[Federal Register Volume 60, Number 164 (Thursday, August 24, 1995)]
[Proposed Rules]
[Pages 44151-44154]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-20845]




  Federal Register / Vol. 60, No. 164 / Thursday, August 24, 1995 / 
Proposed Rules   

[[Page 44151]]


DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA17


Amendment to the Bank Secrecy Act Regulations Relating to Orders 
for Transmittals of Funds by Banks and Other Financial Institutions

AGENCY: Financial Crimes Enforcement Network, Treasury.

ACTION: Proposed rule.

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SUMMARY: In January 1995, the Financial Crimes Enforcement Network 
(FinCEN) of the Department of the Treasury (Treasury) and the Board of 
Governors of the Federal Reserve System (the Board) jointly adopted a 
final rule (the joint rule) requiring financial institutions to collect 
and retain certain information pertaining to transmittals of funds. At 
the same time, FinCEN adopted a final rule (the travel rule) that 
required financial institutions to include in transmittal orders 
certain information collected under the joint rule. Both the travel 
rule and the joint rule were to become effective on January 1, 1996. In 
response to industry concerns about the application of the joint rule 
and the travel rule to transmittals of funds involving foreign 
financial institutions, Treasury and the Board today are proposing 
amendments to the joint rule that conform the definitions of the 
parties to transmittals of funds to definitions found in Article 4A of 
the Uniform Commercial Code (see document published elsewhere in 
today's Federal Register). This document proposes amendments to the 
travel rule that are necessary to reflect the amended definitions in 
the joint rule. These proposed amendments to the travel rule also make 
the exceptions applicable for the joint rule applicable for the travel 
rule. To provide financial institutions sufficient time to complete 
their compliance programs for both rules, the effective dates of the 
joint rule and the travel rule are delayed until April 1, 1996 (see 
documents published elsewhere in today's Federal Register).

DATES: Comments are due by September 25, 1995.

ADDRESSES: Comments should be in writing and addressed to: Office of 
Regulatory Policy and Enforcement, Financial Crimes Enforcement 
Network, Department of the Treasury, 2070 Chain Bridge Road, Vienna, VA 
22182, Attention: Transmittal of Funds NPRM. Comments may be inspected 
between 10:00 a.m. and 4:00 p.m. at the Treasury Library, located in 
room 5030, 1500 Pennsylvania Avenue, N.W., Washington, D.C. Persons 
wishing to inspect the comments submitted should request an appointment 
at the Treasury Library, 202/622-0990.

FOR FURTHER INFORMATION CONTACT: Roger Weiner, Assistant Director, 
Office of Compliance and Enforcement, 202/622-0400; Nina A. Nichols, 
Attorney-Advisor, Office of Legal Counsel, 703/905-3598.

SUPPLEMENTARY INFORMATION:

Background

    The statute generally referred to as the Bank Secrecy Act (Titles I 
and II of Pub. L. 91-508, codified at 12 U.S.C. 1829b and 1951-1959, 
and 31 U.S.C. 5311-5330), authorizes the Secretary of the Treasury (the 
Secretary), inter alia, to require financial institutions to keep 
records and file reports that the Secretary determines have a high 
degree of usefulness in criminal, tax, or regulatory investigations or 
proceedings, and to implement counter-money laundering programs and 
compliance procedures. The Secretary's authority to administer the Bank 
Secrecy Act has been delegated to the Director of FinCEN.
    Section 1515 of the Annunzio-Wylie Anti-Money Laundering Act of 
1992 (Title XV of Pub. L. 102-550 (Annunzio-Wylie)), codified at 12 
U.S.C. 1829b(b), amended the Bank Secrecy Act (1) to require the 
Secretary and the Board jointly to promulgate, after consultation with 
state banking supervisors, recordkeeping requirements for international 
funds transfers by depository institutions and nonbank financial 
institutions; and (2) to authorize the Secretary and the Board jointly 
to promulgate regulations for domestic funds transfers by depository 
institutions. Section 1517(a) of Annunzio-Wylie, codified at 31 U.S.C. 
5318(g) and (h), authorizes the Secretary, inter alia, to require 
financial institutions to carry out anti-money laundering programs. See 
31 U.S.C. 5318(h)(1).
    In January 1995, Treasury and the Board jointly adopted a rule (the 
joint rule) that imposed recordkeeping requirements with respect to 
transmittals of funds by banks and other financial institutions (60 FR 
220, January 3, 1995). Treasury also adopted a rule (the travel rule) 
requiring financial institutions (including banks) to include in 
transmittal orders certain information collected under the joint rule 
(60 FR 234, January 3, 1995). The joint rule contained definitions of 
the terms used in both rules. These rules were to become effective on 
January 1, 1996.
    Subsequent to publication of the joint rule and the travel rule, it 
became apparent that there was confusion within the banking industry 
about the application of the rules to transmittals of funds involving 
foreign financial institutions. Several banks and bank counsel advised 
Treasury and the Board that compliance with the rules was complicated 
by the fact that the joint rule definitions of parties to funds 
transfers differed from the definitions in Article 4A of the Uniform 
Commercial Code (UCC 4A). Because a financial institution's obligations 
under the joint and travel rules depend upon its role in a particular 
transmittal of funds, the differences between the Bank Secrecy Act 
regulations definitions and UCC 4A definitions have material 
operational consequences.

