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95-69 Treasury Amends Bank Secrecy Act; Requires Additional Recordkeeping Requirements For Wire Transfers

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Executive Summary

The Department of the Treasury (Treasury) is adopting final rule amendments to the Bank Secrecy Act (BSA) effective January 1, 1996. In two separate actions, Treasury is making changes that will facilitate tracing funds through the wire-transfer process. One rule change requires broker/ dealers to include additional information on funds transfer orders; a companion rule change requires broker/ dealers to collect and retain the information that must be on the transfer orders.

Background

The BSA authorizes Treasury to require financial institutions, including broker/dealers, to keep records and file reports about the source, volume, and movement of funds into and out of the country and through domestic financial institutions. These records and reports have a high degree of usefulness in criminal, tax, and regulatory matters, specifically in investigations concerning money laundering. Federal law enforcement agencies believe that a significant amount of the money laundered involves wire transfers.

The Annunzio-Wylie Anti-Money Laundering Act of 1992 (the 1992 Amendment) amended the BSA, giving Treasury and the Board of Governors of the Federal Reserve System (Fed.) joint authority to prescribe regulations for maintaining records of domestic and international transfers of funds. To this end, Treasury and the Fed. published for public comment a joint proposal about wire transfers in August 1993. With certain modification, Treasury is adopting the requirements proposed at that time.

Amendments To Orders For Transmittals Of Funds

These amendments to the BSA require broker/dealers that transmit funds to include additional identifying information on the actual order. The requirements are the same whether the broker/dealer is in the financial institution that initiates the transfer order or if the broker/dealer acts as an intermediary in forwarding the order to the next receiving financial institution. Broker/dealers must include the newly specified information in orders transmitting funds of $3,000 or more.

Effective January 1, 1996, the following information must be in funds transfers of $3,000 or more, when it is sent to the receiving financial institution, initially or on forwarding by an intermediary:

  • the name and account number of the transmittor;

  • the address of the transmittor, except for a transmittal order through Fedwire, until such time as the financial institution that sends the order to the Federal Reserve Bank completes its conversion to the expanded Fedwire format;

  • the amount of the transmittal order;

  • the execution date of the transmittal order;

  • the identity of the recipient's financial institution;

  • as many of the following items as are received with the transmittal order:1

    • the name and address of the recipient;

    • the account number of the recipient;

    • any other specific identifier of the recipient; and
  • the name or address or numerical identifier of the transmittor's financial institution.

In its release adopting the amendments, Treasury notes that in recording the amount transmitted, a broker/ dealer may record the amount of foreign funds or the U.S. dollar equivalent, whichever is the broker/dealer's standard practice.

Treasury also addressed the issue of a closed system. A closed system is a transmittal of funds service that permits a recipient to pick up transmitted funds at any location within the closed system. The service may be entirely domestic or international and does not rely on banks or other outside financial institutions to effect payment to the intended recipient; transmittals are handled entirely by the service's own agents. With regard to such systems, Treasury determined that the requirement to identify the recipient's financial institution may be satisfied by including the closed system's name in the transmittal order.

Treasury also stated in its release that broker/dealers are encouraged to report to the appropriate federal law-enforcement agencies transfers that are structured in amounts of less than $3,000 to evade the requirements of these amendments and the companion recordkeeping amendments.

Amendments To Recordkeeping Requirements

These amendments to the BSA require broker/dealers to collect and retain certain information about transfers of funds of $3,000 or more. The requirements vary depending on the type of financial institution, its role in the particular wire transfer, and the relationship of the parties to the transaction with the financial institution.

Also, the changes clarify the requirements for verifying the identity of the parties to the transfer and for retrieving transfer records. Finally, the amendments add several new definitions that standardize terminology.

Meaning Of Firms

In addition to expanding the existing list of terms defined in the BSA, Treasury's changes standardize terminology. The definitions applicable to transactions by broker/dealers parallel equivalent terms used for banks in the Uniform Commercial Code. The term "established customer," is defined as "a person with an account with the financial institution, including a loan account or deposit or other asset account, or a person with respect to which the financial institution has obtained and maintains on file the person's name and address, as well as taxpayer identification number (e.g., social security or employer identification number) or, if none, alien identification number or passport number and country of issuance, and to which the financial institution provides financial services relying on that information."

The rule excludes from the definitions of funds transfer and transmittal of funds all transfers governed by the Electronic Fund Transfer Act, as well as any other funds transfers that are made through an automated clearinghouse, automated teller machine, or point-of-sale system. Members should note that the term "transmittal of funds" includes a funds transfer.

Recordkeeping Requirements

Broker/dealers, which are referenced in the BSA as non bank financial institutions, are subject to different requirements depending on whether they are dealing with established customers or not.

Requirements Regarding Established Customers

If the originator of a transmittal order is an established customer, the broker/ dealer must obtain and retain the following information.

  • the name and address of the transmittor;

  • the amount of the transmittal order;

  • the execution date of the transmittal order;

  • any payment instructions received from the transmittor with the transmittal order;

  • the identity of the recipient's financial institution;

  • as many of the following items as are received with the transmittal order:

    • the name and address of the recipient;

    • the account number of the recipient;

    • any other specific identifier of the recipient; and
  • any form relating to the transmittal of funds that is completed or signed by the person placing the transmittal order.

