Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Housing Government Sponsored Enterprises, 10365-10377 [2014-04125]

Download as PDF Federal Register / Vol. 79, No. 37 / Tuesday, February 25, 2014 / Rules and Regulations The petitioner has the burden to demonstrate the safety of the additive to gain FDA approval. However, once we make a finding of safety in an approval document, the burden shifts to an objector, who must come forward with evidence that calls into question our conclusion (see section 409(f)(1) of the FD&C Act). CFS and FWW have not established that we overlooked or misinterpreted significant information in the record to reach our conclusion that the use of irradiation up to a maximum dose of 4.0 kGy for control of food-borne pathogens and extension of shelf life in fresh lettuce and fresh spinach is safe. Therefore, we have determined that the final rule should not be modified or revoked based on the objections. We are also denying the requests for a hearing because the objections do not meet the standard for granting a hearing as discussed in this document. In addition, FWW’s request for a stay of the effectiveness of the August 22, 2008, regulation until a hearing is held is moot because we are denying all hearing requests. Thus, we are confirming August 22, 2008, as the effective date of the regulation. tkelley on DSK3SPTVN1PROD with RULES VI. References The following sources are referred to in this document. References marked with an asterisk (*) have been placed on display at the Division of Dockets Management (HFA–305), Food and Drug Administration, 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852, under Docket No. FDA–1999–F–2405 (formerly 1999F–5522) and may be seen by interested persons between 9 a.m. and 4 p.m., Monday through Friday, and are available electronically at https:// www.regulations.gov. References without asterisks are not on display; they are available as published articles and books. 1. WHO, ‘‘Safety and Nutritional Adequacy of Irradiated Food,’’ World Health Organization, Geneva, 1994. *2. Memorandum for FAP 9M4697 from A. Edwards, FDA, to L. Highbarger, FDA, dated July 16, 2008. 3. Institute of Medicine, Dietary Reference Intakes for Vitamin A, Vitamin K, Arsenic, Boron, Chromium, Copper, Iodine, Iron, Manganese, Molybdenum, Nickel, Silicon, Vanadium, and Zinc, National Academies Press, Washington, DC, 2001. 4. Institute of Medicine, Dietary Reference Intakes for Vitamin C, Vitamin E, Selenium, and Carotenoids, National Academies Press, DC, 2000. *5. Cotton, P. A., A. F. Subar, J. E. Friday, et al., ‘‘Dietary Sources of Nutrients Among U.S. Adults, 1994 to 1996,’’ Journal of the American Dietetic Association, 104:921–930, 2004. VerDate Mar<15>2010 16:07 Feb 24, 2014 Jkt 232001 6. FAO/IAEA/WHO, ‘‘Wholesomeness of Irradiated Food: Report of a Joint FAO/ IAEA/WHO Expert Committee,’’ World Health Organization Technical Report Series, No. 659, World Health Organization, Geneva, 1981. *7. Memorandum to the file, FAP 4M4428, D. Hattan, Acting Director, Division of Health Effects Evaluation, dated November 20, 1997. *8. Hajare, S. C., V. S. Dhokane, R. Shashidhar, et al., ‘‘Radiation Processing of Minimally Processed Carrot (Daucus carota) and Cucumber (Cucumis sativus) to Ensure Safety: Effect on Nutritional and Sensory Quality,’’ Journal of Food Science, 71(3):S198–S203, 2006. 9. Diehl, J. F., ‘‘Nutritional Adequacy of Irradiated Foods,’’ pp. 241–290 in Safety of Irradiated Foods, 2nd ed., Marcel Dekker, Inc., New York, 1995. *10. Castenmiller, J. J. M., C. J. van de Poll, C. E. West, et al., ‘‘Bioavailability of Folate From Processed Spinach in Humans,’’ Annals of Nutrition & Metabolism, 44:163–169, 2000. *11. Semba, R. D. and G. Dagnelie, ‘‘Are Lutein and Zeaxanthin Conditionally Essential Nutrients for Eye Health?’’ Medical Hypotheses, 61(4):465–472, 2003. ¨ *12. Muller, H. and J. F. Diehl, ‘‘Effect of Ionizing Radiation on Folates in Food,’’ Lebenson Wiss Technology-Food Science and Technology, 29(1–2):187– 190, 1996. *13. Knapp, F. W. and A. L. Tappel, ‘‘Comparison of the Radiosensitivities of the Fat-Soluble Vitamins by Gamma Irradiation,’’ Agriculture and Food Chemistry, 9(6):430–433, 1961. *14. Richardson, L. R., S. Wilkes, and S. J. Ritchey, ‘‘Comparative Vitamin K Activity of Frozen, Irradiated and HeatProcessed Foods,’’ Journal of Nutrition, 73:369–373, 1961. *15. Richardson, L. R., P. Woodworth, and S. Coleman, ‘‘Effect of Ionizing Radiation on Vitamin K,’’ Federation Proceedings, 15(3):924–926, 1956. *16. Metta, V. C., M. S. Mameesh, and B. C. Johnson, ‘‘Vitamin K Deficiency in Rats Induced by Feeding of Irradiated Beef,’’ Journal of Nutrition, 69:18–22, 1959. *17. Hirayama, K., K. Uetsuka, Y. Kuwabara, et al., ‘‘Vitamin K Deficiency of Germfree Mice Caused by Feeding Standard Purified Diet Sterilized by g-Irradiation,’’ Experimental Animals, 56(4):273–278, 2007. 18. Diehl, J. F., ‘‘Chemical Effects of Ionizing Radiation,’’ pp. 43–88 in Safety of Irradiated Foods, 2nd ed., Marcel Dekker, Inc., New York, 1995. 19. Combs, G. F. Jr., The Vitamins. 3rd ed. Burlington: Elsevier Academic Press, 2008. 20. FAO/WHO, ‘‘Human Vitamin and Mineral Requirements,’’ Report of a Joint Food and Agriculture Organization/ World Health Organization Expert Consultation, Bangkok, Thailand. Rome: FAO/WHO, 2002. *21. Booth, S. L. and J. W. Suttie, ‘‘Dietary Intake and Adequacy of Vitamin K,’’ Journal of Nutrition, 128:785–788, 1998. PO 00000 Frm 00035 Fmt 4700 Sfmt 4700 10365 22. WHO IARC, ‘‘Vitamin K Substances,’’ IARC Monographs on the Evaluation of Carcinogenic Risks to Humans, vol. 76, World Health Organization, Lyon, France, 2001. 23. FAO/IAEA/WHO, ‘‘High Dose Irradiation: Wholesomeness of Food Irradiated With Doses Above 10kGy: Report of a Joint FAO/IAEA/WHO Study Group,’’ World Health Organization Technical Report Series, No. 890, World Health Organization, Geneva, pp. 9–37, 1999. 24. Thayer, D. W., J. B. Fox, Jr., and L. Lakritz, ‘‘Effects of Ionizing Radiation on Vitamins.’’ In: Thorne S., editor. Food Irradiation. London: Elsevier Applied Science; pp. 285–325, 1991. 25. Thomas, M. H., ‘‘Use of Ionizing Radiation to Preserve Food.’’ In: Karmas, E. and R.S. Harris, editors. Nutritional Evaluation of Food Processing. 3rd ed.: New York: Van Nostrand Reinhold; pp. 457–501, 1988. *26. Lucier, G., J. Allshouse, and B.-H. Lin, ‘‘Factors Affecting Spinach Consumption in the United States,’’ USDA Economic Research Service, VGS–300–01, January 2004. *27. Petran, R. L., W. H. Sperber, and A. B. Davis, ‘‘Clostridium botulinum Toxin Formation in Romaine Lettuce and Shredded Cabbage: Effect of Storage and Packaging Conditions,’’ Journal of Food Protection, 58(6):624–627, 1995. *28. Memorandum for FAP 9M4697 from R. Merker, FDA, to L. Highbarger, FDA, dated June 11, 2008. *29. Zhang, L., Z. Lu, F. Lu, et al., ‘‘Effect of g Irradiation on Quality-Maintaining of Fresh-Cut Lettuce,’’ Food Control, 17:225–228, 2006. *30. Gomes, C. D., R. G. Moreira, M. E. Castell-Perez, et al., ‘‘E-Beam Irradiation of Bagged, Ready-to-Eat Spinach Leaves (Spinacea oleracea): An Engineering Approach,’’ Journal of Food Science, 73(2):E95–E102, 2008. Dated: February 19, 2014. Leslie Kux, Assistant Commissioner for Policy. [FR Doc. 2014–03976 Filed 2–24–14; 8:45 am] BILLING CODE 41640–01–P DEPARTMENT OF THE TREASURY Financial Crimes Enforcement Network 31 CFR Parts 1010 and 1030 RIN 1506–AB14 Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Housing Government Sponsored Enterprises Financial Crimes Enforcement Network (‘‘FinCEN’’), Treasury. ACTION: Final rule. AGENCY: FinCEN, a bureau of the Department of the Treasury (‘‘Treasury’’), is issuing this Final Rule SUMMARY: E:\FR\FM\25FER1.SGM 25FER1 10366 Federal Register / Vol. 79, No. 37 / Tuesday, February 25, 2014 / Rules and Regulations defining certain housing government sponsored enterprises as financial institutions for the purpose of requiring them to establish anti-money laundering programs and report suspicious activities pursuant to the Bank Secrecy Act. The requirements to establish antimoney laundering programs and report suspicious activities are intended to help prevent fraud and other financial crimes. Effective Date: This rule is effective April 28, 2014. Compliance Date: The compliance date for 31 CFR 1030.210 is August 25, 2014. FOR FURTHER INFORMATION CONTACT: FinCEN Resource Center at (800) 949– 2732. DATES: SUPPLEMENTARY INFORMATION: I. Background A. Statutory and Regulatory Provisions tkelley on DSK3SPTVN1PROD with RULES FinCEN exercises regulatory functions primarily under the Currency and Foreign Transactions Reporting Act of 1970, as amended by the USA PATRIOT Act of 2001 and other legislation, which legislative framework is commonly referred to as the ‘‘Bank Secrecy Act’’ (‘‘BSA’’).1 The BSA authorizes the Secretary of the Treasury (‘‘Secretary’’) to require financial institutions to keep records and file reports that ‘‘have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism.’’ 2 The Secretary has delegated to the Director of FinCEN the authority to implement, administer, and enforce compliance with the BSA and associated regulations.3 FinCEN is authorized to promulgate anti-money laundering (‘‘AML’’) and suspicious activity report (‘‘SAR’’) filing requirements for financial institutions subject to the BSA.4 1 The BSA is codified at 12 U.S.C. 1829b, 12 U.S.C. 1951–1959, 18 U.S.C. 1956, 18 U.S.C. 1957, 18 U.S.C. 1960, and 31 U.S.C. 5311–5314 and 5316– 5332 and notes thereto, with implementing regulations at 31 CFR Chapter X. See 31 CFR 1010.100(e). 2 31 U.S.C. 5311. 3 Treasury Order 180–01 (Sept. 26, 2002). 4 31 U.S.C. 5318(g)(1) and 5318(h)(2). 31 U.S.C. 5318(g) was added to the BSA by section 1517 of the Annunzio-Wylie Anti-Money Laundering Act, Title XV of the Housing and Community Development Act of 1992, Public Law 102–550; it was expanded by section 403 of the Money Laundering Suppression Act of 1994, Title IV of the Riegle Community Development and Regulatory Improvement Act of 1994, Public Law 103–325, to require designation of a single government recipient for reports of suspicious transactions. VerDate Mar<15>2010 16:07 Feb 24, 2014 Jkt 232001 The AML program provisions of the BSA require financial institutions to establish programs that include, at a minimum: (1) The development of internal policies, procedures, and controls; (2) the designation of a compliance officer; (3) an ongoing employee training program; and (4) an independent audit function to test programs. When prescribing minimum standards for AML programs, FinCEN must ‘‘consider the extent to which the requirements imposed under [the AML program requirement] are commensurate with the size, location, and activities of the financial institutions to which such regulations apply.’’ 5 The SAR filing provisions of the BSA authorize FinCEN to require any financial institution, and any director, officer, employee, or agent of any financial institution to report any suspicious transaction relevant to a possible violation of law or regulation, and under other specified circumstances described below. FinCEN has promulgated AML program and SAR regulations for a number of financial institutions. These financial institutions include banks, casinos, money services businesses, brokers or dealers in securities, mutual funds, insurance companies, futures commission merchants, and introducing brokers in commodities and loan and finance companies.6 The BSA’s definition of ‘‘financial institution’’ includes specified categories of businesses and professions, as well as ‘‘any business or agency which engages in any activity which the Secretary of the Treasury determines, by regulation, to be an activity which is similar to, related to, or a substitute for any activity in which any business described in [31 U.S.C. 5312(a)(2)(A)–(X)] is authorized to engage.’’ 7 Thus, FinCEN may promulgate regulations for businesses and professions that are not listed in the statutory definition of financial institution.8 With this Final Rule, FinCEN establishes AML program and SAR requirements for the Federal National Mortgage Association (‘‘Fannie Mae’’), the Federal Home Loan Mortgage Corporation (‘‘Freddie Mac’’), and the Federal Home Loan Banks (‘‘Banks’’ or ‘‘FHL Banks,’’ collectively, the ‘‘Housing GSEs’’). FinCEN believes that the Final Rule will augment FinCEN’s 5 Public Law 107–56 sec. 352(c), 115 Stat. 322, codified at 31 U.S.C. 5318 note. 6 31 CFR 1020.210, 1020.320, 1021.210, 1021.320, 1022.210, 1022.320, 1023.210, 1023.320, 1024.210, 1024.320, 1025.210, 1025.320, 1026.210, 1026.320, 1029.210 and 1029.320. 7 31 U.S.C. 5312(a)(2)(Y). 8 31 U.S.C. 5312(a)(2). PO 00000 Frm 00036 Fmt 4700 Sfmt 4700 regulatory and strategic initiatives. The Housing GSEs are involved in providing financing to the residential mortgage market and thus are exposed to the risk of fraud. Although the business of the Banks differs in a number of respects from that of Fannie Mae and Freddie Mac, all of the Housing GSEs are involved in providing financing to the residential mortgage market and thus are vulnerable to fraud and other financial crimes. Also, both the primary and secondary residential mortgage markets are vulnerable to fraud and money laundering in terms of the proceeds of crime being invested in real property or securitized mortgages and related financial instruments. By purchasing mortgage loans, extending loans secured by mortgages and other real estate related collateral, and engaging in a variety of related financial activities, the Housing GSEs have access to, and are in a unique position to provide, information on suspected mortgage fraud and money laundering that has proven valuable to law enforcement and regulators in the investigation and prosecution of mortgage fraud and other financial crimes. While current fraud reporting by the Housing GSEs, discussed below, has value in combating fraud, the establishment of AML and SAR programs by the Housing GSEs will enable them to support broader regulatory and law enforcement efforts to combat mortgage fraud and related financial crimes consistent with the purposes of the BSA. B. Establishment and Authority of the Federal Housing Finance Agency and the Housing GSEs The Federal Housing Finance Regulatory Reform Act of 2008 (the ‘‘Reform Act’’) 9 created the Federal Housing Finance Agency (‘‘FHFA’’) as an independent agency of the Federal government. FHFA was established on the date of enactment of the Reform Act, July 30, 2008, to be the Federal regulator of the Housing GSEs.10 FHFA has 9 Division A of the Housing and Economic Recovery Act of 2008 (‘‘HERA’’), Public Law 110– 289, 122 Stat. 2654 (2008). The Reform Act provided for the abolishment of the Office of Federal Housing Enterprise Oversight (‘‘OFHEO’’) and the Federal Housing Finance Board (‘‘FHFB’’) one year after the date of enactment. These agencies were the primary Federal regulators of Fannie Mae and Freddie Mac, and the Banks, respectively. The agencies, together with the Housing and Urban Development Government Sponsored Enterprise Mission Teams, were combined to establish FHFA. 10 The authorities, powers, and responsibilities of FHFA are contained in the Federal Home Loan Bank Act, 12 U.S.C. 1421 et seq., as amended by Division A of HERA, and the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (‘‘Safety and Soundness Act’’), 12 U.S.C. 4501 E:\FR\FM\25FER1.SGM 25FER1 Federal Register / Vol. 79, No. 37 / Tuesday, February 25, 2014 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES regulatory authority over Fannie Mae, Freddie Mac, and the Banks (collectively referred to in FHFA regulations as the ‘‘regulated entities’’), and over the Office of Finance of the Federal Home Loan Bank System.11 FHFA is responsible for ensuring that the Housing GSEs: (1) Operate in a safe and sound manner, including being capitalized adequately and maintaining internal controls; (2) carry out their public policy missions; and (3) engage in activities that foster liquid, efficient, competitive, and resilient national housing finance markets. Where FHFA has not acted with superseding regulations, the Housing GSEs continue to operate under regulations promulgated by the Office of Federal Housing Enterprise Oversight (‘‘OFHEO’’) and the Federal Housing Finance Board (‘‘FHFB’’).12 Congress chartered Fannie Mae and Freddie Mac primarily to establish secondary market facilities for residential mortgages to promote access to mortgage credit throughout the nation. Specifically, Congress established Fannie Mae and Freddie Mac to provide stability in the secondary market for residential mortgages, respond appropriately to the private capital market, and provide ongoing assistance to the secondary market for residential mortgages, including activities relating to mortgages on housing for low-and moderate-income families involving a reasonable economic return that may provide less of a return than Fannie Mae’s and Freddie Mac’s other activities.13 The Banks were organized under the Federal Home Loan Bank Act (‘‘The Bank Act’’).14 The Banks are financial cooperatives; only members of a Bank may purchase the capital stock of a Bank, and only members, and certain et seq., as amended by Division A of HERA. See Notice of Establishment, 73 FR 52356 (Sept. 9, 2008). https://www.fhfa.gov/webfiles/160/FHFA_ %20Notice_of_Establishment_-_73_FR_52356_ (Sept_9%2c_2008).pdf. 11 The Housing GSEs are defined as ‘‘regulated entities’’ in the Safety and Soundness Act, as amended, 12 U.S.C. 4501 et seq., and implementing regulations at 12 CFR part 1233. The statutory definition of ‘‘regulated entity’’ provides ‘‘[t]he term ‘regulated entity’ means—(A) the Federal National Mortgage Association and any affiliate thereof; (B) the Federal Home Loan Mortgage Corporation and any affiliate thereof; and (C) any Federal Home Loan Bank.’’ 12 U.S.C. 4502(20). 12 On September 6, 2008, FHFA appointed itself conservator of Fannie Mae and Freddie Mac, pursuant to 12 U.S.C. 4617. https://www.fhfa.gov/ webfiles/1858/ NoticeregardingconservatorFNMA.pdf; https:// www.fhfa.gov/webfiles/1857/ NoticeregardingconservatorFHLMC.pdf. 13 12 U.S.C. 1451, 1716. 14 12 U.S.C. 1423, 1432(a). VerDate Mar<15>2010 16:07 Feb 24, 2014 Jkt 232001 eligible housing associates (such as State housing finance agencies), may obtain access to secured loans, known as advances, or other Bank products.15 Each Bank is managed by its own board of directors and serves the public interest by enhancing the availability of residential mortgage and community lending credit though its member institutions.16 Any eligible institution (generally a Federally-insured depository institution or State-regulated insurance company) may become a member of a Bank if it satisfies certain criteria and purchases a specified amount of the Bank’s capital stock.17 The Bank Act also requires each Bank to establish an affordable housing program and contribute a specified portion of its previous year’s net income to support that program.18 On January 27, 2010, FHFA issued fraud reporting regulations, codified at 12 CFR part 1233, ‘‘Reporting of Fraudulent Financial Instruments,’’ to implement the provisions of the Safety and Soundness Act with respect to the discovery and reporting of fraud, in furtherance of the supervisory responsibilities of FHFA.19 That regulation requires each Housing GSE to submit timely information on actual or possible fraud on all Housing GSE programs and products,20 including, but not limited to a timely report to FHFA upon discovery that it has purchased or sold a fraudulent loan or financial instrument, or if the Housing GSE suspects a possible fraud relating to the purchase or sale of any loan or financial instrument. As discussed infra, certain parts of FHFA reporting format are based upon FinCEN’s SAR format. The regulation, and associated guidance subsequently published by FHFA,21 requires each Housing GSE to establish and maintain internal controls, policies, procedures, and operational training programs, and designate a fraud officer to oversee implementation and periodic monitoring (at least annually) of the fraud reporting program. C. Summary of the Proposed Regulations On November 8, 2011, FinCEN issued a Notice of Proposed Rulemaking (‘‘NPRM’’) to solicit comments on proposed AML and SAR regulations for 15 12 U.S.C. 1426(a)(4), 1430(a), 1430b. 16 12 U.S.C. 1427. 17 12 U.S.C. 1424; 12 CFR 1263. 18 12 U.S.C. 1430(j). 19 75 FR 4255 (Jan. 27, 2010). 20 75 FR 4255, 4258–4259. 21 RPG–2011–001 (March 2011), https:// www.fhfa.gov/webfiles/20685/ FHFAFraudReportingGuidance32011.pdf. PO 00000 Frm 00037 Fmt 4700 Sfmt 4700 10367 the Housing GSEs.22 The proposed rules contained standards and requirements that are substantially identical to those in FinCEN’s AML and SAR regulations for banks, mortgage companies, and other financial institutions that offer retail consumer banking services and mortgage loans. This Final Rule is based on the NPRM and adopts, without significant change, all of the regulatory provisions proposed in the NPRM. The AML regulation promulgates the four minimum requirements noted earlier. The SAR regulation requires reporting of suspicious activity in accordance with the standards and procedures specified in the NPRM and contained in all of FinCEN’s SAR regulations.23 The Final Rule does not require the Housing GSEs to comply with any other BSA reporting or recordkeeping regulations, such as currency transaction reporting.24 FinCEN believes that much of the effort necessary to meet these regulatory obligations, including information gathering, may be accomplished through business operations already undertaken as part of normal transaction negotiation, including due diligence and review of mortgage loans and related assets for purchase and securitization, and as collateral for advances and other investments, products, and services. As described in more detail below, the Housing GSEs have been filing SAR-like reports with FHFA for a number of years, and in other respects have supported the anti-fraud and antimoney laundering efforts of various law enforcement and regulatory agencies. FinCEN believes the Final Rule will enhance and strengthen the Housing GSEs’ critical role in government and industry efforts to protect consumers, mortgage finance businesses, and the U.S. financial system from mortgage fraud, money laundering, and other financial crimes. II. Notice of Proposed Rulemaking The comment period on the NPRM ended on January 9, 2012. FinCEN received five comments. Comments were submitted by a Federal government agency (two letters), a trade association, representatives of some of the Housing GSEs, and a Federal government anti-fraud task force.25 The 22 76 FR 69204. e.g., SAR regulations for non-bank residential mortgage lenders and originators at 31 CFR 1029.320. https://www.fincen.gov/ redirect.html?url=https://www.gpo.gov/fdsys/pkg/ FR–2012–02–14/pdf/2012–3074.pdf. 24 31 CFR 1010.310. 25 In addition, FHFA’s comment letter states that it ‘‘encompasses issues relating to’’ Freddie Mac 23 See, E:\FR\FM\25FER1.SGM Continued 25FER1 10368 Federal Register / Vol. 79, No. 37 / Tuesday, February 25, 2014 / Rules and Regulations supporting comments emphasized the value of streamlining the current process under which SAR information from the Housing GSEs reaches FinCEN, and the substantial value of SARs predicted to cover a broader range of suspected financial crimes. FHFA has expressed strong support for FinCEN issuing AML and SAR regulations for the Housing GSEs. The public comments that expressed some opposition to the NPRM were based primarily on speculation that compliance costs and burdens would outweigh any potential benefits to law enforcement, and on the view that the current FHFA fraud reporting requirements are sufficient to support broad based government anti-fraud and anti-money laundering efforts. tkelley on DSK3SPTVN1PROD with RULES A. Housing GSEs Defined as Financial Institutions As noted in the NPRM, the BSA does not expressly identify any of the Housing GSEs in its definition of ‘‘financial institution.’’ The BSA’s definition of financial institution lists numerous types of businesses, including commercial banks and other depository institutions.26 The definition also includes a ‘‘catch-all’’ provision that authorizes the Secretary to include additional types of businesses if the Secretary determines, by regulation, that they engage in any activity ‘‘similar to, related to, or a substitute for’’ any activity of any of the listed businesses.27 The Housing GSEs work closely with other BSA-defined financial institutions; in fact, the majority of the Housing GSEs’ counterparties and members are commercial banks, thrifts, credit unions, and insurance companies. Many of the products and services offered by the Housing GSEs can be viewed as substitutes for or related to products and services offered by commercial banks and nonbank financial institutions included in the BSA’s definition of financial institution. and Fannie Mae, as well as FHFA’s perspective as the regulator of the Housing GSEs. 26 31 U.S.C. 5312(a)(2) and (c)(1). The BSA definition includes financial institutions subject to the regulations of a Federal functional regulator, such as banks, savings associations, credit unions, securities broker-dealers, and futures commission merchants. The BSA definition also includes dealers in precious metals, stones, or jewels; money services businesses (such as money transmitters and currency exchanges); pawnbrokers; loan and finance companies; private bankers; insurance companies; travel agencies; telegraph companies; sellers of vehicles, including automobiles, airplanes, and boats; persons engaged in real estate closings and settlements; investment bankers; investment companies; and commodity pool operators and commodity trading advisors that are registered or required to register under the Commodity Exchange Act (7 U.S.C. 1, et seq.). 27 31 U.S.C. 5312(a)(2)(Y). VerDate Mar<15>2010 16:07 Feb 24, 2014 Jkt 232001 The main role of the Housing GSEs is to support the primary mortgage market and affordable housing through the purchase, guarantee, and securitization of mortgage loans and the extension of loans secured primarily by mortgage loans and real estate related assets. The Banks also provide grants or subsidies for affordable housing and community investment. Typically, a significant portion of these mortgage loans are made by commercial banks, credit unions, and savings and loan associations, which are already financial institutions under the BSA and subject to FinCEN’s regulations.28 Some of the Banks also have acquired member asset programs whereby they acquire fixedrate, single-family mortgage loans from participating member institutions, which also are generally commercial banks or other depository institutions already included within the BSA’s definition of financial institutions. Thus, FinCEN believes that the Housing GSEs engage in activities that are ‘‘similar to, related to, or a substitute for’’ financial services that are provided by other BSA-defined financial institutions. For this reason, FinCEN hereby exercises its authority under 31 U.S.C. 5312(a)(2)(Y) to define the Housing GSEs as financial institutions. One commenter noted that Congress enacted Section 1115 of the Housing and Economic Recovery Act of 2008 (‘‘HERA’’),29 which required FHFA to promulgate the fraud reporting regulations at 12 CFR 1233, without adding the Housing GSEs to the list of financial institutions in the BSA, or otherwise requiring the Housing GSEs to comply with FinCEN or FHFA regulations that would require AML and SAR programs. The commenter urged FinCEN to ‘‘presume that Congress acted intentionally where it specifically adds language to one statute over another.’’ The commenter further stated that ‘‘[I]f Congress had intended for the [Housing] GSEs to be considered financial institutions under the BSA, then the statute would have been amended to specifically include the [Housing] GSEs. Rather, Congress enacted separate anti-fraud requirements in HERA that are unique to the FHLBank’s wholesale business structure.’’ FinCEN is not persuaded by the commenter’s analysis regarding Congress’s intent, or by the commenter’s interpretation of the BSA. Rather, FinCEN believes that Congress enacted the ‘‘catch-all’’ provision at 31 U.S.C. 5312(b)(2)(Y) in order to give the 28 31 U.S.C. 5312(a)(2). notes 9 and 10. Frm 00038 Fmt 4700 B. AML Program and SAR Filing Requirements Under this Final Rule, the Housing GSEs are required to establish and maintain AML programs, and to file SARs directly with FinCEN, as of the regulatory compliance date. As emphasized in the NPRM, FinCEN does not expect the transition to compliance with the Final Rule to be unreasonably difficult or costly, primarily because the Housing GSEs already are required to have policies, management oversight, personnel training, and internal compliance review and various procedures and systems in place to comply with FHFA’s current fraud reporting regulation and guidance.31 These programmatic features are substantively very similar to those required in all AML regulations issued by FinCEN. Moreover, pursuant to the terms of a Memorandum of 30 See 29 See PO 00000 Secretary and his delegate, FinCEN, the discretion, in future regulatory actions, to add businesses and professions to the statutory list of financial institutions, and thereby make them subject to certain provisions of the BSA.30 FinCEN believes that neither Congress, nor any other legislative or regulatory body, would be able to list all of the types of businesses that may be vulnerable to money laundering for all time. As businesses evolve, so do the criminal schemes designed to exploit them for illegal financial gain. The ‘‘catch-all’’ provision implicitly recognizes this fact, and gives FinCEN discretion to determine the types of businesses that should become subject to regulations implementing the BSA. The scope of the Final Rule is limited. It defines the Housing GSEs as ‘‘financial institutions’’ under 31 U.S.C. 5312(a)(2)(Y) for the purposes of requiring them to establish AML programs and report suspicious activities, as well as allow them to participate in special information sharing procedures to deter money laundering and terrorist activity. The term ‘‘Housing government sponsored enterprise’’ is added as a new defined term at 31 CFR 1010.100(mmm) for these purposes. Notably, the Final Rule does not amend the general definition of ‘‘financial institution’’ under FinCEN’s regulations at 31 CFR 1010.100(t) because adding Housing GSEs to the general definition would trigger other recordkeeping and reporting requirements that FinCEN does not consider appropriate for the Housing GSEs at this time. 31 See Sfmt 4700 E:\FR\FM\25FER1.SGM note 7. notes 19, 20, and 21. 25FER1 Federal Register / Vol. 79, No. 37 / Tuesday, February 25, 2014 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES Understanding (‘‘MOU’’) between FinCEN and FHFA, the Housing GSEs have been filing separate reports with FHFA regarding suspicions of fraud, using technical specifications provided by FinCEN, in accordance with FHFA’s guidance. FHFA, in turn, has provided this information to FinCEN in the form of SARs (albeit regarding a narrower range of suspicious activity than is covered in FinCEN’s typical SAR regulations).32 FHFA agrees that this indirect reporting structure should be restructured to better support the needs of law enforcement and extend the benefit of the BSA’s ‘‘safe harbor’’ to the Housing GSEs. FHFA also agrees that a direct reporting structure from the Housing GSEs to FinCEN would be more streamlined than the current practice because direct reporting would, in part, eliminate the burden created by the significant effort FHFA devotes to providing information received from the Housing GSEs and filing to FinCEN as SARs. The indirect reporting structure is inadequate to support the needs of law enforcement because reports are not available to law enforcement with the same speed they would be if they were filed directly. Additionally, law enforcement does not have the same ease of access to the records supporting any report filed by the Housing GSEs with FHFA as it would if the reports were filed directly with FinCEN under the obligations of the BSA. Direct filing by the Housing GSEs will result in a wider range of information made available to law enforcement more promptly. Finally, the indirect reporting structure does not allow the Housing GSEs to avail themselves of the BSA’s ‘‘safe harbor.’’ The current reporting regime required by FHFA has its own ‘‘safe harbor,’’ but does not cover the same range of reporting as the BSA safe harbor, nor does it offer the same broad protection. The comments on the NPRM primarily focused on the potential benefits, costs, and burdens of implementing the AML program and SAR filing requirements proposed in the NPRM. Three of the comments express 32 The first MOU governing this separate fraud reporting arrangement was executed in May 2006 between FinCEN and FHFA’s predecessor agency, OFHEO, which established the requirements applicable to Fannie Mae and Freddie Mac. A superseding MOU, with most of the same provisions, was executed by FinCEN and FHFA in July 2010, which established the requirements for Fannie Mae and Freddie Mac, as well as the 12 Federal Home Loan Banks. The Housing GSEs are required to use a data template that ‘‘complies with the technical specifications set forth by FinCEN for the [SAR] report for depository institutions.’’ See paragraph II.B.3. of FHFA’s guidance on fraud reporting, referenced in note 21. VerDate Mar<15>2010 16:07 Feb 24, 2014 Jkt 232001 the view that the Housing GSEs have limited access to useful SAR information about specific retail mortgage finance transactions. Two of these comments also stated that: (1) The current FHFA fraud reporting requirements are sufficient to support law enforcement, and any FinCEN SAR requirement would yield little, if any, additional useful information not already obtained by FHFA; (2) any new SAR requirement would result in duplicative SAR filings on the same suspicious activity, such as one report from a retail bank or non-bank mortgage company, and one report from the Housing GSE; and (3) any new AML and SAR regulations would require the Housing GSEs, particularly the Banks, to implement new detection, monitoring, and reporting practices, controls and systems, and possibly modify existing business models. In their view, the potential costs and burdens associated with any new AML or SAR regulations would not result in any corresponding substantial or justifiable benefit to law enforcement and regulators. The three previously referenced comments cautioned that the Housing GSEs have limited interactions with parties to a primary market mortgage loan transaction (i.e., the lender, the borrower and various persons typically engaged in closing a primary purchase, refinance or home equity loan transaction) and, therefore, the Housing GSEs have limited access to information on the borrower’s qualifications, the terms and circumstances regarding the loan, and other transaction-related information typically included in a SAR. Two of these comments also express the view that, due to the Banks’ limited access to transactional information, extending AML and SAR requirements to the Housing GSEs, particularly the Banks, will not provide law enforcement with access to information on fraud related or nonfraud related money laundering or other financial crimes that FHFA does not already receive under the current FHFA reporting regime. These two comments further stated that the Banks, in particular, would likely need to restructure their current business practices, systems, and models to ‘‘peer through’’ their wholesale transactions and obtain information usually gathered at the origination stage to a greater extent than their current business practices and systems accomplish. The comments therefore urged that any new FinCEN AML or SAR requirements should not require the acquisition of transaction information that is not already obtained by the Housing GSEs PO 00000 Frm 00039 Fmt 4700 Sfmt 4700 10369 in the ordinary course of business under current practices. One comment specifically requested that FinCEN confirm that any new AML and SAR rules will not require the Banks to establish new IT monitoring or datamining systems of the kind adopted by higher risk institutions engaged in retail banking. The comments further stated that the current FHFA fraud reporting regulations and guidance are sufficient to provide law enforcement and regulators with information necessary to investigate and prosecute mortgage fraud and fraud related money laundering and other financial crimes typically associated with residential mortgage transactions, and that FinCEN’s AML and SAR program requirements therefore are unnecessary. One comment stated that the rules proposed in the NPRM would require the Banks to duplicate the efforts of ‘‘99 percent’’ of the Banks’ customer base (i.e., retail banks and other insured depository institutions, all of whom already have a SAR filing obligation under applicable FinCEN and Federal banking regulations), thus resulting in overlapping or duplicative SAR reports on the same suspicious activity. One of the comments that generally supported the NPRM nonetheless cautioned that the proposed rules could result in ‘‘unintended consequences.’’ The comment noted, as an example of an unintended consequence, the likelihood of duplicative, overlapping requirements and SAR filings. One comment concluded simply that the potential additional benefits to law enforcement ‘‘appear to be minimal.’’ The comments noted that the Banks already have expended significant time and resources on establishing and maintaining policies, procedures, systems and employee training to comply with FHFA’s fraud reporting requirements. The comments concluded that FHFA requirements, and the programs established to comply with them, should be given time to ‘‘mature.’’ The comments expressed the view that any new rules should be issued only if it becomes evident that the current FHFA fraud reporting regime is determined to be inadequate. FinCEN believes the addition of the Housing GSEs within FinCEN’s framework for SAR reporting will be the most efficient overall approach. In the NPRM, FinCEN requested comment on whether it would be appropriate to include in a Final Rule any provisions that account for the differences in the business, operation, and mission of the Banks and Fannie Mae and Freddie Mac. Three comments E:\FR\FM\25FER1.SGM 25FER1 tkelley on DSK3SPTVN1PROD with RULES 10370 Federal Register / Vol. 79, No. 37 / Tuesday, February 25, 2014 / Rules and Regulations noted that the practices followed by Freddie Mac and Fannie Mae in connection with due diligence on loan pools, and related consideration of credit, interest rate, and operational risks, differ from those followed and considered by the Banks in connection with examination of loans and other assets as collateral for advances. Two comments stated that if FinCEN goes forward with final rules, FinCEN should take into account the differences in business models and practices of the Banks, on the one hand, and those of Fannie Mae and Freddie Mac, on the other. One comment urged that the requirements and standards in any final rules should be abbreviated and streamlined for the Banks, again arguing that the Banks generally do not obtain detailed borrower and transaction related information from their retail banking members in the ordinary course of business. Three comments, including one from FHFA, also urged that any final rules should be ‘‘phased-in’’ to give the Housing GSEs sufficient time to make changes to policies, procedures, systems, and business practices that would be deemed appropriate to comply with the Final Rule, and FinCEN’s new uniform SAR requirements mandated on July 1, 2012.33 The comments that supported the NPRM expressed opinions and conclusions largely contrary to those expressed in the comments summarized above. The supporting comments highlight the following benefits, among others, of the rules proposed in the NPRM: (1) The new SAR rules, by requiring the Housing GSEs to file SARs directly with FinCEN, will enhance FinCEN’s database, reduce burdens on government resources, and strengthen the mortgage fraud prevention programs and initiatives of the Housing GSEs and FinCEN; (2) the rules will give law enforcement and regulators quicker access to SAR information that is critical to investigations, and keep them better informed about evolving criminal schemes; (3) the rules will enhance coordination on analysis and investigations by FinCEN, FHFA, FHFA–OIG, and other law enforcement authorities on the Federal, State, and local levels that have access to FinCEN’s BSA database; and (4) the AML rules will bolster HERA’s reporting requirement, which likely will result in better information for investigations and enforcement actions. FinCEN finds these views persuasive and believes the Final Rules will support Administration and government efforts to combat 33 77 FR 12367 (Feb. 29, 2012). VerDate Mar<15>2010 16:07 Feb 24, 2014 Jkt 232001 mortgage fraud and other financial crimes. FinCEN believes that both the AML program and SAR filing requirements are necessary and appropriate for the Housing GSEs and other businesses involved in mortgage finance, in order to give law enforcement and regulatory agencies valuable, timely information on specific instances of suspected mortgage fraud and mortgage finance related money laundering, as well as provide insight into emerging patterns of regional and national criminal activity. The information from SARs and other BSA-related information assists law enforcement and regulators with the development of their strategic goals and policies, as well as with the deployment of valuable resources to high crime areas. FHFA’s fraud reporting program is important in that it allows FHFA to both monitor the Housing GSEs’ success in identifying fraud and mitigate attendant risks, and assess the impact that involvement in such transactions may have on the Housing GSEs’ operational risks and overall safety and soundness. FHFA’s reporting system, however, was not designed to support the multijurisdictional and inter-governmental investigations, prosecutions, and trend analyses that rely on SAR data and other BSA-related information in FinCEN’s databases. Only FinCEN, as the nation’s financial intelligence unit and administrator of the BSA, has the authority and resources to collect, analyze, and disseminate this vast amount of information to its Federal, State, and local law enforcement and regulatory partners securely and confidentially. The BSA and FinCEN’s implementing regulations also permit sharing of primary and secondary mortgage market transactional information, in a secure and confidential manner, among financial institutions that enroll in FinCEN’s 314(b) program.34 These functions cannot be accomplished by FHFA, or any other government agency, under current Federal and State laws and regulations. The faster that information from the Housing GSEs makes its way into the BSA database, the sooner FinCEN and other agencies will be able to access that information to support investigations and enforcement actions related to money laundering, fraud, and other financial crimes. FinCEN expects there will be transactions involving the Housing 34 See discussion in section III.E. regarding FinCEN’s special information sharing regulations applicable to the Housing GSEs and other financial institutions. PO 00000 Frm 00040 Fmt 4700 Sfmt 4700 GSEs with respect to which two or more SARs will be submitted to FinCEN concerning the same transaction or activity, and in this respect, the SARs arguably may be viewed as ‘‘duplicative’’ or ‘‘overlapping.’’ For example, one SAR may be submitted by the retail-level originator or lender, and one ‘‘overlapping’’ SAR by a Housing GSE regarding the same transaction or activity. Based on the SARs filed to date under the MOU between FinCEN and FHFA, FinCEN believes a number of these ‘‘overlapping’’ SARs likely will concern a specific loan or loan pool repurchased by the originating institution upon the request of the Housing GSE, pursuant to the terms of the Housing GSE’s contract with the originating institution or servicer. For example, a contract may permit a Housing GSE to demand repurchase upon discovery by the Housing GSE, a loan servicer, the originating institution, or a combination of these or other financial professionals, of loan related fraud or delinquency, including payment default, borrower misrepresentation, or some irregularity or discrepancy in the appraisal or loan documentation. The SAR forms, however, also may contain nonoverlapping information and—in any event—will reflect the unique perspective and analyses of the two, or more, SAR filers. The availability of different data presented from different business perspectives by organizations with different, but complementary, roles in mortgage finance may be useful for law enforcement to gain a more comprehensive understanding of the transaction and its circumstances. FinCEN views this consequence of the existence of parallel reporting requirements for banks, non-bank residential mortgage lenders and originators, and Housing GSEs as a significant potential advantage to law enforcement and regulators that justifies the relatively minor additional costs and burdens to be borne by the Housing GSEs. This view is further confirmed by FinCEN’s broad experience in requiring SAR reporting from a range of financial institutions, a small percent of which may contain reporting of partially overlapping information, but which together add significant value. FinCEN’s issuance of final AML and SAR rules for non-bank residential mortgage lenders and originators emphasized the critical importance of institutions establishing an AML program and filing SARs in order to prevent and identify mortgage fraud and other financial crimes.35 FinCEN 35 31 E:\FR\FM\25FER1.SGM CFR part 1029; 77 FR 8148 (Feb. 14, 2012). 25FER1 Federal Register / Vol. 79, No. 37 / Tuesday, February 25, 2014 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES expressed its view that the establishment of a complete AML program is essential for institutions to have an effective SAR filing program. Each of the ‘‘four pillars’’ of an AML program is critical to holding up the overall structure of the program. It would be difficult to expect useful SAR reporting without the pillars of an AML program firmly in place. FinCEN’s regulations are structured to ensure that financial institutions are knowledgeable of risks and vigilant against fraud and other crimes. All of FinCEN’s AML regulations require covered institutions to implement risk-based programs that take into account the unique risks associated with that particular institution’s products and services, as well as the institution’s size, market, and other issues. Thus, each Housing GSE’s AML program would necessarily be different than those of other Housing GSEs with different business models and practices, as well as different product, geographic, and other risks. As a result, FinCEN believes that the AML regulations in this Final Rule inherently recognize the differences in the business models and practices of the Banks, Fannie Mae, and Freddie Mac, and that separate regulatory requirements for the Banks, on the one hand, and Fannie Mae and Freddie Mac, on the other, are unnecessary.36 Under a risk-based approach to implementation of the Final Rule, FinCEN expects prevention of money laundering and other financial crimes, such as mortgage fraud, to be key goals underlying the various policies and procedures in an effective AML program for each Housing GSE. Therefore, the AML regulation proposed in the NPRM is adopted in this Final Rule without significant changes. FinCEN believes it is important to highlight the value of SARs that will be filed by the Housing GSEs. As one comment noted, law enforcement agencies have advised FinCEN and FHFA that SARs from the Housing GSEs under the present MOU procedures are very useful in the investigation and prosecution of financial crimes. Filing SARs directly with FinCEN will increase the speed and ease with which law enforcement and regulators can access and utilize the information contained in those valuable SARs. Finally, FinCEN’s SAR database has 36 FHFA is required, when issuing any regulation or guidance, to consider differences between the Banks and the Enterprises (Fannie Mae and Freddie Mac). FHFA also acknowledged in its regulatory policy guidance (RPG–2011–001) that it expects fraud detection and reporting controls, ‘‘should be more expansive when a financial instrument is owned or guaranteed versus when a financial instrument serves as collateral.’’ III.A., p.9. VerDate Mar<15>2010 16:07 Feb 24, 2014 Jkt 232001 been a ‘‘one-stop’’ integrated system for law enforcement and regulator access to valuable information on suspected financial crimes. It is appropriate, efficient, and consistent with FinCEN’s statutory mandate to consolidate all suspicious activity reports from financial institutions in the database where they can be of the most value.37 As FinCEN explained in the NPRM, the new SAR regulations will require the reporting of a potentially broader range of financial crimes than under FHFA’s fraud reporting regulations. This, along with the ability to share information among the Housing GSEs and with other financial institutions, may well result in the Housing GSEs filing more SARs than fraud reports filed pursuant to FHFA’s regulations. FinCEN also acknowledges that limited access to transactional information of a residential mortgage loan may limit the ability of a Housing GSE to include in a SAR all of the information typically found in a SAR filed by a retail bank or mortgage company. FinCEN expects that some of the Housing GSEs may need to establish new, or modify existing, policies, procedures, systems, organizational controls, or employee training arrangements. Nonetheless, FinCEN believes that these changes, and any related investments, will not need to be as extensive as some of the comments suggest, and that a substantial part of the new suspicious activity reporting and AML program requirements of this Final Rule may be integrated into existing procedures, controls, systems, and training programs with relatively minor costs. FinCEN emphasizes that each Housing GSE already has established procedures, systems, and controls to submit reports to FHFA when a Housing GSE discovers it has purchased or sold a fraudulent loan or financial instrument (e.g., a mortgage-backed security), or suspects a possible fraud relating to the purchase or sale of any loan or financial instrument. Under FHFA’s guidance and the MOU, FHFA then transmits some of these reports to FinCEN using a SAR.38 FinCEN believes that new investment in elaborate, expensive systems will not be necessary for the Banks, Freddie Mac, or Fannie Mae to comply with the Final Rule. For those Banks that anticipate the need to submit a relatively low number of SARs, they may establish procedures to submit individual SARs via FinCEN’s established Web-based electronic 37 31 U.S.C. 310. note 21 regarding FHFA Fraud Reporting Guidance, section II.B.3. 38 See PO 00000 Frm 00041 Fmt 4700 Sfmt 4700 10371 system, which does not require acquisition of any new systems or modifications to systems used to comply with FHFA filing requirements. FinCEN and other agencies have issued substantial guidance on the development of risk-based AML and SAR reporting programs.39 FinCEN believes the Housing GSEs may build on their existing risk management procedures and prudential business practices to ensure compliance with this Final Rule with minimal cost. In sum, FinCEN believes that the Final Rule does not impose significant costs on the Housing GSEs. FinCEN also wishes to emphasize that, by the designation of the Housing GSEs as ‘‘financial institutions’’ under the BSA, the Housing GSEs, as well as their directors, officers, employees, and agents, are covered by the BSA’s liability safe harbor for financial institutions that file SARs.40 This safe harbor is intended to encourage financial institutions to report suspicious activities, even if, as here, the SAR regulation will likely require reporting of a wider range of suspected fraud, money laundering, and financial crimes related to the products and services offered by the Housing GSEs than those entities may currently be accustomed to report. III. Section-by-Section Analysis A. Definition of Housing Government Sponsored Enterprise Section 1010.100(mmm) defines the key terms used in the Final Rule. The definitions reflect FinCEN’s determination that AML program and SAR requirements should be applied to the Housing GSEs. The definition of ‘‘Housing government sponsored enterprise’’ includes: (1) The Federal National Mortgage Association; (2) the Federal Home Loan Mortgage Corporation; and (3) each Federal Home 39 See, e.g., Guidance—Preparing a Complete and Sufficient Suspicious Activity Report Narrative (including related PowerPoint Presentation—Keys to Writing a Complete and Sufficient SAR Narrative), Nov. 2003, https://www.fincen.gov/ statutes_regs/guidance/html/narrativeguidance_ webintro.html; Guidance—Suggestions for Addressing Common Errors Noted in Suspicious Activity Reporting, Oct. 10, 2007, https:// www.fincen.gov/statutes_regs/guidance/html/SAR_ Common_Errors_Web_Posting.html; Guidance— Suspicious Activity Report Supporting Documentation, June 13, 2007 (FIN–2007–G003), https://www.fincen.gov/statutes_regs/guidance/ html/Supporting_Documentation_Guidance.html The SAR Activity Review—Trends, Tips and Issues (Issue 16), Oct. 2009, Section 4, Law Enforcement Suggestions When Preparing Suspicious Activity Reports, p. 45., https://www.fincen.gov/statutes_ regs/guidance/html/narrativeguidance_ webintro.html. See also NPRM, note 45. 40 31 U.S.C. 5318(g)(3). E:\FR\FM\25FER1.SGM 25FER1 10372 Federal Register / Vol. 79, No. 37 / Tuesday, February 25, 2014 / Rules and Regulations Loan Bank. The definition does not include any entity-affiliated party 41 of Fannie Mae, Freddie Mac, or any Bank, including the Office of Finance of the Federal Home Loan Bank System. B. Compliance and Enforcement Section 1010.810(b)(10) delegates authority to examine the Housing GSEs for compliance with the requirements of this Final Rule to FHFA. FHFA is the Federal regulator for the Housing GSEs and enforces its own statutes and regulations regarding safety and soundness. FHFA is FinCEN’s delegate for examination for compliance with FinCEN’s regulations. FinCEN will work with FHFA to coordinate and direct such delegated compliance examination activities. FinCEN retains enforcement authority under the BSA, including for the imposition of civil penalties for violations of these regulations. tkelley on DSK3SPTVN1PROD with RULES C. Anti-Money Laundering Program Section 1030.210(a) requires each Housing GSE to develop and implement an AML program reasonably designed to prevent the Housing GSE from being used to facilitate money laundering or the financing of terrorist activities, and other financial crimes, including mortgage fraud. The program must be in writing and must be approved by senior management. A Housing GSE’s written program also must be made available to FinCEN upon request. Section 1030.210(b) sets forth the minimum requirements of a Housing GSE’s AML program. Beyond these minimum requirements, however, the Final Rule is intended to give Housing GSEs the flexibility to design their programs to mitigate their own specific risks. Section 1030.210(b)(1) requires the AML program to incorporate policies, procedures, and internal controls based upon the Housing GSE’s assessment of the risks of money laundering, terrorism finance, and other financial crimes associated with its products, counterparties, distribution channels, and geographic locations. A Housing GSE’s assessment of counterparty-related information is a key component to an effective AML program. Thus, a Housing GSE’s AML program must ensure that the Housing GSE obtains the information necessary to make its AML program effective. Such information may, but is not required to, include relevant information on individual borrowers and the financial institutions that are the Housing GSE’s counterparties or members. The specific means of 41 12 U.S.C. 4502(11). VerDate Mar<15>2010 16:07 Feb 24, 2014 Jkt 232001 obtaining such information is left to the discretion of the Housing GSE. In the NPRM, FinCEN stated that it anticipated that the Housing GSEs may need to amend existing agreements to ensure that they receive necessary customer information. Upon consideration of the comments on the NPRM, FinCEN highlights that amendment of agreements may not be necessary, and FinCEN emphasizes that the Final Rule does not require such amendments. However, the determination whether agreements may need amendment is a matter that the Housing GSEs’ management should consider in assessing risks associated with products and services subject to the AML and SAR requirements. The AML program requirement does not obligate the Housing GSEs to obtain information that they do not already receive in the ordinary course of business under current practices, particularly with regard to information on individual borrowers the Housing GSEs do not receive in the ordinary course of business. For purposes of making the required risk assessment, a Housing GSE must consider all relevant information that is currently available to them, including whether the retail financial institutions that are its customers are subject to AML program requirements under the BSA. Policies, procedures, and internal controls also must be reasonably designed to ensure compliance with BSA requirements. Housing GSEs may conduct some of their operations through third parties. Some elements of the compliance program may best be performed by personnel of such third parties, in which case it is permissible for a Housing GSE to delegate contractually the implementation and operation of those aspects of its AML program to such an entity, and to rely on the compliance program of such third parties if the third parties are subject to an independent AML program requirement under the BSA. Any Housing GSE that delegates responsibility for aspects of its AML program to a third party, however, remains fully responsible for the effectiveness of the program, as well as ensuring that examiners are able to obtain information and records relating to the AML program. Section 1030.210(b)(2) requires that a Housing GSE designate a compliance officer to be responsible for administering the AML program. The person should be competent and knowledgeable regarding BSA requirements and money laundering and fraud issues and risks, and should be empowered with full responsibility PO 00000 Frm 00042 Fmt 4700 Sfmt 4700 and authority to develop and enforce appropriate policies and procedures. The role of the compliance officer is to ensure that (1) the program is implemented effectively; (2) the program is updated as necessary; and (3) appropriate persons are trained and educated in accordance with section 1030.210(b)(3). Section 1030.210(b)(3) requires that a Housing GSE provide for education and training of appropriate persons. Employee training is an integral part of any AML program. To carry out their responsibilities effectively, employees of a Housing GSE (and of any third party not already receiving training as part of another AML program requirement) with responsibility under the program must be trained in the requirements of the Final Rule and money laundering and fraud risks generally so that they can identify red flags associated with existing or potential customers and transactions. Such training may be conducted by outside or in-house seminars, and may include computerbased training. The nature, scope, and frequency of the education and training program of the Housing GSE will depend upon the employee functions performed. However, those with obligations under the AML program must be sufficiently trained to carry out their responsibilities effectively. Moreover, these employees should receive periodic updates and refreshers regarding the AML program. Section 1030.210(b)(4) requires that a Housing GSE provide for independent testing of the program on a periodic basis to ensure that it complies with the requirements of the Final Rule and that the program functions as designed. An outside consultant or accountant need not perform the testing and review. The review may be conducted by an officer, employee or group of employees, so long as the reviewer is not the designated compliance officer and does not report directly to the compliance officer. The frequency of the independent testing will depend upon the Housing GSE’s assessment of risks posed by its operations. Any recommendations resulting from such testing should be reviewed by senior management. A Housing GSE may also rely on the testing performed by third parties that are subject to an independent AML program requirement. Section 1030.210(c) states that compliance with the AML program requirements will be determined by FinCEN or its delegate. D. Reports of Suspicious Transactions Section 1030.320(a) contains the rules setting forth the obligation of Housing E:\FR\FM\25FER1.SGM 25FER1 Federal Register / Vol. 79, No. 37 / Tuesday, February 25, 2014 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES GSEs to report suspicious transactions that are conducted or attempted by, at, or through a Housing GSE and involve, independently or in the aggregate, at least $5,000 in funds or other assets. It is important to recognize that transactions are reportable under this Final Rule and 31 U.S.C. 5318(g) regardless of whether they involve currency. The $5,000 minimum amount is consistent with existing SAR filing requirements for other financial institutions. Section 1030.320(a)(1) contains the general statement of the obligation to file reports of suspicious transactions. The obligation extends to transactions conducted or attempted by, at, or through a Housing GSE. The Final Rule also contains a provision in section 1030.320(a)(1) designed to encourage the reporting of transactions that appear relevant to violations of law or regulation, even in cases in which the Final Rule does not explicitly so require, such as in the case of a transaction falling below the $5,000 threshold. Section 1030.320(a)(2) specifically describes the four categories of transactions that require reporting. A Housing GSE is required to report a transaction if it knows, suspects, or has reason to suspect that the transaction (or a pattern of transactions of which the transaction is a part): (i) Involves funds derived from illegal activity or is intended or conducted to hide or disguise funds or assets derived from illegal activity; (ii) is designed, whether through structuring or other means, to evade the requirements of the BSA; (iii) has no business or apparent lawful purpose, and the Housing GSE knows of no reasonable explanation for the transaction after examining the available facts; or (iv) involves the use of the Housing GSE to facilitate criminal activity.42 A determination as to whether a report is required must be based on all the facts, circumstances and information to which the Housing GSE has access, in the ordinary course of its business, relating to the transaction and customer of the Housing GSE in question. Different fact patterns and circumstances will require different judgments. Some examples of red flags associated with existing or potential customers are referenced in previous 42 The fourth reporting category has been added to the suspicious activity reporting rules promulgated since the passage of the USA PATRIOT Act to make it clear that the requirement to report suspicious activity encompasses the reporting of transactions involving fraud and those in which legally derived funds are used for criminal activity, such as the financing of terrorism. VerDate Mar<15>2010 16:07 Feb 24, 2014 Jkt 232001 FinCEN reports and guidance on mortgage fraud and SAR filing. However, the means of commerce and the techniques of money laundering are continually evolving, and there is no way to provide an exhaustive list of suspicious transactions or red flags. FinCEN will continue to pursue a regulatory approach that involves a combination of guidance, training programs, and government-industry information exchange so that implementation of any new AML program and SAR reporting regulations can be accomplished in the most flexible and cost efficient way possible, while protecting the primary and secondary mortgage markets and the financial system as a whole from fraud, money laundering, and other financial crimes. Section 1030.320(a)(3) provides that the obligation to identify and to report a suspicious transaction rests with the Housing GSE involved in the transaction. However, where more than one Housing GSE, or another financial institution with a separate suspicious activity reporting obligation, is involved in the same transaction (or related transactions), only one report is required to be filed, provided it contains all relevant information and each institution maintains a copy of the report and any supporting documentation related to the SAR. There is, however, no obligation for the Housing GSEs to notify each other or work together in such circumstances. Each Housing GSE must evaluate customer activity and relationships for fraud, money laundering, and other financial crime risks, and design a suspicious transaction monitoring and reporting program that is appropriate for the particular Housing GSE in light of such risks. Section 1030.320(b) sets forth the filing procedures to be followed by Housing GSEs making reports of suspicious transactions. Within 30 days after a Housing GSE becomes aware of a suspicious transaction (or within 60 days if no suspect has been identified), it must report the transaction by completing a SAR and filing it with FinCEN. Supporting documentation relating to each SAR is to be collected and maintained separately by the Housing GSE and made available upon request by FinCEN, FHFA or any appropriate Federal, State, or local law enforcement agency, or any Federal regulatory authority that examines the Housing GSE for compliance with the BSA. FinCEN’s SAR regulations provide that the documentation supporting a SAR that is maintained by the filer, is deemed to be filed with the SAR. Thus, PO 00000 Frm 00043 Fmt 4700 Sfmt 4700 10373 supporting documentation may be disclosed to the authorities referenced above to whom a SAR form may be disclosed, consistent with the rules of construction, described below. For situations requiring immediate attention, Housing GSEs are to telephone the appropriate law enforcement authority in addition to filing a SAR. Section 1030.320(c) provides that the filing Housing GSE must maintain copies of SARs and the underlying related documentation for a period of five years from the date of filing.43 As indicated above, supporting documentation is to be made available to FinCEN and appropriate law enforcement and regulatory authorities, upon request. Section 1030.320(d)(1) reinforces the statutory prohibition against the disclosure by a financial institution of a SAR (regardless of whether the report would be required by the Final Rule or is filed voluntarily).44 The section requires that a SAR and information that would reveal the existence of that SAR (‘‘SAR information’’) be kept confidential and not be disclosed, except as authorized within the rules of construction. The regulation includes rules of construction that identify actions an institution may take that are not precluded by the confidentiality provision. These actions include the disclosure of SAR information to FinCEN, FHFA, or appropriate Federal, State, or local law enforcement agencies, or a Federal regulatory authority that examines the Housing GSE for compliance with the BSA. This confidentiality provision also does not prohibit the disclosure of the underlying facts, transactional information, and documents upon which a SAR is based, or the sharing of SAR information within the Housing GSE’s corporate organizational structure for purposes consistent with Title II of the BSA, as determined by FinCEN in regulation or in guidance.45 Section 1030.320(d)(2) incorporates the statutory prohibition against disclosure of SAR information, other than in fulfillment of their official duties consistent with the BSA, by government users of SAR data. The section also clarifies that official duties 43 FinCEN notes that FHFA’s guidance on fraud reporting, RPG–2011–001, also contains a five-year document retention requirement. 44 31 U.S.C. 5318(g)(2). 45 On November 23, 2010, FinCEN issued updated guidance for the banking, securities, and futures industries authorizing the sharing of SAR information with parent companies, head offices, and under certain conditions, domestic affiliates. 75 FR 75607 (Dec. 3, 2010). No such guidance has been issued for the Housing GSEs. E:\FR\FM\25FER1.SGM 25FER1 10374 Federal Register / Vol. 79, No. 37 / Tuesday, February 25, 2014 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES do not include the disclosure of SAR information in response to a request for non-public information 46 or for use in a private legal proceeding, including a request under 31 CFR 1.11.47 Section 1030.320(e) provides protection from liability for making reports of suspicious transactions, and for nondisclosures of such a report, to the full extent provided by 31 U.S.C. 5318(g)(3). This statutory safe harbor, unlike that afforded to the Housing GSEs under FHFA regulations,48 contains no express requirement that the report has been filed in ‘‘good faith,’’ and legal authority strongly supports the proposition that there is no implicit ‘‘good faith’’ limitation to this safe harbor.49 One commenter nevertheless suggested that the difference between FHFA safe harbor and the BSA safe harbor could result in the Housing GSEs being subject to civil liability for making reports pursuant to the BSA. FinCEN disagrees with that assessment. Because this Final Rule defines the Housing GSEs as financial institutions under the BSA, a Housing GSE should be able to avail itself of the broader BSA safe harbor for reports it files pursuant to the BSA. Congress has made two safe harbors available to institutions under two separate statutes. These safe harbor provisions do not contradict, supersede, or conflict with one another. Nothing in the law implies that Congress intended to make only the narrower safe harbor applicable when an institution was on its face entitled to both. FinCEN thinks it more persuasive to consider both safe harbors to be applicable according to their terms. 46 For purposes of this rulemaking, ‘‘non-public information’’ refers to information that is exempt from disclosure under the Freedom of Information Act. 47 31 CFR 1.11 is the Department of the Treasury’s information disclosure regulation. Generally, these regulations are known as ‘‘Touhy regulations,’’ after the Supreme Court’s decision in United States ex rel. Touhy v. Ragen, 340 U.S. 462 (1951). In that case, the Supreme Court held that an agency employee could not be held in contempt for refusing to disclose agency records or information when following the instructions of his or her supervisor regarding the disclosure. An agency’s Touhy regulations are the instructions agency employees must follow when those employees receive requests or demands to testify or otherwise disclose agency records or information. 48 12 CFR 1233.5. 