The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN)announced today a final rule that representsthe second part of its effort to significantly reduce the number of times depositoryinstitutions must report large currency transactions. Like an earlier rule aimed at largerbank customers, this rule further simplifies the way banks can exempt large currencytransactions by retail and other businesses from the reporting requirements. The two rulesreflect a major effort to re-engineer rules that have been in place for over a quarter ofa century.
The requirement that financial institutions report currency transactions in excess of$10,000 by their customers is a cornerstone of the Bank Secrecy Act. The informationprovided on those reports, called CTRs, is often vital to investigators. At the same time,the reporting requirement includes transactions by cash intensive businesses that are notof interest to investigators, and the reporting requirements have been criticized by banksbecause they mandated repetitive paperwork for such routine transactions. The 1994 MoneyLaundering Suppression Act required the Treasury to take steps to eliminate unnecessaryfilings.
The rule published today was proposed on September 8, 1997, and is aimed at exemptionof non-public companies, especially smaller businesses, which represents a majority ofreports filed today. It permits banks to exempt a domestic business that has routine needsfor large amounts of currency by simply filing a form stating that the business is exempt,so long as the business has been a bank customer for one year. The rule thus eliminatesearlier cumbersome and costly procedures that required a great deal of paperwork before anexemption could be authorized. This rule does not exempt banks from reporting suspiciousactivity involving these exempted entities. In addition, certain categories of businesses,such as real estate brokers, automobile dealers, and money transmitters, may not beexempted.
The rule applies to all depository institutions, banks, thrifts, and credit unions, butnot to other financial institutions. Banks have until July 1, 2000, to phase in compliancewith the simplified procedures, although they may adopt the procedures for customersbeginning on October 21, 1998.
The exemption of the businesses covered by the new rule must be renewed every twoyears, but a proposed requirement that banks include information about a customer’stotal currency transactions on the renewal form has been eliminated as unduly burdensomeand unnecessary; now banks must simply indicate that they have maintained a system ofmonitoring the transactions in the account for reportable suspicious activity.
Cooperation between FinCEN and the banking industry was especially important in theredesign of the exemption system. "FinCEN has worked closely with the AmericanBankers Association and other groups to simplify and reform our regulatory programs sothat they are cost-effective, not burdensome," said William F. Baity, Acting Directorof FinCEN. "We look forward to continuing these discussions as we all work togetherto determine how best to fight money laundering."
The first phase created a streamlined exemption procedure that eliminated fromreporting all transactions in currency between banks and certain classes of exemptpersons. That rule exempts banks from reporting transactions in currency involving (1)other banks operating in the United States; (2) government departments and agencies, andother entities which exercise governmental authority; (3) companies listed on the majornational stock exchanges; and (4) subsidiaries of such listed companies.
FinCEN believes that these new exemption procedures will constitute a significantimprovement over the current system. More than 12 million CTRs were filed in 1997. It isanticipated that implementation of the procedures in the two regulations could lead banksto decrease their CTR filings by more than the 30 per cent reduction sought in the MoneyLaundering Suppression Act.
The final rule is published in the Federal Register today.
View Phase II CTR Exemption Rule - effective date 10/21/98