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24 April 2008
[Federal Register: April 24, 2008 (Volume 73, Number 80)]
[Proposed Rules]
[Page 22101-22108]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24ap08-12]
[[Page 22101]]
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DEPARTMENT OF THE TREASURY
31 CFR Part 103
RIN 1506-AA90
Financial Crimes Enforcement Network; Proposed Amendments to the
Bank Secrecy Act Regulations--Exemptions From the Requirement To Report
Transactions in Currency; Comment Request
AGENCY: Financial Crimes Enforcement Network (``FinCEN''), Department
of the Treasury.
ACTION: Notice of proposed rulemaking and request for comments.
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SUMMARY: FinCEN is proposing to amend the Bank Secrecy Act (BSA)
regulation that allows depository institutions to exempt transactions
of certain persons from the requirement to report transactions in
currency in excess of $10,000. Modification of the currency transaction
report exemption procedures is a part of the Department of the
Treasury's continuing effort to increase the efficiency and
effectiveness of its anti-money laundering and counter-terrorist
financing policies.
DATES: Written comments are welcome and must be received on or before
June 23, 2008.
ADDRESSES: Those submitting comments are encouraged to do so via the
Internet. Comments submitted via the Internet may be submitted at
http://www.regulations.gov/search/index.jsp with the caption in the
body of the text, ``Attention: Currency Transaction Report Exemptions
Rule and Form Amendments.'' Comments may also be submitted by written
mail to: Financial Crimes Enforcement Network, Department of the
Treasury, P.O. Box 39, Vienna, VA 22183, Attention: Currency
Transaction Report Exemptions Rule and Form Amendments. Please submit
comments by one method only. All comments submitted in response to this
notice of proposed rulemaking will become a matter of public record,
therefore, you should submit only information that you wish to make
available publicly.
Inspection of comments: Comments may be inspected, between 10 a.m.
and 4 p.m., in the FinCEN reading room in Vienna, VA. Persons wishing
to inspect the comments submitted must request an appointment with the
Disclosure Officer by telephoning (703) 905-5034 (Not a toll free
call). In general, FinCEN will make all comments publicly available by
posting them on http://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: The FinCEN regulatory helpline at
(800) 949-2732 and select Option 3.
SUPPLEMENTARY INFORMATION:
I. Introduction
Currency transaction reports (CTRs) provide unique, objective, and
timely information that is highly useful to a growing number of
federal, state, and local law enforcement agencies. For example, CTRs
provide information that is often unavailable from other sources, such
as information on a non-account holder who conducts a transaction in
currency for more than $10,000. Criminal investigators have found CTR
data particularly useful in identifying leads for further investigation
and corroborating already gathered information. Law enforcement
officials have noted that no other source of information enables them
to ``map'' the financial links between members of a criminal
organization as well as the CTR.\1\ Finally, recent advances in
technology have enhanced law enforcement's ability to use CTR data in
the development of pattern and trend analyses.
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\1\ Bank Secrecy Act: Increased Use of Exemption Provisions
Could Reduce Currency Transaction Reporting While Maintaining
Usefulness to Law Enforcement Efforts, GAO-08-355 (GAO: Washington,
D.C.: February 21, 2008).
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While FinCEN values the broad utility that CTR data provides to law
enforcement, FinCEN also is committed to improving the effectiveness
and efficiency with which the BSA's regulatory regime is administered.
FinCEN, therefore, welcomed a study of the current CTR exemption regime
by the United States Government Accountability Office (GAO). FinCEN
found the GAO's report entitled ``Bank Secrecy Act: Increased Use of
Exemption Provisions Could Reduce Currency Transaction Reporting While
Maintaining Usefulness to Law Enforcement Efforts'' (``the GAO
Report'') helpful in identifying ways the CTR exemption requirements
can be improved, thereby encouraging depository institutions to make
full use of CTR exemptions.
II. Background
A. Statutory Provisions
The Bank Secrecy Act, Titles I and II of Public Law 91-508, as
amended, codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31
U.S.C. 5311-5314 and 5316-5332, authorizes the Secretary of the
Treasury (Secretary), among other things, to issue regulations
requiring financial institutions to keep records and file reports that
are determined to have a high degree of usefulness in criminal, tax,
and regulatory matters, and to implement anti-money laundering programs
and compliance procedures. The regulations implementing the BSA appear
at 31 CFR Part 103. The Secretary's authority to administer the BSA has
been delegated to the Director of FinCEN.
The reporting by financial institutions of transactions in currency
in excess of $10,000 has long been a major component of the Department
of the Treasury's implementation of the BSA. The reporting requirement
is promulgated pursuant to 31 U.S.C. 5313(a) requiring reports of
domestic coin and currency transactions.
The Money Laundering Suppression Act of 1994 (MLSA) amended the BSA
by establishing a statutory system for exempting transactions by
certain customers of depository institutions from currency transaction
reporting.\2\ In general, the statutory exemption system, 31 U.S.C.
5313(d) through (g), creates two types of exemptions. Under 31 U.S.C.
5313(d) (sometimes called the ``mandatory exemption'' provision), the
Secretary is required to provide depository institutions with the
ability to exempt from the currency transaction reporting requirement
transactions in currency between the depository institution and four
specified categories of customers. The four specified categories of
customers in the mandatory exemption provision are: (1) Another
depository institution; (2) a department or agency of the United
States, any State, or any political subdivision of any State; (3) any
entity established under the laws of the United States, any State, or
any political subdivision of any State, or under an interstate compact
between two or more States, which exercises governmental authority on
behalf of the United States or any such State or political subdivision;
and (4) any business or category of business the reports on which have
little or no value for law enforcement purposes.
