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Customer Identification Programs Proposed for Mutual Funds
Washington, DC, July 18, 2002 - The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and the SEC recently proposed a rule that would require all mutual funds, as part of their anti-money laundering programs, to establish, document, and maintain a written customer identification program that enables the mutual fund to form a reasonable belief that it knows the true identity of its customers. The rule would implement Section 326 of the “USA PATRIOT Act of 2001.” FinCEN and the SEC will accept comments on the proposal for 45 days after publication of the rule in the Federal Register.
The proposed rule would require mutual funds to obtain each customer’s name, date of birth, addresses (business and/or residence), and taxpayer identification number. Each non-U.S. customer would be required to provide a taxpayer identification number, passport number and country of issuance, alien identification card number, or number and country of issuance of any other government-issued document evidencing nationality or residence and bearing a photograph or similar safeguard.
Mutual funds would be required to include procedures for maintaining a record of all information obtained in their customer identification program. These records would have to be retained for five years after the date the account of the customer is closed. The proposal states that nothing in the proposed rule modifies, limits, or supersedes the Electronic Records in Global and National Commerce Act (E-Sign), and thus a mutual fund may use electronic records to satisfy the recordkeeping requirements of the proposed rule. Finally, a fund’s board of directors or trustees must approve the fund’s customer identification program.
Identity Verification Requirements
The proposed rule would require the customer identification program to include procedures for verifying the identity of customers to the extent reasonable. Verification can occur within a reasonable time before or after the customer’s account is opened or the customer is granted authority to effect transactions with respect to an account. The proposed rule provides for verification through documents and/or through non-documentary methods, and requires customer identification program procedures to address both methods and describe when each would be employed. It also specifies certain circumstances in which non-documentary methods must be used.
Customer identification programs must also include procedures for determining whether a customer's name appears on any list of known or suspected terrorists or terrorist organizations prepared by any federal government agency and made available to the fund.