NPRM: Requirements for Certain Transactions Involving CVC or Digital Assets ('unhosted wallet' rule) (85 FR 83840) (Part 2 of 2)
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Research, not advice. Part of the Bitcoin research archive (October 2026). Claims labelled unverified, contested or fringe are reported, not endorsed; statuses of bills and rules are as of the date checked. Government, court and patent records are public domain; the research notes are CC BY 4.0.
enforcement, financial institutions, and
electronic recordkeeping based on the
requirement, or the benefits to law members of the public:
fact that such recordkeeping is the
enforcement from the data obtained
practical way in which businesses (12) Describe the costs from
from the proposed reporting
engaged in CVC or LTDA transactions complying with the proposed
requirement, would vary were FinCEN
are likely to track their data and the recordkeeping and verification
to adopt a higher or lower threshold
most efficient form in which data can be requirements.
than $10,000.
provided to law enforcement and (13) Describe the benefits to law
(6) Describe how the costs of
national security authorities. enforcement from being able to access
complying with the proposed reporting
Furthermore, under 31 CFR requirement, or the benefits to law data verified and obtained based on the
1010.410(g)(3) as proposed, the enforcement from the data obtained proposed recordkeeping and verification
information that a financial institution from the proposed reporting requirements.
would be required to retain under requirement, would vary were FinCEN (14) Could the verification
paragraphs (g)(1) and (g)(2) of that to apply the reporting requirement to all requirements be adjusted to enhance the
section must be retrievable by the bank CVC/LTDA transactions by hosted benefits to law enforcement without a
or MSB by reference to the name or wallets, including those with hosted significant change to the costs to banks
account number of its customer, or the wallet counterparties. and MSBs, or to reduce the costs to
name of its customer’s counterparty. (7) Should FinCEN add additional banks and MSBs without a significant
This information would not need not be jurisdictions to the Foreign Jurisdictions change in the benefit to law
retained in any particular manner, so List or remove jurisdictions currently on enforcement?
long as the bank or MSB is able to that list? Are there any particular (15) Describe the potential changes to
retrieve the information. FinCEN is considerations FinCEN should take into the costs and benefits that would be
proposing these requirements to ensure account when adding or removing available to law enforcement were
that the information retained by banks jurisdictions? FinCEN to maintain the reporting
and MSBs is efficiently searchable in (8) Has FinCEN provided sufficient requirement of 31 CFR 1010.316 but
response to lawful information requests. clarity to financial institutions on the also require that banks and MSBs verify
scope of the aggregation requirements the identity of the counterparties of
VI. Request for Comment
that apply to the proposed CVC/LTDA their hosted wallet customers.
FinCEN welcomes comment on all transaction reporting requirement? (16) Is it necessary for the anti-
aspects of this proposed rule. FinCEN (9) Discuss the costs and benefits of structuring prohibition to be extended
encourages all interested parties to modifying the aggregation requirement to the proposed CVC/LTDA transaction
provide their views. to require aggregation for the purposes reporting requirement?
With respect to the effect of of the proposed CVC/LTDA transaction With respect to the proposed
expanding the scope on the definition of reporting requirement across both fiat recordkeeping requirements in 31 CFR
‘‘monetary instruments’’ in the BSA, and CVC/LTDA transactions. 1010.410(g), FinCEN in particular
FinCEN in particular requests comment (10) Has FinCEN properly considered requests comment on the following
on the following question from financial the extension of the mandatory and questions from law enforcement,
institutions and members of the public: discretionary statutory exemptions at 31 financial institutions, and members of
(1) Has FinCEN been sufficiently clear U.S.C. 5313(d)–(e) that are currently the public:
that the impact of the definitional applicable to the CTR reporting (17) Would it be appropriate for
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change to ‘‘monetary instruments’’ requirement to the proposed CVC/LTDA FinCEN to require additional data be
would be limited to the reporting, transaction reporting requirement? Has retained pursuant to 31 CFR
recordkeeping, verification, and other FinCEN extended exemptions either too 1010.410(g)?
requirements of this proposed rule, and broadly or too narrowly? Was FinCEN (18) Describe the costs from
not to preexisting regulatory obligations correct to not extend the exemption complying with the proposed
such as the CTR reporting requirement from the CTR reporting requirement at recordkeeping and verification
at 31 CFR 1010.311? 31 CFR 1010.315 related to transactions requirements.
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83852 Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Proposed Rules
(19) Describe the benefits to law exceptions. Nevertheless, FinCEN is The proposed rule is a vital part of
enforcement from being able to access publishing its proposed rule in the FinCEN’s efforts to curb illicit finance,
data verified and obtained based on the Federal Register and inviting and, subject to feedback received during
proposed recordkeeping and verification comments, and will consider any the comment period, FinCEN believes
requirements. comments received. rapid implementation is critical to the
(20) Could the verification FinCEN has determined that a longer successful accomplishment of the
requirements be adjusted to enhance the period of public comment is not proposed rule’s objectives. Undue delay
benefits to law enforcement without a necessary and would frustrate the in implementing this rule would
significant change to the costs to banks objectives of the rule by unduly encourage movement of unreported or
and MSBs, or to reduce the costs to delaying implementation of measures to unrecorded assets implicated in illicit
banks and MSBs without a significant curb illicit finance and threats to United finance from hosted wallets at financial
change in the benefit to law States national interests. FinCEN notes institutions to unhosted or otherwise
enforcement? that in addition to the comment period covered wallets, such as by moving CVC
(21) Describe the potential changes to being provided, the agency has directly to exchanges that do not comply with
the costs and benefits that would be engaged with the cryptocurrency AML/CFT requirements. Such delay
available to law enforcement were industry on multiple occasions and in a presents an opportunity to illicit actors
FinCEN to maintain the recordkeeping variety of formats over the past year on who have substantial proceeds in
requirement of 31 CFR 1010.410(g) but the AML risks arising in connection regulated financial institutions and who
also require that banks and MSBs verify with cryptocurrency and carefully want to be able to move those funds
the identity of the counterparties of considered information and feedback without detection into the darker,
their hosted wallet customers. received from industry participants. unregulated corners of the CVC
(22) Is it reasonable to require that ecosystems: Withdraw the funds quickly
These engagements have included a
records be retained in electronic form? with no required reporting to federal
FinCEN Exchange event in May 2019 on
Are the retrievability criteria authorities, or withdraw the funds after
virtual currency with representatives
reasonable? the rule takes effect with detailed
(23) Should FinCEN extend the from virtual currency money
transmitters, third-party service mandatory reporting to federal
obligation to keep records under the
providers, federal government agencies, authorities. Conversely, participants
proposed CVC/LTDA transaction
a federal task force, and depository with funds at regulated financial
reporting requirement to financial
institutions that included discussion of institutions who wish to transact with
institutions other than banks and MSBs
methods to identify vulnerabilities, illicit actors operating outside that
(e.g., broker-dealers, futures commission
disrupt terrorist and proliferation regulated environment are similarly
merchants, mutual funds, etc.)?
(24) Describe technical challenges to financing, and guard against other enabled to proceed with those
implementation to could impact financial crimes; 76 visits to transactions immediately without
reasonable ability to implement these cryptocurrency businesses in California detailed mandatory reporting to federal
requirements. in February 2020; a working session in authorities, but face significant
March 2020 with cryptocurrency reporting obligations if they wait until
VII. Administrative Procedure Act industry leaders, compliance experts, after a period of delayed
The Administrative Procedure Act and senior Treasury Department and implementation. FinCEN has concluded
(APA) generally requires an agency to FinCEN officials that included that the incentives that would be
provide notice of proposed rulemaking discussion of supervisory and regulatory created by an undue implementation
in the Federal Register and an challenges facing digital assets, delay could seriously undermine the
opportunity for interested persons to including cryptocurrency; 77 and a interests the rule is designed to advance.
participate in the rulemaking by FinCEN Exchange event on In addition, the substantial concerns
submitting comments on the proposal.73 cryptocurrency and ransomware in about national security, terrorism,
No minimum period for comment is November 2020 that included ransomware, money laundering, and
prescribed, although agencies must discussion of emerging trends and other illicit financial activities
provide the public with a ‘‘meaningful typologies, and recovery of victims’ discussed above, and the need for an
opportunity’’ to comment on a funds.78 Recently, FinCEN also has effective response in a rapidly changing
proposal.74 The APA also requires received outreach from industry area of major national concern, support
publication of the final version of a rule specifically addressing potential making the amendments in the
at least thirty days before the rule’s regulatory requirements for unhosted proposed rule effective as quickly as is
effective date. wallets, including letters from feasible.
