WAIS Document Retrieval

[Federal Register: September 8, 1997 (Volume 62, Number 173)]
[           Proposed            Rules]               
[Page 47156-47166]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08se97-13]

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DEPARTMENT OF THE TREASURY

           31                       CFR                       Part                       103           

RIN 1506-AA12

 
Financial Crimes Enforcement Network;            Proposed            Amendments to the 
Bank Secrecy Act Regulations--Exemptions From the Requirement to Report 
Transactions in Currency--Phase II

AGENCY: Financial Crimes Enforcement Network, Treasury.

ACTION: Notice of            proposed            rulemaking.

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SUMMARY: The Financial Crimes Enforcement Network (``FinCEN'') is (i) 
proposing rules to further reform and

[[Page 47157]]

simplify the process by which banks may exempt transactions of retail 
and other businesses from the requirement to report transactions in 
currency in excess of $10,000, and (ii) restating generally, to reflect 
such changes, the text of the Bank Secrecy Act rule requiring the 
reporting by financial institutions of transactions in currency. The 
           proposed            changes would constitute a further step to achieve the 
reduction set by the Money Laundering Suppression Act of 1994 in the 
number of currency transaction reports required to be filed annually by 
depository institutions, as            part            of a continuing program to reduce 
unnecessary burdens imposed upon financial institutions by the Bank 
Secrecy Act and increase the cost-effectiveness of the counter-money 
laundering policies of the Department of the Treasury.

DATES: Written comments on all aspects of the proposal are welcome and 
must be received on or before December 8, 1997.

ADDRESSES: Written comments should be submitted to: Financial Crimes 
Enforcement Network, Department of the Treasury, 2070 Chain Bridge 
Road, Vienna, VA 22182.
    Attention: NPRM--CTR Exemptions, Phase II. Comments also may be 
submitted by electronic mail to the following Internet address: 
``regcomments@fincen.treas.gov'' with the caption in the body of the 
text, ``Attention: NPRM--CTR Exemptions, Phase II.'' For additional 
instructions on the submission of comments, see SUPPLEMENTARY 
INFORMATION under the heading ``Submission of Comments.''
    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 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: Peter Djinis, Associate Director, 
FinCEN, (703) 905-3819; Charles Klingman, Financial Institutions Policy 
Specialist, FinCEN, (703) 905-3602; Stephen R. Kroll, Legal Counsel, 
Cynthia L. Clark, on detail to the Office of Legal Counsel, and Albert 
R. Zarate, Attorney-Advisor, Office of Legal Counsel, FinCEN, (703) 
905-3590.

SUPPLEMENTARY INFORMATION:

I. Introduction

    This document contains a            proposed            rule that would amend            31                       CFR            
           103           .22 to (i) reform and simplify the process by which depository 
institutions &lt;SUP&gt;1&lt;/SUP&gt; may exempt transactions involving retail and 
other businesses from the requirement to report transactions in 
currency in excess of $10,000, and (ii) restate generally, to reflect 
the            proposed            changes to the administrative exemption system, the 
general requirement for financial institutions to report transactions 
in currency. The            proposed            changes are designed to implement the terms 
of            31            U.S.C. 5313(e) (and related provisions of            31            U.S.C. 5313 (f) and 
(g)), which were added to the Bank Secrecy Act by section 402(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).
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    \1\ As explained below, the text of the rule itself uses the 
term ``bank,'' which, as defined in            31                       CFR                       103           .11(c), includes both 
banks and other classes of depository institutions.
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II. Background

A. Statutory Provisions

    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 Title II of the Bank Secrecy Act has been 
delegated to the Director of FinCEN.
    The reporting by financial institutions of transactions in currency 
in excess of $10,000 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           .22, a rule issued under the broad 
authority granted to the Secretary of the Treasury by            31            U.S.C. 5313(a) 
to require reports of domestic coins and currency transactions.
    Four new provisions (           31            U.S.C. 5313 (d) through (g)) concerning 
exemptions were added to            31            U.S.C. 5313 by the Money Laundering 
Suppression Act.            31            U.S.C. 5313(d) provides that the Secretary of the 
Treasury shall exempt a depository institution from the requirement to 
report currency transactions with respect to transactions between the 
depository institution and four categories of bank customer. The 
requirements of that subsection are reflected in the terms of            31                       CFR            
           103           .22(h), which became effective, as an interim rule (the ``Interim 
Rule''), with respect to transactions in currency after April 30, 1996, 
see 61 FR 18204 (April 24, 1996), and is being published as a final 
rule elsewhere in today's edition of the Federal Register. &lt;SUP&gt;2&lt;/SUP&gt;
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    \2\  Although the Interim Rule is today being amended and 
reissued as a final rule, it is referred to in this document as the 
Interim Rule for ease of reference.
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               31            U.S.C. 5313(e) authorizes the Secretary of the Treasury to 
exempt a depository institution from the requirement to report 
transactions in currency between a depository institution and a 
qualified business customer of the institution. Subsection (e)(2) 
defines a ``qualified business customer'' as a business which

    (A) Maintains a transaction account (as defined in section 
19(b)(1)(C) of the Act) at the depository institution;
    (B) Frequently engages in transactions with the depository 
institution which are subject to the reporting requirements of 
subsection (a); and
    (C) Meets criteria which the Secretary determines are sufficient 
to ensure that the purposes of this subchapter are carried out 
without requiring a report with respect to such transactions.

    Subsection (e)(3) provides that the Secretary of the Treasury shall 
establish, by regulation, the criteria for granting and maintaining an 
exemption under subsection (e)(1).
    Subsection (e)(4)(A) provides that the Secretary of the Treasury 
shall establish guidelines for depository institutions to follow in 
selecting customers for an exemption under this subsection. Under 
subsection (e)(4)(B), those guidelines may include a description of the 
type of businesses for which no exemption will be granted under this 
subsection.
    Subsection (e)(5) provides that the Secretary of the Treasury shall 
prescribe regulations requiring each depository institution to

    (A) Review, at least once each year, the qualified business 
customers of such institution with respect to whom an exemption has 
been granted under this subsection; and
    (B) Upon the completion of such review, resubmit information 
about such customers, with such modifications as the institution 
determines to be appropriate, to the Secretary for the Secretary's 
approval.

    Subsection (e)(6) states that during the two-year period beginning 
on the date of enactment of the Money Laundering Suppression Act, the 
discretionary

[[Page 47158]]

exemption rules shall be applied by the Secretary of the Treasury on 
the basis of such criteria as the Secretary determines to be 
appropriate to achieve an orderly implementation of the requirements of 
this subsection. Subsection (f) places limits on the liability of a 
depository institution in connection with a transaction that has been 
exempted from reporting under either            31            U.S.C. 5313(d) or (e) and 
provides for the coordination of any exemption with other Bank Secrecy 
Act provisions, especially those relating to the reporting of 
suspicious transactions. New subsection (g) defines ``depository 
institution'' for purposes of the new exemption provisions.
    Section 402(b) of the Money Laundering Suppression Act states 
simply that in administering the new statutory exemption provisions:

the Secretary of the Treasury shall seek to reduce, within a 
reasonable period of time, the number of reports required to be 
filed in the aggregate by depository institutions pursuant to 
section 5313(a) of title            31            * * * by at least 30 percent of the 
number filed during the year preceding [September 23, 1994,] the 
date of enactment of [the Money Laundering Suppression Act].

