We are currently being examined by the FDIC and I just wanted to share our experience. Our asset size is over $2.5 billion and we have over 30 branches. We are a "relationship bank" and live and breath "Know Your Customer."

Currently, we have over 100 exempt customers, mostly fast food restaurants, gas stations (no brainer exemptions).

We require our branches to certify EVERY quarter that their exempt customers are not engaged in any suspicious activity. In addition, our exempt customers are given the same scrutiny as our non-exempt customers when their activity is reviewed in our Compliance Department. If we see something unusual, we call the branch for an explanation. We have never had a situtation were the the spike in cash activity did not have a reasonable explanation.

Well, this does not appear to be sufficient for them! They are telling us that our exemption list should include a dollar range that would be considered normal for each exempt customer.

I'm frustrated. The new exemption rules were intended to make the exemption process easier. You determine if the customer has had a DDA for 12 months, regular cash transactions (we gather 7-8 recently filed CTRs)and subject them to the same Anti-Money Laundering program in place for all other customers. If we are going to be required to do an analysis to determine a range and keep it up to date, I'm inclined to just say screw it and file CTRs!

Apparently, they haven't read the information recently release by FinCEN. It stated that some of the major reasons for banks not taking advantage of the exemption process is fear of regulatory action and the additional costs associated with due diligence.

These examiners really don't buy that we "know our customers."

For the record, our bank has filed over 80 SARs in the last 90 days (mostly for structuring or ML activities). Evidently, our numerours filings are not enough to convince them that we are LOOKING for suspicous activity.

I look forward to your responses! I wish BSA was under Compliance. These S & S examiners are a real pain.

I would guess you got some hard-nosed examiners. We just went through S&S last month. We are not nearly as large ($4M) but the BSA went VERY smoothly.

This is very interesting... so it doesn't matter what FINCEN says? What do you have in place for the quarterly certification, would you mind sharing?

Thank you,

In reply to "a dollar range that we consider normal"........are they saying that they want you to have to keep up with the dollar amount, even though exempting for a particular amount went away, and report under SAR if it goes over whatever you set as normal? Sounds like some examiner rewrote the rules to me.

We have the OTS here and they look at BSA from the compliance side of the exam (we now get combined exams - what fun!) This morning our BSA examiner asked for our AML P&P and I told him it was in the BSA P&P. He sounded like he is leaning toward wanting it separate or at least have a nice bold heading in the BSA P&P rather than being incorporated in it. I thought most banks were comfortable that the existing AML we had before USA PATRIOT Act would suffice - we shall see.

I'll keep you posted.

We just had an external audit done on BSA and still had the exemption amounts listed (still listed internally for us to use for monitoring purposes)and got written up for it. Either FDIC didn't see the amounts or didn't care because we were fine with them on our S&S exam. Be sure to show the examinters where you have some system in place to show that you are monitoring your exempt customers. Good luck.

I too work for an OTS regulated institution. I wasn't aware that they were going to do combined exams yet (SS & compliance at the same time) Is you institution one of the test institutions for combined exams or is that the way the rest of us will be examined?

Banks subjected to BSA criticisms they believe to be inaccurate need to be particularly direct in responding to them - do not wait until you get the written report of examination to defend yourself. (If you make no objections during the trial, you don't have anything to appeal.)

Assuming you can demonstrate that your internal controls have worked in the past, they sound reasonable and within your discretion. Logically, it is pretty difficult to criticize a bank's internal controls unless those who are evaluating them found a problem you missed. From my perspective, your monitoring method is preferable to one that focuses on specific dollar figures and could create a false sense of security. (You correctly note that we just got rid of a system where a particular number was thought to mean something and it was ultimately decided that it did not.)

At this stage, what you need to determine is whether the examiner is in a "consultative" mode or an examination mode. If he or she indicates it's a personal opinion, thank him or her for the advice and indicate you will consider it. Do so and document your analysis, but make your own decision.

Alternatively, the examiner may indicate that it will be cited as a deficiency in your internal controls under the "program" regulations. If so, you should indicate that this is an idea you haven't heard before and ask where you can read more about it. Examination protocol requires that you be directed to any authority that exists for a criticism which is to be included in the written report of examination. (There is no authority for the position stated.) Your response should be to offer to do anything you can do to demonstrate your system works.

If that does not turn the tide, your last attempt at communication is at the exit conference. Again, the protocol is that there cannot be anything in the written report of examination that is not discussed in the exit conference. If they do not bring it up there, it is reasonable to assume it will not be in the written report. (It might still be a good idea to ask if they intend to mention it.) If they indicate it will be a part of their criticism and you cannot dissuade them, then you need to ask them to note your objections and ask that the "review" examiner contact you for additional information before the written report is finalized. Consider repeating your request by letter to the regional office.

Confrontation during the exam process is the sport of fools.

If you act professionally, it is likely that the examiner will do the same. (Understand, you are playing hardball when you ask that your objections be noted.) However, if you let an unjustified BSA criticism pass without contesting it, you greatly increase your regulatory risk in the next exam. The clear language of the statute indicates repeat violations are to generate an automatic cease and desist order. They may be right about the criticism in the next exam and they will certainly not be willing to reconsider whether the criticism in the current examination was justified.

I agree with the previous post. However,I am a bit more straight forward with examiners even if they begin to hint around about a possible violation. The first thing I always request is for them to show me from the regulation what they are citing me for. If what they can show me appears legitimate then I research like crazy to make sure that there have been no subsequent opinion letters or changes to the code that maybe the examiners missed. Anyway, long story short...minimally ask to see where in the regulation it is.

