Amendment to the Bank Secrecy Act Regulations Relating to Recordkeeping for Funds Transfers and Transmittals of Funds by Banks and Other Financial Institutions

FEDERAL RESERVE SYSTEM

FEDERAL RESERVE SYSTEM

[Docket No. R-0888]

DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA16

Amendment to the Bank Secrecy Act Regulations Relating to

Recordkeeping for Funds Transfers and Transmittals of Funds by Banks

and Other Financial Institutions

AGENCY: Department of the Treasury; Board of Governors of the Federal

Reserve System.

ACTION: Joint final rule.

-----------------------------------------------------------------------

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) jointly have adopted amendments to their

final rule that requires enhanced recordkeeping related to certain

funds transfers and transmittals of funds by financial institutions

(the joint rule). These amendments revise the joint rule's definitions

and make technical conforming changes to the substantive provisions of

the joint rule to conform the definitions of the parties to an

international transfer to their meanings under Article 4A of the

Uniform Commercial Code (UCC 4A). The revised definitions will also

affect the provisions of a Treasury companion rule, adopted in January

1995, known as the travel rule, which requires financial institutions

to include in transmittal orders certain information that must be

maintained under the joint rule. Treasury is also publishing amendments

to its travel rule. See companion final rule amending the travel rule

published elsewhere in today's issue of the Federal Register. The

amendments are intended to reduce confusion of banks and nonbank

financial institutions as to the applicability of the joint rule and

the travel rule and to reduce the cost of complying with the rules'

requirements. The Treasury and the Board believe that the amendments

will not have a material adverse effect on the rules' usefulness in law

enforcement investigations and proceedings. The amendments should not

affect a bank's responsibilities under the rules with respect to

domestic funds transfers. Furthermore, to ensure that there is an

adequate implementation period following final action on the proposed

amendments, the Treasury and the Board have delayed the effective date

of the joint final rule until May 28, 1996. See the final rule; delay

of effective date published elsewhere in today's issue of the Federal

Register.

EFFECTIVE DATE: May 28, 1996.

FOR FURTHER INFORMATION CONTACT:

Treasury: Roger Weiner, Assistant Director, 202/622-0400; Stephen

R. Kroll, Legal Counsel, 703/905-3534, FinCEN.

Board: Louise L. Roseman, Associate Director, 202/452-2789; Darrell

Mak, Financial Services Analyst, 202/452-3223; Division of Reserve Bank

Operations and Payment Systems; Oliver Ireland, Associate General

Counsel, 202/452-3625; or Elaine Boutilier, Senior Counsel 202/452-

2418, Legal Division, Board of Governors of the Federal Reserve System.

For the hearing impaired only, Telecommunication Device for the Deaf

(TDD), Dorothea Thompson, 202/452-3544.

SUPPLEMENTARY INFORMATION:

I. Background

The statute generally referred to as the Bank Secrecy Act (BSA)

(Pub. L. 91-508, codified at 12 U.S.C. 1829b and 1951-1959, and 31

U.S.C. 5311-5330) authorizes the Secretary of the Treasury 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. 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), which authorizes the Treasury and the

Board to prescribe regulations to require maintenance of records

regarding domestic and international funds transfers. The Treasury and

the Board are required to promulgate jointly, after consultation with

state banking supervisors, recordkeeping requirements for international

funds transfers by depository institutions and nonbank financial

institutions. The Treasury and the Board are required to consider the

usefulness of recordkeeping rules for international funds transfers in

criminal, tax, or regulatory investigations or proceedings and the

effect of such rules on the cost and efficiency of the payments system.

The Treasury and the Board are authorized to promulgate regulations for

domestic funds transfers by depository institutions. The Treasury, but

not the Board, is authorized to promulgate recordkeeping and reporting

requirements for domestic funds transfers by nonbank financial

institutions.

In January 1995, the Treasury and the Board jointly published

enhanced recordkeeping requirements related to certain funds transfers

and transmittals of funds by banks and other financial institutions, in

accordance with the BSA (60 FR 220, January 3, 1995). At the same time,

the Treasury adopted a companion rule, known as the travel rule, which

requires financial institutions to include in transmittal orders

certain information that must be retained under the joint rule (60 FR

234, January 3, 1995). The joint rule sets forth definitions of terms

used in both rules.

