[Federal Register Volume 75, Number 189 (Thursday, September 30, 2010)]
[Proposed Rules]
[Pages 60377-60397]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-24417]


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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AB01


Financial Crimes Enforcement Network; Cross-Border Electronic 
Transmittals of Funds

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

ACTION: Notice of proposed rulemaking.

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SUMMARY: FinCEN, a bureau of the Department of the Treasury (Treasury), 
to further its efforts against money laundering and terrorist 
financing, and is proposing to issue regulations that would require 
certain banks and money transmitters to report to FinCEN transmittal 
orders associated with certain cross-border electronic transmittals of 
funds (CBETFs). FinCEN is also proposing to require an annual filing 
with FinCEN by all banks of a list of taxpayer identification numbers 
of accountholders who transmitted or received a CBETF.

DATES: Written comments are welcome and must be received on or before 
December 29, 2010 [See the Compliance Date heading of the SUPPLEMENTARY 
INFORMATION for further dates.]

ADDRESSES: Those submitting comments are encouraged to do so via the 
Internet. Comments submitted via the Internet may be submitted at 
http://www.regulations.gov/search/index.jsp with the caption in the 
body of the text, ``Attention: Cross-Border Electronic Transmittals of 
Funds.'' Comments may also be submitted by written mail to: Financial 
Crimes Enforcement Network, Department of the Treasury, P.O. Box 39, 
Vienna, VA 22183, Attention: Cross-Border Electronic Transmittals of 
Funds. Please submit your comments by one method only. All comments 
submitted in response to this notice of proposed rulemaking will become 
a matter of public record, therefore, you should submit only 
information that will be available publicly.
    Instructions: Comments may be inspected, between 10 a.m. and 4 
p.m., in the FinCEN reading room in Vienna, VA. Persons wishing to 
inspect the comments submitted must obtain in advance an appointment 
with the Disclosure Officer by telephoning (703) 905-5034 (not a toll 
free call). In general, FinCEN will make all comments publicly 
available by posting them on http://www.regulations.gov/search/index.jsp.

FOR FURTHER INFORMATION CONTACT: The FinCEN regulatory helpline at 
(800) 949-2732 and select Option 3.

SUPPLEMENTARY INFORMATION: 

I. Statutory Provisions

    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 international 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 of Governors of 
the Federal Reserve System (the Board) to jointly issue regulations 
requiring insured banks to maintain records of domestic funds 
transfers.\1\ In addition, Annunzio-Wylie authorizes the Secretary and 
the Board to jointly issue regulations requiring insured banks 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) (2006). Treasury has independent 
authority to issue regulations requiring nonbank financial 
institutions to maintain records of domestic transmittals of funds.
    \2\ 12 U.S.C. 1829b(b)(3) (2006).
    \3\ Id.
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    The Intelligence Reform and Terrorism Prevention Act of 2004 (Pub. 
L. 108-458) amended the BSA to require the Secretary to prescribe 
regulations ``requiring such financial institutions as the Secretary 
determines to be appropriate to report to the Financial Crimes 
Enforcement Network certain cross-border electronic transmittals of 
funds, if the Secretary determines that reporting of such transmittals 
is reasonably necessary to conduct the efforts of the Secretary against 
money laundering and terrorist financing.''

II. Background Information

A. Current Regulations Regarding Funds Transfers

    On January 3, 1995, FinCEN and the Board jointly issued a rule that 
requires

[[Page 60378]]

banks and nonbank financial institutions to collect and retain 
information on certain funds transfers and transmittals of funds (Funds 
Transfer Rule).\4\ At the same time, FinCEN issued the ``travel rule,'' 
which requires banks and nonbank financial institutions to include 
certain information on funds transfers and transmittals of funds to 
other banks or nonbank financial institutions.\5\
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    \4\ 31 CFR 103.33(e) (2009) (Recordkeeping requirements for 
banks); 31 CFR 103.33(f) (2009) (Recordkeeping requirements for 
nonbank financial institutions).
    \5\ 31 CFR 103.33(g) (2009).
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    The recordkeeping and travel rules provide uniform recordkeeping 
and transmittal requirements for financial institutions and are 
intended to help law enforcement and regulatory authorities detect, 
investigate, and prosecute money laundering and other financial crimes 
by preserving an information trail about persons sending and receiving 
funds through the funds transfer system.
    Under the ``travel rule,'' a financial institution acting as the 
transmittor's financial institution must obtain and include in the 
transmittal order the following information on transmittals of funds of 
$3,000 or more: (a) Name and, if the payment is ordered from an 
account, the account number of the transmittor; (b) the address of the 
transmittor; (c) the amount of the transmittal order; (d) the execution 
date of the transmittal order; (e) the identity of the recipient's 
financial institution; (f) as many of the following items as are 
received with the transmittal order: the name and address of the 
recipient, the account number of the recipient, and any other specific 
identifier of the recipient; and (g) either the name and address or the 
numerical identifier of the transmittor's financial institution. A 
financial institution acting as an intermediary financial institution 
must include in its respective transmittal order the same data points 
listed above, if received from the sender.\6\
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    \6\ 31 CFR 103.33(g)(1)-(2) (2009).
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    Furthermore, under the recordkeeping rule, of the information 
listed above, a financial institution must retain the following data 
points for transmittals of funds of $3,000 or more:
     If acting as a transmittor's financial institution, either 
the original, microfilmed, copied, or electronic record of the 
information received, or the following data points: (a) The name and 
address of the transmittor; (b) the amount of the transmittal order; 
(c) the execution date of the transmittal order; (d) any payment 
instructions received from the transmittor with the transmittal order; 
(e) the identity of the recipient's financial institution; (f) as many 
of the following items as are received with the transmittal order: the 
name and address of the recipient, the account number of the recipient, 
and any other specific identifier of the recipient; and (g) if the 
transmittor's financial institution is a nonbank financial institution, 
any form relating to the transmittal of funds that is completed or 
signed by the person placing the transmittal order.\7\
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    \7\ 31 CFR 103.33(e)(1)(i), (f)(1)(i) (2009).
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     If acting as an intermediary financial institution, or a 
recipient financial institution, either the original, microfilmed, 
copied, or electronic record of the received transmittal order.\8\
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    \8\ 31 CFR 103.33(e)(1)(ii)-(iii), (f)(1)(ii)-(iii) (2009).
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    The recordkeeping rule requires that the data be retrievable and 
available upon request to FinCEN, to law enforcement, and to regulators 
to whom FinCEN has delegated BSA compliance examination authority. A 
broad range of government agencies regularly compel under their 
respective authorities (e.g., subpoena or warrant) financial 
institutions to provide information maintained pursuant to the 
recordkeeping rule, albeit in ad hoc and sometimes inconsistent and 
overlapping ways, depending upon the agency or investigator.

B. FATF Special Recommendation VII

    Shortly after the attacks of September 11, 2001, the Financial 
Action Task Force (the FATF) \9\ adopted several special 
recommendations designed to stem the financing of terrorism. Special 
Recommendation VII (SR VII) was developed with the objective of 
preventing terrorists and other criminals from having unfettered access 
to wire transfers for moving their funds and detecting such misuse when 
it occurs.\10\
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    \9\ The FATF is a 36-member inter-governmental policy-making 
body with the purpose of establishing international standards, and 
developing and promoting policies, both at national and 
international levels, to combat money laundering and terrorist 
financing. See generally http://www.fatf-gafi.org. The United States 
is a member of the FATF.
    \10\ Revised Interpretative Note to Special Recommendation VII: 
Wire Transfers, FATF (Feb. 29, 2008), http://www.fatf-gafi.org/dataoecd/16/34/40268416.pdf.
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    The FATF in adopting SR VII found that, ``due to the potential 
terrorist financing threat posed by small wire transfers, countries 
should aim for the ability to trace all wire transfers and should 
minimize thresholds taking into account the risk of driving 
transactions underground.'' The interpretive note to Special 
Recommendation VII goes on to say that countries may adopt a de minimis 
standard of $1,000, below which countries could exempt institutions 
from reporting or maintaining records.

C. 9/11 Commission and Section 6302

    On November 27, 2002, President Bush signed legislation creating 
the National Commission on Terrorist Attacks Upon the United States (9/
11 Commission) (Pub. L. 107-306), which was directed to investigate the 
``facts and circumstances relating to the terrorist attacks of 
September 11, 2001,'' including those involving intelligence agencies, 
law enforcement agencies, diplomacy, immigration issues and border 
control, the flow of assets to terrorist organizations, and the role of 
congressional oversight and resource allocation.\11\ To fulfill its 
mandate, the 9/11 Commission reviewed over 2.5 million pages of 
documents, conducted interviews of some 1,200 individuals in ten 
countries, and held 19 days of public hearings featuring testimony from 
160 witnesses.
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    \11\ The Final Report of the National Commission on Terrorist 
Attacks Upon the United States (9/11 Commission Report) (July 22, 
2004), http://www.9-11commission.gov/report/911Report.pdf.
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    In conducting its review, the 9/11 Commission focused a significant 
amount of inquiry into the financial transactions undertaken by the 19 
hijackers and their associates. The Commission estimated that $400,000-
$500,000 was used to support the execution of the attacks of September 
11, 2001.\12\ The Commission noted that the transactions were not 
inherently suspicious and the low volumes of the transactions would not 
have raised alarm at the financial institutions processing the 
transactions. The Commission also noted that no suspicious activity 
reports (SARs) were filed on these transactions prior to the attacks of 
September 11, 2001.\13\ The Commission determined that the current 
reporting and recordkeeping requirements contained in the BSA were 
insufficient to detect terrorist financing because of the inability of 
financial institutions to use typical money laundering typologies to 
detect terrorist financing transactions.\14\
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    \12\ Id. at 169.
    \13\ Id. at 528 n. 116.
    \14\ See National Commission on Terrorist Attacks Upon the 
United States, Terrorist Financing Staff Monograph, 54-58 (2004).
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    The 9/11 Commission, through its final report and the August 23, 
2004 testimony of its Vice-Chairman,\15\ noted that vigorous efforts to 
track terrorist financing must remain front and center

[[Page 60379]]

in U.S. counterterrorism efforts. The Commission also found that 
``terrorists have shown considerable creativity in their methods for 
moving money.'' \16\ Expanding upon this point in his August 23, 2004 
testimony, 9/11 Commission Vice-Chairman Hamilton stated: ``While we 
have spent significant resources examining the ways al Qaeda raised and 
moved money, we are under no illusions that the next attack will use 
similar methods. As the government has moved to close financial 
vulnerabilities and loopholes, al Qaeda adapts. We must continually 
examine our system for loopholes that al Qaeda can exploit, and close 
them as they are uncovered. This will require constant efforts on the 
part of this Committee, working with the financial industry, their 
regulators and the law enforcement and intelligence community.''
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    \15\ 9/11 Commission at 382 (Testimony provided by Mr. Lee 
Hamilton, Vice-Chairman).
    \16\ Id. at 383.
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    In response to the findings of the 9/11 Commission, Congress passed 
the Intelligence Reform and Terrorism Prevention Act of 2004 
(IRTPA),\17\ which was signed into law on December 17, 2004, by 
President Bush. IRTPA encourages the sharing of information across 
intelligence agencies, protects the civil liberties and privacy of 
individuals, and provides processes through which intelligence agencies 
can obtain additional intelligence necessary to protect the United 
States and its citizens. Specifically, section 6302, codified under 31 
U.S.C. 5318(n), requires that the Secretary study the feasibility of 
``requiring such financial institutions as the Secretary determines to 
be appropriate to report to [FinCEN] certain cross-border electronic 
transmittals of funds, if the Secretary determines that reporting of 
such transmittals is reasonably necessary to conduct the efforts of the 
Secretary against money laundering and terrorist financing.'' The law 
further requires that the regulations be prescribed in final form 
``before the end of the 3-year period beginning on the date of 
enactment of the [Act].'' \18\
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    \17\ Public Law 108-458, 118 Stat. 3638 (2004).
    \18\ 31 U.S.C. 5318(n) (2006).
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    Although no particular provision of IRTPA on its own would have 
prevented the attacks of September 11, 2001, together these provisions 
are designed to close the loop-holes that would allow future attacks of 
a similar design. For example, of the $400,000 to $500,000 used to fund 
the September 11, 2001 attacks, an estimated $130,000 was received by 
CBETFs sent from supporters overseas. Several of those transactions 
were above the $3000 reporting threshold and involved a transmittor or 
recipient who was either an active target of an investigation at the 
time the transfer was made, or could have been recognized as a person 
of interest under the new IRTPA intelligence sharing provisions.

D. Feasibility of a Cross-Border Electronic Funds Transfer Reporting 
System Under the Bank Secrecy Act

    Section 6302 of IRTPA requires that, prior to prescribing the 
contemplated regulations, the Secretary submit a report to Congress 
that: (a) Identified the information in CBETFs that might be found in 
particular cases to be reasonably necessary to conduct the efforts of 
the Secretary to identify money laundering and terrorist financing, and 
outlined the criteria to be used by the Secretary to select the 
situations in which reporting under this subsection may be required; 
(b) outlined the appropriate form, manner, content, and frequency of 
filing of the reports that might be required under such regulations; 
(c) identified the technology necessary for FinCEN to receive, keep, 
exploit, protect the security of, and disseminate information from 
reports of CBETFs to law enforcement and other entities engaged in 
efforts against money laundering and terrorist financing; and (d) 
discussed the information security protections required by the exercise 
of the Secretary's authority under such subsection. In January 2007, 
the Secretary submitted the feasibility report required under Section 
6302 (the ``Feasibility Report'') to the Congress.\19\
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    \19\ Feasibility of a Cross-Border Electronic Funds Transfer 
Reporting System under the Bank Secrecy Act, FinCEN Report to 
Congress dated January 17, 2007, available at http://www.fincen.gov/news_room/rp/files/cross_border.html.
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    FinCEN's development of the Feasibility Report included multiple 
approaches. An internal working group of employees drawn from all 
operational divisions of FinCEN coordinated efforts within the 
organization, managed contact with external stakeholders, hosted small 
workshops with law enforcement representatives, visited relevant U.S. 
and foreign government and private sector organizations, surveyed 
industry and governmental organizations, solicited input from private 
sector technology experts,\20\ and researched extensively. In addition, 
FinCEN formed a subcommittee of the Bank Secrecy Act Advisory Group 
(BSAAG) \21\ including representatives from across the spectrum of U.S. 
financial services industry members, and governmental agencies. The 
subcommittee did not author or review this report, but provided expert 
assistance in the identification and analysis of relevant issues, 
recommendations about the focus of the report, and important contacts 
within the U.S. financial services industry. FinCEN also drew upon the 
experience of the Australian Transaction Reports and Analysis Centre 
(AUSTRAC) and the Financial Transactions Reports and Analysis Centre 
(FINTRAC), FinCEN's counterpart financial intelligence units in 
Australia and Canada, both of which already collect cross border funds 
transfer information.\22\
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    \20\ See Feasibility Report App. G. FinCEN Industry Survey 
(Notice and Request for Comment, 71 Fed. Reg. 14289) and industry 
responses can be found in Appendix G of the Feasibility Report.
    \21\ The Annunzio-Wylie Anti-Money Laundering Act of 1992 
required the Secretary of the Treasury to establish a Bank Secrecy 
Act Advisory Group (BSAAG) consisting of representatives from 
Federal regulatory and law enforcement agencies, financial 
institutions, and trade groups with members subject to the 
requirements of the Bank Secrecy Act, 31 CFR 103 et seq. or Section 
6050I of the Internal Revenue Code of 1986. The BSAAG is the means 
by which the Secretary receives advice on the operations of the Bank 
Secrecy Act. As chair of the BSAAG, the Director of FinCEN is 
responsible for ensuring that relevant issues are placed before the 
BSAAG for review, analysis, and discussion. Ultimately, the BSAAG 
will make policy recommendations to the Secretary on issues 
considered. BSAAG membership is open to financial institutions and 
trade groups.
    \22\ See Feasibility Report, at Section 3.0--Overview.
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    The Feasibility Report produced a general, high-level assessment 
of:
     What information in a funds transfer is reasonably 
necessary to collect to conduct efforts to identify money laundering 
and terrorist financing, and the situations in which reporting may be 
required; \23\
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    \23\ See Id. at Section 4.0.
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     The value of such information in fulfilling FinCEN's 
counter-terrorist financing and anti-money laundering missions; \24\
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    \24\ See Id. at Section 3.0.
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     The form that any such reporting would take and the 
potential costs any such reporting requirement would impose on 
financial institutions;\25\
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    \25\ See Id. at Section 5.0.
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     The feasibility of FinCEN receiving the reports and 
warehousing the data, and the resources (technical and human) that 
would be needed to implement the reporting requirement; \26\ and,
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    \26\ See Id. at Section 6.0.
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     The concerns relating to information security and privacy 
issues surrounding the reports collected.\27\
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    \27\ See Id. at Section 7.0.
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    The Feasibility Report also identified a number of issues that 
policy makers were required to consider at any stage of the 
implementation of the reporting requirement, such as whether the

