67670 Federal Register / Vol. 66, No. 250 / Monday, December 31, 2001 / Proposed Rules

1Language expanding the scope of the Bank

Secrecy Act to intelligence or counter-intelligence

activities to protect against international terrorism

was added by Section 358 of the Uniting and

Strengthening America by Providing Appropriate

Tools Required to Intercept and Obstruct Terrorism

(USA PATRIOT ACT) Act of 2001 (the ‘‘USA Patriot

Act’’), Public Law 107–56.

2 31 U.S.C. 5318(g) was added to the Bank

Secrecy Act by section 1517 of the Annunzio-Wylie

Anti-Money Laundering Act (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 (the ‘‘Money Laundering Suppression Act’’),

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.

3This designation does not preclude the authority

of supervisory agencies to require financial

institutions to submit other reports to the same

agency or another agency ‘‘pursuant to any other

applicable provision of law.’’ 31 U.S.C.

5318(g)(4)(C).

4The Congressional mandate to extend

suspicious transaction reporting to broker-dealers

reflects the concern of other governmental and

international bodies about the need for an

appropriate suspicious transaction reporting regime

in the securities industry. For example, one of the

central recommendations of the Financial Action

Task Force (‘‘FATF’’), an inter-governmental body

whose purpose is development and promotion of

policies to combat money laundering, is that:

If financial institutions suspect that funds stem

from a criminal activity, they should be required to

report promptly their suspicions to the competent

authorities.

Financial Action Task Force Annual Report (June

28, 1996), Annex 1 (Recommendation 15). The

recommendation applies equally to broker-dealers

as to banks. See also, the European Community’s

Directive on prevention of the use of the financial

system for the purpose of money laundering. EC

Directive, O.J. Eur. Comm. (No. L 166) 77 (1991),

Article 6. Accord, the Model Regulations

Concerning Laundering Offenses Connected to

Illicit Drug Trafficking and Related Offenses of the

Organization of American States, OEA/Ser. P. AG/

Doc. 2916/92 rev. 1 (May 23, 1992), Article 13,

section 2.

The International Organization of Securities

Commissions (‘‘IOSCO’’) recommended in 1992 that

member states consider ‘‘together with their

national regulators charged with prosecuting money

DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506–AA21

Financial Crimes Enforcement

Network; Proposed Amendment to the

Bank Secrecy Act Regulations—

Requirement of Brokers or Dealers in

Securities to Report Suspicious

Transactions

AGENCY: Financial Crimes Enforcement

Network (‘‘FinCEN’’), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: FinCEN is proposing to

amend the Bank Secrecy Act regulations

to require brokers or dealers in

securities (‘‘broker-dealers’’) to report

suspicious transactions to the

Department of the Treasury. This is the

fourth proposal to be issued by FinCEN

concerning the reporting of suspicious

transactions by the major categories of

financial institutions operating in the

United States, as a part of the countermoney laundering program of the

Department of the Treasury.

DATES: Written comments on all aspects

of the proposal are welcome and must

be received on or before March 1, 2002.

ADDRESSES: Written comments should

be submitted to: Office of Chief Counsel,

Financial Crimes Enforcement Network,

Department of the Treasury, P.O. Box

1618, Vienna, Virginia 22183–1618,

Attention: NPRM—Suspicious

Transaction Reporting—Brokers or

Dealers in Securities. Comments also

may be submitted by electronic mail to

the following Internet address:

regcomments@fincen.treas.gov, again

with a caption, in the body of the text,

‘‘Attention: NPRM—Suspicious

Transaction Reporting—Brokers or

Dealers in Securities.’’ For additional

instructions on the submission of

comments, see SUPPLEMENTARY

INFORMATION under the heading

‘‘Submission of Comments.’’

Inspection of comments. Comments

may be inspected, between 10 a.m. and

4 p.m., in the FinCEN reading room in

Washington, DC. Persons wishing to

inspect the comments submitted must

request an appointment by telephoning

(202) 354–6400.

FOR FURTHER INFORMATION CONTACT:

Peter G. Djinis, Executive Assistant

Director for Regulatory Policy, FinCEN,

at (703) 905–3930; Cynthia L. Clark,

Deputy Chief Counsel, FinCEN, at (703)

905–3590; Judith R. Starr, Chief

Counsel, FinCEN, at (703) 905–3534.

SUPPLEMENTARY INFORMATION:

I. Background

A. General Statutory Provisions

The Bank Secrecy Act, Public Law

91–508, as amended, codified at 12

U.S.C. 1829b, 12 U.S.C. 1951–1959, and

31 U.S.C. 5311–5331, authorizes the

Secretary of the Treasury, inter alia, to

issue regulations requiring financial

institutions to keep records and file

reports that are determined to have a

high degree of usefulness in criminal,

tax, and regulatory matters, or in the

conduct of intelligence or counterintelligence activities, to protect against

international terrorism, and to

implement counter-money laundering

programs and compliance procedures.1

Regulations implementing Title II of the

Bank Secrecy Act (codified at 31 U.S.C.

5311–5330) appear at 31 CFR part 103.

The authority of the Secretary to

administer the Bank Secrecy Act has

been delegated to the Director of

FinCEN.

B. Suspicious Transaction Reporting

The Secretary of the Treasury was

granted authority in 1992, with the

enactment of 31 U.S.C. 5318(g),2 to

require financial institutions to report

suspicious transactions. Subsection

(g)(1) states generally:

The Secretary may 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.

Subsection (g)(2) provides further:

A financial institution, and a director,

officer, employee, or agent of any financial

institution, who voluntarily reports a

suspicious transaction, or that reports a

suspicious transaction pursuant to this

section or any other authority, may not notify

any person involved in the transaction that

the transaction has been reported.

Subsection (g)(3) provides that neither a

financial institution, nor any director,

officer, employee, or agent of any

financial institution

that makes a disclosure of any possible

violation of law or regulation or a disclosure

pursuant to this subsection or any other

authority * * * shall * * * be liable to any

person under any law or regulation of the

United States or any constitution, law, or

regulation of any State or political

subdivision thereof, for such disclosure or for

any failure to notify the person involved in

the transaction or any other person of such

disclosure.

Finally, subsection (g)(4) requires the

Secretary of the Treasury, ‘‘to the extent

practicable and appropriate,’’ to

designate ‘‘a single officer or agency of

the United States to whom such reports

shall be made.’’ 3 The designated agency

is in turn responsible for referring any

report of a suspicious transaction to

‘‘any appropriate law enforcement or

supervisory agency.’’ Id., at subsection

(g)(4)(B).

