[Federal Register Volume 67, Number 141 (Tuesday, July 23, 2002)]
[Proposed Rules]
[Pages 48290-48299]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-18191]
[[Page 48289]]
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Part III
Department of the Treasury
31 CFR Part 103
Office of the Comptroller of the Currency
12 CFR Part 21
Office of Thrift Supervision
12 CFR Part 563
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Federal Reserve System
12 CFR Parts 208 and 211
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Federal Deposit Insurance Corporation
12 CFR Part 326
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National Credit Union Administration
12 CFR Part 748
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Commodity Futures Trading Commission
17 CFR Part 1
Securities and Exchange Commission
17 CFR Part 240
Transactions and Customer Identification Programs; Proposed Rules
Federal Register / Vol. 67, No. 141 / Tuesday, July 23, 2002 /
Proposed Rules
[[Page 48290]]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 21
[Docket No. 02-11]
FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 211
[Docket No. R-1127]
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 326
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 563
[No. 2002-27]
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 748
DEPARTMENT OF THE TREASURY
31 CFR Part 103
RIN 1506-AA31
Customer Identification Programs for Banks, Savings Associations,
and Credit Unions
AGENCIES: The Financial Crimes Enforcement Network, Treasury; Office of
the Comptroller of the Currency, Treasury; Board of Governors of the
Federal Reserve System; Federal Deposit Insurance Corporation; Office
of Thrift Supervision, Treasury; National Credit Union Administration.
ACTION: Joint notice of proposed rulemaking.
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SUMMARY: The Department of the Treasury, through the Financial Crimes
Enforcement Network (FinCEN), together with the Office of the
Comptroller of the Currency (OCC), the Board of Governors of the
Federal Reserve System (Board), the Federal Deposit Insurance
Corporation (FDIC), the Office of Thrift Supervision (OTS), and the
National Credit Union Administration (NCUA) (collectively, the
Agencies) are jointly issuing a proposed regulation to implement
section 326 of the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism (USA
PATRIOT) Act of 2001 (the Act). Section 326 requires the Secretary of
the Treasury (Secretary) to jointly prescribe with each of the
Agencies, the Securities and Exchange Commission (SEC), and the
Commodity Futures Trading Commission (CFTC), a regulation that, at a
minimum, requires financial institutions to implement reasonable
procedures to verify the identity of any person seeking to open an
account, to the extent reasonable and practicable; maintain records of
the information used to verify the person's identity; and determine
whether the person appears on any lists of known or suspected
terrorists or terrorist organizations provided to the financial
institution by any government agency. The proposed regulation applies
to banks, savings associations, and credit unions.
DATES: Written comments on the proposed rule may be submitted on or
before September 6, 2002.
ADDRESSES: Because paper mail in the Washington area may be subject to
delay, commenters are encouraged to e-mail or fax comments. Comments
should be sent by one method only. Financial institution commenters are
encouraged to submit comments only to their Federal functional
regulator. Non-financial institution commenters are encouraged to
submit comments only to FinCEN. All comments will be considered by
Treasury and the Agencies in formulating the final rule.
OCC: Please direct your comments to: Office of the Comptroller of
the Currency, 250 E Street, SW., Public Information Room, Mailstop 1-5,
Washington, DC 20219, Attention; Docket No. 02-11; FAX number (202)
874-4448; or Internet address: [email protected]. Comments
may be inspected and photocopied at the OCC's Public Reference Room,
250 E Street, SW., Washington, DC. You can make an appointment to
inspect comments by calling (202) 874-5043.
Board: Comments should refer to Docket No. R-1127 and may be mailed
to Secretary, Board of Governors of the Federal Reserve System, 20th
Street and Constitution Avenue, NW., Washington, DC 20551; sent by FAX
to (202) 452-3819 or (202) 452-3102; or sent by e-mail to
[email protected]. Members of the public may inspect
comments in Room MP-500 between 9 a.m. and 5 p.m. on weekdays pursuant
to section 261.12 (except as provided in section 261.14) of the Board's
Rules Regarding Availability of Information, 12 CFR 261.12 and 261.14.
FDIC: Comments should be directed to: Executive Secretary,
Attention: Comments/OES, Federal Deposit Insurance Corporation, 550
17th Street, NW., Washington, DC 20429. Comments may be hand-delivered
to the guard station at the rear of the 550 17th Street Building
(located on F Street), on business days between 7 a.m. and 5 p.m. In
addition, comments may be sent by fax to (202) 898-3838, or by
electronic mail to [email protected]. Comments may be inspected and
photocopied in the FDIC Public Information Center, Room 100, 801 17th
Street, NW., Washington, DC, between 9 a.m. and 4:30 p.m., on business
days.
OTS: Comments may be mailed to Regulation Comments, Chief Counsel's
Office, Office of Thrift Supervision, 1700 G Street, NW., Washington,
DC 20552, Attention: No. 2002-27; FAX number (202) 906-6518, Attention:
No. 2002-27; or Internet address [email protected],
Attention: No. 2002-27 and include your name and telephone number.
Comments may also be hand delivered to the Guard's Desk, East Lobby
Entrance, 1700 G Street, NW., from 9 a.m. to 4 p.m. on business days,
Attention: Regulation Comments, Chief Counsel's Office, No. 2002-27.
OTS will post comments and the related index on the OTS Internet Site
at www.ots.treas.gov. In addition, you may inspect comments at the
Public Reading Room, 1700 G St. NW., by appointment. To make an
appointment for access, you may call (202) 906-5922, send an e-mail to
public.info@ots.treas.gov">public.info@ots.treas.gov, or send a facsimile transmission to (202)
906-7755. (Please identify the materials you would like to inspect to
assist us in serving you.) We schedule appointments on business days
between 10 a.m. and 4 p.m. In most cases, appointments will be
available the business day after the date we receive a request.
NCUA: Direct comments to the Secretary of the Board. Mail or hand-
deliver comments to: National Credit Union Administration, 1775 Duke
Street, Alexandria, Virginia 22314-3428. You may fax comments to (703)
518-6319, or e-mail comments to [email protected]. To inspect
comments, please contact the Office of General Counsel, (703) 518-6540;
or the Office of Examination and Insurance, (703) 518-6360.
FinCEN: Comments may be mailed to FinCEN, Section 326 Bank Rule
Comments, P.O. Box 39, Vienna, VA 22183, or sent to Internet address
[email protected] with the caption ``Attention: Section 326
Bank Rule Comments'' in the body of the text. Comments may be inspected
at FinCEN between 10 a.m. and 4 p.m. in the FinCEN Reading Room in
Washington,
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DC. Persons wishing to inspect the comments submitted must request an
appointment by telephoning (202) 354-6400 (not a toll-free number).
FOR FURTHER INFORMATION CONTACT:
OCC: Office of the Chief Counsel (202) 874-3295.
Board: Enforcement and Special Investigations Sections: (202) 452-
5235; (202) 728-5829; or (202) 452-2961.
FDIC: Special Activities Section, Division of Supervision, and
Legal Division at (202) 898-3671.
OTS: Office of the Chief Counsel, (202) 906-6012.
NCUA: Office of General Counsel, (703) 518-6540; or Office of
Examination and Insurance, (703) 518-6360.
