Taxpayer Education and Communication Small Business/Self Employed Operating Division Presented by: David Vicente TEC Anti-Money Laundering Specialist Money

Taxpayer Education and CommunicationTaxpayer Education and CommunicationSmall Business/Self Employed Operating Small Business/Self Employed Operating

DivisionDivision

Presented by: David VicentePresented by: David VicenteTEC Anti-Money Laundering SpecialistTEC Anti-Money Laundering Specialist

Money Laundering Money Laundering PreventionPrevention

Internal Revenue Service

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ObjectivesObjectives

• Introduce the SB/SE Introduce the SB/SE AAnti-nti-MMoney oney LLaundering (aundering (AMLAML) program) program

• Overview of Overview of AML AML lawlaw


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Money LaunderingMoney Laundering

• Engaging in financial Engaging in financial transactions to disguise:transactions to disguise:

– OriginOrigin– True natureTrue nature– Ownership of illicit fundsOwnership of illicit funds

• $$1 1 to to $$33 trillion laundered trillion laundered worldwide annuallyworldwide annually

• Tax evaders / criminals use Tax evaders / criminals use large cash payments to large cash payments to ”launder” money from illegal ”launder” money from illegal activitiesactivities


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Ways to Launder MoneyWays to Launder Money

• Through legitimate businessesThrough legitimate businesses

• Illegal businessesIllegal businesses

• Off-shore shell companiesOff-shore shell companies

• Trading in gold, diamonds, Trading in gold, diamonds, gemsgems

• SmugglingSmuggling

• Underground banking systemsUnderground banking systems


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33 Stages of Money Stages of Money LaunderingLaundering

3. Integration3. Integration

2. Layering2. Layering

1. Placement1. Placement

Cash converted to monetary instruments

Deposited in financial institutions accounts

Cash converted to monetary instruments

Deposited in financial institutions accounts

Funds moved to other financial institutions to obscure originFunds moved to other financial institutions to obscure origin

Funds used to acquire legitimate assets Fund further activities

Funds used to acquire legitimate assets Fund further activities


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StructuringStructuring

A series of related transactions:A series of related transactions:• that a person could have conducted as that a person could have conducted as

one transaction one transaction

andand• intentionally broke into several intentionally broke into several

transactions in order to fall outside the transactions in order to fall outside the BSA reporting requirementsBSA reporting requirements


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StructuringStructuring

• Can be done:Can be done:– Within a business Within a business – Within a geographic area Within a geographic area – By purchasing multiple monetary By purchasing multiple monetary

instrumentsinstruments– By conducting the transactions over By conducting the transactions over

several daysseveral days– Using one or more individuals to Using one or more individuals to

obtain cash payments or make cash obtain cash payments or make cash transactionstransactions


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Structuring Structuring ExamplesExamples

• Two or more customers work together to Two or more customers work together to break one transaction into several break one transaction into several transactionstransactions

• Purchase monetary instruments just Purchase monetary instruments just under the reporting threshold:under the reporting threshold:– Over several days orOver several days or– At two or more locations of different At two or more locations of different

branches of same money services branches of same money services business on same or different days business on same or different days


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BBank ank SSecrecy ecrecy AAct (ct (BSABSA))

• Congress passed the Congress passed the Bank Secrecy ActBank Secrecy Act in in 1970 – Title 31 1970 – Title 31

• USA PATRIOT ActUSA PATRIOT Act (2002) strengthened law (2002) strengthened law

• Reporting and recordkeeping required Reporting and recordkeeping required establishes a financial trail where typically establishes a financial trail where typically none existednone existed


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ImportanceImportance of BSA Reports of BSA Reports

• Protect your business from being exploited Protect your business from being exploited by money launderersby money launderers

• Identifies potential illegal activitiesIdentifies potential illegal activities– Tax evasionTax evasion– Money launderingMoney laundering– Financial fraud and abuseFinancial fraud and abuse– Terrorist financingTerrorist financing

• Detects / prevents flow of illicit fundsDetects / prevents flow of illicit funds• Identifies emerging threats through trend Identifies emerging threats through trend

analysisanalysis


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BSA ReportsBSA Reports

Reports are filed at the Reports are filed at the Detroit Computing Center Detroit Computing Center – Entered inEntered in CCurrency andurrency and BBankinganking

RRetrieval System (etrieval System (CBRSCBRS) ) – Filed reports create an audit trail for Filed reports create an audit trail for

cashcash


MMoney oney SServices ervices BBusiness usiness ((MSBMSB))


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A MSB is a business that offers one or more of the A MSB is a business that offers one or more of the following services:following services:

• Money orders Money orders • Check cashingCheck cashing• Currency dealing or exchange Currency dealing or exchange

