Financial Crimes Enforcement Network; Proposed Amendments to the Bank Secrecy Act Regulations Regarding Reporting of Cross-Border Transportation of Certain Monetary Instruments

DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA15

Financial Crimes Enforcement Network; Proposed Amendments to the

Bank Secrecy Act Regulations Regarding Reporting of Cross-Border

Transportation of Certain Monetary Instruments

AGENCY: Financial Crimes Enforcement Network, Treasury.

ACTION: Notice of Proposed Rulemaking.

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

proposing to amend the regulations implementing the statute generally

referred to as the Bank Secrecy Act to include instruments drawn by

foreign banks on accounts in the United States within the definition of

monetary instruments for purposes of the requirement under those

regulations to report the physical transportation of currency or

monetary instruments in an aggregate amount exceeding $10,000 into or

out of the United States.

DATES: Written comments must be received on or before April 22, 1997.

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 22182-2536, Attention: NPRM--Foreign Bank Drafts. For

additional instructions on the submission of comments, see

SUPPLEMENTARY INFORMATION under the heading ``Request for Comments on

Specific Subjects.''

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 Financial

Crimes Enforcement Network (``FinCEN'') reading room, on the third

floor of the Treasury Annex, 1500 Pennsylvania Avenue, N.W.,

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

submitted should request an appointment by telephoning (202) 622-0400.

FOR FURTHER INFORMATION CONTACT: Roger G. Weiner, Assistant Director

(Compliance and Enforcement), Office

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of Regulatory Policy and Enforcement, FinCEN, at (202) 622-0400, or

Stephen R. Kroll, Legal Counsel, FinCEN, at (703) 905-3534.

SUPPLEMENTARY INFORMATION:

Introduction

The Department of the Treasury (``Treasury'') proposes to expand

the definition of ``monetary instrument'' for purposes of the Bank

Secrecy Act rules. The expansion, contained in a proposed new paragraph

(u)(1)(vi) of 31 CFR 103.11, would treat as a monetary instrument any

bank draft, bank or cashier's check or similar instrument drawn by a

bank operating outside of the United States on an account of that bank

at a financial institution in the United States. The change in the

definition of ``monetary instrument'' would apply for purposes of 31

CFR 103.23 and other provisions of Part 103 that implement the

provisions of 31 U.S.C. 5316 (Reports on exporting and importing

monetary instruments). The proposed rule reflects the authority

contained in 31 U.S.C. 5312(a)(3)(C), which was added to the Bank

Secrecy Act by section 405(a) 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 (September 23, 1994).

Background

The statute popularly known as the ``Bank Secrecy Act,'' Titles I

and II of 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 reporting of the transportation of currency or monetary

instruments into or out of the United States at any one time in

aggregate amounts exceeding $10,000 (and of the receipt of currency or

monetary instruments in that amount transported into the United States)

has long been a major component of the Department of the Treasury's

implementation of the Bank Secrecy Act. The reporting requirement is

imposed by 31 CFR 103.23, a rule issued under the broad authority

granted to the Secretary of the Treasury by 31 U.S.C. 5316. Reports

required by 31 CFR 103.23 are made on United States Customs Service

Form 4790 (Report of International Transportation of Currency or

Monetary Instruments); the form is commonly called a ``CMIR'' and the

reporting requirement is sometimes referred to below as the ``CMIR

reporting requirement.''

As indicated, the CMIR reporting requirement applies to

transportation not just of currency but also of certain non-currency

monetary instruments. The statutory boundaries of the monetary

instrument definition are set by 31 U.S.C. 5312(a)(3). Prior to

enactment of the Money Laundering Suppression Act, paragraph (a)(3)

provided that:

`monetary instruments' means--

(A) United States coins and currency; and

(B) as the Secretary may prescribe by regulation, coins and

currency of a foreign country, travelers' checks, bearer negotiable

instruments, bearer investment securities, bearer securities, stock

on which title is passed on delivery, and similar material.

Implementing rules reflecting the statutory language defined the

term ``monetary instrument'' to include traveler's checks in any form;

all negotiable instruments in bearer form, endorsed without

restriction, made out to a fictitious payee, or otherwise in such form

that title thereto passes upon delivery; incomplete instruments; and

securities or stock in bearer form (or, again, otherwise in such form

that title thereto passes upon delivery). See 31 CFR 103.11(u)(1) (ii)-

(iv).

