Full text of District Notices (Federal Reserve Bank of Dallas) : Final Amendments to Simplify the Process for Reporting Suspected Crimes and Suspicious Financial Transactions, Notice 96-28

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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
A N D C H IE F E X E C U T I V E O F F I C E R

MaTCh

11 1996

DALLAS, TE X A S
7 5 2 6 5 -5 9 0 6

Notice 96-28

TO:

The Chief Executive Officer of each
member bank and others concerned in
the Eleventh Federal Reserve District

SUBJECT
Final Amendments to Simplify
the Process for Reporting Suspected Crimes
and Suspicious Financial Transactions
DETAILS

The Board of Governors of the Federal Reserve System has issued a final
rule to simplify the process for reporting suspected crimes and suspicious activities by
banking organizations supervised by the Federal Reserve. The rule was developed as
part of an interagency effort to reduce reporting burdens, while at the same time
enhancing the ability of federal law enforcement authorities to investigate and prosecute
criminal offenses involving our nation’s financial institutions.
The final rule becomes effective April 1, 1996.
ATTACHMENT

A copy of the Board’s notice as it appears on pages 4338-44, Vol. 61, No. 24,
of the Federal Register dated February 5, 1996, is attached.
MORE INFORMATION

For more information, please contact Lynn Black at (214) 922-6069. For
additional copies of this Bank’s notice, please contact the Public Affairs Department at
(214) 922-5254.
Sincerely yours,

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 Intrastate (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)

4338

Federal Register / Vol. 61, No. 24 / Monday, February 5, 1996 / Rules and Regulations

FEDERAL RESERVE SYSTEM
12 CFR Parts 208, 211 and 225
[R e g u la tio n s H, K a n d Y; D ocket No. R 0885]

Membership of State Banking
Institutions in the Federal Reserve
System; International Banking
Operations; Bank Holding Companies
and Change in Control; Reports of
Suspicious Activities Under Bank
Secrecy Act

Board of Governors of the
Federal Reserve System.
ACTION: Final rule.

AGENCY:

SUMMARY: T he Board of G overnors of the

Federal Reserve System (Board) is
am ending its regulations on the
reporting of k n o w n or su spected
crim inal an d suspicious activities by the
dom estic an d foreign banking
organizations supervised by th e Board.
T his final ru le stream lines reporting
requirem ents by providing th a t su ch an
organization file a n ew S uspicious
A ctivity Report (SAR) w ith th e Board
and th e appro priate federal law
enforcem ent agencies by sendin g a SAR
to the F inancial Crim es Enforcem ent
N etw ork of the D epartm ent of the
Treasury (FinCEN) to rep ort a k n o w n or
suspected crim inal offense or a
transaction th a t it suspects involves
m oney launderin g or violates th e Bank
Secrecy Act (BSA).
EFFECTIVE DATE: A pril 1, 1996.
FOR FURTHER INFORMATION CONTACT:

Herbert A. Biern, D eputy A ssociate
D irector, D ivision of Banking
S upervision an d Regulation, (202) 4 5 2 2620, Richard A. Sm all, Special
Counsel, D ivision of Banking
S upervision an d Regulation, (202) 4 5 2 5235, or M ary Frances M onroe, S enior
A ttorney, D ivision of B anking
S upervision an d R egulation, (202) 4 5 2 5231. For the users of
T elecom m unications D evices for the
Deaf (TDD) only, contact D orothea
T hom pson, (202) 452—
3544, Board of
Governors of th e Federal Reserve
System, 20th Street an d C o nstitution
A venue, NW., W ashington, DC 20551.
SUPPLEMENTARY INFORMATION:

Background
The Board, the Office of the
Comptroller of the Currency (OCC), the

Federal Register / Vol. 61, No. 24 / Monday, February 5, 1996 / Rules and Regulations
Federal D eposit Insurance Corporation
(FDIC), an d th e Office of Thrift
S upervision (OTS) (collectively, the
Agencies) have issued for public
com m ent sub stan tially sim ilar proposals
to revise th e ir regulations on the
reporting of k n o w n or suspected
crim inal co n d u ct and suspicious
activities. T he D epartm ent of the
Treasury, throu gh FinCEN, has issued
for public com m ent a substantially
sim ilar proposal to require th e reporting
cif suspicious transactions relating to
m oney lau nderin g activities.
T he B oard’s pro p o sed regulation (60
FR 34481, July 3, 1995} noted th at the
interagency Bank F rau d W orking Group,
consisting of representatives from the
Agencies, the N ational Credit Union
A dm inistration, law enforcem ent
agencies, an d FinCEN, has been w orking
on th e d evelopm en t of a single form, the
SAR, for th e reporting of know n or
suspected federal crim inal law
violations and su sp icio u s activities. The
B oard’s pro p o sed regulation, as w ell as
those pro posed by th e OCC, FDIC, OTS
and FinCEN, attem pted to sim plify and
clarify reporting requirem ents and
reduce banking organizations’ reporting
b u rd en s by raising m andatory reporting
th resho lds for crim inal offenses and by
requiring th e filing of only one report
w ith FinCEN.
The B oard’s final rule adopts its
proposal w ith a few ad ditional changes
that have been m ade in response to the
com m ents received. The changes w ill
resu lt in b u rd en red u ctio n s even greater
th an those th a t w ere proposed. The
B oard’s, the other A gencies’, and
FinCEN’s final ru les relating to the
reporting of su sp icio u s activities are
now su bstantially identical, and they:
(1) Com bine th e cu rren t crim inal
referral rules of th e federal financial
in stitu tio n s regulatory agencies w ith the
D epartm ent of th e T reasu ry’s suspicious
activity reporting requirem ents;
(2) Create a u niform reporting form,
th e new S uspicious A ctivity Report or
SAR, for use by banking organizations
in reporting k n o w n or suspected
crim inal offenses, or suspicious
activities related to m oney laundering
an d violations of th e BSA;
(3) P rovide a system w hereby a
banking organization need only refer to
th e SAR an d its instruction s in order to
com plete an d file th e form in
conform ance w ith the A gencies’ and
FinCEN’s reportin g regulations;
(4) Require th e filing of only one form
w ith FinCEN;
(5) E lim inate th e n eed to file
supporting d o cum entation w ith a SAR;
(6) Enable a filer, through com puter
softw are th a t w ill be provided by the
Board to all of th e dom estic and foreign

