[Federal Register Volume 68, Number 229 (Friday, November 28, 2003)]
[Rules and Regulations]
[Pages 66708-66710]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-29617]


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DEPARTMENT OF THE TREASURY

31 CFR Part 103


Notice of Expiration of Conditional Exception to Bank Secrecy Act 
Regulations Relating to Orders for Transmittals of Funds by Financial 
Institutions

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

ACTION: Notice of expiration of conditional exception following 
extension.

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SUMMARY: FinCEN is giving notice that on July 1, 2004, a conditional 
exception to a Bank Secrecy Act (BSA) requirement will permanently 
expire. Upon expiration of that exception, financial institutions will 
no longer be able to comply with the terms of that BSA requirement by 
using coded information or pseudonyms for the name of a customer in a 
funds transmittal order. This document further explains that FinCEN is 
revoking prior guidance regarding the meaning of the term ``address'', 
eliminating the need to utilize the conditional exception for 
transmittal orders lacking a transmittor's street address.

DATES: Effective December 2, 2003.

FOR FURTHER INFORMATION CONTACT: Don Carbaugh, Office of Regulatory 
Programs, FinCEN, (202) 354-6400; and Al Zarate, Office of Chief 
Counsel, FinCEN, at (703) 905-3590 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

I. Background

    In 1998, FinCEN granted a conditional exception (the Customer 
Information File (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 so 
that it would 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. See 68 FR 
10965 (Notice of Intent). The Notice of Intent solicited comment on a 
number of issues relating to the operation of the CIF Exception. On May 
19, 2003, FinCEN published a notice that again extended the CIF 
Exception so that it would expire on December 1, 2003. See FinCEN 
Issuance 2003-1, 68 FR 26996. The purpose of this most recent extension 
was to allow time for FinCEN to conduct a study on the operation of the 
CIF Exception, and to determine whether to remove, modify, or make 
permanent the Exception.

II. Terms of 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 name and 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 maintains the originating customer's true name and 
address, the CIFs were sometimes 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 are programmed to 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

[[Page 66709]]

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 informed 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. Results of CIF Exception Study

    Since the issuance in May 2003 of the Notice of Intent, FinCEN has 
studied the use of the CIF Exception by financial institutions, and the 
implications of continuing the CIF exception for law enforcement 
investigations. The staff of the Federal Reserve Bank of New York 
assisted in this process by providing FinCEN with a sample of funds 
transfer activity using the Fedwire system, which gave FinCEN a one-day 
snapshot of the frequency and type of use of the CIF Exception. FinCEN 
also obtained the views of law enforcement officials and financial 
institutions on this issue. Ultimately, FinCEN formed a Subcommittee of 
the Bank Secrecy Act Advisory Group (BSAAG)\1\ to advise FinCEN on the 
costs and benefits of maintaining, terminating, or modifying the 
Exception. The Subcommittee consists of officials representing FinCEN, 
the U.S. Department of the Treasury, the U.S. Department of Justice, 
the federal bank and securities regulators, the banking industry, and 
the securities industry. FinCEN presented the Subcommittee with the 
results of its factfinding and the Subcommittee also reviewed 
information provided by the New York Clearing House Association 
L.L.C.\2\
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    \1\ The BSAAG is an advisory group consisting of representatives 
of government, financial institutions, and other interested persons. 
The BSAAG meets semiannually for the purpose of informing private 
sector representatives of the utility of Bank Secrecy Act reports 
and to advise the Secretary of the Treasury (or his designee) of 
potential enhancements or modifications to existing Bank Secrecy Act 
requirements.
    \2\ See Letter from Clearing House to Director James F. Sloan, 
FinCEN, October 20, 2003. The members of the Clearing House are: 
Bank of America, National Association; The Bank of New York; Bank 
One, National Association; Citibank, N.A.; Deutsche Bank Trust 
Company Americas; Fleet National Bank; HSBC Bank USA; JPMorgan Chase 
Bank; LaSalle Bank National Association; Wachovia Bank, National 
Association; and Wells Fargo Bank, National Association. The 
following members of The Clearing House's affiliate, The Clearing 
House Interbank Payments Company L.L.C, also support the positions 
taken in the October 20 letter: American Express Bank, Ltd.; The 
Bank of Tokyo-Mitsubishi, Ltd., New York Branch; and UBS AG, 
Stamford Branch. In addition, the American Banker's Association 
participated in the drafting of the October 20 letter and supports 
the views expressed in it.
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    Based on its factfinding and input from the Subcommittee, FinCEN 
has made the following determinations. First, there is a powerful law 
enforcement interest, particularly in light of the tragic events of 9/
11, in ensuring that a financial institution can identify funds 
transfers conducted by a terrorist suspect listed in a subpoena or 
other authorized search request. The use of coded names and pseudonyms 
effectively prevents an intermediary or a receiving financial 
institution from recognizing if it has records related to a government 
target. Second, to the extent that code names and pseudonyms are used 
in transmittal orders, such use appears to be limited to select private 
banking customers for confidentiality purposes. Because the use of 
coded names and pseudonyms is so infrequent, there is not a substantial 
cost involved in changing CIFs to reflect true names. Lastly, FinCEN 
understands that mailing addresses, rather than street addresses, are 
widely used by financial institutions in their CIFs. The banking 
industry contends that changing CIFs to reflect street addresses would 
require banks to examine each address in a CIF, and compare it with 
other customer information maintained by the bank, to determine whether 
the CIF address was a mailing address or street address. In addition, a 
new field would have to be created in the CIF to accommodate street 
address information, because customers would still want their 
statements and other information sent to their mailing address. 
Finally, each program that links the CIF to each of the bank's systems 
would have to be revised so that the correct address would be used for 
each application. According to the banking industry, each of these 
steps would have to be accomplished largely on a manual basis, 
resulting in significant costs to financial institutions. Law 
enforcement has acknowledged that the conduct of a reliable search is 
more dependent upon the use of true names than it is upon the use of 
street addresses.
    Based upon these findings, and after weighing the competing 
interests involved, FinCEN has determined that revocation of the CIF 
Exception is appropriate. Regarding true name information, whatever 
legitimate interest is served by the use of coded names or pseudonyms 
in shielding the identity of a few select clients is overwhelmingly 
outweighed by the potential harm resulting from an intermediary or 
receiving financial institution not being able to determine whether it 
has records related to a government target. Weighed against the small 
number of clients for which the CIF Exception is used, the law 
enforcement interests predominate. FinCEN wishes to clarify that, 
although the Travel Rule does not permit the use of coded names or 
pseudonyms, the Rule does allow the use of abbreviated names, names 
reflecting different accounts of a corporation (e.g., XYZ Payroll 
Account), as well as trade and assumed names of businesses (D/B/A) or 
the names of unincorporated divisions or departments of businesses.
    FinCEN has reached a different conclusion regarding the requirement 
to use a transmittor's street address. The term ``address,'' as it is 
used in 31 U.S.C. 103.33(g), is not defined. FinCEN has previously 
issued guidance that has been interpreted as not allowing the use of 
mailing addresses, including post office boxes, in situations in which 
a street address is known to the transmittor's financial 
institution.\3\ Because the use of the conditional exception for 
mailing addresses arises from a prior interpretation, rather than the 
explicit language of section 103.33(g) itself, FinCEN believes this 
issue is more appropriately addressed through a regulatory 
interpretation, rather than through a temporary exception.
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    \3\ See Clearing House Letter (citing FinCEN Advisory Issue 3, 
Funds Transfers: Questions and Answers, June 1996 (Q&A no. 18).
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    FinCEN believes that the Travel Rule, like all Bank Secrecy Act 
rules, should be read with some flexibility so as to avoid the 
unnecessary burdening of financial institutions. After weighing the 
competing interests involved in whether to require street address 
information FinCEN has determined that the Travel Rule should be read 
to allow the use of mailing addresses. Consequently, for purposes of 31 
CFR 103.33(g), the term address means either the transmittor's street 
address, or the transmittor's address maintained in the financial 
institution's automated customer information file so long as the 
institution maintains the transmittor's address on file and such 
address information is retrievable upon request by law enforcement.\4\ 
Under no

