Federal Register Vol. 81, No.62,

I. Executive Summary A. Purpose of the Regulatory Action

The HHFKA removed the existing nutrition education program under section 11(f) of the FNA (7 U.S.C. 2011 et seq.), commonly known as SNAP Education (SNAP-Ed), and added in its place section 28, the nutrition education and obesity prevention grant program. This rule implements the new program, which the Food and Nutrition Service (FNS) continues to refer to as SNAP-Ed, and seeks to improve its operation and effectiveness to make the program easier for States to administer while improving the health of the low-income population.

The implementation of this program provides a focus on the critical problem of obesity and allows coordinated services to be provided to participants in Federal assistance programs and other low-income persons. This action broadens collaboration efforts and relationships in order to provide more flexibility to include a wider range of evidence-based intervention strategies.

The interim rule published at 78 FR 20411 (April 5, 2013) is adopted as a final rule with changes as provided in this rule.

The FNA defines individuals eligible for SNAP-Ed as those who receive SNAP or National School Lunch/School Breakfast Program free or reduced price benefits, individuals residing in a community with a significant low-income population, and other low-income individuals as defined by the Secretary. FNS decided to include low-income individuals eligible to receive benefits under SNAP or other means-tested Federal assistance programs such as Medicaid or Temporary Assistance for Needy Families (TANF), etc., in this definition to ease administrative burden on States. This definition more closely aligns SNAP-Ed with other FNS, Federal and State-administered benefit programs.

This rule requires States to submit a Nutrition Education State Plan (SNAP-Ed Plan) in order to receive a SNAP-Ed grant, essentially the same procedure as before. FNS decided to strengthen SNAP-Ed Plan requirements to better assure that the Plans adequately address HHFKA requirements and public comment. The Plans must: (1) Present valid and data driven needs assessments of the nutrition, physical activity, and obesity prevention needs of the target population; (2) identify the use of funding for evidence-based State or local projects that meet those needs; (3) ensure that interventions are comprehensive in scope and appropriate for the eligible low-income population and communities; (4) recognize the population's constrained resources and potential eligibility for Federal nutrition assistance; and (5) demonstrate and follow evidence-based strategies for effective nutrition education and obesity prevention. The rule allows States to propose implementing annual or multi-year SNAP-Ed Plans of up to three years.

The FNA permits States to use funds for evidence-based allowable uses identified by the FNS Administrator in consultation with the Director of the Centers for Disease Control and Prevention (CDC). Under this rule, the definitions for nutrition education and obesity prevention services and an evidence-based approach are provided for States to use in their SNAP-Ed programming. These definitions provide States with greater flexibility to include environmental approaches and policy level work in addition to nutrition education, health promotion, and social marketing. Expanding these approaches has the added benefit of supporting more comprehensive anti-obesity efforts in addition to providing greater State flexibility in programming.

Under this rule, States may deliver nutrition education and obesity prevention activities using two or more of these approaches: Individual or group-based nutrition education, health promotion, and intervention strategies; comprehensive, multi-level interventions; and community and public health approaches. To improve program design, States are expected to integrate multiple approaches in implementing their activities.

The rule encourages coordination of SNAP-Ed activities with public or privately funded health promotion and nutrition improvement strategies and requires that States describe their coordination activities in their SNAP-Ed Plans. States are strongly encouraged to coordinate with other organizations, particularly other State agencies delivering nutrition assistance programs, to reach low-income individuals through varied approaches.

1. National Funding

Congress prescribed specific dollar amounts for each of federal fiscal years (FFY) 2011-2015. For the 2016 and subsequent FFY, the total amount will be determined by adjusting the total SNAP-Ed allocation available nationally during the preceding FFY by an amount that is equal to the increase in the Consumer Price Index for All Urban Consumers for the 12-month period ending the preceding June 30, as published by the Bureau of Labor Statistics of the Department of Labor.

This rule provides grants to States through Federal funding authorized specifically for SNAP-Ed grants, requires no State contribution or match, and is the only source of Federal SNAP funds for these activities. This rule encourages States to seek public and private financial contribution for SNAP-Ed activities to leverage the Federal SNAP investment. However, funds in excess of the Federal SNAP-Ed grant are not eligible for SNAP Federal reimbursement. The rule describes the allocation process by which a State receives funds between FFY 2011-2013, based on the State's SNAP-Ed expenditures in FFY year 2009, as reported to the Secretary in February 2010, in proportion to FFY 2009 SNAP-Ed expenditures by all States nationally in that year. For FFY 2014 and subsequent years, the allocation formula is based on a ratio of 1) a State's share of national SNAP-Ed expenditures in FFY 2009 and 2) the percentage of the number of individuals participating in SNAP in the State during the preceding year in relation to the percentage of SNAP participation nationally during that year. The second part of the formula, the ratio of SNAP participation in a State in relation to SNAP participation nationally, will progressively increase as a percentage of the annual State funding from FFY 2014 forward. In FFY 2014, the formula's ratio of State FFY 2009 SNAP-Ed expenditures to SNAP participation was 90/10. A State's FFY 2009 SNAP-Ed expenditure will annually decrease as a factor of the ratio until FFY 2018, when the ratio will be 50/50. The 50/50 ratio shall continue each FFY after 2018. The financial provisions of this rule stabilize SNAP-Ed funding and reduce State administrative burden since no State contribution is required.

The HHFKA removed the previously existing nutrition education program under Section 11(f) of the FNA of 2008 (7 U.S.C. 2011 et seq.), known as SNAP-Ed, and adds in its place section 28, the Nutrition Education and Obesity Prevention Grant Program. This rule finalizes codification of the grant program, which FNS continues to refer to as SNAP-Ed, and seeks to improve its operation and effectiveness to make the program easier for States to administer while meeting the needs of the low-income population. The interim rule published at 78 FR 20411 (April 5, 2013), was effective upon publication, providing immediate direction for States, while also allowing for adjustments, based on public comment. It is adopted as a final rule with changes as provided in this rule.

This final rule provides State agencies with final requirements for implementing section 28 of the FNA, including the grant award process and describes the process for allocating the Federal grant funding authorized under the FNA. Section 28 of the FNA requires no State contribution or match, but permits States to seek public and private financial contributions to SNAP-Ed activities. This rule encourages States to seek these contributions to leverage their Federal SNAP investment. The rule encourages greater coordination of projects with other public or privately funded health promotion, nutrition improvement and obesity prevention strategies, including other Federal assistance programs.

A requirement of section 28 of the FNA was for FNS to consult with the Director of the CDC and a wide range of stakeholders and experts to identify allowable uses of funds and to strengthen the delivery, oversight and evaluation of nutrition education and obesity prevention services in the development of the rule. FNS conducted an aggressive outreach effort during the development of the interim rule, hosting 25 consultative sessions and obtaining input from more than 150 stakeholders over a 6 month period. The extensive consultation period was instrumental in the development of the SNAP-Ed interim rule and may have contributed to FNS receiving relatively few comments recommending major changes for consideration during the comment period for the interim rule.

Based on the requirements of section 28 of the FNA and the input received during the consultations, the interim rule was formulated to make changes in SNAP-Ed programming in the following areas:

Consistent with prior law, section 28 of the FNA requires State agency submission of a SNAP-Ed Plan in order to receive a grant for the provision of nutrition education and obesity prevention services. Based on stakeholder interest, FNS determined that States may propose to implement annual or multi-year SNAP-Ed Plans that cover a timeframe of up to three years. The timelines associated with Plan development, submission and final reports remained the same as they were prior to changes in the FNA and these timelines were incorporated into the interim rule. The interim rule codified the requirement that SNAP-Ed Plans address the provisions specified by law and meet standards established in the rule, SNAP-Ed Plan Guidance (https://snaped.fns.usda.gov/national-snap-ed/snap-ed-plan-guidance-and-templates), and other FNS policy.

Section 28 of the FNA defines individuals eligible for SNAP-Ed services as those who receive SNAP or National School Lunch/School Breakfast Program free or reduced price benefits, individuals residing in a community with a significant low-income population, and other low-income individuals as defined by the Secretary. Some stakeholders recommended that FNS expand the definition of those eligible for SNAP-Ed. In considering that recommendation, FNS decided to define low-income persons for SNAP-Ed as SNAP participants and low-income individuals eligible to receive benefits under SNAP or other means-tested Federal assistance programs such as Medicaid, Temporary Assistance for Needy Families (TANF), the free and reduced price meals under the National School Lunch Program (NSLP), etc. This definition aligns SNAP-Ed with other FNS, Federal and State-administered benefit programs, allowing the focus to remain on low-income populations while permitting a greater reach to persons residing in communities with a significant low-income population.

Information received during the consultations leading up to the interim rule indicated the need for expanded strategies and data sources to assist in identifying SNAP-Ed target audiences, to address fully the challenges many experienced identifying and reaching their audiences. FNS recognized States' interest in greater flexibility in the methods and data sources to use in identifying their low-income SNAP-Ed population. FNS determined that States may propose several methodologies that use relevant supporting data sources beyond those included in SNAP-Ed Plan Guidance to identify their target audience, including alternative targeting methodologies such as defined areas around a qualifying school, SNAP office or other methodologies.

FNS received input from stakeholders, including Federal partners, on the definition of nutrition education and obesity prevention services on which to base SNAP-Ed programming under the interim rule. FNS considered these recommendations, the definition used by CDC for obesity prevention services, and the Institute of Medicine's key messages about obesity prevention to define nutrition education and obesity prevention services. The interim rule definition considered the resources available for nutrition education and obesity prevention services, the mission of FNS, and the goal of SNAP-Ed.

Choosing physically active lifestyles along with making healthy food choices for those eligible for SNAP have long been included as goals of SNAP-Ed. SNAP-Ed principles at present also are aligned with the FNA's requirement for promotion of physical activity in addition to healthy food choices. Thus, physical activity choices along with food choices were included in the definition of SNAP-Ed nutrition education and obesity prevention services.

The FNA also required that allowable nutrition education and obesity prevention strategies shall be evidence-based. FNS received feedback on the evidence-based approaches stakeholders thought would move SNAP-Ed into closer alignment with other governmental, institutional, community-based and public health organizations. Stakeholders also encouraged FNS to approve and promote nutrition education and obesity prevention activities that showed promise and could be instrumental in demonstrating the effectiveness of a wide range of approaches to provide these activities. FNS reviewed definitions used by the Institute of Medicine and CDC, and recommendations from commenters to develop the definition of evidence-based activities included in the interim rule.

The FNA further stipulates that funds may be used for evidence-based activities using any or all of these three approaches: individual and group-based strategies; comprehensive multi-level interventions; and/or community and public health approaches. FNS also considered the following to determine how States might best deliver nutrition education and obesity prevention services in SNAP-Ed: use of the social-ecological model to address nutrition education and obesity prevention interventions; community and public health approaches promoted by CDC and other groups; and the 2010 DGAs Social-Ecological Framework for Nutrition and Physical Activity Decisions that illustrates how spheres of influence affect individual and family eating and physical activity choices. FNS decided to permit States to implement one or more of the approaches described in section 28 of the FNA to deliver evidence-based nutrition education and obesity prevention activities in their SNAP-Ed programs. FNS encouraged State agencies in the interim rule to integrate multiple approaches in implementing nutrition education and obesity prevention activities to improve program design.

The FNA encourages States to coordinate nutrition education and obesity prevention grant program projects with other public or privately funded health promotion or nutrition improvement strategies as long as the State agency retains administrative control of the projects. FNS expects States to coordinate SNAP-Ed activities with other national, State and local nutrition education and health promotion initiatives and interventions, and requires that an applying State demonstrate such coordination in its SNAP-Ed Plan. FNS recognizes the synergy of coordinating activities and the potential impact of leveraging funding. In addition, States must show in their SNAP-Ed Plans that the Federal funding received from SNAP will remain under the administrative control of the State agency as they coordinate their activities with other organizations.

Although FNS has encouraged States to connect and integrate nutrition education across programs and to implement a variety of nutrition education approaches, stakeholders have advised FNS to more strongly encourage or mandate that State agencies coordinate their SNAP-Ed activities with other projects in their State.

Section 28 of the FNA altered the manner in which SNAP-Ed funding is determined for States. Because the funding language is specific and prescriptive, FNS has no discretion as to how funds are allocated to States with approved SNAP-Ed Plans. However, FNS has addressed concerns expressed by commenters about the methods used to determine the allocations, the allocation amounts and the reallocation of funds should any State surrender them. The interim rule implemented financial changes retroactive from the enactment of the HHFKA forward, stipulating that SNAP State agencies submitting an approved SNAP-Ed Plan will receive a Federal nutrition education and obesity prevention grant.

Eighteen comments to the interim rule were received and are available for public inspection on www.regulations.gov. Representatives from two State agencies, six member organizations, four advocacy/policy groups, as well as six non-affiliated individuals provided comments.

In general, all of the commenters except one were supportive of the rule. The majority of the commenters observed that the interim rule is very consistent with their vision for SNAP-Ed. Several further stated that the rule is clearly responsive to the input that they and many other stakeholders provided during the development of the rule. The commenters acknowledged that the rule adds flexibility and efficiencies to SNAP-Ed programming while ensuring rigorous oversight and facilitating a comprehensive approach to SNAP-Ed. Commenters favorably viewed the provision allowing States to adopt multi-year nutrition education plans as having a positive impact on States' administrative burden. The one negative comment received expressed that there is no need for spending on the program.

Positive feedback was received on three definitions included in the interim rule: nutrition education and obesity prevention services; evidence-based approaches; and target population. One organization recommended that FNS expand the definition of nutrition education and obesity prevention services to include an emphasis on food insecurity as a strategy to improve nutrition and reduce obesity. FNS understands the commenter's interest in addressing food insecurity through SNAP-Ed. However, because receipt of SNAP benefits addresses food insecurity and addressing food insecurity is not a stated purpose for SNAP-Ed in section 28 of the FNA, the recommendation to include additional emphasis on food insecurity will not be included in the final rule. The definition for SNAP nutrition education and obesity prevention at § 272.2(d)(2)(vii)(B) has been improved to enhance clarity.

One organization expressed that States should be allowed to implement strategies that may not have been thoroughly reviewed in scientific literature but may have potential to improve nutrition and reduce obesity. In response to this comment FNS further refined the definition of evidence-based approaches at § 272.2(d)(2)(vii)(B) to indicate that SNAP-Ed services may include emerging strategies or interventions and that these strategies or interventions require justification and evaluation.

This final rule implements section 4028 of the Farm Bill of 2014 which authorizes physical activity promotion along with promotion of healthy food choices as part of SNAP-Ed programming. Language at § 272.2(d)(2)(vii)(C) remains the same as the interim rule because SNAP-Ed has promoted physical activity along with healthy food choices based on the Dietary Guidelines for Americans for some time. Physical activity was included as a required element of a SNAP-Ed Plan at § 272.2(d)(2)(iv), § 272.2(d)(2)(vi) and § 272.2(d)(2)(vii)(D).

The final rule addresses SNAP-Ed provisions of the FNA and HHFKA, however many of the comments relate to routine SNAP-Ed programmatic operations that are more effectively addressed through alternate means rather than through rulemaking. The SNAP-Ed Plan Guidance and other opportunities for additional policy development are available and are the most effective means to address stakeholder concerns that are unrelated to the provisions being implemented through this rule. The final rule at § 272.2 (d)(2)(i) stipulates that SNAP-Ed Plans shall conform to standards established in this regulation, SNAP-Ed Plan Guidance, and other FNS policy. FNS concurs with several comments on the interim rule and is responding by making adjustments in the final rule to address those comments. The comments received on the interim rule were reviewed, categorized and analyzed in six key areas and are discussed below.

The Education and Administrative Reporting System (EARS) form is the current means by which States report SNAP-Ed programmatic activity to FNS. The EARS form was devised to collect uniform information about SNAP-Ed activities such as demographic characteristics of participants, topics covered, educational delivery sites, education strategies and resource allocation. EARS is not an evaluation tool but provides FNS with national data to inform management decisions, support policy initiatives, provide documentation for legislative, budget and other requests and support planning within FNS. Four commenters recommended that FNS replace EARS with a more comprehensive reporting and evaluation system that would accommodate collection of data related to new activities included in the FNA. FNS foresees opportunities to improve any reporting form and/or system such as EARS over time. FNS has begun the process of addressing the feasibility of additional data collection through the EARS form or another means that captures SNAP-Ed activities implemented in the past, as well as activities called for in post-HHFKA SNAP-Ed programming. On August 17, 2015, a notice was published in the Federal Register (80 FR 49198), inviting public comment on a revised EARS form that will collect data related to some HHFKA provisions.

The interim rule specified that States are expected to collect and report State and private financial contributions on the EARS form. The possibility exists that an alternative method for the reporting of programmatic and financial data will be identified by FNS. As a result, FNS changed language at § 272.2(d)(2)(xi), Fiscal recordkeeping and reporting requirements, in response to comments received, to indicate that States must submit financial data through the means and in the timeframe specified by FNS. This applies to financial data that is reported on the EARS form as well as other financial data. Reference to the EARS form was deleted. FNS will provide guidance to States outside this rulemaking on the submission of programmatic data such as that collected by EARS and any new data collection that might be implemented.

One organization representing State and Implementing Agencies requested that FNS extend the due date for annual reports. FNS currently does provide flexibility for report submissions in practice on a case by case basis. However FNS, in response to this comment at § 272.2(d)(2)(xiii), changed the due date for Annual Reports from November 30 to January 31 as requested to allow States more time to better analyze and report on Program activities and budget. The reporting of outcomes was added at this section to emphasize that these should be included in Annual Reports.

Language was added at § 272.2(d)(2)(v) to modify the definition of the target population to explicitly include individuals residing in communities with a significant low-income population as specified in the FNA. The SNAP-Ed target population is now defined in this final rule as SNAP participants and low-income individuals eligible to receive benefits under SNAP or other means-tested Federal assistance programs and individuals residing in communities with a significant low-income population.

Several groups commented that FNS should make available information on approved alternative targeting strategies for assessing eligible areas and defining target populations. FNS considered this suggestion and included extensive information relevant to this issue in recent SNAP-Ed Plan Guidance. FNS will continue to identify alternative targeting strategies and methodologies and will disseminate the information through SNAP-Ed Plan Guidance and other appropriate means. One advocacy group suggested FNS permit inclusion of large-scale institutional settings and systems, buffer zones, etc., as part of a targeting strategy where there is a significant proportion of potentially eligible individuals. Another organization recommended allowing State-specific criteria to determine target audiences. States may propose these and other targeting strategies for FNS consideration under current SNAP-Ed Plan Guidance, so no changes will be made to the rule in this area.

One State agency provided comments about requiring States to conduct valid and data-driven needs assessments of their target populations to include barriers to accessing healthier options. A member organization further elaborated on the characteristics of the target population that States should consider when conducting needs assessments. These recommendations were incorporated into the rule at § 272.2(d)(2)(iv). In response to the same State agency, FNS added language at § 272.2(d)(2)(vi) requiring States to specify how their evidence-based interventions and strategies meet the assessed needs of their target population.

Several commenters provided suggestions related to evaluations. One recommended expanding approval of formative research and ongoing monitoring costs; two organizations suggested establishing clearer definitions for SNAP-Ed methods, interventions, metrics and evaluation; others commented that FNS should allow greater flexibility in how SNAP-Ed funds may be used for subsequent evaluative purposes. Another recommended continued FNS investment in SNAP-Ed evaluations such as the SNAP Education and Evaluation Studies (WAVEs I and II). These recommendations are relevant and timely but go beyond the scope of the requirements for SNAP-Ed set forth in the FNA and HHFKA. FNS will continue to consider these concerns, as applicable, through other SNAP-Ed policy-making and development processes. FNS did include evaluating programs in addition to planning, implementing, and operating SNAP-Ed programs as an appropriate use of funds at § 272.2(d)(2)(vii).

Several commenters requested that FNS share information about new SNAP-Ed nutrition education and obesity prevention programming that has demonstrated effectiveness or has shown significant promise. FNS agrees with this recommendation and did release with the FFY 2014 Guidance for States in March 2013 the SNAP-Ed Strategies and Interventions: An Obesity Prevention Toolkit for States (https://snaped.fns.usda.gov/snap//SNAP-EdInterventionsToolkit.pdf) developed in conjunction with the National Collaborative for Childhood Obesity Research. This toolkit was designed to help States identify evidence-based obesity prevention policy and environmental change strategies and interventions to include in SNAP-Ed Plans. The toolkit was updated in July 2013, again in May 2014, and will continue to be updated as needed. Also, an inventory of best practices in nutrition education was prepared through a National Institute of Food and Agriculture grant which FNS released in April 2014. Further information on promising and proven nutrition education and obesity prevention strategies for SNAP-Ed will be communicated to States through appropriate channels as they are identified.

Two organizations commented that FNS should encourage States to conduct needs assessment, formative research, interventions and evaluations for three population segments: SNAP participants, persons with incomes less than 130 percent of the Federal Poverty Level (FPL), and persons between 130 and 185 percent of the FPL to expand the target population for interventions and evaluations. Interventions and evaluations conducted in venues that qualify for SNAP-Ed are covered for these three population segments as described in SNAP-Ed Plan Guidance. Other organizations also recommended that: the costs of formative research, pilot testing, and ongoing monitoring and surveillance, and outcome/impact evaluation should be borne fully by SNAP-Ed; the costs of surveys, surveillance and special studies should be fully allowed as reasonable and necessary and not subject to proration when the baselines of different segments or communities impacts SNAP-Ed interventions; and FNS should clarify that the cost of evaluations and State surveys conducted for planning and evaluation include the full SNAP-Ed target population and not be prorated to apply only to persons at less than 130 percent of the FPL.

