[Federal Register: May 5, 2003 (Volume 68, Number 86)]
[Proposed Rules]
[Page 23640-23646]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05my03-37]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
31 CFR Part 103
RIN 1506-AA28
Financial Crimes Enforcement Network; Anti-Money Laundering
Programs for Commodity Trading Advisors
AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: FinCEN is issuing this proposed rule to prescribe minimum
standards applicable to certain commodity trading advisors pursuant to
the revised provision in the Bank Secrecy Act that requires financial
institutions to establish anti-money laundering programs and to
delegate its authority to examine such commodity trading advisors to
the Commodity Futures Trading Commission.
DATES: Written comments may be submitted to FinCEN on or before July 7,
2003.
ADDRESSES: Commenters are encouraged to submit comments by electronic
mail because paper mail in the Washington area may be delayed. Comments
submitted by electronic mail may be sent to
regcomments@fincen.treas.gov with the caption in the body of the text,
``Attention: Section 352 CTA Regulations.'' Comments may also be
submitted by paper mail to FinCEN, P.O. Box 39, Vienna, VA 22183, Attn:
Section 352 CTA Regulations. Comments should be sent by one method
only. 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 Chief Counsel (FinCEN),
(703)
[[Page 23641]]
905-3590; Office of the Assistant General Counsel for Banking & Finance
(Treasury), (202) 622-0480; or Office of the General Counsel
(Treasury), (202) 622-1927 (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 (Pub. L.
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 promote the prevention,
detection, and prosecution of international money laundering and the
financing of terrorism.
Section 352(a) of the Act, which became 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.
Section 5318(h)(2) authorizes the Secretary of the Treasury
(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 subject to BSA regulation.
---------------------------------------------------------------------------
\1\ The Federal functional regulator for commodity trading
advisors is the Commodity Futures Trading Commission (CFTC).
---------------------------------------------------------------------------
Commodity trading advisors (CTAs) that are registered or required
to register with the CFTC are defined as ``financial institutions''
under the BSA.\2\ CTAs, as well as futures commission merchants and
commodity pool operators (CPOs), which are also CFTC registrants, were
added to the statutory definition of ``financial institution'' by the
Act,\3\ and thus are subject to the BSA's anti-money laundering program
requirements. Previously, Treasury and FinCEN temporarily exempted
certain financial institutions, including CTAs and CPOs, from the
requirement that they establish anti-money laundering programs.\4\ In
addition, FinCEN has issued interim final rules for numerous types of
financial institutions \5\ and proposed rules for other financial
institutions,\6\ and is studying how to design such standards for
numerous other types of financial institutions.
---------------------------------------------------------------------------
\2\ 31 U.S.C. 5312(c).
\3\ Section 321(b).
\4\ See 31 CFR 103.170, 67 FR 67547 (Nov. 6, 2002).
\5\ Anti-Money Laundering Programs for Financial Institutions,
67 FR 21110 (April 29, 2002); Anti-Money Laundering Programs for
Mutual Funds, 67 FR 21117 (April 29, 2002); Anti-Money Laundering
Programs for Money Services Businesses, 67 FR 21114 (April 29,
2002); Anti-Money Laundering Programs for Operators of a Credit Card
System, 67 FR 21121 (April 29, 2002).
\6\ Anti-Money Laundering Programs for Unregistered Investment
Companies, 67 FR 60617 (Sept. 26, 2002); Anti-Money Laundering
Programs for Insurance Companies, 67 FR 60625 (Sept. 26, 2002);
Anti-Money Laundering Programs for Dealers in Precious Metals,
Stones, or Jewels, 68 FR 8480 (Feb. 21, 2003).
---------------------------------------------------------------------------
FinCEN, in this proposed rule, identifies and defines those CTAs
that will be subject to the requirement that financial institutions
have anti-money laundering programs, and sets forth minimum
requirements for an anti-money laundering program for these entities
that are based on the minimum standards set forth in BSA section
5318(h)(1).
FinCEN also is proposing today a similar rule for investment
advisers, which is published elsewhere in this issue of the Federal
Register.
II. Money Laundering and Commodity Trading Advisors
Money laundering occurs when money from illegal activity is moved
through the financial system in such a way as to make it appear that
the funds came from legitimate sources. Money laundering usually
involves three stages: the placement, layering, and integration stages.
