Anti-Money Laundering Programs for Mutual Funds

1The Federal functional regulator for mutual funds is the Securities and Exchange Commission (Commission). 2 31 U.S.C 5312(a)(2)(I). 3Section 3(a)(1) defines ‘‘investment company’’ as any issuer which (A) is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities; (B) is engaged or proposes to engage in the business of issuing face-amount certificates of the installment type, or has been engaged in such business and has any such certificate outstanding; or (C) is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40 per centum of the value of such issuer’s total assets (exclusive of Government securities and cash items) on an unconsolidated basis. 4Section 356 of the Act requires that the Secretary, the Federal Reserve and the Commission jointly submit a report to Congress, not later than October 26, 2002, on recommendations for effective regulations to apply the requirements of the BSA to investment companies as defined in section 3 of the 1940 Act, including persons that, but for the provisions that exclude entities commonly known as hedge funds, private equity funds, and venture capital funds, would be investment companies. 5By interim rule published elsewhere in this separate part of this issue of the Federal Register, Treasury is temporarily exempting investment companies other than mutual funds from the requirement that they establish anti-money laundering programs. Treasury is also temporarily deferring determining the definition of ‘‘investment company’’ for purposes of the BSA. However, it is likely that those entities excluded from the definition of ‘‘investment company’’ in the 1940 Act will be required to establish anti-money laundering programs pursuant to section 352. guidance issued by the Department of the Treasury; and (iii) The money services business provides appropriate training and education in accordance with paragraph (d)(3) of this section. (3) Provide education and/or training of appropriate personnel concerning their responsibilities under the program, including training in the detection of suspicious transactions to the extent that the money services business is required to report such transactions under this part. (4) Provide for independent review to monitor and maintain an adequate program. The scope and frequency of the review shall be commensurate with the risk of the financial services provided by the money services business. Such review may be conducted by an officer or employee of the money services business so long as the reviewer is not the person designated in paragraph (d)(2) of this
section.
(e) Effective date. A money services business must develop and implement an anti-money laundering program that complies with the requirements of this
section on or before the later of July 24,
2002, and the end of the 90-day period beginning on the day following the date the business is established. Dated: April 23, 2002. James F. Sloan, Director, Financial Crimes Enforcement Network. [FR Doc. 02–10453 Filed 4–24–02; 4:09 pm] BILLING CODE 4810–02–P DEPARTMENT OF THE TREASURY 31 CFR Part 103 RIN 1506–AA28 Financial Crimes Enforcement Network; Anti-Money Laundering Programs for Mutual Funds 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 mutual funds pursuant to the revised provision in 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 Mutual Fund 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 Mutual Fund 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 Assistant General Counsel for Banking & Finance (Treasury), (202) 622–0480; Office of the Assistant General Counsel for Enforcement (Treasury), (202) 622–1927; or Office of Chief Counsel (FinCEN), (703) 905–3590 (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 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 are codified in subchapter II of chapter 53 of title 31, United States Code. These amendments are intended to make it easier 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, amends 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. Section 5318(h)(2) authorizes the Secretary, after consulting with the appropriate Federal functional regulator,1 to prescribe minimum standards for anti-money laundering programs, and to exempt from the application of those standards any financial institution that is not otherwise subject to BSA regulation. Although the BSA includes ‘‘an * * * investment company’’ 2 among the entities defined as financial institutions, FinCEN has not previously defined the term for purposes of the BSA. The Investment Company Act of 1940 (codified at 15 U.S.C. 80a–1 et seq.) (the 1940 Act) defines investment company broadly 3 and subjects those entities to comprehensive regulation by the Commission. However, entities commonly known as hedge funds, private equity funds and venture capital funds are specifically excluded from the 1940 Act definition of investment company.4 For purposes of the section 352 requirement that financial institutions establish anti-money laundering programs effective April 24, 2002, Treasury is limiting the application of this interim rule to those investment companies falling within the category of ‘‘open-end company’’ contained in section 5(a)(1) of the 1940 Act, which are commonly referred to as ‘‘mutual funds.’’ 5 Mutual funds are by far the predominant type of investment company. Other types of investment companies regulated by the Commission include closed-end companies and unit investment trusts. Closed-end companies typically sell a fixed number of shares in traditional underwritten offerings. Holders of closed-end company shares then trade their shares in secondary market transactions, usually on a securities exchange or in the over-the-counter market. Unit