[Federal Register Volume 60, Number 178 (Thursday, September 14, 1995)]
[Proposed Rules]
[Pages 47719-47722]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-22750]



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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 353

RIN 3064-AB63


Suspicious Activity Reporting

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is proposing 
to revise and restructure its regulation on the reporting of suspicious 
activities by insured state nonmember banks, including the reporting of 
suspicious financial transactions, such as suspected violations of the 
Bank Secrecy Act (BSA). This proposal implements a new interagency 
suspicious activity referral process and updates and clarifies various 
portions of the underlying reporting regulation. The proposal also 
reduces substantially the burden on banks in reporting suspicious 
activities while enhancing access to such information by both the 
federal law enforcement and the federal financial institutions 
supervisory agencies, thus meeting the goals of section 303 of the 
Riegle Community Development and Regulatory Improvement Act of 1994.

DATES: Comments must be received by November 13, 1995.

ADDRESSES: Written comments shall be addressed to the Office of the 
Executive Secretary, Federal Deposit Insurance Corporation, 550 17th 
Street NW., Washington, DC 20429. Comments may be hand delivered to 
Room F-402, 1776 F Street NW., Washington, DC 20429, on business days 
between 8:30 a.m. and 5:00 p.m. [Fax number: 202/898-3838; (Internet 
address: [email protected]] Comments will be available for inspection 
at the Corporation's Reading Room, Room 7118, 550 17th Street NW., 
Washington, DC between 9:00 a.m. and 4:30 p.m. on business days.

FOR FURTHER INFORMATION CONTACT: Carol A. Mesheske, Chief, Special 
Activities Section, (202/898-6750), or Gregory Gore, Counsel, (202) 
898-7109. 

[[Page 47720]]


SUPPLEMENTARY INFORMATION:

Background

    The federal financial institutions supervisory agencies (the 
Agencies) 1 and the Department of the Treasury (Treasury), through 
its Financial Crimes Enforcement Network (FinCEN), are responsible for 
ensuring that financial institutions apprise federal law enforcement 
authorities of any known or suspected violation of a federal criminal 
statute and of any suspicious financial transaction. Suspicious 
financial transactions, which will be the subject of regulations and 
other guidance to be issued by Treasury, can include transactions that 
the bank suspects involved funds derived from illicit activities, were 
conducted for the purpose of hiding or disguising funds from illicit 
activity, otherwise violated the money laundering statutes (18 U.S.C. 
1956 and 1957), were potentially designed to evade the reporting or 
recordkeeping requirements of the Bank Secrecy Act (BSA) (31 U.S.C. 
5311 through 5330), or transactions the bank believes were suspicious 
for any other reason.

    \1\ The federal financial institutions supervisory agencies are 
the Office of the Comptroller of the Currency, the Office of Thrift 
Supervision, the Board of Governors of the Federal Reserve System, 
the Federal Deposit Insurance Corporation, and the National Credit 
Union Administration.
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    Fraud, abusive insider transactions, check kiting schemes, money 
laundering, and other crimes can pose serious threats to a financial 
institution's continued viability and, if unchecked, can undermine the 
public confidence in the nation's financial industry. The Agencies and 
federal law enforcement agencies need to receive timely and detailed 
information regarding suspected criminal activity to determine whether 
investigations, administrative actions, or criminal prosecutions are 
warranted.
    An interagency Bank Fraud Working Group (BFWG), consisting of 
representatives from many federal agencies, including the Agencies and 
law enforcement agencies, was formed in 1984. The BFWG addresses 
substantive issues, promotes cooperation among the Agencies and federal 
and state law enforcement agencies, and improves the federal 
government's response to white collar crime in financial institutions. 
It is under the auspices of the BFWG that the revisions to this 
regulation and the reporting requirements are being made.
Suspicious Activity Report