[[Page 60380]]

potential value of requiring financial institutions to report 
information about CBETFs outweighs the potential costs of building the 
technology, the costs to financial institutions of implementing 
compliance processes, and the social costs related to privacy and 
security of the information.
    A significant concern for the centralization of information on 
CBETFs is the cost, both to U.S. financial institutions and to the 
government, of implementing the reporting requirement and building the 
technological systems to manage and support the reporting. Related to 
these concerns are questions about the government's ability to use such 
data effectively. Another concern is the potential effect that any 
reporting requirement could have on dollar-based payment systems such 
as: (1) A shift away from the U.S. dollar toward other currencies 
(i.e., the Euro) as the basis for international financial transactions; 
(2) the creation of mechanisms and facilities for clearing dollar-based 
transactions outside the United States; and (3) interference with the 
operation of the central payments systems. The United States has 
economic and national security interests in the continued viability and 
vitality of dollar-based payments and these possible outcomes must 
inform and guide the rulemaking process.
    These issues were also pointed out by commenters in response to 
FinCEN's March 2006 survey \28\ regarding the reporting of CBETFs. In 
its response to FinCEN's March 2006 survey, the American Bankers 
Association ``proposes for discussion whether piloting a single channel 
specific reporting requirement and then evaluating what has been 
achieved from a law enforcement perspective for what cost from an 
economic and privacy basis, isn't a preferred alternative to attempting 
to implement a comprehensive definition-and-exception driven cross-
border, cross-system regime.'' \29\ The Feasibility Report concluded 
that there was some value to a phased implementation of a CBETF 
reporting system. Building on the ABA's suggestion, the Feasibility 
Report proposed an incremental development and implementation process. 
The pre-acquisition phase of the process involved three parallel 
efforts: user requirement analysis; institutional cost analysis; and 
value analysis. All three of these efforts provided vital information 
required to develop detailed requirements for the proposed regulation 
and technological system. If the concerns noted above or any as-yet 
unidentified issues would impede the project or cause it to be 
infeasible, such incremental approach provides the opportunity to alter 
or halt the effort before FinCEN or the U.S. financial services 
industry incurs significant costs.
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    \28\ 71 FR 14289 (March 21, 2006).
    \29\ Feasibility Report, App. G at 119.
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    Based on extensive fieldwork and analysis of information and data, 
the Feasibility Report concluded that:
     The information that FinCEN is seeking to be reported is 
reasonably necessary to support the Secretary's efforts to combat money 
laundering and terrorist financing. Specifically, the inability to 
conduct proactive analysis on the information currently recorded by 
banks hinders law enforcement's ability to identify significant 
relationships to active targets.
     The basic information already obtained and maintained by 
U.S. financial institutions pursuant to the Funds Transfer Rule, 
including the $3,000 recordkeeping threshold, provides sufficient basis 
for meaningful data analysis.\30\
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    \30\ As discussed below, through understanding the processing of 
transactions by potential third-party reporters, FinCEN removed the 
reporting threshold for banks and adjusted the reporting threshold 
for money transmitters to $1,000.
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     Any threshold should apply only to discrete transactions 
and not to the aggregated total value of multiple transactions 
conducted very closely to one another in time.
     Any reporting requirement should apply only to those U.S. 
institutions that exchange payment instructions directly with foreign 
institutions. FinCEN determined that a focused approach on those 
institutions that act as intermediaries would restrict the reporting 
requirement to those institutions with the systems able to process 
these reports and limit the implementation costs on the industry as a 
whole.
     Any reporting requirement should permit institutions to 
report either through a format prescribed by FinCEN, through the 
submission of certain pre-existing payment messages that contain the 
required data, or through an interactive online form for institutions 
that submit a low volume of such reports. The filing system should 
accommodate automated daily filing, periodic filing via manual upload, 
and discrete single report filing on an as-needed basis.\31\
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    \31\ See Feasibility Report, at Section 1.0--Executive Summary.
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     The implementation of the reporting requirement described 
in section 6302 would be a staged process, requiring FinCEN to review 
and update the requirements as necessary.
    As to the determination of what type of cross-border movements of 
funds to include in the first step of the staged process advocated by 
the Feasibility Report, the definition of ``cross-border electronic 
transmittal of funds'' lies at the heart of a successful implementation 
of the reporting requirement. The nature of the electronic funds 
transfer process as it has evolved in the United States poses specific 
difficulties in creating a definition that at once captures all of the 
nuances of the payment systems and avoids needless complexity. Section 
6302 contemplates a reporting requirement that is coextensive with the 
scope of the BSA funds transfer rule (31 CFR Sec.  103.33). 
Accordingly, for the purposes of the first step of a phased approach to 
the cross-border electronic transmittal of funds reporting rulemaking 
process (the CBETF First Stage), the Feasibility Report focused on 
electronic ``transmittals of funds'' as defined in 31 CFR 103.11(jj), 
and did not address any debit card type of transmittals, point-of-sale 
(POS) systems, transaction conducted through an Automated Clearing 
House (ACH) process, or Automated Teller Machine (ATM).\32\ 
Furthermore, within the current regulatory definition of ``transmittals 
of funds,'' the Feasibility Report advised concentrating for the CBETF 
First Stage on those transactions involving depository institutions 
that exchange transmittal orders through non-proprietary messaging 
systems, and all money transmitters, and where the U.S. institution 
sends or receives a transmittal order directing the transfer of funds 
to or from an account domiciled outside the U.S.. Refining an 
appropriate regulatory definition of what transactions fall within the 
new reporting requirement will implicate a number of concerns that were 
identified by the Feasibility Report and should be further addressed 
during future studies.
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    \32\ See Feasibility Report, at Section 8.0--Conclusions and 
Recommendations.
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    As further preparation for a study of the implications and benefits 
of implementing the first step of CBETF reporting, the Feasibility 
Report recommended the following:
     Engaging with partners in the law enforcement, regulatory 
and intelligence communities to develop detailed user requirements to 
meet the most central needs of those who access BSA data.
     Engaging in a detailed discussion with representatives of 
the U.S. financial services industry, along with representatives of the 
major payment systems and members of the Canadian

[[Page 60381]]

and Australian financial services industries. These discussions would 
focus on quantifying the cost the proposed requirement would impose on 
reporting institutions and the potential impact on the day-to-day 
operation of the payment systems.
     Engaging outside support to obtain and analyze a sizable 
sample of cross-border funds transfer data and exploring means of 
extracting value from the data, and identifying means to effectively 
and intelligently use the data to advance efforts to combat money 
laundering and illicit finance.

III. Implications and Benefits of Cross-Border Funds Transmittal 
Reporting

    Based on the high-level assessment and recommendations of the 
Feasibility Report, FinCEN conducted an in-depth Implications and 
Benefits Study of Cross-Border Funds Transmittal Reporting (the 
Implications and Benefits Study, or simply the Study) \33\ addressing 
the proposed first step of implementation of CBETF reporting. 
Significant input into the survey of banks and MSBs that supported the 
Study \34\ was provided by BSAAG. The Study was also supported by 
interviews with law enforcement and regulatory agencies, information 
from foreign financial intelligence units,\35\ and interviews and 
surveys of financial institutions.\36\ The Study analyzed in detail the 
implications of CBETF reporting on the financial sector and the 
benefits to law enforcement of having access to CBETF data to determine 
the known or potential uses of CBETF data, the implications of 
reporting on the financial industry, and the technical requirements for 
accepting reports.
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    \33\ See generally Implications and Benefits of Cross-Border 
Funds Transmittal Reporting, FinCEN Analytical Report, FinCEN (Sept. 
27, 2010), http://www.fincen.gov/news_room/rp/rulings/pdf/ImplicationsAndBenefitsOfCBFTR.pdf [hereinafter Implications and 
Benefits Study].
    \34\ See Implications and Benefits Study, at App. C.
    \35\ FinCEN continued drawing upon the experience of AUSTRAC and 
FINTRAC, FinCEN's counterpart financial intelligence units in 
Australia and Canada, both of which already collect cross border 
funds transfer information. The extensive and detailed information 
contributed to this effort by AUSTRAC and FINTRAC is contained in 
Appendix B (Financial Intelligence Unit Letters of Support) to the 
Study.
    \36\ See Implications and Benefits Study, at Section 1.0--
Executive Summary.
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A. The Known and Potential Uses of CBETF Data

    As illicit actors adapt to an increasingly transparent system, they 
must make additional and more complicated efforts to conceal their 
behavior and resort to slower, riskier, more expensive, and more 
cumbersome methods of raising and moving money. Every additional step 
or layer of complexity illicit actors must add to their schemes 
provides new opportunities for detection, and an increased risk to 
those who would abuse the financial system. The value of transparency 
is twofold--it deters those who would use the financial system for 
illicit activity and promotes the detection of those who do so. As 
governments throughout the world strive to promote transparency in the 
financial system, the shortage of tools for detecting schemes that rely 
on these modern technological payment systems creates a potential blind 
spot in our efforts to protect the homeland and to combat financial 
crime.
    Traditionally, experts describe three stages of money laundering:
     Placement--introducing cash into the financial system or 
into legitimate commerce;
     Layering--separating the money from its criminal origins 
by passing it through several financial transactions;
     Integration--aggregating the funds with legitimately 
obtained money or providing a plausible explanation for its ownership.
    The BSA reporting regime deals well with the placement stage. Some 
financial institutions file Currency Transaction Reports (CTRs) when a 
person conducts certain types of large currency transactions, others 
file Forms 8300 for large amounts of cash or monetary instruments 
received in a trade or business, and travelers entering the U.S. with 
more than $10,000 in currency must complete Currency and Monetary 
Instrument Reports (CMIRs). However, while these three reports address 
placement, due to their focus on currency-based transactions, they do 
not provide insights into the rapidly developing electronic aspects of 
financial transactions. These reports identify the physical movement of 
currency into and within the U.S. financial system. Electronic funds 
transfers, by contrast, represent an entirely different mode for the 
movement of money.
    The SAR provides some insight into the layering and integration 
stages by casting a light on transactions of any amount and type that 
financial institutions suspect are related to illicit activity or that 
are suspicious in that they do not appear to fit a known pattern of 
legitimate business activity. FinCEN has found that electronic funds 
transfers feature prominently in the layering stage of money laundering 
activity, which is not addressed in any of the reports currently filed 
if the transactions do not raise suspicions within the financial 
institution. Complex electronic funds transfer schemes can deliberately 
obscure the audit trail and disguise the source and the destination of 
funds involved in money laundering and illicit finance.\37\
---------------------------------------------------------------------------

    \37\ See Feasibility Report, at Section 3.0--Overview.
---------------------------------------------------------------------------

    In addition to addressing money laundering, the BSA requires 
reporting that has a high degree of usefulness in tax proceedings, and 
provides the Secretary with additional tools to prevent tax evasion. 
Although some models of tax evasion do follow the placement, layering, 
and integration models of money laundering, many do not because the 
proceeds are not illicit until after the money has been transferred 
overseas. The information proposed to be reported in this rulemaking 
will assist the government in preventing tax evasion and reducing the 
tax gap.
    A reporting requirement would create a centralized database of this 
very basic CBETF information in a single format and link it with other 
highly relevant financial intelligence. Furthermore, this very basic 
information about such transfers provides both a source of information 
that can provide new leads standing alone and can potentially enhance 
the use and utility of current BSA data collected by FinCEN when 
combined with those other data sources. Currently, the government has 
no ability on a national scale to systematically and proactively target 
money laundering, terrorist financing, tax evasion, and other financial 
crimes that are being conducted through wire transfers. By creating a 
reporting structure, the government will be able to query the data by 
geography and transaction value, uncovering linkages such as many 
people sending money to one person outside the United States or vice 
versa. These types of linkages play a critical role in the ability of 
the government to bring cases that it is not able to in today's 
reporting environment. Among the ways in which FinCEN and its partners 
can exploit this data are individual searches for known subjects, data 
matching with other sources of lead information, and link analysis with 
other financial, law enforcement, and intelligence reporting.\38\
---------------------------------------------------------------------------

    \38\ See Feasibility Report, at Section 4.0--Data Reasonably 
Necessary to Identify Illicit Finance, and also Appendix F 
(Potential Analytical Value of Cross-Border Funds Transfer Report).
---------------------------------------------------------------------------

    The study team worked with law enforcement and regulatory agencies 
to identify how CBETF data would be usable for those identified 
purposes to demonstrate the ``reasonable necessity''

[[Page 60382]]

of collecting CBETF data. The results of that analysis are summarized 
in the Implications and Benefits Study as follows:
     Section 4.2, Business Use Case Process, describes the 
study team's approach to developing the business use cases which 
illustrate potential uses of the data.
     Section 4.3, Categories of Analysis, explains how the use 
cases were categorized (e.g., reactive, proactive).
     Section 4.4, Domestic Business Use Case Summary, 
summarizes the use cases that the study team developed.
     Section 4.5, Use of CBETF Data by International Financial 
Intelligence Units (FIUs), summarizes the use of CBETF data by FinCEN's 
counterpart FIUs in foreign countries.
     Section 4.6, Data Usability, Quality, and Prototyping, 
presents the results of the study team's analysis to validate the 
usability of the data with CBETF data samples provided by the financial 
industry.\39\
---------------------------------------------------------------------------

    \39\ See Implications and Benefits Study, at Section 4.0--
Benefits to Law Enforcement and Regulatory Agencies.
---------------------------------------------------------------------------

    From its interviews with law enforcement and regulatory agencies, 
the study team developed primary impact areas, also known as ``business 
use cases,'' and identified 24 scenarios in which thirteen different 
Federal and State law enforcement and regulatory agencies, in addition 
to FinCEN, would benefit from access to CBETF data based upon their 
investigative mission, current use of BSA data, or existing utilization 
of CBETF data obtained from financial institutions in the primary 
impact areas of terrorist financing, money laundering, tax evasion, 
human and drug smuggling, and regulatory oversight.\40\ The results of 
this work demonstrate how access to CBETF data would greatly improve 
both the efficiency of these agencies' current investigations and their 
ability to identify new investigative targets as well as be highly 
valuable in the U.S. Government's efforts to counter these associated 
crimes. The following examples are illustrative of the representative 
business use cases that were developed:
---------------------------------------------------------------------------

    \40\ See Implications and Benefits Study, at Section 1.0--
Executive Summary.
---------------------------------------------------------------------------

