4.26.9. Examination Techniques For Bank Secrecy Act Industries

(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, Financial Crimes Enforcement Network (FinCEN). FinCEN re-delegated responsibility for assuring civil compliance with the law to various Federal agencies including the Internal Revenue Service.

(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) 31 CFR 1010.810(f), Enforcement, allows FinCEN or its delegate, and any agency to which compliance has been delegated to examine any books, papers, records, or other data of domestic financial institutions relevant to the recordkeeping and reporting requirement of the BSA.

(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 information about basic BSA examiner responsibilities and IRM sections is communicated to and carried out by BSA examiners.

(4) All examiners must perform their professional responsibilities in a way that supports the IRS Mission. This requires examiners to provide top quality service and to apply the law with integrity and fairness to all.

(1) The following is a table of commonly used acronyms and their definitions:

(1) The following table lists commonly used terms and associated definitions:

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

(1) After the Fact Aggregation – The process by which a casino reviews and aggregates cash transactions that were otherwise not possible to be known to exceed $10,000 in real time.

(2) Backline Betting - A type of betting that occurs when a customer, who is standing behind a seated player, places a bet or wager on the betting circle for a specific hand on which a seated player also is wagering. The extra players that stand behind each seat position are known as "backline betters". This type of betting is more common at card clubs. Although backline betting makes it difficult to track customer wagers at the gaming table, a card club is required to have a procedure in place to identify such transactions.

(3) Barred Player List - A list of casino customers barred from future gambling activity such as card markers, other casino cheats, thieves, and card counters. Almost all casinos maintain a barred patron list containing the names of customers who did not provide identification credentials after completing reportable currency transactions.

(4) Bill Stuffing - A customer placing currency in a slot machine, then cashing out after minimal or no play. The customer then takes the Ticket-In/Ticket-Out (TITO) ticket(s) and redeems them at a kiosk on the gaming floor.

(5) Bill Validator (Acceptor) - An optical mechanical device attached to an electronic gaming device such as a slot machine or video lottery terminal that accepts U.S. paper currency of various denominations as well as each casino’s TITO tickets and issues gaming credits for use in an electronic gaming device.

(6) Buy-in – The amount of funds a player uses to purchase casino chips when commencing play. A buy-in can occur in cash, credit, or as a deposit withdrawal.

(7) Cage - A secure work area within a gaming establishment for cashiers, a storage area for the gaming facility’s bankroll (for example, maintains the inventory of cash, chips, tokens, and credit), and a place where banking services are provided to customers and other casino banks. In this capacity, it is the casino’s in-house bank where customers can open deposit and credit accounts, deposit and withdraw funds, receive and pay off credit (for example, markers), purchase and cash payroll and personal checks, wire transfer funds, purchase and redeem (or exchange) gaming chips, tokens and tickets, and exchange currency. Also, larger casinos may maintain satellite cages in slot areas, high roller areas or in the betting parlors. A card club cage operates, for the most part, as does a casino cage except that it does not offer token sales and redemptions because there are no slot machines.

(8) Chips (also known as, Checks, Tokens) - A gaming instrument issued in various denominations and used as a substitute for currency at table games in a casino.

(9) Chip Walk - A casino term for chips that a customer leaves a gaming table with at the end of play.

(10) Chip Redemption - The exchanging of chips by a customer for cash, casino check, or outgoing wire transfer.

(11) Complimentary (Comps) - Complimentary items or "comps" typically are goods or services that a casino gives to a customer, at reduced or no cost, based on significant play and can include beverages, coupons, or other representations of money for use in wagering, beverage, food, entertainment, merchandise, lodging, show ticket and ticket to special events, or transportation (for example, airplane ticket, car rental). Also, a "comp" can be in the form of currency.

(12) Drop – "Drop" in table games, is the total amount of cash or cash equivalents plus paper credits (for example, markers) that a dealer puts in the table drop box which were exchanged for chips or plaques. "Drop" in slot machines or video lottery terminals, is the total amount of customers’ coins and tokens in the drop bucket, and customers’ U.S. paper money (bills) and TITO tickets (vouchers) in the bill storage box in such devices. Also, the drop refers to the removal of the slot machine and table game drop boxes that are transported to the hard and soft count rooms, respectively.

(13) Front Money (Deposits and Withdrawals) - Money deposited by a customer into a personal casino account at a cage that a customer could later withdraw at a gaming table (in the form of chips to bet or wager with after signing a so-called "front money marker" against the deposited funds), electronic gaming devices (in the form of credits or access cards), or later at a cage (in the form of casino check, currency, money transfer, and other similar items.). This internal account is offered to allow a customer to deposit with a casino funds to be gambled or won.

(14) Gaming Day - The normal business day of the casino by which it maintains its books and records for business, accounting, and tax purposes. A casino may have only one gaming day common to all its divisions.

(15) Junket Representative - A person who is responsible for organizing a group of players (a junket) to gamble at a casino. The representative can be a junket operator or an employee of the junket operator. Typically, the representative will send a wire or money transfer of the total funds that the junket players intend to gamble to a casino's domestic bank or a money transmitter located on the casino's premises. The funds will be held in a front money deposit account until the junket arrives at a casino. Most U.S. State gambling regulators require that a junket representative provide to the regulator identification information and financial qualifications or rating of gambling performance (such as their theoretical win/loss) for each customer before or upon arrival at a casino. In most jurisdictions junket operators are not casino employees and thus are not subject to the same degree of licensing oversight by State gambling regulators; nonetheless, some background screening is done on junket operators. Also known as, a "Junket Master", "Junket Operators", or "Independent Agent".

(16) Kiosk Machine - A multifunctional machine, connected to a gateway or kiosk server, that can perform a variety of financial transactions, such as redeeming slot machine/video lottery tickets for currency, exchanging U.S. currency for U.S. currency (for example, breaking bills or paper money), redeeming player slot club points, purchasing slot machine vouchers (for example, tickets), and initiating electronic transfers of money to or from a wagering account including currency withdrawals from a casino ATM. Such machines are designed to reduce time to pay out slot jackpots to customers and improve productivity. Currently, kiosk machines do not require a customer who has a slot club account card to use it to conduct transactions. Cash kiosk machines and/or ATM machines in casinos are not supplied typically by a casino, but by machine vendors, who are able to place these machines in casinos on two conditions:

1. A vendor and a casino come to satisfactory business terms, and

2. The regulatory authority, and in some jurisdictions the legislature, approves the arrangement.

(17) Lammer - A button or chip distinguishing the amount of credit being granted to a customer. A lammer is placed on the table while the chips are given to the customer.

(18) Marker (also known as Counter Check) - A blank check provided to an established customer and drawn against his/her casino line of credit account, in exchange for chips, tokens, or currency, and is intended for use in gambling. A customer would have to sign a marker before a casino will extend credit, which insures that a marker is treated as a personal check. Also, a marker resembles a personal check, which can be deposited into the casino’s commercial bank for processing through the Federal Reserve System or commercial clearinghouses and correspondent domestic banks if the check is not redeemed within a specified period.

(19) Marker Redemption - The redemption or paying off a previously issued marker by a customer. Typically, markers are settled before a customer leaves a casino, but many casinos will allow customers time to repay a marker, depending on each customer’s status with that casino, and based upon a gaming regulator’s marker repayment schedule.

(20) Minimal Gaming or Minimal Play - A term that can apply to many different situations in a casino environment. The most common reference is for individuals who:

1. Exchange a large amount of currency for casino chips or obtain large markers in a gaming day,

2. Gamble for a small amount of time,

3. Either lose/win a nominal amount of the chips or make small bets in comparison to the buy-in, and

4. Then cash out the remaining chips either by the gamblers or their agents. These activities are conducted to make the currency appear as a legitimate source of income.

(21) Monetary Instruments Log (MIL) (also known as a NIL) – A term used by casinos for the separate record containing a list of each transaction between the casino and its customers involving negotiable instruments having a face value of $3,000 or more as required by 31 CFR 1021.410(b)(9).

(22) MTL - Casino documents used for recording and keeping track of customer currency transaction activity above a given dollar threshold.

(23) Off Track Betting (OTB) - Pari-mutuel wagering that is conducted at a gambling establishment other than the race course (for example, horse and/or dog/greyhound track) where the actual race is being held.

(24) Pari-Mutuel Wagering - Wagering conducted pursuant to licenses granted in the US by state governmental agencies on various sports, including horse racing, greyhound racing and jai alai that occur at racetracks, racinos, and frontons. The betting can occur at racetracks, OTB facilities, tribal, racinos, frontons, on Internet platforms, and interactive television platforms. Thus, the wagering may be conducted at a location other than the racetrack or fronton where the race or jai alai match, respectively, is held. In a pari-mutuel system of wagering, gambling establishments pool all customer wagers on the outcome of various racing and sporting events. The gambling establishments do not risk any of their own money. Winners divide the total amount bet in the wagering pool in proportion to the sums that customers have wagered individually on each racing event, after the operator deducts its takeout (which constitutes the gross revenue of the pari-mutuel business that is used to pay operating expenses, contributions to purses, taxes, including pari-mutuel taxes, interest, debt service, pension benefits, and any other charge against income). Bettors are essentially betting against each other, which means that the losers pay the winners.

(25) Player Rating - A monitoring system a casino uses to rate and track the gaming activity of a single player. Casinos use a variety of methods to award complimentary services, or comps to attract and retain their customers. The most common method is based on theoretical win, which is the amount a casino expects to win from a customer. It is calculated using the following four factors:

1. Theoretical house advantage of a game (each game has a specified percentage of house advantage),

2. Number of expected hands or spins per hour (for example, expected value of play),

3. Gambler’s average bet, and

4. Length of time the gambler plays.

(26) Player Rating System - A manual or computerized system of tracking customer gambling activities at various gaming departments (Tables Games, Race and Sports, Keno, Poker, and Bingo) based on physical observations by casino employees. Casino employees manually input the customer’s transactions on manual documents or a computerized system. A slot player rating system is a computerized system used to track customer gaming activity at the slot machines using "Slot Club Membership Cards" inserted into the machine.

(27) Rake - The money a casino charges for each hand of poker. It is usually a percentage or a flat fee that is taken from the pot after each round of betting.

(28) Rim Credit - An extension of credit, noted on a rim card for faster session play. Upon completion of the session play the balance is settled in the form of a marker.

(29) Safekeeping (Deposits/Withdrawals) - Funds placed on deposit into an account at a casino cage to be held for security and convenience purposes that a customer could only withdraw by returning to a cage. Safekeeping funds cannot be drawn down at the gaming tables or slot machines/video lottery terminals.

(30) Shill - A casino employee who actively plays in a table game for the casino, club or the house. Usually seen at a Baccarat table to fill empty seats, until more real players join the game.

(31) Ticket-In/Ticket-Out (TITO) - Slot machines or video lottery terminals allow customers to play on credits from bills, tickets or coins. The machines only dispense tickets and not coins. The TITO tickets, which can have any stated monetary value, can be inserted in an electronic gaming device that has the TITO function and can be played in such a device or cashed out with a cashier or at a kiosk machine.

(32) Token - A gaming instrument issued in various denominations and used as a substitute for currency to play slot machines.

(33) Trip - Any number of continuous days of gaming activity by a customer in which there is not a break in play.

(34) Trip History Summary Report - A report that summarizes the total funds from a customer’s multi-day trip and the most recent trips, usually between three and nine trips. Because a trip includes any number of continuous days of gaming activity in which there is not a break in play, the player trip history is only a limited summarized record that typically does not provide all the information contained on the original player rating cards, such as the specific amounts of the customer’s currency transactions conducted for each gaming day.

(35) Wagering Account - An account set up for the purposes of mobile gaming or on-line gaming.

(1) Casinos that are duly licensed or authorized to do business are regulated by state, tribal, or local governments. As such, their organizational structure may vary depending upon applicable laws and regulations as well as the needs of management within each individual casino. Generally, however, a typical gambling casino is organized into two separate, yet related, operations: the casino floor and the casino cage. Larger casinos may have more than one casino floor and/or more than one casino cage.

(2) The casino floor is the area of the casino where all gaming activities occur. It is usually organized into Gaming Pits and Slot Zones and operates under the direction of the Casino Manager.

(3) A pit is an area of the casino floor enclosed or encircled by gaming tables in which casino personnel administer and supervise the games being played at those tables. Pits may be comprised of tables offering only one type of game or may be made up of tables offering a number of different types of games. Pit personnel may include the following:

1. Pit Boss - A management employee who has supervisory authority over all gaming activity taking place in the pit.

2. Floor person - A management employee who has supervisory authority over all gaming activity taking place at a given number of tables within the pit.

3. Dealer - A casino employee who conducts the gaming activity at a single gaming table within the pit.

4. Pit Clerk – An employee in a table game pit who documents, fills, and credits player credit instruments (such as markers) and player rating forms.

(4) A Slot Zone is an area of the casino floor, usually separated from the gaming pits, where slot machines are grouped into rows, circles and banks of machines. A slot zone may also include slot booths and coin redemption stations where coins and tokens can be purchased or redeemed, slot markers can be issued or redeemed, and slot jackpots can be paid. Slot personnel may include slot managers, slot supervisors, and slot attendants.

(5) Some casinos may also maintain separate rooms or parlors that offer other games such as Keno, Bingo, Poker, Race Betting, Sports Betting, and others. Each room or parlor operates under the direction of a room manager who reports to the shift manager on duty.

(6) The casino cage houses the cashiers and the cage’s inventory, provides banking services for players and other casino banks, and records, tracks and monitors all financial transactions. It is the financial center of the entire casino operation and is the point at which all currency, chips and other funds are ultimately accounted for. In this capacity it is the casino’s in-house bank where customers can open deposit and credit accounts, deposit and withdraw funds, receive and pay off credit (such as markers), purchase and cash checks, wire transfer funds, redeem chips, exchange currency and more. Larger casinos may also maintain satellite cages in slot areas, high roller areas or betting parlors. Under the supervision of the Casino Cage Manager, the casino cage operates much like a commercial bank and is generally organized into five components:

1. Main bank - The area of the casino cage where all currency is stored. It is through the main bank that currency is transferred from the gaming tables, to and from the cashier’s windows and to or from the casino’s commercial banking institution. The main bank maintains an inventory of coins and chips.

2. Chip bank - The area of the casino cage where all of the gaming chips are stored. It is through the chip bank that chips are transferred to and from the gaming tables and to or from the cashiers’ windows.

3. Marker bank - The area of the casino cage where all marker activity related to credit accounts is recorded, processed and stored.

4. Credit management - The area of the casino cage where customer credit accounts are managed.

5. Cashier (Teller) windows - The area of the casino cage where financial transactions between the casino cage and its customers occur. The windows are staffed by cashiers who conduct the financial transactions and prepare source documents.

(7) The casino marketing department is responsible for retaining and bringing new business into the casino. Within the marketing department, casino hosts, who cater to high roller's needs, may assist players in opening deposit and credit accounts and issuing complimentary gifts and services to customers.

(8) The casino surveillance department is an important resource in deterring and detecting suspicious or criminal activities. Surveillance employees monitor casino activities using a variety of technologies, including video cameras, monitors, recorders, video printers, switches, selectors and other equipment. Monitored activities that are unusual, suspicious, or potentially criminal in nature are noted in a surveillance log. Videotapes and/or electronic recordings generally will be maintained for a period established by the casino's state, tribal or local regulator.

(9) Card rooms offer no house-banked games. Instead, players gamble against each other. Card rooms usually offer games in two broad categories: poker games, and California games. In California games, one player acts as the bank and other players bet against the bank. The banker collects all winning bets and pays all losing bets from his/her bankroll. There are a fixed number of seats at each table, but other players ("backline bettors") can place bets from behind each seat location.

(10) The gaming floor of a card room operates much like the gaming floor of a traditional casino, although operational differences exist.

1. Generally, poker and California games are in separate rooms.

2. As with casinos, individual tables are organized into pits where dealers conduct the games under the supervision of pit bosses or floor persons.

3. Card clubs do not rate customer gaming transactions because card club income is based solely on table fee collections and not on player wins and/or losses. Instead, card clubs maintain MTLs for currency transactions in excess of specified amounts, typically $2,500 or $3,000. However, a customer's name will be recorded on such logs, only "if known".

4. Card clubs do not provide "comps" to customers.

5. Dealers typically purchase the inventory of their own chip tray from the card room. Since dealers typically own the inventory of chips and currency in their trays, they often can gamble at the tables during breaks, or even while dealing the game.

6. Card clubs employ chip runners who sell and redeem chips directly to the customers.

(11) Card clubs can offer the same types of financial services to their customers as traditional casinos (such as deposit accounts, credit accounts, check cashing, wire transfers, and currency exchange services). As with casinos, card rooms maintain cages where cashiers conduct financial transactions. The cage of a card room operates much like the cage of a traditional casino (that is, it is made up of front windows and a cage vault).

(1) Casinos and card clubs in the United States, its territories and possessions, and on Indian lands, with GAGR in excess of $1,000,000 are defined as financial institutions under 31 CFR 1010.100(t)(5)(i), Casino, and 31 CFR 1010.100(t)(6)(i), Card club. A separate location is a branch if it is operating under the same casino license or tribal compact. If the additional casino location has a separate and distinct casino license or tribal compact, then it is a separate financial institution.

(2) For special rules pertaining to casinos including the development of a written compliance program and special terms relating to casinos, refer to 31 CFR 1021.210, Anti-money laundering program requirements for casinos.

(1) Casino accounting systems related to gaming operations of a casino are generically referred to as casino management systems. These systems are separate from the traditional general ledger systems used to track income and expenses for business and tax purposes, although certain summarized information will flow to the general ledger. A typical casino management system is usually a hybrid system made up of financial accounting records, banking-style deposit, credit records, and non-financial marketing records. In some small casinos, systems may involve the use of manual records. Larger casinos tend to utilize complex and automated computerized systems. Even the smallest casinos have computerized their systems as a low-cost and efficient means of recordkeeping and marketing. Casino oriented software is commercially available from several manufacturers for use on stand-alone or networked desktop computer systems. Casino records that can be used to identify customer transactions will vary depending upon state tribal, and local laws and regulations, as well as the needs of casino management.

(2) A typical casino management system will have many components, but the most relevant are:

1. Casino Marketing System

2. Credit Management System

3. Customer Master File

(1) The pre-plan of a casino examination will include the development of an audit plan. The audit plan should cover all areas that conduct, monitor and review gaming activity. When developing the audit plan, the examiner must consider the size of the casino operation, types of gaming provided, types of financial services offered, types of records likely maintained, the casino’s CTR and SAR filing history and any prior examination and affiliates’ prior exam results. The scope and direction of the examination is determined by the audit plan and can vary case by case.

(2) The pre-plan procedures will include:

1. Performing a risk assessment

2. Determining the examination scope period (typically 3 months for a casino examination due to the significant amount of data)

3. Development of initial IDRs

4. Determining casino departments/employees to be interviewed

5. Designing interview outlines

6. Making initial contact with the casino to set first appointment

7. Performing FCQ research

8. Perform internet and other research on the casino

(3) Prior to any contact with a tribal casino, the examiner must prepare a referral for an ITG Specialist. ITG is the official IRS designated contact for all federally recognized Native American tribes. Referrals are made through the SRS. A referral is created by going to https://srs.web.irs.gov/. Once a referral is approved and processed, an ITG manager will assign the referral to the ITG specialist that covers the Indian tribe operating the casino. The ITG specialist will coordinate with the BSA examiner and will attend the opening and closing conferences if possible. The ITG specialist will provide BSA examiner with information about the tribe, such as certain protocols to follow in dealing with the tribe. The ITG specialist does not assist in the Title 31 examination.

