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Winter 2003-01 The minimum you need to know about

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Number 50
Winter 2003

The minimum you need to know about
reporting cash transactions

Federal law requires that a number of people report every cash transaction-deposits,
withdrawal, transfers, etc.-that exceeds $10,000. Failure to do so exposes them to severe penalties.

The law behind this requirement is the Financial Institutions Recordkeeping and Bank Secrecy Act of 1970, Pub. L. No. 91-508, which was enacted by Congress to combat the use of secret foreign bank accounts for money laundering and other crimes. Its implementing regulation, promulgated by the U.S. Secretary of the Treasury, may be found at 31 C.F.R. § 103.11.

Not just banks

Although banks always come to mind first whenever considering this subject, the law actually embraces a longer list of entities, to wit:

l banks (domestic and foreign)
l savings institutions
l credit unions
l insurance companies
l securities brokers and dealers
l currency exchangers and dealers
l issuers of traveler's checks
l transmitters of funds
l casinos
l real estate agents
l travel agents
l and even automobile dealers.

Not just cash

This law's coverage extends beyond what is usually considered to be "cash," i.e., the coin and currency of the United States or another country, as reports are also mandatory for transactions in what it calls "monetary instruments."

Common monetary instruments are:

traveler's checks

money orders

bearer stock and other securities

bearer checks and other negotiable instruments.

Warehouse receipts and bills of lading are excluded from the definition.

Reports

All such transactions must be reported to the Commissioner of Internal Revenue of U.S. Treasury within 15 days from the date that it takes place.

Structured transactions

But it would be too simple to circumvent this law by simply making several transactions of, say, $9,999.99. That is where something called "structuring transactions" comes in.

Multiple transactions must be aggregated and reported if the financial institution or other entity required to report can relate them. A typical relation is when a bank knows that several withdrawals were made for the benefit of the same person. The institution cannot simply "look the other way" and claim ignorance of a structured transaction. Knowledge is imputed, for example, if a suspicious employee omits inquiring further.

Exemptions

The law provides a number of exemptions from the reporting requirement. Among these are:

transactions between domestic financial institutions,

deposits or withdrawals by a U.S. resident that operates a retail business (except automobile, boat and airplane dealers),

U.S. resident operators of arenas, race tracks, amusement parks, bars, restaurants, hotels, licensed check cashing services, vending machines and theaters,

transactions by federal and state government agencies,

payroll withdrawals by a U.S. resident.

Banks, but not other institutions, are also exempted from reporting currency transactions with corporations and other entities whose securities are listed on the New York Stock Exchange or the American Stock Exchange, or designated as a "National Market Security" on NASDAQ.

Other specific exemptions may be solicited from the Commissioner of Internal Revenue.

In each case, the financial institution must have determined that the amounts involved are commensurate with the customer in question, the type of business and the typical cash flow of the operation.

Bank checks

A special rule applies to bank checks, cashier's checks, traveler's checks and money orders issued by financial institutions. None of these may be issued in amounts of $3,000 or more unless the purchaser has a transaction account with the financial institution, or the purchaser properly identifies himself or herself. The institution must obtain and keep the purchaser's name, address, social security or alien identification number, date of birth, date of purchase of the item, the type of item purchased, its serial number and its dollar amount.

Recordkeeping

Federal law also orders that records be kept. The original and a copy of:

extensions of credit in excess of $10,000 (except mortgages) and

requests for the transfer of more than $10,000 to or from any place outside the United States,

must be maintained for five years.

Banks, thrift institutions and credit unions must also maintain records of:

documents granting signature authority over deposits

each deposit

each check and other items over $100 drawn

documents necessary to reconstruct a demand deposit account and to trace a check over $100

certificates of deposit.

Internal controls

Pursuant to guidelines promulgated by the Federal Deposit Insurance Corporation, banks must implement a system of internal controls designed to identify transactions that need to be reported. Banks are subject to periodic federal examinations for compliance with reporting and recordkeeping regulations.

Transportation of currency

Every person-not just financial institutions, car dealers, casinos, etc.-who physically transports, mails or ships currency or other monetary instruments in an aggregate sum exceeding $10,000, from or into the United States, must file a report with the Secretary of the Treasury.

Every person who receives such amount in the United States assumes the same obligation, unless the report therefor has already been filed. This report must state the amount, date of receipt, form of monetary instrument and the person from whom the money was received.

This obligation does not apply to transfers made through normal banking channels that do not involve physical transportation.

Some exceptions are:

banks and securities brokers, for transfers via the postal service or common carrier

bank deliveries to established customers

common carriers of passengers, with respect to currency or instruments in the possession of passengers

common carriers of goods, with respect to currency or instruments not declared by the shippers.

Penalties

Someone who fails to comply with these reporting and recordkeeping duties may be subject to civil and criminal penalties.

Civil penalties are of various kinds, and go all the way up to the total sum of a structured transaction. This may be a substantial amount of money. The financial institution's license may be revoked too.

Criminal penalties extend to $500,000, imprisonment for up to ten years, or both.

"The sophistication and comprehensiveness of the institution's internal compliance program should be gauged by the type of activities engaged in by the institution and the quantity of transactions subject to the Bank Secrecy Act and related rules and regulations. As an example, a 'wholesale' institution that conducts no cash transactions needs only to have an internal compliance program that ensures that, should a covered transaction be presented to the institution, the institution's employees will have sufficient education to understand that the transaction may be subject to Bank Secrecy Act requirements and the employee has the means to obtain additional instructions from manuals or employees at other branches of the institution. As an alternative, an institution that conducts a retail operation needs specific and comprehensive internal compliance procedures. It is the examiner's responsibility to determine the appropriateness of the internal compliance program based on the institution's activities."

-FDIC Financial Recordkeeping Regulations Examination Procedures, 31 C.F.R. 103


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