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FEDERAL RESERVE BANK
OF NEW YORK
/T e r e d o
9 9 /7
September 5, 1985
A m endm ent to T reasury Regulations Im plem enting the
C urrency and Foreign Transactions R eporting Act
To All State Member Banks and Edge Corporations
in the Second Federal Reserve District:
Printed on the following pages is the text of an amendment to Treasury Regu
lations implementing the Currency and Foreign Transactions Reporting Act. The
amendment establishes a new regulatory procedure through which the Secretary of
the Treasury may prescribe reporting rules, in the form of regulations, requiring
certain financial institutions in the United States to submit reports of financial
transactions with “foreign financial agencies,” as defined in 31 CFR 103.11, as
amended, on page 5 of this circular.
The amendment, which has been reprinted from the Federal Register, does
not require any financial institution to file a new report at this time. Notice of any
future reporting requirements will be published in the Federal Register, or the af
fected financial institutions will be notified directly.
Questions regarding this matter may be directed to our Bank Examinations
Department (Tel. No. 212-791-7946).
E.
G e r a l d C o r r ig a n ,
President.
31 OP&? Part 103
Amendments t® Bmpiementing
Regulations Currency and Foreign
Transactions ^©porting Act
AdiMCY: Office of the Secretary,
Treasury.
ACTl@Ms Final rule.
This final rule establishes a
regulatory procedure through w hich the
Secretary of the Treasury, exercising the
authority conferred by 31 U.S.C. 5314,
can require financial institutions in the
United States to submit reports of
financial transactions with foreign
financial agencies. When the Secretary
issues a reporting requirement in the
nature of a regulation in accordance
with the procedure established by this
final rule, such regulation will specify
the transactions, die time period, and
the classes of financial institutions
required to report.
EFFECTIVE ©ATI: August 7,1985.
SUMMARY:
FURTHER INFORMATION ©DWTACT:
Robert J. Stankey, Jr., Office of the
Assistant Secretary (Enforcement &
Operations), (202/566-8022).
SUPPLEMENTARY INFORMATION:
Background
The Currency and Foreign
Transactions Reporting Act (Pub. L. 91508, Title II (Oct. 26,1970), as amended,
codified in 31 U.S.C. 5311 et seq.),
empowers the Secretary of the Treasury
to require financial institutions to keep
certain records and file certain reports.
The reporting requirements are
described in general terms in the statute.
Title 31, United States Code, section
5313, authorizes the Secretary to require
reports of domestic transactions
involving monetary instruments or
domestic currency. Section 5314
authorizes the Secretary to require
reporting of accounts in, and
transactions with, foreign financial
agencies. Section 5316 authorizes the
Secretary to require reports of exports
or imports of monetary instruments
exceeding $10,000.
Since implementing regulations first
became effective in 1972, reporting of
currency transactions under section 5313
has been limited to filing by domestic
financial institutions of reports on
transactions exceeding $10,000. (See 31
CFR 103.22.) The only reporting
requirement imposed under section 5314
has been the disclosure of foreign
financial accounts. (See 31 CFR 103.24.)
The reports of exported or imported
monetary instruments exceeding $10,000
required by section 5316 call for the
disclosure of limited information only.
(See 31 CFR 103.23.)
In the thirteen years since these
reporting requirements were drafted,
there has been a significant growth in
international business dealings,
including an enormous increase in the
amounts of narcotics and other
controlled substances smuggled into the
United States, and the international
transportation of funds that are profits
of these illegal activities and serve to
finance them. The government’s
responsibility to enforce the laws
respecting these and other illegal
activities demands the development of
new regulatory techniques to provide
necessary information without unduly
burdening commerce.
The Secretary is authorized by 31
U.S.C. 5314 to require reports not only of
accounts in, but also of transactions
with, foreign financial agencies. Section
5314(a) authorizes the Secretary, to the
extent he deems necessary, to require
such reports to contain:
(1) The identity and address of
participants in a transaction or
relationship;
(2) The legal capacity in which a
participant is acting;
(3) The identity of real parties in
interest; and
(4) a description of the transaction.
