NPRM: Special measure regarding CVC mixing as a class of transactions of primary money laundering concern (88 FR 72701) (Part 2 of 2)
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special applicability of the proposed definition
illustrate how the recommended measure one reporting and of ‘‘covered transactions’’?
revisions would improve upon the recordkeeping requirements, as Alternatively, are there other
definition as proposed. proposed, impose expected costs to clarifications to the definitions in this
C. Alternatives covered financial institutions; state, NPRM, or other modifications to the
local, or tribal governments; or the proposed regulatory text that would
1. Is FinCEN’s proposal of enhanced private sector in excess of $177 million meaningfully clarify when a covered
recordkeeping under section 311’s annually? $200 million annually? transaction occurs that would warrant
special measure one most appropriate to Where possible, please provide data or reporting? If so, please describe.
the objectives of this proposed rule? studies from an identifiable source that 12. Is FinCEN correct in its
Where possible, please provide would support the response or describe assessment that covered financial
suggestions for alternative means of why a source cannot be identified. institutions would have access to
achieving the objectives and illustrate 4. To what extent should FinCEN reasonable and appropriate services or
how such means would work in consider the potential costs to currently tools, whether free or paid, to be able to
practice. unregistered or otherwise non-reporting effectively identify covered
2. Would section 311’s special entities that, if compliant, would incur transactions? If not, what are
measures two through five be more costs if special measure one is adopted impediments to accessing such tools,
appropriate to apply? If so, please as proposed? If possible, please and what costs would be associated
explain why. illustrate either quantitatively or with gaining access?
D. Recordkeeping and Reporting qualitatively (by way of example or 13. To what extent could public
anecdote) how the recommended level guidance or other informational
1. Is the scope of the recordkeeping of consideration would improve materials regarding compliance with the
requirement appropriate? FinCEN’s estimate of regulatory impact. requirements of proposed special
2. Is the list of information to be 5. Are there any material facts, data, measure one (such as FAQs, pre-
collected and reported appropriate to circumstances, or other considerations recorded instructional audio-visual
address the stated primary money that, had they been included in resources, or in-person presentations
laundering concern? FinCEN’s regulatory impact analysis, with industry groups) meaningfully
3. Is the proposed mechanism for would have both improved the reduce costs to covered financial
submission appropriate for the purpose precision and accuracy of the analysis institutions? Please describe any
of this proposed rule? and substantially altered the assessment preferred method(s), as well as any
4. Are there any alternative methods of the proposed rule’s impact? If so, qualitative or quantitive estimates of the
of submitting reports in an efficient and please provide, including attribution to extent to which costs are expected to be
effective manner that FinCEN should the sources of such information, where reduced.
consider utilizing? possible.
5. Are the proposed reporting and 6. Would the adoption of special VIII. Regulatory Impact Analysis
recordkeeping requirements discussed measure one reporting and FinCEN has analyzed this proposed
in Section VI.B.1 and 3 appropriately recordkeeping requirements, as rule under Executive Orders 12866,
scoped? Are there additional types of proposed, impose significant costs on 13563, and 14094, the Regulatory
information regarding reportable covered financial institutions that are
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Flexibility Act,81 the Unfunded
transactions or customers that should be small entities? On other small entities Mandates Reform Act,82 and the
collected? that are not covered financial Paperwork Reduction Act.83
6. Should the proposed reporting and institutions? Where possible, please
recordkeeping requirements apply to provide data or studies from an 81 5 U.S.C. 603.
covered financial institutions that are identifiable source that would support 82 12 U.S.C. 1532, Public Law 104–4 (Mar. 22,
the originator institution, the the response or describe why a source 1995).
beneficiary institution, or both? cannot be identified. 83 44 U.S.C. 3507(a)(1)(D).
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Federal Register / Vol. 88, No. 203 / Monday, October 23, 2023 / Proposed Rules 72713
As discussed above,84 the intended primary money laundering concern. externality insofar as the reporting
effects of the imposition of special Therefore, under this proposal, the entity incurs expenses in connection
measure one to CVC mixing are twofold. implied burden would shift from with such reporting that are not directly,
The rule is expected to: (1) facilitate the determining when a CVC transaction is fully compensated. As such, the
investigation and prosecution of illicit reportable to determining when it is not marginal social benefit of reporting
activities by parties using CVC mixing reportable. exceeds the private costs. Consequently,
in furtherance of their unlawful FinCEN has considered the regulatory in the absence of imposing a social
objectives 85 and, in many cases,86 impact of the proposed rule and the (compliance-related) cost to non-
consequent private enrichment; and (2) economic consequences these changes reporting, the entity-specific
disincentivize the use of CVC mixing in would entail. The subsequent analysis equilibrium level of reporting will
connection with money laundering and details FinCEN’s finding that, in always be less than the social optimum.
other financial crimes by reducing the proportion to the thousands of covered
Furthermore, from a microeconomic- or
likelihood that such CVC mixing will financial institutions subject to
a more industrial-organization-level of
adequately insulate the underlying FinCEN’s general reporting and
analysis, there are competitive reasons
transactions from identification and recordkeeping requirements, relatively
why, absent a uniform reporting
traceability.87 In the analysis below, few are exposed to CVC mixing and,
additionally, proportionally few requirement, no single covered financial
FinCEN discusses the economic effects
transactions per exposed financial institution that knows, suspects, or has
that are expected to accompany
adoption of the rule as proposed and institution covered under the proposed reason to suspect CVC mixing would
assess such expectations in more rule are likely to trigger the new benefit from competing lower on the
granular detail. This discussion recordkeeping and reporting perceived level of quality in privacy. In
includes a detailed explanation of requirements, of which fewer still may such a setting, achieving the socially
certain ways FinCEN’s conclusions may provide actionable information. optimal level of reporting would again
be sensitive to methodological choices However, any one reportable be unobtainable in the absence of a
and underlying assumptions made in transaction, by nature of the underlying policy intervention (such as the
drawing inferences from available data. illicit and potentially dangerous activity proposed reporting and recordkeeping
Throughout, these have been outlined it facilitates, could provide large requirements).
so that the public may review and benefits to FinCEN and law enforcement In this proposal, FinCEN is mindful
provide comment.88 if identified, or, alternatively framed, that certain unintended, responsive
could impose substantial costs and changes in behavior may reduce the
A. Assessment of Impact serious national security risks if efficacy of this rule or otherwise
By requiring covered financial unreported.90 attenuate the intended net benefits by
institutions to implement special
1. Broad Economic Considerations limiting the scope of benefits or by
measure one, the proposed rule would
increasing the costs of compliance.
impose additional obligations on these At present, in the absence of an
Additionally, the attendant costs and
institutions to report transactions that obligation to comply with special
they know, suspect, or have reason to measure one requirements, a covered benefits per reported transaction may
suspect involve CVC mixing because financial institution may determine that not be uniformly distributed across the
FinCEN has determined that CVC a financial transaction exposed, affected covered financial institutions.
mixing, as a class of transactions, is of directly 91 or indirectly,92 to CVC There may also be broader
primary money laundering concern. mixing bears indicia of illicit activity. programmatic costs or repercussions to:
The imposition of this special Given the potential link to illicit (1) the specific framing of CVC mixing
measure may require a shift in reporting activity, this financial institution might and CVC mixers as proposed; 94 (2) the
practices, particularly with regard to the file a SAR in compliance with existing framing of CVC mixing activity as
determination a covered financial BSA requirements. However, there are a categorically foreign-state-operated,
institution would otherwise first need to number of potential reasons why any -located, or otherwise -adjacent; (3) the
make: that a transaction involving CVC one individual institution may not file reporting and recordkeeping
mixing is suspicious and therefore such a report, including that in terms of requirements being applicable to
reportable under the applicable SAR economic fundamentals, such reporting domestic financial institutions only; and
Rule.89 The reporting and recordkeeping may not be privately optimal. (4) allowing an in-the-course-of-
requirements under special measure one Consequently, the absence of the business exemption to covered financial
would instead guide a covered financial proposed special measure one reporting institutions, that each remain
institution to presume transactions that requirement might naturally result in unquantified in the following impact
involve CVC mixing are inherently of systematic underreporting of CVC analysis. Nevertheless, FinCEN has
mixing-related suspicious activity, made a studied 95 and advised 96
84 See, specifically discussion supra Section IV. C.
particularly when the exposure to CVC determination that these considerations
See generally discussion supra Section II. mixing does not involve a CVC mixer.
85 See, e.g., discussion of Axie Infinity heist supra
are outweighed by the primary money
Section III.B.
As discussed above, preliminary laundering concern that animates this
86 See, e.g., discussion of use in connection with evidence suggests that this proposal and are therefore not further
darknet market transactions and laundering the underreporting occurs.93 incorporated in the subsequent
proceeds of ransomware attacks supra Sections III.B In terms of economic fundamentals, discussion.
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and IV.A. reporting on transactions exposed to
87 See discussion supra Section IV.C.
88 See Section VII.E.
CVC mixing produces a positive 94 See invitation for public comment on potential
89 See, e.g., FinCEN 2019 CVC Guidance supra costs and repercussions supra Section VII.B.
90 See, e.g., discussion supra Sections III.B and 95 31 U.S.C. 5318A(a)(4)(B). See discussion supra
note 16 and FinCEN, Reporting Suspicious Activity
A Quick Reference Guide for Money Services IV.A. Section I.
