Federal Register / Vol. 75, No. 46 / Wednesday, March 10, 2010 / Notices 11207 

1 5 U.S.C. 553. 

2 5 U.S.C. 601–602. 

Industry and Security. Effective 

January 29, 2010. 

DCGS00692 Director of Public Affairs 

to the Director of Outreach. Effective 

January 29, 2010. 

Department of Labor 

DLGS00084 Staff Assistant to the 

Director of Scheduling and Advance. 

Effective January 4, 2010. 

Department of Education 

DBGS00348 Confidential Assistant to 

the Under Secretary. Effective January 

14, 2010. 

DBGS00109 Confidential Assistant to 

the Assistant Secretary for Civil 

Rights. Effective January 21, 2010. 

DBGS00611 Chief of Staff to the 

Assistant Secretary for Legislation and 

Congressional Affairs. Effective 

January 21, 2010. 

DBGS00523 Director, White House 

Liaison to the Chief of Staff. Effective 

January 28, 2010. 

DBGS00618 Chief of Staff to the 

Assistant Secretary for Planning, 

Evaluation, and Policy Development. 

Effective January 28, 2010. 

DBGS00208 Special Assistant to the 

Deputy Secretary of Education. 

Effective January 29, 2010. 

DBGS00568 Chief of Staff to the 

Assistant Secretary for Elementary 

and Secondary Education. Effective 

January 29, 2010. 

Environmental Protection Agency 

EPGS09008 White House Liaison to 

the Administrator. Effective January 

21, 2010. 

EPGS10003 Special Assistant to the 

Associate Administrator for Public 

Affairs. Effective January 28, 2010. 

Department of Energy 

DEGS00784 Senior Advisor to the 

Assistant Secretary (Energy Efficiency 

and Renewable Energy). Effective 

January 6, 2010. 

DEGS00786 Special Assistant to the 

Director Advanced Research Projects 

Agency—Energy. Effective January 8, 

2010. 

DEGS00787 Special Assistant for 

Strategic Planning to the Director, 

Office of Scheduling and Advance. 

Effective January 21, 2010. 

DEGS00790 Special Assistant to the 

Chief of Staff. Effective January 21, 

2010. 

DEGS00791 Scheduler to the Director, 

Office of Scheduling and Advance. 

Effective January 21, 2010. 

DEGS00782 Deputy White House 

Liaison to the White House Liaison. 

Effective January 22, 2010. 

DEGS00792 Trip Coordinator to the 

Director, Office of Scheduling and 

Advance. Effective January 29, 2010. 

DEGS00793 Lead Advance 

Representative to the Director, Office 

of Scheduling and Advance. Effective 

January 29, 2010. 

General Services Administration 

GSGS01436 Special Assistant to the 

Regional Administrator. Effective 

January 4, 2010. 

GSGS01437 Special Assistant to the 

Associate Administrator for Small 

Business Utilization. Effective January 

4, 2010. 

Commission on Civil Rights 

CCGS60016 Special Assistant to a 

Commissioner. Effective January 14, 

2010. 

National Credit Union Administration 

CUOT01379 Chief of Staff to the 

Chairman. Effective January 6, 2010. 

CUOT01389 Senior Policy Advisor to 

the Vice Chair. Effective January 6, 

2010. 

CUOT01390 Senior Policy Advisor to 

a Board Member. Effective January 6, 

2010. 

Consumer Product Safety Commission 

PSGS00075 Special Assistant (Legal) 

to a Commissioner. Effective January 

6, 2010. 

PSGS07343 Staff Assistant to a 

Commissioner. Effective January 6, 

2010. 

PSGS07344 Special Assistant to a 

Commissioner. Effective January 6, 

2010. 

PSGS60003 Special Assistant (Legal) 

to a Commissioner. Effective January 

6, 2010. 

PSGS60007 Director, Office of 

Congressional Relations to the 

Chairman, Consumer Product Safety 

Commission. Effective January 6, 

2010. 

PSGS60050 Executive Assistant to a 

Commissioner. Effective January 6, 

2010. 