Treasury: Office of the Chief Counsel (FinCEN), (703) 905-3590;
Office of the Assistant General Counsel for Enforcement (Treasury),
(202) 622-1927; or the Office of the Assistant General Counsel for
Banking & Finance (Treasury), (202) 622-0480.
SUPPLEMENTARY INFORMATION:
I. Background
A. Section 326 of the USA PATRIOT Act
On October 26, 2001, President Bush signed into law the USA PATRIOT
Act, Public Law 107-56. Title III of the Act, captioned ``International
Money Laundering Abatement and Anti-terrorist Financing Act of 2001,''
adds several new provisions to the Bank Secrecy Act (BSA), 31 U.S.C.
5311 et seq. These provisions are intended to facilitate the
prevention, detection, and prosecution of international money
laundering and the financing of terrorism.
Section 326 of the Act adds a new subsection (l) to 31 U.S.C. 5318
that requires the Secretary to prescribe regulations setting forth
minimum standards for financial institutions that relate to the
identification and verification of any person who applies to open an
account.
Section 326 applies to all ``financial institutions.'' This term is
defined very broadly in the BSA to encompass a variety of entities
including banks, agencies and branches of foreign banks in the United
States, thrifts, credit unions, brokers and dealers in securities or
commodities, insurance companies, travel agents, pawnbrokers, dealers
in precious metals, check-cashers, casinos, and telegraph companies,
among many others. See 31 U.S.C. 5312(a)(2).
For any financial institution engaged in financial activities
described in section 4(k) of the Bank Holding Company Act of 1956
(section 4(k) institutions), the Secretary is required to prescribe the
regulations issued under section 326 jointly with each of the Agencies,
the SEC, and the CFTC (the Federal functional regulators). Final
regulations implementing section 326 must be effective by October 25,
2002.
Section 326 of the Act provides that the regulations must contain
certain requirements. At a minimum, the regulations must require
financial institutions to implement reasonable procedures for (1)
verifying the identity of any person seeking to open an account, to the
extent reasonable and practicable; (2) maintaining records of the
information used to verify the person's identity, including name,
address, and other identifying information; and (3) determining whether
the person appears on any lists of known or suspected terrorists or
terrorist organizations provided to the financial institution by any
government agency.
In prescribing these regulations, the Secretary is directed to take
into consideration the various types of accounts maintained by various
types of financial institutions, the various methods of opening
accounts, and the various types of identifying information available.
The following proposal is being issued jointly by Treasury and the
Agencies. It applies only to a financial institution that is a ``bank''
as defined in 31 CFR 103.11(c) that is subject to regulation by one of
the Agencies,\1\ and any foreign branch of an insured bank. Regulations
governing the applicability of section 326 to other financial
institutions, including section 4(k) institutions regulated by the SEC
and the CFTC, will be issued separately.
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\1\ Published elsewhere in this separate part of this issue of
the Federal Register is a separate Treasury proposal implementing
section 326 for banks that are not subject to regulation by a
Federal functional regulator, including certain state-chartered
uninsured trust companies and non-federally insured credit unions.
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Treasury, the Agencies, the SEC, and the CFTC consulted extensively
in the development of all rules implementing section 326 of the Act.
All of the participating agencies intend the effect of the rules to be
uniform throughout the financial services industry.
The Secretary has determined that the records required to be kept
by section 326 of the Act have a high degree of usefulness in criminal,
tax, or regulatory investigations or proceedings, or in the conduct of
intelligence or counterintelligence activities, to protect against
international terrorism.
In addition, Treasury under its own authority is proposing
conforming amendments to 31 CFR 103.34, which currently imposes
requirements concerning the identification of bank customers.
B. Codification of the Joint Proposed Rule
The substantive requirements of the joint proposed rule will be
codified with other Bank Secrecy Act regulations as part of Treasury's
regulations in 31 CFR part 103. To minimize potential confusion by
affected entities regarding the scope of the joint proposed rule, each
of the Agencies is also proposing to add a nonsubstantive provision in
its own regulations in either 12 CFR part 21, 12 CFR parts 208 and 211,
12 CFR part 326, 12 CFR part 563, or 12 CFR part 748, that will cross-
reference the regulations in 31 CFR part 103. Although no specific text
is being proposed at this time, the cross-references will be included
in individual final rules published concurrently with the joint final
rule issued by Treasury and the Agencies implementing section 326 of
the Act.
II. Section-by-Section Analysis
A. Regulations Implementing Section 326
Definitions
Section 103.121(a)(1) Account. The proposed rule's definition of
``account'' is based on the statutory definition of ``account'' that is
used in section 311 of the Act. ``Account'' means each formal banking
or business relationship established to provide ongoing services,
dealings, or other financial transactions. For example, a deposit
account, transaction or asset account, and a credit account or other
extension of credit would each constitute an account.
Section 311 of the Act does not require that this definition be
used for regulations implementing section 326 of the Act. However, to
the extent possible, Treasury and the Agencies propose to apply
consistent definitions for each of the regulations implementing the Act
to reduce confusion. ``Deposit accounts'' and ``transaction accounts,''
which as previously noted, are considered ``accounts'' for purposes of
this rulemaking, are themselves defined terms. In addition, the term
``account'' is limited to banking and business relationships
established to provide ``ongoing'' services, dealings, or other
financial transactions to make clear that this term is not intended to
cover infrequent transactions such as the occasional purchase of a
money order or a wire transfer.
Section 103.121(a)(2) Bank. As discussed above, the proposal adopts
the definition of ``bank'' already used in 31 CFR 103.11(c), which
encompasses
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virtually all of the financial institutions regulated by the Agencies,
including banks, savings associations, and credit unions. Any branch,
agency, or representative office of a foreign bank in the United
States, as well as any Edge corporation, would be subject to this joint
regulation under the existing definition of ``bank.''\2\ However, the
definition is modified to include ``any foreign branch of an insured
bank'' to make clear that the procedures required by this regulation
must be implemented throughout the bank, no matter where its offices
are located. These procedures also apply to bank subsidiaries to the
same extent as existing BSA compliance program requirements. We note
that securities broker-dealers, futures commission merchants, insurance
companies, and investment companies will be subject to forthcoming
rules implementing section 326, whether or not they are affiliated with
a bank.
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\2\ Section 103.11(c) defines bank to include ``each agent,
agency, branch, or office within the United States of any person
doing business in one or more of the capacities listed below: * * *.
(8) a bank organized under foreign law; (9) any national banking
association or corporation acting under the provisions of section
[25a] of the [Federal Reserve Act] (12 U.S.C. 611-32).''
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Section 103.121(a)(3) Customer. The proposed rule defines
``customer'' to mean any person seeking to open a new account.
Accordingly, the term ``customer'' includes a person applying to open
an account, but would not cover a person seeking information about an
account, such as rates charged or interest paid on an account, if the
person does not actually open an account. ``Customer'' includes both
individuals and other persons such as corporations, partnerships, and
trusts. In addition, any person seeking to open an account at a bank,
on or after the effective date of the final rule, will be a
``customer,'' regardless of whether that person already has an account
at the bank.
The proposed rule also defines a ``customer'' to include any
signatory on an account. Thus, for example, an individual with signing
authority over a corporate account is a ``customer'' within the meaning
of the proposed rule. A signatory can become a ``customer'' when the
account is opened or when the signatory is added to an existing
account.
