Currency and Foreign Transactions Reporting Act Section 501.0 by pengtt


									Currency and Foreign Transactions Reporting Act
Exemption Handbook                            Section 501.0

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                                                   Department of the Treasury
                                                  Office of Financial Enforcement
                                                       Internal Revenue Service

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                                                                    TABLE OF CONTENTS

                                                                              Page            1. General Criteria . . . . . . . . . . . . . . . . . . . . . . 7
        Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1        2. Nonexemptible Entities . . . . . . . . . . . . . . . 8
        I. Determining Which Customers                                                      D. CTR REPORTING ON CERTAIN
            to Exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3          TRANSACTIONS BY EXEMPTED
          A. EXCEPTED TRANSACTIONS . . . . . . . . . . 3                                       CUSTOMERS . . . . . . . . . . . . . . . . . . . . . . . . . . 8
          B. UNILATERAL EXEMPTIONS . . . . . . . . . . 3                                 II. How to Exempt Customers . . . . . . . . . . . . . . 9
             1. Retail and Other Specified                                                  A. REVIEW OF BANK RECORDS . . . . . . . . . 9
                 Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . 3           1. Two Consecutive Months of
                                                                                                 Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
                a. Retail Businesses . . . . . . . . . . . . . . . . . . . 3
                                                                                              2. Review of Other Available
                     i. Definition of retail type of                                             Information . . . . . . . . . . . . . . . . . . . . . . . . . . 9
                         business . . . . . . . . . . . . . . . . . . . . . . . . 3
                    ii. Payment in currency . . . . . . . . . . . . 3                       B. PREPARATION OF EXEMPTION
                   iii. United States operation . . . . . . . . . . 4                          STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 10
                   iv. Nonexemptible retail business                                          1. Statements for Customers Exempted
                         accounts . . . . . . . . . . . . . . . . . . . . . . . . 4              After October 27, 1986 . . . . . . . . . . . . . . . 10
                b. Specified Businesses . . . . . . . . . . . . . . . . 4                     2. Statements for Customers Exempted
                       i. Sports arena . . . . . . . . . . . . . . . . . . . 4                   on or Before October 27, 1986 . . . . . . . . 10
                      ii. Race track . . . . . . . . . . . . . . . . . . . . . 4              3. Form for Exemption Statements . . . . . 10
                     iii. Amusement park . . . . . . . . . . . . . . 4                        4. Customer Information and
                     iv. Bar . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4           Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
                      v. Restaurant . . . . . . . . . . . . . . . . . . . . . 4               5. Completion of Exemption
                     vi. Hotel . . . . . . . . . . . . . . . . . . . . . . . . . . 4             Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
                    vii. Licensed check cashing
                          service . . . . . . . . . . . . . . . . . . . . . . . . . 4       C. EXEMPTION LIMITS . . . . . . . . . . . . . . . . . 11
                   viii. Vending machine company . . . . 5                                    1. General Criteria . . . . . . . . . . . . . . . . . . . . . 11
                     ix. Theater . . . . . . . . . . . . . . . . . . . . . . . . 5            2. Seasonal and ‘‘Monday-Only’’
                      x. Regularly scheduled passenger                                           Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
                          carrier . . . . . . . . . . . . . . . . . . . . . . . . . 5
                                                                                            D. MULTIPLE-ESTABLISHMENT
                     xi. Public utility . . . . . . . . . . . . . . . . . . . 5
                                                                                               CUSTOMERS . . . . . . . . . . . . . . . . . . . . . . . . . 13
                c. Multi-Faceted Businesses . . . . . . . . . . . 5
                                                                                            E. SPECIAL EXEMPTION REQUESTS . . . . 14
                d. Limitations on Exemptions for
                                                                                         III. Recordkeeping for Exempted
                    Accounts of Retail and Other
                                                                                              Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
                    Specified Businesses . . . . . . . . . . . . . . . 5
                                                                                            A. EXEMPTION LIST . . . . . . . . . . . . . . . . . . . . 15
                     i. ‘‘Deposits or withdrawals of
                         currency’’ . . . . . . . . . . . . . . . . . . . . . . . 6         B. EXEMPTION STATEMENTS . . . . . . . . . . 15
                    ii. ‘‘Existing account by an                                         IV. Monitoring Exemptions and Discovery
                         established depositor’’ . . . . . . . . . . . 6                      of Improper Exemptions . . . . . . . . . . . . . . . 17
                       • ‘‘Existing account’’ . . . . . . . . . . . . . 6                       A. MONITORING EXEMPTIONS . . . . 17
                       • ‘‘Established depositor’’ . . . . . . . . 6                            B. DISCOVERY OF IMPROPER
                   iii. ‘‘United States resident’’ . . . . . . . . . 6                             EXEMPTIONS . . . . . . . . . . . . . . . . . . . . 17
             2. Government Agencies . . . . . . . . . . . . . . . . 7                    V. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
             3. Payroll Withdrawals . . . . . . . . . . . . . . . . . 7                  Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
          C. SPECIAL EXEMPTIONS . . . . . . . . . . . . . . . 7                          Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

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        The Bank Secrecy Act (‘‘BSA’’), 31 U.S.C.                                 Treasury encourages banks to make full use
        §5311–5324, and the BSA regulations, 31 C.F.R.                         of the exemption provisions. The use of the
        Part 103, that the Department of the Treasury                          exemption provisions can yield substantial
        (‘‘Treasury’’) has issued, require domestic fi-                        benefits for banks and Treasury. By eliminating
        nancial institutions (other than casinos and the                       CTR reporting on properly exempted accounts
        U.S. Postal Service) to file a report of each sin-                     and certain transactions by government agen-
        gle or multiple ‘‘deposit, withdrawal, exchange                        cies, banks can reduce the cost of filing CTRs.
        of currency or other payment or transfer, by,                          These costs can be substantial, particularly for
        through, or to such financial institution which                        larger banks in major metropolitan areas that
        involves a transaction in currency of more than                        have many accounts by businesses and trans-
        $10,000.’’ 31 CFR 103.22(a)(1). These reports,                         actions by government agencies that are
        which are filed on IRS Form 4789, the Cur-                             exemptible. The reduction in the number of
        rency Transaction Report (‘‘CTR’’), have a high                        CTRs filed by the banks, in turn, reduces
        degree of usefulness in criminal, tax, and reg-                        Treasury’s and IRS’s cost of processing, com-
        ulatory investigations and proceedings. Infor-                         puterizing, and storing CTRs. In addition, by
        mation from CTRs is routinely used in a wide                           reducing the number of CTRs which are not of
        variety of criminal and tax investigations and                         value to law enforcement, Treasury can more
        prosecutions, as investigative leads,                                  effectively analyze and utilize the remaining
        intelligence for the tracking of currency flows,                       CTR information.
        corroborating information, and probative                                  For these same reasons, Treasury and the
        evidence.*                                                             IRS have implemented procedures which allow
           Treasury’s experience in enforcing the BSA,                         banks to magnetically file CTRs. Treasury and
        however, has shown that certain legitimate                             IRS believe that magnetic filings will, likewise,
        businesses engage in regular and frequent cur-                         reduce the costs to the banks and the govern-
        rency transactions with domestic banks. The                            ment of complying with the BSA, while assur-
        routine reporting of these transactions is less                        ing a complete and accurate data base which
        likely to be useful to law enforcement agen-                           can be utilized effectively to combat crime.
        cies. Treasury has therefore included in the                              The exemption provisions specify the proce-
        BSA regulations provisions that permit banks                           dures and categories of accounts and govern-
        to exempt government agencies and the ac-                              ment agencies for which a bank may grant
        counts of certain customers from the CTR re-                           unilateral exemptions, or obtain additional au-
        porting requirements. In some instances,                               thority from the IRS to grant special exemp-
        banks may unilaterally exempt government                               tions. This booklet is intended to help banks
        agencies and the accounts of particular cus-                           understand the exemption provisions and im-
        tomers without prior approval from Treasury                            prove compliance with the exemption require-
        or the Internal Revenue Service (‘‘IRS’’). In                          ments. It will explain how to determine
        other instances, banks must obtain additional                          whether a particular customer’s account or
        authority from the IRS, through the IRS Data                           government agency qualifies for an exemption,
        Center in Detroit, Michigan, to grant exemp-                           the process for exempting that account or
        tions to particular accounts of customers. The                         agency, and the actions the bank should take
        IRS has been delegated this authority from                             after granting an exemption.

        * One of the more prominent examples of the reports’ utility is        tion that involved the transfer of tens of millions of dollars
        United States v. Badalamenti, (794F.2d 821 (2d Cir. 1986),             through banks and investment houses in New York City to finan-
        appeal pending, No. 87-1303 (2d Cir., filed June 29, 1987),            cial institutions in Switzerland and Italy. Ultimately, 20 defen-
        informally known as the ‘‘Pizza Connection’’ case. This case in-       dants were convicted in Federal court for heroin conspiracy, rack-
        volved heroin smuggling into the United States by Italian and          eteering, and BSA violations. All received prison sentences, and
        U.S. organized crime groups. During the investigation, Federal         15 defendants received sentences ranging from 15–45 years. In
        authorities discovered a number of BSA reports that indicated          addition, the Swiss national was convicted and imprisoned by
        that a Swiss national was making large cash transactions. These        Swiss authorities for violations of Swiss law relating to his
        reports led authorities to an extensive money laundering opera-        money laundering activities.


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           These guidelines address questions               strongly encourages you to call or write
        frequently asked by banks about the exemp-          FinCEN above or:
        tion provisions. Treasury welcomes your com-          Compliance Review Group
        ments and invites you to submit suggestions           IRS Data Center
        for improvements in future editions of these          P.O. Box 32063
        guidelines to:                                        Detroit, Michigan 48232
          Director                                            (313) 234-1613
          FinCEN                                               This booklet is intended only to provide ad-
          U.S. Department of the Treasury                   vice on the exemption process and is not in-
          1500 Pennsylvania Avenue, N.W.                    tended to create any right or benefit, substan-
          Washington, D.C. 20220                            tive or procedural, enforceable at law by a
          (202) 622-0400                                    party against the United States, its agencies,
          In addition, if you have a question that is       its officers, or any person.
        not addressed by these guidelines, Treasury


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                                 GOVERNMENT AGENCIES TO EXEMPT

        A. EXCEPTED TRANSACTIONS                              103.22(b)(2)(i). A bank also may unilaterally
        In developing exemption policies and proce-           exempt ‘‘(d)eposits or withdrawals of currency
        dures, banks should be aware that two types           from an existing account by an established de-
        of transactions are specifically excepted from        positor who is a United States resident and
        the CTR reporting requirements. (See Appen-           operates a sports arena, race track, amusement
        dix A.) This means that a bank simply does            park, bar, restaurant, hotel, check cashing ser-
        not have to file CTRs on the following transac-       vice licensed by state or local governments,
        tions and, therefore, need not exempt them:           vending machine company, theater, regularly
                                                              scheduled passenger carrier or any public util-
          1. Transactions with Federal Reserve Banks          ity.’’ 31 CFR 103.22(b)(2)(ii).
          or Federal Home Loan Banks. This category
          includes all types of cash receipts or              a. Retail Businesses
          disbursements at Federal Reserve Banks or                    i. Definition of retail type of business
          Federal Home Loan Banks.                            The term ‘‘retail type of business’’ means ‘‘a
          2. Transactions between domestic banks.             business primarily engaged in providing goods
          This category includes all types of currency        to ultimate consumers and for which the busi-
          transactions between ‘‘banks’’ as defined in        ness is paid in substantial portions by
          31 C.F.R. 103.11(a) (e.g., commercial banks,        currency . . . .’’ 31 CFR 103.22(b)(2)(i). A
          savings and loan associations, and credit           business that is primarily engaged in providing
          unions). This category does not permit banks        services, rather than goods, to ultimate consum-
          to except transactions with nonbank financial       ers (e.g., a car wash, a dry cleaning store, an
          institutions (e.g., casinos, currency               appliance repair shop, or a health spa) does
          exchanges, securities brokers). In addition,        not come within the scope of this exemption.
          with the exception of the U.S. Postal Service       In addition, a business that is primarily en-
          and certain check cashing agencies, nonbank         gaged in selling goods wholesale rather than
          financial institutions may not be exempted          retail, is not within the scope of this exemp-
          from the reporting requirements. Thus,              tion. If a business provides both goods and
          banks must file CTRs on their transactions          services to ultimate consumers or sells goods
          with foreign banks and with all nonbank             both wholesale and retail, a bank may exempt
          financial institutions other than the U.S.          that business account only if more than 50% of
          Postal Service or check cashing services that       the business’ gross revenues at the time of the
          have been granted an exemption (as                  exemption is attributable to the retail sale of
          described below).                                   goods to ultimate consumers. Thus, a store
                                                              that sells women’s clothing off the rack and
        B. UNILATERAL EXEMPTIONS                              that also offers custom alterations on the pre-
                                                              mises may have its accounts exempted under
        The regulations establish certain categories of       these provisions if more than 50% of its gross
        business accounts and transactions of custom-         revenues are attributable to the store’s sale of
        ers and government agencies that a bank may           clothing and not to the custom alterations.
        unilaterally exempt without having to obtain          Similarly, if a bakery sells baked goods to ulti-
        advance approval from Treasury or the IRS: (1)        mate consumers and to supermarkets for pur-
        Retail and other specified businesses; (2) gov-       poses of resale, the bank may exempt the bak-
        ernment agencies; and (3) payroll withdrawals.        ery’s account only if more than 50% of its
        1. Retail and Other Specified Businesses              gross revenues are from the sale of baked
                                                              goods to ultimate consumers. (See Appendix
        A bank may unilaterally exempt ‘‘(d)eposits or        A.)
        withdrawals of currency from an existing ac-
        count by an established depositor who is a                         ii. Payment in currency
        United States resident and operates a retail          The phrase ‘‘for which the business is paid in
        type of business in the United States.’’ 31 CFR       substantial portions by currency’’ is intended


