The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) offers the following guidance to financial institutions on the transmittal of funds “Travel” rule. The guidance is intended to answer general, basic questions concerning the implementation of the new regulations. It is not meant to be comprehensive and does not replace or supersede the regulations. These questions and answers and the Travel rule should be examined in concert with the Treasury’s related recordkeeping rule concerning the transmittal of funds.
1. Are all transmittals of funds subject to this rule?
No. Only transmittals of funds equal to or greater than $3,000 (or its foreign equivalent) are subject to this rule, regardless of whether or not currency is involved. In addition, transmittals of funds governed by the Electronic Funds Transfer Act (Reg E) or made through ATM or point-of-sale systems are not subject to this rule. (January 1997)
2. What are the “Travel” rule’s requirements?
All transmitter’s financial institutions must include and send the following in the transmittal order:
The name of the transmitter,
and, if received:
The name of the recipient,
An intermediary financial institution must pass on all of the above listed information, as specified in the travel rule, it receives from a transmitter’s financial institution or the preceding intermediary financial institution (exceptions are noted below, in FAQ #3), but has no general duty to retrieve information not provided by the transmitter’s financial institution or the preceding intermediary financial institution.
An intermediary financial institution may receive supplementary information about a payment beyond the information the travel rule requires to be sent to the next financial institution in the payment chain. For example, a payment order may contain additional information about the payment or the parties to the transaction. Due to differences in format and detail included in different systems, such as Fedwire, CHIPS, SWIFT and proprietary message formats, this additional information may not be readily transferable to the format used to send a subsequent payment order. In that event, the sending intermediary institution would be in compliance with the travel rule as long as all of the information specified in the travel rule was included in the subsequent payment order. The information does not have to be structured in the same manner or appear in the same format so long as all of the information required by the travel rule is included. For example, if certain information specified in the travel rule was present in two or more fields in the payment order received, that information need only be included once in the payment order sent to satisfy the requirements of the travel rule.
Intermediary financial institutions in receipt of additional information not required by the travel rule should note that, while compliance with the travel rule is accomplished by inclusion of the information identified in the rule, other monitoring and reporting requirements may apply to additional information and nothing in this FAQ relieves a financial institution of any of its duties with regard to other requirements. In addition, as a matter of risk management, an intermediary financial institution may choose to provide a receiving financial institution supplemental information about a payment and the parties involved. Currently, limited interoperability between systems may prevent a bank from choosing to include certain supplementary information in a payment order. These limitations, however, may be temporary as systems develop.
Moreover, if any lawful order is received at, or if a request from another financial institution is made to a recipient’s financial institution, all financial institutions must go back to the transmitter’s financial institution, or any other preceding financial institution, if the transmitter’s financial institution is unknown, and retrieve information required by the travel rule not included in the transmittal of funds due to system limitations. (Updated November 2010)
3. Are there any exceptions to these requirements?
Yes. If the transmitter and the recipient are the same person, and the transmitter’s financial institution and the recipient’s financial institution are the same domestic bank or domestic securities broker, the transaction is excepted from the requirement contained in these new rules.
In addition, if both the transmitter and the recipient, that is, as defined, the beneficial recipient, are any of the following, then the transmittal of funds is not subject to these rules:
Domestic bank;
Wholly owned domestic subsidiary of a domestic futures commission merchant or an introducing broker in commodities;
4. Does this rule require any reporting to the government of any information?
No. However, if a transmittal of funds seems to the financial institution to be suspicious, then a Suspicious Activity Report is required, if the financial institution is subject to the Bank Secrecy Act’s suspicious activity reporting requirement. (January 1997)
5. How long does a financial institution have to keep records required by these new rules?
Five (5) years. (January 1997)
6. What is the benefit of this rule to the public?
Law enforcement authorities have identified instances to the Treasury in which records maintained by financial institutions were incomplete or insufficient and thereby hampered criminal investigations. In addition, in certain criminal investigations, financial institutions were unable, on a timely basis, to provide law enforcement authorities with useful financial records of transmittals of funds. This rule was created to ensure that in criminal investigations, as well as tax or regulatory proceedings, sufficient information would be available to quickly enable authorities to determine the source of the transmittal of funds and its recipient. Finally, it is anticipated that this rule will more easily permit law enforcement authorities to determine the parties to a transaction. (January 1997)
7. What is a financial institution for the purposes of this rule?
The term “financial institution” includes: banks; securities brokers or dealers; casinos subject to the Bank Secrecy Act; money transmitters, check cashers, currency exchangers, and money order issuers and sellers subject to the Bank Secrecy Act; futures commission merchants and introducing brokers in commodities; and mutual funds. Please see 31 C.F.R. 103.11 for more information. (November 2010)
8. Does this rule treat banks and non-bank financial institutions differently?
No. Banks and non-bank financial institutions are treated identically under the Travel rule. (January 1997)
9. What are some of the implications of the Travel rule for financial institutions subject to this rule?
The most important implication is that financial institutions must be aware that if a transmittal of funds involves both bank and non-bank financial institutions, each financial institution must carefully analyze and understand all of the definitions that apply to its role in the transmittal of funds. This is important because the rule’s requirements on financial institutions differ, depending on what role a financial institution plays in a transmittal of funds.
For example, in a situation in which the customer of a securities broker initiates a transmittal of funds that is sent through a bank, that bank is an intermediary financial institution for the purposes of the Travel rule.
