[Federal Register Volume 61, Number 24 (Monday, February 5, 1996)]
[Rules and Regulations]
[Pages 4338-4344]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-2271]
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FEDERAL RESERVE SYSTEM
12 CFR Parts 208, 211 and 225
[Regulations H, K and Y; Docket No. R-0885]
Membership of State Banking Institutions in the Federal Reserve
System; International Banking Operations; Bank Holding Companies and
Change in Control; Reports of Suspicious Activities Under Bank Secrecy
Act
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule.
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SUMMARY: The Board of Governors of the Federal Reserve System (Board)
is amending its regulations on the reporting of known or suspected
criminal and suspicious activities by the domestic and foreign banking
organizations supervised by the Board. This final rule streamlines
reporting requirements by providing that such an organization file a
new Suspicious Activity Report (SAR) with the Board and the appropriate
federal law enforcement agencies by sending a SAR to the Financial
Crimes Enforcement Network of the Department of the Treasury (FinCEN)
to report a known or suspected criminal offense or a transaction that
it suspects involves money laundering or violates the Bank Secrecy Act
(BSA).
EFFECTIVE DATE: April 1, 1996.
FOR FURTHER INFORMATION CONTACT: Herbert A. Biern, Deputy Associate
Director, Division of Banking Supervision and Regulation, (202) 452-
2620, Richard A. Small, Special Counsel, Division of Banking
Supervision and Regulation, (202) 452-5235, or Mary Frances Monroe,
Senior Attorney, Division of Banking Supervision and Regulation, (202)
452-5231. For the users of Telecommunications Devices for the Deaf
(TDD) only, contact Dorothea Thompson, (202) 452-3544, Board of
Governors of the Federal Reserve System, 20th Street and Constitution
Avenue, NW., Washington, DC 20551.
SUPPLEMENTARY INFORMATION:
Background
The Board, the Office of the Comptroller of the Currency (OCC), the
[[Page 4339]]
Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift
Supervision (OTS) (collectively, the Agencies) have issued for public
comment substantially similar proposals to revise their regulations on
the reporting of known or suspected criminal conduct and suspicious
activities. The Department of the Treasury, through FinCEN, has issued
for public comment a substantially similar proposal to require the
reporting of suspicious transactions relating to money laundering
activities.
The Board's proposed regulation (60 FR 34481, July 3, 1995) noted
that the interagency Bank Fraud Working Group, consisting of
representatives from the Agencies, the National Credit Union
Administration, law enforcement agencies, and FinCEN, has been working
on the development of a single form, the SAR, for the reporting of
known or suspected federal criminal law violations and suspicious
activities. The Board's proposed regulation, as well as those proposed
by the OCC, FDIC, OTS and FinCEN, attempted to simplify and clarify
reporting requirements and reduce banking organizations' reporting
burdens by raising mandatory reporting thresholds for criminal offenses
and by requiring the filing of only one report with FinCEN.
The Board's final rule adopts its proposal with a few additional
changes that have been made in response to the comments received. The
changes will result in burden reductions even greater than those that
were proposed. The Board's, the other Agencies', and FinCEN's final
rules relating to the reporting of suspicious activities are now
substantially identical, and they:
(1) Combine the current criminal referral rules of the federal
financial institutions regulatory agencies with the Department of the
Treasury's suspicious activity reporting requirements;
(2) Create a uniform reporting form, the new Suspicious Activity
Report or SAR, for use by banking organizations in reporting known or
suspected criminal offenses, or suspicious activities related to money
laundering and violations of the BSA;
(3) Provide a system whereby a banking organization need only refer
to the SAR and its instructions in order to complete and file the form
in conformance with the Agencies' and FinCEN's reporting regulations;
(4) Require the filing of only one form with FinCEN;
(5) Eliminate the need to file supporting documentation with a SAR;
(6) Enable a filer, through computer software that will be provided
by the Board to all of the domestic and foreign banking organizations
it supervises, to prepare a SAR on a computer and file it by magnetic
media, such as a computer disc or tape;
(7) Establish a database that will be accessible to federal and
state financial institutions regulators and law enforcement agencies;
(8) Raise the thresholds for mandatory reporting in two categories
and create a threshold for the reporting of suspicious transactions
related to money laundering and violations of the BSA in order to
reduce the reporting burdens on banking organizations; and
(9) Emphasize recent changes in the law that provide a safe harbor
from civil liability to banking organizations and their employees for
reporting of known or suspected criminal offenses or suspicious
activities, by filing a SAR or by reporting by other means, and provide
criminal sanctions for the unauthorized disclosure of such report to
any party involved in the reported transaction.
