[Federal Register: November 4, 2008 (Volume 73, Number 214)]
[Proposed Rules]
[Page 65569-65571]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04no08-23]
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DEPARTMENT OF THE TREASURY
31 CFR Part 103
RIN 1506-AA77
Financial Crimes Enforcement Network; Withdrawal of the Notice of
Proposed Rulemaking; Anti-Money Laundering Programs for Unregistered
Investment Companies
AGENCY: Financial Crimes Enforcement Network, Treasury.
ACTION: Withdrawal of notice of proposed rulemaking.
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[[Page 65570]]
SUMMARY: The Financial Crimes Enforcement Network (``FinCEN'') is
withdrawing the notice of proposed rulemaking, dated September 26,
2002, in which FinCEN proposed requiring unregistered investment
companies--such as hedge funds, commodity pools, and similar investment
vehicles--to establish and implement anti-money laundering programs.
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\
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\1\ Accordingly, references herein to the Secretary's authority
apply equally to the Director of FinCEN.
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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.
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\2\ Unregistered investment companies--except commodity pools
operated by a commodity pool operator that is registered or required
to be registered with the Commodity Futures Trading Commission--are
not functionally regulated.
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Investment companies are defined as financial institutions in the
BSA.\3\ On April 29, 2002, FinCEN published an interim final rule
requiring mutual funds--a category of investment company--to establish
and implement anti-money laundering programs.\4\ On September 26, 2002,
FinCEN issued a notice of proposed rulemaking, proposing to require
``unregistered investment companies'' to establish and implement anti-
money laundering programs.\5\ In November 2002, FinCEN temporarily
exempted certain financial institutions, including investment companies
that were not mutual funds as that term is defined in the anti-money
laundering program rule for mutual funds,\6\ from the requirement to
establish and implement an anti-money laundering program.\7\
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\3\ 31 U.S.C. 5312(a)(2)(I).
\4\ Anti-Money Laundering Programs for Mutual Funds, 67 FR 21117
(Apr. 29, 2002).
\5\ Anti-Money Laundering Programs for Unregistered Investment
Companies, 67 FR 60617 (Sep. 26, 2002).
\6\ See 31 CFR 103.130(a) (a ``mutual fund'' is an ``open-end
company,'' as the term is defined in the Investment Company Act of
1940).
\7\ 31 CFR 103.170. See also Anti-Money Laundering Programs for
Financial Institutions, 67 FR 67547 (Nov. 6, 2002).
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II. The 2002 Notice of Proposed Rulemaking and Subsequent Developments
A. The 2002 Notice of Proposed Rulemaking
In its September 2002 notice of proposed rulemaking, FinCEN
proposed to define the term ``unregistered investment company'' as (1)
An issuer that, but for certain exclusions, would be an investment
company as that term is defined in the Investment Company Act of 1940,
(2) a commodity pool, and (3) a company that invests primarily in real
estate and/or interests in real estate. FinCEN proposed to capture
within the definition so-called hedge funds, private equity funds,
venture capital funds, commodity pools, and real estate investment
trusts with total assets or subscriptions of $1,000,000 or more.
FinCEN proposed to exclude, among other things, any issuer that
subjected its participants to a two-year lock-up period. Because
unregistered investment companies are not subject to Federal functional
regulation,\8\ FinCEN proposed requiring these companies to file a
notice so that FinCEN and agencies conducting BSA compliance
examinations of unregistered investment companies could readily
identify such companies.
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\8\ Commodity pools, however, may be operated by a CFTC-
regulated commodity pool operator. See 7 U.S.C. 1a(5) (defining a
``commodity pool operator'' as ``any person engaged in a business
that is of the nature of an investment trust, syndicate, or similar
form of enterprise, and who * * * solicits, accepts, or receives
from others, funds, securities, or property * * * for the purpose of
trading in any commodity for future delivery on or subject to the
rules of any contract market or derivatives transaction execution
facility * * *'').
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The comment period closed on November 25, 2002. FinCEN received 34
comments in response to the notice of proposed rulemaking from law
firms, unregistered investment companies, investment advisers, bank
holding companies, trade groups, and a registered futures association.
These comments addressed many aspects of FinCEN's proposal.
Significantly, comments were focused on the breadth of the proposed
definition of ``unregistered investment company,'' including the
proposed inclusion of commodity pools that are operated by CFTC-
regulated commodity pool operators; the proposed inclusion of real
estate investment companies; and the proposal to exclude from the
definition any company that subjects its participants to a two-year
lock-up period. Comments also were focused on the minimum contact
provisions proposed by FinCEN, under which certain offshore funds would
be obligated to comply with the rule; the ability of funds to outsource
anti-money laundering program obligations to third-party
administrators; and the proposed notice requirement.
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 unregistered investment companies.
As it considers its approach to unregistered investment companies,
FinCEN has determined that it will withdraw the notice of proposed
rulemaking that was published in September 2002. Given the passage of
time, FinCEN has determined that it will not proceed with an anti-money
laundering program requirement for any entity within the proposed
definition of unregistered investment company without publishing a new
proposal. This will give industry and other interested parties an
opportunity to provide comment on the contents of any
[[Page 65571]]
such proposal, as it may be affected by any developments since 2002 in
industry operations as well as functional and BSA regulation.
Finally, since the time that the notice of proposed rulemaking was
published, FinCEN has concluded the 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 regulations under the BSA including, among other things, the
obligation to establish and implement an anti-money laundering
program,\9\ the obligation to establish and implement a customer
identification program,\10\ the obligation to establish and implement a
special due diligence program for foreign correspondent accounts and
foreign private banking accounts,\11\ the obligation to detect and
report suspicious activity,\12\ and the obligation to file currency
transaction reports.\13\
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\9\ 31 CFR 103.120.
\10\ 31 CFR 103.121-103.123.
\11\ 31 CFR 103.176 and 103.178.
\12\ 31 CFR 103.17-103.19.
\13\ 31 CFR 103.22.
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The financial transactions of unregistered investment companies and
their participants must be conducted through other financial
institutions that are subject to BSA requirements. Assets within any of
these unregistered investment pools typically are carried with these
financial institutions. Thus, as FinCEN continues to consider the
extent to which BSA requirements should be imposed on unregistered
investment companies, 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 unregistered investment companies to
establish and implement anti-money laundering programs, as published in
the Federal Register on September 26, 2002 (67 FR 60617), is hereby
withdrawn.
Dated: October 29, 2008.
James H. Freis, Jr.,
Director, Financial Crimes Enforcement Network.
[FR Doc. E8-26202 Filed 11-3-08; 8:45 am]
BILLING CODE 4810-02-P