FinCEN Issues Guidance on CTR Reporting for Sole Proprietorships

Credit unions should review the clarification on requirements regarding certain currency transaction reports.

2/18/2020

The Financial Crimes Enforcement Network (FinCEN) released ruling FIN-2020-R001 to provide guidance for credit unions when filing currency transaction reports (CTRs) for transactions involving sole proprietorships.

In the ruling, FinCEN clarifies the requirements for credit unions reporting on currency transactions involving sole proprietorships and legal entities operating under “doing business as” (DBA) names when filing CTRs.

For sole proprietorships, the ruling discusses both when the business owner is acting in their personal capacity and when the business is operating under a DBA name.

When operating in his or her own personal capacity, the owner owns all of the business’s assets and is responsible for all of the business’s liabilities. In these cases, the definition of a “person” in the Bank Secrecy Act (BSA) regulations would mean a sole proprietorship is not a separate legal person from the individual owner. Thus, when completing the CTR, a credit union should complete a single Part I “Person Involved in Transaction” section with the individual owner’s name in Items 4 through 6, gender in Item 7, and date of birth in Item 17.

If the individual owner is doing business in his or her own name, then the rest of Part I should be completed reflecting the individual owner’s information. But, if the individual owner is operating under a different name (DBA), then such name should appear in Item 8 “Alternative Name” and the rest of Part I (other than Items 4-6, 7, and 17 identifying the individual owner) should be completed with reference to the DBA name.

If there are multiple DBAs involved in the transaction, then a separate Part I should be completed for each different DBA involved in the transaction.

When a CTR is completed on a legal entity such as a partnership, incorporated business, or limited liability company, a Part I section should be prepared containing the home office/headquarters date (address, telephone number, identification number, etc.) of the entity. When multiple entity locations are involved in an aggregated CTR, a separate Part I section should be completed for each location involved.

Question of the Week

Q. Is there a requirement that the credit union match the names on a tax refund received through direct deposit to the name(s) on the account?

A. The National Automated Clearing House Association does not require financial institutions to match names on incoming Automatic Clearing Houses (ACH). Note that it is important that credit unions don’t try to change the intended destination if they do discover the names don’t match, because this could put them on the hook for any losses associated with the transaction. However, if the credit union becomes aware of a situation where a tax return has gone to the wrong account, then it should attempt to return the funds to the IRS, assuming the funds are still available.

FinCEN has released guidance that can help financial institutions detect tax return fraud. Included in the guidance is a list of red flags that credit unions should carefully review to determine if any of their account holders might be attempting to commit fraud or are the victims of fraud.

Additionally, if a credit union does suspect tax return fraud, it should look to FinCEN’s guidance on how to prepare a suspicious activity report (SAR).

Resources

FinCEN Guidance FIN-2013-A001

Legal Briefs

Consumer Financial Protection Bureau (CFPB)

Supervisory Highlights, Issue #21 (Winter 2020)
The CFPB released the Winter 2020 issue of Supervisory Highlights which reports exam findings in the areas of debt collection, mortgage servicing, payday lending, and student loan servicing.

Federal Financial Institution Examination Counsel (FFIEC)

2020 A Guide to HMDA Reporting: Getting It Right!
FFIEC has released the 2020 update to the HMDA reporting guide. The 2020 edition reflects updates to incorporate the content from the October 2019 updates to the HMDA rule issued by the CFPB.

Financial Crimes Enforcement Network (FinCEN)

FIN-2020-R001
FinCEN released ruling FIN-2020-R001 to clarify CTR FinCEN Form 112 filing obligations when reporting transactions involving sole proprietorships.

Washington State Department of Financial Institutions (DFI)

Fraudulent Communications Claiming to be from DFI
The DFI released a warning that fraudulent communications claiming to be from DFI are being used in various fraud schemes.

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of Feb. 12. The last update prior to this was Feb. 12.

Questions? Contact the Compliance Hotline: 1.800.546.4465; [email protected].