[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