Federal Register / Vol. 75, No. 236 / Thursday, December 9, 2010 / Proposed Rules 76677 

1 ‘‘Bank Secrecy Act’’ is the name that has come 

to be applied to the Currency and Foreign 

Transactions Reporting Act (Titles I and II of Pub. 

L. 91–508), its amendments, and the other statutes 

referring to the subject matter of that Act. These 

statutes are codified at 12 U.S.C. 1829b, 12 U.S.C. 

1951–1959, and 31 U.S.C. 5311–5314 and 5316– 

5332, and notes thereto. 

2 31 U.S.C. 5311. 

3 31 U.S.C. 5318(h). 

4See Treasury Order 180–01 (Sept. 26, 2002). 

5 31 U.S.C. 5318(h). 

6Public Law 107–56 § 352(c), 115 Stat. § 322, 

codified at 31 U.S.C. 5318 note. Public Law 107– 

56 is the Uniting and Strengthening America by 

Providing Appropriate Tools Required to Intercept 

and Obstruct Terrorism Act of 2001 (‘‘USA 

PATRIOT Act’’). 

7 31 U.S.C. 5312(a)(2)(P). 

8See 31 CFR 103.170; 67 FR 21113 (Apr. 29, 

2002), as amended at 67 FR 67549 (Nov. 6, 2002) 

and corrected at 67 FR 68935 (Nov. 14, 2002). 

9See 31 CFR 103.120. 

10 31 U.S.C. 5318(g) was added to the BSA by 

section 1517 of the Annunzio-Wylie Anti-Money 

Laundering Act, Title XV of the Housing and 

Community Development Act of 1992, Public Law 

102–550; it was expanded by section 403 of the 

Money Laundering Suppression Act of 1994 (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. 

comply with rigorous recordkeeping and 

real-time reporting regimes. 

[FR Doc. 2010–30884 Filed 12–8–10; 8:45 am] 

BILLING CODE 6351–01–P 

DEPARTMENT OF THE TREASURY 

31 CFR Part 103 

RIN 1506–AB02 

Financial Crimes Enforcement 

Network: Anti-Money Laundering 

Program and Suspicious Activity 

Report Filing Requirements for 

Residential Mortgage Lenders and 

Originators 

AGENCY: Financial Crimes Enforcement 

Network (‘‘FinCEN’’), Treasury. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: FinCEN, a bureau of the 

Department of the Treasury 

(‘‘Treasury’’), is issuing proposed rules 

defining non-bank residential mortgage 

lenders and originators as loan or 

finance companies for the purpose of 

requiring them to establish anti-money 

laundering programs and report 

suspicious activities under the Bank 

Secrecy Act. 

DATES: Written comments on this notice 

of proposed rulemaking (‘‘NPRM’’) must 

be submitted on or before February 7, 

2011. 

ADDRESSES: 

FinCEN: You may submit comments, 

identified by Regulatory Identification 

Number (RIN) 1506–AB02, by any of the 

following methods: 

• Federal E-rulemaking Portal: 

http://www.regulations.gov. Follow the 

instructions for submitting comments. 

Include 1506–AB02 in the submission. 

Refer to Docket Number FINCEN–2010– 

0001. 

• Mail: FinCEN, P.O. Box 39, Vienna, 

VA 22183. Include 1506–AB02 in the 

body of the text. Please submit 

comments by one method only. 

Comments submitted in response to this 

NPRM will become a matter of public 

record. Therefore, you should submit 

only information that you wish to make 

publicly available. 

Inspection of comments: Public 

comments received electronically or 

through the U.S. Postal Service sent in 

response to a notice and request for 

comment will be made available for 

public review as soon as possible on 

http://www.regulations.gov. Comments 

received may be physically inspected in 

the FinCEN reading room located in 

Vienna, Virginia. Reading room 

appointments are available weekdays 

(excluding holidays) between 10 a.m. 

and 3 p.m., by calling the Disclosure 

Officer at (703) 905–5034 (not a toll-free 

call). 

FOR FURTHER INFORMATION CONTACT: The 

FinCEN regulatory helpline at (800) 

949–2732 and select Option 6. 

SUPPLEMENTARY INFORMATION: 

I. Background 

The Bank Secrecy Act (‘‘BSA’’) 1

authorizes the Secretary of the Treasury 

(the ‘‘Secretary’’) to issue regulations 

requiring financial institutions to keep 

records and file reports that the 

Secretary determines ‘‘have a high 

degree of usefulness in criminal, tax, or 

regulatory investigations or proceedings, 

or in the conduct of intelligence or 

counterintelligence activities, including 

analysis, to protect against international 

terrorism.’’ 2 In addition, the Secretary is 

authorized to impose anti-money 

laundering program requirements on 

financial institutions.3 The authority of 

the Secretary to administer the BSA has 

been delegated to the Director of 

FinCEN.4

A. Anti-Money Laundering Programs 

Financial institutions are required to 

establish anti-money laundering 

(‘‘AML’’) programs that include, at a 

minimum: (1) The development of 

internal policies, procedures, and 

controls; (2) the designation of a 

compliance officer; (3) an ongoing 

employee training program; and (4) an 

independent audit function to test 

programs.5 When prescribing minimum 

standards for AML programs, FinCEN 

must ‘‘consider the extent to which the 

requirements imposed under [the AML 

program requirement] are 

commensurate with the size, location, 

and activities of the financial 

institutions to which such regulations 

apply.’’ 6

The BSA defines the term ‘‘financial 

institution’’ to include, in part, ‘‘a loan 

or finance company.’’ 7 On April 29, 

2002, and again on November 6, 2002, 

FinCEN temporarily exempted this 

category of financial institution, among 

others, from the requirement to establish 

an AML program.8 The purpose of the 

temporary exemption was to enable 

Treasury and FinCEN to study the 

exempted categories of institutions and 

to consider the extent to which AML 

requirements should be applied to them, 

taking into account their specific 

characteristics and money laundering 

vulnerabilities. 

The statutory mandate that all 

financial institutions establish an antimoney laundering program is a key 

element in the national effort to prevent 

and detect money laundering and the 

financing of terrorism. This NPRM 

proposes to apply the AML program 

requirement to companies performing 

specified services in connection with 

residential mortgages. This would put 

these institutions on par with 

depository institutions performing such 

services in this respect.9

B. Suspicious Activity Reporting 

Programs 

With the enactment of 31 U.S.C. 

5318(g) in 1992,10 Congress authorized 

the Secretary to require financial 

institutions to report suspicious 

transactions. As amended by the USA 

PATRIOT Act, subsection (g)(1) states: 

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. 

There has been a regulatory gap 

between the BSA’s coverage of 

depository institutions and residential 

mortgage lenders and originators in that 

the latter are currently not subject to 

BSA requirements, the Suspicious 

Activity Report (‘‘SAR’’) foremost among 

them. Imposing a SAR requirement 

would address this regulatory gap. 

Moreover, a SAR requirement would 

potentially expand the kinds of 

activities being reported to FinCEN’s 

BSA database, thereby giving our 

regulatory and law enforcement partners 

a more complete picture, both on a 

systemic and case-specific level, of 


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76678 Federal Register / Vol. 75, No. 236 / Thursday, December 9, 2010 / Proposed Rules 

11See 68 FR 17569 (Apr. 10, 2003). This category 

of financial institution is listed at 31 U.S.C. 

5312(a)(2)(U). 

12See 68 FR 17569, 17570 (Apr. 10, 2003). 

13See Mortgage Fraud (a listing of FinCEN’s 

mortgage fraud related initiatives) http:// 

www.fincen.gov/mortgagefraud. See also, remarks 

of James H. Freis, Jr., Director, FinCEN, delivered 

at the ABA/ABA Money Laundering Enforcement 

Conference, Oct. 13, 2009 (the ‘‘Initiatives Speech’’), 

http://www.fincen.gov/news_room/speech/html/ 

20071022. See also, remarks of Timothy Geithner, 

Secretary, U.S. Department of the Treasury, on ‘‘The 

Financial Fraud Enforcement Task Force’’, Nov. 17, 

2009, http://www.fincen.gov/whatsnew/html/ 

20091117. 

14 74 FR 35830 (July 21, 2009) (‘‘2009 ANPRM’’). 

15 Id. See also note 7, supra. In this case, and 

throughout this NPRM, the term ‘‘residential 

mortgage originator’’ is defined to include, among 

other persons, entities commonly referred to as 

brokers in the residential mortgage sector. 

16See 74 FR at 35831. 

17See Title V of Division A of the Housing and 

Economic Recovery Act of 2008, Public Law 110– 

289, 122 Stat. 2810 (2008), codified at 12 U.S.C. 

5101, et seq. 

mortgage-related financial crimes. In 

these and other respects, residential 

mortgage lenders and originators may 

assume an increasingly crucial role in 

government and industry efforts to 

protect consumers, mortgage finance 

businesses, and the U.S. financial 

system from money laundering and 

other financial crimes. 

C. Regulatory Background 

On April 10, 2003, FinCEN issued an 

advance notice of proposed rulemaking 

(‘‘ANPRM’’) regarding AML 

requirements for ‘‘persons involved in 

real estate closings and settlements’’ 

(‘‘2003 ANPRM’’).11 The 2003 ANPRM 

noted that the BSA had no definition of 

the term ‘‘persons involved in real estate 

closings and settlements;’’ that FinCEN 

had not had occasion to define the term 

in a regulation; and that the legislative 

history of the term provided no insight 

into how Congress intended the term to 

be defined. 

The 2003 ANPRM noted that real 

estate transactions could involve 

multiple ‘‘persons’’ (i.e., individuals and 

business entities), including: real estate 

agents, banks, mortgage banks, mortgage 

brokers, title insurance companies, 

appraisers, escrow agents, settlement 

attorneys or agents, property inspectors, 

and other persons directly and 

tangentially involved in property 

financing, acquisition, settlement, and 

occupation. The 2003 ANPRM further 

noted that persons involved in real 

estate transactions, and the nature of 

their involvement, could vary with the 

contemplated use of the real estate, the 

nature of the rights to be acquired, or 

how these rights were to be held, e.g., 

for residential, commercial, portfolio 

investment, or development purposes. 

