[Federal Register Volume 63, Number 182 (Monday, September 21, 1998)]
[Rules and Regulations]
[Pages 50147-50159]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-24969]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Financial Crimes Enforcement Network
31 CFR Part 103
RIN 1506-AA12
Amendment to the Bank Secrecy Act Regulations--Exemptions from
the Requirement To Report Transactions in Currency--Phase II
AGENCY: Financial Crimes Enforcement Network, Treasury.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This document contains a final rule that further reforms and
simplifies the process by which depository institutions may exempt
transactions of retail and other businesses from the requirement to
report transactions in currency in excess of $10,000, and restates
generally, to reflect such changes, the text of the Bank Secrecy Act
regulation requiring the reporting by financial institutions of
transactions in currency. The final rule, as issued by the Financial
Crimes Enforcement Network (``FinCEN''), constitutes a further step in
achieving the reduction set by the Money Laundering Suppression Act of
1994 in the number of currency transaction reports required to be filed
annually by depository institutions, as part of a continuing program to
reduce unnecessary burdens imposed upon financial institutions by the
Bank Secrecy Act and increase the cost-effectiveness of the counter-
money laundering policies of the Department of the Treasury.
DATES: Effective date. October 21, 1998.
Applicability date. See Sec. 103.22(d)(11) of the final rule
contained in this document.
FOR FURTHER INFORMATION CONTACT: Peter Djinis, Associate Director,
FinCEN, (703) 905-3930; Charles Klingman, Financial Institutions Policy
Specialist, FinCEN, (703) 905-3602; Stephen R. Kroll, Chief Counsel,
Cynthia L. Clark, Deputy Chief Counsel, and Albert R. Zarate, Attorney-
Advisor, Office of Chief Counsel, FinCEN, (703) 905-3590.
SUPPLEMENTARY INFORMATION:
[[Page 50148]]
I. Statutory Provisions
The Bank Secrecy Act, Titles I and II of Pub. L. 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,
to issue regulations requiring 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 Title II of the Bank Secrecy Act has been
delegated to the Director of FinCEN.
The reporting by financial institutions of transactions in currency
in excess of $10,000 has long been a major component of the Department
of the Treasury's implementation of the Bank Secrecy Act. The reporting
requirement is imposed by 31 CFR 103.22, a rule issued under the broad
authority granted to the Secretary of the Treasury by 31 U.S.C. 5313(a)
to require reports of domestic coin and currency transactions.
Four new provisions (31 U.S.C. 5313(d) through (g)) concerning
exemptions from the currency transaction reporting requirement were
added to 31 U.S.C. 5313 by the Money Laundering Suppression Act of 1994
(the ``Money Laundering Suppression Act''), Title IV of the Riegle
Community Development and Regulatory Improvement Act of 1994, Pub. L.
103-325 (September 23, 1994). 31 U.S.C. 5313(d) provides that the
Secretary of the Treasury shall exempt a depository institution from
the requirement to report currency transactions with respect to
transactions between the depository institution and four categories of
entities. The requirements of that subsection are at present reflected
in the terms of 31 CFR 103.22(h) (which is amended and redesignated as
31 CFR 103.22(d) by the final rule published in this document).
31 U.S.C. 5313(e) authorizes the Secretary of the Treasury to
exempt a depository institution from the requirement to report
transactions in currency between a depository institution and a
qualified business customer of the institution. Subsection (e)(2)
defines a ``qualified business customer'' as a business that
(A) maintains a transaction account (as defined in section
19(b)(1)(C) of the Act) at the depository institution;
(B) frequently engages in transactions with the depository
institution which are subject to the reporting requirements of
subsection (a); and
(C) meets criteria which the Secretary determines are sufficient
to ensure that the purposes of this subchapter are carried out
without requiring a report with respect to such transactions.
Subsection (e)(3) provides that the Secretary of the Treasury shall
establish, by regulation, the criteria for granting and maintaining an
exemption under subsection (e)(1).
Subsection (e)(4)(A) provides that the Secretary of the Treasury
shall establish guidelines for depository institutions to follow in
selecting customers for an exemption under subsection (e). Under
subsection (e)(4)(B), those guidelines may include a description of the
type of businesses for which no exemption will be granted under this
subsection.
Subsection (e)(5) provides that the Secretary of the Treasury shall
prescribe regulations requiring each depository institution to
(A) review, at least once each year, the qualified business
customers of such institution with respect to whom an exemption has
been granted under this subsection; and
(B) upon the completion of such review, resubmit information
about such customers, with such modifications as the institution
determines to be appropriate, to the Secretary for the Secretary's
approval.
Subsection (e)(6) states that during the two-year period beginning
on the date of enactment of the Money Laundering Suppression Act, the
discretionary exemption rules shall be applied by the Secretary of the
Treasury on the basis of such criteria as the Secretary determines to
be appropriate to achieve an orderly implementation of the requirements
of this subsection.
Subsection (f) places limits on the liability of a depository
institution in connection with a transaction that has been exempted
from reporting under either 31 U.S.C. 5313 (d) or (e) and provides for
the coordination of any exemption with other Bank Secrecy Act
provisions, especially those relating to the reporting of suspicious
transactions. Finally, subsection (g) defines ``depository
institution'' for purposes of the new exemption provisions.
Section 402(b) of the Money Laundering Suppression Act states
simply that in administering the new statutory exemption provisions:
The Secretary of the Treasury shall seek to reduce, within a
reasonable period of time, the number of reports required to be
filed in the aggregate by depository institutions pursuant to
section 5313(a) of title 31 * * * by at least 30 percent of the
number filed during the year preceding [September 23, 1994,] the
date of enactment of [the Money Laundering Suppression Act].
The enactment of 31 U.S.C. 5313 (d) through (g) reflects a
Congressional intention to ``reform * * * the procedures for exempting
transactions between depository institutions and their customers.'' See
H.R. Rep. 103-652, 103d Cong., 2d Sess. 186 (August 2, 1994). The
administrative exemption procedures at which the statutory changes are
directed are found in 31 CFR 103.22(b)(2) and (c) through (f); those
procedures have not succeeded in eliminating the reporting of routine
currency transactions by businesses.
Several reasons have been given for this lack of success. These
include the retention by banks of liability for making incorrect
exemption determinations, and the complexity of the administrative
exemption procedures (which require banks, for example, to assign
dollar limits to each exemption based on the amounts of currency
projected to be needed for the customary conduct of the exempt
customer's lawful business, and which increase the risk of liability to
banks that grant exemptions). Finally, advances in technology have made
it less costly for some banks simply to report all currency
transactions rather than to incur the administrative costs (and risks)
of exempting customers and then administering the terms of particular
exemptions properly.
The problems created by the prior administrative exemption system
also include that system's failure to provide the Treasury with
information needed for thoughtful administration of the Bank Secrecy
Act. Although banks are required to maintain a centralized list of
exempt customers and to make that list available upon request, see 31
CFR 103.22(f) and (g), there is no way short of a bank-by-bank request
for lists (with the time and cost such a request would entail both for
banks and government) for Treasury to learn the extent to which routine
transactions are effectively screened out of the system or (for that
matter) the extent to which exemptions have been granted in situations
in which they are not justified.
In crafting the 1994 statutory provisions relating to mandatory and
discretionary exemptions, Congress sought to alter the burden of
liability and uncertainty that the administrative exemption system
created. The statutory provisions embraced several categories of
transactions that were either already partially exempt or plainly
eligible for
[[Page 50149]]
exemption under the prior administrative exemption system.1
---------------------------------------------------------------------------
\1\ As noted below, transactions in currency between domestic
banks were already exempt from reporting, see 31 CFR
103.22(b)(1)(ii), and ``[d]eposits or withdrawals, exchanges of
currency or other payments and transfers by local or state
governments, or the United States or any of its agencies or
instrumentalities'' were one of the categories of transactions
specifically described as eligible for exemption by banks. See 31
CFR 103.22(b)(2)(iii).
---------------------------------------------------------------------------
II. Phase I--Final Rule
On September 8, 1997, a final rule revising paragraph (h) of 31 CFR
103.22 was published in the Federal Register. See 62 FR 47141. The
final rule modified (and as modified, superseded) an interim rule on
exemptions (collectively, ``Phase I'') that FinCEN published with
request for comments in April 1996. See 61 FR 18204. The Phase I final
rule exempted from the requirement to report transactions in currency
in excess of $10,000, transactions between banks 2 and (i)
other banks operating in the United States; (ii) government departments
and agencies, and entities that otherwise exercise governmental
authority; (iii) entities listed on certain national stock exchanges;
and (iv) certain subsidiaries of those listed entities.
