Customer Identification Programs, Anti-Money Laundering Programs, and Beneficial Ownership Requirements for Banks Lacking a Federal Functional Regulator, 58425-58434 [2016-20219]
Download as PDF
<![CDATA[
Federal Register / Vol. 81, No. 165 / Thursday, August 25, 2016 / Proposed Rules
www.regulations.gov or https://
arlweb.msha.gov/currentcomments.asp.
To read background documents, go to
https://www.regulations.gov. Review the
docket in person at MSHA, Office of
Standards, Regulations, and Variances,
201 12th Street South, Arlington,
Virginia, between 9:00 a.m. and 5:00
p.m. Monday through Friday, except
Federal Holidays. Sign in at the
receptionist’s desk in Suite 4E401.
Email Notification: To subscribe to
receive an email notification when
MSHA publishes rules in the Federal
Register, go to https://www.msha.gov.
FOR FURTHER INFORMATION CONTACT:
Sheila A. McConnell, Director, Office of
Standards, Regulations, and Variances,
MSHA, at mcconnell.sheila.a@dol.gov
(email), 202–693–9440 (voice); or 202–
693–9441 (facsimile). These are not tollfree numbers.
On June 8,
2016 (81 FR 36826), MSHA published a
request for information on Exposure of
Underground Miners to Diesel Exhaust.
The request for information seeks input
from the public that will help MSHA
evaluate the Agency’s existing standards
and policy guidance on controlling
miners’ exposures to diesel exhaust to
evaluate the effectiveness of the
protection now in place to preserve
miners’ health.
On June 27, 2016, (81 FR 41486),
MSHA published a notice in the Federal
Register announcing the dates and
locations for four public meetings on the
request for information. MSHA held
meetings on July 19, 21, and 26 and
August 4, 2016. In response to requests
from the public, MSHA is providing
additional time for interested parties to
comment. MSHA is extending the
comment period from September 6,
2016, to November 30, 2016.
SUPPLEMENTARY INFORMATION:
Dated: August 17, 2016.
Joseph A. Main,
Assistant Secretary of Labor for Mine Safety
and Health.
[FR Doc. 2016–20396 Filed 8–24–16; 8:45 am]
Lhorne on DSK30JT082PROD with PROPOSALS
BILLING CODE 4520–43–P
VerDate Sep<11>2014
13:57 Aug 24, 2016
Jkt 238001
DEPARTMENT OF THE TREASURY
Financial Crimes Enforcement Network
31 CFR Parts 1010 and 1020
RIN 1506–AB28
Customer Identification Programs,
Anti-Money Laundering Programs, and
Beneficial Ownership Requirements
for Banks Lacking a Federal Functional
Regulator
Financial Crimes Enforcement
Network (‘‘FinCEN’’), Treasury.
ACTION: Notice of proposed rulemaking.
AGENCY:
FinCEN is issuing this
proposed rule to implement section 326
of the Uniting and Strengthening
America by Providing Appropriate
Tools Required to Intercept and
Obstruct Terrorism Act of 2001 and to
remove the anti-money laundering
program exemption for banks that lack
a Federal functional regulator,
including, but not limited to, private
banks, non-federally insured credit
unions, and certain trust companies.
The proposed rule would prescribe
minimum standards for anti-money
laundering programs for banks without
a Federal functional regulator to ensure
that all banks, regardless of whether
they are subject to Federal regulation
and oversight, are required to establish
and implement anti-money laundering
programs, and would extend customer
identification program requirements and
beneficial ownership requirements to
those banks not already subject to these
requirements.
DATES: Written comments may be
submitted to FinCEN on or before
October 24, 2016.
ADDRESSES: You may submit comments,
identified by Regulatory Identification
Number (RIN) 1506–AB28, by any of the
following methods:
• Federal E-rulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
Include 1506–AB28 in the submission.
Refer to Docket Number FINCEN–2014–
0004.
• Mail: Policy Division, Financial
Crimes Enforcement Network, P.O. Box
39, Vienna, VA 22183. Include 1506–
AB28 in the body of the text. Please
submit comments by one method only.
Comments submitted in response to this
notice of proposed rulemaking
(‘‘NPRM’’) will become a matter of
public record. Therefore, you should
submit only information that you wish
to make publicly available.
Inspection of comments: FinCEN uses
the electronic, Internet-accessible
SUMMARY:
PO 00000
Frm 00013
Fmt 4702
Sfmt 4702
58425
dockets at Regulations.gov as their
complete, official-record docket; all
hard copies of materials that should be
in the docket, including public
comments, are electronically scanned
and placed there. Federal Register
notices published by FinCEN are
searchable by docket number, RIN, or
document title, among other things, and
the docket number, RIN, and title may
be found at the beginning of the notice.
In general, FinCEN will make all
comments publicly available by posting
them on https://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: The
FinCEN Resource Center at (800) 767–
2825 or email frc@fincen.gov.
SUPPLEMENTARY INFORMATION:
I. Background
A. Statutory Provisions
FinCEN exercises regulatory functions
primarily under the Currency and
Financial Transactions Reporting Act of
1970, as amended by the Uniting and
Strengthening America by Providing
Appropriate Tools Required to Intercept
and Obstruct Terrorism Act of 2001
(‘‘USA PATRIOT Act’’) (Pub. L. 107–56)
and other legislation. This legislative
framework is commonly referred to as
the ‘‘Bank Secrecy Act’’ (‘‘BSA’’).1 The
Secretary of the Treasury (‘‘Secretary’’)
has delegated to the Director of FinCEN
the authority to implement, administer,
and enforce compliance with the BSA
and associated regulations.2 Pursuant to
this authority, FinCEN may issue
regulations requiring financial
institutions to keep records and file
reports that ‘‘have a high degree of
usefulness in criminal, tax, or regulatory
investigations or proceedings, or in the
conduct of intelligence or
counterintelligence activities, including
analysis, to protect against international
terrorism.’’ 3 Additionally, FinCEN is
authorized to impose anti-money
laundering (‘‘AML’’) program
requirements for financial institutions.4
Section 352 of the USA PATRIOT Act
requires financial institutions to
establish AML programs that, at a
minimum, include: (1) The
development of internal policies,
procedures, and controls; (2) the
designation of a compliance officer; (3)
an ongoing employee training program;
and (4) an independent audit function
1 The BSA is codified at 12 U.S.C. 1829b, 12
U.S.C. 1951–1959, 31 U.S.C. 5311–5314 and 5316–
5332, and notes thereto, with implementing
regulations at 31 CFR chapter X. See 31 CFR
1010.100(e).
2 Treasury Order 180–01 (Jul. 1, 2014).
3 31 U.S.C. 5311.
4 31 U.S.C. 5318(h).
E:\FR\FM\25AUP1.SGM
25AUP1
Lhorne on DSK30JT082PROD with PROPOSALS
58426
Federal Register / Vol. 81, No. 165 / Thursday, August 25, 2016 / Proposed Rules
to test programs.5 Section 352 of the
USA PATRIOT Act authorizes FinCEN,
in consultation with the ‘‘appropriate’’
Federal functional regulator (using the
definition of ‘‘Federal functional
regulator’’ found in 15 U.S.C. 6809), to
prescribe minimum standards for AML
programs. In determining the
appropriate scope and nature for this
proposed rulemaking for financial
institutions that are not directly
regulated by any Federal functional
regulator under any definition of that
term, FinCEN considered the Federal
functional regulators of similar
institutions, including Federal bank
supervisory authorities, the U.S.
Securities and Exchange Commission
(‘‘SEC’’), and the Commodity Futures
Trading Commission (‘‘CFTC’’), to be
‘‘appropriate’’ Federal functional
regulators within the meaning of
Section 352. In preparing this rule,
FinCEN consulted with these regulators
and in order to be certain of addressing
all important issues, it also consulted
with state bank supervisory authorities,
and the Internal Revenue Service
(‘‘IRS’’), which, to date, has been the
examining authority for all institutions
regulated by FinCEN that do not have a
Federal functional regulator.
When prescribing minimum
standards for AML programs, FinCEN
must ‘‘consider the extent to which the
requirements imposed [under section
352 of the USA PATRIOT Act] are
commensurate with the size, location,
and activities of the financial
institutions to which [the standards]
apply.’’ 6 In addition, FinCEN may
‘‘prescribe an appropriate exemption
from a requirement [in the BSA] or
regulations [issued under the BSA].’’ 7
FinCEN used this authority in 2002 to
exempt temporarily certain financial
institutions identified in section 352
from the requirement to establish an
AML program.
Section 326 of the USA PATRIOT Act
requires FinCEN to prescribe regulations
that require financial institutions to
establish programs for account opening
that, at a minimum, include: (1)
Verifying the identity of any person
seeking to open an account, to the
extent reasonable and practicable; (2)
maintaining records of the information
used to verify the person’s identity,
including name, address, and other
identifying information; and (3)
determining whether the person appears
on any lists of known or suspected
terrorists or terrorist organizations
5 Id.
6 Public Law 107–56, title III, Sec. 352(c), 115
Stat. 322.
7 31 U.S.C. 5318(a)(6).
VerDate Sep<11>2014
13:57 Aug 24, 2016
Jkt 238001
provided to the financial institution by
any government agency.8 These
programs are referred to as Customer
Identification Programs (‘‘CIPs’’).
When prescribing CIP regulations for
financial institutions that engage in
financial activities described in Section
4(k) of the Bank Holding Company Act
of 1956, 12 U.S.C. 1843(k), FinCEN must
prescribe such CIP regulations jointly
with the Federal functional regulator
(again using the definition of ‘‘Federal
functional regulator’’ found in 15 U.S.C.
6809, but also including the CFTC) that
is ‘‘appropriate’’ for the affected
financial institutions.9 FinCEN
generally considers the Federal
functional regulator—if any—that
actually regulates a financial institution
to be the Federal functional regulator
appropriate to promulgate regulations
for such a financial institution.10
Specifically with respect to CIP rules,
FinCEN has maintained publicly since
2003 that, for a CIP rule that applies to
institutions not directly regulated by
any Federal functional regulator under
any definition of that term, it is not
‘‘appropriate’’ for any Federal agency to
issue jointly such a CIP rule with
FinCEN, given that no Federal agency
has direct supervisory authority over
such financial institutions comparable
in its pervasiveness to the direct
authority of the Federal functional
regulators over their regulated financial
institutions.11 Consistent with these
long-held positions, FinCEN proposes to
issue the CIP rule set forth here under
its sole authority.
Section 312 of the USA PATRIOT Act
requires each U.S. financial institution
that establishes, maintains, administers,
or manages a correspondent account or
a private banking account in the United
States for a non-U.S. person to subject
such accounts to certain anti-money
8 31 U.S.C. 5318(l). See Joint Final Rule—
Customer Identification Programs for Banks,
Savings Associations, Credit Unions and Certain
Non-Federally Regulated Banks, 68 FR 25103 (May
9, 2003) (‘‘The CIP must include procedures for
determining whether the customer appears on any
list of known or suspected terrorists or terrorist
organizations issued by any Federal government
agency and designated as such by Treasury in
consultation with the Federal functional
regulators.’’ To date, the Department of the Treasury
has not designated any such list.).
9 31 U.S.C. 5318(l)(4). The financial institutions
subject to the CIP rule being proposed here engage
in financial activities within the meaning of 12
U.S.C. 1843(k), in particular lending money and
providing financial advisory services. See 12 U.S.C.
1843(k)(4)(A) and (C).
10 See, e.g., 31 CFR 1020.210(a).
11 See Notice of Proposed Rulemaking—Customer
Identification Programs for Certain Banks Lacking a
Federal Functional Regulator, 68 FR 25163 (May 9,
2003).
PO 00000
Frm 00014
Fmt 4702
Sfmt 4702
laundering measures.12 In particular,
financial institutions must establish
appropriate, specific, and, where
necessary, enhanced due diligence
policies, procedures, and controls that
are reasonably designed to enable the
financial institution to detect and report
instances of money laundering through
these accounts. In addition to the
general due diligence requirements,
which apply to all correspondent
accounts for non-U.S. persons, section
5318(i)(2) specifies additional standards
for correspondent accounts maintained
for certain foreign banks. Section 5318(i)
also sets forth minimum due diligence
requirements for private banking
accounts for non-U.S. persons.
Specifically, a covered financial
institution must take reasonable steps to
ascertain the identity of the nominal
and beneficial owners of, and the source
of funds deposited into, private banking
accounts, as necessary to guard against
money laundering and to report
suspicious transactions. The institution
must also conduct enhanced scrutiny of
private banking accounts requested or
maintained for, or on behalf of, senior
foreign political figures (which includes
family members or close associates).
Enhanced scrutiny must be reasonably
designed to detect and report
transactions that may involve the
proceeds of foreign corruption.
B. Regulatory Background
The following information describes
the effect of certain previous
rulemakings on banks, and specifically
on banks lacking a Federal functional
regulator.
AML Program Requirements
Most banks became subject to an AML
program requirement pursuant to the
BSA with FinCEN’s issuance of an
Interim Final Rule on April 29, 2002
(the ‘‘Interim Final Rule’’).13 The
Interim Final Rule stated that an
institution regulated by a Federal
functional regulator ‘‘shall be deemed to
satisfy the requirements of 31 U.S.C.
12 These requirements are set forth and cross
referenced in sections 1020.610 (cross-referencing
to 31 CFR 1010.610) and 1020.620 (crossreferencing to 31 CFR 1010.620).
13 See Interim Final Rule—Anti-Money
Laundering Programs for Financial Institutions, 67
FR 21110 (Apr. 29, 2002). Since 1987, all federally
insured depository institutions and credit unions
have been required by their Federal regulators to
have anti-money laundering programs ‘‘to assure
and monitor compliance with the requirements of
subchapter II of chapter 53 of title 31, United States
Code,’’ but until the passage of the USA PATRIOT
Act the requirement to implement such programs
did not arise under a specific provision of the Bank
Secrecy Act itself. See Final Rule—Procedures for
Monitoring Bank Secrecy Act Compliance, 52 FR
2858 (Jan. 27, 1987).
E:\FR\FM\25AUP1.SGM
25AUP1
Federal Register / Vol. 81, No. 165 / Thursday, August 25, 2016 / Proposed Rules
Lhorne on DSK30JT082PROD with PROPOSALS
5318(h)(1) if it implements and
maintains an [AML] program that
complies with the regulation of its
Federal functional regulator governing
such programs.’’ 14 ‘‘Federal functional
regulator’’ is defined at 31 CFR
1010.100(r) to include each of the
Federal banking agencies, as well as the
SEC and the CFTC.
The Interim Final Rule also deferred
AML program requirements for certain
financial institutions, including ‘‘private
bankers.’’ 15 On November 6, 2002,
FinCEN amended the Interim Final
Rule.16 The amendment extended the
deferral indefinitely,17 and included
within the deferral not only private
bankers, but any bank ‘‘that is not
subject to regulation by a Federal
functional regulator.’’ 18
Although banks that lack a Federal
functional regulator have not been
required to establish an AML program,
they are required to comply with many
other BSA requirements. For example,
banks that lack a Federal functional
regulator still must file currency
transaction reports (‘‘CTRs’’) and
suspicious activity reports (‘‘SARs’’),
and make and maintain certain
records.19 In addition, banks that lack a
Federal functional regulator must
comply with 31 CFR 1010.630, which
prohibits covered financial institutions
from maintaining correspondent
accounts for foreign shell banks and
requires covered financial institutions to
obtain and retain information on the
ownership of foreign banks.20
14 See 67 FR 21113. Since the time of the 2002
Interim Final Rule, FinCEN has reorganized its
regulations under 31 CFR Chapter X. See Final
Rule—Transfer and Reorganization of Bank Secrecy
Act Regulations, 75 FR 65806 (Oct. 26, 2010). The
cited AML program requirement can currently be
found at 31 CFR 1020.210, with an added crossreference to enhanced due diligence requirements
imposed by rulemakings later than the Interim Final
Rule.
