[Federal Register Volume 71, Number 119 (Wednesday, June 21, 2006)]
[Proposed Rules]
[Pages 35564-35567]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-5567]


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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA86

FEDERAL RESERVE SYSTEM

12 CFR Part 219

[Regulation S, Docket No. R-1258]


Threshold for the Requirement To Collect, Retain, and Transmit 
Information on Funds Transfers and Transmittals of Funds

AGENCIES: Financial Crimes Enforcement Network, Department of the 
Treasury; Board of Governors of the Federal Reserve System.

ACTION: Joint advance notice of proposed rulemaking (Advance Notice).

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SUMMARY: The Financial Crimes Enforcement Network (FinCEN) of the 
Department of the Treasury (Treasury) and the Board of Governors of the 
Federal Reserve System (Board) are reviewing the threshold in the rule 
requiring banks and nonbank financial institutions to collect and 
retain information on funds transfers and transmittals of funds. FinCEN 
is reviewing the threshold in the rule requiring banks and nonbank 
financial institutions to transmit information on funds transfers and 
transmittals of funds. The requirement to collect, retain, and transmit 
information on funds transfers and transmittals of funds applies only 
to funds transfers and transmittals of funds in amounts of $3,000 or 
more. FinCEN and the Board (collectively, the Agencies) request comment 
from the public, including law enforcement and financial institutions, 
to assess whether the potential benefit to law enforcement of a lower 
threshold outweighs the potential burden to financial institutions.

DATES: Written comments on this Advance Notice may be submitted on or 
before August 21, 2006.

ADDRESSES: FinCEN: You may submit comments, identified by Regulatory 
Identification Number (RIN) 1506-AA86, by any of the following methods:
     Federal E-rulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments. Include 1506-AA86 in 
the submission.
     E-mail: [email protected]. Include 1506-AA86 in 
the subject line of the message.
     Mail: FinCEN, P.O. Box 39, Vienna, VA 22183. Include 1506-
AA86 in the body of the text.
    All comments received will be posted without change to http://www.fincen.gov. Your comments will not be edited to remove identifying, 
contact, or other personal information. Comments may be inspected in 
the FinCEN reading room between 10 a.m. and 4 p.m. in Washington, DC. 
Persons wishing to inspect comments must request an appointment by 
telephone at (202) 354-6400 (not a toll-free number).
    Board: You may submit comments, identified by Docket No. R-1258, by 
any of the following methods:
     Agency Web site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal E-Rulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: [email protected].
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.
    All public comments are available from the Board's Web site at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm, as 
submitted, unless modified for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper in Room MP-500 of the Board's Martin Building (20th and C 
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT:

    FinCEN: Regulatory Policy and Programs Division, Financial Crimes 
Enforcement Network, (800) 949-2732.
    Board: James K. Owens, Manager, (202) 728-5848, Division of Reserve 
Bank Operations and Payment Systems, Suzanne L. Williams, Manager, 
(202) 452-3513, Division of Banking Supervision and Regulation, or 
Christopher W. Clubb, Senior Counsel, (202) 452-3904, Legal Division. 
For the hearing impaired only: Telecommunications Device for the Deaf, 
(202) 263-4869.

SUPPLEMENTARY INFORMATION:

[[Page 35565]]

