[Federal Register Volume 60, Number 1 (Tuesday, January 3, 1995)]
[Rules and Regulations]
[Pages 231-234]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31978]
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FEDERAL RESERVE SYSTEM
12 CFR Part 219
[Regulation S; Docket No. R-0807]
Reimbursement for Providing Financial Records; Recordkeeping
Requirements for Certain Financial Records
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule.
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SUMMARY: The Board of Governors of the Federal Reserve System (Board)
has finalized the enhanced recordkeeping requirements relating to
certain wire transfers (which include funds transfers and transmittals
of funds) by financial institutions. The final rule takes into
consideration the public comments received on the initial notice of
proposed rulemaking. These recordkeeping requirements are being
promulgated jointly by the Board and the Department of Treasury
(Treasury). A companion notice published elsewhere in today's Federal
Register by the Treasury and the Board (Joint Notice) sets forth the
substantive provisions of the recordkeeping requirements and provides
an analysis of comments received on the proposal. This notice sets
forth the regulation for codification at 12 CFR Part 219, subpart B,
which cross-references the substantive provisions set forth in the
Joint Notice. Under the Joint Notice, each domestic financial
institution involved in either a domestic or international wire
transfer must collect and retain certain information. The amount and
type of information collected and retained will depend upon the nature
of the financial institution, its role in the particular wire transfer,
and the relationship of the parties to the transaction with the
financial institution.
EFFECTIVE DATE: January 1, 1996.
FOR FURTHER INFORMATION CONTACT: Louise L. Roseman, Associate Director,
(202) 452-2789; Gayle Brett, Manager, [[Page 232]] Fedwire, (202) 452-
2934, Division of Reserve Bank Operations and Payment Systems; Oliver
Ireland, Associate General Counsel, (202) 452-3625, or Elaine M.
Boutilier, Senior Counsel, (202) 452-2418, Legal Division, Board of
Governors of the Federal Reserve System. For the hearing impaired only,
Telecommunication Device for the Deaf (TDD), Dorothea Thompson (202)
452-3544.
SUPPLEMENTARY INFORMATION: The statute generally referred to as the
Bank Secrecy Act (Pub. L. 91-508, codified at 12 U.S.C. 1829b and 1951-
1959, and 31 U.S.C. 5311-5329) authorizes the Secretary of the Treasury
to require financial institutions to keep records and file reports that
the Secretary determines have a high degree of usefulness in criminal,
tax, or regulatory investigations or proceedings. The primary purpose
of the Bank Secrecy Act is to identify the source, volume, and movement
of funds into and out of the country and through domestic financial
institutions. The Bank Secrecy Act was amended by the Annunzio-Wylie
Anti-Money Laundering Act of 1992, Title XV of the Housing and
Community Development Act of 1992, Pub. L. 102-550 (referred to
hereafter as the 1992 Amendment) to specifically authorize the Treasury
and the Board jointly to prescribe regulations to require maintenance
of records regarding domestic and international funds transfers.
The 1992 Amendment authorizes the Board and the Treasury to
promulgate recordkeeping requirements for domestic wire transfers by
insured depository institutions whenever the agencies determine that
such records have a high degree of usefulness in criminal, tax, or
regulatory investigations or proceedings. In addition, the 1992
Amendment requires the Treasury and the Board to issue final
regulations with regard to international transactions. The
recordkeeping requirements for international transactions will apply to
financial institutions as defined in 31 CFR 103.11(i),1 which
include insured depository institutions, brokers and dealers in
securities, as well as other businesses that provide money transmitting
services. In prescribing these required regulations, the Board and the
Treasury considered the usefulness of these records in criminal, tax,
or regulatory investigations or proceedings and the effect on the cost
and efficiency of the payment system. The Board and the Treasury
decided that it would be simpler to issue regulations for both domestic
and international funds transfers simultaneously, because the
recordkeeping requirements will be substantially the same.