---------------------------------------------------------------------------
\2\ The Phase I interim and final rules, as well as the notice
of proposed rulemaking to which the final rule contained in this
document relates, used the term ``bank'' to define the class of
financial institutions to which the rules respectively applied. As
defined in 31 CFR 103.11(c), that term includes both commercial
banks and other classes of depository institutions at which the
language of 31 U.S.C. 5313 is directed. The final rule contained in
this document continues to use the term ``bank,'' rather than
depository institution.
---------------------------------------------------------------------------
As FinCEN explained when the Phase I interim rule was published,
the transactions in currency of bank customers in those categories were
either required to be exempt from reporting by statute, were already
effectively exempt from reporting under the terms of 31 CFR Part 103,
or, in the case of listed entities and certain of their subsidiaries,
involved enterprises whose routine currency transaction reports are of
little or no value to law enforcement officials. Recognition of
exemption under the Phase I interim and final rules required simply the
filing of a single document identifying the exempt person and the
depository institution that exempts it. Transactions in currency, like
other transactions, remained subject to the requirement that banks
report suspicious transactions.
III. Phase II--Notice of Proposed Rulemaking
On the same day the Phase I final rule was published in the Federal
Register, FinCEN published a notice of proposed rulemaking (the
``Notice'') to further reform and simplify the process by which banks
may exempt, from the requirement to report transactions in currency in
excess of $10,000, transactions involving certain of their customers.
See 62 FR 47156. As FinCEN stated in the Notice, the objective of the
second stage reform (``Phase II'') was to provide, to the extent
possible, a blanket relief, similar to that contained in Phase I, for
those categories of business enterprise that could not easily be
described in a single phrase and that were not subject to the sorts of
regulatory and marketplace oversight that shape the environment of
publicly-held companies. To accomplish that goal, while still providing
federal authorities with the tools to monitor and prevent abuse, FinCEN
proposed a pared-down exemption system.
In the Notice, FinCEN specifically proposed the following changes:
(i) The addition of two new classes of exempt persons, non-listed
businesses and payroll customers; (ii) the addition of special
requirements governing the exemption of non-listed businesses and
payroll customers, namely, an initial projection of such exempt
person's annual currency needs and an annual filing listing the
aggregate currency deposits and withdrawals of such exempt person
during the preceding year; (iii) the addition of five new operating
rules governing the exemption of non-listed businesses and payroll
customers; (iv) the deletion of paragraphs (b) through (g) of present
section 103.22 (the ``prior'' administrative exemption system); (v) the
redesignation of paragraph (h) (reflecting the terms of the Phase I
final rule) of section 103.22 as paragraph (d) of that section; and
(vi) the addition of certain conforming changes to the redesignated
paragraph (d).
On November 28, 1997, FinCEN published a notice (the ``November
Extension'') in the Federal Register extending the comment period for
the Notice and soliciting additional comments on certain matters
relating to the Notice. See 62 FR 63298. The decision to extend the
comment period and the request for additional comments resulted from
discussions held at an open meeting to discuss the Notice on November
7, 1997.3
---------------------------------------------------------------------------
\3\ FinCEN announced the public meeting in the Federal Register
on October 31, 1997. See 62 FR 58909.
---------------------------------------------------------------------------
In the November Extension, FinCEN stated that, in light of the
comments made at the open meeting, it did not believe additional
comments concerning the proposed estimation and aggregate currency
reporting provisions were necessary. FinCEN did, however, indicate that
it was important that alternatives to those proposals be brought
forward by interested parties, and it specifically sought comments on
an alternative described in the November Extension. That alternative
would have required a bank, when designating a non-listed business or a
payroll customer as an exempt person, to (i) include on its initial
designation form a statement of the manner in which it applies its
``know-your-customer'' standards to customers whose currency
transactions it exempts from the currency transaction report
requirements, and (ii) certify in an annual renewal of exempt status
filing that during the preceding year there were no transactions
involving any accounts of the person at the bank that would have
required the filing of a suspicious activity report. FinCEN also sought
comments on the impact of changing the word ``shall'' to ``may'' in
proposed 103.22(d)(5)(v), to provide a bank with the option, but not
the necessity, of exempting a customer on a bank-wide basis. Lastly,
FinCEN repeated its request, made in the Notice, for comments relating
to the treatment for exemption purposes of currency deposits that
commingle funds derived from eligible business activities with funds
derived from ineligible business activities.
IV. Summary of Comments and Revisions
A. Comments on the Notice--Overview
FinCEN received 70 written responses to the Notice. Of these, 51
were submitted by banks or bank holding companies, 8 by financial
institution trade associations, 4 by credit unions, 2 by law firms, 2
by private individuals, and 1 by a compliance software designer.
Comments on the Notice focused primarily on the following proposed
provisions: (i) The projection and annual aggregate currency reporting
requirements (including possible alternatives); (ii) the twelve-month
waiting period governing the designation of non-listed businesses and
payroll customers as exempt persons; (iii) the operating rule making a
sole proprietorship eligible for exemption only to the extent of its
business (as opposed to personal) transactions; (iv) the operating rule
making certain businesses ineligible for designation as exempt persons
to the extent they engage in one or more listed ineligible business
activities; and (v) the limitation on exemption with respect to
[[Page 50150]]
transactions carried out by an exempt person as an agent for a third
party. Regarding the latter three provisions, commenters expressed
particular concern over the application of those provisions to
situations where their customers commingle funds derived from personal
transactions or ineligible business activities with eligible business
activities.
After full and careful consideration of all of the comments, 31 CFR
103.22 is revised to read as stated in the final rule.
B. Final Rule
The format of the final rule is generally consistent with the
Notice. The terms of the final rule, however, differ from the terms of
the Notice in the following significant respects:
Banks are not required to initially estimate and then
report annually the aggregate currency deposits and withdrawals of any
customer that is designated as a non-listed business or payroll
customer;
Banks are required to renew exemptions for non-listed
business and payroll customers every two years rather than every year;
Banks must maintain a system of monitoring the
transactions in currency of each exempt customer for any and all
reportable suspicious activity;
As part of the required biennial renewal, banks must
certify that they have complied with the requirement to maintain a
system of monitoring for reportable suspicious activity;
Banks may, but need not, treat all eligible accounts of a
person at a single institution as exempt;
Banks are not required to segregate funds derived from
non-business activities when exempting a transaction in currency of a
sole proprietorship; and
Banks may treat a business that engages in multiple
activities as a non-listed business so long as that business does not
engage primarily in one or more of those activities described in
paragraph (d)(6)(viii).
The changes adopted in the final rule are intended to improve,
clarify, and refine the rule's provisions in light of the objectives
for implementation of 31 U.S.C. 5313(d)-(g) that FinCEN outlined when
the Phase I interim rule was published. Those objectives are reducing
the burden of currency transaction reporting, requiring reporting only
of information that is of value to law enforcement and regulatory
authorities, and, perhaps most importantly, creating an exemption
system that is cost-effective and that works. See 61 FR 18205.
Eliminating the administrative exemption system in section 103.22
requires the deletion of the bulk of that section, paragraphs (b)-(g).
Because that is so, and because the structure and many of the rules of
section 103.22(h) also apply to the proposed reformed exemption system
for other customers, the final rule completely restates section 103.22
so that its terms may be presented clearly.
For convenience, the redistribution of the provisions of prior
section 103.22 may be summarized as follows:
Distribution Table
----------------------------------------------------------------------------------------------------------------
Prior 103.22 New 103.22
----------------------------------------------------------------------------------------------------------------
No provision................................. 103.22(a).
103.22(a)(1):
Sentences 1-2............................ Deleted in part; 103.22(b)(1).
Sentences 3-4............................ 103.22(c)(2).
103.22(a)(2)(i)-(ii)......................... 103.22(b)(2)(i)-(ii).
103.22(a)(2)(iii)............................ 103.22(c)(3).
103.22(a)(3)................................. Deleted in part; 103.22(b)(1), 103.22(c)(2).
103.22(a)(4)................................. 103.22(c)(1).
103.22(b).................................... Deleted, except 103.22(b)(1)(iii) and 103.22(b)(2)(iv).
103.22(b)(1)(iii)............................ 103.22(d)(1).
103.22(b)(2)(iv)............................. 103.22(d)(2)(vii).
103.22(c).................................... Deleted.
103.22(d).................................... Deleted.
103.22(e).................................... Deleted.
103.22(f).................................... Deleted.
103.22(g).................................... Deleted.
