BACKGROUND FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND The purpose of the Financial Recordkeeping and Reporting of Currency and Foreign Transactions Act of 1970, often referred to as "The Bank Secrecy Act", is to require financial institutions to maintain appropriate records and to file certain reports which have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings. The financial reporting and recordkeeping regulations issued pursuant to the Act were originally intended to aid investigations into an array of criminal activities; from income tax evasion to the laundering of money by organized crime. In recent years, however, the reports and records prescribed by the bank secrecy rules have been mainly utilized as tools for investigating individuals suspected of engaging in illegal drug activities. Law enforcement agencies have found currency transactions reports to be extremely valuable in tracking the huge amounts of cash generated by illicit drug traffickers. Failure to file currency transaction reports has resulted in criminal charges being brought against banks and bank employees where it was shown that such failure furthered other illegal activity such as illicit drug traffic. Due to the seriousness of the drug traffic problem and in veiw of the large currency surplusses flowing into or through banks in certain sections of the country; most notably south Florida, the federal financial institutions supervisory agencies joined in a coordinated effort with the Treasury and law enforcement agencies to counteract what was believed to be increased noncompliance with the large currency transactions reporting requirements fostered at least in part by the attractive inducements provided by cash-rich drug traffickers. The comprehensive examination procedures put in place by the examining agencies in early 1981 were a result of this effort. THE BANK SECRECY ACT The Act consists of two parts; Title I Financial Recordkeeping, and Title II Reports of Currency and Foreign Transactions. Title I authorized the Secretary of the Treasury to issue regulations which require insured financial institutions to maintain certain records. This title empowered the Treasury to prescribe regulations requiring uninsured institutions "to require, retain, or maintain" records of the type required of insured institutions, and "to maintain procedures to assure compliance therewith". Title II established criteria for and empowered the Treasury to prescribe regulations governing the reporting of certain transactions by and through financial institutions; reporting the movement of currency and monetary instruments in excess of $5,000 into, out of, and through the United States; and maintaining records and filing reports of transactions of residents of the United States, or other persons in the United States, doing business with foreign financial institutions. Implementing regulations (31 C.F.R. Part 103) have been issued by the Secretary of the Treasury and are contained in the FDIC Prentice-Hall Service. CURRENCY TRANSACTIONS REPORTS A financial institution within the United States generally must file a Currency Transaction Report, IRS Form 4789, for each transaction in currency over $10,000. A transaction in currency is any transaction involving the physical. transfer of currency from one person to another and covers deposits, withdrawals, exchanges of currency or other payments or transfers of currency. Currency is defined as currency and coin of the United States or any other country as long as it is customarily accepted as money in the country of issue. EXCEPTIONS Reports are not required of transactions with Federal Reserve Banks, Federal Home Loan Banks, or other domestic banks. NOTE: An interpretation by the Treasury Department states that multiple transactions on the same day by or for the same customer which exceed $10,000 in currency are reportable transactions if the financial institution is aware of them. In certain cases, transactions spread over a number of days may also constitute reportable transactions; however, banks are not required to establish elaborate procedures to try to detect this type of activity. EXEMPTIONS A bank may exempt transactions of certain categories of customers from the reporting requirements: 1) Deposits and withdrawals by an established customer who is a United States resident and operates a retail type of business in the United States. A retail business is defined as one which provides goods to the ultimate consumer; 2) Deposits and withdrawals of currency from an existing account by an established depositor who is a United States resident and operates a sports arena, race track, bar, restaurant, hotel, amusement park, vending machine company, theatre, or a check cashing service which is licensed by State or local government; 3) Deposits or withdrawals, exchanges of currency or other payments and transfers by local or state governments, or the United States or any of its agencies or instrumentalities; or 4) Withdrawals for payroll purposes from an existing account by an established depositor who is a United States resident and operates a firm that regularly withdraws more than $10,000 in currency for payroll purposes. A bank may exempt transactions of these types of customers provided the transactions are in amounts that the bank may reasonably conclude do not exceed the customary conduct of the lawful domestic business of that customer. The bank must maintain a centralized list of all exemptions containing the name, address, type of business, taxpayer identification number and account number for each exempt customer and whether the exemption covers deposits, withdrawals, or both; and the dollar