[Federal Register Volume 60, Number 173 (Thursday, September 7, 1995)]
[Proposed Rules]
[Pages 46556-46562]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-22223]



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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA13


Proposed Amendment to the Bank Secrecy Act Regulations--
Requirement to Report Suspicious Transactions

AGENCY: Financial Crimes Enforcement Network, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Financial Crimes Enforcement Network (``FinCEN'') is 
proposing rules for the centralized filing with it of reports of 
suspicious transactions under the Bank Secrecy Act. The proposal is a 
key to the creation of a new method for the reporting, on a uniform 
``Suspicious Activity Report,'' of suspicious 

[[Page 46557]]
transactions and known or suspected criminal violations by depository 
institutions; related rules have been or will be issued by the five 
federal financial supervisory agencies that examine and regulate the 
safety and soundness of depository institutions. The new centralized 
reporting system will eliminate the need for burdensome filing of 
multiple copies of reports with various federal regulatory and law 
enforcement agencies and will ensure more effective use of the 
information reported to such agencies.

DATES: Written comments on all aspects of the proposal are welcome and 
must be received on or before October 10, 1995.

ADDRESSES: Written comments should be submitted to: Office of 
Regulatory Policy and Enforcement, Financial Crimes Enforcement 
Network, Department of the Treasury, 2070 Chain Bridge Road, Vienna, 
Virginia 22182, Attention: NPRM--Suspicious Transaction Reporting.
    Submission of Comments: An original and four copies of any comment 
must be submitted. All comments will be available for public inspection 
and copying, and no material in any such comments, including the name 
of any person submitting comments, will be recognized as confidential. 
Accordingly, material not intended to be disclosed to the public should 
not be submitted.
    Inspection of Comments: Comments may be inspected at the Department 
of the Treasury between 10:00 a.m. and 4:00 p.m., in the Treasury 
Library, which is located in room 5030, 1500 Pennsylvania Avenue, N.W., 
Washington, D.C. 20220. Persons wishing to inspect the comments 
submitted should request an appointment at the Treasury Library by 
telephoning (202) 622-0990.

FOR FURTHER INFORMATION CONTACT: Charles Klingman, Office of Financial 
Institutions Policy, FinCEN, at (703) 905-3920, or Joseph M. Myers, 
Attorney-Advisor, Office of Legal Counsel, FinCEN, at (703) 905-3590.
SUPPLEMENTARY INFORMATION:

I. Introduction

    This document proposes to add a new section 103.21 to 31 CFR Part 
103 to require banks and other depository institutions 1 to report 
to the Department of the Treasury any suspicious transaction relevant 
to a possible violation of law or regulation. The amendments are 
proposed by FinCEN, to implement the authority granted to the Secretary 
of the Treasury by 31 U.S.C. 5318(g), in coordination with the Office 
of the Comptroller of the Currency (the ``OCC''), the Board of 
Governors of the Federal Reserve System (the ``Board''), the Federal 
Deposit Insurance Corporation (the ``FDIC''), the Office of Thrift 
Supervision (the ``OTS''), and the National Credit Union Administration 
(the ``NCUA'').

    \1\ References to ``bank'' include not only commercial banks, 
but also thrift institutions, credit unions, and other types of 
depository institutions. See 31 CFR 103.11(b) (defining ``bank'' for 
purposes of 31 CFR Part 103).
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    The proposed regulation creates a single coordinated process for 
the reporting of suspicious transactions under the Bank Secrecy Act and 
known or suspected criminal violations involving such institutions 
under the regulations of the regulatory agencies. The new process 
represents a fundamental change in the manner in which potential 
violations and suspicious activities are reported by banks and other 
depository institutions to the federal government.

