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Part 4. Examining Process

Chapter 26. Bank Secrecy Act

Section 7. Penalties

4.26.7  Penalties

4.26.7.1  (11-17-2006)
Overview

  1. The Bank Secrecy Act (BSA) as amended and related regulations at 31 CFR 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.

  2. Although, generally, the BSA examiner does not propose penalties arising from the violations, the elements of each violation must be known in order to determine which facts are relevant to the examination process.

4.26.7.2  (11-17-2006)
Penalty Authority

  1. 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 103.56. Authority for IRS to examine certain financial institutions for compliance with 31 CFR 103 is delegated to the IRS, 31 CFR 103.56(b)(8). See Exhibit 4.26.1-1.

  2. 31 CFR 103.56(c)(2) provides IRS Criminal Investigation (CI) with jurisdiction to investigate all criminal violations except those of 31 CFR 103.23 (Reports of Transportation of Currency or Monetary Instruments, CMIR). Customs investigates violations of the CMIR. 31 CFR 103.56(c)(1). Courts impose criminal penalties.

4.26.7.3  (11-17-2006)
Civil Penalties

  1. 31 USC 5321 provides overall civil penalty provisions for any violation 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.

  2. 31 CFR 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.

  3. Other Code provisions and regulations provide for civil penalties for violations of special BSA requirements. For example, 31 USC 5330 and 31 CFR 103.41(e) provide for civil penalties for failure to register a money services business.

4.26.7.3.1  (11-17-2006)
Negligence

  1. 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); CFR 10357(H). A chart of negligent violations follows.

    Negligent Violation Penalties
    Violation Persons Subject to Penalty Penalty Authority
    Negligent violation of any provision of the BSA or any regulation prescribed under the BSA

    • Any financial institution or non-financial trade or business

    		 Not more than $500 31 USC 5321(a)(6)
    32 CFR 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

    		 not more than $50,000 31 USC 5321(a),
    31 CFR 103.57(h)

4.26.7.3.2  (11-17-2006)
Willfulness

  1. A penalty may be assessed upon a partner, director, officer or employee as well as the business for certain willful violations identified in section 5321(a) and against any person with respect to an FBAR reporting and recordkeeping violation. Where the violation is willful the penalty depends upon the type of violation. A chart of willful violation penalties follows:

    Willfulness Related Penalties
    Violation Persons Subject to Penalty Penalty Authority
    Failure to comply with any recordkeeping requirement for a financial institution except 31 CFR 103.32.

    • Any domestic financial institution, and

    • Any partner, director, officer, or employee.

    		 Not to exceed $1,000. 31 USC 5321(a)(1),
    31 CFR 103.57(c)
    Failure to comply with requirements to report transportation of monetary instrument (CMIR) found in 31 USC 5316, 31 CFR 103.23. Any person Up to the amount of the currency or monetary instruments transported, mailed or shipped less any amount forfeited under the authority of 31 CFR 103.58. 31 USC 5321(a)(2), 31 CFR 103.57(f)
    Failure to comply with any reporting requirement for financial institutions, including report retention requirements. Exceptions:

    • Failure to report a foreign account (FBAR) 31 USC 5314, 31 CFR 103.24.

    • Failure to report a transaction with a foreign financial agency 31 U.S.C. 5315, 31 C.F.R. 103.25.

    • Any domestic financial institution and

    • Any partner, director, officer, or employee.

    		 Not to exceed the greater of the amount involved in the transaction (not to exceed $100,000) or $25,000. 31 USC 5321(a)(1), 31 CFR 103.57(f)
    Structuring transactions, or taking other actions in violation of 31 U.S.C. 5324 – that is, structuring transactions for the purpose of evading the requirement by financial institutions to file certain reports (such as CTRs) or to otherwise cause or attempt to cause a financial institution to not file certain reports, to file certain incorrect reports, or to not maintain certain records. Any person. • Not to exceed the amount of coins and currency involved in the transaction with respect to which such penalty is imposed. • The amount of any civil penalty assessed shall be reduced by the amount of any forfeiture in connection with the transaction for which the penalty was imposed. 31 U.S.C. 5321(a)(4); 31 C.F.R. 103.57(e)
    In the case of any person willfully violating, or willfully causing any violation of, any provision of section 5314- (Failure to report the existence of a foreign financial account or any identifying information required to be provided with respect to an account) or maintain related records under 31 CFR 103.32. Any person. For willful violations occurring prior to October 23, 2004, a penalty not to exceed the greater of

    • An amount equal to the balance of the account at the time of the violation (not to exceed $100,000) or

    • $25,000.


