[Federal Register: September 8, 1997 (Volume 62, Number 173)]
[Proposed Rules]
[Page 47156-47166]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08se97-13]
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DEPARTMENT OF THE TREASURY
31 CFR Part 103
RIN 1506-AA12
Financial Crimes Enforcement Network; Proposed Amendments to the
Bank Secrecy Act Regulations--Exemptions From the Requirement to Report
Transactions in Currency--Phase II
AGENCY: Financial Crimes Enforcement Network, Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Financial Crimes Enforcement Network (``FinCEN'') is (i)
proposing rules to further reform and
[[Page 47157]]
simplify the process by which banks may exempt transactions of retail
and other businesses from the requirement to report transactions in
currency in excess of $10,000, and (ii) restating generally, to reflect
such changes, the text of the Bank Secrecy Act rule requiring the
reporting by financial institutions of transactions in currency. The
proposed changes would constitute a further step to achieve the
reduction set by the Money Laundering Suppression Act of 1994 in the
number of currency transaction reports required to be filed annually by
depository institutions, as part of a continuing program to reduce
unnecessary burdens imposed upon financial institutions by the Bank
Secrecy Act and increase the cost-effectiveness of the counter-money
laundering policies of the Department of the Treasury.
DATES: Written comments on all aspects of the proposal are welcome and
must be received on or before December 8, 1997.
ADDRESSES: Written comments should be submitted to: Financial Crimes
Enforcement Network, Department of the Treasury, 2070 Chain Bridge
Road, Vienna, VA 22182.
Attention: NPRM--CTR Exemptions, Phase II. Comments also may be
submitted by electronic mail to the following Internet address:
``regcomments@fincen.treas.gov'' with the caption in the body of the
text, ``Attention: NPRM--CTR Exemptions, Phase II.'' For additional
instructions on the submission of comments, see SUPPLEMENTARY
INFORMATION under the heading ``Submission of Comments.''
Inspection of comments. Comments may be inspected at the Department
of the Treasury between 10:00 a.m. and 4:00 p.m., in the FinCEN reading
room, on the third floor of the Treasury Annex, 1500 Pennsylvania
Avenue, N.W., Washington, D.C. 20220. Persons wishing to inspect the
comments submitted should request an appointment by telephoning (202)
622-0400.
FOR FURTHER INFORMATION CONTACT: Peter Djinis, Associate Director,
FinCEN, (703) 905-3819; Charles Klingman, Financial Institutions Policy
Specialist, FinCEN, (703) 905-3602; Stephen R. Kroll, Legal Counsel,
Cynthia L. Clark, on detail to the Office of Legal Counsel, and Albert
R. Zarate, Attorney-Advisor, Office of Legal Counsel, FinCEN, (703)
905-3590.
SUPPLEMENTARY INFORMATION:
I. Introduction
This document contains a proposed rule that would amend 31 CFR
103.22 to (i) reform and simplify the process by which depository
institutions 1 may exempt transactions involving retail and
other businesses from the requirement to report transactions in
currency in excess of $10,000, and (ii) restate generally, to reflect
the proposed changes to the administrative exemption system, the
general requirement for financial institutions to report transactions
in currency. The proposed changes are designed to implement the terms
of 31 U.S.C. 5313(e) (and related provisions of 31 U.S.C. 5313 (f) and
(g)), which were added to the Bank Secrecy Act by section 402(a) of the
Money Laundering Suppression Act of 1994 (the ``Money Laundering
Suppression Act''), Title IV of the Riegle Community Development and
Regulatory Improvement Act of 1994, Pub. L. 103-325 (September 23,
1994).
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\1\ As explained below, the text of the rule itself uses the
term ``bank,'' which, as defined in 31 CFR 103.11(c), includes both
banks and other classes of depository institutions.
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II. Background
A. Statutory Provisions
The Bank Secrecy Act, Titles I and II of Pub. L. 91-508, as
amended, codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31
U.S.C. 5311-5330, authorizes the Secretary of the Treasury, inter alia,
to issue regulations requiring financial institutions to keep records
and file reports that are determined to have a high degree of
usefulness in criminal, tax, and regulatory matters, and to implement
counter-money laundering programs and compliance procedures.
Regulations implementing Title II of the Bank Secrecy Act (codified at
31 U.S.C. 5311-5330) appear at 31 CFR Part 103. The authority of the
Secretary to administer Title II of the Bank Secrecy Act has been
delegated to the Director of FinCEN.
The reporting by financial institutions of transactions in currency
in excess of $10,000 has long been a major component of the Department
of the Treasury's implementation of the Bank Secrecy Act. The reporting
requirement is imposed by 31 CFR 103.22, a rule issued under the broad
authority granted to the Secretary of the Treasury by 31 U.S.C. 5313(a)
to require reports of domestic coins and currency transactions.
Four new provisions (31 U.S.C. 5313 (d) through (g)) concerning
exemptions were added to 31 U.S.C. 5313 by the Money Laundering
Suppression Act. 31 U.S.C. 5313(d) provides that the Secretary of the
Treasury shall exempt a depository institution from the requirement to
report currency transactions with respect to transactions between the
depository institution and four categories of bank customer. The
requirements of that subsection are reflected in the terms of 31 CFR
103.22(h), which became effective, as an interim rule (the ``Interim
Rule''), with respect to transactions in currency after April 30, 1996,
see 61 FR 18204 (April 24, 1996), and is being published as a final
rule elsewhere in today's edition of the Federal Register. 2
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\2\ Although the Interim Rule is today being amended and
reissued as a final rule, it is referred to in this document as the
Interim Rule for ease of reference.
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31 U.S.C. 5313(e) authorizes the Secretary of the Treasury to
exempt a depository institution from the requirement to report
transactions in currency between a depository institution and a
qualified business customer of the institution. Subsection (e)(2)
defines a ``qualified business customer'' as a business which
(A) Maintains a transaction account (as defined in section
19(b)(1)(C) of the Act) at the depository institution;
(B) Frequently engages in transactions with the depository
institution which are subject to the reporting requirements of
subsection (a); and
(C) Meets criteria which the Secretary determines are sufficient
to ensure that the purposes of this subchapter are carried out
without requiring a report with respect to such transactions.
Subsection (e)(3) provides that the Secretary of the Treasury shall
establish, by regulation, the criteria for granting and maintaining an
exemption under subsection (e)(1).
Subsection (e)(4)(A) provides that the Secretary of the Treasury
shall establish guidelines for depository institutions to follow in
selecting customers for an exemption under this subsection. Under
subsection (e)(4)(B), those guidelines may include a description of the
type of businesses for which no exemption will be granted under this
subsection.
Subsection (e)(5) provides that the Secretary of the Treasury shall
prescribe regulations requiring each depository institution to
(A) Review, at least once each year, the qualified business
customers of such institution with respect to whom an exemption has
been granted under this subsection; and
(B) Upon the completion of such review, resubmit information
about such customers, with such modifications as the institution
determines to be appropriate, to the Secretary for the Secretary's
approval.
