Federal financial regulators late last month issued long-awaited examination guidelines under the Bank Secrecy Act, giving financial institutions the most unified set of expectations to date on how to comply with federal anti-money laundering laws.

The document, which runs more than 300 pages, also includes exam guidelines issued by the Office of Foreign Asset Compliance, the Treasury Department unit that tracks and enforces trade and anti-terror sanctions against foreign nations and individuals. Although the guidelines do not set new standards, they do compile and consolidate a wide array of regulatory requirements, supervisory expectations, and recommended practices.

The Financial Crimes Enforcement Network (FinCEN), the government agency charged with developing the rules for anti-money laundering plans for our industry, has published an “interim” final rule. You will have until January 1, 2006 to put a plan in place. The rule is designated as “interim” as the FinCEN has not made a final decision on some issues described below. Nevertheless, you will be expected to comply with the rule. Significant changes were made to the definition of who must comply with the rule. As such, this will probably reduce the number of smaller businesses that are required to comply.

The principal term used in the rule is “dealer.” The term "dealer" means a person engaged as a business within the United States in the purchase and sale of covered goods and who, during the prior calendar or tax year purchased more than $50,000 in covered goods; AND received more than $50,000 in gross proceeds from the sale of covered goods. FinCEN replaced the “or” between purchased and received and replaced it with an “and.” If a dealer does not meet both the purchase and the sale thresholds, the dealer does not have to comply.

The term” covered goods” is new. Within that definition are jewels, precious stones and precious metals as well as a new “finished goods” section that derive 50 percent or more of their value from jewels, precious metals, or precious stones contained or attached to such finished goods. The effect of the new finished goods definition is to actually eliminate the need for some dealers to comply. The rule includes a retailer exemption. Basically, a retailer is exempt unless the retailer, during the calendar or tax year, purchased more than $50,000 in covered goods from persons other than dealers or other retailers (that is, the retailer purchased the goods from members of the general public or foreign sources of supply.) If you meet the definitions and must comply, you have four principal responsibilities.

First, you must have a written plan. You must incorporate policies, procedures, and internal controls based upon your assessment of the money laundering and terrorist financing risks associated with your line(s) of business. Policies, procedures, and internal controls developed and implemented must include provisions for complying with the applicable requirements of the Bank Secrecy Act. For purposes of making the risk assessment, you must take into account all relevant factors including, but not limited to:

1. The type(s) of products you buy and sell, as well as the nature of your customers, suppliers, distribution channels, and geographic locations;

2. The extent to which you engage in transactions other than with established customers or sources of supply, or other dealers subject to this rule; and

3. Whether you engage in transactions for which payment or account reconciliation is routed to or from accounts located in jurisdictions that have been identified by the Department of State as a sponsor of international terrorism; designated as non-cooperative with international anti-money laundering principles or procedures by an intergovernmental group or organization of which the United States is a member and with which designation the United States representative or organization concurs; or designated by the Secretary of the Treasury as warranting special measures due to money laundering concerns.

Your program must incorporate policies, procedures, and internal controls to assist you in identifying transactions that may involve use of your business to facilitate money laundering or terrorist financing, including provisions for making reasonable inquiries to determine whether a transaction involves money laundering or terrorist financing and for refusing to consummate, withdrawing from, or terminating such transactions. Factors that may indicate a transaction is designed to involve use of your business to facilitate money laundering or terrorist financing include, but are not limited to:

1. Unusual payment methods, such as the use of large amounts of cash, multiple or sequentially numbered money orders, traveler's checks, or cashier's checks, or payment from third parties;

2. Unwillingness by a customer or supplier to provide complete or accurate contact information, financial references, or business affiliations;

3. Attempts by a customer or supplier to maintain an unusual degree of secrecy with respect to the transaction, such as a request that normal business records not be kept;

4. Purchases or sales that are unusual for the particular customer or supplier, or type of customer or supplier; and

5. Purchases or sales that are not in conformity with standard industry practice.

Second, you must designate a compliance officer who will be responsible for ensuring that the anti-money laundering program is implemented effectively; the anti-money laundering program is updated as necessary to reflect changes in the risk assessment, requirements; and that appropriate personnel are trained.

Third, you must provide on-going education and training of appropriate personnel concerning their responsibilities under the program.

Fourth, you must provide for independent “testing” to monitor and maintain an adequate program. The scope and frequency of the testing shall be commensurate with the risk assessment. Such testing may be conducted by an officer or employee, so long as the tester is not the compliance officer or a person involved in the operation of the program.