4.26.5. Bank Secrecy Act History and Law

(1) The Department of the Treasury has primary responsibility for implementing and enforcing the BSA. The Secretary of the Treasury delegated the authority to administer the BSA to the Director of the Financial Crimes Enforcement Network (FinCEN) in 31 CFR 1010.810(b)(8), Enforcement, and Treasury Order 180-01, 67 FR 64697. FinCEN further delegated the responsibility to examine and assure compliance with the requirements of 31 CFR Chapter X, Financial Crimes Enforcement Network, Department of the Treasury, for certain entities to the IRS in 31 CFR 1010.810(b)(8).

(2) 31 CFR 1010.810(b)(8) delegates authority to the Commissioner of Internal Revenue to examine all financial institutions, except brokers or dealers in securities, mutual funds, futures commission merchants, introducing brokers in commodities, and commodity trading advisors, not currently examined by Federal bank supervisory agencies for soundness and safety.

(3) FinCEN’s delegation of authority to conduct Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, examinations under Title 31 enables the IRS to share the results of such examination with FinCEN and other federal and state governmental agencies, without Title 26 disclosure issues. IRS retains penalty authority for all Form 8300 filing requirements under Title 26.

(1) Director, Examination – Specialty Policy is the executive responsible for BSA Examination policy and procedures.

(2) Director, Examination – Specialty Examination is the executive responsible for BSA examination operational compliance.

(3) Chief, BSA is responsible for ensuring general information about basic BSA examiner responsibilities and IRM sections is communicated to and carried out by BSA examiners.

(1) The Title 31 database contains reports to monitor the current year’s work plan, as well as specific programs. These reports provide Headquarters and Field Examination with timely and reliable information. Reports used to monitor examination processes include:

• Direct examination time

• New examination starts

• Examination closures

• Average hours expended per case

• No issue percentage

• Closed case cycle time by workstream

• Open case cycle time by workstream

• Referrals to Examination

• Referrals to Employment Tax

• Referrals to CI

• Number of surveyed cases

• Workplan accomplishments

(2) Periodic program reviews are conducted to:

• Assess the effectiveness of specific programs within Examination or across the organization,

• Determine if procedures are being followed,

• Validate policies and procedures, and

• Identify and share best/proven practices.

(1) The following table is a list of acronyms, and their definitions, used in this IRM:

(1) The following table lists terms, and their definitions, used in this IRM.

(1) The following is a list of resources related to the information found in this IRM.

(1) The BSA required the filing of reports designed to create a paper trail for currency transactions. The principal reports required were:

1. Currency Transaction Report (CTR), filed by financial institutions on their customers.

2. Report of Foreign Bank and Financial Accounts (FBAR), filed by persons having accounts abroad.

3. Currency and Monetary Instruments Report (CMIR), filed by persons moving currency and monetary instruments into and out of the United States.

(2) The requirements for these reports and records were initially challenged as an unconstitutional infringement of privacy rights; however, judicial decisions established BSA's constitutionality.

(1) United States v. Deak Perera & Co., 566 F. Supp. 1398 (D.D.C. 1983), held that examiners are prohibited from conducting tax examinations under the guise of a BSA examination. The lower court case prohibits examiners from expanding the scope and depth of a BSA examination for the sole purpose of securing information for tax purposes only.

(2) Congress expanded the civil and criminal penalties.

(3) Treasury issued regulations detailing the circumstances under which a "geographic targeting order" could be issued. A geographic targeting order (GTO) is an order that imposes additional recordkeeping and/or reporting requirements on one or more domestic financial institutions or nonfinancial trades or businesses in a geographic area.

(1) Congress directed Treasury to research the uses made of BSA reports because of the millions of CTRs being filed, mostly by banks, on legitimate business activities. Legislative focus shifted from reporting all transactions to reducing, through exemptions, the number of CTRs filed.

(2) Legislation was passed which required the reporting of suspicious transactions by banks.

(3) Laws were passed to specifically address money laundering by and through nonbank financial institutions (NBFIs).

(4) FinCEN amended the regulations to include certain gaming establishments, commonly called "card clubs", "card rooms", "gaming clubs", or "gaming rooms" within the definition of financial institution effective August 1, 1998

(5) The Financial Crimes Enforcement Network (FinCEN) published the final rule requiring money services businesses (MSBs) to register with the Department of the Treasury and to maintain a current list of their agents for examination, on request, by any appropriate law enforcement agency. The law became effective as of September 21, 1999; however, registering was not required prior to December 31, 2001. More emphasis was placed on requiring financial institutions to retain records.

(1) The September 11, 2001 terrorist attacks in the U.S. led to intense Congressional interest in terrorist financing. President George W. Bush signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT Act) Act of 2001, Public Law No.107-56, on October 26, 2001. The law:

1. Mandated anti-money laundering compliance programs for all financial institutions as defined in the BSA.

2. Enhanced the suspicious activity reporting requirements.

3. Required all nonfinancial trades and businesses to report the receipt of coins or currency greater than $10,000 under the BSA as well as IRC 6050I, Returns relating to cash received in a trade or business. This dual Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, filing requirement effectively released Form 8300 information from the disclosure protections of IRC 6103, Confidentiality and disclosure of returns and return information.

