[Federal Register Volume 61, Number 63 (Monday, April 1, 1996)]
[Rules and Regulations]
[Pages 14383-14386]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-7685]



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FEDERAL RESERVE SYSTEM
FEDERAL RESERVE SYSTEM

[Docket No. R-0888]

DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA16


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

AGENCY: Department of the Treasury; Board of Governors of the Federal 
Reserve System.

ACTION: Joint final rule.

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SUMMARY: The Financial Crimes Enforcement Network (FinCEN) of the 
Department of the Treasury (Treasury) and the Board of Governors of the 
Federal Reserve System (Board) jointly have adopted amendments to their 
final rule that requires enhanced recordkeeping related to certain 
funds transfers and transmittals of funds by financial institutions 
(the joint rule). These amendments revise the joint rule's definitions 
and make technical conforming changes to the substantive provisions of 
the joint rule to conform the definitions of the parties to an 
international transfer to their meanings under Article 4A of the 
Uniform Commercial Code (UCC 4A). The revised definitions will also 
affect the provisions of a Treasury companion rule, adopted in January 
1995, known as the travel rule, which requires financial institutions 
to include in transmittal orders certain information that must be 
maintained under the joint rule. Treasury is also publishing amendments 
to its travel rule. See companion final rule amending the travel rule 
published elsewhere in today's issue of the Federal Register. The 
amendments are intended to reduce confusion of banks and nonbank 
financial institutions as to the applicability of the joint rule and 
the travel rule and to reduce the cost of complying with the rules' 
requirements. The Treasury and the Board believe that the amendments 
will not have a material adverse effect on the rules' usefulness in law 
enforcement investigations and proceedings. The amendments should not 
affect a bank's responsibilities under the rules with respect to 
domestic funds transfers. Furthermore, to ensure that there is an 
adequate implementation period following final action on the proposed 
amendments, the Treasury and the Board have delayed the effective date 
of the joint final rule until May 28, 1996. See the final rule; delay 
of effective date published elsewhere in today's issue of the Federal 
Register.

EFFECTIVE DATE: May 28, 1996.

FOR FURTHER INFORMATION CONTACT:

    Treasury: Roger Weiner, Assistant Director, 202/622-0400; Stephen 
R. Kroll, Legal Counsel, 703/905-3534, FinCEN.
    Board: Louise L. Roseman, Associate Director, 202/452-2789; Darrell 
Mak, Financial Services Analyst, 202/452-3223; Division of Reserve Bank 
Operations and Payment Systems; Oliver Ireland, Associate General 
Counsel, 202/452-3625; or Elaine Boutilier, Senior Counsel 202/452-
2418, Legal Division, Board of Governors of the Federal Reserve System. 
For the hearing impaired only, Telecommunication Device for the Deaf 
(TDD), Dorothea Thompson, 202/452-3544.

SUPPLEMENTARY INFORMATION:

I. Background

    The statute generally referred to as the Bank Secrecy Act (BSA) 
(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 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. The authority of the 
Secretary to administer the BSA has been delegated to the Director of 
FinCEN. The BSA was amended by the Annunzio-Wylie Anti-Money Laundering 
Act of 1992 (Pub. L. 102-550), which authorizes the Treasury and the 
Board to prescribe regulations to require maintenance of records 
regarding domestic and international funds transfers. The Treasury and 
the Board are required to promulgate jointly, after consultation with 
state banking supervisors, recordkeeping requirements for international 
funds transfers by depository institutions and nonbank financial 
institutions. The Treasury and the Board are required to consider the 
usefulness of recordkeeping rules for international funds transfers in 
criminal, tax, or regulatory investigations or proceedings and the 
effect of such rules on the cost and efficiency of the payments system. 
The Treasury and the Board are authorized to promulgate regulations for 
domestic funds transfers by depository institutions. The Treasury, but 
not the Board, is authorized to promulgate recordkeeping and reporting 
requirements for domestic funds transfers by nonbank financial 
institutions.
    In January 1995, the Treasury and the Board jointly published 
enhanced recordkeeping requirements related to certain funds transfers 
and transmittals of funds by banks and other financial institutions, in 
accordance with the BSA (60 FR 220, January 3, 1995). At the same time, 
the Treasury adopted a companion rule, known as the travel rule, which 
requires financial institutions to include in transmittal orders 
certain information that must be retained under the joint rule (60 FR 
234, January 3, 1995). The joint rule sets forth definitions of terms 
used in both rules.
    Subsequent to adoption of the joint rule, several large banks as 
well as bank counsel advised the Treasury and the