II. Background

A. Statutory Provisions

    The Bank Secrecy Act, Pub. L. 91-508, as amended, codified at 12 
U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5330, authorizes 
the Secretary of the Treasury, inter alia, to issue regulations 
requiring financial institutions to keep records and file reports that 
are determined to have a high degree of usefulness in criminal, tax, 
and regulatory matters, and to implement counter-money laundering 
programs and compliance procedures. Regulations implementing Title II 
of the Bank Secrecy Act (codified at 31 U.S.C. 5311-5330), appear at 31 
CFR Part 103. The authority of the Secretary to administer the Bank 
Secrecy Act has been delegated to the Director of FinCEN.
    The authority to require reporting of suspicious transactions was 
added to the Bank Secrecy Act by section 1517 of the Annunzio-Wylie 
Anti-Money Laundering Act (``Annunzio-Wylie''), Title XV of the Housing 
and Community Development Act of 1992, Pub. L. 102-550; it was expanded 
by section 403 of the Money Laundering Suppression Act of 1994 (the 
``Money Laundering Suppression Act''), Title IV of the Riegle Community 
Development and Regulatory Improvement Act of 1994, Pub. L. 103-325, to 
require designation of a single government recipient for reports of 
suspicious transactions.
    The provisions of 31 U.S.C. 5318(g) deal with the reporting of 
suspicious transactions by financial institutions subject to the Bank 
Secrecy Act and the protection from liability to customers of persons 
who make such reports. Subsection (g)(1) states generally:

The Secretary may require any financial institution, and any 
director, officer, employee, or agent of any financial institution 
to report any suspicious transaction relevant to a possible 
violation of law or regulation.

Subsection (g)(2) provides further:

A financial institution, and a director, officer, employee, or agent 
of any financial institution, who voluntarily reports a suspicious 
transaction, or that reports a suspicious transaction pursuant to 
this section or any other authority, may not notify any person 
involved in the transaction that the transaction has been reported.

Subsection (g)(3) provides that neither a financial institution, nor 
any director, officer, employee, or agent

That makes a disclosure of any possible violation of law or 
regulation or a disclosure pursuant to this subsection or any other 
authority . . . shall . . . be liable to any person under any law or 
regulation of the United States or any constitution, law, or 
regulation of any State or political subdivision thereof, for such 
disclosure or for any failure to notify the person involved in the 
transaction or any other person of such disclosure.

Finally, subsection (g)(4) requires the Secretary of the Treasury, ``to 
the extent practicable and appropriate,'' to designate ``a single 
officer or agency of the United States to whom such reports shall be 
made.'' This designation is not to preclude the authority of 
supervisory agencies to require financial institutions to submit other 
reports to the same agency ``under any other applicable provision of 
law.'' 31 U.S.C. 5318(g)(4)(C). The designated agency is in turn 
responsible for referring any report of a suspicious transaction to 
``any appropriate law enforcement agency.'' Id., at subsection 
(g)(4)(B).

B. Coordinated Process for Reporting Suspicious Transactions
    At present, banks report transactions that indicate the existence 
of ``known or suspected violations of federal law'' by filing multiple 
copies of criminal referral forms with their respective primary federal 
financial regulator and with federal law enforcement agencies 
(including in most cases the Federal Bureau of Investigation, the 
United States Secret Service, and the Criminal Investigation Division 
of the Internal Revenue Service). The referral forms (each promulgated 
by a different regulator, under independent but parallel authority) are 
not uniform, and the requirement for multiple filings imposes a 
considerable administrative burden on filers. In the absence of a 
central repository, law enforcement and 

[[Page 46558]]
regulatory agencies--receiving different forms from different filers in 
different regions of the country--struggle to analyze and correlate the 
filings and to coordinate investigations.
    At the same time, banks (and other financial institutions) are 
required under the Bank Secrecy Act to file a Currency Transaction 
Report (or ``CTR'') to report transactions in currency of more than 
$10,000. The CTR form includes a box that can be checked to indicate 
that the currency transaction is ``suspicious.'' 2 The box on the 
CTR may also be used to report suspicious currency transactions in 
amounts less than $10,000. In practice, some financial institutions 
have also used the CTR form to report non-currency transactions that 
they believed to be ``suspicious'' but did not rise to the level of a 
known or suspected violation of law. Still other financial institutions 
reported such transactions by telephone to local offices of federal law 
enforcement or regulatory agencies. In many cases, financial 
institutions that were uncertain what to do naturally and commendably 
filed all possibly applicable reports.

