[Billing Code: 4810-02]

DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA31

Financial Crimes Enforcement Network; Customer Identification Programs for Certain

Banks (Credit Unions, Private Banks and Trust Companies) That do not Have a

Federal Functional Regulator

AGENCIES: The Financial Crimes Enforcement Network, Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: FinCEN is issuing a proposed regulation to implement section 326 of the Uniting

and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct

Terrorism (USA PATRIOT) Act of 2001(the Act) for credit unions and trust companies that do

not have a federal functional regulator. The proposed rule provides the same rules for these

financial institutions as are provided in a companion notice of proposed rulemaking being issued

jointly by FinCEN and the Federal bank regulators published elsewhere in this separate part of

this issue of the Federal Register.

 DATES: Written comments on the proposed rule may be submitted on or before

[INSERT DATE 45 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL

REGISTER].

ADDRESSES: Because paper mail in the Washington area may be subject to delay,

commenters are encouraged to e-mail comments. Comments should be sent by one method only.

Comments may be mailed to FinCEN, Section 326 Certain Credit Union and Trust Company

Rule Comments, P.O. Box 39, Vienna, VA 22183 or sent by e-mail to

regcomments@fincen.treas.gov with the caption “Attention: Section 326 Certain Credit Union
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and Trust Company Rule Comments” in the body of the text. Comments may be inspected at

FinCEN between 10 a.m. and 4 p.m. in the FinCEN Reading Room in Washington, D.C.

Persons wishing to inspect the comments submitted must request an appointment by telephoning

(202) 354-6400 (not a toll-free number).

FOR FURTHER INFORMATION CONTACT: Office of the Chief Counsel (FinCEN),

(703) 905-3590.

SUPPLEMENTARY INFORMATION:

I. Background

A. Section 326 of the USA PATRIOT Act

On October 26, 2001, President Bush signed into law the USA PATRIOT Act, Pub. L.

107-56. Title III of the Act, captioned "International Money Laundering Abatement and Antiterrorist Financing Act of 2001," adds several new provisions to the Bank Secrecy Act (BSA), 31

U.S.C. 5311 et seq. These provisions are intended to facilitate the prevention, detection, and

prosecution of international money laundering and the financing of terrorism.

Section 326 of the Act adds a new subsection (l) to 31 U.S.C. 5318 that requires the

Secretary to prescribe regulations setting forth minimum standards for financial institutions that

relate to the identification and verification of any person who applies to open an account. Final

regulations implementing section 326 must be effective by October 25, 2002.

Section 326 applies to all "financial institutions." This term is defined very broadly in the

BSA to encompass a variety of entities including banks, agencies and branches of foreign banks

in the United States, thrifts, credit unions, brokers and dealers in securities or commodities,

insurance companies, travel agents, pawnbrokers, dealers in precious metals, check-cashers,

casinos, and telegraph companies, among many others. See 31 U.S.C. 5312(a)(2).
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For any financial institution engaged in financial activities described in section 4(k) of

the Bank Holding Company Act of 1956 (section 4(k) institutions), the Secretary is required to

prescribe the regulations issued under section 326 jointly with each of the Federal bank

regulators (the Agencies), the SEC, and the CFTC (the Federal functional regulators). FinCEN

and the Federal bank regulators are today jointly issuing a proposed rule that applies to banks

within the meaning of 31 CFR 103.11(c) that are subject to a Federal banking regulator. Under

its own authority, FinCEN is issuing this proposed rule to extend rules identical1

 to those in the

joint proposal to all banks lacking a Federal functional regulator, namely private banks and State

chartered credit unions that are not federally insured, and trust companies. The text of the joint

rule is published elsewhere in this separate part of this issue of the Federal Register.

 Section 326 of the Act provides that the regulations must contain certain requirements.

At a minimum, the regulations must require financial institutions to implement reasonable

procedures for (1) verifying the identity of any person seeking to open an account, to the extent

reasonable and practicable; (2) maintaining records of the information used to verify the person's

identity, including name, address, and other identifying information; and (3) determining

whether the person appears on any lists of known or suspected terrorists or terrorist organizations

provided to the financial institution by any government agency.

In prescribing these regulations, the Secretary is directed to take into consideration the

various types of accounts maintained by various types of financial institutions, the various

methods of opening accounts, and the various types of identifying information available.

The Secretary has determined that the records required to be kept by section 326 of the

Act have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings,

 

1

 The references in the joint rule to a bank’s anti-money laundering program requirement (proposed section 103.121

(b)(1)) and to the procedures for exemptions granted by the Federal functional regulator (with Treasury concurrence)
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or in the conduct of intelligence or counterintelligence activities, to protect against international

terrorism.

B. Codification of the Proposed Rule

The substantive requirements of the proposed rule will be codified with other Bank

Secrecy Act regulations as part of Treasury’s regulations in 31 CFR Part 103. FinCEN

anticipates that, at that time, it will publish a final rule that implements section 326 in a single

section that will apply to all banks.

II. Detailed Analysis

A. Regulations Implementing Section 326

Definitions.

 Account. The proposed rule's definition of "account" is based on the statutory definition

of "account" that is used in section 311 of the Act. "Account" means each formal banking or

business relationship established to provide ongoing services, dealings, or other financial

transactions. For example, a deposit account, transaction or asset account, and a credit account

or other extension of credit would each constitute an account.

 Section 311 of the Act does not require that this definition be used for regulations

implementing section 326 of the Act. However, to the extent possible, Treasury proposes to

apply consistent definitions for each of the regulations implementing the Act to reduce

confusion. "Deposit accounts" and "transaction accounts," which as previously noted, are

considered "accounts" for purposes of this rulemaking, are themselves defined terms. In addition,

the term "account" is limited to banking and business relationships established to provide

"ongoing" services, dealings, or other financial transactions to make clear that this term is not

 

(proposed section 103.121(c)) will be modified appropriately at the final rule stage.
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intended to cover infrequent transactions such as the occasional purchase of a money order or a

wire transfer.

 Bank. For purposes of this proposed rule, the "bank" includes only those banks within

the meaning of 31 CFR 103.11(c) that lack a Federal functional regulator. These are private

banks and certain State chartered credit unions that are not federally insured, and trust

companies.

 Customer. The proposed rule defines "customer" to mean any person seeking to open a

new account. Accordingly, the term "customer" includes a person applying to open an account,

but would not cover a person seeking information about an account, such as rates charged or

interest paid on an account, if the person does not actually open an account. "Customer"

includes both individuals and other persons such as corporations, partnerships, and trusts. In

addition, any person seeking to open an account at a bank, on or after the effective date of the

final rule, will be a "customer," regardless of whether that person already has an account at the

bank.

The proposed rule also defines a "customer" to include any signatory on an account.

Thus, for example, an individual with signing authority over a corporate account is a "customer"

within the meaning of the proposed rule. A signatory can become a "customer" when the

account is opened or when the signatory is added to an existing account.

The requirements of section 326 of the Act apply to any person "seeking to open a new

account." Accordingly, transfers of accounts from one bank to another, that are not initiated by

the customer, for example, as a result of a merger, acquisition, or purchase of assets or

assumption of liabilities, fall outside of the scope of section 326, and are not covered by the

proposed regulation.
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 Person. The proposed rule defines “person” by reference to § 103.11(z). This definition

includes individuals, corporations, partnerships, trusts, estates, joint stock companies,

associations, syndicates, joint ventures, other unincorporated organizations or groups, certain

Indian Tribes, and all entities cognizable as legal personalities.

 U.S. Person. Under the proposed rule, for an individual, "U.S. person" means a U.S.

citizen. For persons other than an individual, "U.S. person" means an entity established or

organized under the laws of a State or the United States. A non-U.S. person is defined as a

person who does not satisfy these criteria.

Taxpayer identification number. The proposed rule continues the provision in current §

103.34(a)(4), which provides that the provisions of section 6109 of the Internal Revenue Code

and the regulations of the Internal Revenue Service thereunder determine what constitutes a

taxpayer identification number.

Customer Identification Program: Minimum Requirements.

General Rule. Section 326 of the Act requires Treasury to issue a regulation that

establishes minimum standards regarding the identity of any customer who applies to open an

account. Section 326 then prescribes three procedures that Treasury must require institutions to

implement as part of this process: (1) identification and verification of persons seeking to open

an account; (2) recordkeeping; and (3) comparison with government lists.

Rather than imposing the same list of specific requirements on every bank, regardless of

its circumstances, the proposed regulation requires all banks to implement a Customer

Identification Program (CIP) that is appropriate given the bank's size, location, and type of

business. The proposed regulation requires a bank's CIP to contain the statutorily prescribed
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procedures, describes these procedures, and details certain minimum elements that each of the

procedures must contain.

 In addition, the proposed rule requires that the CIP be written and that it be approved by

the bank's board of directors or a committee of the board. This latter requirement highlights the

responsibility of a bank's board of directors to approve and exercise general oversight over the

bank's CIP.

Under the proposed joint regulation for federally regulated banks, the CIP must be

incorporated into the bank's anti-money laundering (BSA) program. FinCEN has not yet issued

an anti-money laundering program regulation for the banks subject to this proposed rule, but

anticipates doing so in the near future, at which time they would be required to incorporate the

CIP into that program. A bank's BSA program must include (1) internal policies, procedures,

and controls to ensure ongoing compliance; (2) designation of a compliance officer; (3) an

ongoing employee training program; and (4) an independent audit function to test programs.

Each of these requirements also applies to a bank's CIP.

Identity Verification Procedures. Under section 326 of the Act, the regulations issued by

Treasury must require banks to implement and comply with reasonable procedures for verifying

the identity of any person seeking to open an account, to the extent reasonable and practicable.

The proposed regulation implements this requirement by providing that each bank must have

risk-based procedures for verifying the identity of a customer that take into consideration the

types of accounts that banks maintain, the different methods of opening accounts, and the types

of identifying information available. These procedures must enable the bank to form a reasonable

belief that it knows the true identity of the customer.
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Under the proposed regulation, a bank must first have procedures that specify the

identifying information that the bank must obtain from any customer. The proposed regulation

also sets forth certain, minimal identifying information that a bank must obtain prior to opening

an account or adding a signatory to an account. Second, the bank must have procedures

describing how the bank will verify the identifying information provided. The bank must have

procedures that describe when it will use documents for this purpose and when it will use other

methods, either in addition or as an alternative to using documents for the purpose of verifying

the identity of a customer.

 While a bank's CIP must contain the identity verification procedures set forth above,

these procedures are to be risk-based. For example, a bank need not verify the identifying

information of an existing customer seeking to open a new account, or who becomes a signatory

on an account, if the bank (1) previously verified the customer's identity in accordance with

procedures consistent with this regulation, and (2) continues to have a reasonable belief that it

knows the true identity of the customer. The proposal requires a bank to exercise reasonable

efforts to ascertain the identity of each customer.

Although the main purpose of the Act is to prevent and detect money laundering and the

financing of terrorism, Treasury anticipates that the proposed regulation will ultimately benefit

consumers. In addition to deterring money laundering and terrorist financing, requiring every

bank to establish comprehensive procedures for verifying the identity of customers should reduce

the growing incidence of fraud and identity theft involving new accounts.2

 

2 Last year, over 86,000 complaints were logged into the Identity Theft Complaint database established by the

Federal Trade Commission (FTC). Forms of identity theft commonly reported included (1) credit card fraud, where

one or more new credit cards were opened in the victim's name; (2) bank fraud, where a new bank account was

opened in the victim's name; and (3) fraudulent loans, where a loan had been obtained in the victim's name. See

Statement of J. Howard Beales, Director, Bureau of Consumer Protection, FTC, to the Senate Committee on the

Judiciary, Subcommittee on Technology, March 20, 2002.
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 Information Required. The proposed regulation provides that a bank's CIP must contain

procedures that specify the identifying information the bank must obtain from a customer. At a

minimum, a bank must obtain from each customer the following information prior to opening an

account or adding a signatory to an account: name; address; for individuals, date of birth; and an

identification number, described in greater detail below. To satisfy the requirement that a bank

obtain the address of a customer, Treasury expects a bank to obtain both the address of an

individual's residence and, if different, the individual's mailing address. For customers who are

not individuals, the bank should obtain an address showing the customer's principal place of

business and, if different, the customer's mailing address.

For U.S. persons a bank must obtain a U.S. taxpayer identification number (e.g., social

security number, individual taxpayer identification number, or employer identification number).

For non-U.S. persons a bank must obtain one or more of the following: a taxpayer identification

number; passport number and country of issuance; alien identification card number; or number

and country of issuance of any other government-issued document evidencing nationality or

residence and bearing a photograph or similar safeguard. The basic information that banks

would be required to obtain under this proposed regulation reflects the type of information that

financial institutions currently obtain in the account-opening process and is similar to the

identifying information currently required for each deposit or share account opened (see 31 CFR

103.34(a)(1)). The proposed regulation uses the term "similar safeguard" to permit the use of

any biometric identifiers that may be used in addition to, or instead of, photographs.

Treasury recognizes that a new business may need access to banking services,

particularly a bank account or an extension of credit, before it has received an employer

identification number from the Internal Revenue Service. For this reason, the proposed
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regulation contains a limited exception to the requirement that a taxpayer identification number

must be provided prior to establishing or adding a signatory to an account. Accordingly, a CIP

may permit a bank to open or add a signatory to an account for a person other than an individual

(such as a corporation, partnership, or trust) that has applied for, but has not received, an

employer identification number. However, in such a case, the CIP must require that the bank

obtain a copy of the application before it opens or adds a signatory to the account and obtain the

employee identification number within a reasonable period of time after an account is established

or a signatory is added to an account. Currently, the IRS indicates that the issuance of an

employer identification number can take up to five weeks. This length of time, coupled with

when the person applied for the employer identification number, should be considered by the

bank in determining the reasonable period of time within which the person should provide its

employer identification number to the bank.

 Verification. The proposed regulation provides that the CIP must contain risk-based

procedures for verifying the information that the bank obtains in accordance with the proposed

rule, within a reasonable period of time after the account is opened. Treasury considered

proposing that a customer's identity be verified before an account is opened or within a specific

time period after the account is opened. However, Treasury recognizes that such a position

would be unduly burdensome for both banks and customers and therefore contrary to the plain

language of the statute, which states that the procedures must be both reasonable and practicable.

The amount of time it will take an institution to verify identity may depend upon the type of

account opened, whether the customer is physically present when the account is opened, and the

type of identifying information available. In addition, although an account may be opened, it is

common practice among banks to place limits on the account, such as by restricting the number
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of transactions or the dollar value of transactions, until a customer's identity is verified.

Therefore, the proposed regulation provides a bank with the flexibility to use a risk-based

approach to determine how soon identity must be verified.3

Verification Through Documents. The CIP must contain procedures describing when the

bank will verify identity through documents and setting forth the documents that the bank will

use for this purpose. For individuals, these documents may include: unexpired governmentissued identification evidencing nationality or residence and bearing a photograph or similar

safeguard. For corporations, partnerships, trusts, and other persons that are not individuals, these

may be documents showing the existence of the entity, such as registered articles of

incorporation, a government-issued business license, partnership agreement, or trust instrument.

 Non-Documentary Verification. The proposed regulation provides that a bank's CIP also

must contain procedures describing non-documentary methods the bank will use to verify

identity and when these methods will be used in addition to, or instead of, relying on documents.

For example, the procedures must address situations where an individual is unable to present an

unexpired government-issued identification document that bears a photograph or similar

safeguard; the bank is not familiar with the documents presented; the

account is opened without obtaining documents; the account is not opened in a face-to-face

transaction; and the type of account increases the risk that the bank will not be able to verify the

true identity of the customer through documents.

Treasury believes that banks typically require documents to be presented when an

account is opened face-to-face. Although customers usually satisfy these requirements by

presenting government-issued identification documents bearing a photograph, such as a driver's

 

3 It is possible that a bank would, however, violate other laws by permitting a customer to transact business prior to

verifying the customer's identity. See, e.g., 31 CFR 500, prohibiting transactions involving designated foreign
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license or passport, Treasury recognizes that some customers legitimately may be unable to

present those customary forms of identification when opening an account. For example, an

elderly person may not have a valid driver's license or passport. Under these circumstances,

Treasury expects that banks will provide products and services to those customers and verify

their identities through other methods. Similarly, a bank may be unable to obtain original

documents to verify a customer's identity when an account is opened by telephone, by mail, and

over the Internet. Thus, when an account is opened for a customer who is not physically present,

a bank will be permitted to use other methods of verification, to the extent set forth in the CIP.

While other verification methods must be used when a bank cannot examine original

documents, Treasury also recognizes that original identification documents, including those

issued by a government entity, may be obtained illegally and may be fraudulent. In light of the

recent increase in identity fraud, banks are encouraged to use other verification methods, even

when a customer has provided original documents.

Obtaining sufficient information to verify a customer's identity can reduce the risk that a

bank will be used as a conduit for money laundering and terrorist financing. The risk that the

bank will not know the customer's true identity will be heightened for certain types of accounts,

such as accounts opened in the name of a corporation, partnership, or trust that is created or

conducts substantial business in jurisdictions that have been designated by the United States as a

primary money laundering concern or have been designated as non-cooperative by an

international body. As a bank's identity verification procedures should be risk-based, they

should identify types of accounts that pose a heightened risk, and prescribe additional measures

to verify the identity of any person seeking to open an account and the signatory for such

accounts.

 countries or their nationals.
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The proposed regulation gives examples of other non-documentary verification methods

that a bank may use in the situations described above. These methods could include contacting

a customer after the account is opened; obtaining a financial statement; comparing the

identifying information provided by the customer against fraud and bad check databases to

determine whether any of the information is associated with known incidents of fraudulent

behavior (negative verification); comparing the identifying information with information

available from a trusted third party source, such as a credit report from a consumer reporting

agency (positive verification); and checking references with other financial institutions. The

bank also may wish to analyze whether there is logical consistency between the identifying

information provided, such as the customer's name, street address, ZIP code, telephone number,

date of birth, and social security number (logical verification).4

Lack of Verification. The proposed regulation also states that a bank’s CIP must include

procedures for responding to circumstances in which the bank cannot form a reasonable belief

that it knows the true identity of a customer.

Generally, a bank should only maintain an account for a customer when it can form a

reasonable belief that it knows the customer's true identity.5 Thus, a bank should have

procedures that specify the actions that it will take when it cannot form a reasonable belief that it

knows the true identity of a customer, including when an account should not be opened. In

addition, a bank's CIP should have procedures that address the terms under which a customer

may conduct transactions while a customer's identity is being verified. The procedures also

 

4

 Treasury understands that most banks currently make use of technology that permits instantaneous negative,

positive, and logical verification of identity.

5

 There are some exceptions to this basic rule. For example, a bank may maintain an account, at the direction of a

law enforcement or intelligence agency, although the bank does not know the true identity of a customer.
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should specify at what point, after attempts to verify a customer's identity have failed, a

customer's account that has been opened should be closed. Finally, if a bank cannot form a

reasonable belief that it knows the identity of a customer, the procedures should also include

determining whether a Suspicious Activity Report should be filed in accordance with applicable

law and regulation.

 Recordkeeping. Section 326 of the Act requires reasonable procedures for maintaining

records of the information used to verify a person's name, address, and other identifying

information. The proposed regulation sets forth recordkeeping procedures that must be included

in a bank's CIP. Under the proposal, a bank is required to maintain a record of the identifying

information provided by the customer. Where a bank relies upon a document to verify identity,

the bank must maintain a copy of the document that the bank relied on that clearly evidences the

type of document and any identifying information it may contain.6

 The bank also must record

the methods and result of any additional measures undertaken to verify the identity of the

customer. Last, the bank must record the resolution of any discrepancy in the identifying

information obtained. The bank must retain all of these records for five years after the date the

account is closed.

Treasury emphasizes that the collection and retention of information about a customer,

such as an individual’s race or sex, as an ancillary part of collecting identifying information do

not relieve a bank from its obligations to comply with anti-discrimination laws or regulations,

such as the prohibition in the Equal Credit Opportunity Act against discrimination in any aspect

of a credit transaction on the basis of race, color, religion, national origin, sex or marital status,

age, or other prohibited classifications.

 

6

 The bank need not keep a separate record of the identifying information provided by the customer if this

information clearly appears on the copy of the document maintained by the bank.
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 Nothing in this proposed regulation modifies, limits or supersedes section 101 of the

Electronic Signatures in Global and National Commerce Act, Pub. L. 106-229, 114 Stat. 464 (15

U.S.C. 7001) (E-Sign Act). Thus, a bank may use electronic records to satisfy the requirements

of this regulation, as long as the records are accurate and remain accessible in accordance with

31 CFR 103.38(d).

Comparison with Government Lists. Section 326 of the Act also requires reasonable

procedures for determining whether the customer appears on any list of known or suspected

terrorists or terrorist organizations provided to the bank by any government agency. The

proposed rule implements this requirement and clarifies that the requirement applies only with

respect to lists circulated by the Federal government.

In addition, the proposed rule requires that the procedures must ensure that the bank

follows all Federal directives issued in connection with such lists. This provision makes clear

that a bank must have procedures for responding to circumstances when the bank determines that

a customer is named on a list.

Customer Notice. Section 326 of the Act contemplates that financial institutions will

provide their customers with “adequate notice" of the customer identification procedures.

Therefore, a bank's CIP must include procedures for providing bank customers with adequate

notice that the bank is requesting information to verify their identity. A bank may satisfy the

notice requirement by generally notifying its customers about the procedures the bank must

comply with to verify their identities. For example, the bank may post a sign in its lobby or

provide customers with any other form of written or oral notice. If an account is opened

electronically, such as through an Internet website, the bank may also provide notice

electronically.
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 Exemptions. Section 326 states that the Secretary (and, in the case of section 4(k)

institutions, the appropriate Federal functional regulator) may by regulation or order, exempt any

financial institution or type of account from the requirements of this regulation in accordance

with such standards and procedures as the Secretary may prescribe.

Under the proposed rule, Treasury, may by order or regulation exempt any bank lacking a

federal functional regulator or type of account at such a bank from the requirements of this

section. In issuing such exemptions, Treasury shall consider whether the exemption is

consistent with the purposes of the Bank Secrecy Act, consistent with safe and sound banking,

and in the public interest. Treasury also may consider other necessary and appropriate factors.

 Other Information Requirements Unaffected. Nothing in the proposal shall be construed

to relieve a bank of its obligations to obtain, verify, or maintain information in connection with

an account or transaction that is required by another provision in part 103. For example, if an

account is opened with a deposit of more than $10,000 in cash, the bank opening the account

must comply with the customer identification requirements in the proposal, as well as with the

provisions of section 103.22, which require that certain information concerning the transaction

be reported by filing a Cash Transaction Report (CTR).

B. Conforming Amendments to 31 CFR 103.34

Current section 103.34(a) sets forth customer identification requirements when certain

types of deposit accounts are opened. Generally, sections 103.34(a)(1) and (2) require a bank,

within 30 days after certain deposit accounts are opened, to secure and maintain a record of the

taxpayer identification number of the customer involved. If the bank is unable to obtain the

taxpayer identification number within 30 days (or a longer time if the person has applied for a

taxpayer identification number), it need take no further action under section 103.34 concerning
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the account if it maintains a list of the names, addresses, and account numbers of the persons for

which it was unable to secure taxpayer identification numbers, and provides that information to

the Secretary upon request. In the case of a non-resident alien, the bank is required to record the

person’s passport number or a description of some other government document used to

determine identification. Treasury believes that the requirements of section 103.34(a)(1) and (2)

are inconsistent with the intent and purpose of section 326 of the Act and incompatible with the

proposal. 

Section 103.34(a)(3) currently provides that a bank need not obtain a taxpayer

identification number with respect to specified categories of persons7

 opening certain deposit

accounts. This proposed rule does not contain any exemptions from the CIP requirements.

Treasury is requesting comments on whether any of these exemptions should apply in the

context of the proposed CIP requirements in light of the intent and purpose of section 326 of the

Act.

Section 103.34(a)(4) provides that section 6109 of the Internal Revenue Code and the

rules and regulations of the Internal Revenue Service (IRS) promulgated thereunder shall

determine what constitutes a taxpayer identification number. This provision is continued in the

proposal. Section 103.34(a)(4) also provides that IRS rules shall determine whose number shall

 

7 The exemption applies to (i) agencies and instrumentalities of Federal, State, local, or foreign governments; (ii)

judges, public officials, or clerks of courts of record as custodians of funds in controversy or under the control of the

court; (iii) aliens who are ambassadors; ministers; career diplomatic or consular officers; naval, military, or other

attaches of foreign embassies and legations; and members of their immediate families; (iv) aliens who are accredited

representatives of certain international organizations, and their immediate families; (v) aliens temporarily residing in

the United States for a period not to exceed 180 days; (vi) aliens not engaged in a trade or business in the United

States who are attending a recognized college or university, or any training program supervised or conducted by an

agency of the Federal Government; (vii) unincorporated subordinate units of a tax exempt central organization that

are covered by a group exemption letter; (viii) a person under 18 years of age, with respect to an account opened as

part of a school thrift savings program, provided the annual interest is less than $10; (ix) a person opening a

Christmas club, vacation club, or similar installment savings program, provided the annual interest is less than $10;

and (x) non-resident aliens who are not engaged in a trade or business in the United States.
18

be obtained in the case of multiple account holders. Treasury believes that this provision is

inconsistent with section 326 of the Act, which requires that banks verify the identity of “any”

person seeking to open an account. For these reasons, Treasury is proposing to repeal section

103.34(a).

Section 103.34(b) sets forth certain recordkeeping requirements for banks. Among other

things, section 103.34(b)(1) requires a bank to keep “any notations, if such are normally made, of

specific identifying information verifying the identity of [a person with signature authority over

an account] (such as a driver’s license number or credit card number).” Treasury believes that

the quoted language in section 103.34(b)(1) is inconsistent with the requirements of the proposal.

For this reason, Treasury is proposing to delete the quoted language.

III. Request for Comments

Treasury invites comment on all aspects of this rulemaking, and specifically seek

comment on the following issues:

1. Whether the proposed definition of "account" is appropriate and whether other

examples of accounts should be added to the regulatory text.

2. How the proposed regulation should apply to various types of accounts that are

designed to allow a customer to transact business immediately.

3. Ways that banks can comply with the requirement that a bank obtain both the address

of an individual's residence, and, if different, the individual's mailing address in situations

involving individuals who lack a permanent address.

4. Whether non-U.S. persons that are not individuals will be able to provide a bank with

the identifying information required in the proposal, or whether other categories of identifying

information should be added to this proposal to permit non-U.S. persons that are not individuals
19

to open accounts. Commenters on this issue should suggest other means of identification that

banks currently use or should use.

