[Federal Register: July 1, 2003 (Volume 68, Number 126)]
[Proposed Rules]
[Page 39039-39041]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01jy03-33]
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DEPARTMENT OF THE TREASURY
31 CFR Part 103
RIN 1506-AA31
Customer Identification Programs for Financial Institutions
AGENCY: Departmental Offices, Treasury.
ACTION: Notice of inquiry.
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SUMMARY: The Department of the Treasury seeks additional comments from
all interested persons on two discrete issues relating to final
regulations issued recently pursuant to section 326 of the Uniting and
Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001: Whether
and under what circumstances financial institutions should be required
to retain photocopies of identification documents relied on to verify
customer identity; and, whether there are situations when the
regulations should preclude reliance on certain forms of foreign
government-issued identification to verify customer identity.
DATES: Written comments may be submitted on or before July 31, 2003.
ADDRESSES: Commenters are strongly encouraged to submit comments by
accessing the following Department of the Treasury Internet site:
http://regcomments.treasury.gov.
Comments may also be sent by electronic mail as follows: Electronic
mail comments relating to the recordkeeping requirement (as described
in section II(A) below), should be sent to recordkeeping@
regcomments.treasury.gov with the caption in the body of the text,
``Section 326 Notice of Inquiry: Recordkeeping.'' Electronic mail
comments relating to documentary verification of identity (as described
in section II(B) below) should be sent to identification@
regcomments.treasury.gov with the caption in the body of the text,
``Section 326 Notice of Inquiry: Identification.'' Commenters are
requested to distinguish between the two issues and submit comments to
the appropriate e-mail address.
Comments also may be submitted by paper mail (preferably an
original plus three copies). For comments relating to the recordkeeping
requirement (as described in section II(A) below), paper mail comments
should be sent to: 326 Recordkeeping Comments, U.S. Department of the
Treasury, Office of the General Counsel, 1500 Pennsylvania Avenue, NW.,
Washington, DC 20220-0002.
For comments relating to documentary verification of identity (as
described in section II(B) below), paper mail comments should be sent
to: 326 Identification Comments, U.S. Department of the Treasury,
Office of the General Counsel, 1500 Pennsylvania Avenue, NW.,
Washington, DC 20220-0002.
Please send comments by one method only. Commenters should not
include materials or information in comments that they do not wish to
be made available to the public. Comments may be inspected at the
Department of the Treasury between 10 a.m. and 4 p.m. beginning
approximately July 11, 2003. Persons wishing to inspect the comments
submitted must request an appointment by telephoning (202) 622-0990
(not a toll-free number).
FOR FURTHER INFORMATION CONTACT: Office of the General Counsel at (202)
622-1927.
SUPPLEMENTARY INFORMATION:
I. Background
On October 26, 2001, the President signed into law the Uniting and
Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism (USA PATRIOT
[[Page 39040]]
ACT) Act of 2001 (Pub. L. 107-56) (the Act). Title III of the Act made
a number of amendments to the anti-money laundering provisions of the
Bank Secrecy Act (BSA), which are codified in subchapter II of chapter
53 of title 31, United States Code.\1\ These amendments are intended to
promote the prevention, detection, and prosecution of money laundering
and the financing of terrorism.
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\1\ Regulations implementing the BSA appear at 31 CFR part 103.
The authority of the Secretary of the Treasury to administer the BSA
and its implementing regulations has been delegated to the Director
of the Financial Crimes Enforcement Network (FinCEN).
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Section 326 of the Act added a new subsection (l) to 31 U.S.C. 5318
of the BSA that requires the Secretary of the Treasury (Secretary) to
prescribe regulations ``setting forth the minimum standards for
financial institutions and their customers regarding the identity of
the customer that shall apply in connection with the opening of an
account at a financial institution.'' For any financial institution
engaged in financial activities described in section 4(k) of the Bank
Holding Company Act of 1956 (section 4(k) institutions), the Secretary
is required to prescribe the regulations issued under section 326
jointly with the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation, the Office of the Comptroller of
the Currency, the Office of Thrift Supervision, the National Credit
Union Administration, the Securities and Exchange Commission, and the
Commodity Futures Trading Commission (collectively, the federal
functional regulators).
