The primary missions of the Department of the Treasury are: Protecting and collecting the revenue under the Internal Revenue Code and customs laws; supervising national banks and thrift institutions; managing the fiscal operations of the Federal Government; enforcing laws relating to counterfeiting, Federal Government securities, firearms and explosives, money laundering, foreign commerce in goods and financial instruments, and smuggling and trafficking in contraband; administering the Community Development Financial Institutions Program; protecting the President, Vice President, and certain foreign diplomatic personnel; training Federal, State, and local law enforcement officers; and producing coins and currency.
Consistent with these missions, most regulations of the Department and its constituent bureaus are promulgated to interpret and implement the laws as enacted by the Congress and signed by the President. Unless circumstances require otherwise, it is the policy of the Department to issue a notice of proposed rulemaking (NPRM) and carefully consider public comments before adopting final regulations. Also, in particular cases, the Department invites interested parties to submit views on rulemaking projects while the NPRM is being developed and to hold public hearings to discuss a proposed rule.
To the extent permitted by law, it is the policy of the Department to adhere to the regulatory philosophy and principles set forth in Executive Order 12866 and to develop regulations that maximize aggregate net benefits to society while minimizing the economic and paperwork burdens imposed on persons and businesses subject to those regulations.
During FY 1999, the Department will aggressively implement the President's June 1, 1998, memorandum directing agencies to use ``plain language'' in new proposed and final rulemaking documents.
Internal Revenue Service
The Internal Revenue Service (IRS), working with the Office of the Assistant Secretary for Tax Policy, promulgates regulations that interpret and implement the Internal Revenue Code and related tax statutes. In developing these regulations, every effort is made to carry out the tax policy determined by Congress in a fair, impartial, and reasonable manner, taking into account the intent of Congress, the realities of relevant transactions, the need for the Government to administer the rules and monitor compliance, and the overall integrity of the Federal tax system. The goal is to make the regulations practical and as clear and simple as possible.
Most IRS regulations interpret tax statutes to resolve ambiguities or fill gaps in the tax statutes. This includes interpreting particular words, applying rules to broad classes of circumstances, and resolving apparent and potential conflicts between various statutory provisions.
On July 22, 1998, the President signed into law the Internal Revenue Service Restructuring and Reform Act of 1998. During fiscal year 1999, the IRS will issue several regulations addressing the implementation of this law. In addition, the IRS will be addressing a number of other priority regulatory projects including the following:
¤ Stock Transfer Rules Under Section 367. Section 367 of the Internal Revenue Code governs the application of the corporate nonrecognition rules to transactions involving foreign corporations. The IRS published proposed regulations under section 367(a) and (b) of the Code on August 26, 1991. Various portions of these regulations involving transfers of stock by U.S. persons to foreign corporations were finalized on December 30, 1996, and June 19, 1998. The IRS expects to finalize the remainder of the proposed regulations in fiscal year 1999.
¤ Excise Taxes on Excess Benefit Transactions. The Taxpayer Bill of Rights 2 (Public Law 104-168, July 30, 1996) added section 4958 to the Code. Section 4958 provides for excise taxes on excess benefit transactions and is effective for transactions occurring on or after September 14, 1995. Disqualified persons and, in some instances, organization managers are liable for these new taxes. A disqualified person is any person who was, at any time during the 5-year period ending on the date of the excess benefit transaction, in a position to exercise substantial influence over the affairs of the tax-exempt organization involved in the transaction. Only transactions with section 501(c)(3) (except private foundations) or section 501(c)(4) organizations are subject to the taxes. An excess benefit transaction is any transaction in which an economic benefit is provided by an applicable organization directly or indirectly to, or for the use of, any disqualified person if the value of the economic benefit provided exceeds the value of the consideration (including the performance of services) received for providing the benefit. The taxable excess benefit amount is the excess of the benefit over the value of the consideration. On July 30, 1998, proposed regulations were issued to clarify certain definitions and rules contained in section 4958 of the Code. The IRS expects to finalize these rules in fiscal year 1999.