Definitions of Parties to International Transfers

    The joint rule, when read together with other definitions found in 
the Bank Secrecy Act regulations at 31 CFR 103.11, limits the 
definition of the term ``bank'' to offices located within the U.S.; 
thus, a foreign bank could not be an originator's bank, intermediary 
bank or beneficiary's bank. In a transfer from a foreign bank to a U.S. 
bank (an inbound transfer), the foreign bank would be the originator 
and the U.S. bank would be the originator's bank. UCC 4A, however, does 
not restrict the definition of a bank in this way; therefore, applying 
UCC 4A definitions to an inbound transfer, the foreign bank would be an 
originator's (or intermediary) bank and the U.S. bank would be an 
intermediary (or beneficiary's) bank.
    The joint rule added definitions of financial institutions that 
correspond to the UCC 4A definitions used for banks--e.g., 
transmittor's financial institution, intermediary financial 
institution, recipient's financial institution. These definitions 
resulted in further confusion because the Bank Secrecy Act regulations 
also limit the definition of ``financial institution'' to offices 
located in the U.S.
    One other source of confusion is the overlap among the terms used 
to refer to banks and financial institutions. In general, the travel 
rule obligations apply equally to banks and to nonbank financial 
institutions, because the terms used for financial institutions include 
the terms used to refer to banks. The travel rule imposes obligations 
only on transmittors' financial institutions and intermediary financial 
institutions; 

[[Page 44152]]
these terms include originators' banks and intermediary banks.1

    \1\ In limited circumstances, a beneficiary's bank will also 
have travel rule obligations. If the recipient's financial 
institution is not a bank, then the bank that sends a transmittal 
order to the recipient's financial institution will be a 
beneficiary's bank and an intermediary financial institution subject 
to the requirements of 103.33(g)(2).
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Industry Concerns About Application of the Travel Rule

    The following hypothetical transmittal of funds (illustrated on the 
accompanying chart) illustrates the differences between the effect of 
the travel rule as published and its effect following the proposed 
amendments to the definitions in the joint rule. In this transfer, 
German Company instructs its bank, German Bank 1, to send a dollar 
payment to Japanese Bank 2 for credit to Japanese Company. German Bank 
1 forwards the payment instructions to its correspondent, German Bank 
2. German Bank 2 sends the payment instructions via SWIFT to its New 
York correspondent, New York Bank 1. New York Bank 1 executes a 
transmittal order via CHIPS to New York Bank 2. New York Bank 2 
forwards the transmittal order via Fedwire to California Bank. 
California Bank sends the transmittal order via SWIFT to its 
correspondent, Japanese Bank 1. Japanese Bank 1 forwards the 
transmittal order to Japanese Bank 2, which credits the account of 
Japanese Company.

------------------------------------------------------------------------
                                                        Definitions are 
                            Definitions of financial  parallel to UCC 4A
                            institutions limited to     definitions of  
   Parties to transfer     U.S. offices (travel rule    banks (proposed 
                            adopted in January 1995)    amended travel  
                                                             rule)      
------------------------------------------------------------------------
German Company...........  .........................  Transmittor.      
German Bank 1............  .........................  Transmittor's FI. 
German Bank 2............  Transmittor..............  Intermediary FI.  
New York Bank 1..........  Transmittor's FI.........  Intermediary FI.  
New York Bank 2..........  Intermediary FI..........  Intermediary FI.  
California Bank..........  Recipient's FI...........  Intermediary FI.  
Japanese Bank 1..........  Recipient................  Intermediary FI.  
Japanese Bank 2..........  .........................  Recipient's FI.   
Japanese Company.........  .........................  Recipient.        
------------------------------------------------------------------------