103.22(h)(1) 4............................... Deleted in part; 103.22(d)(1).
103.22(h)(2)(i)-(iii)........................ 103.22(d)(2)(i)-(iii).
103.22(h)(2)(iv), (vi)....................... 103.22(d)(2)(iv).
103.22(h)(2)(v), (vi)........................ 103.22(d)(2)(v).
No provision................................. 103.22(d)(2)(vi).
No provision................................. 103.22(d)(2)(vii).
103.22(h)(3)(i)-(ii)......................... 103.22(d)(3)(i).
103.22(h)(3)(iii)............................ 103.22(d)(3)(ii).
103.22(h)(3)(iv)............................. 103.22(d)(3)(i).
No provision................................. 103.22(d)(4).
No provision................................. 103.22(d)(5)(i)-(ii).
103.22(h)(4)(i)-(iv)......................... 103.22(d)(6)(i)-(iv).
103.22(h)(4)(v).............................. 103.22(d)(6)(x).
No provision................................. 103.22(d)(6)(v)-(ix).
103.22(h)(5)................................. 103.22(d)(7).
103.22(h)(6)(i).............................. 103.22(d)(8)(i).
103.22(h)(6)(ii)............................. 103.22(d)(8)(ii).
103.22(h)(6)(iii)............................ 103.22(d)(8)(iii).
103.22(h)(7)................................. 103.22(d)(9)(i).
No provision................................. 103.22(d)(9)(ii).
103.22(h)(8)................................. 103.22(d)(10).
103.22(h)(9)................................. Deleted.
[[Page 50151]]
No provision................................. 103.22(d)(11).
----------------------------------------------------------------------------------------------------------------
\4\ All references to paragraph (h) of section 103.22 are to the final rule that was published in the Federal
Register on September 8, 1997. See 62 FR 47141.
V. Section-by-Section Analysis
A. 103.22(a)--General
Paragraph (a) continues to describe generally the scope and
organization of restated Sec. 103.22. One commenter asked that FinCEN
add language to this paragraph indicating that banks are not required
to exempt certain transactions from the requirement to report
transactions in currency in excess of $10,000. FinCEN believes that
such a change is unnecessary; the last sentence of paragraph (a) (as
proposed and as adopted in the final rule) already refers to rules
``permitting'' banks to exempt certain transactions from the reporting
requirement.
B. 103.22(b)--Filing Obligations
Paragraph (b) continues to contain the blanket statement of the
obligation of financial institutions to report transactions in currency
in excess of $10,000, as well as a separate statement describing the
filing obligations of casinos.
Paragraph (b) also continues to state that the general obligation
to report transactions in currency in excess of $10,000 does not apply
to payments or transfers made solely in connection with the purchase of
postage or philatelic products from the Postal Service. As stated in
the Notice, this change from the administrative exemption system
reflects a proposed amendment to the treatment of the Postal Service,
for purposes of the Bank Secrecy Act, that was published as part of a
set of proposed rules relating to money services businesses (``MSBs'')
on May 21, 1997. See 62 FR 27890. FinCEN received no comment on this
change.
C. 103.22(c)--Aggregation
Paragraph (c) continues to restate the reporting rules applicable
to multiple branches of financial institutions and multiple
transactions of their customers. Those rules reflect, with one
exception relating to recordkeeping facilities, the terms of prior
paragraphs (a)(1) and (a)(4) of section 103.22. As an analogue to a
change (discussed below) that permits affiliated banks to make a single
designation of each exempt person, the Notice proposed a change
clarifying that for purposes of the currency transaction reporting
requirements, a financial institution includes not only all domestic
branch offices, but also any recordkeeping facility, wherever located,
that contains records relating to the transactions of the institution's
domestic branch offices. The only comment that FinCEN received
concerning recordkeeping facilities stated that the change would create
an excessive burden on large banks because such banks typically have
central recordkeeping facilities. Given the utility of treating a
recordkeeping facility as a financial institution, particularly in
cases in which affiliated banks make a single designation of exempt
person, and that the commenter did not explain how central
recordkeeping could lead to an excessive reporting burden on banks, the
proposal regarding recordkeeping facilities is adopted in the final
rule.
D. 103.22(d)--Transactions of Exempt Persons
1. General
Paragraph (d)(1) continues to state generally that, subject to the
limitation on exemption set forth in paragraph (d)(7), no bank is
required to file a currency transaction report otherwise required by
paragraph (b) with respect to any transaction in currency between an
exempt person and such bank.5 This paragraph also adopts the
language set forth in the Notice that states that a non-bank financial
institution need not file a currency transaction report with respect to
a transaction in currency between the institution and a commercial
bank. That provision is reflected in paragraph (b)(1)(iii) of prior
section 103.22.
---------------------------------------------------------------------------
\5\ FinCEN anticipates that Internal Revenue Service Form 4789
(the form currently used to file a currency transaction report) may
be revised at some point to require that a bank check a box when it
files a currency transaction report with respect to a transaction
conducted by an exempt person. The purpose of such a requirement
would be to provide FinCEN with a more accurate estimate of the
number of currency transactions reports required to be filed under
the revised exemption system.
---------------------------------------------------------------------------
At least one commenter suggested that FinCEN clarify, in light of,
inter alia, the Right to Financial Privacy Act, 12 USC 3413 et seq.,
that a bank must continue to file currency transaction reports for
particular customers otherwise eligible for treatment as exempt persons
if it elects not to use the reformed exemption system for those
customers. The retention in paragraph (d)(1) of the phrase ``otherwise
required by paragraph (b)'' is meant to convey that very point--namely,
that a bank is required to file a currency transaction report regarding
a transaction in currency in excess of $10,000 unless the bank follows
the procedures set forth in paragraph (d) for designating the customer
involved as an exempt person so that transactions by that customer are
exempt from the currency transaction reporting requirement.
2. Exempt Person
The final rule adopts the two classes of exempt person introduced
in the Notice--namely, non-listed businesses and payroll customers. In
addition, the final rule restates, with two minor technical changes,
the existing classes of exempt person (set forth in prior section
103.22(h)(2)). First, the phrase ``or analogous equity interest'' has
been added after the term ``common stock'' in paragraph (d)(2)(v) to
make clear that any subsidiary of any listed entity may be treated as
an exempt person, regardless of whether the subsidiary has adopted the
corporate form of business. Thus, any subsidiary of a listed entity may
be treated as an exempt person so long as 51 per cent of the
subsidiary's equity interest is owned by the listed entity. Second, the
terms of prior paragraph (h)(2)(vi), stating that in the case of non-
bank financial institutions, listed entities and their subsidiaries may
be treated as exempt persons only to the extent of their domestic
operations, have been incorporated into paragraphs (d)(2)(iv) and (v).
Paragraphs (d)(2)(vi) and (vii) continue to require that any
business must have been a bank customer for twelve months before it is
eligible for exemption as a non-listed business or a payroll customer.
Several commenters argued that this twelve-month period was excessive
(particularly compared to the two-month minimum period that has evolved
administratively under prior paragraphs (b)(2) and (d) of section
103.22) and would discourage customers from changing banks.
As stated in the Notice, the ten-month difference in time periods
is justified by the elimination of virtually all of the
[[Page 50152]]
other requirements of the prior administrative exemption system. Under
the reformed system, a bank will be able to exempt the transactions in
currency of a non-listed business or payroll customer simply by the
one-time filing of a form that identifies the exempt person and the
exempting bank, and by renewing that initial designation every two
years. Thus, banks no longer will be confined to exempting only those
transactions falling within certain ``permitted'' ranges. In addition,
banks will no longer be required to prepare and submit signed exempt
statements, or to maintain mandatory exemption lists. Given the removal
of these time-consuming procedures, coupled with the need to keep some
``tension'' in the liberalized exemption system so that it does not
become a vehicle for more efficient money laundering, FinCEN believes
that a ten-month difference is warranted.
The final rule also adopts in paragraph (d)(2)(vi), with one minor
change, the definition of a non-listed business set forth in the
Notice. The definition, based in large part on 31 U.S.C. 5313(e)(2),
confines permissible exemptions to bank customers located in the United
States that have transaction account relationships with the exempting
bank involving the recurring use of currency in amounts exceeding
$10,000. The term ``United States'' has been added to the clause after
the comma in paragraph (d)(2)(vi)(C), to make clear that a non-listed
business must be incorporated or organized under the laws of the United
States or a State, or must be registered as and eligible to do business
within the United States or a State. The term ``United States'' is
specifically defined in 31 CFR 103.11(nn) to include, among other
things, the District of Columbia and the Territories and Insular
Possessions of the United States.