In requiring such reports, however, the
Secretary is directed to consider the
need “to avoid impeding or controlling
the export or import of monetary
instruments and . . . to avoid
burdening unreasonably a person
making a transaction with a foreign
financial agency.” To this end,
subsection 5314(b) authorizes the
Secretary to prescribe:
(1) A reasonable classification of
persons subject to or exempt from a
requirement under this section or a
regulation under this section;
(2) A foreign country to which a
requirement or a regulation under this
section applies if the Secretary decides
applying the requirement or regulation
to all foreign countries is unnecessary or
undesirable;
{3) The magnitude o f transactions
subject to a requirement or a regulation
under this section;
(4) The kind of transactions subject to
or exempt from a requirement or a
regulation under this section; and
(5) Other matters the Secretary
considers necessary to carry out this
section or a regulation under this
section.
In recognition of limits on the
government’s current ability to monitor
adequately international transactions
with foreign financial agencies, the
Treasury Department published a notice
of proposed rulemaking in the Federal
Register on April 5,1984, proposing a
regulatory amendment to 31 CFR Part
103. (See 4® F R 13548.) That amendment,
as adopted by this final rule, establishes
a new procedure, authorized by 31
U.S.C. 5314, under which the Secretary
may issue reporting requirements, in the
nature of regulations, requiring limited
classes of financial institutions to report
limited numbers of financial
transactions. Notice of such reporting
requirements will either be published in
the Federal Register or will be served
personally upon members of the affected
classes of financial institutions to
provide actual notice in compliance with
5 U.S.C. 553.
This final rule does not require any
financial institution to file any new
report. Rather, it describes (ij the
procedure for issuing future regulations
containing reporting requirements, (ii)
the classes of financial institutions that
may be subject to future reporting
requirements; (iii) the universe of
information that may b e subject to
reporting requirements; (iv) the reasons
for the new reporting requirements; (v)
the. authority for the issuance of the
reporting requirements; and (vi) the
limitations upon the scope and use of
such future reporting requirements.
Future reporting requirements will be
issued in response to money-flow and
banking patterns of criminal, tax or
regulatory interest to the Treasury.
Notice and Comment
The Treasury Department's notice of
proposed rulemaking invited comments
on the proposed rule for 60 days ending
on June 4,1984. The Department
received 27 comments in response to
that notice from 17 individual financial
institutions, seven banking industry
associations, one credit card company,
the Department of Justice and the
President’s Commission on Organized
Crime. Although several of these
comments were received a few days
after the do se of the comment period,
the Department has considered all of the
comments received in formulating the
final rule. The following summarizes the
comments and sets forth Treasury’s
responses.
Cost of Compliance
Comment: Many commenters feared
that complying with future reporting
requirements would create onerous
PRINTED IN NEW YORK, FROM FEDERAL REGISTER, VOL. 50, NO. 130
administrative costs either because new
recordkeeping would have to be
implemented or existing recordkeeping
would have to be revised. This was
especially felt to be the case as to
reporting information not routinely
recorded during the normal course of
business. In addition, retrieving discrete
information from a voluminous ongoing
flow of data was argued to be
prohibitively expensive.
Response: In light of these comments,
Treasury has reviewed its anticipated
information reporting needs and has
decided to delete the authority under
{proposed) 31CFR 103.25(b) requiring
the reporting of credit card diarges.
Otherwise, Treasury finds that there is a
need to retain the authority to require
reporting of the other types of
information listed in new § 103.25(b).
Treasury has a statutory obligation in
fashioning reporting requirements to
consider the need to “avoid burdening
unreasonably” international financial
transactions. The Department notes that
this final rale lists the universe of
information £or which reports may be
required; however, ordinarily, only a
few items from that list will be included
in any given reporting requirement, as
necessary. Moreover, Treasury
anticipates that most of the information
it selects already will be recorded by the
financial institution during its normal
course o f business. Further, Treasury
stands ready to work with the banking
community to develop convenient and
mutually acceptable reporting methods.
