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Part 4. Examining Process

Chapter 26. Bank Secrecy Act

Section 6. Bank Secrecy Act Examiner Responsibilities

4.26.6  Bank Secrecy Act Examiner Responsibilities

4.26.6.1  (11-14-2006)
Overview

  1. The purpose of the Bank Secrecy Act (BSA) examination is to:

    • Determine a financial institution’s compliance with the Federal government’s anti-money laundering (AML) statutes and regulations, with an emphasis on AML program requirements;

    • Examine financial institutions for BSA compliance, with an emphasis on conducting a risk-based analysis of the entity under examination, and on examining the AML compliance program within the financial institution as well as selective transaction-based testing, to determine if the financial institution has the appropriate internal controls in place to enforce BSA compliance in a consistent and effective manner; and,

    • Identify areas of noncompliance with the BSA as manifest in AML program operations and in business operations (including trends, patterns, or schemes designed to evade the filing of any required reports or recordkeeping).

  2. The BSA examiner is responsible for:

    1. Identifying non-bank financial institutions (NBFIs) and forwarding the information to the Workload Selection Unit (WSU).

    2. Examining financial institutions for BSA compliance. Civil and criminal penalties may be applicable for those that are noncompliant.

    3. Advising financial institutions under IRS jurisdiction of their BSA responsibilities in connection with a BSA examination.

  3. For purposes of IRC 6103, the BSA examiner is essentially working for the Department of the Treasury, and not as an IRS employee, thus he/she cannot access tax returns or tax return information.

4.26.6.2  (11-14-2006)
Identification

  1. The BSA coordinator is responsible for the identification of NBFIs subject to the registration, reporting, recordkeeping, and compliance program requirements under the BSA. The BSA examiner is responsible for assisting in the identification of NBFIs.

  2. The BSA examiner may assist in the identification by use of the following sources. This list is not all inclusive:

    1. Field contacts

    2. Physical observation

    3. Neighborhood publications

    4. Trade or business associations

  3. When in the field, the BSA examiner should continually look for new NBFIs, which may not be included in the Title 31 database.

  4. During each interview, the BSA examiner should inquire as to the identity of local competitors in the area. The BSA examiner should provide all names of identified entities to the BSA coordinator to ensure they are included in the Title 31 database.

4.26.6.2.1  (11-14-2006)
Notification After Identification

  1. A copy of Letter 1052, Notification of Possible IRS Check to Verify Maintenance of Required Records and Filing Reports ( http://publish.no.irs.gov/catlg.htm), should be issued by the WSU to newly identified entities and a copy retained in the administrative file. If the business states that they did not receive it, the examiner should issue another copy to the business. IRM 4.26.6.3.1(4)

4.26.6.3  (11-14-2006)
Education

  1. The BSA examiner is responsible for ensuring that the financial institution is informed of the reporting, registration, recordkeeping, and compliance program requirements of the BSA.

  2. All requests for educational outreach to financial industry groups or large audiences must be first forwarded through the BSA group manager to the appropriate BSA Stakeholder Liaison BSA Specialist.

4.26.6.3.1  (11-14-2006)
Education During a BSA Examination

  1. Education is an ongoing process and an integral part of each BSA examination, since the regulations under 31 CFR 103 continually change.

  2. The BSA examiner needs to determine if the financial institution continues to qualify as a NBFI.

  3. If the financial institution is a NBFI, the BSA examiner has an opportunity to:

    1. Discuss the reporting, recordkeeping, and compliance program requirements applicable to the financial institution;

    2. Provide current applicable forms and publications;

    3. Discuss the procedures for filing timely, accurate, and complete reports;

    4. Discuss Money Services Business (MSB) registration requirements, if applicable;

    5. Discuss Suspicious Activity Reporting;

    6. Discuss obligations and responsibilities in combating money laundering;

    7. Discuss potential structuring transactions; and,

    8. Discuss potential civil and criminal penalties.

  4. When conducting a BSA examination, the BSA examiner must verify and document in the administrative file that the financial institution received the Letter 1052, Notice of Possible IRS Check to Verify Maintenance of Required Records and Filing Reports. The BSA examiner should determine who received the letter, when it was received, and if the information was shared with all office personnel who routinely conduct the currency transactions of the financial institution. A copy of Letter 1052 should be retained in the administrative file. If the financial institution states that they did not receive it, the BSA examiner should reissue the letter to the financial institution. If the BSA examiner determines that the financial institution has changed ownership or legal status, the BSA examiner must contact Criminal Investigation (CI) to secure clearance prior to the issuance of a Letter 1052 to the financial institution along with notifying the BSA coordinator. The Letter 1052 should be signed by the BSA examiner if the BSA examiner issues the letter.

4.26.6.4  (11-14-2006)
BSA Examinations

  1. The BSA examiner will determine if there are weaknesses or BSA violations, assist the financial institution to understand the BSA requirements, and encourage compliance.

  2. Compliance is determined by conducting BSA examinations.

  3. The focus during the BSA examination is to determine if the NBFI has an effective AML compliance program to detect and deter money laundering.

  4. The emphasis is on a risk-based analysis by examining the AML compliance program within the financial institution. This is followed by selective transaction-based testing to determine if the AML compliance program for the financial institution is effective and that the financial institution has the appropriate internal controls in place to enforce BSA compliance in a consistent and effective manner.

  5. The examiner will refer serious or repeated BSA violations to FinCEN or law enforcement for remedial action or penalties as appropriate.

  6. The BSA examiner must always be alert to potential money laundering schemes, as well as failures to file required reports, to maintain required records, and to have an effective AML compliance program.

4.26.6.4.1  (11-14-2006)
Preplan

  1. A quality BSA examination begins with a thorough preplan. The scope and depth of the BSA examination will depend upon the facts and circumstances in each case.

  2. At a minimum, a preplan should consist of:

    1. Researching the Currency and Banking Retrieval System (CBRS) to determine:

    • The financial institution’s filing history

    • The cash transactions between the financial institution and a bank or other financial institutions

    • If any BSA reports have been filed by or on behalf of the NBFI and/or officers

    • Any incomplete or inaccurate documents filed, lack of filings, timeliness of filings, and any unusual or questionable transactions

    • Copies of any research conducted should be included in the administrative file. (Reminder: SARs not filed by the financial institution under examination cannot be revealed to or discussed with such financial institution. Refer to IRM 4.26.4.) For more information on CBRS, refer to Section 4.