banking organizations it supervises, to
prepare a SAR on a com puter and file
it by m agnetic m edia, su ch as a
com p uter disc or tape;
(7) E stablish a database th a t w ill be
accessible to federal a n d state financial
in stitu tio n s regulators an d law
enforcem ent agencies;
(8) Raise th e th resh o ld s for m andatory
reporting in tw o categories and create a
thresh o ld for th e reporting of suspicious
transactions related to m oney
laun dering an d violations of th e BSA in
order to red u ce the reporting b u rd en s on
banking organizations; and
(9) E m phasize recent changes in the
law th a t provide a safe harbor from civil
liability to bank ing organizations and
th e ir em ployees for reporting of know n
or suspected crim in al offenses or
suspicious activities, b y filing a SAR or
by reporting by other m eans, and
provide crim inal sanctions for the
u n au th o rized d isclo su re of such report
to any party involved in the reported
transaction.

Section-by-Section Analysis
U nder the B oard’s final rule, state
m em ber banks, b an k h o lding com panies
an d their non b an k subsidiaries, m ost
U.S. branches an d agencies and other
offices of foreign banks, an d Edge and
A greem ent corporation s need only
follow SAR in stru c tio n s for com pleting
an d filing the SAR to be in com pliance
w ith th e B oard’s an d FinCEN ’s reporting
requirem ents. T he follow ing section-bysection analysis correlates th e specific
SAR in stru ctio n n u m b e r w ith the
applicable section of th e B oard’s final
rule:
Section 208.20(a) (Instruction No. 1
on th e SAR) p rovides th a t a state
m em ber b ank m u st file a SAR w hen it
detects a k n ow n or su spected violation
of federal law or a suspicious activity
p ertin en t to a m oney laundering offense.
Section 208.20(b) provides pertinent
definitions.
Sections 208.20(c) (1), (2), an d (3)
(Instructions 1 a., b„ an d c. on the SAR)
in stru ct a state m em ber bank to file a
SAR w ith FinCEN in order to com ply
w ith th e req uirem ent to notify federal
law enforcem ent agencies if the bank
detects any know n or suspected federal
crim in al violation, or p attern of
violations, com m itted or attem pted
against th e bank, or involving one or
m ore transactions condu cted through
th e bank, an d th e ban k believes it w as
an actual or potential victim of a crim e,
or w as u sed to facilitate a crim e. If the
b ank has a su bstantial basis for
identifying one of its insid ers or other
institution-affiliated parties in
co nnection w ith the know n or
suspected crim e, reporting is required

4339

regardless of th e dollar am ount
involved. If th e ban k can identify a n o n ­
insider suspect, the applicable
transaction th resh o ld is $5,000. In cases
in w hich no suspect can be identified,
th e applicable transaction threshold is
$25,000. T hese sections w ere not
changed from th e prop o sed regulations
p ub lished for p u b lic com m ent in July
1995.
Section 208.20(c)(4) (Instruction 1 d.
on th e SAR) in stru cts a state m em ber
bank to file a SAR w ith FinCEN in order
to com ply w ith th e requirem ent to
notify federal law enforcem ent agencies
and the D epartm ent of th e Treasury of
transactions involving $5,000 or more in
funds or other assets w h en the bank
know s, suspects Or h as reason to suspect
that the transaction: (i) Involves m oney
laundering, (ii) is d esigned to evade any
regulations prom ulgated u n d er the Bank
Secrecy Act, or (iii) has no business or
apparent law ful p u rp o se or is not the
sort in w hich th e particu lar custom er
norm ally engages an d , after exam ining
th e available facts, th e bank know s of no
reasonable explanation for the
transaction. Section 208.20(c)(4) has
been m odified in the final rule to reflect
com m ents received on the p ro p o s a l.'
M ost notably, th e circum stances u n d er
w hich a transaction sh o u ld be reported
u n d er th is section w ere clarified, an d a
reporting th resh o ld of $5,000 w as
added.
Section 208.20(c)(4) recognizes the
em erging in tern atio n al consensus that
th e efforts to deter, substantially reduce,
and eventually eradicate m oney
laundering are greatly assisted by the
reporting of su sp icio u s transactions by
banking organizations. The
requirem ents of th is section com ply
w ith th e recom m end ation s adopted by
m ulti-country organizations in w hich
th e U nited States is an active
participant, in c lu d in g the Financial
A ction Task Force o f G— nations and
7
th e O rganization of A m erican States,
an d are consistent w ith the European
C om m unity’s directive on preventing
m oney lau nderin g th rou gh financial
institutions.
Section 208.20(d) (Instruction 2 on
the SAR) provides th a t SARs m ust be
filed w ith in 30 calen d ar days of the
initial detection of th e crim inal or
suspicious activity. A n add itio n al 30
days is p erm itted in ord er to enable a
bank to identify a su spect, b ut in no
event m ay a SAR be filed later th an 60
days after the in itia l d etection of the
reportable conduct. T h e Board and law
enforcem ent m u st be n otified in the case
of a violation requirin g im m ediate
action, such as an on-going violation.
T hese reporting requirem ents w ere not
changed from th e July 1995 proposal,

