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FIL-24-2002 Attachment

[Federal Register: March 4, 2002 (Volume 67, Number 42)]

[Rules and Regulations]

[Page 9873-9878]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr04mr02-12]


 

[[Page 9873]]


 

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Part III



 

Department of the Treasury



 

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31 CFR Part 103


 

Financial Crimes Enforcement Network; Special Information Sharing

Procedures To Deter Money Laundering and Terrorist Activity; Final Rule

and Proposed Rule


 

[[Page 9874]]


 

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DEPARTMENT OF THE TREASURY


 

31 CFR Part 103


 

RIN 1506-AA26


 

 

Financial Crimes Enforcement Network; Special Information Sharing

Procedures to Deter Money Laundering and Terrorist Activity


 

AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.


 

ACTION: Interim rule.


 

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SUMMARY: FinCEN, a bureau of the Treasury Department, is issuing

regulations to implement the provision in the Uniting and Strengthening

America by Providing Appropriate Tools Required to Intercept and

Obstruct Terrorism (USA PATRIOT) Act of 2001 that encourages

information sharing among financial institutions for purposes of

identifying and reporting activities that may involve terrorist acts or

money laundering activities.


 

DATES: This rule is effective March 4, 2002.


 

FOR FURTHER INFORMATION CONTACT: Judith R. Starr, Chief Counsel

(FinCEN), (703) 905-3590; William Langford, Senior Counsel for

Financial Crimes, Office of the Assistant General Counsel

(Enforcement), (202) 622-1932; or Gary W. Sutton, Senior Banking

Counsel, Office of the Assistant General Counsel (Banking & Finance),

(202) 622-1976 (not toll-free numbers). Financial institutions with

questions about their coverage or compliance obligations under this

rule should contact their appropriate federal regulator.


 

SUPPLEMENTARY INFORMATION:


 

I. Background


 

On October 26, 2001, the President signed into law the USA PATRIOT

Act of 2001 (Public Law 107-56) (the Act). Of the Act's many goals, the

facilitation of information sharing among governmental entities and

financial institutions for the purpose of combating terrorism and money

laundering is of paramount importance. Section 314 of the Act furthers

this goal by providing for the sharing of information between the

government and financial institutions, and among financial institutions

themselves. As with many other provisions of the Act, Congress has

charged Treasury with developing regulations to implement these

information-sharing provisions.

Section 314(b) of the Act permits financial institutions, upon

providing notice to Treasury, to share information with one another in

order to better identify and report to the federal government

concerning activities that may involve money laundering or terrorist

activities. This interim rule implements section 314(b). The Congress

authorized financial institutions to share information to assist in the

identification of suspected terrorists and money launderers only after

providing notice to Treasury. The notice provision outlined below--a

yearly certification to FinCEN that information will be shared and

protected from inappropriate disclosure--combined with the requirement

that any money laundering or terrorist activities uncovered be reported

to FinCEN or other law enforcement, will allow for the sharing of

information while protecting the privacy interests of customers of

financial institutions.

Published elsewhere in this issue of the Federal Register is a

notice of proposed rulemaking that solicits comments on proposed

provisions that are identical to this interim rule, as well as proposed

regulations to implement the provisions of section 314(a) the Act,

which concerns enhanced cooperation between financial institutions and

federal law enforcement agencies to detect terrorist and money

laundering activities. Please refer to the notice of proposed

rulemaking for instructions for submitting comments on the proposed

provisions that are identical to this interim rule.


 

II. Analysis of the Interim Rule


 

A. General Definitions


 

Section 103.90--Definitions

As noted above, section 314(b) of the Act permits financial

institutions, upon providing notice to Treasury, to share information

with one another in order to identify and report to the federal

government activities that may involve money laundering or terrorist

activity. Although section 314 does not define ``money laundering'' or

``terrorist activity,'' each of these terms has well-established

definitions. Accordingly, and consistent with the broad intent

underlying section 314(b), section 103.90(a) defines ``money

laundering'' to mean any activity described in section 1956 or 1957 of

title 18, United States Code. Similarly, section 103.90(b) defines

``terrorist activity'' to mean an act of domestic terrorism or

international terrorism as defined in section 2331 of title 18, United

States Code.


