[Federal Register Volume 60, Number 1 (Tuesday, January 3, 1995)]
[Rules and Regulations]
[Pages 234-238]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31982]
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DEPARTMENT OF THE TREASURY
31 CFR Part 103
RIN 1505-AA46
Amendment to the Bank Secrecy Act Regulations Relating to Orders
for Transmittals of Funds by Financial Institutions
AGENCY: Financial Crimes Enforcement Network, Treasury.
ACTION: Final rule.
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SUMMARY: This final rule requires banks and nonbank financial
institutions that act as transmittors' financial institutions and
intermediary financial institutions in transmittals of funds to include
certain information in transmittal orders sent to receiving financial
institutions. A companion final rule (the final recordkeeping rule),
published elsewhere in today's Federal Register, requires financial
institutions to collect and retain the information that, under this
final rule, must be included with transmittal orders.
The final recordkeeping rule sets forth collection of information
and recordkeeping requirements with respect to certain transmittals of
funds by financial institutions. The amount and type of information
required to be collected and retained depends upon the type of
financial institution, its role in a particular transaction, the amount
of the transaction and whether the parties to the transaction are
established customers of the financial institution. To ensure a full
understanding of this final rule, the reader is encouraged to review
its provisions together with those of the final recordkeeping rule.
This final rule is promulgated by Treasury under the Annunzio-Wylie
Anti-Money Laundering Act of 1992 (Annunzio-Wylie), which is part of
the statute generally referred to as the Bank Secrecy Act. Annunzio-
Wylie authorizes the Secretary of the Treasury to require financial
institutions to maintain appropriate procedures to comply with the Bank
Secrecy Act and guard against money laundering, and to carry out anti-
money laundering programs. The final recordkeeping rule is promulgated
jointly by the Board of Governors of the Federal Reserve System
(Federal Reserve Board) and by Treasury pursuant to a special statutory
requirement under Annunzio-Wylie. The authority of the Secretary to
administer the Bank Secrecy Act has been delegated to the Director of
the Financial Crimes Enforcement Network (FinCEN).
EFFECTIVE DATE: January 1, 1996.
FOR FURTHER INFORMATION CONTACT: FinCEN, Office of Financial
Enforcement ((202) 622-0400): A. Carlos Correa, Assistant Director for
Rules and Regulations; Roger Weiner, Deputy Director; Peter Djinis,
Director; FinCEN, Office of Legal Counsel: Stephen R. Kroll, Legal
Counsel (703) 905-3534; Nina A. Nichols, Attorney-Advisor, (703) 905-
3598.
SUPPLEMENTARY INFORMATION:
Background
This final rule is promulgated by Treasury under 31 U.S.C. 5318
(a)(2) and (h), which are part of 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), and which were added to the Bank
Secrecy Act by Annunzio-Wylie. 31 U.S.C. 5318 (a)(2) and (h) authorize
the Secretary of the Treasury to require financial institutions to
maintain appropriate procedures to comply with the Bank Secrecy Act and
guard against money laundering, and to carry out anti-money laundering
programs. The final recordkeeping rule is promulgated jointly by the
Federal Reserve Board and by Treasury pursuant to a special statutory
requirement for such joint issuance contained in 12 U.S.C. 1829b(b),
added to the Bank Secrecy Act by section 1515 of Annunzio-Wylie. The
authority of the Secretary to administer the Bank Secrecy Act has been
delegated to the Director of FinCEN.
On August 31, 1993, Treasury and the Federal Reserve Board jointly
issued a proposed recordkeeping rule (58 FR 46014) requiring financial
institutions to obtain and retain information relating to certain
transmittals of funds. Treasury also issued a companion proposed travel
rule (58 FR 46021, August 31, 1993), which was subsequently modified
(58 FR 51269, October 1, 1993), proposing to require any transmittor's
financial institution involved in a transmittal of funds to include in
its corresponding transmittal order:
(1) The name and address of the transmittor and the transmittor's
deposit account number, if the payment were ordered from a deposit
account;
[[Page 235]]
(2) The amount of the transmittal of funds;
(3) The execution date of the transmittal order;
(4) The identity of the recipient's financial institution; and,
(5) Either the name and address or the account number of the
recipient, if received with the transmittal order.
The proposed travel rule would have required any receiving
financial institution acting as an intermediary financial institution
to include in its corresponding transmittal order the following
information, if received from the sender:
(1) The name and address of the transmittor and the deposit account
number of the transmittor;
(2) The amount of the transmittal of funds;
(3) The execution date of the transmittal order;
(4) The identity of the recipient's financial institution;
(5) Either the name and address or the account number of the
recipient, if received with the transmittal order; and,
(6) Either the name and address or the numerical identifier of the
transmittor's financial institution.
