In an interim rule published in the Federal Register and effective on August 12, 2002 (67 FR 52383-52389, Docket No. 02-082-1), we established regulations in 7 CFR part 331 and 9 CFR part 121 that listed biological agents and toxins determined to have the potential to pose a severe threat to animal or plant health, or to animal or plant products, and that required all persons in possession of any listed biological agent or toxin to notify the Secretary of such possession. The interim rule was published in accordance with the requirements of section 212 of subtitle B (Department of Agriculture), title II (Enhancing Controls on Dangerous Biological Agents and Toxins), of the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (Public Law 107-188).

In subtitle B, section 212(l) provides that “[t]he terms 'biological agent' and ‘toxin' have the meanings given such terms in section 178 of title 18, United States Code.” Thus, we referred to 18 U.S.C. 178 when preparing the definitions for those terms we included in the “Definitions” sections of both 7 CFR part 331 and 9 CFR part 121 (§§ 331.1 and 121.1, respectively).

We failed to note, however, that elsewhere in title II of Public Law 107-188 (section 231 of subtitle D, “Criminal Penalties Regarding Certain Biological Agents and Toxins,” specifically), the definitions of “biological agent” and “toxin” in 18 U.S.C. 178 had been amended. Therefore, in this document, we are amending 7 CFR 331.1 and 9 CFR 121.1 as established by our August 12, 2002, interim rule so that the definitions provided in those sections for the terms “biological agent” and “toxin” are consistent with the definitions for those terms in 18 U.S.C. 178, as amended by Public Law 107-188.

On August 3, 2001 (66 FR 40626), the NRC published a Federal Register notice that presented a proposed rule to amend 10 CFR part 50, “Domestic Licensing of Production and Utilization Facilities.” The proposed rule would revise the requirements for construction, ISI, and IST of nuclear power plant components. For construction, the proposed rule would permit the use of Section III, Division 1, of the ASME BPV Code, 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda for Class 1, Class 2, and Class 3 components with no new modifications or limitations.

For ISI, the proposed rule would permit the use of Section XI, Division 1, of the ASME BPV Code, 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda for Class 1, Class 2, Class 3, Class MC, and Class CC components with new modifications and limitations.

For IST, the proposed rule would permit the use of the ASME OM Code, 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda for Class 1, Class 2, and Class 3 pumps and valves with one new modification.

In the same Federal Register notice, the Commission withdrew a proposed rule (64 FR 22580; April 27, 1999) that would have eliminated the requirement for licensees to update their ISI and IST programs every 120 months beyond a baseline edition and addenda of the ASME Code. That withdrawal was a final action—not part of the proposed rule.

Interested parties submitted written comments on the proposed rule published on August 3, 2001 (66 FR 40626). Comments were received from 17 separate sources. These sources consisted of 10 utilities, 4 service organizations, and 3 individuals. In response to the public comments, the NRC has either removed or revised some modifications and limitations that were proposed. A summary of the public comments applicable to the proposed rule and their resolution are provided in the following sections. Public comments on the proposed rule that are not addressed in the final rule are addressed in the Resolution of Public Comments. The availability of the Resolution of Public Comments is further discussed in Section 5 below.

The NRC has considered and resolved the public comments and has revised the final rule accordingly. The NRC is publishing these final regulations in § 50.55a to incorporate by reference the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of Division 1 rules of Section III of the ASME BPV Code; the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of Division 1 rules of Section XI of the ASME BPV Code; and the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of the ASME OM Code for construction, ISI, and IST of components in nuclear power plants. Section III of the ASME BPV Code is acceptable for use with no new limitations or modifications. Section XI of the ASME BPV Code is acceptable for use subject to limitations and modifications. The ASME OM Code is acceptable for use subject to one modification.

This final rule also revises the regulations in § 50.55a that licensees use to modify the implementation of Appendix VIII, “Performance Demonstration for Ultrasonic Examinations Systems,” to Section XI of the ASME BPV Code. The amendment clarifies existing ultrasonic (UT) examination qualification requirements in § 50.55a. The amendment also adds new requirements to clarify the coordination of Appendix VIII with other parts of Section XI.

There were no public comments on the proposed rule concerning Section III. This final rule revises § 50.55a(b)(1) to incorporate by reference the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of Section III of the ASME BPV Code; clarify that the 1963 Edition was the initial edition of Section III incorporated by reference in the regulations; and extend the applicability of the existing regulations in §§ 50.55a(b)(1)(ii), 50.55a(b)(1)(iii), and 50.55a(b)(1)(v) to the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of Section III of the ASME BPV Code.

Public comments on the proposed rule concerning Section XI are addressed in the following sections. This final rule revises § 50.55a(b)(2) to incorporate by reference the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of Section XI of the ASME BPV Code; clarify that the 1970 Edition was the initial edition of Section XI incorporated by reference in the regulations; and extend the applicability of the existing regulations in §§ 50.55a(b)(2)(viii), 50.55a(b)(2)(ix), 50.55a(b)(2)(xi), 50.55a(b)(2)(xv), and 50.55a(b)(2)(xvii) to the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of Section XI of the ASME BPV Code. This final rule also deletes the existing regulations in § 50.55a(g)(6)(ii)(B)( 1 ) through ( 4 ) because the implementation dates have expired and all licensees have completed the requirements or have been approved by an exemption for a delay. The existing requirement that was formerly § 50.55a(g)(6)(ii)(B)( 5 ) is redesignated as § 50.55a(g)(6)(ii)(B).

Although § 50.55a(b)(2)(vi) is not addressed in the proposed rule, one commenter stated that § 50.55a(b)(2)(vi) should be revised to include references to the 1998 Edition through the 2000 Addenda of the ASME Code for the ISI of Class MC and Class CC components. The commenter noted that §§ 50.55a(b)(2)(viii) and (ix) in the proposed rule reference the 1998 Edition through the 2000 Addenda, therefore, § 50.55a(b)(2)(vi) should also reference the 1998 Edition through the 2000 Addenda.

The NRC agrees that § 50.55a(b)(2)(vi) should be revised to clarify the applicability of the 1998 Edition through the 2000 Addenda to containment ISI programs but does not agree with the revision suggested by the commenter. The statement of considerations for the final rule published on September 22, 1999 (64 FR 51370), states that either the 1992 Edition with the 1992 Addenda, or the 1995 Edition with the 1996 Addenda of IWE and IWL must be used to develop and implement a containment ISI program within 5 years. The NRC finds that the existing requirements in § 50.55a(b)(2)(vi) only address the applicable edition and addenda of IWE and IWL to be used during initial 120-month interval for the ISI of Class CC and Class MC components. Therefore, § 50.55a(b)(2)(vi) is revised to clarify that the 1992 Edition with the 1992 Addenda, or the 1995 Edition with the 1996 Addenda of IWE and IWL must be used when implementing the initial 120-month interval for the ISI of Class MC and Class CC components, and that successive 120-month interval updates must be implemented in accordance with § 50.55a(g)(4)(ii).

The proposed rule would add a new § 50.55a(g)(6)(ii)(B)( 1 ) to clarify the start date of the first 120-month interval for the ISI of Class MC and Class CC components. Some commenters indicated that § 50.55a(g)(6)(ii)(B)( 1 ) in the proposed rule did not clarify the start date of the first 120-month interval for the ISI of Class MC and Class CC components. Other commenters suggested a revised regulation that they thought would be more appropriate.

The NRC finds that the proposed regulation regarding the start date of the first 120-month interval for the ISI of Class MC and Class CC components has created confusion rather than clarifying existing requirements as intended. The clarification in the proposed rule would also create a hardship for many licensees in reestablishing the start date of their first 120-month containment ISI interval. It was not the intent of the NRC to alter the 10-year examination interval in IWE or the 5-year examination interval in IWL already established by licensees. Licensees are permitted to schedule examinations of Class MC and Class CC components in accordance with the requirements in IWE and IWL. Therefore, the clarification of the first 120-month interval start date in § 50.55a(g)(6)(ii)(B)( 1 ) in the proposed rule is not adopted.

In responding to this clarification, several commenters indicated that the 10-year IWE and 5-year IWL examination intervals must coincide with the 120-month interval update in § 50.55a(b)(4)(ii). The NRC does not agree that the 10-year IWE and 5-year IWL examination intervals must coincide with the 120-month interval update in § 50.55a(b)(4)(ii). The 10-year IWE and 5-year IWL examination intervals are independent of the 120-month interval update in § 50.55a(g)(4)(ii). Section 50.55a(g)(4)(ii) does not prohibit licensees from updating to a later edition and addenda of the ASME Code midway through a 10-year IWE or 5-year IWL examination interval.

In responding to this clarification, several commenters implied that the final rule dated August 8, 1996 (61 FR 41303), requiring licensees to develop and implement a containment ISI program for Class MC components in accordance with IWE of Section XI, authorized the extension of the first period inspection from 40 months to 60 months in duration. The NRC does not agree. The schedule in the containment final rule did not extend the duration of the 40-month inspection period required by IWE. This issue was addressed in the response to Question 13 in a letter to the Nuclear Energy Institute from NRC dated May 30, 1997.

In responding to this clarification, several commenters indicated that the final rules dated August 8, 1996 (61 FR 41303), and September 22, 1999 (64 FR 51370), create a hardship when implementing 120-month interval updates required by § 50.55a(g)(4)(ii). The NRC agrees with this comment. The final rule dated August 8, 1996, required licensees to implement an ISI program for Class MC and Class CC components using the 1992 Edition with the 1992 Addenda of IWE and IWL. The final rule dated September 22, 1999, required licensees to implement Appendix VIII UT qualification requirements using the 1995 Edition with the 1996 Addenda of Section XI. Consequently, the schedule for 120-month interval updates for the ISI of Class MC and Class CC components, Appendix VIII UT qualification requirements, and the ISI of Class 1, 2, and 3 components might not coincide. This creates a hardship for licensees because ISI programs are required to maintain up to 3 separate editions and addenda of Section XI—one edition and addenda applicable to the ISI of Class MC and Class CC components, another edition and addenda applicable to the ISI of Class 1, 2, and 3 components, and a third edition and addenda applicable to Appendix VIII UT qualification requirements. Therefore, licensees may wish to synchronize 120-month interval updates such that the same edition and addenda of Section XI apply to the ISI of Class MC and Class CC components, Appendix VIII UT qualification requirements, and the ISI of Class 1, 2, and 3 components. Licensees wishing to synchronize their 120-month intervals may submit a request in accordance with § 50.55a(a)(3) to obtain authorization to extend or reduce 120-month intervals.

The proposed rule addresses NRC concerns with “owner-defined” requirements in IWE and IWL. Revisions to the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of IWE and IWL permit each licensee to define requirements that were previously defined in the ASME Code.

A number of commenters indicated that “owner-defined” requirements are acceptable because the regulations in Appendix B of 10 CFR 50, “Quality Assurance Criteria For Nuclear Power Plants and Fuel Reprocessing Plants,” and the Responsible Engineer/Individual oversight provisions (as delineated in IWE and IWL) ensure that requirements defined by the owner are properly implemented.

The NRC does not agree that the quality assurance requirements in Appendix B of 10 CFR 50 and the oversight duties of the Responsible Engineer/Individual alone are adequate to ensure that owner-defined requirements are properly implemented. The final rule published on August 8, 1996 (61 FR 41303), required licensees to develop and implement a containment ISI program for Class MC and Class CC components in accordance with IWE and IWL. The final containment rule stated that the rule was needed because none of the existing requirements provide specific guidance on how to inspect containment surfaces. This lack of guidance resulted in a large variation with regard to the performance and the effectiveness of licensee containment inspection programs. Based on the results of inspections and audits, as well as plant operational experiences, it was clear to the NRC that without specific guidance, several licensee containment inspection programs were unable to detect degradation that could ultimately result in a compromise to the containment pressure-retaining capability. Some containment structures had been found to have undergone a significant level of degradation that was not detected by existing programs. Given the number and the extent of the occurrences, and the variability among plants with regard to the performance and the effectiveness of containment inspections, the NRC believed that the prudent course of action was to impose the more specific ISI inspection requirements in the 1992 Edition with the 1992 Addenda of IWE and IWL. The containment final rule imposed requirements that define comprehensive and technically sound methods that ensure uniform containment inspection results among all licensees.

The NRC believes that it is inappropriate to approve Code provisions that do not contain specific containment inspection guidance when prior experience demonstrates that specific containment inspection guidance is necessary. The quality assurance provisions in Appendix B of 10 CFR 50 and the oversight duties of the Responsible Engineer/Individual do not ensure uniform containment inspection results among all licensees. Furthermore, the quality assurance provisions in Appendix B of 10 CFR 50 did not prevent the previous problems associated with a lack of guidance. Reliance on Appendix B of 10 CFR 50 resulted in a large variation in the performance and effectiveness of licensees' containment inspection programs that contributed to the NRC issuing the containment final rule.

Section 50.55a(b)(2)(viii)(F) in the proposed rule would require that personnel who conduct visual examinations of containment surfaces be qualified in accordance with the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWA-2300 in place of the “owner-defined” qualification provisions in the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWL-2310(d). Prior to the 1998 Edition, the NRC-approved provisions in IWA-2300 were used to define the qualification requirements for personnel who conduct visual examinations of containment surfaces. The qualification requirements were revised in IWL-2310(d), 1997 Addenda, to allow the owner to define the qualification requirements for personnel who perform visual examinations of concrete and tendon anchorage hardware, wires, or strands. However, the new Code provision does not provide any criteria that the licensee must use when developing qualification requirements. Therefore, the NRC proposed that licensees continue to use the provisions in IWA-2300 to qualify personnel who perform visual inspections of containment concrete surfaces and tendon anchorage hardware, wires, or strands.

Several commenters recommended that the NRC specify the use of a more generic standard for qualification of containment examiners such as ANSI N45.2.6, “Qualifications of Inspection, Examination, and Testing Personnel for Nuclear Power Plants,” to define personnel qualification provisions in place of the requirements in IWA-2300. One commenter stated that licensees typically commit to meet the requirements of Regulatory Guide 1.58, “Qualification of Nuclear Power Plant Inspection, Examination, and Testing Personnel (Revision 1, September 1980),” or another NRC-approved standard that endorses ANSI N45.2.6. Another commenter noted that use of the qualification standards of IWA-2300, as proposed by the NRC, is not appropriate because they were designed for examinations associated with piping systems and their supports and not containment examinations.

The NRC disagrees with the comments because the use of “owner-defined” qualification requirements or a generic quality assurance standard to qualify containment examiners does not provide adequate guidance to ensure that examiners are qualified to inspect containment surfaces. The NRC prefers instead that the ASME Code identify the specific elements deemed necessary to ensure containment inspection qualification programs are adequate, or describe specific criteria that licensees must use to qualify personnel performing containment examinations. Although the existing qualification provisions in IWA-2300 were not developed specifically for qualifying examiners of concrete containment surfaces, they provide the most practical criteria that are presently available for qualification of personnel that conduct visual examinations of containment surfaces. The NRC notes that many of the changes in the later editions and addenda of IWE and IWL are more suited to containment examinations than earlier editions and addenda. The NRC withdrew Regulatory Guide 1.58 on July 31, 1991 (56 FR 36175). Therefore, the NRC no longer endorses the use of ANSI 45.2.6 for the ISI of containment surfaces in operating nuclear power plants. Section 50.55a(b)(2)(viii)(F) in the proposed rule is adopted without change.

Section 50.55a(b)(2)(ix)(F) of the proposed rule would require that personnel who conduct visual examinations of containment surfaces be qualified in accordance with the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWA-2300 of in place of the “owner-defined” qualification provisions in the 1998 Edition, 1999 Addenda, and 2000 Addenda IWE-2330(a). Prior to the 1998 Edition, the NRC approved provisions in IWA-2300 were used to define the qualification requirements for personnel who conduct visual examinations of containment surfaces.

There was one public comment on § 50.55a(b)(2)(ix)(F), which is discussed in the following Section 11, Backfit Analysis. In consideration of the public comment, the qualification requirements for personnel that conduct visual inspections of containment surfaces have been revised to require that VT-1 and VT-3 examinations must be conducted in accordance with the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWA-2200. Personnel conducting examinations in accordance with the VT-1 or VT-3 examination method shall be qualified in accordance with the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWA-2300.

Section 50.55a(b)(2)(ix)(G) in the proposed rule would require that the general and detailed visual examinations required by the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWE-2310(b) and IWE-2310(c) meet the VT-1 and VT-3 examination method provisions in the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWA-2210 in place of the “owner-defined” general and detailed visual examination provisions in the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWE-2310(a), and allow licensees to continue to extend Table IWA-2210-1 maximum direct examination distance and decrease Table IWA-2210-1 minimum illumination requirements as currently stated in § 50.55(b)(2)(ix)(B).

The distance and illumination requirements in § 50.55a(b)(2)(ix)(G) in the proposed rule have been removed because these requirements are addressed in the existing § 50.55a(b)(2)(ix)(B). There was one public comment on § 50.55a(b)(2)(ix)(G), which is discussed in the following Section 11, Backfit Analysis. In consideration of the public comment, § 50.55a(b)(2)(ix)(G) is revised to require that the VT-1 and VT-3 examination methods in the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWA-2200 be used to conduct specific visual examinations in Table IWE-2500-1 in place of the “owner-defined” visual examination methods in the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWE-2310(b) and IWE-2310(c). The VT-3 examination method must be used to conduct the examinations in Items E1.12 and E1.20 of Table IWE-2500-1, and the VT-1 examination method must be used to conduct the examination in Item E4.11 of Table IWE-2500-1. An examination of the pressure-retaining bolted connections in Item E1.11 of Table IWE-2500-1 using the VT-3 examination method must be conducted once each interval.

Section 50.55a(b)(2)(ix)(H) of the proposed rule would require that the acceptance standard in the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWC-3513 be used to evaluate flaws in pressure-retaining bolting greater than or equal to 51 millimeters [2.0 inches] in diameter which are identified during the examination of containment surfaces. The acceptance standard would be used in place of the “owner-defined” acceptance standard in the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWE-3510.1.

Several commenters stated that § 50.55a(b)(2)(ix)(H) of the proposed rule is unnecessary because there are no substantial differences between the revised standard for bolting materials in the 1998 Edition and the standard for bolting materials in editions and addenda earlier than the 1998 Edition. The NRC disagrees. The bolting standard for bolting materials in the editions and addenda of IWE-3515.1 earlier than the 1998 Edition was significantly revised in the 1998 Edition. Prior to the 1998 Edition, IWE-3515.1 stated that bolting material must be examined in accordance with the material specification for defects which may cause the bolted connection to violate either the containment leak-tight or structural integrity. IWE-3515.1 was revised and renumbered as IWE-3510.3 in the 1998 Edition to require that the owner define the standard for examining bolting materials. Since containment bolting is not unique from other bolting applications in Section XI, the NRC finds that the examination of containment bolting should be consistent with other Section XI bolting examination requirements.

A number of commenters stated that IWC-3513 is not the appropriate standard to use to evaluate flaws in pressure-retaining bolting. One commenter recommended that IWB-3517.1 be used in place of IWC-3513. The NRC agrees and finds that the visual examination criteria for bolting in IWE-3517.1 is an acceptable standard because it enures that the integrity of reused bolting is maintained. Section 50.55a(b)(2)(ix)(H) is revised to require that bolting material be examined in accordance with the material specification or the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of IWB-3517.1.

Section 50.55a(b)(2)(ix)(I) in the proposed rule would require licensees to supplement the containment bolted connection examination requirements in Items E1.10 and E1.11 of the 1998 Edition, 1999 Addenda, and 2000 Addenda of Table IWE-2500-1 with additional requirements for examining inaccessible areas of containment bolting.

One commenter stated that since the ASME Code requires that accessible areas of containment bolted connections be more frequently examined in the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWE than in the earlier editions and addenda, bolting examination requirements have been enhanced. The NRC disagrees. Although the revised provisions increase the frequency of accessible examinations of containment bolting, the revised provisions reduce the frequency of examinations of inaccessible areas of containment bolting. The 1992 Edition with the 1992 Addenda and the 1995 Edition with the 1996 Addenda of IWE provide acceptable provisions for conducting examinations of the accessible and inaccessible areas of containment bolted connections. Item No. E8.10 of Table IWE-2500-1 requires that a visual examination of the individual parts of the bolted connection using the VT-1 visual examination method be performed whenever a connection is disassembled during a scheduled ISI inspection. Item E8.20 of Table IWE-2500-1 requires that a bolt torque or tension test be performed on bolted connections that have not been disassembled during the inspection interval. A bolt torque or tension test provides an indication of the integrity of the inaccessible areas of a bolted connection. The requirements in Items E8.10 and E8.20 requiring that containment bolting either be disassembled and examined (VT-1), or torque tested every interval were deleted in the 1998 Edition of IWE.

Several commenters suggest that § 50.55a(b)(ix)(I) of the proposed rule be revised to allow the option of conducting visual examinations of the inaccessible areas of containment bolted connections during maintenance that requires a bolted connection be disassembled or during visual examinations that are conducted during scheduled ISI inspections. In consideration of the public comments, the modification that was formerly § 50.55a(b)(ix)(I) in the proposed rule is revised in the final rule to allow licensees the option of performing visual examinations of inaccessible areas of containment bolted connections during maintenance evolutions or scheduled inspections. Any bolted connections that are disassembled during the scheduled performance of Item E1.11 examinations must be examined using the VT-3 examination method. Flaws or degradation identified during the performance of this VT-3 examination must be examined in accordance with the VT-1 examination method. The criteria in the material specification, or the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWB-3517.1 must be used to evaluate bolting flaws or degradation. As an alternative to performing the VT-3 examination during the scheduled performance of Item E1.11, VT-3 examination of bolting may be conducted whenever containment bolting in Item E1.11 is disassembled for any reason. Sections 50.55a(b)(ix)(I) and 50.55a(b)(ix)(H) in the proposed rule have been combined as § 50.55a(b)(ix)(H) in this final rule.

Section 50.55a(b)(2)(ix)(J) in the proposed rule would require that the ultrasonic (UT) examination acceptance standard specified in the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWE-3511.3 for Class MC pressure-retaining components also apply to metallic liners of Class CC pressure-retaining components. A UT acceptance standard is needed for metallic liners of Class CC pressure-retaining components to evaluate conditions that are identified during an examination that may be unacceptable. Therefore, the NRC proposed to continue to use the UT acceptance standard in IWE-3511.3 for metallic liners of Class CC pressure-retaining components.

Several commenters stated that § 50.55a(b)(2)(ix)(J) of the proposed rule is not needed because the provisions in IWE-3122.3 provide an appropriate standard for evaluating degradation and aging of metallic liners of Class CC pressure-retaining components. The NRC disagrees. Item E4.12 of the 1998 Edition, 1999 Addenda, and 2000 Addenda of Table IWE-2500-1, states that IWE-3511 is the acceptance standard for UT examinations. IWE-3122.3 is not referenced in Table IWE-2500-1 as an acceptance standard. The acceptance standard in IWE-3511 addresses Class MC pressure-retaining components and does not address metallic liners of Class CC pressure-retaining components. Prior to the 1995 Addenda to Section XI, the standard in IWE-3511 addressed Class MC pressure-retaining components and metallic liners of Class CC pressure-retaining components. IWE-3511 was revised in the 1995 Addenda to address only Class MC pressure-retaining components. The NRC believes that the acceptance standard in the 1995 Addenda, 1996 Addenda, 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of IWE-3511 is incomplete because it does not address metallic liners of Class CC pressure-retaining components.

Several commenters stated that § 50.55a(b)(2)(ix)(J) of the proposed rule is inappropriate because a concrete metallic liner can be allowed to significantly degrade and still accomplish its design function. Therefore, imposing an acceptance limit of 10 percent of the nominal wall thickness is extremely conservative and unwarranted.

The NRC disagrees and believes that the UT acceptance limit of 10 percent of the nominal wall thickness is warranted. Concrete containments are constructed with metallic liners as the final leak-tight barrier against radioactive releases to the atmosphere. By the virtue of being anchored to the concrete, the liner carries stresses and strains imparted by the concrete in addition to the loads of the liner itself. General or pitting corrosion occurring in a large area of the liner creates discontinuities in the liner behavior under accident pressure and earthquake loads which would result in a high stress concentration area in the liner. The model tests on concrete containments ( e.g. , NUREG/CR-5431, “Round-Robin Analysis of the Behavior of a 1:6 Scale Reinforced Concrete Containment Model Pressurized to Failure: Posttest Evaluation”) have shown that once a liner tear occurs due to high stress concentration, the containment losses its ability to retain radioactive releases. Thus, the liner integrity must be monitored and maintained during the operating life of the containment. The modification in the proposed rule is identical to what was approved for use by the ASME Code in the 1995 Edition and earlier editions and addenda of the ASME Code. Section 50.55a(b)(2)(ix)(J) of the proposed rule is presented here in the final rule as § 50.55a(b)(2)(ix)(I). Section § 50.55a(b)(2)(ix)(I) is otherwise adopted without change.

Section 50.55a(b)(2)(xii)(A) in the proposed rule would prohibit welds in high-energy fluid system piping that are located inside a containment penetration assembly or encapsulated by a guard pipe from being exempted from the examination provisions of Subsection IWC as permitted by the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of IWC-1223. The revised Code provisions appeared to be inconsistent with NRC's guidelines on “break exclusion zone” design and examination criteria for containment penetration piping. Specifically, Branch Technical Position EMEB 3-1, “Postulated Rupture Locations in Fluid System Piping Inside and Outside Containment,” an attachment to NRC Standard Review Plan (SRP) Section 3.6.2, “Determination of Rupture Locations and Dynamic Effects Associated with Postulated Rupture of Piping” (NUREG-0800), allows that breaks and cracks in high-energy fluid piping in containment penetration areas need not be postulated provided that certain criteria are met. These criteria include a commitment that where guard pipes are used, the enclosed portion of fluid system piping should be seamless construction and without circumferential welds unless specific access provisions are made to permit inservice volumetric examination of the longitudinal and circumferential welds; and a 100 percent volumetric inservice examination of all pipe welds is conducted during each inspection interval as defined in IWA-2400 of Section XI of the ASME BPV Code. Licensees may have made commitments to follow the provisions in SRP 3.6.2 as a part of their licensing design basis.

The commenters stated that § 50.55a(b)(2)(xii)(A) of the proposed rule is unnecessary because the regulatory requirements associated with high energy line breaks are independent from the scope of Section XI. Commenters also noted that it is inappropriate for the NRC to impose limitations to maintain commitments used to license plants.

The NRC agrees that the regulatory guidelines associated with high energy line breaks are separate from the regulatory requirements associated with the ISI of nuclear power plant components. The intent of § 50.55a(b)(2)(xii)(A) in the proposed rule was to ensure that licensee commitments regarding high energy line breaks in Branch Technical Positions under SRP 3.6.2 would not be eliminated from a misapplication of the exemption allowed in IWC-1223. The NRC concludes that it is the responsibility of each licensee to ensure that changes to later editions and addenda of the ASME Code are not misapplied to licensing design bases commitments, and that it is inappropriate for the NRC to impose modifications or limitations in § 50.55a to ensure that commitments, not directly related to Section XI requirements but part of the licensing design basis, are maintained. Therefore, § 50.55a(b)(2)(xii)(A) in the proposed rule is not adopted.

Section 50.55a(b)(2)(xii)(B) in the proposed rule would require that piping that penetrates the containment that is connected to a system not in the scope of Section XI ( i.e. , not safety-related) be pressure tested in accordance with the 1996 Addenda and earlier editions and addenda of IWA-5110(c).

A number of commenters stated that § 50.55a(b)(2)(xii)(B) is unnecessary because the Type C local leak rate test (LLRT) in Appendix J of 10 CFR 50, “Primary Reactor Containment Leakage Testing for Water-Cooled Power Reactors,” provides an acceptable method for ensuring the leak-tight integrity of the containment penetration piping, and that the test requirements in the editions and addenda of IWA-5110(c) earlier than the 1997 Addenda are redundant. The commenters stated that test equipment used for LLRT is capable of detecting extremely small leakage, and that the regulations in Appendix J of 10 CFR 50 contain acceptance criteria for leakage identified during testing. Commenters also noted that Appendix J does not differentiate between measured leakage emanating out of the piping and out of the containment isolation valves. However, the commenters noted that this determination is unnecessary because the Appendix J maximum allowable leakage limit accounts for all leakage regardless of where it emanates.

The NRC agrees that Appendix J provides an acceptable method for testing the leak-tightness of the containment penetration piping. Appendix J of 10 CFR 50 requires that piping between the containment isolation valves be pressurized with air during seat leak testing of the containment isolation valves. Any leakage emanating from the piping and containment isolation vales is measured and evaluated in accordance the criteria in Appendix J. The NRC finds that the Appendix J Type C LLRT provides an acceptable basis for ensuring the containment penetration piping integrity when the only safety function of the containment penetration piping is to provide containment integrity. Therefore, § 50.55a(b)(2)(xii)(B) in the proposed rule is not adopted.

Section 50.55a(b)(2)(xviii)(A) in the proposed rule would require that all Level I and Level II NDE personnel be recertified on a 3-year interval in lieu of the 5-year interval specified in the 1997 Addenda and 1998 Edition of IWA-2314, and the 1999 Addenda and 2000 Addenda of IWA-2314(a) and IWA-2314(b). Prior to 1997, Level I and II NDE personnel were recertified on a 3-year interval.

A number of commenters objected to § 50.55a(b)(2)(xviii)(A) in the proposed rule. The commenters explained that the 1996 Addenda and earlier editions and addenda of IWA-2314 require that Level I and Level II personnel be recertified by qualification examination every 3 years, and that Level III personnel be recertified by qualification examination every 5 years. The commenters stated that the 5-year recertification interval should also be acceptable for Level I and Level II personnel because the 5-year recertification interval for Level III personnel has been approved by the NRC since 1989. The commenters also disagreed with the NRC position that available data do not support recertification examinations at a frequency of every 5 years. On the contrary, the commenters stated that since the recertification interval was increased from 3 to 5 years in 1989 for Level III personnel, there is no data to support that a decrease in proficiency of Level III personnel has occurred. The commenters claimed that the improved annual practice requirements for UT examiners ensure the proficiency of UT examiners is maintained throughout the 5-year period. One commenter stated that Section XI is one of the few standards that require recertification by examination every 3 years, and that other countries recertify personnel every 5 to 10 years.

The NRC did not approve the extension of the recertification frequency from 3 years to 5 years in the proposed rule because the proficiency of examination personnel decreases over time, and available data do not support recertification examinations at a frequency of every 5 years. Although one commenter (a licensee) stated that it has a 100 percent recertification pass rate, the public comments did not provide or reference any data that NRC could review that supports extending the recertification frequency of Level 1 and Level 2 NDE personnel from 3 years to 5 years. Therefore, the NRC is not approving the extension of the recertification interval for Level I and Level II NDE personnel from 3 to 5 years at this time. Section 50.55a(b)(2)(xviii)(A) in the proposed rule is adopted without change.

Section 50.55a(b)(2)(xviii)(B) in the proposed rule would supplement the alternative qualification provisions for VT-2 visual examination personnel in the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWA-2316 with the requirements that VT-2 examination personnel pass an initial test and then be retested every 3 years.

Commenters indicated that the intent of IWA-2316 is to only qualify personnel that observe for leakage during system leakage and hydrostatic tests conducted in accordance with IWA-5211(a) and (b), and objected to § 50.55a(b)(2)(xviii)(B) in the proposed rule on the basis that experienced plant personnel such as system engineers, licensed and non-licensed operators, and maintenance staff perform the VT-2 examinations. The commenters argue that the basic knowledge level of these types of personnel is adequate to inspect plant systems during leakage tests. The commenters also note that the NRC has granted relief allowing licensees to implement the VT-2 visual examination qualification conditions in the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWA-2316 without requiring initial tests and periodic retests. The commenters also noted that the existing NRC-approved requirements in the 1995 Edition with the 1996 Addenda of IWA-2300 require that personnel who conduct NDE be qualified in accordance with CP-189. The commenters stated that VT-2 qualification requirements are not in the scope of CP-189 nor are they addressed in CP-189 because there are no unique technical requirements associated with performing VT-2 examinations. VT-2 examinations are conducted to detect evidence of leakage from pressure-retaining components during system pressure tests. The use of special equipment, examination techniques, and evaluation of test results associated with other NDE methods such as volumetric and surface examinations are not applicable to VT-2 examinations. VT-2 examinations do not include the evaluation of the material conditions of components, such as degraded conditions like loose bolting or corrosion. The commenters also stated that the proposed § 50.55a(b)(2)(xviii)(B) is unnecessary because plant administrative procedures require that personnel involved in testing be briefed prior to the test, and special requirements for conducting the VT-2 examinations are covered during the pretest brief.

The NRC agrees that there are no special or unique technical requirements associated with performing VT-2 examinations that require personnel to observe for leakage of liquids or condensation during system leakage or hydrostatic testing. However, VT-2 visual examiners also conduct other evolutions that are more complex than observing for leakage during a leakage or hydrostatic tests. Visual examiners that are VT-2 qualified also perform bubble, halogen diode leak, and mass spectrometer testing requiring the use of special equipment and examination techniques. The NRC believes that VT-2 qualification requirements in IWA-2316 should be limited to personnel that only observe for leakage of liquids or condensation during system leakage or hydrostatic testing. Therefore, § 50.55a(b)(2)(xviii)(B) is revised to clarify that IWA-2316 may only be used to qualify personnel that observe for leakage during the performance of system leakage and that hydrostatic tests are to be conducted in accordance with the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWA-5211(a) and (b).

Section 50.55a(b)(2)(xviii)(C) in the proposed rule would supplement the alternative qualification provisions for VT-3 visual examination personnel in the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWA-2317 with the requirements that VT-3 examination personnel pass an initial test and then retested every 3 years.

Several commenters objected to § 50.55a(b)(2)(xviii)(C) in the proposed rule because experienced personnel are familiar with the performance of VT-3 examinations, and the VT-3 examination is a straightforward technique. The NRC does not agree because the material condition of many different types of components are required to be evaluated during the performance of VT-3 examinations, and there are different technical acceptance criteria specified for the many different components. For example, the acceptance criteria for examining bolting is different from the acceptance criteria for examining containment metal surfaces. Furthermore, there are critical technical requirements associated with the minimum illumination, distance, and character height that must be adhered to when performing VT-3 examinations. There are a number of options available to the VT-3 examiner that complicate qualification requirements. For example, remote visual examination can be substituted for direct visual examination resulting in the use of special test equipment. The NRC concludes that testing is required to demonstrate that VT-3 examiners are knowledgeable regarding the different requirements associated with the examination method, and that these testing requirements are consistent with other NDE methods in CP-189 that require testing to demonstrate the required knowledge. Therefore, § 50.55a(b)(2)(xviii)(C) is revised to clarify that the alternative qualification provisions for VT-3 visual examination personnel in the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWA-2317 may be used provided that VT-3 examination personnel pass an initial test and a retest every 3 years.

Section 50.55a(b)(2)(xix) in the proposed rule would prohibit the use of the provision in IWA-2240 (1998 Edition, 1999 Addenda, and 2000 Addenda) and IWA-4520(c) (1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda), which allows alternative examination methods, a combination of methods, or newly developed techniques to be substituted for the methods specified in the Construction Code, provided the Authorized Nuclear Inservice Inspector (ANII) is satisfied that the results are demonstrated to be equivalent or superior to those in the Construction Code. The revision to IWA-2240 changed the applicability of the paragraph from Section XI only (ISI) to both Sections III and XI (design/construction and ISI).

