Privacy and Security Law Blog : Privacy & Security Law Blog : Davis Wright Tremaine LLP : Seattle, Los Angeles, Washington D.C., New York, San Francisco, Shanghai, Portland and Anchorage Law Firm

The final rule creates a suspicious transaction reporting requirement that is uniform with reporting requirements already established for other financial institutions, such as banks, broker-dealers, casinos, and money services businesses. The Securities and Exchange Commission, which regulates the mutual fund industry, has been delegated the authority to examine mutual funds for compliance with the final rule.

The final rule for mutual funds specifies four categories of transactions that require reporting:

Transactions involving funds derived from illegal activity, or intended or conducted in order to hide or disguise funds derived from such illegal activity as part of a plan to violate or evade any federal law or regulation or to avoid any transaction reporting requirement under federal law or regulation;

Transactions designed, whether through structuring or other means, to evade the requirements of the Bank Secrecy Act;

Transactions that appear to serve no business or apparent lawful purposes, and for which the mutual fund knows of no reasonable explanation after examining the available facts relating to the transaction and the parties; and

Transactions that involve the use of the mutual fund to facilitate criminal activity.

Mutual funds must use FinCEN Form 101 (Suspicious Activity Report by the Securities and Futures Industries) to report any suspicious transactions.

FinCEN also will be issuing shortly a series of Frequently Asked Questions that are designed to assist mutual funds in establishing their suspicious activity reporting programs.