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112 U.S.C. 1829b(b)(2) (2006). Treasury hasindependent authority to issue regulations requiringnonbank financial institutions to maintain recordsof domestic transmittals of funds.

212 U.S.C. 1829b(b)(3) (2006).3 Id.

accommodations to attend a publichearing, contact the person listed underFOR FURTHER INFORMATION CONTACT. Wewill arrange the location and time of thehearing with those persons requestingthe hearing. If no one requests anopportunity to speak, we will not holdthe hearing. If only one personexpresses an interest, a public meeting

rather than a hearing may be held, withthe results included in the docket forthis rulemaking.

To assist the transcriber and ensure anaccurate record, we request, if possible,that each person who speaks at a publichearing provide us with a written copyof his or her comments. The publichearing will continue on the specifieddate until everyone scheduled to speakhas been given an opportunity to beheard. If you are in the audience andhave not been scheduled to speak andwish to do so, you will be allowed tospeak after those who have been

scheduled. We will end the hearing aftereveryone scheduled to speak and otherspresent in the audience who wish tospeak, have been heard.

IV. Procedural Determinations

Executive Order 12866RegulatoryPlanning and Review

This rule is exempted from review bythe Office of Management and Budget(OMB) under Executive Order 12866(Regulatory Planning and Review).

Other Laws and Executive OrdersAffecting Rulemaking

When a State submits a programamendment to OSM for review, ourregulations at 30 CFR 732.17(h) requireus to publish a notice in the FederalRegister indicating receipt of theproposed amendment, its text or asummary of its terms, and anopportunity for public comment. Weconclude our review of the proposedamendment after the close of the publiccomment period and determine whetherthe amendment should be approved,approved in part, or not approved. Atthat time, we will also make thedeterminations and certifications

required by the various laws andexecutive orders governing therulemaking process and include them inthe final rule.

List of Subjects in 30 CFR Part 944

Intergovernmental relations, Surfacemining, Underground mining.

Dated: August 12, 2010.

Allen D. Klein,

Director, Western Region.

[FR Doc. 201024599 Filed 92910; 8:45 am]

BILLING CODE 431005P

DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506AB01

Financial Crimes EnforcementNetwork; Cross-Border ElectronicTransmittals of Funds

AGENCY: Financial Crimes EnforcementNetwork (FinCEN), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: FinCEN, a bureau of theDepartment of the Treasury (Treasury),to further its efforts against moneylaundering and terrorist financing, andis proposing to issue regulations thatwould require certain banks and moneytransmitters to report to FinCENtransmittal orders associated withcertain cross-border electronictransmittals of funds (CBETFs). FinCENis also proposing to require an annual

filing with FinCEN by all banks of a listof taxpayer identification numbers ofaccountholders who transmitted orreceived a CBETF.

DATES: Written comments are welcomeand must be received on or beforeDecember 29, 2010 [See the ComplianceDate heading of the SUPPLEMENTARYINFORMATION for further dates.]

ADDRESSES: Those submitting commentsare encouraged to do so via the Internet.Comments submitted via the Internetmay be submitted at http://www.regulations.gov/search/index.jspwith the caption in the body of the text,Attention: Cross-Border ElectronicTransmittals of Funds. Comments may

also be submitted by written mail to:Financial Crimes Enforcement Network,Department of the Treasury, P.O. Box39, Vienna, VA 22183, Attention: Cross-Border Electronic Transmittals ofFunds. Please submit your comments byone method only. All commentssubmitted in response to this notice ofproposed rulemaking will become amatter of public record, therefore, youshould submit only information thatwill be available publicly.

Instructions: Comments may beinspected, between 10 a.m. and 4 p.m.,in the FinCEN reading room in Vienna,VA. Persons wishing to inspect thecomments submitted must obtain inadvance an appointment with theDisclosure Officer by telephoning (703)9055034 (not a toll free call). Ingeneral, FinCEN will make allcomments publicly available by postingthem on http://www.regulations.gov/search/index.jsp.

FOR FURTHER INFORMATION CONTACT: TheFinCEN regulatory helpline at (800)9492732 and select Option 3.

SUPPLEMENTARY INFORMATION:

I. Statutory Provisions

The Bank Secrecy Act (BSA) (Pub. L.91508, codified at 12 U.S.C. 1829b and19511959, and 31 U.S.C. 53115314and 53165332) authorizes the Secretaryof the Treasury (Secretary) to requirefinancial institutions to keep records

and file reports that the Secretarydetermines have a high degree ofusefulness in criminal, tax, or regulatoryinvestigations or proceedings, or inintelligence or counterintelligencematters to protect against internationalterrorism. The authority of the Secretaryto administer the BSA has beendelegated to the Director of FinCEN. TheBSA was amended by the Annunzio-Wylie Anti-Money Laundering Act of1992 (Pub. L. 102550) (Annunzio-Wylie). Annunzio-Wylie authorizes theSecretary and the Board of Governors ofthe Federal Reserve System (the Board)

to jointly issue regulations requiringinsured banks to maintain records ofdomestic funds transfers.1 In addition,Annunzio-Wylie authorizes theSecretary and the Board to jointly issueregulations requiring insured banks andcertain nonbank financial institutions tomaintain records of international fundstransfers and transmittals of funds.2Annunzio-Wylie requires the Secretaryand the Board, in issuing regulations forinternational funds transfers andtransmittals of funds, to consider theusefulness of the records in criminal,tax, or regulatory investigations orproceedings, and the effect of theregulations on the cost and efficiency ofthe payments system.3

The Intelligence Reform andTerrorism Prevention Act of 2004 (Pub.L. 108458) amended the BSA to requirethe Secretary to prescribe regulationsrequiring such financial institutions asthe Secretary determines to beappropriate to report to the FinancialCrimes Enforcement Network certaincross-border electronic transmittals offunds, if the Secretary determines thatreporting of such transmittals isreasonably necessary to conduct theefforts of the Secretary against money

laundering and terrorist financing.

II. Background Information

A. Current Regulations Regarding FundsTransfers

On January 3, 1995, FinCEN and theBoard jointly issued a rule that requires

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431 CFR 103.33(e) (2009) (Recordkeepingrequirements for banks); 31 CFR 103.33(f) (2009)(Recordkeeping requirements for nonbank financialinstitutions).

531 CFR 103.33(g) (2009).631 CFR 103.33(g)(1)(2) (2009).

731 CFR 103.33(e)(1)(i), (f)(1)(i) (2009).831 CFR 103.33(e)(1)(ii)(iii), (f)(1)(ii)(iii) (2009).9The FATF is a 36-member inter-governmental

policy-making body with the purpose ofestablishing international standards, anddeveloping and promoting policies, both at nationaland international levels, to combat moneylaundering and terrorist financing. See generallyhttp://www.fatf-gafi.org.The United States is amember of the FATF.

10Revised Interpretative Note to SpecialRecommendation VII: Wire Transfers, FATF (Feb.29, 2008), http://www.fatf-gafi.org/dataoecd/16/34/40268416.pdf.

11The Final Report of the National Commissionon Terrorist Attacks Upon the United States (9/11Commission Report) (July 22, 2004), http://www.9-11commission.gov/report/911Report.pdf.

12 Id. at 169.13 Id. at 528 n. 116.14See National Commission on Terrorist Attacks

Upon the United States, Terrorist Financing StaffMonograph, 5458 (2004).

159/11 Commission at 382 (Testimony providedby Mr. Lee Hamilton, Vice-Chairman).

banks and nonbank financialinstitutions to collect and retaininformation on certain funds transfersand transmittals of funds (FundsTransfer Rule).4 At the same time,FinCEN issued the travel rule, whichrequires banks and nonbank financialinstitutions to include certaininformation on funds transfers and

transmittals of funds to other banks ornonbank financial institutions.5

The recordkeeping and travel rulesprovide uniform recordkeeping andtransmittal requirements for financialinstitutions and are intended to helplaw enforcement and regulatoryauthorities detect, investigate, andprosecute money laundering and otherfinancial crimes by preserving aninformation trail about persons sendingand receiving funds through the fundstransfer system.

