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Page 1: Currency and Foreign Transactions Reporting Act … · Currency 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

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Department of the TreasuryOffice of Financial Enforcement

andInternal Revenue Service

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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.§5311–5324, 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.*

Treasury’s 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, reducesTreasury’s and IRS’s 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 customer’s 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 15–45 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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These guidelines address questionsfrequently asked by banks about the exemp-tion provisions. Treasury welcomes your com-ments and invites you to submit suggestionsfor improvements in future editions of theseguidelines to:

DirectorFinCENU.S. Department of the Treasury1500 Pennsylvania Avenue, N.W.Washington, D.C. 20220(202) 622-0400

In addition, if you have a question that isnot addressed by these guidelines, Treasury

strongly encourages you to call or writeFinCEN above or:

Compliance Review GroupIRS Data CenterP.O. Box 32063Detroit, Michigan 48232(313) 234-1613

This booklet is intended only to provide ad-vice on the exemption process and is not in-tended to create any right or benefit, substan-tive or procedural, enforceable at law by aparty against the United States, its agencies,its officers, or any person.

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I. DETERMINING WHICH CUSTOMER ACCOUNTS ORGOVERNMENT AGENCIES TO EXEMPT

A. EXCEPTED TRANSACTIONS

In developing exemption policies and proce-dures, banks should be aware that two typesof transactions are specifically excepted fromthe CTR reporting requirements. (See Appen-dix A.) This means that a bank simply doesnot have to file CTRs on the following transac-tions and, therefore, need not exempt them:

1. Transactions with Federal Reserve Banksor Federal Home Loan Banks. This categoryincludes all types of cash receipts ordisbursements at Federal Reserve Banks orFederal Home Loan Banks.2. Transactions between domestic banks.This category includes all types of currencytransactions between ‘‘banks’’ as defined in31 C.F.R. 103.11(a) (e.g., commercial banks,savings and loan associations, and creditunions). This category does not permit banksto except transactions with nonbank financialinstitutions (e.g., casinos, currencyexchanges, securities brokers). In addition,with the exception of the U.S. Postal Serviceand certain check cashing agencies, nonbankfinancial institutions may not be exemptedfrom the reporting requirements. Thus,banks must file CTRs on their transactionswith foreign banks and with all nonbankfinancial institutions other than the U.S.Postal Service or check cashing services thathave been granted an exemption (asdescribed below).

B. UNILATERAL EXEMPTIONS

The regulations establish certain categories ofbusiness accounts and transactions of custom-ers and government agencies that a bank mayunilaterally exempt without having to obtainadvance approval from Treasury or the IRS: (1)Retail and other specified businesses; (2) gov-ernment agencies; and (3) payroll withdrawals.

1. Retail and Other Specified Businesses

A bank may unilaterally exempt ‘‘(d)eposits orwithdrawals of currency from an existing ac-count by an established depositor who is aUnited States resident and operates a retailtype of business in the United States.’’ 31 CFR

103.22(b)(2)(i). A bank also may unilaterallyexempt ‘‘(d)eposits or withdrawals of currencyfrom an existing account by an established de-positor who is a United States resident andoperates a sports arena, race track, amusementpark, bar, restaurant, hotel, check cashing ser-vice licensed by state or local governments,vending machine company, theater, regularlyscheduled passenger carrier or any public util-ity.’’ 31 CFR 103.22(b)(2)(ii).

a. Retail Businessesi. Definition of retail type of business

The term ‘‘retail type of business’’ means ‘‘abusiness primarily engaged in providing goodsto ultimate consumers and for which the busi-ness is paid in substantial portions bycurrency . . . .’’ 31 CFR 103.22(b)(2)(i). Abusiness that is primarily engaged in providingservices, rather than goods, to ultimate consum-ers (e.g., a car wash, a dry cleaning store, anappliance repair shop, or a health spa) doesnot come within the scope of this exemption.In addition, a business that is primarily en-gaged in selling goods wholesale rather thanretail, is not within the scope of this exemp-tion. If a business provides both goods andservices to ultimate consumers or sells goodsboth wholesale and retail, a bank may exemptthat business account only if more than 50% ofthe business’ gross revenues at the time of theexemption is attributable to the retail sale ofgoods to ultimate consumers. Thus, a storethat sells women’s clothing off the rack andthat also offers custom alterations on the pre-mises may have its accounts exempted underthese provisions if more than 50% of its grossrevenues are attributable to the store’s sale ofclothing and not to the custom alterations.Similarly, if a bakery sells baked goods to ulti-mate consumers and to supermarkets for pur-poses of resale, the bank may exempt the bak-ery’s account only if more than 50% of itsgross revenues are from the sale of bakedgoods to ultimate consumers. (See AppendixA.)

ii. Payment in currency

The phrase ‘‘for which the business is paid insubstantial portions by currency’’ is intended

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to limit this exemption to businesses that, inthe ordinary course of business, routinely re-ceive currency in payment for the goods thatthey offer (e.g., a bookstore or a drug store).To qualify, the business must be paid in cur-rency on a regular and frequent basis.

iii. United States operationThe term ‘‘operates a retail type of business inthe United States’’ is intended to limit this ex-emption to retail businesses that actually aredoing business in the United States. A foreigncitizen or corporation operating a retail busi-ness solely outside the United States couldestablish an account at a U.S. bank, but couldnot have transactions involving that accountexempted under these provisions. On theother hand, a corporation whose shares areowned by foreign individuals or corporations,but which is organized and is doing a retailbusiness in the United States, could have itstransactions involving that account exemptedunder these provisions.

iv. Nonexemptible retail business accountsIt is important to remember that accounts of‘‘dealerships which buy or sell motor vehicles,vessels, or aircraft,’’ while retail sellers ofgoods, may not be exempted by either unilat-eral or special exemption from the CTR report-ing requirements. 31 CFR 103.22(b)(2)(i). Thisapplies to all types of motor vehicles, vessels,and aircraft, including airplanes, automobiles,boats, construction equipment (e.g., roadgraders and backhoes), farm equipment (e.g.,combines and tractors), mopeds, motorcycles,recreational vehicles, sailplanes, scooters,ships, snowmobiles, trucks, and yachts.

b. Specified BusinessesIn addition to permitting an exemption for theaccounts of retail types of businesses, the reg-ulations permit unilateral exemptions for thefollowing types of businesses: sports arenas,race tracks, amusement parks, bars, restau-rants, hotels, licensed check cashing services,vending machine companies, theaters, regu-larly scheduled passenger services and publicutilities. (See Appendix A.) Each of these busi-nesses is discussed briefly below.

i. Sports arenaThis includes a stadium or arena that regularlyaccommodates either a single sport (e.g., base-

ball, football, ice skating, jai alai, riding, soc-cer, or tennis) or multiple sports that are opento attendance or participation by the generalpublic. A promoter who arranges for the pre-sentation of sporting or other entertainmentevents at a sports arena does not come withinthe scope of this provision.

ii. Race track

This includes all tracks that hold races of bicy-cles, dogs, horses, or motor vehicles on a regu-lar basis, whether or not betting on these racesis permitted at the tracks, and that are open toattendance by the general public. A businessorganized to handle commercial activities foran automobile race that occurs once a year in aparticular city (e.g., a grand prix) does notcome within the scope of this provision.

iii. Amusement park

This includes any business that derives morethan 50% of its gross revenues from rides andgames (other than gambling devices) and thesale of food, drink, and souvenirs. It does notinclude traveling carnivals.

iv. Bar

This includes any business that serves food ordrink to its patrons for consumption on or offthe premises, and that derives more than 50%of its gross revenues from the sale of alcoholicbeverages for consumption on the premises.

v. Restaurant

This includes any business that serves food ordrink to its patrons for consumption on or offthe premises, and that derives more than 50%of its gross revenues from the sale of food forcomsumption on or off the premises.

vi. Hotel

This includes any business (other than a cruiseship) that derives more than 50% of its grossrevenues from providing temporary lodging toits patrons.

vii. Licensed check cashing service

This currently includes any business that, for afee, cashes checks for its customers and that isspecifically licensed to do so by an agency orinstrumentality of a state or local government.(But see Appendix A.) A check cashing service

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that is unlicensed, or that has only a generalbusiness license, does not come within thescope of this provision. If a bank wishes togrant a unilateral exemption to a licensedcheck cashing service it should do so only forwithdrawals of currency, not deposits, becausecurrency deposits are generally not attributableto check cashing activities of the business.

viii. Vending machine company

This includes any business that operates vend-ing devices which provide either a product(e.g., beverages, candy, food, newspapers, orchange) or a service (e.g., a coin-operatedlaundry) when activated by inserting coins orsmall-denomination currency.

A business that primarily operatescoin-operated juke boxes, or coin-operatedvideo games that do not constitute gamblingdevices, is within the scope of this provision.A business that operates coin-operated gam-bling devices of the type used in casinos (e.g.,slot machines or video poker) does not comewithin the scope of this provision.

ix. Theater

This includes any theater that shows films orthat presents live entertainment.

x. Regularly scheduled passenger carrier

This includes any business that is principallyengaged in providing transportation of passen-ger by airplane, boat, bus, limousine, ferry, ortrain on a regular and publicly available sched-ule. A business that is principally engaged inoperating a taxicab or limousine service, ortransporting passengers on a charter basis byairplane, bus, or train, does not come withinthe scope of this exemption.

xi. Public utility

This includes any business that is principallyengaged in operating a public utility (e.g.,electric power, telephone service, or water).

c. Multi-Faceted Businesses

In some cases, a particular business entity mayoffer more than one type of good or service tothe public. So long as more than 50% of thegross revenues of the customer whose accountis being considered for an exemption is de-rived from a unilaterally exemptible business

or businesses (e.g., bar and restaurant) andthe remainder of the business is derived froma business for which the bank may obtain au-thority from the IRS to grant a special exemp-tion, the bank may unilaterally grant an ex-emption for the account. Thus, for instance, ifa bakery were to sell its baked goods to ulti-mate consumers (retail) and to supermarkets(wholesale), the bank would be able to unilat-erally exempt the bakery’s account only if thebakery derived more than 50% of its gross rev-enues from the retail business and not thewholesale operation.

If more than 50% of the gross revenues isderived from a type of business that cannot beunilaterally exempted, but that may be granteda special exemption, the bank may not grantthat account a unilateral exemption. For exam-ple, if a bank has knowledge that one of itscustomers, a local bar, has been deriving themajority of its gross revenues from operatingan unlicensed check cashing service, it maynot unilaterally exempt the customer’s account.Instead, the bank should contact the IRS torequest a special exemption.

Finally, if the bank’s customer is a businessentity that operates exemptible and nonexemptible(as opposed to unilaterally exemptible and spe-cially exemptible) businesses and the fundsfrom both types of businesses (e.g., auto partsdepartment and a car dealer) are commingledin the same account, the bank may not grantthe account of that customer a unilateral ex-emption and should not write to the IRS inDetroit to request a special exemption. This istrue even if more than 50% of the gross reve-nues is derived from the exemptible business.If the bank has any questions, it should con-tact FinCEN at Treasury for guidance, at theaddress listed on page 2 above.

d. Limitations on Exemptions for Retail andOther Specified Businesses

There are three limitations that apply to allexemptions for accounts of retail or other speci-fied businesses: (1) they may only be grantedfor ‘‘deposits or withdrawals of currency,’’(2) they may only be granted for ‘‘an existingaccount by an established customer.,’’ and(3) they may only be granted for a ‘‘UnitedStates resident.’’ These limitations are explainedin more detail below. 31 CFR 103.22(b)(2)(i),(ii).