B. Shortcomings of the Administrative Exemption System

    The enactment of            31            U.S.C. 5313 (d) through (g) reflects a 
Congressional intention to ``reform * * * the procedures for exempting 
transactions between depository institutions and their customers.'' See 
H.R. Rep.            103           -652, 103d Cong., 2d Sess. 186 (August 2, 1994). The 
administrative exemption procedures at which the statutory changes are 
directed are found in            31                       CFR                       103           .22 (b)(2) and (c) through (f); those 
procedures have not succeeded in eliminating the reporting of routine 
currency transactions by businesses.
    Several reasons have been given for this lack of success. The first 
is the retention by banks of liability for making incorrect exemption 
determinations. The second is the complexity of the administrative 
exemption procedures (which require banks, for example, to assign 
dollar limits to each exemption based on the amounts of currency 
projected to be needed for the customary conduct of the exempt 
customer's lawful business, and which increase the risk of liability 
for the bank). Finally, advances in technology have made it less costly 
for some banks to report all currency transactions rather than to incur 
the administrative costs (and risks) of exempting customers and then 
administering the terms of particular exemptions properly.
    The problems created by the administrative exemption system also 
include that system's failure to provide the Treasury with information 
needed for thoughtful administration of the Bank Secrecy Act. Although 
banks are required to maintain a centralized list of exempt customers 
and to make that list available upon request, see            31                       CFR                       103           .22 (f) and 
(g), there is no way short of a bank-by-bank request for lists (with 
the time and cost such a request would entail both for banks and 
government) for Treasury to learn the extent to which routine 
transactions are effectively screened out of the system or (for that 
matter) the extent to which exemptions have been granted in situations 
in which they are not justified.
    In crafting the 1994 statutory provisions relating to mandatory and 
discretionary exemptions, Congress sought to alter the burden of 
liability and uncertainty that the administrative exemption system 
created. The statutory provisions embraced several categories of 
transactions that were either already partially exempt or plainly 
eligible for exemption under the administrative exemption 
system.&lt;SUP&gt;3&lt;/SUP&gt;
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    \3\ Thus, as noted below, transactions in currency between 
domestic banks are already exempt from reporting, see            31                       CFR            
           103           .22(b)(1)(ii), and ``[d]eposits or withdrawals, exchanges of 
currency or other payments and transfers by local or state 
governments, or the United States or any of its agencies or 
instrumentalities'' are one of the categories of transactions 
specifically described as eligible for exemption by banks. See            31            
           CFR                       103           .22(b)(2)(iii).
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C. Objectives of            Proposed            Changes

    The changes            proposed            in this document represent the next step in 
the use of section 402 of the Money Laundering Suppression Act to 
transform the Bank Secrecy Act provisions relating to currency 
transaction reporting. The goal of FinCEN's work in this area, like the 
Congress' goal in shaping the Money Laundering Suppression Act 
provisions on exemptions, is to reduce the cost of compliance with, and 
to further a fundamental restructuring of, the Bank Secrecy Act. The 
restructuring emphasizes cost-effective collection of only that 
information that is likely to benefit law enforcement and regulatory 
authorities. See 61 FR 18205.
    Because this notice builds upon the provisions of the Interim Rule, 
its scope and intention must be considered against the background of 
the Interim Rule, whose terms are now found in            31                       CFR                       103           .22(h). That 
rule creates a streamlined exemption procedure eliminating from 
reporting transactions in currency between banks and (i) other banks 
operating in the United States; (ii) government departments and 
agencies, and entities that exercise governmental authority; (iii) 
companies listed on certain national stock exchanges; and (iv) certain 
subsidiaries of those listed companies. As FinCEN explained when the 
Interim Rule was published, the currency transactions of bank customers 
in those categories are either required to be exempt from reporting by 
statute, were already effectively exempt from reporting under the terms 
of            31                       CFR                       103            or, in the case of listed companies and certain of their 
subsidiaries, are enterprises whose routine currency transaction 
reports are of little or no value to law enforcement officials.
    The task of this second stage reform of the exemption system is to 
provide a similar blanket relief, to the extent possible, to those 
categories of business enterprise of all sizes that cannot easily be 
described in a single phrase and that are not subject to the sorts of 
regulatory and market place oversight that shape the environment of 
public companies. In accomplishing that task, FinCEN has attempted to 
pare down the existing exemption system, while still providing federal 
authorities with the tools to monitor and prevent abuse of the reformed 
exemption system.

III. Specific Provisions

A. Overview

    Eliminating the administrative exemption system in section            103           .22 
requires the deletion of the bulk of that section, paragraphs (b)-(g). 
Because that is so, and because the structure and many of the rules of 
section            103           .22(h) also apply to the            proposed            reformed exemption system 
for other customers, the            proposed            rule completely restates section 
           103           .22 so that its terms may be presented clearly. With two 
exceptions--the treatment of the Postal Service and the treatment of 
recordkeeping facilities of a financial institution &lt;SUP&gt;4&lt;/SUP&gt;--the 
restatement does not involve any change to, or an intention to open for 
comment, the terms of section            103           .22 that do not relate to exemptions 
from the requirement to report transactions in currency. Certain 
provisions that have not been changed

[[Page 47159]]

have been moved for housekeeping purposes.
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    \4\ Language has been added in            proposed            new paragraph (b), 
explicitly stating that the general obligation to report 
transactions in currency in excess of $10,000 does not apply to 
payments or transfers made solely in connection with the purchase of 
postage or philatelic products from the Postal Service. Language 
also has been added in            proposed            new paragraph (c), providing that a 
financial institution includes all of its domestic branch offices, 
and any recordkeeping facility for those offices, for purposes of 
the requirement to report transactions in currency.
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    As discussed in more detail below, the changes            proposed            to be made 
by the rule are:
    &lt;bullet&gt; Deletion of present paragraphs (b)-(g) of section            103           .22;
    &lt;bullet&gt; Redesignation of paragraph (h) of section            103           .22 (the 
Interim Rule) as            proposed            new paragraph (d) in section            103           .22;
    &lt;bullet&gt; Addition of two new classes of ``exempt persons,'' namely, 
non-listed businesses and payroll customers, in            proposed            new paragraphs 
(d)(2)(vi) and (vii) of section            103           .22;
    &lt;bullet&gt; Addition of designation and annual filing rules for the 
exemption of non-listed companies and payroll customers, in            proposed            
new paragraphs (d)(3)(iii) and (d)(4)(ii) of section            103           .22;
    &lt;bullet&gt; Addition of operating rules governing the exemption of 
non-listed businesses and payroll customers, in            proposed            new paragraphs 
(d)(5)(v)-(ix) of section            103           .22; and
    &lt;bullet&gt; Certain conforming changes to the structure of            proposed            
new paragraph (d) (old section            103           .22(h)).
    For convenience, the            proposed            redistribution of the provisions of 
present section            103           .22 may be summarized as follows:

                                               Distribution Table                                               
----------------------------------------------------------------------------------------------------------------
                     Present            103           .22                                                     Proposed                       103           .22                    
----------------------------------------------------------------------------------------------------------------
No provision...........................................             103           .22(a).                                             
           103           .22(a)(1):                                                                                                   
  Sentences 1-2........................................             103           .22(b)(1).                                          
  Sentences 3-4........................................             103           .22(c)(2).                                          
           103           .22(a)(2)(i)-(ii)...................................             103           .22(b)(2).                                          
           103           .22(a)(2)(iii)......................................             103           .22(c)(3).                                          
           103           .22(a)(3)...........................................  Deleted in            part           ;            103           .22(c)(2).                         
           103           .22(a)(4)...........................................             103           .22(c)(1).                                          
           103           .22(b)..............................................  Deleted, except            103           .22(b)(1)(iii) and            103           .22(b)(2)(iv).
           103           .22(b)(1)(iii)......................................             103           .22(d)(1).                                          
           103           .22(b)(2)(iv).......................................             103           .22(d)(2)(vii).                                     
           103           .22(c)..............................................  Deleted.                                               
           103           .22(d)..............................................  Deleted.                                               
           103           .22(e)..............................................  Deleted.                                               
           103           .22(f)..............................................  Deleted.                                               
           103           .22(g)..............................................  Deleted.                                               
           103           .22(h)(1) &lt;SUP&gt;5.........................................             103           .22(d)(1).                                          
           103           .22(h)(2) (i)-(iii).................................             103           .22(d)(2) (i)-(iii).                                
           103           .22(h)(2) (iv), (vi)................................             103           .22(d)(2)(iv).                                      
           103           .22(h)(2)(v)........................................             103           .22(d)(2)(v).                                       
No provision...........................................             103           .22(d)(2)(vi).                                      
No provision...........................................             103           .22(d)(2)(vii).                                     
           103           .22(h)(3) (i)-(ii)..................................             103           .22(d)(3)(i).                                       
           103           .22(h)(3)(iii)......................................             103           .22(d)(3)(ii).                                      
           103           .22(h)(3)(iv).......................................             103           .22(d)(3)(i).                                       
No provision...........................................             103           .22(d)(3)(iii).                                     
No provision...........................................             103           .22(d)(4) (i)-(ii).                                 
           103           .22(h)(4) (i)-(iv)..................................             103           .22(d)(5) (i)-(iv).                                 
           103           .22(h)(4)(v)........................................             103           .22(d)(5)(x).                                       
No provision...........................................             103           .22(d)(5) (v)-(ix).                                 
           103           .22(h)(5)...........................................             103           .22(d)(6).                                          
           103           .22(h)(6)(i)........................................             103           .22(d)(7)(i).                                       
           103           .22(h)(6)(ii).......................................             103           .22(d)(7)(iii).                                     
           103           .22(h)(6)(iii)......................................             103           .22(d)(7)(iv).                                      
No provision...........................................             103           .22(d)(7)(ii).                                      
           103           .22(h)(7)...........................................             103           .22(d)(8).                                          
           103           .22(h)(8)...........................................             103           .22(d)(9).                                          
           103           .22(h)(9)...........................................  Deleted.                                               
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B.            103           .22(a) General

    Paragraph  (a) describes generally the scope and organization of 
           proposed            restated section            103           .22. The reporting obligations of 
financial institutions are restated in            proposed            paragraph (b). The 
rules covering aggregation for reporting purposes--i.e., rules relating 
to multiple branches of financial institutions and multiple 
transactions conducted by their customers--previously found in the 
third and fourth sentences of section            103           .22(a)(1) and section 
           103           .22(a)(4), are restated in            proposed            paragraph (c). The rules 
governing exemption by banks of transactions with certain customers, as 
noted, now appear in a single paragraph (d).
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    \5\ All references to paragraph (h) of section            103           .22 are to the 
final rule that appears elsewhere in today's edition of the Federal 
Register.
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C.            103           .22(b) Filing Obligations

               Proposed            paragraph (b) contains the blanket statement of the 
obligation of financial institutions to report transactions in currency 
in excess of $10,000. As is the case in the present rule, a separate 
statement is made of the obligations of casinos.
    The only change in reporting obligations that appears in            proposed            
paragraph (b) relates to the Postal Service. The            proposed            paragraph 
makes it clear that the general obligation to report transactions in 
currency in excess of $10,000 does not apply to payments or transfers 
made solely in connection

[[Page 47160]]

with the purchase of postage or philatelic products from the Postal 
Service; the change reflects a            proposed            amendment to the treatment of 
the Postal Service, for purposes of the Bank Secrecy Act, that was 
published as            part            of a set of            proposed            rules relating to money services 
businesses (``MSBs) on May 21, 1997. See 62 FR 27890.
    Comments are specifically requested on the interplay between the 
ineligible businesses listed in            proposed            paragraph (d)(5)(viii) and the 
           proposed            definitions of MSBs set forth in the            proposed            rules that were 
published in the Federal Register on May 21, 1997. FinCEN recognizes 
that the application of the two sets of            proposed            rules (exemptions and 
MSBs) may present special difficulties in the case of, for example, 
grocery stores that also sell money services products. FinCEN, 
therefore, would welcome suggestions regarding ways of preventing the 
application of the            proposed            definition of money services businesses to 
a portion of those grocery stores' business activities from 
disqualifying such stores from consideration as exempt persons for non-
money services businesses activities. FinCEN also would welcome 
comments on ways to shorten the list of ineligible businesses, given 
the money services businesses registration and the annual aggregate 
currency reporting requirement.

D.            103           .22(c) Aggregation

               Proposed            new paragraph (c) restates the reporting rules applicable 
to multiple branches of financial institutions and multiple 
transactions of their customers. Those rules now appear in paragraphs 
(a)(1) and (a)(4) of section            103           .22. As an analogue to a change, 
discussed below, that will permit affiliated banks to make a single 
designation of each exempt person, one change is            proposed            to the rules 
relating to aggregation. That change would add language to make it 
clear that for purposes of the currency transaction reporting 
requirements, a financial institution includes not only all domestic 
branch offices, but also any recordkeeping facility, wherever located, 
that contains records relating to the transactions of the institution's 
domestic branch offices.