Subsection (e)(6) states that during the two-year period beginning
on the date of enactment of the Money Laundering Suppression Act, the
discretionary
[[Page 47158]]
exemption rules shall be applied by the Secretary of the Treasury on
the basis of such criteria as the Secretary determines to be
appropriate to achieve an orderly implementation of the requirements of
this subsection. Subsection (f) places limits on the liability of a
depository institution in connection with a transaction that has been
exempted from reporting under either 31 U.S.C. 5313(d) or (e) and
provides for the coordination of any exemption with other Bank Secrecy
Act provisions, especially those relating to the reporting of
suspicious transactions. New subsection (g) defines ``depository
institution'' for purposes of the new exemption provisions.
Section 402(b) of the Money Laundering Suppression Act states
simply that in administering the new statutory exemption provisions:
the Secretary of the Treasury shall seek to reduce, within a
reasonable period of time, the number of reports required to be
filed in the aggregate by depository institutions pursuant to
section 5313(a) of title 31 * * * by at least 30 percent of the
number filed during the year preceding [September 23, 1994,] the
date of enactment of [the Money Laundering Suppression Act].
B. Shortcomings of the Administrative Exemption System
The enactment of 31 U.S.C. 5313 (d) through (g) reflects a
Congressional intention to ``reform * * * the procedures for exempting
transactions between depository institutions and their customers.'' See
H.R. Rep. 103-652, 103d Cong., 2d Sess. 186 (August 2, 1994). The
administrative exemption procedures at which the statutory changes are
directed are found in 31 CFR 103.22 (b)(2) and (c) through (f); those
procedures have not succeeded in eliminating the reporting of routine
currency transactions by businesses.
Several reasons have been given for this lack of success. The first
is the retention by banks of liability for making incorrect exemption
determinations. The second is the complexity of the administrative
exemption procedures (which require banks, for example, to assign
dollar limits to each exemption based on the amounts of currency
projected to be needed for the customary conduct of the exempt
customer's lawful business, and which increase the risk of liability
for the bank). Finally, advances in technology have made it less costly
for some banks to report all currency transactions rather than to incur
the administrative costs (and risks) of exempting customers and then
administering the terms of particular exemptions properly.
The problems created by the administrative exemption system also
include that system's failure to provide the Treasury with information
needed for thoughtful administration of the Bank Secrecy Act. Although
banks are required to maintain a centralized list of exempt customers
and to make that list available upon request, see 31 CFR 103.22 (f) and
(g), there is no way short of a bank-by-bank request for lists (with
the time and cost such a request would entail both for banks and
government) for Treasury to learn the extent to which routine
transactions are effectively screened out of the system or (for that
matter) the extent to which exemptions have been granted in situations
in which they are not justified.
In crafting the 1994 statutory provisions relating to mandatory and
discretionary exemptions, Congress sought to alter the burden of
liability and uncertainty that the administrative exemption system
created. The statutory provisions embraced several categories of
transactions that were either already partially exempt or plainly
eligible for exemption under the administrative exemption
system.3
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\3\ Thus, as noted below, transactions in currency between
domestic banks are already exempt from reporting, see 31 CFR
103.22(b)(1)(ii), and ``[d]eposits or withdrawals, exchanges of
currency or other payments and transfers by local or state
governments, or the United States or any of its agencies or
instrumentalities'' are one of the categories of transactions
specifically described as eligible for exemption by banks. See 31
CFR 103.22(b)(2)(iii).
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C. Objectives of Proposed Changes
The changes proposed in this document represent the next step in
the use of section 402 of the Money Laundering Suppression Act to
transform the Bank Secrecy Act provisions relating to currency
transaction reporting. The goal of FinCEN's work in this area, like the
Congress' goal in shaping the Money Laundering Suppression Act
provisions on exemptions, is to reduce the cost of compliance with, and
to further a fundamental restructuring of, the Bank Secrecy Act. The
restructuring emphasizes cost-effective collection of only that
information that is likely to benefit law enforcement and regulatory
authorities. See 61 FR 18205.
Because this notice builds upon the provisions of the Interim Rule,
its scope and intention must be considered against the background of
the Interim Rule, whose terms are now found in 31 CFR 103.22(h). That
rule creates a streamlined exemption procedure eliminating from
reporting transactions in currency between banks and (i) other banks
operating in the United States; (ii) government departments and
agencies, and entities that exercise governmental authority; (iii)
companies listed on certain national stock exchanges; and (iv) certain
subsidiaries of those listed companies. As FinCEN explained when the
Interim Rule was published, the currency transactions of bank customers
in those categories are either required to be exempt from reporting by
statute, were already effectively exempt from reporting under the terms
of 31 CFR 103 or, in the case of listed companies and certain of their
subsidiaries, are enterprises whose routine currency transaction
reports are of little or no value to law enforcement officials.
The task of this second stage reform of the exemption system is to
provide a similar blanket relief, to the extent possible, to those
categories of business enterprise of all sizes that cannot easily be
described in a single phrase and that are not subject to the sorts of
regulatory and market place oversight that shape the environment of
public companies. In accomplishing that task, FinCEN has attempted to
pare down the existing exemption system, while still providing federal
authorities with the tools to monitor and prevent abuse of the reformed
exemption system.
III. Specific Provisions
A. Overview
Eliminating the administrative exemption system in section 103.22
requires the deletion of the bulk of that section, paragraphs (b)-(g).
Because that is so, and because the structure and many of the rules of
section 103.22(h) also apply to the proposed reformed exemption system
for other customers, the proposed rule completely restates section
103.22 so that its terms may be presented clearly. With two
exceptions--the treatment of the Postal Service and the treatment of
recordkeeping facilities of a financial institution 4--the
restatement does not involve any change to, or an intention to open for
comment, the terms of section 103.22 that do not relate to exemptions
from the requirement to report transactions in currency. Certain
provisions that have not been changed
[[Page 47159]]
have been moved for housekeeping purposes.
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\4\ Language has been added in proposed new paragraph (b),
explicitly stating that the general obligation to report
transactions in currency in excess of $10,000 does not apply to
payments or transfers made solely in connection with the purchase of
postage or philatelic products from the Postal Service. Language
also has been added in proposed new paragraph (c), providing that a
financial institution includes all of its domestic branch offices,
and any recordkeeping facility for those offices, for purposes of
the requirement to report transactions in currency.
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As discussed in more detail below, the changes proposed to be made
by the rule are:
Deletion of present paragraphs (b)-(g) of section 103.22;
Redesignation of paragraph (h) of section 103.22 (the
Interim Rule) as proposed new paragraph (d) in section 103.22;
Addition of two new classes of ``exempt persons,'' namely,
non-listed businesses and payroll customers, in proposed new paragraphs
(d)(2)(vi) and (vii) of section 103.22;
Addition of designation and annual filing rules for the
exemption of non-listed companies and payroll customers, in proposed
new paragraphs (d)(3)(iii) and (d)(4)(ii) of section 103.22;
Addition of operating rules governing the exemption of
non-listed businesses and payroll customers, in proposed new paragraphs
(d)(5)(v)-(ix) of section 103.22; and
Certain conforming changes to the structure of proposed
new paragraph (d) (old section 103.22(h)).
