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Federal R eserve Bank OF DALLAS ROBERT D. M c T E E R , J R . P R E S ID E N T AND C H IE F E X E C U T IV E DALLAS, TEXAS 75222 O F F IC E R January 21, 1993 Notice 93-07 TO: The Chief Executive Officer of each member bank and others concerned in the Eleventh Federal Reserve District SUBJECT Policy Statement to Address the Use of Large-value Funds Transfers for Money Laundering DETAILS The Federal the problem of using statement encourages complete information including those sent Reserve Board has issued a policy statement to address large-value funds transfers for money laundering. The financial institutions to include, where possible, on the sender and recipient of large payment orders, through Fedwire, CHIPS, and SWIFT. The B o a r d ’s action came after adoption of the statement by the Federal Financial Institutions Examination Council. ATTACHMENT A copy of the B o a r d ’s policy statement is attached. MORE INFORMATION For more information, please contact Gayle Teague at (214) 922-6151. For additional copies of this B a n k ’s notice, please contact the Public Affairs Department at (214) 922-5254. Sincerely yours, J9. • For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastale (800) 592-1631, Interstate (800) 351-1012; Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) POLICY STATEMENT The Board of Governors of the Federal Reserve System (Board), upon the recommendation of the Federal Financial Institutions Examination Council, is issuing this policy statement to address the problem of the use of large-value funds transfers for money laundering. The law enforcement community both within the United States and abroad has a growing interest in money laundering through funds transfer systems. The Board supports law enforcement's efforts to identify and prosecute money laundering activities involving large-value funds transfer systems. The Board encourages financial institutions to support law enforcement efforts in this area by including, to the extent practical, complete originator and beneficiary information when sending payment orders, including payment orders sent through Fedwire, CHIPS, and SWIFT. BACKGROUND The President of the United States has joined with the leaders of other nations to sponsor a Financial Action Task Force (FATF)—/. The FATF is primarily developing international guidelines to facilitate the identification and prosecution of money laundering activities. Historically, law enforcement efforts to curtail money laundering activities have focused on -/ The FATF was formed as a direct initiative by the Heads of State of Governments of seven major industrialized countries and the President of the European Communities during an economic summit in July 1989. The total membership of FATF now stands at 28 countries, with the primary representation being law enforcement. - 2 - the identification and documentation of currency-based transactions; however, recent investigations have focused on the use of funds transfer systems. The FATF has developed recommendations to provide more complete information about the parties to a funds transfer. This information is useful for law enforcement investigations. FATF RECOMMENDATIONS The FATF recommends that the text of every payment order include: the name, address, and account number of the person who initiated the first payment order in the funds transfer (the originator); the beneficiary's name and address, and when possible, account number should also be provided in the message text. The FATF also recommends that the identity of the first bank that accepts a payment order from a nonbank should be noted and retained through all subseguent processing of the funds transfer. (The FATF recognizes that the originator and beneficiary information specified in its recommendations may not be provided in transfers originated in some countries because of provisions contained in local laws.) In this context, SWIFT and CHIPS have recently issued statements encouraging their participants to include the information specified by the FATF recommendations in funds transfers processed through those systems. The Bank of England has also encouraged financial institutions in the United Kingdom - 3 - to provide complete originator and beneficiary information when using national, international, and proprietary message transfer systems. To the extent practicable, the Board encourages all domestic banking offices to implement the FATF recommendations when sending a payment order over any funds transfer system, including Fedwire, CHIPS, SWIFT, and any proprietary networks. With respect to Fedwire, the Board recognizes that the Fedwire format limits the amount of information that can be included in a Fedwire funds transfer. While the Federal Reserve System is exploring changes to the Fedwire format, those changes would require time to implement. In the interim, the Board encourages originating banks to ensure that the nonbank originator, beneficiary, and any instructing bank information is included in each Fedwire funds transfer to the extent possible given the limited size of the Fedwire format and the need to give priority to information necessary for payment processing. Information concerning the originator and beneficiary may be recorded in the payment order text. For example, if an originator requests depository institution A to transfer funds over Fedwire to a beneficiary of depository institution B, and either the originator or beneficiary information is lengthy and exceeds the space fields specified for originator or beneficiary information, to the extent practicable, the remaining information may be included in the message text in optional fields that may - 4 - otherwise not be used for that particular payment order. When a payment order is received by a bank through one funds transfer system and then executed through another funds transfer system; to the extent practical, information on the originator of the payment order received by the intermediary bank should be included in the payment order sent by the intermediary bank. For example, when a SWIFT message is received by an intermediary bank and subsequently sent to the beneficiary's bank via Fedwire, the originator information on the SWIFT message should be carried forward as space permits to the Fedwire message. If the originator information is lengthy and exceeds the space available in the specified fields, to the extent practical, the remaining information may be included in the message text in optional fields that otherwise will not be used for that particular payment order.