 

B. Information Sharing Among Financial Institutions


 

Section 103.110--Voluntary Information Sharing Among Financial

Institutions

The Act does not define the term ``financial institution'' for

purposes of the information sharing provisions of 314(b). Under the

Bank Secrecy Act (BSA), which is concerned with information reporting

to detect and prevent financial crimes, the term ``financial

institution'' is defined broadly.\1\ Unlike section 314(a), which

involves financial institutions responding to requests for information

from federal law enforcement agencies,\2\ section 314(b) involves the

sharing of information among financial institutions and raises issues

concerning information privacy.\3\ For these reasons, Treasury and

FinCEN believe that it is appropriate to define the term ``financial

institution'' for purposes of section 314(b) in a manner that is most

likely to further the identification of terrorist and money laundering

activities while minimizing the likelihood that information sharing

will inappropriately intrude on the privacy interests of the customers

of those institutions. Accordingly, section 103.110(a)(2) defines

``financial institution'' for purposes of section 314(b) to mean (1) a

financial institution that is subject to SAR reporting that is not a

money services business, which includes banks, savings associations,

and credit unions; (2) a broker or dealer registered with the

Securities and Exchange Commission under the Securities Exchange Act of

1934 (15 U.S.C. 78a et seq.); (3) an issuer of traveler's checks or

money orders, (4) a registered money transmitter, or (5) an operator of

a credit card system that is not a money services business. Treasury

and FinCEN specifically request comment, in connection with the

proposed rule published elsewhere in this issue of the Federal

Register, concerning whether these entities should be included within

the definition for purposes of section 314(b) of the Act and regulation

section 103.110, and whether the definition should be expanded to

include other categories of BSA financial institutions.

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\1\ See 31 U.S.C. 5312(a)(2).

\2\ Treasury and FinCEN are proposing to apply section 314(a) to

all BSA financial institutions. See the proposed rule implementing

section 314(a) published elsewhere in this issue of the Federal

Register.

\3\ See Act sections 314(b) and (c), which provide protections

from federal and State prohibitions on the disclosure of information

to financial institutions that engage in information sharing

consistent with the requirements of section 314(b) and its

implementing regulations.


 

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[[Page 9875]]


 

Section 103.110(b) provides that upon providing the appropriate

certification to Treasury, as described below, a financial institution

may share information with other financial institutions regarding

individuals, entities, organizations, and countries for purposes of

detecting, identifying, or reporting activities that the financial

institution or association suspects may involve money laundering or

terrorist activity. Because associations of such financial institutions

can enhance the sharing of information among its members, this section

also permits these associations to participate in the information

sharing process.

Prior to engaging in information sharing, a financial institution

or association of financial institutions must submit to FinCEN a

certification described in new Appendix B to 31 CFR part 103, that

confirms: the name of the financial institution or association of

financial institutions; that the financial institution is a financial

institution as defined in section 103.110(a), or in the case of an

association, that the association's members that intend to engage in

information sharing are financial institutions as defined in section

103.110(a); that the institution or association will maintain adequate

procedures to protect the security and confidentiality of such

information; that the institution or association will not use any

shared information for any purpose other than as authorized in section

103.110; and the identity of a contact person at the financial

institution or association for matters pertaining to information

sharing.

To streamline the certification process, FinCEN has established a

special page on its existing Internet website, http://www.treas.gov/

fincen, where financial institutions can enter the appropriate

information. If a financial institution or association does not have

access to the Internet, the certification may be mailed to FinCEN at

the address specified in the rule.

By requiring notice to Treasury before information is shared among

financial institutions, Congress has injected Treasury into what would

otherwise be a purely private communication. The statute did not

indicate clearly whether prior notice to Treasury was required before

each individual communication or whether a general notice would be

sufficient. After considering both the need for flexibility for

financial institutions as well as the need to ensure that the right to

share information under this section is not being used improperly,

Treasury and FinCEN determined that the certification should be

effective for a one-year period beginning on the date of the

certification. A re-certification, provided to FinCEN in the same

manner, is required if a financial institution or association intends

to continue to share information. An annual certification will help

Treasury determine which financial institutions are sharing

information, and it will reinforce the need for financial institutions

to protect information shared under this section. Treasury and FinCEN

balanced the minimal burden associated with completing the brief

electronic or paper certification against its role in protecting the

privacy interests of customers of financial institutions.