[[Page 14384]]
Board that compliance with the joint rule and the travel rule would be 
complicated if the parties to an international funds transfer were 
defined differently in the joint rule than they are in the Uniform 
Commercial Code Article 4A (UCC 4A). Under the joint rule adopted in 
January, the first U.S. bank office that handles an incoming 
international funds transfer was defined as the originator's 
bank.1 Under UCC 4A and the Board's Regulation J governing Fedwire 
transfers (12 CFR Part 210, subpart B), which incorporates UCC 4A, if 
the U.S. bank receives a payment order from a foreign bank and executes 
a corresponding payment order to a subsequent receiving bank, the first 
U.S. bank would be deemed an intermediary bank rather than the 
originator's bank. Large banks that regularly process international 
funds transfers believe that substantial confusion would result from 
defining the parties to an international funds transfer for the 
purposes of the BSA rules differently from the manner in which they are 
defined under UCC 4A. In addition, several banks indicated that they 
believe the difference between the BSA and the UCC 4A definitions may 
cause certain problems in the application of the joint rule and the 
travel rule to international funds transfers.

    \1\ The originator's bank was defined as ``the receiving bank to 
which the payment order of the originator is issued if the 
originator is not a bank, or the originator if the originator is a 
bank.'' (103.11(w)) A receiving bank was defined as ``the bank to 
which the sender's instruction is addressed.'' (103.11(aa)) As the 
definition of bank was limited to an ``agent, agency, branch or 
office within the United States'' (103.11(c)), a receiving bank must 
be a U.S. banking office, and therefore the originator's bank was 
the first U.S. banking office to handle the transfer.
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    In August 1995, the Treasury and the Board proposed amendments to 
the joint rule to address industry concerns regarding the confusion 
created by defining the parties to an international funds transfer in a 
manner that is not consistent with the roles of the parties as defined 
by UCC 4A (60 FR 44146, August 24, 1995). In their notice of the 
proposed amendments, the Treasury and the Board included a detailed 
illustration of the operational issues raised by industry 
representatives.
    Under the proposed amendments, the definition of the first U.S. 
bank office that handles an incoming international funds transfer would 
be changed from an originator's bank to an intermediary bank. 
Corresponding changes were proposed to address the same issues with 
respect to nonbank financial institutions that conduct international 
transmittals of funds. In addition, the Treasury and the Board proposed 
amending section 103.33(e)(6) by deleting the word ``domestic'' prior 
to the word ``bank'' and prior to the words ``broker or dealer in 
securities.'' These changes have no material effect on the scope of the 
exclusions set forth in this section as the word ``bank'' is defined to 
be limited to offices located within the United States and the term 
``broker or dealer in securities'' is limited to brokers registered 
with the Securities and Exchange Commission.
    Also in August 1995, Treasury and the Board deferred the effective 
date of the joint rule until April 1, 1996 from January 1, 1996, to 
provide financial institutions sufficient time to prepare to comply 
with their responsibilities under the joint final rule with respect to 
international transfers pending final action on the proposed amendments 
to the joint rule (60 FR 44144, August 24, 1995). To ensure that there 
is an adequate implementation period following final action on the 
proposed amendments, the Treasury and the Board have delayed further 
the effective date of the joint final rule until May 28, 1996. See the 
final rule; delay of effective date published elsewhere in today's 
issue of the Federal Register.

II. Summary of Public Comments

    The Treasury and the Board received eleven comments on the proposed 
amendments. The following table identifies the number of commenters by 
type of organization:

Commercial Banks..............................................         4
Federal Reserve Banks.........................................         3
Savings Institutions..........................................         1
Trade Association.............................................         1
Credit Union Association......................................         1
Clearing House Association....................................         1
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      Total Public Comments...................................        11
                                                                        

    Ten comment letters supported the proposed amendments to the joint 
rule. Commenters agreed that amending the definitions of the parties to 
an international transfer in the joint rule will reduce confusion with 
respect to the interpretation of the rules and will facilitate 
compliance with the rules' requirements.
    One commenter requested that the Treasury and the Board define how 
intermediary banks might be expected to retrieve records. All banks are 
subject to the general retrievability requirements under section 
103.38(d). Under this standard, the expected timeliness of 
retrievability will vary by request. Generally, records should be 
accessible within a reasonable period of time, considering the quantity 
of records requested, the nature and age of the record, the amount and 
type of information provided by the law enforcement agency making the 
request, as well as the particular bank's volume and capacity to 
retrieve the records. Intermediary banks are obligated to comply with 
any properly executed subpoena or search warrant. No changes have been 
made to the final rule with respect to the retrievability requirements.
    Another commenter requested that the Treasury and the Board clarify 
the applicability of the joint rule in cases in which an originator's 
bank accomplishes a transfer by issuing a check payable to another 
bank. The Treasury and the Board plan to address this and other issues 
in a commentary that will be published to address various aspects of 
the joint rule.
    One bank commented that the applicability of the BSA regulations to 
small banks would not serve a high degree of usefulness in criminal, 
tax or regulatory investigations or proceedings. The Treasury and the 
Board believe that exempting small institutions would facilitate money 
laundering through those institutions.