\1\When this rule becomes effective, the citation for the
definition of financial institution will be 31 CFR 103.11(n).
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The number of wire transfers completed is substantial. For example,
more than 71 million funds transfers with an aggregate dollar value of
approximately $208 trillion were made over Fedwire in 1993. More than
42 million funds transfers with a value of approximately $266 trillion
were made over the Clearing House Interbank Payments System (CHIPS).
Nonbank providers of money transmitting services make an estimated 12.7
million transmittals annually.
Money laundering is a vital component of drug trafficking and other
criminal activity throughout the world, and Federal law enforcement
agencies believe that a significant amount of the money laundered
involves wire transfers. Proceeds from illegal activities may be
processed through money laundering schemes involving domestic and/or
international payments by wire transfers. Such activity has been
documented in several recent investigations conducted by the Treasury
and other Federal law enforcement agencies.
In August 1993, the Treasury and the Board jointly issued for
public comment a proposal to enhance the recordkeeping requirements
relating to certain wire transfers by financial institutions (58 FR
46014, August 31, 1993). Based on the comments received, the Treasury
and the Board have modified the proposed rule to reduce the burden
associated with the rule, while maintaining the usefulness of the rule
to law enforcement agencies. The Board and the Treasury believe that
maintenance of these records will have a high degree of usefulness in
criminal, tax, or regulatory investigations or proceedings. Further,
the Board and the Treasury believe that these recordkeeping
requirements will not have a significant adverse effect on the cost or
the efficiency of the payments system.
Codification of the Rule
To minimize potential confusion by affected entities regarding the
scope of this joint rule and its interaction with other anti-money
laundering regulations, the substantive requirements of the rule will
be codified with other Bank Secrecy Act regulations, as part of the
Treasury's regulations in 31 CFR Part 103. Because the Board is
required to prescribe these regulations jointly with the Treasury, the
Board is adding a new subpart B to 12 CFR Part 219, which will cross-
reference the jointly prescribed requirements in 31 CFR Part 103. The
current text of 12 CFR Part 219, concerning reimbursement to financial
institutions for assembling and providing financial records pursuant to
the Right to Financial Privacy Act, will become subpart A of 12 CFR
Part 219.
Summary Description of the Rule
The Joint Notice, published elsewhere in today's Federal Register,
provides an extensive description of the substantive requirements of
the rule. While the Board is authorized to promulgate jointly with the
Treasury recordkeeping and reporting requirements with regard to
domestic wire transfers by insured depository institutions, the Board
specifically is required to promulgate jointly with the Treasury
recordkeeping and reporting requirements for international wire
transfers by both insured depository institutions and nonbank financial
institutions. The Board is not authorized to promulgate recordkeeping
and reporting requirements for domestic wire transfers by nonbank
financial institutions. (The Treasury has this authority under other
statutory provisions.) This limitation is reflected in the Board's
subpart B of 12 CFR Part 219. The Board's recordkeeping and reporting
requirements for international wire transfers by nonbank financial
institutions, however, are identical to those adopted by the Treasury
for domestic and international wire transfers by nonbank financial
institutions. Therefore, compliance by nonbank financial institutions
with the requirements will not be affected by this limitation in the
Board's regulatory authority.
Regulatory Flexibility Analysis
Three requirements of a final regulatory flexibility analysis (5
U.S.C. 604), (1) a succinct statement of the need for and the
objectives of the rule, (2) a summary of the issues raised by the
public comments, the agency's assessment of the issues, and a statement
of the changes made in the final rule in response to the comments, and
(3) a description of significant alternatives to the rule that would
minimize the rule's economic impact on small entities and reasons why
the alternatives were rejected, are discussed in the Joint Notice.
Competitive Impact Analysis
In considering an operational or legal change that would affect a
Federal Reserve Bank priced service, the Board [[Page 233]] determines
whether the change would have a direct and material adverse effect on
the ability of other service providers to compete effectively with the
Federal Reserve in providing similar services, due to differing legal
powers or constraints or due to a dominant market position of the
Federal Reserve deriving from such legal differences.
