21 June 2006
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[Federal Register: June 21, 2006 (Volume 71, Number 119)]
[Proposed Rules]
[Page 35564-35567]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21jn06-31]
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DEPARTMENT OF THE TREASURY
31 CFR Part 103
RIN 1506-AA86
FEDERAL RESERVE SYSTEM
12 CFR Part 219
[Regulation S, Docket No. R-1258]
Threshold for the Requirement To Collect, Retain, and Transmit
Information on Funds Transfers and Transmittals of Funds
AGENCIES: Financial Crimes Enforcement Network, Department of the
Treasury; Board of Governors of the Federal Reserve System.
ACTION: Joint advance notice of proposed rulemaking (Advance Notice).
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SUMMARY: The Financial Crimes Enforcement Network (FinCEN) of the
Department of the Treasury (Treasury) and the Board of Governors of the
Federal Reserve System (Board) are reviewing the threshold in the rule
requiring banks and nonbank financial institutions to collect and
retain information on funds transfers and transmittals of funds. FinCEN
is reviewing the threshold in the rule requiring banks and nonbank
financial institutions to transmit information on funds transfers and
transmittals of funds. The requirement to collect, retain, and transmit
information on funds transfers and transmittals of funds applies only
to funds transfers and transmittals of funds in amounts of $3,000 or
more. FinCEN and the Board (collectively, the Agencies) request comment
from the public, including law enforcement and financial institutions,
to assess whether the potential benefit to law enforcement of a lower
threshold outweighs the potential burden to financial institutions.
DATES: Written comments on this Advance Notice may be submitted on or
before August 21, 2006.
ADDRESSES: FinCEN: You may submit comments, identified by Regulatory
Identification Number (RIN) 1506-AA86, by any of the following methods:
Federal E-rulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments. Include 1506-AA86 in
the submission.
E-mail: regcomments@fincen.treas.gov. Include 1506-AA86 in
the subject line of the message.
Mail: FinCEN, P.O. Box 39, Vienna, VA 22183. Include 1506-
AA86 in the body of the text.
All comments received will be posted without change to http://www.fincen.gov.
Your comments will not be edited to remove identifying,
contact, or other personal information. Comments may be inspected in
the FinCEN reading room between 10 a.m. and 4 p.m. in Washington, DC.
Persons wishing to inspect comments must request an appointment by
telephone at (202) 354-6400 (not a toll-free number).
Board: You may submit comments, identified by Docket No. R-1258, by
any of the following methods:
Agency Web site: http://www.federalreserve.gov Follow the instructions for submitting comments at http://www.federalreserve.gov/.
.
Federal E-Rulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: regs.comments@federalreserve.gov.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Jennifer J. Johnson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue,
NW., Washington, DC 20551.
All public comments are available from the Board's Web site at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm, as
submitted, unless modified for technical reasons. Accordingly, your
comments will not be edited to remove any identifying or contact
information. Public comments may also be viewed electronically or in
paper in Room MP-500 of the Board's Martin Building (20th and C
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT:
FinCEN: Regulatory Policy and Programs Division, Financial Crimes
Enforcement Network, (800) 949-2732.
Board: James K. Owens, Manager, (202) 728-5848, Division of Reserve
Bank Operations and Payment Systems, Suzanne L. Williams, Manager,
(202) 452-3513, Division of Banking Supervision and Regulation, or
Christopher W. Clubb, Senior Counsel, (202) 452-3904, Legal Division.
For the hearing impaired only: Telecommunications Device for the Deaf,
(202) 263-4869.
SUPPLEMENTARY INFORMATION:
[[Page 35565]]
I. Background
A. Statutory and Regulatory Background
The Bank Secrecy Act (BSA) (Pub. L. 91-508, codified at 12 U.S.C.
1829b and 1951-1959, and 31 U.S.C. 5311-5314 and 5316-5332) authorizes
the Secretary of the Treasury (Secretary) to require financial
institutions to keep records and file reports that the Secretary
determines have a high degree of usefulness in criminal, tax, or
regulatory investigations or proceedings, or in intelligence or
counterintelligence matters to protect against terrorism. The authority
of the Secretary to administer the BSA has been delegated to the
Director of FinCEN. The BSA was amended by the Annunzio-Wylie Anti-
Money Laundering Act of 1992 (Pub. L. 102-550) (Annunzio-Wylie).
