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FIL-24-2002 Attachment B

[Federal Register: March 4, 2002 (Volume 67, Number 42)]

[Proposed Rules]

[Page 9879-9887]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr04mr02-27]



 

[[Page 9879]]


 

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DEPARTMENT OF THE TREASURY


 

31 CFR Part 103


 

RIN 1506-AA26, 1506-AA27


 

 

Financial Crimes Enforcement Network; Special Information Sharing

Procedures To Deter Money Laundering and Terrorist Activity


 

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


 

ACTION: Notice of proposed rulemaking.


 

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SUMMARY: FinCEN, a bureau of the Treasury Department, is proposing

regulations to implement provisions of the Uniting and Strengthening

America by Providing Appropriate Tools Required to Intercept and

Obstruct Terrorism (USA PATRIOT) Act of 2001 that encourage information

sharing among financial institutions and federal government law

enforcement agencies to identify, prevent, and deter money laundering

and terrorist activity.


 

DATES: Written comments on all aspects of the proposed rule must be

received on or before April 3, 2002.


 

ADDRESSES: Written comments should be submitted to: Special Information

Sharing--Section 314 Comments, PO Box 1618, Vienna, VA 22183-1618.

Comments may also be submitted by electronic mail to the following

Internet address: regcomments@fincen.treas.gov with the caption in the

body of the text, ``Attention: Proposed Rule--Special Information

Sharing--Section 314.'' For additional instructions on the submission

of comments, see SUPPLEMENTARY INFORMATION under the heading

``Submission of Comments.'' Comments may be inspected at FinCEN between

10 a.m. and 4 p.m., in the FinCEN Reading Room in Washington, DC.

Persons wishing to inspect the comments submitted must request an

appointment by telephoning (202) 354-6400 (not a toll-free call).


 

FOR FURTHER INFORMATION CONTACT: Judith R. Starr, Chief Counsel

(FinCEN), (703) 905-3590; William Langford, Senior Counsel for

Financial Crimes, Office of the Assistant General Counsel

(Enforcement), (202) 622-1932; or Gary W. Sutton, Senior Banking

Counsel, Office of the Assistant General Counsel (Banking & Finance),

(202) 622-1976 (not toll-free numbers). Financial institutions with

questions about their coverage or compliance obligations under this

rule should contact their appropriate federal regulator.


 

SUPPLEMENTARY INFORMATION:


 

I. Background


 

On October 26, 2001, the President signed into law the USA PATRIOT

Act of 2001 (Public Law 107-56) (the Act). Of the Act's many goals, the

facilitation of information sharing among governmental entities and

financial institutions for the purpose of combating terrorism and money

laundering is of paramount importance. Section 314 of the Act furthers

this goal by providing for the sharing of information between the

government and financial institutions, and among financial institutions

themselves. As with many other provisions of the Act, Congress has

charged Treasury with developing regulations to implement these

information-sharing provisions.

Section 314(a) of the Act requires regulations encouraging

cooperation between financial institutions and the federal government

through the exchange of information regarding individuals, entities,

and organizations engaged in or reasonably suspected of engaging in

terrorist acts or money laundering activities. Section 314(b), on the

other hand, permits financial institutions, upon providing notice to

Treasury, to share information with one another in order to better

identify and report to the federal government concerning activities

that may involve money laundering or terrorist activities.

First, utilizing the existing and future communication resources of

the Financial Crimes Enforcement Network (FinCEN), this proposed rule

seeks to create a communication network linking federal law enforcement

with the financial industry so that vital information relating to

suspected terrorists and money launderers can be exchanged quickly and

without compromising pending investigations. FinCEN, a bureau of

Treasury, already maintains a government-wide data access service to

assist federal, state, and local law enforcement agencies in the

detection, prevention, and prosecution of terrorism, organized crime,

money laundering, and other financial crimes. Under the proposed rule,

federal law enforcement will have the ability to locate accounts of,

and transactions conducted by, suspected terrorists or money launderers

by providing their names and identifying information to FinCEN, which

will then communicate that information to financial institutions so

that a check of accounts and transactions can be made. If matches are

found, law enforcement can then follow up with the financial

institution directly. The rule is intended to formalize and streamline

the information sharing and reporting process that the federal

government undertook following the attacks of September 11, 2001, by

permitting FinCEN to serve as a conduit for information sharing between

federal law enforcement agencies and financial institutions.

FinCEN is uniquely positioned to serve as the communication gateway

under section 314(a). Indeed, it already provides considerable

information relating to financial crimes to the financial community in

a variety of ways. It issues Suspicious Activity Report (SAR)

Bulletins, which digest information drawn from SARs to illustrate

indicia of suspicious activity, and SAR Activity Reviews, which present

trends, tips and issues in suspicious activity reporting. FinCEN issues

advisories to alert the financial community to specific activities and

areas that merit enhanced scrutiny, including countries with lax anti-

money laundering controls. In addition, FinCEN provides industry

guidance on its website. The financial services industry also makes

substantial use of FinCEN's regulatory helpline.

Second, Congress authorized the sharing of information among

financial institutions relating to suspected terrorists and money

launderers only after providing notice to Treasury, for the purpose of

identifying and reporting to the federal government such activities.

