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[Federal Register: September 14, 1995 (Volume 60, Number 178)]

[Proposed Rules]

[Page 47719-47722]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr14se95-22]


 

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FEDERAL DEPOSIT INSURANCE CORPORATION


 

12 CFR Part 353


 

RIN 3064-AB63



 

Suspicious Activity Reporting


 

AGENCY: Federal Deposit Insurance Corporation.


 

ACTION: Notice of proposed rulemaking.


 

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is proposing

to revise and restructure its regulation on the reporting of suspicious

activities by insured state nonmember banks, including the reporting of

suspicious financial transactions, such as suspected violations of the

Bank Secrecy Act (BSA). This proposal implements a new interagency

suspicious activity referral process and updates and clarifies various

portions of the underlying reporting regulation. The proposal also

reduces substantially the burden on banks in reporting suspicious

activities while enhancing access to such information by both the

federal law enforcement and the federal financial institutions

supervisory agencies, thus meeting the goals of section 303 of the

Riegle Community Development and Regulatory Improvement Act of 1994.


 

DATES: Comments must be received by November 13, 1995.


 

ADDRESSES: Written comments shall be addressed to the Office of the

Executive Secretary, Federal Deposit Insurance Corporation, 550 17th

Street NW., Washington, DC 20429. Comments may be hand delivered to

Room F-402, 1776 F Street NW., Washington, DC 20429, on business days

between 8:30 a.m. and 5:00 p.m. [Fax number: 202/898-3838; (Internet

address: comments@fdic.gov] Comments will be available for inspection

at the Corporation's Reading Room, Room 7118, 550 17th Street NW.,

Washington, DC between 9:00 a.m. and 4:30 p.m. on business days.


 

FOR FURTHER INFORMATION CONTACT: Carol A. Mesheske, Chief, Special

Activities Section, (202/898-6750), or Gregory Gore, Counsel, (202)

898-7109.


 

[[Page 47720]]


 

SUPPLEMENTARY INFORMATION:


 

Background


 

The federal financial institutions supervisory agencies (the

Agencies) 1 and the Department of the Treasury (Treasury), through

its Financial Crimes Enforcement Network (FinCEN), are responsible for

ensuring that financial institutions apprise federal law enforcement

authorities of any known or suspected violation of a federal criminal

statute and of any suspicious financial transaction. Suspicious

financial transactions, which will be the subject of regulations and

other guidance to be issued by Treasury, can include transactions that

the bank suspects involved funds derived from illicit activities, were

conducted for the purpose of hiding or disguising funds from illicit

activity, otherwise violated the money laundering statutes (18 U.S.C.

1956 and 1957), were potentially designed to evade the reporting or

recordkeeping requirements of the Bank Secrecy Act (BSA) (31 U.S.C.

5311 through 5330), or transactions the bank believes were suspicious

for any other reason.


 

\1\ The federal financial institutions supervisory agencies are

the Office of the Comptroller of the Currency, the Office of Thrift

Supervision, the Board of Governors of the Federal Reserve System,

the Federal Deposit Insurance Corporation, and the National Credit

Union Administration.

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Fraud, abusive insider transactions, check kiting schemes, money

laundering, and other crimes can pose serious threats to a financial

institution's continued viability and, if unchecked, can undermine the

public confidence in the nation's financial industry. The Agencies and

federal law enforcement agencies need to receive timely and detailed

information regarding suspected criminal activity to determine whether

investigations, administrative actions, or criminal prosecutions are

warranted.

An interagency Bank Fraud Working Group (BFWG), consisting of

representatives from many federal agencies, including the Agencies and

law enforcement agencies, was formed in 1984. The BFWG addresses

substantive issues, promotes cooperation among the Agencies and federal

and state law enforcement agencies, and improves the federal

government's response to white collar crime in financial institutions.

It is under the auspices of the BFWG that the revisions to this

regulation and the reporting requirements are being made.