In the USA Patriot Act, Congress

specifically addressed the issue of

suspicious transaction reporting by

broker-dealers. Section 356 of the USA

Patriot Act requires Treasury, after

consultation with the Securities and

Exchange Commission and the Board of

Governors of the Federal Reserve

System, to publish proposed regulations

before January 1, 2002, requiring brokerdealers to report suspicious transactions

under 31 U.S.C. 5318(g). Section 356

requires final regulations to be issued by

July 2, 2002.4

Federal Register / Vol. 66, No. 250 / Monday, December 31, 2001 / Proposed Rules 67671

laundering offenses, the appropriate manner in

which to address the identification and reporting of

suspicious transactions’’ and ‘‘the appropriate

means to ensure that securities and futures firms

maintain monitoring and compliance procedures

designed to deter and detect money laundering.’’

IOSCO Report on Money Laundering, Conclusions

3 and 5, May 1992.

5Report to the Chairman, Permanent

Subcommittee on Investigations, Committee on

Governmental Affairs, U.S. Senate, Anti-Money

Laundering Efforts in the Securities Industry, GAO–

02–111, October 2001 (‘‘the GAO Report’’). In

addition, there are broker-dealers that accept

cashier’s checks, money orders, and traveler’s

checks. Of those broker-dealers that accept such

financial instruments, 70 percent accept cashier’s

checks, nearly 40 percent accept money orders, and

approximately 20 percent accept traveler’s checks.

See, the GAO Report at 26.

6See, e.g., United States v. Kneeland, 148 F.3d 6

(1st Cir. 1998) (funds obtained in ‘‘advance fee’’

fraud transferred from corporate to defendant’s

personal bank accounts, and from there to

defendant’s brokerage account, from brokerage

account to commodities broker, and from

commodities broker back to personal bank account);

United States v. Sabbath, 125 F.Supp. Lexis 18999

(E.D.N.Y. 2000) (owner of failing company

withdrew funds from corporation in months

preceding bankruptcy, transferring those funds to a

brokerage account in wife’s maiden name, with

mother-in-law’s address, and a false social security

number; money from corporation routed through

several bank accounts before its final transfer to

brokerage account); United States v. Taylor, 984

F.2d 298 (9th Cir. 1993) (funds received upon

fraudulent export sale of cellular telephones

laundered through brokerage account). See also, the

GAO Report at 68–69.

7For example, in April 2001, the Director of the

Office of Compliance Inspections and Examinations

at the Securities and Exchange Commission

announced that the Commission would undertake

compliance sweeps of broker-dealers in the fall of

2001. See Money Laundering: It’s on the SEC’s

Radar Screen, Remarks at the Conference on AntiMoney Laundering Compliance for Broker-Dealers

Securities Industry Association (May 8, 2001)

(transcript available at www.sec.gov/news/speech/

spch486.htm). BSA compliance with non-SAR

related provisions has been included in the SEC’s

examination and enforcement programs since the

1970s, and in the SROs’ programs since 1982. The

New York Stock Exchange and the National

Association of Securities Dealers have both issued

statements going back to 1989 regarding the

importance of suspicious activity reporting to avoid

money laundering charges. See the GAO Report at

22.

8See 31 CFR 103.18. The suspicious transaction

reporting rules under the BSA for banking

organizations previously appeared at 31 CFR 103.21

before that section was renumbered as 31 CFR

103.18. See 65 FR 13683, 13692 (March 14, 2000).

C. Anti-Money Laundering Programs

The provisions of 31 U.S.C. 5318(h),

also added to the Bank Secrecy Act in

1992 by section 1517 of the AnnunzioWylie Anti-Money Laundering Act,

authorize the Secretary of the Treasury

‘‘[i]n order to guard against money

laundering through financial

institutions * * * [to] require financial

institutions to carry out anti-money

laundering programs.’’ 31 U.S.C.

5318(h)(1). Those programs may include

‘‘the development of internal policies,

procedures, and controls’’; ‘‘the

designation of a compliance officer’’;

‘‘an ongoing employee training

program’’; and ‘‘an independent audit

function to test programs.’’ 31 U.S.C.

5318(h)(A–D).

Section 352 of the USA Patriot Act

amended section 5318(h) to mandate

compliance programs for all financial

institutions defined in 31 U.S.C.

5312(a)(2). Section 352 of the USA

Patriot Act is effective April 24, 2002.

D. Broker-dealer Regulation and Money

Laundering

Broker-dealer operations are keyed

primarily to the purchase and sale of

securities both for customers and for

their own accounts. Broker-dealers do

not usually expect to receive from or

disburse to customers significant

amounts of currency, and they are not

direct participants in the payment

system. However, despite the limited

use of currency in the normal course of

broker-dealer business generally, there

are broker-dealers that accept small

amounts of currency or that accept

currency transactions approved by a

legal or compliance department.5 In

addition, while broker-dealers are not

direct participants in the payment

system, they do facilitate transfers or

transmittals of funds for their

customers.

Money laundering occurs through

broker-dealers, as it does through all

categories of financial institutions.6

Although the known experience of

depository institutions with significant

money laundering is greater than the

known experience of the securities

industry with money laundering, this

difference may reflect the fact that

criminal funds enter broker-dealer

accounts at a later stage in the

laundering process, when those funds

are less immediately identifiable than at

the placement stage. Past investigative

attention, however, has focused more

intensively on the ‘‘placement’’ stage of

money laundering (especially the

suspicious placement into the financial

system of large amounts of currency)

than on transfers or conversions of illicit

funds once they are already in the

financial system. In addition, there may

be reason to fear a potential increased

use of broker-dealers for laundering

purposes in the wake of the growth of

the broker-dealer industry and as

criminals develop new ways to launder

money. The attention previously given

to the prevention of money laundering

through banks reflects the central role of

banking institutions in the global

payments system and the global

economy. But broker-dealers also play a

global role and their array of financial

services is increasingly competitive

with that of banks, for example, for high

net worth individuals.

The regulation of the securities

industry in general and of brokerdealers in particular relies on both the

Securities and Exchange Commission

and the registered securities

associations and national securities

exchanges (so-called self-regulatory

organizations or ‘‘SROs’’). Brokerdealers have long reported possible

securities law violations through

existing relationships with law

enforcement, the Securities and

Exchange Commission and the SROs.