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i. ‘‘Deposits or withdrawals of currency’’

The term ‘‘(d)eposits or withdrawals of cur-rency’’ limits these exemptions to currency de-posits or withdrawals or both, involving the ac-count of a properly exempted customer. Thus,under these exemption provisions, a bank maynot exempt any other type of transaction in-volving that account (e.g., the purchase ofcashier’s checks or money orders, exchanges ofcurrency, or cash disbursement of loan pro-ceeds). In addition, if a bank customerpresents several third-party checks and obtains‘‘cash back’’ without actually depositing thechecks into an account, that transaction is notconsidered a deposit or withdrawal underthese exemptions. This is true even if the bankhas granted a unilaterally exemptible business(e.g., a retail business or licensed checkcasher) an exemption for currency depositsinto and withdrawals from that account; it stillmust file CTRs on any ‘‘cash back’’ transactionby that customer that does not involve the ac-tual deposit of the checks into, and the actualwithdrawal of more than $10,000 in cash from,the customer’s account.

ii. ‘‘Existing account by an establised depositor’’

• Existing Account

Banks frequently ask whether they should granta unilateral exemption for each separate accountof a customer that has multiple accounts or forthe customer (i.e., an exemption that coversmultiple accounts of the same customer with asingle taxpayer identification number (TIN)). Theterm ‘‘existing account’’ means that for this typeof exemption, the bank can only grant a unilat-eral exemption for an individual account, not foran individual customer. If a particular customerhas separate accounts at the bank, each accountshould be considered separately by the bank todetermine whether an exemption should begranted. The bank should not grant a single ex-emption covering multiple accounts of that cus-tomer, even if those accounts have the sameTIN. If the bank has already granted any of itscustomers a single exemption covering multipleaccounts, the bank should contact FinCEN at theaddress listed on page 2 for guidance. In addi-tion, if the bank determines that it wants to grantexemptions for more than one account, it shouldprepare an exemption statement for each account

and establish a separate exemption limit. (Seepp. 10–11 below.)

Thus, for example, if three fast-food restau-rants owned by the same corporation eachhave separate deposit accounts at the samebank, that bank may not grant one exemptionthat covers all three accounts. Instead, thebank should consider each account separatelyfor an exemption. If the bank decides that allthree accounts should be exempted, the bankshould prepare three separate exemption state-ments and establish separate exemption limitsfor each account.

• Established DepositorThe term ‘‘established depositor’’ is intendedto make clear that a bank may not exempt theaccount of a business at the time that the busi-ness opens the account. As these guidelineswill later explain, a bank must establish a dol-lar limit for an exemption in an amount thatdoes not exceed an amount ‘‘commensuratewith the customary conduct of the lawful, do-mestic business of that customer. . . .’’ 31CFR 103.22(c). If a bank has not had a prioraccount relationship with a customer, it cannotdetermine, from a history of its transactionswith that customer, what dollar limit would becommensurate with that customer’s lawful,domestic business.

For this reason, the bank generally shouldnot unilaterally exempt the account of a busi-ness for at least the first two months of thatbusiness’ depositor relationship with the bank.After reviewing at least two months of cur-rency transactions of the account being consid-ered for exemption, the bank may then set alimit. If the customer has had an account atthe bank for more than two months, the bankgenerally should review at least the most re-cent two months of transactions involving thataccount, unless those months are not repre-sentative of the customary conduct of the cus-tomer’s lawful domestic business. (See p.9below).

iii. ‘‘United States resident’’The term ‘‘United States resident’’ is intendedto limit these exemptions to accounts of busi-ness entities that are physically residing in theUnited States at the time of the exemption.The term includes a sole proprietorship oper-

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ated by a U.S. citizen or permanent resident,alien, a corporation, a partnership, an associa-tion, or any other form of corporate organiza-tion, which is physically located in and doingbusiness in the United States. The term doesnot include a foreign embassy or consulate inthe United States, or a foreign business entitythat does business, but does not have a placeof business, in the United States.

2. Government Agencies

The regulations permit a bank unilaterally toexempt ‘‘(d)eposits or withdrawals, exchangesof currency or other payments and transfers bylocal or state governments, or the UnitedStates or any of its agencies or instrumentali-ties.‘‘ 31 CFR 103.22(b)(2)(iii). By its terms,this exemption applies to all types of currencytransactions conducted by the Federal Govern-ment or any of its agencies or instrumentali-ties, as well as any state or local (e.g., countyor municipal) government or any of its agen-cies or instrumentalities whether or notthrough an account. Government agencies andinstrumentalities do not have to be‘‘established depositors’’ as described above.The only restriction on these types of exemp-tions is that the exemptions must be ‘‘inamounts which are customary and commensu-rate with the authorized activities of theagency or instrumentality.’’ 31 CFR 103.22(c).(See discussion p.9 below.)

A bank may therefore exempt the cash trans-actions involving any government agency (e.g.,the Treasury Department, the Justice Depart-ment, and Federal law enforcement agencies)or government instrumentality (e.g.,state-supported colleges and universities), evenif that agency or instrumentality does not con-stitute ‘‘an established depositor,’’ as defined onpage 6 above. If the government agency (e.g.,state-supported college) has a privately ownedbusiness (e.g., bookstore) that is operated onits grounds, the business may not be exemptedunder this exemption but may be exemptedunder another exemption (e.g., retailbusiness). A union or fraternal associationwhose membership consists of officials or em-ployees of a government agency or instrumen-tality also does not come within the scope ofthese provisions.

Although the regulations generally do notpermit banks to exempt their transactions with

nonbank financial institutions (see page 8below), a bank may use this exemption to ex-empt its transactions with the U.S. Postal Ser-vice, which the regulations have designated asa nonbank financial institution with respect toits sales of postal money orders.

3. Payroll Withdrawals

The regulations also permit a bank unilaterallyto exempt ‘‘(w)ithdrawals for payroll purposesfrom an existing account by an established de-positor who is a United States resident andoperates a firm that regularly withdraws morethan $10,000 in order to pay its employees incurrency.’’ 31 CFR 103.22(b)(2)(iv). This ex-emption is limited to withdrawals of currencyby an employer that actually pays its employ-ees with the currency it has withdrawn. Itdoes not include an employer that pays its em-ployees by check, but then cashes employees’paychecks and presents the employees’ checksat a bank to receive ‘‘cash back.’’ Similarly, anemployer that withdraws cash to offer a check-cashing service to its employees does not comewithin the scope of this exemption.

The terms ‘‘existing account by anestablished depositor’’ and ‘‘United States resi-dent’’ have the same scope as those terms de-scribed on page 6 above.

C. SPECIAL EXEMPTIONS

1. General Criteria

Even if a particular customer’s account doesnot come within one of the categories of ex-emptions that a bank may unilaterally grant,the bank may still be able to exempt the de-posits and withdrawals of cash of that custom-er’s account that exceed $10,000 from the CTRreporting requirements. If a bank determinesthat one of its customers appears to be operat-ing a legitimate business, and the customaryconduct of the lawful domestic business of thatcustomer involves regular and frequent cur-rency deposits or withdrawals, the bank mayapply to the IRS for additional authority toexempt deposits or withdrawals involving anaccount of that customer. If the bank receivesadditional authority from the IRS, it may thengrant a ‘‘special exemption.’’

Because there are numerous types of busi-nesses that may qualify for special exemptions,Treasury has refrained from developing a com-

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prehensive list of those businesses. However,Appendix A contains a list of some of thetypes of businesses that have been approvedin the past for special exemptions. The IRSwill not grant additonal authority for specialexemptions of businesses such as automobileclubs that offer travelers’ checks for sale, pre-cious metal or coin dealers, scrap metal deal-ers, and gambling operations, whether charita-ble or for profit.

2. Nonexemptible Entities

Transactions by certain types of businessesmay not be the subject of a unilateral or spe-cial exemption under any circumstances: (SeeAppendix A).

a. Transactions by a bank with nonbank fi-nancial institutions (e.g., casinos, currencyexchanges, issuers of traveler’s checks, andsecurities brokers or dealers) other than theU.S. Postal Service and check-cashing ser-vices.b. Transactions between a domestic bankand a foreign bank.c. Transactions by a bank with commoditiesbrokers and dealers.d. Transactions by a bank with a motor ve-hicle, vessel, or aircraft dealer, as describedabove.e. Transactions by a bank with a foreign

government, or any agency, instrumentality,or office thereof (e.g., foreign embassies andconsulates).

D. CTR REPORTING ON CERTAIN TRANS-ACTIONS BY EXEMPTED CUSTOMERS

In using the exemption provisions of the regu-lations, banks must bear in mind that theirgranting of exemptions to certain accounts andcustomers does not mean that they will neverhave to file CTRs on those accounts and cus-tomers. Even after granting an exemption andsetting a dollar limit for that exemption, abank must continue to file CTRs on two typesof currency transactions:

1. All currency transactions that are of thetype exempted, but that exceed the dollarlimit. Thus, if the exemption limit on a par-ticular customer’s account is for daily depos-its that do not exceed $20,000 when aggre-gated, the bank still must report the totalamount of deposits into that account if thetotal of all deposits in the same banking dayexceeds $20,000 (e.g., $20,000.01).

2. All non-exempted currency transactionsinvolving an account. Thus, if the account isthe subject of an exemption for currencywithdrawals up to $19,000, the bank must re-port any and all currency deposits into thataccount that exceed $10,000.

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II. HOW TO EXEMPT CUSTOMERS

Once a bank has determined that the accountof a particular customer may qualify for a uni-lateral or special exemption, it is encouraged toinitiate the process for granting the exemption.Under the regulations, only the bank (and notthe customer) has the authority to grant unilat-eral exemptions or to apply to Treasury forspecial exemptions. In general, if a businesscustomer specifically requests an exemptionbefore the bank has contacted it, the bankshould carefully scrutinize the customer’s ac-tivity at the bank before deciding whether togrant an exemption. This is because the cus-tomer may be seeking the exemption to hideits transactions from the government.

A. REVIEW OF BANK RECORDS

As the first step, the bank should review thecustomer’s transaction history, including itscash deposit or withdrawal transactions. Thisreview is necessary to determine whether thecustomary conduct of a business entity’s lawfuldomestic business involves currency depositsor withdrawals exceeding $10,000 that occurregularly and frequently (e.g., daily or severaltimes per week, or in some cases, weekly orbiweekly). If the bank’s records do not indicatethat that entity has had regular and frequentcurrency deposits or withdrawals exceeding$10,000, then the bank should not proceed anyfurther with the exemption process, notwith-standing the nature of the customer’s business.

1. Two Consecutive Months of Activity

The bank should review at least two consecu-tive months of transactions, including currencydeposits or withdrawals, by its customer. Thetwo months of deposits or withdrawals shouldbe the most recent months unless thosemonths are not truly representative of the cus-tomary conduct of the customer’s lawful do-mestic business. For example, if the currencydeposits or withdrawals of an established cus-tomer during the months of November andDecember far exceed that customer’s currencydeposits or withdrawals in other months be-cause of seasonal shopping trends, the bankshould review deposits or withdrawals thatoccurred in two consecutive months that donot include either November or December.

While the regulations do not require that agovernment agency or instrumentality be an‘‘established depositor,’’ the bank may still findit helpful to review at least the most recent twomonths’ account activity of that agency, to aidin establishing an exemtpion limit that is ‘‘com-mensurate with the authorized activities ofthe agency or instrumentality.’’ 31 CFR103.22(c). However, if the customer whose ac-count is being considered for exemption is agovernment law enforcement agency thatopened the account for deposits of seized cashfor transactions conducted in relation to crimi-nal investigations or similar types of transac-tions, the bank need not review two consecu-tive months of account activity. These types oftransactions are by their nature less regularand frequent than other transactions by othergovernment agencies.

2. Review of Other Available Information

In addition, the bank should review any otherinformation taht it has concerning its customerwhich might assist the bank in reviewing thatcustomer’s transaction history. If the customerhas a longstanding depositor relaitonship withthe bank, the bank may have made extensionsof credit or conducted other business with thecustomer that generated additional recordsabout the customer’s business. If the customeris a government agency or instrumentality, thebank should also ask for official identificationfrom the person who is opening the accountor conducting the transaction as a representa-tive of that agency. These steps not only areconsistent with a bank’s marketing strategy of‘‘knowing its customer,’’ but also may aid inthe determination of wehther the customer, infact, comes within one of the categories ofexemptible businesses.

In some cases, criminals have succeeded inhaving a ‘‘front’’ company paced on the ex-emption list. Often, the address given to thebank was a vacant lot or a storefront wherelegitimate business could not be carried on.Treasury therefore encourages banks to knowtheir customers. If a bank is not familiar with aparticular business entity that it is consideringfor an exemption, Treasury urges the bank totake some steps to see if the customer appears

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to be conducting a legitimate bsusiness bychecking the telephone directory to verify thebusiness’ address and telephone number, orpreferably by walking or driving past the busi-ness. The bank also may want to maintain arecord of all of the steps that it took in deter-mining whether the customer was eligible foran exemption.

B. PREPARATION OF EXEMPTIONSTATEMENTS

1. Statements for Customers Exempted AfterOctober 27, 1986

After the bank has reviewed the customer’stransaction history and other information, anddetermined that the customer appears to be eli-gible for an exemption, it must then prepare aseparate ‘‘exemption statement’’ for each accountof the customer to be exempted. Pursuant to a1986 amendment to the Bank Secrecy Act, theregulations state that after October 27, 1986 (thedate on which the amendment became law), ‘‘abank may not place any customer on its exemptlist without first preparing a written statement,signed by the customer, describing the custom-ary conduct of the lawful domestic business ofthat customer and a detailed statement of rea-sons why such person is qualified for an exemp-tion.’’ 31 CFR 103.22(d).