The SNAP-Ed Plan Guidance includes information about conducting interventions and evaluations and is an appropriate source to provide clarifying information on these topics. Additional focus on evaluation in SNAP-Ed was achieved with: The addition of an evaluation and related resources section to the SNAP-Ed Plan Guidance; the addition of an evaluation section to the SNAP-Ed Strategies and Interventions: An Obesity Prevention Toolkit for States; the development and posting of the guide, Addressing the Challenges of Conducting Effective Supplemental Nutrition Assistance Program Education (SNAP-Ed) Evaluations: A Step-by Step Guide (http://www.fns.usda.gov/sites/default/files/SNAPEDWaveII_Guide.pdf), and the addition of an evaluation Web page (https://snaped.fns.usda.gov/professional-development-tools/evaluation) to the SNAP-Ed Connection Web site, a resource for professionals working in SNAP-Ed. FNS will continue to provide evaluation information through existing communication with State agencies and will consider these comments when doing so.

States were encouraged in the interim rule to coordinate their activities with other public or private entities. Two groups commented that FNS should require rather than encourage States to coordinate activities with other organizations as well as report on the coordination efforts of their sub-grantees. In recent Guidance, FNS sets forth its expectation that States will coordinate SNAP-Ed activities with other groups. FNS believes that by stating its expectation and encouraging States to move forward with their coordination efforts rather than requiring them to form such cooperative relationships, consideration is properly given to the varying levels of existing efforts States have made and their abilities and resources to establish additional partnerships. Reflecting the intent of the HHFKA, States are encouraged at § 272.2(d)(2)(viii) to coordinate obesity prevention, nutrition education, and health promotion initiatives and interventions and must describe such coordination in State SNAP-Ed Plans. Recognizing the importance of coordination of efforts among operators of FNS programs, FNS added language at § 272.2(d)(2)(viii) requiring States to consult and coordinate with State and local operators of other FNS programs to ensure that their SNAP-Ed activities complement the nutrition education and obesity prevention efforts of these programs.

One commenter recommended that the rule further clarify when written agreements between partnering organizations are needed. A change was made at § 272.2(d)(2)(viii) to reflect that the term Memoranda of Understanding is often used interchangeably with Memoranda of Agreement and to clarify that these documents must be available for inspection only when SNAP-Ed funding is being used in collaborative efforts with other programs or organizations.

Other coordination-related recommendations to the interim rule that FNS may explore and address through SNAP-Ed Plan Guidance and other policy-making include suggestions that FNS: Encourage States to inform State and local staff of implementing agency SNAP-Ed efforts; waive SNAP cost allocation requirements when a State Nutrition Action Plan is operational among Federally-funded programs; and require States to describe the processes for coordination between States, other organizations, or contractors providing services. These recommendations will not be included in this final rule.

The funding provisions of the FNA are prescriptive and were included as such in the interim rule. One implementing agency and three organizations provided funding-related comments and suggestions. The comments and FNS' determinations related to changes in the final rule are listed below.

The funding-related sections of the final rule at § 272.2(d)(2)(x), Federal financial participation and allocation of grants, are revised from the interim rule in these areas: deleted the specific funding amounts for FFYs 2011- 2015 since SNAP-Ed funding levels are indicated in the FNA; deleted reference to the two-year period of performance since this language does not appear in the FNA and the information can be communicated to States through other channels; and minimally revised parts to delete non-essential information and to enhance clarity.

In response to the comment of one member organization, at § 272.2(d)(2)(vii)(A), Use of Funds, language was added to specify that State agencies shall provide program oversight and demonstrate program effectiveness regarding SNAP-Ed outcomes and impacts. At § 272.2(d)(2)(x)(B) the word State was added so that all parties are clear that the funds allocated under this grant may be used for State as well as local projects.

Recently concern has been expressed to FNS about identifying SNAP-Ed funds that may be at risk of not being spent in a timely manner and returned to the Federal government. Connected to this concern is identifying opportunities for the potential reallocation of funds should a State(s) surrender them. To address these interests and foster full use of limited resources, language was added at § 272.2(d)(2)(ix) requiring a State as part of the budget process to inform FNS, by the end of the first quarter of each FFY (December 31) of any portion of its prior year allocation that it cannot or does not plan to spend for SNAP-Ed activities by the end of the FFY. This section also is referenced at § 272.2(d)(2)(x)(F) to advise a State that FNS may reallocate unobligated or unexpended funds to another participating State agency if informed that a State will not obligate or expend funds during the period for which funding is available for new obligation by FNS. Other minor changes were made to this section for clarity.

Several commenters provided suggestions for the final rule related to program delivery. Two organizations recommended that the rule include specific language allowing SNAP-Ed programming to include advice on specific types of food to reduce in the diet consistent with the DGAs. States are permitted, as described in the SNAP-Ed Plan Guidance, to include such programming in their SNAP-Ed Plans. In response to the comments of two organizations, language was added to the definition of SNAP nutrition education and obesity prevention services at § 272.2(d)(2)(vii)(B) to indicate that intervention strategies may focus on limiting, as well as increasing, consumption of certain foods, beverages, and nutrients consistent with the DGAs. The SNAP-Ed Plan Guidance further specifies that FNS has determined that States may not use SNAP-Ed funds to convey negative written, visual, or verbal expressions about any specific brand of food, beverage or commodity. Policy changes regarding specific brands of foods, beverages and commodities are not be included in the final rule.

One State agency recommended that the rule include language that States may use all aspects of the social-ecological model and multi-level interventions. The rule does encourage this but at § 272.2(d)(2)(vii)(B) interpersonal level was added to the levels where SNAP-Ed activities can be conducted. Another organization recommended that FNS work with States denied approval to submit a multi-year plan in order to resolve any concerns. FNS currently does work with States to address concerns that may impede their progress in developing multi-year plans. The recommendation is not included in this rule.

Several organizations commented that FNS should strengthen the language regarding the number and requirements for approaches used in SNAP-Ed activities. These groups recommended that language should be changed from “states are encouraged to integrate” to “states are expected to integrate” multiple approaches in implementing their SNAP-Ed activities. FNS agrees with and supports these comments. The preamble of the final rule makes this change in language under Use of Funds. Additionally at § 272.2(d)(2)(vii)(D) language was changed to specify that SNAP-Ed activities must include evidence-based activities using two or more approaches.

One member organization recommended that FNS invest in technical assistance and training for regional and State SNAP staff to integrate fully comprehensive approaches to behavior change in State SNAP-Ed Plans. FNS does provide training, support and technical assistance to States. States additionally may use their SNAP-Ed funding for staff training. This recommendation will not be included in the final rule. Another organization suggested that FNS solicit and accept comments on the SNAP-Ed Guidance process from States and collaborating partners. States and partners currently may provide recommendations on the Guidance content and development process and FNS sought the input of a virtual work group of stakeholders in the development of recent SNAP-Ed Guidance. This recommendation does not necessitate any changes to the final rule.

Several other recommendations unrelated to the current rule were submitted. These include suggestions for communication improvement between State and local implementing agencies, using reallocated funds for purposes other than those stated in the FNA, discussing point-of-purchase strategies, and expanding the use of SNAP-Ed funds to conduct what might be considered SNAP outreach-related functions. These recommendations which are unrelated to provisions of the FNA, the HHFKA, and the interim rule may be addressed through other communications with States, and are not being addressed in the final rule.

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility.

The changes from the interim rule to this final rule were determined to be not significant and thus no further review was required by the Office of Management and Budget (OMB) in conformance with Executive Order 12866.

This rule has been designated as not significant by the Office of Management and Budget; therefore, no Regulatory Impact Analysis is required.

The Regulatory Flexibility Act (5 U.S.C. 601-612) requires Agencies to analyze the impact of rulemaking on small entities and consider alternatives that would minimize any significant impacts on a substantial number of small entities. Pursuant to that review, it has been certified that this rule would not have a significant impact on a substantial number of small entities. Currently 53 State agencies receive funding for SNAP-Ed, and this final rule institutes policy oversight and cost reductions required by statute.

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local and tribal governments and the private sector. Under section 202 of the UMRA, the Department generally must prepare a written statement, including a cost benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures by State, local or tribal governments, in the aggregate, or the private sector, of $100 million or more in any one year. When such a statement is needed for a rule, Section 205 of the UMRA generally requires the Department to identify and consider a reasonable number of regulatory alternatives and adopt the most cost effective or least burdensome alternative that achieves the objectives of the rule.

This final rule contains no Federal mandates (under the regulatory provisions of Title II of the UMRA) for State, local and tribal governments or the private sector of $100 million or more in any one year. Thus, the rule is not subject to the requirements of sections 202 and 205 of the UMRA.

SNAP is listed in the Catalog of Federal Domestic Assistance Programs under 10.561. For the reasons set forth in 2 CFR chapter IV, SNAP is excluded from the scope of Executive Order 12372, which requires intergovernmental consultation with State and local officials.

Executive Order 13132, requires Federal agencies to consider the impact of their regulatory actions on State and local governments. Where such actions have federalism implications, agencies are directed to provide a statement for inclusion in the preamble to the regulations describing the agency's considerations in terms of the three categories called for under Section (6)(b)(2)(B) of Executive Order 13132.

This final rule is necessary to amend SNAP regulations to implement Section 28 of the FNA of 2008, as added by Section 241 of Public Law 111-296, the HHFK Act of 2010. The Department has determined that this rule does not have Federalism implications. This rule does not impose substantial or direct compliance costs on State and local governments. Therefore, under Section 6(b) of the Executive Order, a Federalism summary impact statement is not required.

This final rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule is intended to have preemptive effect with respect to any State or local laws, regulations or policies which conflict with its provisions or which would otherwise impede its full and timely implementation. This rule is not intended to have retroactive effect unless so specified in the Effective Dates section of the final rule. Prior to any judicial challenge to the provisions of the final rule, all applicable administrative procedures must be exhausted.

FNS has reviewed this final rule in accordance with USDA Regulation 4300-4, “Civil Rights Impact Analysis,” to identify any major civil rights impacts the rule might have on program participants on the basis of age, race, color, national origin, sex or disability. After a careful review of the rule's intent and provisions, FNS has determined that this rule is not expected to affect the participation of protected individuals in SNAP.

This rule has been reviewed in accordance with the requirements of Executive Order 13175, “Consultation and Coordination with Indian Tribal Governments.” Executive Order 13175 requires Federal agencies to consult and coordinate with tribes on a government-to-government basis on policies that have tribal implications, including regulations, legislative comments or proposed legislation, and other policy statements or actions that have substantial direct effects on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

FNS has assessed the impact of this rule on Indian tribes and determined that this rule does not, to our knowledge, have tribal implications that require tribal consultation under EO 13175. On February 18, 2015 FNS held a webinar for tribal participation and comments. During the comment period, FNS did not receive any comments on the interim rule. If a Tribe requests consultation, FNS will work with the Office of Tribal Relations to ensure meaningful consultation is provided where changes, additions and modifications identified herein are not expressly mandated by Congress.

The Paperwork Reduction Act of 1995 (44 U.S.C. Chap. 35; 5 CFR part 1320) requires the Office of Management and Budget (OMB) approve all collections of information by a Federal agency before they can be implemented. Respondents are not required to respond to any collection of information unless it displays a current valid OMB control number.

Information Collection for SNAP-Ed requirements will not change under this rule. This final rule contains information collections that have been approved by OMB. The rule does not increase burden hours for State agencies in the preparation of Nutrition Education Plans. Nutrition Education State Plan requirements are included in the State Plan of Operations, OMB 0584-0083, Program, and Budget Summary Statement, and will not change with this rule.

Additionally, State requirements to report on the Education and Administration Reporting System (EARS) information collection form, OMB 0584-0542, will not change under this rule. FNS may determine that future revisions are needed. States will report FY 2014 EARS data by December 31, 2014, thereby negating the necessity for an Information Collection Request as part of this rule.

The Department is committed to complying with the E-Government Act, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.

Accordingly, the interim rule amending 7 CFR part 272 which was published at 78 FR 20411 (April 5, 2013), is adopted as a final rule with the following changes:

Discussion

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to certain The Boeing Company Model 747-100, 747-100B, 747-100B SUD, 747-200B, 747-300, 747SR, and 747SP series airplanes. The NPRM published in the Federal Register on October 6, 2015 (80 FR 60303) (“the NPRM”). The NPRM was prompted by an evaluation by the DAH indicating that the upper chords of the upper deck floor beams are subject to WFD. The NPRM proposed to require repetitive inspections for cracks at the floor panel attachment fastener holes; repetitive inspections for cracks in the upper and lower chords of the upper deck floor beams at permanent fastener locations; repetitive inspections for cracks in certain repaired and modified areas; and related investigative and corrective actions if necessary. The NPRM also proposed to require repetitive replacement of the upper chords of the upper deck floor beams, including pre-replacement inspections and corrective action if necessary; and post-replacement repetitive inspections and repair if necessary. We are issuing this AD to detect and correct fatigue cracking of the upper chords of the upper deck floor beams. Undetected cracking could result in large deflection or deformation of the upper deck floor beams, resulting in damage to wire bundles and control cables for the flight control system, and reduced controllability of the airplane. Multiple adjacent severed floor beams could result in rapid decompression of the airplane.

We gave the public the opportunity to participate in developing this AD. The following presents the comments received on the NPRM and the FAA's response to each comment. A member of the public supported the NPRM and an anonymous commenter had no objection to the NPRM.

Boeing requested that we clarify that credit for previous actions is limited to those actions that comply with the new proposed requirements of the NPRM. Boeing noted that paragraph (m) of the proposed AD should provide credit for using Boeing Alert Service Bulletin 747-53A2452, dated April 3, 2003, provided the new requirements specified in Boeing Alert Service Bulletin 747-53A2452, Revision 1, dated July 16, 2012, are met.

We agree that clarification is necessary. Paragraph (m) of this AD, “Credit for Previous Actions,” provides credit for actions done before the effective date of this AD using Boeing Alert Service Bulletin 747-53A2452, dated April 3, 2003, for the corresponding actions required by paragraphs (g), (h), and (i) of this AD. Paragraphs (g), (h), and (i) of this AD refer to Boeing Alert Service Bulletin 747-53A2452, Revision 1, dated July 16, 2012, as the appropriate source of service information for accomplishing the actions required by those paragraphs. Boeing Alert Service Bulletin 747-53A2452, Revision 1, dated July 16, 2012, added certain inspection locations. Therefore, for the added inspection locations specified in Boeing Alert Service Bulletin 747-53A2452, Revision 1, dated July 16, 2012, paragraph (m) of this AD does not provide credit because Boeing Alert Service Bulletin 747-53A2452, dated April 3, 2003, cannot be used for those locations. We have revised paragraph (m) of this AD to clarify that although credit is given for using Boeing Alert Service Bulletin 747-53A2452, dated April 3, 2003, actions required by paragraphs (g), (h), and (i) of this AD that are not identified in Boeing Alert Service Bulletin 747-53A2452, dated April 3, 2003, must still be done.

Boeing also stated that credit should be given in the NPRM for Boeing Alert Service Bulletin 747-53A2452, Revision 1, dated July 16, 2012; and Boeing Alert Service Bulletin 747-53A2852, dated June 22, 2012.

We have not included Boeing Alert Service Bulletin 747-53A2452, Revision 1, dated July 16, 2012; and Boeing Alert Service Bulletin 747-53A2852, dated June 22, 2012; in paragraph (m) of this AD because that service information is already cited in paragraphs (g) through (k) of this AD as the only appropriate source of service information for accomplishing the actions required by this AD. As allowed by the phrase, “unless already done,” in paragraph (f) of this AD, if the requirements of this AD have already been accomplished, this AD does not require that those actions be repeated.

Boeing requested that previously approved AMOCs for AD 2005-20-29, Amendment 39-14326 (70 FR 59246, October 12, 2005), be approved for the corresponding provisions of the proposed AD, provided the previously approved AMOCs satisfy the inspection locations and compliance times specified by the proposed AD. Boeing noted that AMOCs would be needed for new inspection locations and compliance times specified in the proposed AD.

We acknowledge that certain AMOCs for AD 2005-20-29, Amendment 39-14326 (70 FR 59246, October 12, 2005), might also address the actions and compliance times required by this AD. However, each individual AMOC would need to be evaluated to ensure the identified unsafe condition is addressed. Any person may request approval of an AMOC under the provisions of paragraph (o) of this AD. We have not changed this final rule in this regard.

We reviewed the relevant data, considered the comments received, and determined that air safety and the public interest require adopting this AD with the changes described previously—and minor editorial changes. We have determined that these minor changes:

• Αre consistent with the intent that was proposed in the NPRM for correcting the unsafe condition; and

• Do not add any additional burden upon the public than was already proposed in the NPRM.

We also determined that these changes will not increase the economic burden on any operator or increase the scope of this AD.

We reviewed the following service information.

• Boeing Alert Service Bulletin 747-53A2452, Revision 1, dated July 16, 2012. This service information describes procedures for repetitive open hole or surface high frequency eddy current (HFEC) inspections, as applicable, for cracks at the floor panel attachment fastener holes in certain areas and stations; repetitive surface HFEC inspections for cracks in the upper and lower chords of the upper deck floor beams at permanent fastener locations in certain areas and stations; and related investigative and corrective actions. This service information also describes procedures, for airplanes on which certain repairs or modifications are done, for repetitive open hole or surface HFEC inspections, as applicable, for cracks in the repaired and modified areas; and repair.

• Boeing Alert Service Bulletin 747-53A2852, dated June 22, 2012. This service information describes procedures for repetitive replacement of the upper chords of the upper deck floor beams, including pre-replacement inspections and corrective action, and post-replacement repetitive inspections and repair.

This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

We estimate that this AD affects 67 airplanes of U.S. registry.

We estimate the following costs to comply with this AD:

We have received no definitive data that would enable us to provide cost estimates for the on-condition actions specified in this AD.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

Discussion

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to Honeywell TFE731-4, -4R, -5AR, -5BR, and -5R turbofan engines with ITT duct, part number (P/N) 3075292-4, installed, with a serial number (S/N) listed in Table 2 of Honeywell Service Bulletin (SB) TFE731-72-3789, Revision 0, dated March 23, 2015. The NPRM published in the Federal Register on October 29, 2015 (80 FR 66481). The NPRM was prompted by report of certain ITT ducts that were not properly heat treated and failed to meet containment capability requirements. The NPRM proposed to require replacing certain ITT ducts. We are issuing this AD to correct the unsafe condition on these products.

We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM (80 FR 66481, October 29, 2015) or on the determination of the cost to the public.

We reviewed the relevant data and determined that air safety and the public interest require adopting this AD as proposed except for minor editorial changes. We have determined that these minor changes:

• Are consistent with the intent that was proposed in the NPRM (80 FR 66481, October 29, 2015) for correcting the unsafe condition; and

• Do not add any additional burden upon the public than was already proposed in the NPRM (80 FR 66481, October 29, 2015).

We reviewed Honeywell SB TFE731-72-3789, Revision 0, dated March 23, 2015. The SB describes procedures for removing affected ITT ducts. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

We estimate that this AD affects 47 engines installed on airplanes of U.S. registry. We also estimate that it will take about 2 hours per engine to comply with this AD. The average labor rate is $85 per hour. We estimate that replacement parts will cost $15,000 per engine. Based on these figures, we estimate the total cost of the AD to U.S. operators to be $712,990.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska to the extent that it justifies making a regulatory distinction, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

Discussion

Recently, a Weatherly Aircraft Company Model 620B airplane crashed while conducting agricultural operations. Preliminary investigation indicates presence of fatigue cracks in the center wing front spar lower hinge fitting of the accident aircraft. As a result of voluntary operator inspections, an additional cracked fitting in the center wing joint was recently reported.

Investigation reveals that the cracks resulted from fatigue damage on the hinge fitting and that routine maintenance practices are not finding this damage. This condition, if not detected and corrected, could result in failure of the wing front spar lower hinge fittings, which could cause the wing to separate and cause loss of control. We are issuing this AD to correct the unsafe condition on these products.

We are issuing this AD because we evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop in other products of the same type design.

This AD requires visually inspecting the center and outer wing front spar lower hinge fittings for cracks and corrosion and taking all necessary corrective actions. This AD also requires sending the inspection results to the FAA.

Based on the reports received from the AD requirements, we will work with the type certificate holder to evaluate that information to determine whether repetitive inspections are necessary and/or a possible terminating action. Based on this evaluation, we may initiate further rulemaking action to address the unsafe condition identified in this AD.

An unsafe condition exists that requires the immediate adoption of this AD. The FAA has found that the risk to the flying public justifies waiving notice and comment prior to adoption of this rule because failure of the wing front spar lower hinge fitting could cause the wing to separate from the airplane and cause loss of control. Therefore, we find that notice and opportunity for prior public comment are impracticable and that good cause exists for making this amendment effective in less than 30 days.

This AD is a final rule that involves requirements affecting flight safety and was not preceded by notice and an opportunity for public comment. However, we invite you to send any written data, views, or arguments about this AD. Send your comments to an address listed under the ADDRESSES section. Include the docket number FAA-2016-5422 and Directorate Identifier 2016-CE-011-AD at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this AD. We will consider all comments received by the closing date and may amend this AD because of those comments.

We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this AD.

We estimate that this AD affects 95 airplanes of U.S. registry.

