[Federal Register Volume 67, Number 201 (Thursday, October 17, 2002)]
[Proposed Rules]
[Pages 64075-64080]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-26364]


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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA34


Financial Crimes Enforcement Network; Amendment to the Bank 
Secrecy Act Regulations--Requirement That Currency Dealers and 
Exchangers Report Suspicious Transactions

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

ACTION: Notice of proposed rulemaking.

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SUMMARY: FinCEN is proposing to amend the Bank Secrecy Act regulations 
to require currency dealers and exchangers to report suspicious 
transactions to the Department of the Treasury, and to require all 
money services businesses to which the suspicious transaction reporting 
rule applies to report transactions involving suspected use of the 
money services business to facilitate criminal activity. The proposed 
amendments constitute a further step in the creation of a comprehensive 
system for the reporting of suspicious transactions by the major 
categories of financial institutions operating in the United States, as 
a part of the counter-money laundering program of the Department of the 
Treasury.

DATES: Written comments on all aspects of the proposal are welcome and 
must be received on or before December 16, 2002.

ADDRESSES: Written comments should be submitted to: Office of Chief 
Counsel, Financial Crimes Enforcement Network, Department of the 
Treasury, P.O. Box 39, Vienna, Virginia 22183-0039, Attention: NPRM--
Suspicious Transaction Reporting--Currency Dealers and Exchangers. 
Comments also may be submitted by electronic mail to the following 
Internet address: [email protected], with the caption in the 
body of the text, ``Attention: NPRM--Suspicious Transaction Reporting--
Currency Dealers and Exchangers.'' For additional instructions on the 
submission of comments, see SUPPLEMENTARY INFORMATION under the heading 
``Submission of Comments.''
    Inspection of comments. Comments may be inspected, between 10 a.m. 
and 4 p.m., in the FinCEN reading room in Washington, 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: David K. Gilles, Acting Assistant

[[Page 64076]]

Director, Office of Compliance and Regulatory Enforcement, FinCEN, 
(202) 354-6400; and Judith R. Starr, Chief Counsel, and Christine L. 
Schuetz, Attorney-Advisor, Office of Chief Counsel, FinCEN, at (703) 
905-3590.

SUPPLEMENTARY INFORMATION:

I. Introduction

    This document contains a proposed rule that would amend 31 CFR 
103.20(a)(1) to require currency dealers and exchangers to report 
suspicious transactions to FinCEN. FinCEN has determined that such 
reports have a high degree of usefulness in criminal, tax, and 
regulatory investigations and proceedings, and in the conduct of 
intelligence and counterintelligence activities, including analysis, to 
protect against international terrorism. The proposed rule also would 
amend 31 CFR 103.20(a)(2) by adding a fourth reporting category for 
transactions that are suspected to involve use of the money services 
business to facilitate criminal activity. Finally, under the proposed 
rule, the telephone number for FinCEN's Financial Institutions Hotline 
(1-866-556-3974) would be added to 31 CFR 103.20(b)(3). The suspicious 
transaction reporting rule would be effective 180 days after the date 
on which the final regulation to which this notice of proposed 
rulemaking relates is published in the Federal Register.

II. Background

A. Statutory Provisions

    The Bank Secrecy Act (``BSA''), 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-
5314, 5316-5332, authorizes the Secretary of the Treasury, inter alia, 
to issue regulations requiring financial institutions to keep records 
and to file reports that are determined to have a high degree of 
usefulness in criminal, tax, and regulatory matters, or in the conduct 
of intelligence or counter-intelligence activities to protect against 
international terrorism, and to implement counter-money laundering 
programs and compliance procedures.\1\ Regulations implementing Title 
II of the BSA (codified at 31 U.S.C. 5311-5314, 5316-5332) appear at 31 
CFR part 103. The authority of the Secretary to administer the BSA has 
been delegated to the Director of FinCEN.
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    \1\ Language expanding the scope of the BSA to intelligence or 
counter-intelligence activities to protect against international 
terrorism was added by section 358 of the Uniting and Strengthening 
America by Providing Appropriate Tools Required to Intercept and 
Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, Public Law 107-56.
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    With the enactment of 31 U.S.C. 5318(g) in 1992,\2\ Congress 
authorized the Secretary of the Treasury to require financial 
institutions to report suspicious transactions. As amended by the USA 
PATRIOT ACT, subsection (g)(1) states generally:

