Proposed Amendment to the Bank Secrecy Act Regulations Requirement to Report Suspicious Transactions

DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA13

Proposed Amendment to the Bank Secrecy Act Regulations--

Requirement to Report Suspicious Transactions

AGENCY: Financial Crimes Enforcement Network, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Financial Crimes Enforcement Network (``FinCEN'') is

proposing rules for the centralized filing with it of reports of

suspicious transactions under the Bank Secrecy Act. The proposal is a

key to the creation of a new method for the reporting, on a uniform

``Suspicious Activity Report,'' of suspicious

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transactions and known or suspected criminal violations by depository

institutions; related rules have been or will be issued by the five

federal financial supervisory agencies that examine and regulate the

safety and soundness of depository institutions. The new centralized

reporting system will eliminate the need for burdensome filing of

multiple copies of reports with various federal regulatory and law

enforcement agencies and will ensure more effective use of the

information reported to such agencies.

DATES: Written comments on all aspects of the proposal are welcome and

must be received on or before October 10, 1995.

ADDRESSES: Written comments should be submitted to: Office of

Regulatory Policy and Enforcement, Financial Crimes Enforcement

Network, Department of the Treasury, 2070 Chain Bridge Road, Vienna,

Virginia 22182, Attention: NPRM--Suspicious Transaction Reporting.

Submission of Comments: An original and four copies of any comment

must be submitted. All comments will be available for public inspection

and copying, and no material in any such comments, including the name

of any person submitting comments, will be recognized as confidential.

Accordingly, material not intended to be disclosed to the public should

not be submitted.

Inspection of Comments: Comments may be inspected at the Department

of the Treasury between 10:00 a.m. and 4:00 p.m., in the Treasury

Library, which is located in room 5030, 1500 Pennsylvania Avenue, N.W.,

Washington, D.C. 20220. Persons wishing to inspect the comments

submitted should request an appointment at the Treasury Library by

telephoning (202) 622-0990.

FOR FURTHER INFORMATION CONTACT: Charles Klingman, Office of Financial

Institutions Policy, FinCEN, at (703) 905-3920, or Joseph M. Myers,

Attorney-Advisor, Office of Legal Counsel, FinCEN, at (703) 905-3590.

SUPPLEMENTARY INFORMATION:

I. Introduction

This document proposes to add a new section 103.21 to 31 CFR Part

103 to require banks and other depository institutions 1 to report

to the Department of the Treasury any suspicious transaction relevant

to a possible violation of law or regulation. The amendments are

proposed by FinCEN, to implement the authority granted to the Secretary

of the Treasury by 31 U.S.C. 5318(g), in coordination with the Office

of the Comptroller of the Currency (the ``OCC''), the Board of

Governors of the Federal Reserve System (the ``Board''), the Federal

Deposit Insurance Corporation (the ``FDIC''), the Office of Thrift

Supervision (the ``OTS''), and the National Credit Union Administration

(the ``NCUA'').

\1\ References to ``bank'' include not only commercial banks,

but also thrift institutions, credit unions, and other types of

depository institutions. See 31 CFR 103.11(b) (defining ``bank'' for

purposes of 31 CFR Part 103).

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The proposed regulation creates a single coordinated process for

the reporting of suspicious transactions under the Bank Secrecy Act and

known or suspected criminal violations involving such institutions

under the regulations of the regulatory agencies. The new process

represents a fundamental change in the manner in which potential

violations and suspicious activities are reported by banks and other

depository institutions to the federal government.

II. Background

A. Statutory Provisions

The Bank Secrecy Act, Pub. L. 91-508, as amended, codified at 12

U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5330, authorizes

the Secretary of the Treasury, inter alia, to issue regulations

requiring financial institutions to keep records and file reports that

are determined to have a high degree of usefulness in criminal, tax,

and regulatory matters, and to implement counter-money laundering

programs and compliance procedures. Regulations implementing Title II

of the Bank Secrecy Act (codified at 31 U.S.C. 5311-5330), appear at 31

CFR Part 103. The authority of the Secretary to administer the Bank

Secrecy Act has been delegated to the Director of FinCEN.

