[Federal Register: November 28, 2003 (Volume 68, Number 229)]
[Rules and Regulations]
[Page 66708-66710]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28no03-9]
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DEPARTMENT OF THE TREASURY
31 CFR Part 103
Notice of Expiration of Conditional Exception to Bank Secrecy Act
Regulations Relating to Orders for Transmittals of Funds by Financial
Institutions
AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.
ACTION: Notice of expiration of conditional exception following
extension.
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SUMMARY: FinCEN is giving notice that on July 1, 2004, a conditional
exception to a Bank Secrecy Act (BSA) requirement will permanently
expire. Upon expiration of that exception, financial institutions will
no longer be able to comply with the terms of that BSA requirement by
using coded information or pseudonyms for the name of a customer in a
funds transmittal order. This document further explains that FinCEN is
revoking prior guidance regarding the meaning of the term ``address'',
eliminating the need to utilize the conditional exception for
transmittal orders lacking a transmittor's street address.
DATES: Effective December 2, 2003.
FOR FURTHER INFORMATION CONTACT: Don Carbaugh, Office of Regulatory
Programs, FinCEN, (202) 354-6400; and Al Zarate, Office of Chief
Counsel, FinCEN, at (703) 905-3590 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
I. Background
In 1998, FinCEN granted a conditional exception (the Customer
Information File (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 so
that it would 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. See 68 FR
10965 (Notice of Intent). The Notice of Intent solicited comment on a
number of issues relating to the operation of the CIF Exception. On May
19, 2003, FinCEN published a notice that again extended the CIF
Exception so that it would expire on December 1, 2003. See FinCEN
Issuance 2003-1, 68 FR 26996. The purpose of this most recent extension
was to allow time for FinCEN to conduct a study on the operation of the
CIF Exception, and to determine whether to remove, modify, or make
permanent the Exception.
II. Terms of 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 name and 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 maintains the originating customer's true name and
address, the CIFs were sometimes 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 are programmed to 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
[[Page 66709]]
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 informed 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. Results of CIF Exception Study
Since the issuance in May 2003 of the Notice of Intent, FinCEN has
studied the use of the CIF Exception by financial institutions, and the
implications of continuing the CIF exception for law enforcement
investigations. The staff of the Federal Reserve Bank of New York
assisted in this process by providing FinCEN with a sample of funds
transfer activity using the Fedwire system, which gave FinCEN a one-day
snapshot of the frequency and type of use of the CIF Exception. FinCEN
also obtained the views of law enforcement officials and financial
institutions on this issue. Ultimately, FinCEN formed a Subcommittee of
the Bank Secrecy Act Advisory Group (BSAAG)\1\ to advise FinCEN on the
costs and benefits of maintaining, terminating, or modifying the
Exception. The Subcommittee consists of officials representing FinCEN,
the U.S. Department of the Treasury, the U.S. Department of Justice,
the federal bank and securities regulators, the banking industry, and
the securities industry. FinCEN presented the Subcommittee with the
results of its factfinding and the Subcommittee also reviewed
information provided by the New York Clearing House Association
L.L.C.\2\
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\1\ The BSAAG is an advisory group consisting of representatives
of government, financial institutions, and other interested persons.
The BSAAG meets semiannually for the purpose of informing private
sector representatives of the utility of Bank Secrecy Act reports
and to advise the Secretary of the Treasury (or his designee) of
potential enhancements or modifications to existing Bank Secrecy Act
requirements.
\2\ See Letter from Clearing House to Director James F. Sloan,
FinCEN, October 20, 2003. The members of the Clearing House are:
Bank of America, National Association; The Bank of New York; Bank
One, National Association; Citibank, N.A.; Deutsche Bank Trust
Company Americas; Fleet National Bank; HSBC Bank USA; JPMorgan Chase
Bank; LaSalle Bank National Association; Wachovia Bank, National
Association; and Wells Fargo Bank, National Association. The
following members of The Clearing House's affiliate, The Clearing
House Interbank Payments Company L.L.C, also support the positions
taken in the October 20 letter: American Express Bank, Ltd.; The
Bank of Tokyo-Mitsubishi, Ltd., New York Branch; and UBS AG,
Stamford Branch. In addition, the American Banker's Association
participated in the drafting of the October 20 letter and supports
the views expressed in it.
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Based on its factfinding and input from the Subcommittee, FinCEN
has made the following determinations. First, there is a powerful law
enforcement interest, particularly in light of the tragic events of 9/
11, in ensuring that a financial institution can identify funds
transfers conducted by a terrorist suspect listed in a subpoena or
other authorized search request. The use of coded names and pseudonyms
effectively prevents an intermediary or a receiving financial
institution from recognizing if it has records related to a government
target. Second, to the extent that code names and pseudonyms are used
in transmittal orders, such use appears to be limited to select private
banking customers for confidentiality purposes. Because the use of
coded names and pseudonyms is so infrequent, there is not a substantial
cost involved in changing CIFs to reflect true names. Lastly, FinCEN
understands that mailing addresses, rather than street addresses, are
widely used by financial institutions in their CIFs. The banking
industry contends that changing CIFs to reflect street addresses would
require banks to examine each address in a CIF, and compare it with
other customer information maintained by the bank, to determine whether
the CIF address was a mailing address or street address. In addition, a
new field would have to be created in the CIF to accommodate street
address information, because customers would still want their
statements and other information sent to their mailing address.