    For willful violations occurring after October 22, 2004, the maximum penalty is increased to the greater of

    • $100,000, or

    • 50 percent of the amount equal to the balance of the account at the time of the violation.

    		31 USC 5321(a)(5), 31 CFR 103.57(g)
    Failure to report a transaction with a foreign financial agency required by 31 C.F.R. 103.25. Specified financial institutions that are required to provide such reports by a regulation promulgated pursuant to 31 C.F.R. 103.25(a). For willful violations occurring prior to October 23, 2004, a penalty not to exceed the greater of: • The amount (not to exceed $100,000) of the transaction or • $25,000. For willful violations occurring after October 22, 2004, the maximum penalty is increased to the greater of • $100,000, or • 50 percent of the amount of the transaction. 31 U.S.C. 5321(a)(5), 31 C.F.R. 103.57(g)
    Failure to comply with a geographic targeting order issued under 31 USC 5326, 31 CFR 103.26.

    • Any domestic financial institution and

    • Any partner, director, officer. or employee.

    		 The penalties are the same as those for recordkeeping and reporting violations in general. 31 USC 5321(a), 31 CFR 103.57
    Failure to comply with any special measures order issued under 31 USC 5318A.

    • Any domestic financial institution and

    • Any partner, director, officer, or employee.

    		 An amount equal to not less than 2 times the amount of the transaction but not more than $1,000,000. 31 USC 53219(a)(7), 31 CFR 103.57
    Failure to comply with the information sharing rules required by Sec. 314 of the USA PATRIOT Act and found at 31 CFR 103 Subpart H.

    • Any financial institution defined 31 CFR 103.110 and

    • Any partner, director, officer, or employee.

    		 $25,000 per day. 31 USC 5321(a)(1), 31 CFR 103.57
    Failure to establish a compliance program under 31 USC 5318(h) and various regulations appearing at 31 CFR Subpart I.

    • Any financial institution required to establish a program and

    • Any partner, director, officer or employee.

    		 $25,000 31 USC 5321(a)(1), 31 CFR 103.57
    Failure to comply with due diligence requirements for banks, brokers and some other financial institutions set forth at 31 USC 5318(i) and at 31 CFR 103.181 - 183.

    • Any financial institution or agency included in 31 USC 5218(i)

    		 An amount equal to not less than 2 times the amount of the transaction, but not more than $1,000,000. 31 USC 5321(a)(7), 31 CFR 103.57

4.26.7.3.3  (11-17-2006)
Failure to comply with MSB Registration

  1. The failure to comply with the MSB registration requirement includes failure to retain a copy of the registration or agent list.

  2. A person who fails to register as required by 31 CFR 103.41 is subject to a penalty of $5,000 per day whether or not the failure to register was willful.

    Violation Persons Subject to Penalty Penalty Authority
    Failure to comply with any requirements of 31 USC 5330 or 31 CFR 103.41, that is registration of money services businesses. This includes failure to retain a copy of the registration or agent list. Any person who is required to comply.

    The instructions to the registration form, 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.     		$5,000 per day 31 USC 5330(e), 31 CFR 103.41(e)

4.26.7.4  (11-17-2006)
Determining Intent under the BSA

  1. Civil penalties vary depending on intent. The BSA examiner must thoroughly document facts on the issue of intent. See IRM 4.26.9.

  2. There is no overall definition of intent in the BSA. The common law (case law) definitions of negligence and intent must be used to establish which penalties may be appropriate for particular violation.

4.26.7.4.1  (11-17-2006)
Negligence

  1. Negligence is usually defined as the failure to use the care that a reasonable person would use in the same or similar circumstances.

  2. There are two principal areas where a reasonable person would exercise care with respect to financial reporting and recordkeeping:

    • A reasonable businessman would normally exercise care to learn about legal requirements in his area of business.

    • A reasonable businessman would also exercise care to see that his business had sufficient internal controls to meet those requirements.

  3. When care is not exercised in one or both of these areas, there is a case for negligence.

4.26.7.4.2  (11-17-2006)
Civil Willfulness

  1. Civil willfulness under the BSA is more than negligence.

  2. Civil willfulness is established by evidence showing voluntary intentional violation of a known legal duty. If a person does not know of the legal duty but it can be shown that the person made conscious efforts to avoid learning of the duty, willfulness may be imputed under the concept of " willful blindness."

