[Federal Register Volume 65, Number 50 (Tuesday, March 14, 2000)]
[Rules and Regulations]
[Pages 13683-13693]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-5919]


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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA20


Financial Crimes Enforcement Network; Amendments to the Bank 
Secrecy Act Regulations--Requirement that Money Transmitters and Money 
Order and Traveler's Check Issuers, Sellers, and Redeemers Report 
Suspicious Transactions

AGENCY: Financial Crimes Enforcement Network (``FinCEN''), Treasury.

ACTION: Final rule.

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SUMMARY: This document contains amendments to the regulations 
implementing the statute generally referred to as the Bank Secrecy Act. 
The amendments require money transmitters and issuers, sellers, and 
redeemers of money orders and traveler's checks to report suspicious 
transactions to the Department of the Treasury. The amendments 
constitute a further step in the creation of a comprehensive system (to 
which banks are already subject) for the reporting of suspicious 
transactions by financial institutions. Such a system is a core 
component of the counter-money laundering strategy of the Department of 
the Treasury.

DATES: Effective Date: April 13, 2000.
    Applicability Date: See Sec. 103.20(f) of the final rule contained 
in this document.

FOR FURTHER INFORMATION CONTACT: Peter G. Djinis, Executive Assistant 
Director (Regulatory Policy), FinCEN,

[[Page 13684]]

(703) 905-3930; Eileen C. Mayer, Special Assistant to the Director and 
MSB Project Manager, FinCEN, (202) 354-6400; Stephen R. Kroll, Chief 
Counsel, Cynthia L. Clark, Deputy Chief Counsel, and Albert R. Zarate 
and Christine L. Schuetz, Attorney-Advisors, Office of Chief Counsel, 
FinCEN, (703) 905-3590.

SUPPLEMENTARY INFORMATION:

I. Money Services Businesses Under the Bank Secrecy Act

    The issuance of the final rule completes the second rulemaking, 
begun on May 21, 1997, relating to the application of the Bank Secrecy 
Act to money services businesses. See generally 62 FR 27890--27909 (the 
``MSB Rulemakings''). In conducting the MSB Rulemakings, FinCEN and the 
Department of the Treasury have followed the mandate of Congress in the 
Money Laundering Suppression Act, Title IV of the Reigle Community 
Development and Regulatory Improvement Act of 1994, Public Law 103-325, 
and the Annunzio-Wylie Anti-Money Laundering Act, Title XV of the 
Housing and Community Development Act of 1992, Public Law 102-550, and 
have more generally responded to the need to update and more carefully 
to tailor the application of the Bank Secrecy Act to a significant part 
of the financial sector in the United States.\1\
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    \1\ The Congress has long recognized the need generally to 
address problems of abuse by money launderers of ``non-bank'' 
financial institutions. See, e.g., Permanent Subcommittee on 
Investigations, Senate Comm. on Governmental Affairs, Current Trends 
in Money Laundering, S. Rep. No. 123, 102d Cong., 2d Sess. (1992).
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    The term ``money services business'' refers to five distinct types 
of financial services providers: currency dealers or exchangers; check 
cashers; issuers of traveler's checks, money orders, or stored value; 
sellers or redeemers of traveler's checks, money orders, or stored 
value; and money transmitters. (The five types of financial services 
are complementary and are often provided together at a common 
location.) These businesses are quite numerous; based on a 1997 study 
performed for FinCEN by Coopers & Lybrand LLP (now a part of 
PriceWaterhouseCoopers LLP), they comprised at the date of the study 
approximately 158,000 \2\ outlets or selling locations, and provided 
financial services involving approximately $200 billion annually. To 
some significant extent, the customer base for such businesses lies in 
that part of the population that does not use traditional financial 
institutions, primarily banks.
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    \2\ The number does not include Post Offices (which sell money 
orders and other money services business financial products), 
participants in stored value product trials, or sellers of various 
stored value or smart cards in use in, for example, public 
transportation systems.
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    Money services businesses, like banks, can be large or small. It is 
estimated that fewer than ten business enterprises account for the bulk 
of money services business financial products (that is, money 
transmissions, money orders, traveler's checks, and check cashing and 
currency exchange availability) sold within the United States, and also 
account, through systems of agents, for the bulk of locations at which 
these financial products are sold. Members of this first group include 
large firms, with significant capitalization, that are publicly traded 
on major securities exchanges.\3\
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    \3\ For example, according to the Coopers & Lybrand study, at 
the time of that study two money transmitters and two traveler's 
check issuers made up approximately 97 per cent of their respective 
known markets for non-bank money services. Three enterprises made up 
approximately 88 per cent of the $100 billion in money orders sold 
annually (through approximately 146,000 locations). The retail 
foreign currency exchange sector was found by Coopers & Lybrand to 
be somewhat less concentrated, with the top two non-bank market 
participants accounting for 40 per cent of a known market that then 
accounted for $10 billion. Check cashing was the least concentrated 
of the business sectors; the two largest non-bank check cashing 
businesses made up approximately 20 per cent of the market, with a 
large number of competitors.
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    A far larger group of (on average) far smaller enterprises competes 
with the large firms in the first group, in a highly bifurcated market 
for money services. In some cases, these small enterprises are based in 
one location with two to four employees. Moreover, the members of this 
second group may provide both financial services and unrelated products 
or services to the same sets of customers.\4\
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    \4\ Members of the second group may include, for example, travel 
agencies, courier services, convenience stores, and grocery or 
liquor stores.
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    Money services businesses primarily serve individuals and have 
grown to provide a set of financial products that others look to banks 
to provide. For example, a money services business customer who 
receives a paycheck can take his or her check to a check casher to have 
it converted to cash. He or she can then purchase money orders to pay 
his or her bills. Finally, he or she may choose to send funds to 
relatives abroad, using the services of a money transmitter.
    The publication of this final rule, concerning the reporting of 
suspicious transactions by money transmitters and issuers, sellers, and 
redeemers of money orders and traveler's checks, follows the 
publication, on August 20, 1999, of a final rule, 64 FR 45438-45453, 
that (i) contained a set of revised definitions of various financial 
services businesses (and, in the case of stored value, added a new 
definition of a product whose issuers, sellers, or redeemers would be 
so treated) and grouped those definitions under the heading ``money 
services businesses'' as part of the Bank Secrecy Act regulatory 
definition of ``financial institutions,'' (see new 31 CFR 103.11(c)(7), 
(n)(3), (uu), and (vv)), and (ii) adopted rules to implement the Bank 
Secrecy Act mandate, 31 U.S.C. 5330, that certain money services 
businesses register with the Department of the Treasury (see new 31 CFR 
103.41).
    Against this background, the reporting of suspicious transactions 
forms a second part of a coordinated approach to deal with abuse of 
money services businesses by criminals and to strengthen the 
application of general Bank Secrecy Act rules to this part of the 
nation's payments system. Thus, it may be helpful to recap briefly the 
terms of the final rule relating to the definition and registration of 
money services businesses under the Bank Secrecy Act, before turning 
specifically to suspicious transaction reporting under the terms of the 
final rule contained in this document.
    A money services business includes, for purposes of the Bank 
Secrecy Act regulations, each agent, agency, branch, or office within 
the United States of any person (except a bank or person registered 
with, and regulated or examined by, the Securities and Exchange 
Commission or the Commodity Futures Trading Commission) doing business 
in one or more of the following capacities:
     Currency dealer or exchanger;
     Check casher;
     Issuer of traveler's checks, money orders, or stored 
value;
     Seller or redeemer of traveler's checks, money orders, or 
stored value;
     Money transmitter; \5\ and
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    \5\ As set forth at 31 CFR 103.11(uu)(5), the acceptance and 
transmission of funds as an integral part of the execution and 
settlement of a transaction other than the funds transmission itself 
(for example, in connection with the bona fide sale of securities) 
will generally not cause a person to be a money transmitter for 
purposes of the Bank Secrecy Act and its implementing regulations.
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     The United States Postal Service (except with regard to 
the sale of postage or philatelic products).\6\
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    \6\ Under the rule, persons who do not exchange currency, cash 
checks, or issue, sell, or redeem traveler's checks, money orders, 
or stored value in an amount greater than $1,000 to any person on 
any day in one or more transactions are not money services 
businesses for purposes of the Bank Secrecy Act.
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    Generally, each money services business (other than the U.S. Postal