We estimate the following costs to comply with this AD:

We estimate the following costs to do any necessary repair or replacement that will be required based on the results of the inspection. We have no way of determining the number of aircraft that might need this corrective action:

A federal agency may not conduct or sponsor, and a person is not required to respond to, nor shall a person be subject to penalty for failure to comply with a collection of information subject to the requirements of the Paperwork Reduction Act unless that collection of information displays a current valid OMB control number. The control number for the collection of information required by this AD is 2120-0056. The paperwork cost associated with this AD has been detailed in the Costs of Compliance section of this document and includes time for reviewing instructions, as well as completing and reviewing the collection of information. Therefore, all reporting associated with this AD is mandatory. Comments concerning the accuracy of this burden and suggestions for reducing the burden should be directed to the FAA at 800 Independence Ave. SW., Washington, DC 20591. ATTN: Information Collection Clearance Officer, AES-200.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

Discussion

We have determined that some Model 747-8 series airplanes could have oxygen components missing or incorrectly installed at oxygen tube couplings attached to the outboard stowage bin support assemblies. The manufacturer believes that these airplanes were delivered with the correct configuration of oxygen components. However, because of an error in an engineering drawing and related parts list, which omitted part number call-outs for some oxygen components, we want to be certain installations are correct and prevent incorrect installation during subsequent rework of the oxygen tubing components. This condition, if not corrected, could result in oxygen leaks from oxygen tube couplings in the passenger oxygen system, which could result in depletion of emergency oxygen at a faster rate than expected, reduce the passengers' and crews' protection from hypoxia at elevated cabin altitudes, and increase the risk of a fire.

We reviewed Boeing Special Attention Service Bulletin 747-35-2132, dated June 8, 2015. The service information describes procedures for inspection of passenger oxygen coupler assemblies for missing oxygen components, installation of o-rings, and corrective actions. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

We are issuing this AD because we evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop in other products of the same type design.

This AD requires accomplishing the actions identified in the service information identified previously. For information on the procedures and compliance times, see this service information at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-5033.

The phrase “corrective actions” is used in this AD. “Corrective actions” are actions that correct or address any condition found. Corrective actions in an AD could include, for example, repairs.

This AD also requires sending the inspection results to the Manager, Seattle Aircraft Certification Office, FAA.

There are no products of this type currently registered in the United States. However, this rule is necessary to ensure that the described unsafe condition is addressed if any of these products are placed on the U.S. Register in the future. Therefore, we find that notice and opportunity for prior public comment are unnecessary and that good cause exists for making this amendment effective in less than 30 days.

This AD is a final rule that involves requirements affecting flight safety and was not preceded by notice and an opportunity for public comment. However, we invite you to send any written data, views, or arguments about this AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2016-5033; Directorate Identifier 2015-NM-118-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this AD. We will consider all comments received by the closing date and may amend this AD because of those comments.

We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this AD.

We estimate that this AD affects 0 airplanes of U.S. registry.

We estimate the following costs to comply with this AD:

We estimate the following costs to do any necessary corrective actions that will be required based on the results of the inspection. We have no way of determining the number of aircraft that might need these repairs:

According to the manufacturer, some of the costs of this AD may be covered under warranty, thereby reducing the cost impact on affected individuals. We do not control warranty coverage for affected individuals. As a result, we have included all costs in our cost estimate.

A federal agency may not conduct or sponsor, and a person is not required to respond to, nor shall a person be subject to penalty for failure to comply with a collection of information subject to the requirements of the Paperwork Reduction Act unless that collection of information displays a current valid OMB control number. The control number for the collection of information required by this AD is 2120-0056. The paperwork cost associated with this AD has been detailed in the Costs of Compliance section of this document and includes time for reviewing instructions, as well as completing and reviewing the collection of information. Therefore, all reporting associated with this AD is mandatory. Comments concerning the accuracy of this burden and suggestions for reducing the burden should be directed to the FAA at 800 Independence Ave. SW., Washington, DC 20591, ATTN: Information Collection Clearance Officer, AES-200.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

Discussion

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to remove AD 2014-07-04R1, Amendment 39-17964 (79 FR 54893, September 15, 2014) and add a new AD. AD 2014-07-04R1 applied to certain serial-numbered Sikorsky S92A helicopters and required repetitively inspecting the upper deck area for incorrectly installed clamps and for chafing between the electrical wires and hydraulic lines.

The NPRM published in the Federal Register on September 25, 2015 (80 FR 57751). The NPRM was prompted by an alteration developed by Sikorsky that separates and re-routes the engine inlet feeder lines. The NPRM proposed to require this alteration to prevent chafing between the electrical lines and hydraulic hoses, which could result in a fire in an area of the helicopter without extinguishing capability and subsequent loss of control of the helicopter.

Since the NPRM was issued, the mailing address for the Boston Aircraft Certification Office has changed. We have revised this contact information in this final rule to reflect the new mailing address.

We gave the public the opportunity to participate in developing this AD, but we did not receive any comments on the NPRM (80 FR 57751, September 25, 2015).

We have reviewed the relevant information and determined that an unsafe condition exists and is likely to exist or develop on other helicopters of these same type designs and that air safety and the public interest require adopting the AD requirements as proposed.

Sikorsky has issued Special Service Instructions SSI No. 92-070A, Revision A, dated April 25, 2014 (SSI 92-070A), which contains procedures to alter the wiring system in the upper deck area to prevent chafing. This service information is reasonably available because the interested parties have access to it through their normal course of business or by means identified in the ADDRESSES section.

We also reviewed Sikorsky Alert Service Bulletin ASB 92-20-003, Basic Issue, dated May 5, 2014 (ASB 92-20-003). ASB 92-20-003 specifies a one-time modification of the upper deck wiring harnesses to prevent possible chafing by complying with SSI 92-070A.

The service information provides a compliance date of November 5, 2015; this AD requires a compliance time of 150 hours time-in-service. Also, the service information requires submitting certain documentation to the manufacturer, and this AD does not.

We estimate that this AD will affect 20 helicopters of U.S. Registry.

We estimate that operators may incur the following costs in order to comply with this AD. Labor costs are estimated at $85 per work-hour. Rerouting the upper deck wiring system and replacing and installing new parts will take 58 work-hours and $8,000 in required parts, for a total cost of $12,930 per helicopter and $258,600 for the fleet.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska to the extent that a regulatory distinction is required, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

Discussion

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to all BAE Systems (Operations) Limited Model BAe 146 series airplanes and Model Avro 146-RJ series airplanes. The NPRM published in the Federal Register on November 12, 2015 (80 FR 69903) (“the NPRM”).

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Union, has issued EASA Airworthiness Directive 2012-0191R1, dated November 6, 2012 (referred to after this as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for all BAE Systems (Operations) Limited Model BAe 146 series airplanes and Model Avro 146-RJ series airplanes. The MCAI states:

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of the airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it removes from 14 CFR 71.33(a) a provision that excludes the airspace in the vicinity of the Santa Barbara and Farallon Islands and the Florida Keys from U.S. Class A airspace in order to maintain the safe and efficient flow of air traffic.

In 1958, the Civil Aeronautics Board delegated to the Administrator the authority to designate positive control route segments in any portion of the airspace between 17,000 to 35,000 feet, within which certain operational requirements would be applicable. That same year the Administrator designated in 14 CFR part 601 specific airways as positive control airspace, noting that “with experience and the acquisition of more and better equipment, the positive control area will undoubtedly, from time to time, be expanded.” 23 FR 3917 (June 5, 1958).

In 1962, the FAA redesignated part 601 as part 71. 27 FR 10353 (Oct. 24, 1962). Section 71.15 addressed positive control areas, and § 71.193 (published separately) contained those areas designated as positive control areas. Over several years, the airspace designated as positive control areas continued to expand as anticipated with the FAA's increased capability to control air traffic. In 1965, the FAA established an expansive area of positive control airspace designated the “continental positive control area.” 30 FR 1836 (February 10, 1965). The FAA excluded from that positive control area the airspace over Santa Barbara Island and the Farallon Islands, and the airspace south of the latitude 25°04′00″ North.

In 1991, the FAA issued a final rule reclassifying “positive control areas” as Class A airspace.1 56 FR 65638, 65639 (Dec. 17, 1991).2 In that final rule, new § 71.33 defined Class A airspace and continued to exclude from Class A airspace that airspace over Santa Barbara Island, the Farallon Islands, and south of latitude 25°04′00″ North that was originally established in 1965.

Unless otherwise specified, Class A airspace in the United States consists of that airspace from 18,000 feet MSL up to and including flight level (FL) 600. Unless otherwise authorized, all persons must operate their aircraft under instrument flight rules in airspace designated as Class A and comply with the applicable requirements of 14 CFR part 91. “Class A airspace” includes, in part, “that airspace overlying the waters within 12 nautical miles of the coast of the 48 contiguous States, from 18,000 feet MSL to and including FL600 excluding the states of Alaska and Hawaii, Santa Barbara Island, Farallon Island, and the airspace south of latitude 25°04′00″ North.”

The airspace excluded from Class A airspace over the Santa Barbara and Farallon Islands and the airspace south of 25°04′00″ North renders those portions of U.S. domestic airspace (i.e., within 12 nautical miles (NM) of the baseline of the United States) as Class G (uncontrolled) airspace, which limits the provision of air traffic control services in those areas.

As these excluded areas lie within the 12 NM territorial limits of the United States, the airspace would ordinarily be classified as Class A airspace. When the exclusions were implemented decades ago, air traffic control services in the high altitude structure were limited due to lack of radar and radio communications coverage in some areas as well as less demand for those services. This was particularly true in the airspace near the Florida Keys.

The lack of Class A airspace inside portions of United States domestic airspace impacts the provision of air traffic control services. Although transit of Instrument Flight Rules (IFR) traffic through uncontrolled airspace is permitted when requested by the pilot, Air Traffic Control (ATC) authority within uncontrolled airspace is limited.

An example of the impacts is the Florida Keys area (that airspace south of latitude 25°04′00″ North) which is under the jurisdiction of the Miami Air Route Traffic Control Center (ARTCC). There are four Air Traffic Service routes that transit the airspace in question. Miami ARTCC cannot use the routes or vector aircraft through the area unless requested by the pilot. This obligates air traffic controllers to vector aircraft around the airspace. Complicating their task is the location of military warning area airspace just to the south of the Florida Keys area. When the warning areas are activated, flights have to be rerouted hundreds of miles around the airspace. With an average of 317 flights per day transiting this airspace, ATC must employ Traffic Management Initiatives (TMI) to manage the volume of traffic. These TMIs increase delays and add to users' operating costs. The Miami ARTCC area has experienced dramatic growth in international air traffic to and through the area which is expected to continue into the future.

Another example is the Farallon Islands area which is under the jurisdiction of the Oakland ARTCC. This area falls within a corridor of arrivals and departures for international flights to San Francisco, Oakland, and San Jose, which have increased exponentially since the inception of the original exclusion. To circumvent this area of uncontrolled airspace would result in a significant impact both to the Oakland ARTCC and NAS users. Returning the Farallon Islands area to controlled airspace would reduce the workload for air traffic controllers and flight crews, which enhances safety and aids in the management of controlled airspace within the National Airspace System (NAS). In addition NAS users will gain a measurable increase in efficiency with the ability to create flight plans utilizing this area as controlled airspace.

The Santa Barbara Island exclusion encompasses two navigation fixes and overlaps the boundary of Control Area 1318H which connects to an inbound oceanic route. The close proximity of this exclusion to the Los Angeles terminal area affects Los Angeles ARTCC operations and poses similar impacts to the NAS as described above.

This action amends Title 14 Code of Federal Regulations (14 CFR) part 71 by amending section 71.33(a) in 14 CFR part 71 to remove the words “. . . Santa Barbara Island, Farallon Island and the airspace south of latitude 25°04′00″ North.” Subparagraphs (b) and (c) in § 71.33 remain unchanged by this action.

The FAA is taking this action because the current exclusion severely limits the FAA's ability to provide ATC services in the affected areas of U.S. domestic airspace. The FAA believes that the current Class A airspace exclusion is no longer warranted considering the expansion of radar and radio communications coverage, greater air traffic control system capabilities and increased demand for ATC services in the affected areas since the exclusion was originally promulgated. The current exclusion creates an impediment to providing ATC services and leads to air traffic delays, rerouting of air traffic, increased controller workload and reduced efficiency of the National Airspace System.

Section 553(b)(3)(B) of the Administrative Procedure Act (5 U.S.C.) authorizes agencies to dispense with notice and comment procedures when the agency for “good cause” finds that those procedures are “impractical, unnecessary, or contrary to the public interest.” Under this section, an agency, upon finding good cause, may issue a final rule without seeking comment prior to the rulemaking. Based on the information presented above, the FAA has determined that prompt remedial action is necessary to enhance safety and avoid significant adverse impact on the operation of the NAS. Without immediate action, the traveling public will experience substantial flight delays. Therefore, the FAA finds that it is impractical and contrary to the public interest to delay action in order to follow the normal notice and comment procedures.

Under 5 U.S.C. 553(d), publication of a substantive rule shall be made not less than 30 days before its effective date, except as otherwise provided by the agency for good cause found and published with the rule. The FAA is issuing this rule with an effective date of March 31, 2016, which is less than 30 days after publication. The FAA finds good cause because this rule will enhance safety and prevent significant adverse impact on the operation of the NAS.

Changes to Federal regulations must undergo several economic analyses. First, Executive Order 12866 and Executive Order 13563 direct that each Federal agency shall propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs. Second, the Regulatory Flexibility Act of 1980 (Pub. L. 96-354) requires agencies to analyze the economic impact of regulatory changes on small entities. Third, the Trade Agreements Act (Pub. L. 96-39) prohibits agencies from setting standards that create unnecessary obstacles to the foreign commerce of the United States. In developing U.S. standards, the Trade Act requires agencies to consider international standards and, where appropriate, that they be the basis of U.S. standards. Fourth, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires agencies to prepare a written assessment of the costs, benefits, and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local, or tribal governments, in the aggregate, or by the private sector, of $100 million or more annually (adjusted for inflation with base year of 1995). This portion of the preamble summarizes the FAA's analysis of the economic impacts of this [proposed/final] rule.

Department of Transportation Order DOT 2100.5 prescribes policies and procedures for simplification, analysis, and review of regulations. If the expected cost impact is so minimal that a proposed or final rule does not warrant a full evaluation, this order permits that a statement to that effect and the basis for it to be included in the preamble if a full regulatory evaluation of the cost and benefits is not prepared. Such a determination has been made for this rule. Without this rule there will be: An impediment to providing ATC service; traffic will be rerouted; increasing air traffic delays; increase controller workload; resulting in reduced efficiency of the National Airspace System. As current traffic patterns will not change unless this rule is not issued, the economic impact of this rule will be minimal cost.

FAA has, therefore, determined that this rule is not a “significant regulatory action” as defined in section 3(f) of Executive Order 12866, and is not “significant” as defined in DOT's Regulatory Policies and Procedures.

The Regulatory Flexibility Act of 1980 (Pub. L. 96-354) (RFA) establishes “as a principle of regulatory issuance that agencies shall endeavor, consistent with the objectives of the rule and of applicable statutes, to fit regulatory and informational requirements to the scale of the businesses, organizations, and governmental jurisdictions subject to regulation.” To achieve this principle, agencies are required to solicit and consider flexible regulatory proposals and to explain the rationale for their actions to assure that such proposals are given serious consideration.” The RFA covers a wide-range of small entities, including small businesses, not-for-profit organizations, and small governmental jurisdictions.

Agencies must perform a review to determine whether a rule will have a significant economic impact on a substantial number of small entities. If the agency determines that it will, the agency must prepare a regulatory flexibility analysis as described in the RFA.

However, if an agency determines that a rule is not expected to have a significant economic impact on a substantial number of small entities, section 605(b) of the RFA provides that the head of the agency may so certify and a regulatory flexibility analysis is not required. The certification must include a statement providing the factual basis for this determination, and the reasoning should be clear.

This rule is necessary to avoid rerouting current air traffic. The rerouting will increase miles flown, increasing fuel and crew cost. While the rule will likely impact a substantial number of small entities, it will have a minimal economic impact.

If an agency determines that a rulemaking will not result in a significant economic impact on a substantial number of small entities, the head of the agency may so certify under section 605(b) of the RFA. Therefore, as provided in section 605(b), the head of the FAA certifies that this rulemaking will not result in a significant economic impact on a substantial number of small entities.

The Trade Agreements Act of 1979 (Pub. L. 96-39), as amended by the Uruguay Round Agreements Act (Pub. L. 103-465), prohibits Federal agencies from establishing standards or engaging in related activities that create unnecessary obstacles to the foreign commerce of the United States. Pursuant to these Acts, the establishment of standards is not considered an unnecessary obstacle to the foreign commerce of the United States, so long as the standard has a legitimate domestic objective, such as the protection of safety, and does not operate in a manner that excludes imports that meet this objective. The statute also requires consideration of international standards and, where appropriate, that they be the basis for U.S. standards. The FAA has assessed the potential effect of this rule and determined that the rule will have the same impact on international and domestic flights and is a safety rule thus is consistent with the Trade Agreements Act.

Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires each Federal agency to prepare a written statement assessing the effects of any Federal mandate in a proposed or final agency rule that may result in an expenditure of $100 million or more (in 1995 dollars) in any one year by State, local, and tribal governments, in the aggregate, or by the private sector; such a mandate is deemed to be a “significant regulatory action.” The FAA currently uses an inflation-adjusted value of $155 million in lieu of $100 million. This rule does not contain such a mandate; therefore, the requirements of Title II of the Act do not apply.

FAA Order 1050.1F identifies FAA actions that are categorically excluded from preparation of an environmental assessment or environmental impact statement under the National Environment Policy Act in the absence of extraordinary circumstances. The FAA has determined this rulemaking action qualifies for the categorical exclusion identified in paragraph 5-6.5a and involves no extraordinary circumstances.

An electronic copy of a rulemaking document may be obtained by using the Internet—

1. Search the Federal eRulemaking Portal (http://www.regulations.gov);

2. Visit the FAA's Regulations and Policies Web page at http://www.faa.gov/regulations_policies/ or

3. Access the Government Printing Office's Web page at http://www.thefederalregister.org/fdsys/.

Copies may also be obtained by sending a request (identified by notice, amendment, or docket number of this rulemaking) to the Federal Aviation Administration, Office of Rulemaking, ARM-1, 800 Independence Avenue SW., Washington, DC 20591, or by calling (202) 267-9680.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:

I. Background

Section 203(c)(1) of the National Housing Act (the Act) authorizes the Secretary to set the premium charge for insurance of mortgages under the various programs in title II of the Act. The range within which the Secretary may set such charges must be between one-fourth of one percent per annum and one percent per annum of the amount of the principal obligation of the mortgage outstanding at any time. (see 12 U.S.C. 1709(c)(1)). HUD's Multifamily Housing Mortgage Insurance regulation at 24 CFR 207.254 provides that HUD must publish a notice of future premium changes in the Federal Register, and provide a 30-day public comment period for the purpose of accepting comments on whether the proposed changes are appropriate.

On October 2, 2015, HUD published a notice in the Federal Register, at 80 FR 59809, announcing that the MIPs for FHA Multifamily, Health Care Facilities, and Hospital mortgage insurance programs that have commitments to be issued or reissued in FY 2016 would be the same as those published for FY 2015. HUD then published a notice on January 28, 2016, at 81 FR 4926, announcing proposed MIP changes for FY 2016 in certain programs authorized under the Act (12 U.S.C. 1709(c)(1)), and certain other multifamily programs. The January 28, 2016, notice was proposed to promote two of HUD's mission priorities: affordable housing and energy efficiency. HUD sought public comment on the proposed changes, as required by 24 CFR 207.254.

The public comment period on the January 28, 2016, notice closed on February 29, 2016, and HUD received 19 public comments by the close of the public comment period. Comments were submitted by mortgage lenders, organizations representative of the health care industry and of the home building industry, private citizens, and other interested parties. All public comments can be found on www.regulations.gov under the docket number FR-5876-N-01. The following presents the key issues raised by commenters and HUD's response to these issues.

Comment: One commenter stated that HUD had not demonstrated its authority to implement these MIP changes, and another commenter asked if HUD would be issuing additional regulations to confirm the appropriate MIP.

HUD Response: We disagree; section 203(c)(1) of the Act authorizes the Secretary to set the premium charge for insurance of mortgages under the various programs in the Act, and 24 CFR 207.254 provides that HUD will implement future multifamily premium changes by publishing a notice in the Federal Register and soliciting public comment for 30 days. HUD has complied with those requirements and no additional regulations must be issued to implement these changes.

Comment: One commenter observed that MIPs “must be determined based on the prudent management of risk to the government of the potential and severity of mortgage losses.” In other words, the MIPs should be set at levels that are actuarially sufficient to cover expected credit losses and other costs.

HUD Response: HUD agrees; portfolio and actuarial analysis of the new rate structure demonstrated that premium revenues will exceed losses for the foreseeable future.

Comment: Commenters urged HUD to extend MIP changes to programs under FHA's Office of Healthcare Programs, including the health care facilities and hospital insurance programs, in order to further promote these programs. These commenters suggested that by excluding properties financed under Section 232 and Section 242 programs, HUD misses the opportunity to further the Administration's healthcare objectives.

HUD Response: HUD will continue to evaluate MIP rates, but is not at this time extending MIP changes to programs under FHA's Office of Healthcare Programs, including the health care facilities and hospital insurance programs under sections 232 and 242, respectively.

Comment: Commenters asked that the new MIP rates be made available to existing FHA-insured loans on properties that meet or will meet the required standards, to loans undergoing interest rate reductions through HUD's Multifamily Office of Asset Management and Portfolio Oversight (OAMPO), to loan modifications through OAMPO, to loans initially endorsed (closed) but not finally endorsed, and to loans on recently built housing (within the past 5 years) that have or could obtain Energy Star building certification.