The authority to require reporting of suspicious transactions was

added to the Bank Secrecy Act by section 1517 of the Annunzio-Wylie

Anti-Money Laundering Act (``Annunzio-Wylie''), Title XV of the Housing

and Community Development Act of 1992, Pub. L. 102-550; it was expanded

by section 403 of the Money Laundering Suppression Act of 1994 (the

``Money Laundering Suppression Act''), Title IV of the Riegle Community

Development and Regulatory Improvement Act of 1994, Pub. L. 103-325, to

require designation of a single government recipient for reports of

suspicious transactions.

The provisions of 31 U.S.C. 5318(g) deal with the reporting of

suspicious transactions by financial institutions subject to the Bank

Secrecy Act and the protection from liability to customers of persons

who make such reports. Subsection (g)(1) states generally:

The Secretary may require any financial institution, and any

director, officer, employee, or agent of any financial institution

to report any suspicious transaction relevant to a possible

violation of law or regulation.

Subsection (g)(2) provides further:

A financial institution, and a director, officer, employee, or agent

of any financial institution, who voluntarily reports a suspicious

transaction, or that reports a suspicious transaction pursuant to

this section or any other authority, may not notify any person

involved in the transaction that the transaction has been reported.

Subsection (g)(3) provides that neither a financial institution, nor

any director, officer, employee, or agent

That makes a disclosure of any possible violation of law or

regulation or a disclosure pursuant to this subsection or any other

authority . . . shall . . . be liable to any person under any law or

regulation of the United States or any constitution, law, or

regulation of any State or political subdivision thereof, for such

disclosure or for any failure to notify the person involved in the

transaction or any other person of such disclosure.

Finally, subsection (g)(4) requires the Secretary of the Treasury, ``to

the extent practicable and appropriate,'' to designate ``a single

officer or agency of the United States to whom such reports shall be

made.'' This designation is not to preclude the authority of

supervisory agencies to require financial institutions to submit other

reports to the same agency ``under any other applicable provision of

law.'' 31 U.S.C. 5318(g)(4)(C). The designated agency is in turn

responsible for referring any report of a suspicious transaction to

``any appropriate law enforcement agency.'' Id., at subsection

(g)(4)(B).

B. Coordinated Process for Reporting Suspicious Transactions

At present, banks report transactions that indicate the existence

of ``known or suspected violations of federal law'' by filing multiple

copies of criminal referral forms with their respective primary federal

financial regulator and with federal law enforcement agencies

(including in most cases the Federal Bureau of Investigation, the

United States Secret Service, and the Criminal Investigation Division

of the Internal Revenue Service). The referral forms (each promulgated

by a different regulator, under independent but parallel authority) are

not uniform, and the requirement for multiple filings imposes a

considerable administrative burden on filers. In the absence of a

central repository, law enforcement and

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regulatory agencies--receiving different forms from different filers in

different regions of the country--struggle to analyze and correlate the

filings and to coordinate investigations.

At the same time, banks (and other financial institutions) are

required under the Bank Secrecy Act to file a Currency Transaction

Report (or ``CTR'') to report transactions in currency of more than

$10,000. The CTR form includes a box that can be checked to indicate

that the currency transaction is ``suspicious.'' 2 The box on the

CTR may also be used to report suspicious currency transactions in

amounts less than $10,000. In practice, some financial institutions

have also used the CTR form to report non-currency transactions that

they believed to be ``suspicious'' but did not rise to the level of a

known or suspected violation of law. Still other financial institutions

reported such transactions by telephone to local offices of federal law

enforcement or regulatory agencies. In many cases, financial

institutions that were uncertain what to do naturally and commendably

filed all possibly applicable reports.

\2\ The revised and simplified CTR that goes into effect on

October 1, 1995 eliminates the box in anticipation of the adoption

of the Suspicious Activity Report for reporting of, inter alia,

suspicious currency transactions. An advance copy of the revised CTR

was issued by FinCEN in early May 1995. See ``FinCENnews'', May 10,

1995.

