October 1, 2018

TIGTA chides IRS in two key compliance areas, stating its AML efforts have a ‘minimal impact’ and its failing to properly use CTR data

The U.S. Treasury Office of Inspector General for Tax Administration (TIGTA) has criticized the Internal Revenue Service in two key areas related to financial crime compliance and investigations, stating in one report that the agency’s anti-money laundering (AML) division – that typically examiners all non-bank operations without a federal functional regulator, has “minimal impact,” while it’s also failing to fully maximize the data in customer transaction reports (CTRs).

The TIGTA report stated that the IRS Small Business/Self-Employed Division was lax in the majority of its exams, letting major violators slide with letters, not penalties.

“TIGTA reviewed a statistically valid random sample of 140 compliance cases from a population of 24,212 closed cases worked by the BSA Program for Fiscal Years 2014 through 2016 and found that 105 (75 percent) were closed with 383 Title 31 violations in which the respective business only received a letter citing the violations found.”

As well, the entire penalty process and coordination with IRS Criminal and the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN), the agencies with powers to hand down monetary fines, was a flawed, money-losing operation – and one that has yet to adequately train or examine firms related to virtual currency operations.

TIGTA issued several recommendations:

·         coordinate with the FinCEN on the authority to assert Title 31 penalties or re-prioritize resources to more productive work;

·         leverage the BSA Program’s Title 31 authority and annual examination planning in the development of the IRS’s virtual currency strategy;

·         notify examiners of new appointment letter enclosures that includes Publication 1;

·         evaluate the effectiveness of the newly implemented review procedures for FinCEN referrals; and

·         improve the process for referrals to IRS Criminal Investigation.

To read the full report, click here.

On the issue of CTRs, the oversight body also found a host of issues.

“Although IRS management agreed with TIGTA’s recommendation in a September 2010 report and cited steps taken to develop examination referrals from the CTRs, the IRS is still not systemically using the CTRs to identify and pursue potentially noncompliant individuals,” according to the report.

It is also “not effectively tracking information referrals from Bank Secrecy Act examiners to the Examination function. Finally, some examiners are not documenting that they are considering available CTR information in their audits.” To read the full report, click here.