[Federal Register Volume 68, Number 86 (Monday, May 5, 2003)]
[Proposed Rules]
[Pages 23653-23661]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-10839]


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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA44


Financial Crimes Enforcement Network; Proposed Amendments to the 
Bank Secrecy Act Regulations; Definition of Futures Commission 
Merchants and Introducing Brokers in Commodities as Financial 
Institutions; Requirement That Futures Commission Merchants and 
Introducing Brokers in Commodities Report Suspicious Transactions

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

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed amendments to the regulations 
implementing the statute generally referred to as the Bank Secrecy Act. 
The proposed amendments would add futures commission merchants and 
introducing brokers in commodities to the regulatory definition of 
``financial institution'' and would require that they report suspicious 
transactions to FinCEN. This is the most recent proposal to be issued 
by FinCEN concerning the reporting of suspicious transactions by the 
major categories of financial institutions operating in the United 
States as a part of the counter-money laundering program of the 
Department of the Treasury.

DATES: Comments on the proposed rules must be received by July 7, 2003.

ADDRESSES: Commenters are encouraged to submit comments by electronic 
mail because paper mail in the Washington, DC area may be delayed. 
Comments submitted by electronic mail may be sent to 
[email protected], with a caption, in the body of the text, 
``Attention: NPRM--Suspicious Transaction Reporting--Futures Commission 
Merchants and Introducing Brokers in Commodities.'' Comments also may 
be submitted by paper mail to: Office of Chief Counsel, Financial 
Crimes Enforcement Network, Department of the Treasury, P.O. Box 39, 
Vienna, Virginia 22183, Attention: NPRM: Suspicious Transaction 
Reporting--Futures Commission Merchants and Introducing Brokers in 
Commodities. Comments should be sent by one method only. For additional 
instructions on the submission of comments, see SUPPLEMENTARY 
INFORMATION under the heading ``Submission of Comments.''
    Inspection of comments. 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.

FOR FURTHER INFORMATION CONTACT: Alma M. Angotti, Senior Enforcement 
Counsel, and Judith R. Starr, Chief Counsel, FinCEN, at (703) 905-3590; 
David Vogt, Associate Director, and Donald Carbaugh, Chief, Depository 
Institutions, Office of Regulatory Programs, FinCEN, (202) 354-6400.

SUPPLEMENTARY INFORMATION:

I. Background

A. General Statutory Provisions

    The Bank Secrecy Act, Pub. L. 91-508, codified as amended at 12 
U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5314; 5316-5332 
(``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 (``USA Patriot 
Act''), Pub. L. 107-56.
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    The BSA defines the term ``financial institution'' to include, 
among other broad categories of institutions, any ``broker or dealer in 
securities or commodities.'' \2\ Section 321(b) of the USA Patriot Act 
amended the BSA to expressly include in the definition of ``financial 
institution'' futures commission merchants (``FCMs'') that are 
registered, or required to register, with the Commodity Futures Trading 
Commission (``CFTC'') under the Commodity Exchange Act (``CEA'').\3\
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    \2\ 31 U.S.C. 5312(a)(2)(H). The Secretary has clarified that 
the term ``broker or dealer in commodities'' in the BSA includes 
introducing brokers in commodities (``IB-Cs''). See 67 FR 21110, 
21111 n.5 (April 29, 2002) (anti-money laundering programs for 
certain financial institutions); 67 FR 48328, 48329 n.2 (July 23, 
2002) (customer identification procedures for FCMs and IB-Cs).
    \3\ 7 U.S.C. 1 et seq. Section 321(b) also provided that the 
term ``financial institution'' includes any commodity pool operator 
(``CPO'') and any commodity trading advisor (``CTA'') registered, or 
required to register, under the CEA. See 31 U.S.C. 5312(c). FinCEN 
has proposed rules that require unregistered investment companies, 
including commodity pools, to have anti-money laundering programs 
(``AMLPs''). FinCEN also intends to propose rules requiring CTAs to 
have AMLPs. A requisite element of these AMLPs is the requirement to 
have policies, procedures, and controls that are reasonably designed 
to ensure compliance with the BSA and its implementing regulations.
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    The Secretary of the Treasury was granted authority in 1992, with 
the enactment of 31 U.S.C. 5318(g),\4\ to require financial 
institutions to report suspicious transactions. Subsection (g)(1) 
states generally:
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    \4\ 31 U.S.C. 5318(g) was added to the BSA by section 1517 of 
the Annunzio-Wylie Anti-Money Laundering Act, Title XV of the 
Housing and Community Development Act of 1992, Pub. L. 102-550; it 
was expanded by section 403 of the Money Laundering Suppression Act 
of 1994, Title IV of the Riegle Community Development and Regulatory 
Improvement Act of 1994, Pub. L. 103-325, to require designation of 
a single government recipient for reports of suspicious 
transactions.

    The Secretary may require any financial institution, and any 
director, officer,

[[Page 23654]]

employee, or agent of any financial institution, to report any 
suspicious transaction relevant to a possible violation of law or 
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regulation.

Subsection (g)(2) provides further:

    A financial institution, and a director, officer, employee, or 
agent of any financial institution, who voluntarily reports a 
suspicious transaction, or that reports a suspicious transaction 
pursuant to this section or any other authority, may not notify any 
person involved in the transaction that the transaction has been 
reported.

Subsection (g)(3) provides that neither a financial institution, nor 
any director, officer, employee, or agent of any financial institution

that makes a disclosure of any possible violation of law or 
regulation or a disclosure pursuant to this subsection or any other 
authority * * * shall * * * be liable to any person under any law or 
regulation of the United States or any constitution, law, or 
regulation of any State or political subdivision thereof, for such 
disclosure or for any failure to notify the person involved in the 
transaction or any other person of such disclosure.

Finally, subsection (g)(4)(B) requires the Secretary of the Treasury, 
``to the extent practicable and appropriate,'' to designate ``a single 
officer or agency of the United States to whom such reports shall be 
made.'' \5\ The designated agency is in turn responsible for referring 
any report of a suspicious transaction to ``any appropriate law 
enforcement or supervisory agency.''
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    \5\ This designation does not preclude the authority of 
supervisory agencies to require financial institutions to submit 
other reports to the same agency or another agency ``pursuant to any 
other applicable provision of law.'' 31 U.S.C. 5318(g)(4)(C).
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    In the USA Patriot Act, Congress specifically addressed the issue 
of suspicious transaction reporting by FCMs. Section 356(b) of the USA 
Patriot Act provides that Treasury, in consultation with the CFTC, may 
issue a regulation under 31 U.S.C. 5318(g) requiring FCMs to report 
suspicious transactions. Treasury has decided that FCMs and IB-Cs are 
among the class of financial institutions from which suspicious 
transaction reporting should be required. FinCEN consulted extensively 
with the CFTC in the development of the proposed and amended rules.