PSGS60066 Supervisory Public Affairs 

Specialist to the Executive Director. 

Effective January 6, 2010. 

Commodity Futures Trading 

Commission 

CTOT00014 Administrative Assistant 

to a Commissioner. Effective January 

2, 2010. 

Department of Housing and Urban 

Development 

DUGS60571 Deputy Assistant 

Secretary for International and 

Philanthropic Affairs, for Policy 

Development and Research. Effective 

January 21, 2010. 

Authority: 5 U.S.C. 3301 and 3302; E.O. 

10577, 3 CFR 1954–1958 Comp., p. 218. 

U.S. Office of Personnel Management. 

John Berry, 

Director. 

[FR Doc. 2010–5155 Filed 3–9–10; 8:45 am] 

BILLING CODE 6325–39–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–61651] 

Policy Statement on Obtaining and 

Retaining Beneficial Ownership 

Information for Anti-Money Laundering 

Purposes 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Policy statement. 

SUMMARY: The Securities and Exchange 

Commission is issuing a policy 

statement to provide guidance on 

obtaining and retaining beneficial 

ownership information for anti-money 

laundering purposes. 

DATES: Effective Date: March 5, 2010. 

FOR FURTHER INFORMATION CONTACT: 

Lourdes Gonzalez (202–551–5550), John 

J. Fahey (202–551–5550), or Emily 

Westerberg Russell (202–551–5550), 

Office of the Chief Counsel, Division of 

Trading and Markets. 

SUPPLEMENTARY INFORMATION: The 

Securities and Exchange Commission is 

issuing a policy statement that provides 

guidance on obtaining and retaining 

beneficial ownership information for 

anti-money laundering purposes. This 

guidance is being issued jointly with the 

Financial Crimes Enforcement Network, 

the Board of Governors of the Federal 

Reserve System, the Federal Deposit 

Insurance Corporation, the Office of the 

Comptroller of the Currency, the Office 

of Thrift Supervision, and the National 

Credit Union Administration, and in 

consultation with the staff of the 

Commodity Futures Trading 

Commission. The guidance provided in 

this policy statement clarifies and 

consolidates existing regulatory 

expectations for obtaining beneficial 

ownership information for certain 

accounts and customer relationships. 

Regulatory Requirements 

The provisions of the Administrative 

Procedure Act (‘‘APA’’) regarding notice 

of proposed rulemaking, opportunities 

for public comment, and prior 

publication are not applicable to general 

statements of policy, such as this.1

Similarly, the provisions of the 

Regulatory Flexibility Act,2 which apply 


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11208 Federal Register / Vol. 75, No. 46 / Wednesday, March 10, 2010 / Notices 

1This guidance does not alter or supersede 

previously issued regulations, rulings, or guidance 

related to Customer Identification Program (CIP) 

requirements. 

2The definition of a ‘‘beneficial owner’’ under 

FinCEN’s regulations specific to due diligence 

programs for private banking accounts and for 

correspondent accounts for foreign financial 

institutions is the individual(s) who have a level of 

control over, or entitlement to, the funds or assets 

in the account that, as a practical matter, enables 

the individual(s), directly or indirectly, to control, 

manage, or direct the account. The ability to fund 

the account or the entitlement to the funds of the 

account alone, however, without any corresponding 

authority to control, manage, or direct the account 

(such as in the case of a minor child beneficiary), 

does not cause the individual to be a beneficial 

owner. This definition may be useful for purposes 

of this guidance. See, e.g., 31 CFR 103.175(b). 

3The final rules implementing Section 326 of the 

USA PATRIOT Act similarly provide that, based on 

a financial institution’s risk assessment of a new 

account opened by a customer that is not an 

individual, a financial institution may need to take 

additional steps to verify the identity of the 

customer by seeking information about individuals 

with ownership or control over the account, 

including signatories. See, e.g., 31 CFR 

103.121(b)(2)(ii)(C). In addition, a financial 

institution may need to look through the account 

in connection with customer due diligence 

procedures required under other provisions of its 

BSA compliance program. 

