud based
on mis-identification of a person's status. The rule includes
operating rules to make this easier.In the case of a bank
of federal, state or local government, the same documentation
a bank receives now authorizing the establishment of a business
account with a bank or a governmental unit is generally sufficient.
Such documentation might include a corporate resolution by
the other bank authorizing the establishment of an account
and granting signature authority over its account to named
individuals. In addition, any documentation that demonstrates
that a customer is a bank is sufficient. A bank is expected
to exercise the same prudent standards of due diligence that
it employs in the conduct of its banking activities.
The Financial Crimes Enforcement Network is aware that
certain small governmental units, such as a volunteer fire
department, or a rural water authority may not issue detailed
documentation that specifically attests to their governmental
status. A bank may rely on reasonable documentation, based
on the type and nature of the governmental agency involved.
In addition, a bank may rely on community knowledge or knowledge
based on the customer's name to make such a determination.
In the case of an entity exercising governmental authority,
a bank must determine and document characteristics that
make such an authority governmental in nature. Such characteristics
include the authority to exercise eminent domain, the authority
to tax the public, and the authority to routinely exercise
police powers. A clear example of governmental authority
is the Port of New Orleans.
It is important to note that 'government contractors'
are not governmental authorities solely by virtue of the
services that they provide to the government.
Q9.
How does a bank determine that a corporation's common
stock is listed on one of the exchanges that make the corporation
eligible for exemption?
A9.
The business section of many newspapers, and business
weeklies, such as Barron's, The Wall Street Journal, or Investor's
Daily contain listings for businesses that are listed on the
stock exchanges.
Q10.
How does a bank determine that a business is a subsidiary
of one of the exemption-eligible corporations and that it
files a consolidated tax return with the publicly traded corporations?
A10.
Any reasonable documentation will be sufficient.
Examples of such documentation might include a letter signed
by a company officer, or by a company official listed as a
signatory on a company account, or a copy of the affiliation
schedule for the tax return filed.
Q11.
How are franchises treated under these rules?
A11.
Franchises are not exempt simply because the company
that awards the franchise license is exempt. For example,
McDonald's owns approximately 20% of all restaurants nationwide.
Thus, for the 80% of McDonald's restaurants that are franchises,
a bank must determine whether the franchise is itself a publicly
traded corporation or its consolidated subsidiary. In many
cases the result will be that the franchise is not exempt.
Designation of Exemption
Q12.
Is the designation of exemption automatic, once
a bank determines that a customer is exempt?
A12.
No. There is one additional requirement. To take
advantage of this new procedure, a bank must generally make
a designation of exemption within 30 days of a reportable
transaction, and stop filing CTRs. A designation of exemption
is made by filing a single CTR in which Part I, Section A
and Part III are fully completed and box 36 is marked "Designation
of exempt person". The bank must file one such designation
of exemption for each customer that it treats as an exempt
person.
Q13.
When a bank files a designation of exemption, must
it describe why a particular customer is exempt?
A13.
No. However, internal records maintained at the
bank should indicate why a particular customer is exempt (e.g.,
a public school is a government agency, General Electric Corp.
is listed on the New York Stock Exchange, etc.). In addition,
on the designation of exemption, the bank must state the occupation
of the exempt person, and may state "County government" or
"State police" or similar occupations that will indicate why
the customer is exempt.
Q14.
Should a bank file a separate exemption for each
account, or one for all accounts that an eligible customer
has?
A14.
A single designation of exemption should be filed
for each 'exempt person' that is a customer at a bank, regardless
of the number of accounts held by an exempt person.
Q15.
What if an exempt customer does not have an account
at the bank?
A15.
An exempt customer, which does not have an account
at a bank, is nonetheless exempt, and a designation of exemption
may be made. Common examples are governmental agencies. It
is not uncommon for the United States government, especially
the armed forces, to cash large checks at banks at which it
does not have an account. Such transactions are by 'exempt
persons'.
A bank should bear in mind that large currency transactions
by many types of listed corporations, in contrast, may be
suspicious, if the corporation does not have an account
at the bank. Such suspicious transactions may be required
to be reported.
Benefits and General Information
Q16.
What is the benefit of this new exemption procedure
to the bank?
A16.
There are several benefits. First, this is far simpler
than the existing system and should reduce the filing burden
for banks.
Second - a bank that exempts a customer in this manner
cannot be penalized for failure to file a CTR unless the
bank knowingly filed a false or incomplete report, or if
the bank knew or had reason to believe that the customer
or the transaction was not exempt or was not transacted
by the exempt customer.
Q17.
What is the benefit of this rule to the public?
A17.
This rule will significantly reduce the Bank Secrecy
Act compliance burden and liability for banks, while maintaining
the usefulness of CTRs for law enforcement, and regulatory
purposes. As such, this rule advances the principles of Executive
Order 12866 to create "regulations that are effective, consistent,
sensible, and understandable." By making the CTR process more
consistent, sensible and understandable, these rules will
be more effective for both the government and for the banking
industries.
Q18.
Will the Treasury Department exempt other types
of businesses?
A18.
The Treasury Department is committed to reducing
the number of CTRs while retaining filings that are highly
useful for tax, regulatory, and criminal proceedings. FinCEN
has solicited public comments on whether businesses not incorporated
that have equity interests publicly traded on major exchanges
should be deemed 'exempt persons'.
The Financial Crimes Enforcement Network is interested
in comments on whether privately held firms should be able
to be exempted, under an exemption process that takes into
account the lower level of public scrutiny afforded such
firms. FinCEN is aware that the new procedure will provide
the greatest benefit to large banks in urban areas, and
may provide less benefit to smaller, community-based banks.
FinCEN remains committed to providing a similar degree of
regulatory relief to community-based banks, and intends
to propose a regulation that will exempt other types of
businesses as well.
Q19.
To whom may a bank go should it have further questions?
A19.
Any bank may contact its primary Bank Secrecy Act
examination authority, or the Treasury Department's Financial
Crimes Enforcement Network can be contacted regarding questions
on the Bank Secrecy Act rule at (800) 949-2732 or (703) 905-3920.
US Department of the Treasury
Financial Crimes Enforcement Network
Questions & Answers on Interim Procedures for Currency Transaction
Reporting
May 1996
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