Overview
This final rule will assist law enforcement investigations of money
laundering involving transmittals of funds by requiring users of
transmittals of funds to provide additional identifying information.
Together with the final recordkeeping rule, this final rule will help
remedy the difficulties presently encountered by law enforcement in
cases involving transmittals of funds in which the transmittal orders
do not include the transmittors' and recipients' names or other
identifying information, and cases involving transmittals of funds in
which such identifying information is not conveyed to intermediary
financial institutions. The requirement that transmittal orders include
complete transmittor information, as well as recipient information
received by the financial institution with the transmittal order, may
discourage money launderers from attempting to abuse the payment and
message systems and should complicate their ability to do so.
Treasury will monitor experience under this final rule to assess
its usefulness to law enforcement and its effect on the cost and
efficiency of the payments system. Within 36 months of the effective
date, Treasury will review the effectiveness of this final rule and
will consider making any appropriate modifications.
Comments
One hundred thirteen (113) comments were received in response to
the proposed recordkeeping rule and the proposed travel rule. Treasury
has carefully considered each comment in drafting this final rule.
Effect of Proposed Changes to Fedwire System
The proposed travel rule provided for a thirty (30) day comment
period concluding on October 4, 1993. Many of the commenters noted that
they could neither comment nor initiate changes to their internal wire
transfer systems until the Federal Reserve Board announced its proposed
changes in the Fedwire format. Treasury believes that the comments it
received relating to Fedwire were helpful, and these comments have been
taken into account in framing this final rule.
Commenters on the proposed travel rule were particularly concerned
with the difficulty of including the required information on Fedwire,
which, unlike the Clearing House Interbank Payments System (CHIPS)
(operated by the New York Clearing House) and the Society for Worldwide
Interbank Financial Telecommunications (S.W.I.F.T.) system, does not
have sufficient space in the fields in which to include complete
originator and beneficiary information. Commenters also noted that it
would be difficult to map information to Fedwire from S.W.I.F.T., CHIPS
and other proprietary systems, and to comply with the proposed travel
rule's requirements by the proposed effective date.
One commenter suggested that the proposed travel rule be withdrawn.
This commenter characterized the proposed travel rule as unworkable and
premature because the Fedwire format had to be expanded, and
conventions and protocols coordinated before the proposed travel rule
could issue. Other commenters raised similar concerns.
As more fully discussed below, this final rule recognizes the
difficulty that financial institutions will have in including all of
the required information within the Fedwire format, and makes
appropriate allowances. In light of these allowances, and because the
Federal Reserve Board has adopted an expanded Fedwire format (published
elsewhere in today's Federal Register), this final rule is promulgated
at the appropriate time.
Effective Date
The proposed travel rule provided for an effective date twelve
months following publication of a final rule. Many commenters believed
that the proposed effective date twelve months after publication of a
final rule was too soon; they suggested that no effective date be
announced until the Federal Reserve Board had published proposed
changes to Fedwire, and that any proposed effective date take into
account those proposed changes. Alternatively, commenters suggested
that the effective date be delayed until twelve months following
implementation of Fedwire format changes. Finally, one bank suggested
that the effective date of the proposed rule coincide with the
effective date of changes to the Fedwire format.
The effective date of this final rule and of the recordkeeping rule
is January 1, 1996. As noted, this final rule allows for the fact that
a financial institution will not be able to include all otherwise
required information in Fedwire transfers until the format changes have
been implemented by that institution.
Mapping Issues
The proposed travel rule would have required that certain
information be included, at the time of transmittal, in a transmittal
order transmitted to a financial institution by any means, including
any funds transfer system (e.g., Fedwire, S.W.I.F.T. and CHIPS) or
other system for transmittals of funds. This would have meant, for
example, that a bank receiving a S.W.I.F.T. message would have been
obligated to include all required information, if received, in its
corresponding Fedwire transmittal order, and that any originator's bank
issuing a Fedwire transmittal order would have had to include all of
the required information in that order.
Currently, the Fedwire fields designated for originator and
beneficiary information do not contain sufficient space to include all
of the information required by this final rule. However, the Federal
Reserve Board, the Federal Deposit Insurance Corporation, the National
Credit Union Administration, the Office of the Comptroller of the
Currency, and the Office of Thrift Supervision have issued a policy
encouraging banks to use optional fields where possible to include
complete originator and beneficiary information in Fedwire payment
orders. A similar statement was issued by the Federal Financial
Institutions Examination Council (FFIEC). (See, FFIEC Statement dated
March 11, 1993, 58 FR 14400, March 17, 1993.)