91 See infra note 121. 96 See discussion of 31 U.S.C. 5318A(c)(1)
Businesses, September, 2007, available at https://
92 See infra note 122.
www.fincen.gov/sites/default/files/shared/report_ requirements supra Section I. See also discussion
reference.pdf. 93 See discussion supra Section IV.A.3. of 31 U.S.C. 5318A(a)(4)(A) supra Sections I and V.
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72714 Federal Register / Vol. 88, No. 203 / Monday, October 23, 2023 / Proposed Rules
2. Institutional Baseline and Affected of special measure one would, 1010.100(t).99 Table 1 (below) reports an
Parties independently, alter the registration and annual maximum of potentially affected
compliance choices already made by entities based on FinCEN’s most recent
In proposing this rule, FinCEN such affected parties, quantitative estimates of the total number of entities
considered the incremental impacts of portions of the subsequent analysis have that meet the respective regulatory
imposing special measure one relative not attempted to estimate the number of, definitions.100 Estimates of potentially
to the current state of the affected or magnitude of effects on, unregistered affected money services businesses by
markets and their participants. This or otherwise non-compliant entities that subcategories as defined in 31 CFR
baseline analysis of the parties that FinCEN qualitatively might expect to be 1010.100(ff) are intended to aid in
would be affected by the proposed rule, affected by the rule. Because both these
subsequent discussion, which details
their current obligations, and common considerations may have first-order
our assumptions about differences in
activities satisfies certain analytical best effects on the expected magnitude of
practices 97 by detailing the implied certain outcomes, the public is invited expected compliance burdens by group.
alternative of not pursuing the to provide further insights or Estimates in parentheses reflect the total
proposed, or any other, regulatory information—particularly, data or number of registered money services
action. This baseline also forms the quantitative studies—that could businesses that self-identified their
counterfactual against which the contribute to a more precise or more business by the given service
quantifiable effects of the rule are accurate estimation of impact.98 subcategory as defined in 31 CFR
measured; therefore, substantive errors 1010.100(ff), among others.101 Money
(i) Baseline of Affected Parties services business subcategory estimates
in or omissions of relevant data, facts,
or other information may affect the (A) Covered Financial Institutions outside parentheses represent the
conclusions formed regarding the The parties expected to comply with number of entities that self-identified as
general and/or economically significant the special measure one include any registering (and reporting) singularly
impacts of the rule. Additionally, and all domestic covered financial due to the requirements for that
because it is unclear that the imposition institutions as defined in 31 CFR subcategory.
TABLE 1—ESTIMATES OF AFFECTED FINANCIAL INSTITUTIONS BY TYPE
Number of
Financial institution type a entities
Bank b ............................................................................................................................................................................................... c 9,850
Broker/Dealer in Securities d ............................................................................................................................................................ e 3,540
Money Services Business f .............................................................................................................................................................. g 25,710
Dealer in Foreign Exchange h .......................................................................................................................................................... i 190 (3,000)
Check Casher j ................................................................................................................................................................................. k 5,960 (21,970)
Issuer/Seller of Traveler’s Checks/Money Orders l ......................................................................................................................... m 380
Provider of Prepaid Access n ........................................................................................................................................................... o 20 (130)
Seller of Prepaid Access p ............................................................................................................................................................... q 40 (2,220)
U.S. Postal Service r ........................................................................................................................................................................ s0
Money Transmitter t ......................................................................................................................................................................... u 450 (16,460)
Telegraph Company v ...................................................................................................................................................................... w0
Casino x ............................................................................................................................................................................................ y 990
Card Club z ....................................................................................................................................................................................... aa 270
Person subject to supervision by any State or Federal Bank Supervisory Authority bb ................................................................. cc N/A
Futures Commission Merchant dd .................................................................................................................................................... ee 60
Introducing Broker in Commodities ff ............................................................................................................................................... gg 970
Mutual Fund hh ................................................................................................................................................................................. ii 1,380
a As typographically grouped in 31 CFR X 1010.100(t) and (ff), respectively.
b See 31 CFR 1010.100(t)(1); see also 31 CFR 1010.100(d).
c Counts of certain types of banks, savings associations, thrifts, and trust companies are from Q1 2023 Federal Financial Institutions Examina-
tion Council (FFIEC) Call Report data, available at https://cdr.ffiec.gov/public/pws/downloadbulkdata.aspx. Data for institutions that are not in-
sured, are insured under non-FDIC deposit insurance regimes, or do not have a Federal functional regulator are from the FDIC’s Research Infor-
mation System, available at https://www.fdic.gov/foia/ris/index.html. Credit union data are from the NCUA for Q1 2023, available at https://
www.ncua.gov/analysis/credit-union-corporate-call-report-data.
d 31 CFR 1010.100(t)(2).
e According to the SEC, the number of brokers or dealers in securities for the fiscal year 2022 is 3,538. See Securities and Exchange Commis-
sion, Fiscal Year 2024 Congressional Budget Justification, p. 32, available at https://www.sec.gov/files/fy-2024-congressional-budget-justification_
final-3-10.pdf.
f 31 CFR 1010.100(t)(3).
g From FinCEN’s publicly available MSB data (https://www.fincen.gov/msb-registrant-search) as of September 1, 2023.
h 31 CFR 1010.100(ff)(1).
i Value in parentheses reflects all entries in data downloaded from https://www.fincen.gov/msb-registrant-search on August 1, 2023, including
MSB Activities key 415. Alternative value reflects entries with exclusively key 415.
j 31 CFR 1010.100(ff)(2).
k Value in parentheses reflects all entries in data downloaded from https://www.fincen.gov/msb-registrant-search on August 1, 2023, including
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MSB Activities key 408. Alternative value reflects entries with exclusively key 408.
97 See specifically E.O. 12866 Section 1(a) (‘‘In 99 See discussion supra Section VI.A.4; see also Such differences are not expected to be
deciding whether and how to regulate, agencies proposed amendment 31 CFR 1010.662(a)(4) infra economically meaningful.
should assess all costs and benefits of available Section IX. 101 For the full list of non-exclusive subcategories
100 Numbers presented here may differ slightly
regulatory alternatives, including the alternative of a money services business may use to self-identify
not regulating.’’). from those presented in other, concurrent agency
when submitting a registration see msb.fincen.gov/
rulemaking because estimates in this analysis are
98 See, e.g., supra Section VII.E.
rounded to the nearest ten for ease of aggregation. definitions/msbKey.php.
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Federal Register / Vol. 88, No. 203 / Monday, October 23, 2023 / Proposed Rules 72715
l 31 CFR 10101.100(ff)(3).
m Value reflects all entries in data downloaded from https://www.fincen.gov/msb-registrant-search on August 1, 2023 with, exclusively, one of
the MSB Activities keys 401 (Issuer of traveler’s checks), 402 (Seller of traveler’s checks), 404 (Issuer of money orders), or 405(Seller of money
orders). Because of the numerous (134) alternative combinations of at least one of the 4 keys with at least one of the other three keys and, in
some cases, other keys as self-reported by registrants, no suitable alternative combination of key values could be determined as most appro-
priately and uniquely representative in light of concerns about multiplicative counting of affected parties. FinCEN estimates therefore default to
the upper bound of all MSB registrants for this category of parties collectively incurring a regulatory compliance burden.
n 31 CFR 1010.100(ff)(7)(i)–(ii).
o Value in parentheses reflects all entries in data downloaded from https://www.fincen.gov/msb-registrant-search on August 1, 2023 including
MSB Activities key 414(Provider of prepaid access). Alternative value reflects entries with exclusively key 414.
p 31 CFR 1010.100(ff)(4)(i)–(iii).
q Value in parentheses reflects all entries in data downloaded from https://www.fincen.gov/msb-registrant-search including MSB Activities key
413. Alternative value reflects entries with exclusively key 413.
r 31 CFR 1010.100(ff)(6).
s FinCEN does not expect the U.S. Postal Service, as defined in 31 CFR 1010.100(ff)(6) to incur any recordkeeping or reporting obligations in
connection with this rule.
t 31 CFR 1010.100(ff)(5).
u Value in parentheses reflects all entries in data downloaded from https://www.fincen.gov/msb-registrant-search including MSB Activities key
409. Alternative value reflects entries with exclusively key 409.
v 31 CFR 1010.100(t)(4).
w As an estimate of uniquely registered, potentially affected entities, FinCEN expects this category to contain no additional persons or organi-
zations not already included in other counts, particularly as money transmitters.
x 31 CFR 1010.100(t)(5)(i)–(iii).
y According to the American Gaming Association (AGA), there are 468 commercial casinos and 523 tribal casinos as of Dec. 31, 2022. See
American Gaming Association, State of the States: annual report, May 2023, available at https://www.americangaming.org/wp-content/uploads/
2023/05/AGA-State-of-the-States-2023.pdf p. 16.
z 31 CFR 1010.100(t)(6)(i)–(ii).
aa According to the American Gaming Association (AGA), there are 266 card rooms as of Dec. 31, 2022.
bb 31 CFR 1010.100(t)(7).
cc It is unclear to FinCEN at this time whether any entities exist in this category that for purposes of being counted towards unique affected
parties incurring burdens associated with the rule, if adopted as proposed, are not already captured by concurrent status in another category of
financial institution under the 31 CFR 1010.100(t) definition. To the extent that additional data can better inform this estimate, public comment is
invited.
dd 31 CFR 1010.100(t)(8).
ee There are 60 futures commission merchants as of June 30, 2023, according to the CFTC website. See Commodity Futures Trading Com-
mission, Financial Data for FCMs, available at https://www.cftc.gov/MarketReports/financialfcmdata/index.htm.
ff 31 CFR 1010.100(t)(9).
gg According to CFTC, there are 969 introducing brokers in commodities as of April 30, 2023.
hh 31 CFR 1010.100(t)(10).
ii According to the SEC, as of December 2022 (including filings made through Jan 20, 2023) there are 1,378 open-end registered investment
companies that report on Form N–CEN.