    The Agencies have been working on a project to improve the criminal 
referral process, to reduce unnecessary reporting burdens on banks, and 
to eliminate confusion associated with the current duplicative 
reporting of suspicious financial transactions in criminal referral 
forms and currency transaction reports (CTRs). Contemporaneously, 
Treasury analyzed the need to revise the procedures used by financial 
institutions for reporting suspicious financial transactions. As a 
result of these reviews, the Agencies and Treasury approved the 
development of a new referral process that includes suspicious 
financial transaction reporting.
    To implement the reporting process, and to reduce unnecessary 
burdens associated with these various reporting requirements, the 
Agencies and FinCEN developed a new interagency form for reporting 
known or suspected federal criminal law violations and suspicious 
financial transactions. The new report is designated the Suspicious 
Activity Report (SAR). The SAR is a simplified and shortened version of 
its predecessors. The new referral process and the SAR reduce the 
burden on banks for reporting known or suspected violations and 
suspicious financial transactions. The agencies anticipate the new 
process will be instituted by October, 1995.

Proposal

    The FDIC proposes to revise 12 CFR part 353 by updating and 
clarifying the current rule governing the filing of criminal referral 
reports; expanding the rule to cover suspicious financial transactions; 
implementing the new SAR; and simplifying reporting requirements. This 
action should improve reporting of known or suspected violations and 
suspicious financial transactions relating to federally insured 
financial institutions while providing uniform data for entry into a 
new interagency computer database. The FDIC expects that each of the 
other Agencies will be making substantially similar changes 
contemporaneously.
    The principal proposed changes to the current criminal referral 
reporting rules include several notable changes. They include: (i) 
Raising the mandatory reporting thresholds for criminal offenses, 
thereby reducing banks' reporting burdens; (ii) filing only one form 
with a single repository, rather than submitting multiple copies to 
several federal law enforcement and banking agencies, thereby further 
reducing reporting burdens; and (iii) clarifying the criminal referral 
and reporting requirements of the Agencies and Treasury associated with 
suspicious financial transactions, thereby eliminating confusion 
concerning the filing of referrals related to suspicious financial 
transactions of less than $10,000 and eliminating duplicative 
referrals.
    The proposal also involves the manner in which financial 
institutions file a SAR. In following the instructions on a SAR, banks 
may file the referral form in several ways, including submitting an 
original form or a photocopy or filing by magnetic means, such as by a 
computer disk.
    The Agencies, working with FinCEN, are developing computer software 
to assist banks in preparing and filing SARs. The software will allow a 
bank to complete a SAR, to save the SAR on its computers, and to print 
a hard copy of the SAR for its own records. The computer software will 
also enable a bank to file a SAR using various forms of magnetic media, 
such as computer disk or magnetic tape. The FDIC will make the software 
available to all its supervised institutions free of charge.

Part 353--Suspicious Activity Reports

    The title of the regulation has been changed to conform to the name 
on the SAR. The current part is titled ``Reports of Apparent Crimes 
Affecting Insured Nonmember Banks''. The proposed heading, ``Suspicious 
Activity Reports'', conforms to the name of the report.

Section 353.1  Purpose and Scope

    The proposal restructures the current Sec. 353.0, redesignates it 
as Sec. 353.1, and clarifies the scope of the current rule. Under the 
proposal, the SAR replaces the various criminal referral forms that the 
Agencies currently require banks to file. Also, a bank files a SAR to 
report a suspicious financial transaction. Presently, many banks are 
confused over whether to file a CTR or a criminal referral form when a 
suspicious financial transaction occurs, and often needlessly file both 
forms or the wrong form.\2\

    \2\ The BSA requires all financial institutions to file CTRs in 
accordance with the Department of the Treasury's implementing 
regulations (31 CFR part 103). Part 103 requires a financial 
institution to file a CTR whenever a currency transaction exceeds 
$10,000. If a currency transaction exceeds $10,000 and is 
suspicious, the bank, under these new requirements, will file both a 
CTR (reporting the currency transaction) and a SAR (reporting the 
suspicious criminal aspect of the transaction). If a currency 
transaction equals or is below $10,000 but is suspicious, the bank 
will file only a SAR.
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    Combining suspicious financial transaction reporting and criminal 
referral reporting should reduce confusion, increase the accuracy and 
efficiency of reporting, and reduce the burden on banks in reporting 
known or 

[[Page 47721]]
suspected violations, including suspicious financial transactions.

