Suspicious Activity or Exemption?

Question: We're having a discussion on whether or not to file SARs on sub-contractors that are cashing checks in order to pay their laborers. It could be that the person cashing the checks is doing the proper tax reporting or tax withholding. We're pretty sure the money is payment for work performed, and therefore is a result of a legitimate business purpose, but the customer is Mexican and because he is local, and we all know the situation, we know all his laborers are Mexican. Should I be concerned that they might not be here legally?

Answer:First of all, if your sub-contractor is cashing checks for payroll, he is eligible to be exempt, as that is one of the categories for exemption. So there would be no need to even file a CTR if you had him on your exempt list. If you did not file for exemption, and the encashment is over $10,000, of course you'll file the CTR.

Is it a suspicious transaction? You've pretty much answered that question yourself. To your knowledge it is legal payment for work performed, and is the result of a legitimate business purpose. The parameter for suspicious transaction filing is from 208.62 (c)(4)(iii) - A suspicious transaction report must be filed if "...the transaction has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the bank knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction." If you are not suspicious of the transaction, you would not file.

As for your customer's tax reporting or tax withholding question - when FinCEN included tax evasion as a reason to file a SAR, they anticipated something like a check payable to a corporation being deposited into a personal account as an obvious attempt to avoid taxation. I don't think they intended us to check our customers to see if they are filing proper tax returns. So whether or not your sub-contractor is doing tax withholding or filing tax returns is his problem.

Your concern about your customer hiring illegal aliens is legitimate as a good citizen, but I don't think your bank's legal counsel would appreciate you voicing that concern on behalf of the financial institution. Better check with your attorney before you take any action there.

Copyright © 2005 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 15, No. 9, 9/05