49 See Stoutt v. Banco Popular de Puerto Rico, 320 F.3d 26, 31 (1st Cir. 2003) (no good faith requirement), Lee v. Bankers Trust, 166 F.3d 540, 544 (2d Cir. 1999) (same), Henry v. Bank of America, 2010 U.S. Dist. LEXIS 14561 *11–13 (N.D.Cal., Feb. 2, 2010) (same), Eyo v. United States, 2007 U.S. Dist. LEXIS 88088 *15–16 (D.N.J., Nov. 29, 2007) (same), Nieman v. Firstar Bank, 2005 U.S. Dist. LEXIS 38959 *18 (N.D. Iowa, Sept. 26, 2005) (same). But see Lopez v. First Union National Bank, 129 F.3d 1186, 1992 (11th Cir. 1997) (regarding a good faith requirement). VerDate Mar<15>2010 16:07 Feb 24, 2014 Jkt 232001 Section 1030.320(f) notes that compliance with the obligation to report suspicious transactions will be examined by FinCEN or its delegates, and provides that failure to comply with the Final Rule may constitute a violation of the BSA and FinCEN’s regulations. Section 1030.320(g) provides that the new SAR requirement is effective when an anti-money laundering program required by the regulations is required to be implemented. E. Special Information Procedures To Deter Money Laundering and Terrorist Activity Section 1030.500 states that the Housing GSEs are covered by the special information procedures to detect money laundering and terrorist activity requirements set forth and cross referenced in sections 1030.520 (crossreferencing to 31 CFR 1010.520) and 1030.540 (cross-referencing to 31 CFR 1010.540). Sections 1010.520 and 1010.540 implement sections 314(a) and 314(b) 50 of the USA PATRIOT Act, respectively, and generally apply to any financial institution listed in 31 U.S.C. 5312(a)(2).51 For the sake of clarity, the Final Rule adds subpart E to Part 1030 to confirm that the section 314 rules will continue to apply to the Housing GSEs. IV. Regulatory Flexibility Act The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that a regulation that has a significant economic impact on a substantial number of small entities, small businesses, or small organizations must include an initial regulatory flexibility analysis describing the regulation’s impact on small entities. Such an analysis need not be undertaken if the agency has certified that the regulation will not have a significant economic impact on a substantial number of small entities. 5 U.S.C. 605(b). In this case, the Final Rule applies only to the Housing GSEs, none of which is a small entity for purposes of this requirement. Accordingly, FinCEN hereby certifies that this Final Rule will not have a significant economic impact on a substantial number of small entities for purposes of the Regulatory Flexibility Act. Therefore, no analysis under the 50 In addition to falling within the definition of ‘‘financial institution’’ found at 31 U.S.C. 5312(a)(2), participants in the 314(b) program also must be ‘‘required . . . to establish and maintain an anti-money laundering program . . .’’ 31 CFR 1010.540(a)(1). 51 This Final Rule defines the Housing GSEs as financial institutions under section 31 U.S.C. 5312(a)(2)(Y). PO 00000 Frm 00044 Fmt 4700 Sfmt 4700 Regulatory Flexibility Act is required. See 5 U.S.C. 601(2) and 603(a). V. Paperwork Reduction Act This Final Rule pertains to the Housing GSEs. As a result, the Final Rule does not contain any information collection requirement that requires the approval of the Office of Management and Budget under the Paperwork Reduction Act. See 44 U.S.C. 3501 et seq. VI. Executive Orders 13563 and 12866 Executive Orders 13563 and 12866 direct agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. It has been determined that this Final Rule is designated a ‘‘significant regulatory action,’’ although not economically significant, under section 3(f) of Executive Order 12866. Accordingly, the Final Rule has been reviewed by the Office of Management and Budget. VII. Unfunded Mandates Reform Act of 1995 Statement Section 202 of the Unfunded Mandates Reform Act of 1995 (‘‘Unfunded Mandates Act’’), Public Law 104–4 (March 22, 1995), requires that an agency prepare a budgetary impact statement before promulgating a rule that may result in expenditure by the State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. If a budgetary impact statement is required, section 202 of the Unfunded Mandates Act also requires an agency to identify and consider a reasonable number of regulatory alternatives before promulgating a rule. Taking into account the factors noted above and using conservative estimates of average labor costs in evaluating the cost of the burden imposed by the Final Rule, FinCEN has determined that it is not required to prepare a written statement under Section 202. List of Subjects in 31 CFR Parts 1010 and 1030 Administrative practice and procedure, Banks, Banking, Brokers, Currency, Federal home loan banks, Foreign banking, Foreign currencies, Gambling, Investigations, Mortgages, E:\FR\FM\25FER1.SGM 25FER1 Federal Register / Vol. 79, No. 37 / Tuesday, February 25, 2014 / Rules and Regulations Penalties, Reporting and recordkeeping requirements, Securities, Terrorism. Authority and Issuance For the reasons set forth in the preamble, Chapter X of Title 31 of the Code of Federal Regulations is amended as follows: PART 1010—GENERAL PROVISIONS 1. The authority citation for part 1010 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, sec. 314 Pub. L. 107–56, 115 Stat. 307. 2. Amend § 1010.100 by adding new paragraph (mmm) to read as follows: ■ § 1010.100 General definitions. * * * * * (mmm) Housing government sponsored enterprise. (1) A ‘‘housing government sponsored enterprise’’ is one of the following ‘‘Regulated Entities’’ under 12 U.S.C. 4502(20) subject to the general supervision and regulation of the Federal Housing Finance Agency (FHFA): (i) The Federal National Mortgage Association; (ii) The Federal Home Loan Mortgage Corporation; or (iii) Each Federal Home Loan Bank. (2) The term ‘‘housing government sponsored enterprise’’ does not include any ‘‘Entity-Affiliated Party,’’ as defined in 12 U.S.C. 4502(11). ■ 3. Amend § 1010.810 by adding new paragraph (b)(10) to read as follows: § 1010.810 Enforcement. * * * * * (b) * * * (10) To the Federal Housing Finance Agency with respect to the housing government sponsored enterprises, as defined in § 1010.100(mmm) of this part. * * * * * ■ 4. New part 1030 is added to read as follows: PART 1030—RULES FOR HOUSING GOVERNMENT SPONSORED ENTERPRISES tkelley on DSK3SPTVN1PROD with RULES Subpart A—Definitions Sec. 1030.100 Definitions. Subpart B—Programs 1030.200 General. 1030.210 Anti-money laundering programs for housing government sponsored enterprises. Subpart C—Reports Required To Be Made By Housing Government Sponsored Enterprises 1030.300 General. VerDate Mar<15>2010 16:07 Feb 24, 2014 Jkt 232001 1030.310–1030.315 [Reserved] 1030.320 Reports by housing government sponsored enterprises of suspicious transactions. 1030.330 Reports relating to currency in excess of $10,000 received in a trade or business. Subpart D—Records Required To Be Maintained by Housing Government Sponsored Enterprises 1030.400 General. Subpart E—Special Information Sharing Procedures To Deter Money Laundering and Terrorist Activity 1030.500 General. 1030.520 Special information sharing procedures to deter money laundering and terrorist activity for housing government sponsored enterprises. 1030.530 [Reserved] 1030.540 Voluntary information sharing among financial institutions. Subpart F—Special Standards of Diligence; Prohibitions, and Special Measures for Housing Government Sponsored Enterprises 1030.600–1030.670 [Reserved] Authority: 12 U.S.C. 1829b and 1951–1959; 31 U.S.C. 5311–5314 and 5316–5332; title III, sec. 314 Pub. L. 107–56, 115 Stat. 307. Subpart A—Definitions § 1030.100 Definitions. Refer to § 1010.100 of this chapter for general definitions not noted herein. Subpart B—Programs § 1030.200 General. Housing government sponsored enterprises are subject to the program requirements set forth and cross referenced in this subpart. Housing government sponsored enterprises should also refer to subpart B of part 1010 of this chapter for program requirements contained in that subpart that apply to housing government sponsored enterprises. § 1030.210 Anti-money laundering programs for housing government sponsored enterprises. (a) Anti-money laundering program requirements for housing government sponsored enterprises. Each housing government sponsored enterprise shall develop and implement a written antimoney laundering program that is reasonably designed to prevent the housing government sponsored enterprise from being used to facilitate money laundering or the financing of terrorist activities. The program must be approved by senior management. A housing government sponsored enterprise shall make a copy of its antimoney laundering program available to PO 00000 Frm 00045 Fmt 4700 Sfmt 4700 10375 the Financial Crimes Enforcement Network or its designee upon request. (b) Minimum requirements. At a minimum, the anti-money laundering program shall: (1) Incorporate policies, procedures, and internal controls based upon the housing government sponsored enterprise’s assessment of the money laundering and terrorist financing risks associated with its products and services. Policies, procedures, and internal controls developed and implemented by a housing government sponsored enterprise under this section shall include provisions for complying with the applicable requirements of subchapter II of chapter 53 of title 31, United States Code and this part, and obtaining all relevant customer-related information necessary for an effective anti-money laundering program. (2) Designate a compliance officer who will be responsible for ensuring that: (i) The anti-money laundering program is implemented effectively; (ii) The anti-money laundering program is updated as necessary; and (iii) Appropriate persons are educated and trained in accordance with paragraph (b)(3) of this section. (3) Provide for on-going training of appropriate persons concerning their responsibilities under the program. A housing government sponsored enterprise may satisfy this requirement by training such persons or verifying that such persons have received training by a competent third party with respect to the products and services offered by the housing government sponsored enterprise. (4) Provide for independent testing to monitor and maintain an adequate program. The scope and frequency of the testing shall be commensurate with the risks posed by the housing government sponsored enterprise’s products and services. Such testing may be conducted by a third party or by any officer or employee of the housing government sponsored enterprise, other than the person designated in paragraph (b)(2) of this section. (c) Compliance. Compliance with this section shall be examined by FinCEN or its delegate, under the terms of the Bank Secrecy Act. Failure to comply with the requirements of this section may constitute a violation of the Bank Secrecy Act and of this chapter. (d) Compliance date. A housing government sponsored enterprise must develop and implement an anti-money laundering program that complies with the requirements of this section on or before August 25, 2014. E:\FR\FM\25FER1.SGM 25FER1 10376 Federal Register / Vol. 79, No. 37 / Tuesday, February 25, 2014 / Rules and Regulations Subpart C—Reports Required To Be Made by Housing Government Sponsored Enterprises § 1030.300 General. Housing government sponsored enterprises are subject to the reporting requirements set forth and cross referenced in this subpart. Housing government sponsored enterprises should also refer to subpart C of part 1010 of this chapter for reporting requirements contained in that subpart that apply to housing government sponsored enterprises. §§ 1030.310—1030.315 [Reserved] tkelley on DSK3SPTVN1PROD with RULES § 1030.320 Reports by housing government sponsored enterprises of suspicious transactions. (a) General—(1) Every housing government sponsored enterprise shall file with FinCEN, to the extent and in the manner required by this section, a report of any suspicious transaction relevant to a possible violation of law or regulation. A housing government sponsored enterprise may also file with FinCEN a report of any suspicious transaction that it believes is relevant to the possible violation of any law or regulation, but whose reporting is not required by this section. (2) A transaction requires reporting under this section if it is conducted or attempted by, at, or through a housing government sponsored enterprise, it involves or aggregates funds or other assets of at least $5,000, and the housing government sponsored enterprise knows, suspects, or has reason to suspect that the transaction (or a pattern of transactions of which the transaction is a part): (i) Involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity (including, without limitation, the ownership, nature, source, location, or control of such funds or assets) as part of a plan to violate or evade any Federal law or regulation or to avoid any transaction reporting requirement under Federal law or regulation; (ii) Is designed, whether through structuring or other means, to evade any requirements of this chapter or any other regulations promulgated under the Bank Secrecy Act; (iii) Has no business or apparent lawful purpose or is not the sort in which the particular housing government sponsored enterprise customer would normally be expected to engage, and the housing government sponsored enterprise knows of no reasonable explanation for the transaction after examining the available VerDate Mar<15>2010 16:07 Feb 24, 2014 Jkt 232001 facts, including the background and possible purpose of the transaction; or (iv) Involves use of the housing government sponsored enterprise to facilitate criminal activity. (3) More than one housing government sponsored enterprise may have an obligation to report the same transaction under this section, and financial institutions involved in that same transaction may have separate obligations to report suspicious activity with respect to that transaction pursuant to other provisions of this chapter. In those instances, no more than one report is required to be filed by the housing government sponsored enterprise(s) and any financial institution(s) involved in the transaction, provided that the report filed contains all relevant facts, including the name of each housing government sponsored enterprise or financial institution involved in the transaction, the report complies with all instructions applicable to joint filings, and each institution maintains a copy of the report filed, along with any supporting documentation. (b) Filing and notification procedures—(1) What to file. A suspicious transaction shall be reported by completing a Suspicious Activity Report (‘‘SAR’’), and collecting and maintaining supporting documentation as required by paragraph (c) of this section. (2) Where to file. The SAR shall be filed with FinCEN in accordance with the instructions to the SAR. (3) When to file. A SAR shall be filed no later than 30 calendar days after the date of the initial detection by the reporting housing government sponsored enterprise of facts that may constitute a basis for filing a SAR under this section. If no suspect is identified on the date of such initial detection, a housing government sponsored enterprise may delay filing a SAR for an additional 30 calendar days to identify a suspect, but in no case shall reporting be delayed more than 60 calendar days after the date of such initial detection. (4) Mandatory notification to law enforcement. In situations involving violations that require immediate attention, such as suspected terrorist financing or ongoing money laundering schemes, a housing government sponsored enterprise shall immediately notify by telephone an appropriate law enforcement authority in addition to filing timely a SAR. (5) Voluntary notification to FinCEN. Any housing government sponsored enterprise wishing voluntarily to report suspicious transactions that may relate to terrorist activity may call FinCEN’s Financial Institutions Hotline in PO 00000 Frm 00046 Fmt 4700 Sfmt 4700 addition to filing timely a SAR if required by this section. (c) Retention of records. A housing government sponsored enterprise shall maintain a copy of any SAR filed by the housing government sponsored enterprise or on its behalf (including joint reports), and the original (or business record equivalent) of any supporting documentation concerning any SAR that it files (or is filed on its behalf), for a period of five years from the date of filing the SAR. Supporting documentation shall be identified as such and maintained by the housing government sponsored enterprise, and shall be deemed to have been filed with the SAR. A housing government sponsored enterprise shall make all supporting documentation available to FinCEN or any Federal, State, or local law enforcement agency, or any Federal regulatory authority that examines the housing government sponsored enterprise for compliance with the Bank Secrecy Act, upon request. (d) Confidentiality of SARs. A SAR, and any information that would reveal the existence of a SAR, are confidential and shall not be disclosed except as authorized in this paragraph (d). For purposes of this paragraph (d) only, a SAR shall include any suspicious activity report filed with FinCEN pursuant to any regulation in this chapter. (1) Prohibition on disclosures by housing government sponsored enterprises—(i) General rule. No housing government sponsored enterprise, and no director, officer, employee, or agent of any housing government sponsored enterprise, shall disclose a SAR or any information that would reveal the existence of a SAR. Any housing government sponsored enterprise, and any director, officer, employee, or agent of any housing government sponsored enterprise that is subpoenaed or otherwise requested to disclose a SAR or any information that would reveal the existence of a SAR, shall decline to produce the SAR or such information, citing this section and 31 U.S.C. 5318(g)(2)(A)(i), and shall notify FinCEN of any such request and the response thereto. (ii) Rules of construction. Provided that no person involved in any reported suspicious transaction is notified that the transaction has been reported, this paragraph (d)(1) shall not be construed as prohibiting: (A) The disclosure by a housing government sponsored enterprise, or any director, officer, employee, or agent of a housing government sponsored enterprise of: E:\FR\FM\25FER1.SGM 25FER1 tkelley on DSK3SPTVN1PROD with RULES Federal Register / Vol. 79, No. 37 / Tuesday, February 25, 2014 / Rules and Regulations (1) A SAR, or any information that would reveal the existence of a SAR, to FinCEN or any Federal, State, or local law enforcement agency, or any Federal regulatory authority that examines the housing government sponsored enterprise for compliance with the Bank Secrecy Act; or (2) The underlying facts, transactions, and documents upon which a SAR is based, including but not limited to, disclosures to another housing government sponsored enterprise or a financial institution, or any director, officer, employee, or agent of a housing government sponsored enterprise or financial institution, for the preparation of a joint SAR; or (B) The sharing by a housing government sponsored enterprise, or any director, officer, employee, or agent of the housing government sponsored enterprise, of a SAR, or any information that would reveal the existence of a SAR, within the housing government sponsored enterprise’s corporate organizational structure for purposes consistent with Title II of the Bank Secrecy Act as determined by regulation or in guidance. (2) Prohibition on disclosures by government authorities. A Federal, State, local, territorial, or tribal government authority, or any director, officer, employee, or agent of any of the foregoing, shall not disclose a SAR, or any information that would reveal the existence of a SAR, except as necessary to fulfill official duties consistent with Title II of the Bank Secrecy Act. For purposes of this section, ‘‘official duties’’ shall not include the disclosure of a SAR, or any information that would reveal the existence of a SAR, in response to a request for disclosure of non-public information or a request for use in a private legal proceeding, including a request pursuant to 31 CFR 1.11. (e) Limitation on liability. A housing government sponsored enterprise, and any director, officer, employee, or agent of any housing government sponsored enterprise, that makes a voluntary disclosure of any possible violation of law or regulation to a government agency or makes a disclosure pursuant to this section or any other authority, including a disclosure made jointly with another institution, shall be protected from liability for any such disclosure, or for failure to provide notice of such disclosure to any person identified in the disclosure, or both, to the full extent provided by 31 U.S.C. 5318(g)(3). (f) Compliance. Housing government sponsored enterprises shall be examined by FinCEN or its delegate for compliance with this section. Failure to VerDate Mar<15>2010 16:07 Feb 24, 2014 Jkt 232001 satisfy the requirements of this section may be a violation of the Bank Secrecy Act and of this chapter. (g) Applicability date. This section is effective when an anti-money laundering program required by § 1030.210 of this part is required to be implemented. § 1030.330 Reports relating to currency in excess of $10,000 received in a trade or business. 10377 Subpart F—Special Standards of Diligence; Prohibitions, and Special Measures for Housing Government Sponsored Enterprises §§ 1030.600–1030.670 [Reserved] Dated: February 20, 2014. Jennifer Shasky Calvery, Director, Financial Crimes Enforcement Network. [FR Doc. 2014–04125 Filed 2–24–14; 8:45 am] BILLING CODE 4802–02–P Refer to § 1010.330 of this chapter for rules regarding the filing of reports relating to currency in excess of $10,000 received by housing government sponsored enterprises. Subpart D—Records Required To Be Maintained by Housing Government Sponsored Enterprises § 1030.400 General. Housing government sponsored enterprises are subject to the recordkeeping requirements set forth and cross referenced in this subpart. Housing government sponsored enterprises should also refer to subpart D of part 1010 of this chapter for recordkeeping requirements contained in that subpart that apply to housing government sponsored enterprises. Subpart E—Special Information Sharing Procedures To Deter Money Laundering and Terrorist Activity § 1030.500 General. Housing government sponsored enterprises are subject to special information sharing procedures to deter money laundering and terrorist activity requirements set forth and cross referenced in this subpart. Housing government sponsored enterprises should also refer to subpart E of part 1010 of this chapter for special information sharing procedures to deter money laundering and terrorist activity contained in that subpart that apply to housing government sponsored enterprises. § 1030.520 Special information sharing procedures to deter money laundering and terrorist activity for housing government sponsored enterprises. (a) Refer to § 1010.520 of this chapter. (b) [Reserved] § 1030.530 [Reserved] § 1030.540 Voluntary information sharing among financial institutions. (a) Refer to § 1010.540 of this chapter. (b) [Reserved] PO 00000 Frm 00047 Fmt 4700 Sfmt 4700 ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [EPA–R03–OAR–2011–0927; FRL–9906–67– Region 3] Approval and Promulgation of Air Quality Implementation Plans; Virginia; Prevention of Significant Deterioration and Nonattainment New Source Review; Fine Particulate Matter (PM2.5) Environmental Protection Agency (EPA). ACTION: Final rule. AGENCY: The Environmental Protection Agency (EPA) is approving revisions to the Virginia State Implementation Plan (SIP), submitted by the Virginia Department of Environmental Quality (VADEQ) on August 25, 2011. The revisions pertaining to Virginia’s Prevention of Significant Deterioration (PSD) program are being fully approved. EPA is granting limited approval to the revisions pertaining to Virginia’s nonattainment New Source Review (NSR) program. In both cases, the revisions incorporate preconstruction permitting regulations for fine particulate matter (PM2.5) into the Virginia SIP. In addition, EPA is approving these revisions and portions of other related submissions for the purpose of determining that Virginia has met its statutory obligations with respect to the infrastructure requirements of the Clean Air Act (CAA) which relate to Virginia’s PSD permitting program and are necessary to implement, maintain, and enforce the 1997 8-hour ozone and PM2.5 National Ambient Air Quality Standards (NAAQS), the 2006 PM2.5 NAAQS, and the 2008 lead NAAQS. EPA is approving these revisions in accordance with the requirements of the CAA. A previous PSD program approval of Virginia’s Chapter 80, Article 8 regulations was provided to the Commonwealth as a ‘‘limited approval’’ for reasons that do not impact the SUMMARY: E:\FR\FM\25FER1.SGM 25FER1

