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BSA: When are Two Customers One? Aggregating Transactions for CTRs.

Sometimes under the BSA rules a bank must aggregate the cash transactions of two separately incorporated customers for the purpose of CTR reporting if the separate customers have common ownership and a level of joint operations. In 2001 FinCEN issued FinCEN Ruling 2001-2 describing one circumstance when transactions of separate customers should be aggregated. Recently FinCEN issued a guidance expanding upon its prior direction (FIN-2012-G001).

FinCEN’s regulations implementing the Bank Secrecy Act (“BSA”) require financial institutions to aggregate multiple currency transactions “if the financial institution has knowledge that [the multiple transactions] are by or on behalf of any person and result in either cash in or cash out totaling more than $10,000 during any one business day.” The issue therefore is when transactions are conducted through the accounts of separate corporations by or on behalf of one person. Frequently a bank may have an individual or a group of individuals that are the owners of separately incorporated businesses with separate taxpayer identification numbers. The aggregation question depends on whether the businesses are run independently of one another or whether in fact they are operated as a single business. There is a presumption that separately incorporated entities are independent persons, but that presumption is rebuttable.

For example, assume that your customer Mr. Jones owns three separate corporations, corporations A, B and C, and each corporation owns a hamburger stand in your community. Corporation A orders all of the supplies for all three corporations and pays the payroll for all three corporations. Employees one of the corporations often work at the hamburger stand owned by one of the other corporations. Frequently funds are transferred between the accounts of the three corporations and the account of each acts as overdraft protection for the other two. They jointly advertise the three hamburger stands. Clearly in this case the three corporations are being operated as one business and the BSA rules require that their transactions be aggregated for CTR filing purposes.

On the other hand, assume that Corporation A owns a hamburger stand, Corporation B owns an automobile dealership and Corporation C owns a dairy farm. Each business is run totally independent of the others. Each has its own employees and payroll. There is no transfer of funds between the three corporations. Even though the three corporations are all owned by Mr. Jones, they operate independently and their transactions should not be aggregated. Unfortunately, most cases are not as clear cut as these two.

There is no single issue that is determinative of whether two or more separate businesses are being operated in a manner that makes them something other than separate and independent. The following are factors that should be considered in making a determination:

  • Do the corporations have joint employees?
  • Do the corporations have separate payroll accounts?
  • Are the two corporations in the same business?
  • Are there fund transfers between the accounts of the two corporations?
  • Do the corporations operate out of the same premises?
  • Does one corporation supply goods or services to the other?
  • Does one corporation make payments to third parties on behalf of the other?

Again, no single factor is determinative. The fact that both corporations are in the same business does not, in and of itself, mean that they are not being operated separately and independently. It is the intensity of the mutual relationships that is the determining factor, and unfortunately that is a subjective decision. Because of that we recommend that banks be somewhat aggressive in aggregation determinations. In this circumstance you will not be criticized for filing a CTR when it was not required, but you will be criticized if the examiner thinks that the transactions should have been aggregated and you did not file.

The new guidance reiterated the requirement to aggregate transactions when they are done by the same person. Thus if an employee of Company A makes a deposit for Company A and a deposit for Company B, they must be aggregated to determine whether or not a CTR should be filed. Also, if a customer owns several businesses that are not incorporated, then their accounts are the accounts of the customer, and their transactions must be aggregated.

One final interesting issue that the new guidance raises is when a corporation owned by a customer pays a significant number of personal expenses of the customer. For example, the corporation may own the home the owner lives in, the car that the owner drives and may pay some of the owner’s personal expenses. In those circumstances the owner of the corporation and the corporation may not be operating separately and independently and the owner’s cash transactions should be aggregated with that of the corporation.

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The above article was provided to Andrews Hooper Pavlik PLC (AHP) courtesy of TriComply, the compliance arm of TriNovus. AHP does not guarantee accuracy of the information provided in the article and it should not be construed as professional advice. If you have any questions regarding this article, please contact Randy Morse, CPA, Partner and leader of AHP’s Financial Institution practice. AHP provides a broad range of accounting, auditing, tax, and consulting services to financial institutions throughout the state of Michigan and beyond.