Anti-Money Laundering (AML) Source Tool for Mutual Funds
May 12, 2017
Date: February 27, 2017
This research guide, or “source tool,” is a compilation of key AML laws, rules, and guidance applicable to “mutual funds” (i.e., open end investment companies as defined in Section 5 (a)(1) of the Investment Company Act of 1940). Several statutory and regulatory provisions impose AML obligations on mutual funds. A wealth of related AML guidance materials is also available. To aid research efforts into AML requirements and to assist mutual funds with AML compliance, this source tool organizes key AML compliance materials and provides related source information.
When using this research “tool” or guide, you should keep the following in mind:
First, mutual funds are responsible for complying with all AML requirements to which they are subject. Although this research guide summarizes some of the key AML obligations that are applicable to mutual funds, it is not comprehensive. You should not rely on the summary information provided but should refer to the relevant statutes, rules, orders, and interpretations.
Second, AML rules, regulations, and orders are subject to change and may change quickly. Statutes that include AML-related provisions may be amended from time to time, and new statutes may be enacted which include AML-related provisions. The information summarized in this guide is current as of February 27, 2017.
Finally, you will find a list of telephone numbers and useful websites at the end of this guide. If you have questions concerning the meaning, application, or status of a particular law, rule, order, or interpretation, you should consult with an attorney experienced in the areas covered by this guide.
This compilation was prepared by staff in the Office of Compliance Inspections and Examinations (OCIE), Securities and Exchange Commission. The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed in this document are those of the staff and do not necessarily represent the views of the Commission, or other Commission staff.
TABLE OF CONTENTS
The following topics are addressed in this guide:
- The Bank Secrecy Act
- The USA PATRIOT Act
- AML Compliance Programs
- Customer Identification Programs
- Due Diligence Programs for Correspondent Accounts
- Due Diligence Programs for Private Banking Accounts
- Suspicious Activity Monitoring and Reporting
- Other Reporting and Recordkeeping Requirements
- Information Sharing With Law Enforcement and Financial Institutions
- Special Measures Imposed by the Financial Crimes Enforcement Network
- Office of Foreign Asset Control (OFAC) Sanctions Programs and Other Lists
- The Sudan Accountability and Divestment Act of 2007; the Iran Sanctions, Accountability, and Divestment Act of 2010; and Iran Sanctions under the National Defense Authorization Act for Fiscal Year 2012
- Selected Additional AML Resources
- Useful Contact Information
The Bank Secrecy Act (BSA), initially adopted in 1970, established the basic framework for AML obligations imposed on financial institutions. Among other things, it authorizes the Secretary of the Treasury (Treasury) to issue regulations requiring financial institutions to keep records and file reports on financial transactions that may be useful in investigations and the prosecution of money laundering and other financial crimes. Treasury has determined that mutual funds should be considered “financial institutions” for certain purposes and thus specified BSA rules are applicable to mutual funds. The Financial Crimes Enforcement Network (FinCEN), a bureau within Treasury, has regulatory responsibilities for administering the BSA.
- Bank Secrecy Act: The Bank Secrecy Act is codified at 31 U.S.C. §§ 5311 et seq.
- Bank Secrecy Act Rules: FinCEN’s regulations implementing the BSA are located at 31 C.F.R. Chapter X. Chapter X is comprised of a “General Provisions Part” and separate financial-institution-specific parts for those financial institutions subject to FinCEN regulations. The General Provisions Part (Part 1010) contains regulatory requirements that apply to more than one type of financial institution, and in some cases, individuals. The financial-institution-specific parts contain regulatory requirements specific to a particular type of financial institution. The financial-institution-specific part that pertains to mutual funds is Part 1024 (31 C.F.R. §§ 1024.100 et seq.).
The official title of the USA PATRIOT Act is “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT Act) Act of 2001.” Enacted by Congress in 2001 in response to the September 11, 2001, terrorist attacks (among other things), the USA PATRIOT Act amended and strengthened the BSA. One provision of the Act mandated a study that ultimately contained recommendations for extending certain AML obligations to investment companies. Currently, as a result of the USA PATRIOT Act and its implementing rules, there are a number of BSA/AML obligations that are applicable to “mutual funds,” including:
- AML compliance programs;
- customer identification programs;
- monitoring, detecting, and filing reports of suspicious activity;
- due diligence for foreign correspondent accounts;
- other reporting and recordkeeping requirements, including requirements to file currency transaction reports and reports in connection with foreign bank and financial accounts;
- due diligence for private banking accounts; and
- compliance with “special measures” imposed by FinCEN to address particular AML concerns.
USA PATRIOT Act: The text of the USA Patriot Act is available at:
- Report to Congress under the USA Patriot Act containing recommendations for applying anti-money laundering controls to investment companies: Joint Report of the SEC, U.S. Treasury and the Board of Governors of the Federal Reserve System, December 31, 2002. See Press Release.