4. Increased civil and criminal penalties for money laundering.

5. Expanded the powers of the Secretary of the Treasury to issue geographic targeting orders.

6. Elevated FinCEN to Bureau status within Treasury.

7. Encouraged and protected information sharing by financial institutions with Federal law enforcement agencies and voluntary information sharing among financial institutions.

(2) The American Jobs Creation Act of 2004, Public Law No. 108-357, increased the amount of civil penalties that could be assessed for violation of the FBAR requirements. This amendment also established a new FBAR penalty for nonwillful violations. The law is effective for violations occurring after October 22, 2004.

(3) FinCEN issued the final regulations requiring:

1. Suspicious activity reporting by MSBs, casinos, brokers or dealers in securities, and from futures commission merchants, and introducing brokers in commodities.

2. Form 8300 filing by a nonfinancial trade or business under both the BSA and the IRC. The original BSA regulation did not include the requirement to report currency transactions by court clerks, their requirement to report was brought under the BSA later.

(4) Regulations addressing the USA PATRIOT Act’s requirements were issued:

1. AML program regulations were issued for money services businesses (MSBs), mutual funds, and operators of credit card systems as well as insurance companies, and dealers in precious metals, precious stones, and jewels.

2. Customer identification programs were required separately for banks, savings associations, credit unions, and certain non-Federally regulated banks as well as for brokers and dealers in securities, futures commission merchants and introducing brokers, and mutual funds.

3. Due diligence requirements for correspondent accounts and private banking were expanded for some financial institutions including credit unions. Correspondent accounts with foreign entities were banned in certain situations such as failure of the foreign bank to comply with a U.S. summons or subpoena. Information exchanges between all financial institutions were facilitated by providing a safe harbor from civil suit.

(5) FinCEN issued guidance on September 22, 2006 to assist MSBs in understanding the regulatory requirements regarding conducting independent reviews of their anti-money laundering programs. The guidance addresses four areas:

1. What should be done during the review?

2. How often should the review occur?

3. Should the review be documented in some manner and reported to management?

4. Who should conduct the review? The guidance states the regulations require an independent review, not a formal audit by a certified public accountant or third-party consultant. Accordingly, a MSB does not necessarily need to hire an outside auditor or consultant. The review may be conducted by an officer, employee or group of employees, so long as the reviewer is not the designated compliance officer and does not report directly to the compliance officer.

(1) Treasury reorganized, renumbered, and reissued the BSA regulations to 31 CFR Chapter X, Financial Crimes Enforcement Network, Department of the Treasury, Parts 1000-1099, from 31 CFR Part 103, Financial Recordkeeping and Reporting of Currency and Foreign Transactions, effective on March 1, 2011. See Exhibit 4.26.5-1 for the 31 CFR Chapter X, General Cross-Reference Index. See IRM 4.26.5.1.6 for a link to the full text of the regulations.

(2) FinCEN’s updating of the definitions of money services businesses (MSBs) reflects past guidance and rulings, current business operations, evolving technologies, and merging lines of business. The final rule also separates the provisions dealing with stored value from those dealing with issuers, sellers, and redeemers of traveler’s checks and money orders. The updated definitions became effective on September 19, 2011. See 31 CFR 1010.100(ff), Money Service Business, which includes:

1. Dealer in Foreign Exchange (formerly Currency Dealer or Exchanger),

2. Check Casher,

3. Issuer or Seller of Traveler’s Checks or Money Orders (formerly Issuer of Traveler’s Checks, Money Orders, or Stored Value or Seller or Redeemer of Traveler’s Checks, Money Orders, or Stored Value),

4. Provider of Prepaid Access (formerly under Issuer, Seller, or Redeemer of Stored Value and stored value was renamed as prepaid access),

5. Seller of Prepaid Access (formerly Issuer, Seller, or Redeemer of Stored Value and stored value was renamed as prepaid access),

6. Money Transmitter, and

7. U.S. Postal Service.

(3) FinCEN added language to 31 CFR 1022.380, Registration of money services businesses, to ensure foreign-located MSBs have the same reporting, recordkeeping and other requirements as MSBs with a physical presence in the US, with respect to their activities in the US. Foreign-located MSBs will be subject to the same civil and criminal penalties as MSBs with a physical presence in the US, with respect to their failure to comply with regulatory requirements. Foreign-located MSBs are required to designate the name and address of a person who resides in the US and is authorized, and has agreed, to be an agent to accept service of legal process with respect to compliance with the BSA and to identify the address of the location within the U.S. where the registration will be retained.