The next important implication is that financial institutions must carefully understand the role of the succeeding financial institution in the chain of each transmittal of funds, particularly where a transmittal of funds moves from a bank to a non-bank, or vice versa. This is important because the Travel rule’s requirement to pass information to the next financial institution in the chain implicitly requires financial institutions that carry out transmittals of funds to coordinate the transfer of information required by this new rule.
Finally, as the range of services offered by financial institutions expands, financial institutions must recognize that a single transmittal may involve two or more funds transfer systems. In such cases, it is important that financial institutions understand their roles in such a complex transmittal of funds, because their duties under this rule arise from their role(s) in the transmittal of funds. (January 1997)
10. What is the relationship between the terms used in this rule and those used within Article 4A of the Uniform Commercial Code (UCC)?
This rule uses terms that are intended to parallel those used in UCC Article 4A, but that are applicable to all financial institutions, as defined within the Bank Secrecy Act’s implementing regulations.
Terms for all financial institutions
UCC 4A terms
Transmittal of funds
Funds transfer
Transmittal order
Payment order
Transmitter
Originator
Transmitter’s financial institution
Originator’s Bank
Intermediary financial institution
Intermediary bank
Recipient's financial institution
Beneficiary’s bank
Recipient
Beneficiary
Receiving financial institution
Receiving bank
Sender
(January 1997)
11. Do the terms created in this regulation apply to transmittals of funds to or from anywhere in the world?
Yes. However, the requirements of the Bank Secrecy Act apply only to activities of financial institutions within the United States. Thus, for example, part, but not all, of an international transmittal of funds can be subject to the Travel rule. (January 1997)
12. Is this rule limited to wire transfers?
No. The term transmittal of funds includes other transactions and transfers in addition to wire transfers or electronic transfers. (January 1997)
13. What are examples of transmittals of funds that are not wire transfers?
Financial institutions sometimes carry out transmittals of funds using correspondent accounts or journal entry transfers such as “due from” and “due to” accounts. In such cases, covered transmittals of funds have occurred even though no wire transfer has occurred.
In addition, a check can be the transmittal order within a transmittal of funds. This limited case occurs when Customer 1 goes into Financial Institution A and orders a transmittal of funds be sent to Customer 2 at Financial Institution B. Financial Institution A, perhaps because it is a small financial institution or because the transaction involves a function (such as a trust) that is segregated from the rest of the financial institution, sends a check, payable to Financial Institution B, directly to Financial Institution B, and does not send the check directly to Customer 1 or to Customer 2. This check must be Financial Institution A’s own check (however, it need not be drawn on Financial Institution A), and not the check of the customer. This check contains accompanying instructions to have Financial Institution B subsequently credit Customer 2’s account. In such a case, the check and its instructions are the transmittal order effecting a transmittal of funds. (January 1997)
14. How should aggregated transmittals of funds be treated?
This is a situation where a financial institution aggregates many separate requests for transmittals of funds into one combined transmittal of funds.
Whenever a financial institution aggregates separate transmitters from separate transmittals of funds, the transmitter’s financial institution itself becomes the transmitter, for the purpose of the Travel rule. Conversely, any time a financial institution combines separate recipients from separate transmittals of funds, the recipient’s financial institution itself becomes the recipient, for the purpose of the Travel rule.
For example, if a money transmitter has five (5) customers who wish to have funds disbursed to five separate recipients at a separate money transmitter, and the money transmitter uses a bank to carry out the movement of funds, the bank might aggregate the five (5) separate customers. In such an instance and for the purposes of the Travel rule, the bank may list as transmitter the transmitters’ money transmitter, and as recipient the recipients’ money transmitter. However, thetransmitters’ money transmitter itself is independently obligated to make travel the required information to the recipients’ money transmitter. Thus, the information is still required to travel in an aggregated transmittal of funds, although not necessarily in the same manner or by the same parties as in a non-aggregated transmittal of funds. (January 1997)
15. How should joint party transmittals of funds be treated?
For example, Ms. A and Ms. B, sisters with different names and addresses, jointly act as the transmitter or as the recipient. In such cases, it may be impossible to transfer all the information required under the Travel rule. In this instance, the Treasury suggests the following:
When a transmittal of funds is initiated by more than one transmitter, or sent to more than one recipient, the transmitter’s financial institution may select one transmitter, or one recipient, as the person whose information must be passed under the “Travel” rule. In all cases involving a transmittal of funds from a joint account, the account holder that ordered the transmittal of funds should be identified as the transmitter on the transmittal order. Please note that for the Joint Rule [31 C.F.R. 103.33(e) and (f)], records must still be kept on all parties. (January 1997)
16. How should a financial institution treat a customer who uses a code name or a pseudonym, or a customer who has requested that the financial institution hold his/her mail?
For purposes of compliance with the Travel rule, the use of a code name or pseudonym is prohibited. In all such cases, the financial institution must use the customer’s true name, and the customer’s address. Customers may use abbreviated names, names reflecting different accounts of a corporation, as well as trade and assumed names, or names of unincorporated divisions or departments of businesses.
