56680 Federal Register / Vol. 72, No. 192 / Thursday, October 4, 2007 / Proposed Rules 

to minimize the risk of pathogenic 

contamination. Compliance with the 

Best Practices is verified by agricultural 

inspection agencies under contract with 

the administrative Board established 

under the agreement. 

Although AMS has not received an 

official proposal, members of the leafy 

greens industry have expressed interest 

in the establishment of similar 

standards through a Federal marketing 

program. Industry discussions have 

focused on the need for a program with 

national scope. In response, AMS is 

considering the development of a 

marketing agreement as previously 

described in this document. AMS 

believes that an agreement, rather than 

an order, is more likely to meet the 

needs of the produce industry across the 

fifty States and the District of Columbia. 

Agreements offer greater flexibility in 

designing regulatory programs since the 

programs authorized for agreements are 

not limited to those specified for orders 

under the Act. Also, handlers 

voluntarily enter into agreements, giving 

individuals the opportunity to 

determine whether they want to 

participate, which may be more 

responsive to the needs of a nationwide 

industry. 

As part of its review, AMS is seeking 

public comments and proposals 

regarding establishment of a nationwide 

agreement for the handling of leafy 

green products. If further development 

is warranted by response to this request, 

AMS would publish a notice of hearing 

on a proposed marketing agreement in 

the Federal Register in accordance with 

the provisions of sections 556 and 557 

of title 5 of the United States Code and 

the applicable rules of practice and 

procedure governing the formulation of 

marketing agreements and orders (7 CFR 

part 900). Public hearings regarding the 

proposed agreement would be held 

throughout the country, and handler 

sign-ups would be conducted if the 

agreement was approved by USDA. 

Agency Request for Information 

AMS is soliciting the views of 

growers, handlers, buyers, sellers, 

consumers, and other interested persons 

on a possible marketing agreement to 

regulate the handling of leafy green 

commodities. Additionally, AMS is 

interested in any information from 

industry organizations that could assist 

with the development of leafy green 

produce industry profiles. The agency 

will use information, comments, and 

proposals received to evaluate whether 

development of such an agreement for 

the fifty States and the District of 

Columbia should be pursued. In 

particular, AMS invites responses to the 

following questions: 

(1) Would the handling of leafy greens 

be better addressed though regulations 

under a voluntary marketing agreement 

signed by handlers, or under a 

mandatory marketing order regulating 

handlers and approved by a producer 

referendum? 

(2) Would such a program be better 

implemented on a national or a regional 

basis? 

(3) How should the United States be 

subdivided into smaller regions for the 

purposes of committee representation 

and program administration? 

(4) How should committee 

membership be allocated to adequately 

represent the interests of industry 

throughout all regions of the United 

States? 

(5) What process should the 

committee follow to recommend 

regulations appropriate to the various 

regions? For example, would regulations 

for handling leafy greens on the east 

coast differ from those on the west 

coast, and if so, how should the 

administrative committee address the 

differences while developing 

recommendations for regulations? 

(6) What specific problems or issues 

should be addressed by such a 

marketing program? 

(7) Would Best Practices based upon 

FDA guidelines be the best criteria for 

regulation of leafy green handling, or are 

there other criteria available that might 

better meet the industry’s needs? 

(8) Which specific leafy green 

commodities should be included under 

the program’s handling regulations? 

(9) What are potential obstacles to the 

implementation of such a marketing 

program? For example, would distance 

make it impractical for the committee to 

meet frequently? Might regional 

subcommittees be appointed to meet 

more frequently and consider local 

matters for presentation at annual 

national committee meetings? 

(10) What are the potential costs 

associated with the implementation of 

such a program, including changes to 

current production and handling 

procedures, assessments, and audits? 

(11) How would a marketing program 

complement, duplicate, or conflict with 

any other existing programs, such as 

state food safety regulations? and 

(12) Are there other issues and/or 

suggestions about such a marketing 

program? 

All views are solicited so that every 

aspect of this potential regulation may 

be studied prior to formulating a 

proposed rule, if warranted, by AMS. 

This request for public comment does 

not constitute notification that the 

agreement described in this document is 

or will be proposed or adopted. 

A 60-day comment period is provided 

to allow sufficient time for interested 

parties to comment on a possible leafy 

green marketing program. All timely 

written comments received will be 

considered before any subsequent 

rulemaking action is undertaken. 

Authority: 7 U.S.C. 601–674. 

Dated: October 1, 2007. 

Lloyd C. Day, 

Administrator, Agricultural Marketing 

Service. 

[FR Doc. E7–19629 Filed 10–3–07; 8:45 am] 

BILLING CODE 3410–02–P 

FEDERAL RESERVE SYSTEM 

12 CFR Part 233 

[Regulation GG; Docket No. R–1298] 

DEPARTMENT OF THE TREASURY 

31 CFR Part 132 

RIN 1505–AB78 

Prohibition on Funding of Unlawful 

Internet Gambling 

AGENCIES: Board of Governors of the 

Federal Reserve System and 

Departmental Offices, Department of the 

Treasury. 

ACTION: Notice of joint proposed 

rulemaking. 

SUMMARY: This notice is published 

jointly by the Departmental Offices of 

the Department of the Treasury (the 

‘‘Treasury’’) and the Board of Governors 

of the Federal Reserve System (the 

‘‘Board’’) (collectively, the ‘‘Agencies’’) 

and proposes rules to implement 

applicable provisions of the Unlawful 

Internet Gambling Enforcement Act of 

2006 (the ‘‘Act’’). In accordance with the 

requirements of the Act, the proposed 

rule designates certain payment systems 

that could be used in connection with 

unlawful Internet gambling transactions 

restricted by the Act. The proposed rule 

requires participants in designated 

payment systems to establish policies 

and procedures reasonably designed to 

identify and block or otherwise prevent 

or prohibit transactions in connection 

with unlawful Internet gambling. As 

required by the Act, the proposed rule 

also exempts certain participants in 

designated payment systems from the 

requirements to establish such policies 

and procedures because the Agencies 

believe it is not reasonably practical for 

those participants to identify and block, 

or otherwise prevent or prohibit, 


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Federal Register / Vol. 72, No. 192 / Thursday, October 4, 2007 / Proposed Rules 56681 

1From the general definition, the Act exempts 

three categories of transactions: (i) Intrastate 

transactions (a bet or wager made exclusively 

within a single State, whose State law or regulation 

contains certain safeguards regarding such 

transactions and expressly authorizes the bet or 

wager and the method by which the bet or wager 

is made, and which does not violate any provision 

of applicable Federal gaming statutes); (ii) 

intratribal transactions (a bet or wager made 

exclusively within the Indian lands of a single 

Indian tribe or between the Indian lands of two or 

more Indian tribes as authorized by Federal law, if 

the bet or wager and the method by which the bet 

or wager is made is expressly authorized by and 

complies with applicable Tribal ordinance or 

resolution (and Tribal-State Compact, if applicable) 

and includes certain safeguards regarding such 

transaction, and if the bet or wager does not violate 

applicable Federal gaming statutes); and (iii) 

interstate horseracing transactions (any activity that 

is allowed under the Interstate Horseracing Act of 

1978, 15 U.S.C. 3001 et seq.). 

The Department of Justice has consistently taken 

the position that the interstate transmission of bets 

and wagers, including bets and wagers on horse 

races, violates Federal law and that the Interstate 

Horseracing Act (the ‘‘IHA’’) did not alter or amend 

the Federal criminal statutes prohibiting such 

transmission of bets and wagers. The horse racing 

industry disagrees with this position. While the Act 

provides that the definition of ‘‘unlawful Internet 

gambling’’ does not include ‘‘activity that is 

allowed under the Interstate Horseracing Act of 

1978,’’ 31 U.S.C. 5362(10)(D)(i), Congress expressly 

recognized the disagreement over the interplay 

between the IHA and the Federal criminal laws 

relating to gambling and determined that the Act 

would not take a position on this issue. Rather, the 

Sense of Congress provision, codified at 31 U.S.C. 

5362(10)(D)(iii), states as follows: 

It is the sense of Congress that this subchapter 

shall not change which activities related to horse 

racing may or may not be allowed under Federal 

law. This subparagraph is intended to address 

concerns that this subchapter could have the effect 

of changing the existing relationship between the 

Interstate Horseracing Act and other Federal 

statutes in effect on the date of enactment of this 

subchapter. This subchapter is not intended to 

Continued 

unlawful Internet gambling transactions 

restricted by the Act. Finally, the 

proposed rule describes the types of 

policies and procedures that nonexempt participants in each type of 

designated payment system may adopt 

in order to comply with the Act and 

includes non-exclusive examples of 

policies and procedures which would 

be deemed to be reasonably designed to 

prevent or prohibit unlawful Internet 

gambling transactions restricted by the 

Act. The proposed rule does not specify 

which gambling activities or 

transactions are legal or illegal because 

the Act itself defers to underlying State 

and Federal gambling laws in that 

regard and determinations under those 

laws may depend on the facts of specific 

activities or transactions (such as the 

location of the parties). 

DATES: Comments must be received on 

or before December 12, 2007. 

ADDRESSES: You may submit comments 

by any of the following methods: 

Board: You may submit comments, 

identified by Docket Number R–1298, 

by any of the following methods: 

• Agency Web site: http:// 

www.federalreserve.gov. Follow the 

instructions for submitting comments at 

http://www.federalreserve.gov/ 

generalinfo/foia/ProposedRegs.cfm. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail: 

regs.comments@federalreserve.gov. 

Include docket number in the subject 

line of the message. 

• Fax: (202) 452–3819 or (202) 452–

3102. 

• Mail: Jennifer J. Johnson, Secretary, 

Board of Governors of the Federal 

Reserve System, 20th Street and 

Constitution Avenue, NW., Washington, 

DC 20551. 

All public comments are available 

from the Board’s Web site at http:// 

www.federalreserve.gov/generalinfo/ 

foia/ProposedRegs.cfm, as submitted, 

unless modified for technical reasons. 

Accordingly, your comments will not be 

edited to remove any identifying or 

contact information. Public comments 

may also be viewed electronically or in 

paper in Room MP–500 of the Board’s 

Martin Building (20th and C Streets, 

NW.) between 9 a.m. and 5 p.m. on 

weekdays. 

Treasury: 

• Federal eRulemaking Portal— 

‘‘Regulations.gov’’: Go to http:// 

www.regulations.gov, select 

‘‘Department of the Treasury—All’’ from 

the agency drop-down menu, then click 

‘‘Submit.’’ In the ‘‘Docket ID’’ column, 

select ‘‘Treas–DO–2007–0015’’ to 

submit or view public comments and to 

view supporting and related materials 

for this notice of proposed rulemaking. 

The ‘‘User Tips’’ link at the top of the 

Regulations.gov home page provides 

information on using Regulations.gov, 

including instructions for submitting or 

viewing public comments, viewing 

other supporting and related materials, 

and viewing the docket after the close 

of the comment period. 

• Mail: Department of the Treasury, 

Office of Critical Infrastructure 

Protection and Compliance Policy, 

Room 1327, Main Treasury Building, 

1500 Pennsylvania Avenue, NW., 

Washington, DC 20220. 

Instructions: You must include 

‘‘Treas–DO’’ as the agency name and 

‘‘Docket Number Treas–DO–2007–0015’’

in your comment. In general, the 

Treasury will enter all comments 

received into the docket and publish 

them without change, including any 

business or personal information that 

you provide such as name and address 

information, e-mail addresses, or phone 

numbers. Comments, including 

attachments and other supporting 

materials, received are part of the public 

record and subject to public disclosure. 

Do not enclose any information in your 

comment or supporting materials that 

you consider confidential or 

inappropriate for public disclosure. 

You may view comments and other 

related materials by any of the following 

methods: 

• Viewing Comments Electronically: 

Go to http://www.regulations.gov, select 

‘‘Department of the Treasury—All’’ from 

the agency drop-down menu, then click 

‘‘Submit.’’ In the ‘‘Docket ID’’ column, 

select ‘‘Treas–DO–2007–0015’’ to view 

public comments for this notice of 

proposed rulemaking. 

• Viewing Comments Personally: You 

may personally inspect and photocopy 

comments at the Department of the 

Treasury Library, Room 1428, Main 

Treasury Building, 1500 Pennsylvania 

Avenue, NW., Washington, DC. You can 

make an appointment to inspect 

comments by calling (202) 622–0990. 

Commenters are requested to submit 

copies of comments to both Agencies. 

FOR FURTHER INFORMATION CONTACT: 

Board: Christopher W. Clubb, Senior 

Counsel (202/452–3904), Legal Division; 

Jack K. Walton, II, Associate Director 

(202/452–2660), Jeffrey S. Yeganeh, 

Manager, or Joseph Baressi, Financial 

Services Project Leader (202/452–3959), 

Division of Reserve Bank Operations 

and Payment Systems; for users of 

Telecommunication Devices for the Deaf 

(TDD) only, contact 202/263–4869. 

Treasury: Charles Klingman, Deputy 

Director, Office of Critical Infrastructure 

Protection and Compliance Policy; 

Steven D. Laughton, Senior Counsel, or 

Amanda Wise, Attorney-Advisor, Office 

of the Assistant General Counsel 

(Banking & Finance), 202/622–9209. 

SUPPLEMENTARY INFORMATION: 

I. Background and Introduction 

The Act prohibits any person engaged 

in the business of betting or wagering 

(as defined in the Act) from knowingly 

accepting payments in connection with 

the participation of another person in 

unlawful Internet gambling. Such 

transactions are termed ‘‘restricted 

transactions.’’ The Act generally defines 

‘‘unlawful Internet gambling’’ as 

placing, receiving, or otherwise 

knowingly transmitting a bet or wager 

by any means which involves the use, 

at least in part, of the Internet where 

such bet or wager is unlawful under any 

applicable Federal or State law in the 

State or Tribal lands in which the bet or 

wager is initiated, received, or otherwise 

made.1 The Act states that its provisions 


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resolve any existing disagreements over how to 

interpret the relationship between the Interstate 

Horseracing Act and other Federal statutes. 

2 31 U.S.C. 5361(b). 

3See H. Rep. No. 109–412 (pt. 1) p.10. 

4The Act defines ‘‘financial transaction provider’’

as a creditor, credit card issuer, financial 

institution, operator of a terminal at which an 

electronic fund transfer may be initiated, money 

transmitting business, or international, national, 

regional, or local payment network utilized to effect 

a credit transaction, electronic fund transfer, stored 

value product transaction, or money transmitting 

service, or a participant in such network or other 

participant in a designated payment system. 

5The Uniform Commercial Code is a model 

commercial law developed by the National 

Conference of Commissioners on Uniform State 

Law (NCCUSL) in conjunction with the American 

Law Institute. NCCUSL is a non-profit organization 

that promotes the principles of uniformity by 

drafting and proposing specific statutes in areas of 

law where uniformity between the States is 

desirable. No uniform statute is effective until a 

State legislature adopts it as part of its State law. 

should not be construed to alter, limit, 

or extend any Federal or State law or 

Tribal-State compact prohibiting, 

permitting, or regulating gambling 

within the United States.2 The Act does 

not spell out which activities are legal 

and which are illegal, but rather relies 

on the underlying substantive Federal 

and State laws.3

The Act requires the Agencies (in 

consultation with the U.S. Attorney 

General) to designate payment systems 

that could be used in connection with 

or to facilitate restricted transactions. 

Such a designation makes the payment 

system, and financial transaction 

providers participating in the system, 

subject to the requirements of the 

regulations.4 The Act further requires 

the Agencies (in consultation with the 

U.S. Attorney General) to prescribe 

regulations requiring designated 

payment systems and financial 

transaction providers participating in 

each designated payment system to 

establish policies and procedures 

reasonably designed to identify and 

block or otherwise prevent or prohibit 

restricted transactions. The regulations 

must identify types of policies and 

procedures that would be deemed to be 

reasonably designed to achieve this 

objective, including non-exclusive 

examples. The Act also requires the 

Agencies to exempt certain restricted 

transactions or designated payment 

systems from any requirement imposed 

by the regulations if the Agencies jointly 

determine that it is not reasonably 

practical to identify and block, or 

otherwise prevent or prohibit the 

acceptance of, such transactions. 