(4) The Credit Card Accountability, Responsibility and Disclosure Act of 2009 mandated regulation of prepaid access providers. FinCEN issued definitions of prepaid access providers and sellers (31 CFR 1010.100(ff)(4), Provider of prepaid access, and 31 CFR 1010.100(ff)(7), Seller of prepaid access, and required providers to register as MSBs effective September 27, 2011. Both providers and sellers are required to have AML programs under 31 CFR 1022.210(d)(1)(iv) and maintain additional records under 31 CFR 1022.420, Additional records to be maintained by providers and sellers of prepaid access. FinCEN provided additional clarification by means of "Frequently Asked Questions" on November 2, 2011 and again on March 24, 2016.

(5) FinCEN published expanded regulations for the Report of Foreign Bank and Financial Accounts (FBAR) effective on March 28, 2011 at 31 CFR 1010.350, Reports of foreign financial accounts. The instructions to the FBAR Form, TD F 90-22.1, were also revised.

(6) FinCEN developed the BSA E-Filing System and mandated electronic filing (e-filing) of most forms effective July 1, 2012. Suspicious Activity Reports, Currency Transaction Reports, Designations of Exempt Persons, and Registrations for Money Services Businesses were required to be e-filed. Mandatory e-filing of the FBAR form was exempted until June 30, 2013.

(7) FinCEN issued the final rule defining non-bank Residential Mortgage Lenders and Originators (RMLOs) as loan or finance companies which required them to establish anti-money laundering (AML) programs and report suspicious activity under the BSA. RMLOs were required to develop and implement an AML program by August 13, 2012 and file SARs on transactions occuring after this date under regulations at 31 CFR 1029, Rules for Loan or Finance Companies. Any transactions involving the receipt of coin or currency over $10,000 will continue to be subject to reporting on Form 8300.

(8) The requirement for criminal court clerks to file Form 8300 under the BSA became effective on December 23, 2011.

(9) FinCEN issued interpretive guidance, FIN-2013-G001, on March 18, 2013 to clarify the applicability of the regulations to persons creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies. The guidance makes it clear that an administrator or exchanger is an MSB under the regulations, specifically, a money transmitter, unless a limitation to or exemption from the definition applies to the person. Currency is defined as the coin and paper money of the US or of any other country that is designated as legal tender and that circulates and is customarily used and accepted as a medium of exchange in the country of issuance.  Virtual currency does not have legal tender status in any jurisdiction. The guidance addresses "convertible" virtual currency as it has an equivalent value in real currency or acts as a substitute for real currency. For further information, see IRM 4.26.9, Examination Techniques for Bank Secrecy Act Industries.

(10) FinCEN issued administrative ruling, FIN-2014-R003, Records to be Made and Maintained by Dealers in Foreign Exchange, on March 11, 2014 to clarify circumstances in which a dealer in foreign exchange may accept alternative travel documents as identification for a non-resident alien. FinCEN authorized the following exception to the requirements of 31 CFR 1022.410(b)(3) for dealers in foreign exchange verifying the identity of non-resident aliens:

1. Each dealer in foreign exchange shall retain either the original or a microfilm or other copy or reproduction of each record of each exchange of currency involving transactions in excess of $1,000, including the name and address of the customer, date and amount of the transaction, currency name, country, and total amount of each foreign currency. Unless the transaction is received by mail or common carrier, each dealer in foreign exchange shall also retain the customer’s taxpayer identification number and the number and description of the government document used to verify the customer’s identity (or, if the customer is a non- resident alien, the number of the passport issued by the country of origin or the number and description of an alternate valid entry document issued by a U.S. Federal or state government agency).

(11) The IRS, with concurrence of the Financial Crimes Enforcement Network (FinCEN), rendered TD 15-41 obsolete when it was cancelled as of June 5, 2017. This same authority is conveyed in The USA Patriot Act, Bank Secrecy Act Regulations, and memoranda of agreement between FinCEN and the IRS.

(12) FinCEN issued interpretive guidance on May 9, 2019 to remind persons subject to the BSA how regulations relating to MSBs apply to certain business models involving money transmission denominated in value that substitutes for currency, specifically, convertible virtual currencies (CVCs). The guidance is intended to help financial institutions comply with their existing obligations under the BSA as they relate to current and emerging business models involving CVC by describing FinCEN’s existing regulatory approach to the issues most frequently raised by industry, law enforcement, and other regulatory bodies within this evolving financial environment. In this regard, it covers only certain business models and necessarily does not address every potential combination of facts and circumstances. Thus, a person working with a business model not specifically included in this guidance may still have BSA obligations.

(1) Financial institutions as defined in 31 CFR 1010.100(t), Financial institution, include:

• A bank. The definition of a bank in 31 CFR 1010.100(d), Bank, includes most depository institutions including credit unions.

• A broker or dealer in securities.

• A money services business as defined in 31 CFR 1010.100(ff), Money service business.

• A telegraph company.

• An authorized casino or card club that has gross annual gaming revenue in excess of $1 million.

• A person subject to supervision by any state or Federal bank supervisory authority.

• A futures commission merchant.

• An introducing broker in commodities.

