4.26.7. Bank Secrecy Act Penalties

(1) The Department of the Treasury has primary responsibility for implementing and enforcing the Bank Secrecy Act (BSA). The Secretary of the Treasury delegated the authority to administer the BSA to the Director, Financial Crimes Enforcement Network (FinCEN). FinCEN redelegated responsibility for assuring civil compliance with the law to various Federal agencies including the Internal Revenue Service. Treasury Directive 15–41 (See IRM 4.26.1-2) and 31 CFR 1010.810(b)(8) delegates 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. FinCEN’s delegation is limited to "examining" for compliance with the BSA requirements. FinCEN retains all civil penalty authority, except for penalties assessed on violations of the Report of Foreign Bank and Financial Accounts (FBAR), under 31 CFR 1010.810(d).

(2) The authority to enforce the FBAR reporting and recordkeeping requirements found at 31 USC 5314, Records and reports on foreign financial agency transactions, 31 CFR 1010.350, Reports of foreign financial accounts, and 31 CFR 1010.420, Records to be made and retained by persons having financial interests in foreign financial accounts, was redelegated from FinCEN to the Commissioner of Internal Revenue by Delegation Order 25-13 (Formerly DO 4-35, Rev. 1) effective as of April 11, 2012. IRS has full authority to "examine for and assess penalties" related to noncompliance with the FBAR requirements.

(3) IRS Criminal Investigation has authority under 31 CFR 1010.810(c)(2), Authority for investigating criminal violations, to investigate all criminal violations of the Bank Secrecy Act except those with respect to Form 105, Reports of Transportation of Currency or Monetary Instruments (CMIR). 31 CFR 1010.810(c)(1) delegates to the Commissioner of Customs and Border Protection the authority to investigate criminal violations of the CMIR. Customs and Border Protection also has civil authority for CMIRs under 31 CFR 1010.810(b)(7).

(4) A civil monetary penalty may be imposed for any BSA violation notwithstanding the fact that a criminal penalty is imposed for the same violation, 31 USC 5321(d), Criminal Penalty Not Exclusive of Civil Penalty. IRM 4.26.8.8.5, Parallel Civil & Criminal Referrals, provides guidance on how to make the simultaneous referrals.

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

(4) Chief, Examination is responsible for ensuring FBAR information is communicated to and examiners audit for FBAR requirements.

(5) Chief, Criminal Investigation is responsible for investigating criminal violations of the BSA.

(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 contains a term, and its definition, used in this IRM.

(1) The following table contains related resources referenced in this IRM:

(1) 31 USC 5321(a)(6), Negligence, and 31 CFR 1010.820(h) provided for a penalty for each negligent violation of any requirement of the Bank Secrecy Act (BSA). The penalty amount could not exceed $500.

(2) Negligence is further discussed in IRM 4.26.7.4.1.

(3) The penalty may be assessed against any financial institution or nonfinancial trade or business which negligently violates any provision of 31 USC 5321, Civil penalties.

(4) For penalties assessed after August 1, 2016, the negligence penalties are subject to annual inflationary adjustment under the FCPIA Act.

(1) Any person who violates or causes any violation of the Report of Foreign Bank and Financial Accounts (FBAR) requirements of 31 USC 5314, Records and reports on foreign financial agency transactions, may be assessed a penalty not to exceed $10,000 per violation for penalties assessed before August 2, 2016. See 31 USC 5321(a)(5)(B), Amount of penalty.

(2) Penalties may not be applicable if the violation was due to reasonable cause and the amount of the transaction or the balance in the account at the time of the transaction was properly reported on the taxpayer’s U.S. income tax return.

(3) For penalties assessed after August 1, 2016, the penalty is subject to the inflationary adjustments under the FCPIA.

(1) Where the violation is willful, the penalty depends on the Bank Secrecy Act (BSA) requirement violated. There are different penalties for recordkeeping, reporting, and Anti-Money Laundering program violations, as well as for other types of violations, such as failure by a Money Services Business (MSB) to register.

(2) Within the types of willful violations, there are variations in penalties as well, depending on the provision violated.

(3) A penalty may be assessed upon any person to which the regulation applies, or any person willfully causing a violation of the regulations, and if such person is a partnership, corporation, or other entity, upon any partner, director, officer, or employee thereof who willfully or through gross negligence participates in the violation identified at 31 USC 5321(a) other than an FBAR violation. For an FBAR, the violation may be assessed against any person willfully violating, or willfully causing a violation of the FBAR requirement.

(4) For penalties assessed after August 1, 2016, the penalties are subject to the inflationary adjustments under the FCPIA Act. The first table is for willful violation of record keeping penalties and the second table is for willful violation of reporting requirement penalties.