The notice provision outlined below--a yearly certification to FinCEN

that information will be shared and protected from inappropriate

disclosure--combined with the requirement that any money laundering or

terrorist activities uncovered be reported to FinCEN or other law

enforcement, will allow for the sharing of information while protecting

the privacy interests of customers of financial institutions. Given the

importance of this information sharing provision, Treasury is issuing

simultaneously an interim rule implementing section 314(b), which is

published elsewhere in this issue of the Federal Register. The

regulatory text of the interim rule and this proposed rule are

identical with respect to section 314(b).

Nothing in this proposed rule affects the existing authority of

federal agencies to obtain information directly from financial

institutions, as authorized by law or regulation, pursuant to their own

established and approved procedures. Moreover, nothing in the proposed

rule affects a financial institution's obligation to file a SAR, or its

duty to contact directly a federal agency concerning individuals or

entities suspected of engaging in terrorist acts or money laundering

activities.


 

[[Page 9880]]


 

II. Analysis of the Proposed Rule


 

A. General Definitions


 

Section 103.90--Definitions

As noted above, section 314 authorizes the sharing of information

between the federal government and financial institutions, and among

financial institutions, for the purpose of identifying possible money

laundering or terrorist activities. Although section 314 does not

define ``money laundering'' or ``terrorist activity,'' each of these

terms has well-established definitions. Accordingly, and consistent

with the broad intent underlying section 314, section 103.90(a) defines

``money laundering'' to mean any activity described in section 1956 or

1957 of title 18, United States Code. Similarly, section 103.90(b)

defines ``terrorist activity'' to mean an act of domestic terrorism or

international terrorism as defined in section 2331 of title 18, United

States Code.


 

B. Information Sharing with Federal Law Enforcement Agencies


 

Section 103.100--Information Sharing with Federal Law Enforcement

Agencies

Under section 314(a) of the Act, Treasury is required to establish

procedures to encourage information sharing between financial

institutions and federal government authorities concerning accounts and

transactions that may be linked to terrorist activity or involve money

laundering. Treasury also may require each financial institution to

designate persons to serve as contact points to facilitate this

information exchange.

Section 103.100 is intended to fulfill Treasury's statutory mandate

in section 314(a) in a way that will provide a streamlined method for

federal law enforcement agencies to uncover money laundering and

terrorist financing while minimizing burdens on financial institutions

and intrusions on individual privacy.

The Act does not define the term ``financial institution'' for

purposes of the information sharing provisions of 314(a). Under the

Bank Secrecy Act (BSA), which, like section 314(a), is concerned with

information reporting to detect and prevent financial crimes, the term

``financial institution'' is defined broadly.\1\ The purpose of section

314(a) is to facilitate the exchange of information between federal law

enforcement agencies and financial institutions concerning individuals,

entities, and organizations that are engaged in, or reasonably

suspected based on credible evidence of engaging in, terrorist acts or

money laundering activities. Consistent with this purpose, section

103.100(a) defines ``financial institution'' as any financial

institution described in 31 U.S.C. 5312(a)(2).

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\1\ See 31 U.S.C. 5312(a)(2). See also section 314(d)(2) of the

Act (requiring the Secretary of the Treasury to distribute certain

semiannual reports to financial institutions and incorporating the

BSA definition of ``financial institution'') and 18 U.S.C.

2339B(g)(2) (criminal penalties for providing support or resources

to foreign terrorists and incorporating by reference the BSA

definition of ``financial institution'').

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Section 103.100(b) through (d) establish a mechanism for federal

law enforcement agencies investigating money laundering and terrorist

activity to use FinCEN as a means of exchanging information with

financial institutions about suspected terrorists and persons engaged

in money laundering.

Section 103.100(b) provides that FinCEN, acting on behalf of a

federal law enforcement agency investigating money laundering or

terrorist activity, may request any financial institution to search its

records to determine whether the financial institution maintains or has

maintained accounts for, or has engaged in transactions with, specified

individuals, entities, or organizations. FinCEN and the federal law

enforcement agency seeking the information will determine the

appropriate time period for the records search, depending on the

circumstances of the underlying investigation, which will be

communicated to financial institutions by FinCEN with the request.

Treasury and FinCEN specifically solicit comments from financial

institutions concerning the length of time they maintain and/or archive

records concerning closed accounts and past transactions, and their

ability to access these records for purposes of this section.

Section 103.100(c) makes clear that the federal law enforcement

agency for which FinCEN makes the request is responsible for

determining that the request meets the statutory requirement that it

relate to individuals, entities, or organizations engaged in or

reasonably suspected based on credible evidence of engaging in

terrorist or money laundering activities. Section 103.100(c) requires

the requesting federal law enforcement agency to provide FinCEN with a

written certification, in such manner and form as FinCEN may prescribe,

that each individual, entity, or organization about which the agency is

seeking information is engaged in, or reasonably suspected based on

credible evidence of engaging in, money laundering or terrorist

activity. FinCEN believes this certification requirement establishes

sufficient accountability in the requesting federal law enforcement

agencies to ensure that such agencies use the authority of the rule in

the manner contemplated by the statute.

