Threshold for the Requirement To Collect, Retain, and Transmit Information on Funds Transfers and Transmittals of Funds That Begin or End Outside the United States, and Clarification of the Requirement To Collect, Retain, and Transmit Information on Transactions Involving Convertible Virtual Currencies and Digital Assets With Legal Tender Status
| Published date | 27 October 2020 |
| Citation | 85 FR 68005 |
| Record Number | 2020-23756 |
| Section | Proposed rules |
| Court | Financial Crimes Enforcement Network |
Federal Register, Volume 85 Issue 208 (Tuesday, October 27, 2020)
[Federal Register Volume 85, Number 208 (Tuesday, October 27, 2020)]
[Proposed Rules]
[Pages 68005-68019]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-23756]
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DEPARTMENT OF THE TREASURY
Financial Crimes Enforcement Network
31 CFR Parts 1010 and 1020
[Docket No. FINCEN-2020-0002 ; RIN 1506-AB41]
Threshold for the Requirement To Collect, Retain, and Transmit
Information on Funds Transfers and Transmittals of Funds That Begin or
End Outside the United States, and Clarification of the Requirement To
Collect, Retain, and Transmit Information on Transactions Involving
Convertible Virtual Currencies and Digital Assets With Legal Tender
Status
AGENCY: Board of Governors of the Federal Reserve System (``Board'');
Financial Crimes Enforcement Network (``FinCEN''), Treasury.
ACTION: Joint notice of proposed rulemaking.
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SUMMARY: The Board and FinCEN (collectively, the ``Agencies'') are
issuing this proposed rule to modify the threshold in the rule
implementing the
[[Page 68006]]
Bank Secrecy Act (``BSA'') requiring financial institutions to collect
and retain information on certain funds transfers and transmittals of
funds. The proposed modification would reduce this threshold from
$3,000 to $250 for funds transfers and transmittals of funds that begin
or end outside the United States. FinCEN is likewise proposing to
reduce from $3,000 to $250 the threshold in the rule requiring
financial institutions to transmit to other financial institutions in
the payment chain information on funds transfers and transmittals of
funds that begin or end outside the United States. The Agencies are
also proposing to clarify the meaning of ``money'' as used in these
same rules to ensure that the rules apply to domestic and cross-border
transactions involving convertible virtual currency (``CVC''), which is
a medium of exchange (such as cryptocurrency) that either has an
equivalent value as currency, or acts as a substitute for currency, but
lacks legal tender status. The Agencies further propose to clarify that
these rules apply to domestic and cross-border transactions involving
digital assets that have legal tender status.
DATES: Written comments on this proposed rule may be submitted on or
before November 27, 2020.
ADDRESSES: Comments may be submitted by any of the following methods:
Board: You may submit comments, identified by Docket No. R-1726;
RIN 7100-AF97, by any of the following methods:
Agency website: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Email: [email protected]. Include docket
and RIN numbers in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Ann E. Misback, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue NW,
Washington, DC 20551.
All public comments will be made available on the Board's website
at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons or to remove
personally identifiable information at the commenter's request.
Accordingly, comments will not be edited to remove any identifying or
contact information. Public comments may also be viewed electronically
or in paper in Room 146, 1709 New York Avenue NW, Washington, DC 20006,
between 9:00 a.m. and 5:00 p.m. on weekdays. For security reasons, the
Board requires that visitors make an appointment to inspect comments.
You may do so by calling (202) 452-3684.
FinCEN:
Federal E-rulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments. Refer to Docket Number
FINCEN-2020-0002 and the specific RIN number 1506-AB41 the comment
applies to.
Mail: Policy Division, Financial Crimes Enforcement
Network, P.O. Box 39, Vienna, VA 22183. Refer to Docket Number FINCEN-
2020-0002 and the specific RIN number.
FOR FURTHER INFORMATION CONTACT:
Board: Jason Gonzalez, Assistant General Counsel (202) 452-3275 or
Evan Winerman, Senior Counsel (202) 872-7578, Legal Division, Board of
Governors of the Federal Reserve System, 20th Street and Constitution
Avenue NW, Washington, DC 20551. Users of Telecommunication Device for
Deaf (TDD) only, call (202) 263-4869.
FinCEN: The FinCEN Regulatory Support Section at 1-800-767-2825 or
electronically at [email protected].
SUPPLEMENTARY INFORMATION:
I. Background
A. Statutory and Regulatory Background
The Currency and Foreign Transactions Reporting Act of 1970, as
amended by the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001 (``USA PATRIOT Act'') (Pub. L. 107-56) and other legislation, is
the legislative framework commonly referred to as the BSA. The
Secretary of the Treasury (``Secretary'') has delegated to the Director
of FinCEN (``Director'') the authority to implement, administer, and
enforce compliance with the BSA and associated regulations.\1\ Pursuant
to this authority, FinCEN may require financial institutions to keep
records and file reports that the Director determines have a high
degree of usefulness in criminal, tax, or regulatory investigations or
proceedings, or in intelligence or counterintelligence matters to
protect against international terrorism.\2\
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\1\ Treasury Order 180-01 (Jan. 14, 2020).
\2\ 31 U.S.C. 5311.
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The Annunzio-Wylie Anti-Money Laundering Act of 1992 (Pub. L. 102-
550) (``Annunzio-Wylie'') amended the BSA framework. Annunzio-Wylie
authorizes the Secretary and the Board to jointly issue regulations
requiring insured depository institutions to maintain records of
domestic funds transfers.\3\ The Secretary, but not the Board, is
authorized to promulgate recordkeeping requirements for domestic wire
transfers by nonbank financial institutions.\4\ In addition, Annunzio-
Wylie authorizes the Secretary and the Board, after consultation with
state banking supervisors, to jointly issue regulations requiring
insured depository institutions and certain nonbank financial
institutions to maintain records of international funds transfers and
transmittals of funds.\5\ Annunzio-Wylie requires the Secretary and the
Board, in issuing regulations for international funds transfers and
transmittals of funds, to consider the usefulness of the records in
criminal, tax, or regulatory investigations or proceedings, and the
effect of the regulations on the cost and efficiency of the payments
system.\6\ FinCEN can continually monitor the benefits of such
regulations through its extensive liaison activity with federal and
state law enforcement and financial regulatory entities, and the Board
can assess costs through its regulatory oversight of financial
institutions under its jurisdiction.
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\3\ 12 U.S.C. 1829b(b)(2).
\4\ 12 U.S.C. 1953.
\5\ 12 U.S.C. 1829b(b)(3). The terms ``funds transfer,''
``originator,'' ``beneficiary,'' and ``payment order'' apply only in
the context of banks. The term ``transmittal of funds'' includes a
funds transfer and its counterpart in the context of nonbank
financial institutions. See 31 CFR 1010.100(ddd). Transmittors,
recipients, and transmittal orders in the context of nonbank
financial institutions play the same role as originators,
beneficiaries, and payment orders in the context of banks.
\6\ 12 U.S.C. 1829b(b)(3).
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On January 3, 1995, the Agencies jointly issued a recordkeeping
rule (the ``Recordkeeping Rule'') that requires banks and nonbank
financial institutions to collect and retain information related to
funds transfers and transmittals of funds in amounts of $3,000 or
more.\7\ The Recordkeeping Rule is intended to help law enforcement and
regulatory authorities
[[Page 68007]]
detect, investigate, and prosecute money laundering, and other
financial crimes by preserving an information trail about persons
sending and receiving funds through the funds transfer system.
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\7\ 60 FR 220 (Jan. 3, 1995). Through a separate rulemaking, the
Board added on January 3, 1995 a new subpart B to 12 CFR part 219
(Regulation S), which cross-references the substantive requirements
in the Recordkeeping Rule. See 60 FR 231-01 (Jan. 3, 1995). As noted
above, the Board (unlike FinCEN) is not authorized to promulgate
recordkeeping requirements for domestic wire transfers by nonbank
financial institutions. Accordingly, for purposes of Regulation S,
the provisions of the Recordkeeping Rule with respect to nonbank
financial institutions apply only to international transmittals of
funds. 12 CFR 219.23(b).
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At the same time, FinCEN issued a separate rule--the ``Travel
Rule''--that requires banks and nonbank financial institutions to
transmit information on certain funds transfers and transmittals of
funds to other banks or nonbank financial institutions participating in
the transfer or transmittal.\8\ The Travel Rule and the Recordkeeping
Rule complement each other: Generally, as noted below, the
Recordkeeping Rule requires financial institutions to collect and
retain the information that, under the Travel Rule, must be included
with transmittal orders, although the Recordkeeping Rule also has other
applications apart from ensuring that information is available to
include with funds transfers. FinCEN issued the Travel Rule pursuant to
statutory authority that permits the Treasury to require domestic
financial institutions or nonfinancial trades or businesses to maintain
appropriate procedures to ensure compliance with the BSA or to guard
against money laundering, and to establish anti-money laundering
programs.\9\
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\8\ 60 FR 234 (Jan. 3, 1995).
\9\ Id.; see also 31 U.S.C. 5218(a)(2) and (h).
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This proposed rule would amend both the Recordkeeping Rule and the
Travel Rule. The Recordkeeping Rule is codified at 31 CFR 1020.410(a)
and 1010.410(e) \10\ and the Travel Rule is codified at 31 CFR
1010.410(f).\11\ Consistent with its rulemaking authority in the BSA,
as amended by Annunzio-Wylie, the Board is proposing the amendments to
Sec. 1010.100(ll) and Sec. 1020.410(a) only to the extent the
amendments apply to funds transfers by insured depository institutions,
and is proposing the amendments to Sec. 1010.100(eee) and Sec.
1010.410(e) only to the extent the amendments would apply to
international transmittals of funds by financial institutions other
than insured depository institutions. Because the Board's Regulation S
generally cross-references those portions of the Recordkeeping Rule
promulgated jointly by the Board and FinCEN, it is unnecessary to
propose conforming amendments to Regulation S.
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\10\ As explained in n. 6, supra, the Board separately
promulgated subpart B to Regulation S, which cross-references the
requirements of 31 CFR 1020.410(a) and 1010.410(e).
\11\ Recordkeeping requirements for banks are set forth in 31
CFR 1020.410(a). Recordkeeping requirements for nonbank financial
institutions are set forth in 31 CFR 1010.410(e). The Travel Rule--
codified at 31 CFR 1010.410(f)--applies by its terms to both bank
and nonbank financial institutions.
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B. Information Required To Be Collected, Retained, and Transmitted
Under the Recordkeeping and Travel Rules
The Recordkeeping Rule and Travel Rule collectively require banks
and nonbank financial institutions to collect, retain, and transmit
information on funds transfers and transmittals of funds in amounts of
$3,000 or more.
