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1 Bank Secrecy Act is the name that has cometo be applied to the Currency and ForeignTransactions Reporting Act (Titles I and II of Pub.L. 91508), its amendments, and the other statutesreferring to the subject matter of that Act. Thesestatutes are codified at 12 U.S.C. 1829b, 12 U.S.C.19511959, and 31 U.S.C. 53115314 and 53165332, and notes thereto.

231 U.S.C. 5311.331 U.S.C. 5318(h).4 See Treasury Order 18001 (Sept. 26, 2002).

5Public Law 10756 352(c), 115 Stat. 322,codified at 31 U.S.C. 5318 note. Public Law 10756 is the Uniting and Strengthening America byProviding Appropriate Tools Required to Intercept

and Obstruct Terrorism Act of 2001 (USAPATRIOT Act).

631 U.S.C. 5318(g). Section 5318(g) gives theSecretary authority to require financial institutionsto file SARs. This section was added to the BSA bysection 1517 of the Annunzio-Wylie Anti-MoneyLaundering Act, Title XV of the Housing andCommunity Development Act of 1992, Public Law102550; it was expanded by section 403 of theMoney Laundering Suppression Act of 1994, TitleIV of the Riegle Community Development andRegulatory Improvement Act of 1994, Public Law103325, to require designation of a singlegovernment recipient for reports of suspicioustransactions.

731 U.S.C. 5312(a)(2)(P).

of $100 million or more in any givenyear. This determination is based uponthe fact that the State submittal, whichis the subject of this rule, is based uponcounterpart Federal regulations forwhich an analysis was prepared and adetermination made that the Federalregulation did not impose an unfundedmandate.

List of Subjects in 30 CFR Part 943

Intergovernmental relations, Surfacemining, Underground mining.

Dated: November 9, 2011.

Ervin J. Barchenger,

Regional Director, Mid-Continent Region.

For the reasons set out in thepreamble, 30 CFR part 943 is amendedas set forth below:

PART 943TEXAS

1. The authority citation for Part 943continues to read as follows:

Authority: 30 U.S.C. 1201 et seq.

2. Section 943.15 is amended in thetable by adding a new entry inchronological order by Date of finalpublication to read as follows:

943.15 Approval of Texas regulatoryprogram amendments.

* * * * *

Original amendmentsubmission date

Date of final publication Citation/Description

* * * * * * *May 18, 2011, May 26,

2011, and June 3, 2011.February 14, 2012 .............. 16 TAC 12.100(a); 12.225(a)(3); 12.311(b); TSCMRA 134.004 (7-a) and (15-a);

134.069(c); 134.080(a) and (b); 134.085; 134.092(20); 134.104(1) and (2); and134.105(a).

[FR Doc. 20123418 Filed 21312; 8:45 am]

BILLING CODE 431005P

DEPARTMENT OF THE TREASURY

Financial Crimes Enforcement Network

31 CFR Parts 1010 and 1029

RIN 1506AB02

Anti-Money Laundering Program andSuspicious Activity Report FilingRequirements for Residential Mortgage

Lenders and Originators

AGENCY: Financial Crimes EnforcementNetwork (FinCEN), Treasury.

ACTION: Final rule.

SUMMARY: FinCEN, a bureau of theDepartment of the Treasury(Treasury), is issuing this Final Ruledefining non-bank residential mortgagelenders and originators as loan orfinance companies for the purpose ofrequiring them to establish anti-moneylaundering programs and reportsuspicious activities under the BankSecrecy Act.

DATES: Effective Date: This rule iseffective April 16, 2012.

Compliance Date: The compliancedate for 31 CFR 1029.210 is August 13,2012.

FOR FURTHER INFORMATION CONTACT:FinCEN, Regulatory Policy andPrograms Division at (800) 9492732and select Option 1.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

The Bank Secrecy Act (BSA) 1authorizes the Secretary of the Treasury(the Secretary) to issue regulationsrequiring financial institutions to keeprecords and file reports that theSecretary determines have a highdegree of usefulness in criminal, tax, orregulatory investigations or proceedings,or in the conduct of intelligence orcounterintelligence activities, includinganalysis, to protect against internationalterrorism. 2 In addition, the Secretary isauthorized to impose anti-moneylaundering (AML) programrequirements on financial institutions.3

The authority of the Secretary toadminister the BSA has been delegatedto the Director of FinCEN.4

Financial institutions are required toestablish AML programs that include, ata minimum: (1) The development ofinternal policies, procedures, andcontrols; (2) the designation of acompliance officer; (3) an ongoingemployee training program; and (4) anindependent audit function to testprograms. When prescribing minimumstandards for AML programs, FinCENmust consider the extent to which therequirements imposed under [the AMLprogram requirement] arecommensurate with the size, location,and activities of the financialinstitutions to which such regulations

apply.5 The BSA also requires

financial institutions to file suspiciousactivity reports (SARs).6

The BSA defines the term financialinstitution to include, in part, a loan orfinance company.7 The term loan orfinance company is not defined in anyFinCEN regulation, and there is nolegislative history on the term. Theterm, however, can reasonably beconstrued to extend to any businessentity that makes loans to or financespurchases on behalf of consumers and

businesses. Some loan and financecompanies extend personal loans and

loans secured by real estate mortgagesand deeds of trust, including homeequity loans. Non-bank residentialmortgage lenders and originators(RMLOsgenerally known asmortgage companies and mortgage

brokers in the residential mortgagebusiness sector) are a significant subsetof the loan or finance companycategory, in terms of the number of

businesses and the aggregate volume

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8Loan and finance companies also supply short-and intermediate-term credit for such purposes asthe purchase of equipment, accounts receivableportfolios and motor vehicles, and the financing ofinventories. In addition, specialized wholesale loanand finance companies provide liquidity thatallows retail loan and finance companies, as well

as banks and others, to service end users.931 CFR 1010.205 (2011).10See 67 FR 21113 (Apr. 29, 2002), as amended

at 67 FR 67549 (Nov. 6, 2002), corrected at 67 FR68935 (Nov. 14, 2002), recodified at 75 FR 65806(Oct. 26, 2010).

1174 FR 35830 (July 21, 2009). Anti-MoneyLaundering Program and Suspicious ActivityReport Requirements for Non-Bank ResidentialMortgage Lenders and Originators.http://edocket.access.gpo.gov/2009/pdf/E-9-17117.pdf.

1275 FR 76677 (Dec. 9, 2010). Anti-MoneyLaundering Program and Suspicious ActivityReport Filing Requirements for ResidentialMortgage Lenders and Originators.http://edocket.access.gpo.gov/2010/pdf/201030765.pdf.

13See Mortgage Loan Fraud Update (SARs Jan. 1Mar. 31, 2011), June 2011, http://www.fincen.gov/news_room/rp/files/MLF_Update_1st_Qtyl_11_FINAL_508.pdf;Mortgage Loan Fraud Update(SARs Jan. 1Dec. 31, 2010), Mar. 2011, http://www.fincen.gov/news_room/rp/files/MLF_Update_4th_Qtly_10_FINAL_508.pdf;Mortgage Loan FraudUpdate (SARs July 1Sept. 30, 2010), Jan. 2011,http://www.fincen.gov/news_room/rp/files/MLF_Update_3rd_Qtly_10_FINAL.pdf; Mortgage LoanFraud Update (SARs Apr. 1June 30, 2010), Dec.

2010, http://www.fincen.gov/news_room/rp/files/MLF_Update_2nd_Qtly_10_FINAL.pdf;MortgageLoan Fraud Update: SAR Filings Jan. 1Mar. 31,2010, http://www.fincen.gov/news_room/rp/files/MLF_Update_1st_Qtly_10_FINAL.pdf.See alsoNPRM, notes 13, 20 and 21.

14See NPRM, 75 FR at 76679. One governmentagency comment on the NPRM stated that theregulatory gap in coverage has hampered efforts tobe proactive in detecting and investigating mortgagefraud at non-banks (i.e., unsupervised lenders andoriginators [RMLOs under this Final Rule]) * * *.The commenter further noted that in 2010,unsupervised lenders and originators comprisedfully two-thirds (67 percent) of FHAs approvedoriginating lenders. The commenter also stated that[o]ne vital weapon in the war on mortgage fraud

has been FinCENs regulations that require banks toestablish AML programs and to file SARs.