Based on these estimates, it is following subcategories are not expected reporting requirements would be those
possible that up to approximately to experience any substantial change to with both higher likelihoods of being
42,800 covered financial institutions compliance burdens: dealer in foreign exposed to CVC mixing and lower
could incur new recordkeeping and exchange, check casher, issuer/seller of tailoring of existing compliance
reporting costs in complying with traveler’s checks or money orders, programs because, for instance, virtual
special measure one. However, the provider of prepaid access, and seller of asset service provision has not
extent to which any of these institutions prepaid access. Thus, FinCEN expects historically been integral to the entity’s
is expected to be economically impacted approximately 9,300 fewer than the total core business function or model.
is limited insofar as they would need to estimate of potentially affected entities FinCEN expects that this may
engage in transactions 102 that involve to reasonably anticipate any noticeable characterize certain banks, or persons
CVC, and thereby the possibility of CVC effect. subject to supervision by a state or
mixing. This prerequisite 103 (that a On the other hand, the categories of federal bank supervisory authority,
transaction be in CVC) is expected to affected parties that include the largest broker/dealers, and introducing brokers
preclude many entities from proportion of VASPs are expected to in commodities. However, as these
experiencing any significant economic face the highest levels of potential types of financial institutions are
effects from the rule.104 For example, exposure to CVC mixing. These entities already heavily regulated and typically
FinCEN does not anticipate any direct are most concentrated in the money already feature robust monitoring and
effects to the U.S. Postal Service or to transmitter subcategory of money compliance programs, even as they may
any registered telegraph company. services businesses and futures face the largest incremental burden, this
Further, FinCEN analysis of public and commission merchants. In each case, economic impact might still be low.105
non-public sources of information these VASPs are a proper subset of their
suggests that, categorically, domestic respective groups, and while they are (B) CVC Mixing Service Providers 106
mutual funds, casinos, and card clubs expected to be the most directly affected
have low exposure to CVC transactions. by the rule because they have the While the proposed application of
For the same reasons, money services highest exposure, the incremental special measure one does not expressly
businesses that provide services burden of the rule is expected to be 105 FinCEN is requesting comment on the
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exclusively in one or more of the lowest for these entities because it reasonable bases for this expectation. See requests
imposes the least adaptation from for comment supra Section VII.A and Section VII.E.
102 31 CFR 1010.100(bbb)(1). current compliance practices and 106 In this section, FinCEN uses the term ‘CVC
103 See discussion supra Section VI.A.5; see also
processes. mixer’ as used in common parlance, noting this
proposed amendment 31 CFR 1010.662(a)(5) infra The covered financial institutions that may commonly be understood to refer to only a
Section IX. proper subset of the entities/parties that would
104 See discussion of expected economic effects
are expected to face the greatest meet the definition of ‘CVC mixer’ as defined in this
on covered financial institutions infra Section incremental burden as a consequence of proposed rule. See discussion supra Section
VIII.A.4. the proposed recordkeeping and Continued
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72716 Federal Register / Vol. 88, No. 203 / Monday, October 23, 2023 / Proposed Rules
impose requirements on CVC mixers 300 million users of unhosted CVC services by third party blockchain
that are not covered financial wallets insofar as a user’s personal analytics companies.116 Such
institutions or those able to rely on the information may be reported if their companies provide transaction
proposed exemption,107 it is reasonable wallet is deemed by a covered financial screening and risk rating services to
to expect that the relative attractiveness institution to be involved in a covered financial institutions that may hire them
of engaging with CVC mixers or the transaction. Because there is no in lieu of, or to complement, similar
number of those who avail themselves restriction on the number of wallets an functions performed in-house. Because
of CVC mixing services might be individual may have, this number may of the specialized experience and
affected. As a baseline matter of market overestimate the number of unique expertise required to build a program,
structure, the centralized mixing individuals whose personal information reporting in near real time, that not only
services industry is expected to be may be required. To the extent that monitors multiple blockchains, but also
characterized by large network previously reported estimates 112 incorporates a multitude of additional
externalities: the value of a CVC mixer regarding the distribution of CVC mixer data sources to enrich a given
should increase as the number of users users by type—privacy-oriented versus blockchain’s transaction- and
increases, because the greater the abusers of anonymity—are usable for transaction party-related information,
number of parties that use a particular inference, special measure one could few such companies exist and the
CVC mixer, the easier it becomes for the require the reporting of personal market is consequently concentrated to
mixer to anonymize each participant in information in connection with up to fewer than ten main entities.
a mixing transaction. This approximately 66 (87) percent of CVC Separately, because the proposed rule
characterization is consistent with mixer deposits in the absence of any is limited in scope to only the mixing
observable market behavior. Because other identifiable connection to high of CVC, to the extent that digital token
network externalities generally reinforce risk (illicit) activity. mixing and its service providers are
high levels of market concentration, it FinCEN has weighed these considered viable substitutes for CVC
may be reasonable to expect that the considerations against the broader mixing or could otherwise be employed
number of CVC mixers that can economic concern of systematic to obfuscate CVC mixing, the demand
concurrently achieve and maintain a underreporting in the absence of special for token mixing and its service
sustainable scale to continue operations measure one requirements,113 and providers may increase as a
is unlikely to grow. It may also imply concluded that the associated costs to consequence of adopting the rule as
that, to the extent that the demand for privacy-oriented clients of covered proposed.
financial institutions and CVC mixers
CVC mixing services remains relatively (ii) Regulatory and Market Baseline
are small in both relative 114 and
constant over time, in the event that any (A) Current Requirements
absolute 115 terms. Further, there is no
one CVC mixing service provider ceases
reason to believe the required records The ten categories of financial
to remain active, another active or new
and personal information contained institutions covered by the proposed
CVC mixer could greatly benefit from
therein would be subject to any greater rule, as defined in 31 CFR 1010.100(t)
the subsequent increase in demand for
risk of improper access, use, or exposure are expected to already be compliant
its services.
than any other record or report filed with the required activities as outlined
(C) Clients of Primary Affected Parties with a federal agency or maintained by in 31 CFR 1020 (Banks), 1021 (Casinos
a covered financial institution. and Card Clubs), 1022 (Money Service
In the course of compliance with
(D) Other Affected Parties Businesses), 1023 (Brokers or Dealers in
special measure one, covered financial
Securities), 1024 (Mutual Funds), and
institutions may be required to submit FinCEN further anticipates second
1026 (Futures Commission Merchants
reports and retain records containing order economic effects of the proposed
and Introducing Brokers in
certain unique identifiers 108 and other rule on parties ancillary to transactions
Commodities), as applicable. These
personal information 109 of a party, or between covered financial institutions,
rules include requirements for financial
parties, to a CVC mixing-exposed CVC mixing service providers, and
institutions to: (1) create and maintain
transaction.110 Based on a recent clients of either or both, such as
counsel, advisors, external forensic compliance policies, procedures, and
report,111 this could affect more than internal controls; (2) engage in customer
firms, independent auditors, IT services,
VII.A.3; see also proposed amendment 31 CFR and other compliance facilitators or identification verification; (3) file
1010.662(a)(2) infra Section IX. third-party service providers. In reports with FinCEN; (4) create and
107 At the time of this proposal, FinCEN observes
particular, FinCEN expects the proposed retain records; and (5) respond to law
no CVC mixers that meet either or both of these
requirements may affect the demand for enforcement requests, and have guided
criteria. financial institutions’ understanding of
108 Including name (see proposed amendment 31
CFR 1010.662(b)(1)(ii)(A) infra Section IX) and crypto-exchanges-on-chain-user-segmentation- FinCEN’s expectations of compliant
government issued (alpha)numeric identifier (see guide/. reporting and recordkeeping activity
proposed amendment 31 CFR 1010.662(b)(1)(ii)(F) 112 See discussion supra Section IV.A.3; see also since before the advent of virtual
infra Section IX); see also discussion supra Section supra note 58. currency. Where the original rules are
VI. 113 See discussion supra Section IV.A.3; see also
109 Including a customer’s CVC wallet address
silent on the application of, or
Section VIII.A.1.