     To support the FBI's efforts in tracking and freezing 
terrorist assets, the FBI's Terrorism Financing Operations Section 
(TFOS) analysts conduct sophisticated analysis, cross-referencing 
multiple disparate data sources, to identify financial transactions 
indicative of terrorist financing. The availability of CBETF data would 
significantly improve the efficiency of FBI analysts investigating 
targets suspected of engaging in terrorist financing by tracing the 
flow of proceeds to entities associated with terrorist organizations. 
Such analysis would play a critical role in the ability of the FBI to 
detect, disrupt, and dismantle terrorist financial support networks.
     The Internal Revenue Service's Abusive Tax Scheme Program, 
Offshore Compliance Initiatives Group, conducts sophisticated analysis 
to proactively identify taxpayers using offshore accounts and entities 
to evade U.S. income tax. The availability of CBETF data would 
significantly enhance the group's ability to identify potential evasion 
by identified taxpayers through the analysis of funds transmittals from 
the United States to offshore accounts.
     United States Immigration and Customs Enforcement (ICE) is 
establishing Trade Transparency Units (TTUs) with critical partner 
jurisdictions worldwide, in its effort to identify and eliminate 
customs fraud and trade-based money laundering. These TTUs have 
enhanced international cooperative investigative efforts to combat 
activities designed to exploit vulnerabilities in the U.S. financial 
and trade systems. As formal international financial systems become 
more highly regulated and transparent, criminal entities have resorted 
to alternative means of laundering illicit proceeds. Fraudulent 
practices in international commerce allow criminals to launder illicit 
funds while avoiding taxes, tariffs, and customs duties. To enhance 
combating this threat, ICE TTUs would conduct proactive analysis of 
CBETF data in conjunction with existing U.S. and foreign trade data to 
detect money laundering cases involving the international movement of 
over- or under-valued goods.
    Using FinCEN's authority under the recordkeeping rule, FinCEN 
received a limited sample of CBETF data from several large financial 
institutions.\41\ Based on the business use cases, the study group 
performed an analysis of the sample data. This analysis yielded several 
findings:
---------------------------------------------------------------------------

    \41\ See 31 CFR 103.33(e) (2009) (Office of Management and 
Budget (OMB) Control Number 1505-0063).
---------------------------------------------------------------------------

     CBETF data fields, under current recordkeeping 
requirements, are sufficient to conduct the type of analyses 
illustrated in the business use cases, although additional fields could 
add value.
     Upon implementation, CBETF data would immediately be 
available to conduct the type of analyses illustrated in the business 
use cases.
     Having CBETF data for transactions under $3,000 would 
significantly benefit the type of analysis illustrated in the business 
use cases.
     The quality of the data in the sample was found to be 
acceptable to conduct the type of analyses illustrated in the business 
use cases.
    A comparison of a three month limited sample of CBETF data to 
FinCEN cases revealed a substantial number of instances where CBETF 
transactions were matched with existing cases and/or pointed to 
additional investigative leads.\42\ Based on the findings from the 
Study, FinCEN has determined that the collection of CBETF data would be 
``reasonably necessary'' as set forth in Section 6302. This 
determination is based on the value FinCEN believes this information 
will have in our efforts to stem money laundering, tax evasion, and 
terrorist financing. FinCEN believes that a reporting requirement 
provides a significant advantage to the government's efforts in these 
areas over the current recordkeeping requirement at a reasonable cost. 
These advantages are based on the central premise that proactive 
targeting is more effective with access to a larger dataset.
---------------------------------------------------------------------------

    \42\ See Implications and Benefits Study, at Section 1.0--
Executive Summary.
---------------------------------------------------------------------------

    FinCEN's determination that a reporting requirement is reasonably 
necessary also rests on the tenet that the government has greater 
access to information than any individual institution. For example, if 
a bank or money transmitter has a customer who routinely transfers 
funds to a foreign country in amounts that, considered alone, would not 
appear significant, this activity may never be reviewed. By instituting 
a reporting requirement, the government will be able to observe whether 
this customer is conducting similar transactions at many other 
institutions and, if so, can see that the person may be avoiding 
detection by spreading their transactions across many market 
participants. Additionally, the government has access to more 
information than banks and money transmitters. While the government 
cannot provide the private sector access to trade and tax databases, 
for example, matching information in these databases with cross-border 
wire records will further prosecutions in these areas, potentially 
leading to recouping revenue that may otherwise go uncollected. Lastly, 
the government will always have access to classified information that 
cannot be shared with the private sector,

[[Page 60383]]

and the ability to run queries based on this information could have a 
significant impact on mapping a criminal or terrorist support network.

B. Implications of CBETF Reporting to the Financial Industry

    To solicit input from the financial industry on the effects of a 
potential CBETF reporting requirement, FinCEN contracted with an 
experienced survey contractor to gather qualitative information and 
quantitative data from sectors of the industry that could be affected 
by the reporting requirement.\43\ On behalf of FinCEN, the contractor 
distributed the CBETF survey to 247 depository institutions and 32 
money transmitters that conduct CBETF transactions on behalf of their 
own customers or that act as a correspondent bank for other financial 
institutions. Acting on the recommendations of the Feasibility Report:
---------------------------------------------------------------------------

    \43\ See Implications and Benefits Study, App. C. at 28 (OMB 
Control Number 1505-0191).
---------------------------------------------------------------------------

     ``Depository institutions'' were defined as depository 
institution members of the Society of Worldwide Interbank Financial 
Telecommunications (SWIFT) user group located or doing business in the 
United States, including offices or agents of non-U.S. chartered 
depository institutions.
     ``Money transmitters'' were defined as non-bank financial 
institutions that were registered with FinCEN as a money transmitter on 
November 10, 2007 and reported at least 20 branch locations in the 
United States.\44\
---------------------------------------------------------------------------

    \44\ See Implications and Benefits Study, at Section 5.0--
Implications to the Financial Industry.
---------------------------------------------------------------------------

    Out of the group of financial institutions surveyed, 81 provided 
responses to FinCEN on the implications and benefits of a potential 
CBETF reporting requirement based upon the transactions currently 
subject to FinCEN's recordkeeping requirement, both at the $3,000 and 
zero threshold. Key findings from the survey of financial industry 
entities include the following:
     Respondents expected an increase in the cost of complying 
with the new reporting requirement as compared to costs under the 
current process of complying with subpoenas or other legal demands 
under current recordkeeping requirements.
     Respondents suggested many alternative reporting methods 
and implementation approaches to reduce the potential costs of a 
reporting requirement, such as reporting CBETF data weekly or monthly, 
having FinCEN obtain CBETF information directly from a financial 
industry entity that currently services the majority of depository 
institutions' international funds transmittals such as SWIFT or some 
other centralized repository, either expanding or further limiting 
which CBETF transactions would need to be reported, or accepting the 
data in the existing format used by financial institutions.
     Respondents consider customer privacy a significant 
concern.
     Respondents noted that the security and uses of CBETF data 
are also a significant concern for financial institutions, especially 
the perceived ease of accessibility of the data to law enforcement.
     Respondents felt that outreach and guidance both before 
and after the implementation of a reporting requirement would be 
critical to its effective implementation; this would include providing 
clear and specific regulations, detailed technical requirements, 
published guidance and frequently asked questions, sufficient 
implementation time, and coordinated testing opportunities.\45\
---------------------------------------------------------------------------

    \45\ See Implications and Benefits Study, at Section 1.0--
Executive Summary.
---------------------------------------------------------------------------

    Survey respondents were given an opportunity to provide additional 
input on several topics related to a potential CBETF reporting 
requirement. The study team identified several areas of importance to 
financial institutions. One of the most significant suggestions 
received from respondents was to have FinCEN obtain CBETF information 
directly from SWIFT or some other centralized repository.\46\
---------------------------------------------------------------------------

    \46\ See Implications and Benefits Study, at Section 5.0--
Implications to the Financial Industry.
---------------------------------------------------------------------------

    Based on financial industry survey responses and interviews with 
financial institutions and law enforcement agencies, the study team 
developed the following two potential operating models, documented the 
uses and usability of the data, developed a rough order of magnitude 
(ROM) cost for each model, and documented how to apply FinCEN's 
Information Technology (IT) Modernization Program security and privacy 
capabilities to CBETF data:
     Standard Reporting Model: Each individual financial 
industry entity implements its own reporting system and reports CBETF 
information to FinCEN.
     Hybrid Reporting Model: SWIFT reports CBETF information to 
FinCEN at the direction of its financial institution members. Large 
Money Services Businesses (MSBs) will report to FinCEN on their own 
behalf and small/medium MSBs will use FinCEN-provided e-Filing data 
entry capabilities rather than implementing their own solutions.\47\
---------------------------------------------------------------------------

    \47\ See Implications and Benefits Study, at Section 1.0--
Executive Summary.
---------------------------------------------------------------------------

    In both of the potential operating models, the study team sought to 
reduce the effort of financial institutions and increase investigative 
efficiency of law enforcement by:
     Reducing the number and scope of investigative subpoenas 
and requests for clarifying information sent from law enforcement 
agencies to financial institutions.
     Reducing financial institution and law enforcement agency 
human resources required to execute business processes.
     Increasing the use of technology to automate and 
standardize the transfer of data between financial institutions, 
FinCEN, and law enforcement agencies.
     Employing consistent security and privacy controls between 
the financial institutions, FinCEN, and law enforcement agencies.
     Reducing the number of overlapping requests and increasing 
the use of data obtained from financial institutions.
    Based on the results of their ROM cost analysis, the study team 
developed the following conclusions:
     The Hybrid Reporting Model significantly reduces the cost 
of a potential reporting requirement for depository institutions 
because the depository institutions would only incur annual reporting 
charges from SWIFT.
     The Hybrid Reporting Model significantly reduces the cost 
of a potential reporting requirement to MSBs, in aggregate, because the 
one-time and recurring annual costs of small/medium size MSBs using 
FinCEN's e-Filing data entry capabilities would be significantly less 
than the one-time and recurring annual costs of implementing/operating 
individual solutions. The costs to large MSBs would be the same under 
both models.
     The Hybrid Reporting Model slightly increases the costs of 
supporting a potential reporting requirement for FinCEN because of the 
higher implementation and maintenance/operation costs for the interface 
to SWIFT and the e-Filing CBETF data entry capabilities for small/
medium size MSBs.
     Under both the Standard and Hybrid Reporting Models the 
cost to law enforcement agencies is the same.\48\
---------------------------------------------------------------------------

    \48\ See Implications and Benefits Study, at Section 1.0--
Executive Summary.
---------------------------------------------------------------------------

    Additionally, FinCEN estimates that fewer than 300 banks and fewer 
than

[[Page 60384]]

800 money transmitters will qualify as reporting financial institutions 
under the proposal to report individual CBETFs. For a full discussion 
of the anticipated financial implications associated with this 
proposal, see sections V through VII below.

IV. Proposed CBETF Reporting Requirements

    Based on extensive fieldwork and analysis of information and data 
provided by the Feasibility Report and the Implications and Benefits 
Study, FinCEN determined that:
     The basic information already obtained and maintained by 
U.S. financial institutions pursuant to the Funds Transfer Rule is 
sufficient to support the Secretary's efforts against money laundering 
and terrorist financing. Any thresholds should apply only to discrete 
transactions and not to the aggregated total value of multiple 
transactions conducted very closely to one another in time.\49\
---------------------------------------------------------------------------

    \49\ As discussed below, through understanding the processing of 
transactions by potential third-party reporters, FinCEN removed the 
reporting threshold for banks and adjusted the reporting threshold 
for money transmitters to $1,000.
---------------------------------------------------------------------------

     Any reporting requirement should apply only to those U.S. 
institutions that exchange payment instructions directly with foreign 
institutions. FinCEN determined that a focused approach on those 
institutions that act as intermediaries as well as originating banks 
and beneficiary banks would restrict the reporting requirement to those 
institutions with the systems able to process these reports and limit 
the implementation costs on the industry as a whole.
     Any reporting requirement should permit institutions to 
report either through a format prescribed by FinCEN, through the 
submission of certain pre-existing payment messages that contain the 
required data, or through an interactive online form for institutions 
that submit a low volume of such reports. The filing system should 
accommodate automated daily filing, periodic filing via manual upload, 
and discrete single report filing on an as-needed basis.\50\
---------------------------------------------------------------------------

    \50\ See Feasibility Report, at Section 1.0--Executive Summary.
---------------------------------------------------------------------------

     The implementation of the reporting requirement described 
in section 6302 would be a staged process, requiring FinCEN to review 
and update the requirements as necessary.
     The information that FinCEN is seeking to be reported is 
reasonably necessary to support the Secretary's efforts to combat money 
laundering and terrorist financing. Specifically, the inability to 
conduct proactive analysis on the information currently recorded by 
banks hinders law enforcement's ability to identify significant 
relationships to active targets.

A. General Scope of Proposed Cross-Border Electronic Transmittal of 
Funds Report

    Based on the result of these efforts, and paying close attention to 
the above referenced concerns, FinCEN has developed the proposed rule 
as the initial implementation of the IRTPA. From information gathered 
during this stage, FinCEN will determine the need for future reporting 
requirements, and will formulate an improved development plan that 
incorporates future milestones and permits pilot testing of different 
aspects of the evolving reporting system. This incremental development 
approach will enable FinCEN to build the system in manageable stages 
and to test the system's functionality at each stage before moving on 
to the next.
    For the CBETF First Stage, FinCEN proposes:
     To limit the scope of the subject transactions to those 
defined as ``transmittals of funds'' under the current regulation (31 
CFR 103.11(jj)).
     To further reduce the scope of the reporting requirement 
to those transactions involving (a) depository institutions that 
exchange transmittal orders through non-proprietary messaging systems, 
and (b) all money transmitters; and where the U.S. institution sends or 
receives a transmittal order directing the transfer of funds to or from 
an account domiciled outside the United States, FinCEN is proposing 
only to require reporting by those two types of financial institutions, 
because they carry out the great majority of CBETFs. FinCEN is 
proposing to require banks and money transmitters to report these 
transfers on a first in/last out basis. Hence, an institution will be 
required to report transfers to FinCEN only if it is the last U.S. 
institution to process a transaction prior to the transaction crossing 
the border or if it is the first U.S. institution to process the 
transaction received from a foreign financial institution.
     Finally, to adopt the Hybrid Reporting Model, which would 
provide for (i) some third-party ``centralized repository'' (such as 
SWIFT) \51\ to report CBFT information to FinCEN at the direction of 
its financial institution members; (ii) large MSBs to report to FinCEN 
on their own behalf; and (iii) small/medium MSBs to employ FinCEN-
provided e-Filing data entry capabilities, rather than implementing 
their own solutions.\52\
---------------------------------------------------------------------------

    \51\ See Implications and Benefits Study, at Section 5.0--
Implications to the Financial Industry.
    \52\ See Implications and Benefits Study, at Section 1.0--
Executive Summary.
---------------------------------------------------------------------------

    In proposing a reporting requirement, FinCEN is striving to create 
the most efficient reporting regime that still achieves the overarching 
goal of providing the information that is necessary to law enforcement. 
In addition, FinCEN is trying to avoid requiring large changes to the 
business systems of the funds transmittal industry in order to 
implement this reporting regime. As such, FinCEN is proposing that 
banks report on all CBETFs and that money transmitters report on all 
CBETFs at or above $1,000. During FinCEN's studies of the proposed 
reporting entities, FinCEN determined that banks, by and large, keep 
records for funds transfers regardless of dollar value. FinCEN was 
aware that, with respect to recordkeeping, many banks would prefer to 
not have to segregate transactions at certain thresholds due to 
increased costs.\53\ Hence, if required to report on funds transfers, 
many institutions will find reporting on all transactions less costly 
than reporting only those transactions that exceed a certain dollar 
threshold. The segregation or sorting of funds transfers by value, 
including for transfers denominated in non-U.S. dollar currencies, 
could require significant changes to the information technology systems 
of some banks and third-party carriers, at considerable additional 
costs.
---------------------------------------------------------------------------

    \53\ See Ltr. from Krista J. Shonk, Reg. Counsel, America's 
Community Bankers, to FinCEN, Re: Threshold for the Requirement to 
Collect, Retain, and Transmit Information on Funds Transfers and 
Transmittals of Funds 3 (Aug. 21, 2006). http://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdf [ hereinafter America's Community 
Banker's Ltr.].
---------------------------------------------------------------------------