1531 CFR 1010.310.1631 CFR 1010.330.

and value of transactions theyfacilitate.8

In 2002, FinCEN issued a regulationthat temporarily exempted loan andfinance companies and other categoriesof BSA-defined financial institutionsfrom the obligation to establish AMLprograms.9 The purpose of theexemption was to enable Treasury and

FinCEN to study these categories ofinstitutions and to consider the extent towhich BSA requirements should beapplied to them, taking into accounttheir specific characteristics and moneylaundering vulnerabilities.10 As a result,RMLOs did not have to comply withAML or SAR regulations or other BSAreporting and recordkeepingrequirements intended to help preventmoney laundering and fraud, andsupport law enforcement efforts.Subsequently, FinCEN analyses and lawenforcement investigations identifiedthis exemption as a regulatory gap that

can be exploited by criminals,particularly in the conduct of mortgagefraud.

On July 21, 2009, FinCEN issued anAdvance Notice of ProposedRulemaking (ANPRM) 11 solicitinggeneral comments on whether FinCENshould issue AML and SAR programregulations for RMLOs. Most of thecomments received in response to theANPRM generally supported AML andSAR regulations for RMLOs. OnDecember 9, 2010, FinCEN issued aNotice of Proposed Rulemaking(NPRM)12 to solicit comments on

specific proposed regulations forRMLOs. The NPRM proposed AML andSAR regulations with standards andrequirements that are substantiallyidentical to those in AML and SARregulations for banks and other financialinstitutions that offer retail consumer

banking services and originate mortgageloans.

Both the ANPRM and the NPRMsuggested that the AML program andSAR filing regulations for RMLOs would

be issued as the first step in anincremental approach toimplementation of regulations for the

broad loan or finance company categoryof financial institutions. Thus, thedefinition of loan or finance company

would initially include only RMLOs,but would be structured to permit theaddition of other types of loan andfinance related businesses andprofessions in future amendments.

Since 2006, FinCEN has issuednumerous studies analyzing SARsreporting suspected mortgage fraud andmoney laundering that involved both

banks and RMLOs, the latter typicallybrokering or selling purchase moneyand refinance loans to lendinginstitutions.13 The reports underscorethe potential benefits of AML and SARregulations for a variety of businesses in

the primary and secondary residentialmortgage markets, including RMLOs. Asnoted in the NPRM and emphasized inseveral related public comments,RMLOs are primary providers ofmortgage financein most cases dealingdirectly with the consumerand are ina unique position to assess and identifymoney laundering risks and fraud whiledirectly assisting consumers with theirfinancial needs and protecting the sectorfrom the abuses of financial crime.Comments on the ANPRM and NPRMemphasized that the risks of fraud andother financial crimes, including moneylaundering, are substantial in the RMLO

sector and are growing. Some commentsstated that the financial crime risks inthe sector are no less significant thanthose faced by banks providingmortgage loan services.14

Most of the comments on the NPRMgenerally supported the issuance ofAML program and SAR filingregulations for RMLOs. The Final Ruleis based on the NPRM and adopts all ofthe regulatory provisions proposed witha few exceptions, noted below. TheAML regulation promulgates the fourminimum requirements noted earlier.

The SAR regulation requires reportingof suspicious activity, including but notlimited to fraudulent attempts to obtaina mortgage or launder money by use ofthe proceeds of other crimes to purchaseresidential real estate. The Final Ruledoes not require RMLOs to comply withany other BSA reporting orrecordkeeping regulations, such ascurrency transaction reports (CTRs).15The few large currency transactionsexpected to be conducted in the sectorwill continue to be subject to reportingon FinCEN Form 8300.16

FinCEN believes that much of the

effort necessary to meet these regulatoryobligations, including informationgathering, will be accomplished through

business operations already undertakenas part of normal transactionnegotiation, completion of requiredFederal forms and disclosures, and duediligence and review of property andcollateral. With this Final Rule, FinCEN

believes RMLOs will assume a crucialrole in government and industry effortsto protect consumers, mortgage finance

businesses, and the U.S. financialsystem from mortgage fraud, moneylaundering, and other financial crimes.

II. Notice of Proposed RulemakingThe comment period on the NPRM

ended on February 7, 2011. FinCENreceived 15 comment letters fromindividuals, businesses, andrepresentatives of various groups whosemembers had an interest in theproposed AML and SAR programrequirements. The comments offered arange of views on the appropriate scopeof any new regulations, and on variousimplementation- and compliance-related matters of concern to industry,regulators and law enforcement.

A. Incremental Implementation of RulesThe NPRM proposed specific AML

program and SAR filing requirementsfor RMLOs as the first step in anincremental approach toimplementation of regulations for loanand finance companies. In order to limitthe scope of the Final Rule to RMLOs,the NPRM proposed a definition of the

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17See, e.g., Mortgage Loan Fraud Update (SARsApr. 1June 30, 2010), Dec. 2010, page 18.http://www.fincen.gov/news_room/rp/files/MLF_Update_2nd_Qtly_10_FINAL.pdf.See alsoCommercial Real Estate Financing Fraud (SARs byDepository Institutions, Jan. 1, 2007 to Dec. 31,2010) Mar. 2011; Advisory: Activities PotentiallyRelated to Commercial Real Estate Fraud (Mar. 30,2011); Remarks of James H. Freis, Jr., Director,FinCEN, delivered at the Mortgage BankersAssociation National Fraud Issues Conference, Mar.28, 2011, page 4 (the Fraud Conference Speech).

http://www.fincen.gov/news_room/speech/pdf/20110328.pdf.

1831 U.S.C. 5312(a)(2)(U).

19See note 15, supra.20As financial institutions for purposes of 31

U.S.C. 5312(a)(2), loan or finance companies havebeen, and remain subject to, the special informationprocedures to deter money laundering and terroristactivity. See Subpart E of 31 CFR Part 1010.

2131 CFR 1010.810(b)(8).

term loan or finance company thatincludes business entities or soleproprietorships (not individuals) actingwithin the bounds of specifieddefinitions for the terms residentialmortgage lender and residentialmortgage originator.

Seven comments on the NPRMaddressed aspects of the incrementalapproach FinCEN has chosen, mostlysupportive. Many commenters alsourged that the Final Rule cover othertypes of businesses and professions inthe primary and secondary residentialreal estate markets, as well as othertypes of consumer and commercial loanand finance companies, not justresidential mortgage lenders andoriginators.

Two commenters argued that FinCENshould not delay implementation ofBSA requirements for other loan orfinance companies. One argued that anuneven playing field would be to the

advantage of fraudsters and criminals,who will take advantage of financialindustry sectors that have less stringentBSA requirements. The othercommenter argued that such anincremental approach misses theopportunity to provide law enforcementwith critical information about high-riskreal estate transactions and needlesslycontinues the exemption of U.S. realestate and escrow agents. A number ofcomments suggested that FinCEN issuefinal rules for commercial lenders, aswell as RMLOs, in connection with thisrulemaking.

Comments of this nature wereanticipated from industry as well asregulators and law enforcement, due toheightened concern about criminalspotentially shifting the focus of theirfraud and other illegal financialtransactions and money laundering touncovered businesses and professions.Arguably, the absence of rules for othertypes of loan or finance companiesmight be exploited by criminals insofaras they may shift the focus of theircriminal enterprises from residentialreal estate to other consumer andcommercial finance businesses. FinCEN

reports note that SARs involvingcommercial real estate, in particular,have increased in recent periods.17

Some comments urgedsimultaneousor very promptissuance of AML and SAR rules for

businesses in a separate, but related,category of BSA-defined financialinstitutionpersons involved in realestate closings and settlements. 18FinCEN regulations in this categorycould include persons as varied as real

estate agents and real estate brokers,closing attorneys and agents, title searchand title insurance companies,appraisers, escrow companies, and otherfirms involved in initial purchasemoney transactions as well assubsequent refinancing in the form of,for example, home equity loans, reversemortgages, and real estate-securedconsumer loans. Three commenterssuggested that FinCEN should proposerules for real estate agents and otherpersons involved in real estate closingsand settlements. One commenteradvocated for the Final Rule to include

two types of businesses that logicallybelong in the persons involved * * *categoryreal estate agents and escrowcompanies. The comment emphasizedthe critical role a few of thesecompanies played in recent high-profilemoney laundering cases. One commentspecifically opposed such a proposal,arguing that in nearly all real estatefinance transactions in which real estateagents participate funds are transferredusing the services of different

businesses that already are required tocomply with AML and SAR regulations.

