[Federal Register Volume 67, Number 215 (Wednesday, November 6, 2002)]
[Rules and Regulations]
[Pages 67547-67549]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-27770]
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DEPARTMENT OF THE TREASURY
31 CFR Part 103
RIN 1506-AA28
Financial Crimes Enforcement Network; Anti-Money Laundering
Programs for Financial Institutions
AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.
ACTION: Amendment of interim final rule.
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SUMMARY: FinCEN is extending the provision in its regulations that
temporarily defers, for certain financial institutions, the application
of the anti-money laundering program requirements in section 352 of the
Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001.
DATES: This interim final rule is effective November 6, 2002.
FOR FURTHER INFORMATION CONTACT: Office of the Chief Counsel (FinCEN),
(703) 905-3590; Office of the Assistant General Counsel for Enforcement
(Treasury), (202) 622-1927; or the Office of the Assistant General
Counsel for Banking & Finance (Treasury), (202) 622-0480 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
I. Background
A. USA PATRIOT Act Section 352
On October 26, 2001, the President signed into law the USA PATRIOT
Act (Pub. L. 107-56) (the Act). Title III of the Act makes a number of
amendments to the anti-money laundering provisions of the Bank Secrecy
Act (BSA), which is codified in subchapter II of chapter 53 of title
31, United States Code. These amendments are intended to make it easier
to prevent, detect, and prosecute international money laundering and
the financing of terrorism. Section 352(a) of
[[Page 67548]]
the Act, which became effective on April 24, 2002, amended section
5318(h) of the BSA. As amended, section 5318(h)(1) requires every
financial institution to establish an anti-money laundering program
that includes, at a minimum: (i) The development of internal policies,
procedures, and controls; (ii) the designation of a compliance officer;
(iii) an ongoing employee training program; and (iv) an independent
audit function to test programs.
The definition of ``financial institution'' in sections 5312(a)(2)
and (c)(1) is extremely broad. It includes institutions that are
already subject to federal regulation such as banks, savings
associations, credit unions, money services businesses (such as money
transmitters and currency exchanges), and registered securities broker-
dealers and futures commission merchants. The definition also includes
dealers in precious metals, stones, or jewels; pawnbrokers; loan or
finance companies; trust companies; private bankers; insurance
companies; travel agencies; telegraph companies; sellers of vehicles,
including automobiles, airplanes, and boats; persons engaged in real
estate closings and settlements; investment bankers; investment
companies; and commodity pool operators and commodity trading advisors
that are registered or required to register under the Commodity
Exchange Act (7 U.S.C. 1 et seq.). Section 352 of the Act requires all
of these businesses to establish anti-money laundering programs.
B. Prior Interim Rules Implementing Section 352
On April 29, 2002, FinCEN issued a series of interim final rules
implementing section 352 of the Act. These rules prescribed
requirements for anti-money laundering programs for banks, savings
associations, credit unions, registered securities broker-dealers,
futures commission merchants, and introducing brokers that are
regulated by a federal functional regulator or a self-regulatory
organization, and casinos \1\; money services businesses \2\; mutual
funds \3\; and operators of credit card systems.\4\ FinCEN also
temporarily deferred, until October 24, 2002, the application of
section 352 to all other financial institutions.\5\ The temporary
deferral applied to dealers in precious metals, stones, or jewels;
pawnbrokers; loan or finance companies; private bankers; insurance
companies; travel agencies; telegraph companies; sellers of vehicles,
including automobiles, airplanes, and boats; persons engaged in real
estate closings and settlements; certain investment companies;
commodity pool operators; and commodity trading advisors.\6\
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\1\ 67 FR 21110.
\2\ 67 FR 21114.
\3\ 67 FR 21117.
\4\ 67 FR 21121.
\5\ See 31 CFR 103.170 (67 FR 21113, April 29, 2002).
\6\ The deferral did not extend to investment bankers because
all such entities are either depository institutions or securities
broker-dealers that were subject to anti-money laundering program
requirements in the interim final rules.