Under the Act, a participant in a 

designated payment system is 

considered to be in compliance with the 

regulations if it relies on and complies 

with the policies and procedures of the 

designated payment system and such 

policies and procedures comply with 

the requirements of the Agencies’

regulations. The Act also directs the 

Agencies to ensure that transactions in 

connection with any activity excluded 

from the Act’s definition of ‘‘unlawful 

Internet gambling,’’ such as qualifying 

intrastate transactions, intratribal 

transactions, or interstate horseracing 

transactions, are not blocked or 

otherwise prevented or prohibited by 

the prescribed regulations. 

The regulation being proposed by the 

Agencies in this notice: (i) Sets out 

definitions for terms used in the 

regulation; (ii) designates payment 

systems that could be used by 

participants in connection with, or to 

facilitate, a restricted transaction; (iii) 

exempts certain participants in certain 

designated payment systems from 

requirements of the regulation; (iv) 

requires the participants performing 

non-exempt functions in a designated 

payment system to establish and 

implement policies and procedures 

reasonably designed to prevent or 

prohibit restricted transactions, such as 

by identifying and blocking such 

transactions; (v) provides non-exclusive 

examples of policies and procedures for 

non-exempt participants in each 

designated payment system; and (vi) 

sets out the regulatory enforcement 

framework. Comments on all aspects of 

the proposed regulation are welcome; 

however, the Agencies are, in particular, 

seeking comment on the issues noted in 

the section-by-section analysis below. 

The Agencies desire to achieve the 

purposes of the Act as soon as is 

practical, while also providing 

designated payment systems and their 

participants sufficient time to adapt 

their policies and practices as needed to 

comply with the regulation. The 

Agencies propose that the final 

regulations take effect six months after 

the joint final rules are published, and 

request comment on whether this period 

is reasonable. Commenters requesting a 

shorter period should explain why they 

believe payment system participants 

would be able to modify their policies 

and procedures, as required, in the 

shorter period. Similarly, commenters 

requesting a longer period should 

explain why the longer period would be 

necessary to comply with the 

regulations, particularly if the need for 

additional time is based on any system 

or software changes required to comply 

with the regulations. 

II. Section by Section Analysis 

A. Definitions 

The proposed regulation provides 

definitions for terms used in the 

regulation. Many of the definitions 

(such as ‘‘bet or wager,’’ ‘‘financial 

transaction provider,’’ ‘‘Internet,’’

‘‘money transmitting business,’’

‘‘restricted transaction,’’ and ‘‘unlawful 

Internet gambling’’) follow or refer to 

the Act’s definitions. The proposed rule 

does not attempt to further define 

gambling-related terms because the Act 

itself does not specify which gambling 

activities are legal or illegal and the Act 

does not require the Agencies to do so. 

The Act focuses on payment 

transactions and relies on prohibitions 

on gambling contained in other statutes 

under the jurisdiction of other agencies. 

Further, application of some of the 

terms used in the Act may depend 

significantly on the facts of specific 

transactions and could vary according to 

the location of the particular parties to 

the transaction or based on other factors 

unique to an individual transaction. The 

purpose of the proposed regulations is 

to implement the provisions of the Act 

that instruct the Agencies to require 

participants in designated payment 

systems to establish policies and 

procedures reasonably designed to 

identify and block or otherwise prevent 

or prohibit restricted transactions. For 

these reasons, and in consultation with 

the Department of Justice, the Agencies’

preliminary view is that issues 

regarding the scope of gambling-related 

terms should be resolved by reference to 

the underlying substantive State and 

Federal gambling laws and not by a 

general regulatory definition. 

The proposed rule includes 

definitions for some payment system 

terms (such as ‘‘automated clearing 

house system,’’ ‘‘card system,’’ ‘‘check 

collection system,’’ ‘‘check clearing 

house,’’ ‘‘money transmitting business,’’

‘‘money transmitting service,’’ and 

‘‘wire transfer system’’) because they 

relate to the designated payment 

systems, exemptions, and required 

policies and procedures. The definitions 

of most of these payment system terms 

are based on existing regulatory or 

statutory definitions, such as the 

Board’s Regulation CC (12 CFR Part 229) 

or the Uniform Commercial Code 

(UCC).5 Terms used in the context of 

particular payment systems are 

intended to be consistent with how 

those terms are used in those systems. 

The proposed rule incorporates by 

reference relevant definitions of terms 

regarding the automated clearing house 

(ACH) system as published in ‘‘2007 

ACH Rules: A Complete Guide to Rules 

& Regulations Governing the ACH 

Network’’ (the ACH Rules) by the 


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6 31 U.S.C. 5330(d). 

7The Agencies believe that this cross-reference 

does not otherwise require the Act and the Bank 

Secrecy Act to be interpreted in light of each other. 

8A primer on the ACH network is provided in the 

ACH Rules. 

9See ACH Rules, Operating Rules §§ 11.6 and 

11.7. 

National Automated Clearing House 

Association (NACHA). In accordance 

with the Act, the definitions of ‘‘money 

transmitting business’’ and ‘‘money 

transmitting service’’ have the meanings 

given the terms in the Bank Secrecy 

Act,6 determined without regard to any 

regulations prescribed by the Treasury 

thereunder.7

In addition, the proposed regulation 

defines the term ‘‘participant in a 

designated payment system’’ as an 

operator of a designated payment 

system, or a financial transaction 

provider that is a member of, has 

contracted for services with, or is 

otherwise participating in, a designated 

payment system. The proposed 

regulatory definition clarifies that an 

end-user customer of a financial 

transaction provider is not included in 

the definition of ‘‘participant,’’ unless 

the customer is also a financial 

transaction provider otherwise 

participating in the designated payment 

system on its own behalf. 

The Agencies request comment on all 

of the terms and definitions set out in 

this section. In particular, the Agencies 

request comment on any terms used in 

the proposed regulation that a 

commenter believes are not sufficiently 

understood or defined. 

B. Designated Payment Systems 

Section 3 of the proposed regulation 

designates the following payment 

systems as systems used by a financial 

transaction provider that could be used 

in connection with, or to facilitate, a 

restricted transaction: automated 

clearing house systems; card systems 

(including credit, debit, and pre-paid 

cards or stored value products); check 

collection systems; money transmitting 

businesses; and wire transfer systems. 

The broad range of the payment systems 

designated by the regulation reflects the 

fact that a restricted transaction may be 

made through many different payment 

systems. The designated payment 

systems are described in more detail 

below. 

1. Automated Clearing House System 

The ACH system is a funds transfer 

system, primarily governed by the rules 

and guidelines published by NACHA, 

that provides for the clearing and 

settlement of batched electronic entries 

for participating financial institutions.8

ACH transfers can be either credit or 

debit transfers and can be either 

recurring or one-time transfers. 

Recurring ACH transfers typically occur 

on a set schedule and are pre-authorized 

by the individual or entity whose 

account is being credited or debited. 

Recurring credit transfers include 

payroll direct deposit payments, while 

recurring debit transfers include 

mortgage and other bill payments. Onetime ACH transfers are authorized at the 

time the payment is initiated. One-time 

credit transfers include bill payments 

made through the bill payer’s bank, 

while one-time debit transfers include 

bill payments made through the biller’s 

payment site. 

The designation of the originating and 

receiving institution in ACH 

terminology is based on the participants 

that initiate and receive the ACH 

entries, rather than the direction of the 

flow of funds. The originator of an ACH 

transfer generally sends the payment 

instruction to its bank, the originating 

depository financial institution (ODFI), 

so that the payment instruction can be 

entered into the ACH system. The ODFI 

combines the payment instructions with 

payment instructions from its other 

customers and sends them to an ACH 

operator for processing. The ACH 

operator will then sort and deliver the 

payments to the appropriate receiving 

depository financial institutions (RDFIs) 

and complete the interbank settlement 

process. The RDFIs then post the 

payments, either credits or debits, to the 

receivers’ accounts. The fundamental 

difference between the ACH credit and 

debit transfers is that for ACH credit 

transfers funds are ‘‘pushed’’ to an 

account at the institution receiving the 

message, while in ACH debit transfers 

funds are ‘‘pulled’’ from an account at 

the institution receiving the message. In 

other words, for credit transfers, the 

originator is requesting that funds be 

credited to the receiver (the funds move 

in the same direction as the payment 

instruction), while for debit transfers, 

the originator is requesting that funds be 

debited from the receiver (the funds 

move in the opposite direction from the 

payment instruction). 

In some instances, a ‘‘third-party 

sender’’ acts as an intermediary between 

an originator and an ODFI with respect 

to the initiation of ACH transactions 

where there is no contractual agreement 

between the originator and the ODFI. 

Under the ACH Rules, a third-party 

sender assumes the responsibilities of 

an originator and is obligated to provide 

the ODFI with any information the ODFI 

reasonably deems necessary to identify 

each originator for which the third-party 

sender transmits entries. The use of 

third-party senders in ACH transactions 

poses particular risks because the ODFI 

does not have a direct relationship with 

the originators. 

The ACH Rules also include 

particular provisions governing crossborder ACH payments made in 

cooperation with another country’s 

national payment system. Under the 

ACH Rules, the U.S. segment of a crossborder ACH transaction is settled 

separately between the U.S. participants 

and the U.S. gateway operator. The 

interface between the two national 

payment systems is commonly 

accomplished through an ‘‘originating 

gateway operator’’ in the originator’s 

country and a ‘‘receiving gateway 

operator’’ in the receiver’s country. Both 

the originating and receiving gateway 

operators are participants in their 

respective national payment systems 

and capable of clearing and settling 

payments in their respective systems. In 

the United States, the gateway operator 

can be an ODFI (for ‘‘inbound’’

transactions), an RDFI (for ‘‘outbound’’

transactions), or, with the appropriate 

agreements in place, an ACH operator. 

Additionally, a third-party sender may 

have proprietary arrangements with a 

foreign counterparty and accept 

instructions to submit cross-border ACH 

entries to the appropriate ACH operator 

or ODFI. 

In the case of inbound transactions, 

the ‘‘originating gateway operator’’ in 

the country of the originator receives the 

entry from its national payments 

network and then transmits the entry to 

a receiving gateway operator in the 

receiving country. The receiving 

gateway operator then transmits the 

entry into its national payments system 

for delivery to the intended RDFI. If a 

U.S. ODFI acts as a receiving gateway 

operator, it would be the first U.S. 

institution involved in the transaction 

and would submit the transaction to its 

U.S. ACH operator for further 

processing. Under the ACH Rules, a U.S. 

receiving gateway operator for a 

particular cross-border transaction must 

make warranties expected of an ODFI 

for that transaction and assumes 

liability for breaches of those warranties 

to every RDFI and ACH operator, so in 

effect it becomes the ODFI for the U.S. 

segment of the transaction.9 Similarly, a 

U.S. depository financial institution or 

third-party sender receiving instructions 

to originate cross-border ACH entries 

directly from a foreign counterparty 

would be the first U.S. participant 

involved in the transaction and would 

originate the ACH entry in the U.S. ACH 

system. 


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10This discussion generally relates to the card 

processing model of Visa and MasterCard, in which 

the merchant acquirer, the card network, and the 

card issuer are separate entities. Other card 

companies, such as American Express, may employ 

a model in which one company owns the card 

processing network and performs all major 

functions involved in issuing cards and acquiring 

merchants to accept its cards. 

11Check clearing houses generally provide a 

facility or mechanism for banks to exchange checks 

for collection and return. The services provided by 

check clearing houses vary. Some merely provide 

space for banks to exchange checks. Others provide 

the capability to exchange between banks in 

electronic form. A check clearing house generally 

also facilitates settlement of the checks exchanged 

through it. Check clearing houses are not 

considered collecting or returning banks. 

12 12 CFR 229.2(o) commentary. Foreign offices of 

U.S. and foreign banks are not included in 

Regulation CC’s definition of ‘‘bank.’’ 12 CFR 

229.2(e) commentary. 

2. Card Systems 

Card systems are systems for clearing 

and settling transactions in which credit 

cards, debit cards, pre-paid cards, or 

stored value products are used to 

purchase goods or services or to obtain 

a cash advance. In a typical card system 

transaction, there are three components 

to the transaction: Authorization, 

clearance, and settlement. 

The transaction begins when the 

payor provides his card or card number 

to the payee, either in person or through 

the Internet or telephone. The payee 

uses that information to create a card 

payment authorization request, which it 

sends to its bank (the ‘‘merchant 

acquirer’’) or the bank’s agent. The 

merchant acquirer sends an 

authorization request through the card 

system network to the bank that issued 

the payor’s card (the ‘‘card issuer’’) or 

its agent.10 The authorization request 

includes, amongst other information, 

the card number, the transaction 

amount, a merchant category code, and 

a transaction code. The merchant 

category code describes generally the 

nature of the payee’s business and the 

transaction code describes whether the 

card was present at the point of 

transaction (i.e., a point-of-sale 

transaction) or not present (i.e., a 

transaction over the Internet or 

telephone). The card issuer or its agent 

either authorizes or declines the 

transaction and the payee is 

immediately notified of the decision 

through the card network. If 

authorization is granted, then the payee 

completes the underlying transaction 

with the payor; otherwise, the 

transaction is cancelled. 

After the transactions have been 

authorized, they must then be cleared. 

The clearing process for personal 

identification number (PIN)-based debit 

card transactions is different from the 

process for credit card and signaturebased debit card transactions. For PINbased debit card transactions, the 

authorization and clearing occur at the 

same time and thus a separate clearing 

transmission by the payee to the 

merchant acquirer is not necessary. For 

credit cards and signature-based debit 

cards, the payee batches its authorized 

transactions and transmits them, 

typically at the end of the business day, 

to the merchant acquirer to be cleared 

through the card network. Depending on 

the card type, card issuer banks memopost or charge transactions to their 

customers’ accounts when the 

transactions are either authorized or 

cleared. Once the transactions have 

been cleared, they are settled at a time 

specified by the card network and the 

merchant acquirer and the card issuer 

are, respectively, credited and debited. 

3. Check Collection Systems 

A check collection system is an 

interbank system for collecting, 

presenting, returning, and settling 

checks or an intrabank system for 

settling checks deposited and drawn on 

the same bank (i.e., ‘‘on-us checks’’). A 

typical check transaction is initiated by 

the payor writing a check to the order 

of a payee and giving the signed check 

to the payee as payment. The payee 

deposits the check with its bank (the 

bank of first deposit or the ‘‘depositary 

bank’’). Except for on-us checks, the 

depositary bank will then send the 

check to the bank on which it is drawn 

(the ‘‘paying bank’’) for payment. 

The depositary bank may present the 

check for payment directly to the paying 

bank, may use a check clearing house, 

or may use the services of an 

intermediary bank, such as a Federal 

Reserve Bank or another correspondent 

bank (a ‘‘collecting bank’’).11 These 

intermediaries handle large volumes of 

checks daily and typically rely on three 

pieces of information: The routing 

number of the bank from which it 

received the check; the routing number 

of the bank to which the check is 

destined (i.e. the paying bank); and the 

amount of the check. Upon 

presentment, the paying bank settles 

with the presenting bank for the amount 

of the check and debits the amount of 

the check from the account of the payor. 

Checks may be cleared cross-border 

through correspondent banking 

relationships. If a U.S. payor writes a 

check to the order of an offshore payee, 

the payee will likely deposit the check 

in its home country bank. The home 

country bank may have a correspondent 

relationship with a U.S. bank for check 

collection and deposit the check with its 

U.S. correspondent bank. The U.S. bank 

will then collect the check through the 

U.S. check collection system. The first 

banking office located in the United 

States that receives a check from outside 

the United States for forward collection 

inside the United States is defined as 

the depositary bank for that check.12

Accordingly, if a foreign office of a U.S. 

or foreign bank sends checks to its U.S. 

correspondent for forward collection, 

the U.S. correspondent is the depositary 

bank for those checks. 