I. Background

A. Statutory and Regulatory Background

    The Bank Secrecy Act (BSA) (Pub. L. 91-508, codified at 12 U.S.C. 
1829b and 1951-1959, and 31 U.S.C. 5311-5314 and 5316-5332) authorizes 
the Secretary of the Treasury (Secretary) to require financial 
institutions to keep records and file reports that the Secretary 
determines have a high degree of usefulness in criminal, tax, or 
regulatory investigations or proceedings, or in intelligence or 
counterintelligence matters to protect against terrorism. The authority 
of the Secretary to administer the BSA has been delegated to the 
Director of FinCEN. The BSA was amended by the Annunzio-Wylie Anti-
Money Laundering Act of 1992 (Pub. L. 102-550) (Annunzio-Wylie). 
Annunzio-Wylie authorizes the Secretary and the Board to jointly issue 
regulations requiring insured depository institutions to maintain 
records of domestic funds transfers.\1\ In addition, Annunzio-Wylie 
authorizes the Secretary and the Board to jointly issue regulations 
requiring insured depository institutions and certain nonbank financial 
institutions to maintain records of international funds transfers and 
transmittals of funds.\2\ Annunzio-Wylie requires the Secretary and the 
Board, in issuing regulations for international funds transfers and 
transmittals of funds, to consider the usefulness of the records in 
criminal, tax, or regulatory investigations or proceedings, and the 
effect of the regulations on the cost and efficiency of the payments 
system.\3\
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    \1\ 12 U.S.C. 1829b(b)(2). The Treasury--and not the Board--is 
authorized to issue regulations requiring nonbank financial 
institutions to maintain records of domestic transmittals of funds.
    \2\ 12 U.S.C. 1829b(b)(3). The terms ``funds transfer,'' 
``originator,'' ``beneficiary,'' and ``payment order'' apply only in 
the context of banks. The term ``transmittal of funds'' includes a 
funds transfer and its counterpart in the context of nonbank 
financial institutions. See 31 CFR 103.11(jj). Transmittors, 
recipients, and transmittal orders in the context of nonbank 
financial institutions play the same role as originators, 
beneficiaries, and payment orders in the context of banks.
    \3\ 12 U.S.C. 1829b(b)(3).
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    On January 3, 1995, the Agencies jointly issued a recordkeeping 
rule that requires banks and nonbank financial institutions to collect 
and retain information on funds transfers and transmittals of funds in 
amounts of $3,000 and more.\4\ At the same time, FinCEN issued a rule--
the travel rule--that requires banks and nonbank financial institutions 
to transmit information on funds transfers and transmittals of funds to 
other banks or nonbank financial institutions.\5\ The recordkeeping 
rule is codified at 31 CFR 103.33(e) and (f),\6\ and the travel rule is 
codified at 31 CFR 103.33(g).\7\
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    \4\ 60 FR 220-01 Jan. 3, 1995.
    \5\ 60 FR 234-01 Jan. 3, 1995. The Bank Secrecy Act authorizes 
the Treasury to issue regulations requiring financial institutions 
to implement procedures for complying with the Bank Secrecy Act and 
to guard against money laundering. FinCEN issued the travel rule 
pursuant to this authority.
    \6\ Through a separate rulemaking, the Board added on January 3, 
1995 a new subpart B to 12 CFR Part 219, which cross-references the 
requirements of 31 CFR 103.33(e) and (f). See 60 FR 231-01 Jan. 3, 
1995.
    \7\ Recordkeeping requirements for banks are set forth in 31 CFR 
103.33(e). Recordkeeping requirements for nonbank financial 
institutions are set forth in 31 CFR 103.33(f). The travel rule--
codified at 31 CFR 103.33(g)--applies by its terms to both bank and 
nonbank financial institutions.
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B. Overview of the Recordkeeping and Travel Rules

    The recordkeeping and travel rules in 31 CFR 103.33 require banks 
and nonbank financial institutions to collect, retain, and transmit 
information on funds transfers and transmittals of funds in amounts of 
$3,000 and more.
    Under the recordkeeping rule, the originator's bank or 
transmittor's financial institution must collect and retain the 
following information: (a) Name and address of the originator or 
transmittor; (b) the amount of the payment or transmittal order; (c) 
the execution date of the payment or transmittal order; (d) any payment 
instructions received from the originator or transmittor with the 
payment or transmittal order; and (e) the identity of the beneficiary's 
bank or recipient's financial institution. In addition, the 
originator's bank or transmittor's financial institution must retain as 
much of the following information as the bank or nonbank financial 
institution receives with the payment or transmittal order: (1) Name 
and address of the beneficiary or recipient; (2) account number of the 
beneficiary or recipient; and (3) any other specific identifier of the 
beneficiary or recipient. The originator's bank or transmittor's 
financial institution is required to verify the identity of the person 
placing a payment or transmittal order if the order is made in person 
and the person placing the order is not an established customer.\8\ 
Similarly, should the beneficiary's bank or recipient's financial 
institution deliver the proceeds to the beneficiary or recipient in 
person, the bank or nonbank financial institution must verify the 
identity of the beneficiary or recipient--and collect and retain 
various items of information identifying the beneficiary or recipient--
if the beneficiary or recipient is not an established customer. 
Finally, an intermediary bank or intermediary financial institution--
and the beneficiary's bank or recipient's financial institution--must 
retain originals or copies of payment or transmittal orders.
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    \8\ The term ``established customer'' is defined at 31 CFR 
103.11(l).
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    Under the travel rule, the originator's bank or transmittor's 
financial institution is required to include information, including all 
information required under the recordkeeping rule, in a payment or 
transmittal order sent by the bank or nonbank financial institution to 
another bank or nonbank financial institution in the payment chain. An 
intermediary bank or intermediary financial institution is also 
required to transmit information to other banks or nonbank financial 
institutions in the payment chain, to the extent the information is 
received by the intermediary bank or intermediary financial 
institution.