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As also discussed in proposed regulations issued in connection with

the creation of the unified reporting system by the Office of the

Comptroller of the Currency, 60 FR 34,476 (July 3, 1995), and the Board

of Governors of the Federal Reserve System, 60 FR 34,481 (July 3,

1995), the current criminal referral system is cumbersome and

burdensome, for both regulators and depository institutions. Moreover,

it does not maximize the amount of usable information available to law

enforcement officials and bank regulators. Therefore, beginning in

1991, the regulatory agencies began working on a project to improve the

criminal referral process, with the goal of creating a single form and

placing all referrals in an automated information system, managed on

their behalf by FinCEN, to which all regulators and FinCEN would have

access. The purpose of that project, begun under the auspices of the

inter-agency Bank Fraud Working Group, was to assure that information

generated by referrals of banking crimes would be uniformly available

both as a basis for regulatory decisions and for analysis of the

effectiveness of the reporting process and banking crime enforcement

efforts.

A year later, Annunzio-Wylie vested broad suspicious transaction

reporting authority in the Department of the Treasury. Soon thereafter,

a ``Money Laundering Review Task Force,'' made up of enforcement and

regulatory officials, was established in the Office of the then-

Assistant Secretary (Enforcement) to examine the effectiveness of

Treasury's anti-money laundering policies. The Task Force's analysis

emphasized that identification and reporting of suspicious activity can

and should be one of law enforcement's most effective tools against

money laundering, so long as the reporting is not burdensome and

reflects as much guidance about money laundering transactions and

methods as government can provide. The work of the Task Force resulted

in a consensus at Treasury that a reasoned implementation of Treasury's

expanded suspicious transaction reporting authority (together with the

accompanying ``know your customer'' rule) would increase the

effectiveness of counter-money laundering efforts and permit

significant reduction in mechanical currency transaction reporting

requirements.

The single integrated system of which this proposed rule is a part

thus reflects (i) the effect on the pre-existing criminal referral

process of the statutory grant of central authority to Treasury, under

the Bank Secrecy Act, to require reporting of all suspicious

transactions (not merely transactions in currency or its equivalents)

involving financial institutions, (ii) the mutual desire of Treasury

and the financial regulators to simplify and reduce the burdensomeness

of the reporting process, and (iii) the centrality of suspicious

transaction reporting to Treasury counter-money laundering policy.

The central feature of the integrated reporting system is the

creation of a single reporting form, filing point, and information

system for all reports of suspicious activity made by depository

institutions. The single form standardizes filing requirements and

facilitates the creation of a single, automated data base containing

information from all filings. The single filing point not only

eliminates the need for multiple copies but also permits magnetic

filing of reports by most institutions capable of and accustomed to

making such filings with the Internal Revenue Service. (In a related

development, as explained more fully below, the requirement that

supporting documentation be filed with the report has been eliminated.)

Finally, the single data base will permit rapid dissemination to

appropriate law enforcement agencies of reports within their

jurisdiction, more thorough analysis and tracking of those reports,

and, in time, the provision to the financial communities of information

about trends and patterns gleaned from the information reported.

Each agency involved has issued or shortly will issue a proposed

rule requiring reporting under its respective authority. It is

anticipated that those proposed rules will be conformed to one another

in their final form and that they will be identical with Treasury's

suspicious transaction reporting rules. Thus a financial institution

will file a suspicious activity report in satisfaction of both the

rules of FinCEN and the rules of the applicable banking regulator or

regulators.

The selection of a single term--Suspicious Activity Report

(``SAR'')--for the new report reflects the overlap and consolidation of

the two reporting requirements. There will be a significant group of

activities that are required to be reported both under the authority of

31 U.S.C. 5318(g) and under the financial regulatory agencies own

administrative requirements. A single filing, however, will suffice to

comply with all requirements.

C. Importance of Suspicious Transaction Reporting in Treasury's Anti-

Money Laundering Program

The Congressional mandate to require reporting of suspicious

transactions recognizes two basic points that have increasingly become

central to Treasury's anti-money laundering and anti-financial crime

programs. First, it is to financial institutions that money launderers

must go. Second, the officials of those institutions are more likely

than government officials to have a sense as to what transactions

appear to lack commercial justification or otherwise cannot be

explained as falling within the usual methods of legitimate commerce.