There may be legitimate reasons for having the financial institution’s address serve as the transmitter’s mailing address, such as where a customer has requested that the financial institution hold his/her mail. Consequently, so long as the financial institution maintains on file the transmitter’s true address and such true address is retrievable upon request by law enforcement, the financial institution may comply with Section 103.33(g) by forwarding with the transmittal order the customer’s mailing address that is maintained in its automated Customer Information File (CIF) (even if that address happens to be the bank’s own mailing address). (Updated November 2010)
17. To whom can a financial institution go should it have further questions?
Any financial institution may contact its primary Bank Secrecy Act examination authority, or the Treasury Department’s Financial Crimes Enforcement Network can be contacted regarding questions on the Bank Secrecy Act rules at (800) 949-2732. (Updated November 2010)
Advisory Vol. 1, Issue 5, August 1996
Court Interprets “Safe Harbor” Provision
United States Department of the Treasury
Financial Crimes Enforcement Network
This advisory is provided to inform financial institutions of the recent court decision concerning the “safe harbor” provision of the Bank Secrecy Act as applied to reports of suspicious transactions.
Protection of financial institutions from liability to customers is an essential part of the United States’ program for reporting suspicious activities. Congress created that protection in 1992 when it added a safe harbor from civil liability for reporting institutions [31 U.S.C. 5318(g)(3)] to the Bank Secrecy Act (BSA). Now, in Merrill Lynch v. Green (S.D. Fla No. 952207), a recent decision applying the protection, a federal court provides strong support for the statute, in a situation where a securities firm voluntarily reported a suspicious transaction.
In late 1992, Merrill, Lynch, Pierce, Fenner, & Smith (Merrill Lynch) reported to federal agents the existence of suspect funds held in one of its customer’s accounts. The funds were seized and approximately half the funds were later forfeited by the customer, an alleged narcotics and gold smuggler, under the customer’s settlement with the government. In 1995, the customer (after beginning and voluntarily dismissing a federal civil action) sought arbitration, before the National Association of Securities Dealers (NASD), of a claim that Merrill Lynch was liable for compensatory and punitive damages because it reported its suspicions with-out his knowledge and cooperated with the government. Merrill Lynch sought to enjoin the arbitration because of the BSA’s statutory civil liability safe harbor. The court issued a preliminary injunction staying the arbitration on March 29, 1996, and made that order permanent on June 14, 1996. The court’s orders confirm the broad scope of the protection against civil suits afforded by the safe harbor provision in 31 U.S.C. 5318(g)(3). In its order granting the preliminary injunction, the court stated that the brokerage firm “is entitled to immunity for its initial disclosure regarding the (defendant’s) account under the safe harbor provision of the Bank Secrecy Act, found at 31 U.S.C. 5318.” The Court stated further: “The statute prohibits financial institutions who voluntarily report a suspicious transaction to the government from notifying the persons involved in the transaction. Merrill Lynch complied with this provision by abstaining from notifying Green . . . of its own suspicions regarding the account and of the ongoing investigation by various American and British agencies.”
Finally, the Court concluded, “[w]ithout presently determining its full breadth and scope, [that] the statute [confers] broad protection upon financial institutions.” In its later judgment making the injunction permanent, the court reiterated the broad scope effect of the safe harbor: “Pursuant to the statute [Merrill Lynch] was authorized to abstain from notifying defendant of its suspicions regarding the accounts and of the ongoing investigation by law enforcement authorities. The safe harbor provision confers broad protection upon financial institutions, such that the protective mantle of 31 U.S.C. 5318 immunizes the plaintiff from claims raised by the defendant.”
As the Financial Crimes Enforcement Network (FinCEN) prepares rules to expand the obligation to report suspicious activity to securities brokers and dealers and other non-bank financial institutions, it intends to write the statutory safe harbor into those rules as well. All of this translates into the fact that the court supports the premise that the statute provides broad protection for financial institutions whether they file by regulation, or voluntarily, on a form, in person or even over the telephone and that there is no obligation to notifying the customer(s) involved.
Background
The Congress and the Treasury have carefully crafted anti-money laundering laws and regulations to focus on the reporting of suspicious transactions by financial institutions. That focus recognizes that it is representatives of financial institutions, rather than law enforcement, who see the money launderers first; illicit proceeds are almost always moved through some form of financial institution. The focus also recognizes that the commercial precautions and expertise financial institutions use to protect themselves from fraud, theft, and misuse, equips those institutions to recognize what is or is not suspicious.
For a suspicious transaction reporting regime to be effective, however, financial institutions and their customers must be able to rely upon the confidentiality of the reports, and financial institutions must be protected from civil liability to persons about whom reports are made. FinCEN and the five federal financial supervisory agencies (Federal Deposit Insurance Corporation, Federal Reserve Board, National Credit Union Administration, Office of the Comptroller of the Currency, and the Office of Thrift Supervision) that now require reporting of suspicious activity reports by depository institutions, confirmed the importance of these protections in final rules issued earlier this year.
It is noteworthy that the emerging international consensus on fighting money laundering couples the requirement of suspicious transaction reporting with firm assurances of confidentiality and protection of reporting institutions against liability to their customers. This is reflected, for example, in the 40 Recommendations of the Financial Action Task Force of the G-7 nations (the United States, The United Kingdom, Germany, France, Italy, Japan and Canada); the European Community’s Directive on prevention of the use of the financial system for the purpose of money laundering; and the Model Regulations Concerning Laundering Offenses connected to Illicit Drug Trafficking and Related Offenses of the Organization of American States. We recognize the extreme importance of the safe harbor provision and support financial institutions’ interests in protecting themselves from liability to customers as it relates to the reporting of suspicious activities. We are in the process of reviewing additional decisions related to the safe harbor provision and will keep you informed of relevant legal developments.