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        to limit this exemption to businesses that, in          ball, football, ice skating, jai alai, riding, soc-
        the ordinary course of business, routinely re-          cer, or tennis) or multiple sports that are open
        ceive currency in payment for the goods that            to attendance or participation by the general
        they offer (e.g., a bookstore or a drug store).         public. A promoter who arranges for the pre-
        To qualify, the business must be paid in cur-           sentation of sporting or other entertainment
        rency on a regular and frequent basis.                  events at a sports arena does not come within
                    iii. United States operation                the scope of this provision.
        The term ‘‘operates a retail type of business in                           ii. Race track
        the United States’’ is intended to limit this ex-
                                                                This includes all tracks that hold races of bicy-
        emption to retail businesses that actually are
                                                                cles, dogs, horses, or motor vehicles on a regu-
        doing business in the United States. A foreign
                                                                lar basis, whether or not betting on these races
        citizen or corporation operating a retail busi-
                                                                is permitted at the tracks, and that are open to
        ness solely outside the United States could
                                                                attendance by the general public. A business
        establish an account at a U.S. bank, but could
                                                                organized to handle commercial activities for
        not have transactions involving that account
                                                                an automobile race that occurs once a year in a
        exempted under these provisions. On the
                                                                particular city (e.g., a grand prix) does not
        other hand, a corporation whose shares are
                                                                come within the scope of this provision.
        owned by foreign individuals or corporations,
        but which is organized and is doing a retail                           iii. Amusement park
        business in the United States, could have its
        transactions involving that account exempted            This includes any business that derives more
        under these provisions.                                 than 50% of its gross revenues from rides and
                                                                games (other than gambling devices) and the
              iv. Nonexemptible retail business accounts        sale of food, drink, and souvenirs. It does not
        It is important to remember that accounts of            include traveling carnivals.
        ‘‘dealerships which buy or sell motor vehicles,
        vessels, or aircraft,’’ while retail sellers of                               iv. Bar
        goods, may not be exempted by either unilat-            This includes any business that serves food or
        eral or special exemption from the CTR report-          drink to its patrons for consumption on or off
        ing requirements. 31 CFR 103.22(b)(2)(i). This          the premises, and that derives more than 50%
        applies to all types of motor vehicles, vessels,        of its gross revenues from the sale of alcoholic
        and aircraft, including airplanes, automobiles,         beverages for consumption on the premises.
        boats, construction equipment (e.g., road
        graders and backhoes), farm equipment (e.g.,                               v. Restaurant
        combines and tractors), mopeds, motorcycles,            This includes any business that serves food or
        recreational vehicles, sailplanes, scooters,            drink to its patrons for consumption on or off
        ships, snowmobiles, trucks, and yachts.                 the premises, and that derives more than 50%
        b. Specified Businesses                                 of its gross revenues from the sale of food for
                                                                comsumption on or off the premises.
        In addition to permitting an exemption for the
        accounts of retail types of businesses, the reg-                             vi. Hotel
        ulations permit unilateral exemptions for the
        following types of businesses: sports arenas,           This includes any business (other than a cruise
        race tracks, amusement parks, bars, restau-             ship) that derives more than 50% of its gross
        rants, hotels, licensed check cashing services,         revenues from providing temporary lodging to
        vending machine companies, theaters, regu-              its patrons.
        larly scheduled passenger services and public                    vii. Licensed check cashing service
        utilities. (See Appendix A.) Each of these busi-
        nesses is discussed briefly below.                      This currently includes any business that, for a
                                                                fee, cashes checks for its customers and that is
                          i. Sports arena                       specifically licensed to do so by an agency or
        This includes a stadium or arena that regularly         instrumentality of a state or local government.
        accommodates either a single sport (e.g., base-         (But see Appendix A.) A check cashing service


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        that is unlicensed, or that has only a general         or businesses (e.g., bar and restaurant) and
        business license, does not come within the             the remainder of the business is derived from
        scope of this provision. If a bank wishes to           a business for which the bank may obtain au-
        grant a unilateral exemption to a licensed             thority from the IRS to grant a special exemp-
        check cashing service it should do so only for         tion, the bank may unilaterally grant an ex-
        withdrawals of currency, not deposits, because         emption for the account. Thus, for instance, if
        currency deposits are generally not attributable       a bakery were to sell its baked goods to ulti-
        to check cashing activities of the business.           mate consumers (retail) and to supermarkets
                                                               (wholesale), the bank would be able to unilat-
                 viii. Vending machine company                 erally exempt the bakery’s account only if the
        This includes any business that operates vend-         bakery derived more than 50% of its gross rev-
        ing devices which provide either a product             enues from the retail business and not the
        (e.g., beverages, candy, food, newspapers, or          wholesale operation.
        change) or a service (e.g., a coin-operated               If more than 50% of the gross revenues is
        laundry) when activated by inserting coins or          derived from a type of business that cannot be
        small-denomination currency.                           unilaterally exempted, but that may be granted
           A business that primarily operates                  a special exemption, the bank may not grant
        coin-operated juke boxes, or coin-operated             that account a unilateral exemption. For exam-
        video games that do not constitute gambling            ple, if a bank has knowledge that one of its
        devices, is within the scope of this provision.        customers, a local bar, has been deriving the
        A business that operates coin-operated gam-            majority of its gross revenues from operating
        bling devices of the type used in casinos (e.g.,       an unlicensed check cashing service, it may
        slot machines or video poker) does not come            not unilaterally exempt the customer’s account.
        within the scope of this provision.                    Instead, the bank should contact the IRS to
                                                               request a special exemption.
                           ix. Theater                            Finally, if the bank’s customer is a business
                                                               entity that operates exemptible and nonexemptible
        This includes any theater that shows films or
                                                               (as opposed to unilaterally exemptible and spe-
        that presents live entertainment.
                                                               cially exemptible) businesses and the funds
             x. Regularly scheduled passenger carrier          from both types of businesses (e.g., auto parts
                                                               department and a car dealer) are commingled
        This includes any business that is principally         in the same account, the bank may not grant
        engaged in providing transportation of passen-         the account of that customer a unilateral ex-
        ger by airplane, boat, bus, limousine, ferry, or       emption and should not write to the IRS in
        train on a regular and publicly available sched-       Detroit to request a special exemption. This is
        ule. A business that is principally engaged in         true even if more than 50% of the gross reve-
        operating a taxicab or limousine service, or           nues is derived from the exemptible business.
        transporting passengers on a charter basis by          If the bank has any questions, it should con-
        airplane, bus, or train, does not come within          tact FinCEN at Treasury for guidance, at the
        the scope of this exemption.                           address listed on page 2 above.
                        xi. Public utility                     d. Limitations on Exemptions for Retail and
        This includes any business that is principally         Other Specified Businesses
        engaged in operating a public utility (e.g.,           There are three limitations that apply to all
        electric power, telephone service, or water).          exemptions for accounts of retail or other speci-
                                                               fied businesses: (1) they may only be granted
        c. Multi-Faceted Businesses                            for ‘‘deposits or withdrawals of currency,’’
        In some cases, a particular business entity may        (2) they may only be granted for ‘‘an existing
        offer more than one type of good or service to         account by an established customer.,’’ and
        the public. So long as more than 50% of the            (3) they may only be granted for a ‘‘United
        gross revenues of the customer whose account           States resident.’’ These limitations are explained
        is being considered for an exemption is de-            in more detail below. 31 CFR 103.22(b)(2)(i),
        rived from a unilaterally exemptible business          (ii).


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             i. ‘‘Deposits or withdrawals of currency’’            and establish a separate exemption limit. (See
        The term ‘‘(d)eposits or withdrawals of cur-               pp. 10–11 below.)
        rency’’ limits these exemptions to currency de-              Thus, for example, if three fast-food restau-
        posits or withdrawals or both, involving the ac-           rants owned by the same corporation each
        count of a properly exempted customer. Thus,               have separate deposit accounts at the same
        under these exemption provisions, a bank may               bank, that bank may not grant one exemption
        not exempt any other type of transaction in-               that covers all three accounts. Instead, the
        volving that account (e.g., the purchase of                bank should consider each account separately
        cashier’s checks or money orders, exchanges of             for an exemption. If the bank decides that all
        currency, or cash disbursement of loan pro-                three accounts should be exempted, the bank
        ceeds). In addition, if a bank customer                    should prepare three separate exemption state-
        presents several third-party checks and obtains            ments and establish separate exemption limits
        ‘‘cash back’’ without actually depositing the              for each account.
        checks into an account, that transaction is not                           • Established Depositor
        considered a deposit or withdrawal under                   The term ‘‘established depositor’’ is intended
        these exemptions. This is true even if the bank            to make clear that a bank may not exempt the
        has granted a unilaterally exemptible business             account of a business at the time that the busi-
        (e.g., a retail business or licensed check                 ness opens the account. As these guidelines
        casher) an exemption for currency deposits                 will later explain, a bank must establish a dol-
        into and withdrawals from that account; it still           lar limit for an exemption in an amount that
        must file CTRs on any ‘‘cash back’’ transaction            does not exceed an amount ‘‘commensurate
        by that customer that does not involve the ac-             with the customary conduct of the lawful, do-
        tual deposit of the checks into, and the actual            mestic business of that customer. . . .’’ 31
        withdrawal of more than $10,000 in cash from,              CFR 103.22(c). If a bank has not had a prior
        the customer’s account.                                    account relationship with a customer, it cannot
                                                                   determine, from a history of its transactions
         ii. ‘‘Existing account by an establised depositor’’
                                                                   with that customer, what dollar limit would be
                        • Existing Account                         commensurate with that customer’s lawful,
                                                                   domestic business.
        Banks frequently ask whether they should grant                For this reason, the bank generally should
        a unilateral exemption for each separate account           not unilaterally exempt the account of a busi-
        of a customer that has multiple accounts or for            ness for at least the first two months of that
        the customer (i.e., an exemption that covers               business’ depositor relationship with the bank.
        multiple accounts of the same customer with a              After reviewing at least two months of cur-
        single taxpayer identification number (TIN)). The          rency transactions of the account being consid-
        term ‘‘existing account’’ means that for this type         ered for exemption, the bank may then set a
        of exemption, the bank can only grant a unilat-            limit. If the customer has had an account at
        eral exemption for an individual account, not for          the bank for more than two months, the bank
        an individual customer. If a particular customer           generally should review at least the most re-
        has separate accounts at the bank, each account            cent two months of transactions involving that
        should be considered separately by the bank to             account, unless those months are not repre-
        determine whether an exemption should be                   sentative of the customary conduct of the cus-
        granted. The bank should not grant a single ex-            tomer’s lawful domestic business. (See p.9
        emption covering multiple accounts of that cus-            below).
        tomer, even if those accounts have the same
        TIN. If the bank has already granted any of its                        iii. ‘‘United States resident’’
        customers a single exemption covering multiple             The term ‘‘United States resident’’ is intended
        accounts, the bank should contact FinCEN at the            to limit these exemptions to accounts of busi-
        address listed on page 2 for guidance. In addi-            ness entities that are physically residing in the
        tion, if the bank determines that it wants to grant        United States at the time of the exemption.
        exemptions for more than one account, it should            The term includes a sole proprietorship oper-
        prepare an exemption statement for each account


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Currency and Foreign Transactions Reporting Act                                                                       501.0

        ated by a U.S. citizen or permanent resident,             nonbank financial institutions (see page 8
        alien, a corporation, a partnership, an associa-          below), a bank may use this exemption to ex-
        tion, or any other form of corporate organiza-            empt its transactions with the U.S. Postal Ser-
        tion, which is physically located in and doing            vice, which the regulations have designated as
        business in the United States. The term does              a nonbank financial institution with respect to
        not include a foreign embassy or consulate in             its sales of postal money orders.
        the United States, or a foreign business entity
        that does business, but does not have a place             3. Payroll Withdrawals
        of business, in the United States.                        The regulations also permit a bank unilaterally
                                                                  to exempt ‘‘(w)ithdrawals for payroll purposes
        2. Government Agencies                                    from an existing account by an established de-
        The regulations permit a bank unilaterally to             positor who is a United States resident and
        exempt ‘‘(d)eposits or withdrawals, exchanges             operates a firm that regularly withdraws more
        of currency or other payments and transfers by            than $10,000 in order to pay its employees in
        local or state governments, or the United                 currency.’’ 31 CFR 103.22(b)(2)(iv). This ex-
        States or any of its agencies or instrumentali-           emption is limited to withdrawals of currency
        ties.‘‘ 31 CFR 103.22(b)(2)(iii). By its terms,           by an employer that actually pays its employ-
        this exemption applies to all types of currency           ees with the currency it has withdrawn. It
        transactions conducted by the Federal Govern-             does not include an employer that pays its em-
        ment or any of its agencies or instrumentali-             ployees by check, but then cashes employees’
        ties, as well as any state or local (e.g., county         paychecks and presents the employees’ checks
        or municipal) government or any of its agen-              at a bank to receive ‘‘cash back.’’ Similarly, an
        cies or instrumentalities whether or not                  employer that withdraws cash to offer a check-
        through an account. Government agencies and               cashing service to its employees does not come
        instrumentalities do not have to be                       within the scope of this exemption.
        ‘‘established depositors’’ as described above.               The terms ‘‘existing account by an
        The only restriction on these types of exemp-             established depositor’’ and ‘‘United States resi-
        tions is that the exemptions must be ‘‘in                 dent’’ have the same scope as those terms de-
        amounts which are customary and commensu-                 scribed on page 6 above.
        rate with the authorized activities of the
        agency or instrumentality.’’ 31 CFR 103.22(c).            C. SPECIAL EXEMPTIONS
        (See discussion p.9 below.)
           A bank may therefore exempt the cash trans-            1. General Criteria
        actions involving any government agency (e.g.,            Even if a particular customer’s account does
        the Treasury Department, the Justice Depart-              not come within one of the categories of ex-
        ment, and Federal law enforcement agencies)               emptions that a bank may unilaterally grant,
        or government instrumentality (e.g.,                      the bank may still be able to exempt the de-
        state-supported colleges and universities), even          posits and withdrawals of cash of that custom-
        if that agency or instrumentality does not con-           er’s account that exceed $10,000 from the CTR
        stitute ‘‘an established depositor,’’ as defined on       reporting requirements. If a bank determines
        page 6 above. If the government agency (e.g.,             that one of its customers appears to be operat-
        state-supported college) has a privately owned            ing a legitimate business, and the customary
        business (e.g., bookstore) that is operated on            conduct of the lawful domestic business of that
        its grounds, the business may not be exempted             customer involves regular and frequent cur-
        under this exemption but may be exempted                  rency deposits or withdrawals, the bank may
        under another exemption (e.g., retail                     apply to the IRS for additional authority to
        business). A union or fraternal association               exempt deposits or withdrawals involving an
        whose membership consists of officials or em-             account of that customer. If the bank receives
        ployees of a government agency or instrumen-              additional authority from the IRS, it may then
        tality also does not come within the scope of             grant a ‘‘special exemption.’’
        these provisions.                                           Because there are numerous types of busi-
           Although the regulations generally do not              nesses that may qualify for special exemptions,
        permit banks to exempt their transactions with            Treasury has refrained from developing a com-