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\2\ See section 402 of the Money Laundering Suppression Act of
1994 (the ``Money Laundering Suppression Act''), Title IV of the
Riegle Community Development and Regulatory Improvement Act of 1994,
Public Law 103-325 (September 23, 1994). The Money Laundering
Suppression Act sought to reduce, within a reasonable period of
time, the number of reports required to be filed in the aggregate by
depository institutions pursuant to section 5313(a) of title 31. The
enactment of 31 U.S.C. 5313(d) through (g) reflected congressional
intent to ``reform * * * the procedures for exempting transactions
between depository institutions and their customers.'' See H.R. Rep.
103-652, 103d Cong., 2d Sess. 186 (August 2, 1994).
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Under 31 U.S.C. 5313(e) (sometimes called the ``discretionary
exemption''
[[Page 22102]]
provision) the Secretary is authorized, but not required, to allow
depository institutions to exempt from the currency transaction
reporting requirement transactions in currency between it and a
qualified business customer.\3\ A ``qualified business customer,'' for
purposes of the discretionary exemption provision, is a business that:
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\3\ For additional information about the terms of 31 U.S.C.
5313(e)-(g), see 63 Fed. Reg. 50147, 50148 (September 21, 1998).
(A) Maintains a transaction account (as defined in section
19(b)(1)(C) of the Federal Reserve Act) at the depository
institution; (B) frequently engages in transactions with the
depository institution which are subject to the reporting
requirements of subsection (a); and (C) meets criteria which the
Secretary determines are sufficient to ensure that the purposes of
[the BSA] are carried out without requiring a report with respect to
such transactions.\4\
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\4\ 31 U.S.C. 5313(e)(2).
The Secretary was required to establish by regulation the criteria
for granting and maintaining an exemption for qualified business
customers,\5\ as well as guidelines for depository institutions to
follow in selecting customers for exemption.\6\ The guidelines may
include a description of the type of businesses for which no exemption
will be granted under the discretionary exemption provision. The
Secretary also was required to prescribe regulations that require an
annual review of qualified business customers and require depository
institutions to resubmit information about those customers with
modifications if appropriate.\7\
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\5\ See 31 U.S.C. 5313(e)(3).
\6\ See 31 U.S.C. 5313(e)(4)(A).
\7\ See 31 U.S.C. 5313(e)(5).
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B. Overview of the Current Regulatory Provisions To Exempt Certain
Persons From Currency Transaction Reporting
The current exemption procedures, which are codified at 31 CFR
103.22(d), were the result of a five-part rulemaking.\8\ The current
exemption procedures apply to depository institution customers that
fall within one of the classes of exempt persons described in 31 CFR
103.22(d)(2)(i)-(vii), commonly referred to as ``Phase I'' and ``Phase
II'' exemptions.
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\8\ See 61 FR 18204 (April 24, 1996), 62 FR 47141, 47156
(September 8, 1997), 62 FR 63298 (November 28, 1997), 63 FR 50147
(September 21, 1998), and 65 FR 46356 (July 28, 2000) (the
rulemakings that comprise the current CTR exemption system).
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Phase I eligible customers include: (i) Other banks \9\ operating
in the United States; (ii) Government departments and agencies; (iii)
Certain entities that exercise governmental authority; (iv) Entities
whose equity interests are listed on one of the major national stock
exchanges; and (v) Certain subsidiaries of entities whose equity
interests are listed on one of the major national stock exchanges.\10\
Phase II eligible customers include: (i) ``Non-listed businesses'' and
(ii) ``Payroll customers.''
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\9\ See 31 CFR 103.22 (definition of a bank, which includes
other depository institutions).
\10\ See 31 CFR 103.22(d)(2)(v) (definition of a subsidiary).
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Phase II Eligible Customers: Non-Listed Businesses and Payroll
Customers
A ``non-listed business'' is any other commercial enterprise that
is not ineligible for exemption \11\ and that:
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\11\ Non-listed businesses that are ineligible for exemption are
businesses engaged primarily in one or more of the following
activities: Serving as financial institutions or agents of financial
institutions of any type; purchasing or selling to customers motor
vehicles of any kind, vessels, aircraft, farm equipment or mobile
homes; practicing law, accountancy, or medicine; auctioning of
goods; chartering or operating ships, buses, or aircraft; gaming of
any kind (other than licensed pari-mutuel betting at race tracks);
investment advisory services or investment banking services; real
estate brokerage; pawn brokerage; title insurance and real estate
closing; trade union activities; and any other activities that may
be specified by FinCEN. See 31 CFR 103.22(d)(6)(vii).
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(A) Has maintained a transaction account at the bank for at least
12 months;
(B) Frequently engages in transactions in currency with the bank in
excess of $10,000; and
(C) Is incorporated or organized under the laws of the United
States or a State, or is registered as and eligible to do business
within the United States or a State.\12\
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\12\ 31 CFR 103.22(d)(2)(vi).
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Such an enterprise is an exempt person only ``[t]o the extent of
its domestic operations.'' \13\ The addition of non-listed businesses
as a category of exempt person was intended to make transactions of all
established depository institution customers (other than ineligible
companies) not otherwise included within the scope of the mandatory
exemption provision, including sole proprietorships, eligible for the
current exemption procedures.
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\13\ Id.
