Imposition of Special Measure Against Liberty Reserve S.A. as a Financial Institution of Primary Money Laundering Concern, 34008-34013 [2013-12945]

Download as PDF 34008 Federal Register / Vol. 78, No. 109 / Thursday, June 6, 2013 / Proposed Rules erowe on DSK2VPTVN1PROD with PROPOSALS-1 policy that the United States would not engage in nuclear fuel reprocessing because of concerns about nuclear proliferation. The NRC agrees that the petition mixes technical and licensing issues that are within the scope of the NRC’s domestic licensing process with broader aspects of the U.S. Government’s nuclear nonproliferation policy. While the NRC’s comprehensive licensing framework is adequate to address proliferation concerns in domestic licensing, other Executive Branch agencies have the primary responsibility to address broader U.S. Government foreign policy initiatives and proliferation impacts outside of the NRC’s domestic licensing activities. As discussed in response to petition Assertion 1, the NRC agrees that the NPAS required under Section 123 of the AEA is required in the context of a bilateral agreement negotiated between the United States and another nation governing the peaceful use of nuclear energy. The NPAS does not address the domestic licensing actions of the NRC. Comment Category 18: Requiring a proliferation assessment would be feasible and would not be overly burdensome nor significantly impact licensing timelines. Two comment letters supporting the petition included comments in this category. One commenter stated that a nuclear proliferation assessment is feasible and should not be perceived as overly burdensome to the licensing process. A commenter stated that GLE carried out its own proliferation assessment of the proposed SILEX laser enrichment facility without creating delays or jeopardizing classified or proprietary information. Another commenter stated that it is highly doubtful that the addition of a proliferation assessment requirement would significantly alter licensees’ timelines. NRC Response to Comment Category 18 The NRC has determined that preparation of a nuclear proliferation assessment is not necessary because it would not provide meaningful information beyond that which is already available to the NRC when conducting a domestic licensing proceeding. This determination was made independent of the time and resources involved in preparing such an assessment. This determination was also made by reviewing the petition, the public comments, the information sources available to the NRC related to the current threat environment, the existing comprehensive licensing framework, the division of VerDate Mar<15>2010 15:07 Jun 05, 2013 Jkt 229001 responsibilities between Federal agencies, and the NRC’s extensive experience dealing with domestic and international nuclear safety security matters through established communications channels. Based on this review, the NRC has determined that its existing licensing framework is adequate to address proliferation concerns. Requiring a separate licenseby-license nuclear proliferation assessment would not enhance the NRC’s ability to carry out its statutory responsibility to protect the public health and safety and promote the common defense and security. Comment Category 19: The Nuclear Threat Initiative (NTI). Two comment letters included comments in this category. Both commenters stated their support for the efforts of the NTI (also supported by former Senators Richard Lugar and Sam Nunn), which supports the worldwide safeguarding of all fissile materials that could be used to do harm to our Nation. NRC Response to Comment Category 19 Comments advocating support for the NTI are outside the scope of this petition because they are unrelated to the petitioner’s request that the NRC require its ENR facility license applicants to perform a nuclear proliferation assessment. Nonetheless, the NRC notes that its comprehensive licensing framework requires the safeguarding of fissile material in domestic licensing activities. V. Determination of Petition The NRC has reviewed the petition and the public comments. For the reasons set forth in this document, the NRC is denying the petition under 10 CFR 2.803. The NRC disagrees that an applicant seeking an ENR facility license should be required to conduct a nuclear proliferation assessment. The petitioner has not shown that the NRC’s comprehensive licensing framework fails to adequately address proliferation risks associated with the licensing of an ENR facility. Additionally, the petitioner has not shown that ENR applicants have a particular insight on proliferation issues or have access to the intelligence resources, capabilities and information that would enable them to prepare a meaningful proliferation assessment that would assist the NRC in making an informed licensing decision. Furthermore, proliferation risks have and will continue to be assessed and addressed by the responsible agencies within the Executive Branch. The NRC will continue to engage with and support the Executive Branch agencies with primary responsibility for PO 00000 Frm 00014 Fmt 4702 Sfmt 4702 assessing proliferation risks, and will continue to address proliferation risks in the NRC’s comprehensive regulations for physical security, information security, material control and accounting, cyber security, and export control. Dated at Rockville, Maryland, this 31st day of May 2013. For the Nuclear Regulatory Commission. Annette L. Vietti-Cook, Secretary of the Commission. [FR Doc. 2013–13444 Filed 6–5–13; 8:45 am] BILLING CODE 7590–01–P DEPARTMENT OF THE TREASURY Financial Crimes Enforcement Network 31 CFR Part 1010 RIN 1506–AB23 Imposition of Special Measure Against Liberty Reserve S.A. as a Financial Institution of Primary Money Laundering Concern Financial Crimes Enforcement Network (FinCEN), Treasury. ACTION: Notice of proposed rulemaking. AGENCY: In a finding, notice of which was published elsewhere in this issue of the Federal Register (Notice of Finding), the Director of FinCEN found that Liberty Reserve S.A. (Liberty Reserve) is a financial institution operating outside of the United States that is of primary money laundering concern. FinCEN is issuing this notice of proposed rulemaking (NPRM) to propose the imposition of a special measure against Liberty Reserve. DATES: Written comments on this NPRM must be submitted on or before August 5, 2013. ADDRESSES: You may submit comments, identified by RIN 1506–AB23, by any of the following methods: • Federal E-rulemaking Portal: http:// www.regulations.gov. Follow the instructions for submitting comments. Include RIN 1506–AB23 in the submission. • Mail: The Financial Crimes Enforcement Network, P.O. Box 39, Vienna, VA 22183. Include RIN 1506– AB23 in the body of the text. Please submit comments by one method only. • Comments submitted in response to this NPRM will become a matter of public record. Therefore, you should submit only information that you wish to make publicly available. Inspection of comments: Public comments received electronically or through the U.S. Postal Service sent in SUMMARY: E:\FR\FM\06JNP1.SGM 06JNP1 Federal Register / Vol. 78, No. 109 / Thursday, June 6, 2013 / Proposed Rules response to a notice and request for comment will be made available for public review as soon as possible on http://www.regulations.gov. Comments received may be physically inspected in the FinCEN reading room located in Vienna, Virginia. Reading room appointments are available weekdays (excluding holidays) between 10 a.m. and 3 p.m., by calling the Disclosure Officer at (703) 905–5034 (not a toll-free call). FOR FURTHER INFORMATION CONTACT: The FinCEN regulatory helpline at (800) 949–2732 and select Option 6. SUPPLEMENTARY INFORMATION: I. Statutory Provisions On October 26, 2001, the President signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the USA PATRIOT Act), Public Law 107– 56. Title III of the USA PATRIOT Act amends the anti-money laundering provisions of the Bank Secrecy Act (BSA), codified at 12 U.S.C. 1829b, 12 U.S.C. 1951–1959, and 31 U.S.C. 5311– 5314, 5316–5332, to promote the prevention, detection, and prosecution of international money laundering and the financing of terrorism. Regulations implementing the BSA appear at 31 CFR Chapter X. The authority of the Secretary of the Treasury (the Secretary) to administer the BSA and its implementing regulations has been delegated to the Director of FinCEN. Section 311 of the USA PATRIOT Act (Section 311), codified at 31 U.S.C. 5318A, grants the Director of FinCEN the authority, upon finding that reasonable grounds exist for concluding that a foreign jurisdiction, institution, class of transaction, or type of account is of ‘‘primary money laundering concern,’’ to require domestic financial institutions and financial agencies to take certain ‘‘special measures’’ to address the primary money laundering concern. erowe on DSK2VPTVN1PROD with PROPOSALS-1 II. Imposition of Special Measure Against Liberty Reserve as a Financial Institution of Primary Money Laundering Concern A. Special Measure As noticed elsewhere in this issue of the Federal Register, on May 28, 2013, the Director of FinCEN found that Liberty Reserve is a financial institution operating outside the United States that is of primary money laundering concern (Finding). Based upon that Finding, the Director of FinCEN is authorized to impose one or more special measures. Following the consideration of all VerDate Mar<15>2010 15:07 Jun 05, 2013 Jkt 229001 factors relevant to the Finding and to selecting the special measure proposed in this NPRM, the Director of FinCEN proposes to impose the special measure authorized by section 5318A(b)(5) (the fifth special measure). In connection with this action, FinCEN consulted with representatives of the Federal functional regulators, the Department of Justice, and the Department of State, among others. B. Discussion of Section 311 Factors In determining which special measures to implement to address the primary money laundering concern, FinCEN considered the following factors. 