    \2\ The revised and simplified CTR that goes into effect on 
October 1, 1995 eliminates the box in anticipation of the adoption 
of the Suspicious Activity Report for reporting of, inter alia, 
suspicious currency transactions. An advance copy of the revised CTR 
was issued by FinCEN in early May 1995. See ``FinCENnews'', May 10, 
1995.
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    As also discussed in proposed regulations issued in connection with 
the creation of the unified reporting system by the Office of the 
Comptroller of the Currency, 60 FR 34,476 (July 3, 1995), and the Board 
of Governors of the Federal Reserve System, 60 FR 34,481 (July 3, 
1995), the current criminal referral system is cumbersome and 
burdensome, for both regulators and depository institutions. Moreover, 
it does not maximize the amount of usable information available to law 
enforcement officials and bank regulators. Therefore, beginning in 
1991, the regulatory agencies began working on a project to improve the 
criminal referral process, with the goal of creating a single form and 
placing all referrals in an automated information system, managed on 
their behalf by FinCEN, to which all regulators and FinCEN would have 
access. The purpose of that project, begun under the auspices of the 
inter-agency Bank Fraud Working Group, was to assure that information 
generated by referrals of banking crimes would be uniformly available 
both as a basis for regulatory decisions and for analysis of the 
effectiveness of the reporting process and banking crime enforcement 
efforts.
    A year later, Annunzio-Wylie vested broad suspicious transaction 
reporting authority in the Department of the Treasury. Soon thereafter, 
a ``Money Laundering Review Task Force,'' made up of enforcement and 
regulatory officials, was established in the Office of the then-
Assistant Secretary (Enforcement) to examine the effectiveness of 
Treasury's anti-money laundering policies. The Task Force's analysis 
emphasized that identification and reporting of suspicious activity can 
and should be one of law enforcement's most effective tools against 
money laundering, so long as the reporting is not burdensome and 
reflects as much guidance about money laundering transactions and 
methods as government can provide. The work of the Task Force resulted 
in a consensus at Treasury that a reasoned implementation of Treasury's 
expanded suspicious transaction reporting authority (together with the 
accompanying ``know your customer'' rule) would increase the 
effectiveness of counter-money laundering efforts and permit 
significant reduction in mechanical currency transaction reporting 
requirements.
    The single integrated system of which this proposed rule is a part 
thus reflects (i) the effect on the pre-existing criminal referral 
process of the statutory grant of central authority to Treasury, under 
the Bank Secrecy Act, to require reporting of all suspicious 
transactions (not merely transactions in currency or its equivalents) 
involving financial institutions, (ii) the mutual desire of Treasury 
and the financial regulators to simplify and reduce the burdensomeness 
of the reporting process, and (iii) the centrality of suspicious 
transaction reporting to Treasury counter-money laundering policy.
    The central feature of the integrated reporting system is the 
creation of a single reporting form, filing point, and information 
system for all reports of suspicious activity made by depository 
institutions. The single form standardizes filing requirements and 
facilitates the creation of a single, automated data base containing 
information from all filings. The single filing point not only 
eliminates the need for multiple copies but also permits magnetic 
filing of reports by most institutions capable of and accustomed to 
making such filings with the Internal Revenue Service. (In a related 
development, as explained more fully below, the requirement that 
supporting documentation be filed with the report has been eliminated.) 
Finally, the single data base will permit rapid dissemination to 
appropriate law enforcement agencies of reports within their 
jurisdiction, more thorough analysis and tracking of those reports, 
and, in time, the provision to the financial communities of information 
about trends and patterns gleaned from the information reported.
    Each agency involved has issued or shortly will issue a proposed 
rule requiring reporting under its respective authority. It is 
anticipated that those proposed rules will be conformed to one another 
in their final form and that they will be identical with Treasury's 
suspicious transaction reporting rules. Thus a financial institution 
will file a suspicious activity report in satisfaction of both the 
rules of FinCEN and the rules of the applicable banking regulator or 
regulators.
    The selection of a single term--Suspicious Activity Report 
(``SAR'')--for the new report reflects the overlap and consolidation of 
the two reporting requirements. There will be a significant group of 
activities that are required to be reported both under the authority of 
31 U.S.C. 5318(g) and under the financial regulatory agencies own 
administrative requirements. A single filing, however, will suffice to 
comply with all requirements.
C. Importance of Suspicious Transaction Reporting in Treasury's Anti-
Money Laundering Program