[[Page 13685]]

Service, a federal, state, or local government agency, an issuer, 
seller, or redeemer of stored value, or a person that is a money 
services business solely because it is an agent of another money 
services business) must register with the Department of the Treasury by 
December 31, 2001, and maintain a current list of its agents for 
examination beginning January 1, 2002.\7\ As indicated, agents of money 
services businesses generally are not required separately to register 
or keep a list of their own (sub) agents, to the extent that they 
engage in money services business activities solely as agents of 
others.
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    \7\ The information to be included in the agent list is set 
forth in 31 CFR 103.41(d)(2).
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    Thus, the registration requirements are to be implemented over an 
almost two and one half year period, beginning on August 20, 1999. The 
suspicious transaction reporting obligations created by this rule do 
not become effective, as noted below, until the initial registration 
period is complete, that is, on January 1, 2002.

II. Importance of Suspicious Transaction Reporting in the 
Treasury's Counter-Money Laundering Program

    The Congressional authorization of the reporting of suspicious 
transactions by financial institutions recognizes two basic points that 
are central to Treasury's counter-money laundering and anti-financial 
crime programs. First, it is to financial institutions that money 
launderers must go, either initially or eventually. Second, the 
officials of those institutions are more likely than government 
officials to have a sense as to which transactions appear to lack 
commercial justification or otherwise cannot be explained as falling 
within the usual methods of legitimate commerce. Moreover, because 
money laundering transactions are designed to appear legitimate in 
order to avoid detection, the creation of a meaningful system for 
detection and prevention of money laundering is impossible without the 
cooperation of financial institutions. Indeed, many non-banks have 
already recognized the increased pressure that money launderers have 
come to place upon their operations and the need for innovative 
programs of training and monitoring necessary to counter that pressure.
    The National Money Laundering Strategy for 1999 (the ``1999 
Strategy'') \8\ commits the Department of the Treasury to ``assur[ing] 
that all types of financial institutions are subject to effective Bank 
Secrecy Act requirements,'' and, to that end, to extending the 
requirement to report suspicious transactions to money services 
businesses.\9\ (Related action items are (i) the issuance by the 
Department of the Treasury of a final rule for the reporting of 
suspicious activity by casinos, and (ii) work by the Department of the 
Treasury with the Securities and Exchange Commission to propose rules 
for the reporting of suspicious activity by brokers and dealers in 
securities.) \10\ As explained in the Strategy:
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    \8\ The 1999 Strategy is the first in a series of five annual 
reports called for by the Money Laundering and Financial Crimes 
Strategy Act of 1998, Pub. L. 105-310 (October 30, 1998), codified 
at 31 U.S.C. 5340 et seq. Each annual report is to be submitted to 
Congress by the President, working through the Secretary of the 
Treasury in consultation with the Attorney General.
    \9\ 1999 Strategy, Goal 2 (``Enhancing Regulatory and 
Cooperative Public-Private Efforts to Prevent Money Laundering''), 
Objective 2, at 35.
    \10\ Id.

    The attention given to the prevention of money laundering 
through banks reflects the central role of banking institutions in 
the global payments system and the global economy. But non-bank 
financial institutions require attention as well. Money launderers 
will move their operations to institutions in which their chances of 
successful evasion of enforcement and regulatory efforts is the 
highest. Moreover, it is unfair to impose costs arising from 
counter-money laundering requirements only on some institutions 
competing to service customers' financial needs.\11\
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    \11\ Id. at 35-36.

    The reporting of suspicious transactions is also recognized as 
essential to an effective counter-money laundering program in the 
international consensus on the prevention of money laundering. One of 
the central recommendations of the Financial Action Task Force Against 
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Money Laundering (``FATF'') is that:

    If financial institutions suspect that funds stem from a 
criminal activity, they should be required to report promptly their 
suspicions to the competent authorities.

    Financial Action Task Force Annual Report (June 28, 1996), \12\ 
Annex 1 (Recommendation 15).\13\ The recommendation applies equally to 
money services businesses as to banks.
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    \12\ The FATF is an inter-governmental body whose purpose is 
development and promotion of policies to combat money laundering. 
Originally created by the G-7 nations, its membership now includes 
Australia, Austria, Belgium, Canada, Denmark, Finland, France, 
Germany, Greece, Hong Kong, Iceland, Ireland, Italy, Japan, 
Luxembourg, the Kingdom of the Netherlands, New Zealand, Norway, 
Portugal, Singapore, Spain, Sweden, Switzerland, Turkey, the United 
Kingdom, and the United States, as well as the European Commission 
and the Gulf Cooperation Council. In addition, Argentina, Brazil, 
and Mexico have been admitted this year as FATF Observer Members.
    \13\ The language adopted in 1996 revised FATF Recommendation 15 
which, as adopted in 1990, had stated that financial institutions 
should be either ``permitted or required'' to make such reports. 
(Emphasis supplied.)
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    Similarly, the European Community's Directive on Prevention of the 
Use of the Financial System for the Purpose of Money Laundering calls 
for member states to

ensure that credit and financial institutions and their directors 
and employees cooperate fully with the authorities responsible for 
combating money laundering * * * by [in part] informing those 
authorities, on their own initiative, of any fact which might be an 
indication of money laundering.

    EC Directive, O.J. Eur. Comm. (No. L 166) 77 (1991), Article 6. 
Accord, the Model Regulations Concerning Laundering Offenses Connected 
to Illicit Drug Trafficking and Related Offenses of the Organization of 
American States, OEA/Ser. P. AG/Doc. 2916/92 rev. 1 (May 23, 1992), 
Article 13, section 2.\14\ All of these documents also recognize the 
importance of extending the counter-money laundering controls to ``non-
traditional'' financial institutions, not simply to banks, both to 
ensure fair competition in the marketplace and to recognize that non-
bank providers of financial services, as well as depository 
institutions, are an attractive mechanism for, and are threatened by, 
money launderers. See, e.g., Financial Action Task Force Annual Report, 
supra, Annex 1 (Recommendation 8).
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    \14\ The OAS reporting requirement is linked to the provision of 
the Model Regulations that institutions ``shall pay special 
attention to all complex, unusual or large transactions, whether 
completed or not, and to all unusual patterns of transactions, and 
to insignificant but periodic transactions, which have no apparent 
economic or lawful purpose.'' OAS Model Regulation, Article 13, 
section 1.
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III. Statutory Provisions

    The Bank Secrecy Act, Titles I and II of Public Law 91-508, as 
amended, codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 
U.S.C. 5311-5330, authorizes the Secretary of the Treasury, inter alia, 
to issue regulations requiring financial institutions to keep records 
and file reports that are determined to have a high degree of 
usefulness in criminal, tax, and regulatory matters, and to implement 
counter-money laundering programs and compliance procedures. 
Regulations implementing Title II of the Bank Secrecy Act (codified at 
31 U.S.C. 5311-5330), appear at 31 CFR Part 103. The authority of the 
Secretary to administer Title II of the Bank Secrecy Act has been 
delegated to the Director of FinCEN.
    The provisions of 31 U.S.C. 5318(g) \15\ deal with the reporting of 
suspicious

[[Page 13686]]

transactions by financial institutions subject to the Bank Secrecy Act 
and with the protection from liability to customers of persons who make 
such reports. Subsection (g)(1) states generally:
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    \15\ That subsection was added to the Bank Secrecy Act by 
section 1517 of the Annunzio-Wylie Anti-Money Laundering Act; it was 
expanded by section 403 of the Money Laundering Suppression Act, to 
require designation of a single government recipient for reports of 
suspicious transactions.