1. Whether Similar Action Has Been or Will Be Taken by Other Nations or Multilateral Groups Against Liberty Reserve Other countries or multilateral groups have not yet taken action similar to those proposed in this rulemaking that would: (1) Prohibit domestic financial institutions and agencies from opening or maintaining a correspondent account for or on behalf of a foreign bank if such correspondent account is being used to process transactions involving Liberty Reserve; and (2) require those domestic financial institutions and agencies to screen their correspondents in a manner that is reasonably designed to guard against processing transactions involving Liberty Reserve. FinCEN encourages other countries to take similar action based on the information contained in this notice and the Finding. 2. Whether the Imposition of the Fifth Special Measure Would Create a Significant Competitive Disadvantage, Including Any Undue Cost or Burden Associated With Compliance, for Financial Institutions Organized or Licensed in the United States The fifth special measure proposed by this rulemaking would prohibit covered financial institutions from opening or maintaining correspondent accounts for or on behalf of a foreign bank if such correspondent account is being used to process transactions involving Liberty Reserve after the effective date of the final rule implementing the fifth special measure. U.S. financial institutions generally apply some level of screening and (when required) reporting of their transactions and accounts, often through the use of commercially-available software such as that used for compliance with the economic sanctions programs administered by the Office of Foreign Assets Control (OFAC) of the Department of the Treasury and PO 00000 Frm 00015 Fmt 4702 Sfmt 4702 34009 to detect potential suspicious activity. As explained in more detail in the section-by-section analysis below, financial institutions should be able to leverage these current screening and reporting procedures to detect transactions involving Liberty Reserve. As a corollary to this measure, covered financial institutions also would be required to take reasonable steps to apply special due diligence, as set forth below, to all of their correspondent accounts to help ensure that no such account is being used to provide services to Liberty Reserve. This would involve a minimal burden in transmitting a one-time notice to certain foreign correspondent account holders concerning the prohibition on processing transactions involving Liberty Reserve through the U.S. correspondent account, but otherwise is not expected to impose a significant additional burden upon U.S. financial institutions. 3. The Extent to Which the Proposed Action or Timing of the Action Would Have a Significant Adverse Systemic Impact on the International Payment, Clearance, and Settlement System, or on Legitimate Business Activities of Liberty Reserve The requirements proposed in this NPRM would target Liberty Reserve specifically; they would not target a class of financial transactions (such as wire transfers) or a particular jurisdiction. Liberty Reserve is not a major participant in the international payment system and is not relied upon by the international banking community for clearance or settlement services. Thus, the imposition of the fifth special measure against Liberty Reserve would not have a significant adverse systemic impact on the international payment, clearance, and settlement system. As discussed further in the Notice of Finding, there appears to be little or no incentive for legitimate use of Liberty Reserve, due to its structure, associated fees, and lack of basic protections for users. 4. The Effect of the Proposed Action on United States National Security and Foreign Policy The exclusion of Liberty Reserve from the U.S. financial system as required by the fifth special measure would enhance national security by making it more difficult for money launderers, other criminals or terrorists to access the U.S. financial system. More generally, the imposition of the fifth special measure would complement the U.S. Government’s worldwide efforts to E:\FR\FM\06JNP1.SGM 06JNP1 34010 Federal Register / Vol. 78, No. 109 / Thursday, June 6, 2013 / Proposed Rules expose and disrupt international money laundering and terrorism financing. Therefore, pursuant to the Finding that Liberty Reserve is a financial institution operating outside of the United States of primary money laundering concern, and after conducting the required consultations and weighing the relevant factors, the Director of FinCEN proposes to impose the fifth special measure. introducing brokers-commodities, and investment companies that are open-end companies (‘‘mutual funds’’), FinCEN is also using the same definition of ‘‘account’’ for purposes of this rule as was established for these entities in the final rule implementing the provisions of section 312 of the USA PATRIOT Act requiring enhanced due diligence for correspondent accounts maintained for certain foreign banks.2 III. Section-by-Section Analysis for Imposition of the Fifth Special Measure 3. Covered Financial Institution A. 1010.660(a)—Definitions erowe on DSK2VPTVN1PROD with PROPOSALS-1 1. Liberty Reserve Section 1010.660(a)(1) of the proposed rule would define Liberty Reserve to include all branches, offices, and subsidiaries of Liberty Reserve S.A. operating in Costa Rica or in any other jurisdiction. Covered financial institutions should take commercially reasonable measures to determine whether a customer is a branch, office, or subsidiary of Liberty Reserve. 2. Correspondent Account Section 1010.660(a)(2) of the proposed rule would define the term ‘‘correspondent account’’ by reference to the definition contained in 31 CFR 1010.605(c)(1)(ii). Section 1010.605(c)(1)(ii) defines a correspondent account to mean an account established to receive deposits from, or make payments or other disbursements on behalf of, a foreign bank, or to handle other financial transactions related to the foreign bank. Under this definition, ‘‘payable through accounts’’ are a type of correspondent account. In the case of a U.S. depository institution, this broad definition includes most types of banking relationships between a U.S. depository institution and a foreign bank that are established to provide regular services, dealings, and other financial transactions, including a demand deposit, savings deposit, or other transaction or asset account, and a credit account or other extension of credit. FinCEN is using the same definition of ‘‘account’’ for purposes of this rule as was established for depository institutions in the final rule implementing the provisions of section 312 of the USA PATRIOT Act requiring enhanced due diligence for correspondent accounts maintained for certain foreign banks.1 In the case of securities brokerdealers, futures commission merchants, Section 1010.660(a)(3) of the proposed rule would define ‘‘covered financial institution’’ with the same definition used in the final rule implementing the provisions of section 312 of the USA PATRIOT Act,3 which in general includes the following: • An insured bank (as defined in section 3(h) of the Federal Deposit Insurance Act (12 U.S.C. 1813(h)); • a commercial bank; • an agency or branch of a foreign bank in the United States; • a Federally insured credit union; • a savings association; • a corporation acting under section 25A of the Federal Reserve Act (12 U.S.C. 611); • a trust bank or trust company; • a broker or dealer in securities; • a futures commission merchant or an introducing broker-commodities; and • a mutual fund. 4. Subsidiary Section 1010.660(a)(4) of the proposed rule would define ‘‘subsidiary’’ as a company of which more than 50 percent of the voting stock or analogous equity interest is owned by Liberty Reserve. B. 1010.660(b)—Prohibition on Accounts and Due Diligence Requirements for Covered Financial Institutions 1. Prohibition on Use of Correspondent Accounts Section 1010.660(b)(1) of the proposed rule imposing the fifth special measure would prohibit covered financial institutions from establishing, maintaining, administering, or managing in the United States any correspondent account for or on behalf of a foreign bank if such correspondent account is being used to process transactions involving Liberty Reserve, including any of its branches, offices or subsidiaries. 2 See 1 See 31 CFR 1010.605(c)(2)(i). VerDate Mar<15>2010 15:07 Jun 05, 2013 3 See Jkt 229001 PO 00000 31 CFR 1010.605(c)(2)(ii)–(iv). 31 CFR 1010.605(e)(1). Frm 00016 Fmt 4702 Sfmt 4702 2. Special Due Diligence for Correspondent Accounts to Prohibit Use As a corollary to the prohibition on maintaining correspondent accounts that are being used to process transactions involving Liberty Reserve, section 1010.660(b)(2) of the proposed rule would require a covered financial institution to apply special due diligence to all of its foreign correspondent accounts that is reasonably designed to guard against processing transactions involving Liberty Reserve. That special due diligence must include notifying those foreign correspondent account holders that the covered financial institution knows or has reason to know provide services to Liberty Reserve that such correspondents may not provide Liberty Reserve with access to the correspondent account maintained at the covered financial institution and implementing appropriate risk-based procedures to identify transactions involving Liberty Reserve. A covered financial institution may satisfy the notification requirement by transmitting the following notice to its foreign correspondent account holders that it knows or has reason to know provide services to Liberty Reserve: Notice: Pursuant to U.S. regulations issued under section 311 of the USA PATRIOT Act, see 31 CFR 1010.660, we are prohibited from establishing, maintaining, administering, or managing a correspondent account for or on behalf of a foreign bank if such correspondent account processes any transaction involving Liberty Reserve or any of its subsidiaries. The regulations also require us to notify you that you may not provide Liberty Reserve or any of its subsidiaries with access to the correspondent account you hold at our financial institution. If we become aware that the correspondent account you hold at our financial institution has processed any transactions involving Liberty Reserve or any of its subsidiaries, we will be required to take appropriate steps to prevent such access, including terminating your account. A covered financial institution may, for example, have knowledge through transaction screening software that the correspondents process transactions for Liberty