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Today, the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) and the Federal Reserve Board issued amendments to the two funds transmittal (wire transfer) rules that were published in January 1995 and extended the effective date of the rules, as amended, to May 28, 1996.
The rules and the amendments were issued under the Bank Secrecy Act (BSA) which is a key component of Treasury's counter-money laundering efforts. The BSA is administered by FinCEN.
The first rule, issued jointly by Treasury and the Federal Reserve Board, requires banks and non-bank financial institutions to collect and retain information about transmittals of funds in the amount of $3,000 or more; it also requires the verification of the identity of non-account holders that are parties to such transmittals of funds. The second rule (known as the travel rule), issued by Treasury alone, requires each financial institution that participates in a wire transfer to pass along certain information about the transfer to any other financial institution that participates in the transmittal.
The amendments to the two rules were made in response to the financial services industry's request for clarification and to reduce the compliance burden on financial institutions.
Electronic wire transfer systems move funds between financial institutions and handle a daily volume in excess of 500,000 transactions, moving more than $2 trillion around the world each day. Wire transfers offer criminal organizations an easy, efficient and secure method of transferring huge sums of money over a very short period of time. "Because wire transfer messages are often sent through several banks and wire transfer systems, money launderers have been able to easily confuse the money trail, making it difficult for law enforcement to trace the criminal proceeds," according to Stanley E. Morris, FinCEN's Director.
The wire transfer rules are designed to help law enforcement agencies detect and investigate money laundering and other financial crimes by preserving an information trail about persons sending and receiving funds through wire transfer systems.
In August 1993, FinCEN issued proposed wire transfer rules, and asked for and received extensive comments from the financial services industry. Those comments were incorporated into the final rules which were issued in January 1995.
After the rules were published last year, the industry requested clarification about the meaning of certain terms in the rules that did not have identical meanings to the same terms used in the Uniform Commercial Code (UCC). (The UCC governs many aspects of commercial transactions.) As a result of working closely with the financial services industry, FinCEN and the Board proposed amendments to the rules which change the definitions in the two rules to correspond exactly to those in the UCC.
In addition, the industry identified an additional compliance issue under the travel rule for Fedwire transfers. (Operated by the Federal Reserve System, Fedwire is the nation's primary domestic electronic funds transfer system. It handles both the message traffic initiating financial transactions among banks and their customers and the actual movement of funds.) The current Fedwire format does not provide for adequate space to record certain originator information as required by the travel rule. In order to comply with the original travel rule, financial institutions would have had to incur substantial costs to create an interim system to accommodate the required information. (On January 1, 1998, when all banks will have adopted the new, expanded Fedwire format, full compliance with the travel rule will no longer be a problem.)
FinCEN has addressed this additional concern by amending the final travel rule to include a "safe harbor" provision. For transmittals of funds prior to January 1, 1998, financial institutions will be considered in compliance with the travel rule provided they cooperate with one another in reconstructing and providing manually, as necessary, all information otherwise required to be forwarded electronically, in response to formal requests from law enforcement and regulatory authorities.
"These amendments clearly reflect Treasury's ongoing commitment to work together with its partners, to listen to their concerns and to resolve these issues in the best interests of all parties," said Director Morris. "We will follow the experience of law enforcement in obtaining information about wire transfers as well as the experience of the financial services industry in complying with the rules' requirements. Depending upon our findings, there may or may not be a need to make further adjustments to the rules."
The rules were sent to the Federal Register today and will be published in accordance with the Register's schedule.