98-1671. Conditional Exceptions to Bank Secrecy Act Regulations Relating to Orders for Transmittals of Funds by Financial Institutions  

  • [Federal Register Volume 63, Number 16 (Monday, January 26, 1998)]
    [Rules and Regulations]
    [Pages 3640-3642]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 98-1671]
    
    
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    DEPARTMENT OF THE TREASURY
    
    31 CFR Part 103
    
    
    Conditional Exceptions to Bank Secrecy Act Regulations Relating 
    to Orders for Transmittals of Funds by Financial Institutions
    
    AGENCY: Financial Crimes Enforcement Network, Treasury.
    
    ACTION: Grant of conditional exceptions.
    
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    SUMMARY: This document contains two conditional exceptions to a 
    provision of the Bank Secrecy Act regulations. The exceptions permit 
    financial institutions to comply more efficiently with requirements for 
    inclusion of certain information in transmittal orders for 
    transmissions of funds.
    
    EFFECTIVE DATE: January 26, 1998.
    
    FOR FURTHER INFORMATION CONTACT: Peter Djinis, Associate Director, 
    FinCEN, (703) 905-3920; Charles Klingman, Financial Institutions Policy 
    Specialist, Office of Program Development, FinCEN, (703) 905-3920; 
    Stephen R. Kroll, Legal Counsel, FinCEN, and Cynthia L. Clark, Acting 
    Deputy Legal Counsel, Office of Legal Counsel, FinCEN, (703) 905-3590.
    
    SUPPLEMENTARY INFORMATION:
    
    I. Introduction
    
        The statute generally referred to as the ``Bank Secrecy Act,'' 
    Titles I and II of Public Law 91-508, as amended, codified at 12 U.S.C. 
    1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5330, authorizes the 
    Secretary of the Treasury, inter alia, require financial institutions 
    to keep records and file reports that are determined to have a high 
    degree of usefulness in criminal, tax, and regulatory matters, and to 
    implement counter-money laundering programs and compliance procedures. 
    Regulations implementing Title II of the Bank Secrecy Act (codified at 
    31 U.S.C. 5311-5330) appear at 31 CFR part 103. The authority of the 
    Secretary to administer the Bank Secrecy Act has been delegated to the 
    Director of FinCEN.1
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        \1\ Information relating to the Paperwork Reduction Act appears 
    at the end of this Issuance.
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    II. FinCEN Issuance 98-1
    
        This document, FinCEN Issuance 98-1, grants two conditional 
    exceptions to the operation of the rules contained at 31 CFR 103.33(g). 
    The background, purpose, and terms of the two exceptions are explained 
    below.
    
    Background
    
        On January 3, 1995, the Financial Crimes Enforcement Network 
    (``FinCEN'') of the Department of the Treasury issued a rule, 31 CFR 
    103.33(g) (the ``Travel Rule''), requiring financial institutions to 
    include certain information in transmittal orders relating to 
    transmittals of funds of $3,000 or more. The Travel Rule complements 
    the rules jointly issued by the Board of Governors of the Federal 
    Reserve System and FinCEN (the ``Joint Rule'') requiring the 
    maintenance of
    
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    records by insured depository institutions and other financial 
    institutions with respect to domestic and international transmittal of 
    funds transactions.2 The Joint Rule defines the terms used 
    in both that Rule and the Travel Rule.
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        \2\ The provisions of 12 U.S.C. 1829b(b), amended the Bank 
    Secrecy Act (i) to require the Secretary of the Treasury and the 
    Federal Reserve Board jointly to promulgate recordkeeping 
    requirements for international funds transfers by depository 
    institutions and nonbank depository institutions, and (ii) to 
    authorize the Secretary and the Board jointly to promulgate 
    regulations for domestic funds transfers by depository institutions. 
    The Secretary is authorized by 31 U.S.C. 5318(g) to require 
    financial institutions to carry out anti-money laundering programs. 
    Both 31 U.S.C. 5318(h) and 12 U.S.C. 1829b(b) were added to the Bank 
    Secrecy Act by the Annunzio-Wylie Anti-Money Laundering Act of 1992 
    (Title XV of Pub. L. 102-550).
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        Both the Joint Rule and the Travel Rule were amended on April 1, 
    1996, in response to a request for regulatory relief by affected 
    financial institutions. The changes to the Travel Rule made at that 
    time included addition of a ``safe harbor'' for Travel Rule compliance 
    prior to the date of an institution's conversion to the expanded 
    message format of the Fedwire funds transfer system of the Federal 
    Reserve Banks.3 The ``safe harbor'' permits an institution--
    prior to the completion of its Fedwire conversion--to omit from a 
    transmittal order some of the information otherwise required by the 
    Travel Rule, so long as the missing information is retrieved and 
    supplied in a reasonable amount of time in response to a law 
    enforcement request or a judicial order, or to a request by another 
    financial institution that would otherwise have received the 
    information to assist the latter institution in its own Bank Secrecy 
    Act compliance efforts.
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        \3\ The expanded Fedwire format was announced by the Federal 
    Reserve Board on the same day as the Joint Rule and the Travel Rule. 
    See 60 FR 220 and 60 FR 234 (January 3, 1995).
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    Use of Customer Information File Information
    