Reserve. The purpose of the notice requirement is to aid cooperation with correspondent account holders in preventing transactions involving Liberty Reserve from accessing the U.S. financial system. However, FinCEN would not require or expect a covered financial institution to obtain a certification from any of its correspondent account holders that access will not be provided to comply with this notice requirement. Methods of compliance with the notice E:\FR\FM\06JNP1.SGM 06JNP1 erowe on DSK2VPTVN1PROD with PROPOSALS-1 Federal Register / Vol. 78, No. 109 / Thursday, June 6, 2013 / Proposed Rules requirement could include, for example, transmitting a one-time notice by mail, fax, or email. FinCEN specifically solicits comments on the form and scope of the notice that would be required under the rule. The special due diligence would also include implementing risk-based procedures designed to identify any use of correspondent accounts to process transactions involving Liberty Reserve. A covered financial institution would be expected to apply an appropriate screening mechanism to identify a funds transfer order that on its face listed Liberty Reserve as the financial institution of the originator or beneficiary, or otherwise referenced Liberty Reserve in a manner detectable under the financial institution’s normal screening mechanisms. Transactions involving Liberty Reserve typically indicate such involvement by the presence of the ‘‘LR’’ abbreviation and Liberty Reserve account number. An appropriate screening mechanism could be the mechanism used by a covered financial institution to comply with various legal requirements, such as the commercially available software programs used to comply with the economic sanctions programs administered by OFAC. A covered financial institution would also be required to implement riskbased procedures to identify disguised use of its correspondent accounts, including through methods used to hide the beneficial owner of a transaction. Specifically, FinCEN is concerned that Liberty Reserve may attempt to disguise its transactions by relying on types of payments and accounts that would not explicitly identify Liberty Reserve as an involved party. A financial institution may develop a suspicion of such misuse based on other information in its possession, patterns of transactions, or any other method available to it based on its existing systems. Under the proposed rule, a covered financial institution that suspects or has reason to suspect use of a correspondent account to process transactions involving Liberty Reserve must take all appropriate steps to attempt to verify and prevent such use, including a notification to its correspondent account holder per section 1010.660(b)(2)(i)(A) requesting further information regarding a transaction, requesting corrective action to address the perceived risk and, where necessary, terminating the correspondent account. A covered financial institution may re-establish an account closed under the rule if it determines that the account will not be used to process transactions involving Liberty Reserve. FinCEN specifically VerDate Mar<15>2010 15:07 Jun 05, 2013 Jkt 229001 solicits comments on the requirement under the proposed rule that covered financial institutions take reasonable steps to prevent any processing of transactions involving Liberty Reserve. 3. Recordkeeping and Reporting Section 1010.660(b)(3) of the proposed rule would clarify that subsection (b) of the rule does not impose any reporting requirement upon any covered financial institution that is not otherwise required by applicable law or regulation. A covered financial institution must, however, document its compliance with the requirement that it notify those correspondent account holders that the covered financial institution knows or has reason to know provide services to Liberty Reserve that such correspondents may not process any transaction involving Liberty Reserve through the correspondent account maintained at the covered financial institution. IV. Request for Comments FinCEN invites comments on all aspects of the proposal to impose the fifth special measure against Liberty Reserve and specifically invites comments on the following matters: 1. The impact of the proposed special measure upon legitimate transactions utilizing Liberty Reserve involving, in particular, U.S. persons and entities; foreign persons, entities, and governments; and multilateral organizations doing legitimate business. 2. The form and scope of the notice to certain correspondent account holders that would be required under the rule; 3. The appropriate scope of the proposed requirement for a covered financial institution to take reasonable steps to identify any use of its correspondent accounts to process transactions involving Liberty Reserve; and 4. The appropriate steps a covered financial institution should take once it identifies use of one of its correspondent accounts to process transactions involving Liberty Reserve. V. Regulatory Flexibility Act When an agency issues a rulemaking proposal, the Regulatory Flexibility Act (RFA) requires the agency to ‘‘prepare and make available for public comment an initial regulatory flexibility analysis’’ that will ‘‘describe the impact of the proposed rule on small entities.’’ (5 U.S.C. 603(a)). Section 605 of the RFA allows an agency to certify a rule, in lieu of preparing an analysis, if the proposed rulemaking is not expected to have a PO 00000 Frm 00017 Fmt 4702 Sfmt 4702 34011 significant economic impact on a substantial number of small entities. A. Proposal To Prohibit Covered Financial Institutions From Opening or Maintaining Correspondent Accounts With Certain Foreign Banks Under the Fifth Special Measure 1. Estimate of the Number of Small Entities To Whom the Proposed Fifth Special Measure Will Apply: For purposes of the RFA, both banks and credit unions are considered small entities if they have less than $175,000,000 in assets.4 Of the estimated 8,000 banks, 80 percent have less than $175,000,000 in assets and are considered small entities.5 Of the estimated 7,000 credit unions, 90 percent have less than $175,000,000 in assets.6 Broker-dealers are defined in 31 CFR 1010.100(h) as those broker-dealers required to register with the Securities and Exchange Commission (SEC). Because FinCEN and the SEC regulate substantially the same population, for the purposes of the RFA, FinCEN relies on the SEC’s definition of small business as previously submitted to the Small Business Administration (SBA). The SEC has defined the term ‘‘small entity’’ to mean a broker or dealer that: ‘‘(1) had total capital (net worth plus subordinated liabilities of less than $500,000 on the date in the prior fiscal year as of which its audited financial statements, were prepared pursuant to Rule 17a–5(d) or, if not required to file such statements, a broker or dealer that had total capital (net worth plus subordinated debt) of less than $500,000 on the last business day of the preceding fiscal year (or in the time that it has been in business if shorter); and (2) is not affiliated with any person (other than a natural person) that is not a small business or small organization as defined in this release.’’ 7 Currently, based on SEC estimates, 18 percent of broker-dealers are classified as ‘‘small’’ entities for purposes of the RFA.8 4 Table of Small Business Size Standards Matched to North American Industry Classification System Codes, Small Business Administration Size Standards at 27 (SBA Oct. 1, 2012) [hereinafter SBA Size Standards]. 5 Federal Deposit Insurance Corporation, Find an Institution, http://www2.fdic.gov/idasp/main.asp; select Size or Performance: Total Assets, type Equal or less than $: ‘‘175000’’, select Find. 6 National Credit Union Administration, Credit Union Data, http://webapps.ncua.gov/ customquery/; select Search Fields: Total Assets, select Operator: Less than or equal to, type Field Values: ‘‘175000000’’, select Go. 7 17 CFR 240.0–10(c). 8 76 FR 37572, 37602 (June 27, 2011) (The SEC estimates 871 small broker-dealers of the 5,063 total registered broker-dealers). E:\FR\FM\06JNP1.SGM 06JNP1 erowe on DSK2VPTVN1PROD with PROPOSALS-1 34012 Federal Register / Vol. 78, No. 109 / Thursday, June 6, 2013 / Proposed Rules Futures commission merchants (FCMs) are defined in 31 CFR 1010.100(x) as those FCMs that are registered or required to be registered as a FCM with the Commodity Futures Trading Commission (CFTC) under the Commodity Exchange Act (CEA), except persons who register pursuant to section 4f(a)(2) of the CEA, 7 U.S.C. 6f(a)(2). Because FinCEN and the CFTC regulate substantially the same population, for the purposes of the RFA, FinCEN relies on the CFTC’s definition of small business as previously submitted to the SBA. In the CFTC’s ‘‘Policy Statement and Establishment of Definitions of ‘Small Entities’ for Purposes of the Regulatory Flexibility Act,’’ the CFTC concluded that registered FCMs should not be considered to be small entities for purposes of the RFA.9 The CFTC’s determination in this regard was based, in part, upon the obligation of registered FCMs to meet the capital requirements established by the CFTC. For purposes of the RFA, an introducing broker-commodities is considered small if it has less than $7,000,000 in gross receipts annually.10 Based on information provided by the National Futures Association (NFA), there were 1249 introducing brokerscommodities that were members of NFA as of April 30, 2013, 95 percent of which have less than $7 million in Adjusted Net Capital and are considered to be small entities. Mutual funds are defined in 31 CFR 1010.100(gg) as those investment companies that are open-end investment companies that are registered or are required to register with the SEC. Because FinCEN and the SEC regulate substantially the same population, for the purposes of the RFA, FinCEN relies on the SEC’s definition of small business as previously submitted to the SBA. The SEC has defined the term ‘‘small entity’’ under the Investment Company Act to mean ‘‘an investment company that, together with other investment companies in the same group of related investment companies, has net assets of $50 million or less as of the end of its most recent fiscal year.11 Currently, based on SEC estimates, 7 percent of mutual funds are classified as ‘‘small entities’’ for purposes of the RFA under their definition.12 As noted above, 80 percent of banks, 90 percent of credit unions, 18 percent 9 47 FR 18618, 18619 (Apr. 30, 1982). Size Standards at 28. 