These requirements do not apply, CoinCenter, the Blockchain Association, The considerations are reinforced by
however, to rules involving a ‘‘foreign Blockchain.com, the Global Digital the inapplicability of the APA’s notice-
affairs function’’ or where ‘‘good cause’’ Asset & Cryptocurrency Association, and-comment requirements to the
is shown for rules with respect to which Circle, and the Association for Digital proposed rule. As noted, the APA
‘‘notice and public procedure’’ is Asset Markets. provides an exemption from notice-and-
‘‘impracticable, unnecessary, or contrary comment requirements where ‘‘there is
to the public interest.’’ 75 As described 76 See Press Release, FinCEN, May 3, 2019, involved . . . a foreign affairs function
below, the proposed rule is not subject available at https://www.fincen.gov/resources/ of the United States,’’ and while this
to notice-and-comment requirements financial-crime-enforcement-network-exchange exemption is not to be ‘‘interpreted
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(last accessed Dec. 18, 2020). loosely’’ to reach any function having an
because it falls within each of these 77 See Press Release, U.S. Dep’t of the Treasury,
Mar. 2, 2019, available at https://
impact beyond U.S. borders,79 it is
73 See generally 5 U.S.C. 553.
home.treasury.gov/news/press-releases/sm926 (last applicable wherever a foreign affairs
74 See N. Carolina Growers’ Ass’n, Inc. v. United accessed Dec. 18, 2020).
Farm Workers, 702 F.3d 755, 770 (4th Cir. 2012); 78 See Press Release, FinCEN, Nov. 12, 2020, 79 See Mast Indus., Inc. v. Regan, 596 F. Supp.
Rural Cellular Ass’n v. FCC, 588 F.3d 1095, 1101 available at https://www.fincen.gov/news/news- 1567, 1581 (Ct. Int’l Trade 1984) (quoting H.R.Rep.
(D.C. Cir. 2009). releases/fincen-holds-virtual-fincen-exchange- No. 79–1980, at 23 (1946), H.R.Rep. No. 79–1980,
75 See 5 U.S.C. 553(a)(1), (b)(3)(B), (d)(3). ransomware (last accessed Dec. 18, 2020). at pp. 23 (1946)).
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Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Proposed Rules 83853
function is ‘‘involved.’’ This exemption would hinder the efforts of the United counter to the public interest ‘‘when the
is distinct from the APA’s good cause States government to perform important very announcement of a proposed rule
exception,80 and reaches matters national security and foreign affairs itself can be expected to precipitate
affecting relations with other functions.84 In addition, as explained in activity by affected parties that would
governments to a substantial extent, the discussion of the good cause harm the public welfare.’’ 89 This is
such as where adherence to the APA’s exception, FinCEN expects that malign especially so in connection with
requirements would ‘‘provoke definitely actors may exploit such a delay by financial regulation where the
undesirable international moving assets to unhosted wallets and ‘‘announcement of a proposed rule
consequences.’’ 81 away from regulated financial would enable the sort of financial
The proposed rule advances foreign institutions to escape financial manipulation the rule sought to
policy and national security interests of transparency.85 prevent.’’ 90 In such circumstances
the United States, using a statute that Furthermore, and consistent with the ‘‘notice and comment could be
was designed in part for that purpose. policy interests underlying this rule, dispensed with in order to prevent the
As the Supreme Court has explained, FinCEN notes that the requirements amended rule from being evaded.’’ 91 As
one of Congress’s core aims in enacting being imposed represent an important noted above, FinCEN is concerned about
the Bank Secrecy Act was to respond to part of the leadership role of the United the consequences of undue delay in the
threats associated with international States in the development of implementation of the proposed rule,
financial transactions.82 Those concerns international standards applicable to and in particular that such delay could
are plainly implicated where a foreign global financial networks, both in accelerate or cause the movement of
financial institution is not subject to general and with respect to CVC/LTDA assets implicated in illicit finance from
adequate AML/CFT regulation, or where in particular.86 In addition to the foreign
hosted wallets at financial institutions
individuals outside the United States affairs functions involved in efforts to
to unhosted or otherwise covered
transact without using a financial combat illicit financing, the measures
wallets, such as by moving CVC to
institution at all. With the increasingly being adopted directly concern the
exchanges that do not comply with
geographically dispersed operating movement of currency and its
equivalents (i.e., value that substitutes AML/CFT requirements. These concerns
models of CVC systems and financial squarely implicate the APA’s good
institutions, both in their organizational for currency) across national borders,
which has long been viewed as a critical cause exception. Good cause may also
and operational structures as well as in be supported where delay in
their services to customers in many aspect of foreign policy, international
relations, and global economic implementation ‘‘could result in serious
jurisdictions, most CVC and LTDA harm.’’ 92 For example, agency good
activity involves cross-border value standing.87
In addition to the foreign affairs cause findings have been sustained in
transfer or cross-border operations. For connection with anti-terrorism
exemption, the APA permits an agency
example, the Bitcoin network operates measures, such as rules adopted to
to forgo otherwise applicable notice-
across nodes around the world. Only prevent airplane hijacking.93 While
and-comment procedures where the
approximately 17% of the nodes on the serious harm most commonly involves
agency ‘‘for good cause finds . . . that
Bitcoin network operate in the United threats to physical health and safety,
notice and public procedure thereon are
States.83 agency good cause findings based on
impracticable, unnecessary, or contrary
The requirements of the proposed rule other concerns, such as the prevention
to the public interest.’’ 88 It has long
directly involve one or more foreign of substantial financial fraud, have also
been recognized that the APA’s notice-
affairs functions of the United States. survived challenge.94 FinCEN has
and-comment requirements may run
The illicit financing targeted by these determined that the substantial
requirements involves substantial 84 See Rajah v. Mukasey, 544 F.3d 427, 438 (2d concerns about national security,
international dimensions. Among the Cir. 2008) (reasoning that notice-and-comment terrorism, ransomware, money
objectives of these requirements is the process can be ‘‘slow and cumbersome,’’ thereby
laundering, and other illicit financial
application of appropriate controls to impairing national interests).
85 See Am. Ass’n of Exporters & Importers-Textile activities discussed above, and the need
curb malign actions of hostile foreign for an effective response in a rapidly
& Apparel Grp. v. United States, 751 F.2d 1239,
states facilitated by means of CVC/ 1249 (Fed. Cir. 1985) (noting incentive to engage in changing area of major national concern,
LTDA, to prevent evasion of United activities to manipulate trade levels that prior
support making the amendments in the
States sanctions regimes, to combat the announcement of restricted quotas would create).
86 See City of New York v. Permanent Mission of proposed rule effective as quickly as is
financing of global terrorism, and to feasible.
India to United Nations, 618 F.3d 172, 201–02 (2d
address other threats originating in Cir. 2010). As commentators have noted, the United
whole or in substantial part outside the States has played a leading role in the development 89 Mobil Oil Corp. v. Dept of Energy, 728 F.2d
United States, including the of international AML/CFT measures, including
1477, 1492 (Temp. Emer. Ct. App. 1983).
proliferation of ransomware attacks, through unilateral action establishing templates for 90 See U.S. Dep’t of Justice, Attorney General’s
global standards. See Laura K. Donohue, Anti-
transnational money laundering, and Terrorist Finance in the United Kingdom and Manual on the Administrative Procedure Act at pp.
international trafficking in controlled United States, 27 Mich. J. Int’l L. 303, 381 (2006). 31, quoted in Utility Solid Waste Activities Group
v. Environmental Protection Agency, 236 F.3d 749,
substances, stolen and fraudulent 87 See Schultz, 416 U.S. at pp. 27–28. Numerous
755 (D.C. Cir. 2001).
identification documents and access provisions of the BSA single out transactions with
91 Mack Trucks, Inc. v. E.P.A., 682 F.3d 87, 95
foreign elements for special treatment. See, e.g., 31
devices, counterfeit goods, malware and U.S.C. 5314 (reports on transactions with foreign (D.C. Cir. 2012) (citation and quotation marks
other computer hacking tools, firearms, financial agencies), 5316 (importation and omitted).
92 Jifry v. FAA, 370 F.3d 1174, 1179 (D.C. Cir.
and toxic chemicals. Unduly delaying exportation of monetary instruments); see also 31
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U.S.C. 5315(a)(1), (3) (declaring congressional 2004).
the implementation of the proposed rule 93 See id.; see also Airport Operators Council
findings that, inter alia, ‘‘moving mobile capital can
have a significant impact on the proper functioning Intern. v. Shaffer, 354 F. Supp. 79 (D.D.C. 1973).
80 See Mast, 596 F. Supp. at pp. 1581.
of the international monetary system’’ and that 94 See Disabled in Action of Metro. New York, Inc.
81 Id.
authority should be provided to collect information v. Brezenoff, 506 F. Supp. 244, 248 (S.D.N.Y. 1980);
82 See California Bankers Assn. v. Shultz, 416 on capital flows to beyond authorities under the see also Northern Arapahoe Tribe v. Hodel, 808
U.S. 21, 27–28 (1974). Trading with the Enemy Act and the Bretton Woods F.2d 741, 751 (10th Cir. 1987) (finding good cause
83 ‘‘Global Bitcoin Nodes Distribution,’’ Bitnodes, Agreement Act). based on need to preserve wildlife in light of
https://bitnodes.io/ (accessed Dec. 2, 2020). 88 5 U.S.C. 553(b)(3)(B). impending hunting season).