    \2\ 31 U.S.C. 5318(g) was added to the BSA by section 1517 of 
the Annunzio-Wylie Anti-Money Laundering Act, Title XV of the 
Housing and Community Development Act of 1992, Public Law 102-550; 
it was expanded by section 403 of the Money Laundering Suppression 
Act of 1994, Title IV of the Riegle Community Development and 
Regulatory Improvement Act of 1994, Pub. L. 103-325, to require 
designation of a single government recipient for reports of 
suspicious transactions.
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    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 
violation of law or regulation.

Subsection (g)(2)(A) provides further that:

    If a financial institution or any director, officer, employee, 
or agent of any financial institution, voluntarily or pursuant to 
this section or any other authority, reports a suspicious 
transaction to a government agency--
    (i) the financial institution, director, officer, employee, or 
agent may not notify any person involved in the transaction that the 
transaction has been reported; and
    (ii) no officer or employee of the Federal Government or of any 
State, local, tribal, or territorial government within the United 
States, who has any knowledge that such report was made may disclose 
to any person involved in the transaction that the transaction has 
been reported, other than as necessary to fulfill the official 
duties of such officer or employee.

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

that makes a voluntary disclosure of any possible violation of law 
or regulation to a government agency or makes 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, any constitution, law, or regulation of any State or 
political subdivision of any State, or under any contract or other 
legally enforceable agreement (including any arbitration agreement), 
for such disclosure or for any failure to provide notice of such 
disclosure to the person who is the subject of such disclosure or 
any other person identified in the 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.'' \3\ The designated agency is in turn responsible for referring 
any report of a suspicious transaction to ``any appropriate law 
enforcement, supervisory agency, or United States intelligence agency 
for use in the conduct of intelligence or counterintelligence 
activities, including analysis, to protect against international 
terrorism.'' Id., at subsection (g)(4)(B).
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    \3\ This designation does not 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.''
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B. Suspicious Activity Reporting by Money Services Businesses

    By final rule published August 20, 1999, FinCEN revised the 
definitions of certain non-bank financial institutions for purposes of 
the Bank Secrecy Act and grouped the revised definitions together in a 
separate category called ``money services businesses.'' \4\ A ``money 
services business'' includes 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:

    \4\ See 64 FR 45438 (August 20, 1999), and 31 CFR 103.11(uu).
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    [sbull] Currency dealer or exchanger;
    [sbull] Check casher;
    [sbull] Issuer of traveler's checks, money orders, or stored value;
    [sbull] Seller or redeemers of traveler's checks, money orders, or 
stored value;
    [sbull] Money transmitter; and
    [sbull] The United States Postal Service (except with regard to the 
sale of postage or philatelic products).

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.
    On March 14, 2000, FinCEN published a final rule requiring certain 
money services business to report suspicious transactions to FinCEN 
beginning January 1, 2002 (the ``MSB SAR rule'').\5\ Under the terms of 
the

[[Page 64077]]