Under the travel rule, a financialinstitution acting as the transmittorsfinancial institution must obtain andinclude in the transmittal order thefollowing information on transmittals offunds of $3,000 or more: (a) Name and,if the payment is ordered from anaccount, the account number of thetransmittor; (b) the address of thetransmittor; (c) the amount of thetransmittal order; (d) the execution dateof the transmittal order; (e) the identityof the recipients financial institution;(f) as many of the following items as arereceived with the transmittal order: thename and address of the recipient, theaccount number of the recipient, andany other specific identifier of the

recipient; and (g) either the name andaddress or the numerical identifier ofthe transmittors financial institution. Afinancial institution acting as anintermediary financial institution mustinclude in its respective transmittalorder the same data points listed above,if received from the sender.6

Furthermore, under the recordkeepingrule, of the information listed above, afinancial institution must retain thefollowing data points for transmittals offunds of $3,000 or more:

If acting as a transmittors financialinstitution, either the original,microfilmed, copied, or electronicrecord of the information received, orthe following data points: (a) The nameand address of the transmittor; (b) theamount of the transmittal order; (c) theexecution date of the transmittal order;(d) any payment instructions receivedfrom the transmittor with the transmittal

order; (e) the identity of the recipientsfinancial institution; (f) as many of thefollowing items as are received with thetransmittal order: the name and addressof the recipient, the account number ofthe recipient, and any other specificidentifier of the recipient; and (g) if thetransmittors financial institution is anonbank financial institution, any form

relating to the transmittal of funds thatis completed or signed by the personplacing the transmittal order.7

If acting as an intermediaryfinancial institution, or a recipientfinancial institution, either the original,microfilmed, copied, or electronicrecord of the received transmittalorder.8

The recordkeeping rule requires thatthe data be retrievable and availableupon request to FinCEN, to lawenforcement, and to regulators to whomFinCEN has delegated BSA complianceexamination authority. A broad range of

government agencies regularly compelunder their respective authorities (e.g.,subpoena or warrant) financialinstitutions to provide informationmaintained pursuant to therecordkeeping rule, albeit in ad hoc andsometimes inconsistent and overlappingways, depending upon the agency orinvestigator.

B. FATF Special Recommendation VII

Shortly after the attacks of September11, 2001, the Financial Action TaskForce (the FATF) 9 adopted severalspecial recommendations designed tostem the financing of terrorism. Special

Recommendation VII (SR VII) wasdeveloped with the objective ofpreventing terrorists and other criminalsfrom having unfettered access to wiretransfers for moving their funds anddetecting such misuse when it occurs.10

The FATF in adopting SR VII foundthat, due to the potential terroristfinancing threat posed by small wiretransfers, countries should aim for theability to trace all wire transfers andshould minimize thresholds taking intoaccount the risk of driving transactionsunderground. The interpretive note toSpecial Recommendation VII goes on to

say that countries may adopt a de

minimis standard of $1,000, belowwhich countries could exemptinstitutions from reporting ormaintaining records.

C. 9/11 Commission and Section 6302

On November 27, 2002, PresidentBush signed legislation creating theNational Commission on Terrorist

Attacks Upon the United States (9/11Commission) (Pub. L. 107306), whichwas directed to investigate the factsand circumstances relating to theterrorist attacks of September 11, 2001,including those involving intelligenceagencies, law enforcement agencies,diplomacy, immigration issues and

border control, the flow of assets toterrorist organizations, and the role ofcongressional oversight and resourceallocation.11 To fulfill its mandate, the9/11 Commission reviewed over 2.5million pages of documents, conductedinterviews of some 1,200 individuals in

ten countries, and held 19 days ofpublic hearings featuring testimonyfrom 160 witnesses.

In conducting its review, the 9/11Commission focused a significantamount of inquiry into the financialtransactions undertaken by the 19hijackers and their associates. TheCommission estimated that $400,000$500,000 was used to support theexecution of the attacks of September11, 2001.12 The Commission noted thatthe transactions were not inherentlysuspicious and the low volumes of thetransactions would not have raisedalarm at the financial institutionsprocessing the transactions. TheCommission also noted that nosuspicious activity reports (SARs) werefiled on these transactions prior to theattacks of September 11, 2001.13 TheCommission determined that the currentreporting and recordkeepingrequirements contained in the BSA wereinsufficient to detect terrorist financing

because of the inability of financialinstitutions to use typical moneylaundering typologies to detect terroristfinancing transactions.14

The 9/11 Commission, through itsfinal report and the August 23, 2004

testimony of its Vice-Chairman,15 notedthat vigorous efforts to track terroristfinancing must remain front and center

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16 Id. at 383.17Public Law 108458, 118 Stat. 3638 (2004).1831 U.S.C. 5318(n) (2006).

19Feasibility of a Cross-Border Electronic FundsTransfer Reporting System under the Bank SecrecyAct, FinCEN Report to Congress dated January 17,2007, available at http://www.fincen.gov/news_room/rp/files/cross_border.html.

20See Feasibility ReportApp. G. FinCEN IndustrySurvey (Notice and Request for Comment, 71 Fed.Reg. 14289) and industry responses can be foundin Appendix G of the Feasibility Report.

21The Annunzio-Wylie Anti-Money LaunderingAct of 1992 required the Secretary of the Treasuryto establish a Bank Secrecy Act Advisory Group

(BSAAG) consisting of representatives from Federalregulatory and law enforcement agencies, f inancialinstitutions, and trade groups with members subjectto the requirements of the Bank Secrecy Act, 31CFR 103 et seq. or Section 6050I of the InternalRevenue Code of 1986. The BSAAG is the means

by which the Secretary receives advice on theoperations of the Bank Secrecy Act. As chair of theBSAAG, the Director of FinCEN is responsible forensuring that relevant issues are placed before theBSAAG for review, analysis, and discussion.Ultimately, the BSAAG will make policyrecommendations to the Secretary on issuesconsidered. BSAAG membership is open tofinancial institutions and trade groups.

22See Feasibility Report, at Section 3.0Overview.

23See Id. at Section 4.0.24See Id. at Section 3.0.25See Id. at Section 5.0.26See Id. at Section 6.0.27See Id. at Section 7.0.

in U.S. counterterrorism efforts. TheCommission also found that terroristshave shown considerable creativity intheir methods for moving money. 16Expanding upon this point in hisAugust 23, 2004 testimony, 9/11Commission Vice-Chairman Hamiltonstated: While we have spent significantresources examining the ways al Qaeda

raised and moved money, we are underno illusions that the next attack will usesimilar methods. As the government hasmoved to close financial vulnerabilitiesand loopholes, al Qaeda adapts. Wemust continually examine our systemfor loopholes that al Qaeda can exploit,and close them as they are uncovered.This will require constant efforts on thepart of this Committee, working withthe financial industry, their regulatorsand the law enforcement andintelligence community.

In response to the findings of the 9/11 Commission, Congress passed the

Intelligence Reform and TerrorismPrevention Act of 2004 (IRTPA),17which was signed into law on December17, 2004, by President Bush. IRTPAencourages the sharing of informationacross intelligence agencies, protects thecivil liberties and privacy ofindividuals, and provides processesthrough which intelligence agencies canobtain additional intelligence necessaryto protect the United States and itscitizens. Specifically, section 6302,codified under 31 U.S.C. 5318(n),requires that the Secretary study thefeasibility ofrequiring such financialinstitutions as the Secretary determines

to be appropriate to report to [FinCEN]certain cross-border electronictransmittals of funds, if the Secretarydetermines that reporting of suchtransmittals is reasonably necessary toconduct the efforts of the Secretaryagainst money laundering and terroristfinancing. The law further requires thatthe regulations be prescribed in finalform before the end of the 3-year period

beginning on the date of enactment ofthe [Act]. 18

Although no particular provision ofIRTPA on its own would haveprevented the attacks of September 11,

2001, together these provisions aredesigned to close the loop-holes thatwould allow future attacks of a similardesign. For example, of the $400,000 to$500,000 used to fund the September11, 2001 attacks, an estimated $130,000was received by CBETFs sent fromsupporters overseas. Several of thosetransactions were above the $3000reporting threshold and involved a

transmittor or recipient who was eitheran active target of an investigation at thetime the transfer was made, or couldhave been recognized as a person ofinterest under the new IRTPAintelligence sharing provisions.