11 17 CFR 270.0–10. 12 78 FR 23637, 23658 (April 19, 2013) (The SEC estimates 119 small mutual funds of the 1692 total active registered mutual funds). 10 SBA VerDate Mar<15>2010 15:07 Jun 05, 2013 Jkt 229001 of broker-dealers, 95 percent of introducing brokers-commodities, zero FCMs, and 7 percent of mutual funds are small entities. The limited number of foreign banking institutions with which Liberty Reserve maintains or will maintain accounts will likely limit the number of affected covered financial institutions to the largest U.S. banks, which actively engage in international transactions. Thus, the prohibition on maintaining correspondent accounts for foreign banking institutions that engage in transactions involving Liberty Reserve under the fifth special measure would not impact a substantial number of small entities. 2. Description of the Projected Reporting and Recordkeeping Requirements of the Fifth Special Measure: The proposed fifth special measure would require covered financial institutions to provide a notification intended to aid cooperation from foreign correspondent account holders in preventing transactions involving Liberty Reserve from accessing the U.S. financial system. FinCEN estimates that the burden on institutions providing this notice is one hour. Covered financial institutions would also be required to take reasonable measures to detect use of their correspondent accounts to directly or indirectly process transactions involving Liberty Reserve. All U.S. persons, including U.S. financial institutions, currently must exercise some degree of due diligence to comply with OFAC sanctions and suspicious activity reporting requirements. The tools used for such purposes, including commercially available software used to comply with the economic sanctions programs administered by OFAC, can easily be modified to identify correspondent accounts with foreign banks that involve Liberty Reserve. Thus, the special due diligence that would be required by the imposition of the fifth special measure—i.e., the onetime transmittal of notice to certain correspondent account holders, the screening of transactions to identify any use of correspondent accounts, and the implementation of risk-based measures to detect use of correspondent accounts—would not impose a significant additional economic burden upon small U.S. financial institutions. B. Certification When viewed as a whole, FinCEN does not anticipate that the proposals contained in this rulemaking would have a significant impact on a substantial number of small businesses. Accordingly, FinCEN certifies that this PO 00000 Frm 00018 Fmt 4702 Sfmt 4702 rule would not have a significant economic impact on a substantial number of small entities. FinCEN invites comments from members of the public who believe there would be a significant economic impact on small entities from the imposition of the fifth special measure regarding Liberty Reserve. VI. 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)). Comments on the collection of information should be sent to the Desk Officer for the Department of Treasury, Office of Information and Regulatory Affairs, Office of Management and Budget, Paperwork Reduction Project (1506), Washington, DC 20503 (or by email to oira_submission@omb.eop.gov) with a copy to FinCEN by mail or email at the addresses previously specified. Comments should be submitted by one method only. Comments on the collection of information should be received by August 5, 2013. 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 1320, the following information concerning the collection of information as required by 31 CFR 1010.659 is presented to assist those persons wishing to comment on the information collection. A. Proposed Information Collection Under the Fifth Special Measure The notification requirement in section 1010.660(b)(2)(i) is intended to aid cooperation from correspondent account holders in denying Liberty Reserve access to the U.S. financial system. The information required to be maintained by section 1010.660(b)(3)(i) would be used by federal agencies and certain self-regulatory organizations to verify compliance by covered financial institutions with the provisions of 31 CFR 1010.660. The collection of information would be mandatory. Description of Affected Financial Institutions: Banks, broker-dealers in securities, futures commission merchants and introducing brokerscommodities, and mutual funds. Estimated Number of Affected Financial Institutions: 5,000. Estimated Average Annual Burden in Hours Per Affected Financial Institution: The estimated average burden associated with the collection of information in this proposed rule is one hour per affected financial institution. E:\FR\FM\06JNP1.SGM 06JNP1 Federal Register / Vol. 78, No. 109 / Thursday, June 6, 2013 / Proposed Rules Estimated Total Annual Burden: 5,000 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 would 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 report the information. 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. VII. Executive Order 12866 Executive Orders 12866 and 13563 direct agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. It has been determined that the proposed rule is not a ‘‘significant regulatory action’’ for purposes of Executive Order 12866. List of Subjects in 31 CFR Chapter X Administrative practice and procedure, banks and banking, brokers, counter-money laundering, counterterrorism, foreign banking. erowe on DSK2VPTVN1PROD with PROPOSALS-1 Authority and Issuance For the reasons set forth in the preamble, Chapter X of title 31 of the Code of Federal Regulations is proposed to be amended as follows: CHAPTER X—FINANCIAL CRIMES ENFORCEMENT NETWORK, DEPARTMENT OF THE TREASURY PART 1010—GENERAL PROVISIONS 1. The authority citation for Part 1010 continues to read as follows: ■ Authority: 12 U.S.C. 1829b and 1951–1959; 31 U.S.C. 5311–5314, 5316–5332 Title III, VerDate Mar<15>2010 15:07 Jun 05, 2013 Jkt 229001 secs. 311, 312, 313, 314, 319, 326, 352, Pub. L. 107–56, 115 Stat. 307. 2. Amend Part 1010 by adding § 1010.660 of Subpart F to read as follows: ■ § 1010.660 Special measures against Liberty Reserve (a) Definitions. For purposes of this section: (1) Liberty Reserve means all branches, offices, and subsidiaries of Liberty Reserve operating in any jurisdiction. (2) Correspondent account has the same meaning as provided in § 1010.605(c)(1)(ii). (3) Covered financial institution has the same meaning as provided in § 1010.605(e)(1). (4) Subsidiary means a company of which more than 50 percent of the voting stock or analogous equity interest is owned by another company. (b) Prohibition on accounts and due diligence requirements for covered financial institutions (1) Prohibition on use of correspondent accounts. A covered financial institution shall terminate any correspondent account that is established, maintained, administered, or managed in the United States for, or on behalf of, a foreign bank if such correspondent account is being used to process transactions that involve Liberty Reserve. (2) Special due diligence of correspondent accounts to prohibit use. (i) A covered financial institution shall apply special due diligence to its foreign correspondent accounts that is reasonably designed to guard against their use to process transactions involving Liberty Reserve. At a minimum, that special due diligence must include: (A) Notifying those foreign correspondent account holders that the covered financial institution knows or has reason to know provide services to Liberty Reserve that such correspondents may not provide Liberty Reserve with access to the correspondent account maintained at the covered financial institution; and (B) Taking reasonable steps to identify any use of its foreign correspondent accounts by Liberty Reserve, to the extent that such use can be determined from transactional records maintained in the covered financial institution’s normal course of business. (ii) A covered financial institution shall take a risk-based approach when deciding what, if any, other due diligence measures it reasonably must adopt to guard against the use of its foreign correspondent accounts to PO 00000 Frm 00019 Fmt 4702 Sfmt 4702 34013 process transactions involving Liberty Reserve. (iii) A covered financial institution that obtains knowledge that a foreign correspondent account may be being used to process transactions involving Liberty Reserve shall take all appropriate steps to further investigate and prevent such access, including the notification of its correspondent account holder under paragraph (b)(2)(i)(A) and, where necessary, termination of the correspondent account. (3) Recordkeeping and reporting. (i) A covered financial institution is required to document its compliance with the notice requirement set forth in paragraph (b)(2)(i)(A) of this section. (ii) Nothing in paragraph (b) shall require a covered financial institution to report any information not otherwise required to be reported by law or regulation. Dated: May 28, 2013. Jennifer Shasky Calvery, Director, Financial Crimes Enforcement Network. [FR Doc. 2013–12945 Filed 6–5–13; 8:45 am] BILLING CODE 4810–02–P ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [EPA–R03–OAR–2012–0955; FRL–9819–5] Approval and Promulgation of Air Quality Implementation Plans; Delaware, District of Columbia, Maryland, Pennsylvania, Virginia, and West Virginia; Removal of Obsolete Regulations and Updates to Citations to State Regulations Due to Recodification Environmental Protection Agency (EPA). ACTION: Proposed rule. AGENCY: EPA is proposing to remove over fifty rules in the Code of Federal Regulations (CFR) at 40 CFR part 52 for Delaware, the District of Columbia, Maryland, Pennsylvania, Virginia, and West Virginia because they are unnecessary or obsolete. EPA is also proposing to clarify regulations in 40 CFR part 52 which reflect updated citations of certain Commonwealth of Virginia rules due to the Commonwealth’s recodification of its regulations at the state level. These proposed actions make no substantive changes to these State Implementation Plans (SIPs) and impose no new requirements. In the Final Rules section of this Federal Register, EPA is SUMMARY: E:\FR\FM\06JNP1.SGM 06JNP1