2. Statements for Customers Exempted on orbefore October 27, 1986

For customers granted an exemption on or be-fore October 27, 1986, the bank should preparean exemption statement if there is any changein the business or in the type of exemptionother than a change in address or in the dollaramount of the existing exemption. These in-stances would include a change in the name ofthe business, a change from one form of entityto another (e.g., sole proprietorship to corpo-ration), a change from one type of business toanother (e.g., a retail type of business to a res-taurant), a change in ownership of the custom-er’s business, or a change in the nature of theexisting exemption (e.g., from withdrawals todeposits or from withdrawals only to with-drawals and deposits). The exemption state-ment should reflect the current informationabout the customer.

3. Form for Exemption Statements

Treasury has not issued a form that all banksare required to use for their exemption state-

ments. Instead, in response to many inquiries,Treasury has developed model form (see Ap-pendix B) that banks may use. As stated atpage 6 above, the bank must prepare a sepa-rate exemption statement for each customeraccount to be exempted. However, any exemp-tion statement that a bank prepares must, un-der the regulations, include the followingitems:

a. The name, address (i.e., complete streetaddress), nature of business, taxpayer identi-fication number, and account number of thecustomer being exempted. In addition, inorder to ensure that an account is beingproperty exempted under 103.22(a), it isrecommended that the customer also con-firm that the funds being deposited into theaccount being exempted do indeed comefrom the business for which the account wasestablished.

b. A statement, following the information inparagraph ‘‘a’’ above, that reads as follows:‘‘The information contained above is trueand correct to the best of my knowledge andbelief. I understand that this informationwill be read and relied upon by the Govern-ment.’’

c. A space, following that statement, for thesignature of the person who is attesting tothe accuracy of the information concerningthe name, address, nature of business, andtax identification number of the customer.This space must also list the signer’s titleand position (i.e., the office or division ofthe customer in which the person signing isemployed), and should include the date ofthe signature.

d. An indication by the bank whether theexemption covers deposits, withdrawals, orboth, as well as the dollar limit of the ex-emption for both deposits and withdrawals.

e. An indication by the bank whether theexemption is limited to certain types of de-posits or withdrawals (e.g., withdrawals forpayroll purposes).

4. Customer Information and Signature

To prepare the exemption statement, the bank,after compiling whatever information it needsfor reviewing the customer’s transaction historyand other information, should contact the

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customer, explain the need for the statementand its relationship to the exemption, obtainfrom the customer the information listed initem 3a on page 10 above, and have the cus-tomer place an original signature on the state-ment. Facsimile signatures are not acceptablefor completion of the statement.

The signature on the statement need not bethat of the highest ranking officer or employeeof the business (or government agency) whosetransactions are to be exempted. However, thebank should inform the customer that the sig-nature should be that of an appropriatesupervisory-level officer or employee who haspersonal knowledge of (and can therefore at-test to the accuracy of) the information listedin item 3a above. In the case of an account es-tablished for the local store of a multiple-establishment business (e.g., fast food) or thelocal office of a government agency, the bankmay accept the signature of a supervisory-levelofficer or employee in that local store or office.

5. Completion of Exemption Statement

After obtaining the customer’s signature on theexemption statement, the bank should thencomplete the remainder of the statement. Theregulations require that the statement includenot only a description of ‘‘the customary con-duct of the lawful domestic business of thatcustomer,’’ but also ‘‘a detailed statement ofreasons why such person is qualified for anexemption.’’ 31 CFR 103.22(d). Summary state-ments such as ‘‘retail,’’ ‘‘qualified under103.22(b)(2)(ii),’’ or ‘‘government’’ will not suf-fice to describe the business.

The following are examples of descriptionsof businesses that will suffice:

1. retail women’s shoe store;2. retail and wholesale bakery with 70% ofthe gross revenues attributable to the retailbusiness; and3. a restaurant/bar with check cashing ser-vices that derives 80% of its gross revenuesfrom the restaurant/bar.The statement should include the period

covered by the transaction history that thebank reviewed, the range (i.e., the maximumand minimum amounts) of the transactionsduring that period, and any other informationthat the bank may have about the business orits account activity. The bank must indicate in

the statement whether the exemption coversdeposits, withdrawals, or both, and the dollarlimit of the exemption. 31 CFR 103.22(d). Thisinforamtion should note whether the transac-tions exempted are limited to a certain type(e.g., withdrawals for payroll purposes). Fi-nally, the bank should note on the statementthe date on which it granted the exemption.

C. EXEMPTION LIMITS

1. General Criteria

In conjunction with its review of the custom-er’s account activity, the bank must also deter-mine for the exempted account the applicabledollar limit for the exempted deposits or with-drawals. 31 CFR 103.22(d). This determinationrequires the bank to establish two types of dol-lar limits for the currency transactions that areexempted:

a. For exemptions pertaining to governmentagencies or instrumentalities, the dollar lim-its must be ‘‘in amounts which are custom-ary and commensurate with the authorizedactivities of the agency or instrumentality.’’31 CFR 103.22(c).

b. For all other categories of unilateral ex-emptions, the dollar limits must be ‘‘inamounts that the bank may reasonably con-clude do not exceed amounts commensuratewith the customary conduct of the lawfuldomestic business of that customer.’’ 31 CFR103.22(c).

This language indicates that there must be areasonable relationship between the maximumamounts of the currency transactions that thebank reviewed and the dollar limit that it setsfor a particular exemption. If, for example, themajority of the currency transactions reviewedrange from $20,000 to a maximum of $25,000,the bank must not arbitrarily set the dollarlimit at an amount so high (e.g., $60,000) thatno CTRs will ever be filed on the exemptedaccount.

The bank must therefore carefully review thetransaction history of the exempted account, todetermine what limit would bear a reasonablerelationship to the currency transactions re-viewed. If one transaction amount recurs morefrequently than any other, the bank may sim-ply set the dollar limit at that amount, or atthe amount of other transactions that do notsubstantially exceed that amount. Thus, for

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example, if the bank had reviewed at least twomonths of currency transactions, and saw thatthe following pattern of transactions in a par-ticular month was representative of the num-ber and dollar amounts in all monthsreviewed,

March 1 - $15,000 March 18 - $45,000March 2 - $43,000 March 21 - $30,000March 4 - $40,000 March 22 - $28,000March 7 - $42,000 March 23 - $35,000March 8 - $18,000 March 25 - $40,000March 9 - $38,000 March 28 - $40,000March 11 - $45,000 March 29 - $20,000March 15 - $40,000 March 30 - $41,000March 16 - $30,000 March 31 - $40,000

it could select $40,000 as the exemption limitbecause that amount recurs more frequentlythan any other and most of the other amountsare within a $35,000 to $45,000 range. How-ever, Treasury suggests an exemption limit of$45,000, as that amount occurs twice; it is notsubstantially greater than $40,000; and thereare other transactions (i.e., $41,000, $42,000,and $43,000) that fall between $40,000 and$45,000.

To aid in its review of a customer’s currencytransactions, a bank may find it helpful to de-velop a chart that shows the number of cur-rency transactions that fall within certainranges. If the bank reviewing the transactionhistory set forth above had used this method,the chart of the transactions under reviewwould look like this:

$10,001 - $15,000 X$15,001 - $20,000 XX$20,001 - $25,000$25,001 - $30,000 XXX$30,001 - $35,000 X$35,001 - $40,000 XXXXXX$40,001 - $45,000 XXXXX$45,001 - $50,000

This chart graphically demonstrates thatwhile the bank could select $40,000 as the ex-emption limit, $45,000 would be an appropriateexemption limit in this case because of thegrouping of the transactions from $35,000 to$45,000.

If no amount recurs frequently enough toserve as a guide for the exemption limit, thebank may still establish an exemption limitbased upon the range of any currency transac-

tions that it has reviewed. Thus, for example,if a bank had reviewed at least two months oftransactions, and saw that the following pat-tern of currency transactions in a particularmonth was representative of the number anddollar amounts in all months reviewed,

April 1 - $12,000 April 14 - $13,000April 4 - $25,500 April 18 - $21,500April 5 - $15,000 April 21 - $26,000April 7 - $22,500 April 22 - $12,300April 8 - $19,000 April 25 - $21,000April 11 - $22,000 April 27 - $24,000April 13 - $17,000 April 29 - $25,000

it could select the highest amount, $26,000, asthe exemption limit. This is because most ofthe transactions are between $15,000 and$26,000, and $26,000 does not substantiallyexceed the $24,000, $25,000, and $25,500transactions, as demonstrated below:

$10,001 - $15,000 XXXX$15,001 - $20,000 XX$20,001 - $25,000 XXXXXX$25,001 - $30,000 XX

On the other hand, if the highest currencytransaction or transactions substantially exceedthe amount of most of the currency transac-tions, the bank should not establish the ex-emption limit at the amount of the highesttransaction. Thus, for example, if the highesttransaction in the last example had been$46,000 rather than $26,000, the bank shouldnot select an amount that is higher than$25,500 as the exemption limit. This is trueeven if there were two or more higher transac-tions (i.e., $46,000 and $65,000), as theseamounts are substantially greater than theother currency transactions and they do notoccur frequently or regularly. The key is tomake sure that the amount selected as the ex-emption limit is commensurate with the cus-tomary conduct of the customer’s lawful do-mestic business and that those amounts thatare unusual (i.e., higher than the customarytransactions) can be easily detected andreported on CTRs.

2. Seasonal and ‘‘Monday-Only’’ Limits

Banks should take note of two special situa-tions in establishing and setting dollar limitsfor exempted currency transactions. If a bankis dealing with a business account that can be

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exempted either unilaterally or specially, andthat business is seasonal in nature (e.g., a ho-tel on the beach), the bank may establish anexemption that covers only the season inwhich that business has its peak activity, orthat sets a high dollar limit for the business’peak season and a lower dollar limit for theother months of the year. Similarly, if an ex-emptible business proves to have a higheramount of currency transactions on a particu-lar day (i.e., Monday or the day after a holi-day, Friday, or the first and fifteenth of themonth), than on other days of the week ormonth (i.e., because of greater business activ-ity on weekends, more currency depositsmade through night deposits or automatedteller machines, or factory paydays), the bankmay establish an exemption that covers onlycurrency transactions posted on that day, orthat sets a higher dollar limit for currencytransactions on that day and a lower dollarlimit for other days of the week.

Thus, for example, if the bank had reviewedat least two months of currency transactions,and saw that the following pattern of transac-tions in a particular month was representativeof the number and dollar amounts in allmonths reviewed,

April 1 - $15,000 April 14 - $17,000April 4 - $46,000 April 18 - $53,000April 5 - $ 5,000 April 21 - $22,000April 7 - $19,000 April 22 - $26,000April 8 - $24,000 April 25 - $50,000April 11 - $52,000 April 27 - $25,000April 13 - $21,000 April 29 - $22,000

the bank should try to determine whether thehigher amount of currency transactions reflectedactivity on the same day of the week every week(i.e., Mondays). If it did, it may be appropriatefor the bank to set two exemption limits: (1) adaily exemption limit of $26,000; and (2) a Mon-day or the day after a holiday limit of $53,000.

D. MULTIPLE-ESTABLISHMENT CUSTOMERS

Another special situation of which banksshould take note is the process of exemptingmultiple-establishment customers. Forpurposes of the regulations, a multiple-establishment customer is a customer that fallsinto one of the following categories:

1. An operator of the same type of exempt-ible business at several geographic locations

(e.g., a fast-food restaurant with the sametrade name), which has established a singleaccount that all of the locations use to makedeposits and withdrawals;

2. An operator of several different types ofexemptible businesses at one or more geo-graphic locations which has established asingle account that all of the businesses itoperates use to make deposits andwithdrawals;

3. An operator of the same type of exempt-ible business at several geographic locations,when each location has its own separateaccount; and

4. An operator of several different types ofexemptible businesses at one or more geo-graphic locations, when each location has itsown separate account.

In the first two situations above, which in-volve only a single account, the bank shouldestablish a single exemption for that accountand set a single dollar limit that will apply toall transactions of the type exempted that in-volve that account.

