7 August 2001

See contents of full IRS Handbook of Criminal Investigation: http://cryptome.org/irs-ci/irs-ci.htm

## Handbook 9.5 THE INVESTIGATIVE PROCESS Chapter 5 FRAUD INVESTIGATIONS
### Contents [9.5] 5.5 MONEY LAUNDERING [9.5] 5.5.1 18 USC 1956 and 1957 Money Laundering Investigations [9.5] 5.5.1.1 Section 1956 [9.5] 5.5.1.1.1 Section 1956(a)(1) Domestic Financial Transactions [9.5] 5.5.1.1.2 1956(a)(2) International Transportation of Monetary Instruments or Funds [9.5] 5.5.1.1.3 1956(a)(3) Sting Operations [9.5] 5.5.1.2 Section 1957 Engaging in Monetary Transactions in Property Derived from Specified Unlawful Activity [9.5] 5.5.1.3 Section 1956(a)(1) (Domestic Financial Transactions) Statutory Language [9.5] 5.5.1.4 Section 1956(a)(2)(Engaging in Monetary Transactions in Property Derived from Specified Unlawful Activity) Statutory Language [9.5] 5.5.1.5 Section 1956(a)(3) (Sting provision) Statutory Language [9.5] 5.5.1.6 Section 1957 Statutory Language [9.5] 5.5.2 Definitions Under Title 18 Sections 1956 and 1957 [9.5] 5.5.2.1 Section 1956(c)(1) through (6) [9.5] 5.5.2.2 Section 1957(f)(1) through (3) [9.5] 5.5.3 Legal Applications--18 USC 1956 and 1957 [9.5] 5.5.3.1 Legal Applications--18 USC 1956(a)(1) [9.5] 5.5.3.1.1 Transaction and Financial Transaction [9.5] 5.5.3.1.2 Conducts or Attempts to Conduct [9.5] 5.5.3.1.3 Knowing that the Property Represents the Proceeds of Some Form of Unlawful Activity [9.5] 5.5.3.1.4 Proceeds of Specified Unlawful Activity [9.5] 5.5.3.1.5 Specific Intent [9.5] 5.5.3.2 Legal Applications 18 USC 1956(a)(2) [9.5] 5.5.3.3 Legal Applications 18 USC 1956(a)(3) Undercover Sting Operations [9.5] 5.5.3.4 Legal Applications--18 USC 1957 [9.5] 5.5.3.5 Legal Applications--18 USC 1956(h) (Conspiracy) [9.5] 5.5.4 18 USC 1960 Prohibition of Illegal Money Transmitting Business [9.5] 5.5.5 Penalties for Title 18 Money Laundering Violations [9.5] 5.5.5.1 Criminal Penalties [9.5] 5.5.5.2 Civil Penalties [9.5] 5.5.6 Investigation of Title 31 Violations [9.5] 5.5.7 IRS Jurisdiction Under Title 31 [9.5] 5.5.8 Title 31 Definitions (31 CFR 103.11) [9.5] 5.5.9 Reports Required Under Title 31 [9.5] 5.5.9.1 Currency Transaction Report (Form 4789) [9.5] 5.5.9.2 Procedures for Obtaining Photocopies of Currency Transaction Reports [9.5] 5.5.9.3 Currency Transaction Report by Casinos (Form 8362) [9.5] 5.5.9.4 Report of Foreign Bank and Financial Accounts (FBAR) (Treasury Form 90-22.1) [9.5] 5.5.9.5 Report of International Transportation of Currency or Monetary Instruments (CMIR) (Customs Form 4790) [9.5] 5.5.9.6 Suspicious Activity Report (SAR) Forms [9.5] 5.5.9.6.1 District Evaluation of Suspicious Activity Report (SAR) Forms [9.5] 5.5.10 Identification Required [9.5] 5.5.10.1 Identification Required for CTRs (Form 4789) and CTRs by Casinos (Form 8362) [9.5] 5.5.10.2 Identification for Purchases of Bank Checks and Drafts, Cashier's Checks, Money Orders, and Traveler's Checks [9.5] 5.5.11 Records Required to be Maintained Under Title 31 [9.5] 5.5.11.1 Records Required by Persons with Foreign Financial Accounts [9.5] 5.5.11.2 Records to be Retained by Financial Institutions [9.5] 5.5.11.3 Additional Records to be Retained by Brokers or Dealers in Securities [9.5] 5.5.11.4 Additional Records to be Retained by Casinos [9.5] 5.5.12 Registration of Money Transmitting Businesses [9.5] 5.5.13 Penalties for Violation of Title 31 [9.5] 5.5.13.1 Criminal Penalties for Violations of Title 31 [9.5] 5.5.13.2 Civil Penalties for Violations of Title 31 [9.5] 5.5.13.3 Recommendations of Civil Penalties in Title 31 Investigations [9.5] 5.5.14 Title 31 Summons [9.5] 5.5.15 Geographic Targeting Orders [9.5] 5.5.16 General Investigations to Develop Indications of Title 31 Violations [9.5] 5.5.17 IRC 6050I: Report of Cash Payments Over $10,000 Received in a Trade or Business (Form 8300) [9.5] 5.5.18 Definitions of Terms Used in Section 6050I (Defined by the IRS Regulations) [9.5] 5.5.19 Multiple Receipts of Cash [9.5] 5.5.20 Cash Received for the Account of Another [9.5] 5.5.21 Cash Received by Agents [9.5] 5.5.22 IRC Regulation 1.6050I-1(d) Exceptions to the Filing of Form 8300 [9.5] 5.5.23 Form 8300 Filing Requirements [9.5] 5.5.24 Criminal Penalty [9.5] 5.5.25 IRC 6103 Disclosure Provisions for Money Laundering Investigations [9.5] 5.5.25.1 Pure Money Laundering Investigations Involving Information not Protected by IRC 6103 [9.5] 5.5.25.2 Use of Tax Information in Tax or Tax-Related Money Laundering Investigations [9.5] 5.5.25.3 Use of Tax Information in Pure Money Laundering Investigations [9.5] 5.5.25.4 Use and Disclosure of Title 31 Report Information--Treasury Dissemination Guidelines [9.5] 5.5.25.5 Use and Disclosure of Form 8300 Information [9.5] 5.5.25.5.1 Authority to Release Form 8300 Information [9.5] 5.5.25.5.2 Procedure for Disseminating Form 8300 Information [9.5] 5.5.26 Venue and Statutes of Limitation in Money Laundering Investigations [9.5] 5.5.27 Investigative Process in Money Laundering Investigations [9.5] 5.5.27.1 Title 31 Investigations [9.5] 5.5.28 Prosecution Recommendations and Civil Referrals [9.5] 5.5.29 Database Queries [9.5] 5.5.30 Requests for Witnesses to Testify for Filing of CTRs, FBARs, and Forms 8300 [9.5] 5.5.31 Forfeitures in Money Laundering Investigations [9.5] 5.5.32 Whistle-blower Protection and Awards in Money Laundering Investigations [9.5] 5.5.33 Use of Money Laundering Posters Exhibit [9.5] 5-1 Specified Unlawful Activity Exhibit [9.5] 5-2 Bank Secrecy/8300 Disclosure Log
### [9.5] 5.5 (10-09-1998) MONEY LAUNDERING
Criminal Investigation (CI) investigates allegations of money laundering violations pursuant to Title 18, Sections 1956 and 1957, Title 31, and Title 26, Section 6050I, of the United States Code (USC). Title 18, Sections 1956 and 1957, were brought into existence by the Money Laundering Control Act of 1986, which has since been expanded. In general, 18 USC 1956(a)(1) prohibits knowingly engaging in financial transactions using funds derived from a specified unlawful activity (SUA), with any of four specific intents in mind. Title 18 USC 1956(a)(2) prohibits anyone to transport, transmit, or transfer, or attempt to transport, transmit or transfer a monetary instrument or funds in or out of the United States, with the intent to promote the carrying on of a specified unlawful activity or knowing that the monetary instrument or funds involved in the transportation, transmission, or transfer represent the proceeds of some form of unlawful activity. Title 18 USC 1956(a)(3) contains a sting provision whereby the government, or a directed informant, can represent funds as having been derived from a specified unlawful activity. 18 USC 1957 prohibits a monetary transaction of over $10,000 or an aggregate of monetary transactions of over $10,000 of criminally derived funds obtained from a specified unlawful activity while utilizing a financial institution. Title 31, known as the Bank Secrecy Act (BSA), requires report filing with the government and recordkeeping by financial institutions or individuals for domestic or foreign transactions involving currency, monetary instruments, and foreign accounts. It also sets forth punishment for the failure to make or falsify reports or records. Lesser included offenses in money laundering investigations include: 18 USC 2 (aiding and abetting) 18 USC 371 or 1956(h) (conspiracy) 18 USC 1001 (false statements) 18 USC 1510(b)(3) (B)(i) (obstruction of 18 USC 1956 or 1957 or Title 31 investigations) 18 USC 1621 (perjury) NOTE: 18 USC 1956(h) increases the penalty for a conspiracy to launder money in violation of 18 USC 1956 or 1957 to the penalty for the substantive money laundering offense. Refer to Law Enforcement Manual IX, for criteria relating to prosecution recommendations for violations of 18 USC 1956 and 1957. Internal Revenue Code (IRC) Section 6050I (effective January 1, 1985) requires any person who is engaged in a trade or business who in the course of such trade or business receives more than $10,000 in cash in one transaction or two or more related transactions shall make a return at such time as the Secretary by regulation prescribes.
