[Federal Register: May 30, 2003 (Volume 68, Number 104)]
[Proposed Rules]
[Page 32434-32437]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30my03-29]
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FEDERAL RESERVE SYSTEM
12 CFR Part 211
Regulation K; Docket No. R- 1147
International Banking Operations
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Board of Governors of the Federal Reserve System (Board)
is
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seeking public comment on a proposal to require Edge and Agreement
corporations and U.S. branches, agencies and other offices of foreign
banks supervised by the Board to establish and maintain procedures
reasonably designed to assure and monitor compliance with the Bank
Secrecy Act and the regulations issued thereunder.
DATES: Written comments on all aspects of the proposal are welcome and
must be received on or before June 30, 2003.
ADDRESSES: Comments should refer to Docket No. R-1147 and may be mailed
to Ms. Jennifer J. Johnson, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, NW,
Washington, DC 20551. However, because paper mail in the Washington
area and at the Board of Governors is subject to delay, please consider
submitting your comments by e-mail to regs.comments@federalreserve.gov,
or faxing them to the Office of the Secretary at 202-452-3819 or 202-
452-3102. Members of the public may inspect comments in Room MP-500
between 9:00 a.m. and 5:00 p.m. on weekdays pursuant to 261.12, except
as provided in 261.14, of the Board's Rules Regarding Availability of
Information, 12 CFR 261.12 and 261.14.
FOR FURTHER INFORMATION CONTACT: Pamela J. Johnson, Senior Anti-Money
Laundering Coordinator, (202) 728-5829, or Nina A. Nichols, Counsel,
Division of Banking Supervision and Regulation, (202) 452-2961; or
Melinda Milenkovich, Counsel, (202) 452-3274, or Thomas Scanlon,
Counsel, Legal Division, (202) 452-2594. For users of
Telecommunications Devices for the Deaf (TDD) only, contact (202) 263-
4869.
SUPPLEMENTARY INFORMATION:
I. Background
In 1987, the federal bank supervisory agencies amended their
respective regulations to require the banks, savings associations, and
credit unions they regulated to establish and maintain procedures to
assure and monitor compliance with the requirements of subchapter II of
chapter 53 of Title 31, United States Code, commonly known as the
``Bank Secrecy Act,'' and the Treasury regulations promulgated
thereunder.\1\ The Bank Secrecy Act generally requires financial
institutions to, among other things, keep records and make reports that
have a high degree of usefulness in criminal, tax, or regulatory
proceedings. The 1987 amendments to the supervisory agencies'
regulations were adopted to comply with the requirements of section
1359 of the Anti-Drug Abuse Act of 1986, Pub. L. 99-570, which required
the supervisory agencies to prescribe regulations requiring the
institutions they regulate to establish and maintain procedures
reasonably designed to assure and monitor compliance with the Bank
Secrecy Act and to review such procedures during the course of their
examinations.
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\1\ The notice was issued by the Office of the Comptroller of
the Currency, the Board of Governors of the Federal Reserve System,
the Federal Deposit Insurance Corporation, the Federal Home Loan
Bank Board, and the National Credit Union Administration on January
27, 1987, 52 FR 2858. It was effective January 27, 1987, and
required programs to be in place by April 27, 1987.
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The amendments to the supervisory agencies' regulations
incorporated the minimum components of a Bank Secrecy Act compliance
program as determined by the supervisory agencies and as generally set
forth in the Bank Secrecy Act at 31 U.S.C. 5318(h). These include: (i)
a system of internal controls to assure ongoing compliance; (ii)
independent testing of compliance by the institution's personnel or by
an outside party; (iii) the designation of an individual or individuals
responsible for coordinating and monitoring day-to-day compliance; and
(iv) training for appropriate personnel.
The amendment to the Board's regulations is now codified in
Regulation H at 12 CFR 208.63.\2\ The provision applies to state member
banks, but corresponding provisions were not included in Regulation K
for branches, agencies and representative offices of foreign banks or
Edge and Agreement corporations. Such financial institutions are,
however, subject to the Bank Secrecy Act and the regulations
promulgated thereunder, and should maintain compliance programs
accordingly.
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\2\ The amendment was initially made to 12 CFR 208.14, but the
provision was moved in subsequent changes to Regulation H.
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II. Proposed Bank Secrecy Act Program Requirements
The Board is proposing to amend Regulation K to require Edge and
Agreement corporations and U.S. branches, agencies, and other offices
of foreign banks supervised by the Board to establish and maintain
procedures reasonably designed to assure and monitor compliance with
the Bank Secrecy Act.\3\
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\3\ Statutory authority for the proposed rule is found in
section 1359 of the Anti-Drug Abuse Act of 1986, Pub. L. 99-570, and
in section 8(s)(1) of the Federal Deposit Insurance Act, as amended
by section 2596(a)(2) of the Crime Control Act of 1990, Pub.L. 101-
647. The latter requires the Board to, among other things, issue
regulations requiring state member banks and other domestic and
foreign banking organizations operating in the United States and
supervised by the Board, to establish and maintain internal
procedures to ensure compliance with the Bank Secrecy Act. Section
8(s)(1) of the Federal Deposit Insurance Act is made applicable to
branches and agencies of foreign banks by sections 8(b)(3) and
8(b)(4).