(see proposed amendment 31 CFR 114 FinCEN considered costs here proportionally
compliance with, these requirements
1010.662(b)(1)(i)(E) infra Section IX), date of birth to the value of the information collected and with respect to CVC, FinCEN and OFAC
(see proposed amendment 31 CFR reported in connection with illicit finance-related
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1010.662(b)(1)(ii)(B) infra Section IX), address (see transactions. See discussion supra Section VIII.A; 116 At present, it is unclear to FinCEN whether,
proposed amendment 31 CFR 1010.662(b)(1)(ii)(C) see also supra note 90. in light of the proposed requirements, a covered
infra Section IX), and email address (see proposed 115 FinCEN considered here the aggregate financial institution would be more likely to treat
amendment 31 CFR 1010.662(b)(1)(ii)(D) infra potential informational exposure, which depends these third party services as a substitute or a
Section IX); see also discussion supra Section VI. jointly on (1) the quanta of personal information complement to in-house screening and risk-
110 See Section VI.B.1.
collected and reported and (2) the expected number management activities. Therefore while there is an
111 Chainalysis Report, On-Chain User of instances in which access to that personal expected change to demand for these third party
Segmentation for Crypto Exchanges, June 22, 2023, information is granted in the course of a legitimate services, the direction of this change remains
available at https://www.chainalysis.com/blog/ investigative or prosecutorial activity. unsigned.
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Federal Register / Vol. 88, No. 203 / Monday, October 23, 2023 / Proposed Rules 72717
have historically provided successive, regulatory requirements—also measure one as proposed is extremely
iterative guidance 117 and other considered certain factors of current low in relative terms.
information 118 that clarifies practices including: (1) the extent to FinCEN also reviewed the availability
expectations with respect to required which covered financial institutions are of tools, other than the use of third party
practices. Furthermore, FinCEN has identifiably exposed to CVC mixing; and blockchain analytics companies, that a
historically issued advisories and press (2) the availability of reliable tools and financial institution currently has the
releases based on FATF guidance to methods with which to detect the kinds option to employ to detect exposure to
financial institutions,119 including of CVC mixing exposure that would CVC mixing transactions in the course
VASPs, concerning processes and legal trigger the proposed reporting and of complying with existing SAR and/or
obligations that apply to transactions recordkeeping requirements. CTR related requirements. CVC mixing
involving high risk and sanctioned exposure can occur (directly 123 or
As a component of this analysis, indirectly 124) in the process of sending
juridictions.
Preliminarily, evidence suggests that FinCEN conducted an independent CVC to, or receiving CVC from, a
at least some covered financial historical review of CVC mixing covered financial institution (such as a
institutions have long anticipated and exposure occurring in the ordinary CVC exchange) and can be detected via
appreciated the applicability of SAR course of business at the largest a range of free and paid commercial
and currency transaction reporting registered CVC exchanges from their software programs.125 Free programs,
requirements to transactions involving respective first trade dates until such as common block explorers, can
CVC: the first SAR including language present.120 As these are some of the easily reveal direct 126 exposure to a
specific to a CVC was filed thirteen affected covered financial institutions CVC mixer if the CVC mixer
years ago in 2010, predating FinCEN’s with highest expected exposure to CVC infrastructure is relatively stable and
2013 Guidance, and the first SAR filed mixing, their relative volumes of CVC well known, such as in the case of many
by a VASP, approximately two months mixing-exposed transactions is likely to Ethereum-based CVC mixers.
after the 2013 Guidance was issued, is present a reasonable upper-bound on Indirect 127 exposure may be also
already a decade old. Since the issuance the proportion of currently identifiable discoverable using these programs but
of that guidance, FinCEN has received transactions that could incur additional might require supplementary manual
CVC-related SARs from approximately record-keeping and reporting investigative work to uncover. Paid
4,500 distinct filers. As such, the requirements in connection with the commercial programs employ suites of
reporting and recordkeeping imposition of the first special measure. heuristics to more comprehensively
requirements that would be introduced This study found that during the period identify CVC mixers, and market
by the proposed rule may build reviewed, mean (median) daily themselves on their ability to
incrementally onto an existing transaction volume with observable automatically detect bi-directional
regulatory compliance framework, direct exposure 121 was approximately indirect 128 and direct 129 exposure to
inclusive of CVC, that is well 0.010 percent (0.009 percent), while CVC mixing activity for any blockchain
understood, and where a nontrivial mean (median) observable indirect address supported by the service. On
proportion of covered financial exposure 122 was approximately 0.234 blockchains supporting native smart
institutions demonstrate willingness percent (0.168 percent) of daily contract capability, these automated
and ability to meet existing reporting transaction volume. The analysis attribution capabilities can be easily
and recordkeeping obligations. yielded comparable results when defeated if a user routes funds through
proportions were based on share of total token contracts or other digital asset
(B) Current Market Practices
transactions instead of U.S. Dollar value entities providing on-chain exchange
When assessing relevant baseline equivalent. It would therefore appear services. In such cases, analysts can still
elements of current market practice that, to the extent that future CVC perform manual blockchain forensic
against which to forecast the regulatory mixing exposure is consistent with past tracing to identify the origin of funds.
and economic impacts of special and current trends, the number of
measure one requirements as proposed, 3. Description of the Proposed Reporting
transactions that would require
FinCEN—in addition to the current and Recordkeeping Requirements of the
reporting and recordkeeping as a unique
First Special Measure
consequence of adopting special
117 See FIN–2013–G001, Application of FinCEN’s Imposing special measure one as
Regulations to Persons Administering, Exchanging, proposed would introduce novel but, in
120 This study incorporated both public and non-
or Using Virtual Currencies, Mar. 18, 2013,
available at https://www.fincen.gov/sites/default/ public data as well as certain proprietary and non- many cases, incrementally modest
files/guidance/FIN-2013-G001.pdf (2013 Guidance); proprietary computer programs to analyze additional recordkeeping and reporting
see also FinCEN 2019 CVC Guidance. transactions occurring between calendar year 2010 obligations, requiring the collection and
118 See generally OFAC, Questions on Virtual at the earliest (given that each exchange has a
unique start date) and the date the study was
transmission of certain information in
Currency, available at https://ofac.treasury.gov/ its possession when a covered financial
faqs/topic/1626; see, specifically OFAC, Sanctions concluded (August 3, 2023).
Compliance Guidance for the Virtual Currency 121 Direct exposure refers to transactions where institution knows, suspects, or has
Industry, Oct. 2021, available at https:// CVC is sent from one CVC wallet address to another reason to suspect a transaction occurred
ofac.treasury.gov/media/913571/download?inline. CVC wallet address, without the use of an
119 See, e.g., FinCEN, Financial Action Task Force intermediary. For example, if a VASP received 123 See definition supra note 121.
Identifies Jurisdictions with Anti-Money Laundering funds from—or sent funds to—a CVC mixer without 124 See definition supra note 122.
and Combating the Financing of Terrorism and first going through an intermediary, that VASP has
125 FinCEN notes that the extent to which
Counter-Proliferation Deficiencies, June 29, 2023, direct exposure to CVC mixing.
122 Indirect exposure refers to transactions where exclusive use of any of these tools (free or
lotter on DSK11XQN23PROD with PROPOSALS1
available at https://www.fincen.gov/news/news-
CVC is sent from a CVC wallet address through at commercial software programs) would fully satisfy
releases/financial-action-task-force-identifies-
least one other wallet address to arrive at the either existing reporting and recordkeeping
jurisdictions-anti-money-laundering-and-4; FIN–
intended recipient. For example, if CVC was sent requirements, or those imposed by the proposed
2021–A003 ‘‘Advisory on the Financial Action Task
from a CVC mixer to a CVC wallet address and then special measure one, is a matter of facts and
Force-Identified Jursdictions with Anti-Money
circumstances.
Laundering and Combating the Financing of to a VASP, that VASP has indirect exposure to CVC 126 Id. at note 121.
Terrorism and Counter-Proliferations Deficiencies’’ mixing. Similarly, if CVC sent from a VASP to a
127 Id. at note 122.
available at https://www.fincen.gov/sites/default/ CVC wallet address was subsequently send to a
128 Id. at 122.
files/advisory/2021-03-11/FATF%20February CVC mixer, it would be indirectly exposed to CVC
%202021%20Advisory%20FINAL%20508.pdf. mixing. 129 Id. ar 121.