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                                                                                                                  Page 13
501.0                                                        Currency and Foreign Transactions Reporting Act

        prehensive list of those businesses. However,              government, or any agency, instrumentality,
        Appendix A contains a list of some of the                  or office thereof (e.g., foreign embassies and
        types of businesses that have been approved                consulates).
        in the past for special exemptions. The IRS
        will not grant additonal authority for special           D. CTR REPORTING ON CERTAIN TRANS-
        exemptions of businesses such as automobile              ACTIONS BY EXEMPTED CUSTOMERS
        clubs that offer travelers’ checks for sale, pre-        In using the exemption provisions of the regu-
        cious metal or coin dealers, scrap metal deal-           lations, banks must bear in mind that their
        ers, and gambling operations, whether charita-           granting of exemptions to certain accounts and
        ble or for profit.                                       customers does not mean that they will never
                                                                 have to file CTRs on those accounts and cus-
        2. Nonexemptible Entities                                tomers. Even after granting an exemption and
        Transactions by certain types of businesses              setting a dollar limit for that exemption, a
        may not be the subject of a unilateral or spe-           bank must continue to file CTRs on two types
        cial exemption under any circumstances: (See             of currency transactions:
        Appendix A).                                               1. All currency transactions that are of the
           a. Transactions by a bank with nonbank fi-              type exempted, but that exceed the dollar
           nancial institutions (e.g., casinos, currency           limit. Thus, if the exemption limit on a par-
           exchanges, issuers of traveler’s checks, and            ticular customer’s account is for daily depos-
           securities brokers or dealers) other than the           its that do not exceed $20,000 when aggre-
           U.S. Postal Service and check-cashing ser-              gated, the bank still must report the total
           vices.                                                  amount of deposits into that account if the
           b. Transactions between a domestic bank                 total of all deposits in the same banking day
           and a foreign bank.                                     exceeds $20,000 (e.g., $20,000.01).
           c. Transactions by a bank with commodities              2. All non-exempted currency transactions
           brokers and dealers.                                    involving an account. Thus, if the account is
           d. Transactions by a bank with a motor ve-              the subject of an exemption for currency
           hicle, vessel, or aircraft dealer, as described         withdrawals up to $19,000, the bank must re-
           above.                                                  port any and all currency deposits into that
                                                                   account that exceed $10,000.
           e. Transactions by a bank with a foreign


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Currency and Foreign Transactions Reporting Act                                                                      501.0

                                      II. HOW TO EXEMPT CUSTOMERS

        Once a bank has determined that the account             While the regulations do not require that a
        of a particular customer may qualify for a uni-         government agency or instrumentality be an
        lateral or special exemption, it is encouraged to       ‘‘established depositor,’’ the bank may still find
        initiate the process for granting the exemption.        it helpful to review at least the most recent two
        Under the regulations, only the bank (and not           months’ account activity of that agency, to aid
        the customer) has the authority to grant unilat-        in establishing an exemtpion limit that is ‘‘com-
        eral exemptions or to apply to Treasury for             mensurate with the authorized activities of
        special exemptions. In general, if a business           the agency or instrumentality.’’ 31 CFR
        customer specifically requests an exemption             103.22(c). However, if the customer whose ac-
        before the bank has contacted it, the bank              count is being considered for exemption is a
        should carefully scrutinize the customer’s ac-          government law enforcement agency that
        tivity at the bank before deciding whether to           opened the account for deposits of seized cash
        grant an exemption. This is because the cus-            for transactions conducted in relation to crimi-
        tomer may be seeking the exemption to hide              nal investigations or similar types of transac-
        its transactions from the government.                   tions, the bank need not review two consecu-
                                                                tive months of account activity. These types of
        A. REVIEW OF BANK RECORDS                               transactions are by their nature less regular
        As the first step, the bank should review the           and frequent than other transactions by other
        customer’s transaction history, including its           government agencies.
        cash deposit or withdrawal transactions. This
        review is necessary to determine whether the            2. Review of Other Available Information
        customary conduct of a business entity’s lawful         In addition, the bank should review any other
        domestic business involves currency deposits            information taht it has concerning its customer
        or withdrawals exceeding $10,000 that occur             which might assist the bank in reviewing that
        regularly and frequently (e.g., daily or several        customer’s transaction history. If the customer
        times per week, or in some cases, weekly or             has a longstanding depositor relaitonship with
        biweekly). If the bank’s records do not indicate        the bank, the bank may have made extensions
        that that entity has had regular and frequent           of credit or conducted other business with the
        currency deposits or withdrawals exceeding              customer that generated additional records
        $10,000, then the bank should not proceed any           about the customer’s business. If the customer
        further with the exemption process, notwith-            is a government agency or instrumentality, the
        standing the nature of the customer’s business.         bank should also ask for official identification
                                                                from the person who is opening the account
        1. Two Consecutive Months of Activity                   or conducting the transaction as a representa-
        The bank should review at least two consecu-            tive of that agency. These steps not only are
        tive months of transactions, including currency         consistent with a bank’s marketing strategy of
        deposits or withdrawals, by its customer. The           ‘‘knowing its customer,’’ but also may aid in
        two months of deposits or withdrawals should            the determination of wehther the customer, in
        be the most recent months unless those                  fact, comes within one of the categories of
        months are not truly representative of the cus-         exemptible businesses.
        tomary conduct of the customer’s lawful do-                In some cases, criminals have succeeded in
        mestic business. For example, if the currency           having a ‘‘front’’ company paced on the ex-
        deposits or withdrawals of an established cus-          emption list. Often, the address given to the
        tomer during the months of November and                 bank was a vacant lot or a storefront where
        December far exceed that customer’s currency            legitimate business could not be carried on.
        deposits or withdrawals in other months be-             Treasury therefore encourages banks to know
        cause of seasonal shopping trends, the bank             their customers. If a bank is not familiar with a
        should review deposits or withdrawals that              particular business entity that it is considering
        occurred in two consecutive months that do              for an exemption, Treasury urges the bank to
        not include either November or December.                take some steps to see if the customer appears


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501.0                                                        Currency and Foreign Transactions Reporting Act

        to be conducting a legitimate bsusiness by                ments. Instead, in response to many inquiries,
        checking the telephone directory to verify the            Treasury has developed model form (see Ap-
        business’ address and telephone number, or                pendix B) that banks may use. As stated at
        preferably by walking or driving past the busi-           page 6 above, the bank must prepare a sepa-
        ness. The bank also may want to maintain a                rate exemption statement for each customer
        record of all of the steps that it took in deter-         account to be exempted. However, any exemp-
        mining whether the customer was eligible for              tion statement that a bank prepares must, un-
        an exemption.                                             der the regulations, include the following
        B. PREPARATION OF EXEMPTION                               items:
        STATEMENTS                                                  a. The name, address (i.e., complete street
        1. Statements for Customers Exempted After                  address), nature of business, taxpayer identi-
        October 27, 1986                                            fication number, and account number of the
                                                                    customer being exempted. In addition, in
        After the bank has reviewed the customer’s                  order to ensure that an account is being
        transaction history and other information, and              property exempted under 103.22(a), it is
        determined that the customer appears to be eli-             recommended that the customer also con-
        gible for an exemption, it must then prepare a              firm that the funds being deposited into the
        separate ‘‘exemption statement’’ for each account           account being exempted do indeed come
        of the customer to be exempted. Pursuant to a               from the business for which the account was
        1986 amendment to the Bank Secrecy Act, the                 established.
        regulations state that after October 27, 1986 (the
        date on which the amendment became law), ‘‘a                b. A statement, following the information in
        bank may not place any customer on its exempt               paragraph ‘‘a’’ above, that reads as follows:
        list without first preparing a written statement,           ‘‘The information contained above is true
        signed by the customer, describing the custom-              and correct to the best of my knowledge and
        ary conduct of the lawful domestic business of              belief. I understand that this information
        that customer and a detailed statement of rea-              will be read and relied upon by the Govern-
        sons why such person is qualified for an exemp-             ment.’’
        tion.’’ 31 CFR 103.22(d).                                   c. A space, following that statement, for the
        2. Statements for Customers Exempted on or                  signature of the person who is attesting to
        before October 27, 1986                                     the accuracy of the information concerning
                                                                    the name, address, nature of business, and
        For customers granted an exemption on or be-                tax identification number of the customer.
        fore October 27, 1986, the bank should prepare              This space must also list the signer’s title
        an exemption statement if there is any change               and position (i.e., the office or division of
        in the business or in the type of exemption                 the customer in which the person signing is
        other than a change in address or in the dollar             employed), and should include the date of
        amount of the existing exemption. These in-                 the signature.
        stances would include a change in the name of
        the business, a change from one form of entity              d. An indication by the bank whether the
        to another (e.g., sole proprietorship to corpo-             exemption covers deposits, withdrawals, or
        ration), a change from one type of business to              both, as well as the dollar limit of the ex-
        another (e.g., a retail type of business to a res-          emption for both deposits and withdrawals.
        taurant), a change in ownership of the custom-              e. An indication by the bank whether the
        er’s business, or a change in the nature of the             exemption is limited to certain types of de-
        existing exemption (e.g., from withdrawals to               posits or withdrawals (e.g., withdrawals for
        deposits or from withdrawals only to with-                  payroll purposes).
        drawals and deposits). The exemption state-
        ment should reflect the current information               4. Customer Information and Signature
        about the customer.
                                                                  To prepare the exemption statement, the bank,
        3. Form for Exemption Statements                          after compiling whatever information it needs
        Treasury has not issued a form that all banks             for reviewing the customer’s transaction history
        are required to use for their exemption state-            and other information, should contact the


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Currency and Foreign Transactions Reporting Act                                                                        501.0

        customer, explain the need for the statement               the statement whether the exemption covers
        and its relationship to the exemption, obtain              deposits, withdrawals, or both, and the dollar
        from the customer the information listed in                limit of the exemption. 31 CFR 103.22(d). This
        item 3a on page 10 above, and have the cus-                inforamtion should note whether the transac-
        tomer place an original signature on the state-            tions exempted are limited to a certain type
        ment. Facsimile signatures are not acceptable              (e.g., withdrawals for payroll purposes). Fi-
        for completion of the statement.                           nally, the bank should note on the statement
           The signature on the statement need not be              the date on which it granted the exemption.
        that of the highest ranking officer or employee            C. EXEMPTION LIMITS
        of the business (or government agency) whose
        transactions are to be exempted. However, the              1. General Criteria
        bank should inform the customer that the sig-              In conjunction with its review of the custom-
        nature should be that of an appropriate                    er’s account activity, the bank must also deter-
        supervisory-level officer or employee who has              mine for the exempted account the applicable
        personal knowledge of (and can therefore at-               dollar limit for the exempted deposits or with-
        test to the accuracy of) the information listed            drawals. 31 CFR 103.22(d). This determination
        in item 3a above. In the case of an account es-            requires the bank to establish two types of dol-
        tablished for the local store of a multiple-               lar limits for the currency transactions that are
        establishment business (e.g., fast food) or the            exempted:
        local office of a government agency, the bank
                                                                     a. For exemptions pertaining to government
        may accept the signature of a supervisory-level
                                                                     agencies or instrumentalities, the dollar lim-
        officer or employee in that local store or office.
                                                                     its must be ‘‘in amounts which are custom-
        5. Completion of Exemption Statement                         ary and commensurate with the authorized
                                                                     activities of the agency or instrumentality.’’
        After obtaining the customer’s signature on the              31 CFR 103.22(c).
        exemption statement, the bank should then
        complete the remainder of the statement. The                 b. For all other categories of unilateral ex-
        regulations require that the statement include               emptions, the dollar limits must be ‘‘in
        not only a description of ‘‘the customary con-               amounts that the bank may reasonably con-
        duct of the lawful domestic business of that                 clude do not exceed amounts commensurate
        customer,’’ but also ‘‘a detailed statement of               with the customary conduct of the lawful
        reasons why such person is qualified for an                  domestic business of that customer.’’ 31 CFR
        exemption.’’ 31 CFR 103.22(d). Summary state-                103.22(c).
        ments such as ‘‘retail,’’ ‘‘qualified under                   This language indicates that there must be a
        103.22(b)(2)(ii),’’ or ‘‘government’’ will not suf-        reasonable relationship between the maximum
        fice to describe the business.                             amounts of the currency transactions that the
           The following are examples of descriptions              bank reviewed and the dollar limit that it sets
        of businesses that will suffice:                           for a particular exemption. If, for example, the
           1. retail women’s shoe store;                           majority of the currency transactions reviewed
                                                                   range from $20,000 to a maximum of $25,000,
           2. retail and wholesale bakery with 70% of
                                                                   the bank must not arbitrarily set the dollar
           the gross revenues attributable to the retail
                                                                   limit at an amount so high (e.g., $60,000) that
           business; and
                                                                   no CTRs will ever be filed on the exempted
           3. a restaurant/bar with check cashing ser-             account.
           vices that derives 80% of its gross revenues               The bank must therefore carefully review the
           from the restaurant/bar.                                transaction history of the exempted account, to
           The statement should include the period                 determine what limit would bear a reasonable
        covered by the transaction history that the                relationship to the currency transactions re-
        bank reviewed, the range (i.e., the maximum                viewed. If one transaction amount recurs more
        and minimum amounts) of the transactions                   frequently than any other, the bank may sim-
        during that period, and any other information              ply set the dollar limit at that amount, or at
        that the bank may have about the business or               the amount of other transactions that do not
        its account activity. The bank must indicate in            substantially exceed that amount. Thus, for


