[Federal Register Volume 66, Number 250 (Monday, December 31, 2001)]
[Proposed Rules]
[Pages 67670-67677]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-31850]



[[Page 67669]]

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Part V





Department of the Treasury





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31 CFR Part 103



Financial Crimes Enforcement Network; Proposed Amendment to the Bank 
Secrecy Act Regulations--Requirement of Brokers or Dealers in 
Securities to Report Suspicious Transactions; Proposed Rule

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

[[Page 67670]]


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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA21


Financial Crimes Enforcement Network; Proposed Amendment to the 
Bank Secrecy Act Regulations--Requirement of Brokers or Dealers in 
Securities to Report Suspicious Transactions

AGENCY: Financial Crimes Enforcement Network (``FinCEN''), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: FinCEN is proposing to amend the Bank Secrecy Act regulations 
to require brokers or dealers in securities (``broker-dealers'') to 
report suspicious transactions to the Department of the Treasury. This 
is the fourth proposal to be issued by FinCEN concerning the reporting 
of suspicious transactions by the major categories of financial 
institutions operating in the United States, as a part of the counter-
money laundering program of the Department of the Treasury.

DATES: Written comments on all aspects of the proposal are welcome and 
must be received on or before March 1, 2002.

ADDRESSES: Written comments should be submitted to: Office of Chief 
Counsel, Financial Crimes Enforcement Network, Department of the 
Treasury, P.O. Box 1618, Vienna, Virginia 22183-1618, Attention: NPRM--
Suspicious Transaction Reporting--Brokers or Dealers in Securities. 
Comments also may be submitted by electronic mail to the following 
Internet address: <a href="/cdn-cgi/l/email-protection#cebcaba9ada1a3a3aba0babd8ea8a7a0adaba0e0babcabafbde0a9a1b8"><span class="__cf_email__" data-cfemail="0e7c6b696d6163636b607a7d4e6867606d6b60207a7c6b6f7d20696178">[email protected]</span></a>, again with a caption, 
in the body of the text, ``Attention: NPRM--Suspicious Transaction 
Reporting--Brokers or Dealers in Securities.'' For additional 
instructions on the submission of comments, see SUPPLEMENTARY 
INFORMATION under the heading ``Submission of Comments.''
    Inspection of comments. Comments may be inspected, between 10 a.m. 
and 4 p.m., in the FinCEN reading room in Washington, DC. Persons 
wishing to inspect the comments submitted must request an appointment 
by telephoning (202) 354-6400.

FOR FURTHER INFORMATION CONTACT: Peter G. Djinis, Executive Assistant 
Director for Regulatory Policy, FinCEN, at (703) 905-3930; Cynthia L. 
Clark, Deputy Chief Counsel, FinCEN, at (703) 905-3590; Judith R. 
Starr, Chief Counsel, FinCEN, at (703) 905-3534.

SUPPLEMENTARY INFORMATION:   

I. Background

A. General Statutory Provisions

    The Bank Secrecy Act, Public Law 91-508, as amended, codified at 12 
U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5331, authorizes 
the Secretary of the Treasury, inter alia, to issue regulations 
requiring financial institutions to keep records and file reports that 
are determined to have a high degree of usefulness in criminal, tax, 
and regulatory matters, or in the conduct of intelligence or counter-
intelligence activities, to protect against international terrorism, 
and to implement counter-money laundering programs and compliance 
procedures.\1\ Regulations implementing Title II of the Bank Secrecy 
Act (codified at 31 U.S.C. 5311-5330) appear at 31 CFR part 103. The 
authority of the Secretary to administer the Bank Secrecy Act has been 
delegated to the Director of FinCEN.
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    \1\ Language expanding the scope of the Bank Secrecy Act to 
intelligence or counter-intelligence activities to protect against 
international terrorism was added by Section 358 of the Uniting and 
Strengthening America by Providing Appropriate Tools Required to 
Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001 (the 
``USA Patriot Act''), Public Law 107-56.
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B. Suspicious Transaction Reporting

    The Secretary of the Treasury was granted authority in 1992, with 
the enactment of 31 U.S.C. 5318(g),\2\ to require financial 
institutions to report suspicious transactions. Subsection (g)(1) 
states generally:
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    \2\ 31 U.S.C. 5318(g) was added to the Bank Secrecy Act by 
section 1517 of the Annunzio-Wylie Anti-Money Laundering Act (the 
``Annunzio-Wylie Anti-Money Laundering Act''), Title XV of the 
Housing and Community Development Act of 1992, Public Law 102-550; 
it was expanded by section 403 of the Money Laundering Suppression 
Act of 1994 (the ``Money Laundering Suppression Act''), Title IV of 
the Riegle Community Development and Regulatory Improvement Act of 
1994, Public Law 103-325, to require designation of a single 
government recipient for reports of suspicious transactions.

    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 
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violation of law or regulation.

Subsection (g)(2) provides further:

    A financial institution, and a director, officer, employee, or 
agent of any financial institution, who voluntarily reports a 
suspicious transaction, or that reports a suspicious transaction 
pursuant to this section or any other authority, may not notify any 
person involved in the transaction that the transaction has been 
reported.

Subsection (g)(3) provides that neither a financial institution, nor 
any director, officer, employee, or agent of any financial institution

that makes a disclosure of any possible violation of law or 
regulation or a disclosure pursuant to this subsection or any other 
authority * * * shall * * * be liable to any person under any law or 
regulation of the United States or any constitution, law, or 
regulation of any State or political subdivision thereof, for such 
disclosure or for any failure to notify the person involved in the 
transaction or any other person of such disclosure.