The 2003 ANPRM also expressed 

FinCEN’s views as to guiding principles 

that should be considered in defining 

persons involved in real estate closings 

and settlements. Any definitions or 

terms that define the scope of the rule 

should consider: (1) Those persons 

whose services rendered or products 

offered in connection with a real estate 

closing or settlement can be abused by 

money launderers; (2) those persons 

who are positioned to identify the 

purpose and nature of the transaction; 

(3) the importance of various 

participants to successful completion of 

the transaction, which may suggest that 

they are well positioned to identify 

suspicious conduct; (4) the degree to 

which professionals may have very 

different roles, in different transactions, 

which may result in greater exposure to 

money laundering; and (5) involvement 

with the actual flow of funds used in the 

transaction.12 FinCEN has not issued 

any additional notices regarding persons 

involved in real estate closings and 

settlements since the 2003 ANPRM. 

FinCEN has, in the interim, continued 

its research and analysis related to the 

various categories of financial 

institutions exempted in 2002. 

In view of increasing concern among 

regulators, law enforcement, and 

Congress over abusive and fraudulent 

sales and financing practices in 

residential mortgage markets, FinCEN 

has undertaken a number of strategic, 

outreach, and law enforcement support 

initiatives and analytical reports related 

to mortgage fraud.13

On July 21, 2009, FinCEN issued an 

ANPRM entitled ‘‘Anti-Money 

Laundering Program and Suspicious 

Activity Report Requirements for NonBank Residential Mortgage Lenders and 

Originators.’’ 14 The 2009 ANPRM 

expressed FinCEN’s inclination to 

develop AML and SAR program 

regulations for a specific subset of loan 

and finance companies: non-bank 

residential mortgage lenders and 

originators.15 The 2009 ANPRM 

suggested that any new rules likely 

would contain standards and 

requirements analogous to those 

currently applicable to federally 

regulated depository institutions.16

D. Key Issues Related to Proposed AML 

and SAR Regulations for Residential 

Mortgage Lenders and Originators 

With this NPRM, FinCEN is proposing 

an incremental approach to 

implementation of AML and SAR 

regulations for loan and finance 

companies that would focus first on 

those business entities that are engaged 

in residential mortgage lending or 

origination and are not currently subject 

to any AML or SAR program 

requirement under the BSA. Residential 

mortgage lenders and originators (e.g., 

independent mortgage loan companies 

and mortgage brokers) are primary 

providers of mortgage finance—in most 

cases dealing directly with the 

consumer—and are in a unique position 

to assess and identify money laundering 

risks and fraud while directly assisting 

consumers with their financial needs 

and protecting them from the abuses of 

financial crime. FinCEN believes that 

new regulations requiring residential 

mortgage lenders and originators to 

adopt AML programs and report 

suspicious transactions would augment 

FinCEN’s initiatives in this area. Among 

other benefits, such regulations would 

complement efforts underway by these 

companies to comply with the 

nationwide licensing system and 

registry under development since the 

passage of the Secure and Fair 

Enforcement for Mortgage Licensing Act 

of 2008 (‘‘SAFE Act’’).17 As mortgage 

companies and brokers implement 

systems and procedures to comply with 

the SAFE Act, there will be 

opportunities for them to review and 

enhance their educational and training 

programs to ensure that employees are 

able to identify and deal with fraud, 

money laundering, and other financial 

crimes appropriately. 

In the 2009 ANPRM, FinCEN sought 

public comment on a wide range of 

issues, including: (1) The incremental 

approach to the issuance of regulations 

for loan and finance companies that 

would initially affect only those 

businesses engaged in residential 

mortgage lending or origination; (2) how 

any such regulations should define 

businesses engaged in residential 

mortgage lending or origination; (3) the 

financial crime and money laundering 

risks posed by such businesses; (4) how 

AML programs for such businesses 

should be structured; (5) whether such 

businesses should be covered by BSA 

requirements other than the AML 

program requirement and the SAR 

reporting requirement; and (6) whether 

certain businesses or transactions 

should be exempted from AML program 

or SAR reporting requirements. By 

issuing this NPRM, FinCEN again 

requests comments on these issues, this 

time in the context of a specific 

proposed regulation, as well as on the 

matters addressed below. 

FinCEN received twelve comments on 

the 2009 ANPRM: one from the U.S. 

Department of Justice; five from trade 

associations; one from a Federal credit 


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Federal Register / Vol. 75, No. 236 / Thursday, December 9, 2010 / Proposed Rules 76679 

18Comments to the 2009 ANPRM are available for 

public viewing at http://www.regulations.gov. 

19There are three general stages of money 

laundering: placement, layering, and integration. 

The ‘‘placement’’ stage is the stage at which funds 

from illegal activity or funds intended to support 

illegal activity are first introduced into the financial 

system. Money laundering ‘‘layering’’ involves the 

distancing of illegal funds from their criminal 

source through the creation of complex layers of 

financial transactions. ‘‘Integration’’ occurs when 

illegal funds are made to appear to have been 

derived from a legitimate source. 

20See Advisory to Financial Institutions on Filing 

Suspicious Activity Reports Regarding Home Equity 

Conversion Mortgage Fraud Schemes, Apr. 2010, 

http://www.fincen.gov/statutes_regs/guidance/htm/ 

fin-2010-a005.html ; Mortgage Loan Fraud Update, 

Feb. 2010, http://www.fincen.gov/news_room/nr/ 

pdf/20100218.pdf; Filing Trends in Mortgage Loan 

Fraud, Feb. 2009, http://www.fincen.gov/ 

news_room/nr/pdf/20090225a.pdf; Mortgage Loan 

Fraud: an Update of Trends Based upon Analysis 

of Suspicious Activity Reports, Apr. 2008, http:// 

www.fincen.gov/news_room/rp/files/ 

MortgageLoanFraudSARAssessment.pdf; Suspected 

Money Laundering in the Residential Real Estate 

Industry, Apr. 2008, http://www.fincen.gov/ 

news_room/rp/files/ 

MLR_Real_Estate_Industry_SAR_web.pdf; Money 

Laundering in the Commercial Real Estate Industry; 

Dec. 2006, http://www.fincen.gov/news_room/rp/ 

reports/pdf/CREassessment.pdf; Mortgage Loan 

Fraud: An Industry Assessment Based Upon 

Suspicious Activity Report Analysis, Nov. 2006, 

http://www.fincen.gov/news_room/rp/reports/pdf/ 

mortgage_fraud112006.pdf. 

21See Mortgage Loan Fraud Connections with 

Other Financial Crime: An Evaluation of Suspicious 

Activity Reports Filed by Money Services 

Businesses, Securities and Futures Firms, Insurance 

Companies and Casinos, Mar. 2009, http:// 

www.fincen.gov/news_room/rp/files/ 

mortgage_fraud.pdf. 

22 Id. 

23The North American Industry Classification 

System (‘‘NAICS’’) classifies approximately 10 types 

of mortgage finance related businesses and 

professions and over 60 other businesses, 

professions and institutions (e.g., consumer and 

commercial finance companies, pawnshops, auto 

finance, equipment leasing, personal credit 

companies, industrial loan companies and 

government sponsored enterprises) as primarily 

engaged in consumer and commercial lending and 

finance. NAICS was developed as the standard for 

use by Federal statistical agencies in classifying 

business establishments for the collection, analysis, 

and publication of statistical data related to the 

business economy of the U.S. NAICS was 

developed under the auspices of the Office of 

Management and Budget (‘‘OMB’’), and adopted in 

1997. 

union; one from a mortgage company; 

one from a U.S. Senator; and three from 

individuals writing on their own 

behalf.18 The 2009 ANPRM sought 

information on a number of key issues 

related to the possible implementation 

of AML and SAR program regulations 

for the sector. 

1. Risks of Mortgage Fraud and Money 

Laundering 

As noted in the 2009 ANPRM and the 

2003 ANPRM, the residential real estate 

sector may be vulnerable at all stages of 

the money laundering process. Money 

laundering is a process by which the 

illicit origin of funds is obscured, and a 

plausible legitimate origin often 

substituted.19 The crime of money 

laundering is defined, in part, with 

respect to the proceeds of specific 

unlawful ‘‘predicate’’ activities. Both 

mortgage fraud and the act of laundering 

mortgage fraud proceeds are crimes, and 

both are destructive to consumers, 

individual businesses and the financial 

system as a whole. Despite the relative 

illiquidity of most real estate assets, 

money launderers have used residential 

mortgage transactions—fraudulently 

and legitimately structured—to disguise 

the proceeds of crime. 

In recent years, a significant 

percentage of SARs filed with FinCEN 

have reported suspected fraud schemes 

involving real estate lenders, brokers, 

agents, appraisers, and other businesses 

associated with real estate finance and 

settlements.20 FinCEN studies also have 

shown the connection between 

businesses involved in mortgage fraud 

and other suspected financial crimes.21

There was broad agreement among the 

comments submitted on the 2009 

ANPRM that the risks of fraud and other 

financial crimes, including money 

laundering, are substantial in the nonbank mortgage finance sector and 

growing. Some comments stated that the 

financial crime risks in the sector are 

‘‘no less significant’’ than those faced by 

banks providing mortgage loan services. 

A few comments stated that the primary 

risk in the sector is mortgage fraud, and 

that the risk of money laundering, 

specifically, is lower than for fraud. 

Such comments notwithstanding, the 

proceeds of any mortgage fraud have a 

high likelihood of being laundered 

through other financial institutions 

subject to the BSA, either directly in 

conjunction with the granting of the 

mortgage loan and related settlement 

transactions or at a later stage in 

conjunction with the placement, 

layering or integration of proceeds 

connected with the mortgage fraud.22

FinCEN requests comments that address 

the experience of the residential 

mortgage lending sector with money 

laundering and fraud schemes generally. 

FinCEN specifically requests 

information regarding the existence of 

any safeguards in the sector to guard 

against fraud, money laundering, and 

other financial crime, and the 

applicability of such safeguards to the 

development of AML and SAR reporting 

programs. 