Any effective system of suspicious

transaction reporting needs to consider

the existing broker-dealer regulatory

structure, particularly existing

procedures for reporting violations of

securities laws. Both the Securities and

Exchange Commission and the SROs

have taken measures to address money

laundering concerns at broker-dealers.7

The Securities and Exchange

Commission adopted rule 17a–8 in 1981

under the Securities and Exchange Act

of 1934 (‘‘Exchange Act’’), which

enables the SROs, subject to Securities

and Exchange Commission oversight, to

examine for Bank Secrecy Act

compliance. Accordingly, both the

Securities and Exchange Commission

and SROs will address broker-dealer

compliance with this rule.

Finally, certain broker-dealers have

been subject to suspicious transaction

reporting since 1996. In particular,

broker-dealers that are affiliates or

subsidiaries of banks or bank holding

companies have been required to report

suspicious transactions by virtue of the

application to them of rules issued by

the federal bank supervisory agencies.

In April 1996, banks, thrifts, and other

banking organizations became subject to

a requirement to report suspicious

transactions pursuant to final rules

issued by FinCEN 8, under the authority

contained in 31 U.S.C. 5318(g). In

collaboration with FinCEN, the federal

bank supervisors (the Board of

Governors of the Federal Reserve

System, the Office of the Comptroller of

the Currency, the Federal Deposit

Insurance Corporation, the Office of

Thrift Supervision, and the National

Credit Union Administration)

concurrently issued suspicious

transaction reporting rules under their

own authority. See 12 CFR 208.62

(Federal Reserve Board); 12 CFR 21.11

(OCC); 12 CFR 353.3 (FDIC); 12 CFR

563.180 (OTS); and 12 CFR 748.1

(NCUA). The bank supervisory agency

rules apply to banks, to non-depository

67672 Federal Register / Vol. 66, No. 250 / Monday, December 31, 2001 / Proposed Rules

9For example, 12 CFR 225.4(f) subjects non-bank

subsidiaries of bank holding companies to the

suspicious transaction reporting requirements of

Regulation H of the Board of Governors at 12 CFR

208.62. Broker-dealers to which the bank

supervisory agency rules for suspicious transaction

reporting currently apply represent approximately

half of the business of the broker-dealer industry,

though in terms of numbers, they are only a small

percentage of the approximately 8,300 brokerdealers in the United States.

10Money transmitters, issuers, sellers, and

redeemers of money orders, and issuers, sellers, and

redeemers of traveler’s checks will become subject

to a similar reporting requirement pursuant to a

final rule published in the Federal Register on

March 14, 2000. See 31 CFR 103.20. Under that

rule, reporting will be required for suspicious

transactions involving or aggregating at least $2,000

in general or at least $5,000 in the case of issuers

of money orders and traveler’s checks to the extent

the transactions to be reported are identified from

a review of clearance records and similar

documents. Finally, FinCEN has proposed a rule

that would require casinos and card clubs to report

suspicious transactions involving or aggregating at

least $3,000. See 63 FR 27230 (May 18, 1998).

11The definitions of ‘‘broker,’’ ‘‘dealer,’’ and

‘‘security,’’ for purposes of the Securities Exchange

Act of 1934 appear in sections 3(a)(4) (‘‘broker’’),

3(a)(5) (‘‘dealer’’), and 3(a)(10) (‘‘security’’) of that

Act, 15 U.S.C. 78c(a)(4), (5), and (10).

12See 31 U.S.C. 5319, as amended by the USA

Patriot Act.

13Many currency transactions are not indicative

of money laundering or other violations of law, a

fact recognized both by Congress, in authorizing

reform of the currency transaction reporting system,

and by FinCEN in issuing rules to implement that

system (See 31 U.S.C. 5313(d) and 31 CFR

103.22(d), 63 FR 50147 (September 21, 1998)). But

many non-currency transactions, (for example,

funds transfers) can indicate illicit activity,

especially in light of the breadth of the statutes that

make money laundering a crime. See 18 U.S.C. 1956

and 1957.

institution affiliates and subsidiaries of

banks and bank holding companies

(including broker-dealers), and to bank

holding companies (including bank

holding companies that are themselves

broker-dealers).9 The rule proposed

today is intended to apply to all brokerdealers, without regard to whether they

are affiliates or subsidiaries of banks or

bank holding companies.10

Developing suspicious activity

reporting rules appropriate to brokerdealers industry-wide involves taking

into consideration many important

issues. Appropriate suspicious

transaction reporting by broker-dealers

can provide significant information for

criminal law enforcement, tax and

regulatory authorities about potential

criminal activity (as well as about

previously undetected money

laundering).

E. Suspicious Transaction Reporting by

Broker-Dealers—General Issues

This notice of proposed rulemaking

would generally require broker-dealers

to report suspicious transactions to the

Department of the Treasury. Several

general issues cut across specific

proposed provisions, and it may be

helpful to note those issues at the

outset.

1. Definition of Broker-Dealer. In light

of the definition of ‘‘broker or dealer in

securities’’ in 31 CFR 103.11(f),

reporting would be required by any:

broker or dealer in securities, registered or

required to be registered with the Securities

Exchange Commission under the Securities

Exchange Act of 1934.11

Insurance companies or their affiliates

that are registered broker-dealers simply

to permit the sale of variable annuities

treated as securities under the Securities

Exchange Act of 1934 would be subject,

under the proposed rule, to suspicious

transaction reporting obligations. This

treatment represents a change from prior

treatment of insurance companies

required to register as broker-dealers in

order to sell variable annuities. In 1972,

Treasury exempted from the provisions

of 31 CFR 103 persons required to

register with the Securities and

Exchange Commission as broker-dealers

solely in order to offer and sell variable

annuity contracts issued by life

insurance companies. 37 FR 248986

(November 23, 1972). The exemption is

inapplicable, however, if such a

registered broker-dealer at any time

offers and sells other types of securities

in addition to variable annuities.

FinCEN anticipates that this exemption

will be withdrawn on the effective date

of the final rule based on this notice of

proposed rulemaking. Once the

exemption is withdrawn, persons

required to register as broker-dealers in

order to offer and sell variable annuity

contracts issued by life insurance

companies will be required to comply

with all applicable BSA requirements.