Finally, subsection (g)(4) requires the Secretary of the Treasury, ``to 
the extent practicable and appropriate,'' to designate ``a single 
officer or agency of the United States to whom such reports shall be 
made.'' \3\ The designated agency is in turn responsible for referring 
any report of a suspicious transaction to ``any appropriate law 
enforcement or supervisory agency.'' Id., at subsection (g)(4)(B).
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    \3\ This designation does not preclude the authority of 
supervisory agencies to require financial institutions to submit 
other reports to the same agency or another agency ``pursuant to any 
other applicable provision of law.'' 31 U.S.C. 5318(g)(4)(C).
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    In the USA Patriot Act, Congress specifically addressed the issue 
of suspicious transaction reporting by broker-dealers. Section 356 of 
the USA Patriot Act requires Treasury, after consultation with the 
Securities and Exchange Commission and the Board of Governors of the 
Federal Reserve System, to publish proposed regulations before January 
1, 2002, requiring broker-dealers to report suspicious transactions 
under 31 U.S.C. 5318(g). Section 356 requires final regulations to be 
issued by July 2, 2002.\4\
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    \4\ The Congressional mandate to extend suspicious transaction 
reporting to broker-dealers reflects the concern of other 
governmental and international bodies about the need for an 
appropriate suspicious transaction reporting regime in the 
securities industry. For example, one of the central recommendations 
of the Financial Action Task Force (``FATF''), an inter-governmental 
body whose purpose is development and promotion of policies to 
combat money laundering, is that:
    If financial institutions suspect that funds stem from a 
criminal activity, they should be required to report promptly their 
suspicions to the competent authorities.
    Financial Action Task Force Annual Report (June 28, 1996), Annex 
1 (Recommendation 15). The recommendation applies equally to broker-
dealers as to banks. See also, the European Community's Directive on 
prevention of the use of the financial system for the purpose of 
money laundering. EC Directive, O.J. Eur. Comm. (No. L 166) 77 
(1991), Article 6. Accord, the Model Regulations Concerning 
Laundering Offenses Connected to Illicit Drug Trafficking and 
Related Offenses of the Organization of American States, OEA/Ser. P. 
AG/Doc. 2916/92 rev. 1 (May 23, 1992), Article 13, section 2.
    The International Organization of Securities Commissions 
(``IOSCO'') recommended in 1992 that member states consider 
``together with their national regulators charged with prosecuting 
money laundering offenses, the appropriate manner in which to 
address the identification and reporting of suspicious 
transactions'' and ``the appropriate means to ensure that securities 
and futures firms maintain monitoring and compliance procedures 
designed to deter and detect money laundering.'' IOSCO Report on 
Money Laundering, Conclusions 3 and 5, May 1992.

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[[Page 67671]]

C. Anti-Money Laundering Programs

    The provisions of 31 U.S.C. 5318(h), also added to the Bank Secrecy 
Act in 1992 by section 1517 of the Annunzio-Wylie Anti-Money Laundering 
Act, authorize the Secretary of the Treasury ``[i]n order to guard 
against money laundering through financial institutions * * * [to] 
require financial institutions to carry out anti-money laundering 
programs.'' 31 U.S.C. 5318(h)(1). Those programs may include ``the 
development of internal policies, procedures, and controls''; ``the 
designation of a compliance officer''; ``an ongoing employee training 
program''; and ``an independent audit function to test programs.'' 31 
U.S.C. 5318(h)(A-D).
    Section 352 of the USA Patriot Act amended section 5318(h) to 
mandate compliance programs for all financial institutions defined in 
31 U.S.C. 5312(a)(2). Section 352 of the USA Patriot Act is effective 
April 24, 2002.

D. Broker-dealer Regulation and Money Laundering

    Broker-dealer operations are keyed primarily to the purchase and 
sale of securities both for customers and for their own accounts. 
Broker-dealers do not usually expect to receive from or disburse to 
customers significant amounts of currency, and they are not direct 
participants in the payment system. However, despite the limited use of 
currency in the normal course of broker-dealer business generally, 
there are broker-dealers that accept small amounts of currency or that 
accept currency transactions approved by a legal or compliance 
department.\5\ In addition, while broker-dealers are not direct 
participants in the payment system, they do facilitate transfers or 
transmittals of funds for their customers.
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    \5\ Report to the Chairman, Permanent Subcommittee on 
Investigations, Committee on Governmental Affairs, U.S. Senate, 
Anti-Money Laundering Efforts in the Securities Industry, GAO-02-
111, October 2001 (``the GAO Report''). In addition, there are 
broker-dealers that accept cashier's checks, money orders, and 
traveler's checks. Of those broker-dealers that accept such 
financial instruments, 70 percent accept cashier's checks, nearly 40 
percent accept money orders, and approximately 20 percent accept 
traveler's checks. See, the GAO Report at 26.
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    Money laundering occurs through broker-dealers, as it does through 
all categories of financial institutions.\6\ Although the known 
experience of depository institutions with significant money laundering 
is greater than the known experience of the securities industry with 
money laundering, this difference may reflect the fact that criminal 
funds enter broker-dealer accounts at a later stage in the laundering 
process, when those funds are less immediately identifiable than at the 
placement stage. Past investigative attention, however, has focused 
more intensively on the ``placement'' stage of money laundering 
(especially the suspicious placement into the financial system of large 
amounts of currency) than on transfers or conversions of illicit funds 
once they are already in the financial system. In addition, there may 
be reason to fear a potential increased use of broker-dealers for 
laundering purposes in the wake of the growth of the broker-dealer 
industry and as criminals develop new ways to launder money. The 
attention previously given to the prevention of money laundering 
through banks reflects the central role of banking institutions in the 
global payments system and the global economy. But broker-dealers also 
play a global role and their array of financial services is 
increasingly competitive with that of banks, for example, for high net 
worth individuals.
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    \6\ See, e.g., United States v. Kneeland, 148 F.3d 6 (1st Cir. 
1998) (funds obtained in ``advance fee'' fraud transferred from 
corporate to defendant's personal bank accounts, and from there to 
defendant's brokerage account, from brokerage account to commodities 
broker, and from commodities broker back to personal bank account); 
United States v. Sabbath, 125 F.Supp. Lexis 18999 (E.D.N.Y. 2000) 
(owner of failing company withdrew funds from corporation in months 
preceding bankruptcy, transferring those funds to a brokerage 
account in wife's maiden name, with mother-in-law's address, and a 
false social security number; money from corporation routed through 
several bank accounts before its final transfer to brokerage 
account); United States v. Taylor, 984 F.2d 298 (9th Cir. 1993) 
(funds received upon fraudulent export sale of cellular telephones 
laundered through brokerage account). See also, the GAO Report at 
68-69.
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    The regulation of the securities industry in general and of broker-
dealers in particular relies on both the Securities and Exchange 
Commission and the registered securities associations and national 
securities exchanges (so-called self-regulatory organizations or 
``SROs''). Broker-dealers have long reported possible securities law 
violations through existing relationships with law enforcement, the 
Securities and Exchange Commission and the SROs. Any effective system 
of suspicious transaction reporting needs to consider the existing 
broker-dealer regulatory structure, particularly existing procedures 
for reporting violations of securities laws. Both the Securities and 
Exchange Commission and the SROs have taken measures to address money 
laundering concerns at broker-dealers.\7\ The Securities and Exchange 
Commission adopted rule 17a-8 in 1981 under the Securities and Exchange 
Act of 1934 (``Exchange Act''), which enables the SROs, subject to 
Securities and Exchange Commission oversight, to examine for Bank 
Secrecy Act compliance. Accordingly, both the Securities and Exchange 
Commission and SROs will address broker-dealer compliance with this 
rule.
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    \7\ For example, in April 2001, the Director of the Office of 
Compliance Inspections and Examinations at the Securities and 
Exchange Commission announced that the Commission would undertake 
compliance sweeps of broker-dealers in the fall of 2001. See Money 
Laundering: It's on the SEC's Radar Screen, Remarks at the 
Conference on Anti-Money Laundering Compliance for Broker-Dealers 
Securities Industry Association (May 8, 2001) (transcript available 
at www.sec.gov/news/speech/spch486.htm). BSA compliance with non-SAR 
related provisions has been included in the SEC's examination and 
enforcement programs since the 1970s, and in the SROs' programs 
since 1982. The New York Stock Exchange and the National Association 
of Securities Dealers have both issued statements going back to 1989 
regarding the importance of suspicious activity reporting to avoid 
money laundering charges. See the GAO Report at 22.
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    Finally, certain broker-dealers have been subject to suspicious 
transaction reporting since 1996. In particular, broker-dealers that 
are affiliates or subsidiaries of banks or bank holding companies have 
been required to report suspicious transactions by virtue of the 
application to them of rules issued by the federal bank supervisory 
agencies. In April 1996, banks, thrifts, and other banking 
organizations became subject to a requirement to report suspicious 
transactions pursuant to final rules issued by FinCEN \8\, under the 
authority contained in 31 U.S.C. 5318(g). In collaboration with FinCEN, 
the federal bank supervisors (the Board of Governors of the Federal 
Reserve System, the Office of the Comptroller of the Currency, the 
Federal Deposit Insurance Corporation, the Office of Thrift 
Supervision, and the National Credit Union Administration) concurrently 
issued suspicious transaction reporting rules under their own 
authority. See 12 CFR 208.62 (Federal Reserve Board); 12 CFR 21.11 
(OCC); 12 CFR 353.3 (FDIC); 12 CFR 563.180 (OTS); and 12 CFR 748.1 
(NCUA). The bank supervisory agency rules apply to banks, to non-
depository

