Treasury Finalizes Two Amendments Re: Currency Transactions; Reissues Current Currency Transaction Report Form

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EXECUTIVE SUMMARY

The Department of Treasury recently finalized two amendments to the Bank Secrecy Act (the Act) regulations. One amendment adds a definition of "structuring" to the anti-structuring provision, which prohibits an individual from designing a scheme to conduct transactions under the $10,000 reporting threshold to evade the currency-reporting requirements.

The second amendment clarifies that, if an individual conducts currency transactions for another person, the individual must disclose the name of that other person on the Currency Transaction Report and that the financial institution receiving the cash must seek to ascertain this information.

These amendments, which became effective February 22, 1989, do not impose new obligations on members, but instead serve to eliminate ambiguity and codify existing interpretations. Also, Treasury recently reissued the current Form 4789, Currency Transaction Report, for use through December 31, 1989.

BACKGROUND

SEC Rule 17a-8 requires broker-dealers that are subject to the requirements of the Act to file reports and make and preserve records in accordance with the regulations promulgated pursuant to the Act, Part 103, Title 31 of the Code of Federal Regulations. Under the regulations, members must report all cash transactions of $10,000 or more. However, to avoid this reporting, some individuals break down their transactions involving $10,000 or more in currency into smaller transactions so that none exceeds the $10,000 threshold. Such arrangements can constitute a criminal violation for evasion of the regulations' currency-reporting requirements.

EXPLANATION

The anti-structuring provision was incorporated into the Act in 1986 by Congress, and thereafter into the regulations, to combat the problem of drug traffickers and other money launderers who routinely engage in transactions under the $10,000 reporting threshold to conceal their activities from law enforcement authorities. This provision was meant to clarify that all currency transaction structuring schemes are unlawful, regardless of whether the $10,000 threshold is met at a single financial institution on a single day. Since the provision was enacted, however, Treasury has received many inquiries as to exactly what the term "structuring" means and indications of concern by financial institutions that neither the statute itself nor the regulation defines "structure" or "structuring."

In June 1988, in response to these concerns, Treasury proposed adding a definition of "structure" and "structuring" to the regulations. This is now finalized. Section 103.11, Meaning of Terms, is amended to include the following definition:

[n] Structure (structuring). For purposes of section 103.53, a person structures a transaction if that person, acting alone, or in conjunction with, or on behalf of, other persons, conducts or attempts to conduct one or more transactions in currency, in any amount, at one or more financial institutions, on one or more days, in any manner, for the purpose of evading the reporting requirements under section 103.22 of this Part. "In any manner" includes, but is not limited to, the breaking down of a single sum of currency exceeding $10,000 into smaller sums, including sums at or below $10,000 or the conduct of a transaction, or series of currency transactions, including transactions at or below $10,000. The transaction or transactions need not exceed the $10,000 reporting threshold at any single financial institution on any single day in order to constitute structuring within the meaning of this definition.

In adopting this amendment, Treasury notes that the change does not impose additional recordkeeping or tracking responsibilities upon financial institutions. The amendment merely codifies the existing interpretation of structuring. Members are not required to set up separate tracking systems to detect currency transactions that aggregate to more than $10,000 during more than one business day. However, members are reminded that if they become aware of situations in which individuals intentionally may be structuring transactions to evade the currency-reporting requirements, they should report this to the Internal Revenue Service. Members may wish to refer to Notice to Members 89-12, which discusses this topic of structuring in greater detail.

The second amendment adopted by Treasury clears up some ambiguity in Section 103.27 by conforming the language in the regulation more closely to that of the statute. Section 31 U.S.C. 5313 of the Act itself states that "a participant acting for another person shall make the report as agent or bailee of the person and identify the person for whom the transaction is being made. In Section 103.27 of the regulations, however, the language requires a financial institution to verify the identification of any person or entity "for whose or which account" a reportable currency transaction is to be effected. Although Treasury's use of the phrase "for whose or which account" was not meant to identify a customer account relationship but rather to be synonymous with the phrase "on behalf of," some confusion has arisen.

To resolve this confusion, Treasury has changed the wording in Section 103.27 from "for whose or which account" to "on whose behalf." This change makes it clear that the financial institution must obtain the identity of and other required information about the person for whom a currency transaction is conducted. This change is not a new requirement. Financial institutions should have been obtaining this information all along and placing it in Part II of Form 4789, Currency Transaction Report.

The Treasury release announcing these changes, which contains additional information (including some examples of how the amendments apply in practical situations) can be found in the Federal Register for January 23, 1989.

In a related matter, on January 24, 1989, Treasury announced that it is reissuing without change the current Form 4789, the Currency Transaction Report, which should be used by members until December 31, 1989. Filers may use the old (1988) version of the form until the new version becomes available. Treasury also announced plans to introduce a revised Form 4789 by mid-year, but said there will be a six-month lead time for both financial institutions and Treasury to adjust procedures to handle the revised form.

Questions concerning this Notice can be directed to Susan Lang, Senior Research Analyst, NASD Surveillance Department, at (202) 728-6969.