For convenience, the proposed redistribution of the provisions of
present section 103.22 may be summarized as follows:
Distribution Table
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Present 103.22 Proposed 103.22
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No provision........................................... 103.22(a).
103.22(a)(1):
Sentences 1-2........................................ 103.22(b)(1).
Sentences 3-4........................................ 103.22(c)(2).
103.22(a)(2)(i)-(ii)................................... 103.22(b)(2).
103.22(a)(2)(iii)...................................... 103.22(c)(3).
103.22(a)(3)........................................... Deleted in part; 103.22(c)(2).
103.22(a)(4)........................................... 103.22(c)(1).
103.22(b).............................................. Deleted, except 103.22(b)(1)(iii) and 103.22(b)(2)(iv).
103.22(b)(1)(iii)...................................... 103.22(d)(1).
103.22(b)(2)(iv)....................................... 103.22(d)(2)(vii).
103.22(c).............................................. Deleted.
103.22(d).............................................. Deleted.
103.22(e).............................................. Deleted.
103.22(f).............................................. Deleted.
103.22(g).............................................. Deleted.
103.22(h)(1) 5......................................... 103.22(d)(1).
103.22(h)(2) (i)-(iii)................................. 103.22(d)(2) (i)-(iii).
103.22(h)(2) (iv), (vi)................................ 103.22(d)(2)(iv).
103.22(h)(2)(v)........................................ 103.22(d)(2)(v).
No provision........................................... 103.22(d)(2)(vi).
No provision........................................... 103.22(d)(2)(vii).
103.22(h)(3) (i)-(ii).................................. 103.22(d)(3)(i).
103.22(h)(3)(iii)...................................... 103.22(d)(3)(ii).
103.22(h)(3)(iv)....................................... 103.22(d)(3)(i).
No provision........................................... 103.22(d)(3)(iii).
No provision........................................... 103.22(d)(4) (i)-(ii).
103.22(h)(4) (i)-(iv).................................. 103.22(d)(5) (i)-(iv).
103.22(h)(4)(v)........................................ 103.22(d)(5)(x).
No provision........................................... 103.22(d)(5) (v)-(ix).
103.22(h)(5)........................................... 103.22(d)(6).
103.22(h)(6)(i)........................................ 103.22(d)(7)(i).
103.22(h)(6)(ii)....................................... 103.22(d)(7)(iii).
103.22(h)(6)(iii)...................................... 103.22(d)(7)(iv).
No provision........................................... 103.22(d)(7)(ii).
103.22(h)(7)........................................... 103.22(d)(8).
103.22(h)(8)........................................... 103.22(d)(9).
103.22(h)(9)........................................... Deleted.
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B. 103.22(a) General
Paragraph (a) describes generally the scope and organization of
proposed restated section 103.22. The reporting obligations of
financial institutions are restated in proposed paragraph (b). The
rules covering aggregation for reporting purposes--i.e., rules relating
to multiple branches of financial institutions and multiple
transactions conducted by their customers--previously found in the
third and fourth sentences of section 103.22(a)(1) and section
103.22(a)(4), are restated in proposed paragraph (c). The rules
governing exemption by banks of transactions with certain customers, as
noted, now appear in a single paragraph (d).
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\5\ All references to paragraph (h) of section 103.22 are to the
final rule that appears elsewhere in today's edition of the Federal
Register.
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C. 103.22(b) Filing Obligations
Proposed paragraph (b) contains the blanket statement of the
obligation of financial institutions to report transactions in currency
in excess of $10,000. As is the case in the present rule, a separate
statement is made of the obligations of casinos.
The only change in reporting obligations that appears in proposed
paragraph (b) relates to the Postal Service. The proposed paragraph
makes it clear that the general obligation to report transactions in
currency in excess of $10,000 does not apply to payments or transfers
made solely in connection
[[Page 47160]]
with the purchase of postage or philatelic products from the Postal
Service; the change reflects a proposed amendment to the treatment of
the Postal Service, for purposes of the Bank Secrecy Act, that was
published as part of a set of proposed rules relating to money services
businesses (``MSBs) on May 21, 1997. See 62 FR 27890.
Comments are specifically requested on the interplay between the
ineligible businesses listed in proposed paragraph (d)(5)(viii) and the
proposed definitions of MSBs set forth in the proposed rules that were
published in the Federal Register on May 21, 1997. FinCEN recognizes
that the application of the two sets of proposed rules (exemptions and
MSBs) may present special difficulties in the case of, for example,
grocery stores that also sell money services products. FinCEN,
therefore, would welcome suggestions regarding ways of preventing the
application of the proposed definition of money services businesses to
a portion of those grocery stores' business activities from
disqualifying such stores from consideration as exempt persons for non-
money services businesses activities. FinCEN also would welcome
comments on ways to shorten the list of ineligible businesses, given
the money services businesses registration and the annual aggregate
currency reporting requirement.
D. 103.22(c) Aggregation
Proposed new paragraph (c) restates the reporting rules applicable
to multiple branches of financial institutions and multiple
transactions of their customers. Those rules now appear in paragraphs
(a)(1) and (a)(4) of section 103.22. As an analogue to a change,
discussed below, that will permit affiliated banks to make a single
designation of each exempt person, one change is proposed to the rules
relating to aggregation. That change would add language to make it
clear that for purposes of the currency transaction reporting
requirements, a financial institution includes not only all domestic
branch offices, but also any recordkeeping facility, wherever located,
that contains records relating to the transactions of the institution's
domestic branch offices.
E. 103.22(d) Transactions of Exempt Persons
1. General
As noted above, proposed paragraph (d) of section 103.22 is a
restatement and further amendment of the exemption system provided in
paragraph (h) of section 103.22. That paragraph was drafted not only to
provide the first stage of regulatory relief contemplated by the Money
Laundering Suppression Act amendments to 31 U.S.C. 5313, but also to
provide a structure into which the terms of the second stage of relief
would conveniently fit.
2. New Classes of Exempt Person
Proposed paragraphs (d)(2) (vi) and (vii) introduce two new classes
of exempt persons, ``non-listed businesses'' and ``payroll customers.''
Non-listed businesses. The definition of non-listed business is an
attempt to summarize, in a single sentence, all commercial enterprises
with a recurring need to deal with currency that are not listed
companies or their subsidiaries. Thus, every enterprise that might have
been eligible for either a ``unilateral'' or ``special'' exemption
under the superseded exemption system (and that is not already treated
as an exempt person by the Interim Rule) will now become eligible for
exemption under the terms of the new rule, by banks themselves, if such
person has been a bank customer for 12 months. There will be no
provision for applications to the Detroit Computing Center or elsewhere
for authority to recognize an exemption for a particular customer.
