[Federal Register Volume 68, Number 36 (Monday, February 24, 2003)]
[Proposed Rules]
[Pages 8571-8574]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-4172]


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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RINs 1506-AA28 and 1506-AA38


Financial Crimes Enforcement Network; Anti-Money Laundering 
Programs for Travel Agencies

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

ACTION: Advance Notice of Proposed Rulemaking.

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SUMMARY: FinCEN is in the process of implementing the requirements 
delegated to it under the USA PATRIOT Act of 2001, in particular the 
requirements of the Act that require financial institutions to 
establish anti-money laundering compliance and customer identification 
programs. The term ``financial institution'' is defined to include a 
``travel agency.'' FinCEN is issuing this advance notice of proposed 
rulemaking (ANPRM) to solicit public comments on a wide range of 
questions pertaining to this requirement, including how to define the 
term travel agency.

DATES: Written comments may be submitted on or before April 10, 2003.

ADDRESSES: Because paper mail in the Washington area may be subject to 
delay, commenters are encouraged to e-mail comments. Comments may be 
submitted by electronic mail to [email protected] with the 
caption in the body of the text, ``ATTN: ANPRM--Section 352--Travel 
Agency Regulations.'' Comments may be mailed to FinCEN, P.O. Box 39, 
Vienna, VA 22183, ATTN: ANPRM--Section 352--Travel Agency Regulations. 
Comments should be sent by one method only. Comments may be inspected 
at FinCEN 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: Office of Chief Counsel, FinCEN, (703) 
905-3590; the Office of the General Counsel, (202) 622-1927; or the 
Office of the Assistant General Counsel (Banking and Finance), (202) 
622-0480 (not toll-free numbers).

SUPPLEMENTARY INFORMATION: 

I. Background

    On October 26, 2001, the President signed into law 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)

[[Page 8572]]

(the Act). Title III of the Act makes a number of amendments to the 
anti-money laundering provisions of the Bank Secrecy Act (BSA), which 
are codified in subchapter II of chapter 53 of title 31, United States 
Code. These amendments are intended to make it easier to prevent, 
detect, and prosecute international money laundering and the financing 
of terrorism. Section 352(a) of the Act, which became effective on 
April 24, 2002, amended section 5318(h) of the BSA. As amended, section 
5318(h)(1) requires every financial institution to establish an anti-
money laundering program that includes, at a minimum: (i) The 
development of internal policies, procedures, and controls; (ii) the 
designation of a compliance officer; (iii) an ongoing employee training 
program; and (iv) an independent audit function to test programs. When 
prescribing minimum standards for anti-money laundering programs, 
section 352 directs the Treasury to consider the extent to which such 
standards are commensurate with the size, location, and activities of 
the financial institutions to which such regulations apply.
    As a ``travel agency'' is defined as a financial institution under 
the BSA, 31 U.S.C. 5312(a)(2)(Q), it is subject to the anti-money 
laundering program requirement. On April 29, 2002, FinCEN temporarily 
exempted certain financial institutions, including travel agencies, 
from the requirement to establish an anti-money laundering compliance 
program. The purpose of the deferral was to enable FinCEN to study the 
affected industries and consider to what extent anti-money laundering 
program requirements could best be applied, taking into account the 
specific characteristics of the various entities defined as financial 
institutions by the BSA.\1\
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    \1\ See 31 CFR 103.170, as codified by interim final rule 
published at 67 FR 21110 (April 29, 2002), as amended at 67 FR 67547 
(November 6, 2002) and corrected at 67 FR 68935 (November 14, 2002).
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    In addition, section 326 of the Act added new subsection (l) to 31 
U.S.C. 5318, which requires Treasury to prescribe regulations setting 
forth minimum standards for financial institutions to identify 
customers applying to open accounts. Section 326 applies to all BSA 
financial institutions that open accounts for their customers.
    FinCEN is proceeding with this ANPRM because of questions about 
travel agencies and money laundering that make it difficult to assess 
the benefits and burdens associated with imposition of anti-money 
laundering regulations on this industry. Through this process, FinCEN 
hopes to solicit sufficient information to enable it to determine 
whether to go forward with a Notice of Proposed Rulemaking, as well as 
the scope of entities and procedures that any such Notice should 
encompass.