Stanley E. Morris
Director
Advisory Vol. 1, Issue 4, August 1996
FATF-VII Report on Money Laundering Typologies
This advisory is provided to alert recipients to known or suspected money laundering schemes reported by members of the Financial Action Task Force.
The new era of financial globalization is altering the roles of the financial, regulatory and law enforcement communities – they must now work closely together to combat money laundering.
The Financial Action Task Force (FATF), created by the G-7, is an international organization comprised of representatives of the financial, regulatory and law enforcement communities from 26 nations around the world, the European Commission and the Gulf Cooperation Council. It serves as the world leader in promoting the development of effective anti-money laundering controls and cooperation in counter-money laundering investigations among its membership and around the globe.
In June, FATF revised its standards for countries to follow in combating the laundering of criminal proceeds. These standards are known as the 40 Recommendations. In addition to the revised 40 Recommendations, FATF also disseminated the results of a “typologies exercise” which highlights new money laundering methods and patterns of activities used by criminals.
In keeping with FinCEN’s role as an information sharing network to assist the financial, regulatory and law enforcement communities in combating money laundering and other financial crimes, we are disseminating the attached FATF-VII Report on Money Laundering Typologies. We are providing this information to alert you to the variety of techniques and the changing methods being used by money launderers around the world.
For more information about FATF and its efforts to address the problem of money laundering, please visit the FinCEN web site at http://www.fincen.gov/.
We hope that you will find this information useful.
Advisory Vol. 1, Issue 3, June 1996
Funds Transfers: Questions & Answers
This Advisory provides answers to some of the most frequently asked questions concerning the new BSA recordkeeping rules for funds transfers and transmittals of funds. The new Bank Secrecy Act recordkeeping rules for funds transfers and transmittals of funds became effective on May 28, 1996. The rules, issued jointly by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and the Federal Reserve Board, are intended to institute uniform recordkeeping procedures for financial institutions that participate in such transfers and transmittals. The uniform recordkeeping procedures are intended to help law enforcement and regulatory authorities detect and investigate money laundering and other financial crimes by preserving an information trail about persons sending and receiving funds through the financial system. The new rules have generated many questions, in part because of their necessarily technical nature and their applicability to a wide range of institutions. The attached interpretive guidance responds to frequently asked questions about the rules. The guidance is not meant to be comprehensive and does not replace or supersede the terms of the rules themselves. These questions and answers do not address the rule requiring the inclusion of certain information in transmittal orders (often called the “travel” rule) that was issued by FinCEN contemporaneously with the issuance of the recordkeeping rules. Questions and answers relating to the travel rule maybe issued in the future.
FinCEN Advisory is a product of the Financial Crimes Enforcement Network, U.S. Department of the Treasury, 2070 Chain Bridge Road, Vienna VA 22182, (703) 905-3773. Questions or comments regarding the contents of the FinCEN Advisory should be addressed to the Office of Communications, FinCEN. Information may also be faxed to (703) 905-3885.
BANK SECRECY ACT RECORDKEEPING RULE FOR FUNDS TRANSFERS AND TRANSMITTALS OF FUNDS 31 CFR PART 103
The following staff interpretive guidance addresses frequently asked questions about the new recordkeeping rules for funds transfers and transmittals of funds, which were issued under the Bank Secrecy Act by the Federal Reserve Board and the Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury. The new requirements became effective on May 28. This guidance is not meant to be comprehensive and does not replace or supersede the terms of the rule itself.
Section 103.11 - Meaning of Terms
Q1: Beneficiary, Beneficiary’s Bank. Which parties are the beneficiary’s bank and the beneficiary with respect to a funds transfer in which payment is made to a customer of a foreign bank?
A1: The foreign bank receiving a payment order for payment to its customer is the beneficiary’s bank. The foreign bank’s customer is the beneficiary.
Q2: Beneficiary, Beneficiary’s Bank, Recipient, Recipient’s Financial Institution, Intermediary Financial Institution. Which parties are the beneficiary, the beneficiary’s bank, the recipient’s financial institution, and the recipient when funds are received by a bank for credit to an account of a licensed transmitter of funds or other person engaged in the business of transmitting funds (“money transmitter”) for further credit to the money transmitter’s customer?
A2: The bank holding the money transmitter’s account is the beneficiary’s bank (and an intermediary financial institution); the money transmitter is both the recipient’s financial institution and the beneficiary; the money transmitter’s customer is the recipient.
Q3: Financial Institution. What types of “financial institutions” are covered by the rule?
A3: The rule applies to all financial institutions subject to the Bank Secrecy Act regulations. “Financial institutions,” as defined in § 103.11(n), include “banks” as well as nonbank financial institutions (NBFIs) such as securities brokers or dealers required to be registered with the SEC, currency exchange houses, casinos, and persons engaged in the business of transmitting funds. The definition of “financial institution” is limited to those institutions located within the United States.
While the terms “beneficiary’s bank” and “originator’s bank,” as defined in § 103.11(e) and § 103.11(w), respectively, include institutions located outside the United States, the requirements of the Bank Secrecy Act generally do not apply to foreign beneficiary’s banks or foreign originator’s banks. The definitions of “beneficiary’s bank” and “originator’s bank” were expanded to include foreign institutions in order to clarify the role of domestic institutions involved in international transactions. Thus, domestic banks involved in international transactions are not required under the rule to contact the foreign bank for missing information on the foreign bank’s customer. The Board and the Treasury Department encourage foreign banks, however, to comply with efforts to obtain and include complete information on the parties to a transfer where not otherwise forbidden by law.