[[Page 66710]]

circumstances may a financial institution use its own address or 
another financial institution's address in place of the customer's 
address, notwithstanding any prior guidance that appeared to allow the 
use of a financial institution's address under limited 
circumstances.\5\ To avoid any confusion on the issue of addresses in 
transmittal orders, FinCEN, by this notice, hereby revokes Q&A no. 18 
contained in FinCEN Advisory Issue 3 (June 1996) and Q&A no.16 
contained in FinCEN Advisory Issue 7 (January 1997). FinCEN anticipates 
issuing a new set of frequently asked questions and answers regarding 
the application of the funds transfer rules very shortly. Nothing in 
this notice affects the obligation of a financial institution to comply 
with any other requirement imposed under the Bank Secrecy Act, 
including a customer identification program requirement imposed under 
Section 326 of the USA Patriot Act.
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    \4\ Consistent with the final rules issued under section 326 of 
the USA Patriot Act (Pub. L. 107-56), an ``address'' for purposes of 
the Travel Rule, for an individual, is a residential or business 
street address, or an Army Post Office Box or a Fleet Post Office 
Box, or the residential or business street address of next of kin or 
another contact individual for individuals who do not have a 
residential or business address. For a person other than an 
individual (such as a corporation, partnership, or trust), 
``address'' is a principal place of business, local office, or other 
physical location. See 68 FR 25090 (May 9, 2003) (Final Rules for 
Customer Identification Programs) issued jointly with the Board of 
Governors of the Federal Reserve System, Office of the Comptroller 
of the Currency, Office of Thrift Supervision, Federal Deposit 
Insurance Corporation, National Credit Union Administration, 
Commodity Futures Trading Commission, and Securities and Exchange 
Commission. Note, however, that while the Section 326 rules apply 
only to new customers opening accounts on or after October 1, 2003, 
and exempt wire transfers from the definition of ``account'' for 
banks, the Travel Rule applies to all transmittals of funds of 
$3,000 or more, whether or not the transmittor is a customer for 
purposes of the Section 326 rules.
    \5\ See FinCEN Advisory Issue 7, Funds ``Travel'' Regulations: 
Questions & Answers, January 1997 (Q&A no. 16) (stating that a 
financial institution must not use its own address ``except where it 
is the actual address of record of the person'').
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    Finally, to give financial institutions the opportunity to take 
those steps necessary to comply fully with the Travel Rule, this Notice 
extends the conditional exception through July 1, 2004.

IV. FinCEN Issuance

    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 CIF Exception 
will expire on July 1, 2004, for transmittals of funds initiated after 
that date.

    Dated: November 21, 2003.
William F. Baity,
Acting Director, Financial Crimes Enforcement Network.
[FR Doc. 03-29617 Filed 11-26-03; 8:45 am]
BILLING CODE 4810-02-P