Money laundering transactions are often designed to appear legitimate

in order to avoid detection. Under these circumstances, the creation of

a meaningful system for detection and prevention of money laundering is

impossible without the cooperation of financial institutions.

The provisions of Annunzio-Wylie and the Money Laundering

Suppression Act recognize that the traditional reliance of Treasury

counter-money laundering programs on the reporting of currency

transactions between financial institutions and their customers and the

transportation of currency and certain monetary instruments into or out

of the United States is neither adequate nor

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cost effective. The change in emphasis from routine reporting of all

currency transactions above a certain amount to reporting of

information most likely to be of use to law enforcement officials and

financial regulators is a key component of the flexible and cost-

efficient compliance system required to prevent the use of the nation's

financial system for illegal purposes.

The placement of illegally-derived currency into the financial

system and the smuggling of such currency out of the country remain two

of the most serious issues facing financial law enforcement efforts in

the United States and around the world. But banks and other depository

institutions, in cooperation with law enforcement agencies and federal

and state banking regulators, have responded in many positive ways to

the challenges posed by money laundering. It is now far more difficult

than in the past to pass large amounts of cash directly into the

nation's banks unnoticed and far easier to identify and isolate those

institutions and officials still willing to assist or ignore money

launderers.

Moreover, the placement of currency into the financial system is at

most only the first stage in the money laundering process. While many

currency transactions are not indicative of money laundering or other

violations of law, many non-currency transactions can indicate illicit

activity, especially in light of the breadth of the statutes that make

money laundering itself a crime. See 18 U.S.C. 1956 and 1957.

No system for the reporting of suspicious transactions can be

effective unless information flows from as well as to the government.

Thus, Treasury recognizes its responsibility to issue and update

guidelines about patterns of suspicious activity.

The reporting of suspicious transactions is also a key to the

emerging international consensus on the prevention of money laundering.

One of the central recommendations in the Report of the Financial

Action Task Force of the G-7 nations (the United States, The United

Kingdom, Germany, France, Italy, Japan, and Canada) is that:

If financial institutions suspect that funds stem from a

criminal activity, they should be permitted or required to report

promptly their suspicions to the competent authorities.

Financial Action Task Force Report (April 19, 1990), Section III(B)(3)

(Recommendation 16). The European Community's Directive on prevention

of the use of the financial system for the purpose of money laundering

calls for member states to

Ensure that credit and financial institutions and their

directors and employees cooperate fully with the authorities

responsible for combating money laundering . . . by [in part]

informing those authorities, on their own initiative, of any fact

which might be an indication of money laundering.

EC Directive, O.J. Eur. Comm. (No. L 166) 77 (1991), Article 6. Accord,

the Model Regulations Concerning Laundering Offenses Connected to

Illicit Drug Trafficking and Related Offenses of the Organization of

American States, OEA/Ser. P. AG/Doc. 2916/92 rev. 1 (May 23, 1992),

Article 13, section 2.3

\3\ The OAS reporting requirement is linked to the provision of

the Model Regulations that institutions ``shall pay special

attention to all complex, unusual or large transactions, whether

completed or not, and to all unusual patterns of transactions, and

to insignificant but periodic transactions, which have no apparent

economic or lawful purpose.'' OAS Model Regulation, Article 13,

section 1.

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D. Suspicious Transaction Reporting by Financial Institutions Other

Than Banks

31 U.S.C. 5318(g) authorizes the Treasury to require the reporting

of suspicious transactions by all financial institutions, and extends

to financial institutions other than banks. FinCEN intends to extend

the obligation to report suspicious transactions to such other

institutions in the near future. However, this proposed rule applies

only to reporting of suspicious transactions by banks and other

depository institutions.

III. Specific Provisions

A. 103.11(qq) FinCEN

FinCEN is specifically defined for the first time in the Bank

Secrecy Act regulations, because FinCEN is being designated by the

Secretary of the Treasury as the central recipient of SARs filed

pursuant to 31 U.S.C. 5318.