ANDAND

The business conducts more than The business conducts more than $1,000$1,000 in money in money services business activity with the same person services business activity with the same person

(in one type of activity) on the same day(in one type of activity) on the same day

OROR• The business provides money transfer services in The business provides money transfer services in

any amountany amount

• Traveler’s checksTraveler’s checks• Stored valueStored value


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MSB MSB RegistrationRegistration

• Required to register with FinCEN Required to register with FinCEN – MSBs established before 12/2001 - by MSBs established before 12/2001 - by

December 2001December 2001– MSBs established after 12/2001 - 180 days to MSBs established after 12/2001 - 180 days to

registerregister

• MSBs not required to register:MSBs not required to register:– Branch or agent of an MSB, Post Office and Branch or agent of an MSB, Post Office and

Fed/State governments Fed/State governments – MSBs that provide only stored value cardsMSBs that provide only stored value cards

• Failure to register - Failure to register - $5,000$5,000 each day/5- each day/5-yearsyears


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MSB Required to:MSB Required to:

Renew registration with Renew registration with FinCENFinCEN– Every two years Every two years – By December 31By December 31

First renewals due 12/31/03First renewals due 12/31/03


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RecordkeepingRecordkeeping

MSB must retain for MSB must retain for fivefive years: years:

– Copy of filed registrationCopy of filed registration– Estimate of business Estimate of business

volumevolume– Ownership and control Ownership and control

informationinformation– Agent listAgent list


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MSB Also Required to:MSB Also Required to:

• Report transactions over $10,000 – CTRReport transactions over $10,000 – CTR

• File Suspicious Activity ReportsFile Suspicious Activity Reports

• Implement an AML compliance programImplement an AML compliance program


SSuspicious uspicious AActivity ctivity RReports eports ((SARSARs)s)


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MSB required to file a SAR when it knows / MSB required to file a SAR when it knows / suspects that: suspects that:

• Source of Source of fundsfunds derived derived from illegal activityfrom illegal activity or or conducted to conducted to disguise fundsdisguise funds from illegal activity from illegal activity

• Transaction Transaction structuredstructured to evade BSA requirements to evade BSA requirements

• Appears to serveAppears to serve no no known known businessbusiness or apparent or apparent lawful purposelawful purpose

• UsesUses the the MSB MSB to to facilitate criminal activityfacilitate criminal activity

SARSAR


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MSBs Who Must File MSBs Who Must File SARSAR

• Issuers of traveler’s checks or money Issuers of traveler’s checks or money ordersorders

• Sellers / redeemers of traveler’s checks Sellers / redeemers of traveler’s checks or money orders or money orders

• Money transmittersMoney transmitters

• Currency exchangersCurrency exchangers


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SAR Filing SAR Filing ThresholdThreshold

For transactions conducted by money For transactions conducted by money services businesses:services businesses:

• Involves or aggregates funds of Involves or aggregates funds of $2,000$2,000 or moreor more

• Involves or aggregates funds of Involves or aggregates funds of $5,000$5,000 or more that are identified from a or more that are identified from a review of clearance recordsreview of clearance records


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• File within File within 30 days30 days of becoming aware of a of becoming aware of a suspicious transaction suspicious transaction

• Keep the SAR and supporting Keep the SAR and supporting documentation for documentation for five yearsfive years

• Penalties may be assessed if required SAR Penalties may be assessed if required SAR forms are not filed forms are not filed

• File within File within 30 days30 days of becoming aware of a of becoming aware of a suspicious transaction suspicious transaction

• Keep the SAR and supporting Keep the SAR and supporting documentation for documentation for five yearsfive years

• Penalties may be assessed if required SAR Penalties may be assessed if required SAR forms are not filed forms are not filed

SAR SAR


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Compliance ProgramCompliance Program


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• USA PATRIOT Act Section 352 - USA PATRIOT Act Section 352 -

Financial institutions must establish anti-Financial institutions must establish anti-money laundering programsmoney laundering programs

• ““Financial institution” includes entities Financial institution” includes entities already subject to federal regulation such already subject to federal regulation such as:as:– BanksBanks– Money services businessesMoney services businesses– Registered securities broker-dealers Registered securities broker-dealers – Futures commission merchantsFutures commission merchants


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• ““Financial institution” now includes businesses, Financial institution” now includes businesses, which have not been subject to federal which have not been subject to federal regulationregulation

• FinCEN is considering new regulations for:FinCEN is considering new regulations for:– Dealers in precious metals, stones, or jewelsDealers in precious metals, stones, or jewels– Real estate closings and settlementsReal estate closings and settlements– Vehicle sales Vehicle sales – Travel agencies Travel agencies – Insurance agenciesInsurance agencies


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Compliance Program Must IncludeCompliance Program Must Include