Under the proposed rule, FinCEN has the authority to request

information regarding suspected terrorists and money launderers from

any financial institution as defined in the BSA notwithstanding that

FinCEN has not yet extended BSA regulations to all such financial

institutions. While all financial institutions should be on notice that

FinCEN may contact them for information after this rules becomes

effective, as a practical matter not all financial institutions will

receive requests for information. First, because FinCEN does not

currently regulate all BSA financial institutions, it does not have

contact information effectively to reach large numbers of unregulated

financial institutions. The BSA authorizes FinCEN to require financial

institutions to file with FinCEN reports of suspicious financial

transactions, known as Suspicious Activity Reports (SARs). To date,

FinCEN has extended SAR reporting only to a subset of ``financial

institutions'' as defined in the BSA. In addition, regulations issued

by the federal regulator of certain financial institutions require SAR

reporting to FinCEN. Currently, banks, savings associations, credit

unions, certain money services businesses (MSBs),\2\ and certain

registered securities brokers and dealers \3\ are required to file

SARs. In addition, the Act requires Treasury to extend the SAR

reporting requirement to all registered securities brokers and dealers

by July 1, 2002.\4\ Accordingly, the initial implementation of section

103.100 generally will involve those financial institutions that are

subject to SAR reporting. However, other financial institutions may

also be requested to provide information to FinCEN on a case-by-case

basis. Implementation of section 103.100 will in the future be expanded

to include additional


 

[[Page 9881]]


 

categories of financial institutions as FinCEN develops an enhanced

communication network with the larger financial community. Moreover,

Treasury and FinCEN expect that many requests for information will be

targeted to specific subsets of financial institutions based on

information already known to law enforcement agencies. For example, if

a law enforcement agency knows that an individual suspected of

financing terrorism operates in a particular geographic area, or

utilizes particular types of financial institutions, FinCEN would

target its request for information accordingly.

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\2\ All money services businesses (MSBs) are required to

register with the Treasury Department except persons that are MSBs

solely because they serve as agents of another MSB; issuers,

sellers, and redeemers of stored value; and the U.S. Postal Service.

Issuers, sellers, and redeemers of traveler's checks and money

orders and money transmitters are subject to the MSB SAR

requirement; check cashers and currency dealers and exchangers are

not subject to the MSB SAR requirement.

\3\ Although FinCEN's existing BSA regulations requiring the

filing of SARs do not apply generally to securities brokers and

dealers, those securities brokers and dealers that are affiliates or

subsidiaries of banks or bank holding companies have been required

to report suspicious transactions by virtue of the application to

them of rules issued by the federal bank supervisory agencies.

\4\ See Act section 356. FinCEN has issued proposed amendments

to the BSA regulations to cover all securities brokers and dealers

66 FR 67669 (Dec. 31, 2001).

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Section 103.100(d) sets forth the obligation of financial

institutions to comply with a request from FinCEN. This section

provides that upon receiving the request, a financial institution shall

search its records to determine whether it maintains or has maintained

any account for, or has engaged in any transaction with, any

individual, entity, or organization named in FinCEN's request. The

financial institution's search must cover accounts maintained and

transactions engaged in during the time period specified in the

request.

If a financial institution identifies a matching account or

transaction, it must report as soon as possible to FinCEN the identity

of the relevant individual, entity, or organization, together with an

identification of the account or the type of transaction (such as wire

transfer), as well as all identifying information (such as date of

birth, address, Social Security number, passport number, etc.) provided

by the individual, entity, or organization in connection with the

transaction or establishment of the account. This information should be

sent to FinCEN via e-mail to patriot@fincen.treas.gov or, if the

financial institution does not have access to e-mail, by calling the

toll-free the Financial Institutions Hotline (1-866-556-3974), or as

FinCEN may otherwise prescribe in the information request.

Although the records search required by section 103.100(d) is

retrospective, Treasury and FinCEN expect that financial institutions

will use the information provided by FinCEN to report to FinCEN

concerning any named individual, entity, or organization that

subsequently establishes an account or engages in a transaction.

Nothing in the rule requires a financial institution to take any

action, or to decline to take any action, with respect to an existing

account or past transaction with, or to decline to establish a new

account for, or to engage in a transaction with, any individual,

entity, or organization specified in a request from FinCEN. Indeed, in

the interests of law enforcement, the proposed rule prohibits a

financial institution from taking any action that could alert an

individual, entity or organization that it has been identified by a

federal law enforcement agency as engaged in, or suspected of engaging

in, terrorist acts, the financing of terrorist acts, or money

laundering. Treasury and FinCEN are acutely aware and are highly

appreciative of the desire of financial institutions not to knowingly

facilitate terrorism or money laundering, and recognize that this

desire may at times be in tension with the need not to alert persons

that have been identified in a request from FinCEN. If, for example, a

financial institution believes that its failure to close an account in

connection with an individual, entity, or organization named in a

request from FinCEN could facilitate terrorism or money laundering, it

may be appropriate for the financial institution to advise FinCEN,

which will refer the matter to the concerned federal law enforcement

agency. Ultimately, however, the decision whether to close an account

or decline a transaction is solely that of the concerned financial

institution.

Section 314(a) clearly contemplates that information provided by

the federal government to financial institutions will be used only for

the purposes of that section. Accordingly, the rule also requires

financial institutions to maintain adequate procedures to protect the

security and confidentiality of information contained in requests from

FinCEN. Maintaining the confidentiality of information sent from law

enforcement is vital to the success of this information sharing

provision and is important to maintaining the privacy interests of the

customers of financial institutions.

