CTR Exemptions

We have a business that is listed as an MSB. This business will write checks for change to a couple of their employees to cash. We have talked about exempting the business because we are currently doing 2-3 CTRs a week on them.

My question is this, seeing how the business will write checks to employees to cash for their change order, it is ok to exempt the business since all the transaction are done on behalf of the business.

Since MSB's are considered high risk why would you want to exempt them? Just curious! Exempting an MSB in my institution isn't even something up for consideration!

Well I was not for exempting them for that very reason, but I have had several ask why we have not done so yet. I just wanted to get some other opinions. I agree with you summergirl, they are high risk and I would rather see their daily activity, instead of just reviewing them once a year or every two years.

Money Service Businesses are ineligible for exemption under CTR regulations.

Since when? I thought so at one point and raised the question and was told they are eligible and there is nothing in the FFIEC handbook that states differently.

We have an MSB that has been exempted because we were filing on them practically every day. They are still considered high risk and monitored like any other high risk customer is, but they are exempt from filing CTRs and the OCC has never had any issues with our MSBs or our exemptions.

Please cite your source.

Thanks!

From FFIEC BSA Manual:

Ineligible Businesses
Certain businesses are ineligible for treatment as an exempt non-listed business (31 CFR 103.22(d)(5)(viii)). An ineligible business is defined as a business engaged primarily in one or more of the following specified activities:

* Serving as a financial institution or as agents for a financial institution of any type.

...Now look at the definition of financial institution.

I stand corrected and I appreciate the citation. Curious though, when we originally had the discussion about exempting this particular customer I originally said no. Management wanted more research which lead me to asking the question directly to our primarly regulator who then said basically what I said above...you can exempt them, but you still have to monitor them.

Also interesting that audit nor the examiners have questioned the exemption since we did it a few years ago.

ho hum.

Thanks for providing that info BrendaC. There is also guidance issued in the form of FAQ's to frequently asked BSA questions issued by FinCEN that states MSB's cannot be exempt; also the FDIC's Risk Management Manual of Examination Policies states the same.

THanks banker1976 for the additional resources. I believe the FAQ's are where I originally may have said NO to the exemption at the very beginning, but with managements arm twisting techniques I did more research....and here is where we have landed.

It extremely frustrates me that the regulatory agencies can give bad advice but they never get their hands slapped.

I too will have to look into this because we have an exempt MSB as well. We still monitor the daylights out of them but were also told that we could exempt them. Hmmmmmm

Many can be exempted if over 50% of their revenues are not generated from the ineligible activities. A pure check casher no - convenince store that does this on the side - sure (with the proper documentation).

A business that engages in multiple business activities may be treated as a non-listed business so long as no more than 50% of its gross revenues are derived from one or more of the ineligible business activities listed in this paragraph (d)(5)(viii).

I think I am okay then. They don't have 50% or more in ineligible activities. Thank goodness. Really thought that was a big ooops. Thank you, Randy!

This is from the FDIC Risk Management Examination Manual

Exemptions from CTR Filing Requirements
MSBs are subject to BSA regulations and OFAC sanctions and, as such, should be filing CTRs, screening customers for OFAC matches, and filing SARs, as appropriate. MSBs cannot exempt their customers from CTR filing requirements like banks can, and banks may not exempt MSB customers from CTR filing, unless the "50 Percent Rule" applies.

The "50 Percent Rule" states that if a MSB derives less than 50 percent of its gross cash receipts from money service activities, then it can be exempted. If the bank exempts a MSB customer under the "50 Percent Rule," it should have documentation evidencing the types of business conducted, receipt volume, and estimations of MSB versus non-MSB activity.

If you use NAICS codes, this is an area to watch very closely. If Acme Grocery's business revenues are primarily groceries not check cashing, code them as a grocery store and have your EDD documentation ready for review by auditors and examiners.

As has been demonstrated, it can be done. It's been discussed here before and the analysis generally concludes 1) your examiners will at first question, but will eventually have to accept your decision and 2) as many MSBs generate your highest level of monitoring anyway, what's the specific advantage to not filing CTR's?

Just as an example, we do have 2 large grocery stores that are exempted. They cash checks (one is registered as they go over $1000/day), sell money orders, lottery tickets & wire money (as an agent of Western Union).
WE have all of the documentation & have never had a problem with these exemptions.
In our annual review, we specifically ask the "more than 50% of gross revenue" question & they must sign an acknowledgement.

In this context, WHAT IS the definition of a financial institution? Would an ATM operator be considered ineligible?

We're considering exempting a business because we filed more than 5 CTR's in 2010 and they qualify as a phase II exemption. What happens if we do our 2012 annual review and discover we would have filed less than 5 CTR's if we hadn't exempted them?

You remove them from any list of exempt persons that you maintain and begin filing CTRs. It's not a problem.

Sorry to revive this thread but I haven't found much that addresses this individuals question.
From everything I have been able to research, in most cases you are able to exempt ATM operators but I would make sure I had all my documentation together and do some research to have ready when asked.

Here is FinCEN Guidance on the topic. Yes, you can exempt them.

https://www.fincen.gov/resources/statute...usiness-certain

Reviving an old thread indicates the presence of personal initiative; i.e. you tried to find the answer by searching prior threads. Keep on chuckin'.

Brian - thanks for including the reference.

Ken - thanks and will do!