[Federal Register Volume 67, Number 187 (Thursday, September 26, 2002)]
[Proposed Rules]
[Pages 60617-60625]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-24145]



[[Page 60617]]

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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA26


Financial Crimes Enforcement Network; Anti-Money Laundering 
Programs for Unregistered Investment Companies

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

ACTION: Notice of proposed rulemaking.

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SUMMARY: FinCEN is proposing to amend the Bank Secrecy Act (``BSA'') 
regulations to prescribe minimum standards applicable to certain 
unregistered investment companies, such as hedge funds, commodity 
pools, and similar investment vehicles, pursuant to the revised 
provision in the BSA that requires financial institutions to establish 
anti-money laundering programs.

DATES: Written comments on all aspects of the proposal are welcome and 
must be received on or before November 25, 2002.

ADDRESSES: Because paper mail in the Washington area may be subject to 
delay, commenters are encouraged to e-mail comments. Comments should be 
sent by one method only. Comments (preferably an original and four 
copies) may be mailed to: FinCEN, PO Box 39, Vienna, Virginia 22183-
1618, Attention: NPRM--Section 352 Unregistered Investment Company 
Regulations. Comments also may be submitted by electronic mail to the 
following Internet address: [email protected], again with a 
caption, in the body of the text, ``Attention: NPRM--Section 352 
Unregistered Investment Company Regulations.'' Comments may be 
inspected, 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 Assistant General 
Counsel for Banking & Finance (Treasury), (202) 622-0480; Office of the 
Assistant General Counsel for Enforcement (Treasury), (202) 622-1927; 
or Office of Chief Counsel (FinCEN), (703) 905-3590 (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 Act of 2001 (Public Law 107-56) (``USA 
Patriot Act'' or ``Act''). Title III of the Act makes a number of 
amendments to the anti-money laundering provisions of the BSA, which 
are codified in subchapter II of chapter 53 of title 31, United States 
Code. These amendments are intended to promote the prevention, 
detection, and prosecution of international money laundering and the 
financing of terrorism. Section 352(a) of 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 the 
program. Section 5318(h)(2) authorizes the Secretary, after consulting 
with the appropriate Federal functional regulator, to prescribe minimum 
standards for anti-money laundering programs, and to exempt from the 
application of those standards any financial institution that is not 
otherwise subject to BSA regulation.
    Under the BSA, the definition of ``financial institution'' includes 
an ``investment company,''\1\ a term that is not defined by the BSA or 
any rule yet adopted by FinCEN. The Investment Company Act of 1940 
(codified at 15 U.S.C. 80a) (``1940 Act'') defines the term, and 
subjects registered investment companies to a comprehensive scheme of 
regulation administered by the Securities and Exchange Commission 
(``SEC'').\2\ In April 2002, FinCEN issued an interim final rule 
requiring investment companies that are ``mutual funds'' (i.e., 
registered open-end management investment companies as described in the 
1940 Act) to develop and implement anti-money laundering programs 
reasonably designed to prevent them from being used to launder money or 
finance terrorist activities.\3\ By separate interim rule, Treasury 
temporarily exempted investment companies other than mutual funds from 
the requirement of section 5318(h)(1) of the BSA that they establish 
anti-money laundering programs.\4\
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    \1\ 31 U.S.C. 5312(a)(2)(I).
    \2\ Section 3(a)(1) of the 1940 Act defines ``investment 
company'' as any issuer that (A) is or holds itself out as being 
engaged primarily, or proposes to engage primarily, in the business 
of investing, reinvesting or trading in securities; (B) is engaged 
or proposes to engage in the business of issuing face-amount 
certificates of the installment type, or has been engaged in such 
business and has any such certificate outstanding; or (C) is engaged 
or proposes to engage in the business of investing, reinvesting, 
owning, holding, or trading in securities, and owns or proposes to 
acquire investment securities having a value exceeding 40 per centum 
of the value of such issuer's total assets (exclusive of Government 
securities and cash items) on an unconsolidated basis. 15 U.S.C. 
80a-3(a)(1).
    \3\ FinCEN; Anti-Money Laundering Programs for Mutual Funds 67 
FR 21117 (Apr. 29, 2002). Under the rule, the anti-money laundering 
program must include achieving and monitoring compliance with the 
applicable requirements of the BSA and Treasury's implementing 
regulations.
    \4\ See 67 FR 21110 (Apr. 29, 2002).
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    In the interim rule on anti-money laundering programs for mutual 
funds, Treasury observed that there are a number of entities excluded 
from the 1940 Act definition of ``investment company,'' \5\ and that 
those entities in the future would likely be required to establish 
anti-money laundering programs under section 352 of the Act.\6\ Today, 
FinCEN is proposing a new rule that would define an investment company 
to include certain investment vehicles not subject to regulation under 
the 1940 Act, and require these entities to establish anti-money 
laundering programs in accordance with guidelines included in the rule. 
These guidelines are substantially the same as those FinCEN has 
established for mutual funds.
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    \5\ 67 FR 21117, supra note 3. Treasury also observed that, 
while mutual funds are the predominant type of registered investment 
company, other types of investment companies are regulated by the 
SEC, such as closed-end companies and unit investment trusts. A 
closed-end company typically sells a fixed number of shares in an 
underwritten offering. Holders of closed-end company shares than 
trade their shares in secondary market transactions, usually on a 
securities exchange or in the over-the-counter market. A unit 
investment trust is a pooled investment entity without a a board of 
directors or investment adviser, and offers investors redeemable 
units in an unmanaged, fixed portfolio of securities. Treasury 
stated its intention to continue to consider the type of anti-money 
laundering program that would be appropriate for these companies, 
including the extent to which they pose a money laundering risk that 
is not more effectively covered by the anti-money laundering program 
of another financial institution involved in their distribution. Id. 
at 21117-21118. That process is continuing.
    \6\ Id. at n.5. Section 356(c) of the USA Patriot Act requires 
that the Secretary, the Board of Governors of the Federal Reserve 
System (``Federal Reserve'') and the SEC jointly submit a report to 
Congress by October 26, 2002 recommending effective regulations to 
apply the requirements of the BSA to investment companies as defined 
in section 3 of the 1940 Act, as well as to persons that would be 
investment companies but for the exceptions provided in sections 
3(c)(1) or 3(c)(7) [15 U.S.C. 80a-3(c)(1), 3(c)(7)].
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II. Unregistered Investment Companies--General Issues

    While Treasury believes it is incumbent upon all United States 
businesses to be on guard against their use by terrorists or other 
criminals for money laundering, the BSA imposes

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legal obligations only on certain ``financial institutions'' to develop 
and implement anti-money laundering programs. The ``financial 
institutions'' covered by the BSA are listed in section 5312 of that 
Act, and generally include businesses that deal in cash, securities, or 
other types of assets that can be readily converted to cash. The term 
``unregistered investment company,'' which is a subset of the term 
``investment company,'' could include a large range of entities from 
small investment clubs to large corporate holding companies, and, in 
between, a vast array of financing vehicles that are unlikely to be 
used for money laundering purposes. An overly expansive definition of 
``unregistered investment company'' would unnecessarily burden 
businesses not likely to be used to launder money. Moreover, it would 
bring within the scope of the BSA's anti-money laundering requirements 
so many entities as to tax resources of the federal regulatory agencies 
charged with oversight of the financial institutions, diminishing the 
effectiveness of that oversight. To avoid these results, the Treasury 
staff has worked closely with staffs of the SEC and the Commodity 
Futures Trading Commission (``CFTC'') to fashion a definition designed 
to balance the need for a comprehensive national program to prevent 
money laundering against the burdens imposed by the BSA on businesses, 
including small businesses.