A number of commenters stated that editions and addenda of Section XI approved by the NRC since the 1974 Edition of Section XI allow ANIIs to approve the substitution of alternative methods, a combination of methods, or newly developed techniques for the examinations specified in Section XI, Division 1. For example, the ANII can approve the substitution of an eddy current examination for a surface examination requirement in IWB and IWC of Section XI provided the ANII is satisfied that the results of the eddy current examination are equivalent or superior to those of the surface examination. Most of the commenters stated that the NRC should accept the revised provisions in the 1998 Addenda, 1999 Addenda, and 2000 Addenda of IWA-2240 and the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of IWA-4520(c) that extend the substitution of the alternative examination provisions to the examinations specified in the Construction Code when performing repair/replacement activities. The commenters stated that ANII qualifications require detailed knowledge of the different examination methods addressed in Section XI and the Construction Code. One commenter stated that ASME QAI-1-1995, “Qualifications for Authorized Inspection,” is the applicable qualification standard that must be used to qualify ANIIs, and that ASME QAI-1-1995 requires that ANIIs be certified in Section XI and Construction Code requirements. An example of a use of the revised provisions provided by the commenters indicated that in some instances it may be a hardship or impractical to perform a radiographic (RT) examination during a Section XI repair/replacement activity as specified in the Construction Code. The revised provisions in Section XI would allow the substitution of an alternative method such as an UT examination for the RT examination provided that the ANII is satisfied that the results of the UT examination are equivalent or superior to the RT examination specified in the Construction Code.

The NRC agrees that the provisions in IWA-2240 that allow the ANII to approve the substitution of alternative examination methods, a combination of methods, or newly developed techniques for the methods specified in Section XI, Division 1, have been approved by the NRC since 1974. The NRC has reviewed the qualification standard in ASME QAI-1-1995, and agrees that ANIIs are required to be knowledgeable regarding the NDE methods, qualification requirements, and other requirements in Section XI and the Construction Code. However, the NRC believes that the substitution of alternative methods for those specified in the Construction Code is significantly more complex than what was previously approved by the NRC in editions and addenda of IWA-2240 earlier than the 1998 Edition. For example, there are many factors that have to be evaluated when substituting a UT examination for an RT examination required by the Construction Code. Consideration needs to be given to the thickness of the weld, volume of the UT examination, appropriate UT technique, UT examination coverage criteria, UT examination procedure (Section V or Section XI), and performance demonstration methodology; calibration block material, thickness, and size; flaw evaluation acceptance criteria, and demonstration and qualification criteria for single-sided UT examinations. Weld material would also be a critical factor when considering the substitution of a UT examination for an RT examination. It may not be appropriate to allow the substitution of a UT examination for an RT examination for certain materials such as ferritic or austenitic cast products and corrosion resistant cladding with butt welds. Substitution of a UT examination for an RT examination may be acceptable for dissimilar metal welds but would require additional factors to be evaluated. The NRC finds that there is a lack of guidance in the Code to ensure proper consideration of factors when substituting alternative examinations for the examinations specified in the Construction Code. The NRC believes that a standardized repeatable methodology that can be consistently used among all licensees is needed not only to demonstrate that the alternative method is equivalent or superior to that specified in the Construction Code, but also to ensure consistent application and implementation of IWA-2240 and IWA-4520(c). Furthermore, the NRC notes that the ASME is currently developing a Code Case that will provide the necessary guidance to allow the substitution of a UT examination with an RT examination when an RT examination is required by the Construction Code. Therefore, § 50.55a(b)(2)(xix) in the proposed rule is adopted without change.

Section 50.55a(b)(2)(xx) in the proposed rule would have required that the pressure and temperature hold time requirements in the 1995 Edition of IWA-5213(a) be applied in place of the revised provisions of the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of IWA-5213(a) when performing system leakage tests.

Many commenters objected to this modification because pressure and temperature hold time requirements in the 1995 Edition of IWA-5213(a) imposed by the modification place what the commenters believe to be an undue burden on utilities. One commenter noted that the ASME is currently developing a new revision to IWA-5213 to clarify the pressure and temperature hold time requirements in IWA-5213(a). A number of commenters stated that the NRC is arbitrarily choosing the pressure and temperature hold times in the 1995 Edition, and that the NRC should justify the use of the pressure and temperature hold times in the 1995 Edition.

The NRC normally requires that the Code revision most recently approved by the NRC be used when it does not approve the use of a later Code provision. Since the NRC has not approved the elimination of the pressure and temperature hold times in 1995 Addenda of IWA-5213, the NRC proposed to require the use of the pressure and temperature provisions in the 1995 Edition. The NRC agrees with the commenters that the changes in the 1989 Addenda through the 1995 Edition in conjunction with the proposed modification would create unintended test conditions. For example, some systems are not designed to operate at test conditions for the period of time necessary to meet the hold time conditions. Also, hold times are not necessary for leakage tests of Class 1 components because these leakage tests are normally performed following each refueling outage as the reactor is heating up. The heatup process of the reactor is performed within the pressure-temperature constraints of the heatup curve in the plant technical specifications. These constraints limit the rate of temperature and pressure increase resulting in a heatup period of several hours. In light of the substantial length of time required for the reactor heatup process, sufficient time is available for leakage from the Class 1 system to collect in sufficient quantity to be detectable by visual examination. Holding the Class 1 components for additional time at this temperature and pressure is unnecessary to accomplish the purpose of the pressure test.

In consideration of the public comments, the NRC has revised the pressure and temperature hold time requirements in § 50.55a(b)(2)(xx) to be consistent with the revisions recommended in several of the public comments (to use the provisions contained in the 1989 Edition of the ASME Code). This is also consistent with the current ASME proposed revision to the pressure and temperature hold times in IWA-5213. Section 50.55a(b)(2)(xx) requires a 10-minute holding time after attaining test pressure for Class 2 and Class 3 components that do not normally operate during operation, and no holding time is required for the remaining Class 2 and Class 3 components provided that system has been in operation for at least 4 hours for insulated components or 10 minutes for uninsulated components.

Section 50.55a(b)(2)(xxi)(A) in the proposed rule would require licensees to use the provisions in the 1998 Edition of Table IWB-2500-1, Examination Category B-D, for Items B3.40 and B3.60 (Inspection Program A) and Items B3.120 and B3.140 (Inspection Program B) when using the 1999 Addenda and the 2000 Addenda. The 1999 Addenda eliminated the pressurizer and steam generator (SG) nozzle inside-radius inspections in Table IWB-2500-1, Examination Category B-D, Items B3.40 and B3.60 (Inspection Program A) and Items B3.120 and B3.140 (Inspection Program B).

Several commenters summarized the results of a white paper developed by the ASME that provides the technical basis for eliminating the pressurizer and SG nozzle inside-radius UT examinations from Table IWB-2500-1. The commenters explained the difficulties associated with performing UT examinations of pressurizer and SG nozzle inside radii. Radiation exposure to personnel who conduct the UT examinations is a significant concern because the pressurizer and SG nozzles are located in very high radiation areas. The geometry and material of the nozzles significantly complicate the UT examination procedure making it difficult to obtain meaningful UT data. The commenters stated that the basis for eliminating the pressurizer and SG nozzle inner radius examinations is that a review of UT and visual examination data from pressurizer and SG nozzle inner radius examinations reveal that no service-induced flaws were detected in any of the examinations performed. Commenters claimed that pressurizer and SG nozzle cracking incidents have not occurred at any nuclear facilities, and that structural integrity evaluations of the nozzles indicate that leakage would occur from a through-wall flaw before any integrity problems would occur ( ie., the nozzle would leak before it failed). In addition, a risk assessment indicated that the failure probability of the nozzles is extremely low under plant operating conditions, and shows that there is no change in risk if pressurizer and SG nozzle inner radius examinations are eliminated. Finally, the commenters stated that the NRC has granted relief from the pressurizer and SG inside-radius UT examination requirements in Table IWB-2500-1 to many licensees because of these concerns associated with occupational exposure and difficulty in obtaining meaningful UT data.

The NRC disagrees. Operating history alone does not provide adequate justification to eliminate examinations of the pressurizer and SG nozzle inside radii because operational experience also has demonstrated that components degrade as they age. Although pressurizer and SG nozzle cracking incidents have not occurred, cracks have been identified in other nozzles such as the feedwater nozzles. Furthermore, a leak-before-break evaluation is not adequate justification to eliminate the examination of the pressurizer and SG nozzle inside radii because the primary purpose of the ISI requirements in Section XI is to identify and correct component degradation before it becomes significant. Leakage from any pressurizer or SG nozzle would be significant because such leakage would represent an unisolable breach of the reactor coolant pressure boundary.

The NRC agrees that a number of licensees have requested relief from the UT examination requirements for SG nozzle inner radii and pressurizer nozzle inner radii. In these cases, the NRC has authorized, as an alternative to UT examination, the performance of a visual examination which utilizes equipment with enhanced magnification that has a resolution sensitivity to detect a 1-mil width wire or crack. The flaw length acceptance criteria specified for the UT examination in Table IWB-3512-1 is applicable to the visual examination. The primary degradation mode for these nozzles is fatigue which produces hairline surface indications that network along the circumference of the nozzle at the inner radius section. Ultrasonic examination of the inner radii from the outside surface should detect these indications. However, even with the use of improved technology from the outside surface, the complex geometry of these nozzle inner radius sections prevents complete coverage. Visual examination for some of these nozzles from the inside surface is easier and less costly to accomplish, and coverage is more complete. The examinations can be performed when the pressurizer and SG are opened for other maintenance or inspection activities. Use of video equipment with enhanced magnification that has a resolution sensitivity to detect a 1-mil width wire or crack is similar to UT examination regarding the capability of detecting fatigue-type cracks on nozzle inside radii before they become detrimental to structural integrity.

Therefore, § 50.55a(b)(2)(xxi)(A) is revised to allow the option of performing a visual examination with enhanced magnification that has a resolution sensitivity to detect a 1-mil width wire or crack, utilizing the allowable flaw length criteria of Table IWB-3512-1 in place of a UT examination. Section 50.55a(b)(2)(xxi)(A) requires that licensees use the provisions of Table IWB-2500-1, Examination Category B-D, Items B3.40 and B3.60 (Inspection Program A) and Items B3.120 and B3.140 (Inspection Program B) of the 1998 Edition when using the 1999 Addenda and the 2000 Addenda. A visual examination with enhanced magnification that has a resolution sensitivity to detect a 1-mil width wire or crack, utilizing the allowable flaw length criteria in the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of Table IWB-3512-1 may be performed in place of a UT examination.

Section 50.55a(b)(2)(xxi)(B) in the proposed rule would require that licensees apply the provisions in the 1995 Edition of Table IWB-2500-1, Examination Category B-G-2, Item B7.80 when using the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda. The 1995 Edition and earlier editions and addenda of Section XI require a visual examination of control rod drive (CRD) housing bolting using the VT-1 visual examination method whenever the CRD housing is disassembled. The requirement to examine CRD bolting whenever the CRD housing is disassembled was deleted in the 1995 Addenda.

Several commenters stated that § 50.55a(b)(2)(xxi)(B) should be deleted because the skill of the craft and maintenance practices are sufficient to ensure that bolting is not damaged during maintenance activities. The NRC agrees that the scope of Section XI does not normally include examinations that are conducted during routine maintenance activities, but notes there may be maintenance-related activities associated with ISI. The ISI of components to verify that service-related degradation is not occurring is within the scope of Section XI.

The majority of the commenters stated that no degradation of CRD bolting has occurred in 30 years of experience, and hence the requirement to examine the CRD bolting should be eliminated. The NRC disagrees. Operating history alone does not provide adequate justification to eliminate examinations of CRD bolting because operational experience also has demonstrated that components degrade as they age. Furthermore, the NRC is aware of an example where CRD bolting was replaced in two units because examination of CRD bolting identified cracks.

Several commenters stated that the NRC is misinterpreting the ASME Code because Item B7.80 of Table IWB-B7.80 does not require that the CRD housing be disassembled to perform the examination of CRD bolting. The NRC notes that although the Code does not require disassembly of the CRD housing to examine the bolting, Item B7.80 of Table IWB-2500-1 in the 1995 Edition and earlier editions and addenda of Section XI states that the extent and frequency of the examination is to include bolts, studs, and nuts in CRD housings when disassembled. The NRC finds that the 1995 Edition and earlier editions and addenda of Section XI only require that CRD bolting be examined when the CRD housing is disassembled such as during a repair or maintenance activity.

Several other commenters stated that since CRD mechanisms are usually contaminated and in high radiation areas, elimination of the bolting examinations reduces radiation exposure to personnel. The NRC notes that CRD bolting is normally relocated to a storage area after disassembly of the CRD housing. Therefore, VT-1 examination personnel typically examine the bolting when it is removed and remotely located from the CRD mechanism, reducing the exposure to individuals.

One commenter requested that the NRC revise § 50.55a(b)(2)(xxi)(B) to include a statement that only CRD bolting that is reused is required to be examined. It was the NRC's intent to require examination of the CRD bolting material only if it was to be reused. Therefore, § 50.55a(b)(2)(xxi)(B) is revised to clarify that only CRD bolting that is reused must be re-examined.

Section 50.55a(b)(2)(xxi)(C) in the proposed rule would require that licensees use the provisions in the 1995 Addenda of Table IWB-2500-1, Examination Category B-K, Item B10.10, when using the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda for the examination of welded attachments to pressure vessels. The 1997 Addenda permits performance of a single-side surface examination in place of a surface examination from both sides of the weld, whereas the 1995 Addenda requires the performance of a single-side volumetric examination of the weld in place of surface examination of the inaccessible surface if surface examination from both sides of the weld is not performed.

Several commenters noted that volumetric examination of reactor pressure vessel (RPV) skirt welds is not practical because UT calibration blocks were typically not supplied for RPV skirt welds and the UT performance demonstration requirements of Appendix VIII do not address RPV support attachment welds. If a licensee wanted to perform a volumetric examination in place of surface examination of both surfaces, it would have to fabricate its own calibration blocks and sample specimens, develop its own procedures, and set up its own demonstration program.

The NRC recognizes that UT examination of RPV skirt welds is not addressed in Appendix VIII at this time. However, the applicable examination requirements are addressed in Article I-2000 of Section XI which in turn references Section V of the ASME BPV Code. Furthermore, Section V of the ASME BPV Code addresses the qualification and use of suitable alternative calibration blocks.

Commenters stated that access under the RPV bottom head for performing a visual examination is a confined space that is also a high radiation area. The inside surface geometry is such that preparation for a surface examination is difficult, thus extending the time spent in the high radiation area. The commenters conclude that the radiation exposure to personnel who examine the inside surface of the RPV skirt weld is not justified. The NRC agrees that access to such confined spaces is very difficult. However, the NRC also believes that the 1995 Addenda of the ASME Code, which already provides for an alternative UT examination in place of a surface examination of the inaccessible surface, appropriately accommodates the commenters concerns. These UT examinations are performed on the accessible surface of the RPV skirt welds. Therefore, personnel are not required to enter the confined space area under the RPV bottom head.

Commenters also stated that RPV skirt weld materials are very flaw-tolerant, with slow flaw-propagation rates. Flaws originating on the inside surface would grow through-wall long before their length would threaten the structural integrity/function of the weld. The NRC notes that the assumption that flaws will be detected before affecting structural integrity is an assumption based on limited surface examination experience and is not supported by rigorous study. The commenters have not presented any analyses or studies which support such an assumption.

Commenters stated that RPV skirt welds are similar to non-pressure boundary core shroud circumferential welds in boiling water reactors. The commenters also stated that safety analyses performed by the Boiling Water Reactor Vessel & Internals Program found that core shroud circumferential welds could be cracked through-wall for 360° and still perform their function. The NRC considers the inference that the structural performance, response, and safety implications of operating with a significantly cracked RPV skirt weld is no different than operating with significantly cracked core shroud circumferential welds to be inappropriate. Operation with cracked core shroud welds has been extensively evaluated for all operating and accident loading conditions. The core shroud is contained within the confines of the reactor pressure vessel with positive restraints holding it in place to assure integrity and adequate coolant flow through the core. However, operation with a significantly cracked RPV skirt weld has not been evaluated. Therefore, the NRC has no basis to conclude that operation under such conditions is acceptable. Commenters also claim that the excellent service history of RPV skirt welds demonstrates that inside surface examinations of welds is not warranted. The NRC considers that operating history alone does not provide adequate justification to eliminate examinations of components because operational experience has also demonstrated that components degrade as they age. Therefore, § 50.55a(b)(2)(xxi)(C) in the proposed rule is adopted without change.

Section 50.55a(b)(2)(xxii) in the proposed rule would require licensees to apply the UT examiner supplemental annual training provisions in the 1998 Edition of Paragraph VII-4240 of Appendix VII, in place of the revised provisions in the 1999 Addenda and 2000 Addenda of VII-4240.

Several commenters stated that the NRC position on training requirements for UT examiners in § 50.55a(b)(2)(xxii) of the proposed rule is inconsistent with the NRC position on training requirements for UT examiners in final rule 64 FR 51370 (September 22, 1999). The commenters noted that the final rule imposed § 50.55a(b)(2)(xiv) because the 10-hour classroom training requirement in VII-4240 was inadequate. The commenters stated that Code Case N-583, “Annual Training Alternative,” was developed by the ASME to specifically address the NRC concern with the 10-hour classroom training requirement in the 1995 Edition and 1996 Addenda of VII-4240. Code Case N-583 was incorporated into the 1999 Addenda of VII-4240, replacing the 10-hour classroom training requirement with an 8-hour training requirement to analyze data from material or welds containing flaws similar to those that may be encountered during UT examinations. The commenters stated that the revised training requirements in the 1999 Addenda of VII-4240 are an improvement over the training requirements in the 1998 Edition and earlier editions and addenda of VII-4240. The revised training requirements provide specific criteria that result in uniform training programs among all licensees.

The commenters have clarified to the NRC that the training requirements in the 1999 Addenda and 2000 Addenda of VII-4240 specify hands on training in place of classroom training. Therefore, § 50.55a(b)(2)(xxii) in the proposed rule is not adopted because after further clarification, the NRC finds that the training requirements in 1999 Addenda and 2000 Addenda of VII-4240 are consistent with the NRC position on training requirements for UT examiners in final rule 64 FR 51370 (September 22, 1999).

Commenters requested that licensees be allowed to substitute the supplemental practice in the 1999 Addenda and 2000 Addenda of VII-4240 for the existing hands-on training requirement in § 50.55a(b)(2)(xiv). The NRC finds that the supplemental practice as described in VII-4240 of Supplement VII of Section XI, 1999 Addenda and 2000 Addenda, is an acceptable alternative to the existing hands-on training requirement in § 50.55a(b)(2)(xiv) provided that the supplemental practice is performed on material or welds that contain cracks, or by analyzing prerecorded data from material or welds that contain cracks. Therefore, § 50.55a(b)(2)(xiv) is revised to allow the option of performing the supplemental practice as described in VII-4240 of Supplement VII of Section XI, 1999 Addenda and 2000 Addenda, or the existing hands-on training requirement.

Section 50.55a(b)(2)(xxiii) in the proposed rule would require licensees to demonstrate the acceptability of the underwater welding method through the use of a mockup using material with similar neutron fluence levels, when welding irradiated material underwater in accordance with the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of IWA-4660.

Several commenters stated that the use of a mockup to demonstrate the acceptability of an underwater welding method is impractical due to unavailability of materials with similar neutron fluence levels, personnel exposure, high-cost of mockups, and handling and disposal requirements. The commenters also stated that the industry is currently developing an acceptable underwater welding technique for irradiated materials in conjunction with the Boiling Water Reactor Vessel & Internals Project that will be submitted to the NRC for approval.

The NRC proposed the use of a mockup because underwater weld repairs using conventional welding techniques on in-vessel components exposed to high neutron fluences may be unsuccessful due to helium-induced cracking and radiation damage, unless special welding techniques are used. The NRC has revised the proposed underwater welding mockup requirement because of the impracticality of developing and using a mockup with similar neutron fluence levels. Section 50.55a(b)(2)(xxiii) is revised to prohibit the use of the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of IWA-4660 to weld irradiated material underwater. Licensees must obtain NRC approval in accordance with § 50.55a(a)(3) of the technique used to weld irradiated material underwater. Section 50.55a(b)(2)(xxiii) of the proposed rule is presented here in the final rule as § 50.55a(b)(2)(xii).

This final rule extends the applicability of the existing regulations in § 50.55a(b)(2)(xv) to the 1997 Addenda, the 1998 Edition, 1999 Addenda, and 2000 Addenda of Appendix VIII of Section XI of the ASME BPV Code.

The existing requirements in § 50.55a(g)(6)(ii)(C)(1) state that Supplement 10, “Qualification Requirements for Dissimilar Metal Piping Welds,” of Appendix VIII to Section XI must be implemented by November 22, 2002. Therefore, the proposed rule would have updated § 50.55a(b)(2)(xv)(A) to reference Supplement 10. Specifically, the proposed rule would revise §§ 50.55a(b)(2)(xv)(A)( 1 ) and (A)( 2 ) to provide UT examination coverage criteria for dissimilar metal piping welds. Examination coverage criteria for dissimilar metal piping welds are specified in the 1989 Edition and earlier editions and addenda of Appendix III of Section XI. Appendix VIII was added in the 1989 Addenda of Section XI, and Section XI would require that the UT examination criteria for piping welds in Appendix VIII supercede the examination criteria in Appendix III. Although Appendix VIII addresses qualification of personnel, procedures, and equipment used to conduct UT examinations of dissimilar metal piping welds, Appendix VIII (unlike Appendix III) does not address UT examination coverage criteria for dissimilar metal piping welds.

The commenters agreed that §§ 50.55a(b)(2)(xv)(A), (A)( 1 ) and (A)( 2 ) should be revised to provide UT examination coverage criteria for dissimilar metal piping welds. However, the commenters did not agree with the examination coverage criteria in § 50.55a(b)(2)(xv)(A)( 2 ) of the proposed rule requiring that dissimilar metal welds be examined from the austenitic side of the weld when examination from both sides is not possible. The commenters stated that § 50.55a(b)(2)(xv)(A)( 2 ) should be revised to allow coverage from either the austenitic or ferritic side of the weld when UT examination from both sides is not possible because the composition of the base material is of minor consequence when compared to the effects of the austenitic weld material. Furthermore, the commenters argued that the examination should be conducted from the side of the weld that is most accessible.

The NRC does not agree that the composition of the base material is of minor consequence when compared to the effects of austenitic weld material. There is a higher probability and reliability of identifying flaws in dissimilar metal welds when using a UT procedure qualified to perform examinations from the austenitic side than when using a UT procedure qualified to perform examinations from the ferritic side. Therefore, coverage from the austenitic side of the weld is preferred when UT examination from both sides is not possible.

Sections 50.55a(b)(2)(xv)(A) and (A)( 1 ) in the proposed rule are adopted without change. Section 50.55a(b)(2)(xv)(A)( 2 ) is revised to clarify that dissimilar metal weld qualifications must be demonstrated from the austenitic side of the weld, and that the examination from the austenitic side of the weld may be used to perform examinations from either side of the weld.

The proposed rule would remove the existing § 50.55a(b)(2)(xv)(G)( 4 ) because the examination criteria are redundant with the examination criteria contained in § 50.55a(b)(2)(xv)(G)( 3 ) and, therefore unnecessary. Both §§ 50.55a(b)(2)(xv)(G)( 3 ) and ( 4 ) allow credit for the full volume when the examination volume is covered from a perpendicular and parallel direction. There were no public comments on the proposed revision; therefore, § 50.55a(b)(2)(xv)(G)( 4 ) is removed.

The revision to § 50.55a(b)(2)(xv)(K)( 1 )( i ) in the proposed rule would resolve a discrepancy between the existing §§ 50.55a(b)(2)(xv)(K)( 1 )( i ) and 50.55a(b)(2)(xv)(K)( 4 ). Currently, § 50.55a(b)(2)(xv)(K)( 1 )( i ) states that flaws which are perpendicular to the weld are not required to be included in the qualification test sample. This requirement conflicts with a provision in § 50.55a(b)(2)(xv)(K)( 4 ), which states that test samples must contain flaws that are perpendicular to the weld in the inner 15 percent of the weld, but that these same flaws are not required to be located in the outer 85 percent of the weld. There were no public comments on the proposed revision; therefore, the revision to § 50.55a(b)(2)(xv)(K)( 1 )( i ) is adopted without change.

Section 50.55a(b)(2)(xv)(M) in the proposed rule would clarify that only those provisions in Supplement 12 to Appendix VIII that relate to the coordinated implementation of Supplement 3 to Supplement 2 performance demonstrations must be implemented. Supplement 12 provides coordinated implementation provisions for the performance demonstrations in Supplements 2, 3, 10, and 11 of Appendix VIII; however, with the exception of the coordinated implementation of Supplement 3 to Supplement 2 performance demonstration, the other coordinated implementation provisions in Supplement 12 are incomplete. Supplement 12 does not provide provisions for implementing single-side examinations as part of the coordinating process, or provide provisions for the coordinated implementation of Supplement 2 or Supplement 11 performance demonstrations to Supplements 3 and 10. There were no public comments on the proposed § 50.55a(b)(2)(xv)(M); therefore, § 50.55a(b)(2)(xv)(M) is adopted without change.

Section 50.55a(g)(6)(ii)(C)( 1 ) in the proposed rule would clarify that Appendix VIII to Section XI, 1995 Edition with the 1996 Addenda, as well as its supplements, are mandatory and must be implemented. Although the final rule that implemented Appendix VIII (64 FR 51370; September 22, 1999) requires a phased implementation of Appendix VIII over a 3-year period, the final rule addressed the implementation of the Appendix VIII supplements only and failed to mention the implementation of Appendix VIII itself. The failure to address the implementation of Appendix VIII was an oversight. Section 50.55a(g)(6)(ii)(C)( 1 ) in the proposed rule would also eliminate Supplements 12 and 13 of Appendix VIII from the implementation schedule that is currently in § 50.55a(g)(6)(ii)(C)( 1 ). Supplements 12 and 13 coordinate the implementation of selected aspects of Supplements 2, 3, 4, 5, 6, 7, 10, and 11 of Appendix VIII. Since the implementation schedule for Supplements 2, 3, 4, 5, 6, 7, 10, and 11 of Appendix VIII is addressed in § 50.55a(g)(6)(ii)(C)( 1 ), the imposition of a mandatory implementation date for Supplements 12 and 13 is redundant. There were no public comments on either of the proposed revisions; therefore, the revisions to § 50.55a(g)(6)(ii)(C)( 1 ) are adopted without change.

Section 50.55a(g)(6)(ii)(C)( 2 ) in the proposed rule would clarify that the requirements of Appendix VIII and the supplements to Appendix VIII to Section XI, of the 1995 Edition with the 1996 Addenda are mandatory when implementing the 1989 Edition and earlier editions and addenda of IWA-2232 of Section XI. Paragraph IWA-2232 provides rules for conducting UT examinations. Appendix VIII was introduced into Section XI in the 1989 Addenda. Before that time, Appendix VIII did not exist in Section XI. Therefore, the 1989 Edition and earlier editions and addenda of IWA-2232 do not reference Appendix VIII. It is not clear to some licensees that they are required to perform UT examinations using personnel, procedures, and equipment qualified in accordance with Appendix VIII. The NRC believes that the final rule dated September 22, 1999 (64 FR 51370), by imposing an expedited implementation of the supplements to Appendix VIII to Section XI, 1995 Edition with the 1996 Addenda, makes it clear that all licensees are required to implement the provisions of Appendix VIII, including those licensees implementing the 1989 Edition or earlier editions and addenda of IWA-2232.

A commenter pointed out that § 50.55a(g)(6)(ii)(C)( 2 ) in the proposed rule is inconsistent with the statement of considerations for the proposed rule. The NRC agrees. The purpose of § 50.55a(g)(6)(ii)(C)( 2 ) in the proposed rule was to clarify the relationship between the 1989 Edition and earlier editions and addenda of IWA-2232 of Section XI, and Appendix VIII of Section XI. However, in making this clarification, the NRC inadvertently worded § 50.55a(g)(6)(ii)(C)( 2 ) such that licensees would be required to update their Appendix VIII program to the latest edition and addenda of Section XI incorporated by reference in § 50.55a(b)(2) following every update. It was not the intent of the NRC to revise the existing 120-month inspection interval update requirement. Therefore, § 50.55a(g)(6)(ii)(C)( 2 ) is revised to clarify that licensees implementing the 1989 Edition and earlier editions and addenda of IWA-2232 of Section XI must implement the 1995 Edition with the 1996 Addenda of Appendix VIII of Section XI.

The final rule revises § 50.55a(b)(3) to incorporate by reference the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of the ASME OM Code, and extends the applicability of the existing regulations in §§ 50.55a(b)(3)(ii), 50.55a(b)(3)(iii), 50.55a(b)(3)(iv), and 50.55a(b)(3)(v) to the 1997 Addenda, 1998 Edition, 1999 Addenda, and the 2000 Addenda of the ASME OM Code. Subsections of the ASME OM Code were renumbered in the 1998 Edition; therefore, §§ 50.55a(b)(3)(ii), 50.55a(b)(3)(iii), and 50.55a(b)(3)(iv) are revised and § 50.55a(b)(3)(iv)(D) is added to account for the renumbering.

Although the technical requirements in § 50.55a(b)(3)(ii) were not revised in the proposed rule, several commenters stated that the reference to motor-operated valve (MOV) stroke-time testing in the existing § 50.55a(b)(3)(ii) is confusing because there are other MOV test requirements in the ASME OM Code (such as position indication and seat leakage testing) that are applicable in addition to stroke-time testing. The commenters suggested that a licensee might incorrectly interpret § 50.55a(b)(3)(ii) as requiring that only MOV stroke-time testing be performed in accordance with the OM Code. The NRC believes the current regulation clearly states that licensees must meet all of the ASME Code provisions for testing MOVs. The NRC is not aware of any misunderstanding among licensees regarding the intent of the regulatory requirement for MOVs. However, to avoid any potential confusion in the future, § 50.55a(b)(3)(ii) is revised to clarify that licensees must comply with the provisions of the ASME OM ISTC Code for testing MOVs.

Section 50.55a(b)(3)(vi) in the proposed rule would require an exercise interval of 2 years for manual valves within the scope of the ASME OM Code rather than the exercise interval of 5 years specified in the 1999 Addenda and the 2000 Addenda of the ASME OM Code. The 1998 Edition of the ASME OM Code specified an exercise interval of 3 months for manual valves within the scope of the Code. The 1999 Addenda to the ASME OM Code revised ISTC-3540 to extend the exercise frequency for manual valves to 5 years.

A number of commenters stated that § 50.55a(b)(3)(vi) in the proposed rule should be withdrawn because sufficient justification exists to allow the extension of the exercise interval for manual valves to 5 years. The justification for the 5-year frequency is the simplicity of manual valves (limited number of failure causes) and that the ASME OM Code allows other valves (safety and relief valves) to be tested on a 5-year or longer frequencies.

The NRC does not agree that there is sufficient justification to extend the exercise interval for manual valves to 5 years. The NRC review of licensee IST programs indicate that manual valves are exercised every 3 months except in instances where it is impractical to operate valves during unit operation. Valves are then exercised when the unit is in a cold shutdown condition, and the exercise frequency cannot exceed 2 years. Therefore, a 2-year interval for exercising manual valves is justified because the available manual valve exercise data supports the 2-year interval. The NRC has approved longer test intervals for other types of valves in the ASME OM Code but the longer test intervals include additional means to determine component degradation. For example, although the ASME OM Code test strategy for Class 2 and 3 relief valves has a testing interval of 10 years, Class 2 and 3 relief valves are subject to grouping and sample expansion if there is a test failure. Manual valves that are required to be exercised are not subject to grouping and sample expansion. Furthermore, obstruction from silting or blockage, or corrosion of valve internals are possible failure modes for safety-related manual valves that are not applicable to other types of valves with longer test intervals. Exercising manual valves minimizes both of these failure modes and also allows for more immediate detection if an obstruction or corrosion induced failure occurs. Section 50.55a(b)(3)(vi) is revised to clarify that the interval for exercising manual valves may not exceed 2 years when using the 1999 Addenda and 2000 Addenda of ISTC-3540. Licensees are not prohibited from exercising manual valves more frequently than every 2 years.

Paragraph (b)(1) . This paragraph incorporates by reference the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of Section III, Division 1, of the ASME BPV Code. New applicants for a nuclear power plant submitting an application for a construction permit under 10 CFR 50 or design certification under 10 CFR 52 are required to use the 1998 Edition up to and including the 2000 Addenda for the design and construction of the reactor coolant pressure boundary and Quality Group B and C components.

Paragraph (b)(1)(ii) . This paragraph extends the applicability of the existing regulation on weld leg dimension requirements to the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of Section III of the ASME BPV Code. Applicants and licensees using these Edition and Addenda are not allowed to apply paragraph NB-3683.4(c)(1), Footnote 11 to Figure NC-3673.2(b)-1, and Figure ND-3673.2(b)-1.

Paragraph (b)(1)(iii) . This paragraph extends the applicability of the existing regulation on seismic design requirements to the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of Section III of the ASME BPV Code. Applicants and licensees using these edition and addenda are not allowed to use Articles NB-3200, NB-3600, NC-3600, and ND-3600.

Paragraph (b)(1)(v) . This paragraph extends the applicability of the existing regulation on independence of inspection requirements to the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of Section III of the ASME BPV Code. Applicants and licensees using these edition and addenda are not allowed to apply Sub-subparagraph NCA-4134.10(a).

Paragraph (b)(2) . This paragraph incorporates by reference the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of Section XI, Division 1, of the ASME BPV Code. Licensees of nuclear power plants are required to use the 1998 Edition up to and including the 2000 Addenda when updating their ISI programs in their subsequent 120-month interval under § 50.55a(g)(4)(ii).

Paragraph (b)(2)(vi) . This paragraph clarifies that either the 1992 Edition with the 1992 Addenda or the 1995 Edition with the 1996 Addenda of Subsection IWE and Subsection IWL as modified and supplemented by the requirements in § 50.55a(b)(2)(viii) and § 50.55a(b)(2)(ix) must be used when implementing the initial 120-month inspection interval for the containment inservice inspection requirements. Successive 120-month interval updates must be implemented in accordance with § 50.55a(g)(4)(ii).

Paragraph (b)(2)(viii) . This paragraph extends the applicability of the existing regulation in paragraph (b)(2)(viii)(E) on concrete containment examination requirements to the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWL, and clarifies that the new modification in paragraph (b)(2)(viii)(F) applies only to the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWL.

Paragraph (b)(2)(viii)(F) . This paragraph requires that personnel who perform visual inspections of containment surfaces and tendon anchorage hardware, wires, or strands be qualified in accordance with IWA-2300 in place of the “owner-defined” personnel qualification provision in the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWL-2310(d).

Paragraph (b)(2)(ix) . This paragraph clarifies that the existing modifications in paragraphs (b)(2)(ix)(A) through (E) of this section on examination of metal containments and liners of Class CC components apply to the 1992 Edition with the 1992 Addenda or the 1995 Edition with the 1996 Addenda of IWE. It also extends the applicability of the regulations in paragraphs (b)(2)(ix)(A) and (b)(2)(ix)(B) to the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWE, and clarifies that the new modifications in paragraphs (b)(2)(ix)(F) through (I) apply only to the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWE.

