Records of Purchases of Bank Checks and Drafts, Cashier's Checks, Money Orders, and Traveler's Checks

One of the ways money launderers attempt to evade the currency transaction reporting requirements is by taking cash in amounts less than $10,000 and using it to purchase certain bank instruments, such as bank checks or drafts, cashier’s checks, money orders, or traveler’s checks. Because the amount of the currency transaction is less than $10,000, no CTR needs to be filed. These people will sometimes conduct these under-$10,000 transactions several times a day at a single institution or once each day for a number of days in a row. The technique might enable someone to convert large amounts of cash into a noncash form without the transactions being reported to the Treasury.

In order to stop this sort of evasion of the reporting rules, Congress, in 1988, passed a law requiring that financial institutions verify the identity of anyone purchasing with cash one of these instruments in an amount of $3,000 or more up to and including $10,000. The law also required that the financial institution record some information about the transaction and the person conducting the transaction. In May of 1990, the Treasury Department amended its Bank Secrecy Act regulations to specify the required identification and record-keeping procedures. In October of 1994, the Treasury amended its regulations to ease the burden on financial institutions to some degree.

To what transactions do the requirements apply?

The regulation itself does not deal with what constitutes “knowledge” on the part of financial institution personnel. However, supplementary material issued by the Treasury with the May 1990 regulation says the following:
A financial institution does not have to institute changes to its procedures or its computer systems or purchase new systems in order to capture multiple sales; however, if the financial institution’s computer system does produce information relating to multiple sales, then the financial institution may not ignore that information and must complete the log entry using whatever information the financial institution has at hand. In addition, if a teller or other employee knows that someone has made several purchases on the same business day, either because she serviced the customer, directly observed the customer coming into the financial institution several times during one business day, or was told by the customer that he had made several purchases in one business day, then the financial institution will be deemed to have knowledge of the multiple purchases, and it must complete a log entry. [Federal Register, May 15, 1990, at page 20141] (Note: The May 1990 regulations required the recording of the information in the form of a log, which is why this paragraph refers to a log entry. The October 1994 revisions eliminated the requirement that the records be maintained in the form of a log.)

There is a legitimate way in which your institution and an account holder can avoid having to meet the record-keeping requirements we are about to describe. The Treasury has stated that an institution may institute a policy of requiring their deposit account holders who purchase these monetary instruments to first deposit the currency into their account from which a check or savings withdrawal is issued in payment. In this circumstance, no currency is involved in the actual purchase of the monetary instrument. Since no currency is involved in that transaction, the record-keeping requirements do not apply. The Treasury also stated, however, that “should the financial institution decide to initiate such a policy, it must...do so in writing and include formal procedures for its implementation. The policy and procedures should apply to all deposit account holders and, as a general rule, contain no exceptions.”

What must a financial institution do when the requirements apply?

The regulations require that you do two things: one, verify the identity of the purchaser of the instruments; and two, record certain information about the transaction. The requirements for the information to be gathered and the verification procedures to be followed vary depending on whether the purchaser has a deposit account with you.

First, if the person has a deposit account with you, you must record the following information in the log [31 CFR 1010.415(a)]:
  1. The name of the purchaser;
  2. The date of the purchase;
  3. The type(s) of instrument(s) purchased;
  4. The serial number(s) of each of the instrument(s) purchased; and
  5. The amount in dollars of each of the instrument(s) purchased in currency.

You must then verify the identity of the purchaser. You do this by having the purchaser provide for your examination a document that contains the purchaser’s name and address and “…normally is acceptable within the banking community as a means of identification when cashing checks for nondepositors.” [31 CFR 1010.415(a)] A driver’s license is normally sufficient. A credit card is usually not, since it usually does not carry the purchaser’s address. Once you’ve verified the purchaser’s identity, you must record the specific identifying information (e.g., the state of issuance and number of the driver’s license).