The requirements of section 326 of the Act apply to any person
``seeking to open a new account.'' Accordingly, transfers of accounts
from one bank to another, that are not initiated by the customer, for
example, as a result of a merger, acquisition, or purchase of assets or
assumption of liabilities, fall outside of the scope of section 326,
and are not covered by the proposed regulation.\3\
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\3\ However, there may be situations involving the transfer of
accounts where it would be appropriate for a bank to verify the
identity of customers associated with the accounts that it is
acquiring. Therefore, Treasury and the Agencies expect procedures
for transfers of accounts to be part of a bank's existing BSA
program.
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Section 103.121(a)(4) Federal functional regulator. The proposed
rule defines ``Federal functional regulator'' by reference to
Sec. 103.120(a)(2). Accordingly, this term means each of the Agencies
(as well as the SEC and the CFTC)
Section 103.121(a)(5) Person. The proposed rule defines ``person''
by reference to Sec. 103.11(z). This definition includes individuals,
corporations, partnerships, trusts, estates, joint stock companies,
associations, syndicates, joint ventures, other unincorporated
organizations or groups, certain Indian Tribes, and all entities
cognizable as legal personalities.
Section 103.121(a)(6) U.S. Person. Under the proposed rule, for an
individual, ``U.S. person'' means a U.S. citizen. For persons other
than an individual, ``U.S. person'' means an entity established or
organized under the laws of a State or the United States. A non-U.S.
person is defined in Sec. 103.121(a)(7) as a person who does not
satisfy these criteria.
Section 103.121(a)(8) Taxpayer identification number. The proposed
rule continues the provision in current Sec. 103.34(a)(4), which
provides that the provisions of section 6109 of the Internal Revenue
Code and the regulations of the Internal Revenue Service thereunder
determine what constitutes a taxpayer identification number.
Customer Identification Program: Minimum Requirements
Section 103.121(b)(1) General Rule. Section 326 of the Act requires
Treasury and the Agencies to jointly issue a regulation that
establishes minimum standards regarding the identity of any customer
who applies to open an account. Section 326 then prescribes three
procedures that Treasury and the Agencies must require institutions to
implement as part of this process: (1) Identification and verification
of persons seeking to open an account; (2) recordkeeping; and (3)
comparison with government lists.
Rather than imposing the same list of specific requirements on
every bank, regardless of its circumstances, the proposed regulation
requires all banks to implement a Customer Identification Program (CIP)
that is appropriate given the bank's size, location, and type of
business. The proposed regulation requires a bank's CIP to contain the
statutorily prescribed procedures, describes these procedures, and
details certain minimum elements that each of the procedures must
contain.
In addition, the proposed rule requires that the CIP be written and
that it be approved by the bank's board of directors or a committee of
the board. This latter requirement highlights the responsibility of a
bank's board of directors to approve and exercise general oversight
over the bank's CIP.
Under the proposed regulation, the CIP must be incorporated into
the bank's anti-money laundering (BSA) program.\4\ A bank's BSA program
must include (1) internal policies, procedures, and controls to ensure
ongoing compliance; (2) designation of a compliance officer; (3) an
ongoing employee training program; and (4) an independent audit
function to test programs. Each of these requirements also applies to a
bank's CIP.
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\4\ All insured depository institutions currently must have a
BSA program. See 12 CFR 21.21 (OCC), 12 CFR 208.63 (Board), 12 CFR
326.8 (FDIC), 12 CFR 563.177 (OTS), and 12 CFR 748.2 (NCUA). In
addition, all financial institutions are required by 31 U.S.C.
5318(h) to develop and implement an anti-money laundering program.
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Unlike other sections of 31 CFR 103, the proposed regulation
explicitly states that the CIP must be a part of a bank's BSA program.
This language is included to make clear that the CIP is not a separate
program. However, this statement should not be read to create any
negative inference about a bank's need to establish and maintain a BSA
program that is designed to ensure compliance with all other sections
of 31 CFR 103.
Section 103.121(b)(2) Identity Verification Procedures. Under
section 326 of the Act, the regulations issued by Treasury and the
Agencies must require banks to implement and comply with reasonable
procedures for verifying the identity of any person seeking to open an
account, to the extent reasonable and practicable. The proposed
regulation implements this requirement by providing that each bank must
have risk-based procedures for verifying the identity of a customer
that take into consideration the types of accounts that banks maintain,
the different methods of opening accounts, and the types of identifying
information available. These procedures must enable the bank to form a
reasonable belief that it knows the true identity of the customer.
Under the proposed regulation, a bank must first have procedures
that specify
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the identifying information that the bank must obtain from any
customer. The proposed regulation also sets forth certain, minimal
identifying information that a bank must obtain prior to opening an
account or adding a signatory to an account. Second, the bank must have
procedures describing how the bank will verify the identifying
information provided. The bank must have procedures that describe when
it will use documents for this purpose and when it will use other
methods, either in addition or as an alternative to using documents for
the purpose of verifying the identity of a customer.
While a bank's CIP must contain the identity verification
procedures set forth above, these procedures are to be risk-based. For
example, a bank need not verify the identifying information of an
existing customer seeking to open a new account, or who becomes a
signatory on an account, if the bank (1) previously verified the
customer's identity in accordance with procedures consistent with this
regulation, and (2) continues to have a reasonable belief that it knows
the true identity of the customer. The proposal requires a bank to
exercise reasonable efforts to ascertain the identity of each customer.
Although the main purpose of the Act is to prevent and detect money
laundering and the financing of terrorism, Treasury and the Agencies
anticipate that the proposed regulation will ultimately benefit
consumers. In addition to deterring money laundering and terrorist
financing, requiring every bank to establish comprehensive procedures
for verifying the identity of customers should reduce the growing
incidence of fraud and identity theft involving new accounts.\5\
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\5\ Last year, over 86,000 complaints were logged into the
Identity Theft Complaint database established by the Federal Trade
Commission (FTC). Forms of identity theft commonly reported included
(1) credit card fraud, where one or more new credit cards were
opened in the victim's name; (2) bank fraud, where a new bank
account was opened in the victim's name; and (3) fraudulent loans,
where a loan had been obtained in the victim's name. See Statement
of J. Howard Beales, Director, Bureau of Consumer Protection, FTC,
to the Senate Committee on the Judiciary, Subcommittee on
Technology, March 20, 2002.
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Section 103.121(b)(2)(i) Information Required. The proposed
regulation provides that a bank's CIP must contain procedures that
specify the identifying information the bank must obtain from a
customer. At a minimum, a bank must obtain from each customer the
following information prior to opening an account or adding a signatory
to an account: name; address; for individuals, date of birth; and an
identification number, described in greater detail below. To satisfy
the requirement that a bank obtain the address of a customer, Treasury
and the Agencies expect a bank to obtain both the address of an
individual's residence and, if different, the individual's mailing
address. For customers who are not individuals, the bank should obtain
an address showing the customer's principal place of business and, if
different, the customer's mailing address.