In the latter two situations described above,which involve separate accounts for each loca-tion, the bank should establish a separate ex-emption for each account and separate dollarlimit for each exemption. Because section103.22(b)(2)(i), (ii), and (iv) of the regulationsprovides for exemption from an existing ac-count by an established depositor who is aUnited States resident, the bank should granta separate unilateral exemption for each indi-vidual account, not for each individual cus-tomer or business. If one customer has an ac-count for each of its business establishments,the bank should separately consider each indi-vidual account (but not the customer) for anexemption. A single exemption should not begranted that covers multiple accounts, even ifthey have the same taxpayer identificationnumber. If the bank has any questions aboutthis, it should contact the FinCEN at theaddress listed on page 2. In addition, if thebank decides that it wants to grant an exemp-tion for more than one account, a separateexemption statement should be obtained foreach account and a separate dollar limitestablished.

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E. SPECIAL EXEMPTION REQUESTS

Finally, if a bank wishes to exempt depositsinto or withdrawals from an account by a cus-tomer that does not fall within one or more ofthe categories of unilaterally exemptible cus-tomers, it must apply to the IRS Data Centerin Detroit, Michigan, for additional authorityto exempt that account under the regulations.See 31 CFR 103.22(e). To apply for such addi-tional authority, the bank must submit its re-quest to:

ChiefCurrency and Banking Reports DivisionCompliance Review GroupInternal Revenue Service Data CenterP.O. Box 32063Detroit, Michigan 48232The request must be accompanied by a state-

ment of the circumstances that the bank be-lieves warrant a special exemption, as well as a

copy of the exemption statement (signed bythe customer whose acount is proposed forthe special exemption) that meets all of therequirements described above for exemptionstatements for unilateraly exempted accounts.The request should also include a listing ofdaily amounts of currency deposited and with-drawn during the two-month period reviewed,what percentage of the amount of the depositsor withdrawals is ordinarily in $100 bills orgreater, a suggested dollar limit for the exemp-tion, and the name and telephone number ofthe bank official whom the IRS may contact forfurther information concerning the exemptionrequest. The request, if complete, will then bereviewed by the Compliance Review Group ofthe Data Center. A bank may not exempt a cus-tomer’s account that does not qualify for a uni-lateral exemption until it has received noticefrom the IRS that it has granted the bank theadditional authority to do so.

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III. RECORDKEEPING FOR EXEMPTED CUSTOMERS

After it has granted an exemption involving a par-ticular account of a customer, the bank is responsi-ble for keeping two principal types of records per-taining to that exemption: (1) a centralizedexemption list and (2) exemption statements.

A. EXEMPTION LIST

The bank must keep ‘‘(a) record of each exemp-tion granted . . . and the reason therefore. . . ina centralized list.’’ 31 CFR 103.22(f). This list,known as the ‘‘exemption list’’ or ‘‘exempt list,’’must include the name, complete street address,type of business, taxpayer identification number,and account number of each customer (whethera business entity or a government agency)whose transactions have been exempted, as wellas an indication of whether the exemption coverswithdrawals, deposits, or both, and the dollarlimit of that exemption. For a special exemption,the bank should include the date the exemptionwas granted by Treasury or the IRS. For banksthat manually revise their exemption lists, Trea-sury suggests the following format for the re-quired information:

1. ABC Supermarket, Inc.1234 Dixie HighwayClear Springs, Florida 33123Retail GroceryAccount Number: 123456Deposits Exemption Limit: $20,000Withdrawals Exemption Limit: $25,000TIN: 59-2345678

2. BCD Citrus GrowersRoute 5Clear Springs, Florida 33123Orange GrowerAccount Number: 1234567Withdrawals for Payroll Exemption Limit:$25,000TIN: 59-1234567

3. Jones Beverage Co.5432 Main StreetClear Springs, Florida 33123Beer WholesalerAccount Number: 2345678Deposits Exemption Limit: $20,000

(Special exemption authority granted3/21/87)

TIN: 59-3456789

4. Clear Springs National Bank5420 Main StreetClear Springs, Florida 33123

The last entry on the sample format reflectsthe requirement in the Bank Secrecy Act regu-lations that a bank must also include on itsexemption list the names and addresses of alldomestic banks with which the bank conductscurrency transactions that are exempted fromthe CTR reporting requirements. See 31 CFR103.22(f). As stated on page 3 above, transac-tions between domestic banks are exceptedfrom those reporting requirements. Even if thebank does not have an exemption list, it stillmust maintain the names and addresses ofsuch domestic banks on a centralized list.

Again, because the bank’s transactions withdomestic banks are not included within thereporting requirement, the bank does not haveto decide whether to exempt those transactionsor to set an exemption dollar limit for them.Accordingly, the bank should not include adollar limit for those domestic banks that itplaces on the exemption list.

Whenever a bank generates a list of its ex-empted customers, it must retain either theoriginal or a copy of that list for a period offive years. The retention period for an exemp-tion list begins on the day on which the origi-nal of that list was generated, either manuallyor through the use of an automated system.See 31 CFR 103.38(d). In addition, the regula-tions require that the exemption lists, likeother records required to be retained under theBank Secrecy Act regulations, ‘‘be filed orstored in such a way as to be accessible withina reasonable period of time, taking into con-sideration the nature of the record, and theamount of time expired since the record wasmade.’’ 31 CFR 103.38(d).

B. EXEMPTION STATEMENTS

The second principal category of records that abank must keep concerning an exempted ac-count is the exemption statement that the bankhas obtained from a customer whose transac-tions involving that account have beenexempted. After the bank has obtained such astatement, it must retain the original of thestatement for a unilateral exemption (or a copy

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of the statement for a special exemption) aslong as the customer is on the exemption list,and for a period of five years after that cus-

tomer has been removed from the exemptionlist. 31 CFR 103.22(d).

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IV. MONITORING EXEMPTIONS AND DISCOVERYOF IMPROPER EXEMPTIONS

A. MONITORING EXEMPTIONS

Banks should also continue to monitor the ex-emptions they have granted. A company thatwas appropriate for an exemption at one timemay go out of business and be used as a‘‘front’’ to conceal the movement of illegallyobtained funds. It also may experience someother significant change in its operations, suchas expansion of its business activities, thatchanges the nature of its business or that re-quires it to move to a new location. In addi-tion, improvements or declines in the com-pany’s business may make the originallygranted exemption limit inappropriate. Overtime, the exemption limit for a particular ac-count and customer may need to be increasedor decreased so that it remains at a level thatthe bank may reasonably conclude does not‘‘exceed amounts commensurate with the cus-tomary conduct of the lawful domestic busi-ness of that customer.’’ 31 CFR 103.22(d).

For these reasons, Treasury recommendsthat a bank review its exemption list at leastonce a year, and preferably once every sixmonths. In keeping with the general policythat banks should know their customers, eachreview should include a contact with the cus-tomer of each exempted account to determinewhether there are any changes in the custom-er’s situation (such as the customer’s name,address, or nature of business) since the lastdate of review. If the bank learns, either di-rectly from the customer or through any othermeans, that any of the information to whichthat customer attested on the exemption state-ment has changed, it should obtain a new ex-emption statement from that customer thatcorrectly reflects the relevant information fromthat customer. If that customer’s account wasgranted a special exemption, the bank mustthen send a copy of the new exemption state-

ment to the IRS Data Center in Detroit andrequest additional authority for continuing thatspecial exemption in light of the new informa-tion to which the customer has attested.

If the only item on a customer’s exemptionstatement that a bank determines is no lognerappropriate is the exemption dollar limit (anitem to which the customer does not attest),the bank may increase or decrease the dollarlimit unilaterally if the customer was unilater-ally exempted, and need not obtain a new ex-emption statement from the customer. If thecustomer’s account was the subject of a specialexemption, the bank must obtain permissionfrom the IRS Data Center before increasing thedollar limit.

B. DISCOVERY OF IMPROPEREXEMPTIONS

If a bank discovers that it has improperlyexempted one or more customer accounts, itshould promptly take several actions. The bankshould first rescind all of the exemptions that itdetermines were improperly granted, and imme-diately remove those exemptions from the ex-emption list. It should then contact:

DirectorFinCENU.S. Department of the Treasury1500 Pennsylvania Avenue, N.W.Washington, D.C. 20220(202) 622-0400

The bank should not begin to backfile CTRson the currency transactions it determineswere improperly exempted until it obtainsguidance from FinCEN. That office mayrequest additional information concerningthose exemptions and currency transactionsto determine whether the bank should bedirected to backfile CTRs on particularcustomers.

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V. CONCLUSION

This set of guidelines should cover most of theissues that banks are likely to encounter in us-ing the exemption provisions of the regula-tions. For further guidance on the exemptionprovisions, banks are encouraged to consultwith IRS contact representatives at:

Compliance Review GroupIRS Data CenterP.O. Box 32063Detroit, Michigan 48232(313) 234-1613

or the FinCEN, Department of the Treasury at:

DirectorFinCENU.S. Department of the Treasury1500 Pennsylvania Avenue, N.W.Washington, D.C. 20220(202) 622-0400

As new situations arise that, in Treasury’sjudgment, are likely to be of general interest tothe banking community concerning the properuse of exemptions, Treasury will issue specificadministrative rulings to deal with those situa-tions, and may also amend these guidelines inappropriate circumstances.

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APPENDIX A

The following lists identify various types ofbusiness accounts and their general exemptionstatus under section 103.22 of the Bank SecrecyAct regulations or the Department of the Trea-sury’s exemption policy. In the case ofaccounts of businesses that are unilaterally orspecially exemptible, the bank must make surethat the customer meets all of the exemptioncriteria outlined in section 103.22 and conductscurrency transactions exceeding $10,000 on aregular and frequent basis. These items arediscussed elsewhere in this booklet.

The lists are not all inclusive and are not neces-sarily determinative of whether a particular busi-ness account qualifies for an exemption. They aremeant to provide guidance to banks and provideexamples of the types of business accounts that maybe appropriately exempted from the CTR reportingrequirements. If a bank has a question regardingthe exemptibility of a customer, it should con-tract the Compliance Review Group at the In-ternal Revenue Service Data Center in Detroit,Michigan.

EXCEPTED TRANSACTIONS

Currency transactions with the following fi-nancial institutions are automatically exceptedfrom the reporting requirements. Thus, banksshould not file CTRs on their transactions withthese banks. However, banks must maintainthe name and address of any domestic bankwith which they conduct currency transactionson their exemption list.

The Federal Reserve Bank and Federal HomeLoan Bank which provide currency and coinservice should not be listed on the exemptionlist.

Commercial Bank (Domestic)Cooperative Bank (Domestic)Credit Union (Domestic)Federal Home Loan BankFederal Reserve BankSavings and Loan (Domestic)Savings Bank (Domestic)

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EXEMPTIBLE BY BANK UNILATERALLY

The following is a list of businesses which abank generally may unilaterally exempt. Insome instances, the businesses listed belowmay sell both retail and wholesale goods ormay sell retail goods and provide a service.Such business accounts may be unilaterallyexempted only if more than 50% of the grossrevenues of the business are derived from theretail sale of goods and the remainder of theirbusiness is eligible for either a unilateral orspecial exemption. If the remainder of thebusiness is of a type that may not be granted aunilateral or special exemption (e.g., an autoparts store that sells cars) the account of thebusiness may not be granted either a unilateralor special exemption.

FinCEN is currently reviewing the exemptionstatus of check cashing services. If it is decidedthat an exemption will no longer be allowed,notice will be published in the Federal Registerand banks having received additional authorityto grant special exemptions in the past may benotified directly.

Airline/Commercial (Scheduled)

Amusement Park

Appliance Store

Art Supply Store

Auto Parts Store

Bakery

Bar

Book Store

Building Materials (Retail)

Bus Line (Commercial)

Candy Store

Car Wash (Coin Operated)

Check Cashing (Licensed)

Clothing Store

College/State or Local Government

Community College/State or LocalGovernment

Computer StoreConcession/Food (Retail)Convenience StoreDelicatessenDepartment Store

Drug StoreDry Goods Merchandise (Misc.)Duty Free ShopElectric UtilityElectronics StoreFast Food RestaurantFilm SalesFish MarketFloristFurniture SalesGarden CenterGas Company (Utility)Gas/Oil Retail SalesGeneral StoreGift ShopGovernment AgencyGrocery StoreHardware StoreHealth Food StoreHotelIce Cream StoreLaundry (Coin Operated)Law Enforcement AgencyLiquor StoreLumber StoreMeat MarketMotelMovie (Stage or Theater)Musical Instrument StoreNewspapers (Retail Sales)Paint StorePetroleum (Home Heating)Public TransportationRace TrackRailroad (Passenger Service)Record StoreResort/HotelRestaurantSchool (Public)Seafood StoreShoe StoreSporting Goods Store

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Sports ArenaStationery StoreSupermarketTelephone CompanyTelevision Video RentalsTobacco Store

Toy StoreUniform StoreU.S. Postal ServiceUniversity (State Supported)Vending Machine CompanyWater Company

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SPECIAL EXEMPTION—REQUIRES IRSAPPROVAL

If the following types of businesses conductregular and frequent cash transactions, a bankshould request additional authority from theIRS to grant a special exemption for the cus-tomer’s account. IRS is receptive to requestsfor special exemptions involving service-typebusinesses.