  3. A preplan should also at a minimum consist of:

    1. Reviewing the historical administrative file for any prior BSA correspondence, educational contact, or compliance examination if available. The BSA examiner should especially note the employee’s knowledge of the BSA and areas of noncompliance, as well as review any reports, letters, referrals, or any corrective action documented by the financial institution within the administrative file.

    2. Verifying the NBFI has been previously notified via Form Letter 1052 and has been included in the Title 31 database.

    3. Reviewing state and local laws and regulations pertaining to NBFIs. Determine if they require any records useful in the BSA examination.

    4. Researching the Internet, information available from the appropriate state agencies, UCC filings, etc. for any available information on the NBFI.

    5. Ensuring that the administrative file contains documentation of CI's clearance.

    6. Obtaining and reviewing copies of internal audits or external agency audits or reviews specific to BSA policies, procedures, or operations.

    7. Obtaining and reviewing copies of compliance programs of the entity subject to examination, including but not limited to:

    • BSA compliance policies and procedures

    • BSA specific operations policies and procedures

    • BSA training

    • Monitoring

    • Reporting policies and procedures.

  4. The steps taken during pre-planning, as outlined in 2(a) through 3(g) must be documented in the administrative file. The BSA examiner should complete workpaper #110 Pre-Plan Analysis. IRM 4.26.6.4.8.4 provides guidelines for the development of workpaper content and organization. These guidelines are provided to promote quality and consistency in workpapers and should be used when conducting a Title 31 examination.

  5. The BSA examiner must not use any Integrated Data Retrieval System (IDRS) information in preplanning or while conducting a BSA examination.

  6. While conducting the BSA examination, the BSA examiner is essentially working for the Treasury Department and cannot access tax returns or tax return information according to IRC 6103.

4.26.6.4.1.1  (11-14-2006)
Scope and Depth

  1. The scope and depth of the BSA examination should be sufficient to assure the BSA examiner that the financial institution being examined is:

    1. Subject to BSA;

    2. Has a written AML compliance program that meets statutory and regulatory requirements;

    3. Is implementing a written AML compliance program that meets the statutory and regulatory requirements and that would identify structured transactions, trends and patterns of structuring, and other suspicious activities; and,

    4. Is in compliance with all other applicable BSA recordkeeping and reporting requirements.

  2. The scope and depth of each BSA examination will depend on the facts and circumstances in each case. Factors which should be considered are inadequate records, poor internal control, unusual currency flows, or possible violations found.

  3. The scope and depth will be documented in the administrative file.

  4. The scope and depth should emphasize a top-down examination process. Evaluate the financial institution's adequacy and effectiveness of its internal controls, training and audit testing. Determine if the controls and procedures in place for the computer and manual systems are reasonable to ensure compliance with BSA.

  5. The content of the pre-plan will depend in part upon whether the exam target is a national entity or an agent of the national entity. An examination of a national entity will be more complex, and should focus primarily on the AML compliance program. For exams of agents, utilize the national entity to assist in identifying agents with the largest volumes as possible exam targets.

  6. AML compliance program evaluations/examinations are usually accomplished in three stages:

    1. Review the adequacy of the written AML program;

    2. Determine whether the written program, or the program requirements of the BSA have been adequately implemented; and,

    3. Assess whether breakdowns in the program, or any element thereof, places the institution at risk for BSA violations, money laundering, or other financial crimes.

  7. The scope and depth of a BSA examination should initially include the most current 6-month period. The reason for choosing the most current period is that the BSA examiner and the Treasury need to know the financial institution’s current compliance level.

  8. The selected period can include high volume periods, or a period related to certain known events. When selecting the period, consider that peak business activity periods may vary for the different types of financial services offered which may result in different periods selected for each service.

  9. If significant BSA program deficiencies are discovered, the examination should articulate the exact nature of the program deficiency(s) (e.g., internal controls, training, audit, designated personnel). This will reduce the need for an extensive transaction test approach. For example, if after examining 3 months of records, it was determined that a financial institution had adequate internal controls, independent testing, designated personnel, and training, all of which are designed to ensure BSA compliance, the examination or transaction testing period could be limited to the 3 months examined without further selective transaction-based testing of the full 6 months. If no serious violations or anomalies were detected during this period, the examination should be closed. If the financial institution lacks an adequate compliance program, or the examiner detects problems during the 3-6 month review period, the examination period should be expanded appropriately.

  10. If the financial institution has been previously examined and only minor deficiencies were noted, a more limited scope examination should be considered.

  11. Factors to consider in determining the appropriate scope of the BSA examination include:

    1. Whether the IRS previously conducted a BSA examination.

    2. Whether a prior examination revealed significant BSA compliance program deficiencies, or recordkeeping or reporting deficiencies.

    3. Whether there are any outstanding orders or agreements between FinCEN and the institution.

    4. Whether any civil penalties have been assessed against the institution in the last three years.

    5. Whether there have been significant increases or decreases in the levels of BSA reports filed in the last 12 months.

    6. Whether CBRS reflects currency transactions inconsistent with the nature of financial services offered.

    7. Whether CBRS indicates large currency transactions with respect to the financial institution, but few currency transaction reports (CTRs) filed by the financial institution.

    8. Whether the IRS or FinCEN have received tips from law enforcement or state, local, or tribal regulatory agencies about the financial institution.

    9. Whether the financial institution is referenced in SARs filed by other financial institutions.

    10. Whether the financial institution is located within a High Intensity Drug Trafficking Area (HIDTA) or High Intensity Financial Crime Area (HIFCA).

    11. For casinos, whether a relatively small number of Currency Transaction Reports by Casinos (CTRCs) were filed in comparison with the casino’s gross annual gaming revenue.

    12. For currency exchangers, the examiner can select the period based on the review of the cash and teller reconciliations. The examiner should review the bank, the cash, and the teller reconciliations to identify large transactions. Look for increases or decreases in the amount of ending cash on hand or amounts deposited in or withdrawn from the correspondent bank.