Agencies

[Federal Register Volume 79, Number 37 (Tuesday, February 25, 2014)]
[Rules and Regulations]
[Pages 10365-10377]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-04125]

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DEPARTMENT OF THE TREASURY

Financial Crimes Enforcement Network

31 CFR Parts 1010 and 1030

RIN 1506-AB14

Anti-Money Laundering Program and Suspicious Activity Report
Filing Requirements for Housing Government Sponsored Enterprises

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

ACTION: Final rule.

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SUMMARY: FinCEN, a bureau of the Department of the Treasury
(``Treasury''), is issuing this Final Rule

[[Page 10366]]

defining certain housing government sponsored enterprises as financial
institutions for the purpose of requiring them to establish anti-money
laundering programs and report suspicious activities pursuant to the
Bank Secrecy Act. The requirements to establish anti-money laundering
programs and report suspicious activities are intended to help prevent
fraud and other financial crimes.

DATES: Effective Date: This rule is effective April 28, 2014.
Compliance Date: The compliance date for 31 CFR 1030.210 is August
25, 2014.

FOR FURTHER INFORMATION CONTACT: FinCEN Resource Center at (800) 949-
2732.

SUPPLEMENTARY INFORMATION:

I. Background

A. Statutory and Regulatory Provisions

FinCEN exercises regulatory functions primarily under the Currency
and Foreign Transactions Reporting Act of 1970, as amended by the USA
PATRIOT Act of 2001 and other legislation, which legislative framework
is commonly referred to as the ``Bank Secrecy Act'' (``BSA'').\1\ The
BSA authorizes the Secretary of the Treasury (``Secretary'') to require
financial institutions to keep records and file reports that ``have a
high degree of usefulness in criminal, tax, or regulatory
investigations or proceedings, or in the conduct of intelligence or
counterintelligence activities, including analysis, to protect against
international terrorism.'' \2\ The Secretary has delegated to the
Director of FinCEN the authority to implement, administer, and enforce
compliance with the BSA and associated regulations.\3\ FinCEN is
authorized to promulgate anti-money laundering (``AML'') and suspicious
activity report (``SAR'') filing requirements for financial
institutions subject to the BSA.\4\
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\1\ The BSA is codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1959,
18 U.S.C. 1956, 18 U.S.C. 1957, 18 U.S.C. 1960, and 31 U.S.C. 5311-
5314 and 5316-5332 and notes thereto, with implementing regulations
at 31 CFR Chapter X. See 31 CFR 1010.100(e).
\2\ 31 U.S.C. 5311.
\3\ Treasury Order 180-01 (Sept. 26, 2002).
\4\ 31 U.S.C. 5318(g)(1) and 5318(h)(2). 31 U.S.C. 5318(g) was
added to the BSA by section 1517 of the Annunzio-Wylie Anti-Money
Laundering Act, Title XV of the Housing and Community Development
Act of 1992, Public Law 102-550; it was expanded by section 403 of
the Money Laundering Suppression Act of 1994, Title IV of the Riegle
Community Development and Regulatory Improvement Act of 1994, Public
Law 103-325, to require designation of a single government recipient
for reports of suspicious transactions.
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The AML program provisions of the BSA require financial
institutions to establish programs that include, at a minimum: (1) The
development of internal policies, procedures, and controls; (2) the
designation of a compliance officer; (3) an ongoing employee training
program; and (4) an independent audit function to test programs. When
prescribing minimum standards for AML programs, FinCEN must ``consider
the extent to which the requirements imposed under [the AML program
requirement] are commensurate with the size, location, and activities
of the financial institutions to which such regulations apply.'' \5\
The SAR filing provisions of the BSA authorize FinCEN to require any
financial institution, and any director, officer, employee, or agent of
any financial institution to report any suspicious transaction relevant
to a possible violation of law or regulation, and under other specified
circumstances described below.
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\5\ Public Law 107-56 sec. 352(c), 115 Stat. 322, codified at 31
U.S.C. 5318 note.
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FinCEN has promulgated AML program and SAR regulations for a number
of financial institutions. These financial institutions include banks,
casinos, money services businesses, brokers or dealers in securities,
mutual funds, insurance companies, futures commission merchants, and
introducing brokers in commodities and loan and finance companies.\6\
The BSA's definition of ``financial institution'' includes specified
categories of businesses and professions, as well as ``any business or
agency which engages in any activity which the Secretary of the
Treasury determines, by regulation, to be an activity which is similar
to, related to, or a substitute for any activity in which any business
described in [31 U.S.C. 5312(a)(2)(A)-(X)] is authorized to engage.''
\7\ Thus, FinCEN may promulgate regulations for businesses and
professions that are not listed in the statutory definition of
financial institution.\8\
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\6\ 31 CFR 1020.210, 1020.320, 1021.210, 1021.320, 1022.210,
1022.320, 1023.210, 1023.320, 1024.210, 1024.320, 1025.210,
1025.320, 1026.210, 1026.320, 1029.210 and 1029.320.
\7\ 31 U.S.C. 5312(a)(2)(Y).
\8\ 31 U.S.C. 5312(a)(2).
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With this Final Rule, FinCEN establishes AML program and SAR
requirements for the Federal National Mortgage Association (``Fannie
Mae''), the Federal Home Loan Mortgage Corporation (``Freddie Mac''),
and the Federal Home Loan Banks (``Banks'' or ``FHL Banks,''
collectively, the ``Housing GSEs''). FinCEN believes that the Final
Rule will augment FinCEN's regulatory and strategic initiatives. The
Housing GSEs are involved in providing financing to the residential
mortgage market and thus are exposed to the risk of fraud. Although the
business of the Banks differs in a number of respects from that of
Fannie Mae and Freddie Mac, all of the Housing GSEs are involved in
providing financing to the residential mortgage market and thus are
vulnerable to fraud and other financial crimes. Also, both the primary
and secondary residential mortgage markets are vulnerable to fraud and
money laundering in terms of the proceeds of crime being invested in
real property or securitized mortgages and related financial
instruments. By purchasing mortgage loans, extending loans secured by
mortgages and other real estate related collateral, and engaging in a
variety of related financial activities, the Housing GSEs have access
to, and are in a unique position to provide, information on suspected
mortgage fraud and money laundering that has proven valuable to law
enforcement and regulators in the investigation and prosecution of
mortgage fraud and other financial crimes. While current fraud
reporting by the Housing GSEs, discussed below, has value in combating
fraud, the establishment of AML and SAR programs by the Housing GSEs
will enable them to support broader regulatory and law enforcement
efforts to combat mortgage fraud and related financial crimes
consistent with the purposes of the BSA.

B. Establishment and Authority of the Federal Housing Finance Agency
and the Housing GSEs

The Federal Housing Finance Regulatory Reform Act of 2008 (the
``Reform Act'') \9\ created the Federal Housing Finance Agency
(``FHFA'') as an independent agency of the Federal government. FHFA was
established on the date of enactment of the Reform Act, July 30, 2008,
to be the Federal regulator of the Housing GSEs.\10\ FHFA has

[[Page 10367]]

regulatory authority over Fannie Mae, Freddie Mac, and the Banks
(collectively referred to in FHFA regulations as the ``regulated
entities''), and over the Office of Finance of the Federal Home Loan
Bank System.\11\ FHFA is responsible for ensuring that the Housing
GSEs: (1) Operate in a safe and sound manner, including being
capitalized adequately and maintaining internal controls; (2) carry out
their public policy missions; and (3) engage in activities that foster
liquid, efficient, competitive, and resilient national housing finance
markets. Where FHFA has not acted with superseding regulations, the
Housing GSEs continue to operate under regulations promulgated by the
Office of Federal Housing Enterprise Oversight (``OFHEO'') and the
Federal Housing Finance Board (``FHFB'').\12\
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\9\ Division A of the Housing and Economic Recovery Act of 2008
(``HERA''), Public Law 110-289, 122 Stat. 2654 (2008). The Reform
Act provided for the abolishment of the Office of Federal Housing
Enterprise Oversight (``OFHEO'') and the Federal Housing Finance
Board (``FHFB'') one year after the date of enactment. These
agencies were the primary Federal regulators of Fannie Mae and
Freddie Mac, and the Banks, respectively. The agencies, together
with the Housing and Urban Development Government Sponsored
Enterprise Mission Teams, were combined to establish FHFA.
\10\ The authorities, powers, and responsibilities of FHFA are
contained in the Federal Home Loan Bank Act, 12 U.S.C. 1421 et seq.,
as amended by Division A of HERA, and the Federal Housing
Enterprises Financial Safety and Soundness Act of 1992 (``Safety and
Soundness Act''), 12 U.S.C. 4501 et seq., as amended by Division A
of HERA. See Notice of Establishment, 73 FR 52356 (Sept. 9, 2008).
https://www.fhfa.gov/webfiles/160/FHFA_%20Notice_of_Establishment_-_73_FR_52356_(Sept--9%2c--2008).pdf.
\11\ The Housing GSEs are defined as ``regulated entities'' in
the Safety and Soundness Act, as amended, 12 U.S.C. 4501 et seq.,
and implementing regulations at 12 CFR part 1233. The statutory
definition of ``regulated entity'' provides ``[t]he term `regulated
entity' means--(A) the Federal National Mortgage Association and any
affiliate thereof; (B) the Federal Home Loan Mortgage Corporation
and any affiliate thereof; and (C) any Federal Home Loan Bank.'' 12
U.S.C. 4502(20).
\12\ On September 6, 2008, FHFA appointed itself conservator of
Fannie Mae and Freddie Mac, pursuant to 12 U.S.C. 4617. https://www.fhfa.gov/webfiles/1858/NoticeregardingconservatorFNMA.pdf;
https://www.fhfa.gov/webfiles/1857/NoticeregardingconservatorFHLMC.pdf.
---------------------------------------------------------------------------

Congress chartered Fannie Mae and Freddie Mac primarily to
establish secondary market facilities for residential mortgages to
promote access to mortgage credit throughout the nation. Specifically,
Congress established Fannie Mae and Freddie Mac to provide stability in
the secondary market for residential mortgages, respond appropriately
to the private capital market, and provide ongoing assistance to the
secondary market for residential mortgages, including activities
relating to mortgages on housing for low-and moderate-income families
involving a reasonable economic return that may provide less of a
return than Fannie Mae's and Freddie Mac's other activities.\13\
---------------------------------------------------------------------------

\13\ 12 U.S.C. 1451, 1716.
---------------------------------------------------------------------------

The Banks were organized under the Federal Home Loan Bank Act
(``The Bank Act'').\14\ The Banks are financial cooperatives; only
members of a Bank may purchase the capital stock of a Bank, and only
members, and certain eligible housing associates (such as State housing
finance agencies), may obtain access to secured loans, known as
advances, or other Bank products.\15\ Each Bank is managed by its own
board of directors and serves the public interest by enhancing the
availability of residential mortgage and community lending credit
though its member institutions.\16\ Any eligible institution (generally
a Federally-insured depository institution or State-regulated insurance
company) may become a member of a Bank if it satisfies certain criteria
and purchases a specified amount of the Bank's capital stock.\17\ The
Bank Act also requires each Bank to establish an affordable housing
program and contribute a specified portion of its previous year's net
income to support that program.\18\
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\14\ 12 U.S.C. 1423, 1432(a).
\15\ 12 U.S.C. 1426(a)(4), 1430(a), 1430b.
\16\ 12 U.S.C. 1427.
\17\ 12 U.S.C. 1424; 12 CFR 1263.
\18\ 12 U.S.C. 1430(j).
---------------------------------------------------------------------------

On January 27, 2010, FHFA issued fraud reporting regulations,
codified at 12 CFR part 1233, ``Reporting of Fraudulent Financial
Instruments,'' to implement the provisions of the Safety and Soundness
Act with respect to the discovery and reporting of fraud, in
furtherance of the supervisory responsibilities of FHFA.\19\ That
regulation requires each Housing GSE to submit timely information on
actual or possible fraud on all Housing GSE programs and products,\20\
including, but not limited to a timely report to FHFA upon discovery
that it has purchased or sold a fraudulent loan or financial
instrument, or if the Housing GSE suspects a possible fraud relating to
the purchase or sale of any loan or financial instrument. As discussed
infra, certain parts of FHFA reporting format are based upon FinCEN's
SAR format. The regulation, and associated guidance subsequently
published by FHFA,\21\ requires each Housing GSE to establish and
maintain internal controls, policies, procedures, and operational
training programs, and designate a fraud officer to oversee
implementation and periodic monitoring (at least annually) of the fraud
reporting program.
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\19\ 75 FR 4255 (Jan. 27, 2010).
\20\ 75 FR 4255, 4258-4259.
\21\ RPG-2011-001 (March 2011), https://www.fhfa.gov/webfiles/20685/FHFAFraudReportingGuidance32011.pdf.
---------------------------------------------------------------------------

C. Summary of the Proposed Regulations

On November 8, 2011, FinCEN issued a Notice of Proposed Rulemaking
(``NPRM'') to solicit comments on proposed AML and SAR regulations for
the Housing GSEs.\22\ The proposed rules contained standards and
requirements that are substantially identical to those in FinCEN's AML
and SAR regulations for banks, mortgage companies, and other financial
institutions that offer retail consumer banking services and mortgage
loans.
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\22\ 76 FR 69204.
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This Final Rule is based on the NPRM and adopts, without
significant change, all of the regulatory provisions proposed in the
NPRM. The AML regulation promulgates the four minimum requirements
noted earlier. The SAR regulation requires reporting of suspicious
activity in accordance with the standards and procedures specified in
the NPRM and contained in all of FinCEN's SAR regulations.\23\ The
Final Rule does not require the Housing GSEs to comply with any other
BSA reporting or recordkeeping regulations, such as currency
transaction reporting.\24\
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\23\ See, e.g., SAR regulations for non-bank residential
mortgage lenders and originators at 31 CFR 1029.320. https://www.fincen.gov/redirect.html?url=https://www.gpo.gov/fdsys/pkg/FR-2012-02-14/pdf/2012-3074.pdf.
\24\ 31 CFR 1010.310.
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FinCEN believes that much of the effort necessary to meet these
regulatory obligations, including information gathering, may be
accomplished through business operations already undertaken as part of
normal transaction negotiation, including due diligence and review of
mortgage loans and related assets for purchase and securitization, and
as collateral for advances and other investments, products, and
services. As described in more detail below, the Housing GSEs have been
filing SAR-like reports with FHFA for a number of years, and in other
respects have supported the anti-fraud and anti-money laundering
efforts of various law enforcement and regulatory agencies. FinCEN
believes the Final Rule will enhance and strengthen the Housing GSEs'
critical role in government and industry efforts to protect consumers,
mortgage finance businesses, and the U.S. financial system from
mortgage fraud, money laundering, and other financial crimes.