Section 103.110(c) requires each financial institution or

association of financial institutions that engages in the sharing of

information to maintain adequate procedures to protect the security and

confidentiality of such information. This section also provides that

information received by a financial institution or association of

financial institutions pursuant to this section shall only be used for

identifying and reporting on activities that may involve terrorist or

money laundering activities, or determining whether to close or

maintain an account, or to engage in a transaction. A financial

institution that fails to comply with these restrictions on the use of

shared information may have its certification revoked or suspended. See

103.110(g).

Section 103.110(d) provides that a financial institution or

association of financial institutions that engages in the sharing of

information and that complies with sections 103.110(b) and (c) shall

not be liable to any person under any law or regulation of the United

States, under any constitution, law, or regulation of any State or

political subdivision thereof, or under any contract or other legally

enforceable agreement (including any arbitration agreement), for such

sharing, or for any failure to provide notice of such sharing, to an

individual, entity, or organization that is the subject of such

sharing.

Section 103.110(e) provides a means for financial institutions to

voluntarily report information to law enforcement concerning suspicious

transactions that may relate to money laundering or terrorist activity

that may come to the financial institution's attention as a result of

discussions with other financial institutions, or otherwise. In order

to accord the highest priority to suspected terrorist activity, a

financial institution should report such information to FinCEN by

calling the Financial Institutions Hotline (1-866-556-3974). The

purpose of the Financial Institutions Hotline is to facilitate the

immediate transmittal of this information to law enforcement. Financial

institutions identifying other suspicious transactions should report

such transactions by promptly filing a SAR in accordance with

applicable regulations, even if they provide information over the

Financial Institutions Hotline. The Financial Institutions Hotline is

intended to provide to law enforcement and other authorized recipients

of SAR information the essence of the suspicious activity in an

expedited fashion. Use of the Financial Institutions Hotline is

voluntary and does not affect an institution's responsibility to file a

SAR in accordance with applicable regulations.

Section 103.110(f) clarifies that voluntary reporting under section

103.110 does not relieve a financial institution from any obligation it

may have to file a Suspicious Activity Report pursuant to a regulatory

requirement, or to otherwise directly contact a federal agency

concerning individuals, entities, or organizations suspected of

engaging in money laundering or terrorist activities.

Section 103.110(g) provides that a federal regulator of a financial

institution, or FinCEN in the case of a financial institution that does

not have a federal regulator, may revoke or suspend a certification

provided by a financial institution under this section if the regulator

or FinCEN determines that the financial institution has failed to

comply with the requirements of paragraph (c) of this section. Treasury

and FinCEN believe this provision is necessary to preclude further

participation in information sharing under the authority of section

103.110 by a financial information that fails to accord confidentiality

to shared information, or uses that information for purposes other than

as permitted by section 103.110(c). A financial institution with

respect to which a certification has been revoked or suspended may not

engage in information sharing under this section during the period of

such revocation or suspension.


 

III. Administrative Procedure Act


 

In Executive Order 13224 (September 23, 2001), the President found

that the continuing and immediate threat of further attacks on the

United States constitutes an unusual and extraordinary threat to the

national security, foreign policy, and economy of the United States.

The interim rule implements statutory provisions intended to prevent

terrorist activity by


 

[[Page 9876]]


 

uncovering and disrupting the financing of terrorist acts. In light of

the exigent circumstances described in Executive Order 13224, Treasury

has determined, pursuant to 5 U.S.C. 553(b), that it would be contrary

to the public interest to delay the publication of this rule in final

form during the pendency of an opportunity for public comment. For the

same reason, pursuant to 5 U.S.C. 553(d), it has been determined that

there is good cause for the interim rule to become effective

immediately upon publication.


 

IV. Regulatory Flexibility Act


 

The provisions of the Regulatory Flexibility Act, 5 U.S.C. 601 et

seq., do not apply to this interim rule because a notice of proposed

rulemaking is not required under 5 U.S.C. 553 or any other law.