  12. As BSA examiners identify potential recordkeeping or reporting violations, additional steps should be taken to document the transactions and establish that the financial institution had both knowledge of the transaction and knowledge of the reporting requirements.

  13. Only the apparent violations, which have actually been detected during the time period of the BSA examination, are considered for inclusion on a Letter 1112 (Title 31 Violation Notification Letter) or Form 5104 (Report of Apparent Violation of Financial Recordkeeping and Reporting Regulations). At no time, should the BSA examiner include any apparent violations that have possibly occurred in time periods outside the scope of the examination without expanding the scope.

  14. The depth of the BSA examination includes those transactions that may reasonably give rise to a BSA reporting, registration, recordkeeping, or compliance program requirement.

  15. Statistical sampling, while helpful for evaluating the internal controls of the financial institutions with respect to BSA compliance, may not be effective if there are too few transactions to make the sample meaningful. However, in examinations of the largest financial services institutions, statistical sampling can be a useful technique when used in conjunction with examinations of all transactions of a defined timeframe.

  16. If a financial institution has several branches or locations and potential violations are identified at one, the BSA examiner should consult with the BSA coordinator and manager to consider conducting BSA examinations at the additional branches or locations.

4.26.6.4.1.1.1  (06-01-2005)
Risk Analysis

  1. Risk analysis is the required approach when starting the exam, evaluating the AML compliance program, and expanding/contracting the scope and depth of an examination. It is the process used to decide "Is it worthwhile to examine this issue" .

  2. The BSA examiner should focus on entities that have the highest risk for non-compliance with BSA reporting and recordkeeping requirements, and to spend the least amount of resources on those entities in compliance.

  3. The BSA examiner should emphasize evaluating the financial institution’s adequacy and effectiveness of internal controls, training, and internal monitoring, including those computer and other systems, controls and procedures in place to reasonably to ensure compliance with the BSA

  4. If internal controls, internal monitoring, designation of compliance personnel, and training are adequate, the transaction testing period could be limited.

  5. If the financial institution lacked an adequate compliance program or failed to implement their program, or the examiner detected problems during the 3-6 month review period, the examination period could be expanded appropriately.

  6. It is not intended that the BSA examiner examine every transaction for the current 3-6 month period. Selective transaction-based testing should be done.

  7. The BSA examiner should compare the potential benefits to be derived from expanding the scope and depth of an examination to the resources required to perform the examination, and the potential outcome generated from expanding/contracting the scope. The objective of risk analysis is to focus the examination on issues of merit.

  8. The examiner should determine if identifying additional violations would improve compliance or change the conclusion of the examination ( Form 5104 or CI Referral vs. L-1112).

  9. The BSA examiner should determine the compliance impact being the inherent character of the item, evidence of potential for risk for money laundering, intent to mislead.

  10. The BSA examiner will analyze risk at various stages throughout the compliance examination.

  11. IRM 4.26.6.4.1.1 Scope and Depth refers to risk based auditing in several sections:

    • Emphasize a top-down exam process;

    • AML compliance program examination;

    • Scope to include the most current 6-month period;

    • Factors to consider in determining appropriate scope; and,

    • Document changes to the scope of an examination.

4.26.6.4.1.2  (11-14-2006)
Evaluation of Program, Policies, Procedures, and Internal Controls

  1. Each financial institution must develop and implement a written AML compliance program reasonably designed to assure and monitor compliance with Title 31 regulations (31 CFR 103.125). Determine if a written AML program exists and obtain a copy.

  2. An analysis of the financial institution’s AML compliance program should include a review of the policies, procedures, and internal controls established and implemented to comply with the BSA registration, reporting, and recordkeeping requirements.

  3. The analysis of the written AML compliance program should ensure that it:

    1. Is written and is available for examination;

    2. Designates a Compliance Officer;

    3. Provides for training of appropriate employees;

    4. Provides for testing and evaluation of the effectiveness of the program has been by persons independent of the Compliance Officer

    5. Establishes and implements policies, procedures, techniques, systems, and money laundering or the support of other criminal activity, including terrorist activity;

    6. Is reasonable and appropriate for the business, and is commensurate with the risks posed by the locations, size, and the nature and volume of the financial services provided by the business; and,

    7. Provides for verifying customer identification, filing required reports, creating and retaining records, and responding to law enforcement.

  4. After analyzing the policies, procedures, and internal controls, the BSA examiner should evaluate the compliance program to:

    1. Determine whether the program has been adequately implemented;

    2. Determine whether there has been a systemic breakdown of internal controls or a lack of adherence to policy and procedures to assure compliance;

    3. Determine whether the financial institution was aware of any problems in its compliance program, and whether it took corrective action;

    4. Assess whether any breakdowns in the program could place the financial institution at increased risk of being used by customers who are trying to launder money or commit other types of financial crimes;

    5. Review any updates to the policies, procedures, and internal controls, which were put in effect after the period being examined, but before the examination was concluded;

    6. Identify any weaknesses or deficiencies in the program that could or did result in failures to correctly file required CTRs, other required reports, and/or failure to comply with the BSA recordkeeping and record retention requirements; and,

    7. Establish who has knowledge when a reportable currency transaction occurs. More than one employee may have such knowledge, including employees who did not personally conduct or witness the transaction.

    1. In the case of single transactions over $10,000, this will generally be the person conducting the transaction on behalf of the financial institution.

    2. In the case of multiple currency transactions, which when aggregated exceed the reporting threshold, this person may be a financial institution employee who witnesses the multiple transactions, or an employee who aggregates and reviews the financial institution’s records for multiple transactions.

4.26.6.4.1.3  (11-14-2006)
BSA Examination Techniques

  1. The BSA examiner must determine if the financial institution meets the definition of a Money Services Business (MSB) for each type of financial service or product offered.

  2. If the financial institution provides more than one type of financial service, the BSA examiner must review the records for each type of financial service or product offered, and determine if a written AML compliance program exists which is adequate to cover the added risk involved with providing multiple financial services.