II. Issues for Comment

1. How Should a Travel Agency Be Defined? Should There Be a Minimum 
Threshold Value in the Definition?

    Although the BSA identifies a travel agency as a financial 
institution, the statute contains no definition of the term, nor has 
FinCEN had an occasion to define the term in a regulation. Thus, the 
first step in addressing the appropriateness of issuing anti-money 
laundering regulations is determining a functional definition of a 
travel agency. The legislative history of the BSA provides no insight 
into how Congress intended the term to be defined.
    As the name implies, a travel agency offers its services in the 
capacity of an agent, and not as a principal. A travel agency offers 
travel and tourism related services to the public as a result of agency 
agreements with airlines, cruise lines, hotels, and other suppliers of 
travel-related services. It may contract directly with suppliers such 
as hotels, car rental companies, and tour operators, or may contract 
with a coordinating body such as the Airlines Reporting Corporation 
(ARC)\2\ and the International Airlines Travel Agency Network (IATAN). 
Travel agencies also may provide financial services such as traveler's 
checks to their customers, and may offer travel-related insurance. 
Travel agencies that offer such financial services in conjunction with 
travel services are considered financial institutions for the purpose 
of consumer privacy regulations.\3\
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    \2\ ARC provides a mechanism that carriers may use to appoint 
travel agents, and such agents are then entitled to use ARC standard 
ticket stock for participating carriers, which comprise the vast 
majority of domestic and international carriers. ARC requires travel 
agents to obtain and maintain an irrevocable letter of credit as 
bond.
    \3\ See 16 CFR 313.3 (k)(2)(ix) (Federal Trade Commission 
regulations governing privacy of consumer information).
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    For purposes of this ANPRM, FinCEN is using the following 
functional definition of travel agency: ``Any person who sells, as an 
agent and not as a principal, the following travel services: airline 
tickets, rail tickets, hotel and motel reservations, and cruise 
reservations, or some combination of those services.'' This definition 
excludes direct sales by service providers such as hotels and tour 
buses. These principals are excluded because their inclusion appears to 
be at odds with the use of the term ``agency'' in the BSA definition 
(such entities are providers of travel-related services, rather than 
travel agents).
    According to the Small Business Administration (SBA), most travel 
agencies are small businesses.\4\ Of the 22,687 travel agencies 
identified by the SBA operating out of 29,332 establishments, only 450 
fall outside the SBA definition of a small business in this industry. 
These larger businesses generate 47% of all industry revenue.\5\ 
FinCEN's regulations in the past have recognized that businesses that 
do not transact in sufficient dollar amounts or volume may not present 
sufficient money laundering risk to require the imposition of federally 
mandated programs. For example, under the BSA, money services 
businesses other than money transmitters (currency exchangers and check 
cashers, as well as issuers, sellers, and redeemers of traveler's 
checks and money orders) are defined as financial institutions only if 
they transact over $1,000 in covered transactions for any one person in 
any one day.\6\ This threshold reflects the judgment that businesses 
that never engage in transactions above that level fail to present a 
money laundering risk sufficient to justify the regulatory burden. 
FinCEN solicits comment on whether, if travel agencies are required to 
implement anti-money laundering programs, there should be a monetary 
threshold of some kind in defining a travel agency for purposes of the 
BSA. Commenters should address whether any such threshold should be 
transaction based, as with the money services business rules, or on an 
annual gross income, or some other basis.
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    \4\ See 67 FR 38184 (May 31, 2002) (raising ceiling for defining 
a travel agency as a small business to $3 million in total revenue, 
a definition encompassing 98% of travel agencies).
    \5\ Id.
    \6\ 31 CFR 103.11(uu)(1)-(4).
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2. What Is the Potential Money Laundering Risk Posed By Travel 
Agencies? Are There Different Kinds of Travel Agencies or Different 
Services Offered That Pose Different Money Laundering Risks?