2. An Incremental Approach to the 

Sector: Starting With Residential 

Mortgage Lenders and Originators 

As is the case with the term ‘‘persons 

involved in real estate closings and 

settlements,’’ the term ‘‘loan or finance 

company’’ is not defined or discussed in 

any FinCEN regulation, and there is no 

legislative history on the term. The 

term, however, could conceivably 

extend to any business entity that makes 

loans to or finances purchases on behalf 

of consumers and businesses. Loan and 

finance companies originate loans and 

leases to finance the purchase of 

consumer goods such as automobiles, 

furniture, and household appliances. 

They also extend personal loans and 

loans secured by real estate mortgages 

and deeds of trust, including home 

equity loans. They supply short- and 

intermediate-term credit for such 

purposes as the purchase of equipment 

and motor vehicles and the financing of 

inventories. In addition, specialized 

wholesale loan and finance companies 

provide liquidity that allows retail loan 

and finance companies, as well as banks 

and others, to service end users.23

Comments submitted on the 2009 

ANPRM expressed general support for 

an incremental approach. One 

commenter emphasized that the sector 

has been the primary focus of recent 

government-wide law enforcement antifraud programs. Another commenter 

expressed the view that most if not all 

state regulators of mortgage companies 

likely would support FinCEN’s 

proposal. While the comments 

expressed general support for an 

incremental approach, there also was 

some concern voiced about limiting the 

scope of the rules to residential 

mortgage lenders and originators at this 

time. A few commenters cautioned that 

FinCEN should not delay 

implementation of rules for other 

consumer and commercial finance 

companies and one commenter urged 

FinCEN to implement such 

requirements for persons involved in 

real estate closings and settlements. 

Arguably, the absence of rules for 

these other types of loan or finance 

companies might be exploited by 

criminals insofar as they may shift the 

focus of their criminal enterprises from 

residential to other consumer and 

commercial finance businesses. As 

noted in the 2009 ANPRM, FinCEN is 

inclined to defer regulations for 

commercial real estate finance 

businesses and other types of consumer 

and commercial finance businesses 

until further research and analysis can 

be conducted to enhance our 

understanding of the number and kinds 

of businesses in their sector, their 

business operations and money 

laundering vulnerabilities. For the same 


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24 2009 ANPRM, 74 FR at 35833. 

25As noted in the 2009 ANPRM, several 

definitions in current federal law (e.g., definitions 

of ‘‘mortgage lending business’’ and ‘‘loan 

originator’’) may be useful references for comments 

on the scope of the proposed regulations. See 74 FR 

at 35833. 26The proposed regulations apply to businesses, 

including sole proprietorships, not individuals. 

Thus, for example, individuals covered by the 

SAFE Act definition of ‘‘loan originator,’’ 12 U.S.C. 

5102(3)(A)(ii), would not be covered by the 

proposed regulations. 

reasons, FinCEN is not inclined at this 

time to propose rules for real estate 

agents and other persons involved in 

real estate closings and settlements. 

FinCEN will continue to study a range 

of consumer and commercial finance 

companies with a view toward 

determining the extent to which it is 

appropriate to expand the scope of the 

definition of loan or finance company 

proposed in this NPRM in a future 

rulemaking. FinCEN seeks general 

comment on the application of AML 

program and SAR regulations to other 

loan and finance companies. FinCEN 

requests comment on how new AML 

and SAR program requirements could 

be integrated into existing compliance 

and anti-fraud programs of such 

companies. 

3. Scope of the Rules; Loan or Finance 

Company 

As noted above, ‘‘Loan or Finance 

Company’’ is a term that could 

encompass many categories of entities. 

At this time, FinCEN is only addressing 

residential mortgage lenders and 

originators, but future rulemakings may 

include other types of loan or finance 

companies. A loan or finance company 

does not include banks or persons 

registered with and functionally 

regulated or examined by the Securities 

and Exchange Commission or the 

Commodity Futures Trading 

Commission, all of which are already 

subject to AML program and SAR 

reporting requirements. Additionally, a 

loan or finance company does not 

include an individual employed by a 

loan or finance company or other 

financial institution. FinCEN does not 

seek to obligate individuals, but rather 

businesses, including sole 

proprietorships, because enterprise 

wide anti-money laundering programs 

are more effective and reduce 

duplicative efforts. 

4. Scope of the Rules; Residential 

Mortgage Lender or Originator 

The challenge for FinCEN in drafting 

rules is that most real estate finance— 

both residential and commercial— 

involves complex transactions and 

multiple parties whose roles are not 

always readily discernable by the titles 

and terms used to describe them in 

generally accepted business practices or 

under applicable licensing and 

registration regimes. The primary 

mortgage market in the United States is 

fragmented, and even simple real estate 

finance transactions may involve one or 

more parties that may originate, fund, 

broker, purchase, transfer, service, 

securitize, or insure the mortgage loan. 

Additionally, the market is fragmented 

between different types of entities, some 

of which are already regulated financial 

institutions, such as banks, and some of 

which are small independent entities, 

such as many mortgage brokers. 

FinCEN believes that the views, 

assumptions and guiding principles 

noted in the 2003 ANPRM are equally 

relevant to the development of AML 

program and SAR reporting regulations 

for residential mortgage lenders and 

originators. In the 2009 ANPRM and the 

2003 ANPRM, FinCEN stated that AML 

obligations should be applicable to 

those persons that ‘‘conduct the 

activities that place them in the best 

position to identify the nature of the 

transaction, recognize suspicious 

activity, and prevent misuse of their 

services for money laundering and other 

financial crimes.’’ 24 This activity-based 

approach focuses on the nature of the 

activity conducted and its primary 

function in a particular residential 

mortgage transaction, rather than on the 

name or title ascribed to the person 

facilitating the transaction. 

Comments on the 2009 ANPRM 

reflected broad agreement that the 

definitions should be crafted so that the 

rules encompass an appropriate range of 

key non-bank residential mortgage 

lenders and originators. FinCEN seeks 

comment on which participants 

involved in non-bank residential 

mortgage finance are in a position where 

they can effectively identify and guard 

against fraud, money laundering, and 

other financial crimes. Commenters 

may, among other things, address both 

the extent to which various participants 

have access to information regarding the 

nature and purpose of the transactions 

at issue and the importance of the 

participants’ involvement to successful 

completion of the transactions. 

Comments are welcome from those 

involved centrally in the residential 

mortgage finance process (i.e., those 

who may act as an agent for some or all 

of the parties and are responsible for 

reviewing the form and type of 

payment, as well as being aware of the 

parties to the mortgage transaction), and 

those who view their involvement as 

more peripheral. FinCEN seeks 

comment specifically on whether 

FinCEN should adopt the definitions of 

‘‘residential mortgage lender,’’ 

‘‘residential mortgage originator,’’ and 

‘‘residential mortgage loan’’ set forth in 

the proposed regulation at 

103.11(ddd).25

5. Scope of the Rules; Entities Not 

Covered by the Definitions 

The proposed definitions do not 

include natural persons and certain 

businesses and transactions, described 

below.26 FinCEN therefore requests 

comment on whether the definitions 

used should be wider or narrower in 

scope to include or exclude any specific 

types of residential mortgage lenders or 

originators or any specific category of 

mortgage finance customer or 

transaction. Two commenters on the 

2009 ANPRM expressed the view that 

any new rules should not recognize or 

permit any exemptions or exceptions. 

Consistent with FinCEN’s perspective 

on the issue, several comments 

submitted on the 2009 ANPRM 

suggested that any exemptions FinCEN 

considers should take into account and 

balance the risks of money laundering 

against the implementation and 

compliance costs and obligations likely 

to be borne by this sector. FinCEN 

endeavors to balance and take into 

account the benefits of the regulations 

(including the prevention and detection 

of money laundering and other financial 

crimes, as well as the value to law 

enforcement and regulatory agencies of 

additional data on suspected financial 

crimes) against the implementation and 

compliance costs and obligations likely 

to be borne by the industry. 

One comment submitted on the 2009 

ANPRM stated that individuals in 

seller-financed transactions should be 

excluded from the scope definitions, or 

exempt from the rules. FinCEN agrees, 

and this NPRM proposes exemptions for 

individuals financing the sale of their 

own real estate. Two comments on the 

2009 ANPRM suggested that persons 

conducting a de minimis number of 

transactions—as few as one and as many 

as five were suggested—should be 

carved out of the scope definitions or 

exempt. At this time, FinCEN does not 

intend to propose an exemption for a 

person that conducts or facilitates a 

relatively low volume of mortgage 

finance transactions if the person 

nonetheless falls within the definition 

of residential mortgage lender or 

originator. FinCEN intends the proposed 

regulations to reflect the distinction 

between a seller-financed transaction 

(which typically involves family 

members or friends in a one-time 

transaction) and a person that is 


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27See 12 U.S.C. 5102(3)(A)(ii). 

28See 31 CFR 103.15–103.21. 

29See note 6, supra. 

30See Initiatives Speech, page 4. 

31See Filing Trends in Mortgage Loan Fraud, Feb. 

2009, page 1, http://www.fincen.gov/news_room/nr/ 

pdf/20090225a.pdf. 32See, e.g., 31 CFR 103.56(b)(8). 

primarily engaged in the mortgage 

finance business but for business 

reasons or changes in markets, 

competition or other factors, conducts 

relatively few transactions within a 

given period. 

The proposed definitions also do not 

include those persons that are solely 

responsible for administrative functions 

that support or facilitate residential 

mortgage finance transactions. FinCEN 

requests comment on whether it is 

necessary for FinCEN to provide a 

specific exemption for persons 

performing administrative support 

functions. Such an exemption would be 

consistent with the SAFE Act, which 

recognizes an administrative support 

exemption or carve-out from the 

definition of ‘‘loan originator.’’ 27

FinCEN seeks comment on whether 

other specific businesses or transactions 

should be excluded from the definition 

of loan or finance company. 