Section-by-Section Analysis
Under the Board's final rule, state member banks, bank holding
companies and their nonbank subsidiaries, most U.S. branches and
agencies and other offices of foreign banks, and Edge and Agreement
corporations need only follow SAR instructions for completing and
filing the SAR to be in compliance with the Board's and FinCEN's
reporting requirements. The following section-by-section analysis
correlates the specific SAR instruction number with the applicable
section of the Board's final rule:
Section 208.20(a) (Instruction No. 1 on the SAR) provides that a
state member bank must file a SAR when it detects a known or suspected
violation of federal law or a suspicious activity pertinent to a money
laundering offense.
Section 208.20(b) provides pertinent definitions.
Sections 208.20(c) (1), (2), and (3) (Instructions 1 a., b., and c.
on the SAR) instruct a state member bank to file a SAR with FinCEN in
order to comply with the requirement to notify federal law enforcement
agencies if the bank detects any known or suspected federal criminal
violation, or pattern of violations, committed or attempted against the
bank, or involving one or more transactions conducted through the bank,
and the bank believes it was an actual or potential victim of a crime,
or was used to facilitate a crime. If the bank has a substantial basis
for identifying one of its insiders or other institution-affiliated
parties in connection with the known or suspected crime, reporting is
required regardless of the dollar amount involved. If the bank can
identify a non-insider suspect, the applicable transaction threshold is
$5,000. In cases in which no suspect can be identified, the applicable
transaction threshold is $25,000. These sections were not changed from
the proposed regulations published for public comment in July 1995.
Section 208.20(c)(4) (Instruction 1 d. on the SAR) instructs a
state member bank to file a SAR with FinCEN in order to comply with the
requirement to notify federal law enforcement agencies and the
Department of the Treasury of transactions involving $5,000 or more in
funds or other assets when the bank knows, suspects or has reason to
suspect that the transaction: (i) Involves money laundering, (ii) is
designed to evade any regulations promulgated under the Bank Secrecy
Act, or (iii) has no business or apparent lawful purpose or is not the
sort in which the particular customer normally engages and, after
examining the available facts, the bank knows of no reasonable
explanation for the transaction. Section 208.20(c)(4) has been modified
in the final rule to reflect comments received on the proposal. Most
notably, the circumstances under which a transaction should be reported
under this section were clarified, and a reporting threshold of $5,000
was added.
Section 208.20(c)(4) recognizes the emerging international
consensus that the efforts to deter, substantially reduce, and
eventually eradicate money laundering are greatly assisted by the
reporting of suspicious transactions by banking organizations. The
requirements of this section comply with the recommendations adopted by
multi-country organizations in which the United States is an active
participant, including the Financial Action Task Force of G-7 nations
and the Organization of American States, and are consistent with the
European Community's directive on preventing money laundering through
financial institutions.
Section 208.20(d) (Instruction 2 on the SAR) provides that SARs
must be filed within 30 calendar days of the initial detection of the
criminal or suspicious activity. An additional 30 days is permitted in
order to enable a bank to identify a suspect, but in no event may a SAR
be filed later than 60 days after the initial detection of the
reportable conduct. The Board and law enforcement must be notified in
the case of a violation requiring immediate action, such as an on-going
violation. These reporting requirements were not changed from the July
1995 proposal,
[[Page 4340]]
with the exception of the addition of the requirement that the Board be
notified about on-going offenses requiring immediate notification to
law enforcement authorities.
Section 208.20(e) encourages a state member bank to file a SAR with
state and local law enforcement agencies. This section is unchanged
from the July 1995 proposal.
Section 208.20(f) (Instruction 3 on the SAR) provides that a state
member bank need not file a SAR for an attempted or committed burglary
or robbery reported to the appropriate law enforcement agencies. In
addition, a SAR need not be filed for missing or counterfeit securities
that are the subject of a report pursuant to Rule 17f-1 under the
Securities Exchange Act of 1934. This section of the final rule was not
modified from the version published for public comment in July 1995.
