[Federal Register Volume 67, Number 142 (Wednesday, July 24, 2002)]
[Rules and Regulations]
[Page 48388]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-18612]


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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA30


Financial Crimes Enforcement Network; Rescission of Exemption 
From Bank Secrecy Act Regulations for Sale of Variable Annuities

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

ACTION: Notice of rescission of exemption.

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SUMMARY: FinCEN is announcing today that it is rescinding an exemption 
from the provisions of the Bank Secrecy Act regulations granted in 1972 
to persons required to register as brokers or dealers in securities 
(``broker-dealers'') solely to permit the sale of variable annuities 
contracts issued by life insurance companies. This action is being 
taken in order to ensure consistency with USA PATRIOT ACT provisions 
mandating extension of Bank Secrecy Act requirements to a broad range 
of financial institutions.

DATES: Effective Date: August 23, 2002.

FOR FURTHER INFORMATION CONTACT: Peter G. Djinis, Executive Assistant 
Director for Regulatory Policy, FinCEN, at (703) 905-3930; Judith R. 
Starr, Chief Counsel, Cynthia L. Clark, Deputy Chief Counsel, and 
Christine L. Schuetz, Attorney-Advisor, Office of Chief Counsel, 
FinCEN, at (703) 905-3590.

SUPPLEMENTARY INFORMATION:

I. Introduction

    The Bank Secrecy Act, Public Law 91-508, as amended, codified at 12 
U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5332 (the 
``BSA''), authorizes the Secretary of the Treasury, inter alia, 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, and regulatory matters, or in the conduct of 
intelligence or counter-intelligence activities to protect against 
international terrorism, and to implement counter-money laundering 
programs and compliance procedures.\1\ Regulations implementing Title 
II of the BSA (codified at 31 U.S.C. 5311 et seq.) appear at 31 CFR 
part 103. The authority of the Secretary to administer the BSA has been 
delegated to the Director of FinCEN.
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    \1\Language expanding the scope of the BSA to intelligence or 
counter-intelligence activities to protect against international 
terrorism was added by section 358 of the Uniting and Strengthening 
America by Providing Appropriate Tools Required to Intercept and 
Obstruct Terrorism (USA PATRIOT ACT) Act of 2001 (the ``USA Patriot 
Act''), Public Law 107-56.
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II. FinCEN Issuance 2002-1

    This document, FinCEN Issuance 2002-1, rescinds an exemption from 
the provisions of 31 CFR part 103 granted to persons registered with 
the Securities and Exchange Commission as broker-dealers solely in 
order to offer and sell variable annuity contracts issued by life 
insurance companies. The background and purpose of the rescission are 
explained below.
    The definition of ``financial institution'' for BSA purposes, found 
at 31 CFR 103.11(n), includes ``a broker or dealer in securities.''\2\ 
BSA regulations further define the term ``broker or dealer in 
securities'' to include a ``broker or dealer in securities, registered 
or required to be registered with the Securities and Exchange 
Commission under the Securities Exchange Act of 1934.\3\ Because 
variable annuity contracts fall within the definition of ``security'' 
under the federal securities laws, life insurance companies wishing to 
sell variable annuity contracts must register as broker-dealers under 
the Securities Exchange Act of 1934, and thus fall under the definition 
of ``broker or dealer in securities'' found in 31 CFR part 103.
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    \2\See 31 CFR 103.11(n)(2).
    \3\See 31 CFR 103.11(f).
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    In response to a request from the American Life Convention--Life 
Insurance Association of America, Treasury in 1972 granted an exemption 
from the provisions of 31 CFR part 103 to persons registered with the 
Securities and Exchange Commission as broker-dealers solely in order to 
offer and sell variable annuity contracts issued by life insurance 
companies.\4\ However, given the Congressional mandate found in the USA 
PATRIOT ACT to extend to all entities defined as financial institutions 
under the BSA the requirement to establish an anti-money laundering 
program (See Section 352(a) of the USA PATRIOT ACT), and to extend 
suspicious activity reporting to broker-dealers (See Section 356 of the 
USA PATRIOT ACT), FinCEN believes that it is now appropriate to rescind 
this exemption pursuant to 31 CFR 103.86.
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    \4\See 37 FR 248986, 248988, November 23, 1972.
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    On December 31, 2001, FinCEN published a notice of proposed 
rulemaking (the ``Notice''), 66 FR 67670, that would extend to broker-
dealers the requirement to report suspicious transactions to the 
Department of the Treasury. In the Notice, FinCEN indicated that it 
anticipated that the exemption relating to variable annuity contracts 
issued by life insurance companies would be rescinded on the effective 
date of the final rule based on the Notice.\5\ A final rule based on 
the Notice was published in the Federal Register on July 1, 2002.\6\ 
FinCEN did not receive any adverse comments on the issue of rescinding 
the exemption. However, in response to a comment, FinCEN wishes to 
clarify that rescission of the exemption extends BSA coverage only to 
the activity of a life insurance company requiring the company to 
register with the SEC as a broker-dealer, and not to all activity of 
the life insurance company.
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    \5\See 66 FR 67670, 67672 (December 31, 2001).
    \6\See 67 FR 44048 (July 1, 2002).
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    Thus, a person registered with the SEC as a broker-dealer solely to 
offer and sell variable annuity contracts issued by life insurance 
companies is subject to all applicable BSA requirements, including the 
requirement to file reports of suspicious activity, to the extent they 
offer and sell such contracts.

    Dated: July 15, 2002.
James F. Sloan,
Director, Financial Crimes Enforcement Network.
[FR Doc. 02-18612 Filed 7-23-02; 8:45 am]
BILLING CODE 4810-02-P