[Federal Register: May 19, 2003 (Volume 68, Number 96)]
[Rules and Regulations]
[Page 26996-26997]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19my03-9]
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DEPARTMENT OF THE TREASURY
31 CFR Part 103
Notice of Temporary Extension of Conditional Exception to Bank
Secrecy Act Regulations Relating to Orders for Transmittal of Funds by
Financial Institutions
AGENCY: Financial Crimes Enforcement Network (``FinCEN''), Treasury.
ACTION: Extension of conditional exception.
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SUMMARY: FinCEN is giving notice that it is extending, until December
1, 2003, a conditional exception to a Bank Secrecy Act requirement that
is due to expire on May 31, 2003. The exception permits financial
institutions to substitute coded information for the true name and
address of a customer in a funds transmittal order. The purpose of the
extension is to permit FinCEN to perform a study of the alternatives to
continuing the conditional exception.
DATES: Effective June 1, 2003.
FOR FURTHER INFORMATION CONTACT: David Vogt, Executive Associate
Director, Office of Regulatory Programs, FinCEN, (202) 354-6400, or
Judith R. Starr, Chief Counsel, FinCEN, (703) 905-3590.
SUPPLEMENTARY INFORMATION:
I. Background
In 1998, FinCEN granted a conditional exception (``the CIF
Exception'') to the strict operation of 31 CFR 103.33(g) (the ``Travel
Rule''). See FinCEN Issuance 98-1, 63 FR 3640 (January 26, 1998). The
Travel Rule requires a financial institution to include certain
information in transmittal orders relating to transmittals of funds of
$3,000 or more. The CIF Exception addressed computer programming
problems in the banking and securities industries by relaxing the
Travel Rule's requirement that a customer's true name and address be
included in a funds transmittal order, so long as alternate steps,
described in FinCEN Issuance 98-1 and designed to prevent avoidance of
the Travel Rule, were satisfied. By its terms, the CIF Exception to the
Travel Rule was to expire on May 31, 1999; however, in light of
programming burdens associated with year 2000 compliance issues, FinCEN
extended the CIF Exception so that it would expire on May 31, 2001. See
FinCEN Issuance 99-1, 64 FR 41041 (July 29, 1999). On May 30, 2001,
after first soliciting input from the law enforcement community for its
views on any law enforcement burdens caused by the CIF Exception,
FinCEN again extended the CIF Exception. The CIF Exception is scheduled
to expire on May 31, 2003. See FinCEN Issuance 2001-1, 66 FR 32746
(June 18, 2001). On March 7, 2003, FinCEN published a Notice of intent
to permit the CIF exception to expire on May 31, 2003. The Notice
solicited comment on four issues:
(1) Whether there are technological barriers to full compliance
with the Travel Rule;
(2) Whether financial institutions will require additional time to
comply;
(3) Whether the exception has had an adverse effect on law
enforcement investigations; and
(4) Whether there is a potential for abuse of the exception.
II. The CIF Exception
FinCEN promulgated the Travel Rule in 1995. The Travel Rule
requires financial institutions to include certain information in
transmittal orders relating to transmittals of funds of $3,000 or more,
which must ``travel'' with the order throughout the funds transmittal
sequence. Among these requirements is that each transmittor's financial
institution and intermediary financial institution include in a
transmittal order the transmittor's true name and street address. See
31 CFR 103.33(g)(1)(i)-(ii) and (g)(2)(i)-(ii). Subsequently, financial
institutions represented to FinCEN that their ability to comply with
the Travel Rule at all depended on their ability to use their automated
customer information files, known as CIFs. Although an originating
institution always knew the originating customer's true name and
address, the CIFs were often programmed with coded or nominee names and
addresses (or post office boxes). The reprogramming tasks involved in
changing the CIFs were represented to be a significant barrier to
compliance with the Travel Rule. In light of these burdens, and in the
interest of obtaining prompt compliance, FinCEN promulgated the
conditional exception.
The conditional exception provides that a financial institution may
satisfy the requirements of 31 CFR 103.33(g) that a customer's true
name and address be included in a transmittal order, only upon
satisfaction of the following conditions:
(1) The CIFs are not specifically altered for the particular
transmittal of funds in question;
(2) The CIFs are generally programmed and used by the institution
for customer communications, not simply for transmittal of funds
transactions, and as so programmed generate other than true name and
street address information;
(3) The institution itself knows and can associate the CIF
information used in the funds transmittal order with the true name and
street address of the transmittor of the order;
(4) The transmittal order includes a question mark symbol
immediately following any designation of the transmittor other than by
a true name on the order;
(5) Any currency transaction report or suspicious activity report
by the institution with respect to the funds transmittal contains the
true name and address information for the transmittor and plainly
associates the report with the particular funds transmittal in
question.
The conditional exception further provides that it has no
application to any funds transmittals for whose processing an
institution does not automatically rely on preprogrammed and
prespecified CIF name and address information. FinCEN's release
promulgating the CIF Exception further warned financial institutions
that any customer request for a nominee name in a CIF should be
carefully evaluated as a potentially suspicious transaction. See 63 FR
3642.
III. Comments Received on the Expiration of the CIF Exception
The comment period closed on April 21, 2003. FinCEN received 16
comments from banks, trade groups, financial consultants, the Federal
Reserve's Wholesale Products Branch, and the Department of Justice,
reflecting a diversity of views. Eight commenters
[[Page 26997]]
agreed that the exception should expire; seven commenters (three of
them in one joint comment), opposed letting the exception expire; one
commenter split the difference in favor of requiring the true name but
keeping the exception for the true address; and the Federal Reserve's
Wholesale Products Branch urged that FinCEN perform a study of the
current and future uses of customer identification before determining
whether it is necessary to let the exception lapse.
