[Federal Register Volume 67, Number 82 (Monday, April 29, 2002)]
[Rules and Regulations]
[Pages 21114-21117]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-10453]



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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA28


Financial Crimes Enforcement Network; Anti-Money Laundering 
Programs for Money Services Businesses

AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.

ACTION: Interim final rule.

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SUMMARY: FinCEN is issuing this interim final rule to prescribe minimum 
standards applicable to money services businesses pursuant to the 
revised provision of the Bank Secrecy Act that requires financial 
institutions to establish anti-money laundering programs.

DATES: This interim final rule is effective April 24, 2002. Written 
comments may be submitted to FinCEN on or before May 29, 2002.

ADDRESSES: Submit comments (preferably an original and four copies) to 
FinCEN, P.O. Box 39, Vienna, VA 22183, ATTN: Section 352 MSB 
Regulations. Comments may also be submitted by electronic mail to 
[email protected] with the caption in the body of the text, 
``Attention: Section 352 MSB Regulations.'' Comments may be inspected 
at FinCEN between 10 a.m. and 4 p.m., in the FinCEN Reading Room in 
Washington, DC. Persons wishing to inspect the comments submitted must 
request an appointment by telephoning (202) 354-6400 (not a toll-free 
number).

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

    On October 26, 2001, the President signed into law the Uniting and 
Strengthening America by Providing Appropriate Tools Required to 
Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001 (Public 
Law 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 provide 
additional tools to prevent, detect, and prosecute international money 
laundering and the financing of terrorism. Section 352(a) of the Act, 
which becomes 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 statute further permits the 
Secretary to exempt from this requirement those financial institutions 
not currently subject to Treasury's regulations implementing the BSA. 
In addition, Section 352(c) directs the Secretary to prescribe 
regulations by April 24, 2002, for anti-money laundering programs that 
are ``commensurate with the size, location, and activities'' of the 
financial institutions to which such regulations apply.
    Money services businesses are defined as financial institutions 
under the BSA and are subject to registration, recordkeeping, and 
reporting obligations under the implementing regulations. They thus 
fall within the category of financial institutions to which Congress 
intended to apply the anti-money laundering program requirements.\1\ 
Requiring money services businesses to implement anti-money laundering 
programs should enhance their ability to comply with their BSA 
obligations. This interim final rule prescribes minimum standards for 
anti-money laundering programs for money services businesses, tailored 
to the particular circumstances of their industry.
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    \1\ Although Section 5318(a)(6) authorizes the Secretary to 
exempt any financial institution from any BSA requirement, in light 
of the vulnerability of the industry to money laundering described 
infra and the extent of existing BSA regulation of money services 
businesses, the Secretary is declining to exempt money services 
businesses from the anti-money laundering program requirement.
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    In requiring money services businesses to register with the 
Department of the Treasury, Congress recognized that money services 
businesses, like depository institutions, are subject to abuse by money 
launderers.\2\ Following up on this finding, along with issuing 
regulations implementing the registration requirement, Treasury and 
FinCEN also issued regulations requiring money services businesses 
(with the exception of currency dealers or exchangers, check cashers, 
and issuers, sellers, and redeemers of stored value) to report to 
FinCEN suspicious activity occurring after December 31, 2001.\3\ As 
Treasury and FinCEN acknowledged in promulgating these regulations, 
implementation of a comprehensive counter-money laundering strategy for 
this category of financial institution raises significant issues not 
present for depository institutions subject to the BSA such as banks 
because of a number of unique factors affecting the money services 
business industry.\4\
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    \2\ Money Laundering Suppression Act of 1994, Title IV of the 
Riegle Community Development and Regulatory Improvement Act of 1994, 
Public Law 103-325 (September 23, 1994). Treasury's implementing 
regulations required all money services businesses to register with 
FinCEN by December 31, 2001. See 31 CFR 103.41(f).
    \3\ 31 CFR 103.20(f).
    \4\ See 62 FR 27903 (May 21, 1997).
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    The money services businesses category of financial institutions 
subject to Part 103 includes a variety of non-bank financial 
institutions: currency dealers or exchangers; check cashers; issuers of 
traveler's checks, money orders, or stored value; sellers or redeemers 
of traveler's checks, money orders, or stored value; and money 
transmitters.\5\ The size and complexity of money services business 
enterprises range from the small and simple to the very large and 
complex; structures include sole proprietorships, partnerships, and 
corporations. Money services business enterprises range from small 
``mom and pop'' operations based in one location to large, well 
capitalized firms that trade on major securities exchanges, enterprises 
with numerous branches or large agent networks, and also include the 
United States Postal Service. For some enterprises, such as grocery 
stores, convenience stores, and gas stations, the financial activities 
that make them money services businesses are not their core business 
activities but only incidental services offered along with core 
products and services. Other money services businesses are organized to 
provide several financial services to their customers similar to the 
full range of financial products provided by a bank. Issuers of 
traveler's checks, issuers of money orders, and primary money 
transmitter companies often operate through networks of independent 
enterprises that serve as distribution points throughout the country or 
the world. These agent networks make up the bulk of the sellers of 
traveler's checks and money orders and distributors of money transfer 
services in the United States.\6\
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    \5\ See 31 CFR 103.11uu(1)-(6).
    \6\ See 62 FR 27891-895 (May 21, 1997).
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    The interim final rule requires each money services business to 
establish a program reasonably designed to prevent