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Federal Register / Vol. 61, No. 24 / Monday, February 5, 1996 / Rules and Regulations

w ith th e ex ception of th e ad d itio n of the
requirem ent th a t the Board be n otified
about on-going offenses requiring
im m ediate notification to law
enforcem ent authorities.
Section 208.20(e) encourages a state
m em ber b ank to file a SAR w ith state
and local law enforcem ent agencies.
T his section is unchanged from th e July
1995 proposal.
Section 208.20(f) (Instruction 3 on the
SAR) provides th a t a state m em ber b ank
need not file a SAR for an attem p ted or
com m itted burglary or robbery reported
to th e appropriate law enforcem ent
agencies. In ad ditio n, a SAR n ee d n o t be
filed for m issing or counterfeit securities
th at are th e subject of a report p u rsu an t
to Rule 1 7 f -l u n d e r the S ecurities
Exchange A ct of 1934. T his section of
the final ru le w as not m odified from the
version p u b lish ed for p ublic com m ent
in July 1995.
Section 208.20(g) requires th a t a state
m em ber bank retain a copy of th e SAR
and the original or business record
equivalent of supp orting d o cum entation
for a period of five years. T he section
also requires th a t a state m em ber bank
identify an d m ain tain suppo rtin g
docu m entation in its files an d th a t the
bank m ake available such
docu m entatio n to law enforcem ent
agencies u p o n their request. T he Board
m ade three changes to th is section from
the version pu b lish ed for pub lic
com m ent in July 1995. First, th e record
retention p erio d w as sho rtened from 10
years to five years. Second, prov ision
w as m ade for th e retention of busin ess
record equivalents of original
docum ents, such as m icrofiche an d
com puter im aged record system s, in
recognition of m o d e m record retentio n
technology. T he th ird change involves
th e clarification of a state m em ber
b an k ’s obligation to provide su p porting
docu m entation u p o n request to law
enforcem ent officials. S uppo rting
d o cum en tation is deem ed filed w ith a
SAR in accordance w ith this section of
th e B oard’s final rule; as such, law
enforcem ent authorities n eed n o t m ake
th eir access requests throug h subpoena
or other legal processes.
Section 208.20(h) requires the
m anagem ent of a state m em ber b ank to
report the filing of all SARs to th e board
of directors of th e bank, or a designated
com m ittee thereof. No change w as m ade
from the July 1995 proposal.
Section 208.20(i) rem ind s a state
m em ber ban k an d its institutionaffiliated parties th a t failure to file a
SAR m ay expose them to supervisory
action. No change from the July 1995
proposal w as m ade.
Section 208.20(j) provides th a t SARs
are confidential. Requests for SARs or

the inform ation co ntained th e re in
sho uld be declined. The final ru le also
adds a requirem ent th a t a request for a
SAR or th e inform ation co n tain ed
therein sh o u ld be reported to th e Board.
W ith the exception of th e ad d e d
requirem ent th a t requests for SARs be
reported to the Board, no changes w ere
m ade to th is section from th e July 1995
proposal.
Section 208.20(k) sets forth th e safe
harbor provisions of 31 U.S.C. 5318(g).
T his new section, w h ich w as ad d e d to
th e final ru le as the result of m any
com m ents concerning th is im p o rta n t
statutory protection for banking
organizations, states that the safe harbor
provisions of the law are triggered by a
report of k n ow n or su spected crim inal
violations or su sp iciou s activities to law
enforcem ent authorities, regardless
w heth er th e report is m ade by th e filing
of a SAR in accordance w ith th e B oard’s
rules or for other reasons by different
means.
Sections 211.8, 211.24(f), an d 225.4(f)
of the B oard’s rules relating to th e
activities of foreign banking
organizations an d bank h o ld ing
com panies have not been chang ed in a
substantive m anner. O nly th e references
in the sections to “crim inal referral
form s” have been changed to reflect th e
new nam e for th e reporting form, the
SAR. The SAR filing req uirem en ts, as
w ell as th e safe harbor an d notification
prohibitio n provisions of 31 U.S.C.
5318(g), co ntinue to be applicable to all
foreign banking organizations an d b ank
holding com panies an d th e ir n o n b an k
subsidiaries supervised by th e Federal
Reserve through these provisions.

Comments Received
T he Board received letters from 44
public com m enters. C om m ents w ere
received from 15 co m m un ity banks, 13
m ultin atio nal or large regional banks,
eight trade an d in d u stry research
groups, seven Federal Reserve Banks
and one law firm.
T he large m ajority of com m enters
expressed general su p p o rt for the
B oard’s proposal. N one of th e
com m enters opposed the pro p o sed new
suspicious activity reporting rules. A
num ber of suggestions an d requ ests for
clarification w ere received. T hey are as
follows.
C rim inal Versus S u sp icio u s A ctivitie s
M any com m enters expressed
confusion over the difference betw een
th e know n or su spected crim inal
conduct th a t w o u ld be subject to the
dollar reporting thresholds (provided
such co n d u ct does n o t involve an
institution-affiliated party of th e
reporting entity) and th e su sp icio u s

activities th a t w o u ld be repo rted
regardless of dollar am ount. Section
208.20(c)(4) h as been revised to ad d a
$5,000 reportin g thresh o ld an d to clarify
that the su sp icio u s activity m ust relate
to m oney laund ering and Bank Secrecy
A ct violations. A thresh o ld for the
reporting of su sp icio us activities w as
added to red uce further the reporting
b u rd en s on banking organizations.
R eporting o f Crim es U nder State Law
A n um ber of com m enters requested
clarification of .whether activities
constituting crim es u n d er state law, b u t
not u n d e r federal law, sh o u ld be
reported on th e SAR. The Board
continu es to encourage banking
organizations to refer crim inal and
suspicious activities u n d e r both federal
and state law by filing a SAR. U n d er the
new reporting system designed by the
Board, the other Agencies, an d FinCEN,
state chartered banking organizations
should be able to fulfill th e ir state
reporting obligations by filing a SAR
w ith FinCEN.
Safe H arbor Protections; P otential
Liability U nder Federal a n d S ta te Laws
Some com m enters expressed the
concern th a t banking organizations an d
th eir institution-affiliated parties could
be liable u n d e r federal an d state law s,
such as th e Right to F inan cial Privacy
Act, for filing SARs w ith respect to
condu ct th a t is later found not to have
been crim inal. A nother concern w as
that the filing of SARs w ith state and
local law enforcem ent agencies w o u ld
subject filers to claim s u n d e r state law.
Both of these concerns are ad d re ssed by
th e scope of th e safe harbor pro tectio ns
provided in 31 U.S.C. 5318(g).
T he Board is of the o pinion th a t the
safe harbor statute is broadly defined to
in clu de th e reporting of k n o w n or
suspected crim inal offenses or
suspicious activities, by filing a SAR or
by reporting by other m eans, w ith state
and local law enforcem ent autho rities,
as w ell as w ith the A gencies an d
FinCEN.
A few com m enters requested th a t th e
Board m ake explicit the safe harbor
protections of 31 U.S.C. 5 3 1 8 (g)(2 ) an d
(3) on the SAR. They are in c lu d e d in
new Section 208.20(k) of th is ru le and
on the form.
Record R etention
Several com m enters expressed th e
view th a t the 10-year p eriod for th e
retention of records in S ection 208.20(g)
w as excessive, especially in light o f a
five-year record retention req uirem ent
for records that is contained in th e Bank
Secrecy Act. The 10-year p e rio d in the
Board’s proposed regulation w o u ld have

