Expansion of SAR and AML Compliance Requirements to New Industries

On October 26, 2001, shortly after the last SAR Activity Review was published, President Bush signed into law the USA PATRIOT Act, the most significant expansion of the nation's anti-money laundering laws since 1986, when Congress first made the act of money laundering a federal criminal offense.

Among other things, USA PATRIOT Act gives the Treasury Department authority to issue rules extending anti-money laundering requirements to virtually all businesses that provide financial services to the public. Some of these rules have already been issued and are summarized below. The remaining rules are expected to go into effect no later than a year after the law's enactment (i.e., October 26, 2002). [Although not mandated by the Act, rules requiring certain money services businesses (MSBs) to file suspicious activity reports went into effect on January 1, 2002. In addition, Treasury is in the process of extending similar requirements to casinos and card clubs.]

Compliance Program Requirements

Section 352(a) of the Act requires every financial institution under the Bank Secrecy Act (BSA)21, unless exempted by the Secretary of the Treasury, to establish anti-money programs in an effort to assist the government's efforts to prevent, detect and prosecute international money laundering activity and the financing of terrorism. On April 23, 2002, FinCEN issued the first set of regulations implementing Section 352. These new rules require: 1) mutual funds; 2) operators of credit card systems; and 3) money services businesses to implement an anti-money laundering program by July 24, 2002. While the rules do not prescribe identical requirements, each one identifies the following four (4) minimum components of the anti-money laundering program: 1) implementation of procedures and internal controls designed to prevent and detect money laundering or the financing of terrorist activities; 2) designation of a compliance officer with the responsibility and sufficient authority to assure that the firm's anti-money laundering program is operating effectively; 3) training of appropriate personnel concerning their responsibilities under the program; and 4) a periodic and independent audit to determine the firm's compliance with anti-money laundering laws and regulations and the firm's anti-money laundering program.

A fourth rule, also issued on April 29, 2002, clarifies that banks, savings associations, credit unions, registered brokers and dealers in securities, futures commission merchants, casinos and card clubs, will continue to be subject to rules issued by FinCEN, federal banking agencies, or self-regulatory organizations, whomever their respective regulator may be, which already require that these businesses maintain anti-money laundering compliance programs.

This rule also defers until no later than October 24, 2002, the application of Section 352 to all other financial institutions under the BSA in order to allow Treasury time to study these new industry segments and to develop regulations applicable to their potential level of money laundering or terrorist finance abuse.

The businesses subject to further study include dealers in precious metals, stones or jewels; pawnbrokers; loan or finance companies; private bankers (those that are not already subject to BSA regulatory requirements because of their status as a bank or broker-dealer); insurance companies; travel agencies; telegraph companies; automobile, airplane or boat sellers; persons involved in real estate closings and settlements; investment companies other than mutual funds; and commodity pool operators and commodity trading advisors.

Expansion of SAR Requirements

FinCEN is in the process of expanding SAR requirements to several new financial institutions and will be studying additional industries for future SAR requirements.

As noted above, on January 1, 2002, money transmitters and businesses that issue, sell or redeem money orders or traveler's checks became subject to new SAR requirements. On July 1, 2002, FinCEN issued a final rule extending the SAR requirement to securities broker-dealers, which will be effective on January 1, 2003. In a related matter, FinCEN is also studying the feasibility and need to extend SAR reporting to the futures and mutual fund industries.

FinCEN has also taken steps to finalize rules, which would place casinos and card clubs under a SAR regime. FinCEN first proposed this requirement in 1998.25 After considering numerous comments on several key aspects of the rule, on March 29, 2002, FinCEN published a request for additional comments and provided guidance on the intended scope of the rule. FinCEN intends to issue a final rule for these two industries before the end of 2002. Comments on the renoticed SAR rule were due on May 28, 2002.

Excerpted from SAR Activity Review Issue 4, page 46