B. Potential Money Laundering through FCMs and IB-Cs

    FCMs engage in the offer and sale of futures contracts and 
commodity options on behalf of customers. While FCMs may accept money, 
securities, or property from customers in connection with such offers 
and sales, such money, securities, and property typically are in the 
form of checks or wire transfers. FCMs do not normally receive or 
disburse currency to customers, and FCMs generally do not accept money 
orders or other monetary instruments from customers for deposit into 
the customers' futures or options accounts.
    IB-Cs also receive orders for futures and options transactions, but 
IB-Cs may not accept money, securities, or property from their 
customers.\6\ Instead, FCMs maintain customer funds on behalf of an IB-
C's customers and physically transmit or cause to be transmitted 
payments to margin, guarantee, secure, transfer, adjust, or settle 
futures and options transactions. Thus, all funds relating to 
introduced accounts are held with an FCM, and account statements 
reflecting such transactions must be issued by the FCM. Nevertheless, 
both FCMs and IB-Cs facilitate transfers or transmittals of funds for 
their customers.
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    \6\ In certain circumstances, an IB-C may accept a check made 
payable to an FCM for deposit in a qualifying account or for 
forwarding to the FCM. See 17 CFR 1.57(c).
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    Money laundering may occur through an FCM or IB-C, as it can occur 
through all categories of financial institutions.\7\ One way in which 
money laundering can be effected through an FCM or IB-C is through wash 
or other fictitious transactions that violate Section 4c(a)(2) of the 
CEA.\8\ In a wash transaction, a trader may engage in equal and 
opposite buy and sell transactions at the same or similar prices with 
the result that there is little or no change in the trader's financial 
position, and thus little or no market risk.\9\ To conceal wash trades, 
the trader may use multiple trading accounts established in the 
trader's own name or the name of an affiliated person or may enlist 
confederates to assist the trader in the illegal venture. To move or 
transfer funds offshore, the trader may engage in wash transactions 
through the use of multiple trading accounts or accounts established in 
various jurisdictions. Traders also may use a futures account, not for 
trading purposes, but rather solely as a vehicle for moving funds where 
they can be used to fund terrorist activity and other criminal 
activities.
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    \7\ See, e.g., United States v. Kneeland, 148 F.3d 6 (1st Cir. 
1998) (funds obtained in connection with a fraudulent scheme to 
solicit ``advance fees'' for purported loan transactions transferred 
from corporation to defendant's personal bank accounts, from there 
to defendant's brokerage account, from brokerage account to 
commodities broker, and finally, from commodities broker back to 
personal bank account).
    \8\ 7 U.S.C. 6c(a)(2).
    \9\ See, e.g., In re Collins [1986-1987 Transfer Binder] Comm. 
Fut. L. Rep. (CCH) ] 22,982 at 31,902 (CFTC April 14, 1986) (``the 
common denominator of the specific abuses prohibited in section 
4c(a)--wash sales, cross trades, and accommodation trades--and the 
central characteristic of the general category of fictitious sales, 
is the use of trading techniques that give the appearance of 
submitting trades to the open market while negating the price or 
price competition incidental to such a market.''). See also In re 
Bear Stearns & Co., [1990-1992 Transfer Binder] Comm. Fut. L. Rep. 
(CCH) ] 24,994 at 37,663 (CFTC January 25, 1991) (although in a wash 
transaction a trader gives the appearance of making independent 
decisions to buy and sell, the trader's actual intention is to 
``create a financial and position nullity extraneous to the price 
discovery and risk-shifting functions of the futures markets.'')
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    FinCEN has received reports of suspicious activity through futures 
accounts that have included structuring, unusual currency deposits 
(amounts not commensurate with business), unusual currency withdrawals, 
and reports of large cash deposits followed immediately by the wiring 
of the funds to foreign countries. In addition, as FCMs and IB-Cs play 
an important role in the global economy, they could be used to 
facilitate the layering and integration of illicit funds.
    Through their contacts with customers and their involvement in the 
order flow process, both FCMs and IB-Cs may be well situated to detect 
and deter suspicious transactions. Suspicious transactions may occur at 
the account-opening stage, in the order flow process, or at any time 
after an account is opened. Suspicious transactions may occur in an 
FCM's back office, on the trading floor, or through trading conducted 
on an electronic trading platform.

C. Application of the BSA to FCMs and IB-Cs

    Notwithstanding the BSA's definition of ``financial institution,'' 
application of the BSA to a business largely depends upon whether the 
business is included in the definition of ``financial institution'' at 
31 CFR 103.11(n) of the BSA regulations, which currently does not 
include FCMs or IB-Cs. Thus, FCMs and IB-Cs have not been subject to 
the general BSA reporting and recordkeeping requirements. Although 
those BSA requirements have been inapplicable to FCMs and IB-Cs, 
certain BSA requirements have applied to these businesses since the BSA 
regulations were first promulgated. In particular, FCMs and IB-Cs have 
been subject since 1972 to the requirement to report the transportation 
of currency or monetary instruments into or out of the United States 
\10\ and the requirement to report

[[Page 23655]]

foreign financial accounts,\11\ as both of these requirements apply to 
persons without regard to whether they are financial institutions. In 
addition, certain FCMs have been subject to suspicious transaction 
reporting since 1996. In particular, FCMs that are affiliates or 
subsidiaries of banks or bank holding companies generally have been 
required to report suspicious transactions by virtue of rules issued by 
the federal bank supervisory agencies (the Board of Governors of the 
Federal Reserve System (``Federal Reserve''), the Office of the 
Comptroller of the Currency (``OCC''), the Federal Deposit Insurance 
Corporation (``FDIC''), the Office of Thrift Supervision (``OTS''), and 
the National Credit Union Administration (``NCUA'')).\12\ The proposed 
suspicious activity rule, discussed below, applies to all FCMs and IB-
Cs, without regard to whether they are affiliates or subsidiaries of 
banks or bank holding companies.\13\
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    \10\ Under 31 CFR 103.23, persons transporting (or causing to be 
transported) currency or other monetary instruments of more than 
$10,000 into or out of the United States must make a report to 
Treasury using the Form 4790, Report of International Transportation 
of Currency or Monetary Instruments (``CMIR'').
    \11\ Under 31 CFR 103.24, persons subject to the jurisdiction of 
the United States must make a report to Treasury if the person has a 
financial interest in, or signature or other authority over, a bank, 
securities or other financial account in a foreign country. The 
report is made on Form TD F 90.22-1, Report of Foreign Bank and 
Financial Accounts (``FBAR'').
    \12\ In April 1996, banks, thrifts, and other banking 
organizations became subject to a requirement to report suspicious 
transactions pursuant to final rules issued by FinCEN, under the 
authority contained in 31 U.S.C. 5318(g). In collaboration with 
FinCEN, the federal bank supervisors concurrently issued suspicious 
transaction reporting rules under their own authority. See 12 CFR 
208.62 (Federal Reserve Board); 12 CFR 21.11 (OCC); 12 CFR 353.3 
(FDIC); 12 CFR 563.180 (OTS); and 12 CFR 748.1 (NCUA). Certain bank 
supervisory agency rules apply to banks, non-depository institution 
affiliates and subsidiaries of banks and bank holding companies 
(including FCMs), and bank holding companies (including bank holding 
companies that are themselves FCMs). See, e.g., 12 CFR 225.4(f), 
which subjects non-bank subsidiaries of bank holding companies to 
the suspicious transaction reporting requirements of Regulation H of 
the Board of Governors at 12 CFR 208.62.
    \13\ On December 24, 2002, Federal Reserve staff issued a 
supervisory letter stating that a nonbank subsidiary of a bank 
holding company or state member bank subject to the Federal 
Reserve's SAR rules will be deemed to be in compliance with such 
rules if it makes reports of suspicious transactions under a 
separately applicable Treasury regulation. The supervisory letter 
also provides that the Federal Reserve Board is expected to revise 
the relevant regulations in early 2003. See SR 02-24 (available at 
http://www.federalreserve.gov/boarddocs/SRLETTERS/2002/sr0224.htm).
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    The release accompanying the issuance of a suspicious activity 
reporting rule for securities brokers or dealers (``BDs'')\14\ 
clarified that dual registrants--persons registered both with the CFTC 
as FCMs \15\ and with the Securities and Exchange Commission (``SEC'') 
as BDs \16\--are not required to file SARs under that rule with respect 
to transactions that are subject to the CFTC's exclusive jurisdiction. 
This was intended to preserve the status quo while FinCEN consulted 
with the CFTC about the development of a SAR requirement for FCMs. Upon 
the effectiveness of a rule covering all FCMs, the need for such a 
carve out will be mooted. The same form (Form SAR-SF) \17\ will be used 
for reporting by members of both the securities and futures industries. 
So long as an entity required to report under either the BD or FCM rule 
files the form for a given suspicious transaction, it will be in 
compliance with its SAR obligation.
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    \14\ 67 FR 44048 (July 1, 2002).
    \15\ Section 4f(a)(1) of the CEA, 7 U.S.C. 6f(a)(1).
    \16\ Section 15(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act''), 15 U.S.C. 78o(b)(1).
    \17\ See infra note 44.
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    FCMs and IB-Cs also are subject to new provisions added to the BSA 
by the USA Patriot Act. For example, FCMs and IB-Cs are subject to the 
anti-money laundering program rules of 31 U.S.C. 5318(h).\18\ Further, 
FinCEN has issued a joint notice of proposed rulemaking with the CFTC 
that would require FCMs and IB-Cs to establish procedures to verify the 
identity of customers opening accounts, maintain records of the 
information used to verify customer identity, and consult lists of 
known or suspected terrorists and terrorist organizations.\19\
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    \18\ Regulations implementing this provision were issued April 
29, 2002. See 67 FR 21110.
    \19\ See 67 FR 48328 (July 23, 2002).
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D. The Registration and Regulation of FCMs and IB-Cs