HUD Response: New MIP rates cannot be applied retroactively; each of these scenarios represents already-closed loans. Therefore, the MIP new rates will become effective only for FHA firm commitments issued or reissued, and closed, on or after April 1, 2016.

Comment: Commenters asked for a change to the requirements to qualify for the MIP rate for Broadly Affordable housing: Properties must have “achievable and underwritten tax credit rents at least 10 percent below comparable market rents.” Commenters recommended that “achievable and” be deleted because of the confusion it could cause.

HUD Response: HUD disagrees. The phrase (“achievable and underwritten tax credit rents at least 10 percent below comparable market rents”) is necessary in order to differentiate from the maximum or ceiling tax credit rents, and is widely understood in the industry.

Comment: Commenters recommended that properties with greater than 90 percent affordable units, but without a 10 percent underwritten market rent advantage necessary to qualify as Broadly Affordable, should qualify for the Affordable mixed-income MIP rate of 35 basis points.

HUD Response: HUD agrees, and has made the change in the final notice.

Comment: Commenters asked if a property will qualify for the MIP reduction if it has a project-based Section 8 that runs less than 15 years or is not renewed but the owner honors the full 15-year use restriction.

HUD Response: HUD will be providing the MIP reduction only to properties that have a Section 8 contract and use restriction that run a minimum of 15 years after final endorsement.

Comment: Commenters recommended that the new MIP rates be available in situations where the property owner accepts Section 8 voucher holders for just the affordable units, rather than an unlimited requirement for the entire property, due to potential property owners' concerns about converting an entire property to Section 8, over time, in what is intended as a mixed- income property. Another commenter stated that in the MIP definition of Affordable there is a requirement that the property owner agree to accept Section 8 voucher holders for the life of the loan, and the commenter requested that this be limited to the 15-year affordability period rather than the life of the loan.

HUD Response: HUD disagrees, and continues to require that for a property owner to access the MIP rate under the Affordable rate category the property owner must agree to accept voucher holders as residents for all vacancies and for the life of the regulatory agreement.

Comment: Commenters requested that the 5 percent cap on total loan fees be removed, or the threshold significantly increased. The commenters stated that small loans are challenging to originate, underwrite, and service, due to certain fixed lender costs and time requirements, and asked HUD to assess the impact for loans that fall into the $2-5 million range; commenting that the market is familiar with the $5 million small loan limit set by the Federal Housing Finance Agency for the Fannie Mae and Freddie Mac small loan programs. One commenter asked that HUD provide underlying information on the need for such a broad limitation.

HUD Response: The intent is to ensure that the benefits of these MIP rates directly benefit the properties and residents. In FHA's experience, Multifamily Accelerated Processing (MAP) lenders today are generally not charging fees in excess of 5 percent on loans under $5 million, even though they may do so. According to aggregated lender disclosures, just 6 percent of FHA-insured loans under $5 million, originated between FY 2013 and FY 2016, year-to-date, charged fees in excess of 5 percent, and most of these were concentrated in loans under $2 million. Accordingly, HUD does not believe that this limitation will present a burden to MAP lenders.

Comment: One commenter said that it may be counterproductive to have a loan fee limit on loans over $2 million at precisely the time HUD is encouraging MAP lenders to participate in its Small Building Risk Share Initiative (SBRS).

HUD Response: Loans originated under Risk Share programs, including SBRS, are exempt from the fee limitations.

Comment: One commenter asked that loans with firm commitments issued prior to the January 28, 2016, publication of the proposed MIP rates be excluded from the fee limitations.

HUD Response: The loan fee limitations only apply to loans with FHA firm commitments issued or reissued on or after April 1, 2016. Firm commitments issued prior to that date are exempt from the loan fee limitation (though still subject to disclosure), unless requesting reissuance or modification to utilize the new rates. Any loan accessing the lower rates will also be subject to the loan fee limitation.

Comment: Commenters wrote that properties subject to inclusionary zoning agreements are only eligible for the reduced MIP rate if the term of the affordability agreement is 30 years or longer, compared to Low Income Housing Tax Credit (LIHTC) or Project-Based Rental Assistance (PBRA) properties in this same rate category, which have minimum compliance periods of 15 years. They asked that the inclusionary zoning compliance period be reduced from 30 years to 15 years.

HUD Response: The affordability requirements under LIHTC or PBRA/Section 8 are much deeper than those generally required under inclusionary zoning laws. HUD believes, therefore, that the longer affordability requirement (30 years) is reasonable.

Comment: One industry association opposed using the FHA multifamily insurance programs “to incentivize complicated and controversial inclusionary zoning laws at the local level.” One commenter stated that some studies have shown inclusionary zoning may not be the most cost effective way to address affordability, and can actually lead to fewer units being delivered.

HUD Response: HUD is not incentivizing inclusionary zoning or other set-aside laws through these rates. Rather, the new structure recognizes affordability in its many forms. HUD will study the effects of these rates for future rate considerations.

Comment: A number of commenters pointed out that the requirement for a property owner to report building performance 12 months after new construction/substantial rehabilitation is unreasonable, as the property must be occupied, and operate for a full 12 months, before collecting and reporting the data. Further, the requirement may preclude properties from one or more of the performance-based green building certifications recognized for the green/energy efficient MIP rate.

HUD Response: HUD agrees, and has amended the notice to require reporting of complying building performance “. . . no more than 15 months after completion of new construction, substantial rehabilitation or renovations, or 15 months after break-even occupancy.”

Comment: Commenters stated that small properties make up the majority of all apartment buildings and often provide housing affordability. Yet properties under 20 units are excluded from getting a 1-100 EnergyStar score from Portfolio Manager, effectively blocking them from taking advantage of the reduced MIP rate. Commenters asked that HUD consider, for the purpose of accessing the Green/Energy Efficient MIP rate, exempting smaller properties from the requirement of a 75+ score on Portfolio Manager, as long as they are or will be certified by one of the recognized, independent green building standards.

HUD Response: HUD agrees, and has modified the notice. Small properties (under 20 units) must meet one of the recognized independent green building/energy efficiency standards in order to access the Green/Energy Efficient MIP rate, but are exempt from the 75+ Portfolio Manager score requirement.

Comment: One commenter recommended that HUD consider tiered or graduating MIP rates for varying levels of energy efficiency to encourage all property owners to undertake efficiency retrofits to the extent feasible.

HUD Response: While HUD agrees with the intent, such a rate structure would be overly complex and challenging to administer. HUD will continue to review rates and opportunities to promote its mission objectives.

Comment: Multiple commenters presented alternative green building certification standards for consideration, and/or asked what the process will be for approval of green building certification standards beyond those listed in the notice.

HUD Response: In addition to the recognized standards listed in the notice, HUD will accept “other industry-recognized green building standards in the sole discretion of HUD's Office of Multifamily Production.” Lenders should submit such requests to the Director of Multifamily Production, in HUD headquarters. A committee will review such requests for consideration. In response to the specific requests submitted with public comments, HUD has revised the notice to recognize Passive House certifications, LEED for Existing Buildings: Operations & Maintenance, and Living Building Challenge Certification.

Comment: Commenters asked about notice references to Real Estate Assessment Center (REAC) protocols for properties not achieving their proposed green building standard or the 75+ Portfolio Manager score. One commenter stated that the REAC protocol should not be unilaterally changed to incorporate tests on whether properties are eligible for MIP reductions. Others asked what actions HUD would pursue for a property's failure to achieve green building certification and a score of 75+ in Portfolio Manager (for example, might actions include 2530 flags or MIP changes).

HUD Response: HUD is not changing REAC protocols. The intent is not to be punitive, but to ensure compliance with the specified green building certification and efficiency performance standards. Properties that fail to achieve their designated green building standard or the 75+ Portfolio Manager score will be required to submit to HUD a compliance plan and timeline for achieving the required certification and performance, acceptable to HUD. An owner working in good faith and demonstrating progress toward compliance in HUD's discretion will not be flagged in HUD's 2530 previous participation system.

Comment: Commenters asked that the notice clarify that the person certifying the green building standard be appropriately credentialed, and stated that a Capital Needs Assessment (CNA) provider may or may not be able to provide an energy design certification, unless they are licensed/accredited per the Energy Auditor requirements.

HUD Response: HUD agrees, and has struck CNA provider as a qualified certifier of a green building standard or energy design certification. The CNA provider may certify, if appropriately credentialed, in their capacity as architect, engineer, energy auditor, and/or approved certifier under the specified green building standard.

Comment: Commenters recommended that HUD delete the phrase “and maintain” in reference to recognized green building certifications, because the notice requires a property to not only achieve, but to maintain one of the recognized, independent green building certification standards, yet the named green building rating systems are all design and construction standards and do not include provisions for maintaining the certification.

HUD Response: HUD agrees, and has modified the notice to strike “and maintain” from the green building certification requirement.

Comment: A commenter asked for clarification on the requirement for a property accessing the Green/Energy Efficient MIP rate to achieve and maintain the 75+ Portfolio Manager score.

HUD Response: A property accessing the Green/Energy Efficient MIP rate will be required to maintain its efficiency performance. The property owner will submit its 1-100 ENERGY STAR score from EPA's Portfolio Manager report to HUD, annually.

Comment: Commenters stated the notice's required score of 75+ on EPA's Portfolio Manager will be a “moving target” as the underlying database of properties recalibrates the scores, and asked how an owner can certify to this target.

HUD Response: The Portfolio Manager data set and underlying algorithm, and therefore the resulting scores, will not be changed for the foreseeable future, according to EPA. The objective is to ensure sustained property performance. If, in the future, the 1-100 ENERGY STAR score is recalibrated, properties may demonstrate ongoing compliance by providing a copy of the Portfolio Manager report showing building consumption/performance has been maintained, even if the resulting score under a recalibrated scale is less than 75. Properties applying for the MIP rate will have to comply with the current standard score requirement that is applicable at that time.

Comment: One commenter asked why a property that can meet both the Broadly Affordable and the Green/Energy Efficient requirements is not rewarded through a further rate reduction.

HUD Response: The rates offered under those two rate categories are the lowest allowed by statute, so not further reductions can be offered at this time.

Comment: One commenter asked whether the reduction in MIP for Green/Energy Efficient buildings have to be from private investment, or if the energy upgrades can be paid be from a government program such as DOE Weatherization or a similar State program.

HUD Response: While it is anticipated that many property owners may utilize the additional mortgage proceeds made possible by the lower MIP to retrofit properties to meet the stringent efficiency standards required, an owner is not required to do so. Energy efficiency retrofits can be paid from any public or private source of funds, subject to limitations on other debt established by the FHA MAP program.

Comment: One commenter asked that HUD's posted data identify current loans in its portfolio in the new MIP rate categories, to allow a viewer to determine which loans in the portfolio would qualify for which rates.

HUD Response: HUD does not have the level of detail in its dataset to allow this identification. All loans originated under the new rate structure will be identified by rate category.

Comment: One commenter suggested that the new MIP rate structure would disadvantage market rate properties, disproportionately harming rental properties in secondary and tertiary markets.

HUD Response: The largest reduction from current rates to those effective April 1, 2016, is for market rate properties that are, or choose to, retrofit to a recognized green building/energy efficiency standard. This rate category was added specifically to recognize and promote green and energy efficient properties, whether affordable or market rate.

Comment: A commenter observed that the negative subsidy rates for MIP since FY 2013 show that the multifamily programs are generating more than enough revenue to cover losses, and requested that HUD review the MIPs for all of its loan programs, and set the levels at the rate necessary to cover losses and costs to the program.

HUD Response: HUD has and will continue to review its MIP rates.

Comment: Commenters requested clarification with regard to the notice's reference to the upfront capitalized MIP for construction loans and the absence of a reference to a “look back” after final closing that recalculates MIP at 1 percent of the actual outstanding amount.

HUD Response: For New Construction and Substantial Rehabilitation transactions, the upfront capitalized MIP is the applicable annual MIP rate, times the loan amount, times the number of years of construction, rounded up to the nearest full year for partial years.

Comment: One commenter stated that there may be an advantage for risk-share lenders compared to MAP lenders, on tax credit projects in markets where tax credit rents are close to market rents (less than 10 percent advantage), and the rate for MAP lender originated loans will be 35 basis points, while risk-share loans qualify as Broadly Affordable at 25 basis points.

HUD Response: The risk share program is an affordable lending program by statute, and is therefore categorically qualified for the lowest MIP rate. In the limited cases where the described scenario may apply, we do not believe the 10 basis points differential will be enough to skew the market away from MAP lending. HUD will continue to explore the potential disparity raised by the commenter, and may consider changes to address the issue in a subsequent MIP notice.

Comment: One commenter raised concerns about the impact of Executive Order 13690 and the new Federal Flood Risk Management Standard (FFRMS) on housing affordability when implemented and applied to new FHA-insured loans for new construction and substantial rehabilitation, Community Development Block Grants (CDBG), and HOME Investment Partnerships Program funds.

HUD Comment: Executive Order 13690 and the new FFRMS are outside the scope of this notice. Any actions implementing the Executive order will be the subject of a separate publication.

This notice adopts the proposed changes in the January 28, 2016 notice. Specifically, HUD is adopting changes to FY 2016 MIPs for FHA-insured loans on properties under specific Multifamily Mortgage Insurance programs effective on April 1, 2016. The new annual multifamily mortgage insurance rates will be structured as four categories, as follows, and as illustrated on the table below. Under this rate structure, portfolio and actuarial analysis demonstrates that premium revenues will exceed losses for the foreseeable future. HUD has made minor changes in response to comments received, as discussed below.

Upfront and annual MIP rates will remain unchanged for all FHA-insured multifamily loan types on market rate properties, except properties that meet the criteria below for green and energy efficient housing.

Annual MIPs will change from the current rates generally between 45 and 50 basis points,1 to 25 basis points for all multifamily FHA-insured loan types that meet the criteria in this section.

All loans originated by Housing Finance Agencies under FHA's Section 542(c) Risk-Sharing program, and by Qualified Participating Entities including Fannie Mae and Freddie Mac under FHA's Section 542(b) Risk-Sharing program, will be eligible for this 25 basis points rate, multiplied by the percentage risk assumed by FHA (see table below). For all others to qualify, the property must have Section 8 assistance or another recorded affordability restriction, and/or Low-Income Housing Tax Credits (LIHTC).

These projects must either:

• Have at least 90 percent of units covered by a Section 8 PBRA contract or other State or Federal rental assistance program contract serving very low income residents, with a remaining term of at least 15 years; or

• Have at least 90 percent of its units covered by an affordability use restriction under the LIHTC program or a similar State or locally sponsored program, with achievable and underwritten tax credit rents at least 10 percent below comparable market rents, and with a recorded regulatory agreement in effect for at least 15 years after final endorsement and monitored by a public entity.

To ensure that the benefits of these MIP rates directly benefit the affordable housing properties and residents, lenders submitting applications for loans using this MIP rate are limited, in the total loan fees they may charge on any loan greater than $2 million, to no more than 5 percent of the insured loan amount. Loan fees include (a) origination and placement fees as permitted by the Multifamily Accelerated Processing (MAP) Guide; 2 plus (b) trade profit, trade premium or marketing gain earned on the sale of the Government National Mortgage Association (GNMA) security at a value above par, even if the security sale is delayed until after endorsement; minus (c) loan fees applied by the mortgagee to its legal expenses incurred in connection with loan closing.

Annual MIPs will change from current rates generally between 45 and 70 basis points,3 to 35 basis points for all multifamily FHA-insured loan types. To qualify, the property must provide a set-aside of affordable units as defined below, and agree to accept voucher holders:

• Inclusionary Zoning, Density Bonus Set-asides, and Other Local Affordability Restrictions: Property owners shall submit with the FHA mortgage insurance application evidence of a deed covenant or housing ordinance on “inclusionary zoning” at the subject property to evidence the requirement for affordable unit set-asides. A minimum of 10 percent of the units must be affordable to, at most, a family at 80 percent Area Median Income (AMI), with rents sized to be affordable at 30 percent of the income at that level. The affordability set-aside must be on site, be in effect for at least 30 years after final endorsement of the FHA-insured mortgage, be monitored by public authority, and be recorded in a regulatory agreement;

• Project has between 10 percent and 90 percent of units covered by a Section 8 PBRA contract or other State or Federal rental assistance program contract serving very low-income residents, with a remaining term of at least 15 years;

• Project has between 10 percent and 90 percent of its units covered by an affordability use restriction under the LIHTC program or similar State or locally sponsored program, with rents sized at no greater than 30 percent of the income eligible for occupancy under the LIHTC program, with a recorded regulatory agreement in effect for at least 15 years after final endorsement and monitored by a public entity; or

• Project has at least 90 percent of its units covered by an affordability use restriction under the LIHTC program or similar State or locally sponsored program, but without the rent advantage required to qualify as Broadly Affordable (achievable and underwritten tax credit rents at least 10 percent below comparable market rents), and with a recorded regulatory agreement in effect for at least 15 years after final endorsement and monitored by a public entity.

To qualify for this MIP rate, the project owner must also agree to accept voucher holders under the Section 8 Housing Choice Voucher program or other Federal program voucher holders as residents for vacancies in units not covered by project-based Section 8, and execute a rider to the FHA regulatory agreement, acceptable to HUD, evidencing the owner's agreement to accept Section 8 vouchers for the life of the regulatory agreement.

Change: In response to public comments, HUD added the forth bullet providing an extra class of properties to those that are eligible for this affordable housing MIP rate.

Annual MIPs will change from current rates generally between 45 and 70 basis points,4 to 25 basis points for all multifamily FHA-insured loan types. Projects will access this rate to encourage owners to adopt higher standards for construction, rehabilitation, repairs, maintenance, and property operations that are more energy efficient and sustainable than traditional approaches to such activities. The lower rate will incentivize owners to implement measures that result in projects with greater energy and water efficiency, reduced operating costs, improved indoor air quality and resident comfort, and reduced overall impact on the environment. It is anticipated that mortgage proceeds will be used to retrofit properties to meet the stringent efficiency standards required to access this lower MIP premium. For properties that have already achieved a green building standard and that are refinancing with this lower MIP premium, proceeds may be used to complete further efficiency upgrades, and/or to retrofit to the next-level green certification standards.

To qualify, upon application for FHA mortgage insurance, the owner must evidence that the project has achieved, or the owner must certify that it will pursue and achieve, an industry-recognized standard for green building. Acceptable, independently verified standards include the Enterprise Green Communities Criteria; U.S. Green Building Council's LEED-H, LEED-H Midrise, LEED-NC, or LEED for Existing Buildings: Operations & Maintenance; ENERGY STAR certification; EarthCraft House; EarthCraft Multifamily; Earth Advantage New Homes; Greenpoint Rated New Home; Greenpoint Rated Existing Home (Whole House or Whole Building label); the National Green Building Standard (NGBS); Passive Building Certification or EnerPHit Retrofits certification from the Passive House Institute US (PHIUS), International Passive House Association, or the Passive House Institute; and Living Building Challenge Certification from the International Living Future Institute, or other industry-recognized green building standards, in the sole discretion of HUD's Office of Multifamily Production.

Further, the owner must certify that it has achieved, or will pursue, achieve, and maintain a score of 75 or better on the 1-100 ENERGY STAR score, using EPA's Portfolio Manager. The reasonableness of achieving and maintaining the specified, independent green building standard, and the score of 75 or better in Portfolio Manager, must be verified by the independent conclusion of the qualified assessor preparing the physical condition assessment, and supported by the physical condition assessment report and recommendations, ASHRAE level II energy audit (required for existing structures only), and plans for new construction, or rehabilitation, repairs, and operations and maintenance. The physical condition assessment report submitted with the mortgage insurance application must include a certification from the architect, engineer, or energy auditor that the planned scope of work is reasonably sufficient to achieve and maintain the specified certification.

Additionally, the owner must submit to HUD evidence that the specified, independent green building standard has been achieved, and provide a copy of the Portfolio Manager report showing building performance at or above 75, when those standards have been achieved, and no more than 15 months after completion of new construction, substantial rehabilitation or renovations or 15 months after break-even occupancy. If not achieved, HUD may impose protocols to ensure the owner brings the property into compliance, similar to protocols used by REAC for unacceptable property standards. The owner must submit the Portfolio Manager report annually to HUD showing that the property has maintained its efficiency performance. Note that properties of less than 20 units may qualify for this MIP rate by achieving an industry-recognized standard for green building, as described above, but are exempt from the requirement to achieve a score of 75 or better on the 1-100 ENERGY STAR score.

To ensure that the benefits of these MIP rates directly benefit the properties and residents, lenders submitting applications for loans using this MIP rate are limited in the total loan fees they may charge on any loan greater than $2 million, to no more than 5 percent of the insured loan amount. Loan fees include (a) origination and placement fees as permitted by the MAP Guide; plus (b) trade profit, trade premium or marketing gain earned on the sale of the GNMA security at a value above par, even if the security sale is delayed until after endorsement; minus (c) loan fees applied by the mortgagee to its legal expenses incurred in connection with loan closing.

Change: In response to public comments, HUD makes the following changes:

• Deletes the phrase “and maintain” in reference to the owner providing evidence that the project has achieved an industry-recognized standard for green building.

• Adds to the list of certifications Passive House certifications, LEED for Existing Buildings: Operations & Maintenance, and Living Building Challenge Certification, and clarifies that other industry-recognized green building standards will be approved at the discretion of HUD's Office of Multifamily Production.

• Clarifies that a CNA provider may only certify a physical condition assessment report, if appropriately credentialed, in their capacity as architect, engineer, energy auditor, and/or approved certifier under the specified green building standard.

• Amends the time frame for providing the report showing compliance with building performance after completion of new construction, substantial rehabilitation, or renovations from no more than 12 months to no more than 15 months. HUD also provides that such report may be provided 15 months after break-even occupancy.

