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Currency and Foreign Transactions Reporting Act
Exemption Handbook Section 501.0
Bank Secrecy Act Manual September 1997

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501.0 Currency and Foreign Transactions Reporting Act
September 1997 Bank Secrecy Act Manual

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Currency and Foreign Transactions Reporting Act 501.0
Department of the Treasury

Office of Financial Enforcement
and
Internal Revenue Service

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TABLE OF CONTENTS
Page 1. General Criteria . . . . . . . . . . . . . . . . . . . . . . 7

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Nonexemptible Entities . . . . . . . . . . . . . . . 8
I. Determining Which Customers D. CTR REPORTING ON CERTAIN
to Exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 TRANSACTIONS BY EXEMPTED
A. EXCEPTED TRANSACTIONS . . . . . . . . . . 3 CUSTOMERS . . . . . . . . . . . . . . . . . . . . . . . . . . 8
B. UNILATERAL EXEMPTIONS . . . . . . . . . . 3 II. How to Exempt Customers . . . . . . . . . . . . . . 9
1. Retail and Other Specified A. REVIEW OF BANK RECORDS . . . . . . . . . 9
Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1. Two Consecutive Months of
Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
a. Retail Businesses . . . . . . . . . . . . . . . . . . . 3
2. Review of Other Available
i. Definition of retail type of Information . . . . . . . . . . . . . . . . . . . . . . . . . . 9
business . . . . . . . . . . . . . . . . . . . . . . . . 3
ii. Payment in currency . . . . . . . . . . . . 3 B. PREPARATION OF EXEMPTION
iii. United States operation . . . . . . . . . . 4 STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 10
iv. Nonexemptible retail business 1. Statements for Customers Exempted
accounts . . . . . . . . . . . . . . . . . . . . . . . . 4 After October 27, 1986 . . . . . . . . . . . . . . . 10
b. Specified Businesses . . . . . . . . . . . . . . . . 4 2. Statements for Customers Exempted
i. Sports arena . . . . . . . . . . . . . . . . . . . 4 on or Before October 27, 1986 . . . . . . . . 10
ii. Race track . . . . . . . . . . . . . . . . . . . . . 4 3. Form for Exemption Statements . . . . . 10
iii. Amusement park . . . . . . . . . . . . . . 4 4. Customer Information and
iv. Bar . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
v. Restaurant . . . . . . . . . . . . . . . . . . . . . 4 5. Completion of Exemption
vi. Hotel . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
vii. Licensed check cashing
service . . . . . . . . . . . . . . . . . . . . . . . . . 4 C. EXEMPTION LIMITS . . . . . . . . . . . . . . . . . 11
viii. Vending machine company . . . . 5 1. General Criteria . . . . . . . . . . . . . . . . . . . . . 11
ix. Theater . . . . . . . . . . . . . . . . . . . . . . . . 5 2. Seasonal and ‘‘Monday-Only’’
x. Regularly scheduled passenger Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
carrier . . . . . . . . . . . . . . . . . . . . . . . . . 5
D. MULTIPLE-ESTABLISHMENT
xi. Public utility . . . . . . . . . . . . . . . . . . . 5
CUSTOMERS . . . . . . . . . . . . . . . . . . . . . . . . . 13
c. Multi-Faceted Businesses . . . . . . . . . . . 5
E. SPECIAL EXEMPTION REQUESTS . . . . 14
d. Limitations on Exemptions for
III. Recordkeeping for Exempted
Accounts of Retail and Other
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Specified Businesses . . . . . . . . . . . . . . . 5
A. EXEMPTION LIST . . . . . . . . . . . . . . . . . . . . 15
i. ‘‘Deposits or withdrawals of
currency’’ . . . . . . . . . . . . . . . . . . . . . . . 6 B. EXEMPTION STATEMENTS . . . . . . . . . . 15
ii. ‘‘Existing account by an IV. Monitoring Exemptions and Discovery
established depositor’’ . . . . . . . . . . . 6 of Improper Exemptions . . . . . . . . . . . . . . . 17
• ‘‘Existing account’’ . . . . . . . . . . . . . 6 A. MONITORING EXEMPTIONS . . . . 17
• ‘‘Established depositor’’ . . . . . . . . 6 B. DISCOVERY OF IMPROPER
iii. ‘‘United States resident’’ . . . . . . . . . 6 EXEMPTIONS . . . . . . . . . . . . . . . . . . . . 17
2. Government Agencies . . . . . . . . . . . . . . . . 7 V. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3. Payroll Withdrawals . . . . . . . . . . . . . . . . . 7 Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
C. SPECIAL EXEMPTIONS . . . . . . . . . . . . . . . 7 Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

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INTRODUCTION
The Bank Secrecy Act (‘‘BSA’’), 31 U.S.C. Treasury encourages banks to make full use
§5311–5324, and the BSA regulations, 31 C.F.R. of the exemption provisions. The use of the
Part 103, that the Department of the Treasury exemption provisions can yield substantial
(‘‘Treasury’’) has issued, require domestic fi- benefits for banks and Treasury. By eliminating
nancial institutions (other than casinos and the CTR reporting on properly exempted accounts
U.S. Postal Service) to file a report of each sin- and certain transactions by government agen-
gle or multiple ‘‘deposit, withdrawal, exchange cies, banks can reduce the cost of filing CTRs.
of currency or other payment or transfer, by, These costs can be substantial, particularly for
through, or to such financial institution which larger banks in major metropolitan areas that
involves a transaction in currency of more than have many accounts by businesses and trans-
$10,000.’’ 31 CFR 103.22(a)(1). These reports, actions by government agencies that are
which are filed on IRS Form 4789, the Cur- exemptible. The reduction in the number of
rency Transaction Report (‘‘CTR’’), have a high CTRs filed by the banks, in turn, reduces
degree of usefulness in criminal, tax, and reg- Treasury’s and IRS’s cost of processing, com-
ulatory investigations and proceedings. Infor- puterizing, and storing CTRs. In addition, by
mation from CTRs is routinely used in a wide reducing the number of CTRs which are not of
variety of criminal and tax investigations and value to law enforcement, Treasury can more
prosecutions, as investigative leads, effectively analyze and utilize the remaining
intelligence for the tracking of currency flows, CTR information.
corroborating information, and probative For these same reasons, Treasury and the
evidence.* IRS have implemented procedures which allow
Treasury’s experience in enforcing the BSA, banks to magnetically file CTRs. Treasury and
however, has shown that certain legitimate IRS believe that magnetic filings will, likewise,
businesses engage in regular and frequent cur- reduce the costs to the banks and the govern-
rency transactions with domestic banks. The ment of complying with the BSA, while assur-
routine reporting of these transactions is less ing a complete and accurate data base which
likely to be useful to law enforcement agen- can be utilized effectively to combat crime.
cies. Treasury has therefore included in the The exemption provisions specify the proce-
BSA regulations provisions that permit banks dures and categories of accounts and govern-
to exempt government agencies and the ac- ment agencies for which a bank may grant
counts of certain customers from the CTR re- unilateral exemptions, or obtain additional au-
porting requirements. In some instances, thority from the IRS to grant special exemp-
banks may unilaterally exempt government tions. This booklet is intended to help banks
agencies and the accounts of particular cus- understand the exemption provisions and im-
tomers without prior approval from Treasury prove compliance with the exemption require-
or the Internal Revenue Service (‘‘IRS’’). In ments. It will explain how to determine
other instances, banks must obtain additional whether a particular customer’s account or
authority from the IRS, through the IRS Data government agency qualifies for an exemption,
Center in Detroit, Michigan, to grant exemp- the process for exempting that account or
tions to particular accounts of customers. The agency, and the actions the bank should take
IRS has been delegated this authority from after granting an exemption.
Treasury.
* One of the more prominent examples of the reports’ utility is tion that involved the transfer of tens of millions of dollars
United States v. Badalamenti, (794F.2d 821 (2d Cir. 1986), through banks and investment houses in New York City to finan-
appeal pending, No. 87-1303 (2d Cir., filed June 29, 1987), cial institutions in Switzerland and Italy. Ultimately, 20 defen-
informally known as the ‘‘Pizza Connection’’ case. This case in- dants were convicted in Federal court for heroin conspiracy, rack-
volved heroin smuggling into the United States by Italian and eteering, and BSA violations. All received prison sentences, and
U.S. organized crime groups. During the investigation, Federal 15 defendants received sentences ranging from 15–45 years. In
authorities discovered a number of BSA reports that indicated addition, the Swiss national was convicted and imprisoned by
that a Swiss national was making large cash transactions. These Swiss authorities for violations of Swiss law relating to his
reports led authorities to an extensive money laundering opera- money laundering activities.

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These guidelines address questions strongly encourages you to call or write

frequently asked by banks about the exemp- FinCEN above or:
tion provisions. Treasury welcomes your com- Compliance Review Group
ments and invites you to submit suggestions IRS Data Center
for improvements in future editions of these P.O. Box 32063
guidelines to: Detroit, Michigan 48232
Director (313) 234-1613
FinCEN This booklet is intended only to provide ad-
U.S. Department of the Treasury vice on the exemption process and is not in-
1500 Pennsylvania Avenue, N.W. tended to create any right or benefit, substan-
Washington, D.C. 20220 tive or procedural, enforceable at law by a
(202) 622-0400 party against the United States, its agencies,
In addition, if you have a question that is its officers, or any person.
not addressed by these guidelines, Treasury

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I. DETERMINING WHICH CUSTOMER ACCOUNTS OR

GOVERNMENT AGENCIES TO EXEMPT
A. EXCEPTED TRANSACTIONS 103.22(b)(2)(i). A bank also may unilaterally

In developing exemption policies and proce- exempt ‘‘(d)eposits or withdrawals of currency
dures, banks should be aware that two types from an existing account by an established de-
of transactions are specifically excepted from positor who is a United States resident and
the CTR reporting requirements. (See Appen- operates a sports arena, race track, amusement
dix A.) This means that a bank simply does park, bar, restaurant, hotel, check cashing ser-
not have to file CTRs on the following transac- vice licensed by state or local governments,
tions and, therefore, need not exempt them: vending machine company, theater, regularly
scheduled passenger carrier or any public util-
1. Transactions with Federal Reserve Banks ity.’’ 31 CFR 103.22(b)(2)(ii).
or Federal Home Loan Banks. This category
includes all types of cash receipts or a. Retail Businesses
disbursements at Federal Reserve Banks or i. Definition of retail type of business
Federal Home Loan Banks. The term ‘‘retail type of business’’ means ‘‘a
2. Transactions between domestic banks. business primarily engaged in providing goods
This category includes all types of currency to ultimate consumers and for which the busi-
transactions between ‘‘banks’’ as defined in ness is paid in substantial portions by
31 C.F.R. 103.11(a) (e.g., commercial banks, currency . . . .’’ 31 CFR 103.22(b)(2)(i). A
savings and loan associations, and credit business that is primarily engaged in providing
unions). This category does not permit banks services, rather than goods, to ultimate consum-
to except transactions with nonbank financial ers (e.g., a car wash, a dry cleaning store, an
institutions (e.g., casinos, currency appliance repair shop, or a health spa) does
exchanges, securities brokers). In addition, not come within the scope of this exemption.
with the exception of the U.S. Postal Service In addition, a business that is primarily en-
and certain check cashing agencies, nonbank gaged in selling goods wholesale rather than
financial institutions may not be exempted retail, is not within the scope of this exemp-
from the reporting requirements. Thus, tion. If a business provides both goods and
banks must file CTRs on their transactions services to ultimate consumers or sells goods
with foreign banks and with all nonbank both wholesale and retail, a bank may exempt
financial institutions other than the U.S. that business account only if more than 50% of
Postal Service or check cashing services that the business’ gross revenues at the time of the
have been granted an exemption (as exemption is attributable to the retail sale of
described below). goods to ultimate consumers. Thus, a store
that sells women’s clothing off the rack and
B. UNILATERAL EXEMPTIONS that also offers custom alterations on the pre-
mises may have its accounts exempted under
The regulations establish certain categories of these provisions if more than 50% of its gross
business accounts and transactions of custom- revenues are attributable to the store’s sale of
ers and government agencies that a bank may clothing and not to the custom alterations.
unilaterally exempt without having to obtain Similarly, if a bakery sells baked goods to ulti-
advance approval from Treasury or the IRS: (1) mate consumers and to supermarkets for pur-
Retail and other specified businesses; (2) gov- poses of resale, the bank may exempt the bak-
ernment agencies; and (3) payroll withdrawals. ery’s account only if more than 50% of its
1. Retail and Other Specified Businesses gross revenues are from the sale of baked
goods to ultimate consumers. (See Appendix
A bank may unilaterally exempt ‘‘(d)eposits or A.)
withdrawals of currency from an existing ac-
count by an established depositor who is a ii. Payment in currency
United States resident and operates a retail The phrase ‘‘for which the business is paid in
type of business in the United States.’’ 31 CFR substantial portions by currency’’ is intended