Under the Recordkeeping Rule, the originator's bank or
transmittor's financial institution must collect and retain the
following information: (a) Name and address of the originator or
transmittor; (b) the amount of the payment or transmittal order; (c)
the execution date of the payment or transmittal order; (d) any payment
instructions received from the originator or transmittor with the
payment or transmittal order; and (e) the identity of the beneficiary's
bank or recipient's financial institution. In addition, the
originator's bank or transmittor's financial institution must retain
the following information if it receives that information from the
originator or transmittor: (a) Name and address of the beneficiary or
recipient; (b) account number of the beneficiary or recipient; and (c)
any other specific identifier of the beneficiary or recipient. The
originator's bank or transmittor's financial institution is required to
verify the identity of the person placing a payment or transmittal
order if the order is made in person and the person placing the order
is not an established customer.\12\ Similarly, should the beneficiary's
bank or recipient's financial institution deliver the proceeds to the
beneficiary or recipient in person, the bank or nonbank financial
institution must verify the identity of the beneficiary or recipient--
and collect and retain various items of information identifying the
beneficiary or recipient--if the beneficiary or recipient is not an
established customer. Finally, an intermediary bank or financial
institution--and the beneficiary's bank or recipient's financial
institution--must retain originals or copies of payment or transmittal
orders.
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\12\ The term ``established customer'' is defined at 31 CFR
1010.100(p).
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Under the Travel Rule, the originator's bank or transmittor's
financial institution is required to include information, including all
information required under the Recordkeeping Rule, in a payment or
transmittal order sent by the bank or nonbank financial institution to
another bank or nonbank financial institution in the payment chain. An
intermediary bank or financial institution is also required to transmit
this information to other banks or nonbank financial institutions in
the payment chain, to the extent the information is received by the
intermediary bank or financial institution.
II. Lowering of Threshold From $3,000 to $250 for Funds Transfers and
Transmittals of Funds by Financial Institutions That Begin or End
Outside the United States
The existing requirements in 31 CFR 1020.410(a) and 31 CFR
1010.410(e) and (f) to collect, retain, and transmit information on
funds transfers and transmittals of funds currently apply only to funds
transfers and transmittals of funds in amounts of $3,000 or more. The
Agencies are proposing to lower the threshold under the Recordkeeping
Rule, and FinCEN is proposing to lower the threshold under the Travel
Rule, to $250 for funds transfers and transmittals of funds that begin
or end outside the United States.\13\ In proposing these modifications,
the Agencies considered the usefulness of transaction information
associated with smaller-value cross-border transfers and transmittals
of funds in criminal, tax, or regulatory investigations or proceedings,
and in intelligence or counterintelligence activities to protect
against international terrorism, as well as the effect on the payments
system of requiring information collection and retention for these
transactions. The following two sections lay out, respectively, (A) the
potential benefits to national security and law enforcement from
reducing the Recordkeeping Rule and Travel Rule thresholds for funds
transfers and transmittals of funds that begin or end outside the
United States, and (B) the potential effect these new requirements
would have on the cost and efficiency of the payments system.
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\13\ The ``United States'' includes the States of the United
States, the District of Columbia, the Indian lands (as that term is
defined in the Indian Gaming Regulatory Act), and the Territories
and Insular Possessions of the United States. 31 CFR 1010.100(hhh).
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A. Benefit to National Security and Law Enforcement
Information available to the Agencies indicates that malign actors
are using smaller-value cross-border wire transfers to facilitate or
commit terrorist financing, narcotics trafficking, and other illicit
activity, and that increased recordkeeping and reporting concerning
these transactions would be valuable to
[[Page 68008]]
law enforcement and national security authorities. In proposing to
lower the current threshold under the Recordkeeping and Travel Rules,
the Agencies have specifically considered Suspicious Activity Reports
(``SARs'') filed by money transmitters, which indicate that a
substantial volume of potentially illicit funds transfers and
transmittals of funds occur below the $3,000 threshold; evidence used
in recent criminal prosecutions; and the views of law enforcement
partners and the Financial Action Task Force (``FATF'') \14\ on the
utility of mandating information collection for smaller-value wire
transfers.
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\14\ The FATF is an international, inter-governmental task force
whose purpose is the development and promotion of international
standards and the effective implementation of legal, regulatory, and
operational measures to combat money laundering, terrorist
financing, the financing of proliferation, and other related threats
to the integrity of the international financial system.
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First, FinCEN analyzed data derived from approximately 2,000 SARs
filed by money transmitters between 2016 and 2019 related to potential
terrorist financing-related transmittals of funds.\15\ These SARs
referenced approximately 1.29 million underlying transmittals of funds,
approximately 99 percent of which began or ended outside the United
States (only approximately 17,000 of the approximately 1.29 million
transactions included within its terrorist-financing analysis dataset
involved domestic-only transactions). The mean and median dollar-value
of transmittals of funds mentioned in those SARs were approximately
$509 and $255, respectively. Approximately 71 percent of those 1.29
million transmittals (more than 916,000) were at or below $500,
totaling more than $179 million. Approximately 57 percent of those
transmittals (more than 728,000) were at or below $300, totaling more
than $103 million. As noted in the 2015 National Terrorism Finance Risk
Assessment, terrorist financiers and facilitators are creative and will
seek to exploit vulnerabilities in the financial system to further
their unlawful aims, including, as the above analysis indicates,
through the use of low-dollar transactions.\16\
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\15\ FinCEN determined that these SARs were potentially related
to terrorist financing based on the application of certain search
terms and analytic methods developed by FinCEN. FinCEN shared its
analysis with law enforcement. FinCEN is aware, based on feedback
from domestic and foreign law enforcement partners, that those
partners have used information contained in terrorism-related SARs
in their investigations.
\16\ See Dep't of the Treasury, 2015 National Terrorism Finance
Risk Assessment, at 2 (June 2015), https://www.treasury.gov/resource-center/terrorist-illicit-finance/Documents/National%20Terrorist%20Financing%20Risk%20Assessment%20-%2006-12-2015.pdf.
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FinCEN also reviewed a separate subset of 363 SARs filed by a money
transmitter for the period between 2012 and 2018 that FinCEN determined
to be potentially related to fentanyl trafficking.\17\ These SARs
referenced approximately 78,000 transmittals of funds, over 82% of
which began or ended outside the United States. The mean and median
dollar-value of transmittals of funds mentioned in these SARs were
approximately $588 and $283, respectively. Approximately 67 percent of
those 78,000 transmittals (more than 52,000) were at or below $500,
totaling more than $10 million. Approximately 52 percent of those
transmittals (more than 40,000) were at or below $300, totaling more
than $5.7 million.
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\17\ FinCEN determined that these SARs were potentially related
to fentanyl trafficking based on the application of certain search
terms and analytic methods developed by FinCEN, including through
FinCEN's work with law enforcement. FinCEN shared its analysis with
law enforcement.
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In the 1995 rulemaking implementing the Travel Rule, the Treasury
noted that it would monitor the effectiveness of financial
institutions' suspicious transaction reporting protocols to determine
whether potentially illicit transactions below the $3,000 threshold
were being reported (and thus whether it might be unnecessary, from a
law enforcement perspective, to lower the threshold).\18\ FinCEN has
been able to analyze some records of transmittals of funds below
$3,000, as noted above, because money transmitters have retained
records for those transmittals of funds after recognizing the
underlying activity as suspicious. However, the Agencies believe that
lowering the threshold to capture smaller-value cross-border funds
transfers and transmittals of funds would be valuable for law
enforcement and national security authorities, despite financial
institutions' suspicious activity reporting programs, because some
financial institutions may not recognize or retain records for all
suspicious activity below the $3,000 threshold or the suspicious
pattern may not become clear until the records are aggregated. This
could inhibit law enforcement from promptly investigating and mapping
illicit networks.
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\18\ 60 FR 234, 236 (Jan. 3, 1995).
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Second, recent prosecutions show that individuals are sending and
receiving funds to finance terrorist activity in amounts below (and in
some cases, well below) the current $3,000 recordkeeping threshold.
Those cases involved persons providing material support for terrorist
activity to a designated Foreign Terrorist Organization (``FTO''). In
one such case, during 2013, the defendant allegedly sent $1,500 to a
co-defendant's financial account within the United States; the co-
defendant was collecting money from his co-conspirators in support of
an FTO fighter in Syria, ultimately transmitting those funds through
money remitting businesses and intermediaries overseas.\19\ In another
case, a man was prosecuted for meeting with an FTO recruiter in 2015,
wiring funds in the amount of $250 to an FTO, and attempting to leave
the United States with the intent of joining the FTO in Libya.\20\
Another example of small dollar funds transfers made in support of
terrorism involved an individual in the United States who received
several cash transfers in 2015 from FTO affiliates, totaling about
$8,700 and sent primarily in sums of less than $3,000.\21\ One such
transfer in 2016 was from a person located in Egypt, in the amount of
$1,000, and sent through a U.S. money transmitter.\22\ The subject
later admitted to law enforcement that the money was to be used to
finance a terrorist attack in the United States, and the subject was
subsequently convicted of providing material support to an FTO.\23\
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\19\ See United States v. Harcevic, 2015 WL 1821509, at *1 (E.D.
Mo. Apr. 21, 2015); United States v. Hodzic, 2016 WL 11578530, at *1
(E.D. Mo. Aug. 22, 2016), report and recommendation adopted, 355 F.
Supp. 3d 825 (E.D. Mo. 2019); see also Press Release, Department of
Justice, ``Missouri Man Pleads Guilty to Providing Material Support
to Terrorists,'' 2019 WL 1472565 (Apr. 3, 2019).
\20\ See Press Release, Department of Justice, ``Columbus Man
Sentenced to 80 Months in Prison for Attempting to Provide Material
Support to ISIS'' (July 6, 2019), https://www.justice.gov/usao-sdoh/pr/columbus-man-sentenced-80-months-prison-attempting-provide-material-support-isis; see also United States v Daniels, 2:2016-cr-
222 (ECF No. 7 at 2) (filed Nov. 10, 2016).
\21\ See United States v. Elshinawy, No. CR ELH-16-009, 2018 WL
1521876, at *17-18 (D. Md. Mar. 28, 2018), aff'd, 781 F. App'x 168
(4th Cir. 2019).
\22\ Id. at *17.
\23\ Id. at *8.
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Third, the Money Laundering and Asset Recovery Section (``MLARS'')
of the Criminal Division of the Department of Justice (``DOJ'') has
advised the Agencies that it supports lowering the dollar threshold for
the Recordkeeping and Travel Rules. In 2006, MLARS (previously known as
the Asset Forfeiture and Money Laundering Section) submitted a public
comment to the Agencies in response to an Advance Notice of Proposed
Rulemaking (``2006 ANPRM'') in which the Agencies sought comments on
lowering the thresholds of the Recordkeeping and Travel Rules.\24\
MLARS's public comment included a
[[Page 68009]]
synthesis of comments from agents and prosecutors at several federal
law enforcement agencies who use this information, including the
Federal Bureau of Investigation (``FBI''), the United States Drug
Enforcement Administration (``DEA''), the Internal Revenue Service
(``IRS''), the United States Secret Service (``USSS''), and U.S.