 

V. Paperwork Reduction Act


 

The requirement in section 103.110(b)(2), concerning notification

to FinCEN that a financial institution that intends to engage in

information sharing, and the accompanying certification in Appendix B

to 31 CFR part 103, do not constitute a collection of information for

purposes of the Paperwork Reduction Act. See 5 CFR 1320.3(h)(1).

The collection of information contained in section 103.110(e),

concerning reports to the federal government as a result of information

sharing among financial institutions, will necessarily involve the

reporting of a subset of information currently contained in a

Suspicious Activity Report (SAR). SAR reporting has been previously

reviewed and approved by the Office of Management and Budget (OMB)

pursuant to the Paperwork Reduction Act and assigned OMB Control No.

1506-0001. An agency may not conduct or sponsor, and a person is not

required to respond to, a collection of information unless it displays

a currently valid OMB control number.


 

VI. Executive Order 12866


 

This interim rule is not a ``significant regulatory action'' for

purposes of Executive Order 12866. Accordingly, a regulatory assessment

is not required.


 

List of Subjects in 31 CFR Part 103


 

Authority delegations (Government agencies), Banks and banking,

Currency, Investigations, Law enforcement, Reporting and recordkeeping

requirements.


 

Dated: February 26, 2002.

James F. Sloan,

Director, Financial Crimes Enforcement Network.


 

Authority and Issuance


 

For the reasons set forth in the preamble, 31 CFR part 103 is

amended as follows:


 

PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND

FOREIGN TRANSACTIONS


 

1. The authority citation for part 103 is revised to read as

follows:


 

Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5331;

title III, sec. 314, Pub. L. 107-56, 115 Stat. 307.



 

2. Add new subpart H to part 103 to read as follows:

Subpart H--Special Information Sharing Procedures To Deter Money

Laundering and Terrorist Activity

Sec.

103.90 Definitions.

103.100 Information sharing with federal law enforcement agencies.

[Reserved]

103.110 Voluntary information sharing among financial institutions.


 

Subpart H--Special Information Sharing Procedures To Deter Money

Laundering and Terrorist Activity



 

Sec. 103.90 Definitions.


 

For purposes of this subpart, the following definitions apply:

(a) Money laundering means an activity described in 18 U.S.C. 1956

or 1957.

(b) Terrorist activity means an act of domestic terrorism or

international terrorism as those terms are defined in 18 U.S.C. 2331.



 

Sec. 103.100 Information sharing with federal law enforcement

agencies. [Reserved]



 

Sec. 103.110 Voluntary information sharing among financial

institutions.


 

(a) Definitions. For purposes of this section:

(1) The definitions in Sec. 103.90 apply;

(2) The term financial institution means any financial institution

described in 31 U.S.C. 5312(a)(2) that:

(i) Is subject to a suspicious activity reporting requirement of

subpart B of this part and is not a money services business, as defined

in Sec. 103.11(uu);

(ii) Is a broker or dealer in securities, as defined in

Sec. 103.11(f);

(iii) Is an issuer of traveler's checks or money orders, as defined

in Sec. 103.11(uu)(3);

(iv) Is a money transmitter, as defined in Sec. 103.11(uu)(5), and

is required to register as such pursuant to Sec. 103.41; or

(v) Is an operator of a credit card system and is not a money

services business, as defined in Sec. 103.11(uu); and

(3) The term association of financial institutions means a group or

organization the membership of which is comprised entirely of financial

institutions as defined in paragraph (a)(2) of this section.

(b) Information sharing among financial institutions--(1) In

general. Subject to paragraphs (b)(2) and (g) of this section, a

financial institution or an association of financial institutions may

engage in the sharing of information with any other financial

institution (as defined in paragraph (a)(2) of this section) or

association of financial institutions (as defined in paragraph (a) (3)

of this section) regarding individuals, entities, organizations, and

countries for purposes of detecting, identifying, or reporting

activities that the financial institution or association suspects may

involve possible money laundering or terrorist activities.

(2) Notice requirement--(i) Certification. A financial institution

or association of financial institutions that intends to engage in the

sharing of information as described in paragraph (b)(1) of this section

shall submit to FinCEN a certification described in Appendix B of this

part.

(ii) Address. Completed certifications may be submitted to FinCEN:

(A) By accessing FinCEN's Internet website, http://www.treas.gov/

fincen, and entering the appropriate information as directed; or

(B) If a financial institution does not have Internet access, by

mail to: FinCEN, PO Box 39, Mail Stop 100, Vienna, VA 22183.