Section 352 of the USA PATRIOT Act amended the BSA to require financial institutions to implement AML compliance programs. Toward that end, FinCEN has implemented a rule that requires mutual funds to establish AML compliance programs.1 The adopting release to the rule states that since mutual funds operate through a variety of different business models, one generic AML program is not possible; rather, each mutual fund must develop a program based upon its own business structure.2 As a result, each mutual fund complex should identify its vulnerabilities, understand applicable BSA requirements, identify the risk factors relating to these requirements, design the procedures and controls that will be required to reasonably assure compliance with these requirements, and periodically assess the effectiveness of the procedures and controls.3
A mutual fund’s AML compliance program must be in writing, be approved by the mutual fund’s board of directors, and include at a minimum:
- policies, procedures, and internal controls reasonably designed to prevent the mutual fund from being used for money laundering or the financing of terrorist activities and to achieve compliance with the BSA and its implementing rules;
- the designation of a person or persons responsible for implementing and monitoring the operations and internal controls of the AML program (AML Officer);
- ongoing AML training for appropriate persons; and
- an independent test of the mutual fund’s AML program conducted by the mutual fund's personnel or by a qualified outside party. For the testing to be independent, it must not be done by the same employees involved in the operation or oversight of the AML program.4
Because mutual funds do not have direct employees, they may delegate certain aspects of their AML compliance programs to their service providers; however, mutual funds remain responsible for assuring compliance with the rule and overseeing the performance of any delegated responsibilities.5 In addition, if a mutual fund delegates responsibility for its AML program to a service provider, the mutual fund must obtain a written consent that will ensure the ability of federal regulators to obtain information and records relating to the AML program and to inspect the third party for purposes of the program.6
Rule 38a-1 under the Investment Company Act of 1940 requires investment companies, including mutual funds, to establish and implement compliance programs that include provisions for compliance with AML regulations.7 Under Rule 38a-1, fund compliance programs include oversight over the compliance efforts of service providers through which the fund conducts its business (e.g., the fund’s investment adviser, principal underwriter, administrator and transfer agent of the fund).8
FinCEN’s AML Compliance Rule
SEC Investment Company Compliance Program Rule
Joint Guidance Issued by FinCEN, SEC and other Federal Regulators:
- Policy Statement on Obtaining and Retaining Beneficial Ownership for Anti-Money Laundering Purposes: SEC Release No. 34-61651 (March 5, 2010): 75 Fed. Reg. 11207 (March 10, 2010).
Section 326 of the USA PATRIOT Act amended the BSA to require financial institutions to establish written customer identification programs (CIP). A joint SEC/FinCEN implementing rule imposes CIP obligations on mutual funds.9 The implementing rule requires mutual funds to establish, document, and maintain a written CIP that includes procedures for:
- obtaining customer identifying information from each customer prior to account opening;
- verifying the identity of each customer, to the extent reasonable and practicable, within a reasonable time before or after account opening;
- making and maintaining a record of all information obtained relating to customer identity and verification;
- determining within a reasonable time after account opening, or earlier, whether a customer appears on any government list designated by Treasury as a list of known or suspected terrorists or terrorist organizations; and
- providing each customer with adequate notice, prior to opening an account, that information is being requested to verify the customer’s identity.
The CIP rule provides that, under certain defined circumstances, mutual funds may rely on the performance of another financial institution to fulfill some or all of the requirements of the mutual fund's CIP.10 In order for a mutual fund to rely on another financial institution, the reliance must be reasonable. The financial institution being relied on by the mutual fund must be subject to an AML compliance program rule and be regulated by a federal functional regulator. The mutual fund and the other financial institution must enter into a contract, and the other financial institution must certify annually to the mutual fund that it has implemented an AML program. The other financial institution must also certify to the mutual fund that the financial institution will perform the specified requirements of the mutual fund's CIP.
- Customer Identification Program Rule: 31 C.F.R. § 1024.220 (see also 17 C.F.R. 270.0-11).
- Joint FinCEN/SEC Final Rule Release: 68 Fed. Reg. 25131 (May 9, 2003).
- Treasury and SEC Staff Guidance: Staff Q&A Regarding the Mutual Fund Customer Identification Program Rule (August 11, 2003).
- Other Related SEC Staff Guidance: No-Action Letters to the Securities Industry Association (“SIA”) (February 12, 2004; February 10, 2005; July 11, 2006; January 10, 2008; January 11, 2010; January 9, 2015; and December 12, 2016). (The letters provide staff guidance regarding the extent to which a broker-dealer may rely on an investment adviser to conduct the required elements of the CIP rule.)