MSB SAR rule, found at 31 CFR 103.20, issuers, sellers, and redeemers 
(for monetary value) of traveler's checks and money orders, money 
transmitters, and the United States Postal Service, are required to 
report suspicious transactions to FinCEN.\6\ A money services business 
to which the MSB SAR rule applies must file a report of any transaction 
conducted or attempted by, at, or through the money services business, 
involving or aggregating at least $2,000 (or $5,000 to the extent that 
the identification of transactions required to be reported is derived 
from a review of clearance records of money orders or traveler's checks 
that have been sold or processed), when the money services business 
knows, suspects, or has reason to suspect that the transaction falls 
into one of three categories.
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    \5\ See 65 FR 13683 (March 14, 2000). Banks, thrift 
institutions, and credit unions have been subject to the suspicious 
transaction reporting requirement since April 1, 1996 pursuant to 
regulations issued concurrently by FinCEN and the federal bank 
supervisors (the Board of Governors of the Federal Reserve System 
(``Federal Reserve''), the Office of the Comptroller of the Currency 
(``OCC''), the Federal Deposit Insurance Corporation (``FDIC''), the 
Office of Thrift Supervision (``OTS''), and the National Credit 
Union Administration (``NCUA'')). See 31 CFR 103.18 (FinCEN); 12 CFR 
208.62 (Federal Reserve Board); 12 CFR 21.11 (OCC); 12 CFR 353.3 
(FDIC); 12 CFR 563.180 (OTS); and 12 CFR 748.1 (NCUA). On July 1, 
2002, FinCEN published a final rule, found at 31 CFR 103.19, 
requiring broker-dealers to file reports of suspicious transactions 
beginning after December 30, 2002. See 67 FR 44048. On September 26, 
2002, FinCEN published a final rule, found at 31 CFR 103.21, 
requiring casinos and card clubs to file reports of suspicious 
transactions. See 67 FR 60722.
    \6\ The rule requires money services businesses described in 31 
CFR 103.11(uu)(3) (the money services business category that 
includes issuers of traveler's checks, money orders, or stored 
value), 103.11(uu)(4) (sellers or redeemers of traveler's checks, 
money orders, or stored value), 103.11(uu)(5) (money transmitters), 
and 103.11(uu)(6) (the United States Postal Service) to file reports 
of suspicious activity. However, given the infancy of the use of 
stored value products in the United States at the time of issuance 
of the final rule, issuers, sellers, and redeemers of stored value 
were explicitly carved out of the final MSB SAR rule. See 31 CFR 
103.20(a)(5).
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    The first reporting category contained in the MSB SAR rule, 
described in 31 CFR 103.20(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 category, described in 31 CFR 103.20(a)(2)(ii), involves 
transactions designed to evade the requirements of the Bank Secrecy 
Act. The third category, described in 31 CFR 103.20(a)(2)(iii), 
involves transactions that appear to have no business purpose or that 
vary so substantially from normal commercial activities or activities 
appropriate for the particular customer or type of customer as to have 
no reasonable explanation. Although the rule does not require the 
filing of multiple reports of suspicious activity by both a money 
services businesses and its agent with respect to the same reportable 
transaction, the obligation to identify and report suspicious 
transactions rests with each money services business involved in a 
particular transaction.
    In accordance with paragraph 103.20(b) of the MSB SAR rule, money 
services businesses must report a suspicious transaction within 30 days 
after the money services business becomes aware of the suspicious 
transaction, by completing a Suspicious Activity Report-MSB (``SAR-
MSB''). FinCEN published for comment on July 25, 2002 a draft SAR-MSB, 
which is now final and available for use.\7\ FinCEN has made special 
provision for situations requiring immediate attention (e.g., where 
delay in reporting might hinder law enforcement's ability to fully 
investigate the activity), in which case money services businesses are 
immediately to notify, by telephone, the appropriate law enforcement 
authority in addition to filing a SAR-MSB. Reports filed under the 
terms of the MSB SAR rule are lodged in a central database. Information 
contained in the database is made available electronically to federal 
and state law enforcement and regulatory agencies, to enhance their 
ability to fight financial crime and terrorism.
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    \7\See 67 FR48704 (July 25, 2002). The SAR-MSB and advice on how 
to complete it can be viewed on FinCEN's website 
(www.fincen.treas.gov) under the categories of ``What's New'' and 
``Regulatory.''
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    Paragraph 103.20(c) of the MSB SAR rule requires money services 
businesses to maintain copies of each filed SAR-MSB for five years. In 
addition, money services businesses must collect and maintain for five 
years supporting documentation relating to each SAR-MSB and make such 
documentation available to law enforcement and regulatory agencies upon 
request.
    Paragraph 103.20(d) of the MSB SAR rule incorporates the terms of 
31 U.S.C. 5318(g)(2) and (g)(3), and specifically prohibits persons 
filing reports in compliance with the MSB SAR rule (or voluntary 
reports of suspicious transactions) from disclosing, except to 
appropriate law enforcement and regulatory agencies, that a report has 
been prepared or filed. The paragraph also restates the BSA's broad 
protection from liability for making reports of suspicious transactions 
(whether such reports are required by the MSB SAR rule or made 
voluntarily), and for declining to disclose the fact of such reporting. 
The regulatory provisions do not extend the scope of either the 
statutory prohibition or the statutory protection; however, because 
FinCEN recognized the importance of these statutory provisions in 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.
    Paragraph 103.20(e) of the MSB SAR rule provides that compliance 
with the MSB SAR rule will be audited by the Department of the Treasury 
through FinCEN or its delegee. Failure to comply with the rule may 
constitute a violation of the Bank Secrecy Act regulations, which may 
subject non-complying money services businesses to enforcement action 
under the Bank Secrecy Act.

