[Federal Register Volume 76, Number 216 (Tuesday, November 8, 2011)]
[Proposed Rules]
[Pages 69204-69214]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-28820]


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DEPARTMENT OF THE TREASURY

Financial Crimes Enforcement Network

31 CFR Parts 1010 and 1030

RIN 1506-AB14


Anti-Money Laundering Program and Suspicious Activity Reporting 
Requirements for Housing Government Sponsored Enterprises

AGENCY: Financial Crimes Enforcement Network (``FinCEN''), Treasury.

[[Page 69205]]


ACTION: Notice of proposed rulemaking.

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SUMMARY: FinCEN, a bureau of the Department of the Treasury 
(``Treasury''), is issuing proposed rules defining certain housing 
government sponsored enterprises as financial institutions for the 
purpose of requiring them to establish anti-money laundering programs 
and report suspicious activities pursuant to the Bank Secrecy Act. The 
proposal to require these organizations to establish anti-money 
laundering programs and report suspicious activities is intended to 
help prevent fraud and other financial crimes.

DATES: Written comments on this notice of proposed rulemaking 
(``NPRM'') must be submitted on or before January 9, 2012.

ADDRESSES: You may submit comments, identified by Regulatory 
Identification Number (RIN) 1506-AB14, by any of the following methods:
     Federal E-rulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments. Include 1506-AB14 in 
the submission. Refer to Docket Number FINCEN-2011-0004.
     Mail: FinCEN, P.O. Box 39, Vienna, VA 22183. Include 1506-
AB14 in the body of the text. Please submit comments by one method 
only. Comments submitted in response to this NPRM will become a matter 
of public record. Therefore, you should submit only information that 
you wish to make publicly available.
    Inspection of comments: Public comments received electronically or 
through the U. S. Postal Service sent in response to a notice and 
request for comment will be made available for public review as soon as 
possible on http://www.regulations.gov. Comments received may be 
physically inspected in the FinCEN reading room located in Vienna, 
Virginia. Reading room appointments are available weekdays (excluding 
holidays) between 10 a.m. and 3 p.m., by calling the Disclosure Officer 
at (703) 905-5034 (not a toll-free call).

FOR FURTHER INFORMATION CONTACT: The FinCEN regulatory helpline at 
(800) 949-2732 and select Option 6.

SUPPLEMENTARY INFORMATION:

I. Background

A. Statutory and Regulatory Provisions

    The Bank Secrecy Act (``BSA'') \1\ authorizes the Secretary of the 
Treasury (the ``Secretary'') to issue regulations requiring financial 
institutions to keep records and file reports that the Secretary 
determines ``have a high degree of usefulness in criminal, tax, or 
regulatory investigations or proceedings, or in the conduct of 
intelligence or counterintelligence activities, including analysis, to 
protect against international terrorism.'' \2\ In addition, the 
Secretary is authorized to impose anti-money laundering (``AML'') 
program requirements on financial institutions.\3\ The authority of the 
Secretary to administer the BSA has been delegated to the Director of 
FinCEN.\4\
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    \1\ ``Bank Secrecy Act'' is the name that has come to be applied 
to the Currency and Foreign Transactions Reporting Act (Titles I and 
II of Pub. L. 91-508), its amendments, and the other statutes 
referring to the subject matter of that Act. These statutes are 
codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 
5311-5314 and 5316-5332, and notes thereto.
    \2\ 31 U.S.C. 5311.
    \3\ 31 U.S.C. 5318(h).
    \4\ See Treasury Order 180-01 (Sept. 26, 2002).
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    The BSA defines the term ``financial institution.'' \5\ The term 
includes, in part, ``any business or agency which engages in any 
activity which the Secretary of the Treasury determines, by regulation, 
to be an activity which is similar to, related to, or a substitute for 
any activity in which any business described in [31 U.S.C. 
5312(a)(2)(A)-(X)] is authorized to engage.'' \6\
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    \5\ 31 U.S.C. 5312(a)(2).
    \6\ 31 U.S.C. 5312(a)(2)(Y).
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    With the enactment of 31 U.S.C. 5318(g) in 1992,\7\ Congress 
authorized the Secretary to require financial institutions to report 
suspicious transactions. As amended by the USA PATRIOT Act,\8\ 
subsection (g)(1) states:
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    \7\ 31 U.S.C. 5318(g) was added to the BSA by section 1517 of 
the Annunzio-Wylie Anti-Money Laundering Act, Title XV of the 
Housing and Community Development Act of 1992, Public Law 102-550; 
it was expanded by section 403 of the Money Laundering Suppression 
Act of 1994 (the Money Laundering Suppression Act), Title IV of the 
Riegle Community Development and Regulatory Improvement Act of 1994, 
Public Law 103-325, to require designation of a single government 
recipient for reports of suspicious transactions.
    \8\ Public Law 107-56 sec. 352(c), 115 Stat. 322, codified at 31 
U.S.C. 5318 note. Public Law 107-56 is the Uniting and Strengthening 
America by Providing Appropriate Tools Required to Intercept and 
Obstruct Terrorism Act of 2001 (``USA PATRIOT Act'').

    The Secretary may require any financial institution, and any 
director, officer, employee, or agent of any financial institution, 
to report any suspicious transaction relevant to a possible 
violation of law or regulation.\9\
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    \9\ 31 U.S.C. 5318(g)(1).

    As amended by the USA PATRIOT Act, the BSA requires financial 
institutions to establish AML programs that include, at a minimum: (1) 
The development of internal policies, procedures, and controls; (2) the 
designation of a compliance officer; (3) an ongoing employee training 
program; and (4) an independent audit function to test programs.\10\ 
When prescribing minimum standards for AML programs, FinCEN must 
``consider the extent to which the requirements imposed under [the AML 
program requirement] are commensurate with the size, location, and 
activities of the financial institutions to which such regulations 
apply.'' \11\
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    \10\ 31 U.S.C. 5318(h).
    \11\ USA PATRIOT Act, Public Law 107-56 sec. 352(c), 115 Stat. 
322, codified at 31 U.S.C. 5318 note.
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    FinCEN has promulgated AML program and Suspicious Activity Report 
(``SAR'') regulations for a number of financial institutions. These 
financial institutions include banks, brokers or dealers in securities, 
mutual funds, insurance companies, futures commission merchants and 
introducing brokers in commodities, money services businesses, and 
casinos.\12\
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    \12\ See 31 CFR 1020.210, 1020.320, 1021.210, 1021.320, 
1022.210, 1022.320, 1023.210, 1023.320, 1024.210, 1024.320, 
1025.210, 1025.320, 1026.210, and 1026.320.
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B. FinCEN's Anti-Mortgage Fraud Initiatives

    FinCEN has placed efforts to combat mortgage fraud and related 
criminal activity as one of its highest priorities in recent years. 
FinCEN's efforts have included the analysis of SARs and other data 
reported to FinCEN, often together with other data sets and information 
available to the Government, to support and inform regulatory and law 
enforcement investigations, proceedings and prosecutions at the 
Federal, State and local levels. Since 2006, FinCEN has published a 
broad range of information focused on mortgage fraud in order to advise 
on trends and patterns, and to provide indicators to help the financial 
industry protect itself against fraud and other financial crime.\13\ 
Criminal activity can arise at

