[Federal Register Volume 67, Number 215 (Wednesday, November 6, 2002)]
[Rules and Regulations]
[Pages 67547-67549]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-27770]


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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA28


Financial Crimes Enforcement Network; Anti-Money Laundering 
Programs for Financial Institutions

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

ACTION: Amendment of interim final rule.

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SUMMARY: FinCEN is extending the provision in its regulations that 
temporarily defers, for certain financial institutions, the application 
of the anti-money laundering program requirements in section 352 of the 
Uniting and Strengthening America by Providing Appropriate Tools 
Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001.

DATES: This interim final rule is effective November 6, 2002.

FOR FURTHER INFORMATION CONTACT: Office of the Chief Counsel (FinCEN), 
(703) 905-3590; Office of the Assistant General Counsel for Enforcement 
(Treasury), (202) 622-1927; or the Office of the Assistant General 
Counsel for Banking & Finance (Treasury), (202) 622-0480 (not toll-free 
numbers).

SUPPLEMENTARY INFORMATION:

I. Background

A. USA PATRIOT Act Section 352

    On October 26, 2001, the President signed into law the USA PATRIOT 
Act (Pub. L. 107-56) (the Act). Title III of the Act makes a number of 
amendments to the anti-money laundering provisions of the Bank Secrecy 
Act (BSA), which is codified in subchapter II of chapter 53 of title 
31, United States Code. These amendments are intended to make it easier 
to prevent, detect, and prosecute international money laundering and 
the financing of terrorism. Section 352(a) of

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the Act, which became effective on April 24, 2002, amended section 
5318(h) of the BSA. As amended, section 5318(h)(1) requires every 
financial institution to establish an anti-money laundering program 
that includes, at a minimum: (i) The development of internal policies, 
procedures, and controls; (ii) the designation of a compliance officer; 
(iii) an ongoing employee training program; and (iv) an independent 
audit function to test programs.
    The definition of ``financial institution'' in sections 5312(a)(2) 
and (c)(1) is extremely broad. It includes institutions that are 
already subject to federal regulation such as banks, savings 
associations, credit unions, money services businesses (such as money 
transmitters and currency exchanges), and registered securities broker-
dealers and futures commission merchants. The definition also includes 
dealers in precious metals, stones, or jewels; pawnbrokers; loan or 
finance companies; trust companies; private bankers; insurance 
companies; travel agencies; telegraph companies; sellers of vehicles, 
including automobiles, airplanes, and boats; persons engaged in real 
estate closings and settlements; investment bankers; investment 
companies; and commodity pool operators and commodity trading advisors 
that are registered or required to register under the Commodity 
Exchange Act (7 U.S.C. 1 et seq.). Section 352 of the Act requires all 
of these businesses to establish anti-money laundering programs.

