Section 7. Bank Secrecy Act Penalties

(1) This transmits a revision to IRM 4.26.7, Bank Secrecy Act, Bank Secrecy Act Penalties.

Material Changes

(1) The text is revised to incorporate provisions of recent legislation and regulations affecting BSA penalties.

(2) Content updated to more fully address internal control requirements under IRM 1.11.2.

(3) Penalty amounts have been changed to reflect annual inflationary adjustments in accordance with the Federal Civil Penalties Inflation Adjustment Act of 1990, 28 USC 2461 (FCPIA Act), as further amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015.

(4) Regulations state that the penalties covered by the FCPIA Act should be adjusted annually due to inflation. Due to this requirement, actual amounts for covered penalties have been removed. A link to the penalty adjustment and table, 31 CFR 1010.821, is provided.

(5) References to 31 CFR 103 have been removed.

Effect on Other Documents

Audience

Intended audience is employees of the Bank Secrecy Act Program in the Small Business/Self Employed (SB/SE) Division, and can be referenced by all field compliance personnel.

Effective Date

Daniel R. Lauer
Director, Specialty Examination Policy
Small Business/Self-Employed

Purpose

1. Purpose . This IRM provides an overview of the penalties that may be assessed on both reporting and recordkeeping requirements of the Bank Secrecy Act (BSA). Other than the Report of Foreign Bank and Financial Accounts (FBAR) penalty, all other penalties are assessed by the Financial Crimes Enforcement Network (FinCEN). An IRS examiner’s decision to refer a case to FinCEN for a potential civil monetary penalty will depend upon the facts and circumstances of each case. However, all IRS examiners should be aware of the potential civil and criminal penalties to inform those examined.
2. Audience . The intended audience is employees of the Bank Secrecy Act Program in the Small Business/Self Employed (SB/SE) Division, and can be referenced by all IRS personnel, including those working FBAR cases.
3. Policy Owner . The Director, SB/SE Specialty Examination Policy is responsible for overseeing the policy for conducting examinations under the Bank Secrecy Act.
4. Program Owner . The Director, SB/SE Specialty Examination is responsible for ensuring examinations conducted under the Bank Secrecy Act are conducted with integrity and fairness to all.
5. Primary Stakeholders . SB/SE Specialty Examination BSA; SB/SE Headquarters Exam, Specialty Exam Policy BSA; SB/SE Exam Quality & Technical Support, Field and Specialty Exam Quality; Chief Counsel, Division Counsel SB/SE.
6. Contact Information . To recommend changes or make any other suggestions related to this IRM section, see IRM 1.11.6.6, Providing Feedback About an IRM Section - Outside of Clearance.
7. Program Goals . The mission of the BSA Program (BSA) is to safeguard the financial system from the abuses of financial crime, including terrorist financing, money laundering, and other illicit activity by providing financial institutions top quality service to help them understand their obligations under the BSA and to ensure BSA compliance with integrity and fairness to all.

Authority

1. The Department of the Treasury has primary responsibility for implementing and enforcing the Bank Secrecy Act (BSA). The Secretary of the Treasury delegated the authority to administer the BSA to the Director, Financial Crimes Enforcement Network (FinCEN). FinCEN redelegated responsibility for assuring civil compliance with the law to various Federal agencies including the Internal Revenue Service. Treasury Directive 15–41 (See IRM 4.26.1-2) and 31 CFR 1010.810(b)(8) delegates the responsibility to examine and assure compliance with the requirements of 31 CFR Chapter X, Financial Crimes Enforcement Network, Department Of The Treasury, for certain entities to the IRS. FinCEN’s delegation is limited to "examining" for compliance with the BSA requirements. FinCEN retains all civil penalty authority, except for penalties assessed on violations of the Report of Foreign Bank and Financial Accounts (FBAR), under 31 CFR 1010.810(d).
2. The authority to enforce the FBAR reporting and recordkeeping requirements found at 31 USC 5314, Records and reports on foreign financial agency transactions, 31 CFR 1010.350, Reports of foreign financial accounts, and 31 CFR 1010.420, Records to be made and retained by persons having financial interests in foreign financial accounts, was redelegated from FinCEN to the Commissioner of Internal Revenue by Delegation Order 25-13 (Formerly DO 4-35, Rev. 1) effective as of April 11, 2012. IRS has full authority to "examine for and assess penalties" related to noncompliance with the FBAR requirements.
3. IRS Criminal Investigation has authority under 31 CFR 1010.810(c)(2), Authority for investigating criminal violations, to investigate all criminal violations of the Bank Secrecy Act except those with respect to Form 105, Reports of Transportation of Currency or Monetary Instruments (CMIR). 31 CFR 1010.810(c)(1) delegates to the Commissioner of Customs and Border Protection the authority to investigate criminal violations of the CMIR. Customs and Border Protection also has civil authority for CMIRs under 31 CFR 1010.810(b)(7).
4. A civil monetary penalty may be imposed for any BSA violation notwithstanding the fact that a criminal penalty is imposed for the same violation, 31 USC 5321(d), Criminal Penalty Not Exclusive of Civil Penalty. IRM 4.26.8.8.5, Parallel Civil & Criminal Referrals, provides guidance on how to make the simultaneous referrals.