Because each reporting requirement
will be tailored to specific information
needs, no standard reporting form has
been prepared. When the Secretary
promulgates a reporting requirement, he
may prescribe the m anner in which the
required information is to be reported.
However, in response to comments
received concerning the possible
administrative burden on reporting
institutions, Treasury has added a
provision to the final rule that
authorizes the Secretary to permit a
designated institution to report in a
different manner from that prescribed if
the institution demonstrates to the
Secretary that the form of the required
report is unnecessarily burdensome on
the institution; that a report in a
different form will provide Treasury
with all the information the Secretary
deems necessary; and that submission
of the information will not unduly hinder
the effective administration of this Part.
As a result, the administrative cost of
respondmg to any given future reporting
requirement promulgated pursuant to
this new procedure will not be
unreasonably burdensome.
Treasury notes that the Department
must take those steps it deems
necessary to combat the rapidly
increasing use of international financial
transactions to further money
laundering, narcotics trafficking and tax
evasion. Any administrative burden that
may be imposed on the banking
community by reports required under
this new procedure is reasonable in light
of these important concerns.
Comment• Comments also were
received to the effect that compliance
costs would put those financial
institutions required to report at a
competitive disadvantage in relation to
financial institutions not required to
report.
Response: Since Treasury anticipates
that its reporting requirements will be
for discrete information over very
limited periods of time, the resulting
administrative cost will not be so great
as to place responding institutions at a
competitive disadvantage.
Over time, most financial institutions
engaging in substantial international
financial transactions probably will be
subjected to one or more reporting
requirements. Consequently, the costs of
compliance will be shared by like
competitors. To the extent that financial
institutions are not subjected to
reporting requirements it probably will
be due to their lack of international
activity. Such institutions will not
receive a competitive advantage
because they do not compete for
international financial business.
Comment: Several commenters sought
reimbursement from the government for
the administrative costs of complying
with future reporting requirements.
Response: The Currency and Foreign
Transactions Reporting Act does not
authorize the Treasury Department to
expend public funds for such
reimbursement. However, as indicated
above, Treasury stands ready to work
with the banking community to develop
convenient and mutually acceptable
reporting methods to mitigate the
administrative burden on financial
institutions.
Privacy Considerations
Comment: Many commenters felt that
the future reporting requirements would
violate the Rjght to Financial Privacy
Act of 1978 (12 U.S.C. 3401 e t seg.) by
requiring the disclosure of individually
identifiable account information.
3
Response: The Right to Financial
Privacy Act was enacted to prohibit
government access for law enforcement
purposes to information held by
financial institutions without, in most
cases, first providing notice and an
opportunity to contest such access to the
individual whose records were being
sought. However, this prohibition does
not apply to the disclosure of
information “required to be reported in
accordance with any Federal statute or
rule promulgated thereunder.” 12 U.S.C.
3413(d). Information reported pursuant
to this new procedure clearly fits within
the section 3413(d) exception.
Nevertheless, Treasury believes it
would be inappropriate to use the
reporting provisions of 31 U.S.Q, 5314 to
gather information to further ongoing
law enforcement investigations of
particular individuals. In such cases,
those information collection procedures
addressed by the Right to Financial
Privacy Act would continue to apply.
Treasury believes those procedures
better balance the rights due individuals
involved in disputes with the
government and the legitimate demands
of society that its laws be enforced.
Information collected under the new
procedure should help uncover
suspicious financial patterns that then
can be investigated by way of
established information collection
procedures. In recognition of this
purpose, file new procedure explicitly
prohibits the imposition of future
reporting requirements intended to
further ongoing investigations of
individuals.
Comment: Several commenters were
concerned that future reporting
requirements might violate the privacy
laws of foreign countries, and that
compliance would put financial
institutions in violation of those laws, or
drive financial business overseas to
shield transactions from disclosure to
the United States government.
Response: This regulatory procedure
authorizes the reporting of information
about transactions between domestic
financial institutions and foreign
financial agencies. It is not concerned
with wholly foreign transactions. To the
extent foreign financial agencies wish to
conduct transactions that either
originate or culminate within the United
States, they are obliged to conduct such
transactions in compliance with United
States law. Treasury finds the nominal
burden placed on such transactions to
be justified by the strong national
interests served by this regulatory
procedure.
