[Federal Register Volume 60, Number 164 (Thursday, August 24, 1995)]
[Proposed Rules]
[Pages 44151-44154]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-20845]
Federal Register / Vol. 60, No. 164 / Thursday, August 24, 1995 /
Proposed Rules
[[Page 44151]]
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 Banks and Other Financial Institutions
AGENCY: Financial Crimes Enforcement Network, Treasury.
ACTION: Proposed rule.
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SUMMARY: In January 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. At
the same time, FinCEN adopted a final rule (the travel rule) that
required financial institutions to include in transmittal orders
certain information collected under the joint rule. Both the travel
rule and the joint rule were to become effective on January 1, 1996. 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 today are proposing
amendments to the joint rule that conform 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 document proposes amendments to the
travel rule that are necessary to reflect the amended definitions in
the joint rule. These proposed amendments to the travel rule also make
the exceptions applicable for the joint rule applicable for the travel
rule. To provide financial institutions sufficient time to complete
their compliance programs for both rules, the effective dates of the
joint rule and the travel rule are delayed until April 1, 1996 (see
documents published elsewhere in today's Federal Register).
DATES: Comments are due by September 25, 1995.
ADDRESSES: Comments should be in writing and addressed to: Office of
Regulatory Policy and Enforcement, Financial Crimes Enforcement
Network, Department of the Treasury, 2070 Chain Bridge Road, Vienna, VA
22182, Attention: Transmittal of Funds NPRM. Comments may be inspected
between 10:00 a.m. and 4:00 p.m. at the Treasury Library, located in
room 5030, 1500 Pennsylvania Avenue, N.W., Washington, D.C. Persons
wishing to inspect the comments submitted should request an appointment
at the Treasury Library, 202/622-0990.
FOR FURTHER INFORMATION CONTACT: Roger Weiner, Assistant Director,
Office of Compliance and Enforcement, 202/622-0400; Nina A. Nichols,
Attorney-Advisor, Office of Legal Counsel, 703/905-3598.
SUPPLEMENTARY INFORMATION:
Background
The statute generally referred to as the Bank Secrecy Act (Titles I
and 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), inter alia, 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 counter-money laundering programs and
compliance procedures. The Secretary's authority to administer the Bank
Secrecy Act has been delegated to the Director of 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 Bank Secrecy Act (1) to require the
Secretary and the Board jointly to promulgate, after consultation with
state banking supervisors, 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 Annunzio-Wylie, codified at 31 U.S.C.
5318(g) and (h), authorizes the Secretary, inter alia, to require
financial institutions to carry out anti-money laundering programs. See
31 U.S.C. 5318(h)(1).
In January 1995, Treasury and the Board jointly adopted a rule (the
joint rule) that imposed recordkeeping requirements with respect to
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 contained definitions of
the terms used in both rules. These rules were to become effective on
January 1, 1996.
Subsequent to 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 the joint rule definitions of parties to funds
transfers differed from the definitions 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 have material
operational consequences.
Definitions of Parties to International Transfers
The joint rule, when read together with other definitions found in
the Bank Secrecy Act regulations at 31 CFR 103.11, limits the
definition of the term ``bank'' to offices located within the U.S.;
thus, a foreign bank could not be an originator's bank, intermediary
bank or beneficiary's bank. In a transfer from a foreign bank to a U.S.
bank (an inbound transfer), the foreign bank would be the originator
and the U.S. bank would be the originator's bank. UCC 4A, however, does
not restrict the definition of a bank in this way; therefore, applying
UCC 4A definitions to an inbound transfer, the foreign bank would be an
originator's (or intermediary) bank and the U.S. bank would be an
intermediary (or beneficiary's) bank.
The joint rule added definitions of financial institutions that
correspond to the UCC 4A definitions used for banks--e.g.,
transmittor's financial institution, intermediary financial
institution, recipient's financial institution. These definitions
resulted in further confusion because the Bank Secrecy Act regulations
also limit the definition of ``financial institution'' to offices
located in the U.S.
One other source of confusion is the overlap among the terms used
to refer to banks and financial institutions. In general, the travel
rule obligations apply equally to banks and to nonbank financial
institutions, because the terms used for financial institutions include
the terms used to refer to banks. The travel rule imposes obligations
only on transmittors' financial institutions and intermediary financial
institutions;
[[Page 44152]]
these terms include originators' banks and intermediary banks.1
\1\ In limited circumstances, a beneficiary's bank will also
have travel rule obligations. If the recipient's financial
institution is not a bank, then the bank that sends a transmittal
order to the recipient's financial institution will be a
beneficiary's bank and an intermediary financial institution subject
to the requirements of 103.33(g)(2).