(1) 31 USC 5314 and 31 CFR 1010.360, Reports of transactions with foreign financial agencies, establish procedures under which the Secretary of the Treasury may issue regulations requiring designated financial institutions to report certain financial transactions with designated foreign financial agencies. A civil penalty not to exceed the greater of the amount of the transaction (not to exceed $100,000), or $25,000 may be assessed upon any person who willfully violates the requirement to report. See 31 CFR 1010.820(g)(1).

(2) 31 USC 5326, Records of certain domestic transactions, and 31 CFR 1010.370, Reports of certain domestic coin and currency transactions, allow the Secretary, upon the Secretary's own initiative or at the request of an appropriate federal or state law enforcement official, to issue a Geographical Targeting Order (GTO). A GTO requires a domestic financial institution or group of domestic financial institutions in a geographic area, and any other person participating in the type of transaction, to file a report in the manner and to the extent specified in the order, if it is found that reasonable grounds exist for concluding that additional recordkeeping and/or reporting requirements are necessary to carry out the purposes of the BSA. A civil penalty not to exceed the greater of the amount of the transaction (not to exceed $100,000), or $25,000 may be assessed upon any domestic financial institution, and upon any partner, director, officer, or employee thereof who willfully participates in the violation. See 31 CFR 1010.820(f).

(3) Special measures, including reporting, recordkeeping, and prohibited transactions that are specially ordered under 31 USC 5318A, Special measures for jurisdictions, financial institutions, international transactions, or types of accounts of primary money laundering concern, for one or more domestic financial institutions and domestic financial agencies, may be required after a finding by the Secretary that a jurisdiction outside of the US, a financial institution operating outside of the US, or a transaction within, or involving, a jurisdiction outside of the US is of primary money laundering concern. Special Measures for some countries appear in the regulations in Subpart F, Special Standards of Diligence: Prohibitions; and Special Measures.

(4) Financial institutions and agencies that engage in private banking or offer correspondent accounts to foreign entities, for example a credit union or an agent of a foreign financial institution, must establish due diligence (or in some cases, enhanced due diligence), policies, procedures, and controls that are reasonably designed to detect and report instances of money laundering through those accounts, especially when special measures apply. See 31 USC 5318(i), Due Diligence for United States Private Banking and Correspondent Bank Accounts Involving Foreign Persons, 31 CFR 1010.610, Due diligence programs for correspondent accounts for foreign financial institutions, and 31 CFR 1010.620, Due diligence programs for private banking accounts. A civil money penalty in an amount equal to not less than 2 times the amount of the transaction, but not more than $1,000,000 on any financial institution or agency that violates any provision of 31 USC 5318(i). See 31 USC 5321(a)(7).

(5) Correspondent accounts for foreign shell banks are prohibited, 31 USC 5318(j), Prohibition on United States Correspondent Accounts with Foreign Shell Banks, and 31 CFR 1010.630, Prohibition on correspondent accounts for foreign shell banks; records concerning owners of foreign banks and agents for service of legal process. Both sections 31 USC 5318, Compliance, exemptions, and summons authority, and 31 USC 5318A are viewed as complementary international counter money laundering provisions and share the same penalty, 31 USC 5321(a)(7), Penalties for International Counter Money Laundering Violations. A civil money penalty in an amount equal to not less than 2 times the amount of the transaction, but not more than $1,000,000 on any financial institution or agency that violates any provision of 5318(j). See 31 USC 5321(a)(7).

(6) 31 CFR 1010.520, Information sharing between government agencies and financial institutions, requires a financial institution upon receiving a request from FinCEN to expeditiously search its records to determine whether it maintains or has maintained any account for, or has engaged in any transaction, with each individual, entity, or organization name in the request. If a financial institution identifies an account or transaction identified with any individual, entity, or organization named in the request, they must report to FinCEN in the manner and in the time frame specified in FinCEN’s request. A penalty may be assessed against a financial institution that fails to comply with this information-sharing rules of section 314 of the USA PATRIOT Act.

(7) A financial institution defined at 31 USC 5312(a)(2) with an AML program requirement, must comply with section 314(a) of the USA PATRIOT Act requirements.

(1) The Secretary of the Treasury is authorized by 31 USC 5321(a)(4), Structured Transaction Violation, to impose a civil money penalty on any person who structures, or attempts to structure, a transaction with the intent to evade a Bank Secrecy Act (BSA) requirement.

(2) A civil penalty may be assessed up to the amount of coins and currency involved in the structured transaction(s). The amount of any civil penalty assessed shall be reduced by the amount of any forfeiture to the US in connection with the transactions for which the penalty was imposed. See 31 USC 5321(a)(4) or 31 CFR 1010.820(e).

