[House Report 108-724]
[From the U.S. Government Publishing Office]
108th Congress Rept. 108-724
HOUSE OF REPRESENTATIVES
2d Session Part 3
======================================================================
9/11 RECOMMENDATIONS IMPLEMENTATION ACT
_______
October 4, 2004.--Ordered to be printed
_______
Mr. Oxley, from the Committee on Financial Services, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 10]
The Committee on Financial Services, to whom was referred
the bill (H.R. 10) to provide for reform of the intelligence
community, terrorism prevention and prosecution, border
security, and international cooperation and coordination, and
for other purposes, having considered the same, report
favorably thereon with an amendment and recommend that the bill
as amended do pass.
CONTENTS
Page
Amendment........................................................ 1
Purpose and Summary.............................................. 49
Background and Need for Legislation.............................. 50
Hearings......................................................... 52
Committee Consideration.......................................... 52
Committee Votes.................................................. 52
Committee Oversight Findings..................................... 56
Performance Goals and Objectives................................. 56
New Budget Authority, Entitlement Authority, and Tax Expenditures 56
Committee and Congressional Budget Act Cost Estimates............ 56
Federal Mandates Statement....................................... 56
Advisory Committee Statement..................................... 57
Constitutional Authority Statement............................... 57
Applicability to Legislative Branch.............................. 57
Section-by-Section Analysis of the Legislation................... 57
Changes in Existing Law Made by the Bill, as Reported............ 87
Dissenting Views................................................. 89
Amendment
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``9/11 Recommendations Implementation
Act''.
SEC. 2. TABLE OF CONTENTS.
The table of contents for this Act is as follows:
TITLE I--REFORM OF THE INTELLIGENCE COMMUNITY
Sec. 1001. Short title.
Subtitle A--Establishment of National Intelligence Director
Sec. 1011. Reorganization and improvement of management of intelligence
community.
Sec. 1012. Revised definition of national intelligence.
Sec. 1013. Joint procedures for operational coordination between
Department of Defense and Central Intelligence Agency.
Sec. 1014. Role of National Intelligence Director in appointment of
certain officials responsible for intelligence-related activities.
Sec. 1015. Initial appointment of the National Intelligence Director.
Sec. 1016. Executive schedule matters.
Subtitle B--National Counterterrorism Center and Civil Liberties
Protections
Sec. 1021. National Counterterrorism Center.
Sec. 1022. Civil Liberties Protection Officer.
Subtitle C--Joint Intelligence Community Council
Sec. 1031. Joint Intelligence Community Council.
Subtitle D--Improvement of Human Intelligence (HUMINT)
Sec. 1041. Human intelligence as an increasingly critical component of
the intelligence community.
Sec. 1042. Improvement of human intelligence capacity.
Subtitle E--Improvement of Education for the Intelligence Community
Sec. 1051. Modification of obligated service requirements under
National Security Education Program.
Sec. 1052. Improvements to the National Flagship Language Initiative.
Sec. 1053. Establishment of scholarship program for English language
studies for heritage community citizens of the United States within the
National Security Education Program.
Sec. 1054. Sense of Congress with respect to language and education for
the intelligence community; reports.
Sec. 1055. Advancement of foreign languages critical to the
intelligence community.
Sec. 1056. Pilot project for Civilian Linguist Reserve Corps.
Sec. 1057. Codification of establishment of the National Virtual
Translation Center.
Sec. 1058. Report on recruitment and retention of qualified instructors
of the Defense Language Institute.
Subtitle F--Additional Improvements of Intelligence Activities
Sec. 1061. Permanent extension of Central Intelligence Agency Voluntary
Separation Incentive Program.
Sec. 1062. National Security Agency Emerging Technologies Panel.
Subtitle G--Conforming and Other Amendments
Sec. 1071. Conforming amendments relating to roles of National
Intelligence Director and Director of the Central Intelligence Agency.
Sec. 1072. Other conforming amendments
Sec. 1073. Elements of intelligence community under National Security
Act of 1947.
Sec. 1074. Redesignation of National Foreign Intelligence Program as
National Intelligence Program.
Sec. 1075. Repeal of superseded authorities.
Sec. 1076. Clerical amendments to National Security Act of 1947.
Sec. 1077. Conforming amendments relating to prohibiting dual service
of the Director of the Central Intelligence Agency.
Sec. 1078. Access to Inspector General protections.
Sec. 1079. General references.
Sec. 1080. Application of other laws.
Subtitle H--Transfer, Termination, Transition and Other Provisions
Sec. 1091. Transfer of community management staff.
Sec. 1092. Transfer of terrorist threat integration center.
Sec. 1093. Termination of positions of Assistant Directors of Central
Intelligence.
Sec. 1094. Implementation plan.
Sec. 1095. Transitional authorities.
Sec. 1096. Effective dates.
Subtitle I--Grand Jury Information Sharing
Sec. 1101. Grand jury information sharing.
Subtitle J--Other Matters
Sec. 1111. Interoperable law enforcement and intelligence data system.
Sec. 1112. Improvement of intelligence capabilities of the Federal
Bureau of Investigation.
TITLE II--TERRORISM PREVENTION AND PROSECUTION
Subtitle A--Individual Terrorists as Agents of Foreign Powers
Sec. 2001. Individual terrorists as agents of foreign powers.
Subtitle B--Stop Terrorist and Military Hoaxes Act of 2004
Sec. 2021. Short title.
Sec. 2022. Hoaxes and recovery costs.
Sec. 2023. Obstruction of justice and false statements in terrorism
cases.
Sec. 2024. Clarification of definition.
Subtitle C--Material Support to Terrorism Prohibition Enhancement Act
of 2004
Sec. 2041. Short title.
Sec. 2042. Receiving military-type training from a foreign terrorist
organization.
Sec. 2043. Providing material support to terrorism.
Sec. 2044. Financing of terrorism.
Subtitle D--Weapons of Mass Destruction Prohibition Improvement Act of
2004
Sec. 2051. Short title.
Sec. 2052. Weapons of mass destruction.
Sec. 2053. Participation in nuclear and weapons of mass destruction
threats to the United States.
Subtitle E--Money Laundering and Terrorist Financing
Chapter 1--Funding to Combat Financial Crimes Including Terrorist
Financing
Sec. 2101. Additional authorization for FinCEN.
Sec. 2102. Money laundering and financial crimes strategy
reauthorization.
Chapter 2--Enforcement Tools to Combat Financial Crimes Including
Terrorist Financing
Subchapter A--Money laundering abatement and financial antiterrorism
technical corrections
Sec. 2111. Short title.
Sec. 2112. Technical corrections to Public Law 107-56.
Sec. 2113. Technical corrections to other provisions of law.
Sec. 2114. Repeal of review.
Sec. 2115. Effective date.
Subchapter B--Additional enforcement tools
Sec. 2121. Bureau of Engraving and Printing security printing.
Sec. 2122. Conduct in aid of counterfeiting.
Sec. 2123. Reporting of cross-border transmittal of funds.
Sec. 2124. Enhanced effectiveness of examinations, including anti-money
laundering programs.
Subchapter C--Unlawful Internet Gambling Funding Prohibition
Sec. 2131. Short title.
Sec. 2132. Findings.
Sec. 2133. Policies and procedures required to prevent payments for
unlawful internet gambling.
Sec. 2134. Definitions.
Sec. 2135. Common sense rule of construction.
Subtitle F--Criminal History Background Checks
Sec. 2141. Short title.
Sec. 2142. Criminal history information checks.
Subtitle G--Protection of United States Aviation System from Terrorist
Attacks
Sec. 2171. Provision for the use of biometric or other technology.
Sec. 2172. Transportation security strategic planning.
Sec. 2173. Next generation airline passenger prescreening.
Sec. 2174. Deployment and use of explosive detection equipment at
airport screening checkpoints.
Sec. 2175. Pilot program to evaluate use of blast-resistant cargo and
baggage containers.
Sec. 2176. Air cargo screening technology.
Sec. 2177. Airport checkpoint screening explosive detection.
Sec. 2178. Next generation security checkpoint.
Sec. 2179. Penalty for failure to secure cockpit door.
Sec. 2180. Federal air marshal anonymity.
Sec. 2181. Federal law enforcement in-flight counterterrorism training.
Sec. 2182. Federal flight deck officer weapon carriage pilot program.
Sec. 2183. Registered traveler program.
Sec. 2184. Wireless communication.
Sec. 2185. Secondary flight deck barriers.
Sec. 2186. Extension.
Sec. 2187. Perimeter Security.
Sec. 2188. Definitions.
Subtitle H--Other Matters
Sec. 2191. Grand jury information sharing.
Sec. 2192. Interoperable law enforcement and intelligence data system.
Sec. 2193. Improvement of intelligence capabilities of the Federal
Bureau of Investigation.
TITLE III--BORDER SECURITY AND TERRORIST TRAVEL
Subtitle A--Immigration Reform in the National Interest
Chapter 1--General Provisions
Sec. 3001. Eliminating the ``Western Hemisphere'' exception for
citizens.
Sec. 3002. Modification of waiver authority with respect to
documentation requirements for nationals of foreign contiguous
territories and adjacent islands.
Sec. 3003. Increase in full-time border patrol agents.
Sec. 3004. Increase in full-time immigration and customs enforcement
investigators.
Sec. 3005. Alien identification standards.
Sec. 3006. Expedited removal.
Sec. 3007. Preventing terrorists from obtaining asylum.
Sec. 3008. Revocation of visas and other travel documentation.
Sec. 3009. Judicial review of orders of removal.
Chapter 2--Deportation of Terrorists and Supporters of Terrorism
Sec. 3031. Expanded inapplicability of restriction on removal.
Sec. 3032. Exception to restriction on removal for terrorists and
criminals.
Sec. 3033. Additional removal authorities.
Subtitle B--Identity Management Security
Chapter 1--Improved Security for Drivers' Licenses and Personal
Identification Cards
Sec. 3051. Definitions.
Sec. 3052. Minimum document requirements and issuance standards for
Federal recognition.
Sec. 3053. Linking of databases.
Sec. 3054. Trafficking in authentication features for use in false
identification documents.
Sec. 3055. Grants to States.
Sec. 3056. Authority.
Chapter 2--Improved Security for Birth Certificates
Sec. 3061. Definitions.
Sec. 3062. Applicability of minimum standards to local governments.
Sec. 3063. Minimum standards for Federal recognition.
Sec. 3064. Establishment of electronic birth and death registration
systems.
Sec. 3065. Electronic verification of vital events.
Sec. 3066. Grants to States.
Sec. 3067. Authority.
Chapter 3--Measures To Enhance Privacy and Integrity of Social Security
Account Numbers
Sec. 3071. Prohibition of the display of social security account
numbers on driver's licenses or motor vehicle registrations.
Sec. 3072. Independent verification of birth records provided in
support of applications for social security account numbers.
Sec. 3073. Enumeration at birth.
Sec. 3074. Study relating to use of photographic identification in
connection with applications for benefits, social security account
numbers, and social security cards.
Sec. 3075. Restrictions on issuance of multiple replacement social
security cards.
Sec. 3076. Study relating to modification of the social security
account numbering system to show work authorization status.
Subtitle C--Targeting Terrorist Travel
Sec. 3081. Studies on machine-readable passports and travel history
database.
Sec. 3082. Expanded preinspection at foreign airports.
Sec. 3083. Immigration security initiative.
Sec. 3084. Responsibilities and functions of consular officers.
Sec. 3085. Increase in penalties for fraud and related activity.
Sec. 3086. Criminal penalty for false claim to citizenship.
Sec. 3087. Antiterrorism assistance training of the Department of
State.
Sec. 3088. International agreements to track and curtail terrorist
travel through the use of fraudulently obtained documents.
Sec. 3089. International standards for translation of names into the
Roman alphabet for international travel documents and name-based
watchlist systems.
Sec. 3090. Biometric entry and exit data system.
Sec. 3091. Enhanced responsibilities of the Coordinator for
Counterterrorism.
Sec. 3092. Establishment of Office of Visa and Passport Security in the
Department of State.
Subtitle D--Terrorist Travel
Sec. 3101. Information sharing and coordination.
Sec. 3102. Terrorist travel program.
Sec. 3103. Training program.
Sec. 3104. Technology acquisition and dissemination plan.
Subtitle E--Maritime Security Requirements
Sec. 3111. Deadlines for implementation of maritime security
requirements.
TITLE IV--INTERNATIONAL COOPERATION AND COORDINATION
Subtitle A--Attack Terrorists and Their Organizations
Chapter 1--Provisions Relating to Terrorist Sanctuaries
Sec. 4001. United States policy on terrorist sanctuaries.
Sec. 4002. Reports on terrorist sanctuaries.
Sec. 4003. Amendments to existing law to include terrorist sanctuaries.
Chapter 2--Other Provisions
Sec. 4011. Appointments to fill vacancies in Arms Control and
Nonproliferation Advisory Board.
Sec. 4012. Review of United States policy on proliferation of weapons
of mass destruction and control of strategic weapons.
Sec. 4013. International agreements to interdict acts of international
terrorism.
Sec. 4014. Effective Coalition approach toward detention and humane
treatment of captured terrorists.
Sec. 4015. Sense of Congress and report regarding counter-drug efforts
in Afghanistan.
Subtitle B--Prevent the Continued Growth of Terrorism
Chapter 1--United States Public Diplomacy
Sec. 4021. Annual review and assessment of public diplomacy strategy.
Sec. 4022. Public diplomacy training.
Sec. 4023. Promoting direct exchanges with Muslim countries.
Sec. 4024. Public diplomacy required for promotion in Foreign Service.
Chapter 2--United States Multilateral Diplomacy
Sec. 4031. Purpose.
Sec. 4032. Support and expansion of democracy caucus.
Sec. 4033. Leadership and membership of international organizations.
Sec. 4034. Increased training in multilateral diplomacy.
Sec. 4035. Implementation and establishment of Office on Multilateral
Negotiations.
Chapter 3--Other Provisions
Sec. 4041. Pilot program to provide grants to American-sponsored
schools in predominantly Muslim countries to provide scholarships.
Sec. 4042. Enhancing free and independent media.
Sec. 4043. Combating biased or false foreign media coverage of the
United States.
Sec. 4044. Report on broadcast outreach strategy.
Sec. 4045. Office relocation.
Sec. 4046. Strengthening the Community of Democracies for Muslim
countries.
Subtitle C--Reform of Designation of Foreign Terrorist Organizations
Sec. 4051. Designation of foreign terrorist organizations.