Definition of Unregistered Investment Company

    The proposed rule would define ``unregistered investment company'' 
as (i) an issuer that, but for the exclusions provided in sections 
3(c)(1) \7\ and 3(c)(7) \8\ of the 1940 Act, would be an investment 
company under the 1940 Act,\9\ (ii) a commodity pool, and (iii) a 
company that invests primarily in real estate and/or interests therein. 
This definition generally would include entities consisting of pools of 
various asset classes: securities, commodity interests, and real 
estate. Several types of investment companies that are not registered 
under the 1940 Act would be covered by this definition, including hedge 
funds,\10\ private equity funds,\11\ venture capital funds,\12\ 
commodity pools \13\ and real estate investment trusts (REITs),\14\ in 
order to protect against their use for possible money laundering.
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    \7\ Section 3(c)(1) of the 1940 Act generally excludes from the 
definition of ``investment company'' any issuer that is not engaged 
in or proposing to engage in a public offering and whose outstanding 
securities (other than short-term paper) are beneficially owned by 
not more than 100 persons. 15 U.S.C. 80a-3(c)(1).
    \8\ Section 3(c)(7) of the 1940 Act excludes from the definition 
of ``investment company'' an issuer in which all the investors are 
``qualified purchasers,'' as defined in the 1940 Act, and that has 
not engaged in a public offering (as defined in 15 U.S.C. 77d and 17 
CFR 230.501-230.508 (Regulation D)). 15 U.S.C. 80a-3(c)(7). The 1940 
Act and SEC rules define a ``qualified purchaser'' as a natural 
person who possesses at least $5 million in investments; a non-
natural person that possesses at least $25 million in investments or 
is owned exclusively by qualified purchasers; and a qualified 
institutional buyer. See 15 U.S.C. 80a-2(a)(51); 17 CFR 270.2a51-1 
to 270.2a51-3. As a practical matter, section 3(c)(7) funds also may 
tend to limit the number of record holders of their securities to 
less than 500 persons in order to avoid being subject to the public 
reporting requirements of the Securities Exchange Act of 1934 [15 
U.S.C. 78l(g)]. See Report of the President's Working Group on 
Financial Markets, ``Hedge Funds, Leverage, and the Lessons of Long-
Term Capital Management,'' app.B at B-3 (1999) (www.treas.gov/press/releases/reports/hedgefund.pdf.) (``Working Group Report'').
    \9\ The proposed rule therefore would use the definition of 
``investment company'' in the 1940 Act as a reference point. See 
also section 356(c) of the Act (requiring Treasury, the Federal 
Reserve, and the SEC to submit a report to Congress recommending 
effective regulations to apply BSA requirements to investment 
companies as defined in section 3 of the 1940 Act, as well as 
persons that would be investment companies but for certain 
exceptions from that definition). Treasury anticipates that the CFTC 
will participate in the development of this report because many 
persons that will be considered in the report are affiliated with 
CFTC-registered and regulated entities.
    \10\ The term ``hedge fund'' refers generally to a privately 
offered investment vehicle in which the contributions of the 
participants are pooled and invested in a portfolio of securities, 
commodity futures contracts, or other assets. In 1999, the 
President's Working Group on Financial Markets described a hedge 
fund as: ``any pooled investment vehicle that is privately 
organized, administered by professional investment managers, and not 
widely available to the public.'' Working Group Report, supra note 
8, at 1. Hedge funds are not registered under the 1940 Act because 
they are offered in a manner that makes them eligible for exceptions 
to the definition of ``investment company'' in sections 3(c)(1) or 
3(c)(7) of the 1940 Act. See supra notes 7-8. These funds are 
generally only offered to persons who qualify as ``accredited 
investors'' or ``qualified purchasers'' under the federal securities 
laws. See 17 CFR 230.501(a) (definition of ``accredited investor''); 
15 U.S.C. 80a-1(a)(51) (definition of ``qualified purchaser''). 
Hedge funds may be operated by CPOs. Some hedge funds also may be 
advised by investment advisers registered under the Investment 
Advisers Act of 1940 [15 U.S.C. 80b] or commodity trading advisors 
registered under the CEA. See 7 U.S.C. 1a(5)-(6). Investors in a 
hedge fund are typically able to redeem their investments on a 
quarterly, semi-annual, or annual basis.
    \11\ Private equity funds are privately offered investment 
vehicles in which the contributions of institutions and wealthy 
individuals are pooled and invested in a portfolio of unregistered 
equity securities (of public or private companies) managed by a 
professional investment adviser. Private equity funds usually have a 
limited lifespan of 8 to 12 years, and investors are only able to 
redeem their investments when the funds liquidate. These funds also 
do not register under the 1940 Act in reliance on the same 
exemptions relied on by hedge funds. See supra note 11.
    \12\ Venture capital funds are privately offered investment 
vehicles in which the contributions of the participants are pooled 
to invest in start-up companies. The advisers to these funds provide 
substantial managerial assistance to the start-up companies in which 
they invest. Venture capital funds typically have a fixed life 
(usually 10 years). Once the fund has reached its target size, it is 
closed to further investment so that the fund has a fixed capital 
pool from which to make its investments. Investors typically are not 
able to redeem their investments before the fund matures or expires. 
These funds do not register under the 1940 Act in reliance on the 
exemptions relied on by hedge funds. Id
    \13\ A ``pool'' is defined in Rule 4.10(d) under the Commodity 
Exchange Act (``CEA'') as ``any investment trust, syndicate or 
similar form of enterprise operated for the purpose of trading 
commodity interests.'' 17 CFR 4.10(d).
    \14\ REITs, in general, are investment vehicles in which the 
contributions of the participants are pooled to invest in real 
estate, and sometimes in real estate-related securities. In order to 
yield certain federal tax benefits REITs must satisfy a range of 
ownership, income, asset, distribution and organizational 
requirements under the Internal Revenue Code. See 26 U.S.C. 856. 
REITs are organized as business trusts, corporations, or 
unincorporated associations that are specifically designated as 
REITs for federal income tax purposes. REITs typically have a 
lifespan of 10 to 15 years. Interests in REITs may be publicly or 
privately offered and some are traded on securities exchanges. An 
investor may request redemption of its interest in some of those 
REITs that are not publicly traded. Some REITs are not registered 
under the 1940 Act because they qualify for the exceptions provided 
by section 3(c)(5)(C) of the 1940 Act or rule 3a-7 thereunder [15 
U.S.C. 80a-3(c)(5)(C); 17 CFR 270.3a-7].
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    As noted above, the proposed rule would apply to commodity pools, 
which are operated by commodity pool operators (``CPOs'').\15\ CPOs 
that are not exempted under CFTC regulations are registered with, and 
subject to regulation by, the CFTC and the National Futures Association 
(``NFA''), the futures industry self-regulatory organization. The USA 
Patriot Act added CPOs to the BSA definition of ``financial 
institution.''
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    \15\ A CPO is defined in the CEA to mean ``any person engaged in 
a business that is of the nature of an investment trust, syndicate, 
or similar form of enterprise, and who, in connection therewith, 
solicits, accepts, or receives from others, funds, securities, or 
property, either directly or through capital contributions, the sale 
of stock or other forms of securities, or otherwise, for the purpose 
of trading in any commodity for future delivery on or subject to the 
rules of any contract market or derivatives transaction execution 
facility, except that the term does not include such persons not 
within the intent of the definition of the term as the Commission 
[CFTC] may specify by rule, regulation, or order.'' 7 U.S.C. 1a(5).
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    FinCEN requests comment whether there are other entities, not 
covered by other rules requiring anti-money laundering programs, that 
pool assets and provide a similar opportunity for money laundering or 
terrorist financing, and whether such entities should be required by 
the final rule to establish anti-money laundering programs.
    Because of the broad scope of the type and nature of businesses 
that may rely on the exceptions to the 1940 Act, may be commodity 
pools, or that may invest in real estate, we propose to narrow the