In the placement stage, cash or cash equivalents are placed into the
financial system. In the layering stage, the money is transferred or
moved to other accounts through a series of financial transactions
designed to obscure the origin of the money. Finally, in the
integration stage, the funds are reintroduced into the economy so that
the funds appear to have come from legitimate sources. The crime of
money laundering also encompasses the movement of funds to support
terrorism or terrorist organizations.\7\ These funds may be from
illegitimate or legitimate sources. Even where the funds derive from
legitimate sources, their movement may follow the money laundering
pattern described above in order to disguise the identity of the
originator of the funds.
---------------------------------------------------------------------------
\7\ 18 U.S.C. 1956, 2339A and 2339B.
---------------------------------------------------------------------------
Commodity futures and options accounts are vehicles that could be
used to launder illicit funds. CTAs who direct such accounts are in a
unique position to observe activity that may be indicative of money
laundering. As such, they need to be aware of what types of activity
may indicate potential money laundering or terrorist financing and
implement a compliance program designed, among other things, to deter
and detect such activity.\8\
---------------------------------------------------------------------------
\8\ 18 U.S.C. 1956 and 1957 make it a crime for any person,
including an individual or company, to engage knowingly in a
financial transaction with the proceeds from any of a long list of
crimes or ``specified unlawful activity.'' Although the standard of
knowledge required is ``actual knowledge,'' actual knowledge
includes ``willful blindness.'' Thus, a person could be deemed to
have knowledge that proceeds were derived from illegal activity if
he or she ignored ``red flags'' that indicated illegality.
---------------------------------------------------------------------------
III. Section-by-Section Analysis
A. Definition of Commodity Trading Advisor
Section 103.133(a)(1) of the proposed rule defines ``commodity
trading advisor'' as any person registered or required to be registered
with the CFTC as a CTA under the Commodity Exchange Act (CEA)\9\ and
that directs client commodity futures or options accounts. Section
103.133(a)(2) defines ``directs'' in this context based upon the
definition of ``direct'' in the CFTC's regulations.\10\
---------------------------------------------------------------------------
\9\ 7 U.S.C. 1 et seq.
\10\ CFTC Rule 4.10(f), 17 CFR 4.10(f), provides that the term
``direct'' refers to ``agreements whereby a person is authorized to
cause transactions to be effected for a client's commodity interest
account without the client's specific authorization.'' CFTC Rule
4.10(a), 17 CFR 4.10(a), defines ``commodity interest'' as ``(1) any
contract for the purchase or sale of a commodity for future
delivery; and (2) any contract, agreement or transaction subject to
[CFTC] regulation under section 4c or 19 of the [CEA].''
---------------------------------------------------------------------------
The CEA defines a CTA generally as any person who, for compensation
or profit, engages in the business of advising others, either directly
or indirectly, as to the value or advisability of trading futures
contracts or commodity options authorized under the CEA, or issues
analyses or reports concerning trading futures or commodity
options.\11\ CTAs are required to register with the CFTC,\12\ although
there are a limited number of
[[Page 23642]]
exemptions.\13\ One important exemption is for persons who neither
direct client accounts nor provide commodity trading advice tailored to
the commodity interest or cash market positions or other circumstances
or characteristics of particular clients.\14\ This exemption includes,
among other categories, persons who publish newsletters, maintain non-
customized Internet web sites, and create non-customized computer
software.\15\ Although these persons are exempt from registration,
according to the NFA, a small number of them have opted to register
with the CFTC. Nonetheless, even if they are registered, FinCEN
believes it is appropriate to exclude these persons from the scope of
this proposed anti-money laundering program rule, because they do not
direct client accounts and thus, in light of their lack of information
about particular clients, they are in no position to observe activity
that may indicate the presence of money laundering or terrorist
financing.
---------------------------------------------------------------------------
\11\ The CEA defines the term ``commodity trading advisor'' as
``any person who * * * for compensation or profit, engages in the
business of advising others, either directly or through
publications, writings, or electronic media, as to the value of or
the advisability of trading in'' futures or commodity options, or
who ``for compensation or profit, and as part of a regular business,
issues or promulgates analyses or reports'' concerning trading in
futures or commodity options. 7 U.S.C. 1a(6).
\12\ 7 U.S.C. 6m. According to the National Futures Association
(NFA), the self-regulatory organization for the futures industry, as
of January 31, 2003 there were 2,734 CTAs registered with the CFTC.
