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Financial Crimes Enforcement Network; Amendment Regarding Financial Institutions Exempt from Establishing Anti-Money Laundering Programs

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Information about this document as published in the Federal Register.

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Financial Crimes Enforcement Network, Department of the Treasury.


Final rule.


The Financial Crimes Enforcement Network (“FinCEN”) is amending the provision in its regulations that defers, for certain categories of financial institutions, the application of the anti-money laundering program requirements in section 352 of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (“USA PATRIOT”) Act of 2001. Two of the categories of financial institutions specifically exempted from having to establish an anti-money laundering program subsequently have been required by regulation to establish such programs, and this rulemaking will amend the regulations to reflect those changes.


Effective Date: January 11, 2008.

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Regulatory Policy and Programs Division (FinCEN), (800) 949-2732 (toll-free).

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I. Background

A. USA PATRIOT Act Section 352

On October 26, 2001, the President signed into law the USA PATRIOT Act (Pub. L. 107-56). Title III of the USA PATRIOT Act makes a number of amendments to the anti-money laundering provisions of the Bank Secrecy Act (“BSA”), which is codified in subchapter II of chapter 53 of title 31, United States Code. These amendments are intended to make it easier to prevent, detect, and prosecute money laundering and the financing of terrorism. Section 352(a) of the USA PATRIOT Act, amended section 5318(h) of the BSA, effective April 24, 2002, to require every financial institution to establish an anti-money laundering program that includes, at a minimum: (i) The development of internal policies, procedures, and controls; (ii) the designation of a compliance officer; (iii) an ongoing employee training program; and (iv) an independent audit function to test programs.

The definition of “financial institution” in sections 5312(a)(2) and (c)(1) of the BSA is broad. It includes categories of institutions that were already subject to some federal anti-money laundering regulations at the time the USA PATRIOT Act was passed, such as banks, savings associations, credit unions, and money services businesses (such as money transmitters and currency dealers or exchangers). The definition also includes: Registered securities broker-dealers; futures commission merchants; dealers in precious metals, stones, or jewels; pawnbrokers; loan or finance companies; trust 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 require to register under the Commodity Exchange Act (7 U.S.C. 1 et seq.). Section 352 of the USA PATRIOT Act requires all of these businesses to establish anti-money laundering programs.

Section 5318(h)(2) of the BSA, however, also grants the Secretary of the Treasury, and by extension his delegate FinCEN, the authority to exempt certain financial institutions from the requirement to institute anti-money laundering programs. In April 2002, FinCEN issued a series of interim final rules implementing section 352 of the USA PATRIOT Act.[1] At the same time, FinCEN also exempted certain financial institutions, including dealers in precious metals, stones, or jewels, and insurance companies, from having to comply with section 352 of the USA PATRIOT Act for a six month period.[2] In November 2002, FinCEN replaced this six month exemption from the application of the anti-money laundering program requirements in section 352 with an open-ended exemption (“Temporary Exemption Rule”).[3]

B. Updating 31 CFR Section 103.170

In the years since the Temporary Exemption Rule was published, FinCEN has promulgated a number of rules that require two previously exempted categories of financial institutions (dealers in precious metals, stones, or jewels,[4] and insurance companies [5] ) to establish anti-money laundering programs.[6] Although FinCEN has, through the publication of the above-mentioned rules, ipso jure revoked the exemptions previously issued to those categories of financial institutions,[7] the Temporary Exemption Rule is being amended to reflect these revocations and eliminate possible confusion.

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II. Administrative Procedure Act

Under the Administrative Procedure Act (“APA”), notice of a proposed rulemaking is not required when the agency, for good cause, finds “that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.” [8] FinCEN is making technical amendments to the Temporary Exemption Rule to ensure that the list of temporarily exempted financial institutions is accurate and not confusing. FinCEN, therefore, finds that publishing the amendments for comment is unnecessary.

In addition, publication of a substantive rule not less than 30 days before its effective date is required by the APA except as otherwise provided by the agency for good cause.[9] For the same reasons described above with respect to notice and opportunity for comment, FinCEN finds that there is good cause for making these technical amendments effective on January 11, 2008.

III. Regulatory Flexibility Act

Because no notice of proposed rulemaking is required for this final rule, the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) do not apply.[10]

IV. Executive Order 12866

This final rule is not a “significant regulatory action” as defined in Executive Order 12866. Accordingly, a regulatory assessment is not required.

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List of Subjects in 31 CFR Part 103

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Authority and Issuance

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For the reasons set forth above, FinCEN is amending

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1. The authority citation for part 103 continues to read as follows:

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Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314 and 5316-5332; title III, secs. 311, 312, 313, 314, 319, 326, 352, Pub. L. 107-56, 115 Stat. 307.

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Subpart I—Anti-Money Laundering Programs

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2. Section 103.170 is amended by:

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a. Removing paragraphs (b)(1)(i) and (b)(1)(ix); and

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b. Redesignating paragraphs (b)(1)(ii) as (b)(1)(i); (b)(1)(iii) as (b)(1)(ii); (b)(1)(iv) as (b)(1)(iii); (b)(1)(v) as (b)(1)(iv); (b)(1)(vi) as (b)(1)(v); (b)(1)(vii) as (b)(1)(vi); (b)(1)(viii) as (b)(1)(vii); (b)(1)(x) as (b)(1)(viii); (b)(1)(xi) as (b)(1)(ix); and (b)(1)(xii) as (b)(1)(x).

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Dated: December 20, 2007.

James H. Freis, Jr.,

Director, Financial Crimes Enforcement Network.

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1.  These rules prescribed requirements for anti-money laundering programs for banks, savings associations, credit union, registered securities broker-dealers, futures commission merchants, and introducing brokers that are regulated by a federal functional regulator or a self-regulatory organization, and casinos. 67 FR 21110 (Apr. 29, 2002) (interim final rules). At the same time, FinCEN also issued interim final rules that required money services businesses (67 FR 21114 (Apr. 29, 2002)), mutual funds (67 FR 21117 (Apr. 29, 2002)), and operators of credit card systems (67 FR 21121 (Apr. 29, 2002)) to establish anti-money laundering programs.

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3.  31 CFR 103.170, 67 FR 67547 (Nov. 6, 2002), corrected at 67 FR 68953 (Nov. 14, 2002).

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5.  31 CFR 103.170(b)(ix). Only those insurance companies falling within the definition contained in 31 CFR 103.137(a)(9) are required to have an anti-money laundering program. The removal of the entire category of “insurance companies” from the exempted list should not be read to limit the breadth of the definition for purposes of the availability of the safe harbor under 31 U.S.C. 5318(g)(3) for voluntary reports of suspicious activities. See 70 FR 66755 (Nov. 3, 2005), fn 4.

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6.  FinCEN issued rules in 2005 requiring dealers in precious stones, metals, and jewels ((See 70 FR 33702 (June 9, 2005) (interim final rule)), and certain insurance companies (See 70 FR 66754 (Nov. 3, 2005) (final rule)) to establish anti-money laundering programs.

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7.  The removal of the temporary exemption occurs automatically pursuant to 31 CFR section 103.170(c), which states that “[t]he exemptions described in paragraphs (a)(2) and (b) of [this rule] shall not apply to any financial institution that is otherwise required to establish an anti-money laundering program by this subpart I.”

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10.  See 5 U.S.C. 601(2) (for purposes of Regulatory Flexibility Act analyses, the term “rule” means any rule for which the agency publishes a general notice of proposed rulemaking).

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[FR Doc. E8-315 Filed 1-10-08; 8:45 am]