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USA PATRIOT Act Monitor News Release: "Frequently" Defined 12/3/2002
7:09:18 AM Eastern Standard Time
"Frequently" Given Some Specificity by FinCEN in Determining if a Non-listed Business Can Be Exempted From CTR Reporting
FinCEN, in a release posted on the agency's website, at www.fincen.gov/final_definition_of_frequent.pdf.,
attempts to clarify one of the requirements for exempting certain businesses.
The release, Guidance on Interpreting "Frequently" Found In The
Criteria For Exempting A "Non-Listed Business" Under 31 C.F.R. §
103.22(d)(2)(vi)(B), is not likely to have a significant impact on the number
of exemptions sought, but it does indicate that FinCEN understands that the
process as it currently exists is both complex and, on some issues, difficult
Under 31 CFR 103.22(2)(d)(vi), a bank need not file a CTR between the bank and a "non-listed business" that meets certain qualifications, one of which is that the business "frequently engages in transactions in currency with the bank in excess of $10,000." A non-listed business is distinguished from businesses that are automatically exempted, including banks, governmental agencies and entities that exercise governmental authority, and companies listed on the New York and American Stock Exchanges and on the Nasdaq Stock Market (except for Nasdaq Small-Cap Issues). Non-listed businesses can qualify for exemption if they have maintained a transaction account at the bank for at least 12 months, they are incorporated or organized under U.S. or state law, or registered and eligible to conduct business in the U.S. or in a state, and they meet the "frequently engaging" requirement.
The problem has been that the regulations do not define "frequently." The adverb was included in 31 U.S.C. 5313(e)(2)(B), added to the Code by section 402 of the Money Laundering Suppression Act, Title IV of the Riegle Community Development and Regulatory Improvement Act of 1994. The requirement was taken into the regulations, at 31 CFR 103.22(d)(2)(vi)(B), without elaboration.
The Guidance indicates that many customers of depository institutions conduct large currency transactions in the ordinary course of their business operations and thus clearly are doing so frequently. Where the situation is not so clear, the Guidance continues, the "institution bank should make its decision on a customer-by-customer basis, taking into account all facts and circumstances the depository institution has obtained in order to make a good faith determination regarding the customer's eligibility for exemption." The customer-by-customer analysis is supposed to consider information on the "nature of the customer's business operations and the cause of the recurring (or routine) need to engage in large currency transactions."
Then some specificity is supplied:
"In general, a customer that is being considered for exemption as a non-listed business should be conducting at least 8 large currency transactions throughout the year. In essence, this means the customer conducts a large currency transaction approximately every six weeks. The fact a customer conducts fewer than 8 large currency transactions annually would generally indicate that any large currency transactions conducted do not relate to a recurring or routine need."
It appears that if the nature of the customer's business operations provide
an understandable need for routine and recurring cash transactions, eight
transactions a year are enough to justify an exemption. Fewer will be difficult.
If the business is seasonal, the Guidance indicates, there should be "at least 8 large currency transactions during the portion of time the business operates or experiences increased cash flow." Thus, no pro-rating seems to apply. An example is provided of a business that routinely makes cash deposits and withdrawals, but only on holiday weekends when sales are sufficiently high do these transactions exceed $10,000. As long as there are eight reportable transactions each year, there is enough frequency to justify giving an exemption to the seasonal business.
The Federal Reserve Bank Secrecy Examination Manual seems, at one point, to suggest the "regularly and frequently" would require much more activity than eight large cash transactions each year.
"[T]he bank should review the customer's transaction history, including its cash deposit or withdrawal transactions. This review is necessary to determine whether the customary conduct of a business entity's lawful domestic business involves currency deposits or withdrawals exceeding $10,000 that occur regularly and frequently (e.g., daily or several times per week, or in some cases, weekly or biweekly). If the bank's records do not indicate that that entity has had regular and frequent currency deposits or withdrawals exceeding $10,000, then the bank should not proceed any further with the exemption process, notwithstanding the nature of the customer's business." (BSA Examination Manual § 501, Currency and Foreign Transactions Reporting Act Exemption Handbook, "How to Exempt Customers" (emphasis added). Pagination of materials incorporated in the BSA Manual is sometimes difficult; here, both page numbers 9 and 15 are printed on the page where this quotation is found.)
Any examiners relying on this might take "frequently" as meaning at least once every two weeks, not once every six. Still, it is doubtful that this portion of the BSA Manual, written at least five years ago, reflects current thinking among the regulators.
Not many banks will be inclined to study accounts to determine if there have been eight or more reportable transactions in the last year. A considerably larger number of transactions is likely to be an easier threshold. Though the Guidance reminds banks that exempting customers in good faith will protect them from civil money penalties, it is not likely that this will provide enough comfort to encourage use of the process in marginal cases, particularly considering the number of banks that do not use the process in considerably less marginal instances, as noted in Treasury's recent Report to the Congress: Use of Currency Transaction Reports (the "366 Report" posted on the FinCEN website in October 2002).
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