Regulatory proposals aimed at improving the CTR exemption process include adopting a revised exemption process that would enable FIs to more easily exempt business customers, particularly customers with a longstanding history with the FI, and raising the CTR threshold. The notion of raising the threshold in particular has sparked an interesting discussion.
Proponents argue that raising the threshold would significantly reduce unnecessary regulatory filings associated with BSA compliance for FIs and make the CTR reporting process more efficient for seasoned business customers. However, opponents argue that raising the threshold would result in limiting data available to law enforcement to monitor suspicious transactions, and would allow criminals to deposit larger sums of illicit proceeds without law enforcement awareness.
Irrespective of changes to the reporting thresholds, regulators should continue to explore ways to promote continued cooperation by FIs while exposing suspicious activity. All Rights Reserved. Here is a table which outlines the Phase 1 and Phase 2 exemptions:. Posted in Posts. The GAO also concluded that additional web-based guidance was necessary to help banks determine eligibility for exemption, which FinCEN is addressing in this guidance document.
The final rules, which went into effect on January 5, and June 7, , make the following substantive changes to the previous CTR exemption system:. These final rules, along with the existing requirements established by previous rulemakings, have simplified the exemption process by generally authorizing a bank to treat a customer as exempt from currency transaction reporting under the following circumstances:.
The chart above indicates that for Phase I customers, a bank may immediately treat as exempt any eligible entity without concern for the time it has been a customer of the bank or the number of reportable transactions it has conducted. Additionally, because the "ineligible businesses" provision applies only to non-listed business exemptions, a Phase I customer may be treated as exempt regardless of their involvement in such activities.
Banks must file DOEP reports and conduct annual reviews for all Phase II customers whether they are non-listed businesses or payroll customers , as well as for listed businesses and their subsidiaries.
The final CTR exemption rules do not relieve banks of their separate obligation to conduct suspicious activity monitoring and reporting for both Phase I and Phase II exempt customers. Since the publication of the final rules, FinCEN has received questions regarding various provisions. FinCEN is issuing answers to these questions to assist banks in understanding the scope and application of the final rules. Question: When should a bank make a risked-based determination to exempt an otherwise eligible Phase II customer before they have been a customer for two months?
Answer: The preamble to the final rule provides some examples of criteria that may be appropriate when making such a risk-based decision. For example, banks could consider the nature of the market the customer serves, the type of services offered, the location of the business, and whether the bank had a past relationship with the customer. In light of such factors, possible examples of customers who may qualify for exemption prior to two months may include the following:.
The above examples are not intended to be exhaustive, but rather representative of the types of customer relationships where a risk-based determination to exempt prior to two months may be appropriate. Readers should note that for each of the examples provided above, there is some factor contributing to a bank's level of knowledge exceeding what is typical for a new customer being considered for exemption.
Such knowledge, or other mitigating factors, could assist the bank in forming a reasonable conclusion that the risk of exempting the customer prior to two months was low. Banks are not required to use the risk-based approach. FinCEN originally proposed 11 removing any prescribed amount of time before a bank could consider a Phase II customer for exemption, enabling a bank to make a risk-based determination of when to exempt in all instances.
Due to comments submitted in response to that proposal, however, FinCEN implemented a hybrid approach that allows banks to choose the flexibility of a risk-based approach or the simplicity of the two-month threshold. Banks should remember that even if using the two month approach, they are required at least annually to conduct a review of the customer to determine continued eligibility for exemption and to monitor for suspicious activity. Question: Using the risk-based approach, can a bank exempt a non-listed business or payroll customer prior to the two month mark even if the customer has conducted fewer than five transactions?
Answer: No. The risk-based approach for determining when to exempt a Phase II customer gives latitude with respect to the timeframe only i.
None of the other criteria necessary for Phase II exemption can be adjusted as part of that risk-based approach, including the criteria to for a non-listed business or payroll customer to engage frequently in reportable transactions.
Thus, before a bank may exempt a non-listed business or payroll customer, that customer must have conducted at least five reportable transactions. FinCEN believes that without such a frequent large cash transaction volume, a bank could not reasonably expect to have sufficient knowledge of its customer to justify the risk-based approach.
Question: What is the status of an exempt customer that previously was a listed public company but has reorganized as a private company? Answer: If a Phase I customer no longer is a publicly-traded company, the customer is ineligible for a Phase I exemption.
However, the bank could evaluate the customer for potential exemption as a non-listed business customer.
Banks should note that a business's eligibility for exemption under the "listed business" provision may change over time, for example, as it makes an initial public offering or is privatized.
This is the primary reason that listed businesses and their subsidiaries are the only Phase I exempt customers under the final rule for which banks must continue to file DOEP reports and conduct annual reviews.
The second category, Phase II exempt persons, can be found in Section These entities include non-listed businesses and payroll customers designated by a credit union as exempt.
A credit union may designate a non-listed business or payroll customer as exempt if:. It has maintained a transaction account at the credit union for more than two months;. Is incorporated or organized under the laws of the United States or a state or is registered as and eligible to do business within the United States or a state. Credit unions may want to note that if the non-listed business or payroll customer has not maintained a transaction account for two months, Section It is important to note that Section Once a credit union has determined that a member may qualify to be designated as exempt, it should review Section For businesses that engage in multiple types of activities, including some of the above ineligible activities, the FFIEC Manual states:.
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