Section 103.100(e) requires a financial institution, upon a request

from FinCEN, to designate one person who will receive requests for

information from FinCEN and to provide FinCEN with that person's

mailing address, e-mail address, telephone number, and facsimile

number. When requested, a financial institution may provide this

information through FinCEN's website, http://www.treas.gov/fincen, and

enter the information as directed, or by sending the information on

company letterhead to: FinCEN, PO Box 39, Mail Stop 500, Vienna, VA

22183. A financial institution is not required to provide this

information to FinCEN until requested.

Section 103.100(f) clarifies the relationship between a financial

institution's obligations under the rule and the Right to Financial

Privacy Act (RFPA). RFPA generally provides that ``no Government

authority may have access to or obtain copies of, or the information

contained in the financial records of any customer from a financial

institution'' except with the customer's consent or through an

administrative or judicial subpoena or a search warrant, or in response

to a formal written request. 12 U.S.C. 3402. To obtain access to the

records, there must be reason to believe that the records sought are

relevant to a legitimate law enforcement inquiry. 12 U.S.C. 3407.

There are several bases on which an information request and a

responsive disclosure of information required by the rule are exempt

from the requirements of RFPA. First, there is an express exception in

RFPA for disclosure of financial records or information required to be

reported in accordance with any Federal statute or rule promulgated

thereunder. 12 U.S.C. 3413(d). As discussed above, section 314(a) of

the Act requires Treasury to issue regulations to facilitate the

exchange of information between financial institutions and the

government regarding those engaged in or reasonably suspected of

engaging in terrorist activity and money laundering, and the statute

gives Treasury the authority to require a response from financial

institutions. Accordingly, information required to be reported under

the rule would fall under the statutory exception in RFPA for

information required to be reported in accordance with a federal

statute and its implementing regulations. In order to clarify that RFPA

does not inhibit a financial institution from complying with a request

from FinCEN under the rule, section 103.100(f) provides that

information that a financial institution is required to report under

the rule shall be considered to be information required to be reported

in accordance with a federal statute or rule promulgated thereunder,

for purposes of the statutory exception to the coverage of RFPA in 12

U.S.C. 3413(d).

Second, RFPA applies only to financial records of individuals and

to partnerships of five or fewer individuals. Therefore, to the extent

an information request under the rule relates to entities and

organizations that are not partnerships of five or fewer individuals,

RFPA does not apply.

Third, RFPA provides that it does not preclude a financial

institution from notifying the government of the name or other

identifying information


 

[[Page 9882]]


 

concerning any individual, corporation, or account involved in a

possible violation of any statute or regulation and the nature of any

suspected illegal act. 12 U.S.C. 3403(c). As discussed above, the rule

requires only the disclosure of the identity of the concerned

individual or entity, and an identification of the account or the type

of transaction involved (such as a wire transfer), for which a

financial institution has a match with FinCEN's request. In addition,

because the disclosure would relate to individuals and entities engaged

in or suspected of engaging in terrorist activity or money laundering,

the disclosure would relate to a possible violation of statue or

regulation.

Fourth, section 358 of the Act amended RFPA to expressly provide

that its disclosure restrictions do not apply to requests from ``a

Government authority authorized to conduct investigations of, or

intelligence or counterintelligence analyses related to international

terrorism.'' 12 U.S.C. 3414(a)(1)(C). Therefore, to the extent that a

request for information made under the rule is made on behalf of such

an agency, RFPA's disclosure restrictions do not apply. As discussed

above, only federal law enforcement agencies investigating terrorist

activities or money laundering are authorized to submit a request to

financial institutions through FinCEN. For those inquiries relating to

terrorism, the new exception plainly applies. In addition, FinCEN

itself is an agency authorized to conduct intelligence and

counterintelligence analyses related to international terrorism.

As discussed above, section 314 of the Act and the rule authorize

new mechanisms to encourage information sharing among the federal

government and financial institutions, in addition to those authorized

by other laws. Section 103.100(g) clarifies that nothing in the rule

affects the authority of a federal agency or officer to obtain

information directly from a financial institution.

Section 103.100(h) is intended to preserve the confidentiality of

law enforcement investigations by prohibiting a financial institution

from using information provided by FinCEN for any purpose other than

responding to the information request or deciding whether to establish

or maintain an account or to engage in a transaction. It also prohibits

the disclosure of the fact that FinCEN has requested or obtained

information under the rule, except to the extent necessary to comply

with the request. Although nothing in this provision would preclude a

financial institution from contracting with a third party to search its

records on its behalf, Treasury and FinCEN expect that such a contract

would include confidentiality and nondisclosure requirements consistent

with this provision. In addition, this provision does not preclude a

financial institution (as defined in section 103.110(a)(2)) from

sharing information received from FinCEN with other such financial

institutions in a manner consistent with applicable laws and

regulations.