### [9.5] 5.5.1 (10-09-1998) 18 USC 1956 and 1957 Money Laundering Investigations
Sections 1956 and 1957 of Title 18 directly spell out certain types of transactions which are used to launder funds derived from a SUA. This includes most federal white collar crimes and drug offenses as well as certain state law violations, but does not include Title 26 or Title 31 violations (see Exh.3.5-1 for a listing of SUAs). A SUA includes: offenses listed as predicate acts under the RICO statute of Section 1961(1) of Title 18, and a separate list of non-RICO offenses as set forth in Section 1956(c)(7). NOTE: Violations of 18 USC 1956 and 1957 discussed in this text apply to those within the Service's jurisdiction. An August 1990 Memorandum of Understanding (MOU) between Treasury, the Postal Service, and Justice requires that the Service must show Title 26 or Title 31 underlying criminal activity to have Section 1956 or 1957 jurisdiction. The underlying Title 26 or Title 31 activity requirement may be waived if no other agency objects or, if after positions are made known by each concerned agency, it is resolved to give the Service jurisdiction.
### [9.5] 5.5.1.1 (10-09-1998) Section 1956
Section 1956 is the basic money laundering offense of Title 18. Section 1956 has three specific parts. They are: Section 1956(a)(1) Domestic Financial Transactions 1956(a)(2) International Transportation of Monetary Instruments or Funds 1956(a)(3) Sting Operations
### [9.5] 5.5.1.1.1 (10-09-1998) Section 1956(a)(1) Domestic Financial Transactions
With respect to Section 1956(a)(1), the government must show that a defendant knew that the property involved in an actual or attempted financial transaction was the proceeds of a felonious crime, but need not know that the property was the proceeds of a SUA, and that the defendant either intended to: promote a SUA, engage in conduct constituting a violation of IRC Section 7201 or 7206, conceal or disguise the proceeds of a crime, or avoid a federal or state transaction reporting requirement. In addition, the government must prove that the funds do, in fact, represent the proceeds of a SUA.
### [9.5] 5.5.1.1.2 (10-09-1998) 1956(a)(2) International Transportation of Monetary Instruments or Funds
With respect to Section 1956(a)(2), the government must show that a defendant either transported, transmitted, or transferred or attempted to transport, transmit or transfer a monetary instrument or funds from a place in the United States or to the United States from or through a place outside the United States and that the defendant either intended to: promote a SUA, or knew that the funds represent the proceeds of some form of unlawful activity, and knew that such transportation, transmission, or transfer is designed in whole or in part: to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of the SUA; or to avoid a federal or state transaction reporting requirement. All of the subdivisions of subsection 1956(a)(2) apply to situations in which a person transports or attempts to transport monetary instruments or funds into or out of the United States for certain illicit purposes. Which of the other elements apply depends on which of the specific intent alternatives is alleged. The offense described in Section 1956(a)(2)(A) requires that the transportation, transmission, or transfer, or attempted transportation, transmission, or transfer be carried out with the intent to promote the carrying on of a specified unlawful activity. Unlike the corresponding provision in subsection 1956(a)(1)(A)(i), there is no requirement in this subsection that the monetary instrument or funds be the product of unlawful activity. Nor is there any knowledge requirement that the funds were the proceeds of an unlawful activity. The government must only establish that the defendant transported, transmitted, or transferred, or attempted to transport, transmit, or transfer the monetary instrument or funds with the intent to promote the carrying on of a specified unlawful activity. Section 1956(a)(2)(B)(i) requires proof that the defendant knew that the monetary instruments or funds involved in the transportation, transmission, or transfer or attempted transportation, transmission, or transfer represent the proceeds of some form of unlawful activity. But this provision does not require the government to prove that the property was, in fact, the proceeds of a specified unlawful activity. In addition, subsection (a)(2)(B)(ii) adds the element of proof that such transportation be designed in whole or part to avoid a transportation reporting requirement under state or federal law. Thus, all that has to be proven in addition to the transportation element is that the defendant knew: the funds to be the product of some kind of unlawful activity, and that the purpose of the movement in or out of the country was to avoid a reporting requirement.
### [9.5] 5.5.1.1.3 (10-09-1998) 1956(a)(3) Sting Operations
Section 1956(a)(3) is a sting provision that allows for undercover operations whereby the government, or a directed informant, can represent funds as being derived from a SUA. This subsection was added to the statute expressly to permit prosecution where the defendant believed the proceeds were derived from a specified unlawful activity because of a representation made by a law enforcement officer or an informant working under the officer's control. The knowledge and proceeds requirements were replaced with a single requirement that the property be represented to be proceeds of specified unlawful activity by a law enforcement officer. The government must prove that the defendant's intent was to: promote a SUA, conceal or disguise the nature, the location, the source, the ownership, or the control of the represented proceeds of the SUA, or avoid a federal or state transaction reporting requirement.
### [9.5] 5.5.1.2 (10-09-1998) Section 1957 Engaging in Monetary Transactions in Property Derived from Specified Unlawful Activity
Section 1957 prohibits an actual or an attempted monetary transaction of over $10,000 in SUA proceeds. Section 1957(f)(1) defines a monetary transaction to include a deposit, withdrawal, transfer, or exchange, in or affecting interstate or foreign commerce, of funds or a monetary instrument by, through, or to a financial institution. Section 1957(f)(1) also states that a monetary transaction does not include any transaction necessary to preserve a person's right to legal representation. Section 1957 differs from Section 1956(a)(1) in that Section 1956(a)(1) requires proof of a particular purpose or knowledge (e.g., intent to promote a SUA), whereas Section 1957 does not. The statute does not require that these funds be used for any additional criminal purpose nor that the defendant engaged in the transaction with any specific intent. The elements of Section 1957 are: an individual must engage or attempt to engage in a monetary transaction, the defendant must know that the property involved in the transaction is criminally derived, and the property must in fact be derived from a SUA. The term, monetary transaction, is narrower than the term, financial transaction, as used in Section 1956 in that it requires that a financial institution and at least $10,000 be involved in the transaction. The statute is silent as to whether or not the value of the property involved in two or more related transactions may be aggregated to reach the $10,000 requirement. It is the view of the Money Laundering Section of DOJ, Money Laundering Federal Prosecution Manual Vol. 1 , that if the several transactions are so closely related as to constitute phases or divisions of a single transaction, the property may be aggregated for the purpose of charging a single violation of Section 1957. The purchase of an automobile in installments totaling over $10,000 would be an obvious example of this.
### [9.5] 5.5.1.3 (10-09-1998) Section 1956(a)(1) (Domestic Financial Transactions) Statutory Language
Section 1956 (a)(1) states that Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity (A)(i) with the intent to promote the carrying on of specified unlawful activity; or (A)(ii) with intent to engage in conduct constituting a violation of section 7201 or 7206 of the Internal Revenue Code of 1986; or (B) knowing that the transaction is designed in whole or in part (B)(i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or (B)(ii) to avoid a transaction reporting requirement under state or federal law, shall be sentenced to a fine of not more than $500,000 or twice the value of the property involved in the transaction, whichever is greater, or imprisonment for not more than 20 years, or both.