(4) A critical process in the scoping and planning phase (pre-audit) of a BSA casino examination is an extensive review and analysis of all BSA reports filed by and on the casino. A thorough review and analysis of the BSA reports filed by the casino is used to determine the adequacy of the reports as well as identifying trends in the reports. A BSA report is deemed adequate if it is timely, complete, and accurate. The preliminary determination of the timeliness of CTRs is easily and routinely accomplished in the pre-audit phase of an examination. The determination of the timeliness of SARs, however, typically requires a review of internal casino documentation later in the examination. An examiner will review and analyze a casino's broad historical trends as well as detailed transaction trends of filed BSA reports for the current time period. Although there are no targeted volumes of CTRs or SARs, overall filing history trends and data trends in the reports are compared to other data such as gross annual gaming revenue, types of gaming offered, and types of transactions offered. This comparison combined with a review of the casino’s AML program is then used by the examiner to facilitate the scope and planning of the examination.

(5) As part of the initial contact, the examiner will determine what records the casino maintained, and which records need to be requested. Some but not all records will be required to be reviewed by the examiner prior to the initial appointment. Both the initial IDR and the computerized IDR (IDR requesting computerized records) are issued with initial appointment Letter 3494, Bank Secrecy Act (Title 31) Casino Appointment Letter. Both IDRs include records to be provided prior to the initial appointment and records to be available at the initial appointment.

(6) Discuss the IDR items with the IT contact person to ensure they understand the casino data to be provided electronically.

(7) The initial interview should be held at the casino’s place of business and should be attended by all IRS personnel who will be involved in the examination including the examining agent, assisting agents ITG Specialist (if the casino is a tribal casino) and the examination case manager.

(8) A CAS may be requested if the casino’s computerized data is not available in a file format or size that an examiner can use.

(9) The appointment letter should request that the following casino personnel attend the initial meeting:

1. Vice President Finance,

2. Casino Controller,

3. Casino Manager,

4. Casino Cage Manager,

5. Director of Information Systems (Computers),

6. Title 31 Compliance Office, and

7. Any directly involved in Title 31 compliance.

(10) The casino should be advised of the purpose of the examination, and any questions should be answered. Physical arrangements should be made for adequate work space and access to necessary equipment. A principal contact person from the casino and a casino IT contact person should be identified for the examining agent.

(11) The casino should be advised that examining agent(s) will only review information relative to BSA compliance. However, it should also be advised that if during the examination, information relative to possible violations of other laws or regulations is discovered, a referral must be made. This notification should be documented.

(12) The interview should identify any related institutions, branches, entities, or other NBFIs operating within the casino including ownership and relationship of MSBs and ATMs. The BSA examiner should immediately submit the information to the BSA Exam Case Selection (ECS) casino coordinator to be added to the Title 31 database.

(13) Determine the gaming day used by the casino for aggregating reportable currency transactions. Record whether the casino cage and gaming floor are both using the same gaming day cut-off time (including the computerized player rating system) as required by 31 CFR 1021.100(d), Gaming day. Request that the casino provide a document at the start of the examination that cites the opening and ending times for the gaming day that are in effect during the period being examined.

(14) Ask open-ended questions throughout the interview. Do not ask questions that require only a "yes" or "no" answer.

(15) The examination should include departmental interviews. Each interview should be documented in the case file. Owners/operators, shareholders, directors, floor and cage managers, and employees responsible for preparing currency reports and securing and maintaining records pertaining to the reporting requirements under the BSA should be questioned as to their knowledge and training of the BSA recordkeeping and reporting requirements. Knowledge is one of the elements needed to prove willfulness with respect to a violation of the regulations. Examples of possible casino personnel to be interviewed include:

• Title 31 Compliance Officer

• Casino Controller

• IT Manager/Supervisor

• Internal Auditor

• Revenue Auditor

• Cage Manager/Supervisor/Cashier

• Surveillance Manager/Supervisor/Officer

• Table Games Manager/Supervisor

• Poker Room Manager/Supervisor

• Slot Manager/Supervisor/Attendant

• Off-Track Betting Manager/Supervisor/Cashier

• Bingo Manager/Supervisor/Cashier

• Keno Manager/Supervisor

• Security Manager/Supervisor/Officer

• Marketing Manager/Supervisor

• Guest Services (Players Club) Attendant

• Tribal Gaming Commission Member

(16) A guided tour of the casino operation is essential and should be scheduled as early in the examination as possible. The examiner must understand the casino’s operation and layout. It is important the tour include all areas both on and off the gaming floor. Areas of attention should be the cage, pit, surveillance, compliance and any high-stake limit areas. Enough time must be spent observing employees conducting transactions, compiling and reviewing reports. The types of documents completed, any reviews conducted on these documents and subsequent processing of these documents must be understood.

(1) Because casino records will vary depending upon applicable laws and regulations, as well as the needs of casino management, a complete systems analysis should be conducted of the casino accounting system used to record and process records related to customer transactions. This analysis will establish the audit trail and the casino’s knowledge of BSA requirements pertaining to reportable transactions. The analysis should include:

1. Identifying the flow of information through the system,

2. Determining what kinds of original source documents and records are prepared relative to customer transactions, who prepares them, and how they are stored and organized,

3. Determining what records are prepared by the casino that specifically identify customer currency transactions,

4. Determining the kinds of reports prepared by the casino in the ordinary course of its business that may identify and/or summarize recorded, customer transactions, particularly currency transactions, and

5. Determining what kind of records and reports are prepared by the casino that identify customers who may be structuring transactions to evade CTR reporting requirements, or who are engaging in other unusual or suspicious transactions or patterns of such transactions.

(2) If the casino accounting systems are computerized, the examiner should determine:

1. What computer files and records are maintained relative to customer transactions and what information is stored in those files and records,

2. What computer files and records are prepared that specifically identify customer currency transactions including currency specific transactions,

3. Whether the casino has retained those records in accordance with the BSA recordkeeping and record retention requirements, and

4. What kinds of computer-generated reports are prepared by the casino in the ordinary course of its business that may identify and/or summarize recorded customer transactions, particularly currency transactions and potentially suspicious transactions.

(3) Examiners should familiarize themselves with state, tribal, and local laws and regulations related to any casino being examined since BSA relevant records, documents or manuals required by these jurisdictions are also required to be maintained and utilized for BSA compliance (31 CFR 1021.210(b)(2)(v), Compliance Programs, and 31 CFR 1021.410(b)(7)). Attention should be placed on casino records, documents, and reports required by those laws and regulations which may assist in detecting currency transactions, suspicious transactions, and establishing the casino’s knowledge of those transactions.

(1) Examination techniques used to conduct BSA examinations of casinos will vary significantly depending upon whether the casino inputs and processes its customer transaction records by or through a computer system and has retained those records in machine readable form as required by the BSA. (31 CFR 1021.410(c)(1), Additional records to be made and retained by casinos) Even the smallest of casinos have begun to automate their casino systems as a low cost and efficient means of recordkeeping and marketing. However, some casinos may still maintain only manual records for certain transactions. All casinos typically maintain manual backup procedures in the event its computers go down.

(2) The four major areas of a casino examination are:

1. Review and analysis of the AML program (31 CFR 1021.210)

2. Determining CTR compliance (31 CFR 1021.310, Reports of transactions in currency)

3. Determining SAR compliance (31 CFR 1021.320, Reports of transaction in currency)

4. Determining recordkeeping compliance (31 CFR 1010.410, Records to be made and retained by financial institutions, and 31 CFR 1021.410, Additional records to be made and retained by casinos)

(3) A review and analysis of a casino’s AML program should begin prior to the initial interview and continue throughout the examination. A review is critical in planning the scope and depth of examinations. Examiners must determine if the written policies and procedures are implemented and effective. Examiners will also consider the implementation and effectiveness of any unwritten policies and procedures. The BSA regulations do not specify the degree of detail and allow for customization of policies and procedures to mitigate AML risks. It is not a program violation if the written AML program lacks every specific detail of a casino’s procedures but there must be enough documentation for efficacy.  AML policies and procedures can vary greatly especially the frequency and depth of reviewing records and reports. Variations of different procedures can accomplish the same risk mitigation outcome.  Contingent upon BSA risks, an AML program is deficient if:

1. an entire AML program pillar is missing,

2. a policy or procedure does not exist, or

3. if a policy does exist (written or unwritten) but fails to be followed (isolated or systemic) or fails to ever be implemented.

(4) Determining CTR compliance is one of the four major areas of a casino examination. Examiners must determine if:

1. CTRs were filed timely,

2. CTRs were filed with complete and accurate information,

3. Copies of CTRs were maintained, and

4. Any CTRs were not filed.

(5) A review and analysis of filed CTRs begins during pre-audit and continues throughout the examination. A review and analysis of manual and computerized casino records that document cash-in or cash-out transactions (MTLs, MILs, cage and credit transactions, slot data) will be conducted to determine if any CTRs were not filed or have any inaccuracies including the total dollar amount reported. Examiners must identify any amended or back-filed CTRs. Amended and back-filed CTRs must be removed from the list of potentially late filed reports. Although not considered late filed CTRs, any amended and back-filed CTRs may provide examiners with information on areas of risk. Examiners need to determine the cause of amended or back-filed CTRs and whether the casino’s policies and procedures were inadequate. It is also important to determine if the casino amended their procedures to correct any deficiencies which caused subsequent amended or back-filed CTRs. Zero amended CTRs may indicate a lack of procedures to correct inaccurate or incomplete CTRs filed in an after-the fact aggregation.

(6) Before citing a casino for failure to file a CTR, examiners must prove a reportable transaction occurred. A reportable transaction occurs when the following criteria are met:

1. The customer’s transaction(s) occurred during the casino’s specified gaming day,

2. The customer’s transaction(s) involved cash in or cash out of over $10,000, and

3. The casino had knowledge of the transaction(s).

(7) Determining SAR compliance is another one of the four major areas of a casino examination. Examiners must determine if:

1. SARs were filed timely,

2. SARs were filed with complete and accurate information,

3. Copies of SARs and the supportive documentation were maintained and protected from disclosure, and

4. Any SARs were not filed.

(8) The analysis of filed SARs combined with the analysis of the AML program policies and procedures can determine the techniques used to examine for unreported suspicious activity. The following examples of SAR filing trends could identify possible SAR monitoring vulnerabilities and thereby cause an adjustment to the examination plan:

1. None or few SARs are filed with certain likely suspicious activity types. For example, if there is "suspicious use of non-cash monetary instruments" that has never been reported, the casino could be vulnerable to not monitoring and reporting for this type of activity.

2. Most or all SARs filed are completed transactions instead of attempted transactions or vice versa.

3. Most or all SARs filed are on transactions occurring in the cage instead of the gaming floor or vice versa.

4. Most or all SARs are filed on transactions in a single gaming floor area instead of all gaming areas. For example, gaming floor SARs have only been initiated from table game and slot transactions but never from race and sports book transactions.

5. Most or all SARs filed are from real time observations instead of a review of records or vice versa. The examiner will determine if a real time suspicious activity observation could have been detected from a review of records and if not then why and vice versa.

6. Most or all SARs filed are for activity in a single gaming day instead of over a broader period or vice versa.

7. None of few SARs have ever been amended.

8. None or few SARs are filed on continuing activity.

(9) Determining recordkeeping compliance is another one of the four major areas of a casino examination. A casino creates millions of records each year and an examiner must determine what records a casino is required to maintain. 31 CFR 1021.410 and 31 CFR 1010.410 identifies records that a casino must create and/or maintain. The regulations specifically state the information required to be obtained and maintained by the casino. If a casino provides one of the services covered by the regulations, they have a requirement to create and maintain the records prescribed in the regulation. A casino does not have a recordkeeping requirement for services it does not offer. For example, if the casino does not offer wire transfers, it does not have to create a wire listing or log.

(10) For each deposit of funds, extension of credit, or account opened by the casino, the BSA requires that the casino obtain the customer’s name, permanent address and SSN. (31 CFR 1021.410(a)) The name and address must be verified and recorded in the manner described in 31 CFR 1021.312, Identification required. Examiners should determine whether the casino’s procedures for opening deposit and credit accounts include requirements for securing the customer’s name, permanent address, and social security number and verifying the name and address. Additionally, customer deposit and credit accounts should be reviewed to determine if the required information has been obtained. If the casino is unable to obtain the SSN for a customer opening a debit or credit account, the casino is not deemed to be in violation of this recordkeeping requirement if:

1. A reasonable effort was made to secure the number, and

2. The casino maintains a list containing the names and permanent address of those customers without SSNs and makes the list available to the Secretary upon request. (31 CFR 1021.410(a))

(11) Examiners should determine whether the casino’s retention policies have measures to retain all records described in 31 CFR 1021.410(b) and if the required records are being retained for the BSA’s five-year retention period. Examples include, but are not limited to:

1. Failure to maintain the $3,000 MIL (31 CFR 1021.410(b)(9),

2. Destruction of player rating records reflecting currency transactions (31 CFR 1021.410(b)(8), and

3. Destruction of every debit and credit affecting a customer’s debit account. (31 CFR 1021.410(b)(2))

(12) Examiners should determine whether the casino has procedures to maintain a chronological record (commonly known as the MIL or NIL) of monetary instruments received or issued with a face value of $3,000 or more. (31 CFR 1020.410(b)(9)) The information required is:

1. The time,

2. The date,

3. Customer name,

4. Customer permanent address,

5. The type of instrument,

6. The name of the drawee or issuer of the instrument,

7. All reference numbers such as casino account number and/or personal check number, and

8. The employee name or business license number.

(13) Some casinos use their own bank accounts to wire funds on behalf of their customers and/or they may have contracts with MSB companies that provide fund transfer services. If the casino wires, or otherwise transfers funds for its customers (or receives wired funds or other such fund transfers on behalf of its customers), and the amount of the transfer is $3,000 or more, the casino is required to maintain certain records of the funds transfer. (31 CFR 1010.410(f) and 31 CFR 1010.410(g)) Examiners should determine whether the casino’s procedures for recording funds transfers in amounts of $3,000 or more include requirements for verifying customer identification, and for recording customer and transaction information for each money transfer. The records should be reviewed or tested to determine if the required information has been obtained. Also, examiners can review the recorded information to help identify customers who may be structuring transactions through money transfers on a single day or over multiple days. In addition, the funds transfer records can be used in conjunction with each day’s player rating records to determine if chips that were redeemed for an outgoing funds transfer, in excess of $5,000, came from transactions involving minimal gaming. Casinos must maintain specific records for all international wire transfers to or from or on behalf of a customer. There is no dollar threshold for the recordkeeping requirement of international wire transfers. (31 CFR 1021.410(b)(5))

(1) Examiners should obtain supporting documentation for each potential reporting, recordkeeping, and compliance program violation identified.

(2) In the case of failures to file required CTRs, the supporting documentation may consist of copies of casino documents, prepared at the time of the transaction, that identify the type and amount of the transaction, the character of the transaction and the identity of the persons conducting the transaction. Such documents may include, but are not limited to, player rating cards, deposit and withdrawal slips, payment and redemption vouchers, customer action cards (also known as buckets), computer-generated reports and printouts of the preceding documents, Multiple Transaction Logs (MTLs), Forms W-2G, and computerized Form W-2G records. The documentation must support each finding that a reportable currency transaction has occurred but was not filed with the IRS.

(3) In the case of incomplete CTRs, supporting documentation should consist of a duplicate of the casino’s retained copy of the CTR.

(4) In addition, examiners should obtain supporting documentation establishing that the casino had knowledge that the transaction occurred in an amount greater than $10,000 and in the form of currency.

1. Single transactions - In the case of a single transaction, there is prima facie evidence of the casino’s knowledge because one employee conducted the transaction with the customer.

2. Multiple transactions - In the case of multiple transactions, knowledge must be established through casino reports and procedures.

(5) If a report is prepared, manually or by computer, that aggregates and summarizes multiple currency transactions at the end of the gaming day, the casino has knowledge of any reportable transactions identified in the report, even if the report is not specifically used for BSA reporting purposes.

(6) If the casino has procedures in place to aggregate multiple currency transactions, the casino has knowledge of any reportable transactions that are identifiable through those procedures, whether or not the procedures are actually followed.

(7) If it cannot be shown that the casino's employees had knowledge of any potential reporting or recordkeeping violations, the potential violations should be documented to support identified deficiencies in the casino’s compliance program.

(8) In the case of failures to file required SARs, the supporting documentation may consist of copies of casino documents, prepared at the time of the transaction, that identify the type and amount of the transaction, the character of the transaction and the identity of the person(s) conducting the transaction. Such documents may include, but are not limited to, credit slips/redemption vouchers, deposit/withdrawal slips, player rating records, computer-generated reports and printouts of the preceding documents, canceled checks, credit bureau reports, identification credentials, multiple transaction logs, $3,000 monetary instrument list, money transfer records, slot club records, spreadsheets, photographs, surveillance audio and/or video recording media, surveillance logs, Forms W-2G, and computerized Form W-2Gs. The documentation must support each finding that a reportable suspicious transaction has occurred but was not filed with the SAR.

(9) In addition, for failures to file SARs, examiners should obtain supporting documentation establishing that the casino knew, suspected, or had reason to suspect that the transaction:

1. Involved funds derived from illegal activity, or was intended or conducted to hide or disguise funds or assets derived from illegal activity,

2. Designed to evade BSA requirements, whether through structuring or other means,

3. Appeared to serve no business or apparent lawful purpose, and the reporting business knew of no reasonable explanation for the transaction after examining all available facts, or

4. Involved use of the reporting business to facilitate criminal activity and met reporting threshold of $5,000 or more (in the single event or when aggregated).

(10) In the case of incomplete SARs, supporting documentation should consist of a duplicate of the casino’s retained copy of the SAR showing the failure to include all available and relevant information about the transaction found in the casino's records described in subparagraph (8) above.

(11) In the case of incomplete records, supporting documentation should consist of a duplicate of the casino’s retained copy of the records (such as credit slips/redemption vouchers, deposit/withdrawal slips, and $3,000 monetary instrument list).

(12) In the case of the failure to establish or implement a compliance program, the examination workpapers should contain the examiner's findings with respect to whether the casino failed to develop and/or maintain programs to detect and report large currency transactions or suspicious activities or keep required records. Also, the workpapers should contain the examiner's findings with respect to any systemic breakdown of internal controls to assure compliance that was observed. In addition, the workpapers should contain the examiner's findings with respect to whether the appropriate casino officials were aware of compliance problems or deficiencies but did not take corrective action.

(13) Examiners should also obtain supporting documentation that may show the casino employee’s knowledge of the BSA reporting and recordkeeping requirements and the duty to file. Such documentation may include, but is not limited to, internal memoranda, minutes of meetings, training materials, notification letter from the IRS, prior examinations, and other similar things.

