Phase II Exemptions

Posted By: BSA Lady

Phase II Exemptions - 09/30/16 07:55 PM

Would anyone be willing to share how they document the income over 50% regarding annual reviews of Phase II Exemptions? Looking for a template statement the client would sign.
Posted By: rlcarey

Re: MSB - 09/30/16 08:13 PM

What does income and an MSB have in common?
Posted By: BSA Lady

Re: MSB - 09/30/16 08:14 PM

Sorry- I am on a roll today- I meant Exemptions. I edited my original post. Thanks
Posted By: Sunshine Lady

Re: MSB - 09/30/16 08:21 PM

https://www.bankersonline.com/sites/default/files/tools/exemptform.pdf

I found this form by googling it. Use the above URL and it should pull up the form the customer can sign.
Posted By: BSA Lady

Re: MSB - 10/03/16 03:01 PM

Thank you Sunshine Lady! I had that one- I may tweak it a little bit!
Posted By: EB, CAMS

Re: MSB - 10/03/16 06:01 PM

we send a letter to our phase II exempt customers annually. We ask them to identify the business lines (read income sources) for which they derive profit. The list includes all of the things that are "ineligible" for CTR exemption. They complete it, sign it and we put it in the file for recordkeeping. Never had an issue with audit or examinations on this process.
Posted By: BSA_AML Hoosier

Re: MSB - 10/03/16 07:37 PM

Ditto to The Frog Lady.
Posted By: bcompliance

Re: MSB - 10/03/16 08:25 PM

Same as Frog Lady as well.
Posted By: Elwood P. Dowd

Re: Phase II Exemptions - 10/03/16 09:25 PM

Only the person who authored FIN 2009 - G001 actually believes that a bank can verify the percentage of revenues that a customer might generate from ineligible activities. In a prior century IRS Publication 1387 (I have a copy because rlcarey gave it to me grin) contained a Model Customer Exemption statement. The one linked above is homemade, but better than the one originally published by the IRS.

If your reviewers will not accept a customer signed statement, you've given it your best shot. Just revoke the exemption, start filing the CTRs, and see how they like them apples.
Posted By: Elwood P. Dowd

Re: Phase II Exemptions - 10/03/16 09:30 PM

P.S. Add "marijuana related businesses" to the list of ineligible businesses on the form. They are not listed in the regulation, but they were specifically mentioned in FinCEN's Valentines Day Present in 2014.
Posted By: EB, CAMS

Re: Phase II Exemptions - 10/03/16 09:56 PM

good reminder Ken. Thank you!
Posted By: PrimeTime

Re: Phase II Exemptions - 10/04/16 12:44 PM

Just to follow up on this post based on a recent examination (August 2016) -- we also utilize an attestation form to certify the percentage of revenue that derives from ineligible activities; or should I say utilized.

Despite virtually all of our attestations returning percentages that weren't remotely close to the 50% mark, leading us to believe that we had reasonably determined that none of our customers were ineligible, it was a comment during the exam. The examiners wanted better proof of how we were able to verify these amounts; it was initially suggested that some sort of analysis be done with deposits in relation to withdrawals for ineligible activities (i.e. preauthorized withdrawals to lottery), however I pointed out that all deposit activity may not necessarily be held with one bank, therefore the exercise would be pointless.

The end result was that they recommended that we request financials from these customers annually in order to accurately determine this figure, despite my arguments. We're still assessing the lesser of the two evils, as the customers will likely be upset either way -- most don't like to provide financials because it's "annoying", and then also will get mad when we start asking for CTR information again; a lose-lose for us!

Figured I would share because this comment, as well as other "odd" comments that came up this year seem to be trending based on others I've talked to in the industry. Could be a regional thing, but it might be a new focus of examiners because we've certainly never had an issue in the past.
Posted By: Elwood P. Dowd

Re: Phase II Exemptions - 10/04/16 12:51 PM

Basically, this happens when they cannot find anything else; i.e. they want proof of that which cannot be proven, even with tax returns or an audited income statement. As a small business person, I could not care less whether my bank does or does not file CTRs; I'm not giving you income or financial information in exchange for the privilege of having a checking account. Hence:

Quote:
If your reviewers will not accept a customer signed statement, you've given it your best shot. Just revoke the exemption, start filing the CTRs, and see how they like them apples.
Posted By: rlcarey

Re: Phase II Exemptions - 10/04/16 01:09 PM

it was initially suggested that some sort of analysis be done with deposits in relation to withdrawals for ineligible activities (i.e. preauthorized withdrawals to lottery),

That's hogwash. That might address totals sales, it does not address revenues. A convenience store might have a 20% margin on groceries and gas and only book a 1% margin to revenues on lottery sales. Sales and revenues are two totally different animals.