    Additionally, transmittal orders carried by third parties are 
generally encrypted to protect the information therein. FinCEN was 
advised by industry members and financial regulators that some third-
party carriers might be unable to identify the amounts of the encrypted 
transmittal orders sent through their system without the active 
intervention of both the sending and receiving financial institution, 
thereby increasing the cost of the third-party reporting option. Having 
no transaction threshold would allow third parties to report without 
adjusting encryption methods to provide them with access to transmittal 
amounts. Beyond operational difficulties, requiring only those 
transactions that are above a

[[Page 60385]]

certain threshold would open financial institutions up to liability 
under the Right to Financial Privacy Act. If an institution or its 
designated third-party sent a transaction that was under the threshold, 
such filing would not be protected from the exclusion in the Right to 
Financial Privacy Act regarding information required to be reported by 
the Federal government, subjecting the institution to liability. By 
requiring the reporting of all transactions, FinCEN is protecting 
institutions from this potential liability.\54\
---------------------------------------------------------------------------

    \54\ See 12 U.S.C. 1829b(b)(3)(C) (2009) (Any information 
reported to Treasury or the Board in accordance with section 
1829b(b)(3)(C) falls within an exception to the Right to Financial 
Privacy Act, 12 U.S.C. 3401 et seq (2009)). See 12 U.S.C. 3413(d) 
(excepting disclosures pursuant to Federal law or rule). Moreover, 
the Right to Financial Privacy Act does not apply to money 
transmitters. See 12 U.S.C. 3401(1) (2009) (defining a ``financial 
institution'' for purposes of the Act's coverage to include banks 
and other depository institutions).
---------------------------------------------------------------------------

    For money transmitters the threshold issue must be treated 
differently because money transmitters have different business models 
than banks. Money transmitters do not typically establish long-term 
account relationships with their customers and therefore they do not 
have a business need to keep detailed records of all transactions, 
especially small electronic transfers. Money transmitters do, however, 
currently keep records of transfers to comply with the various 
recordkeeping requirements of FinCEN and other applicable authorities 
in the jurisdictions where they operate. Money transmitters that 
operate in more than one jurisdiction must comply with the 
recordkeeping requirements of all such jurisdictions. Because of this, 
many money transmitters have adopted global recordkeeping requirements 
and keep records at the lowest regulatory threshold required regardless 
of jurisdiction, thus assuring them of compliance in all applicable 
jurisdictions. Because many jurisdictions have adopted the $1,000 
threshold suggested in SRVII, a large portion of the money transmitter 
industry, by volume of transactions, is already keeping records at the 
$1,000 level but is not keeping detailed records of transactions 
falling below that amount.

B. What To Include in the Cross-Border Electronic Transmittal of Funds 
Report

    As a by-product of globally accepted standards, there already is a 
large degree of standardization in the formats of transmittal orders 
currently being used by banks. This standardization has been driven by 
global commercial incentives to allow straight-through processing for 
funds transfers, i.e., electronic processing without the need for re-
keying or manual intervention. FinCEN intends to take advantage of this 
standardization, to the greatest degree possible, and to accept direct 
filings of copies of these transmittal orders in the form they are 
already being processed by institutions.
    The Implications and Benefits Study found that there is significant 
benefit in providing flexibility to the financial industry in how they 
would be able to comply with any proposed reporting requirement. For 
example, a large volume of the transmittal orders exchanged between 
foreign and U.S. banks as part of incoming or outgoing transmittals of 
funds are sent through a third party, that provides a secure, 
standardized electronic format for financial messaging between 
financial institutions, such as SWIFT. For this proposed rule, FinCEN 
is focusing on messaging systems, rather than financial settlement 
systems; therefore, the instructions exchanged between financial 
institutions through these third parties must be settled between the 
parties by other means (for example, using correspondent accounts or 
sending payments through a primary industry funds transfer system in 
the currency of denomination of the transmission of funds). By 
definition, FinCEN is not collecting information regarding funds 
transfers governed by the Electronic Fund Transfer Act of 1978 (Title 
XX, Pub. L. 95-630, 92 Stat. 3728, 15 U.S.C. 1693, et seq.), or any 
other funds transfers that are made through an automated clearinghouse, 
an automated teller machine, or a point-of-sale system.
    FinCEN proposes to require certain banks to submit copies of 
certain standard format transmittal orders directly to FinCEN. Banks 
covered by this option will be required to submit to FinCEN a copy of 
each full transmittal order. Because a significant portion of the 
transmittal orders are currently being carried by third parties, this 
proposed rule would clarify that while the reporting obligation and 
accountability for compliance rest with the bank, third-party reporting 
of these transmittal orders at the express direction of a bank would be 
acceptable to FinCEN. Some financial institutions suggested this option 
to FinCEN in the course of the interviews and survey conducted as part 
of FinCEN's Feasibility Report and Implications and Benefits Study.\55\ 
For example, a substantial number of transmittals required to be 
reported by the proposed rule are processed by SWIFT through 
standardized formats. FinCEN anticipates that many first-in/last-out 
institutions will comply with their filing obligations through third-
party carriers, like SWIFT, with significant cost savings compared to 
in-house reporting.
---------------------------------------------------------------------------

    \55\ See Feasibility Report--Section 5, n. 21. See also 
Implications and Benefits Study--Section 3.
---------------------------------------------------------------------------

    If a bank is not able to submit (or cause to be submitted) copies 
of these standard format transmittal orders, FinCEN will accept 
submissions of just the required information in alternative formats to 
be prescribed by FinCEN. FinCEN proposes to require institutions 
utilizing this alternative reporting format to submit only the 
following information, if available,\56\ about all CBETFs:
---------------------------------------------------------------------------

    \56\ As discussed in Section II.A above (Background 
Information--Current Regulations Regarding Funds Transfers), the 
regulatory obligation of financial institutions in general to obtain 
and retransmit certain data points of transmittals of funds depends 
on the role they play in the transmittal chain, and on the amount of 
the transaction. Therefore, FinCEN acknowledges that some of the 
reportable fields of CBETFs collected through either method 
(submitting copies of the actual standard format transmittal orders 
or utilizing an alternative reporting format) might be empty or 
contain incomplete data.
---------------------------------------------------------------------------

    (i) Unique transaction identifier number;
    (ii) Either the name and address or the unique identifier of the 
transmittor's financial institution;
    (iii) Name and address of the transmittor;
    (iv) The account number of the transmittor (if applicable);
    (v) The amount and currency of the funds transfer;
    (vi) The execution date of the funds transfer;
    (vii) The identity of the recipient's financial institution;
    (viii) The name and address of the recipient;
    (ix) The account number of the recipient; and
    (x) Any other specific identifiers of the recipient or 
transaction.\57\
---------------------------------------------------------------------------

    \57\ FinCEN has consulted with the staff of the Board and has 
determined that the reporting requirements under this section will 
exceed the requirements under section 21 of the Federal Deposit 
Insurance Act and the regulations promulgated thereunder. Further, 
FinCEN has determined that the reporting of this information is 
reasonably necessary to conduct our efforts to identify cross-border 
money laundering and terrorist financing.
---------------------------------------------------------------------------

    Certain money transmitters will be required to report on all 
transmittals of funds that are at or above the previously mentioned 
threshold of $1,000. Additionally, for reportable transactions of 
$3,000 or more, FinCEN is proposing that money transmitters include the 
U.S. taxpayer identification number of the transmittor or recipient (as 
applicable),

[[Page 60386]]

or if none, the alien identification number or passport number and 
country of issuance in their reports. As discussed below, FinCEN has 
determined that this information is reasonably necessary to assist in 
the investigation and prosecution of financial crimes including tax 
evasion. FinCEN will accept submissions from these money transmitters 
of the required information in formats that are prescribed by FinCEN. 
FinCEN proposes to require the following information, if available,\58\ 
in these submissions:
---------------------------------------------------------------------------

    \58\ As discussed in Section II.A above (Background 
Information--Current Regulations Regarding Funds Transfers), the 
regulatory obligation of financial institutions in general to obtain 
and retransmit certain data points of transmittals of funds depends 
on the role they play in the transmittal chain, and on the amount of 
the transaction. Therefore, FinCEN acknowledges that some of the 
reportable fields of CBETFs collected through either method 
(submitting copies of the actual standard format transmittal orders 
or utilizing an alternative reporting format) might be empty or 
contain incomplete data.
---------------------------------------------------------------------------

    (i) Unique transaction identifier number;
    (ii) Either the name and address or the unique identifier of the 
transmittor's financial institution;
    (iii) Name and address of the transmittor;
    (iv) The account number of the transmittor (if applicable);
    (v) The amount and currency of the transmittal of funds;
    (vi) The execution date of the transmittal of funds;
    (vii) The identity of the recipient's financial institution;
    (viii) For transactions over $3,000, the U.S. taxpayer 
identification number of the transmittor or recipient (as applicable), 
or if none, the alien identification number or passport number and 
country of issuance;
    (ix) The name and address of the recipient;
    (x) The account number of the recipient; and
    (xi) Any other specific identifiers of the recipient or 
transaction.

C. Filing Methodology and Frequency of Cross-Border Electronic 
Transmittal of Funds Reports

    FinCEN proposes to require reporting financial institutions to 
submit the copies of certain standard format transmittal orders or the 
required data elements through an electronic filing system to be 
developed and implemented by FinCEN, which shall allow submissions 
filed either discretely on a transaction-by-transaction basis, or by 
batching transactions in a format approved by FinCEN. FinCEN believes 
that electronic filing is the most efficient and effective manner for 
both the government and the institutions and will result in not only 
cost savings on both sides of the submission but will also 
significantly reduce the chances for data corruption during data entry. 
In special cases, where hardship can be demonstrated, FinCEN is 
proposing to allow the Director of FinCEN to authorize a reporting 
financial institution to report in a different manner if the financial 
institution demonstrates that (a) the form of the required report is 
unnecessarily burdensome on the institution as prescribed; (b) a report 
in a different form will provide all the information FinCEN deems 
necessary; and (c) submission of the information in a different manner 
will not unduly hinder FinCEN's effective administration of the BSA. 
Third-party reporters (entities engaged by reporting financial 
institutions to provide reporting services) will be required to report 
electronically in a format approved by FinCEN.
    FinCEN is considering whether to develop an Internet-based form 
that could be filed electronically through a secure Internet connection 
by institutions that have a limited quantity of reportable transactions 
and do not wish to invest in information technology changes required to 
file in a more automated fashion, such as batching. By doing this, 
FinCEN believes that it can provide an effective method for smaller 
institutions to continue to process a limited number of funds 
transmittals for their customers while not being required to invest 
significantly in additional technology.
    FinCEN intends to accept transmittal orders currently being carried 
by SWIFT. FinCEN intends to accept message traffic from other similarly 
situated entities as well. Given the types of transactions FinCEN is 
currently proposing to collect, and the current limited number of 
messaging systems in the marketplace, FinCEN anticipates banks will be 
able to comply with these regulations through submissions of copies of 
the transmittal orders currently being carried on SWIFT's messaging 
format for person-to-person transmittals of funds (MT-103s at the time 
of the Implications and Benefits Study, but now additionally including 
202-COVs).
    The Feasibility Report and the Implications and Benefits Study 
analyzed CBETFs from the point of view of serial payments, where all 
the information sent to the beneficiary banks goes through the various 
intermediaries. While these reports were being produced, the financial 
industry started concentrating on the vulnerabilities of other cross-
border transmittal mechanisms, namely, cover payments.\59\ Cover 
payments are generally used by a foreign bank to facilitate funds 
transfers on behalf of a customer to a recipient in another country and 
typically involve both (a) a transaction in a currency other than that 
of the country where the transmittor's or recipient's bank is 
domiciled, and (b) the transmittor's and recipient's banks not having a 
relationship with each other that allows them to settle with each other 
directly. In this circumstance, the originator's bank may directly 
instruct the beneficiary's bank to effect the payment and advise that 
transmission of funds to ``cover'' the interbank obligation created by 
the payment order has been arranged through a separate channel (the 
``cover intermediary bank'').\60\ This cover payment mechanism, where 
the cover intermediary banks do not necessarily see all the information 
sent to the beneficiary bank, is distinct from the direct sequential 
chain of payments envisaged in the FATF Special Recommendation VII on 
wire transfers.\61\
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    \59\ See i.e., The Wolfsberg Group, Clearing House Statement on 
Payment Message Standards: http://www.wolfsberg-principles.com/pdf/WGNYCH_Statement_on_Payment_Message_Standards_April-19-2007.pdf.
    \60\ See Basel Committee on Banking Supervision, ``Due diligence 
and transparency regarding cover payment messages related to cross-
border wire transfers,'' May 2009.
    \61\ Revised Interpretative Note to Special Recommendation VII: 
Wire Transfers, FATF (Feb. 29, 2008), http://www.fatf-gafi.org/dataoecd/16/34/40268416.pdf.
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    As a result of an industry initiative, SWIFT developed a change in 
its message standards, allowing the covering payment (which used to be 
sent through a MT 202 message which generally provided no information 
about originator and beneficiary) to include full information about the 
other parties to the transaction. The new message standard (MT 202-COV) 
was implemented as of November 2009. On December 17, 2009, the U.S. 
Federal banking supervisors, in consultation with the Office of Foreign 
Assets Control (OFAC) and FinCEN, issued interagency guidance to 
clarify the supervisory perspective on certain key issues involving 
cover payments.\62\ The guidance covers the obligations of U.S. 
originators of cover payments, the responsibilities of U.S. cover 
intermediary banks for screening

[[Page 60387]]

messages for blank key fields and sanctioned entities, and for 
suspicious activity monitoring, and the supervisory approach to the 
foreign correspondent banking monitoring obligations of U.S. banks. 
SWIFT MT 202-COV messages are specifically covered by this proposed 
rulemaking.
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    \62\ Interagency Joint Notice--``Transparency and Compliance for 
U.S. Banking Organizations Conducting Cross-Border Funds 
Transfers,'' available at http://www.occ.treas.gov/ftp/bulletin/2009-36a.pdf.
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    In determining reporting frequency, FinCEN is striving to reach the 
appropriate balance between providing timely information to law 
enforcement and limiting the cost of compliance to the institutions. 
Other nations' financial intelligence units have been able to intercept 
ongoing criminal activity, such as illegal drug dealings, through the 
use of daily submissions of CBETF information. At the same time, FinCEN 
recognizes that requiring institutions to report daily could, in some 
cases, increase costs as compared to a less frequent reporting period. 
For this reason, FinCEN is proposing that institutions be required to 
report on covered transmittals of funds within five business days 
following the day when the reporting financial institution issued or 
received the respective transmittal order. This five-business-day 
interval was discussed with financial institutions and law enforcement 
during the review of the Implications and Benefits Study. Institutions 
will be permitted to report more frequently if desired.