In sum, several comments on the

NPRM expressed support for expandingthe scope of the Final Rule to coverbusinesses and professions involved ina broad range of consumer andcommercial real estate and non-realestate related finance. Uponconsideration of the comments, FinCENis not inclined at this time to proposea definition of loan or financecompany that would encompass othertypes of consumer or commercialfinance companies, or real estate agentsand other persons involved in realestate closings and settlements.

FinCEN intends to defer regulations

for these other businesses andprofessions until further research andanalysis can be conducted to enhanceour understanding of the operations andmoney laundering vulnerabilities ofthese businesses. Accordingly, as theNPRM suggested, the definition of loanor finance company in the Final Rulehas been structured to permit theaddition of other types of loan and

finance companies in futurerulemakings.

B. Final Rule Limited to AML and SARRegulations Only

The NPRM suggested that FinCENwould not propose any additional BSAregulations for the sector at this time,including CTR requirements.19 One

commenter addressed this issuespecifically, supporting FinCENs viewthat CTR filing requirements areunnecessary for loan or financecompanies. FinCEN agrees, andtherefore, the Final Rule does not adoptany CTR requirements or any other BSAregulations.20

C. Consideration of ExaminationAuthority

FinCEN sought comment on anyparticular aspects of the loan or financecompany sector that should beconsidered when making a decisionabout whether, to whom, and how todelegate examination authority. Under31 CFR 1010.810(a), [O]verall authorityfor enforcement and compliance,including coordination and direction ofprocedures and activities of all otheragencies exercising delegated authorityunder this chapter, is delegated [by theSecretary of the Treasury] to theDirector, FinCEN. In turn, Federalfunctional regulators have beendelegated authority to examine certainfinancial institutions they oversee forcompliance with FinCENs regulations.As noted in the NPRM, the InternalRevenue Service (IRS) has been

delegated the authority, under thisregulation,21 to examine for compliancewith FinCENs regulations thosefinancial institutions that are notexamined by a Federal functionalregulator.

Commenters suggested options forFinCEN to delegate complete or partialexamination authority over RMLOs forcompliance with the Final Rule. Theoptions noted in the public commentsincluded, in addition to the IRS, stateregulatory agencies, the ConsumerFinancial Protection Bureau, and theFederal banking agencies (particularly

with respect to RMLOs affiliated withbanks or insured depository institutionsand their holding companies). Uponconsideration of all the comments,FinCEN will work with other relevantregulatory agencies in the developmentof consistent compliance examination

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2275 FR 63545 (Oct. 15, 2010).2376 FR 57799 (Sept. 16, 2011).24 Id., note 4, referencing information on filing

methods posted on FinCENs Web site, http://bsaefiling.fincen.treas.gov/main.html.

25See Title V of Division A of the Housing andEconomic Recovery Act of 2008, Pub. L. No. 110289, 122 Stat. 2810 (2008), codified at 12 U.S.C.5101, et. seq.

procedures, and in the future willprovide public notice of other agenciesthat will exercise delegated complianceexamination authority with respect tocertain classes of RMLOs and other loanor finance companies.

D. SAR Filing System and Form

Three commenters suggested that

FinCEN establish a separate SAR filingsystem and form for the exclusive use ofresidential mortgage lenders andoriginators. Another commenterrequested that FinCEN continue toaccommodate manual paper SARfilings, as many covered entities do nothave automated systems.

FinCEN considered requiring RMLOsto use Treasury SAR Form TD F 9022.47, presently used by banks andother insured depository institutions.The information required for a SARfrom an RMLO would be substantiallythe same as that required of banks andother depository institutions that makemortgage loans and use Form TD F 9022.47. However, FinCEN is modernizingits SAR filing system and intends toestablish a uniform electronic form foruse by all financial institutions with aSAR filing obligation.22 Accordingly,the Final Rule has a delayed compliancedate to allow time for industry toimplement programs and systems andfor FinCEN to implement the new SARfiling system. In addition, FinCENintends to phase out the manual filingof paper SAR forms.23 RMLOs will,therefore, be required to use FinCENselectronic, web-based E-Filing system

under development for the filing of theuniform SAR form. This electronic filingsystem will not require use ofcommercial automated systems, but will

be usable by anyone with access to theInternet.24

E. Exclusions and ExemptionsConsidered

The NPRM suggested exceptions orexclusions for: banks and insureddepository institutions; personsregistered with and functionallyregulated or examined by the U. S.Securities and Exchange Commission orthe Commodity Futures TradingCommission; individuals employed bycovered loan or finance companies andaffiliated financial institutions; andindividuals who finance the sale of theirown property (i.e., seller-financedsales). The NPRM expressed the long-held view that exceptions areappropriate for individuals and entities

already subject to AML and SARregulations to avoid overlapping orduplicative requirements, and thatseller-financed transactions do notpresent the same risks as mosttransactions conducted at arms-length.

In response to FinCENs request forcomments on the matter of appropriateexclusions and exceptions, some

commenters opposed any additionalexemptions or exceptions beyond thosesuggested in the NPRM, while othersurged FinCEN to consider one or moreadditional exceptions. One commenterstated that the registration and trainingrequirements mandated by the Secureand Fair Enforcement for MortgageLicensing Act of 2008 (SAFE Act) 25are sufficient to address anti-moneylaundering and terrorist financing risksencountered by RMLOs. Anothercommenter argued that small businesseswith fewer than five employees should

be exempt.

FinCEN does not agree that theregistration and training requirementsunder the SAFE Act are sufficient toaddress all of the concerns andaccomplish all of the goals related toAML and SAR programs. However,FinCEN intends to continue its dialoguewith the CSBS to coordinate theidentification and examination ofmortgage originators subject to the FinalRule. SARs filed pursuant to FinCENsregulations go into a database that isaccessible to regulatory agencies andlaw enforcement on the Federal, stateand local levels. The information inFinCENs database, and FinCENscomplementary analysis, is crucial tothe successful investigation andprosecution of money laundering, fraud,and other financial crimesa pointemphasized in several comments on theNPRM.

FinCEN does not agree that RMLOswith less than a certain arbitrarynumber of employees or net worthshould be excepted from the Final Rule.Such an exception would leave a largegap in coverage of RMLO businesses.Comments on the NPRM confirm thatthe absence of SAR rules for RMLOs hasresulted in a substantial gap in mortgage

fraud related SAR reporting. FinCENbelieves that a small businessexclusion or exception for businesseswith fewer than five employees, or for

businesses that satisfy some otherarbitrary size, net worth or similarcriteria, would perpetuate the presentsubstantial gap in SAR reporting. Thewidespread knowledge that all banks

and other insured depositoryinstitutions have well-established AMLand SAR programs likely has deterredsome criminals and caused them toconsider other options for integratingillicit funds into the financial system.The inclusion of arbitrary, size-relatedexceptions from the Final Rule mayresult in unintended consequences that

undermine the effectiveness of acomprehensive, risk-based AML andSAR program regime. Such exceptionscould, for example, encourage a shift ofa substantial portion of mortgagetransactions to small lenders and

brokers, however small is defined.A similar comment suggested a de

minimis exception for businesses thatlend or broker loans under a relativelylow value, or low aggregate volume oftransactions within a set time period.For the reasons stated above, we see nocompelling reason to except any

businesses or transactions based on an

arbitrary, de minimis dollar amount orvolume of transactions.Commenters both supported and

opposed the NPRMs proposed coverageof sole proprietorships. Consistent withthe NPRM, the Final Rule explicitlycovers sole proprietorships. For thesame reasons that support the rejectionof an exception for small businesses, theFinal Rule does not recognize anexception based on a businesss statusas a sole proprietorship or other kind of

business entity under Federal or stateincorporation or tax laws. An exceptionfor sole proprietorships likely wouldperpetuate, to some degree, the SARfiling gap and risk adverse impacts onthe mortgage markets. Thus, the FinalRule does not incorporate any suchexceptions for businesses based on theirform of organization.

