The FinCEN Files Leak

The FinCEN Files are leaked documents from the US Financial Crimes Enforcement Network (FinCEN), that have been globally earlier published this week. FinCEN is an agency US Treasury that collects and analyses forms to combat money laundering, terrorism financing, evasion of economic sanctions and other financial crimes.

The FinCEN Files impacts mainly large banks, the FinCEN leak reminds us that FinCEN actively and regularly collects and reviews Form FinCEN 114 (also known as the FBAR), Suspicious Activity Reports (SAR), and Suspicious Transaction Reports (STR).

Suspicious Activity Reports (SARs) are reports that are required to be filed with FINCEN  by various businesses when they observe suspicious activities. The purpose of the SAR is to identify illegal activity including tax fraud, money laundering, terrorist financing and other financial fraud. Banks are not the only businesses required to file Suspicious Activity Reports. Any financial firm that handles sizable cash transactions is required to report. Such firms include check cashing stores, money order operations, brokerage houses, law firms, currency exchange houses, casinos and issuers of traveler’s checks.

FinCEN offers very broad guidance as to the types of financial activities that can trigger a Suspicious Activity Report. Their guidance essentially states that any activity that arouses suspicion should be reported as suspicious activity if it involves funds above the threshold amounts. Some activities involve obviously illegal behavior, such as using fake identification. Other activities might be suspicious even if not obviously illegal, such as repeated deposits of small amounts of cash to avoid a single large transaction of more than $10,000, which would be reportable to the government, whether suspicious or not. Numerous types of cash withdrawal transactions have been reported as suspicious activities. Structured withdrawals are repeated withdrawals of small amounts of cash in an attempt to avoid the $10,000 cash transaction trigger.

Some clients with offshore bank accounts want to know if they can repatriate their funds to the U.S. without taking any affirmative steps such as a voluntary disclosure on the theory that if they do not file some form of voluntary disclosure, the IRS is unlikely to know about them. However, a large inbound transfer from an offshore bank is likely to generate an SAR. In a recent IRS internal memo dated March 15, 2012, the IRS pointed out to its agents in the Small Business Self-Employed Division (SBSE) that SARs could be helpful in tax fraud examinations, as well as in locating taxpayer assets. According to the memo, no SAR information including the existence of the SAR can be disclosed to the subject of the SAR.  All of this suggests that it will be risky for a taxpayer who has not failed to file FBARs or who has failed to report income from offshore activities to simply wire transfer the proceeds in foreign accounts to a U.S. bank account.

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