80 FR 80308 - Notice of Availability of Regulatory Impact Assessment and Initial Regulatory Flexibility Analysis Regarding the Customer Due Diligence Requirements for Financial Institutions

DEPARTMENT OF THE TREASURY
Financial Crimes Enforcement Network

Federal Register Volume 80, Issue 247 (December 24, 2015)

By this notice, the Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury (Treasury) announces the availability of two related documents that are part of the Customer Due Diligence Requirements for Financial Institutions Proposed Rulemaking: A Regulatory Impact Assessment (RIA) and an Initial Regulatory Flexibility Analysis (IRFA).

[Federal Register Volume 80, Number 247 (Thursday, December 24, 2015)]
[Proposed Rules]
[Pages 80308-80310]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-32378]


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DEPARTMENT OF THE TREASURY

Financial Crimes Enforcement Network

31 CFR Parts 1010, 1020, 1023, 1024, and 1026

[Docket Number: FinCEN-2014-0001]


Notice of Availability of Regulatory Impact Assessment and 
Initial Regulatory Flexibility Analysis Regarding the Customer Due 
Diligence Requirements for Financial Institutions

AGENCY: Financial Crimes Enforcement Network (FinCEN), Department of 
the Treasury.

ACTION: Notice of availability; Regulatory Impact Assessment and 
Initial Regulatory Flexibility Analysis.

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SUMMARY: By this notice, the Financial Crimes Enforcement Network 
(FinCEN) of the Department of the Treasury (Treasury) announces the 
availability of two related documents that are part of the Customer Due 
Diligence Requirements for Financial Institutions Proposed Rulemaking: 
A Regulatory Impact Assessment (RIA) and an Initial Regulatory 
Flexibility Analysis (IRFA).

DATES: Written comments on the RIA and IRFA must be received on or 
before January 25, 2016.

ADDRESSES: The RIA and IRFA are available on FinCEN's Web site at 
http://www.fincen.gov and at http://www.regulations.gov. Comments on 
the RIA and IRFA may be submitted, identified by Regulatory 
Identification Number (RIN) 1506-AB25, by any of the following methods:
     Federal E-rulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments. Include RIN 1506-AB25 
in the submission. Refer to Docket Number FINCEN-2014-0001.
     Mail: FinCEN, P.O. Box 39, Vienna, VA 22183. Include 1506-
AB25 in the body of the text. Please submit comments by one method 
only. All comments submitted in response to this Notice of Availability 
will become a matter of public record. Therefore, you should submit 
only information that you wish to make publicly available.
     Inspection of comments: The public dockets for FinCEN can 
be found at Regulations.gov. Federal Register notices published by 
FinCEN are searchable by docket number, RIN, or document title, among 
other things, and the docket number, RIN, and title may be found at the 
beginning of the notice. FinCEN uses the electronic, Internet-
accessible dockets at Regulations.gov as their complete, official-
record docket;

[[Page 80309]]

all hard copies of materials that should be in the docket, including 
public comments, are electronically scanned and placed in the docket. 
In general, FinCEN will make all comments publicly available by posting 
them on http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: FinCEN's Resource Center, (800) 767-
2825.

SUPPLEMENTARY INFORMATION:

I. Background

    The Secretary has delegated to the Director of FinCEN the authority 
to implement, administer and enforce compliance with the Bank Secrecy 
Act (BSA) and associated regulations.\1\ FinCEN is authorized to impose 
anti-money laundering (AML) program requirements on financial 
institutions, \2\ as well as to require financial institutions to 
maintain procedures to ensure compliance with the BSA and the 
regulations promulgated thereunder or to guard against money 
laundering.\3\
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    \1\ Treasury Order 180-01 (Jul. 1, 2014).
    \2\ 31 U.S.C. 5318(h)(2).
    \3\ 31 U.S.C. 5318(a)(2).
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II. The Notice of Proposed Rulemaking

    On August 4, 2014, FinCEN published a Notice of Proposed Rulemaking 
(NPRM) in the Federal Register entitled ``Customer Due Diligence 
Requirements for Financial Institutions,'' that would amend existing 
BSA regulations to clarify and strengthen customer due diligence (CDD) 
requirements for banks, brokers or dealers in securities, mutual funds, 
and futures commission merchants and introducing brokers in commodities 
(collectively covered financial institutions). It also proposed to 
impose a new requirement under the BSA to identify the beneficial 
owners of legal entity customers, subject to certain exemptions.

III. Comments

    The comment period for the proposed rule closed on October 3, 2014. 
FinCEN received a total of 135 comments representing a wide range of 
views covering most aspects of the NPRM. A large number of commenters 
asserted that the NPRM lacked sufficient data to support its estimate 
of costs and substantially underestimated implementation and 
compliance-related costs.