B. Prior Interim Rules Implementing Section 352

    On April 29, 2002, FinCEN issued a series of interim final rules 
implementing section 352 of the Act. These rules prescribed 
requirements for anti-money laundering programs for banks, savings 
associations, credit unions, registered securities broker-dealers, 
futures commission merchants, and introducing brokers that are 
regulated by a federal functional regulator or a self-regulatory 
organization, and casinos \1\; money services businesses \2\; mutual 
funds \3\; and operators of credit card systems.\4\ FinCEN also 
temporarily deferred, until October 24, 2002, the application of 
section 352 to all other financial institutions.\5\ The temporary 
deferral applied to dealers in precious metals, stones, or jewels; 
pawnbrokers; loan or finance companies; private bankers; insurance 
companies; travel agencies; telegraph companies; sellers of vehicles, 
including automobiles, airplanes, and boats; persons engaged in real 
estate closings and settlements; certain investment companies; 
commodity pool operators; and commodity trading advisors.\6\
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    \1\ 67 FR 21110.
    \2\ 67 FR 21114.
    \3\ 67 FR 21117.
    \4\ 67 FR 21121.
    \5\ See 31 CFR 103.170 (67 FR 21113, April 29, 2002).
    \6\ The deferral did not extend to investment bankers because 
all such entities are either depository institutions or securities 
broker-dealers that were subject to anti-money laundering program 
requirements in the interim final rules.
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    The purpose of the temporary deferral was to permit FinCEN and 
Treasury to continue studying the money laundering risks posed by these 
institutions in order to develop appropriate anti-money laundering 
program requirements. The extension of the anti-money laundering 
program requirement to these financial institutions, most of which have 
never been subject to federal financial regulation, raises many 
significant practical and policy issues. An inadequate understanding of 
the affected industries could result in poorly conceived regulations 
that impose unreasonable regulatory burdens with little or no 
corresponding anti-money laundering benefits. FinCEN and Treasury are 
also aware that many of these financial institutions are sole 
proprietors or small businesses, and that any regulations affecting 
them must recognize this fact. As a result of our review of these 
industries, FinCEN and Treasury have published proposed rules that 
would apply the anti-money laundering program requirements of section 
352 to insurance companies \7\ and certain investment companies.\8\ 
FinCEN and Treasury are continuing to study the remainder of the 
deferred financial institutions and expect to issue proposed rules for 
all these financial institutions within the next six months. FinCEN and 
Treasury are today extending the temporary deferral concerning section 
352 pending the issuance of final rules for these financial 
institutions.
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    \7\ 67 FR 60625 (September 26, 2002).
    \8\ 67 FR 60617 (September 26, 2002).
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II. Analysis of the Current Interim Final Rule

A. Extension of Temporary Deferral of Section 352 Requirements for 
Certain BSA Financial Institutions

    As promulgated on April 29, 2002, 31 CFR 103.170 temporarily 
deferred, until October 24, 2002, the application of section 352 of the 
Act to dealers in precious metals, stones, or jewels; pawnbrokers; loan 
or finance companies; private bankers; insurance companies; travel 
agencies; telegraph companies; sellers of vehicles, including 
automobiles, airplanes, and boats; persons engaged in real estate 
closings and settlements; certain investment companies; commodity pool 
operators; and commodity trading advisors. This interim rule amends 
section 103.170 by removing the October 24, 2002, termination of the 
exemption for these financial institutions. As noted above, FinCEN and 
Treasury have issued proposed rules for some of these financial 
institutions, and expect to issue additional proposed rules in the 
coming months. FinCEN and Treasury believe it would be inappropriate to 
require these financial institutions to implement anti-money laundering 
programs during the pendency of the rulemaking process.

B. Clarification of Financial Institutions Subject to the Temporary 
Deferral

    The temporary deferral in section 103.170 was intended to apply to 
all financial institutions other than those for which anti-money 
laundering program requirements were previously in effect or 
specifically prescribed pursuant to the April 29, 2002, interim final 
rules. Although the prior interim final rules did not prescribe anti-
money laundering programs for certain financial institutions that are 
``banks'' as defined in 31 CFR 103.11(c) but which lack a federal 
functional regulator, those financial institutions were not 
specifically included in the list of financial institutions subject to 
the temporary deferral. Section 103.170 is being amended to include 
these financial institutions (trust companies and certain state-
chartered credit unions that are not federally insured, and private 
banks) within the temporary deferral.\9\ For the same reason, section 
103.170 is also being amended to include any person defined as a 
``financial institution'' in 31 CFR 103.11(n)(7).\10\
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    \9\ The financial institutions defined as ``banks'' in 31 CFR 
103.11(c) correspond substantially to the types of banks included in 
the list of ``financial institutions'' in 31 U.S.C. 5312(a)(2)(A)-
(F).
    \10\ 31 CFR 103.11(n)(7) defines generally as a financial 
institution ``a person subject to supervision by any state or 
federal bank supervisory authority.''
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C. Other Compliance Obligations Unaffected

    Treasury and FinCEN emphasize that the temporary deferrals do not 
in any way relieve any business from their obligations under law or 
regulation,

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including the requirements in 31 U.S.C. 5331 and 26 U.S.C. 6050I that 
they report transactions in cash or currency, or certain monetary 
instruments, that exceed $10,000. The regulations under these sections 
are codified at 31 CFR 103.30 and 26 CFR 1.6050I, respectively. Every 
business must ensure that it has appropriate procedures to report such 
transactions to FinCEN and the IRS using the single Form 8300 jointly 
prescribed by those agencies. All financial institutions are further 
reminded of the importance of reporting suspected terrorist activities 
or otherwise suspicious transactions to the appropriate law enforcement 
authorities. In addition, Form 8300 contains a box that may be checked 
to indicate that a particular transaction appears suspicious.