    The Congressional mandate to require reporting of suspicious 
transactions recognizes two basic points that have increasingly become 
central to Treasury's anti-money laundering and anti-financial crime 
programs. First, it is to financial institutions that money launderers 
must go. Second, the officials of those institutions are more likely 
than government officials to have a sense as to what transactions 
appear to lack commercial justification or otherwise cannot be 
explained as falling within the usual methods of legitimate commerce. 
Money laundering transactions are often designed to appear legitimate 
in order to avoid detection. Under these circumstances, the creation of 
a meaningful system for detection and prevention of money laundering is 
impossible without the cooperation of financial institutions.
    The provisions of Annunzio-Wylie and the Money Laundering 
Suppression Act recognize that the traditional reliance of Treasury 
counter-money laundering programs on the reporting of currency 
transactions between financial institutions and their customers and the 
transportation of currency and certain monetary instruments into or out 
of the United States is neither adequate nor 

[[Page 46559]]
cost effective. The change in emphasis from routine reporting of all 
currency transactions above a certain amount to reporting of 
information most likely to be of use to law enforcement officials and 
financial regulators is a key component of the flexible and cost-
efficient compliance system required to prevent the use of the nation's 
financial system for illegal purposes.
    The placement of illegally-derived currency into the financial 
system and the smuggling of such currency out of the country remain two 
of the most serious issues facing financial law enforcement efforts in 
the United States and around the world. But banks and other depository 
institutions, in cooperation with law enforcement agencies and federal 
and state banking regulators, have responded in many positive ways to 
the challenges posed by money laundering. It is now far more difficult 
than in the past to pass large amounts of cash directly into the 
nation's banks unnoticed and far easier to identify and isolate those 
institutions and officials still willing to assist or ignore money 
launderers.
    Moreover, the placement of currency into the financial system is at 
most only the first stage in the money laundering process. While many 
currency transactions are not indicative of money laundering or other 
violations of law, many non-currency transactions can indicate illicit 
activity, especially in light of the breadth of the statutes that make 
money laundering itself a crime. See 18 U.S.C. 1956 and 1957.
    No system for the reporting of suspicious transactions can be 
effective unless information flows from as well as to the government. 
Thus, Treasury recognizes its responsibility to issue and update 
guidelines about patterns of suspicious activity.
    The reporting of suspicious transactions is also a key to the 
emerging international consensus on the prevention of money laundering. 
One of the central recommendations in the Report of the Financial 
Action Task Force of the G-7 nations (the United States, The United 
Kingdom, Germany, France, Italy, Japan, and Canada) is that:

    If financial institutions suspect that funds stem from a 
criminal activity, they should be permitted or required to report 
promptly their suspicions to the competent authorities.

Financial Action Task Force Report (April 19, 1990), Section III(B)(3) 
(Recommendation 16). The European Community's Directive on prevention 
of the use of the financial system for the purpose of money laundering 
calls for member states to

    Ensure that credit and financial institutions and their 
directors and employees cooperate fully with the authorities 
responsible for combating money laundering . . . by [in part] 
informing those authorities, on their own initiative, of any fact 
which might be an indication of money laundering.

EC Directive, O.J. Eur. Comm. (No. L 166) 77 (1991), Article 6. Accord, 
the Model Regulations Concerning Laundering Offenses Connected to 
Illicit Drug Trafficking and Related Offenses of the Organization of 
American States, OEA/Ser. P. AG/Doc. 2916/92 rev. 1 (May 23, 1992), 
Article 13, section 2.3

    \3\  The OAS reporting requirement is linked to the provision of 
the Model Regulations that institutions ``shall pay special 
attention to all complex, unusual or large transactions, whether 
completed or not, and to all unusual patterns of transactions, and 
to insignificant but periodic transactions, which have no apparent 
economic or lawful purpose.'' OAS Model Regulation, Article 13, 
section 1.
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D. Suspicious Transaction Reporting by Financial Institutions Other 
Than Banks

    31 U.S.C. 5318(g) authorizes the Treasury to require the reporting 
of suspicious transactions by all financial institutions, and extends 
to financial institutions other than banks. FinCEN intends to extend 
the obligation to report suspicious transactions to such other 
institutions in the near future. However, this proposed rule applies 
only to reporting of suspicious transactions by banks and other 
depository institutions.

III. Specific Provisions

A. 103.11(qq)  FinCEN

    FinCEN is specifically defined for the first time in the Bank 
Secrecy Act regulations, because FinCEN is being designated by the 
Secretary of the Treasury as the central recipient of SARs filed 
pursuant to 31 U.S.C. 5318.