Federal Register / Vol. 61, No. 24 / Monday, February 5, 1996 / Rules and Regulations
continued th e B oard’s existing record
retention requirem ent for crim inal
referral forms. H owever, in recognition
of the potential b u rd en of docum ent
retention on financial institu tions, the
Board has lim ited the record retention
period to five years.
Dollar Thresholds
A few com m enters encouraged the
Board to raise th e dollar th resho lds for
know n or suspected crim inal con duct
by non-insiders, or to establish a dollar
thresh old for insiders. The Board has
considered these com m ents, b u t at th is
tim e it believes that th e thresholds m eet
and properly balance the d ual concerns
of prosecuting crim inal activity
involving banking organizations and
m inim izing th e b u rd en on banking
organizations. W ith respect to the
suggestion that th e Board adopt a d ollar
threshold for in sid er violations, it is
noted that in sid er abuse has long been
a key concern an d focus of enforcem ent
efforts at the Board. W ith the
developm ent of a new sophisticated
autom ated database, the Board and law
enforcem ent agencies w ill have the
benefit of a com prehensive and easily
accessible catalogue of know n or
suspected in sid er w rongdoing. The
Board does not w ish to lim it the
inform ation it receives regarding in sid er
wrongdoing. Som e petty crim es, for
exam ple, repetitiv e thefts of sm all
am ounts of cash by an em ployee w ho
frequently m oves betw een banking
organizations, m ay w arrant enforcem ent
action or crim inal prosecution.
One com m enter suggested an indexed
threshold, based on th e regional
differences in th e various dollar
thresholds below w h ich the federal,
state, and local prosecutors generally
decline prosecution. W hile the Board
recognizes that th ere may be regional
variations in the dollar am ount of
financial crim es generally prosecuted,
the Board’s concern is to place the
relevant inform ation in the h an d s of the
investigating an d prosecuting
authorities. T he prosecuting authorities
then may consider w hether to p u rsu e a
particular m atter. In the B oard’s view ,
th e dollar th resh o ld s pro posed and
adopted in this final rule best balance
th e interests of law enforcem ent and
banking organizations. The Board also
believes that indexed threshold s could
create more confusion th a n benefit to
banking organizations.
Com m enters also suggested the
creation of a dollar threshold for the
reporting of su sp icio u s activities
relating to m oney laundering offenses. A
$5,000 thresh o ld has been established
for reporting of such suspicious
activities.

Q uestions w ere raised regarding th e
perm issibility of filing SARs in
situations in w h ich the dollar
thresholds for kn ow n or suspected
crim inal con duct or suspicious activity
are not m et a n d th e applicability of the
safe harbor provisions of 31 U.S.C.
5318(g) to such non-m andatory filings.
It is the opinio n of th e Board th at th e
safe harbor provisions of 31 U.S.C.
5318(g) cover all reports of suspected or
know n crim inal violations an d
suspicious activities to law enforcem ent
authorities, regardless of w h eth er su ch
reports are filed pu rsu an t to the
m andatory requirem ents of th e B oard’s
regulations or are voluntary.
N otification o f On-Going V iolations a n d
o f State a nd Local Law E nforcem ent
A uthorities
Proposed Section 208.20(d) requ ired a
banking organization to notify
im m ediately th e law enforcem ent
authorities in th e event of an on-going
violation. Section 208.20(e) encourages
th e filing of a copy of the SAR w ith state
an d local law enforcem ent agencies in
appropriate cases. T his requirem ent an d
guidance w ere found by some
com m enters to be unclear as to w hen
im m ediate notification or the filing of
th e SAR w ith state and local authorities
w ould be required. The Board w ishes to
clarify that im m ediate notification is
lim ited to situations involving on-going
violations, for exam ple, w hen a check
kite or m oney laundering h as been
detected an d m ay be continuing. It is
im possible for the Board to contem plate
all of th e possible circum stances in
w hich it m ight be appropriate for a
banking organization to advise state an d
local law enforcem ent authorities.
Banking organizations shou ld use th e ir
best judgm ent regarding w h en to alert
them regarding on-going crim inal
offenses or suspiciou s activities.
S upporting D ocum entation
T he proposed requirem ents that an
in stitution m aintain “rela te d ”
docum entation an d make “su p p o rtin g ”
docum entation available to the law
enforcem ent agencies upon request w ere
criticized as inconsistent an d vague.
O ne com m enter questioned w h eth e r the
Board in ten d ed a substantive difference
in m eaning betw een “rela te d ” and
“ supporting.” As a substantive
difference is n o t in tended, the Board has
referred to “su p p o rtin g ” docum entation
in the final rule in reference both to th e
m aintenance an d production
requirem ents. The Board believes th a t
th e use of the w ord “su pportin g” is
m ore precise an d lim its th e scope of th e
inform ation w h ich m ust be retained to
that w h ich w ould be useful in proving