Sec. 4052. Inclusion in annual Department of State country reports on
terrorism of information on terrorist groups that seek weapons of mass
destruction and groups that have been designated as foreign terrorist
organizations.
Subtitle D--Afghanistan Freedom Support Act Amendments of 2004
Sec. 4061. Short title.
Sec. 4062. Coordination of assistance for Afghanistan.
Sec. 4063. General provisions relating to the Afghanistan Freedom
Support Act of 2002.
Sec. 4064. Rule of law and related issues.
Sec. 4065. Monitoring of assistance.
Sec. 4066. United States policy to support disarmament of private
militias and to support expansion of international peacekeeping and
security operations in Afghanistan.
Sec. 4067. Efforts to expand international peacekeeping and security
operations in Afghanistan.
Sec. 4068. Provisions relating to counternarcotics efforts in
Afghanistan.
Sec. 4069. Additional amendments to the Afghanistan Freedom Support Act
of 2002.
Sec. 4070. Repeal.
Subtitle E--Provisions Relating to Saudi Arabia and Pakistan
Sec. 4081. New United States strategy for relationship with Saudi
Arabia.
Sec. 4082. United States commitment to the future of Pakistan.
Sec. 4083. Extension of Pakistan waivers.
Subtitle F--Oversight Provisions
Sec. 4091. Case-Zablocki Act requirements.
Subtitle G--Additional Protections of United States Aviation System
from Terrorist Attacks
Sec. 4101. International agreements to allow maximum deployment of
Federal flight deck officers.
Sec. 4102. Federal air marshal training.
Sec. 4103. Man-portable air defense systems (MANPADS).
Subtitle H--Improving International Standards and Cooperation to Fight
Terrorist Financing
Sec. 4111. Sense of the Congress regarding success in multilateral
organizations.
Sec. 4112. Expanded reporting and testimony requirements for the
Secretary of the Treasury.
Sec. 4113. Coordination of United States Government efforts.
Sec. 4114. Definitions.
TITLE V--GOVERNMENT RESTRUCTURING
Subtitle A--Faster and Smarter Funding for First Responders
Sec. 5001. Short title.
Sec. 5002. Findings.
Sec. 5003. Faster and smarter funding for first responders.
Sec. 5004. Modification of homeland security advisory system.
Sec. 5005. Coordination of industry efforts.
Sec. 5006. Superseded provision.
Sec. 5007. Sense of Congress regarding interoperable communications.
Sec. 5008. Sense of Congress regarding citizen corps councils.
Sec. 5009. Study regarding nationwide emergency notification system.
Sec. 5010. Required coordination.
Subtitle B--Government Reorganization Authority
Sec. 5021. Authorization of intelligence community reorganization
plans.
Subtitle C--Restructuring Relating to the Department of Homeland
Security and Congressional Oversight
Sec. 5025. Responsibilities of Counternarcotics Office.
Sec. 5026. Use of counternarcotics enforcement activities in certain
employee performance appraisals.
Sec. 5027. Sense of the House of Representatives on addressing homeland
security for the American people.
Subtitle D--Improvements to Information Security
Sec. 5031. Amendments to Clinger-Cohen provisions to enhance agency
planning for information security needs.
Subtitle E--Personnel Management Improvements
Chapter 1--Appointments Process Reform
Sec. 5041. Appointments to national security positions.
Sec. 5042. Presidential inaugural transitions.
Sec. 5043. Public financial disclosure for the intelligence community.
Sec. 5044. Reduction of positions requiring appointment with Senate
confirmation.
Sec. 5045. Effective dates.
Chapter 2--Federal Bureau of Investigation Revitalization
Sec. 5051. Mandatory separation age.
Sec. 5052. Retention and relocation bonuses.
Sec. 5053. Federal Bureau of Investigation Reserve Service.
Sec. 5054. Critical positions in the Federal Bureau of Investigation
intelligence directorate.
Chapter 3--Management Authority
Sec. 5061. Management authority.
Subtitle F--Security Clearance Modernization
Sec. 5071. Definitions.
Sec. 5072. Security clearance and investigative programs oversight and
administration.
Sec. 5073. Reciprocity of security clearance and access determinations.
Sec. 5074. Establishment of national database .
Sec. 5075. Use of available technology in clearance investigations.
Sec. 5076. Reduction in length of personnel security clearance process.
Sec. 5077. Security clearances for presidential transition.
Sec. 5078. Reports.
Subtitle G--Emergency Financial Preparedness
Chapter 1--Emergency Preparedness for Fiscal Authorities
Sec. 5081. Delegation authority of the Secretary of the Treasury.
Sec. 5081A. Treasury support for financial services industry
preparedness and response.
Chapter 2--Market Preparedness
Subchapter A--Netting of Financial Contracts
Sec. 5082. Short title.
Sec. 5082A. Treatment of certain agreements by conservators or
receivers of insured depository institutions.
Sec. 5082B. Authority of the FDIC and NCUAB with respect to failed and
failing institutions.
Sec. 5082C. Amendments relating to transfers of qualified financial
contracts.
Sec. 5082D. Amendments relating to disaffirmance or repudiation of
qualified financial contracts.
Sec. 5082E. Clarifying amendment relating to master agreements.
Sec. 5082F. Federal Deposit Insurance Corporation Improvement Act of
1991.
Sec. 5082G. Bankruptcy code amendments.
Sec. 5082H. Recordkeeping requirements.
Sec. 5082I. Exemptions from contemporaneous execution requirement.
Sec. 5082J. Damage measure.
Sec. 5082K. SIPC stay.
Sec. 5082L. Applicability of other sections to chapter 9.
Sec. 5082M. Effective date; application of amendments.
Sec. 5082N. Savings clause.
Subchapter B--Emergency Securities Response
Sec. 5086. Short title.
Sec. 5087. Extension of emergency order authority of the Securities and
Exchange Commission.
Sec. 5088. Parallel authority of the Secretary of the Treasury with
respect to government securities.
Sec. 5089. Joint report on implementation of financial system
resilience recommendations.
Sec. 5089A. Private sector preparedness.
Sec. 5089B. Report on public/private partnerships.
Subtitle H--Other Matters
Chapter 1--Privacy Matters
Sec. 5091. Requirement that agency rulemaking take into consideration
impacts on individual privacy.
Sec. 5092. Chief privacy officers for agencies with law enforcement or
anti-terrorism functions.
Chapter 2--Mutual Aid and Litigation Management
Sec. 5101. Short title.
Sec. 5102. Mutual aid authorized.
Sec. 5103. Litigation management agreements.
Sec. 5104. Additional provisions.
Sec. 5105. Definitions.
Chapter 3--Miscellaneous Matters
Sec. 5131. Enhancement of public safety communications
interoperability.
Sec. 5132. Sense of Congress regarding the incident command system.
Sec. 5133. Sense of Congress regarding United States Northern Command
plans and strategies.
TITLE I--REFORM OF THE INTELLIGENCE COMMUNITY
[Title I of the Amendment in the Nature of a Substitute consists of
title I of the bill H.R. 10, as introduced on September 24, 2004]
TITLE II--TERRORISM PREVENTION AND PROSECUTION
[Subtitles A through D of title II of the Amendment in the Nature of
a Substitute consist of subtitles A through D of title II of the bill
H.R. 10, as introduced on September 24, 2004]
Subtitle E--Money Laundering and Terrorist Financing
CHAPTER 1--FUNDING TO COMBAT FINANCIAL CRIMES INCLUDING TERRORIST
FINANCING
SEC. 2101. ADDITIONAL AUTHORIZATION FOR FINCEN.
Subsection (d) of section 310 of title 31, United States Code, is
amended----
(1) by striking ``appropriations.--There are authorized'' and
inserting ``Appropriations.--
``(1) In general.--There are authorized''; and
(2) by adding at the end the following new paragraph:
``(2) Authorization for funding key technological
improvements in mission-critical fincen systems.--There are
authorized to be appropriated for fiscal year 2005 the
following amounts, which are authorized to remain available
until expended:
``(A) BSA direct.--For technological improvements to
provide authorized law enforcement and financial
regulatory agencies with Web-based access to FinCEN
data, to fully develop and implement the highly secure
network required under section 362 of Public Law 107-56
to expedite the filing of, and reduce the filing costs
for, financial institution reports, including
suspicious activity reports, collected by FinCEN under
chapter 53 and related provisions of law, and enable
FinCEN to immediately alert financial institutions
about suspicious activities that warrant immediate and
enhanced scrutiny, and to provide and upgrade advanced
information-sharing technologies to materially improve
the Government's ability to exploit the information in
the FinCEN databanks, $16,500,000.
``(B) Advanced analytical technologies.--To provide
advanced analytical tools needed to ensure that the
data collected by FinCEN under chapter 53 and related
provisions of law are utilized fully and appropriately
in safeguarding financial institutions and supporting
the war on terrorism, $5,000,000.
``(C) Data networking modernization.--To improve the
telecommunications infrastructure to support the
improved capabilities of the FinCEN systems,
$3,000,000.
``(D) Enhanced compliance capability.--To improve the
effectiveness of the Office of Compliance in FinCEN,
$3,000,000.
``(E) Detection and prevention of financial crimes
and terrorism.--To provide development of, and training
in the use of, technology to detect and prevent
financial crimes and terrorism within and without the
United States, $8,000,000.''.
SEC. 2102. MONEY LAUNDERING AND FINANCIAL CRIMES STRATEGY
REAUTHORIZATION.
(a) Program.--Section 5341(a)(2) of title 31, United States Code, is
amended by striking ``and 2003,'' and inserting ``2003, and 2005,''.
(b) Reauthorization of Appropriations.--Section 5355 of title 31,
United States Code, is amended by adding at the end the following:
``2004
$15,000,000.
``2005
$15,000,000.''.
CHAPTER 2--ENFORCEMENT TOOLS TO COMBAT FINANCIAL CRIMES INCLUDING
TERRORIST FINANCING
Subchapter A--Money laundering abatement and financial antiterrorism
technical corrections
SEC. 2111. SHORT TITLE.
This subchapter may be cited as the ``Money Laundering Abatement and
Financial Antiterrorism Technical Corrections Act of 2004''.
SEC. 2112. TECHNICAL CORRECTIONS TO PUBLIC LAW 107-56.
(a) The heading of title III of Public Law 107-56 is amended to read
as follows:
``TITLE III--INTERNATIONAL MONEY LAUNDERING ABATEMENT AND FINANCIAL
ANTITERRORISM ACT OF 2001''.
(b) The table of contents of Public Law 107-56 is amended by striking
the item relating to title III and inserting the following new item:
``TITLE III--INTERNATIONAL MONEY LAUNDERING ABATEMENT AND FINANCIAL
ANTITERRORISM ACT OF 2001''.
(c) Section 302 of Public Law 107-56 is amended--
(1) in subsection (a)(4), by striking the comma after
``movement of criminal funds'';
(2) in subsection (b)(7), by inserting ``or types of
accounts'' after ``classes of international transactions''; and
(3) in subsection (b)(10), by striking ``subchapters II and
III'' and inserting ``subchapter II''.
(d) Section 303(a) of Public Law 107-56 is amended by striking
``Anti-Terrorist Financing Act'' and inserting ``Financial
Antiterrorism Act''.
(e) The heading for section 311 of Public Law 107-56 is amended by
striking ``or international transactions'' and
inserting ``international transactions, or types
of accounts''.
(f) Section 314 of Public Law 107-56 is amended--
(1) in paragraph (1)--
(A) by inserting a comma after ``organizations
engaged in''; and
(B) by inserting a comma after ``credible evidence of
engaging in'';
(2) in paragraph (2)(A)--
(A) by striking ``and'' after ``nongovernmental
organizations,''; and
(B) by inserting a comma after ``unwittingly involved
in such finances'';
(3) in paragraph (3)(A)--
(A) by striking ``to monitor accounts of'' and
inserting ``monitor accounts of,''; and
(B) by striking the comma after ``organizations
identified''; and
(4) in paragraph (3)(B), by inserting ``financial'' after
``size, and nature of the''.
(g) Section 321 of Public Law 107-56 is amended by striking
``5312(2)'' and inserting ``5312(a)(2)''.
(h) Section 325 of Public Law 107-56 is amended by striking ``as
amended by section 202 of this title,'' and inserting ``as amended by
section 352,''.
(i) Subsections (a)(2) and (b)(2) of section 327 of Public Law 107-56
are each amended by inserting a period after ``December 31, 2001'' and
striking all that follows through the period at the end of each such
subsection.
(j) Section 356(c)(4) of Public Law 107-56 is amended by striking
``or business or other grantor trust'' and inserting ``, business
trust, or other grantor trust''.
(k) Section 358(e) of Public Law 107-56 is amended--
(1) by striking ``Section 123(a)'' and inserting ``That
portion of section 123(a)'';
(2) by striking ``is amended to read'' and inserting ``that
precedes paragraph (1) of such section is amended to read'';
and
(3) by striking ``.'.'' at the end of such section and
inserting ``--' ''.
(l) Section 360 of Public Law 107-56 is amended--
(1) in subsection (a), by inserting ``the'' after
``utilization of the funds of''; and
(2) in subsection (b), by striking ``at such institutions''
and inserting ``at such institution''.
(m) Section 362(a)(1) of Public Law 107-56 is amended by striking
``subchapter II or III'' and inserting ``subchapter II''.
(n) Section 365 of Public Law 107-56 is amended--
(1) by redesignating the 2nd of the 2 subsections designated
as subsection (c) (relating to a clerical amendment) as
subsection (d); and
(2) by redesignating subsection (f) as subsection (e).
(o) Section 365(d) of Public Law 107-56 (as so redesignated by
subsection (n) of this section) is amended by striking ``section 5332
(as added by section 112 of this title)'' and inserting ``section
5330''.
SEC. 2113. TECHNICAL CORRECTIONS TO OTHER PROVISIONS OF LAW.
(a) Section 310(c) of title 31, United States Code, is amended by
striking ``the Network'' each place such term appears and inserting
``FinCEN''.
(b) Section 5312(a)(3)(C) of title 31, United States Code, is amended
by striking ``sections 5333 and 5316'' and inserting ``sections 5316
and 5331''.
(c) Section 5318(i) of title 31, United States Code, is amended--
(1) in paragraph (3)(B), by inserting a comma after ``foreign
political figure'' the 2nd place such term appears; and
(2) in the heading of paragraph (4), by striking
``Definition'' and inserting ``Definitions''.