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                                                                                                                   Page 17
501.0                                                      Currency and Foreign Transactions Reporting Act

        example, if the bank had reviewed at least two          tions that it has reviewed. Thus, for example,
        months of currency transactions, and saw that           if a bank had reviewed at least two months of
        the following pattern of transactions in a par-         transactions, and saw that the following pat-
        ticular month was representative of the num-            tern of currency transactions in a particular
        ber and dollar amounts in all months                    month was representative of the number and
        reviewed,                                               dollar amounts in all months reviewed,
           March   1 - $15,000    March   18 - $45,000                April 1 - $12,000    April 14 - $13,000
           March   2 - $43,000    March   21 - $30,000                April 4 - $25,500    April 18 - $21,500
           March   4 - $40,000    March   22 - $28,000                April 5 - $15,000    April 21 - $26,000
           March   7 - $42,000    March   23 - $35,000                April 7 - $22,500    April 22 - $12,300
           March   8 - $18,000    March   25 - $40,000                April 8 - $19,000    April 25 - $21,000
           March   9 - $38,000    March   28 - $40,000                April 11 - $22,000   April 27 - $24,000
           March   11 - $45,000   March   29 - $20,000                April 13 - $17,000   April 29 - $25,000
           March   15 - $40,000   March   30 - $41,000          it could select the highest amount, $26,000, as
           March   16 - $30,000   March   31 - $40,000          the exemption limit. This is because most of
        it could select $40,000 as the exemption limit          the transactions are between $15,000 and
        because that amount recurs more frequently              $26,000, and $26,000 does not substantially
        than any other and most of the other amounts            exceed the $24,000, $25,000, and $25,500
        are within a $35,000 to $45,000 range. How-             transactions, as demonstrated below:
        ever, Treasury suggests an exemption limit of              $10,001 - $15,000           XXXX
        $45,000, as that amount occurs twice; it is not            $15,001 - $20,000           XX
        substantially greater than $40,000; and there              $20,001 - $25,000           XXXXXX
        are other transactions (i.e., $41,000, $42,000,            $25,001 - $30,000           XX
        and $43,000) that fall between $40,000 and
        $45,000.                                                   On the other hand, if the highest currency
           To aid in its review of a customer’s currency        transaction or transactions substantially exceed
        transactions, a bank may find it helpful to de-         the amount of most of the currency transac-
        velop a chart that shows the number of cur-             tions, the bank should not establish the ex-
        rency transactions that fall within certain             emption limit at the amount of the highest
        ranges. If the bank reviewing the transaction           transaction. Thus, for example, if the highest
        history set forth above had used this method,           transaction in the last example had been
        the chart of the transactions under review              $46,000 rather than $26,000, the bank should
        would look like this:                                   not select an amount that is higher than
                                                                $25,500 as the exemption limit. This is true
           $10,001 - $15,000           X
                                                                even if there were two or more higher transac-
           $15,001 - $20,000           XX
                                                                tions (i.e., $46,000 and $65,000), as these
           $20,001 - $25,000                                    amounts are substantially greater than the
           $25,001 - $30,000           XXX                      other currency transactions and they do not
           $30,001 - $35,000           X                        occur frequently or regularly. The key is to
           $35,001 - $40,000           XXXXXX                   make sure that the amount selected as the ex-
           $40,001 - $45,000           XXXXX                    emption limit is commensurate with the cus-
           $45,001 - $50,000                                    tomary conduct of the customer’s lawful do-
          This chart graphically demonstrates that              mestic business and that those amounts that
        while the bank could select $40,000 as the ex-          are unusual (i.e., higher than the customary
        emption limit, $45,000 would be an appropriate          transactions) can be easily detected and
        exemption limit in this case because of the             reported on CTRs.
        grouping of the transactions from $35,000 to
        $45,000.                                                2. Seasonal and ‘‘Monday-Only’’ Limits
          If no amount recurs frequently enough to              Banks should take note of two special situa-
        serve as a guide for the exemption limit, the           tions in establishing and setting dollar limits
        bank may still establish an exemption limit             for exempted currency transactions. If a bank
        based upon the range of any currency transac-           is dealing with a business account that can be


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Page 18
Currency and Foreign Transactions Reporting Act                                                                       501.0

        exempted either unilaterally or specially, and             (e.g., a fast-food restaurant with the same
        that business is seasonal in nature (e.g., a ho-           trade name), which has established a single
        tel on the beach), the bank may establish an               account that all of the locations use to make
        exemption that covers only the season in                   deposits and withdrawals;
        which that business has its peak activity, or              2. An operator of several different types of
        that sets a high dollar limit for the business’            exemptible businesses at one or more geo-
        peak season and a lower dollar limit for the               graphic locations which has established a
        other months of the year. Similarly, if an ex-             single account that all of the businesses it
        emptible business proves to have a higher                  operates use to make deposits and
        amount of currency transactions on a particu-              withdrawals;
        lar day (i.e., Monday or the day after a holi-
        day, Friday, or the first and fifteenth of the             3. An operator of the same type of exempt-
        month), than on other days of the week or                  ible business at several geographic locations,
        month (i.e., because of greater business activ-            when each location has its own separate
        ity on weekends, more currency deposits                    account; and
        made through night deposits or automated                   4. An operator of several different types of
        teller machines, or factory paydays), the bank             exemptible businesses at one or more geo-
        may establish an exemption that covers only                graphic locations, when each location has its
        currency transactions posted on that day, or               own separate account.
        that sets a higher dollar limit for currency
        transactions on that day and a lower dollar                 In the first two situations above, which in-
        limit for other days of the week.                        volve only a single account, the bank should
           Thus, for example, if the bank had reviewed           establish a single exemption for that account
        at least two months of currency transactions,            and set a single dollar limit that will apply to
        and saw that the following pattern of transac-           all transactions of the type exempted that in-
        tions in a particular month was representative           volve that account.
        of the number and dollar amounts in all                     In the latter two situations described above,
        months reviewed,                                         which involve separate accounts for each loca-
                                                                 tion, the bank should establish a separate ex-
            April   1 - $15,000    April   14 - $17,000          emption for each account and separate dollar
            April   4 - $46,000    April   18 - $53,000          limit for each exemption. Because section
            April   5 - $ 5,000    April   21 - $22,000          103.22(b)(2)(i), (ii), and (iv) of the regulations
            April   7 - $19,000    April   22 - $26,000          provides for exemption from an existing ac-
            April   8 - $24,000    April   25 - $50,000          count by an established depositor who is a
            April   11 - $52,000   April   27 - $25,000          United States resident, the bank should grant
            April   13 - $21,000   April   29 - $22,000          a separate unilateral exemption for each indi-
        the bank should try to determine whether the             vidual account, not for each individual cus-
        higher amount of currency transactions reflected         tomer or business. If one customer has an ac-
        activity on the same day of the week every week          count for each of its business establishments,
        (i.e., Mondays). If it did, it may be appropriate        the bank should separately consider each indi-
        for the bank to set two exemption limits: (1) a          vidual account (but not the customer) for an
        daily exemption limit of $26,000; and (2) a Mon-         exemption. A single exemption should not be
        day or the day after a holiday limit of $53,000.         granted that covers multiple accounts, even if
                                                                 they have the same taxpayer identification
        D. MULTIPLE-ESTABLISHMENT CUSTOMERS                      number. If the bank has any questions about
        Another special situation of which banks                 this, it should contact the FinCEN at the
        should take note is the process of exempting             address listed on page 2. In addition, if the
        multiple-establishment customers. For                    bank decides that it wants to grant an exemp-
        purposes of the regulations, a multiple-                 tion for more than one account, a separate
        establishment customer is a customer that falls          exemption statement should be obtained for
        into one of the following categories:                    each account and a separate dollar limit
          1. An operator of the same type of exempt-
          ible business at several geographic locations


Bank Secrecy Act Manual                                                                                     September 1997
                                                                                                                   Page 19
501.0                                                      Currency and Foreign Transactions Reporting Act

        E. SPECIAL EXEMPTION REQUESTS                           copy of the exemption statement (signed by
        Finally, if a bank wishes to exempt deposits            the customer whose acount is proposed for
        into or withdrawals from an account by a cus-           the special exemption) that meets all of the
        tomer that does not fall within one or more of          requirements described above for exemption
        the categories of unilaterally exemptible cus-          statements for unilateraly exempted accounts.
        tomers, it must apply to the IRS Data Center            The request should also include a listing of
        in Detroit, Michigan, for additional authority          daily amounts of currency deposited and with-
        to exempt that account under the regulations.           drawn during the two-month period reviewed,
        See 31 CFR 103.22(e). To apply for such addi-           what percentage of the amount of the deposits
        tional authority, the bank must submit its re-          or withdrawals is ordinarily in $100 bills or
        quest to:                                               greater, a suggested dollar limit for the exemp-
                                                                tion, and the name and telephone number of
           Chief                                                the bank official whom the IRS may contact for
           Currency and Banking Reports Division                further information concerning the exemption
           Compliance Review Group                              request. The request, if complete, will then be
           Internal Revenue Service Data Center                 reviewed by the Compliance Review Group of
           P.O. Box 32063                                       the Data Center. A bank may not exempt a cus-
           Detroit, Michigan 48232                              tomer’s account that does not qualify for a uni-
           The request must be accompanied by a state-          lateral exemption until it has received notice
        ment of the circumstances that the bank be-             from the IRS that it has granted the bank the
        lieves warrant a special exemption, as well as a        additional authority to do so.


September 1997                                                                               Bank Secrecy Act Manual
Page 20
Currency and Foreign Transactions Reporting Act                                                                       501.0


        After it has granted an exemption involving a par-          4. Clear Springs National Bank
        ticular account of a customer, the bank is responsi-           5420 Main Street
        ble for keeping two principal types of records per-            Clear Springs, Florida 33123
        taining to that exemption: (1) a centralized                The last entry on the sample format reflects
        exemption list and (2) exemption statements.                the requirement in the Bank Secrecy Act regu-
        A. EXEMPTION LIST                                           lations that a bank must also include on its
                                                                    exemption list the names and addresses of all
        The bank must keep ‘‘(a) record of each exemp-              domestic banks with which the bank conducts
        tion granted . . . and the reason therefore. . . in         currency transactions that are exempted from
        a centralized list.’’ 31 CFR 103.22(f). This list,          the CTR reporting requirements. See 31 CFR
        known as the ‘‘exemption list’’ or ‘‘exempt list,’’         103.22(f). As stated on page 3 above, transac-
        must include the name, complete street address,             tions between domestic banks are excepted
        type of business, taxpayer identification number,           from those reporting requirements. Even if the
        and account number of each customer (whether                bank does not have an exemption list, it still
        a business entity or a government agency)                   must maintain the names and addresses of
        whose transactions have been exempted, as well              such domestic banks on a centralized list.
        as an indication of whether the exemption covers               Again, because the bank’s transactions with
        withdrawals, deposits, or both, and the dollar              domestic banks are not included within the
        limit of that exemption. For a special exemption,           reporting requirement, the bank does not have
        the bank should include the date the exemption              to decide whether to exempt those transactions
        was granted by Treasury or the IRS. For banks               or to set an exemption dollar limit for them.
        that manually revise their exemption lists, Trea-           Accordingly, the bank should not include a
        sury suggests the following format for the re-              dollar limit for those domestic banks that it
        quired information:                                         places on the exemption list.
        1. ABC Supermarket, Inc.                                       Whenever a bank generates a list of its ex-
           1234 Dixie Highway                                       empted customers, it must retain either the
           Clear Springs, Florida 33123                             original or a copy of that list for a period of
           Retail Grocery                                           five years. The retention period for an exemp-
           Account Number: 123456                                   tion list begins on the day on which the origi-
           Deposits Exemption Limit: $20,000                        nal of that list was generated, either manually
           Withdrawals Exemption Limit: $25,000                     or through the use of an automated system.
           TIN: 59-2345678                                          See 31 CFR 103.38(d). In addition, the regula-
                                                                    tions require that the exemption lists, like
        2. BCD Citrus Growers                                       other records required to be retained under the
           Route 5                                                  Bank Secrecy Act regulations, ‘‘be filed or
           Clear Springs, Florida 33123                             stored in such a way as to be accessible within
           Orange Grower                                            a reasonable period of time, taking into con-
           Account Number: 1234567                                  sideration the nature of the record, and the
           Withdrawals for Payroll Exemption Limit:                 amount of time expired since the record was
           $25,000                                                  made.’’ 31 CFR 103.38(d).
           TIN: 59-1234567
        3. Jones Beverage Co.                                       B. EXEMPTION STATEMENTS
           5432 Main Street                                         The second principal category of records that a
           Clear Springs, Florida 33123                             bank must keep concerning an exempted ac-
           Beer Wholesaler                                          count is the exemption statement that the bank
           Account Number: 2345678                                  has obtained from a customer whose transac-
           Deposits Exemption Limit: $20,000                        tions involving that account have been
             (Special exemption authority granted                   exempted. After the bank has obtained such a
             3/21/87)                                               statement, it must retain the original of the
           TIN: 59-3456789                                          statement for a unilateral exemption (or a copy


Bank Secrecy Act Manual                                                                                     September 1997
                                                                                                                   Page 21
501.0                                                    Currency and Foreign Transactions Reporting Act

        of the statement for a special exemption) as          tomer has been removed from the exemption
        long as the customer is on the exemption list,        list. 31 CFR 103.22(d).
        and for a period of five years after that cus-


September 1997                                                                          Bank Secrecy Act Manual
Page 22
Currency and Foreign Transactions Reporting Act                                                                      501.0

                             IV. MONITORING EXEMPTIONS AND DISCOVERY
                                      OF IMPROPER EXEMPTIONS

        A. MONITORING EXEMPTIONS                                ment to the IRS Data Center in Detroit and
        Banks should also continue to monitor the ex-           request additional authority for continuing that
        emptions they have granted. A company that              special exemption in light of the new informa-
        was appropriate for an exemption at one time            tion to which the customer has attested.
        may go out of business and be used as a                    If the only item on a customer’s exemption
        ‘‘front’’ to conceal the movement of illegally          statement that a bank determines is no logner
        obtained funds. It also may experience some             appropriate is the exemption dollar limit (an
        other significant change in its operations, such        item to which the customer does not attest),
        as expansion of its business activities, that           the bank may increase or decrease the dollar
        changes the nature of its business or that re-          limit unilaterally if the customer was unilater-
        quires it to move to a new location. In addi-           ally exempted, and need not obtain a new ex-
        tion, improvements or declines in the com-              emption statement from the customer. If the
        pany’s business may make the originally                 customer’s account was the subject of a special
        granted exemption limit inappropriate. Over             exemption, the bank must obtain permission
        time, the exemption limit for a particular ac-          from the IRS Data Center before increasing the
        count and customer may need to be increased             dollar limit.
        or decreased so that it remains at a level that         B. DISCOVERY OF IMPROPER
        the bank may reasonably conclude does not               EXEMPTIONS
        ‘‘exceed amounts commensurate with the cus-             If a bank discovers that it has improperly
        tomary conduct of the lawful domestic busi-             exempted one or more customer accounts, it
        ness of that customer.’’ 31 CFR 103.22(d).              should promptly take several actions. The bank
           For these reasons, Treasury recommends               should first rescind all of the exemptions that it
        that a bank review its exemption list at least          determines were improperly granted, and imme-
        once a year, and preferably once every six              diately remove those exemptions from the ex-
        months. In keeping with the general policy              emption list. It should then contact:
        that banks should know their customers, each
        review should include a contact with the cus-              Director
        tomer of each exempted account to determine                FinCEN
        whether there are any changes in the custom-               U.S. Department of the Treasury
        er’s situation (such as the customer’s name,               1500 Pennsylvania Avenue, N.W.
        address, or nature of business) since the last             Washington, D.C. 20220
        date of review. If the bank learns, either di-             (202) 622-0400
        rectly from the customer or through any other             The bank should not begin to backfile CTRs
        means, that any of the information to which             on the currency transactions it determines
        that customer attested on the exemption state-          were improperly exempted until it obtains
        ment has changed, it should obtain a new ex-            guidance from FinCEN. That office may
        emption statement from that customer that               request additional information concerning
        correctly reflects the relevant information from        those exemptions and currency transactions
        that customer. If that customer’s account was           to determine whether the bank should be
        granted a special exemption, the bank must              directed to backfile CTRs on particular
        then send a copy of the new exemption state-            customers.


