[Federal Register Volume 68, Number 110 (Monday, June 9, 2003)]
[Notices]
[Pages 34450-34452]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-14423]



[[Page 34450]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47969; File No. SR-MSRB-2003-04]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Municipal Securities Rulemaking Board To Require Dealers 
To Establish Anti-Money Laundering Compliance Programs

June 3, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``the Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on May 22, 2003, the Municipal Securities Rulemaking Board 
(``Board'' or ``MSRB'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') a proposed rule change (File No. 
SR-MSRB-2003-04) (the ``proposed rule change'') described in Items I, 
II, and III below, which Items have been prepared by the Board. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The MSRB filed a proposed rule change, Rule G-41, on anti-money 
laundering compliance. As further discussed below, section 352 of the 
Uniting and Strengthening America by Providing Appropriate Tools 
Required to Intercept and Obstruct Terrorism Act of 2001 (``USA PATRIOT 
Act'') \3\ required financial institutions, including broker/dealers, 
to establish and implement anti-money laundering compliance programs 
designed to ensure ongoing compliance with the requirements of the Bank 
Secrecy Act (``BSA''),\4\ and the regulations promulgated thereunder, 
by April 24, 2002. The MSRB has proposed new Rule G-41 to ensure that 
all brokers, dealers and municipal securities dealers (``dealers'') \5\ 
that effect transactions in municipal securities, and in particular 
those that only effect transactions in municipal securities (``sole 
municipal dealers''), are aware of, and in compliance with, anti-money 
laundering program requirements. Thus, proposed Rule G-41 requires that 
all dealers establish and implement anti-money laundering programs that 
are in compliance with the rules and regulations of either its 
registered securities association (i.e., NASD) or its appropriate 
banking regulator governing the establishment and maintenance of anti-
money laundering programs. The adoption of MSRB Rule G-41 will provide 
clarity to dealers and examiners concerning the rules and regulations 
that dealers who effect transactions in municipal securities must 
comply with concerning the development of anti-money laundering 
compliance programs, it will not impose any new or different 
obligations upon such dealers. Below is the full text of the proposed 
rule change.
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    \3\ Uniting and Strengthening America by Providing Appropriate 
Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. 
L. 107-56, 115 Stat. 272 (2001).
    \4\ 31 U.S.C. 5311, et seq.
    \5\ The term ``dealer'' is used herein as shorthand for 
``broker,'' ``dealer'' or ``municipal securities dealer,'' as those 
terms are defined in the Act. The use of the term does not imply 
that the entity is necessarily taking a principal position in a 
municipal security.
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Rule G-41: Anti-Money Laundering Compliance Program

    No broker, dealer or municipal securities dealer shall be qualified 
for purposes of Rule G-2 unless such broker, dealer or municipal 
securities dealer has met the anti-money laundering compliance program 
rules set forth by either the registered securities association of 
which the dealer is a member (e.g., NASD Rule 3011), or the rules set 
forth by the appropriate regulatory agency as defined in section 
3(a)(34) of the Act with respect to any other broker, dealer or 
municipal securities dealer (e.g., 12 CFR 21.21 (OCC); 12 CFR 208.63 
(FRB); 12 CFR 326.8 (FDIC); and 12 CFR 563.177 (OTS)), to the same 
extent as if such rules were applicable to such broker, dealer or 
municipal securities dealer.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Board included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Board has prepared summaries, set forth in section 
A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

(1) Purpose
    The purpose of the proposed rule change is to ensure that all 
dealers establish minimum standards for the anti-money laundering 
compliance programs that dealers are required to develop and implement 
under section 352 of the USA PATRIOT Act. The USA PATRIOT Act, which 
was signed into law by President Bush on October 26, 2001, is designed 
to deter and punish terrorists in the United States and abroad and to 
enhance law enforcement investigating tools by prescribing, among other 
things, new surveillance procedures, new immigration laws, and new and 
more stringent anti-money laundering laws.
    Title III of the USA PATRIOT Act, referred to as the International 
Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 
(``AML Act''), imposes certain obligations on dealers through new anti-
money laundering provisions and amendments to the BSA. Section 352 of 
the AML Act 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 with responsibility for a firm's 
anti-money laundering program; (iii) an ongoing employee training 
program; and (iv) an independent audit function to test the 
effectiveness of the anti-money laundering compliance program. Section 
352 of the AML Act also required dealers to develop and implement a 
written anti-money laundering compliance program by April 24, 2002.\6\
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    \6\ See 31 U.S.C. Sec.  5318(h) (amended by section 352 of the 
AML Act).
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    Pursuant to pre-existing bank regulations, bank municipal 
securities dealers already were required to have anti-money laundering 
programs in place.\7\ Because the bank regulations contain the same 
elements that are required by section 352, BSA regulation 31 CFR 
103.120(b) provides that a financial institution that is subject to 
regulation by a Federal functional regulator \8\ (including bank 
municipal