[[Page 60619]]

definition of unregistered investment company through three limitations 
and three exceptions described below.
    (i) Limitations
    (A) Redemption Rights. Under the proposed definition, an 
``unregistered investment company'' would include only those companies 
that give an investor a right to redeem any portion of his or her 
ownership interest within two years after that interest was 
purchased.\16\ Because these investment vehicles rarely receive from or 
disburse to investors significant amounts of currency, they are not as 
likely as other types of financial institutions (e.g., banks) to be 
used during the initial or ``placement'' stage of the money laundering 
process.\17\ Money laundering is more likely to occur through these 
entities at the ``layering'' stage of the money laundering process,\18\ 
which generally requires the money launderer to be able to redeem his 
or her interests in the company. Moreover, companies that offer 
interests that are not redeemable or that are redeemable only after a 
lengthy holding or ``lock-up'' period lack the liquidity that makes 
certain financial institutions attractive to money launderers in the 
first place.\19\ This ``redeemablilty'' requirement is likely to 
exclude publicly traded REITs, and entities that require lengthy 
investment periods without the ability to redeem assets, including 
private REITs, a large number of special purpose financing vehicles, 
and many private equity and venture capital funds.\20\ These types of 
illiquid companies are not likely to be used by money launderers.
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    \16\ As a result, a fund would be excepted from the definition 
only if it precluded an investor from redeeming each and every 
investment (i.e., imposed a ``lock-up'' period) for two years from 
the day the investment was made. Most hedge funds have one-year 
lock-up periods and, thus, would likely be covered by the definition 
(assuming they meet the other terms of the definition and the other 
requirements of the proposed rule) and would be required to have 
anti-money laundering programs under the rule. Furthermore, any 
unregistered investment company that ``permits an owner to redeem'' 
(and meets the other requirements of the proposed rule) would be 
covered, regardless of whether its investors have the opportunity to 
(or do) sell the fund's securities in secondary market transactions. 
The existence of an informal or formal secondary market for the 
fund's securities would not affect the applicability of the 
definition.
    Some unregistered investment companies may offer dividend 
reinvestment plans. For the purposes of this rule, we would not 
consider an investor to ``purchase'' an interest in an unregistered 
investment company if the investor acquires such interest pursuant 
to a dividend reinvestment plan offered by the company. Cf. 
Securities Act Release No. 929 (July 29, 1936) (describing 
conditions under which the issuance of securities pursuant to a 
dividend reinvestment plan is not a sale for value subject to 
section 5 of the Securities Act of 1933 [15 U.S.C. 77e]). The two-
year lock-up provision does not apply to interests acquired with 
reinvested dividends. Thus, an unregistered investment company that 
does not permit redemptions within two years of investment would not 
become subject to the proposed rule solely because it permits 
investors to redeem interests acquired through the company's 
dividend reinvestment plan that have been held for less than two 
years, so long as such-redemption is not permitted within two years 
of the investment that produced the reinvested dividends.
    \17\ There is some risk that money launderers will use 
unregistered investment companies during the ``placement'' stage of 
the money laundering process. Suspicious activity observed in the 
purchase of investment company interests includes the use of money 
orders and travelers checks in structured amounts to avoid currency 
reporting by the issuing financial institution. Similarly, a money 
launderer could pay for the initial purchase of an interest with 
several wire transfers, each in an amount under $10,000, from 
different banks or brokerage firms to evade currency reporting.
    \18\ ``Layering'' involves the distancing of illegal proceeds 
from their criminal source through the creation of complex layers of 
financial transactions. Money launderers could, for example, use 
hedge fund accounts to layer their funds by sending and receiving 
money and wiring it quickly through several accounts and multiple 
institutions, or by redeeming an interest in a company originally 
purchased with illegal proceeds and then reinvesting the proceeds 
received in another unregistered investment company. Layering could 
also involve purchasing funds in the name of a fictitious 
corporation or an entity designed to conceal the true owners.
    \19\ Unregistered investment companies may also play a role in 
the integration stage of money laundering, i.e., the stage at which 
illegal proceeds are assimilated into the legitimate economy or 
invested into legitimate businesses. For example, layering could 
occur through multiple transactions in a brokerage account, the 
proceeds of which eventually are invested in the unregistered 
investment company.
    \20\ The ``redeemability'' requirement would exclude all types 
of entities whose interests are sold only on a secondary market, 
e.g., a securities exchange. These entities generally do not have an 
account relationship or otherwise deal directly with investors and 
therefore are not in a position to monitor for money laundering. 
With respect to such entities, FinCEN relies upon intermediaries in 
secondary markets, such as broker-dealers, to monitor for money 
laundering.
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    FinCEN requests comment on whether a two-year limit is appropriate, 
given the purpose of the rule. Should the limitation be for a longer or 
shorter period? FinCEN assumes that most hedge funds would be required 
to adopt anti-money laundering programs under the rule because they 
have only a one-year ``lock-up'' period. Is this assumption correct? 
Would the limit result in some companies being excluded that may 
nonetheless be susceptible to use by money launderers? What is the 
likelihood that hedge funds or other entities will adopt two-year lock-
up periods to avoid being subject to the rule?
    (B) Minimum Assets. The proposed rule would be limited to companies 
that, as of the most recently completed calendar quarter, have total 
assets of $1,000,000 or more. This threshold is designed to exclude 
investment pools such as investment clubs and other small entities that 
are unlikely to be used for money laundering.\21\ FinCEN requests 
comment on whether this minimum threshold is appropriate.
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    \21\ FinCEN believes that entities with less than $1,000,000 in 
assets pose significantly lower money laundering risks than larger 
entities because they lack the capacity to absorb significant 
amounts of illegal proceeds. See also Section 312 (a)(4)(b) of the 
USA Patriot Act (defining ``private banking account'' to include 
accounts of not less than $1,000,000).
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    (C) Offshore Funds. Because many of these unregistered investment 
companies operate ``offshore'' and offer interests in their companies 
to both U.S. and foreign investors, the proposed rule contains a 
jurisdictional limitation. The definition of ``unregistered investment 
company'' includes only an entity that is organized in the United 
States, sells ownership interests to a ``U.S. person'' (as defined in 
17 CFR 230.902(k)), \22\ or is organized, operated, or sponsored by a 
U.S. person. FinCEN believes this jurisdictional nexus is appropriate, 
and that it is reasonable to require such issuers benefiting from the 
financial and legal systems of the United States (assuming they meet 
the other requirements of the rule) to establish anti-money laundering 
programs to prevent, detect, and facilitate the prosecution of 
international money laundering and terrorist financing. FinCEN requests 
comment on whether this jurisdictional limitation is appropriate.
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    \22\ 17 CFR 230.902(k) defines ``U.S. person'' to mean (i) any 
natural person resident in the United States; (ii) any partnership 
or corporation organized or incorporated under the laws of the 
United States; (iii) any estate of which any executor or 
administrator is a U.S. person; (iv) any trust of which any trustee 
is a U.S. person; (v) any agency or branch of a foreign entity 
located in the United States; (vi) any non-discretionary account or 
similar account (other than an estate or trust) held by a dealer or 
other fiduciary organized, incorporated, or (if an individual) 
resident in the United States; and (vii) any partnership or 
corporation if (A) organized or incorporated under the laws of any 
foreign jurisdiction; and (B) formed by a U.S. person principally 
for the purpose of investing in securities not registered under the 
[Securities Act of 1933], unless it is organized or incorporated, 
and owned, by accredited investors, (as defined in Sec.  230.501(a)) 
who are not natural persons, estates or trusts. The rule also 
excepts certain accounts and persons from the definition of ``U.S. 
person.''
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Exceptions