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A ``payroll customer,'' under 31 CFR 103.22(d)(2)(vii), is any
other person (i.e., a person not otherwise covered under the exempt
person definitions) that:
(A) Has maintained a transaction account at the bank for at least
12 months;
(B) Operates a firm that regularly withdraws more than $10,000 in
order to pay its United States employees in currency; and
(C) Is incorporated or organized under the laws of the United
States or a State, or is registered as and eligible to do business
within the United States or a State.\14\
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\14\ 31 CFR 103.22(d)(2)(vii).
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A payroll customer is an exempt person ``[w]ith respect solely to
withdrawals for payroll purposes.'' \15\
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\15\ Id.
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Designating an Eligible Customer as Exempt and Other Requirements
Currently, a depository institution exempting a customer must file
a FinCEN Form 110, Designation of Exempt Person (DOEP) (``FinCEN Form
110'') within 30 days after the first transaction which the bank wishes
to exempt with respect to the customer.\16\ For a Phase I customer, a
depository institution must file the form only once and must conduct an
annual review of the customer. For a Phase II customer, a depository
institution must also conduct an annual review of the customer, and
must biennially renew the customer's exemption by refiling the form,
certifying that it has applied its system of monitoring the customer's
transactions in currency for suspicious activity, and reporting any
change in control of the customer.
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\16\ See 31 CFR 103.22(d)(3)(i). FinCEN Form 110 replaced the
previous designation form, Treasury Form TD F 90-22.53.
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C. Objectives of Proposed Changes
It is FinCEN's intent to simplify the current requirements for
depository institutions to exempt their eligible customers from CTR
reporting by proposing changes to the current regulatory requirements
to comport with the GAO Report recommendations.
GAO Report Findings and Recommendations
The GAO in its report found that CTRs provide federal, state, and
local law enforcement officials with ``unique and reliable information
essential to a variety of efforts.'' \17\ Advances in technology have
made information reported through CTRs that much more useful. Further,
in discussing the usefulness of CTRs, the GAO Report contrasted the
CTR, which captures information based on objective facts that determine
its filing, with the SAR, which requires a financial institution to
make a subjective determination of what is suspicious prior to its
filing.\18\ The information gleaned from those two types of reports is
very different in nature and is useful to law enforcement in
complementary ways. For example, the GAO Report noted that law
enforcement agencies often consult CTR
[[Page 22103]]
data to obtain more detailed information after reviewing SARs.\19\
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\17\ Supra note 1, at 2.
\18\ See supra note 1, at 17.
\19\ Id. at 19.
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CTR requirements are also useful to law enforcement because they
force criminals to act in ways that increase chances of detection as
they attempt to avoid conducting reportable transactions.\20\ While the
GAO Report found that it can be difficult for law enforcement to link
CTRs to specific outcomes, it also is generally difficult for
depository institutions to quantify the costs of meeting CTR
requirements, in large part because the same processes and staff are
used to fulfill other responsibilities of the financial institution.
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\20\ Id.
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Recognizing both the value of CTR data and the need to improve the
current CTR exemption regulatory requirements, the GAO Report made
three main recommendations that FinCEN proposes in this Notice: (1)
Remove the regulatory requirement that depository institutions
biennially renew Phase II exemptions; (2) remove the regulatory
requirement that depository institutions file exemption forms, and
annually review the supporting information, for banks, federal, state,
and local government agencies, and entities exercising federal, state
or local governmental authority; and (3) permit depository institutions
to exempt otherwise eligible non-listed customers who frequently engage
in large cash transactions within a period of time shorter than 12
months.
III. Section-by-Section Analysis
The proposed rule would implement the GAO Report's recommendations
by eliminating the biennial filing requirement; eliminating the
requirement to file exemptions forms on, and annually review the
supporting information for, exempt customers that are depository
institutions, Federal, State and local government agencies, and
entities exercising governmental authority; and eliminating the 12-
month time period for which customers may be exempted as Phase II
customers, in favor of a risk-based approach. In addition, the proposed
rule would eliminate the transitional rule in the current regulations
as no longer necessary, renumber the paragraphs under Sec. 103.22(d)
accordingly, and make other technical corrections as noted below.
A. Sec. 103.22(d)(1)--General
FinCEN proposes to amend 31 CFR 103.22(d)(1) to change the cross
references in this paragraph to reflect proposals in this notice that
if adopted would result in the paragraphs of section 103.22(d) being
re-numbered.
B. Sec. 103.22(d)(2)(iv) Exempt Person--Listed Entities
FinCEN proposes to amend 31 CFR 103.22(d)(2)(iv) by correcting the
name of a NASDAQ Stock Market listing referenced in the regulation from
its prior name, the NASDAQ Small Cap Issues, to its current name, the
NASDAQ Capital Markets Companies listing.
C. Sec. 103.22(d)(2)(vi) Exempt Person--Non-Listed Entities
FinCEN proposes to amend 31 CFR 103.22(d)(2)(vi) by changing a
cross reference in this paragraph to reflect proposals in this notice
that if adopted would result in the paragraphs of section 103.22(d)
being re-numbered.
D. Sec. Sec. 103.22(d)(2)(vi)(A) and (vii)(A) Exempt Person--Length of
Time Required To Consider Phase II Entities for Exemption
FinCEN proposes to amend 31 CFR 103.22(d)(2)(vi)(A) and (vii)(A) by
removing any prescribed amount of time before a depository institution
may consider a non-listed business or payroll customer for exemption,
and instead enabling a depository institution to make a risk-based
determination as to when it has a sufficient history with such
customers before treating them as an exempt person. FinCEN solicits
comment on an alternative proposal in which, instead of adopting a
risk-based approach, FinCEN would maintain a reference to the length of
time required to consider Phase II entities for exemption, but reduce
it from twelve months to two months.
