In regard to Phase II Exemptions of CTRs ... the 2006 BSA exam manual includes a core test procedure (on p.84) that basically says "verify the bank maintains documentation to support the customer meets the 50% revenue test." What documentation should be maintained? (A signed statement by the customer?) And should the bank review the customer's financial statement or tax return to verify they meet the 50% test?

Thank you in advance for your thoughts and opinions ...

I request cash flows and revenue statements, along with tax returns and financial statements.

Generally, a letter from the customer indicating the specific percentage of revenues derived from each ineligible activity will suffice. (If there are multiple ineligible activities then the aggregate cannot exceed 50%.) A new letter should be obtained in connection with every annual review.

It's unlikely that the business' income tax return would break down the specific amounts of income attributable to lottery ticket sales, check cashing, etc. Your best shot at verifiable proof would be an income statement prepared by a CPA.

Remember, it's your bank that wants to recognize the customer as an exempt person. The customer probably doesn't care either way. At some point as you begin to pile on the documentation requirements, the customer is going to say, "Forget it, file the stupid forms."

My point is that I have no formal support for saying examiners are going to accept a letter from the customer except that I've never heard of their refusing to accept that level of documentation. If they want more, they have to be smart enough to know you may not be able to get it and the exemption (which they are supposed to encourage) may be lost.

We utilize an exemption form signed by the customer. If the percentages of gross revenues from eligible business activities get anywhere CLOSE to 51%, we do not exempt. We document the nature of ineligible businesses to help us determine if the percentages provided by the customer appear legitimate.

I do want to discuss something in this thread. I was at a seminar that said Phase I trumps Phase II. Therefor, a public Casino (since it is publically traded) can be exempted. I have never seen any guidelines for this. Any thoughts?

There's no conflict; the ineligible activities language only applies to a Phase II exemption.

If Harrah's Entertainment, a NYSE listed company (that happens to own casinos), is your customer they still meet the definition of a Phase I exempt person.