CTR Exemptions: Phase I and II Eligibility, Renewals, and Penalties

Currency Transaction Report exemptions let a bank stop filing a CTR every time a vetted customer moves more than $10,000 in cash. Federal rules split eligible customers into two groups: Phase I covers other banks, U.S. government bodies, publicly traded companies listed on qualifying exchanges, and their majority-owned U.S. subsidiaries; Phase II covers private non-listed businesses and payroll customers that meet specific account-history, transaction-frequency, and business-activity tests. Only depository institutions can use the exemption, and only for the exempt customer’s own transactions.

What the Exemption Does and Does Not Cover

Federal law requires financial institutions to report currency transactions over $10,000, including multiple same-day transactions by one person that add up past that threshold.¹ For businesses that handle large cash amounts as part of normal operations, that produces a stream of reports with little investigative value. The exemption removes that filing burden for a customer the bank has vetted and designated as exempt.

Only commercial banks, savings associations, thrift institutions, and credit unions can designate exempt persons. Broker-dealers, money services businesses, casinos, and other non-depository financial institutions cannot.² The exemption also reaches only the exempt customer’s own transactions. If an exempt business handles cash as an agent for someone else who beneficially owns the funds, a CTR is still required.

One boundary matters more than any other: the exemption never touches suspicious-activity obligations. A bank must keep monitoring every exempt customer, and if a transaction looks suspicious, a Suspicious Activity Report is required no matter what the customer’s status is.³

Phase I: Automatic Exemptions

Phase I customers are inherently low-risk because of their regulatory status or public transparency. For most Phase I categories the bank does not file a Designation of Exempt Person form and does not conduct annual reviews.⁴

Banks and Government Bodies

Other banks qualify to the extent of their domestic operations. Government bodies include any department or agency of the federal government, any state, any political subdivision of a state, and entities that exercise governmental authority on their behalf, such as a municipal utility district or an interstate compact agency.⁵ No filing with FinCEN is needed, and no annual review is required.

Listed Companies and Their Subsidiaries

A company qualifies as a listed entity if its common stock or equivalent equity interests are listed on the New York Stock Exchange, NYSE American (formerly the American Stock Exchange), or designated as a NASDAQ National Market Security. Companies listed only on the separate NASDAQ Capital Market tier do not qualify.⁵ If the listed entity is a financial institution other than a bank, the exemption reaches only its domestic operations.

A subsidiary of a listed company also qualifies if it is organized under U.S. law and the listed parent owns at least 51 percent of its common stock or equivalent equity interests.⁵ Unlike banks and government entities, listed companies and their subsidiaries do require a Designation of Exempt Person filing and annual reviews, because listing status can change through going private, delisting, or merger.

Phase II: Non-Listed Businesses and Payroll Customers

Phase II covers private companies that are not publicly traded but have legitimate, recurring cash-handling needs. Eligibility is stricter and ongoing compliance is heavier. The exemption applies only to transactions in the customer’s designated exemptible accounts; cash activity in any other account still requires a CTR.³

Non-Listed Business Eligibility

A non-listed business qualifies only if it meets all four of these conditions:

It is incorporated or organized under U.S. or state law.
It has maintained a transaction account at the bank for at least two months. The bank may shorten this window based on a risk analysis that supports a reasonable belief the customer has a legitimate business need for frequent large cash transactions.³
It has conducted five or more reportable currency transactions (over $10,000) in the past year.
No more than 50 percent of its gross revenue comes from ineligible activities.

The revenue test drives most close calls. A business with mixed activities can still qualify if the ineligible portion stays at or below half of gross revenue, and the bank does not have to make the customer segregate commingled funds to run the analysis.⁶

Payroll Customers

A payroll customer is a business that regularly withdraws more than $10,000 in cash to pay employees in the United States. The two-month account history and five-transaction requirements apply, but payroll customers are not subject to the ineligible-activity test, because the exemption tracks the purpose of the withdrawal rather than the nature of the business.²

Ineligible Business Activities

Certain businesses cannot qualify as exempt non-listed businesses no matter how long they’ve banked with the institution or how much cash they handle. The full list of ineligible activities includes:

Serving as a financial institution or agent of one, including money services businesses
Buying or selling motor vehicles, vessels, aircraft, farm equipment, or mobile homes
Practicing law, accounting, or medicine
Auctioning goods
Chartering or operating ships, buses, or aircraft
Pawn brokerage
Gaming of any kind, except licensed parimutuel betting at racetracks
Investment advisory or investment banking services
Real estate brokerage
Title insurance and real estate closings
Trade union activities
Marijuana-related businesses, and any additional activity FinCEN specifies in the future

A business that gets some revenue from these activities can still qualify as long as the combined ineligible share stays at or below 50 percent of gross revenue.⁴

Filing, Reviews, and Renewals

For listed companies, their subsidiaries, non-listed businesses, and payroll customers, the bank electronically files FinCEN Form 110, the Designation of Exempt Person (DOEP), through the BSA E-Filing System. The form is due no later than 30 days after the first transaction the bank wants to exempt.⁷ No DOEP is filed for banks or government entities. The form is used for initial designations, amendments, and revocations.