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72718 Federal Register / Vol. 88, No. 203 / Monday, October 23, 2023 / Proposed Rules
that involved the use of CVC mixing narrative description 142), while the proportion of expected novel
within or involving a jurisdiction required informational components compliance costs would itself be large
outside the United States.130 The concerning the associated customer because it would be difficult to uniquely
affected institution at which a covered include name 143, date of birth 144, identify expenses incurred distinctly as
transaction is conducted or attempted addresses (physical,145 CVC wallet,146 a function of special measure one
would need to collect required and associated email 147), phone compliance from expenses incurred in
information about the covered number,148 and an entity-specific the course of pre-existing BSA
transaction and, within 30 days of government-issued (alpha)numeric requirements,153 as both would largely
initial detection of a covered identifier.149 rely on use of the same activities,
transaction, provide a report to FinCEN 4. Expected Economic Effects on technology, and services.
containing as much of the reportable Covered Financial Institutions It is also unclear whether future
required information as available to the relative distributions of direct 154 versus
affected institution—via electronic filing As discussed above, the parties
indirect 155 exposure would continue in
or other agency-prescribed manner.131 expected to incur an economic burden
as they comply with the first special the same pattern as historically
Additionally, for a specified period of measure include all financial observed, but at present do not have
time (five years 132) after filing its report, institutions as defined in 31 CFR empirical evidence that would suggest
each covered financial institution would 1010.100(t) insofar as they engage in substantial changes are imminent.
engage in new recordkeeping activities CVC transactions that could be exposed Detecting indirect 156 exposure may
because it would need to document its to CVC mixing within or involving a require certain financial institutions to
compliance with the filing procedures jurisdiction outside the United newly obtain commercial programs and/
and the reporting requirements by: (1) States.150 In light of FinCEN’s review of or services to facilitate compliance with
maintaining a copy of any records the anticipated differential effects on the rule as proposed as CVC mixing
related to CVC mixing transactions they covered financial institutions due to practices continue to evolve. The cost of
have filed; and (2) obtaining and variations in both expected exposure these services, based on current market
recording copies of documentation and preexisting monitoring and prices, could run in excess of tens of
relating to compliance with the detection infrastructure, as well as thousands of dollars per license and
regulation.133 FinCEN’s assessment of current market would require analysts to remain
practices,151 FinCEN expects that the continually engaged in blockchain
The required information would tracing to stay up to date with emerging
identify and describe certain unique largest portion of the novel costs
incurred in complying with the first trends in the rapidly developing digital
features and characteristics of both the asset industry. It is unclear at this time
reportable covered transaction and the special measure will be associated with
indirect 152 exposure to CVC mixing at whether financial institutions or third
customer associated with the covered party service providers would incur the
transaction. The required informational financial institutions not currently
operating primarily in the provision of majority of costs associated with
components concerning the covered analytical updating as CVC mixing
transaction pertain to the CVC when virtual asset services and cases where
the jurisdictions involved or under practices evolve, or the extent to which
transferred (currency type,134 these cost increases may be passed
amount,135 and U.S.-dollar which CVC mixing occurs are
particularly difficult to ascertain. through to a financial institution’s
equivalent 136), the CVC mixer customers. It is also unclear how these
(identity 137 and/or wallet address 138), However, it is unclear whether this
compliance-related costs might scale
and the transaction (hash,139 date,140 IP with the proposed increased reporting
142 See discussion supra Section VI.B.1(i); see
addresses and timestamps,141 and and recordkeeping requirements
also proposed amendment 31 CFR
1010.662(b)(1)(i)(I) infra Section IX. because it requires speculation about
130 See Section VI. See also Section IX. 143 See discussion supra Section VI.B.1(ii); see
131 See discussion supra Section VI.B.2; see also
how the potential for new entrants to
also proposed amendment 31 CFR
proposed amendment 31 CFR 1010.662(b)(2) infra 1010.662(b)(1)(ii)(A) infra Section IX.
the third party mixing detection service
Section IX. 144 See discussion supra Section VI.B.1(ii); see market and/or technological
132 31 CFR 1010.430
also proposed amendment 31 CFR advancements (that would not occur but
133 See discussion supra Section VI.B.3; see also 1010.662(b)(1)(ii)(B) infra Section IX. for the proposed compliance obligations
proposed amendment 31 CFR 1010.662(b)(3) infra 145 See discussion supra Section VI.B.1(ii); see
making them economically attractive
Section IX. also proposed amendment 31 CFR
134 See discussion supra Section VI.B.1(i); see 1010.662(b)(1)(ii)(C) infra Section IX.
investments) would affect costs.157
also proposed amendment 31 CFR 146 See discussion supra Section VI.B.1(i); see FinCEN acknowledges to that to the
1010.662(b)(1)(i)(B) infra Section IX. also proposed amendment 31 CFR extent that a covered transaction might
135 See discussion supra Section VI.B.1(i); see 1010.662(b)(1)(i)(E) infra Section IX. require the filing of both a SAR and
also proposed amendment 31 CFR 147 See discussion supra Section VI.B.1(ii); see
1010.662(b)(1)(i)(A) infra Section IX. also proposed amendment 31 CFR
special measure one related report,
136 Id. 1010.662(b)(1)(ii)(D) infra Section IX. concurrent satisfaction of both sets of
137 See discussion supra Section VI.B.1(i); see 148 See discussion supra Section VI.B.1(ii); see reporting and recordkeeping
also proposed amendment 31 CFR also proposed amendment 31 CFR requirements might result in some
1010.662(b)(1)(i)(C) infra Section IX. 1010.662(b)(1)(ii)(E) infra Section IX. duplicative costs related to any overlap.
138 See discussion supra Section VI.B.1(i); see 149 See discussion supra Section VI.B.1(ii); see
also proposed amendment 31 CFR also proposed amendment 31 CFR
153 See discussion of existing BSA requirements
1010.662(b)(1)(i)(D) infra Section IX. 1010.662(b)(1)(ii)(F) infra Section IX.
lotter on DSK11XQN23PROD with PROPOSALS1
139 See discussion supra Section VI.B.1(i); see 150 See discussion of covered financial regarding identification and monitoring of financial
also proposed amendment 31 CFR transactions (clarifying the definitional requirement transaction associations with foreign jurisdictions
1010.662(b)(1)(i)(F) infra Section IX. that a reportable transaction must occur in CVC) and geographic locations supra Section VI.A.5. See
140 See discussion supra Section VI.B.1(i); see supra Section VI.A.4, also discussion of FinCEN requirements under
also proposed amendment 31 CFR 151 See discussion of anticipated differential FATF guidance supra Section VIII.A.2(ii)(A).
154 Id. at note 121.
1010.662(b)(1)(i)(G) infra Section IX. effects supra Section VIII.A.2(i)(A); see also
155 Id. at note 122.
141 See discussion supra Section VI.B.1(i); see discussion of current market practices supra
Section VIII.A.2(ii)(B). 156 Id.
also proposed amendment 31 CFR
1010.662(b)(1)(i)(H) infra Section IX. 152 Id. at note 122. 157 See discussion supra Section VIII.A.2(i)(D).
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Federal Register / Vol. 88, No. 203 / Monday, October 23, 2023 / Proposed Rules 72719
To the extent that the forgoing regarding the customer or their discarding similar reports and records
analysis has failed to take into representative as a condition to open or that may be of equal or greater value to
consideration any material facts, data, maintain a payable-through 160 or investigating, prosecuting, or
circumstances, or other considerations correspondent 161 account, respectively, disincentivizing CVC mixing supported
that, had they been considered, would if the financial institution or agency illicit activities but lack an identifiable
have substantially altered the balance of knows, suspects, or has reason to connection to Hamas, ISIS, or the DPRK.
costs and benefits attendant to the suspect the account and transactions Because of these dual inefficiencies,
proposed special measure(s), FinCEN conducted through it involve CVC special measure one as proposed is
has invited public comment.158 mixing. More severely, special measure considered to strike a more appriopriate
five could have imposed prohibitions or balance.
5. Economic Consideration of Available
conditions 162 on the opening or
Regulatory Alternatives B. Executive Orders
maintenance of a correspondent or
FinCEN has considered a number of payable-through account if the domestic Executive Orders 12866, 13563, and
alternative policies that could have been covered financial institution or agency 14094 direct agencies to assess costs and
proposed to accomplish the same knows, suspects, or has reason to benefits of available regulatory
objectives.159 These policies included suspect that transactions conducted alternatives and, if regulation is
the selection of one, or a combination through the account involve CVC necessary, to select regulatory
of, other special measure(s) or, mixing. approaches that maximize net benefits
alternatively the selection of the same Because the expected results of (including potential economic,
special measure with a narrower scope. imposing special measures three, four, environmental, public health and safety
or both, absent special measure five effects, distributive impacts, and
(i) Special Measure Two: Beneficial
would likely be similar to expectations equity). Executive Order 13563
Ownership Information Requirements
with respect to special measure two, emphasizes the importance of
Instead of recordkeeping and that analysis is not repeated here. quantifying both costs and benefits, of
reporting requirements, FinCEN could Instead, an approach that would impose reducing costs, of harmonizing rules,
have pursued the application of special special measures three or four, or both, and of promoting flexibility.
measure two, which would have in conjunction with special measure It has been determined that this
required domestic financial institutions five is considered. As discussed proposed rule is not a significant
and agencies to obtain and retain the above,163 FinCEN determined that these regulatory action under section 3(f) of
beneficial ownership information of any special measures are less relevant in the Executive Order 12866, as amended.
account at a depository institution context of CVC transactions, including However, in light of the nature of this
opened or maintained by a foreign those that involve CVC mixing, as CVC proposed rule, FinCEN has prepared an
person or their representative that the transactions are conducted outside of economic analysis to help inform its
institution or agency knows, suspects, the traditional banking system. consideration of the impacts of the
or has reason to suspect is involved in Therefore, expected benefits would also proposed rule.
