8300/OFAC COMPLIANCE. Aka: What you don t know can hurt you. Presented by: Robert Frimet, CAMS

Transcription

1 8300/OFAC COMPLIANCE Aka: What you don t know can hurt you Presented by: Robert Frimet, CAMS 1

2 Presentation Objectives Discuss the 8300 requirement for pawn brokers TO INCLUDE: When to fill out an 8300 How to fill out an 8300 When to file Customer notifications OFAC requirements 2

3 Why file an 8300? Engaging in financial transactions to disguise: Origin True nature Ownership of illicit funds $1 to $2 trillion laundered worldwide annually Terrorists/ tax evaders / criminals use large cash payments to launder money from illegal activities 3

4 Who and when to file an 8300: Any person engaged in a trade or business who receives cash in excess of $10,000 in a single transaction or in two or more related transactions or designated transaction must file a form A person includes an individual, company, corporation, partnership, association, trust, or estate. 4

5 When to file.» A business must file Form 8300 to report cash paid to it if the payment is: 1) Over $10,000, 2) Received as: a) One lump sum of over $10,000, or b) A series of payments, with respect to a single transaction or two or more related transactions, that cause the total cash received within a 12-month period of the initial payment to total more than $10,000, or c) Other previously unreported payments that cause the total cash received within a 12-month period to total more than $10,000, 3) Received in the course of trade or business, 4) Received from the same buyer (or agent) and 5) Received in a single transaction or in related transactions. 6) Received as a designated transaction. 7) A CTR SHOULD NOT BE FILED ON PAWN RELATED TRANSACTIONS 5

6 What Constitutes a Transaction? A transaction occurs when: Goods, services, or real or intangible property are sold. Property is rented. Cash is exchanged for other cash. A contribution is made to a trust or escrow account. A loan is made or repaid. Cash is converted to a negotiable instrument. 6

7 What is a Related Transaction? Any transactions between a buyer (or an agent of the buyer) and a seller that occur within a 24- hour period are related transactions. If a business receives over $10,000 in cash during two or more transactions with one buyer in a 24-hour period, the business must treat the transactions as one transaction and report the payments on Form Transactions are related even if they are more than 24 hours apart if the business knows, or has reason to know, that each is one of a series of connected transactions. 7

8 What is Cash? The coins and currency of the United States (and any other country) 8

9 A designated reporting transaction is the retail sale of any of the following: 1) A consumer durable, such as an automobile or boat. A consumer durable is property, other than land or buildings, that: a) Is suitable for personal use, b) Can reasonably be expected to last at least one year under ordinary use, c) Has a sales price of more than $10,000, and d) Can be seen or touched (tangible property). 9

10 What defines a Designated Reporting Transaction relative to cash?» Cash includes a cashier s check, bank draft, traveler s check, or money order a business receives, if it has a face amount of $10,000 or less and the business receives it in a designated reporting transaction with cash and the total transaction equals greater then $10,000 10

11 When to file? A business must file Form 8300 within 15 days of receiving a payment. The amount the business receives and when the business receives it determines the filing requirement to report cash payments over $10,000 in a single transaction or in related transactions. If the first payment is more than $10,000, a business must file Form 8300 within 15 days. If the first payment is not more than $10,000, a business must add the first and subsequent payments, for a transaction or two or more related transactions, made within a 12-month period. When the amount exceeds $10,000, the business must file a Form 8300 within 15 days of the payment that causes the additional payment to total more than $10,

12 Suspicious Activity A business may voluntarily file Form 8300 if it receives $10,000 or less in a transaction that appears to be suspicious. A transaction is suspicious if it appears that a person is trying to cause the business not to file Form 8300 or is trying to cause the business to file a false or incomplete form or if there is a sign of illegal activity. 12

13 Another Important Reminder Federal law requires that company & its directors, officers, employees, and agents who report suspected or known criminal violations or suspicious activity may not notify any person involved in the transaction that the transaction has been reported. 13

14 Turning a blind eye Example of good pawn broker gone bad Offering discount on the item to evade the filing of an 8300 Giving customer direct knowledge on how to evade the filing requirements 14

15 Customer Notification The name and address of the seller s business, Name and telephone number of a contact person for the business, The total amount of reportable cash received during the calendar year, When a business files a required Form 8300, the business is required to provide a written statement to each person named on Form 8300 notifying them that the business has filed the form (the business is not required to, and should not, furnish notification to the customer for suspicion transactions voluntarily reported). This statement must include: A statement that the seller is reporting this information to the IRS. 15

16 Customer Notification The buyer must receive the statement no later than January 31st of the year after the year in which the seller received the cash that caused the filing. 16

17 When Must an SAR-MSB Be Filed? Any transaction or pattern of transactions conducted or attempted that is suspicious & involves or aggregates funds or assets of at least $2,000 if the MSB knows, suspects, or has reason to suspect the transactions are: (SUSPICIOUS) (MSB S) Derived from illegal activity or is intended to hide or disguise funds or assets derived from illegal activity Designed to evade the requirements of the BSA, whether through structuring of other means 17

18 When the Uncle comes Knocking 18

19 The business under may receive a Form 4564, Information Document Request (IDR) Checking, savings, and/or other financial account statements Deposit slips for checking and savings accounts Sales journal, accounts receivable records, notes receivable records Invoices Cash receipts journal Installment sales agreements, leasing contract, real estate settlement statements Copies of Form 8300 which have been prepared or filed Copies of notification statements furnished to the customers about whom Forms 8300 were filed. Receipts written at the time payments are received from customers 19