Comments regarding the scope of the 

definitions should be designed to enable 

FinCEN to evaluate the risks of money 

laundering, the potential value to law 

enforcement, and other relevant factors. 

FinCEN also seeks suggestions on how 

FinCEN may craft clearly delineated 

categories of included and excluded 

businesses or transactions. 

6. Structure and Elements of AML and 

SAR Regulations 

The 2009 ANPRM stated FinCEN’s 

inclination to propose AML and SAR 

rules that have similar reporting 

standards, thresholds, and procedures to 

those set forth in AML and SAR 

regulations for other industries. The 

proposed AML and SAR rules contain 

essentially the same standards and 

requirements as the existing BSA rules 

for other financial institutions. 

FinCEN has promulgated SAR 

reporting regulations for a number of 

financial institutions that have AML 

program requirements, including: 

mutual funds, insurance companies, 

futures commission merchants and 

introducing brokers in commodities, 

banks, brokers or dealers in securities, 

money services businesses, and 

casinos.28

In applying the AML program 

requirements to residential mortgage 

lenders and originators, FinCEN must 

consider the extent to which the 

standards for AML programs are 

commensurate with the size, location, 

and activities of such persons.29 FinCEN 

recognizes that while large businesses 

are engaged in mortgage finance, 

businesses in this industry may also 

include smaller companies or sole 

proprietors. FinCEN thus seeks 

comment on any particular concerns 

smaller businesses may have regarding 

the implementation of AML and SAR 

reporting programs. 

FinCEN believes that AML programs 

will complement the anti-fraud and 

general compliance programs that 

residential mortgage lenders and 

originators have established to comply 

with the SAFE Act and other Federal 

and State laws and protect their own 

business operations. Many residential 

mortgage lenders and originators may be 

able to integrate risk-based AML 

reporting programs into existing 

enterprise-wide, anti-fraud, and 

compliance programs in a 

complementary manner that utilizes 

efficiencies and commonalities and 

enhances the effectiveness of a 

business’s compliance measures. As 

noted, these businesses also may have 

procedures in place to prevent fraud, 

which they may be able to integrate into 

their AML programs.30 FinCEN seeks 

comment on how the programs and 

practices that residential mortgage 

lenders and originators have in place to 

prevent mortgage fraud and other illegal 

activities may be applicable to the 

development of AML and SAR 

programs. 

Accordingly, in this NPRM, FinCEN 

proposes AML and SAR regulations 

applicable to residential mortgage 

lenders and originators that contain 

similar reporting standards, thresholds, 

and procedures to those set forth in 

AML and SAR regulations for other 

industries. As FinCEN has emphasized 

in its recent reports on mortgage loan 

fraud trends, SARs provide a valuable 

tool for regulatory and law enforcement 

agencies seeking to isolate specific 

instances of potential criminal activity 

for further investigation, and to identify 

emerging money laundering and 

terrorism financing trends.31 The due 

diligence necessary for financial 

institutions to detect and report known 

or suspected suspicious activity greatly 

reduces vulnerability to the abuses of 

money laundering and terrorist 

financing. 

In response to the 2009 ANPRM, one 

law enforcement agency stated that the 

absence of SAR data from the sector has 

impeded law enforcement analysis of 

mortgage fraud and related crimes. 

Several comments agreed that SARs 

provide important, timely information 

to help investigate and prosecute 

financial crimes and that mortgage 

lenders should be required to file SARs. 

Three major trade associations stated 

that mortgage lenders and originators 

are in a unique position to identify and 

report mortgage-related money 

laundering and fraud. 

Several commenters urged FinCEN to 

propose only AML and SAR program 

requirements for the sector at this time. 

Because FinCEN believes an 

incremental approach is appropriate, 

FinCEN defers proposing additional 

BSA regulations for the sector at this 

time, including Currency Transaction 

Report (CTR) requirements. Entities 

subject to this regulation would still 

have to file Form 8300 for transactions 

involving the receipt of more than 

$10,000 in currency. However, FinCEN 

may determine, after further research, 

that additional BSA regulations may be 

appropriate for this sector. FinCEN 

seeks comment on whether it should 

consider other BSA regulations in 

addition to AML program and SAR 

requirements. 

FinCEN seeks general comment 

regarding the impact of the proposed 

new rules, specifically: (1) The impact 

of AML or SAR regulations on business 

operations, profitability, growth and 

practices; (2) the impact of AML or SAR 

regulations or other BSA regulations on 

consumers seeking to obtain residential 

mortgages; (3) the effectiveness of 

examining for and enforcing compliance 

with any such regulatory requirements; 

and (4) the advisability of establishing 

some minimum transaction threshold 

value or annual volume threshold below 

which some or all regulatory 

requirements would not apply. We also 

solicit comment on the value to law 

enforcement and regulatory agencies of 

the proposed regulations. Comments on 

all aspects of the NPRM are welcome, 

and we encourage all interested parties 

to provide their views. 

7. Consideration of Examination 

Authority 

Generally, the Internal Revenue 

Service has been delegated the authority 

to examine for BSA compliance 

purposes those regulated entities 

without a Federal functional regulator 

with broad supervisory authority.32

FinCEN seeks comment on any 

particular aspects of the loan or finance 

company sector that should be 

considered when making a decision 

about whether, to whom, and how to 

delegate examination authority. FinCEN 

also seeks comment on how frequently, 

to what extent, and for compliance with 


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76682 Federal Register / Vol. 75, No. 236 / Thursday, December 9, 2010 / Proposed Rules 

33The fourth reporting category has been added 

to the suspicious activity reporting rules 

promulgated since the passage of the USA 

PATRIOT Act to make it clear that the requirement 

to report suspicious activity encompasses the 

reporting of transactions involving fraud and those 

in which legally derived funds are used for criminal 

activity, such as the financing of terrorism. 

34See note 21, supra. 

what laws and regulations loan or 

finance companies are examined by 

various state or other regulators and 

whether such examination processes 

may be relied on or otherwise used to 

help in examination for compliance 

with the BSA. 

II. Section-by-Section Analysis 

A. Definition of Loan or Finance 

Company 

Section 103.11(ddd) defines the key 

terms used in the proposed rules. The 

definitions reflect FinCEN’s 

determination that the term ‘‘loan or 

finance company’’ should be limited, at 

this time, to residential mortgage 

lenders and originators, and that AML 

program and SAR requirements should 

be applied first to these businesses, and 

later as part of a phased approach 

applied to other consumer and 

commercial loan and finance 

companies. The definition of a loan or 

finance company includes entities that 

engage in activities within the United 

States, whether or not through an agent, 

agency, branch or office, and does not 

include banks or entities registered with 

and functionally regulated or examined 

by the Securities and Exchange 

Commission or the Commodity Futures 

Trading Commission. Additionally, a 

loan or finance company does not 

include an individual employed by a 

loan or finance company or other 

financial institution. 

Residential mortgage lender is defined 

as ‘‘[t]he person to whom the debt 

arising from a residential mortgage loan 

is initially payable on the face of the 

evidence of indebtedness or, if there is 

no such evidence of indebtedness, by 

agreement, or to whom the obligation is 

initially assigned at or immediately after 

settlement.’’ The definition specifically 

excludes an individual who finances the 

sale of their own dwelling or real 

property. 

Residential mortgage originator is 

defined as a person who ‘‘takes a 

residential mortgage loan application 

and offers or negotiates terms of a 

residential mortgage loan for 

compensation or gain.’’ 

Residential mortgage loan is defined 

as any loan ‘‘that is secured by a 

mortgage, deed of trust, or other 

equivalent consensual security interest’’ 

on a 1-to-4 family residential structure 

or real estate on which a residential 

structure will be built. This definition is 

intended to encompass any loan secured 

by residential real property, regardless 

of whether the borrower is purchasing 

the residential real property as a 

primary residence, vacation home or 

investment, is refinancing a purchasemoney mortgage loan to obtain a more 

favorable rate and/or terms, or is 

obtaining a mortgage loan for another 

purpose, such as debt consolidation or 

mobilization of home equity. For this 

definition, residential real property is 

intended to be a broad category, 

including condominiums, co-ops, 

mobile homes intended to be used as 

dwellings, vacation homes, and time 

shares. 

Comment is specifically invited on 

whether the above definitions are 

appropriate in light of money 

laundering risks in the industry and the 

strategic and policy goals set forth in 

this notice and in the 2003 and 2009 

ANPRMs. Comment also is specifically 

invited on whether the final rule also 

should require agents and brokers of 

residential mortgage lenders and 

originators, or any subsets of agents or 

brokers, to adopt AML programs and 

report suspicious transactions. Finally, 

comment is specifically invited on 

whether the proposed definition of 

‘‘residential mortgage loan’’ manifests 

with adequate clarity FinCEN’s stated 

intent for the definition. 

B. Reports of Suspicious Transactions 

Section 103.14(a) contains the rules 

setting forth the obligation of loan or 

finance companies to report suspicious 

transactions that are conducted or 

attempted by, at, or through a loan or 

finance company 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) 

regardless of whether they involve 

currency. The $5,000 minimum amount 

is consistent with existing SAR filing 

requirements for financial institutions. 

Section 103.14(a)(1) contains the 

general statement of the obligation to 

file reports of suspicious transactions. 

The obligation extends to transactions 

conducted or attempted by, at, or 

through a loan or finance company. The 

rule also contains a provision in section 

103.14(a)(1) 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. 

Section 103.14(a)(2) specifically 

describes the four categories of 

transactions that require reporting. A 

loan or finance company is required to 

report a transaction if it knows, 

suspects, or has reason to suspect that 

the transaction (or a pattern of 

transactions of which the transaction is 

a part): (i) Involves funds derived from 

illegal activity or is intended or 

conducted to hide or disguise funds or 

assets derived from illegal activity; 

(ii) is designed, whether through 

structuring or other means, to evade the 

requirements of the BSA; (iii) has no 

business or apparent lawful purpose, 

and the loan or finance company knows 

of no reasonable explanation for the 

transaction after examining the available 

facts; or (iv) involves the use of the loan 

or finance company to facilitate 

criminal activity.33

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 loan 

or finance company in question. 