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

    The Congressional authorization of reporting of suspicious 
transactions recognizes two basic points that are central to Treasury's 
counter-money laundering and counter-financial crime programs. First, 
to realize full use of their ill-gotten gains, money launderers at some 
point must turn to financial institutions, either initially to conceal 
their illegal funds, or eventually to recycle those funds back into the 
economy. Second, the employees and officers of those institutions are 
often more likely than government officials to have a sense as to which 
transactions appear to lack commercial justification or otherwise 
cannot be explained as constituting a legitimate use of the financial 
institution's products and services.
    The importance of extending suspicious transaction reporting to all 
relevant financial institutions, including non-bank financial 
institutions, derives from the concentrated scrutiny to which banks 
have been subject with respect to money laundering. This attention, 
combined with the cooperation that banks have given to law enforcement 
agencies and banking regulators to root out money laundering, has 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 in their 
attempts to launder funds. Indeed, many non-bank financial institutions 
increasingly have come to recognize the increased pressure that money 
launderers have placed upon their operations and the need for 
innovative programs of training and monitoring necessary to counter 
that pressure.
    The reporting of suspicious transactions is also recognized as 
essential to an effective counter-money laundering program in the 
international consensus on the prevention and

[[Page 64078]]

detection of money laundering. One of the central recommendations of 
the Financial Action Task Force Against 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),\8\ Annex 1 
(Recommendation 15). The recommendation applies equally to banks and 
non-banks.\9\
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    \8\ The FATF is an inter-governmental body whose purpose is the 
development and promotion of policies to combat money laundering. 
Originally created by the G-7 nations, its membership now includes 
Argentina, Australia, Austria, Belgium, Brazil, Canada, Denmark, 
Finland, France, Germany, Greece, Hong Kong, Iceland, Ireland, 
Italy, Japan, Luxembourg, Mexico, 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.
    \9\ This recommendation revises the original recommendation, 
issued in 1990, that required institutions to be either ``permitted 
or required'' to report. (Emphasis supplied.) The revised 
recommendation reflects the international consensus that a mandatory 
suspicious transaction reporting system is essential to an effective 
national counter-money laundering program and to the success of 
efforts of financial institutions themselves to prevent and detect 
the use of their services or facilities by money launderers and 
others engaged in financial crime.
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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.\10\ 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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    \10\ The Organization of American States (``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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D. Suspicious Activity Reporting by Currency Dealers and Exchangers