Section 353.2  Definitions

    Proposed new Sec. 353.2 defines the following terms: ``FinCEN'', 
``institution-affiliated party'', and ``known or suspected violation''. 
The definitions should make the rule easier to interpret and apply.

Section 353.3  Reports and Records

    Proposed Sec. 353.3, which replaces and restructures current 
Sec. 353.1, clarifies and expands the provision that requires a bank to 
file a completed SAR. This provision raises the dollar thresholds that 
trigger a filing requirement. It also modifies the scope of events that 
a bank must report by using the term ``known or suspected violation,'' 
which is defined at Sec. 353.2(c), and by requiring that a bank file a 
SAR to report a suspicious financial transaction.
    Under the current rule, the FDIC requires a bank to file a criminal 
referral form with many different federal agencies. The proposal 
requires a bank to file only a single SAR at one location, rather than 
the multiple copies of the criminal referral form that must now be 
filed with various federal agencies.
    Under proposed Sec. 353.3, a bank effectively files a SAR with all 
appropriate federal law enforcement agencies by sending a single copy 
of the SAR to FinCEN, whose address will be printed on the SAR.
    FinCEN will input the information contained on the SARs into a 
newly created database that FinCEN will maintain. This process meets 
the regulatory requirement that a bank refer any known or suspected 
criminal violation to the various federal law enforcement agencies. The 
information is made available on computer to the appropriate law 
enforcement and supervisory agencies as quickly as possible. The 
database will enhance federal law enforcement and supervisory agencies' 
ability to track, investigate, and prosecute, criminally, civilly, and 
administratively, individuals suspected of violating federal criminal 
law. This change will reduce the filing burdens of banks.
    The proposal modifies current Sec. 353.1(a)(2), which requires 
reporting of known or suspected criminal activity when a bank has a 
substantial basis for identifying a non-insider suspect where bank 
funds or other assets involve or aggregate $1,000 or more. Proposed 
Sec. 353.3(a)(2), which replaces current Sec. 353.1(a)(2), raises the 
reporting threshold to $5,000, thereby reducing the reporting burden on 
banks.
    The proposal also modifies current Sec. 353.1(a)(3), which requires 
banks to report any known or suspected criminal violation involving 
$5,000 or more where the bank has no substantial basis for identifying 
a suspect. Specifically, proposed Sec. 353.3(a)(3), which replaces 
current Sec. 353.1(a)(3), raises the dollar reporting threshold from 
$5,000 to $25,000, thereby reducing the reporting burden on banks.
    Proposed Sec. 353.3(a)(4) clarifies the reporting requirement for 
any financial transaction, regardless of the dollar amount, that: (1) 
the bank suspects involved funds derived from illicit activity, was 
conducted for the purpose of hiding or disguising funds from illicit 
activity, or in any way violated the money laundering statutes (18 
U.S.C. 1956 and 1957); (2) the bank suspects was potentially designed 
to evade the reporting or recordkeeping requirements of the BSA (31 
U.S.C. 5311 through 5330); or (3) the bank believes to be suspicious 
for any reason.

Section 353.3(b)  Time for Reporting

    Proposed Sec. 353.3(b), which replaces current Sec. 353.1(b), sets 
forth the time requirements a bank must meet when filing a SAR. The 
proposal clarifies the reporting requirement in the event a suspect or 
group of suspects is not immediately identified. The proposal does not 
substantively change the current requirements.

Section 353.3(c)  Reports to State and Local Authorities

    No changes are being made to the current Sec. 353.1(c), except to 
redesignate it as 353.3(c).

Section 353.3(d)  Exemptions

    No changes are being made to the current 353.1(d), other than to 
redesignate it as 353.3(d) and to delete the reference to 
Sec. 326.3(a)(2)(i) of this chapter.

