[From the Federal Register, Friday, Sept. 7, 1979]

DEPARTMENT OF THE TREASURY, OFFICE OF THE SECRETARY

[31 CFR Part 103]

FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND FOREIGN TRANSACTIONS

Agency. Department of the Treasury.

Action. Notice of proposed rulemaking.

Summary. This notice proposes to revise the currency transaction reporting regulations to require that (1) the reports be filed more timely; (2) that more complete identification of the customer be furnished; (3) that the financial institution be required to retain a copy of the report for five years; and (4) that the exemption from the reporting requirement for transactions with an established customer maintaining a deposit relationship be limited to retail buisness in the United States and the the location and character of the business shall be identified in the report of exempt customers furnished to Treasury.

Date. Comments must be received on or before November 6, 1979.

Address. Comments on this proposal should be sent to Assistant Secretary (Enforcement and Operations) Department of the Treasury, Rm. 4308, 1500 Pennsylvania Avenue, N.W., Washington, D.C. 20220.

For further information contact. Robert J. Stankey, Jr., Adviser to the Deputy Assistant Secretary (Enforcement), 202–566–5630.

Supplementary information. The Currency and Foreign Transactions Reporting Act [Pub. L. 91-508, Title II, October 26, 1970] requires that certain transactions involving currency be reported to the Secretary of the Treasury by financial institutions. A financial institution within the United States generally must file a Currency Transaction Report, IRS Form 4789, for each deposit, withdrawal or exchange of currency or other transaction which involves more than $10,000 in currency. The report is required to be filed with the Internal Revenue Service on or before the 45th day following the date on which the transaction occurred. Recent studies have shown, however, that the level of cash transactions continues to increase. The pattern of these increases suggests that there is still much that is not known about the nature of this currency flow and that not all transactions that should be reported are being reported. The following amendments to the regulations under the Currency and Foreign Transactions Reporting Act are designed to provide enhanced capability to monitor and try to assure compliance with this statute. They will also provide additional information concerning possible illegal or improperly unreported flows of currency in the United States. This will enable determinations to be made as to the need for follow-up investigations and/or other legal action.

The proposed amendments would:

(1) Require that the report be filed within 15 days after the day on which the transaction occurred. Financial institutions are expected to have little difficulty in meeting this deadline, and the increased promptness should substantially increase the value of the information to law enforcement agencies.

(2) Require financial institutions to retain a copy of each Currency Transaction Report for a period of five years. While it is our understanding that many banks routinely retain copies of the reports, the requirement would ensure that copies would be available for the use of the bank supervisory agencies that have the responsibility for examining financial institutions for compliance with the reporting requirement.

(3) Refine the requirements for the identification of a customer for whose account an unusual currency transaction is to be effected, and his agent in such transactions, to specify the documents that will be acceptable for identification of aliens and citizens and require that the method used be included in the report. (4) Banks are not presently required to report transactions solely with, or originated by, financial institutions or foreign banks. The revision would limit this exemption to transactions with other domestic banks. The change would require banks to report large currency transactions with securities dealers, foreign banks, and miscellaneous financial institutions, such as exchange dealers, persons in the business of transferring funds for others, and money order issuers. The additional information concerning the currency transactions with foreign banks and non-bank financial institutions will substantially improve the Treasury Department's ability to obtain overall compliance with the regulations and alert the Department to unusual transnational movements of currency.

Since Treasury presently does not receive reports of currency transactions between domestic and foreign banks, it is not possible to develop information concerning normal international flows or to identify unusual movements which might relate to criminal activities. The proposed requirement would correct this deficiency.

The proposed requirement that banks report transactions with securities brokers/dealers and other miscellaneous financial institutions would provide an effective and badly needed check on the compliance of such institutions with the regulations. Such institutions are much more difficult to recognize and catalogue than are banks. Therefore, it is not surprising that there are indications that many of them have not been identified or inspected for compliance. By requiring banks to report large currency transactions with such firms, the opportunity to identify those that are dealing in significant amounts of currency will be greatly increased. Once identified, they can be scheduled for compliance checks.

(5) Banks are exempted from reporting currency transactions with an established customer maintaining a deposit relationship with the bank, in amounts which the bank may reasonably conclude do not exceed amounts commensurate with the customary conduct of the business, industry or profession of the customer concerned. This requires the bank to exercise its professional judgment in determining whether or not a currency transaction report should be filed. The proposed revision would require a record of the exemption to be made at the time it is granted and would limit the exemption to an established customer who operates a retail type of establishment within the United States. If the customer is located in a contiguous or neighboring country, or if the business is not a retail establishment, a currency transaction report would be required.

The exemption procedure, which has been in effect since the regulations were initially issued, was provided to reduce unnecessary and unproductive reporting by the banks. The exemption has been limited to retail type businesses, such as a small loan company, a race track, a department store, a theater, a supermarket, sports arena, etc. It is unlikely that other types of lawful businesses would routinely deposit large amounts of currency.

(6) To ensure that this exemption is judiciously employed by the bank, a report listing the customers whose currency transactions are not reported because of the above exemption is now required to be made to the Secretary of the Treasury or his delegate upon demand. The revision would: (1) specify that such report shall include the name, street address of the business, nature of the business, taxpayer identification number, and deposit account number of the customer whose transactions have been exempted under this provision; (2) elaborate on the Secretary's authority to require the filing of the Form 4789 reports for any customer listed and (3) require the report to be submitted within 15 days following receipt of the demand for the report. These amendments would provide the information Treasury needs to review the exemptions to ensure that they are appropriate.

Drafting information. The principal authors of this document are Robert J. Stankey, Adviser to the Deputy Assistant Secretary (Enforcement) and Shanley Keeter, Attorney Adviser, Office of the General Counsel. However, other personnel of the Office of Enforcement and Operations and the Office of the General Counsel participated.

Authority and issuance. Accordingly, the proposed regulations are being issued under the authority contained in the Currency and Foreign Transactions Reporting Act, 84 Stat. 1118, 31 U.S.C. 1051-1122, as follows:

1. Section 103.22 of Part 103 of Title 31, Code of Federal Regulations, as revised, reads as follows:

§ 103.22 Reports of currency transactions.

(a) Each financial institution shall file a report of each deposit withdrawal, exchange of currency or other payment or transfer, by, through, or to such financial institution, which involves a transaction in currency of more than $10,000. Such reports shall be made on forms prescribed by the Secretary and all information called for in the forms shall be furnished.

(b) Except as otherwise directed in writing by the Secretary this section shall not: (1) require reports of transactions with Federal Reserve Banks or Federal Home Loan Banks; or (2) require reports by banks of transactions with other domestic banks.

(e) Except as otherwise directed in writing by the Secretary, a bank is not required to routinely report currency transactions with an established depositor

who is a United States resident and operates a retail type of business in the United States, where such transactions are in amounts which the bank may reasonably conclude do not exceed amounts commensurate with the customary conduct of the lawful, domestic business of that customer, such as, for example, a small loan company, a race track, a department store, a theater or sports arena, etc. A record of the exemption must be made at the time it is granted. Such exemptions may be reviewed by the Assistant Secretary (Enforcement and Operations); and he may require a bank to file the usual reports as prescribed in paragraph (a) of this section with respect to any depositor whose transactions have been previously exempted. A report listing the name, street address of the business, nature of the business, taxpayer identification number, and deposit account number of each customer, who engages in transactions which are not reported because of the exemption contained in this paragraph shall be made to the Assistant Secretary (Enforcement and Operations) within 15 days following receipt of his request.

2. Paragraph (a) of $103.25 of Title 31, Code of Federal Regulations, as re§ 103.25 Filing of reports.

(a) A report required to be filed by the first paragraph of § 103.22 shall be filed within 15 days following the day on which the transaction occurred. A copy of each such report shall be retained by the financial institution for a period of five years from the date of the report. The reports shall be filed with the Commissioner of Internal Revenue on forms to be prescribed by the Secretary. All information called for in such forms shall be furnished.

3. Section 103.26 of Part 103, Code of Federal Regulations, as revised, reads as follows:

§ 103.26 Identification required.

Before effecting any transaction with respect to which a report is required under paragraph (a) of § 103.22, a financial institution shall verify and record the name and address of the person presenting the transactions, as well as record the identity, account number, and the social security or taxpayer identification number, if any, of the person for whose account such transaction is to be effected. Verification of the identity of aliens must be made by passport, alien identification card, or other official document evidencing foreign nationality or residence. Verification of identity in any other case may be by examination of a document normally acceptable as a means of identification when cashing checks, for example, a driver's license, or credit card. In each instance, the method used in verifying the identity of the customer shall be recorded on the report. Date: August 31, 1979.

RICHARD J. DAVIS, Assistant Secretary (Enforcement & Operations).

[FR Doc. 79-27894 Filed 9-6-79; 8:45 am]

Mr. BENSINGER. The Comptroller of the Currency, IRS, Criminal Investigative Division, the Office of the Assistant Secretary of the Treasury, U.S. Customs, all must interphase, I think, effectively with the FBI, DEA and others to have maximum impact on the money flow problem. The Bank Secrecy Act has certain provisions that Customs may want to bring to this committee's attention. A brief example would be people with $5,000 or more go to airports and they do not sign a formal statement that they are going to take half a million dollars out of the country. There have been problems in making cases against those individuals, because they have not physically left.

But, in answer specifically to the FBI, DEA teams, Judge Webster and I sent out a Telex to all of our offices encouraging joining of efforts and joining of forces in this area. I think it has been stepped up. I know that we have had a number of conspiracies in other cities that have resulted from FBI information. I think that you will find

increased resource targeting between our two agencies, Judge Webster and I intend to monitor it carefully. We will be able to give you a better update after we have had further experience.

Senator BIDEN. Is there an intergovernment analysis of the operation under way in Miami now? The staff tells me that there is an intergovernmental investigation or analysis.

Mr. BENSINGER. We are looking at principally State and local as well as Federal cooperation.

Senator BIDEN. When would you expect that would be completed? Mr. BENSINGER. I would have to

Senator BIDEN. The report on it.

Mr. BENSINGER. I do not know if there will be a formal report, but it would be issued out of the Director's office, and I am sure we could brief you directly if there is a formal document submitted.

Senator BIDEN. According to your prepared statement on page 24, in 1978 there were 18 States in which a clandestine laboratory was not seized. Los Angeles, Detroit, Washington, D.C., and Texas have the heaviest concentration of clandestine laboratories.

What is this based on, population?

Mr. BENSINGER. In part, based on the extensiveness of immediate manufacturing and then distribution. I have a breakdown which I would like to make available to the committee, comparing the domestic clandestine laboratories by drug type. PCP laboratory seizures rose from 15 in 1975 to 80 in 1978. A lot of PCP manufacturing has been in the Washington, D.C., area and the substance may be used in some cases to supplement heroin. This was the pattern in New York, I believe. The manufacturing has been generally in metropolitan areas or close to metropolitan areas. We have seen this emergency in the San Gabriel, Washington, and New York areas.