[Federal Register Volume 61, Number 63 (Monday, April 1, 1996)]
[Rules and Regulations]
[Pages 14386-14389]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-7682]



=======================================================================
-----------------------------------------------------------------------


FEDERAL RESERVE SYSTEM
DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA17


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

AGENCY: Financial Crimes Enforcement Network, Treasury.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: On January 3, 1995, the Financial Crimes Enforcement Network 
(FinCEN) of the Department of the Treasury (Treasury) and the Board of 
Governors of the Federal Reserve System (the Board) jointly adopted a 
final rule (the joint rule) requiring financial institutions to collect 
and retain certain information pertaining to transmittals of funds, and 
Treasury adopted a final rule (the travel rule) requiring financial 
institutions to include in transmittal orders certain information 
collected under the joint rule. In response to industry concerns about 
the application of the joint rule and the travel rule to transmittals 
of funds involving foreign financial institutions, Treasury and the 
Board have amended the joint rule to conform certain of the definitions 
of the parties to transmittals of funds to definitions found in Article 
4A of the Uniform Commercial Code (see document published elsewhere in 
today's Federal Register). This final rule amends the travel rule to 
reflect the amended definitions in the joint rule, and amends the 
travel rule to clarify that the exceptions applicable for the joint 
rule are also applicable for the travel rule.
    There is one further change to the travel rule that was not a part 
of the original proposed rule, new paragraph (g)(3). This change 
responds to a significant compliance issue that the banking industry 
did not identify until after the comment period: until all banks 
convert to the expanded Fedwire format, there will not always be enough 
space to include in a transmittal order all of the information required 
by the rule.
    Finally, because solving these problems has taken longer than 
anticipated, this final travel rule, like the final joint rule, will be 
effective not on April 1, 1996, as originally planned, but on May 28, 
1996.

EFFECTIVE DATE: May 28, 1996.

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

SUPPLEMENTARY INFORMATION:

I. Background

    The statute generally referred to as the Bank Secrecy Act (BSA) 
(Title I and Title II of Pub. L. 91-508, codified at 12 U.S.C. 1829b 
and 1951-1959, and 31 U.S.C. 5311-5330), authorizes the Secretary of 
the Treasury (the Secretary) to require financial institutions to keep 
records and file reports that the Secretary determines have a high 
degree of usefulness in criminal, tax, or regulatory investigations or 
proceedings, and to implement anti-money laundering programs and 
compliance procedures. The Secretary's authority to administer the BSA 
has been delegated to the Director of the Financial Crimes Enforcement 
Network (FinCEN). Section 1515 of the Annunzio-Wylie Anti-Money 
Laundering Act of 1992 (Title XV of Pub. L. 102-550 (Annunzio-Wylie)), 
codified at 12 U.S.C. 1829b(b), amended the BSA (1) to require the 
Secretary and the Board jointly to promulgate recordkeeping 
requirements for international funds transfers by depository 
institutions and nonbank financial institutions; and (2) to authorize 
the Secretary and the Board jointly to promulgate regulations for 
domestic funds transfers by depository institutions. Section 1517(a) of

[[Page 14387]]
Annunzio-Wylie, codified at 31 U.S.C. 5318 (g) and (h), authorizes the 
Secretary to require financial institutions to carry out anti-money 
laundering programs.
    In January 1995, Treasury and the Board jointly adopted a rule (the 
joint rule) that imposed recordkeeping requirements for transmittals of 
funds by banks and other financial institutions (60 FR 220, January 3, 
1995). Treasury also adopted a rule (the travel rule) requiring 
financial institutions (including banks) to include in transmittal 
orders certain information collected under the joint rule (60 FR 234, 
January 3, 1995). The joint rule defined the terms used in both rules. 
These rules were to become effective on January 1, 1996.
    Following publication of the joint rule and the travel rule, it 
became apparent that there was confusion within the banking industry 
about the application of the rules to transmittals of funds involving 
foreign financial institutions. Several banks and bank counsel advised 
Treasury and the Board that compliance with the rules was complicated 
by the fact that certain of the joint rule definitions of parties to 
funds transfers differed from the definitions of those terms in Article 
4A of the Uniform Commercial Code (UCC 4A). Because a financial 
institution's obligations under the joint and travel rules depend upon 
its role in a particular transmittal of funds, the differences between 
the Bank Secrecy Act regulations definitions and UCC 4A definitions had 
material operational consequences.
    The most significant effect of the difference in the definitions 
was the treatment of a U.S. financial institution that receives a 
transmittal order from a foreign financial institution. Under the 
definitions in the original joint rule, the foreign financial 
institution sending the transmittal order would be the transmittor and 
the U.S. financial institution would be the transmittor's financial 
institution. The U.S. financial institution would be subject to the 
travel rule requirements imposed on a transmittor's financial 
institution, and compliance might require significant changes in 
standard business practices.