The GAO Report recommended that FinCEN permit depository
institutions to exempt otherwise eligible Phase II customers who
frequently \21\ engage in large cash transactions without having to
wait for the current 12-month period because many depository
institution respondents surveyed for the GAO Report indicated that the
time-consuming nature of the biennial renewal, along with the costs
associated with biennial renewals, made using the Phase II exemptions
less advantageous. FinCEN supports changing the current regulatory
requirements to conform to this recommendation.
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\21\ See FinCEN's ``Guidance on Interpreting `Frequently' Found
in the Criteria for Exempting a `Non-Listed Business' Under 31 CFR
103.22(d)(2)(vi)(B)'' (November 2002).
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In 1998, FinCEN specified a twelve month waiting period for Phase
II exemptions largely in response to law enforcement concerns about
establishing an overly lax exemption system.\22\ The exemption
requirements in place prior to 1998 had allowed the designation of
eligible non-listed and payroll customers after only two months, though
other complex requirements also had to be met.\23\ At that time, FinCEN
concurred with law enforcement that requiring a twelve month time
period was not unreasonable, given that it was greatly simplifying the
exemption requirements then in place.\24\
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\22\ See 31 CFR 103(d)(2)(vi)(A). See also 62 FR 47161
(September 8, 1997) (``The need for some `counterweight' in the
liberalized system was raised forcefully with FinCEN by federal law
enforcement officials during formulation of the proposed rule.
Enforcement officials are concerned that necessary easing of the
burdens of unnecessary currency transaction reporting not have the
unintended effect of opening up avenues for more efficient money
laundering.'').
\23\ See Id. Some requirements under the administrative
exemption system included: only transactions falling within certain
``permitted'' ranges could be exempted, banks were required to
prepare and submit signed exemption statements, or banks were
required to maintain mandatory exemption lists.
\24\ See 63 FR 50151 (September 21, 1998) (``As stated in the
Notice, the ten-month difference in time periods is justified by the
elimination of virtually all of the other requirements of the prior
administrative exemption system.'').
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Much has changed in the regulatory landscape articulated in the BSA
and its implementing regulations since 1998 when almost all of what
constitutes the current CTR exemption regime became effective. With the
enactment of the USA PATRIOT Act and subsequent, related changes to the
implementing regulations of the BSA, depository institutions became
subject to additional requirements, like the customer identification
program (CIP) requirements,\25\ which must include risk-based
procedures for verifying the identity of a customer. As a result,
depository institutions have had to gather more information about their
customers at account opening and have become increasingly adept at
applying a risk-based analysis as they comply with BSA requirements.
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\25\ 31 CFR 103.121(b)(2).
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Taking into consideration all of the changes that have been made to
the BSA and its implementing regulations, FinCEN believes adopting a
risk-based approach to the amount of time that is needed before an
initial designation of exemption may be filed for Phase II eligible
customers is now appropriate. FinCEN also proposes for comment, in the
alternative, an amendment that would require depository institutions to
wait two months before making the initial designation.
[[Page 22104]]
E. Sec. 103.22(d)(3)(i)--General
FinCEN proposes to amend 31 CFR 103.22(d)(3)(i) by making specific
reference to a depository institution's need to use FinCEN Form 110
\26\ when designating an exempt person, removing text that references
the exemption requirements that existed prior to 1998, and re-stating
that a designation must be made within 30 calendar days of the
reportable transaction in currency.
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\26\ FinCEN intends to make changes to Form 110 and its
instructions as necessary to reflect the changes proposed to 31 CFR
103.22(d) after the proposal is finalized.
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F. Sec. 103.22(d)(3)(ii)--Special Rules
FinCEN proposes to amend 31 CFR 103.22(d)(3)(ii) by removing the
requirement that depository institutions file an initial designation of
exempt persons by using FinCEN Form 110 for Phase I eligible customers
that are depository institutions, federal, state, or local governments,
or entities exercising governmental authority.\27\
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\27\ See 31 CFR 103.22(d)(6)(ii) (Operating rules that
illustrate what types of entities normally exercise governmental
authority).
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The GAO Report recommended that FinCEN eliminate the requirement
for depository institutions to file an exemption form for those Phase I
customers described above because CTRs filed on those entities would be
of little value to law enforcement. The GAO report noted that the GAO's
analysis of FinCEN data showed that in 2006 alone, almost 87,000 CTRs
were filed on over 2,900 depository institutions and nearly 24,000 CTRs
were filed on 2,000 government entities.\28\
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\28\ Supra note 1, at 50.
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FinCEN supports the GAO Report recommendation and agrees that CTRs
filed on depository institutions, government agencies, and entities
exercising governmental authority, are not likely to be highly useful
to law enforcement. In addition, depository institutions would still be
required to comply with their SAR reporting obligations should any of
their Phase I customers engage in suspicious activity. It is FinCEN's
intent to continue to simplify the CTR exemption process while ensuring
that law enforcement receives information that is highly useful to its
efforts. Proposing this change to the regulatory requirements to
eliminate the requirement to file exemption forms on these Phase I
customers is in line with both of these goals.\29\
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\29\ Even though FinCEN Form 110 would not be required to be
filed for these Phase I customers, a depository institution will
continue to be required to take such steps to assure itself that the
Phase I customer is an exempt person and to document the basis of
its conclusions that a reasonable and prudent bank would take and
document to protect itself from loan or other fraud or loss based on
misidentification of a person's status. See 31 CFR 103.22(d)(6)(i).