Section 208.20(g) requires that a state member bank retain a copy
of the SAR and the original or business record equivalent of supporting
documentation for a period of five years. The section also requires
that a state member bank identify and maintain supporting documentation
in its files and that the bank make available such documentation to law
enforcement agencies upon their request. The Board made three changes
to this section from the version published for public comment in July
1995. First, the record retention period was shortened from 10 years to
five years. Second, provision was made for the retention of business
record equivalents of original documents, such as microfiche and
computer imaged record systems, in recognition of modern record
retention technology. The third change involves the clarification of a
state member bank's obligation to provide supporting documentation upon
request to law enforcement officials. Supporting documentation is
deemed filed with a SAR in accordance with this section of the Board's
final rule; as such, law enforcement authorities need not make their
access requests through subpoena or other legal processes.
Section 208.20(h) requires the management of a state member bank to
report the filing of all SARs to the board of directors of the bank, or
a designated committee thereof. No change was made from the July 1995
proposal.
Section 208.20(i) reminds a state member bank and its institution-
affiliated parties that failure to file a SAR may expose them to
supervisory action. No change from the July 1995 proposal was made.
Section 208.20(j) provides that SARs are confidential. Requests for
SARs or the information contained therein should be declined. The final
rule also adds a requirement that a request for a SAR or the
information contained therein should be reported to the Board. With the
exception of the added requirement that requests for SARs be reported
to the Board, no changes were made to this section from the July 1995
proposal.
Section 208.20(k) sets forth the safe harbor provisions of 31
U.S.C. 5318(g). This new section, which was added to the final rule as
the result of many comments concerning this important statutory
protection for banking organizations, states that the safe harbor
provisions of the law are triggered by a report of known or suspected
criminal violations or suspicious activities to law enforcement
authorities, regardless whether the report is made by the filing of a
SAR in accordance with the Board's rules or for other reasons by
different means.
Sections 211.8, 211.24(f), and 225.4(f) of the Board's rules
relating to the activities of foreign banking organizations and bank
holding companies have not been changed in a substantive manner. Only
the references in the sections to ``criminal referral forms'' have been
changed to reflect the new name for the reporting form, the SAR. The
SAR filing requirements, as well as the safe harbor and notification
prohibition provisions of 31 U.S.C. 5318(g), continue to be applicable
to all foreign banking organizations and bank holding companies and
their nonbank subsidiaries supervised by the Federal Reserve through
these provisions.
Comments Received
The Board received letters from 44 public commenters. Comments were
received from 15 community banks, 13 multinational or large regional
banks, eight trade and industry research groups, seven Federal Reserve
Banks and one law firm.
The large majority of commenters expressed general support for the
Board's proposal. None of the commenters opposed the proposed new
suspicious activity reporting rules. A number of suggestions and
requests for clarification were received. They are as follows.
Criminal Versus Suspicious Activities
Many commenters expressed confusion over the difference between the
known or suspected criminal conduct that would be subject to the dollar
reporting thresholds (provided such conduct does not involve an
institution-affiliated party of the reporting entity) and the
suspicious activities that would be reported regardless of dollar
amount. Section 208.20(c)(4) has been revised to add a $5,000 reporting
threshold and to clarify that the suspicious activity must relate to
money laundering and Bank Secrecy Act violations. A threshold for the
reporting of suspicious activities was added to reduce further the
reporting burdens on banking organizations.
Reporting of Crimes Under State Law
A number of commenters requested clarification of whether
activities constituting crimes under state law, but not under federal
law, should be reported on the SAR. The Board continues to encourage
banking organizations to refer criminal and suspicious activities under
both federal and state law by filing a SAR. Under the new reporting
system designed by the Board, the other Agencies, and FinCEN, state
chartered banking organizations should be able to fulfill their state
reporting obligations by filing a SAR with FinCEN.
Safe Harbor Protections; Potential Liability Under Federal and State
Laws
Some commenters expressed the concern that banking organizations
and their institution-affiliated parties could be liable under federal
and state laws, such as the Right to Financial Privacy Act, for filing
SARs with respect to conduct that is later found not to have been
criminal. Another concern was that the filing of SARs with state and
local law enforcement agencies would subject filers to claims under
state law. Both of these concerns are addressed by the scope of the
safe harbor protections provided in 31 U.S.C. 5318(g).
The Board is of the opinion that the safe harbor statute is broadly
defined to include the reporting of known or suspected criminal
offenses or suspicious activities, by filing a SAR or by reporting by
other means, with state and local law enforcement authorities, as well
as with the Agencies and FinCEN.
A few commenters requested that the Board make explicit the safe
harbor protections of 31 U.S.C. 5318(g)(2) and (3) on the SAR. They are
included in new Section 208.20(k) of this rule and on the form.