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to limit this exemption to businesses that, in ball, football, ice skating, jai alai, riding, soc-
the ordinary course of business, routinely re- cer, or tennis) or multiple sports that are open
ceive currency in payment for the goods that to attendance or participation by the general
they offer (e.g., a bookstore or a drug store). public. A promoter who arranges for the pre-
To qualify, the business must be paid in cur- sentation of sporting or other entertainment
rency on a regular and frequent basis. events at a sports arena does not come within
iii. United States operation the scope of this provision.
The term ‘‘operates a retail type of business in ii. Race track
the United States’’ is intended to limit this ex-
This includes all tracks that hold races of bicy-
emption to retail businesses that actually are
cles, dogs, horses, or motor vehicles on a regu-
doing business in the United States. A foreign
lar basis, whether or not betting on these races
citizen or corporation operating a retail busi-
is permitted at the tracks, and that are open to
ness solely outside the United States could
attendance by the general public. A business
establish an account at a U.S. bank, but could
organized to handle commercial activities for
not have transactions involving that account
an automobile race that occurs once a year in a
exempted under these provisions. On the
particular city (e.g., a grand prix) does not
other hand, a corporation whose shares are
come within the scope of this provision.
owned by foreign individuals or corporations,
but which is organized and is doing a retail iii. Amusement park
business in the United States, could have its
transactions involving that account exempted This includes any business that derives more
under these provisions. than 50% of its gross revenues from rides and
games (other than gambling devices) and the
iv. Nonexemptible retail business accounts sale of food, drink, and souvenirs. It does not
It is important to remember that accounts of include traveling carnivals.
‘‘dealerships which buy or sell motor vehicles,
vessels, or aircraft,’’ while retail sellers of iv. Bar
goods, may not be exempted by either unilat- This includes any business that serves food or
eral or special exemption from the CTR report- drink to its patrons for consumption on or off
ing requirements. 31 CFR 103.22(b)(2)(i). This the premises, and that derives more than 50%
applies to all types of motor vehicles, vessels, of its gross revenues from the sale of alcoholic
and aircraft, including airplanes, automobiles, beverages for consumption on the premises.
boats, construction equipment (e.g., road
graders and backhoes), farm equipment (e.g., v. Restaurant
combines and tractors), mopeds, motorcycles, This includes any business that serves food or
recreational vehicles, sailplanes, scooters, drink to its patrons for consumption on or off
ships, snowmobiles, trucks, and yachts. the premises, and that derives more than 50%
b. Specified Businesses of its gross revenues from the sale of food for
comsumption on or off the premises.
In addition to permitting an exemption for the
accounts of retail types of businesses, the reg- vi. Hotel
ulations permit unilateral exemptions for the
following types of businesses: sports arenas, This includes any business (other than a cruise
race tracks, amusement parks, bars, restau- ship) that derives more than 50% of its gross
rants, hotels, licensed check cashing services, revenues from providing temporary lodging to
vending machine companies, theaters, regu- its patrons.
larly scheduled passenger services and public vii. Licensed check cashing service
utilities. (See Appendix A.) Each of these busi-
nesses is discussed briefly below. This currently includes any business that, for a
fee, cashes checks for its customers and that is
i. Sports arena specifically licensed to do so by an agency or
This includes a stadium or arena that regularly instrumentality of a state or local government.
accommodates either a single sport (e.g., base- (But see Appendix A.) A check cashing service

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that is unlicensed, or that has only a general or businesses (e.g., bar and restaurant) and
business license, does not come within the the remainder of the business is derived from
scope of this provision. If a bank wishes to a business for which the bank may obtain au-
grant a unilateral exemption to a licensed thority from the IRS to grant a special exemp-
check cashing service it should do so only for tion, the bank may unilaterally grant an ex-
withdrawals of currency, not deposits, because emption for the account. Thus, for instance, if
currency deposits are generally not attributable a bakery were to sell its baked goods to ulti-
to check cashing activities of the business. mate consumers (retail) and to supermarkets
(wholesale), the bank would be able to unilat-
viii. Vending machine company erally exempt the bakery’s account only if the
This includes any business that operates vend- bakery derived more than 50% of its gross rev-
ing devices which provide either a product enues from the retail business and not the
(e.g., beverages, candy, food, newspapers, or wholesale operation.
change) or a service (e.g., a coin-operated If more than 50% of the gross revenues is
laundry) when activated by inserting coins or derived from a type of business that cannot be
small-denomination currency. unilaterally exempted, but that may be granted
A business that primarily operates a special exemption, the bank may not grant
coin-operated juke boxes, or coin-operated that account a unilateral exemption. For exam-
video games that do not constitute gambling ple, if a bank has knowledge that one of its
devices, is within the scope of this provision. customers, a local bar, has been deriving the
A business that operates coin-operated gam- majority of its gross revenues from operating
bling devices of the type used in casinos (e.g., an unlicensed check cashing service, it may
slot machines or video poker) does not come not unilaterally exempt the customer’s account.
within the scope of this provision. Instead, the bank should contact the IRS to
request a special exemption.
ix. Theater Finally, if the bank’s customer is a business
entity that operates exemptible and nonexemptible
This includes any theater that shows films or
(as opposed to unilaterally exemptible and spe-
that presents live entertainment.
cially exemptible) businesses and the funds
x. Regularly scheduled passenger carrier from both types of businesses (e.g., auto parts
department and a car dealer) are commingled
This includes any business that is principally in the same account, the bank may not grant
engaged in providing transportation of passen- the account of that customer a unilateral ex-
ger by airplane, boat, bus, limousine, ferry, or emption and should not write to the IRS in
train on a regular and publicly available sched- Detroit to request a special exemption. This is
ule. A business that is principally engaged in true even if more than 50% of the gross reve-
operating a taxicab or limousine service, or nues is derived from the exemptible business.
transporting passengers on a charter basis by If the bank has any questions, it should con-
airplane, bus, or train, does not come within tact FinCEN at Treasury for guidance, at the
the scope of this exemption. address listed on page 2 above.
xi. Public utility d. Limitations on Exemptions for Retail and
This includes any business that is principally Other Specified Businesses
engaged in operating a public utility (e.g., There are three limitations that apply to all
electric power, telephone service, or water). exemptions for accounts of retail or other speci-
fied businesses: (1) they may only be granted
c. Multi-Faceted Businesses for ‘‘deposits or withdrawals of currency,’’
In some cases, a particular business entity may (2) they may only be granted for ‘‘an existing
offer more than one type of good or service to account by an established customer.,’’ and
the public. So long as more than 50% of the (3) they may only be granted for a ‘‘United
gross revenues of the customer whose account States resident.’’ These limitations are explained
is being considered for an exemption is de- in more detail below. 31 CFR 103.22(b)(2)(i),
rived from a unilaterally exemptible business (ii).

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i. ‘‘Deposits or withdrawals of currency’’ and establish a separate exemption limit. (See

The term ‘‘(d)eposits or withdrawals of cur- pp. 10–11 below.)
rency’’ limits these exemptions to currency de- Thus, for example, if three fast-food restau-
posits or withdrawals or both, involving the ac- rants owned by the same corporation each
count of a properly exempted customer. Thus, have separate deposit accounts at the same
under these exemption provisions, a bank may bank, that bank may not grant one exemption
not exempt any other type of transaction in- that covers all three accounts. Instead, the
volving that account (e.g., the purchase of bank should consider each account separately
cashier’s checks or money orders, exchanges of for an exemption. If the bank decides that all
currency, or cash disbursement of loan pro- three accounts should be exempted, the bank
ceeds). In addition, if a bank customer should prepare three separate exemption state-
presents several third-party checks and obtains ments and establish separate exemption limits
‘‘cash back’’ without actually depositing the for each account.
checks into an account, that transaction is not • Established Depositor
considered a deposit or withdrawal under The term ‘‘established depositor’’ is intended
these exemptions. This is true even if the bank to make clear that a bank may not exempt the
has granted a unilaterally exemptible business account of a business at the time that the busi-
(e.g., a retail business or licensed check ness opens the account. As these guidelines
casher) an exemption for currency deposits will later explain, a bank must establish a dol-
into and withdrawals from that account; it still lar limit for an exemption in an amount that
must file CTRs on any ‘‘cash back’’ transaction does not exceed an amount ‘‘commensurate
by that customer that does not involve the ac- with the customary conduct of the lawful, do-
tual deposit of the checks into, and the actual mestic business of that customer. . . .’’ 31
withdrawal of more than $10,000 in cash from, CFR 103.22(c). If a bank has not had a prior
the customer’s account. account relationship with a customer, it cannot
determine, from a history of its transactions
ii. ‘‘Existing account by an establised depositor’’
with that customer, what dollar limit would be
• Existing Account commensurate with that customer’s lawful,
domestic business.
Banks frequently ask whether they should grant For this reason, the bank generally should
a unilateral exemption for each separate account not unilaterally exempt the account of a busi-
of a customer that has multiple accounts or for ness for at least the first two months of that
the customer (i.e., an exemption that covers business’ depositor relationship with the bank.
multiple accounts of the same customer with a After reviewing at least two months of cur-
single taxpayer identification number (TIN)). The rency transactions of the account being consid-
term ‘‘existing account’’ means that for this type ered for exemption, the bank may then set a
of exemption, the bank can only grant a unilat- limit. If the customer has had an account at
eral exemption for an individual account, not for the bank for more than two months, the bank
an individual customer. If a particular customer generally should review at least the most re-
has separate accounts at the bank, each account cent two months of transactions involving that
should be considered separately by the bank to account, unless those months are not repre-
determine whether an exemption should be sentative of the customary conduct of the cus-
granted. The bank should not grant a single ex- tomer’s lawful domestic business. (See p.9
emption covering multiple accounts of that cus- below).
tomer, even if those accounts have the same
TIN. If the bank has already granted any of its iii. ‘‘United States resident’’
customers a single exemption covering multiple The term ‘‘United States resident’’ is intended
accounts, the bank should contact FinCEN at the to limit these exemptions to accounts of busi-
address listed on page 2 for guidance. In addi- ness entities that are physically residing in the
tion, if the bank determines that it wants to grant United States at the time of the exemption.
exemptions for more than one account, it should The term includes a sole proprietorship oper-
prepare an exemption statement for each account

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ated by a U.S. citizen or permanent resident, nonbank financial institutions (see page 8
alien, a corporation, a partnership, an associa- below), a bank may use this exemption to ex-
tion, or any other form of corporate organiza- empt its transactions with the U.S. Postal Ser-
tion, which is physically located in and doing vice, which the regulations have designated as
business in the United States. The term does a nonbank financial institution with respect to
not include a foreign embassy or consulate in its sales of postal money orders.
the United States, or a foreign business entity
that does business, but does not have a place 3. Payroll Withdrawals
of business, in the United States. The regulations also permit a bank unilaterally
to exempt ‘‘(w)ithdrawals for payroll purposes
2. Government Agencies from an existing account by an established de-
The regulations permit a bank unilaterally to positor who is a United States resident and
exempt ‘‘(d)eposits or withdrawals, exchanges operates a firm that regularly withdraws more
of currency or other payments and transfers by than $10,000 in order to pay its employees in
local or state governments, or the United currency.’’ 31 CFR 103.22(b)(2)(iv). This ex-
States or any of its agencies or instrumentali- emption is limited to withdrawals of currency
ties.‘‘ 31 CFR 103.22(b)(2)(iii). By its terms, by an employer that actually pays its employ-
this exemption applies to all types of currency ees with the currency it has withdrawn. It
transactions conducted by the Federal Govern- does not include an employer that pays its em-
ment or any of its agencies or instrumentali- ployees by check, but then cashes employees’
ties, as well as any state or local (e.g., county paychecks and presents the employees’ checks
or municipal) government or any of its agen- at a bank to receive ‘‘cash back.’’ Similarly, an
cies or instrumentalities whether or not employer that withdraws cash to offer a check-
through an account. Government agencies and cashing service to its employees does not come
instrumentalities do not have to be within the scope of this exemption.
‘‘established depositors’’ as described above. The terms ‘‘existing account by an
The only restriction on these types of exemp- established depositor’’ and ‘‘United States resi-
tions is that the exemptions must be ‘‘in dent’’ have the same scope as those terms de-
amounts which are customary and commensu- scribed on page 6 above.
rate with the authorized activities of the
agency or instrumentality.’’ 31 CFR 103.22(c). C. SPECIAL EXEMPTIONS
(See discussion p.9 below.)
A bank may therefore exempt the cash trans- 1. General Criteria
actions involving any government agency (e.g., Even if a particular customer’s account does
the Treasury Department, the Justice Depart- not come within one of the categories of ex-
ment, and Federal law enforcement agencies) emptions that a bank may unilaterally grant,
or government instrumentality (e.g., the bank may still be able to exempt the de-
state-supported colleges and universities), even posits and withdrawals of cash of that custom-
if that agency or instrumentality does not con- er’s account that exceed $10,000 from the CTR
stitute ‘‘an established depositor,’’ as defined on reporting requirements. If a bank determines
page 6 above. If the government agency (e.g., that one of its customers appears to be operat-
state-supported college) has a privately owned ing a legitimate business, and the customary
business (e.g., bookstore) that is operated on conduct of the lawful domestic business of that
its grounds, the business may not be exempted customer involves regular and frequent cur-
under this exemption but may be exempted rency deposits or withdrawals, the bank may
under another exemption (e.g., retail apply to the IRS for additional authority to
business). A union or fraternal association exempt deposits or withdrawals involving an
whose membership consists of officials or em- account of that customer. If the bank receives
ployees of a government agency or instrumen- additional authority from the IRS, it may then
tality also does not come within the scope of grant a ‘‘special exemption.’’
these provisions. Because there are numerous types of busi-
Although the regulations generally do not nesses that may qualify for special exemptions,
permit banks to exempt their transactions with Treasury has refrained from developing a com-

Page 13
prehensive list of those businesses. However, government, or any agency, instrumentality,