    An FCM is defined in the CEA as an individual, association, 
partnership, corporation, or trust that is engaged in soliciting or 
accepting orders and funds for the purchase or sale of a commodity for 
future delivery on or subject to the rules of a contract market or 
derivatives transaction execution facility (``DTEF'').\20\ An IB-C is 
similarly defined,\21\ except that an IB-C may not accept money, 
securities, or property (or extend credit in lieu thereof) to margin, 
guarantee, or secure any trades or contracts. The CEA requires FCMs and 
IB-Cs to register pursuant to the procedures of Section 4f(a)(1) of the 
CEA.\22\ As of December 31, 2002, there were 168 FCMs and 1,423 IB-Cs 
(domestic and foreign) that had registered with the CFTC pursuant to 
this provision.
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    \20\ 7 U.S.C. 1a(20).
    \21\ 7 U.S.C. 1a(23) (defining the term ``introducing broker'').
    \22\ 7 U.S.C. 6d(a)(1).
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    The Commodity Futures Modernization Act of 2000 (``CFMA'') \23\ 
amended both the CEA and the Exchange Act to remove a long-standing 
statutory prohibition on the trading of security futures products 
(``SFPs'').\24\ A person may not effect SFP transactions unless the 
person registers with both the SEC and the CFTC. The CFMA amended both 
the CEA and the Exchange Act to permit ``notice registration'' 
procedures for persons that are required to register with the CFTC or 
the SEC solely because they are effecting SFP transactions. Under these 
notice registration procedures with respect to SFPs, an FCM or IB-C can 
register with the SEC as a ``Notice BD,'' \25\ and a BD can register 
with the CFTC as a ``Notice FCM'' or ``Notice IB-C,'' \26\ simply by 
filing a notice with the other regulator. Notice BDs are exempt from 
certain substantive provisions of the Exchange Act,\27\ and Notice FCMs 
and Notice IB-Cs are exempt from certain substantive provisions of the 
CEA.\28\ These streamlined notice registration provisions allow FCMs, 
IB-Cs, and securities BDs to participate in SFP business without being 
subject to conflicting and/or duplicative regulation. The CFMA further 
amended the Exchange Act to clarify that an FCM or IB-C that also is a 
Notice BD to effect SFP transactions is not subject to routine periodic 
examination by the SEC.\29\
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    \23\ Pub. L. 103-556, 114 Stat. 2763 (December 21, 2000).
    \24\ A ``security future'' is defined in the CEA and the 
Exchange Act as a contract of sale for future delivery on a single 
security or narrow-based security index (7 U.S.C. 1a(31) and 15 
U.S.C. 78c(a)(55)), and an SFP is defined as a security future or 
any put, call, straddle, option, or privilege on any security future 
(7 U.S.C. 1a(32) and 15 U.S.C. 78c(a)(56)). The CFMA amended the 
Exchange Act definitions of ``security'' and ``equity security'' to 
include security futures (15 U.S.C. 78c(a)(1) and 15 U.S.C. 
78c(a)(11), respectively). As a result of these amendments, an SFP 
is both a security and a futures contract (or option thereon) and is 
thus subject to the jurisdiction of both the CFTC and the SEC.
    \25\ Section 15b(11) of the Exchange Act, 15 U.S.C. 78o(b)(11).
    \26\ Section 4f(a)(2) of the CEA, 7 U.S.C. 6f(a)(2).
    \27\ See 15 U.S.C. 78o(b)(11)(b).
    \28\ See 7 U.S.C. 4f(a)(4)(A).
    \29\ Section 17(b) of the Exchange Act, 15 U.S.C. 78q(b)(4)(A).
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    The regulation of the futures industry in general, and of FCMs and 
IB-Cs in particular, relies on both the CFTC and the designated self-
regulatory organizations (``DSROs''). At present, the DSROs consist of 
any board of trade that is designated as a contract market,\30\ and any 
futures association registered,

[[Page 23656]]

under the CEA.\31\ To date, the National Futures Association (``NFA'') 
is the only registered futures association.\32\
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    \30\ Section 5 of the CEA, 7 U.S.C. 7.
    \31\ Section 17 of the CEA, 7 U.S.C. 21.
    \32\ As a result of amendments made to the CEA by the CFMA, 
however, a DTEF may serve as DSRO. To date, there are no registered 
DTEFs.
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II. Specific Provisions