    Although some travel agencies perform some of the functions of 
traditional financial institutions, such as selling traveler's checks, 
such agencies, to the extent they meet the regulatory threshold, would 
be considered money services businesses under 31 CFR part 
103.11(uu)(4). The focus of this ANPRM is on the risks unique to travel 
agencies' provision of travel-related services. Within this focus, the 
industry does

[[Page 8573]]

present some potential money laundering risks. For example, some travel 
agencies have a significant portion of their clients pay for the 
agencies' products and services in cash. While the risk of money 
laundering is minimized, to some extent, by the existing obligation on 
all travel agencies to report, pursuant to 26 U.S.C. 6050I, 31 U.S.C. 
5331, and 31 CFR 103.30, the receipt of cash or monetary instruments in 
excess of $10,000,\7\ a rule that requires an anti-money laundering 
compliance or customer identification program may alleviate further the 
money laundering risk associated with the cash intensive nature of some 
travel agencies. Moreover, some travel agencies are associated with 
ancillary businesses, including money services businesses offering 
money transfer and check cashing, that pose additional money laundering 
risk. To the extent customers wish to avoid the recordkeeping and 
reporting requirements applicable to the money services side of the 
business, they may try to route their transactions through the 
unregulated travel agency side of the business. Instead of obtaining a 
money order or traveler's check to make an illicit payment (which would 
be subject to FinCEN's recordkeeping rules if over $3,000), a money 
launderer could buy an expensive airline ticket for another person, who 
could then exchange it for a legitimate-seeming refund.
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    \7\ Sellers of travel fall within the type of retail business 
required to report receipts of monetary instruments (cashier's 
checks, traveler's checks, money orders) that have face amounts of 
less than $10,000 and which are used to make a purchase of greater 
than $10,000. See 31 CFR 103.30.
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    FinCEN has received reports indicating that some travel agencies 
(or their customers) have engaged in structuring sequential deposits 
and withdrawals of cash near the reporting threshold of $10,000. There 
have also been reports of some travel agencies structuring outgoing 
wire transfers in small amounts to avoid BSA recordkeeping 
requirements. Some travel agents have been observed receiving unusual 
wire transfers from foreign countries or wire transfers of unusually 
large amounts.
    In addition, travel agencies reportedly have been used to transfer 
value through the provision of in-kind services. A travel agent sending 
groups to a foreign country, for example, can make an offsetting 
payment in a foreign entity's U.S. or other account and instruct that 
entity to cover the costs of the group during their trip. This method 
is one way that businesses involved in informal value transfer systems, 
such as hawala,\8\ can transfer funds between entities in various 
countries.
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    \8\ See Report to Congress in Accordance with Section 359 of the 
USA Patriot Act (November 22, 2002), available on FinCEN's Web site 
at http://www.fincen.gov under Publications, Reports.
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    Travel agencies may need to have an understanding of the identity 
of customers who participate in transactions with money laundering 
risk. For purchases of travel services involving large sums of cash, 
knowing the customer's identity may be an essential part of an 
effective anti-money laundering program. Customers may request complex 
invoicing arrangements or payment arrangements or may structure their 
cash payments to avoid BSA reports. While travel agencies may 
scrutinize non-cash transactions to manage fraud risk, they are 
undoubtedly less aware of possible money laundering risk with both cash 
and non-cash transactions.
    Accordingly, FinCEN solicits comments on the existence of the 
above, and other, types of risks in the travel agency business. 
Specifically, FinCEN is interested in identifying risks in the products 
and services that travel agencies provide that make them uniquely 
susceptible to money laundering, as opposed to the risks inherent in 
all businesses that sell products or services to the public that may be 
purchased with tainted funds. Such heightened risks include, for 
example, the ability to transfer funds, even with a sizable penalty or 
cost, from one person to another; the ability to pay in funds and, in 
return, receive funds from the travel agency or related business that 
have the appearance of legitimacy and no ties to incoming funds. 
Furthermore, should regulatory distinctions based on money laundering 
risk be made between travel agencies that restrict their sales to 
domestic travel and those that handle international travel? Are there 
other functional distinctions that should be made?