Appendix A contains a list of some of the or office thereof (e.g., foreign embassies and
types of businesses that have been approved consulates).
in the past for special exemptions. The IRS
will not grant additonal authority for special D. CTR REPORTING ON CERTAIN TRANS-
exemptions of businesses such as automobile ACTIONS BY EXEMPTED CUSTOMERS
clubs that offer travelers’ checks for sale, pre- In using the exemption provisions of the regu-
cious metal or coin dealers, scrap metal deal- lations, banks must bear in mind that their
ers, and gambling operations, whether charita- granting of exemptions to certain accounts and
ble or for profit. customers does not mean that they will never
have to file CTRs on those accounts and cus-
2. Nonexemptible Entities tomers. Even after granting an exemption and
Transactions by certain types of businesses setting a dollar limit for that exemption, a
may not be the subject of a unilateral or spe- bank must continue to file CTRs on two types
cial exemption under any circumstances: (See of currency transactions:
Appendix A). 1. All currency transactions that are of the
a. Transactions by a bank with nonbank fi- type exempted, but that exceed the dollar
nancial institutions (e.g., casinos, currency limit. Thus, if the exemption limit on a par-
exchanges, issuers of traveler’s checks, and ticular customer’s account is for daily depos-
securities brokers or dealers) other than the its that do not exceed $20,000 when aggre-
U.S. Postal Service and check-cashing ser- gated, the bank still must report the total
vices. amount of deposits into that account if the
b. Transactions between a domestic bank total of all deposits in the same banking day
and a foreign bank. exceeds $20,000 (e.g., $20,000.01).
c. Transactions by a bank with commodities 2. All non-exempted currency transactions
brokers and dealers. involving an account. Thus, if the account is
d. Transactions by a bank with a motor ve- the subject of an exemption for currency
hicle, vessel, or aircraft dealer, as described withdrawals up to $19,000, the bank must re-
above. port any and all currency deposits into that
account that exceed $10,000.
e. Transactions by a bank with a foreign

Page 14
II. HOW TO EXEMPT CUSTOMERS
Once a bank has determined that the account While the regulations do not require that a
of a particular customer may qualify for a uni- government agency or instrumentality be an
lateral or special exemption, it is encouraged to ‘‘established depositor,’’ the bank may still find
initiate the process for granting the exemption. it helpful to review at least the most recent two
Under the regulations, only the bank (and not months’ account activity of that agency, to aid
the customer) has the authority to grant unilat- in establishing an exemtpion limit that is ‘‘com-
eral exemptions or to apply to Treasury for mensurate with the authorized activities of
special exemptions. In general, if a business the agency or instrumentality.’’ 31 CFR
customer specifically requests an exemption 103.22(c). However, if the customer whose ac-
before the bank has contacted it, the bank count is being considered for exemption is a
should carefully scrutinize the customer’s ac- government law enforcement agency that
tivity at the bank before deciding whether to opened the account for deposits of seized cash
grant an exemption. This is because the cus- for transactions conducted in relation to crimi-
tomer may be seeking the exemption to hide nal investigations or similar types of transac-
its transactions from the government. tions, the bank need not review two consecu-
tive months of account activity. These types of
A. REVIEW OF BANK RECORDS transactions are by their nature less regular
As the first step, the bank should review the and frequent than other transactions by other
customer’s transaction history, including its government agencies.
cash deposit or withdrawal transactions. This
review is necessary to determine whether the 2. Review of Other Available Information
customary conduct of a business entity’s lawful In addition, the bank should review any other
domestic business involves currency deposits information taht it has concerning its customer
or withdrawals exceeding $10,000 that occur which might assist the bank in reviewing that
regularly and frequently (e.g., daily or several customer’s transaction history. If the customer
times per week, or in some cases, weekly or has a longstanding depositor relaitonship with
biweekly). If the bank’s records do not indicate the bank, the bank may have made extensions
that that entity has had regular and frequent of credit or conducted other business with the
currency deposits or withdrawals exceeding customer that generated additional records
$10,000, then the bank should not proceed any about the customer’s business. If the customer
further with the exemption process, notwith- is a government agency or instrumentality, the
standing the nature of the customer’s business. bank should also ask for official identification
from the person who is opening the account
1. Two Consecutive Months of Activity or conducting the transaction as a representa-
The bank should review at least two consecutive of that agency. These steps not only are
tive months of transactions, including currency consistent with a bank’s marketing strategy of
deposits or withdrawals, by its customer. The ‘‘knowing its customer,’’ but also may aid in
two months of deposits or withdrawals should the determination of wehther the customer, in
be the most recent months unless those fact, comes within one of the categories of
months are not truly representative of the cus- exemptible businesses.
tomary conduct of the customer’s lawful do- In some cases, criminals have succeeded in
mestic business. For example, if the currency having a ‘‘front’’ company paced on the ex-
deposits or withdrawals of an established cus- emption list. Often, the address given to the
tomer during the months of November and bank was a vacant lot or a storefront where
December far exceed that customer’s currency legitimate business could not be carried on.
deposits or withdrawals in other months be- Treasury therefore encourages banks to know
cause of seasonal shopping trends, the bank their customers. If a bank is not familiar with a
should review deposits or withdrawals that particular business entity that it is considering
occurred in two consecutive months that do for an exemption, Treasury urges the bank to
not include either November or December. take some steps to see if the customer appears

Page 15
to be conducting a legitimate bsusiness by ments. Instead, in response to many inquiries,

checking the telephone directory to verify the Treasury has developed model form (see Ap-
business’ address and telephone number, or pendix B) that banks may use. As stated at
preferably by walking or driving past the busi- page 6 above, the bank must prepare a sepa-
ness. The bank also may want to maintain a rate exemption statement for each customer
record of all of the steps that it took in deter- account to be exempted. However, any exemp-
mining whether the customer was eligible for tion statement that a bank prepares must, un-
an exemption. der the regulations, include the following
B. PREPARATION OF EXEMPTION items:
STATEMENTS a. The name, address (i.e., complete street
1. Statements for Customers Exempted After address), nature of business, taxpayer identi-
October 27, 1986 fication number, and account number of the
customer being exempted. In addition, in
After the bank has reviewed the customer’s order to ensure that an account is being
transaction history and other information, and property exempted under 103.22(a), it is
determined that the customer appears to be eli- recommended that the customer also con-
gible for an exemption, it must then prepare a firm that the funds being deposited into the
separate ‘‘exemption statement’’ for each account account being exempted do indeed come
of the customer to be exempted. Pursuant to a from the business for which the account was
1986 amendment to the Bank Secrecy Act, the established.
regulations state that after October 27, 1986 (the
date on which the amendment became law), ‘‘a b. A statement, following the information in
bank may not place any customer on its exempt paragraph ‘‘a’’ above, that reads as follows:
list without first preparing a written statement, ‘‘The information contained above is true
signed by the customer, describing the custom- and correct to the best of my knowledge and
ary conduct of the lawful domestic business of belief. I understand that this information
that customer and a detailed statement of rea- will be read and relied upon by the Govern-
sons why such person is qualified for an exemp- ment.’’
tion.’’ 31 CFR 103.22(d). c. A space, following that statement, for the
2. Statements for Customers Exempted on or signature of the person who is attesting to
before October 27, 1986 the accuracy of the information concerning
the name, address, nature of business, and
For customers granted an exemption on or be- tax identification number of the customer.
fore October 27, 1986, the bank should prepare This space must also list the signer’s title
an exemption statement if there is any change and position (i.e., the office or division of
in the business or in the type of exemption the customer in which the person signing is
other than a change in address or in the dollar employed), and should include the date of
amount of the existing exemption. These in- the signature.
stances would include a change in the name of
the business, a change from one form of entity d. An indication by the bank whether the
to another (e.g., sole proprietorship to corpo- exemption covers deposits, withdrawals, or
ration), a change from one type of business to both, as well as the dollar limit of the ex-
another (e.g., a retail type of business to a res- emption for both deposits and withdrawals.
taurant), a change in ownership of the custom- e. An indication by the bank whether the
er’s business, or a change in the nature of the exemption is limited to certain types of de-
existing exemption (e.g., from withdrawals to posits or withdrawals (e.g., withdrawals for
deposits or from withdrawals only to with- payroll purposes).
drawals and deposits). The exemption state-
ment should reflect the current information 4. Customer Information and Signature
about the customer.
To prepare the exemption statement, the bank,
3. Form for Exemption Statements after compiling whatever information it needs
Treasury has not issued a form that all banks for reviewing the customer’s transaction history
are required to use for their exemption state- and other information, should contact the
10

Page 16
customer, explain the need for the statement the statement whether the exemption covers
and its relationship to the exemption, obtain deposits, withdrawals, or both, and the dollar
from the customer the information listed in limit of the exemption. 31 CFR 103.22(d). This
item 3a on page 10 above, and have the cus- inforamtion should note whether the transac-
tomer place an original signature on the state- tions exempted are limited to a certain type
ment. Facsimile signatures are not acceptable (e.g., withdrawals for payroll purposes). Fi-
for completion of the statement. nally, the bank should note on the statement
The signature on the statement need not be the date on which it granted the exemption.
that of the highest ranking officer or employee C. EXEMPTION LIMITS
of the business (or government agency) whose
transactions are to be exempted. However, the 1. General Criteria
bank should inform the customer that the sig- In conjunction with its review of the custom-
nature should be that of an appropriate er’s account activity, the bank must also deter-
supervisory-level officer or employee who has mine for the exempted account the applicable
personal knowledge of (and can therefore at- dollar limit for the exempted deposits or with-
test to the accuracy of) the information listed drawals. 31 CFR 103.22(d). This determination
in item 3a above. In the case of an account es- requires the bank to establish two types of dol-
tablished for the local store of a multiple- lar limits for the currency transactions that are
establishment business (e.g., fast food) or the exempted:
local office of a government agency, the bank
a. For exemptions pertaining to government
may accept the signature of a supervisory-level
agencies or instrumentalities, the dollar lim-
officer or employee in that local store or office.
its must be ‘‘in amounts which are custom-
5. Completion of Exemption Statement ary and commensurate with the authorized
activities of the agency or instrumentality.’’
After obtaining the customer’s signature on the 31 CFR 103.22(c).
exemption statement, the bank should then
complete the remainder of the statement. The b. For all other categories of unilateral ex-
regulations require that the statement include emptions, the dollar limits must be ‘‘in
not only a description of ‘‘the customary con- amounts that the bank may reasonably con-
duct of the lawful domestic business of that clude do not exceed amounts commensurate
customer,’’ but also ‘‘a detailed statement of with the customary conduct of the lawful
reasons why such person is qualified for an domestic business of that customer.’’ 31 CFR
exemption.’’ 31 CFR 103.22(d). Summary state- 103.22(c).
ments such as ‘‘retail,’’ ‘‘qualified under This language indicates that there must be a
103.22(b)(2)(ii),’’ or ‘‘government’’ will not suf- reasonable relationship between the maximum
fice to describe the business. amounts of the currency transactions that the
The following are examples of descriptions bank reviewed and the dollar limit that it sets
of businesses that will suffice: for a particular exemption. If, for example, the
1. retail women’s shoe store; majority of the currency transactions reviewed
range from $20,000 to a maximum of $25,000,
2. retail and wholesale bakery with 70% of
the bank must not arbitrarily set the dollar
the gross revenues attributable to the retail
limit at an amount so high (e.g., $60,000) that
business; and
no CTRs will ever be filed on the exempted
3. a restaurant/bar with check cashing ser- account.
vices that derives 80% of its gross revenues The bank must therefore carefully review the
from the restaurant/bar. transaction history of the exempted account, to
The statement should include the period determine what limit would bear a reasonable
covered by the transaction history that the relationship to the currency transactions re-
bank reviewed, the range (i.e., the maximum viewed. If one transaction amount recurs more
and minimum amounts) of the transactions frequently than any other, the bank may sim-
during that period, and any other information ply set the dollar limit at that amount, or at
that the bank may have about the business or the amount of other transactions that do not
its account activity. The bank must indicate in substantially exceed that amount. Thus, for
11

Page 17
example, if the bank had reviewed at least two tions that it has reviewed. Thus, for example,
months of currency transactions, and saw that if a bank had reviewed at least two months of
the following pattern of transactions in a par- transactions, and saw that the following pat-
ticular month was representative of the num- tern of currency transactions in a particular
ber and dollar amounts in all months month was representative of the number and
reviewed, dollar amounts in all months reviewed,
March 1 - $15,000 March 18 - $45,000 April 1 - $12,000 April 14 - $13,000
March 15 - $40,000 March 30 - $41,000 it could select the highest amount, $26,000, as
March 16 - $30,000 March 31 - $40,000 the exemption limit. This is because most of
it could select $40,000 as the exemption limit the transactions are between $15,000 and
because that amount recurs more frequently $26,000, and $26,000 does not substantially
than any other and most of the other amounts exceed the $24,000, $25,000, and $25,500
are within a $35,000 to $45,000 range. How- transactions, as demonstrated below:
ever, Treasury suggests an exemption limit of $10,001 - $15,000 XXXX
$45,000, as that amount occurs twice; it is not $15,001 - $20,000 XX
substantially greater than $40,000; and there $20,001 - $25,000 XXXXXX
are other transactions (i.e., $41,000, $42,000, $25,001 - $30,000 XX
and $43,000) that fall between $40,000 and
$45,000. On the other hand, if the highest currency
To aid in its review of a customer’s currency transaction or transactions substantially exceed
transactions, a bank may find it helpful to de- the amount of most of the currency transac-
velop a chart that shows the number of cur- tions, the bank should not establish the ex-
rency transactions that fall within certain emption limit at the amount of the highest
ranges. If the bank reviewing the transaction transaction. Thus, for example, if the highest
history set forth above had used this method, transaction in the last example had been
the chart of the transactions under review $46,000 rather than $26,000, the bank should
would look like this: not select an amount that is higher than
$25,500 as the exemption limit. This is true
$10,001 - $15,000 X
even if there were two or more higher transac-
$15,001 - $20,000 XX
tions (i.e., $46,000 and $65,000), as these
$20,001 - $25,000 amounts are substantially greater than the
$25,001 - $30,000 XXX other currency transactions and they do not
$30,001 - $35,000 X occur frequently or regularly. The key is to
$35,001 - $40,000 XXXXXX make sure that the amount selected as the ex-
$40,001 - $45,000 XXXXX emption limit is commensurate with the cus-
$45,001 - $50,000 tomary conduct of the customer’s lawful do-
This chart graphically demonstrates that mestic business and that those amounts that
while the bank could select $40,000 as the ex- are unusual (i.e., higher than the customary
emption limit, $45,000 would be an appropriate transactions) can be easily detected and
exemption limit in this case because of the reported on CTRs.
grouping of the transactions from $35,000 to
$45,000. 2. Seasonal and ‘‘Monday-Only’’ Limits
If no amount recurs frequently enough to Banks should take note of two special situa-
serve as a guide for the exemption limit, the tions in establishing and setting dollar limits
bank may still establish an exemption limit for exempted currency transactions. If a bank
based upon the range of any currency transac- is dealing with a business account that can be
12