15 ‘‘Private banker’’ is included in the list of
financial institutions in the BSA. 12 U.S.C.
5312(a)(2)(C).
16 See Amendment of Interim Final Rule—AntiMoney Laundering Programs for Financial
Institutions, 67 FR 67547 (Nov. 6, 2002).
17 See 31 CFR 1010.205(c). The deferral expires
for a financial institution on the date the financial
institution otherwise must comply with a final rule
requiring the financial institution to establish an
AML program.
18 See 31 CFR 1010.205(b)(1)(vi) and (b)(2).
19 See 31 CFR 1010.306–315 (CTRs); 31 CFR
1020.320 (SAR rule for banks); 31 CFR 1010.410
(records to be made and retained by financial
institutions).
20 Private banks, trust companies, and credit
unions are ‘‘covered financial institutions’’ for
purposes of 31 CFR 1010.630 and 31 CFR 1010.670,
regardless of whether the institutions have a
Federal functional Regulator. See 31 CFR
1010.605(e)(2). In contrast, rules requiring the
implementation of due diligence programs for
correspondent accounts and private banking
accounts do not apply to private banks, apply only
VerDate Sep<11>2014
13:57 Aug 24, 2016
Jkt 238001
Despite being subject to the various
BSA obligations detailed above, banks
that lack a Federal functional regulator
have remained exempt from the AML
program requirement since the Interim
Final Rule. In contrast, FinCEN has
already eliminated the exemption and
promulgated AML program rules for
other institutions that had been
exempted under the Interim Final Rule,
including insurance companies, certain
loan or finance companies, and dealers
in precious metals, precious stones, or
jewels.
Customer Identification Program
Requirements
CIP requirements were finalized,
through a joint final rule, for banks,
savings associations, credit unions, and
certain non-Federally regulated banks
on May 9, 2003. With this action,
certain banks that lack a Federal
functional regulator, namely, private
banks, non-federally insured credit
unions and certain trust companies,
were required to comply with CIP
requirements.21 On the same day,
FinCEN published a notice of proposed
rulemaking that would have imposed
CIP requirements on all other stateregulated banks without a Federal
functional regulator that were not
included in the joint rule.22 This
rulemaking was never finalized.
Beneficial Ownership Requirement
On May 11, 2016, FinCEN published
a final rule (‘‘CDD Rule’’),23 to clarify
and strengthen customer due diligence
requirements for certain financial
institutions, including federally
regulated banks, requiring these
financial institutions to identify and
verify the identity of the beneficial
owners of their legal entity customers,
subject to certain exclusions and
exemptions. The CDD Rule also amends
the AML program requirements for
these financial institutions. For
purposes of regulatory consistency,
FinCEN believes that it is appropriate
that these requirements should apply to
non-federally regulated banks as well,
to ‘‘federally insured credit unions,’’ and certain
trust companies that are ‘‘federally regulated and
subject to an anti-money laundering program
requirement.’’ See 31 CFR 1010.605(e)(1); 31 CFR
1010.610 (correspondent accounts); 31 CFR
1010.620 (private banking accounts).
21 See Joint Final Rule—Customer Identification
Programs for Banks, Savings Associations, Credit
Unions and Certain Non-Federally Regulated Banks,
68 FR 25090 (May 9, 2003). See 31 CFR 1020.220.
22 See Notice of Proposed Rulemaking—Customer
Identification Programs for Certain Banks Lacking a
Federal Functional Regulator, 68 FR 25163 (May 9,
2003).
23 See Final Rules, Customer Due Diligence Rules
for Financial Institutions, 81 FR 29398 (May 11,
2016).
PO 00000
Frm 00015
Fmt 4702
Sfmt 4702
58427
and accordingly proposes these
requirements in this notice.
C. Categories of Banks Lacking a Federal
Functional Regulator
FinCEN has identified the following
categories of banks that lack a Federal
functional regulator and is interested in
identifying additional categories of such
entities. However, no discussion of such
entities should be thought to be
exhaustive. This NPRM proposes that
any entity that meets the definition of
bank in 31 CFR 1010.100(d) would be
required to establish an AML program.
State-Chartered Non-Depository Trust
Companies
State-chartered non-depository trust
companies are generally smaller than
depository (or federally regulated nondepository) trust companies, and often
provide estate planning and settlement
and trust administration on a regional
basis.24 Trust companies can provide
services similar to investment advisory
firms, including securities investment
advisers, but are generally exempt from
registration as investment advisers with
the SEC.25 Trust companies also may
provide services to clients similar to the
services offered by other financial
services firms. The number of statechartered non-depository trust
companies is difficult to determine;
however, according to data available
from state banking regulator Web sites,
there are upwards of 347 of these
entities.26
Non-Federally Insured Credit Unions
Of the more than 6,273 credit unions
nationwide, FinCEN understands that
there are approximately 265 statechartered credit unions that are not
federally insured. Aside from their lack
of a Federal functional regulator, these
credit unions generally are similar in
structure to federally insured credit
unions.27
Private Banks
A private bank is a bank chartered
under state law that is owned by an
24 Certain trust companies and banks offering
trust services are subject to safety and soundness
regulation by one or more Federal banking agencies.
See, e.g., 12 U.S.C. 1813(a)(2), (l)(2), and (p); 12
U.S.C. 1817(i).
25 See 15 U.S.C. 80b–2(a)(2) and (11)(A).
26 We reviewed relevant information from the
Web sites of state banking departments to determine
the estimated number. See https://www.csbs.org/
about/what/Pages/
StateBankingDepartmentLinks.aspx.
27 The statistics are based upon information
provided in 2013 by the National Association of
State Credit Union Supervisors. Federally chartered
credit unions are insured by the NCUA through the
National Credit Union Share Insurance Fund. See
12 U.S.C. 1781.
E:\FR\FM\25AUP1.SGM
25AUP1
58428
Federal Register / Vol. 81, No. 165 / Thursday, August 25, 2016 / Proposed Rules
individual or a partnership and
generally provides financial services to
individuals with high net worth.28
Although private banks have a long
history in certain jurisdictions,
including Switzerland and the United
Kingdom, at least one private bank
remains in the United States.
Non-Federally Insured State Banks and
Savings Associations
According to estimates available from
state banking regulator Web sites, the
number of state-chartered banks and
savings and loan or building and loan
associations without Federal Deposit
Insurance Corporation (‘‘FDIC’’)
insurance is not more than 12.29 These
banks function similarly to other
federally insured banks, but are
privately insured.
International Banking Entities
International banking entities, or
‘‘entidades bancarias internacionales’’
(‘‘EBIs’’), are not federally insured, but
are authorized by Puerto Rican and the
U.S. Virgin Islands law to provide
banking and other services to nonresident aliens. As of 2014, 33 EBIs were
licensed by Puerto Rico.30
D. Extension of AML Program, CIP and
Beneficial Ownership Requirements
Lhorne on DSK30JT082PROD with PROPOSALS
The Anti-Money Laundering Program
The statutory mandate that all
financial institutions establish antimoney laundering programs is a key
element in the national effort to prevent
and detect money laundering and the
financing of terrorism. Banks without a
Federal functional regulator may be as
vulnerable to the risks of money
laundering and terrorist financing as
banks with one. This proposed rule
would eliminate the present regulatory
‘‘gap’’ in AML coverage between banks
with and without a Federal functional
regulator. FinCEN expects uniform
regulatory requirements for all banks to
reduce the opportunity for criminals to
seek out and exploit banks subject to
less rigorous AML requirements.
28 Private banks should be distinguished from
private banking accounts. A ‘‘private banking
account’’ for purposes of rules implementing
section 312 of the USA PATRIOT Act includes any
account—at any kind of bank—that is established
for certain individuals who are not United States
citizens, provided the account requires a minimum
aggregate deposit of $1,000,000 or more and the
account is administered by an officer, employee, or
agent of the covered financial institution acting as
a liaison with the direct or beneficial owner of the
account. See 31 CFR 1010.605(m). The rules
implementing section 312 of the USA PATRIOT Act
do not apply to private banks per se.
29 See supra note 26.
30 See Commissioner of Financial Institutions of
Puerto Rico https://www.ocif.gobierno.pr/documents
/cons/EBI.pdf.>
VerDate Sep<11>2014
13:57 Aug 24, 2016
Jkt 238001
FinCEN also believes that imposing
an AML program requirement on banks
that lack a Federal functional regulator
would not be unduly burdensome, given
that such banks already must comply
with various BSA recordkeeping,
reporting, and, in some cases, CIP
requirements. In order to comply with
these existing rules, banks lacking a
Federal functional regulator have likely
developed procedures and protocol
comparable to what would be required
under the proposed rule.
In 2005, uniform BSA examination
procedures were issued through the first
publication of the Federal Financial
Institutions Examination Council Bank
Secrecy Act/Anti-Money Laundering
Examination Manual.31 FinCEN
understands that uniform audits or
examinations of policies, procedures,
internal controls, reporting structures,
transaction monitoring, and
recordkeeping have caused many banks
that lack a Federal functional regulator
to adopt procedures similar to the ones
that would be required under the
proposed rule.
Customer Identification Program
For the reasons of regulatory
consistency and protection against
systemic vulnerability discussed above
in connection with AML programs,
FinCEN believes that CIP should also
apply to all banks (including all
depository institutions chartered under
state banking law, even if the charter
was not for a credit union, trust
company, or private bank), regardless of
whether they are Federally regulated.
The preamble of the final CIP rule said
that it applied to ‘‘banks with a Federal
functional regulator and to credit
unions, trust companies, and private
banks without a federal functional
regulator.’’ However, on the same day
that the final CIP rule was issued,
FinCEN issued a follow-on Notice of
Proposed Rulemaking to ensure that
there would be no gaps in the scope of
the CIP obligations as they apply to
banks.32 Because this proposal was
never finalized, FinCEN is also reproposing changes that would explicitly
31 The Federal Financial Institutions Examination
Council is a formal interagency body consisting of
the Federal banking agencies authorized to
prescribe uniform standards for the examination of
financial institutions. See https://www.ffiec.gov/.
Regulators from forty-seven state regulators, the
District of Columbia, and the Commonwealth of
Puerto Rico conduct AML compliance inspections
in conjunction with the Federal banking agencies.
Similarly, credit unions are subject to joint
supervision by the NCUA and their state
supervisors, pursuant to a Document of Cooperation
executed by the NCUA and the National
Association of State Credit Union Supervisors.
32 See supra note 22.
PO 00000
Frm 00016
Fmt 4702
Sfmt 4702
require all banks that lack a Federal
functional regulator to establish CIP.
Beneficial Ownership Requirements
As noted above, the CDD Rule
requires that federally regulated banks
and certain other financial institutions
identify, and verify the identity of, the
beneficial owners of their legal entity
customers, as set forth in section
1010.230.33 For purposes of regulatory
consistency, FinCEN believes that this
requirement should apply to nonfederally regulated banks as well.
II. Section-by-Section Analysis
This notice proposes to amend
chapter X by adding AML program
requirements for banks that lack a
Federal functional regulator, and
extending CIP and beneficial ownership
requirements to those banks not already
subject to these requirements. These
proposed changes include the following:
(1) Amending the provision in
§ 1010.205 that exempts certain
financial institutions from the
requirement to establish an AML
program; (2) amending the definition of
covered financial institution in
§ 1010.605 so that non-federally
regulated banks will be subject to the
beneficial ownership requirements
pursuant to the CDD Rule (as well as the
requirements in §§ 1010.610 and
1010.620); (3) removing the substantive
language in the definitions of bank and
financial institution in part 1020, Rules
for Banks, because there will no longer
be a need to make distinctions from the
definitions in part 1010’s General
Definitions; (4) imposing AML program
requirements on banks that lack a
Federal functional regulator and
prescribing minimum standards for the
AML programs; and (5) amending the
CIP requirements to delete a specific
requirement that until banks without a
Federal functional regulator are subject
to AML program requirements they
must have their CIPs approved by their
boards of directors. If the proposed
changes are implemented, banks
without a Federal functional regulator
will be required to implement a written
AML program approved by their boards
of directors or by equivalent functional
units within the banks.
A. Exempted Anti-Money Laundering
Programs for Certain Financial
Institutions
Section 1010.205 provides temporary
exemptions for certain financial
institutions from the requirement to
establish an anti-money laundering
33 The CDD Rule is effective July 11, 2016 and
applicable on and after May 11, 2018.
E:\FR\FM\25AUP1.SGM
25AUP1
Federal Register / Vol. 81, No. 165 / Thursday, August 25, 2016 / Proposed Rules
program.34 The proposed amendments
to 31 CFR 1010.205 reflect the removal
of: (1) The exemption for private
bankers (§ 1010.205(b)(1)(vi)); (2) the
broader exemption for banks that lack a
Federal functional regulator
(§ 1010.205(b)(2)); and (3) the exemption
for persons subject to supervision by a
state banking authority
(§ 1010.205(b)(3)).
B. General and Specific Definitions
Lhorne on DSK30JT082PROD with PROPOSALS
General rules that apply to all
industries appear in part 1010, and
industry-specific rules are contained in
other parts within chapter X. Because
the definition of bank in part 1010
makes no distinctions as to whether a
bank has a Federal functional regulator,
there are no proposed changes to that
definition of bank in § 1010.100(d).35
Likewise, there are no proposed changes
to the general definition of financial
institution in § 1010.100(t).36 Specific
rules for banks are contained in part
1020, which includes definitions of both
‘‘bank’’ and ‘‘financial institution’’
specific to that part, to note a distinction
in the application of AML program and
CIP requirements between banks with a
Federal functional regulator and those
lacking one. FinCEN proposes to amend
those definitions, as described below.
34 See 67 FR 21113 (Apr. 29, 2002), as amended
at 67 FR 67549 (Nov. 6, 2002) and corrected at 67
FR 68935 (Nov. 14, 2002) (Treasury temporarily
exempted private bankers and banks not subject to
regulation by a Federal functional regulator from
establishing an AML program).
35 Bank is defined in 31 CFR 1010.100(d) as each
agent, agency, branch, or office within the United
States of any person doing business in one or more
of the capacities listed: (1) A commercial bank or
trust company organized under the laws of any state
or of the United States; (2) A private bank; (3) A
savings and loan association or a building and loan
association organized under the laws of any state
or of the United States; (4) An insured institution
as defined in section 401 of the National Housing
Act; (5) A savings bank, industrial bank or other
thrift institution; (6) A credit union organized under
the law of any state or of the United States; (7) Any
other organization (except a money services
business) chartered under the banking laws of any
state and subject to the supervision of the bank
supervisory authorities of a state; (8) A bank
organized under foreign law; (9) Any national
banking association or corporation acting under the
provisions of section 25(a) of the Act of Dec. 23,
1913, as added by the Act of Dec. 24, 1919, ch. 18,
41 Stat. 378, as amended (12 U.S.C. 611–32).
36 31 CFR 1010.100(t) defines financial institution
as each agent, agency, branch, or office within the
United States of any person doing business,
whether or not on a regular basis or as an organized
business concern, in one or more of the capacities
listed below: (1) A bank (except bank credit card
systems); (2) A broker or dealer in securities; (3) A
money services business as defined in
§ 1010.100(ff); (4) A telegraph company; (5) Casino;
(6) Card club; (7) A person subject to supervision
by any state or Federal bank supervisory authority;
(8) A futures commission merchant; (9) An
introducing broker in commodities; or (10) A
mutual fund.