Immigration and Customs Enforcement. While not the official comment of
each such agency, the agents and prosecutors specializing in money
laundering cases and who routinely use wire transfer information
supported lowering or eliminating altogether the reporting threshold to
disrupt illegal activity and increase its cost to the perpetrators. At
the same time, MLARS identified two potential concerns--first, that
some criminals would structure transactions to evade the lower
threshold, and second, if such structuring occurred, those smaller
dollar transactions would be difficult to distinguish from legitimate
wire transfers. Ultimately, in spite of these concerns, MLARS supported
a lower, uniform recordkeeping threshold.
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\24\ 71 FR 119 (June 21, 2006).
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More recently, MLARS has advised the Agencies that it continues to
support lowering the threshold, particularly if doing so would bring
the Recordkeeping Rule and Travel Rule in line with international
standards (which are further described immediately below). MLARS
indicated that its views apply equally to funds transfers by banks and
transmittals of funds by nonbank financial institutions. The DEA, the
IRS, and the USSS have similarly expressed support for lowering the
reporting threshold for purposes of the Recordkeeping Rule and Travel
Rule.
Finally, the FATF has indicated that records of smaller-value
transactions are valuable to law enforcement, particularly with respect
to terrorist financing investigations.\25\ The FATF recommends that
``basic information'' concerning the originator and beneficiary of wire
transfers be immediately available to appropriate government
authorities, including law enforcement and financial intelligence
units, as well as to financial institutions participating in the
transaction.\26\ For cross-border wire transfers, the FATF recommends
that countries provide for the collection and transmission throughout
the payment chain of the originator's name, account number, and
address, and the name of the beneficiary and their account number.\27\
The FATF further states that countries may adopt a de minimis threshold
of no higher than USD/EUR 1,000 for cross-border wire transfers, below
which the name and account numbers of the originator and beneficiary
should be collected and transmitted but need not be verified for
accuracy unless there is a suspicion of money laundering or terrorist
financing.\28\ The FATF recommends that countries minimize this and
other thresholds to the extent practicable, after taking into account
the risk of ``driving transactions underground'' and the ``importance
of financial inclusion.'' \29\ The 1,000 USD/EUR de minimis cross-
border threshold specified in the FATF Recommendations has been adopted
by the European Union and by the vast majority of jurisdictions around
the world.
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\25\ See Recommendation 16 and Interpretive Note to FATF
Recommendation 16, International Standards on Combating Money
Laundering and the Financing of Terrorism & Proliferation--The FATF
Recommendations, at 15-16, 73-77 (June 2019), available at www.fatf-gafi.org/recommendations.html).
\26\ See id. at 73 (Interpretive Note to FATF Recommendation
16).
\27\ See id.
\28\ See id.
\29\ See id.
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Accordingly, the Agencies believe that mandating the collection,
retention, and transmission of information for funds transfers and
transmittals of funds of at least $250 that originate or terminate
outside the United States would likely lead to the preservation of
information that would benefit law enforcement and national security
investigations. Given the usefulness of this information and the
potential that financial institutions may not correctly identify a
transaction as suspicious, as noted previously, the Agencies believe
that it is appropriate to propose lowering the threshold of the
Recordkeeping Rule, and FinCEN concludes that it is appropriate to
propose lowering the threshold of the Travel Rule, even though
financial institutions are subject to SAR reporting requirements
through which they may report certain of these smaller-value
transactions that fall below the current threshold.
B. Effect on Financial Institutions and the Payments System
The Agencies believe that the effect of lowering the $3,000
threshold on financial institutions and on the cost and efficiency of
the payments system is likely to be low. As demonstrated by the SARs
described in the preceding section, some financial institutions are
already collecting information on at least a portion of transactions
taking place under the current threshold for purposes of reporting
suspicious transactions to FinCEN. FinCEN is also aware that some
financial institutions already collect information on the originator
and beneficiary for transmittals below the $3,000 threshold for reasons
separate from reporting suspicious transactions to FinCEN, for instance
because it is cost-effective to maintain a single set of processes for
all transactions..
The Agencies note that in completing the 1995 rulemakings
implementing the Recordkeeping and Travel Rules, and in obtaining
comments from the industry in connection with the 2006 ANPRM, some
financial institutions advised that they were already collecting
information for smaller-value transmittals and that mandating
recordkeeping requirements for such transactions would not have a
material impact on the payment system. At the same time, other
financial institutions expressed concern that imposing information
collection requirements (especially for smaller-value transmittals)
could increase regulatory compliance costs by mandating the use of new
technologies and processes to collect the information, and that these
costs could be passed on to consumers.
In deciding on a threshold of $3,000 in 1995, the Agencies balanced
the value of data on funds transfers and transmittals of funds with the
burden that the Recordkeeping Rule and Travel Rule imposed on both bank
and nonbank financial institutions. The Agencies are proposing to lower
the threshold because the current threshold may no longer represent the
appropriate balance for transmittals originating or terminating outside
the United States. As noted in the 2006 ANPRM, subsequent to 1995, the
responsibilities of financial institutions under the BSA have expanded.
For example, an MSB must now report suspicious transactions \30\ and
implement anti-money laundering programs for ensuring compliance with
the BSA.\31\ MSBs may collect and retain information on transmittals of
funds as a means of ensuring compliance with the requirement to report
suspicious transactions. The requirement for MSBs to report suspicious
transactions likely means that reducing or eliminating the threshold
for transmittals would impose less of an incremental cost. Further, the
[[Page 68010]]
Agencies note that technology has advanced significantly since the
issuance of the 2006 ANPRM. Among other things, data storage costs have
gone down, and accordingly it is likely that financial institutions
generally use less expensive or more efficient means of electronic
storage and retrieval. The Agencies believe there has been an increase
in the ability of small institutions to rely on third-party vendors to
reduce their costs of handling compliance with a revised threshold.
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\30\ See 31 CFR 1022.320(a)-(f). The requirement applies to
transactions occurring after December 31, 2001. The threshold for
the requirement to report suspicious transactions is $2,000.
\31\ See 31 CFR 1022.210(a)-(e). An MSB must implement the
program on or before the later of July 24, 2002 and the end of the
90-day period beginning on the day following the date the business
is established.
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III. Application of the Recordkeeping and Travel Rules to CVC and
Digital Assets That Have Legal Tender Status
A. The Meaning of ``Money'' as Applicable to the Recordkeeping and
Travel Rules
The Recordkeeping Rule applies to funds transfers (i.e.,
transactions involving banks) and transmittals of funds (i.e.,
transactions involving nonbank financial institutions). The term
``funds transfer'' is defined, as in Article 4A of the Uniform
Commercial Code (``UCC''), to include ``[t]he series of transactions,
beginning with the originator's payment order, made for the purpose of
making payment to the beneficiary of the order.'' \32\ The
Recordkeeping Rule in turn defines ``payment order'' similarly to the
UCC Article 4A definition, stating that a payment order is ``[a]n
instruction of a sender to a receiving bank . . . to pay, or to cause
another bank or foreign bank to pay, a fixed or determinable amount of
money to a beneficiary.'' \33\ (Emphasis added.)
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\32\ 31 CFR 1010.100(w); see also U.C.C. 4A-104(a).
\33\ 31 CFR 1010.100(ll); see also U.C.C. 4A-103(a)(1).
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The Recordkeeping Rule's definition of ``transmittal of funds''
parallels the UCC Article 4A definition of ``funds transfer,'' with
minor adjustments that allow the definition to apply to nonbank
financial institutions. Specifically, the Recordkeeping Rule defines
transmittal of funds as ``[a] series of transactions beginning with the
transmittor's transmittal order, made for the purpose of making payment
to the recipient. . . .'' \34\ The Recordkeeping Rule's definition of
``transmittal order'' in turn parallels the UCC Article 4A definition
of payment order, stating that ``[t]he term transmittal order includes
a payment order and is an instruction of a sender to a receiving
financial institution . . . to pay, a fixed or determinable amount of
money to a recipient . . . .'' \35\ (Emphasis added.)
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\34\ 31 CFR 1010.100(ddd).
\35\ 31 CFR 1010.100(eee).
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Accordingly, funds transfers and transmittals of funds involve an
instruction to pay a ``fixed or determinable amount of money.'' The
Recordkeeping Rule does not explicitly define the word ``money.''
However, in the preamble to the Federal Register document adopting the
Recordkeeping Rule, the Agencies explained that ``terms . . . that are
not defined specifically in the regulation, but are defined in relevant
provisions of the UCC, will have the meaning given them in the UCC,
unless otherwise indicated.'' \36\ Under the UCC, the term ``money'' is
defined as ``a medium of exchange currently authorized or adopted by a
domestic or foreign government.'' \37\
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\36\ 60 FR 220, 222 (Jan. 3, 1995).
\37\ U.C.C. 1-201(b)(24) (2001); see also U.C.C. 4A-105(d)
(2012) (stating that Article 1 general definitions are applicable
throughout Article 4A).
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In guidance issued in November 2010, FinCEN similarly explained
that the Travel 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.'' Similar to the Recordkeeping Rule, FinCEN's implementing
regulations explain that a transmittal order ``includes a payment order
and is an instruction of a sender to a receiving financial institution,
transmitted orally, electronically, or in writing, to pay, or cause
another financial institution or foreign financial agency to pay, a
fixed or determinable amount of money to a recipient[.]'' \38\
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\38\ 31 CFR 1010.100(eee).
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B. FinCEN's Prior Guidance on CVC, and This Proposed Rule's Further
Clarification of the Definition of ``Money'' as Applicable to the
Recordkeeping and Travel Rules
Since the Agencies issued the Recordkeeping Rule, and FinCEN issued
the Travel Rule, a number of CVCs, such as Bitcoin and Ethereum, have
been created. CVC is a medium of exchange (such as cryptocurrency) that
either has an equivalent value as currency, or acts as a substitute for
currency, but lacks legal tender status. Generally, CVCs can be
exchanged instantaneously anywhere in the world through peer-to-peer
payment systems (a distributed ledger) that allow any two parties to
transact directly with each other without the need for an intermediary
financial institution. However, in practice, many persons hold and
transmit CVC using a third-party financial institution such as a
``hosted wallet'' or an exchange.
Public use of CVCs has grown significantly in recent years.