E.            103           .22(d) Transactions of Exempt Persons

1. General
    As noted above,            proposed            paragraph (d) of section            103           .22 is a 
restatement and further amendment of the exemption system provided in 
paragraph (h) of section            103           .22. That paragraph was drafted not only to 
provide the first stage of regulatory relief contemplated by the Money 
Laundering Suppression Act amendments to            31            U.S.C. 5313, but also to 
provide a structure into which the terms of the second stage of relief 
would conveniently fit.
2. New Classes of Exempt Person
               Proposed            paragraphs (d)(2) (vi) and (vii) introduce two new classes 
of exempt persons, ``non-listed businesses'' and ``payroll customers.''
    Non-listed businesses. The definition of non-listed business is an 
attempt to summarize, in a single sentence, all commercial enterprises 
with a recurring need to deal with currency that are not listed 
companies or their subsidiaries. Thus, every enterprise that might have 
been eligible for either a ``unilateral'' or ``special'' exemption 
under the superseded exemption system (and that is not already treated 
as an exempt person by the Interim Rule) will now become eligible for 
exemption under the terms of the new rule, by banks themselves, if such 
person has been a bank customer for 12 months. There will be no 
provision for applications to the Detroit Computing Center or elsewhere 
for authority to recognize an exemption for a particular customer. 
Transactions by certain customers, listed in            proposed            paragraph 
(d)(5)(viii), remain ineligible for exemption.
               Proposed            paragraph (d)(2)(vi)(A) requires that any business must 
have been a bank customer for 12 months before it is eligible for 
exemption as a non-listed business. That period is 10 months longer 
than the present 60 day minimum period specified in the administrative 
practice that has grown up around section            103           .22(b) (2) and (d). The 
difference is justified, in FinCEN's view, by the elimination of 
virtually all of the other requirements of the present system.
    The limitations on the scope of the non-listed business definition, 
contained in            proposed            new paragraphs (d)(2)(vi)(B)-(C), are 
straightforward. They confine permissible exemptions to bank customers 
with transaction account relationships with the exempting bank and 
recurring use of currency, as required by            31            U.S.C. 5313(e)(2).
    Payroll Customer. The definition of payroll customer reflects, for 
the most            part           , the terms of present paragraph            103           .22(b)(2)(iv), and 
tracks the format            proposed            above when defining a non-listed business. 
           Proposed            paragraph (d)(2)(vii)(A) requires that any person must have 
been a bank customer for at least 12 months before it is eligible for 
exemption as a payroll customer.            Proposed            new paragraphs 
(d)(2)(vii)(B)-(C) further confine permissible exemptions to bank 
customers who regularly withdraw more than $10,000 to pay their United 
States employees in currency and are United States residents.
3. Special Requirements for Exemption of Non-Listed Businesses and 
Payroll Customers.
    There are three special requirements for the recognition of the 
exemption of non-listed businesses and payroll customers as exempt 
persons:
    &lt;bullet&gt; Filing of an ``Designation of Exempt Person'' form (as in 
the case of all other classes of exempt persons);
    &lt;bullet&gt; Inclusion on the designation form of a projection of the 
exempt person's annual currency needs; and
    &lt;bullet&gt; An annual filing confirming continuation of the exempt 
person's status as such, listing the aggregate currency deposited and 
withdrawn by the person during the year in question and any changes of 
which the bank knows (or should know on the basis of its records) in 
the ownership or control of the exempt person.
    Before briefly discussing the latter two requirements, it is 
appropriate to note what the            proposed            rule would eliminate from the 
administrative exemption system. There would no longer be any cash 
limits or ``permitted ranges'' for exempt transactions; a customer that 
is exempt is, simply, exempt for all purposes, with respect to the 
currency transaction reporting requirement (although not with respect 
to the suspicious transaction reporting or other Bank Secrecy Act 
requirements). There is also no longer any requirement for submission 
and signature of exemption statements, or for a mandatory exemption 
list. (The operating rules of paragraph (d)(5), noted below, make 
further changes in the exemption system in areas for which banks have 
long requested relief.)
    The purpose of the extensive changes made to the exemption system 
by the            proposed            rule--following upon the changes already made to that 
system by the Interim Rule--is to make it as simple and cost-effective 
as possible for banks to eliminate the burdens of currency transaction 
reporting for legitimate customers. Any simplified system can 
potentially be manipulated by criminals seeking to hide the movement of 
illegally-obtained currency, despite the best efforts of conscientious 
bank officials. The            proposed            requirement that banks initially estimate, 
and then report annually, the gross totals of currency

[[Page 47161]]

transactions of exempted non-listed customers is designed simply to 
prevent such unlawful manipulation of the greatly liberalized and 
simplified exemption system.&lt;SUP&gt;6&lt;/SUP&gt; Even under that simplified 
system, banks would remain subject to the suspicious activity reporting 
requirements of            31                       CFR                       103           .21, as well as similar reporting 
requirements imposed by federal bank supervisory agencies. See also 12 
           CFR            21.11 (Office of the Comptroller of the Currency); 12            CFR            208.20 
(Federal Reserve System); 12            CFR            353.3 (Federal Deposit Insurance 
Corporation); 12            CFR            563.180 (Office of Thrift Supervision); 12            CFR            
748.1 (National Credit Union Division). Thus, for example, a sharp 
increase from one year to the next in the gross total of currency 
transactions of its exempted customers, may trigger the obligation of a 
bank to file a suspicious activity report.
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    \6\ The customer statement and dollar limitation provisions that 
the            proposed            rule would eliminate were designed--however 
imperfectly--to limit manipulation of the exemption procedures then 
in force.
---------------------------------------------------------------------------

    The need for some ``counterweight'' in the liberalized system was 
raised forcefully with FinCEN by federal law enforcement officials 
during formulation of the            proposed            rule. Enforcement officials are 
concerned that necessary easing of the burdens of unnecessary currency 
transaction reporting not have the unintended effect of opening up 
avenues for more efficient money laundering. Such avenues could exist 
if the new rules made it possible for criminals to siphon illegally-
obtained currency into the daily currency deposits of small businesses 
in amounts that would not individually attract attention but that in 
the aggregate produce a steady flow of laundered funds into the banking 
system.&lt;SUP&gt;7&lt;/SUP&gt; The possibility becomes more serious in the case of 
businesses that maintain accounts at multiple banks, no one of which 
has a complete picture of the business's currency transaction history 
or banking needs.
---------------------------------------------------------------------------

    \7\ Cash intensive money services business--e.g., currency 
exchanges--have been identified in a number of investigations as 
affording just such an opportunity for money launderers, a fact that 
contributes to the exclusion of money services businesses from 
eligibility for treatment as non-listed businesses eligible for 
exemption.
---------------------------------------------------------------------------

    That the administrative exemption system's attempt to prevent 
criminals from hiding within the folds of the exemption system has 
proved both ineffective and burdensome does not eliminate the need to 
build cost-effective barriers to abuse into the liberalized system. A 
simple annual reporting rule has many benefits in this regard.
    At the same time, FinCEN is aware that a requirement for cumulation 
and annual reporting of gross currency transactions may go beyond the 
data processing capabilities of some bank systems. More important, it 
is aware of the need to reach a thoughtful balance between 
liberalization and anti-abuse provisions if the changed exemption 
system is to accomplish its paramount objective of providing a cost-
effective way to eliminate unnecessary filings from the currency 
transactions reporting system. Thus, it invites suggestions about 
alternate ways to structure anti-manipulation provisions. In that 
connection, commenters are asked to consider the following 
alternatives:
    1. Annual Reporting in Ranges of Value. There is no requirement 
that annual cumulative currency transaction totals be absolutely 
precise. It would be sufficient if the annual reporting, and initial 
correlative estimation of business cash needs, be made in ranges, and 
the rule could so state. Thus, for example, totals might simply be 
reported in $25,000, $50,000, or even $100,000 increments in order to 
accomplish the purposes of cumulation. Such a change would eliminate 
the concern and cost of pinpoint recordkeeping in this instance.
    2. Reporting of Running Totals, rather than Annual Cumulation. 
Running totals might be reported on other than an annual basis, so that 
government computers could perform the necessary cumulation. A bank 
that normally deleted in currency ledgers at the end of each calendar 
quarter, for example, might then electronically transfer the necessary 
data to FinCEN without having to build a new system, or new storage 
capacity to accommodate annual recordkeeping.
    3. Limited Annual Reporting. Cumulation requirements might be 
limited to businesses of certain sizes or types.
    In considering approaches other than cumulative currency 
transaction totals, commenters should be aware that a primary purpose 
of the            proposed            rule's anti-manipulation provisions is to limit the 
amount of judgment banks must make about the meaning of variations in a 
customer's currency transaction totals. While significant spikes or 
variations in simple total volume could well implicate the suspicious 
transaction reporting rules in appropriate cases, the anti-abuse 
purpose of the cumulative reporting requirement (or any substitute that 
might be adopted) is to create a buttress or second line of support for 
the bank's own efforts and to avoid placing all of the pressure for 
preventing abuses of the currency transaction reporting exemptions on 
bank officials themselves.
    The success of the            proposed            liberalization of the currency 
transaction reporting exemption rules in practice will depend in            part            
upon the receptiveness to the new procedures taken by federal bank 
examiners. FinCEN is planning a program to familiarize examiners with 
both the letter and the spirit of the new rules, and it would 
appreciate comments on the sorts of issues that should be raised with 
examiners during the course of that program.
    4. New Operating Rules. Six new operating rules are            proposed            to be 
added to further simplify the exemption process.
    a.            Proposed            paragraph (d)(5)(v) requires the bank to aggregate all 
customer accounts to apply the exemption provisions to that customer. 
Thus, the bank is obligated, under the            proposed            rule, to exempt a 
customer on a bank-wide basis and to count all accounts to determine, 
for example, whether a customer's cash withdrawals or deposits exceed 
$10,000. Thus, exemptions will no longer be determined on an account by 
account basis, but rather on a bank-wide basis. Generally, FinCEN 
believes that each customer possesses its own Employee Identification 
Number (``EIN''); thus, this            proposed            rule does not cover customer 
accounts with multiple EINs. Comments are welcomed on this topic.
    b.            Proposed            paragraph (d)(5)(vi) will permit affiliated banks to 
make a single designation of exempt person, that will apply to all 
accounts at all banks within the affiliated group; annual currency 
transaction totals, for the moment at least, will still have to be 
computed on a bank-by-bank basis.
    c.            Proposed            paragraph (d)(5)(vii) will permit sole proprietors to 
continue to be eligible for exemption, so long as personal and business 
funds are not commingled in the same accounts. FinCEN invites comments 
on whether this prohibition against commingling will be burdensome for 
banks to implement.
    d.            Proposed            paragraph (d)(5)(viii) contains a list of businesses 
that may not be exempted under the new rules as non-listed companies 
(although they may qualify for exemption under the more limited payroll 
customer definition, for the purposes permitted by that definition). A 
limitation of this kind on the new procedures is explicitly 
contemplated by the terms of            31            U.S.C. 5313(e)(4)(B); the businesses 
described are essentially the same as the groups of businesses that are 
not permitted to be

[[Page 47162]]

granted an exemption under the present system.
    The            proposed            rule is, at present, silent about the treatment of 
businesses with multiple activities of which one is an activity for 
which an exemption is barred. FinCEN solicits comments on ways to deal 
with that issue.
    e.            Proposed            paragraph (d)(5)(ix) defines a transaction account for 
purposes of            proposed            paragraph (d) as any account described in section 
19(b)(1)(C) of the Act, 12 U.S.C. 461(b)(1)(C). This definition does 
not include any other accounts not described in 12 U.S.C. 461(b)(1)(C), 
such as money market accounts. Thus, the definition of a transaction 
account in the            proposed            rule is narrower than the definition of the 
same term that is set forth at            31                       CFR                       103           .11(hh).            Proposed            paragraph 
(d)(5)(ix) also provides that a person may be exempt either as a non-
listed business or as a payroll customer only to the extent of such 
person's transaction accounts.
    f.            Proposed            paragraph (d)(5)(x) defines an established depositor 
for purposes of            proposed            paragraph (d) of this section as any person 
that has maintained a transaction account at the bank for at least 12 
months. This definition is consistent with            proposed            paragraph 
(d)(2)(vi)(A), which requires that a business maintain a transaction 
account at the bank for at least 12 months before it may be exempted as 
a non-listed business.

Submission of Comments

    An original and four copies of any comment (except those sent 
electronically) 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            contained in this notice of 
           proposed            rulemaking will become effective 30 days following the 
publication in the Federal Register of the final rule to which this 
notice of            proposed            rulemaking relates.

Executive Order 12866

    The Department of the Treasury has determined that this            proposed            
rule is not a significant regulatory action under Executive Order 
12866.

Unfunded Mandates Act of 1995 Statement

    Section 202 of the Unfunded Mandates Reform Act of 1995 (``Unfunded 
Mandates Act''), Pub. L. 104-4 (March 22, 1995), requires that an 
agency prepare a budgetary impact statement before promulgating a rule 
that includes a federal mandate that may result in expenditure by 
state, local and tribal governments, in the aggregate, or by the 
private sector, of $100 million or more in any one year. If a budgetary 
impact statement is required, section 202 of the Unfunded Mandates Act 
also requires an agency to identify and consider a reasonable number of 
regulatory alternatives before promulgating a rule. FinCEN has 
determined that it is not required to prepare a written statement under 
section 202 and has concluded that on balance this notice of            proposed            
rulemaking provides the most cost-effective and least burdensome 
alternative to achieve the objectives of the rule.

Regulatory Flexibility Act

    FinCEN certifies that this            proposed            amendment to the regulations 
implementing the Bank Secrecy Act will not have a significant, adverse 
financial impact on a substantial number of small depository 
institutions.

Paperwork Reduction Act

    In accordance with requirements of the Paperwork Reduction Act of 
1995, 44 U.S.C. 3501, et seq., and its implementing regulations, 5            CFR            
           Part            1320, the following information concerning the collection of 
information on Internal Revenue Service Form 4789 is presented to 
assist those persons wishing to comment on the information collection.
    FinCEN anticipates that this            proposed            rule, if made effective as 
           proposed           , would result in at least a 2 million reduction in the number 
of currency transaction reports required to be filed annually, and a 
cost reduction to banks of $16 million. FinCEN believes that these 
estimated reductions are reasonable, and probably conservative.
    Title: Currency Transaction Report.
    OMB Number: 1506-0005.
    Description of Respondents: All financial institutions, except 
casinos.
    Estimated Number of Respondents: 250,000.
    Frequency: As required.
    Estimate of Burden: Reporting average of 19 minutes per response; 
recordkeeping average of 5 minutes per response.
    Estimate of Total Annual Burden on Respondents: 10,000,000 
responses. Reporting burden estimate = 3,166,667 hours; recordkeeping 
burden estimate = 833,333 hours. Estimated combined total of 4,000,000 
hours.
    Estimate of Total Annual Cost to Respondents for Hour Burdens: 
Based on $20 per hour, the total cost to the public is estimated to be 
$80,000,000.
    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 for the 
proper performance of the mission of FinCEN, including whether the 
information 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 collected; and (d) ways to minimize the burden of the collection of 
information on respondents, including through the use of automated 
collection techniques or other forms of information technology.
    In addition, the Paperwork Reduction Act of 1995 requires agencies 
to estimate the total annual cost burden to respondents or 
recordkeepers resulting from the collection 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 completion of the form. These 
comments on costs should be divided into two parts: (1) any additional 
costs associated with reporting; and (2) any additional costs 
associated with recordkeeping.
    In accordance with the requirements of the Paperwork Reduction Act 
of 1995, 44 U.S.C. 3501 et seq., and its implementing regulations, 5 
           CFR            1320, the following information concerning the collection of 
information as required by            31                       CFR                       103           .22 is presented to assist those 
persons wishing to comment on the information collection.
    FinCEN anticipates that this            proposed            rule, if enacted as            proposed           , 
would result in a reduction in hours spent complying with exemption 
requirements of 350,000 hours, and a reduction in cost to banks of 
$7,500,000. This is a conservative estimate, based on comments and 
discussions with banking industry representatives of the cost of 
complying with the administrative exemption system requirements.
    Title: Currency transaction reporting exemption recordkeeping (           31            
           CFR                       103           .22).
    OMB Number: 1506-0006.
    Description of Respondents: All banks.

[[Page 47163]]

    Estimated Number of Respondents: 19,000.
    Frequency: As required.
    Estimate of Burden: Recordkeeping average of 2 hours per response.
    Estimate of Total Annual Burden on Respondents: 25,000. 
Recordkeeping burden estimate = 50,000 hours.
    Estimate of Total Annual Cost to Respondents for Hour Burdens: 
Based on $20 per hour, the total cost to the public is estimated to be 
$1,000,000.
    Estimate of Total Other Annual Costs to Respondents: None.
    Type of Request: Extension.
    FinCEN specifically invites comments on the following subjects: (a) 
whether the            proposed            collection of information is necessary for the 
proper performance of the mission of FinCEN, including whether the 
information 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 collected; and (d) ways to minimize the burden of the collection of 
information on respondents, including through the use of automated 
collection techniques or other forms of information technology.
    In addition, the Paperwork Reduction Act of 1995 requires agencies 
to estimate the total annual cost burden to respondents or 
recordkeepers resulting from the collection 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 completion of the form. These 
comments on costs should be divided into two parts: (1) any additional 
costs associated with reporting; and (2) any additional costs 
associated with recordkeeping.
    Comments may be submitted to FinCEN, at the address specified at 
the beginning of this document, Attention: Paperwork Reduction Act.
    Responses to this request for comments under the Paperwork 
Reduction Act 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           

    Administrative practice and procedure, Authority delegations 
(Government agencies), Banks and banking, Currency, Foreign banking, 
Foreign currencies, Gambling, Investigations, Law enforcement, 
Penalties, Reporting and recordkeeping requirements, Securities, Taxes.

Amendment

    For the reasons set forth above in the preamble,            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           .22 is revised to read as follows:

Sec.            103           .22  Reports of Transactions in Currency.

    (a) General. This section            103           .22 sets forth the rules for the 
reporting by financial institutions of transactions in currency. The 
reporting obligations themselves are stated in paragraph (b). The 
reporting rules relating to aggregation are stated in paragraph (c). 
Rules permitting banks to exempt certain transactions from the 
reporting obligations appear in paragraph (d).
    (b) Filing obligations--(1) Financial institutions other than 
casinos. Each financial institution other than a casino shall file a 
report of each deposit, withdrawal, exchange of currency or other 
payment or transfer, by, through, or to such financial institution 
which involves a transaction in currency of more than $10,000, except 
as otherwise provided herein. In the case of the Postal Service, the 
obligation contained in the preceding sentence shall not apply to 
payments or transfers made solely in connection with the purchase of 
postage or philatelic products.
    (2) Casinos. Each casino shall file a report of each transaction in 
currency, involving either cash in or cash out, of more than $10,000.
    (i) Transactions in currency involving cash in include, but are not 
limited to:
    (A) Purchases of chips, tokens, and plaques;
    (B) Front money deposits;
    (C) Safekeeping deposits;
    (D) Payments on any form of credit, including markers and counter 
checks;
    (E) Bets of currency;
    (F) Currency received by a casino for transmittal of funds through 
wire transfer for a customer;
    (G) Purchases of a casino's check; and
    (H) Exchanges of currency for currency, including foreign currency.
    (ii) Transactions in currency involving cash out include, but are 
not limited to:
    (A) Redemptions of chips, tokens, and plaques;
    (B) Front money withdrawals;
    (C) Safekeeping withdrawals;
    (D) Advances on any form of credit, including markers and counter 
checks;
    (E) Payments on bets, including slot jackpots;
    (F) Payments by a casino to a customer based on receipt of funds 
through wire transfer for credit to a customer;
    (G) Cashing of checks or other negotiable instruments;
    (H) Exchanges of currency for currency, including foreign currency; 
and
    (I) Reimbursements for customers' travel and entertainment expenses 
by the casino.
    (c) Aggregation--(1) Multiple branches. A financial institution 
includes all of its domestic branch offices, and any recordkeeping 
facility, wherever located, that contains records relating to the 
transactions of the institution's domestic branch offices, for purposes 
of this section's reporting requirements.
    (2) Multiple transactions--general. In the case of financial 
institutions other than casinos, for purposes of this section, multiple 
currency transactions shall be treated as a single transaction if the 
financial institution has knowledge that they are by or on behalf of 
any person and result in either cash in or cash out totalling more than 
$10,000 during any one business day (or in the case of the Postal 
Service, any one day). Deposits made at night or over a weekend or 
holiday shall be treated as if received on the next business day 
following the deposit.
    (3) Multiple transactions--casinos. In the case of a casino, 
multiple currency transactions shall be treated as a single transaction 
if the casino has knowledge that they are by or on behalf of any person 
and result in either cash in or cash out totalling more than $ 10,000 
during any gaming day. For purposes of this paragraph (c)(3), a casino 
shall be deemed to have the knowledge described in the preceding 
sentence, if: any sole proprietor, partner, officer, director, or 
employee of the casino, acting within the scope of his or her 
employment, has knowledge that such multiple currency transactions have 
occurred, including knowledge from examining the books, records, logs, 
information retained on magnetic disk, tape or other machine-readable 
media, or in any manual system, and similar documents and information, 
which the casino maintains pursuant to any law or regulation or within 
the ordinary course of its business, and which contain information that 
such multiple currency transactions have occurred.

[[Page 47164]]

    (d) Transactions of exempt persons--(1) General. No bank is 
required to file a report otherwise required by paragraph (b) of this 
section with respect to any transaction in currency between an exempt 
person and such bank, or, to the extent provided in paragraph 
(d)(5)(vi) of this section, between such exempt person and other banks 
affiliated with such bank. In addition, a non-bank financial 
institution is not required to file a report otherwise required by 
paragraph (b) of this section with respect to a transaction in currency 
between the institution and a commercial bank. (A limitation on the 
exemption described in this paragraph (d)(1) is set forth in (d)(6) of 
this section.)
    (2) Exempt person. For purposes of this section, an exempt person 
is:
    (i) A bank, to the extent of such bank's domestic operations;
    (ii) A department or agency of the United States, of any state, or 
of any political subdivision of any state;
    (iii) Any entity established under the laws of the United States, 
of any state, or of any political subdivision of any state, or under an 
interstate compact between two or more states, that exercises 
governmental authority on behalf of the United States or any such state 
or political subdivision;
    (iv) Any entity, other than a bank, whose common stock or analogous 
equity interests are listed on the New York Stock Exchange or the 
American Stock Exchange or whose common stock or analogous equity 
interests have been designated as a Nasdaq National Market Security 
listed on the Nasdaq Stock Market (except stock or interests listed 
under the separate ``Nasdaq Small-Cap Issues'' heading), provided that, 
for purposes of this paragraph (d)(2)(iv), a person that is a financial 
institution, other than a bank, is an exempt person only to the extent 
of its domestic operations;
    (v) Any subsidiary, other than a bank, of any entity described in 
paragraph (d)(2)(iv) of this section (a ``listed entity'') that is 
organized under the laws of the United States or of any state and at 
least 51 per cent of whose common stock is owned by the listed entity, 
provided that, for purposes of this paragraph (d)(2)(v), a person that 
is a financial institution, other than a bank, is an exempt person only 
to the extent of its domestic operations;
    (vi) To the extent of its domestic operations, any other commercial 
enterprise (for purposes of this paragraph (d), a ``non-listed 
business''), other than an enterprise specified in paragraph 
(d)(5)(viii), that
    (A) Has maintained a transaction account at the bank for at least 
12 months,
    (B) Frequently engages in transactions in currency with the bank in 
excess of $10,000, and
    (C) Is incorporated or organized under the laws of the United 
States or a State, or is registered as and eligible to do business 
within a State; and
    (vii) With respect solely to withdrawals for payroll purposes from 
existing transaction accounts, any other person (for purposes of this 
paragraph (d), a ``payroll customer'') who
    (A) Has maintained a transaction account at the bank for at least 
12 months,
    (B) Operates a firm that regularly withdraws more than $10,000 in 
order to pay its United States employees in currency, and
    (C) Is a United States resident.
    (3) Initial designation of exempt persons. (i) General. A bank must 
designate each exempt person with whom it engages in transactions in 
currency by the close of the 30-day period beginning after the day of 
the first reportable transaction in currency with that person sought to 
be exempted from reporting under the terms of paragraph (d) of this 
section. Except where the person sought to be exempted is another bank 
as described in paragraph (d)(2)(i) of this section, a non-listed 
business as described in paragraph (d)(2)(vi) of this section, or a 
payroll customer as described in paragraph (d)(2)(vii) of this section, 
designation by such bank of such exempt person shall be made by a 
single filing of Internal Revenue Service Form 4789, in which line 36 
is marked ``Designation of Exempt Person'' and items 2-14 (           Part            I, 
Section A) and items 37-49 (           Part            III) are completed, or by filing any 
form specifically designated by FinCEN for this purpose. The 
designation must be made separately by each bank that treats the person 
in question as an exempt person, except as provided in paragraph 
(d)(5)(vi) of this section. The designation requirements of this 
paragraph (d)(3) apply whether or not the particular exempt person to 
be designated has previously been treated as exempt from the reporting 
requirements of Sec.            103           .22(a) under the rules contained in            31                       CFR            
           103           .22(b) through (g) (see            31                       CFR            chapter I revised as of July 1, 
1997). A special transitional rule, which extends the time for initial 
designation for customers that have been previously treated as exempt, 
is contained in paragraph (d)(7)(ii) of this section.
    (ii) Special rules for banks. When designating another bank as an 
exempt person, a bank must either make the filing required by paragraph 
(d)(3)(i) of this section or file, in such a format and manner as 
FinCEN may specify, a current list of its domestic bank customers. In 
the event that a bank files its current list of domestic bank 
customers, the bank must make the filing as described in paragraph 
(d)(3)(i) of this section for each bank that is a new customer and for 
which an exemption is sought under this paragraph (d).
    (iii) Special rules for non-listed businesses and payroll 
customers. When designating a non-listed business or a payroll customer 
as an exempt person, a bank, in addition to the filing required by 
paragraph (d)(3)(i) of this section, shall include information, in such 
form as FinCEN shall determine, about such customer's projected annual 
currency deposits and withdrawals through all transaction accounts.
    (4) Annual filing with respect to certain exempt persons--(i) 
General. No annual filing is required for continuation of the treatment 
as an exempt person of a customer described in paragraphs (d)(2) (i)-
(v).
    (ii) Non-listed businesses and payroll customers. The designation 
of a non-listed business or a payroll customer as an exempt person must 
be updated annually, beginning no later than February 28, 1999, and 
each February 28 thereafter, on such form as FinCEN shall specify. 
Annual updates must include a statement of the exempt person's annual 
currency deposits and withdrawals through all transaction accounts for 
the calendar year next preceding the date on which such filing is 
required, as well as information about any change in control of the 
exempt person involved of which the bank knows (or should know on the 
basis of its records).
    (5) Operating rules for designating exempt persons--(i) General 
rule. Subject to the specific rules of this paragraph (d), a bank must 
take such steps to assure itself that a person is an exempt person 
(within the meaning of applicable provisions of paragraph (d)(2) of 
this section), and to document the basis for its conclusions and its 
compliance with the terms of this paragraph (d), that a reasonable and 
prudent bank would take and document to protect itself from loan or 
other fraud or loss based on misidentification of a person's status.
    (ii) Governmental departments and agencies. A bank may treat a 
person as a governmental department, agency, or entity if the name of 
such person reasonably indicates that it is described in paragraph 
(d)(2)(ii) or (d)(2)(iii) of

[[Page 47165]]