Annunzio-Wylie authorizes the Secretary and the Board to jointly issue
regulations requiring insured depository institutions to maintain
records of domestic funds transfers.\1\ In addition, Annunzio-Wylie
authorizes the Secretary and the Board to jointly issue regulations
requiring insured depository institutions and certain nonbank financial
institutions to maintain records of international funds transfers and
transmittals of funds.\2\ Annunzio-Wylie requires the Secretary and the
Board, in issuing regulations for international funds transfers and
transmittals of funds, to consider the usefulness of the records in
criminal, tax, or regulatory investigations or proceedings, and the
effect of the regulations on the cost and efficiency of the payments
system.\3\
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\1\ 12 U.S.C. 1829b(b)(2). The Treasury--and not the Board--is
authorized to issue regulations requiring nonbank financial
institutions to maintain records of domestic transmittals of funds.
\2\ 12 U.S.C. 1829b(b)(3). The terms ``funds transfer,''
``originator,'' ``beneficiary,'' and ``payment order'' apply only in
the context of banks. The term ``transmittal of funds'' includes a
funds transfer and its counterpart in the context of nonbank
financial institutions. See 31 CFR 103.11(jj). Transmittors,
recipients, and transmittal orders in the context of nonbank
financial institutions play the same role as originators,
beneficiaries, and payment orders in the context of banks.
\3\ 12 U.S.C. 1829b(b)(3).
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On January 3, 1995, the Agencies jointly issued a recordkeeping
rule that requires banks and nonbank financial institutions to collect
and retain information on funds transfers and transmittals of funds in
amounts of $3,000 and more.\4\ At the same time, FinCEN issued a rule--
the travel rule--that requires banks and nonbank financial institutions
to transmit information on funds transfers and transmittals of funds to
other banks or nonbank financial institutions.\5\ The recordkeeping
rule is codified at 31 CFR 103.33(e) and (f),\6\ and the travel rule is
codified at 31 CFR 103.33(g).\7\
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\4\ 60 FR 220-01 Jan. 3, 1995.
\5\ 60 FR 234-01 Jan. 3, 1995. The Bank Secrecy Act authorizes
the Treasury to issue regulations requiring financial institutions
to implement procedures for complying with the Bank Secrecy Act and
to guard against money laundering. FinCEN issued the travel rule
pursuant to this authority.
\6\ Through a separate rulemaking, the Board added on January 3,
1995 a new subpart B to 12 CFR Part 219, which cross-references the
requirements of 31 CFR 103.33(e) and (f). See 60 FR 231-01 Jan. 3,
1995.
\7\ Recordkeeping requirements for banks are set forth in 31 CFR
103.33(e). Recordkeeping requirements for nonbank financial
institutions are set forth in 31 CFR 103.33(f). The travel rule--
codified at 31 CFR 103.33(g)--applies by its terms to both bank and
nonbank financial institutions.
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B. Overview of the Recordkeeping and Travel Rules
The recordkeeping and travel rules in 31 CFR 103.33 require banks
and nonbank financial institutions to collect, retain, and transmit
information on funds transfers and transmittals of funds in amounts of
$3,000 and more.
Under the recordkeeping rule, the originator's bank or
transmittor's financial institution must collect and retain the
following information: (a) Name and address of the originator or
transmittor; (b) the amount of the payment or transmittal order; (c)
the execution date of the payment or transmittal order; (d) any payment
instructions received from the originator or transmittor with the
payment or transmittal order; and (e) the identity of the beneficiary's
bank or recipient's financial institution. In addition, the
originator's bank or transmittor's financial institution must retain as
much of the following information as the bank or nonbank financial
institution receives with the payment or transmittal order: (1) Name
and address of the beneficiary or recipient; (2) account number of the
beneficiary or recipient; and (3) any other specific identifier of the
beneficiary or recipient. The originator's bank or transmittor's
financial institution is required to verify the identity of the person
placing a payment or transmittal order if the order is made in person
and the person placing the order is not an established customer.\8\
Similarly, should the beneficiary's bank or recipient's financial
institution deliver the proceeds to the beneficiary or recipient in
person, the bank or nonbank financial institution must verify the
identity of the beneficiary or recipient--and collect and retain
various items of information identifying the beneficiary or recipient--
if the beneficiary or recipient is not an established customer.