Suspicious Activity Report


 

The Agencies have been working on a project to improve the criminal

referral process, to reduce unnecessary reporting burdens on banks, and

to eliminate confusion associated with the current duplicative

reporting of suspicious financial transactions in criminal referral

forms and currency transaction reports (CTRs). Contemporaneously,

Treasury analyzed the need to revise the procedures used by financial

institutions for reporting suspicious financial transactions. As a

result of these reviews, the Agencies and Treasury approved the

development of a new referral process that includes suspicious

financial transaction reporting.

To implement the reporting process, and to reduce unnecessary

burdens associated with these various reporting requirements, the

Agencies and FinCEN developed a new interagency form for reporting

known or suspected federal criminal law violations and suspicious

financial transactions. The new report is designated the Suspicious

Activity Report (SAR). The SAR is a simplified and shortened version of

its predecessors. The new referral process and the SAR reduce the

burden on banks for reporting known or suspected violations and

suspicious financial transactions. The agencies anticipate the new

process will be instituted by October, 1995.


 

Proposal


 

The FDIC proposes to revise 12 CFR part 353 by updating and

clarifying the current rule governing the filing of criminal referral

reports; expanding the rule to cover suspicious financial transactions;

implementing the new SAR; and simplifying reporting requirements. This

action should improve reporting of known or suspected violations and

suspicious financial transactions relating to federally insured

financial institutions while providing uniform data for entry into a

new interagency computer database. The FDIC expects that each of the

other Agencies will be making substantially similar changes

contemporaneously.

The principal proposed changes to the current criminal referral

reporting rules include several notable changes. They include: (i)

Raising the mandatory reporting thresholds for criminal offenses,

thereby reducing banks' reporting burdens; (ii) filing only one form

with a single repository, rather than submitting multiple copies to

several federal law enforcement and banking agencies, thereby further

reducing reporting burdens; and (iii) clarifying the criminal referral

and reporting requirements of the Agencies and Treasury associated with

suspicious financial transactions, thereby eliminating confusion

concerning the filing of referrals related to suspicious financial

transactions of less than $10,000 and eliminating duplicative

referrals.

The proposal also involves the manner in which financial

institutions file a SAR. In following the instructions on a SAR, banks

may file the referral form in several ways, including submitting an

original form or a photocopy or filing by magnetic means, such as by a

computer disk.

The Agencies, working with FinCEN, are developing computer software

to assist banks in preparing and filing SARs. The software will allow a

bank to complete a SAR, to save the SAR on its computers, and to print

a hard copy of the SAR for its own records. The computer software will

also enable a bank to file a SAR using various forms of magnetic media,

such as computer disk or magnetic tape. The FDIC will make the software

available to all its supervised institutions free of charge.


 

Part 353--Suspicious Activity Reports


 

The title of the regulation has been changed to conform to the name

on the SAR. The current part is titled ``Reports of Apparent Crimes

Affecting Insured Nonmember Banks''. The proposed heading, ``Suspicious

Activity Reports'', conforms to the name of the report.


 

Section 353.1 Purpose and Scope


 

The proposal restructures the current Sec. 353.0, redesignates it

as Sec. 353.1, and clarifies the scope of the current rule. Under the

proposal, the SAR replaces the various criminal referral forms that the

Agencies currently require banks to file. Also, a bank files a SAR to

report a suspicious financial transaction. Presently, many banks are

confused over whether to file a CTR or a criminal referral form when a

suspicious financial transaction occurs, and often needlessly file both

forms or the wrong form.\2\


 

\2\ The BSA requires all financial institutions to file CTRs in

accordance with the Department of the Treasury's implementing

regulations (31 CFR part 103). Part 103 requires a financial

institution to file a CTR whenever a currency transaction exceeds

$10,000. If a currency transaction exceeds $10,000 and is

suspicious, the bank, under these new requirements, will file both a

CTR (reporting the currency transaction) and a SAR (reporting the

suspicious criminal aspect of the transaction). If a currency

transaction equals or is below $10,000 but is suspicious, the bank

will file only a SAR.