Transactions by certain customers, listed in proposed paragraph
(d)(5)(viii), remain ineligible for exemption.
Proposed paragraph (d)(2)(vi)(A) requires that any business must
have been a bank customer for 12 months before it is eligible for
exemption as a non-listed business. That period is 10 months longer
than the present 60 day minimum period specified in the administrative
practice that has grown up around section 103.22(b) (2) and (d). The
difference is justified, in FinCEN's view, by the elimination of
virtually all of the other requirements of the present system.
The limitations on the scope of the non-listed business definition,
contained in proposed new paragraphs (d)(2)(vi)(B)-(C), are
straightforward. They confine permissible exemptions to bank customers
with transaction account relationships with the exempting bank and
recurring use of currency, as required by 31 U.S.C. 5313(e)(2).
Payroll Customer. The definition of payroll customer reflects, for
the most part, the terms of present paragraph 103.22(b)(2)(iv), and
tracks the format proposed above when defining a non-listed business.
Proposed paragraph (d)(2)(vii)(A) requires that any person must have
been a bank customer for at least 12 months before it is eligible for
exemption as a payroll customer. Proposed new paragraphs
(d)(2)(vii)(B)-(C) further confine permissible exemptions to bank
customers who regularly withdraw more than $10,000 to pay their United
States employees in currency and are United States residents.
3. Special Requirements for Exemption of Non-Listed Businesses and
Payroll Customers.
There are three special requirements for the recognition of the
exemption of non-listed businesses and payroll customers as exempt
persons:
Filing of an ``Designation of Exempt Person'' form (as in
the case of all other classes of exempt persons);
Inclusion on the designation form of a projection of the
exempt person's annual currency needs; and
An annual filing confirming continuation of the exempt
person's status as such, listing the aggregate currency deposited and
withdrawn by the person during the year in question and any changes of
which the bank knows (or should know on the basis of its records) in
the ownership or control of the exempt person.
Before briefly discussing the latter two requirements, it is
appropriate to note what the proposed rule would eliminate from the
administrative exemption system. There would no longer be any cash
limits or ``permitted ranges'' for exempt transactions; a customer that
is exempt is, simply, exempt for all purposes, with respect to the
currency transaction reporting requirement (although not with respect
to the suspicious transaction reporting or other Bank Secrecy Act
requirements). There is also no longer any requirement for submission
and signature of exemption statements, or for a mandatory exemption
list. (The operating rules of paragraph (d)(5), noted below, make
further changes in the exemption system in areas for which banks have
long requested relief.)
The purpose of the extensive changes made to the exemption system
by the proposed rule--following upon the changes already made to that
system by the Interim Rule--is to make it as simple and cost-effective
as possible for banks to eliminate the burdens of currency transaction
reporting for legitimate customers. Any simplified system can
potentially be manipulated by criminals seeking to hide the movement of
illegally-obtained currency, despite the best efforts of conscientious
bank officials. The proposed requirement that banks initially estimate,
and then report annually, the gross totals of currency
[[Page 47161]]
transactions of exempted non-listed customers is designed simply to
prevent such unlawful manipulation of the greatly liberalized and
simplified exemption system.6 Even under that simplified
system, banks would remain subject to the suspicious activity reporting
requirements of 31 CFR 103.21, as well as similar reporting
requirements imposed by federal bank supervisory agencies. See also 12
CFR 21.11 (Office of the Comptroller of the Currency); 12 CFR 208.20
(Federal Reserve System); 12 CFR 353.3 (Federal Deposit Insurance
Corporation); 12 CFR 563.180 (Office of Thrift Supervision); 12 CFR
748.1 (National Credit Union Division). Thus, for example, a sharp
increase from one year to the next in the gross total of currency
transactions of its exempted customers, may trigger the obligation of a
bank to file a suspicious activity report.
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\6\ The customer statement and dollar limitation provisions that
the proposed rule would eliminate were designed--however
imperfectly--to limit manipulation of the exemption procedures then
in force.
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The need for some ``counterweight'' in the liberalized system was
raised forcefully with FinCEN by federal law enforcement officials
during formulation of the proposed rule. Enforcement officials are
concerned that necessary easing of the burdens of unnecessary currency
transaction reporting not have the unintended effect of opening up
avenues for more efficient money laundering. Such avenues could exist
if the new rules made it possible for criminals to siphon illegally-
obtained currency into the daily currency deposits of small businesses
in amounts that would not individually attract attention but that in
the aggregate produce a steady flow of laundered funds into the banking
system.7 The possibility becomes more serious in the case of
businesses that maintain accounts at multiple banks, no one of which
has a complete picture of the business's currency transaction history
or banking needs.
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\7\ Cash intensive money services business--e.g., currency
exchanges--have been identified in a number of investigations as
affording just such an opportunity for money launderers, a fact that
contributes to the exclusion of money services businesses from
eligibility for treatment as non-listed businesses eligible for
exemption.
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That the administrative exemption system's attempt to prevent
criminals from hiding within the folds of the exemption system has
proved both ineffective and burdensome does not eliminate the need to
build cost-effective barriers to abuse into the liberalized system. A
simple annual reporting rule has many benefits in this regard.
At the same time, FinCEN is aware that a requirement for cumulation
and annual reporting of gross currency transactions may go beyond the
data processing capabilities of some bank systems. More important, it
is aware of the need to reach a thoughtful balance between
liberalization and anti-abuse provisions if the changed exemption
system is to accomplish its paramount objective of providing a cost-
effective way to eliminate unnecessary filings from the currency
transactions reporting system. Thus, it invites suggestions about
alternate ways to structure anti-manipulation provisions. In that
connection, commenters are asked to consider the following
alternatives:
1. Annual Reporting in Ranges of Value. There is no requirement
that annual cumulative currency transaction totals be absolutely
precise. It would be sufficient if the annual reporting, and initial
correlative estimation of business cash needs, be made in ranges, and
the rule could so state. Thus, for example, totals might simply be
reported in $25,000, $50,000, or even $100,000 increments in order to
accomplish the purposes of cumulation. Such a change would eliminate
the concern and cost of pinpoint recordkeeping in this instance.
2. Reporting of Running Totals, rather than Annual Cumulation.
Running totals might be reported on other than an annual basis, so that
government computers could perform the necessary cumulation. A bank
that normally deleted in currency ledgers at the end of each calendar
quarter, for example, might then electronically transfer the necessary
data to FinCEN without having to build a new system, or new storage
capacity to accommodate annual recordkeeping.
3. Limited Annual Reporting. Cumulation requirements might be
limited to businesses of certain sizes or types.
In considering approaches other than cumulative currency
transaction totals, commenters should be aware that a primary purpose
of the proposed rule's anti-manipulation provisions is to limit the
amount of judgment banks must make about the meaning of variations in a
customer's currency transaction totals. While significant spikes or
variations in simple total volume could well implicate the suspicious
transaction reporting rules in appropriate cases, the anti-abuse
purpose of the cumulative reporting requirement (or any substitute that
might be adopted) is to create a buttress or second line of support for
the bank's own efforts and to avoid placing all of the pressure for
preventing abuses of the currency transaction reporting exemptions on
bank officials themselves.