[[Page 67672]]

institution affiliates and subsidiaries of banks and bank holding 
companies (including broker-dealers), and to bank holding companies 
(including bank holding companies that are themselves broker-
dealers).\9\ The rule proposed today is intended to apply to all 
broker-dealers, without regard to whether they are affiliates or 
subsidiaries of banks or bank holding companies.\10\
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    \8\ See 31 CFR 103.18. The suspicious transaction reporting 
rules under the BSA for banking organizations previously appeared at 
31 CFR 103.21 before that section was renumbered as 31 CFR 103.18. 
See 65 FR 13683, 13692 (March 14, 2000).
    \9\ For example, 12 CFR 225.4(f) subjects non-bank subsidiaries 
of bank holding companies to the suspicious transaction reporting 
requirements of Regulation H of the Board of Governors at 12 CFR 
208.62. Broker-dealers to which the bank supervisory agency rules 
for suspicious transaction reporting currently apply represent 
approximately half of the business of the broker-dealer industry, 
though in terms of numbers, they are only a small percentage of the 
approximately 8,300 broker-dealers in the United States.
    \10\ Money transmitters, issuers, sellers, and redeemers of 
money orders, and issuers, sellers, and redeemers of traveler's 
checks will become subject to a similar reporting requirement 
pursuant to a final rule published in the Federal Register on March 
14, 2000. See 31 CFR 103.20. Under that rule, reporting will be 
required for suspicious transactions involving or aggregating at 
least $2,000 in general or at least $5,000 in the case of issuers of 
money orders and traveler's checks to the extent the transactions to 
be reported are identified from a review of clearance records and 
similar documents. Finally, FinCEN has proposed a rule that would 
require casinos and card clubs to report suspicious transactions 
involving or aggregating at least $3,000. See 63 FR 27230 (May 18, 
1998).
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    Developing suspicious activity reporting rules appropriate to 
broker-dealers industry-wide involves taking into consideration many 
important issues. Appropriate suspicious transaction reporting by 
broker-dealers can provide significant information for criminal law 
enforcement, tax and regulatory authorities about potential criminal 
activity (as well as about previously undetected money laundering).

E. Suspicious Transaction Reporting by Broker-Dealers--General Issues

    This notice of proposed rulemaking would generally require broker-
dealers to report suspicious transactions to the Department of the 
Treasury. Several general issues cut across specific proposed 
provisions, and it may be helpful to note those issues at the outset.
    1. Definition of Broker-Dealer. In light of the definition of 
``broker or dealer in securities'' in 31 CFR 103.11(f), reporting would 
be required by any:

broker or dealer in securities, registered or required to be 
registered with the Securities Exchange Commission under the 
Securities Exchange Act of 1934.\11\
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    \11\ The definitions of ``broker,'' ``dealer,'' and 
``security,'' for purposes of the Securities Exchange Act of 1934 
appear in sections 3(a)(4) (``broker''), 3(a)(5) (``dealer''), and 
3(a)(10) (``security'') of that Act, 15 U.S.C. 78c(a)(4), (5), and 
(10).

    Insurance companies or their affiliates that are registered broker-
dealers simply to permit the sale of variable annuities treated as 
securities under the Securities Exchange Act of 1934 would be subject, 
under the proposed rule, to suspicious transaction reporting 
obligations. This treatment represents a change from prior treatment of 
insurance companies required to register as broker-dealers in order to 
sell variable annuities. In 1972, Treasury exempted from the provisions 
of 31 CFR 103 persons required to register with the Securities and 
Exchange Commission as broker-dealers solely in order to offer and sell 
variable annuity contracts issued by life insurance companies. 37 FR 
248986 (November 23, 1972). The exemption is inapplicable, however, if 
such a registered broker-dealer at any time offers and sells other 
types of securities in addition to variable annuities. FinCEN 
anticipates that this exemption will be withdrawn on the effective date 
of the final rule based on this notice of proposed rulemaking. Once the 
exemption is withdrawn, persons required to register as broker-dealers 
in order to offer and sell variable annuity contracts issued by life 
insurance companies will be required to comply with all applicable BSA 
requirements.
    2. Use of Suspicious Transaction Reports--Centralized Data Base. As 
is the case with reporting by other categories of financial 
institutions subject to the Bank Secrecy Act, reports of suspicious 
activity made by broker-dealers under the proposed rule would be 
maintained in an automated data base containing information from all 
broker-dealer filings. The data base will permit rapid dissemination to 
appropriate agencies and self-regulatory organizations registered with 
the Securities and Exchange Commission of reports within their 
jurisdiction, \12\ more thorough analysis and tracking of those 
reports, and, in time, the provision to the financial community of 
information about trends and patterns gleaned from the information 
reported, all as contemplated by the Congress.
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    \12\ See 31 U.S.C. 5319, as amended by the USA Patriot Act.
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II. Specific Provisions

