Currency and Foreign Transactions Reporting Act · PDF fileCurrency and Foreign Transactions Reporting Act 501.0 ... has issued, require domestic fi- ... Currency and Foreign Transactions

Currency and Foreign Transactions Reporting ActExemption Handbook Section 501.0

Bank Secrecy Act Manual September 1997Page 1

501.0 Currency and Foreign Transactions Reporting Act

September 1997 Bank Secrecy Act ManualPage 2

Department of the TreasuryOffice of Financial Enforcement

andInternal Revenue Service

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Bank Secrecy Act Manual September 1997Page 3

501.0 Currency and Foreign Transactions Reporting Act

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TABLE OF CONTENTS

Page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1I. Determining Which Customers

to Exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3A. EXCEPTED TRANSACTIONS . . . . . . . . . . 3B. UNILATERAL EXEMPTIONS . . . . . . . . . . 3

1. Retail and Other SpecifiedBusinesses . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

a. Retail Businesses . . . . . . . . . . . . . . . . . . . 3i. Definition of retail type of

business . . . . . . . . . . . . . . . . . . . . . . . . 3ii. Payment in currency . . . . . . . . . . . . 3

iii. United States operation . . . . . . . . . . 4iv. Nonexemptible retail business

accounts . . . . . . . . . . . . . . . . . . . . . . . . 4b. Specified Businesses . . . . . . . . . . . . . . . . 4

i. Sports arena . . . . . . . . . . . . . . . . . . . 4ii. Race track . . . . . . . . . . . . . . . . . . . . . 4

iii. Amusement park . . . . . . . . . . . . . . 4iv. Bar . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4v. Restaurant . . . . . . . . . . . . . . . . . . . . . 4

vi. Hotel . . . . . . . . . . . . . . . . . . . . . . . . . . 4vii. Licensed check cashing

service . . . . . . . . . . . . . . . . . . . . . . . . . 4viii. Vending machine company . . . . 5

ix. Theater . . . . . . . . . . . . . . . . . . . . . . . . 5x. Regularly scheduled passenger

carrier . . . . . . . . . . . . . . . . . . . . . . . . . 5xi. Public utility . . . . . . . . . . . . . . . . . . . 5

c. Multi-Faceted Businesses . . . . . . . . . . . 5d. Limitations on Exemptions for

Accounts of Retail and OtherSpecified Businesses . . . . . . . . . . . . . . . 5i. Deposits or withdrawals of

currency . . . . . . . . . . . . . . . . . . . . . . . 6ii. Existing account by an

established depositor . . . . . . . . . . . 6 Existing account . . . . . . . . . . . . . 6 Established depositor . . . . . . . . 6

iii. United States resident . . . . . . . . . 62. Government Agencies . . . . . . . . . . . . . . . . 73. Payroll Withdrawals . . . . . . . . . . . . . . . . . 7

C. SPECIAL EXEMPTIONS . . . . . . . . . . . . . . . 7

1. General Criteria . . . . . . . . . . . . . . . . . . . . . . 72. Nonexemptible Entities . . . . . . . . . . . . . . . 8

D. CTR REPORTING ON CERTAINTRANSACTIONS BY EXEMPTEDCUSTOMERS . . . . . . . . . . . . . . . . . . . . . . . . . . 8

II. How to Exempt Customers . . . . . . . . . . . . . . 9A. REVIEW OF BANK RECORDS . . . . . . . . . 9

1. Two Consecutive Months ofActivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

2. Review of Other AvailableInformation . . . . . . . . . . . . . . . . . . . . . . . . . . 9

B. PREPARATION OF EXEMPTIONSTATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 10

1. Statements for Customers ExemptedAfter October 27, 1986 . . . . . . . . . . . . . . . 10

2. Statements for Customers Exemptedon or Before October 27, 1986 . . . . . . . . 10

3. Form for Exemption Statements . . . . . 104. Customer Information and

Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . 105. Completion of Exemption

Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . 11C. EXEMPTION LIMITS . . . . . . . . . . . . . . . . . 11

1. General Criteria . . . . . . . . . . . . . . . . . . . . . 112. Seasonal and Monday-Only

Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12D. MULTIPLE-ESTABLISHMENT

CUSTOMERS . . . . . . . . . . . . . . . . . . . . . . . . . 13E. SPECIAL EXEMPTION REQUESTS . . . . 14

III. Recordkeeping for ExemptedCustomers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

A. EXEMPTION LIST . . . . . . . . . . . . . . . . . . . . 15B. EXEMPTION STATEMENTS . . . . . . . . . . 15

IV. Monitoring Exemptions and Discoveryof Improper Exemptions . . . . . . . . . . . . . . . 17

A. MONITORING EXEMPTIONS . . . . 17B. DISCOVERY OF IMPROPER

EXEMPTIONS . . . . . . . . . . . . . . . . . . . . 17V. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