The success of the proposed liberalization of the currency
transaction reporting exemption rules in practice will depend in part
upon the receptiveness to the new procedures taken by federal bank
examiners. FinCEN is planning a program to familiarize examiners with
both the letter and the spirit of the new rules, and it would
appreciate comments on the sorts of issues that should be raised with
examiners during the course of that program.
4. New Operating Rules. Six new operating rules are proposed to be
added to further simplify the exemption process.
a. Proposed paragraph (d)(5)(v) requires the bank to aggregate all
customer accounts to apply the exemption provisions to that customer.
Thus, the bank is obligated, under the proposed rule, to exempt a
customer on a bank-wide basis and to count all accounts to determine,
for example, whether a customer's cash withdrawals or deposits exceed
$10,000. Thus, exemptions will no longer be determined on an account by
account basis, but rather on a bank-wide basis. Generally, FinCEN
believes that each customer possesses its own Employee Identification
Number (``EIN''); thus, this proposed rule does not cover customer
accounts with multiple EINs. Comments are welcomed on this topic.
b. Proposed paragraph (d)(5)(vi) will permit affiliated banks to
make a single designation of exempt person, that will apply to all
accounts at all banks within the affiliated group; annual currency
transaction totals, for the moment at least, will still have to be
computed on a bank-by-bank basis.
c. Proposed paragraph (d)(5)(vii) will permit sole proprietors to
continue to be eligible for exemption, so long as personal and business
funds are not commingled in the same accounts. FinCEN invites comments
on whether this prohibition against commingling will be burdensome for
banks to implement.
d. Proposed paragraph (d)(5)(viii) contains a list of businesses
that may not be exempted under the new rules as non-listed companies
(although they may qualify for exemption under the more limited payroll
customer definition, for the purposes permitted by that definition). A
limitation of this kind on the new procedures is explicitly
contemplated by the terms of 31 U.S.C. 5313(e)(4)(B); the businesses
described are essentially the same as the groups of businesses that are
not permitted to be
[[Page 47162]]
granted an exemption under the present system.
The proposed rule is, at present, silent about the treatment of
businesses with multiple activities of which one is an activity for
which an exemption is barred. FinCEN solicits comments on ways to deal
with that issue.
e. Proposed paragraph (d)(5)(ix) defines a transaction account for
purposes of proposed paragraph (d) as any account described in section
19(b)(1)(C) of the Act, 12 U.S.C. 461(b)(1)(C). This definition does
not include any other accounts not described in 12 U.S.C. 461(b)(1)(C),
such as money market accounts. Thus, the definition of a transaction
account in the proposed rule is narrower than the definition of the
same term that is set forth at 31 CFR 103.11(hh). Proposed paragraph
(d)(5)(ix) also provides that a person may be exempt either as a non-
listed business or as a payroll customer only to the extent of such
person's transaction accounts.
f. Proposed paragraph (d)(5)(x) defines an established depositor
for purposes of proposed paragraph (d) of this section as any person
that has maintained a transaction account at the bank for at least 12
months. This definition is consistent with proposed paragraph
(d)(2)(vi)(A), which requires that a business maintain a transaction
account at the bank for at least 12 months before it may be exempted as
a non-listed business.
Submission of Comments
An original and four copies of any comment (except those sent
electronically) must be submitted. All comments will be available for
public inspection and copying, and no material in any such comments,
including the name of any person submitting comments, will be
recognized as confidential. Accordingly, material not intended to be
disclosed to the public should not be submitted.
Proposed Effective Date
The amendments to 31 CFR Part 103 contained in this notice of
proposed rulemaking will become effective 30 days following the
publication in the Federal Register of the final rule to which this
notice of proposed rulemaking relates.
Executive Order 12866
The Department of the Treasury has determined that this proposed
rule is not a significant regulatory action under Executive Order
12866.
Unfunded Mandates Act of 1995 Statement
Section 202 of the Unfunded Mandates Reform Act of 1995 (``Unfunded
Mandates Act''), Pub. L. 104-4 (March 22, 1995), requires that an
agency prepare a budgetary impact statement before promulgating a rule
that includes a federal mandate that may result in expenditure by
state, local and tribal governments, in the aggregate, or by the
private sector, of $100 million or more in any one year. If a budgetary
impact statement is required, section 202 of the Unfunded Mandates Act
also requires an agency to identify and consider a reasonable number of
regulatory alternatives before promulgating a rule. FinCEN has
determined that it is not required to prepare a written statement under
section 202 and has concluded that on balance this notice of proposed
rulemaking provides the most cost-effective and least burdensome
alternative to achieve the objectives of the rule.
Regulatory Flexibility Act
FinCEN certifies that this proposed amendment to the regulations
implementing the Bank Secrecy Act will not have a significant, adverse
financial impact on a substantial number of small depository
institutions.
Paperwork Reduction Act
In accordance with requirements of the Paperwork Reduction Act of
1995, 44 U.S.C. 3501, et seq., and its implementing regulations, 5 CFR
Part 1320, the following information concerning the collection of
information on Internal Revenue Service Form 4789 is presented to
assist those persons wishing to comment on the information collection.
FinCEN anticipates that this proposed rule, if made effective as
proposed, would result in at least a 2 million reduction in the number
of currency transaction reports required to be filed annually, and a
cost reduction to banks of $16 million. FinCEN believes that these
estimated reductions are reasonable, and probably conservative.
Title: Currency Transaction Report.
OMB Number: 1506-0005.
Description of Respondents: All financial institutions, except
casinos.
Estimated Number of Respondents: 250,000.
Frequency: As required.
Estimate of Burden: Reporting average of 19 minutes per response;
recordkeeping average of 5 minutes per response.
Estimate of Total Annual Burden on Respondents: 10,000,000
responses. Reporting burden estimate = 3,166,667 hours; recordkeeping
burden estimate = 833,333 hours. Estimated combined total of 4,000,000
hours.
Estimate of Total Annual Cost to Respondents for Hour Burdens:
Based on $20 per hour, the total cost to the public is estimated to be
$80,000,000.
Estimate of Total Other Annual Costs to Respondents: None.
Type of Review: Extension.
FinCEN specifically invites comments on the following subjects: (a)
whether the proposed collection of information is necessary for the
proper performance of the mission of FinCEN, including whether the
information shall have practical utility; (b) the accuracy of FinCEN's
estimate of the burden of the proposed collection of information; (c)
ways to enhance the quality, utility, and clarity of the information to
be collected; and (d) ways to minimize the burden of the collection of
information on respondents, including through the use of automated
collection techniques or other forms of information technology.
In addition, the Paperwork Reduction Act of 1995 requires agencies
to estimate the total annual cost burden to respondents or
recordkeepers resulting from the collection of information. Thus,
FinCEN also specifically requests comments to assist with this
estimate. In this connection, FinCEN requests commenters to identify
any additional costs associated with the completion of the form. These
comments on costs should be divided into two parts: (1) any additional
costs associated with reporting; and (2) any additional costs
associated with recordkeeping.