(d) Section 5318(k)(1)(B) of title 31, United States Code, is amended
by striking ``section 5318A(f)(1)(B)'' and inserting ``section
5318A(e)(1)(B)''.
(e) The heading for section 5318A of title 31, United States Code, is
amended to read as follows:
``Sec. 5318A. Special measures for jurisdictions, financial
institutions, international transactions, or types
of accounts of primary money laundering concern''.
(f) Section 5318A of title 31, United States Code, is amended--
(1) in subsection (a)(4)(A), by striking ``, as defined in
section 3 of the Federal Deposit Insurance Act,'' and inserting
`` (as defined in section 3 of the Federal Deposit Insurance
Act)'';
(2) in subsection (a)(4)(B)(iii), by striking ``or class of
transactions'' and inserting ``class of transactions, or type
of account'';
(3) in subsection (b)(1)(A), by striking ``or class of
transactions to be'' and inserting ``class of transactions, or
type of account to be''; and
(4) in subsection (e)(3), by inserting ``or subsection (i) or
(j) of section 5318'' after ``identification of individuals
under this section''.
(g) Section 5324(b) of title 31, United States Code, is amended by
striking ``5333'' each place such term appears and inserting ``5331''.
(h) Section 5332 of title 31, United States Code, is amended--
(1) in subsection (b)(2), by striking ``, subject to
subsection (d) of this section''; and
(2) in subsection (c)(1), by striking ``, subject to
subsection (d) of this section,''.
(i) The table of sections for subchapter II of chapter 53 of title
31, United States Code, is amended by striking the item relating to
section 5318A and inserting the following new item:
``5318A. Special measures for jurisdictions, financial institutions,
international transactions, or types of accounts of primary money
laundering concern.''.
(j) Section 18(w)(3) of the Federal Deposit Insurance Act (12 U.S.C.
1828(w)(3)) is amended by inserting a comma after ``agent of such
institution''.
(k) Section 21(a)(2) of the Federal Deposit Insurance Act (12 U.S.C.
1829b(a)(2)) is amended by striking ``recognizes that'' and inserting
``recognizing that''.
(l) Section 626(e) of the Fair Credit Reporting Act (15 U.S.C.
1681v(e)) is amended by striking ``governmental agency'' and inserting
``government agency''.
SEC. 2114. REPEAL OF REVIEW.
Title III of Public Law 107-56 is amended by striking section 303 (31
U.S.C. 5311 note).
SEC. 2115. EFFECTIVE DATE.
The amendments made by this subchapter to Public Law 107-56, the
United States Code, the Federal Deposit Insurance Act, and any other
provision of law shall take effect as if such amendments had been
included in Public Law 107-56, as of the date of the enactment of such
Public Law, and no amendment made by such Public Law that is
inconsistent with an amendment made by this subchapter shall be deemed
to have taken effect.
Subchapter B--Additional enforcement tools
SEC. 2121. BUREAU OF ENGRAVING AND PRINTING SECURITY PRINTING.
(a) Production of Documents.--Section 5114(a) of title 31, United
States Code (relating to engraving and printing currency and security
documents), is amended--
(1) by striking ``(a) The Secretary of the Treasury'' and
inserting:
``(a) Authority to Engrave and Print.--
``(1) In general.--The Secretary of the Treasury''; and
(2) by adding at the end the following new paragraphs:
``(2) Engraving and printing for other governments.--The
Secretary of the Treasury may produce currency, postage stamps,
and other security documents for foreign governments if--
``(A) the Secretary of the Treasury determines that
such production will not interfere with engraving and
printing needs of the United States; and
``(B) the Secretary of State determines that such
production would be consistent with the foreign policy
of the United States.
``(3) Procurement guidelines.--Articles, material, and
supplies procured for use in the production of currency,
postage stamps, and other security documents for foreign
governments pursuant to paragraph (2) shall be treated in the
same manner as articles, material, and supplies procured for
public use within the United States for purposes of title III
of the Act of March 3, 1933 (41 U.S.C. 10a et seq.; commonly
referred to as the Buy American Act).''.
(b) Reimbursement.--Section 5143 of title 31, United States Code
(relating to payment for services of the Bureau of Engraving and
Printing), is amended--
(1) in the first sentence, by inserting ``or to a foreign
government under section 5114'' after ``agency'';
(2) in the second sentence, by inserting ``and other'' after
``including administrative''; and
(3) in the last sentence, by inserting ``, and the Secretary
shall take such action, in coordination with the Secretary of
State, as may be appropriate to ensure prompt payment by a
foreign government of any invoice or statement of account
submitted by the Secretary with respect to services rendered
under section 5114'' before the period at the end.
SEC. 2122. CONDUCT IN AID OF COUNTERFEITING.
(a) In General.--Section 474(a) of title 18, United States Code, is
amended by inserting after the paragraph beginning ``Whoever has in his
control, custody, or possession any plate'' the following:
`` Whoever, with intent to defraud, has in his custody, control, or
possession any material that can be used to make, alter, forge or
counterfeit any obligations and other securities of the United States
or any part of such securities and obligations, except under the
authority of the Secretary of the Treasury; or''.
(b) Foreign Obligations and Securities.--Section 481 of title 18,
United States Code, is amended by inserting after the paragraph
beginning ``Whoever, with intent to defraud'' the following:
`` Whoever, with intent to defraud, has in his custody, control, or
possession any material that can be used to make, alter, forge or
counterfeit any obligation or other security of any foreign government,
bank or corporation; or''.
(c) Counterfeit Acts.--Section 470 of title 18, United States Code,
is amended by striking ``or 474'' and inserting ``474, or 474A''.
(d) Materials Used in Counterfeiting.--Section 474A(b) of title 18,
United States Code, is amended by striking ``any essentially
identical'' and inserting ``any thing or material made after or in the
similitude of any''.
SEC. 2123. REPORTING OF CROSS-BORDER TRANSMITTAL OF FUNDS.
Section 5318 of title 31, United States Code, is amended by adding at
the end the following new subsection:
``(n) Reporting of Cross-Border Transmittal of Funds.--
``(1) In general.--Subject to paragraph (3), the Secretary
shall prescribe regulations requiring such financial
institutions as the Secretary determines to be appropriate to
report to the Financial Crimes Enforcement Network certain
cross-border electronic transmittals of funds relevant to
efforts of the Secretary against money laundering and terrorist
financing.
``(2) Form and manner of reports.--In prescribing the
regulations required under paragraph (1), the Secretary shall
determine the appropriate form, manner, content and frequency
of filing of the required reports.
``(3) Feasibility report.--Before prescribing the regulations
required under paragraph (1), and as soon as is practicable
after the date of enactment of the 9/11 Recommendations
Implementation Act, the Secretary shall delegate to the Bank
Secrecy Act Advisory Group established by the Secretary the
task of producing a report for the Secretary and the Congress
that--
``(A) identifies the information in cross-border
electronic transmittals of funds that is relevant to
efforts against money laundering and terrorist
financing;
``(B) makes recommendations regarding the appropriate
form, manner, content and frequency of filing of the
required reports; and
``(C) identifies the technology necessary for the
Financial Crimes Enforcement Network to receive, keep,
exploit and disseminate information from reports of
cross-border electronic transmittals of funds to law
enforcement and other entities engaged in efforts
against money laundering and terrorist financing.
The report shall be submitted to the Secretary and the Congress
no later than the end of the 1-year period beginning on the
date of enactment of such Act.
``(4) Regulations.--
``(A) In general.--Subject to subparagraph (B), the
regulations required by paragraph (1) shall be
prescribed in final form by the Secretary, in
consultation with the Board of Governors of the Federal
Reserve System, before the end of the 3-year period
beginning on the date of the enactment of the 9/11
Recommendations Implementation Act.
``(B) Technological feasibility.--No regulations
shall be prescribed under this subsection before the
Secretary certifies to the Congress that the Financial
Crimes Enforcement Network has the technological
systems in place to effectively and efficiently
receive, keep, exploit, and disseminate information
from reports of cross-border electronic transmittals of
funds to law enforcement and other entities engaged in
efforts against money laundering and terrorist
financing.
``(5) Recordkeeping.--No financial institution required to
submit reports on certain cross-border electronic transmittals
of funds to the Financial Crimes Enforcement Network under this
subsection shall be subject to the recordkeeping requirement
under section 21(b)(3) of the Federal Deposit Insurance Act
with respect to such transmittals of funds.''.
SEC. 2124. ENHANCED EFFECTIVENESS OF EXAMINATIONS, INCLUDING ANTI-MONEY
LAUNDERING PROGRAMS.
(a) Depository Institutions and Depository Institution Holding
Companies.--Section 10 of the Federal Deposit Insurance Act (12 U.S.C.
1820) is amended by adding at the end the following new subsection:
``(k) Post-Employment Limitations on Leading Bank Examiners.--
``(1) In general.--In the case of any person who--
``(A) was an officer or employee (including any
special Government employee) of a Federal banking
agency or a Federal reserve bank; and
``(B) served 2 or more months during the final 18
months of such person's employment with such agency or
entity as the examiner-in-charge (or a functionally
equivalent position) of a depository institution or
depository institution holding company with dedicated,
overall, continuous, and ongoing responsibility for the
examination (or inspection) and supervision of that
depository institution or depository institution
holding company,
such person may not hold any office, position, or employment at
any such depository institution or depository institution
holding company, become a controlling shareholder in, a
consultant for, a joint-venture partner with, or an independent
contractor for (including as attorney, appraiser, or
accountant) any such depository institution or holding company,
or any other company that controls such depository institution,
or otherwise participate in the conduct of the affairs of any
such depository institution or holding company, during the 1-
year period beginning on such date.
``(2) Violators subject to industry-wide prohibition
orders.--
``(A) In general.--In addition to any other penalty
which may apply, whenever the appropriate Federal
banking agency determines that a person subject to
paragraph (1) has violated the prohibition in such
paragraph with respect to any insured depository
institution or depository institution holding company
or any other company, the agency shall serve a written
notice or order, in accordance with and subject to the
provisions of section 8(e)(4) for written notices under
paragraphs (1) or (2) of section 8(e), upon such person
of the agency's intention to--
``(i) remove such person from office in any
capacity described in paragraph (1); and
``(ii) prohibit any further participation by
such person, in any manner, in the conduct of
the affairs of any insured depository
institution or depository institution holding
company for a period of 5 years.
``(B) Scope of prohibition order.--Any person subject
to an order issued under this subsection shall be
subject to paragraphs (6) and (7) of section 8(e) in
the same manner and to the same extent as a person
subject to an order issued under such section and
subsections (i) and (j) of section 8 and any other
provision of this Act applicable to orders issued under
subsection (e) or (g) shall apply with respect to such
order.
``(3) Regulations.--
``(A) In general.--The Federal banking agencies shall
prescribe regulations to implement this subsection,
including the manner for determining which persons are
referred to in paragraph 1(B) taking into account--
``(i) the manner in which examiners and other
persons who participate in the regulation,
examination, or monitoring of depository
institutions or depository institution holding
companies are distributed among such
institutions or companies by such agency,
including the number of examiners and other
persons assigned to each institution or holding
company, the depth and structure of any group
so assigned within such distribution, and the
factors giving rise to that distribution;
``(ii) the number of institutions or
companies each such examiner or other person is
so involved with in any given period of
assignment;
``(iii) the period of time for which each
such examiner or other person is assigned to an
institution or company, or a group of
institutions or companies, before reassignment;
``(iv) the size of the institutions or
holding companies for which each such person is
responsible and the amount of time devoted to
each such institution or holding company during
each examination period; and
``(v) such other factors as the agency
determines to be appropriate.
``(B) Determination of applicability.--The
regulations prescribed or orders issued under this
subparagraph by an appropriate Federal banking agency
shall include a process, initiated by application or
otherwise, for determining whether any person who
ceases to be, or intends to cease to be, an examiner
of, or a person having supervisory authority over,
insured depository institutions or depository
institution holding companies for or on behalf of such
agency is subject to the limitations of this subsection
with respect to any particular insured depository
institution or depository institution holding company.
``(C) Consultation.--The Federal banking agencies
shall consult with each other for the purpose of
assuring that the rules and regulations issued by the
agencies under subparagraph (A) are, to the extent
possible, consistent, comparable, and practicable,
taking into account any differences in the supervisory
programs utilized by the agencies for the supervision
of depository institutions and depository institution
holding companies.
``(4) Waiver.--A Federal banking agency may waive, on a case-
by-case basis, the restrictions imposed by this subsection if--
``(A) the head of the agency certifies in writing
that the grant of such waiver would be not inconsistent
with the public interest; and
``(B) the waiver is provided in advance before the
person becomes affiliated in any way with the
depository institution or depository institution
holding company.
``(5) Definitions and rules of construction.--For purposes of
this subsection, the following definitions and rules shall
apply:
``(A) Depository institution.--The term `depository
institution' includes an uninsured branch or agency of
a foreign bank if such branch or agency is located in
any State.
``(B) Depository institution holding company.--The
term `depository institution holding company' includes
any foreign bank or company described in section 8(a)
of the International Banking Act of 1978.
``(C) Head of the agency.--The term `the head of
agency' means--
``(i) the Comptroller of the Currency, in the
case of the Office of the Comptroller of the
Currency;
``(ii) the Chairman of the Board of Governors
of the Federal Reserve System, in the case of
the Board of Governors of the Federal Reserve
System;
``(iii) the Chairperson of the Board of
Directors, in the case of the Federal Deposit
Insurance Corporation; and
``(iv) the Director, in the case of the
Office of Thrift Supervision.
``(D) Rule of construction for consultants and
independent contractors.--A person shall be deemed to
act as a consultant or independent contractor
(including as an attorney, appraiser, or accountant)
for a depository institution or a depository holding
company only if such person directly works on matters
for, or on behalf of, such depository institution or
depository holding company.
``(E) Appropriate agency for certain other
companies.--The term `appropriate Federal banking
agency' means, with respect to a company that is not a
depository institution or depository institution
holding company, the Federal banking agency on whose
behalf the person described in paragraph (1) performed
the functions described in paragraph (3).''.
(b) Credit Unions.--Section 206 of the Federal Credit Union Act (12
U.S.C. 1786) is amended by adding at the end the following new
subsection:
``(w) Post-Employment Limitations on Examiners.--
``(1) Regulations required.--The Board shall consult with the
Federal banking agencies and prescribe regulations imposing the
same limitations on persons employed by or on behalf of the
Board as leading examiners of, or functionally equivalent
positions with respect to, credit unions as are applicable
under section 10(k) of the Federal Deposit Insurance Act,
taking into account all the requirements and factors described
in paragraphs (3) and (4) of such section.