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83854 Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Proposed Rules
VIII. Regulatory Analysis prosecute and disrupt the financing of conclusion in light of comments to the
international terrorism and other proposed rule, FinCEN would likely
A. Executive Orders 13563, 12866, and
priority transnational security threats, as extend the discretionary reporting
13771
well as other types of financial crime, by requirement exemptions similar to the
Executive Orders 13563 and 12866 obtaining improved visibility into rules that apply to banks under 31 CFR
direct agencies to assess costs and financial flows into unhosted wallets 1020.315 such that filers could submit
benefits of available regulatory and improved attribution of CVC a FinCEN Form 110 or similar form to
alternatives and, if regulation is transactions involving unhosted and exempt certain customers that engage in
necessary, to select regulatory otherwise covered wallets.96 FinCEN consistent patterns of legal transactions.
approaches that maximize net benefits believes that the collection of CVC and Second, FinCEN considered only
(including potential economic, LTDA indicators will significantly applying the exemption at 31 CFR
environmental, and public health and enhance law enforcement’s and 1010.316(d) to counterparty hosted
safety effects; distributive impacts; and regulators’ ability to leverage blockchain wallets at BSA-regulated financial
equity). Executive Order 13563 analytics to obtain attribution and move institutions and not extending it to
emphasizes the importance of investigations forward in an expeditious hosted wallets at foreign financial
quantifying both costs and benefits, of manner. institutions in jurisdictions not on the
reducing costs, of harmonizing rules, The cost of terrorist attacks can be Foreign Jurisdictions List. However,
and of promoting flexibility. Although immense. For instance, one public FinCEN determined that given the
the review requirements of Executive report estimated the cost of terrorism inherently international nature of CVC
Order 12866 do not apply to this globally at $33 billion in 2018, though and LTDA transactions, and the fact that
proposed rule because it involves a this cost was primarily borne outside certain other jurisdictions apply an
foreign affairs function, in the interest of the United States.97 The cost of a major AML regime to financial institutions
maximizing transparency, FinCEN has terrorist attack, such as the September hosting CVC or LTDA wallets, it would
analyzed the economic effects of this 11 attacks, can reach tens of billions of be appropriate to initially not impose
proposed rule consistent with the dollars.98 Of course, it is difficult to additional requirements with respect to
principles of the Order. quantify the contribution of a particular wallets hosted by financial institutions
FinCEN believes the primary cost of rule to a reduction in the risk of a in jurisdictions not on the Foreign
complying with the proposed rule is Jurisdictions List. However, FinCEN
terrorist attack. However, even if the
captured in its Paperwork Reduction will carefully analyze comments to
proposed rule produces very small
Act (44 U.S.C. 3507(d)) (‘‘PRA’’) burden determine whether additional
reductions in the probability of a major
estimates described in detail below, jurisdictions should be added to the
terrorist attack, the benefits would
which amount to 1,284,349 hours. Foreign Jurisdictions List.
exceed the costs.
FinCEN estimated in its recent OMB Third, FinCEN considered applying a
The proposed rule would contribute
control number renewal for SAR lower threshold for the proposed CVC/
to the ability of law enforcement to
requirements that the average labor cost LTDA transactions than the $10,000
investigate a wide array of priority
of storing SARs and supporting threshold. While imposing a lower
transnational threats and financial
documentation, weighed against the threshold for CVC/LTDA transactions
crimes, including terrorism,
relevant labor required, was $24 per would enhance the ability of law
proliferation financing, sanctions
hour.95 FinCEN assesses that this is a enforcement and national security
evasion, money laundering, human
reasonable estimate for the labor cost of authorities to obtain attribution on a
trafficking, and child exploitation.
the requirements that would be imposed FinCEN considered several larger number of wallets, FinCEN
by this rule. Therefore a reasonable alternatives to the proposed rule. First, determined that it would be beneficial
minimum estimate for the burden of FinCEN considered imposing a for the reporting requirement included
administering this rule is approximately reporting requirement on all CVC/LTDA in the proposed rule to have a threshold
$30.8 million annually (1,284,349 hours transactions. However, FinCEN consistent with the CTR reporting
multiplied by $24 per hour). However, determined that existing AML requirement for fiat transactions.
the PRA burden does not include FinCEN will carefully consider
requirements typically were sufficient to
certain costs, such as information comments as to whether a lower or
mitigate enough of the risks of illicit
technology implementation costs solely higher reporting threshold would be
finance involving transactions between
resulting from the proposed rule. appropriate for the proposed CVC/LTDA
hosted wallets at BSA-regulated
FinCEN specifically requests comment transaction reporting requirement.
institutions that it did not appear Fourth, FinCEN considered extending
regarding the costs associated with justified to impose an additional
implementing these requirements. the proposed CVC/LTDA transaction
transaction reporting requirement that reporting requirement to different types
FinCEN notes that although
all banks and MSBs report all such of financial institutions besides banks
institutions that provide CVC or LTDA
transactions. If FinCEN reevaluates this and MSBs. Based on the current market
wallet hosting services are, ipso facto,
likely to be capable of handling the 96 At the moment, only a limited number of
structure, FinCEN determined that it
implementation of the proposed transactions occur involving LTDA, although many
would be appropriate to limit the
reporting requirement, the initial costs countries are developing LTDA. proposed rule’s application to banks
of implementation may be non-trivial. 97 See Institute for Economics and Peace, Global and MSBs. FinCEN will carefully
For instance, institutions may incur Terrorism Index, 2019 (Nov. 2019), https:// evaluate comments as to whether the
visionofhumanity.org/app/uploads/2019/11/GTI- CVC/LTDA custody market in its
costs in the initial stages if they set up
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2019web.pdf.
a process for fitting existing data they 98 For example, the New York Comptroller current form, or as a result of how it is
maintain into XML format. estimated in 2002 that the direct physical and expected to develop in the future,
The benefits from the proposed rule human cost of the September 11 attacks on New justifies extending the proposed CVC/
are expected to include enhanced law York was over $30.5 billion. See City of New York LTDA transaction reporting requirement
Comptroller, ‘‘One Year Later: The Fiscal Impact of
enforcement ability to investigate, 9/11 on New York City’’ (Sept. 4, 2002), https://
to other types of financial institutions
comptroller.nyc.gov/wp-content/uploads/ such as those in the securities and
95 85 FR 31598, 31604 and 31607 (May 26, 2020). documents/impact-9-11-year-later.pdf. commodities industries.
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Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Proposed Rules 83855
Fifth, FinCEN considered imposing that involve an unhosted or otherwise a wide array of priority transnational
the proposed CVC/LTDA transaction covered wallet. FinCEN is proposing to threats and financial crimes, including
reporting requirement at 31 CFR define otherwise covered wallets as terrorism, proliferation financing,
1010.316(b), as well as the proposed those wallets that are held at a financial sanctions evasion, money laundering,
recordkeeping requirement at 31 CFR institution that is not subject to the BSA human trafficking, and child
1010.410(g), without associated and is located in a foreign jurisdiction exploitation. The proposed rule’s
verification requirements. However, identified by FinCEN on a Foreign reporting requirements are similar to the
FinCEN determined that it is reasonable Jurisdictions List. reporting requirements applicable to
to require verification at the time a First, this proposed rule would cash transactions imposed by the CTR
hosted wallet customer engages in CVC/ require banks and MSBs to file a report reporting requirement. Furthermore the
LTDA transactions that transfer with FinCEN containing certain recordkeeping requirements resemble
significant value involving unhosted or information related to a customer’s CVC the recordkeeping requirements
otherwise covered wallets. The or LTDA transaction and counterparty applicable to transmittals of funds
proposed verification requirement (including name and physical address), between financial institutions.
would enhance the ability of financial and to verify the identity of their
customer, if a counterparty to the 2. Small Entities Affected by the
institutions to provide accurate
transaction is using an unhosted or Proposed Regulation
information in their CVC/LTDA
transaction reporting, as well as to otherwise covered wallet and the This proposed regulation applies to
identify suspicious activity. FinCEN transaction is greater than $10,000 (or all banks and MSBs and likely would
also considered proposing verification the transaction is one of multiple CVC affect a substantial number of small
requirements that required gathering transactions involving such entities. As described in the PRA
specific documentation consistent with counterparty wallets and the customer section that follows, based upon current
the verification requirements applicable flowing through the bank or MSB within data there are 5,306 banks, 5,236 credit
to CTR reporting, but determined that it a 24-hour period that aggregate to value unions, and 365 MSBs that would be
would be more appropriate to allow in or value out of greater than $10,000). impacted by the proposed rule changes.
banks and MSBs to rely on risk-based Second, this proposed rule would Based upon current data, for the
verification procedures. require banks and MSBs to keep records purposes of the RFA, there are at least
Executive Order 13771 requires an of a customer’s CVC or LTDA 3,817 small Federally-regulated banks
agency to identify at least two existing transaction and counterparty, including and 4,681 small credit unions.99 FinCEN
regulations to be repealed whenever it verifying the identity of their customer, believes that most money transmitters
publicly proposes for notice and if a counterparty is using an unhosted are small entities.100 Because the
comment or otherwise promulgates a or otherwise covered wallet and the proposed rule would apply to all of
new regulation. The reporting, transaction is greater than $3,000. these small financial institutions,
recordkeeping, and verification Although analytic techniques can be FinCEN concludes that this proposed
requirements proposed in this notice used to combat illicit finance through rule would apply to a substantial
involve a national security function. CVC or LTDA, they are not a panacea. number of small entities.