### [9.5] 5.5.1.4 (10-09-1998) Section 1956(a)(2)(Engaging in Monetary Transactions in Property Derived from Specified Unlawful Activity) Statutory Language
Section 1956 (a)(2) states that Whoever transports, transmits, or transfers, or attempts to transport, transmit, or transfer a monetary instrument or funds from a place in the United States to or through a place outside the United States or to a place in the United States from or through a place outside the United States (A) with the intent to promote the carrying on of specified unlawful activity; or (B) knowing that the monetary instrument or funds involved in the transportation, transmission, or transfer represent the proceeds of some form of unlawful activity and knowing that such transportation, transmission, or transfer is designed in whole or in part: (i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or (ii) to avoid a transaction reporting requirement under state or federal law, shall be sentenced to a fine of not more than $500,000 or twice the value of the monetary instrument or funds involved in the transportation, transmission, or transfer whichever is greater, or imprisonment for not more than 20 years, or both.
### [9.5] 5.5.1.5 (10-09-1998) Section 1956(a)(3) (Sting provision) Statutory Language
Section 1956(a)(3) states that Whoever, with the intent (A) to promote the carrying on of specified unlawful activity; (B) to conceal or disguise the nature, location, source, ownership, or control of property believed to the proceeds of specified unlawful activity; or (C) to avoid a transaction reporting requirement under state or federal law, conducts or attempts to conduct a financial transaction involving property represented to be the proceeds of specified unlawful activity, or property used to conduct or facilitate specified unlawful activity, shall be fined under this title or imprisoned for not more than 20 years, or both. For purposes of this paragraph and paragraph (2), the term, represented, means any representation made by a law enforcement officer or by another person at the direction of, or with the approval of, a federal official authorized to investigate or prosecute violations of this section.
### [9.5] 5.5.1.6 (10-09-1998) Section 1957 Statutory Language
Section 1957 (a) states that: Whoever, in any of the circumstances set forth in subsection (d), knowingly engages or attempts to engage in a monetary transaction in criminally derived property that is of a value greater than $10,000 and is derived from specified unlawful activity, shall be punished as provided in subsection (b). Section 1957 (b)(1) states that: Except as provided in paragraph (2), the punishment for an offense under this section is a fine under Title 18, United States Code, or imprisonment for not more than 10 years, or both. Paragraph (2) of the statute states that: The court may impose an alternate fine to that imposable under paragraph (1) of not more than twice the amount of the criminally derived property involved in the transaction. Section 1957 (c) states that: In a prosecution for an offense under this section, the government is not required to prove the defendant knew that the offense from which the criminally derived property was derived was a specified unlawful activity. Section 1957 (d) states that the circumstances referred to in subsection (a) are: that the offense under this section takes place in the United States or in the special maritime and territorial jurisdiction of the United States; or that the offense under this section takes place outside the United States and such special jurisdiction, but the defendant is a United States person (as defined in section 3077 of this title, but excluding the class described in paragraph (2)(D) of such section).
### [9.5] 5.5.2 (10-09-1998) Definitions Under Title 18 Sections 1956 and 1957
The following subsections define terms used with respect to Title 18 Sections 1956 and 1957 .
### [9.5] 5.5.2.1 (10-09-1998) Section 1956(c)(1) through (6)
The term knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity means that the person knew the property involved in the transaction represented proceeds from some form, though not necessarily which form, of activity that constitutes a felony under state, federal, or foreign law, regardless of whether or not such activity is specified in paragraph (7). The term, conducts, includes initiating, concluding, or participating in initiating, or concluding a transaction. The term, transaction, includes a purchase, sale, loan, pledge, gift, transfer, delivery, or other disposition, and with respect to a financial institution includes a deposit, withdrawal, transfer between accounts, exchange of currency, loan, extension of credit, purchase or sale of any stock, bond, certificate of deposit, or other monetary instrument, use of a safe deposit box, or any other payment, transfer, or delivery by, through, or to a financial institution, by whatever means effected. A financial transaction, is defined as (A) a transaction which in any way or degree affects interstate or foreign commerce (i) involving the movement of funds by wire or other means or (ii) involving one or more monetary instruments, or (iii) involving the transfer of title to any real property, vehicle, vessel, or aircraft, or (B) a transaction involving the use of a financial institution which is engaged in, or the activities of which affect, interstate or foreign commerce in any way or degree. The term, Monetary Instruments, are defined as (i) coin or currency of the United States or of any other country, travelers'checks, personal checks, bank checks, and money orders, or (ii) investment securities or negotiable instruments, in bearer form or otherwise in such form that title thereto passes upon delivery. The term, financial institution, has the definition given that term in section 5312(a)(2) of Title 31, United States Code, ot the regulations promulgated thereunder.
### [9.5] 5.5.2.2 (10-09-1998) Section 1957(f)(1) through (3)
The term monetary transaction means the deposit, withdrawal, transfer, or exchange, in or affecting interstate or foreign commerce, of funds or a monetary instrument (as defined in section 1956(c)(5) of this title) by, through, or to a financial institution (as defined in section 1956 of this title), including any transaction that would be a financial transaction under section 1956(c)(4)(B) of this title, but such term does not include any transaction necessary to preserve a person's right to representation as guaranteed by the sixth amendment to the Constitution. The term criminally derived property means any property constituting, or derived from, proceeds obtained from a criminal offense. The term specified unlawful activity has the meaning given that term in section 1956 of this title.
### [9.5] 5.5.3 (10-09-1998) Legal Applications--18 USC 1956 and 1957
The following provides legal applications for Title 18 USC 1956 and 1957.
### [9.5] 5.5.3.1 (10-09-1998) Legal Applications--18 USC 1956(a)(1)
To charge a violation with any of the four intents of Section 1956(a)(1), the government must also establish: that a financial transaction was conducted or attempted; with the knowledge that the property involved in the financial transaction represented the proceeds of some form of unlawful activity; and that the property was in fact the proceeds of a specified unlawful activity.
### [9.5] 5.5.3.1.1 (10-09-1998) Transaction and Financial Transaction
Section 1956(c)(3) defines a transaction both in general and with respect to a financial institution. The courts and the government have ruled or taken the following positions: An exchange of cash between two drug dealers arguably is a transaction under the general definition, i.e., a transfer or other disposition (Justice). Mere transportation of funds within the United States or mere possession of supposed drug cash without a subsequent disposition are not transactions (Courts). Each transaction involvingdirty money is intended to be a separate offense, e.g., a drug dealer who divides $1 million in drug money into smaller lots and deposits it in 10 different banks has committed 10 violations, and two more violations if he or she withdraws some of the money and purchases a car and a boat (Congress). Section 1956(c)(4) specifies that a transaction must meet one of four requirements to be a financial transaction. Involving the movement of funds by wire or other means that in any way affects interstate or foreign commerce. The courts have interpreted funds movement broadly, and have ruled that mere possession of drug money in one's house and mere transportation of funds by car and airplane are not financial transactions. The courts have affirmed the following movement of funds to be financial transactions: (1) giving a check in exchange for cash; (2) sending cash through the mail (3) transfer of a box of currency from one person to another person; (4) various transfers of currency from a defendant's house to vehicles parked outside; (5) drug money from an undercover agent to another person who intended to carry the money in interstate travel. Involving the use of a monetary instrument that in any way affects interstate or foreign commerce. This includes a transfer of cash or any other monetary instrument from one person to another without involvement of a financial institution. Involving the transfer of title to any real property, vehicle, vessel, or aircraft (as of October 28, 1992) that in any way affects foreign or interstate commerce, e.g., a transfer of title of a vehicle from one person to another person. Involving a financial institution, as defined by section 1956(c)(6) and 31 USC 5312(a)(2) or 31 CFR 103.11, that is engaged in, or the activities of which affect interstate or foreign commerce. A court found a financial services company which received and invested funds to be a financial institution because it behaved like a bank. Car dealers, pawnbrokers, and precious metal dealers are also considered to be financial institutions. The courts have affirmed Congress'determination that property derived from narcotics trafficking affects interstate commerce.
### [9.5] 5.5.3.1.2 (10-09-1998) Conducts or Attempts to Conduct
This applies to not only a person who deposits cash in a bank knowing that the cash is criminal proceeds, but also to a bank employee who accepts it and knows that it is criminal proceeds. The courts hold that an attempt is behavior that is necessary to the consummation of the crime, is undertaken to violate the statute, and is a substantial step toward commission of the offense. A car salesman was held to have attempted to conduct a financial transaction under section 1956 even though he was arrested by the IRS before a transfer of vehicle title occurred. A defendant was found to have attempted to conduct a money laundering transaction after he accepted drug money from undercover agents and then moved to leave a hotel room; the matter involved a totality of the circumstances, including a detailed money laundering plan and mechanism. Attempted conduct is more difficult to prove factually than actual conduct. Case law has established that an individual who participates to initiate and then benefits from a transaction that was effected by another individual or entity, can be charged with the direct charge or as an aider and abettor, e.g., a person who uses nominees to purchase real estate.