II. Notice of Proposed Rulemaking

The comment period on the NPRM ended on January 9, 2012. FinCEN
received five comments. Comments were submitted by a Federal government
agency (two letters), a trade association, representatives of some of
the Housing GSEs, and a Federal government anti-fraud task force.\25\
The

[[Page 10368]]

supporting comments emphasized the value of streamlining the current
process under which SAR information from the Housing GSEs reaches
FinCEN, and the substantial value of SARs predicted to cover a broader
range of suspected financial crimes. FHFA has expressed strong support
for FinCEN issuing AML and SAR regulations for the Housing GSEs. The
public comments that expressed some opposition to the NPRM were based
primarily on speculation that compliance costs and burdens would
outweigh any potential benefits to law enforcement, and on the view
that the current FHFA fraud reporting requirements are sufficient to
support broad based government anti-fraud and anti-money laundering
efforts.
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\25\ In addition, FHFA's comment letter states that it
``encompasses issues relating to'' Freddie Mac and Fannie Mae, as
well as FHFA's perspective as the regulator of the Housing GSEs.
---------------------------------------------------------------------------

A. Housing GSEs Defined as Financial Institutions

As noted in the NPRM, the BSA does not expressly identify any of
the Housing GSEs in its definition of ``financial institution.'' The
BSA's definition of financial institution lists numerous types of
businesses, including commercial banks and other depository
institutions.\26\ The definition also includes a ``catch-all''
provision that authorizes the Secretary to include additional types of
businesses if the Secretary determines, by regulation, that they engage
in any activity ``similar to, related to, or a substitute for'' any
activity of any of the listed businesses.\27\
---------------------------------------------------------------------------

\26\ 31 U.S.C. 5312(a)(2) and (c)(1). The BSA definition
includes financial institutions subject to the regulations of a
Federal functional regulator, such as banks, savings associations,
credit unions, securities broker-dealers, and futures commission
merchants. The BSA definition also includes dealers in precious
metals, stones, or jewels; money services businesses (such as money
transmitters and currency exchanges); pawnbrokers; loan and finance
companies; private bankers; insurance companies; travel agencies;
telegraph companies; sellers of vehicles, including automobiles,
airplanes, and boats; persons engaged in real estate closings and
settlements; investment bankers; investment companies; and commodity
pool operators and commodity trading advisors that are registered or
required to register under the Commodity Exchange Act (7 U.S.C. 1,
et seq.).
\27\ 31 U.S.C. 5312(a)(2)(Y).
---------------------------------------------------------------------------

The Housing GSEs work closely with other BSA-defined financial
institutions; in fact, the majority of the Housing GSEs' counterparties
and members are commercial banks, thrifts, credit unions, and insurance
companies. Many of the products and services offered by the Housing
GSEs can be viewed as substitutes for or related to products and
services offered by commercial banks and nonbank financial institutions
included in the BSA's definition of financial institution.
The main role of the Housing GSEs is to support the primary
mortgage market and affordable housing through the purchase, guarantee,
and securitization of mortgage loans and the extension of loans secured
primarily by mortgage loans and real estate related assets. The Banks
also provide grants or subsidies for affordable housing and community
investment. Typically, a significant portion of these mortgage loans
are made by commercial banks, credit unions, and savings and loan
associations, which are already financial institutions under the BSA
and subject to FinCEN's regulations.\28\ Some of the Banks also have
acquired member asset programs whereby they acquire fixed-rate, single-
family mortgage loans from participating member institutions, which
also are generally commercial banks or other depository institutions
already included within the BSA's definition of financial institutions.
Thus, FinCEN believes that the Housing GSEs engage in activities that
are ``similar to, related to, or a substitute for'' financial services
that are provided by other BSA-defined financial institutions. For this
reason, FinCEN hereby exercises its authority under 31 U.S.C.
5312(a)(2)(Y) to define the Housing GSEs as financial institutions.
---------------------------------------------------------------------------

\28\ 31 U.S.C. 5312(a)(2).
---------------------------------------------------------------------------

One commenter noted that Congress enacted Section 1115 of the
Housing and Economic Recovery Act of 2008 (``HERA''),\29\ which
required FHFA to promulgate the fraud reporting regulations at 12 CFR
1233, without adding the Housing GSEs to the list of financial
institutions in the BSA, or otherwise requiring the Housing GSEs to
comply with FinCEN or FHFA regulations that would require AML and SAR
programs. The commenter urged FinCEN to ``presume that Congress acted
intentionally where it specifically adds language to one statute over
another.'' The commenter further stated that ``[I]f Congress had
intended for the [Housing] GSEs to be considered financial institutions
under the BSA, then the statute would have been amended to specifically
include the [Housing] GSEs. Rather, Congress enacted separate anti-
fraud requirements in HERA that are unique to the FHLBank's wholesale
business structure.''
---------------------------------------------------------------------------

\29\ See notes 9 and 10.
---------------------------------------------------------------------------

FinCEN is not persuaded by the commenter's analysis regarding
Congress's intent, or by the commenter's interpretation of the BSA.
Rather, FinCEN believes that Congress enacted the ``catch-all''
provision at 31 U.S.C. 5312(b)(2)(Y) in order to give the Secretary and
his delegate, FinCEN, the discretion, in future regulatory actions, to
add businesses and professions to the statutory list of financial
institutions, and thereby make them subject to certain provisions of
the BSA.\30\ FinCEN believes that neither Congress, nor any other
legislative or regulatory body, would be able to list all of the types
of businesses that may be vulnerable to money laundering for all time.
As businesses evolve, so do the criminal schemes designed to exploit
them for illegal financial gain. The ``catch-all'' provision implicitly
recognizes this fact, and gives FinCEN discretion to determine the
types of businesses that should become subject to regulations
implementing the BSA.
---------------------------------------------------------------------------

\30\ See note 7.
---------------------------------------------------------------------------

The scope of the Final Rule is limited. It defines the Housing GSEs
as ``financial institutions'' under 31 U.S.C. 5312(a)(2)(Y) for the
purposes of requiring them to establish AML programs and report
suspicious activities, as well as allow them to participate in special
information sharing procedures to deter money laundering and terrorist
activity. The term ``Housing government sponsored enterprise'' is added
as a new defined term at 31 CFR 1010.100(mmm) for these purposes.
Notably, the Final Rule does not amend the general definition of
``financial institution'' under FinCEN's regulations at 31 CFR
1010.100(t) because adding Housing GSEs to the general definition would
trigger other recordkeeping and reporting requirements that FinCEN does
not consider appropriate for the Housing GSEs at this time.

B. AML Program and SAR Filing Requirements

Under this Final Rule, the Housing GSEs are required to establish
and maintain AML programs, and to file SARs directly with FinCEN, as of
the regulatory compliance date. As emphasized in the NPRM, FinCEN does
not expect the transition to compliance with the Final Rule to be
unreasonably difficult or costly, primarily because the Housing GSEs
already are required to have policies, management oversight, personnel
training, and internal compliance review and various procedures and
systems in place to comply with FHFA's current fraud reporting
regulation and guidance.\31\ These programmatic features are
substantively very similar to those required in all AML regulations
issued by FinCEN. Moreover, pursuant to the terms of a Memorandum of

[[Page 10369]]

Understanding (``MOU'') between FinCEN and FHFA, the Housing GSEs have
been filing separate reports with FHFA regarding suspicions of fraud,
using technical specifications provided by FinCEN, in accordance with
FHFA's guidance. FHFA, in turn, has provided this information to FinCEN
in the form of SARs (albeit regarding a narrower range of suspicious
activity than is covered in FinCEN's typical SAR regulations).\32\ FHFA
agrees that this indirect reporting structure should be restructured to
better support the needs of law enforcement and extend the benefit of
the BSA's ``safe harbor'' to the Housing GSEs. FHFA also agrees that a
direct reporting structure from the Housing GSEs to FinCEN would be
more streamlined than the current practice because direct reporting
would, in part, eliminate the burden created by the significant effort
FHFA devotes to providing information received from the Housing GSEs
and filing to FinCEN as SARs.
---------------------------------------------------------------------------

\31\ See notes 19, 20, and 21.
\32\ The first MOU governing this separate fraud reporting
arrangement was executed in May 2006 between FinCEN and FHFA's
predecessor agency, OFHEO, which established the requirements
applicable to Fannie Mae and Freddie Mac. A superseding MOU, with
most of the same provisions, was executed by FinCEN and FHFA in July
2010, which established the requirements for Fannie Mae and Freddie
Mac, as well as the 12 Federal Home Loan Banks. The Housing GSEs are
required to use a data template that ``complies with the technical
specifications set forth by FinCEN for the [SAR] report for
depository institutions.'' See paragraph II.B.3. of FHFA's guidance
on fraud reporting, referenced in note 21.
---------------------------------------------------------------------------

The indirect reporting structure is inadequate to support the needs
of law enforcement because reports are not available to law enforcement
with the same speed they would be if they were filed directly.
Additionally, law enforcement does not have the same ease of access to
the records supporting any report filed by the Housing GSEs with FHFA
as it would if the reports were filed directly with FinCEN under the
obligations of the BSA. Direct filing by the Housing GSEs will result
in a wider range of information made available to law enforcement more
promptly. Finally, the indirect reporting structure does not allow the
Housing GSEs to avail themselves of the BSA's ``safe harbor.'' The
current reporting regime required by FHFA has its own ``safe harbor,''
but does not cover the same range of reporting as the BSA safe harbor,
nor does it offer the same broad protection.
The comments on the NPRM primarily focused on the potential
benefits, costs, and burdens of implementing the AML program and SAR
filing requirements proposed in the NPRM. Three of the comments express
the view that the Housing GSEs have limited access to useful SAR
information about specific retail mortgage finance transactions. Two of
these comments also stated that: (1) The current FHFA fraud reporting
requirements are sufficient to support law enforcement, and any FinCEN
SAR requirement would yield little, if any, additional useful
information not already obtained by FHFA; (2) any new SAR requirement
would result in duplicative SAR filings on the same suspicious
activity, such as one report from a retail bank or non-bank mortgage
company, and one report from the Housing GSE; and (3) any new AML and
SAR regulations would require the Housing GSEs, particularly the Banks,
to implement new detection, monitoring, and reporting practices,
controls and systems, and possibly modify existing business models. In
their view, the potential costs and burdens associated with any new AML
or SAR regulations would not result in any corresponding substantial or
justifiable benefit to law enforcement and regulators.
The three previously referenced comments cautioned that the Housing
GSEs have limited interactions with parties to a primary market
mortgage loan transaction (i.e., the lender, the borrower and various
persons typically engaged in closing a primary purchase, refinance or
home equity loan transaction) and, therefore, the Housing GSEs have
limited access to information on the borrower's qualifications, the
terms and circumstances regarding the loan, and other transaction-
related information typically included in a SAR. Two of these comments
also express the view that, due to the Banks' limited access to
transactional information, extending AML and SAR requirements to the
Housing GSEs, particularly the Banks, will not provide law enforcement
with access to information on fraud related or non-fraud related money
laundering or other financial crimes that FHFA does not already receive
under the current FHFA reporting regime. These two comments further
stated that the Banks, in particular, would likely need to restructure
their current business practices, systems, and models to ``peer
through'' their wholesale transactions and obtain information usually
gathered at the origination stage to a greater extent than their
current business practices and systems accomplish. The comments
therefore urged that any new FinCEN AML or SAR requirements should not
require the acquisition of transaction information that is not already
obtained by the Housing GSEs in the ordinary course of business under
current practices. One comment specifically requested that FinCEN
confirm that any new AML and SAR rules will not require the Banks to
establish new IT monitoring or data-mining systems of the kind adopted
by higher risk institutions engaged in retail banking.
The comments further stated that the current FHFA fraud reporting
regulations and guidance are sufficient to provide law enforcement and
regulators with information necessary to investigate and prosecute
mortgage fraud and fraud related money laundering and other financial
crimes typically associated with residential mortgage transactions, and
that FinCEN's AML and SAR program requirements therefore are
unnecessary.
One comment stated that the rules proposed in the NPRM would
require the Banks to duplicate the efforts of ``99 percent'' of the
Banks' customer base (i.e., retail banks and other insured depository
institutions, all of whom already have a SAR filing obligation under
applicable FinCEN and Federal banking regulations), thus resulting in
overlapping or duplicative SAR reports on the same suspicious activity.
One of the comments that generally supported the NPRM nonetheless
cautioned that the proposed rules could result in ``unintended
consequences.'' The comment noted, as an example of an unintended
consequence, the likelihood of duplicative, overlapping requirements
and SAR filings. One comment concluded simply that the potential
additional benefits to law enforcement ``appear to be minimal.''
The comments noted that the Banks already have expended significant
time and resources on establishing and maintaining policies,
procedures, systems and employee training to comply with FHFA's fraud
reporting requirements. The comments concluded that FHFA requirements,
and the programs established to comply with them, should be given time
to ``mature.'' The comments expressed the view that any new rules
should be issued only if it becomes evident that the current FHFA fraud
reporting regime is determined to be inadequate. FinCEN believes the
addition of the Housing GSEs within FinCEN's framework for SAR
reporting will be the most efficient overall approach.
In the NPRM, FinCEN requested comment on whether it would be
appropriate to include in a Final Rule any provisions that account for
the differences in the business, operation, and mission of the Banks
and Fannie Mae and Freddie Mac. Three comments

[[Page 10370]]

noted that the practices followed by Freddie Mac and Fannie Mae in
connection with due diligence on loan pools, and related consideration
of credit, interest rate, and operational risks, differ from those
followed and considered by the Banks in connection with examination of
loans and other assets as collateral for advances. Two comments stated
that if FinCEN goes forward with final rules, FinCEN should take into
account the differences in business models and practices of the Banks,
on the one hand, and those of Fannie Mae and Freddie Mac, on the other.
One comment urged that the requirements and standards in any final
rules should be abbreviated and streamlined for the Banks, again
arguing that the Banks generally do not obtain detailed borrower and
transaction related information from their retail banking members in
the ordinary course of business. Three comments, including one from
FHFA, also urged that any final rules should be ``phased-in'' to give
the Housing GSEs sufficient time to make changes to policies,
procedures, systems, and business practices that would be deemed
appropriate to comply with the Final Rule, and FinCEN's new uniform SAR
requirements mandated on July 1, 2012.\33\
---------------------------------------------------------------------------

\33\ 77 FR 12367 (Feb. 29, 2012).
---------------------------------------------------------------------------

The comments that supported the NPRM expressed opinions and
conclusions largely contrary to those expressed in the comments
summarized above. The supporting comments highlight the following
benefits, among others, of the rules proposed in the NPRM: (1) The new
SAR rules, by requiring the Housing GSEs to file SARs directly with
FinCEN, will enhance FinCEN's database, reduce burdens on government
resources, and strengthen the mortgage fraud prevention programs and
initiatives of the Housing GSEs and FinCEN; (2) the rules will give law
enforcement and regulators quicker access to SAR information that is
critical to investigations, and keep them better informed about
evolving criminal schemes; (3) the rules will enhance coordination on
analysis and investigations by FinCEN, FHFA, FHFA-OIG, and other law
enforcement authorities on the Federal, State, and local levels that
have access to FinCEN's BSA database; and (4) the AML rules will
bolster HERA's reporting requirement, which likely will result in
better information for investigations and enforcement actions. FinCEN
finds these views persuasive and believes the Final Rules will support
Administration and government efforts to combat mortgage fraud and
other financial crimes.
FinCEN believes that both the AML program and SAR filing
requirements are necessary and appropriate for the Housing GSEs and
other businesses involved in mortgage finance, in order to give law
enforcement and regulatory agencies valuable, timely information on
specific instances of suspected mortgage fraud and mortgage finance
related money laundering, as well as provide insight into emerging
patterns of regional and national criminal activity. The information
from SARs and other BSA-related information assists law enforcement and
regulators with the development of their strategic goals and policies,
as well as with the deployment of valuable resources to high crime
areas.
FHFA's fraud reporting program is important in that it allows FHFA
to both monitor the Housing GSEs' success in identifying fraud and
mitigate attendant risks, and assess the impact that involvement in
such transactions may have on the Housing GSEs' operational risks and
overall safety and soundness. FHFA's reporting system, however, was not
designed to support the multi-jurisdictional and inter-governmental
investigations, prosecutions, and trend analyses that rely on SAR data
and other BSA-related information in FinCEN's databases. Only FinCEN,
as the nation's financial intelligence unit and administrator of the
BSA, has the authority and resources to collect, analyze, and
disseminate this vast amount of information to its Federal, State, and
local law enforcement and regulatory partners securely and
confidentially. The BSA and FinCEN's implementing regulations also
permit sharing of primary and secondary mortgage market transactional
information, in a secure and confidential manner, among financial
institutions that enroll in FinCEN's 314(b) program.\34\ These
functions cannot be accomplished by FHFA, or any other government
agency, under current Federal and State laws and regulations. The
faster that information from the Housing GSEs makes its way into the
BSA database, the sooner FinCEN and other agencies will be able to
access that information to support investigations and enforcement
actions related to money laundering, fraud, and other financial crimes.
---------------------------------------------------------------------------

\34\ See discussion in section III.E. regarding FinCEN's special
information sharing regulations applicable to the Housing GSEs and
other financial institutions.
---------------------------------------------------------------------------

FinCEN expects there will be transactions involving the Housing
GSEs with respect to which two or more SARs will be submitted to FinCEN
concerning the same transaction or activity, and in this respect, the
SARs arguably may be viewed as ``duplicative'' or ``overlapping.'' For
example, one SAR may be submitted by the retail-level originator or
lender, and one ``overlapping'' SAR by a Housing GSE regarding the same
transaction or activity. Based on the SARs filed to date under the MOU
between FinCEN and FHFA, FinCEN believes a number of these
``overlapping'' SARs likely will concern a specific loan or loan pool
repurchased by the originating institution upon the request of the
Housing GSE, pursuant to the terms of the Housing GSE's contract with
the originating institution or servicer. For example, a contract may
permit a Housing GSE to demand repurchase upon discovery by the Housing
GSE, a loan servicer, the originating institution, or a combination of
these or other financial professionals, of loan related fraud or
delinquency, including payment default, borrower misrepresentation, or
some irregularity or discrepancy in the appraisal or loan
documentation. The SAR forms, however, also may contain non-overlapping
information and--in any event--will reflect the unique perspective and
analyses of the two, or more, SAR filers. The availability of different
data presented from different business perspectives by organizations
with different, but complementary, roles in mortgage finance may be
useful for law enforcement to gain a more comprehensive understanding
of the transaction and its circumstances. FinCEN views this consequence
of the existence of parallel reporting requirements for banks, non-bank
residential mortgage lenders and originators, and Housing GSEs as a
significant potential advantage to law enforcement and regulators that
justifies the relatively minor additional costs and burdens to be borne
by the Housing GSEs. This view is further confirmed by FinCEN's broad
experience in requiring SAR reporting from a range of financial
institutions, a small percent of which may contain reporting of
partially overlapping information, but which together add significant
value.
FinCEN's issuance of final AML and SAR rules for non-bank
residential mortgage lenders and originators emphasized the critical
importance of institutions establishing an AML program and filing SARs
in order to prevent and identify mortgage fraud and other financial
crimes.\35\ FinCEN

[[Page 10371]]

expressed its view that the establishment of a complete AML program is
essential for institutions to have an effective SAR filing program.
Each of the ``four pillars'' of an AML program is critical to holding
up the overall structure of the program. It would be difficult to
expect useful SAR reporting without the pillars of an AML program
firmly in place. FinCEN's regulations are structured to ensure that
financial institutions are knowledgeable of risks and vigilant against
fraud and other crimes. All of FinCEN's AML regulations require covered
institutions to implement risk-based programs that take into account
the unique risks associated with that particular institution's products
and services, as well as the institution's size, market, and other
issues. Thus, each Housing GSE's AML program would necessarily be
different than those of other Housing GSEs with different business
models and practices, as well as different product, geographic, and
other risks. As a result, FinCEN believes that the AML regulations in
this Final Rule inherently recognize the differences in the business
models and practices of the Banks, Fannie Mae, and Freddie Mac, and
that separate regulatory requirements for the Banks, on the one hand,
and Fannie Mae and Freddie Mac, on the other, are unnecessary.\36\
Under a risk-based approach to implementation of the Final Rule, FinCEN
expects prevention of money laundering and other financial crimes, such
as mortgage fraud, to be key goals underlying the various policies and
procedures in an effective AML program for each Housing GSE. Therefore,
the AML regulation proposed in the NPRM is adopted in this Final Rule
without significant changes.
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\35\ 31 CFR part 1029; 77 FR 8148 (Feb. 14, 2012).
\36\ FHFA is required, when issuing any regulation or guidance,
to consider differences between the Banks and the Enterprises
(Fannie Mae and Freddie Mac). FHFA also acknowledged in its
regulatory policy guidance (RPG-2011-001) that it expects fraud
detection and reporting controls, ``should be more expansive when a
financial instrument is owned or guaranteed versus when a financial
instrument serves as collateral.'' III.A., p.9.
---------------------------------------------------------------------------

