Financial Crimes Enforcement Network; Amendment to the Bank Secrecy Act Regulations; Defining Mutual Funds as Financial Institutions., 19241-19245 [2010-8500]

Download as PDF Federal Register / Vol. 75, No. 71 / Wednesday, April 14, 2010 / Rules and Regulations Epidemiology & Statistics Unit, Research and Scientific Affairs, January 2009. 10. Mannino, D. M. et al., ‘‘Surveillance for Asthma—United States, 1980–1999,’’ Morbidity and Mortality Weekly Report, 51(SS01):1–13, March 29, 2002. 11. Analysis completed by FDA based on information provided by IMS Health, IMS National Sales Perspective (TM), 2009, extracted September 2009. These data can be purchased from IMS Health. Please send all inquiries to: IMS Health, Attn: Brian Palumbo, Account Manager, 660 West Germantown Pike, Plymouth Meeting, PA 19462. 12. Rozek, R. P., and E. R. Bishko, ‘‘Economic Issues Raised in the FDA’s Proposed Rule on Removing the EssentialUse Designation for Albuterol MDIs,’’ National Economic Research Associates, August 13, 2004 (FDA Docket No. 2003P– 0029/C25). 13. Hendeles, L. G, L. Colice, and R. J. Meyer, ‘‘Withdrawal of Albuterol Inhalers Containing Chlorofluorocarbon Propellants,’’ New England Journal of Medicine, 356:1344– 1351, March 29, 2007. 14. Goldman, D. P. et al., ‘‘Pharmacy Benefits and the Use of Drugs by the Chronically Ill,’’ The Journal of the American Medical Association, 291:2344–2350, May 19, 2004. 15. DeNavas-Walt, C., B. D. Proctor, and J. C. Smith, U.S. Census Bureau, Current Population Reports, P60–236(RV), Income, Poverty, and Health Insurance Coverage in the United States: 2008, Table 7, p. 21, 2009. List of Subjects in 21 CFR Part 2 Administrative practice and procedure, Cosmetics, Drugs, Foods. ■ Therefore, under the Federal Food, Drug, and Cosmetic Act and the Clean Air Act and under authority delegated to the Commissioner of Food and Drugs, after consultation with the Administrator of the Environmental Protection Agency, 21 CFR part 2 is amended as follows: PART 2—GENERAL ADMINISTRATIVE RULINGS AND DECISIONS 1. The authority citation for 21 CFR part 2 continues to read as follows: ■ Authority: 15 U.S.C. 402, 409; 21 U.S.C. 321, 331, 335, 342, 343, 346a, 348, 351, 352, 355, 360b, 361, 362, 371, 372, 374; 42 U.S.C. 7671 et seq. § 2.125 [Amended] 2. Effective June 14, 2010, in § 2.125, remove and reserve paragraphs (e)(2)(iii) and (e)(4)(vii). ■ jlentini on DSKJ8SOYB1PROD with RULES § 2.125 [Amended] 3. Effective December 31, 2010, in § 2.125, remove and reserve paragraphs (e)(1)(v) and (e)(4)(iv). ■ § 2.125 [Amended] 4. Effective June 30, 2011, in § 2.125, remove and reserve paragraph (e)(1)(iii). ■ VerDate Nov<24>2008 16:13 Apr 13, 2010 Jkt 220001 § 2.125 [Amended] I. Background 5. Effective December 31, 2013, in § 2.125, remove and reserve paragraphs (e)(2)(iv) and (e)(4)(viii). ■ Dated: April 8, 2010. Leslie Kux, Acting Assistant Commissioner for Policy. [FR Doc. 2010–8467 Filed 4–13–10; 8:45 am] BILLING CODE 4160–01–S DEPARTMENT OF THE TREASURY 31 CFR Part 103 RIN 1506–AA93 Financial Crimes Enforcement Network; Amendment to the Bank Secrecy Act Regulations; Defining Mutual Funds as Financial Institutions. AGENCY: Financial Crimes Enforcement Network (‘‘FinCEN’’), Treasury. ACTION: Final rule. SUMMARY: FinCEN is issuing this final rule to include mutual funds within the general definition of ‘‘financial institution’’ in regulations implementing the Bank Secrecy Act (‘‘BSA’’). The final rule subjects mutual funds to rules under the BSA on the filing of Currency Transaction Reports (‘‘CTRs’’) and on the creation, retention, and transmittal of records or information for transmittals of funds. Additionally, the final rule amends the definition of mutual fund in the rule requiring mutual funds to establish anti-money laundering (‘‘AML’’) programs. The amendment harmonizes the definition of mutual fund in the AML program rule with the definitions found in the other BSA rules to which mutual funds are subject. Finally, the final rule amends the rule that delegates authority to examine institutions for compliance with the BSA. The amendment makes it clear that FinCEN has not delegated to the Internal Revenue Service the authority to examine mutual funds for compliance with the BSA, but rather to the U.S. Securities and Exchange Commission (‘‘SEC’’) as the federal functional regulator of mutual funds. DATES: Effective Date: This rule is effective May 14, 2010. Compliance Date: Mutual funds must comply with 31 CFR 103.33 by January 10, 2011. The compliance date for all other aspects of this rulemaking is the same as the effective date. FOR FURTHER INFORMATION CONTACT: The FinCEN regulatory helpline at (800) 949–2732 and select Option 6. SUPPLEMENTARY INFORMATION: PO 00000 Frm 00057 Fmt 4700 19241 Sfmt 4700 A. Statutory Provisions. The Bank Secrecy Act, Public Law 91–508, codified as amended at 12 U.S.C. 1829b, 12 U.S.C. 1951–1959, and 31 U.S.C. 5311–5314; 5316–5332, authorizes the Secretary of the Treasury (‘‘Secretary’’) to issue regulations requiring financial institutions to keep records and file reports that are determined to have a high degree of usefulness in criminal, tax, and regulatory investigations or proceedings, or in the conduct of intelligence or counter-intelligence activities, including analysis, to protect against international terrorism, and to implement anti-money laundering programs and compliance procedures.1 Regulations implementing the BSA appear at 31 CFR part 103. The authority of the Secretary to administer the BSA has been delegated to the Director of FinCEN. The definition of ‘‘financial institution’’ in the BSA includes investment companies.2 The Investment Company Act of 1940, codified at 15 U.S.C. 80a–1 et seq. (the ‘‘Investment Company Act’’), defines ‘‘investment company’’ 3 and subjects investment companies to regulation by the SEC. B. Overview of Current Regulatory Provisions. Regulations implementing the BSA currently apply only to investment companies that are ‘‘open-end companies,’’ as the term is defined in the Investment Company Act. More commonly known as mutual funds, open-end companies are the predominant type of investment company. Open-end companies are management companies that offer or have outstanding securities that are redeemable at net asset value.4 Although FinCEN has issued individual rules that apply to mutual funds,5 FinCEN has not included 1 Language expanding the scope of the BSA was added by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (‘‘USA PATRIOT Act’’), Public Law 107–56. 2 31 U.S.C. 5312(a)(2)(I). 3 See 15 U.S.C. 80a–3. 4 15 U.S.C. 80a–4; 15 U.S.C. 80a–5(a)(1); 15 U.S.C. 80a–2(a)(32). Face-amount certificate companies and unit investment trusts are excluded from the definition of ‘‘management company.’’ 15 U.S.C. 80a–4(3). 5 Anti-Money Laundering Programs for Mutual Funds, 67 FR 21117 (April 29, 2002); Customer Identification Programs for Mutual Funds, 68 FR 25131 (May 9, 2003); Amendment to the Bank Secrecy Act Regulations—Requirement That Mutual Funds Report Suspicious Activity, 71 FR 26213 (May 4, 2006); Anti-Money Laundering Programs; Special Due Diligence Programs for Certain Foreign Accounts, 71 FR 496 (Jan. 4, 2006); Anti-Money E:\FR\FM\14APR1.SGM Continued 14APR1 19242 Federal Register / Vol. 75, No. 71 / Wednesday, April 14, 2010 / Rules and Regulations mutual funds within the definition of ‘‘financial institution’’ at 31 CFR 103.11(n), which is less inclusive than the definition in the BSA itself.6 The definition of ‘‘financial institution’’ at 31 CFR 103.11(n) determines, among other things, the scope of rules that require the filing of CTRs and the creation, retention, and transmittal of records or information on transmittals of funds and other specified transactions.7 II. Notice of Proposed Rulemaking and Comments On June 5, 2009, FinCEN published a notice of proposed rulemaking (the ‘‘Notice’’) that proposed including mutual funds within the general definition of financial institution at 31 CFR 103.11(n).8 The proposed rule would subject mutual funds to rules on the filing of CTRs and on the creation, retention, and transmittal of records or information for transmittals of funds.9 The comment period for the Notice ended on September 3, 2009. FinCEN received three comment letters from various industry associations.10 All of the commenters supported the proposed rule and offered many reasons why including mutual funds within the definition of ‘‘financial institution’’ at 31 CFR 103.11(n) is appropriate. These reasons are discussed below in greater detail in the section-by-section analysis. All of the commenters requested additional time to comply with the Recordkeeping and Travel Rule requirements that would be imposed under 31 CFR 103.33. III. Section-by-Section Analysis jlentini on DSKJ8SOYB1PROD with RULES A. Sections 103.11(n)(10) and 103.11(ccc)—Mutual Funds Move From Filing Reports on Form 8300 to the Currency Transaction Report The final rule adds mutual funds to the definition of ‘‘financial institution’’ at 31 CFR 103.11(n)(10). The final rule defines a ‘‘mutual fund’’ for this purpose at 31 CFR 103.11(ccc). The definition of Laundering Programs; Special Due Diligence Programs for Certain Foreign Accounts, 72 FR 44768 (Aug. 9, 2007). 6 See 31 U.S.C. 5312(a)(2). 