4http://www.fincen.gov/statutes_regs/guidance/ 

pdf/AdvisoryOnShells_FINAL.pdf. 

only when notice and comment are 

required by the APA or another statute, 

are not applicable. 

By the Commission. 

Dated: March 5, 2010 

Florence E. Harmon, 

Deputy Secretary. 

Text of the Guidance 

Guidance on Obtaining and Retaining 

Beneficial Ownership Information 

The Financial Crimes Enforcement 

Network (FinCEN), along with the Board 

of Governors of the Federal Reserve 

System, the Federal Deposit Insurance 

Corporation, the National Credit Union 

Administration, the Office of the 

Comptroller of the Currency, the Office 

of Thrift Supervision, and the Securities 

and Exchange Commission, are issuing 

this guidance, in consultation with staff 

of the Commodity Futures Trading 

Commission, to clarify and consolidate 

existing regulatory expectations for 

obtaining beneficial ownership 

information for certain accounts and 

customer relationships. Information on 

beneficial ownership in account 

relationships provides another tool for 

financial institutions to better 

understand and address money 

laundering and terrorist financing risks, 

protect themselves from criminal 

activity, and assist law enforcement 

with investigations and prosecutions. 

Background 

The cornerstone of a strong Bank 

Secrecy Act/Anti-Money Laundering 

(BSA/AML) compliance program is the 

adoption and implementation of 

internal controls, which include 

comprehensive customer due diligence 

(CDD) policies, procedures, and 

processes for all customers, particularly 

those that present a high risk for money 

laundering or terrorist financing.1 The 

requirement that a financial institution 

know its customers, and the risks 

presented by its customers, is basic and 

fundamental to the development and 

implementation of an effective BSA/ 

AML compliance program. Specifically, 

conducting appropriate CDD assists an 

institution in identifying, detecting, and 

evaluating unusual or suspicious 

activity. 

In general, a financial institution’s 

CDD processes should be commensurate 

with its BSA/AML risk, with particular 

focus on high risk customers. CDD 

processes should be developed to 

identify customers who pose heightened 

money laundering or terrorist financing 

risks, and should be enhanced in 

accordance with the institution’s 

assessment of those risks. 

Heightened risks can arise with 

respect to beneficial owners of accounts 

because nominal account holders can 

enable individuals and business entities 

to conceal the identity of the true owner 

of assets or property derived from or 

associated with criminal activity. 

Moreover, criminals, money launderers, 

tax evaders, and terrorists may exploit 

the privacy and confidentiality 

surrounding some business entities, 

including shell companies and other 

vehicles designed to conceal the nature 

and purpose of illicit transactions and 

the identities of the persons associated 

with them. Consequently, identifying 

the beneficial owner(s) of some legal 

entities may be challenging, as the 

characteristics of these entities often 

effectively shield the legal identity of 

the owner. However, such identification 

may be important in detecting 

suspicious activity and in providing 

useful information to law enforcement. 

A financial institution may consider 

implementing these policies and 

procedures on an enterprise-wide basis. 

This may include sharing or obtaining 

beneficial ownership information across 

business lines, separate legal entities 

within an enterprise, and affiliated 

support units. To encourage cost 

effectiveness, enhance efficiency, and 

increase availability of potentially 

relevant information, AML staff may 

find it useful to cross-check for 

beneficial ownership information in 

data systems maintained within the 

financial institution for other purposes, 

such as credit underwriting, marketing, 

or fraud detection. 

Customer Due Diligence 

As part of an institution’s BSA/AML 

compliance program, a financial 

institution should establish and 

maintain CDD procedures that are 

reasonably designed to identify and 

verify the identity of beneficial owners 2

of an account, as appropriate, based on 

the institution’s evaluation of risk 

pertaining to an account.3

For example, CDD procedures may 

include the following: 

• Determining whether the customer 

is acting as an agent for or on behalf of 

another, and if so, obtaining information 

regarding the capacity in which and on 

whose behalf the customer is acting. 