B. 103.11(r)  Transaction

    The definition of ``transaction in currency'' in the Bank Secrecy 
Act regulations has been changed to a definition of ``transaction.'' 
The definition conforms to the definitions in 18 U.S.C. 1956 used when 
Congress criminalized money laundering in 1986.4 This definition 
of transaction is broad enough to cover all activity that will be 
reported on an SAR.

    \4\ See Pub. L. 99-570, Title XIII, 1352(a), 100 Stat. 3207-18 
(Oct. 27, 1986).
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    Treasury does not believe that the change varies the substance of 
the requirement to report currency transactions under 31 CFR 103.22, 
other than in the case of deposits of cash in safe deposit boxes, and 
the change is not intended to make any other modifications in that 
requirement. Treasury would be interested in comments concerning the 
safe deposit box issue and other instances in which financial 
institution personnel believe that application of the new definition, 
required for implementation of the suspicious transaction reporting 
rule, would unintentionally alter the separate currency transaction 
reporting requirement.

C. 103.20  Determination by the Secretary

    Section 103.21 is redesignated as section 103.20 in order to make 
room in Subpart B, ``Reports Required To Be Made,'' for the suspicious 
transaction reporting requirement in this proposed rule.

D. 103.21  Reports of Suspicious Transactions

     New section 103.21 contains the rules setting forth the obligation 
of banks to file reports of suspicious transactions. Paragraph (a) 
contains the general statement of the obligation to file, and a general 
definition of the term ``suspicious transaction.'' The obligation 
extends only to transactions conducted or attempted by, at, through, or 
otherwise involving, the bank; however, it is important to recognize 
that transactions are reportable under this rule and 31 U.S.C. 5318(g) 
whether or not they involve currency.
    The proposed rule designates three classes of transactions as 
requiring reporting. The first class, described in proposed paragraph 
(a)(2)(i), includes transaction involving funds derived from illegal 
activity or intended or conducted in order to hide or disguise funds or 
assets derived from illegal activity. The second class, described in 
proposed paragraph (a)(2)(ii), involves transactions designed to evade 
the requirements of the Bank Secrecy Act. The third class, described in 
proposed paragraph (a)(2)(iii), involves transactions that appear to 
have no business purpose or vary so substantially from normal 
commercial activities or activities appropriate for the particular 
customer or class of customer as to have no reasonable explanation.
    Of course, determinations as to whether a report is required must 
be based on all the facts and circumstances relating to the transaction 
and bank customer in question. Different fact patterns will require 
different types of judgments. In some cases, the facts of the 
transaction may clearly indicate the need to report. For example, 
continued payments or withdrawals of currency in amounts each beneath 
the currency transaction reporting threshold 