Paragraph (b)(2)(ix)(F) . This paragraph requires that VT-1 and VT-3 examinations of containment surfaces be conducted in accordance with IWA-2200, and that personnel who perform visual inspections of containment surfaces be qualified in accordance with IWA-2300 in place of the “owner-defined” examination and personnel qualification provisions in the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWE.

Paragraph (b)(2)(ix)(G) . This paragraph requires that the VT-3 examination method be used to conduct the examinations in Items E1.12 and E1.20 in the 1998 Edition, 1999 Addenda, and 2000 Addenda of Table IWE-2500-1 in place of the “owner-defined” general visual examination provisions; the VT-1 examination method be used to conduct the examination in Item E4.11 of Table IWE-2500-1 in place of “owner-defined” detailed visual examinations; and an examination of the pressure-retaining bolted connections in Item E1.11 of Table IWE-2500-1 using the VT-3 examination method must be conducted once each interval.

Paragraph (b)(2)(ix)(H) . This paragraph supplements the examination requirements for containment bolted connections that are in Item E1.11 of the 1998 Edition, 1999 Addenda, and 2000 Addenda of Table IWE-2500-1. Containment bolted connections that are disassembled during the scheduled performance of the examinations in Item E1.11 of Table IWE-2500-1 must be examined using the VT-3 examination method. Flaws or degradation identified during the performance of a VT-3 examination must be examined in accordance with the VT-1 examination method. The criteria in the material specification or IWB-3517.1 must be used to evaluate containment bolting flaws or degradation. As an alternative to performing VT-3 examinations of containment bolted connections that are disassembled during the scheduled performance of Item E1.11, VT-3 examinations of containment bolted connections may be conducted whenever containment bolted connections are disassembled for any reason.

Paragraph (b)(2)(ix)(I) . This paragraph requires that the UT examination acceptance standard specified in the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of IWE-3511.3 for Class MC pressure-retaining components also apply to metallic liners of Class CC pressure-retaining components.

Paragraph (b)(2)(xi) . This paragraph extends the applicability of the existing regulation on the use of IWB-1220 to the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of Section XI of the ASME BPV Code. Licensees using editions and addenda later than the 1989 Addenda of Section XI are prohibited from exempting components from volumetric and surface examination as allowed by IWB-1220.

Paragraph (b)(2)(xii) . This paragraph prohibits the use of the irradiated material underwater weld provisions in the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of IWA-4660. Licensees must obtain NRC authorization in accordance with § 50.55a(a)(3) of the method used to weld irradiated material underwater.

Paragraph (b)(2)(xiv) . This paragraph allows 8 hours of annual practice as described in VII-4240 of Supplement VII of Section XI, 1999 Addenda and 2000 Addenda, to be performed in place of the existing hands-on training requirement in paragraph (b)(2)(xiv), provided that the supplemental practice is performed on material or welds that contain cracks, or by analyzing prerecorded data from material or welds that contain cracks. In either case, training must be completed no earlier than 6 months prior to performing ultrasonic examinations at a licensee's facility.

Paragraph (b)(2)(xv) . This paragraph extends the applicability of the existing regulations on Appendix VIII specimen set and qualification requirements to the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of Section XI of the ASME BPV Code. Licensees choosing to use these modifications are required to apply all the modifications under paragraph (b)(2)(xv) except for those in (b)(2)(xv)(F) which are optional.

Paragraphs (b)(2)(xv)(A), (A)(1), and (A)(2) . These paragraphs update the UT examination coverage criteria to include examination coverage criteria for dissimilar metal piping welds when using personnel, procedures and equipment that are qualified in accordance with Supplement 10 of Appendix VII to Section XI. Dissimilar metal welds must be examined axially and circumferentially. Where examination from both sides is not possible on dissimilar metal welds, full coverage credit from a single side may be claimed only after completing a successful single-sided Appendix VIII demonstration using flaws on the opposite side of the weld. Dissimilar metal weld qualifications must be demonstrated from the austenitic side of the weld and may be used to perform examinations from either side of the weld.

Paragraph (b)(2)(xv)(G)(4) . Paragraph (b)(2)(xv)(G)( 4 ) is removed. This requirement is redundant given the requirement in paragraph (b)(2)(xv)(G)( 3 ) and is unnecessary. As a result, this revision involves no substantive change.

Paragraph (b)(2)(xv)(K)(1)(i) . This paragraph clarifies that flaws perpendicular to the weld located in the outer eighty-five (85) percent of the weld are not required to be included in the qualification test sample. The revision neither increases nor decreases current requirements, but clarifies conflicting requirements that currently exist.

Paragraph (b)(2)(xv)(M) . This paragraph clarifies that only the provisions in Supplement 12 to Appendix VIII that are related to the coordinated implementation of Supplement 3 to Supplement 2 performance demonstrations are required to be implemented.

Paragraph (b)(2)(xvii) . This paragraph extends the applicability of the existing regulation on reconciliation of quality requirements to the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of Section XI of the ASME BPV Code. Licensees using IWA-4200 of this edition and these addenda are required to procure replacement and repair items under its approved quality assurance program required by Appendix B of 10 CFR 50. The limitation does not permit licensees to use IWA-4200 to procure repair and replacement items to be used in ASME Code safety-related applications that are manufactured under a non-nuclear code or non-nuclear standard without an approved quality assurance program.

Paragraph (b)(2)(xviii)(A) . This paragraph requires that Level I and II NDE personnel be recertified on a 3-year interval in lieu of the 5-year interval specified in IWA-2314.

Paragraph (b)(2)(xviii)(B) . This paragraph requires that IWA-2316 may only be used to qualify personnel that observe for leakage during system leakage and hydrostatic tests conducted in accordance with IWA-5211(a) and (b).

Paragraph (b)(2)(xviii)(C) . This paragraph requires that when qualifying VT-3 examination personnel in accordance with IWA-2317, the proficiency of the training must be demonstrated by administering an initial qualification examination and administering subsequent examinations on a 3-year interval.

Paragraph (b)(2)(xix) . This paragraph prohibits the use of the provisions in IWA-2240 and IWA-4520(c) which would allow alternative examination methods, a combination of methods, or newly developed techniques to be substituted for the methods specified in the Construction Code during repair and replacement activities.

Paragraph (b)(2)(xx) . This paragraph supplements the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of IWA-5213(a) to require a 10-minute hold time after attaining test pressure for Class 2 and Class 3 components that are not in use during normal operating conditions, and no hold time for the remaining Class 2 and Class 3 components provided that system has been in operation for at least 4 hours for insulated components or 10 minutes for uninsulated components.

Paragraph (b)(2)(xxi)(A) . This paragraph requires that licensees perform pressurizer and steam generator nozzle inside-radius inspections of Table IWB-2500-1, Examination Category B-D, Items B3.40 and B3.60 (Inspection Program A) and Items B3.120 and B3.140 (Inspection Program B) of the 1998 Edition. The 1999 Addenda and the 2000 Addenda of Section XI are not permitted to be used. A visual examination with enhanced magnification that has a resolution sensitivity to detect a 1-mil width wire or crack, using the allowable flaw length criteria in Table IWB-3512-1, may be performed in place of a UT examination.

Paragraph (b)(2)(xxi)(B) . This paragraph requires that the CRD bolting examinations of Table IWB-2500-1, Examination Category B-G-2, Item B7.80, of the 1995 Addenda of Section XI be retained only for used CRD bolting in ISI programs when using the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of Section XI.

Paragraph (b)(2)(xxi)(C) . This paragraph requires that the attachment weld single-side volumetric examination of Table IWB-2500-1, Examination Category B-K, Item B10.10, of the 1995 Addenda of Section XI be retained in ISI programs when using the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of Section XI.

Paragraph (b)(3) . This paragraph incorporates by reference the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of the ASME OM Code. Licensees of nuclear power plants are required to use the 1998 Edition up to and including the 2000 Addenda when updating their inservice testing programs in their subsequent 120-month inspection interval under § 50.55a(f)(4)(ii).

Paragraph (b)(3)(ii) . This paragraph extends the applicability of the existing regulations on MOV test requirements to the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of the ASME OM Code. Licensees using this edition and these addenda are required to establish a program to ensure that MOVs continue to be capable of performing their design basis safety functions. This paragraph clarifies that licensees must comply with the provisions of the ASME OM ISTC Code for testing MOVs, and reconciles the different subsection and paragraph numbers of the ASME OM Code that were renumbered in the 1998 Edition and subsequent editions and addenda.

Paragraph (b)(3)(iii) . This paragraph extends the applicability of the existing regulation that permits the use of Code Case OMN-1 in place of stroke time test requirements to the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of the ASME OM Code, and reconciles those subsections of the ASME OM Code that were renumbered in the 1998 Edition. The modification continues to allow, as a voluntary alternative, the use of Code Case OMN-1 in place of the stroke-time testing requirements of paragraph (b)(3)(ii) when using this edition and these addenda.

Paragraph (b)(3)(iv) . This paragraph extends the applicability of the existing regulations in paragraphs (b)(3)(iv)(A), (B), and (C) on check valve condition monitoring requirements to the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of the ASME OM Code. There are no substantive changes in the requirements. This paragraph also reconciles the different subsection and paragraph numbers of the ASME OM Code that were renumbered in the 1998 Edition and subsequent editions and addenda.

Paragraph (b)(3)(iv)(D) . There are no substantive changes to the check valve condition monitoring requirements in ASME OM Code in this paragraph. This paragraph reconciles the different subsection and paragraph numbers of that were renumbered in the 1998 Edition and subsequent editions and addenda.

Paragraph (b)(3)(v) . This paragraph extends the applicability of the existing snubber ISI requirements to the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of the ASME OM Code.

Paragraph (b)(3)(vi). This paragraph requires that manual valves within the scope of the ASME OM Code be exercised on a 2-year interval rather than the 5-year interval specified in the 1999 Addenda and 2000 Addenda of the ASME OM Code, provided that adverse conditions do not require more frequent testing. Paragraph ISTC-3540 of the ASME OM Code describes adverse conditions as harsh service environment, lubricant hardening, corrosive or sediment-laden process fluid, or degraded valve components.

Paragraph (g)(6)(ii)(B). The paragraph removes the containment examination requirements in §§ 50.55a(g)(6)(ii)(B)( 1 ) through ( 4 ) because the implementation dates have expired and all licensees have completed the requirements (or a delay has been approved by an exemption); and redesignates the existing § 50.55a(g)(6)(ii)(B)( 5 ) as § 50.55a(g)(6)(ii)(B). Licensees do not have to submit to the NRC staff for approval of their containment inservice inspection programs which were developed to satisfy the requirements of Subsection IWE and Subsection IWL with specified modifications and limitations. The program elements and the required documentation must be maintained on site for audit.

Paragraph (g)(6)(ii)(C)(1). This paragraph clarifies that Appendix VIII to Section XI, 1995 Edition with the 1996 Addenda, as well as its supplements, must be implemented. Supplements 12 and 13 of Appendix VIII are eliminated from the implementation schedule.

Paragraph (g)(6)(ii)(C)(2). This paragraph clarifies the requirements of Appendix VIII and the supplements to Appendix VIII to Section XI. Licensees implementing the 1989 Edition and earlier editions and addenda of IWA-22323 of Section XI must implement the 1995 Edition with the 1996 Addenda of Appendix VIII of Section XI.

In July 2001, the NRC issued, “Generic Aging Lessons Learned (GALL) Report,” NUREG-1801, Volumes 1 and 2, for use by applicants in preparing their license renewal applications. The GALL report evaluates existing generic programs, documents the basis for determining when generic existing programs are adequate without change, and documents when generic existing programs should be augmented for license renewal. Section XI, Division 1, of the ASME BPV Code is one of the generic existing programs in the GALL report that is evaluated as an aging management program (AMP) for license renewal. Subsections IWB, IWC, IWD, IWF, IWE, and IWL of the 1995 Edition up to and including the 1996 Addenda of Section XI of the ASME BPV for ISI were evaluated in the GALL report and the conclusions in the GALL report are valid for these edition and addenda.

In the GALL report Sections XI.M1, “ASME Section XI Inservice Inspection, Subsections IWB, IWC, and IWD,” XI.S1, “ASME Section XI, Subsection IWE,” XI.S2, “ASME Section XI, Subsection IWL,” and XI.S3, “ASME Section XI, Subsection IWF,” describe the evaluation and technical basis for determining the adequacy of Subsections IWB, IWC, IWD, IWE, IWL, and IWF, respectively. In addition, many other AMPs in the GALL report rely in part, but to a lesser degree, on the requirements in the ASME Code, Section XI ( i.e. , XI.M3, XI.M4, XI.M5, XI.M6, XI.M7, XI.M8, XI.M9, XI.M11, XI.M12, XI.M13, XI.M14, XI.M15, XI.M16, XI.M18. XI.M24, XI.M25, and XI.M32). These AMPs were evaluated for 10 specific elements with such attributes as scope of program, preventive actions, parameters monitored/inspected, detection of aging effects, monitoring and trending, acceptance criteria, corrective actions, confirmation process, administrative controls, and operating experience. If an applicant takes credit for a program in GALL, it is incumbent on the applicant to ensure that the plant program contains all the elements of the referenced GALL program. The GALL report contains one acceptable way to manage aging effects for license renewal. An applicant may propose alternatives for NRC review in its plant-specific license renewal application.

The NRC has completed an evaluation of Subsections IWB, IWC, IWD, IWE, IWF, and IWL of Section XI of the ASME BPV Code (1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda) as part of the § 50.55a amendment process to ensure that the conclusions of the GALL report remain valid. Although some of the revisions in Section XI of the ASME BPV Code relax the provisions of the 1995 Edition with the 1996 Addenda, the revisions are acceptable (except as discussed below) and the conclusions of the GALL report remain valid. Accordingly, an applicant may use Subsections IWB, IWC, IWD, IWE, IWF, and IWL of Section XI of the ASME BPV Code (1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda) as acceptable alternatives to the requirements of the 1995 Edition up to and including the 1996 Addenda of the ASME Code, Section XI, referenced in the GALL AMPs without the need to submit these alternatives for NRC review in its plant-specific license renewal application. Similarly, a licensee approved for license renewal that relied on the GALL AMPs may use Subsections IWB, IWC, IWD, IWE, IWF, and IWL of Section XI of the ASME BPV Code (1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda) as acceptable alternatives to the AMPs described in the GALL report.

Several of the revisions to Subsections IWB, IWE, and IWL that are discussed in the preceding Section 2, Public Comments on Proposed Rule; and Final Rule, might affect the validity of the conclusions in the GALL report because provisions in the 1995 Edition up to and including the 1996 Addenda that address examination requirements and acceptance standards have been relaxed or eliminated in the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda. The new limitations and modifications in § 50.55a(b) require that the revised provisions be supplemented with additional inspection requirements as a condition for their use. The conclusions of the GALL report remain valid for the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of Section XI of the ASME BPV Code with the use of these new limitations and modifications as discussed in this final rulemaking. However, it should be noted that the NRC is imposing these limitations and modifications to ensure consistency and an acceptable level of safety in the examination requirements and acceptance standards, and not solely to validate the conclusions in the GALL report.

The GALL report identified areas of the 1995 Edition with the 1996 Addenda of Section XI of the ASME Code that require augmentation for license renewal. A license renewal applicant may either augment their AMPS in these areas as described in the GALL report, or propose alternatives for NRC review in its plant-specific license renewal application. The GALL report's conclusions with respect to augmentation in connection with a license renewal application also apply when implementing the 1998 Edition, 1999 Addenda, and 2000 Addenda of Section XI of the ASME Code.

The NRC is making the documents identified below available to interested persons through one or more of the following methods as indicated.

Public Document Room (PDR). The NRC Public Document Room is located at 11555 Rockville Pike, Rockville, Maryland.

Rulemaking Website (Web). The NRC's interactive rulemaking Website is located at http://ruleforum.llnl.gov. These documents may be viewed and downloaded electronically via this Website.

NRC's Public Electronic Reading Room (PERR). The NRC's public electronic reading room is located at http://www.nrc.gov/reading-rm/adams.html.

NRC Staff Contact. Single copies of the Federal Register Notice, Regulatory Analysis, Environmental Assessment, and Resolution of Public Comments be obtained from Stephen Tingen, Division of Engineering, Office of Nuclear Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001. Alternatively, you may contact Mr. Tingen at (301) 415-1280, or via e-mail at: sgt@nrc.gov.

The National Technology Transfer and Advancement Act of 1995, Pub. L. 104-113, requires that Federal agencies use technical standards that are developed or adopted by voluntary consensus standards bodies unless the use of such a standard is inconsistent with applicable law or is otherwise impractical. In this final rule, the NRC is amending its regulations to incorporate by reference a later edition and addenda of Sections III and XI of the ASME BPV Code and the ASME OM Code, for construction, ISI, and IST of nuclear power plant components, as identified in the preceding Section 2, Public Comments on Proposed Rule; and Final Rule.

A number of commenters stated that the NRC approval of the ASME Code with exceptions ( i.e. , modifications and limitations) does not meet the spirit of Pub. L. 104-113. The NRC disagrees because although Pub. L. 104-113 requires Federal agencies to use industry consensus standards to the extent practical, it does not require Federal agencies to endorse a standard in its entirety, nor does it forbid Federal agencies from endorsing industry consensus standards with limitations or modifications. The law does not prohibit an agency from generally adopting a voluntary consensus standard while taking exception to specific portions of the standard if those provisions are deemed to be “inconsistent with applicable law or otherwise impractical.” Furthermore, taking specific exceptions furthers the Congressional intent of Federal reliance on voluntary consensus standards because it allows the adoption of substantial portions of consensus standards without the need to reject the standards in their entirety because of limited provisions which are not acceptable to the agency. Moreover, there is no legislative history suggesting that Congress intended agencies to take an “all or nothing” approach to endorsement of voluntary consensus standards under the Act, and the OMB guidance implementing Pub. L. 104-113 does not address the matter. The discussion in the statement of considerations of the limitations and modifications is sufficient to satisfy the requirements of Section 12(d)(3) of Pub. L. 104-113, and the relevant requirements of OMB Circular A-119 (1998). In light of these factors, the NRC concludes that the explanations for the modifications and limitations to the ASME BPV and OM Codes, as set forth in the statement of considerations for this final rule, satisfy the requirements of Section 12(d)(3) of Pub. L. 104-113, and OMB Circular A-119.

The Commission has determined under the National Environmental Policy Act of 1969, as amended, and the Commission's regulations in Subpart A of 10 CFR Part 51, that this rule is not a major Federal action significantly affecting the quality of the human environment, and, therefore, an environmental impact statement is not required.

This rulemaking will not significantly increase the probability or consequences of accidents; no changes are being made in the types of any effluents that may be released off-site; the environmental assessment for this rule demonstrates that there is a small decrease in occupational exposure; and there is no significant increase in public radiation exposure. Therefore, there are no significant radiological impacts associated with the action. The rulemaking does not involve non-radiological plant effluents and has no other environmental impact. Therefore, no significant non-radiological impacts are associated with the action.

The determination for this rule is that there will be no significant off-site impact to the public from this action. The NRC has prepared an environmental assessment on this final rule. The environmental assessment is available as indicated in Section 5, Availability of Documents, under the Supplementary Information heading.

The NRC requested the views of the States on the environmental assessment for the rule and did not receive any comments from the States.

This final rule amends information collection requirements that are subject to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ). These requirements were approved by the Office of Management and Budget, approval number 3150-0011.

Because the rule will reduce existing information collection requirements, the public burden for these information collections is expected to be decreased by 14 hours per licensee. This reduction includes the time required for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the information collection. Send comments on any aspect of these information collections, including suggestions for further reducing the burden, to the Records Management Branch (T-6 E6), U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, or by Internet electronic mail to infocollects@nrc.gov ; and to the Desk Officer, Office of Information and Regulatory Affairs, NEOB-10202 (3150-0011), Office of Management and Budget, Washington, DC 20503.

The NRC may not conduct or sponsor, and a person is not required to respond to, a request for information or an information collection requirement unless the requesting document displays a currently valid OMB control number

The NRC has prepared a regulatory analysis on this final rule. The analysis examines the costs and benefits of the action considered by the Commission. The regulatory analysis is available as indicated in Section 5, Availability of Documents, under the Supplementary Information heading.

One commenter stated that the regulatory analysis for the proposed amendment failed to address the values and impacts associated with a number of the modifications and limitations in the proposed rule. The NRC notes that the purpose of the regulatory analysis is to identify any significant values and impact associated with updating from the 1995 Edition with the 1996 Addenda to the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of the ASME Code. Therefore, modifications and limitations that require licensees to use the existing Code provisions in the 1995 Edition with the 1996 Addenda of the ASME Code are not addressed in the regulatory analysis.

In accordance with the Regulatory Flexibility Act of 1980, 5 U.S.C. 605(b), the Commission certifies that this rule will not have a significant economic impact on a substantial number of small entities. This final rule affects only the licensing and operation of nuclear power plants. The companies that own these plants do not fall within the scope of the definition of “small entities” set forth in the Regulatory Flexibility Act or the size standards established by the NRC (10 CFR 2.810).

The NRC's Backfit Rule in 10 CFR 50.109 states that the Commission shall require the backfitting of a facility only when it finds the action to be justified under specific standards stated in the rule. Section 50.109(a)(1) defines backfitting as the modification of or addition to systems, structures, components, or design of a facility; or the design approval or manufacturing license for a facility; or the procedures or organization required to design, construct or operate a facility; any of which may result from a new or amended provision in the Commission rules or the imposition of a regulatory staff position interpreting the Commission rules that is either new or different from a previously applicable staff position after issuance of the construction permit or the operating license or the design approval.

Section 50.55a requires nuclear power plant licensees to construct ASME Boiler and Pressure Vessel Code (BPV Code) Class 1, 2, and 3 components in accordance with the rules provided in Section III, Division 1, of the ASME BPV Code; inspect Class 1, 2, 3, Class MC, and Class CC components in accordance with the rules provided in Section XI, Division 1, of the ASME BPV Code; and test Class 1, 2, and 3 pumps and valves in accordance with the rules provided in the ASME Code for Operation and Maintenance of Nuclear Power Plants (OM Code). This final rule incorporates by reference the 1997 Addenda, 1998 Edition, 1999 Addenda, and 2000 Addenda of Section III, Division 1, of the ASME BPV Code; Section XI, Division 1, of the ASME BPV Code; and the ASME OM Code.

Incorporation by reference of later editions and addenda of Section III, Division 1, of the ASME BPV Code is prospective in nature. The later editions and addenda do not affect a plant that has received a construction permit or an operating license or a design that has been approved, because the edition and addenda to be used in constructing a plant are, by rule, determined on the basis of the date of the construction permit, and are not changed thereafter, except voluntarily by the licensee. Thus, incorporation by reference of a later edition and addenda of Section III, Division 1, does not constitute a “backfitting” as defined in § 50.109(a)(1).

Incorporation by reference of later editions and addenda of Section XI, Division 1, of the ASME BPV Code and the ASME OM Code affect the ISI and IST programs of operating reactors. However, the Backfit Rule generally does not apply to incorporation by reference of later editions and addenda of the ASME BPV (Section XI) and OM Codes for the following reasons—

(1) The NRC's longstanding policy has been to incorporate later versions of the ASME Codes into its regulations. This is codified in § 50.55a which requires licensees to revise their ISI and IST programs every 120 months to the latest edition and addenda of Section XI of the ASME BPV Code and the ASME OM Code incorporated by reference into § 50.55a that is in effect 12 months prior to the start of a new 120-month ISI and IST interval. Thus, when the NRC endorses a later version of the Code, it is implementing this longstanding policy and requirement.

(2) ASME BPV and OM Codes are national consensus standards developed by participants with broad and varied interests, in which all interested parties (including the NRC and utilities) participate. This consideration is consistent with both the intent and spirit of the Backfit Rule (i.e., the NRC provides for the protection of the public health and safety, and does not unilaterally imposed undue burden on applicants or licensees).

Other circumstances where the NRC does not apply the Backfit Rule to the endorsement of a later Code are as follows—

(1) When the NRC takes exception to a later ASME BPV or OM Code provision, but merely retains the current existing requirement, prohibits the use of the use of the later Code provision, or limits the use of the later Code provision, the Backfit Rule does not apply because the NRC is not imposing new requirements. However, the NRC explains any such exceptions to the Code in the Statement of Considerations for the rule. Sections 50.55a(b)(2)(viii)(F), (b)(2)(ix)(F), (b)(2)(ix)(G), (b)(2)(ix)(H), (b)(2)(xviii)(A), (B) and (C), (b)(2)(xix), (b)(2)(xxi)(A) and (C) in this final rule either retain current existing requirements, prohibit the use of the later Code provision, or limit the use of the later Code provision.

(2) When an NRC exception relaxes an existing ASME BPV or OM Code provision but does not prohibit a licensee from using the existing Code provision. Section 50.55a(b)(3)(vi) in this final rule relaxes the use of an existing Code provision but does not prohibit a licensee from using the existing Code provision.

There are some circumstances where the NRC considers it appropriate to treat as a backfit the endorsement of a later ASME BPV or OM Code—

(1) When the NRC endorses a later provision of the ASME BPV or OM Code that takes a substantially different direction from the currently existing requirements, the action is treated as a backfit. An example was the NRC's initial endorsement of Subsections IWE and IWL of Section XI, which imposed containment inspection requirements on operating reactors for the first time. The final rule dated August 8, 1996 (61 FR 41303), incorporated by reference in § 50.55a the 1992 Edition with the 1992 Addenda of IWE and IWL of Section XI to require that containments be routinely inspected to detect defects that could compromise a containment's structural integrity. This action expanded the scope of § 50.55a to include components that were not considered by the existing regulations to be within the scope of ISI. Since those requirements involved a substantially different direction, they were treated as backfits, and justified in accordance with the standards of 10 CFR 50.109. There are no provisions similar to this in the final rule.

(2) When the NRC requires implementation of later ASME BPV or OM Code provision on an expedited basis, the action is treated as a backfit. This applies when implementation is required sooner than it would be required if the NRC simply endorsed the Code without any expedited language. An example was the final rule dated September 22, 1999 (64 FR 51370), which incorporated by reference the 1989 Addenda through the 1996 Addenda of Section III and Section XI of the ASME BPV Code, and the 1995 Edition with the 1996 Addenda of the ASME OM Code. The final rule expedited the implementation of the 1995 Edition with the 1996 Addenda of Appendix VIII of Section XI of the ASME BPV Code for qualification of personnel and procedures for performing UT examinations. The expedited implementation of Appendix VIII was considered a backfit because licensees were required to implement the new requirements in Appendix VIII prior to the next 120-month ISI program inspection interval update. Another example was the final rule dated August 6, 1992 (57 FR 34666), which incorporated by reference in § 50.55a the 1986 Addenda through the 1989 Edition of Section III and Section XI of the ASME BPV Code. The final rule added a requirement to expedite the implementation of the revised reactor vessel shell weld examinations in the 1989 Edition of Section XI. Imposing these examinations was considered a backfit because licensees were required to implement the examinations prior to the next 120-month ISI program inspection interval update. There are no provisions similar to this in the final rule.

(3) When the NRC takes an exception to a ASME BPV or OM Code provision and imposes a requirement that is substantially different from the current existing requirement as well as substantially different than the later Code.

In §§ 50.55a(b)(2)(xv)(A), (A)( 1 ) and (A)( 2 ) that are discussed in the preceding Section 2, Final Rule and Comments on Proposed Rule, the NRC is adopting dissimilar metal piping weld ultrasonic (UT) examination coverage requirements. The NRC concludes that the addition of dissimilar metal piping weld UT examination coverage requirements to the regulation is necessary to correct the omission by the ASME BPV Code to ensure adequate protection of public health and safety. This backfit falls into the “adequate protection” exception under 10 CFR 50.109(a)(4)(ii), and the documented evaluation required by 10 CFR 50.109(a)(6) is below. Therefore, a backfit analysis under 10 CFR 50.109(a)(3) is not required.

Dissimilar metal piping weld examination coverage requirements, although contained in the 1989 Edition, and earlier editions and addenda of Appendix III of Section XI of the ASME BPV Code, are not addressed in later editions and addenda of Section XI. Appendix VIII was added in the 1989 Addenda of Section XI, and the UT examination criteria for piping welds in Appendix VIII supercede the examination criteria for piping welds in Appendix III. Although Appendix VIII addresses qualification of personnel, procedures, and equipment used to conduct UT examinations of dissimilar metal piping welds, Appendix VIII (unlike Appendix III) does not define UT examination coverage criteria for dissimilar metal piping welds. Therefore, the addition of dissimilar metal piping weld examination coverage requirements to the regulation is necessary to correct the omission by the ASME BPV Code.

The purpose of ISI is to monitor for degrading conditions and ensure that any flaws which develop during service can be detected, sized, and evaluated, and that components with unacceptable flaws are repaired or replaced to adequately maintain the integrity of the pressure boundary. Another purpose of ISI is to identify any possible generic-type defects that were unforeseen during the design stage so that corrective actions can be taken prior to a breach of the pressure boundary. Although plants have generally been designed with sufficient margin so that important components will not crack or undergo excessive degradation, uncertainties in the definition of service-induced loads and operating environments may have led to a less than optimum choice of materials, and may have permitted degradation mechanisms to progress more rapidly, or allowed different mechanisms to be active during plant operation, than were foreseen in the design.

Section XI defines inspection criteria for ISI and indicates allowable flaw sizes (with margin) based on fracture mechanics for various locations within reactor coolant pressure boundary (RCPB) components. If a flaw is found that exceeds the allowable size, (1) the component must be repaired, or (2) a safety analysis must be conducted, using fracture mechanics, to show that the flaw will not grow to an extent that could impair the integrity of the component. To conduct reliable and credible safety evaluations using fracture mechanics, information from the UT examination is required regarding the flaw size, shape, orientation, and location within the component. Consequently, examination information is key to detecting flaws and assessing the continued reliability and safety of flawed RCPB components.

Dissimilar metal welds are used to connect RCPB components. Operating history shows serious degradation of RCPB dissimilar metal welds have occurred at several nuclear power plants in the United States and at one foreign nuclear power plant. The NRC believes that additional occurrences are possible. Therefore, comprehensive and technically sound UT examination coverage criteria for dissimilar metal piping welds are needed to ensure that each facility provides adequate protection to the health and safety of the public. Sections 50.55a(b)(2)(xv)(A), (A)( 1 ) and (A)( 2 ) impose requirements that define comprehensive and technically sound UT examination coverage criteria for dissimilar metal piping welds that ensure uniform examination results among all licensees. These UT examination coverage requirements are necessary to detect flaws in dissimilar metal welds in RCPB components, thereby maintaining an extremely low probability of abnormal leakage or rapidly propagating failure, and gross rupture.

The remaining portion of this section addresses public comments related to backfitting or backfit issues on the proposed rule.

A number of commenters raised a generic concern with regard to the NRC's position on imposing exceptions ( i.e. , modification or limitation) to consensus standards that are incorporated by reference in the Code of Federal Regulations. The commenters believe that, contrary to the NRC's determination, imposing any modification or limitation to the ASME Code constitutes a backfit for which a backfit analysis is required. Commenters stated that NRC is required to demonstrate that modifications and limitations result in an increase in quality or safety.

The NRC has reviewed the comments and has concluded that the commenters do not raise concerns which would alter the previous conclusion that the Backfit Rule does not require a backfit analysis of the modifications and limitations imposed by the NRC in the final rule. Furthermore, many of the modifications and limitations imposed during previous routine updates of § 50.55a have established a precedence for determining which modifications or limitations are backfits or require a backfit analysis (final rules dated August 6, 1992 (57 FR 34666), August 8, 1996 (61 FR 41303), and September 22, 1999 (64 FR 51370)). The NRC finds that the application of the backfit requirements to modifications and limitations in the current rule are consistent with the application of backfit requirements to modifications and limitations in previous rules. Since the modification and limitations in the current rule are not considered backfits or do not require backfit analyses, the NRC is not required to demonstrate that the new modifications and limitations result in an increase in quality or safety.

Section 50.55a(b)(2)(ix)(F) of the proposed rule would require that personnel who conduct visual examinations of containment surfaces be qualified in accordance with the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWA-2300 in place of the “owner-defined” qualification provisions in the 1998 Edition, 1999 Addenda, and 2000 Addenda IWE-2330(a). One commenter stated that the NRC is imposing additional qualification requirements for personnel that conduct general visual examinations in accordance with the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWE that were not imposed on general visual examinations conducted in accordance with earlier editions and addenda of IWE.

The NRC agrees with the commenter. The NRC proposed additional qualification requirements for personnel that conduct general visual examinations. Editions and addenda of IWE earlier than the 1998 Edition required the use of the VT-1 visual inspection method, the VT-3 visual inspection method, and a general visual inspection. The provisions in IWA-2300 were used to define the qualification requirements for personnel that conduct VT-1 and VT-3 visual examinations; however, detailed qualification requirements were not provided in the ASME Code for personnel that conduct general visual examinations. There are significant changes in the visual examination requirements in the 1998 Edition of IWE. Paragraph IWE-2330(a) requires that the licensee define the qualification requirements for personnel that conduct all visual examinations of containment surfaces, and a number of visual examinations are recategorized as general visual examinations that were formerly categorized as VT-1 or VT-3 in earlier editions and addenda of IWE. The intent of § 50.55a(b)(2)(ix)(F) in the proposed rule was not to allow licensees to use “owner-defined” qualification requirements to qualify personnel that conduct examinations that were formerly categorized as VT-1 or VT-3. However, the NRC inadvertently worded the modification such that additional qualification requirements would also be imposed on personnel that conduct general visual examinations. Therefore, the qualification requirements for personnel that conduct visual inspections of containment surfaces are revised in the final rule to require that personnel who conduct VT-1 and VT-3 visual examinations of containment surfaces be qualified in accordance with the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWA-2300.

Section 50.55a(b)(2)(ix)(G) in the proposed rule would require that the general visual examinations required by the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWE-2310(b) and IWE-2310(c) meet VT-3 examination method provisions in the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWA-2210 in place of the “owner-defined” general and detailed visual examination provisions in the 1998 Edition, 1999 Addenda, and 2000 Addenda of IWE-2310(a).

One commenter stated that it is inappropriate for the NRC to impose § 50.55a(b)(2)(ix)(G) without performing a backfit analysis because the modification increases the frequency of VT-3 examinations of containment surfaces beyond that which was previously required in the editions and addenda of IWE earlier than the 1998 Edition. The commenter is correct. It was not the intent of the NRC to increase the frequency of VT-3 visual examinations of containment surfaces. The NRC inadvertently worded the modification such that the frequency of VT-3 examinations of containment areas was increased. Therefore, § 50.55a(b)(2)(ix)(G) is revised in the final rule to require that VT-3 visual examinations for certain containment areas be performed once during each 10-year inspection interval which is consistent with the provisions in the editions and addenda of IWE earlier than the 1998 Edition.

Sections 50.55a(b)(2)(ix)(J), (b)(2)(xx), and (b)(2)(xxi)(B) in the proposed rule involve provisions in Section XI that were deleted in the 1995 Addenda that the NRC is reinstating in the final rule (§ 50.55a(b)(2)(ix)(J) of the proposed rule is renumbered as § 50.55a(b)(2)(ix)(I) in the final rule). Section 50.55a(b)(2)(xxiii) of the proposed rule involves underwater welding provisions in Section XI that were added in the 1996 Addenda that the NRC is prohibiting the use of in the final rule (§ 50.55a(b)(2)(xxiii) of the proposed rule is renumbered as § 50.55a(b)(2)(xii) in the final rule).