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its use in money laundering or terrorist financing. Treasury and FinCEN 
have determined that the exact nature of an effective anti-money 
laundering program for money services businesses must be commensurate 
with the risks posed by the size and location of the particular money 
services business, and the nature and volume of the financial services 
it offers. Critical components of such a program are procedures for 
assuring that applicable customer identification requirements are met, 
all reports required under 31 CFR part 103, including but not limited 
to reports of suspicious transactions, are filed in a timely fashion, 
all required records are maintained in complete and accurate form, and 
requests for information from law enforcement agencies are handled with 
appropriate speed. The interim final rule mandates certain methods to 
attain such regulatory compliance, including documentation of policies, 
procedures, and internal controls, training, designation of a 
compliance officer, and program review. Finally, in addition to 
compliance with mandatory regulatory requirements, Treasury and FinCEN 
encourage money services businesses to implement procedures for 
voluntarily reporting suspected terrorist activity to FinCEN using its 
Financial Institutions Hotline (1-866-556-3974).

II. Analysis of the Interim Final Rule

    Section 103.125(a) requires each money services business to have an 
effective anti-money laundering program, which is defined as a program 
reasonably designed to prevent the money services business from being 
used to facilitate money laundering or to finance terrorist activities. 
Section 103.125(b) provides that the program is to be commensurate with 
the risks posed by the financial services provided by the money 
services business, in light of their nature and volume, and the 
location and size of the money services business. Section 103.125(c) 
provides that each money services business must have a written anti-
money laundering program.
    Section 103.125(d) sets forth the minimum requirements for an 
effective anti-money laundering program. First, Sec. 103.125(d)(1) 
provides that such a program must contain policies, procedures, and 
internal controls reasonably designed to ensure compliance with the 
applicable requirements of 31 CFR part 103, including recordkeeping, 
reporting, verifying customer identification, and responding to law 
enforcement requests. In addition, money services businesses that have 
automated data processing systems should integrate into their systems 
compliance procedures such as recordkeeping and monitoring transactions 
subject to reporting requirements.
    In recognition of the fact that a number of issuers of money 
services instruments such as traveler's checks and money orders sell 
their products through other money services businesses, 
Sec. 103.125(d)(1)(iii) permits such issuers and sellers to allocate 
responsibility for developing written policies, procedures, and 
internal controls among themselves. However, responsibility for 
implementation of the policies, procedures, and internal controls rests 
with each money services business, and, particularly with respect to 
internal controls, a money services business needs to be vigilant in 
ensuring that such controls are effective in the circumstances under 
which it operates.\7\ This section also makes clear that a money 
services business may not contract away its responsibility to establish 
and maintain an effective anti-money laundering program.
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    \7\ For example, a money services business that offers products 
from different issuers must ensure that its internal controls are 
effective for all the products it offers, and not just blindly adopt 
controls generated by the issuer of one of the products it sells, 
which may not be applicable to its other products.
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    In addition, Sec. 103.125(d)(2) requires each money services 
business to designate a person or persons to be responsible for the 
program, i.e., a compliance officer. The compliance officer shall be 
responsible for day to day compliance with 31 CFR Part 103, ensuring 
the compliance program is updated as necessary and reflects current 
Treasury guidance, and overseeing the money services business's 
education and training program.
    Section 103.125(d)(3) provides that each money services business 
must have an ongoing training or education program for employees 
concerning their responsibilities under the program and 31 CFR Part 
103, including training in the detection of suspicious activities. 
Finally, under Sec. 103.125(d)(4), each money services business must 
provide for an independent review of the program on a periodic basis. 
The independent review may be performed by an employee of the money 
services business, so long as the reviewer is not the compliance 
officer.
    The interim final rule is designed to give money services 
businesses flexibility to tailor their programs to their specific 
circumstances so long as the minimum requirements are met. For example, 
the program for a money services business that provides a full range of 
financial services (e.g., check cashing, currency exchange, money order 
sales, money transmission services) from multiple branches would be 
structured differently than a program for a money services business 
that offers one or two services through an agent network. The 
educational component for an enterprise that offers multiple financial 
services may require more comprehensive training for employees to 
recognize aspects of suspicious activity associated with different 
transaction types and may differ based on the geographic location of 
the branches. An enterprise with multiple locations that offers 
multiple financial services may require more extensive oversight by its 
compliance officer than would an enterprise that offers one or two 
financial services incidental to its core business in isolated 
transactions. The former would also require more frequent independent 
review.
    The interim final rule also permits programs to be tailored to the 
specific risks associated with the different financial services offered 
by money services businesses. For example, sales of traveler's checks, 
money orders, and money transfers may be particularly vulnerable to 
structuring--that is, the breaking up of a transaction into multiple 
transactions so as to fall beneath the thresholds for recordkeeping and 
reporting.\8\ An appropriate anti-money laundering program for such an 
enterprise would include the training of employees to recognize 
indications of structuring.
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    \8\ See 62 FR 27911 (May 21, 1997).
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    FinCEN intends to issue guidance to assist money services 
businesses in complying with the interim final rule. Such guidance will 
be posted on the FinCEN web site dedicated to money services businesses 
(www.msb.gov).