The final rule also continues to track the structure described
above in the context of defining a payroll customer. Thus, paragraph
(d)(2)(vii) requires that any person must have been a bank customer for
at least twelve months before it is eligible for exemption as a payroll
customer, and limits such designation to bank customers who regularly
withdraw more than $10,000 to pay their United States employees. For
consistency with the preceding paragraph, and in response to at least
one comment that sought clarification of the term ``U.S. resident'' in
the Notice, paragraph (d)(2)(vii) has been changed to state that an
exemptible payroll customer must be incorporated or organized under the
laws of the United States or a State, or must be registered as and
eligible to do business within the United States or a State.
3. Initial Designation of Exempt Persons
Paragraph (d)(3) continues to state generally that, when initially
designating one of its customers as an exempt person, a bank must make
a one-time filing (using the form now used to file a currency
transaction report, until such time as FinCEN issues a form
specifically for this purpose) that identifies the exempt person and
the exempting bank. With respect to its bank customers who are
themselves banks, the exempting bank will have the option in the future
of filing its current list of bank customers in such a format and
manner as FinCEN may specify.
The Notice included a provision that would have required a bank,
when designating a non-listed business or payroll customer as an exempt
person, to include a projection of the exempt person's annual currency
deposits and withdrawals. Most commenters objected to this proposal.
According to these commenters, any projections of currency activity
would amount to ``little more than guesswork'' because banks do not
have in place the systems capable of tracking currency activity in this
manner. A few commenters also expressed apprehension over a bank
incurring liability if it should significantly underestimate the
currency activity of one of its customers.
Several commenters also expressed reservations about the
alternative that FinCEN outlined in the November Extension. That
alternative would have required a bank to describe the manner in which
it applies its ``know-your-customer'' standards to the tracking of
currency deposits of its commercial customers. At least one commenter
noted that this requirement would be superfluous, given that a bank's
exemption process and currency tracking system is reviewed in detail
during its BSA examination and that any application of a bank's know-
your-customer policy will be monitored by bank examiners in any event.
Based on these comments, and mindful of the goal to create a
reformed exemption system that is cost-effective and efficient, the
final rule includes neither a requirement that a bank include in its
initial designation a projection of its exempt customers' currency
activity, nor a requirement that the bank describe in that designation
the manner in which the bank applies its ``know-your-customer''
policies to exempt customers.
4. Annual Review
Paragraph (d)(4) makes explicit the requirement that a bank verify,
at least once each year, the status of all those entities it has
designated as exempt persons. This annual review requirement was
implicit in the terms of proposed paragraph (d)(7)(iii), which would
have required that, absent specific knowledge of any information that
would be grounds for revocation, a bank verify the status of those
entities it has designated as exempt persons only once each year.
FinCEN notes that this requirement to annually review customers
designated as exempt persons is reflected both in the terms of 31
U.S.C. 5313(e)(5) and in the administrative practice surrounding the
superseded exemption system.
Paragraph (d)(4) also states that a bank must review at least
annually the application to each account of a non-listed business or
payroll customer of the monitoring system required to be maintained by
paragraph (d)(9)(ii). This language has been added to help ensure that
the reformed system is not exploited by criminals as a more efficient
vehicle for money laundering.
5. Biennial Filing With Respect to Certain Exempt Persons
The Notice would have required banks, in the case of non-listed
businesses and payroll customers, to file annual updates containing a
statement of the exempt person's annual currency deposits and
withdrawals through all transaction accounts for the preceding year.
Many commenters argued adamantly against an annual aggregate
currency reporting requirement. Those commenters stressed that banks do
not have the automated systems in place to comply with such a
requirement, and that the cost of implementing such systems would be
unreasonably high. Many commenters also maintained that, rather than
comply with an annual aggregate currency reporting requirement, banks
would choose to continue to file currency transaction reports on
transactions involving exempt persons.
Several commenters also voiced their dissatisfaction with the
alternative that FinCEN outlined in the November Extension. That
alternative would have required a bank to certify that, during the
preceding year, there was no transaction involving any accounts of the
exempt person at the bank that would have required the bank to file a
suspicious transaction report with respect to that person under 31 CFR
103.21. At least one commenter
[[Page 50153]]
expressed the fear that this certification would be viewed as a
warranty that no suspicious activity occurred, and that banks would be
unwilling to risk civil or criminal liability by making such a
statement.
In response to these comments, FinCEN has deleted the provision
requiring annual statements of the aggregate currency deposits and
withdrawals of non-listed businesses and payroll customers. Instead of
requiring annual currency statements, the final rule requires simply
that banks maintain a system of monitoring the transactions in currency
of non-listed businesses and payroll customers for suspicious activity,
see paragraph (d)(9)(ii), and renew the exempt status of those
customers every two years. See paragraph (d)(5)(ii). As part of that
biennial renewal, banks must certify that their system of monitoring
the transactions in currency of such exempt persons for suspicious
activity has been applied as necessary, but at least annually, to the
account of the exempt person to whom the biennial renewal applies. See
id.
The filing required by paragraph (d)(5) need only be made once
every two years. While the terms of 31 U.S.C. 5313(e)(5) contemplate an
annual review, the statute does not explicitly set a time for the
filing of updated information garnered as a result of that review. In
light of at least a few comments suggesting that banks be required to
file updated information less frequently than once a year, the final
rule requires banks to renew exemption status every two years.
The date on which renewals must be filed also has changed from the
Notice. At least one commenter suggested that the proposed date of
February 28 be changed because it coincides with the time period in
which banks must make other regulatory filings. The final rule
therefore adopts the date of March 15 as the date on which biennial
renewals must be filed.
Consistent with the Notice, paragraph (d)(5) states that biennial
renewals also must include information about any change in control of
the exempt person of which the bank knows or should know based on its
records. At least one commenter contended that the ``should know''
standard essentially requires a bank to review constantly the
information it possesses on each of its exempt customers, and therefore
would unreasonably burden large banks where there are potentially many
points of contact between the customer and the bank.
That the ``should know'' standard requires a bank to exercise some
degree of due diligence when renewing the exempt status of one of its
customers is wholly intentional. This concept of due diligence is
entirely consistent with the language set forth in the Phase I final
rule, which states that a bank must, when applying the terms of the
reformed exemption system, take such steps that a reasonable and
prudent bank would take and document to protect itself from loan or
other fraud or loss based on misidentification of a person's status.
Indeed, as one commenter noted, ``no institution would exempt a
customer, either under the new or old system, without first engaging in
extensive due diligence.'' Thus, the final rule requires biennial
renewals to include information concerning a change in control of which
a bank knows or should know based on its records.
6. Operating Rules
The final rule adopts, with a few modifications, the five operating
rules introduced in the Notice relating to the Phase II rules.
a. Paragraph (d)(6)(v) states that a bank may aggregate all
customer accounts to apply the exemption provisions to that customer.
In response to several comments, the word ``shall'' in the Notice has
been changed to ``may,'' to provide a bank with the option of exempting
a customer on a bank-wide basis and counting all accounts to determine,
for example, whether a customer's cash withdrawals or deposits exceed
$10,000. To ensure consistency in the treatment of their exempt
customers by banks, a sentence has been added in the final rule that
makes clear that if a bank elects to treat all transaction accounts of
a customer as a single account, the bank must continue to treat the
accounts as a single account for Bank Secrecy Act purposes thereafter.
b. Paragraph (d)(6)(vi) permits affiliated banks to make a single
designation of an exempt person, that will apply to all accounts of the
person at all banks within the affiliated group. The language in the
Notice pertaining to projected and annual currency transaction activity
has been deleted.
c. Paragraph (d)(6)(vii) states that sole proprietorships may be
treated as either non-listed businesses or payroll customers if they
otherwise meet the requirements for treatment as such exempt persons.
The Notice included provisions that would have made certain accounts of
a sole proprietorship ineligible for exemption to the extent they are
``personal'' accounts, or otherwise commingle personal and business
funds. Several commenters argued against these limitations, stating
that it would be difficult, if not impossible, for banks to distinguish
between personal and business-related transactions in currency. Again,
mindful of the goal to create a reformed exemption system that works,
and given that banks are under an obligation to report suspicious
activity concerning the transactions in currency of their exempt
customers, including sole proprietorships, the final rule does not
include a provision that would require banks to track commingled funds.