Estimated transactions in Bitcoin alone were approximately $366 billion
dollars in 2019 and $312 billion through in 2020 through August.\39\
Furthermore, the market capitalization of Bitcoin alone was
approximately $216 billion as of August 2020.\40\
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\39\ Estimates based on data from blockchain.com, https://www.blockchain.com/charts/estimated-transaction-volume-usd.
\40\ See Coingecko, Top 100 Coins by Market Capitalization,
https://www.coingecko.com/en.
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The Treasury, including FinCEN, has closely monitored illicit
finance risks posed by CVCs. The Agencies note that malign actors have
used CVCs to facilitate international terrorist financing, weapons
proliferation, sanctions evasion, and transnational money laundering,
as well as to buy and sell controlled substances, stolen and fraudulent
identification documents and access devices, counterfeit goods, malware
and other computer hacking tools, firearms, and toxic chemicals.\41\
For example, North Korean cyber actors, such as the Lazarus Group, have
continuously engaged in efforts to steal and extort CVC as a means of
generating and laundering large amounts of revenue for the regime.\42\
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\41\ See, e.g., United States. v. Cazes, No. 1:17CR-00144,
Indictment ] 2 (E.D. Ca. filed June 1, 2017) (alleging that
``AlphaBay [was] a dark-web marketplace designed to enable users to
buy and sell illegal goods, including controlled substances, stolen
and fraudulent identification documents and access devices,
counterfeit goods, malware and other computer hacking tools,
firearms, and toxic chemicals . . . AlphaBay required its users to
transact in digital currencies, including Bitcoin, Monero, and
Ethereum.''); Dep't of the Treasury Press Release--Remarks of Sigal
Mandelker, Under Secretary for Terrorism and Financial Intelligence
(May 13, 2019), https://home.treasury.gov/news/press-releases/sm687;
Press Release, Dep't of Justice, ``Two Chinese Nationals Charged
with Laundering Over $100 Million in Cryptocurrency from Exchange
Hack'' at 1 (Mar. 2, 2020) (``North Korea continues to attack the
growing worldwide ecosystem of virtual currency as a means to bypass
the sanctions imposed on it by the United States and the United
Nations Security Council.''), https://www.justice.gov/opa/pr/two-chinese-nationals-charged-laundering-over-100-million-cryptocurrency-exchange-hack. For vulnerabilities of digital assets
to securities fraud, see SEC--Investor Alert: Ponzi Schemes Using
Virtual Currencies, SEC Pub. No. 153 (7/13), http://www.sec.gov/investor/alerts/ia_virtualcurrencies.pdf (accessed June 23, 2020);
CFTC--Investor Alert: Watch Out for Fraudulent Digital Asset and
``Crypto'' Trading websites, https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/watch_out_for_digital_fraud.html (accessed
Aug. 28, 2020).
\42\ Dep't of the Treasury Press Release--Remarks of Sigal
Mandelker, Under Secretary for Terrorism and Financial Intelligence
(May 13, 2019), https://home.treasury.gov/news/press-releases/sm687.
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To mitigate illicit finance risks posed by CVC, the FATF has
advised that countries should consider so-called virtual assets as
``property,'' ``proceeds,''
[[Page 68011]]
``funds,'' ``funds or other assets,'' or other ``corresponding value''
and, consequently, should apply relevant FATF anti-money laundering/
counter-terrorist-financing measures to virtual assets.\43\ Consistent
with the FATF guidance, in May 2019, FinCEN issued guidance advising
that CVC-based transfers effectuated by a nonbank financial institution
may fall within the Recordkeeping and Travel Rules, on the grounds that
such transfers involve the making of a ``transmittal order'' by the
sender--i.e., an instruction to pay ``a determinable amount of money to
a recipient''--a criterion for application of the rules.\44\ However,
FinCEN understands that at least one industry group has asserted that
the Recordkeeping and Travel Rules do not apply to transactions
involving CVC, in part because the group asserts that CVC is not
``money'' as defined by the rules.
---------------------------------------------------------------------------
\43\ Interpretive Note to FATF Recommendation 15 at 70.
\44\ FinCEN Guidance--Application of FinCEN's Regulations to
Certain Business Models Involving Convertible Virtual Currencies at
11-12 (May 9, 2019); see also 31 CFR 1010.100(eee) (defining
transmittal order) and 31 CFR 1010.410(e) and (f).
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In addition to CVCs, foreign governments--including Iran,
Venezuela, and Russia--have created or expressed interest in creating
digital currencies that could be used to engage in sanctions evasion.
For example, the Venezuelan government developed a state-backed digital
currency called the ``petro,'' which the government publicly indicated
was designed for the purpose of evading U.S sanctions.\45\ The
President subsequently issued Executive Order 13827, prohibiting any
U.S. persons from involvement in the petro digital currency.
---------------------------------------------------------------------------
\45\ E.O. 13827, Taking Additional Steps to Address the
Situation in Venezuela, (March 19, 2018); see also FinCEN Advisory--
Updated Advisory on Widespread Public Corruption in Venezuela at 11
(May 3, 2019), https://www.fincen.gov/sites/default/files/advisory/2019-05-03/Venezuela%20Advisory%20FINAL%20508.pdf.
---------------------------------------------------------------------------
This proposed rule would define ``money'' in 31 CFR 1010.100(ll)
and (eee) to make explicitly clear that both payment orders and
transmittal orders include any instruction by the sender to transmit
CVC or any digital asset having legal tender status to a recipient.\46\
The proposed rule would therefore supersede the UCC's definition of
``money'' for purposes of the Recordkeeping and Travel Rules. The
Agencies believe this action is appropriate to provide clarity
concerning the application of the Recordkeeping and Travel Rules.
---------------------------------------------------------------------------
\46\ The regulatory definitions of ``money'' and ``convertible
virtual currency'' that this rulemaking proposes to add to the
definitions of ``payment order'' and ``transmittal order'' at 31 CFR
1010.100(ll) and (eee) are specific to those provisions and not
intended to have any impact on, inter alia, the definition of
``currency'' in 31 CFR 1010.100(m). Furthermore, nothing in this
document shall constitute a determination that any asset that is
within the regulatory definitions of ``money'' or ``convertible
virtual currency'' that this rulemaking proposes to add to the
definitions of ``payment order'' and ``transmittal order'' is
currency for the purposes of the federal securities laws, 15 U.S.C.
78c(47), or the federal derivatives laws, 7 U.S.C. 1-26, and the
regulations promulgated thereunder.
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FinCEN is aware that the CVC industry is working on developing
systems and processes to achieve full compliance with the Travel Rule
as applied to virtual currency transactions as a result of the
distinctive characteristics of CVCs. The Agencies welcome comment on
these efforts and any costs related thereto.
IV. Section-by-Section Analysis
A. Recordkeeping Rule and Travel Rule Thresholds
This proposed rule would lower the Recordkeeping Rule and Travel
Rule thresholds set forth in 31 CFR 1020.410 and 31 CFR 1010.410(e) and
(f) for financial institutions. The thresholds would be lowered from
$3,000 to $250, but only with respect to funds transfers and
transmittals of funds that begin or end outside the United States. As
set forth in the proposed revised sections below, a funds transfer or
transmittal of funds would be considered to begin or end outside the
United States if the financial institution knows or has reason to know
that the transmittor, transmittor's financial institution, recipient,
or recipient's financial institution is located in, is ordinarily
resident in, or is organized under the laws of a jurisdiction other
than the United States or a jurisdiction within the United States.
For this purpose, a financial institution would have ``reason to
know'' that a transaction begins or ends outside the United States only
to the extent such information could be determined based on the
information the financial institution receives in the transmittal
order, collects from the transmittor to effectuate the transmittal of
funds, or otherwise collects from the transmittor or recipient to
comply with regulations implementing the BSA.
Financial institutions are already required to retain the address
of the transmittor and recipient under the Recordkeeping Rule for
transactions subject to the current threshold, and may, as a matter of
their own business practices, retain the addresses of other
participants in a funds transfer or transmittal of funds. This proposed
rule would not impose any new requirements to retain address
information, other than those resulting from a change to the applicable
thresholds.
B. Definition of ``Money''
This proposed rule also would revise the definitions of payment
order and transmittal order set forth in the BSA regulations so that
the Recordkeeping Rule and Travel Rule would explicitly apply to
domestic and cross-border transactions in CVC and digital assets having
legal tender status.
Both the Recordkeeping Rule and Travel Rule refer to a ``payment
order'' (in the case of banks) and a ``transmittal order'' (in the case
of financial institutions other than banks). These terms, in turn, use
the term ``money.'' This proposed rule would clarify the meaning of
money in 31 CFR 1010.100(ll) (payment order) and 1010.100(eee)
(transmittal order), explaining that money includes (1) a medium of
exchange currently authorized or adopted by a domestic or foreign
government, including any digital asset that has legal tender status in
any jurisdiction \47\ and (2) CVC. The proposed rule would define CVC
as a medium of exchange (such as cryptocurrency) that either has an
equivalent value as currency, or acts as a substitute for currency, but
lacks legal tender status.\48\
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\47\ ``Money'' would also include a monetary unit of account
established by an intragovernmental organization or by agreement
between two or more countries.
\48\ CVC is therefore a type of ``value that substitutes for
currency.'' See 31 CFR 1010.100(ff)(5)(i)(A).
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V. Request for Comment
The Agencies welcome comment on all aspects of this proposed rule.
The Agencies encourage all interested parties to provide their views.
With respect to the effect of lowering the threshold for the
requirement in 31 CFR 1020.410 and 31 CFR 1010.410(e) and (f) to
collect, retain, and transmit information on funds transfers and
transmittals of funds that begin or end outside the United States, the
Agencies in particular request comment on the following questions from
financial institutions and members of the public:
(1) To what extent would the proposed rule impose a burden on
financial institutions, including with respect to information
technology implementation costs? To what extent would the burden be
different for thresholds such as $0, $500, or $1,000 for funds
transfers and transmittals of funds that begin or end outside the
United States? What would be the
[[Page 68012]]
impact on the burden if the proposed threshold change were extended to
all transactions, including domestic transactions?
(2) To what extent would the burden of the proposed rule on
financial institutions and the public be mitigated were the Agencies to
select a threshold of $250 but not require nonbank financial
institutions to collect a social security number or employer
identification number (``EIN'') for non-established customers engaging
in transmittals of funds between $250 and $3,000 that begin or end
outside the United States?
(3) To what extent would the burden of the proposed rule be reduced
if the Agencies issued specific guidance about appropriate forms of
identification to be used in conjunction with identity verification,
including in regards to whether there are circumstances in which
verification may be done remotely and what documents are acceptable as
proof?
