Source: https://www.irs.gov/irm/part4/irm_04-026-007
Timestamp: 2019-07-23 22:13:28
Document Index: 182936228

Matched Legal Cases: ['art 103', 'art 103', 'art 128', 'art 103', 'art 103', 'art 103', 'art 103', 'art 103', 'art 103']

4.26.7 Bank Secrecy Act Penalties | Internal Revenue Service
4.26.7.1 Overview
4.26.7.2 Penalty Authority
4.26.7.3 Civil Penalties
4.26.7.3.1 Negligence
4.26.7.3.2 "Non-Willful" Violation of FBAR Requirements
4.26.7.3.3 Willful Violations of Recordkeeping and Reporting Requirements
4.26.7.3.4 Willful Violation of Other Duties
4.26.7.3.5 Structuring and Related Prohibited Actions
4.26.7.3.6 Anti-Money Laundering Program Violations
4.26.7.3.7 MSB Registration Violations
4.26.7.4 Determining Intent Under the BSA
4.26.7.4.1 Negligence
4.26.7.4.2 Civil Willfulness
4.26.7.4.3 Establishing Willfulness
4.26.7.4.3.1 Knowledge of the Law
4.26.7.4.3.2 Indications of Willfulness
4.26.7.5 Criminal Penalties for Violation of Bank Secrecy Act
4.26.7.6 Forfeiture Authority
(1) This transmits a revision to IRM 4.26.7, Bank Secrecy Act, Bank Secrecy Act Penalties.
4.26.7.1 (06-20-2012)
The Bank Secrecy Act (BSA), as amended, and related regulations at 31 CFR Chapter X (formerly Part 103) provide for civil and criminal penalties as well as forfeiture of assets. BSA penalties depend on the type of entity, the type of activity involved, and the degree of intent. Apparent violations are found through examination or information from informants.
Although, generally, the BSA examiner does not propose penalties arising from the violations, the elements of each violation must be known to determine which facts are relevant to the examination process.
4.26.7.2 (06-20-2012)
BSA civil examinations are conducted by BSA regulators. Final authority to assess civil penalties rests with the Secretary of the Treasury, 31 USC 5321, and is delegated to the Financial Crimes Enforcement Network (FinCEN), 31 CFR 1010.810 (formerly 103.56). Authority to examine certain financial institutions for compliance with 31 CFR Chapter X (formerly Part 103) is delegated to the IRS, 31 CFR 1010.810(b)(8) (formerly 103.56(b)(8)).
The authority to enforce the Report of Foreign Bank and Financial Accounts (FBAR) reporting and recordkeeping requirements found at 31 USC 5314 and 31 CFR sections 1010.350 and 1010.420 (formerly 103.24 and 103.32) was redelegated from FinCEN to the Commissioner of Internal Revenue by a Memorandum of Agreement between FinCEN and IRS. For these requirements, IRS conducts examinations and can assess penalties.
IRS Criminal Investigation (CI) has authority under 31 CFR 1010.810(c)(2) (formerly 103.56(c)(2)) to investigate all criminal violations except those of 31 CFR 1010.340 (formerly 103.23) (Reports of Transportation of Currency or Monetary Instruments, CMIR). Customs investigates civil and criminal violations of the CMIR. 31 CFR 1010.810(c)(1) (formerly 103.56(c)(1)). Courts impose criminal penalties.
A civil monetary penalty may be imposed for any BSA violation notwithstanding the fact that a criminal penalty is imposed for the same violation, 31 USC 5321(d).
4.26.7.3 (06-20-2012)
31 USC 5321 provides overall civil penalty provisions for violations of the BSA and for violations of certain related statutes. It provides authority for assessing penalties when regulations for those penalties have not been issued. The penalties apply to violations of the BSA itself, the regulations under the BSA, or any geographic targeting or special measures order issued by Treasury, as well as penalties for taking certain actions, such as structuring, with the intent to evade BSA reporting or recordkeeping requirements.