III. Section-by-Section Analysis

A. Definition of Loan or FinanceCompany

Section 1010.100(lll) defines the keyterms used in the Final Rule. Thedefinitions reflect FinCENsdetermination that the term loan orfinance company should be limited, atthis time, to RMLOs, and that AMLprogram and SAR requirements should

be applied first to these businesses, andlateras part of a phased approachapplied to other consumer andcommercial loan and financecompanies. With the exception of theaddition of explicit exclusions forgovernment-sponsored enterprises andcertain government programs and aslight change to the definition ofresidential mortgage originator,discussed below, the Final Rule adoptsthe definitions as proposed.

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26The Final Rule applies to businesses, includingsole proprietorships, not individuals. Someindividuals covered by the SAFE Act definition ofloan originator, 12 U.S.C. 5102(3)(A)(ii), wouldnot be covered by the Final Rule.

27 In a recently issued NPRM, FinCEN proposedAML and SAR regulations for the housing GSEs thatwould, in part, replace the existing reportingarrangement with a more direct and efficientreporting procedure. See 76 FR 69204 (Nov. 8,2011). http://www.gpo.gov/fdsys/pkg/FR-2011-11-08/pdf/2011-28820.pdf.

28Other Federal programs noted by thecommenter include the Making Home AffordableProgram, the Home Affordable ModificationProgram, the Hardest Hit Funds Program and theFederal Housing Administration RefinanceProgram.

29See FIN2010A005Advisory to FinancialInstitutions on Filing Suspicious Activity ReportsRegarding Home Equity Conversion Mortgage FraudSchemes (Apr. 27, 2011), http://www.fincen.gov/statutes_regs/guidance/html/fin-2010-a005.html;FIN2009A001Guidance to FinancialInstitutions on Filing Suspicious Activity Reportsregarding Loan Modification/Foreclosure RescueScams (Apr. 6, 2009), http://www.fincen.gov/statutes_regs/guidance/html/fin-2009-a001.html.

In the NPRM, residential mortgageoriginator was defined as a person whotakes a residential mortgage loanapplication and offers or negotiatesterms of a residential mortgage loan forcompensation or gain. One commentersuggested that the proposed languagetakes a residential mortgage loanapplication was ambiguous as to who

would be subject to the requirements.FinCEN intends the Final Rule to be

broad in scope and cover most non-bankresidential mortgage originators, withthe few exceptions recognized in theFinal Rule and described in this notice.FinCEN intends the Final Rule to coverany business that, on behalf of one ormore lenders, accepts a completedmortgage loan application, even if the

business does not in any manner engagein negotiating the terms of a loan.FinCEN also intends the Final Rules tocover businesses that offer or negotiatespecific loan terms on behalf of either a

lender or borrower, regardless ofwhether they also accept a mortgageloan application. Accordingly, the FinalRule modifies the proposed definition ofresidential mortgage originatorslightly to include persons whoaccept a residential mortgage loanapplication or that offer or negotiateterms of a residential mortgage loan.The change made from the NPRM ofreplacing the term take with acceptis intended to differentiate the FinalRule from the SAFE Act. The changefrom and to or is intended toensure that persons who either accept

an application or offer or negotiate theterms of a loan are covered. In addition,FinCEN intends the Final Rule to applyto residential mortgage originators,regardless of whether they receivecompensation or gain for acting in thatcapacity. Accordingly, the phrase forcompensation or gain in the proposeddefinition is removed from thedefinition in the Final Rule. Thesechanges create greater differences

between the definitions in this FinalRule and those used in the SAFE Actand other federal mortgage-relatedstatutes. This was done intentionally to

differentiate this Final Rule from thosestatutes so that the interpretation of thisFinal Rule is not based on theinterpretation of those statutes. FinCENintends the definitions in the Final Ruleand subsequent amendments thereto to

be consistent with definitions in theSAFE Act and other federal mortgage-related statutes, only to the extentdeemed appropriate to advanceFinCENs mission, strategic goals, andpolicies. As discussed in the NPRM, theFinal Rule does not contemplatecoverage of an individual employed by

a loan or finance company or financialinstitution, and provides an exceptionfor individuals financing the sale oftheir own real estate.26 For example,individuals employed by a loan orfinance company that would be not besubject to the rule includeadministrative assistants and officeclerks who gather documents, review

land records and complete forms onbehalf of a lender or originator.

One commenter inquired whether theFinal Rule (or any aspects thereof)would apply to the housing governmentsponsored enterprises (GSEs) andtheir employees involved in lossmitigation activities. FinCEN wouldlike to clarify that no provision of theFinal Rule applies to the housing GSEsor any of their employees, regardless ofwhether they are involved in lossmitigation or any other housing GSEactivity or program. FinCEN has revisedthe proposed definition of loan or

finance company to exclude anygovernment sponsored enterpriseregulated by the Federal HousingFinance Agency. Where fraud issuspected by a housing GSE, there is anestablished procedure, currently setforth in a Memorandum ofUnderstanding between FinCEN and theFederal Housing Finance Agency(FHFA) for the GSE to report to theFHFA, which then reports thesuspicious activity to FinCEN.27

The Final Rule generally is intendedto cover initial purchase money loansand traditional refinancing transactionsfacilitated by RMLOs. Another

commenter asked FinCEN to clarifywhether the Final Rule would apply totransactions involving funds orprograms under the Troubled AssetRelief Program and similar Federalprograms,28 or any similar state housingauthority or housing assistance program.These programs are intended to preventloan default and foreclosure. Most ofthese programs apply to existing loansin default or at risk of default. Whilethese programs are administered bygovernment agencies that have

developed standards, procedures, andqualifications to prevent fraud andabuse, the programs nonetheless arevulnerable to fraud and moneylaunderinga risk acknowledged by thecommenter.

Since 2009 FinCEN has warnedfinancial institutions and consumersabout the fraud and money laundering

risks associated with foreclosureprevention and loan modificationprograms,29 and FinCEN agrees with thecommenters assessment of the risksassociated with the programs identifiedin the comment. Accordingly, FinCENexpects that RMLOs participating insuch programs to comply with the FinalRule to the extent any transactionsconducted by the RMLO couldreasonably be considered to beextending a residential mortgage loan oroffering or negotiating the terms of aresidential mortgage loan, within themeaning of the definitions of

residential mortgage lender andresidential mortgage originator in theFinal Rule. The Final Rules, however,do not apply to the Federal or statehousing authorities and agenciesadministering such programs. Theproposed definition of loan or financecompany has been revised to excludeany Federal or state agency orauthority administering mortgage orhousing assistance, fraud prevention orforeclosure prevention programs.

