FinCEN Issues Another New Rule

Exemption Procedure in Place Six Days After Publication
by John Byrne, Esq.

On April 24th the Department of the Treasury published in the Federal Register an "Interim rule and notice on exemptions from the requirement to report transactions in currency, and the list of entities who are exempt."

This "Interim Rule" eliminates the requirement that banks file CTRs (Currency Transaction Reports) on "exempt persons." The rule permits but does not require banks to use the simplified procedure. Although 31U.S.C. 5313(d) speaks of "mandatory" exemptions, Treasury makes it clear the rule does not affirmatively prohibit banks from continuing to report routine currency transactions with exempt persons. But they believe this rule will make it advantageous enough to use the new method. It can be used now Even though there is a 90 day comment period on this rule, it became effective on May 1, 1996, and can affect any over-$10,000 transactions after April 30, 1996.

Exempt "person"
The key to this new system is the definition of an exempt person.

Under the Interim Rule, domestic banks; federal, state or local governments and any entity exercising governmental authority are exempt.

In addition, any corporation ("listed corporation") whose common stock is traded on the New York or American Stock Exchange or the NASDAQ National Market are also exempt. (It does not include stock listed on the Emerging Company Marketplace of the American Stock Exchange or stock listed under the "NASDAQ Small-Cap Issues.")

The Interim Rule applies only to corporations but comments are being solicited as to whether coverage should include the equity interests of some partnerships and business trusts that are also listed on the named securities exchanges.

Finally, any subsidiary of any publicly-traded corporation which is exempt is also exempt if it filed a consolidated federal income tax return with the publicly traded corporation. FinCEN is also asking for comments on whether there is a more efficient method available than consolidated tax returns.

Also, franchisees of listed corporations (or of their subsidiaries) are not included within the definition of exempt person, unless the franchisees are independently exempt as listed corporations or listed corporation subsidiaries.

The example Treasury uses is that of locally owned McDonald's. It is not an exempt person simply because McDonald's Corporation is a listed corporation. On the other hand, a McDonald's outlet owned directly by McDonald's Corporation would be an exempt person, because their common stock is listed on the NYSE.

Examples of entities that are not exempt are almost all privately held government contractors, a publicly traded master limited partnership, or a corporation only publicly traded in a foreign nation.
Fill Out CTR One Last Time
Once a bank determines that an entity is exempt, it must file a CTR with limited information.
Fill out, completely, Part l, Section A.
Check box 36 and write in "Designation of Exempt Person"
Fill out, completely, Part III
Then stop filing CTRs
Do It By August 15

The "designation" requirement for existing customers must be satisfied by August 15, 1996. CTRs can be stopped immediately. Financial institutions are also protected from civil liability for failure to file CTRs if the procedures are followed.

New Customers
For new customers, the designation must be made no more than 30 days following the first transaction in currency over $10,000 between the bank and the new customer.

It is important to note that FinCEN hopes to use the industry's designation filings to compile a list to be published in the Federal Register.

Suspicious Activity Reports
The rule makes clear that banks must still file Suspicious Activity Reports (SARs) in appropriate circumstances and that the exemption may be revoked at any time by the Treasury Department.

In addition, the Interim Rule will supersede the current administrativeexemption system with respect to exempt persons 60 days after a final rule is published.

FinCEN is also working on the second-tier exemptions or "discretionary" exemptions and is seeking comments on that system.

Copyright © 1996 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 6, No. 7, 5/96