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Board of Directors of the Federal Reserve System (“Board”); Financial Crimes Enforcement Network (“FinCEN”), Department of Treasury. The Currency and Foreign Transactions Reporting Act of 1970, amended by the Uniting and Strengthening America by Providing Approach Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT Act”) (Pub. The Secretary of Finance (“Secretary”) has delegated authority to the Director of FinCEN (“Director”) to implement, manage and enforce compliance with the BSA and related regulations. Under this authority, FinCEN may require financial institutions to keep records and file reports that the Director determines are of great use in criminal, tax, or regulatory investigations or proceedings, or in intelligence or counterintelligence matters to protect against international terrorism..
The Annunzio-Wylie Anti-Money Laundering Act 1992 (pub). Annunzio-Wylie authorizes the Secretary and Board to jointly enact regulations that require insured depositary institutions to keep records of domestic money transfers. The secretary, but not the board, is authorized to set record keeping requirements for domestic transfers made by financial institutions that are not banks. In addition, Annunzio-Wylie authorizes the Secretary and Board, after consultation with state banking regulators, to jointly enact regulations that require insured depositary institutions and certain financial institutions that are not banks to keep records of international money transfers and money transfers.
Annunzio-Wylie requires the Secretary and the Board that, when issuing regulations for international money transfers and money transfers, they consider the usefulness of records in criminal, tax, or regulatory investigations or proceedings and the impact of the regulations on the cost and efficiency of the payment system. FinCEN can continuously monitor the benefits of such regulations through its extensive cooperation with federal and state law enforcement and financial regulators, and the Board can assess the costs based on its regulatory oversight of financial institutions under its jurisdiction.. This proposed rule would change both the recording rule and the travel rule.. The recording rule is codified in 31 CFR 1020.410 (a) and 1010.410 (e) and the travel rule is codified in 31 CFR 1010.410 (f).
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accordance with its regulatory authority in the BSA as amended by Annunzio-Wylie, the Board proposes the amendments to § 1010.100 (ll) and § 1020.410 (a) only to the extent that the amendments apply to money transfers by insured depositary institutions, and proposes the amendments to § 1010.100 (eee) and § 1010.410 (e) only to the extent that the Changes would apply to international money transfers by financial institutions that are not insured depositary institutions. Since Board Rule S generally refers to parts of the recording rule adopted jointly by the Board and FinCEN, it is not necessary to propose appropriate changes to Rule S.. Under the travel rule, the sender’s bank or the submitter’s financial institution is required to include information, including any information required under the recording rule, in a payment or transmission 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 transfer this information to other banks or non-bank financial institutions in the payment chain, provided the information is received by the intermediary bank or financial institution..
More recently, MLARS has told agencies that it continues to support lowering the threshold, particularly if it would bring the recording rule and travel rule into line with international standards (which are described in more detail below).. MLARS stated that his view applies both to money transfers by banks and to money transfers by financial institutions that are not banks.. The DEA, IRS, and USSS have also called for lowering the reporting threshold for the purposes of the recording rule and travel rule. Since the agencies published the recording rule and the enactment of the travel rule by FinCEN, a number of CVCs have been created, such as Bitcoin and Ethereum.
CVC is a medium of exchange (such as a cryptocurrency) that either has an equivalent value like a currency or serves as a substitute for a currency but has no legal tender status. In general, CVCs can be instantly exchanged anywhere in the world via peer-to-peer payment systems (a distributed ledger), which allow any two parties to trade directly with each other without the need for an intermediary financial institution. In practice, however, many people store and transfer CVC via an external financial institution, such as a “hosted wallet” or stock exchange.. FinCEN is aware that the CVC industry is working to develop systems and processes to achieve full compliance with the travel rules that apply to virtual currency transactions, which is due to the unique characteristics of CVCs..
The agencies welcome comments on these efforts and the associated costs.. To this end, a financial institution would only have “reason to know that a transaction starts or ends outside the United States if that information could be determined based on the information that the financial institution receives in the order of transmission, collects from the transmitter to process the transfer of funds, or otherwise withdraws from the sender or receiver to comply with regulations implementing the BSA. Financial institutions are already required to keep the sender and recipient’s addresses in accordance with the recording rule for transactions subject to the current threshold and can keep the addresses of other participants in a money transfer or money transfer as part of their own business practices.. This proposed rule would not provide for any new requirements for the retention of address information, except those resulting from a change in existing thresholds.