Auto RepairBakery DistributorBeauty Supplies DistributorBeverage DistributorBoat ToursBowling AlleyBowling LeagueBus Line (Chartered)Cable TVCandy (Wholesale)Car RentalsCar WashCheese DistributorChurchCollege (Private)Cosmetics DistributorCountry ClubDairy DistributorDelivery ServiceDry CleanersElectrical Supplies DistributorFarmingFerry ServiceFilm ProcessorFireworks DistributorFlower DistributorFood Catering

Food DistributorFood ProcessorFood ServiceFrozen Food/WholesaleGarage (Parking)Gas/Oil DistributorGolf CourseHospitalInsurance CompanyLimousine ServiceLiquor DistributorLumber MillLumber DistributorMeat/WholesaleMedical ClinicMuseum (Admission fees, gift shop)Nonprofit OrganizationOff Track Betting (NY only)Parking FacilityPetroleum DistributorPoultry DistributorPrivate Mail CarrierProduce Distributor/WholesalerProfessional Sports TeamsProperty ManagementReal Estate ManagementRecreational Camps-SchoolsReligious OrganizationSchool (Private)Shoe DistributorSki ResortTaxi Cab CompanyTicket Agency (Entertainment/sports)Tobacco DistributorUniversity (Private)Warehouse Rental

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NOT EXEMPTIBLE

The following types of business accounts maynot be exempted unilaterally and will not begranted a special exemption.

AccountantsAircraft SalesAttorneysAuction HouseAutomobile Clubs with Travelers Check

ServicesAuto DealerBank/ForeignBingoBoat SalesCard ClubsCasinoCharter Ships, Airplanes, BusesCheck Cashing (Unlicensed)Commodity Brokers/DealersCruise Lines (Ships)Currency ExchangerDoctorsEmbassy

Escrow CompanyFarm Equipment SalesForeign BankForeign Currency ExchangeIndividualsInvestment AdvisorInvestment BankerBoat DealerMobile Home SalesMoney Order CompanyMotorcycle DealerPawn ShopsReal Estate BrokerRecreational Vehicle DealerScrap Metal DealerSecurities Brokers/DealersTelegraph CompanyTitle CompanyTravelers Check Issuer/Seller/RedeemerTruck DealerUnionsWire Transmitters of Funds

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APPENDIX BMODEL CUSTOMER EXEMPTION STATEMENT

Part I: Identity of Customer(To be completed by customer)

1. Legal Name of Customer:

2. Trade Name of Customer (if different from legal name):

3. Complete Street Address(es) of Customer (Include street, city, state, and zip code for all streetaddresses of customer’s locations using account to be exempted):

4. Taxpayer Identification Number of Customer:

5. Type and Number of Account To Be Exempted:

6. Nature of Business (Please include complete description):

7. The monies deposited into the account described in No. 5 are funds generated solely from thebusiness described in No. 6.

Yes No

The information contained above is true and correct to the best of my knowledge and belief. Iunderstand that this information will be read and relied upon by the Government.

Signature of Authorized Official Date Signed

Name of Authorized Official(Please type or print)

Title/Position of Official

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Part II: Information on Customer and Account to Be Exempted(To be completed by bank only)

8. Period of Account Activity Reviewed (Should include at least two consecutive months of transac-tions, as set forth in bank’s records, that are representative of the customary conduct of the lawfuldomestic business of customer):

9. Highest Cash Transactions During Period Reviewed (Complete all that apply to account to beexempted): Deposits: Withdrawals: Withdrawals for Payroll Purposes:

10. Lowest Cash Transactions During Period Reviewed (Complete all that apply to account to beexempted): Deposits: Withdrawals: Withdrawals for Payroll Purposes:

11. Additional Information on Account Activity:

12. Reason(s) Customer Qualified for Exemption (Should include detailed description of type ofbusiness and relation of cash transactions to that business):

13. (For special exemption only) Date on Which Treasury/IRS Granted Additional Authority to Exempt:

Based upon an independent verification of the activity of account (using available bankrecords pertaining to that account), and a review of the information to which the customer hascertified in Part I above, I have determined that the following types of currency transactionsinvolving account are eligible for exemption from the requirements of the Bank SecrecyAct regulations pertaining to Currency Transaction Reports:

(Check one or more boxes, and fill in amounts, as appropriate)

Daily deposits not exceeding $

Daily withdrawals not exceeding $

Daily withdrawals for payroll purposes not exceeding $

Other exemptible transactions (e.g., government agency, Monday-only deposits, seasonal) notexceeding $ (Please specify type of customer and transactions exempted)

The dollar limits of these types of transactions do not exceed amounts commensurate with thecustomary conduct of the lawful domestic business of the customer.

Signature of Bank Official Date of Signature

Name of Bank Official(Please type or print)

Title/Position of Bank Official

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Part III: Identification of Exempting Bank(To be completed by bank only)

14. Name of Bank:

15. Complete Street Address of Bank (Include street, city, state, and zip code):

16. Employer Identification Number of Bank:

17. MICR Number of Bank:

18. Supervisory Agency (check one):OCC FDIC FRS FHLBB NCUA

Other (specify):

U.S. Government Printing Office: 1988–202-014/94503

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Interim Exemption RuleSection 502.0

FEDERAL REGISTERVol. 61, No. 80

Rules and Regulations

DEPARTMENT OF THETREASURYFinancial Crimes EnforcementNetwork (FinCEN)

31 CFR Part 103

RIN 1506-AA10; 1506-AA11

Amendment to the Bank Secrecy ActRegulations—Exemptions From theRequirement To Report Transactionsin Currency

Part III

61 FR 18204

DATE: Wednesday, April 24, 1996

ACTION: Interim rule with request forcomments.

SUMMARY: This document contains an interimrule eliminating the requirement to report trans-actions in currency in excess of $10,000, betweendepository institutions and certain classes of‘‘exempt persons’’ defined in the rule. Theinterim rule applies to currency transactionsoccurring after April 30, 1996. It is adopted asa major step in reducing the burden imposedupon financial institutions by the Bank SecrecyAct and increasing the cost-effectiveness of thecounter-money laundering policies of theDepartment of the Treasury. The interim rule ispart of a process to achieve the reduction set bythe Money Laundering Suppression Act of 1994in the number of currency transaction reportsfiled annually by depository institutions.

DATES: Effective date.The interim rule iseffective May 1, 1996.

Comment deadline.Comments must bereceived by August 1, 1996.

Applicability. This interim rule applies totransactions in currency occurring afterApril 30, 1996.

ADDRESSES: Written comments should besubmitted to: Office of Regulatory Policy andEnforcement, Financial Crimes EnforcementNetwork, Department of the Treasury, 2070Chain Bridge Road, Vienna, Virginia 22182-2536, Attention: Interim CTR Exemption Rule.

Submission of comments. An original andfour copies of any comment must be submitted.All comments will be available for publicinspection and copying, and no material in anysuch comments, including the name of anyperson submitting comments, will be recognizedas confidential. Accordingly, material notintended to be disclosed to the public should notbe submitted.

Inspection of comments. Comments may beinspected at the Department of the Treasurybetween 10:00 a.m. and 4:00 p.m., in the Finan-cial Crimes Enforcement Network (‘‘FinCEN’’)reading room, on the third floor of the TreasuryAnnex, 1500 Pennsylvania Avenue, N.W., Wash-ington, D.C. 20220. Persons wishing to inspectthe comments submitted should request anappointment by telephoning (202) 622-0400.

FOR FURTHER INFORMATION CONTACT: PamelaJohnson, Assistant Director, Office of Financial InstitutionsPolicy, FinCEN, at (703) 905-3920; Charles Klingman, Officeof Financial Institutions Policy, FinCEN, at (703) 905-3920;Stephen R. Kroll, Legal Counsel, FinCEN, at (703) 905-3590;or Cynthia A. Langwiser, Office of Legal Counsel, FinCEN, at(703) 905-3590.

SUPPLEMENTARY INFORMATION

I. Introduction

This document adds, as an interim rule, a newparagraph (h) (the ‘‘Interim Rule’’) to 31 CFR103.22. The Interim Rule exempts, from therequirement for the reporting of transactionsin currency in excess of $10,000, transactionsoccurring after April 30, 1996, between deposi-tory institutions1 and certain classes of exemptpersons defined in the Interim Rule. The InterimRule is adopted to implement the terms of31 U.S.C. 5313(d) (and related provisions of31 U.S.C. 5313 (f) and (g)), which were added to

1 As explained below, the text of the rule itself uses theterm ‘‘bank,’’ which as defined in 31 CFR 103.11 (c) includesboth banks and other classes of depository institutions.

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the Bank Secrecy Act by section 402(a) of theMoney Laundering Suppression Act of 1994(the ‘‘Money Laundering Suppression Act’’),Title IV of the Riegle Community Developmentand Regulatory Improvement Act of 1994,Pub. L. 103-325 (September 23, 1994).

II. Background

A. Statutory Provisions

The Bank Secrecy Act, Titles I and II of Pub. L.91-508, as amended, codified at 12 U.S.C. 1829b,12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5330,authorizes the Secretary of the Treasury, interalia, to issue regulations requiring financialinstitutions to keep records and file reports thatare determined to have a high degree of useful-ness in criminal, tax, and regulatory matters, andto implement counter-money laundering pro-grams and compliance procedures. Regulationsimplementing Title II of the Bank Secrecy Act(codified at 31 U.S.C. 5311-5330) appear at31 CFR Part 103. The authority of the Secretaryto administer Title II of the Bank Secrecy Acthas been delegated to the Director of FinCEN.

The reporting by financial institutions of trans-actions in currency in excess of $10,000has long been a major component of the Depart-ment of the Treasury’s implementation of theBank Secrecy Act. The reporting requirementis imposed by 31 CFR 103.22, a rule issuedunder the broad authority granted to the Secre-tary of the Treasury by 31 U.S.C. 5313(a) torequire reports of domestic coin and currencytransactions.

Four new provisions (31 U.S.C. 5313 (d)through (g)) concerning exemptions were addedto 31 U.S.C. 5313 by the Money LaunderingSuppression Act. Subsection (d)(1) providesthat the Secretary of the Treasury shall exempt adepository institution from the requirement toreport currency transactions with respect totransactions between the depository institutionand the following categories of entities:

(A) Another depository institution.(B) A department or agency of the United

States, any State, or any political subdivision ofany State.

(C) Any entity established under the laws ofthe United States, any State, or any politicalsubdivision of any State, or under an interstatecompact between 2 or more States, which exer-cises governmental authority on behalf of the

United States or any such State or politicalsubdivision.

(D) Any business or category of business thereports on which have little or no value for lawenforcement purposes.

Subsection (d)(2) states that:

The Secretary of the Treasury shall publish in theFederal Register at such times as the Secretarydetermines to be appropriate (but not less fre-quently than once each year) a list of all of theentities whose transactions with a depository insti-tution are exempt under this subsection from the[currency transaction] reporting requirements.

The companion provisions of 31 U.S.C.5313(e) authorize the Secretary to permit adepository institution to grant additional, discre-tionary, exemptions from currency transactionreporting. Subsection (f) places limits on theliability of a depository institution in connectionwith a transaction that has been exempted fromreporting under either subsection (d) or subsec-tion (e) and provides for the coordination of anyexemption with other Bank Secrecy Act provi-sions, especially those relating to the reportingof suspicious transactions. New subsection (g)defines ‘‘depository institution’’ for purposes ofthe new exemption provisions.

Section 402(b) of the Money LaunderingSuppression Act states simply that in adminis-tering the new statutory exemption procedures:

the Secretary of the Treasury shall seek to reduce,within a reasonable period of time, the number ofreports required to be filed in the aggregate bydepository institutions pursuant to section 5313(a)of title 31 by at least 30 percent of the number filedduring the year preceding [September 23, 1994,]the date of enactment of [the Money LaunderingSuppression Act].