Several commenters stated that it is inappropriate for the NRC to reinstate or prohibit the use of these Code provisions because the elimination or addition of these Code provisions was previously accepted by the NRC the final rule dated September 22, 1999 (64 FR 51370). The NRC disagrees. These modifications were not included in the final rule that incorporated by reference the 1995 Addenda and 1996 Addenda of Section XI in 10 CFR 50.55a (64 FR 51370) due to an oversight by the NRC. The NRC did not identify that these Code provisions were eliminated or added when it reviewed the 1995 Addenda and 1996 Addenda of Section XI. The NRC has determined that these modifications should only apply to those licensees who implement the 1997 Addenda and later editions and addenda of Section XI, and should not be backfit to those licensees who update their ISI programs to the 1995 Edition with the 1996 Addenda in accordance with 10 CFR 50.55a(g)(4)(ii). The NRC has determined it is acceptable not to backfit the licensees who update their ISI programs to the 1995 Edition with the 1996 Addenda, because those licensees will be required at the next 10-year interval to update their ISI programs to include or prohibit the relevant Code provisions. Thus, any problems would be caught during the next 10-year interval. The reinstatement or prohibition of the relevant Code provisions are not considered backfits, because they are imposed only as part of the routine updating required as part of the 120-month updating, and do not constitute a significant change to, or fundamental modification of the existing ISI program.

Section 50.55a(b)(3)(vi) in the proposed rule would prohibit the extension of the exercise interval for manual valves from 3 months to 5 years when using the 1999 Addenda and 2000 Addenda of ISTC-3540. One commenter stated that the NRC should delete § 50.55a(b)(3)(vi) or conduct a backfitting analysis justifying the imposition of the proposed modification.

The NRC disagrees that a backfit analysis is required for § 50.55a(b)(3)(vi). The intent of the ASME consensus process was to extend the exercise interval for manual valves, and in this case, the NRC is accommodating the ASME consensus process to the extent that the NRC believes the extended exercise interval can be justified ( i.e. , 2 years). In this case the NRC is allowing a relaxation from the current requirements, but not as much of a relaxation as the later Code would allow. Licensees are free to continue to implement the existing requirement (e.g., testing every three months).

The proposed rule would add a new § 50.55a(g)(6)(ii)(B)( 1 ) to clarify the start date of the first 120-month interval for the ISI of Class MC and Class CC components. One commenter noted that since licensees have already established the start date of the first 120-month interval for the ISI of Class MC and Class CC components, it is a backfit for the NRC to now impose a different start date than that already established by licensees. The NRC agrees with this comment. Therefore, § 50.55a(g)(6)(ii)(B)( 1 ) in the proposed rule is not adopted.

In accordance with the Small Business Regulatory Enforcement Fairness Act of 1996, the NRC has determined that this action is not a major rule and has verified this determination with the Office of Information and Regulatory Affairs of OMB.

The Alternative Mortgage Transaction Parity Act (AMTPA) 1 permits state chartered housing creditors  2 to make, purchase, and enforce alternative mortgage transactions if the creditors comply with regulations governing such transactions issued by federal regulators. AMTPA applies to loans with any alternative payment features that vary from conventional fixed-rate, fixed-term mortgage loans, such as variable rates, balloon payments, or call features. It allows state chartered housing creditors to engage in alternative mortgage transactions notwithstanding “any State constitution, law, or regulation,” provided the transactions are made in conformity with regulations issued by one of three federal regulators. 3 Housing creditors, other than state chartered commercial banks and state chartered credit unions, that wish to make an alternative mortgage transaction under the authority of AMTPA, must comply with OTS regulations. State chartered commercial banks and state chartered credit unions must comply with regulations of the Office of the Comptroller of the Currency (OCC) and the National Credit Union Administration (NCUA), respectively. 4

AMTPA directed the Federal Home Loan Bank Board (Bank Board), OTS's predecessor agency, OCC, and NCUA to identify, describe, and publish those portions of their regulations that are inappropriate for, and thus inapplicable to, their respective state chartered housing creditors. 5 The identified regulations are enforced by each state housing creditor's applicable state regulator.

Currently, OTS's regulation at § 560.220 identifies the following regulations as appropriate for, and applicable to, state housing creditors:

• § 560.33. This reference permits state housing creditors to impose late charges for any delinquent periodic payment and sets out certain limitations on the assessment of such late charges.

• § 560.34. This reference permits state housing creditors to impose a prepayment penalty and indicates how prepayments must be applied.

• § 560.35. This section addresses adjustments to interest rate, adjustments to the payment and loan balance, and the use of indices.

• § 560.210. This reference requires state housing creditors to provide initial disclosures and adjustment notices for variable rate transactions.

On April 5, 2000, OTS published an advance notice of proposed rulemaking (ANPR) entitled “Responsible Alternative Mortgage Lending.”  6 The ANPR sought public comment on various questions in connection with a review of mortgage lending regulations, including comments on possible amendments to § 560.220.

On April 25, 2002, OTS issued a notice of proposed rulemaking (NPRM). 7 OTS proposed to delete the late charge and prepayment rules (§§ 560.33 and 560.34) from the list of regulations that apply to state housing creditors under AMTPA. OTS proposed to continue to identify the other two rules (§§ 560.35 and 560.210) as appropriate and applicable for state housing creditors.

OTS received 298 comments on the proposed rule and 293 of these commenters addressed changes to AMTPA provisions. The commenters were equally divided between support and opposition for the rule. About three-quarters of the commenters filed one of five form letters.

Congress enacted AMTPA in 1982 to stimulate credit in an unusually high interest rate environment by encouraging variable rate mortgages and other creative financing. In hearings before the Senate in 1981, mortgage bankers testified that statutes in 26 states barred state chartered mortgage bankers and lending institutions from originating alternative mortgage loans, or imposed significantly higher restrictions on such loans than applied to federally chartered lenders operating under federal regulations.

Congress incorporated this factual background at 12 U.S.C. 3801(a). Congress found that increasingly volatile and dynamic changes in interest rates had seriously impaired the ability of housing creditors to provide consumers with fixed-term, fixed-rate credit secured by interests in real property, and that alternative mortgage transactions were essential to an adequate supply of credit. AMTPA also noted that OCC, NCUA, and OTS had recognized the importance of alternative mortgage transactions and had adopted “regulations authorizing federally chartered depository institutions to engage in alternative mortgage financing.” AMTPA indicated that:

Apart from references to federal regulations governing alternative mortgage transactions and regulations authorizing federally chartered lenders to engage in alternative mortgage transactions, neither the statute nor the legislative history details how the three federal agencies are to exercise their authority under section 807(b). For example, AMTPA and the legislative history do not reference or provide examples of specific types of regulations that the agencies should identify for state housing creditors.

As a result of this inconclusive direction, OTS and the Bank Board have wrestled with the proper scope of the identification of regulations for state housing creditors under AMTPA. At times, the agency has taken a narrow view of AMTPA and its legislative history. For example, the Bank Board initially identified as appropriate and applicable only those regulations that “describe and define” alternative mortgage transactions and did not identify regulations intended for the general supervision of federal savings associations. As a result, the Bank Board declined to identify rules that applied to loans generally (as distinguished from rules that bear directly on the unique features of alternative mortgage loans). 8

In 1996, however, OTS reviewed its AMTPA authority and identified two general lending rules—the prepayment and late charge provisions at issue in this rulemaking. 9 The apparent rationale, contained in a contemporaneous legal opinion, but not in the rulemaking, was the conclusion that state housing creditors would be “disadvantaged vis-à-vis federal thrifts” if they were required to comply with state laws restricting prepayment penalties and late charges. 10 Even the contemporaneous legal opinion, however, conceded that the state laws on these subjects fell somewhere between laws clearly preempted by AMTPA (state laws barring variable rate mortgage loan transactions) and laws clearly not preempted (state laws governing liens and foreclosures).

NCUA and OCC regulations also reflect various interpretations of the scope of section 807(b) of AMTPA. NCUA has interpreted section 807(b) to permit the identification of all of its lending regulations as applicable to alternative mortgage transactions by state chartered credit unions. These mortgage regulations address such matters as the term of the loan; requirements governing security instruments, notes, and liens; due-on-sale provisions; and assumptions. NCUA rules specifically preempt state laws addressing certain areas. 12 CFR 701.21. OCC, on the other hand, has identified as applicable for state commercial banks a narrow band of rules. These rules: define adjustable rate mortgages (ARMs); state that ARMS may be made, sold, purchased, participated in, or otherwise dealt in without regard to any state law limitation on those activities; authorize certain indices; and specifically allow prepayment fees. 12 CFR part 34, subpart B.

As these various approaches illustrate, section 807(b) is susceptible to a number of interpretations. Each of the agencies has exercised broad discretion in its identification of appropriate regulations under AMTPA and has struck a different balance depending on its applicable statutory and regulatory scheme. Under the current rules, each of the three agencies has advanced a different interpretation of its responsibilities under section 807(b) of AMTPA.

In the NPRM, OTS reexamined its 1996 interpretation. OTS noted that the purpose of AMTPA was to enable all housing creditors to provide credit through alternative mortgages and to preempt state laws that would prevent that type of credit. OTS found that its regulations governing adjustments to the interest rate, adjustments to the payment and loan balance, the use of indices, initial disclosures, and adjustment notices were essential or intrinsic to the ability of state housing creditors to continue to provide alternative mortgage transactions. To provide parity with federal thrifts, OTS proposed to continue to identify §§ 560.35 and 560.210 for state housing creditors.

On the other hand, OTS tentatively noted, upon further reflection, that the prepayment and late fee provisions were not essential or intrinsic to the ability to offer alternative mortgages. Rather, these regulations apply to real estate lending in general and are part of the broader regulatory scheme governing the lending operations of thrifts. OTS noted that one of the congressional findings underlying AMTPA was that the various federal regulators had adopted regulations authorizing federal institutions to offer alternative mortgages, and that the purpose of AMTPA was to eliminate the discriminatory impact of those regulations. OTS tentatively found that its regulations on prepayments and late fees were not adopted to enable federal thrifts to engage in alternative mortgage financing, but rather to permit federal thrifts to operate safely and soundly under a uniform federal scheme. See 12 CFR 560.2(a). Therefore, OTS tentatively concluded that these regulations did not offer a basis for claiming discriminatory treatment or were not needed to provide parity with federally chartered institutions. Accordingly, OTS tentatively concluded that there was no basis to distinguish prepayment and late charge provisions from other general lending rules and proposed to delete the two provisions from the list of identified rules for state housing creditors. As we explain in this statement of supplementary information, after reviewing the comments and further considering the issues, OTS adopts these findings and conclusions.

Several commenters argued that if AMTPA is to be given its proper effect, state housing creditors should be governed by the same regulations that address alternative mortgage transactions by federal savings associations. According to commenters, these rules include § 560.2(a), which states OTS's intent to occupy the entire field of lending regulation for federal savings associations in preemption of state law, and § 560.2(b), which expressly preempts state laws that address such matters as private mortgage insurance requirements, loan-to-value ratios, terms of credit, loan-related fees (including late charges and prepayment penalties), access to credit reports, disclosures, and advertising laws.

OTS has never identified its preemption rules as applicable to state housing creditors under AMTPA. While commenters argued that the failure to apply these preemptive regulations would disadvantage state housing creditors vis-à-vis federal thrifts, OTS believes that this position would lead to an inappropriate result under its regulatory framework.

To enhance safety and soundness and to enable federal savings associations to conduct their operations in accordance with best practices, OTS has occupied the entire field of lending regulation for federal thrifts and has given federal savings associations the maximum flexibility to exercise their lending powers in accordance with a uniform federal scheme. See 12 CFR 560.2(a). This complex uniform regulatory scheme benefits federal thrifts by preempting most state laws that otherwise would impose on federal savings associations different regulatory requirements from state-to-state. The system, however, also imposes various obligations on federal savings associations. For example, thrifts must comply with an array of regulatory limitations designed to ensure that their mortgage lending operations are conducted in a safe and sound manner. These limitations include appraisal requirements, real estate lending standards, underwriting guidelines, limits on loans to one borrower, and documentation requirements. Thrifts are also subject to regular examination, supervision, and enforcement of their lending activities.

OTS does not believe that it may impose these concomitant obligations on state housing creditors in this rulemaking given the instructions in the legislative history that it was not Congress' intent to place state housing creditors under the supervision of the federal agencies. 11 However, preemption under § 560.2, without the application of the related duties, would lead to an unreasonable regulatory result, i.e. , the perverse situation where state housing creditors could engage in mortgage lending—an area that is traditionally highly regulated—unfettered by most state or federal restrictions, thereby creating a regulatory vacuum. Accordingly, OTS declines to identify its preemption rules as applicable to state housing creditors.

Other general lending rules, such as §§ 560.33 and 560.34, are also a part of the broader regulatory scheme governing OTS supervision of the lending operations of federal thrifts. The states have, to a greater or lesser degree, adopted laws and regulations similarly designed to supervise the lending operations of state housing creditors. States that restrict prepayment penalties and late charges usually apply those restrictions to all real estate loans, not just to alternative mortgage transactions. As a result, the state laws in these areas are not directed at restricting alternative mortgage transactions, but in regulating mortgage transactions in general. OTS is reluctant to encroach upon this state authority, given the cited statutory direction and the statements of legislative intent.

For these reasons, OTS declines to identify its rules preempting state lending regulations or any other rule that applies to real estate lending in general. Rather, OTS will identify only those regulations that OTS deems to be intrinsic to the ability to offer alternative loans. 12

A number of commenters alleged that this interpretation of AMTPA would subject state housing creditors to state laws on prepayments and late charges while federal thrifts would remain subject to more permissive OTS regulations in these areas. As a result, these commenters argued that the proposed rule is inconsistent with the twin purposes of AMTPA—the elimination of discriminatory impact that federal regulations have on state housing creditors and the promotion of parity for state housing creditors. Specifically, commenters speculated that the proposed rule would discriminate against state housing creditors vis-à-vis federal savings associations in the following ways:

• Limit the range of products offered by state housing creditors. Some state housing creditors would no longer be able to offer lower rates to consumers who agree to take a loan with a prepayment penalty. In addition, restrictions on late charges would deny lenders flexibility in loan pricing and prohibit lenders from placing the cost of late payments on delinquent borrowers.

• Increase compliance costs, risk of document error, and litigation risk. Rather than complying with uniform OTS rules, creditors with multi-state operations would have to comply with inconsistent state and local laws.

• Reduce the ability to minimize prepayment risk. Prepayment penalties protect state housing creditors (and secondary market purchasers) from extreme changes in their portfolios.

• Reduce the value of their loans in the secondary market. Investors will be less able to protect against prepayment risk, and will incur additional due diligence costs (and risks) to review pools against widely varying state law. These costs will be passed on to state housing creditors. The secondary market also may have to create separate pools for federally chartered lenders and state chartered lenders to accommodate these differences.

Commenters also speculated that some lenders may choose not to offer alternative mortgage transactions in jurisdictions with restrictive laws, may cease all lending operations within those jurisdictions, or exit the industry entirely. This reduced competition, they argue, would reduce the availability of affordable credit to consumers contrary to the goals of AMTPA.

Contrary to commenters' speculation, historical evidence indicates that the final rule should not have a significant detrimental effect on state housing creditors' ability to compete against federal thrifts in the alternative mortgage market. State housing creditors functioned for 14 years (1982-1996) without applying OTS regulations on late charges and prepayments. While various prepayment regulations were applicable during this period, federal thrifts were relatively free to impose prepayment penalties since 1983. 13 Additionally, the regulations on late charges have not changed substantially during this period, other than to eliminate limitations on the amount of the late charge. 14 Accordingly, OTS has concluded that these provisions are not essential for parity.

OTS also notes that state housing creditors were vigorous competitors in mortgage lending throughout this time period. While relative market share in the alternative mortgage market is not available, OTS does have information regarding the relative participation in the one- to four-family mortgage market. In 1982, commercial banks and thrifts dominated this market by originating approximately 66.0 percent of one- to four-family mortgages. Mortgage companies' market share was significantly smaller at 28.9 percent of the market. By 1996, when OTS changed its AMTPA rules, these positions had reversed with mortgage companies originating 56.8 percent and commercial banks and thrifts originating 42.5 percent of all one- to four-family mortgages. 15

Moreover, it is not clear that Congress viewed prepayment penalties and late charges as essential to parity. Neither AMTPA nor its legislative history provides any useful guidance concerning this issue. However, if Congress had viewed these provisions as essential to parity, it is unlikely that Congress would have adopted the statutory scheme found in AMTPA. As noted above, AMTPA does not place all state housing creditors within the jurisdiction of one federal regulator, but assigns state housing creditors to three federal agencies in a way that “recogniz[es] traditional industry lines.” 16 When AMTPA was enacted, however, NCUA, OCC, and the Bank Board had different requirements regarding prepayment penalties. Congress banned federal credit unions from imposing prepayment penalties, which suggests that, at least for credit unions, Congress recognized that prepayment penalties were not essential to the ability to make, purchase, or enforce alternative mortgage transactions. 17 OCC regulations, on the other hand, permitted national banks to impose prepayment penalties on ARMs until 30 days prior to the first scheduled interest rate adjustment date. 18 Bank Board regulations permitted federal savings associations to impose prepayment penalties on alternative mortgage transactions under other limited circumstances. 19 If Congress had viewed the regulation of prepayment penalties as essential to parity, it is unlikely that Congress would have imposed a regulatory scheme that, at the time of enactment, ensured different treatment among the various state creditors.

The agencies also took different approaches to the regulation of late charges in 1982. The Bank Board limited the amount of late charges, prescribed a minimum grace period, and set other restrictions for loans made on the security of a home occupied or to be occupied by the borrower. 20 By contrast, NCUA rules on alternative mortgage lending did not specifically address late fees, although a federal credit union was permitted by statute to levy late charges in accordance with its by-laws for failure of a member to meet promptly its obligations. 21 OCC's ARM rule also did not specifically address late charges.

The federal regulators continue to have divergent policies regarding prepayment penalties and late charges under AMTPA. For example, OCC has promulgated a prepayment provision that applies only to ARM lending. This rule permits national banks to impose prepayment fees in connection with ARM loans notwithstanding contrary state laws. OCC applies this rule to state chartered commercial banks under AMTPA. 22 NCUA's statute, on the other hand, continues to bar federal credit unions from imposing prepayment fees on any loan. 12 U.S.C. 1757(5)(A)(viii). NCUA identifies its regulation implementing this ban and its regulation preempting state laws on prepayment limits for state chartered credit unions under AMTPA. 23

OTS notes that absolute competitive equality is simply not attainable through any unilateral OTS action in this rulemaking. While commenters argued that this rule would have a detrimental impact on the ability of state housing creditors to compete, state housing creditors have had, and will continue to have, a competitive advantage over federal depository institutions in other areas. Unlike national banks, federal credit unions, and federal savings associations, state housing creditors are not required to follow federal regulations for any particular transaction. If a state housing creditor makes an alternative mortgage transaction in a state that has a more favorable regulatory environment, it may elect to ignore the federal regulations and comply with appropriate state laws. Federally chartered institutions have only one choice of law.

OTS also notes that the 1996 rulemaking may have introduced other new inequalities into the alternative mortgage market by giving state housing creditors within OTS's jurisdiction a competitive advantage over depository institution competitors. For example, these state housing creditors may have gained an edge over state credit unions using AMTPA and federal credit unions, which are precluded from imposing prepayment fees. Moreover, while the 1996 rule permitted these state housing creditors to impose prepayment penalties to the same extent as national banks and federal savings associations, these depository institutions may have been disadvantaged since they remained subject to various federal restrictions on their ability to compete freely in the alternative mortgage market. 24 These same restrictions do not apply to non-depository institution state housing creditors.

Thus, given the statutory scheme underlying AMTPA, complete competitive parity is impossible. Within this imperfect system, however, OTS has attempted to appropriately identify those regulations necessary for making alternative mortgages.

Commenters also speculated that the final rule would have a significant negative impact on the availability of affordable credit to borrowers. In AMTPA, Congress found that “alternative mortgage transactions are essential to the provision of an adequate supply of credit secured by residential property necessary to meet the [expected] demand * * *” 12 U.S.C. 3801(a)(2). This goal has been accomplished through AMTPA and other innovations in the mortgage market. In 1982, the mortgage industry relied on fixed-rate, fixed-term mortgage instruments that lenders, primarily depository institutions, funded through relatively short-term deposits. AMTPA addressed one side of this equation by increasing the availability of alternative mortgage transactions from state housing creditors. 25 the other side of the equation—the liquidity of the mortgage market “ has been enhanced through the government sponsored entities that fostered the creation of government-guaranteed mortgage-backed securities and through the emergence of private mortgage-backed securitization channels. Widespread securitization began in the 1980's and lenders now routinely originate loans for sale in the secondary market. The constant flow of money into the home mortgage market has dramatically altered the business of mortgage lending, significantly reducing liquidity issues for banks, thrifts, and other lenders. Securitization has also created opportunities for non-depository institutions. Lenders no longer need to be financial institutions with significant deposits and capitalization. Instead, thinly capitalized creditors can originate loans for sale on the secondary market. 26 As a result of these innovations, mortgage credit of all types is widely available and should not be significantly affected by this final rule.

Commenters also claimed that the proposed rule conflicts with the decisions in National Home Equity Mortgage Ass'n v. Face, 239 F.3d 633 (4th Cir. 2001); and Shinn v. Encore Mortgage Services Inc., 96 F.Supp.2d 419 (D.N.J. 2000). Commenters noted that Face and Shinn held that state housing creditors within OTS jurisdiction may charge prepayment fees under § 560.34, notwithstanding any restrictions in state law.

OTS's analysis is consistent with these two decisions. In the Face case, the United States Court of Appeals for the Fourth Circuit held that non-federally chartered housing creditors could elect to have alternative mortgage transactions governed by OTS regulations on prepayment fees because OTS had identified its prepayment fee regulation as applicable to alternative mortgage transactions. The court explained as follows:

Shinn addressed the limited issue of whether OTS acted reasonably and within the scope of its authority when it identified the prepayment provisions for alternative mortgage transactions under AMTPA. The Shinn case held that OTS rules reflected “a permissible interpretation of the congressional authority vested in OTS” under AMTPA. 27 The Shinn ruling does not preclude a different interpretation by the agency under AMTPA.

Accordingly, the removal of the prepayment and late charge rules from its list of identified regulations for state housing creditors is consistent with OTS's authority under AMTPA.

Commenters opposing the rule asserted that OTS initiated the proposed rule to respond to allegations that state housing creditors use the AMTPA regulations to avoid state consumer protection laws governing prepayments and late charges and to engage in abusive lending practices. These commenters argued that the proposed rule would do little to address predatory lending. They noted that no single loan term or practice is the hallmark of a predatory loan and that prepayment penalties and late fees are not inherently predatory. These commenters observed that non-predatory loans often provide for prepayment penalties or late fees and that, under certain circumstances, these terms can make it more difficult for lenders to engage in certain types of predatory lending, such as loan flipping.

Other commenters, however, indicate that two key indicia of predatory lending are prepayment penalties and late charges. 28 Prepayment penalties may inhibit the borrower's ability to refinance his or her loan at a lower rate. Prepayment penalties in sub-prime loans also function as deferred fees. Commenters indicated that over one-half of all sub-prime loans with prepayment penalties are eventually paid off with a penalty. These penalties typically are 5-7 percent of the loan amount.

Lenders may also impose excessive charges for untimely payments. Some alternative mortgage transactions regularly call for late fees of up to 10 percent of the monthly payment. Many states limit late fees to 4-5 percent of the payment amount.

Commenters opposing the proposed rule also argued that OTS cited no hard evidence indicating that prepayment penalties or late fees are subject to abuse under AMTPA regulations. Indeed, one commenter, a trade association representing a substantial segment of the real estate financing community, including national and regional lenders, mortgage brokers, mortgage conduits, and service providers, reported that it is unaware of any comprehensive report demonstrating that AMTPA rules are used to defraud or abuse customers. These commenters asserted that the anecdotal information provided in support of the ANPR is inadequate and that OTS should not proceed with this rule until it gains a more thorough understanding.

Because OTS does not directly regulate state housing creditors, it cannot collect information on state housing creditors that take advantage of AMTPA. OTS has found no comprehensive data available addressing this issue. However, as discussed below, the data sources cited and additional data submitted by commenters suggest that unregulated prepayment penalties and late charges may be subject to abuse.

1. A joint report issued by the Department of Housing and Urban Development (HUD) and the Department of the Treasury found that prepayment penalties in high cost loans can inhibit borrowers from refinancing at lower rates when their credit improves. 29

2. Prepayment penalties are becoming more common in sub-prime loans. One commenter estimated that the frequency of prepayment penalties in sub-prime loans was 10 percent in 1995. Yet the HUD/Treasury Report indicates that four years later approximately 70 to 76 percent of sub-prime mortgage originations carried prepayment penalties. 30 Several commenters cited data from nationally recognized statistical rating agencies confirming the HUD/Treasury Report estimate. By contrast, between 1 and 2 percent of prime borrowers currently are subject to such penalties. 31

3. Various commenters provided data to demonstrate the extent to which prepayment penalties and late charges are used in predatory lending. Although OTS has not independently verified the accuracy of this information, commenters included the following data. One commenter, a national representative of community reinvestment groups, sampled 30 loans drawn from its rescue fund files. The commenter found that the vast majority of the loans were high cost loans with burdensome monthly payments that consumed unreasonable portions of borrower income and included prepayment penalties. The commenter observed that a significant portion of the loans also had high late fees of 10 percent of the overdue payment. To expand their sample, the commenter reviewed two prospectus statements for loan securitizations by major sub-prime lenders available on the SEC's Web site and concluded that over 80 percent of the loans in the pools had prepayment penalties. In addition, the commenter suggested that high delinquency rates showed a failure to adequately document borrower income levels and pricing inefficiencies. Numerous commenters offered anecdotal information of predatory lending in their communities, including practices directed at minorities and the elderly. For example, one fair housing center indicated that it had 417 predatory lending cases in 2001 and that all of the loans in these cases included a prepayment penalty for a period of at least five years. Ninety-seven percent of these cases involved ARMs.

The above information leads to the reasonable conclusion that sub-prime lenders often include prepayment penalties in sub-prime loans. OTS recognizes that there is some disagreement as to the extent that prepayment penalties may affect a borrower's ability or willingness to refinance. It is reported that one unidentified study found that sub-prime loans with prepayment penalties are prepaid at about 90 percent of the rate of sub-prime loans without prepayment penalties. 32 Nevertheless, common sense dictates that the existence of a prepayment penalty may well inhibit a borrower from refinancing his or her loan, which can be problematic where a good payment history may allow the borrower to graduate to a lower cost loan. 33 Equally important, prepayment penalties may also be problematic in the sub-prime market where a borrower may be forced to refinance on less favorable terms in order to avoid default. 34 Indeed, those circumstances may account for the prepayment of many sub-prime loans. Additionally, the cost of the prepayment penalty may be refinanced in the new loan balance, which drives up the overall price of the loan to the borrower. High penalties that are repeatedly financed into the cost of successive loans may be used by lenders to strip borrowers' equity in the home. 35

In short, OTS can properly conclude that the wide-spread use of prepayment penalties not only may deter consumers from seeking to refinance high cost loans that have burdensome provisions, but also may have other adverse consequences for sub-prime borrowers, such as increasing the overall lending cost for a consumer who refinances to avoid default.

OTS believes that laws on prepayment penalties and late charges are a key component in states' regulation of predatory lending. Because these laws reflect each state legislature's judgment, after due consideration, about appropriate consumer protections applicable to state chartered lenders, OTS will not construe its authority under AMTPA to frustrate these state efforts where another less intrusive construction of AMTPA is permissible.

One commenter requested OTS to specifically state that creditors offering mortgages under AMTPA must comply with all state laws relating to alternative mortgages, except those that expressly conflict with regulations identified by OTS.

AMTPA provides little explicit guidance regarding the types of state laws that Congress intended to preempt. A few conclusions, however, may be drawn. AMTPA preempts state laws that would ban a state housing creditor from entering into an alternative mortgage ( e.g. , a law that bars variable rate loans). Similarly, state laws that conflict, or are inconsistent, with identified OTS regulations would be preempted. Because OTS is no longer identifying its regulations on prepayment penalties and late charges, state laws addressing prepayments or late charges generally would not be preempted by AMTPA. 36

Commenters addressed the following alternatives, modifications, and clarifications of the proposed rule.

As an alternative to the proposed rule, a number of commenters urged OTS to revise §§ 560.33 and 560.34. Commenters urged OTS to impose reasonable limitations on prepayment penalties and late charges by federal thrifts and apply these limitations to state housing creditors under AMTPA. Commenters suggested: (1) Banning prepayment penalties and late charges on all mortgage transactions or on high-cost alternative mortgage transactions; (2) Permitting prepayment penalties only during the first two years after origination of the alternative mortgage transaction; (3) Restricting the amount of prepayment penalties; and (4) Requiring a lender that wishes to impose a prepayment penalty to demonstrate that it has offered the customer a loan with a prepayment penalty and an identical loan (at a lower rate) without a prepayment penalty.

OTS declines to adopt any of these alternatives. OTS oversight and review of federal savings associations have not revealed a level of abusive practices that would warrant industry-wide regulation. Rather, OTS believes that the current prepayment and late charge regulations, when combined with the OTS comprehensive regime of regular examination and supervision of the lending activities of federal savings associations and its related enforcement activities, are adequate to address the operations of federal thrifts and to discourage their participation in predatory practices. In light of these factors, OTS is disinclined to impose new regulatory burdens on the federal savings associations within its jurisdiction.

Additionally, OTS notes that the suggested changes, to the extent they would regulate the operations of federal savings associations, fall beyond the scope of the proposed rule and would require additional public comment under the Administrative Procedure Act. 5 U.S.C. 553.

AMTPA requires OTS to identify regulations for state housing creditors, which includes both depository institutions and non-depository institutions. By contrast, OCC and NCUA regulations apply only to depository institutions ( i.e. , state chartered commercial banks and credit unions). The NPRM noted that state savings associations are subject to a safety and soundness regulatory scheme that is similar to the regulation of federal thrifts and substantially different from other state housing creditors. On this basis, OTS asked whether it should treat state chartered savings associations differently under AMTPA. OTS also asked whether AMTPA authorizes the agency to differentiate between state housing creditors on this basis.

The NPRM also noted that §§ 560.33 and 560.34 could be viewed as safety and soundness-based regulations. For example, § 560.34 permits federal thrifts to moderate prepayment risk through the assessment of prepayment penalties. Similarly, § 560.33 allows federal savings associations to encourage the timely payment of loans and to recover costs associated with late payment. Accordingly, OTS asked whether it was appropriate to apply these rules to some or all mortgage transactions by state chartered housing lenders that are depository institutions.

Commenters supporting this alternative observed that federal laws governing state and federal savings associations have become more similar since 1989 and that OTS has increasingly applied many federal thrift operational and supervisory regulations to state savings associations. Commenters also remarked that state and federal savings associations pursue similar strategies within a similar corporate and regulatory structure. As a result, the lending authority of these two types of depository institutions should be similar. Commenters also asserted that state savings associations were less likely to engage in predatory practices than unregulated lenders and mortgage brokers.

OTS is authorized under the HOLA to provide for the examination, safe and sound operation, and regulation of federal and state savings associations, and to issue appropriate regulations addressing these subjects. 12 U.S.C. 1462a(b)(2), 1463(a) and 1464(a). 37 However, state savings associations are also creatures of state law. States have responsibility for addressing safety and soundness, as well as legislating consumer protection for their citizens. OTS rules must strike a reasonable regulatory balance to permit the dual banking system to operate. Many state laws permit state chartered institutions to comply with laws and regulations governing federally chartered institutions as an alternative to state regulation. OTS believes that this choice should remain within state discretion and that state thrifts should be required to comply with state law, except where federal regulation is necessary. 38

At this point, OTS has concluded that AMTPA does not permit it to distinguish between state chartered savings associations and other state housing creditors. AMTPA states that transactions by all state housing creditors, other than banks and credit unions, must be made in accordance with regulations governing alternative mortgage transactions issued by OTS. 12 U.S.C. 3803(a). While the statute indicates that state housing creditors include savings and loan associations, mutual savings banks, and savings banks, nothing in AMTPA or its legislative history permits OTS to identify different regulations for state housing creditors that are depository institutions. Accordingly, OTS has concluded that AMTPA does not permit the proposed distinction.

OTS, however, will continue to review the impact of these changes on state chartered savings associations and will consider suggestions from interested persons as to whether additional changes are permissible and necessary. If appropriate, OTS may address this matter in a separate rulemaking at some future date.

AMTPA defines an alternative mortgage transaction as a loan or credit sale secured by an interest in residential real property—

Several commenters requested OTS to clarify whether loans with certain terms are alternative mortgage transactions under OTS rules. Specifically, commenters seek clarification regarding the following loan terms:

• Interest rates that reduce if the borrower pays on time. OTS has opined that loans that permit rate adjustments to reflect a borrowers' actual payment performance can be alternative mortgage transactions under paragraph (A) or (C) of the definition. 41

• Balloon payments. To the extent that a loan has a fixed rate, but permits rate adjustments by having the debt mature at the end of an interval shorter than the term of the amortization schedule ( e.g. , a balloon loan), a loan may be an alternative mortgage transaction under paragraph (B). 42

• Shared appreciation. Shared appreciation loans are specifically included in the definition at paragraph (C) and can be an alternative mortgage transaction.

• Prepayment penalties and late charges. While prepayment penalties and late fees may affect a creditor's rate of return on a loan, conventional prepayment penalties and late charges are “common to traditional fixed-rate, fixed-term transactions” and do not transform a fixed-rate, fixed-term loan into an alternative mortgage transaction.

• Negative amortization. Some mortgages, such as ARMs and graduated payment loans, are designed to negatively amortize or have the potential to negatively amortize, in the absence of delinquency or default. OTS believes that these transactions are alternative mortgages under AMTPA.

Several commenters asked whether loans with interest rates that adjust insignificantly or within a very narrow range would fall within the definition of an alternative mortgage transaction. The AMTPA definition does not expressly require a loan to adjust by a minimum amount before it may be considered to be an alternative mortgage transaction. However, creditors issuing loans that are alternative in form, but not substance, solely to obtain the benefits of preemption, assume the risk that the loans may not be found to be alternative mortgage transactions within the AMTPA definition.

One commenter cautioned that certain statements in the NPRM were misleading to the extent they indicated that a housing creditor must hold a state license to be eligible to make a loan under AMTPA. The commenter observed that state laws exempt certain creditors from state licensing obligations. AMTPA does not unconditionally require a housing creditor to hold a state license. 43 Rather, it merely requires a creditor to hold a state license where the underlying state law imposes a licensing requirement.

Two commenters asked OTS to confirm that operating subsidiaries of federal thrifts have the same lending authority and benefits of federal preemption as federal thrifts and, thus, do not need to use AMTPA to preempt state law. Another commenter, however, hinted that operating subsidiaries of federal thrifts should be treated like other state housing creditors under AMTPA.