• A mutual fund.

(1) 31 CFR 1010.100(ff) defines a money services business as a person wherever located, doing business, whether on a regular basis or as an organized or licensed business concern, wholly or in substantial part within the United States, in one or more of the capacities listed below under "Types of Money Services Businesses". This includes but is not limited to maintenance of any agent, agency, branch, or office within the United States.

(2) A MSB does not include:

1. A bank or foreign bank;

2. A person registered with, and functionally regulated or examined by, the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC), or a foreign financial agency that engages in financial activities that, if conducted in the United States, would require the foreign financial agency to be registered with the SEC or CFTC; or

3. A natural person who engages in money services on an infrequent basis and not for gain or profit. See 31 CFR 1010.100(ff)(8), Limitation. The exclusion was added to ensure that individuals making an accommodation for a friend or family member are not accidentally swept into the scope of the rule.

(1) A dealer in foreign exchange is a person that accepts the currency, or other monetary instruments, funds, or other instruments denominated in the currency, of one or more other countries in an amount greater than $1,000 for any other person on any day in one or more transactions, whether or not for same day delivery. (31CFR 1010.100(ff)(1))

(2) A check casher is a person that accepts checks (as defined in the Uniform Commercial Code), or monetary instruments (as defined at section 31 CFR 1010.100(dd)(1), Monetary instruments) in return for currency or a combination of currency and other monetary instruments or other instruments, in an amount greater than $1,000 for any person on any day in one or more transactions. (31 CFR 1010.100(ff)(2)) There are several exclusions:

1. A person that sells prepaid access in exchange for a check (as defined in the Uniform Commercial Code), monetary instrument or another instrument,

2. A person that solely accepts monetary instruments as payment for goods or services other than check cashing services,

3. A person that engages in check cashing for the verified maker of the check who is a customer otherwise buying goods and services,

4. A person that redeems its own checks, or

5. A person that only holds a customer’s check as collateral for repayment by the customer of a loan.

(3) An issuer or seller of traveler’s checks or money orders is a person that (i) issues traveler’s checks or money orders that are sold in an amount greater than $1,000 to any person on any day in one or more transactions; or (ii) sells traveler’s checks or money orders in an amount greater than $1,000 to any person on any day in one or more transactions. (31CFR 1010.100(ff)(3))

(4) A provider of prepaid access is the participant within a prepaid program that agrees to serve as the principal conduit for access to information from its fellow program participants. The participants in each prepaid access program must determine a single participant within the prepaid program to serve as the provider of prepaid access. Until this is done, the provider is the person with principal oversight and control over the prepaid program. (31 CFR 1010.100(ff)(4)) Prepaid access does not include:

1. Closed loop access not to exceed $2,000 any day,

2. Access to domestic government or tribal funds,

3. Access to pre-tax flexible spending arrangements for health reimbursement or child and dependent care, or

4. Access solely to employment-related funds or funds not to exceed $1,000 on any day that do not permit value to be transmitted internationally, transfers among users within a prepaid program or loading value from non-depository sources.

(5) A seller of prepaid access is a person that receives funds or the value of funds in exchange for loading of prepaid access if that person:

1. Sells prepaid access offered under a prepaid program that can be used before verification of customer identification under 31 CFR 1022.210(d)(1)(iv), Anti-money laundering programs for money services businesses, or

2. Sells prepaid access (including closed loop prepaid access) to funds that exceed $10,000 to any person during any one day and has not implemented policies and procedures reasonably adapted to prevent such a sale. (CFR 1010.100(ff)(7))

(6) A money transmitter is a person that provides money transmission services. The term "money transmission services" means the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means. "Any means" includes, but is not limited to, through a financial agency or institution; a Federal Reserve Bank or other facility of one or more Federal Reserve Banks, the Board of Governors of the Federal Reserve System, or both; an electronic funds transfer network; or an informal value transfer system; or any other person engaged in the transfer of funds. (31 CFR 1010.100(ff)(5))

(7) Whether a person is a money transmitter as described in this section is a matter of facts and circumstances. (31 CFR 1010.100(ff)(5)(B)(ii)) The term money transmitter shall not include a person that only;

1. Acts as a payment processor to facilitate the purchase of, or payment of a bill for, a good or service through a clearance and settlement system by agreement with the creditor or seller,

2. Operates a clearance and settlement system or otherwise acts as an intermediary solely between BSA regulated institutions. This includes but is not limited to the Fedwire system, electronic funds transfer networks, certain registered clearing agencies regulated by the Securities and Exchange Commission (SEC), and derivatives clearing organizations, or other clearinghouse arrangements established by a financial agency or institution,

3. Physically transports currency, other monetary instruments, other commercial paper, or other value that substitutes for currency as a person primarily engaged in such business, such as an armored car, from one person to the same person at another location or to an account belonging to the same person at a financial institution, provided that the person engaged in physical transportation has no more than a custodial interest in the currency, other monetary instruments, other commercial paper, or other value at any point during the transportation,

4. Providers of prepaid access, or

5. Acceptors and transmitters of funds only integral to the sale of goods or the provision of services, other than money transmission services, by the person who is accepting and transmitting the funds.