Section 405 of the Money Laundering Suppression Act added a third

category to the definition of monetary instrument in 31 U.S.C.

5312(a)(3), specifically for purposes of the CMIR reporting

requirement. Under the new language, the definition could include:

(C) as the Secretary of the Treasury shall provide by regulation

for purposes of section 5316 [the CMIR reporting requirement],

checks, drafts, notes, money orders, and other similar instruments

which are drawn on or by a foreign financial institution and are not

in bearer form.

Enactment of the new, potentially extremely broad, authority

reflected Congressional concern that the effect of the CMIR reporting

requirement was being vitiated, and money laundering fostered, by the

increasing flow into the United States of drafts (often called

``foreign bank drafts'') drawn by banks outside the United States on

dollar accounts of those banks at financial institutions in the United

States. Although the foreign bank drafts were not in bearer form, and

hence not subject to the CMIR reporting requirements under the existing

terms of the rules, the drafts were the practical equivalent of

currency or bearer instruments. The Conference Report on the Money

Laundering Suppression Act explains:

The Conferees' concern about these instruments stems from

reports by Treasury that they are frequently used in money

laundering schemes. . . . These drafts are U.S. dollar-denominated

checks drawn by the foreign bank on its own account at a U.S. bank

and sold to customers like cashier's checks.

See H.R. Rep. 130-652 (the ``Conference Report''), 103d Cong., 2nd

Sess. 189 (August 2, 1994). As the Conferees Noted, section 405 of the

Money Laundering Suppression Act reflected descriptions of the problem

and the need for corrective legislation to meet it, presented by the

Assistant Secretary of the Treasury (Enforcement), the Director of

FinCEN, and the United States Customs Service. See Conference Report,

supra, at 189-190.1

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\1\ The statement of Brian Bruh, then the Director of FinCEN,

referred to at page 189 of the Conference Report, can be found in

Serial No. 103-53, ``Anti-Money Laundering Efforts in Texas,'' Field

Hearing Before the Committee on Banking, Finance and Urban Affairs

of the House of Representatives, 103d Cong., 1st Sess. 110, 115-16

(July 8, 1993). The statement of Ronald K. Noble, then Assistant

Secretary of the Treasury (Enforcement), also referred to at page

189 of the Conference Report, can be found in Serial No. 103-79,

``H.R. 3235; The Anti-Money Laundering Act of 1993, Hearing before

the Subcommittee on Financial Institutions Supervision, Regulation

and Deposit Insurance, of the Committee on Banking, Finance and

Urban Affairs of the House of Representatives, 103d Cong., 1st Sess.

2, 6 (oral statement), 17 (questions from Chairman Neal) (October

20, 1993) ; Assistant Secretary Noble's prepared statement can be

found in Serial No. 103-79, supra, at 58, 64-65. See also, S. Hrg.

103-574, the Anti-Money Laundering Act of 1993--S. 1664, Hearing

before the Committee on Banking, Housing, and Urban Affairs, United

States Senate, 103d. Cong., 2d Sess. 2, 4 (oral statement of

Assistant Secretary Noble), 35, 37-38 (prepared statement of

Assistant Secretary Noble) (March 15, 1994).

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The resultant legislation was drawn broadly, to permit the

Secretary of the Treasury as much flexibility as was necessary to deal

with the use of non-bearer instruments to move the proceeds of crime

into or out of the United States. The present notice of proposed

rulemaking thus implements only so much of the permitted authority as

the Department of the Treasury believes is required to deal with the

issue that sparked the legislation: the sale outside the United States

of bank drafts drawn on U.S. dollar accounts within the United States.

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Explanation of Provisions

A. Overview

The proposed regulations would expand the definition of monetary

instrument, for purposes of the CMIR reporting requirement and related

rules, to include official bank checks, cashier's checks, drafts, and

similar instruments issued or made out by a foreign bank on an account

in the name of, or maintained on behalf of, such foreign bank in the

United States. Such instruments would hence become subject to the CMIR

reporting requirements--i.e., reports would be required upon their

transportation into or out of the United States in amounts that, by

themselves or combined with currency or other instruments treated as

monetary instruments for purposes of the reporting requirements,

exceeded $10,000.

