Currency Transaction Report Exemptions Rule and Form Amendments
June 23, 2008
Financial Crimes Enforcement Network
Department of the Treasury
P.O. Box 39
Vienna, VA 22183
|RE:||Currency Transaction Report Exemptions Rule and Form Amendments|
The Credit Union National Association (CUNA) appreciates the opportunity to comment on the Financial Crimes Enforcement Network's (FinCEN's) notice of proposed rulemaking and request for comments on the exemptions to filing currency transaction reports (CTR). By way of background, CUNA is the largest credit union trade organization in this country, representing approximately 90 percent of our nation's approximately 8,300 state and federal credit unions, which serve more than 90 million members.
Summary of CUNA's Views
FinCEN is proposing to amend the requirements under the Bank Secrecy Act (BSA) regulations by simplifying certain aspects of the CTR exemption process. A summary of CUNA's views is below:
- CUNA believes replacing the current twelve month waiting period with a risk-based determination when designating an eligible non-listed or payroll (Phase II) customer/member for exemption would provide a more appropriate and flexible process for assessing exemption eligibility.
- In the guidance that interprets the Phase II exemption definitional requirement for frequently engaging in large currency transactions, FinCEN defines the term "frequently" as eight or more reportable transactions per year. CUNA is requesting that this definition be amended to a good-faith determination made on a case-by-case basis by the depository institution.
- CUNA supports eliminating the biennial filing of FinCEN's Designation of Exempt Person Form 110 (Form110) for Phase II customers/members.
- CUNA believes filing a notice of revocation of exempt status after filing a CTR is duplicative and should continue to be voluntary.
- CUNA fully supports FinCEN's proposed amendment no longer require depository institutions to file Form 110 or annually review supporting information on certain customers/members.
- While we commend FinCEN for its efforts to improve the CTR exemption process, we believe FinCEN should review the threshold for filing a CTR and adjust it for inflation.
Discussion of CUNA's Views
FinCEN is proposing to simplify the regulatory exemption requirements primarily based on recommendations from a Governmental Accountability Office (GAO) study on the current CTR exemption regime1. We commend FinCEN for responding to the need for improvements in the CTR exemption process and believe the agency's proposal is a good first step for a more efficient and effective reporting structure under the Bank Secrecy Act.
1 Bank Secrecy Act: Increased Use of Exemption Provisions Could Reduce Currency Transaction Reporting While Maintaining Usefulness to Law Enforcement Efforts, GAO-08-355 (GAO: Washington, D.C.: February 21, 2008).
Currently, a depository institution exempting a customer/member eligible for a "Phase II" exemption must initially file a FinCEN Form 110, conduct an annual review of the designee, and biennially renew the exemption by re-filing Form 110. Phase II designees are "non-listed businesses" in a commercial enterprise that are not specifically designated as ineligible for exemption and U.S. payroll customers that have maintained a transaction account for at least 12 months and have frequently engaged in large currency transactions.
FinCEN is proposing to amend the current requirement that an eligible customer/member be an accountholder for at least twelve months before qualifying for a Phase II exemption and is seeking comment on whether it is preferable to adopt a risk-based requirement or reduce the prescribed minimum length of time to two months.
We believe that when designating an eligible non-listed or payroll customer for exemption, permitting a risk-based analysis of the customer's/member's transactional activity would result in a more appropriate and flexible process for assessing risk associated with providing the exemption. Financial institutions are currently required to know their customers/members. The USA Patriot Act's Customer Identification Program requires an institution to reasonably know the true identity of its accountholders, which provides depository institutions with information to assess specific characteristics of accountholders, such as the types and locations of businesses in which they engage.
Further, depository institutions have the capability to monitor the normal activity of a particular account, which enables them to predict with relative certainty the types of transactions in which an accountholder is likely to engage as well as to identify potentially suspicious transactions. These requirements provide information that can assist depository institutions to determine whether a customer/member has a legitimate business purpose for conducting frequent transactions in currency. A risk-based analysis would enable depository institutions to more accurately make a determination of exemptions, which would reduce the number of unnecessary CTR filings, while removing the twelve month waiting period before the exemption could be permitted.
Persons who are otherwise eligible for a Phase II exemption must also frequently engage in large (reportable) currency transactions in order to qualify. In the guidance that interprets this requirement, FinCEN defines "frequently" as eight or more reportable transactions per year. We request that FinCEN amend this definition by replacing the prescribed number of transactions with a good-faith determination made on a case-by-case basis by the depository institution. Otherwise, we believe the process will not be substantially improved.
FinCEN is also proposing to remove the requirement to renew biennially each Phase II exempt customer/member. We fully support eliminating the biennial requirement as it is excessive and does not serve a useful purpose. As mandated by the USA Patriot Act's anti-money laundering requirements, depository institutions conduct an annual review and monitor their customers'/members' transactions for suspicious activities. Often, the procedures for complying with regulations for reviewing Phase II exempt designees duplicate the procedures for conducting an annual review under the Patriot Act. Further, compliance of these requirements is verified through the depository institutions' examination process, eliminating the need for FinCEN to verify depository institutions' compliance with monitoring transactions separately.
FinCEN is proposing to require depository institutions to report any revocations of exempt status. Filing a notice of revocation, which is currently voluntary, would be required within 30 calendar days after the first CTR has been filed. We believe filing a CTR and a notice of revocation within a month of each other would be duplicative. FinCEN already receives notice of a revoked exemption when a CTR is filed on a previously exempt person. Additionally, depository institutions maintain detailed records of accountholders and transactions conducted through their accounts, reviewed by regulatory examiners, which would include any changes warranting an exemption to be abrogated.
We fully support FinCEN's proposed amendments to no longer require depository institutions to file Form 110 or annually review supporting information on depository institutions, governmental bodies, or entities exercising governmental authority.
We commend FinCEN for its efforts to improve the process for CTR exemptions, but believe more could be done in this area. FinCEN should review the threshold for filing a CTR, as recommended by CUNA's Bank Secrecy Act Task Force chaired by Mr. Eugene Foley, President and CEO of Harvard Employees Credit Union. The current $10,000 reporting threshold was adopted decades ago, and has not been adjusted since that time. A review of the appropriate level for this threshold is long overdue. Raising the level to $20,000 at a minimum would be appropriate in today's economy as legitimate cash transactions over the $10,000 threshold have become routine. Based on a study conducted by the GAO on CTRs filed in 2007, it takes approximately 25 minutes to complete a single CTR . Adjusting the threshold to be consistent with today's inflation would not relieve institutions of their requirement to monitor accounts for suspicious activity but would reduce compliance burdens in a meaningful way.
Thank you for the opportunity to express our views on the proposed amendments to the CTR exemption requirements. If you have questions about our letter, please do not hesitate to give Senior Vice President and Deputy General Counsel Mary Dunn or me a call at 202-508-6733.
Assistant General Counsel