|
[Main Tabs]
[Table of Contents - 8000]
[Index]
[Previous Page]
[Next Page]
[Search]
8000 - Miscellaneous Statutes and Regulations
Appendix C to Part 103—Interpretive Rules
Release No. 2004--01
This interpretive Guidance sets forth our interpretation of the
regulation requiring Money Services Businesses that are required to
register with FinCEN to establish and maintain anti-money laundering
programs. See 31 CFR
103.125. Specifically, this Interpretive Guidance clarifies
that the anti-money laundering program regulation requires Money
Services Businesses to establish adequate and appropriate policies,
procedures, and controls commensurate with the risks of money
laundering and the financing of terrorism posed by their relationship
with foreign agents or foreign counterparties of the Money Services
Business. 1
Under existing Bank Secrecy Act regulations, we have defined Money
Services Businesses to include five distinct types of financial
services providers and the U.S. Postal Service: (1) Currency dealers or
exchangers; (2) check cashers; (3) issuers of traveler's checks, money
orders, or stored value; (4) sellers or redeemers of traveler's
checks, money orders, or stored value; and (5) money transmitters. See
31 CFR 103.11(uu). With
limited exception, Money Services Businesses are subject to the full
range of Bank Secrecy Act regulatory controls, including the anti-money
laundering program rule, suspicious activity and currency transaction
reporting rules, and various other identification and recordkeeping
rules. 2
{{12-31-07 p.8524.08}}
Many Money Services Businesses, including the vast majority of money
transmitters in the United States, operate through a system of agents
both domestically and internationally. We estimate that a substantial
majority of all cross-border remittances by money transmitters are
conducted using this model. Other Money Services Businesses may operate
through more informal relationships, such as the trust-based hawala
system. 3
Regardless of the form of the relationship between a Money Services
Business and its foreign agents or counterparties, Money Services
Business transactions generally are initiated by customers seeking to
send or receive funds, cash checks, buy or sell money orders or
traveler's checks, or buy or sell currency. The customer directs the
Money Services Business to execute the transactions; the Money Services
Business does not unilaterally determine the recipient of its products
or services. Although the customer can use the Money Services
Business' services, the customer does not typically establish an
account relationship with the Money Services Business. The focus of
this Interpretive Guidance is the establishment of, and ongoing
relationship between, a Money Services Business and its foreign agent
or foreign counterparty that facilitates the flow of funds cross-border
into and out of the United States on behalf of customers.
The Cross-Border Flow of Funds through Money Services Businesses
and Associated Risks
Ensuring that financial institutions based in the United States
establish and apply adequate and appropriate policies, procedures, and
controls in their anti-money laundering compliance programs to protect
the international gateways to the U.S. financial system is an essential
element of the Bank Secrecy Act regulatory regime. This Interpretive
Guidance forms a part of our comprehensive approach to accomplishing
this goal. To the extent Money Services Businesses utilize
relationships with foreign agents or counterparties to facilitate the
movement of funds into or out of the United States, they must take
reasonable steps to guard against the flow of illicit funds, or the
flow of funds from legitimate sources to persons seeking to use those
funds for illicit purposes, through such relationships.
The Money laundering or terrorism financing risks associated with
foreign agents or counterparties are similar to the risks presented by
domestic agents of Money Services Businesses. For example, the foreign
agent of the domestic Money Services Business may have lax anti-money
laundering policies, procedures, and internal controls, or actually may
be complicit with those seeking to move illicit funds. In some
instances, the risk with foreign agents can be greater than with
domestic agents because foreign agents are not subject to the Bank
Secrecy Act regulatory regime; the extent to which they are subject to
anti-money laundering regulation, and the quality of that regulation,
will vary with the jurisdictions in which they are located.
There are a variety of ways in which a Money Services Business may
be susceptible to the unwitting facilitation of money laundering
through foreign agents or counterparties. For example, our review of
Bank Secrecy Act data revealed several instances of suspected criminal
activity--detected by existing anti-money laundering and suspicious
activity reporting programs of Money Services Businesses and
banks--where foreign agents of Money Services Business have engaged in
bulk sales of sequentially numbered, U.S. denominated traveler's
checks or blocks of money orders, to one or two individuals. The
individuals involved frequently purchased the instruments on multiple
dates and in different locations, structuring the purchases to avoid
reporting thresholds and issuer limits on daily instrument sales. The
instruments usually had illegible signatures or failed to designate a
beneficiary or payor. The instruments were then negotiated with one or
more dealers in goods, such as diamonds, gems, or precious metals,
deposited in foreign banks, and cleared
{{6-30-05 p.8524.09}}through U.S. banks. In such cases, the clearing banks were so far
removed from the transactions that they could not trace back or screen
either the intervening transactions or the individuals involved in the
transactions.