• System of internal controls to ensure System of internal controls to ensure ongoing complianceongoing compliance

• Independent audit functionIndependent audit function

• Training of personnelTraining of personnel

• Designation of a compliance officerDesignation of a compliance officer

• Procedures for using all available Procedures for using all available information to complyinformation to comply


Form 8300Form 8300

Report of Cash Payments Report of Cash Payments

Over $10,000 Over $10,000

Received in a Trade or Received in a Trade or BusinessBusiness


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WhoWho Must File Form 8300 Must File Form 8300

• IndividualIndividual

• CompanyCompany

• CorporationCorporation

• Partnership Partnership

• AssociationAssociation

• Trust Trust

• EstateEstate

In a trade or business In a trade or business who receives who receives more more

than $10,000than $10,000 in cash in cash in a single or related in a single or related

transactionstransactions


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Form 8300Form 8300

• Use the revised formUse the revised form for all for all transactions after December 31, 2001 transactions after December 31, 2001

– Revised - December 2001Revised - December 2001

– Known as IRS/FinCEN Form 8300Known as IRS/FinCEN Form 8300

• File within File within 15 15 days of paymentdays of payment

• Penalty for non-compliance Penalty for non-compliance


RReport of eport of FForeign oreign BBank and ank and FFinancial inancial AAccounts (ccounts (FBARFBAR))

TD F 90-22.1 TD F 90-22.1


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FBARFBAR

• Reporting obligation even if the Reporting obligation even if the accounts produce no taxable income accounts produce no taxable income

• FinCEN delegated authority to assess FinCEN delegated authority to assess penalties to IRSpenalties to IRS

• SB/SE Compliance conducts reviews on SB/SE Compliance conducts reviews on FBAR filing requirements and assesses FBAR filing requirements and assesses penaltiespenalties


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Who Must File Who Must File FBARFBAR

• A US person with a financial interest in A US person with a financial interest in a foreign account a foreign account andand

• The foreign financial account is The foreign financial account is over over $10,000$10,000 at any time during the year at any time during the year

Must Must filefile an an FBARFBAR by by June 30June 30 of the of the following yearfollowing year


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SB/SE Compliance AML SB/SE Compliance AML StructureStructure• Compliance territory manager identified in Compliance territory manager identified in

each Area (16) has AML responsibilityeach Area (16) has AML responsibility

• 3333 AML Compliance groups AML Compliance groups

• 350350 full time examiners to ensure that full time examiners to ensure that quality examinations are conductedquality examinations are conducted

• Current emphasis - increased enforcementCurrent emphasis - increased enforcement


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Identify Cases for ExaminationIdentify Cases for Examination

• Use published servicesUse published services

• Internet researchInternet research

• Analysis of Analysis of CCurrency and urrency and BBanking anking RRetrieval etrieval SSystem (ystem (CBRSCBRS) information) information

• Reliance on information received during Reliance on information received during examsexams

• Information from Criminal InvestigationInformation from Criminal Investigation


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Title 31 BSA ExaminationTitle 31 BSA Examination

Receipt of appointment letter 3493 and Form 4564, Receipt of appointment letter 3493 and Form 4564, IInformation nformation DDocument ocument RRequest (equest (IDRIDR) for:) for:

• Written policy statements Written policy statements

• Monthly bank statementsMonthly bank statements

• Daily and monthly work records, Daily and monthly work records, summaries and reconciliationssummaries and reconciliations

• Copies of filed BSA reportsCopies of filed BSA reports


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• Not an income tax auditNot an income tax audit

• Each type of financial service is examined Each type of financial service is examined separatelyseparately

• Power of Attorney (POA) – Power of Attorney (POA) – – Use a general power of attorney valid Use a general power of attorney valid

under state law under state law – Cannot use Form 2848Cannot use Form 2848


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• Owner / manager / employees Owner / manager / employees interviewed who:interviewed who:

– Handle cash transactions and money Handle cash transactions and money transmissionstransmissions

– Are responsible for filing BSA reportsAre responsible for filing BSA reports

– Review day to day complianceReview day to day compliance

– Are responsible for operating or Are responsible for operating or supervising AML compliance programsupervising AML compliance program


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Title 31 BSA Examination – Title 31 BSA Examination – Interview FocusInterview Focus

• Policies and proceduresPolicies and procedures• Internal controls and cash controlsInternal controls and cash controls• BSA knowledgeBSA knowledge• Related entitiesRelated entities• Compliance programsCompliance programs• TrainingTraining• Method of keeping books and recordsMethod of keeping books and records• Internal approval authorityInternal approval authority• Reporting and recordkeeping responsibilitiesReporting and recordkeeping responsibilities