D. Feasibility of a Cross-BorderElectronic Funds Transfer Reporting

System Under the Bank Secrecy ActSection 6302 of IRTPA requires that,

prior to prescribing the contemplatedregulations, the Secretary submit areport to Congress that: (a) Identified theinformation in CBETFs that might befound in particular cases to bereasonably necessary to conduct theefforts of the Secretary to identifymoney laundering and terroristfinancing, and outlined the criteria to beused by the Secretary to select thesituations in which reporting under thissubsection may be required; (b) outlinedthe appropriate form, manner, content,and frequency of filing of the reportsthat might be required under suchregulations; (c) identified the technologynecessary for FinCEN to receive, keep,exploit, protect the security of, anddisseminate information from reports ofCBETFs to law enforcement and otherentities engaged in efforts against moneylaundering and terrorist financing; and(d) discussed the information securityprotections required by the exercise ofthe Secretarys authority under suchsubsection. In January 2007, theSecretary submitted the feasibilityreport required under Section 6302 (theFeasibility Report) to the Congress.19

FinCENs development of theFeasibility Report included multipleapproaches. An internal working groupof employees drawn from all operationaldivisions of FinCEN coordinated effortswithin the organization, managedcontact with external stakeholders,hosted small workshops with lawenforcement representatives, visitedrelevant U.S. and foreign governmentand private sector organizations,surveyed industry and governmentalorganizations, solicited input fromprivate sector technology experts,20 andresearched extensively. In addition,

FinCEN formed a subcommittee of theBank Secrecy Act Advisory Group(BSAAG) 21 including representatives

from across the spectrum of U.S.financial services industry members,and governmental agencies. Thesubcommittee did not author or reviewthis report, but provided expertassistance in the identification andanalysis of relevant issues,recommendations about the focus of thereport, and important contacts within

the U.S. financial services industry.FinCEN also drew upon the experienceof the Australian Transaction Reportsand Analysis Centre (AUSTRAC) andthe Financial Transactions Reports andAnalysis Centre (FINTRAC), FinCENscounterpart financial intelligence unitsin Australia and Canada, both of whichalready collect cross border fundstransfer information.22

The Feasibility Report produced ageneral, high-level assessment of:

What information in a fundstransfer is reasonably necessary tocollect to conduct efforts to identify

money laundering and terroristfinancing, and the situations in whichreporting may be required; 23

The value of such information infulfilling FinCENs counter-terroristfinancing and anti-money launderingmissions;24

The form that any such reportingwould take and the potential costs anysuch reporting requirement wouldimpose on financial institutions;25

The feasibility of FinCEN receivingthe reports and warehousing the data,and the resources (technical andhuman) that would be needed toimplement the reporting requirement; 26and,

The concerns relating toinformation security and privacy issuessurrounding the reports collected.27

The Feasibility Report also identifieda number of issues that policy makerswere required to consider at any stageof the implementation of the reportingrequirement, such as whether the

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2871 FR 14289 (March 21, 2006).29Feasibility Report, App. G at 119.

30As discussed below, through understanding theprocessing of transactions by potential third-partyreporters, FinCEN removed the reporting thresholdfor banks and adjusted the reporting threshold formoney transmitters to $1,000.

31See Feasibility Report, at Section 1.0Executive Summary.

32See Feasibility Report, at Section 8.0Conclusions and Recommendations.

potential value of requiring financialinstitutions to report information aboutCBETFs outweighs the potential costs of

building the technology, the costs tofinancial institutions of implementingcompliance processes, and the socialcosts related to privacy and security ofthe information.

A significant concern for the

centralization of information on CBETFsis the cost, both to U.S. financialinstitutions and to the government, ofimplementing the reporting requirementand building the technological systemsto manage and support the reporting.Related to these concerns are questionsabout the governments ability to usesuch data effectively. Another concernis the potential effect that any reportingrequirement could have on dollar-basedpayment systems such as: (1) A shiftaway from the U.S. dollar toward othercurrencies (i.e., the Euro) as the basis forinternational financial transactions; (2)

the creation of mechanisms andfacilities for clearing dollar-basedtransactions outside the United States;and (3) interference with the operationof the central payments systems. TheUnited States has economic andnational security interests in thecontinued viability and vitality ofdollar-based payments and thesepossible outcomes must inform andguide the rulemaking process.

These issues were also pointed out bycommenters in response to FinCENsMarch 2006 survey 28 regarding thereporting of CBETFs. In its response toFinCENs March 2006 survey, the

American Bankers Associationproposes for discussion whetherpiloting a single channel specificreporting requirement and thenevaluating what has been achieved froma law enforcement perspective for whatcost from an economic and privacy

basis, isnt a preferred alternative toattempting to implement acomprehensive definition-and-exception driven cross-border, cross-system regime. 29 The FeasibilityReport concluded that there was somevalue to a phased implementation of aCBETF reporting system. Building on

the ABAs suggestion, the FeasibilityReport proposed an incrementaldevelopment and implementationprocess. The pre-acquisition phase ofthe process involved three parallelefforts: user requirement analysis;institutional cost analysis; and valueanalysis. All three of these effortsprovided vital information required todevelop detailed requirements for theproposed regulation and technological

system. If the concerns noted above orany as-yet unidentified issues wouldimpede the project or cause it to beinfeasible, such incremental approachprovides the opportunity to alter or haltthe effort before FinCEN or the U.S.financial services industry incurssignificant costs.

Based on extensive fieldwork and

analysis of information and data, theFeasibility Report concluded that:

The information that FinCEN isseeking to be reported is reasonablynecessary to support the Secretarysefforts to combat money laundering andterrorist financing. Specifically, theinability to conduct proactive analysison the information currently recorded

by banks hinders law enforcementsability to identify significantrelationships to active targets.

The basic information alreadyobtained and maintained by U.S.financial institutions pursuant to the

Funds Transfer Rule, including the$3,000 recordkeeping threshold,provides sufficient basis for meaningfuldata analysis.30

Any threshold should apply only todiscrete transactions and not to theaggregated total value of multipletransactions conducted very closely toone another in time.

Any reporting requirement shouldapply only to those U.S. institutions thatexchange payment instructions directlywith foreign institutions. FinCENdetermined that a focused approach onthose institutions that act as

intermediaries would restrict thereporting requirement to thoseinstitutions with the systems able toprocess these reports and limit theimplementation costs on the industry asa whole.

Any reporting requirement shouldpermit institutions to report eitherthrough a format prescribed by FinCEN,through the submission of certain pre-existing payment messages that containthe required data, or through aninteractive online form for institutionsthat submit a low volume of suchreports. The filing system shouldaccommodate automated daily filing,periodic filing via manual upload, anddiscrete single report filing on an as-needed basis.31

The implementation of thereporting requirement described insection 6302 would be a staged process,

requiring FinCEN to review and updatethe requirements as necessary.

As to the determination of what typeof cross-border movements of funds toinclude in the first step of the stagedprocess advocated by the FeasibilityReport, the definition ofcross-borderelectronic transmittal of funds lies atthe heart of a successful implementation

of the reporting requirement. The natureof the electronic funds transfer processas it has evolved in the United Statesposes specific difficulties in creating adefinition that at once captures all of thenuances of the payment systems andavoids needless complexity. Section6302 contemplates a reportingrequirement that is coextensive with thescope of the BSA funds transfer rule (31CFR 103.33). Accordingly, for thepurposes of the first step of a phasedapproach to the cross-border electronictransmittal of funds reportingrulemaking process (the CBETF First

Stage), the Feasibility Report focused onelectronic transmittals of funds asdefined in 31 CFR 103.11(jj), and didnot address any debit card type oftransmittals, point-of-sale (POS)systems, transaction conducted throughan Automated Clearing House (ACH)process, or Automated Teller Machine(ATM).32 Furthermore, within thecurrent regulatory definition oftransmittals of funds, the FeasibilityReport advised concentrating for theCBETF First Stage on those transactionsinvolving depository institutions thatexchange transmittal orders throughnon-proprietary messaging systems, andall money transmitters, and where theU.S. institution sends or receives atransmittal order directing the transferof funds to or from an accountdomiciled outside the U.S.. Refining anappropriate regulatory definition ofwhat transactions fall within the newreporting requirement will implicate anumber of concerns that were identified

by the Feasibility Report and should befurther addressed during future studies.

As further preparation for a study ofthe implications and benefits ofimplementing the first step of CBETFreporting, the Feasibility Report

recommended the following: Engaging with partners in the law

enforcement, regulatory and intelligencecommunities to develop detailed userrequirements to meet the most centralneeds of those who access BSA data.

Engaging in a detailed discussionwith representatives of the U.S.financial services industry, along withrepresentatives of the major paymentsystems and members of the Canadian


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33See generally Implications and Benefits ofCross-Border Funds Transmittal Reporting, FinCENAnalytical Report, FinCEN (Sept. 27, 2010),http://www.fincen.gov/news_room/rp/rulings/pdf/ImplicationsAndBenefitsOfCBFTR.pdf[hereinafterImplications and Benefits Study].

34See Implications and Benefits Study, at App. C.35FinCEN continued drawing upon the

experience of AUSTRAC and FINTRAC, FinCENscounterpart financial intelligence units in Australiaand Canada, both of which already collect crossborder funds transfer information. The extensiveand detailed information contributed to this effortby AUSTRAC and FINTRAC is contained inAppendix B (Financial Intelligence Unit Letters ofSupport) to the Study.

36See Implications and Benefits Study, at Section1.0Executive Summary.

37See Feasibility Report, at Section 3.0Overview.

38See Feasibility Report, at Section 4.0DataReasonably Necessary to Identify Illicit Finance,and also Appendix F (Potential Analytical Value ofCross-Border Funds Transfer Report).

and Australian financial servicesindustries. These discussions wouldfocus on quantifying the cost theproposed requirement would impose onreporting institutions and the potentialimpact on the day-to-day operation ofthe payment systems.

Engaging outside support to obtainand analyze a sizable sample of cross-

border funds transfer data and exploringmeans of extracting value from the data,and identifying means to effectively andintelligently use the data to advanceefforts to combat money laundering andillicit finance.