### [9.5] 5.5.3.1.3 (10-09-1998) Knowing that the Property Represents the Proceeds of Some Form of Unlawful Activity
The government must establish with direct or circumstantial proof that a defendant actually or constructively knew that property involved in a financial transaction was the proceeds of some state, federal, or foreign felonious activity. It is sufficient to show that a defendant knew that certain property was the proceeds of some form of felonious conduct, and not the proceeds of a SUA. Third party knowledge (laundering another's criminal proceeds) is more difficult to establish than first party knowledge (laundering one's own criminal proceeds), and may have to be inferred from the circumstances of a transaction or transactions when absent direct incriminating statements by a defendant. Associating profit with willful blindness in third party knowledge investigations will enhance prosecution potential, as will a defendant's professional status. Investigations involving merchants and business persons not previously known to have dealings in unlawfully generated currency warrant a greater scrutiny of the evidence.
### [9.5] 5.5.3.1.4 (10-09-1998) Proceeds of Specified Unlawful Activity
The government must prove that transaction proceeds under Section 1956(a)(1) were in fact derived from specified unlawful activity, or in the instance of Section 1956(3) represented money to be derived from specified unlawful activity. SUAs go far beyond narcotics related offenses and include, in part, bankruptcy fraud, health care fraud, and insurance fraud. Circumstantial evidence is sufficient to prove that a transaction involved proceeds of a SUA, e.g., evidence that a defendant trafficks drugs, has large amounts of currency, and has no or little legitimate income is sufficient. Because this is a criminal matter, each element of the crime must be proved beyond a reasonable doubt, including any elements proved by circumstantial evidence. It is critical to determine when property or funds become the proceeds of an underlying crime. Money in a consummated drug transaction becomes proceeds; any subsequent transaction could be charged as a money laundering offense, e.g., an automobile purchased with SUA funds qualifies as proceeds. The definition of when funds become SUA proceeds in transactions that involve a middle-man is based on for whom the middleman is acting. If a victim in a fraud scheme sends an innocent party to deliver funds to a defendant, the funds become proceeds upon receipt by the defendant; whereas, if the defendant sends an innocent assistant to receive funds, the funds become proceeds upon receipt by the assistant. Defendants often commingle SUA funds with legitimate funds. The government need not prove that all proceeds in a transaction were unlawfully derived, but must be able to trace some of the proceeds to a SUA. The same transaction cannot be both a money laundering offense and the underlying SUA activity that generated the funds being laundered.
### [9.5] 5.5.3.1.5 (10-09-1998) Specific Intent
Section 1956(a)(1)(A)(i): intent to promote the carrying on of specified unlawful activity. Circumstantial evidence is sufficient to show intent for this section. The government is not required to prove that a defendant intended to violate a specific statute, but did intend to promote or facilitate an activity that he or she knew to be illegal. A violation may occur even if the SUA being promoted is never completed. A defendant can engage in financial transactions that promote not only ongoing or future activity, but also prior activity, e.g., section 1956(a)(1)(A)(i) can be charged for the deposit of funds in a mail fraud scheme which issues IRS refund checks to fictitious employees. Under section 1956(a)(1)(A)(i), the payment of proceeds to fraud victims to entice them to continue to invest in a fraudulent scheme, or to keep quiet about an ongoing scheme, could be promotion. Prosecution recommendation for the simple deposit of criminal proceeds into one's bank account as money laundering promotion is generally not advisable. Section 1956(a)(1)(A)(ii): intent to engage in conduct constituting a violation of IRC Section 7201 or 7206. Under this section, a defendant's objective to engage in conduct in violation of section 7201 or 7206 is proof of intent. An individual may be prosecuted under section 1956(a)(1)(A) (ii) for engaging in a money laundering financial transaction with the intent to violate section 7201 even where the tax year has not yet concluded and the tax return has not yet been filed. However, there must be some proof that a person engaged in a subject financial transaction was aware the transaction related in some way to an intended violation of section 7201 or 7206. Section 1956(a)(1)(A)(ii) does not limit the type of tax or the type of document submitted. Also, the tax involved need not be the tax of the person engaging in the financial transaction, i.e., the statute can apply to a person who intends to assist another person to violate the tax laws. The DOJ Tax Division will not authorize a section 1956(a)(1)(A)(ii) charge in tax crimes involving mail, wire, or bank fraud: when a tax return or other IRS form or document is the only mailing charged; when the only wire transmission to the IRS involves a tax return or other IRS form, or the transmission of a refund check to a bank account by an electronic funds transfer; or when the mailing, wire transfer, or representation charged is incidental to the underlying violation of Internal Revenue laws. Section 1956(a)(1)(B)(i): intent to conceal or disguise the nature, source, ownership, or control of proceeds of specified unlawful activity. Circumstantial evidence may be used to show intent that a transaction was purposed to conceal or disguise under this section. The government need only prove that a defendant knew that a transaction was designed to conceal the nature, location, source, or ownership or control of proceeds of some felonious activity, that were, in fact, from a SUA. The evidence can include using a third party's name or business account, or commingling of illegal funds with legitimate funds. The government need only show that a defendant had knowledge that a transaction was designed to conceal illegal activity proceeds, and not that a defendant had the purpose of concealing illegal activity proceeds. This applies to individuals who are willfully blind. The momentum of court rulings in this area is that converting proceeds into goods or services can violate section 1956(a)(1)(B)(i) if the expenditures demonstrate an ulterior design to conceal or disguise. Section 1956(a)(1)(B)(ii) and (a)(2)(B)(ii): knowing that the transaction is designed in whole or in part to avoid a transaction reporting requirement under state or federal law. The legislative history of these sections has been held to show that the term, avoid, is synonymous with the term, evade. For example, if A gave his or her cocaine profits to B to launder through a network of smurfs, B could be charged with section 1956(a)(1)(B)(ii) even if he or she was unaware that the funds actually came from a SUA; provided that it could be shown that B knew that the funds came from some form of unlawful activity.
### [9.5] 5.5.3.2 (10-09-1998) Legal Applications 18 USC 1956(a)(2)
All of the subdivisions of subsection 1956(a)(2) apply to situations in which a person transports or attempts to transport monetary instruments or funds into or out of the United States for certain illicit purposes. Which of the other elements apply depends on which of the specific intent alternative is alleged. The offense described in Section 1956(a)(2)(A) requires that the transportation, transmission, or transfer, or attempted transportation, transmission, or transfer be carried out with the intent to promote the carrying on of specified activity. Unlike the corresponding provision in subsection 1956(a)(1)(A)(i), there is no requirement in this subsection that the monetary instrument or funds be the product of unlawful activity. Nor is there any knowledge requirement. Prosecutors must only establish that the defendant transported, transmitted, or transferred, or attempted to transport, transmit, or transfer the monetary instrument or funds with the intent to promote the carrying on of specified unlawful activity. Subsection 1956(a)(2)(B)(i) requires knowledge that the monetary instrument or funds involved in the transportation, transmission, or transfer represent the proceeds of some form of unlawful activity and knowledge that the transportation, transmission, or transfer is designed in whole or in part to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of the specified unlawful activity; or to avoid a reporting requirement under state or federal law.