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The Board believes that the proposed regulation will not impose any
material additional administrative burden for affected institutions. In
supervising branches, agencies and other offices of foreign banks or
Edge and Agreement corporations, the Board has, as a matter of safety
and soundness, consistently expected such entities to maintain programs
to ensure compliance with all applicable provisions of the Bank Secrecy
Act.
Moreover, section 352 of the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act, P.L. 107-56 (USA PATRIOT Act), amended 31 U.S.C. 5318(h)
of the Bank Secrecy Act to impose a statutory requirement on all
financial institutions to maintain anti-money laundering programs. The
amendment to 31 U.S.C. 5318(h) was effective on April 24, 2002.
The Treasury Department issued an interim final rule under section
352 of the USA PATRIOT Act that applies to banking organizations.\4\
The interim rule provides that if a financial institution is in
compliance with the anti-money laundering program requirements of its
federal functional regulator or self-regulatory organization, the
institution will be deemed to be in compliance with the statutory and
regulatory requirements of the Treasury under 31 U.S.C. 5318(h).
Because branches, agencies and representative offices of foreign banks
and Edge and Agreement corporations are subject to the program
requirement of 5318(h) of the Bank Secrecy Act, and the Treasury
regulation provides that they will be in compliance if they comply with
the Board's program requirement, the proposed regulation will provide
necessary clarification. The proposed regulation will clarify the
existing obligations of branches, agencies, and representative offices
of foreign banks and Edge and Agreement corporations under the Board's
rules, section 5318(h) and Treasury's interim final rule under section
352 of the USA PATRIOT Act.
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\4\ Treasury's interim final rule was published at 67 FR 21110
(April 29, 2002). The requirement for banks, savings associations,
and credit unions is codified in Treasury's Bank Secrecy Act
regulations at 31 C.F.R. 103.120(b).
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Compliance with the proposed rule will help to assure that
institutions have
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in place policies and procedures to assure compliance with all
applicable provisions of the Bank Secrecy Act, and that any
deficiencies in the area of anti-money laundering, suspicious activity
reporting, and customer due diligence are promptly identified and
corrected. Institutions should note, however, that compliance with this
requirement alone, while a potentially mitigating factor with regard to
penalties or supervisory actions, is not a defense in a criminal
prosecution or civil action involving a violation of the Bank Secrecy
Act or regulations promulgated thereunder.
The Board seeks comment on all aspects of this proposal.
III. Regulatory Flexibility Act
The Board of Governors certifies that this proposed rule will not
have significant economic impact on a substantial number of small
entities. The proposal creates a uniform regulatory standard for
ensuring and examining compliance with applicable law and regulation.
Most institutions covered by the proposed rule, whether small or large,
already have policies and procedures substantially equivalent to those
required by the proposed rule. Therefore, the Board believes this
proposed rule should not have a significant economic impact.
IV. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (PRA) (44
U.S.C. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the proposed
rule under the authority delegated to the Board by the Office of
Management and Budget (OMB). The proposed rule contains recordkeeping
requirements that are subject to the PRA. In summary, the proposed rule
requires Edge and Agreement corporations and U.S. branches, agencies
and other offices of foreign banks supervised by the Board to establish
and maintain procedures reasonably designed to assure and monitor
compliance with the Bank Secrecy Act and the regulations issued
thereunder.
The proposed rule applies only to Edge and Agreement corporations
and U.S. branches, agencies, and other offices of foreign banks
supervised by the Board. The proposed rule requires each of those
entities to establish a written compliance program that includes the
following components: (i) A system of internal controls to assure
ongoing compliance; (ii) independent testing of compliance by the
institution's personnel or by an outside party; (iii) the designation
of an individual or individuals responsible for coordinating and
monitoring day-to-day compliance; and (iv) training for appropriate
personnel. The compliance program must be approved by the board of
directors, and noted in the minutes.
The Board believes that little burden is associated with the
requirements for establishing a compliance program for the Bank Secrecy
Act because the measures involved in the program are consistent with
usual and customary business practices. In addition, the entities
subject to the proposed rule already must implement procedures to
comply with the requirements under the Bank Secrecy Act to file
suspicious activity reports (see, e.g., 12 CFR 211.6(k)).
The Federal Reserve may not conduct or sponsor, and an organization
is not required to respond to, this collection of information unless it
displays a currently valid OMB control number. An OMB control number
will be obtained.