III. Implications and Benefits of Cross-Border Funds Transmittal Reporting

Based on the high-level assessmentand recommendations of the FeasibilityReport, FinCEN conducted an in-depthImplications and Benefits Study ofCross-Border Funds TransmittalReporting (the Implications and BenefitsStudy, or simply the Study) 33addressing the proposed first step ofimplementation of CBETF reporting.Significant input into the survey of

banks and MSBs that supported theStudy 34 was provided by BSAAG. TheStudy was also supported by interviewswith law enforcement and regulatoryagencies, information from foreignfinancial intelligence units,35 andinterviews and surveys of financialinstitutions.36 The Study analyzed indetail the implications of CBETFreporting on the financial sector and the

benefits to law enforcement of havingaccess to CBETF data to determine the

known or potential uses of CBETF data,the implications of reporting on thefinancial industry, and the technicalrequirements for accepting reports.

A. The Known and Potential Uses ofCBETF Data

As illicit actors adapt to anincreasingly transparent system, theymust make additional and morecomplicated efforts to conceal their

behavior and resort to slower, riskier,more expensive, and more cumbersome

methods of raising and moving money.Every additional step or layer ofcomplexity illicit actors must add totheir schemes provides newopportunities for detection, and anincreased risk to those who would abusethe financial system. The value oftransparency is twofoldit deters thosewho would use the financial system for

illicit activity and promotes thedetection of those who do so. Asgovernments throughout the worldstrive to promote transparency in thefinancial system, the shortage of toolsfor detecting schemes that rely on thesemodern technological payment systemscreates a potential blind spot in ourefforts to protect the homeland and tocombat financial crime.

Traditionally, experts describe threestages of money laundering:

Placementintroducing cash intothe financial system or into legitimatecommerce;

Layeringseparating the moneyfrom its criminal origins by passing itthrough several financial transactions;

Integrationaggregating the fundswith legitimately obtained money orproviding a plausible explanation for itsownership.

The BSA reporting regime deals wellwith the placement stage. Somefinancial institutions file CurrencyTransaction Reports (CTRs) when aperson conducts certain types of largecurrency transactions, others file Forms8300 for large amounts of cash ormonetary instruments received in atrade or business, and travelers entering

the U.S. with more than $10,000 incurrency must complete Currency andMonetary Instrument Reports (CMIRs).However, while these three reportsaddress placement, due to their focus oncurrency-based transactions, they do notprovide insights into the rapidlydeveloping electronic aspects offinancial transactions. These reportsidentify the physical movement ofcurrency into and within the U.S.financial system. Electronic fundstransfers, by contrast, represent anentirely different mode for themovement of money.

The SAR provides some insight intothe layering and integration stages bycasting a light on transactions of anyamount and type that financialinstitutions suspect are related to illicitactivity or that are suspicious in thatthey do not appear to fit a knownpattern of legitimate business activity.FinCEN has found that electronic fundstransfers feature prominently in thelayering stage of money launderingactivity, which is not addressed in anyof the reports currently filed if thetransactions do not raise suspicions

within the financial institution.Complex electronic funds transferschemes can deliberately obscure theaudit trail and disguise the source andthe destination of funds involved inmoney laundering and illicit finance.37

In addition to addressing moneylaundering, the BSA requires reportingthat has a high degree of usefulness in

tax proceedings, and provides theSecretary with additional tools toprevent tax evasion. Although somemodels of tax evasion do follow theplacement, layering, and integrationmodels of money laundering, many donot because the proceeds are not illicituntil after the money has beentransferred overseas. The informationproposed to be reported in thisrulemaking will assist the governmentin preventing tax evasion and reducingthe tax gap.

A reporting requirement would createa centralized database of this very basicCBETF information in a single formatand link it with other highly relevantfinancial intelligence. Furthermore, thisvery basic information about suchtransfers provides both a source ofinformation that can provide new leadsstanding alone and can potentiallyenhance the use and utility of currentBSA data collected by FinCEN whencombined with those other data sources.Currently, the government has no abilityon a national scale to systematically andproactively target money laundering,terrorist financing, tax evasion, andother financial crimes that are beingconducted through wire transfers. By

creating a reporting structure, thegovernment will be able to query thedata by geography and transactionvalue, uncovering linkages such asmany people sending money to oneperson outside the United States or viceversa. These types of linkages play acritical role in the ability of thegovernment to bring cases that it is notable to in todays reportingenvironment. Among the ways in whichFinCEN and its partners can exploit thisdata are individual searches for knownsubjects, data matching with othersources of lead information, and link

analysis with other financial, lawenforcement, and intelligencereporting.38

The study team worked with lawenforcement and regulatory agencies toidentify how CBETF data would beusable for those identified purposes todemonstrate the reasonable necessity

http://www.fincen.gov/news_room/rp/rulings/pdf/ImplicationsAndBenefitsOfCBFTR.pdfhttp://www.fincen.gov/news_room/rp/rulings/pdf/ImplicationsAndBenefitsOfCBFTR.pdfhttp://www.fincen.gov/news_room/rp/rulings/pdf/ImplicationsAndBenefitsOfCBFTR.pdfhttp://www.fincen.gov/news_room/rp/rulings/pdf/ImplicationsAndBenefitsOfCBFTR.pdfhttp://www.fincen.gov/news_room/rp/rulings/pdf/ImplicationsAndBenefitsOfCBFTR.pdfhttp://www.fincen.gov/news_room/rp/rulings/pdf/ImplicationsAndBenefitsOfCBFTR.pdf

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39See Implications and Benefits Study, at Section4.0Benefits to Law Enforcement and RegulatoryAgencies.


41See 31 CFR 103.33(e) (2009) (Office ofManagement and Budget (OMB) Control Number15050063).


of collecting CBETF data. The results ofthat analysis are summarized in theImplications and Benefits Study asfollows:

Section 4.2, Business Use CaseProcess, describes the study teamsapproach to developing the business usecases which illustrate potential uses ofthe data.

Section 4.3, Categories of Analysis,explains how the use cases werecategorized (e.g., reactive, proactive).

Section 4.4, Domestic Business UseCase Summary, summarizes the usecases that the study team developed.

Section 4.5, Use of CBETF Data byInternational Financial IntelligenceUnits (FIUs), summarizes the use ofCBETF data by FinCENs counterpartFIUs in foreign countries.

Section 4.6, Data Usability, Quality,and Prototyping, presents the results ofthe study teams analysis to validate theusability of the data with CBETF data

samples provided by the financialindustry.39From its interviews with law

enforcement and regulatory agencies,the study team developed primaryimpact areas, also known as businessuse cases, and identified 24 scenariosin which thirteen different Federal andState law enforcement and regulatoryagencies, in addition to FinCEN, would

benefit from access to CBETF data basedupon their investigative mission,current use of BSA data, or existingutilization of CBETF data obtained fromfinancial institutions in the primary

impact areas of terrorist financing,money laundering, tax evasion, humanand drug smuggling, and regulatoryoversight.40 The results of this workdemonstrate how access to CBETF datawould greatly improve both theefficiency of these agencies currentinvestigations and their ability toidentify new investigative targets aswell as be highly valuable in the U.S.Governments efforts to counter theseassociated crimes. The followingexamples are illustrative of therepresentative business use cases thatwere developed:

To support the FBIs efforts intracking and freezing terrorist assets, theFBIs Terrorism Financing OperationsSection (TFOS) analysts conductsophisticated analysis, cross-referencingmultiple disparate data sources, toidentify financial transactions indicativeof terrorist financing. The availability ofCBETF data would significantly

improve the efficiency of FBI analystsinvestigating targets suspected ofengaging in terrorist financing by tracingthe flow of proceeds to entitiesassociated with terrorist organizations.Such analysis would play a critical rolein the ability of the FBI to detect,disrupt, and dismantle terroristfinancial support networks.

The Internal Revenue ServicesAbusive Tax Scheme Program, OffshoreCompliance Initiatives Group, conductssophisticated analysis to proactivelyidentify taxpayers using offshoreaccounts and entities to evade U.S.income tax. The availability of CBETFdata would significantly enhance thegroups ability to identify potentialevasion by identified taxpayers throughthe analysis of funds transmittals fromthe United States to offshore accounts.

United States Immigration andCustoms Enforcement (ICE) isestablishing Trade Transparency Units

(TTUs) with critical partnerjurisdictions worldwide, in its effort toidentify and eliminate customs fraudand trade-based money laundering.These TTUs have enhancedinternational cooperative investigativeefforts to combat activities designed toexploit vulnerabilities in the U.S.financial and trade systems. As formalinternational financial systems becomemore highly regulated and transparent,criminal entities have resorted toalternative means of laundering illicitproceeds. Fraudulent practices ininternational commerce allow criminals

to launder illicit funds while avoidingtaxes, tariffs, and customs duties. Toenhance combating this threat, ICETTUs would conduct proactive analysisof CBETF data in conjunction withexisting U.S. and foreign trade data todetect money laundering casesinvolving the international movement ofover- or under-valued goods.

