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September 8, 1997

FinCEN Proposes to Further Streamline Exemption Process

The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) announced today a final rule and a proposed regulation aimed at significantly reducing the number of reports required to be filed by banks for large currency transactions. These two regulations reflect a major effort to re-engineer regulatory and reporting requirements that have been in place for over a quarter of a century. The two regulations announced today concern the process by which banks may exempt retail and other businesses from the requirement to report currency transactions exceeding $10,000.

FinCEN has worked closely with the banking industry over the years to simplify and facilitate numerous regulatory requirements. A remaining problem has been the exemption system, which over time has become increasingly complicated and confusing. "FinCEN has worked closely with the American Bankers Association and other groups in the re-design of our regulatory programs," said Stanley E. Morris, Director of FinCEN. "We look forward to continuing these discussions as we all work together to determine how best to fight money laundering."

The final rule adopts, with some minor changes, the terms and conditions of an interim rule on exemptions which FinCEN published in April of last year. The notice of proposed rulemaking would further reform and simplify the current exemption system and Treasury is seeking public comment.

The information provided on large currency transactions, reported to Treasury on a Currency Transaction Report (CTR), is vital to investigators. However, reporting requirements have been criticized by banks because they mandated repetitive paperwork for routine transactions of legitimate cash intensive businesses and governments.

"These reports play a key role in helping analysts and investigators follow the money trail of criminals," said Morris. "By eliminating reports of little or no use to law enforcement we will enable banks to concentrate resources where they will do the most good - toward reporting suspicious activity to law enforcement."

The final rule creates a streamlined exemption procedure that eliminates from reporting all transactions in currency between banks and certain classes of exempt persons. It will make final the interim rule that exempts banks from reporting transactions in currency involving (1) other banks operating in the United States; (2) government departments and agencies, and other entities which exercise governmental authority; (3) corporations listed on the major national stock exchanges; and (4) subsidiaries of such listed corporations. The final rule reflects modifications that respond to comments that FinCEN received on the interim rule.

"The changes adopted in the final rule are intended to further improve the exemption process," said Morris. "Our goal is to reduce the burden of currency transaction reporting, require reporting only of information that is of value to law enforcement and regulatory authorities and create an exemption system that is cost-effective and that works."

The proposed rule aims to expand the reach of the exemption process to all types of large and small retail, service and wholesale businesses. One example is franchises who have a recurring legitimate need to deal in currency but are not listed on the national stock exchange. To be exempted under the proposal, a company must be a bank customer for 12 months, frequently engage in currency transactions exceeding $10,000 and be incorporated and organized under the laws of the United States.

These additional categories cover businesses of all sizes that are not subject to the sorts of regulatory and marketplace oversight as are entities listed on national stock exchanges. As proposed, banks would be required to provide an annual report to the Treasury Department for those customers they wish to exempt. The report would request identifying information and a summary of currency activity for the exempt customer.

As is the case for companies covered in the final rule, all transactions - whether or not they are in currency - must still be reported if the transaction appears suspicious.

FinCEN believes that these new exemption procedures will constitute a significant improvement over the current system. For example, there would no longer be any cash limits or "permitted ranges" for exempt transactions; any transaction in currency with an exempt person would be exempt from routine reporting. There also would no longer be a requirement for banks to obtain from their customers signed, exempt statements.

FinCEN anticipates that these proposed regulations, when they are both made effective, could exceed the 30 percent reduction in the number of currency transaction reports required to be filed by banks as mandated by the Money Laundering Suppression Act of 1994.

The final and proposed rules are published in the Federal Register today.