II. Issues for Comment

    The requirement in 31 CFR 103.33 to collect, retain, and transmit 
information on funds transfers and transmittals of funds applies only 
to funds transfers and transmittals of funds in amounts of $3,000 or 
more. This Advance Notice requests comment on the potential effect of 
lowering the threshold--or eliminating the threshold altogether--as a 
means of combating terrorism, money laundering, and other illicit 
activity and protecting the U.S. financial system from these threats. 
Money launderers and terrorist financiers have become increasingly 
sophisticated in their use of funds transfers and transmittals of 
funds. In addition, the operating environment for banks and other 
financial institutions has evolved since the issuance of the 
recordkeeping and travel rules for funds transfers and transmittals of 
funds.
    In October 2001, the Financial Action Task Force issued ``Special 
Recommendations on Terrorist Financing.'' \9\ Special Recommendation 
VII aims to ensure that basic information pertaining to the originator 
or transmittor in a funds transfer or transmittal of funds is 
collected, retained, and transmitted to banks or other financial 
institutions in the

[[Page 35566]]

payment chain.\10\ The Financial Action Task Force recommends a de 
minimis threshold no higher than $1,000 with the interest of 
identifying low value originators or transmitters without driving 
legitimate transactions underground and below regulatory review. The 
Agencies are considering the recommendation and assessing its 
appropriateness for the financial system in the United States.
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    \9\ See Nine Special Recommendations on Terrorist Financing 
(October 22, 2004). The document was amended on October 22, 2004--
with the addition of Special Recommendation IX on cash couriers. The 
Financial Action Task Force is an international, inter-governmental 
body whose purpose is the development and promotion of national and 
international policies to combat money laundering and terrorist 
financing.
    \10\ See Revised Interpretative Note to Special Recommendation 
VII: Wire Transfers (June 10, 2005).
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A. Benefit to Law Enforcement

    This Advance Notice requests comment on the benefit to law 
enforcement of reducing or eliminating the threshold for the 
requirement to collect, retain, and transmit information on funds 
transfers and transmittals of funds.
    Funds transfers and transmittals of funds are fast and efficient 
methods of moving funds anywhere in the world. Criminals have used 
funds transfers and transmittals of funds to facilitate or commit 
financial and other crimes. Representatives from the United States Drug 
Enforcement Administration, the State of Arizona, the Puerto Rico High 
Intensity Financial Crime Area, the Office of the New York State 
Attorney General, and the civil and criminal investigatory functions of 
the Internal Revenue Service have all indicated that the additional 
information collected as a result of lowering or eliminating the 
threshold would prove beneficial to investigations of money laundering, 
terrorist financing, and other financial crime. These representatives 
of law enforcement have indicated that lowering or eliminating the 
threshold would promote the disruption of illegal activity and make 
illegal activity more expensive for perpetrators by forcing them to use 
costlier alternative means of transferring funds to avoid higher risks 
of detection for funds transfers and transmittals of funds beneath the 
current threshold.
    Law enforcement has stated that criminals are aware of the current 
threshold and conduct transactions in amounts under the threshold to 
avoid providing identification. One agency, for instance, indicated 
that transactions in a money laundering and drug case involved amounts 
between $2,600 to $2,900. Another agency pointed to a money laundering 
incident--with a total value of over $1 million in laundered funds--
that involved human trafficking and forced labor. All of the 
transactions in the money laundering incident involved amounts less 
than $3,000. One agency observed that the laundering of illegal 
proceeds from human smuggling involves transactions in amounts that 
average approximately $1,800. The agency also observed that money 
launderers have started to structure these amounts, using multiple 
transactions in amounts that range from $500 to $1,000. The same agency 
analyzed data it collected--on nearly 100,000 transactions in amounts 
of $750 or more--and determined that 97 percent involved amounts less 
than $3,000.
    The Agencies are interested in empirical support from law 
enforcement to document the degree of usefulness of a lower threshold 
in criminal, tax, or regulatory investigations or proceedings, or 
intelligence or counterintelligence matters. In this regard, the 
Agencies request responses from law enforcement to the following 
questions:
    (1) To what extent have funds transfers or transmittals of funds 
under the $3,000 threshold been important to law enforcement 
investigations and proceedings? Please explain.
    (2) To what extent have law enforcement investigations or 
proceedings been hindered by the $3,000 threshold? What is law 
enforcement's experience in being able to obtain records of 
transactions under the $3,000 threshold pursuant to subpoenas or search 
warrants? How frequently has law enforcement encountered financial 
institutions that do not retain records of the transactions under the 
$3,000 threshold and what types of institutions are involved?
    (3) How frequently has law enforcement identified cases where 
persons have structured funds transfers or transmittals of funds to be 
under the $3,000 threshold in order to evade the recordkeeping 
requirement? How might structuring behavior change if the threshold was 
lowered to $2,000? To $1,000?
    (4) Inasmuch as information regarding international transmittals of 
funds can be obtained by law enforcement without a judicial order or 
other similar process, how often has currently available information 
been accessed, and how useful was it?

