One of our customers is a gas station and convenience store. It has daily cash transactions of over $10,000, so we would like to designate it as exempt from the CTR filing requirements. We are not aware of any potential ineligible activities other than sales of lottery tickets. Are we required to collect the customer’s financial statements before making that designation?

No. Depending on the customer’s activities, you may be required to collect additional information, but that would not necessarily include financial statements.

As part of the exemption process, your institution must “take such steps to assure itself” that the customer is exempt and document “the basis for its conclusions.” For a business that is not automatically exempted (for example, because it is not listed on an eligible stock exchange), you must determine that the business does not engage in any “ineligible activities.” The regulations list several ineligible activities, including “serving as financial institutions” (such as by cashing checks) and “gaming of any kind” (such as by selling lottery tickets, as confirmed in a FinCEN ruling) if the ineligible activities comprise 50% or more of the customer’s gross revenues.

If the customer is not engaged in any ineligible activities, or if it “derives a clear minority of its gross revenues from ineligible business activities,” you are not required to collect additional documentation from the customer beyond that which you collected in the ordinary due diligence process when opening the account. In this case, if it is apparent that the customer’s lottery ticket sales constitute a “clear minority” of its gross revenues, you may be able to rely on the documentation that the customer provided when opening the account, without collecting financial statements or other additional documentation.

However, if the customer is engaged in one or more ineligible activities to a significant extent, your bank must establish and document that no more than fifty percent of its gross revenues are derived from those ineligible activities. (FinCEN has ruled that when determining the percentage of gross revenues derived from lottery sales, a bank should consider only “the amount of money that [it] actually earns” from lottery sales.)

If you determine that it is necessary to collect additional documentation about a customer, FinCEN’s guidance indicates that collecting financial statements is just one of many alternative methods: “If available, a bank is encouraged to request and review a business customer’s audited financial statements; however, other information may be similarly relied upon providing that it allows the bank to make a reasonable determination regarding the portion of the customer’s annual gross revenues that is derived from ineligible business activities.”

FinCEN suggests several alternatives to collecting audited financial statements: (1) “customer completion of a bank checklist/form . . . [which] would be substantiated by corroborating information,” (2) “receipt of a self-certification statement/letter signed by the customer containing credible information regarding its annual gross revenues, which . . . would be substantiated by corroborating information,” (3) “unaudited financial statements,” (4) “the customer’s most recent tax returns,” (5) “documents relating to a bank’s lending relationship with the customer,” or (6) a site visit of the business “to develop a greater understanding of the nature of the customer’s business activities and then recording relevant information in the customer’s file.”

For resources related to our guidance, please see:

FinCEN regulations, 31 CFR 1020.315(e)(1) (“Subject to the specific rules of this section, a bank must take such steps to assure itself that a person is an exempt person . . . to document the basis for its conclusions, and document its compliance, with the terms of this section, that a reasonable and prudent bank would take and document to protect itself from loan or other fraud or loss based on misidentification of a person’s status . . . .”)

FinCEN regulations, 31 CFR 1020.315(e)(8) and FFIEC BSA/AML Examination Manual, Currency Transaction Reporting Exemptions — Overview and Examination Procedures (These resources list the 13+ types of “ineligible activities,” including “serving as financial institutions” and “gaming of any kind.”)

FinCEN Guidance, FIN-2009-G001 (April 27, 2009) (“In instances where it is apparent — through a bank’s implementation and application of due diligence policies, procedures, and processes to all customers — that a non-listed business customer derives a clear minority of its annual gross revenues from ineligible business activities, the bank could reasonably and appropriately exempt that customer from currency transaction reporting based solely upon materials and information collected and considered in the ordinary course of conducting customer due diligence.”)

FinCEN Guidance, FIN-2009-G001 (April 27, 2009) (“However, in those instances where it is less clear whether a non-listed business customer derives no more than 50 percent of its annual gross revenues from ineligible activities, a bank should obtain such additional supporting materials and information that would allow it to make a reasonable determination that it may appropriately exempt that customer from currency transaction reporting.” Also see additional discussion under Reasonable Determination.)

FinCEN Guidance, FIN-2007-R002 (November 15, 2007) (“You have asked whether, in determining if a business derives more than 50% of its gross revenue from gaming, the bank should consider the amount of money that the business takes in on behalf of the state lottery system, or the amount of money that the store actually earns from such sales. The term ‘gross revenue’ in the CTR exemption regulations is intended to encompass the amount of money that a business actually earns from a particular activity, rather than the sales volume of such activity conducted by the business.”)