B. Expanded Definition of ``Monetary Instrument''

The expanded definition of monetary instrument is contained in a

proposed new paragraph 31 CFR 103.11(u)(1)(vi). 2 The definition

itself is straightforward and relies to the extent possible upon the

terms used in paragraph (u)(1)(iii) relating to negotiable instruments

in bearer form. Similarly, the new definition does not change the CMIR

reporting requirement's procedures or the placement of the filing

obligation. Rather, it simply adds instruments drawn by foreign banks

3 on accounts in the United States to the classes of monetary

instruments that are to be counted in determining whether a cross-

border transportation of monetary instruments exceeding $10,000 has

occurred.

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\2\ No language in the monetary instrument definition is being

deleted; the word ``and'' that separates current paragraphs (u)(1)

(iv) and (v) of 103.11 is simply being moved to reflect the addition

of a new paragraph (u)(1)(vi).

\3\ ``Foreign bank'' is already a defined term in the Bank

Secrecy Act regulations. See 31 CFR 103.11(o).

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C. Exemption for Interbank Collection and Reconciliation Process

The Conference Report states that Congress intended that the

expanded definition of monetary instrument should be implemented in

such a way as to ``avoid unnecessary burdens on routine financial

transactions of foreign financial institutions,'' and specifically

notes that:

An exemption should be prescribed with regard to CMIRs when the

monetary instruments cross the border as part of the interbank

collection and reconciliation process.

Conference Report, supra, at 190. However, it is unclear whether

any change in the relevant rules is necessary to accomplish that

result, in light of the exemptions from the CMIR reporting requirement

already contained in 31 CFR 103.23(c). Treasury intends to implement

the new requirements consistently with the Congressional intent, and

comments are thus specifically requested below upon whether additional

language is required to avoid, or where that is impossible, to minimize

burden, by virtue of the expanded definition of monetary instrument,

upon either the interbank collection and reconciliation process or

other aspects of routine financial transactions of foreign banks.

D. Coverage or Exemption of Instruments From Particular Nations

Congress was aware, in considering the Money Laundering Suppression

Act, that an expanded definition of monetary instrument for purposes of

the CMIR reporting requirements would affect certain nations more than

others. However, in light of the general obligations of the United

States with respect to the trade in financial services, and in

recognition of the continued ingenuity and flexibility of those who

seek to launder the proceeds of crime, the authorizing legislation was

general in scope. Congress noted only that:

The Conferees * * * believe that Treasury, in adopting

regulations under this section, should consider whether a foreign

country is participating in the Financial Action Task Force (FATF),

has implemented the FATF's recommendations for combatting money

laundering, and has appropriate currency recordkeeping or reporting

requirements.

Conference Report, Id. Comments are specifically requested below on

the best way to incorporate these considerations.

E. Request for Comments on Specific Subjects

FinCEN specifically seeks comment on the following questions:

1. Are additional changes necessary to prevent the imposition of

burden on routine transactions of foreign banks as a result of the

expanded definition of monetary instrument proposed in this document?

2. Does commercial practice provide a basis for distinguishing

between instruments drawn by foreign banks on dollar accounts in the

United States and instruments drawn on such accounts by financial

services providers outside the United States that are not banks?

3. Are changes to the language of 31 CFR 103.23(c) necessary to

exempt from the CMIR reporting requirements the transportation of the

proposed new class of monetary instrument in the course of the

interbank reconciliation and clearance process?

4. Are other changes to the exemptions in 31 CFR 103.23(c)

necessary to prevent unnecessary interference with commercial

activities?

5. What steps can and should be taken at this time, consistent with

the obligations of the United States generally, to differentiate among

particular nations in the application of the CMIR reporting

requirements to the proposed new class of monetary instrument?

6. What steps should be taken to publicize the new reporting

requirement in advance of its effective date?

In seeking guidance on these and other issues raised by this notice

of proposed rulemaking, FinCEN is interested in hearing from all

parties potentially affected by the proposed rule.

Treasury is continuing to consider the need for modernization of

the CMIR reporting requirements generally. Comments are requested on

this matter as well.

Submission of Comments

Comments on all aspects of the proposed regulation are welcome and

will be considered if submitted in writing prior to April 22, 1997. An

original and four copies of any comments 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.

Proposed Effective Date

The amendments to 31 CFR Part 103 proposed in this notice of

proposed rulemaking will become effective 90 days following publication

in the Federal Register of the final rule to which this notice of

proposed rulemaking relates.

