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Inactive Financial Institution Letters 


[Federal Register: January 3, 1995 (Volume 60, Number 1)]
[Rules and Regulations ]               
[Page 234-238]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]


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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1505-AA46

 
Amendment to the Bank Secrecy Act Regulations Relating to Orders 
for Transmittals of Funds by Financial Institutions

AGENCY: Financial Crimes Enforcement Network, Treasury.

ACTION: Final rule.

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SUMMARY: This final rule requires banks and nonbank financial 
institutions that act as transmittors' financial institutions and 
intermediary financial institutions in transmittals of funds to include 
certain information in transmittal orders sent to receiving financial 
institutions. A companion final rule (the final recordkeeping rule), 
published elsewhere in today's Federal Register, requires financial 
institutions to collect and retain the information that, under this 
final rule, must be included with transmittal orders.
    The final recordkeeping rule sets forth collection of information 
and recordkeeping requirements with respect to certain transmittals of 
funds by financial institutions. The amount and type of information 
required to be collected and retained depends upon the type of 
financial institution, its role in a particular transaction, the amount 
of the transaction and whether the parties to the transaction are 
established customers of the financial institution. To ensure a full 
understanding of this final rule, the reader is encouraged to review 
its provisions together with those of the final recordkeeping rule.
    This final rule is promulgated by Treasury under the Annunzio-Wylie 
Anti-Money Laundering Act of 1992 (Annunzio-Wylie), which is part of 
the statute generally referred to as the Bank Secrecy Act. Annunzio-
Wylie authorizes the Secretary of the Treasury to require financial 
institutions to maintain appropriate procedures to comply with the Bank 
Secrecy Act and guard against money laundering, and to carry out anti-
money laundering programs. The final recordkeeping rule is promulgated 
jointly by the Board of Governors of the Federal Reserve System 
(Federal Reserve Board) and by Treasury pursuant to a special statutory 
requirement under Annunzio-Wylie. The authority of the Secretary to 
administer the Bank Secrecy Act has been delegated to the Director of 
the Financial Crimes Enforcement Network (FinCEN).

EFFECTIVE DATE: January 1, 1996.

FOR FURTHER INFORMATION CONTACT: FinCEN, Office of Financial 
Enforcement ((202) 622-0400): A. Carlos Correa, Assistant Director for 
Rules and Regulations; Roger Weiner, Deputy Director; Peter Djinis, 
Director; FinCEN, Office of Legal Counsel: Stephen R. Kroll, Legal 
Counsel (703) 905-3534; Nina A. Nichols, Attorney-Advisor, (703) 905-
3598.

SUPPLEMENTARY INFORMATION:

Background

    This final rule is promulgated by Treasury under 31 U.S.C. 5318 
(a)(2) and (h), which are part of the statute generally referred to as 
the Bank Secrecy Act (Pub. L. 91-508, codified at 12 U.S.C. 1829b and 
1951-1959, and 31 U.S.C. 5311-5329), and which were added to the Bank 
Secrecy Act by Annunzio-Wylie. 31 U.S.C. 5318 (a)(2) and (h) authorize 
the Secretary of the Treasury to require financial institutions to 
maintain appropriate procedures to comply with the Bank Secrecy Act and 
guard against money laundering, and to carry out anti-money laundering 
programs. The final recordkeeping rule is promulgated jointly by the 
Federal Reserve Board and by Treasury pursuant to a special statutory 
requirement for such joint issuance contained in 12 U.S.C. 1829b(b), 
added to the Bank Secrecy Act by section 1515 of Annunzio-Wylie. The 
authority of the Secretary to administer the Bank Secrecy Act has been 
delegated to the Director of FinCEN.
    On August 31, 1993, Treasury and the Federal Reserve Board jointly 
issued a proposed recordkeeping rule (58 FR 46014) requiring financial 
institutions to obtain and retain information relating to certain 
transmittals of funds. Treasury also issued a companion proposed travel 
rule (58 FR 46021, August 31, 1993), which was subsequently modified 
(58 FR 51269, October 1, 1993), proposing to require any transmittor's 
financial institution involved in a transmittal of funds to include in 
its corresponding transmittal order:
    (1) The name and address of the transmittor and the transmittor's 
deposit account number, if the payment were ordered from a deposit 
account;
[[Page 235]]