Under OTS rules, operating subsidiaries of federal thrifts are subject to the same requirements as federal thrifts. For example, an operating subsidiary is permitted to engage in any activity that the federal savings association may conduct directly. 12 CFR 559.3(e)(1). Unless specifically provided by statute, regulation, or OTS policy, all federal statutes and regulations apply to operating subsidiaries in the same manner as they apply to federal savings associations. 12 CFR 559.3(h)(1). In addition, state laws apply to operating subsidiaries only to the extent that they apply to a federal savings association. 12 CFR 559.3(n)(1). OTS has taken these positions because operating subsidiaries, which may only engage in activities permissible for its parent federal savings association and must be controlled by the thrift, are treated as the equivalent of the parent thrift for regulatory and reporting purposes. 44 Because operating subsidiaries of federal savings associations have the same lending authority and benefits of federal preemption, they do not need to use AMTPA to preempt state law.

One commenter asked whether the final rule will apply to loans consummated before the effective date. The commenter warned that borrowers would argue that the new rule must apply retroactively to existing transactions because OTS was “incorrect” when it revised the rules in 1996. In this final rule, OTS has selected between two permissible interpretations of AMTPA based upon a reevaluation of the statute. OTS has, in no way, concluded that the 1996 rule changes reflected an impermissible construction of its statute. Accordingly, there is no basis for arguing that the final rule applies retroactively to transactions consummated before the effective date.

Even if OTS were to assume that it had the ability to apply this rule retroactively, such a position would seriously disrupt the mortgage markets. Borrowers and originating lenders have made pricing decisions regarding the interest rates and conditions and terms of mortgages based on the inclusion or exclusion of prepayment penalties. Similar pricing decisions have been made regarding secondary sales of these mortgages, either on a whole loan basis or as a part of mortgage pools backing securities. OTS does not believe that it may take away or impair vested rights acquired under a lawfully issued and effective regulation.

Numerous commenters on the NPRM urged OTS to recommend that Congress repeal AMTPA. These commenters noted that AMTPA was passed in a high interest rate environment and was designed to permit state chartered institutions to offer alternative mortgage transactions that were otherwise prohibited under state law. Because all states, except one, permit alternative mortgage transactions, these commenters asserted that AMTPA has outlived its usefulness and may be repealed. Other commenters, however, supported the retention of AMTPA. These commenters noted that state laws continue to restrict or prohibit alternative mortgage transactions and that local governments are beginning to regulate this area.

Legislative actions affecting AMTPA are beyond the scope of this rulemaking. In OTS's view, however, piecemeal legislative and regulatory solutions aimed at the various complex issues raised under AMTPA—predatory lending, the availability of credit, and parity among housing creditors—are not the best way to approach this problematic area. Accordingly, OTS and a substantial number of commenters on the NPRM believe that that Congress should revisit AMTPA, in the context of broader mortgage reform legislation involving the Real Estate Settlement Procedures Act, 45 the Truth In Lending Act, 46 and predatory lending. Only comprehensive reform can guarantee that borrowers receive meaningful information in a comprehensive and comprehensible form, that healthy competition between housing creditors is stimulated so that affordable housing credit continues to be available to consumers, and that statutory and regulatory burdens are minimized. OTS continues to advocate broad-based reform in this area as well as a review of existing laws that have inconsistencies and duplications that make the mortgage process more complicated and expensive for consumers than is needed.

OTS also indicated that it would make two recommendations if Congress decides to retain AMTPA. First, OTS suggested that Congress should give states a new opportunity to opt out from AMTPA preemption. Congress originally gave the states three years to opt out of AMTPA preemption. If a state opted out, state housing creditors would continue to be bound by the state's regulations on alternative mortgage transactions. 47 Only a handful of states decided to reject preemption.

Commenters opposing a new opt out period argued that this change would increase costs to consumers, raise new compliance issues, reduce certainty in the markets, and raise the possibility that Congress would add new opt out periods to other statutes including DIDMCA. One commenter feared that many states would opt out, which would gut the application of what was intended as a uniform law.

The mortgage loan market has seen dramatic and fundamental changes since the original opt out period closed in 1985. Certain changes, such as the general acceptance of alternative mortgage transactions under state law and the increased availability of housing credit, may have been anticipated. The states, however, could not have anticipated other changes, such as the explosion in sub-prime lending, increases in predatory practices by lenders, and the breadth of preemption of state law permitted under AMTPA. Given these changes, OTS believes that the states should have a new opportunity to opt out of AMTPA.

OTS also indicated that it would recommend that Congress require state housing creditors making loans under AMTPA to identify themselves to the states. Several commenters observed that this disclosure would enhance enforcement and monitoring activities by state supervisory agencies, fair housing organizations, and others. One commenter, however, argued that this revision is unnecessary because AMTPA requires state housing creditors to comply with state licensing requirements and states have the authority to require these creditors to identify themselves to the state regulator.

OTS continues to believe that enforcement is difficult unless states have a reliable means of identifying AMTPA creditors. OTS will continue to make this recommendation to ensure that all states have the ability to utilize their applicable enforcement mechanisms.

Part 590 implements section 501 of DIDMCA. 48 Section 501 provides for the permanent preemption of state laws that expressly limit the rate or amount of interest, discount points, finance charges, or other charges assessed in connection with certain federally-related residential loans. This preemption does not apply to loans secured by a first lien on a residential manufactured home unless the loan complies with consumer protections in § 590.4. This regulation addresses such matters as balloon payments, prepayment penalties, late charges, deferral fees, notice before repossession or foreclosure, and the refund of prepaid interest. Section 590.4(f) specifically addresses late charges. Paragraph (f)(4) states: “To the extent that applicable state law does not provide for a lower charge * * * a late charge on any installment * * * may not exceed the lesser of $5.00 or five percent of the unpaid amount of the installment.”

OTS proposed to eliminate the $5.00 limit. Two commenters opposed this change. They noted that this change would permit lenders to increase allowable late fees several times over the current levels and would facilitate predatory lending. Commenters also observed that low-income borrowers, including limited-income seniors, are more likely to live in manufactured homes and would be adversely affected by the rule change. Four commenters supported the proposed change because it would: (1) Ensure that lenders are adequately compensated; (2) provide a stronger self-adjusting incentive for consumers to pay on time; and (3) provide parity with late charges permitted under state laws.

OTS has not adjusted the $5 limit on late fees in 20 years. As a result, the limit has not kept pace with lenders' costs and is too small to serve as an effective deterrent to late payment. According to commenters, the $5 limit is an effective percentage rate of only 1.3 percent of the average manufactured home loan payment. This amount is well below the prevailing state late fee for manufactured housing, which commenters assert is 5 percent of the loan installment payment. By contrast, the proposed limit is within the mix of late fee structures established under state law.

While some commenters feared that the proposed rule would facilitate predatory lending, the revised regulation continues to impose effective limitations on such practices. As revised, § 590.4 limits the late charge to 5 percent of the unpaid amount of the installment unless the state provides for a lower amount. In addition, the rule would continue to provide that:

• No late charge may be assessed, imposed, or collected unless the written contract between the borrower and the lender provides for the charge (§ 590.4(f)(1)).

• No late charge may be collected if an installment is paid in full on or before the 15th day after its scheduled or deferred due date, unless state law permits a longer period (§ 590.4(f)(2)).

• A late charge may be imposed only once on an installment, and may not be collected if an installment has been deferred § 590.4(f)(3).

The NPRM asked whether OTS should also eliminate the 5 percent limit on the amount of the late fee and permit state law to govern the amount of late charges. One commenter supported and one commenter opposed this change. A third noted that this alternative would not have a significant impact since few states allow late charges in excess of 5 percent.

OTS has retained the 5 percent late fee limitation. While few states permit a lower charge, OTS believes that the 5 percent fee serves as an effective consumer safeguard to the extent that states permit late fees in excess of 5 percent of the unpaid amount.

OTS proposed a minor technical change to part 591, which implements section 341 of the Garn St. Germain Depository Institutions Act of 1982 (12 U.S.C. 1701j-3). 49 Part 591 governs due-on-sale clauses in real estate loans and the preemption of state prohibitions on such clauses. OTS proposed to revise the definition of reverse mortgage at § 591.2(n) to clarify that a reverse mortgage is not limited to a loan that provides for periodic payments, but also includes a loan that provides for a lump sum payment. This change is consistent with OTS legal opinions, 50 and no commenter addressed the issue. The proposed rule is adopted without change.

The Director of OTS has determined that the final rule does not constitute a “significant regulatory action” for purposes of Executive Order 12866.

Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 104-4 (Unfunded Mandates Act), requires an agency to 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, or by the private sector, of $100 million or more in any one year. If a budgetary impact statement is required, section 205 of the Unfunded Mandates Act also requires an agency to identify and consider a reasonable number of regulatory alternatives before promulgating a rule. OTS has determined that the rule will not result in expenditures by state, local, or tribal governments or by the private sector of $100 million or more. Accordingly, a budgetary impact statement is not required under section 202 of the Unfunded Mandates Act of 1995.

The Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612) requires federal agencies to prepare a final regulatory flexibility analysis with a final rule that was subject to notice and comment, unless the agency certifies that the rule will not have a significant impact on a substantial number of small entities.

Parts 590 and 591. OTS did not prepare an initial or final regulatory flexibility analysis for the revisions to parts 590 and 591. The change to part 590 affects creditors making federally-related loans secured by first liens on residential manufactured housing. The final rule provides these creditors with greater flexibility in charging late fees, while retaining the benefits of preemption of state usury laws under section 501 of DIDMCA. The current rule limits late fees to $5, which has proven to be too small to deter late payments. The final rule permits the imposition of a more tangible penalty and will benefit all creditors making such loans, including small businesses. Part 591 permits all lenders, whether federally- or state chartered, to exercise due-on-sale clauses in real property loans without regard to state law. The final rule makes a clarifying change that broadens the definition of reverse mortgage and codifies an existing OTS interpretation. OTS believes that the impact of the final rule on lenders should be beneficial. Thus, OTS certifies to the Chief Counsel of Advocacy of the Small Business Administration that the changes to parts 590 and 591 will not have a significant economic impact on a substantial number of small entities.

Section 560.220. OTS has performed a final regulatory flexibility act analysis for the changes to § 560.220. A description of the reasons why OTS is adopting the final rule, a statement of the objectives of, and legal basis for, this aspect of the final rule are included in the supplementary material above. In addition, OTS has addressed the following topics.

Section 560.220 applies to state housing creditors other than credit unions or commercial banks. OTS does not compile data on the total number of state housing creditors that may utilize § 560.220. Moreover, except for state chartered savings associations, OTS does not have any authority to require state housing creditors to identify themselves or submit other data to OTS. Similarly, AMTPA does not require state housing creditors to notify the states that they are taking advantage of it. As a result, OTS has little information regarding how many state housing creditors may use § 560.220 or how many of these creditors are small businesses.

Nonetheless, OTS estimates that 6,757 small state housing creditors may be affected by this regulation. United States Census data indicates that 7,257 firms (excluding depository institutions) engage in real estate credit. OTS estimates approximately 6,457 of these firms are small businesses. 51 Based on the most recent TFR and Call Report data, OTS estimates that an additional 300 state chartered savings associations and state savings banks are small businesses. 52 For purposes of this analysis, we have assumed that all 6,757 of these small businesses engage in alternative mortgage transactions.

OTS believes that this number may overstate the number of small businesses that may be affected by the changes to the final rule for several reasons. First, the use of AMTPA is solely at the election of the state housing creditor. State housing creditors may, for whatever reason, decline to use AMTPA for their alternative mortgage transactions. Moreover, many small state housing creditors will conduct alternative mortgage transactions that are governed by laws in states that either:

• Opted out of AMTPA. State housing creditors conducting alternative mortgage transactions governed by these laws currently cannot use § 560.220 to preempt state law; or

• Enacted statutes that do not impose any substantive prohibitions and restrictions on prepayments or late charges for the loans. State housing creditors may continue to charge penalties and fees on alternative mortgage transactions in these states, notwithstanding the final rule.

OTS's original estimate of small businesses was based on the best information available to it. OTS encouraged commenters with access to more complete and more accurate data to submit information regarding the number of state housing creditors (other than credit unions or commercial banks) that may be affected by this rule. OTS also requested information regarding how many of these creditors may be small businesses.

One commenter argued that OTS underestimated the number of small businesses affected by the rule. The commenter asserted that OTS excluded 40,000 to 50,000 mortgage brokers who originate the majority of residential loans in the United States. The commenter also asserted that thousands of appraisers and title companies would also see diminished revenues.

OTS used United States Census data to determine the number of non-depository institutions that would be effected by the rule. Specifically, OTS used the Census classification—NAICS 522292—Real Estate Credit, which is a subcategory within NAICS 5222—Non-Depository Credit Intermediation. NAICS 5222 includes establishments that are primarily engaged in extending credit or lending funds raised by credit market borrowing. Within this group, industries are broken out based on the type of credit extended. The selected classification—NAICS 522292—comprises non-depository institutions that are engaged in lending funds with real estate as collateral and includes mortgage bankers and loan correspondents.

The Regulatory Flexibility Act requires an agency to consider direct effects that a regulation may have on small businesses that it regulates. OTS is not, however, required to analyze the effects of its rule on entities that it does not regulate. Arguably, OTS regulates state housing creditors that make loans, credit sales, or advances secured by interests in real property. 53 However, it does not directly impose any regulation on those entities that garner fees through brokerage services or through other services that facilitate the credit intermediation process. Accordingly, OTS has not included within its tabulation entities that appear within the classification NAICS 5223—Activities Related to Credit Intermediation. This classification includes establishments that are primarily engaged in facilitating credit intermediation by performing activities, such as arranging loans by bringing borrowers and lenders together on a commission or fee basis. 54

AMTPA permits certain state housing creditors to make, purchase, and enforce alternative mortgage transactions without regard to any state constitution, law, or regulation, provided that they comply with regulations identified by OTS. As described more fully in the supplementary information section, the final rule no longer identifies rules on prepayment and late charges for state housing creditors under AMTPA. As a result, these state housing creditors will likely be subject to state laws addressing prepayment and restricting late charges.

OTS is unable to quantify the impact of the final rule on small state housing creditors for several reasons. Based on available data, it is difficult to determine how many alternative mortgage transactions were made under OTS AMTPA regulations. Industry-wide data is available only for one type of alternative mortgage transaction—ARMs. Other types of mortgages with alternative features are generally reported as fixed-rate mortgages. The available data, however, indicates that all housing lenders originated $243.6 billion and $256 billion in ARMs in 2001 and 2000, respectively. 55 The most recent data available indicates that state housing creditors (excluding commercial banks and thrifts) account for approximately 56.3 percent of all lending or $137.1 billion and $144.1 billion of ARMs in 2001 and 2000. 56 OTS estimates that $17.0 billion and $17.9 billion of these ARM loans were originated by small state housing creditors in 2001 and 2000. 57 This available data, however, does not distinguish between transactions that are made under AMTPA, and those that are not. As noted above, OTS has no authority to require state housing creditors that use § 560.220 to provide this information. 58

In the ANPR and NPRM, OTS attempted to obtain more complete and accurate information regarding the extent to which state housing creditors and small state housing creditors engage in alternative mortgage transactions under AMTPA. OTS also requested information concerning the amount of late fees and prepayment penalties generated by these alternative mortgage transactions. Commenters, however, provided no reliable additional information on this subject. 59

Even if reliable estimates were available, these amounts would not accurately reflect the impact of the deletion of the preemption of prepayment charge provisions and late charge provisions. The 6,757 small state housing creditors that may be affected by the final rule will become subject to a broad range of state laws. For example, some of these laws may continue to permit the imposition of prepayment penalties. Others may prohibit or restrict prepayment charges. Still other laws would subject prepayment penalties to a range of restrictions, such as prohibiting penalties for a set period after execution of the note or mortgage or limiting the amount of the prepayment penalty. Based on this wide variety of restrictions and the fact that state laws will change over time, OTS cannot determine how much income would be lost by small state housing creditors under the rule. 60

Moreover, the impact of the loss of prepayment penalties may be ameliorated somewhat through other techniques. For example, lenders often impose a higher overall interest rate where prepayment penalties are excluded from the loan agreement. 61 In addition, some commentators assert that the payment of points upon origination and the imposition of a prepayment penalty are economically equivalent transactions. Since a mortgage with points includes an implicit and easily calculable prepayment penalty, state housing creditors may substitute points where prepayment penalties are prohibited. 62

Some commenters indicated that OTS did not fully consider all impacts on small businesses, such as increased compliance costs to conform to newly applicable states laws, and the negative economic effects on small entities' ability to offer a competitive product, to address prepayment risk, or to access the secondary loan markets. Commenters, however, did not provide any reliable estimates or sources of information regarding the magnitude of these impacts on small entities.

Section 603(c) of the RFA requires OTS to describe any significant alternatives that accomplish the stated objectives of the rule while minimizing any significant economic impact of the rule on small entities. Section 603(c) lists several examples of significant alternatives, including: (1) Establishing different compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) clarifying, consolidating, or simplifying compliance and reporting requirements for small entities; (3) using performance standards rather than design standards; and (4) excepting small entities from coverage of the rule or a part of the rule.

OTS considered retaining its current identification of regulations for all state housing creditors. For the reasons discussed above, OTS believes that this course is inappropriate. OTS also considered whether it should continue to identify the existing regulations for small state housing creditors, but not for other state housing creditors. However, given its analysis of the purposes and goals of AMTPA, OTS has concluded that it is inappropriate to distinguish between small and large state housing creditors.

OTS solicited comments on other alternatives that would minimize the burdens on small state housing creditors. The commenters did not suggest any alternatives aimed at small housing creditors. Other alternatives, however, are discussed in the supplementary information section above.

Various federal rules or statutes duplicate or overlap with the final rule. NCUA has identified all of its lending regulations as applicable to alternative mortgage transactions by state chartered credit unions. 12 CFR 701.21(a). These regulations address such matters as the term of the loan, requirements governing security instruments, notes, liens, due-on-sale provisions, and assumptions. These rules specifically prohibit prepayment penalties and preempt state laws on prepayment limits and late charges. OCC, on the other hand, has identified as applicable to state chartered commercial banks, its rules that directly relate to ARMs. OCC's identified regulations define ARM loans; state that ARMs may be made, sold, purchased, participated in, or dealt in without regard to any state law limitation on those activities; authorize certain indexes; and allow prepayment fees. 12 CFR 34.24.

In addition, the Home Ownership and Equity Protection Act (HOEPA)  63 imposes limits on certain high cost mortgage loans by state housing creditors. These limits include restrictions on balloon payments, prepayment penalties, and other matters. Other federal statutes and rules may also preempt the application of state laws on prepayments and late fees for alternative mortgage transactions by state housing creditors. See e.g. , 12 CFR 590.4 (preemption of state usury laws under section 501 of DIDMCA—first liens on residential mobile homes) and 12 CFR part 591 (preemption of state due-on-sale clauses under section 341 of Garn St. Germain Depository Institutions Act of 1982). 64

OTS is aware of no federal rules or statutes that conflict with the final rule.

Executive Order 13132 imposes certain requirements on an agency when formulating and implementing policies that have federalism implications or taking actions that preempt state law. In accordance with those requirements, OTS has consulted with the Conference of State Bank Supervisors and the National Association of Attorneys General concerning this change.

On July 12, 2001, Eclipse Aviation Corporation applied for a type certificate for their new Model 500 airplane.

The Model 500 design includes turbine engines mounted aft on the fuselage, which means early visual detection of engine fire is precluded. The applicable existing regulations do not require fire extinguishing systems for engines. Aft mounted turbine engine installations, along with the need to protect such installed engines from fires, were not envisioned in the development of part 23; therefore, a special condition regarding fire protection for the engines of the Model 500 is required.

Under the provisions of 14 CFR 21.17, Eclipse Aviation Corporation must show that the Eclipse Model 500 meets the following:

(1) Applicable provisions of 14 CFR part 23, effective December 18, 1964, as amended by Amendments 23-1 through 23-54 (September 14, 2000).

(2) Part 34 of the Federal Aviation Regulations effective September 10, 1990, plus any amendments in effect on the date of type certification.

(3) Part 36 of the Federal Aviation Regulations effective December 1, 1969, as amended by Amendment 36-1 through the amendment in effect on the date of type certification.

(4) Noise Control Act of 1972.

(5) Special conditions that are not relevant to these special conditions;

(6) Exemptions, if any;

(7) Equivalent level of safety findings, if any; and

(8) Special conditions adopted by this rulemaking action.

In addition to the applicable airworthiness regulations and special conditions, the Model 500 must comply with the part 23 fuel vent and exhaust emission requirements of 14 CFR part 36, and the FAA must issue a finding of regulatory adequacy pursuant to § 611 of Public Law 92-574, the “Noise Control Act of 1972.”

Special conditions, as appropriate, as defined in § 11.19, are issued in accordance with § 11.38 after public notice and become part of the type certifications basis in accordance with § 21.17(a)(2).

Special conditions are initially applicable to the model for which they are issued. Should the type certificate for that model be amended later to include any other model that incorporates the same novel or unusual design feature, the special conditions would also apply to the other model under the provisions of § 21.101.

The Model 500 will incorporate the following novel or unusual design features:

Turbine engines mounted on the aft of the fuselage. Aft mounted turbine engine installations need to be protected from fire since early visual detection of engine fires is not possible. This special condition covers a fire extinguishing system for the engines of the Model 500.

Notice of proposed special conditions No. 23-01-04-SC-A for the Eclipse Model 500 airplanes was published on January 29, 2002 (67 FR 4215). On June 17, 2002, we published an amended notice of proposed special conditions (67 FR 46927). No comments were received, and the special conditions are adopted as proposed.

As discussed above, these special conditions are applicable to the Eclipse Model 500 airplane. The engine installation used in the Model 500 does not utilize additional engine compartments other than those addressed in the special conditions. Should Eclipse Aviation Corporation apply at a later date for a change to the type certificate to include another model incorporating the same novel or unusual design feature, the special conditions would apply to that model as well under the provisions of § 21.101.

This action affects only certain novel or unusual design features on one model of airplane. It is not a rule of general applicability, and it affects only the applicant who applied to the FAA for approval of these features on the Eclipse Model 500 airplane.

The FAA has received reports of extensive cracking found on the left- and right-side lower wing surface between the fuselage and inboard engine nacelle on certain airplanes originally manufactured by Lockheed that, in some cases, are used for the special purpose of forest and wildlife conservation (fighting fires). The cracking generally started from the fuel tank inspection cutouts and access holes (panels 53, and 151 through 153 inclusive) in a chordwise direction. Such cracking may be caused by the age of the airplanes and high stresses that occur during fire-fighting missions. Such cracking, if not detected and corrected, could result in structural failure of the wings and consequent loss of control of the airplane.

We have determined that repetitive dye penetrant and detailed inspections of the left- and right-side lower wing surface between the fuselage and inboard engine nacelle, and repetitive detailed inspections of adjacent areas are necessary to ensure that cracks will be detected, and corrective action taken (before further flight), to preclude crack growth to a size that would create an unacceptable risk of structural failure.

Based on the reports of cracking, the required inspections focus on the lower wing surface area surrounding the access holes. The identified method of inspection is considered adequate to detect any cracking in those areas. Also, based on the reports of cracking, and considering the loading environment the affected airplanes may be subjected to in a fire-fighting mission, we have determined that an initial dye penetrant inspection should be performed within 5 days or 50 flight cycles after the effective date of this AD, depending on the repair configuration of the airplane, and that a detailed inspection should be performed within 5 days after the effective date of this AD.

We also have determined that operators need to submit a report of the initial inspection findings to us. The intent of these required inspection reports is to enable us to determine how widespread such cracking problems may be in the affected fleet. Based on the results of these reports, further corrective action may be warranted.

Since an unsafe condition has been identified that is likely to exist or develop on other airplanes originally manufactured by Lockheed of the same type design that, in some cases, are used for the special purposes of forest and wildlife conservation (fighting fires), this AD is being issued to detect and correct stress-related cracking on the left- and right-side lower wing surface between the fuselage and inboard engine nacelle, which could result in structural failure of the wings and consequent loss of control of the airplane. This AD requires repetitive dye penetrant and detailed inspections to detect cracks in certain areas located on the left- and right-side lower wing surface between the fuselage and inboard engine nacelle; repetitive detailed inspections of adjacent areas; and repair, if necessary. This AD also requires ensuring that the surfaces are thoroughly cleaned and dried before doing any dye penetrant inspection, and free of contaminants, paint, and other coatings that could prevent dye penetrant from entering discontinuities. This AD also requires that operators submit a report of the initial inspection findings to the FAA.

This is considered to be interim action until final action is identified, at which time we may consider further rulemaking.

Since a situation exists that requires the immediate adoption of this regulation, it is found that notice and opportunity for prior public comment hereon are impracticable, and that good cause exists for making this amendment effective in less than 30 days.

Although this action is in the form of a final rule that involves requirements affecting flight safety and, thus, was not preceded by notice and an opportunity for public comment, comments are invited on this rule. Interested persons are invited to comment on this rule by submitting such written data, views, or arguments as they may desire. Communications shall identify the Rules Docket number and be submitted in triplicate to the address specified under the caption ADDRESSES. All communications received on or before the closing date for comments will be considered, and this rule may be amended in light of the comments received. Factual information that supports the commenter's ideas and suggestions is extremely helpful in evaluating the effectiveness of the AD action and determining whether additional rulemaking action would be needed.

Submit comments using the following format:

• Organize comments issue-by-issue. For example, discuss a request to change the compliance time and a request to change the service bulletin reference as two separate issues.

• For each issue, state what specific change to the AD is being requested.

• Include justification ( e.g. , reasons or data) for each request.

Comments are specifically invited on the overall regulatory, economic, environmental, and energy aspects of the rule that might suggest a need to modify the rule. All comments submitted will be available, both before and after the closing date for comments, in the Rules Docket for examination by interested persons. A report that summarizes each FAA-public contact concerned with the substance of this AD will be filed in the Rules Docket.

Commenters wishing the FAA to acknowledge receipt of their comments submitted in response to this rule must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket Number 2002-NM-220-AD.” The postcard will be date stamped and returned to the commenter.

The regulations adopted herein will not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, it is determined that this final rule does not have federalism implications under Executive Order 13132.

The FAA has determined that this regulation is an emergency regulation that must be issued immediately to correct an unsafe condition in aircraft, and that it is not a “significant regulatory action” under Executive Order 12866. It has been determined further that this action involves an emergency regulation under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979). If it is determined that this emergency regulation otherwise would be significant under DOT Regulatory Policies and Procedures, a final regulatory evaluation will be prepared and placed in the Rules Docket. A copy of it, if filed, may be obtained from the Rules Docket at the location provided under the caption ADDRESSES.

On June 17, 2002, while dropping retardant on a fire near Walker, California, a United States Department of Agriculture (USDA) Forest Service Model C-130A airplane was involved in an accident, resulting from the structural failure of the center wing. Investigation revealed fatigue cracking in the lower skin panels and stringers of the center wing. The cause of such fatigue cracking has been attributed to the age, time-in-service, and flight cycles of the airplane. Such fatigue cracking, if not detected and corrected, could result in structural failure of the wings and consequent loss of control of the airplane.

We have determined that extensive cracking (multiple-site damage (MSD)) of the left- and right-side lower skin panels of the center wing between wing stations 41.0 and 71.0 and the front and rear spars, is likely to occur on Lockheed C-130A airplanes, type certificated in the restricted category. Repetitive inspections of these areas are necessary to ensure that cracks will be detected, and corrective action taken, to preclude crack growth to a size that would create an unacceptable risk of structural failure.

MSD is characterized by the simultaneous presence, at multiple locations, of relatively small fatigue cracks that have the same geometry and stress level. The presence of MSD is usually an indicator of normal fatigue wearout, as opposed to any kind of an anomaly ( e.g. , material or manufacturing defect). The length of critical MSD cracks is typically much smaller than that of a single, isolated critical crack.

Based on the reports of cracking, we have determined that the repetitive inspections required by this AD will focus on fastener holes penetrating the lower skin panels and stringers of the center wing in the affected areas. Due to the nature of MSD cracking, the cracks that will need to be detected are very small, perhaps less than 0.10 inch in length. While inspection methodologies exist that can be used to detect cracks of this size, we are currently unaware of any for Lockheed C-130A airplanes, type certificated in the restricted category. Therefore, owners and operators must submit inspection procedures and repetitive inspection intervals to the Manager, Atlanta Aircraft Certification Office (ACO), FAA. The inspection procedures must be sufficiently reliable to determine the location and orientation of cracks that are very small, perhaps less than 0.10 inch in length. A potential inspection method would be to develop an inspection procedure using a bolt hole eddy current technique, develop a reference standard to calibrate the test instruments, and then use the developed inspection procedures and calibrated instruments to detect cracks. Other potential inspection methods include eddy current, eddy current arrays, and ultrasonic techniques. Certain types of inspections, such as a radiographic, are inadequate to detect small crack lengths. Because of the potential catastrophic nature of this cracking, the initial inspection must be performed within 4 days after the effective date of this AD.

Repetitive inspections must be performed at intervals that prevent crack growth from exceeding the minimum residual strength required to support ultimate load on the affected structure. These repetitive inspection intervals must be based on a damage tolerance assessment of the skin panels and stringers. Guidance for damage tolerance procedures may be found in Advisory Circular (AC) 25.571-1C, dated April 29, 1998.

If any crack is detected during any inspection, operators must replace the cracked part with a new part; or repair and inspect at new intervals based on a damage-tolerance assessment of the wing panels and stringers, per a method approved by the Atlanta ACO. The repair must include a damage tolerance assessment as noted above, in addition to analysis showing static strength capability in compliance with the certification basis of the airplane. In the case of the repair, determination of new inspection intervals based on a damage-tolerance assessment of the repaired wing panels and stringers is necessary, because the repair may alter the inspection intervals that are necessary in order to detect cracks before the structure fails. Conversely, in the case of a replacement with a new part, the inspection intervals that apply to the unrepaired structure continue to be applicable.

In addition, operators must report the results of inspections to the Atlanta ACO. As a minimum, the report must include the following information:

• Airplane manufacturer's serial number(s);

• Time-in-service of airplane;

• Applicable type certificate data sheet;

• Description of usage under which the restricted category was issued (see 14 CFR part 21.25(b));

• Part numbers and time-in-service of damaged and undamaged parts; and

• Diagram(s) showing the location and orientation of cracks, and if available, the length of cracks.

Since an unsafe condition has been identified that is likely to exist or develop on other Lockheed C-130A airplanes, type certificated in the restricted category, this AD is being issued to detect and correct fatigue cracking in the left- and right-side lower skin panels and stringers of the center wing, which could result in structural failure of the wings and consequent loss of control of the airplane. This AD requires repetitive inspections to detect cracks at fastener holes in the left- and right-side lower skin panels and stringers of the center wing between wing stations 41.0 and 71.0; and replacement of any cracked part with a new part, or repair and inspections at new intervals. This AD also requires operators to submit a report of the inspection findings to the FAA.

This is considered to be interim action until final action is identified, at which time we may consider further rulemaking.

Since a situation exists that requires the immediate adoption of this regulation, it is found that notice and opportunity for prior public comment hereon are impracticable, and that good cause exists for making this amendment effective in less than 30 days.

Although this action is in the form of a final rule that involves requirements affecting flight safety and, thus, was not preceded by notice and an opportunity for public comment, comments are invited on this rule. Interested persons are invited to comment on this rule by submitting such written data, views, or arguments as they may desire. Communications shall identify the Rules Docket number and be submitted in triplicate to the address specified under the caption ADDRESSES. All communications received on or before the closing date for comments will be considered, and this rule may be amended in light of the comments received. Factual information that supports the commenter's ideas and suggestions is extremely helpful in evaluating the effectiveness of the AD action and determining whether additional rulemaking action would be needed.

Submit comments using the following format:

• Organize comments issue-by-issue. For example, discuss a request to change the compliance time and a request to change the service bulletin reference as two separate issues.

• For each issue, state what specific change to the AD is being requested.

• Include justification ( e.g. , reasons or data) for each request.

Comments are specifically invited on the overall regulatory, economic, environmental, and energy aspects of the rule that might suggest a need to modify the rule. All comments submitted will be available, both before and after the closing date for comments, in the Rules Docket for examination by interested persons. A report that summarizes each FAA-public contact concerned with the substance of this AD will be filed in the Rules Docket.

Commenters wishing the FAA to acknowledge receipt of their comments submitted in response to this rule must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket Number 2002-NM-235-AD.” The postcard will be date stamped and returned to the commenter.

The regulations adopted herein will not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, it is determined that this final rule does not have federalism implications under Executive Order 13132.

The FAA has determined that this regulation is an emergency regulation that must be issued immediately to correct an unsafe condition in aircraft, and that it is not a “significant regulatory action” under Executive Order 12866. It has been determined further that this action involves an emergency regulation under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979). If it is determined that this emergency regulation otherwise would be significant under DOT Regulatory Policies and Procedures, a final regulatory evaluation will be prepared and placed in the Rules Docket. A copy of it, if filed, may be obtained from the Rules Docket at the location provided under the caption ADDRESSES.

On July 23, 2002, the FAA published a notice (67 FR 48064) proposing to establish Class D surface area airspace at Henderson Airport in Las Vegas, Nevada. Interested parties were invited to participate in this rulemaking effort by submitting comments on the proposal to the FAA. In the ensuing comment period, which closed on September 6, 2002, the FAA received no comments on the proposed action.

This action amends 14 CFR part 71 by establishing Class D airspace at Henderson Airport extending from the surface up to, but not including, 4,000 feet above Mean Seal Level (MSL) within a 4.1-mile radius of Henderson Airport, excluding Las Vegas Class B airspace. The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation—(1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a Regulatory Evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Class D airspace areas are published in Paragraph 5000 of FAA Order 7400.9K, Airspace Designations and Reporting Points, dated August 30, 2002, and effective September 16, 2002, through September 15, 2003, which is incorporated by reference in 14 CFR 71.1. The Class D airspace designation listed in this document will be published subsequently in that Order.

On March 19, 2001, the Department published an interim rule [66 FR 15349] that implemented Public Law 106-536 (November 22, 2000). This Act created a new class of special immigrants under INA 203(b)(4) for international broadcasting employees. Such aliens must be seeking to enter the United States to work as a broadcaster for the International Broadcasting Bureau of the Broadcasting Board of Governors, or for a grantee of the Broadcasting Board of Governors. The alien's accompanying spouse and child(ren) are entitled to derivative status. The law limits the number of immigrants in this category to 100 annually, excluding spouses and children for whom there is no numerical limitation.

The Department's interim rule solicited comments, however, no comments were received.

Since no comments were received, no change to the interim rule is required and the Department does not believe it is necessary to reprint the regulation in this final rule.

On October 26, 2001, the President signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001 (Public Law 107-56) (the Act). Title III of the Act makes a number of amendments to the anti-money laundering provisions of the Bank Secrecy Act (BSA), which is codified in subchapter II of chapter 53 of title 31, United States Code. These amendments are intended to promote the prevention, detection, and prosecution of international money laundering and the financing of terrorism. Two of these provisions became effective on December 26, 2001.

First, section 313(a) of the Act added a new subsection (j) to 31 U.S.C. 5318 that prohibits a “covered financial institution” from providing “correspondent accounts” in the United States to foreign banks that do not have a physical presence in any country (foreign shell banks). Section 313(a) also requires those financial institutions to take reasonable steps to ensure that correspondent accounts provided to foreign banks are not being used to provide banking services indirectly to foreign shell banks.