Record Retention
Several commenters expressed the view that the 10-year period for
the retention of records in Section 208.20(g) was excessive, especially
in light of a five-year record retention requirement for records that
is contained in the Bank Secrecy Act. The 10-year period in the Board's
proposed regulation would have
[[Page 4341]]
continued the Board's existing record retention requirement for
criminal referral forms. However, in recognition of the potential
burden of document retention on financial institutions, the Board has
limited the record retention period to five years.
Dollar Thresholds
A few commenters encouraged the Board to raise the dollar
thresholds for known or suspected criminal conduct by non-insiders, or
to establish a dollar threshold for insiders. The Board has considered
these comments, but at this time it believes that the thresholds meet
and properly balance the dual concerns of prosecuting criminal activity
involving banking organizations and minimizing the burden on banking
organizations. With respect to the suggestion that the Board adopt a
dollar threshold for insider violations, it is noted that insider abuse
has long been a key concern and focus of enforcement efforts at the
Board. With the development of a new sophisticated automated database,
the Board and law enforcement agencies will have the benefit of a
comprehensive and easily accessible catalogue of known or suspected
insider wrongdoing. The Board does not wish to limit the information it
receives regarding insider wrongdoing. Some petty crimes, for example,
repetitive thefts of small amounts of cash by an employee who
frequently moves between banking organizations, may warrant enforcement
action or criminal prosecution.
One commenter suggested an indexed threshold, based on the regional
differences in the various dollar thresholds below which the federal,
state, and local prosecutors generally decline prosecution. While the
Board recognizes that there may be regional variations in the dollar
amount of financial crimes generally prosecuted, the Board's concern is
to place the relevant information in the hands of the investigating and
prosecuting authorities. The prosecuting authorities then may consider
whether to pursue a particular matter. In the Board's view, the dollar
thresholds proposed and adopted in this final rule best balance the
interests of law enforcement and banking organizations. The Board also
believes that indexed thresholds could create more confusion than
benefit to banking organizations.
Commenters also suggested the creation of a dollar threshold for
the reporting of suspicious activities relating to money laundering
offenses. A $5,000 threshold has been established for reporting of such
suspicious activities.
Questions were raised regarding the permissibility of filing SARs
in situations in which the dollar thresholds for known or suspected
criminal conduct or suspicious activity are not met and the
applicability of the safe harbor provisions of 31 U.S.C. 5318(g) to
such non-mandatory filings. It is the opinion of the Board that the
safe harbor provisions of 31 U.S.C. 5318(g) cover all reports of
suspected or known criminal violations and suspicious activities to law
enforcement authorities, regardless of whether such reports are filed
pursuant to the mandatory requirements of the Board's regulations or
are voluntary.
Notification of On-Going Violations and of State and Local Law
Enforcement Authorities
Proposed Section 208.20(d) required a banking organization to
notify immediately the law enforcement authorities in the event of an
on-going violation. Section 208.20(e) encourages the filing of a copy
of the SAR with state and local law enforcement agencies in appropriate
cases. This requirement and guidance were found by some commenters to
be unclear as to when immediate notification or the filing of the SAR
with state and local authorities would be required. The Board wishes to
clarify that immediate notification is limited to situations involving
on-going violations, for example, when a check kite or money laundering
has been detected and may be continuing. It is impossible for the Board
to contemplate all of the possible circumstances in which it might be
appropriate for a banking organization to advise state and local law
enforcement authorities. Banking organizations should use their best
judgment regarding when to alert them regarding on-going criminal
offenses or suspicious activities.
Supporting Documentation
The proposed requirements that an institution maintain ``related''
documentation and make ``supporting'' documentation available to the
law enforcement agencies upon request were criticized as inconsistent
and vague. One commenter questioned whether the Board intended a
substantive difference in meaning between ``related'' and
``supporting.'' As a substantive difference is not intended, the Board
has referred to ``supporting'' documentation in the final rule in
reference both to the maintenance and production requirements. The
Board believes that the use of the word ``supporting'' is more precise
and limits the scope of the information which must be retained to that
which would be useful in proving that the crime has been committed and
by whom it has been committed. As to the criticism that the meaning of
``related'' or ``supporting'' documentation is vague, it is anticipated
that banking organizations will use their judgment in determining the
information to be retained. It is impossible for the Board to catalogue
the precise types of information covered by this requirement, as it
necessarily depends upon the facts of a particular case.