Different fact patterns will require 

different judgments. Some examples of 

red flags associated with existing or 

potential customers are referenced in 

previous FinCEN reports on mortgage 

fraud and money laundering in the 

residential and commercial real estate 

sectors.34 However, the means of 

commerce and the techniques of money 

laundering are continually evolving, 

and there is no way to provide an 

exhaustive list of suspicious 

transactions. FinCEN will continue to 

pursue a regulatory approach that 

involves a combination of guidance, 

training programs, and governmentindustry information exchange so that 

implementation of any new AML 

program and SAR reporting regulations 

can be implemented by covered 

businesses in as flexible and cost 

efficient way as possible, while 

protecting the sector and the financial 

system as a whole from fraud, money 

laundering and other financial crimes. 

Section 103.14(a)(3) provides that the 

obligation to identify and to report a 

suspicious transaction rests with the 

loan or finance company involved in the 

transaction. However, where more than 

one loan or finance company, or another 

financial institution with a separate 

suspicious activity reporting obligation, 

is involved in the same transaction, only 

one report is required to be filed, 

provided it contains all relevant facts 

and each institution maintains a copy of 

the report and any supporting 

documentation. 

The proposed rule is intended to 

require that a loan or finance company 

evaluate customer activity and 


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35State regulatory authorities are generally 

authorized by state law to examine for compliance 

with the BSA in one of two ways: (1) The law 

authorizes the state authority to examine the 

institution for compliance with all Federal laws and 

regulations generally or with the BSA explicitly, or 

(2) the law requires a financial institution to comply 

with all Federal laws and regulations generally or 

with the BSA explicitly, and authorizes the State 

authority to examine for compliance with the State 

law. An institution may provide SAR information 

to a state regulatory authority meeting either 

criterion. 

36See 31 U.S.C. 5318(g)(2). 

37See note 38, supra. 

38On January 20, 2006, FinCEN issued guidance 

for the banking, securities, and futures industries 

authorizing the sharing of SAR information with 

parent companies, head offices, or controlling 

companies. To date, no such guidance has been 

issued for the loan or finance industry. 

39For purposes of this rulemaking, ‘‘non-public 

information’’ refers to information that is exempt 

from disclosure under the Freedom of Information 

Act. 

40 31 CFR 1.11 is the Department of the Treasury’s 

information disclosure regulation. Generally, these 

regulations are known as ‘‘Touhy regulations,’’ after 

the Supreme Court’s decision in United States ex 

rel. Touhy v. Ragen, 340 U.S. 462 (1951). In that 

case, the Supreme Court held that an agency 

employee could not be held in contempt for 

refusing to disclose agency records or information 

when following the instructions of his or her 

supervisor regarding the disclosure. An agency’s 

Touhy regulations are the instructions agency 

employees must follow when those employees 

receive requests or demands to testify or otherwise 

disclose agency records or information. 

relationships for fraud, money 

laundering and other financial crime 

risks, and design a suspicious 

transaction monitoring program that is 

appropriate for the particular loan or 

finance company in light of such risks. 

Section 103.14(b) sets forth the filing 

procedures to be followed by loan or 

finance companies making reports of 

suspicious transactions. Within 30 days 

after a loan or finance company 

becomes aware of a suspicious 

transaction, the business must report the 

transaction by completing a SAR and 

filing it with FinCEN. Supporting 

documentation relating to each SAR is 

to be collected and maintained 

separately by the loan or finance 

company and made available to FinCEN 

or any Federal, state, or local law 

enforcement agency, or any Federal 

regulatory authority that examines the 

loan or finance company for compliance 

with the BSA, or any state regulatory 

authority that examines the loan or 

finance company for compliance with 

state law requiring compliance with the 

BSA,35 upon request. Because 

supporting documentation has been 

deemed to have been filed with the 

SAR, these parties are consistent with 

those parties to whom a SAR may be 

disclosed as discussed in the rules of 

construction, below. For situations 

requiring immediate attention, loan or 

finance companies are to telephone the 

appropriate law enforcement authority 

in addition to filing a SAR. 

Section 103.14(c) provides that filing 

loan or finance companies must 

maintain copies of SARs and the 

underlying 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 and the prescribed law 

enforcement and regulatory authorities, 

upon request. 

Section 103.14(d)(1) reinforces the 

statutory prohibition against the 

disclosure by a financial institution of a 

SAR (regardless of whether the report is 

required by the proposed rule or is filed 

voluntarily).36 Thus, the section 

requires that a SAR and information that 

would reveal the existence of that SAR 

(‘‘SAR information’’) be kept 

confidential and not be disclosed except 

as authorized within the rules of 

construction. The proposed rule 

includes rules of construction that 

identify actions an institution may take 

that are not precluded by the 

confidentiality provision. These actions 

include the disclosure of SAR 

information to FinCEN, or Federal, 

State, or local law enforcement agencies, 

or a Federal regulatory authority that 

examines the loan or finance company 

for compliance with the BSA, or a state 

regulatory authority that examines the 

loan or finance company for compliance 

with state law requiring compliance 

with the BSA.37 This confidentiality 

provision also does not prohibit the 

disclosure of the underlying facts, 

transactions, and documents upon 

which a SAR is based, or the sharing of 

SAR information within the loan or 

finance company’s corporate 

organizational structure for purposes 

consistent with Title II of the BSA as 

determined by FinCEN in regulation or 

in guidance.38

Section 103.14(d)(2) incorporates the 

statutory prohibition against disclosure 

of SAR information, other than in 

fulfillment of their official duties 

consistent with the BSA, by government 

users of SAR data. The section also 

clarifies that official duties do not 

include the disclosure of SAR 

information in response to a request by 

a non-governmental entity for nonpublic information 39 or for use in a 

private legal proceeding, including a 

request under 31 CFR 1.11.40

Section 103.14(e) provides protection 

from liability for making reports of 

suspicious transactions, and for failures 

to disclose the fact of such reporting to 

the full extent provided by 31 U.S.C. 

5318(g)(3). 

Section 103.14(f) notes that 

compliance with the obligation to report 

suspicious transactions will be 

examined by FinCEN or its delegates, 

and provides that failure to comply with 

the rule may constitute a violation of the 

BSA and the BSA regulations. 

Section 103.14(g) provides that the 

new SAR requirement applies to 

transactions occurring after the later of 

six months from the effective date of a 

final rule or the establishment of a 

business entity subject to the rules. 

C. Anti-Money Laundering Program 

Section 103.142(a) requires that each 

loan or finance company develop and 

implement an anti-money laundering 

program reasonably designed to prevent 

the loan or finance company from being 

used to facilitate money laundering or 

the financing of terrorist activities. The 

program must be in writing and must be 

approved by senior management. A loan 

or finance company’s written program 

also must be made available to FinCEN 

upon request. The minimum 

requirements for the AML program are 

set forth in section 103.142(b). Beyond 

these minimum requirements, however, 

the proposed rule is intended to give 

loan or finance companies the flexibility 

to design their programs to mitigate 

their own enterprise-specific risks. 

Section 103.142(b) sets forth the 

minimum requirements of a loan or 

finance company’s AML program. 

Section 103.142(b)(1) requires the AML 

program to incorporate policies, 

procedures, and internal controls based 

upon the loan or finance company’s 

assessment of the money laundering and 

terrorist financing risks associated with 

its products, customers, distribution 

channels, and geographic locations. As 

explained above, a loan or finance 

company’s assessment of customerrelated information, such as methods of 

payment, is a key component to an 

effective AML program. Thus, a loan or 

finance company’s AML program must 

ensure that the company obtains all the 

information necessary to make its AML 

program effective. Such information 

includes, but is not limited to, relevant 

customer information collected and 

maintained by the loan or finance 

company’s agents and brokers. The 

specific means to obtain such 

information is left to the discretion of 

the loan or finance company, although 

FinCEN anticipates that the loan or 

finance company may need to amend 

existing agreements with its agents and 

brokers to ensure that the company 

receives necessary customer 

information. For purposes of making the 

required risk assessment, a loan or 


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41 73 FR 66414 (Nov. 7, 2008). 

42 5 U.S.C. 603(a). 43See note 24, supra. 

finance company must consider all 

relevant information. 

Policies, procedures, and internal 

controls also must be reasonably 

designed to ensure compliance with 

BSA requirements. Loan or finance 

companies may conduct some of their 

operations through agents and thirdparty service providers. Some elements 

of the compliance program may best be 

performed by personnel of these 

entities, in which case it is permissible 

for a loan or finance company to 

delegate contractually the 

implementation and operation of those 

aspects of its AML program to such an 

entity. Any loan or finance company 

that delegates responsibility for aspects 

of its AML program to an agent or a 

third party, however, remains fully 

responsible for the effectiveness of the 

program, as well as ensuring that 

compliance examiners are able to obtain 

information and records relating to the 

AML program. 

Section 103.142(b)(2) requires that a 

loan or finance company designate a 

compliance officer to be responsible for 

administering the AML program. A loan 

or finance company may designate a 

single person or committee to be 

responsible for compliance. The person 

or persons should be competent and 

knowledgeable regarding BSA 

requirements and money laundering 

issues and risks, and should be 

empowered with full responsibility and 

authority to develop and enforce 

appropriate policies and procedures. 

The role of the compliance officer is to 

ensure that (1) the program is 

implemented effectively; (2) the 

program is updated as necessary; and 

(3) appropriate persons are trained and 

educated in accordance with section 

103.142(b)(3). 

Section 103.142(b)(3) requires that a 

loan or finance company provide for 

education and training of appropriate 

persons. Employee training is an 

integral part of any AML program. In 

order to carry out their responsibilities 

effectively, employees of a loan or 

finance company (and of any agent or 

third-party service provider) with 

responsibility under the program must 

be trained in the requirements of the 

rule and money laundering risks 

generally so that red flags associated 

with existing or potential customers can 

be identified. Such training may be 

conducted by outside or in-house 

seminars, and may include computerbased training. The nature, scope, and 

frequency of the education and training 

program of the loan or finance company 

will depend upon the employee 

functions performed. However, those 

with obligations under the AML 

program must be sufficiently trained to 

carry out their responsibilities 

effectively. Moreover, these employees 

should receive periodic updates and 

refreshers regarding the AML program. 

