Anti-Money Laundering and Terrorist Financing
The Patriot Act, which amends
the Bank
Secrecy Act (BSA), was adopted in response to the September 11 terrorist attacks.
The Patriot Act is intended to strengthen U.S. measures to prevent, detect, and
prosecute international money laundering and the financing of terrorism. These efforts
include new anti-money laundering (AML) tools that impact the banking, financial, and
investment communities.
Under the Patriot Act, persons who are or are required to be registered as futures
commission merchants (FCMs), introducing brokers (IBs), commodity pool operators
(CPOs), and commodity trading advisors (CTAs) are subject to new requirements for
establishing AML programs, reporting suspicious activity, verifying the identity of
customers, and dealing with certain types of accounts involving foreign persons.
Establishing AML Programs
Reporting Suspicious Activity
Verifying the Identity of Customers
Due Diligence Measures for Certain Accounts
Involving Foreign Persons
Special Measures
Transactions in Excess of $10,000 in
Currency
Foreign Bank and Financial
Accounts
International Transportation of Currency or Monetary
Instruments
Information Sharing among Financial
Institutions and Law Enforcement>
Additional Resources
Establishing AML Programs
The Patriot Act amended the BSA to require that financial institutions establish AML
Programs. FCMs, CPOs, and CTAs are now included in the definition of
financial
institution in the BSA. IBs are considered to be “brokers or dealers in
commodities” within the financial institution definition.
An AML Program must be in writing and must 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.
Treasury has adopted interim final
rules regarding AML
Programs for financial institutions. These rules exempt CPOs and CTAs from the AML
Program requirement pending the issuance of final rules. However, Treasury has
proposed rules that will require
commodity pools and
commodity trading
advisors to establish and implement written anti-money laundering programs. As
required by Section 356(c) of the Patriot Act, Treasury has issued a
report to Congress that sets
forth existing requirements that apply to both registered and unregistered investment
companies, including commodity pools, and contains recommendations on additional
regulatory requirements that might be imposed. National Futures Association has
adopted
Rule
2-9(c) and a related Interpretive Notice regarding AML Programs for its FCM and IB
members. Other AML Program rule notices for specified financial institutions include:
Reporting Suspicious Activity
The Patriot Act authorizes Treasury to issue rules requiring FCMs, CPOs, and CTAs to file
Suspicious Activity Reports (SARs). Treasury has issued a
final rule requiring
FCMs and IBs to file SARs. The rule applies only to transactions occurring after May 18, 2004.
Treasury has not yet proposed a rule requiring CPOs and CTAs to file SARs. Treasury also has
issued a SAR SF form and
Instructions
for the securities and futures industry, which FCMs and IBs must use to report suspicious
transactions, and which CPOs and CTAs may use to report voluntarily.
Verifying the Identity of
Customers
The Patriot Act requires Treasury to issue rules setting forth minimum standards for
financial institutions to identify and verify the identity of customers.
Due Diligence Measures for Certain Types of Accounts
Involving Foreign Persons
The Patriot Act requires that financial institutions must establish appropriate, and
where necessary, enhanced due diligence policies, procedures, and controls that are
reasonably designed to detect and report instances of money laundering through foreign
private banking and correspondent accounts.
Interim final rules
require FCMs, IBs, and broker-dealers to immediately take steps to comply with the due
diligence statutory requirements with respect to foreign private banking accounts
pending issuance of final implementing rules. FCMs, IBs, and broker-dealers must have
due diligence programs designed to ensure that the financial institution takes
reasonable steps to ascertain the identity of the nominal and beneficial owners and
sources of funds deposited into foreign private banking accounts to guard against
money laundering and to conduct enhanced scrutiny of private banking accounts
maintained by senior foreign political figures (or their immediate family members or
close associates) and transactions that may involve the proceeds of foreign
corruption.
A private banking due diligence program that is consistent with any applicable
government guidance for private banking accounts, such as the
guidance
on sound practices for private banking (issued by the Federal Reserve) and the
guidance
on enhanced scrutiny for transactions that may involve the proceeds of foreign
corruption (issued by Treasury, the State Department, and the banking regulators) is
reasonable, according to Treasury, as long as the program incorporates the statutory
requirements.