A case involving suspicious activity in a Money Services Business'
domestic agent provides a further example of the type of high-risk
activity that also may be engaged in by foreign agents or
counterparties. In this instance, the domestic Money Service Business
had policies, procedures, and controls that facilitated the detection
of illicit activity at the agent. A group of six customers entered a
money transmitter agent at approximately five-minute intervals to send
the same structured amounts ($2,500) to the same receiver in a foreign
country. Several weeks later, another group of six customers entered
the same agent location and conducted an identical pattern of
successive $2,500 transfers (a few minutes apart) to the same recipient
in the same foreign country as the first set of transactions. Some of
the individuals in the second group had the same last names as
customers in the first group. Additional suspicious activity reports
filed by the primary Money Service Business identified several other
groups of customers initiating money transfers at this same agent
business location, in the same manner, and in the same overall time
frame. This activity by an agent drew the scrutiny of the Money
Services Business, and in addition to the filing of suspicious activity
reports, led to the termination of the relationship of the Money
Services Business with the agent.
These examples of illicit activity occurring at the agents of Money
Services Businesses underscore the need for Money Services Businesses
to include, as a part of their anti-money laundering programs,
procedures, policies, and controls to govern relationships with foreign
agents and counterparties to enable the Money Services Business to
perform the appropriate level of suspicious activity and risk
monitoring. We believe that this obligation is an essential part of
each Money Services Business' existing obligation under
31 CFR 103.125 to develop
and implement an effective anti-money laundering
program. 4
This Interpretive Guidance will aid Money Services Businesses in
adopting appropriate risk-based policies, procedures, and controls on
cross-border relationships with foreign agents and counterparties.
Anti-Money Laundering Program Elements Relating to Foreign Agents
and Counterparties
Under 31 CFR
103.125(a), Money Services Businesses are required to develop,
implement, and maintain an effective anti-money laundering program
reasonably designed to prevent the Money Services Business from being
used to facilitate money laundering and the financing of terrorist
activities. The program must be commensurate with the risks posed by
the location, size, nature, and volume of the financial services
provided by the Money Services Business. Additionally, the program must
incorporate policies, procedures, and controls reasonably designed to
assure compliance with the Bank Secrecy Act and implementing
regulations.
With respect to Money Services Businesses that utilize foreign
agents or counterparties, a Money Services Business' anti-money
laundering program must include risk-based policies, procedures, and
controls designed to identify and minimize money laundering and
terrorist financing risks associated with foreign agents and
counterparties that facilitate the flow of funds into and out of the
United States. The program must be aimed at preventing the products and
services of the Money Services Business from being used to facilitate
money laundering or terrorist financing through these relationships and
detecting the use of these products and services for money laundering
or terrorist financing by the Money Services Business or agent.
Relevant risk factors may include, but are not limited to:
• The foreign agent or counterparty's location and jurisdiction
of organization, chartering, or licensing. This would include
considering the extent to which the relevant jurisdiction
is
{{6-30-05 p.8524.10}}internationally recognized as presenting a greater risk for money
laundering or is considered to have more robust anti-money laundering
standards.
• The ownership of the foreign agent or counterparty. This
includes whether the owners are known, upon reasonable inquiry, to be
associated with criminal conduct or terrorism. For example, have the
individuals been designated by Treasury's Office of Foreign Assets
Control as Specially Designated Nationals or Blocked Persons
(i.e., involvement in terrorism, drug trafficking, or the
proliferation of weapons of mass destruction)?
• The extent to which the foreign agent or counterparty is
subject to anti-money laundering requirements in its jurisdiction and
whether it has established such controls.
• Any information known or readily available to the Money
Services Business about the foreign agent or counterparty's anti-money
laundering record, including public information in industry guides,
periodicals, and major publications.
• The nature of the foreign agent or counterparty's business,
the markets it serves, and the extent to which its business and the
markets it serves present an increased risk for money laundering or
terrorist financing.
• The types and purpose of services to be provided to, and
anticipated activity with, the foreign agent or counterparty.
• The nature and duration of the Money Services Business'
relationship with the foreign agent or counterparty.