The commenter also requestedclarification whether the Final Rulewould apply to foreclosure preventionactions and counseling services

performed by legitimate, non-profitorganizationssome of which mayreceive minimal compensation to assistin the preparation of a mortgageapplication, or provide short-term loansto facilitate foreclosure preventionactions. Consistent with our viewsregarding RMLOs that participate inFederal and state foreclosure preventionprograms, FinCEN also expects non-profit housing organizations to complywith the Final Rule, to the extent anysuch organization may reasonably bedeemed to be extending a residentialmortgage loan (including a short-term

mortgage loan), or offering ornegotiating the terms of a residentialmortgage loan. However, FinCEN wouldnot expect legitimate, non-profitorganizations that limit their activities

http://www.gpo.gov/fdsys/pkg/FR-2011-11-08/pdf/2011-28820.pdfhttp://www.gpo.gov/fdsys/pkg/FR-2011-11-08/pdf/2011-28820.pdfhttp://www.fincen.gov/statutes_regs/guidance/html/fin-2010-a005.htmlhttp://www.fincen.gov/statutes_regs/guidance/html/fin-2010-a005.htmlhttp://www.fincen.gov/statutes_regs/guidance/html/fin-2010-a005.htmlhttp://www.fincen.gov/statutes_regs/guidance/html/fin-2010-a005.htmlhttp://www.fincen.gov/statutes_regs/guidance/html/fin-2010-a005.htmlhttp://www.fincen.gov/statutes_regs/guidance/html/fin-2009-a001.htmlhttp://www.fincen.gov/statutes_regs/guidance/html/fin-2009-a001.htmlhttp://www.fincen.gov/statutes_regs/guidance/html/fin-2009-a001.htmlhttp://www.fincen.gov/statutes_regs/guidance/html/fin-2009-a001.htmlhttp://www.fincen.gov/statutes_regs/guidance/html/fin-2009-a001.htmlhttp://www.gpo.gov/fdsys/pkg/FR-2011-11-08/pdf/2011-28820.pdfhttp://www.gpo.gov/fdsys/pkg/FR-2011-11-08/pdf/2011-28820.pdfhttp://www.fincen.gov/statutes_regs/guidance/html/fin-2009-a001.htmlhttp://www.fincen.gov/statutes_regs/guidance/html/fin-2009-a001.htmlhttp://www.fincen.gov/statutes_regs/guidance/html/fin-2010-a005.htmlhttp://www.fincen.gov/statutes_regs/guidance/html/fin-2010-a005.html

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30See the Fraud Conference Speech, fn. 17.

31The fourth reporting category has been addedto the suspicious activity reporting rulespromulgated since the passage of the USAPATRIOT Act to make it clear that the requirementto report suspicious activity encompasses thereporting of transactions involving fraud and thosein which legally derived funds are used for criminalactivity, such as the financing of terrorism.

32See note 17, supra. See also NPRM, notes 13and 20.

to assisting with the preparation of loanapplications or referral of prospective

borrowers to qualified lenders, for freeor for a fee; that provide short-term,non-mortgage loans to qualified

borrowers or homeowners; or thatotherwisefacilitate the extension of aresidential mortgage loan (but do notmake the loan or offer or negotiate the

terms of the loan), to fall within thescope of the Final Rule.

One commenter requested thatFinCEN exclude mortgage servicersfrom the definition of residentialmortgage loan originator. FinCENgenerally views loan servicers as

businesses that support post-originationprincipal and interest collection andtaxation, and not as a business oractivity that offers or negotiates theterms of a mortgage loan. FinCEN agreesthat the typical activities of mortgageservicing companies do not fall withinthe definition of residential mortgage

originator in this Final Rule. We willnot, however, make a blanket exclusionor exception for mortgage servicers. Thedefinition is based on the activity inwhich an entity is engaged. Thus, aslong as a mortgage servicer does notextend residential mortgage loans oroffer or negotiate the terms of aresidential mortgage loan application, itwill not fall under of the definition ofresidential mortgage loan originator.The commenter also requested thatFinCEN exclude servicers working withloan modification programs, such as theHome Affordable Modification Program,or HAMP, from the definition of

residential mortgage loan originator.FinCEN agrees that loan modificationsunder such programs are not covered bythis Final Rule to the extent that themodifications do not involve extendingnew residential mortgage loans oroffering or negotiating the terms of aresidential mortgage loan application.

B. Anti-Money Laundering Program

Section 1029.210 requires that eachloan or finance company develop andimplement an anti-money launderingprogram reasonably designed to preventthe loan or finance company from being

used to facilitate money laundering orthe financing of terrorist activities. Twocommenters argued that RMLOs shouldnot be required to maintain AMLprograms, but only be required to fileSARs. One commenter, a mortgagecompany, argued that mortgage fraudwas the primary issue and not moneylaundering, so an AML program isunnecessary. The other commenter, atrade association, argued that SARfilings are the primary means ofconveying valuable information to lawenforcement, as contemplated under the

BSA, and that requiring a full AMLprogram imposes unnecessarycomplexity, paperwork, and regulatory

burdens that outweigh the potentialbenefits to law enforcement. Thecommenter argued simply thatmaintaining an AML program wouldcreate an unnecessary regulatory

burden, and the costs would far

outweigh the benefits to lawenforcement.

FinCEN believes that a complete AMLprogram is essential to an adequate,efficient SAR filing program. FinCENrefers to the four pillars of an AMLprogram for a reason, as each one iscritical to holding up the overallstructure of the program. Without one,the others will fail.30 It would bedifficult to expect useful SAR reportingwithout the pillars of an AML programfirmly in place. Moreover, it is in the

best interest of everyone involved in amortgage finance transaction to try to

prevent the fraud before it occurs.Prevention is a core purpose behindFinCENs regulatory requirements forAML programs.

FinCENs regulations are structured toensure that financial institutions areknowledgeable of risks and vigilantagainst criminal abuse. With all BSAAML regulations, businesses arerequired to implement risk-basedprograms that take into account theunique risks associated with thatparticular business products andservices, as well as the business size,market, and other issues. Thus, eachAML program would necessarily be

different than those of businesses withdifferent product, geographic, and otherrisks. FinCEN reports and other researchunderscore that mortgage fraud is one ofthe most significant operational risksfacing RMLOs in the ordinary course of

business.Under a risk-based approach to

implementation of the Final Rule,FinCEN expects fraud prevention, aswell as money laundering prevention, to

be key goals underlying the variouspolicies and procedures in an effectiveAML program for an RMLO. Therefore,the proposed AML regulation is adopted

in this Final Rule without change.C. Reports of Suspicious Transactions

Section 1029.320 contains the rulessetting forth the obligation of loan orfinance companies to report suspicioustransactions that are conducted orattempted by, at, or through a loan orfinance company and involve oraggregate at least $5,000 in funds orother assets. It is important to recognizethat transactions are reportable under

this Final Rule and 31 U.S.C. 5318(g)regardless of whether they involvecurrency. The $5,000 minimum amountis consistent with existing SAR filingrequirements for other financialinstitutions regulated by FinCEN.

Section 1029.320(a)(2) specificallydescribes the four categories of

transactions that require reporting. Aloan or finance company is required toreport a transaction if it knows,suspects, or has reason to suspect thatthe transaction (or a pattern oftransactions of which the transaction isa part): (i) Involves funds derived fromillegal activity or is intended orconducted to hide or disguise funds orassets derived from illegal activity; (ii)is designed, whether throughstructuring or other means, to evade therequirements of the BSA; (iii) has no

business or apparent lawful purpose,and the loan or finance company knowsof no reasonable explanation for thetransaction after examining the availablefacts; or (iv) involves the use of the loanor finance company to facilitatecriminal activity.31

Several comments requested guidancewith regard to when a SAR would berequired to be filed. A determination asto whether a SAR is required must be

based on all the facts and circumstancesrelating to the transaction and customerof the loan or finance company inquestion. Different fact patterns willrequire different judgments. Someexamples of red flags are referenced inprevious FinCEN reports on mortgagefraud and money laundering in theresidential and commercial real estatesectors.32 However, the means ofcommerce and the techniques of moneylaundering and mortgage fraud arecontinually evolving, and there is noway to provide an exhaustive list ofsuspicious transactions. FinCEN willcontinue to pursue a regulatoryapproach that involves a combination ofappropriate regulations, writtenguidance, support of industry trainingprograms, and maintenance of agovernment-industry informationexchange so that any new AML program

and SAR reporting regulations can beimplemented in as flexible and costefficient way as possible, whileprotecting the sector and the financial


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33See NPRM, 75 FR at 76683. The language in therules of construction pertaining to State regulatorshas been revised in the Final Rule to reflect theterms adopted in FinCENs SAR confidentialityrulemaking, finalized in December 2010. See 75 FR75593, 7559697 (December 3, 2010).

34On January 20, 2006, FinCEN issued guidancefor the banking, securities, and futures industriesauthorizing the sharing of SAR information withparent companies, head offices, or controllingcompanies. http://www.fincen.gov/statutes_regs/guidance/pdf/sarsharingguidance01202006.pdf.Todate, no such guidance has been issued for the loanor finance industry.

35For purposes of this rulemaking, non-public

information refers to information that is exemptfrom disclosure under the Freedom of InformationAct.