5. Due Diligence Programs for Correspondent Accounts and Enhanced Due Diligence for Certain Foreign Bank Correspondent Accounts
Section 312 of the USA PATRIOT Act amended the BSA to, among other things, impose special due diligence requirements on financial institutions that establish, maintain, administer, or manage a private banking account or a “correspondent account” in the United States for a “non-United States person.”11
A correspondent account includes any account established for a foreign financial institution (including a foreign bank) to receive deposits from, or to make payments or other disbursements on behalf of, the foreign financial institution, or to handle other financial transactions related to the foreign financial institution.12
FinCEN’s regulations implementing the special due diligence requirements provide, among other things, that a “covered financial institution” (which includes a mutual fund) is required to establish a risk-based due diligence program reasonably designed to enable the mutual fund to detect and report money laundering conducted through, or involving, a foreign correspondent account established, maintained, administered, or managed by the covered financial institution in the United States for a foreign financial institution.13
In the case of a correspondent account established, maintained, administered, or managed in the United States for certain foreign banks, the due diligence program must include “enhanced” due diligence procedures in accordance with certain requirements specified in FinCEN’s regulations.14
- Correspondent Account Due Diligence Rule: 31 C.F.R. § 1010.610. See also 31 C.F.R. § 1010.605 (definitions).
Final Rule Release: 71 Fed. Reg. 496 (January 4, 2006).
As noted above, Section 312 of the USA PATRIOT Act amended the BSA to, among other things, impose special due diligence requirements on financial institutions that establish, maintain, administer, or manage a private banking account or a “correspondent account” in the United States for a “non-United States person.” FinCEN’s implementing regulations provide that a “covered financial institution” is required to maintain a due diligence program that includes policies, procedures, and controls that are reasonably designed to detect and report any known or suspected money laundering or suspicious activity conducted through or involving a “private banking account” that is established, maintained, administered, or managed in the U.S. by the financial institution.15 In addition, the regulations set forth certain minimum requirements for the required due diligence program with respect to private banking accounts.
The regulations define a “private banking account” as an account that: (a) requires a minimum deposit of assets of at least $1,000,000; (b) is established or maintained on behalf of one or more non-U.S. persons who are direct or beneficial owners of the account; and (c) has an employee assigned to the account who is a liaison between the financial institution and the non-U.S. person.16 The definition of “beneficial owner” is limited to individuals(s) with control over the account (as opposed to passive investors with only financial interests).17 Although the definition of a “covered financial institution” under FinCEN’s regulations includes mutual funds, FinCEN acknowledged when it adopted its rule that, “as a general matter,” accounts held by public corporations, mutual funds, or other collective investment vehicles would not fall within the definition of “private banking account.”18 In addition, as recently as December 2005, FinCEN stated that “mutual funds do not currently offer private banking accounts.”19
- Private Banking Due Diligence Rule: 31 C.F.R. § 1010.620. See also 31 C.F.R. § 1010.605 (definitions).
Final Rule Release: 71 Fed. Reg. 496 (January 4, 2006).
- Extension of Applicability Date: 71 Fed. Reg. 16040 (March 30, 2006).
- Fact Sheet: Section 312 of the USA PATRIOT Act (December 2005).
Section 356 of the USA PATRIOT Act amended the BSA to require financial institutions to monitor for, and report, suspicious activity (so-called “SAR reporting”).
Under FinCEN's SAR rule (31 C.F.R. § 1024.320), a mutual fund is required to file a suspicious activity report if: (i) a transaction is conducted or attempted to be conducted by, at, or through a mutual fund; (ii) the transaction involves or aggregates funds or other assets of at least $5,000; and (iii) the mutual fund knows, suspects, or has reason to suspect that the transaction: (a) involves funds or is intended to disguise funds derived from an illegal activity, (b) is designed to evade requirements of the BSA, (c) has no business or apparent lawful purpose, and the mutual fund knows of no reasonable explanation for the transaction after examining the available facts, or (d) involves the use of the mutual fund to facilitate criminal activity.20
Mutual funds must report the suspicious activity using a form FinCEN has issued for the securities and futures industries, the SAR-SF (also referred to as FinCEN Form 101). The form, which is confidential, includes instructions.
Mutual funds must maintain a copy of any SAR-SF filed and supporting documentation for a period of five years from the date of filing the SAR-SF.21
The rule recognizes that the activity of a particular mutual fund shareholder may involve more than one mutual fund in a mutual fund complex, and so the final rule permits all the mutual funds involved in a particular suspicious transaction to file a single joint report.22 As with other AML requirements applicable to mutual funds, the adopting release acknowledges that a mutual fund may contract with a service provider to perform the reporting obligation as the mutual fund's agent, and thus the service provider will be aware of the circumstances surrounding the filing of the SAR.23 Nevertheless, the mutual fund remains responsible for assuring compliance with the rule and so it must maintain an active working relationship with the service provider's compliance personnel to oversee the performance of its SAR-SF reporting obligations.24
In situations that require immediate attention, such as terrorist financing or ongoing money laundering schemes, mutual funds should immediately notify law enforcement in addition to filing a SAR-SF. In addition, if a mutual fund wishes to immediately report suspicious activities, in addition to filing a SAR-SF, they may call FinCEN's Hotline at 1-866-556-3974.25
Fund SAR Rule: 31 C.F.R. § 1024.320.