4341

that the crime has been committed and
by whom it has been committed. As to
the criticism that the meaning of
“related” or “supporting”
documentation is vague, it is anticipated
that banking organizations will use their
judgment in determining the
information to be retained. It is
impossible for the Board to catalogue
the precise types of information covered
by this requirement, as it necessarily
depends upon the facts of a particular
case.
Scope o f C on fidentiality R equirem ent
One com m enter correctly noted th a t
th e proposed regulation is u n clear as to
w heth er th e confidentiality requirem ent
applies only to the inform ation
contained on the SAR itself, or w h eth e r
th e requirem ent extends to the
“ su p p o rtin g ” docum entation. The Board
takes the position that only the SAR and
th e fact th a t suppo rting d ocum entation
to a SAR exists are subject to the
confidentiality requirem ents of 31
U.S.C. 5318(g). T he supporting
docum entation itself is not subject to
th e confidentiality provisions of 31
U.S.C. 5318(g). The safe harbor
provisions of 31 U.S.C. 5318(g),
how ever, apply to the SAR and
supp orting docum entation', as set forth
in Section 208.20(k).
P rovisions o f Supporting
D ocum entation to Law E nforcem ent
A u th o rities Upon R equest
M any com m enters noted that the
guidance provided in the Board’s
p roposed regulation regarding giving
supporting docum entation to law
enforcem ent agencies u p o n their request
after the filing of a SAR w as u nclear or
contrary to law. Some questioned
w heth er law enforcem ent agencies
w ould still n eed to subpoena relevant
docum ents from a banking organization.
T he B oard’s regulation requires banking
organizations filing SARs to identify,
m aintain an d treat the docum entation
supporting the report as if it w ere
actually filed w ith the SAR. T his m eans
th at subsequent requests from law
enforcem ent authorities for the
supporting docum entation relating to a
particular SAR does not require the
service of a subpoena or other legal
processes norm ally associated w ith
providing inform ation to law
enforcem ent agencies.
Civil Litigation
T he Board w as encouraged to adopt
regulations that w ould m ake SARs
undiscoverable in civil litigation in
order to avoid situations in w hich a
banking organization could be ordered
by a court to produ ce a SAR in civil

4342

Federal Register / Vol. 61, No. 24 / Monday, February 5, 1996 / Rules and Regulations

litigation an d could be confronted w ith
the prospect of having to choose
betw een being found in contem pt or
violating the B oard’s rules. In the
opinion of th e Board, 31 U.S.C. 5318(g)
precludes the disclosure of SARs. The
final rule requires a banking
organization that receives a su b p o en a or
other request for a SAR to notify th e
Board so th a t th e Board may, if
appropriate, intervene in litigation or
seek the assistance of the U.S.
D epartm ent of Justice.
M aintenance o f Originals
Proposed Section 208.20(g) req u ired
the m aintenance of supporting
docum entation in its original form. A
num ber of com m enters n oted th at
electronic storage of d o cu m ents is
becom ing the ru le rather th a n the
exception, an d th at requiring the storage
of p aper originals w o u ld im pose u n d u e
b urd en s on financial institutions.
M oreover, som e records are retain ed
only in a com p uter database. The
proposed regulation reflected the
concerns of the law enforcem ent
agencies th a t th e best evidence be
preserved. H owever, u p o n fu rth er
consideration, the Board w ish es to
clarify th a t the electronic storage of
original docum entation related to the
filing of a SAR is perm issible. In
addition, th e Board recognizes th a t a
banking organization w ill not alw ays
have custody of the originals of
docum ents and that some d o cum en ts
w ill not exist at the organization in
paper form. In those cases, preserv atio n
of the best available evidentiary
docum ents, for exam ple, co m p u ter disks
or photocopies, should be acceptable.
T his has been reflected in th e final ru le
by changing th e reference to original
docum ents to “ original d o cum ents or
business record eq uivalents.”
Investigation a nd P roof B urdens
O ne com m enter expressed the
concern that a banking organization
w ould need to establish probable cause
before reporting crim es for w h ich an
essential elem en t of the proof of the
crim e w as the intent of the actor. T he
Board does not in ten d that banking
organizations assum e the b u rd en of
proving illegal conduct; rather, banking
organizations are required to repo rt
know n or suspected crim es or
suspicious activities in accordance w ith
this final rule.
S u p p lem en ta ry or Corrective
Inform ation; Reporting o f M u ltip le
Crimes or Su spects
M aterial inform ation that
supplem ents or corrects a SAR shou ld
be filed w ith FinCEN by m eans of a

subsequent SAR. T he first page of th e
SAR provides boxes for th e rep o rter to
in dicate w h eth e r th e report is an initial,
a corrected or a su p p lem en tal report.
O ne com m enter requested gu idance
on the reporting of m u ltip le crim es or
related crim es com m itted b y m ore th a n
one individual. T he in stru ctio n s to the
SAR contem plate th at ad d itio n al
suspects m ay be reported by m eans of
a supp lem ental page. Likewise, m u ltip le
crim es com m itted by a suspect m ay be
reported by m eans of m u ltip le check­
offs on th e SAR, or if needed, by a
w ritten ad d e n d u m to the SAR. In the
event that related crim es h ave been
com m itted by m ore th an one person, a
description of th e related crim es m ay be
m ade by ad d e n d u m to th e SAR. The
Board encourages filers to m ake a
com plete rep o rt of all k n ow n or
suspected crim inal or su sp icio u s
activity. T he SAR may be su p p le m e n ted
in order to facilitate a com plete
disclosure.

disclosure of SARs to th e b o ard or a
com m ittee w o u ld im pose a serious
b u rd en because larger organizations
typically file a larger n u m b er o f crim inal
referral forms (now, SARs). W hile th e
Board acknow ledges th a t larger
institutio ns m ay have m ore SARs to
report to th e board or a com m ittee, th is
does not alter the directors’ fiduciary
obligation to m onitor, for exam ple, th e
condition of th e in stitu tio n a n d to take
action to prevent losses. T he final
regulation does n o t dictate the content
of the board or com m ittee notification,
and, in some cases, su ch as w h en
relatively m in o r n o n -in sid e r crim es are
to be reported, it m ay be com pletely
appropriate to provide only a sum m ary
listing of SARs filed. The Board expects
th e m anagem ent of banking
organizations to provide a m ore d etailed
notification to the boards or com m ittees
of SARs involving insiders or a potential
m aterial loss to th e institutions.