Bank Secrecy Act Manual                                                                                  September 1997
                                                                                                                Page 23
501.0                                                      Currency and Foreign Transactions Reporting Act

                                                 V. CONCLUSION

        This set of guidelines should cover most of the           Director
        issues that banks are likely to encounter in us-          FinCEN
        ing the exemption provisions of the regula-               U.S. Department of the Treasury
        tions. For further guidance on the exemption              1500 Pennsylvania Avenue, N.W.
        provisions, banks are encouraged to consult               Washington, D.C. 20220
        with IRS contact representatives at:                      (202) 622-0400
          Compliance Review Group                               As new situations arise that, in Treasury’s
          IRS Data Center                                       judgment, are likely to be of general interest to
          P.O. Box 32063                                        the banking community concerning the proper
          Detroit, Michigan 48232                               use of exemptions, Treasury will issue specific
          (313) 234-1613                                        administrative rulings to deal with those situa-
                                                                tions, and may also amend these guidelines in
        or the FinCEN, Department of the Treasury at:           appropriate circumstances.


September 1997                                                                                Bank Secrecy Act Manual
Page 24
Currency and Foreign Transactions Reporting Act                                                                        501.0

                                                        APPENDIX A

        The following lists identify various types of                EXCEPTED TRANSACTIONS
        business accounts and their general exemption                Currency transactions with the following fi-
        status under section 103.22 of the Bank Secrecy              nancial institutions are automatically excepted
        Act regulations or the Department of the Trea-               from the reporting requirements. Thus, banks
        sury’s exemption policy. In the case of                      should not file CTRs on their transactions with
        accounts of businesses that are unilaterally or              these banks. However, banks must maintain
        specially exemptible, the bank must make sure                the name and address of any domestic bank
        that the customer meets all of the exemption                 with which they conduct currency transactions
        criteria outlined in section 103.22 and conducts             on their exemption list.
        currency transactions exceeding $10,000 on a                    The Federal Reserve Bank and Federal Home
        regular and frequent basis. These items are                  Loan Bank which provide currency and coin
        discussed elsewhere in this booklet.                         service should not be listed on the exemption
           The lists are not all inclusive and are not neces-        list.
        sarily determinative of whether a particular busi-
        ness account qualifies for an exemption. They are               Commercial Bank (Domestic)
        meant to provide guidance to banks and provide                  Cooperative Bank (Domestic)
        examples of the types of business accounts that may             Credit Union (Domestic)
        be appropriately exempted from the CTR reporting                Federal Home Loan Bank
        requirements. If a bank has a question regarding
                                                                        Federal Reserve Bank
        the exemptibility of a customer, it should con-
        tract the Compliance Review Group at the In-                    Savings and Loan (Domestic)
        ternal Revenue Service Data Center in Detroit,                  Savings Bank (Domestic)


Bank Secrecy Act Manual                                                                                     September 1997
                                                                                                                   Page 25
501.0                                                        Currency and Foreign Transactions Reporting Act

        EXEMPTIBLE BY BANK UNILATERALLY                           Drug Store
        The following is a list of businesses which a             Dry Goods Merchandise (Misc.)
        bank generally may unilaterally exempt. In                Duty Free Shop
        some instances, the businesses listed below               Electric Utility
        may sell both retail and wholesale goods or
        may sell retail goods and provide a service.              Electronics Store
        Such business accounts may be unilaterally                Fast Food Restaurant
        exempted only if more than 50% of the gross               Film Sales
        revenues of the business are derived from the
                                                                  Fish Market
        retail sale of goods and the remainder of their
        business is eligible for either a unilateral or           Florist
        special exemption. If the remainder of the                Furniture Sales
        business is of a type that may not be granted a           Garden Center
        unilateral or special exemption (e.g., an auto
                                                                  Gas Company (Utility)
        parts store that sells cars) the account of the
        business may not be granted either a unilateral           Gas/Oil Retail Sales
        or special exemption.                                     General Store
          FinCEN is currently reviewing the exemption             Gift Shop
        status of check cashing services. If it is decided
        that an exemption will no longer be allowed,              Government Agency
        notice will be published in the Federal Register          Grocery Store
        and banks having received additional authority            Hardware Store
        to grant special exemptions in the past may be            Health Food Store
        notified directly.
          Airline/Commercial (Scheduled)
                                                                  Ice Cream Store
          Amusement Park
                                                                  Laundry (Coin Operated)
          Appliance Store
                                                                  Law Enforcement Agency
          Art Supply Store                                        Liquor Store
          Auto Parts Store                                        Lumber Store
          Bakery                                                  Meat Market
          Bar                                                     Motel
          Book Store                                              Movie (Stage or Theater)
          Building Materials (Retail)                             Musical Instrument Store
          Bus Line (Commercial)                                   Newspapers (Retail Sales)
          Candy Store                                             Paint Store
          Car Wash (Coin Operated)                                Petroleum (Home Heating)
          Check Cashing (Licensed)                                Public Transportation
          Clothing Store                                          Race Track
          College/State or Local Government                       Railroad (Passenger Service)
                                                                  Record Store
          Community College/State or Local
            Government                                            Resort/Hotel
          Computer Store                                          Restaurant
          Concession/Food (Retail)                                School (Public)
          Convenience Store                                       Seafood Store
          Delicatessen                                            Shoe Store
          Department Store                                        Sporting Goods Store


September 1997                                                                                Bank Secrecy Act Manual
Page 26
Currency and Foreign Transactions Reporting Act                                          501.0

         Sports Arena                             Toy Store
         Stationery Store                         Uniform Store
         Supermarket                              U.S. Postal Service
         Telephone Company                        University (State Supported)
         Television Video Rentals                 Vending Machine Company
         Tobacco Store                            Water Company


Bank Secrecy Act Manual                                                          September 1997
                                                                                        Page 27
501.0                                                    Currency and Foreign Transactions Reporting Act

        SPECIAL EXEMPTION—REQUIRES IRS                        Food Distributor
        APPROVAL                                              Food Processor
        If the following types of businesses conduct          Food Service
        regular and frequent cash transactions, a bank        Frozen Food/Wholesale
        should request additional authority from the
        IRS to grant a special exemption for the cus-         Garage (Parking)
        tomer’s account. IRS is receptive to requests         Gas/Oil Distributor
        for special exemptions involving service-type         Golf Course
                                                              Insurance Company
          Auto Repair                                         Limousine Service
          Bakery Distributor                                  Liquor Distributor
          Beauty Supplies Distributor                         Lumber Mill
          Beverage Distributor                                Lumber Distributor
          Boat Tours                                          Meat/Wholesale
          Bowling Alley                                       Medical Clinic
          Bowling League                                      Museum (Admission fees, gift shop)
          Bus Line (Chartered)                                Nonprofit Organization
          Cable TV                                            Off Track Betting (NY only)
          Candy (Wholesale)                                   Parking Facility
          Car Rentals                                         Petroleum Distributor
          Car Wash                                            Poultry Distributor
          Cheese Distributor                                  Private Mail Carrier
          Church                                              Produce Distributor/Wholesaler
          College (Private)                                   Professional Sports Teams
          Cosmetics Distributor                               Property Management
          Country Club                                        Real Estate Management
          Dairy Distributor                                   Recreational Camps-Schools
          Delivery Service                                    Religious Organization
          Dry Cleaners                                        School (Private)
          Electrical Supplies Distributor                     Shoe Distributor
          Farming                                             Ski Resort
          Ferry Service                                       Taxi Cab Company
          Film Processor                                      Ticket Agency (Entertainment/sports)
          Fireworks Distributor                               Tobacco Distributor
          Flower Distributor                                  University (Private)
          Food Catering                                       Warehouse Rental


September 1997                                                                         Bank Secrecy Act Manual
Page 28
Currency and Foreign Transactions Reporting Act                                                        501.0

        NOT EXEMPTIBLE                                      Escrow Company
        The following types of business accounts may        Farm Equipment Sales
        not be exempted unilaterally and will not be        Foreign Bank
        granted a special exemption.                        Foreign Currency Exchange
          Accountants                                       Individuals
          Aircraft Sales                                    Investment Advisor
          Attorneys                                         Investment Banker
          Auction House                                     Boat Dealer
          Automobile Clubs with Travelers Check             Mobile Home Sales
            Services                                        Money Order Company
          Auto Dealer                                       Motorcycle Dealer
          Bank/Foreign                                      Pawn Shops
          Bingo                                             Real Estate Broker
          Boat Sales                                        Recreational Vehicle Dealer
          Card Clubs                                        Scrap Metal Dealer
          Casino                                            Securities Brokers/Dealers
          Charter Ships, Airplanes, Buses                   Telegraph Company
          Check Cashing (Unlicensed)                        Title Company
          Commodity Brokers/Dealers                         Travelers Check Issuer/Seller/Redeemer
          Cruise Lines (Ships)                              Truck Dealer
          Currency Exchanger                                Unions
          Doctors                                           Wire Transmitters of Funds


Bank Secrecy Act Manual                                                                        September 1997
                                                                                                      Page 29
501.0                                                  Currency and Foreign Transactions Reporting Act

                                         APPENDIX B
                             MODEL 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 street
           addresses 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 the
           business described in No. 6.
                 Yes       No
           The information contained above is true and correct to the best of my knowledge and belief. I
           understand that this information will be read and relied upon by the Government.

           Signature of Authorized Official                  Date Signed

           Name of Authorized Official                       Title/Position of Official
           (Please type or print)


September 1997                                                                            Bank Secrecy Act Manual
Page 30
Currency and Foreign Transactions Reporting Act                                                                     501.0

                           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 lawful
            domestic business of customer):

         9. Highest Cash Transactions During Period Reviewed (Complete all that apply to account to be
            exempted): Deposits:          Withdrawals:        Withdrawals for Payroll Purposes:
        10. Lowest Cash Transactions During Period Reviewed (Complete all that apply to account to be
            exempted): 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 of
            business 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 bank
            records pertaining to that account), and a review of the information to which the customer has
            certified in Part I above, I have determined that the following types of currency transactions
            involving account            are eligible for exemption from the requirements of the Bank Secrecy
            Act 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) not
                exceeding $         (Please specify type of customer and transactions exempted)

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

            Signature of Bank Official                          Date of Signature

            Name of Bank Official                               Title/Position of Bank Official
            (Please type or print)


Bank Secrecy Act Manual                                                                                 September 1997
                                                                                                               Page 31
501.0                                                   Currency and Foreign Transactions Reporting Act

                                    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


September 1997                                                                                  Bank Secrecy Act Manual
Page 32
Interim Exemption Rule
                                                                                     Section 502.0

FEDERAL REGISTER                                    ADDRESSES: Written comments should be
Vol. 61, No. 80                                     submitted to: Office of Regulatory Policy and
                                                    Enforcement, Financial Crimes Enforcement
Rules and Regulations                               Network, Department of the Treasury, 2070
                                                    Chain Bridge Road, Vienna, Virginia 22182-
DEPARTMENT OF THE                                   2536, Attention: Interim CTR Exemption Rule.
TREASURY                                               Submission of comments. An original and
                                                    four copies of any comment must be submitted.
Financial Crimes Enforcement                        All comments will be available for public
Network (FinCEN)                                    inspection and copying, and no material in any
31 CFR Part 103                                     such comments, including the name of any
                                                    person submitting comments, will be recognized
RIN 1506-AA10; 1506-AA11                            as confidential. Accordingly, material not
                                                    intended to be disclosed to the public should not
Amendment to the Bank Secrecy Act                   be submitted.
Regulations—Exemptions From the                        Inspection of comments. Comments may be
Requirement To Report Transactions                  inspected at the Department of the Treasury
in Currency                                         between 10:00 a.m. and 4:00 p.m., in the Finan-
                                                    cial Crimes Enforcement Network (‘‘FinCEN’’)
Part III                                            reading room, on the third floor of the Treasury
61 FR 18204                                         Annex, 1500 Pennsylvania Avenue, N.W., Wash-
                                                    ington, D.C. 20220. Persons wishing to inspect
                                                    the comments submitted should request an
DATE: Wednesday, April 24, 1996                     appointment by telephoning (202) 622-0400.

ACTION: Interim rule with request for               FOR FURTHER INFORMATION CONTACT: Pamela
comments.                                           Johnson, Assistant Director, Office of Financial Institutions
                                                    Policy, FinCEN, at (703) 905-3920; Charles Klingman, Office
                                                    of Financial Institutions Policy, FinCEN, at (703) 905-3920;
SUMMARY: This document contains an interim          Stephen R. Kroll, Legal Counsel, FinCEN, at (703) 905-3590;
rule eliminating the requirement to report trans-   or Cynthia A. Langwiser, Office of Legal Counsel, FinCEN, at
actions in currency in excess of $10,000, between   (703) 905-3590.
depository institutions and certain classes of
‘‘exempt persons’’ defined in the rule. The
interim rule applies to currency transactions       SUPPLEMENTARY INFORMATION
occurring after April 30, 1996. It is adopted as
a major step in reducing the burden imposed         I. Introduction
upon financial institutions by the Bank Secrecy
Act and increasing the cost-effectiveness of the    This document adds, as an interim rule, a new
counter-money laundering policies of the            paragraph (h) (the ‘‘Interim Rule’’) to 31 CFR
Department of the Treasury. The interim rule is     103.22. The Interim Rule exempts, from the
part of a process to achieve the reduction set by   requirement for the reporting of transactions
the Money Laundering Suppression Act of 1994        in currency in excess of $10,000, transactions
in the number of currency transaction reports       occurring after April 30, 1996, between deposi-
filed annually by depository institutions.           tory institutions1 and certain classes of exempt
                                                    persons defined in the Interim Rule. The Interim
DATES: Effective date. The interim rule is          Rule is adopted to implement the terms of
effective May 1, 1996.                              31 U.S.C. 5313(d) (and related provisions of
   Comment deadline. Comments must be               31 U.S.C. 5313 (f) and (g)), which were added to
received by August 1, 1996.
   Applicability. This interim rule applies to         1 As explained below, the text of the rule itself uses the
transactions in currency occurring after            term ‘‘bank,’’ which as defined in 31 CFR 103.11 (c) includes
April 30, 1996.                                     both banks and other classes of depository institutions.

