18 September 2002
Treasury Department Announces Rules to Combat Terrorist Financing
(Rules to affect hedge funds, casinos) (920)
The U.S. Department of the Treasury has announced anti-money
laundering measures as part of its ongoing implementation of PATRIOT
Act legislation passed by Congress after the September 11, 2001,
terrorist attacks against the United States.
In a September 18 news release, Treasury said it had issued five rules
dealing with financial institutions ranging from casinos to private
investment pools known as hedge funds.
The measures include a final rule imposing stricter reporting
requirements on U.S. financial institutions dealing with foreign
banks. Treasury said the rule seeks to prevent money laundering and
terrorist financing through the use of "correspondent accounts" --
these accounts allow foreign banks to use U.S. banking services and
thus give their clients direct access to the U.S. financial system.
Treasury also laid out procedures for banks to share information on
suspected terrorist activity with the government and with one another.
Other measures announced by Treasury include a proposed rule that will
require hedge funds and insurance companies to file anti-money
laundering plans and a final rule that will require casinos to file
suspicious activity reports for certain large transactions.
Following is the text of the Treasury news release:
(begin text)
U.S. Department of the Treasury
Office of Public Affairs
September 18, 2002
Treasury Announces Final and Proposed Rules Under USA Patriot Act
The Treasury Department today took major steps in its regulatory
program to shore up the U.S. financial system against criminal and
terrorist activity. It issued five rules pertaining to financial
institutions, from casinos to hedge funds to shell banks. The rules
address suspicious activity reporting, anti-money laundering program
requirements, prohibitions on maintaining accounts for foreign shell
banks, and information sharing between the government and the
financial community. Written comments on the proposed rules may be
submitted within 60 days of their publication in the Federal Register,
which is expected to occur later this week.
The Treasury Department issued a final rule implementing sections 313
and 319 (b), which are two key provisions of the Act aimed at
preventing money laundering and terrorist financing through
correspondent accounts maintained by U.S. banks and securities brokers
on behalf of foreign banks. The final rule continues to authorize U.S.
banks and securities brokers to use a certification form to comply
with both the shell bank prohibition as well as the record-keeping
requirements of section 319(b). The form, which is sent to all foreign
banks with correspondent accounts, requires the foreign banks to do
the following: (1) certify that they are not shell banks; (2) certify
that they will not permit shell banks access to the U.S. correspondent
account; (3) identify the owners of the bank; and (4) identify a U.S.
agent for service of process. While U.S. banks and securities brokers
are not required to use this form to comply with the regulation, it is
a safe harbor from liability for failing to comply with the
regulation.
Treasury issued a final rule implementing section 314 that establishes
procedures that encourage information sharing between governmental
authorities and financial institutions, and among financial
institutions themselves. The first part of the rule establishes a
mechanism for law enforcement to communicate names of suspected
terrorists and money launders to financial institutions in return for
securing the ability to locate promptly accounts and transactions
involving those suspects. Financial institutions receiving the names
of those suspects must search their account and transaction records
for potential matches. The second part of the rule outlines how
financial institutions can share such information, and similar
information concerning suspected terrorist activity and money
laundering, with another financial institution under the protection of
the statutory safe harbor from liability.
The Department issued a proposed rule requiring insurance companies to
establish an anti-money laundering program, as specified under section
352 of the Act. Insurance companies are defined as life insurance
companies and any other insurance company that offers products with
investment features or features of stored value and transferability.
Under the rule, a company must establish and maintain a written
anti-money laundering program that at a minimum: (i) incorporates
internal policies, procedures, and controls based on the company's
assessment of its money laundering risks; (ii) designates a compliance
officer; (iii) establishes an ongoing employee training program; and
(iv) establishes an independent audit function to test programs.
Treasury issued a proposed rule requiring investment companies not
registered with the Securities and Exchange Commission to establish an
anti-money laundering program as specified under section 352 of the
Act. The unregistered investment companies covered by the proposed
rule include hedge funds, commodity pools, and investment companies
investing in real estate. Under the rule, these non-registered
investment companies must establish an anti-money laundering program
that includes, at a minimum, (i) the development of internal policies,
procedures, and controls; (ii) the designation of a compliance
officer; (iii) an ongoing employee training program; and (iv) an
independent audit function to test programs. Section 352(c) of the Act
directs the Secretary to prescribe regulations for anti-money
laundering programs that are "commensurate with the size, location,
and activities" of the financial institutions to which such
regulations apply. Treasury deferred this rulemaking in April of this
year.
Treasury also issued a final rule requiring all casinos and card clubs
located in the United States with gross annual gaming revenue of more
than $1 million to file a suspicious activity report (SAR) with
Treasury's Financial Crimes Enforcement Network on all transactions of
at least $5,000 that the casino "knows, suspects, or has reason to
suspect" fall into specific categories. This rule, which was issued
under the Bank Secrecy Act, will take effect 180 days after its
publication in the Federal Register. An accompanying SAR form is being
published as well.
(end text)
(Distributed by the Office of International Information Programs, U.S.
Department of State. Web site: http://usinfo.state.gov)
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