Scope of Confidentiality Requirement
One commenter correctly noted that the proposed regulation is
unclear as to whether the confidentiality requirement applies only to
the information contained on the SAR itself, or whether the requirement
extends to the ``supporting'' documentation. The Board takes the
position that only the SAR and the fact that supporting documentation
to a SAR exists are subject to the confidentiality requirements of 31
U.S.C. 5318(g). The supporting documentation itself is not subject to
the confidentiality provisions of 31 U.S.C. 5318(g). The safe harbor
provisions of 31 U.S.C. 5318(g), however, apply to the SAR and
supporting documentation, as set forth in Section 208.20(k).
Provisions of Supporting Documentation to Law Enforcement Authorities
Upon Request
Many commenters noted that the guidance provided in the Board's
proposed regulation regarding giving supporting documentation to law
enforcement agencies upon their request after the filing of a SAR was
unclear or contrary to law. Some questioned whether law enforcement
agencies would still need to subpoena relevant documents from a banking
organization. The Board's regulation requires banking organizations
filing SARs to identify, maintain and treat the documentation
supporting the report as if it were actually filed with the SAR. This
means that subsequent requests from law enforcement authorities for the
supporting documentation relating to a particular SAR does not require
the service of a subpoena or other legal processes normally associated
with providing information to law enforcement agencies.
Civil Litigation
The Board was encouraged to adopt regulations that would make SARs
undiscoverable in civil litigation in order to avoid situations in
which a banking organization could be ordered by a court to produce a
SAR in civil
[[Page 4342]]
litigation and could be confronted with the prospect of having to
choose between being found in contempt or violating the Board's rules.
In the opinion of the Board, 31 U.S.C. 5318(g) precludes the disclosure
of SARs. The final rule requires a banking organization that receives a
subpoena or other request for a SAR to notify the Board so that the
Board may, if appropriate, intervene in litigation or seek the
assistance of the U.S. Department of Justice.
Maintenance of Originals
Proposed Section 208.20(g) required the maintenance of supporting
documentation in its original form. A number of commenters noted that
electronic storage of documents is becoming the rule rather than the
exception, and that requiring the storage of paper originals would
impose undue burdens on financial institutions. Moreover, some records
are retained only in a computer database. The proposed regulation
reflected the concerns of the law enforcement agencies that the best
evidence be preserved. However, upon further consideration, the Board
wishes to clarify that the electronic storage of original documentation
related to the filing of a SAR is permissible. In addition, the Board
recognizes that a banking organization will not always have custody of
the originals of documents and that some documents will not exist at
the organization in paper form. In those cases, preservation of the
best available evidentiary documents, for example, computer disks or
photocopies, should be acceptable. This has been reflected in the final
rule by changing the reference to original documents to ``original
documents or business record equivalents.''
Investigation and Proof Burdens
One commenter expressed the concern that a banking organization
would need to establish probable cause before reporting crimes for
which an essential element of the proof of the crime was the intent of
the actor. The Board does not intend that banking organizations assume
the burden of proving illegal conduct; rather, banking organizations
are required to report known or suspected crimes or suspicious
activities in accordance with this final rule.
Supplementary or Corrective Information; Reporting of Multiple Crimes
or Suspects
Material information that supplements or corrects a SAR should be
filed with FinCEN by means of a subsequent SAR. The first page of the
SAR provides boxes for the reporter to indicate whether the report is
an initial, a corrected or a supplemental report.
One commenter requested guidance on the reporting of multiple
crimes or related crimes committed by more than one individual. The
instructions to the SAR contemplate that additional suspects may be
reported by means of a supplemental page. Likewise, multiple crimes
committed by a suspect may be reported by means of multiple check-offs
on the SAR, or if needed, by a written addendum to the SAR. In the
event that related crimes have been committed by more than one person,
a description of the related crimes may be made by addendum to the SAR.
The Board encourages filers to make a complete report of all known or
suspected criminal or suspicious activity. The SAR may be supplemented
in order to facilitate a complete disclosure.
Calculation of Time Frame for Reporting
A number of commenters requested that the Board clarify the
application of the deadline for filing SARs. The Board's proposed
regulation used the broadest possible language to set the time frames
for the reporting of known or suspected criminal offenses and
suspicious activities in order to best guide reporting institutions.
Absolute deadlines for the filing of SARs are important to the
investigatory and prosecutorial efforts of law enforcement authorities.
It is expected that banking organizations will meet the filing
deadlines once conduct triggering the reporting requirements is
identified. Further clarification of the time frames is not needed in
the Board's view.