• Where the customer is a legal entity 

that is not publicly traded in the United 

States, such as an unincorporated 

association, a private investment 

company (PIC), trust or foundation, 

obtaining information about the 

structure or ownership of the entity so 

as to allow the institution to determine 

whether the account poses heightened 

risk. 

• Where the customer is a trustee, 

obtaining information about the trust 

structure to allow the institution to 

establish a reasonable understanding of 

the trust structure and to determine the 

provider of funds and any persons or 

entities that have control over the funds 

or have the power to remove the 

trustees. 

With respect to accounts that have 

been identified by an institution’s CDD 

procedures as posing a heightened risk, 

these accounts should be subjected to 

enhanced due diligence (EDD) that is 

reasonably designed to enable 

compliance with the requirements of the 

BSA. This may include steps, in 

accordance with the level of risk 

presented, to identify and verify 

beneficial owners, to reasonably 

understand the sources and uses of 

funds in the account, and to reasonably 

understand the relationship between the 

customer and the beneficial owner. 

Certain trusts, corporate entities, shell 

entities,4 and PICs are examples of 

customers that may pose heightened 

risk. In addition, FinCEN rules establish 

particular due diligence requirements 

concerning beneficial owners in the 

areas of private banking and foreign 

correspondent accounts. 

In addition, CDD and EDD 

information should be used for 

monitoring purposes and to determine 

whether there are discrepancies 


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Federal Register / Vol. 75, No. 46 / Wednesday, March 10, 2010 / Notices 11209 

5A ‘‘private banking account’’ is defined in 31 

CFR 103.175(o), as an account (or any combination 

of accounts) maintained at a covered financial 

institution that: (1) Requires a minimum aggregate 

deposit of funds or other assets of not less than 

$1,000,000; (2) is established on behalf of or for the 

benefit of one or more non-U.S. persons who are 

direct or beneficial owners of the account; and (3) 

is assigned to, or is administered or managed by, 

in whole or in part, an officer, employee, or agent 

of a covered financial institution acting as a liaison 

between the covered financial institution and the 

direct or beneficial owner of the account. Private 

banking accounts that do not fit within this 

definition should be subject to the general CDD 

procedures, including, as appropriate, EDD 

procedures discussed above. 

6 31 CFR 103.175(f)(1). 

7See, generally, 31 CFR 103.178. 

8See, 31 CFR 103.178 (b)(3) and (b)(4). See also, 

Federal Financial Institutions Examination Council 

(FFIEC) Exam Manual, Private Banking—Overview. 

Although the FFIEC Exam Manual is issued by the 

federal banking regulators regarding AML 

requirements applicable to banks, it contains 

guidance that may be of interest to securities and 

futures firms. 

9 31 CFR 103.178(b)(1). 

10A senior foreign political figure is a current or 

former senior official in the executive, legislative, 

administrative, military, or judicial branches of a 

foreign government (whether elected or not), senior 

official of a major foreign political party or a senior 

executive of a foreign government-owned 

commercial enterprise, a corporation or other entity 

formed by or for the benefit of such individuals, or 

any immediate family member or widely and 

publically known close associate to such 

individuals. 31 CFR 103.175(r). 

11See, e.g., FFIEC Exam Manual, Private Banking 

Due Diligence Program (Non-U.S. Persons). 

12 31 CFR 103.178 (b)(2) and (c). 

13 31 CFR 103.175(f)(1). The definition of covered 

financial institution discussed above applies to both 

the private banking and correspondent account 

regulations. 

14 31 CFR 103.175(d). Generally, a ‘‘correspondent 

account’’ is defined as an account established for a 

foreign financial institution to receive deposits 

from, or to make payments or other disbursements 

on behalf of, the foreign financial institution, or to 

handle other financial transactions related to such 

foreign financial institution. 31 CFR 103.175(d)(1). 

15 31 CFR 103.176(a). 

16For purposes of the enhanced due diligence 

requirements for certain foreign banks and the 

foreign shell bank prohibitions discussed herein, a 

‘‘correspondent account’’ is defined as an account 

established for a foreign bank to receive deposits 

from, or to make payments or other disbursements 

on behalf of, the foreign bank, or to handle other 

financial transactions related to such foreign bank. 