Special Analyses

It has been determined that this notice of proposed rulemaking (i)

is not subject to the ``budgetary impact statement'' requirement of

section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-

4), and (ii) is not a significant regulatory action as defined in

Executive Order 12866. It is not anticipated that this proposed rule,

if adopted as a final rule, will have an annual effect on the economy

of $100 million or more. Nor will it, if so adopted, affect adversely

in a material

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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. The proposed rule is neither

inconsistent with, nor does it interfere with, actions taken or planned

by other agencies. Finally, it raises no novel legal or policy issues.

A ``description of the reasons why action by the agency is being

considered'' and a ``succinct statement of the objectives of, and legal

basis for, the proposed rule''--all as required by 5 U.S.C. 553(b)--are

found elsewhere in this preamble.

Paperwork Reduction Act

FinCEN hereby presents the following information concerning the

retention of information on currency and monetary instruments, in

accordance with requirements of the Paperwork Reduction Act of 1995, 44

U.S.C. 3501 et seq., to assist those persons wishing to comment on the

proposed information retention requirement.

Title: Report of International Transportation of Currency or

Monetary Instruments.

Form Number: U.S. Customs Service Form 4790.

OMB Number: 1506-0005.

Description of Respondents: All persons.

Estimated Number of Respondents: 250,000.

Frequency: As required.

Estimate of Total Annual Burden on Respondents: Reporting burden

estimate = approximately 54,167 hours; recordkeeping burden estimate =

8,333 hours. Estimated combined total of 62,500 hours per year.

Estimate of Total Annual Cost to Respondents for Hour Burdens:

Based on $20 per hour, the total cost of compliance with the proposed

recordkeeping rule is estimated to be approximately $1,250,000.

Estimate of Total Other Annual Costs to Respondents: None.

Type of Review: Extension.

FinCEN specifically invites comments on the following subjects: (a)

Whether the proposed collection of information is necessary to further

the purposes of the Bank Secrecy Act, including whether the information

retained shall have practical utility; (b) the accuracy of FinCEN's

estimate of the burden of the proposed collection of information; (c)

ways to enhance the quality, utility, and clarity of the information to

be retained; and (d) ways to minimize the burden of the collection of

information on the affected industry, including through the use of

automated storage and retrieval techniques or other forms of

information technology.

In addition, the Paperwork Reduction Act of 1995, supra, requires

agencies to estimate the total annual cost burden to respondents or

recordkeepers resulting from the retention of information. Thus, FinCEN

also specifically requests comments to assist with this estimate. In

this connection, FinCEN requests commenters to identify any additional

costs associated with the retention of the information covered by the

requirement.

The information collection in the proposed rule has been submitted

to the Office of Management and Budget for review under section 3507(d)

of the Paperwork Reduction Act of 1995. Comments on the proposed

collection may be directed to FinCEN, Office of Regulatory Policy and

Enforcement, 2070 Chain Bridge Road, Suite 200, Vienna, VA 22182-2536,

Attn: Paperwork Reduction Act, and to the Office of Information and

Regulatory Affairs of OMB, Attn: Desk Officer for the Treasury

Department. Responses to this request for comments from FinCEN will be

summarized and included in the request for Office of Management and

Budget approval. All comments will become a matter of public record.

List of Subjects in 31 CFR Part 103

Authority delegations (Government agencies), Banks, banking,

Currency, Foreign banking, Gambling, Investigations, Law enforcement,

Reporting and recordkeeping requirements, Taxes.

Proposed Amendments to the Regulations

Accordingly, 31 CFR Part 103 is proposed to be amended as follows:

PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND

FOREIGN 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. 5311-5330.

2. Section 103.11 is amended by:

a. Removing the word ``and'' at the end of paragraph (u)(1)(iv);

b. Removing the period and adding ``; and'' at the end of paragraph

(u)(1)(v); and

c. Adding new paragraph (u)(1)(vi).

The addition reads as follows:

Sec. 103.11 Meaning of terms.

* * * * *

(u) * * *

(1) * * *

(vi) For purposes of Sec. 103.23 and other provisions of this part

implementing 31 U.S.C. 5316, official bank checks, cashier's checks,

drafts, and similar instruments issued or made out by a foreign bank on

an account in the name of, or maintained on behalf of, such foreign

bank in the United States.

* * * * *

Dated: January 15, 1997.

Stanley E. Morris,

Director, Financial Crimes Enforcement Network.

[FR Doc. 97-1403 Filed 1-21-97; 8:45 am]

BILLING CODE 4820-03-P