In accordance with the requirements of the Paperwork Reduction Act
of 1995, 44 U.S.C. 3501 et seq., and its implementing regulations, 5
CFR 1320, the following information concerning the collection of
information as required by 31 CFR 103.22 is presented to assist those
persons wishing to comment on the information collection.
FinCEN anticipates that this proposed rule, if enacted as proposed,
would result in a reduction in hours spent complying with exemption
requirements of 350,000 hours, and a reduction in cost to banks of
$7,500,000. This is a conservative estimate, based on comments and
discussions with banking industry representatives of the cost of
complying with the administrative exemption system requirements.
Title: Currency transaction reporting exemption recordkeeping (31
CFR 103.22).
OMB Number: 1506-0006.
Description of Respondents: All banks.
[[Page 47163]]
Estimated Number of Respondents: 19,000.
Frequency: As required.
Estimate of Burden: Recordkeeping average of 2 hours per response.
Estimate of Total Annual Burden on Respondents: 25,000.
Recordkeeping burden estimate = 50,000 hours.
Estimate of Total Annual Cost to Respondents for Hour Burdens:
Based on $20 per hour, the total cost to the public is estimated to be
$1,000,000.
Estimate of Total Other Annual Costs to Respondents: None.
Type of Request: Extension.
FinCEN specifically invites comments on the following subjects: (a)
whether the proposed collection of information is necessary for the
proper performance of the mission of FinCEN, including whether the
information shall have practical utility; (b) the accuracy of FinCEN's
estimate of the burden of the proposed collection of information; (c)
ways to enhance the quality, utility, and clarity of the information to
be collected; and (d) ways to minimize the burden of the collection of
information on respondents, including through the use of automated
collection techniques or other forms of information technology.
In addition, the Paperwork Reduction Act of 1995 requires agencies
to estimate the total annual cost burden to respondents or
recordkeepers resulting from the collection of information. Thus,
FinCEN also specifically requests comments to assist with this
estimate. In this connection, FinCEN requests commenters to identify
any additional costs associated with the completion of the form. These
comments on costs should be divided into two parts: (1) any additional
costs associated with reporting; and (2) any additional costs
associated with recordkeeping.
Comments may be submitted to FinCEN, at the address specified at
the beginning of this document, Attention: Paperwork Reduction Act.
Responses to this request for comments under the Paperwork
Reduction Act will be summarized and included in the request for Office
of Management and Budget approval. All comments will become a matter of
public record.
List of Subjects in 31 CFR Part 103
Administrative practice and procedure, Authority delegations
(Government agencies), Banks and banking, Currency, Foreign banking,
Foreign currencies, Gambling, Investigations, Law enforcement,
Penalties, Reporting and recordkeeping requirements, Securities, Taxes.
Amendment
For the reasons set forth above in the preamble, 31 CFR Part 103 is
proposed to be amended as follows:
PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND
FOREIGN TRANSACTIONS
1. The authority citation for Part 103 continues to read as
follows:
Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5330.
2. Section 103.22 is revised to read as follows:
Sec. 103.22 Reports of Transactions in Currency.
(a) General. This section 103.22 sets forth the rules for the
reporting by financial institutions of transactions in currency. The
reporting obligations themselves are stated in paragraph (b). The
reporting rules relating to aggregation are stated in paragraph (c).
Rules permitting banks to exempt certain transactions from the
reporting obligations appear in paragraph (d).
(b) Filing obligations--(1) Financial institutions other than
casinos. Each financial institution other than a casino shall file a
report of each deposit, withdrawal, exchange of currency or other
payment or transfer, by, through, or to such financial institution
which involves a transaction in currency of more than $10,000, except
as otherwise provided herein. In the case of the Postal Service, the
obligation contained in the preceding sentence shall not apply to
payments or transfers made solely in connection with the purchase of
postage or philatelic products.
(2) Casinos. Each casino shall file a report of each transaction in
currency, involving either cash in or cash out, of more than $10,000.
(i) Transactions in currency involving cash in include, but are not
limited to:
(A) Purchases of chips, tokens, and plaques;
(B) Front money deposits;
(C) Safekeeping deposits;
(D) Payments on any form of credit, including markers and counter
checks;
(E) Bets of currency;
(F) Currency received by a casino for transmittal of funds through
wire transfer for a customer;
(G) Purchases of a casino's check; and
(H) Exchanges of currency for currency, including foreign currency.
(ii) Transactions in currency involving cash out include, but are
not limited to:
(A) Redemptions of chips, tokens, and plaques;
(B) Front money withdrawals;
(C) Safekeeping withdrawals;
(D) Advances on any form of credit, including markers and counter
checks;
(E) Payments on bets, including slot jackpots;
(F) Payments by a casino to a customer based on receipt of funds
through wire transfer for credit to a customer;
(G) Cashing of checks or other negotiable instruments;
(H) Exchanges of currency for currency, including foreign currency;
and
(I) Reimbursements for customers' travel and entertainment expenses
by the casino.
(c) Aggregation--(1) Multiple branches. A financial institution
includes all of its domestic branch offices, and any recordkeeping
facility, wherever located, that contains records relating to the
transactions of the institution's domestic branch offices, for purposes
of this section's reporting requirements.
(2) Multiple transactions--general. In the case of financial
institutions other than casinos, for purposes of this section, multiple
currency transactions shall be treated as a single transaction if the
financial institution has knowledge that they are by or on behalf of
any person and result in either cash in or cash out totalling more than
$10,000 during any one business day (or in the case of the Postal
Service, any one day). Deposits made at night or over a weekend or
holiday shall be treated as if received on the next business day
following the deposit.
(3) Multiple transactions--casinos. In the case of a casino,
multiple currency transactions shall be treated as a single transaction
if the casino has knowledge that they are by or on behalf of any person
and result in either cash in or cash out totalling more than $ 10,000
during any gaming day. For purposes of this paragraph (c)(3), a casino
shall be deemed to have the knowledge described in the preceding
sentence, if: any sole proprietor, partner, officer, director, or
employee of the casino, acting within the scope of his or her
employment, has knowledge that such multiple currency transactions have
occurred, including knowledge from examining the books, records, logs,
information retained on magnetic disk, tape or other machine-readable
media, or in any manual system, and similar documents and information,
which the casino maintains pursuant to any law or regulation or within
the ordinary course of its business, and which contain information that
such multiple currency transactions have occurred.
[[Page 47164]]
(d) Transactions of exempt persons--(1) General. No bank is
required to file a report otherwise required by paragraph (b) of this
section with respect to any transaction in currency between an exempt
person and such bank, or, to the extent provided in paragraph
(d)(5)(vi) of this section, between such exempt person and other banks
affiliated with such bank. In addition, a non-bank financial
institution is not required to file a report otherwise required by
paragraph (b) of this section with respect to a transaction in currency
between the institution and a commercial bank. (A limitation on the
exemption described in this paragraph (d)(1) is set forth in (d)(6) of
this section.)