During the period September 24, 1993 throughSeptember 23, 1994, approximately 11.2 millioncurrency transaction reports were filed. Of thatnumber, approximately 10.9 million reports werefiled by depository institutions. Thus the statutecontemplates a reduction of at least approxi-mately 3.3 million filings per annum.

B. Shortcomings of the PresentExemption System

The enactment of 31 U.S.C. 5313 (d) through (g)reflects a Congressional intention to ‘‘reform the

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procedures for exempting transactions betweendepository institutions and their customers.’’ SeeH.R. Rep. 103-652, 103d Cong., 2d Sess. 186(August 2, 1994). The administrative exemptionprocedures at which the statutory changes aredirected are found in 31 CFR 103.22(b)(2) and(c) through (f); those procedures have not suc-ceeded in eliminating routine currency trans-actions by businesses from the operation of thecurrency transaction reporting requirement.

Several reasons have been given for this lackof success. The first is the retention by banks ofliability for making incorrect exemption deter-minations. The risk of potential liability is mademore serious by the complexity of the adminis-trative exemption procedures (which requirebanks, for example, to assign dollar limits toeach exemption based on the amounts of cur-rency projected to be needed for the customaryconduct of the exempt customer’s lawful busi-ness). Finally, advances in technology havemade it less costly for some banks to report allcurrency transactions rather than to incur theadministrative costs (and risks) of exemptingcustomers and then administering the terms ofparticular exemptions properly.

The problems created by the administrativeexemption system include that system’s failureto provide the Treasury with information neededfor thoughtful administration of the Bank SecrecyAct. Although banks are required to maintaina centralized list of exempt customers andto make that list available upon request, see31 CFR 103.22 (f) and (g), there is no way shortof a bank-by-bank request for lists (with thetime and cost such a request would entail bothfor banks and government) for Treasury to learnthe extent to which routine transactions areeffectively screened out of the system or (forthat matter) the extent to which exemptions havebeen granted in situations in which they are notjustified.

In crafting the 1994 statutory provisionsrelating to mandatory and discretionary exemp-tions, Congress sought to alter the burden ofliability and uncertainty that the administrativeexemption system created. The statutory provi-sions embraced several categories of transac-tions that were either already partially exempt orplainly eligible for exemption under the admin-istrative exemption system.2 In addition, Con-

gress authorized the Treasury to exempt underthe mandatory rules, as indicated above, ‘‘[a]nybusiness or category of business the reports onwhich have little or no value for law enforce-ment purposes.’’ 31 U.S.C. 5313 (d)(1)(D).

C. Objectives of the Interim Rule

As indicated above, the Interim Rule is the firststep in the use of section 402 of the MoneyLaundering Suppression Act to transform theBank Secrecy Act provisions relating to cur-rency transaction reporting. That transformationhas four objectives.

The first is to reduce the burden of currencytransaction reporting. That reduction comes inpart through the issuance of a blanket regulatoryexemption covering transactions in currencybetween one depository institution and anotherwithin the United States and between depositoryinstitutions and government departments andagencies at all levels. But at least an equal (andlikely a significantly greater) part of the reduc-tion comes from the decision to treat as being oflittle interest to law enforcement transactions incurrency between depository institutions andcorporations whose common stock is listed oncertain national stock exchanges.

That decision reflects a second, related objec-tive of the Interim Rule: to begin the processof limiting currency transaction reports to trans-actions for which the benefits of the reportingrequirement (both providing usable informationto enforcement officials and creating a deterrentagainst attempts to misuse the financial system)justify the costs of supplying the information tothe Treasury. It is unlikely that reports of routinecurrency transactions for a company of suffi-cient size to be traded on a national securitiesexchange can be of significant use, by them-selves, to law enforcement, regulatory, or taxauthorities.

The third objective is to focus the BankSecrecy Act reporting system on transactionsthat signal matters of clear interest to lawenforcement and regulatory authorities. In pub-lishing the final rule relating to the reporting of

2. Thus, as noted below, transactions in currency betweendomestic banks are already exempt from reporting, see31 CFR 103.22(b)(1)(ii), and ‘‘[d]eposits or withdrawals,

exchanges of currency or other payments and transfers bylocal or state governments, or the United States or any of itsagencies or instrumentalities’’ are one of the categories oftransactions specifically described as eligible for exemptionby banks. See 31 CFR 103.22(b)(2)(iii).

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suspicious transactions under the Bank SecrecyAct, Treasury stated ‘‘its judgment that report-ing of suspicious transactions in a timely fashionis a key component of the flexible and cost-efficient compliance system required to preventthe use of the nation’s financial system forillegal purposes.’’ See 61 FR 4326, 4327 (Feb-ruary 5, 1996). The Interim Rule re-enforces thecentral importance of suspicious transactionreporting to Treasury’s counter-money launder-ing program; expanded suspicious transactionreporting forms a basis for steps to reducesharply the extent to which routine currencytransactions by ongoing businesses are requiredto be reported. Currency transactions, likenon-currency transactions, are required to bereported under the terms of new 31 CFR 103.21,if they constitute suspicious transactions asdefined in that section; nothing in the InterimRule reduces or alters the obligations imposedby 31 CFR 103.21. See 31 U.S.C. 5313(f)(2)(B).

The relationship between required suspicioustransaction reporting and expanded and simpli-fied exemptions from routine currency trans-action reporting is a strong one; each rule formsan integral part of the policy of the other. Thesubstitution of suspicious transaction reportingfor routine reporting of all currency transactionsby exempt persons in effect defines what aroutine transaction for an exempt person is. Thatis, a routine currency transaction, in the case ofan exempt person, is a transaction that does nottrigger the suspicious transaction reportingrequirements, because the transaction does not,for example, give the bank a reason to suspectmoney laundering, a violation of a reportingrequirement, or the absence of a business pur-pose. See 31 CFR 103.21(a)(2)(i)–(iii).

The fourth objective of the Interim Ruleis to create an exemption system that works.Thus choices have been made with an eyeto achieving ease of administration andcomprehensibility—the very factors whoseabsence hindered the prior administrativeexemption process.

FinCEN has attempted to craft a rule that willbe easily understood by the banking profession-als who must apply it. That meant painting witha broad brush; any general exemption rule willalmost certainly include within its terms someresults that are not optimal when viewed inisolation.

FinCEN understands that the changeoverto the new system will require an initial periodof effort by both the Treasury and banking

institutions; it is impossible to reduce thevolume of currency transaction reports to theextent that the Interim Rule tries to do withoutcreating some small degree of temporary incon-venience as the terms of the system change.FinCEN believes, however, that the transitionperiod will be relatively short and that thenew greatly streamlined exemption procedures,once in place, will be self-sustaining andwill produce a leaner, less burdensome, andmore cost effective exemption system than nowexists.

FinCEN is eager to improve the terms of therule as necessary to eliminate temporary incon-gruities. Comments on ways in which the rulecould be improved in this regard are specificallyinvited.

D. Additional Relief Under Study

The Interim Rule is the first result of FinCEN’swork to put in place the new exemption systemcontemplated by the provisions of 31 U.S.C.5313 (d) through (g). The goal of FinCEN’swork in this area, like the Congress’ goal inshaping the Money Laundering Suppression Actprovisions on exemptions, is to reduce the costof Bank Secrecy Act compliance and to furthera fundamental restructuring of the Bank SecrecyAct. The restructuring emphasizes cost-effectivecollection of only that information that is likelyto benefit law enforcement and regulatoryauthorities.

In solving the issues posed by implementa-tion of the new statutory exemption rules,FinCEN has consulted regularly with bankingindustry representatives. For example, under theauspices of Bank Secrecy Act Advisory Groupit convened a working session of bank officialsto discuss possible structures for the newexemption system and the constraints thatbank operating procedures posed for broad-scalerelief from unnecessary currency transactionreporting.

In this connection, FinCEN is aware that theInterim Rule and any final rule resulting there-from may well affect the operation of largebanks in urban areas more than the operation ofsmaller community-based institutions, if onlybecause larger companies tend to do businesswith larger banks and because the Interim Ruledoes not simplify the exemption system withrespect to transactions by privately held com-panies, large and small, whose banking history

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and business would also justify a simplifiedexemption system.

Accordingly, FinCEN is working now on anotice of proposed rulemaking implementingthe discretionary exemption authority containedin 31 U.S.C. 5313(e) and will at the appropriatetime consult with the banking community inshaping proposals to implement that authority.Meanwhile, banks will still be able to maintainany exemptions properly granted under the cur-rent administrative system. Commenters on thisInterim Rule are invited to include in theircomments any suggestions on the projectedsecond stage of the exemption effort.

III. Specific Provisions

A. 103.22(a). Reports of CurrencyTransactions

A new sentence is added following the firstsentence of paragraph (a) of 31 CFR 103.22 toprovide a cross-reference in that paragraph tothe provisions of new paragraph (h) added bythe Interim Rule.

B. 103.22(h)(1). Currency Transactions ofExempt Persons With Banks OccurringAfter April 30, 1996

Paragraph (h)(1) states the general effect of theInterim Rule. That is, simply and directly: nocurrency transaction report is required to be filedby a bank for a transaction in currency by anexempt person occurring after April 30, 1996.

The Interim Rule uses the term ‘‘bank’’ ratherthan ‘‘depository institution’’ to define the classof financial institutions to which the InterimRule applies. Although 31 U.S.C. 5313(d) speaksof exemptions for transactions with ‘‘depositoryinstitutions’’ (as the latter term is defined in31 U.S.C. 5313(g)), FinCEN believes that thebroad definition of bank contained in 31 CFR301.11(c) includes all of the categories of insti-tutions included in the statutory ‘‘depositoryinstitution’’ definition; because the term ‘‘bank’’is familiar to bank officials who work with theBank Secrecy Act, substitution of a new termwhose effect is the same does not appear eithernecessary or advisable.

The Interim Rule applies only to transactionsbetween exempt persons and banks, to reflect

the terms of 31 U.S.C. 5313(d); it does not applyto transactions between exempt persons andfinancial institutions other than banks. Com-ments are invited about whether the rule shouldextend to transactions with such other classes offinancial institutions.

Although 31 U.S.C. 5313(d) speaks of ‘‘man-datory’’ exemptions, the Interim Rule does notaffirmatively prohibit banks from continuing toreport routine currency transactions with exemptpersons. Treasury believes that the incentivescreated by the Interim Rule are, as Congressintended them to be, sufficiently great to leadbanks to take advantage of the new exemptionsystem to a far greater extent than they tookadvantage of the prior administrative exemptionsystem.

The Interim Rule, however, is not simply aregulatory relief measure. As indicated above, itis part of a fundamental restructuring of theBank Secrecy Act’s administration. Treasuryhopes and expects that banks will be willing toundertake the one-time effort necessary to makethe new, substantially different system work.

C. 103.22(h)(2). Exempt Person

Under the Interim Rule, the crucial exemptiondeterminant is whether a particular entity is an‘‘exempt person.’’ That term is defined in newparagraph (h)(2).

The first three categories of exempt personsspecified in paragraph (h)(2) are those to whomexemption is required to be granted by 31 U.S.C.5313(d)(1)(A)–(C).3

Banks.The first category of exempt person isbanks themselves, with the result that transac-tions between banks will not require reporting.In most cases, no reporting is required at presentfor such transactions; 31 CFR 103.22(b)(1)(ii)states flatly that the currency transaction report-ing requirement does not ‘‘require reports oftransactions between domestic banks.’’ The defi-nition is limited to banking operations andtransactions within the United States. Thus atransfer of currency by a bank inside the UnitedStates to a bank outside the United States is notexempt under the Interim Rule.

3. The language of 31 U.S.C. 5313(d)(1)(A)–(C) is quotedin section IIA of this Supplementary Information section,above.

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Departments and Agencies of theUnited States and of States andTheir Political Subdivisions

The second category of exempt person includesdepartments and agencies of the United States,of any state, and of any political subdivision ofany state. The definition of ‘‘United States’’used in 31 CFR 103.11 includes not only thestates but also the District of Columbia and thevarious territories and insular possessions of theUnited States. See 31 CFR 103.11(nn); as ofAugust 1, 1996, the definition will also includethe Indian lands. See 61 FR 7054, 7056 (Febru-ary 23, 1996). Thus departments and agencies ofthe governments of these areas are also classi-fied as exempt persons under the definition.