- Final Rule Release: 75 Fed. Reg. 75593 (Dec. 3, 2010) (amending FinCEN’s regulations regarding the confidentiality of SAR reports).
- Final Rule Release: 71 Fed. Reg. 26213 (May 4, 2006) (amending FinCEN’s regulations to require that mutual funds file SAR reports).
- Final Rule Release: 75 Fed. Reg. 75593 (December 3, 2010) (Confidentiality of Suspicious Activity Reports)
- SAR-SF: FinCEN Form 101, available only electronically through the BSA E-Filing System.
- FIN-2011-G002: Preparation Guidelines for completing the March 2011 version of FinCEN Form 101, Suspicious Activity Report by the Securities and Futures Industries (April 12, 2011).
SAR Narrative Guidance Package: This three-part package includes guidance on preparing Suspicious Activity Reports and is available on FinCEN’s website at:
SAR Activity Reviews: These are available on FinCEN’s website at:
Other SAR Guidance:
- FIN-2006-G013: Frequently Asked Questions: Suspicious Activity Reporting Requirements for Mutual Funds (October 4, 2006).
- FIN-2007-G002: Requests by Law Enforcement for Financial Institutions to Maintain Accounts (June 13, 2007).
- FIN-2007-G003: Suspicious Activity Report Supporting Documentation (June 13, 2007).
- Suggestions for Addressing Common Errors Noted in Suspicious Activity Reporting (October 10, 2007).
- FIN-2008-G005: Guidance to Financial Institutions on Filing Suspicious Activity Reports regarding the Proceeds of Foreign Corruption (April 17, 2008).
- FIN-2010-G005: Sharing Suspicious Activity Reports by Securities Broker-Dealers, Mutual Funds, Futures Commission Merchants, and Introducing Brokers in Commodities with Certain U.S. Affiliates (Nov. 23, 2010) (effective January 3, 2011).
- SAR Narrative Guidance Package: This three-part package includes guidance on preparing Suspicious Activity Reports and is available on FinCEN’s website at:
Currency Transaction Reports (CTRs): Mutual funds are obligated to file CTRs for certain currency transactions.27 In April, 2010, FinCEN amended its BSA rules to insert the term “mutual fund” into the definition of “financial institution.”28 The amended rule had the effect of replacing a mutual fund’s requirement to file a Form 8300 with a requirement to file a CTR for a transaction involving a transfer of more than $10,000 in currency by, through, or to the mutual fund.29 The CTR filing obligation covers incoming, outgoing, and exchange transactions in currency. The definition of “currency” for purposes of the CTR rule (31 C.F.R. § 1010.311) is different from, and less inclusive than, the definition of “currency” in the Form 8300 rule (31 C.F.R. § 1010.330). Under the CTR rule, a financial institution must treat multiple transactions as a single transaction if the financial institution has knowledge that the transactions are conducted by or on behalf of the same person and result in either cash in or cash out totaling more than $10,000 during any one business day.30
Reports of Foreign Bank and Financial Accounts (FBARs): Mutual funds may be required to file FBARs if the mutual fund has a financial interest in, or signature authority over, any bank account, securities account, or “other financial account” (as defined in 31 C.F.R. § 1010.350(c)(3)) in a foreign country and the aggregate value of these accounts exceeds $10,000.31 FBARs are filed with Treasury using Form TD F 90-22.1.
The Recordkeeping and Travel Rule and Related Recordkeeping Requirements: When FinCEN amended the definition of “financial institution” to include a mutual fund, the amended rule also subjected mutual funds to requirements relating to the creation and retention of records involving the transmittal of funds (Recordkeeping and Travel Rule).32 The rule applies to transmittals of funds in amounts that equal or exceed $3,000, and requires the transmittor's financial institution to obtain and retain name, address, and other information about the transmittor and the transaction.33 The Recordkeeping and Travel Rule requires the recipient's financial institution and, in certain instances, the transmittor's financial institution to obtain or retain identifying information about the recipient.34 The rule also requires that certain information obtained or retained by the transmittor's financial institution “travel” with the transmittal order through the payment chain.35
FinCEN’s amendment to the definition of “financial institution” also resulted in mutual funds being required to create and retain records for certain extensions of credit and cross-border transfers of currency, monetary instruments, checks, investment securities, and credit.36 These requirements apply to transactions in amounts exceeding $10,000.
These rules provide for exceptions for certain transactions entered into by the mutual fund, including transactions with banks, broker-dealers and federal, state and local governments.37
FBAR: 31 C.F.R. §§ 1010.350, 1010.306.
- Cash Transaction Report: 31 C.F.R. § 1010.311.
- Recordkeeping and Travel Rule: 31 C.F.R. § 1010.410.