The interim final rules also temporarily exempt FCMs, IBs, and broker-dealers from the
due diligence requirements with respect to foreign correspondent accounts.
Special Measures
The Patriot Act authorizes Treasury to find that a foreign jurisdiction,
institution, class of transactions or type of account is of "primary money
laundering concern" and to require domestic financial institutions to take
certain "special measures" against the primary money laundering concern. The
first four special measures impose information gathering, reporting and
recordkeeping requirements on those financial institutions dealing, directly
or indirectly, with the designated jurisdiction or entity. Under special
measure 5, a financial institution may be prohibited from opening or
maintaining a correspondent account or a payable-through account. Pursuant
to this authority, Treasury has designated each of the following as a
primary money laundering concern:
Pursuant to this authority, Treasury has imposed the following special
measures:
- Special measure 5, which prohibits certain
financial institutions (including FCMs and IBs) from establishing,
maintaining, administering or managing correspondent or payable-through
accounts in the United States for, or on behalf of, Burmese banking institutions, unless
operation of those accounts is not prohibited by
Executive Order 13310[1] and the Burma-related activities of such accounts are
solely to effect transactions that are exempt from, or licensed pursuant
to, Executive Order 13310. This prohibition extends to correspondent or
payable-through accounts maintained for other foreign banks when such
accounts are used by the foreign bank to indirectly provide financial
services to a Burmese banking institution (final rule); and
- Special measure 5, which prohibits certain domestic financial
institutions (including FCMs and IBs) from establishing, maintaining,
administering, or managing correspondent or payable-through accounts for, or
on behalf of, Myanmar
Mayflower Bank or Asia Wealth Bank. This prohibition extends to
correspondent or payable-through accounts maintained for other foreign banks
when such accounts are used to indirectly provide banking services to these
banks (final rule).
Treasury also has proposed (but not yet imposed) the following special
measures:
- Special measure 5, which would prohibit
certain financial institutions (including FCMs and IBs) from maintaining
correspondent accounts for, or on behalf of, a Nauru financial
institution. This prohibition would extend to correspondent accounts
maintained for other foreign banks when such accounts are used by the
foreign bank to indirectly provide services to a Nauru financial institution
(proposed rule); and
- Special measure 5, which would prohibit certain domestic financial
institutions (including FCMs and IBs) from opening or maintaining any
correspondent account for or on behalf of the Commercial Bank of Syria, Including
Its Subsidiary, Syrian Lebanese Commercial Bank. As a corollary to this
measure, these domestic financial institutions would be required to apply
special due diligence to their correspondent accounts to ensure that no such
account is being used indirectly to provide services to the Bank (proposed
rule).
[1] The Executive Order generally
restricts all U.S. financial institutions from undertaking financial transactions with
Burmese financial institutions, subject to certain exemptions.
Transactions in Excess of $10,000 in
Currency
A financial institution and any “nonfinancial trade or business” must file
a report concerning a transaction (or series of related transactions) in excess of
$10,000 or more in currency.
-
Interim final
rules require any nonfinancial trade or business to file currency transaction
reports on a Form
8300.
- CTAs and CPOs fall within the definition of “nonfinancial trade or
business” for purposes of currency transaction reporting and thus are subject to
the interim
final rule.
- Regulations (
31 CFR 103.22) require that financial institutions file currency transaction
reports on a Form 4789, currency
transaction report (CTR).
- A new final rule, which applies to transactions after May 18, 2004, adds FCMs and IBs to the definition of "financial institution" thereby requiring them to file CTRs.
Foreign Bank and Financial Accounts
(FBAR)
The BSA requires each United States person who has a financial interest in, or
signature authority over, any financial account in a foreign country to file an
FBAR if the aggregate value of
the financial account exceeds $10,000 at any time during the calendar year. The term
"financial account" includes any commodity interest account. The term
"United States person" includes any Commission registrant that is a citizen
or resident of the United States, domestic partnership, domestic corporation, or a
domestic estate or trust.