A. 103.11(ii)--Meaning of Terms

1. Definitions of Futures Commission Merchant and Introducing Broker-
Commodities
    The definition of ``financial institution'' in 31 CFR 103.11(n) 
would be amended to add FCMs and IB-Cs as these terms are proposed to 
be defined in paragraphs (zz) and (aaa), respectively. Adding FCMs and 
IB-Cs to the definition of financial institution is intended to affirm 
the Secretary's view that such firms are among the class of financial 
institutions that present possible money laundering risks and thus 
should be subject to regulations designed to deter and detect money 
laundering and other criminal activities.
    Including FCMs and IB-Cs in the definition of financial institution 
under the BSA regulations will subject these businesses to the general 
BSA recordkeeping and record retention rules.\33\ Most of the records 
specifically identified in the BSA regulations are documents that FCMs 
and IB-Cs must obtain and retain pursuant to existing CFTC regulations. 
In addition, FCMs and IB-Cs will be required to report currency 
transactions under 31 CFR 103.22 and maintain records associated with 
such reports under 103.28, as well as comply with the funds transfer 
rule requirements of 103.33(f). As a result, once the final rule based 
on this notice of proposed rulemaking is implemented, FCMs and IB-Cs 
will no longer be subject to cash reporting under 31 U.S.C. 5331.\34\
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    \33\ See 31 CFR 103.33 and 103.38.
    \34\ See 31 U.S.C. 5331(c) and 26 U.S.C. 6050I(c).
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    Proposed paragraphs (zz) and (aaa) set forth the definitions of FCM 
and IB-C, respectively. These terms would be defined as any person 
registered or required to be registered as an FCM or IB-C with the 
CFTC,\35\ but would exclude BDs that have notice registered with the 
CFTC as FCMs or IB-Cs for the sole purpose of effecting SFP 
transactions. For these persons, FinCEN believes that the BSA rules of 
the primary federal supervisory agency for such entities should apply, 
and that authority to examine for compliance with those rules must 
remain with the agency with which the entities are primarily 
registered. Thus, a BD that is notice registered with the CFTC must 
comply with the BSA rules applicable to BDs, and further, such BD will 
be examined for BSA compliance by the SEC. A parallel change also is 
being made to the definition of ``broker or dealer in securities'' in 
the BSA regulations. Thus, an FCM or IB-C that is notice registered 
with the SEC must comply with the BSA rules applicable to FCMs and IB-
Cs, and further, such FCM or IB-C shall be examined for BSA compliance 
by the CFTC and the relevant DSROs.
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    \35\ There are two types of IB-Cs, guaranteed and non-
guaranteed. A guaranteed IB is one that elects to operate pursuant 
to a written guarantee agreement with an FCM instead of 
independently meeting its own capital requirements. See, e.g., 17 
CFR 1.17(a)(2)(ii). An independent IB-C, by contrast, is one that 
elects to meet its own capital requirements. Both types of IB-Cs 
engage in the offer and sale of futures contracts and commodity 
options on behalf of customers and facilitate transfers or 
transmittals of funds for their customers. Thus, they present the 
same or similar money laundering risks, and Treasury sees no reason 
to draw a distinction between IB-Cs that are guaranteed and those 
that are not. Therefore, all IB-Cs would be covered by the proposed 
rule as IB-Cs.
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    With respect to those entities that are dual registrants with both 
the CFTC and the SEC for purposes of futures and securities 
transactions other than SFPs, FinCEN intends for this rule to have the 
same effect as 31 CFR 103.19(ii), which is the rule that requires 
suspicious activity reporting for BDs. That is, dual registrants who 
are in compliance with the suspicious activity reporting requirements 
for BDs under 31 CFR 103.19(ii) also shall be deemed to be in 
compliance with this proposed rule, and dual registrants who are in 
compliance with this rule shall be deemed to be in compliance with 31 
CFR 103.19(ii). In this way, it is anticipated that dual registrants 
will not be subject to different or conflicting suspicious activity 
reporting requirements for the various aspects of their businesses.
2. Definitions of Transaction, Commodity, Contract of Sale, and Option
    The definition of ``transaction'' in the regulations under the BSA, 
which is set forth in paragraph (ii), conforms generally to the 
definition Congress added to title 18 when it criminalized money 
laundering in 1986.\36\ The term is broad and is intended to reach all 
of the various types of transactions that may occur at a financial 
institution. Amended paragraph (ii) would specifically add futures 
transactions, i.e., transactions involving any contract of sale of a 
commodity for future delivery, any option on any contract of sale for 
future delivery, and any option on a commodity, to the list of 
transactions subject to BSA requirements. The definition is not 
restricted to transactions conducted on a designated contract market or 
a DTEF.\37\
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    \36\ See Pub. L. 99-570, Title XIII, 1352(a), 100 Stat. 3207-18 
(Oct. 27, 1986), codified at 18 U.S.C. 1956.
    \37\ Thus, for example, the term ``transaction'' would include 
any transaction by an FCM or IB-C in a foreign currency futures 
contract, any option on any foreign currency futures contract, or 
any option on a foreign currency that occurs on an off-exchange 
basis. See 7 U.S.C. 2(c)(1)-(2).
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    Proposed paragraphs (xx), (yy), and (bbb) set forth definitions of 
``commodity,'' ``contract of sale,'' and ``option on a commodity.'' 
These are definitions based on Sections 1a(4), 1a(7), and 1a(26), 
respectively, in the CEA.\38\
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    \38\ 7 U.S.C. 1a(4), 1a(7) and 1a(26), respectively.
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B. 103.17--Reports by FCMs and IB-Cs of Suspicious Transactions

    1. General. Proposed section 103.17 would require FCMs and IB-Cs to 
report suspicious transactions that are conducted or attempted by, at, 
or through an FCM or IB-C and involve or aggregate at least $5,000 in 
funds or other assets. It is important to recognize that transactions 
are reportable under this proposal and 31 U.S.C. 5318(g) whether or not 
they involve currency.\39\ The proposal also contains language designed 
to encourage the reporting of transactions that appear relevant to 
possible violations of law or regulation even in cases in which the 
rule does not explicitly so require, for example in the case of a 
transaction falling below the $5,000 threshold in the rule.
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    \39\ Many currency transactions are not indicative of money 
laundering or other violations of law, a fact recognized both by 
Congress, in authorizing reform of the currency transaction 
reporting system, and by FinCEN in issuing rules to implement that 
system (see 31 U.S.C. 5313(d) and 31 CFR 103.22(d), 63 FR 50147 
(September 21, 1998)). But many non-currency transactions (for 
example, funds transfers) can indicate illicit activity, especially 
in light of the breadth of the statutes that make money laundering a 
crime. See 18 U.S.C. 1956 and 1957.
---------------------------------------------------------------------------

    Proposed paragraph (a)(2) would require reporting if the FCM or IB-
C knows, suspects, or has reason to suspect that the transaction (or 
pattern of transactions of which the transaction is a part) is one of 
four classes of transactions (described more fully below) requiring 
reporting. The ``knows, suspects, or has reason to suspect'' standard 
incorporates a concept of due diligence in the reporting requirement.
    The first class of transactions requiring reporting, described in 
proposed paragraph (a)(2)(i), includes transactions involving funds 
derived from illegal activity or intended or conducted in order to hide 
or disguise

[[Page 23657]]

funds or assets derived from illegal activity. The second class of 
transactions, described in proposed paragraph (a)(2)(ii), involves 
transactions designed, whether through structuring or other means, to 
evade the requirements of the BSA. The third class of transactions, 
described in proposed paragraph (a)(2)(iii), involves transactions that 
appear to serve no business or apparent lawful purpose, and for which 
the FCM or IB-C knows of no reasonable explanation after examining the 
available facts relating to the transaction and the parties. The fourth 
class of transactions, described in proposed paragraph (a)(2)(iv), 
involves the use of the FCM or IB-C to facilitate a criminal 
transaction.
    A determination as to whether a report is required must be based on 
all the facts and circumstances relating to the transaction and 
customer in question. Different fact patterns may lead to different 
determinations. In some cases, the facts of the transaction may 
indicate the need to report. For example, frequent and large-scale 
usage of wire transfers, including wire transfers to or from locations 
outside of the United States, from an account with only nominal futures 
activity may be indicative of suspicious activity. In other instances, 
the transaction or activity itself may be sufficiently suspicious to 
warrant reporting, notwithstanding the facts. Thus, if a customer 
engages in wash transactions or other fictitious or non-bona fide 
transactions that violate the CEA, a suspicious activity report must be 
filed.\40\ Similarly, the fact that a customer unreasonably refuses to 
provide information necessary for the FCM or IB-C to make required 
reports, retain records as required, identify or verify the identity of 
a customer, or otherwise comply with the BSA; provides information that 
the FCM or IB-C determines to be false; or seeks to change or cancel a 
transaction after such person is informed of currency transaction 
reporting or information verification or recordkeeping requirements 
relevant to the transaction, would all indicate that a suspicious 
activity report should be filed. As the proposed rule would make clear, 
the FCM or IB-C may not notify the customer that it intends to file or 
has filed a suspicious transaction report with respect to the 
customer's activity.
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    \40\ As discussed below, however, proposed paragraph (c)(1)(ii) 
would provide an exception from the suspicious reporting 
requirements for violations of the CEA by the FCM, IB-C, or any of 
its officers, directors, employees, or associated persons that are 
reported to the CFTC, a registered futures association or any 
``registered entity,'' as that term is defined in 7 U.S.C. 1a(29).
---------------------------------------------------------------------------