Responsibilities

1. Director, Examination - Specialty Policy is the executive responsible for BSA examination policy and procedures.
2. Director, Examination - Specialty Examination is the executive responsible for BSA examination operational compliance.
3. Chief, BSA Examination is responsible for ensuring general information about basic BSA examiner responsibilities and IRM sections is communicated to and carried out by BSA examiners.
4. Chief, Examination is responsible for ensuring FBAR information is communicated to and examiners audit for FBAR requirements.
5. Chief, Criminal Investigation is responsible for investigating criminal violations of the BSA.

Program Management and Review

1. The Title 31 database contains reports to monitor the current year’s work plan, as well as specific programs. These reports provide Headquarters and Field Examination with timely and reliable information. Reports used to monitor examination processes include:

• Direct examination time
• New examination starts
• Examination closures
• Average hours expended per case
• No issue percentage
• Closed case cycle time by workstream
• Open case cycle time by workstream
• Referrals to Examination
• Referrals to Employment Tax
• Referrals to CI
• Number of surveyed cases
• Workplan accomplishments

• Assess the effectiveness of specific programs within Examination or across the organization,
• Determine if procedures are being followed,
• Validate policies and procedures, and
• Identify and share best/proven practices.

Acronyms

1. The following table is a list of acronyms, and their definitions, used in this IRM.

Terms

1. The following table contains a term, and its definition, used in this IRM.

Related Resources

1. The following table contains related resources referenced in this IRM:

Overview

1. 31 USC 5311 through 31 USC 5332, except 31 USC 5315, known as the Bank Secrecy Act (BSA), and the related regulations at 31 CFR Chapter X, Financial Crimes Enforcement Network, Department of the Treasury, provide for civil and criminal penalties as well as forfeiture of assets. BSA penalties depend on the type of entity, the type of Anti-Money Laundering program, reporting or recordkeeping violation involved, and the degree of intent.
2. Civil penalties, except for penalties assessed on requirements of the Report of Foreign Bank and Financial Accounts (FBAR), are assessed by the Financial Crimes Enforcement Network (FinCEN). FBAR assessment authority is delegated to the IRS. The examiner’s decision to refer a case to FinCEN for a potential civil monetary penalty will depend upon the facts and circumstances of each case. The general standard for a FinCEN referral is "significant" BSA violation(s) or AML program deficiencies. This, along with indications of willful behavior, may warrant a referral to FinCEN. Referral procedures are located at IRM 4.26.8.5.1, Guidelines for Referrals to FinCEN.
3. FinCEN's role includes evaluating the circumstances of the alleged violation(s) and determining whether some type of civil action, including seeking the imposition of a civil monetary penalty, should be taken against the person or financial institution.

Civil Penalties

1. 31 USC 5321, Civil penalties, provides overall civil penalty provisions for violations 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 1010.820, Civil penalties, issued under the authority of 31 USC 5321 is the primary penalty regulation for all penalties assessed before August 2, 2016. It addresses civil penalties arising from violations of the BSA reporting and recordkeeping requirements, as well as structuring penalties.
3. The Federal Civil Penalties Inflation Adjustment Act of 1990 (FCPIA Act) mandates that penalties be adjusted annually for inflation. For penalties assessed after August 1, 2016, FinCEN must set forth adjusted maximum penalty amounts for each civil monetary penalty within its jurisdiction subject to the FCPIA Act. The adjusted civil monetary penalty amounts at 31 CFR 1010.821, Penalty adjustment and table, supersede the amounts published authorizing the assessment of penalties.
4. For penalties that have both a fixed and a non-fixed component, the civil monetary penalty amounts at 31 CFR 1010.821 apply only to the fixed amounts. For example, the penalty for willful FBAR failures is the greater of $100,000 or 50% of the account balance at the time of the violation. The civil monetary penalty inflation adjustment amount at 31 CFR 1010.821 applies only to the $100,000 amount.
5. Penalties that lack a stated dollar amount and are instead written solely as functions of violations are not subject to adjustment under the FCPIA Act. For example, the penalty for structuring a transaction to circumvent a BSA reporting requirement is the amount of coin and currency involved in the transaction. See 31 CFR 1010.820(e).
6. No later than January 15 of every year, FinCEN is required to adjust each civil monetary penalty provided by law within their jurisdiction by the inflation adjustment and publish each such adjustment in the Federal Register.

