Bank Secrecy Act:

Increased Use of Exemption Provisions Could Reduce Currency Transaction Reporting While Maintaining Usefulness to Law Enforcement Efforts

GAO-08-355: Published: Feb 21, 2008. Publicly Released: Feb 21, 2008.

Additional Materials:

Contact:

Orice M. Williams
(202) 512-6878
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

To aid law enforcement efforts against financial crimes, under the Bank Secrecy Act (BSA) depository institutions must file the Treasury Department's Financial Crimes Enforcement Network's (FinCEN) currency transaction report (CTR) form on their customers' cash transactions of more than $10,000. While FinCEN's regulations allow institutions to exempt certain customers, over 15 million CTRs were filed in 2006. Public Law 109-351 directed GAO to report on (1) the usefulness of CTRs to law enforcement; (2) depository institutions' costs of meeting CTR requirements; and (3) ways to encourage use of exemptions to avoid unnecessary CTRs. Among other things, GAO obtained data from FinCEN on CTRs and exemptions from 2004 to 2006, surveyed 115 state and local law enforcement agencies and 680 depository institutions, held structured interviews with officials of federal agencies and depository institutions, and reviewed relevant laws and regulations.

According to federal, state, and local law enforcement officials, CTRs provide unique and reliable information essential to a variety of efforts, and recent advances in technology have enhanced law enforcement agencies' ability to use CTR data by integrating it with other information. In addition to supporting specific investigations, CTR requirements aid law enforcement by forcing criminals attempting to avoid reportable transactions to act in ways that increase chances of detection through other methods. Linking law enforcement's use of CTRs to specific outcomes is difficult, however, because agencies do not track their use of CTRs, which are typically one of many information sources used in investigations. FinCEN does not routinely publish summary information on law enforcement uses of CTR data--as it does for other data required under the BSA--that could help depository institutions understand the value of CTRs. While fewer than 30 of the largest U.S. depository institutions accounted for over half of new CTRs filed during the period GAO examined, all of the nation's approximately 17,000 institutions incur some costs to meet CTR requirements. Institutions must have processes and staff in place to identify when and if a CTR is required, as well as the ability to aggregate same-day cash transactions by or on behalf of the same person; file CTRs correctly; and, if desired, establish and maintain exemptions for certain customers. Institutions GAO contacted were generally unable to quantify these costs, in large part because they use the same processes and staff for other purposes. While automation has made CTR tasks less difficult, almost all institutions reported that they have not completely automated all steps, such as reviews of CTRs by institution officials. GAO's work identified a number of factors that deter use of exemptions, as well as opportunities for increasing their use, thereby reducing the number of CTRs that are likely of little or no value to law enforcement efforts. As reasons for not exempting eligible customers, institutions cited uncertainty about the documentation required to demonstrate that some customers are in fact eligible, along with concern that federal banking regulators (who examine institutions for compliance with CTR requirements) would find fault. Institutions also cited as deterrents the need to meet FinCEN's regulatory requirements to (1) file an exemption form, and annually review the supporting data, particularly for hundreds of customers that are specifically exempted by statute; and (2) biennially renew eligibility for some customers--a process that as a practical matter duplicates the required annual reviews for those customers. Institution officials indicated that additional guidance from FinCEN, as well as Web-based material to help train their staff in making exemption determinations, could increase the use of exemptions. Removing regulatory deterrents and providing additional guidance and Web-based material could help depository institutions avoid filing unnecessary CTRs without harming law enforcement efforts.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: FinCEN issued a final rule, effective January 5, 2009, that permits depository institutions to exempt an otherwise eligible Phase II (non-listed) customer after two months, or prior to the passing of two months' time if the institution conducts a risk-based analysis of the customer that allows the institution to form and document a reasonable belief that the customer has a legitimate business purpose for conducting frequent large cash transactions, is now appropriate.

    Recommendation: To encourage greater use of CTR exemption provisions and avoid the burden of filing CTRs that are likely to be of little or no value to law enforcement efforts, the Secretary of the Treasury should direct FinCEN to consider changing the regulatory provisions in order to permit depository institutions to exempt otherwise-eligible nonlisted customers who frequently engage in large cash transactions within a period of time shorter than 12 months.

