[14853]
July 2, 2002
TO: BROKER/DEALER ADVISORY COMMITTEE No. 16-02
BROKER/DEALER ASSOCIATE MEMBERS No. 7-02
COMPLIANCE ADVISORY COMMITTEE No. 46-02
INTERNATIONAL MEMBERS No. 16-02
INTERNATIONAL OPERATIONS ADVISORY COMMITTEE No. 26-02
MONEY LAUNDERING RULES WORKING GROUP No. 33-02
SEC RULES MEMBERS No. 46-02
TRANSFER AGENT ADVISORY COMMITTEE No. 48-02
UNIT INVESTMENT TRUST COMMITTEE No. 17-02
RE: TREASURY ADOPTS BROKER-DEALER SUSPICIOUS ACTIVITY REPORTING RULE
The Department of the Treasury has adopted a rule that will require broker-dealers to
file suspicious activity reports (SARs) with Treasury’s Financial Crimes Enforcement Network
(FinCEN).1 A copy of the Release is attached. The rule is briefly summarized below.
The new rule requires every broker or dealer in securities, including mutual fund
principal underwriters, to file with FinCEN a report of any suspicious transaction relevant to a
possible violation of law or regulation. The rule applies to transactions occurring after
December 30, 2002.
A transaction is reportable as suspicious if:
1. It is conducted or attempted by, at, or through a broker-dealer;2
2. It involves or aggregates funds or other assets of at least $5,000; and
1 Financial Crimes Enforcement Network; Amendment to the Bank Secrecy Act Regulations – Requirement that
Brokers or Dealers in Securities Report Suspicious Transactions, 67 Fed. Reg. 44048 (July 1, 2002) (the “Release”). The
rule was proposed late last year. See 66 Fed. Reg. 67670 (December 31, 2001).
2 In its comments on the proposed rule, the Institute requested clarification as to the application of the proposed rule
to mutual fund principal underwriters, noting that it is not always clear whether purchases, redemptions and
exchanges of fund shares are “conducted by, at, or through” the underwriter. The Release does not address this
point.
2
3. 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 intended or conducted in
order to hide or disguise funds or assets derived from illegal activity 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 the
requirements of the Bank Secrecy Act;
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; or
d. Involves use of the broker-dealer to facilitate criminal activity.
In its comments on the proposed rule, the Institute raised concerns over the breadth of
the standards for determining what constitutes a reportable transaction and recommended
certain specific changes to the rule. Although Treasury did not make the specific changes
recommended by the Institute, the Release includes the following clarification that responds to
some of the concerns the Institute raised:
In addition, it should be noted that the final rule does not require a broker-dealer
to alter its relationship with its customers in a way that is inconsistent with
industry practice. For example, commenters expressed concern that certain
entities covered by the rule (e.g., clearing brokers), which may not have the same
level of knowledge with respect to their customers as other entities covered by
the rule would normally be expected to have, would be expected to re-structure
their relationships with customers in order to comply with the rule. FinCEN
recognizes that, based on the nature of the services they provide to their
customers, certain types of broker-dealers will have more information available
to them in making such determinations than other types of broker-dealers.
[Footnote omitted] The rule is intended to adjust to the different operating
realities found in different types of financial institutions.3
The Institute also had recommended that the filing of a single form be permitted to
satisfy the filing obligations of multiple financial institutions that may be involved in a
particular transaction or set of transactions. The final rule accommodates this request by
providing that:
The obligation to identify and properly and timely to report a suspicious
transaction rests with each broker-dealer involved in the transaction, provided
that no more than one report is required to be filed by the broker-dealers
3 Release, 67 Fed. Reg. at 44054.
3
involved in a particular transaction (so long as the report filed contains all
relevant facts).4
The rule requires SARs to be filed on a new form, Form SAR-BD. The instructions on
the form will indicate where and how to file the form. SAR-BDs must be filed within 30
calendar days after the date of the initial detection by the reporting broker-dealer of facts that
may constitute the basis for filing an SAR-BD. If no suspect is identified on that initial date, the
filing may be delayed for an additional 30 days.
There are two exceptions in the rule. A broker-dealer is not required to report robberies
or burglaries reported to the appropriate law enforcement agencies or lost, missing, counterfeit
or stolen securities reported pursuant to Rule 17f-1 under the Securities Exchange Act of 1934.
A broker-dealers also does not need to report a violation otherwise required to be reported
under most federal securities laws, so long as the violation is appropriately reported to the SEC
or an SRO.
Broker-dealers will be required under the rule to retain a copy of any BD-SAR filed and
the original or business record equivalent of any supporting documentation for five years from
the date of filing.
The final rule also contains provisions on the confidentiality of reports, the limitation of
the broker-dealer’s liability for filing reports, and examination for compliance and enforcement.
Robert C. Grohowski
Associate Counsel
Attachment
Note: Not all recipients receive the attachment. To obtain a copy of the attachment, please visit our members website
(http://members.ici.org) and search for memo 14853, or call the ICI Library at (202) 326-8304 and request the
attachment for memo 14853.
Attachment (in .pdf format)
4 103.19(a)(3).