2. Use of Suspicious Transaction

Reports—Centralized Data Base. As is

the case with reporting by other

categories of financial institutions

subject to the Bank Secrecy Act, reports

of suspicious activity made by brokerdealers under the proposed rule would

be maintained in an automated data

base containing information from all

broker-dealer filings. The data base will

permit rapid dissemination to

appropriate agencies and self-regulatory

organizations registered with the

Securities and Exchange Commission of

reports within their jurisdiction, 12 more

thorough analysis and tracking of those

reports, and, in time, the provision to

the financial community of information

about trends and patterns gleaned from

the information reported, all as

contemplated by the Congress.

II. Specific Provisions

A. 103.11(ii)—Transaction

The definition of ‘‘transaction’’ in the

Bank Secrecy Act regulations for

purposes of suspicious transaction

reporting conforms generally to the

definition Congress added to 18 U.S.C.

1956 when it criminalized money

laundering in 1986. See Public Law 99–

570, Title XIII, 1352(a), 100 Stat. 3207–

18 (Oct. 27, 1986). This notice proposes

to amend that definition explicitly to

include transactions involving any

instrument that falls within the

definition of ‘‘security’’ in section

(3)(a)(10) of the Securities Exchange Act

of 1934, 15 U.S.C. 78c(a)(10), and to add

a corresponding definition of ‘‘security’’

to 31 CFR part 103. These changes are

necessary so that the reporting rules will

conform to the definition of broker or

dealer in securities in 31 CFR 103.11(f)

and cover all activity that should be

reported under the proposed rule.

B. 103.19—Reports of Suspicious

Transactions

General. Proposed section 103.19

contains the rules setting forth the

obligation of broker-dealers to report

suspicious transactions that are

conducted or attempted by, at, or

through a broker-dealer and involve or

aggregate at least $5,000 in funds or

other assets. It is important to recognize

that transactions are reportable under

this rule and 31 U.S.C. 5318(g) whether

or not they involve currency.13

The obligation extends to transactions

conducted or attempted by, at, or

through, the broker-dealer. However,

paragraph (a) also contains language

designed to encourage the reporting of

transactions that appear relevant to

violations of law or regulation, even in

cases in which the rule does not

explicitly so require, for example in the

case of a transaction falling below the

$5,000 threshold in the rule.

Paragraph (a)(1) contains the general

statement of the obligation to file. To

clarify that the proposed rule creates a

uniform reporting requirement for

broker-dealers and banking

organizations, the language of the

reporting obligation incorporates

language from suspicious activity

reporting rules contained in both Title

12 and Title 31. Thus, the rule requires

the reporting of all activity ‘‘relevant to

a possible violation of law or

regulation,’’ including ‘‘any known or

suspected violation of Federal law, or a

suspicious transaction related to a

money laundering activity or a violation

of the Bank Secrecy Act’’. It is

anticipated that, when this proposed

rule becomes effective, the federal bank

Federal Register / Vol. 66, No. 250 / Monday, December 31, 2001 / Proposed Rules 67673

14See, e.g., 12 CFR 208.62(c) and 31 CFR

103.18(a)(2).

15The term ‘‘BD’’ is an abbreviation for ‘‘broker

or dealer in securities’’ and is used to distinguish

the form from forms for reporting by other non-bank

institutions.

16Broker-dealers covered by the bank supervisory

rules for suspicious transaction reporting already

comply with a $5,000 threshold for suspicious

transactions relating to money laundering, BSA

violations, and other criminal violations with

respect to which a suspect can be identified.

However, under those rules, a $25,000 reporting

threshold applies to other criminal violations with

respect to which a suspect cannot be identified. The

proposed rule does not adopt this two-tiered

approach.

17The GAO report includes information, based on

a survey conducted by the GAO, regarding the

average size of transactions for retail customers of

broker-dealers. The report concludes that the

average dollar size of individual transactions (those

involving securities trades) was $22,306 (with

$5,000 as the most frequent size transaction). The

report cautions, however, that GAO was not able to

develop meaningful estimates for the entire

industry because of the low number of firms that

provided information and the wide range of

responses.

supervisors will amend or repeal, as

appropriate, any duplicative suspicious

activity reporting requirements for

broker-dealers.

Paragraph (a)(2) specifically describes

two categories of transactions that

require reporting. The first category,

described in proposed paragraph

(a)(2)(i), would require broker-dealers to

report any known or suspected Federal

criminal violation, committed or

attempted against, or through, a brokerdealer. This language is intended to

clarify the fact that broker-dealers must

report all suspicious transactions that

are relevant to a possible violation of

law or regulation. Similar language

appears in the suspicious activity

reporting rules imposed by the federal

bank supervisors under Title 12.

The second category of reportable

transactions is contained in proposed

paragraph (a)(2)(ii), which would

require broker-dealers to report to the

Treasury Department a transaction if the

broker-dealer knows, suspects, or has

reason to suspect that it is one of three

classes of transactions (described more

fully below) requiring reporting. The

‘‘knows, suspects, or has reason to

suspect’’ standard incorporates a

concept of due diligence in the

reporting requirement.

The first class, described in proposed

paragraph (a)(2)(ii)(A), includes

transactions involving funds derived

from illegal activity or intended or

conducted in order to hide or disguise

funds or assets derived from illegal

activity. The second class, described in

proposed paragraph (a)(2)(ii)(B),

involves transactions designed, whether

through structuring or other means, to

evade the requirements of the Bank

Secrecy Act. The third class, described

in proposed paragraph (a)(2)(ii)(C),

involves transactions that appear to

serve no business or apparent lawful

purpose, and for which the brokerdealer knows of no reasonable

explanation after examining the

available facts relating to the transaction

and the parties.

It should be noted that the standard

of reporting for the second reporting

category differs from that of the first.

Under the first reporting category, the

broker-dealer must report ‘‘known or

suspected’’ criminal activity. In

contrast, the second category of

reportable activity requires reporting if

a broker-dealer ‘‘knows, suspects, or has

reason to suspect’’ (emphasis added)

that a transaction should be reported

under the rule. The inclusion of two

distinct reporting standards in the

proposed rule is consistent with the

suspicious activity reporting regime to

which banking organizations are

currently subject.14

A determination as to whether a

report is required must be based on all

the facts and circumstances relating to

the transaction and customer of the

broker-dealer in question. Different fact

patterns will require different types of

judgments. In some cases, the facts of

the transaction may indicate the need to

report. For example, frequent and largescale usage of wire transfer facilities

within a brokerage, with nominal or

nonexistent securities purchases or sales

may be indicative of suspicious activity.