• Requires that owners submit the Portfolio Manager report annually to HUD showing that the property has maintained its efficiency performance.

• Provides that while small properties (under 20 units) must meet one of the recognized independent green building/energy efficiency standards in order to access the Green/Energy Efficient MIP rate, small properties are exempt from the requirement to achieve a score of 75 or better on the 1-100 ENERGY STAR score.

The chart below details the MIP rates for each rate category, and each type of FHA multifamily mortgage insurance covered under this notice. This notice does not change MIP rates for programs under FHA's Office of Healthcare Programs, including health care facilities and hospital insurance programs.

Section 106 of the Department of Housing and Urban Development Reform Act of 1989 (the HUD Reform Act) (42 U.S.C. 3535(q)) requires HUD to publish waivers in the Federal Register. To allow for the FY 2016 MIP changes covered in this notice to apply to the 542(c) Risk-Sharing program, authorized under the Housing and Community Development Act of 1992, HUD must waive §§  266.600, 266.602, and 266.604, which currently prescribe percentages for calculating the MIP under the 542(c) Risk-Sharing program. HUD believes these set percentages are no longer appropriate for the 542(c) Risk-Sharing program and issued a proposed rule on March 8, 2016, entitled “Section 542(c) Housing Finance Agencies Risk-Sharing Program: Revisions to Regulations” (81 FR 12051), which would permit MIP changes for the Risk-Sharing program to be published through Federal Register notice. All loans originated under the Risk-Sharing programs are for affordable housing purposes with recorded affordability restrictions, and therefore qualify as Broadly Affordable housing. HUD believes that the 542(c) Risk-Sharing program, like the other identified Multifamily Housing programs, should be eligible for the MIP changes in this notice. Therefore, HUD is issuing this regulatory waiver of §§  266.600, 266.602, and 266.604 for FY 2016 and FY 2017. Commitments issued or reissued for 542(c) Risk-Sharing program beginning April 1, 2016, through FY 2017 will be eligible for these MIP changes.

This notice involves the establishment of rate or cost determinations and related external administrative requirements that do not constitute a development decision affecting the physical condition of specific project areas or building sites. Accordingly, under 24 CFR 50.19(c)(6), this notice is categorically excluded from environmental review under the National Environmental Policy Act of 1969 (42 U.S.C. 4321).

I. Background A. Statutory Provisions

On October 26, 2001, the President signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56 (the USA PATRIOT Act). Title III of the USA PATRIOT Act amends the anti-money laundering (AML) provisions of the Bank Secrecy Act (BSA), codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5314, 5316-5332, to promote the prevention, detection, and prosecution of international money laundering and the financing of terrorism. Regulations implementing the BSA appear at 31 CFR Chapter X. The authority of the Secretary of the Treasury (the Secretary) to administer the BSA and its implementing regulations has been delegated to FinCEN.

Section 311 of the USA PATRIOT Act (Section 311) grants FinCEN the authority, upon finding that reasonable grounds exist for concluding that a foreign jurisdiction, foreign financial institution, class of transactions, or type of account is of “primary money laundering concern,” to require domestic financial institutions and financial agencies to take certain “special measures” to address the primary money laundering concern. The special measures enumerated under Section 311 are prophylactic safeguards that defend the U.S. financial system from money laundering and terrorist financing. FinCEN may impose one or more of these special measures in order to protect the U.S. financial system from these threats. Special measures one through four, codified at 31 U.S.C. 5318A(b)(1)-(b)(4), impose additional recordkeeping, information collection, and reporting requirements on covered U.S. financial institutions. The fifth special measure, codified at 31 U.S.C. 5318A(b)(5), allows FinCEN to prohibit or impose conditions on the opening or maintaining of correspondent or payable-through accounts for the identified institution by U.S. financial institutions.

FBME Bank Ltd. (FBME) was established in 1982 in Cyprus as the Federal Bank of the Middle East Ltd., a subsidiary of the private Lebanese bank, the Federal Bank of Lebanon. Both FBME and the Federal Bank of Lebanon are owned by Ayoub-Farid M. Saab and Fadi M. Saab. In 1986, FBME changed its country of incorporation to the Cayman Islands, and its banking presence in Cyprus was re-registered as a branch of the Cayman Islands entity. In 2003, FBME left the Cayman Islands and incorporated and established its headquarters in Tanzania. At the same time, FBME's Cypriot operations became a branch of FBME Tanzania Ltd. In 2005, FBME changed its name from the Federal Bank of the Middle East Ltd. to FBME Bank Ltd.

As of July 22, 2014, the date that FinCEN issued its Notice of Finding, FBME's headquarters in Tanzania was widely regarded as the largest bank in Tanzania based on its $2 billion asset size, despite having only four Tanzania-based branches. While FBME is presently headquartered in Tanzania, as of July 2014, FBME transacted over 90 percent of its global banking business and held over 90 percent of its assets in its Cyprus branch. FBME has long maintained a significant presence in Cyprus.

In a Notice of Finding (NOF) published in the Federal Register on July 22, 2014, FinCEN explained its finding that reasonable grounds exist for concluding that FBME is a financial institution of primary money laundering concern pursuant to 31 U.S.C. 5318A.1 FinCEN's NOF identified two main areas of concern: (1) FBME's facilitation of money laundering, terrorist financing, transnational organized crime, fraud schemes, sanctions evasion, weapons proliferation, corruption by politically-exposed persons, and other financial crime, and (2) FBME's weak AML controls, which allowed its customers to perform a significant volume of obscured transactions and activities through the U.S. financial system. In particular, FinCEN found that FBME had been used to facilitate this illicit activity internationally and through the U.S. financial system, and attracted high-risk shell companies (i.e., entities that typically have no physical presence other than a mailing address, and generate little to no independent economic value). As described in the NOF, FBME performed a significant volume of transactions and activities that had little or no transparency with regard to customer information and often no apparent legitimate business purpose. Such lack of transparency makes it difficult for U.S. and other financial institutions, as well as law enforcement, to detect illicit activity.

As detailed in the NOF, illicit activities involving FBME included: (1) An FBME customer's receipt of a deposit of hundreds of thousands of dollars from a financier for Lebanese Hezbollah; (2) providing financial services to a financial advisor for a major transnational organized crime figure; (3) FBME's facilitation of funds transfers to an FBME account involved in fraud against a U.S. person, with the FBME customer operating the alleged fraud scheme later being indicted in the United States District Court for the Northern District of Ohio; and (4) FBME's facilitation of U.S. sanctions evasion through its extensive customer base of shell companies, including at least one FBME customer that was a front company for a U.S.-sanctioned Syrian entity, the Scientific Studies and Research Center (SSRC), which used its FBME account to process transactions through the U.S. financial system.

On the same day it published the NOF, FinCEN also published in the Federal Register a related Notice of Proposed Rulemaking (NPRM) proposing the imposition of a prohibition on U.S. financial institutions from opening or maintaining a correspondent account for, or on behalf of, FBME.2 On July 29, 2015, after considering comments and other information available to FinCEN, including both public and non-public information, FinCEN finalized the rule, to take effect on August 28, 2015.3

Following the publication of the rule in the Federal Register, on August 7, 2015, FBME filed suit in the United States District Court for the District of Columbia, seeking a preliminary injunction against the final rule. On August 27, 2015, the court granted FBME's motion for preliminary injunction and enjoined the rule from taking effect.4 In its order, the court held that FBME was likely to succeed on the merits of two of its claims: (1) That FinCEN had provided insufficient notice of unclassified, non-protected information on which it relied during the rulemaking proceedings, and (2) that FinCEN had failed to adequately consider at least one potentially significant, viable, and obvious alternative to the special measure it had imposed.5

On November 6, 2015, the court granted FinCEN's motion for voluntary remand so that FinCEN could engage in further rulemaking to address the procedural issues identified by the court. On November 27, 2015, FinCEN published in the Federal Register a Notice to re-open the final rule for 60 days to solicit additional comments in connection with the rulemaking, particularly with respect to the unclassified, non-protected documents that supported the rulemaking, and whether any alternatives to the prohibition on the opening or maintaining of correspondent accounts for FBME would effectively mitigate the money laundering and terrorist financing risks associated with FBME. FinCEN also made available for comment on www.regulations.gov the unclassified, non-protected material that FinCEN considered and intended to rely upon during the rulemaking proceeding. The re-opened comment period closed on January 26, 2016.

This section outlines steps taken by FBME's relevant banking regulators in FBME's jurisdictions of operation following FinCEN's announcement of its NOF and NPRM.

On July 21, 2014, the Central Bank of Cyprus (CBC), under authority of the Cyprus Resolution Act, issued a decree announcing that it would formally place FBME's Cyprus branch “under resolution” and appoint a Special Administrator to protect the bank's depositors. On December 21, 2015, the CBC announced that it is considering the withdrawal of FBME's license to operate the branch in Cyprus; however, there is litigation pending between FBME and the CBC.

On July 24, 2014, the Bank of Tanzania (BoT) appointed a statutory manager over FBME's headquarters in Tanzania to ensure sound operations of the bank in order to restore and maintain confidence of depositors and the general public; to ensure the safety of bank assets; and to execute duties in accordance with the prevailing laws and regulations, guidelines, and directives issued by the BoT.

After considering comments from FBME and the public as well as other information available to the agency, including both public and non-public information, FinCEN is issuing this rule imposing a prohibition on U.S. financial institutions from opening or maintaining a correspondent account for, or on behalf of, FBME. The information available to FinCEN 6 provides reason to conclude that FBME's AML compliance efforts remain inadequate to address the risks posed by FBME, and that FBME continues to facilitate illicit financial activity. Because of the ongoing money laundering and terrorist financing concerns that FinCEN has regarding FBME, FinCEN finds that FBME continues to be a financial institution of primary money laundering concern.

As described in Part V, audits of FBME's Cyprus branch performed by third parties in 2013 and 2014 that FBME provided to FinCEN to demonstrate the effectiveness of its AML compliance program instead identified significant, recurring weaknesses in FBME's compliance program. Indeed, one of the third party auditors identified several deficiencies as being of high or medium significance. These deficiencies, which FinCEN has reason to conclude have continued since the issuance of the NOF, facilitate the illicit financial activities of FBME's customers.

Furthermore, FinCEN notes that these audits only address the bank's Cyprus branch. As defined in the NOF and NPRM, FinCEN's finding that FBME is of primary money laundering concern identified the entire bank, to include its headquarters in Tanzania and its other branches, offices, and subsidiaries.

Also, as discussed below, the CBC's identification of “serious and systemic” AML deficiencies at FBME following an AML examination of the bank's Cyprus branch in 2014, as well as the CBC's findings since the issuance of the NOF and NPRM, reinforce and corroborate FinCEN's concerns regarding the money laundering and terrorist financing risks associated with FBME.

FinCEN also concludes that FBME has sought to evade AML regulations and has ignored the CBC's AML directives. As noted in FinCEN's NOF, FBME was recognized by its high-risk customers for its ease of use. FBME even advertised the bank to its potential customer base as being willing to facilitate the evasion of AML regulations. FBME's Cyprus branch also ignored instructions from its AML regulator, the CBC, to remedy AML deficiencies specifically identified by the CBC. In addition, in late 2014, FBME employees took various measures to obscure information. FinCEN finds this behavior may have been part of an effort to reduce scrutiny over FBME's operations following the issuance of the NOF and increased regulatory scrutiny. Moreover, FinCEN is concerned that terrorist financing activity involving the bank has continued beyond publication of the NOF. As of early 2015, an alleged Hezbollah associate and the Tanzanian company he managed owned accounts at FBME. And this is not the first episode of the bank's involvement in financial activity possibly connected to Hezbollah. As discussed in the NOF, in 2008, an FBME customer received a deposit of hundreds of thousands of dollars from a financier for Hezbollah.

As described in the NOF, FinCEN had reasonable grounds to find FBME to be of primary money laundering concern because, among other things, the bank's AML controls encouraged use of the bank by high-risk customers, and the bank conducted a significant volume of transactions and activities with little or no transparency and often with no apparent legitimate business purpose. The CBC independently identified many of these same concerns during an on-site AML examination of FBME's Cyprus branch conducted from June to September 2014.7

In a September 18, 2015 letter to the Special Administrator of FBME's Cyprus branch regarding that examination,8 the CBC found, among other things, that FBME (1) failed to apply enhanced due diligence to high-risk customers; (2) allowed customers to use FBME's physical address in wire transfers in lieu of the customers' true addresses, thus obscuring key transactional details that U.S. and other financial institutions need to conduct appropriate AML screening; (3) failed to adequately assess its own money laundering and terrorist financing risk, thus hindering the bank's ability to mitigate those risks; (4) accepted false beneficial ownership information for high-risk customers; and (5) maintained incomplete customer due diligence information and failed to update and review customer files.

In sum, according to the September 18, 2015 letter, the CBC identified “serious and systemic” AML failures—failures to comply with applicable AML laws that resulted in an “inadequate and ineffective” AML system. The CBC fined FBME €1.2 million in December 2015 for these AML deficiencies. These deficiencies contributed to the CBC's conclusion that the lack of robust AML controls at FBME's Cyprus branch increases the risk that the branch's services can be used by criminals for the purpose of money laundering and/or terrorist financing. FinCEN shares this concern.

Banks with weak AML controls, like FBME, can become a magnet for illicit actors seeking to hide their identity and the illicit nature of their activities. Indeed, the illicit activity at FBME, including holding an account for an alleged Hezbollah associate and the Tanzanian company he managed, illustrates this vulnerability. Protecting the United States from such illicit financial activity requires FinCEN to ensure that banks with severely deficient AML controls, like FBME, do not have access to the U.S. financial system.

As part of its January 26, 2016 comment, FBME included responses to the CBC's conclusions, which FinCEN reviewed as part of its evaluation of whether FBME remains of primary money laundering concern. FBME's responses generally consisted of arguments that the CBC misinterpreted FBME's banking records or Cypriot regulations, that other Cypriot banks were as non-compliant with certain AML provisions as FBME, or expressed general disagreement with the CBC's conclusion. After a thorough point-by-point review of the deficiencies identified by the CBC and FBME's responses, FinCEN found FBME's responses to be neither persuasive nor sufficient to alleviate FinCEN's concerns surrounding FBME's AML deficiencies. For example, although FBME disputed the CBC's findings that the bank failed to maintain sufficiently comprehensive and up-to-date files on its customers, FinCEN notes that in some cases FBME conceded that the CBC's findings were correct. Further, FinCEN remains troubled by the fact that as of June 2014, FBME had completed its review of only three percent of its high-risk customer files. As another example, FBME accepted false identifying information regarding beneficial ownership of FBME customers who it should have known were high-risk. FBME contended that valid confidentiality concerns existed and that accepting the false information did not impede the application of enhanced due diligence measures. FinCEN, however, agrees with the CBC's assessment that excluding certain relevant information on customer forms prevented FBME from adequately identifying and mitigating money laundering risks.

Following the issuance of the July 22, 2014, NOF and NPRM, FinCEN opened a comment period that closed on September 22, 2014. FinCEN re-opened the comment period on November 27, 2015, following the court's order granting the government's motion for a voluntary remand to allow for further rulemaking. That comment period closed on January 26, 2016. FinCEN first addresses the comments received from FBME and then addresses the other comments received.

FBME, through its counsel, submitted a comment dated September 22, 2014. FBME made six additional submissions of information related to that comment. FinCEN reviewed and considered each of these submissions in drafting this final rule.

FBME's September 22, 2014 comment consists of an introduction followed by two major sections. In its introduction, FBME makes six key points.

• First, FBME states that its AML compliance program policies are in line with applicable requirements, including the requirements of the European Union's Third Money Laundering Directive and the CBC's Fourth Directive. FBME contends that this alignment has been the case since at least 2013, according to third party audits.

• Second, FBME states that, in response to recommendations made as a result of audits conducted by Ernst & Young (EY) in 2011 and KPMG in 2013, FBME substantially strengthened its compliance program between 2012 and 2014.

• Third, FBME states that FBME and its officers and directors do not condone the use of FBME for illicit purposes and strive to prevent such misuse.

• Fourth, FBME contends that some of the statements made in the NOF are incorrect or are based on incomplete information, which FBME also describes in the second section of its comment.

• Fifth, FBME states that, in some cases, FBME filed Suspicious Transaction Reports (STRs) with the Cypriot Financial Intelligence Unit (MOKAS) on activity described in the NOF and NPRM.

• Sixth, FBME claims that the NOF and NPRM have had a significant adverse impact on FBME and its customers.

The first section of FBME's September 22, 2014 comment then describes aspects of its AML compliance program, and the second section responds to statements made in the NOF that FBME asserts are inaccurate or based on incomplete information.9

With regard to FBME's first and second points, i.e., FBME's contention that its AML compliance program policies are in line with applicable requirements and that it has substantially strengthened its compliance program, the KPMG and EY audits that FBME provided to FinCEN show a pattern of recurring AML deficiencies at the bank. FBME has asserted that it continued to make improvements, but FBME has not provided meaningful information to support these assertions. These deficiencies included failures to maintain adequate customer identification files and other customer due diligence weaknesses, failure to ensure that third parties the bank relied on to establish new customer relationships employed appropriate AML controls with regard to such persons, and issues with sanctions-related screening.

According to FBME's September 22, 2014 comment, EY conducted an audit in 2011 (the EY 2011 Audit). During that audit, according to FBME, EY found that FBME's due diligence procedures with respect to obtaining information from new clients met the requirements of the CBC Directive at the time, but also noted that some customer information requirements of the Directive had not been fully met by FBME in previous iterations of its AML procedures and policies. According to FBME's comment, EY conducted another audit in 2014 (the EY 2014 Audit), which found that, although FBME had an AML compliance program in place that incorporated the requirements of both the CBC Fourth Directive and the European Union Third Directive, FBME nevertheless had deficiencies in its customer due diligence, automated alerts system, and AML training areas.

According to FBME's September 22, 2014 comment, KPMG also conducted an audit in 2013 (the KPMG 2013 Audit) which found that FBME “basically fulfills” the AML regulatory requirements of the CBC and the European Union, but also identified issues of “high or medium” significance with FBME's use of Approved Third Parties and FBME's sanction screening procedures. As FBME stated in its September 22, 2014 comment, FBME uses its relationships with Approved Third Parties (a person authorized by a bank to introduce new customers to the bank), some of which are in foreign jurisdictions, to develop potential new customer relationships. According to the KPMG 2013 Audit, FBME had never attempted to ensure the adequacy of its Approved Third Parties' AML measures. In addition, the KPMG 2013 Audit found that FBME only screened the related parties of its Approved Third Parties when the customers were initially onboarded.

The KPMG 2013 Audit also found FBME's customer due diligence procedures to be deficient. As FBME disclosed in its September 22, 2014 comment, in its 2013 audit, KPMG recommended better presentation of ownership information to demonstrate links between group entities for older customers, in line with a new structure that had been introduced for new customers. KPMG also found that certain customer files reviewed did not have sufficient information to gain a complete understanding of the customers' activities or business rationale. In its 2013 audit, KPMG further found that FBME's use of hold-mail accounts (a service that allowed a number of customers to keep their mail within the branch and use the branch's address in payment messages for the transfer of funds) and post office boxes managed by Approved Third Parties should be reconsidered by FBME in order to avoid potential anonymization.

The EY 2014 Audit identified numerous deficiencies in FBME's compliance program. Specifically, the EY 2014 Audit made the following recommendations: Consistently documenting the efforts taken to verify the sources of funds and business purpose of accounts from prospective customers; more thoroughly investigating relationships among FBME customers, especially when inordinate volumes of internal transfers are identified; modifying FBME's periodic customer due diligence process to align with industry practices (e.g., moving to a rolling 12 or 36-month review cycle, depending on the customer's risk); implementing an automated case management system to record the alerts generated, stage of investigation, and ultimate disposition of the alerts generated by FBME's screening software, as opposed to the current process of manually entering the alerts/outcome on several different spreadsheets; and more thoroughly documenting the AML/sanctions training given for new hires and providing general awareness training to all employees on an annual basis.

The numerous AML compliance program deficiencies described in the KPMG 2013 Audit and the EY 2014 Audit in particular are similar to AML deficiencies FinCEN identified in the NOF. As FBME acknowledged in its September 22, 2014 comment, in 2010, the CBC fined FBME for customer identification, due diligence, and automated monitoring deficiencies. According to the KPMG 2013 Audit, FBME also undertook an extensive Know Your Customer (KYC) remediation project from 2009 through 2011 that was ordered by the CBC and resulted in the closure of thousands of FBME accounts. Despite this remediation project, the CBC identified deficiencies in the customer due diligence controls at the Cypriot branch during its 2014 AML audit. Also, the CBC fined FBME €1.2 million in December 2015 for AML deficiencies.

Finally, FBME's argument that its AML compliance program is now adequate is weakened by the list of illicit actors identified in the NOF that continued to make use of FBME as recently as 2014, including narcotics traffickers, terrorist financiers, and organized crime figures. In addition, as of early 2015, an alleged Hezbollah associate and the Tanzanian company he managed owned accounts at FBME.

With regard to FBME's third point, i.e., FBME's contention that FBME and its officers and directors do not condone the use of FBME for illicit purposes, FinCEN has no reason to believe that FBME's leadership has changed after issuance of the NOF. Given that FinCEN has reason to believe that illicit activity occurred at FBME after the NOF, FinCEN has no reason to believe that management has modified its practices and FBME has not provided information to support such a conclusion.