  3. Examination techniques used to conduct BSA examinations will vary significantly depending upon whether the financial institution processes its customer transactions by or through a computer system, and has retained those records in machine-readable form as required by the BSA.

  4. When computer records are available, the BSA examiner should request downloads of records from either the financial institution or the agent’s headquarters to be available at the initial appointment. The BSA examiner should review the data sorted by name, address, and/or phone number fields (or whatever data fields are required) to detect structured transactions, unreported transactions, potential suspicious transactions, errors, and/or deficiencies in the financial institution’s BSA compliance system or program.

  5. If computerized records are available for some transactions but not for others, a combination of manual examination techniques and computer auditing techniques should be utilized.

  6. Use of a Computer Audit Specialist (CAS) must be considered on all BSA examinations if:

    1. A large number of transactions need review;

    2. A large volume of records need review; or,

    3. The NBFI maintains a computerized recordkeeping system.

  7. Assess the AML compliance programs of the entity subject to examination against AML program requirements, including but not limited to: compliance policies and procedures, BSA specific operations policies and procedures, training, monitoring, and reporting policies and procedures.

  8. Review internal audits or external agency audits or reviews specific to BSA policies, procedures, or operations for relevant BSA issues to determine if any deficiencies were identified, any corrective actions were recommended, and if the corrective actions have been implemented.

  9. CBRS should be reviewed to determine if any CTRs, Reports of International Transportation of Currency or Monetary Instruments (CMIRs), SARs, or FBARs were filed in the names of employees, agents, or nominees which may indicate possible unreported transactions.

  10. When violations are found, the BSA examiner should document the facts and circumstances with respect to the violation. BSA examiners should advise the financial institution's management of their findings and solicit an explanation from them as to why each violation occurred.

  11. Refer to IRM 4.26.9 for in-depth BSA examination techniques for various types of NBFIs.

  12. If structured transactions are detected, refer to IRM 4.26.13.

4.26.6.4.1.4  (06-01-2005)
Initial Contact

  1. The initial contact may be made by telephone, letter, or a cold call visit in person. Cold call visits require management approval.

  2. Whether the initial contact is made by letter or telephone call, the BSA examiner will need to:

    • Use the Initial Title 31 Entity Contact Check Sheet during the initial telephone conversation with the entity;

    • Prepare an initial IDR and Letter 3493 Bank Secrecy Act Appointment Letter or Letter 3494 Bank Secrecy Act (Title 31) Casino Appointment; and,

    • Send the appointment letter with the IDR to the entity.

  3. The BSA examiner should complete workpaper #130, Initial Title 31 Entity Contact Check Sheet. IRM 4.26.6.4.8.6 provides guidelines for the development of workpaper content and organization. These guidelines are provided to promote quality and consistency in workpapers and should be used when conducting a Title 31 examination.

  4. Letter 3493, Bank Secrecy Act (Title 31) Appointment Letter, or Letter 3494, Bank Secrecy Act (Title 31) Casino Appointment Letter, should be issued prior to a BSA examination. See Exhibit 4.26.6-2 and See Exhibit 4.26.6-3.

  5. Prior to contacting any tribally-owned entity, the BSA examiner must coordinate with TEGE's office of Indian Tribal Governments (ITG).

  6. The BSA examiner should request the appropriate records on Form 4564, Information Document Request (IDR), and submit this form to the financial institution at the time the initial appointment is scheduled. Examples of IDRs for each type of NBFI are included in IRM 4.26.9. The IDRs are examples that must be expanded or contracted as the facts and circumstances of each BSA examination warrant.

  7. The IDR should request that a copy of the AML compliance program be provided in advance of the appointment. The BSA examiner should review copies of the AML compliance program of the financial institution subject to examination, including but not limited to: BSA compliance policies and procedures, BSA specific operations policies and procedures, BSA training, monitoring, and reporting policies and procedures.

  8. The IDR should also request copies of all internal audits or external agency audits in advance of the appointment. The BSA examiner should review the copies of internal audits or external agency audits or reviews specific to BSA policies, procedures, or operations. The BSA examiner should note any deficiencies reported and corrective actions recommended.

  9. The IDR should also request that a download of computer records be available at the initial appointment. Requesting these computer records prior to the examination will assist the financial institution in securing computer records from their Headquarters if required.

  10. An Examining Officer Activity Record is used to record all contacts with the financial institution and any other case activity. The BSA examiner must document what was discussed with specific personnel and the date(s) of those discussions.

4.26.6.4.2  (11-14-2006)
Initial Appointment Meeting

  1. The BSA examiner should utilize workpaper #135, Initial Appointment Agenda, for the initial meeting. Refer to IRM 4.26.6.4.8.7 for guidelines on the development of workpaper content and organization.

  2. The Title 31 compliance examination should be conducted at the place of business.

  3. The BSA examiner should assess the internal controls of the entity. This should be documented on the Policies, Procedures and Internal Controls Lead Sheet #140.

  4. The AML Compliance Program - Title 31 Lead Sheet is mandatory and requires a conclusion.

  5. The BSA examiner should work with the entity/POA to establish a Mutual Commitment Date (MCD) and determine the number of expected field visits. Record the MCD on the Form 4318. The MCD should be reasonable and attainable.

  6. The BSA examiner should consider the following factors when determining an MCD:

    • Number of anticipated additional visits;

    • Days between visits to get information properly prepared; and,

    • Availability of records.

  7. Notify the manager if there is a need to change the MCD by more than 30 calendar days.

4.26.6.4.2.1  (11-14-2006)
Interview

  1. A thorough interview is essential in conducting a quality BSA examination. It is extremely important for the BSA examiner to establish and document the level of BSA knowledge that the owners, managers, and employees of a financial institution have at the beginning of the BSA examination. Knowledge of the BSA is an important factor in establishing the degree of compliance with the BSA reporting, registration, recordkeeping, and compliance program requirements.

  2. The BSA examiner must prepare a Memorandum of Interview(s) (MOI) at the end of each interview to summarize the significant facts obtained during the interview(s).