(8) The US Postal Service except for the sale of postage or philatelic products. (31 CFR 1010.100(ff)(6))

(9) A person is defined as an individual, a corporation, a partnership, a trust or estate, a joint stock company, an association, a syndicate, joint venture, or other unincorporated organization or group, an Indian Tribe (as that term is defined in the Indian Gaming Regulatory Act), and all entities cognizable as legal personalities at 31 CFR 1010.100(mm), Person.

(1) The definition of financial institution under 31 CFR 1010.100, General definitions, also includes each agent, agency, branch, or office within the United States of any person doing business, whether on a regular basis or as an organized business concern, in one or more of the capacities listed at 31 CFR 1010.100(t), Financial institution, and identified above at IRM 4.26.5.4.1. Each is separately required to follow the reporting and recordkeeping requirements of the BSA.

(2) Where the reports to be filed or records to be kept would be duplicates, only one report is required to be filed. This means that the principal office with branch locations can determine who files the report and where the records will be retained. Each is separately responsible if the requirements of the law are not met.

(3) If a Licensed Money Transmitter (LMT) or its agent has knowledge that multiple currency transactions have been conducted by or on behalf of one person in an amount over $10,000 during any one business day, a CTR must be filed reflecting these aggregated transactions. Simply stated, a CTR must be filed for these aggregated transactions as well as for any single currency transaction by or on behalf of one person in an amount greater than $10,000 in one business day. Because of the computer system involved in these types of transactions, both the LMT and their agent are considered as having knowledge of the currency transactions and a CTR would be required by both financial institutions involved in the transaction.

(4) FinCEN specifically states that both financial institutions are technically required to file a CTR; however, to avoid unnecessary duplicative reporting, FinCEN requires that only one report be filed with respect to the same transaction. This is evidenced in FinCEN Ruling 2001-1, Currency Transaction Reporting: Completing a CTR and Aggregation. To reduce the number of CTRs on the same transaction, FinCEN's policy is that a LMT and their agents may engage in a contractual agreement as to which one will file the CTR. The overall factor is that there is no harm to the Government related to these contractual agreements if one CTR is being filed on the transaction.

(5) If a required CTR is not filed, both financial institutions are liable for a violation of the BSA. The contractual agreement does not relieve either financial institution for the failure to file the CTR. See FinCEN Ruling 2003-3, Currency Transaction Reporting: Transactions between Money Transmitters and their Agents.

(1) A nonfinancial trade or business that receives more than $10,000 in coin or currency in a single transaction (or two or more related transactions) is required under the BSA to file a Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, under 31 USC 5331, Reports relating to coins and currency received in nonfinancial trade or business, as well as under IRC 6050I, Returns relating to cash received in a trade or business. Form 8300 reflects this dual statutory purpose in its heading. A primary purpose of enacting 31 USC 5331 was to free the Form 8300 information from the disclosure protections applicable to information returns required by the IRC. A nonfinancial trade or business is defined in section 31 USC 5312(a)(4), Nonfinacial Trade or Business, to mean any trade or business other than a financial institution that is subject to the reporting requirements of 31 USC 5331, and regulations prescribed under such section, such as the BSA.

(2) There is one significant difference between the two statutes. There is no requirement under 31 USC 5331 that the filer provide the annual written or electronic statement to each person named on the Form 8300.

(3) Other differences between the two statutes arise because supporting sections were not changed in the BSA. For example:

1. A BSA summons, not a Title 26 summons, must be used if the examination is under Title 31.

2. The statutes of limitations differ depending on whether the case is under Title 31 or Title 26.

3. Penalties differ.

(4) For a detailed discussion of Form 8300 law, see IRM 4.26.10, Form 8300 History and Law.

(1) Individual owners, officers, or employees of the financial institution act on behalf of the financial institution. The knowledge, intent, or negligence of these individuals may be attributed to the financial institution. The individuals themselves are separately liable as individuals for additional penalties for willful violations. Examples of individual responsibility include:

1. 31 CFR 1022.380(c), Persons required to file the registration form, makes any person owning or controlling a money services business responsible for registering the business. Ownership or control is determined by the instructions on the registration form. A person who fails to comply with the section is liable for a civil penalty. (31 CFR 1022.380(e), Consequences of failing to comply with 31 USC 5330, Registration of money transmitting businesses, or the regulations thereunder)

2. 31 CFR 1010.820(c) states "For any willful violation of any recordkeeping requirement for financial institutions, except [those relating to foreign bank accounts] the Secretary may assess upon any domestic financial institution, and upon any partner, director, officer, or employee thereof who willfully participates in the violation, a civil penalty…"

3. 31 CFR 1010.820(f) further states "For any willful violation committed after October 27, 1986, of any reporting requirement for financial institutions under this part [except reports related to foreign financial accounts, reports of transactions with foreign financial agencies and records relating thereto] the Secretary may assess upon any domestic financial institution, and upon any partner, director, officer, or employee thereof who willfully participates in the violation, a civil penalty…"

4. 31 CFR 1010.820(g) provides for a penalty for willful violation of the FBAR, which may be asserted against individuals who are required to file because they have signature or other authority over an account titled to their employer.