D. Annual Reports Proposed

    In addition to the CBETF reporting proposal, FinCEN is proposing, 
as a separate but related requirement, an annual report by banks of the 
account number and accountholder's U.S. tax identification number (TIN) 
of all accounts used to originate or receive CBETFs subject to 
reporting under Section 6302 of the IRTPA. The purpose of this proposal 
is to enhance the usefulness of the funds transfer data to better 
detect, investigate, and prosecute money laundering and terrorist 
financing to the extent such crimes also may involve tax evasion. The 
extent to which offshore bank accounts are used to evade U.S. income 
tax is considerable and well-documented.\63\ The Administration, as 
part of a comprehensive effort to reduce the use of offshore accounts 
and entities to evade U.S. tax, has also proposed the collection of 
certain information regarding certain international transfers of 
funds.\64\
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    \63\ See generally Staff of Sen. Subcomm. on Investigations of 
the Comm. on Homeland Sec. and Govtl. Affairs, 110th Cong., Tax 
Haven Banks and U.S. Tax Compliance, (Sen. Subcomm. Print 2008); See 
generally Staff of Sen. Subcomm. on Investigations of the Comm. on 
Homeland Sec. and Govtl. Affairs, 109th Cong., Tax Haven Abuses: The 
Enablers, the Tools and Secrecy, (Sen. Subcomm. Print 2006).
    \64\ ``General Explanations of the Administration's Fiscal Year 
2011 Revenue Proposals, Miscellaneous Tax Policy Document, at 63 
(Treasury, Feb. 2010) http://www.ustreas.gov/offices/tax-policy/library/greenbk10.pdf.
---------------------------------------------------------------------------

    FinCEN is considering a methodology for this second reporting 
requirement that would require banks to submit an annual filing with 
FinCEN (the TIN annual report) that provides the account number and 
accountholder's U.S. TIN of all accounts used to originate or receive 
one or more CBETFs in the previous calendar year. This annual reporting 
requirement would apply to all banks that maintained any customer 
account that was debited or credited to originate or receive a CBETF 
subject to reporting under this section, for any amount, during the 
previous calendar year. FinCEN would then endeavor to have that 
information matched with CBETF data received throughout the year and 
made available for the investigation and prosecution of tax evasion and 
other purposes consistent with the BSA.

E. Exemptions

    Although myriad systems are available to U.S. financial 
institutions to process electronic funds transfers, cross-border funds 
transfers tend to flow through a small number of channels as they enter 
and leave the United States (i.e., Fedwire, CHIPS and SWIFT). As 
institutions pass payment orders along through correspondents en route 
to their destination, those institutions' systems convert the orders 
from the many available formats to one of only a few. At some point in 
the cross-border payment chain a single U.S. financial institution must 
communicate directly with a foreign financial institution.
    On the other hand, financial institutions may use standardized or 
proprietary or internal systems to handle all or part of an electronic 
funds transfer (i.e., between branches of the same institution). 
Proprietary systems pose a special challenge to designing a reporting 
system because of the wide range of potential message formats, 
communications protocols, and data structures involved. The primary 
challenge that arises in this context is that a reporting requirement 
would require that the U.S.-based institution implement processes for 
identifying and extracting cross-border funds transfer information from 
its proprietary communications systems. The implementing regulation 
must take into account this kind of permutation in order to ensure that 
FinCEN collects CBETFs that follow this pattern.
    For banks, FinCEN is proposing to require reporting of all funds 
transfers that are effected through transmittal orders that are 
standardized across the banking industry. For this proposed reporting 
requirement, FinCEN intends to exempt from both reporting requirements 
funds transfers that are conducted entirely through, and messaged 
entirely through, systems that are proprietary to banks.\65\
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    \65\ These proprietary systems include those developed by banks, 
or those off-the-shelf systems acquired and adopted or adapted by 
banks, or by the corporate structure the bank belongs to, to receive 
payment instructions from their customers (including those financial 
institutions that maintain correspondent accounts at such banks).
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    This exemption would not apply to money transmitters because their 
business model for transmitting funds relies almost solely upon 
proprietary systems. Additionally, there is no industry-wide adoption 
of a standardized transmittal order format as exists in the banking 
industry. The largest MSBs generally maintain centralized 
communications systems and database records of customer transactions 
that provide an obvious source for the CBETF information 
collection.\66\ FinCEN is also proposing to exempt from both reporting 
requirements CBETFs where both the transmittor and the recipient are a 
bank, i.e., there is no third-party customer to the transaction. There 
is a lower risk of money laundering and terrorist financing associated 
with these transactions.
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    \66\ See Feasibility Report, at Section 5.0--Form, Manner, and 
Content of Reporting, and at App. D. See Id. App. G, at 134-135.
---------------------------------------------------------------------------

F. Recordkeeping Rule Issues

    Changes to the regulations implementing Section 21 of the Federal 
Deposit Insurance Act for banks (31 CFR 103.33 (e) and (f) (the Funds 
Transfer Rule) and 31 CFR 103.33 (g) (the Travel Rule)), would require 
a joint determination of the Board of Governors of the Federal Reserve 
System and the Secretary of the Treasury as to the necessity of such a 
change. Section 6302 provides that information required to be reported 
under that section shall not exceed the information already required to 
be retained by financial institutions pursuant to the Funds Transfer 
Rule and the Travel Rule unless:
    (i) The Board and the Secretary jointly determine that particular 
items of information are not currently required to be retained under 
those law and regulations; and (ii) The Secretary determines, after 
consultation with the Board, that the reporting of such additional 
information is reasonably necessary to conduct the efforts of the

[[Page 60388]]

Secretary to identify money laundering and terrorist financing.
    At this time, FinCEN and the Board are not proposing any amendments 
to the recordkeeping rule affecting banks. Also, FinCEN is not 
proposing any amendments to the recordkeeping rules affecting nonbank 
financial institutions. FinCEN understands that institutions collect 
and maintain a wide range of business records and customer and 
transaction-related information for business reasons unrelated to 
regulatory compliance. Additionally, FinCEN acknowledges that this 
proposed regulation would result in a requirement for institutions to 
report certain transactions where they are not currently required to 
keep records or verify customer identification.\67\
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    \67\ As discussed in Section II.A above (Background 
Information--Current Regulations Regarding Funds Transfers), the 
regulatory obligation of financial institutions in general to obtain 
and retransmit certain data points of transmittals of funds depends 
on the role they play in the transmittal chain, and on the amount of 
the transaction. Therefore, FinCEN acknowledges that some of the 
reportable fields of CBETFs collected through either method 
(submitting copies of the actual standard format transmittal orders 
or utilizing an alternative reporting format) might be empty or 
contain incomplete data.
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G. Compliance Date

    Section 6302 of the IRTPA requires the Secretary to certify that 
the information technology systems are in place to accept reports from 
the regulated industry prior to prescribing regulations requiring 
institutions to report on transmittals of funds. Because of the 
statutory language, FinCEN is unable to issue a final rule with a 
delayed effective date prior to having adequate technological systems 
in place. FinCEN does not anticipate these systems being in place 
before 2011. Hence, FinCEN does not anticipate issuing a final rule 
until after January 1, 2012. FinCEN anticipates delaying the compliance 
date of the final rule to provide institutions with ample time to 
adjust necessary systems for compliance.

H. Technical Requirements

    The development of information technology systems capable of 
receiving, storing, analyzing, and disseminating an estimated 750 
million records a year is a daunting task. FinCEN will implement 
federated data warehouse architecture to receive, keep, exploit, 
protect the security of, and disseminate information submitted under 
the proposed reporting requirement. FinCEN will implement a separate 
path for the processing, enhancement, and storage of report information 
and would provide a single point of entry for users to submit queries 
to all BSA data systems, including CBETF information, in a way that is 
invisible to the user. A full description of the proposed architecture, 
procedural paths, and points of entry is contained in Appendices H 
(Technical Alternatives Analysis), J (Preliminary Work Breakdown 
Schedule), and L (Project Management and Information Technology 
Processes) to the Feasibility Report.

I. Protection of Private Personal Financial Information

    While the benefits of centralizing BSA data have been substantial, 
these developments pose significant risks to the critical operations of 
the government and the security of the data contained in these systems. 
BSA data is highly sensitive data containing details about the 
financial activity of private persons. Without proper safeguards, this 
data could be at risk of inadvertent or deliberate disclosure or misuse 
and FinCEN's mission could be undermined. These risks generally fall 
into two closely related categories, the privacy of the personal 
information contained in government systems, and the risk of system 
compromise or misuse.
    FinCEN will apply existing policies and procedures that comply with 
all applicable legal requirements, industry and government best 
practices, and the Department of the Treasury's Information Technology 
Security Program Directive to every phase of the design and 
implementation of any system built to accommodate reporting of CBETF 
data. FinCEN also will impose strict limits on the use and re-
dissemination of the data it provides to its law enforcement, 
regulatory, and foreign counterparts and strictly monitor those persons 
and organizations to which it grants access to the data. CBETF data 
will be technologically protected and secure and would only be 
available to FinCEN and the law enforcement and regulatory agencies 
authorized by law to access it. Compliance with these three requirement 
types will be subject to certification, and Section 6302 will not 
permit FinCEN to finalize this proposed rulemaking until such 
certification is issued and found acceptable.\68\
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    \68\ 31 U.S.C. 5318(n)(5)(B).
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    A number of Federal laws directly control the collection and use of 
data by government agencies with the aim of protecting the privacy of 
individual persons--namely, the Right to Financial Privacy Act,\69\ the 
Privacy Act,\70\ the Federal Information Security Management Act,\71\ 
and the Bank Secrecy Act itself.\72\ Lastly, the E-Government Act of 
2002\73\ provides a further protection for personal information in 
government data systems, by requiring that agencies conduct ``privacy 
impact assessments'' prior to procuring or developing such systems.\74\
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    \69\ 12 U.S.C. 3401et seq (2009).
    \70\ 5 U.S.C. 552a (2009).
    \71\ Federal Information Security Management Act of 2002, Title 
III, E-Government Act of 2002, Public Law 107-347, Dec. 17, 2002.
    \72\ The routine uses for Bank Secrecy Act data are set forth at 
70 FR 45756, 45760 (August 8, 2005) (Bank Secrecy Act Reports 
System--Treasury/FinCEN .003).
    \73\ E-Government Act of 2002, Public Law 107-347, section 208, 
(Dec. 17, 2002).
    \74\ Office of Management and Budget, Memorandum M-03-22, 
Guidance for Implementing the Privacy Provisions of the E-Government 
Act of 2002 (Washington, DC, Sept. 26, 2003).
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    FinCEN has developed policies and procedures for compliance with 
these requirements in accordance with the Department of the Treasury's 
Information Technology Security Program Directive. Compliance with 
these government-wide and department-wide standards ensures that FinCEN 
designs and operates its information systems in accordance with 
government best practices for the maintenance and dissemination of 
sensitive data. In developing a system for the collection, storage, 
analysis, and sharing of CBETF reports, FinCEN will incorporate 
compliance with these standards into every phase of the design and 
implementation of the system. FinCEN has more than twenty years of 
experience in handling sensitive financial information about persons 
through the reporting it currently receives from financial institutions 
in the United States. FinCEN imposes strict limits on the use and re-
dissemination of the data it provides to its law enforcement, 
regulatory, and foreign counterparts and strictly monitors those 
persons and organizations to which it grants access to the data.\75\
---------------------------------------------------------------------------

    \75\ For a detailed discussion of the collection of the 
information contained in the proposed rule, see Feasibility Report 
at Section 7.0--Information Security Protection.
---------------------------------------------------------------------------

V. Section-By-Section Analysis

    The proposed rule (a) would implement section 6302 of the IRTPA by 
requiring certain banks and money transmitters (``first-in/last-out'' 
financial institutions) to file periodic reports with respect to 
certain CBETFs (mostly defined as reportable on the basis of

[[Page 60389]]

method of transmission and monetary threshold), and (b) would require 
all banks to file an annual report with the account number and 
accountholder's U.S. tax identification number of accounts involved in 
certain CBETFs.
    The rule describes the types of transmittal orders and advices of 
transmittal orders that should be subject to report, the information 
that should be reported, and the timeframe for the filing of the 
reports.

General (Sec.  103.14(a))

    FinCEN proposes to add 31 CFR 103.14(a). That new paragraph would 
add a requirement that reporting financial institutions (as defined in 
this section) file reports with FinCEN with respect to CBETFs that meet 
the conditions in the rule and subject to the exemptions therein. The 
conditions that make a transaction reportable are the means of 
communication of the related transmittal order (or the advice of the 
transmittal order, when applicable), and, in the case of the CBETF 
periodic report, the position of the financial institution making or 
receiving the communication in the transmittal chain, and the amount of 
the transmittal of funds involved.

Definitions (Sec.  103.14(b))

    Most of the terms utilized in this section have the meanings 
previously set forth in Part 103 of Chapter I of Title 31.\76\ Some of 
these terms, and all the terms defined specifically for this section, 
merit additional comment.
---------------------------------------------------------------------------

    \76\ See 31 CFR 103.11 (2009).
---------------------------------------------------------------------------

    Account. Account is defined in 103.90(c). This definition covers 
``a formal banking or business relationship established to provide 
regular services, dealings, and other financial transactions * * *,'' 
and includes the ongoing contractual relationships between some 
providers of money transmitting services and their customers. If (1) at 
the moment of opening an account for a person (or shortly thereafter), 
the financial institution has obtained and maintains on file the 
person's name and address, as well as TIN (e.g., social security or 
employer identification number) or, if none, alien identification 
number or passport number and country of issuance; and (2) the 
financial institution provides financial services to such person 
relying on that information, then that person would constitute an 
``established customer'' of the financial institution as defined in 
103.11(l).
    Cross-Border Electronic Transmittal of Funds. The definition of 
``cross-border electronic transmittal of funds'' lies at the heart of a 
successful implementation of the reporting requirement. The nature of 
the electronic funds transfer process as it has evolved in the United 
States poses specific difficulties in creating a definition that at 
once captures all of the nuances of the payment systems and avoids 
needless complexity. Section 6302 contemplates a reporting requirement 
that is coextensive with the scope of the BSA funds transfer rule (31 
CFR 103.33). Accordingly, for the purposes of the first stage of a 
phased approach to the cross-border electronic transmittal of funds 
reporting rulemaking process, the Feasibility Report focused on 
electronic ``transmittals of funds'' as defined in 31 CFR 103.11, and 
did not address any debit card type of transmittals, point-of-sale 
(POS) systems, transaction conducted through an Automated Clearing 
House (ACH) process, or Automated Teller Machine (ATM).\77\ 
Furthermore, within the current regulatory definition of ``transmittals 
of funds,'' the Feasibility Report concentrated for the first step in 
the staged implementation of Section 6302 of the IRTPA on those 
transactions involving depository institutions that exchange 
transmittal orders through non-proprietary messaging systems, and all 
money transmitters, and where the U.S. institution sends or receives a 
transmittal order directing the transfer of funds to or from an account 
domiciled outside the U.S. Refining an appropriate regulatory 
definition of what transactions fall within the new reporting 
requirement will implicate a number of concerns that were identified by 
the Feasibility Report and should be further addressed during future 
studies.
---------------------------------------------------------------------------

    \77\ See Feasibility Report, at Section 8.0--Conclusions and 
Recommendations.
---------------------------------------------------------------------------

    In consideration of these determinations, FinCEN proposes to define 
a CBETF generally as ``[a] transmittal of funds where either the 
transmittal order or the advice is: (i) communicated through electronic 
means; and (ii) sent or received by either a first-in or a last-out 
financial institution.''
    The definition as provided concentrates on the evidence of the 
payment (as opposed to the actual payment itself), represented by a 
transmittal order (the combination of an instruction to pay and an 
authorization to debit an account or a confirmation of how the 
reimbursement for the payment is being disbursed) or an advice of a 
transmittal order (the notification that a credit to an account has 
been made, in relation to a CBETF). These messages have to be exchanged 
by electronic means between a foreign financial institution and either 
a first-in financial institution (for incoming CBETFs) or a last-out 
financial institution (for outgoing CBETFs).
    The definition does not intend to capture either (1) notifications 
of a debit to the account maintained by the foreign financial 
institution at the first-in financial institution, effected to cover 
the CBETF; (2) a retransmission of a transmittal order for the sole 
purpose of adding authentication; or (3) notifications to the third 
party that originates or is the beneficiary of the transmittal of 
funds. In certain business systems currently in use, the notification 
to a foreign financial institution of the credit to its correspondent 
account, processed in connection with a CBETF, is used by the foreign 
financial institution as the operative instrument for the payment to 
the beneficiary; this type of advice, which is used in lieu of the more 
traditional transmittal order, is among the types of additional 
electronic communication that the regulation seeks to capture.
    Additionally, the regulation will require the reporting of 
transmittal orders where the actual payment of the order does not occur 
for any reason. FinCEN acknowledges that this will result in the 
reporting of transactions where settlement never occurred, populating 
the database with unsettled transmittal orders. However, because the 
settlement could be cancelled after the reporting of the transmittal 
order to FinCEN, if FinCEN did not require the reporting of this 
message the financial institution would be subject to liability under 
the Right to Financial Privacy Act. Thus, to protect financial 
institutions and limit the costs of reporting, FinCEN will review 
whether there are classes of transactions where settlement did not 
occur for which it would be practicable and appropriate for FinCEN to 
arrange to exclude from the database.\78\
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    \78\ See Feasibility Report, at Section 5.0--Form, Manner, and 
Content of Reporting. The ABA suggests, ``regardless of the nature 
of any imagined reporting requirement, the financial services 
industry's responsibility should extend only to the simple 
transmittal of raw data, with FinCEN assuming full responsibility 
for the refinement and distillation of the data into a format useful 
to law enforcement agencies.'' While FinCEN believes that 
accommodation of every possible format is unreasonable, the approach 
proposed in the text recognizes the potential cost and strikes a 
balance aimed at accommodating the widest possible variation in 
reporting formats.
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    Electronic means are those means that utilize technology that has 
electrical, digital, magnetic, wireless, optical,

