On September 30, 2010, the United States Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) published in the Federal Register its long-awaited notice of proposed rulemaking (NPRM) that would require certain banks and money transmitters to report to FinCEN transmittal orders associated with certain cross-border electronic transmittals of funds (CBETFs). 75 Fed. Reg. 60,377 (Sept. 30, 2010). The NPRM also requires an annual filing with FinCEN by all banks of a list of accounts numbers where an account was credited or debited to originate or receive a CBETF and of the accountholders' taxpayer identification numbers (TINs).
FinCEN issued this proposal pursuant to Section 6302 of the Intelligence Reform and Terrorism Prevention Act of 2004 (IRTPA), which amended the Bank Secrecy Act (BSA) to require the Secretary of the Treasury to issue regulations "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." 31 U.S.C. 5318(n). In response, FinCEN issued an extensive report on the feasibility of the proposal in early 2007, Feasibility of a Cross Border Electronic Funds Transfer System under the Bank Secrecy Act (Oct. 2006), and continued to work on refining a specific regulatory proposal.
The idea of requiring the reporting of CBETFs was not new in 2004. Similar requirements had been in place in Canada and Australia for many years, and the idea has been discussed over the years within the U.S. government. The BSA always included adequate authority to require this reporting if Treasury could support the case that the cost of imposing the requirement was justified by the law enforcement utility. The IRTPA sets the standard to justify the proposal as that the information must be "reasonably necessary" to combat terrorist financing and money laundering.
The NPRM applies to financial institutions in the United States that are either the first U.S. financial institution to receive an incoming reportable CBETF or the last U.S. financial institution to process an outgoing CBETF. Bank-to-bank, non-third party transactions and transfers between branches of a single bank using a proprietary system would be exempt from reporting. For banks, there is no threshold on the amount of a CBETF that must be reported to FinCEN. For money transmitters, CBETFs of $1,000 or more must be reported to FinCEN (the level when many money transmitters voluntarily require more detailed information about senders and receivers). For transactions of $3,000 or more, money transmitters also must include the TIN, if available.
Banks and money transmitters and certain other financial institutions currently are required under the BSA to maintain records relating to domestic and foreign funds transfers. These records would be available to the Government in response to legal process, but they are not reported routinely to the Government. Under the NPRM, these banks and money transmitters would be required for the first time to report international funds transfers routinely to the Government. There is concern about how the Government is going to maintain and review such a massive amount of information and the cost and technical issues surrounding the submission of the information. There also is concern whether FinCEN is adequately using all the information that currently is being reported under the BSA, including the annual reports that must be filed on foreign bank and other foreign financial accounts. In addition, in the past, FinCEN has experienced technical difficulties with new methods of reporting information on a far smaller scale.
There are significant privacy concerns about the wholesale downloading of financial data to the Government. Notably, there are no specific constraints on the use of the information in the proposed regulations. The information could be used, as all records and reports required under the BSA, for a range of law-enforcement purposes, including tax enforcement and, in accordance with established criteria and certain agreements, would be available to state and foreign law enforcement. While the impetus for the 2004 Congressional push for FinCEN to pursue this was terrorism, use of the information is not restricted to the investigation of terrorist financing and money laundering. In fact, given the recent trends in terrorist financing, which include local funding of terrorist activities and the use of alternative financial institution such as hawalas, the utility of this information to identify terrorist financing may be less than its utility in other areas, such as tax enforcement.
FinCEN is soliciting comments on the NPRM, which much be submitted by December 28, 2010. FinCEN is particularly interested in receiving comments in the following areas: the effects on customer privacy; the cost and burdens on affected financial institutions; the use of potential third-party carriers other than SWIFT to provide information on behalf of banks; the ability to evade these requirements by migrating to alternative payment or settlement systems or by conducting non-U.S. dollar transactions; the costs and utility of reporting CBETFs processed solely through bank proprietary systems; the potential for duplicate message reporting; the effect on cross-border remittances (e.g., the cost to the retail remittance customer); possible reporting formats; report frequency; how money transmitters will perform currency exchanges; the effect of TIN reporting on the banking and money-transmitter industries; whether money transmitters would prefer a single $1,000 threshold for reporting; and TIN reporting.
The NPRM states the FinCEN "does not anticipate issuing a final rule until after January 1, 2012" because FinCEN first must have in place appropriate information technology systems. That timeframe is probably optimistic given the complexity of the issues and the anticipated outpouring of comments. Any final rulemaking may have a very protracted effective date.