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Combining suspicious financial transaction reporting and criminal

referral reporting should reduce confusion, increase the accuracy and

efficiency of reporting, and reduce the burden on banks in reporting

known or


 

[[Page 47721]]

suspected violations, including suspicious financial transactions.


 

Section 353.2 Definitions


 

Proposed new Sec. 353.2 defines the following terms: ``FinCEN'',

``institution-affiliated party'', and ``known or suspected violation''.

The definitions should make the rule easier to interpret and apply.


 

Section 353.3 Reports and Records


 

Proposed Sec. 353.3, which replaces and restructures current

Sec. 353.1, clarifies and expands the provision that requires a bank to

file a completed SAR. This provision raises the dollar thresholds that

trigger a filing requirement. It also modifies the scope of events that

a bank must report by using the term ``known or suspected violation,''

which is defined at Sec. 353.2(c), and by requiring that a bank file a

SAR to report a suspicious financial transaction.

Under the current rule, the FDIC requires a bank to file a criminal

referral form with many different federal agencies. The proposal

requires a bank to file only a single SAR at one location, rather than

the multiple copies of the criminal referral form that must now be

filed with various federal agencies.

Under proposed Sec. 353.3, a bank effectively files a SAR with all

appropriate federal law enforcement agencies by sending a single copy

of the SAR to FinCEN, whose address will be printed on the SAR.

FinCEN will input the information contained on the SARs into a

newly created database that FinCEN will maintain. This process meets

the regulatory requirement that a bank refer any known or suspected

criminal violation to the various federal law enforcement agencies. The

information is made available on computer to the appropriate law

enforcement and supervisory agencies as quickly as possible. The

database will enhance federal law enforcement and supervisory agencies'

ability to track, investigate, and prosecute, criminally, civilly, and

administratively, individuals suspected of violating federal criminal

law. This change will reduce the filing burdens of banks.

The proposal modifies current Sec. 353.1(a)(2), which requires

reporting of known or suspected criminal activity when a bank has a

substantial basis for identifying a non-insider suspect where bank

funds or other assets involve or aggregate $1,000 or more. Proposed

Sec. 353.3(a)(2), which replaces current Sec. 353.1(a)(2), raises the

reporting threshold to $5,000, thereby reducing the reporting burden on

banks.

The proposal also modifies current Sec. 353.1(a)(3), which requires

banks to report any known or suspected criminal violation involving

$5,000 or more where the bank has no substantial basis for identifying

a suspect. Specifically, proposed Sec. 353.3(a)(3), which replaces

current Sec. 353.1(a)(3), raises the dollar reporting threshold from

$5,000 to $25,000, thereby reducing the reporting burden on banks.

Proposed Sec. 353.3(a)(4) clarifies the reporting requirement for

any financial transaction, regardless of the dollar amount, that: (1)

the bank suspects involved funds derived from illicit activity, was

conducted for the purpose of hiding or disguising funds from illicit

activity, or in any way violated the money laundering statutes (18

U.S.C. 1956 and 1957); (2) the bank suspects was potentially designed

to evade the reporting or recordkeeping requirements of the BSA (31

U.S.C. 5311 through 5330); or (3) the bank believes to be suspicious

for any reason.


 

Section 353.3(b) Time for Reporting


 

Proposed Sec. 353.3(b), which replaces current Sec. 353.1(b), sets

forth the time requirements a bank must meet when filing a SAR. The

proposal clarifies the reporting requirement in the event a suspect or

group of suspects is not immediately identified. The proposal does not

substantively change the current requirements.


 

Section 353.3(c) Reports to State and Local Authorities


 

No changes are being made to the current Sec. 353.1(c), except to

redesignate it as 353.3(c).


 

Section 353.3(d) Exemptions


 

No changes are being made to the current 353.1(d), other than to

redesignate it as 353.3(d) and to delete the reference to

Sec. 326.3(a)(2)(i) of this chapter.