Similarly, the fact that a customer

refuses to provide information necessary

for the broker-dealer to make reports or

keep records required by this Part or

other regulations, provides information

that a broker-dealer determines to be

false, or seeks to change or cancel a

transaction after such person is

informed of currency transaction

reporting or information verification or

recordkeeping requirements relevant to

the transaction would all indicate that a

Suspicious Activity Report-BD (SAR–

BD)15 should be filed. (Of course, as the

proposed rule makes clear, the brokerdealer may not notify the customer that

it intends to file or has filed a

suspicious transaction report with

respect to the customer’s activity.)

In other situations a more involved

judgment may need to be made to

determine whether a transaction is

suspicious within the meaning of the

rule. Transactions that raise the need for

such judgments may include, for

example, (i) transmission or receipt of

funds transfers without normal

identifying information or in a manner

that indicates an attempt to disguise or

hide the country of origin or destination

or the identity of the customer sending

the funds or of the beneficiary to whom

the funds are sent; or (ii) repeated use

of an account as a temporary resting

place for funds from multiple sources

without a clear business purpose

therefor. The judgments involved will

also extend to whether the facts and

circumstances and the institution’s

knowledge of its customer provide a

reasonable explanation for the

transaction that removes it from the

suspicious category.

31 U.S.C. 5318(g)(1) authorizes

Treasury to require suspicious

transaction reporting not only by

financial institutions but by ‘‘any

director, officer, employee, or agent of

any financial institution.’’ This

proposed rule addresses reporting by

broker-dealers, but not by individual

employees of a broker-dealer who are

‘‘associated persons’’ of that brokerdealer. FinCEN does not intend to

reduce in any way the obligations of

broker-dealer employees or agents,

within the context of a broker-dealer’s

general regulatory or specific Bank

Secrecy Act compliance programs, but

simply to avoid at this time creating an

obligation on the part of broker-dealer

employees and agents independent of

those general obligations.

The means of commerce and the

techniques of money launderers are

continually evolving, and there is no

way to provide an exhaustive list of

suspicious transactions. FinCEN hopes

to continue its dialogue with the

securities industry about the manner in

which a combination of government

guidance, training programs, and

government-industry information

exchange can smooth the way for

operation of the new suspicious activity

reporting system in as flexible and costefficient a way as possible.

Reporting Threshold. The proposed

rule requires the reporting of suspicious

transactions of at least $5,000.16 FinCEN

is aware of concern on the part of some

broker-dealers that the threshold would

operate mechanically to require brokerdealers to establish programs to examine

every transaction occurring at the

threshold level.17 The suspicious

transaction reporting rules, however, are

not intended to operate (and indeed

cannot properly operate) in a

mechanical fashion. Rather, the

suspicious transaction reporting

requirements are intended to function in

such a way as to have financial

institutions evaluate customer activity

67674 Federal Register / Vol. 66, No. 250 / Monday, December 31, 2001 / Proposed Rules

18Thus, for example, transactions involving

securities trades by the pension fund of a publicly

traded corporation, even though involving a large

dollar amount, would likely require a more limited

scrutiny than less typical transactions such as those

involving customers who wish to deposit currency

in their brokerage account or to open a brokerage

account using money orders even though the dollar

amounts in those latter cases may be relatively

small.

19See 31 U.S.C. 5318(h). Section 312 of that Act

amends section 5318 by adding a new paragraph (i)

requiring financial institutions to establish

enhanced due diligence procedures for certain

private banking accounts and correspondent

accounts, including reasonable steps to guard

against money laundering and report suspicious

activity involving these accounts.

20Existing securities law and self-regulatory

organization rules will ensure that broker-dealers

have suspicious activity reporting rule compliance

programs in place. In particular, Section 19(g) of the

Exchange Act provides that ‘‘Every self-regulatory

organization shall comply with the provisions of

this title, the rules and regulations thereunder, and

its own rules, and . . . absent reasonable

justification or excuse enforce compliance.’’ To give

effect to Section 19(g), both the National

Association of Securities Dealers and the New York

Stock Exchange promulgated compliance program

rules. See NASD Rule 3010 and NYSE Rule 342,

including Supplemental Material .30. Rule 17a–8 of

the Exchange Act requires broker-dealers to comply

with applicable BSA rules. Accordingly, brokerdealers will be required under existing rules to

develop compliance programs for the broker-dealer

SAR rule proposed in this document.

21See Lee v. Bankers Trust Co., 166 F.3d 540, 544

(2nd Cir. 1999) (stating that in enacting 31 U.S.C.

5318(g), the Congress ‘‘broadly and unambiguously

provide[d] * * * immunity from any law (except

the federal Constitution) for any statement made in

a SAR by anyone connected to a financial

institution’’).

and relationships for money laundering

risks.18

Section 352 of the USA Patriot Act

will require broker-dealers to develop

and implement programs designed to

guard against money laundering.19

FinCEN anticipates that these changes

to section 5318 will be further

addressed in a separate rulemaking

prior to that date. Current securities selfregulatory organization rules will also

require broker-dealers to have

compliance programs for suspicious

transaction reporting.20 It is important

to note however, that a risk-based

approach to developing compliance

procedures that can be reasonably

expected to promote the detection and

reporting of suspicious activity should

be the focus of a broker-dealer’s antimoney laundering compliance program.

A compliance program that captures for

review only those transactions that are

above a threshold set at a mechanically

high level, regardless of the money

laundering or other risks such

transactions may involve, and regardless

of the money laundering or other risks

that transactions at a lower dollar

threshold may involve, would likely not

be a satisfactory program. Of course, the

particular contents or size of a

compliance program must vary, as it

does at banking organizations, to reflect

the size and nature of a particular

broker-dealer’s operations.

Filing Procedures. Paragraph (b) sets

forth the filing procedures to be

followed by broker-dealers making

reports of suspicious transactions.

Within 30 days after a broker-dealer

becomes aware of a suspicious

transaction, the business must report the

transaction by completing a SAR–BD

and filing it in a central location, to be

determined by FinCEN. The SAR–BD

will resemble the SAR used by banks to

report suspicious transactions, and a

draft form will be made available for

comment by publication in the Federal

Register.

Supporting documentation relating to

each SAR–BD is to be collected and

maintained separately by the brokerdealer and made available to law

enforcement, regulatory agencies, and

SROs as permitted in paragraph (g) of

the rule, upon request. Special

provision is made for situations

requiring immediate attention, in which

case broker-dealers are to telephone the

appropriate law enforcement authority

and the SEC in addition to filing a SAR–

BD.

