THE TRAVEL RULE REVISITED
By:
Susan Pollack
New York
For those bank operations officers who thought that federal regulators never take into account the realities of trying to comply with money laundering regulations in a complex operations environment, the Financial Crimes Enforcement Network ("FinCEN") has again demonstrated that they do. By its Issuance (98-1) issued on January 26, 1998, FinCEN granted two limited and temporary exceptions to the requirements of 31 CFR 103.33(g) -- also known as the "Travel Rule."
The Travel Rule, the regulation issued under the Bank Secrecy Act (described in the August 1997 issue of the International Report), requires that financial institutions include in a funds transfer transmittal order name and address information about the transmitter. Since its issuance in 1995 and its amendment in 1996, many banks have pointed out to FinCEN that the magnitude of the programming changes needed have made compliance impossible in the time frame required. FinCEN seems to have responded both to two specific aspects of this problem and to the fact that programming skills are also desperately needed by financial institutions to insure that they are capable of dealing with the Year 2000 challenges.
The first conditional exception, which will expire on May 1, 1999, relates to the automated interaction which occurs between information which is in a financial institution's "Customer Information File" (known as a "CIF") and the way the financial institution produces transmittal orders. Many financial institutions have automated their transmittal production processes so that the name and address information is automatically inserted into transmittal orders from the CIF. Many CIFs, however, have been programmed to produce for all customer communication code names, PO Box addresses and other information which does not satisfy the requirements of the Travel Rule. Thus, in order to insure that the transmittal orders contain the detailed name and address information required, the financial institutions would have to re-program not only the systems which produce the orders but the entire CIF system as well. FinCEN has agreed that these financial institutions may continue to produce transmittal orders with non-conforming information as long as five conditions are met:
The CIFs are not specifically altered for the particular transmittal in question,
The CIFs are generally used for customer communication, not just for funds transmittal transactions,
The financial institution can associate the CIF information used with the true name and address of the transmitter,
The transmittal order indicates that the information is not the true name and address by including a question mark symbol, and
When the financial institution files a report required under the Bank Secrecy Act relating to a transmittal order, it uses the true name and address of the transmitter, even though the original order did not.
Having given this exception, FinCEN warns that any new customer request for use of a nominee or special or coded name in the CIF after January 26, 1998, should be carefully reviewed as a possible suspicious transaction and reported "unless an examination reveals that the request is made for an independent lawful business purpose and is the sort in which the customer involved would be expected to engage".
The second conditional exception relates to the need of financial institutions to fully comply with the Travel Rule once they have fully converted to the expanded Fedwire format. Recognizing that much programming may remain to be done even after such conversion, FinCEN has agreed that financial institutions may continue to take advantage of the safe harbor found in 31 CFR 103.33(g) and not comply immediately after conversion (i.e., if the transmittal order would have complied before conversion, it can continue to comply after, as long as the institution has the ability to maintain and retrieve the necessary name and address information).
Financial institutions should remember, however, that FinCEN has made clear that these conditional exceptions may be revoked at any time, and has said that "Treasury intends, within the next 18 months, to review and consider making appropriate modifications to the Travel Rule." In other words, the only thing which is certain is the certainty of change.