FinCEN believes it is important to highlight the value of SARs that
will be filed by the Housing GSEs. As one comment noted, law
enforcement agencies have advised FinCEN and FHFA that SARs from the
Housing GSEs under the present MOU procedures are very useful in the
investigation and prosecution of financial crimes. Filing SARs directly
with FinCEN will increase the speed and ease with which law enforcement
and regulators can access and utilize the information contained in
those valuable SARs. Finally, FinCEN's SAR database has been a ``one-
stop'' integrated system for law enforcement and regulator access to
valuable information on suspected financial crimes. It is appropriate,
efficient, and consistent with FinCEN's statutory mandate to
consolidate all suspicious activity reports from financial institutions
in the database where they can be of the most value.\37\
---------------------------------------------------------------------------

\37\ 31 U.S.C. 310.
---------------------------------------------------------------------------

As FinCEN explained in the NPRM, the new SAR regulations will
require the reporting of a potentially broader range of financial
crimes than under FHFA's fraud reporting regulations. This, along with
the ability to share information among the Housing GSEs and with other
financial institutions, may well result in the Housing GSEs filing more
SARs than fraud reports filed pursuant to FHFA's regulations. FinCEN
also acknowledges that limited access to transactional information of a
residential mortgage loan may limit the ability of a Housing GSE to
include in a SAR all of the information typically found in a SAR filed
by a retail bank or mortgage company. FinCEN expects that some of the
Housing GSEs may need to establish new, or modify existing, policies,
procedures, systems, organizational controls, or employee training
arrangements. Nonetheless, FinCEN believes that these changes, and any
related investments, will not need to be as extensive as some of the
comments suggest, and that a substantial part of the new suspicious
activity reporting and AML program requirements of this Final Rule may
be integrated into existing procedures, controls, systems, and training
programs with relatively minor costs. FinCEN emphasizes that each
Housing GSE already has established procedures, systems, and controls
to submit reports to FHFA when a Housing GSE discovers it has purchased
or sold a fraudulent loan or financial instrument (e.g., a mortgage-
backed security), or suspects a possible fraud relating to the purchase
or sale of any loan or financial instrument. Under FHFA's guidance and
the MOU, FHFA then transmits some of these reports to FinCEN using a
SAR.\38\
---------------------------------------------------------------------------

\38\ See note 21 regarding FHFA Fraud Reporting Guidance,
section II.B.3.
---------------------------------------------------------------------------

FinCEN believes that new investment in elaborate, expensive systems
will not be necessary for the Banks, Freddie Mac, or Fannie Mae to
comply with the Final Rule. For those Banks that anticipate the need to
submit a relatively low number of SARs, they may establish procedures
to submit individual SARs via FinCEN's established Web-based electronic
system, which does not require acquisition of any new systems or
modifications to systems used to comply with FHFA filing requirements.
FinCEN and other agencies have issued substantial guidance on the
development of risk-based AML and SAR reporting programs.\39\ FinCEN
believes the Housing GSEs may build on their existing risk management
procedures and prudential business practices to ensure compliance with
this Final Rule with minimal cost. In sum, FinCEN believes that the
Final Rule does not impose significant costs on the Housing GSEs.
---------------------------------------------------------------------------

\39\ See, e.g., Guidance--Preparing a Complete and Sufficient
Suspicious Activity Report Narrative (including related PowerPoint
Presentation--Keys to Writing a Complete and Sufficient SAR
Narrative), Nov. 2003, https://www.fincen.gov/statutes_regs/guidance/html/narrativeguidance_webintro.html; Guidance--
Suggestions for Addressing Common Errors Noted in Suspicious
Activity Reporting, Oct. 10, 2007, https://www.fincen.gov/statutes_regs/guidance/html/SAR_Common_Errors_Web_Posting.html;
Guidance--Suspicious Activity Report Supporting Documentation, June
13, 2007 (FIN-2007-G003), https://www.fincen.gov/statutes_regs/guidance/html/Supporting_Documentation_Guidance.html The SAR
Activity Review--Trends, Tips and Issues (Issue 16), Oct. 2009,
Section 4, Law Enforcement Suggestions When Preparing Suspicious
Activity Reports, p. 45., https://www.fincen.gov/statutes_regs/guidance/html/narrativeguidance_webintro.html. See also NPRM, note
45.
---------------------------------------------------------------------------

FinCEN also wishes to emphasize that, by the designation of the
Housing GSEs as ``financial institutions'' under the BSA, the Housing
GSEs, as well as their directors, officers, employees, and agents, are
covered by the BSA's liability safe harbor for financial institutions
that file SARs.\40\ This safe harbor is intended to encourage financial
institutions to report suspicious activities, even if, as here, the SAR
regulation will likely require reporting of a wider range of suspected
fraud, money laundering, and financial crimes related to the products
and services offered by the Housing GSEs than those entities may
currently be accustomed to report.
---------------------------------------------------------------------------

\40\ 31 U.S.C. 5318(g)(3).
---------------------------------------------------------------------------

III. Section-by-Section Analysis

A. Definition of Housing Government Sponsored Enterprise

Section 1010.100(mmm) defines the key terms used in the Final Rule.
The definitions reflect FinCEN's determination that AML program and SAR
requirements should be applied to the Housing GSEs. The definition of
``Housing government sponsored enterprise'' includes: (1) The Federal
National Mortgage Association; (2) the Federal Home Loan Mortgage
Corporation; and (3) each Federal Home

[[Page 10372]]

Loan Bank. The definition does not include any entity-affiliated party
\41\ of Fannie Mae, Freddie Mac, or any Bank, including the Office of
Finance of the Federal Home Loan Bank System.
---------------------------------------------------------------------------

\41\ 12 U.S.C. 4502(11).
---------------------------------------------------------------------------

B. Compliance and Enforcement

Section 1010.810(b)(10) delegates authority to examine the Housing
GSEs for compliance with the requirements of this Final Rule to FHFA.
FHFA is the Federal regulator for the Housing GSEs and enforces its own
statutes and regulations regarding safety and soundness. FHFA is
FinCEN's delegate for examination for compliance with FinCEN's
regulations. FinCEN will work with FHFA to coordinate and direct such
delegated compliance examination activities. FinCEN retains enforcement
authority under the BSA, including for the imposition of civil
penalties for violations of these regulations.

C. Anti-Money Laundering Program

Section 1030.210(a) requires each Housing GSE to develop and
implement an AML program reasonably designed to prevent the Housing GSE
from being used to facilitate money laundering or the financing of
terrorist activities, and other financial crimes, including mortgage
fraud. The program must be in writing and must be approved by senior
management. A Housing GSE's written program also must be made available
to FinCEN upon request.
Section 1030.210(b) sets forth the minimum requirements of a
Housing GSE's AML program. Beyond these minimum requirements, however,
the Final Rule is intended to give Housing GSEs the flexibility to
design their programs to mitigate their own specific risks. Section
1030.210(b)(1) requires the AML program to incorporate policies,
procedures, and internal controls based upon the Housing GSE's
assessment of the risks of money laundering, terrorism finance, and
other financial crimes associated with its products, counterparties,
distribution channels, and geographic locations. A Housing GSE's
assessment of counterparty-related information is a key component to an
effective AML program. Thus, a Housing GSE's AML program must ensure
that the Housing GSE obtains the information necessary to make its AML
program effective. Such information may, but is not required to,
include relevant information on individual borrowers and the financial
institutions that are the Housing GSE's counterparties or members. The
specific means of obtaining such information is left to the discretion
of the Housing GSE.
In the NPRM, FinCEN stated that it anticipated that the Housing
GSEs may need to amend existing agreements to ensure that they receive
necessary customer information. Upon consideration of the comments on
the NPRM, FinCEN highlights that amendment of agreements may not be
necessary, and FinCEN emphasizes that the Final Rule does not require
such amendments. However, the determination whether agreements may need
amendment is a matter that the Housing GSEs' management should consider
in assessing risks associated with products and services subject to the
AML and SAR requirements. The AML program requirement does not obligate
the Housing GSEs to obtain information that they do not already receive
in the ordinary course of business under current practices,
particularly with regard to information on individual borrowers the
Housing GSEs do not receive in the ordinary course of business. For
purposes of making the required risk assessment, a Housing GSE must
consider all relevant information that is currently available to them,
including whether the retail financial institutions that are its
customers are subject to AML program requirements under the BSA.
Policies, procedures, and internal controls also must be reasonably
designed to ensure compliance with BSA requirements. Housing GSEs may
conduct some of their operations through third parties. Some elements
of the compliance program may best be performed by personnel of such
third parties, in which case it is permissible for a Housing GSE to
delegate contractually the implementation and operation of those
aspects of its AML program to such an entity, and to rely on the
compliance program of such third parties if the third parties are
subject to an independent AML program requirement under the BSA. Any
Housing GSE that delegates responsibility for aspects of its AML
program to a third party, however, remains fully responsible for the
effectiveness of the program, as well as ensuring that examiners are
able to obtain information and records relating to the AML program.
Section 1030.210(b)(2) requires that a Housing GSE designate a
compliance officer to be responsible for administering the AML program.
The person should be competent and knowledgeable regarding BSA
requirements and money laundering and fraud issues and risks, and
should be empowered with full responsibility and authority to develop
and enforce appropriate policies and procedures. The role of the
compliance officer is to ensure that (1) the program is implemented
effectively; (2) the program is updated as necessary; and (3)
appropriate persons are trained and educated in accordance with section
1030.210(b)(3).
Section 1030.210(b)(3) requires that a Housing GSE provide for
education and training of appropriate persons. Employee training is an
integral part of any AML program. To carry out their responsibilities
effectively, employees of a Housing GSE (and of any third party not
already receiving training as part of another AML program requirement)
with responsibility under the program must be trained in the
requirements of the Final Rule and money laundering and fraud risks
generally so that they can identify red flags associated with existing
or potential customers and transactions. Such training may be conducted
by outside or in-house seminars, and may include computer-based
training. The nature, scope, and frequency of the education and
training program of the Housing GSE will depend upon the employee
functions performed. However, those with obligations under the AML
program must be sufficiently trained to carry out their
responsibilities effectively. Moreover, these employees should receive
periodic updates and refreshers regarding the AML program.
Section 1030.210(b)(4) requires that a Housing GSE provide for
independent testing of the program on a periodic basis to ensure that
it complies with the requirements of the Final Rule and that the
program functions as designed. An outside consultant or accountant need
not perform the testing and review. The review may be conducted by an
officer, employee or group of employees, so long as the reviewer is not
the designated compliance officer and does not report directly to the
compliance officer. The frequency of the independent testing will
depend upon the Housing GSE's assessment of risks posed by its
operations. Any recommendations resulting from such testing should be
reviewed by senior management. A Housing GSE may also rely on the
testing performed by third parties that are subject to an independent
AML program requirement. Section 1030.210(c) states that compliance
with the AML program requirements will be determined by FinCEN or its
delegate.

D. Reports of Suspicious Transactions

Section 1030.320(a) contains the rules setting forth the obligation
of Housing

[[Page 10373]]

GSEs to report suspicious transactions that are conducted or attempted
by, at, or through a Housing GSE and involve, independently or in the
aggregate, at least $5,000 in funds or other assets. It is important to
recognize that transactions are reportable under this Final Rule and 31
U.S.C. 5318(g) regardless of whether they involve currency. The $5,000
minimum amount is consistent with existing SAR filing requirements for
other financial institutions.
Section 1030.320(a)(1) contains the general statement of the
obligation to file reports of suspicious transactions. The obligation
extends to transactions conducted or attempted by, at, or through a
Housing GSE. The Final Rule also contains a provision in section
1030.320(a)(1) designed to encourage the reporting of transactions that
appear relevant to violations of law or regulation, even in cases in
which the Final Rule does not explicitly so require, such as in the
case of a transaction falling below the $5,000 threshold.
Section 1030.320(a)(2) specifically describes the four categories
of transactions that require reporting. A Housing GSE is required to
report a transaction if it knows, suspects, or has reason to suspect
that the transaction (or a pattern of transactions of which the
transaction is a part): (i) Involves funds derived from illegal
activity or is intended or conducted to hide or disguise funds or
assets derived from illegal activity; (ii) is designed, whether through
structuring or other means, to evade the requirements of the BSA; (iii)
has no business or apparent lawful purpose, and the Housing GSE knows
of no reasonable explanation for the transaction after examining the
available facts; or (iv) involves the use of the Housing GSE to
facilitate criminal activity.\42\
---------------------------------------------------------------------------

\42\ The fourth reporting category has been added to the
suspicious activity reporting rules promulgated since the passage of
the USA PATRIOT Act to make it clear that the requirement to report
suspicious activity encompasses the reporting of transactions
involving fraud and those in which legally derived funds are used
for criminal activity, such as the financing of terrorism.
---------------------------------------------------------------------------

A determination as to whether a report is required must be based on
all the facts, circumstances and information to which the Housing GSE
has access, in the ordinary course of its business, relating to the
transaction and customer of the Housing GSE in question. Different fact
patterns and circumstances will require different judgments. Some
examples of red flags associated with existing or potential customers
are referenced in previous FinCEN reports and guidance on mortgage
fraud and SAR filing. However, the means of commerce and the techniques
of money laundering are continually evolving, and there is no way to
provide an exhaustive list of suspicious transactions or red flags.
FinCEN will continue to pursue a regulatory approach that involves a
combination of guidance, training programs, and government-industry
information exchange so that implementation of any new AML program and
SAR reporting regulations can be accomplished in the most flexible and
cost efficient way possible, while protecting the primary and secondary
mortgage markets and the financial system as a whole from fraud, money
laundering, and other financial crimes.
Section 1030.320(a)(3) provides that the obligation to identify and
to report a suspicious transaction rests with the Housing GSE involved
in the transaction. However, where more than one Housing GSE, or
another financial institution with a separate suspicious activity
reporting obligation, is involved in the same transaction (or related
transactions), only one report is required to be filed, provided it
contains all relevant information and each institution maintains a copy
of the report and any supporting documentation related to the SAR.
There is, however, no obligation for the Housing GSEs to notify each
other or work together in such circumstances. Each Housing GSE must
evaluate customer activity and relationships for fraud, money
laundering, and other financial crime risks, and design a suspicious
transaction monitoring and reporting program that is appropriate for
the particular Housing GSE in light of such risks.
Section 1030.320(b) sets forth the filing procedures to be followed
by Housing GSEs making reports of suspicious transactions. Within 30
days after a Housing GSE becomes aware of a suspicious transaction (or
within 60 days if no suspect has been identified), it must report the
transaction by completing a SAR and filing it with FinCEN. Supporting
documentation relating to each SAR is to be collected and maintained
separately by the Housing GSE and made available upon request by
FinCEN, FHFA or any appropriate Federal, State, or local law
enforcement agency, or any Federal regulatory authority that examines
the Housing GSE for compliance with the BSA. FinCEN's SAR regulations
provide that the documentation supporting a SAR that is maintained by
the filer, is deemed to be filed with the SAR. Thus, supporting
documentation may be disclosed to the authorities referenced above to
whom a SAR form may be disclosed, consistent with the rules of
construction, described below. For situations requiring immediate
attention, Housing GSEs are to telephone the appropriate law
enforcement authority in addition to filing a SAR.
Section 1030.320(c) provides that the filing Housing GSE must
maintain copies of SARs and the underlying related documentation for a
period of five years from the date of filing.\43\ As indicated above,
supporting documentation is to be made available to FinCEN and
appropriate law enforcement and regulatory authorities, upon request.
---------------------------------------------------------------------------

\43\ FinCEN notes that FHFA's guidance on fraud reporting, RPG-
2011-001, also contains a five-year document retention requirement.
---------------------------------------------------------------------------

Section 1030.320(d)(1) reinforces the statutory prohibition against
the disclosure by a financial institution of a SAR (regardless of
whether the report would be required by the Final Rule or is filed
voluntarily).\44\ The section requires that a SAR and information that
would reveal the existence of that SAR (``SAR information'') be kept
confidential and not be disclosed, except as authorized within the
rules of construction. The regulation includes rules of construction
that identify actions an institution may take that are not precluded by
the confidentiality provision. These actions include the disclosure of
SAR information to FinCEN, FHFA, or appropriate Federal, State, or
local law enforcement agencies, or a Federal regulatory authority that
examines the Housing GSE for compliance with the BSA. This
confidentiality provision also does not prohibit the disclosure of the
underlying facts, transactional information, and documents upon which a
SAR is based, or the sharing of SAR information within the Housing
GSE's corporate organizational structure for purposes consistent with
Title II of the BSA, as determined by FinCEN in regulation or in
guidance.\45\
---------------------------------------------------------------------------

\44\ 31 U.S.C. 5318(g)(2).
\45\ On November 23, 2010, FinCEN issued updated guidance for
the banking, securities, and futures industries authorizing the
sharing of SAR information with parent companies, head offices, and
under certain conditions, domestic affiliates. 75 FR 75607 (Dec. 3,
2010). No such guidance has been issued for the Housing GSEs.
---------------------------------------------------------------------------

Section 1030.320(d)(2) incorporates the statutory prohibition
against disclosure of SAR information, other than in fulfillment of
their official duties consistent with the BSA, by government users of
SAR data. The section also clarifies that official duties

[[Page 10374]]

do not include the disclosure of SAR information in response to a
request for non-public information \46\ or for use in a private legal
proceeding, including a request under 31 CFR 1.11.\47\
---------------------------------------------------------------------------

\46\ For purposes of this rulemaking, ``non-public information''
refers to information that is exempt from disclosure under the
Freedom of Information Act.
\47\ 31 CFR 1.11 is the Department of the Treasury's information
disclosure regulation. Generally, these regulations are known as
``Touhy regulations,'' after the Supreme Court's decision in United
States ex rel. Touhy v. Ragen, 340 U.S. 462 (1951). In that case,
the Supreme Court held that an agency employee could not be held in
contempt for refusing to disclose agency records or information when
following the instructions of his or her supervisor regarding the
disclosure. An agency's Touhy regulations are the instructions
agency employees must follow when those employees receive requests
or demands to testify or otherwise disclose agency records or
information.
---------------------------------------------------------------------------

Section 1030.320(e) provides protection from liability for making
reports of suspicious transactions, and for nondisclosures of such a
report, to the full extent provided by 31 U.S.C. 5318(g)(3). This
statutory safe harbor, unlike that afforded to the Housing GSEs under
FHFA regulations,\48\ contains no express requirement that the report
has been filed in ``good faith,'' and legal authority strongly supports
the proposition that there is no implicit ``good faith'' limitation to
this safe harbor.\49\ One commenter nevertheless suggested that the
difference between FHFA safe harbor and the BSA safe harbor could
result in the Housing GSEs being subject to civil liability for making
reports pursuant to the BSA. FinCEN disagrees with that assessment.
Because this Final Rule defines the Housing GSEs as financial
institutions under the BSA, a Housing GSE should be able to avail
itself of the broader BSA safe harbor for reports it files pursuant to
the BSA. Congress has made two safe harbors available to institutions
under two separate statutes. These safe harbor provisions do not
contradict, supersede, or conflict with one another. Nothing in the law
implies that Congress intended to make only the narrower safe harbor
applicable when an institution was on its face entitled to both. FinCEN
thinks it more persuasive to consider both safe harbors to be
applicable according to their terms.
---------------------------------------------------------------------------

\48\ 12 CFR 1233.5.
\49\ See Stoutt v. Banco Popular de Puerto Rico, 320 F.3d 26, 31
(1st Cir. 2003) (no good faith requirement), Lee v. Bankers Trust,
166 F.3d 540, 544 (2d Cir. 1999) (same), Henry v. Bank of America,
2010 U.S. Dist. LEXIS 14561 *11-13 (N.D.Cal., Feb. 2, 2010) (same),
Eyo v. United States, 2007 U.S. Dist. LEXIS 88088 *15-16 (D.N.J.,
Nov. 29, 2007) (same), Nieman v. Firstar Bank, 2005 U.S. Dist. LEXIS
38959 *18 (N.D. Iowa, Sept. 26, 2005) (same). But see Lopez v. First
Union National Bank, 129 F.3d 1186, 1992 (11th Cir. 1997) (regarding
a good faith requirement).
---------------------------------------------------------------------------

Section 1030.320(f) notes that compliance with the obligation to
report suspicious transactions will be examined by FinCEN or its
delegates, and provides that failure to comply with the Final Rule may
constitute a violation of the BSA and FinCEN's regulations.
Section 1030.320(g) provides that the new SAR requirement is
effective when an anti-money laundering program required by the
regulations is required to be implemented.