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FinCEN also proposes to amend 31 CFR 103.22(d)(3)(ii) to reflect
that transactions in currency with any of the twelve Federal Reserve
Banks would continue to be exempt from the requirement to file an
exemption form.
G. Sec. 103.22(d)(3)(iii)--Special Procedures
FinCEN proposes to add 31 CFR 103.22(d)(3)(iii). That new paragraph
would add a requirement that when designating an eligible non-listed or
payroll customer for exemption, the depository institution conduct a
risk-based assessment of the transactional activity of that customer.
Under a risk-based approach, the amount of time an account has been
opened would be one of many factors that a depository institution might
consider when forming a reasonable belief that the customer it seeks to
designate for exemption has a legitimate business purpose for
conducting frequent transactions in currency. Other factors might
possibly include, but are not limited to: Whether the depository
institution had a past relationship with the customer; certain specific
characteristics of the customer's business model that may be pertinent,
the types of business in which the customer engages, and where the
business is operating.
The risk-based analysis requirement proposed in this notice should
be read as a separate, specific rule of paragraph (d), and is not meant
to supersede the operating rules of existing 31 CFR 103.22(d)(6)(i)
subject to paragraph (d).
H. Sec. 103.22(d)(4)--Annual Review
FinCEN proposes to amend 31 CFR 103.22(d)(4) by removing the
requirement that depository institutions conduct an annual review of
the information supporting certain exempt Phase I eligible customers,
namely banks, government agencies, and entities exercising governmental
authority. The GAO Report recommended removing the regulatory
requirement that depository institutions conduct an annual review of
certain exempt Phase I eligible customers because these entities are
unlikely to change the characteristics that made them eligible for
exemption at their initial designation. The GAO Report also contrasted
these Phase I eligible customers to other Phase I and Phase II
customers, such as public companies, which are more likely to
reorganize or enter new lines of business. Accordingly, FinCEN proposes
changing the current regulatory requirements for exempting the Phase I
eligible customers identified by the GAO report that are unlikely to
change their characteristics that made them eligible for initial
designation, but notes that depository institutions must still review
and verify exempt status for Phase II customers annually, as is
required by the BSA and its implementing regulations.\30\ Further,
while they are separate and distinct requirements, conducting the
annual review required for Phase II customers will likely provide
depository institutions with important information helpful to complying
with the SAR reporting obligation and the AML program requirement.
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\30\ 31 U.S.C. Sec. 5313(5)(A). See also 31 CFR Sec.
103.22(d)(4).
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FinCEN also proposes to amend 31 CFR 103.22(d)(4) by requiring
depository institutions to notify FinCEN of any change in control of a
Phase II customer that it knows of, or should know of on the basis of
its records. Notification would occur through the filing of an amended
FinCEN Form 110 by March 15 of the calendar year following every second
year in which the bank knew or should have known of the change in
control. Complying with the requirement to annually review and verify
the exempt status of a Phase II customer should help depository
institutions determine whether they must file information regarding a
change in control of an exempt person. The requirement to file change
of control information is a requirement articulated in FinCEN's
regulations that interpret the BSA, and is not a new requirement.\31\
This proposal is made in concert with other proposals in this notice
that conform to the GAO Report recommendation that FinCEN remove the
regulatory requirement that depository institutions biennially renew
Phase II exemptions. Accordingly, FinCEN is proposing that depository
institutions only need file a renewal form in the event that there has
been a change in control for an exempted Phase II customer during
recurring two year reporting periods. FinCEN also solicits comment on
whether information about change in control of a Phase II customer
should be reported within 30 days of any change in control that the
[[Page 22105]]
depository institution knows of, or should know of, based on its
records.
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\31\ U.S.C. 5313(e)(5)(B) (requiring depository institutions to
resubmit information on customers pertaining to modifications of
those customers). See also 31 CFR 103.22(d)(5)(ii).
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I. Current Sec. 103.22(d)(5) Biennial Filing
FinCEN proposes removing paragraph Sec. 103.22(d)(5) to eliminate
the requirement that depository institutions biennially file a
designation of exempt person for non-listed and payroll customers. The
GAO Report recommended removing the regulatory requirement that
depository institutions biennially file a designation of exempt person
for Phase II customers because it did not appear to provide any
additional benefit and because eliminating the requirement might
encourage institutions that had not exempted Phase II customers to do
so. FinCEN, as part of its efforts to improve the efficiency and
effectiveness of the BSA regime, encourages depository institutions to
avail themselves of Phase II exemptions, and as a result, is proposing
to adopt this recommendation. If the requirement to biennially file a
designation for Phase II customers is removed, depository institutions
would no longer need to certify that the bank's system of monitoring
the transactions in currency of an exempt person for suspicious
activity had been applied as necessary in order to continue treating a
Phase II customer as exempt. FinCEN notes that this is in no way meant
to modify the suspicious activity reporting requirement, but recognizes
that removing this requirement may encourage more depository
institutions to exempt Phase II eligible customers. Finally, as
discussed above, depository institutions must still file change of
control information with FinCEN on exempt persons as is required by the
BSA implementing regulations.\32\
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\32\ Id.
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J. Redesignated Sec. 103.22(d)(5)(i), (iii) and (viii) Operating
Rules--Cross References & Stock Exchange Listings
FinCEN proposes to amend redesignated 31 CFR 103.22(d)(5)(i) and
(viii) to change cross references in these paragraphs to reflect
proposals in this notice that if adopted would result in the paragraphs
of section103.22 being re-numbered.