  3. The BSA examiner should focus on the following areas during the interview:

    1. Policies and procedures;

    2. Internal controls and cash controls;

    3. BSA knowledge;

    4. Related entities;

    5. AML compliance programs;

    6. Training;

    7. Method of keeping books and records;

    8. Internal approval authority;

    9. Reporting and recordkeeping responsibilities as they relate to the BSA; and,

    10. Management oversight and compliance officers.

  4. The BSA examiner must interview the person(s) responsible for compliance with the BSA including both compliance personnel, and business operations and management personnel. During the interview, the BSA examiner should, at a minimum, inquire as to:

    1. The name and title of officers or employees who handle cash transactions and who are responsible for filing CTR’s;

    2. The specific duties and responsibilities of those individuals;

    3. The responsible persons’ knowledge of the reports and records required under the BSA;

    4. The internal controls of the NBFI with regard to cash transactions (including approval authority by dollar amount);

    5. The types of records maintained on transactions required to be reported on CTRs;

    6. The types of records maintained to meet BSA recordkeeping requirements;

    7. The types of records maintained on all other transactions;

    8. The history of filing CTRs;

    9. The procedures used by the NBFI to ensure that the information contained in the records and reports is complete and accurate;

    10. The amount of cash on hand, sources and uses of cash, and cash controls;

    11. The training of employees relative to BSA regulations and any written or oral policies or procedures regarding cash transactions;

    12. Local competition/competitors offering the same or similar services;

    13. The type of computer system used;

    14. The volume of BSA relevant transactions, both in terms of number of transactions and dollar volume, on a daily, weekly, and monthly basis, with documented variations for such factors as seasonality;

    15. The presence of an AML compliance program with all elements as required by 31 CFR 103.125;

    16. The understanding by staff of the AML compliance program’s function;

    17. The internal controls of the NBFI with regard to suspicious activity reporting, when such reporting is required by the BSA;

    18. The internal (or external) controls in place to ensure compliance with BSA requirements; and,

    19. The processes used internally to identify and correct issues that can lead to compliance problems.

  5. Note that the above list is not all inclusive. Refer to IRM 4.26.9 for a list of possible interview questions.

  6. The BSA examiner should ask open-ended questions throughout the interview. The BSA examiner should not ask questions that require only a " yes" or "no" answer.

  7. The interview should be documented on the Initial Interview Questions and Notes-Title 31. IRM 4.26.6.4.8.7.2 provides guidelines for the development of workpapers content and organization.

4.26.6.4.2.1.1  (06-01-2006)
Developing the Audit Plan

  1. When an in-depth examination is warranted, the BSA examiner should determine whether the financial institution’s records are prepared or processed through a computer system prior to developing the audit plan. If the financial institution’s records are computerized, a Computer Audit Specialist (CAS) should be assigned to the case and involved in the development of the audit plan. Computer assisted auditing techniques identify and aggregate currency transactions with greater precision and overall efficiency.

  2. The audit plan will include procedures for evaluating the financial institutions AML compliance program including its policies, procedures, and internal controls related to compliance. The analysis should be directed to identifying potential weaknesses and deficiencies that may exist in the financial institution’s AML compliance program and that could result in failures to properly file required forms and maintain required records.

  3. The audit plan should also have procedures that will identify employees or customers who may be structuring currency transactions in an effort to circumvent the BSA reporting and recordkeeping requirements.

  4. When conducting examinations at Headquarters, use the Headquarters information to complete a risk based analysis of their agents/branches for possible new examination entities. Risk based analysis should include analyzing discontinued or denied agents/branches.

4.26.6.4.2.2  (06-01-2006)
Group Manager Concurrence Meeting

  1. The Group Manager Concurrence Meeting (GMCM) must occur within 30 calendar days after completion of the initial appointment meeting.

  2. The BSA examiner should schedule the concurrence meeting as soon as the date of the initial appointment is set.

  3. GS-13 BSA examiners are encouraged to utilize a GMCM in order to provide updates on cases and obtain guidance from managers.

  4. GS-12 BSA examiners and below are required to use the GMCM.

  5. The BSA examiner should be prepared to discuss:

    • The initial appointment meeting and MCD;

    • Plan for completing the case; and,

    • Concerns.

  6. The GMCM should be documented on the Group Manager Concurrence Meeting Check Sheet (Workpaper #125)

4.26.6.4.3  (11-14-2006)
Retained Copies of Reports

  1. During a BSA examination, the BSA examiner must inspect retained copies of BSA reports filed by the NBFI to ensure timely, complete, and accurate reporting.

  2. The retained copies must be verified against the CBRS to determine that they were actually filed and to compare the information on the retained report against the CBRS filing.

  3. The retained copies must be requested for all filings within the examination period on CBRS to ensure that the five-year retention requirements have been met.

4.26.6.4.4  (11-14-2006)
Inspection of Books and Records

  1. The review of books and/or records as well as policies and procedures is critical in order to measure the degree of compliance with the BSA. (Refer to IRM 4.26.5.)

  2. The BSA examiner must utilize the required records, including AML program records, maintained by the NBFI to determine the level of compliance.

  3. The BSA examiner must be alert to situations which may be an attempt to evade the reporting requirements, such as:

    1. A single transaction structured as multiple transactions of $10,000 or less;

    2. Currency transactions structured to appear as non-currency transactions, i.e., the issuance of a check to the customer by a financial institution which then cashes the check for the customer; or,

    3. A pattern or series of transactions of $10,000 or less conducted over a period of time by or for the same person. (Refer to IRM 4.26.13 for an in-depth discussion on structuring).

4.26.6.4.5  (11-14-2006)
Lack of Records

  1. When the BSA examiner determines that records are lacking or inadequate, it may be necessary to request records from banks and other third parties.

  2. The BSA examiner can request that the NBFI obtain the information from the third-party record keeper.

  3. Where possible, the BSA examiner should request third-party information on Form 4564, IDR. A copy of all Forms 4564 must be maintained in the BSA examination administrative file.

  4. Third party contact notification (IRC section 7602 (c)(1)) is not applicable in BSA examinations.

  5. If the third party will not accept the request on Form 4564, the BSA examiner should consider issuing a Treasury Summons, TD F 90-22.31. (Refer to IRM 4.26.8 for Treasury summons procedures.)