Unlike other providers of wire transfer services, the Federal
Reserve Banks are not subject to the wire transfer recordkeeping rules,
because they are not considered by the Treasury to be financial
institutions, as defined in 31 CFR 103.11(i).2 The Board believes,
however, that the exclusion of the Federal Reserve Banks from the scope
of this rule will not adversely affect the ability of other service
providers to compete effectively with the Federal Reserve in providing
similar services. The Federal Reserve Banks will continue to maintain
records of the payment orders that they accept, similar to the records
required by the rule to be kept by intermediary banks.
\2\Ibid.
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For funds transfers effected over the Federal Reserve's Fedwire
funds transfer system, banks and domestic brokers or dealers in
securities would not have to retain as many of the elements of
beneficiary identification as provided by the originator, because the
current Fedwire format may not have sufficient space to include such
information. The Board, however, does not believe that this temporary
exception would make use of the Fedwire system more desirable than
other funds transfer systems. A financial institution will be required
to comply fully with the requirement to retain full beneficiary
information at such time that it completes its conversion to the
expanded Fedwire message format.
Paperwork Reduction Act
The collection of information required by the final rule has been
submitted by the Treasury to the Office of Management and Budget in
accordance with the requirements of the Paperwork Reduction Act (44
U.S.C. 3504(h)) under control number 1505-0063.
The collection of information in this regulation is authorized by
12 U.S.C. 1829b and 1951-1959 and 31 U.S.C. 5311-5328. The likely
recordkeepers are financial institutions that perform transmittals of
funds.
Estimated number of respondents and/or recordkeepers: 60,000.
Estimated total annual recordkeeping burden: 1 million hours.
Estimated average annual burden per respondent and/or recordkeeper:
16.3 hours.
Estimated annual frequency of responses: Upon request.
The estimated average annual burden hours have decreased
significantly from those included in the August 1993 proposal. The
decrease is due to the significant reduction in the number of
transmittals of funds subject to the recordkeeping requirements as a
result of the establishment of the $3,000 threshold, and due to the
reduction of circumstances in which additional recordkeeping and
verification requirements for noncustomers would apply.
List of Subjects in 12 CFR Part 219
Banks, Banking, Currency, Reporting and recordkeeping requirements,
Foreign banking.
For the reasons set out in the preamble, 12 CFR Part 219 is amended
as set forth below.
PART 219--REIMBURSEMENT FOR PROVIDING FINANCIAL RECORDS;
RECORDKEEPING REQUIREMENTS FOR CERTAIN FINANCIAL RECORDS
(REGULATION S)
1. The title of part 219 is revised to read as set forth above.
Subpart A--Reimbursement to Financial Institutions for Providing
Financial Records
Secs. 219.1 through 219.7 [Designated as Subpart A]
2. Sections 219.1 through 219.7 are designated as Subpart A, and a
new Subpart A heading is added to read as set forth above.
3. The authority citation for Part 219 is designated as the
authority for Subpart A and continues to read as follows:
Authority: 12 U.S.C. 3415.
4. Subpart A is amended by revising Sec. 219.1 to read as follows:
Sec. 219.1 Authority, purpose and scope.
This subpart of Regulation S (12 CFR part 219, subpart A) is issued
by the Board of Governors of the Federal Reserve System (the Board)
under section 1115 of the Right to Financial Privacy Act (the Act) (12
U.S.C. 3415). It establishes the rates and conditions for reimbursement
of reasonably necessary costs directly incurred by financial
institutions in assembling or providing customer financial records to a
government authority pursuant to the Act.
5. Section 219.2 is amended by revising the introductory text to
read as follows:
Sec. 219.2 Definitions.