¤ Amortization of Intangible Assets. The Omnibus Budget Reconciliation Act of 1993 (OBRA 1993) added section 197 to the Code, which provides for a 15-year amortization of goodwill and certain other intangible assets. OBRA 1993 also amended Code section 167 to provide specified amortization periods for certain computer software and mortgage servicing rights. These provisions are generally effective for intangibles acquired after August 10, 1993. On January 16, 1997, proposed regulations were issued implementing these two Code sections and providing guidance to taxpayers on the meaning and scope of certain provisions of the statute and its anti-churning rules. The IRS expects to finalize these rules early in fiscal year 1999.
¤ Credit for Increasing Research Activities. Section 41 of the Code provides a tax credit equal to a percentage of the amount by which a taxpayer's qualified research expenses for a taxable year exceeds its base amount for that year. To be qualified research, the research activities must not only satisfy the requirements of section 174 of the Code but must be undertaken for the purpose of discovering information that is technological in nature, the application of which is intended to be useful in the development of a new or improved business component of the taxpayer, and substantially all of the activities of which must constitute a process of experimentation pertaining to the functional aspects, performance, reliability, or quality of a business component. The regulations under section 41 of the Code will explain the term ``qualified research'' and the exclusions from research credit eligibility. The IRS expects to propose these rules early in fiscal year 1999.
¤ Euro Conversion. On January 1, 1999, 11 members of the European Union will replace their national currencies with the euro. On July 29, 1998, the IRS published proposed and temporary regulations relating to certain of the more significant U.S. Federal income tax consequences that arise for taxpayers operating, investing, or otherwise conducting business in a currency that is converting to the euro. The IRS expects to finalize these rules in fiscal year 1999.
¤ Software. Section 861 of the Internal Revenue Code provides general rules regarding the determination of whether income is from sources within the United States. In general, different rules apply to income from services, income from tangible property, and income from intangible property. Transactions involving computer software have been difficult to classify because such transactions do not in all cases fit neatly into one box or the other. The IRS published proposed regulations in November 1996 that would establish a comprehensive framework for characterizing computer software transactions for purposes of the international provisions of the Code. The IRS expects to finalize the regulations early in fiscal year 1999.
Office of the Comptroller of the Currency
The Office of the Comptroller of the Currency (OCC) charters, regulates, and supervises national banks to ensure a safe, sound, and competitive national banking system that supports the citizens, communities, and economy of the United States. The substantive content of the OCC's regulations reflects four organizing principles that support this mission:
¤ The OCC's regulations help ensure safety and soundness by establishing standards that set the limits of acceptable conduct for national banks.
¤ The OCC's regulations promote competitiveness by facilitating a national bank's ability to develop new lines of business, subject to any safeguards that are necessary to ensure that the bank has the expertise to manage risk effectively and adapt its business practices to deal responsibly with its customers.
¤ Regulations can also affect national banks' ability to compete by contributing significantly to their costs. The OCC's goal is to improve efficiency and reduce burden by updating and streamlining its regulations and eliminating those that no longer contribute significantly to the fulfillment of its mission.
¤ The OCC's regulations help assure fair access to financial services for all Americans by removing unnecessary impediments to the flow of credit to consumers and small businesses, by encouraging national banks' involvement in community development activities, and by implementing Federal laws designed to protect consumers of financial services.
Important final rules that the OCC has published since the preparation of the fiscal year 1998 regulatory plan (or expects to publish before October 1998) include the following:
¤ Risk-Based Capital Guidelines (12 CFR part 3):
Servicing Assets. In 1995, the Federal banking agencies published an interim rule to eliminate the distinctions between originated mortgage servicing rights and purchased mortgage servicing rights and to clarify that both originated and purchased mortgage servicing rights are subject to the deduction requirements for regulatory capital. (A reference in this regulatory plan to the ``Federal banking agencies'' or ``the agencies'' means the OCC, together with the Office of Thrift Supervision (OTS), the Federal Deposit Insurance Corporation (FDIC), and the Board of Governors of the Federal Reserve System.) This interim rule was developed in response to the Financial Accounting Standards Board (FASB) Financial Accounting Statement (FAS) 122, which addressed mortgage servicing rights. Subsequent to the interim rule, FASB published FAS 125, which eliminated the distinction between excess and normal servicing fees relating to servicing rights. Since the last regulatory plan, the agencies issued a proposed rule and final rule on capital treatment of excess servicing fees and mortgage servicing rights.