A. 103.11(ii)--Transaction

    The definition of ``transaction'' in the Bank Secrecy Act 
regulations for purposes of suspicious transaction reporting conforms 
generally to the definition Congress added to 18 U.S.C. 1956 when it 
criminalized money laundering in 1986. See Public Law 99-570, Title 
XIII, 1352(a), 100 Stat. 3207-18 (Oct. 27, 1986). This notice proposes 
to amend that definition explicitly to include transactions involving 
any instrument that falls within the definition of ``security'' in 
section (3)(a)(10) of the Securities Exchange Act of 1934, 15 U.S.C. 
78c(a)(10), and to add a corresponding definition of ``security'' to 31 
CFR part 103. These changes are necessary so that the reporting rules 
will conform to the definition of broker or dealer in securities in 31 
CFR 103.11(f) and cover all activity that should be reported under the 
proposed rule.

B. 103.19--Reports of Suspicious Transactions

    General. Proposed section 103.19 contains the rules setting forth 
the obligation of broker-dealers to report suspicious transactions that 
are conducted or attempted by, at, or through a broker-dealer and 
involve or aggregate at least $5,000 in funds or other assets. It is 
important to recognize that transactions are reportable under this rule 
and 31 U.S.C. 5318(g) whether or not they involve currency.\13\
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    \13\ Many currency transactions are not indicative of money 
laundering or other violations of law, a fact recognized both by 
Congress, in authorizing reform of the currency transaction 
reporting system, and by FinCEN in issuing rules to implement that 
system (See 31 U.S.C. 5313(d) and 31 CFR 103.22(d), 63 FR 50147 
(September 21, 1998)). But many non-currency transactions, (for 
example, funds transfers) can indicate illicit activity, especially 
in light of the breadth of the statutes that make money laundering a 
crime. See 18 U.S.C. 1956 and 1957.
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    The obligation extends to transactions conducted or attempted by, 
at, or through, the broker-dealer. However, paragraph (a) also contains 
language designed to encourage the reporting of transactions that 
appear relevant to violations of law or regulation, even in cases in 
which the rule does not explicitly so require, for example in the case 
of a transaction falling below the $5,000 threshold in the rule.
    Paragraph (a)(1) contains the general statement of the obligation 
to file. To clarify that the proposed rule creates a uniform reporting 
requirement for broker-dealers and banking organizations, the language 
of the reporting obligation incorporates language from suspicious 
activity reporting rules contained in both Title 12 and Title 31. Thus, 
the rule requires the reporting of all activity ``relevant to a 
possible violation of law or regulation,'' including ``any known or 
suspected violation of Federal law, or a suspicious transaction related 
to a money laundering activity or a violation of the Bank Secrecy 
Act''. It is anticipated that, when this proposed rule becomes 
effective, the federal bank

[[Page 67673]]

supervisors will amend or repeal, as appropriate, any duplicative 
suspicious activity reporting requirements for broker-dealers.
    Paragraph (a)(2) specifically describes two categories of 
transactions that require reporting. The first category, described in 
proposed paragraph (a)(2)(i), would require broker-dealers to report 
any known or suspected Federal criminal violation, committed or 
attempted against, or through, a broker-dealer. This language is 
intended to clarify the fact that broker-dealers must report all 
suspicious transactions that are relevant to a possible violation of 
law or regulation. Similar language appears in the suspicious activity 
reporting rules imposed by the federal bank supervisors under Title 12.
    The second category of reportable transactions is contained in 
proposed paragraph (a)(2)(ii), which would require broker-dealers to 
report to the Treasury Department a transaction if the broker-dealer 
knows, suspects, or has reason to suspect that it is one of three 
classes of transactions (described more fully below) requiring 
reporting. The ``knows, suspects, or has reason to suspect'' standard 
incorporates a concept of due diligence in the reporting requirement.
    The first class, described in proposed paragraph (a)(2)(ii)(A), 
includes transactions involving funds derived from illegal activity or 
intended or conducted in order to hide or disguise funds or assets 
derived from illegal activity. The second class, described in proposed 
paragraph (a)(2)(ii)(B), involves transactions designed, whether 
through structuring or other means, to evade the requirements of the 
Bank Secrecy Act. The third class, described in proposed paragraph 
(a)(2)(ii)(C), involves transactions that appear to serve no business 
or apparent lawful purpose, and for which the broker-dealer knows of no 
reasonable explanation after examining the available facts relating to 
the transaction and the parties.
    It should be noted that the standard of reporting for the second 
reporting category differs from that of the first. Under the first 
reporting category, the broker-dealer must report ``known or 
suspected'' criminal activity. In contrast, the second category of 
reportable activity requires reporting if a broker-dealer ``knows, 
suspects, or has reason to suspect'' (emphasis added) that a 
transaction should be reported under the rule. The inclusion of two 
distinct reporting standards in the proposed rule is consistent with 
the suspicious activity reporting regime to which banking organizations 
are currently subject.\14\
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    \14\ See, e.g., 12 CFR 208.62(c) and 31 CFR 103.18(a)(2).
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    A determination as to whether a report is required must be based on 
all the facts and circumstances relating to the transaction and 
customer of the broker-dealer in question. Different fact patterns will 
require different types of judgments. In some cases, the facts of the 
transaction may indicate the need to report. For example, frequent and 
large-scale usage of wire transfer facilities within a brokerage, with 
nominal or nonexistent securities purchases or sales may be indicative 
of suspicious activity. Similarly, the fact that a customer refuses to 
provide information necessary for the broker-dealer to make reports or 
keep records required by this Part or other regulations, provides 
information that a broker-dealer determines to be false, or seeks to 
change or cancel a transaction after such person is informed of 
currency transaction reporting or information verification or 
recordkeeping requirements relevant to the transaction would all 
indicate that a Suspicious Activity Report-BD (SAR-BD)\15\ should be 
filed. (Of course, as the proposed rule makes clear, the broker-dealer 
may not notify the customer that it intends to file or has filed a 
suspicious transaction report with respect to the customer's activity.)
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    \15\ The term ``BD'' is an abbreviation for ``broker or dealer 
in securities'' and is used to distinguish the form from forms for 
reporting by other non-bank institutions.
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    In other situations a more involved judgment may need to be made to 
determine whether a transaction is suspicious within the meaning of the 
rule. Transactions that raise the need for such judgments may include, 
for example, (i) transmission or receipt of funds transfers without 
normal identifying information or in a manner that indicates an attempt 
to disguise or hide the country of origin or destination or the 
identity of the customer sending the funds or of the beneficiary to 
whom the funds are sent; or (ii) repeated use of an account as a 
temporary resting place for funds from multiple sources without a clear 
business purpose therefor. The judgments involved will also extend to 
whether the facts and circumstances and the institution's knowledge of 
its customer provide a reasonable explanation for the transaction that 
removes it from the suspicious category.
    31 U.S.C. 5318(g)(1) authorizes Treasury to require suspicious 
transaction reporting not only by financial institutions but by ``any 
director, officer, employee, or agent of any financial institution.'' 
This proposed rule addresses reporting by broker-dealers, but not by 
individual employees of a broker-dealer who are ``associated persons'' 
of that broker-dealer. FinCEN does not intend to reduce in any way the 
obligations of broker-dealer employees or agents, within the context of 
a broker-dealer's general regulatory or specific Bank Secrecy Act 
compliance programs, but simply to avoid at this time creating an 
obligation on the part of broker-dealer employees and agents 
independent of those general obligations.
    The means of commerce and the techniques of money launderers are 
continually evolving, and there is no way to provide an exhaustive list 
of suspicious transactions. FinCEN hopes to continue its dialogue with 
the securities industry about the manner in which a combination of 
government guidance, training programs, and government-industry 
information exchange can smooth the way for operation of the new 
suspicious activity reporting system in as flexible and cost-efficient 
a way as possible.
    Reporting Threshold. The proposed rule requires the reporting of 
suspicious transactions of at least $5,000.\16\ FinCEN is aware of 
concern on the part of some broker-dealers that the threshold would 
operate mechanically to require broker-dealers to establish programs to 
examine every transaction occurring at the threshold level.\17\ The 
suspicious transaction reporting rules, however, are not intended to 
operate (and indeed cannot properly operate) in a mechanical fashion. 
Rather, the suspicious transaction reporting requirements are intended 
to function in such a way as to have financial institutions evaluate 
customer activity