Q4: Funds Transfer. Does the rule apply only to “wire transfers”?
A4: No. The rule applies to funds transfers and transmittals of funds, which cover a broad range of methods for moving funds. The rule includes certain internal transfers, e.g., when a bank transfers funds from an originator’s account to a beneficiary’s account at the same bank (if the originator and beneficiary are different parties), as well as orders made in person or by telephone, facsimile, or electronic messages sent or delivered by a customer or by an NBFI on behalf of a customer to the NBFI’s bank. The definition includes all funds transfers that are made within the United States, regardless of whether the transfer originates or terminates abroad.
Q5: Originator. If a corporation has one or several individuals who are authorized by the corporation order funds transfers through the corporation’s account, who is the originator in such a transfer?
A5: The corporation, and not the individual(s) authorized to issue the order on behalf of the corporation, is the originator. Accordingly, the information must be retrievable by name of the corporation, not by the name of the individual ordering the funds transfer.
Q6: Originator, Originator’s Bank. Which parties are the originator and the originator’s bank with respect to a funds transfer initiated by a customer of a foreign bank?
A6: The customer of the foreign bank, i.e., the sender of the first payment order, is the originator. The foreign bank accepting the payment order from that customer is the originator’s bank.
Q7: Originator, Originator’s Bank, Transmitter, Transmitter’s Financial Institution, Intermediary Financial Institution. Which parties are the originator and transmitter of a funds transfer/transmittal of funds when funds are wired by a money transmitter (on behalf of its customer) through an account at a bank?
A7: The transmitter is the money transmitter’s customer; the money transmitter is both the transmitter’s financial institution and the originator; the bank is the originator’s bank and an intermediary financial institution.
Q8: Originator, Originator’s Bank. Who is the originator in a transaction where a trustee initiates a funds transfer from an account at a bank held by the trust?
A8: The trustee is merely the person authorized to act on behalf of the trust, which is a separate legal entity. The trust, itself, is the originator of the funds transfer and the bank holding the account is the originator’s bank.
Q9: Originator’s Bank. If a customer initiates a funds transfer through Bank 1, which uses Bank 2 as its correspondent, which bank is considered the originator’s bank?
A9: The customer is the originator; Bank 1 is the originator’s bank; Bank 2 is an intermediary bank.
Q10: Payment Order. Is an instruction to a bank to effect payment under a letter of credit a payment order and subject to the recordkeeping requirements?
A10: This issue is discussed at length in Official Comment 3 to U.C.C. 4A-104. As a general matter, the instruction to a bank to effect payment under a letter of credit is subject to a requirement that the beneficiary perform some act such as delivery of documents. Because the term “payment order” is limited to instructions that do not state a condition to payment to the beneficiary other than time of payment, the transaction is not a payment order and not a funds transfer subject to the recordkeeping requirements. Certain other transactions connected with a letter of credit, however, may meet the definition of “payment order.”
Section 103.33 - Records to be made and retained by financial institutions
(The following questions and answers, which use the terminology associated with funds transfers through banks, also are applicable to transmittals of funds through nonbank financial institutions (NBFIs).)
Section 103.33(e)(1) - Recordkeeping Requirements.
Q11: When does the recordkeeping rule take effect?
A11: May 28, 1996.
Q12: Are all funds transfers subject to the recordkeeping rule, regardless of the size of the transaction?
A12: No. Only funds transfers equal to or greater than $3,000 are subject to the rule.
Q13: How long must the information collected under the rule be kept?
A13: Pursuant to § 103.38(d), all information required to be collected under the rule must be retained for at least five (5) years.
Q14: Does the rule require any reporting to the government of any information?
A14: No. Information related to a funds transfer may be subject to the Bank Secrecy Act’s suspicious activity reporting requirements, however, which became effective on April 1, 1996.
Q15: What is the relationship between the funds transfer recordkeeping rule and the rules for reporting suspicious transactions by financial institutions?
A15: The funds transfer recordkeeping requirements do not affect an institution’s responsibility to report a transaction as suspicious under the terms of the rules requiring such reporting. The two rules are separate and distinct requirements under the Bank Secrecy Act. Circumstances under which a bank should report a funds transfer as suspicious are discussed more fully at 61 FR 4326 et seq., February 5, 1996.
Q16: If oral payment order instructions initially are recorded on audio tape, must the record of those instructions required by this rule be kept in that form?
A16: No. The bank may retain either the original or a microfiche, other copy, or electronic record of the instructions. The copy of an audio recording of the payment order need not be a verbatim transcription, so long as it contains the required information.
Q17: May a bank use a code name or pseudonym for its customer?
A17: Banks might, for a number of reasons, use various classification schemes in connection with their funds transfer records. A bank must be able to retrieve the records, however, based on its customer’s true name, rather than the code name or pseudonym.
Q18: Is retaining the city and state (or country) considered a sufficient address?
A18: Banks should obtain a complete address including street information when possible.
Q19: If a customer arranges to have its mail held for pick up at a bank location, may it use the bank’s address as the address of its customer?
A19: No. The bank should retain a record of the customer’s address, rather than the address of the bank location at which the customer’s mail is held for pickup.