A. Regulatory Impact Assessment

    The primary purpose of the proposed CDD requirements is to assist 
financial investigations by law enforcement in order to severely impair 
criminals' ability to exploit the anonymity provided by the of use 
legal entities to engage in financial crimes including fraud, money 
laundering, terrorist financing, corruption, and sanctions evasion.
    Based on comments and information received during further outreach 
to some financial institutions that provided comments on the proposal, 
FinCEN determined that the implementation and compliance-related costs 
may exceed $100 million annually, making this rulemaking an 
``economically significant regulatory action.'' In such cases, 
Executive Orders 13563 and 12866 require agencies to conduct an RIA, 
which the agencies must publish for comment. At FinCEN's request, 
Treasury's Office of Economic Policy conducted an RIA of the proposed 
rule, developed in accordance with these Executive Orders, which 
evaluates the economic costs and benefits of the CDD rule and its 
alternatives. According to Office of Management and Budget (OMB) 
guidance, an RIA must contain the following three basic elements: (1) A 
statement of the need for the regulatory action; (2) a clear 
identification of a range of regulatory approaches; and (3) an estimate 
of the benefits and costs--both quantitative and qualitative--of the 
proposed regulatory action and its alternatives.
    The 2015 National Money Laundering Risk Assessment estimated the 
annual volume of money laundering or illicit proceeds generated in the 
United States due to financial crimes at $300 billion. The RIA for the 
proposed CDD rule provides an economic rationale for the rulemaking, 
and outlines the anticipated costs and benefits of the proposal. 
Because some of the important benefits and costs generated by the 
proposed rule cannot be fully quantified, the RIA employs a 
``threshold'' or ``breakeven'' analysis to evaluate how minimally 
effective the proposed rule would have to be such that its benefits 
would just justify its costs. Such analysis is utilized to evaluate how 
likely it is that a proposed policy change would create a net benefit 
to society in instances where the costs or benefits are not fully 
quantifiable.\4\
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    \4\ See Custom and Border Protection, Department of Homeland 
Security, ``Importer Security Filings and Additional Carrier 
Requirements,'' 73 FR 71730 (November 25, 2008). See also Customs 
and Border Protection, Department of Homeland Security, ``Advance 
Electronic Transmission of Passenger and Crew Member Manifests for 
Commercial Aircraft and Vessels,'' 72 FR 48320 (August 23, 2007).
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    To disrupt the flow of illicit proceeds more effectively, the 
proposed CDD rule would provide Federal and state regulators and law 
enforcement with easier access to beneficial ownership information of 
legal entities--i.e., the natural persons who own or control these 
entities--to support law enforcement and counter-terrorism 
investigations. FinCEN believes that the proposed CDD rule would lead 
to a meaningful reduction in the flow of illicit proceeds in the United 
States. For example, shell and front companies are often used to 
launder proceeds of drug trafficking and fraud. The imposition of a 
beneficial ownership requirement, through the proposed CDD rule, would 
provide increased transparency into shell or front companies, thereby 
assisting law enforcement and regulators to identify the bad actors 
behind such companies and providing a greater deterrent to their use 
with respect to illicit gains. Furthermore, FinCEN believes that the 
proposed CDD rule would lead to a reduction in other illicit 
activities, the costs of which can run into the billions of dollars in 
terms of property destruction, foregone tax revenues, and even loss of 
life when considering the violent actions undertaken by terrorist and 
other criminal organizations that are facilitated by the movement of 
funds through legal entities.
    Although the potential benefits of the rule are difficult to 
quantify, the breakeven analysis utilized in the RIA indicates that the 
proposed CDD rule would only need to generate a very modest relative 
decrease in illicit activity to justify the costs it would impose. 
Taking into account only the estimated annual flow of illicit funds in 
the United States of $300 billion, the breakeven analysis allows FinCEN 
to conservatively conclude that the CDD rule would need to reduce the 
estimated annual flow of illicit proceeds by only 0.45 percent (in each 
year of 2016-2025, the years covered by the RIA) in order to justify 
the costs the rule would impose over a ten-year period. FinCEN expects 
more benefits given that greater transparency would reduce illicit 
activity in other ways, as referenced above.

B. Initial Regulatory Flexibility Analysis

    The IRFA evaluates the economic impact of the CDD rule on small 
entities, and was developed in accordance with the Regulatory 
Flexibility Act, 5 U.S.C. 601-612. The Regulatory Flexibility Act 
requires agencies to assess the impact of regulatory action on small 
entities, and is a requirement independent from the RIA (although the 
IRFA relies in part on the analysis conducted in the RIA). As a result 
of this analysis, Treasury and FinCEN continue to believe that, while

[[Page 80310]]

the proposed rule would apply to a substantial number of small 
entities, it would not have a significant economic impact on a 
substantial number of small entities.

Jamal El-Hindi,
Deputy Director, Financial Crimes Enforcement Network.
[FR Doc. 2015-32378 Filed 12-23-15; 8:45 am]
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