III. Implementation Date Requirements

    Pursuant to section 103.125(e), an existing money services business 
is required to comply with the anti-money laundering program 
requirements of 31 CFR 103.125 by July 24, 2002. Money services 
businesses coming into existence after that date must develop and 
implement such a program on or before the later of July 24, 2002, and 
the end of the 90-day period beginning on the day following the date 
the business is established.

IV. Administrative Procedure Act

    The provisions of 31 U.S.C. 5318(h)(1), requiring all financial 
institutions to establish anti-money laundering programs with at least 
four identified elements, become effective

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April 24, 2002. This interim rule provides guidance to money services 
businesses on how to comply with the law in effect on that date and 
does not impose any obligation on any financial institution that is not 
required by section 352 of the Act. 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).

V. 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.

VI. 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.

VII. Paperwork Reduction Act

    This regulation is being issued without prior notice and public 
procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553). 
For this reason, the collection of information contained in this 
interim final rule has been reviewed under the requirements of the 
Paperwork Reduction Act (44 U.S.C. 3507(j)) and, pending receipt and 
evaluation of public comments, approved by the Office of Management and 
Budget (OMB) under control number 1506-0020. An agency may not conduct 
or sponsor, and a person is not required to respond to, a collection of 
information unless it displays a valid control number assigned by OMB.
    Comments concerning the collection of information should be sent to 
the Office of Management and Budget, ATTN: Alexander T. Hunt, Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
New Executive Office Building, Room 3208, Washington, DC 20503, with 
copies to FinCEN at Department of the Treasury, Financial Crimes 
Enforcement Network, Post Office Box 39, Vienna, Virginia, 22183.
    FinCEN specifically invites comments on the following subjects: (a) 
Whether the proposed collection of information is necessary for the 
proper performance of the mission of FinCEN, including whether the 
information shall have practical utility; (b) the accuracy of FinCEN's 
estimate of the burden of the proposed collection of information; (c) 
ways to enhance the quality, utility, and clarity of the information to 
be collected; (d) ways to minimize the burden of the collection of 
information on respondents, including through the use of automated 
collection techniques or other forms of information technology; and (e) 
estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    The collection of information in this interim final rule is in 31 
CFR 103.125(c). The information will be used by federal agencies to 
verify compliance by money services businesses with the provisions of 
31 CFR 103.125. The collection of information is mandatory. The likely 
recordkeepers are businesses.
    In accordance with the requirements of the Paperwork Reduction Act 
of 1995, 44 U.S.C. 3506(c)(2)(A), and its implementing regulations, 5 
CFR 1320, the following information concerning the collection of 
information as required by 31 CFR 103.125(c) is presented to assist 
those persons wishing to comment on the information collection.
    Description of Recordkeepers: Money services businesses as defined 
in 31 CFR 103.11(uu).
    Estimated Number of Recordkeepers: 200,000.
    Estimated Average Annual Burden Hours Per Recordkeeper: The 
estimated average burden associated with the collection of information 
in this interim final rule is 1 hour per recordkeeper.
    Estimated Total Annual Recordkeeping Burden: 200,000 hours.