Industry Comments. The financial community commenters were divided
on all the issues raised in the Notice.
Industry comments in favor of expiration. Comments received from
community banks, independent banks, and credit unions supported letting
the exception expire. They stated they are generally in compliance
already, or can do so readily with the change of a form. They saw no
technological barriers to compliance. For instance, one trade
organization stated that its members using Fedwire are already in
compliance, and that Fedwire has fields for entering true name and
address information. According to this commenter, the Federal Home Loan
Bank wire service also accommodates this information in its funds
transmittal orders. Another organization, which counts 1,000 credit
unions as its members, stated there will be no problem complying by
June 1, 2003. It also stated that it believes having the true name and
address fields in the transmittal orders will simplify compliance with
Sec. 314 and OFAC searches.
Industry comments opposed to expiration. The contrary viewpoint was
represented by several large banks and three major trade associations.
They stated that compliance with the true name and address requirement
would impose significant reprogramming costs upon them. According to
one bank, customer names and addresses are stored in their CIFs. They
may contain a variety of different addresses and name variations,
especially for corporate customers. The wire transfer systems are
separate from the CIFs and do not interface directly with them.
Apparently, the banks would have to reprogram their CIFs to track and
send true name and address information with individual payment orders.
Although none of the commenters estimated the costs associated with
such reprogramming, they contend it would be expensive. Given their
other Patriot Act tasks, they believed it would be impossible to
complete such reprogramming before the deadline.\1\ None of these
commenters believed there is any harm to law enforcement from the
exception, citing the paucity of requests for true name and address
information they have received from law enforcement over the years.
Finally, they did not see much potential for abuse. A joint comment by
the trade associations stated that the use of pseudonym in private
banking accounts (cited in the Notice) occurs only in exceptional cases
such as for public figures, or to hide a name in an accumulation
account that might tip off the market to a trading strategy.\2\
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\1\ In contrast, one bank stated it does not use coded customer
names, and its comment was solely concerned with the issue of using
true addresses because of the existence of alternate addresses for
customers, which it believed would cost it $20,000 in programming
development costs to address.
\2\ FinCEN notes, however, that these examples appear to violate
the condition of the exception that the code be in use generally and
that there be no alteration for a specific case.
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Government comments. Government comments were likewise divided. The
Department of Justice strongly supported expiration of the exception,
arguing that it has already outlived the reasons it was originally
granted. Justice stated that it would be easier to obtain timely
compliance with subpoenas if banks did not have to check additional
records to find true name and address information.\3\ The Federal
Reserve's Wholesale Products Office (``WPO''), however, stated that
discussions with its customer advisory group lead it to believe that
many banks are ill equipped to comply if the exception expires. The WPO
also expressed concern about the effect expiration of the exception
could have on straight-through processing initiatives, which aim at
eliminating manual intervention in the flow of payment information from
originator to beneficiary. Therefore, it proposes that FinCEN study the
use of CIFs to determine the effect of the elimination of the exception
would have, not only on current systems, but on the achievement of
processing goals.
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\3\ In addition, the exception can prevent law enforcement and
intelligence analysts from being able to track fully the flow of
funds. Suspicious Activity Reports filed by intermediary
institutions that do not have true name and address information are
much less useful. Intercepts or undercover operations that obtain
intermediary transmittals and cannot approach banks because of the
sensitivity of their operations will lack information that may be
critical to them. The use of coded information may prevent an
intermediary bank from recognizing that it has records related to a
government target, and, if the government has not also approached
the transmitting bank, critical information may be missed.
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IV. Need for Further Study
FinCEN believes that the WPO is correct that further study is
needed, albeit a study more precisely targeted at the benefits and
burdens associated with the available alternatives. The technological
issues involved in complying with the Travel Rule appear to vary among
financial institutions, and it is not clear what the global costs would
be of removing the exception entirely. Having gaps in the funds
transfer process where the inability to recognize the identity of a
funds transmittor could harm law enforcement investigations should be
avoided where possible, as should imposing unnecessary costs at a time
when financial institutions are working diligently to comply with
numerous Patriot Act requirements. FinCEN therefore intends to perform
a study to determine the best way to reconcile the competing interests
by obtaining data on the costs and benefits of each available
alternative (for example, it may be feasible to require true name
information but not true address information). For the expected
duration of the study (approximately 180 days), the CIF Exception will
be temporarily extended.
V. FinCEN Issuance 2003-1
By virtue of the authority contained in 31 CFR 103.55(a) and (b),
which has been delegated to the Director of FinCEN, the effective
period of the CIF Exception, as such Exception is set forth (as part of
FinCEN Issuance 98-1, 63 FR 3640 (January 6, 1998)) under the heading
``Grant of Exceptions'' (63 FR 3641) is extended so that the CIF
Exception will expire on December 1, 2003 (if not revoked or modified
with respect to such expiration date prior to that time), for
transmittals of funds initiated after that date.
Dated: May 13, 2003.
James F. Sloan,
Director, Financial Crimes Enforcement Network.
[FR Doc. 03-12371 Filed 5-16-03; 8:45 am]
BILLING CODE 4810-02-P