7 See 31 CFR 103.22; 31 CFR 103.28; 31 CFR 103.29; 31 CFR 103.33; and 31 CFR 103.38. Defining a business as a financial institution would make the business ineligible for exemption from a bank’s requirement to file CTRs with respect to the business’ large cash transactions. See 31 CFR 103.22(d)(5)(viii). 8 Amendment to the Bank Secrecy Regulations; Defining Mutual Funds as Financial Institutions, 74 FR 26996 (June 5, 2009). 9 See 31 CFR 103.22; 31 CFR 103.28; 31 CFR 103.29; 31 CFR 103.33; and 31 CFR 103.38. 10 All comments to the Notice are available for public viewing at http://www.regulations.gov or http://www.fincen.gov/statutes_regs/bsa/ regs_proposal_comment.html. VerDate Nov<24>2008 16:13 Apr 13, 2010 Jkt 220001 ‘‘mutual fund’’ covers only those entities registered or required to register with the SEC. Specifically, ‘‘mutual fund’’ is defined as: an ‘‘investment company’’ (as the term is defined in section 3 of the Investment Company Act (15 U.S.C. 80a–3)) that is an ‘‘open-end company’’ (as that term is defined in section 5 of the Investment Company Act (15 U.S.C. 80a–5)) registered or required to register with the Securities and Exchange Commission under section 8 of the Investment Company Act (15 U.S.C. 80a–8). There were no comments concerning the definition of mutual fund. FinCEN is adopting the definition as proposed. The final rule has the effect of replacing a mutual fund’s requirement to file a Form 8300 with a requirement to file a CTR under 31 CFR 103.22.11 A mutual fund will now be required to file a CTR for a transaction involving a transfer of more than $10,000 in currency by, through, or to the mutual fund.12 The CTR filing obligation covers incoming, outgoing, and exchange transactions in currency. The definition of ‘‘currency’’ for purposes of the CTR rule is different from and less inclusive than the definition of ‘‘currency’’ in the Form 8300 rule.13 Under the CTR rule, a financial institution must treat multiple transactions as a single transaction if the financial institution has knowledge that the transactions are conducted by or on behalf of the same person.14 In the Notice, FinCEN asserted that the volume of Form 8300s filed is relatively low when compared to the overall volume of mutual fund transactions.15 Commenters also concurred with FinCEN that since mutual funds are subject to SAR reporting requirements, the ability to 11 31 CFR 103.30(a)(1)(ii) (the requirement to file a Form 8300 does not apply to transactions reported under 31 CFR 103.22). 12 31 CFR 103.22(b)(1). 13 See 31 CFR 103.11(h) (currency is defined as the coin and paper of the United States or of any other country that is designated as legal tender and that circulates and is customarily used as a medium of exchange in a foreign country). 14 31 CFR 103.22(c)(2). The obligation to file a CTR is conditioned on knowledge that the transactions are conducted by or on behalf of the same person and result in either cash in or cash out totaling more than $10,000 during any one business day. The threshold in 31 CFR 103.22 applies to transactions conducted during a single business day, whereas the requirement to file a Form 8300 can cover transactions that occur over a longer period of time. See 31 CFR 103.22(c)(2) and 31 CFR 103.30(c)(12)(ii). 15 A review of BSA data revealed that while hundreds of millions of transactions involving mutual funds were conducted in calendar years 2004, 2005, 2006, and 2007, fewer than 19,500 Form 8300s were filed by mutual funds over the same period. PO 00000 Frm 00058 Fmt 4700 Sfmt 4700 report suspicious transactions on a Form 8300 is redundant.16 In the Notice, FinCEN requested comment on the anticipated time and monetary savings that could result from replacing the requirement to file reports on Form 8300 with a requirement to file CTRs. One commenter stated that requiring mutual funds to file CTRs instead of Form 8300s would streamline and reduce overall compliance burdens for mutual funds and could aid in facilitating enterprise-wide risk management programs. Commenters were in agreement that requiring mutual funds to file CTRs instead of Form 8300s should reduce the expense and burden of reporting for mutual funds and their transfer agents,17 and one commenter stated that there likely will be greater efficiency in larger entities that have staff and systems in place to produce CTR filings. FinCEN also requested comment on the nature, volume, content, and value of any potentially lost information to law enforcement, tax, regulatory, and counter-terrorism investigations or activities that could result from this rulemaking. FinCEN did not receive any comments specific to this request. One commenter, however, stated generally that requiring mutual funds to file CTRs, rather than Form 8300s, would not diminish the quality or quantity of useful BSA data reported by mutual funds. B. Section 103.33—The Recordkeeping and Travel Rule and Related Recordkeeping Requirements The final rule subjects mutual funds to requirements on the creation and retention of records for transmittals of funds, and the requirement to transmit 16 FinCEN also offered that because mutual funds rarely receive from or disburse to shareholders significant amounts of currency, mutual funds are not as likely as depository institutions to be used during the initial ‘‘placement’’ stage of the money laundering process. Amendment to the Bank Secrecy Act Regulations; Defining Mutual Funds as Financial Institutions, 74 FR 26,996, 26998 (June 5, 2009). Two commenters agreed with FinCEN. A third commenter stated that the terms and conditions of the mutual fund account, rather than the type of financial institution offering such product, is more likely to determine whether a mutual fund can be used to place illicit funds in the financial system. 17 FinCEN has recognized the role of transfer agents in performing BSA compliance functions. See e.g., 67 FR 2117, (April 29, 2002) (adopting release for mutual fund Anti-Money Laundering Program rule), 68 FR 25131, (May 9, 2003) (adopting release for mutual fund Customer Identification Program rule), 71 FR 26213, (May 4, 2006) (adopting release for mutual fund SAR rule). Many mutual funds contractually delegate their BSA compliance functions, including recordkeeping, to transfer agents, although the mutual fund remains responsible under the BSA for ensuring compliance. E:\FR\FM\14APR1.SGM 14APR1 Federal Register / Vol. 75, No. 71 / Wednesday, April 14, 2010 / Rules and Regulations jlentini on DSKJ8SOYB1PROD with RULES information on these transactions to other financial institutions in the payment chain (‘‘Recordkeeping and Travel Rule’’).18 The Recordkeeping and Travel Rule applies to transmittals of funds in amounts that equal or exceed $3,000,19 and requires the transmittor’s financial institution to obtain and retain name, address, and other information on the transmittor and the transaction.20 Furthermore, the Recordkeeping and Travel Rule requires the recipient’s financial institution—and in certain instances, the transmittor’s financial institution—to obtain or retain identifying information on the recipient.21 The Recordkeeping and Travel Rule requires that certain information obtained or retained by the transmittor’s financial institution ‘‘travel’’ with the transmittal order through the payment chain.22 FinCEN will adopt as proposed the inclusion of mutual funds within an existing exception designed to exclude from the Recordkeeping and Travel Rule’s coverage funds transfers or transmittal of funds in which certain categories of financial institution are the transmittor, originator, recipient, or beneficiary.23 Additionally, the final rule subjects mutual funds to requirements on the creation and retention of records for extensions of credit and cross-border transfers of currency, monetary instruments, checks, investment securities, and credit.24 These requirements apply to transactions in amounts exceeding $10,000. Mutual funds are subject to record retention requirements under the 18 See 31 CFR 103.33(f) and (g). Financial institutions must retain records for a period of five years. 31 CFR 103.38(d). 19 Rules under the BSA define a ‘‘transmittal of funds’’ and the persons or institutions involved in a ‘‘transmittal of funds.’’ See 31 CFR 103.11(d), (e), (q), (r), (s), (v), (w), (cc), (dd), (jj), (kk), (ll), and (mm). A ‘‘transmittal of funds’’ includes funds transfers processed by banks, as well as similar payments where one or more of the financial institutions processing the payment is not a bank. If the mutual fund is processing a payment sent by or to its customer, then the mutual fund would be either the ‘‘transmittor’s financial institution’’ or the ‘‘recipient’s financial institution.’’ 20 See 31 CFR 103.33(f)(1)(i) and (f)(2). 21 See 31 CFR 103.33(f)(3) (information that the recipient’s financial institution must obtain or retain). 22 See 31 CFR 103.33(g) (information that must ‘‘travel’’ with the transmittal order); 31 CFR 103.11(kk) (defining ‘‘transmittal order’’). 23 See 31 CFR 103.33(e)(6)(i) and 31 CFR 103.33(f)(6)(i). The inclusion of mutual funds within the exceptions is intended to provide mutual funds with treatment similar to that of banks, brokers or dealers in securities, futures commission merchants, and introducing brokers in commodities. 