However, if you have previously verified the purchaser’s identity in this way (either at the time he or she opened the deposit account or at some other time) and that information is in your records, then a mere reference to your records can function as the verification. [31 CFR 1010.415(a)]

You may occasionally have a person who simply does not have the types of identifying documents you would normally want to see. For example, an elderly or disabled person might not have a driver’s license or credit card. The Treasury Department has issued an Administrative Ruling (No. 92-1) explaining what you should do. The Ruling says you may accept alternate identifying documents, such as a social security or Medicare/Medicaid card along with another document that contains both the person’s name and address. The Treasury suggests an organizational membership card, voter registration card, utility bill, or real estate tax bill. When filling in the log, you must record the word “elderly” or “disabled” along with the method used to identify the person, such as “Social security and (organization) membership card only ID.”

This Ruling also says institutions must have formal written policies concerning the types of identification acceptable from elderly or disabled persons who lack the usual forms of identification. Once the policy is implemented, the Ruling says, the financial institution should permit no exceptions.

One ambiguity about the Administrative Ruling is that it appears to apply only to elderly or disabled persons lacking usual identification documents. Neither “elderly” nor “disabled” is defined. The Ruling also gives no guidance on dealing with persons who are not elderly or disabled but lack the usual forms of identification.

What if the person does not have a deposit account with you? In this case, you must record the following information in the log [31 CFR 1010.415(a)]:
  1. The name and address of the purchaser;
  2. The social security number of the purchaser or, if the purchaser is an alien and does not have a social security number, then the alien identification number;
  3. The date of birth of the purchaser;
  4. The date of purchase;
  5. The type(s) of instrument(s) purchased;
  6. The serial number(s) of each of the instrument(s) purchased; and
  7. The dollar amount(s) of each of the instrument(s) purchased.

You must also verify the name and address of this person. Here, the purchaser must supply for your examination a document that contains the name and address of the purchaser and normally is acceptable within the banking community as a means of identification when cashing checks for nondepositors. [31 CFR 1010.415(a)] When the customer does not have an account with you, you do not have the option of verifying identity through your records. See the discussion of Administrative Ruling 92-1 above for information on dealing with elderly or disabled persons lacking the usual forms of identification.

Some special rules apply if the person making the purchase is a federal, state, or local law enforcement or revenue officer who is making the purchase in the performance of his or her duty. In such a case, you must treat the officer as a nondeposit account holder and record the appropriate information listed above. However, you should verify the purchaser’s identity by examining the individual’s agency badge or official credentials. Also, you may record the address and employer identification number of the individual’s agency (rather than the social security number and home address of the agent). Finally, you should write “official badge” or “official credentials” as the method of identification, along with the agency name and badge or credentials number.

The Treasury Department announced these special rules in February of 1991, recognizing the fact that law enforcement agents, particularly those in the drug enforcement area, frequently deal with large amounts of cash while at the same time needing confidentiality because of the undercover nature of their work. These special rules apply only to “banks,” as defined by the Treasury regulations (commercial banks or trust companies, private banks, thrift institutions, building and loans, savings banks, industrial banks, credit unions, and other institutions chartered under state law and supervised by bank supervisory agencies). “Nonbank” financial institutions must follow the regular rules listed earlier.

The special rules for transactions with law enforcement officers are not yet in the form of regulations. They were issued in an announcement by the Treasury Department dated February 27, 1991. However, the Treasury indicated in the announcement that the rules are in effect and would eventually take the form of regulations.

What if the customer cannot or will not provide identification or give the required information?

The general rule is that if the customer cannot or will not provide adequate identification or give the required information, then you must refuse the sale. However, if the customer is in a situation where he or she could never come up with the necessary identification or information, then you can contact the Treasury Department’s Office of Financial Enforcement to ask about a particularized exemption. The address to contact is Director, Office of Financial Enforcement, Department of the Treasury, Room 4320, 1500 Pennsylvania Avenue NW, Washington, DC 20220. Also keep in mind the special rules we described earlier for elderly and disabled persons who do not have the usual forms of identification. [Administrative Ruling 92-1]

What form must the records take?

According to Supplementary Information issued with the October 1994 revisions, “Information to be maintained may be recorded on copies of, or other records relating to, the instruments purchased.”

What does a financial institution have to do with the records?

According to Supplementary Information issued with the October 1994 revisions, “Information to be maintained may be recorded on copies of, or other records relating to, the instruments purchased.”