[[Page 67674]]

and relationships for money laundering risks.\18\
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    \16\ Broker-dealers covered by the bank supervisory rules for 
suspicious transaction reporting already comply with a $5,000 
threshold for suspicious transactions relating to money laundering, 
BSA violations, and other criminal violations with respect to which 
a suspect can be identified. However, under those rules, a $25,000 
reporting threshold applies to other criminal violations with 
respect to which a suspect cannot be identified. The proposed rule 
does not adopt this two-tiered approach.
    \17\ The GAO report includes information, based on a survey 
conducted by the GAO, regarding the average size of transactions for 
retail customers of broker-dealers. The report concludes that the 
average dollar size of individual transactions (those involving 
securities trades) was $22,306 (with $5,000 as the most frequent 
size transaction). The report cautions, however, that GAO was not 
able to develop meaningful estimates for the entire industry because 
of the low number of firms that provided information and the wide 
range of responses.
    \18\ Thus, for example, transactions involving securities trades 
by the pension fund of a publicly traded corporation, even though 
involving a large dollar amount, would likely require a more limited 
scrutiny than less typical transactions such as those involving 
customers who wish to deposit currency in their brokerage account or 
to open a brokerage account using money orders even though the 
dollar amounts in those latter cases may be relatively small.
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    Section 352 of the USA Patriot Act will require broker-dealers to 
develop and implement programs designed to guard against money 
laundering.\19\ FinCEN anticipates that these changes to section 5318 
will be further addressed in a separate rulemaking prior to that date. 
Current securities self-regulatory organization rules will also require 
broker-dealers to have compliance programs for suspicious transaction 
reporting.\20\ It is important to note however, that a risk-based 
approach to developing compliance procedures that can be reasonably 
expected to promote the detection and reporting of suspicious activity 
should be the focus of a broker-dealer's anti-money laundering 
compliance program. A compliance program that captures for review only 
those transactions that are above a threshold set at a mechanically 
high level, regardless of the money laundering or other risks such 
transactions may involve, and regardless of the money laundering or 
other risks that transactions at a lower dollar threshold may involve, 
would likely not be a satisfactory program. Of course, the particular 
contents or size of a compliance program must vary, as it does at 
banking organizations, to reflect the size and nature of a particular 
broker-dealer's operations.
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    \19\ See 31 U.S.C. 5318(h). Section 312 of that Act amends 
section 5318 by adding a new paragraph (i) requiring financial 
institutions to establish enhanced due diligence procedures for 
certain private banking accounts and correspondent accounts, 
including reasonable steps to guard against money laundering and 
report suspicious activity involving these accounts.
    \20\ Existing securities law and self-regulatory organization 
rules will ensure that broker-dealers have suspicious activity 
reporting rule compliance programs in place. In particular, Section 
19(g) of the Exchange Act provides that ``Every self-regulatory 
organization shall comply with the provisions of this title, the 
rules and regulations thereunder, and its own rules, and . . . 
absent reasonable justification or excuse enforce compliance.'' To 
give effect to Section 19(g), both the National Association of 
Securities Dealers and the New York Stock Exchange promulgated 
compliance program rules. See NASD Rule 3010 and NYSE Rule 342, 
including Supplemental Material .30. Rule 17a-8 of the Exchange Act 
requires broker-dealers to comply with applicable BSA rules. 
Accordingly, broker-dealers will be required under existing rules to 
develop compliance programs for the broker-dealer SAR rule proposed 
in this document.
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    Filing Procedures. Paragraph (b) sets forth the filing procedures 
to be followed by broker-dealers making reports of suspicious 
transactions. Within 30 days after a broker-dealer becomes aware of a 
suspicious transaction, the business must report the transaction by 
completing a SAR-BD and filing it in a central location, to be 
determined by FinCEN. The SAR-BD will resemble the SAR used by banks to 
report suspicious transactions, and a draft form will be made available 
for comment by publication in the Federal Register.
    Supporting documentation relating to each SAR-BD is to be collected 
and maintained separately by the broker-dealer and made available to 
law enforcement, regulatory agencies, and SROs as permitted in 
paragraph (g) of the rule, upon request. Special provision is made for 
situations requiring immediate attention, in which case broker-dealers 
are to telephone the appropriate law enforcement authority and the SEC 
in addition to filing a SAR-BD.
    Exceptions. The proposed rule would create two exceptions from 
reporting. The first exception deals with the reporting of lost, 
stolen, missing or counterfeit securities; that reporting is to occur 
in accordance with existing Securities and Exchange Commission rules. 
The second exception permits the reporting of a violation of federal 
securities laws (or rules of an appropriate SRO) by an employee or 
other registered representative of a broker-dealer, under existing 
industry procedures rather than through a SAR-BD. The second exception 
does not apply, however, if the securities law or SRO rule violation is 
a possible violation of 17 CFR 240.17a-8 or 17 CFR 405.4. These 
exceptions are designed to permit the reporting of those potential 
violations according to present procedures and modes in the securities 
industry.
    Retention of Records. Paragraph (d) provides that filing broker-
dealers must maintain copies of SAR-BDs and the original related 
documentation for a period of five years from the date of filing. As 
indicated above, supporting documentation is to be made available to 
FinCEN, the SEC, other appropriate law enforcement and regulatory 
authorities, and, as explained below, to SROs as permitted in paragraph 
(g) of the rule, on request.
    Non-Disclosure. Paragraph (e) reflects the statutory bar against 
the disclosure of information filed in, or the fact of filing, a 
suspicious activity report (whether the report is required by the 
proposed rule or is filed voluntarily). See 31 U.S.C. 5318(g)(2) and 31 
CFR 103.18(e)(for depository institutions). Thus, the paragraph 
specifically prohibits persons filing SAR-BDs from making any 
disclosure, except to law enforcement and regulatory agencies, and, as 
explained below, to SROs as permitted in paragraph (g) of the rule, 
about either the reports themselves or supporting documentation.
    Safe Harbor from Civil Liability. 31 U.S.C. 5318(g), as amended by 
the USA Patriot Act, provides protection from liability for making 
reports of suspicious transactions, and for failures to disclose the 
fact of such reporting, contained in 31 U.S.C. 5318(g), as amended by 
the USA Patriot Act. Section 351 of that Act clarifies that the safe 
harbor applies to the voluntary reporting of suspicious transactions, 
and the proposed rule reflects this clarification.
    The USA Patriot Act clarifies that the safe harbor is available in 
the arbitration of securities industry disputes. In this regard, FinCEN 
recognizes that disputes between broker-dealers and their customers 
most typically are resolved through arbitration. It is therefore 
anticipated that disputes arising out of suspicious transaction 
reporting by broker-dealers generally will be resolved through 
arbitration.
    The safe harbor provision of 31 U.S.C. 5318(g) clearly protects any 
financial institution from civil liability for reporting suspicious 
activity.\21\ While the applicable law in this area is unambiguous, 
FinCEN understands that arbitration, unlike litigation, is an equitable 
forum where the decision makers have some degree of flexibility in 
resolving the disputes before them. FinCEN further understands that, as 
a practical matter, it may be difficult to overturn an arbitration 
award, even where an arbitrator did not correctly apply the law.
---------------------------------------------------------------------------

    \21\ See Lee v. Bankers Trust Co., 166 F.3d 540, 544 (2nd Cir. 
1999) (stating that in enacting 31 U.S.C. 5318(g), the Congress 
``broadly and unambiguously provide[d] * * * immunity from any law 
(except the federal Constitution) for any statement made in a SAR by 
anyone connected to a financial institution'').
---------------------------------------------------------------------------

    The specific reference to arbitration in the safe harbor provision 
of the proposed rule clarifies that the mere switch in venue from the 
courts to arbitration for many securities industry disputes does not 
alter the effect of the safe harbor from liability for suspicious 
transaction reporting. In doing so, the proposed rule reflects the 
recent amendment to section 5318(g) by the USA Patriot Act, which 
clarifies that the safe harbor for suspicious transaction reporting 
shall apply in arbitration. Section 351 of the USA Patriot Act states 
that a financial institution that reports suspicious activity shall not 
be

[[Page 67675]]

liable for filing such a report ``under any law or regulation of the 
United States, any constitution, law or regulation of any State or 
political subdivision of any State, or under any contract or other 
legally enforceable agreement (including any arbitration agreement).'' 
(Emphasis added.) FinCEN intends to work with the SEC, SROs, and 
industry representatives to ensure that appropriate educational 
materials are delivered to compliance and litigation personnel.
    It must be noted that, while the proposed rule reiterates and 
clarifies the broad protection from liability for making reports of 
suspicious transactions and for failures to disclose the fact of such 
reporting, contained in the statutory safe harbor provision, the 
regulatory provisions do not extend the scope of either the statutory 
prohibition or the statutory protection. Inclusion of safe harbor 
language in the proposal is in no way intended to suggest that the safe 
harbor can override the non-disclosure provisions of the law and 
regulations. The prohibition on disclosure (other than as required by 
the proposed rule) applies regardless of any protection from liability. 
This means, for example, that during an arbitration proceeding, a 
broker-dealer cannot give a SAR-BD, or disclose that one was filed, to 
any participant in the proceeding, including the arbitrator.
    Examination and Enforcement. Paragraph (g) notes that compliance 
with the obligation to report suspicious transactions will be examined, 
and provides that failure to comply with the rule may constitute a 
violation of the Bank Secrecy Act and the Bank Secrecy Act regulations. 
This paragraph also makes clear that a broker-dealer must provide 
access to SAR-BDs that the broker-dealer has filed pursuant to this 
requirement, to SROs registered with the Securities and Exchange 
Commission that have jurisdiction to examine a broker-dealer for 
compliance with this rule. In examining any particular failure to 
report a transaction as required by this section, FinCEN and the SEC 
may take into account the relationship between the particular failure 
to report and the adequacy of the implementation and operation of a 
broker-dealer's compliance procedures.
    Proposed Effective Date. Finally, paragraph (h) provides that the 
new suspicious activity reporting rule would be effective 180 days 
after the date on which the final regulations to which this notice of 
proposed rulemaking relates are published in the Federal Register.

III. Submission of Comments

    An original and four copies of any written hard copy comment (but 
not of comments sent via E-Mail), must be submitted. All comments will 
be available for public inspection and copying, and no material in any 
such comments, including the name of any person submitting comments, 
will be recognized as confidential. Accordingly, material not intended 
to be disclosed to the public should not be submitted.

IV. Regulatory Flexibility Act

    FinCEN certifies that this proposed regulation would not have a 
significant economic impact on a substantial number of small entities. 
All broker-dealers, regardless of their size, are currently subject to 
the Bank Secrecy Act. Procedures currently in place at broker-dealers 
to comply with existing Bank Secrecy Act rules should help broker-
dealers identity suspicious transactions. In addition, the limited use 
of currency in the broker-dealer industry will likely reduce the number 
of suspicious activity reports required to be filed. Finally, certain 
small broker-dealers may have an established and limited customer base 
whose transactions are well-known to the broker dealer.