3. Should Travel Agencies Be Exempt From Coverage Under Sections 352 
and 326 of the Patriot Act?

    Based on the determination of the extent of the risk of money 
laundering within the travel agency industry, the question arises as to 
whether the industry should be exempt under sections 352 and 326 of the 
Act. If the risk of money laundering in the travel agency industry is 
determined to be minimal such that it does not justify the imposition 
of a regulatory burden, it might be reasonable to exempt the industry 
from coverage of these provisions. This judgment will be based on the 
existing risks of money laundering, the potential risks of money 
laundering, as well as the volume of possible illicit funds that may 
flow through travel agencies.
    In light of these issues, FinCEN would like to solicit comments 
with regard to the issue of whether there should be an exemption from 
these provisions for travel agencies. These comments should be designed 
to enable FinCEN to decide whether or not to propose the promulgation 
of an appropriate regulation designed to provide protection for the 
travel agency industry with regard to the risk of money laundering.

4. If Travel Agencies, or Some Subset of the Industry, Should Be 
Subject to the Anti-Money Laundering Program Requirements, How Should 
the Program Be Structured?

    In applying section 352 to travel agencies, FinCEN must take into 
account which requirements are ``commensurate with the size, location, 
and activities'' of this industry. In undertaking this review, FinCEN 
recognizes that travel agencies likely have some programs already in 
place to meet existing legal obligations. For example, as a 
nonfinancial trade or business, travel agencies are required to report 
on Form 8300 the receipt of over $10,000 in currency and certain 
monetary instruments. Travel agencies also may have procedures in place 
to protect themselves against fraud. Such procedures may be sufficient 
in themselves given the money laundering risk in the industry, or they 
may serve as a foundation on which additional anti-money laundering 
program requirements could be built. FinCEN therefore seeks comment on 
what types of programs travel agencies have in place to prevent fraud 
and illegal activities, and the applicability of such programs to the 
prevention of money laundering.

5. Do Travel Agencies Maintain ``Accounts'' for Their Customers?

    Section 326 requires the setting of minimum standards for 
identification of customers ``in connection with the opening of an 
account at a financial institution.'' Section 311 of the Patriot Act 
provides a definition of ``account'' for banks, but requires the 
Secretary to promulgate a regulation defining ``account'' for non-bank 
financial institutions. Although such a regulation has yet to be 
issued, the definition for banks (``a formal banking or business 
relationship established to provide regular services, dealings, and 
other

[[Page 8574]]

financial transactions'') is a useful starting point. This definition 
incorporates two key concepts: (1) Formality of the business 
relationship, and (2) regularity of dealings. In light of these 
concepts, FinCEN solicits comments as to whether (and to what extent) 
travel agencies maintain accounts for their customers. If so, what 
kinds of services do travel agencies provide to account holders? Are 
these account relationships ongoing? Are accounts established to 
receive recurring payments from a customer, or are additional services 
provided to the accountholder?

III. Conclusion

    With this ANPRM, FinCEN is seeking input to assist it in 
determining how to implement the requirements of sections 352 and 326 
of the Act with respect to travel agencies. FinCEN welcomes comments on 
all aspects of potential regulation and encourages all interested 
parties to provide their views.

IV. Executive Order 12866

    Because this is an ANPRM, FinCEN does not know whether or in what 
form it may issue a regulation pursuant to sections 352 and 326 of the 
Act affecting travel agencies. Accordingly, FinCEN does not know 
whether potential regulations will constitute a significant regulatory 
action under the Executive Order. This ANPRM neither establishes nor 
proposes any regulatory requirements. FinCEN has submitted a notice of 
planned regulatory action to OMB for review. Because this ANPRM does 
not contain a specific proposal, information is not available with 
which to prepare an economic analysis. FinCEN will prepare a 
preliminary analysis if it proceeds with a proposed rule that 
constitutes a significant regulatory action.
    Accordingly, FinCEN solicits comments, information, and data on the 
potential effects of any potential regulation. FinCEN will carefully 
consider the costs and benefits associated with this rulemaking.

    Dated: February 12, 2003.
James F. Sloan,
Director, Financial Crimes Enforcement Network.
[FR Doc. 03-4172 Filed 2-21-03; 8:45 am]
BILLING CODE 4810-02-P