Treasury disagrees that the threat of
future reporting requirements will have
a deleterious effect on the ability of
domestic financial institutions to
compete with foreign financial agencies
in the international financial market. No
empirical substantiation for this concern
has been offered. To the contrary,
Treasury has perceived no impact on
foreign business activity in the United
States due to existing recordkeeping and
reporting requirements, and sees no
reason to believe that foreign
businessmen or bankers will now
forsake the American m arket out of fear
of these limited reporting requirements.
Comment: Several com m ents
suggested that internal bank custom er
privacy guidelines w ould require the
disclosure of any future reporting
requirem ents to affected custom ers
w hich, in turn, w ould frustrate the
purpose of the reporting requirem ents.
Response: Treasury anticipates that
future reporting requirements will have
limited durations commencing
immediately upon receipt by the
affected financial institutions.
Consequently, even if internal privacy
guidelines require notice to customers of
these reporting requirements, such
notice normally should not reach die
customers until well into the short
periods covered by the reporting
requirements. The reporting periods
should be short enough to minimize the
likelihood that customers will find it
worthwhile to disrupt their patterns of
financial activity in order to avoid such
reporting requirements.
Rulemaking Sufficiency
Comment: Several commenters argued
that the proposed rule did not afford a
meaningful opportuntity to comment
upon the scope of future reporting
requirements.
Response: Treasury believes that this
rulemaking process provided ample
opportunity to comment on the scope of
future reporting requirements. The
notice of proposed rulemaking clearly
specified the universe of information
proposed to be subject to future
reporting requirements, and that
universe has not been altered in this
final rule except to delete certain
categories of information, as discussed
above.
In order to comply with the statutory
mandate to avoid needless or
unreasonable burdens on reporting
institutions, the proposed rule
contemplated that future information
requests would be limited to discrete
subsets of the universe of persons and
transactions potentially subject to
reporting. Narrowing future reporting
requirements as contemplated by this
rulemaking is consistent with the
statutory mandate, but precludes a
precise description of reporting
requirements, because their nature
depends on future events and conditions
prevailing at the time of issuance.
Merely because a given reporting
requirement may be imposed on a
narrower class of persons or
transactions than could otherwise be
subject to the reporting requirement
does not make the notice of proposed
rulemaking impermissibly vague. As a
resu lt Treasury believes that this
rulemaking process has given sufficient
description of those persons and
transactions that are subject to future
reporting requirements.
Moreover, the adequacy of the notice
of proposed rulemaking to air relevant
issues concerning the scope of future
reporting requirements is confirmed by
the ample comments that were received
in response to the notice of proposed
rulemaking. Concerns were raised with
regard to the breadth of information
potentially subject to a reporting
requirement, anticipated operational
difficulties, costs, privacy issues,
burdens on commerce, etc. Treasury
discerns n© difference between the
concerns that have been expressed over
the instant regulatory procedure and the
concerns that might arise over future
reporting requirements. They are one
and the same, and have been
adequately addressed through this
rulemaking process.
Treasury believes the notice of
proposed rulemaking adequately
informed interested parties of the
addition of a reporting requirement for
financial institutions, identified the
universe of persons and transactions
that could be subject to future reporting
requirements, explained the reasons
why reports were necessary to carry out
the purposes of the Act, identififed the
authority for the requirement, and
advised affected persons that a report
would not be required until actual notice
was given by Treasury. As a result,
Treasury believes that this rulemaking
process has given sufficient notice of the
subjects and issues involved in this rule
as well as any future regulations that
might be issued as described in this rule.
an annual effect on the economy of $100
million or more. It will not result in a
major increase in costs or prices for
consumers, individual industries,
Federal, State, or local government
agencies, or geographic regions. It will
not have any significant adverse effects
on competition, employment,
investment, productivity, innovation, or
on the ability of United States-based
enterprises to compete with foreignbased enterprises in domestic or foreign
markets. Consequently, a Regulatory
Impact Analysis has not been prepared.