Q20: In some circumstances, transmittal orders may be “aggregated.” For example, a casa de cambio in Texas may collect several transmittal orders for small amounts from different individuals who are sending money to relatives in Mexico and “bundle” them into a single transmittal order to a Texas bank as part of a transmittal of funds to a Mexican casa de cambio. The “aggregate” transmittal order does not identify the individual transmitters or recipients of the underlying transmittal orders. The Texas bank sends the “aggregate” transmittal order to a Mexican bank (for which it holds a clearing account), and the Mexican bank pays the Mexican casa de cambio. The casa de cambio pays the Mexican recipients based on the separate transmittal orders that it received directly from the Texas casa de cambio. What are the recordkeeping requirements for the Texas casa de cambio and the Texas bank?
A20: In this example, the payments are completed by a combination of (1) transmittals of funds between the casas’ de cambio customers and (2) a separate funds transfer between the casas de cambio themselves. With respect to the first set of transmittals of funds, the individuals in Texas are the transmitters and the Texas casa de cambio is the transmitter’s financial institution, which must collect and retain the information regarding the individual transmittal orders as required by § 103.33(f)(1)(i) (except for any transmittal order that is less than $3,000). The Texas casa de cambio sends messages (by telephone or telegraph), which are transmittal orders, to the Mexican casa de cambio providing instructions for payment to the recipients. The Mexican casa de cambio is the recipient’s financial institution. The Mexican individuals are the recipients. These transmittals of funds are settled through the separate “aggregated” funds transfer, in which the Texas casa de cambio is the originator and the Texas bank is the originator’s bank. This is a separate funds transfer because the Texas bank has aggregated several discrete transmittals of funds, thereby changing the payment order amount as well as the parties to the transfer. The Texas bank is required to collect and retain the information regarding the Texas casa de cambio required by § 103.33(e)(1)(i). With respect to the aggregated funds transfer, the Mexican bank is the beneficiary’s bank and the Mexican casa de cambio is the beneficiary.
Q21: Are there any differences in recordkeeping requirements for nonbank financial institutions compared to financial institutions?
A21: There is one incremental recordkeeping requirement on NBFIs. NBFIs, but not banks, must keep the original or a copy of any form relating to the transmittal of funds that is completed or signed by the person placing the transmittal order. (See § 103.33(f)(1)(i)(G).) The transmitter’s financial institution may either keep the original or a microfilm, other copy, or electronic record of the information contained on the form.
Section 103.33(e)(2) - Originators other than established customers.
Q22: Is a bank obligated to accept a payment order from someone that is not an established customer?
A22: No. This rule merely sets forth the requirements for payment orders accepted by a financial institution.
Section 103.33(e)(3) - Beneficiaries other than established customers.
Q23: If a beneficiary’s bank attempts to obtain identification from a beneficiary who is not an established customer, and the person is unable or unwilling to provide the identification, should the bank refuse the transaction?
A23: The responsibility of a beneficiary’s bank that accepts a payment order involves laws other than the funds transfer recordkeeping rule. The recordkeeping rule does not affect that responsibility. If the beneficiary’s bank is instructed to make payment to the beneficiary in person and the person claiming to be the beneficiary fails to provide identification required by the rule, the beneficiary’s bank’s responsibility to make that payment may be affected. If the beneficiary’s bank does not believe, however, that the lack of cooperation of the person claiming to be the beneficiary provides an adequate basis for withholding payment, it should note in the record the lack of identification required by the rule. In addition, bank personnel should report any suspicious transactions to law enforcement authorities as required by the suspicious activity reporting rules. The rule does not require identification when proceeds are not delivered in person to the beneficiary. The beneficiary’s bank should retain a copy of the check or other instrument used to effect payment, or the information contained thereon, as well as the name and address of the person to which it was sent.
Section 103.33(e)(4) - Retrievability Requirements.
Q24: How quickly must records be retrieved?
A24: The retrievability standard is set forth in § 103.38(d). Under this standard, the expected timeliness of retrievability will vary based on the circumstances. Generally, records should be accessible within a reasonable period of time, considering the quantity of records requested, the nature and age of the record, the amount and type of information provided by the law enforcement agency making the request, as well as the particular bank’s volume and capacity to retrieve the records. As a practical matter, the expected timeliness for retrievability will depend on the terms of the request.
Q25: How must records be retrievable?
A25: Information retained by an originator’s bank must be retrievable by the originator’s name and, if the originator maintains an account that has been used for funds transfers, by the originator’s account number. A beneficiary’s bank must retain and retrieve information by the beneficiary’s name and, if the beneficiary is an established customer with an account, by account number. The information need not be retained in any particular manner, as long as the bank retains the required records in such way that it is able to meet the retrieval requirements of the rule. A bank may take intermediary steps as necessary to retrieve a requested record. For example, if a bank were directed to retrieve a transfer based on the name of its customer, the bank may first look up the account number for that customer, and then review the customer account statements for the specific funds transfer(s). Using the transaction number identifying the specific transfer that is included on the customer statement, the bank may then retrieve that transfer from its funds transfer records. In addition, if the bank accepts transfers from noncustomers, the bank also must retrieve records of any noncustomer transfers based on the name provided.
Q26: When there are two or more names on an account, must banks be able to retrieve records by all names on the account or just the primary account holder(s)?
A26: Whenever a bank is obligated to provide records under this rule and the request contains the specific name of an individual, the bank must be able to retrieve records by that name, regardless of whether the person is a primary account holder.
Q27: Must records retained under the rule be maintained on-site?
A27: No. There is no requirement for records to be maintained on-site.