4. Money Transmitting Businesses 

A money transmitting business is a 

person (other than a depository 

institution) that engages as a business in 

the transmission of funds, including any 

person that engages as a business in an 

informal money transfer system or any 

network of people that engage as a 

business in facilitating the transfer of 

money domestically or internationally 

outside of the conventional financial 

institutions system. Money transmitters 

commonly will facilitate money 

transmissions through agent locations, 

by phone, or through an Internet 

website and can be used for payments 

to some businesses as well as money 

transfers to individuals. This term 

includes networks such as Western 

Union and MoneyGram, on-line 

payment systems such as PayPal, and 

other electronic systems that engage in 

the business of transmitting funds. 

Money transmitting businesses use 

various operational models. In networks 

with operations similar to Western 

Union and MoneyGram, the payor 

initiates the transaction in person at the 

money transmitting business’s location, 

by phone, or through the money 

transmitting business’s Internet site and 

generally can use cash, a credit card, or 

a debit card to fund a transfer. The 

money transmitter obtains identification 

from the payor, as well as identifying 

information for the intended payee and 

the location to which the payment 

should be sent. The money transmitter 

may provide the payor with a reference 

number that the payee will need in 

order to pick up the payment. Large 

money transmitters, such as Western 

Union or, MoneyGram, typically 

transmit the payment instructions 

through an internal proprietary system. 

The payor or the money transmitter 

notifies the payee of the availability of 

the payment. The payee goes to one of 

the money transmitting business’s 

physical locations, provides the 

necessary information (such as personal 

identification and perhaps the 

transaction reference number), and 

receives the funds. Alternatively, some 


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money transmitting businesses will 

transfer money directly into a payee’s 

bank account in certain circumstances, 

such as when the recipient is a business 

that has been approved to receive funds 

through the money transmitting 

business (a ‘‘commercial subscriber’’). 

Settlement between the sending and 

receiving accounts or locations is 

effected based on rules established by 

the money transmitting business. 

Other money transmitters may follow 

the PayPal-type operational model and 

provide Internet electronic payment 

services to facilitate purchases over the 

Internet, either from vendors or through 

auctions. In such a model, a consumer 

establishes an account with the money 

transmitting business and uses a debit 

card, credit card, or ACH transfer to 

fund the account. In order to fund a 

purchase from a vendor with an account 

with the same money transmitting 

business, the consumer instructs the 

money transmitting business to transfer 

the funds to the vendor, identifying the 

vendor by e-mail address. The money 

transmitting business sends an e-mail 

notification to the vendor and transfers 

the funds from the consumer’s account 

to the vendor’s account. The vendor 

may keep the funds in its account with 

the money transmitting business (and 

subsequently use them to effect 

payments through the system) or may 

transfer the funds from its account to its 

bank account, such as through an ACH 

credit transaction. 

Other money transmitting businesses 

may use operational models different 

than those set out above. The Agencies 

intend to apply the term ‘‘money 

transmitting business’’ to cover 

businesses that meet the definition of 

the term as used in the Act, regardless 

of operational model. 

5. Wire Transfer Systems 

A wire transfer system is a system 

through which the sender of a payment 

transmits an unconditional order to a 

bank to pay a fixed or determinable 

amount of money to a beneficiary upon 

receipt (or on a day stated in the order) 

by electronic or other means through a 

network, between banks, or on the 

books of a bank. Wire transfer systems 

are generally designed for large-value 

transfers between financial institutions, 

but financial institutions also send 

lower-value, consumer-initiated 

payment orders through wire transfer 

systems. 

In a typical consumer-initiated wire 

transfer transaction, the consumer 

would initiate the transfer after 

obtaining wire transfer instructions from 

the intended beneficiary (such as the 

bank to which the beneficiary would 

like the funds transferred and the 

beneficiary’s account number at the 

bank). The consumer provides that 

information in the payment order to its 

bank (the ‘‘originator’s bank’’) to initiate 

the wire transfer. The originator’s bank 

may transfer the payment directly to the 

beneficiary’s bank if the banks have an 

account relationship. 

Alternatively, the originator’s bank 

may use the services of a wire transfer 

network, such as the Federal Reserve 

Banks’’ Fedwire system or The Clearing 

House’s CHIPS system, to send the 

transfer either to the beneficiary’s bank 

or to an intermediary bank that has an 

account relationship with the 

beneficiary’s bank. In an automated wire 

transfer system such as Fedwire or 

CHIPS, typically the information used 

in processing the payment order is the 

routing information of the sending bank, 

the routing information of the receiving 

bank, and the amount of the wire 

transfer. Although additional 

information may be, and in some cases 

is required to be, included in fields of 

the payment order message format (such 

as the names of the originator and the 

beneficiary, their account numbers, and 

addresses), this information is not relied 

upon by the intermediary bank to 

process the transfer. 

Wire transfer transaction proceeds 

may be sent cross-border through 

correspondent banking relationships. 

The last U.S. bank in the outgoing 

transaction may either have a 

correspondent banking relationship 

with the beneficiary’s foreign bank or a 

foreign intermediary bank for further 

delivery to the beneficiary’s bank. 

Alternatively, the U.S. bank may have a 

branch in the home country of the 

beneficiary and can make an ‘‘on-us’’

transfer to the branch for further 

processing through the beneficiary’s 

home country national payment system. 

6. Other Payment Systems 

The Agencies request comment on 

whether the list of designated payment 

systems in the proposed regulation is 

too broad or too narrow. In particular, 

the Agencies request comment on 

whether there are non-traditional or 

emerging payment systems not 

represented in the proposed regulation 

that could be used in connection with, 

or to facilitate, any restricted 

transaction. If a commenter believes that 

such a payment system should be 

designated in the final rule, the 

commenter should describe policies and 

procedures that might be reasonably 

designed to identify and block, or 

otherwise prevent or prohibit, restricted 

transactions through that system. 

C. Exemptions 

The Act directs the Agencies to 

exempt certain restricted transactions or 

designated payment systems from any 

requirements imposed under the 

regulations if the Agencies find that it 

is not reasonably practical to identify 

and block, or otherwise prevent or 

prohibit the acceptance of, such 

transactions. Section 4 of the proposed 

rule provides such an exemption for 

certain participants in ACH systems, 

check collection systems, and wire 

transfer systems. The proposed 

regulation is structured to impose 

requirements on participants in 

designated payments systems with 

respect to the segments of particular 

transactions that those participants 

handle. Therefore, rather than 

exempting entire categories of restricted 

transactions or entire payment systems, 

the Agencies have structured the 

exemptions to apply to particular 

participants in particular payment 

systems as described in greater detail 

below. The Agencies believe that this 

limited application of their exemption 

authority better serves the Act’s 

purposes of preventing the processing of 

restricted transactions. 

The Agencies are proposing to exempt 

all participants in the ACH systems, 

check collection systems, and wire 

transfer systems, except for the 

participant that possesses the customer 

relationship with the Internet gambling 

business (and certain participants that 

receive certain cross-border transactions 

from, or send certain such transactions 

to, foreign payment service providers, as 

discussed further below). The 

exemptions for these participants reflect 

the fact that these systems currently do 

not enable the exempted participants to 

reasonably identify and block, or 

otherwise prevent or prohibit, restricted 

transactions under the Act. While other 

systems, such as the card systems, have 

developed merchant category and 

transaction codes that identify the 

business line of the payee (e.g., the 

gambling business) and how the transfer 

was initiated (such as via the Internet), 

so that the systems are able to identify 

and block certain types of payments in 

real time, the ACH systems, check 

collection systems, and wire transfer 

systems do not use such codes. 

Moreover, as a general matter, a 

consumer can make payment by check, 

ACH, or wire transfer to any business 

with an account at a depository 

institution. This is in contrast to card 

systems and money transmitting 

businesses, in which consumers can 

make direct payments only to those 

businesses that have explicitly agreed to 


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participate in those payment systems. 

As a result, the preliminary view of the 

Agencies is that it is not reasonably 

practical for the exempted participants 

in ACH systems, check collection 

systems, and wire transfer systems 

discussed below to identify and block, 

or otherwise prevent or prohibit, 

restricted transactions under the Act. 

The Agencies intend to monitor 

technological developments in these 

payment systems and will consider 

amending the exemptions if, in the 

future, the technology prevalent in these 

payment systems permits such 

participants to identify and block, or 

otherwise prevent and prohibit, those 

restricted transactions. 

No designated payment system is 

completely exempted by the proposed 

rule. The Agencies intend that the 

participant with the customer 

relationship with the Internet gambling 

business would have the responsibility 

in the ACH systems, check collection 

systems, or wire transfer systems to 

prevent or prohibit restricted 

transactions from being credited to the 

account of the gambling business 

through that particular payment system. 

The Agencies request comment on all 

aspects of the exemptions, but in 

particular, whether the exemptions for 

certain participants in the ACH systems, 

check collection systems, and wire 

transfer systems discussed in more 

detail below are appropriate. 

Commenters that believe that these 

participants should not be exempted 

from the requirements of the regulation 

should provide specific examples of 

policies and procedures that such 

participants could establish and 

implement that would be reasonably 

designed to identify and block, or 

otherwise prevent or prohibit, restricted 

transactions. 

1. ACH systems 

With regard to an ACH system, the 

proposal provides an exemption from 

the regulation’s requirements for the 

ACH system operator, the originating 

depository financial institution (ODFI) 

in an ACH credit transaction, and the 

receiving depository financial 

institution (RDFI) in an ACH debit 

transaction (except with respect to 

certain cross-border transactions 

discussed below). The proposal does not 

exempt the institution serving as the 

ODFI in an ACH debit transaction or the 

RDFI in an ACH credit transaction 

because these institutions typically have 

a pre-existing relationship with the 

customer receiving the proceeds of the 

ACH transaction and could, with 

reasonable due diligence, take steps to 

ascertain the nature of the customer’s 

business and ensure that the customer 

relationship is not used to receive 

restricted transactions. 

The proposal would provide an 

exemption for the ACH system operator 

because it is not reasonably practical for 

the operator to identify and block a 

particular ACH transfer as a restricted 

transaction. The ACH system operator’s 

function is to act as the central clearing 

facility for ACH entries. The ACH 

operator sorts the entries by RDFI 

routing information and transmits the 

payment information to the appropriate 

RDFI for posting. The ACH system 

operator would not have any direct 

interaction with either the gambler or 

the Internet gambling business and 

would not be in a position to obtain the 

necessary information to analyze 

individual transactions to determine 

whether they are restricted transactions. 

In addition, ACH operators use highlyautomated systems to sort large volumes 

of ACH entries without manual 

intervention. A requirement to analyze 

each ACH entry manually to determine 

whether it is a restricted transaction 

would substantially increase processing 

times for all ACH entries, including 

entries that are not restricted 

transactions, and reduce the efficiency 

of the ACH system. Moreover, even if 

the payee information on an ACH entry 

is analyzed manually, it is very difficult 

for an ACH operator to determine 

whether the ACH entry is related to a 

restricted transaction. 

The proposal also would provide an 

exemption for the RDFI in an ACH debit 

transaction. In this case, the exempted 

participant would not have any direct 

interaction with its customer prior to 

processing the transaction. In a 

restricted transaction using an ACH 

debit transaction, a gambler could 

authorize the unlawful Internet 

gambling business to debit his account 

for the restricted transaction and the 

RDFI would not have an opportunity to 

obtain information from its customer 

(the gambler in this case) to determine 

whether the entry was in connection 

with a restricted transaction. Also, as 

discussed below, information obtained 

from the customer may be of limited 

value. 

In addition, the proposal would 

provide an exemption for the ODFI in 

an ACH credit transaction. The 

Agencies carefully considered whether 

such an exemption would be warranted. 

Typically, a consumer would initiate an 

ACH credit transaction on-line with the 

ODFI, so there could be an opportunity 

for the ODFI to design a procedure to 

obtain information on an outgoing ACH 

credit transaction to determine whether 

it is a restricted transaction. For 

example, for each ACH credit 

transaction, the ODFI could require the 

originator to submit a statement that the 

ACH credit transaction is not a 

restricted transaction and/or a 

description of the nature and purpose of 

the transaction. 

The Agencies’ preliminary view, 

however, is that, while it may be 

possible at least in some cases for an 

ODFI in an ACH credit transaction to 

obtain information from the originator 

regarding whether the ACH credit 

transaction is a restricted transaction 

under the Act, any associated benefits 

would likely be outweighed by the 

associated costs that would be borne by 

ODFIs. Specifically, any process 

requiring the customer to describe the 

nature of the transaction and/or state 

that the transaction does not involve 

unlawful Internet gambling may be of 

limited value, either because a customer 

may knowingly mischaracterize the 

actual nature of the transaction in order 

to avoid the transaction being rejected 

or blocked, or because the customer may 

not actually know whether an Internet 

gambling transaction is a restricted 

transaction under the Act. The Agencies 

also believe that the ODFI would 

generally be unable to determine 

whether the originator’s characterization 

of the transaction is accurate. Moreover, 

the burden on ODFIs in developing the 

necessary systems to obtain the 

information and determine whether to 

reject or block a transaction would 

likely be substantial. 

The Agencies specifically request 

comment on whether it is reasonably 

practical to implement policies and 

procedures (including, but not limited 

to, those discussed above) for an ODFI 

in an ACH credit transaction, whether 

such policies and procedures would 

likely be effective in identifying and 

blocking restricted transactions, and 

whether the burden imposed by such 

policies and procedures on an originator 

and an ODFI would outweigh any value 

provided in preventing restricted 

transactions and a description of such 

burdens and benefits. If a commenter 

believes that an ODFI in an ACH credit 

transaction should not be exempted, the 

Agencies request that the commenter 

provide examples of policies and 

procedures reasonably designed for an 

ODFI in an ACH credit transaction to 

identify and block or otherwise prevent 

or prohibit restricted transactions in the 

ACH system. 

2. Check Collection Systems 

With regard to check collection 

systems, the proposed rule would 

provide an exemption from the 

regulation’s requirements for a check 


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clearing house, the paying bank (unless 

it is also the depositary bank), any 

collecting bank (other than the 

depositary bank), and any returning 

bank. The proposal does not exempt the 

institution serving as the depositary 

bank (i.e., the first U.S. institution to 

which a check is transferred, in this case 

the institution receiving the check 

deposit from the gambling business) in 

a check transaction. The depositary 

bank is typically in a position, through 

reasonable due diligence, to take steps 

to ascertain the nature of the customer’s 

business and ensure that the customer 

relationship is not used for receiving 

restricted transactions. 

The proposed rule would provide an 

exemption for the check clearing house 

because the check clearing house 

generally does not have a direct 

relationship with either the payor or the 

payee and would not be in a position to 

obtain information from either party 

regarding the transaction that would 

permit the check clearing house to 

determine whether a particular check 

was a restricted transaction. 

For similar reasons, the proposal 

would provide an exemption for a 

collecting bank (other than the 

depositary bank) and a returning bank 

in a check collection transaction. 

Collecting banks (other than the 

depositary bank) and returning banks 

are intermediary banks that generally do 

not have a direct relationship with 

either the payor or the payee in the 

check transaction and would not be in 

a position to obtain information from 

either party that would permit them to 

determine whether a particular check 

was a restricted transaction. 

The proposal would also provide an 

exemption for the paying bank (unless 

the paying bank is also the depositary 

bank). The paying bank is generally the 

bank by or through which a check is 

payable and to which the check is sent 

for payment or collection. In a restricted 

transaction, this would generally be the 

bank holding the gambler’s checking 

account. While the paying bank would 

have a direct relationship with the 

payor, it would not be in a position to 

obtain information from the payor prior 

to the transaction being settled. Checks 

are processed and paid by a paying 

bank’s automated systems according to 

the information contained in the 

magnetic ink character recognition 

(MICR) line printed near the bottom of 

the check. The MICR line commonly 

includes the bank’s routing number, the 

customer’s account number, the check 

number, and the check amount, but 

does not contain any information 

regarding the payee. A requirement to 

analyze manually each check with 

respect to the payee would substantially 

increase processing times for all checks, 

including checks that are not restricted 

transactions, and reduce the efficiency 

of the check collection systems. 