``(2) Enforcement.--The Board shall issue orders under
subsection (g) with respect to any person who violates any
regulation prescribed pursuant to paragraph (1) to--
``(A) remove such person from office in any capacity
with respect to a credit union; and
``(B) prohibit any further participation by such
person, in any manner, in the conduct of the affairs of
any credit union for a period of 5 years.
``(3) Scope of prohibition order.--Any person subject to an
order issued under this subsection shall be subject to
paragraphs (5) and (7) of subsection (g) in the same manner and
to the same extent as a person subject to an order issued under
such subsection and subsection (l) and any other provision of
this Act applicable to orders issued under subsection (g) shall
apply with respect to such order.''.
(c) Study of Examiner Hiring and Retention.--
(1) Study required.--The Board of Directors of the Federal
Deposit Insurance Corporation, the Comptroller of the Currency,
the Director of the Office of Thrift Supervision, the Board of
Governors of the Federal Reserve System, and the National
Credit Union Administration Board, acting through the Financial
Institutions Examination Council, shall conduct a study of
efforts and proposals for--
(A) retaining the services of experienced and highly
qualified examiners and supervisors already employed by
such agencies; and
(B) continuing to attract such examiners and
supervisors on an-ongoing basis to the extent necessary
to fulfill the agencies' obligations to maintain the
safety and soundness of the Nation's depository
institutions.
(2) Report.--Before the end of the 1-year period beginning on
the date of the enactment of this Act, the agencies conducting
the study under paragraph (1) shall submit a report containing
the findings and conclusions of such agencies with respect to
such study, together with such recommendations for
administrative or legislative changes as the agencies determine
to be appropriate.
Subchapter C--Unlawful Internet Gambling Funding Prohibition
SEC. 2131. SHORT TITLE.
This subchapter may be cited as the ``Unlawful Internet Gambling
Funding Prohibition Act''.
SEC. 2132. FINDINGS.
The Congress finds as follows:
(1) Internet gambling is primarily funded through personal
use of bank instruments, including credit cards and wire
transfers.
(2) The National Gambling Impact Study Commission in 1999
recommended the passage of legislation to prohibit wire
transfers to Internet gambling sites or the banks which
represent them.
(3) Internet gambling is a major cause of debt collection
problems for insured depository institutions and the consumer
credit industry.
(4) Internet gambling conducted through offshore
jurisdictions has been identified by United States law
enforcement officials as a significant money laundering
vulnerability.
SEC. 2133. POLICIES AND PROCEDURES REQUIRED TO PREVENT PAYMENTS FOR
UNLAWFUL INTERNET GAMBLING.
(a) Regulations.--Before the end of the 6-month period beginning on
the date of the enactment of this subchapter, the Federal functional
regulators shall prescribe regulations requiring any designated payment
system to establish policies and procedures reasonably designed to
identify and prevent restricted transactions in any of the following
ways:
(1) The establishment of policies and procedures that--
(A) allow the payment system and any person involved
in the payment system to identify restricted
transactions by means of codes in authorization
messages or by other means; and
(B) block restricted transactions identified as a
result of the policies and procedures developed
pursuant to subparagraph (A).
(2) The establishment of policies and procedures that prevent
the acceptance of the products or services of the payment
system in connection with a restricted transaction.
(b) Requirements for Policies and Procedures.--In prescribing
regulations pursuant to subsection (a), the Federal functional
regulators shall--
(1) identify types of policies and procedures, including
nonexclusive examples, which would be deemed to be ``reasonably
designed to identify'' and ``reasonably designed to block'' or
to ``prevent the acceptance of the products or services'' with
respect to each type of transaction, such as, should credit
card transactions be so designated, identifying transactions by
a code or codes in the authorization message and denying
authorization of a credit card transaction in response to an
authorization message;
(2) to the extent practical, permit any participant in a
payment system to choose among alternative means of identifying
and blocking, or otherwise preventing the acceptance of the
products or services of the payment system or participant in
connection with, restricted transactions; and
(3) consider exempting restricted transactions from any
requirement under subsection (a) if the Federal functional
regulators find that it is not reasonably practical to identify
and block, or otherwise prevent, such transactions.
(c) Compliance With Payment System Policies and Procedures.--A
creditor, credit card issuer, financial institution, operator of a
terminal at which an electronic fund transfer may be initiated, money
transmitting business, or international, national, regional, or local
network utilized to effect a credit transaction, electronic fund
transfer, or money transmitting service, or a participant in such
network, meets the requirement of subsection (a) if--
(1) such person relies on and complies with the policies and
procedures of a designated payment system of which it is a
member or participant to--
(A) identify and block restricted transactions; or
(B) otherwise prevent the acceptance of the products
or services of the payment system, member, or
participant in connection with restricted transactions;
and
(2) such policies and procedures of the designated payment
system comply with the requirements of regulations prescribed
under subsection (a).
(d) Enforcement.--
(1) In general.--This section shall be enforced by the
Federal functional regulators and the Federal Trade Commission
under applicable law in the manner provided in section 505(a)
of the Gramm-Leach-Bliley Act.
(2) Factors to be considered.--In considering any enforcement
action under this subsection against any payment system, or any
participant in a payment system that is a creditor, credit card
issuer, financial institution, operator of a terminal at which
an electronic fund transfer may be initiated, money
transmitting business, or international, national, regional, or
local network utilized to effect a credit transaction,
electronic fund transfer, or money transmitting service, or a
participant in such network, the Federal functional regulators
and the Federal Trade Commission shall consider the following
factors:
(A) The extent to which such person is extending
credit or transmitting funds knowing the transaction is
in connection with unlawful Internet gambling.
(B) The history of such person in extending credit or
transmitting funds knowing the transaction is in
connection with unlawful Internet gambling.
(C) The extent to which such person has established
and is maintaining policies and procedures in
compliance with regulations prescribed under this
subsection.
(D) The feasibility that any specific remedy
prescribed can be implemented by such person without
substantial deviation from normal business practice.
(E) The costs and burdens the specific remedy will
have on such person.
SEC. 2134. DEFINITIONS.
For purposes of this subchapter, the following definitions shall
apply:
(1) Restricted transaction.--The term ``restricted
transaction'' means any transaction or transmittal to any
person engaged in the business of betting or wagering, in
connection with the participation of another person in unlawful
Internet gambling, of--
(A) credit, or the proceeds of credit, extended to or
on behalf of such other person (including credit
extended through the use of a credit card);
(B) an electronic fund transfer or funds transmitted
by or through a money transmitting business, or the
proceeds of an electronic fund transfer or money
transmitting service, from or on behalf of the other
person;
(C) any check, draft, or similar instrument which is
drawn by or on behalf of the other person and is drawn
on or payable at or through any financial institution;
or
(D) the proceeds of any other form of financial
transaction as the Federal functional regulators may
prescribe by regulation which involves a financial
institution as a payor or financial intermediary on
behalf of or for the benefit of the other person.
(2) Bets or wagers.--The term ``bets or wagers''--
(A) means the staking or risking by any person of
something of value upon the outcome of a contest of
others, a sporting event, or a game subject to chance,
upon an agreement or understanding that the person or
another person will receive something of greater value
than the amount staked or risked in the event of a
certain outcome;
(B) includes the purchase of a chance or opportunity
to win a lottery or other prize (which opportunity to
win is predominantly subject to chance);
(C) includes any scheme of a type described in
section 3702 of title 28, United States Code;
(D) includes any instructions or information
pertaining to the establishment or movement of funds in
an account by the bettor or customer with the business
of betting or wagering; and
(E) does not include--
(i) any activity governed by the securities
laws (as that term is defined in section
3(a)(47) of the Securities Exchange Act of
1934) for the purchase or sale of securities
(as that term is defined in section 3(a)(10) of
such Act);
(ii) any transaction conducted on or subject
to the rules of a registered entity or exempt
board of trade pursuant to the Commodity
Exchange Act;
(iii) any over-the-counter derivative
instrument;
(iv) any other transaction that--
(I) is excluded or exempt from
regulation under the Commodity Exchange
Act; or
(II) is exempt from State gaming or
bucket shop laws under section 12(e) of
the Commodity Exchange Act or section
28(a) of the Securities Exchange Act of
1934;
(v) any contract of indemnity or guarantee;
(vi) any contract for insurance;
(vii) any deposit or other transaction with a
depository institution (as defined in section
3(c) of the Federal Deposit Insurance Act);
(viii) any participation in a simulation
sports game or an educational game or contest
that--
(I) is not dependent solely on the
outcome of any single sporting event or
nonparticipant's singular individual
performance in any single sporting
event;
(II) has an outcome that reflects the
relative knowledge and skill of the
participants with such outcome
determined predominantly by accumulated
statistical results of sporting events;
and
(III) offers a prize or award to a
participant that is established in
advance of the game or contest and is
not determined by the number of
participants or the amount of any fees
paid by those participants; and
(ix) any lawful transaction with a business
licensed or authorized by a State, and for
purposes of this clause, the term ``lawful
transaction'' means any transaction that is
lawful under all applicable Federal laws and
all applicable State laws of both the State in
which the licensed or authorized business is
located and the State where the bet is
initiated.
(3) Designated payment system defined.--The term ``designated
payment system'' means any system utilized by any creditor,
credit card issuer, financial institution, operator of a
terminal at which an electronic fund transfer may be initiated,
money transmitting business, or international, national,
regional, or local network utilized to effect a credit
transaction, electronic fund transfer, or money transmitting
service, or any participant in such network, that the Federal
functional regulators determine, by regulation or order, could
be utilized in connection with, or to facilitate, any
restricted transaction.
(4) Federal functional regulator.--The term ``Federal
functional regulator'' has the same meaning as in section
509(2) of the Gramm-Leach-Bliley Act.
(5) Internet.--The term ``Internet'' means the international
computer network of interoperable packet switched data
networks.
(6) Unlawful internet gambling.--The term ``unlawful Internet
gambling'' means to place, receive, or otherwise transmit a bet
or wager by any means which involves the use, at least in part,
of the Internet where such bet or wager is unlawful under any
applicable Federal or State law in the State in which the bet
or wager is initiated, received, or otherwise made.
(7) Other terms.--
(A) Credit; creditor; and credit card.--The terms
``credit'', ``creditor'', and ``credit card'' have the
meanings given such terms in section 103 of the Truth
in Lending Act.
(B) Electronic fund transfer.--The term ``electronic
fund transfer''--
(i) has the meaning given such term in
section 903 of the Electronic Fund Transfer
Act; and
(ii) includes any fund transfer covered by
Article 4A of the Uniform Commercial Code, as
in effect in any State.
(C) Financial institution.--The term ``financial
institution''--
(i) has the meaning given such term in
section 903 of the Electronic Fund Transfer
Act; and
(ii) includes any financial institution, as
defined in section 509(3) of the Gramm-Leach-
Bliley Act.
(D) Money transmitting business and money
transmitting service.--The terms ``money transmitting
business'' and ``money transmitting service'' have the
meanings given such terms in section 5330(d) of title
31, United States Code.
SEC. 2135. COMMON SENSE RULE OF CONSTRUCTION.
No provision of this subchapter shall be construed as altering,
limiting, extending, changing the status of, or otherwise affecting any
law relating to, affecting, or regulating gambling within the United
States.
Subtitle F--Criminal History Background Checks
[Subtitles F through H of title II of the Amendment in the Nature of
a Substitute consist of subtitles F through H of title II of the bill
H.R. 10, as introduced on September 24, 2004]
TITLE III--BORDER SECURITY AND TERRORIST TRAVEL
[Title III of the Amendment in the Nature of a Substitute consists of
title III of the bill H.R. 10, as introduced on September 24, 2004]
TITLE IV--INTERNATIONAL COOPERATION AND COORDINATION
[Subtitle A of title IV of the Amendment in the Nature of a
Substitute consists of subtitle A of title IV of the bill H.R. 10, as
introduced on September 24, 2004]
Subtitle B--Prevent the Continued Growth of Terrorism
CHAPTER 1--UNITED STATES PUBLIC DIPLOMACY
[Chapter 1 of title IV of the Amendment in the Nature of a Substitute
consists of chapter 1 of title IV of the bill H.R. 10, as introduced on
September 24, 2004]
CHAPTER 2--UNITED STATES MULTILATERAL DIPLOMACY
[Sections 4031 and 4032 of chapter 2 of subtitle B of title IV of the
Amendment in the Nature of a Substitute consist of sections 4031 and
4032 of chapter 2 of subtitle B of title IV of the bill H.R. 10, as
introduced on September 24, 2004]
SEC. 4033. LEADERSHIP AND MEMBERSHIP OF INTERNATIONAL ORGANIZATIONS.
(a) United States Policy.--The President, acting through the
Secretary of State, the relevant United States chiefs of mission, and,
where appropriate, the Secretary of the Treasury, shall use the voice,
vote, and influence of the United States to--
(1) where appropriate, reform the criteria for leadership
and, in appropriate cases, for membership, at all United
Nations bodies and at other international organizations and
multilateral institutions to which the United States is a
member so as to exclude countries that violate the principles
of the specific organization;
(2) make it a policy of the United Nations and other
international organizations and multilateral institutions of
which the United States is a member that a member country may
not stand in nomination for membership or in nomination or in
rotation for a leadership position in such bodies if the member
country is subject to sanctions imposed by the United Nations
Security Council; and
(3) work to ensure that no member country stand in nomination
for membership, or in nomination or in rotation for a
leadership position in such organizations, or for membership on
the United Nations Security Council, if the member country is
subject to a determination under section 6(j)(1)(A) of the
Export Administration Act of 1979 (50 U.S.C. App.
2405(j)(1)(A)), section 620A(a) of the Foreign Assistance Act
of 1961 (22 U.S.C. 2371(a)), or section 40(d) of the Arms
Export Control Act (22 U.S.C. 2780(d)).
(b) Report to Congress.--Not later than 15 days after a country
subject to a determination under one or more of the provisions of law
specified in subsection (a)(3) is selected for membership or a
leadership post in an international organization of which the United
States is a member or for membership on the United Nations Security
Council, the Secretary of State shall submit to the Committee on
International Relations of the House of Representatives and the
Committee on Foreign Relations of the Senate a report on any steps
taken pursuant to subsection (a)(3).
SEC. 4034. INCREASED TRAINING IN MULTILATERAL DIPLOMACY.