International Transportation of Currency or Monetary
Instruments (CMIR)
The BSA requires the filing of a
CMIR by any person, such as
an FCM, who physically transports, mails, ships, or causes to be physically
transported, mailed or shipped, currency or other monetary instrument in an aggregate
amount exceeding $10,000 on any one occasion, whether that transportation is into or
out of the United States. A CMIR also must be filed by any person who receives in the
United States currency or other monetary instrument in an aggregate amount exceeding
$10,000 that has come from outside the United States and on which no CMIR was filed. A
CMIR does not need to be filed, however, if the person is a bank or broker-dealer, and
the currency or other monetary instrument is mailed or shipped through the postal
service or by a common carrier.
Information Sharing among Financial
Institutions and Law Enforcement
Pursuant to the Patriot Act, Treasury has issued
final rules that
require financial institutions, including FCMs, IBs, CPOs, and CTAs, to comply with
information requests received from law enforcement. The final rules require a
financial institution to make an expeditious search of its records for accounts and
transactions involving named suspects, provide specified information about the named
suspects, and prohibit the financial institution from disclosing the fact that a
request has been made (other than as necessary to comply with the information
request).
CFTC registrants are reminded of the requirement in 31 CFR 103.100 to maintain
adequate procedures to safeguard the security and confidentiality of any information
request received from FinCEN. Firms may not disclose to any person other than FinCEN
or the Federal law enforcement agency on whose behalf FinCEN is requesting information
the fact that FinCEN has requested or has obtained information, except to the extent
necessary to comply with the information request. There are significant penalties for
willful violations of the BSA regulations.
The final rules
also permit financial institutions required by the BSA to establish AML Programs and
associations of such financial institutions to share information regarding individuals
and other persons involved in possible terrorist activity or money laundering. FCMs
and IBs are required to establish AML Programs, and thus are permitted to share
information with other financial institutions that are required to establish AML
Programs, such as other FCMs, IBs, broker-dealers, and banks.
Financial institutions and associations of financial institutions that intend to share
information must file, on a yearly basis, a notice with Treasury’s Financial
Crimes Enforcement Network (FinCEN). A copy of the notice is included as Appendix A to
the final rules.
Additional Resources
-
FinCEN, which has
delegated authority to issue
regulations
requiring financial institutions to keep records and file reports on certain
financial transactions, provides general information and updates about AML and the
BSA relevant to all financial institutions. FinCEN also issues
advisories that pertain to
transactions involving certain jurisdictions.
-
OFAC
administers and enforces economic and trade sanctions against targeted foreign
countries, terrorism sponsoring organizations and international narcotics
traffickers.
-
Treasury and the Department of Justice jointly issued their annual
National Money
Laundering Strategy in July 2002.
-
The Securities and
Exchange Commission (SEC) provides links to AML requirements that pertain to
regulated securities firms.
-
National Futures Association, a
registered futures association, issues AML rules applicable to its membership,
provides regulatory updates concerning BSA amendments relevant to the futures
industry, and offers
web-based
AML training for FCMs and IBs, under CFTC oversight.
-
NASD, a national securities
association, issues AML rules applicable to its membership,
provides regulatory updates
concerning BSA amendments relevant to the securities industry, and offers
web-based AML training for
securities brokers and dealers, under SEC oversight.
-
The Financial Action Task Force
on Money Laundering (FATF), an inter-governmental organization whose
members include 29
countries and two international organizations, sets forth the international framework
for AML efforts in its
Forty
Recommendations on money laundering and
eight special
recommendations on terrorist financing.
FATF also maintains a list of
non-cooperative countries and territories.
-
The State Department’s
Economic
Perspectives – The Fight Against Money Laundering.
-
United Nations’
International
Convention for the Suppression of the Financing of Terrorism.
-
The Office of the Comptroller of the Currency issued
AML Guidance for
bankers.
-
Interpol’s activities in the areas of
money
laundering and
terrorist
financing.
-
The Council of Europe’s
Convention
on Laundering, Search, Seizure and Confiscation of the Proceeds of Crimes.
-
The
Wolfsberg
Principles for international private banks.
-
The The Department of State's
list of foreign terrorist organizations.
Any questions regarding the content of this page or the AML
requirements applicable to futures professionals may be directed to:
The Commodity Futures Trading Commission
Attn: AML Staff Working Group
Three Lafayette Centre
1155 21st Street, N.W.
Washington, D.C. 20581
AMLstaff@cftc.gov
|