Two provisions relating to information sharing were added to the BSA by the USA PATRIOT Act. First, Section 314(a) authorizes Treasury to adopt regulations to encourage cooperation among financial institutions, their regulators, and law enforcement authorities to share information regarding suspected terrorist acts or money laundering activities.38 Second, Section 314(b) provides a safe harbor to permit and facilitate voluntary information sharing among financial institutions.39
Mandatory Information Sharing (Section 314(a) Requests): FinCEN’s BSA information sharing rules, under Section 314(a), authorize law enforcement agencies with criminal investigative authority to request that FinCEN solicit, on the agency’s behalf, certain information from a financial institution (including an “investment company”).40 Upon receiving such a request, a financial institution is required to search its records to determine whether it has accounts for, or has engaged in transactions with, any specified individual, entity, or organization.41 If the financial institution identifies an account or transaction identified with any individual, entity or organization named in the request, it must report certain relevant information to FinCEN.42 These requests are often referred to as “Section 314(a) information requests.”
Some mutual funds register directly with FinCEN to receive Section 314(a) notices; others rely on their affiliated bank or broker-dealer intermediaries to register and conduct these searches. Mutual funds should maintain the confidentiality of any request and any responsive reports to FinCEN.43 Mutual funds with questions concerning Section 314(a) requests should contact FinCEN.
- Section 314(a) Rule: 31 C.F.R. § 1010.520. See also 31 C.F.R. § 1010.505 (definitions).
- Final Rule Release: 67 Fed. Reg. 60579 (September 26, 2002).
- Proposed Rule Release: 74 Fed. Reg. 58926 (November 16, 2009).
- Final Rule Release: 75 Fed. Reg. 6560 (February 10, 2010).
- Treasury Issues Moratorium on Section 314(a) Information Requests (November 26, 2002).
- FinCEN to Reinstate USA PATRIOT Act Section 314(a) Information Requests (February 6, 2003).
- Implementation of Web-based 314(a) Secure Communication System (February 4, 2005).
- Changing your Point-of-Contact for 314(a) (October 17, 2006).
- FinCEN 314(a) Fact Sheet.
Voluntary Information Sharing Among Financial Institutions: Section 314(b): A separate safe harbor provision encourages and facilitates voluntary information sharing among participating financial institutions. The safe harbor provision, added to the BSA by Section 314(b) of the USA PATRIOT Act, protects financial institutions, including investment companies, from certain liabilities in connection with sharing certain AML related information with other financial institutions for the purposes of identifying and reporting activities that may involve terrorist acts or money laundering activities. FinCEN’s implementing regulations (31 C.F.R. § 1010.540) require that a financial institution or an association of financial institutions that intends to share information pursuant to the regulations must file an annual notice with FinCEN, maintain procedures to protect the security and confidentiality of the information, and take reasonable steps to verify that the financial institution or association of financial institutions with which it intends to share the information has filed the required notice with FinCEN.
- Section 314(b) Rule: 31 C.F.R. § 1010.540.
- Final Rule Release: 67 Fed. Reg. 60579 (September 26, 2002).
- 314(b) Notice Form: (http://www.fincen.gov/314b.pdf).
Section 311 of the USA PATRIOT Act amended the BSA to authorize Treasury to require financial institutions, including mutual funds, to take “special measures” to address particular money laundering concerns. Treasury may impose special measures on foreign jurisdictions, financial institutions, or transactions and accounts found to be of “primary money laundering concern.” FinCEN’s BSA Rules include “special measures” that, among other things, prohibit ”covered financial institutions” (which includes open-end investment companies registered with the Commission) from opening or maintaining certain correspondent accounts.
Section 311 Information: Information about Section 311 is generally available at:
- Section 311 Special Measures
OFAC is an office within Treasury that administers and enforces economic and trade sanctions, based on U.S. foreign policy and national security goals, against targeted foreign countries, terrorism sponsoring organizations, international narcotics traffickers, and those engaged in activities related to the proliferation of weapons of mass destruction. OFAC acts under Presidential wartime and national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze foreign assets under U.S. jurisdiction.
OFAC’s sanctions programs are separate and distinct from, and in addition to, the AML requirements imposed on mutual funds under the BSA.
As a tool in administering sanctions, OFAC publishes a list of Specially Designated Nationals and Blocked Persons (SDNs). These are individuals and entities from all over the world whose property is subject to blocking and with whom U.S. persons cannot conduct business. This list is continually being updated.
OFAC also administers country-based sanctions that are broader in scope than the “list-based” programs.
In general, OFAC regulations require funds to:
- block accounts and other property or property interests of entities and individuals that appear on the SDN list;
- block accounts and other property or property interests of entities and individuals subject to blocking under OFAC country-based programs; and
- block or reject unlicensed trade and financial transactions with OFAC-specified countries, entities, and individuals.