    The Secretary may require any financial institution, and any 
director, officer, employee, or agent of any financial institution, 
to report any suspicious transaction relevant to a possible 
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violation of law or regulation.

    Subsection (g)(2) provides further:

    A financial institution, and a director, officer, employee, or 
agent of any financial institution, who voluntarily reports a 
suspicious transaction, or that reports a suspicious transaction 
pursuant to this section or any other authority, may not notify any 
person involved in the transaction that the transaction has been 
reported.

    Subsection (g)(3) provides that neither a financial institution, 
nor any director, officer, employee, or agent

that makes a disclosure of any possible violation of law or 
regulation or a disclosure pursuant to this subsection or any other 
authority * * * shall * * * be liable to any person under any law or 
regulation of the United States or any constitution, law, or 
regulation of any State or political subdivision thereof, for such 
disclosure or for any failure to notify the person involved in the 
transaction or any other person of such disclosure.

    Finally, subsection (g)(4) requires the Secretary of the Treasury, 
``to the extent practicable and appropriate,'' to designate ``a single 
officer or agency of the United States to whom such reports shall be 
made.'' \16\ The designated agency is in turn responsible for referring 
any report of a suspicious transaction to ``any appropriate law 
enforcement or supervisory agency.'' Id., at subsection (g)(4)(B).
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    \16\ FinCEN is the designated agency. This designation is not to 
preclude the authority of supervisory agencies to require financial 
institutions to submit other reports to the same agency or another 
agency ``pursuant to any other applicable provision of law.'' 31 
U.S.C. 5318(g)(4)(C).
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IV. Notice of Proposed Rulemaking

    As indicated above, the final rule contained in this document is 
based on the notice of proposed rulemaking published, at 62 FR 27900--
27909 (May 21, 1997) (the ``Notice''), as the second of the MSB 
Rulemakings. The Notice proposed to require money services businesses 
including money transmitters, businesses issuing, selling, or redeeming 
money orders, and businesses issuing, selling, or redeeming traveler's 
checks, to report suspicious transactions to the Department of the 
Treasury.
    FinCEN held five public meetings in the summer of 1997 to provide 
interested parties with the opportunity to present their views with 
respect to the potential effects of the MSB Rulemakings, as well as to 
provide FinCEN with additional information and feedback useful in 
preparing final rules based on the MSB Rulemakings.\17\ Transcripts of 
these meetings were then made available by FinCEN to requesting 
parties.
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    \17\ The public meetings were held in Vienna, Virginia, on July 
22, 1997; New York, New York, on July 28, 1997; San Jose, 
California, on August 1, 1997; Chicago, Illinois, on August 15, 
1997; and Vienna, Virginia, on September 3, 1997. Discussion at the 
New York and Chicago meetings focused particularly on issues, 
including suspicious transaction reporting, relating to money 
transmitters and issuers, sellers, and redeemers of traveler's 
checks and money orders.
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    The comment period for the three MSB Rulemakings was originally due 
to end on August 19, 1997. The comment period was extended to September 
30, 1997, by a notice, 62 FR 40779, published on July 30, 1997.
    FinCEN received a total of 82 comment letters on the three notices 
of proposed rulemaking; 34 dealt in whole or in part with issues raised 
by the Notice. Of these, 12 were submitted by money services businesses 
and their affiliates, 5 by banks or bank holding companies, 8 by 
financial institution trade associations, 4 by law firms, 3 by agencies 
of the United States government, 1 by a credit union, and 1 by a 
private individual.

V. Summary of Comments and Revisions

A. Introduction

    The format of the final rule is generally consistent with the 
format of the rule proposed in the Notice. The terms of the final rule, 
however, differ from the terms of the Notice in the following 
significant respects:
     The dollar threshold for reporting suspicious transactions 
has generally been raised from $500 to $2,000;
     The dollar threshold for reporting has been raised from 
$500 to $5,000 for issuers of money orders or traveler's checks to the 
extent that the identification of transactions required to be reported 
is derived from a review of clearance records or other similar records 
of money orders or traveler's checks that have been previously sold or 
processed;
     The examples of particular potentially suspicious 
transactions have been removed from the text of the rule, and a 
discussion of examples of potentially suspicious transactions will be 
contained in a ``Guidance Document'' relating to suspicious transaction 
reporting by money transmitters and issuers, sellers, and redeemers of 
money orders and traveler's checks that will be published in the near 
future;
     The language relating to the allocation of responsibility 
for reporting among various persons involved in the sale and completion 
of a money transmission or the sale and collection of a money order or 
traveler's check, has been revised; and
     Language has been added to clarify that only one report 
should be filed with respect to a reportable transaction, in order to 
avoid double reporting on the same transaction. It should be noted that 
filing of multiple reports by an issuer and its agent may be necessary 
if different facts are contained in the two reports.

B. Comments on the Notice--Overview and General Issues

    Comments on the Notice concentrated on five matters: (i) the 
rationale for extending the suspicious activity reporting regime to 
money services businesses; (ii) the proposed $500 threshold for 
reporting suspicious transactions; (iii) the inclusion in the text of 
the rule of examples of potentially reportable transactions; (iv) the 
allocation of responsibility for reporting--and liability for non-
reporting--among various persons involved in the sale and completion of 
a money transmission or the sale and collection of a money order or 
traveler's check; and (v) the exemption of certain businesses from the 
requirement to report suspicious transactions.
1. Application of Suspicious Transaction Reporting Requirement to Money 
Services Businesses
    At least one commenter argued that requiring money services 
businesses to report suspicious transactions would be unduly burdensome 
to those businesses and would unjustifiably infringe upon the privacy 
interests of those persons conducting transactions with such 
businesses. A number of other commenters, although not challenging the 
need for suspicious activity reporting per se, asked FinCEN to consider 
carefully the appropriate scope of such reporting.
    The importance of suspicious transaction reporting and its 
extension to all relevant financial institutions are generally 
discussed above. Money services businesses and other non-bank financial 
institutions have not in the past been given the same sort of

[[Page 13687]]

attention in the administration of the Bank Secrecy Act as banks.\18\ 
The concentrated attention given to banks, combined with the 
cooperation that banks have given to law enforcement agencies and 
banking regulators to root out money laundering, have made it far more 
difficult than in the past to pass large amounts of cash directly into 
the nation's banks unnoticed. As it has become increasingly difficult 
to launder large amounts of cash through banks, criminals have turned 
to non-bank financial institutions, including money services 
businesses, in attempts to launder funds.\19\ Some of their efforts 
have unfortunately been successful.\20\
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    \18\ This document uses the term ``bank'' rather than 
``depository institution.'' As defined in 31 CFR 103.11(c), the term 
``bank'' includes both commercial banks and other classes of 
depository institutions.
    \19\ In crafting the Annunzio-Wylie Anti-Money Laundering and 
Money Laundering Suppression Acts to provide the Department of the 
Treasury with additional enforcement tools, the Congress expressed 
its view that such businesses are ``largely unregulated''--at least 
with respect to counter-money laundering issues--and are frequently 
used in sophisticated schemes to transfer large amounts of money 
that are the proceeds of unlawful activity. See section 408(a) of 
the Money Laundering Suppression Act (findings concerning 
``registration of money transmitting businesses to promote effective 
law enforcement'').
    \20\ The Notice was issued against the back-drop of continuing 
enforcement operations directed at money transmitters in the New 
York City metropolitan area, based in part on geographic targeting 
orders (``GTOs''), issued under the Bank Secrecy Act. The GTOs 
required enhanced reporting and recordkeeping affecting remittances 
to Colombia and, later, the Dominican Republic. (The Dominican 
Republic GTO applied to money transmitters in Puerto Rico as well as 
to those in the New York metropolitan area). Those targeting orders 
and subsequent criminal enforcement activity have resulted in three 
of the covered remitters surrendering their licenses to the New York 
State Banking Department. One of these three remitters has been 
indicted for Title 31 violations. Two other remitters have ceased 
remitting funds to Colombia altogether. Another remitter has had its 
license revoked by the New York State Banking Department after 
pleading guilty to money laundering charges. Several years earlier, 
a Postal Inspection Service investigation of money orders in the 
late 1980s and early 1990s revealed a widespread money laundering 
scheme that resulted in the 1992 guilty plea of two individuals, and 
the 1993 forfeiture of approximately $2.1 million. See 62 FR 27903.
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    At the same time, as indicated in the Notice, the implementation of 
a comprehensive counter-money laundering strategy for money services 
businesses raises significant issues not present in devising counter-
money laundering strategies for banks. These issues arise largely 
because of unique structural factors affecting money services 
businesses. First, most money services businesses operate through the 
medium of independent enterprises that agree to serve as agents for the 
businesses' products or services; thus the public often does not deal 
directly with the businesses that issue or back the instruments, or 
actually perform the services, purchased. Second, and as a corollary, 
money services businesses permit performance of a specific function--
the conversion of money into a money order or traveler's check, or the 
sending of money to a distant location--but generally, at present, 
neither offer nor are capable of maintaining continuing account 
relationships to the same extent as banks. Third, money services 
businesses are not subject generally to federal regulation and are 
regulated, in differing degrees, by some, but not all, states. Finally, 
and perhaps most important, the rules of the Bank Secrecy Act have not 
previously been tailored to reflect the particular operating realities, 
problems, and potential for abuse of money services businesses. For all 
of these reasons, the assumptions that underlay design of a suspicious 
transaction reporting system for banks do not apply with equal force to 
the money services businesses with which this final rule deals.
    There can be little doubt that a properly framed suspicious 
transaction reporting system will produce, as the Bank Secrecy Act 
requires, reports that possess a ``high degree of usefulness in 
criminal, tax, or regulatory investigations or proceedings.'' But 
Treasury recognizes that the compliance difficulties, and in some cases 
criminality, encountered in dealing with certain businesses in New York 
and elsewhere \21\ cannot uncritically be taken as indicative of 
conditions throughout the industry. Balancing the costs and benefits of 
suspicious transaction reporting requires a realistic assessment of the 
condition of the industry as a whole and the risks of abuse of the 
products and services offered by the industry. The significant upward 
revision in the reporting thresholds contained in this rule, as well as 
other changes made to this rule and the rule relating to the definition 
and registration of MSBs published in August 1999 (discussed above) in 
response to comments on the MSB Rulemakings reflect the Department of 
the Treasury's judgment as to an appropriate balance.
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    \21\ See n. 20, supra.
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    The balance of the usefulness of reported information against the 
appropriate privacy interests of customers of money services businesses 
raises a second set of important concerns. The Treasury is keenly aware 
of the need to balance legitimate privacy concerns against the 
government's responsibility to combat aggressively the laundering of 
the proceeds of serious criminal activity. Several facts are noteworthy 
in this regard. First, both the statute authorizing the suspicious 
transaction reporting rule, and the rule itself (like its counterpart 
for banks), make clear that reported information is to be held and used 
by law enforcement and regulatory officials solely for permitted 
investigative and supervisory purposes and may not be shared with any 
person for any other reason. The levels of security and protection 
given to reported information and the secure computer systems in which 
it is held should serve to reassure the public. It is also relevant 
that the transaction reporting levels of $2,000 and $5,000 (up from a 
uniform $500 in the Notice) should exclude a substantial (if not 
overwhelming) majority of legitimate money services business 
transactions from the scope of suspicious transaction reporting 
altogether.
2. Dollar Threshold for Reporting
    FinCEN received several comments concerning the establishment of 
the proper dollar threshold for reporting suspicious transactions. 
While at least one commenter suggested that FinCEN not establish any 
dollar threshold (assumedly to convey the message to the regulated 
industry that a transaction should be reported if it is at all 
indicative of a violation of law, regardless of the dollar amount 
involved), the majority of the commenters on this subject argued that 
the proposed $500 threshold was too low and urged that it be raised 
substantially. Several commenters argued that setting the threshold for 
reporting suspicious transactions at $500 would unduly burden the 
industry given the volume of perfectly legal transactions conducted at 
or near this dollar amount and would necessarily--given the volume of 
transactions involved--produce over-reporting. For example, some 
commenters pointed out that many people, particularly those in large 
metropolitan areas, frequently purchase money orders, well in excess of 
$500 on the same day, so that they can pay their monthly rent and 
utility bills.
    In response to these comments, the final rule generally increases 
the dollar threshold for reporting suspicious transactions to $2,000. 
The increase in the reporting threshold to an amount four times the 
amount originally proposed should help alleviate the concern that the 
proposed $500 threshold would cause far too many legitimate 
transactions to be reported. The $2,000 threshold is set below the 
existing $3,000 identification and

[[Page 13688]]

recordkeeping requirements with respect to the purchase of money orders 
and traveler's checks, as well as the existing $3,000 recordkeeping 
requirement with respect to funds transfers conducted through money 
transmitters;\22\ consequently, the $2,000 threshold brings within the 
scope of the reporting obligation those transactions that may appear to 
be structured to evade these other Bank Secrecy Act requirements.
---------------------------------------------------------------------------

    \22\ See 31 CFR 103.29 (requiring that financial institutions 
keep records and verify the identity of purchasers with respect to 
the cash sale of bank checks or drafts, cashiers checks, money 
orders, and traveler's checks in amounts between $3,000 and $10,000 
inclusive); and 31 CFR 103.33(e) and (f) (requiring financial 
institutions to maintain records with respect to funds transfers in 
excess of $3,000).
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    Other commenters suggested that FinCEN establish a higher threshold 
for reporting suspicious transactions cleared or processed by issuers 
of traveler's checks or money orders. According to these commenters, 
the work, for example, of sorting and identifying sequential purchases 
is extensive and tedious, and compliance staffs would be faced with a 
burdensome obligation to comb records for small scale activity of this 
nature.
    In response to these comments, the final rule establishes a $5,000 
reporting threshold for issuers of money orders or traveler's checks to 
the extent that the identification of transactions required to be 
reported is derived from a review of clearance records or other similar 
records of money orders or traveler's checks that have been previously 
sold or processed. Thus, for example, an issuer of money orders would 
be subject to a $5,000 reporting threshold with respect to transactions 
required to be reported that are identified at the clearance or 
processing stage. The $5,000 threshold is the same that applies to the 
nation's banks.
    The final rule does not include a similar threshold increase for 
money transmissions. There are several reasons. First, money 
transmissions flow directly from selling agent to the offeror of the 
transmission service, and information about the transaction reaches the 
offeror before the transmission is completed; by way of contrast, 
patterns in which a particular money order or traveler's check may be 
involved will often not become apparent until after negotiation is 
completed (on the basis, for example, of negotiation information or 
clearance symbols). Second, law enforcement experience with certain 
segments of the money transmission industry indicates a potential for 
serious abuse at levels below $3,000 per transaction (in which, 
unfortunately, certain (relatively) smaller transmitters have been 
directly involved); given the relationship between transmitters and 
their agents, and the nature of the product involved, the $2,000 
threshold is justified, and appropriate, at this time, for the money 
transmitter's central facilities, as well as its agents. (Of course, 
the lower threshold does not alter the fact that no reporting is 
required until the particular money services business in question 
``knows, suspects, or has reason to suspect'' that the conditions for 
reporting are satisfied.)
3. Examples of Reportable Activity
    The text of the Notice contained specific illustrations of the 
types of transactions that might require special attention and inquiry 
under the suspicious activity reporting obligations proposed by that 
document. FinCEN received a number of comments with respect to 
inclusion of examples of reportable activity in the final rule. Some 
commenters asked that FinCEN provide more specific examples and 
guidance in order to help money services businesses identify those 
transactions of interest to Treasury and avoid liability for failure to 
file a report in situations in which it is unclear whether a report is 
warranted. Other commenters argued that the inclusion of examples in 
the text of the rule itself could be misconstrued by the industry and 
misapplied by auditors and examiners. To balance the competing 
interests expressed by the comments--the need for guidance on the one 
hand and the need to avoid a rigid, automatic approach on the other--
the examples do not appear in the text of the final rule, but FinCEN is 
working with interested parties, separately from the rulemaking itself, 
to prepare written guidance about particular patterns of suspicious 
activity of which money services businesses should be aware. As 
mentioned above, that guidance will be published in the near future.
4. Allocation of Liability for Non-reporting
    A money services instrument (a money order or traveler's check) or 
service (a money transmission) is often offered to the public by a 
person other than the issuer of the instrument or the person providing 
the financial service. (The instrument or service may also be offered 
at branches of the issuer or service provider.) A recurrent theme 
raised by the comments is the allocation of liability between (or 
among) the two or more businesses generally involved in completing a 
money services business transaction.
    Generally both the instrument issuer or service provider and the 
person offering the instrument or service for sale on behalf of such 
issuer or service provider will be treated as financial institutions 
for purposes of the Bank Secrecy Act. It has long been clear that an 
agent of a financial institution is itself a financial institution for 
purposes of the Bank Secrecy Act, see 31 CFR 103.11(n).
    Two principles govern the allocation of liability for failure to 
satisfy the suspicious transaction reporting obligation created by the 
final rule with respect to a particular transaction or pattern of 
transactions. The first principle is that each money services business 
involved is responsible for filing a report with respect to a 
transaction based on the information reasonably available to it about 
the transactions it conducts and the customers with whom it deals. In 
the case of persons dealing directly with the public at the point of 
sale, that information may be different than that available to central 
issuer or processing facilities. At the same time, the relevant 
information, especially on the part of the issuer or processor, 
involves not only particular transactions but patterns (including 
overall volume) of transactions at particular points of sale.
    The second principle is that the liability of an issuer or service 
provider for acts of persons at the point of sale of its financial 
products is based upon general legal principles governing allocation of 
liability as between principal and agent. As indicated in the final 
rule published in the Federal Register on August 20, 1999, relating to 
the definition and registration of money services businesses, FinCEN 
believes that the relationship between issuers or service providers and 
persons at the point of sale for particular products is governed by the 
law of agency, and that in most (if not all) cases the businesses at 
which these products or services are sold to the public are non-servant 
agents of the issuers or service providers involved. Congress' use of 
the term ``agent'' in 31 U.S.C. 5330, indicates a similar understanding 
on its part.\23\ (Of

[[Page 13689]]

course, in cases in which the products or services are offered at 
branches of the issuers or providers, the individuals involved are 
likely servants, rather than non-servant agents, of the issuers or 
providers.) This understanding, which is embodied in revised paragraph 
(a)(4) of the final rule, is based on the present state of the law of 
agency as well as FinCEN's determination that Congress believed that 
agency principles were the proper starting point for analysis of legal 
relationships in this area. See 31 U.S.C. 5318(g) (including ``agents'' 
of financial institutions as persons required to report suspicious 
transactions); cf. 31 U.S.C. 5330.
---------------------------------------------------------------------------

    \23\ Section 5330 contains two provisions directed explicitly at 
``agents'' of money services businesses. First, a money services 
business must maintain a list containing the names and addresses of 
its agents and such other information about the agents as the 
Secretary may require, and the list must be made available upon 
request to any appropriate law enforcement agency. See 31 U.S.C. 
5330(c)(1). Second, the Secretary is to establish by regulation, on 
the basis of such criteria as the Secretary deems appropriate, a 
threshold point for treating an agent of a money services business 
as itself a money services business for purposes of section 5330. 
See 31 U.S.C. 5330(c)(2).
---------------------------------------------------------------------------

5. Exemption From Obligation To File Suspicious Transaction Reports
    At least one commenter suggested that the suspicious transaction 
reporting requirement contained in the final rule should not apply to 
money services businesses that are affiliates or subsidiaries of banks 
or bank holding companies because such businesses are already subject 
to the suspicious transaction reporting requirements imposed by the 
Federal Reserve Board on banks and their non-bank affiliates or 
subsidiaries.\24\ See 12 CFR 208.62 and 12 CFR 225.4(f).
---------------------------------------------------------------------------

    \24\ FinCEN also received comments requesting that the 
requirement to report suspicious transactions not apply to clearing 
houses with respect to funds transfers and futures commodities 
merchants. Those businesses have, for the most part, been carved out 
from the definition of a money services business, see 31 CFR 
103.11(uu) and 64 FR 45438 at 45451, and are therefore not generally 
subject to the reporting requirement described in the final rule 
contained in this document.
---------------------------------------------------------------------------

    FinCEN believes that to the extent that non-bank affiliates or 
subsidiaries of banks or bank holding companies offer the same kinds of 
services offered by reporting money services businesses, those non-bank 
affiliates or subsidiaries should be subject to the same suspicious 
transaction reporting requirement as other money services businesses. 
Not applying the suspicious transaction reporting regime contained in 
the final rule to those non-bank affiliates or subsidiaries of banks 
would ignore the significant differences between banks and money 
services businesses. See supra, discussion at Part V.B.1.\25\ The 
reporting threshold applicable to ``back-office'' functions of issuers 
of traveler's checks and money orders has been increased from $500 to 
$5,000, the same reporting threshold as that for depository 
institutions.
---------------------------------------------------------------------------

    \25\ See also 64 FR 45446 (May 21, 1997), which explains that 
entities in an affiliated group must be analyzed separately to 
determine whether each such entity separately falls within the 
definition of money services business based upon that entity's 
operation.
---------------------------------------------------------------------------

VI. Section-by-Section Analysis

A. 103.11(ii)--Transaction

    The final rule amends the definition of ``transaction'' in the Bank 
Secrecy Act regulations, 31 CFR 103.11(ii), explicitly to include the 
purchase of any money order and the payment or order for any money 
remittance or transfer. No similar amendment is necessary in the case 
of traveler's checks, which are already defined clearly as monetary 
instruments in that definition.

B. 103.15--Determination by the Secretary

    As stated in the Notice, Sec. 103.20 is redesignated as Sec. 103.15 
in order to make room in part 103 for the rule and to create space for 
future changes to the Bank Secrecy Act regulations.

C. 103.18--Reports by Banks of Suspicious Transactions

    As stated in the Notice, Sec. 103.21 is redesignated as Sec. 103.18 
to make room in subpart B, ``Reports Required to be Made,'' for the 
suspicious transaction reporting requirement in this final rule.

D. 103.20(a)--General

1. Reporting Money Services Businesses
    Paragraph 103.20(a)(1) obligates issuers of traveler's checks or 
money orders, sellers or redeemers (for monetary value) of traveler's 
checks or money orders, money transmitters, and the U.S. Postal Service 
to report suspicious transactions as required by Sec. 103.20. The 
paragraph also permits, but does not require, the voluntary filing of a 
report by a money services business, in situations in which mandatory 
reporting is not required.\26\
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    \26\ Check cashers and currency exchangers are not generally 
subject to the suspicious transaction reporting requirement 
contained in this document. Because the operations of those 
businesses generally involve disbursement rather than receipt of 
funds, the appropriate definition of suspicious activity involves 
issues not present to the same degree in the case of money 
transmitters and money order and traveler's check services. However, 
check cashing and currency exchange services are subject to the 
suspicious activity rules to the extent they redeem either money 
orders or traveler's checks for currency (U.S. or other) or other 
monetary or negotiable instruments and hence qualify as redeemers of 
money orders or traveler's checks, or to the extent that check 
cashers or currency exchangers also offer money transmission, money 
orders, or traveler's check products. FinCEN will continue to 
examine issues relating to the appropriate extension of suspicious 
transaction reporting to the full range of financial institutions 
subject to the Bank Secrecy Act.
---------------------------------------------------------------------------

2. Standard for Mandatory Reporting
    The final rule continues to designate three classes of transactions 
as requiring reporting. The first class, described in paragraph 
(a)(2)(i), includes transactions involving funds derived from illegal 
activity or intended or conducted in order to hide or disguise funds or 
assets derived from illegal activity. The second class, described in 
paragraph (a)(2)(ii), involves transactions designed, whether through 
structuring or other means, to evade the requirements of the Bank 
Secrecy Act. The third class, described in paragraph (a)(2)(iii), 
involves transactions that appear to serve no business or apparent 
lawful purpose, and for which the money services business knows of no 
reasonable explanation after examining the available facts relating 
thereto.
    Specific examples of reportable suspicious activity have been 
removed from the text of the rule. However it remains important that 
each money services business--whether it issues an instrument or 
performs a transmission function as principal, or whether it is an 
agent selling an instrument or service on behalf of another--be able to 
recognize the sorts of transactions that may require additional 
scrutiny and at the same time understand that not all such transactions 
are reportable if a reasonable explanation for the circumstances of a 
particular transaction arises upon such examination. It is a signal 
characteristic of money launderers that they seek to do for 
illegitimate purposes what others do for legitimate purposes.
    Of course, determinations as to whether a report is required must 
be based on all the facts and circumstances relating to the 
transactions or pattern of transactions in question. Different fact 
patterns will require different types of judgments. In some cases, the 
circumstances of the transaction or pattern of transactions may clearly 
indicate the need to report. For example, an individual's seeking 
regularly to purchase or redeem instruments in bulk, or to purchase 
transmissions to multiple overseas locations, all to the same named 
beneficiary should, in the absence of specific qualifying 
circumstances, place the money services business on notice that a 
suspicious transaction is underway. Similarly, the fact that a customer 
(i) refuses to provide information necessary for the money services 
business to make reports or keep records required by 31 CFR 103 or 
other regulations, (ii) provides information that a money services 
business determines to be false, or (iii) seeks to change or cancel the 
transaction after such person is informed of currency transaction 
reporting or information verification or

[[Page 13690]]

recordkeeping requirements relevant to the transaction or of the money 
services business' intent to file a currency transaction report with 
respect to the transaction, would all indicate that a suspicious 
activity report should be filed. (Of course, as the rule makes clear, 
it is unlawful for the money services business to notify the customer 
that it intends to file or has filed a suspicious transaction report 
with respect to the customer's activity.)
    At least one commenter questioned whether a customer's suspected 
status as an undocumented foreign national in the United States would, 
by itself, require the filing of a suspicious activity report. 
Paragraph (a)(2)(i) of the rule requires a suspicious activity report 
to be filed where the reporting money services business suspects or has 
reason to suspect that the customer's funds are ``derived from illegal 
activity.'' In light of this language, the commenter requested that 
FinCEN clarify whether the funds with which a suspected undocumented 
foreign national conducts a transaction should be deemed as having been 
derived from illegal activity (i.e., illegal employment in the United 
States).
    If a reporting money services business suspects that one of its 
customers is an undocumented foreign national, it would be 
inappropriate to infer, without any additional facts, that any funds 
possessed by that customer necessarily derive from illegal employment 
in the United States. For example, the customer may have obtained the 
funds as a gift. Moreover, even if the money services business knows or 
suspects that the customer's funds were generated from the customer's 
employment, employment in the United States as an undocumented foreign 
national is not necessarily a violation of law.
    For these reasons, FinCEN believes that a money services business 
would not have an obligation to file a suspicious activity report 
simply because a customer is an undocumented foreign national. This 
conclusion is consistent with the discussions FinCEN's Office of Chief 
Counsel has had regarding this matter with its counterpart at the 
Immigration and Naturalization Service of the U.S. Department of 
Justice.
3. Dollar Threshold for Reporting
    Paragraphs 103.20(a)(2) and (3) establish the applicable dollar 
thresholds for reporting suspicious transactions. In the Notice, FinCEN 
proposed a single $500 dollar threshold for reporting suspicious 
transactions. The final rule adopts two different dollar thresholds, 
both markedly higher than the proposed $500 threshold.
    The first threshold, of $2,000, as set forth in paragraph 
103.20(a)(2), would apply generally to each transaction (other than one 
described in paragraph 103.20(a)(3)) conducted or attempted by, at, or 
through a money services business or its agent. The second threshold, 
of $5,000, would apply to transactions identified by issuers of money 
orders or traveler's checks from a review of clearance records or other 
similar records of money orders or traveler's checks that have been 
sold or processed.
4. Obligation to Report Suspicious Transactions
    31 U.S.C. 5318(g)(1) authorizes Treasury to require suspicious 
transaction reporting not only by financial institutions but by ``any 
director, officer, employee, or agent of any financial institution.'' 
The authorization parallels the definition of financial institution 
itself in 31 U.S.C. 5312(a)(2) and (b), and 31 CFR 103.11(n). The 
operating realities of money services businesses place special 
importance on the relationships between the operators of the money 
services businesses involved and the otherwise unrelated businesses 
that, in many cases, serve as agents of the former to sell the 
financial products involved, in the case of money orders or traveler's 
checks, or that serve, in the case of money remissions, as receivers of 
the funds to be transmitted. One of those operating realities is that 
the information of a money services business that deals directly with a 
customer may differ from that information directly available to an 
issuer or service provider.
    Paragraph (a)(4) places responsibility for reporting a suspicious 
transaction on each money services business involved in the 
transaction. As noted above, it is important to recognize that an agent 
of a money services business is itself a money services business for 
this purpose (whether or not it is required to register). Thus, an 
agent of a money transmitter may (indeed, usually will) itself be a 
money services business for purposes of the reporting rule (although 
not necessarily for purposes of the registration rule).
    At least one commenter asked that FinCEN clarify that multiple 
suspicious transaction reports need not be filed by both a money 
services business and its agent with respect to the same reportable 
transaction. It should be noted that, with respect to reportable 
transactions conducted by the agent of a money services business, the 
final rule continues to place a dual obligation to file a suspicious 
transaction report on both a money services business and its agent as 
contemplated by 31 U.S.C. 5318(g)(1). However, only one report should 
be filed with FinCEN to avoid double-reporting on the same transaction. 
This notion is expressed by new language added to paragraph (a)(4) 
emphasizing that the dual obligation imposed does not mandate dual 
filing of reports with respect to the same transaction or pattern of 
transactions (although the filing of multiple reports may be necessary 
if different facts are contained in the two reports).
5. Exclusion of Stored Value
    As noted in the preamble to the final rule on registration of money 
services businesses, Treasury believes that a business that issues or 
facilitates the digital transfer of electronically-stored value \27\ is 
a money services business covered by the Bank Secrecy Act.\28\ However, 
it is not appropriate, given the infancy of the use of stored value 
products in the United States, to finalize a rule specifically dealing 
with suspicious transaction reporting by non-banks with respect to 
stored value products at this time. Thus, paragraph (a)(5) continues to 
exempt transactions solely involving such products from the operation 
of the rule at present. Many commenters expressed their agreement with 
this approach.
---------------------------------------------------------------------------

    \27\ See 31 CFR 103.11(vv), which defines stored value.
    \28\ It should be clearly understood that the treatment of 
stored value and similar products for purposes of the operation of 
31 U.S.C. 5330 and the final rule relating to the registration of 
money services businesses is solely a matter of federal law and 
cannot be taken as the expression of any view by the Department of 
the Treasury on the issue whether particular money services 
businesses are (or, indeed, should be) within the scope of state 
laws requiring the registration of money transmitters, check 
cashers, currency exchange businesses, or issuers, sellers, or 
redeemers of money orders or traveler's checks.
---------------------------------------------------------------------------

E. 103.20(b)--Filing Procedures

    Paragraph (b) continues to set forth the filing procedures to be 
followed by money services businesses making reports of suspicious 
transactions. Within 30 days after a money services business becomes 
aware of a suspicious transaction, the business must report the 
transaction by completing a Suspicious Activity Report-MSB \29\ (``SAR-
MSB'') and filing it in a central location, to be determined by FinCEN. 
The SAR-MSB will resemble the suspicious activity reporting form now 
used by banks to report suspicious transactions; a draft

[[Page 13691]]

form will be made available for comment when ready.
---------------------------------------------------------------------------

    \29\ The term ``MSB'' is an abbreviation for ``money services 
businesses'' and is used to distinguish the form from forms for 
reporting by other non-bank financial institutions.
---------------------------------------------------------------------------

    Supporting documentation relating to each SAR-MSB is to be 
collected and maintained separately by the money services business and 
made available to law enforcement and regulatory agencies upon request. 
Special provision is made for situations requiring immediate attention, 
in which case money services businesses are to telephone the 
appropriate law enforcement authority in addition to filing a SAR-MSB.
    Reports filed under the terms of the rule will be lodged in a 
central data base (on the model of the data base used to process, 
analyze, and retrieve bank suspicious activity reports). Information 
will be made available electronically to federal and state law 
enforcement and regulatory agencies, to enhance the ability of those 
agencies to carry out their mandates to fight financial crime.

F. 103.20(c)--Retention of Records

    Paragraph (c) continues to provide that money services businesses 
must maintain copies of the SAR-MSBs they file and the original related 
documentation (or business record equivalent) for a period of five 
years from the date of filing. As indicated above, supporting 
documentation is to be made available to FinCEN and appropriate law 
enforcement authorities on request.

G. 103.20(d)--Confidentiality of Reports; Limitation of Liability

    Paragraph 103.20(d) continues to incorporate the terms of 31 U.S.C. 
5318(g)(2) and (g)(3). Thus, this paragraph specifically prohibits 
persons filing reports in compliance with the final rule from 
disclosing, except to law enforcement and regulatory agencies, that a 
report has been filed or providing any information that would disclose 
that a report has been prepared or filed. The paragraph also restates 
the broad protection from liability for making reports of suspicious 
transactions (whether such reports are required by the final rule or 
made voluntarily), and for failure to disclose the fact of such 
reporting, contained in the statute. The regulatory provisions do not 
extend the scope of either the statutory prohibition or the statutory 
protection; however, because Treasury recognizes the importance of 
these statutory provisions to the overall effort to encourage 
meaningful reports of suspicious transactions and to protect the 
legitimate privacy expectations of those who may be named in such 
reports, they are repeated in the rule to remind compliance officers 
and others of their existence. FinCEN received no substantive comments 
concerning this paragraph.

H. 103.20(e)--Compliance

    Paragraph (e) continues to note that compliance with the obligation 
to report suspicious transactions will be audited, and provides that 
failure to comply with the rule may constitute a violation of the Bank 
Secrecy Act and the Bank Secrecy Act regulations, which may subject 
non-complying money services businesses to enforcement action under the 
Bank Secrecy Act.

I. 103.20(f)--Effective Date

    At least one commenter asked that FinCEN postpone the effective 
date to allow the industry the necessary time to develop and implement 
adequate compliance programs. In response, the final rule provides that 
the new suspicious activity reporting rules are effective for 
transactions occurring after December 31, 2001.

VII. Executive Order 12866

    The Department of the Treasury has determined that this rulemaking 
is not a significant regulatory action under Executive Order 12866.

VIII. Unfunded Mandates Act of 1995 Statement

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (Unfunded Mandates Act), 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. If a budgetary impact 
statement is required, section 202 of the Unfunded Mandates Act also 
requires an agency to identify and consider a reasonable number of 
regulatory alternatives before promulgating a rule. FinCEN has 
determined that it is not required to prepare a written statement under 
section 202 and has concluded that on balance this rule provides the 
most cost-effective and least burdensome alternative to achieve the 
objectives of the rule.

IX. Regulatory Flexibility Act

    FinCEN certifies that this regulation will not have a significant 
economic impact on a substantial number of small entities. The average 
money order sold is approximately $102, and the average money 
transmission is approximately $240 within the United States and 
approximately $320 outside the United States. Both of these amounts are 
substantially below the general $2,000 threshold that triggers 
reporting under the rule. Thus, FinCEN believes that the threshold has 
been set at a level that will avoid a significant economic burden on 
small entities.