Page 18
exempted either unilaterally or specially, and (e.g., a fast-food restaurant with the same
that business is seasonal in nature (e.g., a ho- trade name), which has established a single
tel on the beach), the bank may establish an account that all of the locations use to make
exemption that covers only the season in deposits and withdrawals;
which that business has its peak activity, or 2. An operator of several different types of
that sets a high dollar limit for the business’ exemptible businesses at one or more geo-
peak season and a lower dollar limit for the graphic locations which has established a
other months of the year. Similarly, if an ex- single account that all of the businesses it
emptible business proves to have a higher operates use to make deposits and
amount of currency transactions on a particu- withdrawals;
lar day (i.e., Monday or the day after a holi-
day, Friday, or the first and fifteenth of the 3. An operator of the same type of exempt-
month), than on other days of the week or ible business at several geographic locations,
month (i.e., because of greater business activ- when each location has its own separate
ity on weekends, more currency deposits account; and
made through night deposits or automated 4. An operator of several different types of
teller machines, or factory paydays), the bank exemptible businesses at one or more geo-
may establish an exemption that covers only graphic locations, when each location has its
currency transactions posted on that day, or own separate account.
that sets a higher dollar limit for currency
transactions on that day and a lower dollar In the first two situations above, which in-
limit for other days of the week. volve only a single account, the bank should
Thus, for example, if the bank had reviewed establish a single exemption for that account
at least two months of currency transactions, and set a single dollar limit that will apply to
and saw that the following pattern of transac- all transactions of the type exempted that in-
tions in a particular month was representative volve that account.
of the number and dollar amounts in all In the latter two situations described above,
months reviewed, which involve separate accounts for each loca-
tion, the bank should establish a separate ex-
April 1 - $15,000 April 14 - $17,000 emption for each account and separate dollar
April 4 - $46,000 April 18 - $53,000 limit for each exemption. Because section
April 5 - $ 5,000 April 21 - $22,000 103.22(b)(2)(i), (ii), and (iv) of the regulations
April 7 - $19,000 April 22 - $26,000 provides for exemption from an existing ac-
April 8 - $24,000 April 25 - $50,000 count by an established depositor who is a
April 11 - $52,000 April 27 - $25,000 United States resident, the bank should grant
April 13 - $21,000 April 29 - $22,000 a separate unilateral exemption for each indi-
the bank should try to determine whether the vidual account, not for each individual cus-
higher amount of currency transactions reflected tomer or business. If one customer has an ac-
activity on the same day of the week every week count for each of its business establishments,
(i.e., Mondays). If it did, it may be appropriate the bank should separately consider each indi-
for the bank to set two exemption limits: (1) a vidual account (but not the customer) for an
daily exemption limit of $26,000; and (2) a Mon- exemption. A single exemption should not be
day or the day after a holiday limit of $53,000. granted that covers multiple accounts, even if
they have the same taxpayer identification
D. MULTIPLE-ESTABLISHMENT CUSTOMERS number. If the bank has any questions about
Another special situation of which banks this, it should contact the FinCEN at the
should take note is the process of exempting address listed on page 2. In addition, if the
multiple-establishment customers. For bank decides that it wants to grant an exemp-
purposes of the regulations, a multiple- tion for more than one account, a separate
establishment customer is a customer that falls exemption statement should be obtained for
into one of the following categories: each account and a separate dollar limit
established.
1. An operator of the same type of exempt-
ible business at several geographic locations
13

Page 19
E. SPECIAL EXEMPTION REQUESTS copy of the exemption statement (signed by

Finally, if a bank wishes to exempt deposits the customer whose acount is proposed for
into or withdrawals from an account by a cus- the special exemption) that meets all of the
tomer that does not fall within one or more of requirements described above for exemption
the categories of unilaterally exemptible cus- statements for unilateraly exempted accounts.
tomers, it must apply to the IRS Data Center The request should also include a listing of
in Detroit, Michigan, for additional authority daily amounts of currency deposited and with-
to exempt that account under the regulations. drawn during the two-month period reviewed,
See 31 CFR 103.22(e). To apply for such addi- what percentage of the amount of the deposits
tional authority, the bank must submit its re- or withdrawals is ordinarily in $100 bills or
quest to: greater, a suggested dollar limit for the exemp-
tion, and the name and telephone number of
Chief the bank official whom the IRS may contact for
Currency and Banking Reports Division further information concerning the exemption
Compliance Review Group request. The request, if complete, will then be
Internal Revenue Service Data Center reviewed by the Compliance Review Group of
P.O. Box 32063 the Data Center. A bank may not exempt a cus-
Detroit, Michigan 48232 tomer’s account that does not qualify for a uni-
The request must be accompanied by a state- lateral exemption until it has received notice
ment of the circumstances that the bank be- from the IRS that it has granted the bank the
lieves warrant a special exemption, as well as a additional authority to do so.
14

Page 20
III. RECORDKEEPING FOR EXEMPTED CUSTOMERS
After it has granted an exemption involving a par- 4. Clear Springs National Bank
ticular account of a customer, the bank is responsi- 5420 Main Street
ble for keeping two principal types of records per- Clear Springs, Florida 33123
taining to that exemption: (1) a centralized The last entry on the sample format reflects
exemption list and (2) exemption statements. the requirement in the Bank Secrecy Act regu-
A. EXEMPTION LIST lations that a bank must also include on its
exemption list the names and addresses of all
The bank must keep ‘‘(a) record of each exemp- domestic banks with which the bank conducts
tion granted . . . and the reason therefore. . . in currency transactions that are exempted from
a centralized list.’’ 31 CFR 103.22(f). This list, the CTR reporting requirements. See 31 CFR
known as the ‘‘exemption list’’ or ‘‘exempt list,’’ 103.22(f). As stated on page 3 above, transac-
must include the name, complete street address, tions between domestic banks are excepted
type of business, taxpayer identification number, from those reporting requirements. Even if the
and account number of each customer (whether bank does not have an exemption list, it still
a business entity or a government agency) must maintain the names and addresses of
whose transactions have been exempted, as well such domestic banks on a centralized list.
as an indication of whether the exemption covers Again, because the bank’s transactions with
withdrawals, deposits, or both, and the dollar domestic banks are not included within the
limit of that exemption. For a special exemption, reporting requirement, the bank does not have
the bank should include the date the exemption to decide whether to exempt those transactions
was granted by Treasury or the IRS. For banks or to set an exemption dollar limit for them.
that manually revise their exemption lists, Trea- Accordingly, the bank should not include a
sury suggests the following format for the re- dollar limit for those domestic banks that it
quired information: places on the exemption list.
1. ABC Supermarket, Inc. Whenever a bank generates a list of its ex-
1234 Dixie Highway empted customers, it must retain either the
Clear Springs, Florida 33123 original or a copy of that list for a period of
Retail Grocery five years. The retention period for an exemp-
Account Number: 123456 tion list begins on the day on which the origi-
Deposits Exemption Limit: $20,000 nal of that list was generated, either manually
Withdrawals Exemption Limit: $25,000 or through the use of an automated system.
TIN: 59-2345678 See 31 CFR 103.38(d). In addition, the regula-
tions require that the exemption lists, like
2. BCD Citrus Growers other records required to be retained under the
Route 5 Bank Secrecy Act regulations, ‘‘be filed or
Clear Springs, Florida 33123 stored in such a way as to be accessible within
Orange Grower a reasonable period of time, taking into con-
Account Number: 1234567 sideration the nature of the record, and the
Withdrawals for Payroll Exemption Limit: amount of time expired since the record was
$25,000 made.’’ 31 CFR 103.38(d).
TIN: 59-1234567
3. Jones Beverage Co. B. EXEMPTION STATEMENTS
5432 Main Street The second principal category of records that a
Clear Springs, Florida 33123 bank must keep concerning an exempted ac-
Beer Wholesaler count is the exemption statement that the bank
Account Number: 2345678 has obtained from a customer whose transac-
Deposits Exemption Limit: $20,000 tions involving that account have been
(Special exemption authority granted exempted. After the bank has obtained such a
3/21/87) statement, it must retain the original of the
TIN: 59-3456789 statement for a unilateral exemption (or a copy
15

Page 21
of the statement for a special exemption) as tomer has been removed from the exemption
long as the customer is on the exemption list, list. 31 CFR 103.22(d).
and for a period of five years after that cus-
16

Page 22
IV. MONITORING EXEMPTIONS AND DISCOVERY

OF IMPROPER EXEMPTIONS
A. MONITORING EXEMPTIONS ment to the IRS Data Center in Detroit and

Banks should also continue to monitor the ex- request additional authority for continuing that
emptions they have granted. A company that special exemption in light of the new informa-
was appropriate for an exemption at one time tion to which the customer has attested.
may go out of business and be used as a If the only item on a customer’s exemption
‘‘front’’ to conceal the movement of illegally statement that a bank determines is no logner
obtained funds. It also may experience some appropriate is the exemption dollar limit (an
other significant change in its operations, such item to which the customer does not attest),
as expansion of its business activities, that the bank may increase or decrease the dollar
changes the nature of its business or that re- limit unilaterally if the customer was unilater-
quires it to move to a new location. In addi- ally exempted, and need not obtain a new ex-
tion, improvements or declines in the com- emption statement from the customer. If the
pany’s business may make the originally customer’s account was the subject of a special
granted exemption limit inappropriate. Over exemption, the bank must obtain permission
time, the exemption limit for a particular ac- from the IRS Data Center before increasing the
count and customer may need to be increased dollar limit.
or decreased so that it remains at a level that B. DISCOVERY OF IMPROPER
the bank may reasonably conclude does not EXEMPTIONS
‘‘exceed amounts commensurate with the cus- If a bank discovers that it has improperly
tomary conduct of the lawful domestic busi- exempted one or more customer accounts, it
ness of that customer.’’ 31 CFR 103.22(d). should promptly take several actions. The bank
For these reasons, Treasury recommends should first rescind all of the exemptions that it
that a bank review its exemption list at least determines were improperly granted, and imme-
once a year, and preferably once every six diately remove those exemptions from the ex-
months. In keeping with the general policy emption list. It should then contact:
that banks should know their customers, each
review should include a contact with the cus- Director
tomer of each exempted account to determine FinCEN
whether there are any changes in the custom- U.S. Department of the Treasury
er’s situation (such as the customer’s name, 1500 Pennsylvania Avenue, N.W.
address, or nature of business) since the last Washington, D.C. 20220
date of review. If the bank learns, either di- (202) 622-0400
rectly from the customer or through any other The bank should not begin to backfile CTRs
means, that any of the information to which on the currency transactions it determines
that customer attested on the exemption state- were improperly exempted until it obtains
ment has changed, it should obtain a new ex- guidance from FinCEN. That office may
emption statement from that customer that request additional information concerning
correctly reflects the relevant information from those exemptions and currency transactions
that customer. If that customer’s account was to determine whether the bank should be
granted a special exemption, the bank must directed to backfile CTRs on particular
then send a copy of the new exemption state- customers.
17

Page 23
V. CONCLUSION
This set of guidelines should cover most of the Director

issues that banks are likely to encounter in us- FinCEN
ing the exemption provisions of the regula- U.S. Department of the Treasury
tions. For further guidance on the exemption 1500 Pennsylvania Avenue, N.W.
provisions, banks are encouraged to consult Washington, D.C. 20220
with IRS contact representatives at: (202) 622-0400
Compliance Review Group As new situations arise that, in Treasury’s
IRS Data Center judgment, are likely to be of general interest to
P.O. Box 32063 the banking community concerning the proper
Detroit, Michigan 48232 use of exemptions, Treasury will issue specific
(313) 234-1613 administrative rulings to deal with those situa-
tions, and may also amend these guidelines in
or the FinCEN, Department of the Treasury at: appropriate circumstances.
18

Page 24
APPENDIX A
The following lists identify various types of EXCEPTED TRANSACTIONS

business accounts and their general exemption Currency transactions with the following fi-
status under section 103.22 of the Bank Secrecy nancial institutions are automatically excepted
Act regulations or the Department of the Trea- from the reporting requirements. Thus, banks
sury’s exemption policy. In the case of should not file CTRs on their transactions with
accounts of businesses that are unilaterally or these banks. However, banks must maintain
specially exemptible, the bank must make sure the name and address of any domestic bank
that the customer meets all of the exemption with which they conduct currency transactions
criteria outlined in section 103.22 and conducts on their exemption list.
currency transactions exceeding $10,000 on a The Federal Reserve Bank and Federal Home
regular and frequent basis. These items are Loan Bank which provide currency and coin
discussed elsewhere in this booklet. service should not be listed on the exemption
The lists are not all inclusive and are not neces- list.
sarily determinative of whether a particular busi-
ness account qualifies for an exemption. They are Commercial Bank (Domestic)
meant to provide guidance to banks and provide Cooperative Bank (Domestic)
examples of the types of business accounts that may Credit Union (Domestic)
be appropriately exempted from the CTR reporting Federal Home Loan Bank
requirements. If a bank has a question regarding
Federal Reserve Bank
the exemptibility of a customer, it should con-
tract the Compliance Review Group at the In- Savings and Loan (Domestic)
ternal Revenue Service Data Center in Detroit, Savings Bank (Domestic)
Michigan.
19