Regulatory Flexibility Analysis
It is hereby certified that this final rule
will not have a significant economic
impact on a substantial number of small
entities. Almost all of the information
that could be the subject of a reporting
requirement is already being m aintained
in response to existing recordkeeping
regulations. Given the focused nature of
the contemplated reports, the clerical
costs incurred by the specified group of
financial institutions in filing the reports
is anticipated to be relatively small.
Consequently, a Regulatory Flexibility
Analysis has not been prepared.
Paperwork Reduction Act
The collection of information
requirements contained in the final Rule
have been approved by the Office of
Management and Budget pursuant to the
requirements of the Paperwork
Reduction Act (44 U.S.C. 3504(h)).
(OMB Control No. 1505-0063)
Drafting Information
The principal author of this document
was Terry Thiele, Office of the General
Counsel, Department of the Treasury.
However, personnel from other Treasury
offices participated in its development.
lis t of Subjects In 31 CFR Part 183
Banks and banking, Currency,
Electronic funds transfers, Foreign
banking, investigations, Law
enforcement, Drug traffic control,
Reporting requirements, Taxes.
Amendment
[PAFTT 1103— [AMENDED]
Regulatory Impact Analysis
31 CFR Part 103 is amended as set
forth below:
1. The authority citation for Part 103 is
revised to read.as follows:
This regulatory amendment is not a
major rale for purposes of Executive
Order 22291. It is not anticipated to have
Authority: Sec. 21 of the Federal Deposit
Insurance Act, Pub. L. 91-508, Title I, 84 Stat.
1114,1116 (12 U.S.C. 1829b, 1951-1959); and
the Currency and Foreign Transactions
4
respondent financial institutionincluding the following information.
(1) Name of maker or drawer;
2. A new definition is ad d ed to 31 CFR
(ii)
Name of drawee or drawee
103.11 after the definition of Foreign
financial institution;
bank to read as follows:
(iii) Name of payee;
(iv) Date and amount of instrument;
§103.11 [Amended]
(v) Names of all endorsers.
* * * * *
(2) Wire or electronic fund transfers
Foreign bank. * * *
received by respondent financial
Foreign financial agency. A person
institution from a foreign financial
acting outside the United States for a
agency or sent by respondent financial
person (except for a country, a monetary institution to a foreign financial
or financial authority acting as a
agency—including the following
monetary or financial authority, or an
information:
international financial institution of
(i) Name of foreign financial agency;
which the United States Government is
(ii) Name, address and account
a member) as a financial institution,
number of account being credited or
bailee, depository trustee, or agent, or
debited by respondent financial
acting in a similar way related to
institution;
money, credit, securities, gold, or a
(iii) Name of respondent financial
transaction in money, credit, securities,
institution;
or gold.
(iv) Date and amount of each transfer;
*
*
*
*
*
(v) Any other information normally
3. Sections 103.25 and 103.20 are
appearing on respondent financial
renumbered as sections 103.26 and
institution’s internal wire or electronic
103.27 and, a new § 103.25 is added to
fund transfer entries.
read as follows:
(3) Loans made by respondent
financial institution to or through a
§ 1@3.2® KS©p@r£s Of#©asi]<gtS©ri!8 with
foreign financial agency—including the
foreign financial agjsneSaa,
following information:
(a) Promulgation o f reporting
(i) Name of borrower;
requirements. The Secretary, when he
(ii) Name of person acting for
deems appropriate, may promulgate
borrower;
regulations requiring specified financial
(iii) Date and amount of loan;
institutions to file reports of certain
(iv) Terms of repayment;
transactions with designated foreign
(v) Name of guarantor;
financial agencies. If any such
(vi) Rate of interest;
regulation is issued as a final rule
(vii) Method of disbursing proceeds;
without notice and opportunity for
(viii) Collateral for loan.
public comment, then a finding of good
(4) Commercial paper received or
cause for dispensing with notice and
shipped by the respondent financial
comment in accordance with 5 U.S.C.
institution—including the following
553(b) will be included in the regulation.