B. 103.11(r) Transaction

The definition of ``transaction in currency'' in the Bank Secrecy

Act regulations has been changed to a definition of ``transaction.''

The definition conforms to the definitions in 18 U.S.C. 1956 used when

Congress criminalized money laundering in 1986.4 This definition

of transaction is broad enough to cover all activity that will be

reported on an SAR.

\4\ See Pub. L. 99-570, Title XIII, 1352(a), 100 Stat. 3207-18

(Oct. 27, 1986).

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Treasury does not believe that the change varies the substance of

the requirement to report currency transactions under 31 CFR 103.22,

other than in the case of deposits of cash in safe deposit boxes, and

the change is not intended to make any other modifications in that

requirement. Treasury would be interested in comments concerning the

safe deposit box issue and other instances in which financial

institution personnel believe that application of the new definition,

required for implementation of the suspicious transaction reporting

rule, would unintentionally alter the separate currency transaction

reporting requirement.

C. 103.20 Determination by the Secretary

Section 103.21 is redesignated as section 103.20 in order to make

room in Subpart B, ``Reports Required To Be Made,'' for the suspicious

transaction reporting requirement in this proposed rule.

D. 103.21 Reports of Suspicious Transactions

New section 103.21 contains the rules setting forth the obligation

of banks to file reports of suspicious transactions. Paragraph (a)

contains the general statement of the obligation to file, and a general

definition of the term ``suspicious transaction.'' The obligation

extends only to transactions conducted or attempted by, at, through, or

otherwise involving, the bank; however, it is important to recognize

that transactions are reportable under this rule and 31 U.S.C. 5318(g)

whether or not they involve currency.

The proposed rule designates three classes of transactions as

requiring reporting. The first class, described in proposed paragraph

(a)(2)(i), includes transaction involving funds derived from illegal

activity or intended or conducted in order to hide or disguise funds or

assets derived from illegal activity. The second class, described in

proposed paragraph (a)(2)(ii), involves transactions designed to evade

the requirements of the Bank Secrecy Act. The third class, described in

proposed paragraph (a)(2)(iii), involves transactions that appear to

have no business purpose or vary so substantially from normal

commercial activities or activities appropriate for the particular

customer or class of customer as to have no reasonable explanation.

Of course, determinations as to whether a report is required must

be based on all the facts and circumstances relating to the transaction

and bank customer in question. Different fact patterns will require

different types of judgments. In some cases, the facts of the

transaction may clearly indicate the need to report. For example,

continued payments or withdrawals of currency in amounts each beneath

the currency transaction reporting threshold

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applicable under 31 CFR 103.22, or multiple exchanges of small

denominations of currency into large denominations of currency, can

indicate that a customer is involved in suspicious activity. Similarly,

the fact that a customer refuses to provide information necessary for

the bank to make reports or keep records required by this Part or other

regulations, provides information that a bank determines to be false,

or seeks to change or cancel the transaction after such person is

informed of reporting requirements relevant to the transaction or of

the bank's intent to file reports with respect to the transaction,

would all indicate that an SAR should be filed.

In other situations a more involved judgment may need to be made

whether a transaction is suspicious within the meaning of the rule.

Transactions that raise the need for such judgments may include, for

example, (i) funds transfers, payments or withdrawals that are not

commensurate with the stated business or other activity of the person

conducting the transaction or on whose behalf the transaction is

conducted; (ii) transmission or receipt of funds transfers without

normal identifying information or in a manner that indicates an attempt

to disguise or hide the country of origin or destination or the

identity of the customer sending the funds or of the beneficiary to

whom the funds are sent; or (iii) repeated use of an account as a

temporary resting place for funds from multiple sources without a clear

business purpose therefor. The judgments involved will also extent to

whether the facts and circumstances and the institution's knowledge of

its customer provide a reasonable explanation for the transaction that

removes it from the suspicious category.