    The proposed rule excepts companies that are owned by one family 
(``family companies'') \23\ from the definition of

[[Page 60620]]

unregistered investment company. The rule also excepts employees' 
securities companies,\24\ which are investment companies established by 
employers for the benefit of employees. The rule further excepts 
employee benefit plans that are not construed to be pools in CFTC Rule 
4.5(a)(4).\25\ None of these types of companies is likely to be used 
for money laundering purposes by third parties given their size, 
structure and purpose. Finally, the rule would except companies that 
are also another type of ``financial institution'' under the BSA (such 
as a broker-dealer) to prevent duplicative application of the BSA anti-
money laundering rules to the same financial institution.
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    \23\ See section 2(a)(51)(A)(ii) of the 1940 Act [15 U.S.C. 80a-
2(a)(51)(A)(ii)] (``any company that owns not less than $5,000,000 
in investments and that is owned directly or indirectly by or for 2 
or more natural persons who are related as siblings or spouse 
(including former spouses), or direct lineal descendants by birth or 
adoption, spouses of such persons, the estates of such persons, or 
foundations, charitable organizations, or trusts established by or 
for the benefit of such persons''). The exception for family 
companies would be available without regard to the amount of assets 
owned by the company.
    \24\ See section 2(a)(13) of the 1940 Act [15 U.S.C. 80a-
2(a)(13)]. An employees' securities company is ``any investment 
company or similar issuer all of the outstanding securities of which 
(other than short term paper) are beneficially owned (A) by the 
employees or persons on retainer of a single employer or of two or 
more employers each of which is an affiliated company of the other, 
(B) by former employees of such employer or employers, (C) by 
members of the immediate family of such employees, persons on 
retainer, or former employees, (D) by any two or more of the 
foregoing classes of persons, or (E) by such employer or employers 
together with any one or more of the foregoing classes of persons.'' 
Id.
    \25\ 17 CFR 4.5(a)(4).
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    FinCEN requests comment on whether these exceptions from the 
definition are appropriate and whether there are other entities that 
should be specifically included in or specifically excluded (through 
additional limitations or exceptions) from the definition of 
``unregistered investment company.''