\13\ See Section 4m of the CEA, 7 U.S.C. 6m, and CFTC Rule
4.14(a), 17 CFR 4.14(a). These provisions exempt from the
registration requirement a number of persons who meet the definition
of CTA. For example, section 4m(3) of the CEA, 7 U.S.C. 6m(3),
exempts from the registration requirement persons who are registered
as investment advisers with the Securities and Exchange Commission
and whose business does not consist primarily of acting as a CTA and
who do not act as a CTA to an entity that is primarily engaged in
trading commodity interests. Another example is CFTC Rule 4.14(a),
which exempts from registration, among other entities, certain
persons who are registered with the CFTC in other capacities. Any
person who is not registered as a CTA by virtue of 7 U.S.C. 6m or
CFTC Rule 4.14(a) is not a ``financial institution'' pursuant to
section 5312 of the BSA and is excluded from the scope of this
proposed rule. It should be noted that some of these exempt persons
may have anti-money laundering obligations due to their registration
in another capacity.
\14\ See CFTC Rule 4.14(a)(9), 17 CFR 4.14(a)(9).
\15\ The CFTC has determined to minimize the regulatory impact
on speech, other than deceptive or misleading speech. For this
reason, the CFTC exempts from registration those persons who meet
the definition of CTA, but whose advice to clients is limited to
non-customized communications, such as newsletters or Internet web
sites, and who do not direct client accounts. 65 FR 12938 (March 10,
2000).
---------------------------------------------------------------------------
Although CTAs that provide commodity trading advice tailored to the
commodity interest or cash market positions or other circumstances or
characteristics of particular clients are not covered by this
exemption, FinCEN has determined to exclude them as well, so that only
those CTAs that direct client accounts will be subject to the proposed
rule.\16\ This is because a CTA that only provides commodity trading
advice, without directing the account, is not in a position to actually
observe potentially suspicious activity; indeed, a CTA whose service is
limited to providing trading advice may not even know whether the
client actually follows that advice.\17\ Only CTAs that direct accounts
are in a position to observe potential money laundering or terrorist
financing activity.
---------------------------------------------------------------------------
\16\ The NFA estimates that approximately one quarter of all
registered CTAs direct client accounts.
\17\ It should be noted that futures commission merchants are
not required to furnish account statements to CTAs that merely
provide trading advice to clients and do not direct their accounts.
Compare CFTC Rule 1.33(d), 17 CFR 1.33(d).
---------------------------------------------------------------------------
In some instances, CTAs that would be subject to the proposed rule
advise pooled investment vehicles that are themselves required to
maintain anti-money laundering programs under BSA rules,\18\ such as
unregistered investment companies, or that are sponsored or
administered by financial institutions subject to such
requirements.\19\ To prevent overlap and redundancy, the proposed rule
would permit CTAs covered by the rule to exclude from their anti-money
laundering programs any investment vehicle they advise that is subject
to an anti-money laundering program requirement under BSA rules.
---------------------------------------------------------------------------
\18\ CTAs advise commodity pools as well as individual
customers. A ``pool'' is defined in CFTC Rule 4.10 as ``any
investment trust, syndicate or similar form of enterprise operated
for the purpose of trading commodity interests.'' 17 CFR 4.10(d)(1).
\19\ For example, a CTA may act as advisor to other investment
vehicles, such as certain unregistered investment companies or an
insurance company's separate accounts, that will be subject to anti-
money laundering program rules under pending FinCEN proposals. See,
e.g., Anti-Money Laundering Programs for Unregistered Investment
Companies, 67 FR 60617 (Sept. 26, 2002); Anti-Money Laundering
Programs for Insurance Companies, 67 FR 60625 (Sept. 26, 2002).
---------------------------------------------------------------------------
B. The Anti-Money Laundering Program
1. Individualized Program
Section 103.133(b) of the proposed rule would require each CTA
subject to the proposed rule to develop and implement a program
reasonably designed to prevent the CTA from being used for money
laundering or terrorist financing, and to achieve and monitor
compliance with other applicable requirements of the BSA and FinCEN's
implementing regulations. The legislative history of the Act explains
that the requirement to have an anti-money laundering program is not a
one-size-fits-all requirement. The general nature of the requirement
reflects Congress' intent that each financial institution should have
the flexibility to tailor its program to fit its business, taking into
account factors such as its size, location, activities, and risks or
vulnerabilities to money laundering. This flexibility is designed to
ensure that all financial institutions subject to the Act, from the
largest to the smallest, have in place policies and procedures
appropriate to monitor for anti-money laundering compliance.\20\
---------------------------------------------------------------------------
\20\ See USA PATRIOT Act of 2001: Consideration of H.R. 3162
Before the Senate (October 25, 2001) (statement of Sen. Sarbanes),
147 Cong. Rec. S10990-02; Financial Anti-Terrorism Act of 2001:
Consideration Under Suspension of Rules of H.R. 3004 Before the
House of Representatives (October 17, 2001) (statement of Rep.