If the broker/dealer accepts a transmittal order for a recipient that is an established customer, the broker/ dealer must retain the original or a copy of the transmittal order and any form completed or signed by the person receiving the proceeds of the transmittal of funds. If a broker/dealer acts as an intermediary financial institution, it must retain the original or a copy of the transmittal order.

Any payment instructions given by the originator, oral or written, must be retained if received with the payment order. Such payment instructions may include the purpose of the funds transfer, directions to the beneficiary's financial institution regarding how to notify the beneficiary of the receipt of funds (e.g., advise by phone), or other information.

Requirements Regarding Non Customers

For transmittal orders from a transmittor that is not an established customer, a broker/dealer must obtain all the information specified above for established customers and the following additional information:

  • If the transmittal order is made in person, before accepting, the broker/ dealer must verify the identity of the person placing the transmittal order. If it accepts the transmittal order, the broker/dealer must obtain and retain a record of the name and address, the type of identification reviewed, and the number of the identification document (e.g., driver's license), as well as a record of the person's taxpayer identification number (e.g., Social Security or employer identification number) or, if none, alien identification number or passport number and country of issuance, or a notation in the record of the lack thereof. If the broker/dealer has knowledge that the person placing the transmittal order is not the transmittor, it must obtain and retain a record of the transmittor's taxpayer identification number (e.g., Social Security or employer identification number) or, if none, alien identification number or passport number and country of issuance, if known by the person placing the order, or a notation in the record of the lack thereof.

  • If the transmittal order is not made in person, the broker/dealer must obtain and retain a record of the name and address of the person placing the transmittal order, as well as the person's taxpayer identification number (e.g., Social Security or employer identification number) or, if none, alien identification number or passport number and country of issuance, or a notation in the record of the lack thereof, and a copy or record of the method of payment (e.g., check or credit card transaction) for the transmittal of funds. If the broker/dealer has knowledge that the person placing the transmittal order is not the transmittor, the broker/dealer must obtain and retain a record of the transmittor's taxpayer identification number (e.g., Social Security or employer identification number) or, if none, alien identification number or passport number and country of issuance, if known by the person placing the order, or a notation in the record of the lack thereof.

For each transmittal order that a broker/dealer accepts for a recipient that is not an established customer, in addition to obtaining and retaining the information required for established customers, the broker/dealer must obtain and retain the following additional information:

  • If the proceeds are delivered in person to the recipient or its representative or agent, the broker/dealer must verify the identity of the person receiving the proceeds and must obtain and retain a record of the name and address, the type of identification reviewed, and the number of the identification document (e.g., driver's license), as well as a record of the person's taxpayer identification number (e.g., Social Security or employer identification number) or, if none, alien identification number or passport number and country of issuance, or a notation in the record of the lack thereof. If the broker/dealer has knowledge that the person receiving the proceeds is not the recipient, the broker/dealer must obtain and retain a record of the recipient's name and address, as well as the recipient's taxpayer identification number (e.g., Social Security or employer identification number) or, if none, alien identification number or passport number and country of issuance, if known by the person receiving the proceeds, or a notation in the record of the lack thereof.

  • If the proceeds are delivered other than in person, the broker/dealer must retain a copy of the check or other instrument used to effect payment, or the information contained thereon, as well as the name and address of the person to which it was sent.

Retrievability

The rule requires a broker/dealer to be able to retrieve the information maintained by reference to the name of the transmittor or the recipient. If the transmittor or recipient is an established customer, the broker/ dealer must be able to retrieve the information also by account number. Broker/dealers are not required to retain the information in any particular manner, nor at any particular location.

Members should note that the retrievability standard will apply only to funds transfers made on or after January 1, 1996.

Verification

Where verification is required, a broker/dealer must verify a person's identity by examination of a document (other than a customer signature card), preferably one that contains the person's name, address, and photograph, that is normally acceptable by financial institutions as a means of identification when cashing checks for persons other than established customers. Verification of the identity of an individual who indicates that he or she is an alien or is not a resident of the United States may be made by passport, alien identification card, or other official document evidencing nationality or residence (e.g., a foreign driver's license with indication of home address).

Exceptions

The following transmittals of funds are not subject to these requirements:

  • transmittals of funds where the transmittor and the recipient are any of the following:

    • a domestic bank;

    • a wholly-owned domestic subsidiary of a domestic bank;

    • a domestic broker or dealer in securities;

    • a wholly-owned domestic subsidiary of a domestic broker or dealer in securities;

    • the United States;

    • a state or local government; or

    • a federal, state, or local government agency or instrumentality; and
  • transmittals of funds where both the transmittor and recipient are the same person and the transmittor's financial institution and the recipient's financial institution are the same domestic broker/dealer in securities.

Retention

The retention period remains unchanged for broker/dealers. Records required under the BSA, including funds transfer records, must be retained for five years.

Members are urged to review the final rule amendments in their entirety. The pertinent parts of the BSA, background information, and a discussion of industry comments were published in the January 3, 1995, Federal Register.

Questions concerning this Notice may be directed to Susan Lang, NASD Regulation Department, at (202) 728-6969.


1 For transmittals of funds effected through the Federal Reserve's Fedwire funds transfer system by a financial institution, only one of the items must be included in the transmittal order, if received with the sender's transmittal order, until such time as the financial institution that sends the order to the Federal Reserve Bank completes its conversion to the expanded Fedwire message format.


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