    In other situations, a more involved analysis and judgment may be 
needed to determine whether a transaction is suspicious within the 
meaning of the proposed rule. Transactions that raise the need for such 
judgments may include, for example: (i) Transmission or receipt of 
funds transfers without normal identifying information or in a manner 
that indicates an attempt to disguise or hide the country of origin or 
destination or the identity of the customer sending the funds or of the 
beneficiary to whom the funds are sent; (ii) repeated pattern activity 
by the customer, such as where the customer repeatedly makes 
unexplainable, frequent deposits or withdrawals ; or (iii) repeated use 
of an account as a temporary resting place for funds from multiple 
sources without a clear business purpose. The judgments involved also 
will extend to whether the facts and circumstances and the 
institution's knowledge of its customer provide a reasonable 
explanation for the transaction or activity that removes it from the 
suspicious category.
    An FCM may carry, and an IB-C may introduce, intermediated accounts 
including omnibus accounts and accounts for collective investment 
vehicles such as commodity pools. In such circumstances, the FCM and 
IB-C may have little or no contact with or information about the 
ultimate beneficial owners of such accounts. FinCEN has proposed anti-
money laundering program rules for commodity pools, and is today also 
proposing such rules CTAs. Monitoring for suspicious transactions is an 
integral part of such programs. These independent suspicious activity 
reporting obligations of intermediaries such as CTAs, however, do not 
reduce the obligation on an FCM or IB-C imposed by this proposed rule 
to monitor transactions based on the facts and circumstances with which 
it is presented, in order to determine if a transaction is suspicious. 
In addition, omnibus accounts maintained for certain foreign financial 
institutions fall within the definition of ``correspondent account'' 
under section 312 of the USA Patriot Act and as such are subject to due 
diligence, and possibly enhanced due diligence, requirements under that 
section of that Act and the implementing regulations.\41\
---------------------------------------------------------------------------

    \41\ See 67 FR 37736 (May 30, 2002) (proposed rule) and 67 FR 
48348 (July 23, 2002) (interim final rule).
---------------------------------------------------------------------------

    The means of commerce and the techniques of money launderers are 
continually evolving, and there is no way to provide an exhaustive list 
of suspicious transactions. FinCEN will continue its dialogue with the 
CFTC, NFA, the futures exchanges, and the futures industry itself about 
the manner in which a combination of government guidance, training 
programs, and government-industry information exchange can smooth the 
way for operation of the new suspicious activity reporting system in as 
flexible and cost-efficient a way as possible.
    2. Reporting Threshold. FinCEN is aware of industry concern that 
the $5,000 threshold would operate mechanically to require FCMs and IB-
Cs to establish programs to examine every transaction occurring at or 
above the threshold level. The suspicious transaction reporting rules, 
however, are not intended to operate (and indeed cannot properly 
operate) in a mechanical fashion. Rather, the suspicious transaction 
reporting requirements are intended to function in such a way as to 
have financial institutions evaluate customer activity and 
relationships for money laundering risks.\42\
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    \42\ Thus, for example, sizable futures transactions conducted 
for a well established commodity pool operated in accordance with 
Part 4 of the CFTC's regulations may require less scrutiny than a 
futures transaction conducted for an individual customer located in 
a jurisdiction that has been identified as a non-cooperative country 
or territory by the Financial Action Task Force on Money Laundering.
---------------------------------------------------------------------------

    3. Transactions Involving Both an FCM and an IB-C. Proposed 
paragraph (a)(3) provides that the obligation to identify and report 
properly a suspicious transaction rests with each FCM and IB-C involved 
in the transaction. While the proposed rule sets forth the general 
principle regarding the obligation to report when a transaction 
involves both an FCM and an IB-C, the proposed rule also provides that 
only one report needs to be filed with FinCEN as long as the report 
that is filed contains all the relevant facts concerning the 
transaction. This provision is intended to avoid duplicative and 
redundant reporting. FinCEN expects that in these situations, an FCM 
and IB-C will consult with each other in preparing the report to ensure 
that only one accurate and complete report is filed concerning a 
particular transaction.
    4. Filing Procedures. Proposed paragraph (b) sets forth the filing 
procedures to be followed by an FCM or IB-C making reports of 
suspicious transactions. Within 30 days after an FCM or IB-C becomes 
aware of a suspicious transaction, the business must report the 
transaction by

[[Page 23658]]

completing a SAR-SF and filing it in a central location to be 
determined by FinCEN.\43\ The proposed rule also makes special 
provision for situations that require immediate attention, such as 
ongoing money laundering schemes or terrorist financing. In that event, 
the FCM or IB-C would have to notify immediately, by telephone, an 
appropriate law enforcement authority in addition to filing a SAR-SF. 
The proposed rule also permits, but does not require, FCMs and IB-Cs to 
notify the CFTC in addition to contacting law enforcement and filing a 
SAR-SF.\44\
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    \43\ A draft of the SAR-SF was published for comment in the 
Federal Register on August 5, 2002; 67 FR 50751 (August 5, 2002); 
the form became final on December 26, 2002 and is available on 
FinCEN's Web site at http://www.fincen.gov. Once the proposed rule 
is finalized, FinCEN intends to conform the instructions to the SAR-
SF to specifically address FCM responsibilities under the rule.
    \44\ In addition, the proposed rule reminds FCMs and IB-Cs of 
FinCEN's Financial Institutions Hotline (1-866-556-3974) for use by 
financial institutions wishing voluntarily to report to law 
enforcement suspicious transactions that may relate to terrorist 
activity. FCMs and IB-Cs reporting suspicious activity by calling 
the Financial Institutions Hotline must still file a timely SAR-SF 
to the extent required by the proposed rule.
---------------------------------------------------------------------------

    5. Exceptions. Proposed paragraph (c) sets forth two exceptions to 
the reporting requirement that would apply to an FCM or IB-C. A report 
would not have to be filed to report a robbery or burglary that is 
reported to law enforcement. A report also would not have to be filed 
concerning possible violations of the CEA, the rules promulgated by the 
CFTC, or the rules of any registered futures association or registered 
entity by an employee or other associated person of an FCM or IB-C, 
provided that such violations are reported to the CFTC, a registered 
futures association, or a registered entity. This exception would not 
encompass reports of BSA violations made to the CFTC or a registered 
futures association.
    6. Retention of Records. Proposed paragraph (d) would require FCMs 
and IB-Cs to maintain a copy of any SAR-SF that is filed with FinCEN 
and all original related supporting documentation for a period of five 
years from the date of filing. Nothing in the proposed rule modifies, 
limits, or supersedes section 101 of the Electronic Records in Global 
and National Commerce Act,\45\ and thus an FCM or IB-C may make and 
maintain records either as originals or in electronic format as 
permitted under existing CFTC rules.\46\ Regardless, the FCM or IB-C 
would have to make the supporting documentation available to FinCEN, 
the CFTC, NFA, any appropriate law enforcement agency, and, as 
explained below, any registered futures association or registered 
entity as permitted in paragraph (g), upon request.
---------------------------------------------------------------------------

    \45\ Pub. L. 106-229, 114 Stat. 464 (15 U.S.C. 7001) (E-Sign 
Act).
    \46\ See, e.g., 17 CFR 1.4 and 1.31.
---------------------------------------------------------------------------