VerDate Sep<11>2014
13:57 Aug 24, 2016
Jkt 238001
Customer Identification Program
Requirement
The separate definition of bank in
§ 1020.100(b) reflects the fact that
existing CIP requirements do not apply
to all banks that lack a Federal
functional regulator. The current
definition of bank, for the purposes of
31 CFR 1020.220, is (1) A bank, as that
term is defined in 31 CFR 1010.100(d),
that is subject to regulation by a Federal
functional regulator; and (2) A credit
union, private bank, and trust company,
as set forth in 31 CFR 1010.100(d) of
this chapter, that does not have a
Federal functional regulator.37
This rulemaking proposes to remove
existing § 1020.100(b), which would
result in making all banks, regardless of
whether they are subject to regulation
by a Federal functional regulator,
comply with CIP requirements.
Beneficial Ownership Requirement
The beneficial ownership requirement
in the CDD Rule applies to covered
financial institutions as defined in
§ 1010.605(e)(1). This definition
includes several types of banks, all of
which are federally regulated,38 as well
as brokers and dealers in securities,
futures commission merchants and
introducing brokers, and mutual funds.
In order to apply this requirement to
non-federally regulated banks, this
rulemaking proposes to amend the
current definition of covered financial
institution by replacing paragraphs (i)
through (vii) of § 1010.605(e)(1) with the
following, which includes all banks
(whether or not federally regulated) that
are subject to an AML program
requirement ‘‘a bank required to have an
anti-money laundering compliance
program under the regulations
implementing 31 U.S.C. 5318(h), 12
U.S.C. 1818(s), or 12 U.S.C. 1786(q)(1).’’
Anti-Money Laundering Program
Requirement
The definition of financial institution
in § 1020.100(d) reflects the fact that
existing AML program requirements are
based on whether a bank is subject to
regulation by a Federal functional
regulator. The current definition of
financial institution is (1) For the
purposes of 31 CFR 1020.210, a
financial institution is defined in 31
37 See
31 CFR 1020.100(b).
include (1) An insured bank (as defined
in section 3(h) of the Federal Deposit Insurance Act
(12 U.S.C. 1813(h)); (2) A commercial bank; (3) An
agency or branch of a foreign bank; (4) A federally
insured credit union; (5) A savings association; (6)
A corporation acting under section 25A of the
Federal Reserve Act; and (7) A trust bank or trust
company that is federally regulated and is subject
to an anti-money laundering program requirement.
38 These
PO 00000
Frm 00017
Fmt 4702
Sfmt 4702
58429
U.S.C. 5312(a)(2) or (c)(1) that is subject
to regulation by a Federal functional
regulator or a self-regulatory
organization; (2) For the purposes of 31
CFR 1020.220, a financial institution is
defined in 31 U.S.C. 5312(a)(2) or (c)(1).
This rulemaking proposes to remove
existing § 1020.100(d)(1), which along
with the proposed amendments to
§ 1020.210 described below, would
result in requiring all banks, regardless
of whether they are subject to regulation
by a Federal functional regulator, to
comply with the obligation to
implement an AML program.39
C. AML Program Requirements
Section 1020.210 (as amended by the
CDD Rule) sets forth the current AML
program requirements for banks. This
rulemaking proposes certain changes
necessary to ensure that all banks,
regardless of whether they are subject to
Federal regulation and oversight, are
required to establish and implement
anti-money laundering programs. One
proposed change concerns the title and
structure of the section. Currently, the
title reads: ‘‘Anti-money laundering
program requirements for financial
institutions regulated only by a Federal
functional regulator, including banks,
savings associations, and credit
unions.’’ With the proposed change, the
title would read: ‘‘Anti-money
laundering program requirements for
banks,’’ and it would contain one
section for banks regulated only by a
Federal functional regulator and another
section for banks that lack a Federal
functional regulator.
As proposed, § 1020.210(a) would be
titled: ‘‘Anti-money laundering program
requirements for banks regulated only
by a Federal functional regulator,
including banks, savings associations,
and credit unions.’’ The existing
language in § 1020.210 states that
compliance by a financial institution
regulated by a Federal functional
regulator that is not subject to the
regulations of a self-regulatory
organization satisfies the AML program
requirement under 31 U.S.C. 5318(h)(1)
if its program complies with the
requirements of §§ 1010.610 and
1010.620 and the regulations of its
Federal functional regulator governing
AML programs. FinCEN is unaware of
any instance in which a bank is subject
to regulations by a self-regulatory
organization. Accordingly, FinCEN
proposes to remove reference to such
regulation from the regulatory text, by
39 We are also proposing to remove
§ 1020.100(d)(2). Due to the current definition of
‘‘financial institution’’ in § 1010.100(t), this broader
definition of the term is no longer necessary.
E:\FR\FM\25AUP1.SGM
25AUP1
Lhorne on DSK30JT082PROD with PROPOSALS
58430
Federal Register / Vol. 81, No. 165 / Thursday, August 25, 2016 / Proposed Rules
striking the words ‘‘that is not subject to
the regulations of a self-regulatory
organization.’’ This proposed change
would appear in § 1020.210(a).40
Proposed new § 1020.210(b) would be
titled: ‘‘Anti-money laundering program
requirements for banks lacking a Federal
functional regulator including, but not
limited to, private banks, non-federally
insured credit unions, and certain trust
companies.’’ New § 1020.210(b)(1)
would require banks that lack a Federal
functional regulator to establish and
implement AML programs reasonably
designed to assure ongoing compliance
with the Bank Secrecy Act. Section
1020.210(b)(1)(ii)(E) would require
compliance with due diligence
requirements for correspondent
accounts for foreign financial
institutions (§ 1010.610) and for private
banking accounts (§ 1010.620), and new
§ 1020.210(b)(1) also would prescribe
the minimum standards necessary for an
AML program.
With respect to minimum standards,
proposed § 1020.210(b)(1)(ii)(A) would
require that the AML program include a
system of internal controls to assure
ongoing compliance with the BSA. As
part of implementing an AML program,
FinCEN would expect banks that lack a
Federal functional regulator to assess
the money laundering and terrorist
financing risks that are associated with
their products, customers, distribution
channels, and geographic locations. An
assessment of customer-related
information is a key component to a
robust AML program, and banks must
ensure that they obtain all the
information necessary for their AML
program requirements. For purposes of
making the required risk assessment,
banks have discretion to determine how
best to collect the relevant customer
information. FinCEN does not anticipate
that this requirement will entail
obtaining information not already
obtained in the ordinary course of
business. Policies, procedures, and
internal controls also must be
reasonably designed to ensure
compliance with BSA requirements.
Banks may conduct some of their
operations through agents and thirdparty service providers. Some elements
of the compliance program may best be
performed by personnel of these
entities, in which case it is permissible
for banks to contract with such entities
to assist them with implementation and
operation of those aspects of its AML
program. Any bank that contracts with
an agent or third party to assist with
40 The regulation text set forth is the text as
amended by the CDD Rule, which is effective July
11, 2016 and applicable on and after May 11, 2018.
VerDate Sep<11>2014
13:57 Aug 24, 2016
Jkt 238001
aspects of its AML program, however,
remains fully responsible for the
effectiveness of the program, as well as
ensuring that compliance examiners are
able to obtain information and records
relating to the AML program.
Proposed § 1020.210(b)(1)(ii)(B)
would require that the program provide
for independent testing to monitor and
maintain an adequate program. A party
external to the bank, such as an outside
consultant or accountant, need not
perform the testing. The testing may be
conducted by an officer, employee, or
group of employees, so long as the
person or persons conducting the testing
are independent of the person or group
of persons primarily responsible for
implementing the bank’s AML program.
The frequency of independent testing
will depend upon the risks posed.41
Any recommendations that result from
the independent testing should be
implemented promptly or reviewed by
senior management.
Proposed § 1020.210(b)(1)(ii)(C)
would require that the bank designate a
person or persons who will be
responsible for coordinating and
monitoring day-to-day compliance with
the AML program. The bank may have
one individual, or the bank may
designate multiple individuals to
perform the function as a group. The
person or persons should be competent
and knowledgeable regarding BSA
requirements and money laundering
issues and risks, and should be
empowered with full responsibility and
authority to develop and enforce
appropriate policies and procedures.
The role of this function is to ensure
that the program is implemented
effectively and updated as necessary.
Proposed § 1020.210(b)(1)(ii)(D)
would require that the program provide
for training of appropriate persons.
Employee training is an integral part of
any AML program. In order to carry out
their responsibilities effectively,
employees must be trained in
requirements under the BSA and money
laundering risks generally, as well as the
internal policies and procedures of the
institution, so that red flags can be
identified. Such training may be
conducted by third parties or in-house,
and may include computer-based
training. Employees should receive
periodic updates and refreshers to such
41 See The Federal Financial Institutions
Examination Council, Bank Secrecy Act/AntiMoney Laundering Examination Manual, at 30
(2014) available at https://www.ffiec.gov/bsa_aml_
infobase/documents/BSA_AML_Man_2014_v2.pdf
(‘‘[A] sound practice is for the bank to conduct
independent testing generally every 12 to 18
months, commensurate with the BSA/AML risk
profile of the bank.’’).
PO 00000
Frm 00018
Fmt 4702
Sfmt 4702
training. The nature, scope, and
frequency of training would depend
upon the functions performed by
employees.
Proposed § 1020.210(b)(1)(ii)(E)
would require that the program include,
at a minimum, appropriate risk-based
procedures for conducting ongoing
customer due diligence, to include, but
not be limited to, understanding the
nature and purpose of customer
relationships for the purpose of
developing a customer risk profile; and
conducting ongoing monitoring to
identify and report suspicious
transactions and, on a risk basis, to
maintain and update customer
information. For purposes of this
proposed paragraph, customer
information would include information
regarding the beneficial owners of legal
entity customers (as defined in
§ 1010.230). FinCEN views this not as a
new requirement, but as an explicit
statement of the activities that are
already required of covered financial
institutions in order to monitor for, and
detect and report, suspicious
transactions.42
Proposed § 1020.210(b)(2) would
require that an AML program be
approved by the bank’s board of
directors or, if the bank does not have
a board of directors, an equivalent
function within the bank. Additionally,
a bank would be required to make a
copy of its AML program available to
FinCEN or its designee upon request.43
D. CIP Requirements
Currently, the title reads: Section
1020.220, ‘‘Customer identification
programs for banks, savings
associations, credit unions, and certain
non-Federally regulated banks.’’ With
the proposed change, the title would
read: ‘‘Customer identification program
requirements for banks.’’ This proposed
change recognizes that going forward
CIP requirements would apply to all
banks.
The proposed changes would also
delete an unnecessary reference in
§ 1020.220 that stipulates that credit
unions, private banks, and trust
companies without a Federal functional
regulator must seek board approval for
their CIPs. With finalization of this
proposal, banks lacking a Federal
functional regulator would be required
to implement a written AML program
approved by their boards of directors.
Since CIP would be part of their AML
42 For a description of what is required by this
new provision in the AML program rule for banks,
see CDD Rule, 81 FR 29398, 29419–29421.
43 An agency with authority delegated by FinCEN
to examine the bank for compliance with the BSA
would qualify as a designee of FinCEN.
E:\FR\FM\25AUP1.SGM
25AUP1
Federal Register / Vol. 81, No. 165 / Thursday, August 25, 2016 / Proposed Rules
programs, which must be approved by
their boards of directors, it would no
longer be necessary to stipulate a
separate approval of CIP in this section.
III. Request for Comment
FinCEN welcomes comment on all
aspects of the proposed rule. In
addition, FinCEN seeks comment on the
following issues:
• Whether certain banks lacking a
Federal functional regulator should be
excluded from the proposed rule;
• Whether there are additional bank
categories that should be included in
the proposed rule;
• Whether non-federally regulated
banks should be subject to the
requirements contained in the CDD
Rule;
• If the requirements contained in the
CDD Rule and under Section 312 are
imposed on non-federally regulated
banks, what time period should be given
to these institutions to implement such
requirements; and
• Whether there are banks that are, in
fact, regulated by self-regulatory
organizations.
IV. Initial Regulatory Flexibility Act
Analysis
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. Reasons Why Action by the Agency
Is Being Considered
Lhorne on DSK30JT082PROD with PROPOSALS
The Anti-Money Laundering Program
The statutory mandate that all
financial institutions establish antimoney laundering programs is a key
element in the national effort to prevent
and detect money laundering and the
financing of terrorism. Banks without a
Federal functional regulator may be as
vulnerable to the risks of AML and
terrorist financing as banks with one.
This proposed rule would eliminate the
present regulatory ‘‘gap’’ in AML
coverage between banks with and
without a Federal functional regulator.
FinCEN expects that uniform regulatory
requirements for all banks will reduce
the opportunity for criminals to seek out
and exploit banks subject to less
rigorous AML requirements.
VerDate Sep<11>2014
13:57 Aug 24, 2016
Jkt 238001
Customer Identification Program
For the reasons of regulatory
consistency and protection against
systemic vulnerability discussed above
in connection with AML programs,
FinCEN believes that CIP should also
apply to all banks (including all
depository institutions chartered under
state banking law, even if the charter
was not for a credit union, trust
company, or private bank), regardless of
whether they are Federally regulated. In
July 2002, FinCEN issued a Notice of
Proposed Rulemaking to ensure that
there would be no gaps in the scope of
the CIP obligations as they apply to
banks. Because this proposal was never
finalized, FinCEN is also re-proposing
changes that would explicitly require all
banks that lack a Federal functional
regulator to establish CIP.
Beneficial Ownership Requirements
As noted above, the CDD Rule
requires that from and after May 11,
2018, federally regulated banks and
certain other financial institutions
identify, and verify the identity of, the
beneficial owners of their legal entity
customers, as set forth in section
1010.230. For purposes of regulatory
consistency, FinCEN believes that this
requirement should apply to nonfederally regulated banks as well.
B. Objectives of, and Legal Basis for, the
Proposed Rules
Section 352 of the USA PATRIOT Act
requires financial institutions to
establish AML programs that, at a
minimum, include: (1) The
development of internal policies,
procedures, and controls; (2) the
designation of a compliance officer; (3)
an ongoing employee training program;
and (4) an independent audit function
to test programs. In addition, the CDD
Rule described above adds an explicit
requirement to conduct ongoing
monitoring.
Section 326 of the USA PATRIOT Act
requires FinCEN to prescribe regulations
that require financial institutions to
establish programs for account opening
that, at a minimum, include: (1)
Verifying the identity of any person
seeking to open an account, to the
extent reasonable and practicable; (2)
maintaining records of the information
used to verify the person’s identity,
including name, address, and other
identifying information; and (3)
determining whether the person appears
on any lists of known or suspected
terrorists or terrorist organizations
provided to the financial institution by
any government agency.