Note:

If the Penalty Adjustment Table at 31 CFR 1010.821, Penalty Adjustment and Table, is not current, examiners should check the Federal Register to see if the inflation adjusted rate has been published.

• Recordkeeping violations for funds transfer by an insured depository institution
• Willful or grossly negligent recordkeeping violations
• Failure to terminate correspondent relationship with foreign banks
• General civil penalty provisions for willful violations of the BSA requirements
• Foreign financial agency transactions which are non-willful
• Foreign financial agency transactions which are willful
• Negligent violations by financial institutions and nonfinancial trades or businesses
• Pattern of negligent activity by financial institutions or nonfinancial trades or businesses
• Violations of certain due diligence requirements, prohibition on correspondent accounts for shell banks, and special measures
• Civil penalties for failure to register as a money services business

Negligence Penalty

1. 31 USC 5321(a)(6), Negligence, and 31 CFR 1010.820(h) provided for a penalty for each negligent violation of any requirement of the Bank Secrecy Act (BSA). The penalty amount could not exceed $500.
2. Negligence is further discussed in IRM 4.26.7.4.1 .
3. The penalty may be assessed against any financial institution or nonfinancial trade or business which negligently violates any provision of 31 USC 5321, Civil penalties.
4. For penalties assessed after August 1, 2016, the negligence penalties are subject to annual inflationary adjustment under the FCPIA Act.

"Non-Willful" Violation of FBAR Requirements

1. Any person who violates or causes any violation of the Report of Foreign Bank and Financial Accounts (FBAR) requirements of 31 USC 5314, Records and reports on foreign financial agency transactions, may be assessed a penalty not to exceed $10,000 per violation for penalties assessed before August 2, 2016. See 31 USC 5321(a)(5)(B), Amount of penalty.
2. Penalties may not be applicable if the violation was due to reasonable cause and the amount of the transaction or the balance in the account at the time of the transaction was properly reported on the taxpayer’s U.S. income tax return.
3. For penalties assessed after August 1, 2016, the penalty is subject to the inflationary adjustments under the FCPIA.

Willful Violations of Recordkeeping and Reporting Requirements

1. Where the violation is willful, the penalty depends on the Bank Secrecy Act (BSA) requirement violated. There are different penalties for recordkeeping, reporting, and Anti-Money Laundering program violations, as well as for other types of violations, such as failure by a Money Services Business (MSB) to register.
2. Within the types of willful violations, there are variations in penalties as well, depending on the provision violated.
3. A penalty may be assessed upon any person to which the regulation applies, or any person willfully causing a violation of the regulations, and if such person is a partnership, corporation, or other entity, upon any partner, director, officer, or employee thereof who willfully or through gross negligence participates in the violation identified at 31 USC 5321(a) other than an FBAR violation. For an FBAR, the violation may be assessed against any person willfully violating, or willfully causing a violation of the FBAR requirement.
4. For penalties assessed after August 1, 2016, the penalties are subject to the inflationary adjustments under the FCPIA Act. The first table is for willful violation of record keeping penalties and the second table is for willful violation of reporting requirement penalties.