List of Subjects in 31 CFR Part 103

    Authority delegations (Government agencies), Banks, banking, 
Brokers, Counter money laundering, Counter-terrorism, Currency, Foreign 
banking, Reporting and recordkeeping requirements.

PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND 
FOREIGN TRANSACTIONS

    1. The authority citation for Part 103 continues to read as 
follows:

    Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5331; 
title III, secs. 314, 352, Pub. L. 107-56, 115 Stat. 307.


    2. In subpart I, add new Sec. 103.125 to read as follows:


Sec. 103.125  Anti-money laundering programs for money services 
businesses.

    (a) Each money services business, as defined by Sec. 103.11(uu), 
shall develop, implement, and maintain an effective anti-money 
laundering program. An effective anti-money laundering program is one 
that is reasonably designed to prevent the money services business from 
being used to facilitate money laundering and the financing of 
terrorist activities.
    (b) The program shall be commensurate with the risks posed by the 
location and size of, and the nature and volume of the financial 
services provided by, the money services business.
    (c) The program shall be in writing, and a money services business 
shall make copies of the anti-money laundering program available for 
inspection to the Department of the Treasury upon request.
    (d) At a minimum, the program shall:
    (1) Incorporate policies, procedures, and internal controls 
reasonably designed to assure compliance with this part.
    (i) Policies, procedures, and internal controls developed and 
implemented under this section shall include provisions for complying 
with the requirements of this part including, to the extent applicable 
to the money services business, requirements for:
    (A) Verifying customer identification;
    (B) Filing reports;
    (C) Creating and retaining records; and
    (D) Responding to law enforcement requests.
    (ii) Money services businesses that have automated data processing 
systems should integrate their compliance procedures with such systems.
    (iii) A person that is a money services business solely because it 
is an agent for another money services business as set forth in 
Sec. 103.41(a)(2), and the money services business for which it serves 
as agent, may by agreement allocate between them responsibility for 
development of policies, procedures, and internal controls required by 
this paragraph (d)(1). Each money services business shall remain solely 
responsible for implementation of the requirements set forth in this 
section, and nothing in this paragraph (d)(1) relieves any money 
services business from its obligation to establish and maintain an 
effective anti-money laundering program.
    (2) Designate a person to assure day to day compliance with the 
program and this part. The responsibilities of such person shall 
include assuring that:
    (i) The money services business properly files reports, and creates 
and retains records, in accordance with applicable requirements of this 
part;
    (ii) The compliance program is updated as necessary to reflect 
current requirements of this part, and related

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guidance issued by the Department of the Treasury; and
    (iii) The money services business provides appropriate training and 
education in accordance with paragraph (d)(3) of this section.
    (3) Provide education and/or training of appropriate personnel 
concerning their responsibilities under the program, including training 
in the detection of suspicious transactions to the extent that the 
money services business is required to report such transactions under 
this part.
    (4) Provide for independent review to monitor and maintain an 
adequate program. The scope and frequency of the review shall be 
commensurate with the risk of the financial services provided by the 
money services business. Such review may be conducted by an officer or 
employee of the money services business so long as the reviewer is not 
the person designated in paragraph (d)(2) of this section.
    (e) Effective date. A money services business must develop and 
implement an anti-money laundering program that complies with the 
requirements of this section on or before the later of July 24, 2002, 
and the end of the 90-day period beginning on the day following the 
date the business is established.

    Dated: April 23, 2002.
James F. Sloan,
Director, Financial Crimes Enforcement Network.
[FR Doc. 02-10453 Filed 4-24-02; 4:09 pm]
BILLING CODE 4810-02-P