 

Section 353.3(e) Retention of Records


 

Proposed Sec. 353.3(e) requires a bank to retain a copy of the SAR

and the original of any related documentation relating to a SAR for a

period of ten years. This time frame corresponds with the statute of

limitations for most federal criminal statutes involving financial

institutions. The current rule is silent on this issue.

The proposed 353.3(e) clarifies the requirement that banks make all

supporting documentation available to appropriate law enforcement

agencies upon request. The proposal requires the supporting

documentation be identified and treated as filed with the SAR. This

approach ensures federal law enforcement agencies and the Agencies,

upon request, have access to any documentation necessary to prosecute a

violation or pursue an administrative action by requiring banks to

preserve underlying documentation for ten years.


 

Section 353.3(f) Notification to the Board of Directors


 

Current Sec. 353.1(f) requires notification regarding the filing of

a SAR to an insured state nonmember bank's board of directors by the

bank's management. To reduce burdens on the boards of directors of

banks, especially those large banks that file many SARs, the proposal

recognizes that the required notification may be made to a committee of

the board.


 

Section 353.3(g) Confidentiality of SARs


 

FDIC proposes to add a new paragraph relating to the

confidentiality of a SAR. Proposed Sec. 353.3(g) states that a SAR and

the information contained in a SAR are confidential, and an insured

state nonmember bank should decline to produce a SAR citing this

regulation and applicable law (31 U.S.C. 5318(g)), or both.


 

Comments


 

The FDIC invites public comment on all aspects of this proposal.


 

Regulatory Flexibility Act


 

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

FDIC hereby certifies that this proposed rule will not have a

significant economic impact on a substantial number of small entities.

This proposal primarily reorganizes the process for making criminal

referrals and has no material impact on banks, regardless of size.

Accordingly, a regulatory flexibility analysis is not required.

Paperwork Reduction Act


 

This proposed rule would revise a collection of information that is

currently approved by the Office of Management and Budget (OMB) under

control number 3064-0077. The revisions raise the reporting thresholds

and will permit reporting institutions to use a simplified, shorter

form; to file one form only; and to eliminate the submission of

supporting documentation with a report. These revisions have been

submitted to OMB for review and approval in accordance with the

requirements of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.).

The estimated average burden associated with the collection of

information contained in a SAR is approximately .6 hours per

respondent.


 

[[Page 47722]]

The burden per respondent will vary depending on the nature of the

suspicious activity being reported.

Estimated Number of Respondents: 6,500.

Estimated Total Annual Burden Hours: 3,900.

Comments concerning the accuracy of this burden estimate and

suggestions for reducing this burden should be directed to the

Assistant Executive Secretary (Administration), Room F-400, Federal

Deposit Insurance Corporation, Washington, DC 20429, and to the Office

of Management and Budget, Paperwork Reduction Project (3064-0077),

Washington, DC 20503.


 

List of Subjects in 12 CFR Part 353


 

Banks, banking, Crime, Currency, Insider abuse, Money laundering,

Reporting and recordkeeping requirements.


 

For the reasons set out in the preamble, 12 CFR part 353 is

proposed to be revised to read as follows:


 

PART 353--SUSPICIOUS ACTIVITY REPORTS


 

Sec.

353.1 Purpose and scope.

353.2 Definitions.

353.3 Reports and records.


 

Authority: 12 U.S.C. 1818, 1819.


 

Sec. 353.1 Purpose and scope.


 

The purpose of this part is to ensure that insured state nonmember

banks file a Suspicious Activity Report when they detect a known or

suspected violation of federal law or suspicious financial transaction.

This part applies to all insured state nonmember banks as well as any

insured, state-licensed branches of foreign banks.


 

Sec. 353.2 Definitions.


 

For the purposes of this part:

(a) FinCEN means the Financial Crimes Enforcement Network of the

Department of the Treasury.

(b) Institution-affiliated party means any institution-affiliated

party as that term is defined in sections 3(u) and 8(b)(5) of the

Federal Deposit Insurance Act (12 U.S.C. 1813(u) and 1818(b)(5)).