Transfers of Small Business Loan Obligations With Recourse. This rule, which implements section 208 of the Riegle Community Development and Regulatory Improvement Act of 1994, Public Law 103-325 (Sept. 23, 1994) (CDRIA), generally permits banks to hold capital against the face amount of recourse obligations (rather than the amount of the asset transferred with recourse) on qualifying small business loans if the bank establishes a reserve equal to the bank's reasonable estimated liability under the recourse obligation.
Unrealized Holding Gains on Certain Equity Securities. The OCC and the other Federal banking agencies issued a joint notice of proposed rulemaking to amend the risk-based capital guidelines to permit a bank to include up to 45 percent of unrealized revaluation gains on available-for-sale equity securities in Tier 2 capital. This proposed rule is consistent with the International Convergence of Capital Measurement and Capital Standards as adopted by the Basle Committee on Banking Regulations and Supervisory Practices (Basle Accord) and would make the risk-based capital treatment of unrealized revaluation gains uniform among the banking agencies.
Risk-Based Capital Guidelines Generally. The OCC and the other Federal banking agencies have proposed several amendments to their respective risk-based capital guidelines to eliminate certain interagency differences in capital treatment. The amendments would affect (1) junior and senior liens on one-to-four family residential mortgages, (2) presold one-to-four family construction loans, and (3) mutual funds.
¤ Expanded Examination Cycle for Certain Institutions (12 CFR part 4). This rule makes eligible for an 18-month exam cycle a national or State bank that (1) has total assets of $250 million or less; (2) is well capitalized; (3) is well managed; (4) received a CAMELS 1 or 2 at its most recent exam; (5) is not subject to a formal enforcement order; and (6) has not had a change in control during the previous 12-month period. A separate interim rule allows the OCC to examine Federal branches and agencies of foreign banks every 18 months if the branches and agencies meet criteria that are comparable to those applicable to national banks.
¤ Assessment of Fees (12 CFR part 8). The OCC has adopted two final rules since the last regulatory plan was prepared. The first imposed a surcharge on banks that receive a rating of 3, 4, or 5 under the Uniform Financial Institutions Rating System. The second adopted as final the changes made in (1) an interim rule published in 1994 governing trust fees and (2) an interim rule published in 1996 governing assessment reductions for non-lead national banks.
¤ Prohibition Against Deposit Production Offices (12 CFR part 25). This rule implemented section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, which is intended to prevent banks from using their new interstate branching authority to extract deposits from communities in which they are not reasonably helping to meet credit needs. Under that law, a bank with branches in a State other than its home State must meet either a ``level of lending'' test in the State where the branch is located (whereby its loans to customers in the host State relative to deposits from customers in the host State is at least half the loan-to-deposit ratio for all banks based in that State) or a ``credit needs'' test (whereby the appropriate Federal banking agency determines if a bank is meeting the credit needs of the communities served by the branch in question).
¤ International Banking Activities (12 CFR part 28). This rule removed the lengthy discussion of the accounting treatment for fees earned on international loans found in the previous rule and inserted in its place a brief provision stating that the accounting should conform to generally accepted accounting principles (GAAP).
¤ Lending Limits (12 CFR part 32). In a final rule published in April of 1998, the OCC made several technical amendments to the lending limits rule intended to clarify, for instance, the effective date for newly calculated lending limits.
The OCC's regulatory priorities for fiscal year 1999 include the continuation of the OCC's work with the other Federal banking agencies to update the risk-based capital standards, maintain and, where necessary, improve consistency in the agencies' rules. Regulatory projects in this area include the following amendments to 12 CFR part 3:
¤ Risk-Based Capital Treatment of Recourse and Direct Credit Substitutes. The Federal banking agencies published a proposal to amend the risk-based capital guidelines to provide consistency between the capital treatment for recourse arrangements and for direct credit substitutes. The proposal described several approaches that would enable banks to match the risk-based capital assessment more closely to an institution's relative risk of loss in asset securitization.
¤ Market Risk. This rule would eliminate the 50 percent floor for specific risk under the market risk capital requirements. An interim rule was published in December of 1997.
¤ Collateralized Transactions. The rule would conform the rules of the other banking agencies to the OCC's rule regarding the risk-based capital treatment of loans collateralized in cash or OECD government securities. Consistent with existing law, the rule would assign a zero risk weight for the portion of claims collateralized by cash on deposit in a bank or securities issued or guaranteed by the U.S. Government or its agencies or the central government of an OECD country, provided that certain conditions are met.
