Anti-Money Laundering Programs for Money Services Businesses

1Although Section 5318(a)(6) authorizes the Secretary to exempt any financial institution from any BSA requirement, in light of the vulnerability of the industry to money laundering described infra and the extent of existing BSA regulation of money services businesses, the Secretary is declining to exempt money services businesses from the anti￾money laundering program requirement. 2Money Laundering Suppression Act of 1994, Title IV of the Riegle Community Development and Regulatory Improvement Act of 1994, Public Law 103–325 (September 23, 1994). Treasury’s implementing regulations required all money services businesses to register with FinCEN by December 31, 2001. See 31 CFR 103.41(f). 3 31 CFR 103.20(f). 4See 62 FR 27903 (May 21, 1997). 5See 31 CFR 103.11uu(1)–(6). 6See 62 FR 27891–895 (May 21, 1997). DEPARTMENT OF THE TREASURY 31 CFR Part 103 RIN 1506–AA28 Financial Crimes Enforcement Network; Anti-Money Laundering Programs for Money Services Businesses AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury. ACTION: Interim final rule. SUMMARY: FinCEN is issuing this interim final rule to prescribe minimum standards applicable to money services businesses pursuant to the revised provision of the Bank Secrecy Act that requires financial institutions to establish anti-money laundering programs. DATES: This interim final rule is effective April 24, 2002. Written comments may be submitted to FinCEN on or before May 29, 2002. ADDRESSES: Submit comments (preferably an original and four copies) to FinCEN, P.O. Box 39, Vienna, VA 22183, ATTN: Section 352 MSB Regulations. Comments may also be submitted by electronic mail to regcomments@fincen.treas.gov with the caption in the body of the text, ‘‘Attention: Section 352 MSB Regulations.’’ Comments may be inspected at FinCEN 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 (not a toll-free number). FOR FURTHER INFORMATION CONTACT:
Office of the Chief Counsel (FinCEN), (703) 905–3590; Office of the Assistant General Counsel for Enforcement (Treasury), (202) 622–1927; or the Office of the Assistant General Counsel for Banking & Finance (Treasury), (202) 622–0480 (not toll-free numbers). SUPPLEMENTARY INFORMATION:
I. Background
On October 26, 2001, the President signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001 (Public Law 107–56) (the Act). Title III of the Act makes a number of amendments to the anti￾money laundering provisions of the Bank Secrecy Act (BSA), which is codified in subchapter II of chapter 53 of title 31, United States Code. These amendments are intended to provide additional tools to prevent, detect, and prosecute international money laundering and the financing of terrorism. Section 352(a) of the Act, which becomes effective on April 24, 2002, amended section 5318(h) of the BSA. As amended, section 5318(h)(1) requires every financial institution to establish an anti-money laundering program that includes, at a minimum, (i) the development of internal policies, procedures, and controls; (ii) the designation of a compliance officer; (iii) an ongoing employee training program; and (iv) an independent audit function to test programs. The statute further permits the Secretary to exempt from this requirement those financial institutions not currently subject to Treasury’s regulations implementing the BSA. In addition, Section 352(c) directs the Secretary to prescribe regulations by April 24, 2002, for anti-money laundering programs that are ‘‘commensurate with the size, location, and activities’’ of the financial institutions to which such regulations apply. Money services businesses are defined as financial institutions under the BSA and are subject to registration, recordkeeping, and reporting obligations under the implementing regulations. They thus fall within the category of financial institutions to which Congress intended to apply the anti-money laundering program requirements. 1 Requiring money services businesses to implement anti-money laundering programs should enhance their ability to comply with their BSA obligations. This interim final rule prescribes minimum standards for anti-money laundering programs for money services businesses, tailored to the particular circumstances of their industry. In requiring money services businesses to register with the Department of the Treasury, Congress recognized that money services businesses, like depository institutions, are subject to abuse by money launderers.2 Following up on this finding, along with issuing regulations implementing the registration requirement, Treasury and FinCEN also issued regulations requiring money services businesses (with the exception of currency dealers or exchangers, check cashers, and issuers, sellers, and redeemers of stored value) to report to FinCEN suspicious activity occurring after December 31, 2001.3 As Treasury and FinCEN acknowledged in promulgating these regulations, implementation of a comprehensive counter-money laundering strategy for this category of financial institution raises significant issues not present for depository institutions subject to the
BSA such as banks because of a number of unique factors affecting the money services business industry.4 The money services businesses category of financial institutions subject to Part 103 includes a variety of non￾bank financial institutions: currency dealers or exchangers; check cashers; issuers of traveler’s checks, money orders, or stored value; sellers or redeemers of traveler’s checks, money orders, or stored value; and money transmitters.5 The size and complexity of money services business enterprises range from the small and simple to the very large and complex; structures include sole proprietorships, partnerships, and corporations. Money services business enterprises range from small ‘‘mom and pop’’ operations based in one location to large, well capitalized firms that trade on major securities exchanges, enterprises with numerous branches or large agent networks, and also include the United States Postal Service. For some enterprises, such as grocery stores, convenience stores, and gas stations, the financial activities that make them money services businesses are not their core business activities but only incidental services offered along with core products and services. Other money services businesses are organized to provide several financial services to their customers similar to the full range of financial products provided by a bank. Issuers of traveler’s checks, issuers of money orders, and primary money transmitter companies often operate through networks of independent enterprises that serve as distribution points throughout the country or the world. These agent networks make up the bulk of the sellers of traveler’s checks and money orders and distributors of money transfer services in the United States.6 The interim final rule requires each money services business to establish a program reasonably designed to prevent