[Federal Register Volume 67, Number 37 (Monday, February 25, 2002)]
[Notices]
[Pages 8565-8567]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-4345]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45457; File No. SR-NASD-2002-24]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to Anti-Money Laundering Compliance Programs

February 19, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), \1\ and Rule 19b-4 thereunder, \2\ notice is hereby given 
that on February 15, 2002, the National Association of Securities 
Dealers, Inc. (``NASD'' or ``Association''), through its subsidiary, 
NASD Regulation, Inc. (``NASD Regulation'') filed with the Securities 
and Exchange Commission (``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by NASD Regulation. The

[[Page 8566]]

Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    NASD Regulation proposes to establish NASD Rule 3011, Anti-Money 
Laundering Compliance Program. As further discussed below, the USA 
PATRIOT Act requires financial institutions, including broker-dealers, 
by April 24, 2002, to establish and implement anti-money laundering 
compliance programs designed to ensure ongoing compliance with the 
requirements of the Bank Secrecy Act and the regulations promulgated 
thereunder. The proposed rule change prescribes the minimum standards 
required for each member firm's anti-money laundering program. The text 
of the proposed rule change is below. Proposed new language is in 
italics.

3011. Anti-Money Laundering Compliance Program

    On or before April 24, 2002, each member shall develop and 
implement a written anti-money laundering program reasonably designed 
to achieve and monitor the member's compliance with the requirements of 
the Bank Secrecy Act (31 U.S.C. 5311, et seq.), and the implementing 
regulations promulgated thereunder by the Department of the Treasury. 
Each member organization's anti-money laundering program must be 
approved, in writing, by a member of senior management. The anti-money 
laundering programs required by this Rule shall, at a minimum,
    (a) Establish and implement policies and procedures that can be 
reasonably expected to detect and cause the reporting of transactions 
required under 31 U.S.C. 5318(g) and the implementing regulations 
thereunder;
    (b) Establish and implement policies, procedures, and internal 
controls reasonably designed to achieve compliance with the Bank 
Secrecy Act and the implementing regulations thereunder; 
    (c) Provide for independent testing for compliance to be conducted 
by member personnel or by a qualified outside party;
    (d) Designate an individual or individuals responsible for 
implementing and monitoring the day-to-day operations and internal 
controls of the program; and
    (e) Provide ongoing training for appropriate personnel.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NASD Regulation included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. NASD Regulation has prepared summaries, set 
forth in sections A, B, and C below, of the most significant aspects of 
such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose

Introduction

    The purpose of the proposed rule change is to establish minimum 
standards for the anti-money laundering programs that broker-dealers 
are required to develop and implement under section 352 of the Uniting 
and Strengthening America by Providing Appropriate Tools Required to 
Intercept and Obstruct Terrorism Act of 2001 (``USA PATRIOT Act''). \3\ 
The USA PATRIOT Act, which was signed into law by President Bush on 
October 26, 2001, is designed to deter and punish terrorists in the 
United States and abroad and to enhance law enforcement investigating 
tools by prescribing, among other things, new surveillance procedures, 
new immigration laws, and new and more stringent anti-money laundering 
laws.
---------------------------------------------------------------------------

    \3\ Uniting and Strengthening America by Providing Appropriate 
Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. 
L. No. 107-56, 115 Stat. 272 (2001).
---------------------------------------------------------------------------

    Title III of the USA PATRIOT Act, referred to as the International 
Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 
(``Money Laundering Act''), focuses on strengthening the anti-money 
laundering provisions put into place by earlier legislation, 
particularly with respect to crimes by foreign nationals and foreign 
financial institutions. The Money Laundering Act imposes certain 
obligations on broker-dealers through new anti-money laundering 
provisions and amendments to the Bank Secrecy Act (``BSA''). \4\ Among 
other things, broker-dealers will have to implement anti-money 
laundering programs (as described below), prepare and file suspicious 
activity reports, and follow new know-your-customer procedures. Broker-
dealers will be required to comply with these new obligations in 
addition to continuing to comply with existing BSA reporting and 
recordkeeping requirements. \5\
---------------------------------------------------------------------------

    \4\ 31 U.S.C. 5311, et seq.
    \5\ Rule 17a-8 under the Act requires broker-dealers to comply 
with the recordkeeping and reporting requirements of the BSA and 
related regulations, including the obligation to file reports and 
make and preserve records in connection with certain transactions 
generally exceeding $10,000 and involving currency or the physical 
transport of currency into or out of the United States. 17 CFR 
240.17a-8.
---------------------------------------------------------------------------