Board Notification Requirements
Several commenters expressed general support for the modification
of the reporting requirement that permits reporting of SARs to a
committee of the board. As a matter of clarification, notification of a
committee of the board relieves the banking organization of the
obligation to disclose the SARs filed to the entire board. It would be
expected, however, that the appointed committee, such as the audit
committee, would report to the full board at regular intervals with
respect to routine matters in the same manner and to the same extent as
other committees report at board meetings. With respect to serious
crimes or insider malfeasance, the appointed committee likely should
consider it appropriate to make more immediate disclosure to the full
board.
Some larger banking organizations expressed the view that prompt
disclosure of SARs to the board or a committee would impose a serious
burden because larger organizations typically file a larger number of
criminal referral forms (now, SARs). While the Board acknowledges that
larger institutions may have more SARs to report to the board or a
committee, this does not alter the directors' fiduciary obligation to
monitor, for example, the condition of the institution and to take
action to prevent losses. The final regulation does not dictate the
content of the board or committee notification, and, in some cases,
such as when relatively minor non-insider crimes are to be reported, it
may be completely appropriate to provide only a summary listing of SARs
filed. The Board expects the management of banking organizations to
provide a more detailed notification to the boards or committees of
SARs involving insiders or a potential material loss to the
institutions.
Information Sharing
Commenters suggested that the final regulations should somehow
facilitate the sharing of information among banking organizations in
order to better detect new fraudulent schemes. It is anticipated that
the Treasury Department, through FinCEN, and the Agencies, will keep
reporting entities apprised of recent developments and trends in
banking-related crimes through periodic pronouncements, meetings, and
seminars.
Single Filing Requirement; Acknowledgement of Filings
Some commenters requested clarification of the single form filing
requirement. The Board reiterates that the filing of a SAR with FinCEN
is the only filing that is required. Federal and state law enforcement
and bank supervisory agencies will have access to the database created
and maintained by FinCEN on behalf of the Agencies and the Department
of Treasury; thus, a single filing with FinCEN is all that is required
under the new reporting system.
Commenters also requested that the final rule permit the filing of
SARs via telecopier. Such filings are not compatible with the system
developed by the Agencies and FinCEN. Banking organizations can file
the SAR via magnetic media using the computer software to be provided
to all banking organizations by the Board and each of the other
Agencies with respect to the institutions they supervise. Larger
banking organizations that currently file currency transaction reports
via magnetic tape with FinCEN may also file SARs by magnetic tape.
[[Page 4343]]
Regulatory Flexibility Act
The Board certifies that this final regulation will not have a
significant financial impact on a substantial number of small banks or
other small entities.
Paperwork Reduction Act
In accordance with Section 3506 of the Paperwork Reduction Act of
1995 (44 U.S.C. Ch. 35; 5 CFR 1320 Appendix A.1), the Board reviewed
the rule under the authority delegated to the Board by the Office of
Management and Budget.
The collection of information requirements in this regulation are
found in 12 CFR 208.20, 211.8, 211.24, and 225.4. This information is
mandatory and is necessary to inform appropriate law enforcement
agencies of known or suspected criminal or suspicious activities that
take place at or were perpetrated against financial institutions.
Information collected on this form is confidential (5 U.S.C. 552(b)(7)
and 552a(k)(2), and 31 U.S.C. 5318(g)). The federal financial
institution regulatory agencies and the U.S. Department of Justice may
use and share the information. The respondents/recordkeepers are for-
profit financial institutions, including small businesses.
The Federal Reserve may not conduct or sponsor, and an organization
is not required to respond to, this information collection unless it
displays a currently valid OMB control number. The OMB control number
is 7100-0212.
No comments specifically addressing the hour burden estimate were
received.
It is estimated that there will be 12,000 responses from state
member banks, bank holding companies, Edge and agreement corporations,
and U.S. branches and agencies of foreign banks.
Both the new regulation and revisions made to the proposed
regulation and reflected in this final rule simplify the submission of
the reporting form and shorten the records retention requirement.
However, the same amount of information will be collected under the new
rule. The burden per respondent varies depending on the nature of the
criminal or suspicious activity being reported. The Federal Reserve
estimates that the average annual burden for reporting and
recordkeeping per response will remain .6 hours. Thus the Federal
Reserve estimates the total annual hour burden to be 7,200 hours. Based
on an hourly cost of $20, the annual cost to the public is estimated to
be $144,000.
Send comments regarding the burden estimate, or any other aspect of
this collection of information, including suggestions for reducing the
burden, to: Secretary, Board of Governors of the Federal Reserve
System, 20th and C Streets, N.W., Washington, D.C. 20551 and to the
Office of Management and Budget, Paperwork Reduction Project (7100-
0212), Washington, D.C. 20503.