However, it should be noted that only ``commercial accounts'' are
eligible; nothing in the final rule permits the exemption of a sole
proprietor's personal bank accounts.
d. Paragraph (d)(6)(viii) lists those businesses that may not be
exempted under the reformed exemption system as non-listed companies
(although they may qualify for exemption under the more limited payroll
customer definition). The Notice sought comments on the treatment of
businesses with multiple activities of which one is an activity for
which an exemption is barred. In addition, both the Notice and the
November Extension solicited comments on the advisability of requiring
multiple-activity businesses to segregate funds derived from eligible
business activity from those derived from ineligible business activity,
in order to be eligible for treatment as an exempt person.
Several commenters suggested that a multiple-activity business
should be eligible for treatment as an exempt person because a contrary
rule would make many of its customers ineligible for treatment as
exempt persons, in particular grocery stores. According to those
commenters, such multiple-activity businesses, as a matter of common
practice, commingle funds derived from different activities, and would
not pay the cost of maintaining multiple accounts in order to avail
themselves of the advantages of the reformed exemption system.
In light of these comments, the final rule simply states that a
business that engages in multiple business activities may be treated as
a non-listed business so long as that business does not engage
primarily in one or more of those activities described in paragraph
(d)(6)(viii)--i.e., no more than 50% of its gross revenues is derived
from ineligible business activity. FinCEN believes that this change
will benefit banks by providing them with a bright-line test (the same
one, FinCEN notes, that has evolved around the administrative practice
surrounding the prior exemption system) for determining
[[Page 50154]]
whether to treat multi-activity businesses as exemptible non-listed
businesses. To further facilitate the use of the reformed exemption
system, the final rule does not include a provision that would require
a multiple-activity business to segregate commingled funds to be
eligible for treatment as an exempt person.
e. Paragraph (d)(6)(ix) defines a transaction account for purposes
of proposed paragraph (d) as any account described in section
19(b)(1)(C) of the Act, 12 U.S.C. 461(b)(1)(C). As stated in the
Notice, this definition does not include any other accounts not
described in 12 U.S.C. 461(b)(1)(C), such as money market accounts.
Thus, the definition of a transaction account in the proposed rule is
narrower than the definition of the same term that is set forth at 31
CFR 103.11(hh). Paragraph (d)(6)(ix) also provides, consistent with the
Notice, that a person may be exempt either as a non-listed business or
as a payroll customer only to the extent of such person's transaction
accounts.
FinCEN received several comments requesting that the definition of
a transaction account be broadened. Because the terms of 31 U.S.C.
5313(e)(2)(A) specifically define a transaction account by reference to
12 U.S.C. 461(b)(1)(C), the final rule adopts the definition of a
transaction account set forth in the Notice. Should the above
definition of a transaction account prove too difficult to apply,
FinCEN will entertain requests for administrative relief from the
application of that definition.
7. Limitation on Exemption
Paragraph (d)(7) carries over the terms of prior paragraph
103.22(h)(5) and states that the exemption from reporting contained in
paragraph (d)(1) does not apply to a transaction carried out by an
exempt person as an agent of another person who is the beneficial owner
of the funds that are the subject of a transaction in
currency.6 With regard to exempt customers acting as agents
for third parties, a few commenters noted that it was common practice
for those customers to commingle the funds derived from their agent
activities with those funds derived from their other business
activities. Because of the difficulty in distinguishing between the two
kinds of funds, FinCEN was asked not to adopt a rule that would require
customers to segregate funds derived from agent activities to be
eligible for treatment as an exempt person.
---------------------------------------------------------------------------
\6\ FinCEN indicated that it would consider additional comments
on this subject when it issued the Phase I final rule. See 62 FR
47141, 47146.
---------------------------------------------------------------------------
Given these comments, the final rule does not require that an
exempt person segregate agent-derived funds to be eligible for
treatment as an exempt person. However, the language of paragraph
(d)(7)(relating to transactions carried out by an exempt person as an
agent for another), has not been deleted. The exemption procedures will
apply only to transactions conducted for the account of the exempt
person, not for the account of a third party who is not otherwise an
exempt person. See 31 U.S.C. 5313(f)(1)(B) and paragraph (d)(8)(ii) of
the final rule.
It should be noted that a bank customer that commingles funds from,
e.g., the sale of money orders or of goods sold on consignment, with
its normal business receipts, for deposit purposes into its own general
account engages in a transaction that is exempt or not depending upon
the customer's own status, regardless of the fact that a portion of the
funds are subject to a potential equitable or other lien by a third
party (the issuer of the money orders or the consignor of the goods) if
the customer does not pay an amount equal to the money order or
consignment sales proceeds over to the issuer or consignor. If instead,
the business selling the money orders or consigned goods deposits the
funds directly into an account opened by the money order issuer or the
goods' consignor, the eligibility of the transaction for exemption
would depend upon the status of the issuer or consignor.
8. Limitation on Liability
Paragraph (d)(8)(i) generally states, consistent with the Notice,
that once a bank has complied with the requirements of paragraph (d),
it is protected from any penalty for failure to file a currency
transaction report concerning a transaction in currency by an exempt
person.
Paragraph (d)(8)(ii) states that subject to the specific terms of
paragraph (d), and absent any specific knowledge of any information
indicating that a customer no longer meets the requirements of an
exempt person, a bank satisfies the requirements of paragraph (d) if it
continues to treat that customer as an exempt person until the date of
that customer's next periodic review. This language is meant to
harmonize the requirement, contained in paragraph (d)(4), that banks
review the status of their exempt customers at least once a year, with
the provisions relating to the revocation of a customer's exempt status
that are set forth at paragraph (d)(10).
9. Obligations to File Suspicious Activity Reports and Maintain a
System to Monitor Transactions in Currency
Paragraph 103.22(d)(9)(i) states that the reformed exemption system
does not create any exemption from, or have any negative effect at all
on, the requirement that banks file suspicious transaction reports with
respect to transactions that satisfy the requirements of the rules of
FinCEN (31 CFR 103.21), the federal bank supervisory agencies, or both,
relating to suspicious activity reporting. See 12 CFR 21.11 (Office of
the Comptroller of the Currency); 12 CFR 208.20 (Federal Reserve
System); 12 CFR 353.3 (Federal Deposit Insurance Corporation); 12 CFR
563.180 (Office of Thrift Supervision); 12 CFR 748.1 (National Credit
Union Administration). Indeed, as pointed out in the notice of proposed
rulemaking, the operation of a coordinated and uniform suspicious
transaction reporting system is a basis for the revision and
simplification of the exemption rules contained in this final rule. In
the context of the revised CTR exemption system, the indicia of
suspicious activity can include both specific transactions and overall
transaction volume substantially inconsistent with the sort in which
the particular customer normally would be expected to engage. Thus, as
stated in the text of the rule itself, anomalous transaction trends or
patterns (such as a sharp increase from one year to the next in the
gross total of currency transactions made by an exempt person) may
trigger the obligations of a bank under section 103.21.
Paragraph (d)(9)(ii) has been added to make explicit that the
continuing obligation to file suspicious activity reports (where
appropriate) necessarily requires a bank to establish and maintain a
monitoring system for non-listed business and payroll customers that is
reasonably designed to detect those transactions in currency that would
require a bank to file a suspicious transaction report with respect to
an exempt person.7 FinCEN purposely has not attempted to
describe the exact contours of an acceptable monitoring system. Because
the situation of each bank and each customer are different, FinCEN
believes that mandating a uniform monitoring system would be ill-
advised. From FinCEN's perspective, a monitoring system meets the
requirements of paragraph (d)(9)(ii) if it
[[Page 50155]]
is reasonably designed to detect, for each exempt account, those
transactions in currency that would require a bank to file a suspicious
transaction report.
---------------------------------------------------------------------------
\7\ The Bank Secrecy Act provides Treasury with the authority
to condition the grant of discretionary exemptions. See 31 U.S.C.
5313(e).
---------------------------------------------------------------------------
The adoption of the monitoring system requirement is intended to
advance the objectives of creating an exemption system that is simple
and as cost-effective as possible, while still keeping some tension in
the liberalized system. FinCEN believes that an increased emphasis on
suspicious activity reporting with respect to transactions in currency
of exempt persons should provide that needed tension. FinCEN further
notes that maintaining a monitoring system reasonably designed to
detect suspicious activity, and certifying compliance with that
requirement, should not pose additional burdens on banks, because they
remain subject in any event to the requirement to file reports of
suspicious activity with respect to any transaction they exempt from
the requirement to file currency transaction reports under the reformed
exemption system. As explained above, the statement of the requirement
to maintain a specific currency transaction monitoring program for
accounts of exempt persons is limited to accounts of non-listed
businesses and payroll customers, the classes of exempt persons with
respect to which annual review requirements are specifically imposed by
the final rule. However, banks are required to report suspicious
transactions, including transactions in currency, in the accounts of
all exempt persons (as in all other accounts) and paragraph
(d)(9)(ii)'s more detailed specification does not by implication lessen
the suspicious transaction reporting obligations or procedures of banks
generally under paragraph (d)(9)(i) and 31 CFR 103.21.
