Has anyone had this happen? We have an exemption for a sole proprietorship. They now have changed to a corporate status. The account number is the same but, of course, their tax id number has changed. It's the same people, the same business. But it's a new entitiy the bank is dealing with.

Do we have to establish a new 12 month history before exempting them again???

Although you would be safe in removing the exemption and starting over, I would recommend contacting FinCEN for guidance. The specific details of each situation can result in a different approach. You don't want to waste time filing CTRs for a year if your don't have to and it is always better to be safe than to be sorry. I have found FinCEN to be efficient in returning calls. Be sure to document the call and guidance provided in your exemption file for review by audit and regulatory personnel in the future.

Myself, I would recommend that you revisit the original exemption. While I believe you can exempt sole proprietorships under the regulations, I think they are tricky to do right and present an increased risk that most prudent banks should refrain from exposing themselves.

To exempt an eligible non-listed business, the business must meet four criteria:

1) Has had a transaction account at the bank for at least 12 months.

That is pretty standard.

2) Frequently engages in currency transactions greater than $10,000.

Your documentation should be able to support this.

3) Is incorporated , or organized under the laws of the United States or a State , or is registered as and eligible to do business in the United States.

Since sole proprietorships are not incorporated or organized it comes down to whether they are registered as a business in the United States. I have not seen the definition of the term "registered", but I would think it is a little more involved than filing for an "assumed name" at your county recorder's office. I believe in order to pull this off, you are going to have to have solid documentation regarding the legitimacy of the sole proprietorship. Some of this would include detailed financial statements and annual tax returns.

4) is not an ineligible business.

Your standard investigation should be able to prove this.

While it can be done, I would not normally recommend it without extreme care and due diligence.

Knowing that exemption management will be under your regulator's microscope and that there appears to be no upper limit to BSA penalties, will the exemption really save enough to justify all the time, trouble, and risk involved in creating and maintaining it? The mere existence of cliffs is insufficient reason to jump.

We had this exact situation and decided to be safe rather than sorry. We waited another year and then filed a new exemption. We did this due to guidance from Kirchman Regulatory Compliance Service.