this section, or if such person is known generally in the community to 
be a State, the District of Columbia, a tribal government, a Territory 
or Insular Possession of the United States, or a political subdivision 
or a wholly-owned agency or instrumentality of any of the foregoing. An 
entity generally exercises governmental authority on behalf of the 
United States, a State, or a political subdivision, for purposes of 
paragraph (d)(2)(iii) of this section, only if its authorities include 
one or more of the powers to tax, to exercise the authority of eminent 
domain, or to exercise police powers with respect to matters within its 
jurisdiction. Examples of entities that exercise governmental authority 
include, but are not limited to, the New Jersey Turnpike Authority and 
the Port Authority of New York and New Jersey.
    (iii) Stock exchange listings. In determining whether a person is 
described in paragraph (d)(2)(iv) of this section, a bank may rely on 
any New York, American or Nasdaq Stock Market listing published in a 
newspaper of general circulation, on any commonly accepted or published 
stock symbol guide, on any information contained in the Securities and 
Exchange Commission ``Edgar'' System, or on any information contained 
on an Internet World-Wide Web site or sites maintained by the New York 
Stock Exchange, the American Stock Exchange, or the National 
Association of Securities Dealers.
    (iv) Listed company subsidiaries. In determining whether a person 
is described in paragraph (d)(2)(v) of this section, a bank may rely 
upon:
    (A) Any reasonably authenticated corporate officer's certificate;
    (B) Any reasonably authenticated photocopy of Internal Revenue 
Service Form 851 (Affiliation Schedule) or the equivalent thereof for 
the appropriate tax year; or
    (C) A person's Annual Report or Form 10-K, as filed in each case 
with the Securities and Exchange Commission.
    (v) Aggregated accounts. In determining the qualification of a 
customer as an exempt person, a bank shall treat all transaction 
accounts of the customer as a single account, except as provided in 
paragraph (d)(5)(vii) of this section relating to sole proprietorships.
    (vi) Affiliated banks. The designation required by this paragraph 
may be made by a parent bank holding company or one of its bank 
subsidiaries on behalf of all bank subsidiaries of the holding company, 
so long as the designation lists each bank subsidiary to which the 
designation shall apply. Projected and annual currency transaction 
activity must be listed in such affiliated group designation on a bank-
by-bank basis.
    (vii) Sole proprietorships. A sole proprietorship may be treated as 
a non-listed business if it otherwise meets the requirements of 
paragraph (d)(2)(vi) of this section, as applicable. In addition, a 
sole proprietorship may be treated as a payroll customer if it 
otherwise meets the requirements of paragraph (d)(2)(vii) of this 
section, as applicable. However, the exemption permitted by this 
paragraph applies only to business transactions of the sole 
proprietorship, not to personal transactions of the proprietor, and the 
sole proprietorship's accounts may not be aggregated with personal 
accounts of the proprietor for purposes of this paragraph (d). Thus, no 
exemption may be granted to an account in which personal and sole 
proprietorship funds are commingled.
    (viii) Ineligible businesses. A business engaged in one or more of 
the following activities may not be treated as a non-listed business 
for purposes of this paragraph (d): financial institutions or agents of 
financial institutions of any type; purchase or sale to customers of 
motor vehicles of any kind, vessels, aircraft, farm equipment or mobile 
homes; the practice of law, accountancy, or medicine; auctioning of 
goods; chartering or operation of ships, buses, or aircraft; gaming of 
any kind; investment advisory services or investment banking services; 
real estate brokerage; pawn brokerage; title insurance and real estate 
closing; trade union activities; and any other activities that may be 
specified, prospectively, by FinCEN by written notice published in the 
Federal Register.
    (ix) Transaction account. A transaction account, for purposes of 
paragraph (d) of this section, is any account described in section 
19(b)(1)(C) of the Federal Reserve Act, 12 U.S.C. 461(b)(1)(C). For 
purposes of paragraphs (d)(2)(vi) and (d)(2)(vii) of this section, a 
person is an exempt person only to the extent of such person's 
transaction accounts.
    (x) Documentation. The records maintained by a bank to document its 
compliance with and administration of the rules of this paragraph (d) 
shall be maintained in accordance with the provisions of section 
           103           .38.
    (6) Limitation on exemption. A transaction carried out by an exempt 
person as an agent for another person who is the beneficial owner of 
the funds that are the subject of a transaction in currency is not 
subject to the exemption from reporting contained in paragraph (d)(1) 
of this section.
    (7) Limitation on liability; transitional rule. (i) No bank shall 
be subject to penalty under this subchapter for failure to file a 
report required by section            103           .22(b) with respect to a transaction in 
currency by an exempt person with respect to which the requirements of 
this paragraph (d) have been satisfied, unless the bank:
    (A) Knowingly files false or incomplete information with respect to 
the transaction or the customer engaging in the transaction, or
    (B) Has reason to believe that the customer does not meet the 
criteria established by this paragraph (d) for treatment of the 
transactor as an exempt person or that the transaction is not a 
transaction of the exempt person.
    (ii) If on [INSERT DATE 30 DAYS AFTER THE FINAL REGULATIONS TO 
WHICH THIS NOTICE OF            PROPOSED            RULEMAKING RELATES ARE PUBLISHED IN THE 
Federal Register] a bank treated a person as an exempt person under the 
rules contained in            31                       CFR                       103           .22 (b)-(g) (July 1, 1996), the bank must 
designate that person as an exempt person under paragraph (d)(2) of 
this section (or cease to treat such person as exempt if such person 
does not qualify for treatment as an ``exempt person'' under paragraph 
(d)(2) of this section) not later than the end of the first calendar 
year beginning after [INSERT DATE 30 DAYS AFTER THE FINAL REGULATIONS 
TO WHICH THIS NOTICE OF            PROPOSED            RULEMAKING RELATES ARE PUBLISHED IN 
THE Federal Register]. Provided that the bank complies with the 
preceding sentence, the bank may treat such a customer as exempt from 
[INSERT DATE 30 DAYS AFTER THE DATE THE FINAL REGULATIONS TO WHICH THIS 
NOTICE OF            PROPOSED            RULEMAKING RELATES ARE PUBLISHED IN THE Federal 
Register]. The first annual currency report for a customer is not due 
until the end of the first year beginning after [INSERT DATE 30 DAYS 
AFTER THE FINAL REGULATIONS TO WHICH THIS NOTICE OF            PROPOSED            RULEMAKING 
RELATES ARE PUBLISHED IN THE Federal Register].
    (iii) Absent specific knowledge of any information that would be 
grounds for revocation as provided in paragraph (d)(9) of this section, 
a bank is required to verify the status of those entities it has 
designated as exempt persons only once each year.
    (iv) A bank that files a report with respect to a currency 
transaction by an exempt person rather than treating such person as 
exempt shall remain subject, with respect to each such report, to the 
rules for filing reports, and the penalties for filing false or 
incomplete reports that are applicable to reporting of

[[Page 47166]]

transactions in currency by persons other than exempt persons. A bank 
that continues for the period permitted by paragraph (d)(7)(ii) of this 
section to treat a person described in paragraph (d)(2) as exempt from 
the reporting requirements of section            103           .22(a) on a basis other than 
as provided in this paragraph (d) shall remain subject to the rules 
governing an exemption on such other basis and to the penalties for 
failing to comply with the rules governing such other exemption.
    (8) Obligation to file suspicious activity reports, etc. Nothing in 
this paragraph (d) relieves a bank of the obligation, or alters in any 
way such bank's obligation, to file a report required by section            103           .21 
with respect to any transaction, including any transaction in currency, 
or relieves a bank of any reporting or recordkeeping obligation imposed 
by this            Part            (except the obligation to report transactions in currency 
pursuant to this section to the extent provided in this paragraph (d)).
    (9) Revocation. The status of any person as an exempt person under 
this paragraph (d) may be revoked by FinCEN by written notice, which 
may be provided by publication in the Federal Register in appropriate 
situations, on such terms as are specified in such notice. Without any 
action on the            part            of the Treasury Department and subject to the 
limitation on liability contained in paragraph (d)(7)(iii) of this 
section:
    (i) The status of an entity as an exempt person under paragraph 
(d)(2)(iv) ceases once such entity ceases to be listed on the 
applicable stock exchange; and
    (ii) The status of a subsidiary as an exempt person under paragraph 
(d)(2)(v) ceases once such subsidiary ceases to have at least 51 per 
cent of its common stock owned by a listed entity.
* * * * *

    Dated: August 27, 1997.
Stanley E. Morris,
Director, Financial Crimes Enforcement Network.
[FR Doc. 97-23639 Filed 9-5-97; 8:45 am]
BILLING CODE 4820-03-P