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The purpose of the temporary deferral was to permit FinCEN and
Treasury to continue studying the money laundering risks posed by these
institutions in order to develop appropriate anti-money laundering
program requirements. The extension of the anti-money laundering
program requirement to these financial institutions, most of which have
never been subject to federal financial regulation, raises many
significant practical and policy issues. An inadequate understanding of
the affected industries could result in poorly conceived regulations
that impose unreasonable regulatory burdens with little or no
corresponding anti-money laundering benefits. FinCEN and Treasury are
also aware that many of these financial institutions are sole
proprietors or small businesses, and that any regulations affecting
them must recognize this fact. As a result of our review of these
industries, FinCEN and Treasury have published proposed rules that
would apply the anti-money laundering program requirements of section
352 to insurance companies \7\ and certain investment companies.\8\
FinCEN and Treasury are continuing to study the remainder of the
deferred financial institutions and expect to issue proposed rules for
all these financial institutions within the next six months. FinCEN and
Treasury are today extending the temporary deferral concerning section
352 pending the issuance of final rules for these financial
institutions.
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\7\ 67 FR 60625 (September 26, 2002).
\8\ 67 FR 60617 (September 26, 2002).
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II. Analysis of the Current Interim Final Rule
A. Extension of Temporary Deferral of Section 352 Requirements for
Certain BSA Financial Institutions
As promulgated on April 29, 2002, 31 CFR 103.170 temporarily
deferred, until October 24, 2002, the application of section 352 of the
Act to dealers in precious metals, stones, or jewels; pawnbrokers; loan
or finance companies; private bankers; insurance companies; travel
agencies; telegraph companies; sellers of vehicles, including
automobiles, airplanes, and boats; persons engaged in real estate
closings and settlements; certain investment companies; commodity pool
operators; and commodity trading advisors. This interim rule amends
section 103.170 by removing the October 24, 2002, termination of the
exemption for these financial institutions. As noted above, FinCEN and
Treasury have issued proposed rules for some of these financial
institutions, and expect to issue additional proposed rules in the
coming months. FinCEN and Treasury believe it would be inappropriate to
require these financial institutions to implement anti-money laundering
programs during the pendency of the rulemaking process.
B. Clarification of Financial Institutions Subject to the Temporary
Deferral
The temporary deferral in section 103.170 was intended to apply to
all financial institutions other than those for which anti-money
laundering program requirements were previously in effect or
specifically prescribed pursuant to the April 29, 2002, interim final
rules. Although the prior interim final rules did not prescribe anti-
money laundering programs for certain financial institutions that are
``banks'' as defined in 31 CFR 103.11(c) but which lack a federal
functional regulator, those financial institutions were not
specifically included in the list of financial institutions subject to
the temporary deferral. Section 103.170 is being amended to include
these financial institutions (trust companies and certain state-
chartered credit unions that are not federally insured, and private
banks) within the temporary deferral.\9\ For the same reason, section
103.170 is also being amended to include any person defined as a
``financial institution'' in 31 CFR 103.11(n)(7).\10\
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\9\ The financial institutions defined as ``banks'' in 31 CFR
103.11(c) correspond substantially to the types of banks included in
the list of ``financial institutions'' in 31 U.S.C. 5312(a)(2)(A)-
(F).
\10\ 31 CFR 103.11(n)(7) defines generally as a financial
institution ``a person subject to supervision by any state or
federal bank supervisory authority.''
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C. Other Compliance Obligations Unaffected
Treasury and FinCEN emphasize that the temporary deferrals do not
in any way relieve any business from their obligations under law or
regulation,
[[Page 67549]]
including the requirements in 31 U.S.C. 5331 and 26 U.S.C. 6050I that
they report transactions in cash or currency, or certain monetary
instruments, that exceed $10,000. The regulations under these sections
are codified at 31 CFR 103.30 and 26 CFR 1.6050I, respectively. Every
business must ensure that it has appropriate procedures to report such
transactions to FinCEN and the IRS using the single Form 8300 jointly
prescribed by those agencies. All financial institutions are further
reminded of the importance of reporting suspected terrorist activities
or otherwise suspicious transactions to the appropriate law enforcement
authorities. In addition, Form 8300 contains a box that may be checked
to indicate that a particular transaction appears suspicious.