Kelly) (provisions of the Financial Anti-Terrorism Act of 2001 were
incorporated as Title III in the Act), 147 Cong. Rec. H6924-01.
---------------------------------------------------------------------------
The proposed rule is designed to give CTAs flexibility to tailor
their programs to their specific circumstances so long as the minimum
requirements are met. For example, a CTA that directs a wide variety of
commodity interest trading accounts may require more extensive
oversight by its compliance officer than would a CTA that directs a
smaller number of individual accounts. The former also would require
more frequent independent review. Similarly, the educational component
of the program should be tailored towards the size of the CTA, the type
of trading or investing, and the identities of the CTA's clients.
To assure that the requirement to have an anti-money laundering
program receives the highest level of attention, the proposed rule
would require that each CTA's program be approved in writing by the
board of directors or trustees, or if it doesn't have one, by its sole
proprietor, general partner, or other persons who have similar
functions.\21\ The four required elements of the anti-money laundering
program are discussed below.
---------------------------------------------------------------------------
\21\ The board's approval could be given at its first regularly
scheduled meeting after the program is adopted.
---------------------------------------------------------------------------
2. The Four Required Elements of Each Anti-Money Laundering Program
(1) Establish and Implement Policies, Procedures, and Internal
Controls Reasonably Designed To Prevent the CTA From Being Used To
Launder Money or Finance Terrorist Activities, Including But Not
Limited To Achieving Compliance With the Applicable Provisions of the
BSA and FinCEN's Implementing Regulations
Each CTA subject to the proposed rule would be required to develop
a written program reasonably designed to prevent it from being used to
launder money or finance terrorist activities and to achieve compliance
with applicable requirements of the BSA and FinCEN's implementing
regulations. As described below, this would require each CTA to review
the types of services it provides and the nature of its clients to
identify its vulnerabilities to money laundering
[[Page 23643]]
and terrorist financing activity. The CTA would then develop and
implement procedures and controls that would reasonably address each
vulnerability and assure compliance with these requirements, and
periodically assess the effectiveness of its procedures and controls.
A CTA's vulnerabilities to money laundering and terrorist financing
activity are minimal with respect to clients for whom the CTA does not
direct accounts. CTAs that direct accounts for some clients may have
other clients for whom the CTA provides very different services, such
as trading advice, newsletters or research reports. Accordingly, a CTA
could exclude from its anti-money laundering program clients for whom
it does not direct accounts.
CTAs face higher vulnerability to money laundering when clients
place their assets with a futures commission merchant and the funds are
directed by the CTA. A CTA's procedures for these clients, for example,
would seek to identify unusual transactions whereby clients deposit
checks drawn on (or wire transfers made from) accounts of third parties
with no family or business relation to the client, or through numerous
checks or transfers from one or more issuers or institutions. In
addition, a CTA's procedures would identify unusual transactions, such
as those involving the subsequent withdrawal of assets from the futures
commission merchant through transfers to unrelated or numerous
accounts, or to accounts in countries in which drugs are known to be
produced or other countries at high-risk for money laundering or
terrorist financing.\22\
---------------------------------------------------------------------------
\22\ See, e.g., http://www.state.gov for International Narcotics
Control Reports listing states that are sponsors of terrorism or
have narcotics problems, and http://www.fincen.gov for FinCEN
Advisories identifying countries whose anti-money laundering regimes
do not meet international standards.
---------------------------------------------------------------------------
A CTA's vulnerability to money laundering may rise further with
respect to clients who make frequent additions to or withdrawals from
their accounts held with futures commission merchants. A CTA would need
to establish procedures to identify which clients engage in such
activity and assess the reasonableness of the additions or withdrawals
in light of the clients' investment objectives and the CTA's existing
knowledge of the clients' personal finances or business operations.