Agencies

[Federal Register Volume 78, Number 109 (Thursday, June 6, 2013)]
[Proposed Rules]
[Pages 34008-34013]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-12945]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Financial Crimes Enforcement Network

31 CFR Part 1010

RIN 1506-AB23


Imposition of Special Measure Against Liberty Reserve S.A. as a 
Financial Institution of Primary Money Laundering Concern

AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: In a finding, notice of which was published elsewhere in this 
issue of the Federal Register (Notice of Finding), the Director of 
FinCEN found that Liberty Reserve S.A. (Liberty Reserve) is a financial 
institution operating outside of the United States that is of primary 
money laundering concern. FinCEN is issuing this notice of proposed 
rulemaking (NPRM) to propose the imposition of a special measure 
against Liberty Reserve.

DATES: Written comments on this NPRM must be submitted on or before 
August 5, 2013.

ADDRESSES: You may submit comments, identified by RIN 1506-AB23, by any 
of the following methods:
     Federal E-rulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments. Include RIN 1506-AB23 
in the submission.
     Mail: The Financial Crimes Enforcement Network, P.O. Box 
39, Vienna, VA 22183. Include RIN 1506-AB23 in the body of the text. 
Please submit comments by one method only.
     Comments submitted in response to this NPRM will become a 
matter of public record. Therefore, you should submit only information 
that you wish to make publicly available.
    Inspection of comments: Public comments received electronically or 
through the U.S. Postal Service sent in

[[Page 34009]]

response to a notice and request for comment will be made available for 
public review as soon as possible on http://www.regulations.gov. 
Comments received may be physically inspected in the FinCEN reading 
room located in Vienna, Virginia. Reading room appointments are 
available weekdays (excluding holidays) between 10 a.m. and 3 p.m., by 
calling the Disclosure Officer at (703) 905-5034 (not a toll-free 
call).

FOR FURTHER INFORMATION CONTACT: The FinCEN regulatory helpline at 
(800) 949-2732 and select Option 6.

SUPPLEMENTARY INFORMATION:

I. Statutory Provisions

    On October 26, 2001, the President signed into law the Uniting and 
Strengthening America by Providing Appropriate Tools Required to 
Intercept and Obstruct Terrorism Act of 2001 (the USA PATRIOT Act), 
Public Law 107-56. Title III of the USA PATRIOT Act amends the anti-
money laundering provisions of the Bank Secrecy Act (BSA), codified at 
12 U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5314, 5316-
5332, to promote the prevention, detection, and prosecution of 
international money laundering and the financing of terrorism. 
Regulations implementing the BSA appear at 31 CFR Chapter X. The 
authority of the Secretary of the Treasury (the Secretary) to 
administer the BSA and its implementing regulations has been delegated 
to the Director of FinCEN.
    Section 311 of the USA PATRIOT Act (Section 311), codified at 31 
U.S.C. 5318A, grants the Director of FinCEN the authority, upon finding 
that reasonable grounds exist for concluding that a foreign 
jurisdiction, institution, class of transaction, or type of account is 
of ``primary money laundering concern,'' to require domestic financial 
institutions and financial agencies to take certain ``special 
measures'' to address the primary money laundering concern.

II. Imposition of Special Measure Against Liberty Reserve as a 
Financial Institution of Primary Money Laundering Concern

A. Special Measure

    As noticed elsewhere in this issue of the Federal Register, on May 
28, 2013, the Director of FinCEN found that Liberty Reserve is a 
financial institution operating outside the United States that is of 
primary money laundering concern (Finding). Based upon that Finding, 
the Director of FinCEN is authorized to impose one or more special 
measures. Following the consideration of all factors relevant to the 
Finding and to selecting the special measure proposed in this NPRM, the 
Director of FinCEN proposes to impose the special measure authorized by 
section 5318A(b)(5) (the fifth special measure). In connection with 
this action, FinCEN consulted with representatives of the Federal 
functional regulators, the Department of Justice, and the Department of 
State, among others.

B. Discussion of Section 311 Factors

    In determining which special measures to implement to address the 
primary money laundering concern, FinCEN considered the following 
factors.
1. Whether Similar Action Has Been or Will Be Taken by Other Nations or 
Multilateral Groups Against Liberty Reserve
    Other countries or multilateral groups have not yet taken action 
similar to those proposed in this rulemaking that would: (1) Prohibit 
domestic financial institutions and agencies from opening or 
maintaining a correspondent account for or on behalf of a foreign bank 
if such correspondent account is being used to process transactions 
involving Liberty Reserve; and (2) require those domestic financial 
institutions and agencies to screen their correspondents in a manner 
that is reasonably designed to guard against processing transactions 
involving Liberty Reserve. FinCEN encourages other countries to take 
similar action based on the information contained in this notice and 
the Finding.
2. Whether the Imposition of the Fifth Special Measure Would Create a 
Significant Competitive Disadvantage, Including Any Undue Cost or 
Burden Associated With Compliance, for Financial Institutions Organized 
or Licensed in the United States
    The fifth special measure proposed by this rulemaking would 
prohibit covered financial institutions from opening or maintaining 
correspondent accounts for or on behalf of a foreign bank if such 
correspondent account is being used to process transactions involving 
Liberty Reserve after the effective date of the final rule implementing 
the fifth special measure. U.S. financial institutions generally apply 
some level of screening and (when required) reporting of their 
transactions and accounts, often through the use of commercially-
available software such as that used for compliance with the economic 
sanctions programs administered by the Office of Foreign Assets Control 
(OFAC) of the Department of the Treasury and to detect potential 
suspicious activity. As explained in more detail in the section-by-
section analysis below, financial institutions should be able to 
leverage these current screening and reporting procedures to detect 
transactions involving Liberty Reserve. As a corollary to this measure, 
covered financial institutions also would be required to take 
reasonable steps to apply special due diligence, as set forth below, to 
all of their correspondent accounts to help ensure that no such account 
is being used to provide services to Liberty Reserve. This would 
involve a minimal burden in transmitting a one-time notice to certain 
foreign correspondent account holders concerning the prohibition on 
processing transactions involving Liberty Reserve through the U.S. 
correspondent account, but otherwise is not expected to impose a 
significant additional burden upon U.S. financial institutions.
3. The Extent to Which the Proposed Action or Timing of the Action 
Would Have a Significant Adverse Systemic Impact on the International 
Payment, Clearance, and Settlement System, or on Legitimate Business 
Activities of Liberty Reserve
    The requirements proposed in this NPRM would target Liberty Reserve 
specifically; they would not target a class of financial transactions 
(such as wire transfers) or a particular jurisdiction. Liberty Reserve 
is not a major participant in the international payment system and is 
not relied upon by the international banking community for clearance or 
settlement services. Thus, the imposition of the fifth special measure 
against Liberty Reserve would not have a significant adverse systemic 
impact on the international payment, clearance, and settlement system. 
As discussed further in the Notice of Finding, there appears to be 
little or no incentive for legitimate use of Liberty Reserve, due to 
its structure, associated fees, and lack of basic protections for 
users.
4. The Effect of the Proposed Action on United States National Security 
and Foreign Policy
    The exclusion of Liberty Reserve from the U.S. financial system as 
required by the fifth special measure would enhance national security 
by making it more difficult for money launderers, other criminals or 
terrorists to access the U.S. financial system. More generally, the 
imposition of the fifth special measure would complement the U.S. 
Government's worldwide efforts to