Specifically, a Money Services Business' anti-money laundering
program should include procedures for the following:
1. Conduct of Due Diligence on Foreign Agents and
Counterparties
Money Services Businesses should establish procedures for conducting
reasonable, risk-based due diligence on potential and existing foreign
agents and counterparties to help ensure that such foreign agents and
counterparties are not themselves complicit in illegal activity
involving the Money Services Business' products and services, and that
they have in place appropriate anti-money laundering controls to guard
against the abuse of the Money Services Business' products and
services. Such due diligence must, at a minimum, include reasonable
procedures to identify the owners of the Money Services Business'
foreign agents and counterparties, as well as to evaluate, on an
ongoing basis, the operations of those foreign agents and
counterparties and their implementation of policies, procedures, and
controls reasonably designed to help assure that the Money Services
Business' products and services are not subject to abuse by the
foreign agent's or counterparty's customers, employees, or
contractors. 5
The extent of the due diligence required will depend on a variety of
factors specific to each agent or counterparty. We expect Money
Services Businesses to assess such risks and perform due diligence in a
manner consistent with that risk, in light of the availability of
information.
2. Risk-based Monitoring of Foreign Agents or
Counterparties
In addition to the due diligence described above, in order to detect
and report suspected money laundering or terrorist financing, Money
Services Businesses should establish procedures for risk-based
monitoring and review of transactions from, to, or through the United
States that are conducted through foreign agents and
counterparties. 6
Such procedures should also focus on identifying material changes in
the agent's risk profile, such as a change in ownership, business, or
the regulatory scrutiny to which it is subject.
{{6-30-05 p.8524.11}}
The review of transactions should enable the Money Services Business
to identify and, where appropriate, report as suspicious such
occurrences as: instances of unusual wire activity, bulk sales or
purchases of sequentially numbered instruments, multiple purchases or
sales that appear to be structured, and illegible or missing customer
information. Additionally, Money Services Businesses should establish
procedures to assure that their foreign agents or counterparties are
effectively implementing an anti-money laundering program and to
discern obvious breakdowns in the implementation of the program by the
foreign agent or counterparty.
Similarly, money transmitters should have procedures in place to
enable them to review foreign agent or counterparty activity for signs
of structuring or unnecessarily complex transmissions through multiple
jurisdictions that may be indicative of layering. Such procedures
should also enable them to discern attempts to evade identification or
other requirements, whether imposed by applicable law or by the Money
Services Business' own internal policies. Activity by agents or
counterparties that appears aimed at evading the Money Services
Business' own controls can be indicative of complicity in illicit
conduct; this activity must be scrutinized, reported as appropriate,
and corrective action taken as warranted.
3. Corrective Action and Termination
Money Services Businesses should have procedures for responding to
foreign agents or counterparties that present unreasonable risks of
money laundering or the financing of terrorism. Such procedures should
provide for the implementation of corrective action on the part of the
foreign agent or counterparty or for the termination of the
relationship with any foreign agent or counterparty that the Money
Services Business determines poses an unacceptable risk of money
laundering or terrorist financing, or that has demonstrated systemic,
willful, or repeated lapses in compliance with the Money Services
Business' own anti-money laundering procedures or requirements.
While Money Services Businesses may already have implemented some or
all of the procedures described in this Interpretive Guidance as a part
of their anti-money laundering programs, we wish to provide a
reasonable period of time for all affected Money Services Businesses to
assess their operations, review their existing policies and programs
for compliance with this Advisory, and implement any additional
necessary changes. We will expect full compliance with this
Interpretive Release within 180 days.
Finally, we are mindful of the potential impact that this
Interpretive Release may have on continuing efforts to bring informal
value transfer systems into compliance with the existing regulatory
framework of the Bank Secrecy Act. Experience has demonstrated the
challenges in securing compliance by, for instance, hawalas and other
informal value transfer systems. Further specification of Bank Secrecy
Act compliance obligations carries with it the risk of driving these
businesses underground, thereby undermining our ultimate regulatory
goals. On balance, however, we believe that outlining the requirements
for dealing with foreign agents and counterparties, including informal
networks, is appropriate in light of the risks of money laundering and
the financing of terrorism.