(2) Exempt person. For purposes of this section, an exempt person
is:
(i) A bank, to the extent of such bank's domestic operations;
(ii) A department or agency of the United States, of any state, or
of any political subdivision of any state;
(iii) Any entity established under the laws of the United States,
of any state, or of any political subdivision of any state, or under an
interstate compact between two or more states, that exercises
governmental authority on behalf of the United States or any such state
or political subdivision;
(iv) Any entity, other than a bank, whose common stock or analogous
equity interests are listed on the New York Stock Exchange or the
American Stock Exchange or whose common stock or analogous equity
interests have been designated as a Nasdaq National Market Security
listed on the Nasdaq Stock Market (except stock or interests listed
under the separate ``Nasdaq Small-Cap Issues'' heading), provided that,
for purposes of this paragraph (d)(2)(iv), a person that is a financial
institution, other than a bank, is an exempt person only to the extent
of its domestic operations;
(v) Any subsidiary, other than a bank, of any entity described in
paragraph (d)(2)(iv) of this section (a ``listed entity'') that is
organized under the laws of the United States or of any state and at
least 51 per cent of whose common stock is owned by the listed entity,
provided that, for purposes of this paragraph (d)(2)(v), a person that
is a financial institution, other than a bank, is an exempt person only
to the extent of its domestic operations;
(vi) To the extent of its domestic operations, any other commercial
enterprise (for purposes of this paragraph (d), a ``non-listed
business''), other than an enterprise specified in paragraph
(d)(5)(viii), that
(A) Has maintained a transaction account at the bank for at least
12 months,
(B) Frequently engages in transactions in currency with the bank in
excess of $10,000, and
(C) Is incorporated or organized under the laws of the United
States or a State, or is registered as and eligible to do business
within a State; and
(vii) With respect solely to withdrawals for payroll purposes from
existing transaction accounts, any other person (for purposes of this
paragraph (d), a ``payroll customer'') who
(A) Has maintained a transaction account at the bank for at least
12 months,
(B) Operates a firm that regularly withdraws more than $10,000 in
order to pay its United States employees in currency, and
(C) Is a United States resident.
(3) Initial designation of exempt persons. (i) General. A bank must
designate each exempt person with whom it engages in transactions in
currency by the close of the 30-day period beginning after the day of
the first reportable transaction in currency with that person sought to
be exempted from reporting under the terms of paragraph (d) of this
section. Except where the person sought to be exempted is another bank
as described in paragraph (d)(2)(i) of this section, a non-listed
business as described in paragraph (d)(2)(vi) of this section, or a
payroll customer as described in paragraph (d)(2)(vii) of this section,
designation by such bank of such exempt person shall be made by a
single filing of Internal Revenue Service Form 4789, in which line 36
is marked ``Designation of Exempt Person'' and items 2-14 (Part I,
Section A) and items 37-49 (Part III) are completed, or by filing any
form specifically designated by FinCEN for this purpose. The
designation must be made separately by each bank that treats the person
in question as an exempt person, except as provided in paragraph
(d)(5)(vi) of this section. The designation requirements of this
paragraph (d)(3) apply whether or not the particular exempt person to
be designated has previously been treated as exempt from the reporting
requirements of Sec. 103.22(a) under the rules contained in 31 CFR
103.22(b) through (g) (see 31 CFR chapter I revised as of July 1,
1997). A special transitional rule, which extends the time for initial
designation for customers that have been previously treated as exempt,
is contained in paragraph (d)(7)(ii) of this section.
(ii) Special rules for banks. When designating another bank as an
exempt person, a bank must either make the filing required by paragraph
(d)(3)(i) of this section or file, in such a format and manner as
FinCEN may specify, a current list of its domestic bank customers. In
the event that a bank files its current list of domestic bank
customers, the bank must make the filing as described in paragraph
(d)(3)(i) of this section for each bank that is a new customer and for
which an exemption is sought under this paragraph (d).
(iii) Special rules for non-listed businesses and payroll
customers. When designating a non-listed business or a payroll customer
as an exempt person, a bank, in addition to the filing required by
paragraph (d)(3)(i) of this section, shall include information, in such
form as FinCEN shall determine, about such customer's projected annual
currency deposits and withdrawals through all transaction accounts.
(4) Annual filing with respect to certain exempt persons--(i)
General. No annual filing is required for continuation of the treatment
as an exempt person of a customer described in paragraphs (d)(2) (i)-
(v).
(ii) Non-listed businesses and payroll customers. The designation
of a non-listed business or a payroll customer as an exempt person must
be updated annually, beginning no later than February 28, 1999, and
each February 28 thereafter, on such form as FinCEN shall specify.
Annual updates must include a statement of the exempt person's annual
currency deposits and withdrawals through all transaction accounts for
the calendar year next preceding the date on which such filing is
required, as well as information about any change in control of the
exempt person involved of which the bank knows (or should know on the
basis of its records).
(5) Operating rules for designating exempt persons--(i) General
rule. Subject to the specific rules of this paragraph (d), a bank must
take such steps to assure itself that a person is an exempt person
(within the meaning of applicable provisions of paragraph (d)(2) of
this section), and to document the basis for its conclusions and its
compliance with the terms of this paragraph (d), that a reasonable and
prudent bank would take and document to protect itself from loan or
other fraud or loss based on misidentification of a person's status.
(ii) Governmental departments and agencies. A bank may treat a
person as a governmental department, agency, or entity if the name of
such person reasonably indicates that it is described in paragraph
(d)(2)(ii) or (d)(2)(iii) of
[[Page 47165]]
this section, or if such person is known generally in the community to
be a State, the District of Columbia, a tribal government, a Territory
or Insular Possession of the United States, or a political subdivision
or a wholly-owned agency or instrumentality of any of the foregoing. An
entity generally exercises governmental authority on behalf of the
United States, a State, or a political subdivision, for purposes of
paragraph (d)(2)(iii) of this section, only if its authorities include
one or more of the powers to tax, to exercise the authority of eminent
domain, or to exercise police powers with respect to matters within its
jurisdiction. Examples of entities that exercise governmental authority
include, but are not limited to, the New Jersey Turnpike Authority and
the Port Authority of New York and New Jersey.
(iii) Stock exchange listings. In determining whether a person is
described in paragraph (d)(2)(iv) of this section, a bank may rely on
any New York, American or Nasdaq Stock Market listing published in a
newspaper of general circulation, on any commonly accepted or published
stock symbol guide, on any information contained in the Securities and
Exchange Commission ``Edgar'' System, or on any information contained
on an Internet World-Wide Web site or sites maintained by the New York
Stock Exchange, the American Stock Exchange, or the National
Association of Securities Dealers.