(4) To what extent would the burden of the proposed rule on
financial institutions and the public be mitigated if the Agencies were
to include in the regulation the standard described in Section IV.A for
determining when an institution would be subject to the $250 threshold
for cross-border transfers, i.e., that ``reason to know'' that a
transaction begins or ends outside the United States exists when such
information could be determined based on the information the financial
institution receives in the transmittal order, collects from the
transmittor to effectuate the transmittal of funds, or otherwise
collects from the transmittor or recipient to comply with regulations
implementing the BSA?
The Agencies request comment from law enforcement with respect to
the following related questions:
(1) To what extent would the proposed rule benefit law enforcement?
To what extent would these benefits be different for thresholds such as
$0, $500, or $1,000 for funds transfers and transmittals of funds that
begin or end outside the United States? What would be the impact on the
benefits to law enforcement if the proposed threshold change were
extended to all transactions, including domestic transactions?
(2) To what extent would the benefit of the proposed rule to law
enforcement be compromised were the Agencies to select a threshold of
$250 but not require that nonbank financial institutions collect a
social security number or EIN for non-established nonbank customers
engaging in transmittals of funds between $250 and $3,000 that begin or
end outside the United States?
With respect to the effect of clarifying the meaning of ``money''
in the definitions of ``payment order'' and ``transmittal order'' in 31
CFR 1010.100, the Agencies in particular request comment on the
following questions from law enforcement, financial institutions, and
members of the public:
(1) Describe the additional costs, if any, from complying with the
Recordkeeping Rule and Travel Rule in light of the clarification
included in the proposed rule, including with respect to information
technology costs.
(2) What mechanisms have persons that engage in CVC transactions
developed to comply with the Recordkeeping Rule and Travel Rule and
what is the impact of adopting these solutions on the CVC industry,
including on other BSA compliance efforts?
VI. Regulatory Analysis
A. Executive Orders 13563, 12866, and 13771
Executive Orders 13563 and 12866 direct agencies to assess costs
and benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, and public health and
safety effects; distributive impacts; and equity). Executive Order
13563 emphasizes the importance of quantifying both costs and benefits,
of reducing costs, of harmonizing rules, and of promoting flexibility.
This proposed rule has been designated a ``significant regulatory
action'' under section 3(f) of Executive Order 12866. Accordingly, the
proposed rule has been reviewed by the Office of Management and Budget
(``OMB'').
FinCEN believes the primary cost of complying with the proposed
rule is captured in its Paperwork Reduction Act (44 U.S.C. 3507(d))
(``PRA'') burden estimates described in detail below, which amount to
3,315,844 hours. FinCEN estimated in its recent OMB control number
renewal for SAR requirements that the average labor cost of storing
SARs and supporting documentation, weighed against the relevant labor
required, was $24 per hour.\49\ FinCEN assesses that this is a
reasonable estimate for the labor cost of the requirements imposed by
this rule. Therefore a reasonable minimum estimate for the burden of
administering the proposed rule is approximately $79.58 million
annually (3,315,844 hours multiplied by $24 per hour). However, the PRA
burden does not include certain costs, such as information technology
implementation costs solely resulting from the need to comply with this
proposed rule. FinCEN specifically requests comment regarding the costs
associated with implementing these requirements.
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\49\ 85 FR 31598, at 31604 and 31607 (May 26, 2020).
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The benefits from the proposed rule include enhanced law
enforcement ability to investigate, prosecute and disrupt the financing
of international terrorism and other priority transnational security
threats, as well as other types of transnational financial crime. The
cost of terrorist attacks can be immense. For instance, one public
report estimated the cost of terrorism globally at $33 billion in 2018,
though this cost was primarily borne outside the United States.\50\ The
cost of a major terrorist attack, such as the September 11 attacks, can
reach tens of billions of dollars.\51\ Of course, it is difficult to
quantify the contribution of a particular rule to a reduction in the
risk of a terrorist attack. However, even if the proposed rule produced
very small reductions in the probability of a major terrorist attack,
the benefits would exceed the costs. For instance, if the proposed rule
reduced by 0.26 percent the annual probability of a major terrorist
attack with an economic impact of $30 billion, the benefits would be
greater than the PRA burden costs described above.
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\50\ See Institute for Econoimcs and Peace, Global Terrorsim
Index, 2019 (Nov. 2019), http://visionofhumanity.org/app/uploads/2019/11/GTI-2019web.pdf.
\51\ For example, the New York Comptroller estimated in 2002
that the direct physical and human cost of the September 11 attacks
on New York was over $30.5 billion. See City of New York
Comptroller, One Year Later: The Fiscal Impact of 9/11 on New York
City (Sept. 4, 2002), https://comptroller.nyc.gov/wp-content/uploads/documents/impact-9-11-year-later.pdf.
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Of course, the proposed rule would not simply reduce the
probability of terrorism but also would contribute to the ability of
law enforcement to investigate a wide array of other priority
transnational threats and financial crimes, including proliferation
financing, sanctions evasion, and money laundering.
FinCEN considered several alternatives to the proposed rule. First,
FinCEN considered the possibility of modifying the proposed rule by
applying the FATF's suggested de minimis threshold of $1,000 to
transactions that begin or end outside the United States. However, this
threshold would exclude over 88 percent of the transactions in FinCEN's
[[Page 68013]]
dataset of transactions potentially linked to terrorism. Given the
intended goal of the proposed rule to increase the availability of
information to address priority transnational threats, including
terrorism, FinCEN believes a lower threshold would be appropriate.
Second, FinCEN considered the possibility of implementing the
proposed rule with a threshold of $0 for transactions beginning or
ending outside of the United States. FinCEN's terrorism-related
transaction analysis suggests that transactions potentially related to
terrorism occur at values below the $250 level. Although FinCEN
believes that a $0 threshold would lead to enhanced benefits in terms
of capturing a larger universe of transactions, requiring collection
and verification of transaction information for low-value transactions
could impose a substantial burden on small financial institutions, such
as small money services businesses. Nonetheless, FinCEN will carefully
consider comments to determine whether a $0 threshold would be
appropriate in a final rule. FinCEN will also consider in a final rule
the extent to which the burden could be minimized by providing guidance
on appropriate verification procedures for lower-value transactions.
Third, FinCEN considered applying the requirements of the proposed
rule to all transactions, including those that begin and end within the
United States. However, FinCEN's analysis identified that only
approximately 17,000 of the approximately 1.29 million transactions
included within its terrorism analysis dataset involved domestic-only
transactions. Applying the requirements to all domestic transactions
would therefore capture a relatively small number of additional
transactions while resulting in significant additional recordkeeping
burden for financial institutions. FinCEN believes that, at this time,
it would therefore be appropriate to limit the proposed rule to
transactions that begin or end outside the United States. Again, based
on comments received, FinCEN will consider in a final rule the extent
to which the benefits of extending the scope of the changes to the
thresholds of the Recordkeeping Rule and Travel Rule to include
domestic transactions would exceed the burdens.
With respect to the clarification of the definition of ``money,''
FinCEN considered the alternative of leaving the regulation as it was,
but believed doing so would perpetuate uncertainty about the
applicability of the Recordkeeping and Travel Rules to transactions
involving CVC.
FinCEN requests comment on the benefits, and any estimates of
costs, associated with the requirements of the proposed rule and the
proposed alternatives.
Executive Order 13771 requires an agency to identify at least two
existing regulations to be repealed whenever it publicly proposes for
notice and comment or otherwise promulgates a new regulation. As
described above, the proposed amendments to the Recordkeeping Rule and
Travel Rule involve a national security function. Therefore, Executive
Order 13771 does not apply.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') (5 U.S.C. 601 et seq.)
requires an agency either to provide an initial regulatory flexibility
analysis with a proposed rule or certify that the proposed rule will
not have a significant impact on a substantial number of small
entities. This proposed regulation on its face would apply to all
financial institutions. However, because of the nature of the
requirements contained therein, only banks (including credit unions),
money transmitters, and other MSBs would be impacted. Although the
Agencies believe that the proposed regulatory changes would affect a
substantial number of small entities, the Agencies also believe these
changes would be unlikely to have a significant economic impact on such
entities. The Agencies, however, recognize the limitations in readily
available data about potential costs and benefits and have prepared an
initial regulatory flexibility analysis pursuant to the RFA. The
Agencies welcome comments on all aspects of the initial regulatory
flexibility analysis. A final regulatory flexibility analysis will be
conducted after consideration of comments received during the comment
period.
i. Statement of the Need for, and Objectives of, the Proposed
Regulation
The proposed changes to the Recordkeeping Rule and Travel Rule
would reduce from $3,000 to $250 the threshold for the requirement to
collect, retain, and transmit information on funds transfers and
transmittal of funds for transactions that begin or end outside the
United States. These changes are necessary because funds transfers and
transmittals of funds related to terrorist financing, narcotics
trafficking, and other crimes are occurring well below the current
$3,000 threshold. It therefore would benefit law enforcement for this
additional information to be collected, retained, and transmitted by
financial institutions.
The clarifications regarding the meaning of ``money'' in the
definitions of ``payment order'' and ``transmittal order'' in 31 CFR
1010.100 address urgent concerns regarding illicit finance, including
the financing of international terrorism, sanctions evasion, and
weapons proliferation through CVC. In the absence of clarification,
some entities may not be aware of or may choose not to comply with the
Recordkeeping Rule and the Travel Rule when engaging in transactions
involving CVC. The Agencies are also clarifying that ``money'' includes
digital assets with legal tender status.
ii. Small Entities Affected by the Proposed Regulation
The proposed changes to the Recordkeeping Rule and Travel Rule
would apply to all financial institutions regulated under the BSA.\52\
However, as a practical matter, because the requirements of this
proposed rule are only triggered by funds transfers and transmittals of
funds, the proposal would impact mostly banks and money transmitters.
As described in the PRA section that follows, based upon current data
there are 5,306 banks, 5,236 credit unions, and 12,692 money
transmitters that would be impacted by the proposed rule changes. Based
upon current data, for the purposes of the RFA, there are at least
3,817 small Federally-regulated banks and 4,681 small credit
unions.\53\ The Agencies believe that most money transmitters are small
entities.\54\ Because the proposed rule would apply to all of these
small financial
[[Page 68014]]
institutions, the Agencies conclude that this proposed rule would apply
to a substantial number of small entities.
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\52\ 31 CFR 1010.400 notes that ``[e]ach financial institution
(as defined in 31 U.S.C. 5312(a)(2) or (c)(1)) should refer to its
chapter X part for any additional recordkeeping requirements. Unless
otherwise indicated, the recordkeeping requirements contained in
this subpart D apply to all financial institutions.'' See 31 CFR
1020.410 (banks), 31 CFR 1022.410 (dealers in foreign exchange), 31
CFR 1022.400 (MSBs), 31 CFR 1023.410 (broker dealers in securities),
31 CFR 1024.410 (mutual funds), 31 CFR 1025.410 (insurance), 31 CFR
1026.410 (futures commission merchants and introducing brokers in
commodities), 31 CFR 1027.410 (dealers in precious metals, precious
stones, or jewels), 31 CFR 1028.410 (operators of credit card
systems), 31 CFR 1029.400 (loan or finance companies), and 31 CFR
1030.400 (housing government sponsored entities).