Second, section 319(b) of the Act added a new subsection (k) to 31 U.S.C. 5318 that requires any covered financial institution that provides a correspondent account to a foreign bank to maintain records of the foreign bank's owners and to maintain the name and address of an agent in the United States designated to accept service of legal process for the foreign bank for records regarding the correspondent account. Subsection (k) also authorizes the Secretary and the Attorney General to issue a summons or subpoena to any foreign bank that maintains a correspondent account in the United States and to request records relating to such account, including records maintained outside the United States relating to the deposit of funds into the foreign bank. If a foreign bank fails to comply with or to contest the summons or subpoena, any covered financial institution with which the foreign bank maintains a correspondent account must terminate the account upon notice from the Secretary or the Attorney General.

Under the Act, Treasury is authorized to interpret and administer these provisions. On November 20, 2001, Treasury issued Interim Guidance  1 to banks, savings associations, and other depository institutions to assist them in meeting their compliance obligations under sections 5318(j) and (k). 2 The Interim Guidance included definitions of key terms in sections 5318(j) and (k) and a model certification that depository institutions were authorized to use as an interim means to assist them in meeting their obligations related to dealing with foreign shell banks under section 5318(j) and recordkeeping under section 5318(k).

On December 28, 2001, Treasury published for comment a notice of proposed rulemaking (NPRM)  3 to codify the Interim Guidance, with some modifications, as regulatory standards, and proposed to apply the requirements of these two provisions to securities brokers and dealers in the same manner as they apply to depository institutions. 4 The NPRM also carried forward from the Interim Guidance, with some modifications, the model certification that covered financial institutions may use to assist them in meeting the requirements of sections 5318(j) and (k), and that would provide a covered financial institution with a safe harbor for purposes of compliance with those sections. Treasury also proposed that covered financial institutions must verify the information provided by a foreign bank, or otherwise relied upon for purposes of sections 5318(j) and (k), every two years or at any time a covered financial institution has reason to believe that the previously provided information was no longer accurate. The NPRM included a model recertification that would provide a covered financial institution with a safe harbor in connection with the updating of previously provided information. The NPRM also provided special rules and safe harbors for a covered financial institution that, consistent with the Interim Guidance and the NPRM, requests information from a foreign bank before the effective date of the final rule and receives such information not later than the date that is 90 days after the publication of the final rule.

As an administrative matter, the NPRM proposed to codify its provisions in a new part 104 of title 31 of the Code of Federal Regulations. 5 Treasury has since determined to codify the final rule with Treasury's other BSA regulations in part 103.

Treasury received 23 comments regarding the proposed rule, including ten from financial services trade associations, four from U.S. financial institutions, four from foreign financial institutions, three from regional development banks, and two from members of Congress. Although comments were received on many issues, by far the most significant issues addressed by the commenters were the breadth of the definition of “correspondent account” in the NPRM and the treatment of foreign branches of U.S. depository institutions as covered financial institutions. Other commenters raised issues concerning the means for obtaining and using the certification, requirements for termination of accounts, and certain other definitions. These issues are discussed below in the section-by-section analysis.

Treasury has included “certification” and “recertification” as defined terms in the final rule for ease of reference. These terms refer to the certification and recertification forms in appendices A and B to Subpart I of 31 CFR Part 103. These forms have been revised consistent with the substantive changes in regulatory text. In addition, in response to comments, the certification appended to the final rule includes the definition of the term “foreign bank.”

The term “correspondent account” is defined in the Act for sections 313 and 319(b) by reference to the definition in section 311. The definition in the NPRM was taken verbatim from section 311 (but made applicable to “foreign banks” rather than “foreign financial institutions”). 6 More comments dealt with this definition than any other single subject. Every comment letter from the private sector regarding this topic took the position that the definition in the proposed rule was too broad. The commenters stated that this definition, and particularly the clause “or handle other transactions related to such bank,” extends well beyond the commonly understood meaning of the term  7 (and even beyond the meaning of the term “account”), to bring within its scope numerous types of accounts, as well as many types of transactions that don't involve an account as such, and that pose little or no risk of money laundering. Some commenters stated that, although such a broad definition may be appropriate for section 313, which prohibits correspondent accounts with foreign shell banks, the definition should be refined and narrowed for other provisions of the Act, including section 319(b). The commenters urged that it could actually be counterproductive to apply a broad statutory definition to all provisions of the Act dealing with correspondent accounts, in that it would require covered financial institutions to devote limited resources to focus on a broad range of accounts and transactions that have little susceptibility to money laundering, thereby reducing the attention that can be given to the types of accounts and activities presenting more serious risks.

Accordingly, many commenters urged Treasury to narrow the definition so as to exclude transactions and accounts that do not present a meaningful risk of money laundering or terrorist financing. Among the types of transactions and accounts that the commenters sought to exclude from the definition are the following:

(a) Transactions in which a foreign bank is acting as principal and not for a customer (as is often the case with overnight and short-term deposits, foreign exchange, derivatives, and other securities transactions), and accounts used exclusively to facilitate such transactions. The primary argument for this exclusion is that if there are no customer funds contained in accounts, then the accounts are functionally no different than accounts maintained by covered financial institutions for any nonfinancial company and would seem to pose a minimal risk for money laundering.

(b) Accounts for foreign banks established for a specific purpose through which funds are received and disbursed under limited defined conditions to identified parties, such as escrow, corporate trust, paying agency, custody, and clearing accounts.

(c) Accounts for foreign banks for which ownership has been subject to close scrutiny by a credible authority. Under this approach, accounts for foreign banks that are publicly traded, are qualified intermediaries (as designated by the IRS), are subject to the laws of FATF member countries, or are permitted to hold pension plan assets under regulations of the Department of Labor could be exempted from this requirement, on the theory that such foreign banks are highly unlikely to present a significant risk of money laundering.

Other commenters noted that covered financial institutions may conduct occasional, isolated transactions with a foreign bank with which they have no established relationship. They sought clarification as to whether the term “correspondent account” includes infrequent transactions with foreign banks that do not involve an “account” relationship in any customary sense, and asked that Treasury set forth some means of determining the extent to which an isolated or occasional transaction would not constitute a “correspondent account” under these provisions.

A Congressional commenter stated that the regulations should define the term “correspondent account” “broadly to maximize the scope of the protections provided by the Act,” and to use a single definition in all the regulations to be issued and then to specify for each section the particular subset of correspondent accounts being addressed.

Treasury believes that, for the purposes of sections 313 and 319(b), the broad statutory definition is appropriate. Congress addressed shell banks separately in section 313, determining that they pose such a significant risk for money laundering that an absolute ban on correspondent accounts is justified. Section 319(b) requires that covered financial institutions maintain records regarding the ownership and an agent for service of process of any foreign bank for which it maintains a correspondent account. There is no clear justification for limiting the requirement to only certain foreign banks or to only those foreign banks for which certain types of correspondent accounts are maintained. Moreover, the principal argument asserted for adopting a more restrictive definition is to reduce the compliance burden that results from a broad definition, so that industry compliance resources may be focused on areas presenting a potentially greater risk. With respect to this rulemaking, however, covered financial institutions will generally achieve compliance with the requirements of both sections 313 and 319(b) by obtaining one certification from the foreign bank. Thus, requiring the ownership and process agent information in each case where the covered financial institution must already obtain the foreign bank's certification regarding its shell bank status should impose little additional burden on the covered financial institution. Accordingly, Treasury does not believe that the costs of complying with section 319(b) for all correspondent accounts outweigh the risks of excluding from the scope of coverage of section 319(b) foreign banks for which only certain types of accounts are maintained. Thus, for purposes of the final rule, Treasury is essentially retaining the proposed definition, with technical changes that clarify the definition. The final definition for purposes of these sections includes accounts for making “other disbursements” as well as payments “on behalf of a foreign bank.” No inference should be drawn from this determination concerning the appropriate definition of “correspondent account” for purposes of section 312 of the Act. 8

Treasury is further clarifying the definition of “correspondent account” by defining the term “account” for this purpose. With respect to banks, section 311 of the Act provides that the term account “(i) means a formal banking or business relationship established to provide regular services, dealings, and other financial transactions, and (ii) includes a demand deposit, savings deposit, or other transaction or asset account and a credit account or other extension of credit.” Treasury believes that the use of the term “regular” in the definition requires an arrangement to provide ongoing services, and would generally exclude infrequent or occasional transactions. Inasmuch as section 311 specifically applies this definition of “account” for purposes of section 313, Treasury is modifying the final rule by adding this definition of “account,” for purposes of defining “correspondent account.” This results in a definition of “correspondent account” that includes any transaction account, savings account, asset account, or extension of credit maintained for a foreign bank, as well as any other relationship with a foreign bank to provide regular services, dealings, and other financial transactions. Treasury anticipates that most isolated or occasional transactions that a covered financial institution conducts with a foreign bank would not constitute a correspondent account for purposes of the final rule. 9

The NPRM proposed the same definition of “correspondent account” for securities broker-dealers. After consultation with the Securities and Exchange Commission (SEC), Treasury is adopting the same definition of “correspondent account” for purposes of securities brokers' and dealers' compliance with sections 313 and 319(b). See 31 U.S.C. 5318A(e)(2). Treasury is taking this approach in order to ensure parity between different types of covered financial institutions and to treat functionally equivalent accounts in the same manner. Thus, under the final rule, brokers and dealers must comply with these two sections with respect to any account they establish, maintain, administer, or manage in the U.S. for a foreign bank that permits the foreign bank to engage in securities transactions, funds transfers, or other financial transactions through that account. Such accounts would include, for example, the following, whether such accounts are for transactions by the foreign bank as principal or for its customers: (1) Accounts to purchase, sell, lend or otherwise hold securities; (2) prime brokerage accounts that consolidate trading done at a number of firms; (3) accounts for trading foreign currency; (4) various forms of custody accounts; (5) over-the-counter derivatives accounts; and (6) accounts for trading futures or commodity options, which would be maintained by broker-dealers that are dually registered as futures commission merchants.

Several commenters noted that section 319(b) refers to “correspondent relationships” and requested that the meaning of the term be clarified. The final rule defines the term “correspondent relationship” as having the same meaning as “correspondent account” for purposes of section 319(b).

Covered financial institution. The proposed definition of “covered financial institution,” which includes primarily depository institutions and securities broker-dealers, was essentially taken from the section 313 statutory definition, 10 but with the addition of foreign branches of insured banks. The inclusion of foreign branches of insured banks generated more comments than any issue other than the definition of “correspondent account.” Commenters cited, as reasons for their objections, the plain language of the statute, the history of BSA implementation, the anti-competitive impact, and a likely ineffective impact on preventing money laundering.

As for the plain language, commenters noted that section 313 of the Act provides that a covered financial institution shall not “establish, maintain, administer, or manage a correspondent account in the United States” for a foreign shell bank and that any covered financial institution that establishes, maintains, administers, or manages a correspondent account “in the United States for a foreign bank” must take reasonable steps to ensure that it is not used to indirectly provide banking services to foreign shell banks; and that section 319(b), which requires maintenance of records regarding foreign bank owners, applies to “[a]ny covered financial institution which maintains a correspondent account in the United States for a foreign bank.” (emphasis added in each case). These commenters urged that Congress' repeated use of the phrase “in the United States” shows a clear intent to limit the application of these provisions to correspondent accounts maintained at offices in the U.S. Moreover, commenters noted that many accounts maintained by foreign branches of U.S. banks for foreign banks are not in fact established, maintained, administered or managed in the U.S.

Furthermore, commenters pointed out that to impose this requirement on foreign branches of U.S. financial institutions would place the U.S. institutions at a distinct competitive disadvantage with foreign banks in foreign countries, which would not be subject to the requirements imposed by this rule. If foreign banks wishing to maintain a correspondent account at the foreign branch of a U.S. bank must appoint an agent for service of process in the U.S., subject themselves to subpoena by U.S. authorities, submit information regarding their ownership, and make certifications about the use of their accounts, they are less likely to use the services of a U.S. bank's foreign branch. Commenters also pointed out that U.S. banks would be at a particular disadvantage with respect to foreign banks with U.S. branches. Such banks could offer their foreign bank customers access to the U.S. financial system through their non-U.S. offices without the need for such foreign bank customer to complete the certification or to appoint a process agent to accept subpoenas from U.S. authorities. This construction thus would not prevent foreign banks from gaining access to the U.S. financial system, but would more likely result in this occurring outside the due diligence process required of covered financial institutions.

In addition, commenters noted that historically, in implementing the BSA, Treasury has confined the scope of its coverage to entities and activities “within the United States.” In the current BSA rules, a foreign branch of a U.S. bank is included in the definition of a “foreign bank” 11 rather than in the definition of a “bank,” and, as such, is not subject to BSA requirements such as suspicious activity reporting. Similarly, foreign offices of securities broker-dealers are not subject to this requirement. 12 Others questioned whether it is appropriate or even permissible under general concepts of jurisdiction to require a foreign bank with no contacts with the U.S. (other than having an account with a foreign branch of a U.S. bank) to agree to be subject to subpoena authority and to appoint an agent for process. Commenters also noted that this construction could, in certain cases, require a foreign branch to be in conflict with local law, such as situations where it could be required to close an account with a foreign bank.

A Congressional commenter stated that including foreign branches of U.S. banks within the definition of “covered financial institution” is appropriate and is consistent with legislative intent.

Treasury has determined, based upon the plain language of the Act, as well as the policy considerations discussed above, that foreign branches of insured banks should not be included within the definition of “covered financial institution,” and, thus, that correspondent accounts for foreign banks that are clearly established, maintained, administered or managed only at foreign branches should not be subject to the final regulation. Of course, if such an account actually is established, maintained, administered, or managed in the United States, then it would be subject to the final rule. As a result of this determination, a foreign branch of an insured bank is treated as a “foreign bank” under the final rule, and any correspondent account maintained for it by a covered financial institution will be subject to the final rule. This means that insured banks will be required to take reasonable steps to ensure that such accounts they maintain for any of their foreign branches are not used to indirectly provide banking services to a foreign shell bank.

Although the Act does not define “covered financial institution” for purposes of section 5318(k), the NPRM proposed that the term be given the same meaning as the identical term in section 5318(j), which includes securities brokers and dealers. This was because both sections deal with anti- money laundering efforts related to correspondent relationships between financial institutions and foreign banks, and to treat securities broker-dealers otherwise would be inconsistent with the statutory scheme and would not reflect a comprehensive approach to implementing the Act's money-laundering requirements. This definition is retained in the final rule.

As a result of Treasury's inclusion in the final rule of the BSA definition of the “United States,” branches of foreign banks in the U.S. Territories and Insular Possessions will be treated as “covered financial institutions.” In the NPRM, they fell within the definition of “foreign banks.”

Foreign bank. The NPRM proposed to define a “foreign bank” as any organization that (i) is organized under the laws of a foreign country; (ii) engages in the business of banking; (iii) is recognized as a bank by the bank supervisory or monetary authority of the country of its organization or principal banking operations; and (iv) receives deposits in the regular course of its business. The proposed definition excluded an agency or branch of a foreign bank located in the United States or an insured bank organized in a territory of the United States, Puerto Rico, Guam, American Samoa, or the Virgin Islands, as those entities are “”covered financial institutions' under the statute. In addition, the definition excluded a foreign central bank or foreign monetary authority that functions as a central bank, as well as certain other international financial institutions, including multinational development banks of which the U.S. is a member.

A Congressional commenter stated that this definition is too narrow, in that it includes the requirement that such an organization “(iv) receives deposits in the regular course of its business.” The commenter suggested that this may provide a loophole for an organization that is appropriately classified as a foreign shell bank but could evade the requirements of this section by not generally receiving deposits. Another commenter expressed the view that this definition may be too broad, in that it may include nonbank financial institutions such as investment companies, investment advisers, insurance companies, commodity pools and commodity trading advisers within the definition.

On further consideration, Treasury has determined to adopt the existing BSA definition of “foreign bank.”  13 Treasury believes that the existing BSA definition, which defines “foreign bank” by reference to U.S. depository institutions (and includes foreign branches of U.S. banks), will generally include the institutions at which the statutory provisions are directed, is more precise, and will result in fewer interpretive issues. Treasury believes that adopting the current BSA definition of “foreign bank” for this regulation resolves the concerns of the commenters noted above, and will not require the exceptions contained in the NPRM for foreign central banks, foreign monetary authorities that function as central banks, and international financial institutions and regional development banks, since they clearly would not fall within this definition. Treasury thus confirms that the definition of foreign bank does not include any foreign central bank or monetary authority that functions as a central bank, or any international financial institution or regional development bank formed by treaty or international agreement. 14

Foreign shell bank. The proposal defined “foreign shell bank” as a foreign bank that does not have a physical presence in any country. The definition in the final rule is unchanged.

Owner. The NPRM proposed to define “owner” as any “large direct owner,” “indirect owner,” or “small direct owner,” each of which was in turn defined. Although the definition as proposed was intended to reduce reporting burden, many commenters found the definition overly complicated, particularly considering that it must be interpreted by thousands of foreign banks, and suggested that it be simplified or clarified. Treasury agrees that a simpler definition is preferable. Accordingly, the final rule adopts, as a definition of owner, any person who, directly or indirectly, (i) owns, controls, or has power to vote 25 percent or more of any class of voting securities or other voting interests of a foreign bank, or (ii) controls in any manner the election of a majority of the directors (or individuals exercising similar functions) of a foreign bank.

Treasury continues to believe that the 25 percent ownership threshold contained in the NPRM is appropriate based in part on the fact that section 312 of the Act amends the BSA to require that, as an element of enhanced due diligence, covered financial institutions take reasonable steps to ascertain the owners of certain foreign banks whose shares are not publicly traded. 15 As this requirement under section 312 applies only to foreign banks operating under licenses deemed to be of a high risk for money laundering, it is unreasonable to require the same level of disclosure regarding the ownership of the thousands of other foreign banks for which covered financial institutions maintain correspondent accounts that do not operate under high-risk licenses. 16 Similarly, foreign banks whose shares are publicly traded will not be required to report their owners.

For purposes of the definition of “owner” in the NPRM, “person” was defined as any individual, bank, corporation, partnership, limited liability company, or any other legal entity, except that members of the same family  17 shall be considered one person, and each family member who has an ownership interest in the foreign bank must be identified. The term “voting shares or other voting interests” was defined to mean shares or other interests that entitle the holder to vote for or select directors (or individuals exercising similar functions). These definitions are unchanged in the final rule, except for a technical conforming change of the word “shares” to “securities.”

Person. The NPRM defined “person” (other than for purposes of the definition of “owner”) to have the same meaning as provided in section 103.11(z). The final rule adopts the proposed definition without change.

Physical presence. The NPRM proposed the same definition of “physical presence” as that contained in section 5318(j): a place of business that (i) is maintained by a foreign bank; (ii) is located at a fixed address (other than solely an electronic address) in a country in which the foreign bank is authorized to conduct banking activities, at which location the foreign bank employs 1 or more individuals on a full-time basis and maintains operating records related to its banking activities; and (iii) is subject to inspection by the banking authority that licensed the foreign bank to conduct banking activities.”

Although no written comments addressed the proposed definition, Treasury received questions as to the meaning of the phrase “subject to inspection,” which is not defined in the Act. For purposes of this provision, Treasury generally considers a foreign bank to be “subject to inspection” if it is subject to the oversight of a government agency whose mission is to supervise the operations and condition of the foreign bank, including the prevention and detection of money laundering and other criminal conduct.

Regulated affiliate. The NPRM proposed the same definition of “regulated affiliate” as that contained in section 5318(j): a foreign bank that (1) is an affiliate of a depository institution, credit union, or foreign bank that maintains a physical presence in the United States or a foreign country, as applicable, and (2) is subject to supervision by a banking authority in the country regulating such affiliated depository institution, credit union, or foreign bank. For purposes of this definition, the NPRM proposed to define “affiliate” as any company that controls, is controlled by, or is under common control with another company. In the final rule, for consistency, Treasury is amending the definition of “affiliate” to conform to the definition set forth in section 5318(j)(4): “a foreign bank that is controlled by or under common control with a depository institution, credit union, or foreign bank.”

The NPRM proposed to define “control” for purposes of the “regulated affiliate” definition to mean: (1) Ownership, control, or power to vote 25 percent or more of any class of voting shares or other voting interests of another company; or (2) control in any manner of the election of a majority of the directors (or individuals exercising similar functions) of another company. A Congressional comment takes the position that the proposed threshold for affiliation of 25 percent ownership is too low, and that a threshold of 80 percent would be more appropriate, in order to preclude an entity 75 percent of whose stock is not owned by a regulated affiliate from qualifying for the “regulated affiliate” exception. Treasury's selection of the 25 percent threshold was based in part on the definition of “control” contained in the Bank Holding Company Act  18 and the Federal Reserve's Regulation Y thereunder, 19 which define “control” to exist at the 25 percent threshold. On further consideration, Treasury has determined to increase the threshold required to meet the “regulated affiliate” definition from 25 to 50 percent. 20 Treasury notes that, in order to qualify for the exemption, the foreign bank also must be “subject to supervision” by a banking authority in the country regulating the affiliate. Treasury interprets this phrase, which is not defined in the Act, as having the same meaning as “subject to inspection,” discussed above in connection with the term “physical presence.” In order for a foreign bank to qualify for this exemption, the degree of supervision would not be as high as that required in order for the Board of Governors of the Federal Reserve System (“Federal Reserve”) to find that the foreign bank is subject to comprehensive supervision or regulation on a consolidated basis by the supervisor in the country regulating the affiliate. 21

Finally, definitions of the terms “United States” and “Territories and Insular Possessions” have been added to the final rule in order to simplify and clarify the definitions of “covered financial institution” and “foreign bank.” These terms are defined by reference to the current definitions in 31 CFR Part 103.11 (nn) and (tt) respectively.

Prohibition on correspondent accounts for foreign shell banks. BSA section 5318(j) (added by section 313 of the Act) provides that a “covered financial institution” shall not establish, maintain, administer, or manage a “correspondent account” in the United States for, or on behalf of, a shell bank that is not a regulated affiliate. This prohibition was set forth in the NPRM, and is unchanged in the final rule. As Treasury stated in the NPRM, it expects that covered financial institutions will have terminated all correspondent accounts with any foreign bank that they know to be a shell bank that is not a regulated affiliate.

As discussed above, for purposes of this section, the term “correspondent account” essentially parallels the broad statutory definition. It thus includes, for example, transaction accounts and time and money market deposit accounts, 22 clearing and settlement accounts, fiduciary accounts, as well as transactions with foreign banks in securities, derivatives, repurchase agreements, foreign exchange, and other instruments, to the extent that these transactions constitute an “account.”

This provision also includes the statutory requirement and NPRM requirement that a covered financial institution must take reasonable steps to ensure that any correspondent account established, maintained, administered, or managed by the covered financial institution in the United States for a foreign bank is not being used by that foreign bank to indirectly provide banking services to a foreign shell bank that is not a regulated affiliate. As Treasury noted in the NPRM, it expects covered financial institutions to terminate any correspondent account with a foreign bank that it knows is being used to indirectly provide banking services to a foreign shell bank. The final rule retains the provision of the NPRM that proposed to permit correspondent accounts for foreign shell banks that qualify as regulated affiliates. The final rule does not include the provision in the NPRM that proposed to require that correspondent accounts established, maintained, administered, or managed by a foreign branch of a covered financial institution be deemed to be established, maintained, administered or managed in the United States.

Records of owners and agents of foreign banks with correspondent accounts. The NPRM proposed to codify the requirement contained in BSA section 5318(k), as added by section 319(b) of the Act, that any covered financial institution that maintains a correspondent account in the United States for a foreign bank must maintain records in the United States identifying: (1) The owner(s) of such foreign bank; and (2) the name and address of a person who resides in the United States and is authorized to accept service of legal process for records regarding the correspondent account. 23

Section 5318(k) does not define “owner” for purposes of this requirement. As discussed above, Treasury is amending in the final rule the definition of “owner” in the NPRM for purposes of this provision.

The NPRM also, as an option, permitted the use of the relevant portion of a foreign bank's FR Y-7 to meet the recordkeeping obligation for foreign banks that file this form. The form requires disclosure of ownership information starting at a threshold of 5 percent of a foreign banking organization's stock. Commenters supported the use of the FR Y-7 as an alternative means to satisfy this requirement, but some requested that the regulation be clarified in this regard. Another commenter noted that an individual's ownership interest in a foreign bank may be confidential in the foreign bank's home country for a variety of legitimate reasons, and asserted that the Federal Reserve recognizes such concerns and permits the ownership information contained in the FR Y-7 to be kept confidential. 24 The commenter requested that, in such cases, the foreign bank should not be required to disclose the information to a covered financial institution if the information is available to the appropriate U.S. government agencies.

To minimize recordkeeping burdens, Treasury has modified the final rule to except from the ownership recordkeeping requirement any foreign bank that is required to file its ownership information with the Federal Reserve on Form FR Y-7. 25 Inasmuch as the ownership information filed with the Federal Reserve on Form FR Y-7 will be available upon request to the Secretary or Attorney General, there is no purpose served in requiring covered financial institutions to maintain records separately in these cases. 26

Safe harbor. In order to comply with the limitations on the direct and indirect provision of correspondent accounts to foreign shell banks, a covered financial institution must ensure that each foreign bank for which it provides a correspondent account is not a shell bank, and must take reasonable steps to ensure that correspondent accounts provided to such foreign banks are not being used to indirectly provide banking services to foreign shell banks. 27 A covered financial institution must also obtain information regarding owners and an agent for service of process for foreign banks for which it maintains correspondent accounts. Although the NPRM did not prescribe the manner in which a covered financial institution may satisfy its obligations under sections 5318(j) and 5318(k), it provided a safe harbor with respect to both sections if a covered financial institution uses the model certifications appended to the NPRM. The certification was designed to provide a simple and straightforward means of complying with these requirements. 28

Many commenters posed questions and sought clarification regarding the use of the certification. As a threshold matter, nothing in this final regulation modifies, limits, or supercedes section 101 of the Electronic Records in Global and National Commerce Act, Pub. L. 106-229, 114 Stat. 464 (15 U.S.C. 7001). Thus, certifications and recertifications may be distributed, completed, returned, and stored in electronic form so long as the records are maintained in accordance with any other applicable regulations, and a foreign bank could post and update its certification on its website. In addition, facsimile copies are also acceptable as originals.

Commenters sought clarification regarding the extent to which more than one covered financial institution may rely on a certification. A separate certification need not be produced for each covered financial institution; a certification may be relied upon by each covered financial institution that is named or referred to therein (as well as each branch of a covered financial institution that maintains a correspondent account for the foreign bank executing the certification). A foreign bank may also execute a global certification that is applicable to all correspondent accounts maintained for it by covered financial institutions. Commenters also asked for clarification as to whether a covered financial institution must obtain an individual certification from each foreign branch of a foreign bank for which it maintains a correspondent account. Again, this would be governed by the way in which the certification is completed. If a foreign bank wishes to complete one certification that covers all its branches, it may do so, so long as it expresses this in the certification. In such a case, the certification should reflect whether any of the foreign bank's branches provides shell banks with access to any correspondent account.

Commenters also inquired whether a covered financial institution must obtain a certification directly from each foreign bank for which it maintains a correspondent account, or whether it may satisfy the safe harbor in this section by obtaining an electronic copy of such certification from a central registry or database that may be organized to facilitate compliance with this regulation, or from another covered financial institution. A covered financial institution may satisfy the safe harbor by obtaining a copy of a foreign bank's certification either directly from the foreign bank or indirectly, such as from a central database or from another covered financial institution, so long as the form and content of the certification is otherwise sufficient and reliable. In the case of a certification filed with a central database, the foreign bank would presumably complete the certification without specifying particular covered financial institutions, but rather would certify as to all correspondent accounts maintained at covered financial institutions generally.

Commenters also sought clarification of the meaning of the phrase “received, reviewed and accepted” at the end of the certification, and, in particular, whether this implies that covered financial institutions must verify or otherwise determine the accuracy of the information provided by the foreign bank. Treasury expects the covered financial institution to review the form to ascertain that all information required by the applicable statutory provisions is included (responses to Parts C and D in all cases; names of owners (if required) in Part E and name and street address of a process agent in Part F); and should seek to obtain any other information that is missing from the certification. In addition, the covered financial institution is expected to determine that the information provided is internally consistent. 29 To avoid confusion the word “accepted” has been deleted from the certification.

Recertification and verification requirements. The NPRM proposed to require that a covered financial institution obtain a verification of the information provided every two years, or any time that it “has reason to believe” that the information upon which it is relying may be inaccurate. The final rule extends from two to three years the safe harbor period for obtaining either a new certification or a recertification of a prior certification, and changes the operative term from “verification” to “recertification” to avoid confusion. In addition, in response to a Congressional comment, the final rule requires the covered financial institution to “take appropriate measures” to verify any information that it “knows, suspects, or has reason to suspect” may be incorrect. For example, information obtained by a covered financial institution in conducting due diligence required pursuant to the final rule to be issued implementing section 312 of the Act  30 may provide reason to suspect that the information obtained in a certification may not be accurate and may require the covered financial institution to either obtain a new certification or to take other appropriate measures to verify the accuracy of the information provided. In addition to these substantive changes, the final rule reorganizes and simplifies these provisions.

Closure of correspondent accounts. The NPRM proposed that, in order to obtain the benefit of the safe harbor, a covered financial institution must obtain a certification from the foreign banks for which it maintains correspondent accounts existing on the date that is 30 days after the publication of the final rule, within 90 days after publication of the final rule. With respect to accounts established after the date that is 30 days after the publication of the final rule, the NPRM stated that the safe harbor was available if the certification was obtained within 60 days of opening for new accounts established before January 1, 2003, and within 30 days of opening for accounts established thereafter. Commenters focused on two issues relating to these requirements: the time period allowed for satisfying the requirements after which account closure would be required, and the difficulties anticipated when closure is required.

With respect to existing accounts, commenters requested that, given the potentially large number of foreign banks for which they maintain correspondent accounts, a longer period of 120 to 180 days should be given. A Congressional comment urged Treasury to reduce the period. On balance, and considering the fact that covered financial institutions have been aware of this pending requirement for many months, Treasury is adopting this requirement with the 90 day period as proposed. With regard to new accounts, under the final rule covered financial institutions will have 30 days to obtain the initial certification and to remain within the safe harbor, regardless of whether the new account is opened before or after January 1, 2003.

The NPRM required that, if a covered financial institution does not obtain the information necessary to fulfill its obligations under sections 5318(j) and (k) within the prescribed time periods, it must terminate all correspondent accounts with the concerned foreign bank. Many commenters noted significant problems with this requirement, including the difficulties of terminating account relationships within a limited time when open positions or transaction accounts are involved, the potential for economic harm to result in many situations, and the potential liability of a covered financial institution resulting from such a termination. Commenters also questioned the extent to which the safe harbor from liability resulting from closure required in these situations that Treasury provided in the NPRM would be given effect in litigation, particularly in foreign jurisdictions. Due to these concerns, commenters sought greater flexibility in these situations, including the ability to keep accounts open pending resolution of these issues.

Because some correspondent accounts at the time of required termination may involve transactions that include open securities or futures positions, or may involve transaction accounts with outstanding checks or other transactions that need to be accounted for, a covered financial institution may exercise commercially reasonable discretion in determining the time frame for liquidating such open positions or otherwise completing the closing of an account. The measures a covered financial institution may take would include, but would not be limited to, following its customary practices upon the default of a customer, including when appropriate taking steps to close out positions in an orderly manner or temporarily freezing an account so as to avoid suffering a loss or unduly penalizing a foreign bank. However, a covered financial institution must ensure that an account that must be closed is not permitted to establish new positions.

As described above, the NPRM provided that if a covered financial institution has reason to believe that a foreign bank's certification may be inaccurate, it must undertake to verify such information. The NPRM also provided that if the covered financial institution has not obtained satisfactory verification within 90 or 60 days after commencing the process (depending on whether the verification was initiated before or after January 1, 2003), it must close all correspondent accounts for such foreign bank. The final rule requires that, if the covered financial institution has not obtained satisfactory verification within 90 days, it must close the accounts within a commercially reasonable time.

The final rule also carries over from the NPRM the provision stating that a covered financial institution may not establish a new correspondent account with a foreign bank with which it was required to close an account under this rule until it obtains the information required under this section.

Recordkeeping requirement. This provision, which sets forth the time period for retention of certifications and other information relied upon by the covered financial institution, is unchanged in the final rule.

Special rules concerning information requested prior to the effective date of the final rule. The NPRM proposed to permit the use by a covered financial institution of information described in either Treasury's Interim Guidance dated November 20, 2001 or the NPRM, that was requested of a foreign bank prior to 30 days after the publication of the final rule with respect to accounts in existence on or before such date, so long as such information is obtained on or before 90 days after the date of publication of the final rule. Several commenters sought confirmation that a covered financial institution would be in compliance with the final rule if it obtained information pursuant to the model certification attached to the Interim Guidance with respect to such accounts, so long as the covered financial institution makes the request within 30 days following publication of the final rule, and receives the information within 90 days following publication. Treasury confirms that this is the case. This provision has been clarified and condensed in the final rule.

Issuance of process to foreign bank. The NPRM proposed to codify the provisions of section 5318(k) that authorize the Secretary or the Attorney General to issue a summons or subpoena to any foreign bank that maintains a correspondent account in the United States and to request records related to such correspondent account, including records maintained outside of the United States relating to the deposit of funds into the foreign bank. The summons or subpoena may be served on the foreign bank in the United States if the foreign bank has a representative in the United States, or in a foreign country pursuant to any mutual legal assistance treaty, multilateral agreement, or other request for international law enforcement assistance. These provisions are unchanged in the final rule.

Issuance of process to covered financial institution. The NPRM proposed that, upon receipt of a written request from a Federal law enforcement officer for information required to be maintained by a covered financial institution under this section, the covered financial institution shall provide the information to the requesting officer not later than 7 days after receipt of the request. This provision is unchanged in the final rule.

Termination of correspondent relationships upon receipt of notice. The NPRM proposed to codify the provisions of section 5318(k) that require a covered financial institution to terminate any correspondent relationship with a foreign bank not later than 10 business days after receipt of written notice from the Secretary or the Attorney General (in each case, after consultation with the other) that the foreign bank has failed either: (1) To comply with the summons or subpoena issued; or (2) to initiate proceedings in a United States court contesting such summons or subpoena. This provision is unchanged in the final rule.

Limitation of liability. The NPRM proposed to codify the provision in section 5318(k) that provides that a covered financial institution shall not be liable for terminating a correspondent account in accordance with the rule. This provision is unchanged in the final rule.

Failure to terminate relationship. The NPRM proposed to codify the provision of section 5318(k) that provides that a covered financial institution that fails to terminate the correspondent relationship upon receiving notice from the Secretary or the Attorney General is subject to a civil penalty of up to $10,000 per day until the correspondent relationship is so terminated. This provision is unchanged in the final rule.

It is hereby certified that this final rule is not likely to have a significant economic impact on a substantial number of small entities. Covered financial institutions that are subject to the recordkeeping requirements in the statute and the final rule tend to be large institutions. Moreover, any economic consequences that might result from the prohibition on dealings with foreign shell banks, or from the failure of a foreign bank to provide the information necessary for a covered financial institution to fulfill its recordkeeping obligations, flow directly from the underlying statute. Accordingly, the analysis provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) do not apply.

The Department of the Treasury has determined that this final rule is not a “significant regulatory action” as defined in Executive Order 12866. Accordingly, a regulatory assessment is not required.

