Banking: US Treasury to demand reporting of all international currency transactions

The announcement is innocuous - at least at first sight. "FinCEN Proposes Regulatory Requirement for Financial Institutions to Report Cross-Border Electronic Transmittals of Funds."

But the devil is in the detail: " The Financial Crimes Enforcement Network (FinCEN) today announced that it has submitted for publication in the "Federal Register" a notice of proposed rulemaking (NPRM) that would require certain depository institutions and money services businesses (MSBs) to affirmatively provide records to FinCEN of certain cross-border electronic transmittals
of funds (CBETF). Current regulations already require that these financial institutions maintain and make available, but not affirmatively report, essentially the same CBETF information. FinCEN issued this proposal to meet the requirements of the Intelligence Reform and Terrorism Prevention Act of 2004 (IRTPA).

Actually, that's not entirely true.

The notice of propose rulemaking tells the truth: "FinCEN is also proposing to require an
annual filing with FinCEN by all banks of a list of taxpayer identification numbers of
accountholders who transmitted or received a CBETF."

"CBETF" is, even by the standards of government acronyms, a stupid acronym. The notice defines it as "certain cross-border electronic transmittals of funds." OK, so American isn't English but it's difficult to see this even as American.

FinCEN's notice says that the background to the requirement goes back to The Bank Secrecy Act and its various amendments including those made by The USA PATRIOT Act. It says "the Secretary
of the Treasury (Secretary) [may] require financial institutions to keep records and file reports that the Secretary determines have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings, or in intelligence or counter-intelligence matters to protect against international terrorism. The authority of the Secretary to administer the BSA has been delegated to the Director of FinCEN."

Referring to the Annunzio-Wylie Act, the notice says "Annunzio-Wylie authorises the Secretary and the Board of Governors of the Federal Reserve System (the Board) to jointly issue regulations requiring insured banks to maintain records of domestic funds transfers. In addition, Annunzio-Wylie authorises the Secretary and the Board to jointly issue regulations requiring insured banks and
certain non-bank financial institutions to maintain records of international funds transfers and transmission of funds. Annunzio-Wylie requires the Secretary and the Board, in issuing regulations for international funds transfers and transmission of funds, to consider the usefulness of the records in criminal, tax, or regulatory investigations or proceedings, and the effect of the regulations on the cost and efficiency of the payments system." (edited for sense).

The notice goes on "The Intelligence Reform and Terrorism Prevention Act of 2004 (Pub. L. 108-458)
amended the BSA to require the Secretary to prescribe regulations “requiring such financial institutions as the Secretary determines to be appropriate to report to the Financial Crimes Enforcement Network certain cross-border electronic transmission of funds, if the Secretary determines that reporting of such transmission is reasonably necessary to conduct the efforts of the Secretary against money laundering and terrorist financing.” (again, edited for sense).

The notice shows that the present position is that information must be collected and retained for international transfers exceeding USD3,000.
But now "The FATF in adopting SR VII found that, “due to the potential terrorist financing threat posed by small wire transfers, countries should aim for the ability to trace all wire transfers and should minimize thresholds taking into account the risk of driving transactions underground.” The interpretive note to Special Recommendation VII goes on to say that countries may adopt a de minimis standard of USD1,000, below which countries could exempt institutions from reporting or maintaining records."

The USA is awake to the fact that the USD is losing ground as an internationally acceptable currency to the euro. It is also more than somewhat irritated that Iran simply stopped using the USD when the USA imposed sanctions via the banking network (since then, the UN has imposed global sanctions, at the USA's behest). The notice says "Another concern is the potential effect that any reporting requirement could have on dollar-based payment systems such as: (1) a shift away from the U.S. dollar toward other currencies (i.e., the Euro) as the basis for international financial transactions; (2) the creation of mechanisms and facilities for clearing dollar-based transactions outside the United States; and (3) interference with the operation of the central payments systems. The United States has economic and national security interests in the continued viability and vitality of dollar-based payments and these possible outcomes must inform and guide the rule-making process. "

FinCEN says that "experts" (who defines that, we wonder) divide money laundering into "placement, layering and integration." Actually, the clever ones don't, but we'll leave that argument to another day. FinCEN says that the existing cash transaction reporting system (BSA, USD10,000 cash) "deals well with the placement stage." That, too, is open to debate. The new rule, FinCEN says, will bring electronic and other transfer mechanisms which are used in "layering" into a similarly useful position.

in a wonderful "duh" moment, the Notice says "Electronic funds transfers, by contrast [to cash], represent an entirely different mode for the movement of money... FinCEN has found that electronic funds transfers feature prominently in the layering stage of money laundering activity, which is not
addressed in any of the reports currently filed if the transactions do not raise suspicions within the financial institution."

No, actually, FinCEN has not found that: it's just woken up to what some have been saying for more than a decade.

But the point FinCEN is really making is that it intends to increase cash transaction reporting which it considers more valuable than suspicious activity reporting.