For the purposes of this subpart, the following definitions shall
apply:
* * * * *
6. Subpart B is added to Part 219 to read as follows:
Subpart B--Recordkeeping and Reporting Requirements for Funds Transfers
and Transmittals of Funds
Sec.
219.21 Authority, purpose and scope.
219.22 Definitions.
219.23 Recordkeeping and reporting requirements.
219.24 Retention period.
Subpart B--Recordkeeping and Reporting Requirements for Funds
Transfers and Transmittals of Funds
Authority: 12 U.S.C. 1829b(2) and (3).
Sec. 219.21 Authority, purpose and scope.
This subpart of Regulation S (12 CFR part 219, subpart B) is issued
by the Board under the authority of section 21(b) of the Federal
Deposit Insurance Act (12 U.S.C. 1829b), as amended by the Annunzio-
Wylie Anti-Money Laundering Act of 1992 (Pub. L. 102-550, Title XV; 106
Stat. 3672, 4044), which authorizes the Board and the Secretary of the
Treasury jointly to prescribe recordkeeping and reporting requirements
for domestic wire transfers by insured depository institutions; and
which also requires the Board and the Treasury jointly to prescribe
recordkeeping and reporting requirements for international wire
transfers by insured depository institutions and by nonbank financial
institutions. The definitions and recordkeeping and reporting
requirements referenced in this subpart are promulgated and
administered jointly by the Board and the Treasury and are codified in
31 CFR 103.11 and 103.33(e) and (f). Such recordkeeping and reporting
requirements will assist in the prosecution of money laundering
activities and are determined to have a high degree of usefulness in
criminal, tax or regulatory investigations or proceedings.
Sec. 219.22 Definitions.
The following terms are defined in 31 CFR 103.11 under the joint
authority of the Board and the Treasury:
Accept.
Beneficiary.
Beneficiary's bank.
Established customer.
Execution date.
Funds transfer. [[Page 234]]
Intermediary bank.
Intermediary financial institution.
Originator.
Originator's bank.
Payment date.
Payment order.
Receiving bank.
Receiving financial institution.
Recipient.
Recipient's financial institution.
Sender.
Transmittal of funds.
Transmittal order.
Transmittor.
Transmittor's financial institution.
Sec. 219.23 Recordkeeping and reporting requirements.
(a) Domestic and international funds transfers by insured
depository institutions. The Board and the Treasury are authorized to
promulgate jointly recordkeeping and reporting requirements for
domestic and international funds transfers by insured depository
institutions whenever the agencies determine that the maintenance of
such records has a high degree of usefulness in criminal, tax, or
regulatory investigations or proceedings. These regulations are
codified at 31 CFR 103.33(e). For the purposes of this subpart, the
provisions of 31 CFR 103.33(e) apply only to funds transfers by insured
depository institutions.
(b) International transmittals of funds by financial institutions
other than insured depository institutions. The Board and the Treasury
are required to promulgate jointly reporting and recordkeeping
requirements for international transmittals of funds by financial
institutions, including brokers and dealers in securities and
businesses that provide money transmitting services. In prescribing
these requirements, the Board and the Treasury take into account the
usefulness of these records in criminal, tax, or regulatory
investigations or proceedings and the effect the recordkeeping will
have on the cost and efficiency of the payment system. These
regulations are codified at 31 CFR 103.33(f). For the purposes of this
subpart, the provisions of 31 CFR 103.33(f) apply only to international
transmittals of funds.
Sec. 219.24 Retention period.
All records that are required to be retained by this subpart shall
be retained for a period of five years. All these records shall be
filed or stored in such a way as to be accessible within a reasonable
period of time, taking into consideration the nature of the record and
the amount of time that has expired since the record was made. Any
records required to be retained by this subpart shall be made available
to the Board upon request.
By order of the Board of Governors of the Federal Reserve
System, December 21, 1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-31978 Filed 12-30-94; 8:45 am]
BILLING CODE 6210-01-P