¤ Claims on Securities Firms. This rule would reduce the risk weighting for claims on securities firms from 100 to 20 percent.
In addition, the OCC's regulatory priorities for fiscal year 1999 include projects in the following areas:
¤ Know Your Customer. The proposal, which is being prepared with the other Federal banking agencies and with the participation of Treasury's Financial Crimes Enforcement Network (FinCEN), would require each regulated institution to develop a program designed to identify its customers; determine its customers' source of funds; determine its customers' normal and expected transactions; monitor customers' transactions to determine if such transactions are consistent with their normal and expected transactions; and report any transactions of its customers that are determined to be unusual or suspicious, in accordance with the agencies' existing suspicious activity reporting regulations.
¤ Codification of the Interagency Statement on Retail Sales of Nondeposit Investment Products (``Interagency Statement''). This rulemaking would codify part or all of the Interagency Statement that was adopted February 15, 1994.
¤ Interpretive Rulings (12 CFR part 7). This rulemaking would codify recent OCC interpretations concerning the following: The definition of ``interest''; messenger services; ownership of stock by a director; the oaths of directors; acquisition and retention by a bank of its shares; bank holidays; the power to guaranty liabilities for foreign activities; insurance agency activities by national banks; the ability of national banks to have ATMs without being subject to geographic restrictions; and annuity sales.
¤ Year 2000. The OCC expects to publish two rules affecting banks' efforts to address computer problems associated with the year 2000 (Y2K). The first, amending 12 CFR part 4, would allow the OCC to disclose, without a request, non-public OCC information to supervised entities and other persons as necessary to carry out the OCC's statutory responsibilities. The second would add an appendix to 12 CFR part 30 to provide interagency guidelines establishing Y2K safety and soundness standards.
¤ Management Official Interlocks (12 CFR part 26). This joint proposed rule would amend each agency's regulation to conform to recent changes to the Depository Institutions Management Interlocks Act (``DIMIA''). The Economic Growth and Regulatory Paperwork Reduction Act of 1996 (``EGRPRA'') amended DIMIA to permit the agencies to grant exemptions to the interlocks prohibition for any interlock that would not result in a monopoly or substantial lessening of competition. EGRPRA also amended DIMIA to raise the asset thresholds for the ``major assets'' prohibition to apply only to interlocks involving a depository institution having assets of at least $2.5 billion and an unaffiliated depository institution having assets of at least $1.5 billion.
Office of Thrift Supervision
As the primary Federal regulator of the thrift industry, the Office of Thrift Supervision (OTS) has established regulatory objectives and priorities to effectively and efficiently supervise thrift institutions. These objectives include maintaining and enhancing the safety and soundness of the thrift industry; a flexible, responsive regulatory structure that enables savings associations to provide credit and other financial services to their communities, particularly housing credit; and a risk-focused, proactive approach to supervision. The objectives and priorities of OTS are consistent with those established by the President.
Under the auspices of the Federal Financial Institutions Examination Council (FFIEC), OTS continues to implement, with the other Federal banking agencies, section 303(a)(2) of the Riegle Community Development and Regulatory Improvement Act of 1994 (CDRIA), which requires the Federal banking agencies to make uniform all regulations and guidelines implementing common statutory provisions or supervisory policies.
Interagency capital-related projects underway include amendments concerning:
¤ The leverage capital standard and the risk-based capital standards for certain loans involving residential properties and investments in mutual funds.
¤ Capital standards for servicing assets.
¤ Risk-based capital standards for collateralized transactions.
¤ Risk-based capital standards for unrealized gains on equity securities.
¤ Risk-based capital standards for recourse obligations and direct credit substitutes that expose institutions to credit risk.
¤ Risk-weight of claims on securities firms.
It is anticipated that final rules will be issued regarding the first four capital-related issues outlined above by early FY 1999. A proposed or interim rule regarding the risk-weight of claims on securities firms is expected to be issued by the first quarter of fiscal year 1999. The agencies continue to consider risk-based capital requirements for recourse obligations and direct credit substitutes. A resolution of these issues is likely to be issued in fiscal year 2000.
The FFIEC member agencies are also preparing enforceable safety and soundness standards that will provide Year 2000 guidelines to insured depository institutions under section 39 of the Federal Deposit Insurance Act.
Other interagency projects are also underway on two proposed rules. The Management Official Interlocks project would implement recent statutory changes, modernize the existing rules, and reduce burden. The ``Know Your Customer'' rule would require institutions to develop programs designed to reduce the likelihood that they will become unwitting participants in the illicit activities of their customers. The agencies should publish a proposed rule on ``Know Your Customer'' and a final rule on Management Official Interlocks by the first quarter of fiscal year 1999. The OTS is also working on a final rule on Agency Disapproval of Officers and Directors, which would conform OTS rules to the rules of the other banking agencies implementing recent statutory changes, clarify the existing OTS rules, and reduce burden. A rule should be finalized by the first quarter of fiscal 1999.
Several regulatory projects issued in proposed form during fiscal year 1998 are likely to be issued in final form during fiscal year 1999. The Electronic Operations rule, published in October 1997, addresses the appropriate use of electronic banking technology. OTS would like to ensure that its rules are sufficiently flexible to accommodate technological changes in the marketplace and ensure that the regulated industry uses technology within the boundaries of safety and soundness standards. OTS expects to continue the rulemaking process in this area by issuing a supplemental notice of proposed rulemaking during the fourth quarter of fiscal year 1998 and a final rule during fiscal year 1999.
Other rules issued as proposals in fiscal year 1998 and likely to be issued in final form during fiscal year 1999 include a capital distributions rule updating and streamlining OTS regulations to reflect the implementation of prompt corrective action; a rule clarifying the treatment of reverse repurchase agreements under the transactions with affiliates prohibitions in section 11 of the Home Owners Loan Act (HOLA); a charter and bylaws rule expanding the range of votes that a Federal mutual savings association may allow a member to cast; and a financial management policies rule comprehensively revising outdated regulations on financial derivatives.
During fiscal year 1999, OTS intends to publish a number of proposed rules as part of its ongoing effort to review and streamline its regulations. These projects include revisions to OTS regulations concerning types of offices, securities brokerage, nondiscrimination, officers and directors, guarantees and letters of credit, and assessments.
A project to revise OTS regulations on types of offices would evaluate current definitions of the terms ``home office,'' ``branch office,'' ``agency,'' and OTS rules on relocations and redesignations. The project is designed to ensure that OTS rules reflect how modern thrifts conduct their operations. The securities brokerage rule would revise and update OTS regulations on the sale of non-deposit investment products. The rule concerning directors and officers would streamline OTS regulations on indemnification, savings association boards of directors, compensation, employment contracts, extensions of credit to insiders, conflicts of interest, and corporate opportunity. A project updating rules on guarantees and letters of credit would clarify that a Federal savings association may act as guarantor or surety, issue letters of credit, and act as escrow agent.
OTS currently has underway a project to amend its method of calculating its assessments of savings associations. The rule would more closely tailor assessments with supervisory costs than the current regulation allows. Other assessment and fee matters would be clarified, and the entire regulation would be put into the ``plain language'' format.
The OTS also plans to revise its conversion regulations (12 CFR 563b) and to undertake a regulatory project on exempt multiple holding companies claiming unitary status based on acquisitions.
United States Customs Service
The United States Customs Service is responsible, among other things, for administering laws concerning the importation of goods into the United States. This includes inspecting imports, collecting applicable duties, overseeing the activities of persons and businesses engaged in importing, and enforcing the laws concerning smuggling and trafficking in contraband. The regulatory priorities of Customs for fiscal year 1999 are to continue to facilitate procedures for legitimate commercial transactions and to provide further obstacles to the flow of narcotics and other contraband into the United States.
During fiscal year 1998, one of Customs' priorities was to continue the reinvention of its regulatory procedures begun under the authority granted by the Customs Modernization provisions of the North American Free Trade Implementation Act (``Customs Mod Act''). Customs reinvention efforts, in accordance with the principles of E.O. 12866, have involved and will continue to involve much input from the importing public. Two key regulatory packages that are integral to implementation of the Customs Mod Act, after consultations with the public and proposed rulemakings, were published as final rules during the past fiscal year. These packages were a revision of the Customs regulations regarding drawback and a revision of the Customs regulations regarding the recordkeeping responsibilities of those involved with Customs transactions.
