On October 23, 2020, the Federal Reserve Board (“FRB”) and Financial Crimes Enforcement Network (“FinCEN”) issued a joint notice of proposed rulemaking that would amend the Bank Secrecy Act’s Recordkeeping Rule and Travel Rule regulations. Comments will be accepted for 30 days after Federal Register publication of the proposed rule on October 27, 2020. The proposed amendments would lower the threshold for covered cross-border transactions from $3,000 to $250 and also extend the applicability of the rules to convertible virtual currency and digital assets used for legal tender.
The “Recordkeeping Rule,” 31 C.F.R. §§ 1020.410(a) and 1010.410(e), requires financial institutions to collect and retain information on certain funds transfers and transmittals of funds. The rule is intended to help law enforcement and regulatory authorities detect, investigate, and prosecute financial crimes by preserving information about funds transferred through the financial system. The “Travel Rule,” 31 C.F.R. § 1010.410(f), requires financial institutions to transmit information on certain funds transfers and transmittals of funds to other financial institutions participating in the transaction. The two rules are complementary in that the Recordkeeping Rule generally requires financial institutions to collect and retain the information related to transmittal orders that is required under the Travel Rule. The FRB and FinCEN are jointly proposing to reduce the Recordkeeping Rule threshold from $3,000 to $250 for funds transfers and transmittals of funds that begin or end outside the U.S. FinCEN, pursuant to its sole authority, is similarly proposing to reduce the Travel Rule threshold for such transactions in the same amount.
The FRB and FinCEN highlighted the usefulness of transaction information associated with smaller value cross-border transfers and transmittals of funds in criminal, tax, and regulatory investigations, and in intelligence or counterintelligence activities. The agencies also stated that “the effect of lowering the $3,000 threshold on financial institutions and on the cost and efficiency of the payment system is likely to be low” partly because financial institutions already collect some of the information for other reasons, including reporting suspicious activity to FinCEN, and because data storage costs have decreased.
The rule also proposes to clarify the meaning of “money” as used in these rules to ensure that they apply to domestic and cross-border transactions involving convertible virtual currency (“CVC”) or any digital asset having legal tender status to a recipient. The agencies emphasized that public use of CVCs, such as Bitcoin and Ethereum, has grown, and that bad actors have used CVCs to facilitate international terrorist financing, weapons proliferation, sanctions evasion, and transnational money laundering.