The means of commerce and the techniques of money launderers are

continually evolving, and there is no way to provide an exhaustive list

of suspicious transactions. For these reasons, Treasury ultimately must

rely on creation of a working partnership that enables the financial

community to apply its knowledge of both its customers and of the

developments in financial commerce to identify and report suspicious

activity. At the same time, Treasury intends to provide meaningful

guidance to the banking community concerning the particular

circumstances and types of behavior that Treasury believes indicate

suspicious activity.

31 U.S.C. 5318(g)(1) authorizes Treasury to require suspicious

transaction reporting not only by financial institutions but by ``any

director, officer, employee, or agent of any financial institution.''

This proposed rule addresses reporting by banks, but it is not intended

to reduce the obligations of bank employees or agents, within the

context of a bank's reporting and Bank Secrecy Act compliance

obligations, but simply to avoid at this time creating an obligation on

the part of bank employees and agents independent of those general

obligations. It is anticipated that a forthcoming notice of proposed

rulemaking on anti-money laundering compliance programs will contain

additional guidance on this matter.

Paragraph (b) sets forth the filing procedures to be followed by

banks making reports of suspicious transactions. Reports are to be made

within 30 days after the bank becomes aware of the suspicious

transaction by completing an SAR and filing it in a central location,

to be determined by FinCEN. Supporting documentation is to be collected

and maintained separately by the bank, and made available to law

enforcement, as necessary. Special provision is made for situations

requiring immediate attention, in which case banks are to telephone the

appropriate law enforcement authority in addition to filing an SAR.

These filing procedures represent a significant improvement over the

procedures currently followed by banks filing criminal referral forms.

There is no requirement to file multiple copies of forms with multiple

agencies, and no requirement to file supporting documentation with the

SAR itself.

Paragraph (c) continues in effect the longstanding exception from

the obligation to file in the case of a robbery or burglary that is

otherwise reported to appropriate law enforcement authorities. Treasury

and the financial regulators recognize that bank robbery and burglary

require the immediate attention of the appropriate police authorities,

and are not the types of crimes about which this regulation is directly

concerned.

Paragraph (d) states the obligation of filing banks to maintain

copies of SARs and the original related documentation for a period of

ten years from the date of filing. As indicated above, supporting

documentation is to be made available to FinCEN and appropriate law

enforcement authorities on request.

Paragraph (e) incorporates the terms of 31 U.S.C. 5318 (g)(2) and

(g)(3). This paragraph thus specifically prohibits those filing SARs

from making any disclosure, except to authorized law enforcement and

regulatory agencies, about either the reports themselves, the

information contained therein, or the supporting documentation. This

paragraph thus also restates the broad protection from liability for

making reports of suspicious transactions, and for failures to disclose

the fact of such reporting, contained in the statute. The regulatory

provisions do not extend the scope of either the statutory prohibition

or the statutory protection; however, because Treasury recognizes the

importance of these statutory provisions to the overall effort to

encourage meaningful reports of suspicious transactions, they are

described in the regulation in order to remind compliance officers and

others of their existence.

Finally, paragraph (f) notes that compliance with the obligation to

report suspicious transactions will be audited, and provides that

failure to comply with the rule shall constitute a violation of the

Bank Secrecy Act and the Bank Secrecy Act regulations, which may

subject non-complying banks to enforcement action. The paragraph also

notes that compliance with the obligation to report suspicious

transactions will have no direct bearing on a bank's potential exposure

under the criminal provisions of Title 18 of the U.S. Code. The ``safe

harbor'' provisions of 31 U.S.C. 5318(g) do not protect against

criminal prosecutions.

IV. Comments

FinCEN invites public comment on all aspects of this proposal.

FinCEN is particularly interested in, and specifically requests that

financial institutions comment on, the following issues.

1. Consolidating information reported on the existing criminal

referral form (CRF) with that reported on suspicious currency

transaction reports was done to eliminate confusion and avoid duplicate

reporting. Currently, in the absence of specific guidelines, each

financial institution has developed internal and specific thresholds

and procedures for reporting different types of activity on each form.

