Guru Says "Annual Reviews Required", Is this True?

Annual reviews are required for all exemptions, Phase I and II alike. The post you are questioning contained an excerpt from the regulation; the regulation is the ultimate source of authority. Here is the entire paragraph and the relevant language is in bold:

(4) Annual review. The information supporting each designation of an exempt person, and the application to each account of an exempt person described in paragraphs (d)(2)(vi) or (d)(2)(vii) of this section of the monitoring system required to be maintained by paragraph (d)(9)(ii) of this section, must be reviewed and verified at least once each year.

FinCEN's explanation of the revised exemption procedures made no distinction between the types of exemptions in indicating that an annual review was necessary:

FinCEN Advisory #10 Issued October 1998 10. What sorts of steps should a bank take to document and verify the status of a customer it has designated as an exempt person? Generally, a bank must take such steps to assure itself that a person is an exempt person that a reasonable and prudent bank would take and document to protect itself from loan or other fraud based on misidentification of a person’s status. At a minimum, a bank is required to review and verify the information supporting each designation of exempt person at least once each year. Assuming that a bank takes those steps described above, and absent any specific knowledge of information indicating that a customer no longer meets the requirements of an exempt person, a bank satisfies the terms of the reformed exemption procedures to the extent it continues to treat that customer as an exempt person until the customer’s next, no less than annual, periodic review. In the case of the requirement to maintain a system for monitoring the accounts of non-listed businesses and payroll customers for suspicious activity, a bank must take such steps that a reasonable and prudent bank would take and document to identify suspicious transactions.

The most up to date examination procedures also make it plain that Phase I customers are subject to review:

FDIC AML/BSA Basic Examination Procedures Issued October, 2003

EXEMPTIONS ("PHASE I") 20 Determine if Treasury Form TD F 90-22.53 (Designation of Exempt Person) has been filed with the Internal Revenue Service for each "exempt person" as defined in 31 CFR 103 (for example, a bank's domestic operations, governmental agencies, "listed entities" and their subsidiaries, etc.) within 30 days of the first reportable transaction that was exempted.

21 Determine if documentation on file supports Phase I exemptions granted by the bank.

22 Assess whether required annual reviews are performed to determine if a customer remains eligible for designation as an "exempt person" under Phase I Rules.

Purely as a matter of personal opinion, I think it's silly to have to verify that a government entity is still a government entity or a bank is still a bank. On the other hand, it is important to make certain that a corporation is still publicly traded; e.g. Enron or that it still exists as a subsidiary. Either way, all exemptions are entitled to an annual review.

First published on BankersOnline.com 07/04/05