Section 312 of the USA PATRIOT Act
requires each U.S. financial institution
PO 00000
Frm 00019
Fmt 4702
Sfmt 4702
58431
that establishes, maintains, administers,
or manages a correspondent account or
a private banking account in the United
States for a non-U.S. person to subject
such accounts to certain anti-money
laundering measures.
C. Small Entities Subject to the
Proposed Rules
Based upon current data, for the
purposes of RFA, FinCEN estimates that
these rules will impact approximately
347 state chartered non-depository trust
companies; 265 state-chartered credit
unions that are not federally insured; 12
state-chartered banks and savings and
loan or building and loan associations
without FDIC insurance; and 115 EBIs
licensed in Puerto Rico.44 FinCEN
believes it is likely that most or all of
the non-federally insured credit unions
are small entities, and has no data on
the size of the other entities subject to
this rulemaking, and therefore assumes
that many of them are small entities.
Therefore, FinCEN concludes that the
proposed rules will apply to a
substantial number of small entities.
D. Projected Reporting, Recordkeeping,
and Other Compliance Requirements of
the Proposed Rules
The proposed rules would prescribe
minimum standards for AML programs
for banks without a Federal functional
regulator to ensure that all banks,
regardless of whether they are subject to
Federal regulation and oversight, are
required to establish and implement
written AML programs, including
conducting ongoing customer due
diligence, and to identify and verify the
identity of the beneficial owners of their
legal entity customers. The changes
would also extend customer
identification program requirements to
those banks not already subject to these
requirements.
Banks lacking a Federal functional
regulator are currently required to
comply with many existing
requirements under the BSA. All banks,
including those not subject to Federal
regulation and oversight, are already
required to file SARs, which necessarily
requires a bank to establish a process to
detect unusual activity. Certain banks
lacking a Federal functional regulator—
namely, private banks, non-federally
insured credit unions, and certain trust
companies—must maintain CIPs.
44 The Small Business Administration (‘‘SBA’’)
defines a trust company as a small business if it has
assets of $35.5 million or less. The SBA defines a
depository institution (including a credit union) as
a small business if it has assets of $550 million or
less. FinCEN was unable to find an authoritative
figure on the number of non-federally regulated
depository institutions that would meet the
definition of small entity.
E:\FR\FM\25AUP1.SGM
25AUP1
58432
Federal Register / Vol. 81, No. 165 / Thursday, August 25, 2016 / Proposed Rules
Lhorne on DSK30JT082PROD with PROPOSALS
Uniform audits at the state and Federal
levels may have caused banks lacking a
Federal functional regulator to adopt
procedures similar to the ones that
would be required under the AML
program requirement of the proposed
rule.
With respect to the beneficial
ownership requirement, the proposed
rule would require banks lacking a
Federal functional regulator to obtain
and maintain the identity of each
beneficial owner from each legal entity
customer that opens a new account,
including name, address, date of birth
and identification number. The
financial institution would also be
required to verify such identity by
documentary or non-documentary
methods and to maintain in its records
for five years a description of (1) any
document relied on for verification, (2)
any such non-documentary methods
and results of such measures
undertaken, and (3) the resolution of
any substantive discrepancies
discovered in verifying the
identification information.
The burden on a small non-federally
regulated bank at account opening
resulting from the final rule would be a
function of the number of beneficial
owners of each legal entity customer
opening a new account, the additional
time required for each beneficial owner,
and the number of new accounts opened
for legal entities by the small banks
during a specified period.
None of the small businesses that
commented on the CDD Rule’s Initial
Regulatory Flexibility Analysis
(‘‘IRFA’’) included an estimate of the
amount of time to open a legal entity
account; only one noted the number of
such accounts it opens per year (70). As
a result of the comments FinCEN
received to the CDD Rule’s-related
regulatory impact assessment from other
commenters, FinCEN concluded in its
Final Regulatory Flexibility Analysis
(‘‘FRFA’’) 45 that the estimated time for
financial institutions to open accounts
ranges from 20 to 40 minutes. Based on
opening 471 new accounts for legal
entities and an average wage of $16.77
for ‘‘new account clerks,’’ 46 this would
result in an annual cost to a small bank
of $2,550 to $5,100.47 FinCEN also notes
that, even among small entities, the
45 See
46 See
81 FR 29398, 29448 (May 11, 2016).
81 FR 29398, 29448, n. 179, (May 11,
2016).
47 The estimated cost is based on the bankreported 471 new accounts per year, additional time
at account opening of 15 to 30 minutes, and the
average wage of $16.77 for the financial industry
‘‘new account clerks’’ reported by the Bureau of
Labor Statistics.
VerDate Sep<11>2014
13:57 Aug 24, 2016
Jkt 238001
costs could be expected to vary
substantially.48
In addition, compliance with the
beneficial ownership requirement
would be expected to require additional
training, information technology
upgrades, and revisions to policies,
procedures, and internal controls. A
discussion of the estimated costs for
these tasks for small entities is included
in the CDD Rule FRFA referred to above.
E. Overlapping or Conflicting Federal
Rules
FinCEN is unaware of any existing
Federal regulations that would overlap
or conflict with the amendments being
proposed.
F. Consideration of Significant
Alternatives
FinCEN has not identified any
alternative means for bringing these
categories of non-federally regulated
banks into compliance with the same
standards as all other banks in the
United States. Were FinCEN to exempt
small entities from this requirement,
those entities would potentially be at
greater risk of abuse by money
launderers and other financial
criminals.
With respect to the CDD pillar of the
AML program rule, FinCEN considered
several alternatives to that which is
being proposed. As described in greater
detail elsewhere,49 these alternatives
included exempting small financial
institutions below a certain asset or
legal entity customer threshold from the
requirements, as well as utilizing a
lower (e.g., 10 percent) or higher (e.g.,
50 percent) threshold for the minimum
level of equity ownership for the
definition of beneficial owner. FinCEN
determined, however, that identifying
the beneficial owner of a financial
institution’s legal entity customers and
verifying that identity are necessary
parts of an effective AML program. Were
FinCEN to exempt small entities from
this requirement, or entities that
establish fewer than a limited number of
accounts for legal entities, those
financial institutions would be at greater
risk of abuse by money launderers and
other financial criminals, as criminals
would identify institutions without this
requirement. FinCEN also considered
increasing the threshold for ownership
of equity interests in the definition of
beneficial ownership to 50 percent or
more of the equity interests. Although
48 For example, for the small bank that responded
to the CDD IRFA and estimated that it opens 70 new
accounts for business customers per year, the
estimated costs would range from $380 to $760 per
year. See 81 FR 29398, 29447–48 (May 11, 2016).
49 See 81 FR 29398, 29450 (May 11, 2016).
PO 00000
Frm 00020
Fmt 4702
Sfmt 4702
this higher threshold would reduce the
number of individuals whose identity
would need to be verified from five to
three, thus reducing marginally the
onboarding time, this change would not
impact the training or IT costs, and
therefore, would not substantially
reduce the overall costs of the rule and
also would provide less useful
information. After considering all the
alternatives FinCEN has concluded that
an ownership threshold of 25 percent is
appropriate to maximize the benefits of
the requirement while minimizing the
burden.
G. Questions for Comment
Please provide comment on any or all
of the provisions of the proposed rule
with regard to their economic impact on
small entities, and what less
burdensome alternatives, if any, FinCEN
should consider.
V. Unfunded Mandates Act
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
the 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. Taking into
account the factors noted above and
using conservative estimates of average
labor costs in evaluating the cost of the
burden imposed by the proposed
regulation, FinCEN has determined that
it is not required to prepare a written
statement under section 202.
VI. Executive Orders 13563 and 12866
Executive Orders 13563 and 12866
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 this is not a significant
regulatory action for purposes of
Executive Order 12866. Accordingly, a
regulatory impact analysis is not
required.
E:\FR\FM\25AUP1.SGM
25AUP1
Federal Register / Vol. 81, No. 165 / Thursday, August 25, 2016 / Proposed Rules
Lhorne on DSK30JT082PROD with PROPOSALS
VII. 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 (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 the Internet to OIRA_
submission@omb.eop.gov, with a copy
to FinCEN by mail or the Internet.
Comments on the collection of
information should be received by
October 24, 2016.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
subject to the Paperwork Reduction Act
unless it displays a valid control
number assigned by the Office of
Management and Budget.
The collection of information in the
proposed rule would be codified at 31
CFR 1020.210, 1020.220, and 1020.230.
The information will be used by
examining agencies to verify
compliance with these provisions. The
collection of information is mandatory.
Records required to be retained under
the BSA must be retained for five years.
Description of Recordkeepers: Banks
without a Federal functional regulator,
as defined in 31 CFR 1020.210 and
1020.220.
Estimated Number of Affected
Institutions: 1,151.
Estimated Average Annual Burden
Hours per Recordkeeper: Since this is a
new requirement, the estimated average
burden associated with the
recordkeeping requirement in this
proposed rule is 40 hours for
development of a written program, and
following the initial development, the
program must be reviewed on an annual
basis, to include a one (1) hour per year
burden recognized for annual
maintenance and update.
Estimated Total Annual Reporting
Burden: 46,040 hours.
This burden will be added to the
existing burden listed under OMB
Control Number 1506–0035 currently
titled AML Programs for insurance
companies and loan and finance
companies. The new title for this
control number will be AML Programs
for insurance companies, and
residential mortgage lenders and
originators, and banks that lack a
Federal functional regulator. The new
total burden will be 140,240 hours.
VerDate Sep<11>2014
13:57 Aug 24, 2016
Jkt 238001
Questions for comment: (1) Whether
the collection of information is
necessary for the proper performance of
FinCEN’s mission, including whether
the information will have practical
utility; (2) Whether FinCEN’s estimate
of the burden of the collection of
information is accurate; (3) What are
ways to enhance the quality, utility, and
clarity of the information to be
collected; (4) What are ways to
minimize the burden of the collection of
information, including through the use
of automated collection techniques or
other forms of information technology;
(5) What are the estimates of capital or
start-up costs to implement and then
maintain an AML program; (6) How
many banks that lack a Federal
functional regulator are considered
‘‘small businesses’’ because the entities
have less than $550 million in total
assets; (7) What is the average number
of employees or the average total annual
salary expense for banks that lack a
Federal functional regulator; and (8)
What is the average number of
employees dedicated to bank regulation
compliance.
List of Subjects in 31 CFR Parts 1010
and 1020
Administrative practice and
procedure, Banks, banking, Brokers,
Currency, Foreign banking, Foreign
currencies, Gambling, Investigations,
Penalties, Reporting and recordkeeping
requirements, Securities, Terrorism.
Authority and Issuance
For the reasons set forth in the
preamble, parts 1010 and 1020 of
chapter X of title 31 of the Code of
Federal Regulations are proposed to be
amended as follows:
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 and 5316–5332; title III,
sec. 314, Public Law 107–56, 115 Stat. 307.
§ 1010.205
[Amended]
2. Section 1010.205 is amended by:
a. Removing paragraph (b)(1)(vi);
b. Redesignating paragraphs (b)(1)(vii)
through (ix) as paragraphs (b)(1)(vi)
through (viii); and
■ c. Removing and reserving paragraph
(b)(2) and removing paragraph (b)(3).
■ 3. Section 1010.605 is amended by:
■ a. Revising paragraph (e)(1)(i)
■ b. Removing paragraphs through
(e)(1)(ii) through (vii); and
■ b. Redesignating paragraphs
(e)(1)(viii) through (x) as paragraphs
(e)(1)(ii) through (iv).
■
■
■
PO 00000
Frm 00021
Fmt 4702
Sfmt 4702
58433
The revision reads as follows:
§ 1010.605
Definitions.
*
*
*
*
*
(e) * * *
(i) A bank required to have an antimoney laundering compliance program
under the regulations implementing 31
U.S.C. 5318(h), 12 U.S.C. 1818(s), or 12
U.S.C. 1786(q)(1);
*
*
*
*
*
PART 1020—RULE FOR BANKS
4. The authority citation for part 1020
continues 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, Public Law 107–56, 115
Stat. 307.
§ 1020.100
[Amended]
5. Section 1020.100 is amended by:
a. Removing paragraphs (b) and (d);
and
■ b. Redesignating paragraph (c) as
paragraph (b).
■ 6. Section 1020.210 is revised to read
as follows:
■
■
§ 1020.210 Anti-money laundering
program requirements for banks.
(a) Anti-money laundering program
requirements for banks regulated only
by a Federal functional regulator,
including banks, savings associations,
and credit unions. A bank regulated by
a Federal functional regulator shall be
deemed to satisfy the requirements of 31
U.S.C. 5318(h)(1) if it implements and
maintains an anti-money laundering
program that:
(1) Complies with the requirements of
§§ 1010.610 and 1010.620 of this
chapter;
(2) Includes, at a minimum:
(i) A system of internal controls to
assure ongoing compliance;
(ii) Independent testing for
compliance to be conducted by bank
personnel or by an outside party;
(iii) Designation of an individual or
individuals responsible for coordinating
and monitoring day-to-day compliance;
(iv) Training for appropriate
personnel; and
(v) Appropriate risk-based procedures
for conducting ongoing customer due
diligence, to include, but not be limited
to:
(A) Understanding the nature and
purpose of customer relationships for
the purpose of developing a customer
risk profile; and
(B) Conducting ongoing monitoring to
identify and report suspicious
transactions and, on a risk basis, to
maintain and update customer
information. For purposes of this
paragraph, customer information shall
E:\FR\FM\25AUP1.SGM
25AUP1
Lhorne on DSK30JT082PROD with PROPOSALS
58434
Federal Register / Vol. 81, No. 165 / Thursday, August 25, 2016 / Proposed Rules
include information regarding the
beneficial owners of legal entity
customers (as defined in § 1010.230);
and
(3) Complies with the regulation of its
Federal functional regulator governing
such programs.
(b) Anti-money laundering program
requirements for banks lacking a
Federal functional regulator including,
but not limited to, private banks, nonfederally insured credit unions, and
certain trust companies. (1) A bank
lacking a Federal functional regulator
shall be deemed to satisfy the
requirements of 31 U.S.C. 5318(h)(1) if
the bank establishes and maintains a
written anti-money laundering program
that:
(i) Complies with the requirements of
§§ 1010.610 and 1010.620 of this
chapter; and
(ii) Includes, at a minimum:
(A) A system of internal controls to
assure ongoing compliance with the
Bank Secrecy Act and the regulations
set forth in 31 CFR chapter X;
(B) Independent testing for
compliance to be conducted by bank
personnel or by an outside party;
(C) Designation of an individual or
individuals responsible for coordinating
and monitoring day-to-day compliance;
(D) Training for appropriate
personnel; and
(E) Appropriate risk-based procedures
for conducting ongoing customer due
diligence, to include, but not be limited
to:
(1) Understanding the nature and
purpose of customer relationships for
the purpose of developing a customer
risk profile; and
(2) Conducting ongoing monitoring to
identify and report suspicious
transactions and, on a risk basis, to
maintain and update customer
information. For purposes of this
paragraph, customer information shall
include information regarding the
beneficial owners of legal entity
customers (as defined in § 1010.230).
(2) The program must be approved by
the board of directors or, if the bank
does not have a board of directors, an
equivalent governing body within the
bank. The bank shall make a copy of its
anti-money laundering program
available to the Financial Crimes
Enforcement Network or its designee
upon request.