\53\ The Small Business Administration (``SBA'') defines a
depository institution (including a credit union) as a small
business if it has assets of $600 million or less. The information
on small banks is published by the Federal Deposit Insurance
Corporation (``FDIC'') and was current as of March 31, 2020.
\54\ The SBA defines an entity engaged in ``Financial
Transactions Processing, Reserve, and Clearinghouse Activities'' to
be small if it has assets of $41.5 million or less. FinCEN assesses
that money transmitters most closely align with this SBA category of
entities.
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Although the proposed changes would apply to a substantial number
of small entities, the Agencies believe that the changes would not have
a significant economic impact on such entities for the reasons noted
below. In the first year, the Agencies expect additional expense of
time and resources to read and understand the regulations and train
staff and implement technological changes.
In 2006, the Agencies solicited public comment on the potential
benefits and burdens of reducing the threshold for the Recordkeeping
Rule and Travel Rule requirements.\55\ Based on the comments received
at that time, it appears that almost all banks, regardless of size,
maintain records of all funds transfers and transmittals of funds
regardless of the dollar amount, including those transfers/transmittals
below the $3,000 regulatory threshold. Similarly, in 2006, many money
transmitters indicated that they maintained records of transfers/
transmittals at approximately the $1,000 level. Since 2006 there have
been significant advances in technology, likely allowing small entities
to comply with regulatory recordkeeping requirements at a lower cost.
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\55\ 71 FR 35564 (June 21, 2006).
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As noted previously, in May 2019, FinCEN issued guidance advising
that CVC-based transfers effectuated by a nonbank financial institution
may fall within the Recordkeeping and Travel Rules, on the grounds that
such transfers involve the making of a ``transmittal order'' by the
sender--i.e., an instruction to pay ``a determinable amount of money to
a recipient''--a criterion for application of the rules.\56\ Therefore,
the proposed rule would codify FinCEN's existing expectation. In
addition, FATF's international standards now call for jurisdictions to
apply their rules equivalent to the Recordkeeping and Travel Rule to
virtual assets.\57\ Therefore, U.S. financial institutions engaged in
CVC transactions with an international nexus would likely need to adopt
such compliance measures regardless of the applicable U.S. rules, as
other countries have aligned or are aligning their regulatory regimes
with the FATF recommendations.
---------------------------------------------------------------------------
\56\ FinCEN Guidance--Application of FinCEN's Regulations to
Certain Business Models Involving Convertible Virtual Currencies at
11-12 (May 9, 2019); see also 31 CFR 1010.100(eee) (defining
transmittal order) and 31 CFR 1010.410(e) and (f).
\57\ Interpretive Note to FATF Recommendation 15.
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As described above, the proposed rule would also clarify the
Agencies' existing interpretation that the Recordkeeping and Travel
Rules apply to transactions involving a digital asset with legal tender
status. The Agencies do not believe that any financial institutions
currently facilitate transactions involving sovereign digital
currencies.
iii. Compliance Requirements
Compliance costs for entities that would be affected by these
regulations are generally, reporting, recordkeeping, and information
technology implementation and maintenance costs. Data are not readily
available to determine the costs specific to small entities and the
Agencies invite comments about compliance costs, especially those
affecting small entities.
These proposed changes (a) reduce the threshold for the
Recordkeeping and Travel Rule requirements to collect, retain, and
transmit information on funds transfers and transmittals of funds for
transactions that begin or end outside the United States; and (b)
clarify the application of the Recordkeeping and Travel Rule
requirements to transactions involving CVC or digital assets with legal
tender status. Banks and other financial institutions therefore would
need to collect and retain the following information on funds transfers
and transmittals of funds in amounts at or above the applicable
threshold, including with respect to transactions involving CVC or
digital assets with legal tender status: The name and address of the
originator or transmittor; the amount and date of the transaction; any
payment instructions received; and the identity of the beneficiary's
bank or recipient's financial institution. In addition, for
transactions at or above the applicable threshold, including with
respect to transactions involving CVC or digital assets with legal
tender status, an originator's bank or transmittor's financial
institution would be required to verify the identity of the person
placing a payment or transmittal order if the order is made in person
and the person placing the order is not an established customer. An
intermediary bank or intermediary financial institution, and the
beneficiary's bank or recipient's financial institution, also would be
required to retain originals or copies of payment or transmittal
orders.
For funds transfers and transmittals of funds at or above the
applicable threshold, including with respect to transactions involving
CVC or digital assets with legal tender status, the originator's bank
or transmittor's financial institution also would be required to
include information, including all information required under the
Recordkeeping Rule, in a payment or transmittal order sent by the bank
or nonbank financial institution to another bank or nonbank financial
institution in the payment chain. An intermediary bank or financial
institution would also be required to transmit information to other
banks or nonbank financial institutions in the payment chain, to the
extent the information is received by the intermediary bank or
financial institution.
iv. Duplicative, Overlapping, or Conflicting Federal Rules
The Agencies are unaware of any Federal rules that duplicate,
overlap with, or conflict with the proposed changes to the
Recordkeeping and Travel Rules, except that some financial institutions
may already collect some of the information required by the proposed
modifications as part of their existing implementation of their risk-
based AML programs under the BSA and its implementing regulations.
v. Significant Alternatives to the Proposed Regulations
The Agencies considered several alternatives to the proposed
regulatory changes. First, the Agencies considered the possibility of
modifying the proposed rule by applying the FATF's suggested de minimis
threshold of $1,000 to transactions that begin or end outside the
United States. However, this threshold would exclude an unacceptably
large percentage of transactions. It is unclear what impact this
alternative would have on small entities and it might not reduce the
impact on affected small entities in a meaningful way.
Second, the Agencies considered the possibility of implementing the
proposed rule with a threshold of $0 for transactions that begin or end
outside of the United States. Although this would expand the data
available to law enforcement, and the Agencies will carefully consider
comments to determine whether a $0 threshold would be appropriate in a
final rule, the Agencies believed that a $0 threshold might impose a
significant burden on small financial institutions and therefore are
not proposing a $0 threshold at this time.
Third, the Agencies considered exempting small banks from the lower
threshold requirement entirely. However, the Agencies believe that the
number of transactions beginning or ending outside the United States is
relatively low for most small banks, which should substantially reduce
the burden on them from the proposed change in the threshold.
[[Page 68015]]
Finally, the Agencies considered the possibility of waiving the
requirement that financial institutions obtain a social security number
or EIN for funds transfers or transmittals of funds below a certain
threshold by non-established customers. Adopting this alternative would
primarily impact MSBs, many of which are small and more likely to deal
with non-established customers. The Agencies have not adopted this
alternative at this time because it would increase the likelihood of
criminals using false identities to transmit funds. Although the
Agencies have not adopted this alternative at this time, this proposed
rule requests comment on the benefits and drawbacks of waiving the
requirement to obtain a social security number or EIN below some
threshold.
The Agencies welcome comment on the overall regulatory flexibility
analysis, especially information about compliance costs and
alternatives.
C. Unfunded Mandates Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (``Unfunded
Mandates Act''), Public Law 104-4 (March 22, 1995), requires that an
agency prepare a budgetary impact statement before promulgating a rule
that may result in expenditure by the state, local, and tribal
governments, in the aggregate, or by the private sector, of $100
million or more in any one year. If a budgetary impact statement is
required, section 202 of the Unfunded Mandates Act also requires an
agency to identify and consider a reasonable number of regulatory
alternatives before promulgating a rule. See section VI.A for a
discussion of the economic impact of this proposed rule.
D. Paperwork Reduction Act
The recordkeeping requirements contained in this proposed rule (31
CFR 1010.410 and 31 CFR 1020.410) have been submitted by FinCEN to OMB
for review in accordance with the PRA. Written comments and
recommendations for the proposed information collection can be
submitted by visiting www.reginfo.gov/public/do/PRAMain. Find this
particular document by selecting ``Currently under Review--Open for
Public Comments'' or by using the search function. Comments are welcome
and must be received by November 27, 2020. In accordance with
requirements of the PRA and its implementing regulations, 5 CFR part
1320, the following information concerning the collections of
information are presented to assist those persons wishing to comment on
the information collections.
Currently, financial institutions must collect, retain, and
transmit certain information as part of funds transfers or transmittals
of funds involving $3,000 or more (31 CFR 1020.410(a) and 31 CFR
1010.410(e) and (f)). This proposed rule would modify the thresholds in
the rules implementing the BSA requiring financial institutions to
collect and retain information on certain funds transfers and
transmittals of funds. The modifications would reduce the threshold
from the current $3,000 to $250 for funds transfers and transmittals of
funds that begin or end outside the United States. The proposed rule
likewise would modify the threshold in the rule requiring financial
institutions to transmit to other financial institutions in the payment
chain information on funds transfers and transmittals of funds from
$3,000 to $250 for funds transfers and transmittals of funds that begin
or end outside the United States. The proposed rule would also clarify
the meaning of ``money,'' making more clear the transactions in
relation to which financial institutions must comply with the
Recordkeeping Rule and the Travel Rule.
Since FinCEN has authority to implement the Recordkeeping Rule and
Travel Rule with respect to all respondents, FinCEN will be responsible
for the entire paperwork burden associated with this information
collection.
i. Threshold Changes to the Recordkeeping and Travel Rules
This proposed rule would reduce from $3,000 to $250 the threshold
for the requirement to collect, retain, and transmit information on
funds transfers and transmittals of funds that begin or end outside the
United States. This threshold change is necessary because funds
transfers and transmittals of funds related to terrorist financing,
drug trafficking, and other crimes often occur well below the current
threshold. It therefore would benefit law enforcement for this
additional financial information to be collected, retained, and
transmitted by financial institutions.
1. 31 CFR 1010.410(e)
This proposed rule would reduce the threshold for the requirement
to collect and retain information on transmittals of funds conducted by
nonbank financial institutions that begin or end outside the United
States.
Description of Recordkeepers: Financial institutions other than
banks that conduct transmittals of funds in an amount between $250 and
$3,000 that begin or end outside the United States. Although the
proposed rule on its face would apply to all nonbank financial
institutions, because of the nature of the requirements contained
therein, mostly money transmitters and other MSBs that conduct
transmittals of funds that begin or end outside the United States would
be impacted.
Estimated Number of Recordkeepers: 12,692 money transmitters. As of
June 2020, there were 12,692 MSBs registered with FinCEN that indicated
they were conducting money transmission.