For U.S. persons a bank must obtain a U.S. taxpayer identification
number (e.g., social security number, individual taxpayer
identification number, or employer identification number). For non-U.S.
persons a bank must obtain one or more of the following: a taxpayer
identification number; passport number and country of issuance; alien
identification card number; or number and country of issuance of any
other government-issued document evidencing nationality or residence
and bearing a photograph or similar safeguard. The basic information
that banks would be required to obtain under this proposed regulation
reflects the type of information that financial institutions currently
obtain in the account-opening process and is similar to the identifying
information currently required for each deposit or share account opened
(see 31 CFR 103.34(a)(1)). The proposed regulation uses the term
``similar safeguard'' to permit the use of any biometric identifiers
that may be used in addition to, or instead of, photographs.
Treasury and the Agencies recognize that a new business may need
access to banking services, particularly a bank account or an extension
of credit, before it has received an employer identification number
from the Internal Revenue Service. For this reason, the proposed
regulation contains a limited exception to the requirement that a
taxpayer identification number must be provided prior to establishing
or adding a signatory to an account. Accordingly, a CIP may permit a
bank to open or add a signatory to an account for a person other than
an individual (such as a corporation, partnership, or trust) that has
applied for, but has not received, an employer identification number.
However, in such a case, the CIP must require that the bank obtain a
copy of the application before it opens or adds a signatory to the
account and obtain the employee identification number within a
reasonable period of time after an account is established or a
signatory is added to an account. Currently, the IRS indicates that the
issuance of an employer identification number can take up to five
weeks. This length of time, coupled with when the person applied for
the employer identification number, should be considered by the bank in
determining the reasonable period of time within which the person
should provide its employer identification number to the bank.
Section 103.121(b)(2)(ii) Verification. The proposed regulation
provides that the CIP must contain risk-based procedures for verifying
the information that the bank obtains in accordance with
Sec. 103.121(b)(2)(i), within a reasonable period of time after the
account is opened. Treasury and the Agencies considered proposing that
a customer's identity be verified before an account is opened or within
a specific time period after the account is opened. However, we
recognize that such a position would be unduly burdensome for both
banks and customers and therefore contrary to the plain language of the
statute, which states that the procedures must be both reasonable and
practicable. The amount of time it will take an institution to verify
identity may depend upon the type of account opened, whether the
customer is physically present when the account is opened, and the type
of identifying information available. In addition, although an account
may be opened, it is common practice among banks to place limits on the
account, such as by restricting the number of transactions or the
dollar value of transactions, until a customer's identity is verified.
Therefore, the proposed regulation provides a bank with the flexibility
to use a risk-based approach to determine how soon identity must be
verified.\6\
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\6\ It is possible that a bank would, however, violate other
laws by permitting a customer to transact business prior to
verifying the customer's identity. See, e.g., 31 CFR 500,
prohibiting transactions involving designated foreign countries or
their nationals.
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Section103.121(b)(2)(ii)(A) Verification Through Documents. The CIP
must contain procedures describing when the bank will verify identity
through documents and setting forth the documents that the bank will
use for this purpose. For individuals, these documents may include:
unexpired government-issued identification evidencing nationality or
residence and bearing a photograph or similar safeguard. For
corporations, partnerships, trusts, and other persons that are not
individuals, these may be documents showing the existence of the
entity, such as registered articles of incorporation, a government-
issued business license, partnership agreement, or trust instrument.
Section 103.121(b)(2)(ii)(B) Non-Documentary Verification. The
proposed regulation provides that a
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bank's CIP also must contain procedures describing non-documentary
methods the bank will use to verify identity and when these methods
will be used in addition to, or instead of, relying on documents. For
example, the procedures must address situations where an individual is
unable to present an unexpired government-issued identification
document that bears a photograph or similar safeguard; the bank is not
familiar with the documents presented; the account is opened without
obtaining documents; the account is not opened in a face-to-face
transaction; and the type of account increases the risk that the bank
will not be able to verify the true identity of the customer through
documents.
Treasury and the Agencies believe that banks typically require
documents to be presented when an account is opened face-to-face.
Although customers usually satisfy these requirements by presenting
government-issued identification documents bearing a photograph, such
as a driver's license or passport, Treasury and the Agencies recognize
that some customers legitimately may be unable to present those
customary forms of identification when opening an account. For example,
an elderly person may not have a valid driver's license or passport.
Under these circumstances, Treasury and the Agencies expect that banks
will provide products and services to those customers and verify their
identities through other methods. Similarly, a bank may be unable to
obtain original documents to verify a customer's identity when an
account is opened by telephone, by mail, and over the Internet. Thus,
when an account is opened for a customer who is not physically present,
a bank will be permitted to use other methods of verification, to the
extent set forth in the CIP.
While other verification methods must be used when a bank cannot
examine original documents, Treasury and the Agencies also recognize
that original identification documents, including those issued by a
government entity, may be obtained illegally and may be fraudulent. In
light of the recent increase in identity fraud, banks are encouraged to
use other verification methods, even when a customer has provided
original documents.
Obtaining sufficient information to verify a customer's identity
can reduce the risk that a bank will be used as a conduit for money
laundering and terrorist financing. The risk that the bank will not
know the customer's true identity will be heightened for certain types
of accounts, such as accounts opened in the name of a corporation,
partnership, or trust that is created or conducts substantial business
in jurisdictions that have been designated by the United States as a
primary money laundering concern or have been designated as non-
cooperative by an international body. As a bank's identity verification
procedures should be risk-based, they should identify types of accounts
that pose a heightened risk, and prescribe additional measures to
verify the identity of any person seeking to open an account and the
signatory for such accounts.
The proposed regulation gives examples of other non-documentary
verification methods that a bank may use in the situations described
above. These methods could include contacting a customer after the
account is opened; obtaining a financial statement; comparing the
identifying information provided by the customer against fraud and bad
check databases to determine whether any of the information is
associated with known incidents of fraudulent behavior (negative
verification); comparing the identifying information with information
available from a trusted third party source, such as a credit report
from a consumer reporting agency (positive verification); and checking
references with other financial institutions. The bank also may wish to
analyze whether there is logical consistency between the identifying
information provided, such as the customer's name, street address, ZIP
code, telephone number, date of birth, and social security number
(logical verification).\7\
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\7\ Treasury and the Agencies understand that most banks
currently make use of technology that permits instantaneous
negative, positive, and logical verification of identity.
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Section 103.121(b)(2)(iii) Lack of Verification. The proposed
regulation also states that a bank's CIP must include procedures for
responding to circumstances in which the bank cannot form a reasonable
belief that it knows the true identity of a customer.
Generally, a bank should only maintain an account for a customer
when it can form a reasonable belief that it knows the customer's true
identity.\8\ Thus, a bank should have procedures that specify the
actions that it will take when it cannot form a reasonable belief that
it knows the true identity of a customer, including when an account
should not be opened. In addition, a bank's CIP should have procedures
that address the terms under which a customer may conduct transactions
while a customer's identity is being verified. The procedures also
should specify at what point, after attempts to verify a customer's
identity have failed, a customer's account that has been opened should
be closed. Finally, if a bank cannot form a reasonable belief that it
knows the identity of a customer, the procedures should also include
determining whether a Suspicious Activity Report should be filed in
accordance with applicable law and regulation.
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\8\ There are some exceptions to this basic rule. For example, a
bank may maintain an account, at the direction of a law enforcement
or intelligence agency, although the bank does not know the true
identity of a customer.