List of Subjects
12 CFR Part 208
Accounting, Agriculture, Banks, banking, Confidential business
information, Crime, Currency, Federal Reserve System, Flood insurance,
Mortgages, Reporting and recordkeeping requirements, Securities.
12 CFR Part 211
Exports, Federal Reserve System, Foreign banking, Holding
companies, Investments, Reporting and recordkeeping requirements.
12 CFR Part 225
Administrative practice and procedures, Banks, banking, Federal
Reserve System, Holding companies, Reporting and recordkeeping
requirements, Securities.
For the reasons set forth in the preamble, Parts 208, 211 and 225
of chapter II of title 12 of the Code of Federal Regulations are
amended as set forth below:
PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL
RESERVE SYSTEM (REGULATION H)
1. The authority citation for 12 CFR Part 208 continues to read as
follows:
Authority: 12 U.S.C. 36, 248(a), 248(c), 321-338a, 371d, 461,
481-486, 601, 611, 1814, 1823(j), 1828(o), 1831o, 1831p-1, 3105,
3310, 3331-3351, and 3906-3909; 15 U.S.C. 78b, 781(b), 781(g),
781(i), 78o-4(c)(5), 78q, 78q-1 and 78w; 31 U.S.C. 5318; 42 U.S.C.
4102a, 4104a, 4104b, 4106, and 4128.
2. Section 208.20 is revised to read as follows:
Sec. 208.20 Suspicious Activity Reports.
(a) Purpose. This section ensures that a state member bank files a
Suspicious Activity Report when it detects a known or suspected
violation of Federal law, or a suspicious transaction related to a
money laundering activity or a violation of the Bank Secrecy Act. This
section applies to all state member banks.
(b) Definitions. For the purposes of this section:
(1) FinCEN means the Financial Crimes Enforcement Network of the
Department of the Treasury.
(2) Institution-affiliated party means any institution-affiliated
party as that term is defined in 12 U.S.C. 1786(r), or 1813(u) and
1818(b) (3), (4) or (5).
(3) SAR means a Suspicious Activity Report on the form prescribed
by the Board.
(c) SARs required. A state member bank shall file a SAR with the
appropriate Federal law enforcement agencies and the Department of the
Treasury in accordance with the form's instructions by sending a
completed SAR to FinCEN in the following circumstances:
(1) Insider abuse involving any amount. Whenever the state member
bank detects any known or suspected Federal criminal violation, or
pattern of criminal violations, committed or attempted against the bank
or involving a transaction or transactions conducted through the bank,
where the bank believes that it was either an actual or potential
victim of a criminal violation, or series of criminal violations, or
that the bank was used to facilitate a criminal transaction, and the
bank has a substantial basis for identifying one of its directors,
officers, employees, agents or other institution-affiliated parties as
having committed or aided in the commission of a criminal act
regardless of the amount involved in the violation.
(2) Violations aggregating $5,000 or more where a suspect can be
identified. Whenever the state member bank detects any known or
suspected Federal criminal violation, or pattern of criminal
violations, committed or attempted against the bank or involving a
transaction or transactions conducted through the bank and involving or
aggregating $5,000 or more in funds or other assets, where the bank
believes that it was either an actual or potential victim of a criminal
violation, or series of criminal violations, or that the bank was used
to facilitate a criminal transaction, and the bank has a substantial
basis for identifying a possible suspect or group of suspects. If it is
determined prior to filing this report that the identified suspect or
group of suspects has used an ``alias,'' then information regarding the
true identity of the suspect or group of suspects, as well as alias
identifiers, such as drivers' license or social security numbers,
addresses and telephone numbers, must be reported.
(3) Violations aggregating $25,000 or more regardless of a
potential suspect. Whenever the state member bank detects any known or
suspected Federal criminal violation, or pattern of criminal
violations, committed or attempted against the bank or involving a
transaction or transactions conducted through the bank and involving or
aggregating $25,000 or more in funds or other assets, where the bank
believes that it was either an actual or potential
[[Page 4344]]
victim of a criminal violation, or series of criminal violations, or
that the bank was used to facilitate a criminal transaction, even
though there is no substantial basis for identifying a possible suspect
or group of suspects.