B. Burden to the Financial System

    This Advance Notice requests comment on the burden to the financial 
system, if any, that would result from lowering or eliminating the 
threshold for the requirement to collect, retain, and transmit 
information on funds transfers and transmittals of funds. Concurrent 
with this Advance Notice, the Treasury is evaluating the burden to 
financial institutions and usefulness to law enforcement of a reporting 
requirement for certain cross-border funds transfers and transmittals 
of funds.\11\ If the current $3,000 threshold for the requirement to 
collect, retain, and transmit information on funds transfers and 
transmittals of funds is lowered or eliminated, the reporting 
requirement currently being considered could similarly include cross-
border funds transfers or transmittals of funds in amounts less than 
$3,000. Accordingly, in commenting on the burden to collect, retain, 
and transmit information on funds transfers and transmittals of funds 
resulting from lowering or eliminating the current threshold, 
commenters may also wish to comment on whether the extent or nature of 
the burden would be affected by promulgation of a requirement to report 
cross-border funds transfers and transmittals of funds below the $3,000 
threshold.
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    \11\ Section 6302 of the Intelligence Reform and Terrorism 
Prevention Act of 2004 (Pub. L. 108-458) authorizes the Secretary of 
the Treasury to prescribe regulations, if feasible, to require the 
reporting to FinCEN of certain cross-border funds transfers if such 
reporting is reasonably necessary to conduct the efforts of the 
Treasury against money laundering and terrorist financing.
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    In deciding on a threshold of $3,000 in 1995, the Agencies balanced 
the value of data on funds transfers and transmittals of funds with the 
burden to the financial system. The Agencies established the current 
threshold in response to concerns by financial institutions that 
imposing requirements to collect, retain, and transmit information on 
funds transfers and transmittals of funds could result in significant 
implementation and ongoing costs. The expansion of requirements under 
the Bank Secrecy Act and advancing technology, however, may have 
reduced the incremental cost of obtaining, retaining, and transmitting 
information on funds transfers and transmittals of funds in amounts 
below the current threshold.
    In general, the responsibilities of financial institutions under 
the Bank Secrecy Act have expanded over time. For example, a money 
services business must now report suspicious transactions \12\ and 
implement programs for ensuring compliance with the Bank Secrecy 
Act.\13\ Money services businesses may collect and retain information 
on transmittals of funds as

[[Page 35567]]

