FinCEN Issues Guidance On Currency Transaction Reporting For Businesses With Common Ownership

Mar 19, 2012   

On March 16, 2012, the Financial Crimes Enforcement Network (“FinCEN”) of the United States Department of the Treasury issued a Guidance regarding when financial institutions should aggregate multiple transactions conducted by businesses with common ownership for currency transaction reporting purposes. A copy of FinCENs Guidance can be read here.

Pursuant to the Bank Secrecy Act (“BSA”), codified partially at 31 U.S.C. §§ 5311-5332, the Secretary of the Treasury is authorized to require financial institutions to keep records and file reports that the Secretary determines to have a high degree of usefulness in criminal and tax matters as well as counter-terrorism and anti-money laundering compliance. One such report is the currency transaction report (“CTR”). See 31 U.S.C. § 5313. Generally speaking, U.S. financial institutions are required to file a CTR with FinCEN for each “deposit, withdrawal, exchange of currency, or other payment or transfer, by, through, or to such financial institution which involves a transaction in currency of more than $10,000.” See 31 C.F.R. § 1010.311.

Additionally, FinCEN regulations provide that in certain cases multiple currency transactions by the same person must be aggregated together to reach the $10,000 threshold. These regulations provide that multiple currency transactions will be treated as a single transaction, triggering the filing of a CTR, “if the financial institution has knowledge that [the multiple transactions] are by or on behalf of any person and result in either case in or cash out totaling more than $10,000 during any one business day.” See 31 C.F.R. § 1010.313.

However, a question arises regarding whether a financial institution is required to aggregate multiple transactions when the multiple transactions are conducted by businesses with common ownership. FinCEN previously addressed this issue in FinCEN Ruling 2001-2, however, that ruling was specific to the case of an individual who owned three separately incorporated businesses, each with its own tax identification number and bank account, but who made it a practice of using funds from one business account to pay expenses associated with the other businesses. Thus, in an effort to further clarify when aggregation should occur beyond the limited circumstances of Ruling 2001-2, FinCEN issued the March 16 Guidance.

In its guidance, FinCEN states that financial institutions should not automatically aggregate the currency transactions of separately incorporated businesses with common ownership because a rebuttable presumption exists that each incorporated entity is an independent person for reporting purposes. However, the Guidance goes on to state that each financial institution is ultimately responsible for determining whether businesses with common ownership are, in fact, operating as separate, independent entities. Additionally, not only must each commonly owned business be independent of one another to avoid aggregation, but each account of each commonly owned business must be separate and independent from the private accounts of the common owner.

FinCENs Guidance makes clear that there are no universal rules applicable to any situation. However, a financial institution should base its determination of whether businesses with common ownership are separate, independent entities, and thus not subject to aggregation for CTR purpose, on all the relevant facts and circumstances known from information obtained through the ordinary course of business. FinCEN advises that financial institutions take the following factors into consideration when determining whether commonly owned businesses are operating separately: 1)are the businesses staffed by the same employees; 2) are the businesses located at the same address; 3) is the bank account of one business repeatedly used to pay expenses of another business; and 4) are the business bank accounts repeatedly used to pay personal expenses of the common owner. If a financial institution determines that the businesses are not independent of each other or their common owner, then the financial institution should aggregate multiple currency transactions of these entities going forward.

If you have questions pertaining to CTR filing requirements, the BSA, anti-money laundering compliance or how to ensure that your business maintains regulatory compliance at both the state and federal levels, contact Fuerst Ittleman PL at contact@fidjlaw.com.