Section 326 of the Act provides that the regulations must require,
at a minimum, financial institutions to implement reasonable procedures
for (1) verifying the identity of any person seeking to open an
account, to the extent reasonable and practicable; (2) maintaining
records of the information used to verify the person's identity,
including name, address, and other identifying information; and (3)
determining whether the person appears on any lists of known or
suspected terrorists or terrorist organizations provided to the
financial institution by any government agency. In prescribing these
regulations, section 326 of the Act directs the Secretary to take into
consideration the various types of accounts maintained by various types
of financial institutions, the various methods of opening accounts, and
the various types of identifying information available.
On May 9, 2003, the Department of the Treasury (Treasury), through
the Financial Crimes Enforcement Network (FinCEN), together with the
federal functional regulators, published final rules implementing
section 326.\2\ These regulations require Federally regulated banks,
securities broker-dealers, mutual funds, and futures commission
merchants and introducing brokers to establish reasonable procedures
for the identification and verification of new accountholders. Although
separate rules were issued for the various types of financial
institutions, the substantive requirements of the rules are intended to
be the same.
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\2\ See 68 FR 25089-25162. In addition to the joint rules,
FinCEN also issued separately a rule applicable to various state-
chartered banks lacking a federal functional regulator.
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The final rules require financial institutions to develop a
customer identification program (``CIP'') that includes risk-based
procedures for verifying the identity of each customer to the extent
reasonable and practicable. Among other things, the CIP must enable the
financial institution to form a reasonable belief that it knows the
true identity of the customer. Financial institutions must develop
their CIP to minimize the relevant risks, including those presented by
the types of accounts maintained by the institution, the various
methods of opening accounts, the types of identifying information
available, as well as the financial institution's size, location, and
type of business or customer base.
The rules implementing section 326 became effective on June 9,
2003, although financial institutions have until October 1, 2003 to
come into compliance.
II. Request for Comments
The CIP implemented pursuant to the section 326 final rules will
form an integral part of a financial institution's efforts to detect
and prevent money laundering and the financing of terrorism. Moreover,
the information collected and maintained by financial institutions is
designed to provide an effective audit trail should an investigation be
conducted. Since publishing the final regulations, concerns have been
raised about two provisions relating to recordkeeping and the
acceptance of certain forms of identification. As a result of these
concerns, and as part of Treasury's continuing efforts to ensure that
BSA regulations strike the appropriate balance between the burdens
imposed on the financial system and the prevention of money laundering
and the financing of terrorism, Treasury seeks additional input on the
two provisions.
A. Recordkeeping Requirement
The final rules implementing section 326 permit financial
institutions to verify customer identity through both documentary and
non-documentary means. In proposed rules issued in July of 2002,
Treasury and the federal functional regulators included a new
requirement that, when a financial institution relies on a document--
such as an identification card--to verify identity, the financial
institution must make and maintain a photocopy of that document.\3\
Virtually all of the substantial number of comments relating to this
provision were critical of the requirement.\4\ In light of these
comments and the terms of section 326 of the Act, Treasury and the
federal functional regulators eliminated the photocopy requirement in
the final rule, instead requiring financial institutions to make and
maintain a record of the description of any document upon which the
financial institution relies to verify customer identity. The
description must include the type of document, any identification
number contained in the document, the place of issuance, and, if any,
the date of issuance and expiration date. While financial institutions
are not required to maintain photocopies of identification documents
relied upon in all cases, Treasury has noted publicly that, so long as
it is consistent with any applicable laws, financial institutions may
want to retain a photocopy of identification documents in instances
where risk factors are present.
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\3\ See, e.g., 67 FR 48290, 48299 (proposed section
103.121(b)(3)(B)).
\4\ Commenters raised several arguments against the photocopy
requirement, including: (1) The difficulty and burden of storing and
retrieving copies of documents; (2) the fact that many kinds of
identification documents, particularly some new driver's licenses,
have security features that prevent them from being copied legibly;
(3) the difficulty of safeguarding copies, which could facilitate
identity theft; (4) the fact that this requirement would
substantially deviate from current banking practice and would
violate certain state laws; (5) the difficulty for banks offering
credit card accounts through retailers, which require the customer
to provide identifying documents at the point of sale, in complying
with such a requirement, especially given the reduced risks of
money-laundering and the financing of terrorism through retail store
credit cards; and (6) the potential for claims of unlawful
discrimination, especially since the banking regulators have
discouraged the practice of retaining photocopies when extending
credit.
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Treasury seeks additional comment on whether and under what
circumstances financial institutions should be required to make and
maintain photocopies of identification
[[Page 39041]]
documents used to verify the identity of customers. In particular:
1. Should the regulations require financial institutions to make
and maintain a photocopy of identification documents upon which the
financial institution relies to verify identity in all cases?
