BSA/AML Examiner School - Case Study Oct 2023

Overview The purpose of an exemption is to avoid the filing of CTRs for the normal conduct of lawful businesses, Exempt Persons, commonly referred to as "Phase I" and "Phase II,' exemptions were aimed at simplifying the process by which the Bank may exempt customers in an effort to reduce the large volume of CTRs filed. The Bank must retain a record of all designation of person exempt form CTR reporting as filed with the Treasury for a period of 5 years from the designation revocation date. The regulation provides a safe harbor that the Bank is not liable for the failure to file a CTR for a transaction in currency by an exempt person, unless the Bank knowingly provides false or incomplete information or has reason to believe that the customer does not qualify as an exempt customer. In the absence of any specific knowledge or information indicating that a customer no longer meets the requirements of an exempt person, the Bank is entitled to a safe harbor from civil penalties to the extent it continues to treat that customer as an exempt customer until the date of the customer's annual review. • The Bank has elected to establish exemptions - these exemptions are authorized and monitored in accordance with the applicable regulatory requirements; • The BSA Department has procedures in place for filing requirements and Annual Review of Exemptions; • The BSA Officer monitors the exempt accounts and will file Suspicious Activity Reports ("SARs") with respect to transactions conducted by "exempt persons" if suspicious account activity is detected; • The Bank's external audits review that Bank exemptions were granted in accordance with the regulation and the BSA officer maintains supporting documentation for the exemption. Exemptions The BSA Department will consider only the following as being eligible for "exempt person" status: PHASE I Banks are not required to file CTRs, for transactions by certain classes of "Exempt Persons." Phase I Exempt Persons are defined as: • A department or agency of the United States, to 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 entity (other than a bank) whose common stock or corresponding equity interests are listed on the New York Stock Exchange or 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); • Any subsidiary, other than a bank, of any entity described above, that is organized under the laws of the United States or of any State and at least 51% of whose common stock is owned by the listed entity; and • Notwithstanding the above, any financial institution, other than a bank, that is an entity described above, to the extent to such financial institution's domestic operations. • Franchisees of listed corporations (or of their subsidiaries) are not included within the definition of exempt person under "Phase I" unless such franchisees are independently exempt as listed corporations or listed corporation subsidiaries. For example, a local corporation that holds a McDonald's franchise is not an exempt person simply because McDonald's Corporation is a listed corporation. A McDonald's outlet owned by McDonald's Corporation directly, on the other hand,

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