3631 CFR 1.11 is the Department of the Treasurysinformation disclosure regulation. Generally, theseregulations are known as Touhy regulations, afterthe Supreme Courts decision in United States exrel. Touhy v. Ragen, 340 U.S. 462 (1951). In thatcase, the Supreme Court held that an agencyemployee could not be held in contempt forrefusing to disclose agency records or informationwhen following the instructions of his or hersupervisor regarding the disclosure. An agencysTouhy regulations are the instructions agencyemployees must follow when those employeesreceive requests or demands to testify or otherwisedisclose agency records or information.

37See 31 U.S.C. 5321 and 5322, and 31 CFR1010.820 and 1010.840.

system as a whole from fraud, moneylaundering, and other financial crimes.

Section 1029.320(b) sets forth thefiling procedures to be followed by loanor finance companies making reports ofsuspicious transactions. Within 30 daysafter a loan or finance company

becomes aware of a suspicioustransaction, the business must report the

transaction by completing a SAR andfiling it with FinCEN. Two commentersaddressed FinCENs SAR reportingsystem. The first commenter suggestedthat there should be one centralizedplace for reporting to allow streamlinedinteraction with regulators. That is, infact, the case, as all SARs are filed withFinCEN and made available to theappropriate agencies. The secondcommenter argued that a specific systemfor residential mortgage lenders needs to

be developed that is separate from thecurrent system for other financialindustries. While FinCENs new

uniform filing system, discussed in II.D.above, will require the use of one formby all businesses subject to FinCEN SARregulations, the uniform form has beendesigned to be used by a range of filertypes, with required data fields for eachtype of filer reflecting the kinds ofactivities reported by those specific filertypes, including RMLOs.

Section 1029.320(d)(1) reinforces thestatutory prohibition against thedisclosure by a financial institution of aSAR (regardless of whether the report isrequired by the Final Rule or is filedvoluntarily). Thus, the section requiresthat a SAR and information that would

reveal the existence of that SAR be keptconfidential and not be disclosed exceptas authorized within the rules ofconstruction. The Final Rule includesrules of construction that identifyactions an institution may take that arenot precluded by the confidentialityprovision. These actions include thedisclosure of SAR information toFinCEN, or Federal, state, or local lawenforcement agencies, or a Federalregulatory authority that examines theloan or finance company for compliancewith the BSA, or a state regulatoryauthority administering a State law that

requires the loan or finance company tocomply with the BSA or otherwiseauthorizes the State authority to ensurethat the loan or finance companycomplies with the BSA.33 Thisconfidentiality provision also does notprohibit the disclosure of the underlyingfacts, transactions, and documents upon

which a SAR is based (provided theexistence of the SAR is not disclosed),or the sharing of SAR informationwithin the loan or finance companyscorporate organizational structure forpurposes consistent with Title II of theBSA as determined by FinCEN inregulation or in guidance.34

Section 1029.320(d)(2) incorporates

the statutory prohibition againstdisclosure of a SAR or the fact that aSAR has been filed, other than infulfillment of official duties consistentwith the BSA, by government users ofSAR data. The section also clarifies thatofficial duties do not include thedisclosure of SAR information inresponse to a request for non-publicinformation 35 or for use in a privatelegal proceeding, including a requestunder 31 CFR 1.11.36

Section 1029.320(e) providesprotection from liability for makingreports of suspicious transactions, andfor failures to disclose the fact of suchreporting, to the full extent provided by31 U.S.C. 5318(g)(3). Two commentersrequested the same protection fromliability for RMLOs as that which existsfor other financial institutions. ThisFinal Rule, in section 1029.320(e),provides exactly the same safe harborfor RMLOs as is provided for otherfinancial institutions. The provisions inthe NPRM are adopted without change.

Section 1029.320(f) notes thatcompliance with the obligation to reportsuspicious transactions will beexamined by FinCEN or its delegates,and provides that failure to comply with

the Final Rule may constitute aviolation of the BSA and the BSAregulations. One comment requestedthat FinCEN clearly define theconsequences of failing to file a SAR.Section 1029.320(f) is intended to coverviolations of SAR filing requirements,

and FinCEN is authorized to impose arange of civil and criminal penalties, theseverity of which depends on thespecific circumstances.37

Section 1029.320(g) provides that thenew SAR requirement applies totransactions occurring after an AMLprogram is required, which is [sixmonths from the Final Rules

publication date]. As noted above, thedelayed compliance date for SAR filingsis also intended to allow time forimplementation of the new SAR filingsystem.

D. Special Information Procedures ToDeter Money Laundering and TerroristActivity

Section 1029.500 states generally thatloan or finance companies are subject tothe special information procedures todetect money laundering and terroristactivity requirements set forth and crossreferenced in sections 1029.520 (cross-

referencing to 31 CFR 1010.520) and1029.540 (cross-referencing to 31 CFR1010.540). Sections 1010.520 and101.540 implement sections 314(a) and314(b) of the USA PATRIOT Act,respectively, and generally apply to anyfinancial institution listed in 31 U.S.C.5312(a)(2) and any such financialinstitution that is subject to an AMLprogram requirement, respectively.Because loan or finance companies arespecifically enumerated in section5312(a)(2), and upon the effective datewill be subject to the AML programrequirement, they will be subject to thesection 314 rules on that date. For thesake of clarity, the Final Rule addssubpart E to part 1029 to confirm that

both of the section 314 rules will applyto loan or finance companies on thatdate.

IV. Regulatory Flexibility Act

When an agency issues a rulemaking,the Regulatory Flexibility Act (RFA)requires the agency to prepare andmake available for public comment aregulatory flexibility analysis whichwill describe the impact of the rule onsmall entities (5 U.S.C. 603(a)). Section605 of the RFA allows an agency to

certify a rule, in lieu of preparing ananalysis, if the rulemaking is notexpected to have a significant economicimpact on a substantial number of smallentities.

Estimate of the number of smallentities to which the Final Rule willapply:

For the purpose of arriving at anestimated number of RMLOs, FinCENrelied on information gathered from

http://www.fincen.gov/statutes_regs/guidance/pdf/sarsharingguidance01202006.pdfhttp://www.fincen.gov/statutes_regs/guidance/pdf/sarsharingguidance01202006.pdfhttp://www.fincen.gov/statutes_regs/guidance/pdf/sarsharingguidance01202006.pdfhttp://www.fincen.gov/statutes_regs/guidance/pdf/sarsharingguidance01202006.pdfhttp://www.fincen.gov/statutes_regs/guidance/pdf/sarsharingguidance01202006.pdfhttp://www.fincen.gov/statutes_regs/guidance/pdf/sarsharingguidance01202006.pdfhttp://www.fincen.gov/statutes_regs/guidance/pdf/sarsharingguidance01202006.pdf

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38See NPRM, note 23.39See, e.g., Form 1003 Uniform Residential

Mortgage Application, available at https://www.efanniemae.com/sf/formsdocs/forms/pdf/sellingtrans/1003.pdfor http://www.freddiemac.com/uniform/doc/form_65_urla_7_05.doc.

40See, e.g., GuidancePreparing a Complete andSufficient Suspicious Activity Report Narrative(including related PowerPoint PresentationKeysto Writing a Complete and Sufficient SAR

Narrative), Nov. 2003, http://www.fincen.gov/statutes_regs/guidance/html/narrativeguidance_webintro.html;GuidanceSuggestions for Addressing Common Errors Notedin Suspicious Activity Reporting, Oct. 10, 2007,http://www.fincen.gov/statutes_regs/guidance/html/SAR_Common_Errors_Web_Posting.html;GuidanceSuspicious Activity Report SupportingDocumentation, June 13, 2007 (FIN2007G003),http://www.fincen.gov/statutes_regs/guidance/html/Supporting_Documentation_Guidance.html;The SAR Activity ReviewTrends, Tips and Issues(Issue 16), Oct. 2009, Section 4, Law EnforcementSuggestions When Preparing Suspicious ActivityReports, p. 45, http://www.fincen.gov/statutes_regs/guidance/html/narrativeguidance_webintro.html.See also NPRM, note 45.

various public sources, including majortrade associations and Federal and stategovernment regulators. Estimates basedon this data suggest that as of 2010 therewere approximately 31,000 qualifyingentities in the United States, down fromapproximately 42,000 in 2009. FinCENalso referred to information gatheredfrom the North American Industry

Classification System codes, which listsloan or finance companies as codes522292 (Real Estate Credit) and 522310(Mortgage and Nonmortgage LoanBrokers).38 The U.S. Census Bureauestimated there were about 36,275entities in these classifications in 2002.However, these classifications includeservices that are broader than thoseprovided by loan or finance companies,so the number of loan or financecompanies to which this Final Rule isapplicable is significantly less. Withinthis classification, those entities thathave less than seven million dollars in

annual gross revenue are consideredsmall. FinCEN estimates that 95% of theaffected industry is considered a small

business, and that the Final Rule willaffect most RMLO compliance programsin a limited manner.

