Financial Crimes Enforcement Network; Proposed Amendments to the Bank Secrecy Act Regulations-Exemptions From the Requirement To Report Transactions in Currency; Comment Request, 22101-22108 [E8-8955]
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Federal Register / Vol. 73, No. 80 / Thursday, April 24, 2008 / Proposed Rules
DEPARTMENT OF THE TREASURY
FOR FURTHER INFORMATION CONTACT:
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
Financial Crimes Enforcement
Network (‘‘FinCEN’’), Department of the
Treasury.
ACTION: Notice of proposed rulemaking
and request for comments.
AGENCY:
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The
FinCEN regulatory helpline at (800)
949–2732 and select Option 3.
SUPPLEMENTARY INFORMATION:
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 https://
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 https://
www.regulations.gov.
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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.
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
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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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.
Under 31 U.S.C. 5313(e) (sometimes
called the ‘‘discretionary exemption’’
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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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:
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.’’
(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
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:
(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
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.
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,
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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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.
Phase I eligible customers include: (i)
Other banks 9 operating in the United
States; (ii) Government departments and
agencies; (iii) Certain entities that
3 For additional information about the terms of 31
U.S.C. 5313(e)–(g), see 63 Fed. Reg. 50147, 50148
(September 21, 1998).
4 31 U.S.C. 5313(e)(2).
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).
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).
9 See 31 CFR 103.22 (definition of a bank, which
includes other depository institutions).
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10 See 31 CFR 103.22(d)(2)(v) (definition of a
subsidiary).
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).
12 31 CFR 103.22(d)(2)(vi).
13 Id.
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or is registered as and eligible to do
business within the United States or a
State.14
A payroll customer is an exempt
person ‘‘[w]ith respect solely to
withdrawals for payroll purposes.’’ 15
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.
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
14 31
CFR 103.22(d)(2)(vii).
15 Id.
16 See 31 CFR 103.22(d)(3)(i). FinCEN Form 110
replaced the previous designation form, Treasury
Form TD F 90–22.53.
17 Supra note 1, at 2.
18 See supra note 1, at 17.
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data to obtain more detailed information
after reviewing SARs.19
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.
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.
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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
§ 103.22(d) accordingly, and make other
technical corrections as noted below.
A. § 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
19 Id.
at 19.
20 Id.
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would result in the paragraphs of
section 103.22(d) being re-numbered.
B. § 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. § 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. §§ 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 timeconsuming 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.
In 1998, FinCEN specified a twelve
month waiting period for Phase II
exemptions largely in response to law
enforcement concerns about
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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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
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.
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.
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.’’).
25 31 CFR 103.121(b)(2).
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E. § 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.
F. § 103.22(d)(3)(ii)—Special Rules
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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
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
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
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.
27 See 31 CFR 103.22(d)(6)(ii) (Operating rules
that illustrate what types of entities normally
exercise governmental authority).
28 Supra note 1, at 50.
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
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H. § 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.
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
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).
30 31 U.S.C. § 5313(5)(A). See also 31 CFR
§ 103.22(d)(4).
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).
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. § 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 riskbased assessment of the transactional
activity of that customer. Under a riskbased 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).
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depository institution knows of, or
should know of, based on its records.
mstockstill on PROD1PC66 with PROPOSALS
I. Current § 103.22(d)(5) Biennial Filing
FinCEN proposes removing paragraph
§ 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
J. Redesignated § 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
32 Id.
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changing ‘‘Edgar’’ to ‘‘EDGAR’’ and
‘‘Nasdaq’’ to ‘‘NASDAQ’’, to reflect
correctly that those names are
acronyms.
K. Redesignated § 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 § 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 § 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:
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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
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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.
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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
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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
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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:
§ 103.22 Reports of transactions in
currency.
*
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(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
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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
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22107
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 § 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
§ 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
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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
Coast Guard
33 CFR Part 165
[Docket No. USCG–2008–0159]
RIN 1625–AA00
Safety Zone: Langley Air Force Base
Air Show, Willoughby Point, Hampton,
VA
Coast Guard, DHS.
Notice of proposed rulemaking.
AGENCY:
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SUMMARY: The Coast Guard proposes to
establish a safety zone on the Back River
in the vicinity of Hampton, VA in
support of the Air Power over Hampton
Roads Air show. This action is intended
to restrict vessel traffic movement on
the Back River to protect mariners from
the hazards associated with the air
show.
Comments and related material
must reach the Coast Guard on or before
May 27, 2008.
ADDRESSES: You may submit comments
identified by Coast Guard docket
number USCG–2008–0159 to the Docket
Management Facility at the U.S.
DATES:
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16:41 Apr 23, 2008
Jkt 214001
copying and electronic filing. If you
submit them by mail and would like to
know that they reached the Facility,
please enclose a stamped, self-addressed
postcard or envelope. We will consider
all comments and material received
during the comment period. We may
change this proposed rule in view of
them.
Privacy Act
We encourage you to participate in
this rulemaking by submitting
comments and related materials. All
comments received will be posted,
without change, to https://
www.regulations.gov and will include
any personal information you have
provided. We have an agreement with
the Department of Transportation (DOT)
to use the Docket Management Facility.
Please see DOT’s ‘‘Privacy Act’’
paragraph below.