FinCEN also proposes amending redesignated 31 CFR 103.22(d)(5)(iii)
by changing a reference to the National Association of Securities
Dealers to the NASDAQ, to reflect correctly the name of the entity that
contains information on its Web site that is useful to complying with
Phase I exemption requirements. FinCEN also proposes making other minor
technical edits, like changing ``Edgar'' to ``EDGAR'' and ``Nasdaq'' to
``NASDAQ'', to reflect correctly that those names are acronyms.
K. Redesignated Sec. 103.22(d)(7)(i) and (ii)--Limitation on Liability
FinCEN proposes to amend redesignated 31 CFR 103.22(d)(7)(ii) to
change a cross reference in this paragraph to reflect proposals in this
notice that if adopted would result in the paragraphs of section 103.22
being re-numbered, and to correspond to changes made in another section
of this proposed rule that remove the requirement that depository
institutions conduct an annual review of certain exempt customers.
L. Redesignated Sec. 103.22(d)(8)--Obligations To File Suspicious
Activity Reports and Maintain a Monitoring System
FinCEN proposes to amend redesignated 31 CFR 103.22(d)(8)(i) and
(ii) to correct cross references made in those paragraphs to the
suspicious activity reporting rule in 31 CFR Part 103 applicable to
banks.
M. Redesignated Sec. 103.22(d)(9)--Revocation
FinCEN proposes to amend redesignated 31 CFR 103.22(d)(9) to
require that depository institutions report to FinCEN a decision to no
longer treat a previously exempted, and an otherwise eligible customer
for exemption, for continued treatment as an exempt person. Currently,
it is voluntary for depository institutions to file a revocation of
exemption with FinCEN. Notice of revocation would be filed with FinCEN
by the close of the 30 calendar day period beginning after the day of
the first transaction in currency with that person that has been
reported.
FinCEN also proposes to amend redesignated 31 CFR 103.22(d)(9) to
change a cross reference in this paragraph to reflect proposals in this
notice that if adopted would result in the paragraphs of section 103.22
being re-numbered.
IV. Request for Comment
All comments submitted in response to this notice will become a
matter of public record. FinCEN welcomes written comment on all aspects
of the proposed rule, and we especially encourage comments on the
following issues:
A. Removing the Regulatory Requirement That Depository Institutions
File Exemption Forms, and Annually Review the Supporting Information
for Banks, Federal, State, and Local Government Agencies, and Entities
Exercising Federal, State, or Local Governmental Authority
Will this proposal encourage depository institutions to
avail themselves of Phase I exemptions for customers who are depository
institutions, federal, state, and local government agencies, and
entities exercising federal, state or local governmental authority, and
if not, why?
B. Removing the Regulatory Requirement That Depository Institutions
Biennially Renew Phase II Exemptions
With the removal of the biennial requirement to renew a
designation for certain eligible Phase I and Phase II customers, should
depository institutions be required to file a revocation of exemption
if they choose to no longer exempt an otherwise eligible customer?
Should depository institutions be required to renew
information regarding a change of control of a Phase II exempt customer
once every two years, or should the requirement be that modified and
updated change of control information must be filed within 30 days of
the depository institution becoming aware of the change?
Will this proposal encourage depository institutions to
avail themselves of Phase II exemptions, and if not, why?
C. Permitting Depository Institutions To Exempt Otherwise Eligible
Phase II Customers Who Frequently Engage in Large Cash Transactions
Within a Period of Time Shorter Than 12 Months
FinCEN has proposed two alternatives to simplify the current
requirement that depository institutions have a customer for at least
12 months before that customer becomes eligible for a Phase II
exemption.
Is it preferable to adopt a regulatory requirement that
depository institutions only conduct a risk-based analysis of an
otherwise eligible Phase II customer with no prescribed amount of time
before a depository institution would be permitted to file an initial
designation of exemption? Or, is it preferable to adopt a generally
recommended minimum amount of time before an initial designation of
exemption could be filed?
If those commenting prefer that FinCEN state a generally
recommended
[[Page 22106]]
minimum amount of time that should pass before a depository institution
exempts a Phase II customer, is two months an appropriate amount of
time? Why?
FinCEN currently defines ``frequently'' as eight or more
reportable transactions per annum in guidance that interprets the
regulatory requirements for Phase II exemption procedures. Given the
proposed changes in this notice, is eight still an appropriate number
of reportable transactions to deem a customer eligible for exemption?
Will this proposal encourage depository institutions to
avail themselves of Phase II exemptions, and if not, why?
V. Regulatory Matters
A. Executive Order 12866
It has been determined that this proposed rule is not a significant
regulatory action for purposes of Executive Order 12866. Accordingly, a
regulatory impact analysis is not required.
B. Unfunded Mandates Act of 1995 Statement
Section 202 of the Unfunded Mandates Reform Act of 1995 (``Unfunded
Mandates Act''), Public Law 104-4 (March 22, 1995), requires that an
agency prepare a budgetary impact statement before promulgating a rule
that may result in expenditure by state, local, and tribal governments,
in the aggregate, or by the private sector, of $100 million or more in
any one year. If a budgetary impact statement is required, section 202
of the Unfunded Mandates Act also requires an agency to identify and
consider a reasonable number of regulatory alternatives before
promulgating a rule. FinCEN has determined that it is not required to
prepare a written statement under section 202 and has concluded that on
balance the proposals in the Notice of Proposed Rulemaking provide the
most cost-effective and least burdensome alternative to achieve the
objectives of the rule.
C. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et
seq.), FinCEN certifies that this proposed regulation would not have a
significant economic impact on a substantial number of small entities.