24 See 31 CFR 103.33(a)–(c). Financial institutions must retain these records for a period of five years. 31 CFR 103.38(d). VerDate Nov<24>2008 16:13 Apr 13, 2010 Jkt 220001 Investment Company Act, and mutual fund transfer agents are subject to recordkeeping requirements under the Securities Exchange Act of 1934.25 In light of these existing regulatory obligations, FinCEN stated in the Notice that the requirements of 31 CFR 103.33 and 31 CFR 103.38 would have a de minimus impact on mutual funds and their transfer agents.26 Furthermore, rules under the BSA on the establishment of customer identification programs by mutual funds and on the reporting by mutual funds of suspicious transactions impose requirements to create and retain records.27 FinCEN also requested comment on the anticipated impact of subjecting mutual funds to the requirements of the Recordkeeping and Travel Rule. All three commenters noted that subjecting mutual funds to the requirements of the Recordkeeping and Travel Rule will require mutual funds to implement changes to their transaction processing and recordkeeping systems. One commenter stated that the impact of the Recordkeeping and Travel Rule requirements on a mutual fund and its transfer agent may vary significantly, and that the impact will depend on such factors as the transaction processing and recordkeeping systems currently in place, the size of the mutual fund complex, and how the mutual fund shares are distributed. Other commenters stated that subjecting mutual funds to the requirements of the Recordkeeping and Travel Rule would have a greater impact on smaller mutual funds. All commenters requested additional time to comply with the Recordkeeping and Travel Rule. Such an extension would provide mutual funds with an opportunity to implement changes to their transaction reporting and recordkeeping systems. Generally, commenters suggested an extension of between 18 to 24 months. FinCEN has determined that extending the compliance date with respect to the requirements of the Recordkeeping and Travel Rule to 270 days after the rule is published in the Federal Register is appropriate. 25 See, e.g., 15 U.S.C. 80a–30 (mutual funds); 15 U.S.C. 78q(a)(3) (transfer agents). 26 Amendment to Bank Secrecy Act Regulations; Defining Mutual Funds as Financial Institutions, 74 FR 26996, 26998 (June 5, 2009). 27 See 31 CFR 103.131 (mutual funds must obtain and record identifying information for persons opening new accounts, and verify the identity of persons opening new accounts); 31 CFR 103.15(c) (mutual funds must maintain records of documentation that supports the filing of a SAR). PO 00000 Frm 00059 Fmt 4700 Sfmt 4700 19243 C. Section 103.130(a)—Amending the Definition of ‘‘Mutual Fund’’ in the AML Program Rule for Mutual Funds FinCEN is amending the definition of ‘‘mutual fund’’ at 31 CFR 103.130(a) by including an explicit reference to openend companies ‘‘registered or required to register under section 8 of the Investment Company Act.’’ The amended definition of mutual fund harmonizes the definition in the antimoney laundering program rule with the definitions in the customer identification program rule for mutual funds, enhanced due diligence program rule for certain foreign accounts, and suspicious activity reporting rule for mutual funds.28 Rules requiring the establishment of customer identification and enhanced due diligence programs impose requirements that are programmatic in nature. It was FinCEN’s intent that the definition of ‘‘mutual fund’’ at 31 CFR 103.130(a) include only those entities registered or required to register with the SEC. Paragraph (a) of section 103.130 will define a mutual fund as follows: an ‘‘investment company’’ (as the term is defined in section 3 of the Investment Company Act (15 U.S.C. 80a–3)) that is an ‘‘open-end company’’ (as that term is defined in section 5 of the Investment Company Act (15 U.S.C. 80a–5)) registered or required to register with the Commission under section 8 of the Investment Company Act (15 U.S.C. 80a–8). D. Section 103.56(b)(8)—Excluding Mutual Funds From the Delegation of Examination Authority to the Internal Revenue Service FinCEN is amending 31 CFR 103.56(b)(8) by including mutual funds within the list of financial institutions the Internal Revenue Service lacks the authority to examine for compliance with the BSA. The definition of ‘‘mutual fund’’ at 31 CFR 103.11(ccc) will apply to this provision. The SEC examines mutual funds for compliance with the Investment Company Act, and FinCEN has delegated to the SEC the authority to examine mutual funds for compliance with the BSA.29 The SEC has expertise in the operations of mutual funds and experience addressing the adequacy of mutual fund compliance programs. Mutual funds are subject to rules under the Investment Company Act that require the implementation of internal controls and other aspects of a 28 31 CFR 103.130(a), 103.131(a)(5), 103.175(f)(1)(x), 103.15(a). 29 See 31 CFR 103.56(b)(6) (examination authority under the BSA is delegated to the SEC with respect to ‘‘investment companies,’’ as the term is defined in the Investment Company Act). E:\FR\FM\14APR1.SGM 14APR1 19244 Federal Register / Vol. 75, No. 71 / Wednesday, April 14, 2010 / Rules and Regulations compliance program.30 Examinations by the Internal Revenue Service would result in duplication of effort and limited benefit in terms of increased compliance. IV. Notice and Comment Under the Administrative Procedure Act The Notice did not propose amendments to 31 CFR 103.130(a) and 31 CFR 103.56(b)(8). Under the Administrative Procedure Act, notice of a proposed rulemaking is not required for ‘‘rules of agency organization, procedure, or practice,’’ or when the agency, for good cause, finds ‘‘that notice and public procedure thereon are impractical, unnecessary, or contrary to the public interest.’’ 31 The amendment to 31 CFR 103.56(b)(8) is a ‘‘rule of agency organization, procedure, or practice.’’ Furthermore, for the reasons stated above, FinCEN finds that publishing the amendments to 31 CFR 103.130(a) and 31 CFR 103.56(b)(8) for comment is ‘‘unnecessary and contrary to the public interest.’’ 32 V. Proposed Location in Chapter X In accordance with the November 7, 2008 notice of proposed rulemaking pertaining to a restructuring of its regulations in a new chapter in the Code of Federal Regulations,33 FinCEN is separately proposing to remove Part 103 of Chapter I of Title 31, Code of Federal Regulations, and add Parts 1000 to 1099 (Chapter X). In the proposed Chapter X, the definition of mutual fund will be located at 1010.100(gg) and inserted into the definition of ‘‘financial institution’’ at 1010.100(t)(10). The planned reorganization would have no substantive effect on the final rule herein. The final rule herein would be renumbered according to the structure established via the finalization of the Chapter X rule. jlentini on DSKJ8SOYB1PROD with RULES VI. Regulatory Flexibility Analysis Pursuant to the Regulatory Flexibility Act (‘‘RFA’’) (5 U.S.C. 601 et seq.), 30 17 CFR 270.30a–3 (registered investment companies must implement disclosure controls, and procedures and internal controls over financial reporting.); 17 CFR 270.38a–1 (registered investment companies must implement written policies and procedures reasonably designed to ensure compliance with the federal securities laws). 31 5 USC 553(b). 32 For similar reasons, the amendment to 31 CFR 103.56(b)(8) does not require analysis under the Regulatory Flexibility Act or analysis of major rule status under the Small Business Regulatory Enforcement Fairness Act. 5 USC 804(3)(C) (for purposes of Congressional review of agency rulemaking, the term ‘‘rule’’ does not include any rule of agency organization, procedure, or practice that does not substantially affect the rights or obligations of non-agency parties). 33 Transfer and Reorganization of Bank Secrecy Act Regulations, 73 FR 66414 (Nov. 7, 2008). VerDate Nov<24>2008 16:13 Apr 13, 2010 Jkt 220001 FinCEN certifies that the final rule will not have a significant economic impact on a substantial number of small entities. The economic impact of the final rule on small entities should not be significant. Mutual funds, regardless of their size, are already required to comply with many of the rules under the BSA that currently exist. While all mutual funds are captured under this rulemaking, the estimated burden associated with defining mutual funds as financial institutions is minimal. FinCEN believes that mutual funds rarely receive from or disburse to shareholders significant amounts of currency. As discussed above, FinCEN and commenters anticipate that moving mutual funds from a Form 8300 filing requirement to a CTR filing requirement will reduce the regulatory burden on all mutual funds. Finally, mutual funds are already subject to record retention requirements under the Investment Company Act, and mutual fund transfer agents are subject to recordkeeping requirements under the Securities Exchange Act of 1934. In the Notice, FinCEN requested comment on whether the proposed rule would have a significant economic impact on a substantial number of small entities. FinCEN received one letter commenting on FinCEN’s certification under the RFA. This commenter stated that the requirements of 31 CFR 103.33 might have a significant economic impact on small