[Federal Register Volume 68, Number 104 (Friday, May 30, 2003)]
[Proposed Rules]
[Pages 32434-32437]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-13371]


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FEDERAL RESERVE SYSTEM

12 CFR Part 211

Regulation K; Docket No. R- 1147


International Banking Operations

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
is

[[Page 32435]]

seeking public comment on a proposal to require Edge and Agreement 
corporations and U.S. branches, agencies and other offices of foreign 
banks supervised by the Board to establish and maintain procedures 
reasonably designed to assure and monitor compliance with the Bank 
Secrecy Act and the regulations issued thereunder.

DATES: Written comments on all aspects of the proposal are welcome and 
must be received on or before June 30, 2003.

ADDRESSES: Comments should refer to Docket No. R-1147 and may be mailed 
to Ms. Jennifer J. Johnson, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, NW, 
Washington, DC 20551. However, because paper mail in the Washington 
area and at the Board of Governors is subject to delay, please consider 
submitting your comments by e-mail to federalreserve.gov">regs.comments@federalreserve.gov, 
or faxing them to the Office of the Secretary at 202-452-3819 or 202-
452-3102. Members of the public may inspect comments in Room MP-500 
between 9:00 a.m. and 5:00 p.m. on weekdays pursuant to 261.12, except 
as provided in 261.14, of the Board's Rules Regarding Availability of 
Information, 12 CFR 261.12 and 261.14.

FOR FURTHER INFORMATION CONTACT: Pamela J. Johnson, Senior Anti-Money 
Laundering Coordinator, (202) 728-5829, or Nina A. Nichols, Counsel, 
Division of Banking Supervision and Regulation, (202) 452-2961; or 
Melinda Milenkovich, Counsel, (202) 452-3274, or Thomas Scanlon, 
Counsel, Legal Division, (202) 452-2594. For users of 
Telecommunications Devices for the Deaf (TDD) only, contact (202) 263-
4869.

SUPPLEMENTARY INFORMATION:

I. Background

    In 1987, the federal bank supervisory agencies amended their 
respective regulations to require the banks, savings associations, and 
credit unions they regulated to establish and maintain procedures to 
assure and monitor compliance with the requirements of subchapter II of 
chapter 53 of Title 31, United States Code, commonly known as the 
``Bank Secrecy Act,'' and the Treasury regulations promulgated 
thereunder.\1\ The Bank Secrecy Act generally requires financial 
institutions to, among other things, keep records and make reports that 
have a high degree of usefulness in criminal, tax, or regulatory 
proceedings. The 1987 amendments to the supervisory agencies' 
regulations were adopted to comply with the requirements of section 
1359 of the Anti-Drug Abuse Act of 1986, Pub. L. 99-570, which required 
the supervisory agencies to prescribe regulations requiring the 
institutions they regulate to establish and maintain procedures 
reasonably designed to assure and monitor compliance with the Bank 
Secrecy Act and to review such procedures during the course of their 
examinations.
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    \1\ The notice was issued by the Office of the Comptroller of 
the Currency, the Board of Governors of the Federal Reserve System, 
the Federal Deposit Insurance Corporation, the Federal Home Loan 
Bank Board, and the National Credit Union Administration on January 
27, 1987, 52 FR 2858. It was effective January 27, 1987, and 
required programs to be in place by April 27, 1987.
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    The amendments to the supervisory agencies' regulations 
incorporated the minimum components of a Bank Secrecy Act compliance 
program as determined by the supervisory agencies and as generally set 
forth in the Bank Secrecy Act at 31 U.S.C. 5318(h). These include: (i) 
a system of internal controls to assure ongoing compliance; (ii) 
independent testing of compliance by the institution's personnel or by 
an outside party; (iii) the designation of an individual or individuals 
responsible for coordinating and monitoring day-to-day compliance; and 
(iv) training for appropriate personnel.
    The amendment to the Board's regulations is now codified in 
Regulation H at 12 CFR 208.63.\2\ The provision applies to state member 
banks, but corresponding provisions were not included in Regulation K 
for branches, agencies and representative offices of foreign banks or 
Edge and Agreement corporations. Such financial institutions are, 
however, subject to the Bank Secrecy Act and the regulations 
promulgated thereunder, and should maintain compliance programs 
accordingly.
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    \2\ The amendment was initially made to 12 CFR 208.14, but the 
provision was moved in subsequent changes to Regulation H.
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II. Proposed Bank Secrecy Act Program Requirements