Page 25
EXEMPTIBLE BY BANK UNILATERALLY Drug Store

The following is a list of businesses which a Dry Goods Merchandise (Misc.)
bank generally may unilaterally exempt. In Duty Free Shop
some instances, the businesses listed below Electric Utility
may sell both retail and wholesale goods or
may sell retail goods and provide a service. Electronics Store
Such business accounts may be unilaterally Fast Food Restaurant
exempted only if more than 50% of the gross Film Sales
revenues of the business are derived from the
Fish Market
retail sale of goods and the remainder of their
business is eligible for either a unilateral or Florist
special exemption. If the remainder of the Furniture Sales
business is of a type that may not be granted a Garden Center
unilateral or special exemption (e.g., an auto
Gas Company (Utility)
parts store that sells cars) the account of the
business may not be granted either a unilateral Gas/Oil Retail Sales
or special exemption. General Store
FinCEN is currently reviewing the exemption Gift Shop
status of check cashing services. If it is decided
that an exemption will no longer be allowed, Government Agency
notice will be published in the Federal Register Grocery Store
and banks having received additional authority Hardware Store
to grant special exemptions in the past may be Health Food Store
notified directly.
Hotel
Airline/Commercial (Scheduled)
Ice Cream Store
Amusement Park
Laundry (Coin Operated)
Appliance Store
Law Enforcement Agency
Art Supply Store Liquor Store
Auto Parts Store Lumber Store
Bakery Meat Market
Bar Motel
Book Store Movie (Stage or Theater)
Building Materials (Retail) Musical Instrument Store
Bus Line (Commercial) Newspapers (Retail Sales)
Candy Store Paint Store
Car Wash (Coin Operated) Petroleum (Home Heating)
Check Cashing (Licensed) Public Transportation
Clothing Store Race Track
College/State or Local Government Railroad (Passenger Service)
Record Store
Community College/State or Local
Government Resort/Hotel
Computer Store Restaurant
Concession/Food (Retail) School (Public)
Convenience Store Seafood Store
Delicatessen Shoe Store
Department Store Sporting Goods Store
20

Page 26
Sports Arena Toy Store

Stationery Store Uniform Store
Supermarket U.S. Postal Service
Telephone Company University (State Supported)
Television Video Rentals Vending Machine Company
Tobacco Store Water Company
21

Page 27
SPECIAL EXEMPTION—REQUIRES IRS Food Distributor

APPROVAL Food Processor
If the following types of businesses conduct Food Service
regular and frequent cash transactions, a bank Frozen Food/Wholesale
should request additional authority from the
IRS to grant a special exemption for the cus- Garage (Parking)
tomer’s account. IRS is receptive to requests Gas/Oil Distributor
for special exemptions involving service-type Golf Course
businesses.
Hospital
Insurance Company
Auto Repair Limousine Service
Bakery Distributor Liquor Distributor
Beauty Supplies Distributor Lumber Mill
Beverage Distributor Lumber Distributor
Boat Tours Meat/Wholesale
Bowling Alley Medical Clinic
Bowling League Museum (Admission fees, gift shop)
Bus Line (Chartered) Nonprofit Organization
Cable TV Off Track Betting (NY only)
Candy (Wholesale) Parking Facility
Car Rentals Petroleum Distributor
Car Wash Poultry Distributor
Cheese Distributor Private Mail Carrier
Church Produce Distributor/Wholesaler
College (Private) Professional Sports Teams
Cosmetics Distributor Property Management
Country Club Real Estate Management
Dairy Distributor Recreational Camps-Schools
Delivery Service Religious Organization
Dry Cleaners School (Private)
Electrical Supplies Distributor Shoe Distributor
Farming Ski Resort
Ferry Service Taxi Cab Company
Film Processor Ticket Agency (Entertainment/sports)
Fireworks Distributor Tobacco Distributor
Flower Distributor University (Private)
Food Catering Warehouse Rental
22

Page 28
NOT EXEMPTIBLE Escrow Company

The following types of business accounts may Farm Equipment Sales
not be exempted unilaterally and will not be Foreign Bank
granted a special exemption. Foreign Currency Exchange
Accountants Individuals
Aircraft Sales Investment Advisor
Attorneys Investment Banker
Auction House Boat Dealer
Automobile Clubs with Travelers Check Mobile Home Sales
Services Money Order Company
Auto Dealer Motorcycle Dealer
Bank/Foreign Pawn Shops
Bingo Real Estate Broker
Boat Sales Recreational Vehicle Dealer
Card Clubs Scrap Metal Dealer
Casino Securities Brokers/Dealers
Charter Ships, Airplanes, Buses Telegraph Company
Check Cashing (Unlicensed) Title Company
Commodity Brokers/Dealers Travelers Check Issuer/Seller/Redeemer
Cruise Lines (Ships) Truck Dealer
Currency Exchanger Unions
Doctors Wire Transmitters of Funds
Embassy
23

Page 29
APPENDIX B
MODEL CUSTOMER EXEMPTION STATEMENT
Part I: Identity of Customer
(To be completed by customer)
1. Legal Name of Customer:

2. Trade Name of Customer (if different from legal name):
3. Complete Street Address(es) of Customer (Include street, city, state, and zip code for all street
addresses of customer’s locations using account to be exempted):
4. Taxpayer Identification Number of Customer:

5. Type and Number of Account To Be Exempted:
6. Nature of Business (Please include complete description):
7. The monies deposited into the account described in No. 5 are funds generated solely from the
business described in No. 6.
Yes No
The information contained above is true and correct to the best of my knowledge and belief. I
understand that this information will be read and relied upon by the Government.
Signature of Authorized Official Date Signed
Name of Authorized Official Title/Position of Official

(Please type or print)
24

Page 30
Part II: Information on Customer and Account to Be Exempted

(To be completed by bank only)
8. Period of Account Activity Reviewed (Should include at least two consecutive months of transac-
tions, as set forth in bank’s records, that are representative of the customary conduct of the lawful
domestic business of customer):
9. Highest Cash Transactions During Period Reviewed (Complete all that apply to account to be
exempted): Deposits: Withdrawals: Withdrawals for Payroll Purposes:
10. Lowest Cash Transactions During Period Reviewed (Complete all that apply to account to be
exempted): Deposits: Withdrawals: Withdrawals for Payroll Purposes:
11. Additional Information on Account Activity:
12. Reason(s) Customer Qualified for Exemption (Should include detailed description of type of
business and relation of cash transactions to that business):
13. (For special exemption only) Date on Which Treasury/IRS Granted Additional Authority to Exempt:
Based upon an independent verification of the activity of account (using available bank
records pertaining to that account), and a review of the information to which the customer has
certified in Part I above, I have determined that the following types of currency transactions
involving account are eligible for exemption from the requirements of the Bank Secrecy
Act regulations pertaining to Currency Transaction Reports:
(Check one or more boxes, and fill in amounts, as appropriate)
Daily deposits not exceeding $
Daily withdrawals not exceeding $
Daily withdrawals for payroll purposes not exceeding $
Other exemptible transactions (e.g., government agency, Monday-only deposits, seasonal) not
exceeding $ (Please specify type of customer and transactions exempted)
The dollar limits of these types of transactions do not exceed amounts commensurate with the
customary conduct of the lawful domestic business of the customer.
Signature of Bank Official Date of Signature
Name of Bank Official Title/Position of Bank Official

(Please type or print)
25

Page 31
Part III: Identification of Exempting Bank

(To be completed by bank only)
14. Name of Bank:

15. Complete Street Address of Bank (Include street, city, state, and zip code):
16. Employer Identification Number of Bank:

17. MICR Number of Bank:
18. Supervisory Agency (check one):
OCC FDIC FRS FHLBB NCUA
Other (specify):
U.S. Government Printing Office: 1988–202-014/94503
26

Page 32
Interim Exemption Rule
Section 502.0
FEDERAL REGISTER ADDRESSES: Written comments should be

Vol. 61, No. 80 submitted to: Office of Regulatory Policy and
Enforcement, Financial Crimes Enforcement
Rules and Regulations Network, Department of the Treasury, 2070
Chain Bridge Road, Vienna, Virginia 22182-
DEPARTMENT OF THE 2536, Attention: Interim CTR Exemption Rule.
TREASURY Submission of comments. An original and
four copies of any comment must be submitted.
Financial Crimes Enforcement All comments will be available for public
Network (FinCEN) inspection and copying, and no material in any
31 CFR Part 103 such comments, including the name of any
person submitting comments, will be recognized
RIN 1506-AA10; 1506-AA11 as confidential. Accordingly, material not
intended to be disclosed to the public should not
Amendment to the Bank Secrecy Act be submitted.
Regulations—Exemptions From the Inspection of comments. Comments may be
Requirement To Report Transactions inspected at the Department of the Treasury
in Currency between 10:00 a.m. and 4:00 p.m., in the Finan-
cial Crimes Enforcement Network (‘‘FinCEN’’)
Part III reading room, on the third floor of the Treasury
61 FR 18204 Annex, 1500 Pennsylvania Avenue, N.W., Wash-
ington, D.C. 20220. Persons wishing to inspect
the comments submitted should request an
DATE: Wednesday, April 24, 1996 appointment by telephoning (202) 622-0400.
ACTION: Interim rule with request for FOR FURTHER INFORMATION CONTACT: Pamela
comments. Johnson, Assistant Director, Office of Financial Institutions
Policy, FinCEN, at (703) 905-3920; Charles Klingman, Office
of Financial Institutions Policy, FinCEN, at (703) 905-3920;
SUMMARY: This document contains an interim Stephen R. Kroll, Legal Counsel, FinCEN, at (703) 905-3590;
rule eliminating the requirement to report trans- or Cynthia A. Langwiser, Office of Legal Counsel, FinCEN, at
actions in currency in excess of $10,000, between (703) 905-3590.
depository institutions and certain classes of
‘‘exempt persons’’ defined in the rule. The
interim rule applies to currency transactions SUPPLEMENTARY INFORMATION
occurring after April 30, 1996. It is adopted as
a major step in reducing the burden imposed I. Introduction
upon financial institutions by the Bank Secrecy
Act and increasing the cost-effectiveness of the This document adds, as an interim rule, a new
counter-money laundering policies of the paragraph (h) (the ‘‘Interim Rule’’) to 31 CFR
Department of the Treasury. The interim rule is 103.22. The Interim Rule exempts, from the
part of a process to achieve the reduction set by requirement for the reporting of transactions
the Money Laundering Suppression Act of 1994 in currency in excess of $10,000, transactions
in the number of currency transaction reports occurring after April 30, 1996, between deposi-
filed annually by depository institutions. tory institutions1 and certain classes of exempt
persons defined in the Interim Rule. The Interim
DATES: Effective date. The interim rule is Rule is adopted to implement the terms of
effective May 1, 1996. 31 U.S.C. 5313(d) (and related provisions of
Comment deadline. Comments must be 31 U.S.C. 5313 (f) and (g)), which were added to
received by August 1, 1996.
Applicability. This interim rule applies to 1 As explained below, the text of the rule itself uses the
transactions in currency occurring after term ‘‘bank,’’ which as defined in 31 CFR 103.11 (c) includes
April 30, 1996. both banks and other classes of depository institutions.

Page 1
502.0 Interim Exemption Rule
the Bank Secrecy Act by section 402(a) of the United States or any such State or political
Money Laundering Suppression Act of 1994 subdivision.
(the ‘‘Money Laundering Suppression Act’’), (D) Any business or category of business the
Title IV of the Riegle Community Development reports on which have little or no value for law
and Regulatory Improvement Act of 1994, enforcement purposes.
Pub. L. 103-325 (September 23, 1994). Subsection (d)(2) states that:
The Secretary of the Treasury shall publish in the

II. Background Federal Register at such times as the Secretary
determines to be appropriate (but not less fre-
A. Statutory Provisions quently than once each year) a list of all of the
entities whose transactions with a depository insti-
The Bank Secrecy Act, Titles I and II of Pub. L. tution are exempt under this subsection from the
91-508, as amended, codified at 12 U.S.C. 1829b, [currency transaction] reporting requirements.
12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5330,
authorizes the Secretary of the Treasury, inter The companion provisions of 31 U.S.C.
alia, to issue regulations requiring financial 5313(e) authorize the Secretary to permit a
institutions to keep records and file reports that depository institution to grant additional, discre-
are determined to have a high degree of useful- tionary, exemptions from currency transaction
ness in criminal, tax, and regulatory matters, and reporting. Subsection (f) places limits on the
to implement counter-money laundering pro- liability of a depository institution in connection
grams and compliance procedures. Regulations with a transaction that has been exempted from
implementing Title II of the Bank Secrecy Act reporting under either subsection (d) or subsec-
(codified at 31 U.S.C. 5311-5330) appear at tion (e) and provides for the coordination of any
31 CFR Part 103. The authority of the Secretary exemption with other Bank Secrecy Act provi-
to administer Title II of the Bank Secrecy Act sions, especially those relating to the reporting
has been delegated to the Director of FinCEN. of suspicious transactions. New subsection (g)
The reporting by financial institutions of trans- defines ‘‘depository institution’’ for purposes of
actions in currency in excess of $10,000 the new exemption provisions.
has long been a major component of the Depart- Section 402(b) of the Money Laundering
ment of the Treasury’s implementation of the Suppression Act states simply that in adminis-
Bank Secrecy Act. The reporting requirement tering the new statutory exemption procedures:
is imposed by 31 CFR 103.22, a rule issued
under the broad authority granted to the Secre- the Secretary of the Treasury shall seek to reduce,
tary of the Treasury by 31 U.S.C. 5313(a) to within a reasonable period of time, the number of
reports required to be filed in the aggregate by
require reports of domestic coin and currency
depository institutions pursuant to section 5313(a)
transactions. of title 31 by at least 30 percent of the number filed
Four new provisions (31 U.S.C. 5313 (d) during the year preceding [September 23, 1994,]
through (g)) concerning exemptions were added the date of enactment of [the Money Laundering
to 31 U.S.C. 5313 by the Money Laundering Suppression Act].
Suppression Act. Subsection (d)(1) provides
that the Secretary of the Treasury shall exempt a During the period September 24, 1993 through
depository institution from the requirement to September 23, 1994, approximately 11.2 million
report currency transactions with respect to currency transaction reports were filed. Of that
transactions between the depository institution number, approximately 10.9 million reports were
and the following categories of entities: filed by depository institutions. Thus the statute
(A) Another depository institution. contemplates a reduction of at least approxi-
(B) A department or agency of the United mately 3.3 million filings per annum.
States, any State, or any political subdivision of
any State.
(C) Any entity established under the laws of B. Shortcomings of the Present
the United States, any State, or any political Exemption System
subdivision of any State, or under an interstate
compact between 2 or more States, which exer- The enactment of 31 U.S.C. 5313 (d) through (g)
cises governmental authority on behalf of the reflects a Congressional intention to ‘‘reform the