II. Proposed Amendments

    In response to industry concerns, Treasury and the Board proposed 
amendments to the joint rule to conform the definitions of banks that 
are parties to funds transfers to the definitions found in UCC 4A and 
to change the definitions of the terms applicable to financial 
institutions so that their meanings are parallel to the definitions in 
UCC 4A (60 FR 44146, August 24, 1995). At the same time, Treasury 
proposed amendments to the travel rule to reflect the proposed 
amendments to the definitions (60 FR 44151, August 24, 1995). The 
changes to the travel rule were necessary in order to clarify that 
although a foreign financial institution may be considered a 
transmittor's financial institution, only financial institutions 
located within the U.S. are subject to the requirements of the travel 
rule.
    The proposed amendments also proposed to add to the travel rule new 
paragraph 103.33(g)(3), in order to clarify that transactions excepted 
under the joint rule pursuant to paragraphs 103.33(e)(6) and 
103.33(f)(6) are also excepted from the travel rule. Those sections 
provide that a transmittal of funds is not subject to the requirements 
of the joint rule if the parties to the transmittal are both banks or 
brokers and dealers in securities, or their subsidiaries, or government 
entities, or if the transmittor and recipient are the same person and 
the transmittal involves a single bank or broker/dealer.

III. Comments

    Treasury received three comments on the proposed changes to the 
travel rule. The commenters were in favor of the proposed amendments, 
and agreed that the amendments would reduce confusion and uncertainty 
about the application of the rules, and that the rules would be less 
burdensome if the proposed amendments were adopted. One commenter 
specifically agreed that the inclusion of the exceptions in the travel 
rule was a positive change. Based on the comments received, Treasury is 
adopting the amendments as proposed, except that the proposed new 
paragraph 103.33(g)(3) will appear at 103.33(g)(4).

IV. New Section 103.33(g)(3)

    As noted above, there is one further change to the travel rule that 
was not a part of the proposed rule, new paragraph (g)(3). This change 
responds to a significant compliance issue that the banking industry 
did not identify until after the comment period: until all banks 
convert to the expanded Fedwire format, there will not always be enough 
space to include in a transmittal order all of the information required 
by paragraphs (g)(1) (i), (ii), and (vii) and (g)(2) (i), (ii), and 
(vii).1 Banking industry representatives have assured FinCEN that 
the expanded Fedwire format, scheduled to be adopted industry-wide by 
January 1, 1998, will allow all information required by paragraph (g) 
to be sent and received. If the travel rule were finalized as proposed, 
banks that are in the process of adopting the expanded Fedwire format 
would have to expend considerable resources to create an interim system 
to accommodate all of the information required by paragraph 103.33(g) 
until January 1, 1998. Accordingly, new paragraph (g)(3) provides that, 
until it has converted to the new Fedwire format, a financial 
institution will be deemed to be in compliance with paragraph (g), even 
if some information required to be included on a transmittal order is 
not so included, provided that, when either requested by a 
corresponding financial institution to assist in retrieval of 
information in connection with Bank Secrecy Act compliance efforts or 
in response to a law enforcement request, or when presented itself with 
a judicial order, subpoena or administrative summons requesting any 
information required by paragraphs (g)(1)(i), (g)(1)(ii), (g)(1)(vii), 
(g)(2)(i), (g)(2)(ii), or (g)(2)(vii), the financial institution 
retrieves such information within a reasonable time.

    \1\ In addition, some software application programs allow large, 
institutional customers to generate and transmit payment orders 
directly through a bank's electronic funds transfer system. Some of 
these software application programs follow the format of the Fedwire 
system. Thus, banks may have difficulty complying with section 
103.33(g) with respect to payment orders transmitted directly by 
their customers.
---------------------------------------------------------------------------

    Treasury notes that new paragraph (g)(3)(i)(A) still requires 
inclusion in the transmittal order, to the extent such items are 
received with the prior transmittal order, of certain recipient 
information as required by paragraphs (g)(1)(vi) and (g)(2)(vi). These 
paragraphs themselves, however, are not fully effective with respect to 
transmittals of funds effected through the Fedwire funds transfer 
system until such time as the bank that sends the order to the Federal 
Reserve Bank completes its conversion to the expanded Fedwire message 
format. Treasury anticipates that funds transfers effected through the 
Fedwire system will be covered equally by both the current exception 
provision for paragraphs (g)(1)(vi) and (g)(2)(vi) as well as the new 
safe harbor provision of paragraph (g)(3). Thus, as an operational 
matter in pre-conversion Fedwire transfers, paragraph (g)(3) will 
require that the transmittal order include only one of the items 
otherwise required by paragraphs (g)(1)(vi) and (g)(2)(vi), if received 
with the transmittal order.