Description of the reporting andrecordkeeping requirements of the FinalRule:

The Final Rule requires loan orfinance companies to maintain AMLprograms and file reports on suspicioustransactions. By requiring this, FinCENis addressing vulnerabilities in the U.S.financial system and is leveling theplaying field between bank and non-

bank lenders. FinCEN does not foreseea significant impact on the regulatedindustry from these requirements. Loanor finance companies, as a usual andcustomary part of their business for eachtransaction, conduct a significantamount of due diligence on both theproperty securing the loan and the

borrower. This process of due diligenceinvolves the types of inquiry andcollecting the types of information thatwould be expected in any program toprevent money laundering and fraudand to detect and report suspicioustransactions.39

AML Program Requirement in General

The Final Rule does not imposesignificant burden on loan or financecompanies. These companies may buildon their existing risk managementprocedures and prudential business

practices to ensure compliance with thisFinal Rule. FinCEN and other agencieshave issued substantial guidance on thedevelopment of AML programs and SARreporting requirements.40 Most loan orfinance companies subject to the FinalRule likely will not need to obtain moresophisticated legal or accounting advicethan that already required to run their

businesses. Residential mortgagelenders and originators undertake duediligence of borrowers and collateral toassess the credit risk associated with aparticular loan. The informationgathered by these businesses generallyis the same as, or very similar to, theinformation that is expected in anyprograms to prevent money launderingand detect and report suspicioustransactions.

In the NPRM, FinCEN soughtcomment on the extent to which AMLprograms or SAR reporting requirementswould require affected businesses to

conduct a degree of due diligence, orcollect an amount of information,beyond that presently conducted toassess credit worthiness and minimizelosses due to fraud. Of the threeresponses on this issue, two (one froma mortgage company and one from atrade association representing mortgagerelated businesses) argued that AMLprogram and SAR reportingrequirements could be integrated intoexisting compliance and anti-fraudinfrastructure without considerabledifficulty. One commenter suggestedthat such integration could be doneefficiently and effectively if

accompanied by guidance, training, andfeedback from FinCEN. Only onecommenter questioned FinCENsassumptions regarding integration of theproposed rules into existing proceduresand systems of affected businesses. Thecommenter stated that FinCEN had notoffered evidence that AML programscould be efficiently and cost-effectivelyintegrated into businesses existing anti-fraud programs, and that businesses

would need to establish new, separateprograms to satisfy FinCENs AMLprogram requirements. Based on thecomments that responded positively toFinCENs assumptions and analysisregarding this issue, and FinCENsexperience over two decades with other

businesses that have been required toadopt AML programsincluding

businesses which all have the same ormore extensive requirements than arerequired by this Final Rule and havegone through this same process of

building on existing compliancepolicies and proceduresFinCEN

believes that loan and financecompanies will be able to build on theirexisting compliance policies andprocedures and prudential businesspractices to ensure compliance with thisFinal Rule with relatively minimal costand effort. As FinCEN has done with theother industries subject to therequirements of the BSA, FinCEN will

actively engage with loan and financecompanies, provide guidance andfeedback, and endeavor to makecompliance with the regulations as costeffective and efficient as possible for allaffected businesses.

A few commenters opposed theNPRM, arguing that the regulationswould be too burdensome and costly,particularly for small businesses. Onecommenter stated that the burden fallson the owner of a small business to bethe compliance officer and do training,which takes away from time developing

business. The costs and burdens ofdeveloping risk management and AML

compliance procedures, complying witha range of consumer protectionregulations, and generally establishingsafe and sound business practices,however, generally are borne by

businesses of all sizes, and theexceptions available to small businesseswith respect to some specificrequirements may minimizebut notentirely eliminategeneral compliancecosts and burdens. FinCEN believes thatthe minimal, incremental increase incompliance costs and burdens that maypotentially be borne by affected

businesses in complying with the Final

Rule will not disproportionately burdensmall businesses; thus, the Final Ruledoes not establish any blanket exceptionfor any businesses, regardless of size orother criteria or characteristics.

One commenter suggested that loanand finance companies should haveAML programs commensurate withtheir risk profile, as is the case with

banks subject to AML and SARregulations. FinCEN believes that theflexibility incorporated into the FinalRule permits each loan and financecompany to tailor its AML program to

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41The Loan Modification Scam PreventionNetwork includes Fannie Mae, Freddie Mac, theLawyers Committee for Civil Rights Under Law(Lawyers Committee) and NeighborWorks America,among others, with representatives from keygovernmental agencies, such as the Federal TradeCommission, the Department of Housing and UrbanDevelopment, the Department of Justice, theDepartment of the Treasury, the Federal Bureau ofInvestigation, and state Attorneys General offices, aswell as leading non-profit organizations from acrossthe country. Seehttp://www.preventloanscams.org/.

4244 U.S.C. 3507(d).

fit its own size, needs, and operationalrisks. In this regard, FinCEN believesthat expenditures associated withestablishing and implementing an AMLprogram will be commensurate with thesize and risk profile of a loan or financecompany. Based on inherent risks, some

businesses may deem it appropriate toimplement more comprehensivepolicies, procedures, and internalcontrols than others. FinCEN does notintend for each RMLO to have identicalpolicies and procedures for their AMLprograms. This flexibility to tailorprograms to the risk profile of the loanor finance company is exactly what onetrade association commenter noted. Aswith other financial institutions subjectto the requirements of the BSA, if a loanor finance company is small or does notengage in high-risk transactions the

burden to comply with the Final Rulelikely will be negligible. One

commenter disagreed with the estimatedburden hours listed in the NPRM, forboth AML program and SAR filingrequirements, but did not provide anyspecific estimates or data for FinCEN toconsider in the alternative. Theestimated hours for the establishment ofa new AML program and SAR filingrequirements are based on FinCENsexperience with other industries newlyrequired to comply with the same ormore extensive BSA obligations, andthese estimates are the same as thoseused in other such rulemakings for

businesses that, as yet, have had no

AML program or SAR filingrequirement.

FinCEN understands that commentersare concerned about the potentialimpact that compliance regulationsBSA-related or otherwisemay have onsmall firms and solo practitioners.Nonetheless, the Final Rule requires theestablishment of a complete AMLprogram. An AML program is essentialto an effective SAR reporting program.The AML regulations are risk-based, asare all FinCEN AML regulations.Accordingly, company management has

broad discretion to design and

implement programs that reflect andrespond to the companys unique fraudand money laundering risks. Small

businesses will not be expected toinvest in elaborate or expensive systemsto comply with the Final Rule, nor willthey be required to hire consulting firmsor outside professionals to assess risks.FinCEN estimates that the impact of theAML program requirement and theassessment of risks associated with itwill not be significant for covered loanand finance companies.

Suspicious Activity Reporting

The Final Rule requires loan orfinance companies to report ontransactions of $5,000 or more that theydetermine to be suspicious. Loan orfinance companies have not previously

been required to comply with such aregulation. However, as noted above,

most loan or finance companies, inorder to remain viable, have in placepolicies and procedures to prevent anddetect fraud, insider abuse, and othercrimes. Established anti-fraud measuresshould assist loan or finance companiesin reporting suspicious transactions.Many loan or finance companies alreadyvoluntarily report suspicioustransactions and fraud through entitiessuch as the Loan Modification ScamPrevention Network.41 Additionally,loan or finance companies, as part of theapplication process for loans, alreadygather the information necessary to fillout SAR forms as a usual and customarypart of their business. It is likely that thesoftware packages most of thesecompanies already use will, after thisregulation, incorporate the ability toautomatically fill out all but thenarrative field in a SAR based oninformation already input for the loanapplication. Therefore, FinCENestimates that the burden of the SARfiling requirements for loan or financecompanies will be low.