In this proposed rule, Treasury has attempted to describe instances

where, and circumstances in which, a financial institution would

determine a transaction to be suspicious and file a report. However, no

regulation could possibly cover all instances of potential suspicious

activity. Conversely, a regulation should not be crafted so broadly as

to provide no parameters or guidelines to follow. Treasury needs to

know if the terms set forth in this proposed regulation are clear,

specific, and sufficient as a basis for financial institutions to

determine when activity is suspicious. If not, Treasury requests

specific, detailed suggestions for

[[Page 46561]]

substitute language that should be considered.

2. In addition, over 100 predicate offenses may serve as the basis

for a criminal money laundering charge under 18 U.S.C. 1956. The

instructions for the SAR, as well as the proposed notices issued by the

regulatory agencies, provide specific thresholds for reporting

particular types of violations. Treasury is interested in the

industry's position as to whether similar types of thresholds should be

imposed for reporting Bank Secrecy Act and money laundering violations.

3. Finally, Treasury understands that, after filing a report on a

particular customer, a financial institution may be confronted with a

decision as to whether to terminate its relationship with that

customer. Treasury believes that unless instructed by an authorized

official, this is a decision which must be made by the financial

institution. However, Treasury is interested in working with the

industry to develop procedures which could help frame such decisions.

The comment period for this rule is 30 days. Although the comment

period is shorter than that which would normally be employed, many of

the terms reflected in this rule are also contained in the rules

already proposed by the financial regulators. FinCEN will have access

to those comments, and it is believed that on that basis the short

comment period is justified, in light of the desire of the agencies

involved to commence the operation of the less burdensome single form

reporting system on October 1, 1995.

V. Regulatory Flexibility Act

FinCEN certifies that this proposed regulation will not have a

significant financial impact on a substantial number of small

depository institutions.

VI. Paperwork Reduction Act

The collection of information contained in this proposed rule has

been submitted to the Office of Management and Budget (OMB) for review

in accordance with the Paperwork Reduction Act of 1980 (44 U.S.C.

3504(h)). Comments on the collection of information should be sent to

OMB, Paperwork Reduction Project, Washington, DC 20503, with copies to

FinCEN, Office of Financial Institutions Policy, 2070 Chain Bridge

Road, Suite 200, Vienna, Virginia 22182.

VII. Executive Order 12866

The Department of the Treasury has determined that this proposed

rule is not a significant regulatory action under Executive Order

12866.

VIII. Unfunded Mandates Act of 1995 Statement

Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.

104-4 (Unfunded Mandates Act), March 22, 1995, requires that an agency

prepare a budgetary impact statement before promulgating a rule that

includes a federal mandate 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 202 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 this proposal provides

the most cost-effective and least burdensome alternative to achieve the

objectives of the rule.

List of Subjects in 31 CFR Part 103

Authority delegations (Government agencies), Banks and banking,

Currency, Investigations, Law enforcement, Reporting and recordkeeping

requirements.

Amendment

For the reasons set forth above in the preamble, 31 CFR Part 103 is

proposed to be amended as set forth below:

PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND

FOREIGN TRANSACTIONS

1. The authority citation for Part 103 is revised to read as

follows:

Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5330.

2. In Sec. 103.11, paragraph (r) is revised and paragraph (qq) is

added to read as follows:

Sec. 103.11 Meaning of terms.

* * * * *

(r) Transaction. Transaction means a purchase, sale, loan, pledge,

gift, transfer, delivery or other disposition, and with respect to a

financial institution includes a deposit, withdrawal, transfer between

accounts, exchange of currency, loan, extension of credit, purchase or

sale of any stock, bond, certificate of deposit, or other monetary

instrument, use of a safe deposit box, or any other payment, transfer,

or delivery by, through, or to a financial institution, by whatever

means effected.

* * * * *

(qq) FinCEN. FinCEN means the Financial Crimes Enforcement Network,

an office within the Office of the Under Secretary (Enforcement) of the

Department of the Treasury.

3. Section 103.21 is redesignated as Sec. 103.20.

4. New Sec. 103.21 is added to read as follows:

Sec. 103.21 Reports of suspicious transactions.