Finally, an intermediary bank or intermediary financial institution--
and the beneficiary's bank or recipient's financial institution--must
retain originals or copies of payment or transmittal orders.
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\8\ The term ``established customer'' is defined at 31 CFR
103.11(l).
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Under the travel rule, the originator's bank or transmittor's
financial institution is required to include information, including all
information required under the recordkeeping rule, in a payment or
transmittal order sent by the bank or nonbank financial institution to
another bank or nonbank financial institution in the payment chain. An
intermediary bank or intermediary financial institution is also
required to transmit information to other banks or nonbank financial
institutions in the payment chain, to the extent the information is
received by the intermediary bank or intermediary financial
institution.
II. Issues for Comment
The requirement in 31 CFR 103.33 to collect, retain, and transmit
information on funds transfers and transmittals of funds applies only
to funds transfers and transmittals of funds in amounts of $3,000 or
more. This Advance Notice requests comment on the potential effect of
lowering the threshold--or eliminating the threshold altogether--as a
means of combating terrorism, money laundering, and other illicit
activity and protecting the U.S. financial system from these threats.
Money launderers and terrorist financiers have become increasingly
sophisticated in their use of funds transfers and transmittals of
funds. In addition, the operating environment for banks and other
financial institutions has evolved since the issuance of the
recordkeeping and travel rules for funds transfers and transmittals of
funds.
In October 2001, the Financial Action Task Force issued ``Special
Recommendations on Terrorist Financing.'' \9\ Special Recommendation
VII aims to ensure that basic information pertaining to the originator
or transmittor in a funds transfer or transmittal of funds is
collected, retained, and transmitted to banks or other financial
institutions in the
[[Page 35566]]
payment chain.\10\ The Financial Action Task Force recommends a de
minimis threshold no higher than $1,000 with the interest of
identifying low value originators or transmitters without driving
legitimate transactions underground and below regulatory review. The
Agencies are considering the recommendation and assessing its
appropriateness for the financial system in the United States.
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\9\ See Nine Special Recommendations on Terrorist Financing
(October 22, 2004). The document was amended on October 22, 2004--
with the addition of Special Recommendation IX on cash couriers. The
Financial Action Task Force is an international, inter-governmental
body whose purpose is the development and promotion of national and
international policies to combat money laundering and terrorist
financing.
\10\ See Revised Interpretative Note to Special Recommendation
VII: Wire Transfers (June 10, 2005).
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A. Benefit to Law Enforcement
This Advance Notice requests comment on the benefit to law
enforcement of reducing or eliminating the threshold for the
requirement to collect, retain, and transmit information on funds
transfers and transmittals of funds.
Funds transfers and transmittals of funds are fast and efficient
methods of moving funds anywhere in the world. Criminals have used
funds transfers and transmittals of funds to facilitate or commit
financial and other crimes. Representatives from the United States Drug
Enforcement Administration, the State of Arizona, the Puerto Rico High
Intensity Financial Crime Area, the Office of the New York State
Attorney General, and the civil and criminal investigatory functions of
the Internal Revenue Service have all indicated that the additional
information collected as a result of lowering or eliminating the
threshold would prove beneficial to investigations of money laundering,
terrorist financing, and other financial crime. These representatives
of law enforcement have indicated that lowering or eliminating the
threshold would promote the disruption of illegal activity and make
illegal activity more expensive for perpetrators by forcing them to use
costlier alternative means of transferring funds to avoid higher risks
of detection for funds transfers and transmittals of funds beneath the
current threshold.
Law enforcement has stated that criminals are aware of the current
threshold and conduct transactions in amounts under the threshold to
avoid providing identification. One agency, for instance, indicated
that transactions in a money laundering and drug case involved amounts
between $2,600 to $2,900. Another agency pointed to a money laundering
incident--with a total value of over $1 million in laundered funds--
that involved human trafficking and forced labor. All of the
transactions in the money laundering incident involved amounts less
than $3,000. One agency observed that the laundering of illegal
proceeds from human smuggling involves transactions in amounts that
average approximately $1,800. The agency also observed that money
launderers have started to structure these amounts, using multiple
transactions in amounts that range from $500 to $1,000. The same agency
analyzed data it collected--on nearly 100,000 transactions in amounts
of $750 or more--and determined that 97 percent involved amounts less
than $3,000.