Entities Exercising Governmental Authority

The third category of exempt person includesany entity established under the laws of theUnited States,4 of any state, or of any politicalsubdivision of any state, or under an interstatecompact between two or more states, that exer-cises governmental authority on behalf of theUnited States or any such state or politicalsubdivision. Operating rules for making deter-minations about the governmental entities areincluded in paragraph (h)(4), discussed below.

Listed Corporations

The fourth category of person subject to man-datory exemption under 31 U.S.C. 5313(d) is‘‘any business or category of business the reportson which have little or no value for law enforce-ment purposes.’’ Treasury is making use of thatprovision to treat as an exempt person anycorporation whose common stock (i) is listed onthe New York Stock Exchange or the AmericanStock Exchange (but not including stock listedon the Emerging Company Marketplace of theAmerican Stock Exchange), or (ii) has beendesignated as a Nasdaq National Market Secu-rity listed on the Nasdaq Stock Market (but notincluding stock listed under the separate ‘‘NasdaqSmall-Cap Issues’’ category). For convenience,this class of exempt persons is referred to in thisdiscussion as ‘‘listed corporations.’’

The ‘‘listed corporation’’ formulation has beenadopted for several reasons. First, Treasurybelieves that the formulation is a convenient andaccurate way of describing many, if not most,large-scale enterprises that make extensive rou-tine use of currency in their normal businessoperations. Second, the list of corporationsdescribed in the formulation is readily availableand is published in general circulation news-papers each morning. Finally, the scale of enter-prises listed on the nation’s largest securitiesexchanges, and the variety of internal andexternal controls to which they are subject—whether as a matter of market discipline orgovernment regulation—make their use for thesort of money laundering or tax evasion markedby anomalous transactions in currency, or thatcould be detected by a simple examination ofcurrency transaction reports, sufficiently unlikelythat the benefits of a uniform formulation farexceed the apparent risks of such a formulation.This is especially true because of the continuingapplicability of the suspicious transaction report-ing rules to all (non-currency and currency)transactions between listed corporations andbanks.

The determination whether a company is acorporation for purposes of the Interim Ruledepends solely upon the formal manner of itsorganization; if the company has a corporatecharter, it is a corporation, and if it does not, itis not a corporation, for purposes of the InterimRule. The sort of ‘‘corporate equivalence’’ analy-sis required, for example, for certain purposes todetermine an entity’s status under the InternalRevenue Code is neither called for nor permittedby the Interim Rule.5

At present the Interim Rule applies only tocorporations, even though Treasury understandsthat the equity interests of some partnershipsand business trusts are also listed on the namedsecurities exchanges. Comments are invited asto whether the definition of exempt personshould be extended to all persons whose equityinterests are so listed.

4. Again, the broad definition of ‘‘United States’’ applies.

5. Again, there may be a limited group of entities, listed onthe national securities exchanges but organized abroad, forwhich such a distinction raises issues of interpretation thatcannot be dealt with effectively in the Interim Rule. Guidanceis requested on whether such issues exist and, if so, how theyshould be resolved.

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Consolidated Subsidiaries of ListedCorporations

Many, if not most, listed corporations includegroups of subsidiary operating corporationswhose treatment under the Interim Rule raisessignificant issues. Such subsidiaries are notnamed in stock exchange listings, but the policyof the statute and Interim Rule cannot be effec-tively implemented without the inclusion ofsuch subsidiaries in the exempt person category.

That fact raises an issue of what might becalled the ‘‘burden’’ of reducing regulatory bur-den. Many definitions of parent-subsidiary rela-tionship are quite technical and of importanceonly to legal, accounting, and investment spe-cialists; even definitions phrased only in termsof stock ownership often devolve into questionsof direct or indirect stock ownership that can beextremely difficult to resolve.

In that context, mindful of the need to provideas simple a formulation as possible, the InterimRule treats as a subsidiary any corporation thatfiles a consolidated income tax return with alisted corporation. The choice of this standardwas not any easy one; its chief rationale is thatthe fact of consolidation (as opposed to, say,eligibility for consolidation) is relatively easy todetermine by asking corporate customers (andby asking corporate officials to ask their tax oraccounting departments if necessary).

Franchisees of listed corporations (or of theirsubsidiaries) are not included within the defini-tion of exempt person, unless such franchiseesare independently exempt as listed corporationsor listed corporation subsidiaries. A local cor-poration that holds a McDonald’s franchise, forexample, is not an exempt person simply becauseMcDonald’s Corporation is a listed corporation;a McDonald’s outlet owned by McDonald’sCorporation directly, on the other hand, wouldbe an exempt person, because McDonald’s Cor-poration’s common stock is listed on the NewYork Stock Exchange.

Still, the definition is not optimal. It intro-duces a note of complexity into the InterimRule, and Internal Revenue Service (‘‘IRS’’)statistics indicate that at best only 70 to 80 per-cent of the companies eligible to file consoli-dated income tax returns with their parent com-panies actually do so. The success of the InterimRule in reducing the volume of currency trans-action reports will depend in part upon theeffectiveness and acceptance of the definition ofsubsidiary company, and comments are encour-

aged about the appropriateness of the definition.FinCEN would especially welcome ideas aboutother formulations, based upon sound bankingpractice, that bank employees would find easy toapply and that would accomplish the goals ofthe Interim Rule more effectively than a defini-tion based upon consolidation for income taxfiling purposes.

D. 103.22(h)(3). Designation of ExemptPersons

The Interim Rule imposes one condition on abank’s exemption of currency transactions of acustomer who satisfies the definition of exemptperson. That condition is that a single form befiled designating the exempt person and thebank that recognizes it as such. The designationis to be made by a bank by filing for eachexempt person a single Internal Revenue Ser-vice Form 4789 (the form now used by banksand others to report a transaction in currency)that is marked (in the Form’s line 36) to indicateits purpose and that provides identifying infor-mation about the exempt person and bankinvolved.

The designation requirement must be satis-fied, for existing customers, on or beforeAugust 15, 1996. The requirement is a conditionsubsequent; that is, a bank may recognize acustomer as an exempt person on April 30, andstop filing currency transaction reports as per-mitted by the Interim Rule, even though it doesnot satisfy the designation requirement for thecustomer until August 15, 1996.

The designation of new customers as exemptpersons must be made no later than 30 daysfollowing the first transaction in currency inexcess of $10,000 between a bank and thenew customer. (Because persons may becomenew customers during the period April 30–August 15, 1996, a new customer to whom the30 day designation rule applies is, technically, acustomer who satisfies the exempt person defi-nition and who becomes a customer, or whoseeks to engage in its first transaction in cur-rency, after July 15, 1996.)

Under the Interim Rule, each bank that dealswith an exempt person must satisfy the desig-nation requirement. FinCEN hopes to be able touse the results of the designation filings tocompile a list of exempt persons that can itselfbe published in the Federal Register, as contem-plated by 31 U.S.C. 5313(d)(2), in place of the

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shorter descriptive notice of exempt persons thatis published contemporaneously with the publi-cation of the Interim Rule. The designationfilings will also be used to review the effective-ness of the Interim Rule (and of any final rulethat is derived from it) and the extent to whichits terms are understood and used by banks.

E. 103.22(h)(4). Operating Rules forApplying Definition of Exempt Person

The Interim Rule contains several provisionsthat are designed to assist banks in applying thedefinition of ‘‘exempt person.’’

1. General Rule

As indicated above, every effort has been madeto craft a rule that is as simple to understand andto administer as its broad objective will permit.Application of the Interim Rule requires insteadthat banks simply make one or more determina-tions about the status of particular customers.The rule does not specify detailed proceduresfor making or documenting the determinationsrequired. (Indeed, one defect of the administra-tive exemption system was its need for detailedprocedural steps for authorizing exemptions.See 31 CFR 103.22(d).) Instead, paragraph(h)(4)(i) explains that banks are expected toperform the same degree of due diligence indetermining whether a customer is an exemptperson (and documenting that determination)that a reasonable and prudent bank would per-form in the conduct of its own business inavoiding losses from fraud or misstatement. Inother words, FinCEN’s objective is to leave it tobankers, who have already designed businessprocedures and protocols to deal with similarproblems, to adapt their present procedures toachieve the results sought by the Interim Rule.

An assessment of compliance with the termsof the Interim Rule will focus not on whether abank necessarily makes every judgment per-fectly, but on whether it takes the steps areasonable and prudent banker would take tocreate systems to apply the Interim Rule’s terms.Such an approach is a corollary to the limita-tions on liability set by 31 U.S.C. 5318(f)(1) andrepeated in paragraph (h)(6) of the Interim Rule;under the liability limitations a bank remainssubject to penalties if, inter alia, it has a reasonto believe that a particular customer or trans-

action does not meet the criteria established forthe granting of an exemption.

2. Government Status

Paragraph (h)(4)(ii) permits a bank to determinethe status of a customer as a government depart-ment, agency, or instrumentality based on itsname or community knowledge, much like theso-called ‘‘eyeball test,’’ cf. Treas. Reg. 1.6049-4(c)(1)(ii), for the determination of exemptrecipient status for the purposes of informationreporting and withholding with respect to inter-est payments under applicable provisions of theInternal Revenue Code.

The determination whether an entity exercises‘‘governmental authority’’ is unfortunately notamenable to such a simple test, and the secondsentence of paragraph (h)(4)(ii) states a generaldefinition of governmental authority for use bybanks.

3. Status as Listed Corporation

Paragraph (h)(4)(iii) permits a bank to rely onany New York, American, or Nasdaq StockMarket listing published in a newspaper ofgeneral circulation. Such listings are easily iden-tified. For example, in the Wall Street Journal,which is published and distributed nationally,the listings are entitled, respectively, ‘‘NEWYORK STOCK EXCHANGE COMPOSITETRANSACTIONS,’’ ‘‘AMERICAN STOCKEXCHANGE COMPOSITE TRANSAC-TIONS,’’ AND ‘‘NASDAQ NATIONAL MAR-KET ISSUES.’’ Because such listings oftenmake use of the trading symbols (abbreviatedcompany names) for each stock, banks may alsorely on any commonly accepted or publishedstock symbol guide in reviewing the newspaperlistings to determine if the listings include theircustomers.

4. Consolidated Return Status

The treatment of a corporation as an exemptperson because it is included in the consolidatedincome tax return of a listed corporation pre-sents one of the more difficult issues of admin-istration in the Interim Rule. The corporationsincluded on any consolidated return are requiredto be shown on Internal Revenue ServiceForm 851 (Affiliation Schedule) filed with the

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return; a bank may rely upon any reasonablyauthenticated photocopy of Form 851 (or theequivalent thereof for the appropriate tax year)in determining the status of a particular corpo-ration, or it may rely upon any other reasonablyauthenticated information (for example, anofficer’s certificate) relating to a corporation’sfiling status.

F. 103.22(h)(5). Limitation on Exemption

The exemption for transactions by an exemptperson applies only with respect to transactionsinvolving that person’s own funds. The exemp-tion does not apply to situations in which anexempt person is engaging in a transaction as anagent on behalf of another, beneficial owner ofcurrency. (If the principal for whom the agent isacting is itself an exempt person, the exemptstatus of the principal is what causes the trans-action to be exempt.) In other words, an exemptperson cannot lend its status, for a fee orotherwise, to another person’s transactions.

G. 103.22(h)(6). Effect of Exemption;Limitation on Liability

The designation requirement applies equally toexempt persons who have previously been thesubject of bank-initiated exemptions under theadministrative exemption system as it does toother customers.

Once a bank has complied with the terms ofthe Interim Rule, it is generally protected, by31 U.S.C. 5313(f) and paragraph (h)(6) of theInterim Rule, from any penalty for failure to filea currency transaction report with respect to acurrency transaction by an exempt person. Theprotection does not apply if the bank knowinglyfiles false or incomplete information relating tothe exempt person (for example on an designa-tion filing) or with respect to the transaction (forexample on a suspicious activity report). Theprotection also does not apply if the bank hasreason to believe at the time the exemption isgranted that the customer does not satisfy thedefinition of exempt person or if the transactionis not a transaction of the exempt person.

It is anticipated that the Interim Rule willsupersede the administrative exemption systemwith respect to categories of exempt personsnamed in the Interim Rule, 60 days after a finalrule based on the Interim Rule is published. At

that time, transactions in currency with exemptpersons after April 30, 1996 will be exemptfrom reporting by banks only to the extent thatthe new terms are satisfied.

