We have a gentleman that is a local contractor and does not have a deposit account at our bank. He has built and is currently building homes that we have financed. He comes to the bank each week to cash his check that our customer has written him for the construction. Due to the amounts of the checks ($4,000 - $5,000) I assume he is paying a crew and this is not just his own personal pay. Based on the assumption that he is paying his employees in cash would you file a SAR?

I'm going to assume that you're concerned about the avoidance of payroll taxes?

Yes. I know we're not the IRS and we can't 'police' every customer to make sure they're doing what they should be doing. But, during our exam last year, it was mentioned that we should watch for that.

This is a hotly debated topic on BOL. My personal opinion aside, if you are unable or unwilling to close the account, the filing of one SAR will almost assuredly lead to the filing of three SARs each year. I would take that into consideration along with your filing decision.

That's part of my problem. The customer doesn't have a deposit account here. I've been told he cashes the checks here since they're drawn on us to make sure they're good.

Do you really have any idea if he's paying his employees in cash? Or paying (or not paying) all the correct taxes? From what you've said, you just know that he cashes checks drawn on your bank, and you've been told he does so to make sure they're good. Absent any other information, I don't think I'd file.

I am a little confused as why the non customer is "building homes that we have financed" and why the checks are from your customer. If you are financing the transaction the checks should be payable to the contractors business from the banks account. . It is also a little odd that there is enough business from this non customer to be noticeably cashing checks from several customers.

We are being asked by our regulator to now follow beneficiaries of transactions and customers customer.

if he is cashing 4-5 per week for one customer is he cashing the same from another customer?

In my neck of the woods,most banks stopped cashing checks for non-customer for this exact reason. Banks around here do not do much business for non-customers. (other areas I am sure are different)

Keep in mind, there is a "payroll exemption;" i.e. a customer that actually paid his employees in cash could be exempted from currency transaction reporting. That suggests there is some degree of normalcy in the practice; paying employees in cash does not support an automatic SAR filing decision.

If the business owner banked with you and you were able to see that the withholding payments were not consistent with the cash payroll, then you would have a basis for your suspicions. As it is, you do not.

As noted, the decision to file one SAR is the decision to file the same SAR over and over again in perpetuity if the activity continues. This is the perfect example of why the first filing decision is the critical filing decision.

I'm guessing that the contractor cashing the checks is actually a sub-contractor cashing checks from the general contractor's account at the original poster's bank. Unless you feel the checks are structured somehow, I don't think I would be jumping to conclusions about what the sub-contractor is doing as far as payroll taxes goes. It could be that he gets paid in stages for a job - $5,000 when construction reaches a certain stage, $4,000 when the next stage is complete, etc. He could be cashing the checks so that he avoids a hold being placed by his bank if he deposits a check drawn off your bank or he may just want to make sure he doesn't get stiffed or stung by an NSF or stop payment. I think, absent any more solid information, I would not file a SAR. Even if he is paying his employees in cash, it does not necessarily mean that he is not doing proper withholding or that perhaps the workers are independent contractors themselves. If all else fails, call your customer and the guy cashing the checks and ask them directly what is going on.

Thanks everyone! Just to clarify some of the questions - when we do a construction loan we advance money to the borrower for each stage complete. The money is advanced on the line of credit and transferred into a construction checking account. They in turn write checks to the contractors, generally once a week. While I don't have evidence that he is not paying taxes or that he is even paying his employees in cash, I do have months of non-activity that would lead me to believe he is only cashing checks here that are drawn on us to avoid an NSF situation.