Sounds like a "Rip van Winkle" examiner who slept through the past five years and missed the new exemption system. If it's desirable to monitor transaction levels for potential SAR filing, then why doesn't the examiner insist that you do it for ALL customers, not just the ones you know the best?

I appreciate all the feedback! I feel better and I will discuss this further with the examiner. Banks in So. California should watch out for this examiner - she's in charge of training other examiners.

Yesterday the examiner interviewed one of my staff (in my absence) and asked if she could cite a dollar range that would be "normal" for a certain restaurant. My emmployee said she was uncomfortable giving her a dollar range, but knew that she should refer an unusual transaction to me for further review. That seemed to satisfy the examiner for the moment.

I also wanted to share a comment that the examiner made that really threw me for a loop. She said most people know that the IRS (get this) DOES NOT look at CTRs. My response was "I don't know where you received that information, but my experience is just the opposite. We have filed numerous SARs for structuring. When we meet with our customers to discuss their activity (those that we feel are not involved in any illegal activity) they often tell us that their CPA told them not to conduct transactions in excess of $10,000 or they will be audited. I also told her that many individuals change the dollar amount of their transaction when they learn of the CTR form." I have no idea where she got this impression, but she is way off. I know that sophisticated money launderers will allow for CTRs to be filed, but that was not her point. She was stating that the average individual thinks the IRS does not look at CTRs.

The IRS DOESN'T look at CTRs upon receipt (other than the data quality review). CTRs are dutifully pumped into the database by the millions as raw data to be mined at a later date if law enforcement officers develop an interest in a reported customer.

SARs are another matter. They receive some level of initial review to determine if the reported customer is engaged in a crime that is serious enough to warrant scarce investigative time.

Richard,

I agree that WE (the banking industry) know the IRS doesn't look at CTRs, but the examiners comment was about the general public's belief that CTRs are not looked at. Our customers have told us many times that they structured a transaction because they didn't want us to file a CTR. Numerous business customers have told us that they thought CTR filings could cause them to be audited.

My response to the examiner was that the average person does not know that CTRs are not reviewed as they come in. There are individuals and business owners that are paranoid about the IRS knowing about their cash transactions.

Ahou - we are in the Western Region which just inherited four more states and lost a bunch of employees so they are trying to streamline.

Re: average customer thinking CTRs are not reviewed, I'd guess the average customer doesn't even know that CTRs are filed.

If a customer structures a transaction to avoid a CTR and based upon interviewing the customer they were advised to do this by their CPA or lawyer to avoid triggering IRS, do we have to file a SAR, or is that based on interpretation?

There is some interpretation allowed in SAR filing, but structuring is illegal. It was done here intentionally. Like mom used to say, "if your CPA said to jump off a cliff, would you"? Answer, "Not again".

You should file a SAR. In the narration, you might want to mention the customer's testimony that they were told to structure the transaction.

It might not be a bad idea to try to "educate" area accountants. A newsletter article discussing CTRs and how they are used might be a good start, and I think discussing structuring (which includes aiding, abetting, and counseling persons to structure) would also be a good thing.

And if you're aware that a particular accountant is counseling clients to structure, a special visit might help clear the air. If it continues, one could argue that a SAR reporting the accountant should be filed.

Yes, some accountants need to be educated! It's terrible that they give their clients bad advice like this.

As far as filing a SAR - yes! Explain in the narrative that the customer disclosed that their CPA told them to do it. Then watch to see if your customer changes their transactions. If they don't, continue to file supplemental SARs or consider closing the account.

As Andy said, structuring is a criminal violation. If you don't report it, your examiner might cite you!

I thought that to be the case. Thanks all for the clarification.

In reply to:

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It might not be a bad idea to try to "educate" area accountants. A newsletter article discussing CTRs and how they are used might be a good start, and I think discussing structuring (which includes aiding, abetting, and counseling persons to structure) would also be a good thing.

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Does ABA have something like this? An "Information Package" for Bankers to send to CPA firms? If not, perhaps they should.

Where to I send the suggestion? (And no - I don't want to create it myself!)

In reply to: "Well, this does not appear to be sufficient for them! They are telling us that our exemption list should include a dollar range that would be considered normal for each exempt customer."

The reason they want the dollar range is so you can detect suspicious activity and file a SAR. If you don't know what their normal activity is, the person reviewing their activity will not notice suspicious activity.

Max - the point of having an EXEMPT customer is that you feel very comfortable about that customer's activity. The original poster pointed out that his/her bank's branch staff sees these customers everyday and would notice when behavior patterns start going amiss. There is no set "forumula" for a dollar amount trigger, it's good ol' fashion "gut-feel" about what is normal and what is not. This type of "Know Your Customer" is more reliable than some distant quota for a back office person.

However, according to the original poster, this wasn't "good enough" for the examiner. Geez - go figure!

The days of transaction analysis for a given period of time and selecting the median deposit amount of "typical" transactions for business days, holidays and seasonal trends is gone. While depending on a formula was more definitive, it was more of a burden and didn't reduce the unnecessary CTRs being filed. This is why they changed the rules. The regulator should be aware of these issues, or be made aware of them.

True, but there had to be some documentation that the customer regularly deposited in excess of $10000.00 in order for the bank to exempt the customer. Our IT department wrote a "Cash Report" for our potential exempt customers and for our exempt customers. The BSA officer is to review it periodically to determine if the activity is normal and not suspicious(this also helps to make the annual review of the account less onerous). Absent a report of this nature - I would provide the regulator with a copy of every CTR filed on that customer for the 12 months immediately preceding their exemption (if you still have them).