[[Page 46560]]
applicable under 31 CFR 103.22, or multiple exchanges of small 
denominations of currency into large denominations of currency, can 
indicate that a customer is involved in suspicious activity. Similarly, 
the fact that a customer refuses to provide information necessary for 
the bank to make reports or keep records required by this Part or other 
regulations, provides information that a bank determines to be false, 
or seeks to change or cancel the transaction after such person is 
informed of reporting requirements relevant to the transaction or of 
the bank's intent to file reports with respect to the transaction, 
would all indicate that an SAR should be filed.
    In other situations a more involved judgment may need to be made 
whether a transaction is suspicious within the meaning of the rule. 
Transactions that raise the need for such judgments may include, for 
example, (i) funds transfers, payments or withdrawals that are not 
commensurate with the stated business or other activity of the person 
conducting the transaction or on whose behalf the transaction is 
conducted; (ii) transmission or receipt of funds transfers without 
normal identifying information or in a manner that indicates an attempt 
to disguise or hide the country of origin or destination or the 
identity of the customer sending the funds or of the beneficiary to 
whom the funds are sent; or (iii) repeated use of an account as a 
temporary resting place for funds from multiple sources without a clear 
business purpose therefor. The judgments involved will also extent to 
whether the facts and circumstances and the institution's knowledge of 
its customer provide a reasonable explanation for the transaction that 
removes it from the suspicious category.
    The means of commerce and the techniques of money launderers are 
continually evolving, and there is no way to provide an exhaustive list 
of suspicious transactions. For these reasons, Treasury ultimately must 
rely on creation of a working partnership that enables the financial 
community to apply its knowledge of both its customers and of the 
developments in financial commerce to identify and report suspicious 
activity. At the same time, Treasury intends to provide meaningful 
guidance to the banking community concerning the particular 
circumstances and types of behavior that Treasury believes indicate 
suspicious activity.
    31 U.S.C. 5318(g)(1) authorizes Treasury to require suspicious 
transaction reporting not only by financial institutions but by ``any 
director, officer, employee, or agent of any financial institution.'' 
This proposed rule addresses reporting by banks, but it is not intended 
to reduce the obligations of bank employees or agents, within the 
context of a bank's reporting and Bank Secrecy Act compliance 
obligations, but simply to avoid at this time creating an obligation on 
the part of bank employees and agents independent of those general 
obligations. It is anticipated that a forthcoming notice of proposed 
rulemaking on anti-money laundering compliance programs will contain 
additional guidance on this matter.
    Paragraph (b) sets forth the filing procedures to be followed by 
banks making reports of suspicious transactions. Reports are to be made 
within 30 days after the bank becomes aware of the suspicious 
transaction by completing an SAR and filing it in a central location, 
to be determined by FinCEN. Supporting documentation is to be collected 
and maintained separately by the bank, and made available to law 
enforcement, as necessary. Special provision is made for situations 
requiring immediate attention, in which case banks are to telephone the 
appropriate law enforcement authority in addition to filing an SAR. 
These filing procedures represent a significant improvement over the 
procedures currently followed by banks filing criminal referral forms. 
There is no requirement to file multiple copies of forms with multiple 
agencies, and no requirement to file supporting documentation with the 
SAR itself.
    Paragraph (c) continues in effect the longstanding exception from 
the obligation to file in the case of a robbery or burglary that is 
otherwise reported to appropriate law enforcement authorities. Treasury 
and the financial regulators recognize that bank robbery and burglary 
require the immediate attention of the appropriate police authorities, 
and are not the types of crimes about which this regulation is directly 
concerned.
    Paragraph (d) states the obligation of filing banks to maintain 
copies of SARs and the original related documentation for a period of 
ten years from the date of filing. As indicated above, supporting 
documentation is to be made available to FinCEN and appropriate law 
enforcement authorities on request.
    Paragraph (e) incorporates the terms of 31 U.S.C. 5318 (g)(2) and 
(g)(3). This paragraph thus specifically prohibits those filing SARs 
from making any disclosure, except to authorized law enforcement and 
regulatory agencies, about either the reports themselves, the 
information contained therein, or the supporting documentation. This 
paragraph thus also restates the broad protection from liability for 
making reports of suspicious transactions, and for failures to disclose 
the fact of such reporting, contained in the statute. The regulatory 
provisions do not extend the scope of either the statutory prohibition 
or the statutory protection; however, because Treasury recognizes the 
importance of these statutory provisions to the overall effort to 
encourage meaningful reports of suspicious transactions, they are 
described in the regulation in order to remind compliance officers and 
others of their existence.
    Finally, paragraph (f) notes that compliance with the obligation to 
report suspicious transactions will be audited, and provides that 
failure to comply with the rule shall constitute a violation of the 
Bank Secrecy Act and the Bank Secrecy Act regulations, which may 
subject non-complying banks to enforcement action. The paragraph also 
notes that compliance with the obligation to report suspicious 
transactions will have no direct bearing on a bank's potential exposure 
under the criminal provisions of Title 18 of the U.S. Code. The ``safe 
harbor'' provisions of 31 U.S.C. 5318(g) do not protect against 
criminal prosecutions.

IV. Comments

    FinCEN invites public comment on all aspects of this proposal. 
FinCEN is particularly interested in, and specifically requests that 
financial institutions comment on, the following issues.
    1. Consolidating information reported on the existing criminal 
referral form (CRF) with that reported on suspicious currency 
transaction reports was done to eliminate confusion and avoid duplicate 
reporting. Currently, in the absence of specific guidelines, each 
financial institution has developed internal and specific thresholds 
and procedures for reporting different types of activity on each form. 
In this proposed rule, Treasury has attempted to describe instances 
where, and circumstances in which, a financial institution would 
determine a transaction to be suspicious and file a report. However, no 
regulation could possibly cover all instances of potential suspicious 
activity. Conversely, a regulation should not be crafted so broadly as 
to provide no parameters or guidelines to follow. Treasury needs to 
know if the terms set forth in this proposed regulation are clear, 
specific, and sufficient as a basis for financial institutions to 
determine when activity is suspicious. If not, Treasury requests 
specific, detailed suggestions for 