    7. Non-Disclosure. Proposed paragraph (e) reflects the statutory 
bar against the disclosure of information filed in, or the fact of 
filing, a suspicious activity report (whether the report is required by 
the proposed rule or is filed voluntarily).\47\ Thus, the paragraph 
specifically prohibits persons filing a SAR-SF from making any 
disclosure either about the report or the supporting documentation 
unless the disclosure is made to law enforcement, relevant regulatory 
agencies such as the CFTC, or a DSRO.
---------------------------------------------------------------------------

    \47\ See 31 U.S.C. 5318(g)(2).
---------------------------------------------------------------------------

    8. Safe Harbor from Civil Liability. Proposed paragraph (f) 
incorporates the BSA's statutory protection from civil liability for 
making or filing a report of a suspicious transaction or for failing to 
disclose the fact that a report has been made or filed. The specific 
reference to arbitration reflects the clarification provided in the USA 
Patriot Act that the safe harbor for suspicious transaction reporting 
would apply in arbitration proceedings. Because some disputes in the 
futures industry are resolved under a reparations procedure provided 
for by the CEA,\48\ paragraph (f) proposes to clarify that the safe 
harbor also applies in reparations proceedings. FinCEN intends to work 
with the CFTC, the DSROs, and industry representatives to ensure that 
appropriate educational materials are delivered to compliance and 
litigation personnel.
---------------------------------------------------------------------------

    \48\ See 7 U.S.C. 18 and 7 CFR Part 12.
---------------------------------------------------------------------------

    It must be noted that, while the proposal reiterates and clarifies 
the broad statutory protection from liability for making reports of 
suspicious transactions and for failing to disclose the fact of such 
reporting, the regulatory provisions do not extend the scope of either 
the statutory prohibition or the statutory protection. The prohibition 
on disclosure (other than as required under the proposed rule) applies 
regardless of any protection from liability. This means, for instance, 
that during an arbitration or reparations proceeding, an FCM or IB-C 
would not be permitted to provide a copy of a SAR-SF, or disclose the 
fact that one had been filed, to any participant in the proceeding, 
including as applicable, the arbitrator, judgment officer, or 
administrative law judge.
    9. Examination. Proposed paragraph (g) notes that compliance with 
the obligation to report suspicious transactions will be examined, and 
provides that failure to comply with the rule may constitute a 
violation of the BSA and the BSA regulations. This paragraph also 
clarifies that an FCM or IB-C must provide access to any SAR-SF that it 
has filed, along with any supporting documentation, to the CFTC and any 
registered futures association or registered entity that has authority 
to examine the institution.
    10. Proposed Effective Date. Proposed paragraph (h) provides that 
the new suspicious transaction reporting requirements would be 
effective 180 days after the date on which the final regulations to 
which this notice of proposed rulemaking relates are published in the 
Federal Register.

C. 103.33--Records To Be Made and Retained by Financial Institutions

    The addition of FCMs and IB-Cs to the ``financial institution'' 
definition also will make such persons subject to the recordkeeping and 
reporting requirements set forth in section 103.33. This paragraph 
requires specific records concerning transfers and transmittals of 
funds in the amount of $3,000 or more. The proposed amendments to 
paragraphs (e)(6)(i) and (f)(6)(i) of Section 103.33 would set forth 
exceptions for any transfers or transmittals of funds involving either 
an FCM or an IB-C. The proposed inclusion of FCMs and IB-Cs within the 
exceptions is intended to provide parallel treatment for records 
required to be made and kept by banks, BDs, FCMs, and IB-Cs.

D. 103.56--Examination

    Under the current BSA delegation framework, the Internal Revenue 
Service is responsible for examining all financial institutions (except 
for BDs) that are not examined by the federal bank supervisory 
agencies. As a result, the Internal Revenue Service is the agency 
charged with examining FCMs and IB-Cs for compliance with the BSA 
requirements currently applicable to them.\49\ This proposed rule would 
expand the scope of the BSA rules applicable to FCMs and IB-Cs by 
including them in the regulatory definition of ``financial 
institution.'' FinCEN believes that it therefore is appropriate to 
shift the responsibility for examining FCMs and IB-Cs under the BSA, 
from the Internal Revenue Service to the CFTC. Thus, 31 CFR 103.56, 
which sets forth delegations of BSA authority, is proposed to be

[[Page 23659]]

amended to provide the CFTC with examination authority with respect to 
FCMs and IB-Cs for BSA compliance.
---------------------------------------------------------------------------

    \49\ NFA, however, also examines FCMs and IB-Cs for compliance 
with the AML program requirement, based on NFA Compliance Rule 2-
9(c).
---------------------------------------------------------------------------

III. Submission of Comments

    All comments will be available for public inspection and copying, 
and no material in any comments, including the name of any person 
submitting comments, will be recognized as confidential. Accordingly, 
material not intended to be disclosed to the public should not be 
submitted.

IV. Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (``RFA'') \50\ requires that 
agencies, in proposing rules, consider the impact of those rules on 
small businesses. The rules proposed today would affect FCMs and IB-Cs. 
The CFTC has established certain definitions of ``small entities'' to 
be used by the CFTC in evaluating the impact of its rules on such 
entities in accordance with the RFA.\51\ The CFTC previously has 
determined that FCMs are not small entities for the purpose of the 
RFA.\52\ Therefore, the requirements of the RFA do not apply to those 
entities.
---------------------------------------------------------------------------

    \50\ 5 U.S.C. 601 et seq.
    \51\ 47 FR 18618 (April 30, 1982).
    \52\ Id. at 18619-20.
---------------------------------------------------------------------------

    With respect to IB-Cs, the CFTC has stated that it would evaluate 
within the context of a particular proposal whether all or some 
affected IB-Cs should be considered small entities, and if so, that it 
would analyze the economic impact on them of any rule.\53\ All IB-Cs, 
including small IB-Cs, would be affected by the proposed rules. As 
noted above, the inclusion of IB-Cs within the ``financial 
institution'' definition in the BSA regulations would make IB-Cs 
subject to all of the same requirements that apply to other financial 
institutions, such as banks and introducing and clearing BDs. 
Nevertheless, FinCEN does not believe that these requirements modify 
the existing obligations of IB-Cs, since the transactional information 
required to be made and retained under the proposed rules would be 
information that already is required to be made and retained in the 
ordinary course of an IB-C's business.
---------------------------------------------------------------------------

    \53\ 47 FR 18618, 18618-18620 (April 30, 1982).
---------------------------------------------------------------------------

    Concerning the filing of suspicious activity reports by IB-Cs, 
FinCEN does not believe that the economic impact of the proposed rule 
will be significant. Due to mandatory provisions of the USA Patriot Act 
\54\ and obligations imposed by the NFA,\55\ FCMs and IB-Cs already are 
obligated to establish AMLPs that include policies, procedures, and 
internal controls that are reasonably designed to assure compliance 
with the BSA and the implementing regulations. A set of systems and 
procedures designed to detect and require reporting of suspicious 
activity complements these existing program requirements. As the NFA's 
interpretive notice to Compliance Rule 2-9(c) makes clear, an IB-C may 
tailor its program based on the type of its business, the size and 
complexity of its operations, the breadth and scope of its customer 
base, the number of firm employees, and the firm's resources.
---------------------------------------------------------------------------

    \54\ 31 U.S.C. 5318(h).
    \55\ NFA Compliance Rule 2-9(c).
---------------------------------------------------------------------------

    Based on the foregoing, FinCEN does not believe the proposed rules 
will have a significant economic impact on a substantial number of 
small entities. Accordingly, FinCEN hereby certifies, pursuant to 
Section 3(a) of the RFA,\56\ that the proposed rules will not have a 
significant economic impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \56\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

V. Executive Order 12866

    The Department of the Treasury has determined that this proposed 
rule is not a ``significant regulatory action'' for purposes of 
Executive Order 12866.