X. Paperwork Reduction Act Notices

    The collection of information contained in this final regulation 
has been reviewed and approved by the Office of Management and Budget 
(``OMB'') in accordance with the requirements of the Paperwork 
Reduction Act (44 U.S.C. 3507(d)) under control number 1506-0015. An 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a valid 
control number assigned by OMB.
    The collection of information in this final rule is in 31 CFR 
103.20(c). This information is required to be provided pursuant to 31 
U.S.C. 5318(g) and 31 CFR 103.20. This information will be used by law 
enforcement agencies in the enforcement of criminal and regulatory laws 
and to prevent money services businesses from engaging in illegal 
activities. The collection of information is mandatory. The likely 
recordkeepers are businesses.
    The estimated average recordkeeping burden associated with the 
collection of information in this final rule is 20 minutes per 
recordkeeper (based on the filing an estimated 10,000 forms with an 
average recordkeeping burden of 20 minutes with respect to each form).
    Comments concerning the accuracy of this burden estimate and 
suggestions for reducing this burden should be directed to the 
Financial Crimes Enforcement Network, Department of the Treasury, 2070 
Chain Bridge Road, Suite 200, Vienna, VA 22182, and to OMB, Attention: 
Desk Officer for the Department of Treasury, FinCEN, Office of 
Information and Regulatory Affairs, Washington, DC 20503.

List of Subjects in 31 CFR Part 103

    Authority delegations (Government agencies), Banks and banking, 
Currency, Investigations, Law enforcement, Reporting and recordkeeping 
requirements.

Amendments to the Regulations

    For the reasons set forth above in the preamble, 31 CFR part 103 is 
amended as follows:

[[Page 13692]]

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. Section 103.11(ii)(1) is revised to read as follows:


Sec. 103.11  Meaning of terms.

* * * * *
    (ii) Transaction. (1) Except as provided in paragraph (ii)(2) of 
this section, transaction means a purchase, sale, loan, pledge, gift, 
transfer, delivery, or other disposition, and with respect to a 
financial institution includes 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, purchase or redemption of any money 
order, payment or order for any money remittance or transfer, or any 
other payment, transfer, or delivery by, through, or to a financial 
institution, by whatever means effected.
* * * * *

    3. In Subpart B, redesignate Secs. 103.20 and 103.21 as 
Secs. 103.15 and 103.18, respectively, and add new Sec. 103.20 to read 
as follows:


Sec. 103.20  Reports by money services businesses of suspicious 
transactions.

    (a) General. (1) Every money services business, described in 
Sec. 103.11(uu) (3), (4), (5), or (6), shall file with the Treasury 
Department, to the extent and in the manner required by this section, a 
report of any suspicious transaction relevant to a possible violation 
of law or regulation. Any money services business may also file with 
the Treasury Department, by using the form specified in paragraph 
(b)(1) of this section, or otherwise, a report of any suspicious 
transaction that it believes is relevant to the possible violation of 
any law or regulation but whose reporting is not required by this 
section.
    (2) A transaction requires reporting under the terms of this 
section if it is conducted or attempted by, at, or through a money 
services business, involves or aggregates funds or other assets of at 
least $2,000 (except as provided in paragraph (a)(3) of this section), 
and the money services business knows, suspects, or has reason to 
suspect that the transaction (or a pattern of transactions of which the 
transaction is a part):
    (i) Involves funds derived from illegal activity or is intended or 
conducted in order to hide or disguise funds or assets derived from 
illegal activity (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 federal law or regulation or to avoid any 
transaction reporting requirement under federal law or regulation;
    (ii) Is designed, whether through structuring or other means, to 
evade any requirements of this part or of any other regulations 
promulgated under the Bank Secrecy Act, Public Law 91-508, as amended, 
codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-
5330; or
    (iii) Serves no business or apparent lawful purpose, and the 
reporting money services business knows of no reasonable explanation 
for the transaction after examining the available facts, including the 
background and possible purpose of the transaction.
    (3) To the extent that the identification of transactions required 
to be reported is derived from a review of clearance records or other 
similar records of money orders or traveler's checks that have been 
sold or processed, an issuer of money orders or traveler's checks shall 
only be required to report a transaction or pattern of transactions 
that involves or aggregates funds or other assets of at least $5,000.
    (4) The obligation to identify and properly and timely to report a 
suspicious transaction rests with each money services business involved 
in the transaction, provided that no more than one report is required 
to be filed by the money services businesses involved in a particular 
transaction (so long as the report filed contains all relevant facts). 
Whether, in addition to any liability on its own for failure to report, 
a money services business that issues the instrument or provides the 
funds transfer service involved in the transaction may be liable for 
the failure of another money services business involved in the 
transaction to report that transaction depends upon the nature of the 
contractual or other relationship between the businesses, and the legal 
effect of the facts and circumstances of the relationship and 
transaction involved, under general principles of the law of agency.
    (5) Notwithstanding the provisions of this section, a transaction 
that involves solely the issuance, or facilitation of the transfer of 
stored value, or the issuance, sale, or redemption of stored value, 
shall not be subject to reporting under this paragraph (a), until the 
promulgation of rules specifically relating to such reporting.
    (b) Filing procedures--(1) What to file. A suspicious transaction 
shall be reported by completing a Suspicious Activity Report-MSB 
(``SAR-MSB''), and collecting and maintaining supporting documentation 
as required by paragraph (c) of this section.
    (2) Where to file. The SAR-MSB shall be filed in a central location 
to be determined by FinCEN, as indicated in the instructions to the 
SAR-MSB.
    (3) When to file. A money services business subject to this section 
is required to file each SAR-MSB no later than 30 calendar days after 
the date of the initial detection by the money services business of 
facts that may constitute a basis for filing a SAR-MSB under this 
section. In situations involving violations that require immediate 
attention, such as ongoing money laundering schemes, the money services 
business shall immediately notify by telephone an appropriate law 
enforcement authority in addition to filing a SAR-MSB.
    (c) Retention of records. A money services business shall maintain 
a copy of any SAR-MSB filed and the original or business record 
equivalent of any supporting documentation for a period of five years 
from the date of filing the SAR-MSB. Supporting documentation shall be 
identified as such and maintained by the money services business, and 
shall be deemed to have been filed with the SAR-MSB. A money services 
business shall make all supporting documentation available to FinCEN 
and any other appropriate law enforcement agencies or supervisory 
agencies upon request.
    (d) Confidentiality of reports; limitation of liability. No 
financial institution, and no director, officer, employee, or agent of 
any financial institution, who reports a suspicious transaction under 
this part, may notify any person involved in the transaction that the 
transaction has been reported. Thus, any person subpoenaed or otherwise 
requested to disclose a SAR-MSB or the information contained in a SAR-
MSB, except where such disclosure is requested by FinCEN or an 
appropriate law enforcement or supervisory agency, shall decline to 
produce the SAR-MSB or to provide any information that would disclose 
that a SAR-MSB has been prepared or filed, citing this paragraph (d) 
and 31 U.S.C. 5318(g)(2), and shall notify FinCEN of any such request 
and its response thereto. A reporting money services business, and any 
director, officer, employee, or agent of such reporting money services 
business, that

[[Page 13693]]

makes a report pursuant to this section (whether such report is 
required by this section or made voluntarily) shall be protected from 
liability for any disclosure contained in, or for failure to disclose 
the fact of, such report, or both, to the extent provided by 31 U.S.C. 
5318(g)(3).
    (e) Compliance. Compliance with this section shall be audited by 
the Department of the Treasury, through FinCEN or its delegees under 
the terms of the Bank Secrecy Act. Failure to satisfy the requirements 
of this section may constitute a violation of the reporting rules of 
the Bank Secrecy Act and of this part.
    (f) Effective date. This section applies to transactions occurring 
after December 31, 2001.

    Dated: March 7, 2000.
James F. Sloan,
Director, Financial Crimes Enforcement Network.
[FR Doc. 00-5919 Filed 3-8-00; 3:25 pm]
BILLING CODE 4820-03-P