4.26.7.4.3  (11-17-2006)
Establishing Willfulness

  1. Two factors in establishing willfulness are:

    1. Knowledge of the law, and

    2. Knowledge of the facts.

4.26.7.4.3.1  (11-17-2006)
Knowledge of the Law

  1. 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.

  2. Notification by IRS:

    • The Letter 1052 describes the requirements of most businesses in general. When receipt of the Letter 1052 has been acknowledged, knowledge is established.

    • Special mailings are good evidence of knowledge if controls have been set up for returned mail.

    • Educational visits where the financial institution signs that it has received information concerning BSA are proof of knowledge.

    • A prior compliance examination may prove knowledge.

  3. Actions of the apparent violator:

    • The apparent violator previously filed reports.

    • The apparent violator may state that he was aware of the law.

    • The apparent violator’s actions, such as structuring transactions to avoid the filing of Currency Transaction Reports (CTRs), may show that he was aware of the law.

  4. 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.

  5. Education by the business community:

    • Many businesses belong to business organizations, which have newsletters and handbooks relating to BSA requirements.

    • Many businesses have legal and accounting professionals who may be advising them about their BSA responsibilities.

4.26.7.4.3.2  (11-17-2006)
Knowledge of Facts

  1. A showing of willfulness of the apparent violator that causes a failure to report or keep records is based on the facts and circumstances of each case.

  2. Failure to Report: Evidence of willful failure to report may include:

    1. Presentation of retained copies of reports that do not appear on the Currency and Banking Retrieval System (CBRS) database as filed.

    2. Filings on some transactions but not on others, especially where the unreported transactions involved the same individual(s).

    3. Failure to comply with AML requirements that leads to reporting or recordkeeping violations

  3. Failure to Record: Evidence of willful failure to record includes:

    1. Documentary evidence that the same individual conducted multiple transactions within a very short period of time so that it would have been clear to anyone that the transactions were related and triggered a recordkeeping requirement.

    2. Evidence that the records were false and that the violator must have known, for example retention of a photocopied identification document, which differs from the information provided on the form.

    3. Failure to comply with requirements that leads to reporting or recordkeeping violations

  4. Evidence of personal relationships between the financial institution and the individual on whom the facts were not reported or recorded is also useful.

4.26.7.5  (11-17-2006)
Criminal Penalties for Violation of Bank Secrecy Act

  1. 31 USC 5322 and 31 CFR 103.59 provide for most Federal BSA criminal penalties. 18 USC 1960 provides for criminal penalties for certain money services businesses for failure to comply with the state licensing requirements or with the registration requirement for money services businesses under 31 USC 5330 and 31 CFR 103.41.

  2. See CI’s Law Enforcement Manual (LEM) for further information.

4.26.7.6  (11-17-2006)
Forfeiture Authority

  1. BSA criminal and civil forfeiture authority was moved by Sec. 372 of the USA PATRIOT Act from Title 18 to 31 USC 5317(c). 31 USC 5317(c)(2) provides for civil forfeiture proceedings. Any property involved in a violation of Section 5313 [currency reporting requirements], 5316 [exporting and importing monetary instruments], or 5324 [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. 31 CFR 103.58 provides regulatory authority for forfeiture in the case of a violation of 31 USC 5316 and 31 CFR 103.23 [exporting and importing monetary instruments]. The Secretary of the Treasury has discretionary authority to remit or mitigate the forfeiture.

  2. 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 103.57(d) and the structuring prohibitions, 31 USC 5321(a)(4), 31 CFR 103.57(e).

4.26.7.7  (11-17-2006)
Injunctive Relief

  1. Authority to enjoin a BSA violation or to enforce compliance with the BSA is provided at 31 USC 5320. An injunction may be sought in cases in which the financial institution has taken inadequate steps to remedy a violation, or to remedy weaknesses in its anti-money laundering compliance program.

  2. Authority for injunctive relief is specifically provided at 31 CFR 103.41(e) for failure to comply with the registration rules of 31 USC 5330 or the regulations under it at 31 CFR 103.41.

4.26.7.8  (11-17-2006)
Rewards for Informants

  1. An individual who provides original information that leads to recovery of a criminal fine, civil penalty, or forfeiture that exceeds $50,000 for a violation of the Bank Secrecy Act may be eligible for a reward, 31 USC 5323 and 31 CFR 103.62.

  2. The reward may not exceed the lesser of $150,000 or 25% of the net amount collected. Generally officers and employees of the United States, state, or local governments are not eligible to collect the reward.


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