We have a convenience store that we are in the process of reviewing for CTR exemption. We have learned they are selling power ball and scratch off lottery tickets. Are they still qualified for exemption?

Assuming they are not engaged in any other ineligible activity, they would be eligible for exemption as long as no more than 50% of their gross revenues were derived from gaming. Ask them to tell you in writing what percentage of their gross revenues are derived from this activity...

They also maybe are Phase I exempt. Example: Loaf & Jug is owned by Kroger, which is publicly traded.

Just be careful with C-stores and Phase I exemptions. A lot of them are in reality franchises rather than company-owned outlets, so the Phase I exemption could not be given.

Agree with John. Even our "McDonald's" and "Dunkin Donuts" customers are only franchises and were only able to qualify under Phase II. Most fall under this category rather than Phase I.

Look at the supporting documentation for the account. If your account opening resolution is from a publicly traded company (or a subsidiary of a publicly traded company) listed on a major exchange, then they qualify for exemption under phase 1. Then, the fact they are engaged in gaming activities is irrelevant regardless of the percentage of their revenues derived from that activity.

If the account opening resolution is from any other type of entity, the percentage is relevant and we have regained our starting point in this circle.

As I recall, "gross receipts" in this discussion does not include the amounts paid to the lottery commission (typically the face amount of the ticket in question), but instead to the commissions paid to the C-Store by the lottery and any bonuses received for selling winning tickets.

^ John is correct. The FFIEC manual definition of lottery proceeds is amount of profit to the store and not just how much they sell in a given year.

I found some information online that generally stated that the margin's on lottery tickets to a store are 5% or less. I take the amount of money remitted to the state times 5% and come up with a theoretical profit amount.

I then write a paragraph describing how between that amount, the total annual deposit amount(sales), the average 12mo balance and a National Association of Convenience Stores (NACS)markup percentage guide and say that our customer is below 50% profit from the sale of lottery tickets.

So far both independent audit and regulators have been ok with that review process.

Second lap: FinCEN Ruling 2002-1 addresses the treatment of revenues from ineligible activities. FinCEN 2009-G001 simply pounded the issue into the ground without actually saying much of anything.

I am SO confused. So, we have many, many convenience stores (Ugh!) who participate in the North Carolina Education Lottery of which they have separate accounts for. Most of these C-stores qualify for Phase II exemptions. Could/would we consider the activity that goes through these lottery accounts as part of the exemption?

Yes, but only the amount of income it generates, not the sales volume. From the above linked documents:

You have asked whether, in determining if a business derives more than 50% of its gross revenue from gaming, the bank should consider the amount of money that the business takes in on behalf of the state lottery system, or the amount of money that the store actually earns from such sales. The term “gross revenue” in the CTR exemption regulations is intended to encompass the amount of money that a business actually earns from a particular activity, rather than the sales volume of such activity conducted by the business.

From 31 CFR 1020.315(f):

(f) Limitation on exemption. A transaction carried out by an exempt person as an agent for another person who is the beneficial owner of the funds that are the subject of a transaction in currency is not subject to the exemption from reporting contained in paragraph (a) of this section.

The Corner C-Store sells lottery tickets. Deposits of cash to an agency account on behalf of the state lottery agency aren't covered by the exemption.

That is true, but I guess that depends on who actually owns the separate account. I am not that familiar with NC lottery requirements.

If lottery ticket sales are kept in a separate account where the state is the only party entitled to remove the funds, I'll suggest that it's the state's money. Changes made to the exemption process since the issuance of the relevant guidance above would indicate that deposits of state funds would never be reportable, regardless of who was making the deposit.

I would say the money belongs to the State:

The Applicant must establish a separate bank account in the name of the Retailer entitled, “In Trust For The North Carolina Education Lottery” for Lottery proceeds and provide the banking information to the NCEL which enables collection of the net Lottery proceeds by way of Electronic Funds Transfer (EFT). Such bank account shall be a dedicated account for the exclusive use of the NCEL to withdraw and deposit funds associated with the Lottery operations of the Retailer.

Thank you so much!

So, in addition to seeing deposits and withdrawals from the state (NCEL), we often see cash deposits being made to these accounts. Our system then aggregates all the cash going into the multiple C-Store accounts under 'IN TRUST FOR NCEL' (that's what the accounts are titled) and will generate a CTR when it's over 10K, so does this statement "Changes made to the exemption process since the issuance of the relevant guidance above would indicate that deposits of state funds would never be reportable, regardless of who was making the deposit" mean we would not file CTRs on these transactions?

The transactions are on behalf of a unit of government that is exempt (phase I) by regulation. No CTR is required.

Thanks!