Therefore, Executive Order 13771 does Blockchain analysis can be rendered FinCEN anticipates that for most
not apply. less effective by a number of factors, small banks and credit unions the
including the scale of a blockchain impact of the proposed changes will be
B. Regulatory Flexibility Act network, the extent of peer-to-peer minor. While FinCEN is aware that such
The Regulatory Flexibility Act activity (i.e., transactions between institutions, in light of developments
(‘‘RFA’’) (5 U.S.C. 601 et seq.) requires unhosted wallets), the use of such as the OCC Custody Guidance and
an agency either to provide an initial anonymizing technologies to obscure the creation of the SPDI charter in
regulatory flexibility analysis with a transaction information, and a lack of Wyoming, are likely to engage in a
proposed rule or certify that the information concerning the identity of growing amount of CVC transactions,
proposed rule will not have a significant transferors and recipients in particular that trend is still in the early stages.
economic impact on a substantial transactions. Additionally, several types FinCEN anticipates the burden on banks
number of small entities. This proposed of AEC are increasing in popularity and will become more comparable to that on
regulation applies to all banks and employ various technologies that inhibit MSBs over time, as banks engage in
MSBs and likely would affect a investigators’ ability both to identify more custody transactions involving
substantial number of small entities. transaction activity using blockchain CVC or LTDA. Likewise, FinCEN does
FinCEN has therefore prepared an initial data and to attribute this activity to not believe that any banks or MSBs
regulatory flexibility analysis pursuant illicit activity conducted by natural currently facilitate a significant number
to the RFA. FinCEN welcomes persons. of transactions involving sovereign
comments on all aspects of the initial The requirements FinCEN is digital currencies.
regulatory flexibility analysis. A final proposing would therefore provide Based on the conclusions just
regulatory flexibility analysis will be greater insight into transacting parties mentioned, the primary impact of the
conducted after consideration of with a nexus to one or more potentially
comments received during the comment illicit transactions in several respects. 99 The Small Business Administration (‘‘SBA’’)
period. These include directly as a result of the defines a depository institution (including a credit
information collected, maintained, and union) as a small business if it has assets of $600
1. Statement of the Need for, and reported in relation to transactions million or less. The information on small banks is
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Objectives of, the Proposed Regulation published by the Federal Deposit Insurance
above the recordkeeping or reporting Corporation (‘‘FDIC’’) and was current as of March
This proposed rule would adopt thresholds and also through information 31, 2020.
recordkeeping, verification, and identified in relation to structured 100 The SBA defines an entity engaged in
reporting requirements for certain transactions given the new structuring ‘‘Financial Transactions Processing, Reserve, and
Clearinghouse Activities’’ to be small if it has assets
deposits, withdrawals, exchanges, or prohibition that would be imposed. This of $41.5 million or less. FinCEN assesses that
other payments or transfers of CVC or greater insight will contribute to the money transmitters most closely align with this
LTDA by, through, or to a bank or MSB ability of law enforcement to investigate SBA category of entities.
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83856 Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Proposed Rules
proposed rules on small businesses will reporting requirements applicable to to CTR reporting, but determined that it
be on small businesses acting as money transactions in currency. would be more appropriate to allow
transmitters. FinCEN notes that banks and MSBs to rely on risk-based
5. Significant Alternatives to the
although institutions that provide CVC verification procedures.
Proposed Regulations
or LTDA wallet hosting services are, FinCEN welcomes comment on the
ipso facto, likely to be capable of FinCEN considered several
alternatives to the proposed regulatory overall regulatory flexibility analysis,
handling the implementation of the
changes. First, FinCEN considered especially information about
proposed reporting requirement, the
initial costs of implementation may be imposing a reporting requirement on all compliance costs and alternatives.
non-trivial. For instance, institutions CVC/LTDA transactions. However, C. Unfunded Mandates Reform Act
may incur costs in the initial stages if FinCEN determined that existing AML
they set up a process for fitting existing requirements typically were sufficient to Section 202 of the Unfunded
data they maintain into XML format. mitigate enough of the risks of illicit Mandates Reform Act of 1995
finance involving transactions between (‘‘Unfunded Mandates Act’’), Public
3. Compliance Requirements hosted wallets at BSA-regulated Law 104–4 (March 22, 1995), requires
Compliance costs for entities that institutions that it did not appear that an agency prepare a budgetary
would be affected by these regulations justified to impose an additional impact statement before promulgating a
are generally, reporting, recordkeeping, transaction reporting requirement that rule that may result in expenditure by
and information technology all banks and MSBs report all such
the state, local, and tribal governments,
implementation and maintenance costs. transactions.
Second, FinCEN considered only in the aggregate, or by the private sector,
Data are not readily available to of $100 million or more in any one year.
applying the exemption at 31 CFR
determine the costs specific to small If a budgetary impact statement is
1010.316(d) to counterparty hosted
entities and FinCEN invites comments required, section 202 of the Unfunded
wallets at BSA-regulated financial
about compliance costs, especially those Mandates Act also requires an agency to
institutions and not extending it to
affecting small entities. identify and consider a reasonable
hosted wallets at foreign financial
This proposed rule would adopt institutions in jurisdictions not on the number of regulatory alternatives before
recordkeeping, verification, and Foreign Jurisdictions List. However, promulgating a rule. See section VIII.A
reporting requirements for certain FinCEN determined that it would be for a discussion of the economic impact
deposits, withdrawals, exchanges, or appropriate to initially not impose of this proposed rule and regulatory
other payments or transfers of CVC or additional requirements with respect to alternatives.
LTDA by, through, or to a bank or MSB wallets hosted by financial institutions
that involve an unhosted or otherwise in jurisdictions not on the Foreign D. Paperwork Reduction Act
covered wallet. First, this proposed rule Jurisdictions List.
would require banks and MSBs to file a The reporting and recordkeeping
Third, FinCEN considered applying a
report with FinCEN containing certain lower threshold for the proposed CVC/ requirements contained in this proposed
information related to a customer’s CVC LTDA transactions than the $10,000 rule have been submitted by FinCEN to
or LTDA transaction and counterparty threshold. FinCEN determined that it OMB for review in accordance with the
(including name and physical address), would be beneficial for the reporting PRA. Under the Paperwork Reduction
and to verify the identity of their requirement included in the proposed Act, an agency may not conduct or
customer, if a counterparty to the rule to have a threshold consistent with sponsor, and a person is not required to
transaction is using an unhosted or the CTR reporting requirement for fiat respond to, a collection of information
otherwise covered wallet and the transactions. unless it displays a valid control
transaction is greater than $10,000 (or Fourth, FinCEN considered extending number assigned by OMB. Written
the transaction is one of multiple CVC the proposed CVC/LTDA transaction comments and recommendations for the
transactions involving such reporting requirement to different types information collection can be submitted
counterparty wallets and the customer of financial institutions besides banks by visiting www.reginfo.gov/public/do/
flowing through the bank or MSB within and MSBs. Based on the current market PRAMain. Find this particular notice by
a 24-hour period that aggregate to value structure, FinCEN determined that it selecting ‘‘Currently under Review—
in or value out of greater than $10,000). would be appropriate to limit the Open for Public Comments’’ or by using
Second, this proposed rule would proposed rule’s application to banks the search function. Comments are
require banks and MSBs to keep records and MSBs. welcome and must be received by
of a customer’s CVC or LTDA Fifth, FinCEN considered imposing January 7, 2021. In accordance with
transaction and counterparty, including the proposed CVC/LTDA transaction requirements of the PRA and its
verifying the identity of their customer, reporting requirement at 31 CFR
implementing regulations, 5 CFR part
if a counterparty is using an unhosted 1010.316(b), as well as the proposed
or otherwise covered wallet and the 1320, the following information
recordkeeping requirement at 31 CFR
transaction is greater than $3,000. 1010.410(g), without associated concerning the collections of
verification requirements. However, information are presented to assist those
4. Duplicative, Overlapping, or persons wishing to comment on the
FinCEN determined that it is reasonable
Conflicting Federal Rules information collections.
to require verification at the time a
FinCEN is unware of any Federal hosted wallet customer engages in CVC/ 1. Change in the Definition of
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rules that duplicate, overlap with, or LTDA transactions that transfer ‘‘Monetary Instruments’’
conflict with the changes to the BSA significant value involving unhosted or
regulation proposed herein. These rules otherwise covered wallets. FinCEN also The change proposed in this notice to
are meant to be analogues to the considered proposing verification the definition of monetary instruments
recordkeeping requirements applicable requirements that required gathering would impose no direct burden on the
to transmittals of funds between specific documentation consistent with public.
financial institutions and the CTR the verification requirements applicable
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Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Proposed Rules 83857
2. Reporting Requirement Related to Rule NPRM, FinCEN estimated that the number of transactions conducted by a
CVC and LTDA: [31 CFR burden hours per bank was nominally financial institution’s customers with
1010.306(a)(1)–(3), (d)–(e), 1010.313, one hour. FinCEN is retaining the same unhosted or otherwise covered wallets.