Subsequent to adoption of the joint rule, several large banks as

well as bank counsel advised the Treasury and the

[[Page 14384]]

Board that compliance with the joint rule and the travel rule would be

complicated if the parties to an international funds transfer were

defined differently in the joint rule than they are in the Uniform

Commercial Code Article 4A (UCC 4A). Under the joint rule adopted in

January, the first U.S. bank office that handles an incoming

international funds transfer was defined as the originator's

bank.1 Under UCC 4A and the Board's Regulation J governing Fedwire

transfers (12 CFR Part 210, subpart B), which incorporates UCC 4A, if

the U.S. bank receives a payment order from a foreign bank and executes

a corresponding payment order to a subsequent receiving bank, the first

U.S. bank would be deemed an intermediary bank rather than the

originator's bank. Large banks that regularly process international

funds transfers believe that substantial confusion would result from

defining the parties to an international funds transfer for the

purposes of the BSA rules differently from the manner in which they are

defined under UCC 4A. In addition, several banks indicated that they

believe the difference between the BSA and the UCC 4A definitions may

cause certain problems in the application of the joint rule and the

travel rule to international funds transfers.

\1\ The originator's bank was defined as ``the receiving bank to

which the payment order of the originator is issued if the

originator is not a bank, or the originator if the originator is a

bank.'' (103.11(w)) A receiving bank was defined as ``the bank to

which the sender's instruction is addressed.'' (103.11(aa)) As the

definition of bank was limited to an ``agent, agency, branch or

office within the United States'' (103.11(c)), a receiving bank must

be a U.S. banking office, and therefore the originator's bank was

the first U.S. banking office to handle the transfer.

---------------------------------------------------------------------------

In August 1995, the Treasury and the Board proposed amendments to

the joint rule to address industry concerns regarding the confusion

created by defining the parties to an international funds transfer in a

manner that is not consistent with the roles of the parties as defined

by UCC 4A (60 FR 44146, August 24, 1995). In their notice of the

proposed amendments, the Treasury and the Board included a detailed

illustration of the operational issues raised by industry

representatives.

Under the proposed amendments, the definition of the first U.S.

bank office that handles an incoming international funds transfer would

be changed from an originator's bank to an intermediary bank.

Corresponding changes were proposed to address the same issues with

respect to nonbank financial institutions that conduct international

transmittals of funds. In addition, the Treasury and the Board proposed

amending section 103.33(e)(6) by deleting the word ``domestic'' prior

to the word ``bank'' and prior to the words ``broker or dealer in

securities.'' These changes have no material effect on the scope of the

exclusions set forth in this section as the word ``bank'' is defined to

be limited to offices located within the United States and the term

``broker or dealer in securities'' is limited to brokers registered

with the Securities and Exchange Commission.

Also in August 1995, Treasury and the Board deferred the effective

date of the joint rule until April 1, 1996 from January 1, 1996, to

provide financial institutions sufficient time to prepare to comply

with their responsibilities under the joint final rule with respect to

international transfers pending final action on the proposed amendments

to the joint rule (60 FR 44144, August 24, 1995). To ensure that there

is an adequate implementation period following final action on the

proposed amendments, the Treasury and the Board have delayed further

the effective date of the joint final rule until May 28, 1996. See the

final rule; delay of effective date published elsewhere in today's

issue of the Federal Register.

II. Summary of Public Comments

The Treasury and the Board received eleven comments on the proposed

amendments. The following table identifies the number of commenters by

type of organization:

Commercial Banks.............................................. 4

Federal Reserve Banks......................................... 3

Savings Institutions.......................................... 1

Trade Association............................................. 1

Credit Union Association...................................... 1

Clearing House Association.................................... 1

---------

Total Public Comments................................... 11

Ten comment letters supported the proposed amendments to the joint

rule. Commenters agreed that amending the definitions of the parties to

an international transfer in the joint rule will reduce confusion with

respect to the interpretation of the rules and will facilitate

compliance with the rules' requirements.

One commenter requested that the Treasury and the Board define how

intermediary banks might be expected to retrieve records. All banks are

subject to the general retrievability requirements under section

103.38(d). Under this standard, the expected timeliness of

retrievability will vary by request. Generally, records should be

accessible within a reasonable period of time, considering the quantity

of records requested, the nature and age of the record, the amount and

type of information provided by the law enforcement agency making the

request, as well as the particular bank's volume and capacity to

retrieve the records. Intermediary banks are obligated to comply with

any properly executed subpoena or search warrant. No changes have been

made to the final rule with respect to the retrievability requirements.

Another commenter requested that the Treasury and the Board clarify

the applicability of the joint rule in cases in which an originator's

bank accomplishes a transfer by issuing a check payable to another

bank. The Treasury and the Board plan to address this and other issues

in a commentary that will be published to address various aspects of

the joint rule.