[[Page 34010]]

expose and disrupt international money laundering and terrorism 
financing.
    Therefore, pursuant to the Finding that Liberty Reserve is a 
financial institution operating outside of the United States of primary 
money laundering concern, and after conducting the required 
consultations and weighing the relevant factors, the Director of FinCEN 
proposes to impose the fifth special measure.

III. Section-by-Section Analysis for Imposition of the Fifth Special 
Measure

A. 1010.660(a)--Definitions

1. Liberty Reserve
    Section 1010.660(a)(1) of the proposed rule would define Liberty 
Reserve to include all branches, offices, and subsidiaries of Liberty 
Reserve S.A. operating in Costa Rica or in any other jurisdiction.
    Covered financial institutions should take commercially reasonable 
measures to determine whether a customer is a branch, office, or 
subsidiary of Liberty Reserve.
2. Correspondent Account
    Section 1010.660(a)(2) of the proposed rule would define the term 
``correspondent account'' by reference to the definition contained in 
31 CFR 1010.605(c)(1)(ii). Section 1010.605(c)(1)(ii) defines a 
correspondent account to mean an account established to receive 
deposits from, or make payments or other disbursements on behalf of, a 
foreign bank, or to handle other financial transactions related to the 
foreign bank. Under this definition, ``payable through accounts'' are a 
type of correspondent account.
    In the case of a U.S. depository institution, this broad definition 
includes most types of banking relationships between a U.S. depository 
institution and a foreign bank that are established to provide regular 
services, dealings, and other financial transactions, including a 
demand deposit, savings deposit, or other transaction or asset account, 
and a credit account or other extension of credit. FinCEN is using the 
same definition of ``account'' for purposes of this rule as was 
established for depository institutions in the final rule implementing 
the provisions of section 312 of the USA PATRIOT Act requiring enhanced 
due diligence for correspondent accounts maintained for certain foreign 
banks.\1\
---------------------------------------------------------------------------

    \1\ See 31 CFR 1010.605(c)(2)(i).
---------------------------------------------------------------------------

    In the case of securities broker-dealers, futures commission 
merchants, introducing brokers-commodities, and investment companies 
that are open-end companies (``mutual funds''), FinCEN is also using 
the same definition of ``account'' for purposes of this rule as was 
established for these entities in the final rule implementing the 
provisions of section 312 of the USA PATRIOT Act requiring enhanced due 
diligence for correspondent accounts maintained for certain foreign 
banks.\2\
---------------------------------------------------------------------------

    \2\ See 31 CFR 1010.605(c)(2)(ii)-(iv).
---------------------------------------------------------------------------

3. Covered Financial Institution
    Section 1010.660(a)(3) of the proposed rule would define ``covered 
financial institution'' with the same definition used in the final rule 
implementing the provisions of section 312 of the USA PATRIOT Act,\3\ 
which in general includes the following:
---------------------------------------------------------------------------

    \3\ See 31 CFR 1010.605(e)(1).
---------------------------------------------------------------------------

     An insured bank (as defined in section 3(h) of the Federal 
Deposit Insurance Act (12 U.S.C. 1813(h));
     a commercial bank;
     an agency or branch of a foreign bank in the United 
States;
     a Federally insured credit union;
     a savings association;
     a corporation acting under section 25A of the Federal 
Reserve Act (12 U.S.C. 611);
     a trust bank or trust company;
     a broker or dealer in securities;
     a futures commission merchant or an introducing broker-
commodities; and
     a mutual fund.
4. Subsidiary
    Section 1010.660(a)(4) of the proposed rule would define 
``subsidiary'' as a company of which more than 50 percent of the voting 
stock or analogous equity interest is owned by Liberty Reserve.

B. 1010.660(b)--Prohibition on Accounts and Due Diligence Requirements 
for Covered Financial Institutions

1. Prohibition on Use of Correspondent Accounts
    Section 1010.660(b)(1) of the proposed rule imposing the fifth 
special measure would prohibit covered financial institutions from 
establishing, maintaining, administering, or managing in the United 
States any correspondent account for or on behalf of a foreign bank if 
such correspondent account is being used to process transactions 
involving Liberty Reserve, including any of its branches, offices or 
subsidiaries.
2. Special Due Diligence for Correspondent Accounts to Prohibit Use
    As a corollary to the prohibition on maintaining correspondent 
accounts that are being used to process transactions involving Liberty 
Reserve, section 1010.660(b)(2) of the proposed rule would require a 
covered financial institution to apply special due diligence to all of 
its foreign correspondent accounts that is reasonably designed to guard 
against processing transactions involving Liberty Reserve. That special 
due diligence must include notifying those foreign correspondent 
account holders that the covered financial institution knows or has 
reason to know provide services to Liberty Reserve that such 
correspondents may not provide Liberty Reserve with access to the 
correspondent account maintained at the covered financial institution 
and implementing appropriate risk-based procedures to identify 
transactions involving Liberty Reserve.
    A covered financial institution may satisfy the notification 
requirement by transmitting the following notice to its foreign 
correspondent account holders that it knows or has reason to know 
provide services to Liberty Reserve:

    Notice: Pursuant to U.S. regulations issued under section 311 of 
the USA PATRIOT Act, see 31 CFR 1010.660, we are prohibited from 
establishing, maintaining, administering, or managing a 
correspondent account for or on behalf of a foreign bank if such 
correspondent account processes any transaction involving Liberty 
Reserve or any of its subsidiaries. The regulations also require us 
to notify you that you may not provide Liberty Reserve or any of its 
subsidiaries with access to the correspondent account you hold at 
our financial institution. If we become aware that the correspondent 
account you hold at our financial institution has processed any 
transactions involving Liberty Reserve or any of its subsidiaries, 
we will be required to take appropriate steps to prevent such 
access, including terminating your account.