III. The Anti-Money Laundering Program

    The proposed rule follows recent regulatory actions concerning the 
establishment of anti-money laundering programs by financial 
institutions. The proposed rule sets forth minimum requirements for an 
anti-money laundering program for unregistered investment companies 
that implement the standards outlined in BSA section 5318(h)(1). The 
proposed rule would require that, by 90 days following publication of a 
final rule, unregistered investment companies develop and implement 
anti-money laundering programs reasonably designed to prevent them from 
being used to launder money or finance terrorist activities and achieve 
and monitor compliance with the applicable requirements of the BSA and 
Treasury's implementing regulations.
    The legislative history of the BSA explains that the requirement to 
have an anti-money laundering program is not a one-size-fits-all 
requirement. The general nature of the requirement reflects Congress's 
intent that each financial institution should have the flexibility to 
tailor its program to fit its business, taking into account factors 
such as size, location, activities and risks or vulnerabilities to 
money laundering. This flexibility is designed to ensure that all firms 
subject to the statute, from the largest to the smallest firms, have in 
place policies and procedures that are both effective and appropriate 
to guard against money laundering.\26\ To assure that this requirement 
receives the highest level of attention throughout these diverse 
industries, the proposed rule requires that each unregistered 
investment company's program be approved in writing by the board of 
directors or trustees, the general partner or, if the foregoing do not 
exist, senior management.\27\ The four required elements of the anti-
money laundering program are discussed below.
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    \26\ See USA Patriot Act of 2001: Consideration of H.R. 3162 
Before the Senate (October 25, 2001) (statement of Sen. Sarbanes), 
147 Cong. Rec. S10990-02; 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 Act), 147 Cong. Rec. H6924-01.
    \27\ The approval could be given at the company's first 
regularly scheduled meeting after the program is adopted.
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(1) Establish and Implement Policies, Procedures, and Internal Controls 
Reasonably Designed To Prevent Unregistered Investment Companies From 
Being Used To Launder Money or Finance Terrorist Activities, Including 
But Not Limited to Achieving Compliance With the Applicable Provisions 
of the BSA and the Implementing Regulations Thereunder
    Written policies and procedures, which form the basis of any 
compliance program, should set forth clearly the details of the 
program, including the responsibilities of the individuals and 
departments involved. Because unregistered investment companies operate 
through a variety of different business models, one generic anti-money 
laundering program for this industry is not possible; rather, each 
unregistered investment company must develop a program based upon its 
own business structure. This provision requires that each unregistered 
investment company identify its vulnerabilities to money laundering and 
terrorist financing activity, understand the BSA requirements 
applicable to it, identify the risk factors relating to these 
requirements, design the procedures and controls that will be required 
to reasonably assure compliance with these requirements, and 
periodically assess the effectiveness of the procedures and controls. 
Policies, procedures, and internal controls should be reasonably 
designed to detect activities indicative of money laundering. 
Transactions that could indicate potential money laundering include the 
use of questionable checks and unusual wire activity. For example, an 
investment in an unregistered investment company by check drawn on the 
account of a third party, or by one or more wire transfers from an 
account of a third party, in each case unrelated to the investor, could 
be indicative of attempted money laundering. Other examples of ``red 
flags'' that may indicate potential illegal activity include investor 
difficulty in describing the reasons for frequent wire transfers to 
unfamiliar bank accounts or jurisdictions other than the investor's 
home country; frequent purchases of interests in unregistered 
investment companies followed by redemptions, particularly if the 
resulting proceeds are wired to unrelated third parties or bank 
accounts in foreign countries; non-economic transfers, such as the 
purchase of an interest for a large dollar amount followed by 
redemption with indifference as to penalty amounts charged by the 
company for engaging in such a transaction; transfers to accounts in 
countries where drug trafficking is known to occur or other high-risk 
countries; and the transfer of a monetary instrument or an investment 
interest from a foreign government to a private person. An unregistered 
investment company that identifies suspicious activity should take 
reasonable steps to determine if its suspicions are justified and 
respond accordingly, including refusing to enter into a transaction 
that appears designed to further illegal activity.\28\
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    \28\ 18 U.S.C. 1956 and 1957 make it a crime for any person, 
including an individual or company, to engage knowingly in a 
financial transaction with the proceeds from any of a long list of 
crimes or ``specified unlawful activity.'' Although the standard of 
knowledge required is ``actual knowledge,'' actual knowledge 
includes ``willful blindness.'' Thus, a person could be deemed to 
have knowledge that proceeds were derived from illegal activity if 
he or she ignored ``red flags'' that indicated illegality. 
Unregistered investment companies with offshore operations in or 
with investors from jurisdictions on lists maintained by the Office 
of Foreign Asset Control (sanctioned countries), FinCEN (country 
advisories), or the Financial Action Task Force on Money Laundering 
(non-cooperative countries and territories) should be particularly 
sensitive to these requirements. For current versions of these 
country lists, refer to http://www.treas.gov/offices/enforcement/ofac/sanctions/index.html, http://www.ustreas.gov/fincen/pub_main.html, and http://www1.oecd.org/fatf/NCCT_en.htm, respectively.

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[[Page 60621]]

    Policies, procedures, and internal controls should also be 
reasonably designed to assure compliance with BSA requirements. The 
only BSA requirement currently applicable to unregistered investment 
companies is the obligation to report on Form 8300 the receipt of cash 
or certain noncash instruments totaling more than $10,000 in one 
transaction or two or more related transactions.\29\
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    \29\ See 31 CFR 103.30. If an unregistered investment company 
includes a registered broker-dealer (as principal underwriter or 
distributor) or a bank (as transfer agent), then those separately 
registered and regulated financial institutions would also be 
subject to additional BSA requirements administered by their Federal 
functional regulator, such as suspicious activity reporting.
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    We also note that unregistered investment companies may become 
subject to additional BSA requirements, including customer and investor 
identification and verification under section 326 of the Act and filing 
suspicious activity reports. If unregistered investment companies 
become subject to additional requirements, their compliance programs 
will need to be updated to include appropriate policies, procedures, 
training, and testing functions.
    Unregistered investment companies typically conduct their 
operations, as do mutual funds, through separate entities such as fund 
administrators, investment advisers, CPOs, commodity trading advisors, 
broker-dealers (including prime brokers), and futures commission 
merchants. Some elements of the compliance program will best be 
performed by personnel of these separate entities, in which case it is 
permissible for an unregistered investment company to contractually 
delegate the implementation and operation of those aspects of its anti-
money laundering program to such an entity. Any unregistered investment 
company that delegates responsibility for aspects of its anti-money 
laundering program to a third party, however, remains fully responsible 
for the effectiveness of the program, as well as ensuring that federal 
examiners are able to obtain information and records relating to the 
anti-money laundering program and to inspect the third party for 
purposes of the program. In addition, an unregistered investment 
company would remain responsible for assuring compliance with this 
regulation. The unregistered investment company is still responsible 
for taking reasonable steps to identify the aspects of its operations 
that may give rise to BSA regulatory requirements or that are 
vulnerable to money laundering or terrorist financing activity; 
developing and implementing a program reasonably designed to achieve 
compliance with such regulatory requirements and to prevent such 
activity; monitoring the operation of its program; and assessing its 
effectiveness. For example, it would not be sufficient for an 
unregistered investment company simply to obtain a certification from 
its delegate that the company ``has a satisfactory anti-money 
laundering program.''
    Investors in unregistered investment companies may include 
individuals and institutional investors (such as pension funds and 
corporations), as well as other registered and unregistered investment 
companies (i.e., ``funds of hedge funds'').\30\ The diversity and 
complexity of unregistered investment company structures, particularly 
those with offshore operations, may result in a lack of transparency 
regarding the entities that invest in the unregistered investment 
company.\31\ An unregistered investment company would need to analyze 
the money laundering risks posed by any entity that invests in it, by 
using a risk-based evaluation of relevant factors regarding the 
investing entity. Those factors include the type of entity, its 
operator or sponsor, its location, the type of regulation to which that 
entity or its operator is subject, whether the entity has an anti-money 
laundering program, and the terms of any such program. Unregistered 
investment companies should account for any risks posed by any offshore 
operations and affiliates in developing their policies, procedures, and 
internal controls.
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    \30\ A ``fund of hedge funds,'' for example, is a registered or 
unregistered investment company that invests in hedge funds. These 
entities can be attractive to investors who seek access to multiple 
hedge fund investments by investing in only one investment company. 
See Clow, Robert, ``Fund of Hedge Funds Boost Market Share,'' 
Financial Times (London), June 3, 2002, p.5.
    \31\ A substantial portion of unregistered investment companies 
are domiciled offshore, in jurisdictions that may not regulate their 
activities. See Working Group Report, supra note 8, at 41 (noting 
that a significant number of hedge funds are established in offshore 
financial centers that are tax havens and may be engaged in illegal 
tax avoidance and similar unlawful activities).
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(2) Provide for Independent Testing for Compliance To Be Conducted by 
Company Personnel or by a Qualified Outside Party
    It is necessary that unregistered investment companies conduct 
periodic testing of their programs to assure that the programs are 
functioning as designed. Such testing should be accomplished by 
personnel knowledgeable about the business' money laundering risks as 
well as BSA requirements. Such testing may be accomplished by employees 
of the unregistered investment company, its affiliates, or unaffiliated 
service providers so long as those same employees are not involved in 
the operation or oversight of the program. The frequency of such a 
review would depend upon factors such as the size and complexity of the 
unregistered investment company's operations and the extent to which 
its business model may make it more vulnerable to money laundering than 
other institutions. A written assessment or report should be a part of 
the review, and any recommendations resulting from such review should, 
of course, be promptly implemented or submitted to the general partner, 
board of directors or trustees, or, if the foregoing do not exist at 
the unregistered investment company, senior management for 
consideration.
(3) Designate a Person or Persons Responsible for Implementing and 
Monitoring the Operations and Internal Controls of the Program
    The unregistered investment company must charge an individual (or 
committee) with the responsibility for overseeing the anti-money 
laundering program. The person (or group of persons) should be 
competent and knowledgeable regarding BSA requirements and money 
laundering issues and risks, and empowered with full responsibility and 
authority to develop and enforce appropriate policies and procedures 
throughout the company. Whether the compliance officer is dedicated 
full time to BSA compliance would depend upon the size and complexity 
of the company. Although in some cases the implementation and operation 
of the compliance program will be conducted by entities (and their 
employees) other than the unregistered investment company, the person 
responsible for the supervision of the overall program should be an 
unregistered investment company's officer, trustee, general partner, 
organizer, operator, or sponsor, as appropriate.
(4) Provide Ongoing Training for Appropriate Persons
    Employee training is an integral part of any anti-money laundering 
program. In order to carry out their responsibilities effectively, 
employees of an unregistered investment company