(14) Since BSA penalties are assessed by FinCEN, which does not have any field examiners, the examiner must thoroughly document all facts on the issue of intent. After the examiner secures the necessary information and documents the apparent violations, the examiner should follow the procedures detailed in IRM 4.26.8, Special Procedures.

(1) After documenting the potential violations, the examiner should provide a list of the violations to the casino and solicit a written explanation for each of the violations identified. The list should include:

1. Gaming date of the transaction(s),

2. Customer name,

3. Account number (if any),

4. Amount of the currency transaction(s), and

5. Description of the transaction(s).

(2) The examiner should advise the casino of any recordkeeping deficiencies as well as any deficiencies in their policies, procedures, internal controls, and compliance programs that might result in noncompliance with the BSA.

(3) Any additional documents or information, provided by the casino in response, should be reviewed and a determination made as to whether any items should be removed from the list of violations.

(4) When the casino contends that a CTR was filed and provides its retained copy as evidence, the examiner should query the FCQ system and conduct an exhaustive search before concluding that a CTR was not received. In conducting the search, the examiner should query all customer numerical identification on the CTR such as account number (if available), SSN, and identification credential number.

(1) Examiners should be alert to situations where casinos or their customers may structure transactions in amounts of $10,000 or less to circumvent the reporting requirements of the BSA, particularly if the casino does not have a system of aggregation in place.

(2) Examples of how casino employees may structure transactions or advise customers how to avoid a CTR filing include the following:

1. Employees may fragment larger currency transactions into amounts of $10,000 or less, when preparing source documentation.

2. Employees may advise customers to limit their cash activity to amounts of $10,000 or less per transaction.

3. Employees at the gaming tables may advise customers, who are buying chips with cash, that they are approaching the reporting threshold thereby suggesting or implying that they should move to another table. This action could be viewed as potentially assisting in structuring transactions.

(3) Examples of how customers may structure transactions, with or without the knowledge of the casino, to avoid a CTR filing include the following:

1. A customer may move from table to table limiting their cash buy-ins to amounts of less than $10,000 per table.

2. A customer may conduct currency transactions at the casino cage in increments of $10,000 or less. They may conduct the transactions at different windows or at different times of the day using different cashiers.

3. A customer may maintain more than one account with the casino, sometimes using an alias, and limit their currency transactions to $10,000 or less per account.

4. A customer may fragment his or her transactions into amounts of $10,000 or less when redeeming or exchanging chips for cash at the casino cage and may use others as agents to conduct the transactions.

5. A customer may find out what time of day the casino’s business or gaming day is concluded and structure currency transactions around the cut-off time to avoid the filing of a CTR.

6. A customer could purchase a large amount of chips with currency (in amounts just below the reporting threshold) at a table, engage in minimal gaming and then go to the cage and redeem the chips for a casino check.

7. A customer could make a large deposit using numerous small denomination bills, engage in minimal gaming and then withdraw the funds in large denomination bills, a casino check or a wire transfer.

8. A customer could insert currency into a slot machine bill validator, accumulate credits with minimal or no gaming activity and then cash out the credits for large denomination bills or a casino check.

9. A customer may furnish an identification document that is false or altered (such as address changed, photograph substituted) in connection with the completion of a CTR, or the opening of a deposit, credit or check cashing account.

10. A customer may draw large casino markers to purchase chips, engage in minimal or no gaming activity, and then pay off the markers in currency and subsequently redeem the chips for a casino check.

(4) When evidence of a money laundering scheme is uncovered, a referral should be made on Form 5104, Report of Apparent Violation of Financial Recordkeeping and Reporting Regulations. (Refer to IRM 4.26.8, Special Procedures)

(1) Check cashing businesses can range from large sophisticated chains with interstate franchised facilities to small one owner store front operations.

(2) The organization of a check casher can vary. There is no uniform management structure. However, check cashing chains and franchises are usually structured into several organizational levels to minimize the risks. Each level is authorized to approve certain size transactions. The number of levels may vary depending on the size of the check cashed and the number of branches. A typical structure has a minimum of three levels for approving large currency transactions.

1. Director/Manager — Oversees the daily operation of the check casher. Normally the manager approves the largest currency transactions and is responsible for maintaining the internal control and records of the operations.

2. Head Cashier/Teller Supervisor — Reviews all teller reconciliations. Usually the supervisor will approve medium size transactions (between $3,000 and $5,000) and often receives shipments of currency to and from the correspondent bank.

3. Teller — Responsible for conducting all transactions including reconciling the total currency transactions to the teller’s beginning and ending cash balances. The teller usually will have the lowest authorization for conducting currency transactions. The teller is the front-line employee of the check cashing institution who must secure identification from individuals conducting currency transactions.

4. BSA Compliance Officer — Responsible for implementing and monitoring the operation and internal controls of the program. In a small business with only a few employees, this person may execute all the tasks himself. In a large, multi-state business, this person may have responsibility for overseeing the system and program.

(3) Many check cashers belong to the Financial Service Centers of America (FiSCA - web site address: www.fisca.org), and/or to state or local associations. FiSCA members receive a BSA compliance manual as part of their membership.

(1) 31 CFR 1010.100(ff)(2), Check casher, A person that accepts checks (as defined in the Uniformed Commercial Code(UCC)), or monetary instruments (as defined at 31 CFR 1010.100(dd) , 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. Whether a person is a "check casher" as described in this section is a matter of facts and circumstances. The term "check casher" shall not include:

1. A person that sells prepaid access in exchange for a check (as defined in the UCC), 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.

(1) Since there are no required records for check cashers under the BSA you may find that there are few records available to examine.

(2) A check casher’s records, when the check casher is a chain or franchise include:

1. Daily Cash Reconciliation: a record summarizing the total currency transactions during the day which reconciles to the beginning and ending cash on hand,

2. Teller Reconciliation: a record detailing teller transactions, for both currency and monetary transactions. It reconciles beginning and ending cash on hand and is used to prepare the daily cash reconciliation,

3. Daily Bank Reconciliation: reconciles the daily cash transactions to various bank account balances,

4. Income Statement: a record of fees received from money order sales, wire transfers, and checks cashed,

5. Canceled money orders or cashier’s check,

6. Bank Statements,

7. Signature Cards,

8. Transaction Account detailing an individual’s record of checks cashed, and

9. Copies of checks cashed.

(3) Records may be stored electronically.

(4) If the records are maintained off site, the check casher must make the records accessible within a reasonable period, taking into consideration the nature of the records, and the amount of time expired since each record was made.

(5) Use of a CAS should be considered if records are voluminous.

(1) IRM 4.26.6.5.3.3, Interview, contains additional information on interviews.

(2) The BSA examination should include several interviews. Each interview should be documented in the case file. Owners/operators, shareholders, directors, managers, tellers, and employees responsible for preparing currency reports, and securing and maintaining records pertaining to the reporting requirements under the BSA should be questioned as to their knowledge and training of the BSA recordkeeping and reporting requirements. Knowledge is one of the elements needed to prove intent for any apparent violation of the regulations.

(3) Tellers handling currency transactions should be interviewed. The examiner should ascertain:

1. The types of records maintained by the tellers,

2. The tellers' knowledge of currency transaction reporting requirements,

3. Their limit for cashing checks without approval and the procedures for cashing large checks,

4. The procedures and records maintained for large money orders or cashier’s checks sold, and

5. Their procedures for preparing CTRs.

(4) Responsible officers and supervisory personnel who approve large currency transactions and/or are responsible for filing CTRs should be interviewed. Examples may include the head cashier, the manager, the compliance officer, or the owner/operator.

(5) The examiner should document the responsibilities and duties of the officers and secure the officers’ identifying information.

(6) During the interview of selected employees, the examiner should determine if the check casher maintains an internal compliance program and whether the program is written. If it is written, a copy of the procedures should be secured. The individual responsible for the internal compliance program must be interviewed.

(7) The interview should document enough information to describe the operations of the check casher including:

1. Internal Control

2. Internal Audits

3. Chart of Accounts

4. Currency Controls

5. On-Site Records

6. Offsite Records on medium other than hard copy

7. Training

(8) The interview should identify any related institutions, branches, entities, or lists of other related check cashing facilities. The BSA examiner should follow the new entity procedures found in IRM 4.26.6.3, Identification.

(9) Ask specific questions relating to the business, area and services offered. The examiner must consider all financial services or products offered by the business, such as money remittance, check cashing and sales of money orders.

(10) Ask the owners or management of the financial institution if they have knowledge of structuring, or if any suspicious transactions have occurred. This question must also be asked while interviewing employees who have customer contact.

(11) Ask open-ended questions throughout the interview. Do not ask questions that require only a "yes" or "no" answer.

(12) Additional information may be found on the BSA Policy SharePoint.

(1) Any records the check casher maintains for his own business that are relevant to the BSA examination can be requested and reviewed. The BSA examiner will determine whether the check casher maintains adequate records to ascertain if multiple transactions or structuring are taking place. Major recordkeeping inadequacies must be documented in a Letter 1112, Title 31 Violation Notification Letter, or Form 5104, Report of Apparent Violation of Financial Recordkeeping and Reporting Regulations.

(2) BSA examiners should review the records to familiarize themselves with the check casher’s business transactions. The examiner will determine the scope of the records review based on the initial interview. When determining the scope of the examination, the examiner should consider that check cashers who are part of a chain or franchise have internal controls for the handling, recording, and summarizing of cash transactions.

(3) The examiner should consider the following steps when reviewing the check casher’s records:

1. Become familiar with the components of the summary records including both the daily cash reconciliation and teller reconciliations.

2. Trace the teller reconciliation totals to the teller summary.

3. Trace the teller summary totals to the daily cash reconciliation.

4. Trace the daily cash reconciliation totals to the vault reconciliation, bank reconciliation, and bank statements.

5. Trace deposit slips to the teller summary totals and the correspondent bank records. Determine if the total amount of checks deposited agree with amount of checks cashed. The check casher’s transactions for "cash in" and "cash out" are frequently netted against each other before being deposited into the correspondent bank. Therefore, the items of deposit often reflect the netted transactions for the day. Monetary instruments are deposited, and currency is returned to the check casher’s vault.

6. The above records should allow the examiner to determine specific dates when money orders were sold (if applicable) or checks were cashed that require a CTR.

7. Verify that summary documents accurately record information from source documents for the selected period.

8. Inspect filed copies of CTRs for accuracy and completeness of information and verify they were timely filed. A copy of each CTR filed must be retained by the financial institution for a period of five years from the date of the report.

9. Determine if all the required information for purchases of money orders involving currency in amounts of $3,000 to $10,000, inclusive, is maintained, if applicable.

10. Test check signature cards.

(4) Analyze the bank reconciliations, the cash on hand records, and the teller reconciliations to identify large transactions. The examiner should look for decreases in the amount of ending cash on hand or amounts withdrawn from the correspondent bank. Large decreases or withdrawals of cash could indicate large checks were cashed. The examiner should note the dates when amounts could exceed $10,000 or transactions appear to be structured to avoid the $10,000 threshold.

(5) Review the check register or the copies of cashed checks for transactions over $10,000 that may indicate money laundering and/or structuring. The examiner may elect to select a dollar cutoff for inspecting cashed checks. Because of the dollar amounts involved, most of the checks cashed by a typical check casher may not be relevant to the BSA examination. These generally include social security checks, welfare checks, payroll checks, and other similar financial instruments.

(6) If a determination is made that records are inadequate, destroyed, or not maintained, the examiner should:

1. Expand the scope of the BSA examination,

2. Document all problem areas and findings in the workpapers, and

3. Consider issuing a summons to a third-party recordkeeper for missing or incomplete information. If the third-party recordkeeper is a bank, sample periods should be selected carefully based on existing records. Refer to IRM 4.26.8, Special Procedures, for summons procedures.

(7) If the examiner determines a CTR should have been filed or the required recordkeeping or reporting requirements are not met, the transaction should be traced to the internal compliance program. The examiner should:

1. Determine the reason the internal procedures failed, and

2. Verify that adequate identification was required by the check casher by inspecting the appropriate signature card or similar record.

(8) Review any SARs filed by the NBFI.

(9) Review relevant audit reports or reviews that address BSA policies, procedures, or operations for BSA relevant issues.

(10) Review filed registrations (if applicable) for accuracy and completeness.

(11) Determine whether the check casher is required to register.

(1) The examiner must obtain supporting documentation for each type of violation:

1. Reporting – The date of the transaction, the amount, the individuals involved and a detailed statement regarding the violation, including copies of source documents such as cash in/out slips, control registers, and teller cash proofs which support the violation.

2. Recordkeeping – The details of the specific records which were not maintained or were inadequate, including management’s response to the violations.

(2) The financial institution's knowledge of the BSA requirements must be determined during the examination.

1. The key officers and employees should be interviewed to document the check casher’s response to any apparent violations.

2. The existence of an internal compliance program may indicate knowledge. For example, if knowledge of the reporting and recordkeeping requirements is limited to upper management and the tellers are not similarly educated, the check casher may be at least negligent (for not properly instructing the tellers). The tellers need to know what their BSA obligations are. The tellers are the initial contact point where the information is obtained.

(3) Other factors indicating the money services business’ knowledge of the BSA registration, reporting, recordkeeping, and compliance program requirements are:

1. Prior BSA violations and BSA compliance related contacts with the IRS.

2. Training programs offered by the money services business.

3. The MSBs formal BSA compliance procedures.

4. Active involvement of management in oversight and internal control activities.

(4) In situations where knowledge cannot be established within the scope of selected records, the examiner should expand the period to include recent transactions that occurred after knowledge can be clearly documented. For example, the examiner selected records for January, February, and March. The inspection of these records disclosed currency transactions that appear to be structured and which should have been reported. The check casher denied knowledge of the structuring regulations during the initial interview. In April, the examiner informed the check casher about the suspicious transactions and of the structuring regulations. The examiner later expanded the examination period to include May and June transactions. The examiner found violations in May and June. The check casher’s knowledge was documented during the notification of the structuring violations and took no action to prevent the recurrence of violations. The check casher’s intent not to comply should be documented.

(5) Because willfulness is a state of mind, generally only circumstantial evidence of willfulness will be available. A willful violation is the intentional violation of a known legal duty.

(6) IRS does not have the authority to assess penalties under the BSA except for FBAR violations. Significant BSA violations or deficiencies are therefore referred to FinCEN unless a fraud referral is appropriate. The examiner and manager will decide whether to refer the case to FinCEN for consideration of civil money penalties. The examiner must thoroughly document all facts on the issue of intent. See IRM 4.26.8 if the case is to be referred to FinCEN.

(1) Refer to IRM 4.26.6.5.3.10, Notification of Findings, for information on notifying the business of examination results.

1. If no BSA violations or significant AML program issues have been found, prepare Letter 4029, Bank Secrecy Act No Change Letter.

2. If BSA violations are found which are technical, minor, infrequent, isolated, or not substantive, a Letter 1112, Title 31 Violation Notification Letter, should be issued. (IRM 4.26.8 )

3. If apparent BSA violations are found which appear to meet the referral criteria, prepare a referral on Form 5104, Report of Apparent Violation of Financial Recordkeeping and Reporting Regulations. (IRM 4.26.8.6, Form 5104, Report of Apparent Violation of Financial Recordkeeping and Reporting Regulations)

4. If the apparent BSA violations appear to meet criminal referral guidelines, the BSA manager will contact the Fraud Technical Advisor to determine if a Form 2797, Referral Report of Potential Criminal Fraud Cases, is warranted. (IRM 4.26.8.6, Coordination with a Fraud Technical Advisor)

(2) A closing conference must be held at the close of the examination. See IRM 4.26.6.5.3.11, Holding the Closing Conference, for additional information.

(3) When a Letter 1112 is issued, the financial institution is asked to provide a response, amend the AML program, and implement recommendations. Refer to IRM 4.26.6.5.3.12, Letter 1112 Response, for additional guidance.

1. See IRM 4.26.6.5.3.13, Delinquent BSA Forms Procedures, for the process to secure delinquent returns discovered during the examination.

2. See IRM 4.26.6.5.3.14, Case File Closing Procedures, for procedures when closing the case file.

3. See IRM 4.26.6.5.3.16, Examination Information Report, Form 5346, for information on preparing and submitting Form 5346, Examination Information Report.

4. IRM 4.26.6.5.3.17, Information Items, provides information on submitting other information items.

5. IRM 4.26.6.5.3.18, Examiner-Filed SARs, provides procedures for submitting examiner filed SARs.

(1) The financial institution and/or the customer can be involved in potential money laundering schemes. The examiner must focus on both the financial institution and the transactor(s) during the BSA compliance examination.

(2) Money laundering techniques which could be used by the financial institution include:

1. Failing to maintain complete records,

2. Failing to record specific transactions,

3. Failing to obtain the required information to comply with the recordkeeping requirements,

4. Failing to file CTRs on reportable transactions,

5. Filing incomplete CTRs or SARs,

6. Structuring a transaction by breaking one transaction into several to circumvent the reporting requirements,

7. Issuing money orders, drafts or IOU’s to keep transactions under the $10,000 reporting requirement, or

8. Receiving currency from an outside source in exchange for checks received from the check casher’s customers.

(3) Money laundering techniques which could be used by the customer/transactor include:

1. Using multiple locations to conduct transactions,

2. Using several individuals at one or more locations to conduct a transaction,

3. Using aliases when conducting transactions,

4. Conducting numerous transactions at the same location at different times for one day,

5. Requesting money orders, drafts or IOU’s when cashing checks to circumvent a reporting requirement, or

6. Check cashing conducted by the same customer in which the payee name varies.

(4) When evidence of a money laundering scheme is uncovered, a referral should be made on Form 5104, Report of Apparent Violation of Financial Recordkeeping and Reporting Regulations. Refer to IRM 4.26.8 for referral procedures.

(1) Cash Control System - A centralized recordkeeping and control system to monitor cash transfers within the credit union and cash sent to and received from correspondent banks.

(2) Cash Received Voucher/Cash Payment Voucher - Individual receipts for transactions conducted with members that reflect activities conducted with both currency and negotiable instruments, such as checks.

(3) Cash In/Out Slips - Individual documents prepared by the teller to reflect currency taken in and paid out.

(4) Exempt Customer - A credit union member who meets the requirements of 31 CFR 1010.315, Exemptions for non-bank financial institutions, to be excluded from the Currency Transaction Report reporting requirement.

(5) Share - Ownership interest in a credit union. A typical par value is $5.

(6) Share Draft Account - This is like a checking account with a bank. The member may write drafts (checks) to 3rd parties.

(7) Share Savings Account - The member’s savings account with the credit union. The interest earned on the savings account is called a dividend.

(1) The operating parameters and limitations of a credit union are defined by its charter and bylaws. Strategic planning and direction of operations is performed by a Board of Directors and various committees. The Board and committee members are directly elected by the shareholders/members of the credit union.

(2) A supervisory committee oversees operations. The committee usually reviews books and records at least every six months and makes a complete verification of records at least every two years. The committee’s task may include testing of internal control procedures for BSA compliance.

(3) Since the members directly elect the Board and oversight committees, failures associated with privately owned institutions may not occur. However, the examiner should be alert to failures on the part of the officers and employees.

