I came across a new (to me) aspect of the Bank Secrecy Act recently — rule [31 CFR 103.33(g)] (the “Travel Rule”) which requires all financial institutions to pass on certain information to the next financial institution, in certain funds transmittals involving more than one financial institution.
This rule would apply to any crypto company that is registered as a FinCEN Money Service Business. It’s particularly relevant for crypto exchanges.
Purpose of the Travel Rule:
The Rule was created to help law enforcement agencies detect, investigate and prosecute money laundering and other financial crimes by preserving an information trail about persons sending and receiving funds through funds transfer systems.
When does the Rule apply?
Any time a $3,000 transfer of cash or crypto takes place, the Travel Rule procedures must be followed.
Exceptions to the Rule:
If the transfer is already governed by the Electronic Funds Transfer Act (Reg E) or made through an ATM (I think they mean bank-owned ATM as this rule was drafted before BTMs) or through a point of sale system, it is not subject to the rule.
How to Comply:
The financial institution initiating the transmission greater than $3,000 needs to send the receiving financial institution the following information:
The name of the transmitter (the transmitter is the person wanting to do the transaction);
The account number of the transmitter;
The address of the transmitter;
The identity of the transmitter’s financial institution;
The amount of the transmittal order;
The execution date of the transmittal order; and
The identity of the recipient’s financial institution.
If there’s an intermediary in the transaction, it is required to pass on everything it receives from the transmitter’s financial institution but has no general duty to collect more than it receives.
If the transmitter is sending his or her own funds to themselves at the same financial institution where the funds originated, AND both the financial institution and the transmitter use the same American-based bank, the rule does not apply.
In addition, if both the transmitter and the recipient, are any of the following, then the transmittal of funds is not subject to these rules:
Wholly owned domestic subsidiary of a domestic bank;
Domestic broker or dealer in securities;
Wholly owned domestic subsidiary of a domestic broker or dealer in securities;
The United States federal, state, or local government or agency.
Do you have to send this KYC information to the Government?
No, if the transaction is not “suspicious,” you just send the KYC information to the financial institution you are sending the $3,000 or more to, they have to keep the KYC information on file in case the government asks for it later. If the transaction is suspicious, you must file the Suspicious Activity Report with FinCEN as usual.
How long must a financial institution keep these records?
Five (5) years.
What is considered a financial institution subject to the Travel Rule?
· Securities brokers or dealers;
· Casinos subject to the Bank Secrecy Act;
· Money transmitters,
· Check cashers,
· Currency exchangers, and
· Money order issuers and sellers subject to the Bank Secrecy Act. See 31 CFR 103.11