Page 2
Interim Exemption Rule 502.0
procedures for exempting transactions between gress authorized the Treasury to exempt under
depository institutions and their customers.’’ See the mandatory rules, as indicated above, ‘‘[a]ny
H.R. Rep. 103-652, 103d Cong., 2d Sess. 186 business or category of business the reports on
(August 2, 1994). The administrative exemption which have little or no value for law enforce-
procedures at which the statutory changes are ment purposes.’’ 31 U.S.C. 5313 (d)(1)(D).
directed are found in 31 CFR 103.22(b)(2) and
(c) through (f); those procedures have not suc-
ceeded in eliminating routine currency trans- C. Objectives of the Interim Rule
actions by businesses from the operation of the
currency transaction reporting requirement. As indicated above, the Interim Rule is the first
Several reasons have been given for this lack step in the use of section 402 of the Money
of success. The first is the retention by banks of Laundering Suppression Act to transform the
liability for making incorrect exemption deter- Bank Secrecy Act provisions relating to cur-
minations. The risk of potential liability is made rency transaction reporting. That transformation
more serious by the complexity of the adminis- has four objectives.
trative exemption procedures (which require The first is to reduce the burden of currency
banks, for example, to assign dollar limits to transaction reporting. That reduction comes in
each exemption based on the amounts of cur- part through the issuance of a blanket regulatory
rency projected to be needed for the customary exemption covering transactions in currency
conduct of the exempt customer’s lawful busi- between one depository institution and another
ness). Finally, advances in technology have within the United States and between depository
made it less costly for some banks to report all institutions and government departments and
currency transactions rather than to incur the agencies at all levels. But at least an equal (and
administrative costs (and risks) of exempting likely a significantly greater) part of the reduc-
customers and then administering the terms of tion comes from the decision to treat as being of
particular exemptions properly. little interest to law enforcement transactions in
The problems created by the administrative currency between depository institutions and
exemption system include that system’s failure corporations whose common stock is listed on
to provide the Treasury with information needed certain national stock exchanges.
for thoughtful administration of the Bank Secrecy That decision reflects a second, related objec-
Act. Although banks are required to maintain tive of the Interim Rule: to begin the process
a centralized list of exempt customers and of limiting currency transaction reports to trans-
to make that list available upon request, see actions for which the benefits of the reporting
31 CFR 103.22 (f) and (g), there is no way short requirement (both providing usable information
of a bank-by-bank request for lists (with the to enforcement officials and creating a deterrent
time and cost such a request would entail both against attempts to misuse the financial system)
for banks and government) for Treasury to learn justify the costs of supplying the information to
the extent to which routine transactions are the Treasury. It is unlikely that reports of routine
effectively screened out of the system or (for currency transactions for a company of suffi-
that matter) the extent to which exemptions have cient size to be traded on a national securities
been granted in situations in which they are not exchange can be of significant use, by them-
justified. selves, to law enforcement, regulatory, or tax
In crafting the 1994 statutory provisions authorities.
relating to mandatory and discretionary exemp- The third objective is to focus the Bank
tions, Congress sought to alter the burden of Secrecy Act reporting system on transactions
liability and uncertainty that the administrative that signal matters of clear interest to law
exemption system created. The statutory provi- enforcement and regulatory authorities. In pub-
sions embraced several categories of transac- lishing the final rule relating to the reporting of
tions that were either already partially exempt or
plainly eligible for exemption under the admin-
istrative exemption system.2 In addition, Con-
exchanges of currency or other payments and transfers by
local or state governments, or the United States or any of its
2. Thus, as noted below, transactions in currency between agencies or instrumentalities’’ are one of the categories of
domestic banks are already exempt from reporting, see transactions specifically described as eligible for exemption
31 CFR 103.22(b)(1)(ii), and ‘‘[d]eposits or withdrawals, by banks. See 31 CFR 103.22(b)(2)(iii).

Page 3
suspicious transactions under the Bank Secrecy institutions; it is impossible to reduce the
Act, Treasury stated ‘‘its judgment that report- volume of currency transaction reports to the
ing of suspicious transactions in a timely fashion extent that the Interim Rule tries to do without
is a key component of the flexible and cost- creating some small degree of temporary incon-
efficient compliance system required to prevent venience as the terms of the system change.
the use of the nation’s financial system for FinCEN believes, however, that the transition
illegal purposes.’’ See 61 FR 4326, 4327 (Feb- period will be relatively short and that the
ruary 5, 1996). The Interim Rule re-enforces the new greatly streamlined exemption procedures,
central importance of suspicious transaction once in place, will be self-sustaining and
reporting to Treasury’s counter-money launder- will produce a leaner, less burdensome, and
ing program; expanded suspicious transaction more cost effective exemption system than now
reporting forms a basis for steps to reduce exists.
sharply the extent to which routine currency FinCEN is eager to improve the terms of the
transactions by ongoing businesses are required rule as necessary to eliminate temporary incon-
to be reported. Currency transactions, like gruities. Comments on ways in which the rule
non-currency transactions, are required to be could be improved in this regard are specifically
reported under the terms of new 31 CFR 103.21, invited.
if they constitute suspicious transactions as
defined in that section; nothing in the Interim
Rule reduces or alters the obligations imposed D. Additional Relief Under Study
by 31 CFR 103.21. See 31 U.S.C. 5313(f)(2)(B).
The relationship between required suspicious The Interim Rule is the first result of FinCEN’s
transaction reporting and expanded and simpli- work to put in place the new exemption system
fied exemptions from routine currency trans- contemplated by the provisions of 31 U.S.C.
action reporting is a strong one; each rule forms 5313 (d) through (g). The goal of FinCEN’s
an integral part of the policy of the other. The work in this area, like the Congress’ goal in
substitution of suspicious transaction reporting shaping the Money Laundering Suppression Act
for routine reporting of all currency transactions provisions on exemptions, is to reduce the cost
by exempt persons in effect defines what a of Bank Secrecy Act compliance and to further
routine transaction for an exempt person is. That a fundamental restructuring of the Bank Secrecy
is, a routine currency transaction, in the case of Act. The restructuring emphasizes cost-effective
an exempt person, is a transaction that does not collection of only that information that is likely
trigger the suspicious transaction reporting to benefit law enforcement and regulatory
requirements, because the transaction does not, authorities.
for example, give the bank a reason to suspect In solving the issues posed by implementa-
money laundering, a violation of a reporting tion of the new statutory exemption rules,
requirement, or the absence of a business pur- FinCEN has consulted regularly with banking
pose. See 31 CFR 103.21(a)(2)(i)–(iii). industry representatives. For example, under the
The fourth objective of the Interim Rule auspices of Bank Secrecy Act Advisory Group
is to create an exemption system that works. it convened a working session of bank officials
Thus choices have been made with an eye to discuss possible structures for the new
to achieving ease of administration and exemption system and the constraints that
comprehensibility—the very factors whose bank operating procedures posed for broad-scale
absence hindered the prior administrative relief from unnecessary currency transaction
exemption process. reporting.
FinCEN has attempted to craft a rule that will In this connection, FinCEN is aware that the
be easily understood by the banking profession- Interim Rule and any final rule resulting there-
als who must apply it. That meant painting with from may well affect the operation of large
a broad brush; any general exemption rule will banks in urban areas more than the operation of
almost certainly include within its terms some smaller community-based institutions, if only
results that are not optimal when viewed in because larger companies tend to do business
isolation. with larger banks and because the Interim Rule
FinCEN understands that the changeover does not simplify the exemption system with
to the new system will require an initial period respect to transactions by privately held com-
of effort by both the Treasury and banking panies, large and small, whose banking history

Page 4
and business would also justify a simplified the terms of 31 U.S.C. 5313(d); it does not apply
exemption system. to transactions between exempt persons and
Accordingly, FinCEN is working now on a financial institutions other than banks. Com-
notice of proposed rulemaking implementing ments are invited about whether the rule should
the discretionary exemption authority contained extend to transactions with such other classes of
in 31 U.S.C. 5313(e) and will at the appropriate financial institutions.
time consult with the banking community in Although 31 U.S.C. 5313(d) speaks of ‘‘man-
shaping proposals to implement that authority. datory’’ exemptions, the Interim Rule does not
Meanwhile, banks will still be able to maintain affirmatively prohibit banks from continuing to
any exemptions properly granted under the cur- report routine currency transactions with exempt
rent administrative system. Commenters on this persons. Treasury believes that the incentives
Interim Rule are invited to include in their created by the Interim Rule are, as Congress
comments any suggestions on the projected intended them to be, sufficiently great to lead
second stage of the exemption effort. banks to take advantage of the new exemption
system to a far greater extent than they took
advantage of the prior administrative exemption
III. Specific Provisions system.
The Interim Rule, however, is not simply a
regulatory relief measure. As indicated above, it
A. 103.22(a). Reports of Currency is part of a fundamental restructuring of the
Transactions Bank Secrecy Act’s administration. Treasury
hopes and expects that banks will be willing to
A new sentence is added following the first
undertake the one-time effort necessary to make
sentence of paragraph (a) of 31 CFR 103.22 to
the new, substantially different system work.
provide a cross-reference in that paragraph to
the provisions of new paragraph (h) added by
the Interim Rule.
C. 103.22(h)(2). Exempt Person
Under the Interim Rule, the crucial exemption
B. 103.22(h)(1). Currency Transactions of
determinant is whether a particular entity is an
Exempt Persons With Banks Occurring
‘‘exempt person.’’ That term is defined in new
After April 30, 1996
paragraph (h)(2).
Paragraph (h)(1) states the general effect of the The first three categories of exempt persons
Interim Rule. That is, simply and directly: no specified in paragraph (h)(2) are those to whom
currency transaction report is required to be filed exemption is required to be granted by 31 U.S.C.
by a bank for a transaction in currency by an 5313(d)(1)(A)–(C).3
exempt person occurring after April 30, 1996. Banks. The first category of exempt person is
The Interim Rule uses the term ‘‘bank’’ rather banks themselves, with the result that transac-
than ‘‘depository institution’’ to define the class tions between banks will not require reporting.
of financial institutions to which the Interim In most cases, no reporting is required at present
Rule applies. Although 31 U.S.C. 5313(d) speaks for such transactions; 31 CFR 103.22(b)(1)(ii)
of exemptions for transactions with ‘‘depository states flatly that the currency transaction report-
institutions’’ (as the latter term is defined in ing requirement does not ‘‘require reports of
31 U.S.C. 5313(g)), FinCEN believes that the transactions between domestic banks.’’ The defi-
broad definition of bank contained in 31 CFR nition is limited to banking operations and
301.11(c) includes all of the categories of insti- transactions within the United States. Thus a
tutions included in the statutory ‘‘depository transfer of currency by a bank inside the United
institution’’ definition; because the term ‘‘bank’’ States to a bank outside the United States is not
is familiar to bank officials who work with the exempt under the Interim Rule.
Bank Secrecy Act, substitution of a new term
whose effect is the same does not appear either
necessary or advisable.
3. The language of 31 U.S.C. 5313(d)(1)(A)–(C) is quoted
The Interim Rule applies only to transactions in section IIA of this Supplementary Information section,
between exempt persons and banks, to reflect above.