[[Page 69206]]

different times in the product cycle of residential mortgage related 
transactions, affecting a range of persons in the primary and secondary 
markets. In the traditional money laundering sense, criminals may 
attempt to invest the proceeds of illegal activity in a range of 
assets, including real estate, such as through direct purchase or in 
paying down loans.\14\ The purpose of fraud, regardless of whether in 
conjunction with a mortgage or other real estate related transaction, 
is overwhelmingly for criminal profit, and the proceeds of such fraud 
often are laundered through one or more transactions involving 
financial intermediaries. The victim of mortgage fraud might be an 
individual losing equity in a home, or a defrauded lender or investor. 
Fraud may have an impact on the securitization of mortgages, 
potentially affecting the availability of mortgages and the cost to 
borrowers.
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    \13\ See Mortgage Loan Fraud Update (SARs Jan. 1-Mar. 31, 2011), 
June 2011, http://www.fincen.gov/news_room/rp/files/MLF_Update_1st_Qtly_11_FINAL_508.pdf; Mortgage Loan Fraud Update (SARs Jan. 
1-Dec. 31, 2010), Mar. 2011, http://www.fincen.gov/news_room/rp/files/MLF_Update_4th_Qtly_10_FINAL_508.pdf; Mortgage Loan 
Fraud Update (SARs July 1-Sept. 30, 2010), Jan. 2011, http://www.fincen.gov/news_room/rp/files/MLF_Update_3rd_Qtly_10_FINAL.pdf; Mortgage Loan Fraud Update (SARs Apr. 1-June 30, 2010), 
Dec. 2010, http://www.fincen.gov/news_room/rp/files/MLF_Update_2nd_Qtly_10_FINAL.pdf; Mortgage Loan Fraud Update: SAR Filings 
Jan. 1-Mar. 31, 2010, http://www.fincen.gov/news_room/rp/files/MLF_Update_1st_Qtly_10_FINAL.pdf; Advisory to Financial 
Institutions on Filing Suspicious Activity Reports Regarding Home 
Equity Conversion Mortgage Fraud Schemes, Apr. 2010, http://www.fincen.gov/statutes_regs/guidance/pdf/fin-2010-a006.pdf; Filing 
Trends in Mortgage Loan Fraud, Feb. 2009, http://www.fincen.gov/news_room/nr/pdf/20090225a.pdf; Mortgage Loan Fraud: an Update of 
Trends Based upon Analysis of Suspicious Activity Reports, Apr. 
2008, http://www.fincen.gov/news_room/rp/files/MortgageLoanFraudSARAssessment.pdf; Suspected Money Laundering in 
the Residential Real Estate Industry, Apr. 2008, http://www.fincen.gov/news_room/rp/files/MLR_Real_Estate_Industry_SAR_web.pdf; Money Laundering in the Commercial Real Estate 
Industry, Dec. 2006, http://www.fincen.gov/news_room/rp/reports/pdf/CREassessment.pdf; Mortgage Loan Fraud: An Industry Assessment 
Based Upon Suspicious Activity Report Analysis, Nov. 2006, http://www.fincen.gov/news_room/rp/reports/pdf/mortgage_fraud112006.pdf.
    \14\  See Suspected Money Laundering in the Residential Real 
Estate Industry, Apr. 2008, http://www.fincen.gov/news_room/rp/files/MLR_Real_Estate_Industry_SAR_web.pdf; Money Laundering in 
the Commercial Real Estate Industry, Dec. 2006, http://www.fincen.gov/news_room/rp/reports/pdf/CREassessment.pdf.
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    Fraud in the residential mortgage markets may occur in a variety of 
situations, affecting a variety of actors. Fraud may occur at the loan 
origination stage, involving material misrepresentations or omissions, 
false statements, straw buyers, false appraisals, identity theft, 
etc.\15\ Fraud may occur in the context of loan modifications, 
including when unscrupulous actors seek to take advantage of homeowners 
struggling to meet their mortgage payments.\16\ Fraud may occur in home 
equity conversion loans (``HECMs''), commonly known as reverse 
mortgages.\17\ FinCEN analysis and many law enforcement investigations 
have revealed mortgage related fraud to be part of organized criminal 
activity involving multiple properties and various types of criminal 
activity including the foregoing.\18\ Often, mortgage fraud may only be 
discovered after default or in the context of foreclosure proceedings, 
repurchase demands, collateral reviews, audits, examinations or 
insurance investigations.\19\ FinCEN has determined, as a result of 
individual investigations and through its broader analyses, that 
criminal activity and actors in the residential mortgage market may be 
connected with a range of other organized criminal activity affecting a 
range of financial institutions.\20\
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    \15\ For a description of commonly reported fraud related to 
loan origination, see, e.g., Mortgage Loan Fraud: An Industry 
Assessment Based Upon Suspicious Activity Report Analysis, Nov. 
2006, http://www.fincen.gov/news_room/rp/reports/pdf/MortgageLoanFraud.pdf.
    \16\ See Mortgage Loan Fraud: Loan Modification and Foreclosure 
Rescue Scams, May 2010, http://www.fincen.gov/news_room/rp/files/MLFLoanMODForeclosure.pdf.
    \17\ See FinCEN Advisory FIN-2010-005, Advisory to Financial 
Institutions on Filing Suspicious Activity Reports Regarding Home 
Equity Conversion Mortgage Fraud Schemes, April 27, 2010, http://www.fincen.gov/statutes_regs/guidance/pdf/fin-2010-a005.pdf.
    \18\ See, e.g., Department of Justice, Press Release, Financial 
Fraud Enforcement Task Force Announces Results of Broadest Mortgage 
Fraud Sweep in History (June 17, 2010), http://www.justice.gov/opa/pr/2010/June/10-opa-708.html; and speech of Attorney General Eric 
Holder at the Operation Stolen Dreams Press Conference (June 17, 
2010) (noting participation of FinCEN), http://www.justice.gov/ag/speeches/2010/ag-speech-100617.html.
    \19\ See, e.g., Mortgage Loan Fraud Update: Suspicious Activity 
Report Filings from July 1-September 30, 2009 (February 2010), 
http://www.fincen.gov/news_room/rp/files/MLF_Update.pdf.
    \20\ See Mortgage Loan Fraud Connections with Other Financial 
Crime: An Evaluation of Suspicious Activity Reports Filed by Money 
Services Businesses, Securities and Futures Firms, Insurance 
Companies and Casinos, Mar. 2009, http://www.fincen.gov/news_room/nr/pdf/20090316.pdf.
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    FinCEN continues to support broader Administration efforts to 
combat mortgage fraud and mitigate vulnerabilities to abuse. On April 
6, 2009, Treasury Secretary Geithner, together with the Attorney 
General, Housing and Urban Development Secretary and others, announced 
a multi-agency crackdown targeting loan modification fraud and 
foreclosure rescue scams; this included a new FinCEN-led effort to 
``marshal information about possible fraudulent actors, drawing upon a 
variety of data available to law enforcement, regulatory agencies, and 
the consumer protection community, for the purpose of identifying and 
proactively referring potential criminal targets to participating law 
enforcement authorities.'' \21\
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    \21\ See http://www.treasury.gov/press-center/press-releases/Pages/tg83.aspx; see also Treasury Department Press Release, 
Federal, State Partners Convene to Discuss Ongoing Anti-Fraud 
Efforts in Housing Markets (September 17, 2009), http://www.treasury.gov/press-center/press-releases/Pages/tg291.aspx.
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    In November 2009, President Obama established the Financial Fraud 
Enforcement Task Force (``FFETF'') to hold accountable those who helped 
bring about the last financial crisis, and to prevent another crisis 
from happening.\22\ The Treasury Department and FinCEN are among the 
members of the Task Force.\23\ FinCEN has actively participated in the 
FFETF's Mortgage Fraud Working Group (``MFWG''), including in the 
MFWG's Mortgage Fraud Summits around the country.\24\ The foregoing 
experiences have affirmed the importance of SARs filed by depository 
institutions in efforts to combat mortgage fraud.
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    \22\ See Executive Order 13519 (November 17, 2009).
    \23\ See remarks of Timothy Geithner, Secretary, U.S. Department 
of the Treasury, on ``The Financial Fraud Enforcement Task Force'', 
Nov. 17, 2009, http://www.treasury.gov/press-center/press-releases/Pages/tg408.aspx.
    \24\ See http://www.fincen.gov/fraudenftaskforce.html; http://www.justice.gov/opa/pr/2010/February/10-opa-192.html; http://www.justice.gov/opa/pr/2010/March/10-opa-316.html; and http://www.stopfraud.gov/news/news-04232010.html.
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    By this NPRM, FinCEN proposes AML program and SAR requirements for 
the Federal National Mortgage Association (``Fannie Mae''), the Federal 
Home Loan Mortgage Corporation (``Freddie Mac''), and the Federal Home 
Loan Banks (``Banks'') (collectively, the ``Housing Government 
Sponsored Enterprises'' or ``Housing GSEs''). FinCEN believes that the 
proposed regulations would augment FinCEN's initiatives in this 
area.\25\ The Housing GSEs are involved in providing financing to the 
residential mortgage market and thus may be exposed to the risk of 
fraud, particularly when investing in whole mortgage loans. Although 
the respective elements of the businesses of the Banks and Fannie Mae 
and Freddie Mac may differ, all of them are involved in providing 
financing to the residential mortgage market and thus may be exposed to 
fraud risks. While purchasing mortgage loans, extending loans secured 
by mortgages and other real estate related collateral, and engaging in 
a variety of related financial

[[Page 69207]]

activities, the Housing GSEs have access to information on suspected 
mortgage fraud and money laundering that has proven valuable to law 
enforcement and regulators in the investigation and prosecution of 
mortgage fraud and other financial crimes.\26\ While current fraud 
reporting obligations on the Housing GSEs, discussed below, have value 
in combating fraud, the usefulness could be increased by including the 
Housing GSEs within FinCEN's framework to support broader regulatory 
and law enforcement efforts to combat mortgage fraud and related 
financial crimes, consistent with the purposes of the BSA.
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    \25\ FinCEN recently proposed regulations that would require 
non-bank residential mortgage lenders and originators to establish 
AML programs and file SARs. If adopted, that rule would apply 
regulatory requirements to mortgage companies and brokers analogous 
to those currently applicable to banks and other financial 
institutions. See Anti-Money Laundering Program and Suspicious 
Activity Report Filing Requirements for Residential Mortgage Lenders 
and Originators, Notice of Proposed Rulemaking, 75 FR 76677 
(December 9, 2010).
    \26\ See Section II.B., infra, for a review of current fraud 
detection and reporting by the Housing GSEs.
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C. Establishment and Authority of the Federal Housing Finance Agency 
and the Housing GSEs

    The Federal Housing Finance Regulatory Reform Act of 2008 (the 
``Reform Act'') \27\ created the Federal Housing Finance Agency 
(``FHFA'') as an independent agency of the Federal Government. FHFA was 
established on the date of enactment of the Reform Act --July 30, 2008. 
The Reform Act provided for the abolishment of the Office of Federal 
Housing Enterprise Oversight (``OFHEO'') and the Federal Housing 
Finance Board (``FHFB'') one year after the date of enactment. These 
agencies, together with the Housing and Urban Development Government 
Sponsored Enterprise Mission Teams, were combined to establish 
FHFA.\28\
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    \27\ Division A of the Housing and Economic Recovery Act of 2008 
(``HERA''), Public Law 110-289, 122 Stat. 2654 (2008).
    \28\ The authorities, powers and responsibilities of FHFA are 
contained in the Federal Home Loan Bank Act, 12 U.S.C. 1421 et seq., 
as amended by Division A of HERA. and the Federal Housing 
Enterprises Financial Safety and Soundness Act of 1992 (Safety and 
Soundness Act), 12 U.S.C. 4501 et seq., as amended by Division A of 
HERA. See Notice of Establishment, 73 FR 52356 (Sept. 9, 2008). 
http://www.fhfa.gov/webfiles/160/FHFA_%20Notice_of_Establishment_-_73_FR_52356_(Sept--9%2c--2008).pdf.
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    FHFA has regulatory authority over Fannie Mae, Freddie Mac and the 
Banks (collectively referred to in FHFA regulations as the ``regulated 
entities''), and over the Office of Finance of the Federal Home Loan 
Bank System.\29\ FHFA is responsible for ensuring that the Housing GSEs 
operate in a safe and sound manner, including being capitalized 
adequately and maintaining internal controls, that they carry out their 
public policy missions, and that their activities foster liquid, 
efficient, competitive, and resilient national housing finance markets. 
Where FHFA has not acted with superseding regulations, the Housing GSEs 
continue to operate under regulations promulgated by OFHEO and 
FHFB.\30\
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    \29\ The Housing GSEs are defined as FHFA regulated entities in 
Safety and Soundness Act, as amended, 12 U.S.C. 4501 et seq. The 
definition of ``regulated entity'' provides ``[t]he term `regulated 
entity' means--(A) the Federal National Mortgage Association and any 
affiliate thereof; (B) the Federal Home Loan Mortgage Corporation 
and any affiliate thereof; and (C) any Federal Home Loan Bank.'' (12 
U.S.C. 4502(20)).
    \30\ On September 6, 2008, FHFA appointed itself conservator of 
Fannie Mae and Freddie Mac, pursuant to 12 U.S.C. 4617. http://www.fhfa.gov/webfiles/1858/NoticeregardingconservatorFNMA.pdf; 
http://www.fhfa.gov/webfiles/1857/NoticeregardingconservatorFHLMC.pdf.
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    Fannie Mae and Freddie Mac were chartered by Congress primarily to 
establish secondary market facilities for residential mortgages.\31\ 
Specifically, Congress established Fannie Mae and Freddie Mac to 
provide stability in the secondary market for residential mortgages, 
respond appropriately to the private capital market, provide ongoing 
assistance to the secondary market for residential mortgages (including 
activities relating to mortgages on housing for low- and moderate-
income families involving a reasonable economic return that may provide 
less of a return than Fannie Mae's and Freddie Mac's other activities), 
and promote access to mortgage credit throughout the nation.
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    \31\ See 12 U.S.C. 1451, 1716.
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    The Federal Home Loan Banks were organized under the Federal Home 
Loan Bank Act (``Bank Act'').\32\ The Banks are financial cooperatives; 
only members of a Bank may purchase the capital stock of a Bank, and 
only members or certain eligible housing associates (such as State 
housing finance agencies) may obtain access to secured loans, known as 
advances, or other products provided by a Bank.\33\ Each Bank is 
managed by its own board of directors and serves the public interest by 
enhancing the availability of residential mortgage and community 
lending credit through its member institutions.\34\ Any eligible 
institution (generally a federally-insured depository institution or 
State-regulated insurance company) may become a member of a Bank if it 
satisfies certain criteria and purchases a specified amount of the 
Bank's capital stock.\35\ The Bank Act also requires each Bank to 
establish an affordable housing program (known as ``AHP'') and 
contribute a specified portion of its previous year's net income to 
support that program.\36\
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    \32\ 12 U.S.C. 1423, 1432(a).
    \33\ 12 U.S.C. 1426(a)(4), 1430(a), 1430b.
    \34\ 12 U.S.C. 1427.
    \35\ 12 U.S.C. 1424; 12 CFR part 1263.
    \36\ 12 U.S.C. 1430(j).
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II. Notice of Proposed Rulemaking--In General

    This NPRM would define financial institution for certain purposes 
of the BSA to include the Housing GSEs. Specifically, this NPRM 
proposes SAR requirements and AML program requirements.

A. Housing GSEs Proposed To Be Defined as Financial Institutions

    The BSA does not expressly enumerate any of the Housing GSEs among 
the entities defined as ``financial institutions'' under the BSA.\37\ 
Nevertheless, the BSA definition of financial institution is broad, 
listing numerous types of businesses, including commercial banks and 
other depository institutions. The BSA also authorizes the Secretary to 
include additional types of businesses within the BSA definition if the 
Secretary determines that they engage in any activity ``similar to, 
related to, or a substitute for'' any activity of any of the listed 
businesses.\38\
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    \37\ 31 U.S.C. 5312(a)(2) and (c)(1). The BSA definition 
includes institutions that are already subject to federal regulation 
such as banks, savings associations, credit unions, securities 
broker-dealers, and futures commission merchants. Money services 
businesses (such as money transmitters and currency exchanges) are 
also defined as financial institutions under the BSA, and, like the 
former categories, under FinCEN's implementing regulations. The BSA 
definition also includes dealers in precious metals, stones, or 
jewels; pawnbrokers; loan or finance companies; private bankers; 
insurance companies; travel agencies; telegraph companies; sellers 
of vehicles, including automobiles, airplanes, and boats; persons 
engaged in real estate closings and settlements; investment bankers; 
investment companies; and commodity pool operators and commodity 
trading advisors that are registered or required to register under 
the Commodity Exchange Act (7 U.S.C. 1 et seq.).
    \38\ 31 U.S.C. 5312(a)(2)(Y).
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    The Housing GSEs work closely with other BSA-defined financial 
institutions--in fact the majority of their members or servicers are 
commercial banks, thrifts, credit unions and insurance companies. Many 
of the products and services offered by the Housing GSEs can be viewed 
as substitutes for or related to products and services offered by 
commercial banks and nonbank financial institutions included in the 
statutory definition under 31 U.S.C. 5312(a)(2).
    The main role of the Housing GSEs is to support the primary 
mortgage market and affordable housing programs through the purchase, 
guarantee and securitization of mortgage loans, and the extension of 
loans (known as ``advances'' in the Federal Home Loan Bank System) 
secured primarily by mortgage loans and real estate related assets. 
Typically, a significant portion of these mortgage loans are made by

[[Page 69208]]

commercial banks, credit unions and thrifts, which are already 
financial institutions under the BSA and subject to FinCEN's 
regulations.\39\ The Housing GSEs also establish and manage affordable 
housing programs, similar to affordable housing and community 
reinvestment programs of commercial banks and thrifts in underserved 
markets. Some of the Banks also have acquired member asset programs, 
known as ``AMA,'' whereby they acquire fixed-rate, single-family 
mortgage loans from participating member institutions, which are also 
generally commercial banks or other depository institutions already 
included within the BSA's definition of financial institutions. In 
summary, the Housing GSEs provide liquidity, through loan purchases and 
collateralized advances, that permit banks and other customers to offer 
a broad range of credit products and related services.
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    \39\ 31 U.S.C. 5312(a)(2).
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    FinCEN believes, as discussed above, that the Housing GSEs engage 
in activities that are ``similar to, related to, or a substitute for'' 
financial services that are provided by other BSA-defined financial 
institutions. For this reason, FinCEN is proposing to exercise its 
authority under 31 U.S.C. 5312(a)(2)(Y) to define these entities as 
financial institutions. As explained more fully below, this rulemaking 
would define Housing GSEs as financial institutions for the purpose of 
requiring them to establish AML programs and file SARs. This NPRM is 
supported by the FHFA, their primary regulator.
    While this NPRM proposes to define the Housing GSEs as ``financial 
institutions'' under our BSA authority, the Housing GSEs will not be 
considered ``Financial Institutions'' within the regulatory meaning of 
the term under FinCEN's regulations at 31 CFR 1010.100(t). Placement 
within the regulatory definition of ``Financial Institution'' would 
trigger other recordkeeping and reporting requirements that FinCEN does 
not consider appropriate for the Housing GSEs at this time. The term 
Housing Government Sponsored Enterprise is proposed to be added as a 
new defined term at 31 CFR 1010.100(lll).
    In light of FinCEN's efforts to combat mortgage fraud, money 
laundering and terrorist financing, and the anticipated value of adding 
information to FinCEN's database to support law enforcement, FinCEN 
requests comment about whether there are other types of mortgage 
related businesses and professions that might encounter similar risks 
and vulnerabilities to those presented by the Housing GSEs. 
Specifically, FinCEN requests comment on whether there are other 
entities that engage in mortgage related activities that are ``similar 
to, related to, or a substitute for'' financial services that are 
provided by BSA-defined financial institutions that should be defined 
as financial institutions under the BSA in subsequent rulemakings; for 
example: Private mortgage insurers and reinsurers, mortgage servicers, 
and other types of businesses in the primary and secondary mortgage 
markets.
    FinCEN also requests comments about whether it would be appropriate 
to include in a Final Rule any provisions that account for the 
differences in the business, operation and mission of the Banks and 
Fannie Mae and Freddie Mac.

B. Suspicious Activity Reporting and AML Program Requirements

    Under the rules proposed by this NPRM, the Housing GSEs would be 
required to file SAR forms directly with FinCEN, as do other financial 
institutions subject to SAR filing regulations. FinCEN expects that the 
transition to compliance with FinCEN's regulation will not be difficult 
or costly, because the Housing GSEs already have policies, procedures 
and training programs in place to comply with the FHFA's current fraud 
reporting regulation, which is very similar to the proposed SAR 
reporting regulation.
    As part of a final rule adopted on January 27, 2010, FHFA issued 
new fraud reporting regulations, codified at 12 CFR part 1233, 
``Reporting of Fraudulent Financial Instruments.'' \40\ That regulation 
requires each Housing GSE to submit a timely report to FHFA upon 
discovery that it has purchased or sold a fraudulent loan or financial 
instrument, or suspects a possible fraud relating to the purchase or 
sale of any loan or financial instrument. In addition, each Housing GSE 
must establish and maintain internal controls, policies, procedures, 
and operational training programs to discover such transactions. The 
regulation applies to all programs and products of the Housing 
GSEs.\41\
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    \40\ 75 FR 4255 (Jan. 27, 2010).
    \41\ 75 FR 4255, 4258-4259. Should FinCEN issue a final rule 
imposing AML and SAR requirements on the Housing GSEs, FHFA may 
amend these regulations to avoid any conflicts or duplicative 
requirements with FinCEN's regulations, consistent with the 
requirements of the Safety and Soundness Act, as amended.
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    Accordingly, FinCEN believes that most, if not all, of the Housing 
GSEs should already have anti-fraud programs in place that would 
satisfy most of FinCEN's AML program and SAR regulatory requirements. 
The only additional actions that may be required to comply with the 
proposed regulations (in addition to reporting a wider range of 
suspected financial crime than is currently required) would be minor 
modifications to existing policies and procedures to formalize and 
implement two of FinCEN's regulatory requirements that are not 
expressly required under the FHFA's regulations; specifically: (1) The 
appointment of a compliance officer to monitor for compliance with 
FinCEN's regulations, and (2) periodic independent testing to monitor 
for compliance. Housing GSEs that anticipate the need to submit a 
relatively low number of SAR forms may establish procedures to submit 
individual forms via FinCEN's established systems, so that the Housing 
GSE likely may be able to file SARs without reliance on, or changes to, 
their existing systems. FinCEN will issue guidance, if necessary, to 
clarify FinCEN's regulations and assist the Housing GSEs with 
compliance related matters.
    Upon the designation of the Housing GSEs as ``financial 
institutions'' under the BSA, the Housing GSEs, as well as their 
directors, officers, and employees, and agents will become subject to 
the BSA's liability safe harbor for financial institutions that file 
SARs at 31 U.S.C. 5318(g)(3). This safe harbor is intended to encourage 
financial institutions to report suspicious activities, even if, as 
here, the proposed SAR regulation will likely require reporting of a 
wider range of suspected fraud, money laundering and financial crimes 
related to the products and services offered by the Housing GSEs than 
those entities are currently accustomed to report.
    FinCEN further requests comment about whether there are other types 
of entities that engage in mortgage related activities that should be 
defined as financial institutions or loan or finance companies under 
the BSA in subsequent rulemakings, as part of FinCEN's incremental 
approach, discussed in more detail in the proposed rulemaking Anti-
Money Laundering Program and Suspicious Activity Report Filing 
Requirements for Residential Mortgage Lenders and Originators,\42\ to 
address vulnerabilities in the mortgage finance sector.
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    \42\ See 75 FR 76677, December 9, 2010. http://edocket.access.gpo.gov/2010/pdf/2010-30765.pdf.

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[[Page 69209]]

III. Section-by-Section Analysis

A. Definition of Housing Government Sponsored Enterprises

    Section 1010.100(lll) defines the key terms used in the proposed 
rules. The definitions reflect FinCEN's determination that AML program 
and SAR requirements should be applied to the Housing GSEs, which are 
defined as Regulated Entities under 12 U.S.C. 4502(20) subject to the 
general supervision and regulation of the FHFA. The definition of 
Housing Government Sponsored Enterprise includes: (1) The Federal 
National Mortgage Association; (2) the Federal Home Loan Mortgage 
Corporation; and (3) each Federal Home Loan Bank. The proposed 
definition does not include any entity-affiliated party \43\ of Fannie 
Mae, Freddie Mac, or any Bank, including the Office of Finance of the 
Federal Home Loan Bank System.
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    \43\ See 12 U.S.C. 4502(11).
---------------------------------------------------------------------------

B. Compliance and Enforcement

    Section 1010.810(b)(10) delegates authority to examine the Housing 
GSEs for compliance with the requirements of these regulations to the 
FHFA. FHFA is the general regulator for the Housing GSEs and enforces 
its own statutes and regulations regarding safety and soundness. FHFA 
will be FinCEN's delegate for examination for compliance with these 
proposed regulations, and FinCEN will work with FHFA to coordinate and 
direct such delegated compliance examination activities. FinCEN will 
continue to retain enforcement authority under the BSA, including for 
the imposition of civil penalties for violations of the BSA and these 
regulations.

C. Anti-Money Laundering Program

    Section 1030.210(a) requires that each Housing GSE develop and 
implement an anti-money laundering program reasonably designed to 
prevent the Housing GSE from being used to facilitate money laundering 
or the financing of terrorist activities, and other financial crimes, 
including mortgage fraud. The program must be in writing and must be 
approved by senior management. A Housing GSE's written program also 
must be made available to FinCEN upon request.
    Section 1030.210(b) sets forth the minimum requirements of a 
Housing GSE's AML program. Beyond these minimum requirements, however, 
the proposed rule is intended to give Housing GSEs the flexibility to 
design their programs to mitigate their own enterprise-specific risks. 
Section 1030.210(b)(1) requires the AML program to incorporate 
policies, procedures, and internal controls based upon the Housing 
GSE's assessment of the risks of money laundering, terrorism finance 
and other financial crimes associated with its products, customers, 
distribution channels, and geographic locations. As explained above, a 
Housing GSE's assessment of customer-related information is a key 
component to an effective AML program. Thus, a Housing GSE's AML 
program must ensure that the Housing GSE obtains all the information 
necessary to make its AML program effective. Such information includes, 
but is not limited to, relevant customer information on individual 
borrowers and the retail financial institutions who are the Housing 
GSEs customers. The specific means to obtain such information is left 
to the discretion of the Housing GSE, although FinCEN anticipates that 
the Housing GSE may need to amend existing agreements to ensure that 
the Housing GSE receives necessary customer information. We do not 
anticipate that this requirement will entail obtaining information not 
already received in the ordinary course of business by the Housing 
GSEs, particularly with regard to information on individual borrowers. 
For purposes of making the required risk assessment, a Housing GSE must 
consider all relevant information, including whether the retail 
financial institutions who are its customers are subject to AML program 
requirements under the BSA.
    Policies, procedures, and internal controls also must be reasonably 
designed to ensure compliance with BSA requirements. Housing GSEs may 
conduct some of their operations through third parties. Some elements 
of the compliance program may best be performed by personnel of these 
entities, in which case it is permissible for a Housing GSE to delegate 
contractually the implementation and operation of those aspects of its 
AML program to such an entity and to rely on the compliance program of 
such third parties that are subject to an independent AML program 
requirement under the BSA. Any Housing GSE that delegates 
responsibility for aspects of its AML program to a third party, 
however, remains fully responsible for the effectiveness of the 
program, as well as ensuring that compliance examiners are able to 
obtain information and records relating to the AML program.
    Section 1030.210(b)(2) requires that a Housing GSE designate a 
compliance officer to be responsible for administering the AML program. 
The person should be competent and knowledgeable regarding BSA 
requirements and money laundering and fraud issues and risks, and 
should be empowered with full responsibility and authority to develop 
and enforce appropriate policies and procedures. The role of the 
compliance officer is to ensure that (1) The program is implemented 
effectively; (2) the program is updated as necessary; and (3) 
appropriate persons are trained and educated in accordance with Sec.  
1030.210(b)(3).
    Section 1030.210(b)(3) requires that a Housing GSE provide for 
education and training of appropriate persons. Employee training is an 
integral part of any AML program. In order to carry out their 
responsibilities effectively, employees of a Housing GSE (and of any 
third party not already receiving training as part of another AML 
program requirement) with responsibility under the program must be 
trained in the requirements of the rule and money laundering and fraud 
risks generally so that red flags associated with existing or potential 
customers can be identified. Such training may be conducted by outside 
or in-house seminars, and may include computer-based training. The 
nature, scope, and frequency of the education and training program of 
the Housing GSE will depend upon the employee functions performed. 
However, those with obligations under the AML program must be 
sufficiently trained to carry out their responsibilities effectively. 
Moreover, these employees should receive periodic updates and 
refreshers regarding the AML program.
    Section 1030.210(b)(4) requires that a Housing GSE provide for 
independent testing of the program on a periodic basis to ensure that 
it complies with the requirements of the rule and that the program 
functions as designed. An outside consultant or accountant need not 
perform the testing and review. The review may be conducted by an 
officer, employee or group of employees, so long as the reviewer is not 
the designated compliance officer and does not report directly to the 
compliance officer. The frequency of the independent testing will 
depend upon the Housing GSE's assessment of risks posed by its 
operations. Any recommendations resulting from such testing should be 
implemented promptly or reviewed by senior management. A Housing GSE 
may rely on the testing performed by third parties that are subject to 
an independent AML program requirement.
    Section 1030.210(c) states that compliance with the AML program 
requirements will be determined by

[[Page 69210]]

FinCEN or its delegates, under the terms of the BSA.

D. Reports of Suspicious Transactions

    Section 1030.320(a) contains the rules setting forth the obligation 
of Housing GSEs to report suspicious transactions that are conducted or 
attempted by, at, or through a Housing GSE and involve or aggregate at 
least $5,000 in funds or other assets. It is important to recognize 
that transactions are reportable under this rule and 31 U.S.C. 5318(g) 
regardless of whether they involve currency. The $5,000 minimum amount 
is consistent with existing SAR filing requirements for other financial 
institutions.
    Section 1030.320(a)(1) contains the general statement of the 
obligation to file reports of suspicious transactions. The obligation 
extends to transactions conducted or attempted by, at, or through a 
Housing GSE. The proposed rule also contains a provision in Sec.  
1030.320(a)(1) designed to encourage the reporting of transactions that 
appear relevant to violations of law or regulation, even in cases in 
which the rule does not explicitly so require; for example, in the case 
of a transaction falling below the $5,000 threshold in the proposed 
rule.
    Section 1030.320(a)(2) specifically describes the four categories 
of transactions that require reporting. A Housing GSE is required to 
report a transaction if it knows, suspects, or has reason to suspect 
that the transaction (or a pattern of transactions of which the 
transaction is a part): (i) Involves funds derived from illegal 
activity or is intended or conducted to hide or disguise funds or 
assets derived from illegal activity; (ii) is designed, whether through 
structuring or other means, to evade the requirements of the BSA; (iii) 
has no business or apparent lawful purpose, and the Housing GSE knows 
of no reasonable explanation for the transaction after examining the 
available facts; or (iv) involves the use of the Housing GSE to 
facilitate criminal activity.\44\
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    \44\ The fourth reporting category has been added to the 
suspicious activity reporting rules promulgated since the passage of 
the USA PATRIOT Act to make it clear that the requirement to report 
suspicious activity encompasses the reporting of transactions 
involving fraud and those in which legally derived funds are used 
for criminal activity, such as the financing of terrorism.
---------------------------------------------------------------------------

    A determination as to whether a report is required must be based on 
all the facts and circumstances relating to the transaction and 
customer of the Housing GSE in question. Different fact patterns will 
require different judgments. Some examples of red flags associated with 
existing or potential customers are referenced in previous FinCEN 
reports on mortgage fraud.\45\ However, the means of commerce and the 
techniques of money laundering are continually evolving, and there is 
no way to provide an exhaustive list of suspicious transactions.\46\
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    \45\ See note 13, supra.
    \46\ FinCEN will continue to pursue a regulatory approach that 
involves a combination of guidance, training programs, and 
government-industry information exchange so that implementation of 
any new AML program and SAR reporting regulations can be 
accomplished in the most flexible and cost efficient way as 
possible, while protecting the primary and secondary mortgage 
markets and the financial system as a whole from fraud, money 
laundering and other financial crimes.
---------------------------------------------------------------------------

    Section 1030.320(a)(3) provides that the obligation to identify and 
to report a suspicious transaction rests with the Housing GSE involved 
in the transaction. However, where more than one Housing GSE, or 
another financial institution with a separate suspicious activity 
reporting obligation, is involved in the same transaction, only one 
report is required to be filed, provided it contains all relevant facts 
and each institution maintains a copy of the report and any supporting 
documentation.
    The proposed rule is intended to require that a Housing GSE 
evaluate customer activity and relationships for fraud, money 
laundering and other financial crime risks, and design a suspicious 
transaction monitoring program that is appropriate for the particular 
Housing GSE in light of such risks.
    Section 1030.320(b) sets forth the filing procedures to be followed 
by Housing GSEs making reports of suspicious transactions. Within 30 
days after a Housing GSE becomes aware of a suspicious transaction (or 
within 60 days if no suspect has been identified), it must report the 
transaction by completing a SAR and filing it with FinCEN. Supporting 
documentation relating to each SAR is to be collected and maintained 
separately by the Housing GSE and made available upon request by FinCEN 
or any Federal, State, or local law enforcement agency, or any Federal 
regulatory authority that examines the Housing GSE for compliance with 
the BSA. Because FinCEN's SAR regulations provide that supporting 
documentation is deemed to be filed with the SAR, the regulatory 
authorities referenced in the previous sentence are consistent with 
those regulatory authorities to whom a SAR may be disclosed, as 
discussed in the rules of construction below. For situations requiring 
immediate attention, Housing GSEs are to telephone the appropriate law 
enforcement authority in addition to filing a SAR.
    Section 1030.320(c) provides that filing Housing GSEs must maintain 
copies of SARs and the underlying related documentation for a period of 
five years from the date of filing. As indicated above, supporting 
documentation is to be made available to FinCEN and the specified law 
enforcement and regulatory authorities, upon request.
    Section 1030.320(d)(1) reinforces the statutory prohibition against 
the disclosure by a financial institution of a SAR (regardless of 
whether the report would be required by the proposed rule or is filed 
voluntarily).\47\ Thus, the section requires that a SAR and information 
that would reveal the existence of that SAR (``SAR information'') be 
kept confidential and not be disclosed, except as authorized within the 
rules of construction. The proposed rule includes rules of construction 
that identify actions an institution may take that are not precluded by 
the confidentiality provision. These actions include the disclosure of 
SAR information to FinCEN, or Federal, State, or local law enforcement 
agencies, or a Federal regulatory authority that examines the Housing 
GSE for compliance with the BSA. This confidentiality provision also 
does not prohibit the disclosure of the underlying facts, transactions, 
and documents upon which a SAR is based, or the sharing of SAR 
information within the Housing GSE's corporate organizational structure 
for purposes consistent with Title II of the BSA as determined by 
FinCEN in regulation or in guidance.\48\
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    \47\ See 31 U.S.C. 5318(g)(2).
    \48\ On November 23, 2010, FinCEN issued updated guidance for 
the banking, securities, and futures industries authorizing the 
sharing of SAR information with parent companies, head offices, and, 
under certain conditions, domestic affiliates. 75 FR 75607 (Dec. 3, 
2010). No such guidance has been issued for the Housing GSEs.
---------------------------------------------------------------------------

    Section 1030.320(d)(2) incorporates the statutory prohibition 
against disclosure of SAR information, other than in fulfillment of 
their official duties consistent with the BSA, by government users of 
SAR data. The section also clarifies that official duties do not 
include the disclosure of SAR information in response to a request for 
non-public information\49\ or for use in a

[[Page 69211]]

private legal proceeding, including a request under 31 CFR 1.11.\50\
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    \49\ For purposes of this rulemaking, ``non-public information'' 
refers to information that is exempt from disclosure under the 
Freedom of Information Act.
    \50\ 31 CFR 1.11 is the Department of the Treasury's information 
disclosure regulation. Generally, these regulations are known as 
``Touhy regulations,'' after the Supreme Court's decision in United 
States ex rel. Touhy v. Ragen, 340 U.S. 462 (1951). In that case, 
the Supreme Court held that an agency employee could not be held in 
contempt for refusing to disclose agency records or information when 
following the instructions of his or her supervisor regarding the 
disclosure. An agency's Touhy regulations are the instructions 
agency employees must follow when those employees receive requests 
or demands to testify or otherwise disclose agency records or 
information.
---------------------------------------------------------------------------

    Section 1030.320(e) provides protection from liability for making 
reports of suspicious transactions, and for failures to disclose the 
fact of such reporting to the full extent provided by 31 U.S.C. 
5318(g)(3). The protection afforded the GSEs in title 12 by FHFA 
explicitly requires ``good faith,'' \51\ unlike 31 U.S.C. 5318(g)(3) 
which contains no such requirement. Legal authority weighs heavily in 
favor of the proposition that this safe harbor is not subject to a 
``good faith'' limitation.\52\
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    \51\ 12 CFR 1233.5.
    \52\ See Stoutt v. Banco Popular de Puerto Rico, 320 F.3d 26, 31 
(1st Cir. 2003) (no good faith requirement), Lee v. Bankers Trust, 
166 F.3d 540, 544 (2d Cir. 1999) (same), Henry v. Bank of America, 
2010 U.S. Dist. LEXIS 14561 *11-13 (N.D.Cal., Feb. 2, 2010) (same), 
Eyo v. United States, 2007 U.S. Dist. LEXIS 88088 *15-16 (D.N.J., 
Nov. 29, 2007) (same), Nieman v. Firstar Bank, 2005 U.S. Dist. LEXIS 
38959 *18 (N.D. Iowa, Sept. 26, 2005) (same); but see Lopez v. First 
Union National Bank, 129 F.3d 1186, 1992 (11th Cir. 1997) (good 
faith requirement).
---------------------------------------------------------------------------

    Section 1030.320(f) notes that compliance with the obligation to 
report suspicious transactions will be examined by FinCEN or its 
delegates, and provides that failure to comply with the rule may 
constitute a violation of the BSA and the BSA regulations.
    Section 1030.320(g) provides that the new SAR requirement is 
effective when an anti-money laundering program required by the 
regulations is required to be implemented.

E. Special Information Procedures To Deter Money Laundering and 
Terrorist Activity

    Section 1030.500 states generally that the Housing GSEs are covered 
by the special information procedures to detect money laundering and 
terrorist activity requirements set forth and cross referenced in 
sections 1030.520 (cross-referencing to 31 CFR 1010.520) and 1030.540 
(cross-referencing to 31 CFR 1010.540). Sections 1010.520 and 101.540 
implement sections 314(a) and 314(b) \53\ of the USA PATRIOT Act, 
respectively, and generally apply to any financial institution listed 
in 31 U.S.C. 5312(a)(2).\54\ For the sake of clarity, the Final Rule 
adds subpart E to Part 1030 to confirm that the section 314 rules will 
continue to apply to the Housing GSEs.
---------------------------------------------------------------------------

    \53\ In addition to falling within the definition of ``financial 
institution'' found at 31 U.S.C. 5312(a)(2), participants in the 
314(b) program also must be ``required * * * to establish and 
maintain an anti-money laundering program. * * *'' 1010.540(a)(1).
    \54\ This proposed rule would define the Housing GSEs as 
financial institutions under section 5312(a)(2)(Y).
---------------------------------------------------------------------------

IV. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that 
a regulation that has a significant economic impact on a substantial 
number of small entities, small businesses, or small organizations must 
include an initial regulatory flexibility analysis describing the 
regulation's impact on small entities. Such an analysis need not be 
undertaken if the agency has certified that the regulation will not 
have a significant economic impact on a substantial number of small 
entities. 5 U.S.C. 605(b). In this case, a final regulation would apply 
only to the Housing GSEs, none of which are small entities for purposes 
of this requirement. Accordingly, FinCEN hereby certifies that a final 
regulation is not likely to have a significant economic impact on a 
substantial number of small business entities for purposes of the 
Regulatory Flexibility Act. Therefore, the provisions of the Regulatory 
Flexibility Act do not apply. See 5 U.S.C. 601(2) and 603(a).

V. Paperwork Reduction Act

    The proposed regulation pertains to the Housing GSEs. As a result, 
the proposed regulation does not contain any information collection 
requirement that requires the approval of the Office of Management and 
Budget under the Paperwork Reduction Act See 44 U.S.C. 3501 et seq.

VI. Executive Order 13563 and 12866

    Executive Orders 13563 and 12866 direct agencies to assess costs 
and benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). Executive Order 13563 
emphasizes the importance of quantifying both costs and benefits, of 
reducing costs, of harmonizing rules, and of promoting flexibility. It 
has been determined that the final rule is designated a ``significant 
regulatory action'' although not economically significant, under 
section 3(f) of Executive Order 12866. Accordingly, the rule has been 
reviewed by the Office of Management and Budget.

VII. Unfunded Mandates Act of 1995 Statement

    Section 202 of the Unfunded Mandates Reform Act of 1995 (``Unfunded 
Mandates Act''), Public Law 104-4 (March 22, 1995), requires that an 
agency prepare a budgetary impact statement before promulgating a rule 
that may result in expenditure by the state, local, and tribal 
governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. If a budgetary impact statement is 
required, section 202 of the Unfunded Mandates Act also requires an 
agency to identify and consider a reasonable number of regulatory 
alternatives before promulgating a rule. Taking into account the 
factors noted above and using conservative estimates of average labor 
costs in evaluating the cost of the burden imposed by the proposed 
regulation, FinCEN has determined that it is not required to prepare a 
written statement under section 202.