    The Board is proposing to amend Regulation K to require Edge and 
Agreement corporations and U.S. branches, agencies, and other offices 
of foreign banks supervised by the Board to establish and maintain 
procedures reasonably designed to assure and monitor compliance with 
the Bank Secrecy Act.\3\
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    \3\ Statutory authority for the proposed rule is found in 
section 1359 of the Anti-Drug Abuse Act of 1986, Pub. L. 99-570, and 
in section 8(s)(1) of the Federal Deposit Insurance Act, as amended 
by section 2596(a)(2) of the Crime Control Act of 1990, Pub.L. 101-
647. The latter requires the Board to, among other things, issue 
regulations requiring state member banks and other domestic and 
foreign banking organizations operating in the United States and 
supervised by the Board, to establish and maintain internal 
procedures to ensure compliance with the Bank Secrecy Act. Section 
8(s)(1) of the Federal Deposit Insurance Act is made applicable to 
branches and agencies of foreign banks by sections 8(b)(3) and 
8(b)(4).
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    The Board believes that the proposed regulation will not impose any 
material additional administrative burden for affected institutions. In 
supervising branches, agencies and other offices of foreign banks or 
Edge and Agreement corporations, the Board has, as a matter of safety 
and soundness, consistently expected such entities to maintain programs 
to ensure compliance with all applicable provisions of the Bank Secrecy 
Act.
    Moreover, section 352 of the Uniting and Strengthening America by 
Providing Appropriate Tools Required to Intercept and Obstruct 
Terrorism Act, P.L. 107-56 (USA PATRIOT Act), amended 31 U.S.C. 5318(h) 
of the Bank Secrecy Act to impose a statutory requirement on all 
financial institutions to maintain anti-money laundering programs. The 
amendment to 31 U.S.C. 5318(h) was effective on April 24, 2002.
    The Treasury Department issued an interim final rule under section 
352 of the USA PATRIOT Act that applies to banking organizations.\4\ 
The interim rule provides that if a financial institution is in 
compliance with the anti-money laundering program requirements of its 
federal functional regulator or self-regulatory organization, the 
institution will be deemed to be in compliance with the statutory and 
regulatory requirements of the Treasury under 31 U.S.C. 5318(h). 
Because branches, agencies and representative offices of foreign banks 
and Edge and Agreement corporations are subject to the program 
requirement of 5318(h) of the Bank Secrecy Act, and the Treasury 
regulation provides that they will be in compliance if they comply with 
the Board's program requirement, the proposed regulation will provide 
necessary clarification. The proposed regulation will clarify the 
existing obligations of branches, agencies, and representative offices 
of foreign banks and Edge and Agreement corporations under the Board's 
rules, section 5318(h) and Treasury's interim final rule under section 
352 of the USA PATRIOT Act.
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    \4\ Treasury's interim final rule was published at 67 FR 21110 
(April 29, 2002). The requirement for banks, savings associations, 
and credit unions is codified in Treasury's Bank Secrecy Act 
regulations at 31 C.F.R. 103.120(b).
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    Compliance with the proposed rule will help to assure that 
institutions have

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in place policies and procedures to assure compliance with all 
applicable provisions of the Bank Secrecy Act, and that any 
deficiencies in the area of anti-money laundering, suspicious activity 
reporting, and customer due diligence are promptly identified and 
corrected. Institutions should note, however, that compliance with this 
requirement alone, while a potentially mitigating factor with regard to 
penalties or supervisory actions, is not a defense in a criminal 
prosecution or civil action involving a violation of the Bank Secrecy 
Act or regulations promulgated thereunder.
    The Board seeks comment on all aspects of this proposal.

III. Regulatory Flexibility Act

    The Board of Governors certifies that this proposed rule will not 
have significant economic impact on a substantial number of small 
entities. The proposal creates a uniform regulatory standard for 
ensuring and examining compliance with applicable law and regulation. 
Most institutions covered by the proposed rule, whether small or large, 
already have policies and procedures substantially equivalent to those 
required by the proposed rule. Therefore, the Board believes this 
proposed rule should not have a significant economic impact.