Moreover, even if the payee information 

on checks is analyzed manually, it is 

very difficult for a paying bank to 

determine whether the check is related 

to a restricted transaction. If the paying 

bank is also the depositary bank (i.e., an 

‘‘on-us’’ transaction), the institution 

would still be required to comply with 

the regulations as a depositary bank. 

3. Wire Transfer Systems 

With regard to wire transfer systems, 

the proposal provides an exemption 

from the regulation’s requirements for 

the originator’s bank (i.e., the depository 

institution sending the wire transfer on 

behalf of the gambler) and intermediary 

banks (other than the bank that sends 

the transfers to a foreign respondent 

bank as discussed below). The proposal 

does not exempt the institution serving 

as the beneficiary’s bank (i.e., the 

institution receiving the wire transfer on 

behalf of the gambling business) in a 

particular wire transfer system. The 

beneficiary’s bank typically has a preexisting relationship with the customer 

receiving a particular wire transfer and, 

accordingly, is in a position, through 

reasonable due diligence, to take steps 

to ascertain the nature of the customer’s 

business and assess the risk that the 

customer may be involved in restricted 

transactions. 

The proposal would provide an 

exemption for intermediary banks 

because it is not reasonably practical for 

institutions serving in this capacity in a 

wire transfer system to identify and 

block a particular wire transfer as a 

restricted transaction under the Act. The 

information normally relied upon by 

intermediary banks’ automated systems 

in processing a wire transfer does not 

typically include information that 

would enable those systems to identify 

and block individual transfers as 

restricted transactions under the Act. In 

addition, intermediary banks process 

tremendous volumes of wire transfers in 

seconds or less on an automated basis, 

without manual intervention. A 

requirement to analyze each transaction 

manually to determine whether it is a 

restricted transaction would 

substantially increase processing times 

for all wire transfers, including transfers 

that are not restricted transactions, and 

reduce the efficiency of the wire transfer 

systems. Moreover, even if the 

beneficiary information in a wire 

transfer payment message is analyzed 

manually, it is very difficult for an 

intermediary bank to determine whether 

the wire transfer is related to a restricted 

transaction. 

The Agencies also carefully 

considered whether to grant an 

exemption for portions of a wire transfer 

system involving the originator’s bank. 

Similar to an ODFI in an ACH credit 

transaction, the originating customer in 

a particular wire transfer generally has 

some direct interaction with the 

originating institution, so there could be 

an opportunity for the originating 

institution to design a procedure to 

review an outgoing wire transfer to 

determine whether it is a restricted 

transaction. For example, for each wire 

transfer (or for each transfer originated 

by a consumer), the originator’s bank 

could require the originator to submit a 

statement that the wire transfer is not a 

restricted transaction and a description 

of the nature and purpose of the 

transaction. This two-part submission 

could be made in writing for in-person 

originations, orally for phone 

originations, or on-line for automated 

originations. For the casual or impulse 

gambler, requiring such a statement may 

cause the gambler to consider carefully 

(or to investigate) whether the payment 

is legal and even whether engaging in 

gambling is prudent in light of the 

gambler’s personal circumstances. 

The Agencies’ preliminary view is 

that, while it may be possible, at least 

in some cases, for an originating bank to 

obtain such a submission from the 

originator, any associated benefits 

would likely be outweighed by the 

associated costs for reasons similar to 

those described above regarding the 

exemption for ODFIs in ACH credit 

transactions. 

The Agencies specifically request 

comment on whether it is reasonably 

practical for an originator’s bank and an 

intermediary bank in a wire transfer 

system to implement policies and 

procedures (including, but not limited 

to, those discussed above) that would 

likely be effective in identifying and 

blocking or otherwise prevent or 

prohibit restricted transactions; whether 

the burden imposed by such policies 

and procedures on an intermediary 

bank, an originator, and an originator’s 

bank would outweigh any value 

provided in preventing restricted 

transactions and a description of such 

burdens and benefits; and whether any 

policies and procedures could 

reasonably be limited only to consumerinitiated wire transfers and, if so, a 

description of any costs or benefits of so 

limiting the requirement. If a 

commenter believes that the originator’s 

bank or an intermediary bank should 

not be exempted, the Agencies request 

that the commenter provide examples of 


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13See the discussion of the interplay between the 

Interstate Horseracing Act and federal gambling 

statutes contained in Footnote 1. 14 31 U.S.C. 5361(b). 

15 Designated payment system representatives 

have informally indicated to the Agencies that 

many participants in their systems prefer not to 

process gambling-related transactions because they 

have experienced higher-than-usual losses due, for 

example, to assertions that gambling transactions 

were ‘‘unauthorized.’’ 16See, e.g., 12 CFR 208.63. 

policies and procedures reasonably 

designed for institutions serving in 

those functions to identify and block or 

otherwise prevent or prohibit restricted 

transactions in a wire transfer system. 

D. Processing of Restricted Transactions 

Prohibited 

Section 5 of the proposed regulations 

expressly requires all non-exempt 

participants in the designated payment 

systems to establish and implement 

policies and procedures in order to 

identify and block, or otherwise prevent 

or prohibit, restricted transactions. In 

accordance with the Act, section 5 states 

that a participant in a designated 

payment system shall be considered in 

compliance with this requirement if the 

designated payment system of which it 

is a participant has established policies 

and procedures to prevent or prohibit 

restricted transactions and the 

participant relies on, and complies with, 

the policies and procedures of the 

designated payment system. In other 

words, the Act and the proposed rule 

permit non-exempt participants in a 

designated payment system to either (i) 

Establish their own policies and 

procedures to prevent or prohibit 

restricted transactions; or (ii) rely on 

and comply with the policies and 

procedures established by the 

designated payment system, so long as 

such policies and procedures comply 

with the regulation. 

Section 5 also imports the Act’s 

liability provisions, which state that a 

person that identifies and blocks, 

prevents, prohibits, or otherwise fails to 

honor a transaction is not liable to any 

party for such action if (i) the 

transaction is a restricted transaction; 

(ii) such person reasonably believes the 

transaction to be a restricted transaction; 

or (iii) the person is a participant in a 

designated payment system and 

prevented the transaction in reliance on 

the policies and procedures of the 

designated payment system in an effort 

to comply with the regulation. 

Finally, section 5 implements the 

Act’s requirement that the Agencies 

ensure that transactions in connection 

with any activity excluded from the 

Act’s definition of unlawful Internet 

gambling are not blocked or otherwise 

prevented or prohibited by the 

regulations (the ‘‘overblocking’’

provision). Section 5 makes clear that 

nothing in the regulation requires or is 

intended to suggest that non-exempt 

participants should block or otherwise 

prevent or prohibit any transaction in 

connection with any activity that is 

excluded from the definition of 

‘‘unlawful Internet gambling’’ in the 

Act, such as qualifying intrastate or 

intratribal transactions, or a transaction 

in connection with any activity that is 

allowed under the Interstate 

Horseracing Act of 1978 (15 U.S.C. 3001 

et seq.).13 As noted above, it also seems 

clear that the Act was not intended to 

change the legality of any gamblingrelated activity in the United States.14

Consequently, the proposed regulations 

neither require nor are intended to 

suggest that participants in designated 

payment systems should establish 

policies and procedures to prevent any 

Internet gambling transactions that are 

legal under applicable Federal and State 

law. 

Some payment system operators have 

indicated that, for business reasons, 

they have decided to avoid processing 

any gambling transactions, even if 

lawful, because, among other things, 

they believe that these transactions are 

not sufficiently profitable to warrant the 

higher risk they believe these 

transactions pose.15 The Agencies 

believe that the Act does not provide the 

Agencies with the authority to require 

designated payment systems or 

participants in these systems to process 

any gambling transactions, including 

those transactions excluded from the 

Act’s definition of unlawful Internet 

gambling, if a system or participant 

decides for business reasons not to 

process such transactions. The Agencies 

request comment on the proposed 

approach to implementing the Act’s 

overblocking provision. 

E. Reasonably Designed Policies and 

Procedures 

Section 6 of the proposed regulations 

sets out for each designated payment 

system examples of policies and 

procedures the Agencies believe are 

reasonably designed to prevent or 

prohibit restricted transactions for nonexempt participants in the system. 

Generally, under the proposed rule, 

non-exempt participants in each 

designated payment system should have 

policies and procedures that (i) Address 

methods for conducting due diligence in 

establishing and maintaining a 

commercial customer relationship 

designed to ensure that the commercial 

customer does not originate or receive 

restricted transactions through the 

customer relationship; and (ii) include 

procedures reasonably designed to 

prevent or prohibit restricted 

transactions, including procedures to be 

followed with respect to a customer if 

the participant discovers the customer 

has been engaging in restricted 

transactions through its customer 

relationship. These procedures are 

discussed in more detail below. 

1. Due Diligence 

The Agencies would expect nonexempt participants’ policies and 

procedures addressing due diligence to 

be consistent with their regular accountopening practices. The Agencies 

anticipate that participants would use a 

flexible, risk-based approach in their 

due diligence procedures in that the 

level of due diligence performed would 

match the level of risk posed by the 

customer. The due diligence is intended 

to apply to a participant when the 

participant is directly establishing or 

maintaining a customer relationship, 

but not with respect to entities with 

which the participant does not have a 

direct relationship. For example, if a 

card network operator does not act as 

the merchant acquirer in the network, 

the operator would not be expected to 

conduct due diligence on the merchant 

customers. This function should be 

performed by the member institutions of 

the network that are acting as merchant 

acquirers. However, if a card network 

operator also acted as the merchant 

acquirer, it should conduct the 

appropriate due diligence on its 

merchants in establishing or 

maintaining the customer relationship. 

The Agencies expect that the most 

efficient way for participants to 

implement the due diligence procedures 

in the proposed rule would be to 

incorporate them into existing accountopening due diligence procedures (such 

as those required of depository 

institutions under Federal banking 

agencies’ anti-money laundering 

compliance program requirements).16

The due diligence requirements for a 

participant establishing a customer 

relationship in an ACH system also 

apply to the establishment of a 

relationship with any third-party 

sender. Before establishing a 

relationship with a third-party sender, a 

participant should conduct appropriate 

due diligence with respect to the thirdparty sender. A third-party sender 

should conduct due diligence on its 

customers to ensure that it is not 

transmitting restricted transactions 

through an ODFI, and the ODFI should 

confirm that the third-party sender 

conducts such due diligence on its 


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17As provided in the Act and the proposed rule, 

participants that are part of a money transmitting 

network may be able to rely on the network’s 

procedures in this regard if the participants 

determine that the network’s procedures comply 

with the requirements of the regulation as applied 

to the participant. 

originators. In maintaining the customer 

relationship with the third-party sender, 

the participant should ensure that there 

is a process to monitor the operations of 

the third-party sender, such as by audit. 

The Agencies request comment as to 

the appropriateness of participants 

incorporating into their existing 

account-opening procedures the due 

diligence provisions of the proposed 

rule. The Agencies also request 

comment on whether, and to what 

extent, the proposed rule’s examples of 

due diligence methods should explicitly 

include periodic confirmation by the 

participants of the nature of their 

customers’ business. 

2. Remedial Action 

The Agencies also would expect a 

non-exempt participant to have policies 

and procedures to be followed if the 

participant becomes aware that one of 

its customer relationships was being 

used to process restricted transactions. 

These policies and procedures could 

include a broad range of remedial 

options, such as imposing fines, 

restricting the customer’s access to the 

designated payment system or the 

participant’s facilities, and terminating 

the customer relationship by closing the 

account. In addition, as provided in 

section 5(e) of the proposed rule, 

nothing in the proposed rule modifies 

any existing legal requirement relating 

to the filing of suspicious activity 

reports with the appropriate authorities. 

The Agencies request comment on the 

appropriateness of the proposed rule’s 

examples of a participant’s procedures 

upon determining that a customer is 

engaging in restricted transactions 

through the customer relationship, and 

whether any additional such procedures 

should be included as examples. 

A participant also would be expected 

to take appropriate remedial action with 

respect to a business engaged in 

unlawful Internet gambling with which 

it does not have a customer relationship 

if the participant becomes aware that 

the gambling business is using the 

participant’s trademark on its website to 

promote restricted transactions. For 

example, the participant could consider 

taking legal action to prevent the 

unauthorized use of its trademark by an 

unlawful Internet gambling business. 

3. Monitoring 

The policies and procedures of nonexempt participants in card systems and 

money-transmitting businesses are 

expected to address ongoing monitoring 

or testing to detect possible restricted 

transactions. Examples of such 

monitoring or testing include (1) 

Monitoring and analyzing payment 

patterns to detect suspicious patterns of 

payments to a recipient, and (2) 

monitoring of Web sites to detect 

unauthorized use of the relevant 

designated payment system, including 

unauthorized use of the relevant 

designated payment system’s 

trademarks. Unlawful Internet gambling 

businesses may be able to access a 

designated payment system (such as a 

money transmitting business) that 

would otherwise deny them a 

commercial subscriber account, by 

using individuals as agents to receive 

restricted transactions and may 

advertise the use of these systems on 

their website. Certain money 

transmitting businesses have developed 

monitoring procedures to detect 

suspicious payment volumes to an 

individual recipient in order to address 

this risk.17 In addition, certain money 

transmitting businesses subscribe to a 

service that will search the Internet for 

unauthorized use of the money 

transmitting business’s trademark. 

The proposed rule does not include 

ongoing monitoring and testing within 

the examples of the policies and 

procedures for ACH systems, check 

collection systems, and wire transfer 

systems because these systems currently 

do not have the same level of 

functionality for analyzing patterns of 

specific payments being processed 

through the system. Moreover, as 

mentioned above, these three systems 

are open, universal systems that do not 

require businesses to explicitly sign up 

in order to receive payments through 

them. The Agencies request comment 

on whether ongoing monitoring and 

testing should be included within the 

examples for the ACH, check collection, 

and wire transfer systems, and, if so, 

how such functionality could 

reasonably be incorporated into those 

systems. As a general matter, the 

Agencies will continue to monitor 

technological developments in all 

payment systems, and, as those 

developments warrant, will engage in 

future rulemakings to address emerging 

means of identifying and blocking or 

otherwise preventing or prohibiting 

restricted transactions in the designated 

payment systems. 

4. Coding 

The policies and procedures of 

participants in a card system are 

expected to address methods for 

identifying and blocking restricted 

transactions as they are processed, such 

as by establishing one or more 

transaction codes and merchant/ 

business category codes that are 

required to accompany the 

authorization request from the merchant 

for a transaction and creating the 

operational functionality to enable the 

card system or the card issuer to 

identify and deny authorization for a 

restricted transaction. Card systems may 

be able to develop one or more 

merchant category codes for gambling 

transactions that are not restricted 

transactions under the Act. For 

example, in certain cases it may be 

reasonably practical for card systems to 

develop merchant category codes for 

particular types of lawful Internet 

gambling transactions. The Agencies 

specifically seek comment on the 

practicality, effectiveness, and cost of 

developing such additional merchant 

codes. 

The proposed rule does not include 

specific methods for identifying and 

blocking restricted transactions as they 

are being processed within the examples 

of procedures for any designated 

payment system other than card systems 

because the Agencies believe that only 

the card systems have the necessary 

capabilities and processes in place. The 

Agencies request comment on whether 

the procedural examples for the other 

designated payment systems should 

encompass identifying and blocking 

restricted transactions as they are being 

processed, and, if so, how such 

functionality could reasonably be 

incorporated into the systems. Again, 

the Agencies will monitor technological 

developments in all payment systems, 

and engage in future rulemakings as 

warranted to address emerging means of 

identifying and blocking or otherwise 

preventing or prohibiting restricted 

transactions in the designated payment 

systems. 