[[Page 46561]]
substitute language that should be considered.
    2. In addition, over 100 predicate offenses may serve as the basis 
for a criminal money laundering charge under 18 U.S.C. 1956. The 
instructions for the SAR, as well as the proposed notices issued by the 
regulatory agencies, provide specific thresholds for reporting 
particular types of violations. Treasury is interested in the 
industry's position as to whether similar types of thresholds should be 
imposed for reporting Bank Secrecy Act and money laundering violations.
    3. Finally, Treasury understands that, after filing a report on a 
particular customer, a financial institution may be confronted with a 
decision as to whether to terminate its relationship with that 
customer. Treasury believes that unless instructed by an authorized 
official, this is a decision which must be made by the financial 
institution. However, Treasury is interested in working with the 
industry to develop procedures which could help frame such decisions.
    The comment period for this rule is 30 days. Although the comment 
period is shorter than that which would normally be employed, many of 
the terms reflected in this rule are also contained in the rules 
already proposed by the financial regulators. FinCEN will have access 
to those comments, and it is believed that on that basis the short 
comment period is justified, in light of the desire of the agencies 
involved to commence the operation of the less burdensome single form 
reporting system on October 1, 1995.

V. Regulatory Flexibility Act

    FinCEN certifies that this proposed regulation will not have a 
significant financial impact on a substantial number of small 
depository institutions.

VI. Paperwork Reduction Act

    The collection of information contained in this proposed rule has 
been submitted to the Office of Management and Budget (OMB) for review 
in accordance with the Paperwork Reduction Act of 1980 (44 U.S.C. 
3504(h)). Comments on the collection of information should be sent to 
OMB, Paperwork Reduction Project, Washington, DC 20503, with copies to 
FinCEN, Office of Financial Institutions Policy, 2070 Chain Bridge 
Road, Suite 200, Vienna, Virginia 22182.
VII. Executive Order 12866

    The Department of the Treasury has determined that this proposed 
rule is not a significant regulatory action under Executive Order 
12866.

VIII. Unfunded Mandates Act of 1995 Statement

    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
104-4 (Unfunded Mandates Act), March 22, 1995, requires that an agency 
prepare a budgetary impact statement before promulgating a rule that 
includes a federal mandate that may result in expenditure by state, 
local and tribal governments, in the aggregate, or by the private 
sector, of $100 million or more in any one year. If a budgetary impact 
statement is required, section 202 of the Unfunded Mandates Act also 
requires an agency to identify and consider a reasonable number of 
regulatory alternatives before promulgating a rule. FinCEN has 
determined that it is not required to prepare a written statement under 
section 202 and has concluded that on balance this proposal provides 
the most cost-effective and least burdensome alternative to achieve the 
objectives of the rule.

List of Subjects in 31 CFR Part 103

    Authority delegations (Government agencies), Banks and banking, 
Currency, Investigations, Law enforcement, Reporting and recordkeeping 
requirements.

Amendment

    For the reasons set forth above 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 is revised to read as 
follows:

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

    2. In Sec. 103.11, paragraph (r) is revised and paragraph (qq) is 
added to read as follows:


Sec. 103.11  Meaning of terms.

* * * * *
    (r) Transaction. Transaction means a purchase, sale, loan, pledge, 
gift, transfer, delivery or other disposition, and with respect to a 
financial institution includes a deposit, withdrawal, transfer between 
accounts, exchange of currency, loan, extension of credit, purchase or 
sale of any stock, bond, certificate of deposit, or other monetary 
instrument, use of a safe deposit box, or any other payment, transfer, 
or delivery by, through, or to a financial institution, by whatever 
means effected.
* * * * *
    (qq) FinCEN. FinCEN means the Financial Crimes Enforcement Network, 
an office within the Office of the Under Secretary (Enforcement) of the 
Department of the Treasury.
    3. Section 103.21 is redesignated as Sec. 103.20.
    4. New Sec. 103.21 is added to read as follows:


Sec. 103.21  Reports of suspicious transactions.