31 CFR 1010.820 (formerly 103.57), which was issued under the authority of 31 USC 5321, is the primary penalty regulation. It addresses civil penalties arising from violations of the BSA reporting and recordkeeping requirements, as well as structuring penalties.
Other Code provisions and regulations provide for civil penalties for violations of special BSA requirements. For example, 31 USC 5330 and 31 CFR 1022.380(e) (formerly 103.41(e)) provide for civil penalties for failure to register a money services business (MSB).
4.26.7.3.1 (06-20-2012)
For each negligent violation of any requirement of the BSA, the penalty may not exceed $500. It is assessed only against financial institutions and nonfinancial trades or businesses. 31 USC 5321(a)(6) and 31 CFR 1010.820(h) (formerly 103.57(h)). Civil money penalties for negligent violations of the BSA are, in practice, extremely rare.
Negligent violation of any provision of the BSA or any regulation prescribed under the BSA Any financial institution or non-financial trade or business $500 31 USC 5321(a)(6)(A)
31 CFR 1010.820(h) (formerly 103.57(h))
Pattern of negligent violations of any provision of the BSA or any regulation prescribed under the BSA Any financial institution or non-financial trade or business Additional $50,000 31 USC 5321(a)(6)(B)
4.26.7.3.2 (06-20-2012)
"Non-Willful" Violation of FBAR Requirements
Any person who violates or causes any violation of the FBAR requirements of 31 USC 5314 may be assessed a penalty not to exceed $10,000 per violation. 31 USC 5321(a)(5)(B).
Such penalty is not applicable if the violation was due to reasonable cause and the amount of the transaction or the balance in the account at the time of the transaction was properly reported.
Penalty for "Non-Willful" FBAR Violations
Violation Persons Subject to Penalty Penalty Up To Authority
Violation of 31 USC 5314 FBAR requirements unless such violation was due to reasonable cause, and the amount of the transaction or the balance in the account at the time of the transaction was properly reported Any person who violates or causes any violation $10,000 31 USC 5321(a)(5)(B)
(31 CFR 1010.820(g) (formerly 31 CFR 103.57(g)) does not reflect the current FBAR penalties.)
4.26.7.3.3 (06-20-2012)
Willful Violations of Recordkeeping and Reporting Requirements
Where the violation is willful, the penalty depends on the type of violation. There are different penalties for recordkeeping, reporting, and program violations, as well as for other types of violations, such as failure by an MSB to register.
Within the types of willful violations, there are variations in penalties as well, depending on the particular provision violated.
A penalty may be assessed on a partner, director, officer, or employee, as well as the business, for certain willful violations identified in section 5321(a), and against any person for other violations, such as the FBAR reporting and recordkeeping violations.
Failure to comply with any recordkeeping requirement for a financial institution, except 31 CFR 1010.420 (formerly 103.32) (FBAR).
$1,000. 31 CFR 1010.820(c) (formerly 103.57(c))
Failure to comply with the recordkeeping requirements of 31 USC 5314, 31 CFR 1010.420 (formerly 103.32) (FBAR) for violations occurring prior to 10/23/04. Any person willfully violating, or willfully causing any violation of 31 USC 5314. The greater of:
the amount (not to exceed $100,000) equal to the balance in the account at the time of the violation, or
31 CFR 1010.820(g)(2) (formerly 103.57(g)(2))
Failure to comply with the recordkeeping requirements of 31 USC 5314, 31 CFR 1010.420 (formerly 103.32) (FBAR) for violations occurring after 10/22/04. Any person willfully violating, or willfully causing any violation of 31 USC 5314. The greater of:
Failure to report a foreign account (FBAR) 31 USC 5314, 31 CFR 1010.350 (formerly 103.24).