V. Executive Order 12866

    The Department of the Treasury has determined that this proposed 
rule is not a significant regulatory action under Executive Order 
12866.

VI. Unfunded Mandates Act of 1995 Statement

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (Unfunded Mandates Act), March 22, 1995, requires that an agency 
prepare a budgetary impact statement before promulgating a rule that 
includes a federal mandate that may result in expenditure by state, 
local and tribal governments, in the aggregate, or by the private 
sector, of $100 million or more in any one year. If a budgetary impact 
statement is required, section 202 of the Unfunded Mandates Act also 
requires an agency to identify and consider a reasonable number of 
regulatory alternatives before promulgating a rule. FinCEN has 
determined that it is not required to prepare a written statement under 
section 202 and has concluded that on balance this proposal provides 
the most cost-effective and least burdensome alternative to achieve the 
objectives of the rule.

VII. Paperwork Reduction Act

    Recordkeeping Requirements of 31 CFR 103.20. The collection of 
information contained in this notice of proposed rulemaking is being 
submitted to the Office of Management and Budget for review in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)). Comments on the collection of information should be sent to 
the Office of Management and Budget, Attn: Alexander T. Hunt, Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
New Executive Office Building, Room 3208, Washington, DC 20503, with 
copies to FinCEN at Department of the Treasury, Financial Crimes 
Enforcement Network, Post Office Box 39, Vienna, Virginia 22183. 
Comments on the collection of information should be received by March 
1, 2002. In accordance with requirements of the Paperwork Reduction Act 
of 1995, 44 U.S.C. 3506(c)(2)(A), and its implementing regulations, 5 
CFR 1320, the following information concerning the collection of 
information as required by 31 CFR 103.19 is presented to assist those 
persons wishing to comment on the information collection.
    FinCEN anticipates that this proposed rule, if adopted as proposed, 
would result in the annual filing of a total of 2,000 Suspicious 
Activity Report-BD forms. This result is an estimate extrapolated from 
the number of suspicious activity reports currently being filed by the 
broker-dealer industry either on a mandatory basis under the bank 
supervisory agency rules or voluntarily.
    Description of Respondents: Brokers or dealers in securities 
registered or required to be registered with the United States 
Securities and Exchange Commission under the Securities Exchange Act of 
1934.
    Estimated Number of Respondents: 8,300.
    Frequency: As required.
    Estimate of Burden: The reporting burden of 31 CFR 103.19 will be 
reflected in the burden of the form, Suspicious Activity Report-BD. The 
recordkeeping burden of 31 CFR 103.19 is estimated as an average of 3 
hours per form, which includes internal review of records to determine 
whether the activity requires reporting.
    Estimate of Total Annual Recordkeeping Burden on Respondents: 
Recordkeeping burden estimate = 6,000 hours.
    FinCEN specifically invites comments on the following subjects: (a) 
Whether the proposed collection of information is necessary for the 
proper performance of the mission of FinCEN, including whether the 
information shall have practical utility; (b) the accuracy of FinCEN's 
estimate of the burden of the

[[Page 67676]]

proposed collection of information; (c) ways to enhance the quality, 
utility, and clarity of the information to be collected; and (d) ways 
to minimize the burden of the collection of information on respondents, 
including through the use of automated collection techniques or other 
forms of information technology.
    In addition, the Paperwork Reduction Act of 1995 requires agencies 
to estimate the total annual cost burden to respondents or 
recordkeepers resulting from the collection of information. Thus, 
FinCEN also specifically requests comments to assist with this 
estimate. In this connection, FinCEN requests commenters to identify 
any additional costs associated with the completion of the form. These 
comments on costs should be divided into two parts: (1) any additional 
costs associated with reporting; and (2) any additional costs 
associated with recordkeeping.

List of Subjects in 31 CFR Part 103

    Authority delegations (Government agencies), Banks and banking, 
Currency, Investigations, Law enforcement, Reporting and recordkeeping 
requirements.

Proposed Amendments to the Regulations

    For the reasons set forth above in the preamble, 31 CFR Part 103 is 
proposed to be amended as follows:

PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND 
FOREIGN TRANSACTIONS

    1. The authority citation for part 103 continues to read as 
follows:

    Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5330.

    2. In Sec. 103.11, paragraph (ii)(1) is revised and new paragraph 
(ww) is added to read as follows:


Sec. 103.11  Meaning of terms.

* * * * *
    (ii) Transaction. (1) Except as provided in paragraph (ii)(2) of 
this section, transaction means a purchase, sale, loan, pledge, gift, 
transfer, delivery or other disposition, and with respect to a 
financial institution includes a deposit, withdrawal, transfer between 
accounts, exchange of currency, loan, extension of credit, purchase or 
sale of any stock, bond, certificate of deposit, or other monetary 
instrument, or security, purchase or redemption of any money order, 
payment or order for any money remittance or transfer, or any other 
payment, transfer, or delivery by, through, or to a financial 
institution, by whatever means effected.
* * * * *
    (ww) Security. Security means any instrument or interest described 
in section 3(a)(10) of the Securities Exchange Act of 1934, 15 U.S.C. 
78c(a)(10).
    3. In Subpart B, add new Sec. 103.19 to read as follows:


Sec. 103.19  Reports by brokers or dealers in securities of suspicious 
transactions.

