[Federal Register Volume 77, Number 110 (Thursday, June 7, 2012)]
[Rules and Regulations]
[Pages 33638-33640]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-13781]

[[Page 33638]]



Financial Crimes Enforcement Network

31 CFR Part 1020

RIN 1506-AB18

Amendment to the Bank Secrecy Act Regulations--Exemption From the 
Requirement To Report Transactions in Currency

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

ACTION: Final rule.


SUMMARY: FinCEN is issuing this final rule to amend the regulations 
that allow depository institutions to exempt transactions of certain 
payroll customers \1\ from the requirement to report transactions in 
currency in excess of $10,000. The rule substitutes the term 
``frequently'' for ``regularly'' in the provision of the exemption 
rules dealing with payroll customers. This modification of the 
exemption procedures is a part of the Department of the Treasury's 
continuing effort to increase the efficiency and effectiveness of its 
anti-money laundering and counter-terrorist financing policies.

    \1\ These customers are commonly known as ``Phase II'' customers 
and are defined at 31 CFR 1020.315(b)(7).

DATES: Effective Date: June 7, 2012.

FOR FURTHER INFORMATION CONTACT: FinCEN, Regulatory Policy and Programs 
Division, (800) 949-2732 and select Option 6.


I. Background

A. Statutory Provisions

    FinCEN exercises regulatory functions primarily under the Currency 
and Financial Transactions Reporting Act of 1970, as amended by the USA 
PATRIOT Act of 2001 (the ``Act'') and other legislation, which 
legislative framework is commonly referred to as the Bank Secrecy Act 
(``BSA''),\2\ which authorizes the Secretary of the Treasury 
(``Secretary'') to require financial institutions to keep records and 
file reports that ``have a high degree of usefulness in criminal, tax, 
or regulatory investigations or proceedings, or in the conduct of 
intelligence or counterintelligence activities, including analysis, to 
protect against international terrorism.'' \3\ The Secretary has 
delegated to the Director of FinCEN the authority to implement, 
administer, and enforce compliance with the BSA and associated 
regulations.\4\ FinCEN is authorized to impose AML program requirements 
on financial institutions.\5\

    \2\ The BSA is codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1959, 
18 U.S.C. 1956, 18 U.S.C. 1957, 18 U.S.C. 1960, and 31 U.S.C. 5311-
5314 and 5316-5332 and notes thereto, with implementing regulations 
at 31 CFR chapter X. See 31 CFR 1010.100(e).
    \3\ 31 U.S.C. 5311.
    \4\ Treasury Order 180-01 (Sept. 26, 2002).
    \5\ 31 U.S.C. 5318(h)(2).

    The Money Laundering Suppression Act of 1994 amended the BSA by 
establishing a system for exempting transactions by certain customers 
of depository institutions from currency transaction reporting.\6\ In 
general, the statutory exemption system creates two types of 
exemptions, mandatory and discretionary exemptions.\7\ Under 31 U.S.C. 
5313(d) (sometimes called the ``mandatory exemption'' provision), the 
Secretary is required to provide depository institutions with the 
ability to exempt from the currency transaction reporting requirement 
transactions in currency between the depository institution and four 
specified categories of customers. The four specified categories of 
customers in the mandatory exemption provision are: (1) Another 
depository institution; (2) a department or agency of the United 
States, any State, or any political subdivision of any State; (3) any 
entity established under the laws of the United States, any State, or 
any political subdivision of any State, or under an interstate compact 
between two or more States, which exercises governmental authority on 
behalf of the United States or any such State or political subdivision; 
and (4) any business or category of business the reports on which have 
little or no value for law enforcement purposes.

    \6\ See section 402 of the Money Laundering Suppression Act of 
1994 (the ``Money Laundering Suppression Act''), Title IV of the 
Riegle Community Development and Regulatory Improvement Act of 1994, 
Public Law 103-325 (Sept. 23, 1994).
    \7\ The enactment of 31 U.S.C. 5313(d) and (e) reflect the 
congressional intent to ``reform * * * the procedures for exempting 
transactions between depository institutions and their customers.'' 
See H.R. Rep. 103-652, 103d Cong., 2d Sess. 186 (Aug. 2, 1994).

    Under 31 U.S.C. 5313(e) (sometimes called the ``discretionary 
exemption'' provision) the Secretary is authorized, but not required, 
to allow depository institutions to exempt from the currency 
transaction reporting requirement transactions in currency between it 
and a qualified business customer.\8\ A ``qualified business 
customer,'' for purposes of the discretionary exemption provision, is a 
business that: (A) Maintains a transaction account (as defined in 
section 19(b)(1)(C) of the Federal Reserve Act) at the depository 
institution; (B) frequently engages in transactions with the depository 
institution which are subject to the reporting requirements of 
subsection (a); and (C) meets criteria that the Secretary determines 
are sufficient to ensure that the purposes of the BSA are carried out 
without requiring a report with respect to such transactions.\9\

    \8\ For additional information about the terms of 31 U.S.C. 
5313(e)-(g), see 63 FR 50147, 50148 (Sept. 21, 1998).
    \9\ 31 U.S.C. 5313(e)(2).

