After many examinations and audits that noted no problems with our exemption file, a new employee reviewed our exemptions for us and stated that two of the exemptions appeared to be invalid. Don't you just love the brilliant ideas of new employees who feel free to ask 'dumb questions'? He cited: "After a bank has decided to exempt a Phase II customer, the bank must file an initial Designation of Exempt Person form (FinCEN Form 110) within 30 days after the first customer transaction the bank wishes to exempt."http://www.occ.treas.gov/bsa/pages_manual/OLM_019.htm

I have always read that section of the manual as saying that you can't TREAT a customer as exempt unless you file the form within 30 days of the first transaction which you are going to treat as exempt. So I thought (and maybe still think) that we were allowed to file a form today, with no reportable transaction occuring in the 30 days before the filing date, as long as we were only going to treat as exempt those reportable transactions that occured on or after the date of the initial designation. I would in fact be filing timely, because rather than filing by no later than 30 days AFTER the first transaction to be treated as exempt, I was filing BEFORE the first transaction to be treated as exempt had even occurred.

We did not improperly treat as exempt any previous transactions. But where my colleague sees the problem is that no reportable transaction occured within the 30 days prior to the initial designation.

What would you do? Can I amend the initial designation? Revoke it now? Cross my fingers and hold my breath?

Your colleague has fallen victim to reliance upon ambiguous wording in the exam manual, which doesn't track the language of the regulation. Instead, look at the regulation:

"A bank must designate each exempt person with which it engages in transactions in currency by the close of the 30-day period beginning after the day of the first reportable transaction in currency with that person sought to be exempted from reporting under the terms of this paragraph (d)."

That language is clear: the filing must be made by the close of the 30-day period, which means it can be made at any time prior to the end of that period, not necessarily "within 30 days after" the transaction.

The exam manual ought to read "no later than" instead of "within." Perhaps FinCEN and FFIEC will make that subtle change next time around?

I read the reg too, but wasn't sure of the interpretation until now...The bank must file a designation no later than 30 days after the first reportable transaction it seeks to exempt, therefore, advance filings are filed timely. So I can uncross my fingers now. Thanks.

Stated differently, the DOEP form's effect can be retroactive up to 30 days.

Some field examiner's agree with your employee's original interpretation; i.e. you cannot file the form until a reportable transaction takes place and you must file it within 30 days after that. (They even even expand it to Phase I exempt persons where there is no requirement that any reportable transaction has taken place.)

They are wrong.