The collections of information contained in Appendix A to Subpart I of Part 103 had been previously reviewed and approved by the Office of Management and Budget (OMB) in accordance with the requirements of the Paperwork Reduction Act (44 U.S.C. 3501 et seq. ), and assigned OMB Control Number 1505-0184.

The collection of information contained in Appendix B to Subpart I of Part 103 and the recordkeeping requirement in section 103.177(e) was submitted to OMB for review in conjunction with the issuance of the NPRM in accordance with the requirements of the Paperwork Reduction Act. These requirements have been approved by OMB and assigned OMB Control Number 1505-0184. The estimated average annual reporting burden associated with Appendix A is 20 hours per respondent; the estimated average annual reporting burden associated with Appendix B is 5 hours per respondent; and the estimated average recordkeeping burden associated with section 103.177(e) is 9 hours per recordkeeper. Comments concerning the accuracy of these burden estimates and suggestions on how to minimize the burdens should be sent (preferably by fax (202-395-6974)) to the Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Office of Management and Budget, Paperwork Reduction Project, Washington, DC 20503 (or by the Internet to jlackeyj@omb.eop.gov ), with a copy to FinCEN by mail to P.O. Box 39, Vienna, VA 22183 or by e-mail to regcomments@fincen.treas.gov . An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number.

On October 26, 2001, the President signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, Public Law 107-56 (the Act). Of the Act's many goals, the facilitation of information sharing among governmental entities and financial institutions, for the purpose of combating terrorism and money laundering, is of paramount importance. Section 314 of the Act furthers this goal by providing for the sharing of information between the government and financial institutions, and among financial institutions themselves. As with many other provisions of the Act, Congress has charged the U.S. Department of the Treasury (“Treasury”) with developing regulations to implement these information-sharing provisions. 1

Subsection 314(a) of the Act states in part that:

Subsection 314(a)(2)(C) further states that the regulations adopted under section 314(a) may:

Subsection 314(b) of the Act states in part that:

On March 4, 2002, FinCEN published for comment in the Federal Register a notice of proposed rulemaking (the NPRM), 67 FR 9879, that would implement the authority contained in section 314 of the Act. The proposed rule that would implement the authority contained in subsection 314(a) of the Act is set forth in proposed 31 CFR 103.100; the proposed rule that would implement section 314(b) of the Act is set forth in proposed 31 CFR 103.110. 3 On the same day it published the NPRM, FinCEN also published an interim rule implementing only the authority contained in subsection 314(b) of the Act. The interim and proposed rules relating to subsection 314(b) are substantively identical to one another, and the final rule contained in this document will supersede the interim rule.

The comment period on the NPRM closed on April 3, 2002. FinCEN received approximately 180 comments letters on the NPRM. Of these, more than half were submitted by individuals. The remainder of the comment letters were submitted by depository institutions, brokers and dealers in securities, insurance companies, other financial institutions, financial institution trade associations, law firms, and private consultants.

The format of the final rule is generally consistent with the NPRM. The terms of the final rule, however, differ from the terms of the NPRM in the following significant respects:

• The provisions of sections 103.100 and 103.110 have been reorganized for clarity ( e.g. , the obligations of a financial institution that receives a request under section 103.100 to search its records have been grouped together under one paragraph);

• Language has been added to section 103.100, clarifying that unless an information request states otherwise, a financial institution need only search its records for current accounts maintained for a named suspect, accounts maintained for a named suspect during the preceding twelve months, and transactions conducted by, and funds transfers involving, a named suspect during the preceding six months;

• Language also has been added to section 103.100, clarifying that unless an information request states differently, such a request will not require a financial institution to report on future customer activity;

• The universe of financial institutions that may share information under section 103.110 has been expanded to generally include all financial institutions that are required under 31 CFR part 103 to establish and maintain an anti-money laundering program, unless FinCEN specifically determines that a particular category of financial institution should not be eligible to share information under this provision;

• The requirement for a financial institution to provide FinCEN with a certification prior to sharing information under section 103.110 has been replaced with a requirement to provide notice;

• Language has been added indicating that a financial institution, prior to sharing information with another financial institution under section 103.110, must take reasonable steps to verify that its counterpart has filed its own notice with FinCEN; and

• Language relating to revocation of a certification has been deleted from section 103.110.

Comments on the Notice focused on the following matters: (1) The extent of information sharing between law enforcement and financial institutions; (2) the burden associated with the requirement that a financial institution search its records for accounts or transactions relating to individuals, entities, or organizations suspected of engaging in terrorist activity or money laundering; (3) the kinds of financial institutions that may share information under the protection of the safe harbor from liability contained in subsection 314(b) of the Act; and (4) the requirement that a financial institution provide a certification to FinCEN prior to sharing information with another financial institution.

1. Information sharing between law enforcement and financial institutions. Proposed section 103.100 would require a financial institution to search its records to determine whether it maintains or has maintained accounts for, or has engaged in transactions with, any individual, entity, or organization listed in a request submitted by FinCEN on behalf of a Federal law enforcement agency. Several commenters criticized proposed section 103.100 for creating a “one-way” flow of information from financial institutions to law enforcement, and for not adequately addressing how law enforcement can better provide useful information to financial institutions.

It is beyond dispute that the information sharing provisions in the rule, by providing law enforcement with the means to locate quickly account and transactions associated with suspected terrorists and money launderers, will be a critical tool in the fight against terrorism. FinCEN believes that such provisions fulfill the intent of section 314 to facilitate the flow of information between governmental agencies and financial institutions. In fact, the rule establishes a mechanism for law enforcement to provide financial institutions with the names of specific suspects, something that would not have likely have occurred on the same magnitude without such a mechanism. Because financial institutions will be required to report back to FinCEN any matches based on such suspect information, law enforcement will have an added incentive to share information with the financial community.

FinCEN recognizes the importance of providing the financial community with more than just suspect information in order to assist financial institutions in identifying and reporting suspected terrorist activity or money laundering. FinCEN already issues a semi-annual report about suspicious trends and patterns derived from its review of suspicious activity reports, and regularly issues reports about money laundering activity both in various financial sectors and with respect to certain financial products. All of this information is posted on FinCEN's Web site.

The overarching policy directive of the Act generally, and section 314 in particular, is that more information sharing will better enable the Federal Government and financial institutions to guard against money laundering and terrorist financing. Moreover, as additional kinds of financial institutions are made subject to BSA requirements, the need for additional feedback and guidance increases. As a result, FinCEN anticipates making additional information available to financial institutions in the form of advisories and guidance documents once the immediate implementation of the Act has been completed. Working with the financial community, FinCEN will be able to assess the kind of information that will prove most useful. In addition, FinCEN will work with law enforcement and financial institution regulators to take advantage of FinCEN's ability to reach out to a broad array of financial institutions as a means of providing additional information and enhancing further cooperation among governmental authorities and financial institutions. The final rule does not preclude law enforcement, when submitting a list of suspects to FinCEN, from providing additional information relating to suspicious trends and patterns, and FinCEN specifically will encourage law enforcement to share such information with the financial community.

2. Burden associated with information requests. A number of commenters argued that complying with an information request under proposed section 103.100 would be too burdensome on financial institutions unless FinCEN were to restrict narrowly the scope of such requests.

FinCEN agrees that the breadth of information requests under section 103.100 requires some limitation to avoid unnecessary burden on financial institutions and unnecessary delay in receiving matching information from such institutions that can be forwarded quickly to Federal law enforcement agencies. The unique benefits of the information sharing provisions under section 103.100 stem from the ability of law enforcement, using FinCEN's relationship with the financial community, to locate quickly accounts and transactions of suspected terrorists and money launderers. This goal would be frustrated if each request for information were met with a flood of questions about the scope of the search required and complaints about the burden imposed. Therefore, FinCEN has struck a balance to maximize the value to law enforcement while minimizing the burden on financial institutions.

Except as otherwise provided in the information request, a financial institution is only required under the final rule to search its records for: (1) Any current account maintained for a named suspect; (2) any account maintained for a named suspect during the preceding twelve months; and (3) any transaction conducted by or on behalf of a named suspect, or any transmittal of funds conducted in which a named suspect was either the transmittor or the recipient, during the preceding six months that is required under law or regulation to be recorded by the financial institution or is recorded and maintained electronically by the institution. The limiting of searches to accounts maintained during the preceding twelve months and transactions and funds transfers conducted during the preceding six months is intended to narrow the scope of an information request to those records that can be searched quickly for responsive information. Similarly, FinCEN believes that a financial institution should be able to locate quickly any matching transaction that is required to be recorded under law or regulation or is recorded and maintained in a format that can be searched electronically. FinCEN reserves the right to require a more comprehensive search as circumstances warrant; in such cases, the information request will clearly delineate those broader terms.

As a general matter, a financial institution will not be required under the final rule to search its account holders' processed checks to determine whether a named suspect was a payee of a check because the payee, except in situations in which a person makes out a check to himself, is neither the person who conducted the transaction nor the person on whose behalf the transaction was conducted. In contrast, a financial institution will be required to search its records that are kept in accordance with the recordkeeping requirements of 31 CFR part 103, to determine whether a named suspect was a transmittor or a recipient to a funds transfer in the amount of $3,000 or more conducted during the preceding six months.

Several commenters also requested that FinCEN clarify whether financial institutions would be obligated under section 103.100 to report on future account opening activity or future transactions involving any individual, entity, or organization listed in a request submitted by FinCEN on behalf of a Federal law enforcement agency. Unless otherwise indicated in the information request from FinCEN, a financial institution will not be required to report on future account opening activity or future transactions. FinCEN anticipates that the need to report on future activity will be infrequent, and, at least for the immediate future, will be limited to individuals, entities, or organizations reasonably suspected of engaging in terrorist activity. In the event that a financial institution will be obligated to report on future activity, the terms of the information request will clearly so state. In such cases, FinCEN also will explicitly indicate whether the list of suspects included with an information request has been designated as a “government list” for purposes of any account opening requirements imposed under the authority of section 326 of the Act. Unless so designated, a list of suspects provided via section 103.100 is not required to be treated as a government list for purposes of section 326 of the Act.

3. Kinds of financial institutions that may share information with each other. Proposed section 103.110 generally would have limited the kinds of financial institutions eligible to share information for the purpose of detecting and reporting terrorist and money laundering activities to those institutions that have an obligation to report suspicious activity to Treasury- e.g. , depository institutions, certain money services businesses, and brokers or dealers in securities. Several commenters argued that the universe of eligible financial institutions should be expanded to include other kinds of financial institutions, such as insurance companies, investment companies, and futures commission merchants. According to these commenters, these other kinds of financial institutions may possess useful information related to terrorist activity and money laundering, and therefore should be permitted to share information under the protection of the safe harbor from liability afforded by subsection 314(b) of the Act and section 103.110.

FinCEN agrees that the universe of eligible financial institutions under section 103.110 should be expanded. When enacting subsection 314(b) of the Act, the Congress recognized that the flow of information among financial institutions is a key component in combating terrorism and money laundering. FinCEN believes that expanding the universe of financial institutions that may share information would help effectuate that flow of information. FinCEN also believes that those financial institutions that are required to establish and maintain an anti-money laundering program generally may have a need to share information when implementing such a program. Consequently, under the final rule, any financial institution described in 31 U.S.C. 5312(a)(2) that is required under 31 CFR part 103 to establish and maintain an anti-money laundering program, or is treated under 31 CFR part 103 as having satisfied the requirements of 31 U.S.C. 5318(h)(1), is eligible to share information under section 103.110, unless FinCEN specifically determines that a particular class of financial institution should not be eligible to share information under that section. For example, operators of credit card systems, because they are required under 31 CFR 103.135 to establish and maintain an anti-money laundering program, are eligible to share information under section 103.110. Registered brokers and dealers in securities also are eligible to share information under section 103.110, because they are treated under 31 CFR 103.120 as having satisfied the anti-money laundering program requirements of 31 U.S.C. 5318(h)(1). FinCEN reserves the right to designate a class of financial institutions as ineligible to share information under section 103.110 when, for example, it issues an anti-money laundering program rule applicable to such a class.

4. Certification requirement. Proposed section 103.110 would require a financial institution, in order to avail itself of the statutory safe harbor from liability when sharing information with another financial institution, to certify to FinCEN that it, among other things, has established adequate procedures to safeguard any information it receives under that section. A number of commenters argued that FinCEN replace the certification requirement with a requirement simply to provide notice. According to these commenters, the risk of liability for filing a technically-deficient certification might deter many financial institutions from sharing information. In addition, these commenters cited the explicit language of subsection 314(b) of the Act, which uses the term “notice,” rather than “certification.”

FinCEN is mindful of the need to encourage financial institutions to share information for the purpose of better identifying and reporting terrorist or money laundering activities. At the same time, FinCEN recognizes the need to ensure that the right to share information under subsection 314(b) of the Act is not being used improperly. After weighing these competing concerns, FinCEN has decided that a financial institution or an association of financial institutions need only provide notice of its intent to share information, rather than a written certification. The final rule retains, however, the requirement for a financial institution to submit a new notice every year if it intends to continue sharing information. FinCEN believes that the minimal burden that an annual notice imposes is significantly outweighed by the need to remind financial institutions of their need to safeguard information shared under section 103.110.

A financial institution or association of financial institutions, prior to sharing information, also must take reasonable steps to verify that the institution or association with which it intends to share information has filed the requisite notice with FinCEN. The verification process is intended to help protect the privacy interests of customers of financial institutions by requiring financial institutions to take reasonable steps to ensure that such sharing is authorized. Under the final rule, a financial institution or an association of financial institutions may satisfy the verification requirement by confirming that the other institution or association appears on a list of financial institutions or associations that have filed the requisite notice. FinCEN will make such a list available to financial institutions and associations of financial institutions that have filed notice with it. FinCEN anticipates that the list will be updated on a quarterly basis. In the alternative, a financial institution or association may directly contact its counterpart to determine whether the requisite notice has been filed. A financial institution may confirm that notice has been filed by obtaining a copy of the other institution's or association's notice, or by other reasonable means, including accepting the representations of the other institution that a notice was filed after the most recent list has been distributed by FinCEN.

The terms of the final rule are prospective only. Thus, financial institutions that previously have filed certifications with FinCEN under the terms of the interim rule will not be required to file notices to replace those certifications. Such financial institutions, however, will be required to use the notice described in the Appendix to subpart H of 31 CFR part 103 when renewing the notice on an annual basis.

Section 103.90 continues to define certain key terms used throughout subpart H. The definition of “money laundering” has been revised to mean an activity criminalized by 18 U.S.C. 1956 or 1957. Thus, a transaction conducted with the proceeds of any specified unlawful activity listed in section 1956 may constitute money laundering for purposes of subpart H. The definition of “terrorist activity” remains unchanged. Several commenters sought specific definitions for the terms “account” and “transaction.” The term “account” has been defined, based on the meaning given that term by section 311 of the Act. The term “transaction” has been defined by reference to 31 CFR 103.11(ii), with the following exception—a transaction for purposes of section 103.100 shall not be a transaction conducted through an account. Thus, a financial institution receiving an information request under section 103.100 is not required to search for and report on transactions through an account.

1. Definitions. Paragraph 103.100(a) continues to define the term “financial institution,” for purposes of section 103.100, as any financial institution described in 31 U.S.C. 5312(a)(2). Thus, under the final rule, FinCEN has the authority to request information regarding suspected terrorists or money launderers from any financial institution defined in the BSA, notwithstanding that FinCEN has not yet extended BSA regulations to all such financial institutions. Although all financial institutions should be on notice that FinCEN may contact them for information under section 103.100, the initial implementation of section 103.100 will involve, as a practical matter, only those financial institutions for which FinCEN possesses contact information—generally speaking, financial institutions that already are subject to BSA reporting obligations such as the requirement to file suspicious activity reports.

2. Information requests based on credible evidence concerning terrorist activity or money laundering. Paragraph 103.100(b)(1) generally states that FinCEN, on behalf of a requesting Federal law enforcement agency, may require a financial institution to search its records to determine whether the financial institution maintains or has maintained accounts for, or has engaged in transactions with, any specified individual, entity, or organization. Any request submitted by a Federal law enforcement agency to FinCEN must be accompanied by a written certification. Such certification must, at a minimum, state that each individual, entity, or organization about which the requesting agency is seeking information is engaged in, or is reasonably suspected based on credible evidence of engaging in, terrorist activity or money laundering. The certification also must include enough specific identifying information, such as date of birth, address, and social security number, that would permit a financial institution to differentiate between common or similar names, and must further identify an individual at the requesting law enforcement agency who will act as a point of contact concerning the request.

Paragraph 103.100(b)(2) lists all the obligations of a financial institution that receives an information request under section 103.100. Those obligations are described in subparagraphs 103.100(b)(2)(i)-(v).

Subparagraph (b)(2)(i) states that upon receiving an information request from FinCEN, a financial institution must expeditiously search its records to determine whether it maintains or has maintained any account for, or has engaged in any transaction with, each individual, entity, or organization named in FinCEN's request. An information request under section 103.100 is intended to provide law enforcement with the means to locate quickly accounts or transactions involving suspected terrorists or money launderers; such a request is not intended to substitute for a subpoena. Thus, unless the information request states otherwise, a financial institution is only required to search its records for: (1) Any current account maintained for a named suspect; (2) any account maintained for a named suspect during the preceding twelve months; and (3) any transaction, other than a transaction conducted through an account, conducted by or on behalf of a named suspect, or any transmittal of funds conducted in which a named suspect was either the transmittor or the recipient, during the preceding six months that is required under law or regulation to be recorded by the financial institution or is recorded and maintained electronically by the institution. The phrase “on behalf of” is intended to capture transactions that may be conducted by persons acting as agents for any named suspect.

To help ensure that searches are conducted as quickly as possible, the final rule directs a financial institution to contact directly the requesting Federal law enforcement agency (whose contact information will be included in the information request) with any questions relating to the scope or terms of the request. However, any matches found as a result of information provided to a financial institution must be reported back to FinCEN, rather than the requesting law enforcement agency, so that FinCEN may provide law enforcement with a comprehensive product that may include matching BSA report information.

Subparagraph (b)(2)(ii) states that a financial institution must report to FinCEN the fact of any account or transaction matching the information listed on the information request. The information to be reported is limited to the name or account number of each individual, entity, or organization for which a match was found, as well as any Social Security number, date of birth, or other similar identifying information that was provided by the individual, entity, or organization when an account was opened or a transaction conducted.

FinCEN anticipates that the conveyance of both information requests and responses thereto under section 103.100 will be accomplished, at least in the short term, through a combination of conventional electronic mail and facsimile transmission. Section 362 of the Act requires that FinCEN develop a secure network (the Patriot Act Communication System or PACS) for sending and receiving sensitive information. As the PACS is further developed, FinCEN will assess whether the PACS can and should be applied to section 103.100 requests and responses.

Subparagraph (b)(2)(iii) requires a financial institution to designate one person to be the point of contact at the institution regarding the request and to receive similar requests for information from FinCEN in the future. When requested by FinCEN, a financial institution must provide FinCEN with the name, title, mailing address, e-mail address, telephone number, and facsimile number of such person, in such manner as FinCEN may prescribe. A financial institution that has provided FinCEN with contact information must promptly notify FinCEN of any changes to such information.

Subparagraph (b)(2)(iv) contains provisions relating to the use, disclosure, and security of an information request. Subparagraph (b)(2)(iv)(A) states that a financial institution shall not use an information request for any purpose other than to report matching information to FinCEN, to determine whether to establish or maintain an account, or to engage in a transaction, or to assist the financial institution in complying with any requirement of part 103. Thus, for example, a financial institution that is required to establish and maintain an anti-money laundering program under part 103 may use an information request to assist in that effort. In addition, a financial institution may share a list of suspects included with an information request with a commercial contractor to assist the financial institution in complying with the request; in such circumstances, the financial institution must take those steps necessary to safeguard the confidentiality of the information shared.

Subparagraph (b)(2)(iv)(B) states that a financial institution may not disclose the fact that FinCEN has requested or obtained information under section 103.100. As a general matter, Treasury will not treat the closing of an account for, or the refusal to open an account for or to conduct a transaction with, any individual, entity, or organization listed in an information request as a disclosure that is prohibited under the terms of subparagraph (b)(2)(iv)(B).

Subparagraph (c)(2)(iv)(C) states that a financial institution must adequately safeguard the confidentiality of information requested from FinCEN under section 103.100. A few commenters asked that, in applying this provision, FinCEN consider the steps that a financial institution currently takes to safeguard customer information in order to comply with the relevant provisions of the Gramm-Leach-Bliley Act. In light of these comments, the final rule states that its safeguarding requirements shall be deemed satisfied to the extent that a financial institution applies to information requests those procedures that the institution has established to satisfy the requirements of section 501 of the Gramm-Leach-Bliley Act, codified at 15 U.S.C. 6801, regarding the protection of customers' nonpublic personal information.

Subparagraph (b)(2)(v) states that nothing in section 103.100 shall be interpreted to require a financial institution to take, or decline to take, any action with respect to an account established for, or a transaction engaged in with, a suspected terrorist or money launderer. Language also has been added indicating that a financial institution is not required to treat an information request as continuing in nature (so as to report on future activity), unless and to the extent otherwise indicated on the information request. Further language has been added to make clear that, unless otherwise indicated in the information request, a financial institution will not be required to treat the request as a list for purposes of the customer identification and verification requirements promulgated under section 326 of the Act.

3. Relation to the Right to Financial Privacy Act and the Gramm-Leach-Bliley Act. Paragraph 103.100(b)(3) states that the information required to be reported to FinCEN in response to an information request shall be treated as information required to be reported under Federal law, for purposes of the relevant exceptions contained in section 3413(d) of the Right to Financial Privacy Act, 12 U.S.C. 3413(d), and section 502(e)(8) of the Gramm-Leach-Bliley Act, 15 U.S.C. 6802(e)(8).

4. No effect on law enforcement or regulatory investigations. Paragraph 103.100(b)(4) states that nothing in subpart H affects the authority of a Federal agency or officer to obtain information directly from a financial institution. The information sharing provisions of section 103.100 are intended, in part, to provide Federal law enforcement with an additional tool to locate quickly on a broad scale financial accounts and transactions associated with suspected terrorists or money launderers. Such provisions are not intended to substitute for or replace any other tool that a Federal law enforcement agency may seek to use, including, but not limited to, a direct request from a Federal law enforcement agency to a financial institution for information.

1. Definitions. Paragraph 103.110(a) continues to define key terms that are used in section 103.110. The definition of a “financial institution” for purposes of section 103.110 has been revised to mean any financial institution described in 31 U.S.C. 5312(a)(2) that is required under 31 CFR part 103 to establish and maintain an anti-money laundering program, or is treated under 31 CFR part 103 as having satisfied the requirements of 31 U.S.C. 5318(h)(1), unless FinCEN specifically determines that a particular class of financial institution should not be eligible to share under section 103.110. The term “association of financial institutions” continues to mean a group or organization the membership of which is comprised entirely of financial institutions. A few commenters requested that this definition be expanded to include groups consisting of both financial institutions and non-financial institution affiliates. FinCEN believes that Congress's use of the terms “financial institutions” and “association of financial institutions” in subsection 314(b) of the Act demonstrates its intent to limit that section's information sharing provisions to financial institutions. In addition, the expansion of the definition of a financial institution for purposes of section 103.110 should help alleviate any concern that the section is being applied too narrowly. Thus, the definition of an association of financial associations has not been changed.

2. Voluntary information sharing among financial institutions. Paragraph 103.110(b)(1) continues to state generally that a financial institution or an association of financial institutions that complies with section 103.110's provisions-specifically, the provisions relating to notice, verification, use, disclosure, and security of information-may share information for the purpose of detecting, identifying, or reporting activities involving possible money laundering or terrorist activities under the protection of the statutory safe harbor from liability.

Paragraph 103.110(b)(2) continues to describe the manner in which a financial institution or association of financial institutions must provide notice to FinCEN before sharing information. As explained above, the term “certification” has been replaced by the term “notice” in the final rule. In addition, several commenters requested that FinCEN clarify the application of the notice requirement to information sharing among financial institution affiliates and subsidiaries. Some commenters requested that the notice requirement not apply to information sharing among financial institution affiliates. The terms of subsection 314(b) of the Act do not permit FinCEN to waive the notice requirement for any group of financial institutions. Thus, any financial institution seeking the protection of the statutory safe harbor from liability must notify FinCEN of its intent to share information with another financial institution, even when sharing information with an affiliated financial institution. It should be noted that the final rule does not in any way prohibit the sharing of information between financial institutions; rather, the rule makes clear that if a financial institution wants to share information with another financial institution and avail itself of the statutory safe harbor from liability, then it must abide by the conditions set forth in section 103.110, including providing notice to FinCEN.

Paragraph 103.110(b)(3) contains new language concerning the requirement that a financial institution or an association of financial institutions, prior to sharing information, verify that its counterpart has filed the requisite notice with FinCEN. As explained above, the verification process is intended to help protect the privacy interests of customers of financial institutions.

Paragraph 103.110(b)(4) sets forth the terms for the use, disclosure, and security of information shared under section 103.110. These terms are, for the most part, identical to the relevant terms laid out in the NPRM. One of the changes made in the final rule provides that a financial institution or an association of financial institutions may use information received under section 103.110, among other things, to assist the financial institution in complying with any requirement of 31 CFR part 103. Thus, a financial institution that receives information under section 103.110 may use such information to help establish and maintain a required anti-money laundering program. The final rule also contains new language stating that its safeguarding requirements shall be deemed satisfied to the extent that a financial institution applies to information it receives under section 103.110 those procedures that the institution has established to satisfy the requirements of section 501 of the Gramm-Leach-Bliley Act, codified at 15 U.S.C. 6801, regarding the protection of customers' nonpublic personal information. This latter change is similar to the change made to section 103.100 relating to the safeguarding of information requests under that section.

Paragraph 103.110(b)(5) restates the broad protection from liability for sharing information under section 103.110 contained in subsection 314(b) of the Act. The regulatory restatement does not extend the scope of the statutory protection; however, because FinCEN recognizes the importance of this statutory protection in the overall effort to encourage financial institutions to share information with each other, the statutory protection is repeated in the final rule to remind financial institutions of its existence. Paragraph 103.110(5) also continues to state that the broad protection from liability afforded by the statute shall not apply to the extent that a financial institution or an association of financial institutions fails to comply with the provisions of section 103.110 relating to notice, verification, and use and security of information.

3. Information sharing between financial institutions and the Federal government. Paragraph 103.110(c) provides the procedures that a financial institution should follow if, as a result of information shared under section 103.110, the institution knows, suspects, or has reason to suspect terrorist activity or money laundering. The rule does not, however, create a de facto suspicious activity reporting rule for all financial institutions that do not currently have such an obligation.

4. No effect on financial institution reporting obligations. Paragraph 103.110(d) clarifies that nothing in subpart I of Title 31 of the CFR, including, but not limited to, voluntary reporting under section 103.110, relieves a financial institution of any obligation it may have to file a suspicious activity report pursuant to a regulatory requirement, or to otherwise directly contact a Federal agency concerning suspected terrorist activity or money laundering.

It is hereby certified that this final rule is not likely to have a significant economic impact on a substantial number of small entities. The initial implementation of section 103.100 generally will involve those financial institutions that are subject to suspicious activity reporting; most financial institutions subject to suspicious activity reporting are larger businesses. Moreover, the burden imposed by the requirement that financial institutions search their records for accounts for, or transactions with, individuals, entities, or organizations engaged in, or reasonably suspected based on credible evidence of engaging in, terrorist activity, is not expected to be significant, particularly given the changes contained in this final rule. Section 103.110 is entirely voluntary on the part of financial institutions and no financial institution is required to share information with other financial institutions. Accordingly, the analysis requirements of the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) do not apply.

The requirement in section 103.100(c)(2)(ii), concerning reports by financial institutions in response to a request from FinCEN on behalf of a Federal law enforcement agency, is not a collection of information for purposes of the Paperwork Reduction Act. See 5 CFR 1320.4.

The requirement in section 103.110(b)(2), concerning notice to FinCEN that a financial institution intends to engage in information sharing, and the accompanying form in the Appendix to subpart H of 31 CFR part 103 that a financial institution must use to provide such notice, do not constitute a collection of information for purposes of the Paperwork Reduction Act. See 5 CFR 1320.3(h)(1).

The collection of information contained in section 103.110(c), concerning voluntary reports to the Federal government as a result of information sharing among financial institutions, will necessarily involve the reporting of a subset of information currently contained in a suspicious activity report. The filing of such reports has been previously reviewed and approved by the Office of Management and Budget (OMB) pursuant to the Paperwork Reduction Act and assigned OMB Control No. 1506-0001. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number.

This final rule is not a “significant regulatory action” for purposes of Executive Order 12866. Accordingly, a regulatory assessment is not required.

Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 104-4 (Unfunded Mandates Act), March 22, 1995, requires an agency to 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 notice provides the most cost-effective and least burdensome alternative to achieve the objectives of the rule.

For the reasons set forth above in the preamble, 31 CFR part 103 is amended as follows:

We did not publish a notice of proposed rulemaking (NPRM) for this rule. Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing an NPRM, and under 5 U.S.C. 553(d)(3), good cause exists for making this rule effective less than 30 days after publication in the Federal Register . Information was made available to the Coast Guard in insufficient time to publish an NPRM or for publication in the Federal Register 30 days prior to the event. Publishing an NPRM and delaying its effective date would be contrary to public interest since immediate action is needed to protect vessels and mariners from the hazards associated with construction of the new bridge.

The Captain of the Port Morgan City is establishing a temporary safety zone extending the entire width of the waterway from 100 feet east of the existing Louisa Bridge to 100 feet west of the bridge. The bridge is located at mile 134.0 of the Gulf Intracoastal Waterway. The Louisiana Department of Transportation and Development is constructing a new Louisa Bridge adjacent to the existing bridge. This construction project includes laying concrete foundations for the new bridge. The safety zone will be enforced on Tuesdays or, in the alternative, Thursdays from 6 a.m. to 11 a.m. while the concrete is being laid. Thursdays will be utilized as make up days if Tuesday operations are cancelled due to weather. The safety zone is needed to protect persons and vessels from the potential safety hazards associated with construction. Entry into this zone is prohibited to all vessels unless authorized by the Captain of the Port Morgan City, or his designated representative.

This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Transportation (DOT) (44 FR 11040, February 26, 1979).

The Coast Guard expects the economic impact of this rule to be so minimal that a full Regulatory Evaluation under paragraph 10(e) of the regulatory policies procedures of DOT is unnecessary. This rule will only be in effect for a short period of time and notifications to the marine community will be made through broadcast notice to mariners. The impacts on routine navigation are expected to be minimal as the zone will only be enforced for a five-hour period each week on Tuesdays or on Thursdays if that Tuesday's operations were cancelled due to inclement weather. Mariners will be updated as to the status of the zone via broadcast notice to mariners.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities for the reasons enumerated under the Regulatory Evaluation above.

If you are a small business entity and are significantly affected by this rule please contact LTJG John Hahn, Marine Safety Office Morgan City, at (985) 380-5377.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Public Law 104-121), we offered to assist small entities in understanding the rule so they could better evaluate its effects on them and participate in the rulemaking process.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247).

This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501—3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this rule will not result in such an expenditure, we discuss the effects of this rule elsewhere in this preamble.

This rule will not affect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that Order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. It has not been designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

We have considered the environmental impact of this rule and concluded that under figure 2-1, paragraph (34) (g) of Commandant Instruction M16475.1D, this rule is categorically excluded from further environmental documentation. A “Categorical Exclusion Determination” is available for inspection or copying where indicated under ADDRESSES.

Throughout this document “we,” “us,” and “our” means EPA.

We are granting final approval of Louisiana's substitute contingency measures SIP revision, which substitutes 6.1 tpd in VOC emission reductions from the Trunkline Gas Company for the previously approved measure. We are approving this revision to the Louisiana SIP to meet the requirements of sections 172(c)(9) and 182(c)(9) of the Act.

Section 553(d) of the Administrative Procedure Act generally provides that rules may not take effect earlier than 30 days after they are published in the Federal Register . However, if an Agency identifies a good cause, section 553(d)(3) allows a rule to take effect earlier, provided that the Agency publishes its reasoning in the final rule. EPA is making this action effective immediately because this rule is related to the Baton Rouge 1-hour ozone Attainment Plan and Transport State Implementation Plan, on which the EPA intends to take imminent action (see 67 FR 50391, August 2, 2002). In conjunction with its August 2, 2002, proposed approval of the attainment demonstration, EPA proposed to extend the ozone attainment date for the BR area to November 15, 2005, while retaining the area's current classification as a serious ozone nonattainment area and to withdraw EPA's June 24, 2002, rulemaking determining nonattainment and reclassification of the BR area (67 FR 42687). The effective date of EPA's June 24, 2002, nonattainment determination and reclassification is imminent. Furthermore, making this action effective immediately does not impose any additional requirements, because the underlying regulations are already effective under state law.

Sections 172(c)(9) and 182(c)(9) of the Act require that SIPs contain additional measures that will take effect without further action by the state or EPA if an area fails to attain the standard by the applicable date, or to meet Rate-of-Progress Plan (ROPP) deadlines. The Act does not specify how many contingency measures are needed or the magnitude of emissions reductions that must be provided by these measures. However, EPA provided guidance interpreting the control measure requirements of sections 172(c)(9) and 182(c)(9) in the April 16, 1992, General Preamble for Implementation of the Act (see 57 FR 13498, 13510, April 16, 1992). In that guidance, EPA indicated that states with moderate and above ozone nonattainment areas, such as the Baton Rouge area, should include sufficient contingency measures so that, upon implementation of such measures, additional emission reductions of up to three percent of the emissions in the adjusted base year inventory (or such lesser percentage that will cure the identified failure) would be achieved in the year following the year in which the failure has been identified. The State must show that the contingency measures can be implemented with minimal further action on their part and with no additional rulemaking actions.

We are taking this action because the State submitted an adequate demonstration to show that the substitute contingency measure provides the necessary reductions to meet the requirement.

The Trunkline Gas Company—Patterson Compressor Station in St. Mary Parish facility installed a flare in 1998 to dispose of flash gases from several storage containers to comply with Louisiana's waste gas disposal rule and comprehensive toxic air pollutant control program. This was an alternative to combustion in a furnace or closed combustion chamber. The destruction efficiency of the open air flare is estimated at 99 percent.

After the installation of the flare, VOC emissions changed from 13.4 tpd to 0.4 tpd. The resulting 13 tpd of emission reductions are creditable. To ensure that these emission reductions are permanent and federally enforceable, the revised emission limit is reflected in the permit issued to Trunkline by the State. The permit makes the additional emission reductions available for SIP purposes, i.e. , the reductions are surplus, permanent, and enforceable. 6.1 tpd of this 13 tpd reduction will be credited to contingency measures and will no longer be available for any other use. Because the 6.1 tpd reduction from the Trunkline facility is greater than the 5.7 tpd in the prior contingency measure, this SIP revision will result in lower emissions and thus also complies with section 110(l) of the Act.

The Trunkline facility is located approximately 40 kilometers from the Baton Rouge ozone nonattainment area. In 1997, EPA issued a policy allowing 1-hour ozone nonattainment areas to take credit in their Post-1996 ROPP  1 for emission reductions obtained from sources outside the designated nonattainment area, provided the sources are no farther away than 100 km (for VOC sources) or 200 km (for NO X sources) from the nonattainment area. 2

The Trunkline Gas Company had not initially accounted for 13.4 tpd of VOC emissions. As a result, the VOC emissions from this facility had not been included in the point source emissions inventory for 1990. Emissions reported in a corrected 1992 annual emissions inventory submitted to LDEQ June 6, 1997, are the best estimate of the source's 1990 base year emissions. These emissions were added back to the 1990 base year emissions inventory. The revised 1990 VOC base year inventory that included these Trunkline emissions would result in a 204.6 tpd revised 1990 base year inventory.