[[Page 60390]]

electromagnetic, or similar capabilities.\79\
---------------------------------------------------------------------------

    \79\ 15 U.S.C. 7006(2) (2006).
---------------------------------------------------------------------------

    First-in financial institution. For purposes of this section, in an 
incoming CBETF, FinCEN defines a first-in financial institution as any 
bank or money transmitter that receives a transmittal order or the 
advice of a transmittal order from a foreign financial institution. 
FinCEN views the bank or money transmitter in an incoming CBETF that 
received the transmittal order or the advice of the transmittal order 
directly from the foreign financial institution and maintains such 
foreign financial institution's correspondent account, as having more 
consistently complete information about the transaction than other U.S. 
financial institutions that may be involved in the same transmittal of 
funds.\80\
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    \80\ The quantity and quality of the information that is 
transmitted along the payment chain, either embedded in the payment 
itself or contained in a separate message, tends to degrade as such 
information is communicated among the links of the chain; the 
details contained in optional fields may be lost, abridged, or 
transcribed with errors from transmittal order to transmittal order 
along the chain.
---------------------------------------------------------------------------

    Last-out financial institution. For purposes of this section, in an 
outgoing CBETF, FinCEN defines a last-out financial institution as any 
bank or money transmitter that sends the transmittal order or the 
advice of the transmittal order to a foreign financial institution. The 
last-out financial institution will have more consistently complete 
information about the transaction than other U.S. financial 
institutions that may be involved in the same transmittal of funds.\81\
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    \81\ See the Feasibility Report at 12-14. If more than one U.S. 
financial institution took part in the transmittal of funds, the 
last-out financial institution's records should identify the 
transmittor, the transmittor's financial institution, and other 
information about the transaction (e.g., recipient, recipient's 
financial institution, information exchange, additional financial 
institutions involved and their roles, date, amount, etc.). 
Similarly, the U.S. bank's records may provide a more complete 
picture of the entities involved in the overall chain of the 
transaction. Investigators and analysts could then determine where 
to turn for further information on the transaction and customer. In 
addition, the customer identification (to the extent it is included 
in the original message) and other transaction detail information 
should remain intact and available throughout this correspondent 
stage and therefore remain available in the instructions handled by 
the last-out financial institution.
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    Reporting Financial Institution. For purposes of this section, 
FinCEN defines a reporting financial institution as any bank (reporting 
bank) or money transmitter (reporting money transmitter) acting as a 
first-in or last-out financial institution.
    Whether a ``first in'' or ``last out'' institution, because of the 
size and nature of institutions that serve in correspondent roles for 
CBETFs, these banks are more likely to be connected with and use 
centralized message systems (SWIFT, Fedwire, CHIPS) and their 
standardized message formats. These standardized formats increase the 
ability of these institutions to handle the transactions with little 
manual intervention. In addition, these larger banks may often 
automatically ``map over'' messages from one system's format to another 
(e.g., from SWIFT to Fedwire; from SWIFT to CHIPS). Accordingly, many 
would have systems in place to perform much of the data extraction 
necessary to create the reports required.
    In other words, the obligation to report should fall upon those 
U.S. institutions that transmit an electronic funds transfer 
instruction directly to a non-U.S. financial institution or conversely, 
those that receive such instructions directly from a non-U.S. financial 
institution. This approach aims to capture a funds transfer instruction 
at the point at which it crosses the U.S. border. The advantages of the 
approach are that it focuses the reporting requirement upon larger 
institutions that are most familiar with international funds transfers, 
have the technological systems in place to facilitate such transfers, 
and are in the best economic position to implement compliance systems 
and processes.\82\
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    \82\ In its response to FinCEN's March 2006 industry survey, the 
American Bankers Association offered that ``An unscientific poll of 
bankers visiting ABA's compliance Web page revealed that only 1 in 4 
respondents identified themselves as conducting ``last out, first 
in'' cross-border transfers.'' The ABA also noted ``for some [banks] 
it required less IT logic to be built into the reporting system.'' 
Significantly, the ABA opined ``* * * a ``last out, first in'' 
reporting obligation would suffice to capture the cross border 
transfer of funds and whatever information is attached to that 
transmittal. Although this method shifts much of the reporting cost 
to a smaller number of generally larger banks, many of the[m] 
possess sufficient capacity to perform the reporting with greater 
efficiency than would be the case if the obligation rested with all 
originating or beneficiary's institutions.''
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    Reporting Threshold. Reporting banks would be required to file 
periodic CBETF reports on transactions of any amount (zero threshold), 
while reporting money transmitters would be required to file periodic 
CBETF reports on transactions for amounts equal to or greater than 
$1,000, or its equivalent in any other currency. In the case of 
transactions denominated in foreign currency, the exchange rate that is 
applied should be that exchange rate that was provided to the customer 
at the time of the transaction.

Filing Procedures (Sec.  103.14(c))

    This section describes what reporting banks and reporting money 
transmitters would be required to report under the CBETF report 
proposal, in what format they must report the information, how often 
they must report it, and explicitly recognizes the possibility of 
reporting via a third party although responsibility for compliance with 
the reporting obligations would remain with the reporting financial 
institution.
    To accommodate these requirements, FinCEN had to adopt a limited 
number of standard forms for CBETF reporting. These standards had to 
accommodate automated filing of large collections of CBETF reports, 
manual uploading of mid-sized collections of CBETF reports, and 
discrete filing by small volume CBETF service providers. In addition, 
the standards had to assimilate the variations between the different 
CBETF message systems from which the reporting institutions would 
extract the data. Finally, the standards had to be such that reporting 
institutions could convert the source data from their systems into the 
required format with a minimum of manual intervention or system 
modifications.\83\ The proposed regulation will permit institutions to 
comply with this requirement through the submission of customized 
reports that comply with a format prescribed by FinCEN or through the 
submission of certain pre-existing formats (e.g., CHIPS or SWIFT 
messages) that contain the required data elements. The pre-existing 
forms deemed acceptable by FinCEN would serve as proxies for formally 
prepared reports.
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    \83\ See Feasibility Report, at Section 5.0--Form, Manner, and 
Content of Reporting. The ABA suggests, ``regardless of the nature 
of any imagined reporting requirement, the financial services 
industry's responsibility should extend only to the simple 
transmittal of raw data, with FinCEN assuming full responsibility 
for the refinement and distillation of the data into a format useful 
to law enforcement agencies.'' While FinCEN believes that 
accommodation of every possible format is unreasonable, the approach 
proposed in the text recognizes the potential cost and strikes a 
balance aimed at accommodating the widest possible variation in 
reporting formats.
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    Reporting financial institutions would be required to report on 
CBETF at or above their respective thresholds (no threshold for banks 
and a $1,000 threshold for money transmitters) by submitting a copy of 
the respective transmittal order or advice of the transmittal order, 
provided that the transmittal order or advice format has been approved 
for direct submission by FinCEN. If the reporting financial institution 
is unable to submit a copy of the respective, approved transmittal 
order or advice, then the reporting

[[Page 60391]]

financial institution may discharge its reporting obligation by 
submitting the following information, if available, in a form specified 
by FinCEN:
    (i) Unique transaction identifier number;
    (ii) Either the name and address or the unique identifier of the 
transmittor's financial institution;
    (iii) Name and address of the transmittor;
    (iv) The account number of the transmittor (if applicable);
    (v) The amount and currency of the transmittal of funds;
    (vi) The execution date of the transmittal of funds;
    (vii) The identity of the recipient's financial institution;
    (viii) The name and address of the recipient;
    (ix) The account number of the recipient;
    (x) Any other specific identifiers of the recipient or transaction; 
and
    (xi) For transactions of $3,000 or more conducted through a money 
transmitter, the U.S. taxpayer identification number of the transmittor 
or recipient (as applicable) or, if none, the alien identification 
number or passport number and country of issuance.
    The data points requested coincide with the combined recordkeeping 
requirements imposed on financial institutions by the recordkeeping 
rule \84\ and the travel rule,\85\ with the addition of the unique 
transaction identifier number, if such an identifier exists. The 
addition of the identifier is an operational necessity for FinCEN, for 
two major reasons: (1) Given the very large amount of transactions 
processed on a daily basis by reporting financial institutions 
involving the same amounts, transmittors, recipients, and intermediary 
financial institutions, the unique identifier number may be the only 
effective and efficient way for FinCEN and law enforcement to 
distinguish one particular transaction from others, which will become 
particularly useful in facilitating any follow-up communications with 
reporting financial institutions, and (2) given that a certain degree 
of duplication on the reporting is considered unavoidable, the unique 
transaction identifier is the most effective and efficient tool to 
allow deconfliction of several reports involving the same CBETF by 
FinCEN without requiring institutions to expend resources segregating 
reports relating to the same transaction.
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    \84\ See 31 CFR 103.33(e), (f) (2009).
    \85\ See 31 CFR 103.33(g) (2009).
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    This section requires the reporting financial institution to file 
reports with FinCEN no later than five business days after issuing or 
receiving the transmittal notice or its advice.
    FinCEN understands that an institution required to file reports 
under section 103.14 may prefer to designate a third party to file 
those reports. As long as the reports are filed in the manner required 
by section 103.14, FinCEN will allow such a designation. However, it is 
important to emphasize that it is the responsibility of the reporting 
financial institution to comply with the reporting obligation, and the 
reporting financial institution is ultimately liable for any failures 
by the designated third party to file a report as required by the 
proposed rule.

Nature and Form of Reports (Sec.  103.14(d))

    All CBETF reports shall consist of electronic submissions filed 
either discretely on a transaction-by-transaction basis or by batching 
transactions in a format approved by FinCEN. FinCEN may authorize a 
designated reporting financial institution to report in a different 
manner if the financial institution demonstrates to FinCEN (1) that the 
form of the required report is unnecessarily onerous on the institution 
as prescribed; (2) that a report in a different form will provide all 
the information FinCEN deems necessary; and (3) that submission of the 
information in a different manner will not unduly hinder the effective 
administration of this part.

Additional Annual Reports (Sec.  103.14(e))

    On an annual basis, all banks must submit to FinCEN a report that 
provides the following information: the account number that was 
credited or debited to originate or receive a CBETF, and the U.S. 
taxpayer identification number of the respective accountholder. This 
report shall be submitted to FinCEN no later than April 15 of the year 
following the transaction date of the CBETF.
    FinCEN shall endeavor to link the periodic information submitted in 
the CBETF reports with the information provided in the TIN annual 
reports, matching transactions on the basis of common key data items 
contained in both reports: the U.S. transmittor's or receiver's account 
number. FinCEN's ability to combine both sets of information will 
depend on the quality and integrity of the common key data items.

Exemptions (Sec.  103.14(f))

    At this time, FinCEN proposes that the following CBETFs be exempted 
from reporting requirements: (1) CBETFs where either the transmittor is 
a bank as defined in 31 CFR 103.11(c), and the recipient is a foreign 
(not within the United States) bank, or, the transmittor is a foreign 
bank and the recipient is a bank, and, in each case, there is no third-
party customer to the transaction; or (2) the transmittal order and 
advice of the transmittal order are communicated solely through systems 
proprietary to a bank.

VI. Proposed Location in Chapter X

    As discussed in a previous Federal Register Notice, 73 FR 66414, 
Nov. 7, 2008, FinCEN is separately proposing to remove Part 103 of 
Chapter I of Title 31, Code of Federal Regulations, and add Parts 1000 
to 1099 (Chapter X). If the notice of proposed rulemaking for Chapter X 
is finalized, the changes in the present proposed rule would be 
reorganized according to the proposed Chapter X. The planned 
reorganization will have no substantive effect on the regulatory 
changes herein. The regulatory changes of this specific rulemaking 
would be renumbered according to the proposed Chapter X as follows:
    Section 103.14 would be moved to Sec.  1010.380.

VII. Executive Order 12866

    This proposed rule is a significant regulatory action, although not 
economically significant, and has been reviewed by the Office of 
Management and Budget (OMB) in accordance with Executive Order 12866 
(EO 12866).

VIII. Unfunded Mandates Act of 1995 Statement

    Section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded 
Mandates Act), Public Law 104-4 (March 22, 1995), requires that an 
agency prepare a budgetary impact statement before promulgating a rule 
that may result in expenditure by State, local, and Tribal governments, 
in the aggregate, or by the private sector, of $100 million or more in 
any one year. If a budgetary impact statement is required, section 205 
of the Unfunded Mandates Act also requires an agency to identify and 
consider a reasonable number of regulatory alternatives before 
promulgating a rule. FinCEN has determined that it is not required to 
prepare a written statement under section 202 and has concluded that on 
balance the proposals in the Notice of Proposed Rulemaking provide the 
most cost-effective and least burdensome alternative to achieve the 
objectives of the rule.

[[Page 60392]]

IX. Regulatory Flexibility Act

    When an agency issues a rulemaking proposal, the Regulatory 
Flexibility Act (RFA) requires the agency to ``prepare and make 
available for public comment an initial regulatory flexibility 
analysis'' that will ``describe the impact of the proposed rule on 
small entities.'' (5 U.S.C. 603(a)). Section 605 of the RFA allows an 
agency to certify a rule, in lieu of preparing an analysis, if the 
proposed rulemaking is not expected to have a significant economic 
impact on a substantial number of small entities.