Failure to report a transaction with a foreign financial agency 31 USC 5315.
the amount involved in the transaction (not to exceed $100,000) or
31 USC 5321(a)(1),
31 CFR1010.820(f) (formerly 103.57(f))
Failure to comply with the reporting requirements of 31 USC 5314, 31 CFR 1010.350 (formerly 103.24) (FBAR) for violations occurring prior to 10/23/04. Any person willfully violating, or willfully causing any violation of 31 USC 5314, 31 CFR 1010.350 (formerly 103.24). The greater of:
31 CFR 1010.820(g)(2) (formerly 103.57(g)(2)).
This regulation has not been changed to reflect the amendment to section 5321. It provides the prior law, which is still applicable to violations occurring prior to 10/23/04.
Failure to report a transaction with a foreign financial agency, 31 USC 5315, or not complying with an injunction under Sec. 31 USC 5320 enforcing compliance with section 5315. Any person $10,000 31 USC 5321(a)(3).
Note that the regulations for Sec. 5315 are found in 31 CFR Part 128 not Chapter X (formerly Part 103). Because of this, IRS delegated exam authority in 31 CFR 1010.810 (formerly 103.56) does not extend to this requirement.
Failure to comply with requirements to report transportation of monetary instruments that includes currency (CMIR) found in 31 USC 5316, 31 CFR 1010.340 (formerly 103.23). Any person The amount of the currency or monetary instruments transported, mailed or shipped less any amount forfeited under the authority of 31 CFR 1010.830 (formerly 103.58). 31 USC 5321(a)(2),
31 CFR 1010.820(f) (formerly 103.57(f))
4.26.7.3.4 (06-20-2012)
Willful Violation of Other Duties
Under 31 USC 5314, 31 CFR 1010.360 (formerly 103.25) establishes a procedure under which the Secretary of the Treasury may issue regulations requiring designated financial institutions to report certain financial transactions with designated foreign financial agencies. Notice of such reporting requirements need not be published in the Federal Register, but notice must be served personally upon the affected financial institution(s).
A Geographical Targeting Order (GTO) to report or record may be issued under 31 USC 5326, 31 CFR 1010.370 (formerly 103.26). The Secretary, upon the Secretary's own initiative or at the request of an appropriate Federal or state law enforcement official, may issue an order requiring any domestic financial institution or group of domestic financial institutions in a geographic area, and any other person participating in the type of transaction, to file a report in the manner and to the extent specified in the order, if it is found that reasonable grounds exist for concluding that additional recordkeeping and/or reporting requirements are necessary to carry out the purposes of the BSA.
Special measures, including reporting, recordkeeping, and prohibited transactions that are specially ordered under 31 USC 5318A for one or more domestic financial institutions and domestic financial agencies, may be required after a finding by the Secretary that a jurisdiction, financial institution, or transaction is of primary money laundering concern. Special Measures for some entities appear in the regulations at 31 CFR 1010.651 (formerly 103.186) et. seq.
Financial institutions and agencies that engage in private banking or offer correspondent accounts to foreign entities, for example a credit union or an agent of a foreign financial institution, must establish due diligence (or in some cases, enhanced due diligence), policies, procedures, and controls that are reasonably designed to detect and report instances of money laundering through those accounts, especially when special measures apply. 31 USC 5318(i), 31 CFR 1010.610 and 1010.620 (formerly 103.176 and 103.178). Correspondent accounts for foreign shell banks are prohibited, 31 USC 5318(j), 31 CFR 1010.630 (formerly 103.177). Both sections 5318 and 5318A are viewed as complementary international counter money laundering provisions and share the same penalty, 31 USC 5321(a)(7).
The information-sharing rules of section 314 of the USA PATRIOT Act allowed the Secretary to make conforming regulations that have been issued as part of 31 CFR Chapter X (formerly Part 103). For this reason IRS does have examination authority, 31 CFR 1010.810 (formerly 103.56). The regulations are found in 31 CFR 1010, Sub Part E. A report to FinCEN is required if a positive "hit" is found after a request for information is made through FinCEN from law enforcement. No report is required for information-sharing among financial institutions, although there are mandatory procedures.