Page 5
Departments and Agencies of the The ‘‘listed corporation’’ formulation has been
United States and of States and adopted for several reasons. First, Treasury
Their Political Subdivisions believes that the formulation is a convenient and
accurate way of describing many, if not most,
The second category of exempt person includes large-scale enterprises that make extensive rou-
departments and agencies of the United States, tine use of currency in their normal business
of any state, and of any political subdivision of operations. Second, the list of corporations
any state. The definition of ‘‘United States’’ described in the formulation is readily available
used in 31 CFR 103.11 includes not only the and is published in general circulation news-
states but also the District of Columbia and the papers each morning. Finally, the scale of enter-
various territories and insular possessions of the prises listed on the nation’s largest securities
United States. See 31 CFR 103.11(nn); as of exchanges, and the variety of internal and
August 1, 1996, the definition will also include external controls to which they are subject—
the Indian lands. See 61 FR 7054, 7056 (Febru- whether as a matter of market discipline or
ary 23, 1996). Thus departments and agencies of government regulation—make their use for the
the governments of these areas are also classi- sort of money laundering or tax evasion marked
fied as exempt persons under the definition. by anomalous transactions in currency, or that
could be detected by a simple examination of
currency transaction reports, sufficiently unlikely
Entities Exercising Governmental Authority
that the benefits of a uniform formulation far
exceed the apparent risks of such a formulation.
The third category of exempt person includes
This is especially true because of the continuing
any entity established under the laws of the
applicability of the suspicious transaction report-
United States,4 of any state, or of any political
ing rules to all (non-currency and currency)
subdivision of any state, or under an interstate
transactions between listed corporations and
compact between two or more states, that exer-
banks.
cises governmental authority on behalf of the
The determination whether a company is a
United States or any such state or political
corporation for purposes of the Interim Rule
subdivision. Operating rules for making deter-
depends solely upon the formal manner of its
minations about the governmental entities are
organization; if the company has a corporate
included in paragraph (h)(4), discussed below.
charter, it is a corporation, and if it does not, it
is not a corporation, for purposes of the Interim
Listed Corporations Rule. The sort of ‘‘corporate equivalence’’ analy-
sis required, for example, for certain purposes to
The fourth category of person subject to man- determine an entity’s status under the Internal
datory exemption under 31 U.S.C. 5313(d) is Revenue Code is neither called for nor permitted
‘‘any business or category of business the reports by the Interim Rule.5
on which have little or no value for law enforce- At present the Interim Rule applies only to
ment purposes.’’ Treasury is making use of that corporations, even though Treasury understands
provision to treat as an exempt person any that the equity interests of some partnerships
corporation whose common stock (i) is listed on and business trusts are also listed on the named
the New York Stock Exchange or the American securities exchanges. Comments are invited as
Stock Exchange (but not including stock listed to whether the definition of exempt person
on the Emerging Company Marketplace of the should be extended to all persons whose equity
American Stock Exchange), or (ii) has been interests are so listed.
designated as a Nasdaq National Market Secu-
rity listed on the Nasdaq Stock Market (but not
including stock listed under the separate ‘‘Nasdaq
Small-Cap Issues’’ category). For convenience,
this class of exempt persons is referred to in this
discussion as ‘‘listed corporations.’’ 5. Again, there may be a limited group of entities, listed on
the national securities exchanges but organized abroad, for
which such a distinction raises issues of interpretation that
cannot be dealt with effectively in the Interim Rule. Guidance
is requested on whether such issues exist and, if so, how they
4. Again, the broad definition of ‘‘United States’’ applies. should be resolved.

Page 6
Consolidated Subsidiaries of Listed aged about the appropriateness of the definition.

Corporations FinCEN would especially welcome ideas about
other formulations, based upon sound banking
Many, if not most, listed corporations include practice, that bank employees would find easy to
groups of subsidiary operating corporations apply and that would accomplish the goals of
whose treatment under the Interim Rule raises the Interim Rule more effectively than a defini-
significant issues. Such subsidiaries are not tion based upon consolidation for income tax
named in stock exchange listings, but the policy filing purposes.
of the statute and Interim Rule cannot be effec-
tively implemented without the inclusion of
such subsidiaries in the exempt person category. D. 103.22(h)(3). Designation of Exempt
That fact raises an issue of what might be Persons
called the ‘‘burden’’ of reducing regulatory bur-
den. Many definitions of parent-subsidiary rela- The Interim Rule imposes one condition on a
tionship are quite technical and of importance bank’s exemption of currency transactions of a
only to legal, accounting, and investment spe- customer who satisfies the definition of exempt
cialists; even definitions phrased only in terms person. That condition is that a single form be
of stock ownership often devolve into questions filed designating the exempt person and the
of direct or indirect stock ownership that can be bank that recognizes it as such. The designation
extremely difficult to resolve. is to be made by a bank by filing for each
In that context, mindful of the need to provide exempt person a single Internal Revenue Ser-
as simple a formulation as possible, the Interim vice Form 4789 (the form now used by banks
Rule treats as a subsidiary any corporation that and others to report a transaction in currency)
files a consolidated income tax return with a that is marked (in the Form’s line 36) to indicate
listed corporation. The choice of this standard its purpose and that provides identifying infor-
was not any easy one; its chief rationale is that mation about the exempt person and bank
the fact of consolidation (as opposed to, say, involved.
eligibility for consolidation) is relatively easy to The designation requirement must be satis-
determine by asking corporate customers (and fied, for existing customers, on or before
by asking corporate officials to ask their tax or August 15, 1996. The requirement is a condition
accounting departments if necessary). subsequent; that is, a bank may recognize a
Franchisees of listed corporations (or of their customer as an exempt person on April 30, and
subsidiaries) are not included within the defini- stop filing currency transaction reports as per-
tion of exempt person, unless such franchisees mitted by the Interim Rule, even though it does
are independently exempt as listed corporations not satisfy the designation requirement for the
or listed corporation subsidiaries. A local cor- customer until August 15, 1996.
poration that holds a McDonald’s franchise, for The designation of new customers as exempt
example, is not an exempt person simply because persons must be made no later than 30 days
McDonald’s Corporation is a listed corporation; following the first transaction in currency in
a McDonald’s outlet owned by McDonald’s excess of $10,000 between a bank and the
Corporation directly, on the other hand, would new customer. (Because persons may become
be an exempt person, because McDonald’s Cor- new customers during the period April 30–
poration’s common stock is listed on the New August 15, 1996, a new customer to whom the
York Stock Exchange. 30 day designation rule applies is, technically, a
Still, the definition is not optimal. It intro- customer who satisfies the exempt person defi-
duces a note of complexity into the Interim nition and who becomes a customer, or who
Rule, and Internal Revenue Service (‘‘IRS’’) seeks to engage in its first transaction in cur-
statistics indicate that at best only 70 to 80 per- rency, after July 15, 1996.)
cent of the companies eligible to file consoli- Under the Interim Rule, each bank that deals
dated income tax returns with their parent com- with an exempt person must satisfy the desig-
panies actually do so. The success of the Interim nation requirement. FinCEN hopes to be able to
Rule in reducing the volume of currency trans- use the results of the designation filings to
action reports will depend in part upon the compile a list of exempt persons that can itself
effectiveness and acceptance of the definition of be published in the Federal Register, as contem-
subsidiary company, and comments are encour- plated by 31 U.S.C. 5313(d)(2), in place of the

Page 7
shorter descriptive notice of exempt persons that action does not meet the criteria established for
is published contemporaneously with the publi- the granting of an exemption.
cation of the Interim Rule. The designation
filings will also be used to review the effective-
ness of the Interim Rule (and of any final rule 2. Government Status
that is derived from it) and the extent to which
its terms are understood and used by banks. Paragraph (h)(4)(ii) permits a bank to determine
the status of a customer as a government depart-
ment, agency, or instrumentality based on its
name or community knowledge, much like the
E. 103.22(h)(4). Operating Rules for
so-called ‘‘eyeball test,’’ cf. Treas. Reg. 1.6049-
Applying Definition of Exempt Person
4(c)(1)(ii), for the determination of exempt
The Interim Rule contains several provisions recipient status for the purposes of information
that are designed to assist banks in applying the reporting and withholding with respect to inter-
definition of ‘‘exempt person.’’ est payments under applicable provisions of the
Internal Revenue Code.
The determination whether an entity exercises
1. General Rule ‘‘governmental authority’’ is unfortunately not
amenable to such a simple test, and the second
As indicated above, every effort has been made sentence of paragraph (h)(4)(ii) states a general
to craft a rule that is as simple to understand and definition of governmental authority for use by
to administer as its broad objective will permit. banks.
Application of the Interim Rule requires instead
that banks simply make one or more determina- 3. Status as Listed Corporation
tions about the status of particular customers.
The rule does not specify detailed procedures Paragraph (h)(4)(iii) permits a bank to rely on
for making or documenting the determinations any New York, American, or Nasdaq Stock
required. (Indeed, one defect of the administra- Market listing published in a newspaper of
tive exemption system was its need for detailed general circulation. Such listings are easily iden-
procedural steps for authorizing exemptions. tified. For example, in the Wall Street Journal,
See 31 CFR 103.22(d).) Instead, paragraph which is published and distributed nationally,
(h)(4)(i) explains that banks are expected to the listings are entitled, respectively, ‘‘NEW
perform the same degree of due diligence in YORK STOCK EXCHANGE COMPOSITE
determining whether a customer is an exempt TRANSACTIONS,’’ ‘‘AMERICAN STOCK
person (and documenting that determination) EXCHANGE COMPOSITE TRANSAC-
that a reasonable and prudent bank would per- TIONS,’’ AND ‘‘NASDAQ NATIONAL MAR-
form in the conduct of its own business in KET ISSUES.’’ Because such listings often
avoiding losses from fraud or misstatement. In make use of the trading symbols (abbreviated
other words, FinCEN’s objective is to leave it to company names) for each stock, banks may also
bankers, who have already designed business rely on any commonly accepted or published
procedures and protocols to deal with similar stock symbol guide in reviewing the newspaper
problems, to adapt their present procedures to listings to determine if the listings include their
achieve the results sought by the Interim Rule. customers.
An assessment of compliance with the terms
of the Interim Rule will focus not on whether a
bank necessarily makes every judgment per- 4. Consolidated Return Status
fectly, but on whether it takes the steps a
reasonable and prudent banker would take to The treatment of a corporation as an exempt
create systems to apply the Interim Rule’s terms. person because it is included in the consolidated
Such an approach is a corollary to the limita- income tax return of a listed corporation pre-
tions on liability set by 31 U.S.C. 5318(f)(1) and sents one of the more difficult issues of admin-
repeated in paragraph (h)(6) of the Interim Rule; istration in the Interim Rule. The corporations
under the liability limitations a bank remains included on any consolidated return are required
subject to penalties if, inter alia, it has a reason to be shown on Internal Revenue Service
to believe that a particular customer or trans- Form 851 (Affiliation Schedule) filed with the

Page 8
return; a bank may rely upon any reasonably that time, transactions in currency with exempt
authenticated photocopy of Form 851 (or the persons after April 30, 1996 will be exempt
equivalent thereof for the appropriate tax year) from reporting by banks only to the extent that
in determining the status of a particular corpo- the new terms are satisfied.
ration, or it may rely upon any other reasonably
authenticated information (for example, an
officer’s certificate) relating to a corporation’s H. 103.22(h)(7). Obligation To File
filing status. Suspicious Activity Reports, etc.
The provisions of the Interim Rule create an
F. 103.22(h)(5). Limitation on Exemption exemption only with respect to the currency
transaction reporting requirement. The Interim
The exemption for transactions by an exempt Rule does not create any exemption, and in fact
person applies only with respect to transactions has no effect of any kind, on the requirement
involving that person’s own funds. The exemp- that banks file suspicious activity reports with
tion does not apply to situations in which an respect to transactions, including currency
exempt person is engaging in a transaction as an and non-currency transactions, that satisfy the
agent on behalf of another, beneficial owner of requirements of the rules of FinCEN and the
currency. (If the principal for whom the agent is federal bank supervisory agencies relating to
acting is itself an exempt person, the exempt suspicious activity reporting.6 (Indeed, as indi-
status of the principal is what causes the trans- cated above, the reduction in currency trans-
action to be exempt.) In other words, an exempt action report volume reflects in part Treasury
person cannot lend its status, for a fee or policy to rely to the greatest extent possible on
otherwise, to another person’s transactions. reports of truly suspicious activity.)
For example, multiple exchanges of small
denominations of currency into large denomina-
G. 103.22(h)(6). Effect of Exemption; tions of currency or currency transactions that
Limitation on Liability are not (or whose amounts are not) commensu-
rate with the stated business or other activity of
The designation requirement applies equally to the exempt person conducting the transaction, or
exempt persons who have previously been the on whose behalf the transaction is conducted,
subject of bank-initiated exemptions under the may indicate the need to file suspicious activity
administrative exemption system as it does to reports with respect to transactions in currency.
other customers. Similarly a sudden need for currency by a
Once a bank has complied with the terms of business that never before had such a need can
the Interim Rule, it is generally protected, by form a basis for the determination that a suspi-
31 U.S.C. 5313(f) and paragraph (h)(6) of the cious activity report is due. In all cases, whether
Interim Rule, from any penalty for failure to file such a report is required is governed by the rules
a currency transaction report with respect to a of 31 CFR 103.21, rules on whose application
currency transaction by an exempt person. The the Interim Rule has no effect.
protection does not apply if the bank knowingly
files false or incomplete information relating to
the exempt person (for example on an designa- I. 103.22(h)(8). Revocation
tion filing) or with respect to the transaction (for
example on a suspicious activity report). The The Interim Rule makes clear that the status of
protection also does not apply if the bank has an exempt person as such may be revoked at any
reason to believe at the time the exemption is time by the Treasury Department. Revocation
granted that the customer does not satisfy the
definition of exempt person or if the transaction
is not a transaction of the exempt person.
It is anticipated that the Interim Rule will 6. See 61 FR 4326, 4332, 4338 (February 5, 1996) (FinCEN,
supersede the administrative exemption system Office of the Comptroller of the Currency and Federal Reserve
Board); 61 FR 6095, 6100 (February 16, 1996) (Federal
with respect to categories of exempt persons Deposit Insurance Corporation and Office of Thrift Supervi-
named in the Interim Rule, 60 days after a final sion); and 61 FR 11526 (March 21, 1996) (National Credit
rule based on the Interim Rule is published. At Union Administration).