10. Revocation
Paragraph (d)(10) states that the status of an exempt person
automatically ceases, without any action by the Department of the
Treasury, when an entity ceases to be listed on the applicable stock
exchange or a subsidiary of a listed entity ceases to have at least 51
per cent of its common stock or analogous equity interest owned by a
listed entity. The phrase ``analogous equity interest'' has been added
to reflect the change made to the definition of an exempt subsidiary
set forth in paragraph (d)(2)(v).
11. Transitional Rule
Paragraph 103.22(d)(11) states the transitional rules governing the
use of the reformed exemption system. A few commenters requested that
FinCEN provide ample time for banks to move from the prior
administrative exemption system to the reformed system, particularly
given that banks will need some time to address year 2000 computer
issues. In light of these comments, the transition period stated in the
Notice--that, in effect, provides banks until the end of the calendar
year 1999 to make the transition to the reformed system--has been
extended in the final rule to July 1, 2000. Provided that banks comply
with the transition period set forth in the final rule, they may treat
a customer as exempt under either the prior administrative exemption
rules or the reformed exemption procedures set forth in paragraph
103.22(d) (so long as they do so consistently) during the transitional
period.
V. Executive Order 12866
The Department of the Treasury has determined that this final rule
is not a significant regulatory action under Executive Order 12866.
VI. Unfunded Mandates Act of 1995 Statement
Section 202 of the Unfunded Mandates Reform Act of 1995 (``Unfunded
Mandates Act''), Pub. L. 104-4 (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. If a budgetary
impact statement is required, section 202 of the Unfunded Mandates Act
also requires an agency to identify and consider a reasonable number of
regulatory alternatives before promulgating a rule. FinCEN has
determined that it is not required to prepare a written statement under
section 202 and has concluded that on balance this final rule provides
the most cost-effective and least burdensome alternative to achieve the
objectives of the rule.
VII. Regulatory Flexibility Act
FinCEN certifies that this amendment to the regulations
implementing the Bank Secrecy Act will not have a significant, adverse
financial impact on a substantial number of small depository
institutions. By adding two new classes of customers, non-listed
businesses and payroll customers, to the list of exempt persons, the
final rule represents a significant decrease in the reporting burden
imposed on all depository institutions. FinCEN anticipates that the
addition of these two new classes of exempt persons can contribute to
at least a 2 million reduction in the number of currency transaction
reports filed annually, and a cost reduction to depository institutions
of $16 million. Further, the requirements placed upon depository
institutions under the reformed exemption system, as laid out in the
final rule, represent a substantial net decrease in the burdens
associated with the prior exemption process. For example, depository
institutions will no longer be required to prepare and submit signed
exemption statements, or to maintain customer exempt lists. Under the
reformed system, a depository institution will be able to exempt the
transactions in currency of an exempt person simply by the one-time
filing of a currency transaction report form that identifies the exempt
customer and the exempting depository institution, and, in the case of
non-listed businesses and payroll customers, renewing the exempt status
of its exempt customers every two years.
VIII. Paperwork Reduction Act
In accordance with requirements of the Paperwork Reduction Act of
1995, 44 U.S.C. 3501, et seq., and its implementing regulations, 5 CFR
part 1320, the following information concerning the collection of
information on Internal Revenue Service Form 4789 is presented to
assist those persons wishing to comment on the information collection.
FinCEN anticipates that this final rule, if used by banks, can
result in at least a 2 million reduction in the number of currency
transaction reports required to be filed annually, and a cost reduction
to banks of $16 million. FinCEN believes that these estimated
reductions are reasonable, and probably conservative.
Title: Currency Transaction Report.
OMB Number: 1506-0004.
Description of Respondents: All financial institutions, except
casinos.
Estimated Number of Respondents: 250,000.
Frequency: As required.
Estimate of Burden: Reporting average of 19 minutes per response;
recordkeeping average of 5 minutes per response.
Estimate of Total Annual Burden on Respondents: 10,000,000
responses. Reporting burden estimate = 3,166,667 hours; recordkeeping
burden estimate = 833,333 hours. Estimated combined total of 4,000,000
hours.
Estimate of Total Annual Cost to Respondents for Hour Burdens:
Based on $20 per hour, the total cost to the public is estimated to be
$80,000,000.
[[Page 50156]]
Estimate of Total Other Annual Costs to Respondents: None.
Type of Review: Extension.
In accordance with the requirements of the Paperwork Reduction Act
of 1995, 44 U.S.C. 3501 et seq., and its implementing regulations, 5
CFR part 1320, the following information concerning the collection of
information as required by 31 CFR 103.22 is presented to assist those
persons wishing to comment on the information collection.
FinCEN anticipates that this final rule will result in a reduction
in hours spent complying with exemption requirements of 350,000 hours,
and a reduction in cost to banks of $7,500,000. This is a conservative
estimate, based on comments and discussions with banking industry
representatives of the cost of complying with the administrative
exemption system requirements.
Title: Currency transaction reporting exemption recordkeeping (31
CFR 103.22).
OMB Number: 1506-0009.
Description of Respondents: All banks.
Estimated Number of Respondents: 19,000.
Frequency: As required.
Estimate of Burden: Recordkeeping average of 2 hours per
respondent.
Estimate of Total Annual Burden on Respondents: Recordkeeping
burden estimate = 38,000 hours.
Estimate of Total Annual Cost to Respondents for Hour Burdens:
Based on $20 per hour, the total cost to the public is estimated to be
$760,000.
Estimate of Total Other Annual Costs to Respondents: None.
Type of Request: Extension.
List of Subjects in 31 CFR Part 103
Administrative practice and procedure, Authority delegations
(Government agencies), Banks and banking, Currency, Foreign banking,
Foreign currencies, Gambling, Investigations, Law enforcement,
Penalties, Reporting and recordkeeping requirements, Securities, Taxes.
Amendment
For the reasons set forth above in the preamble, 31 CFR part 103 is
amended as follows:
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. Section 103.22 is revised to read as follows:
Sec. 103.22 Reports of transactions in currency.
(a) General. This section sets forth the rules for the reporting by
financial institutions of transactions in currency. The reporting
obligations themselves are stated in paragraph (b) of this section. The
reporting rules relating to aggregation are stated in paragraph (c) of
this section. Rules permitting banks to exempt certain transactions
from the reporting obligations appear in paragraph (d) of this section.
(b) Filing obligations--(1) Financial institutions other than
casinos. Each financial institution other than a casino shall file a
report of each deposit, withdrawal, exchange of currency or other
payment or transfer, by, through, or to such financial institution
which involves a transaction in currency of more than $10,000, except
as otherwise provided in this secction. In the case of the Postal
Service, the obligation contained in the preceding sentence shall not
apply to payments or transfers made solely in connection with the
purchase of postage or philatelic products.
(2) Casinos. Each casino shall file a report of each transaction in
currency, involving either cash in or cash out, of more than $10,000.
(i) Transactions in currency involving cash in include, but are not
limited to:
(A) Purchases of chips, tokens, and plaques;
(B) Front money deposits;
(C) Safekeeping deposits;
(D) Payments on any form of credit, including markers and counter
checks;
(E) Bets of currency;
(F) Currency received by a casino for transmittal of funds through
wire transfer for a customer;
(G) Purchases of a casino's check; and
(H) Exchanges of currency for currency, including foreign currency.
(ii) Transactions in currency involving cash out include, but are
not limited to:
(A) Redemptions of chips, tokens, and plaques;
(B) Front money withdrawals;
(C) Safekeeping withdrawals;
(D) Advances on any form of credit, including markers and counter
checks;
(E) Payments on bets, including slot jackpots;
(F) Payments by a casino to a customer based on receipt of funds
through wire transfer for credit to a customer;
(G) Cashing of checks or other negotiable instruments;
(H) Exchanges of currency for currency, including foreign currency;
and
(I) Reimbursements for customers' travel and entertainment expenses
by the casino.
(c) Aggregation--(1) Multiple branches. A financial institution
includes all of its domestic branch offices, and any recordkeeping
facility, wherever located, that contains records relating to the
transactions of the institution's domestic offices, for purposes of
this section's reporting requirements.