5. Whether the proposed regulation will subject banks to conflicting State laws.

Treasury requests that commenters cite and describe any potentially conflicting State laws.

6. The extent to which the verification procedures required by the proposed regulation

make use of information that banks currently obtain in the account opening process. Treasury

notes that the legislative history of section 326 indicates that Congress intended "the verification

procedures prescribed by Treasury [to] make use of information currently obtained by most

financial institutions in the account opening process." See H.R. Rep. No. 107-250, pt. 1, at 63

(2001).

7. Whether any of the exemptions from the customer identification requirements

contained in current section 103.34(a)(3) should be continued in the proposal. In this regard,

Treasury requests that commenters address the standards set forth in the proposal (as well as any

other appropriate factors).

IV. Regulatory Flexibility Act

When an agency issues a rulemaking proposal, the Regulatory Flexibility Act (RFA)

requires the agency to “prepare and make available for public comment an initial regulatory

flexibility analysis” unless the agency certifies that the rule will not have a “significant economic

impact on a substantial number of small entities.” 5 U.S.C. 603, 605(b).8

 

8

 The RFA defines the term “small entity” in 5 U.S.C. 601 by reference to the definitions published by the Small

Business Administration (SBA). The SBA has defined a “small entity” for banking purposes as a bank or savings

institution with less than $150 million in assets. See 13 CFR 121.201. The NCUA defines “small credit union” as

those under $1 million in assets. Interpretive Ruling and Policy Statement No. 87-2, Developing and Reviewing

Government Regulations (52 FR 35231, September 18, 1987).
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Treasury certifies that the proposed rule will not have a significant economic impact on a

substantial number of small entities. The requirements of the proposed rule closely parallel the

requirements for customer identification programs mandated by section 326 of the Act.

Moreover, Treasury believes that banks already have implemented prudential business

practices and anti-money laundering programs that involve the key controls that would be

required in a customer identification program in accordance with the proposed regulation. First,

all banks already undertake extensive measures to verify the identity of their customers as a

matter of good business practice.

Second, banks already should have compliance programs in place to check lists provided

by the Federal government of known and suspected terrorists and terrorist organizations.

Currently, banks are prohibited from engaging in transactions involving certain foreign countries

or their nationals under rules issued by Treasury’s Office of Foreign Assets Control (OFAC).

See 31 CFR 500. Banks should already have compliance programs in place to ensure that they

do not violate OFAC rules. Treasury understands that many banks, including small banks, have

instituted programs to check other lists provided to them by the Federal government following

the events of September 11, 2001. Treasury believes that all banks have access to a variety of

resources, such as computer software packages, that enable them to check lists provided by the

Federal government.

Third, Treasury believes the provision in the proposed rule that requires a bank to provide

adequate notice to its customers that it is requesting information to verify their identity will

impose minimal costs on banks. Banks may elect to satisfy that requirement through a variety of

low-cost measures, such as by posting a sign in the bank’s lobby or providing any other form of

written or oral notice.
21

The recordkeeping requirements similarly may impose some costs on banks, if, for

example, some of the information that must be maintained as a consequence of implementing

customer identification programs is not already retained. Treasury believes that the compliance

burden, if any, is minimized for banks, including small banks, because the proposed regulation

vests a bank with the discretion to design and implement appropriate recordkeeping procedures,

including allowing banks to maintain electronic records in lieu of (or in combination with) paper

records.

Finally, Treasury believes that the flexibility incorporated into the proposed rule will

permit each bank to tailor its CIP to fit its own size and needs. In this regard, Treasury believes

that expenditures associated with establishing and implementing a CIP will be commensurate

with the size of a bank. If a bank is small, the burden to comply with the proposed rule should

be de minimis.

V. Paperwork Reduction Act

The proposed rule contains recordkeeping and disclosure requirements that are subject to

the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). In summary, the proposed rule

requires banks to implement reasonable procedures to (1) maintain records of the information

used to verify the person’s identity and (2) provide notice of these procedures to customers.

These recordkeeping and disclosure requirements are required under section 326 of the Act.