    A covered financial institution may, for example, have knowledge 
through transaction screening software that the correspondents process 
transactions for Liberty Reserve. The purpose of the notice requirement 
is to aid cooperation with correspondent account holders in preventing 
transactions involving Liberty Reserve from accessing the U.S. 
financial system. However, FinCEN would not require or expect a covered 
financial institution to obtain a certification from any of its 
correspondent account holders that access will not be provided to 
comply with this notice requirement. Methods of compliance with the 
notice

[[Page 34011]]

requirement could include, for example, transmitting a one-time notice 
by mail, fax, or email. FinCEN specifically solicits comments on the 
form and scope of the notice that would be required under the rule.
    The special due diligence would also include implementing risk-
based procedures designed to identify any use of correspondent accounts 
to process transactions involving Liberty Reserve. A covered financial 
institution would be expected to apply an appropriate screening 
mechanism to identify a funds transfer order that on its face listed 
Liberty Reserve as the financial institution of the originator or 
beneficiary, or otherwise referenced Liberty Reserve in a manner 
detectable under the financial institution's normal screening 
mechanisms. Transactions involving Liberty Reserve typically indicate 
such involvement by the presence of the ``LR'' abbreviation and Liberty 
Reserve account number. An appropriate screening mechanism could be the 
mechanism used by a covered financial institution to comply with 
various legal requirements, such as the commercially available software 
programs used to comply with the economic sanctions programs 
administered by OFAC.
    A covered financial institution would also be required to implement 
risk-based procedures to identify disguised use of its correspondent 
accounts, including through methods used to hide the beneficial owner 
of a transaction. Specifically, FinCEN is concerned that Liberty 
Reserve may attempt to disguise its transactions by relying on types of 
payments and accounts that would not explicitly identify Liberty 
Reserve as an involved party. A financial institution may develop a 
suspicion of such misuse based on other information in its possession, 
patterns of transactions, or any other method available to it based on 
its existing systems. Under the proposed rule, a covered financial 
institution that suspects or has reason to suspect use of a 
correspondent account to process transactions involving Liberty Reserve 
must take all appropriate steps to attempt to verify and prevent such 
use, including a notification to its correspondent account holder per 
section 1010.660(b)(2)(i)(A) requesting further information regarding a 
transaction, requesting corrective action to address the perceived risk 
and, where necessary, terminating the correspondent account. A covered 
financial institution may re-establish an account closed under the rule 
if it determines that the account will not be used to process 
transactions involving Liberty Reserve. FinCEN specifically solicits 
comments on the requirement under the proposed rule that covered 
financial institutions take reasonable steps to prevent any processing 
of transactions involving Liberty Reserve.
3. Recordkeeping and Reporting
    Section 1010.660(b)(3) of the proposed rule would clarify that 
subsection (b) of the rule does not impose any reporting requirement 
upon any covered financial institution that is not otherwise required 
by applicable law or regulation. A covered financial institution must, 
however, document its compliance with the requirement that it notify 
those correspondent account holders that the covered financial 
institution knows or has reason to know provide services to Liberty 
Reserve that such correspondents may not process any transaction 
involving Liberty Reserve through the correspondent account maintained 
at the covered financial institution.

IV. Request for Comments

    FinCEN invites comments on all aspects of the proposal to impose 
the fifth special measure against Liberty Reserve and specifically 
invites comments on the following matters:
    1. The impact of the proposed special measure upon legitimate 
transactions utilizing Liberty Reserve involving, in particular, U.S. 
persons and entities; foreign persons, entities, and governments; and 
multilateral organizations doing legitimate business.
    2. The form and scope of the notice to certain correspondent 
account holders that would be required under the rule;
    3. The appropriate scope of the proposed requirement for a covered 
financial institution to take reasonable steps to identify any use of 
its correspondent accounts to process transactions involving Liberty 
Reserve; and
    4. The appropriate steps a covered financial institution should 
take once it identifies use of one of its correspondent accounts to 
process transactions involving Liberty Reserve.

V. Regulatory Flexibility Act

    When an agency issues a rulemaking proposal, the Regulatory 
Flexibility Act (RFA) requires the agency to ``prepare and make 
available for public comment an initial regulatory flexibility 
analysis'' that will ``describe the impact of the proposed rule on 
small entities.'' (5 U.S.C. 603(a)). Section 605 of the RFA allows an 
agency to certify a rule, in lieu of preparing an analysis, if the 
proposed rulemaking is not expected to have a significant economic 
impact on a substantial number of small entities.

A. Proposal To Prohibit Covered Financial Institutions From Opening or 
Maintaining Correspondent Accounts With Certain Foreign Banks Under the 
Fifth Special Measure

1. Estimate of the Number of Small Entities To Whom the Proposed Fifth 
Special Measure Will Apply:
    For purposes of the RFA, both banks and credit unions are 
considered small entities if they have less than $175,000,000 in 
assets.\4\ Of the estimated 8,000 banks, 80 percent have less than 
$175,000,000 in assets and are considered small entities.\5\ Of the 
estimated 7,000 credit unions, 90 percent have less than $175,000,000 
in assets.\6\
---------------------------------------------------------------------------

    \4\ Table of Small Business Size Standards Matched to North 
American Industry Classification System Codes, Small Business 
Administration Size Standards at 27 (SBA Oct. 1, 2012) [hereinafter 
SBA Size Standards].
    \5\ Federal Deposit Insurance Corporation, Find an Institution, 
http://www2.fdic.gov/idasp/main.asp; select Size or Performance: 
Total Assets, type Equal or less than $: ``175000'', select Find.
    \6\ National Credit Union Administration, Credit Union Data, 
http://webapps.ncua.gov/customquery/ customquery/; select Search Fields: Total 
Assets, select Operator: Less than or equal to, type Field Values: 
``175000000'', select Go.
---------------------------------------------------------------------------

    Broker-dealers are defined in 31 CFR 1010.100(h) as those broker-
dealers required to register with the Securities and Exchange 
Commission (SEC). Because FinCEN and the SEC regulate substantially the 
same population, for the purposes of the RFA, FinCEN relies on the 
SEC's definition of small business as previously submitted to the Small 
Business Administration (SBA). The SEC has defined the term ``small 
entity'' to mean a broker or dealer that: ``(1) had total capital (net 
worth plus subordinated liabilities of less than $500,000 on the date 
in the prior fiscal year as of which its audited financial statements, 
were prepared pursuant to Rule 17a-5(d) or, if not required to file 
such statements, a broker or dealer that had total capital (net worth 
plus subordinated debt) of less than $500,000 on the last business day 
of the preceding fiscal year (or in the time that it has been in 
business if shorter); and (2) is not affiliated with any person (other 
than a natural person) that is not a small business or small 
organization as defined in this release.'' \7\ Currently, based on SEC 
estimates, 18 percent of broker-dealers are classified as ``small'' 
entities for purposes of the RFA.\8\
---------------------------------------------------------------------------

    \7\ 17 CFR 240.0-10(c).
    \8\ 76 FR 37572, 37602 (June 27, 2011) (The SEC estimates 871 
small broker-dealers of the 5,063 total registered broker-dealers).

---------------------------------------------------------------------------

[[Page 34012]]

    Futures commission merchants (FCMs) are defined in 31 CFR 
1010.100(x) as those FCMs that are registered or required to be 
registered as a FCM with the Commodity Futures Trading Commission 
(CFTC) under the Commodity Exchange Act (CEA), except persons who 
register pursuant to section 4f(a)(2) of the CEA, 7 U.S.C. 6f(a)(2). 
Because FinCEN and the CFTC regulate substantially the same population, 
for the purposes of the RFA, FinCEN relies on the CFTC's definition of 
small business as previously submitted to the SBA. In the CFTC's 
``Policy Statement and Establishment of Definitions of `Small Entities' 
for Purposes of the Regulatory Flexibility Act,'' the CFTC concluded 
that registered FCMs should not be considered to be small entities for 
purposes of the RFA.\9\ The CFTC's determination in this regard was 
based, in part, upon the obligation of registered FCMs to meet the 
capital requirements established by the CFTC.
---------------------------------------------------------------------------

    \9\ 47 FR 18618, 18619 (Apr. 30, 1982).
---------------------------------------------------------------------------

    For purposes of the RFA, an introducing broker-commodities is 
considered small if it has less than $7,000,000 in gross receipts 
annually.\10\ Based on information provided by the National Futures 
Association (NFA), there were 1249 introducing brokers-commodities that 
were members of NFA as of April 30, 2013, 95 percent of which have less 
than $7 million in Adjusted Net Capital and are considered to be small 
entities.
---------------------------------------------------------------------------

    \10\ SBA Size Standards at 28.
---------------------------------------------------------------------------

    Mutual funds are defined in 31 CFR 1010.100(gg) as those investment 
companies that are open-end investment companies that are registered or 
are required to register with the SEC. Because FinCEN and the SEC 
regulate substantially the same population, for the purposes of the 
RFA, FinCEN relies on the SEC's definition of small business as 
previously submitted to the SBA. The SEC has defined the term ``small 
entity'' under the Investment Company Act to mean ``an investment 
company that, together with other investment companies in the same 
group of related investment companies, has net assets of $50 million or 
less as of the end of its most recent fiscal year.\11\ Currently, based 
on SEC estimates, 7 percent of mutual funds are classified as ``small 
entities'' for purposes of the RFA under their definition.\12\
---------------------------------------------------------------------------

