On April 27, the Financial Crimes Enforcement Network (FinCEN) released guidance to assist depository institutions in determining the appropriateness of exempting from currency transaction reporting requirements certain non-listed business customers that derive some portion of their annual gross revenues from ineligible business activities.
Under currency transaction reporting regulations, a bank may exempt certain customers from currency transaction reporting requirements if those customers meet specified criteria. An exemption is permitted to a customer deemed to be a “non-listed business”, which is defined as a customer that (i) maintained a transaction account at the bank for at least two months or upon which the bank has conducted an appropriate risk-based analysis of the legitimacy of the customer’s transactions prior to the customer having maintained such a transaction account for two months; (ii) frequently engages in transactions in currency in excess of $10,000 with the bank; and (iii) is incorporated or organized under the laws of the United States or a state or is registered as and eligible to do business within the United States or a state.
Certain businesses are ineligible for treatment as a “non-listed business”, including those operating as a financial institution or as an agent of a financial institution of any type. The guidance makes clear, however, that a customer that engages in multiple business activities, including those that are generally ineligible for the exemption as a non-listed business, may qualify for an exemption as a non-listed business so long as no more than 50% of its annual gross revenues are derived from one or more ineligible business activities. In order to determine whether a business customer engaged in multiple business activities meets this test, a bank must consider and maintain materials and other information to allow it to substantiate that the decision to exempt such business customer from currency transaction reporting was based upon its reasonable determination of the sources of such customer’s gross revenues. According to FinCEN, this assessment should be based upon the institution’s “understanding of the nature of the customer’s business, the purpose of the customer’s accounts, and the actual or anticipated activity in those accounts.” Importantly, the regulation requires that the information supporting each designation of an exempt non-listed business customer must be reviewed and verified by the institution at least once per year.
FinCEN’s guidance also states that it was developed after consultations with the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision.
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