        A group of banks and brokers and dealers in securities (the 
    ``Working Group'') 4, has sought relief from the strict 
    operation of the Travel Rule's requirement that each transmittor's 
    financial institution and intermediary financial institution include in 
    a transmittal order the transmittor's name and street address. See 31 
    CFR 103.33(g)(1) (i)-(ii) and (g)(2) (i)-(ii). Absent an exception or 
    special rule of some kind, satisfaction of the terms of the Travel Rule 
    require the use of true name and street address information. The Bank 
    Secrecy Act rules for the maintenance of customer and transaction 
    records (one of which is the Joint Rule), and for the reporting of 
    various transactions or circumstances, require the use of true name and 
    street address information, and prior guidance issued by FinCEN stated 
    plainly that ``[t]he use of a code name, or pseudonym is prohibited'' 
    under the Travel Rule. Question and Answer 19, Guidance for Financial 
    Institutions on the Transmittal of Funds ``Travel Regulations'' 
    (January 1997).5
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        \4\ The members of the Working Group are Bank of America, N.A.; 
    The Bank of New York; Bankers Trust Company; The Chase Manhattan 
    Bank; Citibank, N.A.; J.P. Morgan, Inc.; Marine Midland Bank; 
    Merrill Lynch, Pierce, Fenner & Smith; MTB Bank; NationsBank, N.A.; 
    Prudential Securities, Inc.; and Republic National Bank of New York.
        \5\ The January 1997 Guidance document was distributed to banks, 
    thrift institutions, and credit unions by their respective federal 
    regulators and was the subject of NASD-R Notice to Members 97-13, 
    sent to members of the National Association of Securities Dealers.
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        The Working Group has represented that the present ability of many 
    covered institutions to satisfy the Travel Rule at all depends upon the 
    ability of those institutions to make use electronically of information 
    contained in the institutions' automated customer information files, or 
    ``CIFs.'' CIFs, the Working Group has told FinCEN, will always contain 
    each customer's actual account number. However, CIFs will often contain 
    a post office box mailing address rather than the customer's street 
    address, or (somewhat less frequently) a nominee or ``special'' or 
    coded name rather than the customer's true name; in other cases CIFs 
    may contain both true and nominee, ``special'' or coded name or Post 
    Office Box address information, but will be programmed to use the 
    latter for communications purposes outside the institution itself. The 
    result is that, although the originating institution will know a 
    customer's street address and true name, reliance on CIFs as presently 
    programmed could produce ``traveling information'' other than actual 
    names and street addresses. The banks and broker-dealers involved have 
    further represented that reprogramming CIFs so that those files can 
    produce true name and address information when necessary to satisfy the 
    Travel Rule (if for some reason the files contain post office box 
    addresses or nominee, ``special,'' or coded names) will require 
    significant resources and would likely involve diverting programming 
    time away from more urgent programming needs, especially correction of 
    the world-wide ``Year 2000'' problem.
    