(4) Transactions aggregating $5,000 or more that involve potential
money laundering or violations of the Bank Secrecy Act. Any transaction
(which for purposes of this paragraph (c)(4) means 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 or investment security, or any
other payment, transfer, or delivery by, through, or to a financial
institution, by whatever means effected) conducted or attempted by, at
or through the state member bank and involving or aggregating $5,000 or
more in funds or other assets, if the bank knows, suspects, or has
reason to suspect that:
(i) The transaction involves funds derived from illegal activities
or is intended or conducted in order to hide or disguise funds or
assets derived from illegal activities (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 transaction is designed to evade any regulations
promulgated under the Bank Secrecy Act; or
(iii) The transaction has no business or apparent lawful purpose or
is not the sort in which the particular customer would normally be
expected to engage, and the bank knows of no reasonable explanation for
the transaction after examining the available facts, including the
background and possible purpose of the transaction.
(d) Time for reporting. A state member bank is required to file a
SAR no later than 30 calendar days after the date of initial detection
of facts that may constitute a basis for filing a SAR. If no suspect
was identified on the date of detection of the incident requiring the
filing, a state member bank may delay filing a SAR for an additional 30
calendar days to identify a suspect. In no case shall reporting be
delayed more than 60 calendar days after the date of initial detection
of a reportable transaction. In situations involving violations
requiring immediate attention, such as when a reportable violation is
on-going, the financial institution shall immediately notify, by
telephone, an appropriate law enforcement authority and the Board in
addition to filing a timely SAR.
(e) Reports to state and local authorities. State member banks are
encouraged to file a copy of the SAR with state and local law
enforcement agencies where appropriate.
(f) Exceptions. (1) A state member bank need not file a SAR for a
robbery or burglary committed or attempted that is reported to
appropriate law enforcement authorities.
(2) A state member bank need not file a SAR for lost, missing,
counterfeit, or stolen securities if it files a report pursuant to the
reporting requirements of 17 CFR 240.17f-1.
(g) Retention of records. A state member bank shall maintain a copy
of any SAR filed and the original or business record equivalent of any
supporting documentation for a period of five years from the date of
the filing of the SAR. Supporting documentation shall be identified and
maintained by the bank as such, and shall be deemed to have been filed
with the SAR. A state member bank must make all supporting
documentation available to appropriate law enforcement agencies upon
request.
(h) Notification to board of directors. The management of a state
member bank shall promptly notify its board of directors, or a
committee thereof, of any report filed pursuant to this section.
(i) Compliance. Failure to file a SAR in accordance with this
section and the instructions may subject the state member bank, its
directors, officers, employees, agents, or other institution-affiliated
parties to supervisory action.
(j) Confidentiality of SARs. SARs are confidential. Any state
member bank subpoenaed or otherwise requested to disclose a SAR or the
information contained in a SAR shall decline to produce the SAR or to
provide any information that would disclose that a SAR has been
prepared or filed citing this section, applicable law (e.g., 31 U.S.C.
5318(g)), or both, and notify the Board.
(k) Safe harbor. The safe harbor provisions of 31 U.S.C. 5318(g),
which exempts any state member bank that makes a disclosure of any
possible violation of law or regulation from liability under any law or
regulation of the United States, or any constitution, law or regulation
of any state or political subdivision, covers all reports of suspected
or known criminal violations and suspicious activities to law
enforcement and financial institution supervisory authorities,
including supporting documentation, regardless of whether such reports
are filed pursuant to this section or are filed on a voluntary basis.
PART 211--INTERNATIONAL BANKING OPERATIONS (REGULATION K)
1. The authority citation for 12 CFR Part 211 continues to read as
follows:
Authority: 12 U.S.C. 221 et seq., 1818, 1841 et seq., 3101 et
seq., 3901 et seq.
Secs. 211.8 and 211.24 [Amended]
2. In Secs. 211.8 and 211.24(f), remove the words ``criminal
referral form'' and add, in their place, the words ``suspicious
activity report''.
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(REGULATION Y)
1. The authority citation for 12 CFR Part 225 continues to read as
follows:
Authority: 12 U.S.C. 1817(j)(13), 1818, 1831i, 1831p-1,
1843(c)(8), 1844(b), 1972(l), 3106, 3108, 3310, 3331-3351, 3907, and
3909.
Sec. 225.4 [Amended]
2. In Sec. 225.4, the heading of paragraph (f) is revised to read
``Suspicious Activity Report.''.
3. In Sec. 225.4(f), remove the words ``criminal referral form''
and add, in their place, the words ``suspicious activity report''.
By order of the Board of Governors of the Federal Reserve
System, January 30, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-2271 Filed 2-2-96 8:45 am]
BILLING CODE 6210-01-P