  6. The BSA examiner must discuss lack of records and the recordkeeping requirements with the appropriate official(s) of the financial institution. This discussion should address the impact of the lack of records on the effectiveness of the AML compliance program and on the ability of the officials to monitor their own compliance with BSA requirements.

4.26.6.4.6  (11-14-2006)
Delinquent BSA Forms Acquisition Procedures

  1. During a BSA examination, the BSA examiner may find that the financial institution failed to file required reports. How delinquent forms will be secured will be determined by the BSA examiner on a case by case basis. Refer to IRM 4.26.8. for an in-depth discussion on securing delinquent BSA Forms.

4.26.6.4.7  (11-14-2006)
Closing the Examination

  1. If no BSA violations have been found, then prepare the closing letter Letter 4029. Close the administrative file to the manager following the procedures in IRM 4.26.6.4.9.

  2. The BSA examiner must discuss apparent violations with the manager. If BSA violations are found which are technical, minor, infrequent, isolated, or not substantive and such violations do not meet the criteria to FinCEN under the Referral Guidelines, a Letter 1112, Title 31 Violation Notification Letter, should be issued. See IRM 4.26.8.

  3. If apparent BSA violations are found which meet the referral criteria cited in IRM 4.26.8, the apparent violations should be discussed with the manager who may recommend preparing a Form 5104, Report of Apparent Violation of Financial Recordkeeping and Reporting Regulations (where criminal referral is not recommended) or Form 2797, Referral Report of Potential Criminal Fraud Cases (where criminal referral is recommended). See IRM 4.26.8.

  4. If information is discovered which may be considered for a possible income tax examination, prepare Form(s) 5346 , Examination Information Report(s). See IRM 4.26.6.5.

4.26.6.4.7.1  (11-14-2006)
Processing the Administrative Case File

  1. The administrative file should be assembled using the current BSA lead sheet package and the file should be forwarded to the group manager (see procedures below).

  2. After review, the manager will forward the administrative file as directed by the WSU.

4.26.6.4.8  (11-14-2006)
Workpapers

  1. This section provides guidelines for the development of workpaper content and workpaper organization. These guidelines are provided to promote quality and consistency in BSA examiner workpapers.

  2. BSA examination workpapers should fully disclose the scope, depth, time period covered and techniques used during the compliance examination. The workpapers should be neat, legible, concise, well organized, and provide an adequate audit trail.

  3. The BSA examiner must prepare a summary memorandum detailing the results of the BSA examination. The summary memorandum should briefly summarize the facts and circumstances and steps the NBFI has agreed to take to correct the violations.

  4. The BSA examiner should include all BSA lead sheets and documents that support the BSA examination conclusions. Examples of supporting documents are:

    1. Bank account records such as bank statements, deposit tickets, copies of cashed checks or deposited items;

    2. Cash receipts journals and other internal control records;

    3. Copies of CTRs, FBARs, CTRCs, SARs, Suspicious Activity Reports by Casinos and Card Clubs (SARCs) and CMIRs;

    4. MSB registration form and acknowledgement letter;

    5. Daily cash reconciliations;

    6. Customer control cards;

    7. Wire transfer send and receive forms; and,

    8. Money order daily sales summaries.

4.26.6.4.8.1  (11-14-2006)
Automated Workpapers

  1. The proper use of a computer can improve the quality and efficiency of conducting an examination through the use of automated workpapers.

  2. The BSA examiner should use the computer to prepare workpapers using the Title 31 Master Template found on the BSA Website in a way that will most efficiently and effectively document the examination process.

  3. The Title 31 Master Template is located on the BSA Website at http://sbse.wsb.irs.gov/FR/BSA/Reengineering/default.htm

4.26.6.4.8.2  (11-14-2006)
Workpaper Format

  1. Standard tools are used to document the BSA examiner’s decisions. Tools include lead sheets, check sheets, workpapers, letters, and IDRs, and the Quick Reference Guides to Tools.

  2. Tools have these features in common:

    • Each tool has it own reference number based on its category.

    • The tools are placed in the administrative file based on the reference number.

  3. The tools’ numbering system is:

    Numbering Series Category
    100s Administrative and Planning
    200s Memoranda
    300s Title 31 Issues
    400s Violations
    500s Miscellaneous

  4. A workpaper reference number is required when comments or calculations are made on a separate lead sheet or workpaper.

  5. Each lead sheet is self-contained; it includes all facts, law, conclusions, and entity position for that issue.

  6. Form 4318 is now an index for all case documents.

  7. The Input Sheet is the first place to go (after creating the entity folder) to prepare a case for examination. Using the Input Sheet means that the examiner does not need to fill in the entity’s information on each of the tools that the examiner uses. The entity’s information is automatically entered onto tools in the folder.

4.26.6.4.8.3  (11-14-2006)
Workpaper #105 Administrative Plan to Close Lead Sheet

  1. The BSA examiner should use workpaper #105, Administrative Plan to Close Lead Sheet, as a guide for the exam planning phase.

  2. The Administrative Plan To Close Lead Sheet consists of the following steps:

    • Keeps the examiner focused on a plan to close;

    • Keeps the examiner organized;

    • Lets the examiner know what the next steps are;

    • Lists all the steps that need to be completed;

    • Makes sure the examiner has completed the steps in each section before proceeding to the next one; and,

    • Ensures that the examiner is prepared to go to the next step.

  3. The Administrative Plan To Close Lead Sheet consists of the following steps:

    • Preplan

    • Securing Power of Attorney

    • Initial Contact

    • Examination Process

    • Referrals/Notification

    • Case Closing

    • Additional Items

  4. The Administrative Plan To Close Lead Sheet:

    • Keeps the examiner focused on a plan to close;

    • Keeps the examiner organized;

    • Lets the examiner know what the next steps are;

    • Lists all the steps that need to be completed;

    • Makes sure the examiner has completed the steps in each section before proceeding to the next one; and,

    • Ensures that the examiner is prepared to go to the next step.