This proposed rule would also revise the definitions of payment order and transmission order set out in the BSA rules so that the recording rule and travel rule would explicitly apply to domestic and cross-border transactions involving CVC and digital assets that have legal tender status.. Agencies welcome comments on any aspect of this proposed rule.. The agencies invite all interested parties to express their views.. To what extent would the burden associated with the proposed regime be reduced if agencies issued specific guidance on appropriate forms of identification to be used in connection with identity verification, including whether there are circumstances under which remote verification can be carried out and which documents are allowed as evidence? Where appropriate, describe the additional costs associated with compliance with the recording rule and the travel rule, in light of the clarifications included in the proposed rule, including information technology costs.
What mechanisms have individuals involved in CVC transactions developed to comply with the recording rules and the travel rule, and what impact does the introduction of these solutions have on the CVC industry, including other measures to comply with BSA regulations? Of course, the proposed rule would not only reduce the likelihood of terrorism, but would also help enable law enforcement agencies to investigate a wide range of other priority transnational threats and financial crimes, including proliferation financing, sanctions evasion, and money laundering.. In terms of clarifying the definition of “money,” FinCEN considered the alternative of leaving the regulation as is, but felt that this would maintain uncertainty about the applicability of accounting and travel rules to transactions with CVC.. FinCEN is seeking comments on the benefits and any cost estimates associated with the requirements of the proposed rule and proposed alternatives. Executive Order 13771 requires an authority to identify at least two existing regulations that should be repealed when it publicly proposes a notice and statement or otherwise promulgates a new regulation..
As described above, the proposed changes to the recording rule and the travel rule concern a national security function.. Therefore, Executive Order 13771 does not apply.. The clarifications on the meaning of “money” in the definitions of “payment order” and “delivery order” in 31 CFR 1010.100 address urgent concerns associated with illegal financing, including financing of international terrorism, evasion of sanctions, and the spread of weapons by CVC. In the absence of clarification, some companies may not be aware of the recording rule and travel rule or choose not to comply with them when transacting with CVC.
The agencies also clarify that “money includes digital assets with legal tender status.”. Although the proposed changes would apply to a significant number of small companies, the agencies believe that the changes would not have a significant economic impact on these companies for the reasons listed below. In the first year, agencies expect to spend additional time and resources reading and understanding regulations, training staff, and implementing technological changes.. As described above, the proposed rule would also clarify the agencies’ existing interpretation that recording and travel rules apply to transactions that use digital assets as legal tender..
The agencies do not believe that financial institutions currently allow transactions with sovereign digital currencies.. For money transfers and transfers of funds that meet or exceed the applicable threshold, including transactions involving CVC or digital assets with legal tender status, the sender’s bank or the transmitter’s financial institution would also be required to include information, including any information required under the recording rule, in a payment or transmission order issued by the bank or a non-bank financial institution to another bank or a non-bank financial institution is sent in the payment chain.. An intermediary bank or financial institution would also be required to transfer information to other banks or financial institutions that are not banks in the payment chain, provided the information is received by the intermediary bank or financial institution.. Authorities are not aware of any federal regulations that duplicate, overlap with, or contradict the proposed changes to recording and travel rules, except that some financial institutions may already be collecting some of the information required for the proposed changes as part of their existing implementation of their risk-based AML programs in accordance with the BSA and its implementing regulations..
Third, agencies considered completely exempting small banks from the requirement for a lower threshold.. 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 significantly reduce the burden on them of the proposed threshold change. Home Printed Page 68015 Finally, agencies considered the option of waiving the requirement that financial institutions require a Social Security number or EIN for money transfers or transfers of funds below a certain threshold by non-established clients. Introducing this alternative would primarily impact SMEs, many of which are small and more likely to do business with unestablished customers. The agencies have not currently chosen this alternative as it would make criminals more likely to use false identities to transfer funds..