Exceptions. The proposed rule would

create two exceptions from reporting.

The first exception deals with the

reporting of lost, stolen, missing or

counterfeit securities; that reporting is

to occur in accordance with existing

Securities and Exchange Commission

rules. The second exception permits the

reporting of a violation of federal

securities laws (or rules of an

appropriate SRO) by an employee or

other registered representative of a

broker-dealer, under existing industry

procedures rather than through a SAR–

BD. The second exception does not

apply, however, if the securities law or

SRO rule violation is a possible

violation of 17 CFR 240.17a–8 or 17 CFR

405.4. These exceptions are designed to

permit the reporting of those potential

violations according to present

procedures and modes in the securities

industry.

Retention of Records. Paragraph (d)

provides that filing broker-dealers must

maintain copies of SAR–BDs and the

original related documentation for a

period of five years from the date of

filing. As indicated above, supporting

documentation is to be made available

to FinCEN, the SEC, other appropriate

law enforcement and regulatory

authorities, and, as explained below, to

SROs as permitted in paragraph (g) of

the rule, on request.

Non-Disclosure. Paragraph (e) reflects

the statutory bar against the disclosure

of information filed in, or the fact of

filing, a suspicious activity report

(whether the report is required by the

proposed rule or is filed voluntarily).

See 31 U.S.C. 5318(g)(2) and 31 CFR

103.18(e)(for depository institutions).

Thus, the paragraph specifically

prohibits persons filing SAR–BDs from

making any disclosure, except to law

enforcement and regulatory agencies,

and, as explained below, to SROs as

permitted in paragraph (g) of the rule,

about either the reports themselves or

supporting documentation.

Safe Harbor from Civil Liability. 31

U.S.C. 5318(g), as amended by the USA

Patriot Act, provides protection from

liability for making reports of suspicious

transactions, and for failures to disclose

the fact of such reporting, contained in

31 U.S.C. 5318(g), as amended by the

USA Patriot Act. Section 351 of that Act

clarifies that the safe harbor applies to

the voluntary reporting of suspicious

transactions, and the proposed rule

reflects this clarification.

The USA Patriot Act clarifies that the

safe harbor is available in the arbitration

of securities industry disputes. In this

regard, FinCEN recognizes that disputes

between broker-dealers and their

customers most typically are resolved

through arbitration. It is therefore

anticipated that disputes arising out of

suspicious transaction reporting by

broker-dealers generally will be resolved

through arbitration.

The safe harbor provision of 31 U.S.C.

5318(g) clearly protects any financial

institution from civil liability for

reporting suspicious activity.21 While

the applicable law in this area is

unambiguous, FinCEN understands that

arbitration, unlike litigation, is an

equitable forum where the decision

makers have some degree of flexibility

in resolving the disputes before them.

FinCEN further understands that, as a

practical matter, it may be difficult to

overturn an arbitration award, even

where an arbitrator did not correctly

apply the law.

The specific reference to arbitration in

the safe harbor provision of the

proposed rule clarifies that the mere

switch in venue from the courts to

arbitration for many securities industry

disputes does not alter the effect of the

safe harbor from liability for suspicious

transaction reporting. In doing so, the

proposed rule reflects the recent

amendment to section 5318(g) by the

USA Patriot Act, which clarifies that the

safe harbor for suspicious transaction

reporting shall apply in arbitration.

Section 351 of the USA Patriot Act

states that a financial institution that

reports suspicious activity shall not be

Federal Register / Vol. 66, No. 250 / Monday, December 31, 2001 / Proposed Rules 67675

liable for filing such a report ‘‘under any

law or regulation of the United States,

any constitution, law or regulation of

any State or political subdivision of any

State, or under any contract or other

legally enforceable agreement (including

any arbitration agreement).’’ (Emphasis

added.) FinCEN intends to work with

the SEC, SROs, and industry

representatives to ensure that

appropriate educational materials are

delivered to compliance and litigation

personnel.

It must be noted that, while the

proposed rule reiterates and clarifies the

broad protection from liability for

making reports of suspicious

transactions and for failures to disclose

the fact of such reporting, contained in

the statutory safe harbor provision, the

regulatory provisions do not extend the

scope of either the statutory prohibition

or the statutory protection. Inclusion of

safe harbor language in the proposal is

in no way intended to suggest that the

safe harbor can override the nondisclosure provisions of the law and

regulations. The prohibition on

disclosure (other than as required by the

proposed rule) applies regardless of any

protection from liability. This means,

for example, that during an arbitration

proceeding, a broker-dealer cannot give

a SAR–BD, or disclose that one was

filed, to any participant in the

proceeding, including the arbitrator.

Examination and Enforcement.

Paragraph (g) notes that compliance

with the obligation to report suspicious

transactions will be examined, and

provides that failure to comply with the

rule may constitute a violation of the

Bank Secrecy Act and the Bank Secrecy

Act regulations. This paragraph also

makes clear that a broker-dealer must

provide access to SAR–BDs that the

broker-dealer has filed pursuant to this

requirement, to SROs registered with

the Securities and Exchange

Commission that have jurisdiction to

examine a broker-dealer for compliance

with this rule. In examining any

particular failure to report a transaction

as required by this section, FinCEN and

the SEC may take into account the

relationship between the particular

failure to report and the adequacy of the

implementation and operation of a

broker-dealer’s compliance procedures.

Proposed Effective Date. Finally,

paragraph (h) provides that the new

suspicious activity reporting rule would

be effective 180 days after the date on

which the final regulations to which

this notice of proposed rulemaking

relates are published in the Federal

Register.

III. Submission of Comments

An original and four copies of any

written hard copy comment (but not of

comments sent via E-Mail), must be

submitted. All comments will be

available for public inspection and

copying, and no material in any such

comments, including the name of any

person submitting comments, will be

recognized as confidential. Accordingly,

material not intended to be disclosed to

the public should not be submitted.

IV. Regulatory Flexibility Act

FinCEN certifies that this proposed

regulation would not have a significant

economic impact on a substantial

number of small entities. All brokerdealers, regardless of their size, are

currently subject to the Bank Secrecy

Act. Procedures currently in place at

broker-dealers to comply with existing

Bank Secrecy Act rules should help

broker-dealers identity suspicious

transactions. In addition, the limited use

of currency in the broker-dealer

industry will likely reduce the number

of suspicious activity reports required to

be filed. Finally, certain small brokerdealers may have an established and

limited customer base whose

transactions are well-known to the

broker dealer.