(2) Individuals as well as financial institutions are also directly required to report:

1. The transportation of currency or monetary instruments, under 31 CFR 1010.340, Reports of transportation of currency or monetary instruments,

2. The financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country under 31 CFR 1010.350, Reports of foreign financial accounts.

3. Any reports of transactions with foreign financial agencies which the Secretary may deem appropriate and promulgate a regulation to require such reporting under 31 CFR 1010.360, Reports of transactions with foreign financial agencies.

4. Individuals are also required to keep records related to an FBAR filing under31 CFR 1010.350, Reports of foreign financial account. The recordkeeping requirement is required under 31 CFR 1010.420, Records to be made and retained by persons having financial interests in foreign financial accounts. See IRM 4.26.16, Report of Foreign Bank and Financial Accounts (FBAR).

(1) As of April 1, 2013, FinCEN mandated the use of the new single reporting Form 112, Currency Transaction Report. The report replaced FinCEN Form 104, Currency Transaction Report (CTR), and FinCEN Form 103, Currency Transaction Reports by Casinos. The new CTR form did not create any new obligations or otherwise change existing statutory and regulatory expectations of financial institutions.

(2) Financial institutions electronically file the CTR to report currency (cash or coin) transactions over $10,000 conducted by, or on behalf of, one person, as well as multiple currency transactions that aggregate to be over $10,000 in a single day. A financial institution is required to file a report of each deposit, withdrawal, exchange of currency, or other payment or transfer, by, through, or to such financial institution involving more than $10,000 in currency. Only cash transactions that, if alone or when aggregated, exceed $10,000 should be reported on the CTR. Transactions are not offset against one another. If there are both "Cash In" and "Cash Out" transactions that are reportable, the amounts should be considered separately and not aggregated. However, they may be reported on a single CTR. If there is a currency exchange, it should be aggregated separately with each of the "Cash In" and "Cash Out" totals.

(3) Before concluding any transaction with respect to which a CTR is required, a financial institution is required to verify and record the name and address of the individual conducting the transaction, as well as record the identity, account number, and the social security or taxpayer identification number, if any, of any person or entity on whose behalf such transaction is to be affected. See 31 CFR 1010.312, Identification required.

(4) When completing the CTR, as with any FinCEN report, financial institutions should complete those items for which they have relevant information, regardless of whether or not individual items are deemed critical for technical filing purposes. See FIN-2012-G002, Filing FinCEN's new Currency Transaction Report and Suspicious Activity Report, issued on March 29, 2012.

1. Critical items (denoted with an asterisk) – financial institutions must either provide the requested information or affirmatively check the "Unknown" (Unk.) box that is provided on the report.

2. Non-critical items (without an asterisk) – financial institutions must provide the most complete filing information available consistent with existing regulatory expectations.

(1) Banks, including credit unions, are not required to file CTRs on transactions with certain entities and are allowed, at the discretion of the bank, to exempt certain types of business transactions. See 31 CFR 1020.315, Transactions of exempt persons.

(2) Under the regulations, banks are not required to file a report with:

1. A bank, to the extent of such bank's domestic operations,

2. A department or agency of the United States, of any State, or of any political subdivision of any State;

3. Any entity established under the laws of the United States, of any State, or of any political subdivision of any State, or under an interstate compact between two or more States, that exercises governmental authority on behalf of the United States or any such State or political subdivision; or

4. Listed entities, that is, businesses appearing on a recognized stock exchange and their subsidiaries.

(3) Banks may exempt, to the extent of its domestic operations, customers who are either non-listed businesses that regularly withdraw or deposit more than $10,000 or payroll customers that regularly withdraw more than $10,000 to meet payroll. Most NBFIs cannot be exempted by the bank. See 31 CFR 1020.315(e)(8), Ineligible businesses.

(4) Three requirements must be met for this exemption. FinCEN issued revised guidance, FIN-2012-G003, Determining Eligibility for Exemption from CTR requirements, on June 11, 2012. The entity must have:

1. Maintained a transaction account at the exempting bank for at least two months unless, in less time, the bank or credit union performs a risk-analysis showing that exemption is appropriate,

2. Frequently engaged in transactions in currency with the bank in excess of $10,000. The guidance defines frequently as five or more such transactions within the previous year; and,

3. Incorporated or organized under the laws of the United States or a state or be registered as and eligible to do business within the United States or a state.

(5) At least once a year, a bank must review the eligibility of an exempt person to determine whether such person remains eligible for an exemption. As part of its annual review, a bank must review the monitoring system on each existing account of an exempt person to ensure "exempting" the customer still meets eligibility requirements.