### [9.5] 5.5.3.3 (10-09-1998) Legal Applications 18 USC 1956(a)(3) Undercover Sting Operations
The term, represented, in this subsection means any representation made by either a law enforcement officer or by another person at the direction or approval of a federal official who is authorized to investigate or prosecute section 1956(a)(3) violations. Explicit representations need not be made, but are preferred. Subsections 1956(a)(1) and 1956(a)(3) are parallel statutes, i.e., they address the same conduct and punish the same wrong. The requirement of subsection 1956(a)(3) that the property be represented as either the proceeds of a SUA or as being used to facilitate or conduct criminal activity replaces the knowledge and proceeds requirements of subsection 1956(a)(1). It is an offense if an undercover agent explicitly says, this is drug money, and a defendant uses (or attempts to use) the money to conduct a financial transaction to promote a future SUA (buying a vessel to ship drugs), or to conceal or disguise the ownership of money (a wire to a fictitious corporate account), or to violate a currency reporting requirement (structured check purchases). It is also an offense if an officer says, this airplane is used to smuggle drugs, and a defendant then engages in a financial transaction that involves the property with one of the specific intents. In contrast, as an example of an implied representation, a jury could infer that a defendant knew that certain funds were drug money by a veiled reference from an undercover agent to a coconspirator that their currency exchange should charge higher commissions due to the dangers in dealing with drug dealers. The Courts have held that it is enough for an undercover agent to make a defendant aware of circumstances from which a reasonable person would infer that certain property was criminal proceeds. Also, the government need not recite the alleged source of represented funds during each transaction in a sting operation. Under subsection 1956(a)(1), it is an offense to take known drug money and intentionally engage in a financial transaction; however, it is not an offense to engage in a financial transaction in a drug deal if the money was not the proceeds of a SUA before the transaction began. Therefore, an undercover agent must represent that the money involved in a financial transaction is the proceeds of some past criminal activity (or property used to facilitate past criminal activity). CI or the U.S. Attorney's office must decide how far to let a sting operation go to satisfy the financial transaction element. Circumstantial evidence will have to be used to show intent if an arrest is made before a defendant does anything with funds received from an undercover agent or a directed informant. In such instances, the delivery of funds must satisfy the definition of a financial transaction, the undercover agent must properly represent the funds as being proceeds of a past SUA, and a defendant must accept the funds with one of the intents set forth in section 1956(a)(3)(A), (B) or (C). Defenses in undercover operations include entrapment, i.e., government inducement or a lack of predisposition by a defendant to commit a crime, and outrageous government conduct whereby the government violates a defendant's constitutional rights. A review of predisposition must be made in any undercover operation, especially for a first-time offender with nothing criminal in his or her background.
### [9.5] 5.5.3.4 (10-09-1998) Legal Applications--18 USC 1957
To prove a violation of Section 1957, the government must show: an individual engaged or attempted to engage in a monetary transaction greater than $10,000; the individual knew that the property involved in the transaction was criminally derived, but does not need to know it was derived from a SUA; and the property was in fact derived from a SUA. DOJ views that several closely related transactions, i.e, phases or divisions of a single transaction, may be aggregated for a single charge under section 1957, e.g., the purchase of a vehicle in installments totaling over $10,000. DOJ Money Laundering Section must approve any prosecution of an attorney under section 1957 for the receipt and deposit of funds allegedly derived from a SUA. 18 USC 1957(a) prohibits a monetary transaction involving the disbursement or receipt of funds over $10,000 known to be illegally derived and was in fact derived from a SUA, if a financial institution is utilized at some point (see Section 1957(f)(1)). The funds need not be used for any additional purpose nor be transacted by a defendant with any specific intent, e.g., a bank deposit of over $10,000 by the seller of a house who knows that the funds came from drug dealing is a violation of section 1957. Section 1957 is the equivalent of a financial transaction offense under section 1956(a)(1) except that the specific intent requirements are replaced by the requirement that the (monetary) transaction involve over $10,000 and a financial institution. Section 1957(f)(1) defines a monetary transaction to include the deposit, withdrawal, transfer or exchange, in or affecting interstate or foreign commerce, of funds or a monetary instrument, by, through, or to a financial institution, such as transactions at car dealerships or jewelry stores. Section 1957(f)(1) also states that the term does not include any transaction necessary to preserve a person's right to representation as guaranteed by the sixth amendment to the Constitution. The Anti-Money Laundering Act of 1992 (October 28, 1992) amended section 1957(f)(1) to clarify that the definition of a financial institution is the same as that under section 1956. Prosecution under section 1957 is not jeopardized by a defendant having commingled tainted and non-tainted funds. A defendant may violate section 1957 by mere deposits of proceeds from an underlying offense, e.g., a deposit of proceeds received from the transfer of fraudulently procured equipment; or using embezzled money as collateral for a loan whereby section 1957 is violated each time a defendant deposits loan proceeds into an account; or depositing checks from a completed wire fraud scheme. The U.S. Sentencing Commission expressed that simple receipt and deposit of SUA proceeds cause little or no harm to society, or simply constitute the completion of an underlying offense. Therefore, consideration should be given to recommending prosecution for a receipt and deposit transaction only for transactions that involve the movement or spending of funds subsequent to an initial deposit.
### [9.5] 5.5.3.5 (10-09-1998) Legal Applications--18 USC 1956(h) (Conspiracy)
To prove a violation of Section 1956(h), the government must prove that a defendant knew that transacted funds were proceeds of a SUA. In a section 1956(a)(3) sting prosecution, a court held that it is not necessary for coconspirators to know that funds are coming from the same illegal activity, but they must know that the unlawful source is one of the prescribed SUAs. The government's role in a sting conspiracy should be limited to supplying funds and letting the defendants be responsible for devising how the funds will be laundered. DOJ has directed that conspiracy to violate 18 USC 1956 or 1957 will be charged under 18 USC 1956(h), and not under 18 USC 371.
### [9.5] 5.5.4 (10-09-1998) 18 USC 1960 Prohibition of Illegal Money Transmitting Business
Effective October 28, 1992, and amended September 23, 1994, this section makes it a federal offense to knowingly conduct, control, manage, or own an illegal money transmitting business that affects interstate or foreign commerce in any manner or degree, e.g., casas de cambio and giros. The term illegal transmitting business means a money transmitting business which affects interstate or foreign commerce in any manner or degree and: is intentionally operated without the appropriate money transmitting license in a State where such operation is punishable as a misdemeanor or a felony under State law; or fails to comply with the money transmitting requirements under Section 5330 of Title 31, United States Code, or regulations prescribed under such section. The term money transmitting includes but is not limited to transferring funds on behalf of the public by any and all means including but not limited to transfers within the country, or to locations abroad by wire, check, draft, facsimile, or courier. The term State means any State of the United States, and the District of Columbia, the Northern Mariana Islands, and any commonwealth, territory, or possession of the United States.
### [9.5] 5.5.5 (10-09-1998) Penalties for Title 18 Money Laundering Violations
This subsection covers criminal and civil penalties.
### [9.5] 5.5.5.1 (10-09-1998) Criminal Penalties
The criminal penalty for a violation of 18 USC 1956(a)(1) and (2) is a fine of up to $500,000 or twice the value of the monetary instruments involved, whichever is greater, or imprisonment of up to 20 years, or both; and for a violation of 1956(a)(3) is an undetermined fine, or imprisonment of up to 20 years, or both. The criminal penalty for a violation of 18 USC 1957 is a fine in accordance with 18 USC 3571-3574 (or up to twice the amount of the criminally derived property involved in the transaction), or up to 10 years imprisonment, or both. The criminal penalty for a violation of 18 USC 1960 is a fine in accordance with 18 USC 3571-3574, or up to 5 years imprisonment, or both. The proceeds of illegal money transmitting businesses are subject to seizure by and criminal forfeiture to the United States under 18 USC 982(a)(1).
### [9.5] 5.5.5.2 (10-09-1998) Civil Penalties
18 USC 1956(b) provides that violators under subsection 1956(a)(1) or (2) are also liable for a civil penalty of not more than the greater of the value of the property, funds, or monetary instruments involved in the transaction, or $10,000. The civil penalty is intended to be imposed in addition to any criminal fine. The Federal Deposit Insurance Act (FDIC) provides that individuals convicted of 18 USC 1956, or conspiracy to do so, shall be precluded from all affiliation with an FDIC insured institution, including employment or ownership, for a minimum of 10 years from the date of conviction. 18 USC 1956(h) and 1957 do not carry corresponding civil penalties.
