[Federal Register Volume 73, Number 214 (Tuesday, November 4, 2008)]
[Proposed Rules]
[Pages 65568-65569]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-26205]


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

DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA71


Financial Crimes Enforcement Network; Withdrawal of the Notice of 
Proposed Rulemaking; Anti-Money Laundering Programs for Investment 
Advisers

AGENCY: Financial Crimes Enforcement Network, Treasury.

ACTION: Withdrawal of notice of proposed rulemaking.

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

SUMMARY: The Financial Crimes Enforcement Network (``FinCEN'') is 
withdrawing the notice of proposed rulemaking, dated May 5, 2003, in 
which FinCEN proposed imposing on certain investment advisers a 
requirement to establish and implement an anti-money laundering 
program.

DATES: The withdrawal is effective November 4, 2008.

FOR FURTHER INFORMATION CONTACT: Regulatory Policy and Programs 
Division, Financial Crimes Enforcement Network, (800) 949-2732.

SUPPLEMENTARY INFORMATION: 

I. Background

    On October 26, 2001, the President signed into law the Uniting and 
Strengthening America by Providing Appropriate Tools Required to 
Intercept and Obstruct Terrorism Act of 2001 (the ``USA PATRIOT Act''), 
Public Law 107-56. Title III of the USA PATRIOT Act amended the anti-
money laundering provisions of the BSA, which is codified at 12 U.S.C. 
1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5314, 5316-5332. The 
amendments were designed to promote the prevention, detection, and 
prosecution of international money laundering and terrorist financing.
    Regulations implementing the Bank Secrecy Act appear at 31 CFR Part 
103. The authority of the Secretary of the Treasury (``the Secretary'') 
to administer the Bank Secrecy Act and its implementing regulations has 
been delegated to the Director of the Financial Crimes Enforcement 
Network.\1\
---------------------------------------------------------------------------

    \1\ Accordingly, references herein to the Secretary's authority 
apply equally to the Director of FinCEN.

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

[[Page 65569]]

II. The 2003 Notice of Proposed Rulemaking and Subsequent Developments

A. The 2003 Notice of Proposed Rulemaking

    Section 352 of the USA PATRIOT Act amended section 5318(h) of the 
BSA. Section 352 requires every financial institution to establish an 
anti-money laundering program that includes, at a minimum, (1) The 
development of internal policies, procedures, and controls; (2) the 
designation of a compliance officer; (3) an ongoing employee training 
program; and (4) an independent audit function to test programs. 
Section 352 authorizes the Secretary, after consulting with the 
appropriate Federal functional regulator,\2\ to prescribe minimum 
standards for anti-money laundering programs, and to exempt from the 
application of those standards any financial institution that is not 
subject to rules implementing the BSA.
---------------------------------------------------------------------------

    \2\ In the case of investment advisers, the appropriate Federal 
functional regulator is the Securities and Exchange Commission 
(``SEC'').
---------------------------------------------------------------------------

    Although the BSA does not expressly enumerate investment advisers 
among the entities defined as financial institutions under sections 
5312(a)(2) and (c)(1), section 5312(a)(2)(Y) of the BSA authorizes the 
Secretary to include additional types of entities within the definition 
if he determines that they engage in an activity ``similar to, related 
to, or a substitute for'' an activity of an enumerated entity. On May 
5, 2003, FinCEN observed that certain investment advisers may offer 
services to investors that are similar to, related to, or a substitute 
for those of broker-dealers in securities and other enumerated 
entities.\3\ FinCEN proposed requiring these investment advisers to 
establish and implement anti-money laundering programs under section 
5318(h)(1) of the BSA.\4\
---------------------------------------------------------------------------