    \11\ 17 CFR 270.0-10.
    \12\ 78 FR 23637, 23658 (April 19, 2013) (The SEC estimates 119 
small mutual funds of the 1692 total active registered mutual 
funds).
---------------------------------------------------------------------------

    As noted above, 80 percent of banks, 90 percent of credit unions, 
18 percent of broker-dealers, 95 percent of introducing brokers-
commodities, zero FCMs, and 7 percent of mutual funds are small 
entities. The limited number of foreign banking institutions with which 
Liberty Reserve maintains or will maintain accounts will likely limit 
the number of affected covered financial institutions to the largest 
U.S. banks, which actively engage in international transactions. Thus, 
the prohibition on maintaining correspondent accounts for foreign 
banking institutions that engage in transactions involving Liberty 
Reserve under the fifth special measure would not impact a substantial 
number of small entities.
2. Description of the Projected Reporting and Recordkeeping 
Requirements of the Fifth Special Measure:
    The proposed fifth special measure would require covered financial 
institutions to provide a notification intended to aid cooperation from 
foreign correspondent account holders in preventing transactions 
involving Liberty Reserve from accessing the U.S. financial system. 
FinCEN estimates that the burden on institutions providing this notice 
is one hour. Covered financial institutions would also be required to 
take reasonable measures to detect use of their correspondent accounts 
to directly or indirectly process transactions involving Liberty 
Reserve. All U.S. persons, including U.S. financial institutions, 
currently must exercise some degree of due diligence to comply with 
OFAC sanctions and suspicious activity reporting requirements. The 
tools used for such purposes, including commercially available software 
used to comply with the economic sanctions programs administered by 
OFAC, can easily be modified to identify correspondent accounts with 
foreign banks that involve Liberty Reserve. Thus, the special due 
diligence that would be required by the imposition of the fifth special 
measure--i.e., the one-time transmittal of notice to certain 
correspondent account holders, the screening of transactions to 
identify any use of correspondent accounts, and the implementation of 
risk-based measures to detect use of correspondent accounts--would not 
impose a significant additional economic burden upon small U.S. 
financial institutions.

B. Certification

    When viewed as a whole, FinCEN does not anticipate that the 
proposals contained in this rulemaking would have a significant impact 
on a substantial number of small businesses. Accordingly, FinCEN 
certifies that this rule would not have a significant economic impact 
on a substantial number of small entities.
    FinCEN invites comments from members of the public who believe 
there would be a significant economic impact on small entities from the 
imposition of the fifth special measure regarding Liberty Reserve.

VI. 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)). Comments on the collection of information should be sent to 
the Desk Officer for the Department of Treasury, Office of Information 
and Regulatory Affairs, Office of Management and Budget, Paperwork 
Reduction Project (1506), Washington, DC 20503 (or by email to oira_submission@omb.eop.gov) with a copy to FinCEN by mail or email at the 
addresses previously specified. Comments should be submitted by one 
method only. Comments on the collection of information should be 
received by August 5, 2013. 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 1320, the following information 
concerning the collection of information as required by 31 CFR 1010.659 
is presented to assist those persons wishing to comment on the 
information collection.

A. Proposed Information Collection Under the Fifth Special Measure

    The notification requirement in section 1010.660(b)(2)(i) is 
intended to aid cooperation from correspondent account holders in 
denying Liberty Reserve access to the U.S. financial system. The 
information required to be maintained by section 1010.660(b)(3)(i) 
would be used by federal agencies and certain self-regulatory 
organizations to verify compliance by covered financial institutions 
with the provisions of 31 CFR 1010.660. The collection of information 
would be mandatory.
    Description of Affected Financial Institutions: Banks, broker-
dealers in securities, futures commission merchants and introducing 
brokers-commodities, and mutual funds.
    Estimated Number of Affected Financial Institutions: 5,000.
    Estimated Average Annual Burden in Hours Per Affected Financial 
Institution: The estimated average burden associated with the 
collection of information in this proposed rule is one hour per 
affected financial institution.

[[Page 34013]]

    Estimated Total Annual Burden: 5,000 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 would 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 report the information.
    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.

VII. Executive Order 12866

    Executive Orders 12866 and 13563 direct agencies to assess costs 
and benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). Executive Order 13563 
emphasizes the importance of quantifying both costs and benefits, of 
reducing costs, of harmonizing rules, and of promoting flexibility. It 
has been determined that the proposed rule is not a ``significant 
regulatory action'' for purposes of Executive Order 12866.

List of Subjects in 31 CFR Chapter X

    Administrative practice and procedure, banks and banking, brokers, 
counter-money laundering, counter-terrorism, foreign banking.

Authority and Issuance

    For the reasons set forth in the preamble, Chapter X of title 31 of 
the Code of Federal Regulations is proposed to be amended as follows:

CHAPTER X--FINANCIAL CRIMES ENFORCEMENT NETWORK, DEPARTMENT OF THE 
TREASURY

PART 1010--GENERAL PROVISIONS

0
1. The authority citation for Part 1010 continues to read as follows:

    Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314, 
5316-5332 Title III, secs. 311, 312, 313, 314, 319, 326, 352, Pub. 
L. 107-56, 115 Stat. 307.

0
2. Amend Part 1010 by adding Sec.  1010.660 of Subpart F to read as 
follows:


Sec.  1010.660  Special measures against Liberty Reserve

    (a) Definitions. For purposes of this section:
    (1) Liberty Reserve means all branches, offices, and subsidiaries 
of Liberty Reserve operating in any jurisdiction.
    (2) Correspondent account has the same meaning as provided in Sec.  
1010.605(c)(1)(ii).
    (3) Covered financial institution has the same meaning as provided 
in Sec.  1010.605(e)(1).
    (4) Subsidiary means a company of which more than 50 percent of the 
voting stock or analogous equity interest is owned by another company.
    (b) Prohibition on accounts and due diligence requirements for 
covered financial institutions
    (1) Prohibition on use of correspondent accounts. A covered 
financial institution shall terminate any correspondent account that is 
established, maintained, administered, or managed in the United States 
for, or on behalf of, a foreign bank if such correspondent account is 
being used to process transactions that involve Liberty Reserve.
    (2) Special due diligence of correspondent accounts to prohibit 
use.
    (i) A covered financial institution shall apply special due 
diligence to its foreign correspondent accounts that is reasonably 
designed to guard against their use to process transactions involving 
Liberty Reserve. At a minimum, that special due diligence must include:
    (A) Notifying those foreign correspondent account holders that the 
covered financial institution knows or has reason to know provide 
services to Liberty Reserve that such correspondents may not provide 
Liberty Reserve with access to the correspondent account maintained at 
the covered financial institution; and
    (B) Taking reasonable steps to identify any use of its foreign 
correspondent accounts by Liberty Reserve, to the extent that such use 
can be determined from transactional records maintained in the covered 
financial institution's normal course of business.
    (ii) A covered financial institution shall take a risk-based 
approach when deciding what, if any, other due diligence measures it 
reasonably must adopt to guard against the use of its foreign 
correspondent accounts to process transactions involving Liberty 
Reserve.
    (iii) A covered financial institution that obtains knowledge that a 
foreign correspondent account may be being used to process transactions 
involving Liberty Reserve shall take all appropriate steps to further 
investigate and prevent such access, including the notification of its 
correspondent account holder under paragraph (b)(2)(i)(A) and, where 
necessary, termination of the correspondent account.
    (3) Recordkeeping and reporting.
    (i) A covered financial institution is required to document its 
compliance with the notice requirement set forth in paragraph 
(b)(2)(i)(A) of this section.
    (ii) Nothing in paragraph (b) shall require a covered financial 
institution to report any information not otherwise required to be 
reported by law or regulation.

    Dated: May 28, 2013.
Jennifer Shasky Calvery,
Director, Financial Crimes Enforcement Network.
[FR Doc. 2013-12945 Filed 6-5-13; 8:45 am]
BILLING CODE 4810-02-P