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Part 4. Examining Process

Chapter 26. Bank Secrecy Act

Section 1. Introduction

4.26.1  Introduction

4.26.1.1  (11-17-2006)
Overview

  1. This section contains policies and procedures for the IRS Bank Secrecy Act (BSA) Program.

  2. This chapter assists BSA examiners to evaluate compliance with the BSA, including anti-money laundering compliance program implementation and operation, as well as the reporting and recordkeeping requirements of the Bank Secrecy Act (Title 31) and IRC section 6050I.

  3. The examination methods and techniques are not all-inclusive. Cases are subject to factual development and substantiation from the documentation connected with each transaction. Examiners should adapt these procedures, as necessary, to the particular case under examination.

  4. Civil anti-money laundering statutes are found in two separate titles of the United States Code:

    • 31 USC 5311 and following (Title 31), commonly referred to as the Bank Secrecy Act (BSA), and

    • 26 USC 6050I (Title 26), Internal Revenue Code.

  5. Congressional intent behind the various anti-money laundering statutes, as stated in 31 USC 5311, is to "require certain reports or records where they have a high degree of usefulness in criminal, tax or regulatory investigations or proceedings or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism. "

4.26.1.1.1  (11-17-2006)
Definition

  1. Money laundering can be defined in several ways. Simply put, money laundering is the process of converting funds from illegal activities, to conceal their origin, true nature, or ownership, into funds which appear to have a legal source.

  2. Once money becomes "dirty," it must be converted into a legitimate form before it can be spent. Money laundering is not a single act. It is a three step process:

    1. Placement is the physical movement of currency derived from illegal or illicit activities and its introduction into traditional or nontraditional financial institutions, into the retail economy, or into foreign countries (e.g. smuggling). The goal of the launderer is to move cash from its source and transform it to another asset without being detected. The currency or money is vulnerable to detection and seizure during the placement stage.

    2. Layering is the conducting of multiple complex financial transactions to make it difficult to trace the proceeds from their illegal or illicit source. Layering disguises or eliminates the audit trail of the funds. The purpose of layering is to hide the audit trail as well as the source and ownership of funds.

    3. Integration is the introduction of funds derived from illegal or illicit activities back into the economy with the appearance of normal business earnings or providing a legitimate- appearing explanation for financial wealth. It is extremely difficult to distinguish between legitimate and illicit or illegal funds at this stage.

4.26.1.2  (11-17-2006)
Authority

  1. Authority for the IRS to conduct the BSA examinations is found in:

    1. 31 CFR 103.56(b)(8) gives the Commissioner, IRS, the delegated authority to examine certain financial institutions to determine compliance with BSA requirements. See Exhibit 4.26.1-1.

    2. Treasury Directive 15-41 delegates to the Commissioner the authority to conduct BSA examinations of certain financial institutions and to " assure compliance." See Exhibit 4.26.1-2.

    3. Title 26: 26 USC 7601,"Canvass for Taxable Persons and Objectives " and 26 USC 7602, "Examination of Books and Witnesses. "

4.26.1.3  (11-17-2006)
Program Goals

  1. As a partner in the Department of Treasury national anti-money laundering efforts, the IRS goal is to examine for and increase compliance with the BSA anti-money laundering laws and regulations. See also IRM 4.26.2.4.

  2. This goal will be accomplished by:

    1. Identifying those financial institutions and non-financial trades or businesses that have responsibilities under the BSA or IRC 6050I;

    2. Assisting financial institutions (not federally regulated) and non-financial trades and businesses for which IRS has oversight to understand their role in combating money laundering and how to meet their financial obligations under the BSA or IRC 6050I.

    3. Conducting compliance examinations, assuring appropriate BSA programs are established and implemented and that the financial institutions are in compliance with all applicable BSA anti-money laundering compliance program, recordkeeping, and reporting requirements. This includes the filing of Currency Transaction Reports (CTRs) and Suspicious Activity Reports (SARs).

    4. Actively participating in coordinated multi-agency anti-money laundering initiatives such as Geographic Targeting Orders(s) (GTOs), High Intensity Drug Trafficking Areas (HIDTAs), and High Intensity Money Laundering and Related Financial Crimes Areas (HIFCAs) designed to disrupt and dismantle money laundering organizations.

4.26.1.4  (11-17-2006)
Information Sources

  1. Internal and external sources of information are available to assist examiners in accomplishing program goals.

4.26.1.4.1  (11-17-2006)
Training Materials

  1. IRS training materials include:

    • Title 31 Training

    • 8300 Training

4.26.1.4.2  (11-17-2006)
Anti-Money Laundering Related Government Web Sites

  1. The IRS SB/SE BSA web site at http://sbse.web.irs.gov/FR/ provides information about the operation and administration of the BSA Program.

  2. The IRS Criminal Investigation web site is at http://www.hq.irs.gov/ci/Default.asp. Search the web site for "BSA" or "money laundering. "

  3. For information on Title 31 issues related to tribal entities, the Tax Exempt/Government Entities (TEGE), the Indian Tribal Governments web site is at http://tege.staging.web.irs.gov/templates/TribalHome.asp.

  4. The SB/SE Stakeholder Liaison (formerly Taxpayer Education and Communication TEC) web site for BSA outreach and education materials is at http://sbse.web.irs.gov/CL2/SL.

  5. The U.S. Department of the Treasury Financial Crimes Enforcement Network (FinCEN) web site is at http://www.fincen.gov. Users need to subscribe to FinCEN QuickNews to receive notification e-mails of important changes to FinCEN's public internet site. There is also a related website at www.msb.gov.

  6. The U.S. Department of the Treasury Office of Foreign Asset Control (OFAC) web site is http://www.treas.gov/offices/enforcement/ofac/.

  7. The Financial Action Task Force (FATF) is an inter-governmental body whose purpose is the development and promotion of national and international policies to combat money laundering and terrorist financing - http://www.fatf-gafi.org/.

4.26.1.4.3  (11-17-2006)
Publications

  1. Other BSA publications include:

    • Document 7919, Money Laundering from the Federal Perspective, published by the IRS Office of Chief Counsel, is available at http://www.publish.no.irs.gov/catg.html.

    • Government Accounting Office (GAO) reports relating to BSA are available at http://www.gao.gov/ . Search the web using "BSA" or "AML. "

    • Financial Crimes Enforcement Network (FinCEN) publications are available on the FinCEN web site at http://www.fincen.gov or www.msb.gov .

    • Treasury Inspector General for Tax Administration (TIGTA) reports relating to BSA are available at http://www.treas.gov/tigta/. Search the web using "BSA" or "AML."

4.26.1.4.4  (11-17-2006)
Commercial Sources

  1. Commercial sources include:

    • Research services, for example, Commerce Clearing House (CCH), Lexis-Nexis, Westlaw

    • Trade association publications, for example, Money Laundering Alert, National Association of Money Transmitters, ACAMS, FIU - Egmont, etc.

Exhibit 4.26.1-1  (11-17-2006)
31 CFR 103.56

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Exhibit 4.26.1-2  (11-17-2006)
Department of the Treasury Directive 15–41

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