    \3\ Anti-Money Laundering Programs for Investment Advisers, 68 
FR 23646, 23647 (May 5, 2003). FinCEN noted that investment advisers 
that manage clients' assets work closely with other institutions, 
for example by directing broker-dealers to purchase or sell client 
securities or by directing banks to transfer client funds, and found 
that advisers' services frequently are a substitute for products 
offered by investment companies or insurance companies, such as when 
advisers manage client assets in pooled investment vehicles or in 
separate accounts. Some investment advisers offer asset management 
services that are similar to, and that may even compete directly 
with, asset management services provided by certain banks through 
their trust departments. The interrelationship between investment 
advisers and other institutions (such as securities broker-dealers, 
mutual funds, commodity trading advisors, and commodity pool 
operators) is demonstrated in part by dual registration.
    \4\ The proposal would have applied generally to SEC-registered 
investment advisers with assets under management and to advisers 
with $30 million or more of assets under management and that are 
exempt from registration under section 203(b)(3) of the Investment 
Advisers Act (15 U.S.C. 80b-3(b)(3)). Id. at 23648.
---------------------------------------------------------------------------

    The comment period closed on July 7, 2003. FinCEN received 26 
comment letters in response to the notice of proposed rulemaking. Of 
the 26 comment letters received, six were submitted by investment 
advisers, nine were submitted by trade groups, five were submitted by 
law firms, one was submitted by a personal investment entity, one by a 
depository institution, and one by a federal agency.
    Comments were received on all aspects of the notice of proposed 
rulemaking. Comments focused most notably on the proposed definition of 
``investment adviser,'' the proposed requirement to develop and 
implement an anti-money laundering program reasonably designed to 
prevent the investment adviser from being used by its clients for money 
laundering or terrorist financing purposes, the ability of an 
investment adviser to outsource BSA compliance to a third party, and 
the proposed notice requirement for unregistered investment 
advisers.\5\
---------------------------------------------------------------------------

    \5\ Comments are available at http://www.fincen.gov/statutes_regs/frn/reg_proposal_comments.html.
---------------------------------------------------------------------------

B. Subsequent Developments

    In June 2007, FinCEN announced that it would be taking a fresh look 
at BSA regulation to ensure that it is being applied efficiently and 
effectively across the industries that FinCEN regulates and the 
industries FinCEN has proposed to regulate. As part of that initiative, 
FinCEN is considering whether and to what extent it should impose 
requirements under the BSA on investment advisers and similar entities.
    As it considers its approach to investment advisers, FinCEN has 
determined that it will withdraw the notice of proposed rulemaking that 
was published in May 2003. Given the passage of time, FinCEN has 
determined that it will not proceed with an anti-money laundering 
program requirement for investment advisers without publishing a new 
proposal. This will give industry and other interested parties an 
opportunity to provide comment on the contents of any such proposal, as 
it may be affected by any developments since 2003 in industry 
operations as well as functional and BSA regulation.
    Finally, in the time since the notice of proposed rulemaking was 
published, FinCEN has concluded major rulemakings required by the USA 
PATRIOT Act for banks, broker-dealers, and futures commission 
merchants. Each of these institutions is subject to a comprehensive set 
of requirements under the BSA including, among other things, the 
obligation to establish and implement an anti-money laundering 
program,\6\ the obligation to establish and implement a customer 
identification program,\7\ the obligation to establish and implement a 
special due diligence program for foreign correspondent accounts and 
foreign private banking accounts,\8\ the obligation to detect and 
report suspicious activity,\9\ and the obligation to file currency 
transaction reports.\10\
---------------------------------------------------------------------------

    \6\ 31 CFR 103.120.
    \7\ 31 CFR 103.121-103.123.
    \8\ 31 CFR 103.176 and 103.178.
    \9\ 31 CFR 103.17-103.19.
    \10\ 31 CFR 103.22.
---------------------------------------------------------------------------

    Investment advisers must conduct financial transactions for their 
clients through other financial institutions that are subject to BSA 
requirements, and their clients' assets must be carried at these other 
financial institutions. Thus, as FinCEN continues to consider the 
extent to which BSA requirements should be imposed on investment 
advisors, their activity is not entirely outside the current BSA 
regulatory regime.

III. Withdrawal of the Notice of Proposed Rulemaking

    For the foregoing reasons, the notice of proposed rulemaking, in 
which FinCEN proposed requiring certain investment advisers to 
establish and implement anti-money laundering programs, as published in 
the Federal Register on May 5, 2003 (68 FR 23646), is hereby withdrawn.

    Dated: October 29, 2008.
James H. Freis, Jr.,
Director, Financial Crimes Enforcement Network.
[FR Doc. E8-26205 Filed 11-3-08; 8:45 am]
BILLING CODE 4810-02-P