Funds must report all blockings and rejections of prohibited transactions to OFAC within 10 days of being identified and then annually.44 Under the International Emergency Economic Powers Enhancement Act ("IEEPA"), which became effective on October 16, 2007, OFAC has the authority to impose civil penalties of up to $250,000 per violation, or twice the value of the transaction that serves as the basis of the violation, whichever is greater. The maximum criminal penalties under IEEPA were increased from $50,000 to $1,000,000.45 To guard against engaging in OFAC prohibited transactions, it is advisable that funds or their service providers "screen against the OFAC list." U.S. investment companies and their investment managers also should conduct the necessary due diligence to ensure that their investment decisions do not violate U.S. sanctions. OFAC has stated that it will take into account the adequacy of a firm's OFAC compliance program when it evaluates whether to impose a penalty if an OFAC violation has occurred.46
- 31 C.F.R. §§ 501 et seq.
- Program information, including the SDN list and countries subject to OFAC sanctions, is available on the OFAC website at:
- Foreign Assets Control Regulations for the Securities Industry (April 29, 2004).
- Economic Sanctions Enforcement Guidelines (74 Fed. Reg. 57593 (Nov. 9, 2009)).
- Opening Securities and Futures Accounts from an OFAC Perspective (November 5, 2008).
- Risk Factors for OFAC Compliance in the Securities Industry (Nov. 5, 2008).
OFAC Frequently Asked Questions, available on the OFAC website at:
- Program information, including the SDN list and countries subject to OFAC sanctions, is available on the OFAC website at:
- FinCEN Guidance:
- Interpretive Release No. 2004-02-Unitary Filing of Suspicious Activity and Blocking Reports. See also 69 Fed. Reg. 76847 (Dec. 23, 2004).
OFAC Search Tool:
The Financial Industry Regulatory Authority (FINRA), the self-regulatory organization for broker-dealers, has developed a tool to search the OFAC list. FINRA's OFAC Search Tool is available at:
Other lists of countries supporting international terrorism may be available at:
12. The Sudan Accountability and Divestment Act of 2007; the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010; and Iran Sanctions under National Defense Authorization Act for Fiscal Year 2012
The Sudan Accountability and Divestment Act of 2007 and the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010: While not necessarily implicating BSA or OFAC obligations, mutual funds should be aware that the Securities and Exchange Commission has adopted a rule requiring disclosure by a registered investment company that divests, in accordance with the Sudan Accountability and Divestment Act of 2007 (SADA),47 or the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA),48 securities of issuers that the investment company determines (using credible information that is available to the public) conduct or have direct investments in certain business operations in Sudan, or engage in certain investment activities in Iran.
Among other things, the SADA added a new subsection (c) to Section 13 of the Investment Company Act of 1940, and the CISADA later amended subsection (c). As amended, subsection (c) provides that no person may bring any civil, criminal, or administrative action against any registered investment company, or any employee, officer, director, or investment adviser of the investment company, based solely upon the investment company divesting from, or avoiding investing in, securities issued by persons that the investment company determines, using credible information that is available to the public: conduct or have direct investments in certain business operations in Sudan; or engage in investment activities in Iran described in § 8532(c) of Title 22.49 This limitation on actions does not apply unless the registered investment company makes disclosures in accordance with regulations prescribed by the Securities and Exchange Commission.
Each registered investment company that divests securities in accordance with Section 13(c) is required to disclose the divestment in the next Form N-CSR or Form N-SAR that it files following the divestment. Management investment companies provide this disclosure on Form N-CSR, and unit investment trusts provide it on Form N-SAR.
Iran Sanctions under National Defense Authorization Act for Fiscal Year 2012: On December 31, 2011, the President signed into law the National Defense Authorization Act for Fiscal Year 2012 (NDAA).50 Section 1245(c) of the NDAA requires that the President block and prohibit all transactions in all property and interests in property of an Iranian financial institution if such property and interests in property are in the United States, come within the United States, or are or come within the possession or control of a “United States person.”51 “United States Person” is defined to include, among other persons, entities organized under the laws of the United States or a jurisdiction within the United States.52
On February 5, the President signed Executive Order 13599, which implements the blocking provisions required by section 1245(c) of the NDAA.
The NDAA also requires that the President prohibit the opening, and prohibit or impose strict conditions on maintaining, a correspondent account or a payable-through account in the United States by a foreign financial institution that the President determines has knowingly conducted or facilitated any significant financial transaction with the Central Bank of Iran or another Iranian financial institution designated by the Treasury under the IEEPA (50 U.S.C. § 1701 et seq.).53
- Sudan Accountability and Divestment Act of 2007: Pub. L. No. 110-174, 121 Stat. 2516 (2007).
- Final Rule Release (Disclosure by Registered Investment Companies in Accordance with Sudan Accountability and Divestment Act of 2007): 73 Fed. Reg. 23328 (April 30, 2008).
- Final Rule Release (Amendments to Forms N-CSR and N-SAR in connection with the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010): 75 Fed. Reg. 64120 (Oct. 19, 2010).
- Iran Sanctions, Accountability, and Divestment Act of 2010: Pub. L. No. 111-195, 124 Stat. 1312 (2010).