The proposals in this notice of proposed rulemaking would reduce the
requirements for exempting certain persons from the currency
transaction reporting requirements of the BSA and should reduce the
obligations associated with complying with those regulatory
requirements for financial institutions of all sizes. Accordingly, a
regulatory flexibility analysis is not required.
D. Paperwork Reduction Act
The collection of information contained in this proposed rule is
being submitted to the Office of Management and Budget for review in
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d))
under OMB control number 1506-0012. Comments on the collection of
information should be sent (preferably by fax (202-395-6974)) to the
Desk Officer for the Department of the Treasury, Office of Information
and Regulatory Affairs, Office of Management and Budget, Paperwork
Reduction Project (1506), Washington, DC 20503 (or by e-mail to
Alexander_T._Hunt@omb.eop.gov), with a copy to FinCEN by mail or by
Internet submission at the addresses previously specified. Comments on
the collection of information should be received by June 23, 2008. In
accordance with the requirements of the Paperwork Reduction Act of
1995, 44 U.S.C. 3506(c)(2)(A), and its implementing regulations, 5 CFR
part 1320, the following information concerning the collection of
information as required by 31 CFR 103.22 is presented to assist those
persons wishing to comment on the information collection. The
collection of information in this proposed rule is in 31 CFR 103.22.
Description of Affected Financial Institutions: Banks as defined in
31 CFR 103.11(c).
Estimated Number of Affected Financial Institutions: 19,000.
Estimated Average Annual Burden Hours per Affected Financial
Institution: The estimated average burden associated with the
collection of information in this proposed rule is one hour
recordkeeping and 30 minutes per response per affected financial
institution.
Estimated Total Annual Burden: 97,500 hours.
FinCEN specifically invites comments on: (a) Whether the proposed
collection of information is necessary for the proper performance of
the mission of FinCEN, including whether the information shall have
practical utility; (b) the accuracy of FinCEN's estimate of the burden
of the proposed collection of information; (c) ways to enhance the
quality, utility, and clarity of the information required to be
maintained; (d) ways to minimize the burden of the required collection
of information, including through the use of automated collection
techniques or other forms of information technology; and (e) estimates
of capital or start-up costs and costs of operation, maintenance, and
purchase of services to maintain the information.
The information collection in 31 CFR 103.22(d)(5)(i) has previously
been reviewed and approved by OMB under control number 1506-0009. Under
the Paperwork Reduction Act, 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 OMB control number.
List of Subjects in 31 CFR Part 103
Administrative practice and procedure, Authority delegations
(Government agencies), Banks and banking, Currency, Foreign banking,
Foreign currencies, Gambling, Investigations, Law enforcement,
Penalties, Reporting and recordkeeping requirements, Securities, Taxes.
Amendment
For the reasons set forth above in the preamble, 31 CFR part 103 is
proposed to be amended as follows:
PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND
FOREIGN TRANSACTIONS
1. The authority citation for part 103 is revised to read as
follows:
Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314
and 5316-5332; title III, sec. 314, Pub. L. 107-56, 115 Stat. 307.
2. Section 103.22 is amended by
a. Revising paragraph (d)(1);
b. Revising paragraph (d)(2)(iv);
c. Revising the introductory text of paragraph (d)(2)(vi);
d. Revising paragraph (d)(2)(vi)(A);
e. Revising paragraph (d)(2)(vii)(A);
f. Revising paragraph (d)(3);
g. Revising paragraph (d)(4);
h. Removing paragraphs (d)(5) and (d)(11);
i. Redesignating paragraph (d)(6) as (d)(5); (d)(7) as (d)(6);
(d)(8) as (d)(7); (d)(9) as (d)(8); and (d)(10) as (d)(9).
j. Revising redesignated paragraph (d)(5)(i);
k. Revising redesignated paragraph (d)(5)(iii);
l. Revising the last sentence of redesignated paragraph
(d)(5)(viii);
m. Revising redesignated paragraph (d)(7)(ii);
n. Revising redesignated paragraph (d)(8)(i);
o. Revising the last sentence of redesignated paragraph (d)(8)(ii);
and
p. Revising the introductory text of redesignated paragraph (d)(9).
The revisions read as follows:
Sec. 103.22 Reports of transactions in currency.
* * * * *
[[Page 22107]]
(d) * * *
(1) General. No bank is required to file a report otherwise
required by paragraph (b) of this section with respect to any
transaction in currency between an exempt person and such bank, or, to
the extent provided in paragraph (d)(5)(vi) of this section, between
such exempt person and other banks affiliated with such bank. In
addition, a non-bank financial institution is not required to file a
report otherwise required by paragraph (b) of this section with respect
to a transaction in currency between the institution and a commercial
bank. (A limitation on the exemption described in this paragraph (d)(1)
is set forth in paragraph (d)(6) of this section.)
* * * * *
(2) * * *
(iv) Any entity, other than a bank, whose common stock or analogous
equity interests are listed on the New York Stock Exchange or the
American Stock Exchange or whose common stock or analogous equity
interests have been designated as a NASDAQ National Market Security
listed on the NASDAQ Stock Market (except stock or interests listed
under the separate ``NASDAQ Capital Markets Companies'' heading),
provided that, for purposes of this paragraph (d)(2)(iv), a person that
is a financial institution, other than a bank, is an exempt person only
to the extent of its domestic operations;
* * * * *
(vi) To the extent of its domestic operations and only with respect
to transactions conducted through its exemptible accounts, any other
commercial enterprise (for purposes of this paragraph (d), a ``non-
listed business''), other than an enterprise specified in paragraph
(d)(5)(viii) of this section, that:
(A) Maintains a transaction account, as defined in paragraph
(d)(5)(ix) of this section, at the bank;
* * * * *
(vii) * * *
(A) Maintains a transaction account, as defined in paragraph
(d)(5)(ix) of this section, at the bank;
* * * * *
(3) Designation of certain exempt persons--(i) General. Except as
provided in paragraph (d)(3)(ii) of this section, a bank must designate
an exempt person by filing a FinCEN Form 110. Such designation must
occur by the close of the 30-calendar day period beginning after the
day of the first reportable transaction in currency with that person
sought to be exempted from reporting under the terms of this paragraph
(d). The designation must be made separately by each bank that treats
the customer as an exempt person, except as provided in paragraph
(d)(5)(vi) of this section.