III. Administrative Procedure Act

    The provisions of section 352 of the Act, which requires all 
financial institutions to establish anti-money laundering programs, 
became effective April 24, 2002. This interim final rule imposes no 
requirements on any financial institution, and continues the exemption 
for certain financial institutions from these requirements. 
Accordingly, good cause is found to dispense with notice and public 
procedure as unnecessary pursuant to 5 U.S.C. 553(b)(B), and to make 
the provisions of the interim rule effective in less than 30 days 
pursuant to 5 U.S.C. 553(d)(1) and (3).

IV. Regulatory Flexibility Act

    Because no notice of proposed rulemaking is required for this 
interim final rule, the provisions of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.) do not apply.

V. Executive Order 12866

    This interim final rule is not a ``significant regulatory action'' 
as defined in Executive Order 12866. Accordingly, a regulatory 
assessment is not required.

List of Subjects in 31 CFR Part 103

    Banks and banking, Brokers, Counter money laundering, Counter-
terrorism, Currency, Foreign banking, Reporting and recordkeeping 
requirements.

Authority and Issuance

    For the reasons set forth above, FinCEN is amending 31 CFR Part 103 
as follows:

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

    1. The authority citation for part 103 is revised to read as 
follows:

    Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314 
and 5316-5332; title III, secs. 312, 313, 314, 319, 352, Pub. L. 
107-56, 115 Stat. 307.

Subpart I--Anti-Money Laundering Programs

    2. Section 103.170 is amended by revising the section heading and 
paragraphs (b) and (c), and adding paragraph (d) to read as follows:


Sec.  103.170  Exempted anti-money laundering programs for certain 
financial institutions.

* * * * *
    (b) Temporary exemption for certain financial institutions. (1) 
Subject to the provisions of paragraphs (c) and (d) of this section, 
the following financial institutions (as defined in 31 U.S.C. 
5312(a)(2) or (c)(1)) are exempt from the requirement in 31 U.S.C. 
5318(h)(1) concerning the establishment of anti-money laundering 
programs:
    (i) Dealer in precious metals, stones, or jewels;
    (ii) Pawnbroker;
    (iii) Loan or finance company;
    (iv) Travel agency;
    (v) Telegraph company;
    (vi) Seller of vehicles, including automobiles, airplanes, and 
boats;
    (vii) Person involved in real estate closings and settlements;
    (viii) Private banker;
    (ix) Insurance company;
    (x) Commodity pool operator;
    (xi) Commodity trading advisor; or
    (xii) Investment company.
    (2) Subject to the provisions of paragraphs (c) and (d) of this 
section, a bank (as defined in Sec.  103.11(c)) that is not subject to 
regulation by a Federal functional regulator (as defined in Sec.  
103.120(a)(2)) is exempt from the requirement in 31 U.S.C. 5318(h)(1) 
concerning the establishment of anti-money laundering programs.
    (3) Subject to the provisions of paragraphs (c) and (d) of this 
section, a person described in Sec.  103.11(n)(7) is exempt from the 
requirement in 31 U.S.C. 5318(h)(1) concerning the establishment of 
anti-money laundering programs.
    (c) Limitation on exemption. The exemptions described in paragraphs 
(a)(2) and (b) of this section shall not apply to any financial 
institution that is otherwise required to establish an anti-money 
laundering program by this subpart I.
    (d) Compliance obligations of deferred financial institutions. 
Nothing in this section shall be deemed to relieve an exempt financial 
institution from its responsibility to comply with any other applicable 
requirement of law or regulation, including title 31 of the U.S.C. and 
this part.

    Dated: October 28, 2002.
James F. Sloan,
Director, Financial Crimes Enforcement, Network.
[FR Doc. 02-27770 Filed 11-5-02; 8:45 am]
BILLING CODE 4810-02-P