Section 103.142(b)(4) requires that a 

loan or finance company provide for 

independent testing of the program on 

a periodic basis to ensure that it 

complies with the requirements of the 

rule and that the program functions as 

designed. An outside consultant or 

accountant need not perform the test. 

The review may be conducted by an 

officer, employee or group of 

employees, so long as the reviewer is 

not the designated compliance officer 

and does not report directly to the 

compliance officer. The frequency of the 

independent testing will depend upon 

the loan or finance company’s 

assessment of the risks posed. Any 

recommendations resulting from such 

testing should be implemented 

promptly or reviewed by senior 

management. 

Section 103.142(c) states that 

compliance with the AML program 

requirements will be determined by 

FinCEN or its delegates, under the terms 

of the BSA. 

III. Proposed Location in Chapter X 

As discussed in a previous Federal 

Register Notice,41 FinCEN is separately 

proposing to remove part 103 of chapter 

I of title 31, Code of Federal 

Regulations, and add the reorganized 

contents of part 103 as new parts 1000 

to 1099 (‘‘chapter X’’). If the notice of 

proposed rulemaking for chapter X is 

finalized, the changes in the present 

proposed rule would be reorganized 

according to the proposed Chapter X. 

The planned reorganization will have 

no substantive effect on the regulatory 

changes herein. The regulatory changes 

of this specific rulemaking would be 

renumbered according to the proposed 

Chapter X as follows: 

(a) 103.11 would be moved to 

1010.100; 

(b) 103.14 would be moved to 

1029.320; and 

(c) 103.142 would be moved to 

1029.210. 

IV. Regulatory Flexibility Act 

When an agency issues a rulemaking 

proposal, the Regulatory Flexibility Act 

(‘‘RFA’’) requires the agency to ‘‘prepare 

and make available for public comment 

an initial regulatory flexibility analysis,’’ 

which will ‘‘describe the impact of the 

proposed rule on small entities.’’ 42

Section 605 of the RFA allows an 

agency to certify a rule, in lieu of 

preparing an analysis, if the proposed 

rulemaking is not expected to have a 

significant economic impact on a 

substantial number of small entities. 

Estimate of the number of small 

entities to which the proposed rule will 

apply: 

For the purpose of arriving at an 

estimated number of residential 

mortgage lenders and originators, 

FinCEN is relying on information 

gathered from various public sources, 

including major trade associations and 

associations of government regulators. 

Estimates based on this data suggest that 

as of 2010 there are approximately 

31,000 qualifying entities in the United 

States, down from approximately 42,000 

in 2009. FinCEN also referred to 

information gathered from the NAICS 

codes,43 which lists loan and finance 

companies as NAICS codes 522292 

(Real Estate Credit) and 522310 

(Mortgage and Nonmortgage Loan 

Brokers). The U.S. Census Bureau 

estimated there were about 36,275 

entities in these classifications in 2002. 

However, these classifications include 

services that are outside of those 

provided by loan and finance 

companies (i.e. bank lenders), so the 

number of loan or finance companies to 

which this proposed rule is applicable 

could be significantly less. Within this 

classification, those entities that have 

less than 7 million dollars in gross 

revenue are considered small. FinCEN 

estimates that 95% of the affected 

industry is considered a small business, 

and that the proposed regulation would 

affect all of them. 

Description of the projected reporting 

and recordkeeping requirements of the 

proposed rule: 

The proposed rule would require loan 

and finance companies to maintain 

AML programs and file reports on 

suspicious transactions. By requiring 

this, FinCEN is addressing 

vulnerabilities in the U.S. financial 

system and is leveling the playing field 

between bank and non-bank lenders. 

FinCEN does not foresee a significant 

impact on the regulated industry from 

these requirements. Loan or finance 

companies, as a usual and customary 

part of their business for each 

transaction, conduct a significant 

amount of due diligence on both the 

property securing the loan and the 

borrower. This process of due diligence 

involves the types of inquiry and 

collecting the types of information that 

would be expected in any program to 

prevent money laundering and fraud 


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Federal Register / Vol. 75, No. 236 / Thursday, December 9, 2010 / Proposed Rules 76685 

44See, e.g., Form 1003 Uniform Residential 

Mortgage Application, available at https:// 

www.efanniemae.com/sf/formsdocs/forms/pdf/ 

sellingtrans/1003.pdf or http:// 

www.freddiemac.com/uniform/doc/ 

form_65_urla_7_05.doc. 

45See, e.g., Guidance—Preparing a Complete and 

Sufficient Suspicious Activity Report Narrative 

(including related PowerPoint Presentation—Keys 

to Writing a Complete and Sufficient SAR 

Narrative), Nov. 2003, http://www.fincen.gov/ 

statutes_regs/guidance/html/ 

narrativeguidance_webintro.html; Guidance— 

Suggestions for Addressing Common Errors Noted 

in Suspicious Activity Reporting, Oct. 10, 2007, 

http://www.fincen.gov/statutes_regs/guidance/ 

html/SAR_Common_Errors_Web_Posting.html; 

Guidance—Suspicious Activity Report Supporting 

Documentation, June 13, 2007 (FIN–2007–G003), 

http://www.fincen.gov/statutes_regs/guidance/ 

html/Supporting_Documentation_Guidance.html. 

The SAR Activity Review—Trends, Tips and Issues 

(Issue 16), Oct. 2009, Section 4, Law Enforcement 

Suggestions When Preparing Suspicious Activity 

Reports, p. 45., http://www.fincen.gov/ 

statutes_regs/guidance/html/ 

narrativeguidance_webintro.html. See also notes 13 

and 21, supra. 

46The Loan Modification Scam Prevention 

Network includes Fannie Mae, Freddie Mac, the 

Lawyers’ Committee for Civil Rights Under Law 

(Lawyers’ Committee) and NeighborWorks America, 

among others, with representatives from key 

governmental agencies, such as the Federal Trade 

Commission, the U.S. Department of Housing and 

Urban Development (HUD), U.S. Department of 

Justice, the U.S. Treasury Department, the Federal 

Bureau of Investigation, and state Attorneys General 

offices, as well as leading non-profit organizations 

from across the country. See http:// 

www.preventloanscams.org/. 

47See Form 1003 Uniform Residential Mortgage 

Application, available at https:// 

www.efanniemae.com/sf/formsdocs/forms/pdf/ 

sellingtrans/1003.pdf or http:// 

www.freddiemac.com/uniform/doc/ 

form_65_urla_7_05.doc. 

48 44 U.S.C. 3507(d). 

49See 44 U.S.C. 3506(c)(2)(A). 

and to detect and report suspicious 

transactions.44

AML Program Requirement in General 

The proposed rule would not impose 

significant burdens on loan and finance 

companies. These companies may build 

on their existing risk management 

procedures and prudential business 

practices to ensure compliance with this 

rule. FinCEN and other agencies have 

issued substantial guidance on the 

development of AML programs and SAR 

reporting requirements.45 Most loan and 

finance companies subject to the 

proposed rule would not need to obtain 

more sophisticated legal or accounting 

advice than that already required to run 

their businesses. Residential mortgage 

lenders and originators undertake 

thorough due diligence of borrowers 

and collateral to assess the credit risk 

associated with a particular loan. The 

information gathered by these 

businesses generally is the same as, or 

very similar to, the information that 

would be expected in any programs to 

prevent money laundering and detect 

and report suspicious transactions. 

FinCEN seeks comment on the extent to 

which AML programs or SAR reporting 

requirements would require affected 

businesses to conduct a degree of due 

diligence, or collect an amount of 

information, beyond that presently 

conducted to assess credit worthiness 

and minimize losses due to fraud. 

Finally, FinCEN believes that the 

flexibility incorporated into the 

proposed rule would permit each loan 

or finance company to tailor its AML 

program to fit its own size and needs. 

In this regard, FinCEN believes that 

expenditures associated with 

establishing and implementing an AML 

program will be commensurate with the 

size and risk profile of a loan or finance 

company. If a loan or finance company 

is small or does not engage in high risk 

transactions, therefore, the burden to 

comply with the proposed rule should 

be minimal. FinCEN estimates that the 

impact of this requirement would not be 

significant. 

Suspicious Activity Reporting 

The proposed rule would require loan 

and finance companies to report on 

transactions of $5,000 or more which 

they determine to be suspicious. Loan 

and finance companies have not been 

previously required to comply with 

such a requirement under regulation. 

However, as noted above, most loan and 

finance companies, in order to remain 

viable, have in place policies and 

procedures to prevent and detect fraud. 

Such anti-fraud measures should assist 

loan and finance companies in reporting 

suspicious transactions. Many loan and 

finance companies already voluntarily 

report suspicious transactions and fraud 

through entities such as the Loan 

Modification Scam Prevention 

Network.46 Additionally, loan and 

finance companies, as part of the 

application process for loans, already 

gather the information necessary to fill 

out SAR forms as a usual and customary 

part of their business. It is likely that the 

software packages most such companies 

already use will, after this proposed 

regulation, incorporate the ability to 

automatically fill out all but the 

narrative field in a SAR based on 

information already input for the loan 

application.47 Therefore, FinCEN 

estimates that the burden of the SAR 

filing requirements for loan and finance 

companies would be low. 

Certification 

The additional burden proposed by 

the rule would be a requirement to 

maintain an AML program and a SAR 

filing requirement. As discussed above, 

FinCEN estimates that the impact from 

these requirements would not be 

significant. Accordingly, FinCEN 

certifies that the proposed rule would 

not have a significant impact on a 

substantial number of small entities. 

Questions for Comment: 

1. Please provide comment on any or 

all of the provisions in the proposed 

rule with regard to (a) the impact of the 

provision(s) (including any benefits and 

costs), if any, in carrying out 

responsibilities under the proposed rule 

and (b) what less burdensome 

alternatives if any, FinCEN should 

consider. 