    Full Travel Rule Compliance Following Conversion to Expanded Fedwire 
    Message Format
    
        The ``safe harbor'' contained in 31 CFR 103.33(g) only applies 
    prior to the date that an institution completes its conversion to the 
    expanded message format of the Fedwire funds transfer system. 
    Generally, that transformation is required to be completed by the end 
    of 1997.
        A number of financial institutions have represented to FinCEN that 
    they have found it impossible to begin full compliance with the Travel 
    Rule immediately upon conversion to the expanded Fedwire message 
    format. The inability to meet the date for full compliance set out in 
    the safe harbor arises because of delays in completing related 
    programming tasks, for example the linking of inbound and outbound 
    message systems.
    
    Need for Flexibility in Administration of Travel Rule
    
        Although the Travel Rule complements the Joint Rule, FinCEN has 
    made clear in the past that the purposes of the Travel Rule are not 
    incompatible with flexibility in applying the Rule's literal terms. The 
    need for administrative flexibility is increased because Treasury 
    intends, within the next 18 months, to review and consider making 
    appropriate modifications to the Travel Rule. See 61 FR 14383, 14387-
    14388. Modifications are appropriate to meet particular operating 
    problems, so long as complete information is available, at some point, 
    in the domestic funds transfer chain and investigators are given 
    adequate notice that the funds transmittal order itself must be 
    supplemented by other information to provide a complete picture of the 
    transmittal involved. See 31 CFR 103.33(g)(3).
    
    Grant of Exceptions
    
        By virtue of the authority contained in 31 CFR 103.45(a) and (b), 
    which has been delegated to the Director of FinCEN, the following 
    exceptions to the operation of the rules in 31 CFR 103.33(g) are 
    approved:
        1. A transmittor's financial institution that is otherwise subject 
    to the terms of 31 CFR 103.33(g) with respect to transmittal of funds 
    may satisfy (i) the requirement of 31 CFR 103.33(g)(1)(i) that the name 
    of the transmittor be included in a transmittal order, and (ii) the 
    requirement of 31 CFR 103.33(g)(1)(ii) that the transmittor's address 
    be included in a transmittal order, with respect to a particular 
    transmittal order, by including in the transmittal order the name and 
    address information with respect to the transmittor contained in the 
    financial institution's general automated CIFs, so long as:
    
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        (a) The CIFs are not specifically altered for the particular 
    transmittal of funds in question,
        (b) The CIFs are generally programmed and used by the institution 
    for customer communications, not simply for transmittal of funds 
    transactions, and as so programmed generate other than true name and 
    street address information;
        (c) The institution itself knows and can associate the CIF 
    information used in the funds transmittal order with the true name and 
    street address of the transmittor of the order;
        (d) The transmittal order includes a question mark symbol (``?'') 
    immediately following any designation of the transmittor other than by 
    a true name on the order; and
        (e) Any report required to be made under 31 CFR 103.21 or 31 CFR 
    103.22 by the institution with respect to the funds transmittal to 
    which the transmittal order relates contains true name and street 
    address information for the transmittor and plainly associates the 
    report with the particular funds transmittal in question.
        This exception has no application to any funds transmittals for 
    whose processing an institution does not automatically rely on 
    preprogrammed and prespecified CIF name and address information. 
    Moreover, institutions are reminded that the use of nominee, 
    ``special,'' or coded names is barred by the Travel Rule, in the 
    absence of the foregoing exception with respect to CIFs only. Any new 
    customer request for use of a nominee, or ``special'' or coded name in 
    a CIF after the date of this Issuance should be carefully evaluated by 
    depository institutions as a potentially suspicious transaction 
    requiring reporting under 31 CFR 103.21, and reported unless an 
    examination reveals that the request is made for an independent lawful 
    business purpose and is the sort in which the customer involved would 
    be expected to engage.
        2. A financial institution will have complied with the terms of 31 
    CFR 103.33(g) for a transmittal order sent prior to April 1, 1998 and 
    on or after the date of the conversion to the expanded Fedwire message 
    format of the bank sending the transmittal order, if
        (a) The transmittal order was an order to which the terms of 31 CFR 
    103.33(g)(3) would have applied if the order had been sent prior to the 
    date of such conversion, and
        (b) The terms of 31 CFR 103.33(g)(3) are satisfied with respect to 
    such order as if such paragraph continued to apply by its terms to such 
    transmittal order.
        The foregoing exceptions do not in any way modify the obligations 
    of financial institutions under any other provisions of 31 CFR part 
    103, including, without limitation, the obligation to maintain and 
    retrieve information about transmittals of funds or the contents of 
    orders for the transmittals of funds. Terms used in the foregoing 
    exceptions and not defined in this document have the meaning given to 
    such terms in 31 CFR part 103. The foregoing exceptions may be modified 
    or revoked at any time in the sole discretion of the Department of the 
    Treasury, by document published in the Federal Register. Exception 1, 
    above, will expire on May 31, 1999, for transmittals of funds initiated 
    after that date, if not revoked or modified with respect to such 
    expiration date prior to that time.
    
