Bank Secrecy Act |
Bulk Shipments of Currency—Overview
Objective. Assess the adequacy of the U.S. bank’s systems to manage the risks associated with receiving bulk shipments of currency and management’s implementation of effective monitoring and reporting systems.
Bulk shipments of currency entail the use of common, independent, or Postal Service air/land/sea carriers to transport large volumes of bank notes (U.S. or foreign) from sources either inside or outside the United States to a bank in the United States. Often, but not always, shipments take the form of containerized cargo.
Shippers may be "Currency Originators," i.e., individuals or businesses that generate currency from cash sales of commodities or other products or services (including monetary instruments or exchanges of currency). Shippers also may be "Intermediaries" that ship currency gathered from their customers who are Currency Originators. Intermediaries may also ship currency gathered from other Intermediaries. Intermediaries may be other banks, central banks, nondeposit financial institutions, or agents of these entities.
Banks receive bulk shipments of currency directly when they take possession of an actual shipment. Banks receive bulk shipments of currency indirectly when they take possession of the economic equivalent of a currency shipment, such as through a cash letter notification. In the case of a shipment received indirectly, the actual shipment usually moves toward the bank only as far as a Federal Reserve Bank or branch, where it becomes recorded as held on the bank’s behalf.
Banks are required to report shipments of currency in an aggregate amount exceeding $10,000 received from or shipped to locations outside the U.S. via FinCEN Form 105 (Report of International Transportation of Currency or Monetary Instruments). Banks are exempt from this reporting requirement when the currency is shipped overland via the Postal Service or common carrier (see 31 CFR 103.23). Banks are not exempt from this reporting requirement when the currency is shipped by other methods, including air courier or via the airlines. Regardless of whether an exemption from filing FinCEN Form 105 applies, banks must still monitor for, and report, suspicious activity. In addition, and regardless of reporting requirements on FinCEN Form 105, banks are required to report the receipt or disbursement of currency in excess of $10,000 via FinCEN Form 104 (Currency Transaction Report), subject to the exemptions at 31 CFR 103.122(d). This reporting requirement applies even if the international transactions are subject to the exemption from filing Form 105.
Risk Factors
Bulk shipments of currency to banks from shippers that are presumed to be reputable may nevertheless originate from illicit activity. The monetary proceeds of criminal activities, for example, often reappear in the financial system as seemingly legitimate funds that have been placed and finally integrated by flowing through numerous intermediaries and layered transactions that disguise the origin of the funds. Layering can include shipments to or through other jurisdictions. Accordingly, banks that receive direct or indirect bulk shipments of currency risk becoming complicit in money laundering or terrorist financing schemes.
In recent years, the smuggling of bulk currency has become a preferred method for moving illicit funds across borders.164 Because bulk cash that is smuggled out of the United States is usually denominated in U.S. dollars, those who receive the smuggled bulk cash must find ways to re-integrate the currency into a U.S. bank. Often, this occurs through the use of a foreign financial institution that wittingly or unwittingly receives the illicit U.S.-dollar denominated proceeds, and then originates a cash letter instrument (or a funds transfer) for processing by, or deposit into, a U.S. bank. The foreign financial institution then initiates the process of physically repatriating (shipping) the cash back into the United States.165 Experience has shown a direct correlation between the smuggling of bulk currency, the heightened use of cash letter instruments or wire transfers from certain foreign financial institutions, and bulk shipments of currency into the United States from the same foreign financial institutions.166
The activity of shipping currency in bulk is not necessarily indicative of criminal or terrorist activity. Many individuals and businesses, both domestic and foreign, generate currency from legitimate cash sales of commodities or other products or services. Also, Intermediaries gather and ship currency from single or multiple Currency Originators whose activities are legitimate. Banks may legitimately offer services to receive such shipments. However, banks should be aware of the potential misuse of their services by shippers of bulk currency. Banks also should guard against introducing the monetary proceeds of criminal or terrorist activity into the financial system. To inform banks on the topic of bulk currency shipments, FinCEN issued an advisory in 2006 that sets forth certain activities that may be associated with currency smuggling.167 According to FinCEN, U.S. law enforcement has observed a dramatic increase in the smuggling of bulk cash proceeds from the sale of narcotics and other criminal activities from the United States into Mexico. Although the FinCEN advisory deals specifically with the shipment of bulk currency to and from the United States and Mexico, the issues discussed could be pertinent to shipping bulk currency to and from other jurisdictions as well.
Law enforcement has identified the following activities that, in various combinations, may be associated with currency smuggling:168
- An increase in the sale of large denomination U.S. bank notes to foreign financial institutions by U.S. banks.