A CTA faces the highest degree of vulnerability in the event that
clients deposit or attempt to deposit assets in their accounts at
futures commission merchants in the form of cash. Similar vulnerability
exists if the client establishes custodial arrangements that allow the
client to remain anonymous to other intermediaries. The CTA would need
to establish procedures to assess whether there are legitimate
circumstances underlying the client's request before proceeding with
the relationship.
A CTA's program should take into account the extent to which it
provides trading advice to pooled investment vehicles. As discussed
above, CTAs to pooled investment vehicles that are subject to anti-
money laundering program requirements under BSA rules may exclude the
vehicles from their anti-money laundering programs. However, a CTA must
include other pooled vehicles it advises in its anti-money laundering
program.
CTAs providing advice to pooled investment vehicles that are not
subject to BSA anti-money laundering program requirements and that are
created and administered by a third party,\23\ would have little or no
information about the investors in the pooled vehicle or their
transactions. In this situation, the CTA would need to establish
procedures to assess whether the entity that administers the vehicle,
or the nature of the vehicle itself, reduces the risk of money
laundering. For example, an employee retirement savings plan sponsored
by a public corporation that accepts assets only in the form of payroll
deductions or rollovers from other similar plans presents no realistic
opportunity for money laundering activity, whereas an offshore vehicle
not itself subject to any anti-money laundering program requirement
would present a more significant risk. The CTA's program would need to
analyze the money laundering risks posed by a particular investment
vehicle by using a risk-based evaluation of relevant factors including:
the type of entity; its location; the statutory and regulatory regime
of that location (e.g., if the entity is organized or registered in a
foreign jurisdiction, does the jurisdiction comply with the European
Union anti-money laundering directives, and has the jurisdiction been
identified by the Financial Action Task Force as non-cooperative); and
the CTA's historical experience with the entity or the references of
other financial institutions. As the entity's potential vulnerability
to money laundering increases, the CTA's procedures would need to
reasonably address these increased risks, such as by obtaining and
reviewing information about the identity and transactions of the
investors in the vehicle.
---------------------------------------------------------------------------
\23\ FinCEN understands that CTAs (acting in their capacity as a
CTA) do not create or administer pooled investment vehicles, so that
all CTAs advising pooled vehicles that are not subject to an anti-
money laundering program requirement would fall within this
description.
---------------------------------------------------------------------------
FinCEN recognizes that some elements of a CTA's anti-money
laundering program may best be performed by personnel of these separate
entities, such as futures commission merchants. It is permissible for a
CTA to delegate contractually appropriate parts of the implementation
and operation of its anti-money laundering program to another
affiliated or unaffiliated entity. However, the CTA would remain
responsible for the effectiveness of the program, as well as ensuring
that federal examiners are able to obtain information and records
relating to the anti-money laundering program and to inspect the third
party for purposes of the program. Accordingly, the CTA would still be
required to identify the particular procedures appropriate to address
its vulnerability to money laundering and terrorist financing, and then
undertake reasonable steps to assess whether the third party would
carry out such procedures effectively. For example, it would not be
sufficient simply to obtain a certification from the third party that
it ``has a satisfactory anti-money laundering program.''
Certain CTAs also may be registered in other capacities, including
as futures commission merchants or introducing brokers. These CTAs may
already have anti-money laundering programs in place.\24\ FinCEN does
not require that such CTA's establish multiple anti-money laundering
programs. The same program may apply to an entity that functions as
more than one type of financial institution, so long as the program is
appropriately designed to address the different risks posed by the
different aspects of the entity's business and satisfies each of the
anti-money laundering program requirements to which it is subject in
each of its capacities.
---------------------------------------------------------------------------
\24\ Previously, the NFA issued a rule for its futures
commission merchant members and introducing broker members,
requiring them to implement anti-money laundering programs. NFA Rule
2-9(c).
---------------------------------------------------------------------------
Policies, procedures, and internal controls also should be
reasonably designed to assure compliance with BSA requirements. The BSA
currently requires CTAs to report on Form 8300 the receipt of cash or
certain non-cash instruments totaling more than $10,000 in one
transaction or two or more related transactions.\25\ In order to
[[Page 23644]]
develop a compliant anti-money laundering program, the program should
be reasonably designed to detect and report not only transactions
required to be reported on Form 8300, but also to detect activity
designed to evade such requirements. Such activity, commonly known as
``structuring,'' may involve making deposits into a trading or
investment account of $10,000 or more with multiple money orders,
travelers' checks, or cashier's checks or other bank checks, each with
a face amount of less than $10,000. Such methods of payment may be
indicative of money laundering, particularly when the payment
instruments were obtained from different sources or the payments were
made at different times on the same day or on consecutive days or close
in time.
