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implications. No rights, property or Similarly, failure to immediately I 4. In newly redesignated § 39.1202(c), compensation has been, or will be make the redesignations in this rule the words ‘‘as set forth in § 39.19’’ are taken. A takings implication assessment would result in a serious disruption of removed. is not required. the Bureau of Indian Affairs’ ability to [FR Doc. 05–11445 Filed 6–8–05; 8:45 am] 6. Federalism (E.O. 13132). In provide necessary educational services, BILLING CODE 4310–02–M accordane with Executive Order 13132, with accompanying confusion to this rule does not have federalism employees and the public. This implications that warrant the disruption and confusion would be DEPARTMENT OF THE TREASURY preparation of a federalism assessment. contrary to public and tribal interests. 7. Civil Justice Reform (E.O. 12988). In For these reasons, the Department has 31 CFR Part 103 accordance with Executive Order 12988, determined it appropriate to waive the RIN 1506–AA58 the Office of the Solicitor has requirement of publication 30 days in determined that this rule does not advance of the effective date. As Financial Crimes Enforcement unduly burden the judicial system and allowed by 5 U.S.C. 553(d)(3), this rule Network; Anti-Money Laundering meets the requirements of sections 3(a) is effective immediately because it is in Programs for Dealers in Precious and 3(b)(2) of the Order. the public interest not to delay Metals, Stones, or Jewels 8. Consultation with Indian tribes implementation of this amendment. (E.O. 13175). In accordance with AGENCY: Financial Crimes Enforcement Executive Order 13175, we have List of Subjects in 25 CFR Part 39 Network (‘‘FinCEN’’), Treasury. evaluated this rule and determined that ACTION: Interim final rule; request for Indians—education, Schools, it has no potential negative effects on comments. federally recognized Indian tribes. In Elementary and secondary education drafting the No Child Left Behind rule programs, Government programs— SUMMARY: FinCEN is issuing this interim published today, we consulted education. final rule to prescribe minimum extensively with tribes; tribal members Dated: May 23, 2005. standards applicable to dealers in of the negotiated rulemaking committee Michael D. Olsen, jewels, precious metals, or precious participated in the writing of the rule. stones, pursuant to the provisions in the Acting Principal Deputy Assistant Secretary— USA PATRIOT Act of 2001 that require These conforming amendments make Indian Affairs. only changes necessary to ensure that financial institutions to establish anti- the remainder of 25 CFR is consistent I For the reasons given in the preamble, money laundering programs. This rule with the provisions of the No Child Left part 39 of title 25 of the Code of Federal is being issued as an interim final rule Behind rule. Regulations is amended as set forth because FinCEN is seeking additional 9. Paperwork Reduction Act. This below. public comment on several aspects of regulation does not require an the interim final rule. These issues are information collection from 10 or more PART 39—THE INDIAN SCHOOL addressed in the SUPPLEMENTARY parties and a submission under the EQUALIZATION PROGRAM INFORMATION section under the heading Paperwork Reduction Act is not ‘‘Request for Comments.’’ We also are required. An OMB form 83–I is not I 1. The authority for part 39 continues providing questions and answers to required. to read as follows: assist businesses in understanding how 10. National Environmental Policy Authority: 25 U.S.C. 13; 25 U.S.C. 2008; the interim final rule operates, and in Act. This rule does not constitute a Pub. L. 107–110. determining whether and when a major Federal action significantly business’s operations are covered by the affecting the quality of the human I 2. In Subparts I through L, §§ 39.110 interim final rule. These questions and environment. through 39.143 are redesignated as answers appear in the SUPPLEMENTARY 11. Justification for Issuing a Direct shown in the following table: INFORMATION section under the heading Final Rule. The Department has ‘‘Frequently Asked Questions.’’ determined that the public notice and Redesignated DATES: Current section number section number Effective Date: This interim final comment provisions of the rule is effective July 11, 2005. Administrative Procedure Act, 5 U.S.C. 39.110 ...... 39.900 Applicability Date: The requirement 553(b), do not apply to this rule because 39.111 ...... 39.901 that dealers develop and implement an of the good cause exception under 5 39.112 ...... 39.902 anti-money laundering program applies U.S.C. 553(b)(3)(B). This exception 39.113 ...... 39.903 as provided in 31 CFR 103.140(d). allows the agency to suspend the notice 39.114 ...... 39.904 Submission of Comments: Comments and public procedure requirements 39.120 ...... 39.1000 on the issues raised in the ‘‘Request for when the agency finds for good cause 39.121 ...... 39.1001 Comments’’ portion of this document that those requirements are 39.122 ...... 39.1002 must be received before July 25, 2005. impracticable, unnecessary, or contrary 39.123 ...... 39.1003 ADDRESSES: You may submit comments, to the public interest. This rule 39.130 ...... 39.1100 identified by RIN 1506–AA58, by any of renumbers (redesignates) certain 39.131 ...... 39.1101 the following methods: sections of 25 CFR part 39 in order to 39.140 ...... 39.1200 • Federal e-rulemaking Portal: http:// conform to the amendments published 39.141 ...... 39.1201 www.regulations.gov. Follow the on April 28, it makes no substantive 39.142 ...... 39.1202 instructions for submitting comments. changes. Failure to immediately make 39.143 ...... 39.1203 • E-mail: these redesignations would lead to [email protected]. Include confusion and cause errors in vital § 39.1100 [Amended] RIN 1506–AA58 in the subject line of educational programs. For these the message. reasons, public comments are I 3. In newly redesignated § 39.1100, in • Mail: FinCEN, P.O. Box 39, Vienna, unnecessary and would be the last sentence, the words ‘‘detailed in VA 22183. Include RIN 1506–AA58 in impracticable. § 39.19’’ are removed. the body of the text.

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Instructions: It is preferable for designation of a compliance officer;’’ accepting third-party payments, and the comments to be submitted by electronic ‘‘an ongoing employee training importance of conducting reasonable mail because paper mail in the program;’’ and ‘‘an independent audit inquiries when a customer’s requests Washington, DC, area may be delayed. function to test programs.’’ 31 U.S.C. seem unusual. Please submit comments by one method 5318(h)(1)(A–D). Although the following two examples only. All submissions received must On October 26, 2001, the President involve dealers who were acting in include the agency name and the signed into law the USA Patriot Act. complicity with the illegal activity of Regulatory Information Number (RIN) Section 352 of the USA Patriot Act, their customers, they demonstrate for this rulemaking. All comments which became effective April 24, 2002, money laundering methodologies that received will be posted without change amended 31 U.S.C. 5318(h) of the BSA also could be conducted through to http://www.fincen.gov, including any to require, and not merely authorize, unwary dealers. First, a Federal grand personal information provided. anti-money laundering programs for all jury indictment illustrates the money Comments may be inspected at FinCEN financial institutions defined in the laundering risks associated with the use between 10 a.m. and 4 p.m., in the BSA. Section 352(c) of the USA Patriot of third-party payments.3 A jewelry FinCEN reading room in Washington, Act directs the Secretary to prescribe wholesaler pled guilty to laundering DC. Persons wishing to inspect the regulations for anti-money laundering money by accepting third-party comments submitted must request an programs that are ‘‘commensurate with payments in drug proceeds for appointment by telephoning (202) 354– the size, location, and activities’’ of the merchandise purchased by its retailer 6400 (not a toll-free number). financial institutions to which such clients. A review of the wholesaler’s FOR FURTHER INFORMATION CONTACT: regulations apply. records revealed several unusual Regulatory Policy and Programs Although a dealer in ‘‘precious patterns, including: • Division (FinCEN), (800) 949–2732 (toll- metals, stones, or jewels’’ (‘‘dealer’’) has Many instances in which the free). long been listed as a financial wholesaler received payment for SUPPLEMENTARY INFORMATION: institution under the BSA, 31 U.S.C. merchandise from a party other than the 5312(a)(2)(N), FinCEN has not purchaser (third-party payments); and I. Background previously defined the term or issued • Numerous examples of unusual check activity including payment in the A. Statutory Provisions regulations regarding dealers. On April 29, 2002, FinCEN deferred the anti- form of sequentially numbered checks, The Bank Secrecy Act (BSA), Public money laundering program requirement multiple checks from the same account Law 91–508, as amended, codified at 12 contained in 31 U.S.C. 5318(h) that drawn on the same date, checks with no U.S.C. 1829b, 12 U.S.C. 1951–1959, and would have applied to a number of new identified payor, payments drawn on a 31 U.S.C. 5311–5314, 5316–5332, industries, including dealers. The bank located in a county different from authorizes the Secretary of the Treasury purpose of the deferral was to provide the country in which the purchaser to issue regulations requiring financial FinCEN with time to study the lived, and checks paid through foreign institutions to keep records and file industries and to consider how anti- countries. reports that are determined to have a money laundering controls could best Second, the results of the recently high degree of usefulness in criminal, be applied to them.2 This rule defines conducted Operation Meltdown tax, and regulatory matters, or in the the term dealer and describes the demonstrate the importance of conduct of intelligence or counter- required elements of a dealer’s anti- conducting reasonable inquiries when a intelligence activities to protect against money laundering program. customer’s requests seem unusual. This international terrorism, and to money laundering scheme involved the implement counter-money laundering B. Money Laundering Cases Involving use of couriers to deliver cash to gold programs and compliance procedures.1 Dealers dealers. The dealers exchanged the cash Regulations implementing Title II of the The statutory mandate that financial for gold and other precious BSA (codified at 31 U.S.C. 5311 et seq.) institutions establish an anti-money commodities, which were then appear at 31 CFR part 103. The laundering program is a key element in smuggled out of the United States. To authority of the Secretary to administer the national effort to prevent and detect make the gold less easily detected by the BSA has been delegated to the money laundering and the financing of inspectors, the gold dealers sometimes Director of FinCEN. terrorism, and recognizes that financial molded the gold into common items, The provisions of 31 U.S.C. 5318(h), institutions other than depository such as tools, belt buckles, or light added to the BSA in 1992 by section institutions (which have long been switches, or painted it.4 1517 of the Annunzio-Wylie Anti- subject to BSA requirements) are A review of suspicious activity Money Laundering Act, authorize the vulnerable to money laundering. reports filed with FinCEN by depository Secretary of the Treasury ‘‘[i]n order to Precious metals, precious stones, and institutions also reveals instances in guard against money laundering through jewels are easily transportable, highly which banks and others suspected the financial institutions * * * [to] require concentrated forms of wealth and can be involvement of dealers in unusual financial institutions to carry out anti- highly attractive to money launderers transactions. Several suspicious activity money laundering programs.’’ 31 U.S.C. and other criminals, including those reports describe the use of bulk amounts 5318(h)(1). Those programs may include involved in the financing of terrorism. of sequentially numbered U.S. money ‘‘the development of internal policies, Recent cases demonstrate various ways orders and traveler’s checks deposited procedures, and controls;’’ ‘‘the in which precious metals, precious abroad. The money orders and traveler’s stones, and jewels can be used for illicit checks were purchased for the 1 Language expanding the scope of the BSA to purposes. In particular, these cases maximum face value, and then were intelligence or counter-intelligence activities to used to purchase diamonds and gems at protect against international terrorism was added by demonstrate the risks involved in section 358 of the Uniting and Strengthening America by Providing Appropriate Tools Required 2 See 31 CFR 103.170, as codified by interim final 3 U.S. v. Speed Joyeros, S.A., 204 F. Supp. 2d 412 to Intercept and Obstruct Terrorism (USA rule published at 67 FR 21110 (April 29, 2002), as (E.D.N.Y. 2002). PATRIOT) Act of 2001 (the USA Patriot Act), Public amended at 67 FR 67547 (November 6, 2002) and 4 U.S. v. Ramerez, 313 F. Supp. 2d 276 (S.D.N.Y. Law 107–56. corrected at 67 FR 68935 (November 14, 2002). 2004).