### [9.5] 5.5.6 (10-09-1998) Investigation of Title 31 Violations
Titles I and II of the Foreign Transactions Act, which were signed into law on October 26, 1970 (Public Law 91-508) are commonly referred to as the Bank Secrecy Act. Title I provided that financial institutions must maintain certain records, while Title II required the filing of reports and the keeping of records on certain monetary instrument transactions. The BSA has served to assist federal law enforcement agencies in investigations such as drug trafficking and tax evasion. 12 USC 1829b and 1953 give authority to the Secretary of the Treasury to issue regulations requiring certain records to be maintained by financial institutions; and 31 USC 321, 5313(a), 5314 and 5316 give authority for the Secretary of the Treasury to require reports of currency and foreign transactions. Title 31 as used in this text refers to Sections 5311 through 5330 of the USC and the regulations issued by the Secretary of the Treasury in Title 31, Code of Federal Regulations (CFR), Part 103, on July 1, 1972, and subsequent modifications. The historical emphasis of the Service in Title 31 money laundering investigations has related to the failure to file or the false filing of Currency Transaction Reports (CTRs) (Form 4789), i.e., the requirement that a financial institution file a CTR when a person conducts a currency transaction of more than $10,000 with the financial institution. Service investigations have resulted in numerous convictions of individuals and financial institutions for the structuring of currency deposits via a network of smurfs (those who make numerous same-day currency deposits of less than $10,000, usually at several different banks, to evade the filing of CTRs). The smurfing of currency was and often still is a popular method of laundering drug profits. The government was very successful in the prosecution of structuring violations under Title 31 by showing that a defendant knew that his or her structured deposits with a financial institution were designed to evade the filing of CTRs. However, in Ratzlaff v. United States , 114 S. Ct. 655 (1994), the U.S. Supreme Court ruled that the willfulness requirement of 31 USC 5322, as it pertained to the structuring of currency transactions to evade the filing of CTRs under 31 USC 5324, meant that the government had to show that a defendant knew that the structuring of currency transactions to evade the filing of CTRs was in fact illegal. As a result, DOJ declined to prosecute most structuring violations under Title 31 because of the difficulty of proving that a defendant knew that structuring to evade CTRs was illegal. The Money Laundering Suppression Act of 1994, Pub. L. 103-325 (September 23, 1994), included a legislative response to the Supreme Court decision in Ratzlaff. 31 USC 5324 was amended by the addition of a criminal penalty provision that excludes a willfulness requirement to prove a violation for the structuring of transactions to evade reporting requirements, e.g., CTRs. The Ratzlaff decision did not affect prosecutions intended under 18 USC 1956(a)(1)(B)(ii) and (a)(2)(B)(ii) which prohibit transactions that are known to be designed in whole or in part to avoid a transaction reporting requirement under state or federal law, e.g., the filing of CTRs. The legislative history of these sections has been held to show that the term, avoid, is synonymous with the term, evade. For example, if A gave his or her cocaine profits to B to launder through a network of smurfs, B could be charged with section 1956(a)(1)(B)(ii), provided that it could be shown that B knew that the funds came from some form of unlawful activity. (If it could not be shown that B knew that the funds came from some form of unlawful activity, then prosecution of B could be pursued under 31 USC 5324(a) which prohibits the structuring of transactions to evade CTR reporting requirements).
### [9.5] 5.5.7 (10-09-1998) IRS Jurisdiction Under Title 31
The regulations issued by the Secretary of the Treasury in 31 CFR Part 103 are the detailed requirements for complying with the provisions of the BSA, and give the IRS Commissioner the authority to enforce certain BSA provisions. 31 CFR 103.46(b)(8) gives the IRS Commissioner authority to examine all financial institutions for Title 31 compliance that are not currently examined by federal bank supervisory agencies, except for brokers or dealers in securities. 31 CFR 103.46(c)(2) gives to the Commissioner the authority to investigate all criminal violations of Title 31 (except with respect to reports of transportation of currency or monetary instruments). Civil Title 31 examination of certain secondary financial institutions are the responsibility of IRS Examination. In Delegation Order No. 143, as revised, the Commissioner delegated the authority to initiate criminal investigations of financial institutions that are not currently examined by federal bank supervisory agencies, except for brokers or dealers in securities, to the Director of the National Operations Division and the Chiefs, CI. The Commissioner also delegated the authority to initiate Title 31 criminal investigations of banks and brokers or dealers in securities to the Assistant Commissioner, CI, pursuant to Treasury Order 150-10 and Directive 15-41, a Memorandum of Understanding approved September 6, 1985, a Clarification of Memorandum approved January 29, 1986, and 26 CFR 301.7701-9(c).
### [9.5] 5.5.8 (10-09-1998) Title 31 Definitions (31 CFR 103.11)
The following definitions will apply to forms prescribed under 31 CFR , where not otherwise distinctly expressed or manifestly incompatible with the intent thereof, terms shall have the meanings ascribed in this section. Accept. A receiving financial institution, other than the recipient's financial institution, accepts a transmittal order by executing the transmittal order. A recipient's financial institution accepts a transmittal order by paying the recipient, by notifying the recipient of the receipt of the order or by otherwise becoming obligated to carry out the order. At one time. For purposes of @ 103.23 of this part, a person who transports, mails, ships or receives; is about to or attempts to transport, mail or ship; or causes the transportation, mailing, shipment or receipt of monetary instruments, is deemed to do so "at one time" if: That person either alone, in conjunction with or on behalf of others; Transports, mails, ships or receives in any manner; is about to transport, mail or ship in any manner; or causes the transportation, mailing, shipment or receipt in any manner of; Monetary instruments; Into the United States or out of the United States; Totaling more than $ 10,000; (i) On one calendar day or (ii) if for the purpose of evading the reporting requirements of @ 103.23, on one or more days. Bank. Each agent, agency, branch or office within the United States of any person doing business in one or more of the capacities listed below: A commercial bank or trust company organized under the laws of any State or of the United States; A private bank; A savings and loan association or a building and loan association organized under the laws of any State or of the United States; An insured institution as defined in section 401 of the National Housing Act; A savings bank, industrial bank or other thrift institution; A credit union organized under the law of any State or of the United States; Any other organization chartered under the banking laws of any State and subject to the supervision of the bank supervisory authorities of a State; A bank organized under foreign law; Any national banking association or corporation acting under the provisions of section 25(a) of the Act of Dec. 23, 1913, as added by the Act of Dec. 24, 1919, ch. 18, 41 Stat. 378, as amended (12 U.S.C. 611-32). Beneficiary. The person to be paid by the beneficiary's bank. Beneficiary's bank. The bank or foreign bank identified in a payment order in which an account of the beneficiary is to be credited pursuant to the order or which otherwise is to make payment to the beneficiary if the order does not provide for payment to an account. Broker or dealer in securities. A broker or dealer in securities, registered or required to be registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934. Common carrier. Any person engaged in the business of transporting individuals or goods for a fee who holds himself out as ready to engage in such transportation for hire and who undertakes to do so indiscriminately for all persons who are prepared to pay the fee for the particular service offered. Currency. 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. Currency dealer or exchanger. A person who engages as a business in dealing in or exchanging currency, except for banks which offer such services as an adjunct to their regular services. Deposit account. Deposit accounts include transaction accounts described in paragraph (q) of this section, savings accounts, and other time deposits. Domestic. When used herein, refers to the doing of business within the United States, and limits the applicability of the provision where it appears to the performance by such institutions or agencies of functions within the United States. Established customer. A person with an account with the financial institution, including a loan account or deposit or other asset account, or a person with respect to which the financial institution has obtained and maintains on file the person's name and address, as well as taxpayer identification number (e.g., social security or employer identification number) or, if none, alien identification number or passport number and country of issuance, and to which the financial institution provides financial services relying on that information. Execution date. The day on which the receiving financial institution may properly issue a transmittal order in execution of the sender's order. The execution date may be determined by instruction of the sender but cannot be earlier than the day the order is received, and, unless otherwise determined, is the day the order is received. If the sender's instruction states a payment date, the execution date is the payment date or an earlier date on which execution is reasonably necessary to allow payment to the recipient on the payment date. Financial institution. Each agent, agency, branch, or office within the United States of any person doing business, whether or not on a regular basis or as an organized business concern, in one or more of the capacities listed below: A bank (except bank credit card systems); A broker or dealer in securities; A currency dealer or exchanger, including a person engaged in the business of a check casher; An issuer, seller, or redeemer of traveler's checks or money orders, except as a selling agent exclusively who does not sell more than $150,000 of such instruments within any given 30-day period; A licensed transmitter of funds, or other person engaged in the business of transmitting funds; A telegraph company; (i) Casino. A casino or gambling casino that: Is duly licensed or authorized to do business as such in the United States, whether under the laws of a State or of a Territory or Insular Possession of the United States, or under the Indian Gaming Regulatory Act or other federal, state, or tribal law or arrangement affecting Indian lands (including, without limitation, a casino operating on the assumption or under the view that no such authorization is required for casino operation on Indian lands); and has gross annual gaming revenue in excess of $1 million. The term includes the principal headquarters and every domestic branch or place of business of the casino. (ii) For purposes of this paragraph (i)(7),"gross annual gaming revenue" means the gross gaming revenue received by a casino, during either the previous business year or the current business year of the casino. A casino or gambling casino which is a casino for purposes of this part solely because its gross annual gaming revenue exceeds $1,000,000 during its current business year, shall not be considered a casino for purposes of this