a means of ensuring compliance with the requirement to report 
suspicious transactions. The requirement on the part of money services 
businesses to report suspicious transactions may mean that reducing or 
eliminating the threshold would impose less of an incremental cost. If 
this is not the case, the Agencies welcome comments from money services 
businesses.
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    \12\ See 31 CFR 103.20. The requirement applies to transactions 
occurring after December 31, 2001. The threshold for the requirement 
to report suspicious transactions is $2,000.
    \13\ See 31 CFR 103.125. A money services business must 
implement the program on or before the later of July 24, 2002 and 
the end of the ninety-day period beginning on the day following the 
date the business is established.
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    In addition, technology has advanced since the issuance of the 
recordkeeping and travel rules for funds transfers and transmittals of 
funds. Banks and other financial institutions may use less expensive or 
more efficient means of electronic storage and retrieval.
    The Agencies are gathering information on financial institutions' 
practices and procedures to measure the compliance burden of lowering 
the threshold. The Agencies request responses from financial 
institutions to the following questions:
    (1) What proportion of funds transfers or transmittals of funds 
that your financial institution processes as an originator's bank or 
transmittor's financial institution involves amounts less than $3,000? 
What proportion involves amounts less than $2,000? What proportion 
involves amounts less than $1,000?
    (2) For each category of funds transfer or transmittal of funds--
those involving amounts less than $3,000, less than $2,000, and less 
than $1,000--what proportion does your financial institution process as 
an originator's bank or transmittor's financial institution for 
originators or transmittors who fail to qualify as ``established 
customers''? What proportion does your financial institution process as 
a beneficiary's bank or recipient's financial institution for 
beneficiaries or recipients who fail to qualify as ``established 
customers''? Do the recordkeeping practices of your financial 
institution for these transactions--and the practices of your financial 
institution in verifying the identities of persons who fail to qualify 
as ``established customers''--differ based on whether the funds 
transfer or transmittal of funds involves an amount above or below the 
current threshold of $3,000? If so, please describe the differences.
    (3) Do the recordkeeping practices of your financial institution 
for funds transfers or transmittals of funds involving amounts below 
the current threshold of $3,000 differ from those for funds transfers 
or transmittals of funds involving amounts above the threshold? If so, 
please describe the differences.
    (4) Does the information that your financial institution includes 
in payment or transmittal orders for funds transfers or transmittals of 
funds involving amounts below the current threshold of $3,000 differ 
from the information that your financial institution includes in 
payment or transmittal orders for funds transfers or transmittals of 
funds involving amounts above the threshold? If so, please describe the 
differences.
    (5) How would reducing or eliminating the threshold affect the 
price and type of the services that your financial institution provides 
in connection with domestic and cross-border funds transfers or 
transmittals of funds? To the extent possible, discuss the effect based 
on reductions of the threshold in increments of $1,000, or explain at 
which point lowering the threshold would substantially impact the price 
and type of services provided by your financial institution.
    (6) How would reducing or eliminating the threshold affect the cost 
and efficiency of payment operations at your financial institution and 
the payments system in general? To the extent possible, discuss the 
effect based on reductions of the threshold in increments of $1,000, or 
explain at which point lowering the threshold would substantially 
impact the cost and efficiency of payment operations at your financial 
institution or the payments system in general.

C. Burden to the Public

    Finally, the Agencies are gathering information on consumer 
practices and procedures to measure the effect of lowering the 
threshold. The Agencies request responses from the public to the 
following questions:
    (1) Would increases in the price of funds transfers or transmittals 
of funds result in the use of alternative methods of sending funds, 
such as sending a money order by post or courier?
    (2) Would a requirement for originator information below the 
current threshold result in the use of alternative methods of sending 
funds, such as sending a money order by post or courier?
    (3) Are there certain types of transactions that permit the use of 
alternative methods more than others? For transactions that allow for 
alternative methods, please explain how you would decide between the 
various methods of sending funds.
    (4) Do you engage in different behavior when making funds transfers 
and transmittal of funds above and below $3,000 because of the current 
threshold? Please explain.

III. Conclusion

    With this Advance Notice, the Agencies request comment on the 
potential effect of lowering or eliminating the threshold for the 
requirement in 31 CFR 103.33 to collect, retain, and transmit 
information on funds transfers and transmittals of funds. Comments on 
all aspects of the Advance Notice are welcome, and the Agencies 
encourage all interested parties to provide their views.

IV. Executive Order 12866

    The Agencies do not know whether regulations under the Bank Secrecy 
Act will be amended, or the nature of any amendment. Consequently, the 
Agencies do not know whether the potential regulatory action would 
constitute a significant regulatory action under Executive Order 12866. 
This Advance Notice neither establishes nor proposes any regulatory 
requirements. Accordingly, the Agencies solicit comment, information, 
and data on the potential effects of any potential regulation.

Robert W. Werner,
Director, Financial Crimes Enforcement Network.

    By order of the Board of Governors of the Federal Reserve 
System, June 15, 2006.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 06-5567 Filed 6-20-06; 8:45 am]
BILLING CODE 4810-02-P; 6210-01-P