2. Should the regulations identify specific instances in which
photocopies of documents relied upon must be made and maintained?
3. Should the regulations provide guidance to financial
institutions concerning risk factors indicating when photocopying
identification documents relied upon may be appropriate?
The views of law enforcement, the industry, and others are sought,
even if such views have been expressed previously in connection with
the proposed rulemakings. This inquiry focuses on the recordkeeping
requirements when a financial institution relies on documents to verify
identity.
B. Documentary Verification of the Identity of Foreign Individuals
Under the risk-based approach of both the proposed and final rules,
to the extent documents are used, financial institutions are given some
discretion to determine which documentary forms of identification may
be used to verify the identity of foreign individuals who seek to open
an account. First, the final rules require financial institutions to
obtain an identification number from all customers. For a non-U.S.
person, an institution must obtain one or more of the following: a
taxpayer identification number (social security number, individual
taxpayer identification number, or employer identification number);
passport number and country of issuance; alien identification card
number; or number and country of issuance of any other government-
issued document evidencing nationality or residence and bearing a
photograph or similar safeguard. Noting the absence of a uniform,
standard identification number that non-U.S. persons could provide to
financial institutions,\5\ Treasury and the federal functional
regulators permitted financial institutions to choose among a variety
of identification numbers that it may accept from a non-U.S. person,
provided that the identifying information the institution accepts must
permit the institution to form a reasonable belief that it knows the
true identity of the customer.
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\5\ Treasury previously issued a report to Congress discussing
the absence of a single identification number for non-U.S. persons.
See Treasury Department, ``A Report to Congress in Accordance with
Section 326(b) of the USA PATRIOT Act,'' October 21, 2002.
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Second, financial institutions must set forth the types of
documentary identification that they will accept to verify identity.
Financial institutions are encouraged to use multiple forms of
identification to minimize risks. The final rules provide an
illustrative list of identification documents that may be used. For an
individual, these may include an unexpired government-issued
identification evidencing nationality or residence and bearing a
photograph or similar safeguard, such as a driver's license or
passport.
Treasury and the federal functional regulators emphasized that the
final rules neither endorsed nor prohibited a financial institution's
acceptance of particular types of identification documents issued by
foreign governments. Instead, a financial institution must decide for
itself, based upon consideration of the appropriate risk factors,
whether the information presented by a customer is reliable.
Ensuring the appropriate identification of all persons opening
accounts at financial institutions, including non-U.S. citizens, is a
significant goal of the final regulations. Therefore, Treasury seeks
additional comment on whether there are situations in which the
regulations should preclude reliance on certain forms of foreign
government-issued identification to verify customer identity. The
regulations presently rely on financial institutions to determine which
forms of foreign-issued identification to accept and under what
circumstances, in light of the risks associated with each form of
identification.
1. Should the regulations preclude financial institutions' reliance
on certain forms of identification issued by certain foreign
governments?
2. Should the regulations require financial institutions to obtain
a passport number from all customers who are non-U.S. citizens?
a. What are the anticipated effects on non-U.S. citizens in the
United States who are not required to have a passport?
b. What are the anticipated effects on non-U.S. citizens who open
accounts from abroad, and thus are not required to have a passport?
3. Is there sufficient empirical information to enable Treasury to
assess the utility of the various forms of foreign-issued
identification for purposes of accurately identifying the holder?
4. What would the impact be on the use of the conventional
financial system if financial institutions were prohibited from
accepting certain forms of government-issued identification?
The views of law enforcement, the industry, and others are sought,
even if such views have been expressed previously in connection with
the proposed rulemakings.
The purpose of this Notice of Inquiry is to solicit further comment
on the two issues outlined above and to enhance the administrative
record. Only after considering all comments received in response to
this notice of inquiry will Treasury determine whether to discuss with
the federal functional regulators if it would be appropriate to jointly
propose amendments to the final rules published on May 9, 2003, through
a notice of proposed rulemaking. Financial institutions covered by the
final rules are reminded of their obligation to be in compliance with
the final rules by October 1, 2003.
III. Procedural Requirements
This document has been reviewed by the Office of Management and
Budget as a significant regulatory action under Executive Order 12866.
Dated: June 25, 2003.
David D. Aufhauser,
General Counsel.
[FR Doc. 03-16562 Filed 6-30-03; 8:45 am]
BILLING CODE 4810-25-P