[15796]
March 24, 2003
TO: BROKER/DEALER ADVISORY COMMITTEE No. 13-03
MONEY LAUNDERING RULES WORKING GROUP No. 23-03
SEC RULES MEMBERS No. 36-03
TAX COMMITTEE No. 17-03
TRANSFER AGENT ADVISORY COMMITTEE No. 35-03
RE: ICI COMMENT LETTER ON PROPOSED MUTUAL FUND SAR RULE
On Friday, the Institute filed a comment letter on a recently proposed rule that would
require all mutual funds to file suspicious activity reports (SARs) with Treasury.1 A copy of the
letter is attached. The Institute’s principal comments are summarized below.
The Institute generally supported the concept of an SAR rule for mutual funds, but
commented on several specific aspects of the proposed rule: the standard for determining what
constitutes a suspicious transaction; the joint filing of SARs by mutual funds and other persons
obligated to report the transaction; and the interplay between the SAR regime and the reporting
of transactions involving cash equivalents to the Internal Revenue Service on Form 8300.
Reportable Transactions – The Standard for Identifying “Suspicious” Transactions. The letter
expresses the belief that any mutual fund SAR rule should adopt standards that take into
account the nature of the fund business and the characteristics that distinguish it from
traditional banking and brokerage businesses. Accordingly, the letter urges Treasury to
acknowledge that mutual funds have less information available to them in making SAR
determinations than other types of financial institutions and to expressly state in the
commentary accompanying the final rule that mutual funds are expected to file SARs based on
the information obtained by the fund, its underwriter, or its transfer agent in the normal course
of establishing a shareholder relationship or processing transactions.
The Joint Filing of SARs. The letter makes a number of recommendations with respect to
the concept that multiple financial institutions should be able to rely on a single SAR filing to
satisfy their respective reporting obligations with regard to the same transaction or series of
transactions. First, the letter strongly supports section 103.15(a)(3) of the proposed rule and
recommends that it be adopted as proposed. That section would provide that no more than one
1 See Financial Crimes Enforcement Network; Amendment to the Bank Secrecy Act Regulations – Requirement that
Mutual Funds Report Suspicious Transactions, 68 Fed. Reg. 2716 (January 21, 2003).
2
SAR would be required to be filed by the mutual funds involved in a particular transaction or
any other person obligated to report the transaction, so long as the report filed contains all
relevant facts. The letter sought clarification, however, with respect to an example
accompanying that section that was limited to “a broker-dealer that is a service provider to the
fund.” The letter expressed concern over the use of “service provider” in that example, and
requested that Treasury clarify that its references to broker-dealers include all types of broker-
dealers, whether they act as principal underwriters or in any other capacity, such as selling fund
shares to the public.
The letter also commented on section 103.15(d) of the proposed rule. The proposed rule
generally would prohibit disclosure of information filed in, or the fact of filing, an SAR.
However, section 103.15(d) would provide an exception from that general prohibition on
disclosure “to the extent permitted by” section 103.15(a)(3) (the joint reporting section
mentioned above). The letter strongly supported the concept embodied in this exception, but
recommended that Treasury clarify its scope and expressly provide, preferably in the rule text,
that the sharing of information among financial institutions in order to facilitate the filing of
SARs on behalf of more than one entity would not violate the non-disclosure provisions in the
rule.
SARs and Form 8300. The letter points out that following the adoption of an SAR rule for
mutual funds, some funds will be required to report the receipt of certain cash equivalents (i.e.,
money orders, traveler’s checks, cashier’s checks, and bank drafts with a face amount of $10,000
or less) on two separate forms – the SAR and IRS Form 8300. The letter expresses the belief that
this outcome serves no valid law enforcement or public policy purpose, and recommends that
mutual funds and/or their transfer agents not be required to report transactions involving cash
equivalents on Form 8300. The letter provides Treasury with two alternative approaches that
would achieve that result by effectively obviating the need for mutual funds to file reports on
Form 8300.
Robert C. Grohowski
Associate Counsel
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 15796, or call the ICI Library at (202) 326-8304 and request the
attachment for memo 15796.
Attachment (in .pdf format)