4.26.6.4.8.4  (11-14-2006)
Workpaper #110 Pre-Plan Analysis

  1. The first item on the Administrative Plan to Close Lead Sheet is Pre-Plan.

  2. This is where the examiner will:

    • Create the Form 4318 Exam Workpaper Index

    • Create Activity Record Form 9984

    • Use Pre-Plan Analysis Lead Sheet

  3. Workpaper #110, Pre-Plan Analysis, can be found in the Primary Case Folder.

  4. In conducting the exam pre-plan, the SA examiner will:

    • Review case built materials;

    • Review and analyze CBRS;

    • Protect SARs not filed by the financial institutions under examination;

    • Review the historical case file;

    • Prepare initial interview notes tailored for the financial institution and services provided; and

    • Develop the examination plan.

4.26.6.4.8.5  (11-14-2006)
Form 4318 Exam Workpaper Index-Title 31

  1. The first step under "Pre-Plan" is to create the Form 4318, Exam Workpaper Index.

  2. The primary purpose of a Form 4318is to serve as a Table of Contents for all documentation connected with the administrative file.

  3. Form 4318 can be found in the Primary Case Folder.

4.26.6.4.8.5.1  (11-14-2006)
Form 9984-Activity Record

  1. Form 9984 is used to record all contact with the financial institution and any other case activity. The BSA examiner must document what was discussed with specific personnel and the date(s) of those discussions.

  2. The BSA examiner should complete the items in the header that are not pre-filled from the Input Sheet:

    • Date assigned/opened

    • Taxpayer’s Business Name and Address

    • Taxpayer’s Phone Number - Residence and Business

    • Representative has POA/TP’s Authorization (if applicable)

4.26.6.4.8.5.2  (11-14-2006)
Develop the Exam Plan

  1. The last bulleted item on the "Pre-Plan Analysis Lead Sheet" is "Develop the Exam Plan" .

  2. In developing the exam plan, the BSA examiner will:

    • Prepare and complete to the extent possible the mandatory lead sheets; and

    • Prepare and complete to the extent possible issue specific lead sheets.

  3. Examination steps must be tailored for the industry and the depth of the issue. Examination steps can be adjusted after the initial appointment.

4.26.6.4.8.5.3  (11-14-2006)
Mandatory Lead Sheets

  1. Each of the mandatory tools is indicated on the Form 4318.

  2. Mandatory tools can be found in the Primary Case Folder.

  3. The BSA examiner should refer to the Quick Reference Guide to Tools to determine which tools are mandatory.

4.26.6.4.8.5.4  (11-14-2006)
Lead Sheets

  1. Issues specific lead sheets have been created for several BSA issues and can be located in the Title 31 Master Template in the Issues Specific Lead Sheets folder.

  2. The BSA examiner should tailor the examination steps to the entity. Adjustment(s) can be made after the initial appointment.

4.26.6.4.8.6  (11-14-2006)
Workpaper #130 Initial Title 31 Contact Check Sheet

  1. The third item on the Administrative Plan to Close Check Sheet-Title 31 is to utilize the Initial Title 31 Entity Contact Sheet.

  2. The BSA examiner should use the Initial Title 31 Entity Contact Check Sheet when:

    • Calling the entity on the phone for the first time;

    • Preparing and mailing Letter 3493, Bank Secrecy Act (Title 31) Appointment Letter or Letter 3494 Bank Secrecy Act (Title 31) Casino Appointment; or,

    • Performing a cold call visit.

  3. Workpaper 130, Initial Title 31 Entity Contact Check Sheet, can be found in the Primary Case Folder.

  4. Letter 3493, Bank Secrecy Act (Title 31) Appointment Letter or Letter 3494, Bank Secrecy Act (Title 31) Casino Appointment Letter, can be found in the Letters and Agreements Folder.

4.26.6.4.8.6.1  (11-14-2006)
Initial Title 31 IDR (Form 4564)

  1. The BSA examiner should prepare the initial IDR using the information recorded on the Initial Entity Contact Check Sheet during the telephone conversation with the entity.

  2. Form 4564 can be found in the Information Documents Requests Folder.

  3. IDRs are numbered in the upper right hand corner (Request Number).

  4. The BSA examiner should save the completed IDR to the Primary Case Folder.

4.26.6.4.8.7  (11-14-2006)
Examination Process

  1. The fourth step under the Administrative Plan to Close Lead Sheet is Conduct the Examination Process.

  2. This Examination Process includes:

    • Completing and updating the Risk Analysis workpaper;

    • Using the Initial Appointment Agenda as a guide for the meeting;

    • Completing the Initial Interview Questions lead sheet.

4.26.6.4.8.7.1  (11-14-2006)
Workpaper #135 Initial Appointment Agenda

  1. The second item under the Examination Process on the Administrative Plan to Close Lead Sheet is use of the Initial Appointment Agenda.

  2. The BSA examiner should use the Initial Appointment Agenda as a guide for the meeting.

  3. Workpaper #135, Initial Appointment Agenda, can be found in the Primary Case Folder.

4.26.6.4.8.7.2  (11-14-2006)
Workpaper #205 Initial Interview Questions

  1. The last item under the Examination Process is the Initial Interview Questions lead sheet.

  2. When preparing the interview questions, the BSA examiner should tailor questions to the entity and issues.

  3. The BSA examiner should keep a list of questions for the entity that occur when preparing the exam plan.

  4. Record questions on workpaper #205, Initial Interview Questions and Notes.

  5. The title of the Initial Interview Questions and Notes lead sheet has a hyperlink to an intranet site that has guidance for completing the lead sheet.

  6. Workpaper #205, Initial Interview Questions and Notes, can be found in the Primary Case Folder.

4.26.6.4.9  (11-14-2006)
Administrative File

  1. In order to create a well organized, professional case file, the workpapers in the case file should be arranged in the numbering sequence shown on Form 4318, Exam Workpaper Index-Title 31 (top to bottom).

  2. The number sequence is:

    Numbering Series Category
    100s Administrative and Planning
    200s Memoranda
    300s Title 31 Issues
    400s Violations
    500s Miscellaneous

  3. Inside left hand side of case file

    1. Computer CD or Disk if applicable

  4. Enclose the following forms (if applicable):

    1. Case Control Document (CCD)

    2. Competitor's List for Workload Selection Unit (WSU)

    3. Original Form 5346's, if applicable

    4. Copy of Letter 1112, Title 31 Violation Notification Letter, and any attachments. See IRM 4.26.8.

    5. Copy of Form 5104, Report of Apparent Violation of Financial Recordkeeping and Reporting Regulations, and all attachments. See IRM 4.26.8.