(4) Operations Personnel:

1. BSA Compliance Officer - Is designated by the Board to implement BSA control procedures. The compliance officer performs oversight review of the books and records to ensure compliance with the BSA. BSA training for personnel, if any, is normally conducted by this function.

2. Manager/Branch Manager - Oversees the day to day operations of the credit union and is responsible for BSA compliance.

3. Cash Control/Head Teller - Monitors currency in and out of the cash control system and currency transfers between tellers. This individual monitors all currency received and shipped by the credit union. This teller’s approval is usually required on all large dollar transactions conducted with members. Credit unions may require that all large dollar transactions be conducted by this teller.

4. Teller - Conducts transactions with and provides services to members. Tellers are usually responsible for initiating the BSA reporting and recordkeeping requirements such as verifying the customer’s identification and soliciting required information.

(1) Credit unions are defined as banks or depository institutions per 31 CFR 1010.100(d)(6), A credit union.

(2) Credit unions may exempt, from the CTR reporting requirements, certain transactions between themselves and customers which meet the qualifications of an exempt person as defined in 31 CFR 1020.315(b), Exempt person.

(3) Federally insured credit unions (federally chartered and state chartered) are required to implement and maintain an anti-money laundering program. (31 CFR 31 CFR 1020.210, Anti-money laundering program requirements for financial institutions regulated only by a Federal functional regulator, including banks, savings associations, and credit unions, and 12 CFR 748.2, Procedures for monitoring Bank Secrecy Act (BSA) compliance)

(4) Although 31 CFR 1020.220(a)(1) requires credit unions, including non-federally insured credit unions, to implement written Customer Identification Programs, non-federally insured credit unions have been temporarily exempted from the requirement to establish anti-money laundering programs. (31 CFR 1010.205(b)(2), Temporary exemption for certain financial institutions)

(5) All credit unions (federally chartered or state charted and federally insured or privately insured) are required to implement a written Customer Identification Program. (31 CFR 1020.220, Customer identification programs for banks, savings associations, credit unions, and certain non-Federally regulated banks)

(1) Credit unions vary significantly in size and the types of services offered. Therefore, the nature of the credit union’s books and records vary.

(2) Smaller institutions, whose services are limited to share deposit and share loan accounts may not conduct any currency transactions. These institutions often have very simple handwritten transaction records and manual bookkeeping systems.

(3) Larger institutions may have several branches and offer extensive financial services. These institutions usually have on line data processing systems, detailed currency control policies, and sophisticated internal control procedures.

(4) In addition to the required records listed in IRM 4.26.9.5.3.2, records commonly found at credit unions include:

1. Daily teller drawer and vault reconciliations,

2. Customer deposit, withdrawal and payment vouchers,

3. Summary reports of outstanding loans, certificates of deposit,

4. Cashier’s check, money order, traveler’s check and other negotiable instrument logs, and

5. Credit union bank statements, deposit slips and canceled checks.

(5) Additional records may include:

1. A journal and cash record/daily transactions report which is a permanent record of daily transactions. All member transactions conducted during the day are individually posted to this journal. It may be summarized daily, depending on the accounting system.

2. A large currency transaction report or suspicious transaction report which lists all cash transactions over a management defined dollar limit. Supervisory personnel review this report to ensure all required Currency Transaction Reports are prepared each day.

(1) An interview should be conducted at the credit union’s main location, with a credit union officer, Bank Secrecy Act (BSA) compliance officer and/or other key personnel who have knowledge of the credit union’s operations, policies and internal control procedures. Determine who is responsible for compliance with the BSA recordkeeping and reporting requirements.

(2) Document the credit union’s background history, the number of branches operated and affiliated organizations.

(3) Identify the BSA compliance officer and all other personnel who are responsible for conducting, recording and reporting of BSA transactions and evaluate their understanding of the BSA recordkeeping and reporting requirements. It is important to determine the extent of the interviewee's knowledge of the BSA requirements should any violations be noted during the examination. These individuals should be identified by name, title and specific responsibilities.

(4) Tellers handling currency transactions should be interviewed. The examiner should ascertain:

1. The types of records maintained by the tellers,

2. Their knowledge of currency transaction reporting requirements,

3. Their dollar limit for cashing checks without approval and the procedures for cashing large checks, and

4. Their procedures for preparing Currency Transaction Reports (CTRs).

(5) Responsible officers and supervisory personnel, who approve large currency transactions and/or are responsible for filing CTRs, should be interviewed. These individuals may include the BSA compliance officer, manager and/or head teller. The examiner should ascertain:

1. The procedures for recording currency transactions and the filing of CTRs, CMIRs, FBARs and SARs, and

2. Their knowledge of structuring or if any suspicious transactions have occurred.

   Note: This question also must be asked while interviewing employees who have customer contact.

(6) Each interview should be documented in the case file.

(7) Ask specific questions to determine the financial services offered by the credit union. The examiner must consider all financial services or products offered by the credit union such as money remittance, check cashing, and sales of money orders and/or traveler’s checks.

(8) Ask open-ended questions throughout the interview. Do not ask questions that require only a yes or no answer.

(1) Any records the credit union maintains that are relevant to the BSA examination can be requested and reviewed. The examiner will determine if the credit union is maintaining adequate records and must document any recordkeeping violations.

(2) Ask to see the credit union’s policy and procedures manual regarding the BSA identification, recordkeeping, reporting and exemption requirements. The examiner should determine if the institution’s BSA information is correct and its procedures are adequate.

(3) Review in house training programs and inspect retained training records. The examiner should inspect records of external training such as certificates of course completion. Most individual state credit union leagues and trade associations offer BSA training courses for all levels of personnel and provide documentation of attendance.

(4) Identify dates during which large currency transactions occurred. The examiner should review currency received from or shipped to the correspondent bank using:

1. Bank statements and reconciliations, deposit tickets and source documents for currency withdrawals such as debit memoranda,

2. Cash on hand ledger account or other summary currency reports, and

3. Cash control system records which reflect daily cash reconciliations, change fund ledger account, bank statements or other activity summary records to determine dates during which large transactions may have occurred.

(5) Review relevant audit reports or reviews that address BSA policies, procedures or operations for BSA-relevant issues.

(6) Inspect the tellers’ cash control proofs and supporting cash in/out documents to identify specific large currency transactions. Based on the information obtained from the preplan, interviews, and review of written records, select a sample of transactions consisting of amounts ranging from a minimum of $3,000 to greater than $10,000.

(7) Trace the sampled transactions through the internal control system to CTR filings for amounts greater than $10,000. If there is a transaction over $10,000 and no CTR was filed, check to see if the customer has been designated as an exempt person before determining if an apparent reporting violation has occurred.

(8) Review the credit union’s retained copies of CTRs for accuracy and completeness.

(9) Compare the credit union’s retained copies of CTRs to the FinCEN Query (FCQ) record to insure they have been filed.

(10) Review FinCEN Form 114, Report of Foreign Bank and Financial Accounts, if the credit union maintains foreign bank accounts or has signature authority or financial interests in foreign countries.

(11) Review FinCEN Form 105 (CMIR) if the credit union is involved with the transportation of currency into or out of the U.S.

(12) Review the credit union’s records maintained for the sale of bank checks or drafts, cashier’s checks, money orders, and/or traveler’s checks for amounts involving currency in amounts of $3,000 to $10,000, inclusive. Ensure all required information has been obtained pursuant to the recordkeeping requirements of 31 CFR 1010.415(a), Purchases of bank checks and drafts, cashier’s checks, money orders and traveler’s checks.

(13) Review the credit union’s records to determine if all the required information on money transmittals (such as wire transfers) of $3,000 or more has been obtained and retained pursuant to the recordkeeping requirements of 31 CFR 1010.410(a), Records to be made and retained by financial institutions.

(14) Evaluate the credit union’s recordkeeping procedures relating to customer account activities and certificates of deposits pursuant to the recordkeeping requirements of 31 CFR 1020.410.

(15) Review the SAR filings to determine if there are recurring patterns of activity by the same or related members of the credit union. If patterns are noted, question the appropriate personnel as to the actions taken regarding the transactions. A detailed analysis of suspicious transactions may be warranted to determine if the individuals are utilizing the credit union for structuring activities.

(16) If weak internal controls were noted or lack of management oversight was determined, the examiner should consider expanding the scope of the BSA examination. The examiner should also consider expanding the scope to other branches/offices, if applicable.

(17) If potential reporting and recordkeeping violations are noted, the examiner should discuss the violations with the BSA group manager prior to expanding the scope. Depending on the frequency and nature of the violations, the examiner may not need to expand the scope, for example. minor recordkeeping violations. The manager will decide if a FinCEN referral is warranted.

(18) Other considerations for expanding a BSA examination include prior violations, management cooperation and the filing history recorded on FCQ.

(19) When expanding the BSA examination, the examiner should consider performing the following:

1. Review the credit union’s bank statements for activities conducted on the dates selected. Inspect deposit tickets for currency and currency withdrawal source documents such as debit memos and checks.

2. Trace currency withdrawals and deposits from the bank deposit slips and currency withdrawal source documents to the cash control system reconciliation reports.

3. Reconcile the individual teller cash control sheets to the cash control system reconciliation report totals. Reconcile the cash control system reconciliation beginning/ending cash on hand balances to prior and subsequent cash on hand balances.

4. Review individual teller daily cash control sheets and supporting cash in/cash out slips for currency transactions in excess of $3,000.

(20) If the credit union has one teller who conducts all large currency transactions, the examiner should focus on the transactions conducted by that teller.

(21) Trace transactions for the purchase of money orders, traveler’s checks, bank drafts, and cashier’s checks involving currency in amounts of $3,000 to $10,000, inclusive, to the records required by 31 CFR 1010.415(a).

(22) Trace all transactions for currency deposited or withdrawn in excess of $10,000 to the retained copies of CTRs or to the exempt customer list.

(23) If questionable transactions are identified as being conducted by a customer designated as an exempt person, the examiner may want to review the suitability of the exemption.

(24) The examiner should be alert to transactions or patterns that may indicate potential structuring activities. If structuring is suspected, the examiner should:

1. Review the specific member accounts where unusual patterns of activity have occurred. Statements of account transactions for all accounts held by the member should be inspected.

2. Related members accounts should be reviewed for transactions occurring in the same general period.

(25) If potential violations are being conducted through the purchase of traveler’s checks, money orders, bank drafts, and cashier’s checks, the examiner should review the specific control register used for the negotiable instrument sales to determine the extent of the potential violations.

(26) When apparent violations have been detected, the examiner should interview management and any other personnel involved. All discussions should be documented in the case file.

(27) Follow procedures in IRM 4.26.6, Bank Secrecy Act, Bank Secrecy Act Examiner Responsibilities for BSA Examinations, to timely conclude the BSA examination.

(28) Consider preparing Form 5346, Examination Information Report, when information is obtained during the BSA examination that indicates a possible income tax violation warranting referral. (IRM 4.26.6)

(1) The examiner must obtain adequate supporting documentation for each type of the following violations:

1. Reporting - The date of the transaction, the amount, the individuals involved and a detailed statement regarding the violation, including copies of source documents such as cash in/out slips, control registers and teller cash proofs which support the violation.

2. Recordkeeping - The details of the specific records which were not maintained or were determined to be inadequate, including management’s response to the violations.

3. Exempt Customers - The nature of the violation, the account history, type of business and the frequency of exempt transactions.

(2) The credit union's knowledge of BSA requirements must be determined before determining whether violations should be formally referred to FinCEN.

1. The key officers and employees should be interviewed again to document the credit unions response to any apparent violations.

2. The existence of an internal compliance program may indicate knowledge. For example, if knowledge of the reporting and recordkeeping requirements is limited to upper management and the tellers are not similarly educated, the credit union may be at least negligent (for not properly instructing the tellers). The tellers need to know what their BSA obligations are. The tellers are the initial contact point where the information is obtained. Failure by upper management to ensure that factual information is correctly gathered may indicate the credit union’s intent not to comply.

(3) Some factors indicating the financial institution’s knowledge of the BSA reporting and recordkeeping requirements and its compliance intentions are:

1. Prior BSA violations and BSA related contact with the IRS,

2. Training programs operated by the credit union,

3. The MSBs formal BSA compliance procedures, and

4. Active involvement of management in oversight and internal control activities.

(4) In situations where knowledge or intent cannot be established within the scope of selected records, the examiner should expand the period to include recent transactions that occurred after knowledge can be clearly documented. For example, the examiner selected records from January, February, and March. The inspection of these records discloses currency transactions that appear to be structured and which should have been reported. The credit union denied knowledge of the structuring regulations during the initial interview. In April, the examiner informed the credit union about the suspicious transactions and of the structuring regulations. The examiner later expanded the examination period to include May and June transactions. The examiner found violations in May and June. The credit union’s knowledge was documented during the notification of the structuring violations and took no action to prevent the recurrence of violations. The credit union’s intent to not comply should be documented.

(5) Because willfulness is a state of mind, generally only circumstantial evidence of willfulness will be available. A willful violation is the intentional violation of a known legal duty.

(6) Since BSA penalties are assessed by the FinCEN, which does not have any field examiners, the examiner must thoroughly document all facts on the issue of the intent. After the examiner secures the necessary information and documents the apparent violations, the examiner should follow the procedures as detailed in IRM 4.26.8, Special Procedures.

(1) After documenting the potential violations, the examiner should provide a list of the violations to the credit union and solicit a written explanation for each of the violations identified. The list should include:

1. Date of the transaction,

2. Customer name,

3. Account number (if any),

4. Amount of the currency transaction(s), and

5. Description of the transaction(s).

(2) The examiner should advise the credit union of any recordkeeping deficiencies as well as any deficiencies in their policies, procedures, internal controls, and compliance programs that might result in noncompliance with the BSA.

(3) Any additional documents or information, provided by the credit union in response, should be reviewed and a determination should be made as to whether any items should be removed from the list of violations.

(4) When the credit union contends that a CTR was filed, and provides its retained copy as evidence, the examiner should query the FCQ database and conduct an exhaustive search before concluding that a CTR was not received. In conducting the search, the examiner should query all customer numerical identification on the CTR such as account number (if applicable), SSN, and identification credential number.

(1) The financial institution and/or the customer can be involved in potential money laundering schemes. The examiner must focus on both the financial institution and the transactor(s) during the BSA examination.

(2) Money laundering techniques which could be used by the financial institution include:

1. Failing to maintain complete records.

2. Failing to maintain copies of FinCEN Form 110 and related records.

3. Failing to record specific transactions.

4. Failing to obtain the required information to comply with the recordkeeping requirements.

5. Failing to file CTRs and SARs on reportable transactions.

6. Filing incomplete CTRs or SARs.

7. Structuring a transaction by breaking one transaction into several to circumvent the reporting requirements.

8. Designating an ineligible business as an exempt person.

9. Failing to maintain a monitoring system to detect suspicious transactions of exempt persons.

10. Failing to conduct annual reviews of information supporting each designation of exempt persons.

(3) Money laundering trends which could be used by the customer or transactor include:

1. Using several individuals at one or more locations to conduct a transaction.

2. Making currency deposits into their member’s account(s) on consecutive days which are below the reporting threshold.

3. Splitting currency deposits between one or more members’ accounts in which each are below the reporting threshold but when combined would require a CTR.

4. Check cashing by the same individual or business on a frequent or continuous basis in amounts below the reporting threshold.

5. Obtaining designation as an exempt person for which they do not qualify.

6. Using aliases when conducting transactions.

7. Conducting numerous transactions at the same location at different times of one day.

8. Splitting currency transactions by purchasing a variety of financial services (for example money orders, traveler’s checks and/or funds transmittals).

(4) For money laundering trends pertaining to check cashing refer to IRM 4.26.9.4.

(5) For money laundering trends pertaining to money orders refer to IRM 4.26.9.7.

(6) For money laundering trends pertaining to traveler’s checks refer to IRM 4.26.9.9.

(7) For money laundering trends pertaining to fund transmittals refer to IRM 4.26.9.8.

(8) When evidence of a money laundering scheme is uncovered, a referral should be made on Form 5104, Report of Apparent Violation of Financial Recordkeeping and Reporting Regulations. (IRM 4.26.8)

(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 countries in exchange for 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. (31 CFR 1010.100(ff)(1), Dealer in foreign exchange)

(1) In addition to the required information listed in IRM 4.26.9.6.1.3 the records for a dealer in foreign exchange usually include:

1. Annual Summary Sheet: a record of monthly transaction totals.

2. Monthly Summary Sheet: a record of daily transaction totals for the month and the source document for preparing the annual summary sheet.

3. Client Ledger Cards: a record of transactions with regular clients (larger businesses may maintain this record).

4. Daily Transactions Log: a record summarizing daily transactions. This is the source document for preparing the monthly summary sheet and includes the beginning and ending cash balances. If cash balances are not maintained on this record, a separate cash (vault) inventory record is usually maintained.

5. Transaction Vouchers: a record of each transaction that shows the date, amount and rate of exchange. This record may, but usually does not, include customer identification for transactions over $1000. This is the source document for preparing the daily transaction log.

6. Domestic Bank Records: these should include all account statements, duplicate deposit tickets, canceled checks, wire transfer confirmation statements, and other debit and credit memoranda.

7. Records may also include foreign bank account records and the records of domestic and foreign agents or nominees.

(1) IRM 4.26.6.5.3.3, Interview, contains additional information on interviews. Also, refer to BSA Policy SharePoint.

(2) The initial interview of a dealer in foreign exchange should include questions to ascertain:

1. Historical/background information.

2. Management and employee knowledge of the BSA registration, recordkeeping, reporting, and AML compliance program requirements.

3. Information about related dealers in foreign exchange and domestic and foreign agents or nominees.

4. Information on domestic and foreign books and records including records of agents or nominees, especially any bank account records that are maintained on behalf of the dealer in foreign exchange.

5. The types of transactions conducted, and the records maintained. The examiner may want to prepare a flowchart of the cash in cycle, the cash out cycle, and the records maintained for each type of transaction.

6. Procedures for recording currency transactions over $1,000 and identification of customers.

7. Procedures for recording currency transactions over $10,000 and filing of CTRs. Also, procedures for filing SARs, CMIRs and FBARs (if applicable).

(3) The examiner must consider additional services or products offered by a dealer in foreign exchange such as money transmitting, check cashing, and sales of money orders.

(4) A copy of the written BSA compliance procedures should be requested and included in the case file. An explanation of the BSA training of employees should also be documented.

(5) Interview all individuals conducting currency transactions and those responsible for compliance with the BSA recordkeeping and reporting requirements.

(6) Each interview should be documented in the case file.

(7) Ask the owners or management if they have knowledge of any structuring transactions having occurred or if any suspicious transactions have occurred. These questions must also be asked while interviewing employees who have customer contact.

(8) Interview former employees if appropriate.

(9) The examiner should ask to be shown how all "window" and "back room" transactions are conducted and recorded.

(10) Ask open-ended questions throughout the interview. Do not ask questions that require only a "yes" or "no" answer.

(1) See IRM 4.26.6.5.3.6, Inspection of Books and Records, for general information on review of records.

(2) Conduct the BSA examination at the place of business.