Bank Secrecy Act Manual                                                                       September 1997
                                                                                                      Page 1
502.0                                                                           Interim Exemption Rule

the Bank Secrecy Act by section 402(a) of the         United States or any such State or political
Money Laundering Suppression Act of 1994              subdivision.
(the ‘‘Money Laundering Suppression Act’’),             (D) Any business or category of business the
Title IV of the Riegle Community Development          reports on which have little or no value for law
and Regulatory Improvement Act of 1994,               enforcement purposes.
Pub. L. 103-325 (September 23, 1994).                   Subsection (d)(2) states that:

                                                        The Secretary of the Treasury shall publish in the
II. Background                                          Federal Register at such times as the Secretary
                                                        determines to be appropriate (but not less fre-
A. Statutory Provisions                                 quently than once each year) a list of all of the
                                                        entities whose transactions with a depository insti-
The Bank Secrecy Act, Titles I and II of Pub. L.        tution are exempt under this subsection from the
91-508, as amended, codified at 12 U.S.C. 1829b,         [currency transaction] reporting requirements.
12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5330,
authorizes the Secretary of the Treasury, inter          The companion provisions of 31 U.S.C.
alia, to issue regulations requiring financial         5313(e) authorize the Secretary to permit a
institutions to keep records and file reports that     depository institution to grant additional, discre-
are determined to have a high degree of useful-       tionary, exemptions from currency transaction
ness in criminal, tax, and regulatory matters, and    reporting. Subsection (f) places limits on the
to implement counter-money laundering pro-            liability of a depository institution in connection
grams and compliance procedures. Regulations          with a transaction that has been exempted from
implementing Title II of the Bank Secrecy Act         reporting under either subsection (d) or subsec-
(codified at 31 U.S.C. 5311-5330) appear at            tion (e) and provides for the coordination of any
31 CFR Part 103. The authority of the Secretary       exemption with other Bank Secrecy Act provi-
to administer Title II of the Bank Secrecy Act        sions, especially those relating to the reporting
has been delegated to the Director of FinCEN.         of suspicious transactions. New subsection (g)
   The reporting by financial institutions of trans-   defines ‘‘depository institution’’ for purposes of
actions in currency in excess of $10,000              the new exemption provisions.
has long been a major component of the Depart-           Section 402(b) of the Money Laundering
ment of the Treasury’s implementation of the          Suppression Act states simply that in adminis-
Bank Secrecy Act. The reporting requirement           tering the new statutory exemption procedures:
is imposed by 31 CFR 103.22, a rule issued
under the broad authority granted to the Secre-         the Secretary of the Treasury shall seek to reduce,
tary of the Treasury by 31 U.S.C. 5313(a) to            within a reasonable period of time, the number of
                                                        reports required to be filed in the aggregate by
require reports of domestic coin and currency
                                                        depository institutions pursuant to section 5313(a)
transactions.                                           of title 31 by at least 30 percent of the number filed
   Four new provisions (31 U.S.C. 5313 (d)              during the year preceding [September 23, 1994,]
through (g)) concerning exemptions were added           the date of enactment of [the Money Laundering
to 31 U.S.C. 5313 by the Money Laundering               Suppression Act].
Suppression Act. Subsection (d)(1) provides
that the Secretary of the Treasury shall exempt a       During the period September 24, 1993 through
depository institution from the requirement to        September 23, 1994, approximately 11.2 million
report currency transactions with respect to          currency transaction reports were filed. Of that
transactions between the depository institution       number, approximately 10.9 million reports were
and the following categories of entities:             filed by depository institutions. Thus the statute
   (A) Another depository institution.                contemplates a reduction of at least approxi-
   (B) A department or agency of the United           mately 3.3 million filings per annum.
States, any State, or any political subdivision of
any State.
   (C) Any entity established under the laws of       B. Shortcomings of the Present
the United States, any State, or any political        Exemption System
subdivision of any State, or under an interstate
compact between 2 or more States, which exer-         The enactment of 31 U.S.C. 5313 (d) through (g)
cises governmental authority on behalf of the         reflects a Congressional intention to ‘‘reform the

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Interim Exemption Rule                                                                                              502.0

procedures for exempting transactions between                 gress authorized the Treasury to exempt under
depository institutions and their customers.’’ See            the mandatory rules, as indicated above, ‘‘[a]ny
H.R. Rep. 103-652, 103d Cong., 2d Sess. 186                   business or category of business the reports on
(August 2, 1994). The administrative exemption                which have little or no value for law enforce-
procedures at which the statutory changes are                 ment purposes.’’ 31 U.S.C. 5313 (d)(1)(D).
directed are found in 31 CFR 103.22(b)(2) and
(c) through (f); those procedures have not suc-
ceeded in eliminating routine currency trans-                 C. Objectives of the Interim Rule
actions by businesses from the operation of the
currency transaction reporting requirement.                   As indicated above, the Interim Rule is the first
   Several reasons have been given for this lack              step in the use of section 402 of the Money
of success. The first is the retention by banks of             Laundering Suppression Act to transform the
liability for making incorrect exemption deter-               Bank Secrecy Act provisions relating to cur-
minations. The risk of potential liability is made            rency transaction reporting. That transformation
more serious by the complexity of the adminis-                has four objectives.
trative exemption procedures (which require                       The first is to reduce the burden of currency
banks, for example, to assign dollar limits to                transaction reporting. That reduction comes in
each exemption based on the amounts of cur-                   part through the issuance of a blanket regulatory
rency projected to be needed for the customary                exemption covering transactions in currency
conduct of the exempt customer’s lawful busi-                 between one depository institution and another
ness). Finally, advances in technology have                   within the United States and between depository
made it less costly for some banks to report all              institutions and government departments and
currency transactions rather than to incur the                agencies at all levels. But at least an equal (and
administrative costs (and risks) of exempting                 likely a significantly greater) part of the reduc-
customers and then administering the terms of                 tion comes from the decision to treat as being of
particular exemptions properly.                               little interest to law enforcement transactions in
   The problems created by the administrative                 currency between depository institutions and
exemption system include that system’s failure                corporations whose common stock is listed on
to provide the Treasury with information needed               certain national stock exchanges.
for thoughtful administration of the Bank Secrecy                 That decision reflects a second, related objec-
Act. Although banks are required to maintain                  tive of the Interim Rule: to begin the process
a centralized list of exempt customers and                    of limiting currency transaction reports to trans-
to make that list available upon request, see                 actions for which the benefits of the reporting
31 CFR 103.22 (f) and (g), there is no way short              requirement (both providing usable information
of a bank-by-bank request for lists (with the                 to enforcement officials and creating a deterrent
time and cost such a request would entail both                against attempts to misuse the financial system)
for banks and government) for Treasury to learn               justify the costs of supplying the information to
the extent to which routine transactions are                  the Treasury. It is unlikely that reports of routine
effectively screened out of the system or (for                currency transactions for a company of suffi-
that matter) the extent to which exemptions have              cient size to be traded on a national securities
been granted in situations in which they are not              exchange can be of significant use, by them-
justified.                                                     selves, to law enforcement, regulatory, or tax
   In crafting the 1994 statutory provisions                  authorities.
relating to mandatory and discretionary exemp-                    The third objective is to focus the Bank
tions, Congress sought to alter the burden of                 Secrecy Act reporting system on transactions
liability and uncertainty that the administrative             that signal matters of clear interest to law
exemption system created. The statutory provi-                enforcement and regulatory authorities. In pub-
sions embraced several categories of transac-                 lishing the final rule relating to the reporting of
tions that were either already partially exempt or
plainly eligible for exemption under the admin-
istrative exemption system.2 In addition, Con-
                                                              exchanges of currency or other payments and transfers by
                                                              local or state governments, or the United States or any of its
  2. Thus, as noted below, transactions in currency between   agencies or instrumentalities’’ are one of the categories of
domestic banks are already exempt from reporting, see         transactions specifically described as eligible for exemption
31 CFR 103.22(b)(1)(ii), and ‘‘[d]eposits or withdrawals,     by banks. See 31 CFR 103.22(b)(2)(iii).

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502.0                                                                        Interim Exemption Rule

suspicious transactions under the Bank Secrecy       institutions; it is impossible to reduce the
Act, Treasury stated ‘‘its judgment that report-     volume of currency transaction reports to the
ing of suspicious transactions in a timely fashion   extent that the Interim Rule tries to do without
is a key component of the flexible and cost-          creating some small degree of temporary incon-
efficient compliance system required to prevent       venience as the terms of the system change.
the use of the nation’s financial system for          FinCEN believes, however, that the transition
illegal purposes.’’ See 61 FR 4326, 4327 (Feb-       period will be relatively short and that the
ruary 5, 1996). The Interim Rule re-enforces the     new greatly streamlined exemption procedures,
central importance of suspicious transaction         once in place, will be self-sustaining and
reporting to Treasury’s counter-money launder-       will produce a leaner, less burdensome, and
ing program; expanded suspicious transaction         more cost effective exemption system than now
reporting forms a basis for steps to reduce          exists.
sharply the extent to which routine currency            FinCEN is eager to improve the terms of the
transactions by ongoing businesses are required      rule as necessary to eliminate temporary incon-
to be reported. Currency transactions, like          gruities. Comments on ways in which the rule
non-currency transactions, are required to be        could be improved in this regard are specifically
reported under the terms of new 31 CFR 103.21,       invited.
if they constitute suspicious transactions as
defined in that section; nothing in the Interim
Rule reduces or alters the obligations imposed       D. Additional Relief Under Study
by 31 CFR 103.21. See 31 U.S.C. 5313(f)(2)(B).
   The relationship between required suspicious      The Interim Rule is the first result of FinCEN’s
transaction reporting and expanded and simpli-       work to put in place the new exemption system
fied exemptions from routine currency trans-          contemplated by the provisions of 31 U.S.C.
action reporting is a strong one; each rule forms    5313 (d) through (g). The goal of FinCEN’s
an integral part of the policy of the other. The     work in this area, like the Congress’ goal in
substitution of suspicious transaction reporting     shaping the Money Laundering Suppression Act
for routine reporting of all currency transactions   provisions on exemptions, is to reduce the cost
by exempt persons in effect defines what a            of Bank Secrecy Act compliance and to further
routine transaction for an exempt person is. That    a fundamental restructuring of the Bank Secrecy
is, a routine currency transaction, in the case of   Act. The restructuring emphasizes cost-effective
an exempt person, is a transaction that does not     collection of only that information that is likely
trigger the suspicious transaction reporting         to benefit law enforcement and regulatory
requirements, because the transaction does not,      authorities.
for example, give the bank a reason to suspect          In solving the issues posed by implementa-
money laundering, a violation of a reporting         tion of the new statutory exemption rules,
requirement, or the absence of a business pur-       FinCEN has consulted regularly with banking
pose. See 31 CFR 103.21(a)(2)(i)–(iii).              industry representatives. For example, under the
   The fourth objective of the Interim Rule          auspices of Bank Secrecy Act Advisory Group
is to create an exemption system that works.         it convened a working session of bank officials
Thus choices have been made with an eye              to discuss possible structures for the new
to achieving ease of administration and              exemption system and the constraints that
comprehensibility—the very factors whose             bank operating procedures posed for broad-scale
absence hindered the prior administrative            relief from unnecessary currency transaction
exemption process.                                   reporting.
   FinCEN has attempted to craft a rule that will       In this connection, FinCEN is aware that the
be easily understood by the banking profession-      Interim Rule and any final rule resulting there-
als who must apply it. That meant painting with      from may well affect the operation of large
a broad brush; any general exemption rule will       banks in urban areas more than the operation of
almost certainly include within its terms some       smaller community-based institutions, if only
results that are not optimal when viewed in          because larger companies tend to do business
isolation.                                           with larger banks and because the Interim Rule
   FinCEN understands that the changeover            does not simplify the exemption system with
to the new system will require an initial period     respect to transactions by privately held com-
of effort by both the Treasury and banking           panies, large and small, whose banking history

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Interim Exemption Rule                                                                                  502.0

and business would also justify a simplified          the terms of 31 U.S.C. 5313(d); it does not apply
exemption system.                                    to transactions between exempt persons and
   Accordingly, FinCEN is working now on a           financial institutions other than banks. Com-
notice of proposed rulemaking implementing           ments are invited about whether the rule should
the discretionary exemption authority contained      extend to transactions with such other classes of
in 31 U.S.C. 5313(e) and will at the appropriate     financial institutions.
time consult with the banking community in              Although 31 U.S.C. 5313(d) speaks of ‘‘man-
shaping proposals to implement that authority.       datory’’ exemptions, the Interim Rule does not
Meanwhile, banks will still be able to maintain      affirmatively prohibit banks from continuing to
any exemptions properly granted under the cur-       report routine currency transactions with exempt
rent administrative system. Commenters on this       persons. Treasury believes that the incentives
Interim Rule are invited to include in their         created by the Interim Rule are, as Congress
comments any suggestions on the projected            intended them to be, sufficiently great to lead
second stage of the exemption effort.                banks to take advantage of the new exemption
                                                     system to a far greater extent than they took
                                                     advantage of the prior administrative exemption
III. Specific Provisions                              system.
                                                        The Interim Rule, however, is not simply a
                                                     regulatory relief measure. As indicated above, it
A. 103.22(a). Reports of Currency                    is part of a fundamental restructuring of the
   Transactions                                      Bank Secrecy Act’s administration. Treasury
                                                     hopes and expects that banks will be willing to
A new sentence is added following the first
                                                     undertake the one-time effort necessary to make
sentence of paragraph (a) of 31 CFR 103.22 to
                                                     the new, substantially different system work.
provide a cross-reference in that paragraph to
the provisions of new paragraph (h) added by
the Interim Rule.
                                                     C. 103.22(h)(2). Exempt Person
                                                     Under the Interim Rule, the crucial exemption
B. 103.22(h)(1). Currency Transactions of
                                                     determinant is whether a particular entity is an
   Exempt Persons With Banks Occurring
                                                     ‘‘exempt person.’’ That term is defined in new
   After April 30, 1996
                                                     paragraph (h)(2).
Paragraph (h)(1) states the general effect of the       The first three categories of exempt persons
Interim Rule. That is, simply and directly: no       specified in paragraph (h)(2) are those to whom
currency transaction report is required to be filed   exemption is required to be granted by 31 U.S.C.
by a bank for a transaction in currency by an        5313(d)(1)(A)–(C).3
exempt person occurring after April 30, 1996.           Banks. The first category of exempt person is
   The Interim Rule uses the term ‘‘bank’’ rather    banks themselves, with the result that transac-
than ‘‘depository institution’’ to define the class   tions between banks will not require reporting.
of financial institutions to which the Interim        In most cases, no reporting is required at present
Rule applies. Although 31 U.S.C. 5313(d) speaks      for such transactions; 31 CFR 103.22(b)(1)(ii)
of exemptions for transactions with ‘‘depository     states flatly that the currency transaction report-
institutions’’ (as the latter term is defined in      ing requirement does not ‘‘require reports of
31 U.S.C. 5313(g)), FinCEN believes that the         transactions between domestic banks.’’ The defi-
broad definition of bank contained in 31 CFR          nition is limited to banking operations and
301.11(c) includes all of the categories of insti-   transactions within the United States. Thus a
tutions included in the statutory ‘‘depository       transfer of currency by a bank inside the United
institution’’ definition; because the term ‘‘bank’’   States to a bank outside the United States is not
is familiar to bank officials who work with the       exempt under the Interim Rule.
Bank Secrecy Act, substitution of a new term
whose effect is the same does not appear either
necessary or advisable.
                                                       3. The language of 31 U.S.C. 5313(d)(1)(A)–(C) is quoted
   The Interim Rule applies only to transactions     in section IIA of this Supplementary Information section,
between exempt persons and banks, to reflect          above.