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Industry Concerns About Application of the Travel Rule
The following hypothetical transmittal of funds (illustrated on the
accompanying chart) illustrates the differences between the effect of
the travel rule as published and its effect following the proposed
amendments to the definitions in the joint rule. In this transfer,
German Company instructs its bank, German Bank 1, to send a dollar
payment to Japanese Bank 2 for credit to Japanese Company. German Bank
1 forwards the payment instructions to its correspondent, German Bank
2. German Bank 2 sends the payment instructions via SWIFT to its New
York correspondent, New York Bank 1. New York Bank 1 executes a
transmittal order via CHIPS to New York Bank 2. New York Bank 2
forwards the transmittal order via Fedwire to California Bank.
California Bank sends the transmittal order via SWIFT to its
correspondent, Japanese Bank 1. Japanese Bank 1 forwards the
transmittal order to Japanese Bank 2, which credits the account of
Japanese Company.
------------------------------------------------------------------------
Definitions are
Definitions of financial parallel to UCC 4A
institutions limited to definitions of
Parties to transfer U.S. offices (travel rule banks (proposed
adopted in January 1995) amended travel
rule)
------------------------------------------------------------------------
German Company........... ......................... Transmittor.
German Bank 1............ ......................... Transmittor's FI.
German Bank 2............ Transmittor.............. Intermediary FI.
New York Bank 1.......... Transmittor's FI......... Intermediary FI.
New York Bank 2.......... Intermediary FI.......... Intermediary FI.
California Bank.......... Recipient's FI........... Intermediary FI.
Japanese Bank 1.......... Recipient................ Intermediary FI.
Japanese Bank 2.......... ......................... Recipient's FI.
Japanese Company......... ......................... Recipient.
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Obligations Under the Travel Rule as Adopted
The middle column of the chart reflects the roles of the parties to
this transmittal under the rules as adopted in January 1995. The travel
rule imposes the following obligations:
1. New York Bank 1, as the transmittor's financial institution,
must include in the transmittal order to New York Bank 2 the name,
address and account number of German Bank 2 (the transmittor)
(103.33(g)(1)(i)-(ii)). New York Bank 1 would typically include German
Bank 2's SWIFT Bank Identification Code (BIC) or its CHIPS Universal
Identifier (UID) rather than its name, address and account number;
however, Treasury believes that a widely-used industry code, such as a
BIC, UID or routing number, would comply with the requirements, so long
as the financial institution's name, address and account number can be
readily derived from its industry code.
In addition, New York Bank 1 would have to include, if received,
information about Japanese Bank 1 (the recipient) and California Bank
(the recipient's financial institution) (103.33(g)(1)(v)-(vi)).
2. New York Bank 2, as an intermediary financial institution, must
include in its transmittal order to California Bank the name, address
and account number of German Bank 2 (the transmittor), if New York Bank
2 receives this information.
This requirement raises significant operational concerns, because
as a matter of ordinary business practice, German Bank 2 would be
identified as the ``instructing bank'' in the order received by New
York Bank 2, and would not be identified in the order executed by New
York Bank 2. While the bank identified in the originator's bank field
generally is retained in subsequent transmittal orders, the
identification in the instructing bank field may change, and the
information may not be passed on to the next receiving financial
institution.
New York Bank 2 must also include information on New York Bank 1 as
the transmittor's financial institution (103.33(g)(1)(vii)). Again, New
York Bank 1 would be identified as the instructing bank in the
transmittal order executed by New York Bank 2, but the information
might be dropped from subsequent transmittal orders.
New York Bank 2 would also have to include, if received, the
identity of California Bank (the recipient's financial institution) and
Japanese Bank 1 (the recipient) (103.33(g)(2)(v)-(vi)).
3. California Bank, as the recipient's financial institution, is
not subject to travel rule requirements.
Effect of Proposed Amendments
In response to banking industry concerns, Treasury and the Board
have proposed amendments to the joint rule that will conform the
definitions of banks that are parties to funds transfers to the
definitions found in UCC 4A and that will change the definitions of the
terms applicable to financial institutions so that their meanings are
parallel to the definitions in UCC 4A. (See document published
elsewhere in today's Federal Register.)