[Section 4034 of title IV of the Amendment in the Nature of a
Substitute consists of section 4034 of title IV of the bill H.R. 10, as
introduced on September 24, 2004]
SEC. 4035. IMPLEMENTATION AND ESTABLISHMENT OF OFFICE ON MULTILATERAL
NEGOTIATIONS.
(a) Establishment of Office.--The Secretary of State is authorized to
establish, within the Bureau of International Organizational Affairs,
an Office on Multilateral Negotiations to be headed by a Special
Representative for Multilateral Negotiations (in this section referred
to as the ``Special Representative'').
(b) Appointment.--The Special Representative shall be appointed by
the President and shall have the rank of Ambassador-at-Large. At the
discretion of the President another official at the Department may
serve as the Special Representative.
(c) Staffing.--The Special Representative shall have a staff of
Foreign Service and civil service officers skilled in multilateral
diplomacy.
(d) Duties.--The Special Representative shall have the following
responsibilities:
(1) In general.--The primary responsibility of the Special
Representative shall be to assist in the organization of, and
preparation for, United States participation in multilateral
negotiations, including advocacy efforts undertaken by the
Department of State and other United States Government
agencies.
(2) Consultations.--The Special Representative shall consult
with Congress, international organizations, nongovernmental
organizations, and the private sector on matters affecting
multilateral negotiations.
(3) Advisory role.--The Special Representative shall advise
the Assistant Secretary for International Organizational
Affairs and, as appropriate, the Secretary of State, regarding
advocacy at international organizations, multilateral
institutions, and negotiations, and shall make recommendations
regarding--
(A) effective strategies (and tactics) to achieve
United States policy objectives at multilateral
negotiations;
(B) the need for and timing of high level
intervention by the President, the Secretary of State,
the Deputy Secretary of State, and other United States
officials to secure support from key foreign government
officials for United States positions at such
organizations, institutions, and negotiations; and
(C) the composition of United States delegations to
multilateral negotiations.
(4) Annual diplomatic missions of multilateral issues.--The
Special Representative, in coordination with the Assistant
Secretary for International Organizational Affairs, shall
organize annual diplomatic missions to appropriate foreign
countries to conduct consultations between principal officers
responsible for advising the Secretary of State on
international organizations and high-level representatives of
the governments of such foreign countries to promote the United
States agenda at the United Nations General Assembly and other
key international fora (such as the United Nations Human Rights
Commission).
(5) Leadership and membership of international
organizations.--The Special Representative, in coordination
with the Assistant Secretary of International Organizational
Affairs, shall direct the efforts of the United States to
reform the criteria for leadership of and membership in
international organizations as described in section 4033.
(6) Participation in multilateral negotiations.--The
Secretary of State may direct the Special Representative to
serve as a member of a United States delegation to any
multilateral negotiation.
(7) Coordination with the department of the treasury.--
(A) Coordination and consultation.--The Special
Representative shall coordinate and consult with the
relevant staff at the Department of the Treasury in
order to prepare recommendations for the Secretary of
State regarding multilateral negotiations involving
international financial institutions and other
multilateral financial policymaking bodies.
(B) Negotiating authority clarified.--Notwithstanding
any other provision of law, the Secretary of the
Treasury shall remain the lead representative and lead
negotiator for the United States within the
international financial institutions and other
multilateral financial policymaking bodies.
(C) Definitions.--In this paragraph:
(i) International financial institutions.--
The term ``international financial
institutions'' has the meaning given in section
1701(c)(2) of the International Financial
Institutions Act.
(ii) Other multilateral financial
policymaking bodies.--The term ``other
multilateral financial policymaking bodies''
means--
(I) the Financial Action Task Force
at the Organization for Economic
Cooperation and Development;
(II) the international network of
financial intelligence units known as
the ``Egmont Group'';
(III) the United States, Canada, the
United Kingdom, France, Germany, Italy,
Japan, and Russia, when meeting as the
Group of Eight; and
(IV) any other multilateral financial
policymaking group in which the
Secretary of the Treasury represents
the United States.
(iii) Financial action task force.--The term
``Financial Action Task Force'' means the
international grouping of countries that meets
periodically to address issues related to money
laundering, terrorist financing, and other
financial crimes.
CHAPTER 3--OTHER PROVISIONS
[Chapter 3 of subtitle B of title IV of the Amendment in the Nature
of a Substitute consists of chapter 3 of subtitles B of title IV of the
bill H.R. 10, as introduced on September 24, 2004]
Subtitle C--Reform of Designation of Foreign Terrorist Organizations
[Subtitle C of title IV of the Amendment in the Nature of a
Substitute consists of subtitle C of title IV of the bill H.R. 10, as
introduced on September 24, 2004]
Subtitle D--Afghanistan Freedom Support Act Amendments of 2004
SEC. 4061. SHORT TITLE.
This subtitle may be cited as the ``Afghanistan Freedom Support Act
Amendments of 2004''.
SEC. 4062. COORDINATION OF ASSISTANCE FOR AFGHANISTAN.
(a) Findings.--Congress finds that--
(1) the Final Report of the National Commission on Terrorist
Attacks Upon the United States criticized the provision of
United States assistance to Afghanistan for being too
inflexible; and
(2) the Afghanistan Freedom Support Act of 2002 (Public Law
107-327; 22 U.S.C. 7501 et seq.) contains provisions that
provide for flexibility in the provision of assistance for
Afghanistan and are not subject to the requirements of typical
foreign assistance programs and provide for the designation of
a coordinator to oversee United States assistance for
Afghanistan.
(b) Designation of Coordinator.--Section 104(a) of the Afghanistan
Freedom Support Act of 2002 (22 U.S.C. 7514(a)) is amended in the
matter preceding paragraph (1) by striking ``is strongly urged to'' and
inserting ``shall''.
(c) Other Matters.--Section 104 of such Act (22 U.S.C. 7514) is
amended by adding at the end the following:
``(c) Program Plan.--The coordinator designated under subsection (a)
shall annually submit to the Committees on International Relations and
Appropriations of the House of Representatives and the Committees on
Foreign Relations and Appropriations of the Senate the Administration's
plan for assistance to Afghanistan together with a description of such
assistance in prior years.
``(d) Coordination With International Community.--The coordinator
designated under subsection (a) shall work with the international
community and the Government of Afghanistan to ensure that assistance
to Afghanistan is implemented in a coherent, consistent, and efficient
manner to prevent duplication and waste. The coordinator designated
under subsection (a) shall work through the Secretary of the Treasury
and the United States Executive Directors at the international
financial institutions in order to effectuate these responsibilities
within the international financial institutions. The term
`international financial institution' has the meaning given in section
1701(c)(2) of the International Financial Institutions Act.''.
SEC. 4063. GENERAL PROVISIONS RELATING TO THE AFGHANISTAN FREEDOM
SUPPORT ACT OF 2002.
[Section 4063 and the remaining sections of subtitle D of title IV of
the Amendment in the Nature of a Substitute consist of section 4063 and
the remaining sections of subtitle D of title IV of the bill H.R. 10,
as introduced on September 24, 2004]
Subtitle E--Provisions Relating to Saudi Arabia and Pakistan
[Subtitles E through G of title IV of the Amendment in the Nature of
a Substitute consist of subtitles E through G of title IV of the bill
H.R. 10, as introduced on September 24, 2004]
Subtitle H--Improving International Standards and Cooperation to Fight
Terrorist Financing
SEC. 4111. SENSE OF THE CONGRESS REGARDING SUCCESS IN MULTILATERAL
ORGANIZATIONS.
(a) Findings.--The Congress finds as follows:
(1) The global war on terrorism and cutting off terrorist
financing is a policy priority for the United States and its
partners, working bilaterally and multilaterally through the
United Nations (UN), the UN Security Council and its
Committees, such as the 1267 and 1373 Committees, the Financial
Action Task Force (FATF) and various international financial
institutions, such as the International Monetary Fund (IMF),
the International Bank for Reconstruction and Development
(IBRD), and the regional multilateral development banks, and
other multilateral fora.
(2) The Secretary of the Treasury has engaged the
international financial community in the global fight against
terrorist financing. Specifically, the Department of the
Treasury helped redirect the focus of the Financial Action Task
Force on the new threat posed by terrorist financing to the
international financial system, resulting in the establishment
of the FATF's Eight Special Recommendations on Terrorist
Financing as the international standard on combating terrorist
financing. The Secretary of the Treasury has engaged the Group
of Seven and the Group of Twenty Finance Ministers to develop
action plans to curb the financing of terror. In addition,
other economic and regional fora, such as the Asia-Pacific
Economic Cooperation (APEC) Forum, the Western Hemisphere
Financial Ministers, have been used to marshal political will
and actions in support of countering the financing of terrorism
(CFT) standards.
(3) FATF's Forty Recommendations on Money Laundering and the
Eight Special Recommendations on Terrorist Financing are the
recognized global standards for fighting money laundering and
terrorist financing. The FATF has engaged in an assessment
process for jurisdictions based on their compliance with these
standards.
(4) In March 2004, the IMF and IBRD Boards agreed to make
permanent a pilot program of collaboration with the FATF to
assess global compliance with the FATF Forty Recommendations on
Money Laundering and the Eight Special Recommendations on
Terrorist Financing. As a result, anti-money laundering (AML)
and combating the financing of terrorism (CFT) assessments are
now a regular part of their Financial Sector Assessment Progam
(FSAP) and Offshore Financial Center assessments, which provide
for a comprehensive analysis of the strength of a
jurisdiction's financial system. These reviews assess potential
systemic vulnerabilities, consider sectoral development needs
and priorities, and review the state of implementation of and
compliance with key financial codes and regulatory standards,
among them the AML and CFT standards.
(5) To date, 70 FSAPs have been conducted, with over 24 of
those incorporating AML and CFT assessments. The international
financial institutions (IFIs), the FATF, and the FATF-style
regional bodies together are expected to assess AML and CFT
regimes in up to 40 countries or jurisdictions per year. This
will help countries and jurisdictions identify deficiencies in
their AML and CFT regimes and help focus technical assistance
(TA) efforts.
(6) TA programs from the United States and other nations,
coordinated with the Department of State and other departments
and agencies, are playing an important role in helping
countries and jurisdictions address shortcomings in their AML
and CFT regimes and bringing their regimes into conformity with
international standards. Training is coordinated within the
United States Government, which leverages multilateral
organizations and bodies and international financial
institutions to internationalize the conveyance of technical
assistance.
(7) In fulfilling its duties in advancing incorporation of
AML and CFT standards into the IFIs as part of the IFIs' work
on protecting the integrity of the international monetary
system, the Department of the Treasury, under the guidance of
the Secretary of the Treasury, has effectively brought together
all of the key United States Government agencies. In
particular, United States Government agencies continue to work
together to foster broad support for this important undertaking
in various multilateral fora, and United States Government
agencies recognize the need for close coordination and
communication within our own government.
(b) Sense of the Congress.--It is the sense of the Congress that the
Secretary of the Treasury should continue to promote the dissemination
of international AML and CFT standards, and to press for full
implementation of the FATF 40 + 8 Recommendations by all countries in
order to curb financial risks and hinder terrorist financing around the
globe.
SEC. 4112. EXPANDED REPORTING AND TESTIMONY REQUIREMENTS FOR THE
SECRETARY OF THE TREASURY.
(a) Reporting Requirements.--Section 1503(a) of the International
Financial Institutions Act (22 U.S.C. 262o-2(a)) is amended by adding
at the end the following new paragraph:
``(15) Work with the International Monetary Fund to--
``(A) foster strong global anti-money laundering
(AML) and combat the financing of terrorism (CFT)
regimes;
``(B) ensure that country performance under the
Financial Action Task Force anti-money laundering and
counter-terrorist financing standards is effectively
and comprehensively monitored;
``(C) ensure note is taken of AML and CFT issues in
Article IV reports, International Monetary Fund
programs, and other regular reviews of country
progress;
``(D) ensure that effective AML and CFT regimes are
considered to be indispensable elements of sound
financial systems; and
``(E) emphasize the importance of sound AML and CFT
regimes to global growth and development.''.
(b) Testimony.--Section 1705(b) of such Act (22 U.S.C. 262r-4(b)) is
amended--
(1) by striking ``and'' at the end of paragraph (2);
(2) by striking the period at the end of paragraph (3) and
inserting ``; and'' and
(3) by adding at the end the following:
``(4) the status of implementation of international anti-
money laundering and counter-terrorist financing standards by
the International Monetary Fund, the multilateral development
banks, and other multilateral financial policymaking bodies.''.
SEC. 4113. COORDINATION OF UNITED STATES GOVERNMENT EFFORTS.
The Secretary of the Treasury, or the designee of the Secretary as
the lead United States Government official to the Financial Action Task
Force (FATF), shall continue to convene the interagency United States
Government FATF working group. This group, which includes
representatives from all relevant federal agencies, shall meet at least
once a year to advise the Secretary on policies to be pursued by the
United States regarding the development of common international AML and
CFT standards, to assess the adequacy and implementation of such
standards, and to recommend to the Secretary improved or new standards
as necessary.
SEC. 4114. DEFINITIONS.
In this subtitle:
(1) International financial institutions.--The term
``international financial institutions'' has the meaning given
in section 1701(c)(2) of the International Financial
Institutions Act.
(2) Financial Action Task Force.--The term ``Financial Action
Task Force'' means the international policy-making and
standard-setting body dedicated to combating money laundering
and terrorist financing that was created by the Group of Seven
in 1989.
TITLE V--GOVERNMENT RESTRUCTURING
[Subtitles A through F of title V of the Amendment in the Nature of a
Substitute consist of subtitles A through F of title V of the bill H.R.
10, as introduced on September 24, 2004]
Subtitle G--Emergency Financial Preparedness
CHAPTER 1--EMERGENCY PREPAREDNESS FOR FISCAL AUTHORITIES
SEC. 5081. DELEGATION AUTHORITY OF THE SECRETARY OF THE TREASURY.
Subsection (d) of section 306 of title 31, United States Code, is
amended by inserting ``or employee'' after ``another officer''.
SEC. 5081A. TREASURY SUPPORT FOR FINANCIAL SERVICES INDUSTRY
PREPAREDNESS AND RESPONSE.
(a) Congressional Finding.--The Congress finds that the Secretary of
the Treasury--
(1) has successfully communicated and coordinated with the
private-sector financial services industry about counter-
terrorist financing activities and preparedness;
(2) has successfully reached out to State and local
governments and regional public-private partnerships, such as
ChicagoFIRST, that protect employees and critical
infrastructure by enhancing communication and coordinating
plans for disaster preparedness and business continuity; and
(3) has set an example for the Department of Homeland
Security and other Federal agency partners, whose active
participation is vital to the overall success of the activities
described in paragraphs (1) and (2).