(iii) One year duration of certification. Each certification

provided pursuant to paragraph (b)(2)(i) of this section shall be

effective for the one year period beginning on the date of the

certification. In order to continue to engage in the sharing of

information after the end of the one year period, a financial

institution or association of financial institutions must submit a new

certification.

(c) Security and confidentiality of information--(1) Procedures

required. Each financial institution or association of financial

institutions that engages in the sharing of information pursuant to

this section shall maintain adequate procedures to protect the security

and confidentiality of such information.

(2) Use of information. Information received by a financial

institution or association of financial institutions pursuant to this

section shall not be used for any purpose other than:


 

[[Page 9877]]


 

(i) Detecting, identifying and reporting on activities that may

involve terrorist or money laundering activities; or

(ii) Determining whether to establish or maintain an account, or to

engage in a transaction.

(d) Safe harbor from certain liability--(1) In general. A financial

institution or association of financial institutions that engages in

the sharing of information pursuant to this section shall not be liable

to any person under any law or regulation of the United States, under

any constitution, law, or regulation of any State or political

subdivision thereof, or under any contract or other legally enforceable

agreement (including any arbitration agreement), for such sharing, or

for any failure to provide notice of such sharing, to an individual,

entity, or organization that is identified in of such sharing.

(2) Limitation. Paragraph (d)(1) of this section shall not apply to

a financial institution or association of financial institutions to the

extent such institution or association fails to comply with paragraph

(b) or (c) of this section.

(e) Information sharing between financial institutions and the

federal government--(1) Terrorist activity. If, as a result of

information sharing pursuant to this section, a financial institution

suspects that an individual, entity, or organization is involved in, or

may be involved in terrorist activity, such information should be

reported to FinCEN:

(i) By calling the toll-free Financial Institutions Hotline (1-866-

556-3974); and

(ii) If appropriate, by filing a Suspicious Activity Report

pursuant to subpart B of this part or other applicable regulations.

(2) Money laundering. If as a result of information sharing

pursuant to this section, a financial institution suspects that an

individual, entity, or organization is involved in, or may be involved

in money laundering, such information should generally be reported by

filing a Suspicious Activity Report in accordance with subpart B of

this part or other applicable regulations. If circumstances indicate a

need for the expedited reporting of this information, a financial

institution may use the Financial Institutions Hotline (1-866-556-

3974).

(f) No limitation on financial institution reporting obligations.

Nothing in this subpart affects the obligation of a financial

institution to file a Suspicious Activity Report pursuant to subpart B

of this part or any other applicable regulations, or to otherwise

directly contact a federal agency concerning individuals or entities

suspected of engaging in money laundering or terrorist activities.

(g) Revocation or suspension of certification--(1) Authority of

federal regulator or FinCEN. Notwithstanding any other provision of

this section, a federal regulator of a financial institution, or FinCEN

in the case of a financial institution that does not have a federal

regulator, may revoke or suspend a certification provided by a

financial institution pursuant to paragraph (b)(2) of this section if

the concerned federal regulator or FinCEN, as appropriate, determines

that the financial institution has failed to comply with the

requirements of paragraph (c) of this section. Nothing in this

paragraph (g)(1) shall be construed to affect the authority of any

federal regulator with respect to any financial institution.

(2) Effect of revocation or suspension. A financial institution

with respect to which a certification has been revoked or suspended may

not engage in information sharing under the authority of this section

during the period of such revocation or suspension.



 

3. The Appendix to part 103 is redesignated as Appendix A to part

103 and the heading is revised to read as follows:


 

Appendix A to Part 103--Administrative Rulings


 

* * * * *



 

4. Appendix B is added to part 103 to read as follows:


 

Appendix B to Part 103--Certification for Purposes of Section

314(b) of the USA Patriot Act and 31 CFR 103.110


 

BILLING CODE 4810-02-P


 

[[Page 9878]]


 

[GRAPHIC] [TIFF OMITTED] TR04MR02.026


 

[FR Doc. 02-5006 Filed 3-1-02; 8:45 am]

BILLING CODE 4810-02-C

Last Updated: March 24, 2024