With regard to FBME's fourth point, i.e., where FBME has argued that portions of the eight statements in the NOF were incorrect or based on incomplete information, FBME submitted on December 5, 2014 a report prepared by EY (2014 EY Transaction Review) that specifically examined the concerns that FinCEN identified in the NOF and NPRM. The 2014 EY Transaction Review in some cases partially identified the activity of concern, and as noted below, failed to identify the activity of concern, or identified additional illicit financial activity that FinCEN has not previously identified. After a careful consideration of the public and non-public information available to FinCEN, including the 2014 EY Transaction Review, FinCEN continues to believe that the concerns identified in the NOF remain valid and accurate.

FinCEN amended the NOF based on these comments in the final rule issued on July 29, 2015 that was subsequently enjoined by the court. In the first case, FBME stated that it was not fined by the CBC in 2008, but that the CBC imposed an administrative fine on FBME in 2010. FinCEN agrees that the fine in question was imposed in 2010, not in 2008.

In the second case, FBME argued that the report that FBME may have been subject to a fine of up to €240 million is from a November 2013 article in the Cypriot press that relied on anonymous sources at the CBC. FinCEN agrees that the source of this statement was an article that appeared in the Cypriot press that referenced statements by a CBC official speaking anonymously. Neither of these two cases, nor any of FBME's remaining claims of incompleteness and factual inaccuracy, present any new information that would undercut the accuracy of the other information presented in the NOF.

With regard to FBME's fifth point, i.e., FBME's assertion that it filed STRs with MOKAS on activity described in the NOF and NPRM, FinCEN notes that the filing of STRs on suspicious activities or transactions by a financial institution is not, taken in isolation, an adequate indicator of the robustness and comprehensiveness of a compliance program. Moreover, filing STRs does not excuse a financial institution's failure to adequately implement other areas of its AML program, such as, for example, customer due diligence procedures.

FBME claims in its sixth point that the NOF and NPRM have had a significant adverse impact on FBME and its customers. As part of FinCEN's consideration of the statutory factors supporting its imposition of a prohibition under the fifth special measure, FinCEN has considered “the extent to which the action or the timing of the action would have a significant adverse systemic impact on . . . legitimate business activities involving” FBME.10 This factor is discussed in the NOF and Part VI, Section A(3) below.

In addition to its public comment, FBME submitted supplemental information regarding FBME's policies and procedures, along with reports of the audits conducted by KPMG in 2013 and EY in 2014. Many of these submissions are addressed elsewhere in this final rule. FinCEN has considered these materials, which outline some of the steps that FBME may have taken to strengthen its compliance program. Although FBME claims that it took steps to address some of the obvious deficiencies in its AML controls, it failed to correct other deficiencies and it continues to pose a significant risk. After reviewing and considering these and other public and non-public materials, FinCEN concludes that, except as acknowledged in this final rule, the statements made in the NOF remain accurate.

FBME submitted a comment on January 26, 2016, during the re-opened comment period. Set forth below are the key points raised in this comment and FinCEN's responses.11

First, FBME argues that the procedures FinCEN followed in connection with the proposed rule are unconstitutional and unlawful. Specifically, FBME asserts that (1) FinCEN failed to provide FBME with meaningful notice and opportunity to confront evidence against it; (2) FBME is entitled to a neutral arbiter; and (3) FBME has a right to a hearing.

The procedures used by FinCEN are constitutional and lawful. FinCEN provided FBME with meaningful notice and opportunity to confront the evidence against it. Although FBME argues that FinCEN should not be able to rely on “secret” evidence, as previously noted, FinCEN disclosed all of the unclassified, non-protected information that it relied upon or otherwise considered during the rulemaking. FinCEN did not disclose information that is classified or otherwise protected from disclosure, and the law does not require that it do so. As for the due process argument, the process that FinCEN has undertaken is consistent with the Constitution and the Administrative Procedure Act (APA). Section 311 expressly provides for the reliance on classified information in making findings of primary money laundering concern and provides that such information will be submitted to the court ex parte and in camera. The BSA expressly protects from disclosure information to include Suspicious Activity Reports (SARs) to protect reporting financial institutions and their employees, and to encourage honest and open reporting of suspicious activity. FinCEN's use of SARs is more fully discussed later in this rule.

FinCEN engaged in a fully interactive process with FBME. It accepted and considered multiple submissions of information from FBME that sought to rebut or otherwise address the agency's findings, and participated in an active, long-running dialogue with the bank's counsel regarding the finding and the NPRM. Ultimately, after reviewing the bank's submissions, as well as additional information obtained from various non-public sources, FinCEN exercised its discretion in determining that reasonable grounds existed to find FBME of primary money laundering concern.

In making the finding that FBME was of primary money laundering concern, FinCEN exercised the specific grant of authority given to FinCEN by Congress and the Secretary.12 FinCEN interpreted the relevant law and statutory provisions applicable to this exercise of authority. FinCEN exercised this authority consistent with the statute. Section 311 does not provide a right to a hearing, nor do applicable authorities allow for a neutral arbiter in making findings of primary money laundering concern. Section 311, as delegated by the Secretary, gives the authority to make such findings to FinCEN upon consultation with the Departments of State and Justice. The APA does not require otherwise for Section 311 rulemaking.

Second, FBME argues that FinCEN should not rely on information provided to it by the CBC, as the Cypriot government has consistently discriminated against FBME because it is owned by non-Cypriots and is financially stable. In support of this argument, FBME provides several examples of the CBC's alleged discrimination, including its denial of FBME's attempts to incorporate in Cyprus and other business opportunities, as well as the imposition of what FBME describes as unreasonable regulatory requirements and fines. FBME also argues that coordination between FinCEN and the CBC raises serious concerns, claiming that FinCEN and the CBC acted in concert against FBME.

As part of this rulemaking, FinCEN has reviewed a significant amount of information, including information related to fines that the CBC imposed on FBME and CBC examinations of FBME's Cyprus branch. As with any information available to the agency, FinCEN makes an independent assessment of its credibility and relevance. FinCEN assesses that the CBC is a government authority with relevant information related to the finding that FBME is of primary money laundering concern. The CBC has received positive reviews that cite the CBC's adequate monitoring of the Cypriot financial system for money laundering and terrorist financing issues from the Committee of Experts on the Evaluation of Anti-Money Laundering and the Financing of Terrorism (MONEYVAL), an inter-governmental organization established to set standards and promote effective implementation of measures for combating money laundering and terrorist financing.13

FinCEN's consideration of information and actions related to the CBC's supervisory role over FBME is not improper and does not reflect inappropriate coordination with the CBC. Contrary to FBME's assertion, FinCEN has exercised its authority independently under Section 311 to protect the U.S. financial system.

Third, FBME argues that this administrative action is flawed for the following key reasons:

• FBME asserts that it has rebutted each of the allegations identified in FinCEN's NOF and that FinCEN did not provide any additional information supporting its finding that FBME is of primary money laundering concern since the publication of the NOF. With respect to FBME's assertion that it rebutted each of the allegations in the NOF, FinCEN disagrees and notes that it considered and addressed FBME's September 22, 2014 comment, and its supplemental submissions, and FBME's January 26, 2016 comment, which contained FBME's rebuttals to the allegations identified in FinCEN's NOF, as set forth in Part V, Section A. Pursuant to the court's order granting FinCEN's request for a voluntary remand, the agency made publicly available all unclassified, non-protected information the agency relied upon as part of this rulemaking, including news articles regarding Italian government corruption and money laundering involving FBME, and information concerning alleged Hezbollah affiliated accounts at FBME.

• FBME contends that FinCEN ignored its assertion that FBME has an extensive AML compliance program that meets or exceeds local and European requirements. FBME also asserts that it has continued to make improvements to its AML program, as recently as January 2016. Even if FBME adopted specific policies and procedures to comply with AML requirements, FinCEN is concerned that FBME would not implement those policies and procedures given FBME's history of ignoring instructions from the CBC to improve the bank's AML controls at it Cyprus bank and its past willingness to evade AML regulations. For example, in late 2014, FBME employees took various measures to obscure information. Separately, the CBC noted in assessing a €1.2 million fine in December 2015 that FBME failed to comply with Cypriot money laundering laws and directives and European Union regulations related to funds transfers.

• FBME argues that FinCEN continues to ignore the positive conclusions reached by independent auditors and investigators concerning FBME's evolving AML practices. The EY 2014 Audit and other third party audits show a pattern of recurring AML deficiencies at FBME. This issue is addressed more fully above in Part V, Section A(1) above. As discussed, the deficiencies in FBME's AML compliance program described in the KPMG 2013 Audit and the EY 2014 Audit are similar to the AML deficiencies that FinCEN identified in the NOF, and support FinCEN's conclusion that there have been longstanding and comprehensive deficiencies in FBME's AML compliance program.

• FBME asserts that FinCEN failed to consider that FBME has promptly and consistently adopted auditors' suggestions to establish an AML compliance program that exceeds applicable legal requirements. As more fully addressed in Part V, Section A(1) above, FBME's assertion is contradicted by the findings of its third party auditors and by the CBC. FBME states that Exhibit 28 to its January 26, 2016 comment demonstrates its commitment to effective AML policies by documenting FBME's responses to, and implementation of, KPMG's recommendations in its 2013 audit to improve FBME's AML program, as of January 26, 2016. FBME also notes that Exhibit 33 to its January 26, 2016 comment details how FBME purportedly implemented the recommendations identified in the EY 2014 Audit. However, FBME does not provide any meaningful information that allows FinCEN to fully evaluate whether FBME has implemented those recommendations in the manner that FBME asserts it has. For example, according to FBME, it has purchased and implemented an onboarding platform to maintain key information regarding ultimate beneficial owners and address information for FBME customers. However, FBME did not provide meaningful information or documentation to demonstrate whether that onboarding platform satisfies EY's recommendation.

• FBME states that the allegations in FinCEN's NOF are misleading and inaccurate.

○ FBME argues that the 2014 EY Transaction Review refutes the allegations in the NOF.14 However, FinCEN disagrees as discussed above in Part V, Section A(1).

○ FBME argues that supplemental information that FinCEN provided as part of the re-opened comment period only further undermines FinCEN's conclusions in the NOF. When FinCEN re-opened the comment period in November 2015, it provided supplemental information indicating that FBME had been used as part of a scheme involving Italian government corruption and money laundering. The money transferred to FBME in Tanzania was frozen and then sent back to Italy when the Tanzanian Financial Intelligence Unit and the BoT, which monitors foreign currency transactions, became suspicious of the activity at FBME. FBME argues that it detected the suspicious transaction, suspended the activity, returned the funds, closed the customer's accounts and all accounts related to it, and notified the Tanzanian authorities pursuant to FBME's AML policies and procedures. FinCEN notes that FBME did not provide documentation to substantiate its assertion. Regardless, the identification of a single transaction does not address FinCEN's broader concerns about FBME's systemic AML deficiencies.

○ FinCEN's NOF and NPRM found, as reflected in the administrative record, that FBME facilitated sanctions evasion on behalf of a sanctioned Syrian entity. FBME argues that FinCEN's reliance on the fact that a sanctioned individual was a customer of FBME as part of its finding that FBME was of primary money laundering concern was unjust, in part, because the customer's account had been closed or inactive since at least 2008, which FBME notes was years before the customer was sanctioned. In the 2014 EY Transaction Review, FBME identified an individual who was sanctioned by the Treasury Department's Office of Foreign Assets Control (OFAC) in 2014 for providing material support and services to the Government of Syria as an FBME customer. However, the sanctioned entity referenced in FinCEN's NOF was not the individual identified by FBME. Instead, FBME identified an additional sanctioned entity related to Syria that was also a customer of FBME.

○ FBME argues that FinCEN's use of SARs is misconceived and these reports should be made available to FBME to satisfy due process requirements. FBME argues that FinCEN does not correctly analyze SARs, that its reliance on SARs is arbitrary and capricious, that FinCEN should not rely upon SARs filed by other financial institutions, and that FinCEN's refusal to provide SARs to FBME violates due process.

FinCEN disagrees and notes that SARs, which are filed by financial institutions regarding transactions revealing a possible violation of law, are an invaluable source of information and an important tool for financial investigations. In this case, FinCEN believes that the SARs related to FBME are relevant to the finding that FBME is of primary money laundering concern when viewed in the context of all the other information considered. Multiple SARs indicate that FBME facilitated transactions on behalf of shell companies which, as stated earlier, can be an indicator of money laundering and other suspicious activity.

Regarding disclosure of SARs to FBME, the improper disclosure of SARs may cause significant risk to the filing institution and its employees. To encourage honest and open reporting of suspicious activity and to protect reporting financial institutions and their employees, the BSA and its implementing regulations impose severe restrictions on improper disclosures of SARs, and violations of these restrictions may result in civil or criminal sanctions.15

• FBME argues that the mere fact that FBME transacted with shell or holding companies is not a basis to conclude that FBME is of primary money laundering concern. FinCEN's finding that FBME is of primary money laundering concern is not based solely on the fact that FBME transacts with shell companies, but rather is based on all of the information FinCEN considered when issuing the NOF. The formation and operation of shell companies can allow the owners of these companies to disguise their identity and purpose. With respect to FBME, FinCEN considered all of the relevant information and is particularly concerned with: (1) The large number of FBME customers that are either shell companies or that conduct transactions with shell companies; (2) the lack of transparency with respect to beneficial ownership or legitimate business purposes of many of FBME's shell company customers; (3) the location of many of its shell company customers in other high-risk money laundering jurisdictions outside of Cyprus; (4) the high volume of U.S. dollar transactions conducted by these shell companies with no apparent business purpose; and (5) FBME's longtime facilitation of its shell company customers' anonymity by allowing thousands of customers to use the bank's physical address in lieu of their own.

• FBME argues that FinCEN failed to explain why it finds FBME to be of primary money laundering concern. The NOF and this rule provide an explanation as to the basis for FinCEN's conclusion that there are reasonable grounds to find that FBME is of primary money laundering concern and to impose a special measure to address that concern.

Fourth, FBME argues that there are several alternatives to a prohibition of correspondent accounts under the fifth special measure. This issue is addressed below in Part VI.

FinCEN notes that FBME's January 26, 2016 comment includes 67 separate exhibits consisting of over 1,100 pages of documents, many of which are declarations, emails, letters, comments or information previously considered and evaluated in this record. FinCEN reviewed the exhibits as part of its consideration of FBME's comments and, if appropriate, addressed the exhibits elsewhere in this document.

FinCEN received three comments in addition to the comment received from FBME during the initial comment period that opened on July 22, 2014 and closed on September 22, 2014.

FinCEN considered a comment received from the American Bankers' Association (ABA), dated September 22, 2014; a joint comment received from the Securities Industry and Financial Markets Association (SIFMA) and The Clearing House (TCH), dated September 22, 2014; and a separate comment received from SIFMA, dated September 22, 2014. FinCEN notes that these comments are procedural in nature and do not address the underlying conclusion surrounding the risk of money laundering and terrorist financing through FBME. FinCEN addresses the comments from the ABA, SIFMA, and TCH in the section-by-section analysis in Part VII below.

During the re-opened comment period that opened on November 27, 2015 and closed on January 26, 2016, in addition to FBME's comment, FinCEN received twelve comments 16 that generally raise the following issues: (1) FinCEN's purported use of unreliable, misleading, or inaccurate information to support its NOF and NPRM, (2) APA or Constitutional due process requirements, (3) concerns about the CBC's impartiality with respect to FBME, and (4) concerns that FinCEN is unfairly focusing on FBME as opposed to U.S. persons or other financial institutions. These comments are addressed below.

Multiple comments raise concerns regarding FinCEN's purported use of unreliable, misleading, or inaccurate information to support its NOF and NPRM. Multiple comments state that FinCEN's reliance on articles available on the Internet is concerning because they consider the articles unreliable sources of information.

FinCEN relies on a variety of information sources to support its rulemaking, including government-published material and press articles that may be found on the Internet. FinCEN assesses the credibility and weight to be given to Internet sources on a case-by-case basis, as it does with respect to all of its sources of information. FinCEN has continued to vet articles in the administrative record and when inaccuracies are identified, they are corrected. As discussed previously in Part V Section A(1), FinCEN corrected two inaccuracies, which FinCEN is publishing in this rule. FinCEN reviewed the remaining articles identified in these comments and finds that they provide valuable context and information about the background and history of FBME and its role in the Cypriot financial system.

Multiple commenters state that FinCEN's actions violates the APA and are unconstitutional for reasons similar to those FBME asserted in its comments. FinCEN has reviewed the comments and believes the processes followed in this action were lawful and an appropriate exercise of FinCEN's authority. FinCEN notes that this issue is addressed above in Part V Section A(2) above.

Several commenters raise concerns with the CBC. Specifically, the commenters state that the CBC has provided FinCEN with misleading information, that CBC is incompetent, inefficient, and corrupt, and that FBME is in litigation with the CBC at the International Chamber of Commerce in Paris.

As part of this rulemaking, FinCEN has reviewed a significant amount of information, including information related to fines that the CBC imposed on FBME and CBC examinations of FBME's Cyprus branch. As with any information available to the agency, FinCEN makes an independent assessment of its credibility and relevance. FinCEN assesses that the CBC is a government authority with relevant information related to the finding that FBME is of primary money laundering concern. The CBC has received positive reviews that cite the CBC's adequate monitoring of the Cypriot financial system for money laundering and terrorist financing issues from MONEYVAL, an inter-governmental organization established to set standards and promote effective implementation of measures for combating money laundering and terrorist financing.17

As part of this rulemaking, FinCEN reviewed a significant amount of information, to include information related to fines and audits conducted by the CBC. FinCEN's consideration of information and actions related to the CBC's supervisory role over FBME is not improper, but rather reflects FinCEN's consideration of the totality of information relevant to FBME as part of the agency's own rulemaking. FinCEN notes that this issue is also addressed above in Part V Section A(2).

Three comments asserted that FinCEN treated FBME differently than other foreign financial institutions or U.S. persons and financial institutions. Specifically, the commenters identify other foreign banks involved in money laundering that were not the subject of a Section 311 rulemaking. In addition, a commenter notes that the involvement of U.S. persons and financial institutions in criminal activity was identified and questions what FinCEN has done about the criminal activity in the United States.

FinCEN may find only financial institutions operating outside of the United States to be of primary money laundering concern under Section 311. FinCEN continues to monitor for other instances of money laundering by foreign financial institutions and executes its authorities as appropriate.

As described in the NOF, NPRM, and as described in this document, FinCEN continues to find that reasonable grounds exist for concluding that FBME is a financial institution of primary money laundering concern. Based upon that finding, FinCEN is authorized to impose one or more special measures. Following the required consultations and the consideration of all relevant factors discussed in the NOF, FinCEN proposed the imposition of a prohibition under the fifth special measure in an NPRM published on July 22, 2014. The fifth special measure authorizes a prohibition against the opening or maintaining of correspondent accounts by any domestic financial institution or agency for, or on behalf of, a financial institution found to be of primary money laundering concern.

After re-opening the comment period, FinCEN considered all of the special measures, as well as measures short of a prohibition, and concluded that a prohibition under the fifth special measure is still the appropriate choice. Consistent with the finding that FBME is a financial institution of primary money laundering concern and in consideration of additional relevant factors, this final rule imposes a prohibition on the opening or maintaining of correspondent accounts by covered financial institutions for, or on behalf of, FBME under the fifth special measure. The prohibition on the opening or maintenance of correspondent accounts imposed by the fifth special measure will help guard against the money laundering and terrorist financing risks that FBME presents to the U.S. financial system as identified in the NOF, NPRM, and this final rule.

Given the interconnectedness of the global financial system, the potential for FBME to access the U.S. financial system indirectly, including through the use of nested correspondent accounts, exposes the U.S. financial system to FBME's risks. Accordingly, FinCEN concludes that it is necessary to restrict both direct and indirect access to the U.S. financial system by FBME, particularly since FinCEN does not have information suggesting that any other country has prohibited FBME from accessing its financial system in the same manner as this rule, based on the information available to FinCEN.

Moreover, despite measures that the CBC and the BoT have taken to protect the bank's depositors, FinCEN has reason to believe that those measures do not fully address the money laundering and terrorist financing risks associated with FBME. The continuation of illicit activity at the bank's Tanzanian headquarters even after the BoT appointed a statutory manager on July 24, 2014, bolsters FinCEN's concern. Specifically, in early 2015, an alleged Hezbollah associate and the Tanzanian company he managed owned accounts at FBME.

The fifth special measure imposed by this rulemaking prohibits covered financial institutions from opening or maintaining a correspondent account for, or on behalf of, FBME. As a corollary to this measure, covered financial institutions are also required to take reasonable steps to apply special due diligence, as set forth below, to all of their correspondent accounts to help ensure that no such account is being used indirectly to provide services to FBME. FinCEN does not expect the burden associated with these requirements to be significant. There is only a minimal burden involved in transmitting a onetime notice to correspondent account holders concerning the prohibition on indirectly providing services to FBME. U.S. financial institutions generally apply some level of transaction and account screening, often through the use of commercially available software. Financial institutions should, if necessary, be able to easily adapt their current screening procedures to support compliance with this final rule. Thus, the prohibition on the opening or maintenance of correspondent accounts required by this rulemaking is not expected to impose a significant additional burden upon U.S. financial institutions.

FBME is not a major participant in the international payment system and is not relied upon by the international banking community for clearance or settlement services. Thus, the imposition of a prohibition under the fifth special measure against FBME will not have a significant adverse systemic impact on the international payment, clearance, and settlement system.