1010.316, 1020.313, 1020.315, 1020.316, estimate for this rule. While FinCEN is In a recent publication commenting on
1022.313, 1022.316] aware that banks, in light of the recent Funds Transfer/Funds Travel
The proposed rule would require developments such as the OCC Custody NPRM, the blockchain analytics firm
banks and MSBs to report information Guidance and the creation of the SPDI CipherTrace estimated that the
related to CVC and LTDA transactions charter in Wyoming, are likely to engage proposed decrease in the applicable
above $10,000 between their hosted in a growing amount of CVC threshold for international transactions
wallet clients and unhosted or transactions, that trend is still in the from $3,000 to $250 would increase the
otherwise covered wallets. The early stages. FinCEN anticipates the number of reportable transactions per
proposed aggregation rules that would burden on banks will become more month from approximately 27,300 to
apply to CVC and LTDA transactions are comparable to that on MSBs over time, approximately 79,000.105 Applying a
broadly similar to those that apply to as banks engage in more custody constant elasticity model,106 FinCEN
the CTR reporting requirement; transactions involving CVC or LTDA. estimates that approximately 60% as
aggregation is not required, however, In the Funds Transfer/Travel Rule many transactions would occur above
between a person’s CVC/LTDA and NPRM PRA analysis, FinCEN estimated the $10,000 threshold.
currency transactions. The mandatory that the burden per MSB to comply with In order to estimate the ratio of
exemptions of 31 U.S.C. 5313(d) apply the collection and recordkeeping unhosted-to-hosted transactions to
to the proposed CVC/LTDA transaction requirement at the transactional hosted-to-hosted transactions, FinCEN
reporting requirement, as incorporated threshold of $3,000 was 240 hours per analyzed blockchain data related to all
in 31 CFR 1020.315. institution, and that the burden per identifiable transactions by each of two
Description of Recordkeepers: Banks MSB to comply with the transmission major exchanges in September 2020
and MSBs that conduct CVC or LTDA requirement at the transactional using blockchain analytic tools. FinCEN
transactions on behalf of hosted wallet threshold of $3,000 was 180 hours per found that the ratio of unhosted-to-
clients as senders or recipients in an institution. The burden analysis below hosted to hosted-to-hosted transactions
amount above $10,000. assumes that the transmittal were approximately 1.52 and 2.39 in the
Estimated Number of Recordkeepers: requirement burden in the Funds $3,000 to $10,000 transaction range for
10,907 financial institutions. FinCEN Transfer/Travel Rule NPRM context is the two exchanges, respectively. In the
estimates that there are approximately analogous to the reporting requirement greater than $10,000 range the ratios
5,306 federally regulated banks and burden under the proposed CVC/LTDA were 1.40 and 1.64, respectively. In the
5,236 federally regulated credit transaction reporting requirement.103 analysis below, FinCEN uses the larger
unions.101 FinCEN, for purposes of However, the burden must be adjusted ratios, 2.39 and 1.64. Thus FinCEN will
these estimates, will assume that all of for four factors: (i) The fact that the assume that 164% as many transactions
these banks and credit unions engage $10,000 threshold under the CVC/LTDA would be covered by the reporting
nominally in transactions involving transaction reporting requirement is requirements at the $10,000 threshold
CVC. FinCEN estimates that, as of greater than the $3,000 threshold in the under the proposed rule than the
November 2020, 365 MSBs engage in Funds Transfer/Travel Rule NPRM; (ii) transmission requirements at the same
CVC transactions.102 The FinCEN MSB the fact that the burden analyzed in the threshold in the Funds Transfer/Travel
registration form does not require that Funds Transfer/Travel Rule NPRM
Rule NPRM. Similarly, in the $3,000 to
companies disclose whether they engage relates to transactions between hosted
$10,000 range, FinCEN will assume
in CVC transactions. This estimate is wallets and not transactions from hosted
239% as many transactions would be
therefore based on adding the number of to unhosted wallets, and there may be
covered by the proposed rule’s
MSBs that indicated they engage in CVC more or fewer hosted-to-unhosted
recordkeeping and verification
transactions in an optional field on the transactions at any level; (iii) the fact
requirements described in the next
MSB registration form, and the number that some transactions below the
section in comparison to the
that did not so indicate but which, transaction reporting threshold may be
recordkeeping requirements in the
based on FinCEN’s research, FinCEN subject to reporting due to aggregation
Funds Transfer/Travel Rule NPRM.
believes engage in CVC transactions. requirements; and (iv) the fact that the
reporting burden under the proposed Thus, at the $10,000 threshold, we
(5,306 + 5,236 + 365 = 10,907). assume that only 60% as many
Estimated Average Annual Burden CVC/LTDA transaction reporting
requirement may be more complex than transactions are occurring as at the
Hours Per Recordkeeper: FinCEN notes $3,000 level, but that the number of
that in the recent Funds Transfer/Travel the transmission requirement under the
Funds Transfer/Travel Rule NPRM.104 such transactions which are unhosted-
101 According to the FDIC there were 5,103 FDIC- As FinCEN noted in the Funds to-hosted are 164% of the amount of
insured banks as of March 31, 2020. According to Transfer/Travel Rule NPRM PRA such transactions that are hosted-to-
the Board of Governors of the Federal Reserve analysis, the estimated average burden
System, there were 203 other entities supervised by 105 CipherTrace, ‘‘FinCEN’s Proposed Rule
the Board or other Federal regulators, as of June 16,
hours would vary depending on the Change for Travel Rule Threshold Would More
2020, that fall within the definition of bank. (20 Than Double Compliance Events at US VASPs’’
Edge Act institutions, 15 agreement corporations, 103 As discussed in the next section, FinCEN (Nov. 13, 2020), https://ciphertrace.com/fincens-
and 168 foreign banking organizations). According assumes that the recordkeeping requirement burden proposed-rule-change-for-travel-rule-would-trigger-
to the National Credit Union Administration, there in the Funds Transfer/Travel Rule NPRM context is more-than-double-the-compliance-events-at-us-
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were 5,236 federally regulated credit unions as of analogous to the recordkeeping/verification burden vasps/ (accessed Dec. 1, 2020).
December 31, 2019. related to CVC/LTDA transaction reporting. 106 Specifically, FinCEN fit an equation of the
102 In the Funds Transfer/Travel Rule NPRM, 104 FinCEN anticipates that the number of model Y = CXα to the data from CipherTrace, where
FinCEN estimated that there were 530 MSB filers. transactions subject to reporting and recordkeeping Y equals the number of transactions above a given
Certain of these, however, are filers that were related to otherwise covered wallets hosted by threshold, X equals the threshold, C is a constant,
previously registered with FinCEN and that foreign financial institutions located in jurisdictions and a is the percent change in Y per one-percent
subsequently allowed their expirations to lapse. As on the Foreign Jurisdictions List will be modest and change in X. FinCEN used the calibrated values of
a result of their expirations lapsing, FinCEN has does not calculate additional burden in relation to C and a to extrapolate to the number of transactions
removed those filers from the burden calculation. this aspect of the rule. above the $10,000 threshold.
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83858 Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Proposed Rules
hosted, for a combined total scaling Estimated Number of Recordkeepers: Transfer/Travel Rule NPRM do not
factor of 98.4%. To account for the fact 10,907 financial institutions. FinCEN require verification in most cases. In
that some transactions less than $10,000 estimates that there are approximately contrast, this proposed rule would
will need to be aggregated due to 5,306 federally regulated banks and require verifying the hosted wallet
aggregation requirements, we will 5,236 federally regulated credit unions. customer in each transaction subject to
assume that the total scaling factor is FinCEN assesses that all of these banks the reporting or recordkeeping
148% (98.4% * 1.5). and credit unions nominally engage in requirements, as well as collecting each
In contrast to the PRA analysis used transactions involving CVC. FinCEN counterparty’s name and physical
for the Funds Transfer/Travel Rule estimates that there are 365 MSBs that address. As a result of this greater
NPRM, the reporting burden will engage in CVC transactions. burden, FinCEN assumes, for the
possibly be more complicated than the Estimated Average Annual Burden purpose of this burden estimate, that the
requirement to transmit information in Hours per Recordkeeper: As noted in recordkeeping and verification burden
the Funds Transfer/Travel Rule NPRM the previous section, FinCEN believes is five times greater per transaction,
given the variety of information that the burden estimate for under the proposed rule, than the
required by the reporting form. For recordkeeping in the Funds Transfer/ burden imposed under the
purposes of calculations, FinCEN Travel Rule NPRM (240 hours per MSB) recordkeeping requirements of the
assumes that the reporting burden will is analogous to the burden estimate for Funds Transfer/Travel Rule NPRM.
be twice as complex.107 Therefore the recordkeeping and verification Therefore the total scaling factor applied
total scaling factor applied to the Funds requirements pursuant to the proposed to the Funds Transfer/Travel Rule
Transfer/Travel Rule NPRM PRA CVC/LTDA transaction reporting NPRM PRA burden estimate for
burden estimate for transmission burden requirement. transmission burden is 12.2 (12.2 = 5 ×
is 2.96 (2.96 = 2 × 1.48). As a result, the All transactions subject to reporting 2.44). As a result, the estimated burden
estimated burden per MSB is 533 hours would also subject to recordkeeping and per MSB is 2,928 hours (240 hours (from
(180 hours (from Funds Transfer/Travel verification requirements. Therefore, the Funds Transfer/Travel Rule NPRM PRA
Rule NPRM PRA analysis) × 2.94). estimate that 148% as many analysis) × 12.2).