(b) Further Education and Preparation Efforts.--It is the sense of
Congress that the Secretary of the Treasury, in consultation with the
Secretary of Homeland Security and other Federal agency partners,
should--
(1) furnish sufficient personnel and technological and
financial resources to foster the formation of public-private
sector coalitions, similar to ChicagoFIRST, that, in
collaboration with the Department of Treasury, the Department
of Homeland Security, and other Federal agency partners, would
educate consumers and employees of the financial services
industry about domestic counter-terrorist financing activities,
including--
(A) how the public and private sector organizations
involved in counter-terrorist financing activities can
help to combat terrorism and simultaneously protect and
preserve the lives and civil liberties of consumers and
employees of the financial services industry; and
(B) how consumers and employees of the financial
services industry can assist the public and private
sector organizations involved in counter-terrorist
financing activities; and
(2) submit annual reports to the Congress on Federal efforts,
in conjunction with public-private sector coalitions, to
educate consumers and employees of the financial services
industry about domestic counter-terrorist financing activities.
CHAPTER 2--MARKET PREPAREDNESS
Subchapter A--Netting of Financial Contracts
SEC. 5082. SHORT TITLE.
This subchapter may be cited as the ``Financial Contracts Bankruptcy
Reform Act of 2004''.
SEC. 5082A. TREATMENT OF CERTAIN AGREEMENTS BY CONSERVATORS OR
RECEIVERS OF INSURED DEPOSITORY INSTITUTIONS.
(a) Definition of Qualified Financial Contract.--
(1) FDIC-insured depository institutions.--Section
11(e)(8)(D) of the Federal Deposit Insurance Act (12 U.S.C.
1821(e)(8)(D)) is amended--
(A) by striking ``subsection--'' and inserting
``subsection, the following definitions shall apply:'';
and
(B) in clause (i), by inserting ``, resolution, or
order'' after ``any similar agreement that the
Corporation determines by regulation''.
(2) Insured credit unions.--Section 207(c)(8)(D) of the
Federal Credit Union Act (12 U.S.C. 1787(c)(8)(D)) is amended--
(A) by striking ``subsection--'' and inserting
``subsection, the following definitions shall apply:'';
and
(B) in clause (i), by inserting ``, resolution, or
order'' after ``any similar agreement that the Board
determines by regulation''.
(b) Definition of Securities Contract.--
(1) FDIC-insured depository institutions.--Section
11(e)(8)(D)(ii) of the Federal Deposit Insurance Act (12 U.S.C.
1821(e)(8)(D)(ii)) is amended to read as follows:
``(ii) Securities contract.--The term
`securities contract'--
``(I) means a contract for the
purchase, sale, or loan of a security,
a certificate of deposit, a mortgage
loan, or any interest in a mortgage
loan, a group or index of securities,
certificates of deposit, or mortgage
loans or interests therein (including
any interest therein or based on the
value thereof) or any option on any of
the foregoing, including any option to
purchase or sell any such security,
certificate of deposit, mortgage loan,
interest, group or index, or option,
and including any repurchase or reverse
repurchase transaction on any such
security, certificate of deposit,
mortgage loan, interest, group or
index, or option;
``(II) does not include any purchase,
sale, or repurchase obligation under a
participation in a commercial mortgage
loan unless the Corporation determines
by regulation, resolution, or order to
include any such agreement within the
meaning of such term;
``(III) means any option entered into
on a national securities exchange
relating to foreign currencies;
``(IV) means the guarantee by or to
any securities clearing agency of any
settlement of cash, securities,
certificates of deposit, mortgage loans
or interests therein, group or index of
securities, certificates of deposit, or
mortgage loans or interests therein
(including any interest therein or
based on the value thereof) or option
on any of the foregoing, including any
option to purchase or sell any such
security, certificate of deposit,
mortgage loan, interest, group or
index, or option;
``(V) means any margin loan;
``(VI) means any other agreement or
transaction that is similar to any
agreement or transaction referred to in
this clause;
``(VII) means any combination of the
agreements or transactions referred to
in this clause;
``(VIII) means any option to enter
into any agreement or transaction
referred to in this clause;
``(IX) means a master agreement that
provides for an agreement or
transaction referred to in subclause
(I), (III), (IV), (V), (VI), (VII), or
(VIII), together with all supplements
to any such master agreement, without
regard to whether the master agreement
provides for an agreement or
transaction that is not a securities
contract under this clause, except that
the master agreement shall be
considered to be a securities contract
under this clause only with respect to
each agreement or transaction under the
master agreement that is referred to in
subclause (I), (III), (IV), (V), (VI),
(VII), or (VIII); and
``(X) means any security agreement or
arrangement or other credit enhancement
related to any agreement or transaction
referred to in this clause, including
any guarantee or reimbursement
obligation in connection with any
agreement or transaction referred to in
this clause.''.
(2) Insured credit unions.--Section 207(c)(8)(D)(ii) of the
Federal Credit Union Act (12 U.S.C. 1787(c)(8)(D)(ii)) is
amended to read as follows:
``(ii) Securities contract.--The term
`securities contract'--
``(I) means a contract for the
purchase, sale, or loan of a security,
a certificate of deposit, a mortgage
loan, or any interest in a mortgage
loan, a group or index of securities,
certificates of deposit, or mortgage
loans or interests therein (including
any interest therein or based on the
value thereof) or any option on any of
the foregoing, including any option to
purchase or sell any such security,
certificate of deposit, mortgage loan,
interest, group or index, or option,
and including any repurchase or reverse
repurchase transaction on any such
security, certificate of deposit,
mortgage loan, interest, group or
index, or option;
``(II) does not include any purchase,
sale, or repurchase obligation under a
participation in a commercial mortgage
loan unless the Board determines by
regulation, resolution, or order to
include any such agreement within the
meaning of such term;
``(III) means any option entered into
on a national securities exchange
relating to foreign currencies;
``(IV) means the guarantee by or to
any securities clearing agency of any
settlement of cash, securities,
certificates of deposit, mortgage loans
or interests therein, group or index of
securities, certificates of deposit, or
mortgage loans or interests therein
(including any interest therein or
based on the value thereof) or option
on any of the foregoing, including any
option to purchase or sell any such
security, certificate of deposit,
mortgage loan, interest, group or
index, or option;
``(V) means any margin loan;
``(VI) means any other agreement or
transaction that is similar to any
agreement or transaction referred to in
this clause;
``(VII) means any combination of the
agreements or transactions referred to
in this clause;
``(VIII) means any option to enter
into any agreement or transaction
referred to in this clause;
``(IX) means a master agreement that
provides for an agreement or
transaction referred to in subclause
(I), (III), (IV), (V), (VI), (VII), or
(VIII), together with all supplements
to any such master agreement, without
regard to whether the master agreement
provides for an agreement or
transaction that is not a securities
contract under this clause, except that
the master agreement shall be
considered to be a securities contract
under this clause only with respect to
each agreement or transaction under the
master agreement that is referred to in
subclause (I), (III), (IV), (V), (VI),
(VII), or (VIII); and
``(X) means any security agreement or
arrangement or other credit enhancement
related to any agreement or transaction
referred to in this clause, including
any guarantee or reimbursement
obligation in connection with any
agreement or transaction referred to in
this clause.''.
(c) Definition of Commodity Contract.--
(1) FDIC-insured depository institutions.--Section
11(e)(8)(D)(iii) of the Federal Deposit Insurance Act (12
U.S.C. 1821(e)(8)(D)(iii)) is amended to read as follows:
``(iii) Commodity contract.--The term
`commodity contract' means--
``(I) with respect to a futures
commission merchant, a contract for the
purchase or sale of a commodity for
future delivery on, or subject to the
rules of, a contract market or board of
trade;
``(II) with respect to a foreign
futures commission merchant, a foreign
future;
``(III) with respect to a leverage
transaction merchant, a leverage
transaction;
``(IV) with respect to a clearing
organization, a contract for the
purchase or sale of a commodity for
future delivery on, or subject to the
rules of, a contract market or board of
trade that is cleared by such clearing
organization, or commodity option
traded on, or subject to the rules of,
a contract market or board of trade
that is cleared by such clearing
organization;
``(V) with respect to a commodity
options dealer, a commodity option;
``(VI) any other agreement or
transaction that is similar to any
agreement or transaction referred to in
this clause;
``(VII) any combination of the
agreements or transactions referred to
in this clause;
``(VIII) any option to enter into any
agreement or transaction referred to in
this clause;
``(IX) a master agreement that
provides for an agreement or
transaction referred to in subclause
(I), (II), (III), (IV), (V), (VI),
(VII), or (VIII), together with all
supplements to any such master
agreement, without regard to whether
the master agreement provides for an
agreement or transaction that is not a
commodity contract under this clause,
except that the master agreement shall
be considered to be a commodity
contract under this clause only with
respect to each agreement or
transaction under the master agreement
that is referred to in subclause (I),
(II), (III), (IV), (V), (VI), (VII), or
(VIII); or
``(X) any security agreement or
arrangement or other credit enhancement
related to any agreement or transaction
referred to in this clause, including
any guarantee or reimbursement
obligation in connection with any
agreement or transaction referred to in
this clause.''.
(2) Insured credit unions.--Section 207(c)(8)(D)(iii) of the
Federal Credit Union Act (12 U.S.C. 1787(c)(8)(D)(iii)) is
amended to read as follows:
``(iii) Commodity contract.--The term
`commodity contract' means--
``(I) with respect to a futures
commission merchant, a contract for the
purchase or sale of a commodity for
future delivery on, or subject to the
rules of, a contract market or board of
trade;
``(II) with respect to a foreign
futures commission merchant, a foreign
future;
``(III) with respect to a leverage
transaction merchant, a leverage
transaction;
``(IV) with respect to a clearing
organization, a contract for the
purchase or sale of a commodity for
future delivery on, or subject to the
rules of, a contract market or board of
trade that is cleared by such clearing
organization, or commodity option
traded on, or subject to the rules of,
a contract market or board of trade
that is cleared by such clearing
organization;
``(V) with respect to a commodity
options dealer, a commodity option;
``(VI) any other agreement or
transaction that is similar to any
agreement or transaction referred to in
this clause;
``(VII) any combination of the
agreements or transactions referred to
in this clause;
``(VIII) any option to enter into any
agreement or transaction referred to in
this clause;
``(IX) a master agreement that
provides for an agreement or
transaction referred to in subclause
(I), (II), (III), (IV), (V), (VI),
(VII), or (VIII), together with all
supplements to any such master
agreement, without regard to whether
the master agreement provides for an
agreement or transaction that is not a
commodity contract under this clause,
except that the master agreement shall
be considered to be a commodity
contract under this clause only with
respect to each agreement or
transaction under the master agreement
that is referred to in subclause (I),
(II), (III), (IV), (V), (VI), (VII), or
(VIII); or
``(X) any security agreement or
arrangement or other credit enhancement
related to any agreement or transaction
referred to in this clause, including
any guarantee or reimbursement
obligation in connection with any
agreement or transaction referred to in
this clause.''.
(d) Definition of Forward Contract.--
(1) FDIC-insured depository institutions.--Section
11(e)(8)(D)(iv) of the Federal Deposit Insurance Act (12 U.S.C.
1821(e)(8)(D)(iv)) is amended to read as follows:
``(iv) Forward contract.--The term `forward
contract' means--
``(I) a contract (other than a
commodity contract) for the purchase,
sale, or transfer of a commodity or any
similar good, article, service, right,
or interest which is presently or in
the future becomes the subject of
dealing in the forward contract trade,
or product or by-product thereof, with
a maturity date more than 2 days after
the date the contract is entered into,
including, a repurchase transaction,
reverse repurchase transaction,
consignment, lease, swap, hedge
transaction, deposit, loan, option,
allocated transaction, unallocated
transaction, or any other similar
agreement;
``(II) any combination of agreements
or transactions referred to in
subclauses (I) and (III);
``(III) any option to enter into any
agreement or transaction referred to in
subclause (I) or (II);
``(IV) a master agreement that
provides for an agreement or
transaction referred to in subclauses
(I), (II), or (III), together with all
supplements to any such master
agreement, without regard to whether
the master agreement provides for an
agreement or transaction that is not a
forward contract under this clause,
except that the master agreement shall
be considered to be a forward contract
under this clause only with respect to
each agreement or transaction under the
master agreement that is referred to in
subclause (I), (II), or (III); or
``(V) any security agreement or
arrangement or other credit enhancement
related to any agreement or transaction
referred to in subclause (I), (II),
(III), or (IV), including any guarantee
or reimbursement obligation in
connection with any agreement or
transaction referred to in any such
subclause.''.
(2) Insured credit unions.--Section 207(c)(8)(D)(iv) of the
Federal Credit Union Act (12 U.S.C. 1787(c)(8)(D)(iv)) is
amended to read as follows:
``(iv) Forward contract.--The term `forward
contract' means--
``(I) a contract (other than a
commodity contract) for the purchase,
sale, or transfer of a commodity or any
similar good, article, service, right,
or interest which is presently or in
the future becomes the subject of
dealing in the forward contract trade,
or product or by-product thereof, with
a maturity date more than 2 days after
the date the contract is entered into,
including, a repurchase transaction,
reverse repurchase transaction,
consignment, lease, swap, hedge
transaction, deposit, loan, option,
allocated transaction, unallocated
transaction, or any other similar
agreement;
``(II) any combination of agreements
or transactions referred to in
subclauses (I) and (III);
``(III) any option to enter into any
agreement or transaction referred to in
subclause (I) or (II);
``(IV) a master agreement that
provides for an agreement or
transaction referred to in subclauses
(I), (II), or (III), together with all
supplements to any such master
agreement, without regard to whether
the master agreement provides for an
agreement or transaction that is not a
forward contract under this clause,
except that the master agreement shall
be considered to be a forward contract
under this clause only with respect to
each agreement or transaction under the
master agreement that is referred to in
subclause (I), (II), or (III); or
``(V) any security agreement or
arrangement or other credit enhancement
related to any agreement or transaction
referred to in subclause (I), (II),
(III), or (IV), including any guarantee
or reimbursement obligation in
connection with any agreement or
transaction referred to in any such
subclause.''.