(a) General. (1) Every bank shall file with the Treasury

Department, as required by this Sec. 103.21, a report of any suspicious

transaction relevant to a possible violation of law or regulation.

(2) A transaction requires reporting under the terms of this

section if it is conducted or attempted by, at, or through, or

otherwise involves, the bank, and

(i) The bank knows, suspects, or has reason to suspect that the

transaction involves funds derived from illegal activity or is intended

or conducted in order to hide or disguise funds or assets derived from

illegal activity (including, without limitation, the ownership, nature,

source, location, or control of such funds or assets) as part of a plan

to violate or evade any law or regulation or to avoid any transaction

reporting requirement under federal law;

(ii) The bank knows, suspects, or has reason to suspect that the

transaction is designed to evade any requirements of this Part or of

any other regulations promulgated under the Bank Secrecy Act; or

(iii) The transaction or its details appear to have no business

purpose, the transaction varies from the normal methods of financial

commerce, or the transaction is not the sort in which the particular

customer or class of customer would normally be expected to engage,

and, in each case, the bank knows of no reasonable explanation for the

transaction.

(b) Filing procedures--(1) What to file. A suspicious transaction

shall be reported by completing, in accordance with the instructions, a

Suspicious Activity Report (``SAR''), and collecting and maintaining

supporting documentation related information, in accordance with this

rule.

(2) Where to file. The SAR shall be filed in a central location, to

be determined by FinCEN.

(3) When to file. A bank is required to file each SAR not later

than 30 calendar days after the first date on which the bank becomes

aware of the facts constituting the transaction to which the report

relates. If no suspect is identified on the date of detection of the

incident triggering the filing, a bank may delay

[[Page 46562]]

filing an SAR for an additional 30 calendar days, but in no case shall

reporting be delayed more than 60 calendar days after the date of the

transaction. In situations involving violations that require immediate

attention, such as when a reportable violation is ongoing, the bank

shall immediately notify by telephone the appropriate law enforcement

authority in addition to filing an SAR.

(c) Exception. A bank is not required to file a suspicious

transaction report for a robbery or burglary committed or attempted

that is reported to appropriate law enforcement authorities.

(d) Retention of records. A bank shall maintain a copy of any SAR

filed and the original of any related documentation for a period of ten

years from the date of filing the SAR, unless the bank is informed by

FinCEN in writing that the bank may discard the materials sooner.

Supporting documentation shall be identified, segregated, and treated

as filed with the SAR. A bank shall make all supporting documentation

available to FinCEN and any appropriate law enforcement agencies upon

request.

(e) Confidentiality of reports; limitation of liability. No

financial institution, nor any director, officer, employee, or agent of

any financial institution, who reports a suspicious transaction under

this Part, may notify any person involved in the transaction that the

transaction has been reported. Thus, any person subpoenaed or otherwise

requested to disclose an SAR, the information contained in an SAR or

any information contained in the documentation supporting an SAR,

except where such disclosure is requested by a law enforcement agency,

shall refuse to produce the SAR or such other information. See 31

U.S.C. 5318(g)(2). A bank, and any director, officer, employee, or

agent of such bank, that make a report pursuant to this Sec. 103.21

shall be protected from liability for any disclosure contained, for

failure to disclosure the fact of such report, or both, to the extent

provided by 31 U.S.C. section 5318(g)(3).

(f) Compliance. Compliance with these rules shall be audited by the

Department of the Treasury or its delegees under the terms of the Bank

Secrecy Act. Failure to satisfy the requirements of this rule shall be

a violation of the reporting rules of the Bank Secrecy Act and of 31

CFR Part 103. Such failure may also violate provisions of Titles 12 and

15 of the Code of Federal Regulations. Whether or not a bank satisfies

the requirements of this reporting rule has no direct bearing on the

obligations or possible liabilities of such bank or its directors,

officers, employees, or agents, under provisions of Title 18 of the

United States Code.

Dated: August 30, 1995.

Stanley E. Morris,

Director, Financial Crimes Enforcement Network.

[FR Doc. 95-22223 Filed 9-6-95; 8:45 am]

BILLING CODE 4820-03-P