■ 7. Amend § 1020.220 by revising the
section heading and paragraph (a)(1) to
read as follows:
§ 1020.220 Customer identification
program requirements for banks.
(a) * * * (1) In general. A bank
required to have an anti-money
VerDate Sep<11>2014
13:57 Aug 24, 2016
Jkt 238001
laundering compliance program under
the regulations implementing 31 U.S.C.
5318(h), 12 U.S.C. 1818(s), or 12 U.S.C.
1786(q)(1) must implement a written
Customer Identification Program (CIP)
appropriate for its size and type of
business that, at a minimum, includes
each of the requirements of paragraphs
(a)(1) through (5) of this section. The
CIP must be a part of the anti-money
laundering compliance program.
*
*
*
*
*
Jamal El-Hindi,
Acting Director, Financial Crimes
Enforcement Network.
[FR Doc. 2016–20219 Filed 8–24–16; 8:45 am]
BILLING CODE 4810–02–P
ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Part 52
[EPA–R08–OAR–2016–0377; FRL–9951–33–
Region 8]
Approval and Promulgation of Air
Quality Implementation Plans; State of
Wyoming; Emission Inventory Rule for
2008 Ozone NAAQS and Revisions to
Incorporation by Reference
Environmental Protection
Agency (EPA).
ACTION: Proposed rule.
AGENCY:
The Environmental Protection
Agency (EPA) is proposing to approve
State Implementation Plan (SIP)
revisions submitted by the State of
Wyoming on July 1, 2014. The submittal
requests SIP revisions to the State’s
Incorporation by reference section as
well as an administrative change in
section numbering. The SIP also
includes the addition of a section
establishing requirements for the
submittal of emission inventories from
facilities or sources located in an ozone
nonattainment area.
DATES: Written comments must be
received on or before September 26,
2016.
SUMMARY:
Submit your comments,
identified by Docket ID No. EPA–R08–
OAR–2016–0377, at https://
www.regulations.gov. Follow the online
instructions for submitting comments.
Once submitted, comments cannot be
edited or removed from regulations.gov.
The EPA may publish any comment
received to its public docket. Do not
submit electronically any information
you consider to be Confidential
Business Information (CBI) or other
information whose disclosure is
restricted by statute. Multimedia
ADDRESSES:
PO 00000
Frm 00022
Fmt 4702
Sfmt 9990
submissions (audio, video, etc.) must be
accompanied by a written comment.
The written comment is considered the
official comment and should include
discussion of all points you wish to
make. The EPA will generally not
consider comments or comment
contents located outside of the primary
submission (i.e., on the Web, cloud, or
other file sharing system). For
additional submission methods, the full
EPA public comment policy,
information about CBI or multimedia
submissions, and general guidance on
making effective comments, please visit
https://www2.epa.gov/dockets/
commenting-epa-dockets.
FOR FURTHER INFORMATION CONTACT:
Chris Dresser, Air Program, U.S.
Environmental Protection Agency,
Region 8, Mail Code 8P–AR, 1595
Wynkoop Street, Denver, Colorado
80202–1129, (303) 312–6385,
dresser.chris@epa.gov.
SUPPLEMENTARY INFORMATION: In the
‘‘Rules and Regulations’’ section of this
Federal Register, the EPA is approving
the State’s SIP revision as a direct final
rule without prior proposal because the
agency views this as a noncontroversial
SIP revision and anticipates no adverse
comments. A detailed rationale for the
approval is set forth in the preamble to
the direct final rule.
If the EPA receives no adverse
comments, the EPA will not take further
action on this proposed rule. If the EPA
receives adverse comments, the EPA
will withdraw the direct final rule and
it will not take effect. The EPA will
address all public comments in a
subsequent final rule based on this
proposed rule.
The EPA will not institute a second
comment period on this action. Any
parties interested in commenting must
do so at this time. For further
information, please see the ADDRESSES
section of this notice.
Please note that if the EPA receives
adverse comment on an amendment,
paragraph, or section of this rule and if
that provision may be severed from the
remainder of the rule, the EPA may
adopt as final those provisions of the
rule that are not the subject of an
adverse comment. See the information
provided in the Direct Final action of
the same title which is located in the
Rules and Regulations Section of this
Federal Register.
Authority: 42 U.S.C. 7401 et seq.
Dated: August 11, 2016.
Debra Thomas,
Deputy Regional Administrator, Region 8.
[FR Doc. 2016–20316 Filed 8–24–16; 8:45 am]
BILLING CODE 6560–50–P
E:\FR\FM\25AUP1.SGM
25AUP1
]]>Agencies
[Federal Register Volume 81, Number 165 (Thursday, August 25, 2016)]
[Proposed Rules]
[Pages 58425-58434]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-20219]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Financial Crimes Enforcement Network
31 CFR Parts 1010 and 1020
RIN 1506-AB28
Customer Identification Programs, Anti-Money Laundering Programs,
and Beneficial Ownership Requirements for Banks Lacking a Federal
Functional Regulator
AGENCY: Financial Crimes Enforcement Network (``FinCEN''), Treasury.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: FinCEN is issuing this proposed rule to implement section 326
of the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001 and to remove
the anti-money laundering program exemption for banks that lack a
Federal functional regulator, including, but not limited to, private
banks, non-federally insured credit unions, and certain trust
companies. The proposed rule would prescribe minimum standards for
anti-money laundering programs for banks without a Federal functional
regulator to ensure that all banks, regardless of whether they are
subject to Federal regulation and oversight, are required to establish
and implement anti-money laundering programs, and would extend customer
identification program requirements and beneficial ownership
requirements to those banks not already subject to these requirements.
DATES: Written comments may be submitted to FinCEN on or before October
24, 2016.
ADDRESSES: You may submit comments, identified by Regulatory
Identification Number (RIN) 1506-AB28, by any of the following methods:
Federal E-rulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments. Include 1506-AB28 in
the submission. Refer to Docket Number FINCEN-2014-0004.
Mail: Policy Division, Financial Crimes Enforcement
Network, P.O. Box 39, Vienna, VA 22183. Include 1506-AB28 in the body
of the text. Please submit comments by one method only. Comments
submitted in response to this notice of proposed rulemaking (``NPRM'')
will become a matter of public record. Therefore, you should submit
only information that you wish to make publicly available.
Inspection of comments: FinCEN uses the electronic, Internet-
accessible dockets at Regulations.gov as their complete, official-
record docket; all hard copies of materials that should be in the
docket, including public comments, are electronically scanned and
placed there. Federal Register notices published by FinCEN are
searchable by docket number, RIN, or document title, among other
things, and the docket number, RIN, and title may be found at the
beginning of the notice. In general, FinCEN will make all comments
publicly available by posting them on https://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: The FinCEN Resource Center at (800)
767-2825 or email frc@fincen.gov.
SUPPLEMENTARY INFORMATION:
I. Background
A. Statutory Provisions
FinCEN exercises regulatory functions primarily under the Currency
and Financial Transactions Reporting Act of 1970, as amended by the
Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001 (``USA PATRIOT
Act'') (Pub. L. 107-56) and other legislation. This legislative
framework is commonly referred to as the ``Bank Secrecy Act''
(``BSA'').\1\ The Secretary of the Treasury (``Secretary'') has
delegated to the Director of FinCEN the authority to implement,
administer, and enforce compliance with the BSA and associated
regulations.\2\ Pursuant to this authority, FinCEN may issue
regulations requiring financial institutions to keep records and file
reports that ``have a high degree of usefulness in criminal, tax, or
regulatory investigations or proceedings, or in the conduct of
intelligence or counterintelligence activities, including analysis, to
protect against international terrorism.'' \3\ Additionally, FinCEN is
authorized to impose anti-money laundering (``AML'') program
requirements for financial institutions.\4\
---------------------------------------------------------------------------
\1\ The BSA is codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1959,
31 U.S.C. 5311-5314 and 5316-5332, and notes thereto, with
implementing regulations at 31 CFR chapter X. See 31 CFR
1010.100(e).
\2\ Treasury Order 180-01 (Jul. 1, 2014).
\3\ 31 U.S.C. 5311.
\4\ 31 U.S.C. 5318(h).
---------------------------------------------------------------------------
Section 352 of the USA PATRIOT Act requires financial institutions
to establish AML programs that, at a minimum, include: (1) The
development of internal policies, procedures, and controls; (2) the
designation of a compliance officer; (3) an ongoing employee training
program; and (4) an independent audit function
[[Page 58426]]
to test programs.\5\ Section 352 of the USA PATRIOT Act authorizes
FinCEN, in consultation with the ``appropriate'' Federal functional
regulator (using the definition of ``Federal functional regulator''
found in 15 U.S.C. 6809), to prescribe minimum standards for AML
programs. In determining the appropriate scope and nature for this
proposed rulemaking for financial institutions that are not directly
regulated by any Federal functional regulator under any definition of
that term, FinCEN considered the Federal functional regulators of
similar institutions, including Federal bank supervisory authorities,
the U.S. Securities and Exchange Commission (``SEC''), and the
Commodity Futures Trading Commission (``CFTC''), to be ``appropriate''
Federal functional regulators within the meaning of Section 352. In
preparing this rule, FinCEN consulted with these regulators and in
order to be certain of addressing all important issues, it also
consulted with state bank supervisory authorities, and the Internal
Revenue Service (``IRS''), which, to date, has been the examining
authority for all institutions regulated by FinCEN that do not have a
Federal functional regulator.
---------------------------------------------------------------------------
\5\ Id.
---------------------------------------------------------------------------
When prescribing minimum standards for AML programs, FinCEN must
``consider the extent to which the requirements imposed [under section
352 of the USA PATRIOT Act] are commensurate with the size, location,
and activities of the financial institutions to which [the standards]
apply.'' \6\ In addition, FinCEN may ``prescribe an appropriate
exemption from a requirement [in the BSA] or regulations [issued under
the BSA].'' \7\ FinCEN used this authority in 2002 to exempt
temporarily certain financial institutions identified in section 352
from the requirement to establish an AML program.
---------------------------------------------------------------------------
\6\ Public Law 107-56, title III, Sec. 352(c), 115 Stat. 322.
\7\ 31 U.S.C. 5318(a)(6).
---------------------------------------------------------------------------
Section 326 of the USA PATRIOT Act requires FinCEN to prescribe
regulations that require financial institutions to establish programs
for account opening that, at a minimum, include: (1) Verifying the
identity of any person seeking to open an account, to the extent
reasonable and practicable; (2) maintaining records of the information
used to verify the person's identity, including name, address, and
other identifying information; and (3) determining whether the person
appears on any lists of known or suspected terrorists or terrorist
organizations provided to the financial institution by any government
agency.\8\ These programs are referred to as Customer Identification
Programs (``CIPs'').
---------------------------------------------------------------------------
\8\ 31 U.S.C. 5318(l). See Joint Final Rule--Customer
Identification Programs for Banks, Savings Associations, Credit
Unions and Certain Non-Federally Regulated Banks, 68 FR 25103 (May
9, 2003) (``The CIP must include procedures for determining whether
the customer appears on any list of known or suspected terrorists or
terrorist organizations issued by any Federal government agency and
designated as such by Treasury in consultation with the Federal
functional regulators.'' To date, the Department of the Treasury has
not designated any such list.).
---------------------------------------------------------------------------
When prescribing CIP regulations for financial institutions that
engage in financial activities described in Section 4(k) of the Bank
Holding Company Act of 1956, 12 U.S.C. 1843(k), FinCEN must prescribe
such CIP regulations jointly with the Federal functional regulator
(again using the definition of ``Federal functional regulator'' found
in 15 U.S.C. 6809, but also including the CFTC) that is ``appropriate''
for the affected financial institutions.\9\ FinCEN generally considers
the Federal functional regulator--if any--that actually regulates a
financial institution to be the Federal functional regulator
appropriate to promulgate regulations for such a financial
institution.\10\ Specifically with respect to CIP rules, FinCEN has
maintained publicly since 2003 that, for a CIP rule that applies to
institutions not directly regulated by any Federal functional regulator
under any definition of that term, it is not ``appropriate'' for any
Federal agency to issue jointly such a CIP rule with FinCEN, given that
no Federal agency has direct supervisory authority over such financial
institutions comparable in its pervasiveness to the direct authority of
the Federal functional regulators over their regulated financial
institutions.\11\ Consistent with these long-held positions, FinCEN
proposes to issue the CIP rule set forth here under its sole authority.
---------------------------------------------------------------------------
\9\ 31 U.S.C. 5318(l)(4). The financial institutions subject to
the CIP rule being proposed here engage in financial activities
within the meaning of 12 U.S.C. 1843(k), in particular lending money
and providing financial advisory services. See 12 U.S.C.
1843(k)(4)(A) and (C).
\10\ See, e.g., 31 CFR 1020.210(a).
\11\ See Notice of Proposed Rulemaking--Customer Identification
Programs for Certain Banks Lacking a Federal Functional Regulator,
68 FR 25163 (May 9, 2003).
---------------------------------------------------------------------------
Section 312 of the USA PATRIOT Act requires each U.S. financial
institution that establishes, maintains, administers, or manages a
correspondent account or a private banking account in the United States
for a non-U.S. person to subject such accounts to certain anti-money
laundering measures.\12\ In particular, financial institutions must
establish appropriate, specific, and, where necessary, enhanced due
diligence policies, procedures, and controls that are reasonably
designed to enable the financial institution to detect and report
instances of money laundering through these accounts. In addition to
the general due diligence requirements, which apply to all
correspondent accounts for non-U.S. persons, section 5318(i)(2)
specifies additional standards for correspondent accounts maintained
for certain foreign banks. Section 5318(i) also sets forth minimum due
diligence requirements for private banking accounts for non-U.S.
persons. Specifically, a covered financial institution must take
reasonable steps to ascertain the identity of the nominal and
beneficial owners of, and the source of funds deposited into, private
banking accounts, as necessary to guard against money laundering and to
report suspicious transactions. The institution must also conduct
enhanced scrutiny of private banking accounts requested or maintained
for, or on behalf of, senior foreign political figures (which includes
family members or close associates). Enhanced scrutiny must be
reasonably designed to detect and report transactions that may involve
the proceeds of foreign corruption.
---------------------------------------------------------------------------
\12\ These requirements are set forth and cross referenced in
sections 1020.610 (cross-referencing to 31 CFR 1010.610) and
1020.620 (cross-referencing to 31 CFR 1010.620).
---------------------------------------------------------------------------
B. Regulatory Background
The following information describes the effect of certain previous
rulemakings on banks, and specifically on banks lacking a Federal
functional regulator.
AML Program Requirements
Most banks became subject to an AML program requirement pursuant to
the BSA with FinCEN's issuance of an Interim Final Rule on April 29,
2002 (the ``Interim Final Rule'').\13\ The Interim Final Rule stated
that an institution regulated by a Federal functional regulator ``shall
be deemed to satisfy the requirements of 31 U.S.C.
[[Page 58427]]
5318(h)(1) if it implements and maintains an [AML] program that
complies with the regulation of its Federal functional regulator
governing such programs.'' \14\ ``Federal functional regulator'' is
defined at 31 CFR 1010.100(r) to include each of the Federal banking
agencies, as well as the SEC and the CFTC.