While this action could affect FBME's legitimate business activities in the jurisdictions in which it operates, FinCEN believes that the need to protect U.S. financial institutions from the money laundering and terrorist financing risks presented by FBME outweighs any of those potential effects. Also, FinCEN believes that a not insignificant amount of FBME's business activities are illegitimate. For example, as explained in the NOF, wire transfers related to suspected shell company activity accounted for hundreds of millions of dollars of FBME's financial activity between 2006 and 2014. In just the year from April 2013 through April 2014, FBME conducted at least $387 million in wire transfers through the U.S. financial system that had indicators of high-risk money laundering typologies, including shell company activity. FinCEN recognizes that shell companies are sometimes used for legitimate business activity, but notes that they are also commonly used on behalf of high-risk customers as vehicles to obscure transactions and launder money.

Imposing a prohibition under the fifth special measure complements the U.S. Government's foreign policy efforts to expose and disrupt international money laundering and to encourage other nations to do the same. The United States has been a leader in combating money laundering and terrorist financing not only through action with regard to specific institutions, but also through participation in international operational and standard-setting bodies such as the Egmont Group and the Financial Action Task Force.

Excluding FBME and other banks that serve as conduits for money laundering, terrorist financing, and other financial crimes from the U.S. financial system will enhance U.S. national security by making it more difficult for terrorists, sanctions evaders, and money launderers to access the substantial resources of the U.S. financial system. As discussed in the NOF, NPRM, as well as herein, FBME facilitates money laundering, terrorist financing, transnational organized crime, fraud schemes, sanctions evasion, weapons proliferation, corruption by politically exposed persons, and other financial crimes. FinCEN is concerned that this activity, which has occurred at FBME for many years, persists. As of early 2015, an alleged Hezbollah associate and the Tanzanian company he managed owned accounts at FBME. This is not the first episode of the bank's involvement in financial activity possibly connected to Hezbollah, an organization designated by the U.S. government as a Foreign Terrorist Organization. As discussed in the NOF, in 2008, an FBME customer received a deposit of hundreds of thousands of dollars from a financier for Hezbollah.

FinCEN concludes that a prohibition under the fifth special measure is the only viable measure to protect the U.S. financial system against the money laundering and terrorist financing threats posed by FBME. In making this determination, FinCEN considered alternatives to a prohibition under the fifth special measure, including the first four special measures, imposing conditions on the opening or maintaining of correspondent accounts for, or on behalf of, FBME, and the alternatives suggested by FBME. For the reasons explained below, FinCEN concludes that none of these alternatives would sufficiently safeguard the U.S. financial system from the risks posed by FBME.

The first four special measures are focused on gathering additional information, and include (1) requiring additional recordkeeping and reporting of certain transactions, (2) requiring information related to beneficial ownership information, (3) requiring information related to certain payable-through accounts, and (4) requiring correspondent account customer information.18 Also, under the fifth special measure, FinCEN can impose conditions—rather than a prohibition—on the opening or maintaining of correspondent accounts for FBME.19

There could be any number of conditions imposed under the fifth special measure, including those suggested by FBME in its January 26, 2016 comment. The parties responsible for assuring compliance with these conditions could include FinCEN and/or U.S. financial institutions. However, any condition, and any of the first four special measures, inherently rely on FBME to provide accurate, credible, and reliable information to the party responsible for assuring compliance. Given FBME's extensive history of AML deficiencies, including ignoring its own AML regulator's directives, and its active efforts to evade AML regulations, including advertising the bank to potential customers as being willing to facilitate the evasion of AML regulations, FinCEN has a reasonable basis to doubt the accuracy, credibility, or reliability of any information that FBME would provide in connection with compliance with any condition on the maintenance of correspondent accounts or the other four special measures available under Section 311.

Specifically, the CBC concluded that FBME's Cyprus branch failed to remedy AML weaknesses identified in previous CBC exams, despite the CBC's instructions to do so. FinCEN is also particularly concerned that FBME continued to take measures to evade regulatory oversight even after FinCEN highlighted its concerns in the NOF. In late 2014, FBME employees took various measures to obscure information. FinCEN finds this behavior may have been part of an effort to reduce scrutiny by its regulators over FBME's operations. In light of all of these factors, FinCEN is not assured that FBME will implement appropriate and necessary safeguards to ensure that it provides accurate, credible, and reliable information to the entities tasked with ensuring compliance with any alternative special measure or any condition under the fifth special measure.

Moreover, the “serious and systemic” AML deficiencies identified by the CBC during its 2014 AML examination of the bank's Cyprus branch inform FinCEN's concern that FBME would provide incomplete or erroneous information to FinCEN and/or U.S. financial institutions. As described above, the CBC found, in part, that FBME failed to apply enhanced due diligence to high-risk customers, allowed customers to obfuscate key identifying information and transactional details, and failed to maintain complete customer due diligence information. Accordingly, FinCEN assesses that any customer or transactional information provided by FBME would likely reflect these deficiencies.

In its January 26, 2016 comment, FBME suggested multiple alternatives that it argued would be less damaging and still ensure that FBME poses no danger to the U.S. financial system. As noted above, FBME asserts that these alternatives could be conditions to FBME's eligibility to maintain correspondent accounts. To the extent that the alternatives depend on additional reporting or recordkeeping, FinCEN maintains that they would not protect the U.S. financial system from the risks posed by FBME because they would depend on FBME to provide accurate, credible, and reliable information, which FinCEN does not believe FBME will provide. As described above and as reflected in the record, FBME previously disregarded the instructions of its AML regulator; engaged in opaque and suspicious money transfers; maintains deficient AML controls; and its employees took various measures to obscure information. Given this past behavior, FinCEN cannot reasonably rely on a proposed resolution that depends on FBME's candid provision of complete, credible, and accurate information.

FBME has also suggested as alternatives to a prohibition under the fifth special measure the imposition of an independent monitor to oversee and report on FBME's operations, making periodic reports to FinCEN regarding FBME's operations, placing appropriate conditions on the use of correspondent accounts, and consulting with FinCEN, or an expert chosen by FinCEN, to adopt specific and detailed policies to supplement FBME's existing compliance program. Like the first four special measures, the effectiveness of these alternatives to safeguard the U.S. financial system from the risks posed by FBME inherently depends on FBME to provide accurate, reliable, and credible information. In order for a monitor to work effectively, that monitor would have to have access to reliable, credible, and accurate customer and transactional information. But as noted above, FinCEN has a reasonable basis to doubt the accuracy, credibility or reliability of any such information provided by FBME, given FBME's history of ignoring its own AML regulator's directives and its active efforts to evade AML regulations. And with respect to FBME's suggestion to consult with FinCEN, or an expert chosen by FinCEN, to adopt specific policies and procedures, FinCEN remains concerned that FBME would not effectively implement any such policies given FBME's history of ignoring recommendations from its regulator to improve its AML controls.

FBME suggests two other alternatives that would not mitigate FinCEN's concerns regarding the bank's AML program for different reasons. FBME suggests that FinCEN should consider requiring FBME to pay a monetary fine for any historical shortcoming in FBME's AML compliance. By way of example, FBME cites to the civil money penalties that FinCEN imposed on a domestic bank and a domestic casino for violating certain U.S. AML laws. But the payment of a fine does not achieve the very purpose of the special measures available under Section 311, namely, to protect the U.S. financial system against risks posed by foreign financial institutions found to be of primary money laundering concern. Payment of a fine would not ameliorate the concerns that FinCEN has regarding FBME's deficient AML controls, which present risks to the U.S. financial system.

FBME also suggests that FinCEN require FBME to refrain from transactions that FinCEN deems most “worrisome.” Given the lack of transparency surrounding many of FBME's transactions, FinCEN is not confident that it would be able to identify all of the potentially “worrisome” transactions in which FBME might engage. And even assuming the ability to enforce such a provision, and the ability to identify these transactions, refraining from these transactions alone would not address all of the broader concerns regarding the bank's deficient AML controls.

Finally, just as none of FBME's suggested alternatives would sufficiently address FinCEN's concerns, no combination of these alternatives would do so either. Because such alternatives ultimately depend on FBME to provide accurate, reliable, and credible information, FinCEN concludes that no combination of these alternatives could overcome that fundamental deficiency.

In its January 26, 2016 comment, FBME also compares this matter to FinCEN's Section 311 action regarding Multibanka, a Latvia-based bank. In that matter, FinCEN withdrew a finding and an NPRM proposing the fifth special measure prohibiting the opening or maintaining of correspondent accounts for, or on behalf of, Multibanka after the bank took certain remedial measures to address FinCEN's concerns.20 FBME argues that FinCEN should similarly withdraw the NPRM here.

FinCEN determines the appropriate outcome of a Section 311 action on a case-by-case basis. The matter of Multibanka is not analogous to the one here. At the time FinCEN withdrew the finding and NPRM regarding Multibanka, the bank had significantly revised its AML policies and procedures, and importantly, FinCEN found that Multibanka was working to ensure that its improved AML procedures were “translated effectively into practice.” 21 In contrast, FBME has not demonstrated any AML improvements with respect to its headquarters in Tanzania. And with respect to FBME's Cyprus branch, FinCEN remains concerned that FBME would not effectively implement new AML policies and procedures given FBME's history of ignoring instructions from its AML regulator and its past willingness to actively evade AML regulations. Indeed, because of the serious concerns that FinCEN has about FBME, as described in this document, FinCEN finds that FBME continues to be a financial institution of primary money laundering concern.

As in other cases, FinCEN will continue to assess developments with respect to FBME, its regulators, and the jurisdictions in which it operates in determining whether it remains of primary money laundering concern.

Section 1010.658(a)(1) of the rule defines FBME to include all branches, offices, and subsidiaries of FBME operating in any jurisdiction, including Tanzania and Cyprus. Financial institutions should take commercially reasonable measures to determine whether a customer is a branch, office, or subsidiary of FBME. Currently, FBME's bank branches are located in Tanzania and Cyprus, with a representative office in Moscow, Russian Federation.

SIFMA, TCH, and the ABA noted that it would be useful for FinCEN to provide a list of FBME's subsidiaries; however, because subsidiary relationships can change frequently, covered financial institutions should use commercially-reasonable tools to determine the current subsidiaries of FBME.

Section 1010.658(a)(2) of the rule defines the term “correspondent account” by reference to the definition contained in 31 CFR 1010.605(c)(1)(ii). Section 1010.605(c)(1)(ii) defines a correspondent account to mean an account established to receive deposits from, or make payments or other disbursements on behalf of, a foreign bank, or to handle other financial transactions related to the foreign bank. Under this definition, “payable through accounts” are a type of correspondent account.

In the case of a U.S. depository institution, this broad definition includes most types of banking relationships between a U.S. depository institution and a foreign bank that are established to provide regular services, dealings, and other financial transactions, including a demand deposit, savings deposit, or other transaction or asset account, and a credit account or other extension of credit. FinCEN is using the same definition of “account” for purposes of this rule as was established for depository institutions in the final rule implementing the provisions of Section 312 of the USA PATRIOT Act requiring enhanced due diligence for correspondent accounts maintained for certain foreign banks.22

In the case of securities broker-dealers, futures commission merchants, introducing brokers-commodities, and investment companies that are open-end companies (mutual funds), FinCEN is also using the same definition of “account” for purposes of this rule as was established for these entities in the final rule implementing the provisions of Section 312 of the USA PATRIOT Act requiring enhanced due diligence for correspondent accounts maintained for certain foreign banks.23

Section 1010.658(a)(3) of the rule defines “covered financial institution” with the same definition used in the final rule implementing Section 312 of the USA PATRIOT Act,24 which, in general, includes the following:

• An insured bank (as defined in section 3(h) of the Federal Deposit Insurance Act (12 U.S.C. 1813(h));

• A commercial bank;

• An agency or branch of a foreign bank in the United States;

• A Federally insured credit union;

• A savings association;

• a corporation acting under section 25A of the Federal Reserve Act (12 U.S.C. 611);

• A trust bank or trust company;

• A broker or dealer in securities;

• A futures commission merchant or an introducing broker-commodities; and

• A mutual fund.

Section 1010.658(a)(4) of the rule defines “subsidiary” as a company of which more than 50 percent of the voting stock or analogous equity interest is owned by another company.

For purposes of complying with the final rule's prohibition on the opening or maintaining in the United States of correspondent accounts for, or on behalf of, FBME, covered financial institutions should take such steps as a reasonable and prudent financial institution would take to protect itself from loan or other fraud or loss based on misidentification of a person's status.

Section 1010.658(b)(1) of the rule imposing the fifth special measure prohibits all covered financial institutions from opening or maintaining a correspondent account in the United States for, or on behalf of, FBME.

The prohibition requires all covered financial institutions to review their account records to ensure that they maintain no accounts directly for, or on behalf of, FBME.

As a corollary to the prohibition on opening or maintaining correspondent accounts directly for FBME, section 1010.658(b)(2) of the rule imposing a prohibition under the fifth special measure requires a covered financial institution to apply special due diligence to its correspondent accounts that is reasonably designed to guard against processing transactions involving FBME. As part of that special due diligence, covered financial institutions must notify those foreign correspondent account holders that covered financial institutions know or have reason to know provide services to FBME that such correspondents may not provide FBME with access to the correspondent account maintained at the covered financial institution. Covered financial institutions should implement appropriate risk-based procedures to identify transactions involving FBME.

A covered financial institution may satisfy the notification requirement by transmitting the following notice to its foreign correspondent account holders that it knows or has reason to know provide services to FBME:

A covered financial institution may, for example, have knowledge through transaction screening software that a correspondent account processes transactions for FBME. The purpose of the notice requirement is to aid cooperation with correspondent account holders in preventing transactions involving FBME from accessing the U.S. financial system. However, FinCEN would not require or expect a covered financial institution to obtain a certification from any of its correspondent account holders that access will not be provided to comply with this notice requirement. Instead, methods of compliance with the notice requirement could include, for example, transmitting a one-time notice by mail, fax, or email to appropriate correspondent account holders of the covered financial institution, informing them that they may not provide FBME with access to the covered financial institution's correspondent account, or including such information in the next regularly occurring transmittal from the covered financial institution to those correspondent account holders.

In its comment to the NPRM, SIFMA requested reconsideration of the notice provision, specifically regarding the meaning of “one-time notice,” and further objected to the requirement to send such a notice as overly burdensome and possibly duplicative. SIFMA also requested further clarification with regard to the timing of the required notice. FinCEN emphasizes that the scope of the notice requirement is targeted toward those correspondent account holders that the covered financial institution knows or has reason to know provide services to FBME, not to all correspondent account holders. The term “one-time notice” means that a financial institution should provide notice to all existing correspondent account holders who the covered financial institution knows or has reason to know provide services to FBME, within a reasonably short time after this final rule is published, and to new correspondent account holders during the account opening process who the covered financial institution knows or has reason to know provide services to FBME. It is not necessary for the notice to be provided in any particular form. It may be provided electronically, orally (with documentation), or as part of the standard paperwork involved in opening or maintaining a correspondent account. Given the limited nature of FBME's correspondent relationships, FinCEN does not expect this requirement to be burdensome.

A covered financial institution is also required to take reasonable steps to identify any indirect use of its correspondent accounts by FBME, to the extent that such indirect use can be determined from transactional records maintained by the covered financial institution in the normal course of business. Covered financial institutions are expected to apply an appropriate screening mechanism to be able to identify a funds transfer order that on its face lists FBME as the financial institution of the originator or beneficiary, or otherwise references FBME. An appropriate screening mechanism could be the mechanism used by a covered financial institution to comply with various legal requirements, such as the commercially available software programs used to comply with the economic sanctions programs administered by the Office of Foreign Assets Control (OFAC).

Notifying certain correspondent account holders and taking reasonable steps to identify any indirect use of its correspondent accounts by FBME in the manner discussed above are the minimum due diligence requirements under the rule imposing a prohibition under the fifth special measure. Beyond these minimum steps, a covered financial institution must adopt a risk-based approach for determining what, if any, additional due diligence measures are appropriate to guard against the risk of indirect use of its correspondent accounts by FBME, based on risk factors such as the type of services it offers and the geographic locations of its correspondent account holders.

Under this rule imposing a prohibition under the fifth special measure, a covered financial institution that obtains knowledge that a correspondent account is being used by a foreign bank to provide indirect access to FBME must take all appropriate steps to prevent such indirect access, including the notification of its correspondent account holder per section 1010.658(b)(2)(i)(A) and, where necessary, terminating the correspondent account. A covered financial institution may afford the foreign bank a reasonable opportunity to take corrective action prior to terminating the correspondent account. Should the foreign bank refuse to comply, or if the covered financial institution cannot obtain adequate assurances that the account will no longer be available to FBME, the covered financial institution must terminate the account within a commercially reasonable time. This means that the covered financial institution may not permit the foreign bank to establish any new positions or execute any transactions through the account, other than those necessary to close the account. A covered financial institution may reestablish an account closed under the rule if it determines that the account will not be used to provide banking services indirectly to FBME.

Section 1010.658(b)(3) of the rule imposing a prohibition under the fifth special measure clarifies that the rule does not impose any reporting requirement upon any covered financial institution that is not otherwise required by applicable law or regulation. A covered financial institution must, however, document its compliance with the requirement that it notify those correspondent account holders that the covered financial institution knows or has reason to know provide services to FBME, that such correspondents may not process any transaction involving FBME through the correspondent account maintained at the covered financial institution.

When an agency issues a final rule, the Regulatory Flexibility Act (RFA) requires the agency to “prepare and make available for public comment an initial regulatory flexibility analysis” that will “describe the impact of the final rule on small entities.” (5 U.S.C. 603(a)). Section 605 of the RFA allows an agency to certify a rule, in lieu of preparing an analysis, if the final rule is not expected to have a significant economic impact on a substantial number of small entities.

For purposes of the RFA, both banks and credit unions are considered small entities if they have less than $550,000,000 in assets.25 Of the estimated 6,192 banks, 80 percent have less than $550,000,000 in assets and are considered small entities.26 Of the estimated 6,021 credit unions, 92.5 percent have less than $550,000,000 in assets.27

Broker-dealers are defined in 31 CFR 1010.100(h) as those broker-dealers required to register with the Securities and Exchange Commission (SEC). Because FinCEN and the SEC regulate substantially the same population, for the purposes of the RFA, FinCEN relies on the SEC's definition of small business as previously submitted to the Small Business Administration (SBA). The SEC has defined the term small entity to mean a broker or dealer that: (1) Had total capital (net worth plus subordinated liabilities) of less than $500,000 on the date in the prior fiscal year as of which its audited financial statements, were prepared pursuant to Rule 17a-5(d) or, if not required to file such statements, a broker or dealer that had total capital (net worth plus subordinated debt) of less than $500,000 on the last business day of the preceding fiscal year (or in the time that it has been in business if shorter); and (2) is not affiliated with any person (other than a natural person) that is not a small business or small organization as defined in this release.28 Based on SEC estimates, 17 percent of broker-dealers are classified as small entities for purposes of the RFA.29

Futures commission merchants (FCMs) are defined in 31 CFR 1010.100(x) as those FCMs that are registered or required to be registered as a FCM with the Commodity Futures Trading Commission (CFTC) under the Commodity Exchange Act (CEA), except persons who register pursuant to section 4f(a)(2) of the CEA, 7 U.S.C. 6f(a)(2). Because FinCEN and the CFTC regulate substantially the same population, for the purposes of the RFA, FinCEN relies on the CFTC's definition of small business as previously submitted to the SBA. In the CFTC's “Policy Statement and Establishment of Definitions of `Small Entities' for Purposes of the Regulatory Flexibility Act,” the CFTC concluded that registered FCMs should not be considered to be small entities for purposes of the RFA.30 The CFTC's determination in this regard was based, in part, upon the obligation of registered FCMs to meet the capital requirements established by the CFTC.

For purposes of the RFA, an introducing broker-commodities dealer is considered small if it has less than $35,500,000 in gross receipts annually.31 Based on information provided by the National Futures Association (NFA), 95 percent of introducing brokers-commodities dealers have less than $35.5 million in adjusted net capital and are considered to be small entities.

Mutual funds are defined in 31 CFR 1010.100(gg) as those investment companies that are open-end investment companies that are registered or are required to register with the SEC. Because FinCEN and the SEC regulate substantially the same population, for the purposes of the RFA, FinCEN relies on the SEC's definition of small business as previously submitted to the SBA. The SEC has defined the term “small entity” under the Investment Company Act to mean “an investment company that, together with other investment companies in the same group of related investment companies, has net assets of $50 million or less as of the end of its most recent fiscal year.” 32 Based on SEC estimates, seven percent of mutual funds are classified as “small entities” for purposes of the RFA under this definition.33

As noted above, 80 percent of banks, 92.5 percent of credit unions, 17 percent of broker-dealers, 95 percent of introducing brokers-commodities, no FCMs, and seven percent of mutual funds are small entities. The limited number of foreign banking institutions with which FBME maintains or will maintain accounts will likely limit the number of affected covered financial institutions to the largest U.S. banks, which actively engage in international transactions. Thus, the prohibition on maintaining correspondent accounts for foreign banking institutions that engage in transactions involving FBME under the fifth special measure would not impact a substantial number of small entities.

The prohibition under the fifth special measure would require covered financial institutions to provide a notification intended to aid cooperation from foreign correspondent account holders in preventing transactions involving FBME from accessing the U.S. financial system. FinCEN estimates that the time it takes institutions to provide this notice is one hour. Covered financial institutions would also be required to take reasonable measures to detect use of their correspondent accounts to process transactions involving FBME. All U.S. persons, including U.S. financial institutions, currently must exercise some degree of due diligence to comply with OFAC sanctions and suspicious activity reporting requirements. The tools used for such purposes, including commercially available software used to comply with the economic sanctions programs administered by OFAC, can easily be modified to identify correspondent accounts with foreign banks that involve FBME. Thus, the special due diligence that would be required by the imposition of the fifth special measure—i.e., the one-time transmittal of notice to certain correspondent account holders, the screening of transactions to identify any use of correspondent accounts, and the implementation of risk-based measures to detect use of correspondent accounts—would not impose a significant additional economic burden upon small U.S. financial institutions.