Page 9
will be prospective in all cases except those to ibility analysis (5 U.S.C. 604) are not applicable
which the protections of liability conferred by to this Interim Rule because the agency was not
31 U.S.C. 5313(f) and 31 CFR 103.22(h)(6) do required to publish a notice of proposed rule-
not apply. making under 5 U.S.C. 553 or any other law.
IV. Regulatory Matters E. Paperwork Reduction Act

A. Executive Order 12866
This Interim Rule is being issued without prior
The Department of the Treasury has determined notice and public procedure pursuant to the
that this interim rule is not a significant regula- Administrative Procedure Act (5 U.S.C. 553).
tory action under Executive Order 12866. By expanding the applicable exemptions from
an information collection that has been reviewed
and approved by the Office of Management and
B. Unfunded Mandates Act of 1995 Budget (OMB) under control number 1505-
Statement 0063, the Interim Rule significantly reduces the
existing burden of information collection under
Section 202 of the Unfunded Mandates Reform 31 CFR 103.22. Thus, although the Interim Rule
Act of 1995 (‘‘Unfunded Mandates Act’’), advances the purposes of the Paperwork Reduc-
Pub. L. 104-4 (March 22, 1995), requires that an tion Act of 1995, 44 U.S.C. 3501, et seq., and its
agency prepare a budgetary impact statement implementing regulations, 5 CFR Part 1320, the
before promulgating a rule that includes a fed- Paperwork Reduction Act does not require
eral mandate that may result in expenditure by FinCEN to follow any particular procedures in
state, local and tribal governments, in the connection with the promulgation of the Interim
aggregate, or by the private sector, of $100 mil- Rule.
lion or more in any one year. If a budgetary
impact statement is required, section 202 of the
Unfunded Mandates Act also requires an agency
to identify and consider a reasonable number of
F. Compliance With 5 U.S.C. 801
regulatory alternatives before promulgating a Prior to the date of publication of this document
rule. FinCEN has determined that it is not in the Federal Register, FinCEN will have sub-
required to prepare a written statement under mitted to each House of the Congress and to the
section 202 and has concluded that on balance Comptroller General the information required to
this interim rule provides the most cost-effective be submitted or made available with respect to
and least burdensome alternative to achieve the the Interim Rule by the provisions of 5 U.S.C.
objectives of the rule. 801 (a)(1)(A) and (a)(1)(B).
C. Administrative Procedure Act

List of Subjects in 31 CFR Part 103
Because the Interim Rule implements the statute
and grants significant relief from existing regu-
latory requirements, it is found to be impracti- Administrative practice and procedure, Author-
cable to comply with notice and public proce- ity delegations (Government agencies), Banks,
dure under 5 U.S.C. 553(b). Because the Interim banking, Currency, Foreign Banking, Foreign
Rule grants exemptions to current requirements, currencies, Gambling, Investigations, Law
it may be made effective before 30 days have enforcement, Penalties, Reporting and record-
passed after its publication date. See 5 U.S.C. keeping requirements, Securities, Taxes.
553(d).
D. Regulatory Flexibility Act Amendment
The provisions of the Regulatory Flexibility Act For the reasons set forth above in the preamble,
relating to an initial and final regulatory flex- 31 CFR Part 103 is amended as set forth below:

Page 10
PART 103—FINANCIAL stock has been designated as a Nasdaq National

RECORDKEEPING AND Market Security listed on the Nasdaq Stock
REPORTING OF CURRENCY AND Market (except stock listed under the separate
‘‘Nasdaq Small-Cap Issues’’ heading); and
FOREIGN TRANSACTIONS (v) Any subsidiary of any corporation
1. The authority citation for Part 103 contin- described in paragraph (h)(2)(iv) of this section
ues to read as follows: whose federal income tax return is filed as part
Authority: 12 U.S.C. 1829b and 1951-1959; of a consolidated federal income tax return with
31 U.S.C. 5311-5330. such corporation, pursuant to section 1501 of
2. Section 103.22 is amended by adding a the Internal Revenue Code and the regulations
new sentence immediately following the first promulgated thereunder, for the calendar year
sentence in paragraph (a)(1) and by adding a 1995 or for its last fiscal year ending before
new paragraph (h) to read as follows: April 15, 1996.
(3) Designation of exempt persons.
(i) A bank must designate each exempt per-
son with whom it engages in transactions in
§103.22—Reports of currency currency, on or before the later of August 15,
transactions. 1996, and the date 30 days following the first
transaction in currency between such bank and
(a)(1) * * * Transactions in currency by such exempt person that occurs after April 30,
exempt persons with banks occurring after 1996.
April 30, 1996, are not subject to this require- (ii) Designation of an exempt person shall be
ment to the extent provided in paragraph (h) of made by a single filing of Internal Revenue
this section. * * * Service Form 4789, in which line 36 is marked
***** ‘‘Designation of Exempt Person’’ and items
(h) No filing required by banks for trans- 2–14 (Part I, Section A) and items 37–49
actions by exempt persons occurring after (Part III) are completed. The designation must
April 30, 1996. be made separately by each bank that treats the
(1) Currency transactions of exempt persons person in question as an exempt person. (For
with banks occurring after April 30, 1996. availability, see 26 CFR 601.602.)
Notwithstanding the provisions of paragraph (iii) This designation requirement applies
(a)(1) of this section, no bank is required to file whether or not the particular exempt person to
a report otherwise required by paragraph (a)(1) be designated has previously been treated as
of this section, with respect to any transaction in exempt from the reporting requirements of para-
currency between an exempt person and a bank graph (a) of this section under the rules con-
that is conducted after April 30, 1996. tained in paragraph (b) or (e) of this section.
(2) Exempt person. For purposes of this sec- (4) Operating rules for designating exempt
tion, an exempt person is: persons.
(i) A bank, to the extent of such bank’s (i) Subject to the specific rules of this para-
domestic operations; graph (h), a bank must take such steps to assure
(ii) A department or agency of the United itself that a person is an exempt person (within
States, of any state, or of any political subdivi- the meaning of applicable provisions of para-
sion of any state; graph (h)(2) of this section) that a reasonable
(iii) Any entity established under the laws of and prudent bank would take to protect itself
the United States, of any state, or of any political from loan or other fraud or loss based on
subdivision of any state, or under an interstate misidentification of a person’s status.
compact between two or more states, that exer- (ii) A bank may treat a person as a govern-
cises governmental authority on behalf of the mental department, agency, or entity if the name
United States or any such state or political of such person reasonably indicates that it is
subdivision; described in paragraph (h)(2)(ii) or (h)(2)(iii) of
(iv) Any corporation whose common stock is this section, or if such person is known generally
listed on the New York Stock Exchange or the in the community to be a State, the District of
American Stock Exchange (except stock listed Columbia, a tribal government, a Territory or
on the Emerging Company Marketplace of the Insular Possession of the United States, or a
American Stock Exchange) or whose common political subdivision or a wholly-owned agency

Page 11
or instrumentality of any of the foregoing. An rather than treating such person as exempt shall
entity generally exercises governmental author- remain subject with respect to each such report
ity on behalf of the United States, a State, or a to the rules for filing reports, and the penalties
political subdivision, for purposes of paragraph for filing false or incomplete reports, that are
(h)(2)(iii) of this section, only if its authorities applicable to reporting of transactions in cur-
include one or more of the powers to tax, to rency by persons other than exempt persons. A
exercise the authority of eminent domain, or to bank that continues for the period permitted by
exercise police powers with respect to matters paragraph (h)(6)(i) of this section to treat a
within its jurisdiction. person described in paragraph (h)(2) of this
(iii) In determining whether a person is section as exempt from the reporting require-
described in paragraph (h)(2)(iv) of this section, ments of paragraph (a) of this section on a basis
a bank may rely on any New York Stock other than as provided in this paragraph (h) shall
Exchange, American Stock Exchange, or Nasdaq remain subject in full to the rules governing an
Stock Market listing published in a newspaper exemption on such other basis and to the pen-
of general circulation and on any commonly alties for failing to comply with the rules gov-
accepted or published stock symbol guide. erning such other exemption.
(iv) In determining whether a person is (7) Obligation to file suspicious activity
described in paragraph (h)(2)(v) of this section, reports, etc. Nothing in this paragraph (h) relieves
a bank may rely upon any reasonably authen- a bank of the obligation, or alters in any way
ticated corporate officer’s certificate or any such bank’s obligation, to file a report required
reasonably authenticated photocopy of Internal by 103.21 with respect to any transaction, includ-
Revenue Service Form 851 (Affiliation Sched- ing, without limitation, any transaction in cur-
ule) or the equivalent thereof for the appropriate rency, or relieves a bank of any other reporting
tax year. or recordkeeping obligation imposed by this part
(5) Limitation on exemption. A transaction (except the obligation to report transactions in
carried out by an exempt person as an agent for currency pursuant to paragraph (a) of this sec-
another person who is the beneficial owner of tion to the extent provided in this paragraph (h)).
the funds that are the subject of a transaction in (8) Revocation. The status of any person as
currency is not subject to the exemption from an exempt person under this paragraph (h) may
reporting contained in paragraph (h)(1) of this be revoked by FinCEN by written notice, which
section. may be provided by publication in the Federal
(6) Effect of exemption; limitation on liability. Register in appropriate situations, on such terms
(i) FinCEN may in the future determine by as are specified in such notice. In addition, and
amendment to this part that the exemption without any action on the part of the Treasury
contained in this paragraph (h) shall be the only Department:
basis for exempting persons described in para- (i) The status of a corporation as an exempt
graph (h)(2) of this section from the reporting person pursuant to paragraph (h)(2)(iv) of this
requirements of paragraph (a) of this section. section ceases once such corporation ceases to
(ii) No bank shall be subject to penalty under be listed on the applicable stock exchange; and
this part for failure to file a report required by (ii) The status of a subsidiary as an exempt
paragraph (a) of this section with respect to a person under paragraph (h)(2)(v) of this section
currency transaction by an exempt person with ceases once such subsidiary ceases to be included
respect to which the requirements of this para- in a consolidated federal income tax return of a
graph (h) have been satisfied, unless the bank: person described in paragraph (h)(2)(iv) of this
(A) Knowingly files false or incomplete section.
information with respect to the transaction or the
customer engaging in the transaction; or *****
(B) Has reason to believe at the time the
exemption is granted that the customer does not Dated: April 16, 1996.
meet the criteria established by this paragraph
(h) for treatment of the transactor as an exempt Stanley E. Morris,
person or that the transaction is not a transaction Director, Financial Crimes Enforcement
of the exempt person. Network.
(iii) A bank that files a report with respect to [FR Doc. 96-9798 Filed 4-23-96; 8:45 am]
a currency transaction by an exempt person BILLING CODE 4820-03-P

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Currency and Foreign Transactions Reporting Act

Exemption Handbook Section 501.0

Bank Secrecy Act Manual September 1997

September 1997 Bank Secrecy Act Manual

Department of the Treasury

Bank Secrecy Act Manual September 1997

September 1997 Bank Secrecy Act Manual

Page 1. General Criteria . . . . . . . . . . . . . . . . . . . . . . 7

Bank Secrecy Act Manual September 1997

September 1997 Bank Secrecy Act Manual

Bank Secrecy Act Manual September 1997

These guidelines address questions strongly encourages you to call or write

September 1997 Bank Secrecy Act Manual

I. DETERMINING WHICH CUSTOMER ACCOUNTS OR

A. EXCEPTED TRANSACTIONS 103.22(b)(2)(i). A bank also may unilaterally

Bank Secrecy Act Manual September 1997

September 1997 Bank Secrecy Act Manual

Bank Secrecy Act Manual September 1997

i. ‘‘Deposits or withdrawals of currency’’ and establish a separate exemption limit. (See

September 1997 Bank Secrecy Act Manual

Bank Secrecy Act Manual September 1997

prehensive list of those businesses. However, government, or any agency, instrumentality,

September 1997 Bank Secrecy Act Manual

II. HOW TO EXEMPT CUSTOMERS

Bank Secrecy Act Manual September 1997

to be conducting a legitimate bsusiness by ments. Instead, in response to many inquiries,

September 1997 Bank Secrecy Act Manual

Bank Secrecy Act Manual September 1997

September 1997 Bank Secrecy Act Manual

Bank Secrecy Act Manual September 1997

E. SPECIAL EXEMPTION REQUESTS copy of the exemption statement (signed by

September 1997 Bank Secrecy Act Manual

III. RECORDKEEPING FOR EXEMPTED CUSTOMERS

Bank Secrecy Act Manual September 1997

September 1997 Bank Secrecy Act Manual

IV. MONITORING EXEMPTIONS AND DISCOVERY

A. MONITORING EXEMPTIONS ment to the IRS Data Center in Detroit and

Bank Secrecy Act Manual September 1997

This set of guidelines should cover most of the Director

September 1997 Bank Secrecy Act Manual

The following lists identify various types of EXCEPTED TRANSACTIONS

Bank Secrecy Act Manual September 1997

EXEMPTIBLE BY BANK UNILATERALLY Drug Store

September 1997 Bank Secrecy Act Manual

Sports Arena Toy Store

Bank Secrecy Act Manual September 1997

SPECIAL EXEMPTION—REQUIRES IRS Food Distributor

September 1997 Bank Secrecy Act Manual

NOT EXEMPTIBLE Escrow Company

Bank Secrecy Act Manual September 1997

1. Legal Name of Customer:

4. Taxpayer Identification Number of Customer:

6. Nature of Business (Please include complete description):

Signature of Authorized Official Date Signed

Name of Authorized Official Title/Position of Official

September 1997 Bank Secrecy Act Manual

Part II: Information on Customer and Account to Be Exempted

Signature of Bank Official Date of Signature

Name of Bank Official Title/Position of Bank Official

Bank Secrecy Act Manual September 1997

Part III: Identification of Exempting Bank

14. Name of Bank:

16. Employer Identification Number of Bank: