220 Federal Register / Vol. 60, No. 1 / Tuesday, January 3, 1995 / Rules and Regulations

FEDERAL RESERVE SYSTEM

[Docket No. R–0807]

DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1505–AA37

Amendment to the Bank Secrecy Act

Regulations Relating to Recordkeeping

for Funds Transfers and Transmittals

of Funds by Financial Institutions

AGENCY: Department of the Treasury;

Board of Governors of the Federal

Reserve System.

ACTION: Final rule.

SUMMARY: The Financial Crimes

Enforcement Network (FinCEN) of the

Department of the Treasury (Treasury)

and the Board of Governors of the

Federal Reserve System (Board) jointly

have adopted a final rule that requires

enhanced recordkeeping related 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 notice

of proposed rulemaking. Each domestic

financial institution involved in a wire

transfer must collect and retain certain

information, depending upon the type

of financial institution, its role in the

particular wire transfer, the amount of

the wire transfer, and the relationship of

the parties to the transaction with the

financial institution.

EFFECTIVE DATE: January 1, 1996.

FOR FURTHER INFORMATION CONTACT:

Treasury: A. Carlos Correa, Assistant

Director, Rules and Regulations Section,

(202) 622–0400; or Roger Weiner,

Deputy Director, (202) 622–0400; or

Peter Djinis, Director, (202) 622–0400,

Office of Financial Enforcement;

Stephen R. Kroll, Legal Counsel, (703)

905–3534; or Nina A. Nichols, AttorneyAdvisor, (703) 905–3598, FinCEN.

Board: Louise L. Roseman, Associate

Director, (202) 452–2789; Gayle Brett,

Manager, Fedwire, (202) 452–2934; or

Darrell Mak, Financial Services Analyst,

(202) 452–3223, Division of Reserve

Bank Operations and Payment Systems;

Oliver Ireland, Associate General

Counsel, (202) 452–3625; or Elaine

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

authority of the Secretary to administer

the Bank Secrecy Act has been

delegated to the Director of FinCEN. The

Bank Secrecy Act was amended by the

Annunzio-Wylie Anti-Money

Laundering Act of 1992 (Pub. L. 102–

550), which authorizes the Treasury and

the Board to prescribe regulations to

require maintenance of records

regarding domestic and international

funds transfers. The Treasury and the

Board are required to promulgate

jointly, after consultation with state

banking supervisors, recordkeeping and

reporting requirements for international

wire transfers by depository institutions

and certain nonbank financial

institutions. In issuing this final rule,

the Treasury and the Board have

considered its usefulness in criminal,

tax, or regulatory investigations or

proceedings and its effect on the cost

and efficiency of the payments system.

The Treasury and the Board are

authorized to promulgate regulations for

domestic transfers by depository

institutions. The Treasury, but not the

Board, is authorized to promulgate

recordkeeping and reporting

requirements for domestic wire transfers

by nonbank financial institutions.

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). The proposal

was distributed to state banking

supervisors. Comments were requested

on all aspects of the proposal, including

the usefulness of the records covered by

the proposed rule for law enforcement

purposes and the effects the proposal

might have on the cost and efficiency of

the payments system.

At the same time, the Treasury issued

a companion Notice of Proposed

Rulemaking, which would require

financial institutions to include in

transmittal orders certain information

that must be retained under this rule (58

FR 46021, August 31, 1993). While

many commenters responded to both

proposals via the same correspondence,

comments related to the companion

proposal are not included in this

summary.

The following table identifies the

number of commenters by type of

organization:

Commercial banking organizations 48

Trade associations ........................... 20

Credit unions ................................... 12

Broker/dealers .................................. 4

Federal Reserve Banks .................... 4

Regulatory agencies ......................... 5

Money transmitting providers ........ 4

Savings institutions ......................... 2

Clearing house associations ............ 2

Others ............................................... 7

Total public comments ............ 108

A. Overview

The proposed rule would require each

domestic financial institution (as

defined in the Bank Secrecy Act

regulations) involved in a wire transfer

to collect and retain certain information

for five years. The amount and type of

information would depend upon the

type of financial institution, its role in

the particular wire transfer, and the

relationship of the parties to the

transaction with the financial

institution.

Many commenters expressed general

support for the rule and its objective to

combat money laundering. A few

commenters, primarily smaller financial

institutions with low wire transfer

volume, indicated that they were

already complying with the

requirements. The Department of the

Justice, the Internal Revenue Service,

and the Office of the Chief Postal

Inspector supported the proposal,

commenting that the availability of

greater user information will be a

tremendous asset to law enforcement’s

ability to counteract money laundering

activities. These law enforcement

agencies suggested that the regulation be

strengthened further to assist them in

identifying illegal activity. Broker/

dealer commenters also expressed

general support for the proposed rule.

One broker/dealer commented that the

proposed regulation was a reasonable

and highly effective response to law

enforcement needs. Another broker/

dealer commented that the rule

generally would not be burdensome to

its operations.

Some commenters, however,

expressed doubts that the proposed rule

would deter money laundering. A small

number of commenters objected to the

proposal altogether, indicating that the

rule was overly burdensome, while

additional commenters doubted that the

benefits of the rule would outweigh the

costs. Two commenters believed that

law enforcement agencies already were

being inundated with enough antimoney laundering information, such as

currency transaction reports, and they

did not believe the additional

information required by the rule would

provide sufficient benefit to warrant
Federal Register / Vol. 60, No. 1 / Tuesday, January 3, 1995 / Rules and Regulations 221

1 Under the Official Comment, a drawdown

transfer is a funds transfer if the person transferring

the funds either instructs Bank A to transfer funds

from its account at Bank A to its account at Bank

B or if Bank A has an agreement with the person

whereby Bank A is authorized to follow

instructions of Bank B, as agent of the person, to

transfer funds from the person’s account at Bank A

to Bank B. In both instances, the transfer is a credit

transfer because the instruction goes from the

person (although in one case via Bank B as agent)

to Bank A to send the funds to Bank B. A funds

transfer under UCC 4A must be a credit transfer. If

there is no agreement between the person and Bank

A that Bank B act as agent for the person, then a

request or instruction from Bank B to Bank A to

transfer funds from the person’s account at Bank A

to Bank B would be a debit transfer and would not

be a funds transfer under UCC 4A or the final

regulation.

2The citation for the definition of bank will

become 31 CFR 103.11(c) when this rule becomes

effective.

collection. A few commenters suggested

that money launderers simply would

find alternative methods to circumvent

the recordkeeping requirements,

diluting the rule’s effectiveness.

Three of the four nonbank providers

of money transmitting services that

commented strongly opposed the

proposed requirements. One commenter

stated that the Treasury and the Board

must consider the fundamentally

different nature of nonbank financial

institution operations before adopting a

final rule. These commenters indicated

that the burden on nonbank financial

institutions would clearly and

substantially outweigh the reasonably

anticipated benefit to law enforcement.

Other commenters indicated that it

was difficult to assess the burden of the

proposal because certain requirements,

such as retrievability, were not clearly

defined. Many commenters suggested

that more types of transactions be

exempted from the rule.

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 final rule

exempts wire transfers below $3,000,

thereby reducing the burden of

collecting, maintaining, and retrieving

wire transfer records. This exemption

should particularly benefit nonbank

providers of money transmitting

services, which typically handle

smaller-value transfers. Other

modifications to the rule limit instances

where verification is required. In

addition, the final rule clarifies the

verification and retrievability

requirements. As a result of these

changes, the Treasury and the Board

believe that the benefit of having the

information available to law

enforcement agencies outweighs the

burden associated with the final rule.

Although the final rule cannot prevent

money launderers from using wire

transfers for illegal purposes, the

Treasury and the Board believe that the

rule will help trace the proceeds of

illegal activity and identify the

participants in money laundering

schemes.

The Treasury and the Board will

monitor experience under this final rule

to assess its usefulness to law

enforcement and its effect on the cost

and efficiency on the payments system.

Within 36 months of the effective date,

the Treasury and the Board will review

the effectiveness of this final rule and

will consider making any appropriate

modifications.

B. Section-by-Section Analysis

Section 103.11 Meaning of Terms

The proposed rule added new

definitions to the existing definitions in

the Treasury rules. A number of these

new definitions applicable to banks

were identical to the terms used in

Uniform Commercial Code Article 4A

(UCC 4A) (e.g., originator, originator’s

bank, payment order, and others). In

addition, the proposed rule added a

number of new definitions applicable to

transactions by nonbank financial

institutions. These definitions were

intended to parallel the equivalent

definitions in UCC 4A (e.g., transmittor,

transmittor’s financial institution,

transmittal order, and others). In order

to preserve as much uniformity as

possible, some changes have been made

to certain proposed definitions to

conform them more closely to the UCC

4A definitions. Several definitions (e.g.

accept, execution date, payment date)

are defined so as to make their usage

also appropriate for transactions

involving nonbank financial

institutions; otherwise, they are similar,

but not always equivalent in practice, to

the UCC 4A definitions. For example,

under the final rule’s definition of

accept, when a beneficiary’s bank

receives a transmittal order for a

recipient that is the customer of a

nonbank financial institution holding an

account at the beneficiary’s bank, the

beneficiary’s bank would accept the

transmittal order by executing a

corresponding transmittal order to the

nonbank financial institution, rather

than by crediting the account of the

nonbank financial institution, which

would constitute acceptance under UCC

4A. The definition of intermediary

financial institution was revised to

include an intermediary bank. The

definitions of transmittor, transmittor’s

financial institution, recipient, and

recipient’s financial institution also

were revised to clarify the scope of these

definitions for transmittals of funds

involving both a bank and nonbank

financial institution.

The Official Comment to UCC 4A is

helpful in understanding many of the

definitions adopted in the final rule.

Terms used in this rule that are not

defined have the meaning given them in

the UCC, unless otherwise indicated.

One bank asked whether the term

payment order includes drawdowns.

Under the UCC 4A–104 Official

Comment, this determination depends

generally on whether the drawdown is

a credit transfer.1

Another commenter asked whether a

payment order includes a transaction

where Bank A instructs its

correspondent, Bank B, to debit Bank

A’s account with Bank B and pay a

beneficiary that holds an account with

Bank B. This instruction meets the

definition of payment order in

§ 103.11(y) and under UCC 4A–103. In

this funds transfer, Bank B is the

beneficiary’s bank and Bank A is either

an intermediary bank or an originator’s

bank, depending on the circumstances,

and must keep the appropriate records

of the payment order.

Another commenter described a

situation where a depositor orders his

account closed by telephone and

instructs the bank to remit the balance

with a cashier’s check mailed to the

depositor; the commenter asked

whether this transaction is a funds

transfer under the regulation. This

transaction is not a funds transfer

because it is not a series of transactions

under UCC 4A–104(a); rather, it is one

transaction, a withdrawal of funds from

the bank by a cashier’s check.

Several credit union commenters

objected to the inclusion of credit

unions in the definition of bank and

stated that credit unions should be

considered nonbank financial

institutions. The longstanding definition

of bank in the Treasury’s existing Bank

Secrecy Act regulations (31 CFR

103.11(b)) 2 includes credit unions. The

definition of bank has not been changed

in the final rule.

Several commenters requested

clarification of the meaning of the terms

originator and beneficiary. In particular,

these commenters asked who the

originator and beneficiary would be in

instances where either a corporation or

a bank’s trust department sends or

receives a funds transfer. When an

employee sends a payment order to the

originator’s bank as agent for a

corporation, the corporation, and not

the employee, is the originator. When a
222 Federal Register / Vol. 60, No. 1 / Tuesday, January 3, 1995 / Rules and Regulations

3 31 CFR § 103.11(s), which will become 31 CFR

§ 103.11(nn) when this rule becomes effective,

defines United States to include the States of the

United States, the District of Columbia, the

Commonwealth of Puerto Rico, the United States

Virgin Islands, Guam, the Commonwealth of the

Northern Mariana Islands, American Samoa, the

Trust Territory of the Pacific Islands, and the

territories and possessions of the United States.

bank’s trust department makes a funds

transfer as trustee for one or more trust

accounts, the bank is the originator. If,

however, the bank’s trust department

makes the funds transfer on the specific

instructions of a trust account holder,

then the account holder is the originator

because it is the sender of the first

payment order to the bank. In both

cases, the bank is the originator’s bank.

Two commenters requested that a

definition be added for the term

executing, which is used in the

definition of the term accept. Both

commenters suggested adoption of the

UCC 4A–301 definition of executed.

Certain definitions from UCC 4A are

included in the regulation for reference.

Other terms, such as execute, that are

not defined specifically in the

regulation, but are defined in relevant

provisions of the UCC, will have the

meaning given them in the UCC, unless

otherwise indicated.

One commenter requested that the

term domestic bank be defined. The

terms domestic and bank are defined in

§ 103.11. Under these definitions, a

domestic bank is one that is located

within the United States and would

include branches and agencies of

foreign banks located and conducting

business within the United States.3 A

domestic financial institution is one that

is located in the United States. No

separate definition of domestic bank has

been added to the regulation.

As proposed in § 103.33(f), nonbank

financial institutions must collect,

verify and retain a record of the

originator’s identity, because these

institutions likely would send or receive

transmittals of funds for persons with

no account relationship, and therefore,

no existing records. Many commenters,

both banks and nonbank financial

institutions, noted that there are several

types of ongoing customer relationships,

other than those persons that have a

deposit account or loan with a bank, or

have an account with a financial

institution that is a broker or dealer in

securities, that would result in the

financial institution having the desired

information about the customer in its

customer record files. By acknowledging

these relationships, the requirements to

verify information on noncustomers

could be minimized.

The final rule limits the verification

requirements to originators/transmittors

and beneficiaries/recipients that are not

established customers. An established

customer is defined as a person with an

account with a financial institution or a

person with respect to which the

financial institution has obtained and

maintains on file the name and address,

as well as the customer’s taxpayer

identification number or, if none, alien

identification number or passport

number and country of issuance, and to

which the financial institution provides

financial services relying on that

information. Such relationships with

banks may include, but are not limited

to, deposit accounts, loan agreements,

trust accounts, custody accounts, and

mutual fund accounts. Such

relationships with nonbank financial

institutions may include, but are not

limited to, accounts with broker/dealers

and ongoing contractual relationships

between providers of money

transmitting services and business

customers.

Two commenters requested that a

definition of copy be included in the

rule to clarify that new electronic

technology, such as optical disk storage,

is allowed. The rule has been modified

to explicitly allow retention of an

electronic record, which would include

electronic data storage methods.

Two commenters requested that all

automated teller machine (ATM) and

point-of-sale (POS) transactions be

exempted from the rule. One bank noted

that ATMs are used increasingly for

legitimate business transactions that are

not governed by the Electronic Fund

Transfer Act. Unless a financial

institution could exclude all ATM

transactions from the recordkeeping

requirements, it would be necessary for

the institution to develop new systems

and procedures to ensure compliance.

The final rule excludes from the

definitions of funds transfer and

transmittal of funds all transfers

governed by the Electronic Fund

Transfer Act, as well as any other funds

transfers that are made through an

automated clearinghouse, ATM, or POS

system. The question of the treatment,

under the Bank Secrecy Act, of transfers

governed by the Electronic Fund

Transfer Act will be studied by the

Treasury.

Section 103.33. Records to be made

and retained by financial institutions.

The proposed recordkeeping

requirements varied depending on the

type of financial institution, its role in

the particular funds transfer, and the

relationship of the parties to the

transaction with the financial

institution. As proposed, the rule was

structured into three separate sections to

apply to banks, nonbank financial

institutions, and broker/dealers. The

proposed rule assumed that nonbank

financial institutions other than broker/

dealers would not have customers with

account relationships and thus required

these institutions to verify and retain a

record of the identity of all their

customers. Many commenters, however,

indicated that nonbank financial

institutions do have established

customers for which identification

information is maintained on file; thus,

there is no need to reverify the

information. The final rule recognizes

that many nonbank financial

institutions have established customers;

therefore, the recordkeeping

requirements for nonbank financial

institutions and broker/dealers,

contained in proposed sections (f) and

(g), have been combined in the final

rule.

The requirements imposed by

§ 103.33(e) for banks and § 103.33(f) for

nonbank financial institutions in the

final rule are similar. The section-bysection analysis in this notice, which

uses the terminology associated with

funds transfers through banks, also is

applicable to transmittals of funds

through nonbank financial institutions,

except where specifically noted.

Section 103.33(e)(1) and Section

103.33(f)(1).

Recordkeeping Requirements—The

proposed rule required that originator’s

banks retain, for each payment order

accepted, the originator’s name and

address, the amount, date, payment

instructions received with the payment

order, beneficiary bank identification,

and, if received with the payment order,

the beneficiary’s name and address or

the beneficiary’s account number.

Intermediary banks and beneficiary’s

banks would be required to retain a

copy of each payment order they accept.

Dollar Threshold—Many commenters

recommended that a threshold be

established to exclude funds transfers

under a certain dollar amount from the

requirements. Commenters noted that a

dollar threshold would greatly reduce

the burden of complying with the

regulation by decreasing the number of

records retained, thereby minimizing

the storage and retrievability burden,

and by decreasing the number of funds

transfers where identification must be

verified. Many commenters

recommended a $10,000 threshold,

which is the threshold for Currency

Transaction Reports. The next mostfrequently suggested threshold was

$3,000, which is the threshold for
Federal Register / Vol. 60, No. 1 / Tuesday, January 3, 1995 / Rules and Regulations 223

4The Federal Financial Institutions Examination

Council adopted a policy encouraging all financial

institutions to include, to the extent practical, the

name, address, and account number of the

originator and beneficiary in the payment order

text, including payment orders sent through

Fedwire, CHIPS, and S.W.I.F.T.

recording purchases with currency of

certain monetary instruments, such as

bank drafts and cashier’s checks. A few

commenters recommended a $1,000

threshold. One bank noted that a smalldollar exemption would particularly

benefit its noncustomer beneficiaries,

who typically are tourists whose wallets

and identification documents have been

either lost or stolen, and who arrange to

have a few hundred dollars wired to

them from relatives or friends.

One nonbank provider of money

transmitting services, noting that a

small-dollar threshold would reduce the

burden and cost to comply with the

regulation, estimates that 99.96 percent

of its transactions are for amounts below

$10,000, while 98.0 percent of its

transactions are for less than $3,000,

and 95.0 percent are for less than

$1,000. The Federal Reserve Banks

recently conducted a one-day survey of

Fedwire funds transfers and found that

22 percent of transactions for that

sample day were for amounts less than

$3,000, while 36 percent of the

transactions were for amounts less than

$10,000.

To reduce the burden of the proposal,

the final rule does not apply to funds

transfers of less than $3,000. This

exemption will reduce the burden of

retaining records for small-dollar

transactions and of verifying the

identity of noncustomer originators and

beneficiaries, reducing the costs to

comply with the final rule.

The Department of Justice commented

that no threshold, or a threshold lower

than $3,000, should be imposed. It

believes that a dollar threshold would

provide persons wishing to circumvent

the rule the opportunity to do so by

sending multiple small-dollar funds

transfers. The Treasury and the Board

believe that it is desirable to have a

logical relationship between the

threshold for the funds transfer

recordkeeping requirements and the

other thresholds established in the Bank

Secrecy Act regulations. In situations

where a person sends multiple smalldollar funds transfers to avoid the rule,

it is expected that the bank would notify

law enforcement appropriately.

The Treasury intends to issue for

comment proposed regulations that

would require banks to establish antimoney laundering measures, including

reporting of suspicious transactions and

‘‘know your customer’’ policies and

programs. In light of these anticipated

amendments to the Bank Secrecy Act

regulations, the Treasury and the Board

believe that a $3,000 threshold will not

hinder the usefulness of the rule to law

enforcement. The Treasury and the

Board will monitor the experience of the

industry and law enforcement with the

$3,000 threshold, and will consider

modifying this threshold in the future if

it is determined that transactions are

being structured in order to evade the

recordkeeping requirements. As part of

its analysis of the continued

appropriateness of this final rule, the

Treasury also will monitor the

effectiveness of banks’ ‘‘know your

customer’’ and suspicious transaction

reporting programs as applied to funds

transfers, once these rules take effect.

Beneficiary Information—The

Department of Justice, Office of Chief

Postal Inspector, and Internal Revenue

Service expressed concern that the

proposed rule did not require

beneficiary information to be collected

and retained by the originator’s bank if

the information is not received with the

payment order. They indicated that the

absence of beneficiary information at

this stage of the funds transfer process

would limit significantly the utility of

the funds transfer records to law

enforcement.

In virtually all cases, the originator

provides, as part of the payment order

it sends to the originator’s bank, the

identity of the beneficiary. Typically,

the originator provides the beneficiary’s

name and address, or the beneficiary’s

account number, or some other specific

identifier of the beneficiary. Examples

of a specific identifier include the

beneficiary’s Clearing House Interbank

Payments System (CHIPS) universal

identifier, its Dun and Bradstreet D-U-NS identifier, its stock exchange

identifier, or, in some instances where

the beneficiary’s address is not known,

the beneficiary’s name. The originator

provides this information with the

payment order to ensure that the

beneficiary receives the proceeds of the

funds transfer on a timely basis. Given

that the identification of the beneficiary

may be provided by means other than

name and address or account number,

the Treasury and the Board have

modified the proposed recordkeeping

requirement to allow for identification

by other specific identifier of the

beneficiary.

Although some identification of the

beneficiary is included in virtually all

payment orders, the Treasury and the

Board have retained the requirement

that the originator’s bank retain such

items of identification of the beneficiary

as are received with the payment order.

In cases where the originator provides

the payment order to the originator’s

bank through an electronic connection,

the originator’s bank generally cannot

ensure that the originator has provided,

as part of its payment order, the

beneficiary information specified in the

rule. In these situations, the originator’s

bank generally does not manually

review the payment order prior to

execution of the order. The originator’s

bank is encouraged not only to require

its customers to provide beneficiary

information but also to perform an edit

to ensure that information is contained

in the beneficiary’s field. It cannot

determine in an automated manner,

however, whether the information

contained provides a meaningful

identification of the beneficiary. In

addition, there may be limited cases

(e.g., transfers in response to drawdown

requests) where the originator may not

provide beneficiary information as part

of its payment order to the originator’s

bank.

The Treasury and the Board believe

that some originator’s banks would have

to make substantial operating changes to

ensure compliance with the rule if they

were required to collect and retain

information on the beneficiary for all

payment orders they accept. Moreover,

the Treasury and the Board believe that

requiring originator’s banks to retain

beneficiary information as is received

with the payment order will not unduly

impede law enforcement efforts.

Beneficiary information generally will

be provided by the originator with the

payment order and therefore retained by

the originator’s bank. In those very few

cases where this information is not

provided by the originator, it generally

can be obtained from the records of the

beneficiary bank.

The final rule requires that the

originator’s bank retain as many of the

means of identification of the

beneficiary (e.g., name and address,

account number, other specific

identifier) as are received with the

payment order. Originator’s banks are

encouraged to request that originators

provide complete beneficiary

information when possible.4 The

Treasury and the Board understand that

some banks, particularly those that send

payment orders electronically, may rely

on the records of the payment orders

they execute, supplemented by the

originator name and address

information in their customer

information file, to meet the

recordkeeping requirements of this rule

for established customers. Because the

current Fedwire funds transfer format

may not have sufficient space to include

all means provided by the originator of
224 Federal Register / Vol. 60, No. 1 / Tuesday, January 3, 1995 / Rules and Regulations

identifying the beneficiary, the final rule

provides an exception to the

requirement that the bank retain as

many means of identifying the

beneficiary as provided by the

originator, until completion of the

bank’s conversion to the expanded

Fedwire format. For nonbank financial

institutions, this temporary exception is

limited to domestic brokers and dealers

in securities, because the Treasury and

the Board believe that only this category

of nonbank financial institution is likely

to send electronically transmittals of

funds that ultimately are effected

through Fedwire. (See elsewhere in

today’s Federal Register for the Board’s

notice of its adoption of an expanded

Fedwire funds transfer format.)

As noted earlier, the Treasury and the

Board will monitor experience of law

enforcement and the industry under this

rule. If the Treasury and the Board

determine that law enforcement efforts

are hindered materially due to lack of

beneficiary information in the records

retained under this rule, the Treasury

and the Board will consider mandating

that beneficiary information be retained

for all payment orders. In addition, the

suspicious transaction reporting and

anti-money laundering policy and

program rules due to be issued for

comment by the Treasury in 1995

should reduce materially any

wrongdoing stemming from the fact that

an originator’s bank is not explicitly

required by this rule to obtain

beneficiary information.

Other Questions—Another

commenter asked whether the payment

amount to be retained in a bank’s

records under this rule must be

denominated in U.S. dollars or whether

it could be denominated in a foreign

currency. The payment amount retained

under the rule should be the amount as

denominated in the payment order. The

recordkeeping rule applies to transfers

in foreign denominations above the

equivalent of $3,000. Banks should

determine the U.S. dollar equivalent of

the transfer based on the spot exchange

rate at the time of the transfer to

determine whether a foreigndenominated transfer exceeds the

$3,000 threshold.

One commenter requested an

explanation of payment instructions

that are required to be retained by the

originator’s bank. This commenter

questioned whether payment

instructions included instructions

received orally (in person or over the

telephone), or by letter, facsimile, or

electronic terminal. Any payment

instructions given by the originator,

either oral or written, must be retained

if received with the payment order. The

originator’s bank may retain either

written documentation or an audio

recording of the originator’s oral

instructions. Such payment instructions

may include the purpose of the funds

transfer, directions to the beneficiary’s

bank regarding how to notify the

beneficiary of the receipt of funds (e.g.,

advise by phone), or other information.

Section 103.33(e)(2), (e)(3), and (e)(5)

and Section 103.33(f)(2), (f)(3), and (f)(5)

Additional Requirements for Persons

Other Than Established Customers—

The proposed rule required banks to

verify the name and address of the

originator, if the originator does not

have a deposit or loan account, and to

retain a record of the verified

information, the type of identification

reviewed, the number of the

identification document (e.g., driver’s

license), as well as a record of the

originator’s social security number,

alien identification number, or

employer identification number. Some

commenters, primarily nonbank

financial institutions acting for nonaccount holders, argued that the

proposed verification requirement

would be very burdensome to their

operations. Many commenters

expressed concern with the requirement

to verify the name and address, and to

record the identification number of an

originator or beneficiary that is not an

account holder. A few commenters

noted that they may be forced to refrain

from doing business with non-account

holders, due to the burden of the rule’s

verification requirements. A few

commenters asked whether the

verification requirement relates to the

person placing the order or the

originator.

By limiting the verification

requirement to originators and

beneficiaries that are not established

customers and by excluding funds

transfers under $3,000 from the rule, the

number of instances where verification

is required has been reduced

substantially, with a commensurate

reduction in compliance burden. The

final rule requires that if a payment

order is from an originator other than an

established customer and is made in

person, the originator’s bank shall verify

the identity of the person placing the

payment order. If the person does not

identify another party on whose behalf

the funds transfer is being made, then

the person is considered the originator.

If it accepts the payment order, the

originator’s bank shall obtain and retain

a record of the person’s name and

address, the type of identification

reviewed, the number of the

identification document (e.g., driver’s

license), as well as the taxpayer

identification number or, if none, alien

identification number or passport

number and country of issuance. If the

originator’s bank knows that the person

placing the payment order is not the

originator, it shall obtain and retain a

record of the originator’s taxpayer

identification number or, if none, alien

identification number or passport

number and country of issuance, if

known by the person placing the order.

In cases where an agent or

representative of the originator places

the payment order and does not know

the originator’s identification number or

in cases where the originator or the

person placing the payment order does

not have such a number, the originator’s

bank must note in the record the lack

thereof.

Two commenters questioned whether

the rule requires an originator’s bank to

obtain and verify the originator’s

identity if the originator’s payment

order is made via phone, fax, electronic

link, or mail. In situations where the

originator is not present to provide the

required information, there is no

opportunity to verify it. Under the final

rule, if the payment order is not made

in person, the originator’s bank is not

required to verify the identity of the

person or to retain information

pertaining to an identification document

used for verification, but is required to

retain a copy or record of the method of

payment (e.g., check or credit card

transaction) for the funds transfer.

For payment of the proceeds of a

funds transfer in person by a

beneficiary’s bank to a beneficiary that

does not have a deposit or loan account,

the proposal required that a

beneficiary’s bank obtain and retain a

record of the beneficiary’s name and

address, and social security number,

alien identification number, or

employer identification number, or note

in the record the lack of such number.

Several commenters, however, noted

that if the proceeds of a funds transfer

are mailed to the beneficiary, there is no

opportunity to obtain the beneficiary’s

identification number.

In the final rule, if the proceeds are

delivered in person to a beneficiary

other than an established customer or its

representative or agent, the beneficiary’s

bank shall verify the identity of the

person receiving the proceeds and shall

obtain and retain information similar to

that required to be retained by

originator’s banks for originators that are

not established customers. If the

proceeds are delivered to the beneficiary

other than in person, the final rule

requires the beneficiary’s bank to retain

a copy of the check or other instrument
Federal Register / Vol. 60, No. 1 / Tuesday, January 3, 1995 / Rules and Regulations 225

used to effect payment, or the

information contained thereon, as well

as the name and address of the person

to which it was sent.

The proposed rule required that an

originator’s bank verify the name and

address of originators and beneficiaries

that are not account holders by

examination of a document that

contained such information. A few

commenters questioned whether they

had a duty to determine the authenticity

of the identification document provided

by the person and used for verification.

One commenter questioned what

constituted adequate verification.

Another commenter questioned what it

should do if a non-account holder

provides identification that appears to

be falsified. Several commenters

recommended that passports be allowed

as acceptable identification, even

though they do not include addresses.

The final rule has been clarified to

require that the identity of an originator

or beneficiary that is not an established

customer be verified by examination of

a document, preferably one that

contains the person’s name, address,

and photograph. For aliens and

nonresidents, the final rule has been

amended to allow banks to rely on a

passport or other official document

evidencing nationality or residence.

Banks should exercise care in

accordance with applicable law and

regulations to ensure that the

identification presented is not falsified.

Section 103.33(e)(4) and Section

103.33(f)(4)

Retrievability Requirements—The

proposal stated that banks must be able

to access funds transfer records readily

by name or account number of the

originator or beneficiary, as the case

may be, and may do so through

reference to some other record

maintained by the bank. Many

commenters requested clarification of

the term ‘‘readily retrievable’’ and asked

how much time would be allowed to

provide funds transfer records.

The Treasury and the Board

acknowledge that the term ‘‘readily’’ is

ambiguous and have eliminated it from

the regulation. The existing standards

set forth in 31 CFR 103.38(d) will be

used to assess whether a bank has

complied with the rule with respect to

reporting records of funds transfers in

response to a request by a law

enforcement agency. Under this

standard, the expected timeliness of

retrievability will vary by request.

Generally, records should be accessible

within a reasonable period of time,

considering the quantity of records

requested, the nature and age of the

record, the amount and type of

information provided by the law

enforcement agency making the request,

as well as the particular bank’s volume

and capacity to retrieve the records.

Usually, law enforcement agents will

provide the approximate transaction

dates of the funds transfer records

requested. In some situations, law

enforcement agencies may prefer to

receive the requested information as it

becomes available, rather than wait

until the entire search is completed.

Law enforcement agencies should

provide banks with the agencies’

desired method of providing the

information.

The final rule does not require that

funds transfer records be retained at the

location where the payment order is

accepted or at another particular

location of the bank subject to the

recordkeeping requirements. Funds

transfer records may be retained, for

example, at the bank’s processing

location for funds transfers. A bank

should ensure that its funds transfer

records are retained at a location that

enables them to be accessible within a

reasonable period of time.

Several commenters questioned

whether the retrievability standard

would apply to funds transfers executed

prior to the rule’s effective date. The

retrievability standard would apply only

to funds transfers made on or after the

effective date. The Treasury and the

Board note, however, that establishing a

specific retrievability standard under

this rule does not preclude banks’

responsibilities to comply with a

properly executed subpoena or search

warrant, regardless of whether the

transfer was executed before or after the

effective date of the rule. Banks must

provide information with respect to

funds transfers made before the final

rule’s effective date in accordance with

the Right to Financial Privacy Act (12

USC 3401, et seq.) and the Electronic

Communications Privacy Act (18 USC

2701, et seq.).

Many commenters believed that the

proposed rule would require an

automated retrieval system to comply

with the retrievability requirement.

Although an automated retrieval system

is not required by the rule, a bank may

wish to consider implementing an

automated system, depending on the

demand for funds transfer records and

its current means of keeping the records

(several commenters indicated that

funds transfer records are sorted by date

and, in some cases, by bank branch).

Based on the volume of law

enforcement requests, a bank should

weigh the costs of implementing an

automated system versus the costs of

searching manual records.

A bank may access funds transfer

records through reference to some other

existing record. If a law enforcement

agency provides an account number, the

bank could reference its statement file

for that account number to determine

funds transfer transaction reference

numbers and dates. Using this

information, the bank could then

retrieve the funds transfer records by

either manual or automated retrieval. If

a law enforcement agency provided a

bank with a customer name, the bank

could reference its customer

information file to determine the

customer’s account number prior to

accessing its statement file.

Some commenters indicated that they

should be allowed to choose whether

their records would be retrievable by

name, account number, or both. These

commenters requested that the

regulation be clarified to state that the

bank has the flexibility to establish the

specific retrievability method. As noted,

banks have the flexibility to maintain

their funds transfer records to be

retrievable by name, account number,

reference number, or other data element,

so long as they have the capability to

retrieve the transfer records if the law

enforcement agency does not provide

that particular data element in its

request. Despite the establishment of a

retrievability standard under the rule,

banks still would be obligated to comply

with any properly executed subpoena or

search warrant. Because law

enforcement agencies may have access

to only one identifier (e.g., name or

account number) during the course of an

investigation, banks are likely to receive

requests containing either piece of

information, regardless of how the bank

has chosen to maintain its records.

Thus, no changes have been made to the

final rule to allow banks to specify the

method of retrievability.

A few commenters noted that account

numbers tend to change due to mergers

and questioned whether they would be

required to retrieve information based

on the old or new account number.

Commenters also said that they retain,

as part of their funds transfer records,

the account number at the time of the

transaction, which may not be the

current account number. The funds

transfer records should be retrievable

using the account number at the time of

the transaction, as it is likely that law

enforcement agency requests may come

from tracing a transfer containing that

account number. In situations where an

established customer’s address has

changed, the institution may provide

either the customer’s current address or
226 Federal Register / Vol. 60, No. 1 / Tuesday, January 3, 1995 / Rules and Regulations

the address at the time of the

transaction. For example, if the bank

retains the address information as part

of its funds transfer records, it would

retain the address at the time the funds

transfer was processed. If the bank

retains this information as part of its

customer information file, it would

retain the current address. For

originators and beneficiaries other than

established customers, however, the

bank would retain the person’s address

at the time of the transaction, which is

the only address that has been

documented.

Several commenters, including

commercial banks and credit unions,

also mentioned that retrieving

information by a secondary account

holder’s name would be more difficult

than retrieving by a primary account

holder’s name in the case of a joint

account. Customer information files

typically are indexed on the primary

account holder’s name only.

Commenters indicated that a search by

a secondary account holder’s name

probably would require a manual search

of the records. In order to comply with

subpoenas and search warrants

submitted by law enforcement agencies

that request information by name, banks

should have the capability to retrieve

payment order records by secondary

account holder name as well as by the

name of the primary account holder.

Banks that find it difficult to search by

secondary account holder name for joint

accounts may wish to consider the

volume of law enforcement requests

when making decisions about whether

to make automation changes to facilitate

searches by secondary account holder

name or to rely on manual searches to

satisfy these requests.

Many commenters noted that

retrieving transactions by the name of

an originator or beneficiary other than

an account holder would be impractical,

since a manual search of the bank’s

records would be required. One bank

estimated that a search by a non-account

holder’s name would require three full

days of manual searching for each day

of funds transfer activity, and that the

results of manual searches might not be

very reliable. Banks may wish to

consider implementing a separate

recordkeeping system—either manual

files or an automated database—

containing only information related to

payment orders for originators or

beneficiaries that are not established

customers, in order to search more

easily for these transactions. If a bank

has more than one customer with the

same name, the bank may request more

specific information from the law

enforcement agency to determine the

exact individual desired. In situations

where a law enforcement agency

provides a bank with a customer’s

account number only, then the bank

may search based on the account

number only.

Section 103.33(e)(6) and Section

103.33(f)(6)

Exceptions—The proposed

recordkeeping requirements exempted

certain transfers based on the parties to

the transfer. Several commenters

requested that more transfers be

exempted. Two commenters

recommended that transfers involving

public utilities, corporations listed on

major stock exchanges, and businesses

exempted from Currency Transaction

Reporting be exempted under the rule.

The Treasury and the Board believe that

excluding such a broad category of

entities would diminish the usefulness

of the regulation; therefore, these

entities are not exempted in the final

rule.

To eliminate the redundancy in the

proposed list of exemptions and to

provide consistent treatment for whollyowned domestic subsidiaries of

domestic banks and domestic brokers or

dealers in securities, the final rule has

been revised to exempt transfers where

the originator and beneficiary are any of

the following: (1) A domestic bank; (2)

a wholly-owned domestic subsidiary of

a domestic bank; (3) a domestic broker

or dealer in securities; (4) a whollyowned domestic subsidiary of a

domestic broker or dealer in securities;

(5) the United States; (6) a state or local

government; (7) a federal, state or local

government agency or instrumentality.

Funds transfers where both the

originator and beneficiary are the same

person and the originator’s bank and the

beneficiary’s bank are the same

domestic bank, as well as transmittals of

funds where both the transmittor and

recipient are the same person and the

transmittor’s financial institution and

the recipient’s financial institution are

the same domestic broker or dealer in

securities, also are exempted. These

revisions expand the proposed

exemptions to include transfers between

a wholly-owned subsidiary of any

domestic bank or broker or dealer in

securities and any other exempted

entity.

C. Other Issues

Compliance Costs—Many

commenters provided estimates on the

cost to implement the requirements of

the proposed rule as well as an estimate

on the annual ongoing costs to collect

the required information. The cost

estimates varied widely. A few smaller

credit unions indicated that they

already were complying with the

proposed requirements and therefore

expected no additional implementation

or maintenance costs as a result of the

proposal. Larger commercial banks and

credit unions, however, estimated their

implementation costs at $15,000 to

$879,000, and their maintenance costs

as high as $350,000 per year. Two

nonbank providers of money

transmitting services expected that

compliance would be very costly. One

money transmittor estimated $946,000

of implementation costs and $2 million

of annual maintenance costs. Another

provider of money transmitting services

estimated $3.3 million of

implementation costs, which includes

increased transaction time, additional

hardware/software, and training costs.

The same provider of money

transmitting services, however,

estimated that with a $3,000 exemption

threshold, its implementation cost

would fall to $710,000.

Implementing a $3,000 threshold and

limiting the verification requirements

and supplemental recordkeeping

requirements to transfers involving

originators or beneficiaries that are not

established customers will significantly

reduce the burden and cost for banks to

comply with the rule. The burden for

nonbank financial institutions,

particularly providers of money

transmitting services, decreases

dramatically under the final rule, as the

majority of transmittals of funds they

accept are for amounts of less than

$3,000.

Retention Period—Records required

under the Bank Secrecy Act, including

funds transfer records, must be retained

for five years. A securities industry

association, however, commented that

Securities and Exchange Commission

(SEC) retention regulations, which

apply to broker/dealers, may differ from

the five-year period depending upon the

specific document containing the

required information. The association

recommended that the rule be amended

to allow broker/dealers to comply with

existing SEC rules, which would

eliminate the need to modify existing

retention practices and the

administrative difficulties of

maintaining inconsistent retention

schedules. The Internal Revenue Service

recommended that records be

maintained for ten years, to ensure

information related to audits would be

available for its use.

SEC regulations require registered

broker/dealers subject to Treasury’s

Bank Secrecy Act requirements to

preserve their records according to 31

CFR Part 103, if such retention periods
Federal Register / Vol. 60, No. 1 / Tuesday, January 3, 1995 / Rules and Regulations 227

are longer than those required by the

SEC (17 CFR 240.17a–8). Therefore, the

retention period remains unchanged for

broker/dealers. Under this final rule, the

five-year retention period applies only

to records of funds transfers made on or

after the rule’s effective date.

The Treasury and the Board believe

that a uniform retention period should

apply to all records that must be

retained under the Bank Secrecy Act

regulations, and therefore, a longer

retention period should not be required

for funds transfer records than for

records of other financial transactions.

The Treasury and the Board are

concerned that expansion of the Bank

Secrecy Act record retention

requirement from five to ten years may

increase materially the cost of

compliance for financial institutions,

but will monitor the adequacy of the

record retention requirement.

Effective Date—Many commenters

expressed concern regarding the

effective date, particularly given the

need for banks to make operational and

procedural changes to comply with the

rule’s retrievability and verification

requirements. These commenters

indicated that the proposed December

31, 1993 effective date was unrealistic

given that the final rule had yet to be

published with only weeks remaining

until the deadline. They indicated that

changes to existing manual and

automated procedures to comply with

the rule would require a significant

preparation time.

Most commenters requested that the

effective date be six to 12 months after

publication of the final rule. Several

commenters suggested that the

implementation date be delayed to

coincide with the effective date of the

Treasury’s companion Travel Rule.

These commenters indicated that a

single implementation date for both

rules would prevent having to make

changes twice to internal procedures

and computer systems.

A few commenters recommended that

the effective date be delayed until the

new Fedwire format is adopted. As

noted above, recognizing that

originator’s banks may strive to satisfy

the recordkeeping requirements of this

rule primarily through retention of

records of the payment orders they

execute, and that the current Fedwire

format may not have sufficient space to

include all means provided by the

originator of identifying the beneficiary,

the final rule provides an exception to

the requirement that the bank retain as

many means of identifying the

beneficiary as provided by the originator

for Fedwire transfers, until the bank’s

conversion to the expanded Fedwire

format is complete. With this limited

exception, the expanded format is not

necessary to comply with this rule, and

delaying implementation of the

recordkeeping rule until after a new

format is implemented would delay

realizing the benefits of this rule.

In response to the concerns raised by

commenters, on December 22, 1993, the

Treasury announced a delay in the

adoption of the final rule to permit the

Treasury to consider the rule as part of

its ongoing comprehensive review of the

Treasury’s anti-money laundering

enforcement policies, programs, and

regulations. The Treasury and the Board

recognize that adequate lead time is

necessary to allow banks time to change

procedures and/or install systems to

comply with the final rule. Therefore,

the rule will become effective on

January 1, 1996, at which time the

Treasury’s companion Travel Rule also

will become effective. [See the

Treasury’s notice elsewhere in today’s

Federal Register adopting the final

Travel Rule.]

D. 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.

E. Final Regulatory Flexibility Analysis

Two of the 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 and (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,

are discussed above. The third

requirement of a final regulatory

flexibility analysis is 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.

The requirements in this rule will

apply to all financial institutions subject

to the Bank Secrecy Act, regardless of

size. An exemption for small entities

would not be appropriate because it

would permit money laundering

operations to evade the recordkeeping

process by using small financial

institutions. This would diminish

significantly the usefulness of these

records for criminal, tax, or regulatory

investigations.

The small entities that will be affected

by this rule include small banks and

nonbank money transmitting

businesses. In order to minimize the

economic impact on small entities, the

rule allows financial institutions that

send or receive transmittal orders for

established customers to use existing

records to satisfy some of the

recordkeeping requirements. The rule

also exempts transmittals of funds

below $3,000, which should particularly

benefit nonbank providers of money

transmitting services that handle

smaller-value transfers. The Treasury

and the Board do not believe that the

final rule would impose reporting or

recordkeeping burdens on small entities

that require specialized professional

skills not available to them.

F. Conclusion

The Treasury and the Board have

adopted a revised version of its

proposed rule.

G. Executive Order 12866

The Treasury finds that this final rule

is not a ‘‘significant’’ rule for purposes

of Executive Order 12866. The rule is

not anticipated to have an annual effect

on the economy of $100 million or

more. It will not affect adversely in a

material way the economy, a sector of

the economy, productivity, competition,

jobs, the environment, public health or

safety, or State, local, or tribal

governments or communities. It creates

no inconsistencies with, nor does it

interfere with actions taken or planned

by other agencies. Finally, it raises no

novel legal or policy issues. A cost and

benefit analysis therefore is not

required.
228 Federal Register / Vol. 60, No. 1 / Tuesday, January 3, 1995 / Rules and Regulations

List of Subjects in 31 CFR Part 103

Administrative practice and

procedure, Banks, banking, Brokers,

Currency, Foreign banking, Foreign

currencies, Gambling, Investigations,

Penalties, Reporting and recordkeeping

requirements, Securities.

Amendment

For the reasons set forth in the

preamble, 31 CFR Part 103 is amended

as set forth below:

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. 5311–5329.

2. Section 103.11 is amended as

follows:

a. By redesignating paragraphs (a), (b),

(c) through (h), (i) through (k), (l), (m),

(n), (o), (p) through (r), and (s) through

(u) as paragraphs (b), (c), (f) through (k),

(n) through (p), (t), (u), (z), (ee), (gg)

through (ii), and (nn) through (pp),

respectively;

b. By removing the words ‘‘For

purposes of § 103.29 of this part,

deposit’’ and adding in their place,

‘‘Deposit’’ in newly designated

paragraph (j); and

c. By adding new paragraphs (a), (d),

(e), (l), (m), (q), (r), (s), (v), (w), (x), (y),

(aa), (bb), (cc), (dd), (ff), (jj), (kk), (ll),

and (mm).

The additions read as follows:

§ 103.11 Meaning of terms.

* * * * *

(a) Accept. A receiving financial

institution, other than the recipient’s

financial institution, accepts a

transmittal order by executing the

transmittal order. A recipient’s financial

institution accepts a transmittal order by

paying the recipient, by notifying the

recipient of the receipt of the order or

by otherwise becoming obligated to

carry out the order.

* * * * *

(d) Beneficiary. The person to be paid

by the beneficiary’s bank.

(e) Beneficiary’s bank. The bank

identified in a payment order in which

an account of the beneficiary is to be

credited pursuant to the order or which

otherwise is to make payment to the

beneficiary if the order does not provide

for payment to an account.

* * * * *

(l) Established customer. A person

with an account with the financial

institution, including a loan account or

deposit or other asset account, or a

person with respect to which the

financial institution has obtained and

maintains on file the person’s name and

address, as well as taxpayer

identification number (e.g., social

security or employer identification

number) or, if none, alien identification

number or passport number and country

of issuance, and to which the financial

institution provides financial services

relying on that information.

(m) Execution date. The day on which

the receiving financial institution may

properly issue a transmittal order in

execution of the sender’s order. The

execution date may be determined by

instruction of the sender but cannot be

earlier than the day the order is

received, and, unless otherwise

determined, is the day the order is

received. If the sender’s instruction

states a payment date, the execution

date is the payment date or an earlier

date on which execution is reasonably

necessary to allow payment to the

recipient on the payment date.

* * * * *

(q) Funds transfer. The series of

transactions, beginning with the

originator’s payment order, made for the

purpose of making payment to the

beneficiary of the order. The term

includes any payment order issued by

the originator’s bank or an intermediary

bank intended to carry out the

originator’s payment order. A funds

transfer is completed by acceptance by

the beneficiary’s bank of a payment

order for the benefit of the beneficiary

of the originator’s payment order. Funds

transfers governed by the Electronic

Fund Transfer Act of 1978 (Title XX,

Pub. L. 95–630, 92 Stat. 3728, 15 U.S.C.

1693, et seq.), as well as any other funds

transfers that are made through an

automated clearinghouse, an automated

teller machine, or a point-of-sale system,

are excluded from this definition.

(r) Intermediary bank. A receiving

bank other than the originator’s bank or

the beneficiary’s bank.

(s) Intermediary financial institution.

A receiving financial institution, other

than the transmittor’s financial

institution or the recipient’s financial

institution. The term intermediary

financial institution includes an

intermediary bank.

* * * * *

(v) Originator. The sender of the first

payment order in a funds transfer.

(w) Originator’s bank. The receiving

bank to which the payment order of the

originator is issued if the originator is

not a bank, or the originator if the

originator is a bank.

(x) Payment date. The day on which

the amount of the transmittal order is

payable to the recipient by the

recipient’s financial institution. The

payment date may be determined by

instruction of the sender, but cannot be

earlier than the day the order is received

by the recipient’s financial institution

and, unless otherwise prescribed by

instruction, is the date the order is

received by the recipient’s financial

institution.

(y) Payment order. An instruction of

a sender to a receiving bank, transmitted

orally, electronically, or in writing, to

pay, or to cause another bank to pay, a

fixed or determinable amount of money

to a beneficiary if:

(1) The instruction does not state a

condition to payment to the beneficiary

other than time of payment;

(2) The receiving bank is to be

reimbursed by debiting an account of, or

otherwise receiving payment from, the

sender; and

(3) The instruction is transmitted by

the sender directly to the receiving bank

or to an agent, funds transfer system, or

communication system for transmittal to

the receiving bank.

* * * * *

(aa) Receiving bank. The bank to

which the sender’s instruction is

addressed.

(bb) Receiving financial institution.

The financial institution to which the

sender’s instruction is addressed. The

term receiving financial institution

includes a receiving bank.

(cc) Recipient. The person to be paid

by the recipient’s financial institution.

The term recipient includes a

beneficiary, except where the recipient’s

financial institution is a financial

institution other than a bank.

(dd) Recipient’s financial institution.

The financial institution identified in a

transmittal order in which an account of

the recipient is to be credited pursuant

to the transmittal order or which

otherwise is to make payment to the

recipient if the order does not provide

for payment to an account. The term

recipient’s financial institution includes

a beneficiary’s bank, except where the

beneficiary is a recipient’s financial

institution.

* * * * *

(ff) Sender. The person giving the

instruction to the receiving financial

institution.

* * * * *

(jj) Transmittal of funds. A series of

transactions beginning with the

transmittor’s transmittal order, made for

the purpose of making payment to the

recipient of the order. The term includes

any transmittal order issued by the
Federal Register / Vol. 60, No. 1 / Tuesday, January 3, 1995 / Rules and Regulations 229

1 For funds transfers effected through the Federal

Reserve’s Fedwire funds transfer system, only one

of the items is required to be retained, if received

with the payment order, until such time as the bank

that sends the order to the Federal Reserve Bank

completes its conversion to the expanded Fedwire

message format.

transmittor’s financial institution or an

intermediary financial institution

intended to carry out the transmittor’s

transmittal order. The term transmittal

of funds includes a funds transfer. A

transmittal of funds is completed by

acceptance by the recipient’s financial

institution of a transmittal order for the

benefit of the recipient of the

transmittor’s transmittal order. Funds

transfers governed by the Electronic

Fund Transfer Act of 1978 (Title XX,

Pub. L. 95–630, 92 Stat. 3728, 15 U.S.C.

1693, et seq.), as well as any other funds

transfers that are made through an

automated clearinghouse, an automated

teller machine, or a point-of-sale system,

are excluded from this definition.

(kk) Transmittal order. The term

transmittal order includes a payment

order and is an instruction of a sender

to a receiving financial institution,

transmitted orally, electronically, or in

writing, to pay, or to cause another

financial institution to pay, a fixed or

determinable amount of money to a

recipient if:

(1) The instruction does not state a

condition to payment to the recipient

other than time of payment;

(2) The receiving financial institution

is to be reimbursed by debiting an

account of, or otherwise receiving

payment from, the sender; and

(3) The instruction is transmitted by

the sender directly to the receiving

financial institution or to an agent or

communication system for transmittal to

the receiving financial institution.

(ll) Transmittor. The sender of the

first transmittal order in a transmittal of

funds. The term transmittor includes an

originator, except where the

transmittor’s financial institution is a

financial institution other than a bank.

(mm) Transmittor’s financial

institution. The receiving financial

institution to which the transmittal

order of the transmittor is issued if the

transmittor is not a financial institution,

or the transmittor if the transmittor is a

financial institution. The term

transmittor’s financial institution

includes an originator’s bank, except

where the originator is a transmittor’s

financial institution other than a bank.

* * * * *

3. Paragraph (b)(2) of § 103.25 is

revised to read as follows:

§ 103.25 Reports of transactions with

foreign financial agencies.

* * * * *

(b) * * *

(2) Transmittal orders received by a

respondent financial institution from a

foreign financial agency or sent by

respondent financial institution to a

foreign financial agency, including all

information maintained by that

institution pursuant to § 103.33.

* * * * *

4. Section 103.33 is amended by

adding new paragraphs (e) and (f), to

read as follows:

§ 103.33 Records to be made and retained

by financial institutions.

* * * * *

(e) Banks. With respect to a funds

transfer in the amount of $3,000 or more

by a bank:

(1) Recordkeeping requirements. (i)

For each payment order that it accepts

as an originator’s bank, the bank shall

obtain and retain either the original or

a microfilm, other copy, or electronic

record of the following information

relating to the payment order:

(A) The name and address of the

originator;

(B) The amount of the payment order;

(C) The execution date of the payment

order;

(D) Any payment instructions

received from the originator with the

payment order;

(E) The identity of the beneficiary’s

bank; and

(F) As many of the following items as

are received with the payment order: 1

(1) The name and address of the

beneficiary;

(2) The account number of the

beneficiary; and

(3) Any other specific identifier of the

beneficiary.

(ii) For each payment order that it

accepts as an intermediary bank, the

bank shall retain either the original or

a microfilm, other copy, or electronic

record of the payment order.

(iii) For each payment order that it

accepts as a beneficiary’s bank, the bank

shall retain either the original or a

microfilm, other copy, or electronic

record of the payment order.

(2) Originators other than established

customers. In the case of a payment

order from an originator that is not an

established customer, in addition to

obtaining and retaining the information

required in paragraph (e)(1)(i) of this

section:

(i) If the payment order is made in

person, prior to acceptance the

originator’s bank shall verify the

identity of the person placing the

payment order. If it accepts the payment

order, the originator’s bank shall obtain

and retain a record of the name and

address, the type of identification

reviewed, the number of the

identification document (e.g., driver’s

license), as well as a record of the

person’s taxpayer identification number

(e.g., social security or employer

identification number) or, if none, alien

identification number or passport

number and country of issuance, or a

notation in the record of the lack

thereof. If the originator’s bank has

knowledge that the person placing the

payment order is not the originator, the

originator’s bank shall obtain and retain

a record of the originator’s taxpayer

identification number (e.g., social

security or employer identification

number) or, if none, alien identification

number or passport number and country

of issuance, if known by the person

placing the order, or a notation in the

record of the lack thereof.

(ii) If the payment order accepted by

the originator’s bank is not made in

person, the originator’s bank shall

obtain and retain a record of name and

address of the person placing the

payment order, as well as the person’s

taxpayer identification number (e.g.,

social security or employer

identification number) or, if none, alien

identification number or passport

number and country of issuance, or a

notation in the record of the lack

thereof, and a copy or record of the

method of payment (e.g., check or credit

card transaction) for the funds transfer.

If the originator’s bank has knowledge

that the person placing the payment

order is not the originator, the

originator’s bank shall obtain and retain

a record of the originator’s taxpayer

identification number (e.g., social

security or employer identification

number) or, if none, alien identification

number or passport number and country

of issuance, if known by the person

placing the order, or a notation in the

record of the lack thereof.

(3) Beneficiaries other than

established customers. For each

payment order that it accepts as a

beneficiary’s bank for a beneficiary that

is not an established customer, in

addition to obtaining and retaining the

information required in paragraph

(e)(1)(iii) of this section:

(i) if the proceeds are delivered in

person to the beneficiary or its

representative or agent, the beneficiary’s

bank shall verify the identity of the

person receiving the proceeds and shall

obtain and retain a record of the name

and address, the type of identification

reviewed, and the number of the

identification document (e.g., driver’s

license), as well as a record of the

person’s taxpayer identification number

(e.g., social security or employer
230 Federal Register / Vol. 60, No. 1 / Tuesday, January 3, 1995 / Rules and Regulations

2 For transmittals of funds effected through the

Federal Reserve’s Fedwire funds transfer system by

a domestic broker or dealers in securities, only one

of the items is required to be retained, if received

with the transmittal order, until such time as the

bank that sends the order to the Federal Reserve

Bank completes its conversion to the expanded

Fedwire message format.

identification number) or, if none, alien

identification number or passport

number and country of issuance, or a

notation in the record of the lack

thereof. If the beneficiary’s bank has

knowledge that the person receiving the

proceeds is not the beneficiary, the

beneficiary’s bank shall obtain and

retain a record of the beneficiary’s name

and address, as well as the beneficiary’s

taxpayer identification number (e.g.,

social security or employer

identification number) or, if none, alien

identification number or passport

number and country of issuance, if

known by the person receiving the

proceeds, or a notation in the record of

the lack thereof.

(ii) if the proceeds are delivered other

than in person, the beneficiary’s bank

shall retain a copy of the check or other

instrument used to effect payment, or

the information contained thereon, as

well as the name and address of the

person to which it was sent.

(4) Retrievability. The information

that an originator’s bank must retain

under paragraphs (e)(1)(i) and (e)(2) of

this section shall be retrievable by the

originator’s bank by reference to the

name of the originator. If the originator

is an established customer of the

originator’s bank and has an account

used for funds transfers, then the

information also shall be retrievable by

account number. The information that a

beneficiary’s bank must retain under

paragraphs (e)(1)(iii) and (e)(3) of this

section shall be retrievable by the

beneficiary’s bank by reference to the

name of the beneficiary. If the

beneficiary is an established customer of

the beneficiary’s bank and has an

account used for funds transfers, then

the information also shall be retrievable

by account number. This information

need not be retained in any particular

manner, so long as the bank is able to

retrieve the information required by this

paragraph, either by accessing funds

transfer records directly or through

reference to some other record

maintained by the bank.

(5) Verification. Where verification is

required under paragraphs (e)(2) and

(e)(3) of this section, a bank shall verify

a person’s identity by examination of a

document (other than a bank signature

card), preferably one that contains the

person’s name, address, and

photograph, that is normally acceptable

by financial institutions as a means of

identification when cashing checks for

persons other than established

customers. Verification of the identity of

an individual who indicates that he or

she is an alien or is not a resident of the

United States may be made by passport,

alien identification card, or other

official document evidencing

nationality or residence (e.g., a foreign

driver’s license with indication of home

address).

(6) Exceptions. The following funds

transfers are not subject to the

requirements of this section:

(i) Funds transfers where the

originator and beneficiary are any of the

following:

(A) A domestic bank;

(B) A wholly-owned domestic

subsidiary of a domestic bank;

(C) A domestic broker or dealer in

securities;

(D) A wholly-owned domestic

subsidiary of a domestic broker or

dealer in securities;

(E) The United States;

(F) A state or local government; or

(G) A federal, state or local

government agency or instrumentality;

and

(ii) Funds transfers where both the

originator and the beneficiary are the

same person and the originator’s bank

and the beneficiary’s bank are the same

domestic bank.

(f) Nonbank financial institutions.

With respect to a transmittal of funds in

the amount of $3,000 or more by a

financial institution other than a bank:

(1) Recordkeeping requirements. (i)

For each transmittal order that it accepts

as a transmittor’s financial institution,

the financial institution shall obtain and

retain either the original or a microfilm,

other copy, or electronic record of the

following information relating to the

transmittal order:

(A) The name and address of the

transmittor;

(B) The amount of the transmittal

order;

(C) The execution date of the

transmittal order;

(D) Any payment instructions

received from the transmittor with the

transmittal order;

(E) The identity of the recipient’s

financial institution;

(F) As many of the following items as

are received with the transmittal order: 2

(1) The name and address of the

recipient;

(2) The account number of the

recipient; and

(3) Any other specific identifier of the

recipient; and

(G) Any form relating to the

transmittal of funds that is completed or

signed by the person placing the

transmittal order.

(ii) For each transmittal order that it

accepts as an intermediary financial

institution, the financial institution

shall retain either the original or a

microfilm, other copy, or electronic

record of the transmittal order.

(iii) For each transmittal order that it

accepts as a recipient’s financial

institution, the financial institution

shall retain either the original or a

microfilm, other copy, or electronic

record of the transmittal order, as well

as any form completed or signed by the

person receiving the proceeds of the

transmittal of funds.

(2) Transmittors other than

established customers. In the case of a

transmittal order from a transmittor that

is not an established customer, in

addition to obtaining and retaining the

information required in paragraph

(f)(1)(i) of this section:

(i) If the transmittal order is made in

person, prior to acceptance the

transmittor’s financial institution shall

verify the identity of the person placing

the transmittal order. If it accepts the

transmittal order, the transmittor’s

financial institution shall obtain and

retain a record of the name and address,

the type of identification reviewed, and

the number of the identification

document (e.g., driver’s license), as well

as a record of the person’s taxpayer

identification number (e.g., social

security or employer identification

number) or, if none, alien identification

number or passport number and country

of issuance, or a notation in the record

the lack thereof. If the transmittor’s

financial institution has knowledge that

the person placing the transmittal order

is not the transmittor, the transmittor’s

financial institution shall obtain and

retain a record of the transmittor’s

taxpayer identification number (e.g.,

social security or employer

identification number) or, if none, alien

identification number or passport

number and country of issuance, if

known by the person placing the order,

or a notation in the record the lack

thereof.

(ii) If the transmittal order accepted

by the transmittor’s financial institution

is not made in person, the transmittor’s

financial institution shall obtain and

retain a record of the name and address

of the person placing the transmittal

order, as well as the person’s taxpayer

identification number (e.g., social

security or employer identification

number) or, if none, alien identification

number or passport number and country

of issuance, or a notation in the record

of the lack thereof, and a copy or record

of the method of payment (e.g., check or
Federal Register / Vol. 60, No. 1 / Tuesday, January 3, 1995 / Rules and Regulations 231

credit card transaction) for the

transmittal of funds. If the transmittor’s

financial institution has knowledge that

the person placing the transmittal order

is not the transmittor, the transmittor’s

financial institution shall obtain and

retain a record of the transmittor’s

taxpayer identification number (e.g.,

social security or employer

identification number) or, if none, alien

identification number or passport

number and country of issuance, if

known by the person placing the order,

or a notation in the record the lack

thereof.

(3) Recipients other than established

customers. For each transmittal order

that it accepts as a recipient’s financial

institution for a recipient that is not an

established customer, in addition to

obtaining and retaining the information

required in paragraph (f)(1)(iii) of this

section:

(i) If the proceeds are delivered in

person to the recipient or its

representative or agent, the recipient’s

financial institution shall verify the

identity of the person receiving the

proceeds and shall obtain and retain a

record of the name and address, the type

of identification reviewed, and the

number of the identification document

(e.g., driver’s license), as well as a

record of the person’s taxpayer

identification number (e.g., social

security or employer identification

number) or, if none, alien identification

number or passport number and country

of issuance, or a notation in the record

of the lack thereof. If the recipient’s

financial institution has knowledge that

the person receiving the proceeds is not

the recipient, the recipient’s financial

institution shall obtain and retain a

record of the recipient’s name and

address, as well as the recipient’s

taxpayer identification number (e.g.,

social security or employer

identification number) or, if none, alien

identification number or passport

number and country of issuance, if

known by the person receiving the

proceeds, or a notation in the record of

the lack thereof.

(ii) If the proceeds are delivered other

than in person, the recipient’s financial

institution shall retain a copy of the

check or other instrument used to effect

payment, or the information contained

thereon, as well as the name and

address of the person to which it was

sent.

(4) Retrievability. The information

that a transmittor’s financial institution

must retain under paragraphs (f)(1)(i)

and (f)(2) of this section shall be

retrievable by the transmittor’s financial

institution by reference to the name of

the transmittor. If the transmittor is an

established customer of the transmittor’s

financial institution and has an account

used for transmittals of funds, then the

information also shall be retrievable by

account number. The information that a

recipient’s financial institution must

retain under paragraphs (f)(1)(iii) and

(f)(3) of this section shall be retrievable

by the recipient’s financial institution

by reference to the name of the

recipient. If the recipient is an

established customer of the recipient’s

financial institution and has an account

used for transmittals of funds, then the

information also shall be retrievable by

account number. This information need

not be retained in any particular

manner, so long as the financial

institution is able to retrieve the

information required by this paragraph,

either by accessing transmittal of funds

records directly or through reference to

some other record maintained by the

financial institution.

(5) Verification. Where verification is

required under paragraphs (f)(2) and

(f)(3) of this section, a financial

institution shall verify a person’s

identity by examination of a document

(other than a customer signature card),

preferably one that contains the person’s

name, address, and photograph, that is

normally acceptable by financial

institutions as a means of identification

when cashing checks for persons other

than established customers. Verification

of the identity of an individual who

indicates that he or she is an alien or is

not a resident of the United States may

be made by passport, alien

identification card, or other official

document evidencing nationality or

residence (e.g., a foreign driver’s license

with indication of home address).

(6) Exceptions. The following

transmittals of funds are not subject to

the requirements of this section:

(i) Transmittals of funds where the

transmittor and the recipient are any of

the following:

(A) A domestic bank;

(B) A wholly-owned domestic

subsidiary of a domestic bank;

(C) A domestic broker or dealer in

securities;

(D) A wholly-owned domestic

subsidiary of a domestic broker or

dealer in securities;

(E) The United States;

(F) A state or local government; or

(G) A federal, state or local

government agency or instrumentality;

and

(ii) Transmittals of funds where both

the transmittor and recipient are the

same person and the transmittor’s

financial institution and the recipient’s

financial institution are the same

domestic broker or dealer in securities.

In concurrence:

By the Board of Governors of the Federal

Reserve System, December 21, 1994.

William W. Wiles,

Secretary of the Board.

By the Department of the Treasury,

December 19, 1994.

Stanley E. Morris,

Director, Financial Crimes Enforcement

Network.

[FR Doc. 94–31977 Filed 12–30–94; 8:45 am]

BILLING CODE 6210–01–P; 4810–25–P

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.

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,