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US regulators plan to intensify 'travel rule' surveillance

Chris Hamblin, Editor, London, 1 December 2020


The Financial Crimes Enforcement Network (FinCEN) and the Federal Reserve Board are proposing to amend the recordkeeping and 'travel rule' regulations issued in accordance with the Bank Secrecy Act 1970.

FinCEN and the Fed, which share some authority over the recordkeeping rule, are proposing to change it jointly, while FinCEN has sole authority over the travel rule and is therefore proposing to change that without any collaboration.

The current recordkeeping and 'travel rule' regulations dictate that financial institutions must collect, retain and transmit certain information related to fund transfers and transmittals of funds of more than $3,000. The proposed rule seeks to lower the applicable threshold from $3,000 to $250 for international transactions. The threshold for domestic transactions is to remain unchanged at $3,000.

The proposed rule also says that those regulations ought to apply to transactions above the applicable threshold involving convertible virtual currencies, as well as transactions involving digital assets that hold legal tender. It does this by coming up with a clearer meaning of “money” in various places.

Comments will be accepted for 30 days after the notice of proposed rulemaking has been published in the Federal Register.

An explanation of FinCEN's and the Fed's powers

The Currency and Foreign Transactions Reporting Act 1970, as amended by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act 2001 (the infamous USA PATRIOT Act) and other legislation, is commonly referred to as the Bank Secrecy Act. The Treasury has delegated to the director of FinCEN the authority to force financial firms to comply with the BSA and regulations issued under it. FinCEN can require financial institutions to keep records and file reports whenever it likes.

The Annunzio-Wylie Anti-Money Laundering Act 1992 changed the BSA by allowing FinCEN and the Fed to issue regulations jointly to require deposit-takers to keep records of domestic funds transfers. FinCEN's secretary, but not the Fed, can impose recordkeeping requirements for domestic wire transfers by non-bank financial institutions. Both he and the Fed, after asking state banking regulators, can issue regulations jointly to require deposit-takers and certain other financial institutions to keep records of international funds transfers and transmittals of funds whenever they like.

In 1995 FinCEN and the Fed issued a recordkeeping rule that, to this day, requires financial institutions to collect and retain information related to fund transfers and transmittals of funds in amounts of $3,000 or more, with the obvious aim of helping the police by preserving an information trail about people who send and receiving funds through the funds transfer system.

At the same time, FinCEN issued the 'travel rule' to require firms to transmit information on certain fund transfers and transmittals of funds to other financial institutions that participate in those transfers or transmittals. The travel rule and the recordkeeping rule complement each other - generally speaking, the latter requires firms to collect and retain the information that, under the former, must be included with transmittal orders. (The latter rule does other things as well.) The recordkeeping rule is codified at 31 CFR [Code of Federal Regulations] 1020.410(a) and 1010.410(e) [10] and the travel rule is codified at 31 CFR 1010.410(f).

Under the recordkeeping rule, each originator's bank or transmittor's financial institution must collect and retain: the name and address of the originator or transmittor; the amount of the payment or transmittal order; the execution date of the payment or transmittal order; any payment instructions received from the originator or transmittor with the payment or transmittal order; and the identity of the beneficiary's bank or the recipient's financial institution.

Under the travel rule, the originator's bank or transmittor's financial institution is required to include information, including all information required under the recordkeeping rule, in a payment or transmittal order sent by the bank or nonbank financial institution to another bank or nonbank financial institution in the payment chain.

On the continent of Europe, compulsory reporting thresholds are creeping ever-downwards in the direction of zero as governments yearn to know more and more about the financial transactions of their subjects. Allied to this effort is the so-called "bankster war on cash," in which governments (especially in France and Sweden) limit the quantities that their subjects are allowed to transact in cash. French residents for tax purposes are allowed to make cash purchases of up to the value of €1,000 from traders; for non-residents, the limit is €15,000. It goes without saying that in the cities of Communist China cash is becoming obsolete. Governments also view the owning of gold with increasing suspicion and hostility, as it is a true store of value known for milennia and therefore anathema to the ever-debasing currencies that they propagate.

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