A financial institution's anti-money laundering (AML) program must comply with section 314(a) requirements if that financial institution is subject to those requirements.
Failure to report a transaction with a foreign financial agency required by regulations under the authority of 31 CFR 1010.360 (formerly 103.25), for violations occurring prior to 10/23/04. Specified financial institutions that are required to provide such reports by a regulation promulgated under 31 CFR 1010.360(a) (formerly 103.25(a)). The greater of:
The amount (not to exceed $100,000) of the transaction or
31 USC 5321(a)(5),
31 CFR 1010.820(g) (formerly 103.57(g))
Failure to report a transaction with a foreign financial agency required by regulations under the authority of 31 CFR 1010.360 (formerly 103.25) for violations occurring after 10/22/2004 Specified financial institutions that are required to provide such reports by a regulation promulgated under 31 CFR 1010.360(a) (formerly 103.25(a)). The greater of:
50 percent of the amount of the transaction.
Up to the greater of the amount involved in the transaction (not to exceed $100,000) or $25,000. 31 USC 5321(a)(1), 31 CFR 1010.820(f) (formerly 103.57(f))
Failure to comply with any special measures order issued under 31 USC 5318A. Any domestic financial institution or agency An amount equal to not less than twice the amount of the transaction but not more than $1,000,000. 31 USC 5321(a)(7)
Failure to comply with due diligence requirements for financial institutions having a private banking or correspondent account for a foreign person set forth at 31 USC 5318(i) or prohibition of managing a correspondent account with a foreign shell corporation 31 USC 5318(j) and at 31 CFR 1010.605-630 (formerly 103.175-178). Any financial institution or agency included in 31 USC 5318(i). An amount equal to not less than twice the amount of the transaction, but not more than $1,000,000. 31 USC 5321(a)(7)
Failure to comply with the information sharing rules regarding reporting by Sec. 314 of the USA PATRIOT Act and found at 31 CFR 1010, Subpart E (formerly Part 103, Subpart H).
Any financial institution, as defined in 31 CFR 1010.505 (formerly 103.90) and
$25,000 31 USC 5321(a)(1)
Failure to follow procedures for information sharing required by Sec. 314 of the USA PATRIOT Act and found at 31 CFR 1010, Subpart E (formerly Part 103, Subpart H). Financial institution or association of financial institutions Loss of Safe Harbor Protections given in the act. Public Law 107–56 Sec. 314,
31 CFR 1010.540(b)(5) (formerly 103.110(b)(5))
4.26.7.3.5 (06-20-2012)
Structuring and Related Prohibited Actions
Structuring requires showing a purpose or intent to avoid specific requirements of the BSA. These specific requirements are listed in 31 USC 5324:
Recordkeeping by creating and maintaining records for the issuance or sale of a bank check, cashier's check, traveler's check, or money order of $3,000 or more or any regulation prescribed under any section (31 USC 5325)
Reporting or recordkeeping imposed by any order issued under section 5326, geographical targeting order reports or records
Recordkeeping imposed by any regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91-508 (that affect Title 12 and are not under IRS BSA examination authority)
The Secretary of the Treasury is authorized by 31 USC 5321(a)(4) to impose a civil money penalty on any person who violates any provision of section 5324. A civil penalty for the above actions relating to structuring regarding the CTR (31 CFR 1010.314 (formerly 103.63)) is found in the regulations at 31 CFR 1010.820(e) (formerly 103.57(e)).
IRS does not have examination authority under 31 CFR 1010.810(b)(8) (formerly 103.56(b)(8)), which delegates examination authority over financial institutions to examine individuals for structuring unless they themselves are included in the definition of financial institution – for example, an MSB customer (who is the sole proprietor of an MSB) purchasing money orders from another MSB.