    6. Copy of Form 13639, Fraudulent Intent Referral Memorandum (FIRM);

    7. Copy of Form 2797, Referral Report of Potential Criminal Fraud Case;

    8. "To Be Opened by Addressee Only" Envelope with SARs should be secured in To Be Opened by Addressee Only Envelope and Document 6441 (a coversheet for documents requiring protection) must be attached to the outside of the envelope; and

    9. Form 4318 package.

  5. SARs, where the filer is not the financial institution under examination, will be treated as confidential information related to a case and must be protected from unauthorized disclosure. The SARs should be secured in "To be Opened by Addressee Only" envelope and Document 6441 (a coversheet for documents requiring protection) is to be used as a cover sheet to alert others to the sensitive nature of the information. (Reminder: SARs not filed by the financial institution under examination cannot be revealed to or discussed with such financial institution. Refer to IRM 4.26.4.)

4.26.6.4.9.1  (11-14-2006)
Administrative File Using Automated Workpapers

  1. The BSA examiner should verify that the completed tools have been saved into the primary case folder:

    • Form 4318

    • Mandatory workpapers

    • Lead sheets

    • IDRs

  2. Each tool should be numbered and named according to the issue worked on.

  3. The BSA examiner should copy the primary case folder (after decryption) to a CD or disk to be included in the administrative file.

  4. The entity folder should be deleted from the computer once saved to a disk or CD.

  5. Attach the Case Control Document to the administrative file folder.

  6. Enclose referral forms.

4.26.6.5  (11-14-2006)
Examination Information Report, Form 5346

  1. Information discovered during the BSA examination may be used for other purposes when the information has a "high degree of usefulness in criminal, tax, or regulatory investigations or proceedings... the conduct of intelligence or counter-intelligence activities, including analysis, to protect against domestic and international terrorism."

  2. The BSA examiner should not request records during a BSA examination for any purpose other than for conducting the BSA examination. Information is not to be requested during a BSA examination for tax compliance purposes.

  3. If information is developed during the BSA examination that warrants referral for a possible tax examination, the BSA examiner should complete the Form 5346, Examination Information Report, on the customer or the financial institution, as applicable. (Access Form 5346 at http://publish.no.irs.gov/catlg.htm).

  4. Some examples of transactions that may warrant submitting a Form 5346 are:

    1. Large cash deposits with inadequate records;

    2. The lack of cash deposits by a financial institution that usually generates large amounts of cash;

    3. Any other suspicious transaction that indicates the correct amount of income may not have been reported for Title 26 purposes; and,

    4. Potential structuring cases.

  5. The following project codes should be used on leads generated from BSA examinations ( Forms 5346):

    1. Project Code 441 should be used on the income tax examination resulting from the lead.

    2. Project Code 147 should be used if the income tax case is referred for fraud.

    .

4.26.6.6  (11-14-2006)
Information Items

  1. Any information acquired during a BSA examination which is not an apparent BSA violation, but that warrants referral to CI will be forwarded by memorandum. The memorandum is sent from the group manager to the Special Agent in Charge (SAC) as an information item. A copy of the memorandum should be forwarded to the Territory Manager.

  2. Apparent BSA violations committed by banks or other financial institutions which are not under the jurisdiction of IRS Compliance, but have been identified during a BSA examination, should be submitted to FinCEN as follows:

    1. Prepare an IRS memorandum and attach all supporting documentation.

    2. Submit the information item using the same procedures as a 5104 referral. (Refer to IRM 4.26.8.)

4.26.6.7  (11-14-2006)
Safety

  1. Safety of the BSA examiner should be a primary concern when conducting a BSA examination. If there is a safety concern, there are several options available to the BSA examiner:

    1. Notify the BSA manager and Criminal Investigation.

    2. Manager may direct the examiner to team up with another BSA examiner to complete the BSA examination.

    3. Ask the financial institution to bring all records to the IRS office.

    4. Follow IRS safety procedures.

4.26.6.8  (11-14-2006)
Technical Assistance

  1. The BSA examiner should contact the group manager with any questions pertaining to the BSA or if technical and/or procedural assistance is needed.

  2. If necessary, the group manager will contact the BSA Policy Technical Advisors or Analysts for additional assistance. If needed, Technical Advisors and Analysts will forward a formal question to FinCEN through the BSA Policy Liaison to FinCEN. The response will be relayed back to the BSA group manager.

4.26.6.9  (11-14-2006)
BSA Program Web Site

  1. The BSA examiner should frequently access the BSA program web site to obtain the most current program information.

  2. The web site address is http://sbse.web.irs.gov/FR/BSA/default.htm.

4.26.6.10  (11-14-2006)
Activity Code

  1. Time spent on BSA activities should be charged to Activity code 591.

4.26.6.11  (11-14-2006)
Power of Attorney

  1. The use of Form 2848, Power of Attorney and Declaration of Representative, is not appropriate for BSA examinations. Refer to IRM 4.26.8 for instructions regarding the appropriate Power of Attorney for BSA examinations.

4.26.6.12  (11-14-2006)
Disclosure

  1. The IDRS contains Title 26 income tax information and must not be accessed for BSA purposes.

  2. UNAX is always a consideration. The BSA examiner should only access information that is necessary and relevant to the BSA examination.

  3. Refer to IRM 4.26.14 14 for an in-depth discussion on disclosure.

Exhibit 4.26.6-1  (11-14-2006)
Notification of Possible IRS Check to Verify Maintenance of Required Records and Filing Reports, Letter 1052

Here is the link to Letter 1052.

Exhibit 4.26.6-2  (11-14-2006)
BSA Appointment Letter, Letter 3493

Here is the link to Letter 3493.

Exhibit 4.26.6-3  (11-14-2006)
BSA Casino Appointment Letter, Letter 3494

Here is the link to Letter 3494.

Exhibit 4.26.6-4  (11-14-2006)
Examination Information Report, Form 5346

Here is the link to Form 5346.


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