5. Cross-Border Relationships 

Based on the Agencies’ research and 

statements by industry representatives, 

the Agencies believe that most unlawful 

Internet gambling businesses do not 

have direct account relationships with 

U.S. financial institutions. In most 

cases, their accounts are held at offshore 

locations of foreign institutions that are 

not subject to the Act, and restricted 

transactions enter the U.S. payment 

system through those foreign 

institutions. In two of the designated 

payment systems (card systems and 

money transmitting businesses), the 

proposed rule does not provide 

exemptions for any participants and the 

proposed rule’s requirements would 


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56690 Federal Register / Vol. 72, No. 192 / Thursday, October 4, 2007 / Proposed Rules 

18 In an incoming cross-border ACH debit 

transaction, if the first participant in the United 

States is an ACH operator (not an ODFI), the 

proposed rule makes clear that, while serving in the 

capacity of a receiving gateway operator, the ACH 

operator is not exempt from the general requirement 

to have policies and procedures reasonably 

designed to identify and block, or otherwise prevent 

or prohibit, restricted transactions. 

19The proposed rule makes clear that the 

originator’s bank or the intermediary bank in the 

United States that directly sends a cross-border wire 

transfer to a foreign bank, while acting in that 

capacity, is not exempt from the general 

requirement to have policies and procedures 

reasonably designed to identify and block or 

otherwise prevent or prohibit restricted 

transactions. Similarly, in an outgoing cross-border 

ACH credit transaction, the ACH operator in the 

United States, acting as the originating gateway 

operator, that directly sends the transaction to a 

foreign gateway operator is not exempt from the 

general policies and procedures requirement while 

acting in that capacity. 20H. Rep. No. 109–412, Part 1, p. 11. 

apply to all U.S. participants in both 

domestic and cross-border transactions. 

In the case of ACH, check collection, 

and wire transfer systems, exemptions 

are provided for certain participants and 

examples of special policies and 

procedures for cross-border transactions 

are provided. 

In general, in the case of U.S.-only 

transactions, for the ACH, check 

collection, and wire transfer systems, 

the proposed rule would require the 

participant in a particular payment 

system that has the direct relationship 

with the gambling business to have 

policies and procedures to prevent or 

prohibit restricted transactions through 

these systems. The other participants in 

each of these systems would otherwise 

be exempt from the requirements of the 

regulation. In the case of payment 

transactions for the benefit of offshore 

gambling businesses, none of the 

participants in the United States that 

process the transaction would have a 

direct relationship with the gambling 

business that receives the payment and 

would, under the general regulatory 

requirements, be exempt and not 

required to have policies and 

procedures to prevent or prohibit 

restricted transactions. 

In the case of incoming cross-border 

ACH debit and check collection 

transactions, the proposed rule places 

responsibility on the first participant in 

the United States that receives the 

incoming transaction directly from a 

foreign institution (i.e., an ACH debit 

transaction from a foreign gateway 

operator, foreign bank, or a foreign 

third-party processor or a check for 

collection directly from a foreign bank) 

to take reasonable steps to ensure that 

their cross-border relationship is not 

used to facilitate restricted 

transactions.18 Participants in such 

arrangements should take steps to 

prevent their foreign counterparty from 

sending restricted transactions through 

the participant, such as including as a 

term of its contractual agreement with 

the foreign institution a requirement 

that the foreign institution have policies 

and procedures in place to avoid 

sending restricted transactions to the 

U.S. participant. In addition, the U.S. 

participant’s policies and procedures 

would be deemed compliant with the 

regulation if they also include 

procedures to be followed with respect 

to a foreign bank or foreign third-party 

processor that is found to have 

transmitted restricted transactions to, or 

received restricted transactions through, 

the participant. These policies and 

procedures might address (i) When 

access through the cross-border 

relationship should be denied and (ii) 

the circumstances under which the 

cross-border relationship should be 

terminated. 

In the case of outgoing wire transfers 

and ACH credit transactions, a transfer 

by a U.S. gambler to a foreign Internet 

gambling business would be initiated in 

the United States and be sent or credited 

to an account at the gambling business’s 

foreign bank. In this case, the 

originator’s bank or the intermediary 

bank in the U.S. that sends the wire 

transfer transaction, or the gateway 

operator that sends the ACH credit 

entry, directly to a foreign bank should 

have policies and procedures in place to 

be followed if such transfers to a 

particular foreign bank are subsequently 

determined to be restricted 

transactions.19 For example, some 

Internet gambling businesses indicate 

on their websites the U.S. correspondent 

bank through which wire transfers to 

them must be made. In such cases, the 

U.S. participant should consider 

whether wire transfer services or the 

correspondent arrangement should 

continue. 

The Agencies recognize that the issue 

of the extent of a bank’s responsibility 

to have knowledge of its respondent 

banks’ customers is a difficult one, 

which also arises in the context of 

managing money laundering and other 

risks that may be associated with 

correspondent banking operations. The 

Agencies specifically request comment 

on the likely effectiveness and burden of 

the proposed rule’s due diligence and 

remedial action provisions for crossborder arrangements, and whether 

alternative approaches would increase 

effectiveness with the same or less 

burden. 

6. List of Unlawful Internet Gambling 

Businesses 

The Act does not mention the creation 

of a list of unlawful Internet gambling 

businesses. However, the Agencies are 

aware that there is some interest in 

exploring this idea. The Agencies 

considered including in the proposed 

rule’s examples of reasonably designed 

policies and procedures, examination of 

a list that would be established by the 

U.S. Government of businesses known 

to be engaged in the business of 

unlawful Internet gambling. Some have 

suggested that the obligation of financial 

institutions with respect to such a list 

might be similar in effect to their 

obligations under certain other U.S. 

laws, such as those administered by the 

Office of Foreign Assets Control 

(OFAC), albeit in a different context.20

Some have also suggested that the list 

could be either available publicly in its 

entirety, so that financial transaction 

providers could check transactions 

against the list themselves, or 

maintained confidentially at a central 

location, so that financial transaction 

providers could submit transactions to 

the entity operating the central database, 

which would inform the financial 

transaction providers whether the 

transaction involved an unlawful 

Internet gambling business on its list. 

Proponents of the list suggest that under 

either of these approaches, certain 

restricted transactions directed to 

unlawful Internet gambling accounts 

could be blocked. 

Any government agency compiling 

and providing public access to such a 

list would need to ensure that the 

particular business was, in fact, engaged 

in activities deemed to be unlawful 

Internet gambling under the Act. This 

would require significant investigation 

and legal analysis. Such analysis could 

be complicated by the fact that the 

legality of a particular Internet gambling 

transaction might change depending on 

the location of the gambler at the time 

the transaction was initiated, and the 

location where the bet or wager was 

received. In addition, a business that 

engages in unlawful Internet gambling 

might also engage in lawful activities 

that are not prohibited by the Act. The 

government would need to provide an 

appropriate and reasonable process to 

avoid inflicting unjustified harm to 

lawful businesses by incorrectly 

including them on the list without 

adequate review. The high standards 

needed to establish and maintain such 

a list likely would make compiling such 

a list time-consuming and perhaps 

under-inclusive. To the extent that 

Internet gambling businesses can change 

the names they use to receive payments 


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21See H.R. Rep. No. 109–412, at 10 (2006). 22 31 U.S.C. 5364. 

23 31 U.S.C. 5361(a)(3). 

24 31 U.S.C. 5361(a)(4). 

with relative ease and speed, such a list 

may be outdated quickly. 

The Agencies do not enforce the 

gambling laws, and interpretations by 

the Agencies in these areas may not be 

determinative in defining the Act’s legal 

coverage. As noted above, the Act does 

not comprehensively or clearly define 

which activities are lawful and which 

are unlawful, but rather relies on 

underlying substantive law.21 In order 

to compile a list of businesses engaged 

in unlawful Internet gambling under the 

Act, the Agencies would have to 

formally interpret the various Federal 

and State gambling laws in order to 

determine whether the activities of each 

business that appears to conduct some 

type of gambling-related function are 

unlawful under those statutes. 

The Agencies request comment on 

whether establishment and maintenance 

of such a prohibited list by the Agencies 

is appropriate, and whether examining 

or accessing such a list should be 

included in the regulation’s examples of 

policies and procedures reasonably 

designed to identify and block or 

otherwise prevent or prohibit restricted 

transactions. The Agencies also request 

comment on whether, if it were 

practical to establish a fairly 

comprehensive list and a participant 

routinely checked the list to make sure 

the indicated payee of each transaction 

the participant processed on a particular 

designated payment system is not on the 

list, the participant should be deemed to 

have, without taking any other action, 

policies and procedures reasonably 

designed to prevent or prohibit 

restricted transactions with respect to 

that designated payment system. 

Similarly, the Agencies also request 

comment on whether, if such a list were 

established and a participant routinely 

checked the list to make sure a 

prospective commercial customer was 

not included on the list (as well as 

perhaps periodically screening existing 

commercial customers), the participant 

should be deemed to have, without 

taking any other action, policies and 

procedures reasonably designed to 

prevent or prohibit restricted 

transactions. Finally, assuming such a 

list were established and became 

available to all participants in the 

designated payment systems, the 

Agencies request comment on the extent 

to which the exemptions provided in 

section 4 of the proposed rule should be 

narrowed. 

Any commenter that believes that 

such a list should be included in the 

regulation’s examples of policies and 

procedures is requested to address the 

issues discussed above regarding 

establishing, maintaining, updating, and 

using such a list. The Agencies also 

request comment on any other practical 

or operational aspects of establishing, 

maintaining, updating, or using such a 

list. Finally, the Agencies request 

comment on whether relying on such a 

list would be an effective means of 

carrying out the purposes of the Act, if 

unlawful Internet gambling businesses 

can change their corporate names with 

relative ease. 

F. Regulatory Enforcement 

As provided in the Act, section 7 of 

the proposed rule indicates that the 

requirements of the Agencies’ rule 

would be subject to the exclusive 

regulatory enforcement of (1) The 

Federal functional regulators, with 

respect to the designated payment 

systems and participants therein that are 

subject to the respective jurisdiction of 

such regulators under section 505(a) of 

the Gramm-Leach-Bliley Act and section 

5g of the Commodity Exchange Act; and 

(2) the Federal Trade Commission, with 

respect to designated payment systems 

and financial transaction providers not 

otherwise subject to the jurisdiction of 

any Federal functional regulators. 

III. Administrative Law Matters 

A. Executive Order 12866 

It has been determined that this 

regulation is a significant regulatory 

action as defined in E.O. 12866. 

Accordingly, this proposed regulation 

has been reviewed by the Office of 

Management and Budget. The 

Regulatory Assessment prepared by the 

Treasury for this regulation is provided 

below. 

1. Description of Need for the 

Regulatory Action 

The rulemaking is required by the 

Act, the applicable provisions of which 

are designed to interdict the flow of 

funds between gamblers and unlawful 

Internet gambling businesses. To 

accomplish this, the Act requires the 

Agencies, in consultation with the 

Attorney General, to jointly prescribe 

regulations requiring designated 

payment systems (and their 

participants) to establish policies and 

procedures that are reasonably designed 

to prevent or prohibit such funding 

flows (hereafter ‘‘unlawful Internet 

gambling transactions’’).22

In accordance with the Act, section 3 

of the proposed rule designates five 

payment systems that could be used in 

connection with unlawful Internet 

gambling transactions. Sections 5 and 6 

of the proposed rule require designated 

payment systems and participants in 

those payment systems to establish 

reasonably designed policies and 

procedures to identify and block or 

otherwise prevent or prohibit unlawful 

Internet gambling transactions. As 

required by the Act, section 4 of the 

proposed rule exempts certain 

participants in designated payment 

systems from the requirement to 

establish policies and procedures 

because the Agencies believe that it is 

not reasonably practical for those 

participants to prevent or prohibit 

unlawful Internet gambling transactions. 

As required by the Act, section 6 of the 

proposed rule also contains a ‘‘safe 

harbor’’ provision by including nonexclusive examples of policies and 

procedures which would be deemed to 

be reasonably designed to prevent or 

prohibit unlawful Internet gambling 

transactions within the meaning of the 

Act. 

2. Assessment of Potential Benefits and 

Costs 

a. Potential Benefits 

Congress determined that Internet 

gambling is a growing cause of debt 

collection problems for insured 

depository institutions and the 

consumer credit industry.23 Further, 

Congress determined that there is a need 

for new mechanisms for enforcing 

Internet gambling laws because 

traditional law enforcement 

mechanisms are often inadequate for 

enforcing gambling prohibitions or 

regulations on the Internet, especially 

where such gambling crosses State or 

national borders.24 Sections 5 and 6 of 

the proposed rule address this by 

requiring participants in designated 

payment systems, which include 

insured depository institutions and 

other participants in the consumer 

credit industry, to establish reasonably 

designed policies and procedures to 

identify and block or otherwise prevent 

or prohibit unlawful Internet gambling 

transactions in order to stop the flow of 

funds to unlawful Internet gambling 

businesses. This funds flow interdiction 

is designed to inhibit the accumulation 

of consumer debt and to reduce debt 

collection problems for insured 

depository institutions and the 

consumer credit industry. Moreover, the 

proposed rule carries out the Act’s goal 

of implementing new mechanisms for 

enforcing Internet gambling laws. The 

proposed rule will likely provide other 

benefits. Specifically, the proposed rule 


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56692 Federal Register / Vol. 72, No. 192 / Thursday, October 4, 2007 / Proposed Rules 

25This estimate is based on an estimate of 

270,721 recordkeepers. The hourly cost of the 

person who would be responsible for maintaining 

the policies and procedures is estimated to be 

$14.60 per hour (based on the U.S. Department of 

Labor, Bureau of Labor Statistics’ occupational 

employment statistics for office and administrative 

support occupations, dated May 2006). 

could restrict excesses related to 

unlawful Internet gambling by underage, addicted or compulsive gamblers. 

The Treasury also examined the 

potential benefits of the establishment 

by the U.S. Government of a list of 

entities that it determines are engaged in 

the business of ‘‘unlawful Internet 

gambling.’’ While the Treasury 

understands that interest exists in such 

a list, we have tentatively concluded 

that the benefits of the list as an 

effective tool for use by regulated 

entities to identify and block or 

otherwise prevent or prohibit unlawful 

Internet gambling transactions is 

uncertain relative to the likely costs 

involved in creating such a list. 

Establishing a list of unlawful Internet 

gambling businesses would be a time 

consuming process given the factfinding and legal analysis that would be 

required. For example, the names of the 

businesses directly receiving unlawful 

Internet gambling payments are often 

not readily identifiable from their 

gambling websites. As a result, the 

Government would have to engage in 

fact-finding to identify the name of each 

unlawful Internet gambling business 

and its associated bank account 

numbers and bank. In addition, to avoid 

inflicting unjustified harm on lawful 

businesses by erroneously including 

them on the list, the Government would 

likely need to provide businesses with 

advance notice and a reasonable 

opportunity to contest their potential 

inclusion on the list. This process could 

result in a considerable lag time 

between the U.S. Government first 

identifying a gambling website and 

ultimately adding the name of an 

unlawful Internet gambling business to 

the list. Because it is possible for 

unlawful Internet gambling businesses, 

particularly those located in foreign 

countries with foreign bank accounts, to 

change with relative ease the business 

names and bank accounts of entities 

directly receiving restricted 

transactions, the list of unlawful 

Internet gambling businesses could be 

quickly outdated and thus have limited 

practical utility as an effective tool for 

regulated entities to prevent unlawful 

Internet gambling transactions. 

b. Potential Costs 

Treasury believes that the costs of 

implementing the Act and the proposed 

rule are lower than they would be if the 

Act and the proposed rule were to 

require a prescriptive, one-size-fits-all 

approach with regard to regulated 

entities. First, both the Act and section 

5 of the proposed rule provide that a 

financial transaction provider shall be 

considered to be in compliance with the 

regulations if it relies on and complies 

with the policies and procedures of the 

designated payment system of which it 

is a participant. This means that 

regulated entities will not be required to 

establish their own policies and 

procedures but can instead follow the 

policies and procedures of the 

designated payment system, thereby 

resulting in lower costs. 