part prior to the time in its current business year that its gross annual gaming revenue exceeds $1,000,000. Card clubs. A card club will include any establishment of the type commonly referred to as a "card club" ,"card room" ,"gaming club" or "gaming room," that is duly licensed or authorized to do business either under state law, under the laws of a particular political subdivision within a state, or under the Indian Gaming Regulatory Act or other federal, state, or tribal law or arrangement affecting Indian lands. Card clubs licensed by U.S. territories or possessions also fall within the definition. A person subject to supervision by any state or federal bank supervisory authority; The United States Postal Service with respect to the sale of money orders. Foreign bank. A bank organized under foreign law, or an agency, branch or office located outside the United States of a bank. The term does not include an agent, agency, branch or office within the United States of a bank organized under foreign law. Foreign financial agency. A person acting outside the United States for a person (except for a country, a monetary or financial authority acting as a monetary or financial authority, or an international financial institution of which the United States Government is a member) as a financial institution, bailee, depository trustee, or agent, or acting in a similar way related to money, credit, securities, gold, or a transaction in money, credit, securities, or gold. Funds transfer. The series of transactions, beginning with the originator's payment order, made for the purpose of making payment to the beneficiary of the order. The term includes any payment order issued by the originator's bank or an intermediary bank intended to carry out the originator's payment order. A funds transfer is completed by acceptance by the beneficiary's bank of a payment order for the benefit of the beneficiary of the originator's payment order. Funds transfers governed by the Electronic Fund Transfer Act of 1978 (Title XX, Pub. L. 95-630, 92 Stat. 3728, 15 U.S.C. 1693, et seq.), as well as any other funds transfers that are made through an automated clearinghouse, an automated teller machine, or a point-of-sale system, are excluded from this definition. Intermediary bank. A receiving bank other than the originator's bank or the beneficiary's bank. Intermediary financial institution. A receiving financial institution, other than the transmittor's financial institution or the recipient's financial institution. The term intermediary financial institution includes an intermediary bank. Investment security. An instrument which: Is issued in bearer or registered form; Is of a type commonly dealt in upon securities exchanges or markets or commonly recognized in any area in which it is issued or dealt in as a medium for investment; Is either one of a class or series or by its terms is divisible into a class or series of instruments; and Evidences a share, participation or other interest in property or in an enterprise or evidences an obligation of the issuer. Monetary instruments. (1) Monetary instruments include: (i) Currency; (ii) Traveler's checks in any form; (iii) All negotiable instruments (including personal checks, business checks, official bank checks, cashier's checks, third-party checks, promissory notes (as that term is defined in the Uniform Commercial Code), and money orders) that are either in bearer form, endorsed without restriction, made out to a fictitious payee (for the purposes of @ 103.23), or otherwise in such form that title thereto passes upon delivery (iv) Incomplete instruments (including personal checks, business checks, official bank checks, cashier's checks, third-party checks, promissory notes (as that term is defined in the Uniform Commercial Code), and money orders) signed but with the payee's name omitted; and (v) Securities or stock in bearer form or otherwise in such form that title thereto passes upon delivery. (2) Monetary instruments do not include warehouse receipts or bills of lading. Originator. The sender of the first payment order in a funds transfer. Originator's bank. The receiving bank to which the payment order of the originator is issued if the originator is not a bank or foreign bank, or the originator if the originator is a bank or foreign bank. Payment date. The day on which the amount of the transmittal order is payable to the recipient by the recipient's financial institution. The payment date may be determined by instruction of the sender, but cannot be earlier than than the day the order is received by the recipient's financial institution and, unless otherwise prescribed by instruction, is the date the order is received by the recipient's financial institution. Payment order. An instruction of a sender to a receiving bank, transmitted orally, electronically, or in writing, to pay, or to cause another bank or foreign bank to pay, a fixed or determinable amount of money to a beneficiary if: The instruction does not state a condition to payment to the beneficiary other than time of payment; The receiving bank is to be reimbursed by debiting an account of, or otherwise receiving payment from, the sender; and The instruction is transmitted by the sender directly to the receiving bank or to an agent, funds transfer system, or communication system for transmittal to the receiving bank. Person. An individual, a corporation, a partnership, a trust or estate, a joint stock company, an association, a syndicate, joint venture, or other unincorporated organization or group, an Indian Tribe (as that term is defined in the Indian Gaming Regulatory Act), and all entities cognizable as legal personalities. Receiving bank. The bank or foreign bank to which the sender's instruction is addressed. Receiving financial institution. The financial institution or foreign financial agency to which the sender's instruction is addressed. The term receiving financial institution includes a receiving bank. Recipient. The person to be paid by the recipient's financial institution. The term recipient includes a beneficiary, except where the recipient's financial institution is a financial institution other than a bank. Recipient's financial institution. The financial institution or foreign financial agency identified in a transmittal order in which an account of the recipient is to be credited pursuant to the transmittal order or which otherwise is to make payment to the recipient if the order does not provide for payment to an account. The term recipient's financial institution includes a beneficiary's bank, except where the beneficiary is a recipient's financial institution. Secretary. The Secretary of the Treasury or any other person duly authorized by the Secretary to perform the function mentioned. Sender. The person giving the instruction to the receiving financial institution. Structure (structuring). For purposes of section 103.53, a person structures a transaction if that person, acting alone, or in conjunction with, or on behalf of, other persons, conducts or attempts to conduct one or more transactions in currency, in any amount, at one or more financial institutions, on one or more days, in any manner, for the purpose of evading the reporting requirements under section 103.22 of this part. "In any manner" includes, but is not limited to, the breaking down of a single sum of currency exceeding $10,000 into smaller sums, including sums at or below $10,000, or the conduct of a transaction, or series of currency transactions, including transactions at or below $10,000. The transaction or transactions need not exceed the $10,000 reporting threshold at any single financial institution on any single day in order to constitute structuring within the meaning of this definition. Transaction account. Transaction accounts include those accounts described in 12 U.S.C. 461(b)(1)(C), money market accounts and similar accounts that take deposits and are subject to withdrawal by check or other negotiable order. Transaction. (1) Except as provided in paragraph (ii)(2) of this section, transaction means a purchase, sale, loan, pledge, gift, transfer, delivery or other disposition, and with respect to a financial institution includes a deposit, withdrawal, transfer between accounts, exchange of currency, loan, extension of credit, purchase or sale of any stock, bond, certificate of deposit, or other investment security or monetary instrument, or any other payment, transfer, or delivery by, through, or to a financial institution, by whatever means effected. (2) For purposes of @ 103.22, and other provisions of this part relating solely to the report required by that section, the term "transaction in currency" shall mean a transaction involving the physical transfer of currency from one person to another. A transaction which is a transfer of funds by means of bank check, bank draft, wire transfer, or other written order, and which does not include the physical transfer of currency, is not a transfer of currency for this purpose. Transmittal of funds. A series of transactions beginning with the transmittor's transmittal order, made for the purpose of making payment to the recipient of the order. The term includes any transmittal order issued by the transmittor's financial institution or an intermediary financial institution intended to carry out the transmittor's transmittal order. The term transmittal of funds includes a funds transfer. A transmittal of funds is completed by acceptance by the recipient's financial institution of a transmittal order for the benefit of the recipient of the transmittor's transmittal order. Funds transfers governed by the Electronic Fund Transfer Act of 1978 (Title XX, Pub. L. 95-630, 92 Stat. 3728, 15 U.S.C. 1693, et seq.), as well as any other funds transfers that are made through an automated clearinghouse, an automated teller machine, or a point-of-sale system, are excluded from this definition. Transmittal order. The term transmittal order includes a payment order and is an instruction of a sender to a receiving financial institution, transmitted orally, electronically, or in writing, to pay, or cause another financial institution or foreign financial agency to pay, a fixed or determinable amount of money to a recipient if: The instruction does not state a condition to payment to the recipient other than time of payment; The receiving financial institution is to be reimbursed by debiting an account of, or otherwise receiving payment from, the sender; and (3) The instruction is transmitted by the sender directly to the receiving financial institution or to an agent or communication system for transmittal to the receiving financial institution. Transmittor. The sender of the first transmittal order in a transmittal of funds. The term transmittor includes an originator, except where the transmittor's financial institution is a financial institution or foreign financial agency other than a bank or foreign bank. United States. The States of the United States, the District of Columbia, the Indian lands (as that term is defined in the Indian Gaming Regulatory Act), and the Territories and Insular Possessions of the United States. Business day. Business day, as used in this part with respect to banks, means that day, as normally communicated to its depository customers, on which a bank routinely posts a particular transaction to its customer's account. Postal service. The United States Postal Service. FinCEN. FinCEN means the Financial Crimes Enforcement Network, an office within the Office of the Under Secretary (Enforcement) of the Department of the Treasury. Indian Gaming Regulatory Act. The Indian Gaming Regulatory Act of 1988, codified at 25 U.S.C. 2701-2721 and 18 U.S.C. 1166-68. State. The States of the United States and, wherever necessary to carry out the provisions of this part, the District of Columbia. Territories and Insular Possessions. The Commonwealth of Puerto Rico, the United States Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands, and all other territories and possessions of the United States other than the Indian lands and the District of Columbia.