(c) Known or suspected violation means any matter for which there

is a basis to believe that a violation of a federal criminal statute

(including a pattern of criminal violations) has occurred or has been

attempted, is occurring, or may occur, and there is a basis to believe

that a financial institution was an actual or potential victim of the

criminal violation or was used to facilitate the criminal violation.


 

Sec. 353.3 Reports and records.


 

(a) Suspicious activity reports required. A bank shall file a

suspicious activity report with the appropriate federal law enforcement

agencies in accordance with the form's instructions, by transmitting a

completed suspicious activity report to FinCEN in the following

circumstances:

(1) Whenever the bank detects a known or suspected violation of

federal criminal law and has a substantial basis to believe that one of

its directors, officers, employees, agents, or other institution-

affiliated parties committed or aided in the commission of the

violation;

(2) Whenever the bank detects a known or suspected violation of

federal criminal law, involving or aggregating $5,000 or more (before

reimbursement or recovery), and the bank has a substantial basis for

identifying a possible suspect or group of suspects;

(3) Whenever the bank detects a known or suspected violation of

federal criminal law, involving or aggregating $25,000 or more (before

reimbursement or recovery), and the bank has no substantial basis for

identifying a possible suspect or group of suspects; or

(4) Whenever the bank detects any financial transaction conducted,

or attempted, at the bank involving funds derived from illicit activity

or for the purpose of hiding or disguising funds from illicit

activities, or for the possible violation or evasion of the Bank

Secrecy Act reporting and/or recordkeeping requirements. A suspicious

activity report must be filed for all instances where money laundering

is suspected or where the bank believes that the transaction was

suspicious for any reason, regardless of the identification of a

potential suspect or the amount involved in the violation.

(b) Time for reporting. (1) A bank shall file the suspicious

activity report no later than 30 calendar days after the date of

initial detection of an act described in paragraph (a) of this section.

If no suspect was identified on the date of detection of an act

triggering the filing, a bank may delay filing a suspicious activity

report for an additional 30 calendar days after the identification of a

suspect. In no case shall reporting be delayed more than 60 calendar

days after the date of detecting a known or suspected violation.

(2) In situations involving violations requiring immediate

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

shall immediately notify by telephone, or other expeditious means, the

appropriate law enforcement agency and the appropriate FDIC regional

office (Division of Supervision) in addition to filing a timely report.


 

(c) Reports to state and local authorities. A bank is encouraged to

file a copy of the suspicious activity report with state and local law

enforcement agencies where appropriate.


 

(d) Exemptions. (1) A bank need not file a suspicious activity

report for a robbery, burglary or larceny, committed or attempted, that

is reported to appropriate law enforcement authorities.


 

(2) A bank need not file a suspicious activity report for lost,

missing, counterfeit, or stolen securities if it files a report

pursuant to the reporting requirements of 17 CFR 240.17f-1.


 

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

suspicious activity report filed and the originals of any related

documentation for a period of ten years from the date of filing the

suspicious activity report. A bank shall make all supporting

documentation available to appropriate law enforcement agencies upon

request. Supporting documentation shall be identified and treated as

filed with the suspicious activity report.


 

(f) Notification to board of directors. The management of the bank

shall promptly notify its board of directors, or a designated committee

thereof, of any report filed pursuant to this section. The term ``board

of directors'' includes the managing official of an insured state-

licensed branch of a foreign bank for purposes of this part.


 

(g) Confidentiality of suspicious activity reports. Suspicious

activity reports are confidential. Any person subpoenaed or otherwise

requested to disclose a suspicious activity report or the information

contained in a suspicious activity report shall decline to produce the

information citing this part, applicable law (e.g., 31 U.S.C. 5318(g)),

or both.


 

By Order of the Board of Directors.


 

Dated at Washington, DC, this 6th day of September, 1995.


 

Federal Deposit Insurance Corporation.


 

Robert E. Feldman,


 

Deputy Executive Secretary.


 

[FR Doc. 95-22750 Filed 9-13-95; 8:45 am]

 

BILLING CODE 6714-01-P