a CVC mixing transaction. While this be lower than under proposed special
information about beneficial ownership C. Regulatory Flexibility Act
measure one requirements due to the
related to CVC mixing transaction limited intersection between When an agency issues a rulemaking
participants could be similar to certain transactions in CVC and the foreign use proposal, the Regulatory Flexibility Act
elements required under the current of domestic traditional bank accounts. (RFA) requires the agency to ‘‘prepare
proposal and hence of comparable Given these considerations, this and make available for public comment
value, the alternative focus of special alternative approach was rejected. an initial regulatory flexibility
measure two on the ownership of analysis’’(IRFA) that will ‘‘describe the
accounts instead of the nature of (iii) Alternate Specification of Special impact of the proposed rule on small
transactions is expected to impose Measure One: Specified Terror Finance- entities.’’ 164 However, Section 605 of
similar compliance costs with lower Related Actors and Transactions Only the RFA allows an agency to certify a
attendant benefits both in quantity of Finally, FinCEN considered an rule, in lieu of preparing an analysis, if
useful information obtained and in alternative that would employ the same the proposed rulemaking is not
scope of financial institutions to whom special measure but with greater expected to have a significant economic
the information-gathering requirements specificity of covered transactions that impact on a substantial number of small
would apply. As such, the imposition of would limit the scope of interest in CVC entities.
special measure two instead of special mixing-exposed transactions to only
1. Estimate of the Number of Small
measure one would be strictly less those identifiably sponsored by or
Entities to Whom the Proposed Rule
efficient in addressing the class of affiliated with terror finance by Hamas,
Will Apply
transactions of primary money ISIS, or the DPRK. This alternative is
laundering concern. expected to incur higher costs related to, The reporting and recordkeeping
among other things, the additional requirements proposed under the first
(ii) Special Measures Three Through special measure requires certain covered
burden a financial institution would
Five financial institutions to report to
have in making a determination about a
Alternatively, FinCEN could have transaction’s connection to an FinCEN information associated with
proposed to impose special measure identifiable source or affiliate of the transactions or attempted transactions
lotter on DSK11XQN23PROD with PROPOSALS1
three, four, five, or some combination applicable terrorist organization. It involving CVC mixing and maintain
thereof. Special measures three and four would also limit the potential certain related records for a fixed period
would simply require domestic informational benefits of the measure by of time.165 Table 2 (below) presents
financial institutions and agencies to FinCEN estimates of the number of
obtain certain identifying information 160 31 U.S.C. 5318A(b)(3) affected institutions that may be deemed
161 31 U.S.C. 5318A(b)(4)
158 See Sections VII.A. and VII.E. 162 31 U.S.C. 5318(b)(5) 164 5 U.S.C. 603(a).
159 See discussion supra Section V.E. 163 See Section V.E. 165 See discussion supra Section VIII.A.2–3.
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72720 Federal Register / Vol. 88, No. 203 / Monday, October 23, 2023 / Proposed Rules
small entities. To identify whether a industry’s receipts in the 2017 Census brokers/dealers in securities, money
financial institution is small, FinCEN survey data and determines what services businesses, casinos, card clubs,
generally uses the Small Business proportion of a given industry is futures commission merchants,
Administration’s (SBA) latest annual deemed small, on average. FinCEN introducing brokers in commodities,
size standards for small entities in a considers a financial institution to be and mutual funds to determine the
given industry, unless otherwise small if it has total annual receipts less proportion of current small financial
noted.166 FinCEN also uses the U.S. than the annual SBA small entity size institutions in those industries.
Census Bureau’s publicly available 2017 standard for the financial institution’s Numbers have been rounded as in
Statistics of U.S. Businesses survey data industry. FinCEN applies these Section VIII.A.2(i)(A) to facilitate
(Census survey data).167 FinCEN applies estimated proportions to FinCEN’s aggregation.
SBA size standards to the corresponding current financial institution counts for
TABLE 2—ESTIMATES OF SMALL AFFECTED FINANCIAL INSTITUTIONS BY TYPE
Number of
Financial institution type a entities
Bank b ............................................................................................................................................................................................... c 7,970
Broker/Dealer in Securities d ............................................................................................................................................................ e 3,450
Money Services Businesses f .......................................................................................................................................................... g 24,010
Telegraph Company h ...................................................................................................................................................................... i0
Casino j ............................................................................................................................................................................................ k 930
Card Club l ....................................................................................................................................................................................... m 250
Person subject to supervision by any State or Federal Bank Supervisory Authority n ................................................................... o N/A
Futures Commission Merchant p ..................................................................................................................................................... q 56
Introducing Broker in Commodities r ................................................................................................................................................ s 900
Mutual Fund t ................................................................................................................................................................................... u 1,380
a As typographically grouped in 31 CFR 1010.100(t).
b See 31 CFR 1010.100(t)(1); see also 31 CFR 1010.100(d). The SBA currently defines small entity size standards for banks as follows: less
than $850 million in total assets for commercial banks, savings institutions, and credit unions.
c Counts of certain types of banks, savings associations, thrifts, trust companies are from Q1 2023 Federal Financial Institutions Examination
Council (FFIEC) Call Report data, available a https://cdr.ffiec.gov/public/pws/downloadbulkdata.aspx. Data for institutions that are not insured, are
insured under non-FDIC deposit insurance regimes, or do not have a Federal functional regulator are from the FDIC’s Research Information Sys-
tem, available at https://www.fdic.gov/foia/ris/index.html. Credit union data are from the NCUA for Q1 2023, available at https://www.ncua.gov/
analysis/credit-union-corporate-call-report-data. Because data accessed through FFIEC and NCUA Call Report data provides information about
asset size for banks, trusts, savings and loans, credit unions, etc., FinCEN is able to directly determine how many banks and credit unions are
small by SBA size standards. Because the Call Report data does not include institutions that are not insured, are insured under non-FDIC de-
posit insurance regimes, or that do not have a Federal financial regulator, FinCEN assumes that all such entities listed in the FDIC’s Research
Information System data are small, unless they are controlled by a holding company that does not meet the SBA’s definition of a small entity,
and includes them in the count of small banks. Consistent with the SBA’s General Principles of Affiliation, 13 CFR 121.103(a), FinCEN aggre-
gates the assets of affiliated financial institutions using FFIEC financial data reported by bank holding companies on forms Y–9C, Y–9LP, and Y–
9SP, available at https://www.ffiec.gov/npw/FinancialReport/FinancialDataDownload, and ownership data, available at https://www.ffiec.gov/npw/
FinancialReport/DataDownload, when determining if an institution should be classified as small. FinCEN uses four quarters of data reported by
holding companies, banks, and credit unions because a ‘‘financial institution’s assets are determined by averaging the assets reported on its four
quarterly financial statements for the preceding year.’’ See U.S. Small Business Administration’s Table of Size Standards, p. 38 n.8, https://
www.sba.gov/sites/sbagov/files/2023-06/Table%20of%20Size%20Standards_Effective%20March%2017%2C%202023%20%282%29.pdf. FinCEN
recognizes that using SBA size standards to identify small credit unions differs from the size standards applied by the NCUA. However, for con-
sistency in this analysis, FinCEN applies the SBA-defined size standards.
d 31 CFR 1010.100(t)(2).
e The SBA currently defines small entity size standards for investment banking and securities intermediation as less than $47 million in aver-
age annual receipts. See paragraph preceding table for details of analysis.
f 31 CFR 1010.100(t)(3).
g The SBA currently defines small entity size standards for financial transactions processing, reserve, and clearinghouse activities as less than
$47 million in average annual receipts. See paragraph preceding table for details of analysis.
h 31 CFR 1010.100(t)(4).
i As an estimate of uniquely registered, potentially affected small entities, FinCEN expect this category to contain no additional persons or orga-
nizations not already included in other counts, particularly as money transmitters.
j 31 CFR 1010.100(t)(5)(i)–(iii).
k The SBA currently defines small entity size standards for casinos as less than $34 million in average annual receipts. See paragraph pre-
ceding table for details of analysis.
l 31 CFR 1010.100(t)(6)(i)–(ii).
m The SBA currently defines small entity size standards for other gambling industries as less than $40 million in average annual receipts. See
paragraph preceding table for details of analysis.
n 31 CFR 1010.100(t)(7).
o It is unclear to FinCEN at this time whether any entities exist in this category that for purposes of being counted towards unique affected par-
ties incurring burdens associated with the rule, if adopted as proposed, are not already captured by concurrent status in another category of fi-
nancial institution under the 31 CFR 1010.100(t) definition. To the extent that additional data can better inform this estimate, public comment is
invited.
p 31 CFR 1010.100(t)(8).
q The SBA currently defines small entity size standards for commodity contracts intermediation as less than $47 million in average annual re-
ceipts. See paragraph preceding table for details of analysis.
lotter on DSK11XQN23PROD with PROPOSALS1
r 31 CFR 1010.100(t)(9).
s Supra note q.
166 See U.S. Small Business Administration’s 167 See U.S. Census Bureau, U.S. & states, NAICS, employment numbers, and annual payroll by State,
Table of Size Standards, available at https:// detailed employment sizes (U.S., 6-digit and states, industry, and enterprise every year. Receipts data,
www.sba.gov/sites/sbagov/files/2023-06/Table%20 NAICS sectors) (2017), available at https:// which FinCEN uses as a proxy for revenues, is
of%20Size%20Standards_ www.census.gov/data/tables/2017/econ/susb/2017- available only once every five years, with 2017
Effective%20March%2017%2C%20 susb-annual.html. The Census survey documents
being the most recent survey year with receipt data.
