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September 21, 1998

FinCEN Further Streamlines Exemption Process

The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) announced today a final rule that represents the second part of its effort to significantly reduce the number of times depository institutions must report large currency transactions. Like an earlier rule aimed at larger bank customers, this rule further simplifies the way banks can exempt large currency transactions by retail and other businesses from the reporting requirements. The two rules reflect a major effort to re-engineer rules that have been in place for over a quarter of a 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 information provided 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 not of interest to investigators, and the reporting requirements have been criticized by banks because they mandated repetitive paperwork for such routine transactions. The 1994 Money Laundering Suppression Act required the Treasury to take steps to eliminate unnecessary filings.

The rule published today was proposed on September 8, 1997, and is aimed at exemption of non-public companies, especially smaller businesses, which represents a majority of reports filed today. It permits banks to exempt a domestic business that has routine needs for 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 eliminates earlier cumbersome and costly procedures that required a great deal of paperwork before an exemption could be authorized. This rule does not exempt banks from reporting suspicious activity involving these exempted entities. In addition, certain categories of businesses, such as real estate brokers, automobile dealers, and money transmitters, may not be exempted.

The rule applies to all depository institutions, banks, thrifts, and credit unions, but not to other financial institutions. Banks have until July 1, 2000, to phase in compliance with the simplified procedures, although they may adopt the procedures for customers beginning on October 21, 1998.

The exemption of the businesses covered by the new rule must be renewed every two years, but a proposed requirement that banks include information about a customer’s total currency transactions on the renewal form has been eliminated as unduly burdensome and unnecessary; now banks must simply indicate that they have maintained a system of monitoring the transactions in the account for reportable suspicious activity.

Cooperation between FinCEN and the banking industry was especially important in the redesign of the exemption system. "FinCEN has worked closely with the American Bankers Association and other groups to simplify and reform our regulatory programs so that they are cost-effective, not burdensome," said William F. Baity, Acting Director of FinCEN. "We look forward to continuing these discussions as we all work together to determine how best to fight money laundering."

The first phase created a streamlined exemption procedure that eliminated from reporting all transactions in currency between banks and certain classes of exempt persons. That rule 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) companies listed on the major national stock exchanges; and (4) subsidiaries of such listed companies.

FinCEN believes that these new exemption procedures will constitute a significant improvement over the current system. More than 12 million CTRs were filed in 1997. It is anticipated that implementation of the procedures in the two regulations could lead banks to decrease their CTR filings by more than the 30 per cent reduction sought in the Money Laundering Suppression Act.

The final rule is published in the Federal Register today.

View Phase II CTR Exemption Rule - effective date 10/21/98