III. Conclusion

    Based on the responses received by the commenters, the Treasury and 
the Board have adopted the amendments to the joint rule as proposed. 
The Treasury and the Board do not believe that these amendments will 
increase the cost of compliance with the rules' requirements for those 
banks and nonbank financial institutions that have prepared to comply 
with the rules under the assumption that the first U.S. banking office 
in an international transfer is subject to the originator's bank 
responsibilities. Further, the Treasury and the Board do not believe 
that identifying the banks in an international transfer in the same 
manner as they are defined in UCC 4A will reduce the usefulness of the 
information to law enforcement, provided that intermediary banks comply 
with the requirements of 103.38(d). As part of the 36-month review of 
the effectiveness of the joint rule and the travel rule, Treasury will 
monitor the experience of law enforcement in obtaining from 
intermediary banks information retained pursuant to the joint rule.

IV. Paperwork Reduction Act

    The collection of information required by the joint final rule, 
which is being amended in this notice, was submitted by the Treasury to 
the Office of Management and Budget in accordance with the requirements 
of the Paperwork Reduction Act (44 U.S.C. 3504(h)) under

[[Page 14385]]
control number 1505-0063. (60 FR 227, January 3, 1995) The collection 
is authorized, as before, by 12 U.S.C. 1829b and 1959 and 31 U.S.C. 
5311-5330.
    The changes to the joint final rule in this document will eliminate 
information collection requirements that were required by the joint 
final rule. Therefore, no additional Paperwork Reduction Act 
submissions are required.

V. Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 605(b)), the Treasury and the Board hereby certify that these 
amendments to the joint final rule will not have a significant economic 
impact on a substantial number of small entities. The amendments 
eliminate uncertainty as to the application of the joint final rule and 
reduce the cost of complying with the joint rule's requirements. 
Further, the amendments affect international funds transfers and 
transmittals of funds, which are handled almost exclusively by large 
institutions. Accordingly, a regulatory flexibility analysis is not 
required.

VI. Executive Order 12866

    The Treasury finds that these amendments to the joint rule are not 
``significant'' for purposes of Executive Order 12866. The 
modifications should reduce the cost of compliance with the joint rule 
and the travel rule. The Treasury believes that these rule changes 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. These revisions create no inconsistencies with, nor do 
they interfere with actions taken or planned by other agencies. 
Finally, these revisions raise no novel legal or policy issues. A cost 
and benefit analysis therefore is not required.

VII. Unfunded Mandates Reform Act of 1995 Statement

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

List of Subjects in 31 CFR Part 103

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

Amendment

    For the reasons set forth in the preamble, 31 CFR Part 103 is 
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. Section 103.11 is amended by revising paragraphs (e), (w), (y) 
introductory text, (aa), (bb), (dd), (kk) introductory text, (ll), and 
(mm) to read as follows:


Sec. 103.11  Meaning of terms.