---------------------------------------------------------------------------
\13\ See Interim Final Rule--Anti-Money Laundering Programs for
Financial Institutions, 67 FR 21110 (Apr. 29, 2002). Since 1987, all
federally insured depository institutions and credit unions have
been required by their Federal regulators to have anti-money
laundering programs ``to assure and monitor compliance with the
requirements of subchapter II of chapter 53 of title 31, United
States Code,'' but until the passage of the USA PATRIOT Act the
requirement to implement such programs did not arise under a
specific provision of the Bank Secrecy Act itself. See Final Rule--
Procedures for Monitoring Bank Secrecy Act Compliance, 52 FR 2858
(Jan. 27, 1987).
\14\ See 67 FR 21113. Since the time of the 2002 Interim Final
Rule, FinCEN has reorganized its regulations under 31 CFR Chapter X.
See Final Rule--Transfer and Reorganization of Bank Secrecy Act
Regulations, 75 FR 65806 (Oct. 26, 2010). The cited AML program
requirement can currently be found at 31 CFR 1020.210, with an added
cross-reference to enhanced due diligence requirements imposed by
rulemakings later than the Interim Final Rule.
---------------------------------------------------------------------------
The Interim Final Rule also deferred AML program requirements for
certain financial institutions, including ``private bankers.'' \15\ On
November 6, 2002, FinCEN amended the Interim Final Rule.\16\ The
amendment extended the deferral indefinitely,\17\ and included within
the deferral not only private bankers, but any bank ``that is not
subject to regulation by a Federal functional regulator.'' \18\
---------------------------------------------------------------------------
\15\ ``Private banker'' is included in the list of financial
institutions in the BSA. 12 U.S.C. 5312(a)(2)(C).
\16\ See Amendment of Interim Final Rule--Anti-Money Laundering
Programs for Financial Institutions, 67 FR 67547 (Nov. 6, 2002).
\17\ See 31 CFR 1010.205(c). The deferral expires for a
financial institution on the date the financial institution
otherwise must comply with a final rule requiring the financial
institution to establish an AML program.
\18\ See 31 CFR 1010.205(b)(1)(vi) and (b)(2).
---------------------------------------------------------------------------
Although banks that lack a Federal functional regulator have not
been required to establish an AML program, they are required to comply
with many other BSA requirements. For example, banks that lack a
Federal functional regulator still must file currency transaction
reports (``CTRs'') and suspicious activity reports (``SARs''), and make
and maintain certain records.\19\ In addition, banks that lack a
Federal functional regulator must comply with 31 CFR 1010.630, which
prohibits covered financial institutions from maintaining correspondent
accounts for foreign shell banks and requires covered financial
institutions to obtain and retain information on the ownership of
foreign banks.\20\
---------------------------------------------------------------------------
\19\ See 31 CFR 1010.306-315 (CTRs); 31 CFR 1020.320 (SAR rule
for banks); 31 CFR 1010.410 (records to be made and retained by
financial institutions).
\20\ Private banks, trust companies, and credit unions are
``covered financial institutions'' for purposes of 31 CFR 1010.630
and 31 CFR 1010.670, regardless of whether the institutions have a
Federal functional Regulator. See 31 CFR 1010.605(e)(2). In
contrast, rules requiring the implementation of due diligence
programs for correspondent accounts and private banking accounts do
not apply to private banks, apply only to ``federally insured credit
unions,'' and certain trust companies that are ``federally regulated
and subject to an anti-money laundering program requirement.'' See
31 CFR 1010.605(e)(1); 31 CFR 1010.610 (correspondent accounts); 31
CFR 1010.620 (private banking accounts).
---------------------------------------------------------------------------
Despite being subject to the various BSA obligations detailed
above, banks that lack a Federal functional regulator have remained
exempt from the AML program requirement since the Interim Final Rule.
In contrast, FinCEN has already eliminated the exemption and
promulgated AML program rules for other institutions that had been
exempted under the Interim Final Rule, including insurance companies,
certain loan or finance companies, and dealers in precious metals,
precious stones, or jewels.
Customer Identification Program Requirements
CIP requirements were finalized, through a joint final rule, for
banks, savings associations, credit unions, and certain non-Federally
regulated banks on May 9, 2003. With this action, certain banks that
lack a Federal functional regulator, namely, private banks, non-
federally insured credit unions and certain trust companies, were
required to comply with CIP requirements.\21\ On the same day, FinCEN
published a notice of proposed rulemaking that would have imposed CIP
requirements on all other state-regulated banks without a Federal
functional regulator that were not included in the joint rule.\22\ This
rulemaking was never finalized.
---------------------------------------------------------------------------
\21\ See Joint Final Rule--Customer Identification Programs for
Banks, Savings Associations, Credit Unions and Certain Non-Federally
Regulated Banks, 68 FR 25090 (May 9, 2003). See 31 CFR 1020.220.
\22\ See Notice of Proposed Rulemaking--Customer Identification
Programs for Certain Banks Lacking a Federal Functional Regulator,
68 FR 25163 (May 9, 2003).
---------------------------------------------------------------------------
Beneficial Ownership Requirement
On May 11, 2016, FinCEN published a final rule (``CDD Rule''),\23\
to clarify and strengthen customer due diligence requirements for
certain financial institutions, including federally regulated banks,
requiring these financial institutions to identify and verify the
identity of the beneficial owners of their legal entity customers,
subject to certain exclusions and exemptions. The CDD Rule also amends
the AML program requirements for these financial institutions. For
purposes of regulatory consistency, FinCEN believes that it is
appropriate that these requirements should apply to non-federally
regulated banks as well, and accordingly proposes these requirements in
this notice.
---------------------------------------------------------------------------
\23\ See Final Rules, Customer Due Diligence Rules for Financial
Institutions, 81 FR 29398 (May 11, 2016).
---------------------------------------------------------------------------
C. Categories of Banks Lacking a Federal Functional Regulator
FinCEN has identified the following categories of banks that lack a
Federal functional regulator and is interested in identifying
additional categories of such entities. However, no discussion of such
entities should be thought to be exhaustive. This NPRM proposes that
any entity that meets the definition of bank in 31 CFR 1010.100(d)
would be required to establish an AML program.
State-Chartered Non-Depository Trust Companies
State-chartered non-depository trust companies are generally
smaller than depository (or federally regulated non-depository) trust
companies, and often provide estate planning and settlement and trust
administration on a regional basis.\24\ Trust companies can provide
services similar to investment advisory firms, including securities
investment advisers, but are generally exempt from registration as
investment advisers with the SEC.\25\ Trust companies also may provide
services to clients similar to the services offered by other financial
services firms. The number of state-chartered non-depository trust
companies is difficult to determine; however, according to data
available from state banking regulator Web sites, there are upwards of
347 of these entities.\26\
---------------------------------------------------------------------------
\24\ Certain trust companies and banks offering trust services
are subject to safety and soundness regulation by one or more
Federal banking agencies. See, e.g., 12 U.S.C. 1813(a)(2), (l)(2),
and (p); 12 U.S.C. 1817(i).
\25\ See 15 U.S.C. 80b-2(a)(2) and (11)(A).
\26\ We reviewed relevant information from the Web sites of
state banking departments to determine the estimated number. See
https://www.csbs.org/about/what/Pages/StateBankingDepartmentLinks.aspx.
---------------------------------------------------------------------------
Non-Federally Insured Credit Unions
Of the more than 6,273 credit unions nationwide, FinCEN understands
that there are approximately 265 state-chartered credit unions that are
not federally insured. Aside from their lack of a Federal functional
regulator, these credit unions generally are similar in structure to
federally insured credit unions.\27\
---------------------------------------------------------------------------
\27\ The statistics are based upon information provided in 2013
by the National Association of State Credit Union Supervisors.
Federally chartered credit unions are insured by the NCUA through
the National Credit Union Share Insurance Fund. See 12 U.S.C. 1781.
---------------------------------------------------------------------------
Private Banks
A private bank is a bank chartered under state law that is owned by
an
[[Page 58428]]
individual or a partnership and generally provides financial services
to individuals with high net worth.\28\ Although private banks have a
long history in certain jurisdictions, including Switzerland and the
United Kingdom, at least one private bank remains in the United States.
---------------------------------------------------------------------------
\28\ Private banks should be distinguished from private banking
accounts. A ``private banking account'' for purposes of rules
implementing section 312 of the USA PATRIOT Act includes any
account--at any kind of bank--that is established for certain
individuals who are not United States citizens, provided the account
requires a minimum aggregate deposit of $1,000,000 or more and the
account is administered by an officer, employee, or agent of the
covered financial institution acting as a liaison with the direct or
beneficial owner of the account. See 31 CFR 1010.605(m). The rules
implementing section 312 of the USA PATRIOT Act do not apply to
private banks per se.
---------------------------------------------------------------------------
Non-Federally Insured State Banks and Savings Associations
According to estimates available from state banking regulator Web
sites, the number of state-chartered banks and savings and loan or
building and loan associations without Federal Deposit Insurance
Corporation (``FDIC'') insurance is not more than 12.\29\ These banks
function similarly to other federally insured banks, but are privately
insured.
---------------------------------------------------------------------------
\29\ See supra note 26.
---------------------------------------------------------------------------
International Banking Entities
International banking entities, or ``entidades bancarias
internacionales'' (``EBIs''), are not federally insured, but are
authorized by Puerto Rican and the U.S. Virgin Islands law to provide
banking and other services to non-resident aliens. As of 2014, 33 EBIs
were licensed by Puerto Rico.\30\
---------------------------------------------------------------------------
\30\ See Commissioner of Financial Institutions of Puerto Rico
https://www.ocif.gobierno.pr/documents/cons/EBI.pdf.>
---------------------------------------------------------------------------
D. Extension of AML Program, CIP and Beneficial Ownership Requirements
The Anti-Money Laundering Program
The statutory mandate that all financial institutions establish
anti-money laundering programs is a key element in the national effort
to prevent and detect money laundering and the financing of terrorism.
Banks without a Federal functional regulator may be as vulnerable to
the risks of money laundering and terrorist financing as banks with
one. This proposed rule would eliminate the present regulatory ``gap''
in AML coverage between banks with and without a Federal functional
regulator. FinCEN expects uniform regulatory requirements for all banks
to reduce the opportunity for criminals to seek out and exploit banks
subject to less rigorous AML requirements.
FinCEN also believes that imposing an AML program requirement on
banks that lack a Federal functional regulator would not be unduly
burdensome, given that such banks already must comply with various BSA
recordkeeping, reporting, and, in some cases, CIP requirements. In
order to comply with these existing rules, banks lacking a Federal
functional regulator have likely developed procedures and protocol
comparable to what would be required under the proposed rule.
In 2005, uniform BSA examination procedures were issued through the
first publication of the Federal Financial Institutions Examination
Council Bank Secrecy Act/Anti-Money Laundering Examination Manual.\31\
FinCEN understands that uniform audits or examinations of policies,
procedures, internal controls, reporting structures, transaction
monitoring, and recordkeeping have caused many banks that lack a
Federal functional regulator to adopt procedures similar to the ones
that would be required under the proposed rule.
---------------------------------------------------------------------------
\31\ The Federal Financial Institutions Examination Council is a
formal interagency body consisting of the Federal banking agencies
authorized to prescribe uniform standards for the examination of
financial institutions. See https://www.ffiec.gov/. Regulators from
forty-seven state regulators, the District of Columbia, and the
Commonwealth of Puerto Rico conduct AML compliance inspections in
conjunction with the Federal banking agencies. Similarly, credit
unions are subject to joint supervision by the NCUA and their state
supervisors, pursuant to a Document of Cooperation executed by the
NCUA and the National Association of State Credit Union Supervisors.
---------------------------------------------------------------------------
Customer Identification Program
For the reasons of regulatory consistency and protection against
systemic vulnerability discussed above in connection with AML programs,
FinCEN believes that CIP should also apply to all banks (including all
depository institutions chartered under state banking law, even if the
charter was not for a credit union, trust company, or private bank),
regardless of whether they are Federally regulated. The preamble of the
final CIP rule said that it applied to ``banks with a Federal
functional regulator and to credit unions, trust companies, and private
banks without a federal functional regulator.'' However, on the same
day that the final CIP rule was issued, FinCEN issued a follow-on
Notice of Proposed Rulemaking to ensure that there would be no gaps in
the scope of the CIP obligations as they apply to banks.\32\ Because
this proposal was never finalized, FinCEN is also re-proposing changes
that would explicitly require all banks that lack a Federal functional
regulator to establish CIP.
---------------------------------------------------------------------------
\32\ See supra note 22.
---------------------------------------------------------------------------
Beneficial Ownership Requirements
As noted above, the CDD Rule requires that federally regulated
banks and certain other financial institutions identify, and verify the
identity of, the beneficial owners of their legal entity customers, as
set forth in section 1010.230.\33\ For purposes of regulatory
consistency, FinCEN believes that this requirement should apply to non-
federally regulated banks as well.
---------------------------------------------------------------------------
\33\ The CDD Rule is effective July 11, 2016 and applicable on
and after May 11, 2018.
---------------------------------------------------------------------------
II. Section-by-Section Analysis
This notice proposes to amend chapter X by adding AML program
requirements for banks that lack a Federal functional regulator, and
extending CIP and beneficial ownership requirements to those banks not
already subject to these requirements. These proposed changes include
the following: (1) Amending the provision in Sec. 1010.205 that
exempts certain financial institutions from the requirement to
establish an AML program; (2) amending the definition of covered
financial institution in Sec. 1010.605 so that non-federally regulated
banks will be subject to the beneficial ownership requirements pursuant
to the CDD Rule (as well as the requirements in Sec. Sec. 1010.610 and
1010.620); (3) removing the substantive language in the definitions of
bank and financial institution in part 1020, Rules for Banks, because
there will no longer be a need to make distinctions from the
definitions in part 1010's General Definitions; (4) imposing AML
program requirements on banks that lack a Federal functional regulator
and prescribing minimum standards for the AML programs; and (5)
amending the CIP requirements to delete a specific requirement that
until banks without a Federal functional regulator are subject to AML
program requirements they must have their CIPs approved by their boards
of directors. If the proposed changes are implemented, banks without a
Federal functional regulator will be required to implement a written
AML program approved by their boards of directors or by equivalent
functional units within the banks.
A. Exempted Anti-Money Laundering Programs for Certain Financial
Institutions
Section 1010.205 provides temporary exemptions for certain
financial institutions from the requirement to establish an anti-money
laundering
[[Page 58429]]
program.\34\ The proposed amendments to 31 CFR 1010.205 reflect the
removal of: (1) The exemption for private bankers (Sec.
1010.205(b)(1)(vi)); (2) the broader exemption for banks that lack a
Federal functional regulator (Sec. 1010.205(b)(2)); and (3) the
exemption for persons subject to supervision by a state banking
authority (Sec. 1010.205(b)(3)).
---------------------------------------------------------------------------
\34\ See 67 FR 21113 (Apr. 29, 2002), as amended at 67 FR 67549
(Nov. 6, 2002) and corrected at 67 FR 68935 (Nov. 14, 2002)
(Treasury temporarily exempted private bankers and banks not subject
to regulation by a Federal functional regulator from establishing an
AML program).
---------------------------------------------------------------------------
B. General and Specific Definitions
General rules that apply to all industries appear in part 1010, and
industry-specific rules are contained in other parts within chapter X.