Release No. 2004--02
The FinCEN interpretive guidance clarifies that reports filed with
the Department of the Treasury's Office of Foreign Assets Control
("OFAC") of blocked transactions with Specially Designated Global
Terrorists, Specially Designated Terrorists, Foreign Terrorist
Organizations, Specially Designated Narcotics Trafficker Kingpins, and
Specially Designated Narcotics Traffickers will be deemed by FinCEN to
fulfill the requirement to file suspicious activity reports on such
transactions for purposes of FinCEN's suspicious activity reporting
rules. However, the filing of a blocking report with OFAC will not be
deemed to satisfy a financial institution's obligations to file a
suspicious activity report if the transactions would be reportable
under FinCEN's suspicious activity reporting rules even if there were
no OFAC match. Moreover, to the extent that the financial institution
is in possession of
{{6-30-05 p.8524.12}}information not included on the blocking report filed with OFAC,
a separate suspicious activity report should be filed with FinCEN
including that information.
Background
The Bank Secrecy Act authorized the Secretary of the Treasury to
require financial institutions to report "any suspicious transaction
relevant to a possible violation of law or
regulation." 1
Under this authority, FinCEN has issued regulations requiring banks,
securities broker-dealers, introducing brokers, casinos, futures
commission merchants, and money services businesses, to report
suspicious activity that meets a particular dollar
threshold. 2
Each rule includes filing procedures requiring that a suspicious
transaction shall be reported by completing a suspicious activity
report and filing it with FinCEN in a central location to be determined
by FinCEN. Generally, the rules provide a financial institution with
thirty days from the date of the initial detection of suspicious
activity to file a report, with an additional thirty days if the
financial institution is unable to identify a suspect. Reports are
filed on forms developed for each industry subject to the reporting
requirement. 3
OFAC administers and enforces economic and trade sanctions based on
U.S. foreign policy and national security goals against targeted
foreign countries, terrorists, international narcotics traffickers, and
those engaged in activities related to the proliferation of weapons of
mass destruction. OFAC's Reporting, Procedures and Penalties
Regulations at 31 CFR part 501 require U.S. financial institutions to
block and file reports on accounts, payments, or transfers in which an
OFAC-designated country, entity, or individual has any
interest. 4
These reports must be filed with OFAC within ten business days of the
blocking of the property. 5
Prior Guidance
Transactions involving an individual or entity designated on OFAC's
list of Specially Designated Nationals and Blocked Persons as a global
terrorist, terrorist, terrorist organization, narcotics trafficker, or
narcotics kingpin 6
may be in furtherance of a criminal act, and therefore relevant to a
possible violation of law. Thus, blocking reports related to such
persons also describe potentially suspicious activity. In the November
2003 edition of its "SAR Activity
Review," 7
FinCEN instructed financial institutions to file suspicious activity
reports on verified matches of persons designated by OFAC. While the
guidance ensured that the relevant information would be available to
law enforcement, it also resulted in financial institutions being
required to make two separate filings with the Department of the
Treasury--one with OFAC pursuant to its Reporting, Procedures and
Penalties Regulations, and one with FinCEN pursuant to its suspicious
activity reporting rules.
Revised Guidance
FinCen is hereby revising its prior guidance to eliminate the need
for duplicative reporting in cases where a financial institution
identifies a verified match with individuals or entities designated by
OFAC. As of the date of publication of this interpretation, FinCEN will
deem its rules requiring the filing of suspicious activity reports to
be satisfied by the filing of a blocking report with OFAC in accordance
with OFAC's Reporting, Penalties and
{{6-30-05 p.8524.13}}Procedures Regulations. OFAC will then provide the information to
FinCEN for inclusion in the suspicious activity reporting database
where it will be made available to law enforcement. This construction
of the suspicious activity reporting rules will serve the public
interest by enabling FinCEN to obtain and provide potentially important
information about terrorists and major drug traffickers to law
enforcement on an expedited basis without imposing duplicative
reporting burdens on the regulated industry.
Accordingly, a financial institution that files a blocking report
with OFAC due to the involvement in a transaction or account of a
person designated as a Specially Designated Global Terrorist, a
Specially Designated Terrorist, a Foreign Terrorist Organization, a
Specially Designated Narcotics Trafficker Kingpin, or a Specially
Designated Narcotics Trafficker, shall be deemed to have simultaneously
filed a suspicious activity report on the fact of the match with FinCEN
in satisfaction of the requirements of the applicable suspicious
activity reporting rule. This interpretation does not affect a
financial institution's obligation to identify and report suspicious
activity beyond the fact of the OFAC match. To the extent that the
financial institution is in possession of information not included on
the blocking report filed with OFAC, a separate suspicious activity
report should be filed with FinCEN including that information. This
interpretation also does not affect a financial institution's
obligation to file a suspicious activity report even if it has filed a
blocking report with OFAC, to the extent that the facts and
circumstances surrounding the OFAC match are independently
suspicious--and are otherwise required to be reported under existing
FinCEN regulations. In those cases, the OFAC blocking report would not
satisfy a financial institution's suspicious activity report filing
obligation.