limit of the exemption granted. of domestic banks to and from which currency is shipped must also be kept. A list NOTE: Except for transactions of government entities, the regulation only allows an exemption for deposits and/or withdrawals. All other currency transactions, e.g. exchanges of currency or purchases of cashiers checks which do not flow through a deposit account, exceeding $10,000 must be reported even if the customer has been granted an exemption. Also, currency transactions which exceed the dollar limit established for each exempt customer must be reported. NOTE: Exemptions may not be granted for automobile, boat, or airplane dealerships or for nonbank financial institutions. A nonbank financial institution is any entity defined in Section 103.11 as a "financial institution" which does not also meet the definition of a "bank" in the Regulations. For example, American Express is "an issuer of travelers' checks" which is defined as a "financial institution" in the Regulations, but it is not one of the entities defined as a "bank"; therefore, American Express is a nonbank financial institution. A bank may make a request to the Secretary of the Treasury for permission to grant special exemptions if the bank believes that circumstances warrant such exemptions. REPORTS AND REQUIRED INFORMATION Reports required by Section 103.22(a) of the regulations must be filed on IRS Form 4789 with the Internal Revenue Service within 15 days following the date of the transaction. The bank must retain a copy of each report filed for a period of five years from the date of the report. The regulations specifically require that all information called for in the reports be furnished. Each party to the transaction must be identified by name and address, account number, and social security number or taxpayer identification number. The method used to identify the person presenting the transaction must be recorded on the report form. If there is no social security number or taxpayer identification number, the word "None" should be entered in the appropriate block. For an alien, or a person who indicates that he is not a resident of the United States, verification of identity must be made by passport, alien identification card, or other official document evidencing nationality or residence. For others, the identity verification procedures that would normally be used in cashing a check should be performed, e.g., drivers license or credit card. REPORTS OF TRANSPORTATION OF CURRENCY OR MONETARY INSTRUMENTS Each person who physically transports, mails, or ships, or causes to be physically transported, mailed, or shipped, currency or other monetary instruments in an aggregate amount exceeding $5,000 on any one occasion from the United States to any place outside the United States shall make a report on U.S. Customs Form 4790 at the time of entry into the United States or at the time of departure, mailing or shipping from the United States. Each person who receives in U.S. currency or other monetary instruments an aggregate amount exceeding $5,000 on any one occasion which has been transported, mailed or shipped to such person from any place outside the United States with respect to which a report has not been filed under Section 103.23(a) whether or not required to be filed thereunder, shall make a report stating the amount, the date of receipt, the form of monetary instruments, and the name of the person from whom received. The U.S. Customs Form 4790 shall be filed within 30 days after receipt of the currency or monetary instruments. NOTE: Banks are not required to determine the origin or destination of currency received or disbursed over the window or to file a Form 4790 unless the bank knows that a truthful Form 4790 has not been filed by the customer. Reports are not required of entities listed in Section 103.23(c). Refer to that section for more specific information concerning exceptions. REPORTS OF FOREIGN FINANCIAL ACCOUNTS Each person subject to the jurisdiction of the United States (except a foreign subsidiary of a U.S. person) having a financial interest in, or signature authority over a bank, securities, or other financial account in a foreign country shall file a Treasury Form 90-22.1, Report of Foreign Bank, Securities, and Other Financial Accounts, on or before June 30 of each year. The report shall contain the name in which the account is maintained, account number or other identification, the name and address of the foreign bank, the type of account and the maximum value of the account for the reporting period. Persons having a financial interest in 25 or more foreign financial accounts need only note that fact on the form. Such persons will be required to provide detailed information concerning each account when so requested by the Treasury. RECORDS TO BE MADE AND RETAINED BY FINANCIAL INSTITUTIONS Each financial institution shall retain either the original or a microfilm or other copy or reproduction of each of the following: A record of each extension of credit in an amount in excess of $5,000, except an extension of credit secured by an interest in real property, which record shall contain the name and address of the borrower, the amount, the nature or purpose and the date of the loan. NOTE: The stated purpose can be very general such as passbook loan, personal loan, business loan, etc. Additionally, the purpose of a renewal, refinancing or consolidation is not required as long as the original purpose has not changed and the original statement of purpose is retained for a period of five years after the renewal, refinancing or consolidation has been paid out. A record of each advice, request, or instruction received regarding a |