(3) Review the bank account records for all the domestic and foreign bank accounts over which the dealer in foreign exchange has authority. Many dealers or exchangers have foreign bank accounts or use foreign bank accounts held in agent or nominee names to facilitate conducting their financial services. The examiner should probe and ask for foreign bank account records.

(4) Determine if the records include all financial services provided by the business that have been identified during interviews and from visual observation of the business operations. Pursue any records that have not been provided.

(5) Select records from a current period to evaluate. The period with the highest money flow should be considered.

(6) Select dates within the period and reconcile the transaction vouchers, daily transaction log, client ledger, and the monthly and annual summary sheets.

(7) Analyze the summary and transaction records for cash in and cash out for transactions conducted by business. All large or unusual items should be pursued.

(8) Trace daily transactions through the daily transaction log. Reconcile the transaction log’s beginning and ending cash balances to prior and subsequent logs. Also, trace the transaction log cash balances to the cash (vault) inventory balances and then to the balance sheets and books. Any unexplained variations should be investigated. If cash balances are not entered on the transaction log, the examiner should ask how the currency dealer or exchanger reconciles the cash on hand.

(9) Trace transactions to the transaction vouchers, checking for compliance with 31 CFR 1022.410, Additional records to be made and retained by dealers in foreign exchange, requirements and trace all transactions over $10,000 to CTRs.

(10) Review copies of CTRs, SARs, CMIRs (if applicable) and FBARs (if applicable) for accuracy and completeness. FCQ should also be checked to verify that the reports were filed.

(11) Review relevant audit reports or reviews that address BSA policies, procedures, or operations for BSA relevant issues.

(12) Review fund transmittal documents. Records for the transmission of funds abroad should include copies of receipts issued to customers and records evidencing interbank transfers (for example, wire confirmations or drafts).

(13) Review the written BSA AML compliance program and obtain a copy for the case file.

(14) Consider using a spreadsheet or database to input information from the transaction records, for purposes of detecting structuring and other money laundering schemes.

(15) Analyze sorts of the name, address and phone number fields to detect possible structured transactions, unreported transactions, errors and/or deficiencies in the financial institution’s BSA compliance system.

(16) If structured transactions or BSA violations are detected, the examiner should interview the responsible person or employee who conducted the transaction. Based on the responses, the examiner should consider expanding the scope of the examination. (IRM 4.26.6.5.1.1, Scope and Depth) All facts should be discussed with the BSA Group Manager.

(17) Determine if the business is required to register as an MSB and if so, review copies of filed MSB registration and renewal forms (if applicable) for accuracy and completeness.

(18) See IRM 4.26.6, Bank Secrecy Act, Bank Secrecy Act Examiner Responsibilities for BSA Examinations, for information when examining a business headquarters.

(1) The examiner must obtain adequate supporting documentation for each type of violation:

1. Reporting – The date of the transaction, the amount, the individuals involved, and a detailed statement regarding the violation, including copies of source documents such as cash in/out slips, control registers, and teller cash proofs which document the violation.

2. Recordkeeping – The details of the specific records which were not maintained or were inadequate, including management’s response to the violations.

(2) The money services business' knowledge of BSA requirements must be determined before deciding if a Letter 1112, Title 31 Violation Notification Letter, should be issued or if the case should be referred to FinCEN.

1. The key officers and employees should be interviewed again to document the money services business’ response to any apparent violations.

2. The existence of an internal compliance program may indicate knowledge. For example, if knowledge of the reporting and recordkeeping requirements is limited to upper management and the other employees are not similarly educated, the money services business may be at least negligent for not properly instructing the employees. The employees need to know what their BSA obligations are. The employees are the initial contact point where the information is obtained. Failure by upper management to ensure that factual information is correctly gathered may indicate the money services business’ intent not to comply.

(3) Other factors indicating the money services business’ knowledge of the BSA registration, reporting, recordkeeping, and compliance program requirements and its compliance intentions are:

1. Prior BSA violations and BSA-related contacts with the IRS

2. Training programs offered by the money services business

3. The MSB's formal BSA compliance procedures

4. Active involvement of management in oversight and internal control activities

(4) In situations where knowledge or intent cannot be established within the scope of selected records, the examiner should consider expanding the period to include recent transactions that occurred after knowledge can be clearly documented.

(5) Because willfulness is a state of mind, generally only circumstantial evidence of willfulness will be available. A willful violation is the intentional violation of a known legal duty.

(6) IRS does not have the authority to assess penalties under the BSA except for FBAR violations. Significant BSA violations or deficiencies are therefore referred to FinCEN unless a fraud referral is appropriate. The examiner and manager will make a decision regarding whether to refer the case to FinCEN for consideration of civil money penalties. The examiner must thoroughly document all facts on the issue of intent. See IRM 4.26.8, Special Procedures, if the case is to be referred to FinCEN.

(1) Refer to IRM 4.26.6.5.3.10, Notification of Findings, for information on notifying the business of examination results.

1. If no BSA violations or significant AML program issues have been found, prepare Letter 4029, Bank Secrecy Act No Change Letter.

2. If BSA violations are found which are technical, minor, infrequent, isolated, or not substantive, a Letter 1112, Title 31 Violation Notification Letter, should be issued. See IRM 4.26.8.

3. If apparent BSA violations are found which appear to meet the referral criteria, prepare a referral on Form 5104, Report of Apparent Violation of Financial Recordkeeping and Reporting Regulations. (IRM 4.26.8.5, Form 5104, Report of Apparent Violation of Financial Recordkeeping and Reporting Regulations)

4. If the apparent BSA violations appear to meet criminal referral guidelines, the BSA manager will contact the Fraud Technical Advisor to determine if a Form 2797, Referral Report of Potential Criminal Fraud Cases, is warranted. (IRM 4.26.8)

(2) A closing conference must be held at the close of the examination. See IRM 4.26.6.5.3.11, Holding the Closing Conference, for additional information.

(3) When a Letter 1112, Title 31 Violation Notification Letter, is issued, the financial institution is asked to provide a response, amend the AML program, and implement recommendations. Refer to IRM 4.26.6.5.3.12, Letter 1112 Response, for additional guidance.

1. See IRM 4.26.6.5.3.13, Delinquent BSA Forms Procedures, for the process to secure delinquent returns discovered during the examination.

2. See IRM 4.26.6.5.3.14, Case File Closing Procedures, for procedures when closing the case file.

3. See IRM 4.26.6.5.3.16, Examination Information Report, Form 5346, for information on preparing and submitting Form 5346, Examination Information Report.

4. IRM 4.26.6.5.3.17, Information Items, provides information on submitting other information items

5. IRM 4.26.6.5.3.18, Examiner-Filed SARs, provides procedures for submitting examiner filed SARs

(1) Money launderers may use the bank accounts and the investment and financial contacts of a dealer in foreign exchange on both sides of an international border to break the paper trail between their currency and themselves. This permits them to transport, convert or invest currency in the legitimate international financial system. A dealer in foreign exchange involved in money laundering may assist in converting the currency into non-monetary assets, and/or physically transporting currency, and/or making wire transfers, and/or otherwise disguising the ownership of funds.

(2) Common methods used by dealers in foreign exchange involved in laundering money include:

1. Failing to maintain records or record specific transactions.

2. Failing to file reports of currency or foreign transactions.

3. Disguising transactions with false identification or structuring them to avoid the BSA reporting requirements.

4. Commingling transactions of clients with those of other clients or of the dealer in foreign exchange.

5. Commingling transactions with those of other dealers in foreign exchange frequently claiming that transactions with other dealers in foreign exchange are merely "accommodations" or loans and failing to record the details.

6. Using foreign bank accounts, agents, or nominees.

7. Issuing cashier’s checks, money orders, personal checks, or other monetary instruments in exchange for currency.

(3) Some examples of tactics used by dealers in foreign exchange involved in money laundering are:

1. Fictitious names, addresses, and passport numbers are used in the records and on CTRs filed. Foreign governments issue passports, which are usually untraceable.

2. Dollars are physically smuggled out of the U.S. and deposited into a foreign bank account. The money is then wired back to the U.S. or elsewhere with the appearance of a legitimate business transaction. Some dealers in foreign exchange along the Canadian border receive U.S. or foreign currency through U.S. Post Office boxes in border cities. Couriers transport the currency into Canada for exchange or further transmission to anywhere in the world.

3. Currency may be transported into a foreign country and repatriated through a foreign bank. Even though a transaction may appear as foreign currency in the cash flow of the dealer in foreign exchange, it may still be from an illegal source.

(4) The examiner may find instances where international funds transfers occurred without the money crossing the international border. This is accomplished by offsetting different client transactions through book entry systems shared with the dealer in foreign exchange foreign office, or with other dealers, agents, or nominees located on either side of the border. This process is similar to the check clearing operation of the banking industry.

(5) When evidence of a money laundering scheme is uncovered, a referral should be made on Form 5104, Report of Apparent Violation of Financial Recordkeeping and Reporting Regulations. Refer to IRM 4.26.8 for referral procedures.

(1) Financial institutions that sell money orders for national companies are agents. The agent’s relationship to the issuer of the money orders is governed by a trust agreement.

(2) The agent may advertise that it sells the national company’s money orders and is authorized to fill in the dollar amount on behalf of the national companies.

(3) Money orders are drawn on the national company’s bank account and the transaction is not complete until the national company receives the face amount from the agent and the money order clears the bank.

(4) The dollar value of money orders sold by an agent can be limited by the bonding company’s trust agreement or by the agent’s policy, but in theory they can be in any denomination.

(5) The national company issues and the agent maintains sales records, of money orders using a sequential numbering system.

(6) An agent’s summary sales report is sent daily to the national company and the correspondent bank sends a clearing report. Using these reports, the national company keeps a record of all money orders sold and cashed. Agents are sent a discrepancy statement for money orders cashed but not reported as sold.

(7) Money received from the sale of money orders is usually deposited, by the agent, into a separate bank account. Payment is made to the national company by check, wire transfer, or electronic payment.

(8) National money order companies either collect their fee up front when the money orders are given to the agents or have their agents remit the fee together with the face amount of the money orders sold.

(9) Agents may receive commission statements or reconciliations of money orders sold. The agent’s commission can be accounted for this way.

(10) Identification of persons purchasing money orders in amounts under $3,000 is often left to the individual agents, and in many instances, little or no identification is requested from the purchaser.

(11) National companies keep a copy of the front and back of all cashed and canceled money orders.

(1) A money services business includes an issuer or seller of traveler’s checks or money orders and includes a person that:

1. Issues money orders that are sold in an amount greater than $1,000 to any person on any day in one or more transactions (31 CFR 1010.100(ff)(3)(i)) or

2. 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. (31 CFR 1010.100(ff)(3)(ii))

(2) A person who sells money orders in an amount greater than $1,000 to any person on any day in one of more transactions is defined as a money services business. (31 CFR 1010.100(ff)(3))

(1) In addition to the required information listed in IRM 4.26.9.7.2.3, money order agent records may include:

1. Bank statements and deposit slips

2. Daily sales summaries

3. Customer records (electronic or hard copies)

4. Carbons or duplicates of money orders

5. Commission statements

(2) In addition to the above, issuers of money orders will have records of cleared money orders.

(1) IRM 4.26.6.5.3.3, Interview, contains additional information on interviews.

(2) Interview the officers, owners and employees to determine their knowledge of the BSA and the financial institution’s procedures to comply with the reporting and recordkeeping requirements. The duties and responsibilities of the officers and employees should be documented along with a description of the financial institution’s records and an explanation of the flow of transactions through the records. Knowledge is one of the elements needed to prove willfulness with respect to apparent violations of the regulations.

(3) Ask specific questions relating to the business, area, and services offered. The examiner must consider all services offered by the business, such as money transmitting, check cashing, and sales of money orders. For example, a customer could attempt to launder $15,000 by sending a wire transfer for $8,000 and purchasing $7,000 in money orders.

(4) Ask the owners or management of the financial institution if they have knowledge of any structured transactions having occurred, or if any suspicious transactions have occurred. This question should be asked again while interviewing employees who have customer contact.

(5) Interview all individuals who handle currency transactions. Question their knowledge and training of the BSA recordkeeping and reporting requirements.

(6) Ask open-ended questions throughout the interview. Do not ask questions that require only a yes or no answer.

(7) Additional information can be found on the BSA Policy SharePoint. (IRM 4.26.9.1.5)

(1) See IRM 4.26.6.5.3.6, Inspection of Books and Records, for general information on the review of records.

(2) Any records the financial institution maintains that are relevant to the BSA examination can be requested and reviewed. The examiner will determine if the financial institution is maintaining adequate records and must document any recordkeeping violations.

(3) Review the written policy statements and procedures of the financial institution as they relate to the BSA.

(4) Analyze the records of the financial institution for all types of financial services offered. Each type of financial service should be examined separately.

(5) Determine the money order register completeness by reconciling this to the summary sales reports sent to the issuing company, the discrepancy report from the issuing company, and the bank deposits.

(6) Trace large block sales or large dollar single transaction sales of money orders in the money order register or money order close out reports to the records required for recordkeeping, SAR reporting and CTR reporting. Block sales are a group of sequentially numbered money orders sold concurrently for the maximum denomination, or right below the maximum dollar amount. The maximum amount allowed for each money order is usually set at $300, $500 or $1,000 by the issuing company. The review should identify:

1. Blocks of money orders at $2,000 or right below for SAR reporting,

2. Blocks of money orders at $3,000 to $10,000, inclusive, for recordkeeping requirements, and

3. Blocks of money orders greater than $10,000 for CTR reporting.

(7) Inspect any copies of money orders retained by the financial institution.

(8) The examiner can request copies of money orders from the money order issuer for any questionable or suspicious transactions. It may be necessary to issue a Title 31 summons to obtain this information. Refer to IRM 4.26.8, Special Procedures, before issuing any Title 31 summons.

(9) Review the financial institution’s records to determine if all the required information on the purchasers of money orders involving currency in amounts of $3,000 to $10,000, inclusive, has been maintained and verified pursuant to the recordkeeping requirements of 31 CFR 1010.415(a)(2).

(10) It is recommended that a spreadsheet be used when the compliance examination is part of a multiple location local project or there are many block sales or large dollar sales. All single or block transactions, exceeding a dollar amount cutoff should be entered in the spreadsheet from source documents to see if the transactions are related.

(11) At a minimum, analyze sorts of the sender name field, receiver name field, and the address field to detect possible structured transactions, unreported transactions, errors, and deficiencies in the financial institution’s BSA compliance system.

(12) The records, if applicable, of BSA examinations of nearby financial institutions in geographical targeting projects should be consolidated and sorted to detect related structuring activity occurring at more than one location.

(13) Review copies of CTRs filed by the financial institution to ensure they are accurate and complete. Ensure filed CTRs have been retained by the financial institution for the required five-year period. Use the FCQ database to verify that the CTRs were timely filed and contain the same information as the copies maintained by the financial institution.

(14) Query FCQ database for transactions conducted by owners, managers, and employees of the financial institution to detect possible unreported transactions of the financial institution that were instead reported under the individual’s name.

(15) If structured transactions or other BSA violations are detected, the examiner should interview the responsible person or employee who conducted the transaction. Based on the answers given, the examiner should consider expanding the scope of the examination. (Refer to IRM 4.26.6, Bank Secrecy Act Examiner Responsibilities for BSA Examinations, and IRM 4.26.13, Structuring). All facts should be discussed with the BSA Group Manager.

(16) Review relevant audit reports or reviews that address BSA policies, procedures, or operations for BSA issues.

(17) Review copies of filed MSB registrations and renewals (if applicable) for accuracy and completeness.

(18) Determine whether the business was required to register as an MSB.

(19) Review agent list (if applicable) for all required elements.

(20) Forward agent list to a Centralized Exam (HQ) coordinator.

(21) Review agent contracts and terms for acceptance and termination as an agent.

(1) The examiner must obtain documentation for each type of the following violations:

1. Reporting – The date of the transaction, the amount, the individuals involved, and a detailed statement regarding the violation, including copies of source documents such as cash in/out slips, control registers, and teller cash proofs which support the violation.

2. Recordkeeping – The details of the specific records which were not maintained or were inadequate, including management’s response to the violations.

(2) The knowledge of the MSB must be established before determining if a Letter 1112, Title 31 Violation Notification Letter, should be issued or if the case should be referred to FinCEN.

1. The key officers and employees should be interviewed to document the money services business’ response to any apparent violations.

2. The existence of an internal compliance program may indicate knowledge.

3. If knowledge of the reporting and recordkeeping requirements is limited to upper management and the other employees are not similarly educated, the money services business may be negligent for not properly instructing the employees. The employees need to know what their BSA obligations are. The employees are the initial contact point where the information is obtained.

(3) Other factors that may indicate the MSB had knowledge of the BSA registration, reporting, recordkeeping, and compliance program requirements, and its compliance intentions are:

1. Prior BSA violations and BSA compliance related contacts with the IRS,

2. Training programs offered by the business,

3. The MSB's formal BSA compliance procedure, and

4. Active involvement of management in oversight and internal control activities.

(4) In situations where knowledge cannot be established within the scope of selected records, the examiner should expand the period to include recent transactions that occurred after knowledge and intent can be clearly documented. For example, the examiner selected records from January, February, and March. The inspection of these records discloses currency transactions that appear to be structured and which should have been reported. The MSB denied knowledge of the structuring regulations during the initial interview. In April, the examiner informed the MSB about the suspicious transactions and of the structuring regulations. The examiner later expanded the examination period to include May and June transactions. The examiner found violations in May and June. The MSB’s knowledge was documented during the notification of the structuring violations and took no action to prevent the recurrence of violations. The MSB’s intent to not comply should be documented.

(5) Because willfulness is a state of mind, generally only circumstantial evidence of willfulness will be available. A willful violation is the intentional violation of a known legal duty.

(6) IRS does not have the authority to assess penalties under the BSA except for FBAR violations. Significant BSA violations or deficiencies are therefore referred to FinCEN unless a fraud referral is appropriate. The examiner and manager will make a decision regarding whether to refer the case to FinCEN for consideration of civil money penalties. The examiner must thoroughly document all facts on the issue of intent. See IRM 4.26.8 if the case is to be referred to FinCEN.

(1) Refer to IRM 4.26.6.5.3.10, Notification of Findings, for information on notifying the business of examination results.

1. If no BSA violations or significant AML program issues have been found, prepare Letter 4029, Bank Secrecy Act No Change Letter.

2. If BSA violations are found which are technical, minor, infrequent, isolated, or not substantive, a Letter 1112, Title 31 Violation Notification Letter, should be issued. See IRM 4.26.8.

3. If apparent BSA violations are found which appear to meet the referral criteria, prepare a referral on Form 5104, Report of Apparent Violation of Financial Recordkeeping and Reporting Regulations. See IRM 4.26.8.6, Form 5104, Report of Apparent Violation of Financial Recordkeeping and Reporting Regulations.

4. If the apparent BSA violations appear to meet criminal referral guidelines, the BSA manager will contact the Fraud Technical Advisor to determine if a Form 2797, Referral Report of Potential Criminal Fraud Cases, is warranted. (IRM 4.26.8)

(2) A closing conference must be held at the close of the examination. See IRM 4.26.6.5.3.11, Holding the Closing Conference, for additional information.