    The MSB SAR rule currently does not apply to either check cashers 
or to currency dealers/exchangers. As FinCEN explained in the preamble 
to the final MSB SAR rule, ``[b]ecause the operations of check cashers 
and currency exchangers 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.'' \11\ 
However, FinCEN noted that it would 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.
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    \11\ 65 FR 13683, 13689 n. 26 (March 14, 2000).
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    FinCEN has determined that it is now appropriate to extend to 
currency dealers and exchangers the requirement to report suspicious 
transactions.\12\ An effective anti-money laundering program must cover 
a broad range of financial institutions to make it increasingly 
difficult for criminals to evade detection by re-routing illicit 
transactions through financial institutions or products that are 
subject to a narrower scope of anti-money laundering rules than other 
types of financial institutions. The proposed rule is intended to 
foster detection and reporting of illegal activity involving the use of 
currency dealer/exchange services, including, among other things, money 
laundering and terrorist financing. In addition, the proposed rule is 
intended to contribute to international efforts to combat the abuse of 
currency dealers and exchangers by criminals.
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    \12\ The terms currency ``dealer'' in 31 CFR 103.11(uu)(1) were 
intended to be interchangeable to ensure that the regulation 
captured the same type of activity whether denominated as exchanging 
or dealing--the physical exchange of currency for retail customers.
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    Although currency dealers and exchangers offer products and 
services predominantly used for legitimate purposes, they can be abused 
by criminals seeking to obscure the source of illegally-derived funds. 
For example, small denomination bills may be exchanged for large 
denomination bills in order to aid in the smuggling of cash, or to 
disguise the origin of the cash.\13\ In addition, currency dealers and 
exchangers have been used to launder narcotics proceeds being 
transferred between the United States and Latin America.\14\
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    \13\ See e.g., U.S., v. Farese, 248 F.3d 1056, 1059 (11th Cir. 
2001) (exchanging large-denomination bills for small-denomination 
bills facilitates money laundering by reducing the volume of the 
bills.)
    \14\ See, e.g., U.S. v. All Monies in Account No. 90-3617-3, 754 
F. Supp. 1467 (D. Hi. 1991) (describing how drug traffickers 
laundered narcotics proceeds through a currency exchanger located in 
Peru, which had bank accounts in the United States).
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    The international consensus is that currency dealers and exchangers 
are vulnerable to abuse not only by money launderers but also by those 
wishing to finance terrorist activity. On October 31, 2001, FATF issued 
its Special Recommendations on Terrorist Financing. Special 
Recommendation Four provides that:

[i]f financial institutions, or other businesses or entities subject 
to anti-money laundering obligations, suspect or have reasonable 
grounds to suspect that funds are linked or related to, or are to be 
used for terrorism, terrorist acts or by terrorist organizations, 
they should be required to report promptly their suspicions to the 
competent authorities.

For purposes of FATF's Special Recommendation Four, the term 
``financial institutions'' is intended to refer to both banks and non-
bank financial institutions including, among other non-bank financial 
institutions, bureaux de change.\15\ On December 4, 2001, the European 
Parliament and the Council of the European Union issued Directive 2001/
97/EC amending Directive on Prevention of the Use of the Financial 
System for the Purpose of Money Laundering for the purpose of, among 
other things, reinforcing that anti-money laundering provisions should 
apply to currency exchange offices given expression of concern by the 
European Parliament regarding the vulnerability of such entities to 
money laundering. Finally, the experience of foreign governments with 
the use of currency dealers and exchangers in money laundering schemes 
emphasizes the importance of mandating suspicious activity reporting by 
currency dealers and exchangers.\16\
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    \15\ See Guidance Notes for the Special Recommendations on 
Terrorist Financing and the Self-Assessment Questionnaire, Special 
Recommendation Four, paragraph 19 (March 27, 2002). FATF defines 
``bureaux de change'' as ``institutions which carry out retail 
foreign exchange operations.'' See also Financial Action Task Force 
Annual Report, supra, Annex 1 (Interpretive Note to Recommendations 
8 and 9 (Bureaux de Change).
    \16\ See, e.g., London Men Found Guilty of Laundering [pound]3 
Million Through Bureaux De Change, HM Customs and Excise (October 9, 
2001); Legislative Summary for Bill C-22: An Act to Facilitate 
Combatting the Laundering of Proceeds of Crime, to Establish the 
Financial Transactions and Reports Analysis Centre of Canada and to 
Amend and Repeal Certain Acts in Consequence Thereof, LS-355E (May 
5, 2000) (``Foreign currency-exchange houses are the second most 
common vehicle for money laundering. In addition to being less 
regulated than chartered banks, they provide services such as 
converting small denominations of cash into larger, less suspicious, 
denominations.''); Financial Action Task Force 1997-1998 Report on 
Money Laundering Typologies, (February 12, 1998) (In a typologies 
exercise conducted by FATF for the purpose of providing law 
enforcement and regulators a forum to discuss trends in money 
laundering, FATF found an increase in the use of currency exchangers 
in money laundering operations); Financial Action Task Force Annual 
Report, supra, Annex 1 (Interpretive Note to Recommendations 8 and 9 
(Bureaux de Change) (Abuse of currency exchangers by money 
launderers has lead FATF to conclude that ``bureaux de change should 
be subject to the same anti-money laundering regulations as any 
other financial institution* * * Of particular importance are those 
on identification requirements, suspicious transaction reporting, 
due diligence and record-keeping.'').