Reporting of Cross-Border Electronic Transmittals of Funds

    Estimate of the number of small entities to whom the proposed rule 
will apply:
    The reporting requirement proposed pursuant to the IRTPA, requires 
certain banks and money transmitters to report to FinCEN information 
associated with individual CBETFs on a periodic basis.
    For purposes of the RFA, both banks and credit unions are 
considered small entities if they have less than $175 million in 
assets.\86\ Of the estimated 8,000 banks, 80% have less than $175 
million in assets and are considered small entities.\87\ Of the 
estimated 7,000 credit unions, 90% have less than $175 million in 
assets.\88\ FinCEN estimates that this rule will impact 300 banks and 
credit unions. Of these 300 banks and credit unions, FinCEN estimates 
that no more than 190 are small entities.\89\ While all banks \90\ can 
maintain customer accounts that are used to originate or receive 
CBETFs, not all banks are equipped to complete a CBETF on their own: 
for example, in the case of an outgoing CBETF the actual transaction 
may have to be channeled from small/medium banks to large, 
internationally active banks with whom they maintain correspondent 
banking relationships (last-out banks), and from these to a foreign 
bank. As part of the ordinary process of a transaction (and, in the 
case of outgoing CBETFs for amounts of $3,000 or higher, also because 
of BSA/AML regulatory requirements),\91\ these larger first-in/last-out 
banks receive from the typically smaller originating bank all the data 
points FinCEN has deemed necessary to request. Therefore, FinCEN 
estimates that this reporting requirement will only impact 1.5% of all 
small banks and credit unions because, as stated above, these smaller 
institutions rely on large banks to process CBETFs.
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    \86\ Table of Small Business Size Standards Matched to North 
American Industry Classification System Codes, Small Business 
Administration Size Standards 28 (SBA Aug. 22, 2008) [hereinafter 
SBA Size Standards].
    \87\ Federal Deposit Insurance Corporation, Bank Find, http://www2.fdic.gov/idasp/main_bankfind.asp; select Size or Performance: 
Total Assets, type Equal or less than $: ``175000'', select Find 
[hereinafter FDIC Bank Find].
    \88\ National Credit Union Administration, Credit Union Data, 
http://webapps.ncua.gov/customquery/ customquery/; select Search Fields: Total 
Assets, select Operator: Less than or equal to, type Field Values: 
``175000000'', select Go [hereinafter NCUA Data].
    \89\ See Implications and Benefits Study, App. C, 6 figs. 1-2. 
FinCEN was able to determine that 110 institutions that would be 
impacted by the proposed rule had assets over $1 billion. FinCEN 
also determined that 8 institutions that would be impacted by the 
proposed rule had assets less than $175 million. FinCEN was unable 
to determine an asset size for the estimated 182 additional 
institutions that would be impacted by the proposed rule. For 
purposes of estimating the population impacted by the rule for 
purposes of the RFA analysis, FinCEN includes these additional 
institutions in the estimate of small entities.
    \90\ See 31 CFR 103.11(c) (2009) (The definition of ``bank'' 
under the BSA regulations includes commercial banks and trusts, 
private banks, savings and loan associations, credit unions, U.S. 
agencies and branches of foreign banks, etc.)
    \91\ 31 CFR 103.33(e) (2009) (Recordkeeping requirements for 
banks); 31 CFR 103.33(f) (2009) (Recordkeeping requirements for 
nonbank financial institutions).
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    For the purposes of the RFA, a money transmitter is considered 
small if it has less than seven million in gross receipts annually. Of 
the estimated 19,000 money transmitters, FinCEN estimates 95% have less 
than seven million in gross receipts annually.\92\ Generally, small 
money transmitters do not have the infrastructure and international 
network necessary to process CBETFs resulting in a relatively small 
percentage of the total population that act as first-in or last-out 
institutions. Therefore, FinCEN estimates, the proposed rule will 
impact an estimated 4% of these small money transmitters. Therefore, 
FinCEN has determined that neither a substantial number of small banks 
nor money transmitters will be significantly impacted by the proposal.
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    \92\ See FinCEN MSB Registration List (2/10/2010), http://www.fincen.gov/financial_institutions/msb/msbstateselector.html 
(Sort list by entities that engage in money transmission and remove 
repeat registrations).
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    Description of the projected reporting and recordkeeping 
requirements of the proposed rule:
    During a week that a bank processes at least one CBETF as a first-
in or last-out institution, the bank must report to FinCEN up to 10 
data items for each CBETF processed. These data items are necessary for 
the proper messaging and settlement of a CBETF, and also correspond to 
data banks are obligated to obtain, retain, and retransmit for 
transactions at or above $3,000. During a week that a money transmitter 
conducts a CBETF as a first-in or last-out institution, a money 
transmitter will be required to report up to 10 data items per 
transaction at or above $1,000 and an additional 11th data point for 
transactions at or above $3,000. The information money transmitters 
will be required to report is information that they already obtain 
either in the ordinary course of business or to comply with other 
regulatory obligations.
    For RFA analysis, and relying on its specific studies, FinCEN has 
determined that this requirement would impose a significant impact on 
these first-in and last-out institutions. However, as discussed above, 
this significant impact would be limited to a minimal number of small 
entities that conduct fewer CBETFs. In the year 2006, FinCEN estimates 
that each large bank (as defined above) conducted 2 million reportable 
transactions on average. FinCEN estimates that small banks (also as 
defined above) conducted only eight thousand reportable transactions on 
average.\93\
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    \93\ Implications and Benefits Study, App. C, 11 fig. 13. The 
number of annual reportable transactions per large bank (as defined 
under the RFA) covered a wide range, with few very large 
institutions processing tens of millions of reportable transactions, 
and a large number of relatively smaller institutions processing 
reportable transactions in the tens of thousands or fewer. The 
average of 2 million transactions per large bank compensates both 
extremes of this wide range.
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    The specific studies revealed that the individual average estimated 
cost of implementing the CBETF periodic report would consist of $94,000 
per year for large banks, and $11,900 for small banks.\94\ In the case 
of money transmitters, the same cost would be split into a set-up and 
an annual ongoing portion: $250,000 set-up cost and $52,000 annual 
costs for large money transmitters, and no set-up cost and $20,000 
annual costs for small money transmitters.\95\
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    \94\ Implications and Benefits Study at 45 tbl. 6-1. As 
indicated in table 6-1, the annual cost for medium sized banks (92 
institutions) is $20,100 and the annual cost for small banks (150 
institutions) is $6,800. For purposes of the Regulatory Flexibility 
Act analysis, FinCEN is considering both medium and small banks to 
be small banks. Therefore, the weighted average annual effect on 
these institutions is $11,900. These figures, which assume use of 
the hybrid model (supra III. Sec. B.), were based on separate, but 
limited follow-up information received from industry and not the 
numbers pertaining to cost estimates received from industry through 
FinCEN's CFI survey per se. The hybrid model was conceived based on 
some of the general survey responses, but was not a targeted matter 
of inquiry with respect to costs in the CFI survey (supra III. Sec. 
B.). Given the evolution of services available to the financial 
sector within the context of third-party centralized messaging 
systems since then, FinCEN, as emphasized infra (X. Request for 
Comments), is soliciting comment from industry on the current 
validity of these cost estimates.
    \95\ Id. The cost estimates in table 6-1 were derived in 
consideration of a $3,000 reporting threshold. The proposed rule 
anticipates a $1,000 reporting threshold for money transmitters and 
no reporting threshold for banks. This change will affect the cost 
estimate for small money transmitters because FinCEN anticipates 
that such transmitters will comply through discrete transaction-by-
transaction reporting. FinCEN anticipates that the change in 
threshold will increase the number of reports and consequently 
increase the average annual effect on small money transmitters from 
$395 to $20,000. Alternatively, because FinCEN anticipates that 
banks and large money transmitters will utilize automated reporting 
systems, a change in the threshold does not change the estimated 
annual costs. See America's Community Banker's Ltr. supra n. 53; see 
Implications and Benefits Study at 45 tbl. 6-1 (one-time 
implementation cost of developing automated reporting systems is 
estimated at $250,000). Furthermore, several new reporting services 
have evolved or been made more widely available by third-party 
centralized messaging systems such as SWIFT, since the research 
period of the Implications and Benefits Study, which could reduce 
the annual reporting cost of banks significantly below the figures 
calculated in the Study.

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[[Page 60393]]

    Although the impact of the proposal will, for purposes of the RFA, 
be significant, the proposal will not impact a substantial number of 
institutions. Additionally, the impact on small institutions will be 
much less than the impact on larger institutions.

Reporting of Taxpayer Identification Numbers of Accountholders

    Estimate of the number of small entities to whom the proposed rule 
will apply:
    The second reporting requirement contained within this proposal 
would require all banks to report the account number and TIN 
information of accountholders that transmitted or received a CBETF 
required to be reported under this section. For purposes of the RFA, 
both banks and credit unions are considered small entities if they have 
less than $175 million in assets.\96\ Of the estimated 8,000 banks, 80% 
have less than $175 million in assets and are considered small 
entities.\97\ Of the estimated 7,000 credit unions, 90% have less than 
$175 million in assets.\98\ Banks and credit unions that would not be 
considered first-in/last-out institutions may still be required to 
report under this second proposal. This is because they may have one or 
more customers that transmitted or received a CBETF during the year. 
Therefore FinCEN estimates that this rule will impact all banks and 
credit unions.
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    \96\ Table of Small Business Size Standards Matched to North 
American Industry Classification System Codes, Small Business 
Administration Size Standards 28 (SBA Aug. 22, 2008) [hereinafter 
SBA Size Standards].
    \97\ Federal Deposit Insurance Corporation, Bank Find, http://www2.fdic.gov/idasp/main_bankfind.asp; select Size or Performance: 
Total Assets, type Equal or less than $: ``175000'', select Find 
[hereinafter FDIC Bank Find].
    \98\ National Credit Union Administration, Credit Union Data, 
http://webapps.ncua.gov/customquery/ customquery/;select Search Fields: Total 
Assets, select Operator: Less than or equal to, type Field Values: 
``175000000'', select Go [hereinafter NCUA Data].
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    Description of the projected reporting and recordkeeping 
requirements of the proposed rule:
    The second reporting requirement contained within this proposal 
would require all banks to report on an annual basis the account number 
and TIN information of accountholders that transmitted or received a 
CBETF required to be reported under this section. The economic impact 
of this proposal will not be significant. The information required to 
be reported is information that banks are already required to record as 
part of their customer identification procedures.\99\
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    \99\ See 31 CFR 103.121 (2009).
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    FinCEN understands that banks will be able to leverage from 
automated systems already designed to address current regulatory 
requirements, make relatively inexpensive internal modifications to 
existing queries that extract information from their customer 
information and transactional databases, and produce a summary annual 
report when a customer account shows evidence of CBETF activity during 
the year. The cost of the TIN annual reporting is based on the burden 
(measured in hours) of running these queries and producing and 
formatting the report (at clerical level), and spot-checking the report 
prior to transmission (at supervisory level).
    FinCEN has determined that existing regulatory reports of a similar 
nature involve an annual burden of 1 hour. Therefore, FinCEN estimates 
that the impact on a small bank to produce this report would be $24.47 
annually \100\ with a collective impact on small banks of $7,000. As 
such, FinCEN does not believe the impact of generating such report is 
significant.
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    \100\ See Bureau of Labor Statistics, Occupational Employment 
and Wages, May 2006, http://www.bls.gov/oes/2006/may/oes131041.htm.
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Certification

    When viewed as a whole, FinCEN does not anticipate the proposals 
contained in this rulemaking will have a significant impact on a 
substantial number of small businesses. Accordingly, FinCEN certifies 
that this rule will not have a significant economic impact on a 
substantial number of small entities.
    FinCEN is seeking comments on this determination.

X. Paperwork Reduction Act

    The collection of information contained in this proposed rule is 
being submitted to the Office of Management and Budget for review in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)). Under the Paperwork Reduction Act, an agency may not conduct 
or sponsor, and an individual is not required to respond to, a 
collection of information unless it displays a valid OMB control 
number. Comments on the information collection should be sent to the 
Desk Officer for the Department of Treasury, Office of Information and 
Regulatory Affairs, Office of Management and Budget, Paperwork 
Reduction Project (1506), Washington, DC 20503, or by the Internet to 
[email protected] with a copy to the Financial Crimes 
Enforcement Network by mail or as part of the comments through the 
Internet. Comments are welcome and must be received by November 29, 
2010.

Cross-border Electronic Transmittals of Funds Report (the ``CBETF 
Periodic Report'')

    Description of Affected Financial Institutions: Banks as defined in 
31 CFR 103.11(c) and money transmitters as defined in 31 CFR 
103.11(uu)(5).
    Estimate Number of Affected Financial Institutions: 1,000 (300 
banks \101\ and 700 money transmitters operating as principals).\102\
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    \101\ See 31 CFR 103.11(c) (2009) (For purposes of the BSA, the 
term ``bank'' includes credit unions).
    \102\ Implications and Benefits Study at ii.
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    Estimated Average Annual Burden Hours Per Affected Financial 
Institution: On a weekly basis, first-in and last-out institutions will 
be required to submit a report containing information on all CBETFs 
conducted during the week. Each institution will be required to submit 
a maximum of 52 reports per year. For a large institution, FinCEN 
estimates that on the average each weekly report will contain 
information on 40,000 CBETFs.\103\ For a small institution, FinCEN 
estimates that each weekly report will contain information on 115 
CBETFs. Despite the number of CBETFs contained in each report, FinCEN 
estimates that the average burden associated with verifying and filing 
the report is one hour for each weekly report. FinCEN is not 
considering the time necessary to gather the information required for 
the

[[Page 60394]]

report because the gathering of this information is usual and customary 
in processing these transactions. For banks, this information is 
included in the message that is transmitted between institutions and 
only needs to be retransmitted to FinCEN in the same messaging format 
as was originally sent.
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    \103\ Implications and Benefits Study, App. C, 11 fig. 13. The 
number of annual reportable transactions per large bank (as defined 
under the RFA) covered a wide range, with few very large 
institutions processing tens of millions of reportable transactions, 
and a large number of relatively smaller institutions processing 
reportable transactions in the tens of thousands or fewer. The 
average of 2 million transactions per large bank compensates both 
extremes of this wide range.
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    For money transmitters, FinCEN understands that to be active in the 
highly competitive cross-border remittances market, and to comply with 
current BSA/AML monitoring requirements involving their own activity 
and the activity of their agents, all money transmitters covered by the 
proposed reporting requirement must already possess a degree of 
automation that will allow them to generate the CBETF periodic report 
with minimal manual intervention. Manual intervention at operator level 
will consist of running the queries on the transaction and customer 
information databases, and inserting a single FinCEN Uniform Resource 
Locator (URL) in the computer-generated report; manual intervention at 
supervisor level will consist of spot-checking the generated report 
prior to transmitting it to FinCEN. While the number of weekly CBETFs 
per individual money transmitter (large or small) might vary, the 
actual number of weekly CBETFs is not considered a burden-determinant 
factor: having an operator execute and address an automated weekly 
report would require substantially the same time regardless of the 
number of transactions. The time required by manual intervention at the 
supervisory level for quality assurance will be affected by the number 
of weekly transactions; however, the sample size required for spot-
checking at an industry-standard confidence level will not have to be 
increased in direct proportion to the number of reported transactions. 
Furthermore, those money transmitters that process the largest portion 
of CBETFs subject to reporting are also those that currently possess 
enough technological resources to automate not only the generation of 
the report, but the spot-checking function as well.
    Estimated Average Total Number of CBETF Periodic Reports per Annum: 
52,000 (52 weekly reports submitted by 1,000 reporting institutions).
    Estimated Total Annual Burden: 52,000 hours (52,000 reports at 1 
hour per report).
    The total number of reports to be filed per calendar year (or, in 
the case of banks, the number of times a year SWIFT retransmits their 
CBETF activity to FinCEN) is a function of the mandated periodicity of 
the reports. The proposal reflects the obligation to file a weekly 
report (an average of 52 reports per reporting institution per calendar 
year). Total number of weekly reports to be filed by all reporting 
banks is 15,600 a year; total number of weekly reports to be filed by 
all reporting money transmitters is 36,400 a year.

Annual Tax Identification Number Report (the ``TIN Annual Report'')

    Description of Affected Financial Institutions: Banks as defined in 
31 CFR 103.11(c).
    Estimate Number of Affected Financial Institutions: 15,000 banks.
    Estimated Average Total Number of TIN annual reports per Annum: 
15,000 (1 annual report submitted by 15,000 reporting institutions).
    Estimated Total Annual Burden: 15,000 hours (15,000 reports at 1 
hour per report).
    Under the TIN annual reporting portion of this proposed rule, 
FinCEN estimates that the number of affected banks would increase to a 
maximum of 15,000.\104\ FinCEN stipulates that the banks covered by the 
proposed TIN annual report requirement already possess the degree of 
automation required to search their transaction and customer 
information databases and generate the report with minimum manual 
intervention: the same bank population is currently subject to other 
regulatory reporting requirements, such as annual reporting on the IRS 
series of 1099 forms that require substantially similar data processing 
capacity. The estimated average burden is one hour per reporting bank 
per year. Therefore, the average total annual burden hours would 
increase to 15,000.
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    \104\ Federal Deposit Insurance Corporation, Bank Find, http://www2.fdic.gov/idasp/main_bankfind.asp; select Find; Credit Union 
Directory 2009, NCUA Credit Union Directory 190-192 (NCUA, 2009).
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Request for Comments Regarding the Paperwork Reduction Act Analysis

    FinCEN is seeking comments on these estimates. Comments are 
specifically requested concerning:
     Whether the proposed collection of information is 
necessary for the proper performance of the functions of FinCEN, 
including whether the information will have practical utility;
     The accuracy of the estimated burden associated with the 
proposed collection of information;
     How the quality, utility, and clarity of the information 
to be collected may be enhanced; and,
     How the burden of complying with the proposed collection 
of information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology.