    III. Paperwork Reduction Act
    
        The collection of information contained in this issuance has been 
    reviewed and approved by the Office of Management and Budget in 
    accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under 
    control number 1506-0008. An agency may not conduct or sponsor, and a 
    person is not required to respond to, a collection of information 
    unless it displays a valid control number assigned by the Office of 
    Management and Budget.
        The collection of information in this issuance is in the Grant of 
    Exceptions section of this issuance, paragraph 1.(d). This information 
    is required to comply with the Bank Secrecy Act. This information will 
    be used to assure that a code or ``special'' name (i.e., a name other 
    than the transmittor's true name) on accounts at banks and with brokers 
    and dealers in securities are not used to launder money or hide assets 
    derived from illegal activities. The collection of information is 
    mandatory. All information collected pursuant to the Bank Secrecy Act, 
    including this information collection, is confidential pursuant to 31 
    U.S.C. 5316(c) and may be shared with regulatory and law enforcement 
    authorities but its availability is strictly limited. All records 
    required to be retained by 31 CFR part 103 must be retained for five 
    years.
        The likely respondents are banks and brokers and dealers in 
    securities.
        Frequency: Each time a transmittal order contains a code or special 
    name, i.e., a name other than the transmittor's true name.
        Estimated Number of Such Transmittal Orders: 5,000.
        Estimate of Total Annual Burden:
    
    Reporting burden estimate = approximately 250 hours for reporting.
    Recordkeeping burden estimate = approximately 1,250 hours for 
    recordkeeping.
        Estimate of Total Annual Cost for Hour Burdens: Based on $20 per 
    hour, the total cost of compliance is estimated to be approximately 
    $33,000.
        Estimate of Total Other Annual Costs to Respondents: None.
        FinCEN specifically invites comments on the following subjects: (a) 
    Whether the proposed collection of information is necessary for the 
    proper performance of the mission of FinCEN, including whether the 
    information shall have practical utility; (b) the accuracy of FinCEN's 
    estimate of the burden of the collection of information; (c) ways to 
    enhance the quality, utility, and clarity of the information to be 
    collected; and (d) ways to minimize the burden of the collection of 
    information on respondents, including through the use of automated 
    collection techniques or other forms of information technology.
        In addition, the Paperwork Reduction Act of 1995 requires agencies 
    to estimate the total annual cost burden to respondents or 
    recordkeepers resulting from the collection of information. Thus, 
    FinCEN also specifically requests comments to assist with this 
    estimate. In this connection, FinCEN requests commenters to identify 
    any additional costs associated with the collection of information. 
    These comments on costs should be divided into two parts: (1) Any 
    additional costs associated with reporting; and (2) any additional 
    costs associated with recordkeeping.
        Comments concerning the accuracy of the burden estimate and 
    suggestions for reducing the burden should be directed to the Office of 
    Management and Budget, Attention: Desk Officer for the Treasury 
    Department, Office of Information and Regulatory Affairs, Washington, 
    D.C., 20503.
    
        Signed this 16th day of January 1998.
    William F. Baity,
    Acting Director--FinCEN, Department of the Treasury.
    [FR Doc. 98-1671 Filed 1-23-98; 8:45 am]
    BILLING CODE 4820-03-P
    
    
    

Document Information

Effective Date:
1/26/1998
Published:
01/26/1998
Department:
Treasury Department
Entry Type:
Rule
Action:
Grant of conditional exceptions.
Document Number:
98-1671
Dates:
January 26, 1998.
Pages:
3640-3642 (3 pages)
PDF File:
98-1671.pdf
CFR: (1)
31 CFR 103