GT Alert

USA PATRIOT Act - Treasury Department Solicits Comment on Proposed Regulations That Could Affect Travel Agencies and Businesses Engaged in Vehicle Sales

March 2003
By Carl A. Fornaris, and Ileana Gomez, Greenberg Traurig, Miami Office

  View or download the PDF version of this Alert here.

On February 24, 2003, the United States Department of the Treasury ("Treasury") and the Financial Crimes Enforcement Network ("FinCEN") issued two "advance" notices of proposed rulemaking that, if issued as final rules, could result in a requirement that travel agencies and businesses engaged in vehicle sales establish anti-money laundering ("AML") programs.

"The Treasury Department and FinCEN take the position that they are moving cautiously in bringing non-financial services businesses under the AML umbrella."

An advance notice of proposed rulemaking provides Treasury and FinCEN with an opportunity to discuss the various risks and regulatory issues while soliciting public comment prior to issuing a formal proposed rule. Comments on the advance notices are due on or before April 10, 2003.

Background

The USA PATRIOT Act of 2001 requires "financial institutions" to establish AML programs and customer identification programs. While the term "financial institution" is defined to include travel agencies and vehicle sellers, FinCEN in April 2002 temporarily exempted travel agencies and vehicle sellers from the requirements of the USA PATRIOT Act so it could study the laundering risks inherent in those industries and suggest which requirements should apply. With the new advance notices of proposed rulemaking, FinCEN reveals some of the vulnerabilities in those industries and asks questions about other laundering risks these businesses face.

Travel Agencies

FinCEN defines "travel agency" as "any person who sells, as an agent and not as a principal . . . airline tickets, rail tickets, hotel and motel reservations, and cruise reservations, or some combination of these services." The definition excludes direct sales by service providers such as hotels and tour buses.

The notice cites several ways money laundering can occur in travel agencies: purchasing an expensive airline ticket for another person who then asks for a full cash refund; structuring outgoing wire transfers in small amounts to avoid recordkeeping requirements, especially those from foreign countries and unusually large transfers; and sending a tour group to a country and making an offsetting payment in a foreign entity’s U.S. or other account, and instructing the accountholder to cover the cost of the group’s trip.

The notice requests comments on each of the following:

• the current definition of "travel agency" and whether there should be a minimum threshold value in the definition;
• the potential money laundering risk posed by travel agencies and whether there are different types of travel agencies or different services offered that pose different money laundering risks;
• whether travel agencies should be exempt from the USA PATRIOT Act’s AML and customer identification requirements;
• how an AML program for travel agencies, or some subset thereof, should be structured; and
• whether travel agencies maintain "accounts" for their customers.

A link to the notice may be found on the Treasury Department’s Web site.

Vehicle Sellers

The business of vehicle sellers encompasses various segments including: (i) new land-based vehicles, such as automobiles, trucks, RVs and motorcycles; (ii) new aircraft, including fixed wing airplanes and helicopters; (iii) new boats and ships; and (iv) used vehicles (as well as those who broker the sale of used vehicles).

The notice mentions several laundering risks and ways laundering can occur through vehicle sellers: structuring cash deposits below the $10,000 reporting threshold, or purchasing vehicles with structured checks and money orders; trading in vehicles for other ones and conducting successive transactions of buying and selling new and used vehicles to produce complex transaction layers; arranging complex payment or invoicing for customers, thereby structuring cash payments to avoid currency reports; and accepting third party payments, particularly from jurisdictions with lax laundering controls.

The notice requests comments on each of the following:

• the potential money laundering risk posed by vehicle sellers and whether such risks vary by vehicle type (e.g., boat, airplane, automobile), market (wholesale versus retail) or business line (international sales, sales to governments);
• whether vehicle sellers should be exempt from the USA PATRIOT Act’s AML and customer identification requirements;
• whether vehicle sellers should be subject to AML program requirements and how such program should be structured;
• how a "vehicle seller" should be defined and whether the definition should include a minimum threshold value; and
• whether vehicle sellers maintain "accounts" for their customers.

A link to the notice may be found on the Treasury Department’s Web site.

Conclusion

The Treasury Department and FinCEN take the position that they are moving cautiously in bringing non-financial services businesses under the AML umbrella. The Treasury Department’s unusual step in issuing "advanced notices of proposed rulemaking" suggests that additional businesses, such as real estate agents, may soon be brought into the AML fold.

© 2003 Greenberg Traurig

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