31 CFR 103.175(d)(1)(ii). 

17See 31 CFR 103.176(b) and(c) for the full text 

of this provision. Special Due Diligence Programs 

for Certain Foreign Accounts, 72 FR 44768–44775 

(August 9, 2007). 

18See, 31 CFR 103.176(b)(1)(iii)(B). 

19 ‘‘An Assessment of the Final Rule 

Implementing Enhanced Due Diligence Provisions 

for Accounts for Certain Foreign Banks, p. 4. (March 

2009). http://www.fincen.gov/news_room/rp/files/ 

Special_Due_Diligence_Program.pdf. 

between information obtained regarding 

the account’s intended purpose and 

expected account activity and the actual 

sources of funds and uses of the 

account. 

Private Banking 5

Under FinCEN’s regulations, a 

‘‘covered financial institution’’ 6 must 

establish and maintain a due diligence 

program that includes policies, 

procedures, and controls reasonably 

designed to detect and report known or 

suspected money laundering or 

suspicious activity conducted through 

or involving private banking accounts. 

This requirement applies to private 

banking accounts established, 

maintained, administered, or managed 

in the United States.7 The regulation 

currently covers private banking 

accounts at depository institutions, 

securities broker-dealers, futures 

commission merchants and introducing 

brokers in commodities, and mutual 

funds. 

Among other actions, as part of their 

due diligence program, institutions that 

offer private banking services must take 

reasonable steps to ascertain the 

source(s) of the customer’s wealth and 

the anticipated activity of the account, 

as well as potentially take into account 

the geographic location, the customer’s 

corporate structure, and public 

information.8 Moreover, reasonable 

steps must be taken to identify nominal 

and beneficial owners of private 

banking accounts.9 Obtaining beneficial 

ownership information concerning the 

types of accounts listed above may 

require the application of EDD 

procedures. 

Special rules apply for senior foreign 

political figures.10 A review of private 

banking account relationships is 

required in part to determine whether 

the nominal or beneficial owners are 

senior foreign political figures. Covered 

financial institutions should establish 

policies, procedures, and controls that 

include reasonable steps to ascertain the 

status of a nominal or beneficial owner 

as a senior foreign political figure. This 

may include obtaining information on 

employment status and sources of 

income, as well as consulting news 

sources and checking references where 

appropriate.11 Accounts for senior 

foreign political figures require, in all 

instances, EDD that is reasonably 

designed to detect and report 

transactions that may involve the 

proceeds of foreign corruption.12

With regard to private banking 

accounts, a covered financial 

institution’s failure to take reasonable 

steps to identify the nominal and 

beneficial owners of an account 

generally would be viewed as a 

violation of the requirements of 31 CFR 

103.178. 

Foreign Correspondent Accounts 

FinCEN’s regulations also require 

covered financial institutions 13 to 

establish a due diligence program that 

includes appropriate, specific, riskbased, and, where necessary, enhanced 

policies, procedures and controls that 

are reasonably designed to detect and 

report, on an ongoing basis, any known 

or suspected money laundering activity 

conducted through or involving any 

correspondent account 14 established, 

maintained, administered, or managed 

in the United States for a foreign 

financial institution.15 Under these 

regulations, enhanced due diligence is 

required for correspondent accounts 16

established, maintained, administered, 

or managed in the United States, for 

foreign banks that operate under: (1) An 

offshore banking license; (2) a banking 

license issued by a country that has 

been designated as non-cooperative 

with international anti-money 

laundering principles or procedures; or 

(3) a banking license issued by a country 

designated by the Secretary of the 

Treasury (under delegation to the 

Director of FinCEN, and in consultation 

with the Federal banking agencies, the 

Securities and Exchange Commission, 

and the Commodity Futures Trading 

Commission) as warranting special 

measures due to money laundering 

concerns.17 Enhanced due diligence is 

designed to be risk-based, with 

flexibility in its implementation to 

allow covered financial institutions to 

obtain and retain this information based 

on risk. 

With respect to correspondent 

accounts for such foreign banks, a 

covered financial institution’s riskbased EDD should obtain information, 

as appropriate, from the foreign bank 

about the identity of any person with 

authority to direct transactions through 

any correspondent account that is a 

payable-through account, as well as the 

source and beneficial owner of funds or 

other assets in a payable-through 

account. A payable-through account is a 

correspondent account maintained by a 

covered financial institution for a 

foreign bank by means of which the 

foreign bank permits its customers to 

engage, either directly or through a 

subaccount, in banking activities usual 

in connection with the business of 

banking in the United States.18 Covered 

financial institutions may elect to use a 

questionnaire or conduct a review of the 

transaction history for the respondent 

bank in collecting the information 

required.19


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11210 Federal Register / Vol. 75, No. 46 / Wednesday, March 10, 2010 / Notices 

20For purposes of the shell bank prohibitions, a 

covered institution generally includes: U.S. banks, 

savings associations, credit unions, private bankers, 

and trust companies; branches and agencies of 

foreign banks; Edge Act corporations; and securities 

broker-dealers. 31 CFR 103.175(f)(2). 

21For purposes of the foreign shell bank 

prohibitions, a ‘‘correspondent account’’ is defined 

as an account established for a foreign bank to 

receive deposits from, or to make payments or other 

disbursements on behalf of, the foreign bank, or to 

handle other financial transactions related to such 

foreign bank. 31 CFR 103.175(d)(1)(ii). 

22See, 31 CFR 103.177. 

23 31 CFR 103.177(a)(1)(ii). 

24For purposes of 31 CFR 103.177, ‘‘owner’’ is 

defined at 31 CFR 103.175(l). Similarly, under the 

enhanced due diligence provisions of the 

correspondent account rule, the covered financial 

institution may need to identify the owners of 

foreign banks whose shares are not publicly-traded. 

See, 31 CFR 103.176(b)(3). An ‘‘owner’’ is defined 

for this purpose to include any person who directly 

or indirectly owns, controls, or has the power to 

vote 10 percent or more of any class of securities. 

See, 31 CFR 103.176(b)(3)(ii). 

25See 31 CFR 103.177(a)(2). 

1See SEC Release No. 34–61032 (November 19, 

2009); 74 FR 61722 (November 25, 2009). 

2See PCAOB Rule 4003. 

3See section 104(b)(2) of the Act [15 U.S.C. 

7214(b)]. 

4See PCAOB Release No. 2009–003 (June 25, 

2009). 

5 Ibid. 

6 Ibid. 

Additionally, covered financial 

institutions 20 are prohibited from 

opening and maintaining correspondent 

accounts 21 for foreign shell banks.22

Covered financial institutions that offer 

foreign correspondent accounts must 

take reasonable steps to ensure the 

account is not being used to indirectly 

provide banking services to foreign shell 

banks.23 The covered financial 

institution must identify the owners 24

of foreign banks whose shares are not 

publicly traded and record the name 

and address of a person in the United 

States that is authorized to be an agent 

to accept service of legal process.25

With regard to foreign correspondent 

accounts, a covered financial 

institution’s failure to maintain records 

identifying the owners of non-publicly 

traded foreign banks could be viewed as 

a violation of the requirements of 31 

CFR 103.177. 

For questions about this guidance, 

please contact FinCEN’s Regulatory 

Helpline at (800) 949–2732 or your 

appropriate regulatory agency. 

[FR Doc. 2010–5075 Filed 3–9–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–61649; File No. PCAOB– 

2009–01] 

Public Company Accounting Oversight 

Board; Order Approving Proposed 

Amendment to Board Rules Relating to 

Inspections 

March 4, 2010. 

I. Introduction 

On July 2, 2009, the Public Company 

Accounting Oversight Board (the 

‘‘Board’’ or the ‘‘PCAOB’’) filed with the 

Securities and Exchange Commission 

(the ‘‘Commission’’) a proposed rule 

amendment (PCAOB–2009–01) 

pursuant to Section 107(b) of the 

Sarbanes-Oxley Act of 2002 (the ‘‘Act’’) 

relating to the Board’s rules governing 

inspections of registered public 

accounting firms. Notice of the 

proposed rule amendment was 

published in the Federal Register on 

November 25, 2009.1 The Commission 

did not receive any comment letters 

relating to the proposed rule 

amendment. For the reasons discussed 

below, the Commission is granting 

approval of the proposed rule 

amendment. 

II. Description 

The PCAOB’s proposed rule 

amendment would add paragraph (g) to 

existing PCAOB Rule 4003, Frequency 

of Inspections, to give the Board the 

ability to postpone, for up to three years, 

the current 2009 deadline for the first 

inspection of 49 non-U.S. firms that are 

located in 24 jurisdictions in which the 

Board has not conducted an inspection 

prior to 2009. As discussed further 

below, under the proposed rule 

amendment, the Board would conduct 

these inspections in each of the years 

from 2009 through 2012 according to a 

sequencing based on the U.S. market 

capitalization of the aforementioned 49 

firms’ issuer audit clients. The proposed 

rule amendment does not affect 

inspection frequency requirements 

concerning any other first inspections or 

concerning any second, or later, 

inspections of a firm. Further, the 

proposed amendment itself does not 

limit the PCAOB’s authority to conduct 

inspections at any time and does not 

affect registered firms’ obligations under 

the Act. 

Pursuant to the requirements of 

Section 107(b) of the Act and Section 

19(b) of the Securities Exchange Act of 

1934 (the ‘‘Exchange Act’’), the 

Commission published the proposed 

rule amendment for public comment on 

November 25, 2009. 

III. Discussion of Comments 

The Commission did not receive any 

comment letters relating to the proposed 

rule amendment. 

IV. Discussion 

Section 104 of the Act requires the 

PCAOB to conduct a continuing 

program of inspections to assess the 

degree of compliance of each registered 

public accounting firm and associated 

persons of that firm with the Act, the 

rules of the PCAOB, the rules of the 

Commission, and professional 

standards, in connection with its 

performance of audits, issuance of audit 

reports, and related maters involving 

issuers. Under current PCAOB rules, the 

PCAOB must conduct an inspection 

annually of each firm that issued audit 

reports for more than 100 issuers in the 

previous calendar year; and must 

conduct an inspection once every three 

years of each firm that, during any of the 

three prior calendar years, issued an 

audit report for at least one but not more 

than 100 issuers, or that played a 

substantial role in the preparation or 

furnishing of an audit report for at least 

one issuer.2 The Act authorizes the 

PCAOB, by rule and with SEC approval, 

to adjust these frequency requirements 

if the Board finds that different 

inspection schedules are consistent with 

the purpose of the Act, the public 

interest, and the protection of 

investors.3

As described by the PCAOB, there 

were 49 non-U.S. registered firms that, 

by virtue of when they first issued audit 

reports after registering with the 

PCAOB, the Board was required to 

inspect for the first time by the end of 

2009, and that were located in 24 

jurisdictions where the Board had not 

conducted any inspections to date.4 The 

Board indicated that these inspections 

were not conducted because of issues 

that relate primarily to the coordination 

of inspections with local authorities and 

the resolution of potential conflicts of 

law.5

In summarizing its rationale for the 

necessity of the proposed rule 

amendment, the Board noted its belief 

that most of the aforementioned 24 

jurisdictions have or soon will have a 

local auditor oversight authority with 

which the Board would seek to work 

toward cooperative arrangements before 

conducting inspections, and noted its 

concerns about proceeding as if such 

cooperative arrangements and other 

necessary steps could be completed for 

all 24 jurisdictions in time to conduct 

the required inspections by the end of 

2009.6 To address these concerns, the 

Board adopted and submitted to the 

Commission for approval the proposed 

rule amendment, new paragraph (g) to 

Rule 4003, to allow it to defer these 

inspections for up to three years. 


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