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[[Page 64079]]

III. Specific Provisions

A. Reporting Institutions

    FinCEN proposes amending paragraph 103.20(a)(1) to add currency 
dealers and exchangers to the list of money services businesses to 
which the MSB SAR rule applies. As explained above, this reflects 
growing concern on the part of FinCEN and the international community 
about the vulnerability of currency dealers and exchangers to money 
laundering and potentially to terrorist financing. It should be noted 
that, under the terms of the MSB SAR rule and the amendments to the 
rule proposed in this document, a money services business is subject to 
suspicious transaction reporting only with respect to transactions that 
involve or relate to the business activities described in 103.11(uu) 
(1), (3), (4), (5), or (6). Thus, for example, a currency dealer or 
exchanger (a money services business described in 103.11(uu)(1)) that 
is also a check casher (a money services business described in 
103.11(uu)(2)) would not be required to report under the MSB SAR rule 
with respect to its check cashing activities in general, although it 
would be required to report check cashing activity that was part of a 
series of transactions that led to, for example, a suspicious currency 
exchange.\17\
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    \17\ FinCEN is continuing to review whether it is appropriate to 
extend the suspicious activity reporting requirement to other 
categories of money services businesses not currently subject to the 
rule.
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B. Reportable Transactions

    FinCEN is proposing to amend the MSB SAR rule by adding a fourth 
reporting category, described in proposed paragraph (a)(2)(iv), 
involving the use of a money services business to facilitate criminal 
activity. The addition of a fourth category of reportable transactions 
to the rule is intended to ensure that transactions involving legally-
derived funds that the money services business suspects are being used 
for a criminal purpose, such as terrorist financing, are reported under 
the rule.\18\ The addition of this reporting category is not intended 
to effect a substantive change in the rule. Such transactions should be 
reported under the broad language contained in the third reporting 
category, requiring the reporting of transactions with ``no business or 
apparent lawful purpose.'' FinCEN believes that this broad language 
should be interpreted to require the reporting of transactions that 
appear linked to any form of criminal activity. Nevertheless, the 
fourth category has been added to make explicit that transactions being 
carried out for the purpose of conducting illegal activities, whether 
or not funded from illegal activities, must be reported under the rule.
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    \18\ The fourth reporting category has been added to the 
suspicious activity reporting rules promulgated since the passage of 
the USA PATRIOT ACT to make this point clear. See 31 CFR 103.19, and 
103.21.
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C. Filing Instructions

    This document proposes amending paragraph 103.20(b)(3) to include 
FinCEN's Financial Institution Hotline (1-866-556-3974) for use by 
financial institutions wishing voluntarily to report to law enforcement 
suspicious transactions that may relate to terrorist activity. Money 
services businesses reporting suspicious activity by calling the 
Financial Institutions Hotline must still file a timely SAR-MSB to the 
extent required by 31 CFR 103.20.

IV. Submission of Comments

    An original and four copies of any written hard copy comment (but 
not of comments sent via E-Mail), must be submitted. All comments will 
be available for public inspection and copying, and no material in any 
such comments, including the name of any person submitting comments, 
will be recognized as confidential. Accordingly, material not intended 
to be disclosed to the public should not be submitted.

V. Regulatory Flexibility Act

    FinCEN certifies that this proposed regulation will not have a 
significant economic impact on a substantial number of small entities. 
The average currency exchange is approximately $300, an amount which is 
substantially below the $2000 threshold that triggers reporting under 
the proposed amendments to 31 CFR 103.20. Thus, FinCEN believes the 
rule will not have a significant economic burden on small entities.