---------------------------------------------------------------------------
\25\ See 31 CFR 103.30. It should be noted, however, that CFTC
Rule 4.30, 17 CFR 4.30, prohibits a CTA that is not also a futures
commission merchant, from receiving any funds, securities, or
property from clients in the CTA's name. The Form 8300 requirement
thus applies where the CTA transmits non-cash instruments such as
cashier's checks made payable to the Futures Commission merchant for
deposit into a client's account.
---------------------------------------------------------------------------
FinCEN is currently considering whether CTAs should be subject to
additional BSA requirements, including filing suspicious activity
reports pursuant to section 5318(g) of the BSA and complying with
accountholder identification and verification procedures pursuant to
section 326 of the Act. If CTAs become subject to additional
requirements, they will need to update their compliance programs to
include appropriate procedures, training, and testing functions.
(2) Provide for Independent Testing for Compliance To Be Conducted
by Company Personnel or by a Qualified Outside Party.
It is necessary that a CTA provide for periodic testing of its
anti-money laundering program in order to assure that the program is
functioning as designed. The testing should be conducted by personnel
knowledgeable regarding applicable BSA requirements. The testing may be
accomplished by employees of the CTA, its affiliates, or unaffiliated
service providers, so long as those same employees are not designated
to implement and monitor the program under requirement (3) below. The
frequency of such a review would depend upon factors such as the size
and complexity of the CTA's business and the extent to which its
business model may be subject to a higher risk of money laundering than
other business models. A written assessment or report should be a part
of the review, and any recommendations resulting from such review
should be promptly addressed.
(3) Designate a Person or Persons Responsible for Implementing and
Monitoring the Operations and Internal Controls of the Program.
The CTA must charge a person (or group of persons) with the
responsibility for overseeing the anti-money laundering program. The
person or group of persons should be competent and knowledgeable
regarding applicable BSA requirements and money laundering risks, and
empowered with full responsibility and authority to develop and enforce
appropriate policies and procedures. Whether the person or group of
persons is dedicated full time to BSA compliance would depend upon the
size and complexity of the CTA's business. In addition, a person
responsible for the overall supervision of the program should be an
officer of the CTA.
(4) Provide Ongoing Training for Appropriate Persons.
Employee training is an integral part of any anti-money laundering
program. Employees of the CTA must be trained in BSA requirements
relevant to their functions and in recognizing possible signs of money
laundering that could arise in the course of their duties, so that they
can carry out their responsibilities effectively. Such training could
be conducted by outside or in-house seminars, and could include
computer-based training. The level, frequency, and focus of the
training would be determined by the responsibilities of the employees
and the extent to which their functions bring them in contact with BSA
requirements or possible money laundering activity. Consequently, the
training program should provide both a general awareness of overall BSA
requirements and money laundering issues, as well as more job-specific
guidance regarding particular employees' roles and functions in the
anti-money laundering program.\26\ For those employees whose duties
bring them in contact with BSA requirements or possible money
laundering activity, the requisite training should occur when the
employee assumes those duties. Moreover, these employees should receive
periodic updates and refreshers regarding the anti-money laundering
program.
---------------------------------------------------------------------------
\26\ Appropriate topics for an anti-money laundering program
include, but are not limited to: BSA requirements, a description of
money laundering, how money laundering is carried out, what types of
activities and transactions should raise concerns, what steps should
be followed when suspicions arise, and the Office of Foreign Assets
Control and other government lists of suspected terrorists and
terrorist organizations.
---------------------------------------------------------------------------
C. Examination
The proposed rule includes a provision under which FinCEN would
delegate examination authority to the CFTC, to enable the CFTC to
examine CTAs' compliance with the anti-money laundering program
requirement.
D. Voluntary Filing of Suspicious Activity Reports
In addition to complying with the requirements of this proposed
rule, CTAs are encouraged to adopt procedures for voluntarily filing
Suspicious Activity Reports with FinCEN and for reporting suspected
terrorist activities to FinCEN using its Financial Institutions Hotline
(1-866-566-3974). The BSA provides immunity from civil liability for
any financial institution, its directors, officers, employees, or
agents that make such a disclosure of any possible violation of law or
regulation.\27\ The Act clarifies that this safe harbor immunity also
applies in the case of any voluntary reporting of a suspicious
transaction or under any contract or other legally enforceable
agreement, such as an arbitration agreement.