Estimated Total Additional Annual transactions will be subject to the
proposed reporting requirement as Estimated Total Additional Annual
Burden Hours: 10,542 hours (10,542 Burden Hours: 10,542 hours (10,542
banks × 1 hour/bank) + 194,545 hours compared to the transactions subject to
transmission requirements proposed by banks × 1 hour/bank) + 1,068,720 hours
(365 MSBs × 533 hours/MSB) = 205,087 (365 MSBs × 2,928 hours/MSB) =
hours. the Funds Transfer/Travel Rule NPRM,
also applies to the recordkeeping and 1,079,262 hours.
3. Recordkeeping and Verification verification requirements of the 4. Total Annual Burden Hours Estimate
Requirements Related to CVC and proposed rule. However, this increase Under the Proposed Rule
LTDA: [31 CFR 1010.312, 1010.410(g), needs to be supplemented with the
1022.312, 1022.312] increase in transactions that would be 205,087 (reporting requirements) +
The proposed rule would require subject to recordkeeping and 1,079,262 hours (recordkeeping and
banks and MSBs to keep records of, and verification under 31 CFR 1010.410(g), verification requirements) = 1,284,349
verify the identity of their hosted wallet as proposed, which are between $3,000 hours.
customers who participate in, and $10,000. Using the constant
elasticity model described in the 5. Questions for Comment
transactions subject to the CVC/LTDA
transaction reporting requirements, i.e. previous section, the number of hosted- In addition to the questions listed
CVC/LTDA transactions involving to-hosted transactions between $3,000 above, FinCEN specifically invites
hosted wallet customers and unhosted and $10,000 is approximately 40% of comment on: (a) The accuracy of the
or otherwise covered wallets related the estimated number of transactions estimated burden associated with the
with a value aggregating to $10,000 or about $10,000. Applying the 239% scale collection of information; (b) how the
more. The proposed recordkeeping factor used in the previous section to quality, utility, and clarity of the
requirement at 31 CFR 1010.410(g) calculate the proportionate number of information to be collected may be
likewise would require banks and MSBs hosted-to-unhosted transactions, and enhanced; and (c) how the burden of
to keep records of, and verify the making no adjustment for the fact that complying with the collection of
identity of their hosted wallet customers some transactions in this $3,000 to information may be minimized,
who engage in, transactions with a value $10,000 range would contribute to including through the application of
of more than $3,000. Furthermore, aggregation for the purposes of the automated collection techniques or
under the proposed rule, for proposed CVC/LTDA transaction other forms of information technology.
transactions that are greater than $3,000, reporting requirement and already be
subject to verification, the total number List of Subjects in 31 CFR Parts 1010,
or that aggregate to more than $10,000,
of transactions subject to verification 1020, and 1022
the name and physical address of each
counterparty must be collected and, in and recordkeeping due to 31 CFR
1010.410(g) would increase by an Administrative practice and
the case of reportable transactions, procedure, Banks, Banking, Currency,
reported. additional 96% (0.4 * 2.39 = 0.956), for
a total scaling factor of 244% (2.44 = Foreign banking, Foreign currencies,
Description of Recordkeepers: Banks Investigations, Penalties, Reporting and
and MSBs that conduct CVC or LTDA 1.48 + 0.96).
However, FinCEN notes that the recordkeeping requirements, Terrorism.
transactions on behalf of hosted wallet
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recordkeeping and verification Authority and Issuance
clients as senders or recipients in an
requirement in the proposed rule is
amount above $3,000, or that aggregate
likely to be more burdensome than the For the reasons set forth in the
to an amount above $10,000.
collection and recordkeeping preamble, Parts 1010, 1020, and 1022 of
107 The burden of collecting counterparty requirements of the Funds Transfer/ chapter X of Title 31 of the Code of
information that must be reported on the reporting Travel Rule NPRM. In particular, the Federal Regulations are proposed to be
form is considered in the next section. requirements dealt with in the Funds amended as follows:
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Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Proposed Rules 83859
PART 1010—GENERAL PROVISIONS § 1010.350, 1020.315, 1021.311 or nondepositors (e.g., a driver’s license or
1021.313 of this chapter shall be filed credit card). A bank signature card may
■ 1. The authority citation for part 1010 on forms prescribed by the Secretary. be relied upon only if it was issued after
continues to read as follows: All information called for in such forms documents establishing the identity of
Authority: 12 U.S.C. 1829b and 1951–1959; shall be furnished. the individual were examined and
31 U.S.C. 5311–5314 and 5316–5332; title III, (e) Forms to be used in making the notation of the specific information was
sec. 314, Pub. L. 107–56, 115 Stat. 307; sec. reports required by § 1010.311, made on the signature card. In each
701, Pub. L. 114–74, 129 Stat. 599. 1010.313, 1010.316, 1010.350, 1020.315, instance, the specific identifying
■ 2. Amend § 1010.100 by revising 1021.311 or 1021.313 of this chapter information (i.e., the account number of
paragraph (xx) to read as follows: may be obtained from BSA E-Filing the credit card, the driver’s license
System. Forms to be used in making the number, etc.) used in verifying the
§ 1010.100 General definitions. reports required by § 1010.340 may be identity of the customer shall be
* * * * * obtained from the U.S. Customs and recorded on the report, and the mere
(xx) Structure (structuring). For Border Protection or FinCEN. notation of ‘‘known customer’’ or ‘‘bank
purposes of § 1010.314, a person ■ 4. Revise § 1010.310 to read as signature card on file’’ on the report is
structures a transaction if that person, follows: prohibited.
acting alone, or in conjunction with, or § 1010.310 Reports of transactions in (b) Transactions in Convertible
on behalf of, other persons, conducts or currency. Virtual Currency or Digital Assets with
attempts to conduct one or more Legal Tender Status: Before concluding
Sections 1010.310 through 1010.314
transactions in currency, or, as defined any transaction with respect to which a
and 1010.316 set forth the rules for the
in § 1010.316(c), convertible virtual report is required under § 1010.313(c) or
reporting by financial institutions of
currency, and digital assets with legal § 1010.316 of this chapter, a bank or
transactions in currency, convertible
tender status, in any amount, at one or money services business shall verify
virtual currency, and digital assets with
more financial institutions, on one or and record the identity of its customer
legal tender status. Unless otherwise
more days, in any manner, for the engaging in the transaction. Consistent
indicated, the transactions in currency
purpose of evading the reporting with the bank’s or money service
reporting requirements in §§ 1010.310
requirements under §§ 1010.311, business’s anti-money laundering and
through 1010.314 apply to all financial
1010.313, 1020.315, 1010.316, 1021.311 countering the financing of terrorism
institutions. The transactions in
and 1021.313 of this chapter. ‘‘In any program, the bank or money services
convertible virtual currency and digital
manner’’ includes, but is not limited to, business should establish risk-based
assets with legal tender status
the breaking down of a single sum of procedures for verifying the identity of
requirements apply to banks and money
currency exceeding $10,000 into smaller its customer. The procedures must
services businesses. Each financial
sums, including sums at or below enable the bank or money services
institution should refer to subpart C of
$10,000, or the conduct of a transaction, business to form a reasonable belief that
its chapter X part for any additional
or series of currency transactions at or it knows the true identity of its
transactions in currency reporting
below $10,000. The transaction or customer engaging in a transaction.
requirements.
transactions need not exceed the ■ 5. Revise § 1010.312 to read as
These procedures must be based on the
$10,000 reporting threshold at any follows: bank or money services business’s
single financial institution on any single assessment of the relevant risks,
day in order to constitute structuring § 1010.312 Identification required. including those presented by the nature
within the meaning of this definition. (a) Transactions in Currency: Before of their relationship with its customer,
* * * * * concluding any transaction with respect the transaction activity, and other
■ 3. Amend § 1010.306, by revising the to which a report is required under activity associated with the convertible
text of paragraphs (a), (d), and (e) to read § 1010.311, 1010.313(b), 1020.315, virtual currency or digital assets with
as follows: 1021.311, or 1021.313 of this chapter, a legal tender status involved in the
financial institution shall verify and transaction.
§ 1010.306 Filing of reports. record the name and address of the Note to paragraph (b): If a bank or
(a)(1) A report required by § 1010.311, individual presenting a transaction, as money services business has knowledge
§ 1010.316, or § 1021.311 of this well as record the identity, account that a person has accessed the bank’s or
chapter, shall be filed by the financial number, and the social security or money services business’s customer’s
institution within 15 days following the taxpayer identification number, if any, wallet to conduct a reportable
day on which the reportable transaction of any person or entity on whose behalf transaction who is not the bank’s or
occurred. such transaction is to be effected. money services business’s customer, the
(2) A copy of each report filed Verification of the identity of an bank or money services business should
pursuant to §§ 1010.311, 1010.313, individual who indicates that he or she treat that person as a customer for the
1010.316, 1020.315, 1021.311 and is an alien or is not a resident of the purposes of this paragraph, and verify
1021.313 of this chapter, shall be United States must be made by passport, both the person who accessed the
retained by the financial institution for alien identification card, or other account and the customer.
a period of five years from the date of official document evidencing ■ 6. Revise § 1010.313 to read as
the report. nationality or residence (e.g., a follows:
(3) All reports required to be filed by Provincial driver’s license with
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§§ 1010.311, 1010.313, 1010.316, indication of home address). § 1010.313 Aggregation.