2. Please provide comment regarding 

whether the AML program and SAR 

reporting requirements proposed in this 

rule would require entities to gather any 

information not already gathered as part 

of the due diligence, underwriting, and 

compliance process and provide 

specific examples of such information. 

V. Paperwork Reduction Act Notices 

The collection of information 

contained in this proposed rule is being 

submitted to OMB for review in 

accordance with the Paperwork 

Reduction Act of 1995 (‘‘PRA’’).48

Comments on the collection of 

information should be sent (preferably 

by fax (202–395–6974)) to Desk Officer 

for the Department of the Treasury, 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Paperwork Reduction Project 

(1506), Washington, DC 20503 or by the 

Internet to 

OIRA_submission@omb.eop.gov, with a 

copy to the FinCEN by mail. Comments 

on the collection of information should 

be received by February 7, 2011. 

In accordance with the requirements 

of the PRA,49 and its implementing 

regulations, 5 CFR part 1320, the 

following information concerning the 

collection of information is presented to 

assist those persons wishing to 

comment on the information collection. 

The information collections in this 

proposal are contained in 31 CFR 103.14 

and 31 CFR 103.142. 

AML program for loan and finance 

companies: 

AML programs for loan and finance 

companies (31 CFR 103.142). This 

information would be required to be 

retained pursuant to 31 U.S.C. 5318(h) 

and proposed 31 CFR 103.142. The 

collection of information would be 

mandatory. The information collected 

would be pursuant to 103.142 and 

would be used by examiners to 


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determine whether loan and finance 

companies comply with the BSA. 

Description of Recordkeepers: Loan 

and finance companies as defined in 31 

CFR 103.11(ddd). 

Estimated Number of Recordkeepers: 

31,000. 

Estimated Average Annual Burden 

Hours per Recordkeeper: The estimated 

average annual burden associated with 

the recordkeeping requirement in 

proposed 31 CFR 103.142 is three hours. 

Estimated Total Annual 

Recordkeeping Burden: FinCEN 

estimates that the annual recordkeeping 

burden would be 93,000 hours. 

This burden will be included (added 

to) the existing burden listed under 

OMB Control Number 1506–0035, 

currently titled AML Programs for 

insurance companies. The new title for 

this control number will become AML 

Programs for insurance companies and 

loan and finance companies. The new 

total burden will 94,200 hours. 

SAR filing for loan and finance 

companies. 

SARs for loan and finance companies 

(proposed 31 CFR 103.14). This 

information would be required to be 

provided pursuant to 31 U.S.C. 5318(g) 

and 31 CFR 103.14. This information 

would be used by law enforcement 

agencies in the enforcement of criminal 

and regulatory laws and to prevent loan 

and finance companies from engaging in 

illegal activities. The collection of 

information is mandatory. The proposal 

would increase the number of 

recordkeepers by 31,000. 

Description of Recordkeepers: Loan 

and finance companies as defined in 31 

CFR 103.11(ddd). 

Estimated Number of Recordkeepers: 

31,000. 

Estimated Average Annual Burden 

Hours per Recordkeeper: The estimated 

average annual burden associated with 

the recordkeeping requirement in 31 

CFR 103.14 is 2 hours per report, and 

FinCEN estimates that, on average, one 

report per filer will be filed per year. 

Estimated Total Annual 

Recordkeeping Burden: The proposal 

would increase the estimated annual 

burden by 62,000, consisting of one 

hour for report completion and one hour 

for required recordkeeping. 

This is a new requirement that will 

require a new OMB Control Number 

1506–XXXX. 

An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless the collection of information 

displays a valid OMB control number. 

Records required to be retained under 

the BSA must be retained for five years. 

Questions for Comment: 

1. We seek comments on FinCEN’s 

three-hour recordkeeping estimate for 

the establishment of AML programs by 

loan and finance companies; whether 

this estimate is too low; and, if so, an 

estimate that better reflects industry 

practices. We also ask commenters to 

provide an estimate of costs associated 

with establishing these AML programs, 

especially with regards to systems and 

labor costs. 

2. We seek comment on FinCEN’s 

two-hour estimate for annual SAR 

filings by loan and finance companies 

and whether this estimate is too low. 

We also ask commenters to provide an 

estimate of costs associated with the 

SAR filing requirement. 

VI. Executive Order 12866 

It has been determined that this 

proposed rule is a significant regulatory 

action for purposes of Executive Order 

12866. 

VII. Unfunded Mandates Act of 1995 

Statement 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 

(‘‘Unfunded Mandates Act’’), Public Law 

104–4 (March 22, 1995), requires that an 

agency prepare a budgetary impact 

statement before promulgating a rule 

that may result in expenditure by the 

state, local, and tribal governments, in 

the aggregate, or by the private sector, of 

$100 million or more in any one year. 

If a budgetary impact statement is 

required, section 202 of the Unfunded 

Mandates Act also requires an agency to 

identify and consider a reasonable 

number of regulatory alternatives before 

promulgating a rule. Taking into 

account the factors noted above and 

using conservative estimates of average 

labor costs in evaluating the cost of the 

burden imposed by the proposed 

regulation, FinCEN has determined that 

it is not required to prepare a written 

statement under section 202. 

List of Subjects in 31 CFR Part 103 

Administrative practice and 

procedure, Banks, Banking, Brokers, 

Currency, Foreign banking, Foreign 

currencies, Gambling, Investigations, 

Penalties, Reporting and recordkeeping 

requirements, Securities, Terrorism. 

Authority and Issuance 

For the reasons set forth in the 

preamble, part 103 of title 31 of the 

Code of Federal Regulations is proposed 

to be amended as follows: 

PART 103—FINANCIAL 

RECORDKEEPING AND REPORTING 

OF CURRENCY AND FINANCIAL 

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. 5311–5314 and 5316–5332; 

title III, sec. 314 Pub. L. 107–56, 115 Stat. 

307. 

2. Add new § 103.11(ddd) to read as 

follows: 

§ 103.11 Meaning of terms. 

* * * * * 

(ddd) Loan or finance company. A 

person engaged in activities that take 

place wholly or in substantial part 

within the United States in one or more 

of the capacities listed below, whether 

or not on a regular basis or as an 

organized business concern. This 

includes but is not limited to 

maintenance of any agent, agency, 

branch, or office within the United 

States. For the purposes of this 

paragraph (ddd), the term ‘‘loan or 

finance company’’ shall include a sole 

proprietor acting as a loan or finance 

company, and shall not include a bank, 

a person registered with and 

functionally regulated or examined by 

the Securities and Exchange 

Commission or the Commodity Futures 

Trading Commission, or an individual 

employed by a loan or finance company 

or financial institution under this part. 

(1) Residential mortgage lender or 

originator. For purposes of this part: 

(i) Residential mortgage lender. The 

person to whom the debt arising from a 

residential mortgage loan is initially 

payable on the face of the evidence of 

indebtedness or, if there is no such 

evidence of indebtedness, by agreement, 

or to whom the obligation is initially 

assigned at or immediately after 

settlement. The term ‘‘residential 

mortgage lender’’ shall not include an 

individual who finances the sale of the 

individual’s own dwelling or real 

property. 

(ii) Residential mortgage originator. A 

person that takes a residential mortgage 

loan application and offers or negotiates 

terms of a residential mortgage loan for 

compensation or gain. 

(iii) Residential mortgage loan. A loan 

that is secured by a mortgage, deed of 

trust, or other equivalent consensual 

security interest on: 

(A) A residential structure that 

contains one to four units, including, if 

used as a residence, an individual 

condominium unit, cooperative unit, 

mobile home or trailer; or 


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(B) Residential real estate upon which 

such a structure is constructed or 

intended to be constructed. 

(2) [Reserved] 

3. Add new § 103.14 to subpart B to 

read as follows: 

§ 103.14 Reports by loan or finance 

companies of suspicious transactions. 

(a) General. (1) Every loan or finance 

company shall file with FinCEN, to the 

extent and in the manner required by 

this section, a report of any suspicious 

transaction relevant to a possible 

violation of law or regulation. A loan or 

finance company may also file with 

FinCEN a report of any suspicious 

transaction that it believes is relevant to 

the possible violation of any law or 

regulation, but whose reporting is not 

required by this section. 

(2) A transaction requires reporting 

under this section if it is conducted or 

attempted by, at, or through a loan or 

finance company, it involves or 

aggregates funds or other assets of at 

least $5,000, and the loan or finance 

company knows, suspects, or has reason 

to suspect that the transaction (or a 

pattern of transactions of which the 

transaction is a part): 

(i) Involves funds derived from illegal 

activity or is intended or conducted in 

order to hide or disguise funds or assets 

derived from illegal activity (including, 

without limitation, the ownership, 

nature, source, location, or control of 

such funds or assets) as part of a plan 

to violate or evade any Federal law or 

regulation or to avoid any transaction 

reporting requirement under Federal 

law or regulation; 

(ii) Is designed, whether through 

structuring or other means, to evade any 

requirements of this part or 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. 

5311–5314, 5316–5332; 

(iii) 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 

loan or finance company knows of no 

reasonable explanation for the 

transaction after examining the available 

facts, including the background and 

possible purpose of the transaction; or 

(iv) Involves use of the loan or finance 

company to facilitate criminal activity. 

(3) More than one loan or finance 

company may have an obligation to 

report the same transaction under this 

section, and other financial institutions 

may have separate obligations to report 

suspicious activity with respect to the 

same transaction pursuant to other 

provisions of this part. In those 

instances, no more than one report is 

required to be filed by the loan or 

finance company(s) and other financial 

institution(s) involved in the 

transaction, provided that the report 

filed contains all relevant facts, 

including the name of each financial 

institution involved in the transaction, 

the report complies with all instructions 

applicable to joint filings, and each 

institution maintains a copy of the 

report filed, along with any supporting 

documentation. 

(b) Filing and notification 

procedures—(1) What to file. A 

suspicious transaction shall be reported 

by completing a Suspicious Activity 

Report (‘‘SAR’’), and collecting and 

maintaining supporting documentation 

as required by paragraph (c) of this 

section. 