E. Special Information Procedures To Deter Money Laundering and
Terrorist Activity

Section 1030.500 states that the Housing GSEs are covered by the
special information procedures to detect money laundering and terrorist
activity requirements set forth and cross referenced in sections
1030.520 (cross-referencing to 31 CFR 1010.520) and 1030.540 (cross-
referencing to 31 CFR 1010.540). Sections 1010.520 and 1010.540
implement sections 314(a) and 314(b) \50\ of the USA PATRIOT Act,
respectively, and generally apply to any financial institution listed
in 31 U.S.C. 5312(a)(2).\51\ For the sake of clarity, the Final Rule
adds subpart E to Part 1030 to confirm that the section 314 rules will
continue to apply to the Housing GSEs.
---------------------------------------------------------------------------

\50\ In addition to falling within the definition of ``financial
institution'' found at 31 U.S.C. 5312(a)(2), participants in the
314(b) program also must be ``required . . . to establish and
maintain an anti-money laundering program . . .'' 31 CFR
1010.540(a)(1).
\51\ This Final Rule defines the Housing GSEs as financial
institutions under section 31 U.S.C. 5312(a)(2)(Y).
---------------------------------------------------------------------------

IV. Regulatory Flexibility Act

The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that
a regulation that has a significant economic impact on a substantial
number of small entities, small businesses, or small organizations must
include an initial regulatory flexibility analysis describing the
regulation's impact on small entities. Such an analysis need not be
undertaken if the agency has certified that the regulation will not
have a significant economic impact on a substantial number of small
entities. 5 U.S.C. 605(b). In this case, the Final Rule applies only to
the Housing GSEs, none of which is a small entity for purposes of this
requirement. Accordingly, FinCEN hereby certifies that this Final Rule
will not have a significant economic impact on a substantial number of
small entities for purposes of the Regulatory Flexibility Act.
Therefore, no analysis under the Regulatory Flexibility Act is
required. See 5 U.S.C. 601(2) and 603(a).

V. Paperwork Reduction Act

This Final Rule pertains to the Housing GSEs. As a result, the
Final Rule does not contain any information collection requirement that
requires the approval of the Office of Management and Budget under the
Paperwork Reduction Act. See 44 U.S.C. 3501 et seq.

VI. Executive Orders 13563 and 12866

Executive Orders 13563 and 12866 direct agencies to assess costs
and benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, public health and safety
effects, distributive impacts, and equity). Executive Order 13563
emphasizes the importance of quantifying both costs and benefits, of
reducing costs, of harmonizing rules, and of promoting flexibility. It
has been determined that this Final Rule is designated a ``significant
regulatory action,'' although not economically significant, under
section 3(f) of Executive Order 12866. Accordingly, the Final Rule has
been reviewed by the Office of Management and Budget.

VII. Unfunded Mandates Reform Act of 1995 Statement

Section 202 of the Unfunded Mandates Reform Act of 1995 (``Unfunded
Mandates Act''), Public Law 104-4 (March 22, 1995), requires that an
agency prepare a budgetary impact statement before promulgating a rule
that may result in expenditure by the State, local, and tribal
governments, in the aggregate, or by the private sector, of $100
million or more in any one year. If a budgetary impact statement is
required, section 202 of the Unfunded Mandates Act also requires an
agency to identify and consider a reasonable number of regulatory
alternatives before promulgating a rule. Taking into account the
factors noted above and using conservative estimates of average labor
costs in evaluating the cost of the burden imposed by the Final Rule,
FinCEN has determined that it is not required to prepare a written
statement under Section 202.

List of Subjects in 31 CFR Parts 1010 and 1030

Administrative practice and procedure, Banks, Banking, Brokers,
Currency, Federal home loan banks, Foreign banking, Foreign currencies,
Gambling, Investigations, Mortgages,

[[Page 10375]]

Penalties, Reporting and recordkeeping requirements, Securities,
Terrorism.

Authority and Issuance

For the reasons set forth in the preamble, Chapter X of Title 31 of
the Code of Federal Regulations is amended as follows:

PART 1010--GENERAL PROVISIONS

0
1. The authority citation for part 1010 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, sec. 314 Pub. L. 107-56, 115 Stat. 307.

0
2. Amend Sec. 1010.100 by adding new paragraph (mmm) to read as
follows:

Sec. 1010.100 General definitions.

* * * * *
(mmm) Housing government sponsored enterprise. (1) A ``housing
government sponsored enterprise'' is one of the following ``Regulated
Entities'' under 12 U.S.C. 4502(20) subject to the general supervision
and regulation of the Federal Housing Finance Agency (FHFA):
(i) The Federal National Mortgage Association;
(ii) The Federal Home Loan Mortgage Corporation; or
(iii) Each Federal Home Loan Bank.
(2) The term ``housing government sponsored enterprise'' does not
include any ``Entity-Affiliated Party,'' as defined in 12 U.S.C.
4502(11).

0
3. Amend Sec. 1010.810 by adding new paragraph (b)(10) to read as
follows:

Sec. 1010.810 Enforcement.

* * * * *
(b) * * *
(10) To the Federal Housing Finance Agency with respect to the
housing government sponsored enterprises, as defined in Sec.
1010.100(mmm) of this part.
* * * * *

0
4. New part 1030 is added to read as follows:

PART 1030--RULES FOR HOUSING GOVERNMENT SPONSORED ENTERPRISES

Subpart A--Definitions
Sec.
1030.100 Definitions.
Subpart B--Programs
1030.200 General.
1030.210 Anti-money laundering programs for housing government
sponsored enterprises.
Subpart C--Reports Required To Be Made By Housing Government Sponsored
Enterprises
1030.300 General.
1030.310-1030.315 [Reserved]
1030.320 Reports by housing government sponsored enterprises of
suspicious transactions.
1030.330 Reports relating to currency in excess of $10,000 received
in a trade or business.
Subpart D--Records Required To Be Maintained by Housing Government
Sponsored Enterprises
1030.400 General.
Subpart E--Special Information Sharing Procedures To Deter Money
Laundering and Terrorist Activity
1030.500 General.
1030.520 Special information sharing procedures to deter money
laundering and terrorist activity for housing government sponsored
enterprises.
1030.530 [Reserved]
1030.540 Voluntary information sharing among financial institutions.
Subpart F--Special Standards of Diligence; Prohibitions, and Special
Measures for Housing Government Sponsored Enterprises
1030.600-1030.670 [Reserved]

Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314
and 5316-5332; title III, sec. 314 Pub. L. 107-56, 115 Stat. 307.

Subpart A--Definitions

Sec. 1030.100 Definitions.

Refer to Sec. 1010.100 of this chapter for general definitions not
noted herein.

Subpart B--Programs

Sec. 1030.200 General.

Housing government sponsored enterprises are subject to the program
requirements set forth and cross referenced in this subpart. Housing
government sponsored enterprises should also refer to subpart B of part
1010 of this chapter for program requirements contained in that subpart
that apply to housing government sponsored enterprises.

Sec. 1030.210 Anti-money laundering programs for housing government
sponsored enterprises.

(a) Anti-money laundering program requirements for housing
government sponsored enterprises. Each housing government sponsored
enterprise shall develop and implement a written anti-money laundering
program that is reasonably designed to prevent the housing government
sponsored enterprise from being used to facilitate money laundering or
the financing of terrorist activities. The program must be approved by
senior management. A housing government sponsored enterprise shall make
a copy of its anti-money laundering program available to the Financial
Crimes Enforcement Network or its designee upon request.
(b) Minimum requirements. At a minimum, the anti-money laundering
program shall:
(1) Incorporate policies, procedures, and internal controls based
upon the housing government sponsored enterprise's assessment of the
money laundering and terrorist financing risks associated with its
products and services. Policies, procedures, and internal controls
developed and implemented by a housing government sponsored enterprise
under this section shall include provisions for complying with the
applicable requirements of subchapter II of chapter 53 of title 31,
United States Code and this part, and obtaining all relevant customer-
related information necessary for an effective anti-money laundering
program.
(2) Designate a compliance officer who will be responsible for
ensuring that:
(i) The anti-money laundering program is implemented effectively;
(ii) The anti-money laundering program is updated as necessary; and
(iii) Appropriate persons are educated and trained in accordance
with paragraph (b)(3) of this section.
(3) Provide for on-going training of appropriate persons concerning
their responsibilities under the program. A housing government
sponsored enterprise may satisfy this requirement by training such
persons or verifying that such persons have received training by a
competent third party with respect to the products and services offered
by the housing government sponsored enterprise.
(4) Provide for independent testing to monitor and maintain an
adequate program. The scope and frequency of the testing shall be
commensurate with the risks posed by the housing government sponsored
enterprise's products and services. Such testing may be conducted by a
third party or by any officer or employee of the housing government
sponsored enterprise, other than the person designated in paragraph
(b)(2) of this section.
(c) Compliance. Compliance with this section shall be examined by
FinCEN or its delegate, under the terms of the Bank Secrecy Act.
Failure to comply with the requirements of this section may constitute
a violation of the Bank Secrecy Act and of this chapter.
(d) Compliance date. A housing government sponsored enterprise must
develop and implement an anti-money laundering program that complies
with the requirements of this section on or before August 25, 2014.

[[Page 10376]]

Subpart C--Reports Required To Be Made by Housing Government
Sponsored Enterprises

Sec. 1030.300 General.

Housing government sponsored enterprises are subject to the
reporting requirements set forth and cross referenced in this subpart.
Housing government sponsored enterprises should also refer to subpart C
of part 1010 of this chapter for reporting requirements contained in
that subpart that apply to housing government sponsored enterprises.

Sec. Sec. 1030.310--1030.315 [Reserved]

Sec. 1030.320 Reports by housing government sponsored enterprises of
suspicious transactions.

(a) General--(1) Every housing government sponsored enterprise
shall file with FinCEN, to the extent and in the manner required by
this section, a report of any suspicious transaction relevant to a
possible violation of law or regulation. A housing government sponsored
enterprise may also file with FinCEN a report of any suspicious
transaction that it believes is relevant to the possible violation of
any law or regulation, but whose reporting is not required by this
section.
(2) A transaction requires reporting under this section if it is
conducted or attempted by, at, or through a housing government
sponsored enterprise, it involves or aggregates funds or other assets
of at least $5,000, and the housing government sponsored enterprise
knows, suspects, or has reason to suspect that the transaction (or a
pattern of transactions of which the transaction is a part):
(i) Involves funds derived from illegal activity or is intended or
conducted in order to hide or disguise funds or assets derived from
illegal activity (including, without limitation, the ownership, nature,
source, location, or control of such funds or assets) as part of a plan
to violate or evade any Federal law or regulation or to avoid any
transaction reporting requirement under Federal law or regulation;
(ii) Is designed, whether through structuring or other means, to
evade any requirements of this chapter or any other regulations
promulgated under the Bank Secrecy Act;
(iii) Has no business or apparent lawful purpose or is not the sort
in which the particular housing government sponsored enterprise
customer would normally be expected to engage, and the housing
government sponsored enterprise knows of no reasonable explanation for
the transaction after examining the available facts, including the
background and possible purpose of the transaction; or
(iv) Involves use of the housing government sponsored enterprise to
facilitate criminal activity.
(3) More than one housing government sponsored enterprise may have
an obligation to report the same transaction under this section, and
financial institutions involved in that same transaction may have
separate obligations to report suspicious activity with respect to that
transaction pursuant to other provisions of this chapter. In those
instances, no more than one report is required to be filed by the
housing government sponsored enterprise(s) and any financial
institution(s) involved in the transaction, provided that the report
filed contains all relevant facts, including the name of each housing
government sponsored enterprise or financial institution involved in
the transaction, the report complies with all instructions applicable
to joint filings, and each institution maintains a copy of the report
filed, along with any supporting documentation.
(b) Filing and notification procedures--(1) What to file. A
suspicious transaction shall be reported by completing a Suspicious
Activity Report (``SAR''), and collecting and maintaining supporting
documentation as required by paragraph (c) of this section.
(2) Where to file. The SAR shall be filed with FinCEN in accordance
with the instructions to the SAR.
(3) When to file. A SAR shall be filed no later than 30 calendar
days after the date of the initial detection by the reporting housing
government sponsored enterprise of facts that may constitute a basis
for filing a SAR under this section. If no suspect is identified on the
date of such initial detection, a housing government sponsored
enterprise may delay filing a SAR for an additional 30 calendar days to
identify a suspect, but in no case shall reporting be delayed more than
60 calendar days after the date of such initial detection.
(4) Mandatory notification to law enforcement. In situations
involving violations that require immediate attention, such as
suspected terrorist financing or ongoing money laundering schemes, a
housing government sponsored enterprise shall immediately notify by
telephone an appropriate law enforcement authority in addition to
filing timely a SAR.
(5) Voluntary notification to FinCEN. Any housing government
sponsored enterprise wishing voluntarily to report suspicious
transactions that may relate to terrorist activity may call FinCEN's
Financial Institutions Hotline in addition to filing timely a SAR if
required by this section.
(c) Retention of records. A housing government sponsored enterprise
shall maintain a copy of any SAR filed by the housing government
sponsored enterprise or on its behalf (including joint reports), and
the original (or business record equivalent) of any supporting
documentation concerning any SAR that it files (or is filed on its
behalf), for a period of five years from the date of filing the SAR.
Supporting documentation shall be identified as such and maintained by
the housing government sponsored enterprise, and shall be deemed to
have been filed with the SAR. A housing government sponsored enterprise
shall make all supporting documentation available to FinCEN or any
Federal, State, or local law enforcement agency, or any Federal
regulatory authority that examines the housing government sponsored
enterprise for compliance with the Bank Secrecy Act, upon request.
(d) Confidentiality of SARs. A SAR, and any information that would
reveal the existence of a SAR, are confidential and shall not be
disclosed except as authorized in this paragraph (d). For purposes of
this paragraph (d) only, a SAR shall include any suspicious activity
report filed with FinCEN pursuant to any regulation in this chapter.
(1) Prohibition on disclosures by housing government sponsored
enterprises--(i) General rule. No housing government sponsored
enterprise, and no director, officer, employee, or agent of any housing
government sponsored enterprise, shall disclose a SAR or any
information that would reveal the existence of a SAR. Any housing
government sponsored enterprise, and any director, officer, employee,
or agent of any housing government sponsored enterprise that is
subpoenaed or otherwise requested to disclose a SAR or any information
that would reveal the existence of a SAR, shall decline to produce the
SAR or such information, citing this section and 31 U.S.C.
5318(g)(2)(A)(i), and shall notify FinCEN of any such request and the
response thereto.
(ii) Rules of construction. Provided that no person involved in any
reported suspicious transaction is notified that the transaction has
been reported, this paragraph (d)(1) shall not be construed as
prohibiting:
(A) The disclosure by a housing government sponsored enterprise, or
any director, officer, employee, or agent of a housing government
sponsored enterprise of:

[[Page 10377]]

(1) A SAR, or any information that would reveal the existence of a
SAR, to FinCEN or any Federal, State, or local law enforcement agency,
or any Federal regulatory authority that examines the housing
government sponsored enterprise for compliance with the Bank Secrecy
Act; or
(2) The underlying facts, transactions, and documents upon which a
SAR is based, including but not limited to, disclosures to another
housing government sponsored enterprise or a financial institution, or
any director, officer, employee, or agent of a housing government
sponsored enterprise or financial institution, for the preparation of a
joint SAR; or
(B) The sharing by a housing government sponsored enterprise, or
any director, officer, employee, or agent of the housing government
sponsored enterprise, of a SAR, or any information that would reveal
the existence of a SAR, within the housing government sponsored
enterprise's corporate organizational structure for purposes consistent
with Title II of the Bank Secrecy Act as determined by regulation or in
guidance.
(2) Prohibition on disclosures by government authorities. A
Federal, State, local, territorial, or tribal government authority, or
any director, officer, employee, or agent of any of the foregoing,
shall not disclose a SAR, or any information that would reveal the
existence of a SAR, except as necessary to fulfill official duties
consistent with Title II of the Bank Secrecy Act. For purposes of this
section, ``official duties'' shall not include the disclosure of a SAR,
or any information that would reveal the existence of a SAR, in
response to a request for disclosure of non-public information or a
request for use in a private legal proceeding, including a request
pursuant to 31 CFR 1.11.
(e) Limitation on liability. A housing government sponsored
enterprise, and any director, officer, employee, or agent of any
housing government sponsored enterprise, that makes a voluntary
disclosure of any possible violation of law or regulation to a
government agency or makes a disclosure pursuant to this section or any
other authority, including a disclosure made jointly with another
institution, shall be protected from liability for any such disclosure,
or for failure to provide notice of such disclosure to any person
identified in the disclosure, or both, to the full extent provided by
31 U.S.C. 5318(g)(3).
(f) Compliance. Housing government sponsored enterprises shall be
examined by FinCEN or its delegate for compliance with this section.
Failure to satisfy the requirements of this section may be a violation
of the Bank Secrecy Act and of this chapter.
(g) Applicability date. This section is effective when an anti-
money laundering program required by Sec. 1030.210 of this part is
required to be implemented.

Sec. 1030.330 Reports relating to currency in excess of $10,000
received in a trade or business.

Refer to Sec. 1010.330 of this chapter for rules regarding the
filing of reports relating to currency in excess of $10,000 received by
housing government sponsored enterprises.

Subpart D--Records Required To Be Maintained by Housing Government
Sponsored Enterprises

Sec. 1030.400 General.

Housing government sponsored enterprises are subject to the
recordkeeping requirements set forth and cross referenced in this
subpart. Housing government sponsored enterprises should also refer to
subpart D of part 1010 of this chapter for recordkeeping requirements
contained in that subpart that apply to housing government sponsored
enterprises.

Subpart E--Special Information Sharing Procedures To Deter Money
Laundering and Terrorist Activity

Sec. 1030.500 General.

Housing government sponsored enterprises are subject to special
information sharing procedures to deter money laundering and terrorist
activity requirements set forth and cross referenced in this subpart.
Housing government sponsored enterprises should also refer to subpart E
of part 1010 of this chapter for special information sharing procedures
to deter money laundering and terrorist activity contained in that
subpart that apply to housing government sponsored enterprises.

Sec. 1030.520 Special information sharing procedures to deter money
laundering and terrorist activity for housing government sponsored
enterprises.

(a) Refer to Sec. 1010.520 of this chapter.
(b) [Reserved]

Sec. 1030.530 [Reserved]

Sec. 1030.540 Voluntary information sharing among financial
institutions.

(a) Refer to Sec. 1010.540 of this chapter.
(b) [Reserved]

Subpart F--Special Standards of Diligence; Prohibitions, and
Special Measures for Housing Government Sponsored Enterprises

Sec. Sec. 1030.600-1030.670 [Reserved]

Dated: February 20, 2014.
Jennifer Shasky Calvery,
Director, Financial Crimes Enforcement Network.
[FR Doc. 2014-04125 Filed 2-24-14; 8:45 am]
BILLING CODE 4802-02-P

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