20 What will they review? TIN of the business; Names and titles of officers or employees who handle cash transactions and are responsible for filing Form 8300; Owner/officer s knowledge of Form 8300 and IRC Section 6050I and its regulations and that of the employees designated by the business to identify and file Form 8300 on reportable transactions; Internal controls of the business with regard to cash transactions; Who handles received cash, prepares bank deposit slips, and makes the bank deposits; Number and types of bank accounts; Types of records maintained on transactions required to be reported on Form 8300; Whether or not the business has filed any Forms 8300; Procedures used by the business to ensure that the information contained in the Form 8300 is complete and correct. For example, did the recipient verify the identity of the person from whom the cash was received by a driver s license, passport, or other official document? Procedures used by the business to notify customers; The entity s membership in trade associations; and, Related business entities. 20

21 The Anti-Money Laundering (AML) examiner will examine the appropriate documents and accounting records to determine if: Any transactions involve the receipt of reportable cash in excess of $10,000; The examiner may trace cash payments for a threshold amount (such as $5,000 for example) from bank deposit slips to cash receipts journal (if available) or directly to invoices or receipts. The reason for the threshold is to check for multiple payments which may constitute the customer structuring cash payments to avoid triggering the filing of Form

22 When it s all said and done.» Once the compliance review is completed, the AML examiner will have a closing conference with the owners and/or officers of the business to discuss any Form 8300 violations found and procedures to be taken to correct the problem.» No closing letter is issued to the trade or business upon completion of a Form 8300 compliance review. 22

23 OOPS! er 23

24 Civil penalties and applicable rules are: Negligent failure to timely file an 8300, IRC Section 6721(a)(2)(A): $50 per violation, not to exceed $250,000 per calendar year ($100,000 for persons with gross receipts of not more than $5,000,000). Negligent failure to include all required information on the 8300 or inclusion of incorrect information, IRC Section 6721(a) (2) (B): $50 per violation, not to exceed $250,000 per calendar year ($100,000 for persons with gross receipts of not more than $5,000,000). If any failure under IRC Section 6721 is corrected on or before the 30th day after the required filing date, the penalty is reduced to $15 in lieu of $50 and the maximum amount imposed shall not exceed $75,000 ($25,000 for persons with gross receipts of not more than $5,000,000). 24

25 Negligent failure to furnish 8300 statements to customers/ IRC Section 6722(a) and (b): $50 per failure, not to exceed $100,000 per calendar year. Intentional disregard of the requirement to timely file or to include all required information, IRC Section 6721(e) (2) (C): the greater of: (1) $25,000, or (2) the amount of cash received in the transaction, not to exceed $100,000 (with no calendar year limitation applicable). The penalty applies to each occurrence. Intentional disregard of the requirement to furnish statement to customer/ IRC Section 6722(c) (1) (A): $100 per failure, or if greater, 10 percent of the aggregate amounts of the items required to be reported correctly[sb1]. [SB1]The penalty is the greater of $100 or 10% of the amounts that 25 were required to be reported.

26 Customer Liability The penalties for failure to file may also apply to any person (including a payer) who causes or attempts to cause a business to fail to file a required Form This includes any attempt to structure the transaction with one or more businesses for the purpose of evading the requirement to file a Form Structuring means breaking up a large cash transaction into small cash transactions. 26

27 OFAC Who must comply? All U.S. persons must comply with OFAC regulations, including all U.S. citizens and permanent resident aliens regardless of where they are located, all persons and entities within the United States, and all U.S. incorporated entities. 27

28 PENALTIES The fines for violations can be substantial. Depending on the program, criminal penalties can include fines ranging from $50,000 to $10,000,000 and imprisonment ranging from 10 to 30 years for willful violations. Depending on the program, civil penalties range from $250,000 or twice the amount of each underlying transaction to $1,075,000 for each violation. 28

29 SDN List As part of its enforcement efforts, OFAC publishes a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific. Collectively, such individuals and companies are called "Specially Designated Nationals" or "SDNs." Their assets are blocked and U.S. persons are generally prohibited from dealing with them. 29

30 What if I have a match? If you have checked a name manually or by using software and find a match, you should do a little more research. Is it an exact name match, or very close? Is your customer located in the same general area as the SDN? If not, it may be a "false hit." If there are many similarities, contact OFAC's "hotline" at for verification. If your "hit" concerns an in-process wire transfer, you may prefer to your question to OFAC. Unless a transaction involves an exact match, it is recommended that you contact OFAC Compliance before actually blocking assets 30

31 Rejected and blocked funds transfers must be reported to OFAC within 10 days. Questions about whether a transaction should be blocked or rejected should be directed to OFAC Compliance 31

32 There is no legal or regulatory requirement to use software or to scan. There is a requirement, however, not to violate the law by doing business with a target or failing to block property. OFAC realizes that financial institutions use software that does not always provide an instantaneous response and may require some analysis to determine if a customer is indeed an SDN. The important thing is not to conclude transactions before the analysis is completed. 32

33 RED FLAGS PROCEDURE As a company who provides credit and obtains certain information from clients, a Pawn Broker is required to maintain a Program that: Policies and procedures to identify Red Flags Detect fake Identification and identity theft Actions you will take in the event of identity theft A plan to re-evaluate your program as needed 33

34 Presented by: Robert Frimet Certified Anti Money Laundering Specialist Phone: (702)