(e) Definition of Repurchase Agreement.--
(1) FDIC-insured depository institutions.--Section
11(e)(8)(D)(v) of the Federal Deposit Insurance Act (12 U.S.C.
1821(e)(8)(D)(v)) is amended to read as follows:
``(v) Repurchase agreement.--The term
`repurchase agreement' (which definition also
applies to a reverse repurchase agreement)--
``(I) means an agreement, including
related terms, which provides for the
transfer of one or more certificates of
deposit, mortgage-related securities
(as such term is defined in the
Securities Exchange Act of 1934),
mortgage loans, interests in mortgage-
related securities or mortgage loans,
eligible bankers' acceptances,
qualified foreign government securities
or securities that are direct
obligations of, or that are fully
guaranteed by, the United States or any
agency of the United States against the
transfer of funds by the transferee of
such certificates of deposit, eligible
bankers' acceptances, securities,
mortgage loans, or interests with a
simultaneous agreement by such
transferee to transfer to the
transferor thereof certificates of
deposit, eligible bankers' acceptances,
securities, mortgage loans, or
interests as described above, at a date
certain not later than 1 year after
such transfers or on demand, against
the transfer of funds, or any other
similar agreement;
``(II) does not include any
repurchase obligation under a
participation in a commercial mortgage
loan unless the Corporation determines
by regulation, resolution, or order to
include any such participation within
the meaning of such term;
``(III) means any combination of
agreements or transactions referred to
in subclauses (I) and (IV);
``(IV) means any option to enter into
any agreement or transaction referred
to in subclause (I) or (III);
``(V) means a master agreement that
provides for an agreement or
transaction referred to in subclause
(I), (III), or (IV), together with all
supplements to any such master
agreement, without regard to whether
the master agreement provides for an
agreement or transaction that is not a
repurchase agreement under this clause,
except that the master agreement shall
be considered to be a repurchase
agreement under this subclause only
with respect to each agreement or
transaction under the master agreement
that is referred to in subclause (I),
(III), or (IV); and
``(VI) means any security agreement
or arrangement or other credit
enhancement related to any agreement or
transaction referred to in subclause
(I), (III), (IV), or (V), including any
guarantee or reimbursement obligation
in connection with any agreement or
transaction referred to in any such
subclause.
For purposes of this clause, the term
`qualified foreign government security' means a
security that is a direct obligation of, or
that is fully guaranteed by, the central
government of a member of the Organization for
Economic Cooperation and Development (as
determined by regulation or order adopted by
the appropriate Federal banking authority).''.
(2) Insured credit unions.--Section 207(c)(8)(D)(v) of the
Federal Credit Union Act (12 U.S.C. 1787(c)(8)(D)(v)) is
amended to read as follows:
``(v) Repurchase agreement.--The term
`repurchase agreement' (which definition also
applies to a reverse repurchase agreement)--
``(I) means an agreement, including
related terms, which provides for the
transfer of one or more certificates of
deposit, mortgage-related securities
(as such term is defined in the
Securities Exchange Act of 1934),
mortgage loans, interests in mortgage-
related securities or mortgage loans,
eligible bankers' acceptances,
qualified foreign government securities
or securities that are direct
obligations of, or that are fully
guaranteed by, the United States or any
agency of the United States against the
transfer of funds by the transferee of
such certificates of deposit, eligible
bankers' acceptances, securities,
mortgage loans, or interests with a
simultaneous agreement by such
transferee to transfer to the
transferor thereof certificates of
deposit, eligible bankers' acceptances,
securities, mortgage loans, or
interests as described above, at a date
certain not later than 1 year after
such transfers or on demand, against
the transfer of funds, or any other
similar agreement;
``(II) does not include any
repurchase obligation under a
participation in a commercial mortgage
loan unless the Board determines by
regulation, resolution, or order to
include any such participation within
the meaning of such term;
``(III) means any combination of
agreements or transactions referred to
in subclauses (I) and (IV);
``(IV) means any option to enter into
any agreement or transaction referred
to in subclause (I) or (III);
``(V) means a master agreement that
provides for an agreement or
transaction referred to in subclause
(I), (III), or (IV), together with all
supplements to any such master
agreement, without regard to whether
the master agreement provides for an
agreement or transaction that is not a
repurchase agreement under this clause,
except that the master agreement shall
be considered to be a repurchase
agreement under this subclause only
with respect to each agreement or
transaction under the master agreement
that is referred to in subclause (I),
(III), or (IV); and
``(VI) means any security agreement
or arrangement or other credit
enhancement related to any agreement or
transaction referred to in subclause
(I), (III), (IV), or (V), including any
guarantee or reimbursement obligation
in connection with any agreement or
transaction referred to in any such
subclause.
For purposes of this clause, the term
`qualified foreign government security' means a
security that is a direct obligation of, or
that is fully guaranteed by, the central
government of a member of the Organization for
Economic Cooperation and Development (as
determined by regulation or order adopted by
the appropriate Federal banking authority).''.
(f) Definition of Swap Agreement.--
(1) FDIC-insured depository institutions.--Section
11(e)(8)(D)(vi) of the Federal Deposit Insurance Act (12 U.S.C.
1821(e)(8)(D)(vi)) is amended to read as follows:
``(vi) Swap agreement.--The term `swap
agreement' means--
``(I) any agreement, including the
terms and conditions incorporated by
reference in any such agreement, which
is an interest rate swap, option,
future, or forward agreement, including
a rate floor, rate cap, rate collar,
cross-currency rate swap, and basis
swap; a spot, same day-tomorrow,
tomorrow-next, forward, or other
foreign exchange or precious metals
agreement; a currency swap, option,
future, or forward agreement; an equity
index or equity swap, option, future,
or forward agreement; a debt index or
debt swap, option, future, or forward
agreement; a total return, credit
spread or credit swap, option, future,
or forward agreement; a commodity index
or commodity swap, option, future, or
forward agreement; or a weather swap,
weather derivative, or weather option;
``(II) any agreement or transaction
that is similar to any other agreement
or transaction referred to in this
clause and that is of a type that has
been, is presently, or in the future
becomes, the subject of recurrent
dealings in the swap markets (including
terms and conditions incorporated by
reference in such agreement) and that
is a forward, swap, future, or option
on one or more rates, currencies,
commodities, equity securities or other
equity instruments, debt securities or
other debt instruments, quantitative
measures associated with an occurrence,
extent of an occurrence, or contingency
associated with a financial,
commercial, or economic consequence, or
economic or financial indices or
measures of economic or financial risk
or value;
``(III) any combination of agreements
or transactions referred to in this
clause;
``(IV) any option to enter into any
agreement or transaction referred to in
this clause;
``(V) a master agreement that
provides for an agreement or
transaction referred to in subclause
(I), (II), (III), or (IV), together
with all supplements to any such master
agreement, without regard to whether
the master agreement contains an
agreement or transaction that is not a
swap agreement under this clause,
except that the master agreement shall
be considered to be a swap agreement
under this clause only with respect to
each agreement or transaction under the
master agreement that is referred to in
subclause (I), (II), (III), or (IV);
and
``(VI) any security agreement or
arrangement or other credit enhancement
related to any agreements or
transactions referred to in subclause
(I), (II), (III), (IV), or (V),
including any guarantee or
reimbursement obligation in connection
with any agreement or transaction
referred to in any such subclause.
Such term is applicable for purposes of this
subsection only and shall not be construed or
applied so as to challenge or affect the
characterization, definition, or treatment of
any swap agreement under any other statute,
regulation, or rule, including the Securities
Act of 1933, the Securities Exchange Act of
1934, the Public Utility Holding Company Act of
1935, the Trust Indenture Act of 1939, the
Investment Company Act of 1940, the Investment
Advisers Act of 1940, the Securities Investor
Protection Act of 1970, the Commodity Exchange
Act, the Gramm-Leach-Bliley Act, and the Legal
Certainty for Bank Products Act of 2000.''.
(2) Insured credit unions.--Section 207(c)(8)(D) of the
Federal Credit Union Act (12 U.S.C. 1787(c)(8)(D)) is amended
by adding at the end the following new clause:
``(vi) Swap agreement.--The term `swap
agreement' means--
``(I) any agreement, including the
terms and conditions incorporated by
reference in any such agreement, which
is an interest rate swap, option,
future, or forward agreement, including
a rate floor, rate cap, rate collar,
cross-currency rate swap, and basis
swap; a spot, same day-tomorrow,
tomorrow-next, forward, or other
foreign exchange or precious metals
agreement; a currency swap, option,
future, or forward agreement; an equity
index or equity swap, option, future,
or forward agreement; a debt index or
debt swap, option, future, or forward
agreement; a total return, credit
spread or credit swap, option, future,
or forward agreement; a commodity index
or commodity swap, option, future, or
forward agreement; or a weather swap,
weather derivative, or weather option;
``(II) any agreement or transaction
that is similar to any other agreement
or transaction referred to in this
clause and that is of a type that has
been, is presently, or in the future
becomes, the subject of recurrent
dealings in the swap markets (including
terms and conditions incorporated by
reference in such agreement) and that
is a forward, swap, future, or option
on one or more rates, currencies,
commodities, equity securities or other
equity instruments, debt securities or
other debt instruments, quantitative
measures associated with an occurrence,
extent of an occurrence, or contingency
associated with a financial,
commercial, or economic consequence, or
economic or financial indices or
measures of economic or financial risk
or value;
``(III) any combination of agreements
or transactions referred to in this
clause;
``(IV) any option to enter into any
agreement or transaction referred to in
this clause;
``(V) a master agreement that
provides for an agreement or
transaction referred to in subclause
(I), (II), (III), or (IV), together
with all supplements to any such master
agreement, without regard to whether
the master agreement contains an
agreement or transaction that is not a
swap agreement under this clause,
except that the master agreement shall
be considered to be a swap agreement
under this clause only with respect to
each agreement or transaction under the
master agreement that is referred to in
subclause (I), (II), (III), or (IV);
and
``(VI) any security agreement or
arrangement or other credit enhancement
related to any agreements or
transactions referred to in subclause
(I), (II), (III), (IV), or (V),
including any guarantee or
reimbursement obligation in connection
with any agreement or transaction
referred to in any such subclause.
Such term is applicable for purposes of this
subsection only and shall not be construed or
applied so as to challenge or affect the
characterization, definition, or treatment of
any swap agreement under any other statute,
regulation, or rule, including the Securities
Act of 1933, the Securities Exchange Act of
1934, the Public Utility Holding Company Act of
1935, the Trust Indenture Act of 1939, the
Investment Company Act of 1940, the Investment
Advisers Act of 1940, the Securities Investor
Protection Act of 1970, the Commodity Exchange
Act, the Gramm-Leach-Bliley Act, and the Legal
Certainty for Bank Products Act of 2000.''.
(g) Definition of Transfer.--
(1) FDIC-insured depository institutions.--Section
11(e)(8)(D)(viii) of the Federal Deposit Insurance Act (12
U.S.C. 1821(e)(8)(D)(viii)) is amended to read as follows:
``(viii) Transfer.--The term `transfer' means
every mode, direct or indirect, absolute or
conditional, voluntary or involuntary, of
disposing of or parting with property or with
an interest in property, including retention of
title as a security interest and foreclosure of
the depository institution's equity of
redemption.''.
(2) Insured credit unions.--Section 207(c)(8)(D) of the
Federal Credit Union Act (12 U.S.C. 1787(c)(8)(D)) (as amended
by subsection (f) of this section) is amended by adding at the
end the following new clause:
``(viii) Transfer.--The term `transfer' means
every mode, direct or indirect, absolute or
conditional, voluntary or involuntary, of
disposing of or parting with property or with
an interest in property, including retention of
title as a security interest and foreclosure of
the depository institution's equity of
redemption.''.
(h) Treatment of Qualified Financial Contracts.--
(1) FDIC-insured depository institutions.--Section 11(e)(8)
of the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)) is
amended--
(A) in subparagraph (A)--
(i) by striking ``paragraph (10)'' and
inserting ``paragraphs (9) and (10)'';
(ii) in clause (i), by striking ``to cause
the termination or liquidation'' and inserting
``such person has to cause the termination,
liquidation, or acceleration''; and
(iii) by striking clause (ii) and inserting
the following new clause:
``(ii) any right under any security agreement
or arrangement or other credit enhancement
related to one or more qualified financial
contracts described in clause (i);''; and
(B) in subparagraph (E), by striking clause (ii) and
inserting the following:
``(ii) any right under any security agreement
or arrangement or other credit enhancement
related to one or more qualified financial
contracts described in clause (i);''.
(2) Insured credit unions.--Section 207(c)(8) of the Federal
Credit Union Act (12 U.S.C. 1787(c)(8)) is amended--
(A) in subparagraph (A)--
(i) by striking ``paragraph (12)'' and
inserting ``paragraphs (9) and (10)'';
(ii) in clause (i), by striking ``to cause
the termination or liquidation'' and inserting
``such person has to cause the termination,
liquidation, or acceleration''; and
(iii) by striking clause (ii) and inserting
the following new clause:
``(ii) any right under any security agreement
or arrangement or other credit enhancement
related to 1 or more qualified financial
contracts described in clause (i);''; and
(B) in subparagraph (E), by striking clause (ii) and
inserting the following new clause:
``(ii) any right under any security agreement
or arrangement or other credit enhancement
related to 1 or more qualified financial
contracts described in clause (i);''.
(i) Avoidance of Transfers.--
(1) FDIC-insured depository institutions.--Section
11(e)(8)(C)(i) of the Federal Deposit Insurance Act (12 U.S.C.
1821(e)(8)(C)(i)) is amended by inserting ``section 5242 of the
Revised Statutes of the United States or any other Federal or
State law relating to the avoidance of preferential or
fraudulent transfers,'' before ``the Corporation''.
(2) Insured credit unions.--Section 207(c)(8)(C)(i) of the
Federal Credit Union Act (12 U.S.C. 1787(c)(8)(C)(i)) is
amended by inserting ``section 5242 of the Revised Statutes of
the United States or any other Federal or State law relating to
the avoidance of preferential or fraudulent transfers,'' before
``the Board''.
SEC. 5082B. AUTHORITY OF THE FDIC AND NCUAB WITH RESPECT TO FAILED AND
FAILING INSTITUTIONS.
