Customer wants to use cash (actual cash) for a line of credit. Officer said cash will be kept in collateral vault like other collateral. Customer doesn't want to use a CD b/c "he has already paid taxes on it" and doesn't want it "reported". My question is, would a CTR be necessary? There would be no actual "cash transaction". I already know he is avoiding a CTR and what needs to be done on that front, but the need for a CTR is what is in question.
So the physical cash will be held in a physical vault, not credited to an account?
If that's the case, I would not file a CTR because as you said, it sounds like no transaction is taking place.
A follow-up question for people who are more savvy than I am: If it turns out this person is evading taxes, or these are proceeds of a crime, may the bank be criminally liable for aiding the customer to launder their money?
This doesn't pass the smell test on the surface. As far as a CD goes, they only pay taxes on the gain of interest on the CD not the principal amount. Sketchy sketchy
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A successful man is one who can lay a firm foundation with the bricks others have thrown at him. -David Brinkley
This looks like an asset backed line of credit to me. Asset backed LOCs are used quite often by wealthy individuals who don't keep a lot of cash on hand and don't want to incur a taxable event (For example, selling a security position and triggering capital gains).
I rarely see it done with physical currency though and I agree that part is very unusual.
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"100 victories in 100 battles isnt the most skillful. Subduing the other's military w/o battle is the most skillful." Sun-Tzu
I've seen banks take some interesting collateral before though. At my last bank, we took 10,000 ounces of silver bars as collateral for a loan so that the shop owner could buy more silver. Was very interesting having that all stored in a vault on site.
That was the last bank I was with. They had it xray'ed to be sure. They also valued it at a 20 year low, which was like $4/oz. Customer was fine with it, he just needed the funding quick. Was a good loan for him though, silver was at about $15 at the time, its now much higher than that.
When I was a bank examiner (long, long, long ago), we criticized a bank for maintaining a small balance loan or no-balance LOC secured by 40,000 silver dollars. There was zero risk of a loss on the loan, but the customer was obviously using this arrangement to avoid paying for safe deposit or safekeeping services. The loan yielded next to nothing, safe deposit/safekeeping income was lost, and there was a question about the bank's insurance coverage for all the bags of silver dollars.
Ditto the comment that it's only a part of the interest income that would be taxed. If the loan defaults and you have zero loss because of the collateral - you just assisted in laundering money for him. KYC! I'd also do a good job of counting and bagging the cash in a tamper proof bag.
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AndyZ CRCM My opinions are not necessarily my employers. R+R-R=R+R Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell
Oh, forgot to add that there was one instance where I saw a situation like this. We had a customer who closed many CDs because his religion said it was a bad thing. We actually had several customers doing this. We didn't mind not paying interest but you also have less of a "lock" on the funds. I think the religion was Riba. In that case you can explain why the funds were non-interest bearing.
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AndyZ CRCM My opinions are not necessarily my employers. R+R-R=R+R Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell
Some additional thoughts here - We don't know the actual cash amount or anything about the customer. Accordingly I'm not quite sure we can opine on whether this could be money laundering or not. If it's a small amount of cash, and I know different people view "small" differently, I wouldn't be so concerned about money laundering.
It it's over $10K a CTR will be filed and possibly a SAR (Along with a call to FinCEN). If this is someone's attempt at laundering money, it's amateur at best.
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"100 victories in 100 battles isnt the most skillful. Subduing the other's military w/o battle is the most skillful." Sun-Tzu