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Section 103.121(b)(3) Recordkeeping. Section 326 of the Act
requires reasonable procedures for maintaining records of the
information used to verify a person's name, address, and other
identifying information. The proposed regulation sets forth
recordkeeping procedures that must be included in a bank's CIP. Under
the proposal, a bank is required to maintain a record of the
identifying information provided by the customer. Where a bank relies
upon a document to verify identity, the bank must maintain a copy of
the document that the bank relied on that clearly evidences the type of
document and any identifying information it may contain.\9\ The bank
also must record the methods and result of any additional measures
undertaken to verify the identity of the customer. Last, the bank must
record the resolution of any discrepancy in the identifying information
obtained. The bank must retain all of these records for five years
after the date the account is closed.
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\9\ The bank need not keep a separate record of the identifying
information provided by the customer if this information clearly
appears on the copy of the document maintained by the bank.
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Treasury and the Agencies emphasize that the collection and
retention of information about a customer, such as an individual's race
or sex, as an ancillary part of collecting identifying information do
not relieve a bank from its obligations to comply with anti-
discrimination laws or regulations, such as the prohibition in the
Equal Credit Opportunity Act against discrimination in any aspect of a
credit transaction on the basis of race, color, religion, national
origin, sex or marital status, age, or other prohibited
classifications.
Nothing in this proposed regulation modifies, limits or supersedes
section 101 of the Electronic Signatures in Global and National
Commerce Act, Public Law 106-229, 114 Stat. 464 (15 U.S.C. 7001) (E-
Sign Act). Thus, a bank may use electronic records to satisfy the
requirements of this regulation, as long as the records are accurate
and remain
[[Page 48295]]
accessible in accordance with 31 CFR 103.38(d).
Section 103.121(b)(4) Comparison with Government Lists. Section 326
of the Act also requires reasonable procedures for determining whether
the customer appears on any list of known or suspected terrorists or
terrorist organizations provided to the bank by any government agency.
The proposed rule implements this requirement and clarifies that the
requirement applies only with respect to lists circulated by the
Federal government.
In addition, the proposed rule states that the procedures must
ensure that the bank follows all Federal directives issued in
connection with such lists. This provision makes clear that a bank must
have procedures for responding to circumstances when the bank
determines that a customer is named on a list.
Section 103.121(b)(5) Customer Notice. Section 326 of the Act
states that customers of financial institutions shall be required to
comply with the identity verification procedures described above
``after being given adequate notice.'' Therefore, a bank's CIP must
include procedures for providing bank customers with adequate notice
that the bank is requesting information to verify their identity. A
bank may satisfy the notice requirement by generally notifying its
customers about the procedures the bank must comply with to verify
their identities. For example, the bank may post a sign in its lobby or
provide customers with any other form of written or oral notice. If an
account is opened electronically, such as through an Internet website,
the bank may also provide notice electronically.
Section 103.121(c) Exemptions. Section 326 states that the
Secretary (and, in the case of section 4(k) institutions, the
appropriate Federal functional regulator, as defined in section
103.120(a)(2)), may by regulation or order, exempt any financial
institution or type of account from the requirements of this regulation
in accordance with such standards and procedures as the Secretary may
prescribe.
Under the proposed rule, the appropriate Federal functional
regulator, with the concurrence of Treasury, may by order or regulation
exempt any bank or type of account from the requirements of this
section. In issuing such exemptions, the Federal functional regulator
and the Treasury shall consider whether the exemption is consistent
with the purposes of the Bank Secrecy Act, consistent with safe and
sound banking, and in the public interest. The Federal functional
regulator and Treasury also may consider other necessary and
appropriate factors.
Section 103.121(d) Other Information Requirements Unaffected. This
section provides that nothing in section 103.121 shall be construed to
relieve a bank of its obligations to obtain, verify, or maintain
information in connection with an account or transaction that is
required by another provision in part 103. For example, if an account
is opened with a deposit of more than $10,000 in cash, the bank opening
the account must comply with the customer identification requirements
in section 103.121, as well as with the provisions of section 103.22,
which require that certain information concerning the transaction be
reported by filing a Cash Transaction Report (CTR).
B. Conforming Amendments to 31 CFR 103.34
Current section 103.34(a) sets forth customer identification
requirements when certain types of deposit accounts are opened.
Generally, sections 103.34(a)(1) and (2) require a bank, within 30 days
after certain deposit accounts are opened, to secure and maintain a
record of the taxpayer identification number of the customer involved.
If the bank is unable to obtain the taxpayer identification number
within 30 days (or a longer time if the person has applied for a
taxpayer identification number), it need take no further action under
section 103.34 concerning the account if it maintains a list of the
names, addresses, and account numbers of the persons for which it was
unable to secure taxpayer identification numbers, and provides that
information to the Secretary upon request. In the case of a non-
resident alien, the bank is required to record the person's passport
number or a description of some other government document used to
determine identification. Treasury and the Agencies believe that the
requirements of section 103.34(a)(1) and (2) are inconsistent with the
intent and purpose of section 326 of the Act and incompatible with
proposed section 103.121.
Section 103.34(a)(3) currently provides that a bank need not obtain
a taxpayer identification number with respect to specified categories
of persons \10\ opening certain deposit accounts. This proposed rule
does not contain any exemptions from the CIP requirements.
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\10\ The exemption applies to (i) agencies and instrumentalities
of Federal, State, local, or foreign governments; (ii) judges,
public officials, or clerks of courts of record as custodians of
funds in controversy or under the control of the court; (iii) aliens
who are ambassadors; ministers; career diplomatic or consular
officers; naval, military, or other attaches of foreign embassies
and legations; and members of their immediate families; (iv) aliens
who are accredited representatives of certain international
organizations, and their immediate families; (v) aliens temporarily
residing in the United States for a period not to exceed 180 days;
(vi) aliens not engaged in a trade or business in the United States
who are attending a recognized college or university, or any
training program supervised or conducted by an agency of the Federal
Government; (vii) unincorporated subordinate units of a tax exempt
central organization that are covered by a group exemption letter;
(viii) a person under 18 years of age, with respect to an account
opened at part of a school thrift savings program, provided the
annual interest is less than $10; (ix) a person opening a Christmas
club, vacation club, or similar installment savings program,
provided the annual interest is less than $10; and (x) non-resident
aliens who are not engaged in a trade or business in the United
States.
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Treasury and the Agencies are requesting comments on whether any of
these exemptions should apply in the context of the proposed CIP
requirements in light of the intent and purpose of section 326 of the
Act.
Section 103.34(a)(4) provides that section 6109 of the Internal
Revenue Code and the rules and regulations of the Internal Revenue
Service (IRS) promulgated thereunder shall determine what constitutes a
taxpayer identification number. This provision is continued in proposed
section 103.121(a)(8). Section 103.34(a)(4) also provides that IRS
rules shall determine whose number shall be obtained in the case of
multiple account holders. Treasury and the Agencies believe that this
provision is inconsistent with section 326 of the Act, which requires
that banks verify the identity of ``any'' person seeking to open an
account.
For these reasons, Treasury, under its own authority, is proposing
to repeal section 103.34(a).