Willful Violation of Other Duties

1. 31 USC 5314 and 31 CFR 1010.360, Reports of transactions with foreign financial agencies, establish procedures under which the Secretary of the Treasury may issue regulations requiring designated financial institutions to report certain financial transactions with designated foreign financial agencies. A civil penalty not to exceed the greater of the amount of the transaction (not to exceed $100,000), or $25,000 may be assessed upon any person who willfully violates the requirement to report. See 31 CFR 1010.820(g)(1).
2. 31 USC 5326, Records of certain domestic transactions, and 31 CFR 1010.370, Reports of certain domestic coin and currency transactions, allow the Secretary, upon the Secretary's own initiative or at the request of an appropriate federal or state law enforcement official, to issue a Geographical Targeting Order (GTO). A GTO requires a domestic financial institution or group of domestic financial institutions in a geographic area, and any other person participating in the type of transaction, to file a report in the manner and to the extent specified in the order, if it is found that reasonable grounds exist for concluding that additional recordkeeping and/or reporting requirements are necessary to carry out the purposes of the BSA. A civil penalty not to exceed the greater of the amount of the transaction (not to exceed $100,000), or $25,000 may be assessed upon any domestic financial institution, and upon any partner, director, officer, or employee thereof who willfully participates in the violation. See 31 CFR 1010.820(f).
3. Special measures, including reporting, recordkeeping, and prohibited transactions that are specially ordered under 31 USC 5318A, Special measures for jurisdictions, financial institutions, international transactions, or types of accounts of primary money laundering concern, for one or more domestic financial institutions and domestic financial agencies, may be required after a finding by the Secretary that a jurisdiction outside of the US, a financial institution operating outside of the US, or a transaction within, or involving, a jurisdiction outside of the US is of primary money laundering concern. Special Measures for some countries appear in the regulations in Subpart F, Special Standards of Diligence: Prohibitions; and Special Measures.

Example:

31 CFR 1010.651, Special measures against Burma. A civil money penalty in an amount equal to not less than 2 times the amount of the transaction, but not more than $1,000,000 on any financial institution or agency that violates any provision of 31 USC 5318A. See 31 USC 5321(a)(7). Special measures for some entities appear in the regulations at 31 CFR 1010.651, Special measures against Burma.

Structuring and Related Prohibited Actions

1. The Secretary of the Treasury is authorized by 31 USC 5321(a)(4), Structured Transaction Violation, to impose a civil money penalty on any person who structures, or attempts to structure, a transaction with the intent to evade a Bank Secrecy Act (BSA) requirement.
2. A civil penalty may be assessed up to the amount of coins and currency involved in the structured transaction(s). The amount of any civil penalty assessed shall be reduced by the amount of any forfeiture to the US in connection with the transactions for which the penalty was imposed. See 31 USC 5321(a)(4) or 31 CFR 1010.820(e).
3. IRM 4.26.13, Structuring, contains a complete discussion of the:

• Law which prohibits structuring,
• Procedures on how to identify structured transactions,
• Examples of structured transactions, and
• Examination techniques to identify structured transactions.

1. The reporting requirements of 31 USC 5313, Reports on domestic coins and currency transactions.
2. The recordkeeping requirements of 31 USC 5325, Identification required to purchase certain monetary instruments. (Requirement to secure customer identification prior to issuing or selling a bank check, cashier’s check, traveler’s check, or money order for currency at $3,000 or more)
3. The reporting requirements of 31 USC 5331, Reports relating to coins and currency received by a nonfinancial trade or business. (Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business)
4. The reporting requirements of 31 USC 5316, Reports on exporting and importing monetary instruments (CMIR)
5. The reporting or recordkeeping requirements imposed by any order issued under 31 USC 5326. (Geographic Targeting Orders)
6. The recordkeeping requirements under Section 21 of the Federal Deposit Insurance Act and Section 123 of Public Law 91-508. (Recordkeeping requirements for transmittal of funds at $3,000 and above, additional records to be made by a dealer in foreign exchange at $1,000 and above, and records to be made by casinos and card clubs)

• 31 CFR 1010.311 - Filing obligations for reports of transactions in currency (CTRs)
• 31 CFR 1010.313 - Aggregation, transactions in currency totaling more than $10,000 during one business day (CTR)
• 31 CFR 1020.315 - Transactions of exempt persons, (by banks)
• 31 CFR 1021.311 - Filing obligations, (CTRs at a casino)
• 31 CFR 1021.313 - Aggregation, transactions by casinos in currency totaling more than $10,000 during any gaming day

• Recordkeeping requirements on the purchase of money orders or traveler’s checks
• Recordkeeping requirements on transmittal of funds
• Recordkeeping requirements on foreign currency exchanges
• Form 8300 requirements, including any GTO requirement
• CMIR

• CTR
• CTR, aggregated transaction, and
• Transactions with exempt persons by a bank

• Money orders & traveler’s checks
• Wire transfers
• Currency exchange
• Casino transactions

• CMIR, and
• Form 8300

• Money orders & traveler’s checks
• Wire transfers
• Foreign currency exchange, and
• Casino transactions