V. Executive Order 12866

The Department of the Treasury has

determined that this proposed rule is

not a significant regulatory action under

Executive Order 12866.

VI. Unfunded Mandates Act of 1995

Statement

Section 202 of the Unfunded

Mandates Reform Act of 1995, Public

Law 104–4 (Unfunded Mandates Act),

March 22, 1995, requires that an agency

prepare a budgetary impact statement

before promulgating a rule that includes

a federal mandate that may result in

expenditure by 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.

FinCEN has determined that it is not

required to prepare a written statement

under section 202 and has concluded

that on balance this proposal provides

the most cost-effective and least

burdensome alternative to achieve the

objectives of the rule.

VII. Paperwork Reduction Act

Recordkeeping Requirements of 31

CFR 103.20. The collection of

information contained in this notice of

proposed rulemaking is being submitted

to the Office of Management and Budget

for review in accordance with the

Paperwork Reduction Act of 1995 (44

U.S.C. 3507(d)). Comments on the

collection of information should be sent

to the Office of Management and

Budget, Attn: Alexander T. Hunt, Office

of Information and Regulatory Affairs,

Office of Management and Budget, New

Executive Office Building, Room 3208,

Washington, DC 20503, with copies to

FinCEN at Department of the Treasury,

Financial Crimes Enforcement Network,

Post Office Box 39, Vienna, Virginia

22183. Comments on the collection of

information should be received by

March 1, 2002. In accordance with

requirements of the Paperwork

Reduction Act of 1995, 44 U.S.C.

3506(c)(2)(A), and its implementing

regulations, 5 CFR 1320, the following

information concerning the collection of

information as required by 31 CFR

103.19 is presented to assist those

persons wishing to comment on the

information collection.

FinCEN anticipates that this proposed

rule, if adopted as proposed, would

result in the annual filing of a total of

2,000 Suspicious Activity Report-BD

forms. This result is an estimate

extrapolated from the number of

suspicious activity reports currently

being filed by the broker-dealer industry

either on a mandatory basis under the

bank supervisory agency rules or

voluntarily.

Description of Respondents: Brokers

or dealers in securities registered or

required to be registered with the

United States Securities and Exchange

Commission under the Securities

Exchange Act of 1934.

Estimated Number of Respondents:

8,300.

Frequency: As required.

Estimate of Burden: The reporting

burden of 31 CFR 103.19 will be

reflected in the burden of the form,

Suspicious Activity Report-BD. The

recordkeeping burden of 31 CFR 103.19

is estimated as an average of 3 hours per

form, which includes internal review of

records to determine whether the

activity requires reporting.

Estimate of Total Annual

Recordkeeping Burden on Respondents:

Recordkeeping burden estimate = 6,000

hours.

FinCEN specifically invites comments

on the following subjects: (a) Whether

the proposed collection of information

is necessary for the proper performance

of the mission of FinCEN, including

whether the information shall have

practical utility; (b) the accuracy of

FinCEN’s estimate of the burden of the

67676 Federal Register / Vol. 66, No. 250 / Monday, December 31, 2001 / Proposed Rules

proposed collection of information; (c)

ways to enhance the quality, utility, and

clarity of the information to be

collected; and (d) ways to minimize the

burden of the collection of information

on respondents, including through the

use of automated collection techniques

or other forms of information

technology.

In addition, the Paperwork Reduction

Act of 1995 requires agencies to

estimate the total annual cost burden to

respondents or recordkeepers resulting

from the collection of information.

Thus, FinCEN also specifically requests

comments to assist with this estimate. In

this connection, FinCEN requests

commenters to identify any additional

costs associated with the completion of

the form. These comments on costs

should be divided into two parts: (1)

any additional costs associated with

reporting; and (2) any additional costs

associated with recordkeeping.

List of Subjects in 31 CFR Part 103

Authority delegations (Government

agencies), Banks and banking, Currency,

Investigations, Law enforcement,

Reporting and recordkeeping

requirements.

Proposed Amendments to the

Regulations

For the reasons set forth above in the

preamble, 31 CFR Part 103 is proposed

to be amended as follows:

PART 103—FINANCIAL

RECORDKEEPING AND REPORTING

OF CURRENCY AND FOREIGN

TRANSACTIONS

1. The authority citation for part 103

continues to read as follows:

Authority: 12 U.S.C. 1829b and 1951–1959;

31 U.S.C. 5311–5330.

2. In § 103.11, paragraph (ii)(1) is

revised and new paragraph (ww) is

added to read as follows:

§ 103.11 Meaning of terms.

* * * * *

(ii) Transaction. (1) Except as

provided in paragraph (ii)(2) of this

section, transaction means a purchase,

sale, loan, pledge, gift, transfer, delivery

or other disposition, and with respect to

a financial institution includes a

deposit, withdrawal, transfer between

accounts, exchange of currency, loan,

extension of credit, purchase or sale of

any stock, bond, certificate of deposit, or

other monetary instrument, or security,

purchase or redemption of any money

order, payment or order for any money

remittance or transfer, or any other

payment, transfer, or delivery by,

through, or to a financial institution, by

whatever means effected.

* * * * *

(ww) Security. Security means any

instrument or interest described in

section 3(a)(10) of the Securities

Exchange Act of 1934, 15 U.S.C.

78c(a)(10).

3. In Subpart B, add new § 103.19 to

read as follows:

§ 103.19 Reports by brokers or dealers in

securities of suspicious transactions.

(a) General. (1) Every broker or dealer

in securities (for purposes of this

section, a ‘‘broker-dealer’’) shall file

with the Treasury Department, 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. This

includes any known or suspected

violation of Federal law, or a suspicious

transaction related to a money

laundering violation or a violation of the

Bank Secrecy Act. A broker-dealer may

also file with the Treasury Department

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. A voluntary

filing does not relieve a broker-dealer

from the responsibility of complying

with any other reporting requirements

imposed by the Securities and Exchange

Commission or a self-regulatory

organization (‘‘SRO’’) (as defined in

section 3(a)(26) of the Securities

Exchange Act of 1934, 15 U.S.C.

78c(a)(26)).