- Small denomination U.S. bank notes smuggled into a foreign country being exchanged for large denomination U.S. bank notes possessed by foreign financial institutions.
- Large volumes of small denomination U.S. bank notes being sent from foreign nonbank financial institutions to their accounts in the United States via armored transport, or sold directly to U.S. banks.
- Multiple wire transfers initiated by foreign nonbank financial institutions that direct U.S. banks to remit funds to other jurisdictions that bear no apparent business relationship with that foreign nonbank financial institution (recipients include individuals, businesses, and other entities in free trade zones and other locations).
- The exchange of small denomination U.S. bank notes for large denomination U.S. bank notes that may be sent to foreign countries.
- Deposits by foreign nonbank financial institutions to their accounts at U.S. banks that include third-party items (including sequentially numbered monetary instruments).
- Deposits of currency and third-party items by foreign nonbank financial institutions into their accounts at foreign financial institutions and thereafter direct wire transfers to the foreign nonbank financial institution’s accounts at U.S. banks.
Risk Mitigation
U.S. banks that offer services to receive bulk shipments of currency should have policies, procedures, and processes in place that mitigate and manage the BSA/AML risks associated with the receipt of bulk currency shipments. Banks should also closely monitor bulk currency shipment transactions to detect and report suspicious activity, with particular emphasis on the source of funds and the reasonableness of transaction volumes from Currency Originators and Intermediaries.
Risk mitigation begins with an effective risk assessment process that distinguishes relationships and transactions that present a higher risk of money laundering or terrorist financing. Risk assessment processes should consider Currency Originator and Intermediary ownership, geographies, and the nature, source, location, and control of bulk currency. For additional information relating to risk assessments and due diligence, refer to the core overview sections "BSA/AML Risk Assessment" on pages 22 to 30 and "Customer Due Diligence" on pages 63 to 65.
A U.S. bank’s policies, procedures, and processes should:
- Specify appropriate risk-based relationship opening procedures, which may include minimum levels of documentation to be obtained from prospective Currency Originators and Intermediaries; specify relationship approval process that, for potential higher-risk relationships, is independent of the business line and may include a visit to the prospective shipper or shipping-preparation sites; and describe the circumstances under which the bank will not open a relationship.
- Determine the intended use of the relationship, the expected volumes, frequency of activity arising from transactions, sources of funds, reasonableness of volumes based on originators and shippers, and any required BSA reporting obligations (CTRs, CMIRs, etc.).
- Identify the characteristics of acceptable and unacceptable transactions, including circumstances when the bank will or will not accept bulk currency shipments.
- Assess the risks posed by a prospective shipping relationship using consistent, well-documented risk-rating methodologies.
- Incorporate risk assessments, as appropriate, into the bank’s customer due diligence, EDD, and suspicious activity monitoring systems.
- Once the relationship is established, require adequate and ongoing due diligence, which, as appropriate, may include periodic visits to the shipper and to shipping-preparation sites. As necessary, scrutinize for legitimacy the root source of cash shipments, using risk-based processes.
- Ensure that appropriate due diligence standards are applied to relationships determined to be higher risk.
- Include procedures for processing shipments, including employee responsibilities, controls, reconciliation and documentation requirements, and employee/management authorizations.
- Establish a process for escalating suspicious information on potential and existing Currency Originator and Intermediary relationships and transactions to an appropriate management level for review.
- Refuse shipments having questionable or suspicious origins.
- Ensure that shipping relationships and comparisons of expected vs. actual shipping volumes are included, as appropriate, within the U.S. bank’s systems for monitoring and reporting suspicious activity.
- Establish criteria for terminating a shipping relationship.
As a sound practice, U.S. banks should inform Currency Originators and Intermediaries of the BSA/AML-related requirements and expectations that apply to U.S. banks. U.S. banks also should understand the BSA/AML controls that apply to, or are otherwise adopted by, the Currency Originator or Intermediary, including any customer due diligence and recordkeeping requirements or practices.
Other bank controls may also prove useful in protecting banks against illicit bulk shipments of currency. These may include effective controls over foreign correspondent banking activity, pouch activity, funds transfers, international Automated Clearing House transactions, and remote deposit capture.
Contractual Agreements
U.S. banks should establish agreements or contracts with Currency Originators or Intermediaries. The agreement or contract should describe each party’s responsibilities and other relevant details of the relationship. The agreement or contract should reflect and be consistent with any BSA/AML considerations that apply to the bank, the Currency Originator or Intermediary, and the Currency Originator or Intermediary’s customers. The agreement or contract should also address expectations about due diligence and permitted third-party usage of the shipper’s services. While agreements and contracts should also provide for respective BSA/AML controls, obligations, and considerations, U.S. banks cannot shift their BSA/AML responsibilities to others.