mutual funds. The commenter noted that most of the larger mutual funds already have affiliations with other financial institutions and that these financial institutions have systems in place enabling mutual funds to achieve economies. The commenter suggested that FinCEN consider a phased-in requirement to allow smaller mutual funds additional time to comply with the requirements of 31 CFR 103.33. FinCEN believes that this rulemaking will not have a significant impact on a substantial number of small mutual funds. FinCEN, however, has determined that a delayed compliance date to allow all mutual funds to make changes to their recordkeeping and transaction reporting systems in order to comply with the requirements of 31 CFR 103.33 is appropriate. FinCEN has, therefore, extended the compliance date with respect to the requirements of 31 CFR 103.33 to 270 days after the rule is published in the Federal Register. VII. Executive Order 12866 It has been determined that the final rule is not a ‘‘significant regulatory action’’ for purposes of Executive Order 12866. Accordingly, a regulatory impact analysis is not required. PO 00000 Frm 00060 Fmt 4700 Sfmt 4700 VIII. Paperwork Reduction Act The collection of information contained in this final rule has been approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1506–0004. Based on comments received the collection of information as required by 31 CFR 103.22 will likely reduce the reporting burden for mutual funds. Commenters did not state that the collection of information as required by 31 CFR 103.33 would result in an increased burden for mutual funds. Description of Affected Financial Institutions: ‘‘Mutual funds’’ as defined in 31 CFR 103.11(ccc). Estimated Number of Affected Financial Institutions: 8,029.34 Estimated Average Annual Burden Hours per Affected Financial Institution: The estimated average burden associated with the collection of information in this notice is one-hour recordkeeping per response per affected financial institution.35 Estimated Total Annual Burden: 8,029 hours.36 In the Notice, FinCEN invited comment on whether the collection of information in the final rule is necessary for the proper performance of FinCEN’s mission.37 Commenters did not address the issue specifically. However, all commenters stated that subjecting mutual funds to 31 CFR 103.22, and relieving mutual funds of the obligation to file reports on Form 8300, will reduce the reporting burden on mutual funds. All commenters noted that requiring mutual funds to comply with 31 CFR 103.33 could have an impact on small mutual funds. As discussed above in the section by section analysis, all commenters requested a delayed compliance date for 31 CFR 103.33 to allow mutual funds time to implement changes to their transaction reporting and recordkeeping systems. FinCEN has determined that all mutual funds should 34 See Investment Company Institute (ICI) 2008 Investment Company Fact Book, at 110 (2008), available at: http://www.icifactbook.org/pdf/ 2008_factbook.pdf (number of mutual funds in the U.S. in 2007). 35 The single hour is based on an estimate of 45 minutes to complete the CTR form and 15 minutes for recordkeeping and archiving. 36 While it is not industry practice for mutual funds to accept cash, there is no restriction on mutual funds that prohibits mutual funds from accepting cash. Therefore, for purposes of estimating the annual burden the filing of CTRs will have on mutual funds, FinCEN estimates that each mutual fund will file one CTR per year. 37 Amendment to Bank Secrecy Act Regulations; Defining Mutual Funds as Financial Institutions, 74 FR 26996, 26999 (June 5, 2009). E:\FR\FM\14APR1.SGM 14APR1 Federal Register / Vol. 75, No. 71 / Wednesday, April 14, 2010 / Rules and Regulations be granted additional time to comply with 31 CFR 103.33. Under the Paperwork Reduction Act, an agency may not conduct or sponsor a collection of information, and a person is not required to respond to a collection of information, unless it displays a valid OMB control number. List of Subjects in 31 CFR Part 103 Administrative practice and procedure, Banks and banking, Brokers, Currency, Foreign banking, Foreign currencies, Gambling, Investigations, Penalties, Reporting and recordkeeping requirements, Securities, Terrorism. Amendment For the reasons set forth above in the preamble, 31 CFR part 103 is amended as follows: ■ PART 103—FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND FOREIGN TRANSACTIONS 1. The authority citation for part 103 continues to read as follows: ■ Subpart A—Definitions 2. Amend § 103.11 by revising paragraph (n)(9); and by adding paragraphs (n)(10) and (ccc): ■ Meaning of Terms. * * * * (n) * * * (9) An introducing broker in commodities; (10) A mutual fund. * * * * * (ccc) Mutual fund means an ‘‘investment company’’ (as the term is defined in section 3 of the Investment Company Act (15 U.S.C. 80a–3)) that is an ‘‘open-end company’’ (as that term is defined in section 5 of the Investment Company Act (15 U.S.C. 80a–5)) registered or required to register with the Securities and Exchange Commission under section 8 of the Investment Company Act (15 U.S.C. 80a–8). * * * * * jlentini on DSKJ8SOYB1PROD with RULES * Subpart C—Records Required To Be Maintained 3. Amend § 103.33 by revising paragraphs (e)(6)(i)(I) and (f)(6)(i)(I); and by adding paragraphs (e)(6)(i)(J) and (f)(6)(i)(J), to read as follows: ■ VerDate Nov<24>2008 16:13 Apr 13, 2010 Jkt 220001 * * * * (e) * * * (6) * * * (i) * * * (I) A Federal, State or local government agency or instrumentality; or (J) A mutual fund; and * * * * * (f) * * * (6) * * * (i) * * * (I) A federal, state or local government agency or instrumentality; or (J) A mutual fund; and * * * * * DEPARTMENT OF HOMELAND SECURITY * Subpart I—Anti-Money Laundering Programs 4. Section 103.130 is amended by revising paragraph (a) to read as follows: ■ § 103.130 Anti-money laundering programs for mutual funds. * Authority: 12 U.S.C. 1829b and 1951–1959; 31 U.S.C. 5311–5314 and 5316–5332; title III, secs. 311, 312, 313, 314, 319, 326, 352, Pub. L. 107–56, 115 Stat. 307. § 103.11 § 103.33 Records to be made and retained by financial institutions. 19245 * * * * (a) For purposes of this section mutual fund means an ‘‘investment company’’ (as that term is defined in section 3 of the Investment Company Act (15 U.S.C. (15 U.S.C. 80a–3)) that is an ‘‘open-end company’’ (as that term is defined in section 5 of the Investment Company Act (15 U.S.C. 80a–5)) registered or required to register with the Commission under section 8 of the Investment Company Act (15 U.S.C. 80a–8). * * * * * Subpart E—General Provisions 5. Section 103.56 is amended by revising paragraph (b)(8) to read as follows: ■ § 103.56 Enforcement. * * * * * (b) * * * (8) To the Commissioner of Internal Revenue with respect to all financial institutions, except brokers or dealers in securities, mutual funds, futures commission merchants, introducing brokers in commodities, and commodity trading advisors, not currently examined by Federal bank supervisory agencies for soundness and safety; and * * * * * Dated: April 8, 2010. James H. Freis, Jr., Director, Financial Crimes Enforcement Network. [FR Doc. 2010–8500 Filed 4–13–10; 8:45 am] BILLING CODE 4810–02–P PO 00000 Frm 00061 Fmt 4700 Sfmt 4700 Coast Guard 33 CFR Part 117 [Docket No. USCG–2010–0217] Drawbridge Operation Regulation; Elizabeth River, Eastern Branch, VA Coast Guard, DHS. Notice of temporary deviation from regulations. AGENCY: ACTION: SUMMARY: The Commander, Fifth Coast Guard District has issued a temporary deviation from the regulations governing the operation of the Berkley Bridge (I–264), across the Elizabeth River, Eastern Branch, mile 0.4, at Norfolk, VA. The deviation is necessary to facilitate structural repairs to the lift spans. This deviation allows the drawbridge to remain in the closed to navigation position. DATES: This deviation is effective from 8 p.m. on April 23, 2010 through 4:30 a.m. on June 21, 2010. ADDRESSES: Documents mentioned in this preamble as being available in the docket are part of docket USCG–2010– 0217 and are available online by going to http://www.regulations.gov, inserting USCG–2010–0217 in the ‘‘Keyword’’ box and then clicking ‘‘Search’’. They are also available for inspection or copying at the Docket Management Facility (M– 30), U.S. Department of Transportation, West Building Ground Floor, Room W12–140, 1200 New Jersey Avenue, SE., Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. FOR FURTHER INFORMATION CONTACT: If you have questions on this rule, call or e-mail Terrance Knowles, Environmental Protection Specialist, Fifth Coast Guard District; telephone 757–398–6587, e-mail Terrance.A.Knowles@uscg.mil. If you have questions on viewing the docket, call Renee V. Wright, Program Manager, Docket Operations, telephone 202–366– 9826. SUPPLEMENTARY INFORMATION: The Virginia Department of Transportation, who owns and operates this basculetype drawbridge, has requested a temporary deviation from the current operating regulations set out in 33 CFR 117.1007(b) and (c) to facilitate the resurfacing of the bridge roadway, as modified by the temporary deviation at Docket No. USCG–2010–0083, published in the Federal Register on March 3, 2010, 75 Fed. Reg. 9521. E:\FR\FM\14APR1.SGM 14APR1

