[Federal Register Volume 68, Number 138 (Friday, July 18, 2003)]
[Notices]
[Pages 42793-42794]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-18190]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48169; File No. SR-MSRB-2003-04]


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

Date: July 11, 2003.
    On May 22, 2003, the Municipal Securities Rulemaking Board 
(``Board'' or ``MSRB'') filed with the Securities & Exchange Commission 
(``Commission'' or ``SEC''), pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``the Act'')\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change (File No. SR-MSRB-2003-04) (the 
``proposed rule change''). The MSRB's rule change establishes Rule G-
41, on anti-money laundering compliance.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The Commission published the proposed rule change for notice and 
comment in the Federal Register on June 9, 2003.\3\ The Commission 
received one comment letter on the proposed rule change.\4\ This order 
approves the proposed rule change.
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    \3\ See Release No. 34-47969 (June 3, 2003), 68 FR 34450.
    \4\ Letter from Henry H. Hopkins, Chief legal Counsel, Regina M. 
Pizzonia, Associate Counsel, T. Rowe Price Associates, Inc. (``T. 
Rowe''), to Jonathan G. Katz, Secretary, Commission, dated June 27, 
2003.
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I. Description of the Proposed Rule Change

    The MSRB filed a proposed rule change, Rule G-41, on anti-money 
laundering compliance in response to the passage of the Uniting and 
Strengthening America by Providing Appropriate Tools Required to 
Intercept and Obstruct Terrorism Act of 2001 (``USA PATRIOT Act'').\5\ 
Section 352, of the USA PATRIOT Act, requires 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''),\6\ and the 
regulations promulgated thereunder, by April 24, 2002. The MSRB 
proposed Rule G-41 to ensure that all brokers, dealers and municipal 
securities dealers (``dealers'')\7\ 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. The proposed rule change 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.\8\
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    \5\ Uniting and Strengthening America by Providing Appropriate 
Tools Required to Intercept and Obstruct Terrorism Act of 2001, 
Public Law 107-56, 115 Stat. 272 (2001).
    \6\ 31 U.S.C. 5311, et seq.
    \7\ 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.
    \8\ See Release No 34-47969; see also Release No. 34-46739 (Oct. 
29, 2002) 67 FR 67432 (Nov. 5, 2002); 31 CFR 103.120(b).
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II. Summary of Comments

    The Commission received one comment letter relating to the proposed 
rule change.\9\ The comment letter expresses its general support for 
the proposed rule, but requests at least a five-month delay for 
mandatory compliance with the rule's ``Customer Identification 
Program'' (``CIP'').\10\ According to the comment letter, T. Rowe 
believes that timely compliance with the CIP is ``extremely 
burdensome'' for broker and dealers involved with the distribution of 
college savings plans ``to efficiently implement all of the operational 
and informational technology related changes the rule demands.''\11\ T. 
Rowe requested the delay to ``minimize the disruption of

[[Page 42794]]

services to our account holders'' and that it believed that college 
savings plan, ``pose a low threat as a money laundering vehicle''.\12\ 
For these and other reasons expressed in the letter, T. Rowe believes 
that a five-month compliance delay, specifically in relation to brokers 
and dealers who distribute the college saving plan, would not threaten 
the government's anti-terrorism goals.\13\
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    \9\ See T. Rowe letter.
    \10\ Id at 1.
    \11\ Id at 2.
    \12\ Id at 3.
    \13\ Id at 2.
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III. Discussion and Commission Findings

    Section 19(b) of the Act \14\ requires the Commission to approve 
the proposed rule change filed by the MSRB if the Commission finds that 
the proposed rule change consistent with the requirements of the Act 
and the rules and regulations thereunder. After careful review of the 
proposed rule change and the related comments, the Commission finds 
that the proposed rule change is consistent with the requirements of 
the Act and the rules and regulations thereunder, which govern the 
MSRB.\15\ The language of section 15B(b)(2)(C) of the Act requires that 
the MSRB's rules must be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principals of trade, to foster cooperation and coordination with 
persons engaged in the regulating, settling, processing information 
with respect to, and facilitating transactions in securities, 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.\16\ The commission believes that the MSRB's proposed 
rule change meets this statutory threshold.
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    \14\ 15 U.S.C. 78s(b).
    \15\ Additionally, in approving this rule the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition and capital formation. 15 U.S.C. 78c(f).
    \16\ 15 U.S.C. 780-4(b)(2)(C).
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    Since the passage of the USA PATRIOT Act, the Commission has worked 
with self-regulatory organizations to coordinate rules requiring 
programs designed to help identify and prevent money laundering abuses 
that jeopardize the integrity of the U.S. capital markets. Title III of 
the USA PATRIOT Act, also known as the International Money Laundering 
Abatement and Anti-Terrorist Financing Act of 2001 (``AML Act''). 
Imposes certain obligations on financial institutions and the dealer 
community. Section 352 of the AML Act requires financial institutions 
to establish certain minimum anti-money laundering standards. 
Furthermore, section 352 requires dealers to develop and implement a 
written anti-money laundering compliance program by April 24, 2002.\17\ 
The Commission notes that the provisions of the USA PATRIOT Act are 
mandates of federal law. As a result, MSRB members should have already 
established anti-money laundering compliance programs.
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    \17\ See 31 U.S.C. 5318(h) (amended by section 352 of the AML 
Act).
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    The Commission believes that Rule G-41 will facilitate compliance 
with the federal government's anti-terrorism goals. The purpose of Rule 
G-41 is 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 Commission notes that 
Rule G-41 will provide clarification to dealers and examiners of the 
rules and regulations with which dealers who effect transactions in 
municipal securities must comply concerning anti-money laundering 
compliance programs.

IV. Conclusion

    It Is Therefore Ordered, pursuant to section 19(b)(2) of the 
Act,\18\ that the proposed rule change (File No. SR-MSRB-2003-04) be 
and hereby is, approved.
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    \18\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-18190 Filed 7-17-03; 8:45 am]
BILLING CODE 8010-01-P