The Financial Crimes Enforcement Network (FinCEN) and the Federal Reserve Board have proposed lowering the threshold at which financial institutions must collect, retain, and transmit information on overseas transfers.
Currently, under the Bank Secrecy Act, financial institutions are required to retain records of all transactions worth over $3,000, whether the transfers are domestic or foreign. The rule also applies to funds that are part of a payment chain, known as the travel rule.
Under the proposed rules, announced Friday, the threshold for overseas transactions would be lowered to $250. The threshold for domestic transactions would remain at $3,000.
Federal law enforcement agencies believe terrorist organizations, drug traffickers, and other criminals are using small dollar amounts to avoid having the data from their transactions be stored by financial institutions, thereby helping them to avoid detection. If federal agents are seeking records about transactions they consider suspicious, they sometimes run into the issue that the institution processing small transfers did not save and store data that captures from which account the money flowed and which one received it.
The $250 records threshold would also apply to “convertible virtual currencies, as well as transactions involving digital assets with legal tender status, by clarifying the meaning of ‘money’ as used in certain defined terms,” according a FinCEN press release.
Complying with the new rules would require 32 additional manhours per institution, FinCEN and the Fed estimated.
In a joint proposal, the agencies laid out their reasoning for lowering the threshold. They analyzed data derived from approximately 2,000 suspicious activity reports (SARs) filed by money transmitters between 2016 and 2019—transactions flagged as potentially funding terrorist organizations, drug cartels, and criminal groups. These SARs referenced approximately 1.29 million underlying transmittals of funds, approximately 99 percent of which began or ended outside the United States.
The mean and median dollar value of transmittals of funds mentioned in those SARs were approximately $509 and $255, respectively, according to the agencies. Approximately 71 percent of those 1.29 million transmittals (more than 916,000) were at or below $500, totaling more than $179 million. Approximately 57 percent of those transmittals (more than 728,000) were at or below $300, totaling more than $103 million.
The agencies said requiring financial institutions to collect and store this data on small transactions would allow them to find suspicious patterns in the aggregated data, and that gaps in the data could “inhibit law enforcement from promptly investigating and mapping illicit networks.”
The agencies believe the cost of complying with the new rules would be low. Some institutions maintain a single set of processes for all transactions because it is cost-effective, the agencies noted.
“At the same time, other financial institutions expressed concern that imposing information collection requirements (especially for smaller-value transmittals) could increase regulatory compliance costs by mandating the use of new technologies and processes to collect the information, and that these costs could be passed on to consumers,” the proposal also notes.
For smaller financial institutions, “data storage costs have gone down, and accordingly it is likely that financial institutions generally use less expensive or more efficient means of electronic storage and retrieval,” the agencies said. Such institutions could “rely on third-party vendors to reduce their costs of handling compliance with a revised threshold.”
FinCEN and the Fed will accept comments on the proposed rule changes for 30 days after they are published in the Federal Register.
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