(3) When a Letter 1112, Title 31 Violation Notification Letter, is issued, the financial institution is asked to provide a response, amend the AML program, and implement recommendations. Refer to IRM 4.26.6.5.3.12, Letter 1112 Response, for additional guidance.

1. See IRM 4.26.6.5.3.13, Delinquent BSA Forms Procedures, for the process to secure delinquent returns discovered during the examination.

2. See IRM 4.26.6.5.3.14, Case File Closing Procedures, for procedures when closing the case file.

3. See IRM 4.26.6.5.3.16, Examination Information Report, Form 5346, for information on preparing and submitting Form 5346, Examination Information Report.

4. IRM 4.26.6.5.3.17, Information Items, provides information on submitting other information items.

5. IRM 4.26.6.5.3.18, Examiner-Filed SARs, provides procedures for submitting examiner filed SARs.

(1) The financial institution and/or the customer can be involved in potential money laundering schemes. The examiner must focus on both the financial institution and the transactor(s) during the BSA compliance examination.

(2) Money laundering techniques which could be used by the financial institution include:

1. Failing to maintain complete records.

2. Failing to record specific transactions.

3. Failing to obtain the required information to comply with the recordkeeping requirements.

4. Failing to file CTRs or CMIRs on reportable transactions.

5. Structuring a transaction by breaking one transaction into several to circumvent the reporting requirements.

6. Issuing money orders, instead of cash (for example, a check casher) to avoid the $10,000 reporting requirement.

(3) Money laundering techniques which could be used by the customer/transactor include:

1. Using multiple locations to conduct transactions.

2. Using several individuals at one or more locations to conduct a transaction.

3. Using aliases when conducting transactions.

4. Conducting several transactions at the same location at different times for one day.

5. Requesting money orders, instead of cash, when cashing checks to circumvent a reporting requirement.

(4) When evidence of a money laundering scheme is uncovered, a referral should be made on Form 5104, Report of Apparent Violation of Financial Recordkeeping and Reporting Regulations. (Refer to IRM 4.26.8 for referral procedures)

(1) Date - The date of the transaction.

(2) Destination - Where the money is being sent.

(3) Draft Number - A number assigned by the money transmitter on its pre-numbered forms.

(4) Identification - This is generally required of the person receiving the wire transfer.

(5) Message - Additional remarks given by the sender for the recipient.

(6) Method of Payment - Cash, Visa, MasterCard.

(7) Origin of Transaction - The city where the transaction originated.

(8) Pay To - The person designated as the one to receive the money transfer.

(9) Payee’s Name - The person designated to receive the money.

(10) Receiver - This is the name of the person receiving the money transfer.

(11) Recipient’s Name/Receiver - The person designated to receive the money.

(12) Reference Number - A number assigned by the agent’s service center to each specific transaction being sent. It can be used to trace a specific transaction.

(13) Sender -The customer sending the money.

(14) Test Answer - This is the response required for the test question.

(15) Test Question - Secret password or words provided by the sender wherein identification is waived for the recipient.

(16) Transaction Number - Number assigned to the transaction for tracing.

(1) A money transmitter is defined as 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. (31 CFR 1010.100(ff)(5), Money transmitter)

(1) In addition to the required information listed in IRM 4.26.9.8.2.3 a money transmitter’s records usually include:

1. Bank statements and deposit slips,

2. The money transmitter’s send and receive forms completed by the customers,

3. Commission statements,

4. Agent records of $3,000 transactions, and

5. Teller’s daily reconciliations.

(2) Examiners may also request downloads of transactions from the principal money transmitter.

(1) IRM 4.26.6.5.5.3, Interview, contains additional information on interviews. Also, refer to BSA Policy SharePoint.

(2) Ask specific questions relating to the business, area, and services offered. The examiner must consider all financial services or products offered by the business, such as money remittance, check cashing, and sales of money orders. For example, a customer could attempt to launder $15,000 by sending a wire transfer for $8,000 and purchasing $7,000 in money orders.

(3) Identify the BSA compliance officer and all other personnel who are responsible for conducting, recording, and reporting of BSA transactions and evaluate their understanding of the BSA recordkeeping and reporting requirements. It is important to establish knowledge of the BSA should any violations be noted during the examination. These individuals should be identified by name, title, and specific responsibilities.

(4) Ask the owners or management of the financial institution if they have knowledge of structuring transactions having occurred, or if any suspicious transactions have occurred. This question also must be asked while interviewing employees who have customer contact.

(5) Interview all individuals who handle currency transactions (for example, prepare currency reports, maintain records, and other similar items.). Determine their knowledge and amount of training received on the BSA recordkeeping and reporting requirements.

(6) Ask open-ended questions throughout the interview. Do not ask questions that require only a yes or no answer.

(7) Each interview should be documented in the case file.

(8) Interview the AML compliance officer, as well as compliance program employees. Determine the level of familiarity with internal compliance programs and internal controls.

(1) See IRM 4.26.6.5.3.6, Inspection of Books and Records, and IRM 4.26.6.5.3.1, BSA Examination Techniques, for general information on the review of records.

(2) Any records the financial institution maintains for the business that are relevant to the BSA examination can be requested and reviewed. The examiner will determine if the financial institution is maintaining adequate records and must document any recordkeeping violations.

(3) Ask to see the money transmission company’s policy and procedures manual regarding the BSA registration, recordkeeping, reporting, and AML compliance program requirements. The examiner should review the information for completeness and determine if AML compliance program procedures are adequate. Determine how risk of money laundering was assessed and how this risk assessment figured into the establishment of the compliance program. See IRM 4.26.6.5.1.1.1, Risk Assessment, for additional information on risk assessments.

(4) Inspect a sample of copies of CTRs and SARs filed by the money services business to ensure they are accurate and complete. Ensure filed CTRs and SARs have been retained by the financial institution for the required five-year period. Use FCQ to verify that the CTRs and SARs were timely filed and contain the same information as the copies maintained by the financial institution.

(5) Review internal audits and external agency audits and reviews specific to BSA policies, procedures, or operations for BSA issues.

(6) Review monthly commission statements to detect large daily transactions or transactions conducted over a period of several days (multiple transactions) which appear to be related. (Each money transmitter receives commission statements from their respective money transmission business center or home office)

(7) The examiner should determine whether it is appropriate to request electronic downloads based on the records available at the financial institution. Third-party downloads should be requested for entities that do not have sufficient POS systems or other records to make proper BSA compliance determinations. If the electronic downloads are requested, they may be used in some of the steps mentioned below.

(8) Review the daily cash reports and reconcile these to the bank deposit slips. Generally, a money transmitter will deposit all monies received each day. The daily cash reports can be traced to the daily summary sheets and the deposit slips to the monthly bank statements.

(9) Review the daily summary sheets for all send and receive transactions. If the daily summary sheet has 20 transactions recorded, there should be 20 transaction documents to support them. The amounts listed on the daily summary sheet can be reconciled to the original send or receive documents. Review the original send and receive transaction forms for completeness. Determine if all the required information has been obtained and recorded on the forms. The examiner may use dollar amount criteria for selecting forms for inspection.

(10) Review the original send and receive transaction forms for completeness. Determine if all the required information has been obtained and recorded on the forms. The examiner may elect to select dollar criteria for inspection of these forms.

(11) Look at the transaction and fee amounts recorded on the transaction forms. The total amount collected line should include both the transaction amount and fees collected. These totals can be traced to the daily summary sheets.

(12) Scan each group of records for possible structured transactions occurring on the same day or over a period of several days. For example, a 5:00 PM transaction with the transactor sending $6,000, and again at the same location on the same day a 5:10 PM transaction with the transactor sending $5,000, could be structured transactions. Examiners should be aware of these or similar situations and must be prepared to discuss suspicious transactions with the money transmitter.

(13) When reviewing money transmitter transactions, note the telephone numbers given. A sender may give a false name and address but may use a correct telephone number. The reason is that if the money cannot be delivered, the sender will want to be notified. Also watch for repetitive addresses, and sender and/or receiver names.

(14) Review the financial institution's records to determine if all the required information on money transmittals of $3,000 or more has been obtained and retained pursuant to the recordkeeping requirements of 31 CFR 1010.410(e), Nonbank financial institutions.

(15) The examiner may elect to use a database to input information from the transaction records into a spreadsheet for purposes of detecting structuring and other money laundering schemes.

(16) Conduct sorts of the various fields to detect possible structured transactions, unreported transactions, errors, and/or deficiencies in the financial institution’s BSA compliance system.

(17) When sorting a large volume of records, especially with wire transfer downloads, it is virtually impossible to identify any underlying pattern of suspicious activity without "linking" related transactions. Linking related sender and beneficiary transactions is accomplished by assigning a unique code to the related transactions when conducting the various sorts. When additional related transactions are identified, the unique code is added to those transactions. Sorting the data by the "Code" field identifies the unusual patterns of transactions which warrant further scrutiny. See ELMS course 36005, BSA Title 31 Unit II – Structuring & SARs for additional information.

(18) If structured transactions or other BSA violations are detected, the examiner should interview the responsible person or employee who conducted the transaction. Based on the answers given, the examiner should consider expanding the scope of the examination. (IRM 4.26.6.5.1.1, Scope and Depth) All facts should be discussed with the BSA Group Manager. The examiner and BSA Group Manager will decide whether to refer the violation to FinCEN for possible enforcement action.

(19) Obtain copies of all source documents that document any apparent BSA violations.

(20) Determine if the business is required to register as an MSB and if so, review copies of filed MSB registration and renewal forms for accuracy and completeness.

1. Review agent list (if applicable) for all required elements.

2. Forward agent list to a Centralized Exam (HQ) coordinator.

(21) Review agent contracts and terms for acceptance and termination as an agent.

(22) During a BSA compliance examination of a national money transmitter's headquarters, obtain and review information on the agent network, sales/transmission and commission records, compliance program records, and internal processes for money transmission and reconciliation. Exams at the corporate level should focus on: compliance monitoring of operations, compliance training of issuer personnel and of agents, and internal reporting of compliance issues or of unusual transaction activity. See IRM 4.26.6, Bank Secrecy Act Examiner Responsibilities, for BSA Examinations, for information when examining a business headquarters.

(1) The examiner must obtain documentation for each violation.

1. Reporting – The date of the transaction, the amount, the individuals involved, and a detailed statement regarding the violation, including copies of source documents such as cash in/out slips, control registers, and teller cash proofs which support the violation.

2. Recordkeeping – The details of the specific records which were not maintained or were inadequate, including management’s response to the violations.

(2) The knowledge of the money services business must be determined before determining if a Letter 1112, Title 31 Violation Notification Letter, should be issued or if the case should be referred to FinCEN.

1. The key officers and employees should be interviewed again to document the money services business’ response to any apparent violations.

2. The existence of an internal compliance program may indicate knowledge. For example, if knowledge of the reporting and recordkeeping requirements is limited to upper management and the other employees are not similarly educated, the money services business may be at least negligent for not properly instructing the employees. The employees need to know their BSA obligations. The employees are the initial contact point where the information is obtained. Failure by upper management to ensure that information is correctly gathered may establish evidence of the money services business’ intent not to comply.

(3) Other factors indicating the money services business’ knowledge of the BSA registration, reporting, recordkeeping, and compliance program requirements, and its compliance intentions are:

1. Prior BSA violations and BSA compliance related contacts with the IRS,

2. Training programs offered by the business,

3. The MSBs formal BSA compliance procedures, and

4. Active involvement of management in oversight and internal control activities.

(4) In situations where knowledge cannot be determined within the scope of selected records, the examiner should expand the period to include recent transactions that occurred after knowledge can be clearly documented. For example, the examiner selected records from January, February, and March. The inspection of these records discloses currency transactions that appear to be structured and which should have been reported. The money services business denied knowledge of the structuring regulations during the initial interview. In April, the examiner informed the money services business about the suspicious transactions and of the structuring regulations. The examiner later expanded the examination period to include May and June transactions. The examiner found violations in May and June. The money services business’ knowledge was documented during the notification of the structuring violations and took no action to prevent the recurrence of violations. The money services business’ intent to not comply should be documented.

(5) Because willfulness is a state of mind, generally only circumstantial evidence of willfulness will be available. A willful violation is the intentional violation of a known legal duty.

(6) IRS does not have the authority to assess penalties under the BSA except for FBAR violations. Significant BSA violations or deficiencies are therefore referred to FinCEN unless a fraud referral is appropriate. The examiner and manager will make a decision regarding whether to refer the case to FinCEN for consideration of civil money penalties. The examiner must thoroughly document all facts on the issue of intent. See IRM 4.26.8, Special Procedures, if the case is to be referred to FinCEN.

(1) Refer to IRM 4.26.6.5.3.10, Notification of Findings, for information on notifying the business of examination results.

1. If no BSA violations or significant AML program issues have been found, prepare Letter 4029, Bank Secrecy Act No Change Letter.

2. If BSA violations are found which are technical, minor, infrequent, isolated, or not substantive, a Letter 1112, Title 31 Violation Notification Letter, should be issued. See IRM 4.26.8.

3. If apparent BSA violations are found which appear to meet the FinCEN referral criteria, prepare a referral on Form 5104, Report of Apparent Violation of Financial Recordkeeping and Reporting Regulations. See IRM 4.26.8.6, Form 5104, Report of Apparent Violation of Financial Recordkeeping and Reporting Regulations.

4. If the apparent BSA violations appear to meet criminal referral guidelines, the BSA manager will contact the Fraud Technical Advisor to determine if a Form 2797, Referral Report of Potential Criminal Fraud Cases, is warranted. (IRM 4.26.8)

(2) A closing conference must be held at the close of the examination. See IRM 4.26.6.5.3.11, Holding the Closing Conference, for additional information.

(3) When a Letter 1112 is issued, the financial institution is asked to provide a response, amend the AML program, and implement recommendations. Refer to IRM 4.26.6.5.3.12, Letter 1112 Response, for additional guidance.

1. See IRM 4.26.6.5.3.13, Delinquent BSA Forms Procedures, for the process to secure delinquent returns discovered during the examination.

2. See IRM 4.26.6.5.3.14, Case File Closing Procedures, for procedures when closing the case file.

3. See IRM 4.26.6.5.3.16, Examination Information Report, Form 5346, for information on preparing and submitting Form 5346, Examination Information Report.

4. IRM 4.26.6.5.3.17, Information Items, provides information on submitting other information items.

5. IRM 4.26.6.5.3.18, Examiner-Filed SARs, provides procedures for submitting examiner filed SARs.

(1) The financial institution and/or the customer can be involved in potential money laundering schemes. The examiner must focus on both the financial institution and the transactor(s) during the BSA examination.

(2) Money laundering techniques, which could be used by the financial institution, include:

1. Failing to maintain complete records.

2. Failing to record specific transactions.

3. Failing to obtain the required information to comply with the recordkeeping requirements.

4. Failing to file CTRs or SARs on reportable transactions.

5. Filing incomplete CTRs or SARs.

6. Structuring a transaction by breaking one transaction into several to circumvent the reporting requirements.

(3) Money laundering techniques which could be used by the customer/transactor include:

1. Using multiple locations to conduct transactions.

2. Using several individuals at one or more locations to conduct a transaction.

3. Using aliases when conducting transactions.

4. Conducting numerous transactions at the same location at different times for one day.

(4) When evidence of a money laundering scheme is uncovered, a referral should be made on Form 5104, Report Apparent Violation of Financial Recordkeeping and Reporting Regulations. (IRM 4.26.8)

(1) Financial institutions typically sell traveler’s checks as agents for national companies. The agent’s relationship to the issuer of the traveler’s checks is governed by a trust agreement.

(2) The agent can advertise that it sells the national company's traveler’s checks.

(3) Traveler’s checks are drawn on the national company’s bank account and the transaction is not complete until the national company receives the face amount from the agent and the traveler’s check clears the bank.

(4) The dollar value of traveler’s checks sold by an agent can be limited by the issuing company’s trust agreement or by the agent’s policy, but in theory they can be in any denomination. Most domestic issuers tend to limit the denominations of traveler’s checks sold in U.S. currency to $100, or at most $1,000. It should be noted that traveler’s checks may be issued in any of several currencies by issuers. When examining agents that issue traveler’s checks in foreign currency, one should be aware of current exchange rates to evaluate compliance against BSA reporting and recordkeeping requirements.

(5) The national company issues and maintains records of traveler’s check issuance or sales to agents, as well as records of cashed traveler’s checks. The agent maintains sales records of traveler’s checks using a sequential numbering system.

(6) An agent’s summary sales report is sent to the national company daily and the correspondent bank sends a clearing report. Using these reports, the national company keeps a record of all traveler’s checks sold and cashed. The issuer maintains, and agents are sent, a discrepancy statement for traveler’s checks cashed but not reported as sold.

(7) Money received from the sale of traveler’s checks is usually deposited, by the agent, into a separate bank account. Payment is made to the national company by check, wire transfer, electronic mail, or draft.

(8) National traveler’s checks companies either collect their fee up front when the traveler’s checks are given to the agents, or have their agents remit the fee together with the face amount of the traveler’s checks sold.

(9) Agents may receive commission statements or reconciliations of traveler’s checks sold. The agent’s commission can be accounted for this way.

(10) Although identification of persons purchasing traveler’s checks in amounts under $3,000 is often left to the individual agents, in many instances, the MSB requires identification from the purchaser.

(11) At a minimum, national companies keep a copy of the front and back of all cashed and canceled traveler’s checks.

(1) An issuer of traveler’s checks is defined as an MSB if traveler’s checks are issued in an amount greater than $1,000 to any person on any day in one or more transactions. (31 CFR 1010.100(ff)(3)(i), Issuer or seller of traveler’s checks or money orders)

(2) A seller of traveler’s checks is defined as an MSB if traveler’s checks are sold in an amount greater than $1,000 to any person on any day in one or more transactions. (31 CFR 1010.100(ff)(3)(ii))

(1) Traveler’s check agents records usually include, but are not limited to:

1. Inventory sheets of traveler’s checks sold,

2. Inventory sheets of traveler’s checks received from the issuer,

3. Inventory sheets of traveler’s checks currently in stock,

4. Bank statements and deposit slips,

5. Teller drawer reconciliations or summaries, and

6. A copy of the executed trust agreement between the agent and the issuer.

(1) Ask specific questions relating to the business, area, and services offered. The examiner must consider all services offered by the business, such as money transmitting, check cashing, and sales of money orders. For example, a customer could attempt to launder $15,000 by sending a wire transfer for $8,000 and purchasing $7,000 in traveler’s checks.

(2) Interview the AML compliance officer and compliance program employees, as well as the officers and employees of the traveler’s check issuer or seller to determine their knowledge of the BSA and the financial institution’s procedures to comply with the reporting and recordkeeping requirements. The duties and responsibilities of the officers and employees should be documented along with a description of the financial institution’s records and an explanation of the flow of transactions through the records. Knowledge is one of the elements needed to prove willfulness with respect to violations of the regulations.

(3) Ask the owners or management of the financial institution if they have knowledge of any structuring transactions having occurred, or if any suspicious transactions have occurred. This question should be asked again while interviewing employees who have customer contact.