[[Page 60622]]

(and of any affiliated and third-party service providers) must be 
trained regarding the BSA requirements that are relevant to their 
functions and the signs of money laundering that could arise in the 
course of their duties. Such training could be conducted by outside or 
in-house seminars, and could include computer-based training. The 
level, frequency, and focus of the training would be determined by the 
responsibilities of the employees and the extent to which their 
functions bring them in contact with BSA requirements or possible money 
laundering activity. Consequently, the training program should provide 
both a general awareness of overall BSA requirements and money 
laundering issues, as well as more job-specific guidance regarding the 
particular employee's role and function in the anti-money laundering 
program.\32\ For those employees whose duties bring them in contact 
with BSA requirements or possible money laundering activity, the 
requisite training should occur when the employee assumes those duties. 
Moreover, these employees should receive periodic updates and 
refreshers regarding the anti-money laundering program.
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    \32\ Appropriate topics for an anti-money laundering program 
include, but are not limited to: BSA requirements, a description of 
money laundering, how money laundering is carried out, what types of 
activities and transactions should raise concerns, what steps should 
be followed when suspicions arise, and the Office of Foreign Assets 
Control and other government agency lists.
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(5) Notice Requirement
    Unlike many other financial institutions subject to the anti-money 
laundering regime in the BSA, such as banks, savings associations, and 
mutual funds, unregistered investment companies are not necessarily 
registered with or identifiable by Treasury or another Federal 
functional regulator. Without a methodology for identifying or locating 
these unregistered entities, there would be virtually no way for 
Treasury or the appropriate Federal functional regulators to assure, 
with any degree of certainty, through examination or enforcement, that 
covered unregistered investment companies are in compliance with the 
rule. Furthermore, while certain companies, particularly larger hedge 
funds, REITS, private equity funds and venture capital funds, may be 
identified through trade associations or other relatively simple search 
methods, other, smaller, less public or offshore entities could escape 
scrutiny. For the rule to operate and be enforced effectively there 
must be a practical means of identifying and locating companies subject 
to the rule.
    The BSA authorizes the Secretary of the Treasury to prescribe 
(after consultation with the appropriate Federal functional regulator) 
minimum standards for anti-money laundering programs established under 
the BSA \33\ and to require a class of financial institutions to 
maintain appropriate procedures ensure compliance with the BSA.\34\ 
Notice of the identity of the members of a regulated class is a key 
procedure in the effective monitoring and enforcement of compliance 
with the BSA. Therefore, the proposed rule requires that each 
unregistered investment company file a short notice (``Notice'') 
identifying itself and providing some very basic information about the 
company.
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    \33\ See 31 U.S.C. 5318(h)(2).
    \34\ 31 U.S.C. 5318(a)(2).
---------------------------------------------------------------------------