    (a) General. (1) Every bank shall file with the Treasury 
Department, as required by this Sec. 103.21, a report of any suspicious 
transaction relevant to a possible violation of law or regulation.
    (2) A transaction requires reporting under the terms of this 
section if it is conducted or attempted by, at, or through, or 
otherwise involves, the bank, and
    (i) The bank knows, suspects, or has reason to suspect that the 
transaction involves funds derived from illegal activity or is intended 
or conducted in order to hide or disguise funds or assets derived from 
illegal activity (including, without limitation, the ownership, nature, 
source, location, or control of such funds or assets) as part of a plan 
to violate or evade any law or regulation or to avoid any transaction 
reporting requirement under federal law;
    (ii) The bank knows, suspects, or has reason to suspect that the 
transaction is designed to evade any requirements of this Part or of 
any other regulations promulgated under the Bank Secrecy Act; or
    (iii) The transaction or its details appear to have no business 
purpose, the transaction varies from the normal methods of financial 
commerce, or the transaction is not the sort in which the particular 
customer or class of customer would normally be expected to engage, 
and, in each case, the bank knows of no reasonable explanation for the 
transaction.
    (b) Filing procedures--(1) What to file. A suspicious transaction 
shall be reported by completing, in accordance with the instructions, a 
Suspicious Activity Report (``SAR''), and collecting and maintaining 
supporting documentation related information, in accordance with this 
rule.
    (2) Where to file. The SAR shall be filed in a central location, to 
be determined by FinCEN.
    (3) When to file. A bank is required to file each SAR not later 
than 30 calendar days after the first date on which the bank becomes 
aware of the facts constituting the transaction to which the report 
relates. If no suspect is identified on the date of detection of the 
incident triggering the filing, a bank may delay 

[[Page 46562]]
filing an SAR for an additional 30 calendar days, but in no case shall 
reporting be delayed more than 60 calendar days after the date of the 
transaction. In situations involving violations that require immediate 
attention, such as when a reportable violation is ongoing, the bank 
shall immediately notify by telephone the appropriate law enforcement 
authority in addition to filing an SAR.
    (c) Exception. A bank is not required to file a suspicious 
transaction report for a robbery or burglary committed or attempted 
that is reported to appropriate law enforcement authorities.
    (d) Retention of records. A bank shall maintain a copy of any SAR 
filed and the original of any related documentation for a period of ten 
years from the date of filing the SAR, unless the bank is informed by 
FinCEN in writing that the bank may discard the materials sooner. 
Supporting documentation shall be identified, segregated, and treated 
as filed with the SAR. A bank shall make all supporting documentation 
available to FinCEN and any appropriate law enforcement agencies upon 
request.
    (e) Confidentiality of reports; limitation of liability. No 
financial institution, nor any director, officer, employee, or agent of 
any financial institution, who reports a suspicious transaction under 
this Part, may notify any person involved in the transaction that the 
transaction has been reported. Thus, any person subpoenaed or otherwise 
requested to disclose an SAR, the information contained in an SAR or 
any information contained in the documentation supporting an SAR, 
except where such disclosure is requested by a law enforcement agency, 
shall refuse to produce the SAR or such other information. See 31 
U.S.C. 5318(g)(2). A bank, and any director, officer, employee, or 
agent of such bank, that make a report pursuant to this Sec. 103.21 
shall be protected from liability for any disclosure contained, for 
failure to disclosure the fact of such report, or both, to the extent 
provided by 31 U.S.C. section 5318(g)(3).
    (f) Compliance. Compliance with these rules shall be audited by the 
Department of the Treasury or its delegees under the terms of the Bank 
Secrecy Act. Failure to satisfy the requirements of this rule shall be 
a violation of the reporting rules of the Bank Secrecy Act and of 31 
CFR Part 103. Such failure may also violate provisions of Titles 12 and 
15 of the Code of Federal Regulations. Whether or not a bank satisfies 
the requirements of this reporting rule has no direct bearing on the 
obligations or possible liabilities of such bank or its directors, 
officers, employees, or agents, under provisions of Title 18 of the 
United States Code.

    Dated: August 30, 1995.
Stanley E. Morris,
Director, Financial Crimes Enforcement Network.
[FR Doc. 95-22223 Filed 9-6-95; 8:45 am]
BILLING CODE 4820-03-P