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#2013790 - 05/13/15 04:01 PM Phase II Exemptions
PrimeTime Offline
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PrimeTime
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I was wondering anyone on here would share their experience with Phase II Exemptions in regards to ineligible activity %.

My questions would be a) what does your institution obtain in order to form a reasonable determination that the customer is under the 50% mark and b) have said customers given any kickback when asked for the documentation?

Historically, my institution (not me, I swear! I just got here) has filled out the forms internally and just kind of "guestimated" as to the % of eligible and ineligible activities. Although we can form a reasonable determination on many of them that they truly do not derive more than 50% of gross revenue from the ineligible activities, we're considering enhancing our due diligence and making it a requirement to provide additional documentation for all exempt customers, and I was looking to get a feel for what I'd be in for.

Any insight is appreciated!
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#2013840 - 05/13/15 05:52 PM Re: Phase II Exemptions PrimeTime
Elwood P. Dowd Offline
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FinCEN 2009-G001 is the official guidance, but it's vague to the point of being worthless.

In instances where it is apparent – through a bank’s implementation and application of due diligence policies, procedures, and processes to all customers – that a non-listed business customer derives a clear minority of its annual gross revenues from ineligible business activities, the bank could reasonably and appropriately exempt that customer from currency transaction reporting based solely upon materials and information collected and considered in the ordinary course of conducting customer due diligence.

However, in those instances where it is less clear whether a non-listed business customer derives no more than 50 percent of its annual gross revenues from ineligible activities, a bank should obtain such additional supporting materials and information that would allow it to make a reasonable determination that it may appropriately exempt that customer from currency transaction reporting.


Many banks just require an annually updated statement from the customer that discloses what the ineligible activities are and requires the customer to disclose what percentage of his revenues come from each of those activities. The total must be less than 50%. I would not voluntarily go beyond that.

If a third party reviewer says you need things like tax returns or income statements, my suggested response would be that you just tell them you will file the CTR's instead.

Customers who are just honestly carrying out their business and living their lives do not care whether you file CTRs on them or not. If you start asking for documentation (which will not break down the percentages anyway) they will probably tell you to take a hike.
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#2013880 - 05/13/15 06:43 PM Re: Phase II Exemptions PrimeTime
PrimeTime Offline
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Hi Ken,

That was the same guidance I had been reviewing that prompted my question, so that's certainly good news that I was in the right place at least!

As to the annually updated statement, do you mean an actual financial statement, or a generic statement gross revenues from ineligible activities must constitute 50% or less that the customer just signs saying "yes, that is a true statement, my business does not do that."?

We're absolutely trying to avoid asking for financials, because we understand that it's a hassle to the customer, may lose relationships, etc. however I'm just interested in how others are forming their "reasonable determination" on businesses such as liquor stores or gas stations that sell lottery or something similar to that.
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#2013893 - 05/13/15 07:07 PM Re: Phase II Exemptions PrimeTime
SUSA Offline
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Hello Prime,

We have a generic document that the customer signs, certifying that they have X% of revenue from eligible activities & X% of revenue from ineligible activities.

We don't have them "prove" the numbers in any way by asking for financial statements.

I have had one customer refuse to certify the activity. He felt it was "too much hassle." It was one page... too much hassle?

In any case, we just file CTRs on his store.
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#2013915 - 05/13/15 07:44 PM Re: Phase II Exemptions PrimeTime
PrimeTime Offline
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Have you ever had an examiner question that? I'm asking purely out of interest, I am not in a situation in which an auditor/examiner is asking that we beef up our exemption process, I just don't see them being okay with taking the customer's word for it.
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#2013917 - 05/13/15 07:48 PM Re: Phase II Exemptions PrimeTime
Elwood P. Dowd Offline
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My reference is to something like "OK" is talking about...the customer is told what "ineligible" activities are and indicates what percentage of his revenues each represents. If you're hard core, set it up where the signature is "under penalties of perjury" and notarized.

I realize full well that it is meaningless, just as meaningless as obtaining unaudited income statements and tax returns, it's just less work than the alternatives.
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#2013922 - 05/13/15 07:50 PM Re: Phase II Exemptions PrimeTime
PrimeTime Offline
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That's a good point, not only less work but also less customers that are P.O.'ed at us.

Certainly sounds like something that will be incorporated into our repertoire!
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