VI. Executive Order 12866

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

VII. Paperwork Reduction Act

    Recordkeeping Requirements of 31 CFR 103.20. The collection of 
information contained in this notice of proposed rulemaking is being 
submitted to the Office of Management and Budget for review in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)). Comments on the collection of information should be sent to 
the Office of Management and Budget, Attn: Joseph F. Lackey, Jr., 
Office of Information and Regulatory Affairs, Office of Management and 
Budget, New Executive Office Building, Room 3208, Washington, DC 20503, 
with copies to FinCEN at Department of the Treasury, Financial Crimes 
Enforcement Network, Post Office Box 39, Vienna, Virginia 22183. 
Comments on the collection of information should be received by 
December 16, 2002. In accordance with requirements of the Paperwork 
Reduction Act of 1995, 44 U.S.C. 3506(c)(2)(A), and its implementing 
regulations, 5 CFR part 1320, the following information concerning the 
collection of information as required by 31 CFR 103.20 is presented to 
assist those persons wishing to comment on the information collection.
    FinCEN anticipates that this proposed rule, if adopted as proposed, 
would result in the annual filing of a total of 3,100 SAR-MSB forms by 
currency dealers and exchangers. This result is an estimate, based on a 
projection of the size and volume of the industry.
    Description of Respondents: Currency dealers and exchangers.
    Estimated Number of Respondents: 3,100.
    Frequency: As required.
    Estimate of Burden: The reporting burden of 31 CFR 103.20 will be 
reflected in the burden of the form, Suspicious Activity Report-MSB. 
The recordkeeping burden of 31 CFR 103.20 is estimated as an average of 
20 minutes per form.
    Estimate of Total Annual Recordkeeping Burden on Respondents: 
Recordkeeping burden estimate = 1,033 hours.
    FinCEN specifically invites comments on the following subjects: (a) 
Whether the proposed collection of information

[[Page 64080]]

is necessary for the proper performance of the mission of FinCEN, 
including whether the information will have practical utility; (b) the 
accuracy of FinCEN's estimate of the burden of the proposed collection 
of information; (c) ways to enhance the quality, utility, and clarity 
of the information to be collected; and (d) ways to minimize the burden 
of the collection of information on respondents, including through the 
use of automated collection techniques or other forms of information 
technology.
    In addition, the Paperwork Reduction Act of 1995 requires agencies 
to estimate the total annual cost burden to respondents or 
recordkeepers resulting from the collection of information. Thus, 
FinCEN also specifically requests comments to assist with this 
estimate. In this connection, FinCEN requests commenters to identify 
any additional costs associated with the completion of the form. These 
comments on costs should be divided into two parts: (1) Any additional 
costs associated with reporting; and (2) any additional costs 
associated with recordkeeping.

List of Subjects in 31 CFR Part 103

    Authority delegations (Government agencies), Banks, 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 
proposed to be amended as follows:

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. 5311-5314, 
5316-5332; title III, secs. 314, 352, Pub. L. 107-56, 115 Stat. 307.

    2. In subpart B, amend Sec.  103.20 as follows:
    a. Revise the first sentence of paragraph (a)(1),
    b. Add new paragraph (a)(2)(iv), and
    c. Add a new sentence to the end of paragraph (b)(3).
    The additons and revisions 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) (1), (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. * * *
    (2) * * *
    (iv) Involves use of the money services business to facilitate 
criminal activity.
* * * * *
    (b) * * *
    (3) * * * Money services businesses wishing voluntarily to report 
suspicious transactions that may relate to terrorist activity may call 
FinCEN's Financial Institutions Hotline at 1-866-556-3974 in addition 
to filing timely a SAR-MSB if required by this section.
* * * * *

    Dated: October 10, 2002.
James F. Sloan,
Director, Financial Crimes Enforcement Network.
[FR Doc. 02-26364 Filed 10-16-02; 8:45 am]
BILLING CODE 4810-02-P