Section 103.34(b) sets forth certain recordkeeping requirements for
banks. Among other things, section 103.34(b)(1) requires a bank to keep
``any notations, if such are normally made, of specific identifying
information verifying the identity of [a person with signature
authority over an account] (such as a driver's license number or credit
card number).'' Treasury and the Agencies believe that the quoted
language in section 103.34(b)(1) is inconsistent with the requirements
of proposed section 103.121. For this reason, Treasury, under its own
authority, is proposing to delete the quoted language.
C. Technical Amendment to 31 CFR 103.11(j)
Section 103.11(j), which defines the term ``deposit account,''
contains an
[[Page 48296]]
obsolete reference to the definition of ``transaction account,'' which
is defined in section 103.11(hh). Under its own authority, Treasury is
proposing to correct this reference.
III. Request for Comments
Treasury and the Agencies invite comment on all aspects of this
rulemaking, and specifically seek comment on the following issues:
1. Whether the proposed definition of ``account'' is appropriate
and whether other examples of accounts should be added to the
regulatory text.
2. How the proposed regulation should apply to various types of
accounts that are designed to allow a customer to transact business
immediately.
3. Whether the definition of ``bank'' in the proposed regulation
should be amended with respect to the foreign branches of banks by (i)
excluding foreign branches or (ii) clarifying that a foreign branch
must comply only to the extent that the bank's program does not
contravene applicable local law. Treasury and the Agencies request that
commenters cite and describe any potentially conflicting foreign laws
that may apply to the foreign branches of banks.
Comment is requested on this issue because Treasury and the
Agencies recognize that interpreting the BSA to apply to the foreign
branch of a U.S. depository institution could cause practical and legal
problems for that institution if the branch has a conflicting
obligation under applicable local law. The regulation, if adopted as
proposed, may place a foreign branch in a position of potentially
violating local law by implementing aspects of its bank's CIP, which is
described more fully in the Supplemental Information, above.
4. Ways that banks can comply with the requirement that a bank
obtain both the address of an individual's residence, and, if
different, the individual's mailing address in situations involving
individuals who lack a permanent address.
5. Whether non-U.S. persons that are not individuals will be able
to provide a bank with the identifying information required in section
103.121(b)(2)(i)(D)(2), or whether other categories of identifying
information should be added to this section to permit non-U.S. persons
that are not individuals to open accounts. Commenters on this issue
should suggest other means of identification that banks currently use
or should use.
6. Whether the proposed regulation will subject banks to
conflicting State laws. Treasury and the Agencies request that
commenters cite and describe any potentially conflicting State laws.
7. The extent to which the verification procedures required by the
proposed regulation make use of information that banks currently obtain
in the account opening process. Treasury and the Agencies note that the
legislative history of section 326 indicates that Congress intended
``the verification procedures prescribed by Treasury [to] make use of
information currently obtained by most financial institutions in the
account opening process.'' See H.R. Rep. No. 107-250, pt. 1, at 63
(2001).
8. Whether any of the exemptions from the customer identification
requirements contained in current section 103.34(a)(3) should be
continued in section 103.121(c). In this regard, Treasury and the
Agencies request that commenters address the standards set forth in
proposed section 103.121(c) (as well as any other appropriate factors).
IV. Solicitation of Comments on Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act, Pub. L. 106-102, sec.
722, 113 Stat. 1338, 1471 (Nov. 12, 1999), requires the OCC, Board,
FDIC, and OTS to use plain language in all proposed and final rules
published after January 1, 2000. Therefore, these agencies specifically
invite your comments on how to make this proposal easier to understand.
For example:
Have we organized the material to suit your needs? If not,
how could this material be better organized?
Are the requirements in the proposed regulation clearly
stated? If not, how could the regulation be more clearly stated?
Does the proposed regulation contain language or jargon
that is not clear? If so, which language requires clarification?
Would a different format (grouping and order of sections,
use of headings, paragraphing) make the regulation easier to
understand? If so, what changes to the format would make the regulation
easier to understand?
What else could we do to make the regulation easier to
understand?
V. Regulatory Flexibility Act
When an agency issues a rulemaking proposal, the Regulatory
Flexibility Act (RFA) requires the agency to ``prepare and make
available for public comment an initial regulatory flexibility
analysis'' unless the agency certifies that the rule will not have a
``significant economic impact on a substantial number of small
entities.'' 5 U.S.C. 603, 605(b).\11\
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\11\ The RFA defines the term ``small entity'' in 5 U.S.C. 601
by reference to the definitions published by the Small Business
Administration (SBA). The SBA has defined a ``small entity'' for
banking purposes as a bank or savings institution with less than
$150 million in assets. See 13 CFR 121.201. The NCUA defines ``small
credit union'' as those under $1 million in assets. Interpretive
Ruling and Policy Statement No. 87-2, Developing and Reviewing
Government Regulations (52 FR 35231, September 18, 1987).
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The Agencies have reviewed the impact of this proposed rule on
small banks. Treasury and the Agencies certify that the proposed rule
will not have a significant economic impact on a substantial number of
small entities. The requirements of the proposed rule closely parallel
the requirements for customer identification programs mandated by
section 326 of the Act.
Moreover, Treasury and the Agencies believe that banks already have
implemented prudential business practices and anti-money laundering
programs that involve the key controls that would be required in a
customer identification program in accordance with the proposed
regulation. First, all banks already undertake extensive measures to
verify the identity of their customers as a matter of good business
practice. In addition, banks already must have anti-money laundering
programs that include procedures for identification, verification, and
documentation of customer information.\12\
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\12\ See footnote 3.
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Second, banks already should have compliance programs in place to
check lists provided by the Federal government of known and suspected
terrorists and terrorist organizations. Currently, banks are prohibited
from engaging in transactions involving certain foreign countries or
their nationals under rules issued by the Office of Foreign Assets
Control (OFAC). See 31 CFR 500. Banks should already have compliance
programs in place to ensure that they do not violate OFAC rules.
Treasury and the Agencies understand that many banks, including small
banks, have instituted programs to check other lists provided to them
by the Federal government following the events of September 11, 2001.
Treasury and the Agencies believe that all banks have access to a
variety of resources, such as computer software packages, that enable
them to check lists provided by the Federal government.
Third, Treasury and the Agencies believe the provision in the
proposed rule that requires a bank to provide adequate notice to its
customers that it is requesting information to verify their
[[Page 48297]]
identity will impose minimal costs on banks. Banks may elect to satisfy
that requirement through a variety of low-cost measures, such as by
posting a sign in the bank's lobby or providing any other form of
written or oral notice.
The recordkeeping requirements similarly may impose some costs on
banks, if, for example, some of the information that must be maintained
as a consequence of implementing customer identification programs is
not already retained. Treasury and the Agencies believe that the
compliance burden, if any, is minimized for banks, including small
banks, because the proposed regulation vests a bank with the discretion
to design and implement appropriate recordkeeping procedures, including
allowing banks to maintain electronic records in lieu of (or in
combination with) paper records.
Finally, Treasury and the Agencies believe that the flexibility
incorporated into the proposed rule will permit each bank to tailor its
CIP to fit its own size and needs. In this regard, Treasury and the
Agencies believe that expenditures associated with establishing and
implementing a CIP will be commensurate with the size of a bank. If a
bank is small, the burden to comply with the proposed rule should be de
minimis.
