Wire Transfer Regulation Is Good News!

TREASURY/FED ISSUE EASY-TO-TAKE PROPOSAL
The proposal for the Wire Transfer Regulation has been released, and bankers all over the United States, after months of nervous anticipation, can now breathe a sigh of relief. The Treasury Department and the Federal Reserve Bank jointly issued the draft of the new proposal, with comments due by October 4, and implementation by January 1, 1994.

We contacted John Byrne for his comments on the new proposal.

John Byrne is Senior Federal Legislative Counsel for the American Bankers Association, Washington, D.C. and is a frequent lecturer internationally on money laundering, BSA, and bank fraud. He has written many articles and appeared on TV as well as before Congress and state legislatures addressing money laundering problems and compliance by financial institutions.

Clearly the battles that have been waged since 1989 have been successful, making this a regulation that should present no major problems to the banking industry.

When the first wire transfer proposal was promulgated, the banking industry overwhelmingly made clear its opposition to what was then seen as a very burdensome, overreaching and probably impractical proposal. For instance, one of the requirements was that financial institutions were going to have to determine whether the wire transfer was being done for the customer, or on behalf of someone else. There was no way to determine that-especially from transfers coming from overseas where many countries wouldn't allow us to ask that question. It could have affected international relationships.

Initially the pressure for the wire transfer regulation was coming from outside the Treasury Department. The idea that wire transfers are a major method of laundering money came out of Congressional hearings. Treasury was forced to do something.

When the Annunzio-Wylie bill was first introduced in 1990, there were provisions that required the wire regulations to be final by a time certain. The time, as the bills progressed through Congress, was constantly extended. As statutory deadlines kept being pushed back, nothing prevented the regulations anyway. To Treasury's credit, the agency delayed the final regulations. Their hesitation was based in large part on the comments they received suggesting that much of their proposal would present major problems for the industry.

Process Delayed
Hampering the process was the arrival of a new administration. A new Assistant Secretary of the Treasury needed to be confirmed, needed to review the regulation, and get up to speed on all aspects of this issue. In addition, President Bush put a freeze on regulations for a period of time. All these temporary stops worked in our favor.

During this delay, we suggested an amendment that was supported by the members of the House and Senate that the regulation be issued jointly by the Treasury and the Federal Reserve Board. Even though Treasury had already consulted with the Federal Reserve during this process, the banking industry pushed to formalize that joint effort because they felt the Federal Reserve System had a better appreciation and understanding of the payment system. After all, they run Fed Wire.

As a result, when the Annunzio-Wylie bill was finally signed into law, it mandated joint rule-making to be effective by January 1, 1994.

Over 300 Comment Letters
The financial industry had extensive input on the final proposal. For one thing, there were over 300 comment letters-very specific, detailed letters-not just the "this-is-unfair-let-us-alone" letters that unfortunately are sometimes sent by our industry. There were many operations officers who took the time to make very clear why there was a problem, and make specific suggestions to comply.

Another influence on the effect the wire transfer regulation would have on the system was industry arguments to Congress while they were going through the money laundering legislative debates. To illustrate our concerns, banking officers set up tours of wire transfer facilities for staff from the Justice and Treasury Departments, FinCEN and other government agencies in Chase, Citibank and the New York Clearing House. Signet Bank ran a tour of their wire transfer area for the House Banking Committee. ABA argued the industry's case with the press, the regulators, with members of Congress and in Congressional Committees. Over the past several years there has been a concerted effort to try to educate regulators on the effect the proposal was going to have on day to day banking activities. It's been a lengthy process-and it appears to have been successful.

Easy Rules
The proposal of the wire transfer regulation states that banks must retain certain information on a payment order-depending on whether you're the originator of the order, the intermediary, or the beneficiary. There are other details, but that's the basic premise of the regulation.

Domestic Transfers Exempt
The major aspect of the regulation that must be emphasized is that domestic transfers are completely exempt, so there needs to be no additional records kept on any transfer within the United States. No new reporting. No change. The regulation focuses on transfers into and out of the United States.

Problems For Non-banks
This regulation will have tremendous effect on non-banks. The summary of the proposal refers to specific record keeping requirements on non-banks that increases responsibility for that industry. It appears that non-banks will be brought into this process-in some cases for the first time.

But the information that is already being maintained by most wire transfer departments will meet the requirements of this regulation with no change at all. That has to be welcome news to our bankers. At this point in time, we do not anticipate asking that the implementation date be moved back. The Treasury Department and the Federal Reserve are to be commended for this long process in which they obviously took the opportunity to meet with industry people and other regulators and members on Capitol Hill to try to come up with a workable proposal.

Copyright © 1993 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 4, No. 3, 8/93