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dealers located in foreign countries. One precious metals, and precious stones to • An explicit exception for suspicious activity report was filed by a develop and implement written anti- pawnbrokers has been added to the U.S. bank that became suspicious about money laundering programs interim final rule. a series of checks payable to U.S. appropriately tailored to the risk of • An exception from the meaning of suppliers and issued on behalf of a money laundering or terrorism the terms ‘‘purchase’’ and ‘‘sale’’ for foreign gold and gem company from a financing presented by their businesses. purposes of the definition of ‘‘dealer’’ correspondent account at the bank. The The NPRM focused on dealers, that is, has been created for certain trade-in bank contacted the correspondent for businesses that both buy and sell these transactions, as a result of which such additional details about the items, given FinCEN’s conclusion that transactions would not count toward the transactions, and found that the invoice the most significant risks of money $50,000 definitional thresholds. amounts did not correspond with the laundering or the financing of terrorism • The exception relating to the check amounts. Although there can be lie within those businesses that do both. fabrication of finished goods containing legitimate reasons for both making Furthermore, the NPRM excluded most minor amounts of jewels, precious payments that do not match invoices retailers from the scope of the metals, or precious stones is no longer and using sequentially numbered regulation, based on the conclusion that necessary (and therefore has been money orders or traveler’s checks (such retailers simply do not face the same removed) as a result of (1) the new as limitations on the maximum face level of risk. The elements of the anti- ‘‘covered goods’’ definition, and (2) a amount of these instruments), their use money laundering program outlined in new exception from the definition of can be indicia of money laundering. the NPRM mirror those found in ‘‘dealer’’ and the anti-money laundering The Guidance for Financial FinCEN’s regulations for other types of program requirement for the purchase of Institutions in Detecting Terrorist financial institutions. The NPRM jewels, precious metals, and precious Financing issued by the Financial contained proposed definitions for the stones that are incorporated into Action Task Force on Money terms ‘‘dealer,’’ ‘‘jewel,’’ ‘‘precious equipment and machinery to be used for Laundering (the ‘‘FATF’’) 5 identifying metal,’’ and ‘‘precious stone.’’ vulnerabilities in financial industries on industrial purposes, and the purchase The comment period for the NPRM and sale of such equipment and the financing of terrorism, includes an ended on April 22, 2003. FinCEN example involving a dealer. In this case, machinery. received a total of 29 comment letters. • suspicious activity reports filed by Of these, 16 were submitted by dealer The definition of ‘‘retailer’’ appears several banks on two individuals and a and pawnbroker trade associations, five as a separate definition, and clarifies diamond trading company identified by law firms, four by individuals, three that the term applies only to a U.S. high-volume unusual funds transfer by pawnbrokers, and one by a person who sells covered goods activity to and from foreign countries, manufacturer. primarily to the public. and the deposit of several large-value • The $50,000 thresholds in the rule checks denominated in U.S. dollars. The III. Summary of Comments and to determine whether a person is a financial intelligence unit of the country Revisions dealer and whether a retailer is eligible in which the filing banks are located A. Introduction for the retailer exemption have been learned from the police that, through clarified to provide that, with respect to these transactions, funds had been The format of this interim final rule finished goods, only the value of the wired to a person suspected of buying is generally consistent with the format jewels, precious metals, or precious diamonds on behalf of a terrorist of the rule proposed in the NPRM. The stones contained in or attached to such organization.6 terms of the rule, however, differ from finished goods needs to be taken into The vulnerabilities described above the terms of the NPRM in the following account. help demonstrate the need for an anti- significant respects: • The rule has been revised to money laundering program requirement • The definitional threshold for a provide that the anti-money laundering for dealers to minimize the opportunity dealer has been revised from persons program of a retailer that does not for abuse in this industry. engaged in the purchase or sale, to qualify for the retailer exception due to II. Notice of Proposed Rulemaking persons engaged in the purchase and purchases from persons other than sale, of more than $50,000 in covered dealers or other retailers need only This interim final rule is based on the goods. notice of proposed rulemaking cover such purchases. • The interim final rule contains a published February 21, 2003 (the • Language has been added to require new defined term, ‘‘covered goods,’’ ‘‘NPRM’’) (68 FR 8480). The NPRM a dealer, when making the risk which includes jewels, precious metals, sought to require dealers in jewels, assessment required by the rule, to take and precious stones, and finished goods into account the extent to which it (including jewelry, numismatic items, 5 The FATF is an inter-governmental body whose engages in transactions with persons purpose is the development and promotion of and antiques), that derive 50 percent or other than dealers subject to the rule. more of their value from jewels, policies to combat money laundering. Originally • created by the G–7 nations, its membership now precious metals, or precious stones The definition of ‘‘precious stone’’ includes Argentina, Australia, Austria, Belgium, contained in or attached to such has been revised to include tanzanite. Brazil, Canada, China, Denmark, Finland, France, • Germany, Greece, Hong Kong, Iceland, Ireland, finished goods. The references to A risk factor has been revised to Italy, Japan, Luxembourg, Mexico, the Kingdom of ‘‘jewelry containing jewels, precious apply to attempts by a customer to the Netherlands, New Zealand, Norway, Portugal, metals, or precious stones’’ have been maintain an ‘‘unusual,’’ rather then a Russia, Singapore, South Africa, Spain, Sweden, removed because such items are more ‘‘high,’’ degree of secrecy with respect to Switzerland, Turkey, the United Kingdom, and the United States, as well as the European Commission specifically addressed within the new a transaction. and the Gulf Cooperation Council. ‘‘covered goods’’ definition. • The applicability date of the interim 6 Financial Action Task Force on Money • Language has been added to clarify final rule has been extended to January Laundering, Guidance for Financial Institutions in Detecting Terrorist Financing, April 24, 2002, at that the interim final rule only applies 1, 2006, or not later than six months page 4 (see http://www.faft-gafi.org/pdf/ to U.S. dealers, i.e., dealers with a after the date a person becomes a dealer GuidFITFOI_en.pdf). physical presence in the U.S. for purposes of the interim final rule.

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B. Public Comments on the NPRM— dealers are the only persons that could detect money laundering. Given the Overview and General Issues have been the subject of the NPRM. importance of the anti-money Several commenters urged FinCEN to laundering requirement, FinCEN has Comments on the NPRM concentrated revise the retailer exception so that it determined that written assurances from on three matters: (1) Application of the would apply to retailers that purchase a source of supply that is not subject to retail exception to retailers that buy jewels, precious metals, precious stones, the requirements of this rule does not from foreign-located sources; (2) or jewelry, predominately from foreign- justify a complete exception from the application of the rule to pawnbrokers; located sources. However, this approach rule. Such assurances, however, could and (3) application of the definition of would ignore the risk of money be a factor in assessing the degree of risk ‘‘purchase’’ to trade-in transactions. laundering and terrorist financing inherent in a particular relationship and 1. Application of Retailer Exception to through a dealer’s international source the degree of scrutiny that accordingly 7 Retailers that Purchase from Foreign- of supply. One commenter suggested should be brought to bear on it. Located Sources extending the exception to retailers that For all of the foregoing reasons, the purchase from foreign sources that are interim final rule continues to provide The focus of a dealer’s anti-money located in countries that are members of that a retailer that sold more than laundering program must be twofold: the FATF. The application of anti- $50,000 in covered goods during the prevention and detection of money money laundering measures to dealers prior year is not required to implement laundering and terrorist financing has been emphasized by the an anti-money laundering program through the dealer by its customers, and international community as a key unless it purchased during the prior prevention and detection of money element in combating money laundering year more than $50,000 in covered laundering and terrorist financing and terrorist financing.8 However, the goods from persons other than dealers through the dealer by its sources of fact that a country is a member of the as defined in the interim final rule. In supply. As explained in the NPRM, FATF does not mean that the country addition, language has been added to however, FinCEN has concluded that requires dealers located within its the retailer exception to ensure that a the risks of money laundering or borders to implement an anti-money retailer’s purchases from other retailers terrorist financing are less significant in laundering program, much less an anti- as defined in the interim final rule will those businesses that engage primarily money laundering program that is not prohibit a retailer from taking in retail sales of such products. As a similar to that contained in this interim advantage of the retailer exception. This result, the NPRM proposed to exclude final rule.9 Thus, to extend the change is intended to recognize the fact certain retailers from the rule. To exception in the manner suggested that retailers often purchase covered qualify for the proposed exception would be contrary to the rationale goods from other retailers, and that such under the NPRM, a retailer would have underlying the exception. Finally, purchases should not result in requiring had to purchase its products several commenters suggested a retailer to be covered by the rule. predominantly from other dealers permitting retailers that buy from However, FinCEN recognizes that a subject to the NPRM. Specifically, under foreign sources to be excepted from the retailer that would otherwise be proposed section 103.140(a)(1)(ii)(A), anti-money laundering requirement to completely exempt from the rule the anti-money laundering program the extent that they receive written because of its lack of significant requirement would not apply to a assurances that their foreign sources of purchases from persons other than retailer unless that retailer purchased supply have taken steps to prevent and dealers or retailers should not have to annually more than $50,000 in jewels, implement a program directed at precious metals, precious stones, or 7 See discussion of money laundering cases customer risk merely because it exceeds jewelry from persons that are not involving dealers, supra part I.B. the $50,000 threshold in purchases from 8 In June 2003, FATF revised its Forty persons other than dealers and/or other dealers. Persons that are not dealers Recommendations to extend counter-money subject to the rule would include retailers. Rather, an appropriate program laundering and terrorist financing principles to for such a retailer would be limited to members of the public, other U.S. dealers in precious metals and stones. Among the persons not subject to the rule, and—for recommendations now applicable to dealers in guarding against the risks presented by precious metals and stones to the extent of its sources of supply other than dealers reasons of jurisdiction—foreign (non- transactions equal to or above $15,000 are those U.S.) dealers in precious metals, and other retailers. FinCEN believes that requiring customer due diligence, suspicious this targeted approach presents the right precious stones, or jewels. activity reporting, and record-keeping requirements. In addition, Recommendation 16 extends the balance between the money laundering Several commenters asserted that development of anti-money laundering and terrorist risks of such businesses and the intent FinCEN did not provide proper notice financing programs to dealers in precious metals of the statute. Therefore, language has required under the Administrative and stones. been added to section 103.140(b) of the Procedure Act with respect to whether 9 Although several FATF member countries have enacted anti-money laundering legislation that interim final rule to provide that, to the purchases by a retailer from non-U.S. applies to dealers, the applicable requirements extent that a retailer’s purchases from sources would be included within the operate differently than those contained in this persons other than dealers subject to the $50,000 threshold which, if exceeded, interim final rule. Directive 2001/97/EC of the rule and other retailers exceeds the would disqualify a dealer from utilizing European Parliament and of the Council Amending Council Directive 91/308/EEC on Prevention of the $50,000 threshold contained in the the retailer exception. FinCEN Use of the Financial System for the Purpose of retailer exception, the anti-money disagrees. The preamble to the NPRM Money Laundering (December 4, 2001) requires laundering compliance program stated that ‘‘there is substantially less dealers in high-value goods such as precious stones required of the dealer need address only risk that a retailer who purchases goods or metals (when transactions involve cash payments of 15,000 euro or more) to establish internal control such purchases; such a program would exclusively or almost exclusively from and communication procedures for the purposes of not be required to address sales, or other dealers subject to the proposed rule will detecting and preventing money laundering, types of purchases. be abused by money launderers.’’ See 68 including employee training. Many European FR 8482 (emphasis supplied). Although Union members have enacted legislation consistent 2. Application of the Rule to with this Directive. See, e.g., United Kingdom Pawnbrokers the NPRM did not explicitly state that Statutory Instrument 2003 No. 3075 Financial the rule would only apply to dealers Services, Money Laundering Regulations 2003 Several commenters requested located in the United States, such (November 28, 2003). clarification on whether the rule is

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intended to apply to pawnbrokers. trade-in is under $1,000. Many retailers A. 103.140(a)—Definitions 11 Although pawnbrokers take in covered limit the use of trade-ins to transactions 1. 31 CFR 103.140(a)(1)—Definition of goods from the public in return for in which the price of the item to be ‘‘Covered Goods’’ funds, they do so in the context of purchased is at least twice the value of extending short-term, non-recourse the trade-in item, and do not permit a Section 103.140(a) continues to define collateralized loans. Most often, such customer to obtain cash or cash the key terms used in the rule. Section loans are repaid and the collateral is equivalents in the course of a trade-in 103.140(a)(1) contains a new defined returned to the borrower. However, if transaction. Moreover, some retailers term, ‘‘covered goods,’’ which includes the borrower fails to repay the loan, the will only accept a trade-in that was jewels, precious metals, and precious pawnbroker forecloses on the collateral, originally purchased from the retailer stones (as each is defined in paragraphs subsequently selling the collateral to the itself. Even if trade-ins were to be (3), (4), and (5), respectively, of general public. FinCEN has determined considered a ‘‘purchase’’ in the context subsection (a)), and finished goods that not to treat this type of transaction as of the retailer exception, commenters derive 50 percent or more of their value the purchase and sale of covered goods argued that certain types of trade-ins, for from jewels, precious metals, and for purposes of this rule. example trade-ins of low value (under precious stones contained in or attached Pawnbrokers are defined as financial $10,000), or trade-ins of jewelry worth to such finished goods. Such finished institutions for BSA purposes (see 31 50 percent or less of the total purchase, goods include, but are not limited to, U.S.C. 5312(a)(2)(O)), and are therefore should be exempted. According to jewelry, numismatic items, and subject to the statutory requirement to commenters, if the rule were to treat all antiques. The new defined term was implement an anti-money laundering trade-in transactions as purchases, a added to replace the undefined term program requirement. As noted above, large percentage of retailers would be ‘‘jewelry’’ that was used in the NPRM FinCEN deferred the anti-money unable to take advantage of the retailer and to clarify and broaden the scope of laundering program requirement exception. an exception in the NPRM for contained in 31 U.S.C. 5318(h) that transactions in jewels, precious metals, would have applied to many entities In response to comments, and in order and precious stones for purposes of that are financial institutions in 31 to balance the risks posed by trade-in fabricating finished goods, to the extent U.S.C. 5312, including pawnbrokers. transactions against the burdens that the finished goods contain ‘‘minor FinCEN intends to address at a later imposed by the requirement to amounts of,’’ or the value of the goods time the applicability of the anti-money implement an anti-money laundering laundering program requirements of 31 program, the interim final rule has been is ‘‘not significantly attributable to,’’ jewels, precious metals, or precious U.S.C. 5318(h) to pawnbrokers, but at revised to specifically exempt certain 12 this time, such a requirement for trade-in transactions for purposes of the stones. Commenters suggested that the pawnbrokers remains deferred. For this definition of ‘‘dealer,’’ including the rule provide more specificity on what is reason, the interim final rule contains retailer exception that appears in that meant by the phrases ‘‘minor amounts’’ an explicit exception, found at new definition. New section and ‘‘not significantly attributable to.’’ section 103.140(a)(2)(ii)(B), providing 103.140(a)(2)(iii) provides that for One commenter suggested that the exception apply to the extent that that the term dealer does not include a purposes of meeting the definition of a finished goods contain gems, precious person licensed or authorized under the ‘‘dealer,’’ the ‘‘purchase’’ and ‘‘sale’’ of metals, or precious stones worth not laws of any State (or local government) covered goods does not include retail more than 10 percent of the product to do business as a pawnbroker, but transactions in which a dealer or retailer value, and two commenters suggested only to the extent such person is accepts from a customer covered goods, using a threshold of 50 percent of the engaged in pawn transactions, including the value of which the dealer or retailer product value. FinCEN believes that 50 the sale of pawn loan collateral. credits to the account of the customer, percent constitutes a threshold that is or to another purchase by the customer, 3. Trade-in Transactions consistent with the rule’s definition of and the retailer or dealer does not ‘‘precious metal,’’ which adopts a As explained above, section provide funds to the customer in minimum purity level of at least 500 103.140(a)(1)(ii)(A) of the NPRM exchange for such covered goods (the parts per 1000. Thus, the defined term provided an exception from the anti- ‘‘trade-in exception’’). As a result of this ‘‘covered goods’’ adopts the 50 percent money laundering program requirement exception, a person is not required to threshold for determining whether for retailers that do not purchase from count a trade-in transaction toward the persons other than dealers more than finished goods containing jewels, $50,000 threshold for the purchase and $50,000 in jewels, precious metals, precious metals, or precious stones are sale of covered goods for purposes of precious stones, or jewelry during the products subject to the interim final determining that person’s status as a prior year. Commenters indicated that rule. dealer under the rule.10 It should be many retailers, rather than purchasing noted that the trade-in exception is only 2. 31 CFR 103.140(a)(2)—Definition of jewels, precious metals, precious stones, an exception from the ‘‘dealer’’ ‘‘Dealer’’ or jewelry containing such items from definition, and not an exception to the retail customers for cash or cash scope of the anti-money laundering Section 103.140(a)(2)(i) defines equivalents, often accept such an item program required of a person other than ‘‘dealer’’ as any person who is engaged from the customer, a ‘‘trade-in,’’ and a retailer who otherwise meets the ‘‘as a business in the purchase and sale credit the value of the trade-in toward definition of ‘‘dealer.’’ of covered goods’’ in excess of the dollar a new purchase by the customer at the retailer. Several commenters asserted IV. Section-by-Section Analysis 11 FinCEN notes that these definitions apply only that a trade-in transaction should not be with respect to the interim final rule and not with deemed a ‘‘purchase’’ for purposes of 10 Similarly, a person is not required to count a respect to any other law or regulation. the retailer exception because the trade-in transaction toward the $50,000 threshold 12 See also the discussion in the following part of for the purchase of covered goods from persons the preamble regarding a new exception in section money laundering risks involved in 103.140(a)(2)(iii)(B) of the interim final rule for trade-in transactions are low. According other than dealers and other retailers, for purposes of excluding a ‘‘retailer’’ from the ‘‘dealer’’ purchases and sales of jewels, precious metals, and precious stones used in industrial products. to commenters, the average value of a definition.

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thresholds. This language differs above the threshold amount at U.S. businesses, must report transactions slightly from the language contained in trade shows, and a foreign-located involving currency in excess of $10,000 the NPRM, which had defined a dealer person who maintains sales staff pursuant to 26 U.S.C. 6050I and 31 CFR as a person engaged ‘‘in the business of engaged in such purchases and sales 103.30. purchasing and selling’’ jewels, precious within the United States. However, it This suggestion is not adopted in the metals, precious stones, or jewelry would not include, for example, a interim final rule because it is not composed of jewels, precious metals, or foreign dealer who ships products into consistent with the risk-based approach precious stones. The change was made the United States without conducting that is taken in the rule. Imposition of for purposes of consistency of terms further business activity within the a high-dollar transaction threshold and, except for the use of the new term United States, or a foreign dealer that would exempt dealers that conduct ‘‘covered goods,’’ is not a substantive merely advertises in the United States or large volumes of business on an annual change. The terms ‘‘purchase’’ and attends a trade-show in the United basis, even dealers engaging in ‘‘sale’’ are used throughout the rule, and States at which it does not purchase and numerous transactions at the $5,000 to as discussed below, new sections have sell covered goods above the threshold $10,000 level, while covering a dealer been added to the rule excepting certain amounts. This is consistent with the that conducts a far lower annual volume transactions from the meaning of general applicability of BSA regulatory of business that engages in as little as ‘‘purchase’’ or ‘‘sale.’’ requirements to U.S. persons.14 It one transaction over $10,000. Although The rule applies only to persons that should be noted that, under FinCEN’s ensuring compliance with the currency both purchase items that meet the regulations, the status of a person’s reporting requirement found at 31 CFR definition of covered goods, and sell corporate parent, subsidiary, or affiliate 103.30 is an important part of a dealer’s items that meet the same definition, in does not affect the determination anti-money laundering program, the sufficient quantity to meet the $50,000 whether the person is itself a financial requirement to implement an anti- definitional thresholds. Therefore, a institution for BSA purposes. Thus, a money laundering program is intended person that engages only in the sale of person that does not engage in the to accomplish the broader purpose of such products, for example a mining business of dealing in covered goods requiring a dealer to assess money company that only sells precious metals would not be deemed a dealer solely by laundering risks posed by its business that it mines, would not be covered by virtue of the fact that it is the parent, model, and to take reasonable steps to the definition. Similarly, a person who subsidiary, or affiliate of a dealer. lessen such risks. For these reasons, only engages in the purchase of such The interim final rule retains the FinCEN believes that the $50,000 products, for example a person who minimum dollar threshold that was annual volume threshold for both sales purchases gold coins for gifts to family proposed in the NPRM, but has been and purchases best ensures that those members, would not be covered by the modified to apply the threshold to both dealers whose businesses pose the most rule.13 Additionally, a manufacturer of purchases and sales. Thus, sections significant risk of abuse for money jewelry that in one year purchases over 103.140(a)(2)(i)(A) and (B) provide that laundering and terrorist financing $50,000 worth of gold of sufficient a person is a ‘‘dealer’’ only if, during the (whether through transaction size or purity (for example, 14 carat gold) to prior calendar or tax year, the person volume) are covered by the rule. meet the definition of ‘‘precious metal,’’ both (1) purchased more than $50,000 in The NPRM contained two exceptions but that does not sell jewelry composed covered goods, and (2) received more from the definition of dealer. The first of gold of sufficient purity (for example, than $50,000 in gross proceeds from the exception applied to retailers, other 10 carat gold after manufacturing) to be sale of covered goods.15 This change than retailers that during the prior deemed ‘‘covered goods,’’ would not be reflects FinCEN’s determination that a calendar or tax year, purchased more a dealer for purposes of this rule. person that does not reach the $50,000 than $50,000 in jewels, precious metals, Finally, the rule would not generally threshold for both purchases and sales precious stones, or jewelry from persons apply to persons who merely facilitate is not of sufficient size or risk to be other than dealers. The second the purchase and sale of covered goods. required to implement an anti-money exception applied to a person who For example, persons who facilitate laundering program. A few commenters engages in transactions in jewels, estate sales or conduct auctions, suggested that, instead of a yearly dollar precious metals, or precious stones for bankruptcy trustees, school districts that volume threshold, the rule should purposes of fabricating finished goods sponsor class ring sales, and persons contain a threshold based on a single that contain minor amounts of, or the who host in-home sales of a company’s transaction amount. These commenters value of which is not significantly jewelry would not be ‘‘dealers’’ for argued in favor of a $10,000 transaction attributable to, such precious metals, purposes of the rule based on such level, in light of the requirement that precious stones, or jewels. The activity. dealers, as non-financial trades or substance of these exceptions has been The interim final rule contains retained in the interim final rule, but the language clarifying that the anti-money 14 See, e.g., the definition of financial institution exceptions have been re-structured and laundering program requirement applies in 31 CFR 103.11(n), which includes ‘‘each agent, additional exceptions have been added. only to a person engaged within the agency, branch or office within the United States of The interim final rule contains four any person doing business, whether or not on a United States as a business in the regular basis or as an organized business concern. exceptions, two relating to the purchase and sale of covered goods. ***’’ definition of ‘‘dealer,’’ and two relating This would include, for example, a 15 The reference to ‘‘calendar or tax year’’ is to the meaning of the terms ‘‘purchase’’ person with a U.S. office, a person who intended to provide flexibility for dealers in and ‘‘sale.’’ comes to the United States to make determining whether they have reached the $50,000 Section 103.140(a)(2)(ii) provides two thresholds. In the case of a dealer whose tax year purchases and sales of covered goods is not the calendar year, this language is intended exceptions from the definition of to avoid causing such dealer to keep two sets of ‘‘dealer.’’ As described in Part III.B.1, 13 In contrast, a person who buys and sells coins records in order to determine if the threshold has above, the first exception provides that containing metals of a sufficient purity to meet the been met. However, a dealer must continue to use a retailer is a dealer only if it purchased definition of ‘‘precious metal’’ would be treated as whatever basis it initially chooses for determining a dealer for purposes of this rule assuming the whether it has reached the $50,000 thresholds, more than $50,000 in covered goods $50,000 purchase and sale thresholds were met and whether calendar year or tax year, unless it from persons other than dealers or other the person is not a retailer as defined in the rule. experiences a change in its taxable year. retailers (e.g., from the general public or

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from foreign persons not subject to the and jewels typically do not constitute a 3. 31 CFR 103.140(a)(3)—Definition of interim final rule) during the prior significant component of the value of an ‘‘Jewel’’ calendar or tax year. A retailer that is a industrial product. Accordingly, the dealer pursuant to this provision, interim final rule contains a new Section 103.140(a)(3) defines the term however, would only have to address in exception from the terms ‘‘purchase’’ ‘‘jewel’’ to include organic substances its anti-money laundering program and ‘‘sale’’ (section 103.140(a)(2)(iv)) for that have a market-recognized gem level purchases from persons other than the purchase of precious metals, of quality, beauty, and rarity. FinCEN dealers and other retailers. As discussed precious stones, or jewels that are did not receive comments on the further below, the definition of incorporated into machinery or definition of ‘‘jewel’’ contained in the NPRM, and has retained the definition ‘‘retailer’’ has been taken out of the equipment used for industrial purposes, in the interim final rule. exception itself, and a separate and the purchase or sale of such definition of ‘‘retailer’’ has been added machinery or equipment. 4. 31 CFR 103.140(a)(4)—Definition of to the interim final rule. ‘‘Precious Metal’’ The second exception from the Commenters requested clarification as definition of ‘‘dealer,’’ found at section to whether ‘‘toll-refining’’ constitutes Section 103.140 (a)(4) defines 103.140(a)(2)(ii)(B) has been added to the purchase and sale of precious metals ‘‘precious metal’’ to include gold, silver, the rule to clarify that a person licensed for purposes of the definition. As and the platinum group of metals, at a or authorized under the laws of any described by commenters, toll-refining level of purity of 500 parts per 1000 (50 State (or local government) to do is a transaction in which a company that percent) or greater, singly or in any business as a pawnbroker is not a dealer uses precious metal in a process that combination. The definition is for purposes of the rule with respect to results in scrap metal sends the scrap unchanged from the NPRM. Although pawn transactions, including the sale of metal to a refiner that, for a fee, extracts one commenter suggested that the pawn loan collateral. the precious metal from the scrap and purity threshold should be lowered so As discussed in part III.B.3. above, returns the precious metal to the that the rule would apply to dealers in section 103.140(a)(2)(iii) provides an company. 10 carat gold, another commented exception from the meaning of the terms Commenters argued that because this favorably on the purity threshold ‘‘purchase’’ and ‘‘sale’’ as used in type of transaction is not the exchange because it provides an approach that is section 103.140(a)(2)(i) of the interim of metal for cash or other monetary tailored to cover higher-risk products. In final rule for trade-in transactions. order to balance the burdens associated Section 103.140(a)(2)(iv) provides an consideration, but rather the payment of with the rule against the lower risk of exception from the definitions of a fee in exchange for the performance of money laundering and terrorist ‘‘purchase’’ and ‘‘sale’’ for purposes of the process of extracting precious metal financing with products of a lower both the definition of ‘‘dealer’’ in from scrap metal, it should not be purity threshold, the interim final rule section 103.140(a)(2)(i) and the anti- deemed the purchase and sale’’ of retains the 50 percent purity threshold. money laundering program requirement precious metals. FinCEN agrees. However, FinCEN will continue to in section 103.140(b), for transactions Although we believe it is unnecessary review whether it is appropriate to relating to industrial equipment for the interim final rule to include a extend the anti-money laundering containing covered goods. As discussed specific exemption for toll-refining, we program to dealers that purchase and in Part IV.A.1. above, section clarify that toll-refining, as described 103.140(a)(1)(ii)(B) of the NPRM above, does not constitute a purchase or sell lower grade metals. provided that a person engaged in sale of precious metals for purposes of 5. 31 CFR 103.140(a)(5)—Definition of transactions in jewels, precious metals, this interim final rule. ‘‘Precious Stone’’ or precious stones for purposes of Finally, a few commenters requested The term ‘‘precious stone’’ is defined fabricating finished goods containing exemptive or other relief for specific in section 103.140(a)(5) to include minor amounts of, or the value of which types of businesses that fall within the substances that have a market- is not significantly attributable to, the definition of dealer, arguing that these recognized gem level of quality, beauty, precious metals, precious stones, or businesses pose a low risk of money and rarity. Therefore, precious stones of jewels, was not a ‘‘dealer.’’ The laundering and terrorist financing. industrial quality are not included in exception was intended to exempt the Although it is not appropriate to resolve the definition of precious stones. In purchase and sale of precious metals, such fact-specific individualized response to a comment, the word precious stones, or jewels in the context situations in the context of a general ‘‘inorganic’’ has been removed from the of buying, selling, and fabricating rulemaking, persons wishing to obtain finished goods, including industrial definition. However, this change is not an administrative ruling relating to their products, that contain small amounts of intended to alter the substantive effect specific situation may submit a request jewels, precious metals, or precious of the definition. In addition, tanzanite pursuant to 31 CFR 103.81. In addition, stones, in order to ensure that the anti- has been added to the list of substances FinCEN has the authority to make money laundering program requirement that will be treated as precious stones. exceptions to, or grant exemptions from, is imposed on those sectors of the Because it shares the characteristics of the requirements of 31 CFR part 103 industry that pose the most significant market-recognized, gem level quality, pursuant to 31 U.S.C. 5318(a)(6) and 31 risk of money laundering and terrorist beauty, and rarity with other minerals in CFR 103.55. financing. that category, and because of its FinCEN has concluded that the Section 103.140(a)(2)(v) provides that, significant market value, tanzanite can purchase of jewels, precious metals, and for purposes of applying the $50,000 be used for money laundering and precious stones for use in industrial definitional thresholds contained in the terrorist financing. Therefore, a person products, and the purchase or sale of rule to the purchase and sale of finished engaged as a business in the purchase such products, appears to be less goods, only the value of the jewels, and sale of tanzanite is covered by the susceptible to money laundering and precious metals, or precious stones anti-money laundering program terrorist financing risks, due to the fact contained in, or attached to, such goods requirement, to the extent that all of the that precious metals, precious stones, must be taken into account. other thresholds of the rule are met.

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6. 31 CFR 103.140(a)(6)—Definition of remains responsible for ensuring particular business, and their particular ‘‘Person’’ compliance with these requirements. To customers and suppliers to develop a Section 103.140(a)(6) provides that for the extent that a retailer’s purchases program that meets the requirements of purposes of the interim final rule, the from persons other than dealers and the rule. However, FinCEN recognizes term ‘‘person’’ has the same meaning as other retailers exceeds the $50,000 the importance of providing guidance to threshold contained in paragraph assist dealers in assessing the risks provided in 31 CFR 103.11(z). (a)(2)(ii)(A), the anti-money laundering related to their businesses, and in 7. 31 CFR 103.140(a)(7)—Definition of compliance program required of the identifying transactions that may be ‘‘Retailer’’ retailer need only address such indicative of money laundering or The retailer exception proposed in purchases. terrorist financing. The examples of Although ensuring compliance with section 103.140(a)(1)(ii)(A) of the NPRM transactional behavior that may indicate the requirement to report transactions defined a retailer as ‘‘a person engaged money laundering or terrorist financing involving currency in excess of $10,000 in the business of sales to the public of contained in the text of the rule, as well pursuant to 26 U.S.C. 6050I and 31 CFR jewels, precious metals, or precious as the information about recent cases 103.30 should be an element of a stones, or jewelry composed thereof.’’ In contained in this preamble, are intended dealer’s anti-money laundering to be the starting point. Going forward, the interim final rule, a separate section program, it should not be the sole focus. FinCEN is committed to providing containing the definition of ‘‘retailer’’ Rather, as noted above, a dealer’s dealers with additional guidance, has been created, and language has been program must be reasonably designed to including analysis of relevant trends added to the definition to clarify the prevent the dealer from being used to and patterns of money laundering and scope of the definition. New section facilitate money laundering or the terrorist financing, whenever possible. 103.140(a)(7) provides that a retailer is financing of terrorist activities. Several The interim final rule requires that a U.S. person engaged in the business of commenters expressed concern about each dealer develop and implement a sales primarily to the public of covered the standard to which they would be program reasonably designed to prevent goods. The purpose of this revision is to held under the ‘‘reasonably designed’’ money laundering. Accordingly, when clarify that the retailer exception found language. These commenters argued that evaluating a dealer’s compliance with at section 103.140(a)(1)(ii)(A) of the there is little information available to the requirements of this rule, the focus interim final rule applies to those dealers to consult when evaluating will be on the design and dealers whose sales are made primarily whether a transaction may involve implementation of the program. The to the public, so that the rule does not money laundering or terrorist financing, Treasury and FinCEN recognize that apply to a dealer whose sales to persons and suggested that FinCEN provide even the best of anti-money laundering other than members of the public specific sources of reference for dealers programs cannot guarantee that a dealer constitute a minimal portion of the to use when determining whether a will not be used by a money launderer. dealer’s overall sales. Thus, a dealer particular transaction may potentially Finally, in response to comments, whose business is primarily with the involve money laundering or the FinCEN wishes to clarify that a dealer’s public would not be disqualified from financing of terrorism. Dealers able to anti-money laundering program need the retailer exception solely because of demonstrate that they have checked not be made available for inspection at occasional sales to a dealer or retailer. these sources of information, each of the dealer’s locations. It is However, a dealer whose business is not commenters asserted, should be deemed sufficient that a dealer maintain a copy primarily with the public, but with in compliance with the anti-money of its written program at one location other persons such as dealers, would laundering program requirement. In within the United States, for example not be treated as a retailer under the addition, commenters expressed the dealer’s headquarters or the location interim final rule. concern that, while money laundering is of the person designated as the dealer’s B. 103.140(b)—Anti-Money Laundering a concept that can be understood in compliance officer. Program Requirement terms of objective criteria, terrorist financing is more subjective, making it C. 103.140(c)—Minimum Requirements Section 103.140(b) of the interim final more difficult for dealers to implement Section 103.140(c) continues to set rule continues to require that each a program designed to prevent it. forth the minimum requirements of a dealer develop and implement an anti- Commenters suggested that FinCEN dealer’s anti-money laundering money laundering program reasonably provide more information on the program. designed to prevent the dealer from methods by which people attempt to 1. 31 CFR 103.41(c)(1)—Policies, being used to facilitate money finance terrorism through transactions Procedures and Internal Controls laundering or the financing of terrorist with dealers. Finally, some commenters activities, and clarifies that the program suggested that FinCEN develop a Section 103.140(c)(1) provides that a is to apply to the dealer’s purchases and written program that could be used by dealer’s anti-money laundering program sales of covered goods. The program dealers. must incorporate policies, procedures, must be in writing and should set forth The use of the phrase ‘‘reasonably and internal controls based upon the clearly the details of the program, designed’’ in paragraph (b) is intended dealer’s assessment of the money including the responsibilities of the to provide dealers with the flexibility to laundering and terrorist financing risks individuals and/or departments tailor their programs to their specific associated with its line(s) of business. involved. In addition, a dealer’s circumstances so long as the minimum Policies, procedures, and internal program must be approved by its senior requirements are met. The interim final controls must also include provisions management. A dealer must make its rule applies to many different types of for complying with applicable BSA anti-money laundering program dealers that engage in purchase and sale requirements. Thus, a dealer’s program available to the Treasury or its designee transactions involving a variety of must address its obligation to report on upon request. While it is permissible for products and different types of Form 8300 the receipt of cash or certain a dealer to delegate certain functions customers and sources of supply. non-cash instruments totaling more than relating to its anti-money laundering Dealers must use the expertise that they $10,000 in one transaction or in two or program to a third party, the dealer possess about their industry, their more related transactions. If dealers

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become subject to additional BSA activity.17 The interim final rule of the customer or supplier in question. requirements, their anti-money continues to list several examples of It is not intended that dealers laundering programs will need to be factors that may indicate that a automatically refuse to engage in or updated accordingly. transaction is designed to involve use of terminate transactions simply because Section 103.140(c)(1)(i) provides that, the dealer to facilitate money laundering such transactions involve one or more of for purposes of making the risk or terrorist financing. the factors listed in the rule. Rather, it assessment required under section The rule provides flexibility to dealers is intended that dealers will develop 103.140(c)(1), a dealer must consider all in developing procedures for making procedures for identifying transactions relevant factors, including the specific reasonable inquiries under section involving potentially illegal activity, factors contained in the rule. The 103.140(c)(1)(ii). For example, a dealer and procedures setting forth the actions specific risk factors listed in the rule may appropriately determine that that a dealer will take in response to require a dealer to (1) assess the money reasonable inquiry with respect to a such transactions. laundering and terrorist financing risks transaction conducted by a new The factors in the interim final rule associated with its products, customers, customer or supplier involves are identical to those contained in the suppliers, distribution channels, and considerable scrutiny, including proposed rule, with one exception. One geographic locations, (2) take into verification of customer identity, or the commenter suggested that the factor consideration the extent to which the purpose of a transaction. In contrast, contained in section 103.140(c)(1)(ii)(C), dealer engages in transactions other reasonable inquiry with respect to an relating to an attempt by a customer to than with established customers, or established customer may not involve maintain a high degree of secrecy with sources of supply, or other dealers additional steps beyond those normally respect to a transaction, should be subject to this rule, and (3) analyze the required to complete the transaction, eliminated because in an industry with extent to which it engages in unless the transaction appears security concerns stemming from the transactions for which payment or suspicious or unusual to the dealer. As high dollar value of jewels, precious account reconciliation is routed to or explained further below, the metals, and precious stones, from accounts located in jurisdictions determination whether to refuse to enter transactions are typically characterized that have been identified as vulnerable into, or to terminate, a transaction lies by secrecy. FinCEN wishes to clarify to terrorism or money laundering.16 The with the dealer. In addition, dealers are that this factor is not intended to apply rule is intended to give a dealer the encouraged to adopt procedures for to the level of concern for personal flexibility to design its program to meet voluntarily filing Suspicious Activity security or the security of valuable the specific money laundering and Reports with FinCEN and for reporting merchandise that is customary in the terrorist financing risks presented by the suspected terrorist activities to FinCEN normal course of business for this dealer’s business, based on the dealer’s using its Financial Institutions Hotline industry. Rather, it is intended to apply assessment of those risks. Language has (1–866–556–3974). to transactions in which a customer been added to the second risk FinCEN has not at this time proposed attempts to maintain a level of secrecy assessment factor to require dealers to a suspicious activity reporting rule for that is unusual in light of the level of take into account the potential risks dealers. However, given the importance secrecy that is normal and customary for involved in engaging in transactions of ensuring that information relevant to the industry, or the business of the with persons who are not subject to this the use of covered products for financial particular dealer, or the type of rule. crime or the financing of terrorism is transaction. In response to this Section 103.140(c)(1)(ii) provides that provided to law enforcement, we are comment, section 103.140(c)(1)(ii)(C) a dealer’s policies, procedures, and considering proposing a suspicious has been revised to apply to attempts by internal controls must be reasonably activity reporting rule in the future. We a customer or supplier to maintain ‘‘an designed to detect transactions that may will work closely with law enforcement unusual degree of secrecy’’ with respect involve use of the dealer to facilitate and the industry as we consider to the transaction. money laundering or terrorist financing. whether such a rule is appropriate. 2. 31 CFR 103.41(c)(2)—Compliance In addition, a dealer’s program must The list of factors contained in the Officer incorporate procedures for making rule is intended to provide examples of reasonable inquiries to determine what may indicate illegal activity, and Section 103.140(c)(2) continues to whether a transaction may involve is by no means exhaustive. require that a dealer designate a money laundering or terrorist financing. Determinations as to whether a compliance officer to be responsible for A dealer that identifies indicators that a transaction should be refused or administering the anti-money transaction may involve money terminated must be based on the facts laundering program. The person (or laundering or terrorist financing should and circumstances relating to the group of persons) should be competent take reasonable steps to determine transaction and the dealer’s knowledge and knowledgeable regarding BSA whether its suspicions are justified and requirements and money laundering respond accordingly, including refusing 17 18 U.S.C. 1956 and 1957 make it a crime for issues and risks, and should be to enter into, or complete, a transaction any person, including an individual or company, to empowered with full responsibility and engage knowingly in a financial transaction with authority to develop and enforce that appears designed to further illegal the proceeds from any of a long list of crimes or types of ‘‘specific unlawful activity.’’ Although the appropriate policies and procedures 16 Examples of designations to this effect include standard of knowledge required is ‘‘actual throughout the dealer’s business. The the Department of State’s designation of a knowledge,’’ actual knowledge includes ‘‘willful role of the compliance officer is to jurisdiction as a sponsor of international terrorism blindness.’’ Thus, a person could be deemed to ensure that (1) the program is being under 22 U.S.C. 2371 (see http://www.state.gov/s/ have knowledge that proceeds were derived from ct/rls/pgtrpt/), the FATF’s designation of illegal activity if he or she demonstrated ‘‘willful implemented effectively, (2) the jurisdictions that are non-cooperative with blindness’’ to ‘‘red flags’’ that indicated illegality. program is updated as necessary, and (3) international anti-money laundering principles (see See, e.g., U.S. v. Finkelstein, 229 F.3d 90 (2nd Cir. appropriate persons are trained in http://www.fatf-gafi.org/NCCT_en.htm), or the 2000) (owner of jewelry/precious metals business accordance with the rule. The Secretary of the Treasury’s designation, pursuant to convicted for participation in money laundering 31 U.S.C. 5318A of jurisdictions warranting special scheme; sentence enhancement based on willful compliance officer also provides an measures due to money laundering concerns blindness regarding receipt of funds derived from available resource for employees with (http://www.fincen.gov). narcotics trafficking). questions regarding BSA requirements.

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Whether the compliance officer is involved in the operation of the for such programs. A dealer in jewels, dedicated full time to BSA compliance program. precious metals, or precious stones is would depend upon the size and defined as a ‘‘financial institution’’ D. 103.41(d)—Effective Date complexity of the dealer’s business and under the BSA, and this regulation the risks posed. In all cases, the person The NPRM proposed that a dealer fulfills that mandate of the USA Patriot responsible for the supervision of the must develop and implement an anti- Act. overall program must be an officer or money laundering program within 90 2. Why is this being issued as an employee of the dealer. days after publication of the interim ‘‘Interim Final’’ rule? Will it change? final rule, or not later than 90 days after FinCEN is issuing this rule as an 3. 31 CFR 103.41(c)(3)—Education and the date a person becomes a dealer for interim final rule to give us the Training purposes of the rule. Several flexibility to more narrowly tailor Section 103.140(c)(3) continues to commenters requested an extension of certain aspects of the rule in response to require that a dealer provide for training the effective date to at least 180 days our request within this rule for of appropriate persons. Employees of after issuance of the final rule. In view additional public comment on four of the diversity of the businesses that the dealer must be trained in BSA discrete issues, while still ensuring that constitute dealers in covered goods, requirements relevant to their functions, dealers immediately begin to develop coupled with the fact that dealers are including recognizing possible signs of anti-money laundering programs. not currently regulated as financial money laundering and terrorist Through the course of the rulemaking institutions, FinCEN agrees that a longer financing. The level, frequency, and process and in developing a final rule, delayed applicability date is warranted. focus of the training should be FinCEN has identified several important The interim final rule (section determined by the responsibilities of the issues that would affect the scope of the 103.140(d)) provides that the a dealer is employees, and any factors the dealer regulation but on which it received little required to develop and implement an has identified in its risk assessment.18 or no public comment. Thus, to ensure anti-money laundering program not Employees should receive periodic an effective and appropriately focused later than January 1, 2006, or six months updates and refreshers regarding the regulation, FinCEN seeks public after the date a dealer becomes subject anti-money laundering program. comment regarding the following issues to the provisions of the interim final (which are discussed more fully under 4. 31 CFR 103.41(c)(4)—Independent rule. the heading ‘‘Request for Comments’’): Testing V. Frequently Asked Questions (1) Should silver be removed from the Section 103.140(c)(4) continues to FinCEN is providing the following definition of a ‘‘precious metal?’’ require that a dealer conduct periodic questions and answers to assist dealers (2) Should ‘‘precious stones’’ and testing of its program, to ensure that the in precious metals, precious stones, and ‘‘jewels’’ be defined more specifically, program is functioning as designed. jewels in understanding the scope of for example, by reference to a minimum Such testing should be accomplished by this interim final rule. price per carat, and if so, how? personnel knowledgeable regarding BSA 1. Why is FinCEN issuing a regulation (3) Is 50 percent the appropriate value requirements. The frequency of such a requiring dealers in precious metals, threshold for determining whether review will vary by dealer, depending stones, and jewels to establish an anti- finished goods (including jewelry) upon factors such as the size and money laundering program? containing jewels, precious metals, or complexity of the dealer, the nature of As with all of FinCEN’s regulations precious stones should be subject to the its business, and any relevant factors requiring the establishment of an anti- rule? identified by the dealer in the course of money laundering program, FinCEN is (4) In addition, FinCEN is again conducting its risk assessment. issuing this regulation to better protect requesting comments on the potential Testing may be accomplished either those who deal in jewels, precious impact of the rule on small businesses by dealer employees or unaffiliated metals, and precious stones from (including manufacturers, dealers, service providers so long as those same potential abuse by criminals and wholesalers, distributors, and retailers) individuals are not involved in the terrorists, thereby enhancing the that may be ‘‘dealers’’ subject to the operation or oversight of the program. protection of the U.S. financial system provisions of the rule. One commenter expressed concern that generally, and the precious metals, FinCEN is soliciting comments until the independent testing requirement jewels and precious stones industry in July 25, 2005. After the end of the would place an unfair burden on particular. The characteristics of jewels, comment period, FinCEN will review all smaller businesses, requiring them to precious metals, and precious stones comments received and determine bear the cost of hiring an outside auditor that make them valuable also make whether any further changes should be because their entire staff would be them potentially vulnerable to those made in the final rule. At this time, directly involved in the operation or seeking to launder money. This FinCEN will only consider comments oversight of the program. Under the regulation is a key step in ensuring that addressing the issues outlined above, terms of the rule, however, the required the Bank Secrecy Act (BSA) is applied and FinCEN anticipates that changes, if independent review may be performed appropriately to these businesses. any, will be made before January 1, by an employee of the dealer (or a co- Recognizing the need for a more 2006, the date that dealers are required owner), so long as the reviewer is not comprehensive anti-money laundering to implement their anti-money the designated compliance officer or regime, Congress passed, and the laundering programs. President signed into the law, the USA Dealers covered by the interim final rule are expected to begin developing 18 Appropriate topics for an anti-money Patriot Act, which, among other things, laundering program include, but are not limited to: requires that all persons defined as anti-money laundering programs in BSA requirements, a description of money financial institutions for BSA purposes accordance with the terms of this laundering, how money laundering is carried out, establish anti-money laundering interim final rule. Any changes that what types of activities and transactions should FinCEN makes to the rule would likely raise concerns, what steps should be followed when programs. The Act further directs the suspicions arise, and the need to review OFAC and Secretary of the Treasury to prescribe reduce compliance burdens on dealers. other government lists. through regulation minimum standards 3. Who is covered by this regulation?

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The interim final rule applies to the program would not be required to FinCEN understands that the jewel, ‘‘dealers’’ in ‘‘covered goods.’’ ‘‘Covered address sales. precious metal, and precious stone goods’’ include jewels, precious metals, Finally, businesses licensed or industry is one often characterized by and precious stones, and finished goods registered as pawnbrokers under State personal relationships. Accordingly, in (including but not limited to, jewelry, or municipal law are specifically most cases, FinCEN anticipates that the numismatic items, and antiques) that exempted from the definition of verbal or written representations of the derive 50 percent or more of their value ‘‘dealer’’ for purposes of the interim supplier will be sufficient. However, in from jewels, precious metals, or final rule. Thus, a pawnbroker is not other cases, additional due diligence precious stones contained in or attached required to establish an anti-money will be required. to such finished goods. laundering program under this rule as 3(d) In 2005, I will purchase more FinCEN has defined the term ‘‘dealer’’ long as the pawnbroker is properly than $50,000 in jewels, precious metals, as it is commonly understood: A person licensed or registered with the and precious stones that I use to who both purchases and sells covered appropriate State or local government manufacture inexpensive jewelry that I goods. Additionally, FinCEN has and is engaged in pawn transactions. sell to retail stores. Will I be required to included dollar thresholds in the 3(a) Is the purchase and sale of have an anti-money laundering program definition of dealer: A person must have jewelry and other finished goods in 2006? purchased at least $50,000, and sold at containing jewels, precious metals, or If the jewels, precious metals, and least $50,000, worth of covered goods precious stones subject to the rule as precious stones in your jewelry account during the preceding year. The dollar well? for 50 percent or more of the selling The purchase and sale of jewelry and threshold is intended to ensure that the price of the jewelry, and the value of the other finished goods containing jewels, rule only applies to persons engaged in jewels, precious metals and precious precious metals or precious stones the business of buying and selling a stones contained in the jewelry you sell would subject a person to the rule, only significant amount of these items, rather exceeds $50,000, you will be required to if such jewelry or other finished goods than to small businesses, occasional have an anti-money laundering derive at least 50 percent of their value ‘‘dealers,’’ and persons dealing in such program. from the jewels, precious metals or If only some of your jewelry derives items for hobby purposes. precious stones they contain. The 50 percent or more of its selling price Significantly, the interim rule purpose of this distinction is to ensure (the price at which you sell it to the distinguishes between a dealer and that FinCEN does not regulate a wide retail stores, not the price that the retail ‘‘retailer’’ of covered goods. FinCEN has variety of goods whose value is not stores will charge their customers) from defined the term retailer as a person primarily derived from the jewels, jewels, precious metals, or precious engaged within the U.S. in sales of precious metals or precious stones they stones, you only need to count the value covered goods, primarily to the public. contain. of the jewels, precious metals, or FinCEN believes that retailers, as 3(b) How do I determine whether I precious stones in that jewelry towards defined, do not pose the same level of have purchased and sold $50,000 worth your $50,000 ‘‘sales’’ threshold. risk for money laundering as do dealers. of jewels, precious metals or precious The focus of this rule is on the jewels, Thus, most retailers will not be required stones? precious metals, and precious stones— to establish anti-money laundering The $50,000 threshold is based solely not on the jewelry or other finished programs. on the value of jewels, precious metals, items. Therefore, only jewelry (and So long as retailers generally purchase and precious stones that were other finished goods) that derive at least their covered goods from U.S.-based purchased and sold during the prior 50 percent of their value from the dealers and other retailers, the retailers year. For example, if a business jewels, precious metals, and precious will not be required to establish anti- purchases and sells jewelry, at least 50 stones are subject to this rule. money laundering programs. Thus, percent of the value of which is derived The anti-money laundering program retailers that, for example, purchase from jewels, precious metals, or should focus on realistic money- excess inventory from other retailers precious stones, the $50,000 threshold laundering risks, based on the from time to time would still be covered is calculated based on the value of the experience of the industry and by the retailer exemption. jewels, precious metals, and precious government. FinCEN believes that these Under the interim final rule, a retailer stones contained in such jewelry, not on thresholds help to better focus the rule that purchases up to $50,000 of covered the overall value of the jewelry. This on those risks, and will be periodically goods from persons other than U.S.- distinction ensures that the focus of the issuing information to the industry based dealers or retailers is covered by rule remains on jewels, precious metals, regarding its knowledge and experience the retailer exemption. However, if and precious stones, not on value due with money laundering risks to this during the prior tax or calendar year a to other reasons. industry. retailer both purchased more than 3(c) How do I determine whether the 3(e) I sell precious stones primarily to $50,000 of covered goods from persons businesses from which I purchase my the public, but my supplier is a foreign other than U.S. dealers or retailers (such covered goods are ‘‘dealers’’ or other company. Am I required to establish an as non-U.S. dealers and members of the ‘‘retailers’’ for purposes of the interim anti-money laundering program? general public), and sold more than final rule? If, during 2005, you purchase more $50,000 of covered goods, then the FinCEN expects persons engaged in than $50,000 in precious stones from retailer would be deemed to be a the business of buying and selling your foreign supplier, and sell more ‘‘dealer’’ and would have to develop covered goods to take reasonable steps than $50,000 in precious stones, you and implement an anti-money to determine whether a supplier is must develop and implement an anti- laundering program. Under such covered by this interim final rule or money laundering program by January circumstances, the anti-money whether the supplier is eligible for the 1, 2006. But, because you are a retailer, laundering program would only be retailer exemption. Reasonable steps your anti-money laundering program required to address purchases from non- will depend on the nature of the would only need to address the money U.S. dealers (including members of the relationship between the supplier and laundering risks associated with the general public) for the following year; the person purchasing the items. purchases from your foreign supplier.

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3(f) Are trade-in transactions If you sell your goods primarily to the jewels, precious stones, and precious ‘‘purchases’’ under this rule? public, you are a retailer and do not metals accounted for 50 percent or more Not for the purpose of defining who have to establish an anti-money of the purchase price of those antiques; is a dealer subject to the rule.19 FinCEN laundering program, unless during the and has learned that it is quite common for prior tax or calendar year: (2) You sold antiques that contained dealers and retailers in covered goods to (1) The value of the jewels, precious more than $50,000 in jewels, precious allow retail customers to trade-in stones and precious metals contained in stones, or precious metals, and the value existing items for credit against the the goods you sold was more than of the jewels, precious stones, and purchase of a new item. Therefore, so $50,000, and the value of the jewels, precious metals comprised 50 percent or long as the value of the trade-in is precious stones, and precious metals more of the selling price of those credited to the account of the customer, comprised 50 percent or more of the antiques. and so long as a dealer or a retailer does selling price of those goods; and In all cases, it is only the value of the not provide funds to the customer in (2) You purchased more than $50,000 jewels, precious metals, and precious exchange for the trade-in, these in jewels, precious stones, and precious stones in the antiques that matters, not transactions need not be taken into metals from either foreign sources or the the value of the antiques themselves. account in determining the dollar value general public, in which case your Because of price ‘‘mark-ups’’ it is of covered goods purchased. program need address only those possible that the precious metals in an The trade-in exception only applies sources of supply. antique you purchased accounted for for purposes of determining who is a If you are not a retailer, you must more than 50 percent of its purchase ‘‘dealer,’’ and not to the scope of the establish an anti-money laundering price, but less than 50 percent of its anti-money laundering program program if, during the prior tax or selling price when you sold it. If this is required of a dealer. Therefore, a dealer calendar year: the case, you would need to count the that is not a retailer would be required (1) You purchased more than $50,000 purchase toward your $50,000 to evaluate the risks posed by trade-in in jewels, precious stones, and precious ‘‘purchases’’ threshold, but the sale transactions in determining the metals from any source of supply; and would not count toward your ‘‘sales’’ appropriate program requirements, as it (2) The value of the jewels, precious threshold. would with other transactions in stones and precious metals contained in 3(j) What about the purchase of covered goods. the goods you sold was more than jewels, precious stones, or precious 3(g) I am a retail jeweler who $50,000, and the value of the jewels, metals for use in machinery or sometimes buys jewelry from the precious stones, and precious metals equipment to be used for industrial general public, which I re-sell in my comprised 50 percent or more of the purposes? If a business manufactures store. Am I required to have an anti- selling price of those goods. such equipment and sells it, is that money laundering program? 3(i) I am an antiques dealer who business subject to this rule? No. The purchase of jewels, precious You would be required to establish an purchases and sells items that contain metals, and precious stones for use in anti-money laundering program only if, jewels, precious metals or precious industrial products, and the purchase or during the prior calendar or tax year: stones. Am I required to have an anti- sale of such products, appears to be less (1) You sold jewelry containing more money laundering program? susceptible to money laundering and than $50,000 in jewels, precious metals, If you sell your antiques primarily to terrorist financing risks, due to the fact and precious stones, and the value of the public, you are a retailer and do not that precious metals, precious stones, the jewels, precious metals, and have to establish an anti-money and jewels typically do not constitute a precious stones comprised 50 percent or laundering program, unless during significant component of the value of an more of the selling price of the jewelry; 2005: (1) The value of the jewels, precious industrial product. Therefore, persons and stones and precious metals contained in (2) You purchased from the general who engage in these activities are not the antiques you sold was more than public jewelry containing more than dealers to the extent of such activities $50,000, and the value of the jewels, $50,000 in jewels, precious metals, and for purposes of the interim final rule. precious stones, and precious metals 4(a) What are the requirements for the precious stones, and the value of the comprised 50 percent or more of the anti-money laundering program? jewels, precious metals, and precious selling price of those antiques; and At a minimum, dealers must establish stones comprised 50 percent or more of (2) You purchased antiques from an anti-money laundering program that the purchase price of the jewelry. foreign sources or the general public comprises the four elements set forth If you are required to have an anti- that contained more than $50,000 in below. FinCEN offers the following money laundering program, it would jewels, precious stones, and precious guidance to assist dealers in the only need to address the risks associated metals, and the value of the jewels, development of their program. However, with purchases from the public of precious stones, and precious metals this guidance does not supplant the jewelry that derives 50 percent or more comprised 50 percent or more of the terms of the interim final rule, and the of its value from jewels, precious stones, purchase price of those antiques; in steps required in any one particular case or precious metals. It would not need to which case your program need address will depend on the unique address your sale of covered goods. only those sources of supply. circumstances of each business: 3(h) I purchase jewels, precious If you are not a retailer because, for (1) Policies, procedures, and internal stones, and precious metals for the example, you sell your antiques equally controls, based on the dealer’s purpose of making and selling to other antiques dealers as well as the assessment of the money laundering and decorative consumer goods. Do I have to general public, you must establish an terrorist financing risk associated with establish an anti-money laundering anti-money laundering program if, its business, that are reasonably program? during 2005: designed to enable the dealer to comply (1) The value of the jewels, precious with the applicable requirements of the 19 Trade-in transactions also are not considered ‘‘purchases’’ for purposes of determining whether a stones and precious metals contained in Bank Secrecy Act and to prevent the retailer qualifies for the retailer exception to the the antiques you purchased was more dealer from being used for money definition of ‘‘dealer.’’ than $50,000, and the value of the laundering or terrorist financing.

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You should learn what the BSA such, this person should be someone Independent testers should carefully requirements are for your business. For with enough authority to achieve this consider all the decisions made by the most dealers, the requirements are (1) to important task. The amount of time compliance officer, such as the level of establish an anti-money laundering devoted to these duties will depend on risk faced by the dealer for money program, (2) to file IRS/FinCEN Form the level of risk. A dealer is not required laundering and terrorist financing, the 8300,20 (3) to file FinCEN Form TD F to designate a person to serve on a full- frequency of training, etc. However, the 90–22.1 21, and (4) to file FinCEN Form time basis as a compliance officer for decision as to how best to establish and 105.22 All of these forms and their purposes of the interim final rule, operate the program is not a task for the instructions are available at http:// unless the level of risk or volume of independent tester. The independent www.fincen.gov. transactions warrants that. If your testing is intended to confirm that the As the preamble to the rule describes, business faces very high level of risk for program operates properly. you should assess the extent to which money laundering or terrorist financing, 4(b) What resources are available to your particular business is susceptible then much will be required of this help me establish an adequate program? to money laundering and terrorist person. If your exposure to these risks The preamble to the interim final rule, financing. For example, business you is more moderate, then the level of effort including these FAQs, provides the conduct with other U.S. dealers subject will be commensurate with that risk. foundation for dealers to begin the to the rule, and established customers or In all cases, however, the compliance process of establishing their own anti- suppliers, presents a relatively low level officer should be thoroughly familiar money laundering program. Going of risk. On the other hand, business with the operations of the business itself forward, FinCEN will be issuing conducted with parties located in, or and with all aspects of your anti-money additional guidance to this industry. All transactions for which payment or laundering program, as well as with the such guidance will be posted in account reconciliation is routed through requirements of the BSA and applicable FinCEN’s Web site, http:// accounts located in, jurisdictions that FinCEN forms, and should have read www.fincen.gov. Additionally, FinCEN have been identified as particularly carefully all applicable documents operates a regulatory helpline, 1–800– vulnerable to money laundering or issued by FinCEN or on FinCEN’s Web 949–2732, to provide answers to terrorist financing, present a page. specific compliance questions. Finally, significantly higher risk, and therefore (3) Ongoing training of appropriate FinCEN will continue to work with the require greater diligence for detecting persons concerning their IRS, which has been delegated the transactions that may involve money responsibilities under the program. authority to examine dealers for laundering or terrorist financing. You should first consider what You should look at the FinCEN Web training is appropriate for each compliance with the interim final rule, site for information and updates on individual employee. Some employees to provide outreach and training about money laundering and terrorist may require no training on the program, anti-money laundering issues. financing risks, as they apply to your because of their duties. Others may 5(a) When do I have to implement my industry. require a great deal of training. The anti-money laundering program? You should talk with colleagues in training should be clearly understood by As explained above, you first need to your industry and consult industry your employees, and the compliance determine whether, based on your trade associations to learn what the best officer should be available to answer all business activities during calendar year practices are among dealers. questions posed by employees. 2005, you are required to have an anti- Finally, you should consider all of the Remember that you should periodically money laundering program for 2006. (If things that you learn in the context of retrain your employees on your program the calendar year is not the same as your your own business. FinCEN does not as may be necessary to ensure that they tax year, you may use your tax year expect that this program can prevent all understand and can fully implement instead.) If you are required to have an potential money laundering. What is your program. anti-money laundering program for (4) Independent testing to monitor expected is that your business will take 2006, it has to be implemented by prudent steps, with the same kind of and maintain an adequate program. Some person or group of people who January 1, 2006, or six months after that thought and care that you take to guard date you become subject to the anti- against other crimes, such as theft or are not working specifically for the compliance officer on the anti-money money laundering program requirement. fraud. You should start developing your (2) A compliance officer who is laundering program should be selected to determine whether the program has program as soon as you can to be sure responsible for ensuring that the you have it in place by that date. program is implemented effectively. been appropriately implemented and is 5(b) I am not required to have an anti- The compliance officer is an working. For example, if the program money laundering program for 2006. employee or group of employees who requires that a particular employee be Will I need to have one in 2007? will be responsible for the day-to-day trained once every six months, then the operation of your anti-money independent testing should determine If you are not required to establish an laundering and counter-terrorist whether the training occurred and anti-money laundering program based financing program. This person will be whether the training was adequate. on your 2005 business activities, you responsible on a day-to-day basis for Independent testing does not mean that will need to assess your 2006 business ensuring that the steps within your own an outside party must be hired, although activities to see if you have to establish program are fully implemented. As outside parties may be utilized to an anti-money laundering program in conduct the independent review. It does 2007, which would have to be in place 20 Reports relating to currency in excess of mean, though, that the testing should be beginning six months after the date you $10,000 received in a trade or business, see 31 CFR a fair and unbiased appraisal of the become subject to the anti-money 103.30. success in implementing the anti-money laundering program requirement. The 21 Report of Foreign Bank and Financial laundering program, and the results of same assessment needs to be made Accounts, see 31 CFR 103.24. 22 Report of International Transportation of the independent testing should be put every year to determine if you will be Currency or Monetary Instruments, see 31 CFR into writing, including any required to have an anti-money 103.23. recommendations for improvement. laundering program the following year.

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5(c) I am required to have an anti- officers, directors, employees, or agents, 1. Should silver continue to be money laundering program for 2006. that makes a voluntary SAR filing may defined as a ‘‘precious metal’’ for How long must it continue? not notify any person involved in the purposes of the final rule? If you are required to establish an reported transaction that a SAR has 2. The inclusion of silver in the anti-money laundering program for been filed.24 interim final rule, taken together with 2006, you must maintain it as long as 7. Do I still need to report cash the applicability of the interim final rule you continue to be a ‘‘dealer’’ under the receipts of in excess of $10,000 on Form to dealers in finished goods that derive rule. If, based on your business 8300? 50 percent or more of their value from activities for 2006, you no longer satisfy Yes. Nothing in this interim final rule silver (see below), requires dealers in the criteria for being a dealer, you do affects the existing obligation of a silver to develop and implement anti- not need to continue your anti-money business to report cash receipts in money laundering programs (assuming laundering program in 2007. But you excess of $10,000 in one transaction, or that the applicable purchase and sale will need to assess your business two or more related transactions, on thresholds are satisfied). Should activities in 2007 to see if you need to Form 8300. 31 CFR 103.30. In finished goods containing silver be re-implement your program in 2008. particular, businesses excluded from covered by the final rule? What types of 6. Am I required to file Suspicious this interim final rule are not relieved of finished goods containing silver are Activity Reports as part of my anti- their existing obligation to file Form likely to be covered by the final rule in money laundering program? 8300. To the contrary, FinCEN regards light of the definitional thresholds for This interim final rule requires precious metal and finished goods dealers to establish anti-money the filing of Form 8300 as an essential reporting component of the Bank contained in the interim final rule? laundering programs but does not What types of finished goods (for require a dealer to file reports of Secrecy Act, especially for this industry that does not presently have a example, brazing alloys and medical suspicious activity with FinCEN. products) should not be covered by a suspicious activity reporting obligation. However, dealers are strongly final rule? What percentage of the sales encouraged to file suspicious activity VI. Request for Comments price of various types of finished goods reports when they suspect the containing silver is attributable to the FinCEN is issuing this rule as an transaction or the funds involved has/ silver contained in the good? interim final rule in order to obtain have an illegal source or purpose or Commenters are specifically requested further public comment on the specific when the transaction has no apparent to consider the potential impact of the issues addressed below. FinCEN business or lawful purpose. Where interim final rule on persons and encourages comments on any or all of appropriate, dealers should immediately businesses that manufacture these issues from all interested persons, contact law enforcement or FinCEN ‘‘inexpensive’’ jewelry and other items and particularly persons engaged in through its hotline. containing silver intended for retail sale commerce in finished goods containing An integral part of the dealer’s anti- to the public, as well as the impact on jewels, precious metals or precious money laundering program is to assess wholesalers and distributors of such stones. Comments received on or before the risks and vulnerabilities of the goods that purchase and sell them in the business and to develop policies, July 25, 2005, will be carefully course of commerce, and on dealers in procedures and internal controls to considered in the development of the silver alloys used for medical purposes. address those risks. This should include final rule that will supercede this Comments are also specifically procedures and controls for identifying interim final rule. The final rule will be requested on the extent to which ‘‘suspicious’’ activities and dealing with identical to the interim final rule, except wholesalers, distributors, and retailers them accordingly. Procedures for for any changes made in response to of such goods will know, in the ordinary dealing with suspicious activities may comments received on the following course of business, whether they are include guidance for when it is issues. Please refer to the instructions dealing in goods that derive 50 percent appropriate in the context of the under ADDRESSES for information on or more of their value from silver. business and the activity to (1) contact how to submit comments. 3. Should a final rule include an local or Federal law enforcement A. Silver overall minimum price-per-ounce level authorities, (2) file a suspicious activity at which silver (or any other metal) report with FinCEN (FinCEN Section 103.140(a)(4) of the interim would be deemed a ‘‘precious metal’’ for recommends using the Money Services final rule defines the term ‘‘precious purposes of the rule? Commenters Business SAR Form TD F 90–22.56, metal’’ to include silver as proposed in answering in the affirmative are available at http://www.fincen.gov/ the NPRM. FinCEN did not receive any requested to recommend an appropriate reg_bsaforms.html), (3) check the comments on the inclusion of silver minimum price-per-ounce level and a ‘‘suspicious activity’’ box on a Form within this definition. Nonetheless, we basis for that recommendation. 8300 filed on a particular transaction, or are soliciting comments on whether the (4) report suspected terrorist activities to proposed provision should be included B. Jewels and Precious Stones FinCEN using its Financial Institutions in a final rule. Although silver has The definition of ‘‘precious metal’’ Hotline (1–866–556–3974). Any dealer, historically been considered to be a contains a finite list of metals and or any of its officers, directors, precious metal, silver recently has been incorporates an objective purity employees or agents, that makes a trading at approximately $7.00 per threshold of 500 parts per 1000. In voluntary SAR filing shall not be liable ounce. In contrast, platinum recently contrast, the definitions of ‘‘jewel’’ to any person under Federal, state or has been trading at approximately (section 103.140(a)(2)) and ‘‘precious local law, or under an arbitration $860.00 per ounce, gold at stone’’ (section 103.140(a)(4)), while contract, for such a filing or for failing approximately $420.00 per ounce, and listing commonly recognized jewels and to provide notice of the filing to the palladium at approximately $185.00 per precious stones, also extend to any subject of the filing.23 We also caution, ounce. Comments are specifically substance that is of ‘‘gem quality however, that a dealer, or any of its requested on the following issues: market-recognized beauty, rarity, and value.’’ Would it be appropriate to add 23 31 U.S.C. 5318(g)(3). 24 31 U.S.C. 5318(g)(2)(A). to these definitions an overall minimum

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price-per-carat or other objective In view of the issues raised above, Estimated Average Annual Burden threshold indicating at which point the FinCEN again solicits comments on the Per Recordkeeper: The estimated jewel or stone would be deemed a potential impacts of the rule on small average burden associated with the ‘‘jewel’’ or ‘‘precious stone’’ for businesses (including manufacturers, recordkeeping requirement in section purposes of a final rule? If so, what dealers, wholesalers, distributors, and 103.140(b) rule is 1 hour per would be an appropriate threshold and retailers) that may be ‘‘dealers’’ subject recordkeeper. why? to the provisions of the rule. Estimated Total Annual Recordkeeping Burden: 20,000 hours. C. Finished Goods VII. Regulatory Flexibility Act Comments concerning the accuracy of Section 103.140(a)(1)(iv) of the FinCEN certifies pursuant to the this burden estimate should be directed interim final rule includes within the Regulatory Flexibility Act (5 U.S.C. 601 to the Financial Crimes Enforcement definition of ‘‘covered goods,’’ finished et seq.), that this interim final rule will Network, Department of the Treasury, goods including, but not limited to, not have a significant economic impact Post Office Box 39, Vienna, VA 22183, jewelry, numismatic items, and on a substantial number of small and to the Office of Management and antiques, that derive 50 percent or more entities. Because the requirements of the Budget, Attn: Desk Officer for the of their value from the jewels, precious rule closely parallel the requirements Department of the Treasury, Office of metals, or precious stones contained or for anti-money laundering programs for Information and Regulatory Affairs, attached to such finished goods. The 50 all financial institutions mandated by Office of Management and Budget, New percent value threshold for finished section 352 of the USA Patriot Act, the Executive Office Building, Room 3208, goods in these provisions is, in costs associated with the establishment Washington, DC 20503. and implementation of anti-money principle, consistent with the 500 parts IX. Executive Order 12866 per 1000 purity threshold for precious laundering programs are attributable to It has been determined that this rule metals in section 103.140(a)(4). the statute and not the rule. Moreover, FinCEN believes that the definition of is not a significant regulatory action for 1. Is the 50 percent value threshold ‘‘dealer’’ in section 103.140(a)(2), which purposes of Executive Order 12866. described above an appropriate excludes dealers who have less than Accordingly, a regulatory impact threshold for finished goods containing $50,000 in gross proceeds derived from analysis is not required. jewels, precious metals, or precious covered goods in a year, will exclude stones, or to which jewels, precious List of Subjects in 31 CFR Part 103 most small dealers from the metals, or precious stones are attached? requirements of the rule. Administrative practice and If not, what would be an appropriate Furthermore, the rule provides for procedure, Authority delegations threshold and why? Should jewelry be substantial flexibility in how each (Government agencies), Banks and subject to a threshold different from that dealer may meet its requirements. This banking, Currency, Investigations, Law of other finished goods? If so, why, and flexibility is designed to account for enforcement, Reporting and what would constitute an appropriate differences among dealers, including recordkeeping requirements. definition of ‘‘jewelry’’? size. In this regard, the costs associated Authority and Issuance 2. Comments are also specifically with developing and implementing an requested on whether, in the ordinary anti-money laundering program will be I For the reasons set forth in the course of business, wholesalers, commensurate with the size of a dealer. preamble, part 103 of title 31 of the Code distributors, and retailers of finished If a dealer is small, the burden to of Federal Regulations is amended as goods (including persons such as comply with section 352 and the rule follows: antique dealers) will know, and if so should be similarly small. PART 103—FINANCIAL how (e.g., pursuant to Federal Trade In the NPRM, FinCEN requested RECORDKEEPING AND REPORTING Commission requirements 25), whether comments on the impact of the OF CURRENCY AND FINANCIAL the goods they are dealing in derive 50 proposed rule on small dealers. No TRANSACTIONS percent or more of their value from comments on this issue were received. jewels, precious metals, or precious I VIII. Paperwork Reduction Act 1. The authority citation for part 103 stones, and thereby cause them to be a continues to read as follows: ‘‘dealer’’ required to have an anti-money The collection of information contained in the interim final rule has Authority: 12 U.S.C. 1829b and 1951–1959; laundering program under the terms of 31 U.S.C. 5311–5314 and 5316–5332; title III, the interim final rule. been approved by the Office of secs. 311, 312, 313, 314, 326, 352, Pub. L. Management and Budget (OMB) in 107–56, 115 Stat. 307. D. Effects on Small Businesses accordance with the Paperwork I Pursuant to the Regulatory Flexibility Reduction Act of 1995 (44 U.S.C. 2. Subpart I of part 103 is amended by Act (5 U.S.C. 601 et seq.), FinCEN 3507(d)), and assigned OMB Control adding new § 103.140 to read as follows: certified that the preceding notice of Number 1506–0030. An agency may not § 103.140 Anti-money laundering proposed rulemaking would not have a conduct or sponsor, and a person is not programs for dealers in precious metals, significant economic impact on a required to respond to, a collection of precious stones, or jewels. substantial number of small businesses information unless it displays a valid (a) Definitions. For purposes of this or other small entitites. Although control number assigned by OMB. section: FinCEN specifically requested public The collection of information is the (1) Covered goods means: comments on the impact of the rule on recordkeeping requirement in section (i) Jewels (as defined in paragraph small dealers, no such comments were 103.140(b). The information will be (a)(3) of this section); received, and this interim rule repeats used by Federal agencies to verify (ii) Precious metals (as defined in that certification. compliance by dealers with the paragraph (a)(4) of this section); provisions of sections 103.140. The (iii) Precious stones (as defined in 25 See ‘‘Guides for the Jewelry, Precious Metals, collection of information is mandatory. paragraph (a)(5) of this section); and and Pewter Industries’’ http://www.ftc.gov/bcp/ Estimated Number of Recordkeepers: (iv) Finished goods (including, but guides/jewel-gd.htm, effective April 10, 2001. 20,000. not limited to, jewelry, numismatic

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items, and antiques), that derive 50 silver, having a level of purity of 500 or the dealer’s customers, suppliers, percent or more of their value from more parts per thousand; and distribution channels, and geographic jewels, precious metals, or precious (ii) An alloy containing 500 or more locations; stones contained in or attached to such parts per thousand, in the aggregate, of (B) The extent to which the dealer finished goods; two or more of the metals listed in engages in transactions other than with (2) Dealer. (i) Except as provided in paragraph (a)(3)(i) of this section. established customers or sources of paragraphs (a)(2)(ii) and (a)(2)(iii) of this (5) Precious stone means a substance supply, or other dealers subject to this section, the term ‘‘dealer’’ means a with gem quality market-recognized rule; and person engaged within the United States beauty, rarity, and value, and includes (C) Whether the dealer engages in as a business in the purchase and sale diamond, corundum (including rubies transactions for which payment or of covered goods and who, during the and sapphires), beryl (including account reconciliation is routed to or prior calendar or tax year: emeralds and aquamarines), from accounts located in jurisdictions (A) Purchased more than $50,000 in chrysoberyl, spinel, topaz, zircon, that have been identified by the covered goods; and tourmaline, garnet, crystalline and Department of State as a sponsor of (B) Received more than $50,000 in cryptocrystalline quartz, olivine peridot, international terrorism under 22 U.S.C. gross proceeds from the sale of covered tanzanite, jadeite jade, nephrite jade, 2371; designated as non-cooperative goods. spodumene, feldspar, turquoise, lapis with international anti-money (ii) For purposes of this section, the lazuli, and opal. laundering principles or procedures by term ‘‘dealer’’ does not include: (6) Person shall have the same an intergovernmental group or (A) A retailer (as defined in paragraph meaning as provided in § 103.11(z). organization of which the United States (a)(7) of this section), unless the retailer, (7) Retailer means a person engaged is a member and with which during the prior calendar or tax year, within the United States in the business designation the United States purchased more than $50,000 in of sales primarily to the public of representative or organization concurs; covered goods from persons other than covered goods. or designated by the Secretary of the (b) Anti-money laundering program dealers or other retailers (such as Treasury pursuant to 31 U.S.C. 5318A as requirement. (1) Each dealer shall members of the general public or foreign warranting special measures due to develop and implement a written anti- sources of supply); or money laundering concerns. money laundering program reasonably (B) A person licensed or authorized (ii) A dealer’s program shall designed to prevent the dealer from under the laws of any State (or political incorporate policies, procedures, and being used to facilitate money subdivision thereof) to conduct business internal controls to assist the dealer in laundering and the financing of terrorist as a pawnbroker, but only to the extent identifying transactions that may activities through the purchase and sale such person is engaged in pawn involve use of the dealer to facilitate of covered goods. The program must be transactions (including the sale of pawn money laundering or terrorist financing, approved by senior management. A loan collateral). including provisions for making dealer shall make its anti-money reasonable inquiries to determine (iii) For purposes of paragraph (a)(2) laundering program available to the whether a transaction involves money of this section, the terms ‘‘purchase’’ Department of Treasury through FinCEN laundering or terrorist financing, and for and ‘‘sale’’ do not include a retail or its designee upon request. refusing to consummate, withdrawing transaction in which a retailer or a (2) To the extent that a retailer’s from, or terminating such transactions. dealer accepts from a customer covered purchases from persons other than Factors that may indicate a transaction goods, the value of which the retailer or dealers and other retailers exceeds the is designed to involve use of the dealer dealer credits to the account of the $50,000 threshold contained in to facilitate money laundering or customer, and the retailer or dealer does paragraph (a)(2)(ii)(A), the anti-money terrorist financing include, but are not not provide funds to the customer in laundering compliance program limited to: exchange for such covered goods. required of the retailer under this (A) Unusual payment methods, such (iv) For purposes of paragraphs (a)(2) paragraph need only address such as the use of large amounts of cash, and (b) of this section, the terms purchases. multiple or sequentially numbered ‘‘purchase’’ and ‘‘sale’’ do not include (c) Minimum requirements. At a money orders, traveler’s checks, or the purchase of jewels, precious metals, minimum, the anti-money laundering cashier’s checks, or payment from third or precious stones that are incorporated program shall: parties; into machinery or equipment to be used (1) Incorporate policies, procedures, (B) Unwillingness by a customer or for industrial purposes, and the and internal controls based upon the supplier to provide complete or accurate purchase and sale of such machinery or dealer’s assessment of the money contact information, financial equipment. laundering and terrorist financing risks references, or business affiliations; (v) For purposes of applying the associated with its line(s) of business. (C) Attempts by a customer or $50,000 thresholds in paragraphs Policies, procedures, and internal supplier to maintain an unusual degree (a)(2)(i) and (a)(2)(ii)(A) of this section controls developed and implemented by of secrecy with respect to the to finished goods defined in paragraph a dealer under this section shall include transaction, such as a request that (a)(1)(iv) of this section, only the value provisions for complying with the normal business records not be kept; of jewels, precious metals, or precious applicable requirements of the Bank (D) Purchases or sales that are stones contained in, or attached to, such Secrecy Act (31 U.S.C. 5311 et seq.), and unusual for the particular customer or goods shall be taken into account. this part. supplier, or type of customer or (3) Jewel means an organic substance (i) For purposes of making the risk supplier; and with gem quality market-recognized assessment required by paragraph (c)(1) (E) Purchases or sales that are not in beauty, rarity, and value, and includes of this section, a dealer shall take into conformity with standard industry pearl, amber, and coral. account all relevant factors including, practice. (4) Precious metal means: but not limited to: (2) Designate a compliance officer (i) Gold, iridium, osmium, palladium, (A) The type(s) of products the dealer who will be responsible for ensuring platinum, rhodium, ruthenium, or buys and sells, as well as the nature of that:

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(i) The anti-money laundering Virginia. These special local regulations ACTION: Notice of enforcement of program is implemented effectively; are necessary to control vessel traffic regulation. (ii) The anti-money laundering due to the confined nature of the program is updated as necessary to waterway and to provide for the safety SUMMARY: The Coast Guard is reflect changes in the risk assessment, of life on navigable waters during the implementing the special local requirements of this part, and further event. The effect will be to restrict regulations at 33 CFR 100.501 during guidance issued by the Department of general navigation in the regulated area the ‘‘Harborfest 2005’’ to be held on the Treasury; and for the safety of spectators and vessels June 10, 11 and 12, 2005, on the waters (iii) Appropriate personnel are trained transiting the event area. of the Elizabeth River between Norfolk and Portsmouth, Virginia. These special in accordance with paragraph (c)(3) of ENFORCEMENT DATES: 33 CFR 100.519 is local regulations are necessary to this section. effective from 5 a.m. July 27 to 4:30 p.m. control vessel traffic due to the confined (3) Provide for on-going education on July 29, 2005. and training of appropriate persons nature of the waterway and expected concerning their responsibilities under FOR FURTHER INFORMATION CONTACT: vessel congestion during the marine the program. Marine Events Coordinator, event. This action is necessary to (4) Provide for independent testing to Commander, Coast Guard Group Eastern provide for the safety of life on monitor and maintain an adequate Shore, 3823 Main Street, Chincoteague, navigable waters before, during and program. The scope and frequency of VA 23336–1809, and (757) 336–2891. after the event. The effect will be to the testing shall be commensurate with SUPPLEMENTARY INFORMATION: The restrict general navigation in the the risk assessment conducted by the Chincoteague Volunteer Fire Company, regulated area for the safety of event dealer in accordance with paragraph Inc., will sponsor the Annual Pony participants, spectators and other (c)(1) of this section. Such testing may Swim on the waters of the Assateague vessels transiting the event area. be conducted by an officer or employee Channel, near Chincoteague, Virginia ENFORCEMENT DATES: 33 CFR 100.501 of the dealer, so long as the tester is not from 5 a.m. to 4:30 p.m on 27 and 29 will be effective from 2 p.m. on June 10, the person designated in paragraph July, 2005. Approximately 75 ponies 2005 to 4 p.m. on June 12, 2005. will cross Assateague Channel from (c)(2) of this section or a person FOR FURTHER INFORMATION CONTACT: involved in the operation of the Assateague Island to Chincoteague, VA. Senior Chief Michael Bowling, Marine program. In order to ensure the safety of Events Coordinator, Commander, Coast (d) Effective date. A dealer must participants, spectators and transiting Guard Group Hampton Roads, 4000 develop and implement an anti-money vessels, 33 CFR 100.519 will be Coast Guard Blvd., Portsmouth, VA laundering program that complies with enforced for the duration of the event. 23703–2199, and (757) 483–8567. the requirements of this section on or Under provisions of 33 CFR 100.519, SUPPLEMENTARY INFORMATION: The before the later of January 1, 2006, or six vessels may not enter the regulated area Norfolk Festevents ltd., will sponsor months after the date a dealer becomes without permission from the Coast ‘‘Harborfest 2005’’ on the waters of the subject to the requirements of this Guard Patrol Commander. Because these Elizabeth River in Norfolk Harbor section. restrictions will be in effect for a limited between Portsmouth and Norfolk, Dated: June 3, 2005. period, they should not result in a significant disruption of maritime Virginia. This annual celebration of the William J. Fox, traffic. waterfront consists of a variety of on the Director, Financial Crimes Enforcement In addition to this notice, the water activities. Harborfest activities Network. maritime community will be provided include an Opening Ceremony—Parade [FR Doc. 05–11431 Filed 6–8–05; 8:45 am] extensive advance notification via the of Sail, Crawford Bay Crew Classic, BILLING CODE 4810–02–P Local Notice to Mariners, and marine Chesapeake Bay Workboat Parade of information broadcasts so mariners can Sail, Chesapeake Bay Workboat Docking adjust their plans accordingly. Competition, Chesapeake Bay Workboat DEPARTMENT OF HOMELAND Race, Watersports Ski Demonstration, SECURITY Dated: June 1, 2005. and Quick and Dirty Boat Race. A large Sally Brice-O’Hara, fleet of spectator vessels is anticipated Coast Guard Rear Admiral, U.S. Coast Guard, Commander, to view the Harborfest activities. Fifth Coast Guard District. Therefore, to ensure the safety of 33 CFR Part 100 [FR Doc. 05–11443 Filed 6–8–05; 8:45 am] participants, spectators and transiting [CGD05–05–060] BILLING CODE 4910–15–P vessels, 33 CFR 100.501 will be enforced for the duration of the event. RIN 1625–AA08 Under provisions of 33 CFR 100.501, DEPARTMENT OF HOMELAND from 2 p.m. June 10, 2005 to 4 p.m. on Special Local Regulations for Marine SECURITY June 12, 2005, any vessel may not enter Events; Assateague Channel, the regulated area unless it receives Chincoteague, VA Coast Guard permission from the Coast Guard Patrol Commander. Vessel traffic will be AGENCY: Coast Guard, DHS. 33 CFR Part 100 ACTION: Notice of enforcement of allowed to transit the regulated area regulation. [CGD05–05–058] between on the water events, when the Patrol Commander determines it is safe RIN 1625–AA08 SUMMARY: The Coast Guard is to do so. implementing the special local Special Local Regulations for Marine In addition to this notice, the regulations at 33 CFR 100.519 for the Events; Harborfest 2005, Norfolk maritime community will be provided 2005 Annual Chincoteague Pony Swim, Harbor, Elizabeth River, Norfolk and extensive advance notification via the a marine event to be held July 27 and Portsmouth, VA Local Notice to Mariners, and marine July 29, 2005, on the waters of information broadcasts so mariners can Assateague Channel at Chincoteague, AGENCY: Coast Guard, DHS. adjust their plans accordingly.

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