Q28: Must a bank automate its funds transfer records and retrieval systems in order to comply with the regulation?
A28: No. Although an automated recordkeeping and retrieval system is not required by the rule, a bank may wish to consider implementing an automated system, depending on the demand for funds transfer records and its current means of keeping the records. Based on the volume of law enforcement requests, a bank should weigh the costs of implementing an automated system versus the costs of searching manual records. The rule does not require that information be maintained in any particular order. For example, a bank may retain information about its customers in its customer file and information about funds transfers in a separate file and may cross-reference and retrieve the information.
Section 103.33(e)(6) Exceptions.
Q29: What types of transfers are excepted from the rule?
A29: The following transfers are excepted from the rule: i) transfers of less than $3,000; ii) debit transfers; iii) transfers governed by the Electronic Fund Transfer Act, as well as any other funds transfers made through ATM, ACH, and POS systems; iv) transfers where both the originator and the beneficiary are any of the following: (A) A domestic bank; (B) A wholly-owned domestic subsidiary of a domestic bank; (C) A domestic broker or dealer in securities; (D) A wholly-owned domestic subsidiary of a domestic broker or dealer in securities; (E) The United States; (F) A state or local government; or (G) A federal, state or local government agency or instrumentality; v) transfers where both 1) the originator and the beneficiary are the same person, and 2) the originator’s bank and the beneficiary’s bank are the same domestic bank.
Q30: Does the rule apply to transfers from a person’s individual bank account to the person’s joint bank account at the same domestic bank?
A30: No. The originator and beneficiary are the same person, and the originator’s and beneficiary’s bank are the same domestic bank. These transfers are excepted from the rule.
Q31: Does the rule apply to intrabank transfers where the originator and the beneficiary are different persons?
A31: Yes. Intrabank transfers are excepted from the rule only if the originator and beneficiary are the same person (unless the originator and the beneficiary are both excepted entities, as described in A33).
Q32: Does the rule apply to transfers where the originator and beneficiary are the same person and originator’s bank and beneficiary’s bank are separate banks owned by the same bank holding company?
A32: Yes. The rule applies to these transfers, because although the banks are affiliated, they are separate legal entities. Transfers between U.S. branches of the same domestic bank, even across state lines, are excepted, however, if the originator and the beneficiary are the same person.
Q33: Please clarify the application of the exceptions for funds transfers contained in § 103.33(e)(6).
A33: If both counterparties (originator and beneficiary) to a funds transfer are any of the listed excepted entities, the transaction is excepted. Examples of excepted transfers would include a transfer from the U.S. Treasury to a public school district (a local government instrumentality); a transfer from a domestic bank to a domestic broker/dealer; and a transfer from a domestic broker/dealer to a state treasurer.
Q34: A bank’s trust department uses a nominee, which is a partnership (not a wholly-owned subsidiary of the bank), and this nominee sends recurring wire transfers from the nominee account to an account in the nominee name at another bank. Are these transactions excepted from the recordkeeping requirements?
A34: It is not uncommon for a bank to establish a nominee for purposes of registering stock certificates, commercial paper, participations, and registered bonds. The nominee generally is a partnership of designated officers or staff members and possesses a legal name (different from the bank) that is registered in accordance with state laws. Because the nominee is a separate legal entity, and not a wholly-owned subsidiary of the bank, its funds transfers are not excepted from the recordkeeping requirements.
Q35: Comment 5 to UCC 4A-104 states that there are limited instances in which the paper on which a check is printed can be used as a means of transmitting a payment order that is covered by Article 4A. For example, if an originator’s bank (Bank A) does not have a correspondent relationship with the beneficiary’s bank (Bank B), Bank A may send a teller’s check to Bank B if the amount of the transfer is small and Bank A and Bank B do not have an account relationship. Bank A may execute the originator’s payment order by issuing a teller’s check payable to Bank B along with instructions to credit the beneficiary account in that amount. The instruction to
Bank B to credit the beneficiary’s account is a payment order, and the check is the means by which Bank A pays its obligation as sender of the payment order. The instructions may be given in a separate letter accompanying the check, or printed on the check. According to the Official Commentary to UCC 4A-104, the instruction to pay the beneficiary is the payment order, but the check itself is an instrument under Article 3 and not a payment order. Is this type of transaction subject to the rule’s recordkeeping requirements?
A35: Yes. If a transaction is defined as a funds transfer under UCC 4A and not subject to any of the specific exceptions in the rule, it is subject to the rule’s requirements. The Treasury and the Board have attempted to conform the definitions of the rule as closely as possible to UCC 4A definitions to avoid confusion in the banking industry. The Treasury and the Board do not plan to expand the exceptions to the rule at this time, but may consider whether modifications to the exceptions would be appropriate as part of Treasury’s study of the industry and law enforcement’s experience under the rule.
Advisory Vol. 1, Issue 1, March 1996
Introducing the FinCEN Advisory
From FinCEN’s Director
This advisory is the first in a recurring series designed for the financial, regulatory and law enforcement communities. Subsequent advisories will describe trends and developments related to money laundering and financial crime. FinCEN’s goal is to serve the interests of all its customers providing intelligence and analysis for case support to federal, state, local and international law enforcement and regulators while also providing the financial communities with the information they need to help us prevent and detect financial crime.