Using FinCENs authority under therecordkeeping rule, FinCEN received alimited sample of CBETF data fromseveral large financial institutions.41Based on the business use cases, thestudy group performed an analysis of

the sample data. This analysis yieldedseveral findings: CBETF data fields, under current

recordkeeping requirements, aresufficient to conduct the type ofanalyses illustrated in the business usecases, although additional fields couldadd value.

Upon implementation, CBETF datawould immediately be available to

conduct the type of analyses illustratedin the business use cases.

Having CBETF data for transactionsunder $3,000 would significantly

benefit the type of analysis illustrated inthe business use cases.

The quality of the data in thesample was found to be acceptable toconduct the type of analyses illustrated

in the business use cases.A comparison of a three monthlimited sample of CBETF data toFinCEN cases revealed a substantialnumber of instances where CBETFtransactions were matched with existingcases and/or pointed to additionalinvestigative leads.42 Based on thefindings from the Study, FinCEN hasdetermined that the collection of CBETFdata would be reasonably necessary asset forth in Section 6302. Thisdetermination is based on the valueFinCEN believes this information willhave in our efforts to stem moneylaundering, tax evasion, and terroristfinancing. FinCEN believes that areporting requirement provides asignificant advantage to thegovernments efforts in these areas overthe current recordkeeping requirementat a reasonable cost. These advantagesare based on the central premise thatproactive targeting is more effectivewith access to a larger dataset.

FinCENs determination that areporting requirement is reasonablynecessary also rests on the tenet that thegovernment has greater access toinformation than any individualinstitution. For example, if a bank or

money transmitter has a customer whoroutinely transfers funds to a foreigncountry in amounts that, consideredalone, would not appear significant, thisactivity may never be reviewed. Byinstituting a reporting requirement, thegovernment will be able to observewhether this customer is conductingsimilar transactions at many otherinstitutions and, if so, can see that theperson may be avoiding detection byspreading their transactions acrossmany market participants. Additionally,the government has access to moreinformation than banks and money

transmitters. While the governmentcannot provide the private sector accessto trade and tax databases, for example,matching information in these databaseswith cross-border wire records willfurther prosecutions in these areas,potentially leading to recouping revenuethat may otherwise go uncollected.Lastly, the government will always haveaccess to classified information thatcannot be shared with the private sector,


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43See Implications and Benefits Study, App. C.at 28 (OMB Control Number 15050191).

44See Implications and Benefits Study, at Section5.0Implications to the Financial Industry.





and the ability to run queries based onthis information could have a significantimpact on mapping a criminal orterrorist support network.

B. Implications of CBETF Reporting tothe Financial Industry

To solicit input from the financialindustry on the effects of a potential

CBETF reporting requirement, FinCENcontracted with an experienced surveycontractor to gather qualitativeinformation and quantitative data fromsectors of the industry that could beaffected by the reporting requirement.43On behalf of FinCEN, the contractordistributed the CBETF survey to 247depository institutions and 32 moneytransmitters that conduct CBETFtransactions on behalf of their owncustomers or that act as a correspondent

bank for other financial institutions.Acting on the recommendations of theFeasibility Report:

Depository institutions

weredefined as depository institution

members of the Society of WorldwideInterbank FinancialTelecommunications (SWIFT) usergroup located or doing business in theUnited States, including offices oragents of non-U.S. chartered depositoryinstitutions.

Money transmitters were definedas non-bank financial institutions thatwere registered with FinCEN as a moneytransmitter on November 10, 2007 andreported at least 20 branch locations inthe United States.44

Out of the group of financialinstitutions surveyed, 81 providedresponses to FinCEN on theimplications and benefits of a potentialCBETF reporting requirement basedupon the transactions currently subjectto FinCENs recordkeeping requirement,

both at the $3,000 and zero threshold.Key findings from the survey offinancial industry entities include thefollowing:

Respondents expected an increasein the cost of complying with the newreporting requirement as compared tocosts under the current process ofcomplying with subpoenas or other

legal demands under currentrecordkeeping requirements.

Respondents suggested manyalternative reporting methods andimplementation approaches to reducethe potential costs of a reportingrequirement, such as reporting CBETFdata weekly or monthly, having FinCENobtain CBETF information directly from

a financial industry entity that currentlyservices the majority of depositoryinstitutions international fundstransmittals such as SWIFT or someother centralized repository, eitherexpanding or further limiting whichCBETF transactions would need to bereported, or accepting the data in theexisting format used by financial

institutions. Respondents consider customer

privacy a significant concern. Respondents noted that the security

and uses of CBETF data are also asignificant concern for financialinstitutions, especially the perceivedease of accessibility of the data to lawenforcement.

Respondents felt that outreach andguidance both before and after theimplementation of a reportingrequirement would be critical to itseffective implementation; this wouldinclude providing clear and specific

regulations, detailed technicalrequirements, published guidance andfrequently asked questions, sufficientimplementation time, and coordinatedtesting opportunities.45

Survey respondents were given anopportunity to provide additional inputon several topics related to a potentialCBETF reporting requirement. Thestudy team identified several areas ofimportance to financial institutions.One of the most significant suggestionsreceived from respondents was to haveFinCEN obtain CBETF informationdirectly from SWIFT or some othercentralized repository.46

Based on financial industry surveyresponses and interviews with financialinstitutions and law enforcementagencies, the study team developed thefollowing two potential operatingmodels, documented the uses andusability of the data, developed a roughorder of magnitude (ROM) cost for eachmodel, and documented how to applyFinCENs Information Technology (IT)Modernization Program security andprivacy capabilities to CBETF data:

Standard Reporting Model: Eachindividual financial industry entityimplements its own reporting system

and reports CBETF information toFinCEN.

Hybrid Reporting Model: SWIFTreports CBETF information to FinCEN atthe direction of its financial institutionmembers. Large Money ServicesBusinesses (MSBs) will report toFinCEN on their own behalf and small/medium MSBs will use FinCEN-

provided e-Filing data entry capabilitiesrather than implementing their ownsolutions.47

In both of the potential operatingmodels, the study team sought to reducethe effort of financial institutions andincrease investigative efficiency of lawenforcement by:

Reducing the number and scope of

investigative subpoenas and requests forclarifying information sent from lawenforcement agencies to financialinstitutions.

Reducing financial institution andlaw enforcement agency humanresources required to execute businessprocesses.

Increasing the use of technology toautomate and standardize the transfer ofdata between financial institutions,FinCEN, and law enforcement agencies.

Employing consistent security andprivacy controls between the financialinstitutions, FinCEN, and lawenforcement agencies.

Reducing the number ofoverlapping requests and increasing theuse of data obtained from financialinstitutions.

Based on the results of their ROM costanalysis, the study team developed thefollowing conclusions:

The Hybrid Reporting Modelsignificantly reduces the cost of apotential reporting requirement fordepository institutions because thedepository institutions would onlyincur annual reporting charges fromSWIFT.

The Hybrid Reporting Model

significantly reduces the cost of apotential reporting requirement toMSBs, in aggregate, because the one-time and recurring annual costs ofsmall/medium size MSBs usingFinCENs e-Filing data entry capabilitieswould be significantly less than the one-time and recurring annual costs ofimplementing/operating individualsolutions. The costs to large MSBswould be the same under both models.

The Hybrid Reporting Modelslightly increases the costs of supportinga potential reporting requirement forFinCEN because of the higherimplementation and maintenance/

operation costs for the interface toSWIFT and the e-Filing CBETF dataentry capabilities for small/medium sizeMSBs.

Under both the Standard andHybrid Reporting Models the cost to lawenforcement agencies is the same.48

Additionally, FinCEN estimates thatfewer than 300 banks and fewer than


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49As discussed below, through understanding theprocessing of transactions by potential third-partyreporters, FinCEN removed the reporting thresholdfor banks and adjusted the reporting threshold formoney transmitters to $1,000.

50See Feasibility Report, at Section 1.0Executive Summary.



53See Ltr. from Krista J. Shonk, Reg. Counsel,Americas Community Bankers, to FinCEN, Re:Threshold for the Requirement to Collect, Retain,and Transmit Information on Funds Transfers andTransmittals of Funds 3 (Aug. 21, 2006). http://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdf[ hereinafterAmericas Community Bankers Ltr.].

800 money transmitters will qualify asreporting financial institutions underthe proposal to report individualCBETFs. For a full discussion of theanticipated financial implicationsassociated with this proposal, seesections V through VII below.