---------------------------------------------------------------------------
\27\ See Lee v. Bankers Trust Co., 166 F.3d 540, 544 (2nd Cir.
1999) (stating that in enacting 31 U.S.C. 5318(g), Congress
``broadly and unambiguously provide[d] * * * immunity from any law
(except the federal Constitution) for any statement made in a
[suspicious activity report] by anyone connected to a financial
institution'').
---------------------------------------------------------------------------
IV. Request for Comments
FinCEN requests comment on all aspects of this proposed rule.
FinCEN specifically requests comment on the definition of ``commodity
trading advisor'' in proposed rule 103.133(a) and whether this
definition should include other categories of CTAs, such as any of
those that are exempt from registration under CFTC rules, or that are
required to register with the CFTC but do not direct client accounts.
FinCEN also requests comment regarding the proposed provisions designed
to avoid imposing overlapping or duplicative anti-money laundering
program regulations of CTAs and other financial institutions that are
(or are proposed to be) subject to anti-money laundering program
requirements.
V. Regulatory Flexibility Act
It is hereby certified that this proposed rule would not have a
significant economic impact on a substantial number of small entities.
The CFTC has stated that it would evaluate within the context of a
[[Page 23645]]
particular proposed rule whether all or some affected CTAs should be
considered to be small entities and, if so, that it would analyze the
economic impact on them of any rule.\28\ This proposed rule would
affect CTAs of all sizes. However, the economic burden should be
minimal. The costs associated with the development of anti-money
laundering programs are attributable to the mandates of section 352 of
the Act. In addition, the proposed rule would not impose significant
burdens on those CTAs covered by the rule because they are already
subject to Form 8300 reporting and may build on their existing risk
management procedures and prudential business practices to ensure
compliance with this rule. Similarly, the procedures currently in place
at other financial institutions such as futures commission merchants
and introducing brokers to comply with existing BSA rules should help
guide CTAs in establishing their own anti-money laundering programs.
Finally, CTAs subject to the proposed rule would not be compelled to
obtain more sophisticated legal or accounting advice than that already
required to run their businesses.
---------------------------------------------------------------------------
\28\ 47 FR 18618, 18620 (April 30, 1982).
---------------------------------------------------------------------------
Finally, FinCEN believes that the flexibility incorporated into the
proposed rule will permit each CTA to tailor its anti-money laundering
program to fit its own size and needs. In this regard, FinCEN believes
that expenditures associated with establishing and implementing an
anti-money laundering program will be commensurate with the size of a
CTA. If a CTA is small, the burden to comply with the proposed rule
should be de minimis.
VI. Executive Order 12866
This proposed rule is not a ``significant regulatory action'' as
defined in Executive Order 12866. Accordingly, a regulatory assessment
is not required.
VII. Paperwork Reduction Act
The collection of information (recordkeeping requirement) contained
in this proposed rule has been submitted to the Office of Management
and Budget for review in accordance with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)). Comments on the collection of information
should be sent (preferably by fax (202-395-6974)) to Desk Officer for
the Department of the Treasury, Office of Information and Regulatory
Affairs, Office of Management and Budget, Paperwork Reduction Project
(1506), Washington, DC 20503 (or by the Internet to
jlackeyj@omb.eop.gov), with a copy to FinCEN by mail or the Internet at
the addresses previously specified. Comments on the collection of
information should be received by July 7, 2003.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information subject to the Paperwork
Reduction Act unless it displays a valid control number assigned by the
Office of Management and Budget.
The collection of information (recordkeeping requirement) in this
proposed rule is in 31 CFR 103.133(b). The information would be used by
federal agencies to verify compliance by CTAs with the provisions of 31
CFR 103.133. The collection of information is mandatory.
In accordance with the requirements of the Paperwork Reduction Act
of 1995, 44 U.S.C. 3506(c)(2)(A), and its implementing regulations, 5
CFR 1320, the following information concerning the collection of
information as required by 31 CFR 103.133(b) is presented to assist
those persons wishing to comment on the information collection.
Description of Recordkeepers: Commodity trading advisors as defined
in 31 CFR 103.133(a).
Estimated Number of Recordkeepers: 650.