    (2) The amount of the transmittal of funds;
    (3) The execution date of the transmittal order;
    (4) The identity of the recipient's financial institution; and,
    (5) Either the name and address or the account number of the 
recipient, if received with the transmittal order.
    The proposed travel rule would have required any receiving 
financial institution acting as an intermediary financial institution 
to include in its corresponding transmittal order the following 
information, if received from the sender:
    (1) The name and address of the transmittor and the deposit account 
number of the transmittor;
    (2) The amount of the transmittal of funds;
    (3) The execution date of the transmittal order;
    (4) The identity of the recipient's financial institution;
    (5) Either the name and address or the account number of the 
recipient, if received with the transmittal order; and,
    (6) Either the name and address or the numerical identifier of the 
transmittor's financial institution.

Overview

    This final rule will assist law enforcement investigations of money 
laundering involving transmittals of funds by requiring users of 
transmittals of funds to provide additional identifying information. 
Together with the final recordkeeping rule, this final rule will help 
remedy the difficulties presently encountered by law enforcement in 
cases involving transmittals of funds in which the transmittal orders 
do not include the transmittors' and recipients' names or other 
identifying information, and cases involving transmittals of funds in 
which such identifying information is not conveyed to intermediary 
financial institutions. The requirement that transmittal orders include 
complete transmittor information, as well as recipient information 
received by the financial institution with the transmittal order, may 
discourage money launderers from attempting to abuse the payment and 
message systems and should complicate their ability to do so.
    Treasury will monitor experience under this final rule to assess 
its usefulness to law enforcement and its effect on the cost and 
efficiency of the payments system. Within 36 months of the effective 
date, Treasury will review the effectiveness of this final rule and 
will consider making any appropriate modifications.

Comments

    One hundred thirteen (113) comments were received in response to 
the proposed recordkeeping rule and the proposed travel rule. Treasury 
has carefully considered each comment in drafting this final rule.

Effect of Proposed Changes to Fedwire System

    The proposed travel rule provided for a thirty (30) day comment 
period concluding on October 4, 1993. Many of the commenters noted that 
they could neither comment nor initiate changes to their internal wire 
transfer systems until the Federal Reserve Board announced its proposed 
changes in the Fedwire format. Treasury believes that the comments it 
received relating to Fedwire were helpful, and these comments have been 
taken into account in framing this final rule.
    Commenters on the proposed travel rule were particularly concerned 
with the difficulty of including the required information on Fedwire, 
which, unlike the Clearing House Interbank Payments System (CHIPS) 
(operated by the New York Clearing House) and the Society for Worldwide 
Interbank Financial Telecommunications (S.W.I.F.T.) system, does not 
have sufficient space in the fields in which to include complete 
originator and beneficiary information. Commenters also noted that it 
would be difficult to map information to Fedwire from S.W.I.F.T., CHIPS 
and other proprietary systems, and to comply with the proposed travel 
rule's requirements by the proposed effective date.
    One commenter suggested that the proposed travel rule be withdrawn. 
This commenter characterized the proposed travel rule as unworkable and 
premature because the Fedwire format had to be expanded, and 
conventions and protocols coordinated before the proposed travel rule 
could issue. Other commenters raised similar concerns.
    As more fully discussed below, this final rule recognizes the 
difficulty that financial institutions will have in including all of 
the required information within the Fedwire format, and makes 
appropriate allowances. In light of these allowances, and because the 
Federal Reserve Board has adopted an expanded Fedwire format (published 
elsewhere in today's Federal Register), this final rule is promulgated 
at the appropriate time.

