Incrementalism and Money Movement

By Kevin Brekke

A news item warranting special mention went largely unremarked on in the media last week.

On Monday, Sept. 27, the Financial Crimes Enforcement Network (FinCEN) announced that it had “submitted for publication in the Federal Register a notice of proposed rulemaking (NPRM) that would require certain depository institutions and money services businesses (MSBs) to affirmatively provide records to FinCEN of certain cross-border electronic transmittals of funds (CBETF).”

In a statement released after the announcement, James Freis, Director of FinCEN, explained, “By establishing a centralized database, this regulatory plan will greatly assist law enforcement in detecting and ferreting out transnational organized crime, multinational drug cartels, terrorist financing, and international tax evasion.”

The new proposal would change the rules governing international electronic money transfers. Currently, money electronically sent cross-border triggers a reporting requirement if the transaction exceeds US$10,000, with banks required to maintain records on transfers greater than US$3,000. This proposal would essentially eliminate these thresholds and mandate the reporting of all money sent outside the U.S., with one exception: money services businesses like Western Union would be exempt from reporting transfers under US$1,000.

Yet the contention that the trio of boogeymen – drugs/terrorism/tax evasion – potentially lurks behind every movement of money is a false-flag. This latest move to expand reporting requirements looks to be another brick in the wall of foreign exchange controls.

The proposal would standardize the format used and the information contained for reporting. It would also consolidate the myriad systems (i.e., Fedwire, CHIPS, SWIFT, IBAN) used by U.S. financial institutions to process electronic funds transfers and establish a small number of channels where they enter and leave the United States.

However, FinCEN admits that cooperation from foreign governments is not assured and states,

    “Whereas the U.S. government can and has taken steps to require that certain information be included in electronic payment messages, foreign institutions may hesitate to provide detailed information in funds transfer instructions and are beyond the reach of U.S. law. To require that U.S. banks reject any funds transfer instruction that does not include the elements required under U.S. law could significantly disadvantage U.S. institutions in the international financial system.”

This admission seems to undermine half the undertaking if monitoring and reporting from all foreign governments on money being transferred into the U.S. is in doubt. It is refreshing to see that they also recognize that at some point added restrictions can and will hurt the U.S. banking system’s ability to compete globally.

So, if the proposed new system will likely fail in its ability to track all incoming money transfers, then the system would appear to be comprehensive in the monitoring of outgoing transfers only. And that could easily be seen as laying the groundwork for “case-by-case” exchange controls. Once the system is operational, it will be gathering information on, and monitoring, money transfers in real time, and authorities could allow or deny any and all requests at any time for any reason.

FinCEN has also issued a formal notice that “cross-border electronic transmittal of funds” contains an exemption for “any debit transmittals, POS [point of sale], transactions conducted through an ACH process, or ATM.” Whereas it is estimated that 350-500 million cross-border transfers take place in the U.S. per year, over 5,000 debit, POS, ACH, and ATM transactions happen per second on a typical business day. Including such transactions is a practical impossibility.

Lastly, I was unable to sleuth out when this new system of reporting might take effect. Once the proposal is printed in the Federal Register,it will be open to 90 days of public debate. And Mr. Freis has said that industry groups with concerns about the new requirements will be consulted as the rule moves forward. The new rules do not appear to be imminent, but they are coming. Sounding like a scratched record, if you intend to move some of your wealth outside the U.S., and want to do so with maximum ease, the sooner you do it the better.

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