Anti-Money Laundering Programs

    Section 352 of the Money Laundering Act requires all financial 
institutions, including broker-dealers, to develop and implement anti-
money laundering compliance programs on or before April 24, 2002. 
Section 352 requires the compliance programs, at a minimum, to 
establish (1) the development of internal policies, procedures, and 
controls, (2) the designation of a compliance officer with 
responsibility for a firm's anti-money laundering program, (3) an 
ongoing employee training program, and (4) an independent audit 
function to test the effectiveness of the anti-money laundering 
compliance program. Section 352 further allows the Secretary of the 
Department of Treasury, at its discretion, to establish minimum 
standards for the anti-money laundering programs.
    The legislative history of the USA PATRIOT Act explains that the 
requirement to have an anti-money laundering compliance program is not 
a ``one-size-fits-all'' requirement. The general nature of the 
requirements reflects Congress' intent that each financial institution 
should have the flexibility to tailor the anti-money laundering 
programs to fit its business, taking into account factors such as size, 
location, activities of the firm's business, and the risks or 
vulnerabilities to money laundering in the firm. This flexibility is 
designed to ensure that all entities covered by the statute, from the 
very large financial institutions to the small firms, have in place 
policies and procedures to monitor for anti-money laundering 
compliance. \6\
---------------------------------------------------------------------------

    \6\ See USA PATRIOT Act of 2001: Consideration of H.R. 3162 
Before the Senate (October 25, 2001) (statement of Sen. Sarbanes); 
Financial Anti-Terrorism Act of 2001: Consideration Under Suspension 
of Rules of H.R. 3004 Before the House of Representatives (October 
17, 2001) (statement of Rep. Kelly) (provisions of the Financial 
Anti-Terrorism Act of 2001 were incorporated as Title III in the USA 
PATRIOT Act.).
---------------------------------------------------------------------------

    The proposed rule change, consistent with Section 352, would 
require member firms to implement anti-money laundering programs and 
would set

[[Page 8567]]

forth minimum standards for such programs. The standards established by 
the proposed rule change are substantially equivalent to those found in 
the existing bank anti-money laundering program rules. \7\ Consistent 
with the USA PATRIOT Act, the proposed rule change would require firms 
to develop and implement a written anti-money laundering compliance 
program by April 24, 2002. The program would need to be approved in 
writing by a member of senior management and be reasonably designed to 
achieve and monitor the member's ongoing compliance with the 
requirements of the BSA and the implementing regulations promulgated 
thereunder. The proposed rule change would require firms, at a minimum, 
to (1) establish and implement policies and procedures that can be 
reasonably expected to detect and cause the reporting of suspicious 
transactions, (2) establish and implement policies, procedures, and 
internal controls reasonably designed to assure compliance with the BSA 
and implementing regulations, (3) provide for independent testing for 
compliance to be conducted by member personnel or by a qualified 
outside party, (4) designate an individual or individuals responsible 
for implementing and monitoring the day-to-day operations and internal 
controls of the program, and (5) provide ongoing training for 
appropriate personnel.
---------------------------------------------------------------------------

    \7\ See e.g., 12 CFR 208.63.
---------------------------------------------------------------------------

    Prior to implementation of the proposed rule change, NASD 
Regulation anticipates providing guidance in a Notice to Members to 
assist member firms in developing an anti-money laundering program that 
fits their business model and needs. \8\
---------------------------------------------------------------------------

    \8\ On February 12, 2002, the Securities Industry Association 
Anti-Money Laundering Committee released a Preliminary Guidance for 
Deterring Money Laundering Activity. In general, the guidance 
discusses key elements for a broker-dealer to consider in developing 
an effective anti-money laundering program.
---------------------------------------------------------------------------

2. Statutory Basis
    NASD Regulation believes that the proposed rule change is 
consistent with the provisions of section 15A(b)(6) of the Act, \9\ 
which requires among other things, that the Association's rules must be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, and, in general, to 
protect investors and the public interest. NASD Regulation believes 
that the proposed rule change is designed to accomplish these ends by 
establishing the minimum requirements for anti-money laundering 
compliance programs of member firms. These programs are designed to 
help identify and prevent money laundering abuses that can affect the 
integrity of the U.S. capital markets.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD Regulation does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
For Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the NASD consents, the Commission will:
    A. by order approve such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to file number SR-NASD-2002-24 and 
should be submitted by March 18, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
Margaret H. McFarland,
Deputy Secretary.
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. 02-4345 Filed 2-22-02; 8:45 am]
BILLING CODE 8010-01-P