Corporate Governance

ANTI-MONEY LAUNDERING:
The Criminal and Regulatory Framework, and Anti-Money Laundering Compliance Programs (Part 4)


This article is a continuation of our most recent corporate governance series. If you missed part 3, you can read it online here: Anti-Money Laundering Part 3

3. Reporting Large Cash Transactions

The unique feature of cash is that it leaves little or no documentary evidentiary trail. Unlike credit card transactions or a check purchases, which leave records identifying the date and nature of the transaction as well as the names of the persons involved, when a person engages in a cash transaction there is rarely any record (other than a personal receipt) of the transaction's occurrence, and a record showing the nature of the transaction or, more importantly, the persons involved in it, is even rarer still. In an effort to overcome the absence of a paper trail in cash transactions, federal laws require virtually all businesses in the United States to file reports with the federal government on all cash transactions over $10,000.

(a) Cash Reporting for Certain "Financial Institutions": Currency Transaction Reports: Section 5313 of the Bank Secrecy Act authorizes the Secretary of the Treasury to require domestic financial institutions to make certain reports regarding the transfer of currency. Pursuant to this authority, the Secretary requires that certain financial institutions must report all cash transactions in excess of $10,000 which occur within a single business day by or on behalf of the same person.41 Cash transactions are those involving the coin or paper money of the United States, as well as foreign currency.42

Reports must be made within fifteen days of the transaction to the Internal Revenue Service on a "Currency Transaction Report" ("CTR") or FinCEN Form 104.43 A reportable cash transaction includes the aggregate of multiple cash transactions conducted at all of a reporting institution's branches and agencies on a single day if the transactions are conducted by or on behalf of the same person or entity.

It is illegal to intentionally fail to file a CTR, or to intentionally file one that is inaccurate or purposely omits required information. Violations are punishable as violations of the Bank Secrecy Act.

The financial institutions required to report such transactions on Currency Transaction Reports include depository institutions such as banks, credit unions and thrift institutions, broker dealers in securities, commodities futures traders, "money services businesses (that is, currency dealers or exchangers; check cashers; issuers or sellers of cashier's checks, traveler's checks, money orders, or stored value; and money transmitters), and casinos and card clubs.44

(b) Cash Reporting for Other Businesses: IRS Form 8300: Section 5331 of the Bank Secrecy act and section 6050I of Title 26, United States Code, require that any person who is engaged in a trade or business and who, in the course of such trade or business, receives more than $10,000 in cash in one transaction, or in two or more "related" transactions, is required to file a report of the transaction with FinCEN and the Internal Revenue Service. This requirement includes all other "financial institutions" not otherwise required to file CTRs, as well as all other persons and businesses in the United States, if they receive over $10,000 "cash" in the course of their trade or business.45 Although required by two separate statutes, reports are made on a single form, an IRS/FinCEN Form 8300, which is transmitted to the IRS.

It is illegal to intentionally fail to file a Form 8300, or to intentionally file one that is inaccurate or purposely omits required information. Violations are punishable by civil fines of up to $100,000, or criminally by imprisonment up to ten years and a fine of up to $500,000.

In addition to reporting "cash" transactions, every business must furnish a single, annual written statement to each person named on a Form 8300 which includes the name and address of the business, the total amount of cash reported to have been received in the calendar year from or on behalf of the person named in the Form, and a statement saying that the information was reported to the IRS. The statement must be sent to each person named in the Form on or before January 31 of the year following the calendar year in which the cash was received.46

(i) What Constitutes "Cash": Reports are made on an IRS Form 8300. Like Currency Transaction Reports, "cash" includes not just U.S. currency, but also the currency of any other country. Unlike Currency Transaction Reports, however, "cash" is not limited just to currency. It also includes "monetary instruments," which are defined as cashier's checks (by whatever name called, including "treasurer's checks" and "bank checks"), bank draft, traveler's checks or money order with a face value of under $10,000.47

(ii) Reportable Transactions: The law requires that if the Company receives more that $10,000 in cash in one transaction or in two or more "related" transactions, it is required to file a Form 8300 with the Internal Revenue Service. A "transaction" means the underlying event precipitating the payer's transfer of currency to the recipient. This includes, but is not limited to, the sale of goods or services, the sale of real property, the sale of intangible property, the rental of real or personal property, the exchange of currency for other currency, the establishment or maintenance of a custodial, trust or escrow arrangement, the payment of a pre-existing debt, the conversion of currency into a negotiable instrument, the reimbursement for expenses paid, or the making or repayment of a loan.48

Any transactions between a business and the same customer which occur within a twenty-four hour period are considered to be one transaction for reporting purposes. A Form 8300 must be filed within fifteen (15) days of the receipt of over $10,000 cash.