(3) IRM 4.26.13, Structuring, contains a complete discussion of the:

• Law which prohibits structuring,

• Procedures on how to identify structured transactions,

• Examples of structured transactions, and

• Examination techniques to identify structured transactions.

(4) Structuring is defined as a person, acting alone, or in conjunction with, or on behalf of, other persons, conducts or attempts to conduct one or more transactions in currency, in any amount, at one or more financial institutions, on one or more days, in any manner, for the purpose of evading a reporting or recordkeeping requirement of the BSA.

(5) 31 USC 5324, Structuring transactions to evade reporting requirement prohibited, prohibits certain actions by any person who acts with the purpose of evading:

1. The reporting requirements of 31 USC 5313, Reports on domestic coins and currency transactions.

2. The recordkeeping requirements of 31 USC 5325, Identification required to purchase certain monetary instruments. (Requirement to secure customer identification prior to issuing or selling a bank check, cashier’s check, traveler’s check, or money order for currency at $3,000 or more)

3. The reporting requirements of 31 USC 5331, Reports relating to coins and currency received by a nonfinancial trade or business. (Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business)

4. The reporting requirements of 31 USC 5316, Reports on exporting and importing monetary instruments (CMIR)

5. The reporting or recordkeeping requirements imposed by any order issued under 31 USC 5326. (Geographic Targeting Orders)

6. The recordkeeping requirements under Section 21 of the Federal Deposit Insurance Act and Section 123 of Public Law 91-508. (Recordkeeping requirements for transmittal of funds at $3,000 and above, additional records to be made by a dealer in foreign exchange at $1,000 and above, and records to be made by casinos and card clubs)

(6) 31 USC 5324, Structuring transactions to evade reporting requirement prohibited, is self-implementing, meaning that penalties can be assessed against a structured transaction without having an implementing regulation. 31 CFR 1010.314, Structured transactions, defines structuring to include causing or attempting to cause a domestic financial institution to fail to file a report or to file a report with a material omission or misstatement of fact, or structure (as defined in 31 CFR 1010.100(xx), Structure (structuring), with one or more domestic financial institutions. 31 CFR 1010.100(xx) is limited to evading a reporting requirement under:

• 31 CFR 1010.311 - Filing obligations for reports of transactions in currency (CTRs)

• 31 CFR 1010.313 - Aggregation, transactions in currency totaling more than $10,000 during one business day (CTR)

• 31 CFR 1020.315 - Transactions of exempt persons, (by banks)

• 31 CFR 1021.311 - Filing obligations, (CTRs at a casino)

• 31 CFR 1021.313 - Aggregation, transactions by casinos in currency totaling more than $10,000 during any gaming day

(7) 31 CFR 1010.820(e), Civil penalty, is limited to willful violations of 31 CFR 1010.314 which is limited to the reporting requirements above. Consequently, 31 USC 5324 is cited for structuring violations related to:

• Recordkeeping requirements on the purchase of money orders or traveler’s checks

• Recordkeeping requirements on transmittal of funds

• Recordkeeping requirements on foreign currency exchanges

• Form 8300 requirements, including any GTO requirement

• CMIR

(8) 31 CFR 1010.810(b)(8) gives the Commissioner, IRS, the delegated authority to examine certain financial institutions to determine compliance with BSA. IRS does not have delegated authority to examine for compliance with structuring by customers of the financial institution, employees of the financial institution, or an individual who is not defined as a financial institution. See the following table for civil penalties for structuring and related prohibited actions:

(1) 31 USC 5318(a)(2), General Powers of the Secretary, allows the Secretary of the Treasury to require a class of domestic financial institutions or nonfinancial trades or businesses to maintain appropriate procedures to ensure compliance with the Bank Secrecy Act and its regulations or to guard against money laundering.

(2) 31 USC 5318(h), Anti-Money Laundering Programs, requires all financial institutions to establish an anti-money laundering (AML) program with minimum requirements; however, regulations have not been adopted for some types of financial institutions and they are currently exempted from this requirement. Those financial institutions required to have AML programs appear in the regulations at 31 CFR Chapter X, Financial Crimes Enforcement Network, Department of the Treasury. 31 CFR 1010.205, Exempted anti-money laundering programs for certain financial institutions, provides permanent and temporary exemptions from this requirement.

(3) 31 CFR 1010.205(b)(2), Temporary exemption for certain financial institutions, provides a temporary exemption to the requirement to develop and implement an AML program to a bank that is not subject to regulation by a Federal functional regulator. The IRS is not defined as a Federal functional regulator under 31 CFR 1010.100(r), Federal functional regulator. Consequently, a credit union under IRS authority is temporarily exempt from the requirement to have an AML program.