If any such regulation is not published in information:
(i) Name of maker;
the Federal Register, then any financial
(ii) Date and amount of paper;
institution subject to the regulation will
be named and personally served or
(iii) Due date;
otherwise given actual notice in
(iv) Certificate number;
accordance with 5 U.S.C. 553(b).
(v) Amount of transaction.
(b) Information subject to reporting
(5) Stocks received or shipped by
requirements. A regulation promulgated
respondent financial institution—
pursuant to paragraph (a) of this section
including the following information:
shall designate one or more of the
(i) Name of corporation;
following categories of information to be
(ii) Type of stock;
reported:
(iii) Certificate number;
(1) Checks or drafts, including
(iv) Number of shares;
traveler’s checks, received by
(v) Date of certificate;
respondent financial institution for
(vi) Name of registered holder;
collection or credit to the account of a
(vii) Amount of transaction.
foreign financial agency, sent by
(0) Bonds received or shipped by
respondent financial institution to a
respondent financial institution—
foreign country for collection or
including the following information:
payment, drawn by respondent financial
(1) Name of issuer;
institution on a foreign financial agency,
(ii) Bond number;
drawn by a foreign financial agency on
(iii) Type of bond series;
Reporting Act, Pub. L. 91-508, Title II, 84 Stat.
1118, as amended (31 U.S.C. 5311-5322).
5
(iv) Date issued;
(v) Due date;
(vi) Rate of interest;
(vii) Amount of transaction;
(viii) Name of registered holder.
(7)
Certificates of deposit received or
shipped by respondent financial
institution—including the following
information:
(i) Name and address of issuer;
(ii) Date issued;
(iii) Dollar amount;
(iv) Name of registered holder;
(v) Due date;
(vi) Rate of interest;
(vii) Certificate number;
(viii) Name and address of issuing
agent.
(c) Scope o f reports. In issuing
regulations as provided in paragraph (a)
of this section, the Secretary will
prescribe:
(1) A reasonable classification of
financial institutions subjectio or
exempt from a reporting requirement;
(2) A foreign country to which a
reporting requirement applies if the
Secretary decides that applying the
requirement to all foreign countries is
unnecessary or undesirable;
(3) The magnitude of transactions
subject to a reporting requirement; and
(4) The kind of transaction subject to
or exempt from a reporting requirement.
(d) Form o f reports. Regulations
issued pursuant to paragraph (a) of this
section may prescribe the manner in
which the information is to be reported.
However, the Secretary may authorize a
designated financial institution to report
in a different manner if the institution
demonstrates to the Secretary that the
form of the required report is
unnecessarily burdensome on the
institution as prescribed; that a report in
a different form will provide all the
information the Secretary deems
necessary; and that submission of the
information in a different manner will
not unduly hinder the effective
administration of this part.
(e) Limitations. (1) In issuing
regulations under paragraph (a) of this
section, the Secretary shall consider the
need to avoid impeding or controlling
the export or import of monetary
instruments and the need to avoid
burdening unreasonably a person
making a transaction with a foreign
financial agency.
|2) The Secretary shall not issue a
regulation under paragraph (a) of this
section for the purpose of obtaining
individually identifiable account
information concerning a customer, as
defined by the Right to Financial Privacy
Act (12 U.S.C. 3401 e ts e q .), where that
customer is already the subject of an
ongoing investigation for possible
violation of the Currency and Foreign
Transactions Reporting Act, or is known
by the Secretary to be the subject of an
investigation for possible violation of
any other Federal law.
(3)
The Secretary shall.not issue a
regulation pursuant to paragraph (a) of
this section requiring a financial
institution to report transactions that
were both completed and reflected in its
records prior to the date it received
6
notice of the reporting requirement.
(Approved by the Office of Management and
Budget under Control No. 1505-0063)
Dated: May 31,1985.
Jofaa M. W s lte , Jr.,
Assistant Secretary (Enforcement and
Operations),
[FR Doc. 85-16007 Filed 7-5-85: 8:45 am]
@FedFRASER