While many commenters acknowledged that complete originator and
beneficiary information could be included in S.W.I.F.T. and CHIPS
payment orders, they objected to the use [[Page 236]] of optional
Fedwire fields to include such information. The commenters observed
that the proposed travel rule failed to designate which optional fields
should contain which items of information and failed to assign priority
to such items in the event that available optional fields could not
accommodate all required information. Commenters believed that the lack
of industry standards prescribing placement of originator and
beneficiary data in optional fields would result in confusion and
inefficiency, producing erroneous entries, advices and misapplication
of funds. Commenters also noted that the use of optional fields would
require excessive manual intervention in what is largely an automated
system, causing costly inefficiencies by delaying pass-through
payments, which, according to one commenter, make up 85% of all
transfers.
Many commenters suggested the formation of a joint task force
including representatives of the financial community, Treasury and the
Federal Reserve Board to establish industry standards for the use of
optional fields in Fedwire and a timetable for implementation.
The Federal Reserve Board published its Proposed Expansion of the
Fedwire Funds Transfer Format on December 1, 1993 (58 FR 63366), and a
finalized expanded Fedwire format is published elsewhere in today's
Federal Register. Implementation is to be completed by year-end 1997.
Once implemented by financial institutions, the modified Fedwire format
will permit inclusion of complete originator and beneficiary
information. Under this final rule a financial institution will not be
required to include all available information identifying transmittors
and recipients in Fedwire payment orders until the financial
institution has implemented the new Fedwire format. However, Treasury
joins the FFIEC in encouraging financial institutions to include
complete transmittor and recipient information in Fedwire payment
orders using optional fields.
Threshold
Many nonbank financial institutions commented that the proposed
recordkeeping rule's lack of a threshold exempting smaller value
transfers would make implementation inordinately costly. One commenter
noted that 95% of the two million transmittals it conducted annually
involved less than $1,000; 98% fell below $3,000; and, 99.96% fell
below $10,000. Commenters complained that the enormous expense they
would incur in obtaining, maintaining and transmitting data for smaller
value transmittals could not be justified by any benefit to law
enforcement. Other commenters argued that the absence of any threshold
would make it impossible to conduct transmittals in emergencies and in
situations in which a transmittor phones, faxes or writes in funds
transmittal instructions (for example, in the case of a transmittal of
funds to someone whose identification documents have been stolen).
Treasury and the Federal Reserve Board have considered these
comments and have established a threshold of $3,000 for the final
recordkeeping rule. Treasury has determined that the same threshold
should apply to this final rule. Therefore, financial institutions will
not be required to include the specified information in transmittal
orders involving less than $3,000 or the foreign equivalent. (Financial
institutions should determine the U.S. dollar equivalents of transfers
in foreign funds based on the spot exchange rate at the time of a
transfer to determine whether a foreign-denominated transfer exceeds
the $3,000 threshold.)
Treasury presently encourages financial institutions to report to
the appropriate federal law enforcement agency or agencies transmittals
of funds that are structured in amounts of less than $3,000 to evade
the requirements of this final rule and the final recordkeeping rule.
Treasury intends to issue for comment proposed regulations that would
require financial institutions to report suspicious transactions and to
establish anti-money laundering measures, including ``know your
customer'' policies and programs. Treasury will monitor the
effectiveness of such policies and programs, as applied to transmittals
of funds, and will consider future modification of the $3,000 threshold
or other provisions of this final rule, if appropriate and necessary to
counter the evasion of requirements through structuring.
Contents of Payment Orders
If a transmittal order is funded from an account, the proposed
travel rule would have required the transmittor's financial institution
to include in the transmittal order the following: the name and address
of the transmittor; the transmittor's account number; the amount and
execution date of the transmittal; the identity of the recipient's
financial institution; and either the name and address or the account
number of the recipient (if received with the transmittal order). The
proposed travel rule also would have required any receiving financial
institution acting either as an intermediary bank or an intermediary
financial institution to include in its transmittal order the same
information, if received from the sender.
Several commenters objected to the proposed requirement that the
transmittor's account number be included in the transmittal order.
Commenters noted that such information is relevant only to the
transmittor's financial institution, is regarded by many as
confidential, and increases the risk of fraud if included in a
transmittal order. Commenters questioned law enforcement's need to have
account information on transmittal orders because such information is
easily retrievable through records using the account holder's name. The
inclusion of this information, commenters argued, would clutter
transmittal orders.
Treasury has concluded that the transmittor's account number must
be included in transmittal orders, but only where an account is debited
to fund all or part of the transmittal. This information will be
particularly useful to law enforcement in cases in which delay
occasioned by a search for account information would hinder the success
of an investigation. Inclusion of the information is feasible in both
S.W.I.F.T. and CHIPS messages, and (until proposed Fedwire format
changes are implemented) information can be included in optional
Fedwire fields if there is not sufficient space in the originator
field.
Treasury has determined that the inclusion of account numbers in
transmittal orders will present only a minor increase in the risk of
fraudulent transfers. Banks generally have security procedures that
include passwords, codewords and, in the case of electronic
transmissions, confirmation to ensure that only authorized parties
issue payment orders. These and other protective measures greatly
reduce the potential for fraud, to a level at which that risk does not
outweigh the immediate and tangible benefit to law enforcement derived
from the inclusion of account information in transmittal orders.
With regard to arguments based on the confidentiality of account
numbers, Treasury notes that account numbers are routinely included
(and are certainly not treated as confidential) in cases in which an
account is the recipient of a transmittal of funds. Furthermore,
account numbers are routinely carried on the face of checks and other
payment documents that are widely circulated through and outside of
banks. Finally, Treasury believes that the fact that a
[[Page 237]] transmittor's account number is available through customer
account records does not render the inclusion of information in a
transmittal order superfluous.
Commenters requested clarification whether to record the amounts of
transmittals involving foreign funds in the foreign exchange or its
U.S. dollar equivalent. Treasury does not intend to change industry
practice; therefore, in recording the amount transmitted, a financial
institution may record either the amount of foreign funds or the U.S.
dollar equivalent, in accordance with the financial institution's
standard practice.
Bifurcated Transmittal Orders
In some instances, to effect payment across multiple time zones, a
bank may have to bifurcate a transmittal order into a cover payment
order and an underlying direct payment order. One commenter noted that
inclusion of a recipient's name and address in both the transmittal
order and the related cover order of the recipient might create a risk
of duplicate payment.
It appears to Treasury that bifurcated transmittal orders are
comprised of two separate transmittals of funds. Generally, the direct
payment order is a transmittal from the originator to the recipient,
and the cover payment order is a bank to bank transmittal, which may be
effected through intermediary banks. In this analysis, the transmittal
order for the cover payment order would not have to identify the
recipient of the direct payment order, only the recipient bank. If
appropriate, Treasury will consider issuing guidance on this question
in the future.
Closed Systems
The proposed travel rule would have required any receiving
intermediary financial institution accepting a transmittal order to
include in a corresponding transmittal order either the name and
address or the numerical identifier of the transmittor's financial
institution. The proposed travel rule also would have required that any
transmittor's financial institution, as well as any receiving
intermediary financial institution, accepting a transmittal order to
include in a corresponding transmittal order the identity of the
recipient's financial institution.
Many commenters noted the difficulty of identifying the
transmittor's financial institution and the recipient's financial
institution in transmittals through closed systems. A closed system is
a transmittal of funds service that permits a recipient to pick up
transmitted funds at any location within the closed system. Such a
service can be either entirely domestic or international and does not
rely on banks or other outside financial institutions to effect payment
to the intended recipient; transmittals of funds are handled entirely
by the service's own agents. Finally, and most important, complete
records relating to any closed system transmittal of funds are
maintained in one central location.
Commenters also noted that the requirement to identify the
transmittor's financial institution might increase the risk of fraud
and abuse. For example, the closed system agent serving as the
recipient's financial institution could identify and contact the closed
system agent that served as the transmittor's financial institution,
and establish a funds transmittal service that would neither be
conducted by the closed system nor be subject to its control.
Commenters also noted that identification of the recipient's financial
institution is difficult or impossible in most cases, because the
transmittor may not know where the recipient will pick up the
transmitted funds.
Treasury believes that the potential for fraud as described by the
commenters may be best addressed by the closed systems and their agents
themselves. This final rule requires that the transmittor's financial
institution be identified in the transmittal order in all cases.
However, in cases involving closed systems as described above, the
requirement to identify the recipient's financial institution may be
satisfied by including the closed system's name in the transmittal
order. Although such information will not identify the specific closed
system office that served as the recipient's financial institution, law
enforcement's needs will be adequately met by records that are
maintained and made available to law enforcement as required by
regulation.
Executive Order 12866
Treasury finds that this final rule is not a significant rule for
purposes of Executive Order 12866. This final rule is not anticipated
to have an annual effect on the economy of $100 million or more. It
will not affect adversely in a material way the economy, a sector of
the economy, productivity, competition, jobs, the environment, public
health or safety, or state, local, or tribal governments or
communities. It creates no inconsistencies with, nor does it interfere
with actions taken or planned by other agencies. Finally, it raises no
novel legal or policy issues. A cost and benefit analysis is therefore
not required.