Section 103.110--Voluntary Information Sharing Among Financial

Institutions

As with section 314(a), the Act does not define the term

``financial institution'' for purposes of the information sharing

provisions of 314(b). Unlike section 314(a), which involves responding

to requests for information from federal law enforcement agencies,

section 314(b) involves the sharing of information among financial

institutions and presents different issues concerning information

privacy.\5\ For these reasons, Treasury and FinCEN believe that it is

appropriate to define the term ``financial institution'' for purposes

of section 314(b) in a manner that is most likely to further the

identification of terrorist and money laundering activities while

minimizing the likelihood that information sharing will inappropriately

intrude on the privacy interests of the customers of those

institutions. Accordingly, section 103.110(a)(2) defines ``financial

institution'' for purposes of section 314(b) to mean (1) a financial

institution that is subject to SAR reporting that is not a money

services business, which includes banks, savings associations, and

credit unions; (2) a broker or dealer registered with the Securities

and Exchange Commission under the Securities Exchange Act of 1934 (15

U.S.C. 78a et seq.); (3) an issuer of traveler's checks or money

orders; (4) a registered money transmitter, or (5) an operator of a

credit card system that is not a money services business. Treasury and

FinCEN specifically request comment concerning whether these entities

should be included within the definition for purposes of section 314(b)

of the Act and regulation section 103.110, and whether the definition

should be expanded to include other categories of BSA financial

institutions.

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\5\ See Act sections 314(b) and (c), which provide protections

from federal and State prohibitions on the disclosure of information

to financial institutions that engage in information sharing

consistent with the requirements of section 314(b) and its

implementing regulations.

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Section 103.110(a)(3) defines the term ``association of financial

institutions'' to mean a group or organization comprised of financial

institutions defined in section 103.110(a)(2). Because associations of

such financial institutions can enhance the sharing of information

among their members, the rule permits such associations to participate

in the information sharing process.

Section 103.110(b) provides that upon providing the appropriate

certification to Treasury, as described below, a financial institution

may share information with other financial institutions regarding

individuals, entities, organizations, and countries for purposes of

detecting, identifying, or reporting activities that the financial

institution or association suspects may involve money laundering or

terrorist activity.

Prior to engaging in information sharing, a financial institution

or association of financial institutions must submit to FinCEN a

certification described in new Appendix B to 31 CFR part 103, that

confirms: the name of the financial institution or association of

financial institutions; that the financial institution is a financial

institution as defined in section 103.110(a), or in the case of an

association, that the association's members that intend to engage in

information sharing are financial institutions as defined in section

103.110(a); that the institution or association will maintain adequate

procedures to protect the security and confidentiality of such

information; that the institution or association will not use any

shared information for any purpose other than as authorized in section

103.110; and the identity of a contact person at the financial

institution or association for matters pertaining to information

sharing.

To streamline the certification process, FinCEN has established a

special page on its existing Internet website, http://www.treas.gov/

fincen, where financial institutions can enter the appropriate

information. If a financial institution or association does not have

access to the Internet, the certification may be mailed to FinCEN at

the address specified in the rule.

By requiring notice to Treasury before information is shared among

financial institutions, Congress has injected Treasury into what would

otherwise be a purely private communication. The statute did not

indicate clearly whether prior notice to Treasury was required before

each individual communication or whether a general notice would be

sufficient. After considering both the need for flexibility for

financial institutions as well as the need to ensure that the right to

share


 

[[Page 9883]]


 

information under this section is not being used improperly, Treasury

and FinCEN determined that the certification should be effective for a

one-year period beginning on the date of the certification. A re-

certification, provided to FinCEN in the same manner, is required if a

financial institution or association intends to continue to share

information. An annual certification will help Treasury determine which

financial institutions are sharing information, and it will reinforce

the need for financial institutions to protect information shared under

this section. Treasury and FinCEN balanced the minimal burden

associated with completing the brief electronic or paper certification

against its role in protecting the privacy interests of customers of

financial institutions.

Section 103.110(c) requires each financial institution or

association of financial institutions that engages in the sharing of

information to maintain adequate procedures to protect the security and

confidentiality of such information. This section also provides that

information received by a financial institution or association of

financial institutions pursuant to this section shall only be used for

identifying and reporting on activities that may involve terrorist or

money laundering activities, or determining whether to close or

maintain an account, or to engage in a transaction. A financial

institution that fails to comply with these restrictions on the use of

shared information may have its certification revoked or suspended. See

103.110(g).

Section 103.110(d) provides that a financial institution or

association of financial institutions that engages in the sharing of

information and that complies with sections 103.110(b) and (c) shall

not be liable to any person under any law or regulation of the United

States, under any constitution, law, or regulation of any State or

political subdivision thereof, or under any contract or other legally

enforceable agreement (including any arbitration agreement), for such

sharing, or for any failure to provide notice of such sharing, to an

individual, entity, or organization that is the subject of such

sharing.

Section 103.110(e) provides a means for financial institutions to

voluntarily report information to law enforcement concerning suspicious

transactions that may relate to money laundering or terrorist activity

that may come to the financial institution's attention as a result of

discussions with other financial institutions, or otherwise. In order

to accord the highest priority to suspected terrorist activity, a

financial institution should report such information to FinCEN by

calling the Financial Institutions Hotline (1-866-556-3974). The

purpose of the Financial Institutions Hotline is to facilitate the

immediate transmittal of this information to law enforcement. Financial

institutions identifying other suspicious transactions should report

such transactions by promptly filing a SAR in accordance with

applicable regulations, even if they provide information over the

Financial Institutions Hotline. The Financial Institutions Hotline is

intended to provide to law enforcement and other authorized recipients

of SAR information the essence of the suspicious activity in an

expedited fashion. Use of the Financial Institutions Hotline is

voluntary and does not affect an institution's responsibility to file a

SAR in accordance with applicable regulations.