2023%20%282%29.pdf. the number of firms and establishments,
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Federal Register / Vol. 88, No. 203 / Monday, October 23, 2023 / Proposed Rules 72721
t 31 CFR 1010.100(t)(10).
u The SBA currently defines small entity size standards for open-end investment funds as less than $40 million in average annual receipts. See
paragraph preceding table for details of analysis.
2. Expectation of Impact significant economic impact on small annual $100 million threshold, adjusted
For the reasons discussed above in entities from the imposition of the first for inflation ($177 million).
Section VIII.A, FinCEN does not expect special measure regarding CVC E. Paperwork Reduction Act
all potentially affected financial mixers.170
The recordkeeping and reporting
institutions to be equally affected by the D. Unfunded Mandates Reform Act requirements contained in this proposed
proposed rule.168 These expectations of
rule will be submitted by FinCEN to the
differential effects are of first-order Section 202 of the Unfunded Office of Management and Budget for
relevance because, for the purposes of Mandates Reform Act of 1995 171 review in accordance with the
the IRFA, a rulemaking must be jointly (Unfunded Mandates Reform Act), Paperwork Reduction Act of 1995 177
impactful in both its breadth requires that an agency prepare a (PRA). Under the PRA, an agency may
(substantial number) and depth budgetary impact statement before not conduct or sponsor, and a person is
(significant economic impact) on small promulgating a rule that may result in not required to respond to, a collection
entities to require additional, tailored expenditure by the state, local, and of information unless it displays a valid
analysis. FinCEN’s categorical analysis tribal governments, in the aggregate, or control number assigned by OMB.
of the financial institutions defined in by the private sector, of $100 million or Written comments and
31 CFR 1010.100(t) does not support the more in any one year, adjusted for recommendations for the proposed
need for an initial regulatory flexibility inflation.172 If a budgetary impact information collection can be submitted
analysis because it determined that, in statement is required, section 202 of the by visiting www.reginfo.gov/public/do/
cases where a substantial number of Unfunded Mandates Reform Act also PRAMain. Find this particular
financial institutions are small entities, requires an agency to identify and document by selecting ‘‘Currently under
the economic impact of the rule is not consider a reasonable number of Review—Open for Public Comments’’ or
expected to be significant. Conversely, regulatory alternatives before by using the search function. Comments
in cases where the economic impact is promulgating a rule.173 are welcome and must be received by
expected to be its most significant, it is
As discussed in the foregoing [90 DAYS AFTER DATE OF
not clear that a substantial number of
analysis,174 it is unclear if either the PUBLICATION IN THE FEDERAL
affected institutions would meet the
gross or net cost of compliance to the REGISTER]. In accordance with
criteria to qualify as small entities.
To the extent that other small entities private sector would exceed $177 requirements of the PRA and its
that are not financial institutions may be million annually.175 In the event that implementing regulations, 5 CFR part
economically affected by the proposed this is so, FinCEN has performed the 1320, the following information
rulemaking,169 FinCEN did not include preliminary analysis above to address concerning the collection of information
any estimates of affected parties or the potential need to satisfy the as required by 31 CFR 1010.662 is
calculations of effects in this IRFA requirements of the Unfunded Mandates presented to assist those persons
because those effects, for most non- Reform Act.176 FinCEN is additionally wishing to comment on the information
financial institutions, are primarily soliciting comments—preferably collections.
including data, studies, or other forms The provisions in this proposed rule
expected to be benefits in the form of
of quantitative analysis—that would pertaining to the collection of
potential increases in demands for
specifically inform our quantification of information can be found in section
services. An attempt to quantify
expected compliance related 1010.662(b)(1). The information
increased operating costs accompanying
expenditures by state, local, and tribal required to be reported in section
these increases in demand generally,
governments and/or the private sector in 1010.662(b)(1) will be used by the U.S.
and for small entities specifically,
the event that such costs would, in light Government to monitor the class of
would be so speculative as to be
of more complete information, be transactions of primary money
uninformative. In the event that a more
demonstrably expected to exceed the laundering concern. The information
precise forecast could be reliably formed
required to be maintained by section
with available data and would alter the
1010.662(b)(3) will be used by federal
conclusions of this analysis, FinCEN is 170 See Section VII.E.
agencies and certain self-regulatory
requesting information from the public. 171 Public Law 104–4 (March 22, 1995).
172 Id. organizations to verify compliance by
3. Certification 173 Id. covered financial institutions with the
When viewed as a whole, FinCEN 174 See Section VIII.A.4. provisions of 31 CFR 1010.662. The
does not anticipate that the proposals
175 The Unfunded Mandates Reform Act requires class of financial transactions affected
an assessment of mandates that will result in an by the reporting requirement is identical
contained in this rulemaking will have annual expenditure of $100 million or more,
a significant impact on a substantial to the class of financial transactions
adjusted for inflation. The U.S. Bureau of Economic
number of small financial institutions or Analysis reports the annual value of the gross affected by the recordkeeping
other potentially affected businesses. domestic product (GDP) deflator in 1995, the year requirement. The collection of
Accordingly, FinCEN certifies that this of the Unfunded Mandates Reform Act, as 71.823, information is mandatory.
and as 127.224 in 2022. See U.S. Bureau of Frequency: Covered financial
rule will not have a significant Economic Analysis, ‘‘Table 1.1.9. Implicit Price
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economic impact on a substantial Deflators for Gross Domestic Product’’ (accessed institutions would be required to file
number of small entities. FinCEN Friday, June 2, 2023) available at https:// within 30 days of detecting a covered
invites comments from members of the apps.bea.gov/iTable/?reqid=19&step=3& transaction.178 As nothing prevents a
isuri=1&1921=survey&1903=13t. Thus, the inflation covered financial institution from
public who believe there will be a adjusted estimate for $100 million is 127.224/
71.823 × 100 = $177 million. optimizing with respect to scale by
168 See discussion supra Section VIII.A.2(i)(A). 176 See generally, discussion supra Section VIII.A;
177 44 U.S.C. 3507(d).
169 See, e.g., discussion supra Section see specifically, discussion of alternatives
VIII.A.2(i)(D). considered supra Section V.E. and Section VIII.A.5. 178 31 CFR 1010.662(b)(2).
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72722 Federal Register / Vol. 88, No. 203 / Monday, October 23, 2023 / Proposed Rules
filing later, while still within the 30-day PART 1010—GENERAL PROVISIONS protocols and processes; and provide
limit, it is foreseeable that despite a such records to regulators and law
distinct filing obligation per covered ■ 1. The authority citation for part 1010 enforcement, where required by law.
transaction, some entities may elect to continues to read as follows: (4) Covered financial institution. The
file all required reports still within the Authority: 12 U.S.C. 1829b and 1951– term ‘‘covered financial institution’’ has
same 30-day window at a single time, 1959; 31 U.S.C.5311–5314, 5316–5336; title the same meaning as ‘‘financial
effectively reducing the frequency of III, sec. 314, Pub. L. 107–56, 115 Stat. 307; institution’’ in 31 CFR 1010.100(t).
filing. sec. 2006, Pub. L. 114–41, 129 Stat. 458–459; (5) Covered transaction. The term
sec. 701 Pub. L. 114–74, 129 Stat. 599; sec. ‘‘covered transaction’’ means a
Description of Affected Financial
6403, Pub. L. 116–283, 134 Stat. 3388.
Institutions: Only those covered transaction as defined in 31 CFR
financial institutions defined in section ■ 2. Add § 1010.662 to read as follows: 1010.100(bbb)(1) in CVC by, through, or
1010.662(a)(4) with engagement in the to the covered financial institution that
§ 1010.662 Special measures regarding
covered financial transactions as CVC mixing transactions.
the covered financial institution knows,
defined in section 1010.662(a)(5) would suspects, or has reason to suspect
(a) Definitions. For purposes of this involves CVC mixing within or
be affected.
section, the following terms have the involving a jurisdiction outside the
Estimated Number of Affected following meanings.
Financial Institutions: Approximately United States.181
(1) Convertible Virtual Currency
15,000.179 (b) Reporting and recordkeeping
(CVC). The term ‘‘convertible virtual
requirements. Covered financial
Estimated Average Annual Burden in currency (CVC)’’ means a medium of
institutions are required to report
Hours per Affected Financial exchange that either has an equivalent
information in accordance with
Institution: 98.180 value as currency, or acts as a substitute
paragraph (b)(1) of ths section and
Estimated Total Annual Burden: for currency, but lacks legal tender
maintain records demonstrating
1,470,000 hours. status. Although Bitcoin has legal tender
compliance in accordance with
FinCEN specifically invites comments status in at least two jurisdictions, the
paragraph (b)(3) of this section.
on: (a) whether the proposed collection term CVC includes Bitcoin for the
(1) Reporting—(i) Reportable
of information is necessary for the purpose of this section.
(2) CVC Mixer. The term ‘‘CVC mixer’’ information regarding the covered
proper performance of the mission of transaction. The covered financial
FinCEN, including whether the means any person, group, service, code,
tool, or function that facilitates CVC institution shall provide the following
information would have practical reportable information in its possession,
utility; (b) the accuracy of FinCEN’s mixing.