Effective Date

    The proposed travel rule provided for an effective date twelve 
months following publication of a final rule. Many commenters believed 
that the proposed effective date twelve months after publication of a 
final rule was too soon; they suggested that no effective date be 
announced until the Federal Reserve Board had published proposed 
changes to Fedwire, and that any proposed effective date take into 
account those proposed changes. Alternatively, commenters suggested 
that the effective date be delayed until twelve months following 
implementation of Fedwire format changes. Finally, one bank suggested 
that the effective date of the proposed rule coincide with the 
effective date of changes to the Fedwire format.
    The effective date of this final rule and of the recordkeeping rule 
is January 1, 1996. As noted, this final rule allows for the fact that 
a financial institution will not be able to include all otherwise 
required information in Fedwire transfers until the format changes have 
been implemented by that institution.

Mapping Issues

    The proposed travel rule would have required that certain 
information be included, at the time of transmittal, in a transmittal 
order transmitted to a financial institution by any means, including 
any funds transfer system (e.g., Fedwire, S.W.I.F.T. and CHIPS) or 
other system for transmittals of funds. This would have meant, for 
example, that a bank receiving a S.W.I.F.T. message would have been 
obligated to include all required information, if received, in its 
corresponding Fedwire transmittal order, and that any originator's bank 
issuing a Fedwire transmittal order would have had to include all of 
the required information in that order.
    Currently, the Fedwire fields designated for originator and 
beneficiary information do not contain sufficient space to include all 
of the information required by this final rule. However, the Federal 
Reserve Board, the Federal Deposit Insurance Corporation, the National 
Credit Union Administration, the Office of the Comptroller of the 
Currency, and the Office of Thrift Supervision have issued a policy 
encouraging banks to use optional fields where possible to include 
complete originator and beneficiary information in Fedwire payment 
orders. A similar statement was issued by the Federal Financial 
Institutions Examination Council (FFIEC). (See, FFIEC Statement dated 
March 11, 1993, 58 FR 14400, March 17, 1993.)
    While many commenters acknowledged that complete originator and 
beneficiary information could be included in S.W.I.F.T. and CHIPS 
payment orders, they objected to the use [[Page 236]] of optional 
Fedwire fields to include such information. The commenters observed 
that the proposed travel rule failed to designate which optional fields 
should contain which items of information and failed to assign priority 
to such items in the event that available optional fields could not 
accommodate all required information. Commenters believed that the lack 
of industry standards prescribing placement of originator and 
beneficiary data in optional fields would result in confusion and 
inefficiency, producing erroneous entries, advices and misapplication 
of funds. Commenters also noted that the use of optional fields would 
require excessive manual intervention in what is largely an automated 
system, causing costly inefficiencies by delaying pass-through 
payments, which, according to one commenter, make up 85% of all 
transfers.
    Many commenters suggested the formation of a joint task force 
including representatives of the financial community, Treasury and the 
Federal Reserve Board to establish industry standards for the use of 
optional fields in Fedwire and a timetable for implementation.
    The Federal Reserve Board published its Proposed Expansion of the 
Fedwire Funds Transfer Format on December 1, 1993 (58 FR 63366), and a 
finalized expanded Fedwire format is published elsewhere in today's 
Federal Register. Implementation is to be completed by year-end 1997. 
Once implemented by financial institutions, the modified Fedwire format 
will permit inclusion of complete originator and beneficiary 
information. Under this final rule a financial institution will not be 
required to include all available information identifying transmittors 
and recipients in Fedwire payment orders until the financial 
institution has implemented the new Fedwire format. However, Treasury 
joins the FFIEC in encouraging financial institutions to include 
complete transmittor and recipient information in Fedwire payment 
orders using optional fields.