Structuring transactions, or taking related actions in violation of 31 USC 5324, 31 CFR 1010.314 (formerly 103.63) Any person The amount of coins and currency involved in the transaction for which such penalty is imposed, reduced by the amount of any forfeiture to the United States in connection with the transaction for which the penalty was imposed. 31 USC 5321(a)(4)
31 CFR 1010.820(e) (formerly 103.57(e))
4.26.7.3.6 (06-20-2012)
Anti-Money Laundering Program Violations
The Secretary of the Treasury may require a class of domestic financial institutions or nonfinancial trades or businesses to maintain appropriate procedures to ensure compliance with the BSA and its regulations or to guard against money laundering. 31 USC 5318(a)(2).
All financial institutions must establish anti-money laundering (AML) programs, 31 USC 5318(h). Those financial institutions required to have AML programs appear in the regulations at 31 CFR Chapter X (formerly 31 CFR Part 103). However at the present time, regulations have not been adopted for some types of financial institutions and they are currently exempted from this requirement. 31 CFR 1010.205 (formerly 103.170).
Every bank is required to have a written customer identification program. 31 CFR 1020.220 (formerly 103.121). For most, it is part of their AML program. Although a credit union under IRS examination authority is not required to have an AML program, it is required, as a bank, to have a customer identification program. A bank must create and retain, for five years, certain customer records as a part of its customer identification program.
Failure to establish an anti-money laundering (AML) compliance program under 31 USC 5318(h) and various regulations appearing at 31 CFR Chapter X (formerly Part 103).
For a violation of section 5318(a)(2) of this title or a regulation prescribed under section 5318(a)(2), a separate violation occurs for each day the violation continues and at each office, branch, or place of business at which a violation occurs or continues. 31 USC 5321(a)(1)
Failure to establish a written customer identification program 31 CFR 1020.220 (formerly 103.121), which includes failure to create and retain records of customer identification.
4.26.7.3.7 (06-20-2012)
MSB Registration Violations
The failure to comply with the MSB registration requirement includes failure to retain a copy of the registration or agent list.
A person who fails to register, as required by 31 CFR 1022.380 (formerly 103.41), is subject to a penalty of $5,000 per day, whether or not the failure to register was willful.
The instructions to Registration of Money Services Businesses, FinCEN Form 107, define "owner or controlling person" for purposes of responsibility to register to include, for a corporation, "the largest single shareholder." The instructions also provide that if two or more persons own equal numbers of shares of a corporation, they can enter into an agreement to determine who will register the corporation. See the instructions to Form 107 for additional information.
Failure to comply with any requirements of 31 USC 5330 or 31 CFR 1022.380 (formerly 103.41) that is registration of a money services business. Any person who is required to comply. $5,000 per day 31 USC 5330(e),
31 CFR 1022.380(e) (formerly 103.41(e))
4.26.7.4 (06-20-2012)
Civil penalties vary depending on intent. There may be a violation, but the penalty amount depends on whether the person was negligent, or willfully or intentionally violated legal requirements.
There is no overall definition of intent in the BSA. The common law (case law) definitions of negligence and intent are used to establish which penalties are appropriate.
In determining intent, generally one looks to the knowledge of the person involved. This includes knowledge of the facts involved and knowledge of legal requirements relating to those facts.
Intent is determined by analyzing all the facts and circumstances of the case and it is often shown by circumstantial evidence. The BSA examiner must thoroughly document facts on the issue of intent.
4.26.7.4.1 (06-20-2012)
There are two principal areas where a reasonable person would exercise care for financial reporting and recordkeeping. A reasonable business person would normally:
Negligence is the lack of reasonable cause for a failure to use the care normally expected in the same or similar circumstances. For additional suggestions on the type of facts that establish negligence, see the Penalty Handbook, IRM 20.1.1.3.1.
4.26.7.4.3 (06-20-2012)
Two steps in establishing willfulness are:
Establishing knowledge of the law, and
4.26.7.4.3.1 (06-20-2012)
An apparent violator’s knowledge about applicable legal requirements may be an indicator of willfulness if those requirements are not met. Knowledge may be established in several ways.