(3) CVC mixing. (i) The term ‘‘CVC with respect to each covered
estimate of the burden of the proposed transaction, within 30 calendar days of
collection of information; (c) ways to mixing’’ means the facilitation of CVC
transactions in a manner that obfuscates initial detection of a covered
enhance the quality, utility, and clarity transaction:
of the information required to be the source, destination, or amount
involved in one or more transactions, (A) The amount of any CVC
maintained; (d) ways to minimize the transferred, in both CVC and its U.S.
burden of the required collection of regardless of the type of protocol or
service used, such as: dollar equivalent when the transaction
information, including through the use was initiated;
(A) Pooling or aggregating CVC from
of automated collection techniques or (B) The CVC type;
multiple persons, wallets, addresses, or
other forms of information technology; (C) The CVC mixer used, if known;
accounts;
(e) estimates of capital or start-up costs (D) CVC wallet address associated
(B) Using programmatic or
and costs of operation, maintenance, with the mixer;
algorithmic code to coordinate, manage,
and purchase of services to report the (E) CVC wallet address associated
or manipulate the structure of a
information. with the customer;
transaction;
IX. Regulatory Text (C) Splitting CVC for transmittal and (F) Transaction hash;
transmitting the CVC through a series of (G Date of transaction;
List of Subjects in 31 CFR Part 1010 independent transactions; (H) The IP addresses and time stamps
Administrative practice and (D) Creating and using single-use associated with the covered transaction;
procedure, Banks, Banking, Brokers, wallets, addresses, or accounts, and and
Crime, Foreign banking, Terrorism. sending CVC through such wallets, (I) Narrative
addresses, or accounts through a series (ii) Reportable information regarding
Authority and Issuance of independent transactions; the customer associated with the
For the reasons set forth in the (E) Exchanging between types of CVC covered transaction. The covered
preamble, FinCEN proposes amending or other digital assets; or financial institution shall provide the
31 CFR part 1010 as follows: (F) Facilitating user-initiated delays in following reportable information in its
transactional activity. possession, regarding the customer
179 This estimate is informed by public and non-
(ii) Exception. Notwithstanding associated with each covered
public data sources regarding both an expected paragraph (a)(3)(i) of this section, CVC transaction:
maximum number of entities that may be affected mixing does not include the use of (A) Customer’s full name;
and the number of active, or currently reporting, internal protocols or processes to (B) Customer’s date of birth;
registered financial institutions and takes into execute transactions by banks, broker-
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consideration the possibility of voluntary reporting (C) Customer’s address;
by certain parties without an express obligation to dealers, or money services businesses, (D) Email address associated with any
file reports. See Section VIII.A.2(i)(A). including virtual asset service providers and all accounts from which or to which
180 Assumes, on average, one full work-day per that would otherwise constitute CVC the CVC was transferred;
30-day period is required to complete reporting and mixing, provided that these financial
recordkeeping related tasks. Due to the anticipated
skew in expected annual burden hours, this average
institutions preserve records of the 181 This requirement would be independent of
is unlikely to represent a meaningful approximation source and destination of CVC any recordkeeping requirement pursuant to 31 CFR
for most covered financial institutions. transactions when using such internal 1010.410.
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Federal Register / Vol. 88, No. 203 / Monday, October 23, 2023 / Proposed Rules 72723
(E) Phone number associated with any requirements of sections 111(d) of the ‘‘we,’’ ‘‘us,’’ or ‘‘our’’ is used, we mean
and all accounts from which or to which CAA do not exist within Arkansas. The the EPA.
the CVC was transferred; EPA is proposing to approve the state
(F) Internal Revenue Service or plan revision for existing kraft pulp I. Background
foreign tax identification number, or if mills, accept the negative declaration for A. Clean Air Act Section 111(d)
none are available, a non-expired existing sulfuric acid plants and Requirements
United States or foreign passport withdraw approval of the Arkansas state
number or other government-issued plan for existing sulfuric acid plants, Section 111 of the CAA, ‘‘Standards of
photo identification number, such as a and amend the agency regulations in Performance for New Stationary
driver’s license; and accordance with the requirements of the Sources,’’ directs the EPA to establish
(2) Filing procedures. The reports CAA. emission standards for stationary
required under paragraph (b)(1) of this DATES: Written comments must be sources of air pollution that could
section shall be filed with FinCEN 30 received on or before November 22, potentially endanger public health or
calendar days from the date of detection 2023. welfare. These standards are referred to
in the manner that FinCEN prescribes. ADDRESSES: Submit your comments, as New Source Performance Standards
(3) Recordkeeping. A covered identified by Docket No. EPA–R06– (NSPS). Section 111(d) addresses the
financial institution is required to OAR–2022–0984, at https:// process by which the EPA and states
document its compliance with the www.regulations.gov or via email to regulate standards of performance for
requirements of this section. [email protected]. Follow the existing 1 sources. When NSPS are
Dated: October 19, 2023. online instructions for submitting promulgated for new sources, section
Andrea M. Gacki, comments. Once submitted, comments 111(d) and EPA regulations require that
Director, Financial Crimes Enforcement cannot be edited or removed from the EPA publish an Emission Guideline
Network. Regulations.gov. The EPA may publish (EG) to regulate the same pollutants
[FR Doc. 2023–23449 Filed 10–20–23; 8:45 a.m.] any comment received to its public from existing facilities. While NSPS are
BILLING CODE 4810–02–P
docket. Do not submit electronically any directly applicable to new sources, EG
information you consider to be
for existing sources (designated
Confidential Business Information (CBI)
facilities) are intended for states to use
or other information whose disclosure is
ENVIRONMENTAL PROTECTION to develop a state plan to submit to the
restricted by statute. Multimedia
AGENCY EPA.
submissions (audio, video, etc.) must be
40 CFR Part 62 accompanied by a written comment. State plan submittals and revisions
The written comment is considered the under CAA section 111(d) must be
[EPA–R06–OAR–2022–0984; FRL–11401– official comment and should include consistent with the applicable EG and
01–R6] discussion of all points you wish to the requirements of 40 CFR part 60,
make. The EPA will generally not subpart B, and part 62, subpart A. The
Approval and Promulgation of State consider comments or comment
Air Quality Plans for Designated regulations at 40 CFR part 60, subpart B,
contents located outside of the primary contain general provisions applicable to
Facilities and Pollutants; Arkansas; submission (i.e., on the web, cloud, or
Negative Declaration for Existing the adoption and submittal of state
other file sharing system). For plans and plan revisions under CAA
Sulfuric Acid Plants; Plan Revision for additional submission methods, please
Existing Kraft Pulp Mills section 111(d). Additionally, 40 CFR
contact Karolina Ruan Lei, (214) 665– part 62, subpart A, provides the
AGENCY: Environmental Protection 7346, [email protected]. For the
procedural framework by which the
Agency (EPA). full EPA public comment policy,
EPA will approve or disapprove such
ACTION: Proposed rule.
information about CBI or multimedia
submissions, and general guidance on plans and plan revisions submitted by a
making effective comments, please visit state. Once approved by the EPA, the
SUMMARY: Pursuant to the Federal Clean
https://www.epa.gov/dockets/ state plan or plan revision becomes
Air Act (CAA or the Act), the
commenting-epa-dockets. federally enforceable. If a state does not
Environmental Protection Agency (EPA)
Docket: The index to the docket for submit an approvable state plan to the
is proposing to approve the CAA section
this action is available electronically at EPA, the EPA is responsible for
111(d) state plan revision submitted by
the State of Arkansas for existing kraft www.regulations.gov. While all developing, implementing, and
pulp mills subject to the Kraft Pulp documents in the docket are listed in enforcing a Federal plan. However, 40
Mills Emission Guidelines (EG). The the index, some information may not be CFR 60.23(b) and 62.06 provide that if
Arkansas section 111(d) plan revision publicly available due to docket file size there are no existing sources of the
for kraft pulp mills contains restrictions or content (e.g., CBI). designated pollutant in the state, the
administrative changes to the state FOR FURTHER INFORMATION CONTACT: state may submit a letter of certification
regulations and also aligns compliance Karolina Ruan Lei, EPA Region 6 Office, to that effect (i.e., negative declaration)
testing requirements to be consistent Air and Radiation Division—State in lieu of a plan. The negative
with EPA’s kraft pulp mills new source Planning and Implementation Branch, declaration exempts the state from the
performance standards. EPA is also (214) 665–7346, ruan-lei.karolina@ requirements of subpart B that require
notifying the public that we have epa.gov. We encourage the public to the submittal of a CAA section 111(d)
lotter on DSK11XQN23PROD with PROPOSALS1
received a CAA section 111(d) negative submit comments via https:// plan.
declaration from Arkansas for existing www.regulations.gov. Please call or
sulfuric acid plants subject to the email the contact listed above if you 1 In this context and for purposes under CAA
Sulfuric Acid Plants EG. This negative need alternative access to material section 111(d), the term ‘‘existing’’ source is
indexed but not provided in the docket. synonymous with designated facility. These are
declaration certifies that existing sources that were constructed, reconstructed, or
sulfuric acid plants subject to the SUPPLEMENTARY INFORMATION: modified on or before the date specified in the
Sulfuric Acid Plants EG and the Throughout this document wherever emission guideline the source applies to.
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