Threshold

    Many nonbank financial institutions commented that the proposed 
recordkeeping rule's lack of a threshold exempting smaller value 
transfers would make implementation inordinately costly. One commenter 
noted that 95% of the two million transmittals it conducted annually 
involved less than $1,000; 98% fell below $3,000; and, 99.96% fell 
below $10,000. Commenters complained that the enormous expense they 
would incur in obtaining, maintaining and transmitting data for smaller 
value transmittals could not be justified by any benefit to law 
enforcement. Other commenters argued that the absence of any threshold 
would make it impossible to conduct transmittals in emergencies and in 
situations in which a transmittor phones, faxes or writes in funds 
transmittal instructions (for example, in the case of a transmittal of 
funds to someone whose identification documents have been stolen).
    Treasury and the Federal Reserve Board have considered these 
comments and have established a threshold of $3,000 for the final 
recordkeeping rule. Treasury has determined that the same threshold 
should apply to this final rule. Therefore, financial institutions will 
not be required to include the specified information in transmittal 
orders involving less than $3,000 or the foreign equivalent. (Financial 
institutions should determine the U.S. dollar equivalents of transfers 
in foreign funds based on the spot exchange rate at the time of a 
transfer to determine whether a foreign-denominated transfer exceeds 
the $3,000 threshold.)
    Treasury presently encourages financial institutions to report to 
the appropriate federal law enforcement agency or agencies transmittals 
of funds that are structured in amounts of less than $3,000 to evade 
the requirements of this final rule and the final recordkeeping rule. 
Treasury intends to issue for comment proposed regulations that would 
require financial institutions to report suspicious transactions and to 
establish anti-money laundering measures, including ``know your 
customer'' policies and programs. Treasury will monitor the 
effectiveness of such policies and programs, as applied to transmittals 
of funds, and will consider future modification of the $3,000 threshold 
or other provisions of this final rule, if appropriate and necessary to 
counter the evasion of requirements through structuring.

Contents of Payment Orders

    If a transmittal order is funded from an account, the proposed 
travel rule would have required the transmittor's financial institution 
to include in the transmittal order the following: the name and address 
of the transmittor; the transmittor's account number; the amount and 
execution date of the transmittal; the identity of the recipient's 
financial institution; and either the name and address or the account 
number of the recipient (if received with the transmittal order). The 
proposed travel rule also would have required any receiving financial 
institution acting either as an intermediary bank or an intermediary 
financial institution to include in its transmittal order the same 
information, if received from the sender.
    Several commenters objected to the proposed requirement that the 
transmittor's account number be included in the transmittal order. 
Commenters noted that such information is relevant only to the 
transmittor's financial institution, is regarded by many as 
confidential, and increases the risk of fraud if included in a 
transmittal order. Commenters questioned law enforcement's need to have 
account information on transmittal orders because such information is 
easily retrievable through records using the account holder's name. The 
inclusion of this information, commenters argued, would clutter 
transmittal orders.
    Treasury has concluded that the transmittor's account number must 
be included in transmittal orders, but only where an account is debited 
to fund all or part of the transmittal. This information will be 
particularly useful to law enforcement in cases in which delay 
occasioned by a search for account information would hinder the success 
of an investigation. Inclusion of the information is feasible in both 
S.W.I.F.T. and CHIPS messages, and (until proposed Fedwire format 
changes are implemented) information can be included in optional 
Fedwire fields if there is not sufficient space in the originator 
field.
    Treasury has determined that the inclusion of account numbers in 
transmittal orders will present only a minor increase in the risk of 
fraudulent transfers. Banks generally have security procedures that 
include passwords, codewords and, in the case of electronic 
transmissions, confirmation to ensure that only authorized parties 
issue payment orders. These and other protective measures greatly 
reduce the potential for fraud, to a level at which that risk does not 
outweigh the immediate and tangible benefit to law enforcement derived 
from the inclusion of account information in transmittal orders.
    With regard to arguments based on the confidentiality of account 
numbers, Treasury notes that account numbers are routinely included 
(and are certainly not treated as confidential) in cases in which an 
account is the recipient of a transmittal of funds. Furthermore, 
account numbers are routinely carried on the face of checks and other 
payment documents that are widely circulated through and outside of 
banks. Finally, Treasury believes that the fact that a 
[[Page 237]] transmittor's account number is available through customer 
account records does not render the inclusion of information in a 
transmittal order superfluous.
    Commenters requested clarification whether to record the amounts of 
transmittals involving foreign funds in the foreign exchange or its 
U.S. dollar equivalent. Treasury does not intend to change industry 
practice; therefore, in recording the amount transmitted, a financial 
institution may record either the amount of foreign funds or the U.S. 
dollar equivalent, in accordance with the financial institution's 
standard practice.