1020.315, 1021.311 and 1021.313 of this Verification of identity in any other case (a) Multiple branches. A financial
chapter, shall be filed with FinCEN, shall be made by examination of a institution includes all of its domestic
unless otherwise specified. document, other than a bank signature branch offices, and any recordkeeping
* * * * * card, that is normally acceptable within facility, wherever located, that contains
(d) Reports required by § 1010.311, the banking community as a means of records relating to the transactions of
1010.313, 1010.316, 1010.340, identification when cashing checks for the institution’s domestic offices, for
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83860 Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Proposed Rules
purposes of the transactions in currency assets with legal tender status reporting (d) Banks and money services
reporting requirements in this chapter. requirements of this chapter that businesses are not required to file a
(b) Multiple transactions in currency. contains a material omission or report under paragraph (b) in relation to
In the case of financial institutions other misstatement of fact; or a transaction in convertible virtual
than casinos, for purposes of the * * * * * currency or a digital asset with legal
transactions in currency reporting ■ 8. Add § 1010.316 to read as follows: tender status that is between the
requirements in this chapter, multiple financial institution’s customer and a
currency transactions shall be treated as § 1010.316 Filing obligations for reports of counterparty whose account is held at a
a single transaction if the financial transactions in convertible virtual currency financial institution regulated under the
institution has knowledge that they are and digital assets with legal tender status. BSA, or at a foreign financial institution,
by or on behalf of any person and result (a) For purposes of this section only, except for a foreign financial institution
in either cash in or cash out totaling FinCEN has determined that ‘‘monetary in a jurisdiction listed on the List of
more than $10,000 during any one instruments’’ as defined by 31 U.S.C. Foreign Jurisdictions Subject to this
business day (or in the case of the U.S. 5312(a)(3) includes convertible virtual section and § 1010.410(g)
Postal Service, any one day). Deposits currency and digital assets with legal Recordkeeping, which is maintained on
made at night or over a weekend or tender status. FinCEN’s website on the Resources
holiday shall be treated as if received on Note to paragraph (a): The page. If a single transaction involves
the next business day following the determination in paragraph (a) multiple counterparties, the transaction
deposit. authorizes the promulgation of reporting is only subject to this exemption if the
(c) Multiple transactions in requirements for transactions in account of each counterparty to the
convertible virtual currency or digital convertible virtual currency and digital transaction is held at a financial
assets with legal tender status. In the assets with legal tender status pursuant institution regulated under the BSA, or
case of banks and money services to 31 U.S.C. 5313(a). However, the at a foreign financial institution, except
businesses, for purposes of the determination in paragraph (a) is for a foreign financial institution in a
transactions in convertible virtual intended to have no impact on the jurisdiction listed on the List of Foreign
currency and digital assets with legal definition of the term ‘‘monetary Jurisdictions Subject to this section and
tender status reporting requirements in instruments’’ at § 1010.100(dd) or as § 1010.410(g) Recordkeeping.
this chapter, multiple convertible used elsewhere in this chapter, ■ 9. Amend § 1010.410 by adding
virtual currency and digital assets with including in relation to the currency paragraph (g) to read as follows:
legal tender status transactions shall be transaction reporting requirement at
treated as a single transaction if the § 1010.410 Records to be made and
§ 1010.311 and the transportation of
bank or money services business has retained by financial institutions.
currency or monetary instruments
knowledge that they are by or on behalf reporting requirement at § 1010.340. * * * * *
of any person and result in value in or Therefore, other requirements in this (g) Each bank or money services
value out of convertible virtual currency chapter that depend on the definition of business, as defined by 31 CFR
or digital assets with legal tender status ‘‘monetary instruments’’ are not affected 1010.100, is subject to the requirements
with a value of more than $10,000 by the determination in paragraph (a). of this paragraph (g) with respect to a
during a 24-hour period. A bank or withdrawal, exchange or other payment
(b) Except as exempted by paragraph
money services business includes all of or transfer, by, through, or to such
(d) or otherwise exempted by regulation,
its offices and records, wherever they financial institution which involves a
each bank or money services business,
may be located, for purposes of transaction in convertible virtual
as defined in § 1010.100, shall file a
reporting requirements in this chapter currency or a digital asset with legal
report of each deposit, withdrawal,
for their transactions in convertible tender status, as those terms are defined
exchange, or other payment or transfer,
virtual currency or digital assets with in § 1010.316(c), with a value of more
by, through, or to such financial
legal tender status. than $3,000.
institution which involves a transaction
■ 7. Amend § 1010.314 by revising the (1) Recordkeeping Requirements: For
in convertible virtual currency or a
introductory text and paragraphs (a) and each withdrawal, exchange, or other
digital asset with legal tender status
(b) to read as follows: payment or transfer, by, through, or to
with a value of more than $10,000. Such
such financial institution which
§ 1010.314 Structured transactions. report shall include, in a form
involves a transaction in convertible
No person shall for the purpose of prescribed by the Secretary, the name
virtual currency or a digital asset with
evading the transactions in currency or and address of each counterparty, and
legal tender status, as those terms are
transactions in convertible virtual such other information as the Secretary
defined in § 1010.316(c), a bank or
currency or digital assets with legal may require.
money services business shall obtain
tender status reporting requirements of (c) For purposes of paragraphs (a) and and retain an electronic record of the
this chapter with respect to such (b): following information:
transaction: (1) Convertible virtual currency (i) The name and address of the
(a) Cause or attempt to cause a means a medium of exchange (such as financial institution’s customer;
domestic financial institution to fail to cryptocurrency) that either has an (ii) The type of convertible virtual
file a report required under the equivalent value as currency, or acts as currency or legal tender digital assets
transactions in currency or transactions a substitute for currency, but lacks legal used in the transaction;
in convertible virtual currency or digital tender status. (iii) The amount of convertible virtual
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assets with legal tender status reporting (2) Digital assets with legal tender currency or legal tender digital assets in
requirements of this chapter; status means any type of digital asset the transaction;
(b) Cause or attempt to cause a issued by the United States or any other (iv) The time of the transaction;
domestic financial institution to file a country that is designated as legal (v) The assessed value of the
report required under the transactions tender by the issuing country and transaction, in dollars, based on the
in currency or transactions in accepted as a medium of exchange in prevailing exchange rate at the time of
convertible virtual currency or digital the country of issuance. the transaction;
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Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Proposed Rules 83861
(vi) Any payment instructions any particular manner, so long as the ■ c. Revising (g)(1) and (3), and (h).
received from the financial institution’s financial institution is able to retrieve The addition and revisions read as
customer; the information required by this follows:
(vii) The name and physical address paragraph, either by accessing records
of each counterparty to the transaction directly or through reference to some § 1020.315 Transactions of exempt
of the financial institution’s customer, persons.
other record maintained by the financial
as well as other counterparty institution. (a) General. (1) No bank is required to
information the Secretary may prescribe (4) Exceptions. Banks and money file a report otherwise required by
as mandatory on the reporting form for services businesses are not required to § 1010.311 with respect to any
transactions subject to reporting retain records under this subsection in transaction in currency between an
pursuant to § 1010.316(b); relation to a transaction in convertible exempt person and such bank, or, to the
(viii) Any other information that virtual currency or a digital asset with extent provided in paragraph (e)(6) of
uniquely identifies the transaction, the legal tender status that is between the this section, between such exempt
accounts, and, to the extent reasonably financial institution’s customer and a person and other banks affiliated with
available, the parties involved; and, counterparty whose account is held at a such bank. (A limitation on the
(ix) Any form relating to the financial institution regulated under the exemption described in this paragraph
transaction that is completed or signed BSA, or at a foreign financial institution, (a) is set forth in paragraph (f) of this
by the financial institution’s customer. except for a foreign financial institution section.)