Because the definition of bank in part 1010 makes no distinctions as to
whether a bank has a Federal functional regulator, there are no
proposed changes to that definition of bank in Sec. 1010.100(d).\35\
Likewise, there are no proposed changes to the general definition of
financial institution in Sec. 1010.100(t).\36\ Specific rules for
banks are contained in part 1020, which includes definitions of both
``bank'' and ``financial institution'' specific to that part, to note a
distinction in the application of AML program and CIP requirements
between banks with a Federal functional regulator and those lacking
one. FinCEN proposes to amend those definitions, as described below.
---------------------------------------------------------------------------
\35\ Bank is defined in 31 CFR 1010.100(d) as each agent,
agency, branch, or office within the United States of any person
doing business in one or more of the capacities listed: (1) A
commercial bank or trust company organized under the laws of any
state or of the United States; (2) A private bank; (3) A savings and
loan association or a building and loan association organized under
the laws of any state or of the United States; (4) An insured
institution as defined in section 401 of the National Housing Act;
(5) A savings bank, industrial bank or other thrift institution; (6)
A credit union organized under the law of any state or of the United
States; (7) Any other organization (except a money services
business) chartered under the banking laws of any state and subject
to the supervision of the bank supervisory authorities of a state;
(8) A bank organized under foreign law; (9) Any national banking
association or corporation acting under the provisions of section
25(a) of the Act of Dec. 23, 1913, as added by the Act of Dec. 24,
1919, ch. 18, 41 Stat. 378, as amended (12 U.S.C. 611-32).
\36\ 31 CFR 1010.100(t) defines financial institution as each
agent, agency, branch, or office within the United States of any
person doing business, whether or not on a regular basis or as an
organized business concern, in one or more of the capacities listed
below: (1) A bank (except bank credit card systems); (2) A broker or
dealer in securities; (3) A money services business as defined in
Sec. 1010.100(ff); (4) A telegraph company; (5) Casino; (6) Card
club; (7) A person subject to supervision by any state or Federal
bank supervisory authority; (8) A futures commission merchant; (9)
An introducing broker in commodities; or (10) A mutual fund.
---------------------------------------------------------------------------
Customer Identification Program Requirement
The separate definition of bank in Sec. 1020.100(b) reflects the
fact that existing CIP requirements do not apply to all banks that lack
a Federal functional regulator. The current definition of bank, for the
purposes of 31 CFR 1020.220, is (1) A bank, as that term is defined in
31 CFR 1010.100(d), that is subject to regulation by a Federal
functional regulator; and (2) A credit union, private bank, and trust
company, as set forth in 31 CFR 1010.100(d) of this chapter, that does
not have a Federal functional regulator.\37\
---------------------------------------------------------------------------
\37\ See 31 CFR 1020.100(b).
---------------------------------------------------------------------------
This rulemaking proposes to remove existing Sec. 1020.100(b),
which would result in making all banks, regardless of whether they are
subject to regulation by a Federal functional regulator, comply with
CIP requirements.
Beneficial Ownership Requirement
The beneficial ownership requirement in the CDD Rule applies to
covered financial institutions as defined in Sec. 1010.605(e)(1). This
definition includes several types of banks, all of which are federally
regulated,\38\ as well as brokers and dealers in securities, futures
commission merchants and introducing brokers, and mutual funds. In
order to apply this requirement to non-federally regulated banks, this
rulemaking proposes to amend the current definition of covered
financial institution by replacing paragraphs (i) through (vii) of
Sec. 1010.605(e)(1) with the following, which includes all banks
(whether or not federally regulated) that are subject to an AML program
requirement ``a bank required to have an anti-money laundering
compliance program under the regulations implementing 31 U.S.C.
5318(h), 12 U.S.C. 1818(s), or 12 U.S.C. 1786(q)(1).''
---------------------------------------------------------------------------
\38\ These include (1) An insured bank (as defined in section
3(h) of the Federal Deposit Insurance Act (12 U.S.C. 1813(h)); (2) A
commercial bank; (3) An agency or branch of a foreign bank; (4) A
federally insured credit union; (5) A savings association; (6) A
corporation acting under section 25A of the Federal Reserve Act; and
(7) A trust bank or trust company that is federally regulated and is
subject to an anti-money laundering program requirement.
---------------------------------------------------------------------------
Anti-Money Laundering Program Requirement
The definition of financial institution in Sec. 1020.100(d)
reflects the fact that existing AML program requirements are based on
whether a bank is subject to regulation by a Federal functional
regulator. The current definition of financial institution is (1) For
the purposes of 31 CFR 1020.210, a financial institution is defined in
31 U.S.C. 5312(a)(2) or (c)(1) that is subject to regulation by a
Federal functional regulator or a self-regulatory organization; (2) For
the purposes of 31 CFR 1020.220, a financial institution is defined in
31 U.S.C. 5312(a)(2) or (c)(1).
This rulemaking proposes to remove existing Sec. 1020.100(d)(1),
which along with the proposed amendments to Sec. 1020.210 described
below, would result in requiring all banks, regardless of whether they
are subject to regulation by a Federal functional regulator, to comply
with the obligation to implement an AML program.\39\
---------------------------------------------------------------------------
\39\ We are also proposing to remove Sec. 1020.100(d)(2). Due
to the current definition of ``financial institution'' in Sec.
1010.100(t), this broader definition of the term is no longer
necessary.
---------------------------------------------------------------------------
C. AML Program Requirements
Section 1020.210 (as amended by the CDD Rule) sets forth the
current AML program requirements for banks. This rulemaking proposes
certain changes necessary to ensure that all banks, regardless of
whether they are subject to Federal regulation and oversight, are
required to establish and implement anti-money laundering programs. One
proposed change concerns the title and structure of the section.
Currently, the title reads: ``Anti-money laundering program
requirements for financial institutions regulated only by a Federal
functional regulator, including banks, savings associations, and credit
unions.'' With the proposed change, the title would read: ``Anti-money
laundering program requirements for banks,'' and it would contain one
section for banks regulated only by a Federal functional regulator and
another section for banks that lack a Federal functional regulator.
As proposed, Sec. 1020.210(a) would be titled: ``Anti-money
laundering program requirements for banks regulated only by a Federal
functional regulator, including banks, savings associations, and credit
unions.'' The existing language in Sec. 1020.210 states that
compliance by a financial institution regulated by a Federal functional
regulator that is not subject to the regulations of a self-regulatory
organization satisfies the AML program requirement under 31 U.S.C.
5318(h)(1) if its program complies with the requirements of Sec. Sec.
1010.610 and 1010.620 and the regulations of its Federal functional
regulator governing AML programs. FinCEN is unaware of any instance in
which a bank is subject to regulations by a self-regulatory
organization. Accordingly, FinCEN proposes to remove reference to such
regulation from the regulatory text, by
[[Page 58430]]
striking the words ``that is not subject to the regulations of a self-
regulatory organization.'' This proposed change would appear in Sec.
1020.210(a).\40\
---------------------------------------------------------------------------
\40\ The regulation text set forth is the text as amended by the
CDD Rule, which is effective July 11, 2016 and applicable on and
after May 11, 2018.
---------------------------------------------------------------------------
Proposed new Sec. 1020.210(b) would be titled: ``Anti-money
laundering program requirements for banks lacking a Federal functional
regulator including, but not limited to, private banks, non-federally
insured credit unions, and certain trust companies.'' New Sec.
1020.210(b)(1) would require banks that lack a Federal functional
regulator to establish and implement AML programs reasonably designed
to assure ongoing compliance with the Bank Secrecy Act. Section
1020.210(b)(1)(ii)(E) would require compliance with due diligence
requirements for correspondent accounts for foreign financial
institutions (Sec. 1010.610) and for private banking accounts (Sec.
1010.620), and new Sec. 1020.210(b)(1) also would prescribe the
minimum standards necessary for an AML program.
With respect to minimum standards, proposed Sec.
1020.210(b)(1)(ii)(A) would require that the AML program include a
system of internal controls to assure ongoing compliance with the BSA.
As part of implementing an AML program, FinCEN would expect banks that
lack a Federal functional regulator to assess the money laundering and
terrorist financing risks that are associated with their products,
customers, distribution channels, and geographic locations. An
assessment of customer-related information is a key component to a
robust AML program, and banks must ensure that they obtain all the
information necessary for their AML program requirements. For purposes
of making the required risk assessment, banks have discretion to
determine how best to collect the relevant customer information. FinCEN
does not anticipate that this requirement will entail obtaining
information not already obtained in the ordinary course of business.
Policies, procedures, and internal controls also must be reasonably
designed to ensure compliance with BSA requirements. Banks may conduct
some of their operations through agents and third-party service
providers. Some elements of the compliance program may best be
performed by personnel of these entities, in which case it is
permissible for banks to contract with such entities to assist them
with implementation and operation of those aspects of its AML program.
Any bank that contracts with an agent or third party to assist with
aspects of its AML program, however, remains fully responsible for the
effectiveness of the program, as well as ensuring that compliance
examiners are able to obtain information and records relating to the
AML program.
Proposed Sec. 1020.210(b)(1)(ii)(B) would require that the program
provide for independent testing to monitor and maintain an adequate
program. A party external to the bank, such as an outside consultant or
accountant, need not perform the testing. The testing may be conducted
by an officer, employee, or group of employees, so long as the person
or persons conducting the testing are independent of the person or
group of persons primarily responsible for implementing the bank's AML
program. The frequency of independent testing will depend upon the
risks posed.\41\ Any recommendations that result from the independent
testing should be implemented promptly or reviewed by senior
management.
---------------------------------------------------------------------------
\41\ See The Federal Financial Institutions Examination Council,
Bank Secrecy Act/Anti-Money Laundering Examination Manual, at 30
(2014) available at https://www.ffiec.gov/bsa_aml_infobase/documents/BSA_AML_Man_2014_v2.pdf (``[A] sound practice is for the
bank to conduct independent testing generally every 12 to 18 months,
commensurate with the BSA/AML risk profile of the bank.'').
---------------------------------------------------------------------------
Proposed Sec. 1020.210(b)(1)(ii)(C) would require that the bank
designate a person or persons who will be responsible for coordinating
and monitoring day-to-day compliance with the AML program. The bank may
have one individual, or the bank may designate multiple individuals to
perform the function as a group. The person or persons should be
competent and knowledgeable regarding BSA requirements and money
laundering issues and risks, and should be empowered with full
responsibility and authority to develop and enforce appropriate
policies and procedures. The role of this function is to ensure that
the program is implemented effectively and updated as necessary.
Proposed Sec. 1020.210(b)(1)(ii)(D) would require that the program
provide for training of appropriate persons. Employee training is an
integral part of any AML program. In order to carry out their
responsibilities effectively, employees must be trained in requirements
under the BSA and money laundering risks generally, as well as the
internal policies and procedures of the institution, so that red flags
can be identified. Such training may be conducted by third parties or
in-house, and may include computer-based training. Employees should
receive periodic updates and refreshers to such training. The nature,
scope, and frequency of training would depend upon the functions
performed by employees.
Proposed Sec. 1020.210(b)(1)(ii)(E) would require that the program
include, at a minimum, appropriate risk-based procedures for conducting
ongoing customer due diligence, to include, but not be limited to,
understanding the nature and purpose of customer relationships for the
purpose of developing a customer risk profile; and conducting ongoing
monitoring to identify and report suspicious transactions and, on a
risk basis, to maintain and update customer information. For purposes
of this proposed paragraph, customer information would include
information regarding the beneficial owners of legal entity customers
(as defined in Sec. 1010.230). FinCEN views this not as a new
requirement, but as an explicit statement of the activities that are
already required of covered financial institutions in order to monitor
for, and detect and report, suspicious transactions.\42\
---------------------------------------------------------------------------
\42\ For a description of what is required by this new provision
in the AML program rule for banks, see CDD Rule, 81 FR 29398, 29419-
29421.
---------------------------------------------------------------------------
Proposed Sec. 1020.210(b)(2) would require that an AML program be
approved by the bank's board of directors or, if the bank does not have
a board of directors, an equivalent function within the bank.
Additionally, a bank would be required to make a copy of its AML
program available to FinCEN or its designee upon request.\43\
---------------------------------------------------------------------------
\43\ An agency with authority delegated by FinCEN to examine the
bank for compliance with the BSA would qualify as a designee of
FinCEN.
---------------------------------------------------------------------------
D. CIP Requirements
Currently, the title reads: Section 1020.220, ``Customer
identification programs for banks, savings associations, credit unions,
and certain non-Federally regulated banks.'' With the proposed change,
the title would read: ``Customer identification program requirements
for banks.'' This proposed change recognizes that going forward CIP
requirements would apply to all banks.
The proposed changes would also delete an unnecessary reference in
Sec. 1020.220 that stipulates that credit unions, private banks, and
trust companies without a Federal functional regulator must seek board
approval for their CIPs. With finalization of this proposal, banks
lacking a Federal functional regulator would be required to implement a
written AML program approved by their boards of directors. Since CIP
would be part of their AML
[[Page 58431]]
programs, which must be approved by their boards of directors, it would
no longer be necessary to stipulate a separate approval of CIP in this
section.
III. Request for Comment
FinCEN welcomes comment on all aspects of the proposed rule. In
addition, FinCEN seeks comment on the following issues:
Whether certain banks lacking a Federal functional
regulator should be excluded from the proposed rule;
Whether there are additional bank categories that should
be included in the proposed rule;
Whether non-federally regulated banks should be subject to
the requirements contained in the CDD Rule;
If the requirements contained in the CDD Rule and under
Section 312 are imposed on non-federally regulated banks, what time
period should be given to these institutions to implement such
requirements; and
Whether there are banks that are, in fact, regulated by
self-regulatory organizations.
IV. Initial Regulatory Flexibility Act Analysis
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. Reasons Why Action by the Agency Is Being Considered
The Anti-Money Laundering Program
The statutory mandate that all financial institutions establish
anti-money laundering programs is a key element in the national effort
to prevent and detect money laundering and the financing of terrorism.
Banks without a Federal functional regulator may be as vulnerable to
the risks of AML and terrorist financing as banks with one. This
proposed rule would eliminate the present regulatory ``gap'' in AML
coverage between banks with and without a Federal functional regulator.
FinCEN expects that uniform regulatory requirements for all banks will
reduce the opportunity for criminals to seek out and exploit banks
subject to less rigorous AML requirements.
Customer Identification Program
For the reasons of regulatory consistency and protection against
systemic vulnerability discussed above in connection with AML programs,
FinCEN believes that CIP should also apply to all banks (including all
depository institutions chartered under state banking law, even if the
charter was not for a credit union, trust company, or private bank),
regardless of whether they are Federally regulated. In July 2002,
FinCEN issued a Notice of Proposed Rulemaking to ensure that there
would be no gaps in the scope of the CIP obligations as they apply to
banks. Because this proposal was never finalized, FinCEN is also re-
proposing changes that would explicitly require all banks that lack a
Federal functional regulator to establish CIP.
Beneficial Ownership Requirements
As noted above, the CDD Rule requires that from and after May 11,
2018, federally regulated banks and certain other financial
institutions identify, and verify the identity of, the beneficial
owners of their legal entity customers, as set forth in section
1010.230. For purposes of regulatory consistency, FinCEN believes that
this requirement should apply to non-federally regulated banks as well.
B. Objectives of, and Legal Basis for, the Proposed Rules
Section 352 of the USA PATRIOT Act requires financial institutions
to establish AML programs that, at a minimum, include: (1) The
development of internal policies, procedures, and controls; (2) the
designation of a compliance officer; (3) an ongoing employee training
program; and (4) an independent audit function to test programs. In
addition, the CDD Rule described above adds an explicit requirement to
conduct ongoing monitoring.