(4) Interview all individuals who handle currency transactions. Question their knowledge and training of the BSA recordkeeping and reporting requirements.

(5) Ask open-ended questions throughout the interview. Do not ask questions that require only a yes or no answer.

(1) Any records the financial institution maintains that are relevant to the BSA examination can be requested and reviewed. The examiner will determine if the financial institution is maintaining adequate records and must document any recordkeeping violations.

(2) Review the written policy statements and procedures of the financial institution as they relate to the BSA.

(3) Analyze the records of the financial institution for all types of financial services offered. Each type of financial service should be examined separately.

(4) Determine the traveler’s check register completeness by reconciling it to the summary sales reports sent to the issuing company, the discrepancy report from the issuing company, and the bank deposits.

(5) Trace large block sales or large dollar single transaction sales of traveler’s checks in the traveler’s check register or close out reports to the records required for recordkeeping, SAR reporting and CTR reporting. Block sales are a group of sequentially numbered traveler’s checks sold concurrently for the maximum denomination. The review should identify:

1. Blocks of traveler’s checks at $2,000 or right below for SAR reporting,

2. Blocks of traveler’s checks at $3,000 to $10,000, inclusive, for recordkeeping requirements, and

3. Blocks of traveler’s checks greater than $10,000 for CTR reporting.

(6) Inspect any copies of traveler’s checks retained by the NBFI.

(7) Request that the NBFI obtain copies of traveler’s checks from the traveler’s check issuer for any questionable or suspicious transactions. It may be necessary to issue a Title 31 summons to obtain this information. Refer to IRM 4.26.8, Special Procedures, before issuing a Title 31 summons.

(8) Review the NBFIs records to determine if all the required information on the cash purchasers of traveler’s check sales involving currency in amounts of $3,000 to $10,000, inclusive, has been maintained and verified pursuant to the recordkeeping requirements of 31 CFR 1010.415, Purchases of bank checks and drafts, cashier’s checks, money orders and traveler’s checks.

(9) It is recommended that a computer database be used when the examination is part of a multiple location local project or there are a large number of block sales or large dollar sales. All transactions exceeding the elected dollar cutoff should be entered in the database, from source documents, to see if the transactions are related.

(10) Analyze database sorts of the name field and the address field to detect possible structured transactions, unreported transactions, errors, and deficiencies in the financial institution’s BSA compliance system.

(11) The databases, if applicable, of BSA examinations of nearby financial institutions in geographical targeting projects should be consolidated and sorted to detect related structuring activity occurring at more than one location.

(12) Review copies of CTRs filed by the financial institution to ensure they are accurate and complete. Ensure filed CTRs have been retained by the financial institution for the required five-year period. Use the FCQ database to verify that the CTRs were timely filed and contain the same information as the copies maintained by the financial institution.

(13) Query the FCQ database for transactions conducted by owners, managers, and employees of the financial institution to detect possible unreported transactions of the financial institution that were instead reported under the individual’s name.

(14) If structured transactions or BSA violations are detected, the examiner should interview the responsible person or employee who conducted the transaction. Based on the answers given, the examiner should consider expanding the scope of the examination. (IRM 4.26.6, Bank Secrecy Act, Bank Secrecy Act Examiner Responsibilities for BSA Examinations) All facts should be discussed with the BSA Group Manager.

(15) Review relevant audit reports or reviews that address BSA policies, procedures, or operations for BSA issues.

(16) Follow procedures in IRM 4.26.6 to timely conclude the BSA examination.

(17) Prepare Form 5346, Examination Information Report, when information is obtained during the BSA examination that indicates a possible income tax violation warranting referral. (IRM 4.26.6) Keep in mind, however, that the primary purpose of the BSA exam is not to detect Title 26 violations.

(18) Review copies of filed MSB registration and renewal forms (if applicable) for accuracy and completeness.

(19) Determine if the business is required to register.

(20) Review agent list (if applicable) for all required elements.

(21) Forward agent list to a Centralized Exam (HQ) coordinator.

(22) Review agent contracts and terms for acceptance and termination as an agent.

(23) Review all agents rejected or terminated as an agent and forward list to the Centralized Exam (HQ) coordinator.

(1) The examiner must obtain adequate supporting documentation for each type of the following violations:

1. Reporting – The date of the transaction, the amount, the individuals involved, and a detailed statement regarding the violation, including copies of source documents such as cash in/out slips, control registers, and teller cash proofs which document the violation.

2. Recordkeeping – the details of the specific records which were not maintained or were inadequate, including management’s response to the violations.

(2) The MSBs knowledge of BSA requirements must be determined before determining whether violations should be formally referred to FinCEN.

1. The key officers and employees should be interviewed again to document the business’ response to any apparent violations.

2. The existence of an internal compliance program may indicate of knowledge. For example, if knowledge of the reporting and recordkeeping requirements is limited to upper management and the other employees are not similarly educated, the business may be at least negligent (for not properly instructing their employees). The employees need to know what their BSA obligations are. The employees are the initial contact point where the information is obtained. Failure by upper management to ensure that information is correctly gathered may indicate the business’ intent not to comply.

(3) Other factors that may indicate the MSB's knowledge of the BSA registration, reporting, recordkeeping, and compliance program requirements, and its compliance intentions are:

1. Prior BSA violations and BSA related contacts with the IRS,

2. Training programs offered by the business,

3. The MSB's formal BSA compliance procedures, and

4. Active involvement of management in oversight and internal control activities.

(4) In situations where knowledge cannot be determined within the scope of selected records, the examiner should expand the period to include recent transactions that occurred after knowledge can be clearly documented. For example, an examiner initially selects records from January, February, and March. Inspection of these records discloses currency transactions that appear to be structured and which should have been reported. The business denies knowledge of the structuring regulations during the initial interview. In April, the examiner informs the business about suspicious transactions and of the structuring regulations. The examiner then expands the examination period to include May and June transactions. The examiner finds violations in May and June. The business’ knowledge was documented during the April notification, yet it took no action to prevent the recurrence of violations. The business’ intentional noncompliance should be documented.

(5) Because willfulness is a state of mind, generally only circumstantial evidence of willfulness will be available. A willful violation is the intentional violation of a known legal duty.

(6) Since BSA penalties are assessed by the FinCEN, which does not have any field examiners, the examiner must thoroughly document all facts on the issue of willfulness. After the examiner secures the necessary information and documents the apparent violations, the examiner should follow the procedures detailed in IRM 4.26.8.

(1) After documenting the potential violations, the examiner should provide a list of the violations to the MSB and solicit a written explanation for each of the violations identified. The list should include:

1. Date of the transaction,

2. Customer name,

3. Account number (if any),

4. Serial number of the traveler’s check(s) involved,

5. Amount of the currency transaction(s), and

6. Description of the transaction(s).

(2) The examiner should advise the MSB of any recordkeeping deficiencies as well as any deficiencies in their policies, procedures, internal controls, and compliance programs that might result in noncompliance with the BSA.

(3) Any additional documents or information provided by the MSB in response should be reviewed and a determination should be made as to whether any items should be removed from the list of violations.

(4) When the MSB contends that a CTR was filed and provides its retained copy as evidence, the examiner should query the FCQ database and conduct an exhaustive search before concluding that a CTR was not received. In conducting the search, the examiner should query all customer numerical identification on the CTR such as account number (if applicable), SSN, and identification credential number.

(5) Refer to IRC 4.26.6, Bank Secrecy Act Examiner Responsibilities for BSA Examinations, for complete closing procedures.

(1) The financial institution and/or the customer can be involved in potential money laundering schemes. The examiner must focus on both the financial institution and the transactor(s) during the BSA examination.

(2) Money laundering techniques, which could be used by the financial institution, include:

1. Failing to maintain complete records.

2. Failing to record specific transactions.

3. Failing to obtain the required information to comply with the recordkeeping requirements.

4. Failing to file CTRs, SARs, or CMIRs on reportable transactions.

5. Structuring a transaction by breaking one transaction into several to circumvent the reporting requirements.

(3) Money laundering techniques which could be used by the customer/transactor include:

1. Using multiple locations to conduct transactions.

2. Using several individuals at one or more locations to conduct a transaction.

3. Using aliases when conducting transactions.

4. Conducting several transactions at the same location at different times for one day.

(4) When evidence of a money laundering scheme is uncovered, a referral should be made on Form 5104, Report of Apparent Violation of Financial Recordkeeping and Reporting Regulations. See IRM 4.26.8 for referral procedures.

(1) 31 CFR 1027.100, Definitions, contains a complete listing of key terms that relate to the dealer industry. Understanding these terms will help understand the regulation and the PMSJ industry.

(2) Terms commonly used in this industry include:

1. Assay - Testing a metal or ore to determine its ingredients and quality.

2. Bid - Amount offered to purchase.

3. Bourses - Traditional trading floors where diamonds are safely bought and sold.

4. Bullion - Precious metal in the form of bars or ingots.

5. Customer cards - Record of customer purchases or account receivable cards.

6. Gold doré (pronounced gold doh-rey) is a bar of semi-purified gold (such as bullion). After being mined, the first stage in the purification process of the gold ore produces a cast bar (gold dore) that is approximately 90% gold. The other 10% is mostly metals like silver and copper.

7. Pawn Ticket - Record of stock held for customer retrieval by a specific date in exchange for cash.

8. Public Auction - Can draw large cash transactions depending on items presented.

9. Selling goods on memo - A consignment agreement that provides possession of the product to a potential buyer and payment is due only when the deal is struck.

10. Shot - Small pellets of gold.

(1) A dealer is defined in 31 CFR 1027.100(b), Dealer, as a:

1. Person engaged in the United States as a business in the purchase and sale of covered goods and finished goods deriving 50% or more of their value from Precious Metals, Precious Stones or Jewels (PMSJ), and who during the prior calendar or tax year purchased more than $50,000 in covered goods and sold more than $50,000 in covered goods,

2. Wholesaler, and

3. Retailer in certain circumstances.

(2) There are exceptions to the law that determine if a person is a dealer. There are factors to consider, early in the examination, to ensure the entity is in fact a dealer and subject to the requirements of the BSA. Per 31 CFR 1027.100(b)(2) the term dealer does not include:

1. A retailer, unless the retailer, during the prior calendar or tax year, purchased more than $50,000 in covered goods from persons other than dealers or other retailers such as members of the general public or foreign sources of supply.

2. A foreign person who ships products into the U.S. without any further business activity or attends a trade show at which it does not purchase and sell covered goods above the $50,000 threshold amounts.

3. A business that purchases PMSJ for use in machinery or equipment to be used for industrial purposes and sells it for industrial purposes.

   Note: FinCEN determined that the purchase of PMSJ for use in industrial products, and the purchase or sale of such products, appears to be less susceptible to money laundering and terrorist financing risks, because precious metals, precious stones, or jewels typically do not constitute a significant component of the value of an industrial product. Therefore, persons who engage in these activities are not dealers to the extent of such activities for purposes of the regulations at 31 CFR Part 1027, Rules For Dealers In Precious Metals, Precious Stones, Or Jewels.

4. A person licensed or authorized under the laws of any state (or political subdivision thereof) to conduct business as a pawnbroker, but only to the extent that such person is engaged in pawn transactions including the sale of pawn loan collateral.

(3) In determining if the $50,000 threshold has been met:

1. The $50,000 threshold is calculated based on the value of the precious metals, precious stones, or jewels contained in the jewelry, not on the overall value of the jewelry. This distinction ensures that the focus of the regulations remains on precious metals, precious stones, or jewels, not on value due to other reasons.

2. Trade-ins are not considered purchases for defining who is a dealer so long as the value of the trade-in is credited to the account and so long as the business does not provide funds to the customer in exchange for the trade-in.

(1) Only the products listed in 31 CFR 1027.100, Definitions, are deemed to be covered goods and therefore the BSA requirements apply only to the purchase and sale of covered goods.

(2) Covered goods include finished goods, jewels, precious metals, and precious stones. The items included in covered goods are defined further to mean:

1. Finished goods includes (but not limited to) jewelry, numismatic items, and antiques that derive 50 percent or more of their value from jewels, precious metals, or precious stones contained in or attached to the finished goods.

2. Jewel means an organic substance with gem quality market-recognized beauty, rarity, and value. Jewels include only pearl, amber, and coral.

3. Precious metals are gold, iridium, osmium, palladium, platinum, rhodium, ruthenium, or silver having a level of purity of 500 or more parts per thousand; and an alloy containing 500 or more parts per thousand, in the aggregate, of two or more of the metals listed above.

   Note: FinCEN Ruling 2006-1 – Anti-Money Laundering Programs for Dealers in Silver dated December 30, 2005 states that purchases and sales of silver are excluded from the BSA requirements.https://www.fincen.gov/resources/statutes-regulations/administrative-rulings/anti-money-laundering-programs-dealers-silver.

   Note: See also Definition of Precious Metals in the Interim Final Rule Requiring Anti-Money Laundering Programs for Dealers in Precious Metals, Stones, or Jewels dated 06/08/2012 at https://www.fincen.gov/resources/statutes-regulations/administrative-rulings/definition-precious-metals-interim-final-rule.

4. Precious stones are substances with gem quality market-recognized beauty, rarity, and value. Includes diamond, corundum (including rubies and sapphires), beryl (including emeralds and aquamarines), chrysoberyl, spinel, topaz, zircon, tourmaline, garnet, crystalline and cryptocrystalline quartz, olivine peridot, tanzanite, jadeite jade, nephrite jade, spodumene, feldspar, turquoise, lapis lazuli, and opal.

(1) Dealers are required to file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business under Title 26 and Title 31.

(2) In addition, dealers must create and maintain an AML program as required by 31 CFR 1027.210, Anti-money laundering for dealers in precious metals, precious stones, or jewels.

(3) Dealers are not MSBs and are not required to register with FinCEN as such.

(4) Dealers are not required to file SARs but are encouraged to do so. An integral part of a dealer’s AML program is an assessment of the risks and vulnerabilities of the business and the development of policies, procedures and internal controls to address those risks. This should include procedures and controls for identifying suspicious activities and dealing with them accordingly. Procedures for dealing with suspicious activities may include guidance for when it is appropriate in the context of the business and the activity to:

1. Contact local or federal law enforcement authorities.

2. Voluntarily file a suspicious activity report.

3. Check the suspicious activity box on a Form 8300 filed voluntarily on a transaction.

4. Report suspected terrorist activities to FinCEN using its Financial Institutions Hotline (1-866-556-3974).

(5) Dealers are required to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR).

(6) Dealers must also file FinCEN Form 105, Report of International Transportation of Currency or Monetary Instruments (CMIR).

1. FinCEN Form 105 must be filed with the customs officer in charge at any port of entry or departure.

2. If an examiner determines that a dealer failed to file FinCEN Form 105 or meet the CMIR requirements, the examiner must make a referral to Customs through the BSA Policy Liaison to FinCEN.

(1) Precious metals, precious stones, or jewels are easily transportable, highly concentrated forms of wealth, easily converted to cash. As such, they are highly attractive to money launderers and other criminals, including those involved in the financing of terrorism and narcotics.

(2) The purpose of a risk assessment is to determine the major risks, so a dealer can develop a risk-based AML program to mitigate those risks.

(3) Dealers should:

1. Assess the money laundering and terrorist financing risks associated with its products, including the nature of the dealer’s customers, suppliers, distribution channels, geographic locations, and operations.

2. Take into consideration the extent in which the dealer engages in transactions other than with established customers, established suppliers, and third parties subject the BSA regulations.

3. Analyze the extent to which it engages in transactions for which payment or account reconciliation is routed to or from jurisdictions that have been identified as a sponsor of international terrorism, non-cooperative with international anti-money laundering principles, or vulnerable to money laundering.

(4) Dealers are expected to implement their AML programs on a risk-assessed basis. This means considering all the relevant factors to make a risk assessment, including but not limited to:

1. The extent to which the business engages in transactions other than with established customers or sources of supply or other dealers subject to BSA requirements.

2. The extent to which the business engages in transactions for which payment or account reconciliation is routed to or from accounts located in jurisdictions that have been identified as vulnerable to terrorism or money laundering.

3. Indicators that a transaction may involve money laundering or terrorist financing. Take reasonable steps to determine whether its suspicions are justified and respond accordingly, including refusing to enter into, or complete, a transaction that appears designed to further illegal activity.

4. Procedures for making reasonable inquiries. For example, it may be appropriately determined that reasonable inquiry with respect to a transaction conducted by a new customer or supplier involves considerable scrutiny, including verification of customer identity, income source, or the purpose of a transaction. In contrast, reasonable inquiry with respect to an established customer may not involve additional steps beyond those normally required to complete the transaction, unless the transaction appears suspicious or unusual.

(1) Records most commonly found include:

1. Assay reports

2. Bank statements

3. Cash receipts journal

4. Cash register tape

5. Customer cards

6. Customer files

7. Customer invoices and receipts

8. Duplicate deposit slips

9. Installment records

10. Inventory control sheets

11. Lay-away records

12. Purchase order receipts

13. Professional appraisals

14. Sales journal

15. Sales receipts

(1) Examinations of dealers in precious metals, precious stones, or jewels should be started under Title 31 because they have an AML program requirement under Title 31 and Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, filing requirements under both Titles 26 and 31. This allows the examination to cover the determination of whether their AML program is adequate and to examine compliance with the Form 8300 filling requirements.

(2) For example, IRS is conducting a Title 31 examination of a dealer that is required to have an AML program under 31 CFR 1027.210, Anti-money laundering program for dealers in precious metals, precious stones, or jewels. During the examination of the AML compliance program, the examiner identifies delinquent Form 8300 because of an inadequate AML program or a failure to implement the AML program. The failure to timely file a complete and correct Form 8300 is a violation of 31 CFR 1027.330, Reports relating to currency in excess of $10,000 received in a trade or business. It is also a violation of 26 CFR 6050I-1, Returns relating to cash in excess of $10,000 received in a trade or business.

(3) There is no prohibition against using information acquired in a Title 31 exam in a Title 26 exam.

(4) When a dealer has a requirement under Title 31 for an AML compliance program and under Titles 26 and 31 to file a Form 8300, the BSA examiner must notify the entity up-front that it is subject to both Title 26 and Title 31 and the examination can cover both sections of the law.

(5) The current Form 8300 Lead Sheet is designed so it can be used to determine compliance with Form 8300 requirements under either section of the law. The examination steps to determine an entity's compliance with the Form 8300 requirements remain the same no matter under which section of the law the examination is conducted.

(6) There is no examination step that requires an examiner to review tax return information or IDRS to determine Form 8300 compliance. It is only at the conclusion of the Form 8300 examination, when processing the penalty case file under Title 26 that ERCS and IDRS need to be accessed.

(7) If a Form 8300 Title 26 dealer case is received in the field and the BSA manager and examiner, prior to contacting the entity, concur that the examination should be initiated using Title 31 procedures, the case may be surveyed.

1. Survey the Form 8300IRC 6050I case and return it to BSA Enterprise Computing Center.

2. A copy of the 1900 will be sent to the BSA ECS manager, who will forward the information to the BSA ECS Coordinator for evaluation. BSA ECS will record the survey. It will then evaluate the entity for a Title 31 examination using only sources available for Title 31 cases. BSA ECS will select the case for Title 31 examination based on this evaluation only. If appropriate, BSA ECS will then assign the case as a Title 31 examination. If possible, the case should be assigned to a group different from the surveying group.