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INTRODUCTION

The Bank Secrecy Act (BSA), 31 U.S.C.53115324, and the BSA regulations, 31 C.F.R.Part 103, that the Department of the Treasury(Treasury) has issued, require domestic fi-nancial institutions (other than casinos and theU.S. Postal Service) to file a report of each sin-gle or multiple deposit, withdrawal, exchangeof currency or other payment or transfer, by,through, or to such financial institution whichinvolves a transaction in currency of more than$10,000. 31 CFR 103.22(a)(1). These reports,which are filed on IRS Form 4789, the Cur-rency Transaction Report (CTR), have a highdegree of usefulness in criminal, tax, and reg-ulatory investigations and proceedings. Infor-mation from CTRs is routinely used in a widevariety of criminal and tax investigations andprosecutions, as investigative leads,intelligence for the tracking of currency flows,corroborating information, and probativeevidence.*

Treasurys experience in enforcing the BSA,however, has shown that certain legitimatebusinesses engage in regular and frequent cur-rency transactions with domestic banks. Theroutine reporting of these transactions is lesslikely to be useful to law enforcement agen-cies. Treasury has therefore included in theBSA regulations provisions that permit banksto exempt government agencies and the ac-counts of certain customers from the CTR re-porting requirements. In some instances,banks may unilaterally exempt governmentagencies and the accounts of particular cus-tomers without prior approval from Treasuryor the Internal Revenue Service (IRS). Inother instances, banks must obtain additionalauthority from the IRS, through the IRS DataCenter in Detroit, Michigan, to grant exemp-tions to particular accounts of customers. TheIRS has been delegated this authority fromTreasury.

Treasury encourages banks to make full useof the exemption provisions. The use of theexemption provisions can yield substantialbenefits for banks and Treasury. By eliminatingCTR reporting on properly exempted accountsand certain transactions by government agen-cies, banks can reduce the cost of filing CTRs.These costs can be substantial, particularly forlarger banks in major metropolitan areas thathave many accounts by businesses and trans-actions by government agencies that areexemptible. The reduction in the number ofCTRs filed by the banks, in turn, reducesTreasurys and IRSs cost of processing, com-puterizing, and storing CTRs. In addition, byreducing the number of CTRs which are not ofvalue to law enforcement, Treasury can moreeffectively analyze and utilize the remainingCTR information.

For these same reasons, Treasury and theIRS have implemented procedures which allowbanks to magnetically file CTRs. Treasury andIRS believe that magnetic filings will, likewise,reduce the costs to the banks and the govern-ment of complying with the BSA, while assur-ing a complete and accurate data base whichcan be utilized effectively to combat crime.

The exemption provisions specify the proce-dures and categories of accounts and govern-ment agencies for which a bank may grantunilateral exemptions, or obtain additional au-thority from the IRS to grant special exemp-tions. This booklet is intended to help banksunderstand the exemption provisions and im-prove compliance with the exemption require-ments. It will explain how to determinewhether a particular customers account orgovernment agency qualifies for an exemption,the process for exempting that account oragency, and the actions the bank should takeafter granting an exemption.

* One of the more prominent examples of the reports utility isUnited States v. Badalamenti, (794F.2d 821 (2d Cir. 1986),appeal pending, No. 87-1303 (2d Cir., filed June 29, 1987),informally known as the Pizza Connection case. This case in-volved heroin smuggling into the United States by Italian andU.S. organized crime groups. During the investigation, Federalauthorities discovered a number of BSA reports that indicatedthat a Swiss national was making large cash transactions. Thesereports led authorities to an extensive money laundering opera-

tion that involved the transfer of tens of millions of dollarsthrough banks and investment houses in New York City to finan-cial institutions in Switzerland and Italy. Ultimately, 20 defen-dants were convicted in Federal court for heroin conspiracy, rack-eteering, and BSA violations. All received prison sentences, and15 defendants received sentences ranging from 1545 years. Inaddition, the Swiss national was convicted and imprisoned bySwiss authorities for violations of Swiss law relating to hismoney laundering activities.

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