Estimated Average Annual Burden Hours per Recordkeeper: The
estimated average burden hours would vary depending on the number of
transmittals of funds conducted by a nonbank financial institution
between $250 and $3,000 that begin or end outside the United States.
Under OMB control number 1506-0058, FinCEN estimates that the
recordkeeping burden per recordkeeper to maintain records of all
transmittals of funds of $3,000 or more is 16 hours a year. FinCEN
estimates that twice as many transmittals of funds conducted by nonbank
financial institutions are between $250 and $3,000, and begin or end
outside the United States, in comparison to all transmittals of funds
over $3,000. For that reason, FinCEN estimates that the proposed rule
would add an additional 32 hours of burden per recordkeeper a year.\58\
---------------------------------------------------------------------------
\58\ FinCEN estimates that the costs of the Recordkeeping Rule
scale linearly with the number of transactions, though there may
well be economies of scale that reduce the burden. This observation
applies to the other burden estimates in this section as well.
---------------------------------------------------------------------------
Estimated Total Additional Annual Burden Hours: 406,144 hours.
(12,692 money transmitters multiplied by 32 hours).
2. 31 CFR 1010.410(f)
This proposed rule would reduce the threshold for the requirement
to transmit information on funds transfers and transmittals of funds
conducted by financial institutions acting as the transmitting
financial institution or the intermediary financial institution in
funds transfers and transmittals of funds that begin or end outside the
United States.
Description of Recordkeepers: Financial institutions, including
banks and credit unions, that are the transmitting or intermediary
financial institution in a transmittal of funds in an amount between
$250 and $3,000 that begin or end outside the United States. Although
the proposed rule on its face would apply to all financial
institutions, because of the nature of the requirements contained
therein, only
[[Page 68016]]
banks, credit unions, money transmitters, and other MSBs that conduct
transmittals of funds that begin or end outside the United States would
be impacted.
Estimated Number of Recordkeepers: 23,234 financial institutions.
FinCEN estimates that there are approximately 5,306 federally regulated
banks and 5,236 federally regulated credit unions.\59\ As of June 2020,
there were 12,692 MSBs registered with FinCEN that indicated they were
conducting money transmission.
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\59\ According to the FDIC there were 5,103 FDIC-insured banks
as of March 31, 2020. According to the Board, there were 203 other
entities supervised by the Board or other Federal regulators, as of
June 16, 2020, that fall within the definition of bank. (20 Edge Act
institutions, 15 agreement corporations, and 168 foreign banking
organizations). According to the National Credit Union
Administration, there were 5,236 federally regulated credit unions
as of December 31, 2019.
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Estimated Average Annual Burden Hours per Recordkeeper: The
estimated average burden hours will vary depending on the number of
transmittals of funds conducted by banks, credit unions, and money
transmitters between $250 and $3,000 that begin or end outside the
United States. Under OMB control number 1506-0058, FinCEN estimates
that the recordkeeping burden per recordkeeper to transmit information
relating to all transmittals of funds of $3,000 or more is 12 hours a
year. FinCEN estimates that twice as many transmittals of funds
conducted by banks, credit unions, and money transmitters are between
$250 and $3,000, and begin or end outside the United States, in
comparison to all transmittals of funds over $3,000. For that reason,
FinCEN estimates that the proposed rule would add an additional 24
hours of burden per recordkeeper a year.
Estimated Total Additional Annual Burden Hours: 557,616 hours.
(23,234 financial institutions multiplied by 24 hours).
3. 31 CFR 1020.410
This proposed rule would reduce the threshold for the requirement
to collect and retain information on funds transfers conducted by a
bank acting as the transmitting, intermediary, or recipient bank when
the funds transfer begins or ends outside the United States.
Description of Recordkeepers: Banks that are the originator's bank,
the intermediary bank, or the beneficiary's bank with respect to funds
transfers in an amount between $250 and $3,000 that begin or end
outside the United States.
Estimated Number of Recordkeepers: 10,542 banks and credit unions.
FinCEN estimates that there are approximately 5,306 federally regulated
banks and 5,236 federally regulated credit unions.
Estimated Average Annual Burden Hours per Recordkeeper: The
estimated average burden hours will vary depending on the number of
funds transfers conducted by banks and credit unions between $250 and
$3,000 that begin or end outside the United States. Under OMB control
number 1506-0059, FinCEN estimates that the recordkeeping burden per
recordkeeper to maintain records of all funds transfers of $3,000 or
more is 100 hours a year. FinCEN estimates that on average twice as
many funds transfers conducted by banks and credit unions are between
$250 and $3,000 and begin or end outside the United States, in
comparison to all transmittals of funds over $3,000. For that reason,
FinCEN estimates that the proposed rule would add an additional 200
hours of burden per recordkeeper a year.
Estimated Total Additional Annual Burden Hours: 2,108,400 hours.
(10,542 banks and credit unions multiplied by 200 hours).
4. Total Burden Resulting From Threshold Changes to the Recordkeeping
and Travel Rules
Total Estimated Annual Burden Increase Because of Threshold
Reduction in the Recordkeeping and Travel Rules: 31 CFR 1010.410(e)
[406,144 hours] + 31 CFR 1010.410(f) [557,616 hours] + 31 CFR 1020.410
[2,108,400 hours] = 3,072,160 hours.
ii. Clarification of the Meaning of ``Money'' in the Recordkeeping Rule
and the Travel Rule
This proposed rule also would clarify the meaning of ``money'' as
used in the Recordkeeping Rule and the Travel Rule. Specifically, the
proposed rule would explicitly clarify that these rules apply to
transactions involving (1) CVC, or (2) any digital asset having legal
tender status. The clarification related to such transactions is
necessary because many of these transactions present heightened
terrorist financing, weapons proliferation, sanctions evasion, and
money laundering risks due to their global nature, distributed
structure, limited transparency, and speed. While these transactions
pose some of the same risks as those made in traditional financial
systems, in addition, a combination of features unique to CVC allows
individual users to move value nearly instantaneously to anywhere in
the world without ever having to pass through a regulated financial
institution, thus increasing such risks. Although the clarification is
consistent with FinCEN's interpretation of existing rules, the
estimates below analyze the costs of compliance with this clarification
against a baseline in which financial institutions are not complying
with FinCEN's interpretation of the Recordkeeping Rule and Travel Rule
for such transactions.
1. 31 CFR 1010.410(e)
This proposed rule would explicitly include within the requirement
to collect and retain information on transmittals of funds conducted by
nonbank financial institutions transactions involving (1) CVC, or (2)
any digital asset having legal tender status.
Description of Recordkeepers: Financial institutions other than
banks that conduct transmittals of funds involving CVCs or digital
assets with legal tender status. Although the proposed rule on its face
applies to all nonbank financial institutions, this provision would
only impact money transmitters and other MSBs that conduct transmittals
of funds involving CVC or digital assets with legal tender status.
Estimated Number of Recordkeepers: 530 money transmitters and other
MSBs engaged in CVC transactions, which FinCEN assesses is a reasonable
estimate of the number of MSBs engaging in transactions involving CVC.
As of June 2020, there were 12,692 MSBs registered with FinCEN that
indicated they were conducting money transmission. Of those 12,692
MSBs, FinCEN estimates that 530 engage in CVC transactions. The FinCEN
MSB registration form does not require that companies disclose whether
they engage in CVC transactions. This estimate is therefore based on
adding the number of MSBs that indicated they engage in CVC
transactions in an optional field on the MSB registration form, and the
number that did not so indicate but which, based on FinCEN's research,
FinCEN believes engage in CVC transactions. FinCEN does not believe
that any nonbank financial institutions currently facilitate
transactions involving sovereign digital currencies.
Estimated Average Annual Burden Hours per Recordkeeper: The
estimated average burden hours will vary depending on the number of
transmittals of funds conducted by a nonbank financial institution
engaged in CVC transactions. Under OMB control number 1506-0058, FinCEN
estimates that the recordkeeping burden per recordkeeper to maintain
records of traditional transmittals of funds of
[[Page 68017]]
$3,000 or more is 16 hours a year. Above, FinCEN estimated that the
additional burden from complying with the $250 threshold imposed by the
proposed rule is 32 hours, for a total burden of 48 hours. Because of
the large volume of CVC transactions, FinCEN estimates that a nonbank
financial institution engaged in CVC transactions conducts five times
as many transmittals of funds in CVC in comparison to the number of
non-CVC transactions that will be conducted by MSBs as a result of the
threshold change. For that reason, FinCEN estimates that the proposed
rule would add an additional 240 hours of burden per recordkeeper a
year (five multiplied by the new baseline of 48 hours), although this
is a conservative estimate because the recordkeeping is likely less
costly for transactions involving CVCs since it is likely to be
electronic and possible to automate.
Estimated Total Additional Annual Burden Hours: 127,200 hours. (530
money transmitters and other MSBs engaged in CVC transactions
multiplied by 240 hours).
2. 31 CFR 1010.410(f)
This proposed rule would explicitly include within the requirement
to transmit information on funds transfers and transmittals of funds
conducted by financial institutions acting as the transmittor's
financial institution or an intermediary financial institution, funds
transfers and transmittals of funds transactions involving (1) CVC, or
(2) any digital asset having legal tender status.
Description of Recordkeepers: Financial institutions, including
banks, that are the transmittor's financial institution or an
intermediary financial institution in a transmittal of funds involving
CVCs or digital assets with legal tender status. Although the proposed
rule on its face applies to all financial institutions, this provision
would only impact financial institutions that conduct transmissions of
funds involving such CVC. FinCEN does not believe that any financial
institutions currently facilitate transactions involving sovereign
digital currencies.
Estimated Number of Recordkeepers: 11,072 financial institutions.
FinCEN estimates that there are approximately 5,306 federally regulated
banks and 5,236 federally regulated credit unions. FinCEN assesses that
all of these banks and credit unions engage in transactions involving
CVCs. As assessed above, 530 MSBs engaged in CVC transactions and would
be impacted by this rule (5,306 + 5,236 + 530 = 11,702).
Estimated Average Annual Burden Hours per Recordkeeper: The
estimated average burden hours will vary depending on the number of
transmittals of funds conducted by banks, credit unions, and MSBs
involving CVCs below the applicable threshold. Under OMB control number
1506-0058, FinCEN estimates that the recordkeeping burden per
recordkeeper to transmit information relating to traditional
transmittals of funds of $3,000 or more is 12 hours a year. FinCEN
assessed above that the imposition of the $250 threshold for
transactions that begin or end outside the United States adds an
additional 24 hours of burden per recordkeeper a year, for a total of
36 hours of burden per recordkeeper.
FinCEN understands that banks, including credit unions, currently
engage in very few, if any, funds transfers involving CVCs. For that
reason, FinCEN therefore estimates that the proposed rule would add
only 1 additional hour of burden per bank recordkeeper a year.