IV. Proposed CBETF Reporting

RequirementsBased on extensive fieldwork and

analysis of information and dataprovided by the Feasibility Report andthe Implications and Benefits Study,FinCEN determined that:

The basic information alreadyobtained and maintained by U.S.financial institutions pursuant to theFunds Transfer Rule is sufficient tosupport the Secretarys efforts againstmoney laundering and terroristfinancing. Any thresholds should applyonly to discrete transactions and not tothe aggregated total value of multiple

transactions conducted very closely toone another in time.49 Any reporting requirement should

apply only to those U.S. institutions thatexchange payment instructions directlywith foreign institutions. FinCENdetermined that a focused approach onthose institutions that act asintermediaries as well as originating

banks and beneficiary banks wouldrestrict the reporting requirement tothose institutions with the systems ableto process these reports and limit theimplementation costs on the industry asa whole.

Any reporting requirement should

permit institutions to report eitherthrough a format prescribed by FinCEN,through the submission of certain pre-existing payment messages that containthe required data, or through aninteractive online form for institutionsthat submit a low volume of suchreports. The filing system shouldaccommodate automated daily filing,periodic filing via manual upload, anddiscrete single report filing on an as-needed basis.50

The implementation of thereporting requirement described insection 6302 would be a staged process,

requiring FinCEN to review and updatethe requirements as necessary. The information that FinCEN is

seeking to be reported is reasonablynecessary to support the Secretarysefforts to combat money laundering andterrorist financing. Specifically, the

inability to conduct proactive analysison the information currently recorded

by banks hinders law enforcementsability to identify significantrelationships to active targets.

A. General Scope of Proposed Cross-Border Electronic Transmittal of FundsReport

Based on the result of these efforts,and paying close attention to the abovereferenced concerns, FinCEN hasdeveloped the proposed rule as theinitial implementation of the IRTPA.From information gathered during thisstage, FinCEN will determine the needfor future reporting requirements, andwill formulate an improveddevelopment plan that incorporatesfuture milestones and permits pilottesting of different aspects of theevolving reporting system. Thisincremental development approach willenable FinCEN to build the system in

manageable stages and to test thesystems functionality at each stagebefore moving on to the next.

For the CBETF First Stage, FinCENproposes:

To limit the scope of the subjecttransactions to those defined astransmittals of funds under the currentregulation (31 CFR 103.11(jj)).

To further reduce the scope of thereporting requirement to thosetransactions involving (a) depositoryinstitutions that exchange transmittalorders through non-proprietarymessaging systems, and (b) all moneytransmitters; and where the U.S.

institution sends or receives atransmittal order directing the transferof funds to or from an accountdomiciled outside the United States,FinCEN is proposing only to requirereporting by those two types of financialinstitutions, because they carry out thegreat majority of CBETFs. FinCEN isproposing to require banks and moneytransmitters to report these transfers ona first in/last out basis. Hence, aninstitution will be required to reporttransfers to FinCEN only if it is the lastU.S. institution to process a transactionprior to the transaction crossing the

border or if it is the first U.S. institutionto process the transaction received froma foreign financial institution.

Finally, to adopt the HybridReporting Model, which would providefor (i) some third-party centralizedrepository (such as SWIFT) 51 to reportCBFT information to FinCEN at thedirection of its financial institutionmembers; (ii) large MSBs to report toFinCEN on their own behalf; and (iii)

small/medium MSBs to employFinCEN-provided e-Filing data entrycapabilities, rather than implementingtheir own solutions.52

In proposing a reporting requirement,FinCEN is striving to create the mostefficient reporting regime that stillachieves the overarching goal ofproviding the information that is

necessary to law enforcement. Inaddition, FinCEN is trying to avoidrequiring large changes to the businesssystems of the funds transmittalindustry in order to implement thisreporting regime. As such, FinCEN isproposing that banks report on allCBETFs and that money transmittersreport on all CBETFs at or above $1,000.During FinCENs studies of theproposed reporting entities, FinCENdetermined that banks, by and large,keep records for funds transfersregardless of dollar value. FinCEN wasaware that, with respect to

recordkeeping, many banks wouldprefer to not have to segregatetransactions at certain thresholds due toincreased costs.53 Hence, if required toreport on funds transfers, manyinstitutions will find reporting on alltransactions less costly than reportingonly those transactions that exceed acertain dollar threshold. The segregationor sorting of funds transfers by value,including for transfers denominated innon-U.S. dollar currencies, couldrequire significant changes to theinformation technology systems of some

banks and third-party carriers, atconsiderable additional costs.

Additionally, transmittal orderscarried by third parties are generallyencrypted to protect the informationtherein. FinCEN was advised byindustry members and financialregulators that some third-party carriersmight be unable to identify the amountsof the encrypted transmittal orders sentthrough their system without the activeintervention of both the sending andreceiving financial institution, therebyincreasing the cost of the third-partyreporting option. Having no transactionthreshold would allow third parties toreport without adjusting encryption

methods to provide them with access totransmittal amounts. Beyondoperational difficulties, requiring onlythose transactions that are above a

http://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdfhttp://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdfhttp://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdfhttp://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdfhttp://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdfhttp://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdfhttp://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdfhttp://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdfhttp://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdfhttp://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdfhttp://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdfhttp://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdfhttp://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdfhttp://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdfhttp://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdfhttp://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdfhttp://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdfhttp://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdfhttp://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdfhttp://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdfhttp://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdfhttp://www.fincen.gov/statutes_regs/frn/comment_letters/71fr35564_35567_rin1506_aa86/americas_community_bank.pdf

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54See 12 U.S.C. 1829b(b)(3)(C) (2009) (Anyinformation reported to Treasury or the Board inaccordance with section 1829b(b)(3)(C) falls withinan exception to the Right to Financial Privacy Act,12 U.S.C. 3401 et seq (2009)). See 12 U.S.C. 3413(d)(excepting disclosures pursuant to Federal law orrule). Moreover, the Right to Financial Privacy Actdoes not apply to money transmitters. See 12 U.S.C.3401(1) (2009) (defining a financial institution forpurposes of the Acts coverage to include banks andother depository institutions).

55See Feasibility ReportSection 5, n. 21. Seealso Implications and Benefits StudySection 3.

56As discussed in Section II.A above (BackgroundInformationCurrent Regulations Regarding FundsTransfers), the regulatory obligation of financialinstitutions in general to obtain and retransmitcertain data points of transmittals of funds dependson the role they play in the transmittal chain, and

on the amount of the transaction. Therefore,FinCEN acknowledges that some of the reportablefields of CBETFs collected through either method(submitting copies of the actual standard formattransmittal orders or utilizing an alternativereporting format) might be empty or containincomplete data.

57FinCEN has consulted with the staff of theBoard and has determined that the reportingrequirements under this section will exceed therequirements under section 21 of the FederalDeposit Insurance Act and the regulationspromulgated thereunder. Further, FinCEN hasdetermined that the reporting of this information isreasonably necessary to conduct our efforts toidentify cross-border money laundering andterrorist financing.

certain threshold would open financialinstitutions up to liability under theRight to Financial Privacy Act. If aninstitution or its designated third-partysent a transaction that was under thethreshold, such filing would not beprotected from the exclusion in theRight to Financial Privacy Act regardinginformation required to be reported by

the Federal government, subjecting theinstitution to liability. By requiring thereporting of all transactions, FinCEN isprotecting institutions from thispotential liability.54

For money transmitters the thresholdissue must be treated differently becausemoney transmitters have different

business models than banks. Moneytransmitters do not typically establishlong-term account relationships withtheir customers and therefore they donot have a business need to keepdetailed records of all transactions,especially small electronic transfers.

Money transmitters do, however,currently keep records of transfers tocomply with the various recordkeepingrequirements of FinCEN and otherapplicable authorities in thejurisdictions where they operate. Moneytransmitters that operate in more thanone jurisdiction must comply with therecordkeeping requirements of all suchjurisdictions. Because of this, manymoney transmitters have adopted globalrecordkeeping requirements and keeprecords at the lowest regulatorythreshold required regardless ofjurisdiction, thus assuring them ofcompliance in all applicable

jurisdictions. Because manyjurisdictions have adopted the $1,000threshold suggested in SRVII, a largeportion of the money transmitterindustry, by volume of transactions, isalready keeping records at the $1,000level but is not keeping detailed recordsof transactions falling below thatamount.

B. What To Include in the Cross-BorderElectronic Transmittal of Funds Report

As a by-product of globally acceptedstandards, there already is a large degreeof standardization in the formats of

transmittal orders currently being usedby banks. This standardization has beendriven by global commercial incentivesto allow straight-through processing for

funds transfers, i.e., electronicprocessing without the need for re-keying or manual intervention. FinCENintends to take advantage of thisstandardization, to the greatest degreepossible, and to accept direct filings ofcopies of these transmittal orders in theform they are already being processed

by institutions.