(2) A transaction requires reporting

under the terms of this section if it is

conducted or attempted by, at, or

through a broker-dealer, it involves or

aggregates funds or other assets of at

least $5,000, and:

(i) The broker-dealer detects any

known or suspected Federal criminal

violation, or pattern of criminal

violations, committed or attempted

against the broker-dealer or involving a

transaction or transactions conducted

through the broker-dealer, where the

broker-dealer was either an actual or

potential victim of a criminal violation,

or series of criminal violations or that

the broker-dealer was used to facilitate

a criminal transaction. (If it is

determined prior to filing this report

that the identified suspect or group of

suspects has used an ‘‘alias,’’ then

information regarding the true identity

of the suspect or group of suspects, as

well as alias identifiers, such as drivers’

licenses or social security numbers,

addresses and telephone numbers, must

be reported); or

(ii) the broker-dealer knows, suspects,

or has reason to suspect that the

transaction (or a pattern of transactions

of which the transaction is a part):

(A) 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;

(B) Is designed, whether through

structuring or other means, to evade any

requirements of this part or of any other

regulations promulgated under the Bank

Secrecy Act, Public Law 91–508, as

amended, codified at 12 U.S.C. 1829b,

12 U.S.C. 1951–1959, and 31 U.S.C.

5311–5330; or

(C) Has no business or apparent

lawful purpose or is not the sort in

which the particular customer would

normally be expected to engage, and the

broker-dealer knows of no reasonable

explanation for the transaction after

examining the available facts, including

the background and possible purpose of

the transaction.

(b) Filing procedures—(1) What to file.

A suspicious transaction shall be

reported by completing a Suspicious

Activity Report—Brokers or Dealers in

Securities(‘‘SAR-BD’’), and collecting

and maintaining supporting

documentation as required by paragraph

(d) of this section.

(2) Where to file. The SAR–BD shall

be filed with FinCEN in a central

location, to be determined by FinCEN,

as indicated in the instructions to the

SAR–BD.

(3) When to file. A SAR–BD shall be

filed no later than 30 calendar days after

the date of the initial detection by the

reporting broker-dealer of facts that may

constitute a basis for filing a SAR–BD

under this section. If no suspect is

identified on the date of such initial

detection, a broker-dealer may delay

filing a SAR–BD 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. In

situations involving violations that

require immediate attention, such as

ongoing money laundering schemes, the

broker-dealer shall immediately notify

by telephone an appropriate law

enforcement authority and the

Securities and Exchange Commission in

addition to filing a SAR–BD.

(c) Exceptions. (1) A broker-dealer is

not required to file a SAR–BD to report:

Federal Register / Vol. 66, No. 250 / Monday, December 31, 2001 / Proposed Rules 67677

(i) Lost, missing, counterfeit, or stolen

securities with respect to which it files

a report pursuant to the reporting

requirements of 17 CFR 240.17f–1; or

(ii) A possible violation of any of the

federal securities laws or rules of a selfregulatory organization (‘‘SRO’’) (as

defined in section 3(a)(26) of the

Securities Exchange Act of 1934, 15

U.S.C. 78c(a)(26)), by the broker-dealer

or any of its officers, directors,

employees or other registered

representatives, other than a possible

violation of 17 CFR 240.17a–8 or 17 CFR

405.4, so long as such violation is

appropriately reported to the Securities

and Exchange Commission or an SRO.

(2) A broker-dealer may be required to

demonstrate that it has relied on an

exception in paragraph (c)(1)(ii) of this

section, and must maintain records of

its determinations to do so for the

period specified in paragraph (d) of this

section. To the extent that a Form RE–

3, Form U–4, or Form U–5 concerning

the transaction is filed consistent with

the self-regulatory organization rules, a

copy of that form will be a sufficient

record for purposes of this paragraph

(c)(2).

(3) For the purposes of this paragraph

(c) the term ‘‘federal securities laws’’

means the ‘‘securities laws,’’ as that

term is defined in section 3(a)(47) of the

Securities Exchange Act of 1934, 15

U.S.C. 78c(a)(47), and the rules and

regulations promulgated by the

Securities and Exchange Commission

under such laws.

(d) Retention of records. A brokerdealer shall maintain a copy of any

SAR–BD filed and the original or

business record equivalent of any

supporting documentation for a period

of five years from the date of filing the

SAR–BD. Supporting documentation

shall be identified as such and

maintained by the broker-dealer, and

shall be deemed to have been filed with

the SAR–BD. A broker-dealer shall make

all supporting documentation available

to FinCEN, any other appropriate law

enforcement agencies or federal or state

securities regulators, and an SRO

registered with the Securities and

Exchange Commission in accordance

with paragraph (g) of this section, upon

request.

(e) Confidentiality of reports. No

financial institution, and no director,

officer, employee, or agent of any

financial institution, who reports a

suspicious transaction under this part,

may notify any person involved in the

transaction that the transaction has been

reported. Thus, any person subpoenaed

or otherwise requested to disclose a

SAR–BD or the information contained

in a SAR–BD, except where such

disclosure is requested by FinCEN, the

Securities and Exchange Commission,

or another appropriate law enforcement

or regulatory agency, or an SRO

registered with the Securities and

Exchange Commission in accordance

with paragraph (g) of this section, shall

decline to produce the SAR–BD or to

provide any information that would

disclose that a SAR–BD has been

prepared or filed, citing this paragraph

and 31 U.S.C. 5318(g)(2), and shall

notify FinCEN of any such request and

its response thereto.

(f) Limitation of liability. A brokerdealer, and any director, officer,

employee, or agent of such brokerdealer, that makes a report of any

possible violation of law or regulation

pursuant to this section or any other

authority (or voluntarily) shall not be

liable to any person under any law or

regulation of the United States (or

otherwise to the extent also provided in

31 U.S.C. 5318(g)(3), including in any

arbitration proceeding) for any

disclosure contained in, or for failure to

disclose the fact of, such report.

(g) Examination and enforcement.

Compliance with this section shall be

examined by the Department of the

Treasury, through FinCEN or its

delegees under the terms of the Bank

Secrecy Act. Reports filed under this

section shall be made available to an

SRO registered with the Securities and

Exchange Commission examining a

broker-dealer for compliance with the

requirements of this section. Failure to

satisfy the requirements of this section

may constitute a violation of the

reporting rules of the Bank Secrecy Act

and of this part.

(h) Effective date. This section is

effective [date that is 180 days after the

date on which the final regulation to

which this notice of proposed

rulemaking relates is published in the

Federal Register].

Dated: December 20, 2001.

James F. Sloan,

Director, Financial Crimes Enforcement

Network.

[FR Doc. 01–31850 Filed 12–28–01; 8:45 am]

BILLING CODE 4820–03–P