    (a) General. (1) Every broker or dealer in securities (for purposes 
of this section, a ``broker-dealer'') shall file with the Treasury 
Department, to the extent and in the manner required by this section, a 
report of any suspicious transaction relevant to a possible violation 
of law or regulation. This includes any known or suspected violation of 
Federal law, or a suspicious transaction related to a money laundering 
violation or a violation of the Bank Secrecy Act. A broker-dealer may 
also file with the Treasury Department a report of any suspicious 
transaction that it believes is relevant to the possible violation of 
any law or regulation but whose reporting is not required by this 
section. A voluntary filing does not relieve a broker-dealer from the 
responsibility of complying with any other reporting requirements 
imposed by the Securities and Exchange Commission or a self-regulatory 
organization (``SRO'') (as defined in section 3(a)(26) of the 
Securities Exchange Act of 1934, 15 U.S.C. 78c(a)(26)).
    (2) A transaction requires reporting under the terms of this 
section if it is conducted or attempted by, at, or through a broker-
dealer, it involves or aggregates funds or other assets of at least 
$5,000, and:
    (i) The broker-dealer detects any known or suspected Federal 
criminal violation, or pattern of criminal violations, committed or 
attempted against the broker-dealer or involving a transaction or 
transactions conducted through the broker-dealer, where the broker-
dealer was either an actual or potential victim of a criminal 
violation, or series of criminal violations or that the broker-dealer 
was used to facilitate a criminal transaction. (If it is determined 
prior to filing this report that the identified suspect or group of 
suspects has used an ``alias,'' then information regarding the true 
identity of the suspect or group of suspects, as well as alias 
identifiers, such as drivers' licenses or social security numbers, 
addresses and telephone numbers, must be reported); or
    (ii) the broker-dealer knows, suspects, or has reason to suspect 
that the transaction (or a pattern of transactions of which the 
transaction is a part):
    (A) Involves funds derived from illegal activity or is intended or 
conducted in order to hide or disguise funds or assets derived from 
illegal activity (including, without limitation, the ownership, nature, 
source, location, or control of such funds or assets) as part of a plan 
to violate or evade any federal law or regulation or to avoid any 
transaction reporting requirement under federal law or regulation;
    (B) Is designed, whether through structuring or other means, to 
evade any requirements of this part or of any other regulations 
promulgated under the Bank Secrecy Act, Public Law 91-508, as amended, 
codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-
5330; or
    (C) Has no business or apparent lawful purpose or is not the sort 
in which the particular customer would normally be expected to engage, 
and the broker-dealer knows of no reasonable explanation for the 
transaction after examining the available facts, including the 
background and possible purpose of the transaction.
    (b) Filing procedures--(1) What to file. A suspicious transaction 
shall be reported by completing a Suspicious Activity Report--Brokers 
or Dealers in Securities(``SAR-BD''), and collecting and maintaining 
supporting documentation as required by paragraph (d) of this section.
    (2) Where to file. The SAR-BD shall be filed with FinCEN in a 
central location, to be determined by FinCEN, as indicated in the 
instructions to the SAR-BD.
    (3) When to file. A SAR-BD shall be filed no later than 30 calendar 
days after the date of the initial detection by the reporting broker-
dealer of facts that may constitute a basis for filing a SAR-BD under 
this section. If no suspect is identified on the date of such initial 
detection, a broker-dealer may delay filing a SAR-BD for an additional 
30 calendar days to identify a suspect, but in no case shall reporting 
be delayed more than 60 calendar days after the date of such initial 
detection. In situations involving violations that require immediate 
attention, such as ongoing money laundering schemes, the broker-dealer 
shall immediately notify by telephone an appropriate law enforcement 
authority and the Securities and Exchange Commission in addition to 
filing a SAR-BD.
    (c) Exceptions. (1) A broker-dealer is not required to file a SAR-
BD to report:

[[Page 67677]]

    (i) Lost, missing, counterfeit, or stolen securities with respect 
to which it files a report pursuant to the reporting requirements of 17 
CFR 240.17f-1; or
    (ii) A possible violation of any of the federal securities laws or 
rules of a self-regulatory organization (``SRO'') (as defined in 
section 3(a)(26) of the Securities Exchange Act of 1934, 15 U.S.C. 
78c(a)(26)), by the broker-dealer or any of its officers, directors, 
employees or other registered representatives, other than a possible 
violation of 17 CFR 240.17a-8 or 17 CFR 405.4, so long as such 
violation is appropriately reported to the Securities and Exchange 
Commission or an SRO.
    (2) A broker-dealer may be required to demonstrate that it has 
relied on an exception in paragraph (c)(1)(ii) of this section, and 
must maintain records of its determinations to do so for the period 
specified in paragraph (d) of this section. To the extent that a Form 
RE-3, Form U-4, or Form U-5 concerning the transaction is filed 
consistent with the self-regulatory organization rules, a copy of that 
form will be a sufficient record for purposes of this paragraph (c)(2).
    (3) For the purposes of this paragraph (c) the term ``federal 
securities laws'' means the ``securities laws,'' as that term is 
defined in section 3(a)(47) of the Securities Exchange Act of 1934, 15 
U.S.C. 78c(a)(47), and the rules and regulations promulgated by the 
Securities and Exchange Commission under such laws.
    (d) Retention of records. A broker-dealer shall maintain a copy of 
any SAR-BD filed and the original or business record equivalent of any 
supporting documentation for a period of five years from the date of 
filing the SAR-BD. Supporting documentation shall be identified as such 
and maintained by the broker-dealer, and shall be deemed to have been 
filed with the SAR-BD. A broker-dealer shall make all supporting 
documentation available to FinCEN, any other appropriate law 
enforcement agencies or federal or state securities regulators, and an 
SRO registered with the Securities and Exchange Commission in 
accordance with paragraph (g) of this section, upon request.
    (e) Confidentiality of reports. No financial institution, and no 
director, officer, employee, or agent of any financial institution, who 
reports a suspicious transaction under this part, may notify any person 
involved in the transaction that the transaction has been reported. 
Thus, any person subpoenaed or otherwise requested to disclose a SAR-BD 
or the information contained in a SAR-BD, except where such disclosure 
is requested by FinCEN, the Securities and Exchange Commission, or 
another appropriate law enforcement or regulatory agency, or an SRO 
registered with the Securities and Exchange Commission in accordance 
with paragraph (g) of this section, shall decline to produce the SAR-BD 
or to provide any information that would disclose that a SAR-BD has 
been prepared or filed, citing this paragraph and 31 U.S.C. 5318(g)(2), 
and shall notify FinCEN of any such request and its response thereto.
    (f) Limitation of liability. A broker-dealer, and any director, 
officer, employee, or agent of such broker-dealer, that makes a report 
of any possible violation of law or regulation pursuant to this section 
or any other authority (or voluntarily) shall not be liable to any 
person under any law or regulation of the United States (or otherwise 
to the extent also provided in 31 U.S.C. 5318(g)(3), including in any 
arbitration proceeding) for any disclosure contained in, or for failure 
to disclose the fact of, such report.
    (g) Examination and enforcement. Compliance with this section shall 
be examined by the Department of the Treasury, through FinCEN or its 
delegees under the terms of the Bank Secrecy Act. Reports filed under 
this section shall be made available to an SRO registered with the 
Securities and Exchange Commission examining a broker-dealer for 
compliance with the requirements of this section. Failure to satisfy 
the requirements of this section may constitute a violation of the 
reporting rules of the Bank Secrecy Act and of this part.
    (h) Effective date. This section is effective [date that is 180 
days after the date on which the final regulation to which this notice 
of proposed rulemaking relates is published in the Federal Register].

    Dated: December 20, 2001.
James F. Sloan,
Director, Financial Crimes Enforcement Network.
[FR Doc. 01-31850 Filed 12-28-01; 8:45 am]
BILLING CODE 4820-03-P


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