[Federal Register Volume 63, Number 16 (Monday, January 26, 1998)]
[Rules and Regulations]
[Pages 3640-3642]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-1671]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

31 CFR Part 103


Conditional Exceptions to Bank Secrecy Act Regulations Relating 
to Orders for Transmittals of Funds by Financial Institutions

AGENCY: Financial Crimes Enforcement Network, Treasury.

ACTION: Grant of conditional exceptions.

-----------------------------------------------------------------------

SUMMARY: This document contains two conditional exceptions to a 
provision of the Bank Secrecy Act regulations. The exceptions permit 
financial institutions to comply more efficiently with requirements for 
inclusion of certain information in transmittal orders for 
transmissions of funds.

EFFECTIVE DATE: January 26, 1998.

FOR FURTHER INFORMATION CONTACT: Peter Djinis, Associate Director, 
FinCEN, (703) 905-3920; Charles Klingman, Financial Institutions Policy 
Specialist, Office of Program Development, FinCEN, (703) 905-3920; 
Stephen R. Kroll, Legal Counsel, FinCEN, and Cynthia L. Clark, Acting 
Deputy Legal Counsel, Office of Legal Counsel, FinCEN, (703) 905-3590.

SUPPLEMENTARY INFORMATION:

I. Introduction

    The statute generally referred to as the ``Bank Secrecy Act,'' 
Titles I and II of Public Law 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, require 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 the Bank Secrecy Act has been delegated to the 
Director of FinCEN.<SUP>1</SUP>
---------------------------------------------------------------------------

    \1\ Information relating to the Paperwork Reduction Act appears 
at the end of this Issuance.
---------------------------------------------------------------------------

II. FinCEN Issuance 98-1

    This document, FinCEN Issuance 98-1, grants two conditional 
exceptions to the operation of the rules contained at 31 CFR 103.33(g). 
The background, purpose, and terms of the two exceptions are explained 
below.

Background

    On January 3, 1995, the Financial Crimes Enforcement Network 
(``FinCEN'') of the Department of the Treasury issued a rule, 31 CFR 
103.33(g) (the ``Travel Rule''), requiring financial institutions to 
include certain information in transmittal orders relating to 
transmittals of funds of $3,000 or more. The Travel Rule complements 
the rules jointly issued by the Board of Governors of the Federal 
Reserve System and FinCEN (the ``Joint Rule'') requiring the 
maintenance of

[[Page 3641]]

records by insured depository institutions and other financial 
institutions with respect to domestic and international transmittal of 
funds transactions.<SUP>2</SUP> The Joint Rule defines the terms used 
in both that Rule and the Travel Rule.
---------------------------------------------------------------------------

    \2\ The provisions of 12 U.S.C. 1829b(b), amended the Bank 
Secrecy Act (i) to require the Secretary of the Treasury and the 
Federal Reserve Board jointly to promulgate recordkeeping 
requirements for international funds transfers by depository 
institutions and nonbank depository institutions, and (ii) to 
authorize the Secretary and the Board jointly to promulgate 
regulations for domestic funds transfers by depository institutions. 
The Secretary is authorized by 31 U.S.C. 5318(g) to require 
financial institutions to carry out anti-money laundering programs. 
Both 31 U.S.C. 5318(h) and 12 U.S.C. 1829b(b) were added to the Bank 
Secrecy Act by the Annunzio-Wylie Anti-Money Laundering Act of 1992 
(Title XV of Pub. L. 102-550).
---------------------------------------------------------------------------

    Both the Joint Rule and the Travel Rule were amended on April 1, 
1996, in response to a request for regulatory relief by affected 
financial institutions. The changes to the Travel Rule made at that 
time included addition of a ``safe harbor'' for Travel Rule compliance 
prior to the date of an institution's conversion to the expanded 
message format of the Fedwire funds transfer system of the Federal 
Reserve Banks.<SUP>3</SUP> The ``safe harbor'' permits an institution--
prior to the completion of its Fedwire conversion--to omit from a 
transmittal order some of the information otherwise required by the 
Travel Rule, so long as the missing information is retrieved and 
supplied in a reasonable amount of time in response to a law 
enforcement request or a judicial order, or to a request by another 
financial institution that would otherwise have received the 
information to assist the latter institution in its own Bank Secrecy 
Act compliance efforts.
---------------------------------------------------------------------------

    \3\ The expanded Fedwire format was announced by the Federal 
Reserve Board on the same day as the Joint Rule and the Travel Rule. 
See 60 FR 220 and 60 FR 234 (January 3, 1995).
---------------------------------------------------------------------------

Use of Customer Information File Information

    A group of banks and brokers and dealers in securities (the 
``Working Group'') <SUP>4</SUP>, has sought relief from the strict 
operation of the Travel Rule's requirement that each transmittor's 
financial institution and intermediary financial institution include in 
a transmittal order the transmittor's name and street address. See 31 
CFR 103.33(g)(1) (i)-(ii) and (g)(2) (i)-(ii). Absent an exception or 
special rule of some kind, satisfaction of the terms of the Travel Rule 
require the use of true name and street address information. The Bank 
Secrecy Act rules for the maintenance of customer and transaction 
records (one of which is the Joint Rule), and for the reporting of 
various transactions or circumstances, require the use of true name and 
street address information, and prior guidance issued by FinCEN stated 
plainly that ``[t]he use of a code name, or pseudonym is prohibited'' 
under the Travel Rule. Question and Answer 19, Guidance for Financial 
Institutions on the Transmittal of Funds ``Travel Regulations'' 
(January 1997).<SUP>5</SUP>
---------------------------------------------------------------------------

    \4\ The members of the Working Group are Bank of America, N.A.; 
The Bank of New York; Bankers Trust Company; The Chase Manhattan 
Bank; Citibank, N.A.; J.P. Morgan, Inc.; Marine Midland Bank; 
Merrill Lynch, Pierce, Fenner & Smith; MTB Bank; NationsBank, N.A.; 
Prudential Securities, Inc.; and Republic National Bank of New York.
    \5\ The January 1997 Guidance document was distributed to banks, 
thrift institutions, and credit unions by their respective federal 
regulators and was the subject of NASD-R Notice to Members 97-13, 
sent to members of the National Association of Securities Dealers.
---------------------------------------------------------------------------

    The Working Group has represented that the present ability of many 
covered institutions to satisfy the Travel Rule at all depends upon the 
ability of those institutions to make use electronically of information 
contained in the institutions' automated customer information files, or 
``CIFs.'' CIFs, the Working Group has told FinCEN, will always contain 
each customer's actual account number. However, CIFs will often contain 
a post office box mailing address rather than the customer's street 
address, or (somewhat less frequently) a nominee or ``special'' or 
coded name rather than the customer's true name; in other cases CIFs 
may contain both true and nominee, ``special'' or coded name or Post 
Office Box address information, but will be programmed to use the 
latter for communications purposes outside the institution itself. The 
result is that, although the originating institution will know a 
customer's street address and true name, reliance on CIFs as presently 
programmed could produce ``traveling information'' other than actual 
names and street addresses. The banks and broker-dealers involved have 
further represented that reprogramming CIFs so that those files can 
produce true name and address information when necessary to satisfy the 
Travel Rule (if for some reason the files contain post office box 
addresses or nominee, ``special,'' or coded names) will require 
significant resources and would likely involve diverting programming 
time away from more urgent programming needs, especially correction of 
the world-wide ``Year 2000'' problem.

Full Travel Rule Compliance Following Conversion to Expanded Fedwire 
Message Format

    The ``safe harbor'' contained in 31 CFR 103.33(g) only applies 
prior to the date that an institution completes its conversion to the 
expanded message format of the Fedwire funds transfer system. 
Generally, that transformation is required to be completed by the end 
of 1997.
    A number of financial institutions have represented to FinCEN that 
they have found it impossible to begin full compliance with the Travel 
Rule immediately upon conversion to the expanded Fedwire message 
format. The inability to meet the date for full compliance set out in 
the safe harbor arises because of delays in completing related 
programming tasks, for example the linking of inbound and outbound 
message systems.

Need for Flexibility in Administration of Travel Rule

    Although the Travel Rule complements the Joint Rule, FinCEN has 
made clear in the past that the purposes of the Travel Rule are not 
incompatible with flexibility in applying the Rule's literal terms. The 
need for administrative flexibility is increased because Treasury 
intends, within the next 18 months, to review and consider making 
appropriate modifications to the Travel Rule. See 61 FR 14383, 14387-
14388. Modifications are appropriate to meet particular operating 
problems, so long as complete information is available, at some point, 
in the domestic funds transfer chain and investigators are given 
adequate notice that the funds transmittal order itself must be 
supplemented by other information to provide a complete picture of the 
transmittal involved. See 31 CFR 103.33(g)(3).

Grant of Exceptions

    By virtue of the authority contained in 31 CFR 103.45(a) and (b), 
which has been delegated to the Director of FinCEN, the following 
exceptions to the operation of the rules in 31 CFR 103.33(g) are 
approved:
    1. A transmittor's financial institution that is otherwise subject 
to the terms of 31 CFR 103.33(g) with respect to transmittal of funds 
may satisfy (i) the requirement of 31 CFR 103.33(g)(1)(i) that the name 
of the transmittor be included in a transmittal order, and (ii) the 
requirement of 31 CFR 103.33(g)(1)(ii) that the transmittor's address 
be included in a transmittal order, with respect to a particular 
transmittal order, by including in the transmittal order the name and 
address information with respect to the transmittor contained in the 
financial institution's general automated CIFs, so long as:

[[Page 3642]]

    (a) The CIFs are not specifically altered for the particular 
transmittal of funds in question,
    (b) The CIFs are generally programmed and used by the institution 
for customer communications, not simply for transmittal of funds 
transactions, and as so programmed generate other than true name and 
street address information;
    (c) The institution itself knows and can associate the CIF 
information used in the funds transmittal order with the true name and 
street address of the transmittor of the order;
    (d) The transmittal order includes a question mark symbol (``?'') 
immediately following any designation of the transmittor other than by 
a true name on the order; and
    (e) Any report required to be made under 31 CFR 103.21 or 31 CFR 
103.22 by the institution with respect to the funds transmittal to 
which the transmittal order relates contains true name and street 
address information for the transmittor and plainly associates the 
report with the particular funds transmittal in question.
    This exception has no application to any funds transmittals for 
whose processing an institution does not automatically rely on 
preprogrammed and prespecified CIF name and address information. 
Moreover, institutions are reminded that the use of nominee, 
``special,'' or coded names is barred by the Travel Rule, in the 
absence of the foregoing exception with respect to CIFs only. Any new 
customer request for use of a nominee, or ``special'' or coded name in 
a CIF after the date of this Issuance should be carefully evaluated by 
depository institutions as a potentially suspicious transaction 
requiring reporting under 31 CFR 103.21, and reported unless an 
examination reveals that the request is made for an independent lawful 
business purpose and is the sort in which the customer involved would 
be expected to engage.
    2. A financial institution will have complied with the terms of 31 
CFR 103.33(g) for a transmittal order sent prior to April 1, 1998 and 
on or after the date of the conversion to the expanded Fedwire message 
format of the bank sending the transmittal order, if
    (a) The transmittal order was an order to which the terms of 31 CFR 
103.33(g)(3) would have applied if the order had been sent prior to the 
date of such conversion, and
    (b) The terms of 31 CFR 103.33(g)(3) are satisfied with respect to 
such order as if such paragraph continued to apply by its terms to such 
transmittal order.
    The foregoing exceptions do not in any way modify the obligations 
of financial institutions under any other provisions of 31 CFR part 
103, including, without limitation, the obligation to maintain and 
retrieve information about transmittals of funds or the contents of 
orders for the transmittals of funds. Terms used in the foregoing 
exceptions and not defined in this document have the meaning given to 
such terms in 31 CFR part 103. The foregoing exceptions may be modified 
or revoked at any time in the sole discretion of the Department of the 
Treasury, by document published in the Federal Register. Exception 1, 
above, will expire on May 31, 1999, for transmittals of funds initiated 
after that date, if not revoked or modified with respect to such 
expiration date prior to that time.

III. Paperwork Reduction Act

    The collection of information contained in this issuance has been 
reviewed and approved by the Office of Management and Budget in 
accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under 
control number 1506-0008. An agency may not conduct or sponsor, and a 
person is not required to respond to, a collection of information 
unless it displays a valid control number assigned by the Office of 
Management and Budget.
    The collection of information in this issuance is in the Grant of 
Exceptions section of this issuance, paragraph 1.(d). This information 
is required to comply with the Bank Secrecy Act. This information will 
be used to assure that a code or ``special'' name (i.e., a name other 
than the transmittor's true name) on accounts at banks and with brokers 
and dealers in securities are not used to launder money or hide assets 
derived from illegal activities. The collection of information is 
mandatory. All information collected pursuant to the Bank Secrecy Act, 
including this information collection, is confidential pursuant to 31 
U.S.C. 5316(c) and may be shared with regulatory and law enforcement 
authorities but its availability is strictly limited. All records 
required to be retained by 31 CFR part 103 must be retained for five 
years.
    The likely respondents are banks and brokers and dealers in 
securities.
    Frequency: Each time a transmittal order contains a code or special 
name, i.e., a name other than the transmittor's true name.
    Estimated Number of Such Transmittal Orders: 5,000.
    Estimate of Total Annual Burden:

Reporting burden estimate = approximately 250 hours for reporting.
Recordkeeping burden estimate = approximately 1,250 hours for 
recordkeeping.
    Estimate of Total Annual Cost for Hour Burdens: Based on $20 per 
hour, the total cost of compliance is estimated to be approximately 
$33,000.
    Estimate of Total Other Annual Costs to Respondents: None.
    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 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 collection of information. 
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 concerning the accuracy of the burden estimate and 
suggestions for reducing the burden should be directed to the Office of 
Management and Budget, Attention: Desk Officer for the Treasury 
Department, Office of Information and Regulatory Affairs, Washington, 
D.C., 20503.

    Signed this 16th day of January 1998.
William F. Baity,
Acting Director--FinCEN, Department of the Treasury.
[FR Doc. 98-1671 Filed 1-23-98; 8:45 am]
BILLING CODE 4820-03-P