The proposed rule applies only to a financial institution that is a "bank" as defined in 31

CFR 103.11(c) lacking a Federal functional regulator. The proposed rule requires each bank to

establish a written CIP that must include recordkeeping procedures and procedures for providing

customers with notice that the bank is requesting information to verify their identity.
22

 The proposed rule requires a bank to maintain a record of (1) the identifying information

provided by the customer, the type of identification document(s) reviewed, if any, the

identification number of the document(s), and a copy of the identification document(s); (2) the

means and results of any additional measures undertaken to verify the identity of the customer;

and (3) the resolution of any discrepancy in the identifying information obtained. These records

must be maintained at the bank for five years after the date the account is closed. Treasury

believes that little burden is associated with the recordkeeping requirements of the proposal,

because such recordkeeping is a usual and customary business practice. In addition, banks

already must keep similar records to comply with existing regulations in 31 CFR Part 103 (see,

e.g., 31 CFR 103.34, requiring certain records for each deposit or share account opened).

The proposed rule also requires banks to give customers “adequate notice” of the identity

verification procedures. A bank may satisfy the notice requirement by posting a sign in the

lobby or providing customers with any other form of written or oral notice. If the account is

opened electronically, the bank may provide the notice electronically. Treasury believes that

nominal burden is associated with the disclosure requirement of the proposal. This section

requires a bank to notify its customers about the procedures the bank has implemented to verify

their identities. However, a bank may choose among a variety of methods of providing adequate

notice and may select the least burdensome method, given the circumstances under which

customers seek to open new accounts.

A person is not required to respond to a collection of information unless it displays a

currently valid Office of Management and Budget (OMB) control number. The collection of

information requirements contained in the proposed rule have been submitted to the OMB by

Treasury in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507).
23

The institutions subject to these requirements include private banks, credit unions, and

trust companies that do not have a Federal functional regulator.

Estimated number of financial institutions: 2,460.

Estimated average annual burden for the recordkeeping requirements of the proposed rule

per each financial institution respondent: 10 hours.

Estimated average annual burden for the disclosure requirements of the proposed rule per

each financial institution respondent: 1 hour.

Estimated total annual recordkeeping and disclosure burden: 27,060 hours.

Treasury requests public comment on all aspects of the recordkeeping and disclosure

requirements contained in this proposed rule, including how burdensome it would be for banks to

comply with these requirements. Also, Treasury requests comment on whether the banks are

currently maintaining the records requested by the proposal. Treasury also invites comment on:

(1) Whether the collections of information contained in the notice of proposed

rulemaking are necessary for the proper performance of FinCEN’s functions, including whether

the information has practical utility;

(2) The accuracy of the estimated burden of the proposed information collections;

(3) Ways to enhance the quality, utility, and clarity of the information to be collected;

(4) Ways to minimize the burden of the information collections on respondents, including

the use of automated collection techniques or other forms of information technology; and

(5) Estimates of capital or start-up costs and costs of operation, maintenance, and

purchases of services to provide information.

Comments concerning the recordkeeping and disclosure requirements in the proposed

rule should be sent (preferably by fax (202-395-6974)) to Desk Officer for the Department of the
24

Treasury, Office of Information and Regulatory Affairs, Office of Management and Budget,

Paperwork Reduction Project (1506), Washington, DC 20503 (or by the Internet to

jlackeyj@omb.eop.gov), with a copy to FinCEN by mail or the Internet at the addresses

previously specified.

VI. Executive Order 12866

Treasury has determined that this proposal is not a "significant regulatory action" under

Executive Order 12866. The rule follows closely the requirements of section 326 of the Act.

Treasury believes banks already have procedures in place that fulfill most of the

requirements of the proposed regulation. First, the procedures are a matter of good business

practice. Second, banks should already have compliance programs in place to ensure they

comply with OFAC rules prohibiting transactions with certain foreign countries or their

nationals.

Lists of Subjects in 31 CFR Part 103

Administrative practice and procedure, Authority delegations (Government agencies),

Banks, banking, Brokers, Currency, Foreign banking, Foreign currencies, Gambling,

Investigations, Law enforcement, Penalties, Reporting and recordkeeping requirements,

Securities.

Authority and Issuance

For the reasons set forth in the preamble, part 103 of title 31 of the Code of Federal

Regulations is proposed to be amended as follows:
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PART 103-FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND

FOREIGN TRANSACTIONS

1. The authority citation for part 103 is revised to read as follows:

Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5332; title III, sec. 312,

313, 314, 319, 326, 352 Pub L. 107-56, 115 Stat. 307, 12 U.S.C. 1818, 12 U.S.C. 1786(q).

2. Subpart I of part 103 is amended by adding new section 103.121 to read as follows:

[The text of proposed 103.121 is the same as the text of 31 CFR 103.121 published

elsewhere in this separate part of this issue of the FEDERAL REGISTER.]

DATED: __________________

__________________________

James F. Sloan

Director, Financial Crimes Enforcement Network