III. Administrative Procedure Act
The provisions of section 352 of the Act, which requires all
financial institutions to establish anti-money laundering programs,
became effective April 24, 2002. This interim final rule imposes no
requirements on any financial institution, and continues the exemption
for certain financial institutions from these requirements.
Accordingly, good cause is found to dispense with notice and public
procedure as unnecessary pursuant to 5 U.S.C. 553(b)(B), and to make
the provisions of the interim rule effective in less than 30 days
pursuant to 5 U.S.C. 553(d)(1) and (3).
IV. Regulatory Flexibility Act
Because no notice of proposed rulemaking is required for this
interim final rule, the provisions of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.) do not apply.
V. Executive Order 12866
This interim final rule is not a ``significant regulatory action''
as defined in Executive Order 12866. Accordingly, a regulatory
assessment is not required.
List of Subjects in 31 CFR Part 103
Banks and banking, Brokers, Counter money laundering, Counter-
terrorism, Currency, Foreign banking, Reporting and recordkeeping
requirements.
Authority and Issuance
For the reasons set forth above, FinCEN is amending 31 CFR Part 103
as follows:
PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND
FOREIGN TRANSACTIONS
1. The authority citation for part 103 is revised to read as
follows:
Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314
and 5316-5332; title III, secs. 312, 313, 314, 319, 352, Pub. L.
107-56, 115 Stat. 307.
Subpart I--Anti-Money Laundering Programs
2. Section 103.170 is amended by revising the section heading and
paragraphs (b) and (c), and adding paragraph (d) to read as follows:
Sec. 103.170 Exempted anti-money laundering programs for certain
financial institutions.
* * * * *
(b) Temporary exemption for certain financial institutions. (1)
Subject to the provisions of paragraphs (c) and (d) of this section,
the following financial institutions (as defined in 31 U.S.C.
5312(a)(2) or (c)(1)) are exempt from the requirement in 31 U.S.C.
5318(h)(1) concerning the establishment of anti-money laundering
programs:
(i) Dealer in precious metals, stones, or jewels;
(ii) Pawnbroker;
(iii) Loan or finance company;
(iv) Travel agency;
(v) Telegraph company;
(vi) Seller of vehicles, including automobiles, airplanes, and
boats;
(vii) Person involved in real estate closings and settlements;
(viii) Private banker;
(ix) Insurance company;
(x) Commodity pool operator;
(xi) Commodity trading advisor; or
(xii) Investment company.
(2) Subject to the provisions of paragraphs (c) and (d) of this
section, a bank (as defined in Sec. 103.11(c)) that is not subject to
regulation by a Federal functional regulator (as defined in Sec.
103.120(a)(2)) is exempt from the requirement in 31 U.S.C. 5318(h)(1)
concerning the establishment of anti-money laundering programs.
(3) Subject to the provisions of paragraphs (c) and (d) of this
section, a person described in Sec. 103.11(n)(7) is exempt from the
requirement in 31 U.S.C. 5318(h)(1) concerning the establishment of
anti-money laundering programs.
(c) Limitation on exemption. The exemptions described in paragraphs
(a)(2) and (b) of this section shall not apply to any financial
institution that is otherwise required to establish an anti-money
laundering program by this subpart I.
(d) Compliance obligations of deferred financial institutions.
Nothing in this section shall be deemed to relieve an exempt financial
institution from its responsibility to comply with any other applicable
requirement of law or regulation, including title 31 of the U.S.C. and
this part.
Dated: October 28, 2002.
James F. Sloan,
Director, Financial Crimes Enforcement, Network.
[FR Doc. 02-27770 Filed 11-5-02; 8:45 am]
BILLING CODE 4810-02-P