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502.0                                                                                          Interim Exemption Rule

Departments and Agencies of the                                    The ‘‘listed corporation’’ formulation has been
United States and of States and                                 adopted for several reasons. First, Treasury
Their Political Subdivisions                                    believes that the formulation is a convenient and
                                                                accurate way of describing many, if not most,
The second category of exempt person includes                   large-scale enterprises that make extensive rou-
departments and agencies of the United States,                  tine use of currency in their normal business
of any state, and of any political subdivision of               operations. Second, the list of corporations
any state. The definition of ‘‘United States’’                   described in the formulation is readily available
used in 31 CFR 103.11 includes not only the                     and is published in general circulation news-
states but also the District of Columbia and the                papers each morning. Finally, the scale of enter-
various territories and insular possessions of the              prises listed on the nation’s largest securities
United States. See 31 CFR 103.11(nn); as of                     exchanges, and the variety of internal and
August 1, 1996, the definition will also include                 external controls to which they are subject—
the Indian lands. See 61 FR 7054, 7056 (Febru-                  whether as a matter of market discipline or
ary 23, 1996). Thus departments and agencies of                 government regulation—make their use for the
the governments of these areas are also classi-                 sort of money laundering or tax evasion marked
fied as exempt persons under the definition.                      by anomalous transactions in currency, or that
                                                                could be detected by a simple examination of
                                                                currency transaction reports, sufficiently unlikely
Entities Exercising Governmental Authority
                                                                that the benefits of a uniform formulation far
                                                                exceed the apparent risks of such a formulation.
The third category of exempt person includes
                                                                This is especially true because of the continuing
any entity established under the laws of the
                                                                applicability of the suspicious transaction report-
United States,4 of any state, or of any political
                                                                ing rules to all (non-currency and currency)
subdivision of any state, or under an interstate
                                                                transactions between listed corporations and
compact between two or more states, that exer-
cises governmental authority on behalf of the
                                                                   The determination whether a company is a
United States or any such state or political
                                                                corporation for purposes of the Interim Rule
subdivision. Operating rules for making deter-
                                                                depends solely upon the formal manner of its
minations about the governmental entities are
                                                                organization; if the company has a corporate
included in paragraph (h)(4), discussed below.
                                                                charter, it is a corporation, and if it does not, it
                                                                is not a corporation, for purposes of the Interim
Listed Corporations                                             Rule. The sort of ‘‘corporate equivalence’’ analy-
                                                                sis required, for example, for certain purposes to
The fourth category of person subject to man-                   determine an entity’s status under the Internal
datory exemption under 31 U.S.C. 5313(d) is                     Revenue Code is neither called for nor permitted
‘‘any business or category of business the reports              by the Interim Rule.5
on which have little or no value for law enforce-                  At present the Interim Rule applies only to
ment purposes.’’ Treasury is making use of that                 corporations, even though Treasury understands
provision to treat as an exempt person any                      that the equity interests of some partnerships
corporation whose common stock (i) is listed on                 and business trusts are also listed on the named
the New York Stock Exchange or the American                     securities exchanges. Comments are invited as
Stock Exchange (but not including stock listed                  to whether the definition of exempt person
on the Emerging Company Marketplace of the                      should be extended to all persons whose equity
American Stock Exchange), or (ii) has been                      interests are so listed.
designated as a Nasdaq National Market Secu-
rity listed on the Nasdaq Stock Market (but not
including stock listed under the separate ‘‘Nasdaq
Small-Cap Issues’’ category). For convenience,
this class of exempt persons is referred to in this
discussion as ‘‘listed corporations.’’                             5. Again, there may be a limited group of entities, listed on
                                                                the national securities exchanges but organized abroad, for
                                                                which such a distinction raises issues of interpretation that
                                                                cannot be dealt with effectively in the Interim Rule. Guidance
                                                                is requested on whether such issues exist and, if so, how they
  4. Again, the broad definition of ‘‘United States’’ applies.   should be resolved.

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Interim Exemption Rule                                                                             502.0

Consolidated Subsidiaries of Listed                    aged about the appropriateness of the definition.
Corporations                                           FinCEN would especially welcome ideas about
                                                       other formulations, based upon sound banking
Many, if not most, listed corporations include         practice, that bank employees would find easy to
groups of subsidiary operating corporations            apply and that would accomplish the goals of
whose treatment under the Interim Rule raises          the Interim Rule more effectively than a defini-
significant issues. Such subsidiaries are not           tion based upon consolidation for income tax
named in stock exchange listings, but the policy       filing purposes.
of the statute and Interim Rule cannot be effec-
tively implemented without the inclusion of
such subsidiaries in the exempt person category.       D. 103.22(h)(3). Designation of Exempt
   That fact raises an issue of what might be             Persons
called the ‘‘burden’’ of reducing regulatory bur-
den. Many definitions of parent-subsidiary rela-        The Interim Rule imposes one condition on a
tionship are quite technical and of importance         bank’s exemption of currency transactions of a
only to legal, accounting, and investment spe-         customer who satisfies the definition of exempt
cialists; even definitions phrased only in terms        person. That condition is that a single form be
of stock ownership often devolve into questions        filed designating the exempt person and the
of direct or indirect stock ownership that can be      bank that recognizes it as such. The designation
extremely difficult to resolve.                         is to be made by a bank by filing for each
   In that context, mindful of the need to provide     exempt person a single Internal Revenue Ser-
as simple a formulation as possible, the Interim       vice Form 4789 (the form now used by banks
Rule treats as a subsidiary any corporation that       and others to report a transaction in currency)
files a consolidated income tax return with a           that is marked (in the Form’s line 36) to indicate
listed corporation. The choice of this standard        its purpose and that provides identifying infor-
was not any easy one; its chief rationale is that      mation about the exempt person and bank
the fact of consolidation (as opposed to, say,         involved.
eligibility for consolidation) is relatively easy to      The designation requirement must be satis-
determine by asking corporate customers (and           fied, for existing customers, on or before
by asking corporate officials to ask their tax or       August 15, 1996. The requirement is a condition
accounting departments if necessary).                  subsequent; that is, a bank may recognize a
   Franchisees of listed corporations (or of their     customer as an exempt person on April 30, and
subsidiaries) are not included within the defini-       stop filing currency transaction reports as per-
tion of exempt person, unless such franchisees         mitted by the Interim Rule, even though it does
are independently exempt as listed corporations        not satisfy the designation requirement for the
or listed corporation subsidiaries. A local cor-       customer until August 15, 1996.
poration that holds a McDonald’s franchise, for           The designation of new customers as exempt
example, is not an exempt person simply because        persons must be made no later than 30 days
McDonald’s Corporation is a listed corporation;        following the first transaction in currency in
a McDonald’s outlet owned by McDonald’s                excess of $10,000 between a bank and the
Corporation directly, on the other hand, would         new customer. (Because persons may become
be an exempt person, because McDonald’s Cor-           new customers during the period April 30–
poration’s common stock is listed on the New           August 15, 1996, a new customer to whom the
York Stock Exchange.                                   30 day designation rule applies is, technically, a
   Still, the definition is not optimal. It intro-      customer who satisfies the exempt person defi-
duces a note of complexity into the Interim            nition and who becomes a customer, or who
Rule, and Internal Revenue Service (‘‘IRS’’)           seeks to engage in its first transaction in cur-
statistics indicate that at best only 70 to 80 per-    rency, after July 15, 1996.)
cent of the companies eligible to file consoli-            Under the Interim Rule, each bank that deals
dated income tax returns with their parent com-        with an exempt person must satisfy the desig-
panies actually do so. The success of the Interim      nation requirement. FinCEN hopes to be able to
Rule in reducing the volume of currency trans-         use the results of the designation filings to
action reports will depend in part upon the            compile a list of exempt persons that can itself
effectiveness and acceptance of the definition of       be published in the Federal Register, as contem-
subsidiary company, and comments are encour-           plated by 31 U.S.C. 5313(d)(2), in place of the

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                                                                                                 Page 7
502.0                                                                          Interim Exemption Rule

shorter descriptive notice of exempt persons that      action does not meet the criteria established for
is published contemporaneously with the publi-         the granting of an exemption.
cation of the Interim Rule. The designation
filings will also be used to review the effective-
ness of the Interim Rule (and of any final rule         2. Government Status
that is derived from it) and the extent to which
its terms are understood and used by banks.            Paragraph (h)(4)(ii) permits a bank to determine
                                                       the status of a customer as a government depart-
                                                       ment, agency, or instrumentality based on its
                                                       name or community knowledge, much like the
E. 103.22(h)(4). Operating Rules for
                                                       so-called ‘‘eyeball test,’’ cf. Treas. Reg. 1.6049-
   Applying Definition of Exempt Person
                                                       4(c)(1)(ii), for the determination of exempt
The Interim Rule contains several provisions           recipient status for the purposes of information
that are designed to assist banks in applying the      reporting and withholding with respect to inter-
definition of ‘‘exempt person.’’                        est payments under applicable provisions of the
                                                       Internal Revenue Code.
                                                          The determination whether an entity exercises
1. General Rule                                        ‘‘governmental authority’’ is unfortunately not
                                                       amenable to such a simple test, and the second
As indicated above, every effort has been made         sentence of paragraph (h)(4)(ii) states a general
to craft a rule that is as simple to understand and    definition of governmental authority for use by
to administer as its broad objective will permit.      banks.
Application of the Interim Rule requires instead
that banks simply make one or more determina-          3. Status as Listed Corporation
tions about the status of particular customers.
The rule does not specify detailed procedures          Paragraph (h)(4)(iii) permits a bank to rely on
for making or documenting the determinations           any New York, American, or Nasdaq Stock
required. (Indeed, one defect of the administra-       Market listing published in a newspaper of
tive exemption system was its need for detailed        general circulation. Such listings are easily iden-
procedural steps for authorizing exemptions.           tified. For example, in the Wall Street Journal,
See 31 CFR 103.22(d).) Instead, paragraph              which is published and distributed nationally,
(h)(4)(i) explains that banks are expected to          the listings are entitled, respectively, ‘‘NEW
perform the same degree of due diligence in            YORK STOCK EXCHANGE COMPOSITE
determining whether a customer is an exempt            TRANSACTIONS,’’ ‘‘AMERICAN STOCK
person (and documenting that determination)            EXCHANGE COMPOSITE TRANSAC-
that a reasonable and prudent bank would per-          TIONS,’’ AND ‘‘NASDAQ NATIONAL MAR-
form in the conduct of its own business in             KET ISSUES.’’ Because such listings often
avoiding losses from fraud or misstatement. In         make use of the trading symbols (abbreviated
other words, FinCEN’s objective is to leave it to      company names) for each stock, banks may also
bankers, who have already designed business            rely on any commonly accepted or published
procedures and protocols to deal with similar          stock symbol guide in reviewing the newspaper
problems, to adapt their present procedures to         listings to determine if the listings include their
achieve the results sought by the Interim Rule.        customers.
   An assessment of compliance with the terms
of the Interim Rule will focus not on whether a
bank necessarily makes every judgment per-             4. Consolidated Return Status
fectly, but on whether it takes the steps a
reasonable and prudent banker would take to            The treatment of a corporation as an exempt
create systems to apply the Interim Rule’s terms.      person because it is included in the consolidated
Such an approach is a corollary to the limita-         income tax return of a listed corporation pre-
tions on liability set by 31 U.S.C. 5318(f)(1) and     sents one of the more difficult issues of admin-
repeated in paragraph (h)(6) of the Interim Rule;      istration in the Interim Rule. The corporations
under the liability limitations a bank remains         included on any consolidated return are required
subject to penalties if, inter alia, it has a reason   to be shown on Internal Revenue Service
to believe that a particular customer or trans-        Form 851 (Affiliation Schedule) filed with the