### [9.5] 5.5.9 (10-09-1998) Reports Required Under Title 31
### [9.5] 5.5.9.1 (10-09-1998) Currency Transaction Report (Form 4789)
31 CFR 103.22 requires that each financial institution, other than a casino or the Postal Service shall file a Currency Transaction Report (CTR) on each deposit, withdrawal, exchange of currency or other payment or transfer, by, through, or to such financial institution which involves a transaction in currency of more than $10,000. The CTR must be filed by the 15th calendar day after the day of the transaction with the IRS Detroit Computing Center, ATTN: CTR, PO Box 33604, Detroit, Michigan 48232-5604, or with the local IRS office. 31 USC 5313(d) provide mandatory exemptions from reporting requirements. In general, The Secretary of the Treasury shall exempt a depository institution from the reporting requirements with respect to transactions between the depository institution and the following categories of entities: Another depository institution. A department or agency of the United States, any State, or any political subdivision of any State. Any entity established under the laws of the United States, any State, or any political subdivision of any State, or under an interstate compact between 2 or more States, which exercises governmental authority on behalf of the United States or any such State or political subdivision. Any business or category of business the reports on which have little or no value for law enforcement purposes. The Secretary of the Treasury shall publish in the Federal Register at such times as the Secretary determines to be appropriate (but not less frequently than once each year) a list of all the entities whose transactions with a depository institution are exempt. 31 USC 5313 (e) exempts a depository institution from the reporting requirements with respect to transactions between the depository institution and a qualified business customer of the institution on the basis of information submitted to the Secretary by the institution in accordance with procedures which the Secretary shall establish. Qualified business customer defined. For purposes of this regulation, the term "qualified business customer" means a business which: maintains a transaction account at the depository institution; frequently engages in transactions with the depository institution which are subject to the reporting requirements; and meets criteria which the Secretary determines are sufficient to ensure that the purposes are carried out without requiring a report. 31 CFR 103.22 (b)(2) provides that banks may exempt the following customers from the filing of the CTR: Deposits or withdrawals of currency from an existing account by an established depositor who is a United States resident and operates a retail type of business in the United States. For the purpose of this subsection, a retail type of business is a business primarily engaged in providing goods to ultimate consumers and for which the business is paid in substantial portions by currency, except that dealerships which buy or sell motor vehicles, vessels, or aircraft are not included and their transactions may not be exempted from the reporting requirements of this section. Deposits or withdrawals of currency from an existing account by an established depositor who is a United States resident and operates a sports arena, race track, amusement park, bar, restaurant, hotel, check cashing service licensed by state or local governments, vending machine company, theater, regularly scheduled passenger carrier or any public utility. Deposits or withdrawals, exchanges of currency or other payments and transfers by local or state governments, or the United States or any of its agencies or instrumentalities. Withdrawals for payroll purposes from an existing account by an established depositor who is a United States resident and operates a firm that regularly withdraws more than $ 10,000 in order to pay its employees in currency. 31 CFR 103.22 (d) states that after October 27, 1986, a bank may not place any customer on its exempt list without first preparing a written statement, signed by the customer, describing the customary conduct of the lawful domestic business of that customer and a detailed statement of reasons why such person is qualified for an exemption. The statement shall include the name, address, nature of business, taxpayer identification number, and account number of the customer being exempted. The signature, including the title and position of the person signing, will attest to the accuracy of the information concerning the name, address, nature of business, and tax identification number of the customer. Immediately above the signature line, the following statement shall appear: The information contained above is true and correct to the best of my knowledge and belief. I understand that this information will be read and relied upon by the Government. The bank shall indicate in this statement whether the exemption covers withdrawals, deposits, or both, as well as the dollar limit of the exemption for both deposits and withdrawals. The bank also shall indicate whether the exemption is limited to certain types of deposits and withdrawals (e.g., withdrawals for payroll purposes). In each instance, the exempted transactions must be in amounts that the bank may reasonably conclude do not exceed amounts commensurate with the customary conduct of the lawful domestic business of that customer. The bank is responsible for independently verifying the activity of the account and determining applicable dollar limits for exempted deposits or withdrawals. The bank must retain each statement that it prepares pursuant to this subparagraph as long as the customer is on the exempt list, and for a period of five years following removal of the customer from the bank's exempt list. According to 103.22 (e), a bank may apply to the Commissioner of Internal Revenue for additional authority to grant an exemption to the reporting requirement, not otherwise permitted, if the bank believes that circumstances warrant such an exemption. Such requests shall be addressed to: Chief, Currency and Banking Reports Branch,, Compliance Review Group, IRS Data Center, Post Office Box 32063, Detroit, Michigan 48232, and must be accompanied by a statement of the circumstances that warrant special exemption treatment and a copy of the statement signed by the customer. A record of each exemption granted under this section and the reason therefor must be kept in a centralized list. The record shall include the names and addresses of all banks referred to, as well as the name, address, business, taxpayer identification number and account number of each depositor that has engaged in currency transactions which have not been reported because of the exemption. The record concerning the group of depositors exempted shall also indicate whether the exemption covers withdrawals, deposits, or both, as well as the dollar limit of the exemption. Upon the request of the Assistant Secretary (Enforcement) or the Commissioner of Internal Revenue, a bank shall provide a report containing the list of the bank's customers whose transactions have been exempted under this section and such related information as the Assistant Secretary or Commissioner shall require, including copies of the statements. The report must be provided within 15 days of the request. Any exemption may be rescinded at the discretion of the requesting official, who may require the bank to file reports with respect to future transactions of any customer whose transactions previously were exempted. Upon the request of the Assistant Secretary (Enforcement) or the Commissioner of Internal Revenue, a bank shall provide a report containing the list of the bank's customers whose transactions have been exempted under this section and such related information as the Assistant Secretary or Commissioner shall require, including copies of the statements. The report must be provided within 15 days of the request. Any exemption may be rescinded at the discretion of the requesting official, who may require the bank to file reports with respect to future transactions of any customer whose transactions previously were exempted. No filing required by banks for transactions by exempt persons occurring after April 30, 1996. (1) Currency transactions of exempt persons with banks occurring after April 30, 1996. Notwithstanding the other provisions of 103.22, no bank is required to file a report otherwise required with respect to any transaction in currency between an exempt person and a bank that is conducted after April 30, 1996. An Exempt person is defined as: A bank, to the extent of such bank's domestic operations; A department or agency of the United States, of any state, or of any political subdivision of any state; Any entity established under the laws of the United States, of any state, or of any political subdivision of any state, or under an interstate compact between two or more states, that exercises governmental authority on behalf of the United States or any such state or political subdivision; Any corporation whose common stock is listed on the New York Stock Exchange or the American Stock Exchange (except stock listed on the Emerging Company Marketplace of the American Stock Exchange) or whose common stock has been designated as a NASDAQ National Market Security listed on the NASDAQ Stock Market (except stock listed under the separate "NASDAQ Small-Cap Issues" heading); and Any subsidiary of any corporation . Designation of exempt persons. (i) A bank must designate each exempt person with whom it engages in transactions in currency, on or before the later of August 15, 1996, and the date 30 days following the first transaction in currency between such bank and such exempt person that occurs after April 30, 1996. Designation of an exempt person shall be made by a single filing of Internal Revenue Service Form 4789, in which line 36 is marked "Designation of Exempt Person" and items 2-14 (Part I, Section A) and items 37-49 (Part III) are completed. The designation must be made separately by each bank that treats the person in question as an exempt person. (For availability, see 26 CFR 601.602.)
### Internal Revenue Manual | ### Hndbk. 9.5 Chap. 5 FRAUD INVESTIGATIONS | ### (10-09-1998)

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