(2) Multiple transactions--general. In the case of financial
institutions other than casinos, for purposes of this section, multiple
currency transactions shall be treated as a single transaction if the
financial institution has knowledge that they are by or on behalf of
any person and result in either cash in or cash out totaling more than
$10,000 during any one business day (or in the case of the Postal
Service, any one day). Deposits made at night or over a weekend or
holiday shall be treated as if received on the next business day
following the deposit.
(3) Multiple transactions--casinos. In the case of a casino,
multiple currency transactions shall be treated as a single transaction
if the casino has knowledge that they are by or on behalf of any person
and result in either cash in or cash out totaling more than $10,000
during any gaming day. For purposes of this paragraph (c)(3), a casino
shall be deemed to have the knowledge described in the preceding
sentence, if: any sole proprietor, partner, officer, director, or
employee of the casino, acting within the scope of his or her
employment, has knowledge that such multiple currency transactions have
occurred, including knowledge from examining the books, records, logs,
information retained on magnetic disk, tape or other machine-readable
media, or in any manual system, and similar documents and information,
which the casino maintains pursuant to any law or regulation or within
the ordinary course of its business, and which contain information that
such multiple currency transactions have occurred.
(d) Transactions of exempt persons--(1) General. No bank is
required to file a report otherwise required by paragraph (b) of this
section with respect to any transaction in currency between an exempt
person and such bank, or, to the extent provided in paragraph
(d)(6)(vi) of this section, between such exempt person and other banks
affiliated with such bank. In addition, a non-bank financial
institution is not required to file a report
[[Page 50157]]
otherwise required by paragraph (b) of this section with respect to a
transaction in currency between the institution and a commercial bank.
(A limitation on the exemption described in this paragraph (d)(1) is
set forth in paragraph (d)(7) of this section.)
(2) Exempt person. For purposes of this section, an exempt person
is:
(i) A bank, to the extent of such bank's domestic operations;
(ii) A department or agency of the United States, of any State, or
of any political subdivision of any State;
(iii) Any entity established under the laws of the United States,
of any State, or of any political subdivision of any State, or under an
interstate compact between two or more States, that exercises
governmental authority on behalf of the United States or any such State
or political subdivision;
(iv) Any entity, other than a bank, whose common stock or analogous
equity interests are listed on the New York Stock Exchange or the
American Stock Exchange or whose common stock or analogous equity
interests have been designated as a Nasdaq National Market Security
listed on the Nasdaq Stock Market (except stock or interests listed
under the separate ``Nasdaq Small-Cap Issues'' heading), provided that,
for purposes of this paragraph (d)(2)(iv), a person that is a financial
institution, other than a bank, is an exempt person only to the extent
of its domestic operations;
(v) Any subsidiary, other than a bank, of any entity described in
paragraph (d)(2)(iv) of this section (a ``listed entity'') that is
organized under the laws of the United States or of any State and at
least 51 percent of whose common stock or analogous equity interest is
owned by the listed entity, provided that, for purposes of this
paragraph (d)(2)(v), a person that is a financial institution, other
than a bank, is an exempt person only to the extent of its domestic
operations;
(vi) To the extent of its domestic operations, any other commercial
enterprise (for purposes of this paragraph (d), a ``non-listed
business''), other than an enterprise specified in paragraph
(d)(6)(viii) of this section, that:
(A) Has maintained a transaction account at the bank for at least
12 months;
(B) Frequently engages in transactions in currency with the bank in
excess of $10,000; and
(C) Is incorporated or organized under the laws of the United
States or a State, or is registered as and eligible to do business
within the United States or a State; or
(vii) With respect solely to withdrawals for payroll purposes from
existing transaction accounts, any other person (for purposes of this
paragraph (d), a ``payroll customer'') that:
(A) Has maintained a transaction account at the bank for at least
12 months;
(B) Operates a firm that regularly withdraws more than $10,000 in
order to pay its United States employees in currency; and
(C) Is incorporated or organized under the laws of the United
States or a State, or is registered as and eligible to do business
within the United States or a State.
(3) Initial designation of exempt persons--(i) General. A bank must
designate each exempt person with which it engages in transactions in
currency by the close of the 30-day period beginning after the day of
the first reportable transaction in currency with that person sought to
be exempted from reporting under the terms of this paragraph (d).
Except where the person sought to be exempted is another bank as
described in paragraph (d)(2)(i) of this section, designation by a bank
of an exempt person shall be made by a single filing of Internal
Revenue Service Form 4789, in which line 36 is marked ``Designation of
Exempt Person'' and items 2-14 (Part I, Section A) and items 37-49
(Part III) are completed, or by filing any form specifically designated
by FinCEN for this purpose. The designation must be made separately by
each bank that treats the person in question as an exempt person,
except as provided in paragraph (d)(6)(vi) of this section. The
designation requirements of this paragraph (d)(3) apply whether or not
the particular exempt person to be designated has previously been
treated as exempt from the reporting requirements of prior
Sec. 103.22(a) under the rules contained in 31 CFR 103.22(a) through
(g), as in effect on October 20, 1998 (see 31 CFR Parts 0 to 199
revised as of July 1, 1998). A special transitional rule, which extends
the time for initial designation for customers that have been
previously treated as exempt under such prior rules, is contained in
paragraph (d)(11) of this section.
(ii) Special rules for banks. When designating another bank as an
exempt person, a bank must either make the filing required by paragraph
(d)(3)(i) of this section or file, in such a format and manner as
FinCEN may specify, a current list of its domestic bank customers. In
the event that a bank files its current list of domestic bank
customers, the bank must make the filing as described in paragraph
(d)(3)(i) of this section for each bank that is a new customer and for
which an exemption is sought under this paragraph (d).
(4) Annual review. The information supporting each designation of
an exempt person, and the application to each account of an exempt
person described in paragraphs (d)(2)(vi) or (d)(2)(vii) of this
section of the monitoring system required to be maintained by paragraph
(d)(9)(ii) of this section, must be reviewed and verified at least once
each year.
(5) Biennial filing with respect to certain exempt persons--(i)
General. A biennial filing, as described in paragraph (d)(5)(ii) of
this section, is required for continuation of the treatment as an
exempt person of a customer described in paragraph (d)(2)(vi) or (vii)
of this section. No biennial filing is required for continuation of the
treatment as an exempt person of a customer described in paragraphs
(d)(2)(i) through (v) of this section.
(ii) Non-listed businesses and payroll customers. The designation
of a non-listed business or a payroll customer as an exempt person must
be renewed biennially, beginning on March 15 of the second calendar
year following the year in which the first designation of such customer
as an exempt person is made, and every other March 15 thereafter, on
such form as FinCEN shall specify. Biennial renewals must include a
statement certifying that the bank's system of monitoring the
transactions in currency of an exempt person for suspicious activity,
required to be maintained by paragraph (d)(9)(ii) of this section, has
been applied as necessary, but at least annually, to the account of the
exempt person to whom the biennial renewal applies. Biennial renewals
also must include information about any change in control of the exempt
person involved of which the bank knows (or should know on the basis of
its records).
(6) Operating rules--(i) General rule. Subject to the specific
rules of this paragraph (d), a bank must take such steps to assure
itself that a person is an exempt person (within the meaning of the
applicable provision of paragraph (d)(2) of this section), to document
the basis for its conclusions, and document its compliance, with the
terms of this paragraph (d), that a reasonable and prudent bank would
take and document to protect itself from loan or other fraud or loss
based on misidentification of a person's status, and in the case of the
monitoring system requirement set forth in paragraph (d)(9)(ii) of this
section, such steps that a reasonable and prudent bank would take and
document
[[Page 50158]]
to identify suspicious transactions as required by paragraph (d)(9)(ii)
of this section.
(ii) Governmental departments and agencies. A bank may treat a
person as a governmental department, agency, or entity if the name of
such person reasonably indicates that it is described in paragraph
(d)(2)(ii) or (d)(2)(iii) of this section, or if such person is known
generally in the community to be a State, the District of Columbia, a
tribal government, a Territory or Insular Possession of the United
States, or a political subdivision or a wholly-owned agency or
instrumentality of any of the foregoing. An entity generally exercises
governmental authority on behalf of the United States, a State, or a
political subdivision, for purposes of paragraph (d)(2)(iii) of this
section, only if its authorities include one or more of the powers to
tax, to exercise the authority of eminent domain, or to exercise police
powers with respect to matters within its jurisdiction. Examples of
entities that exercise governmental authority include, but are not
limited to, the New Jersey Turnpike Authority and the Port Authority of
New York and New Jersey.