- Executive Order 13599: 77 Fed. Reg. 6659 (Feb. 8, 2012).
- Form N-CSR: http://www.sec.gov/about/forms/formn-csr.pdf.
- Form N-SAR: http://www.sec.gov/about/forms/formn-sar.pdf.
SEC Staff Materials:
- di Florio, Carlo V., Keynote address at the SIFMA Anti-Money Laundering Seminar (March 3, 2011).
- Richards, Lori, “Anti-Money Laundering in 2006: It’s the Total Mix,” Remarks before the Securities Industry Association Conference on Anti-Money Laundering Compliance (March 29, 2006).
- Richards, Lori, “The Next Phase: Implementing the Patriot Act,” Remarks before the Securities Industry Association Conference on Anti-Money Laundering Compliance (March 27, 2003).
- Richards, Lori, “Money Laundering: Life After the Patriot Act,” Remarks before the Securities Industry Association Conference on Anti-Money Laundering Compliance (May 2, 2002).
- Richards, Lori, “Money Laundering; It’s on the SEC’s Radar Screen,” Remarks before the Securities Industry Association Conference on Anti-Money Laundering Compliance (May 8, 2001).
Selected AML Enforcement Cases:
- In re Pinnacle Capital Markets, L.L.C., United States of America Department of Treasury Financial Crimes Enforcement Network No. 2010-4 (August 26, 2010).
- In the Matter of E*Trade Clearing LLC and E*Trade Securities LLC, Exchange Act Release No. 58250 (July 30, 2008).
- In the Matter of Park Financial Group, Inc. and Gordon C. Cantley, Exchange Act Release No. 55614 (April 11, 2007) and Exchange Act Release No. 56902. (December 5, 2007).
- In the Matter of Crowell, Weedon & Co., Exchange Act Release No. 53847 (May 22, 2006).
- In re Hartsfield Capital Securities, Inc., United States of America Department of the Treasury Financial Crimes Enforcement Network No. 2003-05 (November 24, 2003).
FFIEC AML Examination Manual — August 2007,54 available at:
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|Securities and Futures:
|Division of Investment Management, Office of Regulatory Policy||202-551-6792|
|OCIE, Office of Chief Counsel||202-551-6460|
|SEC SAR Alert Message Line||202-551-SARS (7277)|
1 31 C.F.R. § 1024.210 (2011).
2 See Financial Crimes Enforcement Network; Anti-Money Laundering Programs for Mutual Funds, 67 Fed. Reg. 21117, 21,119 (April 29, 2002).
4 31 C.F.R. § 1024.210 (2011); Financial Crimes Enforcement Network; Anti-Money Laundering Programs for Mutual Funds, 67 Fed. Reg. at 21,120.
5 See Financial Crimes Enforcement Network; Anti-Money Laundering Programs for Mutual Funds, 67 Fed. Reg. at 21,119.
8 See Compliance Programs of Investment Companies and Investment Advisers, 68 Fed. Reg. 74714, 74,716-17 (Dec. 24, 2003).
9 31 C.F.R. § 1024.220 (2011).
10 Id. § 1024.220(a)(6).
11 Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No. 107-56, § 312(a), 115 Stat. 296 (2001) (codified at 31 U.S.C. § 5318(i)(1)).
12 31 C.F.R. § 1010.605(c) (2011).
13 Id. § 1010.610(a).
14 Id. § 1010.610(b).
15 Id. § 1010.610(a).
16 Id. § 1010.605(m).
17 31 C.F.R. § 1010.605(a); see also Financial Crimes Enforcement Network; Anti-Money Laundering Programs; Special Due Diligence Programs for Certain Foreign Accounts, 71 Fed. Reg. 496, 506 (Jan. 4, 2006); Policy Statement on Obtaining and Retaining Beneficial Ownership for Anti-Money Laundering Purposes: SEC Release No. 34-61651 (March 5, 2010), 75 Fed. Reg. 11207 (March 10, 2010).
18 Financial Crimes Enforcement Network; Anti-Money Laundering Programs; Special Due Diligence Programs for Certain Foreign Accounts, 71 Fed. Reg. 496, 506 (Jan. 4, 2006).
19 Dep’t of Treasury, Fin. Crimes Enforcement Network, Fact Sheet, Section 312 of the USA Patriot Act, Final Regulation and Notice of Proposed Rulemaking, Dec. 2005, at 4, available at: http://www.fincen.gov/news_room/rp/rulings/pdf/312factsheet.pdf.
20 31 C.F.R. § 1024.320(a) (2011).
21 Id. § 1024.320(c).
22 Id. § 1024.320(a)(3).
23 Financial Crimes Enforcement Network; Amendment to the Bank Secrecy Act Regulations – Requirement That Mutual Funds Report Suspicious Transactions, 71 Fed. Reg. 26213, 26,216 (May 4, 2006).
