FinCEN Provides Reminder About BSA Reporting Requirements

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TL Fahring focuses on helping individuals and businesses with a wide variety of matters involving state, federal, and international taxation. He has represented clients in all stages of federal and state tax disputes, including audits, administrative appeals, litigation, and collection matters. Mr. Fahring also has used his tax knowledge to assist clients in planning complex domestic and international transactions, including advising as to potential reporting and withholding requirements.

Mr. Fahring received his J.D. from the University of Texas School of Law, where he graduated with high honors and was inducted into the Order of the Coif and Chancellors honors societies. After clerking for a year at the Texas Eleventh Court of Appeals, he attended New York University School of Law, where he received an LL.M. (Master of Laws) in Taxation and served as a student editor on the Tax Law Review.

FinCEN and Bank Secrecy Act Reporting

On March 7, 2022, the Financial Crime Enforcement Network (“FinCEN”), a bureau of the U.S. Department of the Treasury alerted financial institutions “to be vigilant against efforts to evade the expansive sanctions and other U.S.-imposed restrictions implemented in connection with the Russian Federation’s further invasion of Ukraine.”[1]  Such restrictions include sanctions actions taken by the Department of Treasury’s Office of Foreign Assets Control (“OFAC”) involving certain Russian and Belorussian persons.

The alert reminds financial institutions of potential red flags for identifying sanctions evasion activity and of financial institutions’ reporting obligations under the Bank Secrecy Act (“BSA”), including those relating to convertible virtual currencies (“CVCs”).

What’s a “Financial Institution”?

The term “financial institution” is a term of art under the BSA and includes the following:

FinCEN has taken the position that CVC exchangers and administrators are generally money services businesses, and therefore subject to the BSA.[3]

What’s a CVC?

FinCEN has defined “virtual currency” as “a medium of exchange that can operate like currency but does not have all the attributes of ‘real’ currency . . ., including legal tender status.”[4]  A CVC is a “virtual currency that either has an equivalent value as currency, or acts as a substitute for currency . . . .”[5]

What are the Reporting Requirements under the BSA?

As relevant here, a financial institution generally must file a suspicious activity report (“SAR”) if the transaction is conducted or attempted by, at, or through the financial institution, it involves or aggregates at least $5,000 in funds or other assets, and the financial institution knows, suspects, or has reason to suspect:

Upon filing a SAR, a financial institution is required to keep a copy of the SAR and any supporting documentation for five years, which material must be provided upon request by FinCEN or certain enforcement or supervisory agencies.[7]

Additional BSA reporting requirements may include:

What are Possible Red Flags for Sanctions Evasion Activity?

FinCEN’s alert consolidates guidance on red flags that it has provided over the years, which it divides into three categories: 1) sanctions evasion using the U.S. financial system; 2) sanctions evasion using CVCs; and 3) ransomware attacks and other cybercrime.[10]

Sanctions evasion using the U.S. financial system.

FinCEN identifies the following possible red flags for sanctions evasion using the U.S. financial system:

Sanctions evasion using CVCs.

Possible red flags listed by FinCEN for sanctions evasion using CVCs include:

Ransomware attacks and other cybercrimes. 

FinCEN lists the following possible red flags for ransomware attacks and other cybercrimes:

What Are the Potential Penalties for Failing to Report?

As of January 21, 2022, the maximum civil penalty for willful violations for failing to file SARs is $250,759 per violation, with the minimum penalty being $62,689 per violation.[14]  The maximum criminal penalty is a fine of $250,000, imprisonment for up to five years, or both.[15]

 

[1] FinCEN, FinCEN Advises Increased Vigilance for Potential Russian Sanctions Evasion Attempts (FIN-2022-Alert-001) at 1 (March 7, 2022) (hereinafter, “FinCEN Advice”).

 

[2] 31 C.F.R. § 1010.100(t).

 

[3] FinCEN Advice supra note 1 at 1 (citing Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies (FIN-2019-G001) (May 9, 2019) (hereinafter “Convertible Virtual Currencies”)).

 

[4] Convertible Virtual Currencies, supra note 3 at 7.  The BSA defines “currency” as:

 

The coin and paper money of the United States or of any other country that is designated as legal tender and that circulates and is customarily used and accepted as a medium of exchange in the country of issuance. Currency includes U.S. silver certificates, U.S. notes and Federal Reserve notes. Currency also includes official foreign bank notes that are customarily used and accepted as a medium of exchange in a foreign country.

 

31 C.F.R. § 1010.100(m).

 

[5] Convertible Virtual Currencies, supra note 3 at 7.

 

[6] See 31 C.F.R. §§ 1020.320(a) (relating to banks), 1021.320(a) (relating to casinos), 1022.320(a) (relating to money services businesses), 1023.320(a) (relating to brokers or dealers in securities), 1024.320(a) (relating to mutual funds), 1025.320(a) (relating to insurance companies), 1026.320(a) (relating to futures commission merchants and introducing brokers in commodities), 1029.320(a) (relating to loan or finance companies), 1030.320(a) (relating to housing government sponsored enterprises); FinCEN Advice, supra note 1 at 5.

 

[7] See 31 C.F.R. §§ 1020.320(d), 1021.320(d), 1022.320(d), 1023.320(d), 1024.320(d), 1025.320(d), 1026.320(d), 1029.320(d), 1030.320(d).

 

[8] 31 C.F.R. §§ 1010.310-313.

 

[9] 31 C.F.R. § 1010.330.

 

[10] FinCEN Advice, supra note 1 at 2-5.

 

[11] Id. at 3 (citing FinCEN, Advisory on Human Rights Abuses Enabled by Corrupt Senior Foreign Political Figures and their Financial Facilitators (FIN -2018-A003) (June 12, 2018)).

 

[12] FinCEN Advice, supra note 1 at 4 (citing FinCEN, Advisory on Illicit Activity Involving Convertible Virtual Currency (FIN 2019-A003) (May 9, 2019)).

 

[13] FinCEN Advice, supra note 1 at 5 (citing FinCEN, Advisory on Cybercrime and Cyber-Enabled Crime Exploiting the Coronavirus Disease 2019 (COVID-19) Pandemic (FIN-2020-A005) (July 30, 2020); FinCEN, Updated Advisory on Email Compromise Fraud Schemes Targeting Vulnerable Business Processes (FIN-2019-A005) (July 16, 2019); FinCEN, Advisory to Financial Institutions on Cyber-Events and Cyber-Enabled Crime (October 25, 2016)).

 

[14] See 31 U.S.C. § 5321(a)(1); 31 C.F.R. § 1010.821(b).

 

[15] 31 C.F.R. § 1010.840(b).