One bank commented that the applicability of the BSA regulations to

small banks would not serve a high degree of usefulness in criminal,

tax or regulatory investigations or proceedings. The Treasury and the

Board believe that exempting small institutions would facilitate money

laundering through those institutions.

III. Conclusion

Based on the responses received by the commenters, the Treasury and

the Board have adopted the amendments to the joint rule as proposed.

The Treasury and the Board do not believe that these amendments will

increase the cost of compliance with the rules' requirements for those

banks and nonbank financial institutions that have prepared to comply

with the rules under the assumption that the first U.S. banking office

in an international transfer is subject to the originator's bank

responsibilities. Further, the Treasury and the Board do not believe

that identifying the banks in an international transfer in the same

manner as they are defined in UCC 4A will reduce the usefulness of the

information to law enforcement, provided that intermediary banks comply

with the requirements of 103.38(d). As part of the 36-month review of

the effectiveness of the joint rule and the travel rule, Treasury will

monitor the experience of law enforcement in obtaining from

intermediary banks information retained pursuant to the joint rule.

IV. Paperwork Reduction Act

The collection of information required by the joint final rule,

which is being amended in this notice, was submitted by the Treasury to

the Office of Management and Budget in accordance with the requirements

of the Paperwork Reduction Act (44 U.S.C. 3504(h)) under

[[Page 14385]]

control number 1505-0063. (60 FR 227, January 3, 1995) The collection

is authorized, as before, by 12 U.S.C. 1829b and 1959 and 31 U.S.C.

5311-5330.

The changes to the joint final rule in this document will eliminate

information collection requirements that were required by the joint

final rule. Therefore, no additional Paperwork Reduction Act

submissions are required.

V. Regulatory Flexibility Act

Pursuant to section 605(b) of the Regulatory Flexibility Act (5

U.S.C. 605(b)), the Treasury and the Board hereby certify that these

amendments to the joint final rule will not have a significant economic

impact on a substantial number of small entities. The amendments

eliminate uncertainty as to the application of the joint final rule and

reduce the cost of complying with the joint rule's requirements.

Further, the amendments affect international funds transfers and

transmittals of funds, which are handled almost exclusively by large

institutions. Accordingly, a regulatory flexibility analysis is not

required.

VI. Executive Order 12866

The Treasury finds that these amendments to the joint rule are not

``significant'' for purposes of Executive Order 12866. The

modifications should reduce the cost of compliance with the joint rule

and the travel rule. The Treasury believes that these rule changes will

not affect adversely in a material way the economy, a sector of the

economy, productivity, competition, jobs, the environment, public

health or safety, or state, local, or tribal governments or

communities. These revisions create no inconsistencies with, nor do

they interfere with actions taken or planned by other agencies.

Finally, these revisions raise no novel legal or policy issues. A cost

and benefit analysis therefore is not required.

VII. Unfunded Mandates Reform Act of 1995 Statement

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

104-4 (Unfunded Mandates Act), signed into law on 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. The

Treasury has determined that it is not required to prepare a written

budgetary impact statement for the amendments, and has concluded that

the amendments are the most cost-effective and least burdensome means

of achieving the stated objectives of the rule.

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.

Amendment

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

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. Section 103.11 is amended by revising paragraphs (e), (w), (y)

introductory text, (aa), (bb), (dd), (kk) introductory text, (ll), and

(mm) to read as follows:

Sec. 103.11 Meaning of terms.

* * * * *

(e) Beneficiary's bank. The bank or foreign bank identified in a

payment order in which an account of the beneficiary is to be credited

pursuant to the order or which otherwise is to make payment to the

beneficiary if the order does not provide for payment to an account.

* * * * *

(w) Originator's bank. The receiving bank to which the payment

order of the originator is issued if the originator is not a bank or

foreign bank, or the originator if the originator is a bank or foreign

bank.

* * * * *

(y) Payment order. An instruction of a sender to a receiving bank,

transmitted orally, electronically, or in writing, to pay, or to cause

another bank or foreign bank to pay, a fixed or determinable amount of

money to a beneficiary if:

* * * * *

(aa) Receiving bank. The bank or foreign bank to which the sender's

instruction is addressed.

(bb) Receiving financial institution. The financial institution or

foreign financial agency to which the sender's instruction is

addressed. The term receiving financial institution includes a

receiving bank.

* * * * *

(dd) Recipient's financial institution. The financial institution

or foreign financial agency identified in a transmittal order in which

an account of the recipient is to be credited pursuant to the

transmittal order or which otherwise is to make payment to the

recipient if the order does not provide for payment to an account. The

term recipient's financial institution includes a beneficiary's bank,

except where the beneficiary is a recipient's financial institution.