Second, with regard to regulated 

entities that establish their own policies 

and procedures, both the Act and 

sections 5 and 6 of the proposed rule 

provide maximum flexibility. 

Specifically, neither the Act nor the 

proposed rule contain specific 

performance standards but instead 

require that such policies and 

procedures be ‘‘reasonably designed’’ to 

identify and block or otherwise prevent 

or prohibit unlawful internet gambling. 

In addition, the proposed rule expressly 

authorizes each regulated entity to use 

policies and procedures that are 

‘‘specific to its business’’ which will 

enable it to efficiently tailor its policies 

and procedures to its needs. Because the 

Act and the proposed rule provide 

flexibility for regulated entities in 

crafting their policies and procedures, 

allowing them to tailor their policies 

and procedures to their individual 

circumstances, the costs imposed by the 

Act on regulated entities should be 

lower than if the Act and the proposed 

rule were to take a prescriptive one-sizefits-all approach. 

Third, the ‘‘safe harbor’’ provision, 

with its nonexclusive examples of 

policies and procedures deemed to be 

‘‘reasonably designed,’’ provides 

regulated entities with specific guidance 

on how to structure the policies and 

procedures required by the Act. As a 

result, costs associated with formulating 

policies and procedures should be lower 

because the safe harbor provision 

provides guidance on how to so 

structure the policies and procedures. 

Because the Treasury does not have 

sufficient information to quantify 

reliably the costs of developing specific 

policies and procedures, the Treasury 

seeks information and comment on any 

costs, compliance requirements, or 

changes in operating procedures arising 

from the application of the proposed 

rule. Moreover, the Treasury anticipates 

that the Agencies will contact trade 

groups representing participants, 

particularly those that qualify as small 

entities, and encourage them to provide 

comments during the comment period 

to ascertain, among other things, the 

costs imposed by this rulemaking. 

Once the policies and procedures 

have been developed, however, the 

Treasury believes the burden of this 

rulemaking will be relatively low. It is 

estimated that the recordkeeping 

requirement required by the Act and the 

proposed rule will take approximately 

one hour per recordkeeper per year to 

maintain the policies and procedures 

required by this rulemaking. It is 

estimated that the total annual cost to 

regulated entities to maintain the 

policies and procedures will be 

approximately $4 million.25

The Treasury also considered the 

potential costs to the U.S. Government 

of establishing a list of unlawful Internet 

gambling businesses, and has initially 

determined that such costs would likely 

be significant. This is because 

establishing a list would require 

considerable fact-finding and legal 

analysis once the U.S. Government 

identifies a gambling website. The 

Government must engage in an 

extensive legal analysis to determine 

whether the gambling Web site is used, 

at least in part, to place, receive or 

otherwise knowingly transmit unlawful 

bets or wagers. This legal analysis 

would entail interpreting the various 

Federal and State gambling laws, which 

could be complicated by the fact that 

the legality of a particular Internet 

gambling transaction might change 

depending on the location of the 

gambler at the time the transaction was 

initiated and the location where the bet 

or wager was received. The U.S. 

Government would at the same time 

also need to identify the business name 

and the bank account number and bank 

of the entity directly receiving payments 

on behalf of the Internet gambling 

business, which is often not readily 

ascertainable from the Web site. 

Identifying the business name and bank 

account number of the entity directly 

receiving unlawful Internet gambling 

payments might be challenging, 

especially where the Internet gambling 

business is located in and maintains its 

bank accounts in a foreign country. 

Once the fact-finding and legal analysis 

are concluded successfully, the U.S. 

Government might then need to afford 

the business advance notice and an 

opportunity to object to its potential 

inclusion on the list in order to ensure 

that lawful businesses are not harmed 

by being erroneously included on the 

list. These due process safeguards 

would result in considerable added 

costs to the U.S. Government. 


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26Specifically, the Act defines the term 

‘‘unlawful Internet gambling’’ as a bet or wager, 

which involves at least in part the use of the 

Internet, where such bet or wager is unlawful under 

any applicable Federal or State law in the State or 

Tribal lands in which the bet or wager is initiated, 

received, or otherwise made. 31 U.S.C. 5362(10)(A). 

27 31 U.S.C. 5362(10)(B) and (C). 

3. Interference with State, Local, and 

Tribal Governments 

The Act does not alter State, local or 

tribal gaming law.26 In addition, the Act 

exempts from the definition of the term 

‘‘unlawful Internet gambling,’’

intrastate, intratribal, and intertribal 

gambling transactions.27 Because the 

proposed rule does not alter these 

defined terms, it avoids undue 

interference with State, local, and tribal 

governments in the exercise of their 

governmental functions. 

B. Regulatory Flexibility Act Analysis 

Congress enacted the Regulatory 

Flexibility Act (RFA) (5 U.S.C. 601 et 

seq.) to address concerns related to the 

effects of agency rules on small entities 

and the Agencies are sensitive to the 

impact their rules may impose on small 

entities. In this case, the Agencies 

believe that the proposed rule likely 

would not have a ‘‘significant economic 

impact on a substantial number of small 

entities.’’ 5 U.S.C. 605(b). The Act 

mandates that the Agencies jointly 

prescribe regulations requiring 

designated payment systems, and all 

participants therein, to identify and 

block or otherwise prevent or prohibit 

restricted transactions through the 

establishment of reasonably designed 

policies and procedures. Comments are 

requested on whether the proposed rule 

would have a significant economic 

impact on a substantial number of small 

entities and whether the costs are 

imposed by the Act itself, and not the 

proposed rule. 

The RFA requires agencies either to 

provide an initial regulatory flexibility 

analysis with a proposed rule or to 

certify that the proposed rule will not 

have a significant economic impact on 

a substantial number of small entities. 

In accordance with section 3(a) of the 

RFA, the Agencies have reviewed the 

proposed regulation. While the 

Agencies believe that the proposed rule 

likely would not have a significant 

economic impact on a substantial 

number of small entities (5 U.S.C. 

605(b)), the Agencies do not have 

complete data at this time to make this 

determination. Therefore, an Initial 

Regulatory Flexibility Analysis has been 

prepared in accordance with 5 U.S.C. 

603. The Agencies will, if necessary, 

conduct a final regulatory flexibility 

analysis after consideration of 

comments received during the public 

comment period. 

1. Statement of the Need for, Objectives 

of, and Legal Basis for, the Proposed 

Rule 

The Agencies are proposing a 

regulation to implement the Act, as 

required by the Act. The Act prohibits 

any person in the business of betting or 

wagering (as defined in the Act) from 

knowingly accepting payments in 

connection with the participation of 

another person in unlawful Internet 

gambling. Section 802 of the Act 

(codified at 31 U.S.C. 5361 et seq.) 

requires the Agencies jointly (in 

consultation with the Attorney General) 

to designate payment systems that could 

be used in connection with, or to 

facilitate, restricted transactions and to 

prescribe regulations requiring 

designated payment systems, and 

financial transaction providers 

participating in each designated 

payment system, to establish policies 

and procedures reasonably designed to 

identify and block or otherwise prevent 

or prohibit restricted transactions. The 

proposed regulation sets out necessary 

definitions, designates payment systems 

that could be used in connection with 

restricted transactions, exempts 

participants providing certain functions 

in designated payment systems from 

certain requirements imposed by the 

regulation, provides nonexclusive 

examples of policies and procedures 

reasonably designed to identify and 

block, or otherwise prevent and 

prohibit, restricted transactions, and 

reiterates the enforcement regime set out 

in the Act for designated payment 

systems and non-exempt participants 

therein. The Agencies believe that the 

proposed regulation implements 

Congress’s requirement that the 

Agencies prescribe regulations that 

carry out the purposes of the Act. 

2. Small Entities Affected by the 

Proposed Rule 

The proposed rule would affect nonexempt financial transaction providers 

participating in the designated payment 

systems, regardless of size. The 

Agencies estimate that 4,792 small 

banks (out of a total of 8,192 banks), 420 

small savings associations (out of a total 

of 838), 7,609 small credit unions (out 

of a total of 8,477), and 240,547 small 

money transmitting businesses (out of a 

total of 253,208) would be affected by 

this proposed rule. Pursuant to 

regulations issued by the Small 

Business Administration (13 CFR 121–

201), a ‘‘small entity’’ includes a 

commercial bank, savings association or 

credit union with assets of $165 million 

or less. For money transmitting 

businesses, a ‘‘small entity’’ would 

include those with assets of $6.5 million 

or less. The Agencies propose that the 

requirements in this rule be applicable 

to all entities subject to the Act, as 

implemented, regardless of their size 

because an exemption for small entities 

would significantly diminish the 

usefulness of the policies and 

procedures required by the Act by 

permitting unlawful Internet gambling 

operations to evade the requirements by 

using small financial transaction 

providers. The Agencies anticipate, 

however, that, as provided in the Act 

and the proposed regulations, small 

non-exempt participants in some 

designated payment systems, to a large 

extent, should be able to rely on policies 

and procedures established and 

implemented by the designated 

payment systems of which they are 

participants or other existing systems. 

The Agencies seek information and 

comment on the number of small 

entities to which the proposed rule 

would apply. 

3. Projected Reporting, Recordkeeping, 

and Other Compliance Requirements 

Section 802 of the Act requires the 

Agencies to prescribe regulations 

requiring each designated payment 

system, and all financial transaction 

providers participating in the 

designated payment system, to identify 

and block or otherwise prevent or 

prohibit restricted transactions through 

the establishment of policies and 

procedures reasonably designed to 

identify and block or otherwise prevent 

or prohibit the acceptance of restricted 

transactions. The proposed rule 

implements this requirement by 

requiring all non-exempt participants in 

designated payment systems to establish 

and implement policies and procedures 

reasonably designed to identify and 

block or otherwise prevent or prohibit 

restricted transactions. Because the 

Agencies do not have sufficient 

information to quantify reliably the 

effects the Act and the proposed rule 

would have on small entities, the 

Agencies seek information and 

comment on any costs, compliance 

requirements, or changes in operating 

procedures arising from the application 

of the proposed rule and the extent to 

which those costs, requirements, or 

changes are in addition to or different 

from those arising from the application 

of the Act generally. Moreover, the 

Agencies anticipate contacting trade 

groups representing participants that 

qualify as small entities and 

encouraging them to provide comments 

during the comment period to ascertain, 


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among other things, the costs imposed 

on regulated small entities. 

4. Identification of Duplicative, 

Overlapping, or Conflicting Federal 

Rules 

The Agencies have not identified any 

Federal rules that duplicate, overlap, or 

conflict with the proposed rule. The 

Agencies seek comment regarding any 

statutes or regulations that would 

duplicate, overlap, or conflict with the 

proposed rule. 

5. Significant Alternatives to the 

Proposed Rule 

Other than as noted above, the 

Agencies are unaware of any significant 

alternatives to the proposed rule that 

accomplish the stated objectives of the 

Act and that minimize any significant 

economic impact of the proposed rule 

on small entities. The Agencies request 

comment on additional ways to reduce 

regulatory burden associated with this 

proposed rule. 

C. Paperwork Reduction Act Analysis 

The collection of information 

requirement contained in this notice of 

joint proposed rulemaking has been 

submitted by the Agencies to the Office 

of Management and Budget (OMB) for 

review in accordance with the 

Paperwork Reduction Act of 1995 (44 

U.S.C. 3507(d)). Comments on the 

collection of information should be sent 

to the Office of Management and 

Budget, Attention: Desk Officer for the 

Department of the Treasury and the 

Board of Governors of the Federal 

Reserve System, Office of Information 

and Regulatory Affairs, Washington, DC 

20503, with copies to Treasury’s Office 

of Critical Infrastructure Protection and 

Compliance Policy and the Board’s 

Secretary at the addresses previously 

specified. Because OMB must complete 

its review of the collection of 

information between 30 and 60 days 

after publication, comments on the 

information collection should be 

submitted not later than November 5, 

2007. Comments are specifically 

requested concerning: 

(1) Whether the proposed information 

collection is necessary for the proper 

performance of Agency functions, 

including whether the information will 

have practical utility; 

(2) The accuracy of the estimated 

burden associated with the proposed 

collection of information (see below); 

(3) How to enhance the quality, 

utility, and clarity of the information 

required to be maintained; 

(4) How to minimize the burden of 

complying with the proposed 

information collection, including the 

application of automated collection 

techniques or other forms of information 

technology; and 

(5) Estimates of capital or start-up 

costs and costs of operation, 

maintenance, and purchase of services 

to maintain the information. 

The collection of information in the 

proposed rule is in sections 5 and 6. 

This information is required by section 

802 of the Act, which requires the 

Agencies to prescribe joint regulations 

requiring each designated payment 

system, and all participants in such 

systems, to identify and block or 

otherwise prevent or prohibit restricted 

transactions through the establishment 

of policies and procedures reasonably 

designed to identify and block or 

otherwise prevent or prohibit the 

acceptance of restricted transactions. 

The proposed rule implements this 

requirement by requiring all nonexempt participants in designated 

payment systems to establish and 

implement written policies and 

procedures reasonably designed to 

identify and block or otherwise prevent 

or prohibit restricted transactions. The 

proposed rule does not include a 

specific time period for record retention; 

however, non-exempt participants 

would be required to maintain the 

policies and procedures for a particular 

designated payment system as long as 

they participate in that system. 

The Agencies anticipate that, as 

provided in the Act and the proposed 

regulations, small non-exempt 

participants in designated payment 

systems, for the most part, should be 

able to rely on policies and procedures 

established and implemented by the 

designated payment systems of which 

they are participants. For example, 

certain money transmitting business 

operators may have their own 

centralized procedures to prevent 

unlawful gambling transactions. Small 

money transmitters, acting as agents in 

these large systems, may be able to rely 

on the system’s policies, and therefore 

would not have to create their own. 

Many of the payment systems used by 

depository institutions, such as check 

clearing, do not have centralized system 

operators. Therefore, depository 

institutions would likely have to create 

their own policies for check clearing. 

The likely recordkeepers are 

businesses or other for-profits and notfor-profit institutions and include 

commercial banks, savings associations, 

credit unions, card servicers, and money 

transmitting businesses. The Agencies 

have agreed to split equally for burden 

calculations the total number of 

recordkeepers not subject to 

examination and supervision by either 

the Board or the Treasury’s Office of the 

Comptroller of the Currency and Office 

of Thrift Supervision. 

Board: 

Estimated number of recordkeepers: 

134,451. 

Estimated average annual burden 

hours per recordkeeper: 25 hours for 

depository institutions and card 

servicers, 1 hour for money transmitting 

businesses. 

Estimated frequency: Annually. 

Estimated total annual recordkeeping 

burden: 322,779 hours. 

Treasury: 

Estimated number of recordkeepers: 

136,270. 

Estimated average annual burden 

hours per recordkeeper: 25 hours for 

depository institutions and card 

servicers, 1 hour for money transmitting 

businesses. 

Estimated frequency: Annually. 

Estimated total annual recordkeeping 

burden: 368,254 hours. 

The initial burden is imposed by the 

Act which requires non-exempt 

participants to establish policies and 

procedures. The Agencies estimate that 

this initial burden will average 24 hours 

per recordkeeper for depository 

institutions and card servicers. The 

Agencies also estimate that the annual 

burden of maintaining the policies and 

procedures once they are established 

will be 1 hour per recordkeeper. An 

agency may not conduct or sponsor, and 

a person is not required to respond to, 

a collection of information unless it 

displays a valid control number 

assigned by OMB. 

D. Plain Language 

Each Federal banking agency, such as 

the Board, is required to use plain 

language in all proposed and final 

rulemakings published after January 1, 

2000. 12 U.S.C. 4809. In addition, in 

1998, the President issued a 

memorandum directing each agency in 

the Executive branch, such as Treasury, 

to use plain language for all new 

proposed and final rulemaking 

documents issued on or after January 1, 

1999. The Agencies have sought to 

present the proposed rule, to the extent 

possible, in a simple and 

straightforward manner. The Agencies 

invite comment on whether there are 

additional steps that could be taken to 

make the proposed rule easier to 

understand, such as with respect to the 

organization of the materials or the 

clarity of the presentation. 