For these reasons, FinCEN certifies that this final rulemaking would not have a significant impact on a substantial number of small businesses.

The collection of information contained in the final rule has been approved by the Office of Management and Budget (OMB) in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), and has been assigned OMB Control Number 1506- AB19. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by OMB.

Description of Affected Financial Institutions: Banks, broker-dealers in securities, futures commission merchants and introducing brokers-commodities, and mutual funds.

Estimated Number of Affected Financial Institutions: 5,000.

Estimated Average Annual Burden in Hours per Affected Financial Institution: The estimated average burden associated with the collection of information in this rule is one hour per affected financial institution.

Estimated Total Annual Burden: 5,000 hours.

Executive Orders 12866 and 13563 direct agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. It has been determined that the final rule is not a “significant regulatory action” for purposes of Executive Order 12866.

For the reasons set forth in the preamble, chapter X of title 31 of the Code of Federal Regulations is amended as follows:

In 2012, the Coast Guard conducted a WAMS survey of these anchorage regulations within Newark Bay. In 2013, the Coast Guard conducted a WAMS survey of these anchorage regulations within New Rochelle Harbor, Manhasset, and Little Neck Bays. In 2014, the Coast Guard conducted a WAMS survey of these anchorage regulations within Raritan Bay. In response, on November 25, 2015, the Coast Guard published an NPRM titled Anchorage Regulations; Port of New York (80 FR 73692). There we stated why we issued the NPRM, and invited comments on our proposed regulatory action related to these anchorage regulations. During the comment period that ended January 25, 2016, we received one comment.

The Coast Guard is issuing this rule under authority in 33 U.S.C. 1231. The First Coast Guard District Commander has determined that potential hazards associated with vessels anchoring in the shallow water of these charted anchorage grounds will be a safety concern for vessels constrained by their draft. The purpose of this rule is to reduce the risk of vessels grounding in shallow water and accurately reflect the anchorages currently in use.

This rule disestablishes thirteen anchorage grounds and one special anchorage area that are now obsolete in Newark Bay, the East River, Western Long Island Sound, Raritan Bay, and Lower New York Bay, and reduces the size of three anchorage grounds in Raritan, Sandy Hook, and Lower New York Bays.

As noted above, we received one comment on our NPRM published November 25, 2015. There are no changes in the regulatory text of this rule from the proposed rule in the NPRM.

The Office of Coast Survey, National Oceanic and Atmospheric Administration (NOAA) strongly recommended that the coordinates for the disestablished anchorage grounds be published within the final rule. These coordinates follow:

Coordinates for Disestablished Special Anchorage Area:

33 CFR 110.60(d)(2) New York Harbor:

• Newark Bay, Southwest: All waters bound by the following points: 40°38′52.1″ N., 074°09′41.1″ W.; thence to 40°38′51.6″ N., 074°10′18.2″ W.; thence to 40°38′51.0″ N., 074°10′36.5″ W.; thence to 40°39′16.8″ N., 074°09′56.3″ W.; thence to 40°39′16.2″ N., 074°09′36.9″ W.; thence to the point of origiN., excluding therefrom the “Pipe Line Area”.

Coordinates for Disestablished Anchorage Grounds:

33 CFR 110.155 Port of New York:

• (a)(2) Anchorage Ground No. 1-A: All waters southwest of a line from 40°54′27.36″ N., 073°46′04.16″ W to 40°54′01.65″ N., 073°45′23.02″ W. All waters northwest of a line from 40°54′01.65″ N., 073°45′23.02″ W, thence to 40°53′30.65″ N., 073°46′05.30″ W. All waters north of a line from 40°53′30.65″ N., 073°46′05.30″ W thence to 40°53′21.35″ N., 073°46′38.52″ W.

• (a)(3) Anchorage Ground No. 1-B: All waters west and north of the following lines: from 40°54′58.06″ N., 073°44′51.82″ W; thence to 40°54′10.69″ N., 073°45′10.48″ W.; thence to 40°54′26.89″ N., 073°46′04.84″ W.

• (a)(4) Anchorage Ground No. 2: All waters west of a line from 40°48′56.58″ N., 073°47′52.98″ W.; thence to 40°48′27.38″ N., 073°47′29.20″ W.

• (a)(5) Anchorage Ground No. 3: All waters northeast of a line from 40°50′54.57″ N., 073°44′16.64″ W.; thence to 40°51′28.94″ N., 073°44′49.11″ W. All waters southeast of a line from 40°51′28.94″ N., 073°44′49.11″ W.; thence to 40°52′07.26″ N., 073°44′15.41″ W. All waters southwest of a line from 40°52′07.26″ N., 073°44′15.41″ W.; thence to 40°51′57.80″ N., 073°43′47.86″ W.

• (a)(6) Anchorage Ground No. 4: All waters northeast of a line from 40°49′00.62″ N., 073°45′41.92″ W.; thence to 40°49′28.17″ N., 073°46′29.31″ W. All waters southeast of a line from 40°49′28.17″ N., 073°46′29.31″ W.; thence to 40°51′28.94″ N., 073°44′49.11″ W. All waters southwest of a line from 40°51′28.94″ N., 073°44′49.11″ W.; thence to 40°50′54.57″ N., 073°44′16.64″ W.

• (a)(7) Anchorage Ground No. 5: All waters east of a line from 40°47′40.53″ N., 073°46′28.93″ W.; thence to 40°49′18.69″ N., 073°46′12.69″ W. All waters south of a line from 40°49′18.69″ N., 073°46′12.69″ W.; thence to 40°49′00.62″ N., 073°45′41.92″ W.

• (b)(2) Anchorage Ground No. 7: All waters south of a line from 40°48′03.24″ N., 073°49′11.46″ W.; thence to 40°47′41.80″ N., 073°46′58.77″ W.

• (h)(1) Anchorage Ground No. 34: All waters bound by the following points: 40°38′51.5″ N, 074°10′35.6″ W.; thence to 40°39′20.2″ N, 074°09′50.8″ W.; thence to 40°39′41.4″ N, 074°09′30.2″ W.; thence to 40°39′29.6″ N, 074°08′58.0″ W.; thence to 40°39′21.7″ N, 074°08′50.8″ W.; thence to 40°39′08.0″ N, 074°08′58.9″ W.; thence to 40°38′49.9″ N, 074°09′20.0″ W.; thence to 40°38′53.5″ N, 074°09′37.1″ W.; thence to 40°38′52.0″ N, 074°09′41.6″ W.; thence to the point of origin (NAD 83).

• (h)(3) Anchorage Ground No. 36: All waters bound by the following points: 40°41′13.1″ N, 074°08′06.1″ W.; thence to 40°41′12.7″ N, 074°08′09.9″ W.; thence to 40°40′51.0″ N, 074°08′29.7″ W.; thence to 40°40′44.7″ N, 074°08′29.8″ W.; thence to 40°40′34.0″ N, 074°08′12.0″ W.; thence to 40°40′36.6″ N, 074°08′04.8″ W.; thence to 40°40′54.5″ N, 074°07′56.5″ W.; thence to 40°41′03.3″ N, 074°07′56.5″ W.; thence to the point of origin (NAD 83).

• (h)(4) Anchorage Ground No. 37: All waters bound by the following points: 40°41′40.66″ N, 074°06′38.63″ W.; thence to 40°41′51.85″ N, 074°07′01.88″ W.; thence to 40°39′16.54″ N, 074°08′33.79″ W.; thence to 40°39′16.68″ N, 074°08′25.82″ W, thence along the shoreline to point of origin (NAD 83).

• (h)(5) Anchorage Ground No. 38: All waters bound by the following points: 40°43′05.57″ N, 074°06′08.36″ W.; thence to 40°42′40.39″ N, 074°06′48.46″ W.; thence to 40°42′35.47″ N, 074°06′53.93″ W.; thence to 40°42′24.34″ N, 074°06′59.31″ W.; thence to 40°42′20.79″ N, 074°06′59.76″ W.; thence to 40°42′11.44″ N, 074°06′55.73″ W.; thence to 40°42′03.86″ N, 074°07′00.66″ W.; thence to 40°41′52.53″ N, 074°07′01.56″ W.; thence to 40°41′41.33″ N, 074°06′38.05″ W, thence along the shoreline to point of origin (NAD 83).

• (h)(6) Anchorage Ground No. 39: All waters bound by the following points: 40°43′20.60″ N, 074°07′11.06″ W.; thence to 40°42′51.41″ N, 074°07′16.10″ W.; thence to 40°42′27.93″ N, 074°07′08.10″ W.; thence to 40°42′43.70″ N, 074°06′56.08″ W.; thence to 40°43′08.81″ N, 074°06′24.24″ W.; thence along the shoreline to point of origin (NAD 83).

• (j)(4) Anchorage Ground No. 46: 40°29′52.19″ N, 074°15′01.76″ W.; thence to 40°29′48.88″ N, 074°15′10.76″ W. 40°30′34.63″ N, 074°11′25.01″ W.; thence to 40°30′02.74″ N, 074°09′03.10″ W.; thence to 40°31′44.04″ N, 074°09′19.73″ W.

We developed this rule after considering numerous statutes and Executive orders related to rulemaking. Below we summarize our analyses based on a number of these statutes and Executive orders, and we discuss First Amendment rights of protestors.

Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has not been designated a “significant regulatory action,” under Executive Order 12866. Accordingly, it has not been reviewed by the Office of Management and Budget.

This regulatory action determination is based on the administrative nature of the rulemaking as it would not alter current navigational practices on the affected waterways.

The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as amended, requires Federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard received no comments from the Small Business Administration on this rulemaking. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.

While some owners or operators of vessels intending to transit or anchor within these waterways may be small entities, for the reasons stated in section V.A above, this rule will not have a significant economic impact on any vessel owner or operator.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the FOR FURTHER INFORMATION CONTACT section.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132.

Also, this rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. If you believe this rule has implications for federalism or Indian tribes, please contact the person listed in the FOR FURTHER INFORMATION CONTACT section.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves the disestablishment of thirteen obsolete anchorage grounds and one obsolete SAA, and reduces the size of two anchorage grounds and combines them into one smaller anchorage ground. It is categorically excluded from further review under paragraph 34(f) of Figure 2-1 of the Commandant Instruction. We seek any comments or information that may lead to the discovery of a significant environmental impact from this rule.

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 110 as follows:

The SIP is a living document which a state revises as necessary to address its unique air pollution problems. Therefore, the EPA from time to time, must take action on SIP revisions containing new and/or revised regulations as being part of the SIP. On May 22, 1997, the EPA revised the procedures for incorporating by reference Federally-approved SIPs, as a result of consultations between the EPA and the Office of the Federal Register (OFR) (62 FR 27968). The description of the revised SIP document, IBR procedures and “Identification of plan” format are discussed in further detail in the May 22, 1997 Federal Register document. On March 20, 2013, the EPA published a Federal Register beginning the new IBR procedure for Washington (78 FR 17108). On December 8, 2014, the EPA published an update to the IBR material for Washington (79 FR 72548).

Since the publication of the last IBR update, the EPA approved into the Washington SIP the changes listed below.

• Washington Administrative Code, Chapter 173-400—General Regulations for Air Pollution Sources, sections 173-400-131 (Issuance of Emission Reduction Credits), 173-400-136 (Use of Emission Reduction Credits (ERC)), 173-400-800 (Major Stationary Source and Major Modification in a Nonattainment Area), 173-400-810 (Major Stationary Source and Major Modification Definitions), 173-400-820 (Determining if a New Stationary Source or Modification to a Stationary Source is Subject to these Requirements), 173-400-830 (Permitting Requirements), 173-400-840 (Emission Offset Requirements), 173-400-850 (Actual Emissions Plantwide Applicability Limitation (PAL)), and 173-400-860 (Public Involvement Procedures). For more information see 79 FR 66291 (November 7, 2014).

• Washington Administrative Code, Chapter 173-400—General Regulations for Air Pollution Sources, sections 173-400-116 (Increment Protection), 173-400-117 (Special Protection Requirements for Federal Class I Areas), 173-400-700 (Review of Major Stationary Sources of Air Pollution), 173-400-710 (Definitions), 173-400-720 (Prevention of Significant Deterioration (PSD)), 173-400-730 (Prevention of Significant Deterioration Application Processing Procedures), 173-400-740 (PSD Permitting Public Involvement Requirements), and 173-400-750 (Revisions to PSD Permits). For more information see 80 FR 23721 (April 29, 2015).

• Benton Clean Air Agency, Regulation I, sections 1.01 (Name of Agency), 1.02 (Policy and Purpose), 1.03 (Applicability), 4.01A (Definitions—Fugitive Dust), 4.01 paragraph B (Definitions—Fugitive Emissions), 4.02 paragraph B (Particulate Matter Emissions—Fugitive Emissions), 4.02 paragraph C.1 (Particulate Matter Emissions—Fugitive Dust), and 4.02 paragraph C.3 (Particulate Matter Emissions—Fugitive Dust). For more information see 80 FR 71695 (November 17, 2015).

• Washington Administrative Code, Chapter 173-400—General Regulations for Air Pollution Sources, sections 173-400-036 (Relocation of Portable Sources), 173-400-111 (Processing Notice of Construction Applications for Sources, Stationary Sources and Portable Sources), 173-400-117 (Special Protection Requirements for Federal Class I Areas), 173-400-118 (Designation of Class I, II, and III Areas), 173-400-131 (Issuance of Emission Reduction Credits), 173-400-136 (Use of Emission Reduction Credits (ERC)), 173-400-175 (Public Information), 173-400-560 (General Order of Approval), 173-400-800 (Major Stationary Source and Major Modification in a Nonattainment Area), 173-400-810 (Major Stationary Source and Major Modification Definitions), 173-400-820 (Determining if a New Stationary Source or Modification to a Stationary Source is Subject to these Requirements), 173-400-830 (Permitting Requirements), 173-400-840 (Emission Offset Requirements), 173-400-850 (Actual Emissions Plantwide Applicability Limitation (PAL)), and 173-400-860 (Public Involvement Procedures). For more information see 80 FR 71695 (November 17, 2015).

• Washington Administrative Code, Chapter 173-422—Motor Vehicle Emission Inspection, sections 173-422-020 (Definitions), 173-422-030 (Vehicle Emission Inspection Requirement), 173-422-031 (Vehicle Emission Inspection Schedules), 173-422-060 (Gasoline Vehicle Emission Standards), 173-422-065 (Diesel Vehicle Exhaust Emission Standards), 173-422-070 (Gasoline Vehicle Exhaust Emission Testing Procedures), 173-422-075 (Diesel Vehicle Inspection Procedure), 173-422-160 (Fleet and Diesel Owner Vehicle Testing Requirements), 173-422-190 (Emission Specialist Authorization), and 173-422-195 (Listing of Authorized Emission Specialists). For more information see 80 FR 48033 (August 11, 2015).

• Washington Administrative Code, Chapter 173-400—General Regulations for Air Pollution Sources, sections 173-400-036 (Relocation of Portable Sources), 173-400-111 (Processing Notice of Construction Applications for Sources, Stationary Sources and Portable Sources), 173-400-112 (Processing Notice of Construction Applications for Sources, Stationary Sources and Portable Sources), 173-400-113 (New Sources in Attainment or Unclassifiable Areas—Review for Compliance with Regulations), 173-400-171 (Public Notice and Opportunity for Public Comment), and 173-400-560 (General Order of Approval). For more information see 80 FR 23721 (April 29, 2015).

• Washington Administrative Code, Chapter 173-400—General Regulations for Air Pollution Sources, section 173-400-111 (Processing Notice of Construction Applications for Sources, Stationary Sources and Portable Sources). For more information see 80 FR 27102 (May 12, 2015).

• Washington Administrative Code, Chapter 173-400—General Regulations for Air Pollution Sources, sections 173-400-030 (Definitions), 173-400-040 (General Standards for Maximum Emissions), 173-400-050 (Emission Standards for Combustion and Incineration Units), 173-400-060 (Emission Standards for General Process Units), 173-400-070 (Emission Standards for Certain Source Categories), 173-400-081 (Startup and Shutdown), 173-400-091 (Voluntary Limits on Emissions), 173-400-105 (Records, Monitoring and Reporting), 173-400-110 (New Source Review (NSR) for Sources and Portable Sources), 173-400-112 (Requirements for New Sources in Nonattainment Areas—Review for Compliance with Regulations), 173-400-113 (New Sources in Attainment or Unclassifiable Areas—Review for Compliance with Regulations), 173-400-151 (Retrofit Requirements for Visibility Protection), 173-400-171 (Public Notice and Opportunity for Public Comment), and 173-400-200 (Creditable Stack Height & Dispersion Techniques). For more information see 80 FR 71695 (November 17, 2015).

• Spokane Regional Clean Air Agency, Regulation I, Article VIII—Solid Fuel Burning Device Standards, sections 8.01 (Purpose), 8.02 (Applicability), 8.03 (Definitions), 8.04 (Emission Performance Standards), 8.05 (Opacity Standards), 8.06 (Prohibited Fuel Types), 8.07 (Curtailment (Burn Ban)), 8.08 (Exemptions), 8.09 (Procedure to Geographically Limit Solid Fuel Burning Devices) and 8.10 (Restrictions on Installation and Sales of Solid Fuel Burning Devices). For more information see 80 FR 58216 (September 28, 2015).

• Washington Administrative Code, Chapter 173-422—Motor Vehicle Emission Inspection, section 173-422-130 (Inspection Fees). For more information see 80 FR 48033 (August 11, 2015). For more information see 80 FR 71695 (November 17, 2015).

• Washington Administrative Code, Chapter 173-400—General Regulations for Air Pollution Sources, sections 173-400-010 (Policy and Purpose), 173-400-020 (Applicability), and 173-400-100 (Registration).

• Spokane Regional Clean Air Agency, Regulation I, Article VIII—Solid Fuel Burning Device Standards, section 8.11 (Regulatory Actions and Penalties). For more information see 80 FR 58216 (September 28, 2015).

• BP Cherry Point Refinery, Administrative Order No. 7836, Revision 2. For more information see 81 FR 7710 (February 16, 2016).

In this action, the EPA is announcing the update to the IBR material as of February 19, 2016. The EPA is correcting minor typographical errors, including subsection 52.2470(c), table 2, entry 173-400-091, which incorrectly listed the state effective date as “9/20/93” rather than the correct date of “4/1/11”. The EPA is also rearranging tables 5 through 10 in subsection 52.2470(c) to list the local clean air agency regulations at the top of the tables consistent with the EPA's recent final approval of the Benton Clean Air Agency general air quality regulations (80 FR 71698, November 17, 2015). The EPA is also rearranging and republishing the contents of subsection 52.2470(e) to organize the actions by pollutant and type for clarity. Finally, the EPA is moving the location of regulations relating to Washington's enforcement authority, appeals, and conflicts of interest, specifically, WAC 173-400-220 (Requirements for Board Members), WAC 173-400-230 (Regulatory Actions), WAC 173-400-240 (Criminal Penalties), WAC 173-400-250 (Appeals), and WAC 173-400-260 (Conflict of Interest). These regulations were inadvertently placed in subsection 52.2470 (c), Tables 2, 5, 6, 7, 8, 9, and 10, the regulations incorporated by reference. The EPA is moving these regulations to subsection 52.2470(e), the provisions that are approved but not incorporated by reference. For more information see 80 FR 71698 (November 17, 2015).

The EPA has determined that today's rule falls under the “good cause” exemption in section 553(b)(3)(B) of the Administrative Procedures Act (APA) which, upon finding “good cause,” authorizes agencies to dispense with public participation and section 553(d)(3) which allows an agency to make a rule effective immediately (thereby avoiding the 30-day delayed effective date otherwise provided for in the APA). Today's rule simply codifies provisions which are already in effect as a matter of law in Federal and approved State programs. Under section 553 of the APA, an agency may find good cause where procedures are “impractical, unnecessary, or contrary to the public interest.” Public comment is “unnecessary” and “contrary to the public interest” since the codification only reflects existing law. Immediate notice in the CFR benefits the public by removing outdated citations and incorrect table entries.

Under the Clean Air Act (CAA), the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, the EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:

The SIP is not approved to apply on any Indian reservation land in Washington except as specifically noted below and is also not approved to apply in any other area where the EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, the rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). Washington's SIP is approved to apply on non-trust land within the exterior boundaries of the Puyallup Indian Reservation, also known as the 1873 Survey Area. Under the Puyallup Tribe of Indians Settlement Act of 1989, 25 U.S.C. 1773, Congress explicitly provided state and local agencies in Washington authority over activities on non-trust lands within the 1873 Survey Area.

In this rule, the EPA is finalizing regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, the EPA is finalizing the incorporation by reference of the Washington regulations described in the amendments to 40 CFR part 52 set forth below. EPA has made, and will continue to make, these documents generally available electronically through www.regulations.gov and/or in hard copy at the appropriate EPA office (see the ADDRESSES section of this preamble for more information).

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. The EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register. This rule is not a “major rule” as defined by 5 U.S.C. 804(2).

The EPA has also determined that the provisions of section 307(b)(1) of the CAA pertaining to petitions for judicial review are not applicable to this action. Prior EPA rulemaking actions for each individual component of the Washington SIP compilations had previously afforded interested parties the opportunity to file a petition for judicial review in the United States Court of Appeals for the appropriate circuit within 60 days of such rulemaking action. Thus, the EPA sees no need in this action to reopen the 60-day period for filing such petitions for judicial review for this “Identification of plan” update action for Washington.

40 CFR part 52 is amended as follows: