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5/11/2006 Mutual Fund Suspicious Activity Reporting Requirements Finalized

FinCEN has issued final rules requiring mutual funds to file Suspicious Activity Reports. Funds will use the SAR-SF for this purpose. The preamble describes some red flags:

A customer refuses to provide information necessary for the mutual fund to verify the customer’s identity, make reports, or keep required records, or provides information that the mutual fund determines to be false.
A customer seeks to change or cancel a transaction after learning of information verification or recordkeeping requirements relevant to the transactions.
Transmission or receipt of funds transfers occurs without normal identifying information, or in a manner that may indicate an attempt to disguise or hide the country of origin or destination, or the identity of the customer sending the funds, or the beneficiary to which the funds are sent.

A mutual fund is repeatedly used as a temporary resting place for funds from multiple sources without a clear business (including investment) purpose. In instances where suspicious activity may involve another mutual fund, another financial institution, or an agent of the mutual fund, information sharing is permitted, provided that a party with whom or which information is shared is not the subject of the filing. Parties may share information so that a single SAR-SF is filed by one of them which is as complete as possible (procedures also allow for joint filings), and to avoid duplicative reporting. An amendment to 31 CFR 103.16, on suspicious activity reporting by insurance companies, clarifies than an insurance company that issues variable products funded by separate accounts that meet the definition of a mutual fund is to file SARs under the new mutual fund rule, 31 CFR 103.15. The new rules are effective October 31, 2006 and will be discussed in a forthcoming issue of the Monitor.

USA PATRIOT ACT MONITOR is published by Civic Research Institute, Inc., 4478 U.S. Route 27, P.O. Box 585, Kingston, NJ 08528, 609-683-4450, info@civicresearchinstitute.com, as an update service for Money Laundering, Terrorism and Financial Institutions: Law · Regulation · Compliance · USA PATRIOT Act Monitor © 2004 Civic Research Institute, Inc. All rights reserved. Unauthorized copying expressly prohibited. The information in this publication is not intended to replace the services of a trained legal professional. Neither the editors, nor the contributors, nor Civic Research Institute, Inc. are by this publication engaged in rendering legal, accounting, or other professional services. The editors, contributors, and Civic Research Institute, Inc., specifically disclaim any liability, loss, or risk, personal or otherwise, which is incurred as a consequence, directly or indirectly, of the use or application of the contents of this publication.

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