(iii) "Related" Transactions: Transactions are considered "related" for cash reporting purposes even if they occur over a period of more than 24 hours, if the receiving business knows or has reason to know that each transaction is one of a series of connected transactions.49

For example, a customer intends to purchase a $45,000 product from a business and pay over a five month period. The $45,000 is a single transaction for cash reporting purposes. Therefore, if the customer pays $9,000 each month for five months, if any part of any of the payments are made in cash, once the cash portions total over $10,000 a Form 8300 must be filed on the cash payments. Thus, if the first $9,000 payment is by personal check, the transaction is not reportable because a personal check is not cash. If the second payment is $9,000 in cash, it is not reportable because the amount of cash received by the Company is under $10,000. If the third payment is by cashier's check for $9,000, a Form 8300 must be filed because the business has now received, in one transaction over $10,000 in cash -- $9,000 in currency and $9,000 in a cashier's check (a "monetary instrument" which is the equivalent of cash). If the fourth payment is $9,000 cash, a Form 8300 does not have to be filed because, after filing the first Form 8300, the $10,000 count starts over again. If, however, the fifth payment is $9,000 in a traveler's check (again, the "monetary instrument" equivalent of cash), a second Form 8300 must be filed because the business has again received, in one transaction (the original $45,000 transaction) over $10,000 in cash -- $9,000 in currency and $9,000 in the traveler's check.

(iv) Multiple Payments: The receipt of cash deposits or cash installment payments for a single transaction are reported differently, depending on the amounts of cash paid in the initial and subsequent payments.

If a customer's initial payment in one transaction is over $10,000 cash, that payment must be reported on Form 8300 within 15 days of the transaction. If the initial payment is in cash but does not exceed $10,000, then the initial payment must be combined with subsequent cash payments made within one year. As soon as the total of cash payments on the transaction exceeds $10,000, a Form 8300 must be filed. If more cash payments on that transaction are later received within the one year period, they must be separately reported every time they total over $10,000.

Returning to the $45,000 hypothetical purchase, if the customer pays $9,000 each month for five months, if any part of any of the payments are made in cash, once the cash portions total over $10,000 a Form 8300 must be filed on the cash payments. For example, if the first $9,000 payment is by personal check, the transaction is not reportable because a personal check is not cash. If the second payment is $9,000 in cash, it is not reportable because the amount of cash received by the Company is under $10,000. If the third payment is by cashier's check for $9,000, a Form 8300 must be filed because the Company has received, in one transaction (the necklace purchase) over $10,000 in cash -- $9,000 in currency and $9,000 in a cashier's check (the equivalent of cash). If the fourth payment is $9,000 cash, a Form 8300 does not have to be filed because, after filing the first Form 8300, the count starts over again. If, however, the fifth payment is $9,000 in a traveler's check (the equivalent of cash), a second Form 8300 must be filed because the Company has again received, in one transaction (the necklace purchase) over $10,000 in cash -- $9,000 in currency and $9,000 in the traveler's check.

(c) "Bulk Cash Smuggling": Any person who physically transports, mails, ships, or causes the same, of any currency or "monetary instrument" in an aggregate amount of over $10,000 into or our of the United States must report it to the U.S. Customs Service. The report must be made on a "Report of International Transportation of Currency or Monetary Instruments," also known as a "CMIR" or FinCEN Form 105.50

The knowing and intentional failure to file the report the international movement of cash or monetary instruments in excess of $10,000 may result in the seizure and civil or criminal forfeiture of the currency and monetary instruments being transported. If the currency or monetary instrument is concealed for the purpose of avoiding a report, the container or conveyance carrying the funds may also be seized. A knowing and intentional failure to report can be also punished criminally by imprisonment for up to five years.51

The report must be filed before or at the time of the entry or departure into or from the United States. It may also be made by mail on or before the date of entry, departure, mailing or shipping. However, as a practical matter, the report should be filed directly with U.S. Customs at the time or entry or departure.

