[Federal Register Volume 68, Number 90 (Friday, May 9, 2003)]
[Proposed Rules]
[Pages 25163-25164]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-11015]



  Federal Register / Vol. 68, No. 90 / Friday, May 9, 2003 / Proposed 
Rules  

[[Page 25163]]


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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA31


Financial Crimes Enforcement Network; Customer Identification 
Programs for Certain Banks Lacking a Federal Functional Regulator

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

ACTION: Notice of proposed rulemaking.

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SUMMARY: FinCEN is 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) 
Act of 2001 (the Act) for certain banks lacking a federal functional 
regulator. The notice would extend to these banks the same section 326 
rules as apply both to banks with a federal functional regulator and to 
credit unions, trust companies, and private banks lacking a federal 
functional regulator.

DATES: Written comments on the proposed rule may be submitted on or 
before June 23, 2003.

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.
    Comments may be mailed to FinCEN, Section 326 Certain Credit Union 
and Trust Company Rule Comments, P.O. Box 39, Vienna, VA 22183, or sent 
to Internet address [email protected] with the caption 
``Attention: Section 326 for Certain Banks 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, 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 the Chief Counsel (FinCEN), 
(703) 905-3590.

SUPPLEMENTARY INFORMATION:

I. Background

A. Section 326 of the USA PATRIOT Act

    On October 26, 2001, President Bush signed the Act (Pub. L. 107-56) 
into law. 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 
of the BSA that requires the Secretary to prescribe regulations 
``setting forth minimum standards for financial institutions and their 
customers regarding the identity of the customer that shall apply in 
connection with the opening of an account at a financial institution. 
Under section 326, the regulations must require, at a minimum, 
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.

B. Proposed Amendment to 31 CFR 103.121

    On July 23, 2002, FinCEN and the federal bank regulators jointly 
issued a proposed rule \1\ under section 326 applicable to banks, as 
defined in 31 CFR 103.11(c), that have a federal functional regulator. 
At the same time, FinCEN issued a proposed rule under section 326 
applicable to credit unions, private banks, and trust companies lacking 
a federal functional regulator.\2\ Elsewhere in today's issue of the 
Federal Register, FinCEN and the federal bank regulators are adopting a 
final rule, 31 CFR 103.121, based on those proposals. The final rule 
applies to banks with a federal functional regulator and to credit 
unions, trust companies, and private banks without a federal functional 
regulator.
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    \1\ See 67 FR 48290. 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 Federal bank regulators, the SEC, and the 
CFTC (the Federal functional regulators).
    \2\ See 67 FR 48299.
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    FinCEN believes that 31 CFR 103.121 should apply to all banks 
regardless of their regulator. For that reason, this notice of proposed 
rulemaking would amend the final rule to extend its application to all 
banks without a federal functional regulator. In particular, the 
proposal would amend 31 CFR 103.121 by revising paragraph (a)(2)(ii) to 
read ``A bank, as set forth in Sec.  103.11(c), that does not have a 
Federal functional regulator.'' \3\
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    \3\ The amendment will close a potential loophole so that all 
similarly situated entities that are banks under the BSA rules and 
subject only to state supervision must comply with 31 CFR 103.121 
whether or not they fall within the categories of credit unions, 
private banks, or trust companies.
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    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.

II. Regulatory Flexibility Act

    FinCEN certifies, pursuant to the Regulatory Flexibility Act (5 
U.S.C. 602 et seq.), that the proposed rule will not have a significant 
economic impact on a substantial number of small entities. The proposed 
rule merely extends to all banks without a federal functional regulator 
the customer identification program requirements in 31 CFR 103.121, 
which currently apply to banks with a federal functional regulator and 
to credit unions, private banks, and trust companies without a federal 
functional regulator.
    The customer identification program requirements of 31 CFR 103.121 
closely parallel the requirements for customer identification programs 
mandated by section 326 of the Act. Moreover, FinCEN believes 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 under 31 CFR 103.121. 
First, all banks already undertake extensive measures to verify the 
identity of their customers as a matter of good business practice.
    Second, banks are already required by other provisions to check 
lists of known or suspected terrorists and should already have 
appropriate compliance programs in place. For example, 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 part 500. Banks should 
already have compliance programs in place to ensure that they do not 
violate OFAC rules. FinCEN understands that many banks, including small 
banks, have instituted programs to

[[Page 25164]]

check other lists provided to them by the Federal government following 
the events of September 11, 2001. FinCEN believes 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, FinCEN believes the provision in 31 CFR 103.121 that 
requires a bank to provide adequate notice to its customers that it is 
requesting information to verify their 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 of 31 CFR 103.121 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. FinCEN believes that 
the compliance burden, if any, is minimized for banks, including small 
banks, because banks have 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, FinCEN believes that the flexibility incorporated into the 
customer identification rules of 31 CFR 103.121 will permit each bank 
to tailor its customer identification program to fit its own size and 
needs. In this regard, FinCEN believes that expenditures associated 
with establishing and implementing a customer identification program 
will be commensurate with the size of a bank. If a bank is small, the 
burden to comply with the customer identification requirements should 
be de minimis.

III. Executive Order 12866

    Treasury has determined that this proposal is not a ``significant 
regulatory action'' under Executive Order 12866.

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 continues to read as 
follows:

    Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314 
and 5316-5332; title III, secs. 312, 313, 314, 319, 326, 352, Pub L. 
107-56, 115 Stat. 307.
    2. Subpart I of part 103 is amended by revising paragraph 
(a)(2)(ii) of Sec.  103.121 to read as follows:


Sec.  103.121  Customer Identification Programs for banks, savings 
associations, credit unions, and certain non-Federally regulated banks.

    (a) * * *
    (2) * * *
    (ii) A bank, as set forth in Sec.  103.11(c), that does not have a 
Federal functional regulator.
* * * * *

    Dated: April 28, 2003.
James F. Sloan,
Director, Financial Crimes Enforcement Network.
[FR Doc. 03-11015 Filed 5-8-03; 8:45 am]
BILLING CODE 4810-02-P