Section 103.110(f) clarifies that voluntary reporting under section

103.110 does not relieve a financial institution from any obligation it

may have to file a Suspicious Activity Report pursuant to a regulatory

requirement, or to otherwise directly contact a federal agency

concerning individuals, entities, or organizations suspected of

engaging in money laundering or terrorist activities.

Section 103.110(g) provides that a federal regulator of a financial

institution, or FinCEN in the case of a financial institution that does

not have a federal regulator, may revoke or suspend a certification

provided by a financial institution under this section if the regulator

or FinCEN determines that the financial institution has failed to

comply with the requirements of paragraph (c). Treasury and FinCEN

believe this provision is necessary to preclude further participation

in information sharing under the authority of section 103.110 by a

financial information that fails to accord confidentiality to shared

information, or uses that information for purposes other than as

permitted by section 103.110(c). A financial institution with respect

to which a certification has been revoked or suspended may not engage

in information sharing under this section during the period of such

revocation or suspension.


 

IV. Submission of Comments


 

An original and four copies of any comments (other than one sent

electronically) must be submitted. All comments will be available for

public inspection and copying, and no material in any comment,

including the name of any person submitting the comment, will be

recognized as confidential. Accordingly, material not intended to be

disclosed to the public should not be submitted.


 

V. Regulatory Flexibility Act


 

It is hereby certified that this proposed rule is not likely to

have a significant economic impact on a substantial number of small

entities. With respect to section 103.100, most financial institutions

subject to SAR reporting are larger businesses. Moreover, the burden

imposed by the requirement that financial institutions search their

records for accounts for, or transactions with, individuals, entities,

or organizations engaged in, or reasonably suspected based on credible

evidence of engaging in, terrorist activity, is not expected to be

significant. Section 103.110 is entirely voluntary on the part of

financial institutions and no financial institution is required to

share information with other financial institutions. Accordingly, the

analysis requirements of the provisions of the Regulatory Flexibility

Act (5 U.S.C. 601 et seq.) do not apply.


 

VI. Paperwork Reduction Act


 

The requirement in section 103.100(d)(2), concerning reports by

financial institutions in response to a request from FinCEN on behalf

of a federal law enforcement agency, is not a collection of information

for purposes of the Paperwork Reduction Act. See 5 CFR 1320.4.

The requirement in section 103.110(b)(2), concerning notification

to FinCEN that a financial institution that intends to engage in

information sharing, and the accompanying certification in Appendix B

to 31 CFR part 103, do not constitute a collection of information for

purposes of the Paperwork Reduction Act. See 5 CFR 1320.3(h)(1).

The collection of information contained in section 103.110(e),

concerning voluntary reports to the federal government as a result of

information sharing among financial institutions, will necessarily

involve the reporting of a subset of information currently contained in

a Suspicious Activity Report (SAR). SAR reporting has been previously

reviewed and approved by the Office of Management and Budget (OMB)

pursuant to the Paperwork Reduction Act and assigned OMB Control No.

1506-0001. An agency may not conduct or sponsor, and a person is not

required to respond to, a collection of information unless it displays

a currently valid OMB control number.


 

[[Page 9884]]


 

VII. Executive Order 12866


 

This proposed rule is not a ``significant regulatory action'' for

purposes of Executive Order 12866. Accordingly, a regulatory assessment

is not required.


 

List of Subjects in 31 CFR Part 103


 

Authority delegations (Government agencies), Banks and banking,

Currency, Investigations, Law enforcement, Reporting and recordkeeping

requirements.


 

Dated: February 26, 2002.

James F. Sloan,

Director, Financial Crimes Enforcement Network.


 

Proposed Amendments to the Regulations


 

For the reasons set forth above, FinCEN proposes to amend 31 CFR

part 103 as follows:


 

PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND

FOREIGN TRANSACTIONS


 

1. The authority citation for part 103 is revised to read as

follows:


 

Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5331;

title III, sec. 314, Pub. L. 107-56, 115 Stat. 307.


 

2. Add new subpart H to part 103 to read as follows:

Subpart H--Special Information Sharing Procedures To Deter Money

Laundering and Terrorist Activity

Sec.

103.90 Definitions.

103.100 Information sharing with federal law enforcement agencies.

103.110 Voluntary information sharing among financial

institutions.


 

Subpart H--Special Information Sharing Procedures To Deter Money

Laundering and Terrorist Activity



 

Sec. 103.90 Definitions.


 

For purposes of this subpart, the following definitions apply:

(a) Money laundering means an activity described in 18 U.S.C. 1956

or 1957.

(b) Terrorist activity means an act of domestic terrorism or

international terrorism as those terms are defined in 18 U.S.C. 2331.



 

Sec. 103.100 Information sharing with federal law enforcement

agencies.


 

(a) Definitions. For purposes of this section:

(1) The definitions in Sec. 103.90 apply; and

(2) The term financial institution means any financial institution

described in 31 U.S.C. 5312(a)(2).