Obligations Under the Travel Rule as Adopted

    The middle column of the chart reflects the roles of the parties to 
this transmittal under the rules as adopted in January 1995. The travel 
rule imposes the following obligations:
    1. New York Bank 1, as the transmittor's financial institution, 
must include in the transmittal order to New York Bank 2 the name, 
address and account number of German Bank 2 (the transmittor) 
(103.33(g)(1)(i)-(ii)). New York Bank 1 would typically include German 
Bank 2's SWIFT Bank Identification Code (BIC) or its CHIPS Universal 
Identifier (UID) rather than its name, address and account number; 
however, Treasury believes that a widely-used industry code, such as a 
BIC, UID or routing number, would comply with the requirements, so long 
as the financial institution's name, address and account number can be 
readily derived from its industry code.
    In addition, New York Bank 1 would have to include, if received, 
information about Japanese Bank 1 (the recipient) and California Bank 
(the recipient's financial institution) (103.33(g)(1)(v)-(vi)).
    2. New York Bank 2, as an intermediary financial institution, must 
include in its transmittal order to California Bank the name, address 
and account number of German Bank 2 (the transmittor), if New York Bank 
2 receives this information.
    This requirement raises significant operational concerns, because 
as a matter of ordinary business practice, German Bank 2 would be 
identified as the ``instructing bank'' in the order received by New 
York Bank 2, and would not be identified in the order executed by New 
York Bank 2. While the bank identified in the originator's bank field 
generally is retained in subsequent transmittal orders, the 
identification in the instructing bank field may change, and the 
information may not be passed on to the next receiving financial 
institution.
    New York Bank 2 must also include information on New York Bank 1 as 
the transmittor's financial institution (103.33(g)(1)(vii)). Again, New 
York Bank 1 would be identified as the instructing bank in the 
transmittal order executed by New York Bank 2, but the information 
might be dropped from subsequent transmittal orders.
    New York Bank 2 would also have to include, if received, the 
identity of California Bank (the recipient's financial institution) and 
Japanese Bank 1 (the recipient) (103.33(g)(2)(v)-(vi)).
    3. California Bank, as the recipient's financial institution, is 
not subject to travel rule requirements.

Effect of Proposed Amendments

    In response to banking industry concerns, Treasury and the Board 
have proposed amendments to the joint rule that will conform the 
definitions of banks that are parties to funds transfers to the 
definitions found in UCC 4A and that will change the definitions of the 
terms applicable to financial institutions so that their meanings are 
parallel to the definitions in UCC 4A. (See document published 
elsewhere in today's Federal Register.)
    The third column of the accompanying chart reflects the effect of 
the proposed amendments for compliance with the travel rule. When the 
definitions applicable to financial institutions are conformed to the 
definitions in UCC 4A, all of the U.S. banks in the hypothetical 
transfer are treated as intermediary financial institutions. As an 
intermediary financial institution, rather than a transmittor's 
financial institution, New York Bank 1 is not required under the travel 
rule to pass on the specified information unless it actually receives 
it from German Bank 2.
    More importantly, the redefinition of the parties to the 
transmittal means that the information that must be passed on pertains 
to German Company (the transmittor), German Bank 1 (the transmittor's 
financial institution), Japanese Bank 2 (the recipient's financial 
institution) and Japanese Company (the recipient). These definitions 
are more in accord with the economic reality of the transaction and 
with current industry practice, and the information required is more 
likely to be included in the transmittal orders.
    With respect to the transmittal from California Bank, Treasury does 
not believe that the requirements placed on the U.S. bank in an 
outbound transfer significantly increase the cost of complying with the 
travel rule. Although California Bank, as an intermediary financial 
institution, would have to include information in its transmittal order 
to Japanese Bank 1, this information would typically be included as a 
matter of standard practice. Furthermore, California Bank would not 
have the verification obligations that it has as a beneficiary's bank. 
When considered in combination with the proposed amendments to the 
joint rule, Treasury believes that there is an overall reduction in 
burden. 

[[Page 44153]]


Effect on Law Enforcement; Ongoing Review

    Treasury believes that these proposed changes, while reducing the 
burden of compliance, will maintain the usefulness for law enforcement 
of the information passed on in transmittal orders pursuant to the 
travel rule. While the requirement placed on an intermediary financial 
institution is limited to information that it receives, the information 
passed on should be of greater use because it will pertain to the true 
transmittor and recipient in the transaction. Furthermore, the 
financial institutions that must be identified will more likely be ones 
with which the transmittor and recipient have account relationships. 
Under the rule adopted in January, transmittor's financial institutions 
and intermediary financial institutions may not be required to pass 
along information pertaining to these parties when a transmittal 
involves a foreign financial institution.
    Under the proposed amendments, an intermediary financial 
institution will be required to pass on information to a receiving 
financial institution even when the receiving financial institution is 
located outside the U.S. Treasury believes that in the interests of 
international cooperation in law enforcement, and recognizing the use 
for illicit purposes of the global payments system, there is a law 
enforcement benefit to this requirement. In addition to the potential 
availability of information that is forwarded to foreign financial 
institutions, this rule lays a foundation for international cooperation 
in setting standards for improving law enforcement efforts while 
imposing a minimal administrative burden on financial institutions.
    As stated in the joint and travel rules when they were adopted, 
Treasury will monitor the effectiveness of the rules to assess their 
usefulness to law enforcement and their effect on the cost and 
efficiency of the payments system. Within 36 months of April 1, 1996, 
Treasury will review the effectiveness of the travel rule and will 
consider making any appropriate modifications.