The third column of the accompanying chart reflects the effect of
the proposed amendments for compliance with the travel rule. When the
definitions applicable to financial institutions are conformed to the
definitions in UCC 4A, all of the U.S. banks in the hypothetical
transfer are treated as intermediary financial institutions. As an
intermediary financial institution, rather than a transmittor's
financial institution, New York Bank 1 is not required under the travel
rule to pass on the specified information unless it actually receives
it from German Bank 2.
More importantly, the redefinition of the parties to the
transmittal means that the information that must be passed on pertains
to German Company (the transmittor), German Bank 1 (the transmittor's
financial institution), Japanese Bank 2 (the recipient's financial
institution) and Japanese Company (the recipient). These definitions
are more in accord with the economic reality of the transaction and
with current industry practice, and the information required is more
likely to be included in the transmittal orders.
With respect to the transmittal from California Bank, Treasury does
not believe that the requirements placed on the U.S. bank in an
outbound transfer significantly increase the cost of complying with the
travel rule. Although California Bank, as an intermediary financial
institution, would have to include information in its transmittal order
to Japanese Bank 1, this information would typically be included as a
matter of standard practice. Furthermore, California Bank would not
have the verification obligations that it has as a beneficiary's bank.
When considered in combination with the proposed amendments to the
joint rule, Treasury believes that there is an overall reduction in
burden.
[[Page 44153]]
Effect on Law Enforcement; Ongoing Review
Treasury believes that these proposed changes, while reducing the
burden of compliance, will maintain 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, the information
passed on should be of greater use because it 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.
Under the rule adopted in January, transmittor's financial institutions
and intermediary financial institutions may not be required to pass
along information pertaining to these parties when a transmittal
involves a foreign financial institution.
Under the proposed amendments, an intermediary financial
institution will be required to pass on information to a receiving
financial institution even when the receiving financial institution is
located outside the U.S. Treasury believes that in the interests of
international cooperation in law enforcement, and recognizing the use
for illicit purposes of the global payments system, there is a law
enforcement benefit to this requirement. In addition to the potential
availability of information that is forwarded to foreign financial
institutions, this rule lays a foundation for international cooperation
in setting standards for improving law enforcement efforts while
imposing a minimal administrative burden on financial institutions.
As stated in the joint and travel rules when they were adopted,
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 April 1, 1996,
Treasury will review the effectiveness of the travel rule and will
consider making any appropriate modifications.
Addition of Exceptions
This proposed rule also proposes the addition of new
Sec. 103.33(g)(3), which incorporates exceptions to the joint rule that
appear in Secs. 103.33(e)(6) and 103.33(f)(6). 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. These
exceptions apply to the travel rule as well.
Request for Comment
These proposed amendments to the travel rule specify that the
requirements of the travel rule apply only to financial institution
offices that are located within the U.S. Treasury requests comments on
these proposed amendments, and comments on the effect on the travel
rule of the proposed amendments to the joint rule.
Executive Order 12866
Treasury finds that these proposed amendments to a final rule are
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.
Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act,
Treasury hereby certifies that these proposed amendments to the final
rule will not have a significant economic impact on a substantial
number of small entities. The proposed amendments eliminate uncertainty
as to the application of the final rule and reduce the cost of
complying with the rule's requirements. Accordingly, a regulatory
flexibility analysis is not required.
Paperwork Reduction Act
The collection of information required by the final rule whose
amendment is proposed in this document 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)) 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.
The changes to the final rule proposed in this document will
eliminate information collection requirements that were required by the
final rule. Therefore no additional Paperwork Reduction Act submissions
are required.
Unfunded Mandates Reform Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law
104-4 (Unfunded Mandates Act), 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 the proposed amendments, and has
concluded that the proposed amendments are the most cost-effective and
least burdensome means of achieving the stated objectives of the rule.
List of Subjects in 31 CFR Part 103
Administrative practice and procedure, Banks, banking, Brokers,
Currency, Foreign banking, foreign currencies, Gambling,
Investigations, Penalties, Reporting and recordkeeping requirements,
Securities.
Amendment
For the reasons set forth in the preamble, 31 CFR Part 103 is
proposed to be 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 paragraph (g)(3) is 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:
* * * * *
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(3) Exceptions. The requirements of this paragraph (g) shall not
apply to transmittals of funds that are listed in paragraphs (e)(6) or
(f)(6) of this section.
Dated: July 31, 1995.
Stanley E. Morris,
Director, Financial Crimes Enforcement Network.
[FR Doc. 95-20845 Filed 8-23-95; 8:45 am]
BILLING CODE 4820-03-P