Bifurcated Transmittal Orders

    In some instances, to effect payment across multiple time zones, a 
bank may have to bifurcate a transmittal order into a cover payment 
order and an underlying direct payment order. One commenter noted that 
inclusion of a recipient's name and address in both the transmittal 
order and the related cover order of the recipient might create a risk 
of duplicate payment.
    It appears to Treasury that bifurcated transmittal orders are 
comprised of two separate transmittals of funds. Generally, the direct 
payment order is a transmittal from the originator to the recipient, 
and the cover payment order is a bank to bank transmittal, which may be 
effected through intermediary banks. In this analysis, the transmittal 
order for the cover payment order would not have to identify the 
recipient of the direct payment order, only the recipient bank. If 
appropriate, Treasury will consider issuing guidance on this question 
in the future.

Closed Systems

    The proposed travel rule would have required any receiving 
intermediary financial institution accepting a transmittal order to 
include in a corresponding transmittal order either the name and 
address or the numerical identifier of the transmittor's financial 
institution. The proposed travel rule also would have required that any 
transmittor's financial institution, as well as any receiving 
intermediary financial institution, accepting a transmittal order to 
include in a corresponding transmittal order the identity of the 
recipient's financial institution.
    Many commenters noted the difficulty of identifying the 
transmittor's financial institution and the recipient's financial 
institution in transmittals through closed systems. A closed system is 
a transmittal of funds service that permits a recipient to pick up 
transmitted funds at any location within the closed system. Such a 
service can be either entirely domestic or international and does not 
rely on banks or other outside financial institutions to effect payment 
to the intended recipient; transmittals of funds are handled entirely 
by the service's own agents. Finally, and most important, complete 
records relating to any closed system transmittal of funds are 
maintained in one central location.
    Commenters also noted that the requirement to identify the 
transmittor's financial institution might increase the risk of fraud 
and abuse. For example, the closed system agent serving as the 
recipient's financial institution could identify and contact the closed 
system agent that served as the transmittor's financial institution, 
and establish a funds transmittal service that would neither be 
conducted by the closed system nor be subject to its control. 
Commenters also noted that identification of the recipient's financial 
institution is difficult or impossible in most cases, because the 
transmittor may not know where the recipient will pick up the 
transmitted funds.
    Treasury believes that the potential for fraud as described by the 
commenters may be best addressed by the closed systems and their agents 
themselves. This final rule requires that the transmittor's financial 
institution be identified in the transmittal order in all cases. 
However, in cases involving closed systems as described above, the 
requirement to identify the recipient's financial institution may be 
satisfied by including the closed system's name in the transmittal 
order. Although such information will not identify the specific closed 
system office that served as the recipient's financial institution, law 
enforcement's needs will be adequately met by records that are 
maintained and made available to law enforcement as required by 
regulation.

Executive Order 12866

    Treasury finds that this final rule is not a significant rule for 
purposes of Executive Order 12866. This final rule is not anticipated 
to have an annual effect on the economy of $100 million or more. It 
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. It creates no inconsistencies with, nor does it interfere 
with actions taken or planned by other agencies. Finally, it raises no 
novel legal or policy issues. A cost and benefit analysis is therefore 
not required.