XI. Request for Comments

    FinCEN invites comments on any and all aspects of the proposal to 
require select financial institutions to report to FinCEN transmittal 
orders associated with certain CBETFs. If you are commenting on behalf 
of a bank, please indicate in your response whether you are a small 
institution (less than $175 million in assets). If you are commenting 
on behalf of an MSB, please indicate in your response whether you are a 
small MSB (gross receipts are below $7 million annually).\105\
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    \105\ Please note that the inclusion of this information is not 
a condition of FinCEN's full consideration of your comment. However, 
this data will help FinCEN allocate the comment among the population 
of large and small business entities, and produce a better 
evaluation of the impact of the proposed rule in accordance with the 
Regulatory Flexibility Act.
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    FinCEN specifically invites comment on requests above, as well as 
the following:
    Third-party Carriers: In the proposed rule, banks will be able to 
report by either submitting the complete copy of the transmittal order 
that it sends or receives or by submitting the ten data points listed 
in 103.14(c) of the proposed regulation. FinCEN anticipates that banks, 
which provide complete copies of the CBETF transmittal orders, will 
fulfill this obligation by using third-party carriers of the 
transmittal orders to submit the copy on behalf of the bank. 
Alternatively, for banks that submit the ten data points requested in 
103.14(c) of the proposed regulation, FinCEN anticipates providing an 
Internet-based form to report the information. FinCEN requests comments 
on alternative formats for reporting the proposed information that 
FinCEN should consider in developing systems to accept CBETF reporting. 
Additionally, FinCEN requests comments on third-party carriers, other 
than SWIFT, that could make such reports on behalf of the bank. 
Although FinCEN is focusing on messaging systems, FinCEN welcomes 
comments from the public regarding possible payment or settlement 
systems that could provide the information requested under the proposed 
rule.
    Message Standards: If institutions that would be covered by this 
rule believe that there is a significant portion of their funds 
transfers that would be required to be reported under this proposed 
rule that would not be covered by reporting the identified standardized 
person-to-person transmittal orders (MT 103 and

[[Page 60395]]

MT 202-COV), FinCEN encourages comments in this area.
    Bank Proprietary Systems: FinCEN requests comment on the utility of 
reporting CBETFs that are processed solely through bank proprietary 
systems and on the potential costs of supplying such reports. At this 
time, FinCEN is not proposing to collect information on CBETFs that are 
processed through bank proprietary systems. FinCEN acknowledges that 
these systems are used in a limited context and that within these 
contexts there is a higher degree of transparency. When commenting, 
please note if you have information contrary to these acknowledgements.
    Duplicate Messages: FinCEN is requiring submissions of copies of 
transmittal orders or advices with the intention of collecting the 
evidence that a transmittal of funds has occurred or will occur. FinCEN 
is asking for advices in order to capture situations where a 
proprietary system may be used in order to execute the transmittal 
order but where a third-party system is used in addition to sending an 
advice to facilitate straight-through processing. It is not FinCEN's 
intention to collect duplicate records in the rare cases where a 
transmittal order and an advice are both covered under this proposed 
regulation. As such, FinCEN is seeking comments on situations where the 
regulations as proposed might result in duplicate reporting and, if so, 
whether institutions view this duplication as something that they 
believe is less costly to simply report (with FinCEN reconciling the 
two reports) or whether they believe that it would be of value to 
exempt duplicate filings, with suggestions as to how to avoid such 
duplication.
    Frequency of Reports: FinCEN requests comments on the frequency 
that reports are required to be provided including the feasibility of 
requiring daily reporting. FinCEN is aware that other countries require 
daily reporting with significant benefits accruing to law enforcement 
from the access to near real-time information. FinCEN is interested in 
receiving information from financial institutions about the impacts 
that this would have on their operations. In determining the costs of 
compliance with this proposal, FinCEN has relied on feedback from banks 
stating that the reporting requirements of the proposal can be 
fulfilled by copying FinCEN on a SWIFT message. Thus, FinCEN 
anticipates that the costs of compliance for banks would not be 
significantly increased if these messages are sent to FinCEN daily as 
opposed to batch-sent to FinCEN weekly. If your institution (including 
any money transmitter) has information suggesting otherwise, please 
include that information within your comment.
    Effects of the Rule on Customer Privacy: FinCEN has included an 
extensive discussion of its proposal for ensuring the security of the 
information in this NPRM.\106\ In addition, it is also seeking comments 
regarding the impact of this information collection on customer privacy 
and on the ability of banks and MSBs to continue to fulfill their 
obligations to preserve their customer's privacy while implementing the 
provisions of this rule.
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    \106\ Supra IV. Sec. I Protection of Private Personal Financial 
Information.
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    Effects of FinCEN's Proposed Reporting Requirements: To establish 
an efficient reporting system that not only meets the goal of providing 
information that is needed by law enforcement but does not require 
significant changes in the business and payment systems of banks and 
MSBs, FinCEN is proposing that first-in/last-out banks report all 
CBETFs and that first-in/last-out money transmitters report all CBETFs 
at or above $1,000. FinCEN discussed its estimates of the implications 
of the proposed rule in its Regulatory Flexibility Analysis \107\ and 
its discussion of the Implications and Benefits Study.\108\ Considering 
these discussions and the reporting requirements defined by FinCEN in 
the NPRM, FinCEN is seeking comments from banks and MSBs on the costs 
and impact of these broad parameters on the funds transfer operations 
and systems of the banks and MSBs affected by this rule.
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    \107\ Supra IX. Regulatory Flexibility Act.
    \108\ Supra III. Sec. B. Implications of CBETF Reporting of the 
Financial Industry.
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    Migration to other CBETF Channels: FinCEN would like to solicit 
comments from institutions regarding specific instances where they 
believe that, as a result of such a reporting requirement, financial 
institutions or their customers may move to execute CBETFs by some 
other means that would not be subject to the proposed reporting 
requirement, including informal value transfer mechanisms or non-U.S. 
based payment mechanisms (please provide details).
    Effect of the Rule on Remittances: FinCEN requests comments on the 
effect any such reporting is likely to have on retail consumers of 
cross-border remittances, including how any such reporting may change 
the relationship between the remittance consumer and the money 
transmitter and how such reporting may produce cost or price effects 
likely to be passed on to such consumers. Please be specific in 
identifying any such monetary effects, as well as any non-monetary 
effects caused by such a proposed rule, if adopted.
    Reporting Channels: In the proposed rule, FinCEN requires reporting 
from money transmitters for transactions of $1,000 or more. FinCEN 
anticipates that large money transmitters will implement automated 
systems to provide the information requested in 103.14(c) of the 
proposed regulation. FinCEN requests comments on possible formats for 
this reporting to assist FinCEN in developing a user-friendly format to 
reduce the implications on money transmitters. FinCEN understands that 
smaller institutions might benefit from submitting reports on an 
Internet-based form provided by FinCEN. For those institutions with a 
lower volume of CBETF transactions, FinCEN believes that use of the 
Internet-based form would allow cost savings versus self-implemented 
automated reporting systems and requests comments from the industry on 
this proposal.
    Foreign-Exchange Conversions: In the proposed rule, FinCEN requires 
reporting from money transmitters for transactions of $1,000 or more or 
the equivalent in other currencies. FinCEN would like to solicit 
comments on how, with respect to non-U.S. dollar denominated 
transactions, institutions would perform the currency exchange rate 
calculations in practice and what systems or approaches may be 
available to facilitate compliance with this requirement.
    Effect of TIN Reporting on the Banking Industry: FinCEN requests 
comments on how the annual TIN reporting requirement will impact the 
banking industry and how the industry will comply with this 
requirement, including how reportable accounts would be identified for 
reporting under this methodology. FinCEN understands that banks will be 
able to leverage from automated systems already designed to address 
current regulatory requirements, and make relatively inexpensive 
internal modifications to existing queries that extract information 
from their customer information and transactional databases, and 
produce a summary annual report when a customer account shows evidence 
of CBETF activity during the year. These automated systems are used to 
comply with other regulatory requirements including the filing of the 
IRS series of Form 1099. If you have information suggesting that banks 
are unable to leverage off of these systems, please

[[Page 60396]]

include that information within your comment.
    Effect of TIN Reporting on the Money Transmitter Industry: FinCEN 
is interested in soliciting comments from the money transmitter 
industry regarding the additional requirement of providing the TIN of 
the transmittor or recipient for transactions of $3,000 or more. As 
stipulated above, in order to be active in the highly competitive 
cross-border remittances market, and to comply with current BSA 
monitoring requirements involving their own activity and the activity 
of their agents, all money transmitters covered by the proposed 
periodic reporting requirement must already possess a degree of 
automation that will allow them to generate the CBETF periodic report 
with minimal manual intervention. If you have information suggesting 
that money transmitters that process CBETFs are unable to rely on 
automated systems coupled with minimal manual transaction testing, 
please include that information in your comment.
    TIN Reporting Threshold for the Money Transmitter Industry: Lastly, 
FinCEN solicits comments on whether the money transmitters required to 
report under these proposals would prefer to consolidate the reporting 
thresholds ($1,000 for CBETF reports and the $3,000 level for including 
the taxpayer identification number in the report) into a single $1,000 
threshold for both reporting the transaction and reporting the taxpayer 
identification number (meaning that a TIN would be required with every 
CBETF reported).

List of Subjects in 31 CFR Part 103

    Administrative practice and procedure, Banks, Banking, Brokers, 
Currency, Foreign banking, Foreign currencies, Gambling, 
Investigations, Penalties, Reporting and recordkeeping requirements, 
Securities, Terrorism.

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 
FINANCIAL 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, 
5316-5332; title III, secs. 311, 312, 313, 314, 319, 326, 352, Pub. 
L. 107-56, 115 Stat. 307.

    2. Add new Sec.  103.14, to read as follows:


Sec.  103.14  Reporting relating to cross-border electronic transmittal 
of funds.

    (a) Periodic Reports. Each reporting financial institution shall 
file periodic reports with FinCEN with respect to any cross-border 
electronic transmittal of funds, denominated in any currency, for an 
amount equal to or exceeding the applicable reporting threshold, to the 
extent and in the manner required by this section.
    (b) Definitions-- In general. For purposes of this section, the 
following terms shall have the meanings set forth below:
    (1) Account shall have the meaning set forth in 31 CFR 103.90(c).
    (2) Bank shall have the meaning set forth in 31 CFR 103.11(c).
    (3) Money transmitter shall have the meaning set forth in 31 CFR 
103.11(uu)(5).
    (4) Recipient shall have the meaning set forth in 31 CFR 
103.11(cc).
    (5) Transmittor shall have the meaning set forth in 31 CFR 
103.11(ll).
    (6) Transmittal order shall have the meaning set forth in 31 CFR 
103.11(kk).
    (7) Transmittal of funds shall have the meaning set forth in 31 CFR 
103.11 (jj).
    (8) Electronic means. Means that utilize technology that has 
electrical, digital, magnetic, wireless, optical, electromagnetic, or 
similar capabilities.
    (9) Financial institution shall have the meaning set forth in 31 
CFR 103.11(n).
    (10) Foreign financial institution shall have the meaning set forth 
in 31 CFR 103.175(h).
    (11) First-in financial institution. The first financial 
institution with respect to a transmittal of funds that receives a 
transmittal order or advice from a foreign financial institution.
    (12) Last-out financial institution. The last financial institution 
with respect to a transmittal of funds that sends a transmittal order 
or advice to a foreign financial institution.
    (13) Cross-border electronic transmittal of funds. A transmittal of 
funds where either the transmittal order or the advice is:
    (i) Communicated by electronic means; and
    (ii) Sent or received by either a first-in or last-out financial 
institution.
    (14) Reporting financial institution. Any bank (`reporting bank') 
or money transmitter (`reporting money transmitter') acting as a first-
in or last-out financial institution.
    (15) Reporting threshold. For reporting banks, the reporting 
threshold is zero. For reporting money transmitters, the reporting 
thresholds for the periodic cross-border electronic transmittal of 
funds is $1,000 or more, or the equivalent in other currencies.
    (c) Filing procedures--(1) What to file. Reporting financial 
institutions shall discharge their reporting obligations with respect 
to cross-border electronic transmittals of funds required by paragraph 
(a) of this section by submitting a copy of the respective transmittal 
order or advice, provided that the transmittal order or advice is in a 
standardized format that has been approved for direct submission by 
FinCEN. If the reporting financial institution is unable to submit a 
copy of the respective transmittal order or advice in an approved 
format, then the reporting financial institution may discharge its 
reporting obligation by submitting the following information, if 
available, in a form specified by FinCEN:
    (i) Unique transaction identifier number;
    (ii) Either the name and address or the unique identifier of the 
transmittor's financial institution;
    (iii) Name and address of the transmittor;
    (iv) The account number of the transmittor (if applicable);
    (v) The amount and currency of the transmittal of funds;
    (vi) The execution date of the transmittal of funds;
    (vii) The identity of the recipient's financial institution;
    (viii) The name and address of the recipient;
    (ix) The account number of the recipient (if applicable);
    (x) Any other specific identifiers of the recipient or transaction, 
and
    (xi) For transactions of $3,000 or more, reporting money 
transmitters shall also include the U.S. taxpayer identification number 
of the transmittor or recipient (as applicable) or, if none, the alien 
identification number or passport number and country of issuance.
    (2) Where to file. A report required by paragraph (a) of this 
section shall be filed with FinCEN, unless otherwise specified.
    (3) When to file. A report required by paragraph (a) of this 
section shall be filed by the reporting financial institution within 
five business days following the day when the reporting financial 
institution sent or received the transmittal order.
    (4) Designated third-party filers. A reporting financial 
institution may designate a third party to file a report required under 
this section utilizing procedures prescribed by FinCEN.
    (d) Nature and form of reports. All reports required by paragraph 
(a) of this

[[Page 60397]]

section shall consist of electronic submissions filed in a format 
approved by FinCEN either discretely, on a transaction-by-transaction 
basis, or by batching transactions. FinCEN may authorize a designated 
reporting financial institution to report in a non-electronic manner if 
the financial institution demonstrates to FinCEN that the form of the 
required report is unnecessarily onerous on the institution as 
prescribed; that a report in a different form will provide the 
information FinCEN deems necessary; and that submission of the 
information in a different manner will not unduly hinder the effective 
administration of this part.
    (e) Annual Reports. On an annual basis, all banks must submit to 
FinCEN a report that provides the following information: the number of 
the account that was credited or debited to originate or receive a 
cross-border electronic transmittal of funds, and the U.S. taxpayer 
identification number of the respective accountholder. This report 
shall be submitted to FinCEN no later than April 15 of the year 
following the transaction date of the cross-border electronic 
transmittal of funds. The report shall be in a form and manner to be 
determined by FinCEN.
    (f) Exemptions. The following cross-border electronic transmittals 
of funds are not subject to the reporting requirements of paragraphs 
(a) and (e) of this section:
    (1) Cross-border electronic transmittals of funds where either the 
transmittor is a bank and the recipient is a foreign bank, or the 
transmittor is a foreign bank and the recipient is a bank and, in each 
case, there is no third-party customer to the transaction; or
    (2) The transmittal order and advice of the transmittal order are 
communicated solely through systems proprietary to a bank.

    Dated: September 24, 2010.
James H. Freis, Jr.,
Director, Financial Crimes Enforcement Network.
[FR Doc. 2010-24417 Filed 9-29-10; 8:45 am]
BILLING CODE 4810-02-P