A person receiving cash or monetary instruments from outside the United States must file a FinCEN Form 105 within fifteen days of receipt if the Form has not already been filed by the person sending or causing the sending of the funds.52

For purposes of this law, "currency" means the coin or paper money of the United States, as well as the coin or paper money of a foreign country. Thus, the import or export of foreign currency whose value in U.S. dollars exceeds $10,000 must be reported. The term "monetary instrument" means: traveler's checks in any form; all forms of negotiable instruments (including personal and business checks) that are either in bearer form, that may be endorsed without restriction, that are made out to a fictitious payee, or that are in any other form such that title passes upon delivery; incomplete instruments which are signed but with the payee's name left out; and securities or stocks in bearer form or whose title passes on delivery.53

There are a number of exceptions to this reporting requirement, including:

(i) Banks, foreign banks, and securities broker dealers shipping by mail or by common carrier;

(ii) Certain overland shipments by a domestic commercial bank or trust company for an established customer;

(iii) Common carriers of passengers with respect to funds carried by passengers;

(iv) Common carriers of goods with respect to funds shipments not declared to the common carrier;

(v) A non-U.S. citizen or resident for funds mailed or shipped from abroad to a bank or broker dealer by mail or common carrier;

(vi) Issuers of traveler's checks.54

(d) "Structuring": In order to avoid the large cash transaction reporting requirements, money launderers and terrorists frequently attempt to disguise one single cash transaction over $10,000 as multiple, separate transactions, each under $10,000. This type of activity, when designed to avoid the filing of any of the large cash transaction reporting forms, is called "structuring." When done for the purpose of avoiding the filing of required large cash transaction reporting forms is illegal and is punishable by criminal prosecution and imprisonment up to five years. Such violations, if committed while violating another law of the United States or as part of a pattern of any illegal activity involving over $100,000 in a one year period are punishable by a fine of up to $500,000 and imprisonment for up to ten years.55

IN PART 5 OF THIS ARTICLE SERIES, WE'LL CONTINUE THIS TOPIC BY DISCUSSING TRANSACTIONS WITH PROHIBITED PERSONS, GROUPS, ENTITIES, AND COUNTRIES...

Anti-Money Laundering - Part 5

Our thanks to this article's author, Greg Baldwin of Holland & Knight.

Holland & Knight is a global law firm with more than 1,150 lawyers in 17 U.S. offices. Other offices around the world are located in Beijing and Mexico City, with representative offices in Caracas and Tel Aviv. Holland & Knight is among the world's 18 largest firms, providing representation in litigation, business, real estate and governmental law. Our interdisciplinary practice groups and industry-based teams ensure clients have access to attorneys throughout the firm, regardless of location. www.hklaw.com

Greg Baldwin practices in the areas of complex commercial litigation and white collar criminal defense. He specializes in the Foreign Corrupt Practices Act, U.S.A. Patriot Act, the Bank Secrecy Act, the Money Laundering Control Act, and OFAC regulations, as well as anti-money laundering and OFAC compliance program development and implementation. Mr. Baldwin is a Certified Anti-Money Laundering Specialist. Gregory.Baldwin@hklaw.com

DISCLAIMER: This Corporate Governance article is provided as an informational resource and does not constitute legal advice. The information provided in this article is based on the laws in effect at the time the article was published. Laws related to this article's topics may change over the course of time. Visitors to this website should not rely upon or act upon this information without seeking professional legal counsel.

41 31 C.F.R. 103.22.
42 31 C.F.R. 103.11(h).
43 Casinos are required to use FinCEN Form 103. Casinos located in Nevada are required to use FinCEN Form 103-N.
44 Reporting for certain customers may be exempted under the Treasury Department regulations. See, 31 C.F.R. 103.22(d).
45 31 C.F.R. 103.30.
46 26 C.F.R. 1.6050I-1(f).
47 31 C.F.R. 103.30(c)(1); 26 C.F.R. 1.6050(c)(ii)(B).
48 31 C.F.R. 103.30(c)(12)(i).
49 31 C.F.R. 103.30(c)(12(ii).
50 31 C.F.R. 103.23(a).
51 31 U.S.C. § 5332.
52 31 C.F.R. 103.23(b).
53 31 C.F.R. 103.11(u).
54 31 C.F.R. 103.23(c). However, all exempted persons would be well advised to file the FinCEN Form 105 regardless of any supposed exemption, in order to avoid erroneous seizures by U.S. Customs officials.
55 31 U.S.C. § 5324

 

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