[Federal Register Volume 60, Number 1 (Tuesday, January 3, 1995)]
[Rules and Regulations]
[Pages 231-234]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31978]



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FEDERAL RESERVE SYSTEM

12 CFR Part 219

[Regulation S; Docket No. R-0807]


Reimbursement for Providing Financial Records; Recordkeeping 
Requirements for Certain Financial Records

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

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SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
has finalized the enhanced recordkeeping requirements relating to 
certain wire transfers (which include funds transfers and transmittals 
of funds) by financial institutions. The final rule takes into 
consideration the public comments received on the initial notice of 
proposed rulemaking. These recordkeeping requirements are being 
promulgated jointly by the Board and the Department of Treasury 
(Treasury). A companion notice published elsewhere in today's Federal 
Register by the Treasury and the Board (Joint Notice) sets forth the 
substantive provisions of the recordkeeping requirements and provides 
an analysis of comments received on the proposal. This notice sets 
forth the regulation for codification at 12 CFR Part 219, subpart B, 
which cross-references the substantive provisions set forth in the 
Joint Notice. Under the Joint Notice, each domestic financial 
institution involved in either a domestic or international wire 
transfer must collect and retain certain information. The amount and 
type of information collected and retained will depend upon the nature 
of the financial institution, its role in the particular wire transfer, 
and the relationship of the parties to the transaction with the 
financial institution.

EFFECTIVE DATE: January 1, 1996.

FOR FURTHER INFORMATION CONTACT: Louise L. Roseman, Associate Director, 
(202) 452-2789; Gayle Brett, Manager, [[Page 232]] Fedwire, (202) 452-
2934, Division of Reserve Bank Operations and Payment Systems; Oliver 
Ireland, Associate General Counsel, (202) 452-3625, or Elaine M. 
Boutilier, Senior Counsel, (202) 452-2418, Legal Division, Board of 
Governors of the Federal Reserve System. For the hearing impaired only, 
Telecommunication Device for the Deaf (TDD), Dorothea Thompson (202) 
452-3544.

SUPPLEMENTARY INFORMATION: The statute generally referred to as the 
Bank Secrecy Act (Pub. L. 91-508, codified at 12 U.S.C. 1829b and 1951-
1959, and 31 U.S.C. 5311-5329) authorizes the Secretary of the Treasury 
to require financial institutions to keep records and file reports that 
the Secretary determines have a high degree of usefulness in criminal, 
tax, or regulatory investigations or proceedings. The primary purpose 
of the Bank Secrecy Act is to identify the source, volume, and movement 
of funds into and out of the country and through domestic financial 
institutions. The Bank Secrecy Act was amended by the Annunzio-Wylie 
Anti-Money Laundering Act of 1992, Title XV of the Housing and 
Community Development Act of 1992, Pub. L. 102-550 (referred to 
hereafter as the 1992 Amendment) to specifically authorize the Treasury 
and the Board jointly to prescribe regulations to require maintenance 
of records regarding domestic and international funds transfers.
    The 1992 Amendment authorizes the Board and the Treasury to 
promulgate recordkeeping requirements for domestic wire transfers by 
insured depository institutions whenever the agencies determine that 
such records have a high degree of usefulness in criminal, tax, or 
regulatory investigations or proceedings. In addition, the 1992 
Amendment requires the Treasury and the Board to issue final 
regulations with regard to international transactions. The 
recordkeeping requirements for international transactions will apply to 
financial institutions as defined in 31 CFR 103.11(i),<SUP>1 which 
include insured depository institutions, brokers and dealers in 
securities, as well as other businesses that provide money transmitting 
services. In prescribing these required regulations, the Board and the 
Treasury considered the usefulness of these records in criminal, tax, 
or regulatory investigations or proceedings and the effect on the cost 
and efficiency of the payment system. The Board and the Treasury 
decided that it would be simpler to issue regulations for both domestic 
and international funds transfers simultaneously, because the 
recordkeeping requirements will be substantially the same.

    \1\When this rule becomes effective, the citation for the 
definition of financial institution will be 31 CFR 103.11(n).
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    The number of wire transfers completed is substantial. For example, 
more than 71 million funds transfers with an aggregate dollar value of 
approximately $208 trillion were made over Fedwire in 1993. More than 
42 million funds transfers with a value of approximately $266 trillion 
were made over the Clearing House Interbank Payments System (CHIPS). 
Nonbank providers of money transmitting services make an estimated 12.7 
million transmittals annually.
    Money laundering is a vital component of drug trafficking and other 
criminal activity throughout the world, and Federal law enforcement 
agencies believe that a significant amount of the money laundered 
involves wire transfers. Proceeds from illegal activities may be 
processed through money laundering schemes involving domestic and/or 
international payments by wire transfers. Such activity has been 
documented in several recent investigations conducted by the Treasury 
and other Federal law enforcement agencies.
    In August 1993, the Treasury and the Board jointly issued for 
public comment a proposal to enhance the recordkeeping requirements 
relating to certain wire transfers by financial institutions (58 FR 
46014, August 31, 1993). Based on the comments received, the Treasury 
and the Board have modified the proposed rule to reduce the burden 
associated with the rule, while maintaining the usefulness of the rule 
to law enforcement agencies. The Board and the Treasury believe that 
maintenance of these records will have a high degree of usefulness in 
criminal, tax, or regulatory investigations or proceedings. Further, 
the Board and the Treasury believe that these recordkeeping 
requirements will not have a significant adverse effect on the cost or 
the efficiency of the payments system.

Codification of the Rule

    To minimize potential confusion by affected entities regarding the 
scope of this joint rule and its interaction with other anti-money 
laundering regulations, the substantive requirements of the rule will 
be codified with other Bank Secrecy Act regulations, as part of the 
Treasury's regulations in 31 CFR Part 103. Because the Board is 
required to prescribe these regulations jointly with the Treasury, the 
Board is adding a new subpart B to 12 CFR Part 219, which will cross-
reference the jointly prescribed requirements in 31 CFR Part 103. The 
current text of 12 CFR Part 219, concerning reimbursement to financial 
institutions for assembling and providing financial records pursuant to 
the Right to Financial Privacy Act, will become subpart A of 12 CFR 
Part 219.

Summary Description of the Rule

    The Joint Notice, published elsewhere in today's Federal Register, 
provides an extensive description of the substantive requirements of 
the rule. While the Board is authorized to promulgate jointly with the 
Treasury recordkeeping and reporting requirements with regard to 
domestic wire transfers by insured depository institutions, the Board 
specifically is required to promulgate jointly with the Treasury 
recordkeeping and reporting requirements for international wire 
transfers by both insured depository institutions and nonbank financial 
institutions. The Board is not authorized to promulgate recordkeeping 
and reporting requirements for domestic wire transfers by nonbank 
financial institutions. (The Treasury has this authority under other 
statutory provisions.) This limitation is reflected in the Board's 
subpart B of 12 CFR Part 219. The Board's recordkeeping and reporting 
requirements for international wire transfers by nonbank financial 
institutions, however, are identical to those adopted by the Treasury 
for domestic and international wire transfers by nonbank financial 
institutions. Therefore, compliance by nonbank financial institutions 
with the requirements will not be affected by this limitation in the 
Board's regulatory authority.

Regulatory Flexibility Analysis

    Three requirements of a final regulatory flexibility analysis (5 
U.S.C. 604), (1) a succinct statement of the need for and the 
objectives of the rule, (2) a summary of the issues raised by the 
public comments, the agency's assessment of the issues, and a statement 
of the changes made in the final rule in response to the comments, and 
(3) a description of significant alternatives to the rule that would 
minimize the rule's economic impact on small entities and reasons why 
the alternatives were rejected, are discussed in the Joint Notice.

Competitive Impact Analysis

    In considering an operational or legal change that would affect a 
Federal Reserve Bank priced service, the Board [[Page 233]] determines 
whether the change would have a direct and material adverse effect on 
the ability of other service providers to compete effectively with the 
Federal Reserve in providing similar services, due to differing legal 
powers or constraints or due to a dominant market position of the 
Federal Reserve deriving from such legal differences.
    Unlike other providers of wire transfer services, the Federal 
Reserve Banks are not subject to the wire transfer recordkeeping rules, 
because they are not considered by the Treasury to be financial 
institutions, as defined in 31 CFR 103.11(i).<SUP>2 The Board believes, 
however, that the exclusion of the Federal Reserve Banks from the scope 
of this rule will not adversely affect the ability of other service 
providers to compete effectively with the Federal Reserve in providing 
similar services. The Federal Reserve Banks will continue to maintain 
records of the payment orders that they accept, similar to the records 
required by the rule to be kept by intermediary banks.

    \2\Ibid.
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    For funds transfers effected over the Federal Reserve's Fedwire 
funds transfer system, banks and domestic brokers or dealers in 
securities would not have to retain as many of the elements of 
beneficiary identification as provided by the originator, because the 
current Fedwire format may not have sufficient space to include such 
information. The Board, however, does not believe that this temporary 
exception would make use of the Fedwire system more desirable than 
other funds transfer systems. A financial institution will be required 
to comply fully with the requirement to retain full beneficiary 
information at such time that it completes its conversion to the 
expanded Fedwire message format.

Paperwork Reduction Act

    The collection of information required by the final rule has been 
submitted by the Treasury to the Office of Management and Budget in 
accordance with the requirements of the Paperwork Reduction Act (44 
U.S.C. 3504(h)) under control number 1505-0063.
    The collection of information in this regulation is authorized by 
12 U.S.C. 1829b and 1951-1959 and 31 U.S.C. 5311-5328. The likely 
recordkeepers are financial institutions that perform transmittals of 
funds.
    Estimated number of respondents and/or recordkeepers: 60,000.
    Estimated total annual recordkeeping burden: 1 million hours.
    Estimated average annual burden per respondent and/or recordkeeper: 
16.3 hours.
    Estimated annual frequency of responses: Upon request.
    The estimated average annual burden hours have decreased 
significantly from those included in the August 1993 proposal. The 
decrease is due to the significant reduction in the number of 
transmittals of funds subject to the recordkeeping requirements as a 
result of the establishment of the $3,000 threshold, and due to the 
reduction of circumstances in which additional recordkeeping and 
verification requirements for noncustomers would apply.

List of Subjects in 12 CFR Part 219

    Banks, Banking, Currency, Reporting and recordkeeping requirements, 
Foreign banking.

    For the reasons set out in the preamble, 12 CFR Part 219 is amended 
as set forth below.

PART 219--REIMBURSEMENT FOR PROVIDING FINANCIAL RECORDS; 
RECORDKEEPING REQUIREMENTS FOR CERTAIN FINANCIAL RECORDS 
(REGULATION S)

    1. The title of part 219 is revised to read as set forth above.

Subpart A--Reimbursement to Financial Institutions for Providing 
Financial Records


Secs. 219.1 through 219.7  [Designated as Subpart A]

    2. Sections 219.1 through 219.7 are designated as Subpart A, and a 
new Subpart A heading is added to read as set forth above.
    3. The authority citation for Part 219 is designated as the 
authority for Subpart A and continues to read as follows:

    Authority: 12 U.S.C. 3415.

    4. Subpart A is amended by revising Sec. 219.1 to read as follows:


Sec. 219.1  Authority, purpose and scope.

    This subpart of Regulation S (12 CFR part 219, subpart A) is issued 
by the Board of Governors of the Federal Reserve System (the Board) 
under section 1115 of the Right to Financial Privacy Act (the Act) (12 
U.S.C. 3415). It establishes the rates and conditions for reimbursement 
of reasonably necessary costs directly incurred by financial 
institutions in assembling or providing customer financial records to a 
government authority pursuant to the Act.
    5. Section 219.2 is amended by revising the introductory text to 
read as follows:


Sec. 219.2  Definitions.

    For the purposes of this subpart, the following definitions shall 
apply:
* * * * *
    6. Subpart B is added to Part 219 to read as follows:
Subpart B--Recordkeeping and Reporting Requirements for Funds Transfers 
and Transmittals of Funds
Sec.
219.21  Authority, purpose and scope.
219.22  Definitions.
219.23  Recordkeeping and reporting requirements.
219.24  Retention period.

Subpart B--Recordkeeping and Reporting Requirements for Funds 
Transfers and Transmittals of Funds

    Authority: 12 U.S.C. 1829b(2) and (3).


Sec. 219.21  Authority, purpose and scope.

    This subpart of Regulation S (12 CFR part 219, subpart B) is issued 
by the Board under the authority of section 21(b) of the Federal 
Deposit Insurance Act (12 U.S.C. 1829b), as amended by the Annunzio-
Wylie Anti-Money Laundering Act of 1992 (Pub. L. 102-550, Title XV; 106 
Stat. 3672, 4044), which authorizes the Board and the Secretary of the 
Treasury jointly to prescribe recordkeeping and reporting requirements 
for domestic wire transfers by insured depository institutions; and 
which also requires the Board and the Treasury jointly to prescribe 
recordkeeping and reporting requirements for international wire 
transfers by insured depository institutions and by nonbank financial 
institutions. The definitions and recordkeeping and reporting 
requirements referenced in this subpart are promulgated and 
administered jointly by the Board and the Treasury and are codified in 
31 CFR 103.11 and 103.33(e) and (f). Such recordkeeping and reporting 
requirements will assist in the prosecution of money laundering 
activities and are determined to have a high degree of usefulness in 
criminal, tax or regulatory investigations or proceedings.


Sec. 219.22  Definitions.

    The following terms are defined in 31 CFR 103.11 under the joint 
authority of the Board and the Treasury:

    Accept.
    Beneficiary.
    Beneficiary's bank.
    Established customer.
    Execution date.
    Funds transfer. [[Page 234]] 
    Intermediary bank.
    Intermediary financial institution.
    Originator.
    Originator's bank.
    Payment date.
    Payment order.
    Receiving bank.
    Receiving financial institution.
    Recipient.
    Recipient's financial institution.
    Sender.
    Transmittal of funds.
    Transmittal order.
    Transmittor.
    Transmittor's financial institution.


Sec. 219.23  Recordkeeping and reporting requirements.

    (a) Domestic and international funds transfers by insured 
depository institutions. The Board and the Treasury are authorized to 
promulgate jointly recordkeeping and reporting requirements for 
domestic and international funds transfers by insured depository 
institutions whenever the agencies determine that the maintenance of 
such records has a high degree of usefulness in criminal, tax, or 
regulatory investigations or proceedings. These regulations are 
codified at 31 CFR 103.33(e). For the purposes of this subpart, the 
provisions of 31 CFR 103.33(e) apply only to funds transfers by insured 
depository institutions.
    (b) International transmittals of funds by financial institutions 
other than insured depository institutions. The Board and the Treasury 
are required to promulgate jointly reporting and recordkeeping 
requirements for international transmittals of funds by financial 
institutions, including brokers and dealers in securities and 
businesses that provide money transmitting services. In prescribing 
these requirements, the Board and the Treasury take into account the 
usefulness of these records in criminal, tax, or regulatory 
investigations or proceedings and the effect the recordkeeping will 
have on the cost and efficiency of the payment system. These 
regulations are codified at 31 CFR 103.33(f). For the purposes of this 
subpart, the provisions of 31 CFR 103.33(f) apply only to international 
transmittals of funds.


Sec. 219.24  Retention period.

    All records that are required to be retained by this subpart shall 
be retained for a period of five years. All these records shall be 
filed or stored in such a way as to be accessible within a reasonable 
period of time, taking into consideration the nature of the record and 
the amount of time that has expired since the record was made. Any 
records required to be retained by this subpart shall be made available 
to the Board upon request.

    By order of the Board of Governors of the Federal Reserve 
System, December 21, 1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-31978 Filed 12-30-94; 8:45 am]
BILLING CODE 6210-01-P