Threshold for the Requirement to Collect, Retain, and Transmit Information on Funds Transfers and Transmittals of Funds
Publication Date: November 9, 2020 Document Type: Request for Comment Federal Register Citation: 85 FR 71628
Summary
FinCEN requested public comment on whether to adjust the $3,000 threshold in the funds transfer recordkeeping rule (commonly known as the “travel rule”), which has remained unchanged since 1995, and sought input on the threshold’s effectiveness in combating money laundering.
Background
Travel Rule: Established in 1995, requires financial institutions to:
- Collect transmitter information
- Retain information on file
- Transmit information to receiving institution
- For funds transfers of $3,000 or more
- To help trace money laundering
Threshold History:
- Set at $3,000 in 1995
- Based on inflation adjustment from earlier $1,000 threshold
- Never been increased
- Inflation eroded real value over 25 years
- $3,000 in 1995 equals approximately $5,000 in 2020
Current Travel Rule Requirements
Transmittor’s Financial Institution: Must collect, retain, and transmit:
- Transmittor’s name
- Transmittor’s address
- Transmittor’s account number (if applicable)
- Transmittor’s taxpayer identification number (if applicable)
- Amount of transmittal order
- Execution date
- Identity of recipient’s financial institution
Recipient’s Financial Institution: Must:
- Retain information received
- Make available to FinCEN on request
- Provide to appropriate law enforcement
Threshold: Requirements apply to:
- Transmittals of $3,000 or more
- Domestic or cross-border
- All payment types
- Single transfers
Money Laundering Risks
Below-Threshold Transactions: Concerns about:
- Structured transactions to evade $3,000 threshold
- Multiple $2,999 transfers
- Smurfing operations
- Network of low-dollar transfers
- Cumulative large amounts
- Detection challenges
Technology Changes: Since 1995:
- Real-time payments increased
- Mobile payment proliferation
- Peer-to-peer platforms
- Cryptocurrency emergence
- Instant transfers common
- Lower-value transfers easier
Questions for Comment
Threshold Adjustment: Should threshold be:
- Raised to account for inflation (to ~$5,000)?
- Lowered to capture more transactions (to $1,000 or $500)?
- Eliminated entirely (report all transfers)?
- Left at $3,000?
- Varied by payment type or risk?
Costs vs. Benefits:
- Impact of lowering threshold on compliance costs
- Value of additional transaction data
- Law enforcement utility
- Burden on financial institutions
- Technology system changes needed
- Examination and oversight costs
Alternative Approaches:
- Risk-based thresholds
- Different thresholds for different payment types
- Geographic variations
- Velocity-based triggers
- Cumulative amount triggers
- Pattern-based reporting
Law Enforcement Value
Current Utility: Travel rule information used for:
- Tracing funds in investigations
- Identifying beneficiaries
- Following money trails
- Asset forfeiture support
- Network analysis
- Prosecution evidence
Enhanced Value: Lower threshold could provide:
- More complete transaction picture
- Better detection of structuring
- Enhanced network analysis
- Earlier detection of patterns
- More investigation leads
Diminishing Returns: Higher threshold could:
- Focus on larger transactions
- Reduce data volume
- Improve data quality
- Lower compliance costs
- Ease burden on smaller institutions
Compliance Costs
Current Costs: Institutions incur costs for:
- Transaction monitoring systems
- Data collection and storage
- Information transmission
- Staff training
- Compliance oversight
- System maintenance
Impact of Lower Threshold: Reducing threshold would:
- Increase transaction volume captured
- Require system modifications
- Expand data storage needs
- Increase monitoring burden
- Raise ongoing costs
- Particularly burden small MSBs
Impact of Higher Threshold: Raising threshold would:
- Reduce transactions requiring compliance
- Lower data collection costs
- Decrease storage requirements
- Simplify monitoring
- But miss some money laundering activity
Technology Considerations
System Capabilities: Modern systems can:
- Process high transaction volumes
- Automate data collection
- Store data efficiently
- Transmit information electronically
- Flag suspicious patterns
- Scale with demand
Legacy Systems: Smaller institutions may have:
- Outdated technology
- Manual processes
- Limited automation
- Higher marginal costs
- Implementation challenges
International Context
FATF Standards: FATF Recommendation 16 requires:
- Collection of originator information
- No specific threshold mentioned
- Risk-based approach
- Inclusion of virtual assets
Other Jurisdictions: Thresholds vary globally:
- European Union: €1,000 (~$1,200)
- Canada: No threshold (all transactions)
- UK: No threshold for certain transfers
- Various other thresholds worldwide
Virtual Assets: FATF “travel rule” for virtual assets:
- No threshold
- All transfers must include information
- Challenging technical implementation
- Industry developing solutions
Virtual Currency Consideration
Application to Virtual Assets: Questions on whether:
- Travel rule should apply to virtual currency
- Same threshold appropriate
- Technical feasibility
- Implementation timeline
- Industry preparedness
FinCEN Guidance: 2019 guidance indicated:
- Travel rule applies to convertible virtual currency
- $3,000 threshold applies
- Exemptions same as for traditional transfers
- Compliance expected
Payment Type Variations
Different Risk Profiles: Consider different thresholds for:
- Wire transfers (higher risk)
- ACH payments (moderate risk)
- Check deposits (lower risk)
- Card payments (variable risk)
- P2P transfers (emerging risk)
- Virtual currency (high risk)
Risk-Based Approach: Tailor requirements based on:
- Payment method
- Geographic destination
- Customer type
- Transaction pattern
- Historical risk data
Small MSB Impact
Resource Constraints: Small MSBs face:
- Limited compliance budgets
- Minimal technology infrastructure
- Few compliance staff
- Manual processes
- Cost sensitivity
Threshold Impact: Lower threshold could:
- Disproportionately burden small MSBs
- Force costly system upgrades
- Require additional staff
- Impact business viability
- Reduce market access
Mitigation: Consider:
- Phased implementation
- Small entity exemptions
- Simplified compliance options
- Technology assistance
- Extended compliance periods
Structuring and Evasion
Current Evasion: Criminals may:
- Break large transfers into multiple $2,999 amounts
- Use multiple MSBs
- Spread over time
- Employ money mules
- Structure to avoid reporting
Lower Threshold Benefits: Could:
- Reduce structuring incentive
- Capture more evasion attempts
- Provide better audit trail
- Support investigations
- Deter illicit transfers
Monitoring Challenges: Lower threshold creates:
- More data to analyze
- Needle in haystack problem
- Resource constraints
- False positive risks
- Alert fatigue
Data Quality vs. Quantity
Quality Focus: Consider whether:
- Current data sufficiently useful
- More data actually helps investigations
- Quality should be prioritized over quantity
- Better analytics needed more than more data
- Law enforcement can handle increased volume
Exemptions
Existing Exemptions: Travel rule exempts:
- Transmittals under $3,000
- Certain intra-bank transfers
- Transfers through automated clearinghouse
- Check truncation or substitute check
- Similar low-risk categories
Review of Exemptions: Should exemptions be:
- Maintained as-is
- Expanded to reduce burden
- Narrowed to close gaps
- Updated for new payment types
- Risk-calibrated
Implementation Timeline
If Threshold Changed: Consider:
- Adequate notice period
- Time for system modifications
- Training and procedure updates
- Phased rollout
- Industry readiness
- Smaller institutions’ needs
Relationship to Other Rules
CTR Requirements:
- Currency Transaction Reports at $10,000
- Different purpose (cash transactions)
- Complementary to travel rule
- Coordination of thresholds
SAR Requirements:
- No threshold for suspicious activity
- Travel rule provides supporting data
- SAR narratives reference transfers
- Integrated compliance approach
Comment Period
Deadline: 60 days after publication
Specific Questions: FinCEN sought input on:
- Should threshold be adjusted?
- If so, to what amount?
- Rationale for recommended threshold
- Cost and benefit analysis
- Implementation considerations
- Technology challenges
- Small entity impacts
- International coordination
- Alternative approaches
- Exemption modifications
- Virtual currency application
- Risk-based variations
Encouraged Commenters:
- Financial institutions (banks, credit unions)
- Money services businesses
- Payment processors
- Fintech companies
- Industry associations
- Law enforcement agencies
- Technology providers
- Academic researchers
- Consumer advocates
Next Steps
After Review: FinCEN would:
- Analyze all comments
- Review data and evidence
- Consult with stakeholders
- Assess costs and benefits
- Determine appropriate threshold
- Issue rulemaking if changes warranted
- Provide implementation timeline