The Federal Reserve Board and FinCEN (collectively, the “Agencies”) issued a proposed rule to modify the threshold for the “travel rule” and “recordkeeping rule.” The proposed modification would reduce this threshold from $3,000 to $250 for international transfers. Under the current recordkeeping and travel rule regulations, financial institutions must collect, retain, and transmit certain information related to funds transfers and transmittals of funds over $3,000. The threshold for domestic transactions remains unchanged at $3,000. The Agencies are also proposing to clarify the meaning of “money” as used in these same rules to ensure that the rules apply to domestic and cross-border transactions involving convertible virtual currency (e.g., cryptocurrency).
The Agencies stated, “malign actors are using smaller-value cross-border wire transfers to facilitate or commit terrorist financing, narcotics trafficking, and other illicit activities.” Based on an analysis of data from approximately 2,000 Suspicious Activity Reports (SARs) filed related to “potential terrorist financing-related transmittals of funds” between 2016 and 2019, 99 percent were international transfers and the average dollar amount of the transfers were approximately $500, according to information in the proposed rule. Further, the majority (~71 percent) of those transfers were at or below $500, and approximately 57 percent were at or below $300.
While the burden of administering the proposed rule is estimated at ~$79 million annually (or 3.3 million hours @ $24/hour), the Agencies believe that the effect of lowering the $3,000 threshold on financial institutions is minimal. More specifically, it seems financial institutions are already collecting information on at least a portion of transactions taking place under the current threshold for purposes of reporting suspicious transactions to FinCEN. Moreover, some financial institutions already collect information on the originator and beneficiary for funds transfers below the $3,000 threshold for reasons separate from reporting suspicious transactions to FinCEN, for instance because it is cost effective to maintain a single set of processes for all transactions.
William A. (Dru) Childress
CRCM | CPA
e: dru@sentryadvisory.com
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