(ii) Special rules. A bank is not required to file a FinCEN Form
110 with respect to the transfer of currency to or from:
(A) Any of the twelve Federal Reserve Banks; or
(B) Any exempt person as described in paragraphs (d)(2)(i) to (iii)
of this section.
(iii) Special procedures. A bank must base a decision to designate
a non-listed business or a payroll customer, as described in paragraphs
(d)(2)(vi) and (vii), as an exempt person on its own risk-based
assessment of the customer and its pattern of currency transaction
activity. The bank must form a reasonable belief that the non-listed
business or payroll customer it seeks to designate for exemption has a
legitimate business purpose for conducting frequent transactions in
currency.
(4) Annual review. The information supporting each designation of
an exempt person described in paragraphs (d)(2)(iv) to (vii), and the
application of the monitoring system required to be maintained by
paragraph (d)(8)(ii) of this section to each account of an exempt
person described in paragraphs (d)(2)(vi) or (d)(2)(vii) of this
section, must be reviewed and verified at least once each year.
Information about any change in control of an exempt person as
described in paragraphs (d)(2)(vi) or (vii) of this section that the
bank knows, or should know on the basis of its records, must be
reported on FinCEN Form 110 by March 15 of the second calendar year
following the year in which the bank knew or should have known of the
change in control.
* * * * *
(5) Operating rules--(i) General rule. Subject to the specific
rules of this paragraph (d), a bank must take such steps to assure
itself that a person is an exempt person (within the meaning of the
applicable provision of paragraph (d)(2) of this section), to document
the basis for its conclusions, and document its compliance, with the
terms of this paragraph (d), that a reasonable and prudent bank would
take and document to protect itself from loan or other fraud or loss
based on misidentification of a person's status, and in the case of the
monitoring system requirement set forth in paragraph (d)(8)(ii) of this
section, such steps that a reasonable and prudent bank would take and
document to identify suspicious transactions as required by paragraph
(d)(8)(ii) of this section.
* * * * *
(iii) Stock exchange listings. In determining whether a person is
described in paragraph (d)(2)(iv) of this section, a bank may rely on
any New York, American or NASDAQ Stock Market listing published in a
newspaper of general circulation, on any commonly accepted or published
stock symbol guide, on any information contained in the Securities and
Exchange Commission ``EDGAR'' System, or on any information contained
on an Internet site or sites maintained by the New York Stock Exchange,
the American Stock Exchange, or the NASDAQ.
* * * * *
(viii) * * * A business that engages in multiple business
activities may be treated as a non-listed business so long as no more
than 50% of its gross revenues is derived from one or more of the
ineligible business activities listed in this paragraph (d)(5)(viii).
* * * * *
(7) * * *
(ii) Subject to the specific terms of this paragraph (d), and
absent any specific knowledge of information indicating that a customer
no longer meets the requirements of an exempt person, a bank satisfies
the requirements of this paragraph (d) to the extent it continues to
treat that customer as an exempt person until the date of that
customer's next required periodic review, which as required by
paragraph (d)(4) of this section for an exempt person described in
paragraph (d)(2)(iv) to (vii) of this section, shall occur no less than
once each year.
* * * * *
(8) Obligations to file suspicious activity reports and maintain
system for monitoring transactions in currency. (i) Nothing in this
paragraph (d) relieves a bank of the obligation, or reduces in any way
such bank's obligation, to file a report required by Sec. 103.18 with
respect to any transaction, including any transaction in currency that
a bank knows, suspects, or has reason to suspect is a transaction or
attempted transaction that is described in Sec. 103.18(a)(2)(i), (ii),
or (iii), or relieves a bank or any reporting obligation or
recordkeeping obligation imposed by this part (except the obligation to
report transactions in currency pursuant to this section to the extent
provided in this paragraph (d)). Thus, for example, a sharp increase
from one year to the next in the gross total of currency transactions
made by an exempt customer, or similarly anomalous
[[Page 22108]]
transactions trends or patterns, may trigger the obligation of a bank
under Sec. 103.18.
(ii) * * * The statement in the preceding sentence with respect to
accounts of non-listed business and payroll customers does not limit
the obligation of banks generally to take the steps necessary to
satisfy the terms of paragraph (d)(8)(i) of this section and section
103.18 with respect to all exempt persons.
(9) Revocation. A depository institution must notify FinCEN of its
decision to no longer treat the transactions of an otherwise eligible
customer as exempt from the currency transaction reporting requirement
by filing FinCEN Form 110 by the close of the 30 calendar day period
beginning after the day of the first transaction in currency with that
person that has been reported. Without any action on the part of the
Treasury Department and subject to the limitation on liability
contained in paragraph (d)(7)(ii) of this section:
* * * * *
Dated: April 21, 2008.
James H. Freis, Jr.,
Director, Financial Crimes Enforcement Network.
[FR Doc. E8-8955 Filed 4-23-08; 8:45 am]
BILLING CODE 4810-02-P