Addition of Exceptions

    This proposed rule also proposes the addition of new 
Sec. 103.33(g)(3), which incorporates exceptions to the joint rule that 
appear in Secs. 103.33(e)(6) and 103.33(f)(6). Those sections provide 
that a transmittal of funds is not subject to the requirements of the 
joint rule if the parties to the transmittal are both banks or brokers 
and dealers in securities, or their subsidiaries, or government 
entities, or if the transmittor and recipient are the same person and 
the transmittal involves a single bank or broker/dealer. These 
exceptions apply to the travel rule as well.

Request for Comment

    These proposed amendments to the travel rule specify that the 
requirements of the travel rule apply only to financial institution 
offices that are located within the U.S. Treasury requests comments on 
these proposed amendments, and comments on the effect on the travel 
rule of the proposed amendments to the joint rule.
Executive Order 12866

    Treasury finds that these proposed amendments to a final rule are 
not a significant rule for purposes of Executive Order 12866. The final 
rule is not anticipated to have an annual effect on the economy of $100 
million or more. It will not affect adversely in a material way the 
economy, a sector of the economy, productivity, competition, jobs, the 
environment, public health or safety, or state, local, or tribal 
governments or communities. It creates no inconsistencies with, nor 
does it interfere with actions taken or planned by other agencies. 
Finally, it raises no novel legal or policy issues. A cost and benefit 
analysis is therefore not required.

Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act, 
Treasury hereby certifies that these proposed amendments to the final 
rule will not have a significant economic impact on a substantial 
number of small entities. The proposed amendments eliminate uncertainty 
as to the application of the final rule and reduce the cost of 
complying with the rule's requirements. Accordingly, a regulatory 
flexibility analysis is not required.

Paperwork Reduction Act

    The collection of information required by the final rule whose 
amendment is proposed in this document was submitted by the Treasury to 
the Office of Management and Budget in accordance with the requirements 
of the Paperwork Reduction Act (44 U.S.C. 3504(h)) under control number 
1505-0063. See 60 FR 237 (January 3, 1995). The collection is 
authorized, as before, by 12 U.S.C. 1829b and 1959 and 31 U.S.C. 5311-
5330.
    The changes to the final rule proposed in this document will 
eliminate information collection requirements that were required by the 
final rule. Therefore no additional Paperwork Reduction Act submissions 
are required.

Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (Unfunded Mandates Act), signed into law on March 22, 1995, 
requires that an agency prepare a budgetary impact statement before 
promulgating a rule that includes a federal mandate that may result in 
expenditure by state, local, and tribal governments, in the aggregate, 
or by the private sector, of $100 million or more in any one year. 
Treasury has determined that it is not required to prepare a written 
budgetary impact statement for the proposed amendments, and has 
concluded that the proposed amendments are the most cost-effective and 
least burdensome means of achieving the stated objectives of the rule.

List of Subjects in 31 CFR Part 103

    Administrative practice and procedure, Banks, banking, Brokers, 
Currency, Foreign banking, foreign currencies, Gambling, 
Investigations, Penalties, Reporting and recordkeeping requirements, 
Securities.

Amendment

    For the reasons set forth in the preamble, 31 CFR Part 103 is 
proposed to be amended as set forth below:

PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND 
FOREIGN TRANSACTIONS

    1. The authority citation for Part 103 continues to read as 
follows:

    Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5330.

    2. In Sec. 103.33, paragraphs (g) introductory text and (g)(1) 
introductory text are revised and paragraph (g)(3) is added to read as 
follows:


Sec. 103.33  Records to be made and retained by financial institutions.

* * * * *
    (g) Any transmittor's financial institution or intermediary 
financial institution located within the United States shall include in 
any transmittal order for a transmittal of funds in the amount of 
$3,000 or more, information as required in this paragraph (g):
    (1) A transmittor's financial institution shall include in a 
transmittal order, at the time it is sent to a receiving financial 
institution, the following information:
* * * * * 

[[Page 44154]]

    (3) Exceptions. The requirements of this paragraph (g) shall not 
apply to transmittals of funds that are listed in paragraphs (e)(6) or 
(f)(6) of this section.

    Dated: July 31, 1995.
Stanley E. Morris,
Director, Financial Crimes Enforcement Network.
[FR Doc. 95-20845 Filed 8-23-95; 8:45 am]
BILLING CODE 4820-03-P