Agencies

[Federal Register Volume 75, Number 71 (Wednesday, April 14, 2010)]
[Rules and Regulations]
[Pages 19241-19245]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-8500]


=======================================================================
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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA93


Financial Crimes Enforcement Network; Amendment to the Bank 
Secrecy Act Regulations; Defining Mutual Funds as Financial 
Institutions.

AGENCY: Financial Crimes Enforcement Network (``FinCEN''), Treasury.

ACTION: Final rule.

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SUMMARY: FinCEN is issuing this final rule to include mutual funds 
within the general definition of ``financial institution'' in 
regulations implementing the Bank Secrecy Act (``BSA''). The final rule 
subjects mutual funds to rules under the BSA on the filing of Currency 
Transaction Reports (``CTRs'') and on the creation, retention, and 
transmittal of records or information for transmittals of funds. 
Additionally, the final rule amends the definition of mutual fund in 
the rule requiring mutual funds to establish anti-money laundering 
(``AML'') programs. The amendment harmonizes the definition of mutual 
fund in the AML program rule with the definitions found in the other 
BSA rules to which mutual funds are subject. Finally, the final rule 
amends the rule that delegates authority to examine institutions for 
compliance with the BSA. The amendment makes it clear that FinCEN has 
not delegated to the Internal Revenue Service the authority to examine 
mutual funds for compliance with the BSA, but rather to the U.S. 
Securities and Exchange Commission (``SEC'') as the federal functional 
regulator of mutual funds.

DATES: Effective Date: This rule is effective May 14, 2010.
    Compliance Date: Mutual funds must comply with 31 CFR 103.33 by 
January 10, 2011. The compliance date for all other aspects of this 
rulemaking is the same as the effective date.

FOR FURTHER INFORMATION CONTACT: The FinCEN regulatory helpline at 
(800) 949-2732 and select Option 6.

SUPPLEMENTARY INFORMATION:

I. Background

A. Statutory Provisions.

    The Bank Secrecy Act, Public Law 91-508, codified as amended at 12 
U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5314; 5316-5332, 
authorizes the Secretary of the Treasury (``Secretary'') to issue 
regulations requiring financial institutions to keep records and file 
reports that are determined to have a high degree of usefulness in 
criminal, tax, and regulatory investigations or proceedings, or in the 
conduct of intelligence or counter-intelligence activities, including 
analysis, to protect against international terrorism, and to implement 
anti-money laundering programs and compliance procedures.\1\ 
Regulations implementing the BSA appear at 31 CFR part 103. The 
authority of the Secretary to administer the BSA has been delegated to 
the Director of FinCEN.
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    \1\ Language expanding the scope of the BSA was added by the 
Uniting and Strengthening America by Providing Appropriate Tools 
Required to Intercept and Obstruct Terrorism Act of 2001 (``USA 
PATRIOT Act''), Public Law 107-56.
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    The definition of ``financial institution'' in the BSA includes 
investment companies.\2\ The Investment Company Act of 1940, codified 
at 15 U.S.C. 80a-1 et seq. (the ``Investment Company Act''), defines 
``investment company'' \3\ and subjects investment companies to 
regulation by the SEC.
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    \2\ 31 U.S.C. 5312(a)(2)(I).
    \3\ See 15 U.S.C. 80a-3.
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B. Overview of Current Regulatory Provisions.

    Regulations implementing the BSA currently apply only to investment 
companies that are ``open-end companies,'' as the term is defined in 
the Investment Company Act. More commonly known as mutual funds, open-
end companies are the predominant type of investment company. Open-end 
companies are management companies that offer or have outstanding 
securities that are redeemable at net asset value.\4\
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    \4\ 15 U.S.C. 80a-4; 15 U.S.C. 80a-5(a)(1); 15 U.S.C. 80a-
2(a)(32). Face-amount certificate companies and unit investment 
trusts are excluded from the definition of ``management company.'' 
15 U.S.C. 80a-4(3).
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    Although FinCEN has issued individual rules that apply to mutual 
funds,\5\ FinCEN has not included

[[Page 19242]]

mutual funds within the definition of ``financial institution'' at 31 
CFR 103.11(n), which is less inclusive than the definition in the BSA 
itself.\6\ The definition of ``financial institution'' at 31 CFR 
103.11(n) determines, among other things, the scope of rules that 
require the filing of CTRs and the creation, retention, and transmittal 
of records or information on transmittals of funds and other specified 
transactions.\7\
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    \5\ Anti-Money Laundering Programs for Mutual Funds, 67 FR 21117 
(April 29, 2002); Customer Identification Programs for Mutual Funds, 
68 FR 25131 (May 9, 2003); Amendment to the Bank Secrecy Act 
Regulations--Requirement That Mutual Funds Report Suspicious 
Activity, 71 FR 26213 (May 4, 2006); Anti-Money Laundering Programs; 
Special Due Diligence Programs for Certain Foreign Accounts, 71 FR 
496 (Jan. 4, 2006); Anti-Money Laundering Programs; Special Due 
Diligence Programs for Certain Foreign Accounts, 72 FR 44768 (Aug. 
9, 2007).
    \6\ See 31 U.S.C. 5312(a)(2).
    \7\ See 31 CFR 103.22; 31 CFR 103.28; 31 CFR 103.29; 31 CFR 
103.33; and 31 CFR 103.38. Defining a business as a financial 
institution would make the business ineligible for exemption from a 
bank's requirement to file CTRs with respect to the business' large 
cash transactions. See 31 CFR 103.22(d)(5)(viii).
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II. Notice of Proposed Rulemaking and Comments

