[Federal Register: November 4, 2008 (Volume 73, Number 214)]
[Proposed Rules]
[Page 65568-65569]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04no08-22]
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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.
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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\
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\1\ Accordingly, references herein to the Secretary's authority
apply equally to the Director of FinCEN.
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[[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.
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\2\ In the case of investment advisers, the appropriate Federal
functional regulator is the Securities and Exchange Commission
(``SEC'').
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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\
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\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.
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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\
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\5\ Comments are available at http://www.fincen.gov/statutes_
regs/frn/reg_proposal_comments.html.
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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\
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\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.
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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