During fiscal year 1999, Customs will continue to move forward with amendments implementing the Customs Mod Act. Priority will be accorded to revising the procedures by which Customs will issue administrative rulings answering requests of prospective importers as to how Customs will treat their transactions and to revising the regulations pertaining to customs brokers.
During the fiscal year 1999, Customs also plans to undertake several other regulatory actions that will affect the traveling and importing public, customs brokers, carriers, and commercial importers. Customs will accord priority to several regulatory actions focusing on the development of a more automated environment to expedite the entry, processing, and release of imported commercial merchandise and the clearance of merchandise for export. These regulations will benefit the importing and exporting public by streamlining the work of Customs officers and the trade community. Among the actions that Customs will pursue in this regard, which will improve the efficiency of Customs operations, reduce paperwork, and administrative costs are:
¤ Liquidations. Customs will propose regulations allowing paperless procedures for extension and suspension of liquidation notices, improving and clarifying the administrative process and simplifying the regulations pertaining to liquidations and extensions and suspensions of liquidation.
¤ Entry Reconciliation. Customs will propose regulations allowing a ``reconciliation'' process that will allow elements of an entry (other than those relating to the admissibility of merchandise) that are undetermined at the time an entry summary or an import activity summary statement is required to be submitted, to be provided to Customs at a later date. A ``reconciliation'' will permit importers to submit information not available at the time of entry that is necessary for the importer and Customs to determine the correct amount of duty on a shipment. The procedure will allow Customs to finalize the duty assessment process by liquidating the underlying entry as to all merchandise covered by the entry, except the merchandise identified by the importers as requiring the submission of additional information.
¤ Commercial Laboratories. Customs will finalize regulations to provide standards and procedures for accrediting commercial laboratories that will permit them to analyze a wide range of commercial products for Customs purposes. This change will facilitate the release of merchandise because it will enable importers to receive laboratory results earlier.
¤ Remote Location Filing. Customs will propose regulations allowing electronic filing of entries with Customs from locations in the United States other than the port of arrival of the merchandise or the place at which the merchandise is examined. Remote location filing will provide entry filers (such as brokers and couriers) with greater flexibility and will allow Customs to make more efficient use of its resources.
Bureau of Alcohol, Tobacco and Firearms
The Bureau of Alcohol, Tobacco and Firearms (ATF) issues regulations to enforce the Federal laws relating to the manufacture and commerce of alcohol products, tobacco products, firearms and explosives.
ATF's regulations carry out these missions and are designed to:
¤ Curb illegal traffic in, and criminal use of, firearms and to assist State, local, and other Federal law enforcement agencies in reducing crime and violence;
¤ Facilitate investigations of violations of Federal explosives laws and arson-for-profit schemes;
¤ Regulate the alcohol, tobacco, firearms, and explosives industries, including the issuance of licenses and permits;
¤ Assure the collection of all alcohol, tobacco, firearms, and ammunition taxes and obtain a high level of voluntary compliance with all laws governing those industries;
¤ Suppress commercial bribery, consumer deception, and other prohibited practices in the alcoholic beverage industry;
¤ Suppress the illicit manufacture, sale, or diversion of alcoholic beverages and tobacco products for which Federal tax has not been paid; and
¤ Assist the States in their efforts to eliminate interstate trafficking in, and the sale and distribution of, cigarettes in avoidance of State taxes.
ATF has accomplished the majority of its goals under the President's regulatory reform initiative. In addition, ATF has reduced the administrative burden associated with the current basic permit application process for producers, wholesalers, and importers of alcohol beverages. A reduced and simplified basic permit application form is now in use.
ATF will continue as a top priority during fiscal year 1999 the multi-faceted regulatory project governing various modifications to its regulations governing commerce in explosives. ATF published a general notice soliciting public comments on January 10, 1997, and subsequently issued an expanded notice of proposed rulemaking that addressed additional explosives issues. Analysis of the comments received in response to both documents resulted in a final rule that clarified explosives terminology, eliminated duplication in licensing, relaxed the licensing requirements for on-site manufacturers, and updated the hotline number for reporting the theft or loss of explosives. ATF is further analyzing its regulations governing storage requirements for explosives, including fireworks explosive materials, and plans to issue a notice of proposed rulemaking as described in detail in part II of this regulatory plan.
Financial Management Service
The Financial Management Service (FMS) issues regulations to improve the quality of Government financial management and to administer its payment, collections, debt collection, and Governmentwide accounting programs. FMS' regulatory priority for fiscal year 1999 is to further implement the provisions of the Debt Collection Improvement Act of 1996 (DCIA). A key provision of the DCIA requires that, effective January 2, 1999, all Federal payments (other than payments under the Internal Revenue Code) must be made using electronic funds transfer (EFT 99). Other important provisions of the DCIA pertain to the Federal Government's debt collection efforts.
In fiscal year 1999, FMS will assist Federal program agencies in implementing the final rule that promulgates the DCIA's EFT 99 provisions. This rule establishes categories of waivers, provides for a low-cost Treasury-designated account to be made available to certain recipients, establishes requirements for accounts to which Federal payments may be sent by EFT, and sets forth responsibilities of Federal agencies and recipients with respect to the EFT mandate.
FMS also will promulgate regulations to implement the DCIA's debt collection tools, including the administrative offset of Federal payments for the collection of debts owed to Federal agencies and States and the collection of past-due child support. FMS' goal for fiscal year 1999 is to publish as final rules many of the proposed and interim debt collection rules that were published in fiscal year 1998. These rules concern, among other issues, the offset of Federal payments, including benefit payments and salary payments; the transfer of debts to Treasury for collection; and barring delinquent debtors from obtaining direct and indirect Federal loan assistance. Additionally, FMS, in conjunction with the Department of Justice, will finalize the rule concerning the Federal Claims Collection Standards that sets forth Governmentwide debt collection standards.
FMS also plans to publish a final revision to its rule governing the Federal Government's participation in the Automated Clearing House (ACH), the dominant electronic funds transfer system used by Federal agencies. These revisions will provide the basis for broader use of the ACH system to meet future payment and collection needs.
The DCIA also provided the Department of the Treasury with new program authority concerning claims brought by and against the Federal Government in connection with Treasury checks and established a permanent and indefinite appropriation for the Check Forgery Insurance Fund. FMS plans to revise its rule that governs the processing of claims on Treasury checks that are lost or stolen and then paid over forged or unauthorized endorsements.
Finally, FMS plans to issue a revised final rule to implement the DCIA provisions governing the Treasury Check Offset program, which authorizes collection by offset of amounts owed by financial institutions to the Federal Government.
Bureau of the Public Debt
The Bureau of the Public Debt (BPD) administers regulations governing transactions in Government securities by Government securities brokers and dealers and regulations that implement Treasury's borrowing authority, including rules governing the sale and issue of marketable Treasury securities. In December 1997, BPD assumed responsibility for administering the regulatory provisions governing the types and valuations of collateral that are acceptable to secure deposits of public monies and other financial interests of the Federal Government.
The Government Securities Act of 1986 (GSA) authorizes the Secretary of the Treasury to prescribe rules governing financial responsibility, the protection of customer funds and securities, recordkeeping, reporting, audit, and large position reporting for all Government securities brokers and dealers, including financial institutions. These rules fulfill the Treasury's statutory responsibility to safeguard the efficient functioning of the Government securities market and are designed to prevent fraudulent and manipulative acts and practices and to protect the integrity, efficiency, and liquidity of the market. The Department and BPD are committed to implementing rules that make sense from both a regulatory and market efficiency perspective. Accordingly, the Department and BPD seek to balance the benefits of regulation with the compliance costs imposed on the Government securities market and its participants.
The rules setting out the terms and conditions for the sale and issue by the Department to the public of marketable book-entry Treasury bills, notes, and bonds are also known as the uniform offering circular. These rules apply to securities held in accounts in the book-entry system established by the Department and operated by the Federal Reserve Banks, known as the Treasury/Reserve Automated Debt Entry System, as well as to securities held in accounts directly with Treasury in the TREASURY DIRECT system. The uniform offering circular describes the types of securities offered for sale, the auction methods by which they are sold, the process by which bidders submit bids, the process for awarding securities to successful bidders, and the authorized payment methods.
Financial Crimes Enforcement Network
The regulations of the Financial Crimes Enforcement Network (FinCEN) constitute the core of Treasury's anti-money laundering initiative and an essential component of Treasury's anti-narcotics effort. The Bank Secrecy Act (BSA) authorizes the Secretary of the Treasury to issue regulations requiring financial institutions to keep records and file reports that are determined to have a high degree of usefulness in criminal, tax, or regulatory proceedings and to implement counter-money laundering programs and compliance procedures.
Since mid-1994, FinCEN has been engaged in a thorough review of its regulatory policies and has been building a partnership between Government and the financial sector to fight money laundering. The keystone of that partnership is the recognition that only a cooperative relationship between Government and industry can provide a way to implement a three-pronged strategy of prevention, detection, and enforcement against those who seek to use the financial system to promote or further illegal activity. FinCEN recognizes that BSA compliance imposes costs on the financial community and that recordkeeping and reporting should be required only when the benefits to law enforcement efforts are clear.
During fiscal year 1999, FinCEN will continue to review and revise its existing regulations. FinCEN will continue to work with the financial community to reduce administrative burdens associated with complying with the law while enhancing the usefulness of BSA information for law enforcement, financial regulators, and policymakers. FinCEN is continuing a general revision and simplification of all of its regulations and will accord priority to the following projects:
¤ Money Services Businesses. FinCEN will issue final rules based on three notices of proposed rulemaking issued in May 1997. The first proposed rule, responding to a specific statutory directive, set forth the terms and conditions under which certain non-bank financial institutions--or money services businesses--must register with the Treasury Department. The second would require suspicious transactions reporting by certain money services businesses, and the third would require money transmitters and their agents to report and retain records (and verify customer identity) for currency transactions in amounts between $750 and $10,000 in connection with a transmission or other transfer of funds to a person outside the United States.
¤ Suspicious Transaction Reports. In addition to the proposed rule noted above, FinCEN will issue a final rule based on a 1998 notice of proposed rulemaking requiring the reporting of suspicious transactions by casinos and card clubs, and it will issue a notice of proposed rulemaking requiring the reporting of suspicious transactions by brokers and dealers in securities.
¤ Special Currency Transaction Reporting. FinCEN will finalize a May 1997 proposed rule to require money transmitters and their agents to report and retain records of currency transactions in amounts between $750 and $10,000 in connection with a transmission or other transfer of funds to a person outside the United States and to verify the identity of the senders of such transmissions or transfers.
¤ Exemptions from Cash Transaction Reporting (CTR) Requirements. As required by legislation enacted in 1994, FinCEN is seeking to reduce by 30 percent the number of CTRs required to be filed. In September 1997 FinCEN finalized an interim rule that exempts many transactions from the CTR filing requirement and issued a notice of proposed rulemaking to exempt additional transactions. FinCEN will finalize this proposal.
¤ Foreign Bank Drafts. FinCEN expects to finalize its rulemaking to expand the definition of ``monetary instrument'' to include certain foreign bank drafts for purposes of the reporting of cross-border transportation. This expansion will implement only as much of the broad authority granted by a 1994 amendment to the BSA as FinCEN believes is required to address the issue of the sale of these foreign bank drafts.
¤ ``Know Your Customer'' and Other Anti-Money Laundering Programs. FinCEN plans to issue proposed regulations to require banks and other financial institutions to implement certain ``Know Your Customer'' and other anti-money laundering programs. These programs are closely related to the requirement to report suspicious transactions.
Community Development Financial Institutions Fund
The Community Development Financial Institutions Fund (Fund) was established by the Community Development Banking and Financial Institutions Act of 1994 (12 U.S.C. 4701 et seq.). The primary purpose of the Fund is to promote economic revitalization and community development through investments in and assistance to community development financial institutions (CDFIs), principally through the CDFI Program. The Fund administers the Bank Enterprise Award (BEA) Program, which encourages insured depository institutions to engage in certain eligible development activities and to make equity investments in CDFIs. The Fund also administers the Presidential Awards for Excellence in Microenterprise Development, which recognize outstanding microenterprise development and support programs in an effort to advance an understanding of ``best practices'' in the field of domestic microenterprise development.
The Fund's regulatory priority for fiscal year 1999 is to continue to streamline the application and review process for the CDFI and BEA programs.