    Agency Affected: Department of the Treasury

  2. Status: Closed - Implemented

    Comments: FinCEN issued a final rule, effective January 5, 2009, that removed the requirement that depository institutions file an initial designation of exempt person form for Phase I eligible customers that are depository institutions; federal, state, or local governments; or entities exercising governmental authority. FinCEN also removed the requirement that depository institutions conduct an annual review of the continued eligibility of those customers.

    Recommendation: To encourage greater use of CTR exemption provisions and avoid the burden of filing CTRs that are likely to be of little or no value to law enforcement efforts, the Secretary of the Treasury should direct FinCEN to remove the regulatory requirement that depository institutions file exemption forms, and annually review the supporting information, for banks; federal, state, and local governmental agencies; and entities exercising federal, state, and local governmental authority.

    Agency Affected: Department of the Treasury

  3. Status: Closed - Implemented

    Comments: FinCEN issued a final rule, effective January 5, 2009, that eliminated the requirement that depository institutions biennially file a designation of exempt person for non-listed and payroll customers (Phase II exempt customers. In concert with this change, FinCEN discontinued the requirement that depository institutions notify FinCEN of any change in control of a Phase II customer. No additional legislation was needed to make this change.

    Recommendation: To encourage greater use of CTR exemption provisions and avoid the burden of filing CTRs that are likely to be of little or no value to law enforcement efforts, the Secretary of the Treasury should direct FinCEN to remove the regulatory requirement that depository institutions biennially renew Phase II exemptions--seeking legislation to provide additional authority, if needed.

    Agency Affected: Department of the Treasury

  4. Status: Closed - Implemented

    Comments: FinCEN surveyed federal banking agencies concerning what documentation is required to support the evaluation of a customer's gross annual revenues when determining a customer's eligibility for a Phase II exemption from currency transaction reporting requirements and collaborated with federal banking agencies on guidance regarding such documentation. On April 27, 2009, FinCEN issued FIN-2009-G001 "Guidance on Supporting Information Suitable for Determining the Portion of a Business Customer's Annual Gross Revenues that Is Derived from Activities Ineligible for Exemption from Currency Transaction Reporting Requirements."

    Recommendation: To encourage greater use of CTR exemption provisions and avoid the burden of filing CTRs that are likely to be of little or no value to law enforcement efforts, the Secretary of the Treasury should direct FinCEN to provide guidance for depository institutions and federal banking regulators on the documentation needed to demonstrate the portion of a business's gross revenue that is derived from activities ineligible for the exemption.

    Agency Affected: Department of the Treasury

  5. Status: Closed - Implemented

    Comments: FinCEN committed to continuing to publish case examples that illustrate the use of Currency Transaction Reports (CTR) in law enforcement efforts. On May 14, 2008, FinCEN launched a new Web site with informational content that was reorganized and supplemented to provide a more user-friendly, informative and educational communications tool. Many case examples of law enforcement successes facilitated by Bank Secrecy Act information, including CTRs, are more prominently displayed and more easily retrievable.

    Recommendation: To help depository institutions better understand the value of CTRs to law enforcement efforts, the Secretary of the Treasury should direct FinCEN to consider routinely providing summary information on the use of CTRs in law enforcement efforts, similar to that provided on the use of Suspicious Activity Reports.

    Agency Affected: Department of the Treasury

  6. Status: Closed - Implemented

    Comments: On August 31, 2009, FinCEN issued "Guidance on Determining Eligibility for Exemption from Currency Transaction Reporting Requirements," to help banks determine whether a customer is eligible for exemption from currency transaction reporting requirements. This guidance provides information on exemption requirements in an understandable format and answers to commonly asked questions regarding the final rule that FinCEN issued in December 2008, which amended the currency transaction report (CTR) exemption requirements.

    Recommendation: To encourage greater use of CTR exemption provisions and avoid the burden of filing CTRs that are likely to be of little or no value to law enforcement efforts, the Secretary of the Treasury should direct FinCEN to provide Web-based material to help train and guide staff of depository institutions in determining eligibility for exemptions.

    Agency Affected: Department of the Treasury

 

Explore the full database of GAO's Open Recommendations »

Dec 19, 2014

Dec 17, 2014

Nov 20, 2014

Oct 6, 2014

Sep 17, 2014

Aug 5, 2014

Jul 31, 2014

Jun 18, 2014

Looking for more? Browse all our products here