[Federal Register Volume 68, Number 96 (Monday, May 19, 2003)]
[Rules and Regulations]
[Pages 26996-26997]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-12371]


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DEPARTMENT OF THE TREASURY

31 CFR Part 103


Notice of Temporary Extension of Conditional Exception to Bank 
Secrecy Act Regulations Relating to Orders for Transmittal of Funds by 
Financial Institutions

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

ACTION: Extension of conditional exception.

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SUMMARY: FinCEN is giving notice that it is extending, until December 
1, 2003, a conditional exception to a Bank Secrecy Act requirement that 
is due to expire on May 31, 2003. The exception permits financial 
institutions to substitute coded information for the true name and 
address of a customer in a funds transmittal order. The purpose of the 
extension is to permit FinCEN to perform a study of the alternatives to 
continuing the conditional exception.

DATES: Effective June 1, 2003.

FOR FURTHER INFORMATION CONTACT: David Vogt, Executive Associate 
Director, Office of Regulatory Programs, FinCEN, (202) 354-6400, or 
Judith R. Starr, Chief Counsel, FinCEN, (703) 905-3590.

SUPPLEMENTARY INFORMATION:

I. Background

    In 1998, FinCEN granted a conditional exception (``the CIF 
Exception'') to the strict operation of 31 CFR 103.33(g) (the ``Travel 
Rule''). See FinCEN Issuance 98-1, 63 FR 3640 (January 26, 1998). The 
Travel Rule requires a financial institution to include certain 
information in transmittal orders relating to transmittals of funds of 
$3,000 or more. The CIF Exception addressed computer programming 
problems in the banking and securities industries by relaxing the 
Travel Rule's requirement that a customer's true name and address be 
included in a funds transmittal order, so long as alternate steps, 
described in FinCEN Issuance 98-1 and designed to prevent avoidance of 
the Travel Rule, were satisfied. By its terms, the CIF Exception to the 
Travel Rule was to expire on May 31, 1999; however, in light of 
programming burdens associated with year 2000 compliance issues, FinCEN 
extended the CIF Exception so that it would expire on May 31, 2001. See 
FinCEN Issuance 99-1, 64 FR 41041 (July 29, 1999). On May 30, 2001, 
after first soliciting input from the law enforcement community for its 
views on any law enforcement burdens caused by the CIF Exception, 
FinCEN again extended the CIF Exception. The CIF Exception is scheduled 
to expire on May 31, 2003. See FinCEN Issuance 2001-1, 66 FR 32746 
(June 18, 2001). On March 7, 2003, FinCEN published a Notice of intent 
to permit the CIF exception to expire on May 31, 2003. The Notice 
solicited comment on four issues:
    (1) Whether there are technological barriers to full compliance 
with the Travel Rule;
    (2) Whether financial institutions will require additional time to 
comply;
    (3) Whether the exception has had an adverse effect on law 
enforcement investigations; and
    (4) Whether there is a potential for abuse of the exception.

II. The CIF Exception

    FinCEN promulgated the Travel Rule in 1995. The Travel Rule 
requires financial institutions to include certain information in 
transmittal orders relating to transmittals of funds of $3,000 or more, 
which must ``travel'' with the order throughout the funds transmittal 
sequence. Among these requirements is that each transmittor's financial 
institution and intermediary financial institution include in a 
transmittal order the transmittor's true name and street address. See 
31 CFR 103.33(g)(1)(i)-(ii) and (g)(2)(i)-(ii). Subsequently, financial 
institutions represented to FinCEN that their ability to comply with 
the Travel Rule at all depended on their ability to use their automated 
customer information files, known as CIFs. Although an originating 
institution always knew the originating customer's true name and 
address, the CIFs were often programmed with coded or nominee names and 
addresses (or post office boxes). The reprogramming tasks involved in 
changing the CIFs were represented to be a significant barrier to 
compliance with the Travel Rule. In light of these burdens, and in the 
interest of obtaining prompt compliance, FinCEN promulgated the 
conditional exception.
    The conditional exception provides that a financial institution may 
satisfy the requirements of 31 CFR 103.33(g) that a customer's true 
name and address be included in a transmittal order, only upon 
satisfaction of the following conditions:
    (1) The CIFs are not specifically altered for the particular 
transmittal of funds in question;
    (2) The CIFs are generally programmed and used by the institution 
for customer communications, not simply for transmittal of funds 
transactions, and as so programmed generate other than true name and 
street address information;
    (3) The institution itself knows and can associate the CIF 
information used in the funds transmittal order with the true name and 
street address of the transmittor of the order;
    (4) The transmittal order includes a question mark symbol 
immediately following any designation of the transmittor other than by 
a true name on the order;
    (5) Any currency transaction report or suspicious activity report 
by the institution with respect to the funds transmittal contains the 
true name and address information for the transmittor and plainly 
associates the report with the particular funds transmittal in 
question.
    The conditional exception further provides that it has no 
application to any funds transmittals for whose processing an 
institution does not automatically rely on preprogrammed and 
prespecified CIF name and address information. FinCEN's release 
promulgating the CIF Exception further warned financial institutions 
that any customer request for a nominee name in a CIF should be 
carefully evaluated as a potentially suspicious transaction. See 63 FR 
3642.

