Financial Crimes Enforcement Network; Amendment to the Bank Secrecy Act Regulations; Defining Mutual Funds as Financial Institutions., 19241-19245 [2010-8500]
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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).
■
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§ 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).
■
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§ 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:
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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
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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
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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 https://www.regulations.gov or
https://www.fincen.gov/statutes_regs/bsa/
regs_proposal_comment.html.
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‘‘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.
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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.
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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).
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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).
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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).
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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.
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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).
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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.
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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: https://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
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Frm 00061
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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 https://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
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]]>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]
=======================================================================
-----------------------------------------------------------------------
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:
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\2\ 31 U.S.C. 5312(a)(2)(I).
\3\ See 15 U.S.C. 80a-3.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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 https://www.regulations.gov or https://www.fincen.gov/statutes_regs/bsa/regs_proposal_comment.html.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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'').
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
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\34\ See Investment Company Institute (ICI) 2008 Investment
Company Fact Book, at 110 (2008), available at: https://www.icifactbook.org/pdf/2008_factbook.pdf (number of mutual funds
in the U.S. in 2007).
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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\
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\35\ The single hour is based on an estimate of 45 minutes to
complete the CTR form and 15 minutes for recordkeeping and
archiving.
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Estimated Total Annual Burden: 8,029 hours.\36\
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\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).
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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
