[Federal Register Volume 61, Number 63 (Monday, April 1, 1996)]
[Rules and Regulations]
[Pages 14386-14389]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-7682]
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FEDERAL RESERVE SYSTEM
DEPARTMENT OF THE TREASURY
31 CFR Part 103
RIN 1506-AA17
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: On January 3, 1995, the Financial Crimes Enforcement Network
(FinCEN) of the Department of the Treasury (Treasury) and the Board of
Governors of the Federal Reserve System (the Board) jointly adopted a
final rule (the joint rule) requiring financial institutions to collect
and retain certain information pertaining to transmittals of funds, and
Treasury adopted a final rule (the travel rule) requiring financial
institutions to include in transmittal orders certain information
collected under the joint rule. In response to industry concerns about
the application of the joint rule and the travel rule to transmittals
of funds involving foreign financial institutions, Treasury and the
Board have amended the joint rule to conform certain of the definitions
of the parties to transmittals of funds to definitions found in Article
4A of the Uniform Commercial Code (see document published elsewhere in
today's Federal Register). This final rule amends the travel rule to
reflect the amended definitions in the joint rule, and amends the
travel rule to clarify that the exceptions applicable for the joint
rule are also applicable for the travel rule.
There is one further change to the travel rule that was not a part
of the original proposed rule, new paragraph (g)(3). This change
responds to a significant compliance issue that the banking industry
did not identify until after the comment period: until all banks
convert to the expanded Fedwire format, there will not always be enough
space to include in a transmittal order all of the information required
by the rule.
Finally, because solving these problems has taken longer than
anticipated, this final travel rule, like the final joint rule, will be
effective not on April 1, 1996, as originally planned, but on May 28,
1996.
EFFECTIVE DATE: May 28, 1996.
FOR FURTHER INFORMATION CONTACT: Charles D. Klingman, Office of
Financial Institutions Policy, at (703) 905-3920, or Joseph M. Myers,
Office of Legal Counsel, (703) 905-3590.
SUPPLEMENTARY INFORMATION:
I. Background
The statute generally referred to as the Bank Secrecy Act (BSA)
(Title I and Title II of Pub. L. 91-508, codified at 12 U.S.C. 1829b
and 1951-1959, and 31 U.S.C. 5311-5330), authorizes the Secretary of
the Treasury (the Secretary) 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, and to implement anti-money laundering programs and
compliance procedures. The Secretary's authority to administer the BSA
has been delegated to the Director of the Financial Crimes Enforcement
Network (FinCEN). Section 1515 of the Annunzio-Wylie Anti-Money
Laundering Act of 1992 (Title XV of Pub. L. 102-550 (Annunzio-Wylie)),
codified at 12 U.S.C. 1829b(b), amended the BSA (1) to require the
Secretary and the Board jointly to promulgate recordkeeping
requirements for international funds transfers by depository
institutions and nonbank financial institutions; and (2) to authorize
the Secretary and the Board jointly to promulgate regulations for
domestic funds transfers by depository institutions. Section 1517(a) of
[[Page 14387]]
Annunzio-Wylie, codified at 31 U.S.C. 5318 (g) and (h), authorizes the
Secretary to require financial institutions to carry out anti-money
laundering programs.
In January 1995, Treasury and the Board jointly adopted a rule (the
joint rule) that imposed recordkeeping requirements for transmittals of
funds by banks and other financial institutions (60 FR 220, January 3,
1995). Treasury also adopted a rule (the travel rule) requiring
financial institutions (including banks) to include in transmittal
orders certain information collected under the joint rule (60 FR 234,
January 3, 1995). The joint rule defined the terms used in both rules.
These rules were to become effective on January 1, 1996.
Following publication of the joint rule and the travel rule, it
became apparent that there was confusion within the banking industry
about the application of the rules to transmittals of funds involving
foreign financial institutions. Several banks and bank counsel advised
Treasury and the Board that compliance with the rules was complicated
by the fact that certain of the joint rule definitions of parties to
funds transfers differed from the definitions of those terms in Article
4A of the Uniform Commercial Code (UCC 4A). Because a financial
institution's obligations under the joint and travel rules depend upon
its role in a particular transmittal of funds, the differences between
the Bank Secrecy Act regulations definitions and UCC 4A definitions had
material operational consequences.
The most significant effect of the difference in the definitions
was the treatment of a U.S. financial institution that receives a
transmittal order from a foreign financial institution. Under the
definitions in the original joint rule, the foreign financial
institution sending the transmittal order would be the transmittor and
the U.S. financial institution would be the transmittor's financial
institution. The U.S. financial institution would be subject to the
travel rule requirements imposed on a transmittor's financial
institution, and compliance might require significant changes in
standard business practices.
II. Proposed Amendments
In response to industry concerns, Treasury and the Board proposed
amendments to the joint rule to conform the definitions of banks that
are parties to funds transfers to the definitions found in UCC 4A and
to change the definitions of the terms applicable to financial
institutions so that their meanings are parallel to the definitions in
UCC 4A (60 FR 44146, August 24, 1995). At the same time, Treasury
proposed amendments to the travel rule to reflect the proposed
amendments to the definitions (60 FR 44151, August 24, 1995). The
changes to the travel rule were necessary in order to clarify that
although a foreign financial institution may be considered a
transmittor's financial institution, only financial institutions
located within the U.S. are subject to the requirements of the travel
rule.
The proposed amendments also proposed to add to the travel rule new
paragraph 103.33(g)(3), in order to clarify that transactions excepted
under the joint rule pursuant to paragraphs 103.33(e)(6) and
103.33(f)(6) are also excepted from the travel rule. Those sections
provide that a transmittal of funds is not subject to the requirements
of the joint rule if the parties to the transmittal are both banks or
brokers and dealers in securities, or their subsidiaries, or government
entities, or if the transmittor and recipient are the same person and
the transmittal involves a single bank or broker/dealer.
III. Comments
Treasury received three comments on the proposed changes to the
travel rule. The commenters were in favor of the proposed amendments,
and agreed that the amendments would reduce confusion and uncertainty
about the application of the rules, and that the rules would be less
burdensome if the proposed amendments were adopted. One commenter
specifically agreed that the inclusion of the exceptions in the travel
rule was a positive change. Based on the comments received, Treasury is
adopting the amendments as proposed, except that the proposed new
paragraph 103.33(g)(3) will appear at 103.33(g)(4).
IV. New Section 103.33(g)(3)
As noted above, there is one further change to the travel rule that
was not a part of the proposed rule, new paragraph (g)(3). This change
responds to a significant compliance issue that the banking industry
did not identify until after the comment period: until all banks
convert to the expanded Fedwire format, there will not always be enough
space to include in a transmittal order all of the information required
by paragraphs (g)(1) (i), (ii), and (vii) and (g)(2) (i), (ii), and
(vii).1 Banking industry representatives have assured FinCEN that
the expanded Fedwire format, scheduled to be adopted industry-wide by
January 1, 1998, will allow all information required by paragraph (g)
to be sent and received. If the travel rule were finalized as proposed,
banks that are in the process of adopting the expanded Fedwire format
would have to expend considerable resources to create an interim system
to accommodate all of the information required by paragraph 103.33(g)
until January 1, 1998. Accordingly, new paragraph (g)(3) provides that,
until it has converted to the new Fedwire format, a financial
institution will be deemed to be in compliance with paragraph (g), even
if some information required to be included on a transmittal order is
not so included, provided that, when either requested by a
corresponding financial institution to assist in retrieval of
information in connection with Bank Secrecy Act compliance efforts or
in response to a law enforcement request, or when presented itself with
a judicial order, subpoena or administrative summons requesting any
information required by paragraphs (g)(1)(i), (g)(1)(ii), (g)(1)(vii),
(g)(2)(i), (g)(2)(ii), or (g)(2)(vii), the financial institution
retrieves such information within a reasonable time.
\1\ In addition, some software application programs allow large,
institutional customers to generate and transmit payment orders
directly through a bank's electronic funds transfer system. Some of
these software application programs follow the format of the Fedwire
system. Thus, banks may have difficulty complying with section
103.33(g) with respect to payment orders transmitted directly by
their customers.
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Treasury notes that new paragraph (g)(3)(i)(A) still requires
inclusion in the transmittal order, to the extent such items are
received with the prior transmittal order, of certain recipient
information as required by paragraphs (g)(1)(vi) and (g)(2)(vi). These
paragraphs themselves, however, are not fully effective with respect to
transmittals of funds effected through the Fedwire funds transfer
system until such time as the bank that sends the order to the Federal
Reserve Bank completes its conversion to the expanded Fedwire message
format. Treasury anticipates that funds transfers effected through the
Fedwire system will be covered equally by both the current exception
provision for paragraphs (g)(1)(vi) and (g)(2)(vi) as well as the new
safe harbor provision of paragraph (g)(3). Thus, as an operational
matter in pre-conversion Fedwire transfers, paragraph (g)(3) will
require that the transmittal order include only one of the items
otherwise required by paragraphs (g)(1)(vi) and (g)(2)(vi), if received
with the transmittal order.
V. Effect on Law Enforcement; Ongoing Review
Treasury believes that today's changes in the joint rule and in
this final rule will reduce the burden of compliance,
[[Page 14388]]
while maintaining the usefulness for law enforcement of the information
passed on in transmittal orders pursuant to the travel rule. While the
requirement placed on an intermediary financial institution is limited
to information that it receives, generally the information passed on
should be of greater use to law enforcement because the information
obtained will pertain to the true transmittor and recipient in the
transaction. Furthermore, the financial institutions that must be
identified will more likely be ones with which the transmittor and
recipient have account relationships.
As stated in the joint and travel rules when they were adopted in
January 1995, Treasury will monitor the effectiveness of the rules to
assess their usefulness to law enforcement and their effect on the cost
and efficiency of the payments system. Within 36 months of May 28,
1996, Treasury will review the effectiveness of the travel rule and
will consider making any appropriate modifications.
VI. Executive Order 12866
Treasury finds that this final rule is not a significant rule for
purposes of Executive Order 12866. The 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.
VII. Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act,
Treasury hereby certifies that this final rule will not have a
significant economic impact on a substantial number of small entities.
This final rule will eliminate uncertainty as to the application of the
joint rule and the travel rule and will reduce the cost of complying
with the rules' requirements. Accordingly, a regulatory flexibility
analysis is not required.
VIII. Paperwork Reduction Act
The collection of information required by the rule that is amended
by this final rule was 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) and 3507(d)) under control
number 1505-0063 (see 60 FR 237, January 3, 1995). The collection is
authorized, as before, by 12 U.S.C. 1829b and 1959 and 31 U.S.C. 5311-
5330.
This final rule will eliminate information collection requirements
that were previously required. Therefore no additional Paperwork
Reduction Act submissions are required.
IX. Unfunded Mandates Reform Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law
104-4, signed into law on March 22, 1995, requires that an agency
prepare a budgetary impact statement before promulgating a rule that
includes a federal mandate that may result in expenditure by state,
local, and tribal governments, in the aggregate, or by the private
sector, of $100 million or more in any one year. Treasury has
determined that it is not required to prepare a written budgetary
impact statement for this final rule, and has concluded that this final
rule is the most cost-effective and least burdensome means of achieving
Treasury's objectives.
List of Subjects in 31 CFR Part 103
Administrative practice and procedure, Banks, banking, Brokers,
Currency, Foreign banking, Foreign currencies, Gambling,
Investigations, Law enforcement, Penalties, Reporting and recordkeeping
requirements, Securities, Taxes.
Amendment
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. 5311-5330.
2. In Sec. 103.33, paragraphs (g) introductory text and (g)(1)
introductory text are revised and paragraphs (g)(3) and (g)(4) are
added to read as follows:
Sec. 103.33 Records to be made and retained by financial institutions.
* * * * *
(g) Any transmittor's financial institution or intermediary
financial institution located within the United States shall include in
any transmittal order for a transmittal of funds in the amount of
$3,000 or more, information as required in this paragraph (g):
(1) A transmittor's financial institution shall include in a
transmittal order, at the time it is sent to a receiving financial
institution, the following information:
* * * * *
(3) Safe harbor for transmittals of funds prior to conversion to
the expanded Fedwire message format. The following provisions apply to
transmittals of funds effected through the Federal Reserve's Fedwire
funds transfer system by a financial institution before the bank that
sends the order to the Federal Reserve Bank completes its conversion to
the expanded Fedwire message format.
(i) Transmittor's financial institution. A transmittor's financial
institution will be deemed to be in compliance with the provisions of
paragraph (g)(1) of this section if it:
(A) Includes in the transmittal order, at the time it is sent to
the receiving financial institution, the information specified in
paragraphs (g)(1)(iii) through (v), and the information specified in
paragraph (g)(1)(vi) of this section to the extent that such
information has been received by the financial institution, and
(B) Provides the information specified in paragraphs (g)(1)(i),
(ii) and (vii) of this section to a financial institution that acted as
an intermediary financial institution or recipient's financial
institution in connection with the transmittal order, within a
reasonable time after any such financial institution makes a request
therefor in connection with the requesting financial institution's
receipt of a lawful request for such information from a federal, state,
or local law enforcement or financial regulatory agency, or in
connection with the requesting financial institution's own Bank Secrecy
Act compliance program.
(ii) Intermediary financial institution. An intermediary financial
institution will be deemed to be in compliance with the provisions of
paragraph (g)(2) of this section if it:
(A) Includes in the transmittal order, at the time it is sent to
the receiving financial institution, the information specified in
paragraphs (g)(2)(iii) through (g)(2)(vi) of this section, to the
extent that such information has been received by the intermediary
financial institution; and
(B) Provides the information specified in paragraphs (g)(2)(i),
(ii) and (vii) of this section, to the extent that such information has
been received by the intermediary financial institution, to a financial
institution that acted as an intermediary financial institution or
[[Page 14389]]
recipient's financial institution in connection with the transmittal
order, within a reasonable time after any such financial institution
makes a request therefor in connection with the requesting financial
institution's receipt of a lawful request for such information from a
federal, state, or local law enforcement or regulatory agency, or in
connection with the requesting financial institution's own Bank Secrecy
Act compliance program.
(iii) Obligation of requesting financial institution. Any
information requested under paragraph (g)(3)(i)(B) or (g)(3)(ii)(B) of
this section shall be treated by the requesting institution, once
received, as if it had been included in the transmittal order to which
such information relates.
(4) Exceptions. The requirements of this paragraph (g) shall not
apply to transmittals of funds that are listed in paragraph (e)(6) or
(f)(6) of this section.
* * * * *
Dated: March 26, 1996.
Stanley E. Morris,
Director, Financial Crimes Enforcement Network.
[FR Doc. 96-7682 Filed 3-29-96; 8:45 am]
BILLING CODE 4820-03-P