The Agencies are interested in empirical support from law
enforcement to document the degree of usefulness of a lower threshold
in criminal, tax, or regulatory investigations or proceedings, or
intelligence or counterintelligence matters. In this regard, the
Agencies request responses from law enforcement to the following
questions:
(1) To what extent have funds transfers or transmittals of funds
under the $3,000 threshold been important to law enforcement
investigations and proceedings? Please explain.
(2) To what extent have law enforcement investigations or
proceedings been hindered by the $3,000 threshold? What is law
enforcement's experience in being able to obtain records of
transactions under the $3,000 threshold pursuant to subpoenas or search
warrants? How frequently has law enforcement encountered financial
institutions that do not retain records of the transactions under the
$3,000 threshold and what types of institutions are involved?
(3) How frequently has law enforcement identified cases where
persons have structured funds transfers or transmittals of funds to be
under the $3,000 threshold in order to evade the recordkeeping
requirement? How might structuring behavior change if the threshold was
lowered to $2,000? To $1,000?
(4) Inasmuch as information regarding international transmittals of
funds can be obtained by law enforcement without a judicial order or
other similar process, how often has currently available information
been accessed, and how useful was it?
B. Burden to the Financial System
This Advance Notice requests comment on the burden to the financial
system, if any, that would result from lowering or eliminating the
threshold for the requirement to collect, retain, and transmit
information on funds transfers and transmittals of funds. Concurrent
with this Advance Notice, the Treasury is evaluating the burden to
financial institutions and usefulness to law enforcement of a reporting
requirement for certain cross-border funds transfers and transmittals
of funds.\11\ If the current $3,000 threshold for the requirement to
collect, retain, and transmit information on funds transfers and
transmittals of funds is lowered or eliminated, the reporting
requirement currently being considered could similarly include cross-
border funds transfers or transmittals of funds in amounts less than
$3,000. Accordingly, in commenting on the burden to collect, retain,
and transmit information on funds transfers and transmittals of funds
resulting from lowering or eliminating the current threshold,
commenters may also wish to comment on whether the extent or nature of
the burden would be affected by promulgation of a requirement to report
cross-border funds transfers and transmittals of funds below the $3,000
threshold.
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\11\ Section 6302 of the Intelligence Reform and Terrorism
Prevention Act of 2004 (Pub. L. 108-458) authorizes the Secretary of
the Treasury to prescribe regulations, if feasible, to require the
reporting to FinCEN of certain cross-border funds transfers if such
reporting is reasonably necessary to conduct the efforts of the
Treasury against money laundering and terrorist financing.
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In deciding on a threshold of $3,000 in 1995, the Agencies balanced
the value of data on funds transfers and transmittals of funds with the
burden to the financial system. The Agencies established the current
threshold in response to concerns by financial institutions that
imposing requirements to collect, retain, and transmit information on
funds transfers and transmittals of funds could result in significant
implementation and ongoing costs. The expansion of requirements under
the Bank Secrecy Act and advancing technology, however, may have
reduced the incremental cost of obtaining, retaining, and transmitting
information on funds transfers and transmittals of funds in amounts
below the current threshold.
In general, the responsibilities of financial institutions under
the Bank Secrecy Act have expanded over time. For example, a money
services business must now report suspicious transactions \12\ and
implement programs for ensuring compliance with the Bank Secrecy
Act.\13\ Money services businesses may collect and retain information
on transmittals of funds as
[[Page 35567]]
a means of ensuring compliance with the requirement to report
suspicious transactions. The requirement on the part of money services
businesses to report suspicious transactions may mean that reducing or
eliminating the threshold would impose less of an incremental cost. If
this is not the case, the Agencies welcome comments from money services
businesses.
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\12\ See 31 CFR 103.20. The requirement applies to transactions
occurring after December 31, 2001. The threshold for the requirement
to report suspicious transactions is $2,000.
\13\ See 31 CFR 103.125. A money services business must
implement the program on or before the later of July 24, 2002 and
the end of the ninety-day period beginning on the day following the
date the business is established.