(b) Requests for information relating to money laundering or

terrorist activities. On behalf of a federal law enforcement agency

investigating money laundering or terrorist activity, FinCEN may

require any financial institution to search its records to determine

whether the financial institution maintains or has maintained accounts

for, or has engaged in transactions with, any specified individual,

entity, or organization.

(c) Certification requirement. Prior to FinCEN requesting

information pursuant to paragraph (b) of this section, the federal law

enforcement agency shall provide FinCEN with a written certification,

in such form and manner as FinCEN may prescribe, that each individual,

entity, or organization about which the agency is seeking information

is engaged in, or reasonably suspected based on credible evidence of

engaging in, money laundering or terrorist activity.

(d) Reporting by financial institutions.--(1) Record search

required. Upon receiving a request from FinCEN, a financial institution

shall search its records to determine whether it maintains or has

maintained any account for, or has engaged in any transaction with,

each individual, entity, or organization named in FinCEN's request. The

search shall cover the time period specified in FinCEN's request.

(2) Report to FinCEN required.--(i) In general. If a financial

institution identifies an account or transaction identified with any

individual, entity, or organization named in a request from FinCEN, it

shall report the information specified in paragraph (d)(2)(ii) of this

section to FinCEN as soon as possible via e-mail to

patriot@fincen.treas.gov or, if the financial institution does not have

access to e-mail, by calling the toll-free the Financial Institutions

Hotline (1-866-556-3974), or by such other means as FinCEN may specify

in the request.

(ii) Information required to be reported. A financial institution

shall report the following information to FinCEN:

(A) Account. If the financial institution identifies one or more

accounts identified with any individual, entity, or organization named

in a request from FinCEN, it shall report to FinCEN:

(1) The identity of such individual, entity, or organization;

(2) The number of each such account; and

(3) All identifying information provided by the account holder in

connection with the establishment of each such account (such as Social

Security number, taxpayer identification number, passport number, date

of birth, and address).

(B) Transaction. If the financial institution identifies one or

more transactions (not involving an account) identified with any

individual, entity, or organization named in a request from FinCEN, it

shall report to FinCEN:

(1) The identity of such individual, entity, or organization;

(2) The date and type of each such transaction; and

(3) All identifying information provided by such individual,

entity, or organization in connection with each such transaction (such

as Social Security number, taxpayer identification number, passport

number, date of birth, and address).

(3) No other action required. Nothing in this section shall be

construed to require a financial institution to take any action, or to

decline to take any action, with respect to an account established for,

or a transaction engaged in with, an individual, entity, or

organization named in a request from FinCEN, or to decline to establish

an account for, or to engage in a transaction with, any such

individual, entity, or organization.

(e) Designation of contact person. FinCEN may request a financial

institution to identify one person to receive requests for information

from FinCEN pursuant to paragraph (b) of this section. When requested

by FinCEN, a financial institution shall provide to FinCEN the name,

title, mailing address, e-mail address, telephone number, and facsimile

number of such person, and such other information as FinCEN may

request, in such manner as FinCEN shall specify.

(f) Relation to the Right to Financial Privacy Act. The information

that a financial institution is required to report pursuant to

paragraph (d) of this section shall be considered to be information

required to be reported in accordance with a federal statute or rule

promulgated thereunder, for purposes of section 3413(d) of the Right to

Financial Privacy Act (12 U.S.C. 3413(d)).

(g) No effect on law enforcement or regulatory investigations.

Nothing in this subpart affects the authority of a federal agency or

officer to obtain information directly from a financial institution.

(h) Use, disclosure, and security of information request. (1) A

financial institution shall not use information provided by FinCEN

pursuant to this section for any purpose other than:

(i) Reporting to FinCEN as provided in this section; or


 

[[Page 9885]]


 

(ii) Determining whether to establish or maintain an account, or to

engage in a transaction.

(2)(i) A financial institution shall not disclose to any person,

other than FinCEN or the federal law enforcement agency on whose behalf

FinCEN is requesting information, the fact that FinCEN has requested or

obtained information under this subpart H, except to the extent

necessary to comply with such an information request.

(ii) Notwithstanding paragraph (h)(2)(i) of this section, a

financial institution authorized to share information under

Sec. 103.110 may share information concerning an individual, entity, or

organization named in a request from FinCEN in accordance with the

requirements of such section.

(3) Each financial institution shall maintain adequate procedures

to protect the security and confidentiality of requests from FinCEN for

information under this section.



 

Sec. 103.110 Voluntary information sharing among financial

institutions.


 

(a) Definitions. For purposes of this section:

(1) The definitions in Sec. 103.90 apply;

(2) The term financial institution means any financial institution

described in 31 U.S.C. 5312(a)(2) that:

(i) Is subject to a suspicious activity reporting requirement of

subpart B of this part and is not a money services business, as defined

in Sec. 103.11(uu);

(ii) Is a broker or dealer in securities, as defined in

Sec. 103.11(f);

(iii) Is an issuer of traveler's checks or money orders, as defined

in Sec. 103.11(uu)(3);

(iv) Is a money transmitter, as defined in Sec. 103.11(uu)(5), and

is required to register as such pursuant to Sec. 103.41; or

(v) Is an operator of a credit card system and is not a money

services business, as defined in Sec. 103.11(uu); and

(3) The term association of financial institutions means a group or

organization the membership of which is comprised entirely of financial

institutions as defined in paragraph (a)(2) of this section.