H. 103.22(h)(7). Obligation To FileSuspicious Activity Reports, etc.

The provisions of the Interim Rule create anexemption only with respect to the currencytransaction reporting requirement. The InterimRule does not create any exemption, and in facthas no effect of any kind, on the requirementthat banks file suspicious activity reports withrespect to transactions, including currencyand non-currency transactions, that satisfy therequirements of the rules of FinCEN and thefederal bank supervisory agencies relating tosuspicious activity reporting.6 (Indeed, as indi-cated above, the reduction in currency trans-action report volume reflects in part Treasurypolicy to rely to the greatest extent possible onreports of truly suspicious activity.)

For example, multiple exchanges of smalldenominations of currency into large denomina-tions of currency or currency transactions thatare not (or whose amounts are not) commensu-rate with the stated business or other activity ofthe exempt person conducting the transaction, oron whose behalf the transaction is conducted,may indicate the need to file suspicious activityreports with respect to transactions in currency.Similarly a sudden need for currency by abusiness that never before had such a need canform a basis for the determination that a suspi-cious activity report is due. In all cases, whethersuch a report is required is governed by the rulesof 31 CFR 103.21, rules on whose applicationthe Interim Rule has no effect.

I. 103.22(h)(8). Revocation

The Interim Rule makes clear that the status ofan exempt person as such may be revoked at anytime by the Treasury Department. Revocation

6. See 61 FR 4326, 4332, 4338 (February 5, 1996) (FinCEN,Office of the Comptroller of the Currency and Federal ReserveBoard); 61 FR 6095, 6100 (February 16, 1996) (FederalDeposit Insurance Corporation and Office of Thrift Supervi-sion); and 61 FR 11526 (March 21, 1996) (National CreditUnion Administration).

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will be prospective in all cases except those towhich the protections of liability conferred by31 U.S.C. 5313(f) and 31 CFR 103.22(h)(6) donot apply.

IV. Regulatory Matters

A. Executive Order 12866

The Department of the Treasury has determinedthat this interim rule is not a significant regula-tory action under Executive Order 12866.

B. Unfunded Mandates Act of 1995Statement

Section 202 of the Unfunded Mandates ReformAct of 1995 (‘‘Unfunded Mandates Act’’),Pub. L. 104-4 (March 22, 1995), requires that anagency prepare a budgetary impact statementbefore promulgating a rule that includes a fed-eral mandate that may result in expenditure bystate, local and tribal governments, in theaggregate, or by the private sector, of $100 mil-lion or more in any one year. If a budgetaryimpact statement is required, section 202 of theUnfunded Mandates Act also requires an agencyto identify and consider a reasonable number ofregulatory alternatives before promulgating arule. FinCEN has determined that it is notrequired to prepare a written statement undersection 202 and has concluded that on balancethis interim rule provides the most cost-effectiveand least burdensome alternative to achieve theobjectives of the rule.

C. Administrative Procedure Act

Because the Interim Rule implements the statuteand grants significant relief from existing regu-latory requirements, it is found to be impracti-cable to comply with notice and public proce-dure under 5 U.S.C. 553(b). Because the InterimRule grants exemptions to current requirements,it may be made effective before 30 days havepassed after its publication date. See 5 U.S.C.553(d).

D. Regulatory Flexibility Act

The provisions of the Regulatory Flexibility Actrelating to an initial and final regulatory flex-

ibility analysis (5 U.S.C. 604) are not applicableto this Interim Rule because the agency was notrequired to publish a notice of proposed rule-making under 5 U.S.C. 553 or any other law.

E. Paperwork Reduction Act

This Interim Rule is being issued without priornotice and public procedure pursuant to theAdministrative Procedure Act (5 U.S.C. 553).By expanding the applicable exemptions froman information collection that has been reviewedand approved by the Office of Management andBudget (OMB) under control number 1505-0063, the Interim Rule significantly reduces theexisting burden of information collection under31 CFR 103.22. Thus, although the Interim Ruleadvances the purposes of the Paperwork Reduc-tion Act of 1995, 44 U.S.C. 3501, et seq., and itsimplementing regulations, 5 CFR Part 1320, thePaperwork Reduction Act does not requireFinCEN to follow any particular procedures inconnection with the promulgation of the InterimRule.

F. Compliance With 5 U.S.C. 801

Prior to the date of publication of this documentin the Federal Register, FinCEN will have sub-mitted to each House of the Congress and to theComptroller General the information required tobe submitted or made available with respect tothe Interim Rule by the provisions of 5 U.S.C.801 (a)(1)(A) and (a)(1)(B).

List of Subjects in 31 CFR Part 103

Administrative practice and procedure, Author-ity delegations (Government agencies), Banks,banking, Currency, Foreign Banking, Foreigncurrencies, Gambling, Investigations, Lawenforcement, Penalties, Reporting and record-keeping requirements, Securities, Taxes.

Amendment

For the reasons set forth above in the preamble,31 CFR Part 103 is amended as set forth below:

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PART 103—FINANCIALRECORDKEEPING ANDREPORTING OF CURRENCY ANDFOREIGN TRANSACTIONS

1. The authority citation for Part 103 contin-ues to read as follows:

Authority: 12 U.S.C. 1829b and 1951-1959;31 U.S.C. 5311-5330.

2. Section 103.22 is amended by adding anew sentence immediately following the firstsentence in paragraph (a)(1) and by adding anew paragraph (h) to read as follows:

§103.22—Reports of currencytransactions.

(a)(1) * * * Transactions in currency byexempt persons with banks occurring afterApril 30, 1996, are not subject to this require-ment to the extent provided in paragraph (h) ofthis section. * * *

* * * * *(h) No filing required by banks for trans-

actions by exempt persons occurring afterApril 30, 1996.

(1) Currency transactions of exempt personswith banks occurring after April 30, 1996.Notwithstanding the provisions of paragraph(a)(1) of this section, no bank is required to filea report otherwise required by paragraph (a)(1)of this section, with respect to any transaction incurrency between an exempt person and a bankthat is conducted after April 30, 1996.

(2) Exempt person. For purposes of this sec-tion, an exempt person is:

(i) A bank, to the extent of such bank’sdomestic operations;

(ii) A department or agency of the UnitedStates, of any state, or of any political subdivi-sion of any state;

(iii) Any entity established under the laws ofthe United States, of any state, or of any politicalsubdivision of any state, or under an interstatecompact between two or more states, that exer-cises governmental authority on behalf of theUnited States or any such state or politicalsubdivision;

(iv) Any corporation whose common stock islisted on the New York Stock Exchange or theAmerican Stock Exchange (except stock listedon the Emerging Company Marketplace of theAmerican Stock Exchange) or whose common

stock has been designated as a Nasdaq NationalMarket Security listed on the Nasdaq StockMarket (except stock listed under the separate‘‘Nasdaq Small-Cap Issues’’ heading); and

(v) Any subsidiary of any corporationdescribed in paragraph (h)(2)(iv) of this sectionwhose federal income tax return is filed as partof a consolidated federal income tax return withsuch corporation, pursuant to section 1501 ofthe Internal Revenue Code and the regulationspromulgated thereunder, for the calendar year1995 or for its last fiscal year ending beforeApril 15, 1996.

(3) Designation of exempt persons.(i) A bank must designate each exempt per-

son with whom it engages in transactions incurrency, on or before the later of August 15,1996, and the date 30 days following the firsttransaction in currency between such bank andsuch exempt person that occurs after April 30,1996.

(ii) Designation of an exempt person shall bemade by a single filing of Internal RevenueService Form 4789, in which line 36 is marked‘‘Designation of Exempt Person’’ and items2–14 (Part I, Section A) and items 37–49(Part III) are completed. The designation mustbe made separately by each bank that treats theperson in question as an exempt person. (Foravailability, see 26 CFR 601.602.)

(iii) This designation requirement applieswhether or not the particular exempt person tobe designated has previously been treated asexempt from the reporting requirements of para-graph (a) of this section under the rules con-tained in paragraph (b) or (e) of this section.

(4) Operating rules for designating exemptpersons.

(i) Subject to the specific rules of this para-graph (h), a bank must take such steps to assureitself that a person is an exempt person (withinthe meaning of applicable provisions of para-graph (h)(2) of this section) that a reasonableand prudent bank would take to protect itselffrom loan or other fraud or loss based onmisidentification of a person’s status.

(ii) A bank may treat a person as a govern-mental department, agency, or entity if the nameof such person reasonably indicates that it isdescribed in paragraph (h)(2)(ii) or (h)(2)(iii) ofthis section, or if such person is known generallyin the community to be a State, the District ofColumbia, a tribal government, a Territory orInsular Possession of the United States, or apolitical subdivision or a wholly-owned agency

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or instrumentality of any of the foregoing. Anentity generally exercises governmental author-ity on behalf of the United States, a State, or apolitical subdivision, for purposes of paragraph(h)(2)(iii) of this section, only if its authoritiesinclude one or more of the powers to tax, toexercise the authority of eminent domain, or toexercise police powers with respect to matterswithin its jurisdiction.

(iii) In determining whether a person isdescribed in paragraph (h)(2)(iv) of this section,a bank may rely on any New York StockExchange, American Stock Exchange, or NasdaqStock Market listing published in a newspaperof general circulation and on any commonlyaccepted or published stock symbol guide.

(iv) In determining whether a person isdescribed in paragraph (h)(2)(v) of this section,a bank may rely upon any reasonably authen-ticated corporate officer’s certificate or anyreasonably authenticated photocopy of InternalRevenue Service Form 851 (Affiliation Sched-ule) or the equivalent thereof for the appropriatetax year.

(5) Limitation on exemption. A transactioncarried out by an exempt person as an agent foranother person who is the beneficial owner ofthe funds that are the subject of a transaction incurrency is not subject to the exemption fromreporting contained in paragraph (h)(1) of thissection.

(6) Effect of exemption; limitation on liability.(i) FinCEN may in the future determine by

amendment to this part that the exemptioncontained in this paragraph (h) shall be the onlybasis for exempting persons described in para-graph (h)(2) of this section from the reportingrequirements of paragraph (a) of this section.

(ii) No bank shall be subject to penalty underthis part for failure to file a report required byparagraph (a) of this section with respect to acurrency transaction by an exempt person withrespect to which the requirements of this para-graph (h) have been satisfied, unless the bank:

(A) Knowingly files false or incompleteinformation with respect to the transaction or thecustomer engaging in the transaction; or

(B) Has reason to believe at the time theexemption is granted that the customer does notmeet the criteria established by this paragraph(h) for treatment of the transactor as an exemptperson or that the transaction is not a transactionof the exempt person.

(iii) A bank that files a report with respect toa currency transaction by an exempt person

rather than treating such person as exempt shallremain subject with respect to each such reportto the rules for filing reports, and the penaltiesfor filing false or incomplete reports, that areapplicable to reporting of transactions in cur-rency by persons other than exempt persons. Abank that continues for the period permitted byparagraph (h)(6)(i) of this section to treat aperson described in paragraph (h)(2) of thissection as exempt from the reporting require-ments of paragraph (a) of this section on a basisother than as provided in this paragraph (h) shallremain subject in full to the rules governing anexemption on such other basis and to the pen-alties for failing to comply with the rules gov-erning such other exemption.

(7) Obligation to file suspicious activityreports, etc. Nothing in this paragraph (h) relievesa bank of the obligation, or alters in any waysuch bank’s obligation, to file a report requiredby 103.21 with respect to any transaction, includ-ing, without limitation, any transaction in cur-rency, or relieves a bank of any other reportingor recordkeeping obligation imposed by this part(except the obligation to report transactions incurrency pursuant to paragraph (a) of this sec-tion to the extent provided in this paragraph (h)).

(8) Revocation. The status of any person asan exempt person under this paragraph (h) maybe revoked by FinCEN by written notice, whichmay be provided by publication in the FederalRegister in appropriate situations, on such termsas are specified in such notice. In addition, andwithout any action on the part of the TreasuryDepartment:

(i) The status of a corporation as an exemptperson pursuant to paragraph (h)(2)(iv) of thissection ceases once such corporation ceases tobe listed on the applicable stock exchange; and

(ii) The status of a subsidiary as an exemptperson under paragraph (h)(2)(v) of this sectionceases once such subsidiary ceases to be includedin a consolidated federal income tax return of aperson described in paragraph (h)(2)(iv) of thissection.

* * * * *

Dated: April 16, 1996.

Stanley E. Morris,Director, Financial Crimes Enforcement

Network.[FR Doc. 96-9798 Filed 4-23-96; 8:45 am]BILLING CODE 4820-03-P

502.0 Interim Exemption Rule

September 1997 Bank Secrecy Act ManualPage 12


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