Further, nothing in this interpretation is intended to preclude a
financial institution.
[Codified to 31 C.F.R. Part 103 Appendix C]
[Appendix C added at 69 Fed. Reg. 74439, December 14, 2004;
however, Release 2004--01 is not effective until June 13, 2005; amended
at 69 Fed. Reg. 76847, December 23, 2004]
[The page following this is 8531.]
1 This Interpretive Guidance focuses on the need to control
risks arising out of the relationship between a Money Service Business
and its foreign counterparty or agent. Under existing FinCEN
regulations, only Money Service Business principals are required to
register with FinCEN, and only Money Service Business principals
establish the counterparty or agency relationships.
31 CFR 103.41. Accordingly,
this Interpretive Guidance only applies to those Money Service
Businesses required to register with FinCEN, that is, only those Money
Service Businesses that may have a relationship with a foreign agent or
counterparty. Go Back to Text
2 See 31 CFR
103.125 (requirement for Money Service Businesses to establish
and maintain an anti-money laundering compliance program);
31 CFR 103.22 (requirement
for Money Service Businesses to file currency transaction reports);
31 CFR 103.20 (requirement
for Money Service Businesses, other than check cashers and issuers,
sellers, or redeemers of stored value, to file suspicious activity
reports); 31 CFR 103.29
(requirement for Money Service Businesses that sell money orders,
traveler's checks, or other instruments for cash to verify the
identity of the customer and create and maintain a record for each cash
purchase between $3,000 and $10,000, inclusive); 31 CFR
2 (cont'd.)03.33(f) (requirement for Money
Service Businesses that send or accept instructions to transmit funds
of $3,000 or more to verify the identity of the sender or receiver and
create and maintain a record of the transmittal regardless of the
method of payment); and 31 CFR
103.37 (requirement for currency exchangers to create and
maintain a record of each exchange of currency in excess of $1,000). Go Back to Text
3 For an analysis of informal value transfer systems, see
FinCEN's Report to Congress Pursuant to Section 359 of the Patriot
Act, available on www.fincen.gov. Go Back to Text
4 FinCEN previously interpreted 31 CFR 103.125 to impose a
similar obligation on a money transmitter with respect to its domestic
agents. See Matter of Western Union, No. 2003--2 (Mar. 6, 2003)
(www.fincen.gov). Go Back to Text
5 Our anti-money laundering program rule,
31 CFR 103.125(d)(iii),
permits Money Service Businesses to satisfy this last requirement with
regard to their domestic agents (which are also Money Service
Businesses under the BSA regulations), by allocating responsibility for
the program to their agents. Such an allocation, however, does not
relieve a Money Service Business from ultimate responsibility for
establishing and maintaining an effective anti-money laundering
program. Id. Go Back to Text
6 Nothing in this Interpretive Guidance is intended to require
Money Service Businesses to monitor or review, for purposes of the Bank
Secrecy Act, transactions or activities of foreign agents or
counterparties that occur entirely outside of the United States and do
not flow from, to, or through the United States. Go Back to Text
1 See 31 U.S.C.
5318(g)(1). Go Back to Text
2 See 31 CFR
103.17--21. The threshold for most financial institutions is
$5,000; transactions conducted at points of sale for money services
businesses have a reporting threshold of $2,000. See
31 CFR 103.20. Go Back to Text
3 See TD F 90--22.47 (depository institutions); TD
F 22.56 (money services businesses); FinCEN Form 101 (securities and
futures industries; FinCEN Form 102 (casinos and card clubs). Go Back to Text
4 31 CFR 501.603. Go Back to Text
5 31 CFR 501.603(b)(1)(i). Go Back to Text
6 The specific designations are as follows: Specially
designated terrorist; foreign terrorist organization; specially
designated global terrorist; specially designated narcotics trafficker;
specially designated narcotics trafficker kingpin. See 31
CFR parts 595, 597, 598 and the Foreign Narcotics Kingpin Act, 21
U.S.C. 1901--08, 8 U.S.C. 1182. These categories of designations are
subject solely to blocking requirements. Go Back to Text
7 Issue 6 (Nov. 2003). Go Back to Text
[Main Tabs]
[Table of Contents - 8000]
[Index]
[Previous Page]
[Next Page]
[Search]
|