(b) Information sharing among financial institutions.--(1) In

general. Subject to paragraphs (b)(2) and (g) of this section, a

financial institution or an association of financial institutions may

engage in the sharing of information with any other financial

institution (as defined in paragraph (a)(2) of this section) or

association of financial institutions (as defined in paragraph (a)(3)

of this section) regarding individuals, entities, organizations, and

countries for purposes of detecting, identifying, or reporting

activities that the financial institution or association suspects may

involve possible money laundering or terrorist activities.

(2) Notice requirement.--(i) Certification. A financial institution

or association of financial institutions that intends to engage in the

sharing of information as described in paragraph (b)(1) of this section

shall submit to FinCEN a certification described in Appendix B of this

part.

(ii) Address. Completed certifications may be submitted to FinCEN:

(A) By accessing FinCEN's Internet website, http://www.treas.gov/

fincen, and entering the appropriate information as directed; or

(B) If a financial institution does not have Internet access, by

mail to: FinCEN, PO Box 39, Mail Stop 100, Vienna, VA 22183.

(iii) One year duration of certification. Each certification

provided pursuant to paragraph (b)(2)(i) of this section shall be

effective for the one year period beginning on the date of the

certification. In order to continue to engage in the sharing of

information after the end of the one year period, a financial

institution or association of financial institutions must submit a new

certification.

(c) Security and confidentiality of information.--(1) Procedures

required. Each financial institution or association of financial

institutions that engages in the sharing of information pursuant to

this section shall maintain adequate procedures to protect the security

and confidentiality of such information.

(2) Use of information. Information received by a financial

institution or association of financial institutions pursuant to this

section shall not be used for any purpose other than:

(i) Detecting, identifying and reporting on activities that may

involve terrorist or money laundering activities; or

(ii) Determining whether to establish or maintain an account, or to

engage in a transaction.

(d) Safe harbor from certain liability.--(1) In general. A

financial institution or association of financial institutions that

engages in the sharing of information pursuant to this section shall

not be liable to any person under any law or regulation of the United

States, under any constitution, law, or regulation of any State or

political subdivision thereof, or under any contract or other legally

enforceable agreement (including any arbitration agreement), for such

sharing, or for any failure to provide notice of such sharing, to an

individual, entity, or organization that is identified in such sharing.

(2) Limitation. Paragraph (d)(1) of this section shall not apply to

a financial institution or association of financial institutions to the

extent such institution or association fails to comply with paragraph

(b) or (c) of this section.

(e) Information sharing between financial institutions and the

federal government.--(1) Terrorist activity. If, as a result of

information sharing pursuant to this section, a financial institution

suspects that an individual, entity, or organization is involved in, or

may be involved in terrorist activity, such information should be

reported to FinCEN:

(i) By calling the toll-free Financial Institutions Hotline (1-866-

556-3974); and

(ii) If appropriate, by filing a Suspicious Activity Report

pursuant to subpart B of this part or other applicable regulations.

(2) Money laundering. If as a result of information sharing

pursuant to of this section, a financial institution suspects that an

individual, entity, or organization is involved in, or may be involved

in money laundering, such information should generally be reported by

filing a Suspicious Activity Report in accordance with subpart B of

this part or other applicable regulations. If circumstances indicate a

need for the expedited reporting of this information, a financial

institution may use the Financial Institutions Hotline (1-866-556-

3974).

(f) No limitation on financial institution reporting obligations.

Nothing in this subpart affects the obligation of a financial

institution to file a Suspicious Activity Report pursuant to subpart B

of this part or any other applicable regulations, or to otherwise

directly contact a federal agency concerning individuals or entities

suspected of engaging in money laundering or terrorist activities.

(g) Revocation or suspension of certification.--(1) Authority of

federal regulator or FinCEN. Notwithstanding any other provision of

this section, a federal regulator of a financial institution, or FinCEN

in the case of a financial institution that does not have a federal

regulator, may revoke or suspend a certification provided by a

financial institution pursuant to paragraph (b)(2) of this section if

the concerned federal regulator or FinCEN, as appropriate, determines

that the financial institution has failed to comply with the

requirements of paragraph (c) of this section. Nothing in this

paragraph (g)(1) shall be construed to affect the authority of any

federal regulator with respect to any financial institution.


 

[[Page 9886]]


 

(2) Effect of revocation or suspension. A financial institution

with respect to which a certification has been revoked or suspended may

not engage in information sharing under the authority of this section

during the period of such revocation or suspension.

3. The Appendix to part 103 is redesignated as Appendix A to part

103 and the heading is revised to read as follows:


 

Appendix A to Part 103--Administrative Rulings


 

* * * * *

4. Appendix B is added to part 103 to read as follows:


 

Appendix B to Part 103--Certification for Purposes of Section 314(b) of

the USA PATRIOT Act and 31 CFR 103.110


 

BILLING CODE 4810-02-P


 

[[Page 9887]]


 

[GRAPHIC] [TIFF OMITTED] TP04MR02.027


 

[FR Doc. 02-5007 Filed 3-1-02; 8:45 am]

BILLING CODE 4810-02-C

Last Updated: March 24, 2024