Notification by IRS:
The Letter 1052 describes the BSA requirements of most businesses in general. When receipt of the Letter 1052 has been acknowledged, knowledge is established.
Actions of the apparent violator:
Previously filed reports.
Education by principals for whom the violator is acting as an agent. Many financial institutions have training programs to inform their agents about BSA reporting and recordkeeping requirements.
Education by the business community:
Many businesses belong to business organizations that have newsletters and handbooks relating to BSA requirements.
4.26.7.4.3.2 (06-20-2012)
Indications of Willfulness
A showing of willfulness by the apparent violator that causes a failure to report or keep records is based on the facts and circumstances of each case.
Failure to file required reports - Evidence of willful failure to report may include:
Filings on some transactions but not on others, especially where the unreported transactions involved the same individual(s).
Failure to maintain required records - Evidence of willful failure to record includes:
Documentary evidence that the same individual conducted multiple transactions within a very short period of time so it was clear that the transactions were related and should have triggered a recordkeeping requirement.
Evidence that the records were false and the violator must have known-- for example, retention of a photocopied identification document, which differs from the information provided on the form.
4.26.7.5 (06-20-2012)
IRS Criminal Investigation has BSA criminal examination authority under 31 CFR 1010.810(c)(2) (formerly 103.56(c)(2)) except for examinations related to the CMIR, which are examined by Customs. If an examination has criminal potential, see IRM 4.26.8, Special Procedures. Most Federal BSA criminal penalties are provided for in 31 USC 5322 and 31 CFR 1010.840 (formerly 103.59).
18 USC 1960 provides for criminal penalties for certain MSBs for failure to comply with the state licensing requirements or with the registration requirement for MSBs under 31 USC 5330 and 31 CFR 1022.380 (formerly 103.41).
4.26.7.6 (06-20-2012)
) BSA criminal and civil forfeiture authority was moved by section 372 of the USA PATRIOT Act from Title 18 to 31 USC 5317(c). The code at 31 USC 5317(c)(2) provides for civil forfeiture proceedings. The code provision is quite broad. Any property involved in a violation of Sections 5313 (currency reporting requirements), 5316 (exporting and importing monetary instruments), or 5324 (criminal structuring), or any conspiracy to commit such violation, and any property traceable to any such violation or conspiracy, may be seized and forfeited to the United States. The Secretary of the Treasury has discretionary authority to remit or mitigate the forfeiture.
Forfeiture authority under related regulation 31 CFR 1010.830 (formerly 103.58) is narrower in that it mentions neither the CTR nor the structuring transactional amounts. This regulation provides only that any currency or other monetary instruments, which are in the process of any transportation and for which a report (the CMIR) is required under section 1010.340 (formerly 103.23), are subject to seizure and forfeiture to the United States if the report has not been filed or contains material omissions or misstatements.
Generally, a BSA examiner can, with appropriate issuance approval, serve a BSA civil summons for the purpose of BSA civil examinations. See IRM 4.26.8, Special Procedures for summons procedures. However, for the purpose of perfecting seizures and forfeitures related to BSA civil enforcement, the Chief, Criminal Investigation. or a delegate must authorize summons issuance, 31 CFR 1010.912(b) (formerly 103.72(b)).
Amounts seized and forfeited reduce penalties assessed for violation of the reporting requirements regarding exporting and importing monetary instruments, 31 USC 5321(a)(2), 31 CFR 1010.820(d) (formerly 103.57(d)) and the structuring prohibitions, 31 USC 5321(a)(4), 31 CFR 1010.820(e) (formerly 103.57(e)).
Customs has forfeiture authority along with its examination authority over the CMIR, 31 CFR 1010.810(b)(7) (formerly 103.56(b)(7)). It also has authority to examine for criminal violations of the CMIR requirements, 31 CFR 1010.810(c)(1) (formerly 103.56(c)(1)).