(6) Banks must apply special exemption rules to NBFIs. See 31 CFR 1020.315(e)(8), Ineligible businesses.

1. NBFIs that are listed entities are exempt only to the extent of domestic operations.

2. A business engaged primarily as a financial institution or agent of a financial institution may not be treated as a non-listed (a type of exempted) business by a bank.

3. If the NBFI‘s regulated financial service(s) is less than 50% of its gross receipts, it may be exempted.

(7) The Designation of Exempt Person, FinCEN Form 110, must be filed by any bank that wishes to designate a customer as an exempt person for purposes of CTR reporting, 31 CFR 1020.315(c), Designation of certain exempt persons. Effective July 1, 2012, this form must be filed through FinCEN’s BSA E-Filing System.

(8) Reporting a revocation of exemption is not mandatory.

(9) The CTR exemption provision does not relieve a bank from its obligation to file Suspicious Activity Reports.

(1) An NBFI must file a CTR on reportable transaction regardless of the customer involved.

(2) A NBFI is not required to file CTRs with respect to a transaction in currency between the institution and a commercial bank. See CFR 1010.315, Exemption for non-bank financial institutions. A bank is defined as a commercial bank or trust company organized under the laws of any State or of the United States. See 31 CFR 1010.100(d)(1), Bank. NBFIs that conduct currency transactions with foreign banks must file CTRs on an appropriate transaction.

(3) A CTR is not required to be filed by either the agent or their Licensed Money Transmitter (LMT) when a transfer of currency takes place between the agent and the LMT, so long as the transfer is conducted within the scope of the agency relationship (the relationship by which the agent is authorized by the LMT to sell the LMT’s money transmission services to customers). Therefore, neither the LMT nor its agent would be required to file a CTR to report the transfer of cash between them. FinCEN Ruling 2003-3, Currency Transaction Reporting: Transactions between Money Transmitters and their Agents.

(1) The BSA requires persons who transport currency or monetary instruments into or out of the United States to file a report. The report is filed by the person who moves the funds into or out of the United States.

(2) FinCEN Form 105, Report of International Transportation of Currency or Monetary Instruments (CMIR), is examined by Customs, not the IRS. It must be filed by:

1. Each person who physically transports, mails, or ships, or causes to be physically transported, mailed, or shipped currency or other monetary instruments in an aggregate amount exceeding $10,000 at one time from the United States to any place outside the United States or into the United States from any place outside the United States, and

2. Each person who receives in the United States currency or other monetary instruments in an aggregate amount exceeding $10,000 at one time that has been transported, mailed, or shipped to the person from any place outside the United States.

(3) The CMIR can be downloaded from the FinCEN web site by selecting Resources, then Filing Information. Because the form is physically filed by persons crossing U.S. borders, it is exempted from the e-filing mandate. CMIR definitions:

1. Recipients - Each person who receives currency or other monetary instruments in the United States shall file FinCEN Form 105, within 15 days after receipt of the currency or monetary instruments, with the Customs officer in charge at any port of entry or departure or by mail. The mailing address is provided in the general instructions to the form

2. Shippers or Mailers - lf the currency or other monetary instrument does not accompany the person entering or departing the United States, FinCEN Form 105 may be filed by mail on or before the date of entry, departure, mailing, or shipping. The mailing address is provided in the general instructions to the form.

3. Travelers—Travelers carrying currency or other monetary instruments with them shall file FinCEN Form 105 at the time of entry into the United States or at the time of departure from the United States with the Customs officer in charge at any Customs port of entry or departure.

(1) FinCEN Form 114, The Report of Foreign Bank and Financial Accounts (FBAR), is filed by a United States person that has a financial interest in or signature authority over foreign financial accounts when the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. The FBAR is the only BSA form for which IRS has the delegated authority to assess penalties as well as to examine. FBAR law is outlined in IRM 4.26.16, Report of Foreign Bank and Financial Accounts (FBAR), and the relevant procedures are discussed in IRM 4.26.17, Report of Foreign Bank and Financial Accounts (FBAR) Procedures.

(2) The electronic version of the FBAR is downloadable from the IRS Document Repository searching for Catalog # 12996D or on the FinCEN web site under Resources, then Filing Information. Filing electronically on FinCEN’s BSA E-Filing system was required effective July 1, 2013.

(1) Most financial institutions are required to file Suspicious Activity Reports (SARs). Such forms require information about the reporting financial institution, the financial institution(s) where the transaction(s) took place, the person(s) conducting the transaction, the person or business the transactions are being conducted on behalf of, the suspicious activity, the person or business the transactions is being conducted on behalf of, and the person to contact for assistance.

(2) As of April 1, 2013, FinCEN mandated the use of the new single reporting Suspicious Activity Report (SAR), FinCEN Form 111. The report replaced all industry-specific SARs. The new SAR form did not create any new obligations or otherwise change existing statutory and regulatory expectations of financial institutions.