(2) Verification: In addition to in a jurisdiction listed on the List of (2) No bank is required to file a report
obtaining and retaining the information Foreign Jurisdictions Subject to 31 CFR otherwise required by § 1010.316 with
required in paragraph (g)(1) of this 1010.316 Reporting and § 1010.410(g) respect to any transaction in convertible
section, before concluding any Recordkeeping, which is maintained on virtual currency or digital assets with
transaction in relation to which records FinCEN’s website on the Resources legal tender status between an exempt
must be retained under this paragraph, page. person defined in paragraphs (b)(1) to
a financial institution shall verify the
(3) of this section and such bank, or, to
identity of its customer engaging in the PART 1020—RULES FOR BANKS the extent provided in paragraph (e)(6)
transaction. Consistent with the
■ 10. The authority citation for part of this section, between such exempt
financial institution’s anti-money
1020 continues to read as follows: person and other banks affiliated with
laundering and countering the financing
such bank. (A limitation on the
of terrorism program, the financial Authority: 12 U.S.C. 1829b and 1951–1959;
exemption described in this paragraph
institution should establish risk-based 31 U.S.C. 5311–5314 and 5316–5332; title III,
(a) is set forth in paragraph (f) of this
procedures for verifying the identity of sec. 314, Pub. L. 107–56, 115 Stat. 307; sec.
its customer. The procedures must 701, Pub. L. 114–74, 129 Stat. 599. section.)
enable the financial institution to form (b) * * *
■ 11. Revise § 1020.310 to read as
a reasonable belief that it knows the true follows: (4) Solely for purposes of the
identity of its customer engaging in a exemption applicable to any transaction
transaction. These procedures must be § 1020.310 Reports of transactions in in currency in paragraph (a)(1) of this
based on the financial institution’s currency, convertible virtual currency, and section, any entity, other than a bank,
assessment of the relevant risks, digital assets with legal tender status. whose common stock or analogous
including those presented by the nature The reports of transactions in equity interests are listed on the New
of its relationship with its customer, the currency and transactions in convertible York Stock Exchange or the American
transaction activity, and other activity virtual currency and digital assets with Stock Exchange or whose common stock
associated with the convertible virtual legal tender status requirements for or analogous equity interests have been
currency or digital assets with legal banks are located in subpart C of part designated as a NASDAQ National
tender status involved in the 1010 of this chapter and this subpart. Market Security listed on the NASDAQ
transaction. ■ 12. Revise § 1020.312 to read as Stock Market (except stock or interests
Note to paragraph (g)(2): If a bank or follows: listed under the separate ‘‘NASDAQ
money services business has knowledge Capital Markets Companies’’ heading),
§ 1020.312 Identification required.
that a person has accessed the bank’s or provided that, for purposes of this
Refer to § 1010.312 of this chapter for paragraph (b)(4), a person that is a
money services business’s customer’s
identification requirements for reports financial institution, other than a bank,
wallet to conduct a transaction for
of transactions in currency and is an exempt person only to the extent
which records must be maintained who
transactions in convertible virtual of its domestic operations;
is not the bank’s or money services
currency and digital assets with legal (5) Solely for purposes of the
business’s customer, the bank or money
tender status filed by banks. exemption applicable to any transaction
services business should treat that ■ 13. Revise § 1020.313 to read as
person as a customer for the purposes of in currency in paragraph (a)(1) of this
follows:
this paragraph, and verify both the section, any subsidiary, other than a
person accessing the account and the § 1020.313 Aggregation. bank, of any entity described in
customer. Refer to § 1010.313 of this chapter for paragraph (b)(4) of this section (a ‘‘listed
(3) Retrievability. The information reports of transactions in currency and entity’’) that is organized under the laws
that a financial institution must retain transactions in convertible virtual of the United States or of any State and
under paragraphs (g)(1) and (g)(2) of this currency and digital assets with legal at least 51 percent of whose common
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section shall be retrievable by the tender status aggregation requirements stock or analogous equity interest is
financial institution by reference to the for banks. owned by the listed entity, provided
name or account number of the financial ■ 14. Amend § 1020.315 by: that, for purposes of this paragraph
institution’s customer, or the name of a ■ a. Revising paragraphs (a), (b)(4) and (b)(5), a person that is a financial
counterparty to the financial (5), (b)(6) introductory text and (b)(7) institution, other than a bank, is an
institution’s customer’s transaction. introductory text; exempt person only to the extent of its
This information need not be retained in ■ b. Adding paragraph (c)(2)(iii); and domestic operations;
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83862 Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Proposed Rules
(6) Solely for purposes of the virtual currency, or digital assets with currency and digital assets with legal
exemption applicable to any transaction legal tender status, that a bank knows, tender status aggregation requirements
in currency in paragraph (a)(1) of this suspects, or has reason to suspect is a for money services businesses.
section, to the extent of its domestic transaction or attempted transaction that ■ 20. Add § 1022.316 to read as follows:
operations and only with respect to is described in § 1020.320(a)(2)(i), (ii), or
§ 1022.316 Convertible virtual currency
transactions conducted through its (iii), or relieves a bank of any reporting and digital assets with legal tender status
exemptible accounts, any other or recordkeeping obligation imposed by filing obligations.
commercial enterprise (for purposes of this chapter (except the obligation to Refer to § 1010.316 of this chapter for
this section, a ‘‘non-listed business’’), report transactions in currency, reports of transactions in convertible
other than an enterprise specified in convertible virtual currency, or digital virtual currency filing obligations for
paragraph (e)(8) of this section, that: assets with legal tender status, pursuant money services businesses.
* * * * * to this chapter to the extent provided in
this section). Thus, for example, a sharp By the Department of the Treasury.
(7) Solely for purposes of the
increase from one year to the next in the Kenneth A. Blanco,
exemption applicable to any transaction
in currency in paragraph (a)(1) of this gross total of currency transactions Director, Financial Crimes Enforcement
made by an exempt customer, or Network.
section, with respect solely to
withdrawals for payroll purposes from similarly anomalous transactions trends [FR Doc. 2020–28437 Filed 12–18–20; 4:20 pm]
existing exemptible accounts, any other or patterns, may trigger the obligation of BILLING CODE 4810–02–P
person (for purposes of this section, a a bank under § 1020.320.
‘‘payroll customer’’) that: ■ 15. Add § 1020.316 to read as follows:
* * * * * DEPARTMENT OF EDUCATION
§ 1020.316 Convertible virtual currency
(c) * * * and digital assets with legal tender status 34 CFR Chapter II
(2) * * * filing obligations.
(iii) A bank is not required to file a Refer to § 1010.316 of this chapter for [Docket ID ED–2020–OESE–0172]
FinCEN Form 110 with respect to the reports of transactions in convertible
transfer of convertible virtual currency Proposed Priorities, Requirements,
virtual currency and digital assets with and Definitions—Expanding
or digital assets with legal tender status legal tender status filing obligations for
to or from any exempt person as Opportunity Through Quality Charter
banks. Schools Program (CSP)—National
described in paragraphs (b)(1) to (3) of
this section. PART 1022—RULES FOR MONEY Dissemination Grants
* * * * * SERVICES BUSINESSES AGENCY: Office of Elementary and
(g) * * * Secondary Education, Department of
(1) No bank shall be subject to penalty ■ 16. The authority citation for part
Education.
under this chapter for failure to file a 1022 continues to read as follows:
ACTION: Proposed priorities,
report required by § 1010.311 or Authority: 12 U.S.C. 1829b and 1951–1959; requirements, and definitions.
§ 1010.316 of this chapter with respect 31 U.S.C. 5311–5314 and 5316–5332; title III,
to a transaction in currency, convertible sec. 314, Pub. L. 107–56, 115 Stat. 307; sec. SUMMARY: The Assistant Secretary for
virtual currency, or digital assets with 701, Pub. L. 114–74, 129 Stat. 599. Elementary and Secondary Education
legal tender status by an exempt person ■ 17. Revise § 1022.310 to read as proposes priorities, requirements, and
with respect to which the requirements follows: definitions for the Expanding
of this section have been satisfied, Opportunity Through Quality Charter
unless the bank: § 1022.310 Reports of transactions in Schools Program (CSP)—National
currency, convertible virtual currency, and Dissemination Grants, Assistance
* * * * * digital assets with legal tender status.
(3) A bank that files a report with Listing Number 84.282T. We may use
The reports of transactions in one or more of these priorities,
respect to a currency, convertible virtual currency and transactions in convertible
currency, or digital asset with legal requirements, and definitions for
virtual currency and digital assets with competitions in fiscal year (FY) 2021
tender status transaction by an exempt legal tender status requirements for
person rather than treating such person and later years. We take this action to
money services businesses are located ensure that CSP National Dissemination
as exempt shall remain subject, with in subpart C of part 1010 of this chapter
respect to each such report, to the rules Grants are aligned with the statutory
and this subpart. purposes of the CSP and address key
for filing reports, and the penalties for ■ 18. Revise § 1022.312 to read as
filing false or incomplete reports that national policy issues. Specifically, the
follows: proposed priorities, requirements, and
are applicable to reporting of
transactions in currency, convertible § 1022.312 Identification required. definitions focus on disseminating best
virtual currency, or digital assets with practices for strengthening charter
Refer to § 1010.312 of this chapter for
legal tender status by persons other than school authorizing and oversight;
identification requirements for reports
exempt persons. improving charter school access to
of transactions in currency and
(h) Obligations to file suspicious facilities and facility financing;
transactions in convertible virtual
activity reports and maintain system for increasing educational choice for
currency and digital assets with legal
monitoring transactions in currency, students with disabilities, English
tender status filed by money services
convertible virtual currency, or digital learners, and other traditionally
businesses.
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assets with legal tender status. underserved student groups, including
■ 19. Revise § 1022.313 to read as
(1) Nothing in this section relieves a Native American students and students
follows:
bank of the obligation, or reduces in any in rural communities.
way such bank’s obligation, to file a § 1022.313 Aggregation. DATES: We must receive your comments
report required by § 1020.320 with Refer to § 1010.313 of this chapter for on or before January 22, 2021.
respect to any transaction, including reports of transactions in currency and ADDRESSES: Submit your comments
any transaction in currency, convertible transactions in convertible virtual through the Federal eRulemaking Portal
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