III. Comments Received on the Expiration of the CIF Exception

    The comment period closed on April 21, 2003. FinCEN received 16 
comments from banks, trade groups, financial consultants, the Federal 
Reserve's Wholesale Products Branch, and the Department of Justice, 
reflecting a diversity of views. Eight commenters

[[Page 26997]]

agreed that the exception should expire; seven commenters (three of 
them in one joint comment), opposed letting the exception expire; one 
commenter split the difference in favor of requiring the true name but 
keeping the exception for the true address; and the Federal Reserve's 
Wholesale Products Branch urged that FinCEN perform a study of the 
current and future uses of customer identification before determining 
whether it is necessary to let the exception lapse.
    Industry Comments. The financial community commenters were divided 
on all the issues raised in the Notice.
    Industry comments in favor of expiration. Comments received from 
community banks, independent banks, and credit unions supported letting 
the exception expire. They stated they are generally in compliance 
already, or can do so readily with the change of a form. They saw no 
technological barriers to compliance. For instance, one trade 
organization stated that its members using Fedwire are already in 
compliance, and that Fedwire has fields for entering true name and 
address information. According to this commenter, the Federal Home Loan 
Bank wire service also accommodates this information in its funds 
transmittal orders. Another organization, which counts 1,000 credit 
unions as its members, stated there will be no problem complying by 
June 1, 2003. It also stated that it believes having the true name and 
address fields in the transmittal orders will simplify compliance with 
Sec. 314 and OFAC searches.
    Industry comments opposed to expiration. The contrary viewpoint was 
represented by several large banks and three major trade associations. 
They stated that compliance with the true name and address requirement 
would impose significant reprogramming costs upon them. According to 
one bank, customer names and addresses are stored in their CIFs. They 
may contain a variety of different addresses and name variations, 
especially for corporate customers. The wire transfer systems are 
separate from the CIFs and do not interface directly with them. 
Apparently, the banks would have to reprogram their CIFs to track and 
send true name and address information with individual payment orders. 
Although none of the commenters estimated the costs associated with 
such reprogramming, they contend it would be expensive. Given their 
other Patriot Act tasks, they believed it would be impossible to 
complete such reprogramming before the deadline.\1\ None of these 
commenters believed there is any harm to law enforcement from the 
exception, citing the paucity of requests for true name and address 
information they have received from law enforcement over the years. 
Finally, they did not see much potential for abuse. A joint comment by 
the trade associations stated that the use of pseudonym in private 
banking accounts (cited in the Notice) occurs only in exceptional cases 
such as for public figures, or to hide a name in an accumulation 
account that might tip off the market to a trading strategy.\2\
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    \1\ In contrast, one bank stated it does not use coded customer 
names, and its comment was solely concerned with the issue of using 
true addresses because of the existence of alternate addresses for 
customers, which it believed would cost it $20,000 in programming 
development costs to address.
    \2\ FinCEN notes, however, that these examples appear to violate 
the condition of the exception that the code be in use generally and 
that there be no alteration for a specific case.
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    Government comments. Government comments were likewise divided. The 
Department of Justice strongly supported expiration of the exception, 
arguing that it has already outlived the reasons it was originally 
granted. Justice stated that it would be easier to obtain timely 
compliance with subpoenas if banks did not have to check additional 
records to find true name and address information.\3\ The Federal 
Reserve's Wholesale Products Office (``WPO''), however, stated that 
discussions with its customer advisory group lead it to believe that 
many banks are ill equipped to comply if the exception expires. The WPO 
also expressed concern about the effect expiration of the exception 
could have on straight-through processing initiatives, which aim at 
eliminating manual intervention in the flow of payment information from 
originator to beneficiary. Therefore, it proposes that FinCEN study the 
use of CIFs to determine the effect of the elimination of the exception 
would have, not only on current systems, but on the achievement of 
processing goals.
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    \3\ In addition, the exception can prevent law enforcement and 
intelligence analysts from being able to track fully the flow of 
funds. Suspicious Activity Reports filed by intermediary 
institutions that do not have true name and address information are 
much less useful. Intercepts or undercover operations that obtain 
intermediary transmittals and cannot approach banks because of the 
sensitivity of their operations will lack information that may be 
critical to them. The use of coded information may prevent an 
intermediary bank from recognizing that it has records related to a 
government target, and, if the government has not also approached 
the transmitting bank, critical information may be missed.
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IV. Need for Further Study

    FinCEN believes that the WPO is correct that further study is 
needed, albeit a study more precisely targeted at the benefits and 
burdens associated with the available alternatives. The technological 
issues involved in complying with the Travel Rule appear to vary among 
financial institutions, and it is not clear what the global costs would 
be of removing the exception entirely. Having gaps in the funds 
transfer process where the inability to recognize the identity of a 
funds transmittor could harm law enforcement investigations should be 
avoided where possible, as should imposing unnecessary costs at a time 
when financial institutions are working diligently to comply with 
numerous Patriot Act requirements. FinCEN therefore intends to perform 
a study to determine the best way to reconcile the competing interests 
by obtaining data on the costs and benefits of each available 
alternative (for example, it may be feasible to require true name 
information but not true address information). For the expected 
duration of the study (approximately 180 days), the CIF Exception will 
be temporarily extended.

V. FinCEN Issuance 2003-1

    By virtue of the authority contained in 31 CFR 103.55(a) and (b), 
which has been delegated to the Director of FinCEN, the effective 
period of the CIF Exception, as such Exception is set forth (as part of 
FinCEN Issuance 98-1, 63 FR 3640 (January 6, 1998)) under the heading 
``Grant of Exceptions'' (63 FR 3641) is extended so that the CIF 
Exception will expire on December 1, 2003 (if not revoked or modified 
with respect to such expiration date prior to that time), for 
transmittals of funds initiated after that date.

    Dated: May 13, 2003.
James F. Sloan,
Director, Financial Crimes Enforcement Network.
[FR Doc. 03-12371 Filed 5-16-03; 8:45 am]
BILLING CODE 4810-02-P