List of Subjects in 31 CFR Parts 1010 and 1030

    Administrative practice and procedure, Banks, Banking, Brokers, 
Currency, Federal home loan banks, Foreign banking, Foreign currencies, 
Gambling, Investigations, Mortgages, Penalties, Reporting and 
recordkeeping requirements, Securities, Terrorism.

Authority and Issuance

    For the reasons set forth in the preamble, Chapter X of title 31 of 
the Code of Federal Regulations is proposed to be amended as follows:

PART 1010--GENERAL PROVISIONS

    1. The authority citation for part 1010 continues to read as 
follows:

    Authority:  12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314 
and 5316-5332; title III, sec. 314 Pub. L. 107-56, 115 Stat. 307.

    2. Amend Sec.  1010.100 by adding new paragraph (lll) to read as 
follows:


Sec.  1010.100  General definitions.

* * * * *
    (lll) Housing government sponsored enterprise. (1) A ``housing 
government sponsored enterprise'' is one of the following ``Regulated 
Entities'' under 12 U.S.C. 4502(20) subject to the general supervision 
and regulation of the Federal Housing Finance Agency (FHFA):
    (i) The Federal National Mortgage Association;

[[Page 69212]]

    (ii) The Federal Home Loan Mortgage Corporation; or
    (iii) Each Federal Home Loan Bank.
    (2) The term ``housing government sponsored enterprise'' does not 
include any ``Entity-Affiliated Party,'' as defined in 12 U.S.C. 
4502(11).
    3. Amend Sec.  1010.810 by adding new paragraph (b)(10) to read as 
follows:


Sec.  1010.810  Enforcement.

* * * * *
    (b) * * *
    (10) To the Federal Housing Finance Agency with respect to the 
housing government sponsored enterprises, as defined in Sec.  
1010.100(lll) of this part.
* * * * *
    4. New part 1030 added to read as follows:

PART 1030--RULES FOR HOUSING GOVERNMENT SPONSORED ENTERPRISES

Subpart A--Definitions
Sec.
1030.100 Definitions.
Subpart B--Programs
1030.200 General.
1030.210 Anti-money laundering programs for housing government 
sponsored enterprises.
Subpart C--Reports Required To Be Made By Housing Government Sponsored 
Enterprises
1030.300 General.
1030.310-1030.315 [Reserved]
1030.320 Reports by housing government sponsored enterprises of 
suspicious transactions.
1030.330 [Reserved]
Subpart D--Records Required To Be Maintained By Housing Government 
Sponsored Enterprises.
1030.400 General.
Subpart E--Special Information Sharing Procedures To Deter Money 
Laundering and Terrorist Activity
1030.500 General.
1030.520 Special information sharing procedures to deter money 
laundering and terrorist activity for housing government sponsored 
enterprises.
1030.530 [Reserved]
1030.540 Voluntary information sharing among financial institutions.
Subpart F--Special Standards of Diligence; Prohibitions, and Special 
Measures for Housing Government Sponsored Enterprises
1030.600-1030.670 [Reserved]

    Authority:  12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314 
and 5316-5332; title III, sec. 314 Pub. L. 107-56, 115 Stat. 307.

Subpart A--Definitions


Sec.  1030.100  Definitions.

    Refer to Sec.  1010.100 of this chapter for general definitions not 
noted herein.

Subpart B--Programs


Sec.  1030.200  General.

    Housing government sponsored enterprises are subject to the program 
requirements set forth and cross referenced in this subpart. Housing 
government sponsored enterprises should also refer to subpart B of part 
1010 of this Chapter for program requirements contained in that subpart 
that apply to housing government sponsored enterprises.


Sec.  1030.210  Anti-money laundering programs for housing government 
sponsored enterprises.

    (a) Anti-money laundering program requirements for housing 
government sponsored enterprises. Each housing government sponsored 
enterprise shall develop and implement a written anti-money laundering 
program that is reasonably designed to prevent the housing government 
sponsored enterprise from being used to facilitate money laundering or 
the financing of terrorist activities. The program must be approved by 
senior management. A housing government sponsored enterprise shall make 
a copy of its anti-money laundering program available to the Financial 
Crimes Enforcement Network or its designee upon request.
    (b) Minimum requirements. At a minimum, the anti-money laundering 
program shall:
    (1) Incorporate policies, procedures, and internal controls based 
upon the housing government sponsored enterprise's assessment of the 
money laundering and terrorist financing risks associated with its 
products and services. Policies, procedures, and internal controls 
developed and implemented by a housing government sponsored enterprise 
under this section shall include provisions for complying with the 
applicable requirements of subchapter II of chapter 53 of title 31, 
United States Code and this part, and obtaining all relevant customer-
related information necessary for an effective anti-money laundering 
program.
    (2) Designate a compliance officer who will be responsible for 
ensuring that:
    (i) The anti-money laundering program is implemented effectively;
    (ii) The anti-money laundering program is updated as necessary; and
    (iii) Appropriate persons are educated and trained in accordance 
with paragraph (b)(3) of this section.
    (3) Provide for on-going training of appropriate persons concerning 
their responsibilities under the program. A housing government 
sponsored enterprise may satisfy this requirement by training such 
persons or verifying that such persons have received training by a 
competent third party with respect to the products and services offered 
by the housing government sponsored enterprise.
    (4) Provide for independent testing to monitor and maintain an 
adequate program. The scope and frequency of the testing shall be 
commensurate with the risks posed by the housing government sponsored 
enterprise's products and services. Such testing may be conducted by a 
third party or by any officer or employee of the housing government 
sponsored enterprise, other than the person designated in paragraph 
(b)(2) of this section.
    (c) Compliance. Compliance with this section shall be examined by 
FinCEN or its delegates, under the terms of the Bank Secrecy Act. 
Failure to comply with the requirements of this section may constitute 
a violation of the Bank Secrecy Act and of this chapter.
    (d) Compliance date. A housing government sponsored enterprise must 
develop and implement an anti-money laundering program that complies 
with the requirements of this section on or before one month from the 
effective date of this section.

Subpart C--Reports Required To Be Made by Housing Government 
Sponsored Enterprises


Sec.  1030.300  General.

    Housing government sponsored enterprises are subject to the 
reporting requirements set forth and cross referenced in this subpart. 
Housing government sponsored enterprises should also refer to subpart C 
of part 1010 of this Chapter for reporting requirements contained in 
that subpart that apply to housing government sponsored enterprises.


Sec.  1030.310-1030.315  [Reserved]


Sec.  1030.320  Reports by housing government sponsored enterprises of 
suspicious transactions.

    (a) General--(1) Every housing government sponsored enterprise 
shall file with FinCEN, to the extent and in the manner required by 
this section, a report of any suspicious transaction relevant to a 
possible violation of law or regulation. A housing government sponsored 
enterprise may also file with FinCEN a report of any suspicious 
transaction that it believes is relevant to the possible violation of 
any law or