(2) Where to file. The SAR shall be 

filed with the FinCEN in accordance 

with the instructions to the SAR. 

(3) When to file. A SAR shall be filed 

no later than 30 calendar days after the 

date of the initial detection by the 

reporting loan or finance company of 

facts that may constitute a basis for 

filing a SAR under this section. If no 

suspect is identified on the date of such 

initial detection, a loan or finance 

company may delay filing a SAR for an 

additional 30 calendar days to identify 

a suspect, but in no case shall reporting 

be delayed more than 60 calendar days 

after the date of such initial detection. 

(4) Mandatory notification to law 

enforcement. In situations involving 

violations that require immediate 

attention, such as suspected terrorist 

financing or ongoing money laundering 

schemes, a loan or finance company 

shall immediately notify by telephone 

an appropriate law enforcement 

authority in addition to filing timely a 

SAR. 

(5) Voluntary notification to FinCEN. 

Any loan or finance company wishing 

voluntarily to report suspicious 

transactions that may relate to terrorist 

activity may call the FinCEN’s Financial 

Institutions Hotline in addition to filing 

timely a SAR if required by this section. 

(c) Retention of records. A loan or 

finance company shall maintain a copy 

of any SAR filed by the loan or finance 

company or on its behalf (including 

joint reports), and the original (or 

business record equivalent) of any 

supporting documentation concerning 

any SAR that it files (or is filed on its 

behalf), for a period of five years from 

the date of filing the SAR. Supporting 

documentation shall be identified as 

such and maintained by the loan or 

finance company, and shall be deemed 

to have been filed with the SAR. The 

loan or finance company shall make all 

supporting documentation available to 

FinCEN or any Federal, state, or local 

law enforcement agency, any Federal 

regulatory authority that examines the 

loan or finance company for compliance 

with the Bank Secrecy Act, or any state 

regulatory authority that examines the 

loan or finance company for compliance 

with state law requiring compliance 

with the BSA upon request. 

(d) Confidentiality of SARs. A SAR, 

and any information that would reveal 

the existence of a SAR, are confidential 

and shall not be disclosed except as 

authorized in this paragraph (d). For 

purposes of this paragraph (d) only, a 

SAR shall include any suspicious 

activity report filed with FinCEN 

pursuant to any regulation in this part. 

(1) Prohibition on disclosures by loan 

or finance companies—(i) General rule. 

No loan or finance company, and no 

director, officer, employee, or agent of 

any loan or finance company, shall 

disclose a SAR or any information that 

would reveal the existence of a SAR. 

Any loan or finance company, and any 

director, officer, employee, or agent of 

any loan or finance company that is 

subpoenaed or otherwise requested to 

disclose a SAR or any information that 

would reveal the existence of a SAR, 

shall decline to produce the SAR or 

such information, citing this section and 

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

notify FinCEN of any such request and 

the response thereto. 

(ii) Rules of construction. Provided 

that no person involved in any reported 

suspicious transaction is notified that 

the transaction has been reported, 

paragraph (d)(1) of this section shall not 

be construed as prohibiting: 

(A) The disclosure by a loan or 

finance company, or any director, 

officer, employee, or agent of a loan or 

finance company of: 

(1) A SAR, or any information that 

would reveal the existence of a SAR, to 

FinCEN or any Federal, State, or local 

law enforcement agency, any Federal 

regulatory authority that examines the 

loan or finance company for compliance 

with the Bank Secrecy Act, or any state 

regulatory authority that examines the 

loan or finance company for compliance 

with state law requiring compliance 

with the BSA; or 

(2) The underlying facts, transactions, 

and documents upon which a SAR is 

based, including disclosures to another 

financial institution, or any director, 

officer, employee, or agent of a financial 

institution, for the preparation of a joint 

SAR; or 

(B) The sharing by a loan or finance 

company, or any director, officer, 

employee, or agent of the loan or 

finance company, of a SAR, or any 


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information that would reveal the 

existence of a SAR, within the loan or 

finance company’s corporate 

organizational structure for purposes 

consistent with Title II of the Bank 

Secrecy Act as determined by regulation 

or in guidance. 

(2) Prohibition on disclosures by 

government authorities. A Federal, state, 

local, territorial, or tribal government 

authority, or any director, officer, 

employee, or agent of any of the 

foregoing, shall not disclose a SAR, or 

any information that would reveal the 

existence of a SAR, except as necessary 

to fulfill official duties consistent with 

Title II of the Bank Secrecy Act. For 

purposes of this section, official duties 

shall not include the disclosure of a 

SAR, or any information that would 

reveal the existence of a SAR, to a nongovernmental entity in response to a 

request for disclosure of non-public 

information or a request for use in a 

private legal proceeding, including a 

request pursuant to 31 CFR 1.11. 

(e) Limitation on liability. A loan or 

finance company, and any director, 

officer, employee, or agent of any loan 

or finance company, that makes a 

voluntary disclosure of any possible 

violation of law or regulation to a 

government agency or makes a 

disclosure pursuant to this section or 

any other authority, including a 

disclosure made jointly with another 

institution, shall be protected from 

liability for any such disclosure, or for 

failure to provide notice of such 

disclosure to any person identified in 

the disclosure, or both, to the full extent 

provided by 31 U.S.C. 5318(g)(3). 

(f) Compliance. Loan or finance 

companies shall be examined by 

FinCEN or its delegates under the terms 

of the Bank Secrecy Act, for compliance 

with this section. Failure to satisfy the 

requirements of this section may be a 

violation of the Bank Secrecy Act and of 

this part. 

(g) Applicability date. This section 

applies to transactions initiated after an 

anti-money laundering program 

required by section 103.142 of this part 

is required to be implemented. 

4. Add new § 103.142 to subpart I to 

read as follows: 

§ 103.142 Anti-money laundering 

programs for loan or finance companies. 

(a) Anti-money laundering program 

requirements for loan or finance 

companies. Each loan or finance 

company shall develop and implement 

a written anti-money laundering 

program that is reasonably designed to 

prevent the loan or finance company 

from being used to facilitate money 

laundering or the financing of terrorist 

activities. The program must be 

approved by senior management. A loan 

or finance company shall make a copy 

of its anti-money laundering program 

available to the Financial Crimes 

Enforcement Network, or its designee 

upon request. 

(b) Minimum requirements. At a 

minimum, the anti-money laundering 

program shall: 

(1) Incorporate policies, procedures, 

and internal controls based upon the 

loan or finance company’s assessment of 

the money laundering and terrorist 

financing risks associated with its 

products and services. Policies, 

procedures, and internal controls 

developed and implemented by a loan 

or finance company under this section 

shall include provisions for complying 

with the applicable requirements of 

subchapter II of chapter 53 of title 31, 

United States Code and this part, 

integrating the company’s agents and 

brokers into its anti-money laundering 

program, and obtaining all relevant 

customer-related information necessary 

for an effective anti-money laundering 

program. 

(2) Designate a compliance officer 

who will be responsible for ensuring 

that: 

(i) The anti-money laundering 

program is implemented effectively, 

including monitoring compliance by the 

company’s agents and brokers with their 

obligations under the program; 

(ii) The anti-money laundering 

program is updated as necessary; and 

(iii) Appropriate persons are educated 

and trained in accordance with 

paragraph (b)(3) of this section. 

(3) Provide for on-going training of 

appropriate persons concerning their 

responsibilities under the program. A 

loan or finance company may satisfy 

this requirement with respect to its 

employees, agents, and brokers by 

directly training such persons or 

verifying that such persons have 

received training by a competent third 

party with respect to the products and 

services offered by the loan or finance 

company. 

(4) Provide for independent testing to 

monitor and maintain an adequate 

program, including testing to determine 

compliance of the company’s agents and 

brokers with their obligations under the 

program. The scope and frequency of 

the testing shall be commensurate with 

the risks posed by the company’s 

products and services. Such testing may 

be conducted by a third party or by any 

officer or employee of the loan or 

finance company, other than the person 

designated in paragraph (b)(2) of this 

section. 

(c) Compliance. Compliance with this 

section shall be examined by FinCEN or 

its delegates, under the terms of the 

Bank Secrecy Act. Failure to comply 

with the requirements of this section 

may constitute a violation of the Bank 

Secrecy Act and of this part. 

(d) Effective date. A loan or finance 

company must develop and implement 

an anti-money laundering program that 

complies with the requirements of this 

section on or before the later of six 

months from the effective date of the 

regulation, or six months after the date 

a loan or finance company is established 

and becomes subject to the requirements 

of this section. 

5. Amend § 103.170 as follows: 

a. Remove paragraph (b)(1)(ii). 

b. Redesignate paragraphs (b)(1)(iii) 

through (b)(1)(x) as paragraphs (b)(1)(ii) 

through (b)(1)(ix) respectively. 

Dated: December 2, 2010. 

James H. Freis, Jr., 

Director, Financial Crimes Enforcement 

Network. 

[FR Doc. 2010–30765 Filed 12–8–10; 8:45 am] 

BILLING CODE 4802–10–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 117 

[Docket No. USCG–2010–0612] 

RIN 1625–AA09 

Drawbridge Operation Regulation; Isle 

of Wight (Sinepuxent) Bay, Ocean City, 

MD 

AGENCY: Coast Guard, DHS. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Coast Guard proposes to 

change the regulations that govern the 

operation of the US 50 Bridge over Isle 

of Wight (Sinepuxent) Bay, mile 0.5, at 

Ocean City, MD. This proposed rule will 

require any mariner requesting an 

opening in the evening hours during the 

off-season, to do so before the tender 

office has vacated for the night. The 

proposed change will ensure draw 

tender availability for every scheduled 

opening. The Coast Guard also proposes 

to change the waterway location from 

Isle of Wight Bay to Isle of Wight 

(Sinepuxent) Bay. This waterway is 

known locally as both Isle of Wight Bay 

and Sinepuxent Bay. 

DATES: Comments and related material 

must reach the Coast Guard on or before 

February 7, 2011. 

ADDRESSES: You may submit comments 

identified by docket number USCG– 


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