C alculation o f T im e Fram e fo r R eporting

C om m enters suggested th a t th e final
regulations sh o u ld som ehow facilitate
th e sharing of inform ation am ong
banking organizations in order to better
detect new frau dulent schem es. It is
anticipated th at th e T reasury
D epartm ent, through FinCEN, an d the
Agencies, w ill keep reporting entities
apprised of recent develo pm ents an d
tren d s in banking-related crim es
through periodic pronou ncem en ts,
m eetings, an d sem inars.

A num ber of com m enters req uested
that the Board clarify the ap p licatio n of
th e deadline for filing SARs. T he
B oard’s proposed regulation used the
broadest possible language to set the
tim e frames for the reporting of k n ow n
or suspected crim inal offenses an d
suspicious activities in o rder to best
guide reporting institutions. A bsolute
deadlines for th e filing of SARs are
im portant to th e investigatory an d
prosecutorial efforts of law enforcem ent
authorities. It is expected th a t banking
organizations w ill m eet th e filing
deadlines once cond uct triggering the
reporting requirem ents is identified.
F urther clarification of the tim e frames
is not needed in the B oard’s view .
Board N otification R eq uirem ents
Several com m enters expressed
general su p p o rt for th e m o dification of
th e reporting requirem ent th a t perm its
reporting of SARs to a com m ittee of th e
board. A s a m atter of clarification,
notification of a com m ittee of th e board
relieves the banking organization of the
obligation to disclose th e SARs filed to
th e entire board. It w o u ld be expected,
how ever, th a t the ap p o in ted com m ittee,
such as the au d it com m ittee, w o u ld
report to th e full board at regular
intervals w ith respect to ro u tin e m atters
in the same m ann er and to th e same
extent as other com m ittees rep ort at
board m eetings. W ith resp ect to serious
crim es or insid er m alfeasance, the
appo in ted com m ittee likely sh o u ld
consider it ap propriate to m ake m ore
im m ediate disclosure to th e full board.
Some larger banking organizations
expressed the view that p rom pt

Inform ation Sharing

Single Filing R equirem ent;
A ckn o w led g em en t o f F ilings
Some com m enters requested
clarification of the single form filing
requirem ent. T he Board reiterates that
th e filing of a SAR w ith FinCEN is the
only filing th a t is required. F ederal an d
state law enforcem ent an d bank
supervisory agencies w ill h av e access to
the database created and m a in ta in ed by
FinCEN on b ehalf of th e A gencies an d
th e D epartm ent of Treasury; th u s, a
single filing w ith FinCEN is all th a t is
required u n d e r the n ew reporting
system.
Com m enters also req uested th a t th e
final rule perm it the filing o f SARs via
telecopier. S uch filings are n o t
com patible w ith the system developed
by th e A gencies an d FinCEN. Banking
organizations can file the SAR via
m agnetic m ed ia using the com puter
softw are to be provided to all banking
organizations by the Board a n d each of
the other A gencies w ith respect to the
institution s they supervise. Larger
banking organizations th a t currently file
currency transaction reports via
m agnetic tape w ith FinCEN m ay also
file SARs by m agnetic tape.

Federal Register / Vol. 61, No. 24 / Monday, February 5, 1996 / Rules and Regulations
Regulatory Flexibility Act
T he Board certifies that th is final
regulation w ill not have a significant
financial im pact on a substantial
n um ber of sm all banks or other sm all
entities.

Secretary, Board of G overnors of the
Federal Reserve System , 20th a n d C
Streets, N.W., W ashington, D.C. 20551
and to the Office of M anagem ent and
Budget, P aperw ork R eduction Project
(7100-0212), W ashington, D.C. 20503.

Paperwork Reduction Act

L is t o f S u b je c ts

In accordance w ith Section 3506 of
the Paperw ork R eduction A ct of 1995
(44 U.S.C. Ch. 35; 5 CFR 1320 A pp end ix
A .l), the Board review ed the ru le u n d er
the authority delegated to th e Board by
the Office of M anagem ent an d Budget.
T he collection of inform ation
requirem ents in th is regulation are
found in 12 CFR 208.20, 211.8, 211.24,
and 225.4. T his inform ation is
m andatory an d is necessary to inform
appropriate law enforcem ent agencies of
know n or suspected crim inal or
suspicious activities th a t take place at or
w ere p erpetrated against financial
institutions. Inform ation collected on
this form is confidential (5 U.S.C.
552(b)(7) an d 552a(k)(2), an d 31 U.S.C.
5318(g)). The federal financial
in stitution regulatory agencies a n d the
U.S. D epartm ent of Justice m ay use and
share the inform ation. The resp o n d en ts/
recordkeepers are for-profit financial
institutions, including sm all businesses.
T he Federal Reserve m ay n o t con duct
or sponsor, and an organization is not
required to respo nd to, th is inform ation
collection unless it displays a currently
valid OMB control num ber. T he OMB
control n um ber is 7100-0212.
No com m ents specifically addressing
the h o u r bu rd en estim ate w ere received.
It is estim ated that there w ill be
12,000 responses from state m em ber
banks, bank holding com panies, Edge
and agreem ent corporations, an d U.S.
branches and agencies of foreign banks.
Both the new regulation an d revisions
m ade to the proposed regulation and
reflected in this final ru le sim plify the
subm ission of the reporting form an d
shorten th e records retention
requirem ent. H owever, th e sam e am ount
of inform ation w ill be collected u n d er
th e new rule. The b u rd en p er
resp ondent varies d epending on the
natu re of the crim inal or su spicio us
activity being reported. T he Federal
Reserve estim ates th a t the average
annual b u rd en for reporting an d
recordkeeping per response w ill rem ain
.6 hours. T hu s the Federal Reserve
estim ates the total annual h o u r bu rd en
to be 7,200 horn's. Based on an hourly
cost of $20, th e ann u al cost to the public
is estim ated to be $144,000.
Send com m ents regarding th e burden
estim ate, or any other aspect of this
collection of inform ation, inclu d in g
suggestions for reducing the burd en , to:

12 CFR Part 208
A ccounting, A griculture, Banks,
banking, C onfidential bu siness
inform ation, Crime, Currency, Federal
Reserve System , Flood insurance,
Mortgages, R eporting a n d recordkeeping
requirem ents, Securities.
12 CFR Part 211
Exports, Federal Reserve System ,
Foreign banking, H olding com panies,
Investm ents, Reporting and
recordkeeping requirem ents.
12 CFR Part 225
A dm inistrative practice an d
procedures, Banks, banking, Federal
Reserve System , H olding com panies,
Reporting and recordkeeping
requirem ents, Securities.
For the reasons set forth in the
pream ble, Parts 208, 211 an d 225 of
chapter II of title 12 of th e Code of
Federal R egulations are am en d ed as set
forth below:
PART 208— MEMBERSHIP OF STATE
BANKING INSTITUTIONS IN THE
FEDERAL RESERVE SYSTEM
(REGULATION H)
1. The authority citation for 12 CFR
Part 208 co ntinues to read as follows:
Authority: 12 U.S.C. 36, 248(a), 248(c),
321-338a, 37 ld , 461, 481-486, 601, 611,
1814, 1823(j), 1828(o), 18310,1 8 3 1 p -l, 3105,
3310, 3331-3351, and 3906-3909; 15 U.S.C.
78b, 781(b), 781(g), 781 (i), 78o-4(c)(5), 78q,
7 8 q -l and 78w; 31 U.S.C. 5318; 42 U.S.C.
4102a, 4104a, 4104b, 4106, and 4128.

2. Section 208:20 is revised to read as
follows:
§ 208.20

S u s p ic io u s Activity R e p o rts.

(a) Purpose. T his section en su res that
a state m em ber bank files a S uspicious
A ctivity Report w hen it detects a know n
or suspected violation of F ederal law , or
a suspicious transaction related to a
m oney laun dering activity or a violation
of the Bank Secrecy Act. T his section
applies to all state m em ber banks.
(b) D efinitions. For the p u rposes of
this section:
(1) FinC EN m eans the F inancial
Crimes Enforcem ent N etw ork of the
D epartm ent of the Treasury.
(2) In stitu tion -a ffilia ted p a rty m eans
any institution-affiliated party as th a t
term is defined in 12 U.S.C. 1786(r), or
1813(u) an d 1818(b) (3), (4) or (5).

4343

(3) SA R m eans a S uspicious A ctivity
Report on the form prescribed by the
Board.
(c)
SA R s required. A state m em ber
bank shall file a SAR w ith the
appropriate Federal law enforcem ent
agencies and th e D epartm ent of th e
T reasury in accordance w ith the form ’s
instruction s by sending a com pleted
SAR to FinCEN in the follow ing
circum stances:
(1) In sider abuse in vo lvin g a n y
am ount. W henever th e state m em ber
bank detects any know n or suspected
Federal crim inal violation, or p attern of
crim inal violations, com m itted or
attem pted against th e bank or involving
a transaction or transactions cond u cted
through the bank, w here the bank
believes that it w as either an actual or
potential victim of a crim inal violation,
or series of crim inal violations, or that
the bank w as used to facilitate a
crim inal transaction, and th e bank has
a substantial basis for identifying one of
its directors, officers, em ployees, agents
or other institution-affiliated parties as
having com m itted or aided in the
com m ission of a crim inal act regardless
of the am oun t involved in the violation.
(2) V iolations aggregating $5,000 or
m ore where a su sp ect can be id en tified.
W henever the state m em ber bank
detects any know n or suspected Federal
crim inal violation, or pattern of crim inal
violations, com m itted or attem pted
against the bank or involving a
transaction or transactions co nd u cted
through the bank an d involving or
aggregating $5,000 or m ore in fu nds or
other assets, w here the bank believes
th at it w as eith er an actual or po tential
victim of a crim inal violation, or series
of crim inal violations, or th at the bank
w as used to facilitate a crim inal
transaction, and the bank has a
substantial basis for id e n tify in g ^
possible suspect or group of suspects. If
it is determ ined prior to filing th is
report th at the identified suspect or
group of suspects has used an “alias,”
th en inform ation regarding th e true
identity of th e suspect or group of
suspects, as w ell as alias identifiers,
such as d riv ers’ license or social
security num bers, addresses and
telephone num bers, m u st be reported.
(3) Violations aggregating $25,000 or
m ore regardless o f a p o ten tia l suspect.
W henever the state m em ber bank
detects any know n or su spected Federal
crim inal violation, or pattern of crim inal
violations, com m itted or attem pted
against the bank or involving a
transaction or transactions co n d u cted
through the bank and involving or
aggregating $25,000 or m ore in fu nds or
other assets, w here the bank believes
that it w as either an actual or potential