(3) Prior Suspicious Activity Reports, listed below, are hereinafter referred to as "legacy reports".

1. The Suspicious Activity Report for Depository Institutions (SAR-DI), TD F 90-22.47.

2. The Suspicious Activity Report by Casinos and Card Clubs (SAR-C), FinCEN Form 102.

3. The Suspicious Activity Report by Money Services Businesses (SAR-MSB), FinCEN Form 109.

4. The Suspicious Activity Report by the Securities and Futures Industries (SAR-SF), FinCEN Form 101. This Report was used by mutual funds, insurance companies, futures commission merchants and introducing brokers in commodities, and brokers or dealers in securities.

(4) FinCEN mandated electronic filing of the SAR through the BSA E-Filing System beginning July 1, 2012.

(5) Form 8300 Report of Cash Payments Over $10,000 Received in a Trade or Business, may be used voluntarily by any trade or business to report suspicious activity by checking the Suspicious Transaction box at the top of the form. There is no filing threshold if the filing is suspicious.

(6) Nonfinancial trades or business with BSA requirements for filing suspicious activity reports, such as insurance companies, are required to file a SAR. Checking the Suspicious Transaction box on the Form 8300 is not a substitute for filing a BSA required SAR. The entity must still file a SAR.

(7) SAR filing requirements by financial institution:

(1) Currency Transaction Reports, including legacy reports, must be retained for five years from the date of filing the report. See 31 CFR 1010.306(a)(2) , Filing of reports.

(2) Suspicious Activity Reports, including legacy reports, and supporting documentation must be retained for five years from the date of filing the report. These regulations for retaining a SAR include:

• 31 CFR 1020.320(d), Retention of records, filed by a depository institution

• 31 CFR 1024.320(c), Retention of records, filed by a mutual fund

• 31 CFR 1021.320(d), Retention of records, filed by a casino or card club

• 31 CFR 1022.320(c), Retention of records, filed by a money services business

• 31 CFR 1023.320(d), Retention of records, filed by a broker and dealer in securities

• 31 CFR 1029.320(c), Retention of records, filed by loan or finance companies

• 31 CFR 1030.320(c), Retention of records, filed by housing government sponsored enterprises

(3) There is no report retention period in the regulations for the CMIR or the FBAR reports, although certain records underlying the FBAR must be maintained for five years, 31 CFR 1010.420, Records to be made and retained by persons having financial interests in foreign financial accounts.

(4) Reports required for geographic targeting orders are retained for the period set forth in the order not to exceed five years. See 31 CFR 1010.430(d), Nature of records and retention period.

(5) Copies of Forms 8300 are also required to be retained for five years. See 26 CFR 1-6050I-1(e)(3)(iii), Retention of returns.

(1) Registration must be renewed every two calendar years beginning with the first calendar year in which the MSB is required to register. The form must be filed on or before the last day of the calendar year preceding the next two-year renewal period. The same filing and retention rules for the MSB registration form apply to the renewal.

(2) MSBs are required to re-register with FinCEN if one of the following events occur:

1. MSB registered under the law of any State experiences a change in ownership or control that requires the business to re-register under State law.

2. Transfer of more than 10 percent of the voting power or equity interests of a MSB, other than a MSB that must report such transfer to the Securities and Exchange Commission.

3. MSB experiences a more than 50-percent increase in the number of its agents during any registration period.

(1) A MSB must prepare and maintain a list of its agents. The initial agent list must be prepared by the due date of the initial registration form and must be revised each January 1 for the immediately preceding 12-month period. The list is not filed with the registration form but must be maintained at the location in the United States reported on the registration form. The original list of agents and any revised list must be retained for five years as specified in 31 CFR 1010.430(d), Nature of records and retention period.

(2) The agent list must include the information specified in 31 CFR 1022.380(d)(2), Information included on the list of agents:

1. The agent’s name, address, telephone number, and type of financial services offered,

2. A listing of the months during the preceding 12 months in which the gross transaction amount of the agent for financial products or services issued by the MSB maintaining the agent list exceeded $100,000,

3. The name and address of the agent’s bank having an account for part of the funds received as an agent of the listing principal,

4. The year the agent first became an agent, and

5. The number of branches or subagents the agent has.

(1) 31 CFR 1010.430(d), Nature of records and retention periods, is the overall authority for record retention. Generally, records must be retained for five years from the date of the transaction. This five-year period is reaffirmed in sections 31 CFR 1010.420, Records to be made and retained by persons having financial interests in foreign financial accounts, and 31 CFR 1010.415, Purchases of bank checks and drafts, cashier's checks, money orders and traveler's checks, for foreign financial account records maintained by persons and for issuers and agents of money orders, travelers’ checks, and similar instruments. Records required under a targeting order are maintained according to the terms of the order. The five-year record retention for suspicious activity reports and supporting documentation is found in the regulations that establish a Suspicious Activity Reporting requirement.

(2) Failure to retain records is a recordkeeping violation for penalty application purposes.