[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%)