    The notice filing requirement is implicitly authorized by the BSA 
as a ``legitimate, reasonable, and direct adjunct'' to the Secretary's 
explicit statutory authority to require financial institutions to adopt 
compliance programs to detect and prevent money laundering in 31 U.S.C. 
5318(a)(2), as well as the Secretary's broad powers under the BSA to 
require reports and records useful to criminal tax and regulatory 
uses.\35\ Because many unregistered investment companies lack a federal 
functional regulator, without a notice requirement of some kind, 
Treasury (or its designee) would lack the means to examine for and 
enforce compliance with the rule. The notice requirement is therefore a 
direct adjunct to the Secretary's enforcement authority.\36\ Indeed, 
there are a number of agency regulations requiring notice filings and 
other types of filings that Congress did not explicitly authorize. For 
example, the Office of the Comptroller of the Currency, under its 
general authority regulatory authority in 12 U.S.C. 93a, has 
promulgated regulations governing the issuance of investment securities 
of national banks that are expressly exempt from certain registration 
requirements of the federal securities laws.\37\ Similarly, the CFTC 
has issued rules that require CPOs that are exempt from registration to 
file a notice claiming eligibility for the exemption.\38\
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    \35\ See United States v. Chesapeake & Ohio Railway Co., 426 
U.S. 500 (1976); see also Touche Ross & Co. v. SEC, 609 F. 2d 570, 
582 (D.C. Cir. 1979).
    \36\ See Outdoor Systems, Inc. v. City of Atlanta, 885 F. Supp. 
1572, 1582. (N.D. Ga. 1995).
    \37\ See 12 CFR part 16.
    \38\ See 17 CFR 4.5. The Notice would be required to include ``
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    The Notice would be required to include--
    [sbull] The name, address, e-mail address and telephone number of 
the unregistered investment company;
    [sbull] The name, address, e-mail address, telephone number and 
registration number of any investment adviser, commodity trading 
advisor, CPO, organizer or sponsor of the unregistered investment 
company;
    [sbull] The name, e-mail address and telephone number of the 
designated anti-money laundering program compliance officer;
    [sbull] The dollar amount of assets under management held by the 
unregistered investment company; and
    [sbull] The number of participants, interest holders or security 
holders in the unregistered investment company.
    Filing Procedures. An unregistered investment company would have to 
file with FinCEN a Notice described in Appendix C of subpart I of 31 
CFR part 103. Completed Notices may be submitted to FinCEN by accessing 
FinCEN's Internet Web site, http://www.treas.gov/fincen, and entering 
the appropriate information as directed, or by mail to: FinCEN, PO Box 
39, Mail Stop 100, Vienna, VA 22183.
    Filing Date. An unregistered investment company would have to file 
a Notice within 90 days after it first becomes subject to the 
provisions of this rule.
    Amendments. An unregistered investment company would have to file 
an amendment to its Notice not later than 30 days after any change to 
the information in the Notice other than the amount of assets under 
management or the number of participants, interest holders or security 
holders.
    Withdrawal. An unregistered investment company would have to 
withdraw its Notice within 90 days after ceasing to be subject to the 
provisions of this rule.
    Finally, unregistered investment companies would be encouraged to 
adopt procedures for voluntarily filing Suspicious Activity Reports 
with FinCEN and for reporting suspected terrorist activities to FinCEN 
using its Financial Institutions Hotline (1-866-566-3974).
    FinCEN requests comment regarding whether the proposed notice 
requirement is appropriate. Is there any other means by which FinCEN 
could readily identify all the unregistered investment companies 
subject to the proposed rule? Should those commodity pools that are 
identified in the database

[[Page 60623]]

of the NFA be exempt from this requirement? \39\
---------------------------------------------------------------------------

    \39\ CPOs are required to file with the CFTC and NFA a 
disclosure statement concerning the CPO and each commodity pool 
operated by that CPO. See 17 CFR 4.21, 4.24, 4.25 and 4.26. The NFA 
maintains a publicly available database (www.nfa.futures.org/basic) 
with the names, addresses, NFA identification numbers, regulatory 
history, and other information provided by the CPOs in their 
disclosure document.
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IV. Regulatory Flexibility Act

    It is hereby certified that this proposed regulation will not have 
a significant economic impact on a substantial number of small 
entities. The costs associated with the development of anti-money 
laundering programs are attributable to the mandates of section 352 of 
the Act. Moreover, because the proposed rule applies only to those 
unregistered investment companies with assets of $1,000,000 or more and 
also excludes family companies, employees' securities companies, and 
certain employee benefit plans that are not construed to be pools, it 
is unlikely that many small unregulated investment companies will be 
subject to the rule. In addition, the proposed rule will not impose 
significant burdens on those small unregistered investment companies 
covered by the rule because they are already subject to Form 8300 
reporting and may build on their existing risk management procedures 
and prudential business practices to ensure compliance with this rule 
as well as anti-money laundering risk management. Similarly, the 
procedures currently in place at mutual funds to comply with existing 
BSA rules should assist unregistered investment companies in 
establishing their anti-money laundering programs. Finally, the 
unregistered investment companies subject to the rule will not be 
compelled to obtain more sophisticated legal or accounting advice than 
that already required by such companies to run their businesses.

V. Executive Order 12866

    The Department of the Treasury has determined that this proposed 
rule is not a significant regulatory action under Executive Order 
12866. Accordingly, a regulatory impact analysis is not required.

VI. Paperwork Reduction Act

    The collections of information contained in this proposed rule are 
being submitted to the Office of Management and Budget for review in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)). Comments on the collection of information should be sent 
(preferably by fax (202-395-6974)) to Desk Officer for the Department 
of the Treasury, Office of Information and Regulatory Affairs, Office 
of Management and Budget, Paperwork Reduction Project (1506), 
Washington, DC 20503 (or by the Internet to [email protected]), with 
a copy to FinCEN by mail or the Internet at the addresses previously 
specified. Comments on the collection of information should be received 
by November 25, 2002.
    The collections of information in this proposed rule are in 31 CFR 
103.132(b) and (d). The information will be used by federal agencies to 
verify compliance by unregistered investment companies with the 
provisions of 31 CFR 103.132. The collections of information are 
mandatory.
    Description of Recordkeepers and Responders: Unregistered 
investment companies as defined in 31 CFR 103.132(a).
    Estimated Number of Recordkeepers: 5,000.
    Estimated Average Annual Burden Per Recordkeeper: The estimated 
average burden associated with the recordkeeping requirement in this 
proposed rule is 1 hour per recordkeeper.
    Estimated Total Annual Recordkeeping Burden: 5,000 hours.
    Estimated Number of Respondents: 5,000.
    Estimated Average Annual Burden Per Respondent: The estimated 
average burden associated with the notice requirement in this proposed 
rule is 30 minutes per respondent.
    FinCEN specifically invites comments on the following subjects: (a) 
Whether the collections of information are 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 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 
unregistered investment companies, 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.

List of Subjects in 31 CFR Part 103

    Banks, Banking, Brokers, Commodities futures, 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.  103.132 to read as follows:


Sec.  103.132  Anti-money laundering programs for unregistered 
investment companies.

    (a) Definitions. For purposes of this section and Appendix C to 
this subpart I--
    (1) The terms company, director, issuer, person, security, and 
value have the same meanings as provided in section 2(a) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2).
    (2) The term investment adviser has the same meaning as provided in 
section 202(a)(11) of the Investment Advisers Act of 1940 (15 U.S.C. 
80b-2(a)(11)).
    (3) The term commodity pool means a pool as defined in 17 CFR 
4.10(d).
    (4) The term commodity pool operator has the same meaning as 
provided in section 1(a)(5) of the Commodity Exchange Act (7 U.S.C. 
1(a)(5)).
    (5) The term commodity trading advisor has the same meaning as 
provided in section 1(a)(6) of the Commodity Exchange Act (7 U.S.C. 
1(a)(6)).
    (6)(i) Except as provided in paragraph (a)(6)(ii) of this section, 
the term unregistered investment company means an issuer that is a 
company--
    (A) That--:
    (1) Would be an investment company under the Investment Company Act 
of 1940 (15 U.S.C. 80a) but for the exclusions provided for in sections 
3(c)(1) and 3(c)(7) of that Act (17 U.S.C. 80a-3(c)(1) and (7));
    (2) Is a commodity pool; or
    (3) Invests primarily in real estate and/or interests therein;
    (B) That permits an owner to redeem his or her ownership interest 
within two years of the purchase of that interest;
    (C) That has total assets (including received subscriptions to 
invest) as of the end of the most recently completed calendar quarter 
the value of which is $1,000,000 or more; and
    (D) That is organized under the law of a State or the United 
States, is organized, operated or sponsored by a U.S. person, or sells 
ownership interests to a U.S. person. For purposes of this paragraph 
(a)(6)(i)(D), the term U.S. Person has the same meaning as provided in 
17 CFR 230.902(k)).