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Title 31 BSA Examination – Title 31 BSA Examination – Interview ContentInterview Content• Presence and effectiveness of:Presence and effectiveness of:

– AML compliance program and AML compliance program and – Internal controls Internal controls

• Procedures used to ensure that the Procedures used to ensure that the information in the reports and records is information in the reports and records is complete and accurate complete and accurate

• Training of employees relative to:Training of employees relative to:– BSA regulations and BSA regulations and – Any written or oral policies or procedures Any written or oral policies or procedures

regarding cash transactions and money regarding cash transactions and money transmissionstransmissions


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Title 31 BSA Examination –Title 31 BSA Examination –Interview ContentInterview Content

• Amount of cash on hand, sources and Amount of cash on hand, sources and uses of cash, and cash controls uses of cash, and cash controls

• Local competition/competitors offering Local competition/competitors offering the same or similar servicesthe same or similar services

• Type of computer system usedType of computer system used

• Any related entitiesAny related entities


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ClosingClosing Title 31 BSA Title 31 BSA ExaminationExamination• Notification of Apparent Violation, Letter Notification of Apparent Violation, Letter

1112, is issued when violations are:1112, is issued when violations are:– Technical, minor, infrequent, isolated, or not Technical, minor, infrequent, isolated, or not

substantive and the violations do not meet the substantive and the violations do not meet the criteria for referral to Treasurycriteria for referral to Treasury

– Report of Findings and Recommendations Report of Findings and Recommendations details apparent violations and necessary details apparent violations and necessary corrective actionscorrective actions

– Acceptance statementAcceptance statement

• Penalties assessed by FinCENPenalties assessed by FinCEN• To appeal penalties, file suit in federal courtTo appeal penalties, file suit in federal court


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IRS 8300 ReviewIRS 8300 Review

Receipt of appointment letter 2277 and Form 4564, Receipt of appointment letter 2277 and Form 4564, IInformation nformation DDocument ocument RRequest (equest (IDRIDR) for:) for:

• Checking / savings account recordsChecking / savings account records• Deposit slips for checking / savings Deposit slips for checking / savings

accountsaccounts• Sales journal, accounts and notes Sales journal, accounts and notes

receivable recordsreceivable records• InvoicesInvoices• Cash receipts journalCash receipts journal


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• Not an income tax examination Not an income tax examination

• Power of Attorney (POA) – Use Form 2848Power of Attorney (POA) – Use Form 2848

• Owner / manager / employees interviewedOwner / manager / employees interviewed

• Books and records inspectedBooks and records inspected


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IRS 8300 Review – IRS 8300 Review – Interview FocusInterview Focus

• Who is responsible to file 8300s / handle cashWho is responsible to file 8300s / handle cash• 8300 and 6050I knowledge8300 and 6050I knowledge• Internal controls for cash transactionsInternal controls for cash transactions• Number and types of bank accountsNumber and types of bank accounts• Types of records maintainedTypes of records maintained• If any 8300s have been filedIf any 8300s have been filed• Procedures to ensure 8300 complete / correctProcedures to ensure 8300 complete / correct• Procedures to notify customers Procedures to notify customers • Related entitiesRelated entities


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Inspect books / records for:Inspect books / records for:

• Transactions involving the receipt of Transactions involving the receipt of reportable cash in excess of $10,000reportable cash in excess of $10,000

• Consecutive or related reportable Consecutive or related reportable transactions in excess of $10,000transactions in excess of $10,000

• Ensure that Forms 8300 correctly / timely Ensure that Forms 8300 correctly / timely filedfiled


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ClosingClosing the 8300 Review the 8300 Review

• Determinations madeDeterminations made

• Closing conferenceClosing conference

• No closing letter issuedNo closing letter issued

• If unagreed, IRS appeals process and tax If unagreed, IRS appeals process and tax court rightscourt rights


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ResourcesResources

• WebsitesWebsites

www.msb.govwww.msb.gov

www.fincen.govwww.fincen.gov

www.irs.govwww.irs.gov


Presented by: David Vicente TEC Anti-Money Laundering Specialist

Phone: (510) 637-2199

Email: [email protected]

Presented by: David Vicente TEC Anti-Money Laundering Specialist

Phone: (510) 637-2199

Email: [email protected]

Taxpayer Education and CommunicationTaxpayer Education and CommunicationSmall Business/Self Employed Operating Small Business/Self Employed Operating DivisionDivision

Taxpayer Education and CommunicationTaxpayer Education and CommunicationSmall Business/Self Employed Operating Small Business/Self Employed Operating DivisionDivision


QuestionsQuestions

Documents

Taxpayer Education and Communication Small Business/Self Employed Operating Division Presented by: David Vicente TEC Anti-Money Laundering Specialist Money