[[Page 69213]]

regulation, but whose reporting is not required by this section.
    (2) A transaction requires reporting under this section if it is 
conducted or attempted by, at, or through a housing government 
sponsored enterprise, it involves or aggregates funds or other assets 
of at least $5,000, and the housing government sponsored enterprise 
knows, suspects, or has reason to suspect that the transaction (or a 
pattern of transactions of which the transaction is a part):
    (i) Involves funds derived from illegal activity or is intended or 
conducted in order to hide or disguise funds or assets derived from 
illegal activity (including, without limitation, the ownership, nature, 
source, location, or control of such funds or assets) 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;
    (ii) Is designed, whether through structuring or other means, to 
evade any requirements of this chapter or any other regulations 
promulgated under the Bank Secrecy Act;
    (iii) Has no business or apparent lawful purpose or is not the sort 
in which the particular housing government sponsored enterprise 
customer would normally be expected to engage, and the housing 
government sponsored enterprise knows of no reasonable explanation for 
the transaction after examining the available facts, including the 
background and possible purpose of the transaction; or
    (iv) Involves use of the housing government sponsored enterprise to 
facilitate criminal activity.
    (3) More than one housing government sponsored enterprise may have 
an obligation to report the same transaction under this section, and 
financial institutions involved in that same transaction may have 
separate obligations to report suspicious activity with respect to that 
transaction pursuant to other provisions of this chapter. In those 
instances, no more than one report is required to be filed by the 
housing government sponsored enterprise(s) and any financial 
institution(s) involved in the transaction, provided that the report 
filed contains all relevant facts, including the name of each housing 
government sponsored enterprise or financial institution involved in 
the transaction, the report complies with all instructions applicable 
to joint filings, and each institution maintains a copy of the report 
filed, along with any supporting documentation.
    (b) Filing and notification procedures--(1) What to file. A 
suspicious transaction shall be reported by completing a Suspicious 
Activity Report (``SAR''), and collecting and maintaining supporting 
documentation as required by paragraph (c) of this section.
    (2) Where to file. The SAR shall be filed with FinCEN in accordance 
with the instructions to the SAR.
    (3) When to file. A SAR shall be filed no later than 30 calendar 
days after the date of the initial detection by the reporting housing 
government sponsored enterprise of facts that may constitute a basis 
for filing a SAR under this section. If no suspect is identified on the 
date of such initial detection, a housing government sponsored 
enterprise may delay filing a SAR for an additional 30 calendar days to 
identify a suspect, but in no case shall reporting be delayed more than 
60 calendar days after the date of such initial detection.
    (4) Mandatory notification to law enforcement. In situations 
involving violations that require immediate attention, such as 
suspected terrorist financing or ongoing money laundering schemes, a 
housing government sponsored enterprise shall immediately notify by 
telephone an appropriate law enforcement authority in addition to 
filing timely a SAR.
    (5) Voluntary notification to FinCEN. Any housing government 
sponsored enterprise wishing voluntarily to report suspicious 
transactions that may relate to terrorist activity may call FinCEN's 
Financial Institutions Hotline in addition to filing timely a SAR if 
required by this section.
    (c) Retention of records. A housing government sponsored enterprise 
shall maintain a copy of any SAR filed by the housing government 
sponsored enterprise or on its behalf (including joint reports), and 
the original (or business record equivalent) of any supporting 
documentation concerning any SAR that it files (or is filed on its 
behalf), for a period of five years from the date of filing the SAR. 
Supporting documentation shall be identified as such and maintained by 
the housing government sponsored enterprise, and shall be deemed to 
have been filed with the SAR. A housing government sponsored enterprise 
shall make all supporting documentation available to FinCEN or any 
Federal, State, or local law enforcement agency, or any Federal 
regulatory authority that examines the housing government sponsored 
enterprise for compliance with the Bank Secrecy Act, upon request.
    (d) Confidentiality of SARs. A SAR, and any information that would 
reveal the existence of a SAR, are confidential and shall not be 
disclosed except as authorized in this paragraph (d). For purposes of 
this paragraph (d) only, a SAR shall include any suspicious activity 
report filed with FinCEN pursuant to any regulation in this chapter.
    (1) Prohibition on disclosures by housing government sponsored 
enterprises--(i) General rule. No housing government sponsored 
enterprise, and no director, officer, employee, or agent of any housing 
government sponsored enterprise, shall disclose a SAR or any 
information that would reveal the existence of a SAR. Any housing 
government sponsored enterprise, and any director, officer, employee, 
or agent of any housing government sponsored enterprise that is 
subpoenaed or otherwise requested to disclose a SAR or any information 
that would reveal the existence of a SAR, shall decline to produce the 
SAR or such information, citing this section and 31 U.S.C. 
5318(g)(2)(A)(i), and shall notify FinCEN of any such request and the 
response thereto.
    (ii) Rules of construction. Provided that no person involved in any 
reported suspicious transaction is notified that the transaction has 
been reported, this paragraph (d)(1) shall not be construed as 
prohibiting:
    (A) The disclosure by a housing government sponsored enterprise, or 
any director, officer, employee, or agent of a housing government 
sponsored enterprise of:
    (1) A SAR, or any information that would reveal the existence of a 
SAR, to FinCEN or any Federal, State, or local law enforcement agency, 
or any Federal regulatory authority that examines the housing 
government sponsored enterprise for compliance with the Bank Secrecy 
Act; or
    (2) The underlying facts, transactions, and documents upon which a 
SAR is based, including but not limited to, disclosures to another 
housing government sponsored enterprise or a financial institution, or 
any director, officer, employee, or agent of a housing government 
sponsored enterprise or financial institution, for the preparation of a 
joint SAR; or
    (B) The sharing by a housing government sponsored enterprise, or 
any director, officer, employee, or agent of the housing government 
sponsored enterprise, of a SAR, or any information that would reveal 
the existence of a SAR, within the housing government sponsored 
enterprise's corporate organizational structure for purposes consistent 
with Title II of the Bank Secrecy Act as determined by regulation or in 
guidance.
    (2) Prohibition on disclosures by government authorities. A 
Federal,

[[Page 69214]]

State, local, territorial, or tribal government authority, or any 
director, officer, employee, or agent of any of the foregoing, shall 
not disclose a SAR, or any information that would reveal the existence 
of a SAR, except as necessary to fulfill official duties consistent 
with Title II of the Bank Secrecy Act. For purposes of this section, 
``official duties'' shall not include the disclosure of a SAR, or any 
information that would reveal the existence of a SAR, in response to a 
request for disclosure of non-public information or a request for use 
in a private legal proceeding, including a request pursuant to 31 CFR 
1.11.
    (e) Limitation on liability. A housing government sponsored 
enterprise, and any director, officer, employee, or agent of any 
housing government sponsored enterprise, that makes a voluntary 
disclosure of any possible violation of law or regulation to a 
government agency or makes a disclosure pursuant to this section or any 
other authority, including a disclosure made jointly with another 
institution, shall be protected from liability for any such disclosure, 
or for failure to provide notice of such disclosure to any person 
identified in the disclosure, or both, to the full extent provided by 
31 U.S.C. 5318(g)(3).
    (f) Compliance. Housing government sponsored enterprises shall be 
examined by FinCEN or its delegates for compliance with this section. 
Failure to satisfy the requirements of this section may be a violation 
of the Bank Secrecy Act and of this chapter.
    (g) Applicability date. This section is effective when an anti-
money laundering program required by Sec.  1030.210 of this part is 
required to be implemented.


Sec.  1030.330  Reports relating to currency in excess of $10,000 
received in a trade or business.

    Refer to Sec.  1010.330 of this Chapter for rules regarding the 
filing of reports relating to currency in excess of $10,000 received by 
housing government sponsored enterprises.

Subpart D--Records Required To Be Maintained by Housing Government 
Sponsored Enterprises


Sec.  1030.400  General.

    Housing government sponsored enterprises are subject to the 
recordkeeping requirements set forth and cross referenced in this 
subpart. Housing government sponsored enterprises should also refer to 
subpart D of part 1010 of this Chapter for recordkeeping requirements 
contained in that subpart that apply to housing government sponsored 
enterprises.

Subpart E--Special Information Sharing Procedures To Deter Money 
Laundering and Terrorist Activity


Sec.  1030.500  General.

    Housing government sponsored enterprises are subject to special 
information sharing procedures to deter money laundering and terrorist 
activity requirements set forth and cross referenced in this subpart. 
Housing government sponsored enterprises should also refer to subpart E 
of part 1010 of this Chapter for special information sharing procedures 
to deter money laundering and terrorist activity contained in that 
subpart that apply to housing government sponsored enterprises.


Sec.  1030.520  Special information sharing procedures to deter money 
laundering and terrorist activity for housing government sponsored 
enterprises.

    (a) Refer to Sec.  1010.520 of this Chapter.
    (b) [Reserved]


Sec.  1030.530  [Reserved]


Sec.  1030.540  Voluntary information sharing among financial 
institutions.

    (a) Refer to Sec.  1010.540 of this Chapter.
    (b) [Reserved]

Subpart F--Special Standards of Diligence; Prohibitions, and 
Special Measures for Housing Government Sponsored Enterprises


Sec.  1030.600-1030.670  [Reserved]

    Dated: November 2, 2011.
James H. Freis, Jr.,
Director, Financial Crimes Enforcement Network.
[FR Doc. 2011-28820 Filed 11-7-11; 8:45 am]
BILLING CODE 4802-10-P