Estimated Average Annual Burden Hours Per Recordkeeper: The
estimated average burden associated with the collection of information
in this proposed rule is 1 hour per recordkeeper.
Estimated Total Annual Recordkeeping Burden: 650 hours.
FinCEN specifically invites comments on the following subjects: (a)
Whether the proposed collection of information is necessary for the
proper performance of the mission of FinCEN, including whether the
information shall have practical utility; (b) the accuracy of FinCEN's
estimate of the burden of the proposed collection of information; (c)
ways to enhance the quality, utility, and clarity of the information to
be collected; (d) ways to minimize the burden of the collection of
information on commodity trading advisors, including through the use of
automated collection techniques or other forms of information
technology; and (e) estimates of capital or start-up costs and costs of
operation, maintenance, and purchase of services to provide
information.
List of Subjects in 31 CFR Part 103
Administrative practice and procedure, Authority delegations
(Government agencies), Banks and banking, Brokers, Commodity futures,
Counter money laundering, Counter-terrorism, Currency, Reporting and
recordkeeping requirements.
Authority and Issuance
For the reasons set forth in the preamble, part 103 of title 31 of
the Code of Federal Regulations is proposed to be amended as follows:
PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND
FOREIGN TRANSACTIONS
1. The authority citation for part 103 is amended to read as
follows:
Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314
and 5316-5332; title III, secs. 312, 313, 314, 319, 321, 326, 352,
Pub. L. 107-56, 115 Stat. 307, 12 U.S.C. 1818, 12 U.S.C. 1786(q).
2. Section 103.56 is amended by redesignating paragraph (b)(8) as
(b)(9) and revising it, and by adding a new paragraph (b)(8) to read as
follows:
* * * * *
(b) * * *
(8) To the Commodity Futures Trading Commission with respect to
futures commission merchants, introducing brokers, commodity pool
operators and commodity trading advisors (as that term is defined in
Sec. 103.133(a));
(9) To the Commissioner of Internal Revenue with respect to all
financial institutions for which examination authority is not otherwise
delegated pursuant to this paragraph (b).
3. Subpart I of part 103 is amended by adding new Sec. 103.133 to
read as follows:
Sec. 103.133 Anti-money laundering programs for commodity trading
advisors.
(a) Definitions. For the purposes of this section:
(1) The term ``commodity trading advisor'' means a person
registered or required to be registered as a commodity trading advisor
with the Commodity Futures Trading Commission under the Commodity
Exchange Act (7 U.S.C. 1 et seq.) and that directs client commodity
futures or options accounts.
(2) For purposes of this definition the term ``directs'' refers to
agreements whereby a person is authorized to cause transactions to be
effected for a client's commodity futures or options account without
the client's specific authorization.
(b) Anti-money laundering program required. Effective [date that is
90 days after the date of publication of a final rule in the Federal
Register]:
(1) Each commodity trading advisor shall develop and implement a
written
[[Page 23646]]
anti-money laundering program reasonably designed to prevent the
commodity trading advisor from being used for money laundering or the
financing of terrorist activities and to achieve and monitor compliance
with the applicable provisions of the Bank Secrecy Act (31 U.S.C. 5311,
et seq.) (BSA) and this part. The commodity trading advisor may exclude
from its anti-money laundering program any pooled investment vehicle it
advises that is subject to an anti-money laundering program requirement
under another provision of this subpart.
(2) Each commodity trading advisor's anti-money laundering program
must be approved in writing by its board of directors or trustees, or
if it doesn't have one, by its sole proprietor, general partner, or
other persons who have similar functions. A commodity trading advisor
shall make its anti-money laundering program available for inspection
by FinCEN or the Commodity Futures Trading Commission upon request.
(c) The anti-money laundering program shall, at a minimum:
(1) Establish and implement policies, procedures, and internal
controls reasonably designed to prevent the commodity trading advisor
from being used for money laundering or the financing of terrorist
activities and to achieve and monitor compliance with the applicable
provisions of the BSA and this part;
(2) Provide for independent testing for compliance to be conducted
by the commodity trading advisor's personnel or by a qualified outside
party;
(3) Designate a person or persons responsible for implementing and
monitoring the operations and internal controls of the program; and
(4) Provide ongoing training for appropriate persons.
Dated: April 28, 2003.
James F. Sloan,
Director, Financial Crimes Enforcement Network.
[FR Doc. 03-10841 Filed 5-2-03; 8:45 am]
BILLING CODE 4810-02-P