    On June 5, 2009, FinCEN published a notice of proposed rulemaking 
(the ``Notice'') that proposed including mutual funds within the 
general definition of financial institution at 31 CFR 103.11(n).\8\ The 
proposed rule would subject mutual funds to rules on the filing of CTRs 
and on the creation, retention, and transmittal of records or 
information for transmittals of funds.\9\ The comment period for the 
Notice ended on September 3, 2009. FinCEN received three comment 
letters from various industry associations.\10\ All of the commenters 
supported the proposed rule and offered many reasons why including 
mutual funds within the definition of ``financial institution'' at 31 
CFR 103.11(n) is appropriate. These reasons are discussed below in 
greater detail in the section-by-section analysis. All of the 
commenters requested additional time to comply with the Recordkeeping 
and Travel Rule requirements that would be imposed under 31 CFR 103.33.
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    \8\ Amendment to the Bank Secrecy Regulations; Defining Mutual 
Funds as Financial Institutions, 74 FR 26996 (June 5, 2009).
    \9\ See 31 CFR 103.22; 31 CFR 103.28; 31 CFR 103.29; 31 CFR 
103.33; and 31 CFR 103.38.
    \10\ All comments to the Notice are available for public viewing 
at http://www.regulations.gov or http://www.fincen.gov/statutes_regs/bsa/regs_proposal_comment.html.
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III. Section-by-Section Analysis

A. Sections 103.11(n)(10) and 103.11(ccc)--Mutual Funds Move From 
Filing Reports on Form 8300 to the Currency Transaction Report

    The final rule adds mutual funds to the definition of ``financial 
institution'' at 31 CFR 103.11(n)(10). The final rule defines a 
``mutual fund'' for this purpose at 31 CFR 103.11(ccc). The definition 
of ``mutual fund'' covers only those entities registered or required to 
register with the SEC. Specifically, ``mutual fund'' is defined as:

an ``investment company'' (as the term is defined in section 3 of 
the Investment Company Act (15 U.S.C. 80a-3)) that is an ``open-end 
company'' (as that term is defined in section 5 of the Investment 
Company Act (15 U.S.C. 80a-5)) registered or required to register 
with the Securities and Exchange Commission under section 8 of the 
Investment Company Act (15 U.S.C. 80a-8).

There were no comments concerning the definition of mutual fund. FinCEN 
is adopting the definition as proposed.
    The final rule has the effect of replacing a mutual fund's 
requirement to file a Form 8300 with a requirement to file a CTR under 
31 CFR 103.22.\11\ A mutual fund will now be required to file a CTR for 
a transaction involving a transfer of more than $10,000 in currency by, 
through, or to the mutual fund.\12\ The CTR filing obligation covers 
incoming, outgoing, and exchange transactions in currency. The 
definition of ``currency'' for purposes of the CTR rule is different 
from and less inclusive than the definition of ``currency'' in the Form 
8300 rule.\13\ Under the CTR rule, a financial institution must treat 
multiple transactions as a single transaction if the financial 
institution has knowledge that the transactions are conducted by or on 
behalf of the same person.\14\
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    \11\ 31 CFR 103.30(a)(1)(ii) (the requirement to file a Form 
8300 does not apply to transactions reported under 31 CFR 103.22).
    \12\ 31 CFR 103.22(b)(1).
    \13\ See 31 CFR 103.11(h) (currency is defined as the coin and 
paper of the United States or of any other country that is 
designated as legal tender and that circulates and is customarily 
used as a medium of exchange in a foreign country).
    \14\ 31 CFR 103.22(c)(2). The obligation to file a CTR is 
conditioned on knowledge that the transactions are conducted by or 
on behalf of the same person and result in either cash in or cash 
out totaling more than $10,000 during any one business day. The 
threshold in 31 CFR 103.22 applies to transactions conducted during 
a single business day, whereas the requirement to file a Form 8300 
can cover transactions that occur over a longer period of time. See 
31 CFR 103.22(c)(2) and 31 CFR 103.30(c)(12)(ii).
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    In the Notice, FinCEN asserted that the volume of Form 8300s filed 
is relatively low when compared to the overall volume of mutual fund 
transactions.\15\ Commenters also concurred with FinCEN that since 
mutual funds are subject to SAR reporting requirements, the ability to 
report suspicious transactions on a Form 8300 is redundant.\16\
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    \15\ A review of BSA data revealed that while hundreds of 
millions of transactions involving mutual funds were conducted in 
calendar years 2004, 2005, 2006, and 2007, fewer than 19,500 Form 
8300s were filed by mutual funds over the same period.
    \16\ FinCEN also offered that because mutual funds rarely 
receive from or disburse to shareholders significant amounts of 
currency, mutual funds are not as likely as depository institutions 
to be used during the initial ``placement'' stage of the money 
laundering process. Amendment to the Bank Secrecy Act Regulations; 
Defining Mutual Funds as Financial Institutions, 74 FR 26,996, 26998 
(June 5, 2009). Two commenters agreed with FinCEN. A third commenter 
stated that the terms and conditions of the mutual fund account, 
rather than the type of financial institution offering such product, 
is more likely to determine whether a mutual fund can be used to 
place illicit funds in the financial system.
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    In the Notice, FinCEN requested comment on the anticipated time and 
monetary savings that could result from replacing the requirement to 
file reports on Form 8300 with a requirement to file CTRs. One 
commenter stated that requiring mutual funds to file CTRs instead of 
Form 8300s would streamline and reduce overall compliance burdens for 
mutual funds and could aid in facilitating enterprise-wide risk 
management programs. Commenters were in agreement that requiring mutual 
funds to file CTRs instead of Form 8300s should reduce the expense and 
burden of reporting for mutual funds and their transfer agents,\17\ and 
one commenter stated that there likely will be greater efficiency in 
larger entities that have staff and systems in place to produce CTR 
filings.
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    \17\ FinCEN has recognized the role of transfer agents in 
performing BSA compliance functions. See e.g., 67 FR 2117, (April 
29, 2002) (adopting release for mutual fund Anti-Money Laundering 
Program rule), 68 FR 25131, (May 9, 2003) (adopting release for 
mutual fund Customer Identification Program rule), 71 FR 26213, (May 
4, 2006) (adopting release for mutual fund SAR rule). Many mutual 
funds contractually delegate their BSA compliance functions, 
including recordkeeping, to transfer agents, although the mutual 
fund remains responsible under the BSA for ensuring compliance.
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    FinCEN also requested comment on the nature, volume, content, and 
value of any potentially lost information to law enforcement, tax, 
regulatory, and counter-terrorism investigations or activities that 
could result from this rulemaking. FinCEN did not receive any comments 
specific to this request. One commenter, however, stated generally that 
requiring mutual funds to file CTRs, rather than Form 8300s, would not 
diminish the quality or quantity of useful BSA data reported by mutual 
funds.

B. Section 103.33--The Recordkeeping and Travel Rule and Related 
Recordkeeping Requirements

    The final rule subjects mutual funds to requirements on the 
creation and retention of records for transmittals of funds, and the 
requirement to transmit

[[Page 19243]]