VI. Unfunded Mandates Act of 1995 Statement

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (Unfunded Mandates Act), March 22, 1995, requires that an agency 
prepare a budgetary impact statement before promulgating a rule that 
includes a federal mandate that may result in expenditure by state, 
local, and tribal governments, in the aggregate, or by the private 
sector, of $100 million or more in any one year. If a budgetary impact 
statement is required, section 202 of the Unfunded Mandates Act also 
requires an agency to identify and consider a reasonable number of 
regulatory alternatives before promulgating a rule. FinCEN has 
determined that it is not required to prepare a written statement under 
section 202 and has concluded that on balance this proposal provides 
the most cost-effective and least burdensome alternative to achieve the 
objectives of the rule.

VII. Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking is being submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act 
(``PRA'').\57\ Comments on the collection of information should be sent 
(preferably by fax (202-395-6974)) to Desk Officer for the Department 
of 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 July 7, 
2003.
---------------------------------------------------------------------------

    \57\ 44 U.S.C. 3507(d).
---------------------------------------------------------------------------

    In accordance with the PRA \58\ and its implementing 
regulations,\59\ the following information concerning the collection of 
information as required by the proposed rules \60\ is presented to 
assist those persons wishing to comment on the information collection.
---------------------------------------------------------------------------

    \58\ 44 U.S.C. 3506(c)(2)(A).
    \59\ 5 CFR part 1320.
    \60\ 31 CFR 103.17.
---------------------------------------------------------------------------

    FinCEN anticipates that the proposed suspicious activity reporting 
requirements, if adopted as proposed, would result in the annual filing 
of a total of 1,591 SAR-SFs by FCMs and IB-Cs. This result is an 
estimate based on the size o; the current FCM and IB-C community.
    Description of Respondents: FCMs and IB-Cs that are or are required 
to be registered with the CFTC, excluding notice-registered FCMs and 
IB-Cs.
    Estimated Number of Respondents: 1,591 (168 FCMs and 1423 IB-Cs).
    Frequency: As required.
    Estimate of Burden: The reporting burden of 31 CFR 103.17 will be 
reflected in the burden of the Form, SAR-SF. The recordkeeping burden 
of 31 CFR 103.17 is estimated as an average of four hours per form, 
which is based on the estimate for BDs.
    Estimate of Total Annual Recordkeeping Burden on Respondents: 6,364 
hours.
    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 maintain the information.

[[Page 23660]]

    In addition, the PRA requires agencies to estimate the total annual 
cost burden to respondents or recordkeepers resulting from the 
collection of information. Thus, FinCEN also specifically requests 
comments to assist with this estimate. In this connection, FinCEN 
requests commenters to identify any additional costs associated with 
the completion of the form. These comments on costs should be divided 
into two parts: (a) any additional costs associated with reporting; and 
(b) any additional costs associated with recordkeeping.

List of Subjects in 31 CFR Part 103

    Authority delegations (Government agencies), Banks and banking, 
Brokers, Commodity futures, Currency, Investigations, Law enforcement, 
Penalties, Reporting and recordkeeping requirements, Securities.

Proposed Amendments to the Regulations

    For the reasons set forth above in the preamble, 31 CFR Part 103 is 
proposed to be amended as follows:

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

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

    Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314, 
5316-5332; title III, sec. 314 Pub. L. 107-56, 115 Stat. 307; 12 
U.S.C. 1818; 12 U.S.C. 1786(q).

    2. Section 103.11 is amended by revising paragraph (f), adding 
paragraphs (n)(8) and (n)(9), revising paragraph (ii)(1), and adding 
paragraphs (xx), (yy), (zz), (aaa), and (bbb) to read as follows:


Sec.  103.11  Meaning of terms.

* * * * *
    (f) Broker or dealer in securities. 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, 
except persons who register pursuant to section 15(b)(11) of the 
Securities Exchange Act of 1934.
* * * * *
    (n) * * *
    (8) A futures commission merchant;
    (9) An introducing broker in commodities.
* * * * *
    (ii) Transaction. (1) Except as provided in paragraph (ii)(2) of 
this section, transaction means a purchase, sale, loan, pledge, gift, 
transfer, delivery, or other disposition, and with respect to a 
financial institution includes a deposit, withdrawal, transfer between 
accounts, exchange of currency, loan, extension of credit, purchase, or 
sale of any stock, bond, certificate of deposit, or other monetary 
instrument, security, contract of sale of a commodity for future 
delivery, option on any contract of sale of a commodity for future 
delivery, option on a commodity, purchase or redemption of any money 
order, payment or order for any money remittance or transfer, or any 
other payment, transfer, or delivery by, through, or to a financial 
institution, by whatever means effected.
* * * * *
    (xx) Commodity. Any good, article, service, right, or interest 
described in section 1a(4) of the Commodity Exchange Act (``CEA''), 7 
U.S.C. 1a(4).
    (yy) Contract of sale. Any sale, agreement of sale, or agreement to 
sell as described in section 1a(7) of the CEA, 7 U.S.C. 1a(7).
    (zz) Futures commission merchant. Any person registered or required 
to be registered as a futures commission merchant with the Commodity 
Futures Trading Commission (``CFTC'') under the CEA, except persons who 
register pursuant to section 4f(a)(2) of the CEA, 7 U.S.C. 6f(a)(2).
    (aaa) Introducing broker-commodities. Any person registered or 
required to be registered as an introducing broker with the CFTC under 
the CEA, except persons who register pursuant to section 4f(a)(2) of 
the CEA, 7 U.S.C. 6f(a)(2).
    (bbb) Option on a commodity. Any agreement, contract, or 
transaction described in section 1a(26) of the CEA, 7 U.S.C. 1a(26).
    3. Section 103.17 is added to read as follows:


Sec.  103.17  Reports by futures commission merchants and introducing 
brokers in commodities of suspicious transactions.

    (a) General. (1) Every futures commission merchant (``FCM'') and 
introducing broker in commodities (``IB-C'') within the United States 
shall file with FinCEN, to the extent and in the manner required by 
this section, a report of any suspicious transaction relevant to a 
possible violation of law or regulation. An FCM or IB-C may also file 
with FinCEN a report of any suspicious transaction that it believes is 
relevant to the possible violation of any law or regulation but whose 
reporting is not required by this section. Filing a report of a 
suspicious transaction does not relieve an FCM or IB-C from the 
responsibility of complying with any other reporting requirements 
imposed by the Commodity Futures Trading Commission (``CFTC'') or any 
registered futures association or registered entity as those terms are 
defined in the Commodity Exchange Act (``CEA''), 7 U.S.C. 21 and 7 
U.S.C. 1a(29).
    (2) A transaction requires reporting under the terms of this 
section if it is conducted or attempted by, at, or through an FCM or 
IB-C, it involves or aggregates funds or other assets of at least 
$5,000, and the FCM or IB-C knows, suspects, or has reason to suspect 
that the transaction (or a pattern of transactions of which the 
transaction is a part):
    (i) Involves funds derived from illegal activity or is intended or 
conducted in order to hide or disguise funds or assets derived from 
illegal activity (including, without limitation, the ownership, nature, 
source, location, or control of such funds or assets) as part of a plan 
to violate or evade any federal law or regulation or to avoid any 
transaction reporting requirement under federal law or regulation;
    (ii) Is designed, whether through structuring or other means, to 
evade any requirements of this part or of any other regulations 
promulgated under the Bank Secrecy Act (``BSA''), Public Law 91-508, as 
amended, codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 
U.S.C. 5311-5314, 5316-5332;
    (iii) Has no business or apparent lawful purpose or is not the sort 
in which the particular customer would normally be expected to engage, 
and the FCM or IB-C knows of no reasonable explanation for the 
transaction after examining the available facts, including the 
background and possible purpose of the transaction; or
    (iv) Involves use of the FCM or IB-C to facilitate criminal 
activity.
    (3) The obligation to identify and properly and timely to report a 
suspicious transaction rests with each FCM and IB-C involved in the 
transaction, provided that no more than one report is required to be 
filed by the FCM and IB-C involved in the particular transaction (as 
long as the report filed contains all relevant facts).
    (b) Filing procedures--(1) What to file. A suspicious transaction 
shall be reported by completing a Suspicious Activity Report--
Securities and Futures Industry (``SAR-SF''), and collecting and 
maintaining supporting documentation as required by paragraph (d) of 
this section.
    (2) Where to file. The SAR-SF shall be filed with FinCEN in a 
central location, to be determined by FinCEN, as indicated in the 
instructions to the SAR-SF.
    (3) When to file. A SAR-SF shall be filed no later than 30 calendar 
days after the date of the initial detection by the