    The Secretary was required to establish by regulation the criteria 
for granting and maintaining an exemption for qualified business 
customers,\10\ as well as guidelines for depository institutions to 
follow in selecting customers for exemption.\11\ The BSA allowed for 
the guidelines to include a description of the type of businesses for 
which no exemption would be granted under the discretionary exemption 
provision. The Secretary also was required to prescribe regulations 
that require an annual review of qualified business customers and 
require depository institutions to resubmit information about those 
customers with modifications if appropriate.\12\

    \10\ See 31 U.S.C. 5313(e)(3).
    \11\ See 31 U.S.C. 5313(e)(4)(A).
    \12\ See 31 U.S.C. 5313(e)(5).

B. Overview of the Current Regulatory Provisions To Exempt Payroll 
Customers From Currency Transaction Reporting (CTR)

    The current exemption procedures which are codified at 31 CFR 
1020.315, were the result of a six-part rulemaking.\13\ The current 
exemption procedures apply to depository institution customers that 
fall within one of the classes of exempt persons described in 31 CFR 
1020.315(b)(1)-(7), commonly referred to as Phase I and Phase II 
exemptions. Phase II eligible customers include: (i) ``non-listed 
businesses'' \14\ and (ii) ``payroll customers.'' \15\ Under the 
current rules a non-listed business is any other person (i.e., a person 
not otherwise covered under the exempt person definitions) that (A) 
Maintains a transaction account at the bank for at least two months; 
(B) frequently engages in transactions in currency with the bank in 
excess of $10,000; and (C) is incorporated or organized under the laws 
of the United States or a State, or is registered as and

[[Page 33639]]

is eligible to do business with the United States or a State.\16\ A 
``payroll customer'' is any other person (i.e., a person not otherwise 
covered under the exempt person definitions) that: (A) Has maintained a 
transaction account at the bank for at least two months; (B) operates a 
firm that regularly withdraws more than $10,000 in order to pay its 
United States employees in currency; and (C) is incorporated or 
organized under the laws of the United States or a State, or is 
registered as and eligible to do business within the United States or a 
State.\17\ A payroll customer is an exempt person ``[w]ith respect 
solely to withdrawals for payroll purposes.'' \18\

    \13\ See 61 FR 18204 (Apr. 24, 1996), 62 FR 47141, 47156 (Sept. 
8, 1997), 62 FR 63298 (Nov. 28, 1997), 63 FR 50147 (Sept. 21, 1998), 
65 FR 46356 (July 28, 2000), and 73 FR 74010 (Dec. 5, 2008) (the 
rulemakings that comprise the current CTR exemption system).
    \14\ 31 CFR 1020.315(b)(6). (A non-listed business is an exempt 
person only ``[t]o the extent of its domestic operations.'')
    \15\ 31 CFR 1020.315(b)(7).
    \16\ 31 CFR 1020.315(b)(6).
    \17\ 31 CFR 1020.315(b)(7).
    \18\ Id.

II. Final Rule

The Terms ``Frequently'' and ``Regularly''

    Under the existing CTR exemption rules codified at 31 CFR 1020.315, 
two separate categories of exempt persons use nearly synonymous terms 
for definitional purposes--``frequently'' for non-listed businesses and 
``regularly'' for payroll customers. To be an exempt non-listed 
business, a person must, among other things, ``frequently engage[] in 
transactions in currency with the bank in excess of $10,000.'' \19\ To 
be an exempt payroll customer, a person must, among other things, 
``regularly withdraw[] more than $10,000 in order to pay its United 
States employees in currency.'' \20\

    \19\ 31 CFR 1020.315(b)(6)(ii).
    \20\ 31 CFR 1020.315(b)(7)(ii).

    In the preamble to the December 2008 rulemaking revising the CTR 
exemption rules, FinCEN interpreted ``frequently'' to mean five or more 
transactions a year.\21\ This interpretation was, in part, due to the 
fact that the waiting period for exempting a Phase II customer was 
being shortened from twelve to two months, as well as an affirmative 
step toward further simplifying, and thereby encouraging, the greater 
use of the exemption process. In that rulemaking, FinCEN did not 
similarly define the term ``regularly,'' and to date has never formally 
defined that term in the context of the applicability of the CTR 
exemption rules to payroll customers.

    \21\ 73 FR 74010 (Dec. 5, 2008).