information on these transactions to other financial institutions in 
the payment chain (``Recordkeeping and Travel Rule'').\18\ The 
Recordkeeping and Travel Rule applies to transmittals of funds in 
amounts that equal or exceed $3,000,\19\ and requires the transmittor's 
financial institution to obtain and retain name, address, and other 
information on the transmittor and the transaction.\20\ Furthermore, 
the Recordkeeping and Travel Rule requires the recipient's financial 
institution--and in certain instances, the transmittor's financial 
institution--to obtain or retain identifying information on the 
recipient.\21\ The Recordkeeping and Travel Rule requires that certain 
information obtained or retained by the transmittor's financial 
institution ``travel'' with the transmittal order through the payment 
chain.\22\
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    \18\ See 31 CFR 103.33(f) and (g). Financial institutions must 
retain records for a period of five years. 31 CFR 103.38(d).
    \19\ Rules under the BSA define a ``transmittal of funds'' and 
the persons or institutions involved in a ``transmittal of funds.'' 
See 31 CFR 103.11(d), (e), (q), (r), (s), (v), (w), (cc), (dd), 
(jj), (kk), (ll), and (mm). A ``transmittal of funds'' includes 
funds transfers processed by banks, as well as similar payments 
where one or more of the financial institutions processing the 
payment is not a bank. If the mutual fund is processing a payment 
sent by or to its customer, then the mutual fund would be either the 
``transmittor's financial institution'' or the ``recipient's 
financial institution.''
    \20\ See 31 CFR 103.33(f)(1)(i) and (f)(2).
    \21\ See 31 CFR 103.33(f)(3) (information that the recipient's 
financial institution must obtain or retain).
    \22\ See 31 CFR 103.33(g) (information that must ``travel'' with 
the transmittal order); 31 CFR 103.11(kk) (defining ``transmittal 
order'').
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    FinCEN will adopt as proposed the inclusion of mutual funds within 
an existing exception designed to exclude from the Recordkeeping and 
Travel Rule's coverage funds transfers or transmittal of funds in which 
certain categories of financial institution are the transmittor, 
originator, recipient, or beneficiary.\23\ Additionally, the final rule 
subjects mutual funds to requirements on the creation and retention of 
records for extensions of credit and cross-border transfers of 
currency, monetary instruments, checks, investment securities, and 
credit.\24\ These requirements apply to transactions in amounts 
exceeding $10,000.
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    \23\ See 31 CFR 103.33(e)(6)(i) and 31 CFR 103.33(f)(6)(i). The 
inclusion of mutual funds within the exceptions is intended to 
provide mutual funds with treatment similar to that of banks, 
brokers or dealers in securities, futures commission merchants, and 
introducing brokers in commodities.
    \24\ See 31 CFR 103.33(a)-(c). Financial institutions must 
retain these records for a period of five years. 31 CFR 103.38(d).
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    Mutual funds are subject to record retention requirements under the 
Investment Company Act, and mutual fund transfer agents are subject to 
recordkeeping requirements under the Securities Exchange Act of 
1934.\25\ In light of these existing regulatory obligations, FinCEN 
stated in the Notice that the requirements of 31 CFR 103.33 and 31 CFR 
103.38 would have a de minimus impact on mutual funds and their 
transfer agents.\26\ Furthermore, rules under the BSA on the 
establishment of customer identification programs by mutual funds and 
on the reporting by mutual funds of suspicious transactions impose 
requirements to create and retain records.\27\
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    \25\ See, e.g., 15 U.S.C. 80a-30 (mutual funds); 15 U.S.C. 
78q(a)(3) (transfer agents).
    \26\ Amendment to Bank Secrecy Act Regulations; Defining Mutual 
Funds as Financial Institutions, 74 FR 26996, 26998 (June 5, 2009).
    \27\ See 31 CFR 103.131 (mutual funds must obtain and record 
identifying information for persons opening new accounts, and verify 
the identity of persons opening new accounts); 31 CFR 103.15(c) 
(mutual funds must maintain records of documentation that supports 
the filing of a SAR).
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    FinCEN also requested comment on the anticipated impact of 
subjecting mutual funds to the requirements of the Recordkeeping and 
Travel Rule. All three commenters noted that subjecting mutual funds to 
the requirements of the Recordkeeping and Travel Rule will require 
mutual funds to implement changes to their transaction processing and 
recordkeeping systems. One commenter stated that the impact of the 
Recordkeeping and Travel Rule requirements on a mutual fund and its 
transfer agent may vary significantly, and that the impact will depend 
on such factors as the transaction processing and recordkeeping systems 
currently in place, the size of the mutual fund complex, and how the 
mutual fund shares are distributed. Other commenters stated that 
subjecting mutual funds to the requirements of the Recordkeeping and 
Travel Rule would have a greater impact on smaller mutual funds.
    All commenters requested additional time to comply with the 
Recordkeeping and Travel Rule. Such an extension would provide mutual 
funds with an opportunity to implement changes to their transaction 
reporting and recordkeeping systems. Generally, commenters suggested an 
extension of between 18 to 24 months. FinCEN has determined that 
extending the compliance date with respect to the requirements of the 
Recordkeeping and Travel Rule to 270 days after the rule is published 
in the Federal Register is appropriate.

C. Section 103.130(a)--Amending the Definition of ``Mutual Fund'' in 
the AML Program Rule for Mutual Funds

    FinCEN is amending the definition of ``mutual fund'' at 31 CFR 
103.130(a) by including an explicit reference to open-end companies 
``registered or required to register under section 8 of the Investment 
Company Act.'' The amended definition of mutual fund harmonizes the 
definition in the anti-money laundering program rule with the 
definitions in the customer identification program rule for mutual 
funds, enhanced due diligence program rule for certain foreign 
accounts, and suspicious activity reporting rule for mutual funds.\28\ 
Rules requiring the establishment of customer identification and 
enhanced due diligence programs impose requirements that are 
programmatic in nature. It was FinCEN's intent that the definition of 
``mutual fund'' at 31 CFR 103.130(a) include only those entities 
registered or required to register with the SEC. Paragraph (a) of 
section 103.130 will define a mutual fund as follows:
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    \28\ 31 CFR 103.130(a), 103.131(a)(5), 103.175(f)(1)(x), 
103.15(a).

an ``investment company'' (as the term is defined in section 3 of 
the Investment Company Act (15 U.S.C. 80a-3)) that is an ``open-end 
company'' (as that term is defined in section 5 of the Investment 
Company Act (15 U.S.C. 80a-5)) registered or required to register 
with the Commission under section 8 of the Investment Company Act 
(15 U.S.C. 80a-8).

D. Section 103.56(b)(8)--Excluding Mutual Funds From the Delegation of 
Examination Authority to the Internal Revenue Service

    FinCEN is amending 31 CFR 103.56(b)(8) by including mutual funds 
within the list of financial institutions the Internal Revenue Service 
lacks the authority to examine for compliance with the BSA. The 
definition of ``mutual fund'' at 31 CFR 103.11(ccc) will apply to this 
provision.
    The SEC examines mutual funds for compliance with the Investment 
Company Act, and FinCEN has delegated to the SEC the authority to 
examine mutual funds for compliance with the BSA.\29\ The SEC has 
expertise in the operations of mutual funds and experience addressing 
the adequacy of mutual fund compliance programs. Mutual funds are 
subject to rules under the Investment Company Act that require the 
implementation of internal controls and other aspects of a

[[Page 19244]]

compliance program.\30\ Examinations by the Internal Revenue Service 
would result in duplication of effort and limited benefit in terms of 
increased compliance.
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    \29\ See 31 CFR 103.56(b)(6) (examination authority under the 
BSA is delegated to the SEC with respect to ``investment 
companies,'' as the term is defined in the Investment Company Act).
    \30\ 17 CFR 270.30a-3 (registered investment companies must 
implement disclosure controls, and procedures and internal controls 
over financial reporting.); 17 CFR 270.38a-1 (registered investment 
companies must implement written policies and procedures reasonably 
designed to ensure compliance with the federal securities laws).
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IV. Notice and Comment Under the Administrative Procedure Act

    The Notice did not propose amendments to 31 CFR 103.130(a) and 31 
CFR 103.56(b)(8). Under the Administrative Procedure Act, notice of a 
proposed rulemaking is not required for ``rules of agency organization, 
procedure, or practice,'' or when the agency, for good cause, finds 
``that notice and public procedure thereon are impractical, 
unnecessary, or contrary to the public interest.'' \31\ The amendment 
to 31 CFR 103.56(b)(8) is a ``rule of agency organization, procedure, 
or practice.'' Furthermore, for the reasons stated above, FinCEN finds 
that publishing the amendments to 31 CFR 103.130(a) and 31 CFR 
103.56(b)(8) for comment is ``unnecessary and contrary to the public 
interest.'' \32\
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    \31\ 5 USC 553(b).
    \32\ For similar reasons, the amendment to 31 CFR 103.56(b)(8) 
does not require analysis under the Regulatory Flexibility Act or 
analysis of major rule status under the Small Business Regulatory 
Enforcement Fairness Act. 5 USC 804(3)(C) (for purposes of 
Congressional review of agency rulemaking, the term ``rule'' does 
not include any rule of agency organization, procedure, or practice 
that does not substantially affect the rights or obligations of non-
agency parties).
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V. Proposed Location in Chapter X

    In accordance with the November 7, 2008 notice of proposed 
rulemaking pertaining to a restructuring of its regulations in a new 
chapter in the Code of Federal Regulations,\33\ FinCEN is separately 
proposing to remove Part 103 of Chapter I of Title 31, Code of Federal 
Regulations, and add Parts 1000 to 1099 (Chapter X). In the proposed 
Chapter X, the definition of mutual fund will be located at 
1010.100(gg) and inserted into the definition of ``financial 
institution'' at 1010.100(t)(10). The planned reorganization would have 
no substantive effect on the final rule herein. The final rule herein 
would be renumbered according to the structure established via the 
finalization of the Chapter X rule.
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    \33\ Transfer and Reorganization of Bank Secrecy Act 
Regulations, 73 FR 66414 (Nov. 7, 2008).
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VI. Regulatory Flexibility Analysis