4344

Federal Register / Vol. 61, No. 24 / Monday, February 5, 1996 / Rules and Regulations

victim of a crim inal violation, or series
than 60 calendar days after the date of
initial detection of a reportable
of crim inal violations, or th at the bank
w as u sed to facilitate a crim inal
transaction. In situations involving
transaction, even thoug h there is no
violations requiring immediate
attention, such as when a reportable
substantial basis for identifying a
violation is on-going, the financial
possible suspect or group of suspects.
(4) Transactions aggregating $5,000 or institution shall immediately notify, by
telephone, an appropriate law
m ore that involve p o te n tia l m o n ey
enforcement authority and the Board in
laundering or violations o f th e B a n k
Secrecy A ct. A ny transaction (w hich for addition to filing a timely SAR.
(e) Reports to state ana local
purposes of th is paragraph (c)(4) m eans
authorities. State m em ber banks are
a deposit, w ithdraw al, transfer betw een
encouraged to file a copy of th e SAR
accounts, exchange of currency, loan,
w ith state an d local law enforcem ent
extension of credit, pu rch ase or sale of
any stock, bond, certificate of deposit, or agencies w here appropriate.
(f) E xceptions. (1) A state m em ber
other m onetary in stru m en t or
bank need not file a SAR for a robbery
investm ent security, or an y other
or burglary com m itted or attem p ted th at
paym ent, transfer, or delivery by,
is reported to app ropriate law
through, or to a financial institu tio n , by
enforcem ent authorities.
w hatever m eans effected) co n d u cted or
(2) A state m em ber bank n eed n o t file
attem pted by, at or through the state
a SAR for lost, m issing, counterfeit, or
m em ber b ank an d involving or
stolen securities if it files a report
aggregating $5,000 or m ore in funds or
pu rsu an t to the reporting requirem ents
other assets, if the ban k know s,
of 1 7 C F R 2 4 0 .1 7 f-l.
suspects, or has reason to susp ect that:
(g) R etention o f records. A state
(i) The transaction involves funds
m em ber bank shall m ain tain a copy of
derived from illegal activities or is
any SAR filed and th e original or
intended or cond u cted in order to h id e
business record equivalent of any
or disguise funds or assets derived from
supporting docum entatio n for a p eriod
illegal activities (including, w ith o u t
of five years from the date of th e filing
lim itation, the ow nership, nature,
of the SAR. S upporting do cum entatio n
source, location, or control of such
shall be identified an d m a in ta in ed by
funds or assets) as p art of a plan to
th e bank as such, an d shall be deem ed
violate or evade any law or regulation or to have been filed w ith th e SAR. A state
to avoid any transaction reporting
m em ber bank m ust m ake all su pp orting
requirem ent u n d e r federal law;
docum entation available to appro priate
(ii) The transaction is designed to
law enforcem ent agencies u p o n request.
evade any regulations prom ulgated
(h) N otification to board o f directors.
u n d er the Bank Secrecy Act; or
T he m anagem ent of a state m em ber
(iii) T he transaction has no busin ess
bank shall prom ptly notify its bo ard of
or apparent law ful p urp ose or is n o t the
directors, or a com m ittee thereof, of any
sort in w hich the p articu lar custom er
report filed p u rsu an t to this section.
w ou ld norm ally be expected to engage,
(i) Com pliance. Failure to file a SAR
an d the bank know s of no reasonable
in accordance w ith th is section an d the
explanation for th e transaction after
instructions m ay subject th e state
exam ining the available facts, in c lu d in g
m em ber bank, its directors, officers,
th e background an d possible p urp ose of em ployees, agents, or other in stitu tio nth e transaction.
affiliated parties to supervisory action.
(d) Tim e fo r reporting. A state m em ber (j) C o nfidentiality o f SA R s. SARs are
bank is required to file a SAR no later
confidential. A ny state m em ber bank
th a n 30 calendar days after the date of
subpoenaed or otherw ise requested to
initial detection of facts th a t may
disclose a SAR or th e inform ation
constitute a basis for filing a SAR. If no
contained in a SAR shall d eclin e to
suspect w as identified on th e date of
produce th e SAR or to provide any
detection of th e in cid en t requiring the
inform ation that w o u ld disclose th a t a
filing, a state m em ber bank m ay delay
SAR has been prepared or filed citing
filing a SAR for an ad ditio nal 30
th is section, applicable law (e.g., 31
calendar days to identify a suspect. In
U.S.C. 5318(g)), or both, an d notify the
no case shall reporting be delayed m ore
Board.

(k) Safe harbor. T he safe harbor
provisions of 31 U.S.C. 5318(g), w h ich
exem pts any state m em ber ban k that
m akes a disclosure of any possible
v iolation of law or regulation from
liability u n d e r any law or regulation of
th e U nited States, or any con stitution,
law or regulation of any state or political
subdivision, covers all reports of
suspected or k n ow n crim inal violations
a n d suspicious activities to law
enforcem ent an d financial institu tio n
supervisory au tho rities, including
supp orting docum entation, regardless of
w h eth e r such reports are filed p u rsu an t
to th is section or are filed on a voluntary
basis.
PART 211— INTERNATIONAL
BANKING OPERATIONS
(REGULATION K)
1. The au tho rity citation for 12 CFR
P art 211 co ntin ues to read as follows:
Authority: 12 U.S.C. 221 etseq ., 1818,
1841 et seq., 3101 et seq., 3901 et seq.
§ § 2 1 1 .8 a n d 211.24

[A m ended]

2. In §§ 211.8 an d 211.24(f), rem ove
th e w ords “crim inal referral form ” and
add, in th e ir place, the w ords
“ suspicious activity rep o rt”
PART 225— BANK HOLDING
COMPANIES AND CHANGE IN BANK
CONTROL (REGULATION Y)
1. The auth ority citation for 12 CFR
P art 225 continues to read as follows:
Authority: 12 U.S.C. 1817(j)(13), 1818,
1831i, 1831p-l, 1843(c)(8), 1844(b), 1972(1),
3106, 3108, 3310, 3331-3351, 3907, and
3909.
§ 2 2 5 .4

[A m ended]

2. In § 225.4, the heading of paragraph
(f) is revised to read “S usp icio u s
A c tiv ity R eport.”.
3. In § 225.4(f), rem ove the w ords
“ crim inal referral form ” and add, in
th e ir place, the w o rds “suspicious
activity rep o rt” .
By order of the Board of Governors o f the
Federal Reserve System, January 30,1996.
William W. Wiles,
Secretary o f the Board.
[FR Doc. 96-2271 Filed 2 -2-96 8:45 am]
BILLING CODE 6210-01-P