Section 326 of the USA PATRIOT Act requires FinCEN to prescribe
regulations that require financial institutions to establish programs
for account opening that, at a minimum, include: (1) Verifying the
identity of any person seeking to open an account, to the extent
reasonable and practicable; (2) maintaining records of the information
used to verify the person's identity, including name, address, and
other identifying information; and (3) determining whether the person
appears on any lists of known or suspected terrorists or terrorist
organizations provided to the financial institution by any government
agency.
Section 312 of the USA PATRIOT Act requires each U.S. financial
institution that establishes, maintains, administers, or manages a
correspondent account or a private banking account in the United States
for a non-U.S. person to subject such accounts to certain anti-money
laundering measures.
C. Small Entities Subject to the Proposed Rules
Based upon current data, for the purposes of RFA, FinCEN estimates
that these rules will impact approximately 347 state chartered non-
depository trust companies; 265 state-chartered credit unions that are
not federally insured; 12 state-chartered banks and savings and loan or
building and loan associations without FDIC insurance; and 115 EBIs
licensed in Puerto Rico.\44\ FinCEN believes it is likely that most or
all of the non-federally insured credit unions are small entities, and
has no data on the size of the other entities subject to this
rulemaking, and therefore assumes that many of them are small entities.
Therefore, FinCEN concludes that the proposed rules will apply to a
substantial number of small entities.
---------------------------------------------------------------------------
\44\ The Small Business Administration (``SBA'') defines a trust
company as a small business if it has assets of $35.5 million or
less. The SBA defines a depository institution (including a credit
union) as a small business if it has assets of $550 million or less.
FinCEN was unable to find an authoritative figure on the number of
non-federally regulated depository institutions that would meet the
definition of small entity.
---------------------------------------------------------------------------
D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements of the Proposed Rules
The proposed rules would prescribe minimum standards for AML
programs for banks without a Federal functional regulator to ensure
that all banks, regardless of whether they are subject to Federal
regulation and oversight, are required to establish and implement
written AML programs, including conducting ongoing customer due
diligence, and to identify and verify the identity of the beneficial
owners of their legal entity customers. The changes would also extend
customer identification program requirements to those banks not already
subject to these requirements.
Banks lacking a Federal functional regulator are currently required
to comply with many existing requirements under the BSA. All banks,
including those not subject to Federal regulation and oversight, are
already required to file SARs, which necessarily requires a bank to
establish a process to detect unusual activity. Certain banks lacking a
Federal functional regulator--namely, private banks, non-federally
insured credit unions, and certain trust companies--must maintain CIPs.
[[Page 58432]]
Uniform audits at the state and Federal levels may have caused banks
lacking a Federal functional regulator to adopt procedures similar to
the ones that would be required under the AML program requirement of
the proposed rule.
With respect to the beneficial ownership requirement, the proposed
rule would require banks lacking a Federal functional regulator to
obtain and maintain the identity of each beneficial owner from each
legal entity customer that opens a new account, including name,
address, date of birth and identification number. The financial
institution would also be required to verify such identity by
documentary or non-documentary methods and to maintain in its records
for five years a description of (1) any document relied on for
verification, (2) any such non-documentary methods and results of such
measures undertaken, and (3) the resolution of any substantive
discrepancies discovered in verifying the identification information.
The burden on a small non-federally regulated bank at account
opening resulting from the final rule would be a function of the number
of beneficial owners of each legal entity customer opening a new
account, the additional time required for each beneficial owner, and
the number of new accounts opened for legal entities by the small banks
during a specified period.
None of the small businesses that commented on the CDD Rule's
Initial Regulatory Flexibility Analysis (``IRFA'') included an estimate
of the amount of time to open a legal entity account; only one noted
the number of such accounts it opens per year (70). As a result of the
comments FinCEN received to the CDD Rule's-related regulatory impact
assessment from other commenters, FinCEN concluded in its Final
Regulatory Flexibility Analysis (``FRFA'') \45\ that the estimated time
for financial institutions to open accounts ranges from 20 to 40
minutes. Based on opening 471 new accounts for legal entities and an
average wage of $16.77 for ``new account clerks,'' \46\ this would
result in an annual cost to a small bank of $2,550 to $5,100.\47\
FinCEN also notes that, even among small entities, the costs could be
expected to vary substantially.\48\
---------------------------------------------------------------------------
\45\ See 81 FR 29398, 29448 (May 11, 2016).
\46\ See 81 FR 29398, 29448, n. 179, (May 11, 2016).
\47\ The estimated cost is based on the bank-reported 471 new
accounts per year, additional time at account opening of 15 to 30
minutes, and the average wage of $16.77 for the financial industry
``new account clerks'' reported by the Bureau of Labor Statistics.
\48\ For example, for the small bank that responded to the CDD
IRFA and estimated that it opens 70 new accounts for business
customers per year, the estimated costs would range from $380 to
$760 per year. See 81 FR 29398, 29447-48 (May 11, 2016).
---------------------------------------------------------------------------
In addition, compliance with the beneficial ownership requirement
would be expected to require additional training, information
technology upgrades, and revisions to policies, procedures, and
internal controls. A discussion of the estimated costs for these tasks
for small entities is included in the CDD Rule FRFA referred to above.
E. Overlapping or Conflicting Federal Rules
FinCEN is unaware of any existing Federal regulations that would
overlap or conflict with the amendments being proposed.
F. Consideration of Significant Alternatives
FinCEN has not identified any alternative means for bringing these
categories of non-federally regulated banks into compliance with the
same standards as all other banks in the United States. Were FinCEN to
exempt small entities from this requirement, those entities would
potentially be at greater risk of abuse by money launderers and other
financial criminals.
With respect to the CDD pillar of the AML program rule, FinCEN
considered several alternatives to that which is being proposed. As
described in greater detail elsewhere,\49\ these alternatives included
exempting small financial institutions below a certain asset or legal
entity customer threshold from the requirements, as well as utilizing a
lower (e.g., 10 percent) or higher (e.g., 50 percent) threshold for the
minimum level of equity ownership for the definition of beneficial
owner. FinCEN determined, however, that identifying the beneficial
owner of a financial institution's legal entity customers and verifying
that identity are necessary parts of an effective AML program. Were
FinCEN to exempt small entities from this requirement, or entities that
establish fewer than a limited number of accounts for legal entities,
those financial institutions would be at greater risk of abuse by money
launderers and other financial criminals, as criminals would identify
institutions without this requirement. FinCEN also considered
increasing the threshold for ownership of equity interests in the
definition of beneficial ownership to 50 percent or more of the equity
interests. Although this higher threshold would reduce the number of
individuals whose identity would need to be verified from five to
three, thus reducing marginally the onboarding time, this change would
not impact the training or IT costs, and therefore, would not
substantially reduce the overall costs of the rule and also would
provide less useful information. After considering all the alternatives
FinCEN has concluded that an ownership threshold of 25 percent is
appropriate to maximize the benefits of the requirement while
minimizing the burden.
---------------------------------------------------------------------------
\49\ See 81 FR 29398, 29450 (May 11, 2016).
---------------------------------------------------------------------------
G. Questions for Comment
Please provide comment on any or all of the provisions of the
proposed rule with regard to their economic impact on small entities,
and what less burdensome alternatives, if any, FinCEN should consider.
V. Unfunded Mandates Act
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 the 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. Taking into account the
factors noted above and using conservative estimates of average labor
costs in evaluating the cost of the burden imposed by the proposed
regulation, FinCEN has determined that it is not required to prepare a
written statement under section 202.
VI. Executive Orders 13563 and 12866
Executive Orders 13563 and 12866 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 this is not a significant regulatory action
for purposes of Executive Order 12866. Accordingly, a regulatory impact
analysis is not required.
[[Page 58433]]
VII. 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
(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 the Internet to
OIRA_submission@omb.eop.gov, with a copy to FinCEN by mail or the
Internet. Comments on the collection of information should be received
by October 24, 2016.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information subject to the Paperwork
Reduction Act unless it displays a valid control number assigned by the
Office of Management and Budget.
The collection of information in the proposed rule would be
codified at 31 CFR 1020.210, 1020.220, and 1020.230. The information
will be used by examining agencies to verify compliance with these
provisions. The collection of information is mandatory. Records
required to be retained under the BSA must be retained for five years.
Description of Recordkeepers: Banks without a Federal functional
regulator, as defined in 31 CFR 1020.210 and 1020.220.
Estimated Number of Affected Institutions: 1,151.
Estimated Average Annual Burden Hours per Recordkeeper: Since this
is a new requirement, the estimated average burden associated with the
recordkeeping requirement in this proposed rule is 40 hours for
development of a written program, and following the initial
development, the program must be reviewed on an annual basis, to
include a one (1) hour per year burden recognized for annual
maintenance and update.
Estimated Total Annual Reporting Burden: 46,040 hours.
This burden will be added to the existing burden listed under OMB
Control Number 1506-0035 currently titled AML Programs for insurance
companies and loan and finance companies. The new title for this
control number will be AML Programs for insurance companies, and
residential mortgage lenders and originators, and banks that lack a
Federal functional regulator. The new total burden will be 140,240
hours.
Questions for comment: (1) Whether the collection of information is
necessary for the proper performance of FinCEN's mission, including
whether the information will have practical utility; (2) Whether
FinCEN's estimate of the burden of the collection of information is
accurate; (3) What are ways to enhance the quality, utility, and
clarity of the information to be collected; (4) What are ways to
minimize the burden of the collection of information, including through
the use of automated collection techniques or other forms of
information technology; (5) What are the estimates of capital or start-
up costs to implement and then maintain an AML program; (6) How many
banks that lack a Federal functional regulator are considered ``small
businesses'' because the entities have less than $550 million in total
assets; (7) What is the average number of employees or the average
total annual salary expense for banks that lack a Federal functional
regulator; and (8) What is the average number of employees dedicated to
bank regulation compliance.
List of Subjects in 31 CFR Parts 1010 and 1020
Administrative practice and procedure, Banks, banking, Brokers,
Currency, Foreign banking, Foreign currencies, Gambling,
Investigations, Penalties, Reporting and recordkeeping requirements,
Securities, Terrorism.
Authority and Issuance
For the reasons set forth in the preamble, parts 1010 and 1020 of
chapter X of title 31 of the Code of Federal Regulations are proposed
to be amended as follows:
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
and 5316-5332; title III, sec. 314, Public Law 107-56, 115 Stat.
307.
Sec. 1010.205 [Amended]
0
2. Section 1010.205 is amended by:
0
a. Removing paragraph (b)(1)(vi);
0
b. Redesignating paragraphs (b)(1)(vii) through (ix) as paragraphs
(b)(1)(vi) through (viii); and
0
c. Removing and reserving paragraph (b)(2) and removing paragraph
(b)(3).
0
3. Section 1010.605 is amended by:
0
a. Revising paragraph (e)(1)(i)
0
b. Removing paragraphs through (e)(1)(ii) through (vii); and
0
b. Redesignating paragraphs (e)(1)(viii) through (x) as paragraphs
(e)(1)(ii) through (iv).
The revision reads as follows:
Sec. 1010.605 Definitions.
* * * * *
(e) * * *
(i) A bank required to have an anti-money laundering compliance
program under the regulations implementing 31 U.S.C. 5318(h), 12 U.S.C.
1818(s), or 12 U.S.C. 1786(q)(1);
* * * * *
PART 1020--RULE FOR BANKS
0
4. The authority citation for part 1020 continues 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, Public Law 107-56, 115 Stat.
307.
Sec. 1020.100 [Amended]
0
5. Section 1020.100 is amended by:
0
a. Removing paragraphs (b) and (d); and
0
b. Redesignating paragraph (c) as paragraph (b).
0
6. Section 1020.210 is revised to read as follows:
Sec. 1020.210 Anti-money laundering program requirements for banks.
(a) Anti-money laundering program requirements for banks regulated
only by a Federal functional regulator, including banks, savings
associations, and credit unions. A bank regulated by a Federal
functional regulator shall be deemed to satisfy the requirements of 31
U.S.C. 5318(h)(1) if it implements and maintains an anti-money
laundering program that:
(1) Complies with the requirements of Sec. Sec. 1010.610 and
1010.620 of this chapter;
(2) Includes, at a minimum:
(i) A system of internal controls to assure ongoing compliance;
(ii) Independent testing for compliance to be conducted by bank
personnel or by an outside party;
(iii) Designation of an individual or individuals responsible for
coordinating and monitoring day-to-day compliance;
(iv) Training for appropriate personnel; and
(v) Appropriate risk-based procedures for conducting ongoing
customer due diligence, to include, but not be limited to:
(A) Understanding the nature and purpose of customer relationships
for the purpose of developing a customer risk profile; and
(B) Conducting ongoing monitoring to identify and report suspicious
transactions and, on a risk basis, to maintain and update customer
information. For purposes of this paragraph, customer information shall
[[Page 58434]]
include information regarding the beneficial owners of legal entity
customers (as defined in Sec. 1010.230); and
(3) Complies with the regulation of its Federal functional
regulator governing such programs.
(b) Anti-money laundering program requirements for banks lacking a
Federal functional regulator including, but not limited to, private
banks, non-federally insured credit unions, and certain trust
companies. (1) A bank lacking a Federal functional regulator shall be
deemed to satisfy the requirements of 31 U.S.C. 5318(h)(1) if the bank
establishes and maintains a written anti-money laundering program that:
(i) Complies with the requirements of Sec. Sec. 1010.610 and
1010.620 of this chapter; and
(ii) Includes, at a minimum:
(A) A system of internal controls to assure ongoing compliance with
the Bank Secrecy Act and the regulations set forth in 31 CFR chapter X;
(B) Independent testing for compliance to be conducted by bank
personnel or by an outside party;
(C) Designation of an individual or individuals responsible for
coordinating and monitoring day-to-day compliance;
(D) Training for appropriate personnel; and
(E) Appropriate risk-based procedures for conducting ongoing
customer due diligence, to include, but not be limited to:
(1) Understanding the nature and purpose of customer relationships
for the purpose of developing a customer risk profile; and
(2) Conducting ongoing monitoring to identify and report suspicious
transactions and, on a risk basis, to maintain and update customer
information. For purposes of this paragraph, customer information shall
include information regarding the beneficial owners of legal entity
customers (as defined in Sec. 1010.230).
(2) The program must be approved by the board of directors or, if
the bank does not have a board of directors, an equivalent governing
body within the bank. The bank shall make a copy of its anti-money
laundering program available to the Financial Crimes Enforcement
Network or its designee upon request.
0
7. Amend Sec. 1020.220 by revising the section heading and paragraph
(a)(1) to read as follows:
Sec. 1020.220 Customer identification program requirements for
banks.
(a) * * * (1) In general. A bank required to have an anti-money
laundering compliance program under the regulations implementing 31
U.S.C. 5318(h), 12 U.S.C. 1818(s), or 12 U.S.C. 1786(q)(1) must
implement a written Customer Identification Program (CIP) appropriate
for its size and type of business that, at a minimum, includes each of
the requirements of paragraphs (a)(1) through (5) of this section. The
CIP must be a part of the anti-money laundering compliance program.
* * * * *
Jamal El-Hindi,
Acting Director, Financial Crimes Enforcement Network.
[FR Doc. 2016-20219 Filed 8-24-16; 8:45 am]
BILLING CODE 4810-02-P