(4) 31 CFR 1020.220, Customer identification programs for banks, savings associations, credit unions, and certain non-Federally regulated banks, requires these financial institutions to have a written customer identification program. For most, it is part of their AML program. A bank must create and retain, for five years, certain customer records as a part of its customer identification program.

(5) A penalty may be assessed upon any domestic financial institution or non-financial trade or business, and a partner, director, officer, or employee of the domestic financial institution or non-financial trade or business who willfully violates this requirement. A separate violation occurs for each day the violation continues and at each office, branch, or place of business at which a violation occurs or continues.

(6) For penalties assessed after August 1, 2016, the penalty is subject to the inflationary adjustments under the FCPIA Act.

(1) It is unlawful for a money services business (MSB) to do business without complying with the registration requirements. A failure to comply includes the filing of false or materially incomplete information in connection with the registration. The failure to comply with the MSB registration requirement includes failure to retain a copy of the registration or agent list. See 31 USC 5330(e), Civil Penalty for Failure to Comply with Registration Requirements, and 31 CFR 1022.380(e), Consequences of failing to comply with 31 USC 5330.

(2) Each day a violation continues constitutes a separate violation.

(3) The instructions to FinCEN Form 107, Registration of Money Services Businesses, defines an "owner or controlling person" for purposes of responsibility to register to include, for a corporation, "the largest single shareholder". The instructions also provide that if two or more persons own equal numbers of shares of a corporation, they may enter into an agreement to determine who will register the corporation. The instructions to FinCEN Form 107 provide additional information. The law states that any person who fails to comply with any requirement of the law may be liable for a civil penalty.

(4) Prior to August 2, 2016, a person who failed to register, as required by 31 CFR 1022.380, Registration of money services business, would have been subject to a penalty of $5,000 per day, whether or not the failure to register was willful.

(5) For violations after August 1, 2016, the penalty amount has been adjusted due to inflation as required by the FCPIA Act.

(1) Negligence is usually defined as the failure to use the care that a reasonable person would use in the same or similar circumstances.

(2) There are two principal areas where a reasonable person would exercise care for financial reporting and recordkeeping. A reasonable business person would normally:

1. Exercise care to learn about legal requirements in his area of business.

2. Exercise care to see that his business had sufficient internal controls to meet those requirements.

(3) When normal business care is not exercised in one or both areas, there is a case for negligence.

(4) Negligence is the lack of reasonable cause for a failure to use the care normally expected in the same or similar circumstances. For additional suggestions on the type of facts that establish negligence, see IRM 20.1.1, Penalty Handbook, Introduction and Penalty Relief.

(1) Civil willfulness means that the violation is voluntary, rather than accidental or unconscious. Civil willfulness includes when a person acts with willful blindness to the obvious or know consequences of the person’s actions. Civil willfulness also includes when a person acts recklessly, which means that the person’s actions took an unjustifiably high risk that is either known or so obvious that it should be known.

(2) The government need only show that the financial institution or individual acted with either recklessness or willful blindness in a civil enforcement action under 31 USC 5321(a)(1), Civil penalties. The government need not show that the entity or individual had knowledge that the conduct violated the BSA or acted with an improper motive or bad purpose.

(3) The first step to establish "recklessness" or "willful blindness" is establishing that the entity or individuals had knowledge of the law or took deliberate actions to avoid confirming their requirements under the BSA. Evidence of an intentional act or a conscious effort to avoid learning of their legal duty along with knowledge that the transactions occurred is an excellent indicator of willfulness. Knowledge of the law may be established in several ways:

1. Notification by the IRS, including receipt of Letter 1052, Bank Secrecy Act Requirements Notification Letter, prior BSA examinations, and educational visits.

2. Prior BSA filing history.

3. Actions by the entity, including development of an AML program, previously filed reports, registration with FinCEN.

4. Work history of owners, officers, and employees.

5. Education provided by the principal(s) to their agents and the frequency of training.

6. Education or training by their business community.

(4) The second step to establish recklessness or willful blindness is evaluating indicators of willfulness. Factors to consider when evaluating indicators of willfulness are:

1. Failure to report a transaction which is logged or identified on a report.

2. Failure to keep records.

3. Altering records.

4. Misleading the examiner. For example, a casino that states they do not accept "wires in" and bank statements identify large wires in from established patrons.

5. Failure to report on specific customers. For example, an entity files CTRs on all customers except one, or an employee is identified on an incident report aiding a customer to structure a transaction and compliance ignores the report due to a personal relationship.

6. Failure of the entity’s owners to make a conscious effort to determine what the law requires when starting a new business.