Although agencies have not yet adopted this alternative yet, this proposed rule asks for comments on the advantages and disadvantages of waiving the requirement to obtain a social security number or EIN if a person falls below a certain threshold. The agencies welcome comments on the overall analysis of regulatory flexibility, in particular information on compliance costs and alternatives.. As FinCEN has the authority to implement the recording rule and travel rule with respect to all respondents, FinCEN will be responsible for all paperwork associated with this collection of information. This proposed rule would lower the threshold for the requirement to collect and store information about money transfers from financial institutions that are not banks and that start or end outside the United States..
This proposed rule would lower the threshold for the requirement to provide information on money transfers and transfers of funds carried out by financial institutions acting as a transmitting financial institution or as an intermediary financial institution for money transfers and money transfers that start or end outside the United States.. This proposed rule would lower the threshold for collecting and storing information about money transfers made by a bank as transmitting, intermediary, or receiving bank when the transfer of funds begins or ends outside the United States. This proposed rule would also clarify what “money” means as used in the accounting rule and travel rule.. In particular, the proposed rule would explicitly clarify that these rules apply to transactions involving (CVC) or (all) digital assets that have legal tender status..
The clarification surrounding such transactions is necessary as many of these transactions involve increased risks in terms of terrorist financing, weapons proliferation, sanctions evasion and money laundering due to their global nature, distributed structure, limited transparency, and speed. While these transactions carry some of the same risks as in traditional financial systems, a combination of features unique to CVC allows individual users to transfer value almost instantly anywhere in the world without ever having to go through a regulated financial institution, increasing those risks.. Although the clarification is consistent with FinCEN’s interpretation of existing rules, the following estimates analyze the costs of complying with this clarification using a baseline scenario in which financial institutions do not comply with FinCEN’s interpretation of the recording rule and travel rule for such transactions.. This proposed rule would explicitly include the requirement to collect and store information on money transfers from financial institutions that are not banks, transactions involving (CVC) or (all) digital assets that have legal tender status from financial institutions that are not banks..
This proposed rule would explicitly include an obligation to provide information on money transfers and transfers of funds, including money transfers and transfers of money transactions involving (CVC) or (all digital assets with legal tender status) from financial institutions acting as the sender’s financial institution or as an intermediary financial institution.. FinCEN believes that banks, including credit unions, currently make very few, if any, money transfers involving CVCs. For this reason, FinCEN estimates that the proposed rule would only mean an additional hour of charge per bank accountant per year.. Because of the large volume of CVC transactions, FinCEN estimates that the 530 MSB will process five times the volume of money transfers involving CVC, compared to the number of non-CVC transactions carried out by MSB as a result of the change in the threshold..
For this reason, FinCEN estimates that the proposed rule would result in an additional charge of 180 hours per non-bank record holder per year (five multiplied by the new baseline of 36 hours).. This proposed rule would specifically include transactions involving CVC or digital assets with legal tender status under the requirement to collect and store information on money transfers carried out by banks that act as the sender’s bank, intermediary bank, or beneficiary’s bank.. I) The instruction contains no condition for payment to the beneficiary other than the date of payment; ii) The receiving bank must receive the refund by debiting 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, money transfer system, or communication system for forwarding to the receiving bank. I) A medium of exchange currently approved or recognized by a domestic or foreign government, including all digital assets that have legal tender status in any jurisdiction.
The term covers a monetary unit of account established by an intergovernmental organization or through an agreement between two or more countries, or II) A convertible virtual currency. For the purposes of this paragraph (ll), convertible virtual currency means a medium of exchange (such as a cryptocurrency) that is either equivalent in value to a currency or serves as a substitute for a currency but has no legal tender status. I) The instruction contains no condition for payment to the recipient other than the date of payment; ii) The receiving financial institution must obtain the refund by debiting 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 transfer to the receiving financial institution. For the purposes of this paragraph (eee), convertible virtual currency means a medium of exchange (such as a cryptocurrency) that is either equivalent in value to currency or serves as a substitute for a currency but has no legal tender status.
Deputy Director of the Financial Crimes Network. By order of the Board of Governors of the Federal Reserve System. These markup elements allow the user to see how the document follows the document creation guide that agencies use to create their documents.. The term “bank transfer” also has a narrower technical meaning and refers to a specific method of transferring money, which usually involves an electronic transfer of funds from one bank or credit union account to another..
In general, bank transfers made by consumers from the United States to other countries are considered transfers under federal law.
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