The Implications and Benefits Studyfound that there is significant benefit inproviding flexibility to the financialindustry in how they would be able tocomply with any proposed reportingrequirement. For example, a largevolume of the transmittal ordersexchanged between foreign and U.S.

banks as part of incoming or outgoingtransmittals of funds are sent through athird party, that provides a secure,standardized electronic format forfinancial messaging between financialinstitutions, such as SWIFT. For thisproposed rule, FinCEN is focusing on

messaging systems, rather than financialsettlement systems; therefore, theinstructions exchanged betweenfinancial institutions through thesethird parties must be settled betweenthe parties by other means (for example,using correspondent accounts orsending payments through a primaryindustry funds transfer system in thecurrency of denomination of thetransmission of funds). By definition,FinCEN is not collecting informationregarding funds transfers governed bythe Electronic Fund Transfer Act of1978 (Title XX, Pub. L. 95630, 92 Stat.3728, 15 U.S.C. 1693, et seq.), or any

other funds transfers that are madethrough an automated clearinghouse, anautomated teller machine, or a point-of-sale system.

FinCEN proposes to require certainbanks to submit copies of certainstandard format transmittal ordersdirectly to FinCEN. Banks covered bythis option will be required to submit toFinCEN a copy of each full transmittalorder. Because a significant portion ofthe transmittal orders are currently

being carried by third parties, thisproposed rule would clarify that whilethe reporting obligation and

accountability for compliance rest withthe bank, third-party reporting of thesetransmittal orders at the expressdirection of a bank would be acceptableto FinCEN. Some financial institutionssuggested this option to FinCEN in thecourse of the interviews and surveyconducted as part of FinCENsFeasibility Report and Implications andBenefits Study.55 For example, asubstantial number of transmittals

required to be reported by the proposedrule are processed by SWIFT throughstandardized formats. FinCENanticipates that many first-in/last-outinstitutions will comply with their filingobligations through third-party carriers,like SWIFT, with significant costsavings compared to in-house reporting.

If a bank is not able to submit (or

cause to be submitted) copies of thesestandard format transmittal orders,FinCEN will accept submissions of justthe required information in alternativeformats to be prescribed by FinCEN.FinCEN proposes to require institutionsutilizing this alternative reportingformat to submit only the followinginformation, if available,56 about allCBETFs:

(i) Unique transaction identifiernumber;

(ii) Either the name and address or theunique identifier of the transmittorsfinancial institution;

(iii) Name and address of thetransmittor;(iv) The account number of the

transmittor (if applicable);(v) The amount and currency of the

funds transfer;(vi) The execution date of the funds

transfer;(vii) The identity of the recipients

financial institution;(viii) The name and address of the

recipient;(ix) The account number of the

recipient; and(x) Any other specific identifiers of

the recipient or transaction.57

Certain money transmitters will berequired to report on all transmittals offunds that are at or above the previouslymentioned threshold of $1,000.Additionally, for reportable transactionsof $3,000 or more, FinCEN is proposingthat money transmitters include the U.S.taxpayer identification number of thetransmittor or recipient (as applicable),


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58As discussed in Section II.A above (BackgroundInformationCurrent Regulations Regarding FundsTransfers), the regulatory obligation of financialinstitutions in general to obtain and retransmitcertain data points of transmittals of funds dependson the role they play in the transmittal chain, andon the amount of the transaction. Therefore,FinCEN acknowledges that some of the reportablefields of CBETFs collected through either method(submitting copies of the actual standard formattransmittal orders or utilizing an alternativereporting format) might be empty or containincomplete data.

59See i.e., The Wolfsberg Group, Clearing HouseStatement on Payment Message Standards: http://www.wolfsberg-principles.com/pdf/WGNYCH_Statement_on_Payment_Message_Standards_April-19-2007.pdf.

60See Basel Committee on Banking Supervision,Due diligence and transparency regarding coverpayment messages related to cross-border wiretransfers, May 2009.

61Revised Interpretative Note to SpecialRecommendation VII: Wire Transfers, FATF (Feb.29, 2008), http://www.fatf-gafi.org/dataoecd/16/34/40268416.pdf.

62 Interagency Joint NoticeTransparency andCompliance for U.S. Banking OrganizationsConducting Cross-Border Funds Transfers,available at http://www.occ.treas.gov/ftp/bulletin/2009-36a.pdf.

or if none, the alien identificationnumber or passport number and countryof issuance in their reports. Asdiscussed below, FinCEN hasdetermined that this information isreasonably necessary to assist in theinvestigation and prosecution offinancial crimes including tax evasion.FinCEN will accept submissions from

these money transmitters of the requiredinformation in formats that areprescribed by FinCEN. FinCEN proposesto require the following information, ifavailable,58 in these submissions:

(i) Unique transaction identifiernumber;

(ii) Either the name and address or theunique identifier of the transmittorsfinancial institution;

(iii) Name and address of thetransmittor;

(iv) The account number of thetransmittor (if applicable);

(v) The amount and currency of the

transmittal of funds;(vi) The execution date of thetransmittal of funds;

(vii) The identity of the recipientsfinancial institution;

(viii) For transactions over $3,000, theU.S. taxpayer identification number ofthe transmittor or recipient (asapplicable), or if none, the alienidentification number or passportnumber and country of issuance;

(ix) The name and address of therecipient;

(x) The account number of therecipient; and

(xi) Any other specific identifiers ofthe recipient or transaction.

C. Filing Methodology and Frequency ofCross-Border Electronic Transmittal ofFunds Reports

FinCEN proposes to require reportingfinancial institutions to submit thecopies of certain standard formattransmittal orders or the required dataelements through an electronic filingsystem to be developed andimplemented by FinCEN, which shallallow submissions filed either discretelyon a transaction-by-transaction basis, or

by batching transactions in a format

approved by FinCEN. FinCEN believesthat electronic filing is the most efficient

and effective manner for both thegovernment and the institutions andwill result in not only cost savings on

both sides of the submission but willalso significantly reduce the chances fordata corruption during data entry. Inspecial cases, where hardship can bedemonstrated, FinCEN is proposing toallow the Director of FinCEN to

authorize a reporting financialinstitution to report in a differentmanner if the financial institutiondemonstrates that (a) the form of therequired report is unnecessarily

burdensome on the institution asprescribed; (b) a report in a differentform will provide all the informationFinCEN deems necessary; and (c)submission of the information in adifferent manner will not unduly hinderFinCENs effective administration of theBSA. Third-party reporters (entitiesengaged by reporting financialinstitutions to provide reporting

services) will be required to reportelectronically in a format approved byFinCEN.

FinCEN is considering whether todevelop an Internet-based form thatcould be filed electronically through asecure Internet connection byinstitutions that have a limited quantityof reportable transactions and do notwish to invest in informationtechnology changes required to file in amore automated fashion, such as

batching. By doing this, FinCENbelieves that it can provide an effectivemethod for smaller institutions tocontinue to process a limited number of

funds transmittals for their customerswhile not being required to investsignificantly in additional technology.

FinCEN intends to accept transmittalorders currently being carried bySWIFT. FinCEN intends to acceptmessage traffic from other similarlysituated entities as well. Given the typesof transactions FinCEN is currentlyproposing to collect, and the currentlimited number of messaging systems inthe marketplace, FinCEN anticipates

banks will be able to comply with theseregulations through submissions ofcopies of the transmittal orders

currently being carried on SWIFTsmessaging format for person-to-persontransmittals of funds (MT103s at thetime of the Implications and BenefitsStudy, but now additionally including202COVs).

The Feasibility Report and theImplications and Benefits Studyanalyzed CBETFs from the point of viewof serial payments, where all theinformation sent to the beneficiary

banks goes through the variousintermediaries. While these reports were

being produced, the financial industry

started concentrating on thevulnerabilities of other cross-bordertransmittal mechanisms, namely, coverpayments.59 Cover payments aregenerally used by a foreign bank tofacilitate funds transfers on behalf of acustomer to a recipient in anothercountry and typically involve both (a) atransaction in a currency other than that

of the country where the transmittors orrecipients bank is domiciled, and (b)the transmittors and recipients banksnot having a relationship with eachother that allows them to settle witheach other directly. In thiscircumstance, the originators bank maydirectly instruct the beneficiarys bankto effect the payment and advise thattransmission of funds to cover theinterbank obligation created by thepayment order has been arrangedthrough a separate channel (the coverintermediary bank).60 This coverpayment mechanism, where the cover

intermediary banks do not necessarilysee all the information sent to thebeneficiary bank, is distinct from thedirect sequential chain of paymentsenvisaged in the FATF SpecialRecommendation VII on wiretransfers.61