Regulatory Flexibility Act

    It is hereby certified under section 605(b) of the Regulatory 
Flexibility Act, 5 U.S.C. 601, et seq., that this final rule will not 
have a significant economic impact on a substantial number of small 
entities.
    The small entities that will be affected by this final rule include 
small banks and nonbank money transmitting businesses. This final rule 
exempts transmittals of funds in amounts of less than $3,000; this 
exemption should particularly benefit nonbank providers of money 
transmitting services that handle smaller value transfers. Treasury 
does not believe that compliance with this final rule will require 
small entities to have specialized professional skills that are not 
generally available to them.

Paperwork Reduction Act

    The collection of information requirements contained in this final 
rule have been submitted to the Office of Management and Budget for 
review in accordance with the Paperwork Reduction Act of 1980 (44 
U.S.C. 3504(h)). Comments on the collection of information and the 
burden estimate should be directed to FinCEN, Office of Legal Counsel, 
2070 Chain Bridge Road, Vienna, VA 22182, or to the Office of 
Management and Budget, Paperwork Reduction Project (1505-0063), 
Washington, D.C. 20503.

Drafting Information

    The principal author of this document is FinCEN. Technical 
assistance was also provided by the Federal Reserve Board and the 
Department of Justice.

List of Subjects in 31 CFR Part 103

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

Authority and Issuance

    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 continues to read as 
follows:

    Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5329.

    2. Section 103.33 is amended by adding new paragraph (g) to read as 
follows: [[Page 238]] 


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

* * * * *
    (g) With respect to a transmittal of funds in the amount of $3,000 
or more by a financial institution:
    (1) The transmittor's financial institution shall include in the 
transmittal order, at the time it is sent to the receiving financial 
institution, the following information:
    (i) The name and, if the payment is ordered from an account, the 
account number of the transmittor;
    (ii) The address of the transmittor, except for a transmittal order 
through Fedwire until such time as the bank that sends the order to the 
Federal Reserve Bank completes its conversion to the expanded Fedwire 
format;
    (iii) The amount of the transmittal order;
    (iv) The execution date of the transmittal order;
    (v) The identity of the recipient's financial institution;
    (vi) As many of the following items as are received with the 
transmittal order:3

    \3\For transmittals of funds effected through the Federal 
Reserve's Fedwire funds transfer system by a financial institution, 
only one of the items is required to be included in the transmittal 
order, if received with the sender's transmittal order, until such 
time as the bank that sends the order to the Federal Reserve Bank 
completes its conversion to the expanded Fedwire message format.
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    (A) The name and address of the recipient;
    (B) The account number of the recipient;
    (C) Any other specific identifier of the recipient; and
    (vii) Either the name and address or numerical identifier of the 
transmittor's financial institution.
    (2) A receiving financial institution that acts as an intermediary 
financial institution, if it accepts a transmittal order, shall include 
in a corresponding transmittal order at the time it is sent to the next 
receiving financial institution, the following information, if received 
from the sender:
    (i) The name and the account number of the transmittor;
    (ii) The address of the transmittor, except for a transmittal order 
through Fedwire until such time as the bank that sends the order to the 
Federal Reserve Bank completes its conversion to the expanded Fedwire 
format;
    (iii) The amount of the transmittal order;
    (iv) The execution date of the transmittal order;
    (v) The identity of the recipient's financial institution;
    (vi) As many of the following items as are received with the 
transmittal order:4

    \4\For transmittals of funds effected through the Federal 
Reserve's Fedwire funds transfer system by a financial institution, 
only one of the items is required to be included in the transmittal 
order, if received with the sender's transmittal order, until such 
time as the bank that sends the order to the Federal Reserve Bank 
completes its conversion to the expanded Fedwire message format.
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    (A) The name and address of the recipient;
    (B) The account number of the recipient;
    (C) Any other specific identifier of the recipient; and
    (vii) Either the name and address or numerical identifier of the 
transmittor's financial institution.

    Dated: December 19, 1994.
Stanley E. Morris,
Director, Financial Crimes Enforcement Network.
[FR Doc. 94-31982 Filed 12-30-94; 8:45 am]
BILLING CODE 4810-25-P
Last Updated 07/17/1999 communications@fdic.gov