* * * * *
    (e) Beneficiary's bank. The bank or foreign bank identified in a 
payment order in which an account of the beneficiary is to be credited 
pursuant to the order or which otherwise is to make payment to the 
beneficiary if the order does not provide for payment to an account.
* * * * *
    (w) Originator's bank. The receiving bank to which the payment 
order of the originator is issued if the originator is not a bank or 
foreign bank, or the originator if the originator is a bank or foreign 
bank.
* * * * *
    (y) Payment order. An instruction of a sender to a receiving bank, 
transmitted orally, electronically, or in writing, to pay, or to cause 
another bank or foreign bank to pay, a fixed or determinable amount of 
money to a beneficiary if:
* * * * *
    (aa) Receiving bank. The bank or foreign bank to which the sender's 
instruction is addressed.
    (bb) Receiving financial institution. The financial institution or 
foreign financial agency to which the sender's instruction is 
addressed. The term receiving financial institution includes a 
receiving bank.
* * * * *
    (dd) Recipient's financial institution. The financial institution 
or foreign financial agency identified in a transmittal order in which 
an account of the recipient is to be credited pursuant to the 
transmittal order or which otherwise is to make payment to the 
recipient if the order does not provide for payment to an account. The 
term recipient's financial institution includes a beneficiary's bank, 
except where the beneficiary is a recipient's financial institution.
* * * * *
    (kk) Transmittal order. The term transmittal order includes a 
payment order and is an instruction of a sender to a receiving 
financial institution, transmitted orally, electronically, or in 
writing, to pay, or cause another financial institution or foreign 
financial agency to pay, a fixed or determinable amount of money to a 
recipient if:
* * * * *
    (ll) Transmittor. The sender of the first transmittal order in a 
transmittal of funds. The term transmittor includes an originator, 
except where the transmittor's financial institution is a financial 
institution or foreign financial agency other than a bank or foreign 
bank.
    (mm) Transmittor's financial institution. The receiving financial 
institution to which the transmittal order of the transmittor is issued 
if the transmittor is not a financial institution or foreign financial 
agency, or the transmittor if the transmittor is a financial 
institution or foreign financial agency. The term transmittor's 
financial institution includes an originator's bank, except where the 
originator is a transmittor's financial institution other than a bank 
or foreign bank.
* * * * *
    3. In Sec. 103.33, paragraphs (e) introductory text, (e)(1)(i) 
introductory text, (e)(1)(ii), (e)(1)(iii), (e)(6)(i)(A) through 
(e)(6)(i)(G), (e)(6)(ii), (f) introductory text, (f)(1)(i) introductory 
text, (f)(1)(ii), (f)(1)(iii), (f)(6)(i)(A) through (f)(6)(i)(G) and 
(f)(6)(ii) are revised to read as follows:


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

* * * * *
    (e) Banks. Each agent, agency, branch, or office located within the 
United States of a bank is subject to the requirements of this 
paragraph (e) with respect to a funds transfer in the amount of $3,000 
or more:
    (1) Recordkeeping requirements. (i) For each payment order that it 
accepts as an originator's bank, a bank shall obtain and retain either 
the original or

[[Page 14386]]
a microfilm, other copy, or electronic record of the following 
information relating to the payment order:
* * * * *
    (ii) For each payment order that it accepts as an intermediary 
bank, a bank shall retain either the original or a microfilm, other 
copy, or electronic record of the payment order.
    (iii) For each payment order that it accepts as a beneficiary's 
bank, a bank shall retain either the original or a microfilm, other 
copy, or electronic record of the payment order.
* * * * *
    (6) Exceptions. * * *
    (i) * * *
    (A) A bank;
    (B) A wholly-owned domestic subsidiary of a bank chartered in the 
United States;
    (C) A broker or dealer in securities;
    (D) A wholly-owned domestic subsidiary of a broker or dealer in 
securities;
    (E) The United States;
    (F) A state or local government; or
    (G) A federal, state or local government agency or instrumentality; 
and
    (ii) Funds transfers where both the originator and the beneficiary 
are the same person and the originator's bank and the beneficiary's 
bank are the same bank.
    (f) Nonbank financial institutions. Each agent, agency, branch, or 
office located within the United States of a financial institution 
other than a bank is subject to the requirements of this paragraph (f) 
with respect to a transmittal of funds in the amount of $3,000 or more:
    (1) Recordkeeping requirements. (i) For each transmittal order that 
it accepts as a transmittor's financial institution, a financial 
institution shall obtain and retain either the original or a microfilm, 
other copy, or electronic record of the following information relating 
to the transmittal order:
* * * * *
    (ii) For each transmittal order that it accepts as an intermediary 
financial institution, a financial institution shall retain either the 
original or a microfilm, other copy, or electronic record of the 
transmittal order.
    (iii) for each transmittal order that it accepts as a recipient's 
financial institution, a financial institution shall retain either the 
original or a microfilm, other copy, or electronic record of the 
transmittal order.
* * * * *
    (6) Exceptions. * * *
    (i) * * *
    (A) A bank;
    (B) A wholly-owned domestic subsidiary of a bank chartered in the 
United States;
    (C) A broker or dealer in securities;
    (D) A wholly-owned domestic subsidiary of a broker or dealer in 
securities;
    (E) The United States;
    (F) A state or local government; or
    (G) A federal, state or local government agency or instrumentality; 
and
    (ii) Transmittals of funds where both the transmittor and the 
recipient are the same person and the transmittor's financial 
institution and the recipient's financial institution are the same 
broker or dealer in securities.

    In concurrence:
    By order of the Board of Governors of the Federal Reserve 
System, March 26, 1996.
William W. Wiles,
Secretary to the Board.

    By the Department of the Treasury, March 26, 1996.
Stanley E. Morris,
Director, Financial Crimes Enforcement Network.
[FR Doc. 96-7685 Filed 3-29-96; 8:45 am]
BILLING CODES Board: 6210-01-P (50%) Treasury: 4820-03 (50%)