(iii) Stock exchange listings. In determining whether a person is
described in paragraph (d)(2)(iv) of this section, a bank may rely on
any New York, American or Nasdaq Stock Market listing published in a
newspaper of general circulation, on any commonly accepted or published
stock symbol guide, on any information contained in the Securities and
Exchange Commission ``Edgar'' System, or on any information contained
on an Internet World-Wide Web site or sites maintained by the New York
Stock Exchange, the American Stock Exchange, or the National
Association of Securities Dealers.
(iv) Listed company subsidiaries. In determining whether a person
is described in paragraph (d)(2)(v) of this section, a bank may rely
upon:
(A) Any reasonably authenticated corporate officer's certificate;
(B) Any reasonably authenticated photocopy of Internal Revenue
Service Form 851 (Affiliation Schedule) or the equivalent thereof for
the appropriate tax year; or
(C) A person's Annual Report or Form 10-K, as filed in each case
with the Securities and Exchange Commission.
(v) Aggregated accounts. In determining the qualification of a
customer as an exempt person, a bank may treat all transaction accounts
of the customer as a single account. If a bank elects to treat all
transaction accounts of a customer as a single account, the bank must
continue to treat such accounts consistently as a single account for
purposes of determining the qualification of the customer as an exempt
person.
(vi) Affiliated banks. The designation required by paragraph (d)(3)
of this section may be made by a parent bank holding company or one of
its bank subsidiaries on behalf of all bank subsidiaries of the holding
company, so long as the designation lists each bank subsidiary to which
the designation shall apply.
(vii) Sole proprietorships. A sole proprietorship may be treated as
a non-listed business if it otherwise meets the requirements of
paragraph (d)(2)(vi) of this section, as applicable. In addition, a
sole proprietorship may be treated as a payroll customer if it
otherwise meets the requirements of paragraph (d)(2)(vii) of this
section, as applicable.
(viii) Ineligible businesses. A business engaged primarily in one
or more of the following activities may not be treated as a non-listed
business for purposes of this paragraph (d): serving as financial
institutions or agents of financial institutions of any type; purchase
or sale to customers of motor vehicles of any kind, vessels, aircraft,
farm equipment or mobile homes; the practice of law, accountancy, or
medicine; auctioning of goods; chartering or operation of ships, buses,
or aircraft; gaming of any kind (other than licensed parimutuel betting
at race tracks); investment advisory services or investment banking
services; real estate brokerage; pawn brokerage; title insurance and
real estate closing; trade union activities; and any other activities
that may be specified by FinCEN. A business that engages in multiple
business activities may be treated as a non-listed business so long as
no more than 50% of its gross revenues is derived from one or more of
the ineligible business activities listed in this paragraph
(d)(6)(viii).
(ix) Transaction account. A transaction account, for purposes of
paragraph (d) of this section, is any account described in section
19(b)(1)(C) of the Federal Reserve Act, 12 U.S.C. 461(b)(1)(C). For
purposes of paragraphs (d)(2)(vi) and (d)(2)(vii) of this section, a
person is an exempt person only to the extent of such person's eligible
transaction accounts.
(x) Documentation. The records maintained by a bank to document its
compliance with and administration of the rules of this paragraph (d)
shall be maintained in accordance with the provisions of Sec. 103.38.
(7) Limitation on exemption. A transaction carried out by an exempt
person as an agent for another person who is the beneficial owner of
the funds that are the subject of a transaction in currency is not
subject to the exemption from reporting contained in paragraph (d)(1)
of this section.
(8) Limitation on liability. (i) No bank shall be subject to
penalty under this part for failure to file a report required by
paragraph (b) of this section with respect to a transaction in currency
by an exempt person with respect to which the requirements of this
paragraph (d) have been satisfied, unless the bank:
(A) Knowingly files false or incomplete information with respect to
the transaction or the customer engaging in the transaction; or
(B) Has reason to believe that the customer does not meet the
criteria established by this paragraph (d) for treatment of the
transactor as an exempt person or that the transaction is not a
transaction of the exempt person.
(ii) Subject to the specific terms of this paragraph (d), and
absent any specific knowledge of information indicating that a customer
no longer meets the requirements of an exempt person, a bank satisfies
the requirements of this paragraph (d) to the extent it continues to
treat that customer as an exempt person until the date of that
customer's next periodic review, which, as required by paragraph (d)(4)
of this section, shall occur no less than once each year.
(iii) A bank that files a report with respect to a currency
transaction by an exempt person rather than treating such person as
exempt shall remain subject, with respect to each such report, to the
rules for filing reports, and the penalties for filing false or
incomplete reports that are applicable to reporting of transactions in
currency by persons other than exempt persons.
(9) Obligations to file suspicious activity reports and maintain
system for monitoring transactions in currency. (i) Nothing in this
paragraph (d) relieves a bank of the obligation, or reduces in any way
such bank's obligation, to file a report required by Sec. 103.21 with
respect to any transaction, including any transaction in currency that
a bank knows, suspects, or has reason to suspect is a transaction or
attempted transaction that is described in Sec. 103.21(a)(2)(i), (ii),
or (iii), or relieves a bank of any reporting or recordkeeping
obligation imposed by this part (except the obligation to report
transactions in currency pursuant to this section to the extent
provided in this paragraph (d)). Thus, for example, a sharp increase
from one year to the next in the gross total of currency transactions
made by an exempt customer, or similarly anomalous transaction trends
or
[[Page 50159]]
patterns, may trigger the obligations of a bank under Sec. 103.21.
(ii) Consistent with its annual review obligations under paragraph
(d)(4)of this section, a bank shall establish and maintain a monitoring
system that is reasonably designed to detect, for each account of a
non-listed business or payroll customer, those transactions in currency
involving such account that would require a bank to file a suspicious
transaction report. The statement in the preceding sentence with
respect to accounts of non-listed and payroll customers does not limit
the obligation of banks generally to take the steps necessary to
satisfy the terms of paragraph (d)(9)(i) of this section and
Sec. 103.21 with respect to all exempt persons.
(10) Revocation. The status of any person as an exempt person under
this paragraph (d) may be revoked by FinCEN by written notice, which
may be provided by publication in the Federal Register in appropriate
situations, on such terms as are specified in such notice. Without any
action on the part of the Treasury Department and subject to the
limitation on liability contained in paragraph (d)(8)(ii) of this
section:
(i) The status of an entity as an exempt person under paragraph
(d)(2)(iv) of this section ceases once such entity ceases to be listed
on the applicable stock exchange; and
(ii) The status of a subsidiary as an exempt person under paragraph
(d)(2)(v) of this section ceases once such subsidiary ceases to have at
least 51 per cent of its common stock or analogous equity interest
owned by a listed entity.
(11) Transitional rule. (i) No accounts may be newly granted an
exemption or placed on an exempt list on or after October 21, 1998,
under the rules contained in 31 CFR 103.22(b) through (g), as in effect
on October 20, 1998 (see 31 CFR Parts 0 to 199 revised as of July 1,
1998).
(ii) If a bank properly treated an account (a ``previously exempted
account'') as exempt on October 20, 1998 under the rules contained in
31 CFR 103.22(b) through (g), as in effect on October 20, 1998 (see 31
CFR Parts 0 to 199 revised as of July 1, 1998), it may continue to
treat such account as exempt under such prior rules with respect to
transactions in currency occurring on or before June 30, 2000, provided
that it does so consistently until the earlier of June 30, 2000, and
the date on which the bank makes the designation or the determination
described in paragraph (d)(11)(iii) of this section. A bank that
continues to treat a previously exempted account as exempt under the
prior rules, and for the period, specified in the preceding sentence,
shall remain subject to such prior rules, and to the penalties for
failing to comply therewith, with respect to transactions in currency
occurring during such period.
(iii) A bank must, on or before July 1, 2000, either designate the
holder of a previously exempted account as an exempt person under
paragraph (d)(2) of this section or determine that it may not or will
not treat such holder as an exempt person under paragraph (d)(2) of
this section (so that it will be required to make reports under
paragraph (a) of this section with respect to transactions in currency
by such person occurring on or after the date of determination, but no
later than July 1, 2000). A bank that initially does not designate the
holder of a previously exempted account as an exempt person for periods
beginning after June 30, 2000, may later make such a designation, to
the extent otherwise permitted to do so by this paragraph (d), for
periods after the effective date of such designation.
Approved by the Office of Management and Budget under control number
1506-0009.)
Dated: September 14, 1998.
William F. Baity,
Acting Director,
Financial Crimes Enforcement Network.
[FR Doc. 98-24969 Filed 9-18-98; 8:45 am]
BILLING CODE 4820-03-P