Section 353.3(e)  Retention of Records

    Proposed Sec. 353.3(e) requires a bank to retain a copy of the SAR 
and the original of any related documentation relating to a SAR for a 
period of ten years. This time frame corresponds with the statute of 
limitations for most federal criminal statutes involving financial 
institutions. The current rule is silent on this issue.
    The proposed 353.3(e) clarifies the requirement that banks make all 
supporting documentation available to appropriate law enforcement 
agencies upon request. The proposal requires the supporting 
documentation be identified and treated as filed with the SAR. This 
approach ensures federal law enforcement agencies and the Agencies, 
upon request, have access to any documentation necessary to prosecute a 
violation or pursue an administrative action by requiring banks to 
preserve underlying documentation for ten years.

Section 353.3(f)  Notification to the Board of Directors

    Current Sec. 353.1(f) requires notification regarding the filing of 
a SAR to an insured state nonmember bank's board of directors by the 
bank's management. To reduce burdens on the boards of directors of 
banks, especially those large banks that file many SARs, the proposal 
recognizes that the required notification may be made to a committee of 
the board.

Section 353.3(g)  Confidentiality of SARs

    FDIC proposes to add a new paragraph relating to the 
confidentiality of a SAR. Proposed Sec. 353.3(g) states that a SAR and 
the information contained in a SAR are confidential, and an insured 
state nonmember bank should decline to produce a SAR citing this 
regulation and applicable law (31 U.S.C. 5318(g)), or both.

Comments

    The FDIC invites public comment on all aspects of this proposal.

Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
FDIC hereby certifies that this proposed rule will not have a 
significant economic impact on a substantial number of small entities. 
This proposal primarily reorganizes the process for making criminal 
referrals and has no material impact on banks, regardless of size. 
Accordingly, a regulatory flexibility analysis is not required.
Paperwork Reduction Act

    This proposed rule would revise a collection of information that is 
currently approved by the Office of Management and Budget (OMB) under 
control number 3064-0077. The revisions raise the reporting thresholds 
and will permit reporting institutions to use a simplified, shorter 
form; to file one form only; and to eliminate the submission of 
supporting documentation with a report. These revisions have been 
submitted to OMB for review and approval in accordance with the 
requirements of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.).
    The estimated average burden associated with the collection of 
information contained in a SAR is approximately .6 hours per 
respondent. 

[[Page 47722]]
The burden per respondent will vary depending on the nature of the 
suspicious activity being reported.
    Estimated Number of Respondents: 6,500.
    Estimated Total Annual Burden Hours: 3,900.
    Comments concerning the accuracy of this burden estimate and 
suggestions for reducing this burden should be directed to the 
Assistant Executive Secretary (Administration), Room F-400, Federal 
Deposit Insurance Corporation, Washington, DC 20429, and to the Office 
of Management and Budget, Paperwork Reduction Project (3064-0077), 
Washington, DC 20503.

List of Subjects in 12 CFR Part 353

    Banks, banking, Crime, Currency, Insider abuse, Money laundering, 
Reporting and recordkeeping requirements.

    For the reasons set out in the preamble, 12 CFR part 353 is 
proposed to be revised to read as follows:

PART 353--SUSPICIOUS ACTIVITY REPORTS

Sec.
353.1  Purpose and scope.
353.2  Definitions.
353.3  Reports and records.

    Authority: 12 U.S.C. 1818, 1819.


Sec. 353.1  Purpose and scope.

    The purpose of this part is to ensure that insured state nonmember 
banks file a Suspicious Activity Report when they detect a known or 
suspected violation of federal law or suspicious financial transaction. 
This part applies to all insured state nonmember banks as well as any 
insured, state-licensed branches of foreign banks.


Sec. 353.2  Definitions.

    For the purposes of this part:
    (a) FinCEN means the Financial Crimes Enforcement Network of the 
Department of the Treasury.
    (b) Institution-affiliated party means any institution-affiliated 
party as that term is defined in sections 3(u) and 8(b)(5) of the 
Federal Deposit Insurance Act (12 U.S.C. 1813(u) and 1818(b)(5)).
    (c) Known or suspected violation means any matter for which there 
is a basis to believe that a violation of a federal criminal statute 
(including a pattern of criminal violations) has occurred or has been 
attempted, is occurring, or may occur, and there is a basis to believe 
that a financial institution was an actual or potential victim of the 
criminal violation or was used to facilitate the criminal violation.


