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15 October 2010
On September 27 2010 the Financial Crimes Enforcement Network (FinCEN) announced proposed new regulations to be published in the Federal Register which would require some financial institutions in the United States to submit reports to FinCEN on certain cross-border electronic transmittal of funds.(1)
The regulations would: (i) implement Section 6302 of the Intelligence Reform Terrorism Prevention Act 2004 by requiring certain banks and money transmitters periodically to report to FinCEN transmittal orders for cross-border electronic fund transmittals; and (ii) require all banks to file annually with FinCEN a list of account numbers and US taxpayer identification numbers of account holders which transmitted or received a cross-border electronic fund transmittal.
FinCEN is accepting comments on the proposed regulations until 90 days after publication in the Federal Register.
Current regulations require banks and non-bank financial institutions to collect, retain and make available (but not affirmatively report) certain information regarding fund transfers of $3,000 or more. However, in 2004 Congress enacted the act in response to the findings of the 9/11 Commission. Section 6302 of the act directs the secretary of the treasury to study the feasibility of:
"requiring such financial institutions as the Secretary determines to be appropriate to report to the Financial Crimes Enforcement Network certain cross-border electronic transmittals of funds, if the Secretary determines that reporting of such transmittals is reasonably necessary to conduct the efforts of the Secretary against money laundering and terrorist financing."
As a result, FinCEN conducted a feasibility study and, in its 2007 report, "Feasibility of a Cross-Border Electronic Funds Transfer Reporting System under the Bank Secrecy Act", concluded that such a reporting system would be feasible.(2) A follow-up study was conducted with input from the financial services industry and law enforcement to determine the potential benefits to the public and the implications for affected parties.(3) These proposed regulations have been developed based on the information and data in the report and the follow-up study.
Cross-border electronic transmittal of funds reports
The proposed regulations implement Section 6302 of the act by requiring banks and money transmitters in the United States that act as either a first-in or last-out financial institution in processing cross-border electronic funds transmittals to submit periodic reports to FinCEN. A 'cross-border electronic funds transmittal' is generally defined as a transmittal of funds where the transmittal order or advice is: (i) communicated through electronic means; and (ii) sent or received by either a first-in or last-out financial institution. A 'first-in' financial institution, for the purposes of incoming cross-border electronic funds transmittals, is the first bank or money transmitter in the United States that receives a transmittal order or advice directly from a foreign financial institution. A 'last-out' financial institution is the last bank or money transmitter in the United States that sends the transmittal order or advice directly to a foreign financial institution.
Banks that act as a first-in or last-out financial institution for cross-border electronic funds transmittals must report transactions of any amount. Money transmitters that act as a first-in or last-out financial institution for cross-border electronic funds transmittals must report transactions of $1,000 or more, or the equivalent in any other currency. The information required in the reports would generally be the same as that required to be collected and retained for fund transfers under current regulations, unless the secretary of the treasury and the Federal Reserve Board determine otherwise.
Reporting institutions can submit customised reports that comply with a format prescribed by FinCEN or submit copies of standard, pre-existing formats (eg, Clearing House Interbank Payments System or Society for Worldwide Interbank Financial Telecommunication messages) that contain the required data elements. Institutions that submit a low volume of reports may use an interactive online form provided by FinCEN. Since a significant portion of transmittal orders are processed by third-party carriers (eg, the Society for Worldwide Interbank Financial Telecommunication), reporting institutions can arrange for the third party to report cross-border electronic funds transmittal information directly to FinCEN at the express direction of the institution. However, liability for compliance with the reporting requirement ultimately rests with the reporting institution.
The reports must be submitted no later than five business days after issuing or receiving the transmittal notice or advice and completed electronically, unless an institution can demonstrate that this method would be unnecessarily burdensome.
Taxpayer identification number reports
In addition to the proposed reports, the regulations would require all banks that maintain accounts that are credited or debited to originate or receive a cross-border electronic funds transmittal, to file annual reports with FinCEN providing the account numbers and the US taxpayer identification numbers of the account holder. Taxpayer identification number reports must be filed no later than April 15 of the year following the transaction date of the transmittal.
Some cross-border electronic funds transmittals are proposed to be exempt from the reporting requirements: (i) those processed between a bank;(4) and (ii) those where the transmittal order and advice are communicated solely through systems proprietary to a bank (eg, transfers between branches of the same bank).
Comment period and final regulations
FinCEN is seeking public comment on the proposed regulations, which must be received on or before 90 days after publication in the Federal Register. FinCEN does not anticipate issuing final regulations until after January 1 2011, since it must first have adequate technological systems in place to accept the required reports. The compliance date of the final regulations will also likely be delayed to allow affected institutions time to adjust their systems for compliance.
(1) The proposed regulations are available at http://www.fincen.gov/statutes_regs/frn/pdf/Treasury_FinCEN_Proposed%20Rule_Cross%20Border%20Electronic%20Transmittal%20of%20Funds.pdf.
(2) The Feasibility Report is available at http://www.fincen.gov/news_room/rp/files/CBFTFS_Complete.pdf.
(3) The follow-up study titled "Implications and Benefits of Cross-Border Funds Transmittal Reporting" is available at http://www.fincen.gov/news_room/rp/rulings/pdf/ImplicationsAndBenefitsOfCBFTR.pdf.
(4) As defined in 31 Code of Federal Regulations 103.11(c). (The definition of 'bank' under the Bank Secrecy Act regulations includes commercial banks and trust companies, private banks, savings and loan associations, credit unions, and US agencies and branches of foreign banks).
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