(iv) Listed company subsidiaries. In determining whether a person
is described in paragraph (d)(2)(v) of this section, a bank may rely
upon:
(A) Any reasonably authenticated corporate officer's certificate;
(B) Any reasonably authenticated photocopy of Internal Revenue
Service Form 851 (Affiliation Schedule) or the equivalent thereof for
the appropriate tax year; or
(C) A person's Annual Report or Form 10-K, as filed in each case
with the Securities and Exchange Commission.
(v) Aggregated accounts. In determining the qualification of a
customer as an exempt person, a bank shall treat all transaction
accounts of the customer as a single account, except as provided in
paragraph (d)(5)(vii) of this section relating to sole proprietorships.
(vi) Affiliated banks. The designation required by this paragraph
may be made by a parent bank holding company or one of its bank
subsidiaries on behalf of all bank subsidiaries of the holding company,
so long as the designation lists each bank subsidiary to which the
designation shall apply. Projected and annual currency transaction
activity must be listed in such affiliated group designation on a bank-
by-bank basis.
(vii) Sole proprietorships. A sole proprietorship may be treated as
a non-listed business if it otherwise meets the requirements of
paragraph (d)(2)(vi) of this section, as applicable. In addition, a
sole proprietorship may be treated as a payroll customer if it
otherwise meets the requirements of paragraph (d)(2)(vii) of this
section, as applicable. However, the exemption permitted by this
paragraph applies only to business transactions of the sole
proprietorship, not to personal transactions of the proprietor, and the
sole proprietorship's accounts may not be aggregated with personal
accounts of the proprietor for purposes of this paragraph (d). Thus, no
exemption may be granted to an account in which personal and sole
proprietorship funds are commingled.
(viii) Ineligible businesses. A business engaged in one or more of
the following activities may not be treated as a non-listed business
for purposes of this paragraph (d): financial institutions or agents of
financial institutions of any type; purchase or sale to customers of
motor vehicles of any kind, vessels, aircraft, farm equipment or mobile
homes; the practice of law, accountancy, or medicine; auctioning of
goods; chartering or operation of ships, buses, or aircraft; gaming of
any kind; investment advisory services or investment banking services;
real estate brokerage; pawn brokerage; title insurance and real estate
closing; trade union activities; and any other activities that may be
specified, prospectively, by FinCEN by written notice published in the
Federal Register.
(ix) Transaction account. A transaction account, for purposes of
paragraph (d) of this section, is any account described in section
19(b)(1)(C) of the Federal Reserve Act, 12 U.S.C. 461(b)(1)(C). For
purposes of paragraphs (d)(2)(vi) and (d)(2)(vii) of this section, a
person is an exempt person only to the extent of such person's
transaction accounts.
(x) Documentation. The records maintained by a bank to document its
compliance with and administration of the rules of this paragraph (d)
shall be maintained in accordance with the provisions of section
103.38.
(6) Limitation on exemption. A transaction carried out by an exempt
person as an agent for another person who is the beneficial owner of
the funds that are the subject of a transaction in currency is not
subject to the exemption from reporting contained in paragraph (d)(1)
of this section.
(7) Limitation on liability; transitional rule. (i) No bank shall
be subject to penalty under this subchapter for failure to file a
report required by section 103.22(b) with respect to a transaction in
currency by an exempt person with respect to which the requirements of
this paragraph (d) have been satisfied, unless the bank:
(A) Knowingly files false or incomplete information with respect to
the transaction or the customer engaging in the transaction, or
(B) Has reason to believe that the customer does not meet the
criteria established by this paragraph (d) for treatment of the
transactor as an exempt person or that the transaction is not a
transaction of the exempt person.
(ii) If on [INSERT DATE 30 DAYS AFTER THE FINAL REGULATIONS TO
WHICH THIS NOTICE OF PROPOSED RULEMAKING RELATES ARE PUBLISHED IN THE
Federal Register] a bank treated a person as an exempt person under the
rules contained in 31 CFR 103.22 (b)-(g) (July 1, 1996), the bank must
designate that person as an exempt person under paragraph (d)(2) of
this section (or cease to treat such person as exempt if such person
does not qualify for treatment as an ``exempt person'' under paragraph
(d)(2) of this section) not later than the end of the first calendar
year beginning after [INSERT DATE 30 DAYS AFTER THE FINAL REGULATIONS
TO WHICH THIS NOTICE OF PROPOSED RULEMAKING RELATES ARE PUBLISHED IN
THE Federal Register]. Provided that the bank complies with the
preceding sentence, the bank may treat such a customer as exempt from
[INSERT DATE 30 DAYS AFTER THE DATE THE FINAL REGULATIONS TO WHICH THIS
NOTICE OF PROPOSED RULEMAKING RELATES ARE PUBLISHED IN THE Federal
Register]. The first annual currency report for a customer is not due
until the end of the first year beginning after [INSERT DATE 30 DAYS
AFTER THE FINAL REGULATIONS TO WHICH THIS NOTICE OF PROPOSED RULEMAKING
RELATES ARE PUBLISHED IN THE Federal Register].
(iii) Absent specific knowledge of any information that would be
grounds for revocation as provided in paragraph (d)(9) of this section,
a bank is required to verify the status of those entities it has
designated as exempt persons only once each year.
(iv) A bank that files a report with respect to a currency
transaction by an exempt person rather than treating such person as
exempt shall remain subject, with respect to each such report, to the
rules for filing reports, and the penalties for filing false or
incomplete reports that are applicable to reporting of
[[Page 47166]]
transactions in currency by persons other than exempt persons. A bank
that continues for the period permitted by paragraph (d)(7)(ii) of this
section to treat a person described in paragraph (d)(2) as exempt from
the reporting requirements of section 103.22(a) on a basis other than
as provided in this paragraph (d) shall remain subject to the rules
governing an exemption on such other basis and to the penalties for
failing to comply with the rules governing such other exemption.
(8) Obligation to file suspicious activity reports, etc. Nothing in
this paragraph (d) relieves a bank of the obligation, or alters in any
way such bank's obligation, to file a report required by section 103.21
with respect to any transaction, including any transaction in currency,
or relieves a bank of any reporting or recordkeeping obligation imposed
by this Part (except the obligation to report transactions in currency
pursuant to this section to the extent provided in this paragraph (d)).
(9) Revocation. The status of any person as an exempt person under
this paragraph (d) may be revoked by FinCEN by written notice, which
may be provided by publication in the Federal Register in appropriate
situations, on such terms as are specified in such notice. Without any
action on the part of the Treasury Department and subject to the
limitation on liability contained in paragraph (d)(7)(iii) of this
section:
(i) The status of an entity as an exempt person under paragraph
(d)(2)(iv) ceases once such entity ceases to be listed on the
applicable stock exchange; and
(ii) The status of a subsidiary as an exempt person under paragraph
(d)(2)(v) ceases once such subsidiary ceases to have at least 51 per
cent of its common stock owned by a listed entity.
* * * * *
Dated: August 27, 1997.
Stanley E. Morris,
Director, Financial Crimes Enforcement Network.
[FR Doc. 97-23639 Filed 9-5-97; 8:45 am]
BILLING CODE 4820-03-P