[[Page 34451]]

securities dealers) will be deemed in compliance with the requirements 
of section 352 if it complies with the regulations of its regulator 
governing the establishment and maintenance of anti-money laundering 
programs.\9\ The adoption of MSRB Rule G-41, on anti-money laundering 
compliance programs, will not impose any new or different obligations 
upon bank dealers; it will articulate that a bank municipal securities 
dealer has to comply with the regulations of its banking regulator in 
connection with anti-money laundering compliance programs in order to 
be qualified under MSRB Rule G-2, on standards of professional 
qualification. Examination of these financial institutions by their 
Federal functional regulators will continue to ensure compliance with 
those regulations.
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    \7\ See 12 CFR 21.21; 12 CFR 208.63; 12 CFR 326.8; and 12 CFR 
563.177.
    \8\ These are defined in reference to section 509 of the Gramm-
Leach-Biley Act (Public Law 106-102) to include the Board of 
Governors of the Federal Reserve System (FRB), the Office of the 
Comptroller of the Currency (``OCC''), the Board of Directors of the 
Federal Deposit Insurance Corporation (``FDIC''), the Office of 
Thrift Supervision (``OTS''), the National Credit Union 
Administration (``NCUA''), and SEC, and, pursuant to section 321(c) 
of the Act, the Commodity Futures Trading Commission (``CFTC'').
    \9\ See 31 CFR 103.120(b).
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    For securities dealers that were not previously subject to AML 
compliance programs, the Department of Treasury and the Financial 
Crimes Enforcement Network (``FinCEN'') believed that it was 
appropriate to implement section 352 through industry self-regulatory 
organizations (``SROs'').\10\ After passage of the USA PATRIOT Act, the 
SEC met with representatives from the NASD and the New York Stock 
Exchange(``NYSE'') to coordinate the filing of a rule proposal to 
prescribe the minimum standards required for each securities firm's 
anti-money laundering compliance program. The rules that were 
ultimately enacted became effective by April 24, 2002, the statutory 
deadline.\11\ BSA regulation 31 CFR 103.120(c) provides that a 
financial institution regulated by an SRO shall be deemed to satisfy 
the requirements of section 352 if the financial institution implements 
and maintains an anti-money laundering program that complies with the 
rules, regulations, or requirements of its SRO governing such 
programs.\12\
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    \10\ See FinCen; Anti-Money Laundering Programs for Financial 
Institutions (Interim Final Rules announcement) 31 CFR part 103 
(April 23, 2002), 67 FR 21110 (April 29, 2002).
    \11\ See Release No. 34-45798 (April 22, 2002), 67 FR 20854 
(April 26, 2002) (SR-NASD-2002-24 and SR-NYSE-2002-10) (approval 
order); Release No. 34-46258 (July 25, 2002), 67 FR 49714 (July 31, 
2002) (SR-Amex-2002-52) (approval order).
    \12\ See 31 CFR 103.120(c).
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    NASD Rule 3011, which incorporates the requirements of section 352, 
is designed to allow dealers to be in compliance with section 352 by 
virtue of being in compliance with the rules of the dealers' SRO, the 
NASD. NASD also has provided significant guidance to assist its member 
firms in developing anti-money laundering compliance programs that fit 
their business model and needs.\13\ However, in the case of municipal 
securities dealers who are members of both the NASD and MSRB, the rules 
that govern the dealers' conduct in connection with municipal 
securities activities are the rules of the MSRB, not the NASD. 
Therefore, for securities dealers that only conduct municipal 
securities transactions with the public, there currently is no SRO rule 
that provides guidance concerning the development and implementation of 
an anti-money laundering compliance program.\14\ For this reason, the 
MSRB adopted MSRB Rule G-41, on anti-money laundering compliance 
programs, to ensure that all dealers, including sole municipal 
securities dealers, know where to look for guidance concerning the 
development and implementation of anti-money laundering compliance 
programs.
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    \13\ See http://www.nasdr.com/money.asp (NASD Regulation Web 
Page provides information about anti-money laundering rules, 
regulations, and compliance).
    \14\ The MSRB believes that, nonetheless, sole municipal 
securities dealers are currently complying with NASD Rule 3011.
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    The provisions of the USA PATRIOT Act are provisions of federal law 
and consequently all MSRB members should already be in compliance with 
section 352 of the AML Act. The MSRB is proposing new Rule G-41 to 
ensure that all brokers, dealers and municipal securities dealers who 
effect transactions in municipal securities, especially sole municipal 
securities dealers, are aware of their obligations under section 352 
and know where to look for guidance concerning appropriate anti-money 
laundering programs. Moreover, the adoption of MSRB Rule G-41 will 
facilitate compliance with and enforcement of anti-money laundering 
compliance program rules by identifying for both bank and NASD 
examiners the rules and regulations that each dealer must comply with. 
By adopting a new rule that requires all dealers that effect 
transactions in municipal securities to establish and implement anti-
money laundering programs that are in compliance with the rules and 
regulations of either its registered securities association (i.e., 
NASD) or its appropriate banking regulator, the MSRB provides clarity 
to dealers and examiners about dealers' anti-money laundering program 
obligations and avoids promulgating duplicative or inconsistent anti-
money laundering program regulation.
(2) Basis
    The Board proposed the rule change pursuant to section 15B(b)(2)(C) 
of the Act, which provides that the Board's rules shall:

Be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade * * * 
to remove impediments to and perfect the mechanism of a free and 
open market in municipal securities, and, in general, to protect 
investors and the public interest.

The Board believes that the proposed rule change is consistent with the 
Act in that it will facilitate dealer compliance with anti-money 
laundering compliance program regulation. These programs are designed 
to help identify and prevent money laundering abuses that can affect 
the integrity of the U.S. capital markets.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Board does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act, since it would apply equally to 
all brokers, dealers and municipal securities dealers.

C. Self-Regulatory Organization's Statement on Comments Received on the 
Proposed Rule Change by Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding, or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange

[[Page 34452]]

Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. Copies of 
the submissions, all subsequent amendments, all written statements with 
respect to the proposed rule change that are filed with the Commission, 
and all written communications relating to the proposed rule change 
between the Commission and any person, other than those that may be 
withheld from the public in accordance with the provisions of 5 U.S.C. 
552, will be available for inspection and copying in the Commission's 
Public Reference Room. Copies of the filing will also be available for 
inspection and copying at the Board's principal offices. All 
submissions should refer to File No. SR-MSRB-2003-04 and should be 
submitted by June 30, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-14423 Filed 6-6-03; 8:45 am]
BILLING CODE 8010-01-P