V. Effect on Law Enforcement; Ongoing Review

    Treasury believes that today's changes in the joint rule and in 
this final rule will reduce the burden of compliance,

[[Page 14388]]
while maintaining the usefulness for law enforcement of the information 
passed on in transmittal orders pursuant to the travel rule. While the 
requirement placed on an intermediary financial institution is limited 
to information that it receives, generally the information passed on 
should be of greater use to law enforcement because the information 
obtained will pertain to the true transmittor and recipient in the 
transaction. Furthermore, the financial institutions that must be 
identified will more likely be ones with which the transmittor and 
recipient have account relationships.
    As stated in the joint and travel rules when they were adopted in 
January 1995, Treasury will monitor the effectiveness of the rules to 
assess their usefulness to law enforcement and their effect on the cost 
and efficiency of the payments system. Within 36 months of May 28, 
1996, Treasury will review the effectiveness of the travel rule and 
will consider making any appropriate modifications.

VI. Executive Order 12866

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

VII. Regulatory Flexibility Act

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

VIII. Paperwork Reduction Act

    The collection of information required by the rule that is amended 
by this final rule was submitted by the Treasury to the Office of 
Management and Budget in accordance with the requirements of the 
Paperwork Reduction Act (44 U.S.C. 3504(h) and 3507(d)) under control 
number 1505-0063 (see 60 FR 237, January 3, 1995). The collection is 
authorized, as before, by 12 U.S.C. 1829b and 1959 and 31 U.S.C. 5311-
5330.
    This final rule will eliminate information collection requirements 
that were previously required. Therefore no additional Paperwork 
Reduction Act submissions are required.

IX. Unfunded Mandates Reform Act of 1995

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

List of Subjects in 31 CFR Part 103

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

Amendment

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

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

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

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

    2. In Sec. 103.33, paragraphs (g) introductory text and (g)(1) 
introductory text are revised and paragraphs (g)(3) and (g)(4) are 
added to read as follows:


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

* * * * *
    (g) Any transmittor's financial institution or intermediary 
financial institution located within the United States shall include in 
any transmittal order for a transmittal of funds in the amount of 
$3,000 or more, information as required in this paragraph (g):
    (1) A transmittor's financial institution shall include in a 
transmittal order, at the time it is sent to a receiving financial 
institution, the following information:
* * * * *
    (3) Safe harbor for transmittals of funds prior to conversion to 
the expanded Fedwire message format. The following provisions apply to 
transmittals of funds effected through the Federal Reserve's Fedwire 
funds transfer system by a financial institution before the bank that 
sends the order to the Federal Reserve Bank completes its conversion to 
the expanded Fedwire message format.
    (i) Transmittor's financial institution. A transmittor's financial 
institution will be deemed to be in compliance with the provisions of 
paragraph (g)(1) of this section if it:
    (A) Includes in the transmittal order, at the time it is sent to 
the receiving financial institution, the information specified in 
paragraphs (g)(1)(iii) through (v), and the information specified in 
paragraph (g)(1)(vi) of this section to the extent that such 
information has been received by the financial institution, and
    (B) Provides the information specified in paragraphs (g)(1)(i), 
(ii) and (vii) of this section to a financial institution that acted as 
an intermediary financial institution or recipient's financial 
institution in connection with the transmittal order, within a 
reasonable time after any such financial institution makes a request 
therefor in connection with the requesting financial institution's 
receipt of a lawful request for such information from a federal, state, 
or local law enforcement or financial regulatory agency, or in 
connection with the requesting financial institution's own Bank Secrecy 
Act compliance program.
    (ii) Intermediary financial institution. An intermediary financial 
institution will be deemed to be in compliance with the provisions of 
paragraph (g)(2) of this section if it:
    (A) Includes in the transmittal order, at the time it is sent to 
the receiving financial institution, the information specified in 
paragraphs (g)(2)(iii) through (g)(2)(vi) of this section, to the 
extent that such information has been received by the intermediary 
financial institution; and
    (B) Provides the information specified in paragraphs (g)(2)(i), 
(ii) and (vii) of this section, to the extent that such information has 
been received by the intermediary financial institution, to a financial 
institution that acted as an intermediary financial institution or

[[Page 14389]]
recipient's financial institution in connection with the transmittal 
order, within a reasonable time after any such financial institution 
makes a request therefor in connection with the requesting financial 
institution's receipt of a lawful request for such information from a 
federal, state, or local law enforcement or regulatory agency, or in 
connection with the requesting financial institution's own Bank Secrecy 
Act compliance program.
    (iii) Obligation of requesting financial institution. Any 
information requested under paragraph (g)(3)(i)(B) or (g)(3)(ii)(B) of 
this section shall be treated by the requesting institution, once 
received, as if it had been included in the transmittal order to which 
such information relates.
    (4) Exceptions. The requirements of this paragraph (g) shall not 
apply to transmittals of funds that are listed in paragraph (e)(6) or 
(f)(6) of this section.
* * * * *
    Dated: March 26, 1996.
Stanley E. Morris,
Director, Financial Crimes Enforcement Network.
[FR Doc. 96-7682 Filed 3-29-96; 8:45 am]
BILLING CODE 4820-03-P