25 Mutual funds may also, but are not required to, contact the SEC to report situations that may require immediate attention by the SEC. The SEC SAR Alert Message Line number [202-551-SARS (7277)] should only be used in cases where a mutual fund has filed a SAR that may require immediate attention by the SEC and wants to alert the SEC about the filing. Calling the SEC SAR Alert Message Line does not alleviate the mutual fund's obligation to file a SAR or notify an appropriate law enforcement authority.
26 SAR Activity Reviews include two separate publications: SAR Activity Review Trends, Tips & Issues and SAR Activity Review By the Numbers. They are published on a regular basis under the auspices of the BSA Advisory Group. These publications include: statistics regarding SAR filings and trends; an industry forum highlighting compliance issues and practices prepared by private sector members of the Advisory Group; and guidance regarding practical issues relevant to SAR filing and reporting. Guidance contained in these publications may be of interest and useful to funds. For example, see the discussions contained in the following issues:
(i) Dep’t. of Treasury, Fin. Crimes Enforcement Network, The SAR Activity Review — Trends, Tips, and Issues, National Security Letters and Suspicious Activity Reporting, Issue 8, April 2005, at 35, available at http://www.fincen.gov/news_room/rp/files/sar_tti_08.pdf;
(ii) Id. at Providing SARs to Appropriate Law Enforcement, Issue 9, October 2005, at 43, available at http://www.fincen.gov/news_room/rp/files/sar_tti_09.pdf;
(iii) Id. at How Should a Financial Institution Document its Decision Not to File a Suspicious Activity Report?, Issue 10, May 2006, at 38, available at http://www.fincen.gov/news_room/rp/files/sar_tti_10.pdf; and
(iv) Id. at When Does the 30 Day Time Period in which to File a Suspicious Activity Report Begin?, Issue 10, May 2006, at 44, available at http://www.fincen.gov/news_room/rp/files/sar_tti_10.pdf.
In addition, the May 2009 publication of the SAR Activity Review Trends, Tips & Issues focuses on the securities industry. Id. at Issue 10, May 2006, available at https://www.fincen.gov/sites/default/files/shared/sar_tti_15.pdf.
27 31 C.F.R. § 1010.311 (2011).
28 See Financial Crimes Enforcement Network; Amendment to the BSA Regulations; Defining Mutual Funds as Financial Institutions, 75 Fed. Reg. 19241 (April 14, 2010) (effective May 14, 2010).
30 31 C.F.R. §§ 1024.313, 1010.313(b).
31 31 C.F.R. §§ 1010.350(a), 1010.306(c).
32See Financial Crimes Enforcement Network; Amendment to the Bank Secrecy Act Regulations; Defining Mutual Funds as Financial Institutions, 75 Fed. Reg. at 19,242.
33 31 C.F.R. § 1010.410(e) (2011).
35Id. § 1010.410(f).
36See Financial Crimes Enforcement Network; Amendment to the Bank Secrecy Act Regulations; Defining Mutual Funds as Financial Institutions, 75 Fed. Reg. at 19,243. See also 31 C.F.R. §§ 1010.410(a), 1010.410(b), 1010.410(c).
37 31 C.F.R. § 1010.410(e)(6)(i).
38 United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act) of 2001, Pub. L. No. 107-56, 115 Stat. 296, § 314(a)(1) (2001) (codified at 31 U.S.C. § 5311 note (2011)).
39 United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act) of 2001, Pub. L. No. 107-56 115 Stat. 296, § 314(b) (2001) (codified at 31 U.S.C. § 5311 note (2011)).
40 31 C.F.R. § 1010.520(b)(1) (2011); Id. § 1010.520(a)(1) (defining a “financial institution” for the purposes of § 1010.520 as any financial institution described in 31 U.S.C. 5312(a)(2)).
41 31 C.F.R. § 1010.520(b)(3)(i).
42 31 C.F.R. § 1010.520(b)(3)(ii).
43 31 C.F.R. § 1010.520(b)(iv).
45International Emergency Economic Powers Enhancement Act, Pub. L. No. 110-96, § 2, 121 Stat. 1011 (2007).
4631 C.F.R. Part 501, Appendix A – Economic Sanctions Guidelines, III. E. (2011); see also Office of Foreign Assets Control, Economic Sanctions Enforcement Guidelines, 74 Fed. Reg. 57593, 57597 (Nov. 9, 2009).
47 Sudan Accountability and Divestment Act of 2007, Pub. L. No. 110-174, 121 Stat. 2516 (Dec. 31, 2007).
48 Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010, Pub. L. No. 111-195, 124 Stat. 1312 (July 1, 2010).
50National Defense Authorization Act for Fiscal Year 2012, Pub. L. No. 112-81, 125 Stat. 1298 (Dec. 31, 2011).
51Id. at § 1245(c).
52Id. at § 1245(h)(3)(b).
53Id. at § 1245(d)(1).
56 This examination manual, issued by the federal banking regulators regarding the AML requirements applicable to banks, contains guidance that may be of interest to mutual funds and their service providers.