3. If possible the BSA group manager should assign the Title 31 case file to an examiner different from the examiner involved in the surveyed case.

4. If it is impossible to reassign, the BSA examiner should wait a minimum of 30 days before contacting the entity so that there is a separation as complete as possible from the Title 26 case information.

(8) The disclosure laws under IRC 6103, Confidentiality and disclosure of returns and return information, apply throughout the entire Title 26 examination process.

1. If a Form 8300 examination is started under Title 26, the disclosure regulations under IRC 6103 apply and the information cannot be used in a Title 31 exam without securing a related statute determination. The examiner must secure a related statute determination, signed by the Territory Manager, prior to addressing any Title 31 issues.

2. For example, a retail jeweler is assigned for a Form 8300 examination under Title 26. During the examination, the examiner determines that the retailer, during the prior calendar or tax year, purchased more than $50,000 in precious items from persons other than dealers or other retailers (such as members of the general public or foreign sources of supply). Because the examination has already been started, it is not possible to survey the Title 26 case. The Title 31 information can only be used if a related statute determination is made. See IRM 4.26.14, Disclosure, for the procedures for a related statute determination.

3. If an examination is opened under Title 26, the examiner cannot ask the entity any questions related to the BSA such as questions about their AML compliance program.

(1) An effective risk-based BSA examination consists of the following phases:

1. Pre-Plan

2. Setting the scope and depth of the examination

3. Interview - On site visit to the dealer, walk through of the business, and interview of the appropriate personnel

4. Evaluation of the AML program to determine if it has been implemented and is effective

5. Examination of the books and records

6. Transaction testing

7. Developing conclusions and finalizing the examination

(2) The techniques described in this section are intended as a guide and are not all-inclusive.

(3) The Title 31 Lead Sheet Package and the Form 8300 Lead Sheet Package are available on the BSA SharePoint and should be used to guide the administrative aspects of the examination.

(4) A dealer’s AML program must be commensurate with their level of risk. The dealers should not necessarily take any single indicator as evidence of lower or higher risk. The risk assessment process should weigh several risk factors including:

1. Geographic locations

2. Customers

3. Counterparties

4. Suppliers

5. Product

6. Services

7. Operational risk

(1) Determine compliance with the AML program requirement under 31 CFR 1027.210, Anti-money laundering programs for dealers in precious metals, precious stones, or jewels, as well as the Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, filing requirements under 31 CFR 1010.330, Reports relating to currency in excess of $10,000 received in a trade or business. There is no examination of or conclusions regarding the IRC customer notification requirement which is not required under Title 31. Complete the workpaper #400, BSA Violations Summary Form Title 31.

(2) Accumulate all pertinent findings from the examination performed. Evaluate the thoroughness and reliability of any risk assessment conducted by the dealer. Determine whether:

1. The AML program is effectively monitored and supervised in relation to the dealer’s risk profile as determined by the risk assessment.

2. The AML program is effective in mitigating the dealer’s overall risk.

3. The board of directors and senior management are aware of BSA regulatory requirements; effectively oversee BSA/AML compliance; and commit, as necessary, to corrective actions (such as independent reviews and regulatory examinations.

4. Policies, procedures, and internal controls are adequate to ensure compliance with applicable laws and regulations and provide sufficient risk management to appropriately address high-risk operations (goods, services, customers, suppliers, counterparties, and geographic locations).

5. Independent testing (audit) is appropriate and adequately tests for compliance with required laws, regulations, and policies.

6. The designated person responsible for coordinating and monitoring day-to-day compliance is competent and has the necessary resources.

7. Personnel are sufficiently trained to adhere to legal, regulatory, and policy requirements.

8. Reportable transactions have been identified and any required Form 8300 has been filed timely and accurately.

9. Information and communication policies, procedures, and processes are adequate and accurate.

(3) Determine whether deficiencies or violations were previously identified by management, independent reviews, or in prior regulatory exam, or were only identified because of the current BSA examination.

(4) Determine the underlying cause of any violations such as (the list is not all inclusive):

1. Management has not assessed, or has not accurately assessed, the dealer’s AML risks.

2. Management is unaware of relevant issues.

3. Management is unwilling to create or enhance policies, procedures, and internal controls.

4. Management or employees disregard established policies, procedures, and internal controls.

5. Management or employees are unaware of or misunderstand regulatory requirements, policies, procedures, or internal controls.

6. High-risk operations (goods, services, customers, suppliers, counterparties, and geographic locations) have grown faster than the capabilities of the AML program.

7. Changes in internal policies, procedures, and internal controls are poorly communicated.

(5) The examiner must hold a closing conference with the owner, corporate officer or general partner. Other employees, such as the BSA compliance officer and person responsible for filing Form 8300 may be asked to attend to assist in addressing specific items. The examiner must:

1. Review with the business deficiencies in the AML compliance program, and Form 8300 transactions not reported, or Form 8300 filed late, incomplete or inaccurate.

2. Advise the dealer of any recordkeeping deficiencies.

3. Identify actions needed to correct any outstanding deficiencies or violations, including the possibility of requiring the dealer to conduct a more detailed risk assessment.

4. Obtain an explanation for all issues discussed.

5. Review any additional documents or information provided by the dealer and determine whether any items should be removed from the list of violations.

6. Solicit an amended AML program if there is an AML program deficiency.

7. Ask the business to provide a written statement of the corrective actions they will undertake to address the issues noted.

(1) A dealer case can be closed under either Title 31 or Title 26 depending on the section under which the exam was conducted.

(2) PMSJ dealers have requirements under Title 31 for an AML compliance program and under both Title 31 and Title 26 for filing Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

(1) 31 CFR 1025.100, Definitions, contains a listing of key terms that relate to insurance companies. Understanding these terms will help understand the regulation and the insurance industry.

(2) Some terms commonly used in this industry that have not been previously discussed in this IRM section are:

1. Actuary – A specialist with extensive training in the math of life insurance. An actuary performs the calculations needed to make sure that the company’s products are mathematically sound. The actuary calculates mortality rates for life insurance or annuity policies and morbidity tables for accident and health policies.

2. Annuity contract – any agreement between the insurer and the contract owner whereby the insurer promises to pay out a fixed or variable income stream for a period.

3. Application Form – It includes basic information such as the employer, health of the insured and general personal information. An Attending Physician’s Statement may be required if there is a question about the insured’s health.

4. Beneficiary – Receiver of insurance benefit.

5. Broker-dealer in securities – A broker or dealer in securities, registered or required to be registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, except persons who register pursuant to section 15(b)(11) of the Securities Exchange Act of 1934.

6. Equity Indexed Annuity – An annuity that guarantees a minimum fixed rate of interest credits but also provides higher credits if a specified common stock index rises sufficiently.

7. Face Page of an Insurance Policy – The face page includes all the basic information about the insured and includes the promise to pay if specific events occur.

8. Fixed Annuity – An annuity that provides a stated dollar benefit, regardless of the insurer’s investment return.

9. Gross Premium – Net premium plus loading equals the amount that the customer pays.

10. Group annuity contract - A master contract providing annuities to a group of persons under a single contract.

11. Group life insurance policy - Any life insurance policy under which a number of persons and their dependents, if appropriate, are insured under a single policy.

12. Insurable Interest – Related to the policy owner and has two criteria: The individual (1) must be likely to benefit if the insured continues to live and (2) is likely to suffer a loss or detriment if the insured one dies. The insured is generally a relative of the policyholder or the policyholder themselves. The insured can also be in a business relationship with the policyholder.

13. Health Insurance Policies and Disability Income Benefits - Insurance that protects against the risk of poor health. The health insurance helps pay hospital, surgical, doctor, and medical testing expenses. The disability portion can insure income continuance while the insured is disabled.

14. Insured – Person whose life or health is covered.

15. Insurance agent - A sales and/or service representative of an insurance company. The term "insurance agent" encompasses any person that sells, markets, distributes, or services an insurance company's covered products, including, but not limited to, a person who represents only one insurance company, a person who represents more than one insurance company, and a bank or broker-dealer in securities that sells any covered product of an insurance company.

16. Insurance broker - A person who, by acting as the customer's representative arranges and/or services covered products on behalf of the customer.

17. Insurance company or insurer - Any person engaged within the United States as a business in the issuing or underwriting of any covered product. The term "insurance company" or "insurer" does not include an insurance agent or insurance broker.

18. Insurance Policy – A legally enforceable agreement between an insurance company and the purchaser of a policy. It is a contract.

19. Law of Large Numbers – The greater the number of similar exposures (for example, insured lives) to a peril, the less the observed loss experience will deviate from the expected loss experience.

20. Life Insurance – Protects against economic loss resulting from personal risks. Life insurance policies protect interested parties from the risk of premature death. It provides income to the beneficiary.

21. Loading – Amount added to net premium to cover other expenses.

22. Mortality Table – Used to compute mortality rates; it tells the insurers the rates at which insured people are expected to die.

23. Net Premium – The amount needed just to pay claims, determined by the rate of mortality and investment income.

24. Permanent life insurance policy - An agreement that contains a cash value or investment element and that obligates the insurer to indemnify or to confer a benefit upon the insured or beneficiary to the agreement contingent upon the death of the insured.

25. Personal Risks – Premature death (life insurance); poor health (accident, disability, and health insurance) or, outliving resources (annuity).

26. Policyholder – Purchaser of the policy.

27. Property and Casualty Insurance – Insurance that protects against property damage.

28. Reserves - Monies set aside by the insurance company to pay future benefits and are restricted by law to use for any other purpose. A portion of each premium payment goes into funding the reserves. Smaller portions are set aside in the earlier years of the policy because the risk is lower. If an event (death or injury) occurs in an earlier year, benefits are paid out of the general fund. This is the concept of risk distribution. The net amount of risk is the difference between the death benefit and the amount of reserve.

29. Risk Distribution – Insurer accepts risks from a large number of people and only a portion of them will suffer the loss within a given period. Risk distribution relies on the "law of large numbers".

30. Risk Transfer – Purchase of insurance transfers the policyholder’s risk.

31. Underwriting – An analysis of risk; the study of information on insurance applications to determine how much risk an insurance applicant represents to the company. If the risk is within acceptable limits, the application is approved. If the risk is lower or higher than the average, an underwriter may approve at a lower or higher premium rate. If it is not within company limits, the company may deny the insurance. The goal is to write as many policies as possible while keeping risk loss within an acceptable range.

32. Universal Life Policy – A type of life insurance policy characterized by flexible premiums, a shift of some of the investment risk to the policy owner even though the policy owner is not allowed to direct the investment portfolio, and a choice of death benefit designs.

33. Variable Annuity – An annuity with benefit payments that vary depending on the performance of selected blocks of the insurers invested assets.

34. Variable Life Policy – A type of life insurance policy in which the policy owner directs how the cash value will be invested, and thus bears the investment risk, and in which the death benefit is linked to the investment performance of the policy.

35. Variable Universal Life Policy – A type of life insurance policy that combines the premium flexibility features of universal life insurance with the policy owner-directed investment aspects of variable life insurance.

36. Whole Life Policy – A life insurance policy that provides death benefits upon the death of the insured, no matter when that occurs, if the policy is kept in force by the policy owner.

(1) 31 CFR Part 1025, Rules for insurance companies, provides the BSA regulations and definitions for insurance companies.

(2) The term "insurance company" or "insurer" means any person engaged within the United States as a business in the issuing or underwriting of any covered product. 31 CFR 1025.100(g), Insurance company or insurer.

1. The term "insurance company" or "insurer" does not include an insurance agent or insurance broker.

2. If an insurance company that is not presently issuing or underwriting a covered product should do so in the future, the insurance company would then become subject to the BSA regulations (but only to the extent of its business relating to covered products). Conversely, if an insurance company ceases issuing or underwriting covered products, the insurance company would no longer be subject to the BSA regulations.

(3) Covered products are defined at 31 CFR 1025.100(b), Covered product, as:

1. A permanent life insurance policy, other than a group life insurance policy;

2. An annuity contract, other than a group annuity contract; and

3. Any other insurance product with cash value or investment features.

(4) The definition of covered product encompasses any insurance product having the same kinds of features that make permanent life insurance and annuity products more at risk of being used for money laundering, such as, having a cash value or investment feature.

(5) The following insurance products meet the definition of a covered product:

1. Whole Life Insurance

2. Universal Life Insurance

3. Variable Life Insurance

4. Variable Universal Life Insurance

5. Fixed Annuity

6. Equity Indexed Annuity

7. Variable Annuity

(1) Insurance companies as defined at 31 CFR 1025.100(g), Insurance company or insurer, must:

1. Create and maintain an AML program as required by 31 CFR 1025.210, Anti-money laundering programs for insurance companies.

2. File SARs as required by 31 CFR 1025.320, Reports by insurance companies of suspicious transactions, for suspicious transactions of $5,000 or more.

(2) See Guidance (Frequently Asked Questions) Anti-Money Laundering Program and Suspicious Activity Reporting Requirements for Insurance Companies (03/20/2008) at https://www.fincen.gov/resources/statutes-regulations/guidance/frequently-asked-questions-anti-money-laundering-program.

(3) Insurance companies are required to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts.

(4) Insurance companies must also file FinCEN Form 105, Report of International Transportation of Currency or Monetary Instruments.

1. All FinCEN Forms 105 must be filed with the customs officer in charge at any port of entry or departure.

2. If an examiner determines that an insurance company failed to file FinCEN Form 105 or meet the Currency or Monetary Instruments (CMIR) requirements, the examiner must make a referral to Customs through the BSA Policy Liaison to FinCEN.

(1) Each insurance company should identify and assess the money laundering risks that may be associated with its unique combination of products, services, customers and their geographic locations, distribution channels. Regardless of where risks arise, insurance companies must take reasonable steps to manage them.

(2) If the insurance company does not have a written risk assessment, the examiner will generally need to conduct more in- depth interviews to determine the insurance company's risk profile.

(3) The risk-based nature of the AML program requirement is designed to give an insurance company flexibility to tailor its AML program to specific circumstances. For example, the AML program for an insurance company that provides a wide range of covered products and has hundreds of independent agents and brokers would be structured differently from an AML program for an insurance company that offers small face value life policies, no annuity products, and has only captive agents.

(4) The level and sophistication of analysis will vary from one insurance company to another because of the varying risks of products, distribution channels and customers. The detailed analysis is important because within any type of product, distribution channel, and category of customer, there are varying levels of risk. A detailed analysis will help the insurance company implement appropriate policies, procedures, and processes to mitigate risks.

(5) An insurance company's risk categories will vary depending on the insurance company. The risk categories below are not exhaustive; however, they provide examples of risk categories the insurance company should consider when performing its risk assessment.

(1) Other than the AML program and filed BSA reports, records most commonly found include:

1. Applications for covered products

2. Insurance policies

3. Insurance contracts

(1) Examinations of insurance companies must be started under Title 31 because they have an AML program requirement under Title 31 and Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, filing requirements under both Titles 26 and 31. This allows the examination to cover the determination of whether their AML program is adequate and to examine compliance with the Form 8300 filling requirements.

(2) For example, IRS is conducting a Title 31 examination of an insurance company that is required to have an AML program under 31 CFR 1025.210, Anti-money laundering programs for insurance companies. During the examination of the AML compliance program, the examiner identifies delinquent Form(s) 8300 because of an inadequate AML program or a failure to implement the AML program. The failure to timely file a complete and correct Form 8300 is a violation of 31 CFR 1027.330, Reports relating to currency in excess of $10,000 received in a trade or business. It is also a violation of 26 CFR 6050I-1, Returns relating to cash received in trade or business, etc.

(3) There is no prohibition against using information acquired in a Title 31 exam in a Title 26 exam.

(4) When an insurance company has a requirement under Title 31 for an AML compliance program and under Titles 26 and 31 to file a Form 8300, the BSA examiner must notify the company, up-front, that it is subject to both Title 26 and Title 31 and the examination may cover both sections of the law.

(5) The current Form 8300 Lead Sheet is designed so it can be used to determine compliance with Form 8300 requirements under either section of the law. The examination steps to determine a company's compliance with the Form 8300 requirements remain the same no matter under which section of the law the examination is conducted.

(6) There is no examination step that requires an examiner to review tax return information or IDRS to determine Form 8300 compliance. It is only at the end of the Form 8300 examination, when processing the penalty case file under Title 26 that ERCS and IDRS need to be accessed.

(7) If an insurance company case is assigned as a Form 8300 Title 26 exam and the BSA group manager and examiner, prior to contacting the company, determine the examination should be initiated under Title 31, the case may be surveyed.

1. Survey the case and return it to BSA Exam Case Selection (ECS).

2. BSA ECS will record the survey. It will then evaluate the company for a Title 31 examination using only sources available for Title 31 cases. BSA ECS will select the case for Title 31 examination based on this evaluation only. If appropriate, BSA ECS will then assign the case as a Title 31 examination. If possible, the case should be assigned to a group different from the surveying group.

3. If possible the BSA group manager should assign the Title 31 case file to an examiner different from the examiner involved in the surveyed case.

4. If it is impossible to reassign, the BSA examiner should wait a minimum of 30 days before contacting the company so that there is a separation as complete as possible from the Title 26 case information.

(8) For a Title 26 Form 8300 examination, BSA ECS uses tax return information to identify entities subject to Form 8300 filing requirements, and to build and grade the cases. The disclosure laws under IRC 6103, Confidentiality and disclosure of returns and return information, apply throughout the entire Title 26 examination process.

1. If a Form 8300 examination is started under Title 26 the disclosure rules under IRC 6103 apply and the information cannot be used in a Title 31 exam without securing a related statute determination. The examiner must secure a related statute determination, signed by the Territory Manager, prior to addressing any Title 31 issues.

2. For example, an insurance company is assigned for a Form 8300 examination under Title 26. During the examination, the examiner determines that the company underwrites, and issues covered products. Because the examination has already been started, it is not possible to survey the Title 26 case. The Title 31 information can only be used if a related statute determination is made. See IRM 4.26.14, Bank Secrecy Act, Disclosure, for the procedures for a related statute determination.

3. If an examination is opened under Title 26 the examiner cannot ask the company any questions related to the BSA such as questions about their AML compliance program.

(1) An effective risk-based BSA examination consists of the following phases:

1. Pre-Plan

2. Setting the scope and depth of the examination

3. Interview - Onsite, walk through of the business, and interview of the appropriate personnel

4. Evaluation of the AML program to determine if it has been implemented and is effective

5. Examination of the books and records

6. Transaction testing

7. Developing conclusions and finalizing the examination

(2) The techniques described in this section are intended as a guide and are not all-inclusive.

(3) The Title 31 Lead Sheet Package and the Form 8300 Lead Sheet Package are available on the BSA SharePoint and should be used to guide the administrative aspects of the examination.

(4) An insurance company's AML program must be commensurate with their level of risk. The company should not necessarily take any single indicator as evidence of lower or higher risk. The risk assessment process should weigh several risk factors including:

1. Geographic locations

2. Customers

3. Product

4. Services

5. Distribution Channels

6. Operational risk