The advisories are founded on two basic points that are central to Treasury’s counter- money laundering programs. First, criminals need to use financial institutions to launder money and often deliberately structure their transactions to appear legitimate in order to avoid detection. Therefore, financial institutions are in a unique position to assess transactions which lack commercial justification or cannot be explained by normal commerce. It would be nearly impossible to do our job without the help of businesses who see money launderers first and up close—that is, banks and other financial institutions.
FinCEN relies on financial institutions to collect meaningful information – an effective program for detection and prevention of money laundering cannot succeed unless we enlist their cooperation and support. FinCEN took a number of steps to reduce unnecessary regulatory burdens on the financial community while, at the same time, improve the quality of information available to law enforcement. Some regulations or proposed regulations were eliminated altogether; the Currency Transaction Report (CTR) was redesigned, eliminating 30 percent of the information previously collected; and we are working to substantially reduce the number of CTRs which have to be filed. As a result of a cooperative effort with the regulatory community, the process by which banks report suspicious activity has also been drastically simplified.
Second, working in partnership with the financial community requires that we provide it with the information it needs to help us prevent and detect financial crime—information which describes the trends and patterns revealed through the investigatory and regulatory process.
What should bankers look for when they review transactions? What warning signs of money laundering should regulators look for when examining a financial institution? What are the clues that may indicate money laundering? What measures can be taken to disrupt criminal activity—using banks and other financial institutions to launder their illegally-gained profits? These are the difficult questions we will strive to answer.
The advisories, as well as other FinCEN publications, are designed to attempt to describe those clues and developments which may indicate criminal financial activity. We will need your advice. What situations are you seeing which should be made known to our readers? What topic is of particular interest to your organization? How can we best reach our goal of information exchange?
Advisories will convey different types of information. Some advisories will focus on general trends and developments that you, in the financial, regulatory and law enforcement communities should know. Other advisories will focus on the effect of those developments on specific obligations under the Bank Secrecy Act (BSA). This first advisory lays out our plan and offers an overview of financial crime, financial investigation, and the Treasury’s approach to those subjects. In future advisories, FinCEN will tell you what we are learning from our work with law enforcement and financial institution regulators. At the same time, we encourage you to make suggestions and share information.
Basic Facts about Money Laundering and FinCEN
Why is it important?
With few exceptions, criminals are motivated by one thing – profit. Greed drives the criminal, and the end result is that illegally-gained money must be introduced into a nation’s legitimate financial systems. In just the United States alone, estimates of the amount of drug profits moving through the financial systems have been as high as $100 billion.
Money laundering involves disguising assets so they can be used without detection of the illegal activity that produced them. This process has devastating social and economic consequences. For one thing, money laundering provides the fuel for drug dealers, terrorists, arms dealers, and other criminals to operate and expand their operations. Criminals manipulate financial systems in the United States and abroad to further a wide range of illicit activities. Left unchecked, money laundering can erode the integrity of our nation’s and the world’s financial institutions.
Why do we need financial investigations?
Financial investigations are essential if we are to beat criminals at their trade. Following the money leads to the top leadership of criminal organizations. But financial investigations are extremely complex and often difficult to carry out. First, it takes many years of working in the financial industry to understand all its intricacies. Second, no single agency possesses a sufficiently broad or cross-jurisdictional focus and information base to track financial movements. Finally, the sheer size, variety, and pace of change of the financial sector make financial investigations even more difficult. The tools of the money launderer range from complex financial transactions, carried out through webs of wire transfers and networks of shell companies, to old-fashioned, if increasingly inventive, currency smuggling. As soon as law enforcement learns the intricacies of a new laundering technique and takes action to disrupt the activity, the launderers replace the scheme with yet another, more sophisticated method.
How has Treasury addressed the problem?
The Treasury has designated FinCEN as one of the primary agencies to formulate, oversee and implement policies to prevent and detect money laundering. It serves as the link among law enforcement, financial and regulatory communities. FinCEN accomplishes these objectives in several ways. It uses the Bank Secrecy Act (BSA) to implement comprehensive programs that go beyond currency to all financial activity and requires reporting and recordkeeping by banks and other financial institutions to preserve a financial trail for investigators to follow as they track criminals and their assets. The BSA also requires reporting of large and/or suspicious transactions that could trigger investigations. FinCEN provides case support to its law enforcement customers—federal, state, local and international investigators—in the form of information and intelligence analyses. This information assists law enforcement in building investigations and developing new strategies to combat money laundering. Just as importantly, these reports form the core of information which is provided to FinCEN’s other customers—the financial and regulatory communities—who can integrate this information into their compliance and regulatory programs. From these and other intelligence sources, FinCEN will produce advisories and other publications.
FinCEN Staff
FinCEN’s unique staffing both reflects and sustains its mission. The majority of its 200 employees are permanent FinCEN personnel, including intelligence analysts, as well as specialists in the financial industry and computer field. In addition, about 40 long-term detailees are assigned to FinCEN from 21 different regulatory and law enforcement agencies.
Statutory Provisions
The Bank Secrecy Act (BSA), 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 BSA (codified at 31 U.S.C. 5311-5330), appear at 31 C.F.R. Part 103. The authority of the Secretary to administer the BSA has been delegated to the Director of FinCEN. FinCEN Advisory is a product of the Financial Crimes Enforcement Network, U.S. Department of the Treasury, 2070 Chain Bridge Road, Vienna VA 22182, (703) 905-3773. Questions or comments regarding the contents of the FinCEN Advisory should be addressed to the Office of Communications, FinCEN. Information may also be faxed to (703) 905-3885.