[[Page 23661]]

reporting FCM or IB-C of facts that may constitute a basis for filing a 
SAR-SF under this section. If no suspect is identified on the date of 
such initial detection, an FCM or IB-C may delay filing a SAR-SF for an 
additional 30 calendar days to identify a suspect, but in no case shall 
reporting be delayed more than 60 calendar days after the date of such 
initial detection. In situations involving violations that require 
immediate attention, such as terrorist financing or ongoing money 
laundering schemes, the FCM or IB-C should immediately notify by 
telephone an appropriate law enforcement authority in addition to 
filing a SAR-SF. FCMs and IB-Cs wishing voluntarily to report 
suspicious transactions that may relate to terrorist activity may call 
FinCEN's Financial Institutions Hotline at 1-866-556-3974 in addition 
to filing timely a SAR-SF if required by this section. The FCM or IB-C 
may also, but is not required to, contact the CFTC to report in such 
situations.
    (c) Exceptions. (1) An FCM or IB-C is not required to file a SAR-SF 
to report--
    (i) A robbery or burglary committed or attempted that is reported 
to appropriate law enforcement authorities;
    (ii) A violation otherwise required to be reported under the CEA (7 
U.S.C. 1 et seq.), the regulations of the CFTC (17 CFR chapter I), or 
the rules of any registered futures association or registered entity as 
those terms are defined in the CEA, 7 U.S.C. 21 and 7 U.S.C. 1a(29), by 
the FCM or IB-C or any of its officers, directors, employees, or 
associated persons, as long as such violation is appropriately reported 
to the CFTC or a registered futures association or registered entity. 
This exception does not apply to a report of a violation of the BSA and 
its implementing regulations.
    (2) An FCM or IB-C may be required to demonstrate that it has 
relied on an exception in paragraph (c)(1) of this section, and must 
maintain records of its determinations to do so for the period 
specified in paragraph (d) of this section.
    (d) Retention of records. An FCM or IB-C shall maintain a copy of 
any SAR-SF filed and the original or business record equivalent of any 
supporting documentation for a period of five years from the date of 
filing the SAR-SF. Supporting documentation shall be identified as such 
and maintained by the FCM or IB-C, and shall be deemed to have been 
filed with the SAR-SF. An FCM or IB-C shall make all supporting 
documentation available to FinCEN, the CFTC, any other appropriate law 
enforcement agency or regulatory agency, and for purposes of paragraph 
(g) of this section, to any registered futures association or 
registered entity, upon request.
    (e) Confidentiality of reports. No financial institution, and no 
director, officer, employee, or agent of any financial institution, who 
reports a suspicious transaction under this part, may notify any person 
involved in the transaction that the transaction has been reported, 
except to the extent permitted by paragraph (a)(3) of this section. 
Thus, any person subpoenaed or otherwise requested to disclose a SAR-SF 
or the information contained in a SAR-SF, except where such disclosure 
is requested by FinCEN, the CFTC, another appropriate law enforcement 
or regulatory agency, or for purposes of paragraph (g) of this section, 
a registered futures association or registered entity, shall decline to 
produce the SAR-SF or to provide any information that would disclose 
that a SAR-SF has been prepared or filed, citing this paragraph and 31 
U.S.C. 5318(g)(2), and shall notify FinCEN of any such request and its 
response thereto.
    (f) Limitation of liability. An FCM or IB-C, and any director, 
officer, employee, or agent of such FCM or IB-C, that makes a report of 
any possible violation of law or regulation pursuant to this section or 
any other authority (or voluntarily) shall not be liable to any person 
under any law or regulation of the United States (or otherwise to the 
extent also provided in 31 U.S.C. 5318(g)(3), including in any 
arbitration or reparations proceeding) for any disclosure contained in, 
or for failure to disclose the fact of, such report.
    (g) Examination and enforcement. Compliance with this section shall 
be examined by the Department of the Treasury, through FinCEN or its 
delegates, under the terms of the BSA. Reports filed under this section 
shall be made available to the CFTC and any registered futures 
association or registered entity examining an FCM or IB-C for 
compliance with the requirements of this section. Failure to satisfy 
the requirements of this section may constitute a violation of the 
reporting rules of the BSA or of this part.
    (h) Effective date. This section applies to transactions occurring 
after [date that is 180 days after the publication in the Federal 
Register of a final rule based on this notice of proposed rulemaking].
    4. Section 103.33 is amended by redesignating paragraphs 
(e)(6)(i)(E), (F), and (G) as paragraphs (e)(6)(i)(G), (H), and (I), 
respectively; adding new paragraphs (e)(6)(i)(E) and (F); redesignating 
paragraphs (f)(6)(i)(E), (F), and (G) as paragraphs (f)(6)(i)(G), (H), 
and (I), respectively, and adding new paragraphs (f)(6)(i)(E) and (F) 
to read as follows:


Sec.  103.33  Records to be made and retained by financial 
institutions.

* * * * *
    (e) * * *
    (6) * * *
    (i) * * *
    (E) A futures commission merchant or an introducing broker in 
commodities;
    (F) A wholly-owned domestic subsidiary of a futures commission 
merchant or an introducing broker in commodities;
* * * * *
    (f) * * *
    (6) * * *
    (i) * * *
    (E) A futures commission merchant or an introducing broker in 
commodities;
    (F) A wholly-owned domestic subsidiary of a futures commission 
merchant or an introducing broker in commodities;
* * * * *
    5. Section 103.56 is amended by revising paragraph (b)(8) and 
adding a new paragraph (b)(9) to read as follows:


Sec.  103.56  Enforcement.

* * * * *
    (b) * * *
    (8) To the Commissioner of Internal Revenue with respect to all 
financial institutions, except brokers or dealers in securities, 
futures commission merchants, introducing brokers in commodities, and 
commodity trading advisors, not currently examined by Federal bank 
supervisory agencies for soundness and safety; and
    (9) To the Commodity Futures Trading Commission with respect to 
futures commission merchants, introducing brokers in commodities, and 
commodity trading advisors.
* * * * *

    Dated: April 28, 2003.
James F. Sloan,
Director, Financial Crimes Enforcement Network.
[FR Doc. 03-10839 Filed 5-2-03; 8:45 am]
BILLING CODE 4810-02-P