Regulatory Flexibility Act
It is hereby certified under section 605(b) of the Regulatory
Flexibility Act, 5 U.S.C. 601, et seq., that this final rule will not
have a significant economic impact on a substantial number of small
entities.
The small entities that will be affected by this final rule include
small banks and nonbank money transmitting businesses. This final rule
exempts transmittals of funds in amounts of less than $3,000; this
exemption should particularly benefit nonbank providers of money
transmitting services that handle smaller value transfers. Treasury
does not believe that compliance with this final rule will require
small entities to have specialized professional skills that are not
generally available to them.
Paperwork Reduction Act
The collection of information requirements contained in this final
rule have been submitted to the Office of Management and Budget for
review in accordance with the Paperwork Reduction Act of 1980 (44
U.S.C. 3504(h)). Comments on the collection of information and the
burden estimate should be directed to FinCEN, Office of Legal Counsel,
2070 Chain Bridge Road, Vienna, VA 22182, or to the Office of
Management and Budget, Paperwork Reduction Project (1505-0063),
Washington, D.C. 20503.
Drafting Information
The principal author of this document is FinCEN. Technical
assistance was also provided by the Federal Reserve Board and the
Department of Justice.
List of Subjects in 31 CFR Part 103
Administrative practice and procedure, Banks and banking, Brokers,
Currency, Foreign banking, Foreign currencies, Gambling,
Investigations, Penalties, Reporting and recordkeeping requirements,
Securities.
Authority and Issuance
For the reasons set forth in the preamble, 31 CFR Part 103 is
amended as set forth below:
PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND
FOREIGN TRANSACTIONS
1. The authority citation for Part 103 continues to read as
follows:
Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5329.
2. Section 103.33 is amended by adding new paragraph (g) to read as
follows: [[Page 238]]
Sec. 103.33 Records to be made and retained by financial institutions.
* * * * *
(g) With respect to a transmittal of funds in the amount of $3,000
or more by a financial institution:
(1) The transmittor's financial institution shall include in the
transmittal order, at the time it is sent to the receiving financial
institution, the following information:
(i) The name and, if the payment is ordered from an account, the
account number of the transmittor;
(ii) The address of the transmittor, except for a transmittal order
through Fedwire until such time as the bank that sends the order to the
Federal Reserve Bank completes its conversion to the expanded Fedwire
format;
(iii) The amount of the transmittal order;
(iv) The execution date of the transmittal order;
(v) The identity of the recipient's financial institution;
(vi) As many of the following items as are received with the
transmittal order:3
\3\For transmittals of funds effected through the Federal
Reserve's Fedwire funds transfer system by a financial institution,
only one of the items is required to be included in the transmittal
order, if received with the sender's transmittal order, until such
time as the bank that sends the order to the Federal Reserve Bank
completes its conversion to the expanded Fedwire message format.
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(A) The name and address of the recipient;
(B) The account number of the recipient;
(C) Any other specific identifier of the recipient; and
(vii) Either the name and address or numerical identifier of the
transmittor's financial institution.
(2) A receiving financial institution that acts as an intermediary
financial institution, if it accepts a transmittal order, shall include
in a corresponding transmittal order at the time it is sent to the next
receiving financial institution, the following information, if received
from the sender:
(i) The name and the account number of the transmittor;
(ii) The address of the transmittor, except for a transmittal order
through Fedwire until such time as the bank that sends the order to the
Federal Reserve Bank completes its conversion to the expanded Fedwire
format;
(iii) The amount of the transmittal order;
(iv) The execution date of the transmittal order;
(v) The identity of the recipient's financial institution;
(vi) As many of the following items as are received with the
transmittal order:4
\4\For transmittals of funds effected through the Federal
Reserve's Fedwire funds transfer system by a financial institution,
only one of the items is required to be included in the transmittal
order, if received with the sender's transmittal order, until such
time as the bank that sends the order to the Federal Reserve Bank
completes its conversion to the expanded Fedwire message format.
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(A) The name and address of the recipient;
(B) The account number of the recipient;
(C) Any other specific identifier of the recipient; and
(vii) Either the name and address or numerical identifier of the
transmittor's financial institution.
Dated: December 19, 1994.
Stanley E. Morris,
Director, Financial Crimes Enforcement Network.
[FR Doc. 94-31982 Filed 12-30-94; 8:45 am]
BILLING CODE 4810-25-P