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In addition, technology has advanced since the issuance of the
recordkeeping and travel rules for funds transfers and transmittals of
funds. Banks and other financial institutions may use less expensive or
more efficient means of electronic storage and retrieval.
The Agencies are gathering information on financial institutions'
practices and procedures to measure the compliance burden of lowering
the threshold. The Agencies request responses from financial
institutions to the following questions:
(1) What proportion of funds transfers or transmittals of funds
that your financial institution processes as an originator's bank or
transmittor's financial institution involves amounts less than $3,000?
What proportion involves amounts less than $2,000? What proportion
involves amounts less than $1,000?
(2) For each category of funds transfer or transmittal of funds--
those involving amounts less than $3,000, less than $2,000, and less
than $1,000--what proportion does your financial institution process as
an originator's bank or transmittor's financial institution for
originators or transmittors who fail to qualify as ``established
customers''? What proportion does your financial institution process as
a beneficiary's bank or recipient's financial institution for
beneficiaries or recipients who fail to qualify as ``established
customers''? Do the recordkeeping practices of your financial
institution for these transactions--and the practices of your financial
institution in verifying the identities of persons who fail to qualify
as ``established customers''--differ based on whether the funds
transfer or transmittal of funds involves an amount above or below the
current threshold of $3,000? If so, please describe the differences.
(3) Do the recordkeeping practices of your financial institution
for funds transfers or transmittals of funds involving amounts below
the current threshold of $3,000 differ from those for funds transfers
or transmittals of funds involving amounts above the threshold? If so,
please describe the differences.
(4) Does the information that your financial institution includes
in payment or transmittal orders for funds transfers or transmittals of
funds involving amounts below the current threshold of $3,000 differ
from the information that your financial institution includes in
payment or transmittal orders for funds transfers or transmittals of
funds involving amounts above the threshold? If so, please describe the
differences.
(5) How would reducing or eliminating the threshold affect the
price and type of the services that your financial institution provides
in connection with domestic and cross-border funds transfers or
transmittals of funds? To the extent possible, discuss the effect based
on reductions of the threshold in increments of $1,000, or explain at
which point lowering the threshold would substantially impact the price
and type of services provided by your financial institution.
(6) How would reducing or eliminating the threshold affect the cost
and efficiency of payment operations at your financial institution and
the payments system in general? To the extent possible, discuss the
effect based on reductions of the threshold in increments of $1,000, or
explain at which point lowering the threshold would substantially
impact the cost and efficiency of payment operations at your financial
institution or the payments system in general.
C. Burden to the Public
Finally, the Agencies are gathering information on consumer
practices and procedures to measure the effect of lowering the
threshold. The Agencies request responses from the public to the
following questions:
(1) Would increases in the price of funds transfers or transmittals
of funds result in the use of alternative methods of sending funds,
such as sending a money order by post or courier?
(2) Would a requirement for originator information below the
current threshold result in the use of alternative methods of sending
funds, such as sending a money order by post or courier?
(3) Are there certain types of transactions that permit the use of
alternative methods more than others? For transactions that allow for
alternative methods, please explain how you would decide between the
various methods of sending funds.
(4) Do you engage in different behavior when making funds transfers
and transmittal of funds above and below $3,000 because of the current
threshold? Please explain.
III. Conclusion
With this Advance Notice, the Agencies request comment on the
potential effect of lowering or eliminating the threshold for the
requirement in 31 CFR 103.33 to collect, retain, and transmit
information on funds transfers and transmittals of funds. Comments on
all aspects of the Advance Notice are welcome, and the Agencies
encourage all interested parties to provide their views.
IV. Executive Order 12866
The Agencies do not know whether regulations under the Bank Secrecy
Act will be amended, or the nature of any amendment. Consequently, the
Agencies do not know whether the potential regulatory action would
constitute a significant regulatory action under Executive Order 12866.
This Advance Notice neither establishes nor proposes any regulatory
requirements. Accordingly, the Agencies solicit comment, information,
and data on the potential effects of any potential regulation.
Robert W. Werner,
Director, Financial Crimes Enforcement Network.
By order of the Board of Governors of the Federal Reserve
System, June 15, 2006.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 06-5567 Filed 6-20-06; 8:45 am]
BILLING CODE 4810-02-P