[[Page 60624]]

    (ii) The term unregistered investment company does not include:
    (A) Any person that is otherwise required to have an anti-money 
laundering program pursuant to this subpart;
    (B) A family company described in section 2(a)(51)(A)(ii) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(51)(A)(ii)), but 
without regard to the amount of assets owned by such company;
    (C) An employees' securities company as described in section 
2(a)(13) of the Investment Company Act of 1940 (15 U.S.C. 80a-
2(a)(13)); and
    (D) An employee benefit plan (as that term is defined in 17 CFR 
4.5(a)(4)) that is not construed to be a pool.
    (b) Anti-money laundering program required. Effective [the date 
that is 90 days after publication of the final rule], each unregistered 
investment company shall develop and implement a written anti-money 
laundering program reasonably designed to prevent the company from 
being used for money laundering or the financing of terrorist 
activities and to achieve and monitor compliance with the applicable 
requirements of the Bank Secrecy Act (31 U.S.C. 5311 et seq.) (BSA), 
and this part. The anti-money laundering program must be approved in 
writing by its board of directors or trustees or, if it does not have 
one, by its general partner, sponsor, organizer, operator, or other 
person who has a similar function with respect to the company. To the 
extent any definition incorporated into this rule by reference requires 
action by the unregistered investment company's board of directors, 
such action may be performed by any of the aforementioned persons if it 
has no board of directors. The unregistered investment company shall 
make its anti-money laundering program available for inspection by the 
Department of the Treasury or its designee upon request.
    (c) Minimum requirements. The anti-money laundering program shall 
at a minimum:
    (1) Establish and implement policies, procedures, and internal 
controls reasonably designed to prevent the investment company from 
being used for money laundering or the financing of terrorist 
activities and to achieve compliance with the applicable provisions of 
the BSA and this part;
    (2) Provide for independent testing for compliance to be conducted 
by the investment company's personnel or by a qualified outside party;
    (3) Designate a person or persons responsible for implementing and 
monitoring the operations and internal controls of the program; and
    (4) Provide ongoing training for appropriate persons.
    (d) Notice. Each unregistered investment company must provide 
information to FinCEN as required by this paragraph (d).
    (1) Each unregistered investment company must file with FinCEN a 
Notice described in Appendix C of this subpart. Completed Notices may 
be submitted to FinCEN by accessing FinCEN's Internet Web site, http://www.treas.gov/fincen, and entering the appropriate information as 
directed, or by mail to: FinCEN, PO Box 39, Mail Stop 100, Vienna, VA 
22183
    (2) The Notice required by paragraph (d)(1) of this section must be 
filed not later than 90 days after the date an unregistered investment 
company first becomes subject to this section. If an unregistered 
investment company ceases to be subject to this section, it must so 
advise FinCEN not later than 90 days after ceasing to be subject to 
this section.
    (3) Each unregistered investment company must include the following 
information in the Notice required by paragraph (d)(1) of this section:
    (i) The name of the unregistered investment company, including all 
family or complex names, trade names and doing-business-as names;
    (ii) The complete street address, telephone number and, if 
applicable, the e-mail address of the unregistered investment company;
    (iii) The name, complete street address, telephone number, and if 
applicable, the e-mail address and registration number of the 
investment adviser, commodity trading advisor, commodity pool operator, 
organizer, and/or sponsor of the unregistered investment company;
    (iv) The name, telephone number and, if applicable, e-mail address 
of the person or persons designated pursuant to paragraph (c)(3) of 
this section;
    (v) The total assets under management held by the unregistered 
investment company as of the end of the unregistered investment 
company's most recent fiscal year; and
    (vi) The total number of participants, interest holders or security 
holders in the unregistered investment company.
    (4) An unregistered investment company must file a revised Notice 
with FinCEN if there is a change in any of the information required by 
paragraph (d)(3)(i), (ii), (iii), or (iv) of this section. The revised 
Notice must be filed in accordance with paragraph (d)(1) of this 
section not later than 30 days after the date of any such change.
    3. Add appendix C to subpart I of part 103 to read as follows:

Appendix C to Subpart I of Part 103

Unregistered Investment Companies, Notice for Purposes of 31 CFR 
103.132(d)

    Notice is given, on behalf of (insert all names of unregistered 
investment company)
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that:
    (1) The unregistered investment company specified above is an 
``unregistered investment company'' as such term is defined in 31 
CFR 103.132(a).
    (2) The address, e-mail address (if applicable), and telephone 
number of the unregistered investment company are as follows:

Address:---------------------------------------------------------------
-----------------------------------------------------------------------

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

e-mail Address (if applicable):----------------------------------------
Telephone Number:.-----------------------------------------------------
    (3) The name, address, e-mail address (if applicable), telephone 
number, and registration number of any investment adviser, commodity 
trading advisor, commodity pool operator, organizer or sponsor of 
the unregistered investment company are as follows:

Type of Entity:--------------------------------------------------------
Name:------------------------------------------------------------------
Address:---------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------

e-mail Address:--------------------------------------------------------
Telephone Number:.-----------------------------------------------------
Registration Number:---------------------------------------------------
Type of Entity:--------------------------------------------------------
Name:------------------------------------------------------------------
Address:---------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------

e-mail Address:--------------------------------------------------------
Telephone Number:.-----------------------------------------------------
Registration Number:---------------------------------------------------
Type of Entity:--------------------------------------------------------
Name:------------------------------------------------------------------
Address:---------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------

e-mail Address:--------------------------------------------------------
Telephone Number:.-----------------------------------------------------
Registration Number:---------------------------------------------------

    (4) The name, e-mail address (if applicable), and telephone 
number of the designated anti-money laundering program compliance 
officer of the unregistered investment company are as follows:

Name:------------------------------------------------------------------
e-mail Address:--------------------------------------------------------
Telephone Number:.-----------------------------------------------------

    (5) The dollar amount of assets under management held by the 
unregistered investment company as of the end of its most recent 
fiscal year is $----------.
    (6) The number of participants, interest holders or security 
holders in the unregistered investment company is ------------.

BY:--------------------------------------------------------------------
Name

-----------------------------------------------------------------------
Title

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

[[Page 60625]]

Date

    Dated: September 18, 2002.
James F. Sloan,
Director, Financial Crimes Enforcement Network.

[FR Doc. 02-24145 Filed 9-25-02; 8:45 am]
BILLING CODE 4810-02-P