VI. Paperwork Reduction Act
The proposed rule contains recordkeeping and disclosure
requirements that are subject to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.). In summary, the proposed rule requires banks
to implement reasonable procedures to (1) maintain records of the
information used to verify the person's identity and (2) provide notice
of these procedures to customers. These recordkeeping and disclosure
requirements are required under section 326 of the Act.
The proposed rule applies only to a financial institution that is a
``bank'' as defined in 31 CFR 103.11(c),\13\ and any foreign branch of
an insured bank. The proposed rule requires each bank to establish a
written CIP that must include recordkeeping procedures (proposed
section 103.121(b)(3)) and procedures for providing customers with
notice that the bank is requesting information to verify their identity
(proposed section 103.121(b)(5)).
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\13\ This definition includes banks, thrifts, and credit unions.
---------------------------------------------------------------------------
The proposed rule requires a bank to maintain a record of (1) the
identifying information provided by the customer, the type of
identification document(s) reviewed, if any, the identification number
of the document(s), and a copy of the identification document(s); (2)
the means and results of any additional measures undertaken to verify
the identity of the customer; and (3) the resolution of any discrepancy
in the identifying information obtained. These records must be
maintained at the bank for five years after the date the account is
closed (proposed section 103.121(b)(3)). Treasury and the Agencies
believe that little burden is associated with the recordkeeping
requirements outlined in proposed section 103.121(b)(2), because such
recordkeeping is a usual and customary business practice. In addition,
banks already must keep similar records to comply with existing
regulations in 31 CFR part 103 (see, e.g., 31 CFR 103.34, requiring
certain records for each deposit or share account opened).
The proposed rule also requires banks to give customers ``adequate
notice'' of the identity verification procedures (proposed section
103.121(b)(5)). A bank may satisfy the notice requirement by posting a
sign in the lobby or providing customers with any other form of written
or oral notice. If the account is opened electronically, the bank may
provide the notice electronically. Treasury and the Agencies believe
that nominal burden is associated with the disclosure requirement
outlined in proposed section 103.121(b)(5). This section requires a
bank to notify its customers about the procedures the bank has
implemented to verify their identities. However, a bank may choose
among a variety of methods of providing adequate notice and may select
the least burdensome method, given the circumstances under which
customers seek to open new accounts.
A person is not required to respond to a collection of information
unless it displays a currently valid Office of Management and Budget
(OMB) control number. The collection of information requirements
contained in the proposed rule have been submitted to the OMB by
Treasury in accordance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3507).
The institutions subject to these requirements include national
banks and Federal branches and agencies (OCC financial institutions);
state member banks and branches and agencies of foreign banks (Board
financial institutions); insured state nonmember banks (FDIC financial
institutions); savings associations (OTS financial institutions); and
federally insured credit unions (NCUA financial institutions).
Estimated number of OCC financial institutions: 2,289.
Estimated number of Board financial institutions: 1,188.
Estimated number of FDIC financial institutions: 5,500.
Estimated number OTS financial institutions: 1,020.
Estimated number of NCUA financial institution: 9,944.
Estimated average annual burden for the recordkeeping requirements
of the proposed rule per each financial institution respondent: 10
hours.
Estimated average annual burden for the disclosure requirements of
the proposed rule per each financial institution respondent: 1 hour.
Estimated total annual recordkeeping and disclosure burden: 219,351
hours.
Treasury and the Agencies request public comment on all aspects of
the recordkeeping and disclosure requirements contained in this
proposed rule, including how burdensome it would be for banks to comply
with these requirements. Also, Treasury and the Agencies request
comment on whether the banks are currently maintaining the records
requested in proposed section 103.121(b)(2). Treasury and the Agencies
also invite comment on:
(1) Whether the collections of information contained in the notice
of proposed rulemaking are necessary for the proper performance of each
agency's functions, including whether the information has practical
utility;
(2) The accuracy of each agency's estimate of the burden of the
proposed information collections;
(3) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(4) Ways to minimize the burden of the information collections on
respondents, including the use of automated collection techniques or
other forms of information technology; and
(5) Estimates of capital or start-up costs and costs of operation,
maintenance, and purchases of services to provide information.
Comments concerning the recordkeeping and disclosure requirements
in the proposed rule should be sent (preferably by fax (202-395-6974))
to Desk Officer for the Department of the Treasury, Office of
Information and Regulatory Affairs, Office of Management and Budget,
Paperwork Reduction Project (1506), Washington, DC 20503 (or by the
Internet to [email protected]), with a copy to FinCEN by mail or the
Internet at the addresses previously specified.
[[Page 48298]]
VII. Executive Order 12866
Treasury, the OCC, and OTS have determined that this proposal is
not a ``significant regulatory action'' under Executive Order 12866.
The rule follows closely the requirements of section 326 of the Act.
Treasury, the OCC, and OTS believe that national banks and savings
associations already have procedures in place that fulfill most of the
requirements of the proposed regulation. First, the procedures are a
matter of good business practice. Second, national banks and savings
associations already are required to have BSA compliance programs that
address many of the requirements detailed in this notice of proposed
rulemaking. Third, banks and savings associations should already have
compliance programs in place to ensure they comply with OFAC rules
prohibiting transactions with certain foreign countries or their
nationals.
Treasury, the OCC, and OTS invite national banks, the thrift
industry, and the public to provide any cost estimates and related data
that they think would be useful in evaluating the overall costs of the
rule.
For these reasons, and for the reasons discussed elsewhere in this
preamble, Treasury, the OCC, and OTS believe that the burden stemming
from this rulemaking will not cause the proposed rule to be a
``significant regulatory action.''
Lists of Subjects in 31 CFR Part 103
Administrative practice and procedure, Authority delegations
(Government agencies), Banks, banking, Brokers, Currency, Foreign
banking, Foreign currencies, Gambling, Investigations, Law enforcement,
Penalties, Reporting and recordkeeping requirements, Securities.
Authority and Issuance
For the reasons set forth in the preamble, part 103 of title 31 of
the Code of Federal Regulations is proposed to be amended as follows:
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. 1786(q), 1818, 1829b and 1951-1959; 31
U.S.C. 5311-5332; title III, secs. 312, 313, 314, 319, 326, 352, Pub
L. 107-56, 115 Stat. 307.
2. Section 103.11(j) is amended by removing ``paragraph (q)'' and
adding ``paragraph (hh)''.
3. Section 103.34 is amended as follows:
a. By removing paragraph (a);
b. By redesignating paragraph (b) introductory text and paragraphs
(b)(1) through (b)(13) as introductory text and paragraphs (a) through
(m), respectively.
c. In newly redesignated introductory text, by removing '', in
addition,'' in the first sentence; and
d. In newly redesignated paragraph (a), by removing '', including
any notations, if such are normally made, of specific identifying
information verifying the identity of the signer (such as a driver's
license number or credit card number)''.
4. Subpart I of part 103 is amended by adding new Sec. 103.121 to
read as follows:
Sec. 103.121 Customer Identification Programs for banks, savings
associations, and credit unions.
(a) Definitions. For purposes of this section:
(1) Account means each formal banking or business relationship
established to provide ongoing services, dealings, or other financial
transactions. For example, a deposit account, a transaction or asset
account, and a credit account or other extension of credit would each
constitute an account.