Estimated number of financial institutions subject to the proposed
rule: 520.
Estimated average annual burden for establishing the written
compliance program per financial institution: 16 hours (2 business
days).
Estimated total annual burden: 8,320 hours.
The Board requests comment on the recordkeeping requirements
contained in this proposed rule, including how burdensome it would be
for affected financial institutions to comply with these requirements.
Also, the Board requests comment on whether these institutions
currently maintain procedures or other aspects of a compliance program
as described in the proposed rule. The Board also invites comment on:
(1) Whether the collections of information contained in the notice
of proposed rulemaking are necessary for the proper performance of the
Board's functions, including whether the information has practical
utility;
(2) The accuracy of the Board's estimate of the burden of the
proposed information collections;
(3) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(4) Ways to minimize the burden of the information collections on
respondents; and
(5) Estimates of capital or start-up costs and costs of operation,
maintenance, and purchases of services to implement appropriate
compliance procedures.
Comments may be mailed to Ms. Jennifer J. Johnson, Secretary, Board
of Governors of the Federal Reserve System, 20th Street and
Constitution Avenue, NW, Washington, DC 20551. However, because paper
mail in the Washington area and at the Board of Governors is subject to
delay, please consider submitting your comments by e-mail to
regs.comments64;federalreserve.gov, or faxing them to the Office of the
Secretary at 202-452-3819 or 202-452-3102. Members of the public may
inspect comments in Room MP-500 between 9:00 a.m. and 5:00 p.m. on
weekdays pursuant to 261.12, except as provided in 261.14, of the
Board's Rules Regarding Availability of Information, 12 CFR 261.12 and
261.14.
V. Solicitation of Comments Regarding Use of ``Plain Language''
Section 722 of the Gramm-Leach-Bliley Act, P.L. 106-102, requires
the Board to use ``plain language'' in all proposed and final rules
published after January 1, 2000. The Board invites comments about how
to make the proposed rule easier to understand, including answers to
the following questions: (1) Has the Board organized the material in an
effective manner? If not, how could the material be better organized?
(2) Are the terms of the rule clearly stated? If not, how could the
terms be more clearly stated? (3) Does the rule contain technical
language or jargon that is unclear? If so, which language requires
clarification?
List of Subjects in 12 CFR Part 211
Exports, Federal Reserve System, Foreign banking, Holding
companies, Investments, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, part 211 of chapter II
of title 12 of the Code of Federal Regulations is proposed to be
amended as follows:
PART 211--INTERNATIONAL BANKING OPERATIONS (REGULATION K)
1. The authority citation for 12 CFR part 211 continues to read as
follows:
Authority: 12 U.S.C. 221 et seq., 1818, 1835a, 1841 et seq.,
3101 et seq., and 3901 et seq.; 15 U.S.C. 6801 and 6805; 31 U.S.C.
5318
2. In Sec. 211.5 add new paragraph (m)(1) to read as follows:
Sec. 211.5 Edge and agreement corporations.
* * * * *
(m) Procedures for monitoring Bank Secrecy Act compliance.
(1) Establishment of Compliance Program. Each Edge corporation and
each Agreement corporation shall, in accordance with the provisions of
Sec. 208.63 of the Board's Regulation H, 12 CFR 208.63, develop and
provide for the
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continued administration of a program reasonably designed to assure and
monitor compliance with the provisions of subchapter II of chapter 53
of title 31, United States Code, the Bank Secrecy Act, and the
implementing regulations promulgated thereunder by the Department of
the Treasury at 31 CFR part 103. The compliance program shall be
reduced to writing, approved by the board of directors, and noted in
the minutes.
* * * * *
3. In Sec. 211.24 revise the section heading and add new paragraph
(j)(1) to read as follows:
Sec. 211.24 Approval of officers of foreign banks; procedures for
applications; standards for approval; representative office activities
and standards for approval; preservation of existing authority; reports
of crimes and suspected crimes; government securities sales practices.
* * * * *
(j) Procedures for monitoring Bank Secrecy Act compliance.
(1) Establishment of Compliance Program. Except for a federal
branch or a federal agency or a state branch that is insured by the
FDIC, a branch, agency, or representative office of a foreign bank
operating in the United States shall, in accordance with the provisions
of Sec. 208.63 of the Board's Regulation H, 12 CFR 208.63, develop and
provide for the continued administration of a program reasonably
designed to assure and monitor compliance with the provisions of
subchapter II of chapter 53 of title 31, United States Code, the Bank
Secrecy Act, and the implementing regulations promulgated thereunder by
the Department of the Treasury at 31 CFR part 103. The compliance
program shall be reduced to writing, approved by the board of
directors, and noted in the minutes.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, May 23, 2003.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 03-13371 Filed 5-29-03; 8:45 am]
BILLING CODE 6210-01-S