CTR Exemption Guidance
By David Dickinson
In the late 1990's, the Bank Secrecy Act was modified to allow banks to exempt customers IF they did not engage "PRIMARILY" in some activities (Phase II exemptions). Here's what 31 CFR 103.22(d)(6)(viii) states:
"A business engaged primarily in one or more of the following activities does not qualify for a Phase II exemption. A business may engage in multiple business activities and still receive a Phase II exemption so long as no more than 50% of its gross revenue comes from one of more of the following activities. Ineligible business activities are:
- Serving as financial institutions or agents of financial institutions of any type (e.g. unlicensed check cashing, selling money orders);
- The purchase or sale to customers of motor vehicles of any kind, vessels, aircraft, farm equipment or mobile homes;
- The practice of law, accountancy, or medicine;
- The auctioning of goods;
- Chartering or operation of ships, buses, or aircraft;
- Pawn brokerage;
- Gaming of any kind (other than licensed pari-mutuel betting at race tracks);
- Investment advisory services or investment banking services;
- Real estate brokerage;
- Title insurance and real estate closings;
- Trade union activities; and
- Any other activities that may be specified by FinCEN.
The question has always been "what does 50% of gross revenues mean and how does a bank know?" After 10 years, we finally have an answer. FinCEN released guidance on this topic on April 27th. This guidance provides several recommendations:
". . . a bank should obtain such additional supporting materials and information that would allow it to make a reasonable determination that it may appropriately exempt that customer from currency transaction reporting."
". . . a bank could reasonably make such a determination based upon customer completion of a bank checklist/form or receipt of a self-certification statement/letter signed by the customer containing credible information regarding its annual gross revenues . . . "
". . . a bank is encouraged to request and review a business customer's audited financial statements; however, other information may be similarly relied upon providing that it allows the bank to make a reasonable determination . . ."
". . . a bank could . . . also come to such a reasonable determination based upon reviewing other reliable information, such as: the customer's most recent tax returns that have been filed with the applicable federal and state authorities; the customer's unaudited financial statements; or documents relating to a bank's lending relationship with the customer."
Quite honestly, we were underwhelmed by this guidance. If you have exempted a business that deals in "ineligible activities" you probably already figured out a way to determine their level of activity and have documented this information. If nothing else, this guidance confirms what you're already doing. Oh well, thanks anyway FinCEN. 