    Pursuant to the Regulatory Flexibility Act (``RFA'') (5 U.S.C. 601 
et seq.), FinCEN certifies that the final rule will not have a 
significant economic impact on a substantial number of small entities. 
The economic impact of the final rule on small entities should not be 
significant. Mutual funds, regardless of their size, are already 
required to comply with many of the rules under the BSA that currently 
exist. While all mutual funds are captured under this rulemaking, the 
estimated burden associated with defining mutual funds as financial 
institutions is minimal. FinCEN believes that mutual funds rarely 
receive from or disburse to shareholders significant amounts of 
currency. As discussed above, FinCEN and commenters anticipate that 
moving mutual funds from a Form 8300 filing requirement to a CTR filing 
requirement will reduce the regulatory burden on all mutual funds. 
Finally, mutual funds are already subject to record retention 
requirements under the Investment Company Act, and mutual fund transfer 
agents are subject to recordkeeping requirements under the Securities 
Exchange Act of 1934.
    In the Notice, FinCEN requested comment on whether the proposed 
rule would have a significant economic impact on a substantial number 
of small entities. FinCEN received one letter commenting on FinCEN's 
certification under the RFA. This commenter stated that the 
requirements of 31 CFR 103.33 might have a significant economic impact 
on small mutual funds. The commenter noted that most of the larger 
mutual funds already have affiliations with other financial 
institutions and that these financial institutions have systems in 
place enabling mutual funds to achieve economies. The commenter 
suggested that FinCEN consider a phased-in requirement to allow smaller 
mutual funds additional time to comply with the requirements of 31 CFR 
103.33. FinCEN believes that this rulemaking will not have a 
significant impact on a substantial number of small mutual funds. 
FinCEN, however, has determined that a delayed compliance date to allow 
all mutual funds to make changes to their recordkeeping and transaction 
reporting systems in order to comply with the requirements of 31 CFR 
103.33 is appropriate. FinCEN has, therefore, extended the compliance 
date with respect to the requirements of 31 CFR 103.33 to 270 days 
after the rule is published in the Federal Register.

VII. Executive Order 12866

    It has been determined that the final rule is not a ``significant 
regulatory action'' for purposes of Executive Order 12866. Accordingly, 
a regulatory impact analysis is not required.

VIII. Paperwork Reduction Act

    The collection of information contained in this final rule has been 
approved by the Office of Management and Budget in accordance with the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control 
number 1506-0004. Based on comments received the collection of 
information as required by 31 CFR 103.22 will likely reduce the 
reporting burden for mutual funds. Commenters did not state that the 
collection of information as required by 31 CFR 103.33 would result in 
an increased burden for mutual funds.
    Description of Affected Financial Institutions: ``Mutual funds'' as 
defined in 31 CFR 103.11(ccc).
    Estimated Number of Affected Financial Institutions: 8,029.\34\
---------------------------------------------------------------------------

    \34\ See Investment Company Institute (ICI) 2008 Investment 
Company Fact Book, at 110 (2008), available at: http://www.icifactbook.org/pdf/2008_factbook.pdf (number of mutual funds 
in the U.S. in 2007).
---------------------------------------------------------------------------

    Estimated Average Annual Burden Hours per Affected Financial 
Institution: The estimated average burden associated with the 
collection of information in this notice is one-hour recordkeeping per 
response per affected financial institution.\35\
---------------------------------------------------------------------------

    \35\ The single hour is based on an estimate of 45 minutes to 
complete the CTR form and 15 minutes for recordkeeping and 
archiving.
---------------------------------------------------------------------------

    Estimated Total Annual Burden: 8,029 hours.\36\
---------------------------------------------------------------------------

    \36\ While it is not industry practice for mutual funds to 
accept cash, there is no restriction on mutual funds that prohibits 
mutual funds from accepting cash. Therefore, for purposes of 
estimating the annual burden the filing of CTRs will have on mutual 
funds, FinCEN estimates that each mutual fund will file one CTR per 
year.
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    In the Notice, FinCEN invited comment on whether the collection of 
information in the final rule is necessary for the proper performance 
of FinCEN's mission.\37\ Commenters did not address the issue 
specifically. However, all commenters stated that subjecting mutual 
funds to 31 CFR 103.22, and relieving mutual funds of the obligation to 
file reports on Form 8300, will reduce the reporting burden on mutual 
funds. All commenters noted that requiring mutual funds to comply with 
31 CFR 103.33 could have an impact on small mutual funds. As discussed 
above in the section by section analysis, all commenters requested a 
delayed compliance date for 31 CFR 103.33 to allow mutual funds time to 
implement changes to their transaction reporting and recordkeeping 
systems. FinCEN has determined that all mutual funds should

[[Page 19245]]

be granted additional time to comply with 31 CFR 103.33.
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    \37\ Amendment to Bank Secrecy Act Regulations; Defining Mutual 
Funds as Financial Institutions, 74 FR 26996, 26999 (June 5, 2009).
---------------------------------------------------------------------------

    Under the Paperwork Reduction Act, an agency may not conduct or 
sponsor a collection of information, and a person is not required to 
respond to a collection of information, unless it displays a valid OMB 
control number.

List of Subjects in 31 CFR Part 103

    Administrative practice and procedure, Banks and banking, Brokers, 
Currency, Foreign banking, Foreign currencies, Gambling, 
Investigations, Penalties, Reporting and recordkeeping requirements, 
Securities, Terrorism.

Amendment

0
For the reasons set forth above in the preamble, 31 CFR part 103 is 
amended as follows:

PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND 
FOREIGN TRANSACTIONS

0
1. The authority citation for part 103 continues 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. 311, 312, 313, 314, 319, 326, 352, 
Pub. L. 107-56, 115 Stat. 307.

Subpart A--Definitions

0
2. Amend Sec.  103.11 by revising paragraph (n)(9); and by adding 
paragraphs (n)(10) and (ccc):


Sec.  103.11  Meaning of Terms.

* * * * *
    (n) * * *
    (9) An introducing broker in commodities;
    (10) A mutual fund.
* * * * *
    (ccc) Mutual fund means an ``investment company'' (as the term is 
defined in section 3 of the Investment Company Act (15 U.S.C. 80a-3)) 
that is an ``open-end company'' (as that term is defined in section 5 
of the Investment Company Act (15 U.S.C. 80a-5)) registered or required 
to register with the Securities and Exchange Commission under section 8 
of the Investment Company Act (15 U.S.C. 80a-8).
* * * * *

Subpart C--Records Required To Be Maintained

0
3. Amend Sec.  103.33 by revising paragraphs (e)(6)(i)(I) and 
(f)(6)(i)(I); and by adding paragraphs (e)(6)(i)(J) and (f)(6)(i)(J), 
to read as follows:


Sec.  103.33  Records to be made and retained by financial 
institutions.

* * * * *
    (e) * * *
    (6) * * *
    (i) * * *
    (I) A Federal, State or local government agency or instrumentality; 
or
    (J) A mutual fund; and
* * * * *
    (f) * * *
    (6) * * *
    (i) * * *
    (I) A federal, state or local government agency or instrumentality; 
or
    (J) A mutual fund; and
* * * * *

Subpart I--Anti-Money Laundering Programs

0
4. Section 103.130 is amended by revising paragraph (a) to read as 
follows:


Sec.  103.130  Anti-money laundering programs for mutual funds.

* * * * *
    (a) For purposes of this section mutual fund means an ``investment 
company'' (as that term is defined in section 3 of the Investment 
Company Act (15 U.S.C. (15 U.S.C. 80a-3)) that is an ``open-end 
company'' (as that term is defined in section 5 of the Investment 
Company Act (15 U.S.C. 80a-5)) registered or required to register with 
the Commission under section 8 of the Investment Company Act (15 U.S.C. 
80a-8).
* * * * *

Subpart E--General Provisions

0
5. Section 103.56 is amended by revising paragraph (b)(8) to read as 
follows:


Sec.  103.56  Enforcement.

* * * * *
    (b) * * *
    (8) To the Commissioner of Internal Revenue with respect to all 
financial institutions, except brokers or dealers in securities, mutual 
funds, futures commission merchants, introducing brokers in 
commodities, and commodity trading advisors, not currently examined by 
Federal bank supervisory agencies for soundness and safety; and
* * * * *

    Dated: April 8, 2010.
James H. Freis, Jr.,
Director, Financial Crimes Enforcement Network.
[FR Doc. 2010-8500 Filed 4-13-10; 8:45 am]
BILLING CODE 4810-02-P