DEPARTMENT OF HOMELAND
SECURITY
ACTION:
Department of Transportation. To avoid
duplication, please use only one of the
following methods:
(1) Online: https://
www.regulations.gov.
(2) Mail: Docket Management Facility
(M–30), U.S. Department of
Transportation, West Building Ground
Floor, Room W12–140, 1200 New Jersey
Avenue, SE., Washington, DC 20590–
0001.
(3) Hand delivery: Room W12–140 on
the Ground Floor of the West Building,
1200 New Jersey Avenue, SE.,
Washington, DC 20590, between 9 a.m.
and 5 p.m., Monday through Friday,
except Federal holidays. The telephone
number is 202–366–9329.
(4) Fax: 202–493–2251.
FOR FURTHER INFORMATION CONTACT: If
you have questions on this proposed
rule, call Lieutenant Candice Casavant,
Waterways Management Division,
Sector Hampton Roads at (757) 668–
5580. If you have questions on viewing
or submitting material to the docket, call
Renee V. Wright, Program Manager,
Docket Operations, telephone 202–366–
9826.
SUPPLEMENTARY INFORMATION:
Public Participation and Request for
Comments
transactions trends or patterns, may
trigger the obligation of a bank under
§ 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:
*
*
*
*
*
Submitting Comments
If you submit a comment, please
include the docket number for this
rulemaking (USCG–2008–0159),
indicate the specific section of this
document to which each comment
applies, and give the reason for each
comment. We recommend that you
include your name and a mailing
address, an e-mail address, or a phone
number in the body of your document
so that we can contact you if we have
questions regarding your submission.
You may submit your comments and
material by electronic means, mail, fax,
or delivery to the Docket Management
Facility at the address under ADDRESSES;
but please submit your comments and
material by only one means. If you
submit them by mail or delivery, submit
them in an unbound format, no larger
than 81⁄2 by 11 inches, suitable for
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Viewing Comments and Documents
To view comments, as well as
documents mentioned in this preamble
as being available in the docket, go to
https://www.regulations.gov at any time,
click on ‘‘Search for Dockets,’’ and enter
the docket number for this rulemaking
(USCG–2008–0159) in the Docket ID
box, and click enter. You may also visit
either the Docket Management Facility
in Room W12–140 on the ground floor
of the DOT West Building, 1200 New
Jersey Avenue, SE., Washington, DC
20590, between 9 a.m. and 5 p.m.,
Monday through Friday, except Federal
holidays; or the Commander, Sector
Hampton Roads, Norfolk Federal
Building, 200 Granby St., 7th Floor
between 9 a.m. and 3 p.m., Monday
through Friday, except Federal holidays.
Anyone can search the electronic
form of all comments received into any
of our dockets by the name of the
individual submitting the comment (or
signing the comment, if submitted on
behalf of an association, business, labor
union, etc.). You may review the
Department of Transportation’s Privacy
Act Statement in the Federal Register
published on April 11, 2000 (65 FR
19477), or you may visit https://
DocketsInfo.dot.gov.
Public Meeting
We do not now plan to hold a public
meeting. But you may submit a request
for one to the Docket Management
Facility at the address under ADDRESSES
explaining why one would be
beneficial. If we determine that one
would aid this rulemaking, we will hold
one at a time and place announced by
a later notice in the Federal Register.
Background and Purpose
On June 20–22, 2008 Langley Air
Force Base will sponsor an air show at
Langley Air Force Base in the vicinity
of Willoughby Point within the area
bounded by 37°–05′–35″ N/076°–20′–
47″ W, 37°–05′–46″ N/076°–20′–04″ W,
37°–05′–12″ N/076°–19′–59″ W, 37°–
05′–12″ N/076°–20′–18″ W (NAD 1983).
Due to the need to protect mariners and
spectators from the hazards associated
with the air show, access to the area
E:\FR\FM\24APP1.SGM
24APP1
]]>Agencies
[Federal Register Volume 73, Number 80 (Thursday, April 24, 2008)]
[PRORUL]
[Pages 22101-22108]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-8955]
[[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
https://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 https://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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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).
---------------------------------------------------------------------------
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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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.''
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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:
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
(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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\13\ Id.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\14\ 31 CFR 103.22(d)(2)(vii).
---------------------------------------------------------------------------
A payroll customer is an exempt person ``[w]ith respect solely to
withdrawals for payroll purposes.'' \15\
---------------------------------------------------------------------------
\15\ Id.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\16\ See 31 CFR 103.22(d)(3)(i). FinCEN Form 110 replaced the
previous designation form, Treasury Form TD F 90-22.53.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\17\ Supra note 1, at 2.
\18\ See supra note 1, at 17.
\19\ Id. at 19.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\20\ Id.
---------------------------------------------------------------------------
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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.'').
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\25\ 31 CFR 103.121(b)(2).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\27\ See 31 CFR 103.22(d)(6)(ii) (Operating rules that
illustrate what types of entities normally exercise governmental
authority).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\28\ Supra note 1, at 50.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\30\ 31 U.S.C. Sec. 5313(5)(A). See also 31 CFR Sec.
103.22(d)(4).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\32\ Id.
---------------------------------------------------------------------------
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