Certification

The additional burden under theFinal Rule is a requirement to maintain

an AML program and a SAR filingrequirement. As discussed above,FinCEN estimates that the impact fromthese requirements will not besignificant. Accordingly, FinCENcertifies that the Final Rule will nothave a significant impact on asubstantial number of small entities.

V. Paperwork Reduction Act Notices

The collection of informationcontained in this Final Rule is beingsubmitted to OMB for review inaccordance with the PaperworkReduction Act of 1995 (PRA).42 The

information collections in this proposal

are contained in 31 CFR 1029.210 and31 CFR 1010.320.

AML Program for Loan or FinanceCompanies

AML programs for loan or financecompanies (31 CFR 1020.210). Thisinformation is required to be retainedpursuant to 31 U.S.C. 5318(h) and 31

CFR 1029.210. The collection ofinformation would be mandatory. Theinformation is collected pursuant to103.142 and is used by examiners todetermine whether loan or financecompanies comply with the BSA.

Description of Recordkeepers: Loan orfinance companies as defined in 31 CFR1010.100(lll).

Estimated Number of Recordkeepers:31,000.

Estimated Average Annual BurdenHours per Recordkeeper: The estimatedaverage annual burden associated withthe recordkeeping requirement in 31

CFR 1029.210 is three hours.Estimated Total AnnualRecordkeeping Burden: FinCENestimates that the annual recordkeeping

burden is 93,000 hours.In order to manage our estimated

burden hours related to implementationof new AML program regulations mostefficiently, the burden hours associatedwith this Final Rule will be included(added to) the existing burden listedunder OMB Control Number 15060035currently titled AML Programs forinsurance companies. The new title forthis control number will become AMLPrograms for insurance companies and

loan or finance companies. The newtotal burden will be 94,200 hours.

SAR Filing for Loan or FinanceCompanies

SARs for loan and finance companies(31 CFR 1029.320). This information isrequired to be provided pursuant to 31U.S.C. 5318(g) and 31 CFR 1029.320.This information is used by lawenforcement agencies in theenforcement of criminal and regulatorylaws and to prevent loan and financecompanies from engaging in illegalactivities. The collection of information

is mandatory. The Final Rule increasesthe number of recordkeepers by 31,000.Description of Recordkeepers: Loan or

finance companies as defined in 31 CFR1010.100(kkk).

Estimated Number of Recordkeepers:31,000.

Estimated Average Annual BurdenHours per Recordkeeper: The estimatedaverage annual burden associated withthe recordkeeping requirement in 31CFR 1029.320 is 2 hours per report, andFinCEN estimates that, on average, onereport per filer will be filed per year.

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Estimated Total AnnualRecordkeeping Burden: The Final Ruleincreases the estimated annual burden

by 62,000 consisting of one hour forreport completion and one hour forrequired recordkeeping. The reportingand recordkeeping burden for thisrequirement is reflected under OMBControl Number 15060065, the BSA

Suspicious Activity Report, which isincreased by 62,000 hours.

An agency may not conduct orsponsor, and a person is not required torespond to, a collection of informationunless the collection of informationdisplays a valid OMB control number.Records required to be retained underthe BSA must be retained for five years.

VI. Executive Orders 13563 and 12866

It has been determined that this FinalRule is a significant regulatory action forpurposes of Executive Orders 13563 and12866.

VII. Unfunded Mandates Act of 1995Statement

Section 202 of the UnfundedMandates Reform Act of 1995(Unfunded Mandates Act), PublicLaw 1044 (March 22, 1995), requiresthat an agency prepare a budgetaryimpact statement before promulgating arule that may result in expenditure bythe state, local, and tribal governments,in the aggregate, or by the private sector,of $100 million or more in any one year.If a budgetary impact statement isrequired, section 202 of the UnfundedMandates Act also requires an agency to

identify and consider a reasonablenumber of regulatory alternatives beforepromulgating a rule. Taking intoaccount the factors noted above andusing conservative estimates of averagelabor costs in evaluating the cost of the

burden imposed by the Final Rule,FinCEN has determined that it is notrequired to prepare a written statementunder section 202.

List of Subjects in 31 CFR Parts 1010and 1029

Administrative practice andprocedure, Banks, Banking, Brokers,Currency, Foreign banking, Foreigncurrencies, Gambling, Investigations,Penalties, Reporting and recordkeepingrequirements, Securities, Terrorism.

Authority and Issuance

For the reasons set forth in thepreamble, Chapter X of title 31 of theCode of Federal Regulations is amendedas follows:

PART 1010GENERAL PROVISIONS

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

Authority: 12 U.S.C. 1829b and 19511959;31 U.S.C. 53115314 and 53165332; title III,sec. 314 Pub. L. 10756, 115 Stat. 307.

2. Amend 1010.100 by addingparagraph (lll) to read as follows:

1010.100 Meaning of terms.

* * * * *(lll) Loan or finance company. A

person engaged in activities that takeplace wholly or in substantial partwithin the United States in one or moreof the capacities listed below, whetheror not on a regular basis or as anorganized business concern. Thisincludes but is not limited tomaintenance of any agent, agency,

branch, or office within the UnitedStates. For the purposes of thisparagraph (lll), the term loan or financecompany shall include a soleproprietor acting as a loan or financecompany, and shall not include: A bank,a person registered with and

functionally regulated or examined bythe Securities and ExchangeCommission or the Commodity FuturesTrading Commission, any governmentsponsored enterprise regulated by theFederal Housing Finance Agency, anyFederal or state agency or authorityadministering mortgage or housingassistance, fraud prevention orforeclosure prevention programs, or anindividual employed by a loan orfinance company or financial institutionunder this part. A loan or financecompany is not a financial institution asdefined in the regulations in this part at

1010.100(t).(1) Residential mortgage lender ororiginator. A residential mortgage lenderor originator includes:

(i) Residential mortgage lender. Theperson to whom the debt arising from aresidential mortgage loan is initiallypayable on the face of the evidence ofindebtedness or, if there is no suchevidence of indebtedness, by agreement,or to whom the obligation is initiallyassigned at or immediately aftersettlement. The term residentialmortgage lender shall not include anindividual who finances the sale of theindividuals own dwelling or realproperty.

(ii) Residential mortgage originator. Aperson who accepts a residentialmortgage loan application or offers ornegotiates terms of a residentialmortgage loan.

(iii) Residential mortgage loan. A loanthat is secured by a mortgage, deed oftrust, or other equivalent consensualsecurity interest on:

(A) A residential structure thatcontains one to four units, including, ifused as a residence, an individual

condominium unit, cooperative unit,mobile home or trailer; or

(B) Residential real estate upon whichsuch a structure is constructed orintended to be constructed.

(2) [Reserved]

1010.205 [Amended]

3. Amend 1010.205 in paragraph(b)(1) by removing paragraph (b)(1)(ii)and redesignating paragraphs (b)(1)(iii)through (x) as paragraphs (b)(1)(ii)through (ix), respectively.

4. Add part 1029 to read as follows:

PART 1029RULES FOR LOAN ORFINANCE COMPANIES

Subpart ADefinitions

Sec.1029.100 Definitions.

Subpart BPrograms

1029.200 General1029.210 Anti-money laundering programs

for loan or finance companies.

Subpart CReports Required To Be MadeBy Loan or Finance Companies

1029.300 General.1029.310 [Reserved]1029.315 [Reserved]1029.320 Reports by loan or finance

companies of suspicious transactions.1029.330 Reports relating to currency in

excess of $10,000 received in a trade orbusiness.

Subpart DRecords Required To BeMaintained By Loan or Finance Companies

1029.400 General.

Subpart ESpecial Information SharingProcedures To Deter Money Launderingand Terrorist Activity

1029.500 General.1029.520 Special information sharing

Documents

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