(2) Bank means a bank, as that term is defined in Sec. 103.11(c),
that is subject to regulation by a Federal functional regulator, and
any foreign branch of an insured bank.
(3) Customer means:
(i) Any person seeking to open a new account; and
(ii) Any signatory on the account at the time the account is
opened, and any new signatory added thereafter.
(4) Federal functional regulator has the same meaning as provided
in Sec. 103.120(a)(2).
(5) Person has the same meaning as provided in Sec. 103.11(z).
(6) U.S. person means:
(i) A U.S. citizen; or
(ii) A corporation, partnership, trust, or person (other than an
individual) that is established or organized under the laws of a State
or the United States.
(7) Non-U.S. person means a person that is not a U.S. person.
(8) Taxpayer identification number. The provisions of section 6109
of the Internal Revenue Code of 1986 (26 U.S.C. 6109) and the
regulations of the Internal Revenue Service promulgated thereunder
shall determine what constitutes a taxpayer identification number.
(b) Customer Identification Program: minimum requirements. (1) In
general. A bank must implement a written Customer Identification
Program (Program) that, at a minimum, includes each of the components
of this section. The Program should be tailored to the bank's size,
location and type of business. The bank's board of directors or a
committee of the board must approve the Program. The Program must be a
part of the bank's anti-money laundering program required under the
regulations implementing 31 U.S.C. 5318(h), 12 U.S.C. 1818(s), and 12
U.S.C. 1786(q)(1).
(2) Identity verification procedures. The Program must include
procedures for verifying the identity of each customer, to the extent
reasonable and practicable. The procedures must be based on the bank's
assessment of the risks presented by the various types of accounts
maintained by the bank, the various methods of opening accounts
provided by the bank, and the type of identifying information
available, and must enable the bank to form a reasonable belief that it
knows the true identity of the customer.
(i) Information required. (A) In general. The Program must contain
procedures that specify the identifying information that the bank must
obtain from each customer. Except as permitted by paragraph
(b)(2)(i)(B) of this section, at a minimum, a bank must obtain the
following information prior to opening or adding a signatory to an
account:
(1) Name;
(2) For individuals, date of birth;
(3) (i) For individuals, residence and, if different, mailing
address; or
(ii) For persons other than individuals, such as corporations,
partnerships, and trusts: principal place of business and, if
different, mailing address;
(4) (i) For U.S. persons, a U.S. taxpayer identification number
(e.g., social security number, individual taxpayer identification
number, or employer identification number); or
(ii) For non-U.S. persons, one or more of the following: a U.S.
taxpayer identification number; passport number and country of
issuance; alien identification card number; or number and country of
issuance of any other government-issued document evidencing nationality
or residence and bearing a photograph or similar safeguard.
(B) Limited exception. The Program may permit the bank to open or
add a signatory to an account for a person other than an individual
(such as a corporation, partnership, or trust) that has applied for,
but has not received, an employer identification number. However, in
such a case, the bank must obtain a copy of the application before
[[Page 48299]]
it opens or adds a signatory to the account and obtain the employer
identification number within a reasonable period of time after it opens
or adds a signatory to the account.
(ii) Verification. The Program must contain risk-based procedures
for verifying the information obtained pursuant to paragraph
(b)(2)(i)(A) of this section within a reasonable time after the account
is established or a signatory is added to the account. A bank need not
verify the information about an existing customer seeking to open a new
account or who becomes a signatory on an account, if the bank
previously verified the customer's identity in accordance with
procedures consistent with this section, and continues to have a
reasonable belief that it knows the true identity of the customer.
(A) Verification through documents. The Customer Identification
Program must contain procedures describing when the bank will verify
identity through documents and setting forth the documents that the
bank will use for this purpose. These documents may include:
(1) For individuals: unexpired government-issued identification
evidencing nationality or residence and bearing a photograph or similar
safeguard; and
(2) For corporations, partnerships, trusts and persons other than
individuals: documents showing the existence of the entity, such as
registered articles of incorporation, a government-issued business
license, partnership agreement, or trust instrument.
(B) Non-documentary verification methods. The Program must contain
procedures that describe non-documentary methods the bank will use to
verify identity and when these methods will be used in addition to, or
instead of, relying on documents. These procedures must address
situations where an individual is unable to present an unexpired
government-issued identification document that bears a photograph or
similar safeguard; the bank is not familiar with the documents
presented; the account is opened without obtaining documents; the
account is not opened in a face-to-face transaction; and the type of
account increases the risk that the bank will not be able to verify the
true identity of the customer through documents. Other verification
methods may include contacting a customer; independently verifying
documentary information through credit bureaus, public databases, or
other sources; checking references with other financial institutions;
and obtaining a financial statement.
(iii) Lack of verification. The Program must include procedures for
responding to circumstances in which the bank cannot form a reasonable
belief that it knows the true identity of a customer.
(3) Recordkeeping. (i) The Program must include procedures for
maintaining a record of all information obtained under the procedures
implementing paragraph (b)(1) of this section. The record must include:
(A) All identifying information provided by a customer pursuant to
paragraphs (b)(2)(i)(A) and (B) of this section;
(B) A copy of any document that was relied on pursuant to paragraph
(b)(2)(ii)(A) of this section that clearly evidences the type of
document and any identification number it may contain;
(C) The methods and result of any measures undertaken to verify the
identity of the customer pursuant to paragraph (b)(2)(ii)(B) of this
section; and
(D) The resolution of any discrepancy in the identifying
information obtained.
(ii) The bank must retain all records for five years after the date
the account is closed.
(4) Comparison with government lists. The Program must include
procedures for determining whether the customer appears on any list of
known or suspected terrorists or terrorist organizations provided to
the bank by any federal government agency. The procedures must also
ensure that the bank follows all federal directives issued in
connection with such lists.
(5) Customer notice. The Program must include procedures for
providing bank customers with adequate notice that the bank is
requesting information to verify their identity.
(c) Exemptions. The appropriate Federal functional regulator with
the concurrence of the Secretary, may by order or regulation, exempt
any bank or type of account from the requirements of this section. In
issuing such exemptions, the Federal functional regulator and the
Secretary shall consider whether the exemption is consistent with the
purposes of the Bank Secrecy Act and with safe and sound banking, and
is in the public interest. The Federal functional regulator and the
Secretary also may consider other appropriate factors.
(d) Other information requirements unaffected. Nothing in this
section shall be construed to relieve a bank of its obligation to
comply with any other provision in this part concerning information
that must be obtained, verified, or maintained in connection with any
account or transaction.
Dated: July 15, 2002.
James F. Sloan,
Director, Financial Crimes Enforcement Network.
Dated: July 2, 2002.
John D. Hawke, Jr.,
Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System, July 10, 2002.
Jennifer J. Johnson,
Secretary of the Board.
By order of the Board of Directors of the Federal Deposit
Insurance Corporation this 3rd day of July, 2002.
Valerie J. Best,
Assistant Executive Secretary.
Dated: July 5, 2002. In concurrence, by the Office of Thrift
Supervision.
James E. Gilleran,
Director.
Dated: July 3, 2002.
Becky Baker,
Secretary of the Board, National Credit Union Administration.
[FR Doc. 02-18191 Filed 7-22-02; 8:45 am]
BILLING CODE 4810-02-P