* * * * *

(kk) Transmittal order. The term transmittal order includes a

payment order and is an instruction of a sender to a receiving

financial institution, transmitted orally, electronically, or in

writing, to pay, or cause another financial institution or foreign

financial agency to pay, a fixed or determinable amount of money to a

recipient if:

* * * * *

(ll) Transmittor. The sender of the first transmittal order in a

transmittal of funds. The term transmittor includes an originator,

except where the transmittor's financial institution is a financial

institution or foreign financial agency other than a bank or foreign

bank.

(mm) Transmittor's financial institution. The receiving financial

institution to which the transmittal order of the transmittor is issued

if the transmittor is not a financial institution or foreign financial

agency, or the transmittor if the transmittor is a financial

institution or foreign financial agency. The term transmittor's

financial institution includes an originator's bank, except where the

originator is a transmittor's financial institution other than a bank

or foreign bank.

* * * * *

3. In Sec. 103.33, paragraphs (e) introductory text, (e)(1)(i)

introductory text, (e)(1)(ii), (e)(1)(iii), (e)(6)(i)(A) through

(e)(6)(i)(G), (e)(6)(ii), (f) introductory text, (f)(1)(i) introductory

text, (f)(1)(ii), (f)(1)(iii), (f)(6)(i)(A) through (f)(6)(i)(G) and

(f)(6)(ii) are revised to read as follows:

Sec. 103.33 Records to be made and retained by financial institutions.

* * * * *

(e) Banks. Each agent, agency, branch, or office located within the

United States of a bank is subject to the requirements of this

paragraph (e) with respect to a funds transfer in the amount of $3,000

or more:

(1) Recordkeeping requirements. (i) For each payment order that it

accepts as an originator's bank, a bank shall obtain and retain either

the original or

[[Page 14386]]

a microfilm, other copy, or electronic record of the following

information relating to the payment order:

* * * * *

(ii) For each payment order that it accepts as an intermediary

bank, a bank shall retain either the original or a microfilm, other

copy, or electronic record of the payment order.

(iii) For each payment order that it accepts as a beneficiary's

bank, a bank shall retain either the original or a microfilm, other

copy, or electronic record of the payment order.

* * * * *

(6) Exceptions. * * *

(i) * * *

(A) A bank;

(B) A wholly-owned domestic subsidiary of a bank chartered in the

United States;

(C) A broker or dealer in securities;

(D) A wholly-owned domestic subsidiary of a broker or dealer in

securities;

(E) The United States;

(F) A state or local government; or

(G) A federal, state or local government agency or instrumentality;

and

(ii) Funds transfers where both the originator and the beneficiary

are the same person and the originator's bank and the beneficiary's

bank are the same bank.

(f) Nonbank financial institutions. Each agent, agency, branch, or

office located within the United States of a financial institution

other than a bank is subject to the requirements of this paragraph (f)

with respect to a transmittal of funds in the amount of $3,000 or more:

(1) Recordkeeping requirements. (i) For each transmittal order that

it accepts as a transmittor's financial institution, a financial

institution shall obtain and retain either the original or a microfilm,

other copy, or electronic record of the following information relating

to the transmittal order:

* * * * *

(ii) For each transmittal order that it accepts as an intermediary

financial institution, a financial institution shall retain either the

original or a microfilm, other copy, or electronic record of the

transmittal order.

(iii) for each transmittal order that it accepts as a recipient's

financial institution, a financial institution shall retain either the

original or a microfilm, other copy, or electronic record of the

transmittal order.

* * * * *

(6) Exceptions. * * *

(i) * * *

(A) A bank;

(B) A wholly-owned domestic subsidiary of a bank chartered in the

United States;

(C) A broker or dealer in securities;

(D) A wholly-owned domestic subsidiary of a broker or dealer in

securities;

(E) The United States;

(F) A state or local government; or

(G) A federal, state or local government agency or instrumentality;

and

(ii) Transmittals of funds where both the transmittor and the

recipient are the same person and the transmittor's financial

institution and the recipient's financial institution are the same

broker or dealer in securities.

In concurrence:

By order of the Board of Governors of the Federal Reserve

System, March 26, 1996.

William W. Wiles,

Secretary to the Board.

By the Department of the Treasury, March 26, 1996.

Stanley E. Morris,

Director, Financial Crimes Enforcement Network.

[FR Doc. 96-7685 Filed 3-29-96; 8:45 am]

BILLING CODES Board: 6210-01-P (50%) Treasury: 4820-03 (50%)