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NFA's develops Anti-Money Laundering Rule and Interpretive Notice

Following the terrorist attacks last September, several government agencies conducted investigations to discover possible money laundering activities by individuals and groups connected to the terrorists. The investigations prompted Congress to pass The International Money Laundering and Anti-Terrorist Financing Act of 2001, which was signed into law on October 26, 2001. The Act (also referred to as the Patriot Act) imposes significant new anti-money laundering requirements on all financial institutions, including FCMs, CPOs and CTAs. Section 352 of this Act requires financial institutions to establish anti-money laundering programs, which at a minimum must include the following:

  • internal policies, procedures and controls to detect, deter and report suspicious activity;
  • a designated compliance officer to oversee anti-money laundering surveillance;
  • an ongoing training program for employees; and
  • an independent audit function to test the compliance of the program.

Money laundering occurs when funds from an illegal/criminal activity are moved through the financial system in such a way as to make it appear that the funds have come from legitimate sources. Trading accounts carried by FCMs are one vehicle that can be used to launder illegal funds. In particular a trading account could be used to execute financial transactions that help obscure the origin of the funds.

At its February 2002 meeting, NFA's Board of Directors adopted NFA Compliance Rule 2-9(c) to impose the requirements outlined in Section 352 of the Act on Member FCMs, CPOs and CTAs. NFA has subsequently learned that the Treasury Department also intends to include IBs in the definition of financial institutions for purposes of the Patriot Act.

The Board also approved an Interpretive Notice outlining the minimum standards that should be a part of any adequate anti-money laundering program. The purpose of the Notice is to highlight those minimum standards and provide Member FCMs and IBs with additional guidance on satisfying the requirements of Compliance Rule 2-9(c). NFA will also prepare a separate Notice for CPOs and CTAs.

The Interpretive Notice is divided into four main areas that track the requirements of Section 352. The first section discusses the types of policies, procedures and internal controls that an FCM and IB should include in its anti-money laundering program. The next section discusses the requirement that the firm designate an individual or individuals to oversee the program. The third section discusses the components of an employee training program. Finally, the last section discusses the independent audit review function and the ways a firm can satisfy this requirement.

"We consulted with the Futures Industry Association, the National Introducing Brokers Association and the Managed Funds Association on the practical aspects of these anti-money laundering procedures," says NFA's General Counsel Tom Sexton. "We have incorporated many of their suggestions for changing the language in certain areas of the Notice."

At this time, the CFTC and the Department of the Treasury are reviewing NFA's proposed Rule 2-9(c) and Interpretive Notice. When NFA formally submits the Rule and Interpretive Notice to the CFTC for approval, NFA will post it on its web site.

NFA is also developing a training seminar to help its Members understand their regulatory obligations regarding anti-money laundering programs. The first seminars, designed for FCMs, will be held in New York and Chicago in late April and early May. Member FCMs can register for the seminars online at NFA's web site (www.nfa.futures.org).

NFA is the premier independent provider of efficient and innovative regulatory programs that safeguard the integrity of the derivatives markets.
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