    FinCEN believes that the lack of a specific definition for the term 
``regularly'' may have caused, and may be continuing to cause, some 
banks not to utilize the exemption for payroll customers. FinCEN 
recognizes that it has the discretion to use slightly different terms 
when describing the need for non-listed businesses and payroll 
customers to make large transactions in currency, and that the term 
``regularly'' can mean something slightly different than 
``frequently.'' However, FinCEN believes that greater clarity and ease 
of use by banks of the CTR exemption rules weigh in favor of using the 
same term--i.e, ``frequently''--for both categories of exempt 
persons.\22\ In addition, FinCEN believes that utilizing the same term 
in both contexts will not undermine law enforcement interests because a 
bank still must take reasonable and prudent steps to assure itself that 
a person is, in fact, a payroll customer, before utilizing that 
specific exemption.\23\

    \22\ Simplifying the CTR exemption process is consistent with 
the recommendations in the 2008 report issued by the U.S. Government 
Accountability Office (``GAO'') suggesting a variety of ways to 
improve the CTR exemption process. See ``Bank Secrecy Act: Increased 
Use of Exemption Provisions Could Reduce Currency Transaction 
Reporting While Maintaining Usefulness to Law Enforcement Efforts'' 
GAO-08-355 (GAO: Washington, DC: Feb. 21, 2008).
    \23\ See 31 CFR 1020.315(d) and 1020.315(e).

    As a result of substituting the term ``frequently'' for 
``regularly'' in the context of the payroll customer exemption, 
FinCEN's prior interpretation of the term ``frequently'' used in the 
non-listed business exemption to mean five or more times a year would 
equally apply to exemption determinations in the payroll customer 
context. This change is intended to harmonize the exemption standard 
for payroll customers and non-listed businesses to a single bright-line 
test that will provide greater ease of application and promote full use 
of the exemption for payroll customers.
    As stated in the December 2008 rulemaking, allowing banks to exempt 
a Phase II customer after it has conducted five or more reportable cash 
transactions per year should make it easier for banks to exempt 
customers that conduct seasonal business, whether as a non-listed 
business or as a payroll customer.\24\ Thus, assuming the other 
prerequisites are met, a bank could exempt the currency transactions of 
a payroll customer if the customer withdraws currency five or more 
times a year in order to pay its employees.

    \24\ 73 FR 74014 (Dec. 5, 2008).

III. Notice and Comment Under the Administrative Procedure Act

    The Administrative Procedure Act (``APA'') allows an agency to 
dispense with notice and comment when it would be impracticable, 
unnecessary, or contrary to the public interest. By substituting the 
term ``frequently'' for ``regularly,'' this final rule will make it 
easier for banks to apply the exemption standard to their payroll 
customers and promote fuller use of the exemption for these customers. 
Consequently, this will result in a foreseeable reduction of the 
compliance burden on banks by eliminating the need to otherwise file a 
currency transaction report and perform the recordkeeping requirements 
that go along with such filing. FinCEN believes that this change to the 
rule is a desirable change for impacted banks, does not adversely 
impact law enforcement interests, is otherwise noncontroversial, and 
would not generate meaningful comment. Hence, pursuant to 5 U.S.C. 
553(b), FinCEN finds that notice and comment is unnecessary. For the 
same reasons, this final rule is effective upon publication pursuant to 
5 U.S.C. 553(d)(1) and (3).

IV. Paperwork Reduction Act

    This regulation is being issued without prior notice and public 
comment pursuant to the APA (5 U.S.C. 553). For this reason, the 
collection of information contained in this regulation has been 
reviewed under the requirements of the Paperwork Reduction Act (44 
U.S.C. 3507(j)) and approved by the Office of Management and Budget 
(OMB) under control number 1506-0004. An agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a valid control number assigned by OMB.

V. Regulatory Flexibility Act

    Because no notice of proposed rulemaking is required by the APA (5 
U.S.C. 551 et seq.), or by any other statute, this document is not 
subject to the provisions of the Regulatory Flexibility Act (5 U.S.C. 
601 et seq.).

VI. Executive Orders 13563 and 12866

    Executive Orders 13563 and 12866 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. It has been determined that the final rule is neither an 
economically significant regulatory action nor a significant regulatory 
action for purposes of Executive Orders 13563 and 12866.

[[Page 33640]]

VII. Unfunded Mandates Act of 1995 Statement

    Because no notice of proposed rulemaking is required by the APA (5 
U.S.C. 551 et seq.), or by any other statute, FinCEN has determined 
that it is not required to prepare a written statement under section 
202 of the Unfunded Mandates Reform Act of 1995, Public Law 104-4 
(March 22, 1995).

List of Subjects in 31 CFR Part 1020

    Administrative practice and procedure, Banks, Banking, Currency, 
Foreign banking, Foreign currencies, Gambling, Investigations, 
Penalties, Reporting and recordkeeping requirements, Terrorism.

Authority and Issuance

    For the reasons set forth in the preamble, part 1020 of title 31 of 
the Code of Federal Regulations is amended as follows:


1. The authority citation for part 1010 continues to read as follows:

    Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314, 
5316-5332; title III, section 314, Pub. L. 107-56, 115 Stat. 307.

2. Section 1020.315(b)(7)(ii) is amended by removing the word 
``regularly'' and adding the word ``frequently'' in its place.

    Dated: June 1, 2012.
James H. Freis, Jr.,
Director, Financial Crimes Enforcement Network.
[FR Doc. 2012-13781 Filed 6-6-12; 8:45 am]