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Exempt or not exempt: Easing CTR-filing burdens

Jul 25, 2023

Financial institutions are looking more closely at policies, procedures and practices to create workplace efficiencies. Amid a thin and competitive pool of job candidates, reducing the workload on overworked, limited staff has become a top priority.

One area consuming considerable staff resources is currency transaction reports (CTRs).

Filed CTRs also increase the workload of law enforcement as the reports are weeded through in search of suspicious activity.

To reduce overall CTR volume, fnancial institutions may lean on CTR-exempt provisions.

The current CTR-filing threshold of more than $10,000 has not been increased since the Bank Secrecy Act (BSA) was enacted in 1970. And it is not unusual for people to use large sums of cash to travel, complete home maintenance projects, loan to friends and family, or purchase items to avoid high-interest financing.

At some point, the Anti-Money Laundering Act (AMLA) of 2020 may increase the filing threshold, but until then, be aware of the ways to appropriately reduce reporting burden.

The exemption provisions allow a financial institution to designate certain customers as exempt from filing CTRs when specific requirements are met and a reasonable belief can be formed that a business has legitimate purpose to conduct frequent currency transactions.

Financial institutions may use the CTR exemption provisions to eliminate CTRs that provide little or no value to law enforcement.

Eligible businesses

What types of businesses can the institutions exempt? Those deemed “Phase I” or “Phase II” businesses that are not listed as ineligible.

  • Phase I entities include other financial institutions, government agencies or departments, any entity exercising governmental authority within the United States, as well as any entity (other than a bank) whose common stock or equity interests are listed on specified stock exchanges, such as the New York Stock Exchange or the American Stock Exchange. Little to no documentation is needed to immediately exempt these types of entities from filing CTRs.

  • A Phase II nonlisted and payroll business is defined as a commercial enterprise to the extent of its domestic operations. And this applies only with respect to transactions conducted through its exemptible accounts and when it has maintained a transaction account at the exempting bank for at least two months, or sooner if the bank forms a reasonable belief that the customer has a legitimate business purpose for conducting frequent large currency transactions.

If the business engages in at least five transactions that exceed $10,000 in those first two months and every rolling 12 months thereafter, is incorporated, and is registered as and eligible to do business in the United States or a state, it is generally eligible for exemption. Once determined to be eligible for exemption under these requirements, the financial institution must conduct an annual review to recertify that each of these requirements are still effective.

Ineligible businesses

The Federal Finanical Institutions Examination Council (FFIEC) BSA/AML examination manual outlines businesses that cannot be exempted from CTR filings. A nonlisted business that derives more than 50% of its gross revenues from one or more ineligible business activities is also excluded from being exempt. In contrast, businesses that engage in ineligible activities may still qualify for exemption status if gross revenues from such activities are less than 50% of total gross revenues.

An ineligible business is defined as engaged primarily in one or more of the following specified activities:

  • Serving as a financial institution or as agents for a financial institution of any type
  • Purchasing or selling motor vehicles of any kind, vessels, aircraft, farm equipment or mobile homes
  • Practicing law, accounting or medicine
  • Auctioning of goods
  • Chartering or operation of ships, buses or aircraft
  • Operating a pawn brokerage
  • Engaging in gaming of any kind (other than licensed pari-mutuel betting at racetracks)
  • Engaging in investment advisory services or investment banking services
  • Operating a real estate brokerage
  • Operating in title insurance activities and real estate closings
  • Engaging in trade union activities
  • Engaging in any other activity that may, from time to time, be specified by FinCEN as ineligible, such as marijuana-related businesses

Unclear exemption status

Some types of businesses are often thought to be ineligible yet are not clearly defined above or fall into a gray area. Here are a few examples that are often challenging to determine eligibility:

  • Casinos: It depends. Tribal casinos may be exempt as a department or agency of a tribe if wholly owned and operated by a tribe and by filing the appropriate paperwork. A tribal casino not wholly owned by the tribe or that is independently owned and operated by a corporation in which the tribe is a shareholder would not be eligible.
  • Churches: It depends. Religious organizations generate cash from giving, sales of books or rummage sales that are eligible to be exempt. However, the institution must also consider the revenue derived from gaming such as bingo, lottery, etc. that must not exceed 50% of the organization's revenue.
  • Marijuana-related business: No. A business engaged in marijuana-related activity may not be treated as a nonlisted business and, therefore, is not eligible for consideration for an exemption.
  • Hemp/CBD: Yes. These items are no longer on the controlled substance lists and are legal business activities that may be considered for exempt status.
  • Money service business (MSB): No. As a primary business that provides financial services, an MSB may not be exempted. However, a grocery store that provides MSB services, such as check cashing, that accounts for less than 50% of its revenue may be exempted.
  • Liquor stores: Yes. Liquor stores are eligible to be exempted if one or more ineligible activities does not account for more than 50% of revenue.
  • ATM owners/operators: Yes. This type of entity is eligible for exemption.
  • SAR filed on entity: Yes. If an exempted business or related persons is involved in a transaction that has been reported in a suspicious activity report (SAR), the institution is not required to cease treating the business or person as exempt.

To exempt or not to exempt

When determining if the institution can exempt more customers to increase efficiency , keep in mind that the time and effort needed to determine eligibility, meet the filing requirements to exempt a customer and conduct an annual review may be much less than filing many unnecessary CTRs over the year.

This will also ease the burden on law enforcement to sift through CTRs that provide little to no value in identifying financial crimes.

How Wipfli can help

The decision to exempt, or to retain or revoke a customer’s exemption, should be made by the institution in accordance with its risk-based, anti-money laundering policies, procedures and controls. Wipfli professionals can help your financial institution determine what efficiencies can be gained by increasing the number of exempted customers and decreasing the volume of CTRs.

Our compliance consultantscan provide the support you need. Contact us to learn more.

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Author(s)

Stephanie Jennings, CRCM, CCBTO
Manager
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