Sec. 353.3  Reports and records.

    (a) Suspicious activity reports required. A bank shall file a 
suspicious activity report with the appropriate federal law enforcement 
agencies in accordance with the form's instructions, by transmitting a 
completed suspicious activity report to FinCEN in the following 
circumstances:
    (1) Whenever the bank detects a known or suspected violation of 
federal criminal law and has a substantial basis to believe that one of 
its directors, officers, employees, agents, or other institution-
affiliated parties committed or aided in the commission of the 
violation;
    (2) Whenever the bank detects a known or suspected violation of 
federal criminal law, involving or aggregating $5,000 or more (before 
reimbursement or recovery), and the bank has a substantial basis for 
identifying a possible suspect or group of suspects;
    (3) Whenever the bank detects a known or suspected violation of 
federal criminal law, involving or aggregating $25,000 or more (before 
reimbursement or recovery), and the bank has no substantial basis for 
identifying a possible suspect or group of suspects; or
    (4) Whenever the bank detects any financial transaction conducted, 
or attempted, at the bank involving funds derived from illicit activity 
or for the purpose of hiding or disguising funds from illicit 
activities, or for the possible violation or evasion of the Bank 
Secrecy Act reporting and/or recordkeeping requirements. A suspicious 
activity report must be filed for all instances where money laundering 
is suspected or where the bank believes that the transaction was 
suspicious for any reason, regardless of the identification of a 
potential suspect or the amount involved in the violation.
    (b) Time for reporting. (1) A bank shall file the suspicious 
activity report no later than 30 calendar days after the date of 
initial detection of an act described in paragraph (a) of this section. 
If no suspect was identified on the date of detection of an act 
triggering the filing, a bank may delay filing a suspicious activity 
report for an additional 30 calendar days after the identification of a 
suspect. In no case shall reporting be delayed more than 60 calendar 
days after the date of detecting a known or suspected violation.
    (2) In situations involving violations requiring immediate 
attention, such as when a reportable violation is ongoing, the bank 
shall immediately notify by telephone, or other expeditious means, the 
appropriate law enforcement agency and the appropriate FDIC regional 
office (Division of Supervision) in addition to filing a timely report.

    (c) Reports to state and local authorities. A bank is encouraged to 
file a copy of the suspicious activity report with state and local law 
enforcement agencies where appropriate.

    (d) Exemptions. (1) A bank need not file a suspicious activity 
report for a robbery, burglary or larceny, committed or attempted, that 
is reported to appropriate law enforcement authorities.

    (2) A bank need not file a suspicious activity report for lost, 
missing, counterfeit, or stolen securities if it files a report 
pursuant to the reporting requirements of 17 CFR 240.17f-1.

    (e) Retention of records. A bank shall maintain a copy of any 
suspicious activity report filed and the originals of any related 
documentation for a period of ten years from the date of filing the 
suspicious activity report. A bank shall make all supporting 
documentation available to appropriate law enforcement agencies upon 
request. Supporting documentation shall be identified and treated as 
filed with the suspicious activity report.

    (f) Notification to board of directors. The management of the bank 
shall promptly notify its board of directors, or a designated committee 
thereof, of any report filed pursuant to this section. The term ``board 
of directors'' includes the managing official of an insured state-
licensed branch of a foreign bank for purposes of this part.

    (g) Confidentiality of suspicious activity reports. Suspicious 
activity reports are confidential. Any person subpoenaed or otherwise 
requested to disclose a suspicious activity report or the information 
contained in a suspicious activity report shall decline to produce the 
information citing this part, applicable law (e.g., 31 U.S.C. 5318(g)), 
or both.

    By Order of the Board of Directors.

    Dated at Washington, DC, this 6th day of September, 1995.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Deputy Executive Secretary.

[FR Doc. 95-22750 Filed 9-13-95; 8:45 am]

BILLING CODE 6714-01-P