An additional 2.0 tpd of emission reductions required to meet CAA requirements were identified in the 15% ROPP revisions. The additional 2.0 tpd were provided by using a 1.4 tpd “surplus” 9% ROPP reduction from the Trunkline permit plus 0.6 tpd of point source reductions (163 tons per year or 0.45 tpd of VOCs from the Dow Chemical permit and 56 tons per year or 0.15 tpd of VOCs from the BASF Corporation permit).

There were an additional 1.2 tpd of reductions required to meet the 9% ROPP identified in the revisions. These were also taken from the 13.0 tpd Trunkline emissions reductions that were netted from the post-90 emissions growth, leaving a remainder of 10.4 tpd, of which 6.1 tpd will be used as the contingency measure EPA is now approving.

In a separate action, EPA has proposed approval of the revised 1990 Base Year Emissions Inventory to include the Trunkline emissions, the 15% Rate-of-Progress Plan, and the 9% Rate-of-Progress Plan submitted as part of the December 31, 2001, Attainment Plan/Transport SIP ( see 64 FR 50391, August 2, 2002.)

EPA received comments on the Notice of Proposed Rulemaking (NPR) from the Louisiana Chemical Association (LCA), the Louisiana Environmental Action Network (LEAN), the Louisiana Mid-Continent Oil and Gas Association (LMCOGA), and the Baton Rouge Ozone Task Force Steering Committee. A summary of the comments received and EPA's response is presented below.

Three commenters (LCA, LMCOGA, and the Steering Committee) support EPA's finding, agreeing that EPA's analysis is reasonable and consistent with EPA guidance.

LEAN opposes this action with the following comments:

Comment 1: This contingency measure does not meet EPA guidelines, or the Clean Air Act. This measure is not a contingency measure because it has already been implemented. Because the measure cannot be triggered for a failure to attain, it cannot be used.

Response 1: In the General Preamble, EPA provided guidance interpreting the control measure requirements of 172(c)(9) and 182(c)(9) of the Act. A contingency measure should, at a minimum, ensure that an appropriate level of emissions reduction progress continues to be made if attainment or Reasonable Further Progress is not achieved and additional planning by the State is needed. We followed our General Preamble interpretation in taking this final action.

Although the emissions reductions from the Trunkline facility first occurred in 1998, the reductions are continuing on an annual basis and are surplus, permanent and federally enforceable. In other words, the 13 tpd reduction is realized at the facility on a continuing basis. Thus, if the reductions were not used for a contingency measure, the facility could, for example, apply the reduction toward the State's Emissions Credit Bank ( see, 67 FR 48083, July 23, 2002). However, the Trunkline credits are not available for any other use while they are identified in the approved SIP as contingency measures. A failure to attain will trigger these credits to be applied toward making progress to attain. Even though the measure is already implemented, the continuing reduction credits from the Trunkline facility are, in effect, set aside to be applied in the event that attainment is not achieved. These credits are immediately available, without further action by the State, which is another necessary feature for a measure to be used as a contingency measure.

Comment 2: EPA has made no factual or rational argument as to why the original contingency plan should be changed. Therefore, the original, approved contingency plan should remain in place. This change to the SIP was initiated because EPA recognized that the general offset requirement program in section 182(c)(10) of the Act was not being implemented correctly.

Response 2: As explained in our proposal (67 FR 35468, May 20, 2002), EPA previously approved a contingency measures plan as satisfying sections 172(c)(9) and 182(c)(9) of the Act (64 FR 35930, July 2, 1999). The contingency plan consisted of 5.7 tpd of VOC ERCs held in escrow in the Louisiana ERC Bank that would be confiscated by the State and no longer available for use in the event of a milestone failure or if attainment was not achieved in a timely manner. In August 1999, a petition for review was filed in the United States Court of Appeals for the Fifth Circuit challenging our July 2, 1999, SIP approval. Louisiana Environmental Action Network v. EPA, No. 99-60570. In response to the litigation, we requested a partial voluntary remand to reconsider that final approval of the State's contingency measures plan for the Baton Rouge area. On October 19, 2000, the Fifth Circuit Court of Appeals granted a Joint Motion for a Partial Voluntary Remand.

The State has submitted this contingency measure as a substitute for the ERC bank contingency measure. This final action serves as EPA's response to the voluntary remand. EPA believes that this is a reasonable basis for approving the reductions from the Trunkline facility as Louisiana's contingency measure to substitute for the previously remanded contingency measures.

It is the State's responsibility to demonstrate how the measures in its SIP revision meet the requirements of the Act. EPA's role in approving measures for the SIP is to evaluate the State's submittal. The State has the option to replace approved measures in the SIP at its discretion, provided that the SIP continues to meet all applicable Clean Air Act requirements. The Act does not specify the nature of the contingency measures a State must submit. As long as the substitute measures meet the requirements of the Act and do not weaken the SIP, EPA can and must approve the revision.

Comment 3: There is no factual argument given in the proposed rule that indicates or demonstrates that the proposed contingency rule will have any impact on the ozone problem in the Baton Rouge ozone nonattainment area. The emission reductions do not come from the nonattainment area, and they were not included in the assessment for the currently approved SIP.

Response 3: As noted above, EPA has proposed approval of an adjustment of Louisiana's 1990 baseline to include the Trunkline emissions ( see 64 FR 50391, August 2, 2002). Once these emissions are included in the baseline, which will occur prior to any milestone date, reducing them will lower emissions in the area on a continuing basis.

Furthermore, EPA's basis for approving the Trunkline credits for contingency measures lies in our 1997 guidance  3 that allows credits from outside a nonattainment area (within defined boundaries) to be used to meet its annual Rate of Progress emission reductions, provided that such emissions are included in the baseline.

Comment 4: This is the same contingency measure as that proposed in the revised SIP that is currently being reviewed by EPA. This implies that the same contingency measure could potentially be implemented twice.

Response 4: The commenter is correct that this is the same contingency measure proposed in the revised SIP that is currently under review. This measure is being acted on now as a separate rule apart from the main SIP rulemaking action, in response to the voluntary remand noted in Response 1, above. The measure will not be approved again to meet any different purpose. EPA believes this contingency measure does satisfy the requirements of sections 172(c)(9) and 182(c)(9) of the Act. In the event that this contingency measure is “triggered” by a formal EPA finding that the area failed to meet an applicable milestone, Louisiana will then be required to submit a “backfilling” contingency measure, according to a schedule established by EPA, to ensure that adequate emission reductions continue to be available to serve as contingency measures to cover any future applicable milestone failures.

Comment 5: The proposed contingency measures are simply a paper change that should not be allowed. The reductions were not included in the 1990 baseline or the subsequent demonstration modeling, and therefore, should not be allowed as a contingency measure.

Response 5: As noted in Response 1, above, EPA does not believe this is a “paper change.” The emissions reductions from the Trunkline facility are continuing, real, surplus, permanent, and enforceable. The 6.1 tpd set aside as contingency measures are not available for any other use while they are approved as contingency measures in the SIP. In addition, as noted above, EPA has proposed action to revise the 1990 baseline to include these emissions.

We are granting final approval pursuant to sections 110 and sections 172(c)(9) and 182(c)(9) of the Act because we find that the State has adequately demonstrated that the substitute contingency measure provides the necessary reductions to meet the requirements of the Act, and that these reductions are permanent, surplus and federally enforceable.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. This action merely approves state law as meeting federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Public Law 104-4). This rule also does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), nor will it have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999), because it merely approves a state rule implementing a federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. This rule also is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997), because it is not economically significant.

In reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a SIP submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a SIP submission, to use VCS in place of a SIP submission that otherwise satisfies the provisions of the Clean Air Act. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. As required by section 3 of Executive Order 12988 (61 FR 4729, February 7, 1996), in issuing this rule, EPA has taken the necessary steps to eliminate drafting errors and ambiguity, minimize potential litigation, and provide a clear legal standard for affected conduct. EPA has complied with Executive Order 12630 (53 FR 8859, March 15, 1988) by examining the takings implications of the rule in accordance with the “Attorney General's Supplemental Guidelines for the Evaluation of Risk and Avoidance of Unanticipated Takings” issued under the executive order. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

The Congressional Review Act, 5 U.S.C. 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2). This rule will be effective September 26, 2002.

Under section 307(b)(1) of the Clean Air Act, petitions for judicial revew of this action must be filed in the United States Court of Appeals for the appropriate circuit by November 26, 2002. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. ( See section 307(b)(2)).

Throughout this document “we,” “us,” and “our” means EPA.

We are granting final approval of Louisiana's vehicle I/M program. The program applies to the five parish Baton Rouge nonattainment area. EPA proposed approval of the Louisiana I/M SIP revision on July 2, 2002 (67 FR 44410).

Section 553(d) of the Administrative Procedure Act generally provides that rules may not take effect earlier than 30 days after they are published in the Federal Register . However, if an Agency identifies a good cause, section 553(d)(3) allows a rule to take effect earlier, provided that the Agency publishes its reasoning in the final rule. EPA is making this action effective immediately because this rule is related to the Baton Rouge 1-hour ozone Attainment Plan and Transport State Implementation Plan, on which the EPA intends to take imminent action ( see 67 FR 50391, August 2, 2002). In conjunction with its August 2, 2002, proposed approval of the attainment demonstration, EPA proposed to extend the ozone attainment date for the BR area to November 15, 2005, while retaining the area's current classification as a serious ozone nonattainment area and to withdraw EPA's June 24, 2002, rulemaking determining nonattainment and reclassification of the BR area (67 FR 42687). The effective date of EPA's June 24, 2002, nonattainment determination and reclassification is imminent. Furthermore, making this action effective immediately does not impose any additional requirements, because the underlying regulations are already effective under state law.

EPA approval of this SIP revision is governed by sections 110 and 182 of the Act.

An I/M program is required in the Baton Rouge area because it is classified serious nonattainment for ozone and the population exceeds 200,000. The SIP credits are not taken for the I/M plan in the 15% Rate-of-Progress (ROP) Plan or the 9% ROP plan. However, SIP credits are taken for the I/M plan in the attainment demonstration. Additional information on these actions can be found in EPA's proposed approval of the Reasonable-Further-Progress Plan for the 1996-1999 Period in 63 FR 44192 dated August 18, 1998, and in the proposed approval of the attainment demonstration published in 67 FR 50391.

We are taking this action because the State submitted an approvable enhanced vehicle I/M program SIP for the nonattainment area requiring a program.

Final approval of the I/M SIP turns off the sanction clock that was started on February 13, 1998, the effective date of a disapproval of the I/M SIP revision submitted in 1996.

On August 20, 1999 (64 FR 45454), we published an interim final determination that the State had more likely than not corrected the deficiency that prompted the original disapproval of the Louisiana I/M SIP. We delayed taking final action on the I/M SIP submitted February 12, 1999, because EPA was in the process of amending the Federal I/M rule, and final approval of that SIP depended on the Federal I/M rule amendments.

Today's approval action is a result of the State submitting a revised I/M SIP on December 28, 2001, which is fully approvable. Today's final approval of the I/M SIP will turn off the sanction clock because the inadequacy that started the clock has been corrected to EPA's satisfaction.

The State's program requires that all 1980 and newer gasoline powered light-duty vehicles and light and heavy-duty trucks, that are registered or required to be registered in the five parish Baton Rouge nonattainment area, including fleets, are subject to annual inspection and testing.

All vehicles in the I/M program are subject to a gas cap pressure check and an antitampering inspection. In addition, all 1996 and newer vehicles will be tested with OBD.

The State adopted I/M SIP revision was submitted on December 28, 2001. The SIP contains a SIP narrative, I/M Rules, and several appendices including the Department of Public Safety (DPS) Manual addressing the requirements of the I/M program. The submittal is intended to fulfill the requirements of the Act for the ozone nonattainment area of Louisiana that is required to implement an I/M program.

No adverse comments were received. Comments in support of the I/M program were received from the Baton Rouge Clean Air Coalition and the Steering Committee of the Baton Rouge Ozone Task Force. We thank these planners for their positive comments.

We are granting final full approval of Louisiana I/M program pursuant to sections 110 and 182 of the Act.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This action merely approves state law as meeting Federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Public Law 104-4).

This rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely approves a state rule implementing a Federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. This rule also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant.

In reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a SIP submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a SIP submission, to use VCS in place of a SIP submission that otherwise satisfies the provisions of the Clean Air Act. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

The Congressional Review Act, 5 U.S.C. 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by November 25, 2002. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. ( See section 307(b)(2).)

The National Traffic and Motor Vehicle Safety Act, as amended by the Imported Vehicle Safety Compliance Act of 1988, and recodified as 49 U.S.C. 30141-30147 (“the Act”), provides for fees to cover the costs of the importer registration program, the cost of making import eligibility determinations, and the cost of processing the bonds furnished to the Customs Service. Certain fees became effective on January 31, 1990, and have been in effect, with modifications, since then. On June 24, 1996, we published a notice in the Federal Register at 61 FR 32411 that discussed the rulemaking history of 49 CFR part 594 and the fees authorized by the Act. The reader is referred to that notice for background information relating to this rulemaking action.

The Act requires us to “review and make appropriate adjustments at least every 2 years in the amounts of the fees required to be paid. * * *” 49 U.S.C. 30141(e). The fees applicable in any fiscal year (FY) are to be established before the beginning of such year. Ibid. We last amended the fee schedule in 2000. See final rule published on September 19, 2000 at 65 FR 56497. Those amendments have applied in FY 2001 and 2002. On August 16, 2002, we proposed fees that would become effective on October 1, 2002, the beginning of FY 2003 (67 FR 53552). There were no comments on this notice. As a result, we are adopting the proposal as the final rule.

The fees are based on actual time and costs associated with the tasks for which the fees are assessed, and reflect the slight increase in hourly costs in the past two fiscal years attributable to the 3.57 and 4.52 percent raises (including the locality adjustment for Washington, DC) in salaries of employees on the General Schedule that became effective, respectively, on January 1, 2001 and January 1, 2002.

Section 30141(a)(3) of Title 49 U.S.C. provides that RIs must pay “the annual fee the Secretary of Transportation establishes * * * to pay for the costs of carrying out the registration program for importers * * *” This fee is payable both by new applicants and by existing RIs. For an RI to maintain its registration, it must file a statement at the time it submits its annual fee affirming that the information it previously furnished in its registration application (or in later amendments) remains correct (49 CFR 592.5(e)).

In compliance with the statutory directive, we reviewed the existing fees and their bases for the purpose of establishing fees that would be sufficient to recover the costs of carrying out the registration program for importers for at least the next two fiscal years. The initial component of the Registration Program Fee is the fee attributable to processing and acting upon registration applications. We will increase this fee from $345 to $395 for new applications. We will increase the fee representing the review of the annual statement from $177 to $195. The adjustments reflect our recent experience in time spent reviewing both new applications and annual statements with accompanying documentation, as well as the inflation factor attributable to Federal salary increases and locality adjustments in the past two years since the regulation was last amended.

We must also recover costs attributable to maintenance of the registration program that arise from our need to review a registrant's annual statement and to verify the continuing validity of information already submitted. These costs also include anticipated costs attributable to possible revocation or suspension of registrations.

Based upon our review of the costs associated with this program, the portion of the fee attributable to the maintenance of the registration program is approximately $260 for each RI, an increase of $21. When this $260 is added to the $395 representing the registration application component, the cost to an applicant equals $655, which is the fee we are adopting. This represents an increase of $71 from the existing fee. When the $260 is added to the $195 representing the annual statement component, the total cost to the RI is $455, which represents an increase of $39.

Sec. 594.6(h) recounts indirect costs that were previously estimated at $13.90 per man-hour. This will be raised $0.95, to $14.85, based on the agency costs discussed above.

Section 30141(a)(3) also requires registered importers to pay “other fees the Secretary of Transportation establishes to pay for the costs of * * * (B) making the decisions under this subchapter.” This includes decisions on whether a vehicle sought to be imported is substantially similar to a motor vehicle originally manufactured for import into and sale in the United States, and certified as meeting the FMVSS, and whether it is capable of being readily altered to meet those standards. Alternatively, where there is no substantially similar U.S.-certified motor vehicle, the decision is whether the safety features of the vehicle comply with or are capable of being altered to comply with the FMVSS. These decisions are made in response to petitions submitted by RIs or manufacturers, or pursuant to the Administrator's initiative.

The fee for a vehicle imported under an eligibility decision made pursuant to a petition is payable in part by the petitioner and in part by other importers. The fee to be charged for each vehicle is the estimated pro rata share of the costs in making all the eligibility determinations in a fiscal year.

Inflation and the small raises under the General Schedule also must be taken into account in the computation of costs. However, we have been able to reduce our processing costs through combining several decisions in a single Federal Register notice as well as achieving efficiencies through improved word processing techniques. Accordingly, we are maintaining the fee of $175 presently required to accompany a “substantially similar” petition at the same level, and are also maintaining at the same level the $800 fee that accompanies petitions for vehicles that are not substantially similar and that have no U.S.-certified counterpart. In the event that a petitioner requests an inspection of a vehicle, the fee will remain at $550 for each of those types of petitions.

The importer of each vehicle determined to be eligible for importation pursuant to a petition currently must pay $125 upon its importation, the same fee applicable to those whose vehicles are covered by an eligibility determination on the agency's initiative (other than vehicles imported from Canada that are covered by vehicle eligibility numbers VSA-80 through VSA-83, for which no eligibility determination fee is assessed). The importation fee varies depending upon the basis on which the agency made the import eligibility decision. For vehicles covered by eligibility decisions resulting from petitions under 49 CFR 593.6(b), based on the safety features of the vehicle complying with, or being capable of being modified to comply with all applicable FMVSS, the fee will remain at $125. For vehicles covered by eligibility decisions resulting from petitions under 49 CFR 593.6(a), based on the substantial similarity of the vehicle to a vehicle that was originally manufactured for importation into and sale in the United States and certified by its manufacturer as complying with all applicable FMVSS, the fee will remain at $105. Costs associated with previous eligibility decisions on the agency's own initiative will have been recovered by October 1, 2002. We will apply the fee of $125 per vehicle only to vehicles covered by decisions made by the agency on its own initiative on and after October 1, 2002.

Section 30141(a)(3) also requires a registered importer to pay “any other fees the Secretary of Transportation establishes * * * to pay for the costs of—(A) processing bonds provided to the Secretary of the Treasury” upon the importation of a nonconforming vehicle to ensure that the vehicle will be brought into compliance within a reasonable time or if the vehicle is not brought into compliance within such time, that it is exported, without cost to the United States, or abandoned to the United States.

The statute contemplates that we will make a reasonable determination of the cost to the United States Customs Service of processing the bond. In essence, the cost to Customs is based upon an estimate of the time that a GS-9, Step 5 employee spends on each entry, which Customs has judged to be 20 minutes.

Because of the modest salary and locality raises in the General Schedule that were effective at the beginning of 2001 and 2002, we are increasing the current processing fee by $0.45, from $5.75 per bond to $6.20.

This fee requires each RI to pay $16 per vehicle to cover the cost of the agency's review of any certificate of conformity furnished to the Administrator. However, if a RI enters a vehicle with the U.S. Customs Service through the Automated Broker Interface (ABS), has an e-mail address to receive communications from NHTSA, and pays the fee by credit card, the fee is $6. Based upon an analysis of the direct and indirect costs for the review and processing of these certificates, we have found the costs for processing non-automated entries to have increased on the average of $2 per vehicle. We are therefore increasing the fee for recovering these costs to $18. Since there has been no change in the cost to the agency for processing automated entries, we are maintaining the fee for recovering these costs at the current $6 level. However, if an ABS entry contains one or more errors, the timesaving advantages of electronic entry are not realized. Accordingly, we will be assessing the full $18 fee for processing certificates based on ABS entries with one or more errors. However, if an acceptable electronic correction of the erroneous entry is sent to NHTSA, the fee will be $12 rather than $18.

This rulemaking action was not reviewed under Executive Order 12886, “Regulatory Planning and Review.” Further, NHTSA has determined that the action is not significant under Department of Transportation regulatory policies and procedures. Based on the level of the fees and the volume of affected vehicles, NHTSA currently anticipates that the costs of the final rule will be so minimal as not to warrant preparation of a full regulatory evaluation. The action does not involve any substantial public interest or controversy. There will be no substantial effect upon State and local governments. There will be no substantial impact upon a major transportation safety program. Both the number of registered importers and determinations are estimated to be comparatively small. A regulatory evaluation analyzing the economic impact of the final rule adopted on September 29, 1989, was prepared, and is available for review in the NHTSA docket.

The agency has also considered the effects of this action in relation to the Regulatory Flexibility Act (5 U.S.C. Sec. 601 et seq. ). I certify that this action will not have a substantial economic impact upon a substantial number of small entities.

The following is NHTSA's statement providing the factual basis for the certification (5 U.S.C. Sec. 605(b)). The amendment will primarily affect entities that currently modify nonconforming vehicles and that are small businesses within the meaning of the Regulatory Flexibility Act; however, the agency has no reason to believe that a substantial number of these companies cannot pay the fees established by this action, which are either unchanged or only modestly increased from those now being paid by these entities, and which can be recouped from their customers. Costs to owners or purchasers for the alteration of nonconforming vehicles to conform with the FMVSS may be expected to increase (or decrease) to the extent necessary to reimburse the registered importer for the fees payable to the agency for the cost of carrying out the registration program and making eligibility decisions, and to compensate Customs for its bond processing costs.

Governmental jurisdictions will not be affected at all since they are generally neither importers nor purchasers of nonconforming motor vehicles.

Executive Order 13132 on “Federalism” requires NHTSA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” Executive Order 13132 defines the term “Policies that have federalism implications” to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.” Under Executive Order 13132, NHTSA may not issue a regulation that has federalism implication, that imposes substantial direct compliance costs, and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by State and local governments, or NHTSA consults with State and local officials early in the process of developing the proposed regulation.

This rule will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government as specified in Executive Order 13132. Thus, the requirements of section 6 of the Executive Order do not apply to this rulemaking action.

NHTSA has analyzed this action for purposes of the National Environmental Policy Act. The action will not have a significant effect upon the environment because it is anticipated that the annual volume of motor vehicles imported through registered importers will not vary significantly from that existing before promulgation of the rule.

This rule does not have a retroactive or preemptive effect. Judicial review of the rule may be obtained pursuant to 5 U.S.C. 702. That section does not require that a petition for reconsideration be filed prior to seeking judicial review.

The Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires agencies to prepare a written assessment of the cost, benefits, and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by state, local, or tribal governments, in the aggregate, or by the private sector, of more than $100 million annually. Because this rule will not have an effect of this magnitude, no Unfunded Mandates assessment has been prepared.

The Regional Administrator modified the season for the commercial salmon fishery in the area from the U.S.-Canada Border to Cape Falcon, OR to reopen on August 9, 2002, and close at midnight, August 18, 2002, with a vessel limit of 400 chinook salmon for the entire 10-day open period. In addition, the gear restriction limiting fishers to no more than four spreads per line between Cape Falcon, OR and Leadbetter Point, WA was suspended for the open period. Information provided on August 8 regarding the available catch and effort data indicated that these management measures should be implemented to allow fishers to fully access the chinook and coho quotas. Modification of fishing seasons and gear restriction are authorized by regulations at 50 CFR 660.409(b)(1)(i) and 50 CFR 660.409(b)(1)(iv), respectively.

In the 2002 annual management measures for ocean salmon fisheries (67 FR 30616, May 7, 2002), NMFS announced that the commercial fishery for all salmon except coho in the area from the U.S.-Canada Border to Cape Falcon, OR would open July 1, 2002, and run through the earlier of September 8, 2002, or a 32,500-chinook quota, except for a selective fishery for marked coho in the sub-area from Leadbetter Point, WA to Cape Falcon, OR scheduled at the end of the season with a 5000-marked coho quota.

The fishery in the area from the U.S.-Canada Border to Cape Falcon, OR has been modified three times so far this year by inseason action. The first inseason action opened the fishery as scheduled on July 1, 2002, but modified it to close at midnight, July 8, 2002, with the provision that no vessel may possess, land, or deliver more than 250 chinook for the entire 8-day open period (67 FR 47334, July 18, 2002). The second inseason action reopened the area on July 12, 2002, and closed it at midnight, July 22, 2002, with the provision that no vessel may possess, land, or deliver more than 400 chinook for the entire 11-day open period (67 FR 49875, August 1, 2002). The third inseason action reopened the area on July 26, 2002, and closed it at midnight, August 5, 2002, with the provision that no vessel may possess, land, or deliver more than 500 chinook salmon for the entire 11-day open period (67 FR 52889, August 14, 2002). These modifications to the fishing season were adopted to avoid closing the fishery early due to reaching the chinook quota, thus precluding the opportunity to catch available marked hatchery coho salmon later in the season.

On August 8, 2002, the Regional Administrator consulted with representatives of the Pacific Fishery Management Council, Washington Department of Fish and Wildlife, and Oregon Department of Fish and Wildlife (ODFW) by conference call. Information related to catch to date, the chinook catch rate, and effort data indicated that it was likely that the chinook quota would be reached prematurely unless adequately controlled, potentially foreclosing opportunity of fishers to conduct the selective fishery for marked coho later in the season. As a result, the states of Washington and Oregon recommended, and the Regional Administrator concurred, that the commercial fishery in the area from the U.S.-Canada Border to Cape Falcon, OR would reopen on August 9, 2002, and close at midnight, August 18, 2002, with the provision that no vessel may possess, land, or deliver more than 400 chinook for the entire 10-day open period. In addition, the gear restriction limiting fishers to no more than four spreads per line between Cape Falcon, OR and Leadbetter Point, WA was suspended for the open period, because this was no longer needed to restrict the catch of coho. All other restrictions that apply to this fishery remain in effect as announced in the 2002 annual management measures. The State of Oregon continued the landing restriction for this fishery in their regulations requiring that fishers fishing north of Cape Falcon, OR and intending to land salmon south of Cape Falcon, OR notify the ODFW before they leave the area at the telephone number: (541) 867-0300, Ext. 252. In addition, the parties agreed to reevaluate the fishery on August 21, 2002, and assess the possibility of further openings.

The Regional Administrator determined that the best available information indicated that the catch and effort data, and projections, supported the above inseason action recommended by the states. The states manage the fisheries in state waters adjacent to the areas of the U.S. exclusive economic zone in accordance with this Federal action. As provided by the inseason notice procedures of 50 CFR 660.411, actual notice to fishers of the above described action was given prior to the effective date by telephone hotline number 206-526-6667 and 800-662-9825, and by U.S. Coast Guard Notice to Mariners broadcasts on Channel 16 VHF-FM and 2182 kHz.

This action does not apply to other fisheries that may be operating in other areas.

The Assistant Administrator for Fisheries, NOAA (AA), finds that good cause exists for this notification to be issued without affording prior notice and opportunity for public comment under 5 U.S.C. 553(b)(B), or delaying the effectiveness of this rule for 30 days under 5 U.S.C. 553(d)(3), because prior notice and opportunity for public comment and delay in effectiveness of this rule is impracticable and contrary to the public interest. As previously noted, actual notice of this action was provided to fishers through telephone hotline and radio notification. This action complies with the requirements of the annual management measures for ocean salmon fisheries (67 FR 30616, May 7, 2002) and the West Coast Salmon Plan. Prior notice and opportunity for public comment is impracticable because NMFS and the state agencies have insufficient time to provide for prior notice and the opportunity for public comment between the time the fishery catch and effort data are collected to determine the status of the fisheries and the time the limits to which the fishery must be adjusted to control harvest rates in the fishery must be in place. Moreover, such prior notice and the opportunity for public comment is contrary to the public interest because it does not allow commercial fishermen appropriately controlled access to the available fish at the time they are available.

The AA finds good cause to waive the 30-day delay in effectiveness required under 5 U.S.C. 553(d)(3). A delay in effectiveness of this action would not allow commercial fishermen appropriately controlled access to the available fish at the time they are available.

This action is authorized by 50 CFR 660.409 and 660.411 and is exempt from review under Executive Order 12866.

On December 27, 2001, NMFS published a notification of a harvest guideline of 118,442 mt for Pacific sardine in the Federal Register (66 FR 66811) for the fishing season January 1, 2002, through December 31, 2002. The harvest guideline was allocated as specified in the FMP, that is, one-third (39,481 mt) for Subarea A, which is north of 35° 40′ N. lat. (Pt. Piedras Blancas, California) to the Canadian border; and two-thirds (78,961 mt)for Subarea B, which is south of 35° 40′ N. lat. to the Mexican border.

Section 5.2.2 of the FMP requires that the NMFS, Southwest Regional Administrator, (1) conduct a review of the fishery 9 months after the beginning of the fishing season, and (2) reallocate the total unharvested portion of the harvest guideline, if any, equally between Subarea A and Subarea B. However, this year, the allocation to Subarea A was harvested by September 14, 2002, and the fishery was closed (67 FR 58733).

At its September 2002 meeting, the Pacific Fishery Management Council (Council) received a report on the status of the sardine fishery and heard public comments regarding the effects of closing the fishery in Subarea A and waiting for reallocation to occur on October 1, 2002. The fishing industry in the Pacific northwest has the capacity and the markets to continue fishing operations. Weather conditions tend to deteriorate in the Pacific northwest this time of year and fishery virtually ends around October 1, 2002; therefore, delaying reallocation will have a negative economic impact on the industry at a time when there is adequate resource available for all users. Based on this information, the Council determined, by majority vote, that an emergency existed and recommended to NMFS that emergency action be taken to reallocate the available resource before the date specified in the FMP.

The harvest guideline is not likely to be reached by the end of the fishing season on December 31, 2002; however, allocating the unharvested portion earlier than the scheduled date so that existing markets can be satisfied will increase the likelihood of achieving optimum yield. As long as the harvest guideline is not exceeded, there will be no impact on the status of the resource.

A total of 39,481 mt has been landed in Subarea A. A total of 31,671 mt has been landed in Subarea B. Based on this data, 47,290 mt remains of the 118,442-mt harvest guideline. Therefore, 23,645 mt is allocated north of Pt. Piedras Blancas (Subarea A) and 23,645 is allocated south of Pt. Piedras Blancas (Subarea B).

The Assistant Administrator for Fisheries, NMFS, finds that early reallocation of Pacific sardine available for harvest avoids an unnecessary economic hardship and therefore constitutes good cause to waive the requirement to provide prior notice and the opportunity for public comment, pursuant to authority set forth at 5 U.S.C. 553(b)(B). Keeping the fishery operating would likely increase landings of between 5,000 and 10,000 mt the rest of the year in Oregon and Washington. At an ex-vessel price of $100/mt this would generate between $500,000 and $1 million in revenues for fishermen. There is about a 50 percent recovery rate for processed product (most of which is packed as bait), and, at a sales price of $400/mt), the revenues to processors would be between $1 million and $2 million. While firm employment figures are not available, it is estimated that as many as 500 or more employees work on sardine processing lines. They would continue working for two weeks or more if the weather holds up to support fishing. At $7/hour (the estimated prevailing wage rate in these communities), or $60 per week, this would provide income of between $30,000 and $60,000 in direct payments to labor for the one or two-week period. Such communities generally have income multipliers in the area of 2.5 to 3.0; therefore, the direct income to fishermen and to processing line employees would translate to several million in overall income impacts for the local communities.

Because this is a substantive rule that relives a restriction, the 30 day delayed effectiveness provision of the Administrative Procedure Act does not apply.

NMFS manages the groundfish fishery in the BSAI exclusive economic zone according to the Fishery Management Plan for the Groundfish Fishery of the Bering Sea and Aleutian Islands Area (FMP) prepared by the North Pacific Fishery Management Council under authority of the Magnuson-Stevens Fishery Conservation and Management Act. Regulations governing fishing by U.S. vessels in accordance with the FMP appear at subpart H of 50 CFR part 600 and 50 CFR part 679.

The 2002 limit of non-chinook salmon caught by vessels using trawl gear for the CVOA, is 42,000 animals, § 679.21(e)(7)(vii). The CVOA is defined as that part of the BSAI that is south of 56°00′ N. lat. and between 163°30′ W. long. and 167°30′ W. long. (Figure 2 to 50 CFR part 679).

In accordance with § 679.21(e)(7)(vii), the Administrator, Alaska Region, NMFS (Regional Administrator), has determined that the 2002 limit of non-chinook salmon caught by vessels using trawl gear in the CVOA has been reached. Consequently, the Regional Administrator is prohibiting fishing with trawl gear in the Chum Salmon Savings Area defined at Figure 9 to 50 CFR part 679.

Maximum retainable bycatch amounts may be found in the regulations at § 679.20(e) and (f).

This action responds to the best available information recently obtained from the fishery. The Assistant Administrator for Fisheries, NOAA, finds good cause to waive the requirement to provide prior notice and opportunity for public comment pursuant to the authority set forth at 5 U.S.C. 553(b)(B) as such requirement is contrary to the public interest. This requirement is contrary to the public interest as it would delay the closure of the fishery, lead to exceeding the 2002 limit of non-chinook salmon caught by vessels using trawl gear in the CVOA, and therefore reduce the public's ability to use the fishery resource.

The Assistant Administrator for Fisheries, NOAA also finds good cause to waive the 30-day delay in the effective date of this action under 5 U.S.C. 553(d)(3). This finding is based upon the reasons provided above for waiver of prior notice and opportunity for public comment.

This action is required by section 679.20 and is exempt from review under Executive Order 12866.

NMFS manages the groundfish fishery in the GOA exclusive economic zone according to the Fishery Management Plan for the Groundfish Fishery of the Gulf of Alaska (FMP) prepared by the North Pacific Fishery Management Council under authority of the Magnuson-Stevens Fishery Conservation and Management Act. Regulations governing fishing by U.S. vessels in accordance with the FMP appear at subpart H of 50 CFR part 600 and CFR part 679.

The 2002 TAC allocation of thornyhead rockfish for the Western Regulatory Area was established as 360 metric tons by an emergency rule implementing 2002 harvest specifications and associated management measures for the groundfish fisheries off Alaska (67 FR 956, January 8, 2002 and 67 FR 34860, May 6, 2002).

In accordance with § 679.20(d)(2), the Administrator, Alaska Region, NMFS, has determined that the 2002 TAC specified for thornyhead rockfish in the Western Regulatory Area of the GOA has been achieved. Therefore, NMFS is requiring that further catches of thornyhead rockfish in the Western Regulatory Area of the GOA be treated as prohibited species in accordance with § 679.21(b).

This action responds to the best available information recently obtained from the fishery. The Assistant Administrator for Fisheries, NOAA, finds good cause to waive the requirement to provide prior notice and opportunity for public comment pursuant to the authority set forth at 5 U.S.C. 553(b)(B) as such requirement is contrary to the public interest. This requirement is contrary to the public interest as it would delay the closure of the fishery, lead to overharvesting the TAC, and therefore reduce the public's ability to use and enjoy the fishery resource.

The Assistant Administrator for fisheries, NOAA also finds good cause to waive the 30-day delay in the effective date of this action under 5 U.S.C. 553(d)(3). This finding is based upon the reasons provided above for waiver of prior notice and opportunity for public comment.

This action is required by section 679.20 and is exempt from review under Executive Order 12866.