ABA Banking Journal - January 2008 - (Page 47) dering, he noted, is much more laborintensive. Not only do the players have to make many more deposits, but “they often have to go out and open new accounts to support this kind of activity,” Dalessandro said. Dalessandro credited Citibank for first flagging microstructuring, in a 2004 Suspicious Activity Report. He said the bank was fine-tuning its suspicious activity detection software and began to pick up many small repetitive transactions. This led Dalessandro and associates to begin looking for such activity. A key method used was to search for multiple accounts opened using the same names, addresses, and other identifying information. While many people have more than one bank account, most don’t have their names on hundreds of accounts. Knowing where to start looking for such needles in the banking haystack has been a challenge. “Right now,” he said, “the only way we are identifying this activity is through our undercover operations.” Another mule found in the process used 113 bank accounts to launder $6 million in a year, Dalessandro said. Different software packages handle anti-money-laundering in different ways, with some possibly able to spot patterns others might not flag. Dalessandro presented listeners with some warning signs that microstructuring may be going on: • Use of counter deposit slips. Account holders generally receive preprinted deposit slips containing their account numbers. While many innocent account holders may use counter deposit slips from time to time, Dalessandro said that agents have noted that mules usually use counter deposit slips that have not been pre-encoded. • Early traffic. Frequent activity immediately following the opening of an account with only preliminary and incomplete documentation. • Frequent visits. Cash deposits of nominal amounts that are frequent and otherwise inconsistent with typical business or personal banking activity. • Cash in, ATM out. If a bank’s software MIB X AL O What if the plane loan doesn’t take off? We have a client who wants to purchase an airplane. He is forming a business entity to own it, and the credit would be directly to this entity, with his guarantee. The entity itself has no revenue, however, and we would use the client’s personal income, which exceeds $1 million, to qualify the loan. Is this considered a large business, small business, or personal loan request? We must determine if a written adverse action letter will required if the loan is denied. You should begin by examining and understanding the loan purpose. Is the airplane to be used for his business or to fly your client to exotic vacation destinations? Under Regulation B, 202.2(g) “Business credit” refers to extensions of credit primarily for business or commercial (including agricultural) purposes. Section (h) states that consumer credit means credit extended to a natural person primarily for personal, family, or household purposes. Once you have made that determination, and you decide to deny the request, you must send a written Adverse Action Notice as required by Regulation B, if the purchase of the aircraft is for personal, family, or household purposes, and regardless of the client’s income. Alternatively, if the purpose is commercial, you may give the notice orally. According to §202.9(3) regarding notification to business credit applicants with regard to a business that had gross rev- Q. enues of $1 million or less (in your case this is true, as the business had zero revenue) in its preceding fiscal year, the statement of the action taken may be given orally or in writing when adverse action is taken. Sole proprietorships and currency reporting Is it possible to exempt a sole proprietor from CTR reporting? Yes, you can exempt a sole proprietor’s business, but you will need to perform some due diligence before doing so. Under 31 CFR 103.22(d)(2) (vi)–(vii) in the Bank Secrecy Act regulations, Phase II exemptions define a “non-listed business” as a “commercial enterprise to the extent of its domestic operations and only with respect to transactions conducted through its exemptible accounts and that (i) has maintained a transaction account at the exempting bank for at least 12 months, (ii) frequently engages in transactions in currency with the bank in excess of $10,000, and (iii) is incorporated or organized under the laws of the United States or a state, or is registered as and eligible to do business within the United States or a state.” If the business meets this definition, and is not an “ineligible” business, as defined by regulation (see 31 CFR 103.22(d)(6)(viii)), review the account to determine that the sole proprietor does not mix individual and business funds in the same account. When conducting your account review, determine the frequency of the cash transactions as compared to the business model and objectives. Document this review process and your determination for exemption qualification, which may reach a conclusion that the business owner has selected to continue as a sole proprietor even if other corporation formations are available. It could be as Q. A. A. Leslie Callaway, CRCM, contributing editor, works with ABA experts to answer member questions. Submit questions to lcallawa@aba.com ABA BANKING JOURNAL/JANAURY 2008 47
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