As a result of an industry initiative,SWIFT developed a change in itsmessage standards, allowing thecovering payment (which used to besent through a MT 202 message whichgenerally provided no information aboutoriginator and beneficiary) to includefull information about the other partiesto the transaction. The new message

standard (MT 202COV) wasimplemented as of November 2009. OnDecember 17, 2009, the U.S. Federal

banking supervisors, in consultationwith the Office of Foreign AssetsControl (OFAC) and FinCEN, issuedinteragency guidance to clarify thesupervisory perspective on certain keyissues involving cover payments.62 Theguidance covers the obligations of U.S.originators of cover payments, theresponsibilities of U.S. coverintermediary banks for screening

http://www.wolfsberg-principles.com/pdf/WGNYCH_Statement_on_Payment_Message_Standards_April-19-2007.pdfhttp://www.wolfsberg-principles.com/pdf/WGNYCH_Statement_on_Payment_Message_Standards_April-19-2007.pdfhttp://www.wolfsberg-principles.com/pdf/WGNYCH_Statement_on_Payment_Message_Standards_April-19-2007.pdfhttp://www.wolfsberg-principles.com/pdf/WGNYCH_Statement_on_Payment_Message_Standards_April-19-2007.pdfhttp://www.wolfsberg-principles.com/pdf/WGNYCH_Statement_on_Payment_Message_Standards_April-19-2007.pdfhttp://www.wolfsberg-principles.com/pdf/WGNYCH_Statement_on_Payment_Message_Standards_April-19-2007.pdfhttp://www.wolfsberg-principles.com/pdf/WGNYCH_Statement_on_Payment_Message_Standards_April-19-2007.pdfhttp://www.wolfsberg-principles.com/pdf/WGNYCH_Statement_on_Payment_Message_Standards_April-19-2007.pdfhttp://www.wolfsberg-principles.com/pdf/WGNYCH_Statement_on_Payment_Message_Standards_April-19-2007.pdfhttp://www.wolfsberg-principles.com/pdf/WGNYCH_Statement_on_Payment_Message_Standards_April-19-2007.pdfhttp://www.wolfsberg-principles.com/pdf/WGNYCH_Statement_on_Payment_Message_Standards_April-19-2007.pdfhttp://www.wolfsberg-principles.com/pdf/WGNYCH_Statement_on_Payment_Message_Standards_April-19-2007.pdfhttp://www.wolfsberg-principles.com/pdf/WGNYCH_Statement_on_Payment_Message_Standards_April-19-2007.pdfhttp://www.wolfsberg-principles.com/pdf/WGNYCH_Statement_on_Payment_Message_Standards_April-19-2007.pdfhttp://www.wolfsberg-principles.com/pdf/WGNYCH_Statement_on_Payment_Message_Standards_April-19-2007.pdfhttp://www.fatf-gafi.org/dataoecd/16/34/40268416.pdfhttp://www.fatf-gafi.org/dataoecd/16/34/40268416.pdfhttp://www.occ.treas.gov/ftp/bulletin/2009-36a.pdfhttp://www.occ.treas.gov/ftp/bulletin/2009-36a.pdfhttp://www.occ.treas.gov/ftp/bulletin/2009-36a.pdfhttp://www.occ.treas.gov/ftp/bulletin/2009-36a.pdfhttp://www.fatf-gafi.org/dataoecd/16/34/40268416.pdfhttp://www.fatf-gafi.org/dataoecd/16/34/40268416.pdfhttp://www.wolfsberg-principles.com/pdf/WGNYCH_Statement_on_Payment_Message_Standards_April-19-2007.pdfhttp://www.wolfsberg-principles.com/pdf/WGNYCH_Statement_on_Payment_Message_Standards_April-19-2007.pdfhttp://www.wolfsberg-principles.com/pdf/WGNYCH_Statement_on_Payment_Message_Standards_April-19-2007.pdfhttp://www.wolfsberg-principles.com/pdf/WGNYCH_Statement_on_Payment_Message_Standards_April-19-2007.pdf

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63See generallyStaff of Sen. Subcomm. onInvestigations of the Comm. on Homeland Sec. andGovtl. Affairs, 110th Cong., Tax Haven Banks andU.S. Tax Compliance, (Sen. Subcomm. Print 2008);See generallyStaff of Sen. Subcomm. onInvestigations of the Comm. on Homeland Sec. andGovtl. Affairs, 109th Cong., Tax Haven Abuses: TheEnablers, the Tools and Secrecy, (Sen. Subcomm.Print 2006).

64 General Explanations of the AdministrationsFiscal Year 2011 Revenue Proposals, MiscellaneousTax Policy Document, at 63 (Treasury, Feb. 2010)http://www.ustreas.gov/offices/tax-policy/library/greenbk10.pdf.

65These proprietary systems include thosedeveloped by banks, or those off-the-shelf systemsacquired and adopted or adapted by banks, or bythe corporate structure the bank belongs to, toreceive payment instructions from their customers(including those financial institutions that maintaincorrespondent accounts at such banks).

66See Feasibility Report, at Section 5.0Form,Manner, and Content of Reporting, and at App. D.See Id. App. G, at 134135.

messages for blank key fields andsanctioned entities, and for suspiciousactivity monitoring, and the supervisoryapproach to the foreign correspondent

banking monitoring obligations of U.S.banks. SWIFT MT 202COV messagesare specifically covered by thisproposed rulemaking.

In determining reporting frequency,

FinCEN is striving to reach theappropriate balance between providingtimely information to law enforcementand limiting the cost of compliance tothe institutions. Other nations financialintelligence units have been able tointercept ongoing criminal activity, suchas illegal drug dealings, through the useof daily submissions of CBETFinformation. At the same time, FinCENrecognizes that requiring institutions toreport daily could, in some cases,increase costs as compared to a lessfrequent reporting period. For thisreason, FinCEN is proposing that

institutions be required to report oncovered transmittals of funds withinfive business days following the daywhen the reporting financial institutionissued or received the respectivetransmittal order. This five-business-dayinterval was discussed with financialinstitutions and law enforcement duringthe review of the Implications andBenefits Study. Institutions will bepermitted to report more frequently ifdesired.

D. Annual Reports Proposed

In addition to the CBETF reportingproposal, FinCEN is proposing, as aseparate but related requirement, anannual report by banks of the accountnumber and accountholders U.S. taxidentification number (TIN) of allaccounts used to originate or receiveCBETFs subject to reporting underSection 6302 of the IRTPA. The purposeof this proposal is to enhance theusefulness of the funds transfer data to

better detect, investigate, and prosecutemoney laundering and terroristfinancing to the extent such crimes alsomay involve tax evasion. The extent towhich offshore bank accounts are usedto evade U.S. income tax is considerable

and well-documented.63 TheAdministration, as part of acomprehensive effort to reduce the useof offshore accounts and entities toevade U.S. tax, has also proposed the

collection of certain informationregarding certain international transfersof funds.64

FinCEN is considering a methodologyfor this second reporting requirementthat would require banks to submit anannual filing with FinCEN (the TINannual report) that provides the accountnumber and accountholders U.S. TIN of

all accounts used to originate or receiveone or more CBETFs in the previouscalendar year. This annual reportingrequirement would apply to all banksthat maintained any customer accountthat was debited or credited to originateor receive a CBETF subject to reportingunder this section, for any amount,during the previous calendar year.FinCEN would then endeavor to havethat information matched with CBETFdata received throughout the year andmade available for the investigation andprosecution of tax evasion and otherpurposes consistent with the BSA.

E. ExemptionsAlthough myriad systems are

available to U.S. financial institutions toprocess electronic funds transfers, cross-

border funds transfers tend to flowthrough a small number of channels asthey enter and leave the United States(i.e., Fedwire, CHIPS and SWIFT). Asinstitutions pass payment orders alongthrough correspondents en route to theirdestination, those institutions systemsconvert the orders from the manyavailable formats to one of only a few.At some point in the cross-borderpayment chain a single U.S. financial

institution must communicate directlywith a foreign financial institution.

On the other hand, financialinstitutions may use standardized orproprietary or internal systems tohandle all or part of an electronic fundstransfer (i.e.,between branches of thesame institution). Proprietary systemspose a special challenge to designing areporting system because of the widerange of potential message formats,communications protocols, and datastructures involved. The primarychallenge that arises in this context isthat a reporting requirement wouldrequire that the U.S.-based institutionimplement processes for identifying andextracting cross-border funds transferinformation from its proprietarycommunications systems. Theimplementing regulation must take intoaccount this kind of permutation inorder to ensure that FinCEN collectsCBETFs that follow this pattern.

For banks, FinCEN is proposing torequire reporting of all funds transfersthat are effected through transmittalorders that are standardized across the

banking industry. For this proposedreporting requirement, FinCEN intendsto exempt from both reportingrequirements funds transfers that areconducted entirely through, and

messaged entirel

75 Fed. Reg. at 60377, 60381 (Sept. 30, 2010)

Documents

Transcript of 75 Fed. Reg. at 60377, 60381 (Sept. 30, 2010)