IV. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (PRA) (44 
U.S.C. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the proposed 
rule under the authority delegated to the Board by the Office of 
Management and Budget (OMB). The proposed rule contains recordkeeping 
requirements that are subject to the PRA. In summary, the proposed rule 
requires Edge and Agreement corporations and U.S. branches, agencies 
and other offices of foreign banks supervised by the Board to establish 
and maintain procedures reasonably designed to assure and monitor 
compliance with the Bank Secrecy Act and the regulations issued 
thereunder.
    The proposed rule applies only to Edge and Agreement corporations 
and U.S. branches, agencies, and other offices of foreign banks 
supervised by the Board. The proposed rule requires each of those 
entities to establish a written compliance program that includes the 
following components: (i) A system of internal controls to assure 
ongoing compliance; (ii) independent testing of compliance by the 
institution's personnel or by an outside party; (iii) the designation 
of an individual or individuals responsible for coordinating and 
monitoring day-to-day compliance; and (iv) training for appropriate 
personnel. The compliance program must be approved by the board of 
directors, and noted in the minutes.
    The Board believes that little burden is associated with the 
requirements for establishing a compliance program for the Bank Secrecy 
Act because the measures involved in the program are consistent with 
usual and customary business practices. In addition, the entities 
subject to the proposed rule already must implement procedures to 
comply with the requirements under the Bank Secrecy Act to file 
suspicious activity reports (see, e.g., 12 CFR 211.6(k)).
    The Federal Reserve may not conduct or sponsor, and an organization 
is not required to respond to, this collection of information unless it 
displays a currently valid OMB control number. An OMB control number 
will be obtained.
    Estimated number of financial institutions subject to the proposed 
rule: 520.
    Estimated average annual burden for establishing the written 
compliance program per financial institution: 16 hours (2 business 
days).
    Estimated total annual burden: 8,320 hours.
    The Board requests comment on the recordkeeping requirements 
contained in this proposed rule, including how burdensome it would be 
for affected financial institutions to comply with these requirements. 
Also, the Board requests comment on whether these institutions 
currently maintain procedures or other aspects of a compliance program 
as described in the proposed rule. The Board also invites comment on:
    (1) Whether the collections of information contained in the notice 
of proposed rulemaking are necessary for the proper performance of the 
Board's functions, including whether the information has practical 
utility;
    (2) The accuracy of the Board'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; and
    (5) Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchases of services to implement appropriate 
compliance procedures.
    Comments may be mailed to Ms. Jennifer J. Johnson, Secretary, Board 
of Governors of the Federal Reserve System, 20th Street and 
Constitution Avenue, NW, Washington, DC 20551. However, because paper 
mail in the Washington area and at the Board of Governors is subject to 
delay, please consider submitting your comments by e-mail to 
regs.comments64;federalreserve.gov, or faxing them to the Office of the 
Secretary at 202-452-3819 or 202-452-3102. Members of the public may 
inspect comments in Room MP-500 between 9:00 a.m. and 5:00 p.m. on 
weekdays pursuant to 261.12, except as provided in 261.14, of the 
Board's Rules Regarding Availability of Information, 12 CFR 261.12 and 
261.14.

V. Solicitation of Comments Regarding Use of ``Plain Language''

    Section 722 of the Gramm-Leach-Bliley Act, P.L. 106-102, requires 
the Board to use ``plain language'' in all proposed and final rules 
published after January 1, 2000. The Board invites comments about how 
to make the proposed rule easier to understand, including answers to 
the following questions: (1) Has the Board organized the material in an 
effective manner? If not, how could the material be better organized? 
(2) Are the terms of the rule clearly stated? If not, how could the 
terms be more clearly stated? (3) Does the rule contain technical 
language or jargon that is unclear? If so, which language requires 
clarification?

List of Subjects in 12 CFR Part 211

    Exports, Federal Reserve System, Foreign banking, Holding 
companies, Investments, Reporting and recordkeeping requirements.
    For the reasons set forth in the preamble, part 211 of chapter II 
of title 12 of the Code of Federal Regulations is proposed to be 
amended as follows:

PART 211--INTERNATIONAL BANKING OPERATIONS (REGULATION K)

    1. The authority citation for 12 CFR part 211 continues to read as 
follows:

    Authority: 12 U.S.C. 221 et seq., 1818, 1835a, 1841 et seq., 
3101 et seq., and 3901 et seq.; 15 U.S.C. 6801 and 6805; 31 U.S.C. 
5318
    2. In Sec. 211.5 add new paragraph (m)(1) to read as follows:


Sec.  211.5  Edge and agreement corporations.

    * * * * *
    (m) Procedures for monitoring Bank Secrecy Act compliance.
    (1) Establishment of Compliance Program. Each Edge corporation and 
each Agreement corporation shall, in accordance with the provisions of 
Sec.  208.63 of the Board's Regulation H, 12 CFR 208.63, develop and 
provide for the

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continued administration of a program reasonably designed to assure and 
monitor compliance with the provisions of subchapter II of chapter 53 
of title 31, United States Code, the Bank Secrecy Act, and the 
implementing regulations promulgated thereunder by the Department of 
the Treasury at 31 CFR part 103. The compliance program shall be 
reduced to writing, approved by the board of directors, and noted in 
the minutes.
    * * * * *
    3. In Sec. 211.24 revise the section heading and add new paragraph 
(j)(1) to read as follows:


Sec.  211.24  Approval of officers of foreign banks; procedures for 
applications; standards for approval; representative office activities 
and standards for approval; preservation of existing authority; reports 
of crimes and suspected crimes; government securities sales practices.

    * * * * *
    (j) Procedures for monitoring Bank Secrecy Act compliance.
    (1) Establishment of Compliance Program. Except for a federal 
branch or a federal agency or a state branch that is insured by the 
FDIC, a branch, agency, or representative office of a foreign bank 
operating in the United States shall, in accordance with the provisions 
of Sec.  208.63 of the Board's Regulation H, 12 CFR 208.63, develop and 
provide for the continued administration of a program reasonably 
designed to assure and monitor compliance with the provisions of 
subchapter II of chapter 53 of title 31, United States Code, the Bank 
Secrecy Act, and the implementing regulations promulgated thereunder by 
the Department of the Treasury at 31 CFR part 103. The compliance 
program shall be reduced to writing, approved by the board of 
directors, and noted in the minutes.
    * * * * *

    By order of the Board of Governors of the Federal Reserve 
System, May 23, 2003.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 03-13371 Filed 5-29-03; 8:45 am]
BILLING CODE 6210-01-S