IV. Statutory Authority 

Pursuant to the authority set out in 

the Act and particularly section 802 

(codified at 31 U.S.C. 5361 et seq.), the 


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Board and the Treasury jointly propose 

the common rules set out below. 

V. Text of Proposed Rules 

List of Subjects 

12 CFR Part 233 

Banks, Banking, Electronic funds 

transfers, Incorporation by reference, 

Internet gambling, Payments, 

Recordkeeping. 

31 CFR Part 132 

Banks, Banking, Electronic funds 

transfers, Incorporation by reference, 

Internet gambling, Payments, 

Recordkeeping. 

Federal Reserve System 

Authority and Issuance 

For the reasons set forth in the 

preamble, the Board proposes to amend 

Title 12, Chapter II of the Code of 

Federal Regulations by adding a new 

part 233 as set forth under Common 

Rules at the end of this document: 

PART 233—PROHIBITION ON 

FUNDING OF UNLAWFUL INTERNET 

GAMBLING (REGULATION GG) 

Sec. 

233.1 Authority, purpose, and 

incorporation by reference. 

233.2 Definitions. 

233.3 Designated payment systems. 

233.4 Exemptions. 

233.5 Processing of restricted transactions 

prohibited. 

233.6 Policies and procedures. 

233.7 Regulatory enforcement. 

Authority: 31 U.S.C. 5364. 

Department of the Treasury 

Authority and Issuance 

For the reasons set forth in the 

preamble, Treasury proposes to amend 

Title 31, Chapter I of the Code of 

Federal Regulations by adding a new 

part 132 as set forth under Common 

Rules at the end of this document: 

PART 132—PROHIBITION ON 

FUNDING OF UNLAWFUL INTERNET 

GAMBLING 

Sec. 

132.1 Authority, purpose, and 

incorporation by reference. 

132.2 Definitions. 

132.3 Designated payment systems. 

132.4 Exemptions. 

132.5 Processing of restricted transactions 

prohibited. 

132.6 Policies and procedures. 

132.7 Regulatory enforcement. 

Authority: 31 U.S.C. 321 and 5364. 

Common Rules 

The common rules that are proposed 

to be adopted by the Board as part 233 

of Title 12, Chapter II of the Code of 

Federal Regulations and by Treasury as 

part 132 of Title 31, Chapter I of the 

Code of Federal Regulations follow: 

§ll.1 Authority, purpose, and 

incorporation by reference. 

(a) Authority. This part is issued 

jointly by the Board of Governors of the 

Federal Reserve System (Board) and the 

Secretary of the Department of the 

Treasury (Treasury) under section 802 

of the Unlawful Internet Gambling 

Enforcement Act of 2006 (Act) (enacted 

as Title VIII of the Security and 

Accountability For Every Port Act of 

2006, Pub. L. No. 109–347, 120 Stat. 

1884, and codified at 31 U.S.C. 5361–

5367). 

(b) Purpose. The purpose of this part 

is to issue implementing regulations as 

required by the Act. The part sets out 

necessary definitions, designates 

payment systems subject to the 

requirements of this part, exempts 

certain participants in designated 

payment systems from certain 

requirements of this part, provides 

nonexclusive examples of policies and 

procedures reasonably designed to 

identify and block, or otherwise prevent 

and prohibit, restricted transactions, 

and sets out the Federal entities that 

have exclusive regulatory enforcement 

authority with respect to the designated 

payments systems and non-exempt 

participants therein. 

(c) Incorporation by reference—

relevant definitions from ACH rules. (1) 

This part incorporates by reference the 

relevant definitions of ACH terms as 

published in the ‘‘2007 ACH Rules: A 

Complete Guide to Rules & Regulations 

Governing the ACH Network’’ (the 

‘‘ACH Rules’’). The Director of the 

Federal Register approves this 

incorporation by reference in 

accordance with 5 U.S.C. 552(a) and 1 

CFR part 51. Copies of the ‘‘2007 ACH 

Rules’’ are available from the National 

Automated Clearing House Association, 

Suite 100, 13450 Sunrise Valley Drive, 

Herndon, Virginia 20171 (703/561–

1100). 

Copies also are available for public 

inspection at the Department of 

Treasury Library, Room 1428, Main 

Treasury Building, 1500 Pennsylvania 

Avenue, NW., Washington, DC 20220, 

and the National Archives and Records 

Administration (NARA). Before visiting 

the Treasury library, you must call (202) 

622–0990 for an appointment. For 

information on the availability of this 

material at NARA, call 202–741–6030, 

or go to: http://www.archives.gov/ 

federal_register/ 

code_of_federal_regulations/ 

ibr_locations.html 20002. 

(2) Any amendment to definitions of 

the relevant ACH terms in the ACH 

Rules shall not apply to this part unless 

the Treasury and the Board jointly 

accept such amendment by publishing 

notice of acceptance of the amendment 

to this part in the Federal Register. An 

amendment to the definition of a 

relevant ACH term in the ACH Rules 

that is accepted by the Treasury and the 

Board shall apply to this part on the 

effective date of the rulemaking 

specified by the Treasury and the Board 

in the joint Federal Register notice 

expressly accepting such amendment. 

§ll.2 Definitions. 

(a) Automated clearing house system 

or ACH system means a funds transfer 

system, primarily governed by the ACH 

Rules, which provides for the clearing 

and settlement of batched electronic 

entries for participating financial 

institutions. When referring to ACH 

systems, the terms in this regulation 

(such as ‘‘originating depository 

financial institution,’’ ‘‘operator,’’

‘‘originating gateway operator,’’

‘‘receiving depository financial 

institution,’’ ‘‘receiving gateway 

operator,’’ and ‘‘third-party sender’’) are 

defined as those terms are defined in the 

ACH Rules. 

(b) Bet or wager. (1) Means the staking 

or risking by any person of something of 

value upon the outcome or a contest of 

others, a sporting event, or a game 

subject to chance, upon an agreement or 

understanding that the person or 

another person will receive something 

of value in the event of a certain 

outcome; 

(2) Includes the purchase of a chance 

or opportunity to win a lottery or other 

prize (which opportunity to win is 

predominantly subject to chance); 

(3) Includes any scheme of a type 

described in 28 U.S.C. 3702; 

(4) Includes any instructions or 

information pertaining to the 

establishment or movement of funds by 

the bettor or customer in, to, or from an 

account with the business of betting or 

wagering (which does not include the 

activities of a financial transaction 

provider, or any interactive computer 

service or telecommunications service); 

and 

(5) Does not include—

(i) Any activity governed by the 

securities laws (as that term is defined 

in section 3(a)(47) of the Securities 

Exchange Act of 1934 (15 U.S.C. 

78c(a)(47)) for the purchase or sale of 

securities (as that term is defined in 

section 3(a)(10) of that act (15 U.S.C. 

78c(a)(10)); 

(ii) Any transaction conducted on or 

subject to the rules of a registered entity 


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or exempt board of trade under the 

Commodity Exchange Act (7 U.S.C. 1 et 

seq.); 

(iii) Any over-the-counter derivative 

instrument; 

(iv) Any other transaction that—

(A) Is excluded or exempt from 

regulation under the Commodity 

Exchange Act (7 U.S.C. 1 et seq.); or 

(B) Is exempt from State gaming or 

bucket shop laws under section 12(e) of 

the Commodity Exchange Act (7 U.S.C. 

16(e)) or section 28(a) of the Securities 

Exchange Act of 1934 (15 U.S.C. 

78bb(a)); 

(v) Any contract of indemnity or 

guarantee; 

(vi) Any contract for insurance; 

(vii) Any deposit or other transaction 

with an insured depository institution; 

(viii) Participation in any game or 

contest in which participants do not 

stake or risk anything of value other 

than—

(A) Personal efforts of the participants 

in playing the game or contest or 

obtaining access to the Internet; or 

(B) Points or credits that the sponsor 

of the game or contest provides to 

participants free of charge and that can 

be used or redeemed only for 

participation in games or contests 

offered by the sponsor; or 

(ix) Participation in any fantasy or 

simulation sports game or educational 

game or contest in which (if the game 

or contest involves a team or teams) no 

fantasy or simulation sports team is 

based on the current membership or an 

actual team that is a member of an 

amateur or professional sports 

organization (as those terms are defined 

in 28 U.S.C. 3701) and that meets the 

following conditions: 

(A) All prizes and awards offered to 

winning participants are established 

and made known to the participants in 

advance of the game or contest and their 

value is not determined by the number 

of participants or the amount of any fees 

paid by those participants. 

(B) All winning outcomes reflect the 

relative knowledge and skill of the 

participants and are determined 

predominantly by accumulated 

statistical results of the performance of 

individuals (athletes in the case of 

sports events) in multiple real-world 

sporting or other events. 

(C) No winning outcome is based—(1) 

On the score, point-spread, or any 

performance or performances of any 

single real-world team or any 

combination of such teams, or 

(2) Solely on any single performance 

of an individual athlete in any single 

real-world sporting or other event. 

(c) Card issuer means any person who 

issues a credit card, debit card, pre-paid 

card, or stored value product, or the 

agent of such person with respect to 

such card or product. 

(d) Card system means a system for 

clearing and settling transactions in 

which credit cards, debit cards, pre-paid 

cards, or stored value products, issued 

or authorized by the operator of the 

system, are used to purchase goods or 

services or to obtain a cash advance. 

(e) Check clearing house means an 

association of banks or other payors that 

regularly exchange checks for collection 

or return. 

(f) Check collection system means an 

interbank system for collecting, 

presenting, returning, and settling 

checks or intrabank system for settling 

checks deposited in and drawn on the 

same bank. When referring to check 

collection systems, the terms in this 

regulation (such as ‘‘paying bank,’’

‘‘collecting bank,’’ ‘‘depositary bank,’’

‘‘returning bank,’’ and ‘‘check’’) are 

defined as those terms are defined in 12 

CFR 229.2. For purposes of this part, 

‘‘check’’ also includes an electronic 

representation of a check that a bank 

agrees to handle as a check. 

(g) Consumer means a natural person. 

(h) Designated payment system means 

a system listed in § ll.3. 

(i) Electronic fund transfer has the 

same meaning given the term in section 

903 of the Electronic Fund Transfer Act 

(15 U.S.C. 1693a), except that such term 

includes transfers that would otherwise 

be excluded under section 903(6)(E) of 

that act (15 U.S.C. 1693a(6)(E)), and 

includes any funds transfer covered by 

Article 4A of the Uniform Commercial 

Code, as in effect in any State. 

(j) Financial institution means a State 

or national bank, a State or Federal 

savings and loan association, a mutual 

savings bank, a State or Federal credit 

union, or any other person that, directly 

or indirectly, holds an account 

belonging to a consumer. The term does 

not include a casino, sports book, or 

other business at or through which bets 

or wagers may be placed or received. 

(k) Financial transaction provider 

means a creditor, credit card issuer, 

financial institution, operator of a 

terminal at which an electronic fund 

transfer may be initiated, money 

transmitting business, or international, 

national, regional, or local payment 

network utilized to effect a credit 

transaction, electronic fund transfer, 

stored value product transaction, or 

money transmitting service, or a 

participant in such network, or other 

participant in a designated payment 

system. 

(l) Interactive computer service means 

any information service, system, or 

access software provider that provides 

or enables computer access by multiple 

users to a computer server, including 

specifically a service or system that 

provides access to the Internet and such 

systems operated or services offered by 

libraries or educational institutions. 

(m) Internet means the international 

computer network of interoperable 

packet switched data networks. 

(n) Intrastate transaction means 

placing, receiving, or otherwise 

transmitting a bet or wager where—

(1) The bet or wager is initiated and 

received or otherwise made exclusively 

within a single State; 

(2) The bet or wager and the method 

by which the bet or wager is initiated 

and received or otherwise made is 

expressly authorized by and placed in 

accordance with the laws of such State, 

and the State law or regulations 

include—

(i) Age and location verification 

requirements reasonably designed to 

block access to minors and persons 

located out of such State; and 

(ii) Appropriate data security 

standards to prevent unauthorized 

access by any person whose age and 

current location has not been verified in 

accordance with such State’s law or 

regulations; and 

(3) The bet or wager does not violate 

any provision of—

(i) The Interstate Horseracing Act of 

1978 (15 U.S.C. 3001 et seq.); 

(ii) 28 U.S.C. chapter 178 

(professional and amateur sports 

protection); 

(iii) The Gambling Devices 

Transportation Act (15 U.S.C. 1171 et 

seq.); or 

(iv) The Indian Gaming Regulatory 

Act (25 U.S.C. 2701 et seq.). 

(o) Intratribal transaction means 

placing, receiving or otherwise 

transmitting a bet or wager where—

(1) The bet or wager is initiated and 

received or otherwise made 

exclusively—

(i) Within the Indian lands of a single 

Indian tribe (as such terms are defined 

under the Indian Gaming Regulatory Act 

(25 U.S.C. 2703)); or 

(ii) Between the Indian lands of two 

or more Indian tribes to the extent that 

intertribal gaming is authorized by the 

Indian Gaming Regulatory Act (25 

U.S.C. 2701 et seq.); 

(2) The bet or wager and the method 

by which the bet or wager is initiated 

and received or otherwise made is 

expressly authorized by and complies 

with the requirements of—

(i) The applicable tribal ordinance or 

resolution approved by the Chairman of 

the National Indian Gaming 

Commission; and 

(ii) With respect to class III gaming, 

the applicable Tribal-State compact; 


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(3) The applicable tribal ordinance or 

resolution or Tribal-State compact 

includes—

(i) Age and location verification 

requirements reasonably designed to 

block access to minors and persons 

located out of the applicable Tribal 

lands; and 

(ii) Appropriate data security 

standards to prevent unauthorized 

access by any person whose age and 

current location has not been verified in 

accordance with the applicable tribal 

ordinance or resolution or Tribal-State 

Compact; and 

(4) The bet or wager does not violate 

any provision of—

(i) The Interstate Horseracing Act of 

1978 (15 U.S.C. 3001 et seq.); 

(ii) 28 U.S.C. chapter 178 

(professional and amateur sports 

protection); 

(iii) The Gambling Devices 

Transportation Act (15 U.S.C. 1171 et 

seq.); or 

(iv) The Indian Gaming Regulatory 

Act (25 U.S.C. 2701 et seq.). 

(p) Money transmitting business and 

money transmitting service have the 

meanings given the terms in 31 U.S.C. 

5330(d) (determined without regard to 

any regulations prescribed by the 

Secretary of the Treasury thereunder). 

(q) Participant in a designated 

payment system means an operator of a 

designated payment system, or a 

financial transaction provider that is a 

member of or, has contracted for 

financial transaction services with, or is 

otherwise participating in, a designated 

payment system. This term does not 

include a customer of the financial 

transaction provider if the customer is 

not a financial transaction provider 

otherwise participating in the 

designated payment system on its own 

behalf. 

(r) Restricted transaction means any 

of the following transactions or 

transmittals involving any credit, funds, 

instrument, or proceeds that the Act 

prohibits any person engaged in the 

business of betting or wagering (which 

does not include the activities of a 

financial transaction provider, or any 

interactive computer service or 

telecommunications service) from 

knowingly accepting, in connection 

with the participation of another person 

in unlawful Internet gambling—

(1) Credit, or the proceeds of credit, 

extended to or on behalf of such other 

person (including credit extended 

through the use of a credit card); 

(2) An electronic fund transfer, or 

funds transmitted by or through a 

money transmitting business, or the 

proceeds of an electronic fund transfer 

or money transmitting service, from or 

on behalf of such other person; or 

(3) Any check, draft, or similar 

instrument that is drawn by or on behalf 

of such other person and is drawn on or 

payable at or through any financial 

institution. 