Annual Eligibility Review

Banks must review each exempt customer’s eligibility at least once a year. For listed companies, that means confirming the stock is still listed on a qualifying exchange. For non-listed businesses and payroll customers, the review verifies that the customer still meets the account-history, transaction-frequency, and revenue tests.³ Between reviews, absent specific knowledge that the customer no longer qualifies, the bank may keep treating the customer as exempt.⁴

Biennial Renewal for Phase II

Non-listed businesses and payroll customers have an extra step. The bank must renew the DOEP every two years. The first renewal is due by March 15 of the second calendar year after the initial designation, and every other March 15 after that.⁶ Each renewal must certify that the bank has applied its suspicious-activity monitoring to the account at least annually, along with any known change in control of the business.

Record Retention

Banks must keep records of every exempt-person designation for five years from the date of designation, including the DOEP filing, the documentation used to verify eligibility, and the records of each annual review.⁸

When the Exemption Ends

A listed company’s exemption is lost automatically when it stops being publicly traded, whether through going private, being delisted, or merging into a non-public entity.³ The annual review will normally catch this, but if the bank learns of the change sooner, it must file a revocation DOEP promptly.

For non-listed businesses and payroll customers, the bank may revoke the exemption at any time through an updated FinCEN Form 110. Common triggers include a revenue-mix shift that pushes ineligible activity above 50 percent, a meaningful drop in cash-transaction volume, or a change in business ownership uncovered during review.

Safe Harbor for Banks

Banks that follow the rules in good faith get real legal protection. A bank is not liable for failing to file a CTR on an exempt customer’s transaction as long as it complied with the exemption requirements, unless it knowingly provided false or incomplete information about the transaction or the customer, or had reason to believe the customer no longer qualified.⁴ The safe harbor is one reason the program works: proper documentation and review protect the institution even if an exempt customer later turns out to be involved in something problematic.

Penalties When a Bank Gets It Wrong

Improperly exempting a customer, skipping annual reviews, or failing to file a required DOEP can carry heavy consequences. Willful violations of BSA reporting requirements can bring criminal fines up to $250,000 and up to five years in prison for responsible individuals. If the violation happens alongside other illegal activity, those figures rise to $500,000 and 10 years. The institution itself can face criminal fines of up to $1 million or twice the value of the transaction involved, whichever is greater.⁹

On the civil side, FinCEN can impose penalties exceeding $71,000 per violation for willful failures related to anti-money-laundering program requirements, which include CTR filing and exemption compliance. These figures are adjusted for inflation periodically. Beyond the direct financial exposure, BSA enforcement actions damage a bank’s standing with regulators and can lead to consent orders that impose costly remediation for years.

A Note on Structuring

Customers sometimes try to duck the $10,000 threshold by breaking cash transactions into smaller amounts. That is structuring, and it is a federal crime whether or not the underlying money is legitimate, punishable by up to five years in prison and more when tied to other illegal activity or larger dollar amounts.¹⁰ Banks watch for it and will file a SAR when they see the pattern. A customer with regular large cash needs is almost always better served by asking the bank whether a CTR exemption applies.

1
FinCEN. CTR Reference Guide
2
Financial Crimes Enforcement Network. Reformed CTR Exemption Process – Questions and Answers
3
Financial Crimes Enforcement Network. Guidance on Determining Eligibility for Exemption from Currency Transaction Reporting Requirements
4
FFIEC BSA/AML InfoBase. Assessing Compliance with BSA Regulatory Requirements – Transactions of Exempt Persons
5
eCFR. 31 CFR 1020.315 – Transactions of Exempt Persons
6
Financial Crimes Enforcement Network. Amendment to the Bank Secrecy Act Regulations – Exemptions from the Requirement to Report Transactions in Currency – Phase II
7
Financial Crimes Enforcement Network. FinCEN Designation of Exempt Person (FinCEN Form 110) Electronic Filing Instructions
8
FFIEC BSA/AML Examination Manual. Appendix P – BSA Record Retention Requirements
9
FFIEC BSA/AML Manual. Introduction
10
Office of the Law Revision Counsel. 31 U.S. Code 5324 – Structuring Transactions to Evade Reporting Requirement Prohibited