Finally, each program that links the CIF to each of the bank's systems
would have to be revised so that the correct address would be used for
each application. According to the banking industry, each of these
steps would have to be accomplished largely on a manual basis,
resulting in significant costs to financial institutions. Law
enforcement has acknowledged that the conduct of a reliable search is
more dependent upon the use of true names than it is upon the use of
street addresses.
Based upon these findings, and after weighing the competing
interests involved, FinCEN has determined that revocation of the CIF
Exception is appropriate. Regarding true name information, whatever
legitimate interest is served by the use of coded names or pseudonyms
in shielding the identity of a few select clients is overwhelmingly
outweighed by the potential harm resulting from an intermediary or
receiving financial institution not being able to determine whether it
has records related to a government target. Weighed against the small
number of clients for which the CIF Exception is used, the law
enforcement interests predominate. FinCEN wishes to clarify that,
although the Travel Rule does not permit the use of coded names or
pseudonyms, the Rule does allow the use of abbreviated names, names
reflecting different accounts of a corporation (e.g., XYZ Payroll
Account), as well as trade and assumed names of businesses (D/B/A) or
the names of unincorporated divisions or departments of businesses.
FinCEN has reached a different conclusion regarding the requirement
to use a transmittor's street address. The term ``address,'' as it is
used in 31 U.S.C. 103.33(g), is not defined. FinCEN has previously
issued guidance that has been interpreted as not allowing the use of
mailing addresses, including post office boxes, in situations in which
a street address is known to the transmittor's financial
institution.\3\ Because the use of the conditional exception for
mailing addresses arises from a prior interpretation, rather than the
explicit language of section 103.33(g) itself, FinCEN believes this
issue is more appropriately addressed through a regulatory
interpretation, rather than through a temporary exception.
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\3\ See Clearing House Letter (citing FinCEN Advisory Issue 3,
Funds Transfers: Questions and Answers, June 1996 (Q&A no. 18).
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FinCEN believes that the Travel Rule, like all Bank Secrecy Act
rules, should be read with some flexibility so as to avoid the
unnecessary burdening of financial institutions. After weighing the
competing interests involved in whether to require street address
information FinCEN has determined that the Travel Rule should be read
to allow the use of mailing addresses. Consequently, for purposes of 31
CFR 103.33(g), the term address means either the transmittor's street
address, or the transmittor's address maintained in the financial
institution's automated customer information file so long as the
institution maintains the transmittor's address on file and such
address information is retrievable upon request by law enforcement.\4\
Under no
[[Page 66710]]
circumstances may a financial institution use its own address or
another financial institution's address in place of the customer's
address, notwithstanding any prior guidance that appeared to allow the
use of a financial institution's address under limited
circumstances.\5\ To avoid any confusion on the issue of addresses in
transmittal orders, FinCEN, by this notice, hereby revokes Q&A no. 18
contained in FinCEN Advisory Issue 3 (June 1996) and Q&A no.16
contained in FinCEN Advisory Issue 7 (January 1997). FinCEN anticipates
issuing a new set of frequently asked questions and answers regarding
the application of the funds transfer rules very shortly. Nothing in
this notice affects the obligation of a financial institution to comply
with any other requirement imposed under the Bank Secrecy Act,
including a customer identification program requirement imposed under
Section 326 of the USA Patriot Act.
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\4\ Consistent with the final rules issued under section 326 of
the USA Patriot Act (Pub. L. 107-56), an ``address'' for purposes of
the Travel Rule, for an individual, is a residential or business
street address, or an Army Post Office Box or a Fleet Post Office
Box, or the residential or business street address of next of kin or
another contact individual for individuals who do not have a
residential or business address. For a person other than an
individual (such as a corporation, partnership, or trust),
``address'' is a principal place of business, local office, or other
physical location. See 68 FR 25090 (May 9, 2003) (Final Rules for
Customer Identification Programs) issued jointly with the Board of
Governors of the Federal Reserve System, Office of the Comptroller
of the Currency, Office of Thrift Supervision, Federal Deposit
Insurance Corporation, National Credit Union Administration,
Commodity Futures Trading Commission, and Securities and Exchange
Commission. Note, however, that while the Section 326 rules apply
only to new customers opening accounts on or after October 1, 2003,
and exempt wire transfers from the definition of ``account'' for
banks, the Travel Rule applies to all transmittals of funds of
$3,000 or more, whether or not the transmittor is a customer for
purposes of the Section 326 rules.
\5\ See FinCEN Advisory Issue 7, Funds ``Travel'' Regulations:
Questions & Answers, January 1997 (Q&A no. 16) (stating that a
financial institution must not use its own address ``except where it
is the actual address of record of the person'').
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Finally, to give financial institutions the opportunity to take
those steps necessary to comply fully with the Travel Rule, this Notice
extends the conditional exception through July 1, 2004.
IV. FinCEN Issuance
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 CIF Exception
will expire on July 1, 2004, for transmittals of funds initiated after
that date.
Dated: November 21, 2003.
William F. Baity,
Acting Director, Financial Crimes Enforcement Network.
[FR Doc. 03-29617 Filed 11-26-03; 8:45 am]
BILLING CODE 4810-02-P