Because of the large volume of CVC transactions, FinCEN estimates
that the 530 MSBs will process five times the volume of transmittals of
funds involving CVC in comparison to the number of non-CVC transactions
that will be conducted by MSBs as a result of the change in the
threshold. For that reason, FinCEN estimates that the proposed rule
would add an additional 180 hours of burden per nonbank recordkeeper a
year (five multiplied by the new baseline of 36 hours).
Estimated Total Additional Annual Burden Hours: 95,400 hours (530
money transmitters and other MSBs engaged in CVC transactions
multiplied by 180 hours per recordkeeper) plus 10,542 hours (10,542
banks and credit unions multiplied by 1 hour per recordkeeper), for a
total additional annual burden of 105,942 hours.
3. 31 CFR 1020.410
This proposed rule would explicitly include transactions involving
CVC or digital assets with legal tender status within the requirement
to collect and retain information on funds transfers conducted by banks
acting as the originator's bank, intermediary bank, or beneficiary's
bank.
Description of Recordkeepers: Banks that are the originator's bank,
the intermediary bank, or the beneficiary's bank with respect to funds
transfers involving CVC or digital assets with legal tender status.
Estimated Number of Recordkeepers: 10,542 banks and credit unions.
FinCEN estimates that there are approximately 5,306 federally regulated
banks and 5,236 federally regulated credit unions.
Estimated Average Annual Burden Hours per Recordkeeper: The
estimated average burden hours will vary depending on the number of
funds transfers involving CVC or digital assets with legal tender
status conducted by banks and credit unions. Under OMB control number
1506-0059, FinCEN estimates that the recordkeeping burden per
recordkeeper to maintain records of funds transfers of $3,000 or more
is 100 hours a year. FinCEN understands that banks, including credit
unions, currently engage in very few, if any, funds transfers involving
CVC. FinCEN does not believe that any banks currently facilitate
transactions involving sovereign digital currencies. For that reason,
FinCEN therefore estimates that the proposed rule would add only 1
additional hour of burden per bank or credit union recordkeeper a year.
Estimated Total Additional Annual Burden Hours: 10,542 hours.
(10,542 banks and credit unions multiplied by 1 hour).
4. Total Burden Resulting From Inclusion of CVC Transactions in the
Recordkeeping and Travel Rules
Total Estimated Annual Burden Increase Because of Inclusion of CVC
Transactions in the Recordkeeping and Travel Rules: 31 CFR 1010.410(e)
[127,200 hours] + 31 CFR 1010.410(f) [105,942 hours] + 31 CFR 1020.410
[10,542 hours] = 243,684 hours.
iii. Total Annual Burden Hours Estimate as a Result of This Proposed
Rule
3,072,160 hours (lower threshold) + 243,684 hours (CVC
transactions) = 3,315,844 hours.
The current estimated total burden hours for OMB control number
1506-0058 is 2,150,200 hours. 31 CFR 1010.410(e) and (f) are both
included in OMB control number 1506-0058. The total estimated increase
in burden hours as a result of this proposed rulemaking for this
control number is 1,196,902 hours. (533,344 hours (31 CFR 1010.410(e))
+ 663,558 hours (31 CFR 1010.410(f)).\60\ The new estimated total
burden hours for OMB control number 1506-0058 would be 3,347,102 hours.
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\60\ This estimated increase is further broken down as follows:
31 CFR 1010.410(e) (threshold changes 406,144 + CVC transactions
127,200 = 533,344), and 31 CFR 1010.410(f) (threshold changes
557,616 + CVC transactions 105,942 = 663,558).
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The current estimated total burden hours for OMB control number
1506-0059 is 2,290,000 hours. 31 CFR 1020.410 is included in OMB
control number 1506-0059. The total estimated
[[Page 68018]]
increase in burden hours as a result of this proposed rulemaking for
this control number is 2,118,942 hours. (2,108,400 threshold change +
10,542 CVC transactions). The new estimated total burden hours for OMB
control number 1506-0059 would be 4,408,942 hours.
iv. Questions for Comment
In addition to the questions listed above, FinCEN specifically
invites comment on: (a) Whether the proposed collection of information
is necessary for the proper performance of the functions of FinCEN,
including whether the information will have practical utility; (b) the
accuracy of the estimated burden associated with the proposed
collection of information; (c) how the quality, utility, and clarity of
the information to be collected may be enhanced; and (d) how the burden
of complying with the proposed collection of information may be
minimized, including through the application of automated collection
techniques or other forms of information technology.
List of Subjects in 31 CFR Parts 1010 and 1020
Administrative practice and procedure, Banks, Banking, Currency,
Foreign banking, Foreign currencies, Investigations, Penalties,
Reporting and recordkeeping requirements, Terrorism.
For the reasons set forth in the preamble, Parts 1010 and 1020 of
Chapter X of Title 31 of the Code of Federal Regulations are proposed
to be amended as follows:
PART 1010--GENERAL PROVISIONS
0
1. The authority citation for part 1010 continues to read as follows:
Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314
and 5316-5332; Title III, sec. 314, Pub. L. 107-56, 115 Stat. 307;
sec. 701, Pub. L. 114-74, 129 Stat. 599.
0
2. In Sec. 1010.100, revise paragraphs (ll) and (eee) to read as
follows:
Sec. 1010.100 General definitions.
* * * * *
(ll) Payment order. (1) An instruction of a sender to a receiving
bank, transmitted orally, electronically, or in writing, to pay, or to
cause another bank or foreign bank to pay, a fixed or determinable
amount of money to a beneficiary if:
(i) The instruction does not state a condition to payment to the
beneficiary other than time of payment;
(ii) The receiving bank is to be reimbursed by debiting an account
of, or otherwise receiving payment from, the sender; and
(iii) The instruction is transmitted by the sender directly to the
receiving bank or to an agent, funds transfer system, or communication
system for transmittal to the receiving bank.
(2) For purposes of this paragraph (ll), money means:
(i) A medium of exchange currently authorized or adopted by a
domestic or foreign government, including any digital asset that has
legal tender status in any jurisdiction. The term includes a monetary
unit of account established by an intragovernmental organization or by
agreement between two or more countries; or
(ii) A convertible virtual currency.
(3) For purposes of this paragraph (ll), convertible virtual
currency means a medium of exchange (such as cryptocurrency) that
either has an equivalent value as currency, or acts as a substitute for
currency, but lacks legal tender status.
* * * * *
(eee) Transmittal order. (1) The term transmittal order includes a
payment order and is an instruction of a sender to a receiving
financial institution, transmitted orally, electronically, or in
writing, to pay, or cause another financial institution or foreign
financial agency to pay, a fixed or determinable amount of money to a
recipient if:
(i) The instruction does not state a condition to payment to the
recipient other than time of payment;
(ii) The receiving financial institution is to be reimbursed by
debiting an account of, or otherwise receiving payment from, the
sender; and
(iii) The instruction is transmitted by the sender directly to the
receiving financial institution or to an agent or communication system
for transmittal to the receiving financial institution.
(2) For purposes of this paragraph (eee), the term ``money'' means:
(i) A medium of exchange currently authorized or adopted by a
domestic or foreign government, including any digital asset that has
legal tender status in any jurisdiction. The term includes a monetary
unit of account established by an intragovernmental organization or by
agreement between two or more countries; or
(ii) A convertible virtual currency.
(3) For purposes of this paragraph (eee), convertible virtual
currency means a medium of exchange (such as cryptocurrency) that
either has an equivalent value as currency, or acts as a substitute for
currency, but lacks legal tender status.
* * * * *
0
3. In Sec. 1010.410, revise the introductory text of paragraphs (e)
and (f) to read as follows:
Sec. 1010.410 Records to be made and retained by financial
institutions.
* * * * *
(e) Nonbank financial institutions. Each agent, agency, branch, or
office located within the United States of a financial institution
other than a bank is subject to the requirements of this paragraph (e)
with respect to a transmittal of funds in the amount of $3,000 or more.
A financial institution other than a bank also is subject to the
requirements of this paragraph (e) with respect to a transmittal of
funds in the amount of $250 or more that begins or ends outside the
United States. For purposes of this paragraph (e), a transmittal of
funds will be considered to begin or end outside the United States if a
financial institution other than a bank knows or has reason to know
that the transmittor, transmittor's financial institution, recipient,
or recipient's financial institution is located in, is ordinarily
resident in, or is organized under the laws of a jurisdiction other
than the United States or a jurisdiction within the United States.
* * * * *
(f) Any transmittor's financial institution or intermediary
financial institution located within the United States shall include in
any transmittal order for a transmittal of funds in the amount of
$3,000 or more, information as required in this paragraph (f). A
financial institution also is subject to the requirements of this
paragraph (f) with respect to a transmittal of funds in the amount of
$250 or more that begins or ends outside the United States. For
purposes of this paragraph (f), a transmittal of funds will be
considered to begin or end outside the United States if a financial
institution knows or has reason to know that the transmittor,
transmittor's financial institution, recipient, or recipient's
financial institution is located in, is ordinarily resident in, or is
organized under the laws of a jurisdiction other than the United States
or a jurisdiction within the United States.
* * * * *
PART 1020--RULES FOR BANKS
0
4. The authority citation for part 1020 continues to read as follows:
Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314
and 5316-5332; title III, sec. 314, Pub. L. 107-56, 115 Stat. 307;
sec. 701, Pub. L. 114-74, 129 Stat. 599.
0
5. In Sec. 1020.410, revise the introductory text of paragraph (a) to
read as follows:
[[Page 68019]]
Sec. 1020.410 Records to be made and retained by banks.
(a) Each agent, agency, branch, or office located within the United
States of a bank is subject the requirements of this paragraph (a) with
respect to a funds transfer in the amount of $3,000 or more. A bank
also is subject to the requirements of this paragraph (a) with respect
to a funds transfer in the amount of $250 or more that begins or ends
outside the United States. For purposes of this paragraph, a funds
transfer will be considered to begin or end outside the United States
if a bank knows or has reason to know that the originator, originator's
bank, beneficiary, or beneficiary's bank is located in, is ordinarily
resident in, or is organized under the laws of a jurisdiction other
than the United States or a jurisdiction within the United States. For
funds transfers subject to the requirements of this paragraph (a), each
agent, agency, branch, or office located within the United States of a
bank is required to retain either the original or a copy or
reproduction of each of the following:
* * * * *
In concurrence: By the Department of the Treasury.
Michael G. Mosier,
Deputy Director, Financial Crimes Enforcement Network.
By order of the Board of Governors of the Federal Reserve
System.
Ann Misback,
Secretary of the Board.
[FR Doc. 2020-23756 Filed 10-23-20; 11:15 am]
BILLING CODE 4810-02-P; 6210-01-P