(s) State means any State of the 

United States, the District of Columbia, 

or any commonwealth, territory, or 

other possession of the United States, 

including the Commonwealth of Puerto 

Rico, the Commonwealth of the 

Northern Mariana Islands, American 

Samoa, Guam, and the Virgin Islands. 

(t) Unlawful Internet gambling means 

to place, receive, or otherwise 

knowingly transmit a bet or wager by 

any means that involves the use, at least 

in part, of the Internet where such bet 

or wager is unlawful under any 

applicable Federal or State law in the 

State or Tribal lands in which the bet or 

wager is initiated, received, or otherwise 

made. The term does not include 

placing, receiving, or otherwise 

transmitting a bet or wager that is 

excluded from the definition of this 

term by the Act as an intrastate 

transaction or an intra-tribal transaction, 

and does not include any activity that 

is allowed under the Interstate 

Horseracing Act of 1978 (15 U.S.C. 3001 

et seq.). The intermediate routing of 

electronic data shall not determine the 

location or locations in which a bet or 

wager is initiated, received, or otherwise 

made. 

(u) Wire transfer system means a 

system through which an unconditional 

order to a bank to pay a fixed or 

determinable amount of money to a 

beneficiary upon receipt, or on a day 

stated in the order, is transmitted by 

electronic or other means through the 

network, between banks, or on the 

books of a bank. When referring to wire 

transfer systems, the terms in this 

regulation (such as ‘‘bank,’’ ‘‘originator’s 

bank,’’ ‘‘beneficiary’s bank,’’ and 

‘‘intermediary bank’’) are defined as 

those terms are defined in 12 CFR part 

210, appendix B. 

§ll.3 Designated payment systems. 

The following payment systems could 

be used by participants in connection 

with, or to facilitate, a restricted 

transaction: 

(a) Automated clearing house systems; 

(b) Card systems; 

(c) Check collection systems; 

(d) Money transmitting businesses; 

and 

(e) Wire transfer systems. 

§ll.4 Exemptions. 

(a) Automated clearing house systems. 

The participants providing the 

following functions of an automated 

clearing house system with respect to a 

particular ACH transaction are exempt 

from this regulation’s requirements for 

establishing written policies and 

procedures reasonably designed to 

prevent or prohibit restricted 

transactions—

(1) The ACH system operator, except 

as provided in § ll.6(b)(2) and 

§ ll.6(b)(3); 

(2) The originating depository 

financial institution in an ACH credit 

transaction; and 

(3) The receiving depository financial 

institution in an ACH debit transaction. 

(b) Check collection systems. The 

participants providing the following 

functions of a check collection system 

with respect to a particular check 

transaction are exempt from this 

regulation’s requirements for 

establishing written policies and 

procedures reasonably designed to 

prevent or prohibit restricted 

transactions—

(1) A check clearing house; and 

(2) The paying bank (unless it is also 

the depositary bank), any collecting 

bank (other than the depositary bank), 

and any returning bank. 

(c) Wire transfer systems. The 

participants providing the following 

functions of a wire transfer system with 

respect to a particular wire transfer are 

exempt from this regulation’s 

requirements for establishing written 

policies and procedures reasonably 

designed to prevent or prohibit 

restricted transactions—

(1) The operator of a wire transfer 

network; and 

(2) The originator’s bank and any 

intermediary bank, except as provided 

in § ll.6(f)(2). 

§ll.5 Processing of restricted 

transactions prohibited. 

(a) All non-exempt participants in 

designated payment systems shall 

establish and implement written 

policies and procedures reasonably 

designed to identify and block or 

otherwise prevent or prohibit restricted 

transactions. 

(b) A non-exempt financial 

transaction provider participant in a 

designated payment system shall be 

considered to be in compliance with the 

requirements of paragraph (a) of this 

section if it—

(1) Relies on and complies with the 

written policies and procedures of the 

designated payment system that are 

reasonably designed to—

(i) Identify and block restricted 

transactions; or 

(ii) Otherwise prevent or prohibit the 

acceptance of the products or services of 


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the designated payment system or 

participant in connection with restricted 

transactions; and 

(2) Such policies and procedures of 

the designated payment system comply 

with the requirements of this part. 

(c) As provided in the Act, a person 

that identifies and blocks a transaction, 

prevents or prohibits the acceptance of 

its products or services in connection 

with a transaction, or otherwise refuses 

to honor a transaction, shall not be 

liable to any party for such action if—

(1) The transaction is a restricted 

transaction; 

(2) Such person reasonably believes 

the transaction to be a restricted 

transaction; or 

(3) The person is a participant in a 

designated payment system and blocks 

or otherwise prevents the transaction in 

reliance on the policies and procedures 

of the designated payment system in an 

effort to comply with this regulation. 

(d) Nothing in this regulation requires 

or is intended to suggest that designated 

payment systems or participants therein 

must or should block or otherwise 

prevent or prohibit any transaction in 

connection with any activity that is 

excluded from the definition of 

‘‘unlawful Internet gambling’’ in the Act 

as an intrastate transaction, an 

intratribal transaction, or a transaction 

in connection with any activity that is 

allowed under the Interstate 

Horseracing Act of 1978 (15 U.S.C. 3001 

et seq.). 

(e) Nothing in this regulation modifies 

any requirement imposed on a 

participant by other applicable law or 

regulation to file a suspicious activity 

report to the appropriate authorities. 

§ll.6 Policies and procedures. 

(a) The examples of policies and 

procedures to identify and block or 

otherwise prevent or prohibit restricted 

transactions set out in this section are 

non-exclusive. In establishing and 

implementing written policies and 

procedures to identify and block or 

otherwise prevent or prohibit restricted 

transactions, a non-exempt participant 

in a designated payment system may 

design and use other policies and 

procedures that are specific to its 

business and may use different policies 

and procedures with respect to different 

types of restricted transactions. 

(b) Automated clearing house system 

examples. (1) Except as provided in 

paragraphs (b)(2) and (b)(3) of this 

section, the policies and procedures of 

the originating depository financial 

institution and any third-party sender in 

an ACH debit transaction, and the 

receiving depository financial 

institution in an ACH credit transaction, 

are deemed to be reasonably designed to 

prevent or prohibit restricted 

transactions if they—

(i) Address methods for conducting 

due diligence in establishing or 

maintaining a customer relationship 

designed to ensure that the customer 

will not originate restricted transactions 

as ACH debit transactions or receive 

restricted transactions as ACH credit 

transactions through the customer 

relationship, such as—

(A) Screening potential commercial 

customers to ascertain the nature of 

their business; and 

(B) Including as a term of the 

commercial customer agreement that the 

customer may not engage in restricted 

transactions; and 

(ii) Include procedures to be followed 

with respect to a customer if the 

originating depository financial 

institution or third-party sender 

becomes aware that the customer has 

originated restricted transactions as 

ACH debit transactions or if the 

receiving depository financial 

institution becomes aware that the 

customer has received restricted 

transactions as ACH credit transactions, 

such as procedures that address—

(A) When fines should be imposed; 

(B) When the customer should not be 

allowed to originate ACH debit 

transactions; and 

(C) The circumstances under which 

the account should be closed. 

(2) The policies and procedures of a 

receiving gateway operator and thirdparty sender that receives instructions 

to originate an ACH debit transaction 

directly from a foreign sender (which 

could include a foreign bank, a foreign 

third-party processor, or a foreign 

originating gateway operator) are 

deemed to be reasonably designed to 

prevent or prohibit restricted 

transactions if they—

(i) Address methods for conducting 

due diligence in establishing or 

maintaining the relationship with the 

foreign sender designed to ensure that 

the foreign sender will not send 

instructions to originate ACH debit 

transactions representing restricted 

transactions to the receiving gateway 

operator or third-party sender, such as 

including as a term in its agreement 

with the foreign sender requiring the 

foreign sender to have reasonably 

designed policies and procedures in 

place to ensure that the relationship will 

not be used to process restricted 

transactions; and 

(ii) Include procedures to be followed 

with respect to a foreign sender that is 

found to have sent instructions to 

originate ACH debit transactions to the 

receiving gateway operator or thirdparty sender that are restricted 

transactions, which may address—

(A) When ACH services to the foreign 

sender should be denied; and 

(B) The circumstances under which 

the cross-border arrangements with the 

foreign sender should be terminated. 

(3) The policies and procedures of an 

originating gateway operator that 

receives an ACH credit transaction 

containing instructions to send or credit 

a transaction to a foreign bank directly 

or through a foreign receiving gateway 

operator are deemed to be reasonably 

designed to prevent or prohibit 

restricted transactions, if they include 

procedures to be followed with respect 

to a foreign bank that is found to have 

received from the originating gateway 

operator either directly or indirectly 

transactions that are restricted 

transactions, which may address—

(i) When ACH credit transactions for 

the foreign bank or through the foreign 

gateway operator should be denied; and 

(ii) The circumstances under which 

the cross-border arrangements with the 

foreign bank should be terminated. 

(c) Card system examples. The 

policies and procedures of a card system 

operator, a merchant acquirer, and a 

card issuer, are deemed to be reasonably 

designed to prevent or prohibit 

restricted transactions, if they—

(1) Address methods for conducting 

due diligence in establishing or 

maintaining a merchant relationship 

designed to ensure that the merchant 

will not receive restricted transactions 

through the card system, such as—

(i) Screening potential merchant 

customers to ascertain the nature of 

their business; and 

(ii) Including as a term of the 

merchant customer agreement that the 

merchant may not receive restricted 

transactions through the card system; 

(2) Include procedures reasonably 

designed to identify and block or 

otherwise prevent or prohibit restricted 

transactions, such as—

(i) Establishing transaction codes and 

merchant/business category codes that 

are required to accompany the 

authorization request for a transaction 

and creating the operational 

functionality to enable the card system 

or the card issuer to identify and deny 

authorization for a restricted 

transaction; 

(ii) Ongoing monitoring or testing to 

detect potential restricted transactions, 

including—

(A) Conducting testing to ascertain 

whether transaction authorization 

requests are coded correctly; 

(B) Monitoring of web sites to detect 

unauthorized use of the relevant card 

system, including its trademark; or 


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(C) Monitoring and analyzing 

payment patterns to detect suspicious 

payment volumes from a merchant 

customer; and 

(3) Include procedures to be followed 

with respect to a merchant customer if 

the card system, card issuer, or 

merchant acquirer becomes aware that a 

merchant has received restricted 

transactions through the card system, 

such as—

(i) When fines should be imposed; 

and 

(ii) When access to the card system 

should be denied. 

(d) Check collection system examples. 

(1) Except as provided in paragraph 

(d)(2) of this section, the policies and 

procedures of a depositary bank are 

deemed to be reasonably designed to 

prevent or prohibit restricted 

transactions if they—

(i) Address methods for conducting 

due diligence in establishing or 

maintaining a customer relationship 

designed to ensure that the customer 

will not receive restricted transactions 

through the customer relationship, such 

as—

(A) Screening potential commercial 

customers to ascertain the nature of 

their business; and 

(B) Including as a term of the 

commercial customer agreement that the 

customer may not deposit checks that 

constitute restricted transactions; and 

(ii) Include procedures to be followed 

with respect to a customer if the 

depositary bank becomes aware that the 

customer has deposited checks that are 

restricted transactions, such as 

procedures that address—

(A) When checks for deposit should 

be refused; and 

(B) The circumstances under which 

the account should be closed. 

(2) The policies and procedures of a 

depositary bank that receives a check for 

collection directly from a foreign bank 

are deemed to be reasonably designed to 

prevent or prohibit restricted 

transactions if they—

(i) Address methods for conducting 

due diligence in establishing or 

maintaining the correspondent 

relationship with the foreign bank 

designed to ensure that the foreign bank 

will not send checks representing 

restricted transactions to the depositary 

bank for collection, such as including as 

a term in its agreement with the foreign 

bank requiring the foreign bank to have 

reasonably designed policies and 

procedures in place to ensure that the 

correspondent relationship will not be 

used to process restricted transactions; 

and 

(ii) Include procedures to be followed 

with respect to a foreign bank that is 

found to have sent checks to the 

depositary bank that are restricted 

transactions, which may address—

(A) When check collection services 

for the foreign bank should be denied; 

and 

(B) The circumstances under which 

the correspondent account should be 

closed. 

(e) Money transmitting business 

examples. The policies and procedures 

of a money transmitting business are 

deemed to be reasonably designed to 

prevent or prohibit restricted 

transactions if they—

(1) Address methods for conducting 

due diligence in establishing or 

maintaining commercial subscriber 

relationships designed to ensure that the 

commercial subscriber will not receive 

restricted transactions through the 

money transmitting business, such as—

(i) Screening potential commercial 

subscribers to ascertain the nature of 

their business; and 

(ii) Including as a term of the 

commercial subscriber agreement that 

the subscriber may not receive restricted 

transactions; and 

(2) Include procedures regarding 

ongoing monitoring or testing to detect 

potential restricted transactions, such 

as—

(i) Monitoring and analyzing payment 

patterns to detect suspicious payment 

volumes to any recipient; or 

(ii) Monitoring web sites to detect 

unauthorized use of the relevant money 

transmitting business, including their 

trademarks; and 

(3) Include procedures to be followed 

with respect to recipients that are found 

to have engaged in restricted 

transactions, that address—

(i) When fines should be imposed; 

(ii) When access should be denied; 

and 

(iii) The circumstances under which 

an account should be closed. 

(f) Wire transfer system examples. (1) 

The policies and procedures of the 

beneficiary’s bank in a wire transfer are 

deemed to be reasonably designed to 

prevent or prohibit restricted 

transactions if they—

(i) Address methods for conducting 

due diligence in establishing or 

maintaining a commercial customer 

relationship designed to ensure that the 

commercial customer will not receive 

restricted transactions through the 

customer relationship, such as—

(A) Screening potential commercial 

customers to ascertain the nature of 

their business; and 

(B) Including as a term of the 

commercial customer agreement that the 

customer may not receive restricted 

transactions. 

(ii) Include procedures to be followed 

with respect to a commercial customer 

if the beneficiary’s bank becomes aware 

that the commercial customer has 

received restricted transactions, such as 

procedures that address—

(A) When access to the wire transfer 

system should be denied; and 

(B) The circumstances under which 

an account should be closed. 

(2) An originator’s bank or 

intermediary bank that sends or credits 

a wire transfer transaction directly to a 

foreign bank is deemed to have policies 

and procedures reasonably designed to 

identify and block, or otherwise prevent 

or prohibit restricted transactions, if the 

policies and procedures include 

procedures to be followed with respect 

to a foreign bank that is found to have 

received from the originator’s bank or 

intermediary bank wire transfers that 

are restricted transactions, which may 

address—

(i) When wire transfer services for the 

foreign bank should be denied; and 

(ii) The circumstances under which 

the correspondent account should be 

closed. 

§ll.7 Regulatory enforcement. 

The requirements under this 

regulation are subject to the exclusive 

regulatory enforcement of—

(a) The Federal functional regulators, 

with respect to the designated payment 

systems and participants therein that are 

subject to the respective jurisdiction of 

such regulators under section 505(a) of 

the Gramm-Leach-Bliley Act (15 U.S.C. 

6805(a)) and section 5g of the 

Commodity Exchange Act (7 U.S.C. 7b–

2); and 

(b) The Federal Trade Commission, 

with respect to designated payment 

systems and financial transaction 

providers not otherwise subject to the 

jurisdiction of any Federal functional 

regulators (including the Commission) 

as described in paragraph (a) of this 

section. 

By order of the Board of Governors of the 

Federal Reserve System, October 1, 2007. 

Jennifer J. Johnson, 

Secretary of the Board. 

Dated: October 1, 2007. 

By the Department of the Treasury. 

Valerie A. Abend, 

Deputy Assistant Secretary for Critical 

Infrastructure Protection and Compliance 

Policy. 

[FR Doc. 07–4914 Filed 10–3–07; 8:45 am] 

BILLING CODE 6210–01–P, 4811–42–P 


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