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Interim Exemption Rule                                                                                    502.0

return; a bank may rely upon any reasonably           that time, transactions in currency with exempt
authenticated photocopy of Form 851 (or the           persons after April 30, 1996 will be exempt
equivalent thereof for the appropriate tax year)      from reporting by banks only to the extent that
in determining the status of a particular corpo-      the new terms are satisfied.
ration, or it may rely upon any other reasonably
authenticated information (for example, an
officer’s certificate) relating to a corporation’s      H. 103.22(h)(7). Obligation To File
filing status.                                            Suspicious Activity Reports, etc.
                                                      The provisions of the Interim Rule create an
F 103.22(h)(5). Limitation on Exemption
 .                                                    exemption only with respect to the currency
                                                      transaction reporting requirement. The Interim
The exemption for transactions by an exempt           Rule does not create any exemption, and in fact
person applies only with respect to transactions      has no effect of any kind, on the requirement
involving that person’s own funds. The exemp-         that banks file suspicious activity reports with
tion does not apply to situations in which an         respect to transactions, including currency
exempt person is engaging in a transaction as an      and non-currency transactions, that satisfy the
agent on behalf of another, beneficial owner of        requirements of the rules of FinCEN and the
currency. (If the principal for whom the agent is     federal bank supervisory agencies relating to
acting is itself an exempt person, the exempt         suspicious activity reporting.6 (Indeed, as indi-
status of the principal is what causes the trans-     cated above, the reduction in currency trans-
action to be exempt.) In other words, an exempt       action report volume reflects in part Treasury
person cannot lend its status, for a fee or           policy to rely to the greatest extent possible on
otherwise, to another person’s transactions.          reports of truly suspicious activity.)
                                                         For example, multiple exchanges of small
                                                      denominations of currency into large denomina-
G. 103.22(h)(6). Effect of Exemption;                 tions of currency or currency transactions that
   Limitation on Liability                            are not (or whose amounts are not) commensu-
                                                      rate with the stated business or other activity of
The designation requirement applies equally to        the exempt person conducting the transaction, or
exempt persons who have previously been the           on whose behalf the transaction is conducted,
subject of bank-initiated exemptions under the        may indicate the need to file suspicious activity
administrative exemption system as it does to         reports with respect to transactions in currency.
other customers.                                      Similarly a sudden need for currency by a
   Once a bank has complied with the terms of         business that never before had such a need can
the Interim Rule, it is generally protected, by       form a basis for the determination that a suspi-
31 U.S.C. 5313(f) and paragraph (h)(6) of the         cious activity report is due. In all cases, whether
Interim Rule, from any penalty for failure to file     such a report is required is governed by the rules
a currency transaction report with respect to a       of 31 CFR 103.21, rules on whose application
currency transaction by an exempt person. The         the Interim Rule has no effect.
protection does not apply if the bank knowingly
files false or incomplete information relating to
the exempt person (for example on an designa-         I. 103.22(h)(8). Revocation
tion filing) or with respect to the transaction (for
example on a suspicious activity report). The         The Interim Rule makes clear that the status of
protection also does not apply if the bank has        an exempt person as such may be revoked at any
reason to believe at the time the exemption is        time by the Treasury Department. Revocation
granted that the customer does not satisfy the
definition of exempt person or if the transaction
is not a transaction of the exempt person.
   It is anticipated that the Interim Rule will          6. See 61 FR 4326, 4332, 4338 (February 5, 1996) (FinCEN,
supersede the administrative exemption system         Office of the Comptroller of the Currency and Federal Reserve
                                                      Board); 61 FR 6095, 6100 (February 16, 1996) (Federal
with respect to categories of exempt persons          Deposit Insurance Corporation and Office of Thrift Supervi-
named in the Interim Rule, 60 days after a final       sion); and 61 FR 11526 (March 21, 1996) (National Credit
rule based on the Interim Rule is published. At       Union Administration).

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502.0                                                                        Interim Exemption Rule

will be prospective in all cases except those to     ibility analysis (5 U.S.C. 604) are not applicable
which the protections of liability conferred by      to this Interim Rule because the agency was not
31 U.S.C. 5313(f) and 31 CFR 103.22(h)(6) do         required to publish a notice of proposed rule-
not apply.                                           making under 5 U.S.C. 553 or any other law.

IV. Regulatory Matters                               E. Paperwork Reduction Act
A. Executive Order 12866
                                                     This Interim Rule is being issued without prior
The Department of the Treasury has determined        notice and public procedure pursuant to the
that this interim rule is not a significant regula-   Administrative Procedure Act (5 U.S.C. 553).
tory action under Executive Order 12866.             By expanding the applicable exemptions from
                                                     an information collection that has been reviewed
                                                     and approved by the Office of Management and
B. Unfunded Mandates Act of 1995                     Budget (OMB) under control number 1505-
   Statement                                         0063, the Interim Rule significantly reduces the
                                                     existing burden of information collection under
Section 202 of the Unfunded Mandates Reform          31 CFR 103.22. Thus, although the Interim Rule
Act of 1995 (‘‘Unfunded Mandates Act’’),             advances the purposes of the Paperwork Reduc-
Pub. L. 104-4 (March 22, 1995), requires that an     tion Act of 1995, 44 U.S.C. 3501, et seq., and its
agency prepare a budgetary impact statement          implementing regulations, 5 CFR Part 1320, the
before promulgating a rule that includes a fed-      Paperwork Reduction Act does not require
eral mandate that may result in expenditure by       FinCEN to follow any particular procedures in
state, local and tribal governments, in the          connection with the promulgation of the Interim
aggregate, or by the private sector, of $100 mil-    Rule.
lion or more in any one year. If a budgetary
impact statement is required, section 202 of the
Unfunded Mandates Act also requires an agency
to identify and consider a reasonable number of
                                                     F. Compliance With 5 U.S.C. 801
regulatory alternatives before promulgating a        Prior to the date of publication of this document
rule. FinCEN has determined that it is not           in the Federal Register, FinCEN will have sub-
required to prepare a written statement under        mitted to each House of the Congress and to the
section 202 and has concluded that on balance        Comptroller General the information required to
this interim rule provides the most cost-effective   be submitted or made available with respect to
and least burdensome alternative to achieve the      the Interim Rule by the provisions of 5 U.S.C.
objectives of the rule.                              801 (a)(1)(A) and (a)(1)(B).

C. Administrative Procedure Act
                                                     List of Subjects in 31 CFR Part 103
Because the Interim Rule implements the statute
and grants significant relief from existing regu-
latory requirements, it is found to be impracti-     Administrative practice and procedure, Author-
cable to comply with notice and public proce-        ity delegations (Government agencies), Banks,
dure under 5 U.S.C. 553(b). Because the Interim      banking, Currency, Foreign Banking, Foreign
Rule grants exemptions to current requirements,      currencies, Gambling, Investigations, Law
it may be made effective before 30 days have         enforcement, Penalties, Reporting and record-
passed after its publication date. See 5 U.S.C.      keeping requirements, Securities, Taxes.

D. Regulatory Flexibility Act                        Amendment

The provisions of the Regulatory Flexibility Act     For the reasons set forth above in the preamble,
relating to an initial and final regulatory flex-      31 CFR Part 103 is amended as set forth below:

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Interim Exemption Rule                                                                              502.0

PART 103—FINANCIAL                                     stock has been designated as a Nasdaq National
RECORDKEEPING AND                                      Market Security listed on the Nasdaq Stock
REPORTING OF CURRENCY AND                              Market (except stock listed under the separate
                                                       ‘‘Nasdaq Small-Cap Issues’’ heading); and
FOREIGN TRANSACTIONS                                      (v) Any subsidiary of any corporation
  1. The authority citation for Part 103 contin-       described in paragraph (h)(2)(iv) of this section
ues to read as follows:                                whose federal income tax return is filed as part
  Authority: 12 U.S.C. 1829b and 1951-1959;            of a consolidated federal income tax return with
31 U.S.C. 5311-5330.                                   such corporation, pursuant to section 1501 of
  2. Section 103.22 is amended by adding a             the Internal Revenue Code and the regulations
new sentence immediately following the first            promulgated thereunder, for the calendar year
sentence in paragraph (a)(1) and by adding a           1995 or for its last fiscal year ending before
new paragraph (h) to read as follows:                  April 15, 1996.
                                                          (3) Designation of exempt persons.
                                                          (i) A bank must designate each exempt per-
                                                       son with whom it engages in transactions in
§103.22—Reports of currency                            currency, on or before the later of August 15,
        transactions.                                  1996, and the date 30 days following the first
                                                       transaction in currency between such bank and
   (a)(1) * * * Transactions in currency by            such exempt person that occurs after April 30,
exempt persons with banks occurring after              1996.
April 30, 1996, are not subject to this require-          (ii) Designation of an exempt person shall be
ment to the extent provided in paragraph (h) of        made by a single filing of Internal Revenue
this section. * * *                                    Service Form 4789, in which line 36 is marked
   *****                                               ‘‘Designation of Exempt Person’’ and items
   (h) No filing required by banks for trans-           2–14 (Part I, Section A) and items 37–49
actions by exempt persons occurring after              (Part III) are completed. The designation must
April 30, 1996.                                        be made separately by each bank that treats the
   (1) Currency transactions of exempt persons         person in question as an exempt person. (For
with banks occurring after April 30, 1996.             availability, see 26 CFR 601.602.)
Notwithstanding the provisions of paragraph               (iii) This designation requirement applies
(a)(1) of this section, no bank is required to file     whether or not the particular exempt person to
a report otherwise required by paragraph (a)(1)        be designated has previously been treated as
of this section, with respect to any transaction in    exempt from the reporting requirements of para-
currency between an exempt person and a bank           graph (a) of this section under the rules con-
that is conducted after April 30, 1996.                tained in paragraph (b) or (e) of this section.
   (2) Exempt person. For purposes of this sec-           (4) Operating rules for designating exempt
tion, an exempt person is:                             persons.
   (i) A bank, to the extent of such bank’s               (i) Subject to the specific rules of this para-
domestic operations;                                   graph (h), a bank must take such steps to assure
   (ii) A department or agency of the United           itself that a person is an exempt person (within
States, of any state, or of any political subdivi-     the meaning of applicable provisions of para-
sion of any state;                                     graph (h)(2) of this section) that a reasonable
   (iii) Any entity established under the laws of      and prudent bank would take to protect itself
the United States, of any state, or of any political   from loan or other fraud or loss based on
subdivision of any state, or under an interstate       misidentification of a person’s status.
compact between two or more states, that exer-            (ii) A bank may treat a person as a govern-
cises governmental authority on behalf of the          mental department, agency, or entity if the name
United States or any such state or political           of such person reasonably indicates that it is
subdivision;                                           described in paragraph (h)(2)(ii) or (h)(2)(iii) of
   (iv) Any corporation whose common stock is          this section, or if such person is known generally
listed on the New York Stock Exchange or the           in the community to be a State, the District of
American Stock Exchange (except stock listed           Columbia, a tribal government, a Territory or
on the Emerging Company Marketplace of the             Insular Possession of the United States, or a
American Stock Exchange) or whose common               political subdivision or a wholly-owned agency

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502.0                                                                           Interim Exemption Rule

or instrumentality of any of the foregoing. An         rather than treating such person as exempt shall
entity generally exercises governmental author-        remain subject with respect to each such report
ity on behalf of the United States, a State, or a      to the rules for filing reports, and the penalties
political subdivision, for purposes of paragraph       for filing false or incomplete reports, that are
(h)(2)(iii) of this section, only if its authorities   applicable to reporting of transactions in cur-
include one or more of the powers to tax, to           rency by persons other than exempt persons. A
exercise the authority of eminent domain, or to        bank that continues for the period permitted by
exercise police powers with respect to matters         paragraph (h)(6)(i) of this section to treat a
within its jurisdiction.                               person described in paragraph (h)(2) of this
   (iii) In determining whether a person is            section as exempt from the reporting require-
described in paragraph (h)(2)(iv) of this section,     ments of paragraph (a) of this section on a basis
a bank may rely on any New York Stock                  other than as provided in this paragraph (h) shall
Exchange, American Stock Exchange, or Nasdaq           remain subject in full to the rules governing an
Stock Market listing published in a newspaper          exemption on such other basis and to the pen-
of general circulation and on any commonly             alties for failing to comply with the rules gov-
accepted or published stock symbol guide.              erning such other exemption.
   (iv) In determining whether a person is                (7) Obligation to file suspicious activity
described in paragraph (h)(2)(v) of this section,      reports, etc. Nothing in this paragraph (h) relieves
a bank may rely upon any reasonably authen-            a bank of the obligation, or alters in any way
ticated corporate officer’s certificate or any           such bank’s obligation, to file a report required
reasonably authenticated photocopy of Internal         by 103.21 with respect to any transaction, includ-
Revenue Service Form 851 (Affiliation Sched-            ing, without limitation, any transaction in cur-
ule) or the equivalent thereof for the appropriate     rency, or relieves a bank of any other reporting
tax year.                                              or recordkeeping obligation imposed by this part
   (5) Limitation on exemption. A transaction          (except the obligation to report transactions in
carried out by an exempt person as an agent for        currency pursuant to paragraph (a) of this sec-
another person who is the beneficial owner of           tion to the extent provided in this paragraph (h)).
the funds that are the subject of a transaction in        (8) Revocation. The status of any person as
currency is not subject to the exemption from          an exempt person under this paragraph (h) may
reporting contained in paragraph (h)(1) of this        be revoked by FinCEN by written notice, which
section.                                               may be provided by publication in the Federal
   (6) Effect of exemption; limitation on liability.   Register in appropriate situations, on such terms
   (i) FinCEN may in the future determine by           as are specified in such notice. In addition, and
amendment to this part that the exemption              without any action on the part of the Treasury
contained in this paragraph (h) shall be the only      Department:
basis for exempting persons described in para-            (i) The status of a corporation as an exempt
graph (h)(2) of this section from the reporting        person pursuant to paragraph (h)(2)(iv) of this
requirements of paragraph (a) of this section.         section ceases once such corporation ceases to
   (ii) No bank shall be subject to penalty under      be listed on the applicable stock exchange; and
this part for failure to file a report required by         (ii) The status of a subsidiary as an exempt
paragraph (a) of this section with respect to a        person under paragraph (h)(2)(v) of this section
currency transaction by an exempt person with          ceases once such subsidiary ceases to be included
respect to which the requirements of this para-        in a consolidated federal income tax return of a
graph (h) have been satisfied, unless the bank:         person described in paragraph (h)(2)(iv) of this
   (A) Knowingly files false or incomplete              section.
information with respect to the transaction or the
customer engaging in the transaction; or               *****
   (B) Has reason to believe at the time the
exemption is granted that the customer does not        Dated: April 16, 1996.
meet the criteria established by this paragraph
(h) for treatment of the transactor as an exempt       Stanley E. Morris,
person or that the transaction is not a transaction    Director, Financial Crimes Enforcement
of the exempt person.                                    Network.
   (iii) A bank that files a report with respect to     [FR Doc. 96-9798 Filed 4-23-96; 8:45 am]
a currency transaction by an exempt person             BILLING CODE 4820-03-P

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