(a) Federal Deposit Insurance Corporation.--
(1) In general.--Section 11(e)(8) of the Federal Deposit
Insurance Act (12 U.S.C. 1821(e)(8)) is amended--
(A) in subparagraph (E), by striking ``other than
paragraph (12) of this subsection, subsection (d)(9)''
and inserting ``other than subsections (d)(9) and
(e)(10)''; and
(B) by adding at the end the following new
subparagraphs:
``(F) Clarification.--No provision of law shall be
construed as limiting the right or power of the
Corporation, or authorizing any court or agency to
limit or delay, in any manner, the right or power of
the Corporation to transfer any qualified financial
contract in accordance with paragraphs (9) and (10) of
this subsection or to disaffirm or repudiate any such
contract in accordance with subsection (e)(1) of this
section.
``(G) Walkaway clauses not effective.--
``(i) In general.--Notwithstanding the
provisions of subparagraphs (A) and (E), and
sections 403 and 404 of the Federal Deposit
Insurance Corporation Improvement Act of 1991,
no walkaway clause shall be enforceable in a
qualified financial contract of an insured
depository institution in default.
``(ii) Walkaway clause defined.--For purposes
of this subparagraph, the term `walkaway
clause' means a provision in a qualified
financial contract that, after calculation of a
value of a party's position or an amount due to
or from 1 of the parties in accordance with its
terms upon termination, liquidation, or
acceleration of the qualified financial
contract, either does not create a payment
obligation of a party or extinguishes a payment
obligation of a party in whole or in part
solely because of such party's status as a
nondefaulting party.''.
(2) Technical and conforming amendment.--Section 11(e)(12)(A)
of the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(12)(A))
is amended by inserting ``or the exercise of rights or powers
by'' after ``the appointment of''.
(b) National Credit Union Administration Board.--
(1) In general.--Section 207(c)(8) of the Federal Credit
Union Act (12 U.S.C. 1787(c)(8)) is amended--
(A) in subparagraph (E) (as amended by section 2(h)),
by striking ``other than paragraph (12) of this
subsection, subsection (b)(9)'' and inserting ``other
than subsections (b)(9) and (c)(10)''; and
(B) by adding at the end the following new
subparagraphs:
``(F) Clarification.--No provision of law shall be
construed as limiting the right or power of the Board,
or authorizing any court or agency to limit or delay,
in any manner, the right or power of the Board to
transfer any qualified financial contract in accordance
with paragraphs (9) and (10) of this subsection or to
disaffirm or repudiate any such contract in accordance
with subsection (c)(1) of this section.
``(G) Walkaway clauses not effective.--
``(i) In general.--Notwithstanding the
provisions of subparagraphs (A) and (E), and
sections 403 and 404 of the Federal Deposit
Insurance Corporation Improvement Act of 1991,
no walkaway clause shall be enforceable in a
qualified financial contract of an insured
credit union in default.
``(ii) Walkaway clause defined.--For purposes
of this subparagraph, the term `walkaway
clause' means a provision in a qualified
financial contract that, after calculation of a
value of a party's position or an amount due to
or from 1 of the parties in accordance with its
terms upon termination, liquidation, or
acceleration of the qualified financial
contract, either does not create a payment
obligation of a party or extinguishes a payment
obligation of a party in whole or in part
solely because of such party's status as a
nondefaulting party.''.
(2) Technical and conforming amendment.--Section
207(c)(12)(A) of the Federal Credit Union Act (12 U.S.C.
1787(c)(12)(A)) is amended by inserting ``or the exercise of
rights or powers by'' after ``the appointment of''.
SEC. 5082C. AMENDMENTS RELATING TO TRANSFERS OF QUALIFIED FINANCIAL
CONTRACTS.
(a) FDIC-Insured Depository Institutions.--
(1) Transfers of qualified financial contracts to financial
institutions.--Section 11(e)(9) of the Federal Deposit
Insurance Act (12 U.S.C. 1821(e)(9)) is amended to read as
follows:
``(9) Transfer of qualified financial contracts.--
``(A) In general.--In making any transfer of assets
or liabilities of a depository institution in default
which includes any qualified financial contract, the
conservator or receiver for such depository institution
shall either--
``(i) transfer to one financial institution,
other than a financial institution for which a
conservator, receiver, trustee in bankruptcy,
or other legal custodian has been appointed or
which is otherwise the subject of a bankruptcy
or insolvency proceeding--
``(I) all qualified financial
contracts between any person or any
affiliate of such person and the
depository institution in default;
``(II) all claims of such person or
any affiliate of such person against
such depository institution under any
such contract (other than any claim
which, under the terms of any such
contract, is subordinated to the claims
of general unsecured creditors of such
institution);
``(III) all claims of such depository
institution against such person or any
affiliate of such person under any such
contract; and
``(IV) all property securing or any
other credit enhancement for any
contract described in subclause (I) or
any claim described in subclause (II)
or (III) under any such contract; or
``(ii) transfer none of the qualified
financial contracts, claims, property or other
credit enhancement referred to in clause (i)
(with respect to such person and any affiliate
of such person).
``(B) Transfer to foreign bank, foreign financial
institution, or branch or agency of a foreign bank or
financial institution.--In transferring any qualified
financial contracts and related claims and property
under subparagraph (A)(i), the conservator or receiver
for the depository institution shall not make such
transfer to a foreign bank, financial institution
organized under the laws of a foreign country, or a
branch or agency of a foreign bank or financial
institution unless, under the law applicable to such
bank, financial institution, branch or agency, to the
qualified financial contracts, and to any netting
contract, any security agreement or arrangement or
other credit enhancement related to one or more
qualified financial contracts, the contractual rights
of the parties to such qualified financial contracts,
netting contracts, security agreements or arrangements,
or other credit enhancements are enforceable
substantially to the same extent as permitted under
this section.
``(C) Transfer of contracts subject to the rules of a
clearing organization.--In the event that a conservator
or receiver transfers any qualified financial contract
and related claims, property, and credit enhancements
pursuant to subparagraph (A)(i) and such contract is
cleared by or subject to the rules of a clearing
organization, the clearing organization shall not be
required to accept the transferee as a member by virtue
of the transfer.
``(D) Definitions.--For purposes of this paragraph,
the term `financial institution' means a broker or
dealer, a depository institution, a futures commission
merchant, or any other institution, as determined by
the Corporation by regulation to be a financial
institution, and the term `clearing organization' has
the same meaning as in section 402 of the Federal
Deposit Insurance Corporation Improvement Act of
1991.''.
(2) Notice to qualified financial contract counterparties.--
Section 11(e)(10)(A) of the Federal Deposit Insurance Act (12
U.S.C. 1821(e)(10)(A)) is amended in the material immediately
following clause (ii) by striking ``the conservator'' and all
that follows through the period and inserting the following:
``the conservator or receiver shall notify any person who is a
party to any such contract of such transfer by 5:00 p.m.
(eastern time) on the business day following the date of the
appointment of the receiver in the case of a receivership, or
the business day following such transfer in the case of a
conservatorship.''.
(3) Rights against receiver and conservator and treatment of
bridge banks.--Section 11(e)(10) of the Federal Deposit
Insurance Act (12 U.S.C. 1821(e)(10)) is amended--
(A) by redesignating subparagraph (B) as subparagraph
(D); and
(B) by inserting after subparagraph (A) the following
new subparagraphs:
``(B) Certain rights not enforceable.--
``(i) Receivership.--A person who is a party
to a qualified financial contract with an
insured depository institution may not exercise
any right that such person has to terminate,
liquidate, or net such contract under paragraph
(8)(A) of this subsection or section 403 or 404
of the Federal Deposit Insurance Corporation
Improvement Act of 1991, solely by reason of or
incidental to the appointment of a receiver for
the depository institution (or the insolvency
or financial condition of the depository
institution for which the receiver has been
appointed)--
``(I) until 5:00 p.m. (eastern time)
on the business day following the date
of the appointment of the receiver; or
``(II) after the person has received
notice that the contract has been
transferred pursuant to paragraph
(9)(A).
``(ii) Conservatorship.--A person who is a
party to a qualified financial contract with an
insured depository institution may not exercise
any right that such person has to terminate,
liquidate, or net such contract under paragraph
(8)(E) of this subsection or section 403 or 404
of the Federal Deposit Insurance Corporation
Improvement Act of 1991, solely by reason of or
incidental to the appointment of a conservator
for the depository institution (or the
insolvency or financial condition of the
depository institution for which the
conservator has been appointed).
``(iii) Notice.--For purposes of this
paragraph, the Corporation as receiver or
conservator of an insured depository
institution shall be deemed to have notified a
person who is a party to a qualified financial
contract with such depository institution if
the Corporation has taken steps reasonably
calculated to provide notice to such person by
the time specified in subparagraph (A).
``(C) Treatment of bridge banks.--The following
institutions shall not be considered to be a financial
institution for which a conservator, receiver, trustee
in bankruptcy, or other legal custodian has been
appointed or which is otherwise the subject of a
bankruptcy or insolvency proceeding for purposes of
paragraph (9):
``(i) A bridge bank.
``(ii) A depository institution organized by
the Corporation, for which a conservator is
appointed either--
``(I) immediately upon the
organization of the institution; or
``(II) at the time of a purchase and
assumption transaction between the
depository institution and the
Corporation as receiver for a
depository institution in default.''.
(b) Insured Credit Unions.--
(1) Transfers of qualified financial contracts to financial
institutions.--Section 207(c)(9) of the Federal Credit Union
Act (12 U.S.C. 1787(c)(9)) is amended to read as follows:
``(9) Transfer of qualified financial contracts.--
``(A) In general.--In making any transfer of assets
or liabilities of a credit union in default which
includes any qualified financial contract, the
conservator or liquidating agent for such credit union
shall either--
``(i) transfer to 1 financial institution,
other than a financial institution for which a
conservator, receiver, trustee in bankruptcy,
or other legal custodian has been appointed or
which is otherwise the subject of a bankruptcy
or insolvency proceeding--
``(I) all qualified financial
contracts between any person or any
affiliate of such person and the credit
union in default;
``(II) all claims of such person or
any affiliate of such person against
such credit union under any such
contract (other than any claim which,
under the terms of any such contract,
is subordinated to the claims of
general unsecured creditors of such
credit union);
``(III) all claims of such credit
union against such person or any
affiliate of such person under any such
contract; and
``(IV) all property securing or any
other credit enhancement for any
contract described in subclause (I) or
any claim described in subclause (II)
or (III) under any such contract; or
``(ii) transfer none of the qualified
financial contracts, claims, property or other
credit enhancement referred to in clause (i)
(with respect to such person and any affiliate
of such person).
``(B) Transfer to foreign bank, foreign financial
institution, or branch or agency of a foreign bank or
financial institution.--In transferring any qualified
financial contracts and related claims and property
under subparagraph (A)(i), the conservator or
liquidating agent for the credit union shall not make
such transfer to a foreign bank, financial institution
organized under the laws of a foreign country, or a
branch or agency of a foreign bank or financial
institution unless, under the law applicable to such
bank, financial institution, branch or agency, to the
qualified financial contracts, and to any netting
contract, any security agreement or arrangement or
other credit enhancement related to 1 or more qualified
financial contracts, the contractual rights of the
parties to such qualified financial contracts, netting
contracts, security agreements or arrangements, or
other credit enhancements are enforceable substantially
to the same extent as permitted under this section.
``(C) Transfer of contracts subject to the rules of a
clearing organization.--In the event that a conservator
or liquidating agent transfers any qualified financial
contract and related claims, property, and credit
enhancements pursuant to subparagraph (A)(i) and such
contract is cleared by or subject to the rules of a
clearing organization, the clearing organization shall
not be required to accept the transferee as a member by
virtue of the transfer.
``(D) Definitions.--For purposes of this paragraph--
``(i) the term `financial institution' means
a broker or dealer, a depository institution, a
futures commission merchant, a credit union, or
any other institution, as determined by the
Board by regulation to be a financial
institution; and
``(ii) the term `clearing organization' has
the same meaning as in section 402 of the
Federal Deposit Insurance Corporation
Improvement Act of 1991.''.
(2) Notice to qualified financial contract counterparties.--
Section 207(c)(10)(A) of the Federal Credit Union Act (12
U.S.C. 1787(c)(10)(A)) is amended in the material immediately
following clause (ii) by striking ``the conservator'' and all
that follows through the period and inserting the following:
``the conservator or liquidating agent shall notify any person
who is a party to any such contract of such transfer by 5:00
p.m. (eastern time) on the business day following the date of
the appointment of the liquidating agent in the case of a
liquidation, or the business day following such transfer in the
case of a conservatorship.''.
(3) Rights against liquidating agent and conservator and
treatment of bridge banks.--Section 207(c)(10) of the Federal
Credit Union Act (12 U.S.C. 1787(c)(10)) is amended--
(A) by redesignating subparagraph (B) as subparagraph
(D); and
(B) by inserting after subparagraph (A) the following
new subparagraphs:
``(B) Certain rights not enforceable.--
``(i) Liquidation.--A person who is a party
to a qualified financial contract with an
insured credit union may not exercise any right
that such person has to terminate, liquidate,
or net such contract under paragraph (8)(A) of
this subsection or section 403 or 404 of the
Federal Deposit Insurance Corporation
Improvement Act of 1991, solely by reason of or
incidental to the appointment of a liquidating
agent for the credit union institution (or the
insolvency or financial condition of the credit
union for which the liquidating agent has been
appointed)--
``(I) until 5:00 p.m. (eastern time)
on the business day following the date
of the appointment of the liquidating
agent; or
``(II) after the person has received
notice that the contract has been
transferred pursuant to paragraph
(9)(A).
``(ii) Conservatorship.--A person who is a
party to a qualified financial contract with an
insured credit union may not exercise any right
that such person has to terminate, liquidate,
or net such contract under paragraph (8)(E) of
this subsection or section 403 or 404 of the
Federal Deposit Insurance Corporation
Improvement Act of 1991, solely by reason of or
incidental to the appointment of a conservator
for the credit union or the insolvency or
financial condition of the credit union for
which the conservator has been appointed).
``(iii) Notice.--For purposes of this
paragraph, the Board as conservator or
liquidating agent of an insured credit union
shall be deemed to have notified a person who
is a party to a qualified financial contract
with such credit union if the Board has taken
steps reasonably calculated to provide notice
to such person by the time specified in
subparagraph (A).
``(C) Treatment of bridge banks.--The following
institutions shall not be considered to be a financial
institution for which a conservator, receiver, trustee
in bankruptcy, or other legal custodian has been
appointed or which is otherwise the subject of a
bankruptcy or insolvency proceeding for purposes of
paragraph (9):
``(i) A bridge bank.
``(ii) A credit union organized by the Board,
for which a conservator is appointed either--
``(I) immediately upon the
organization of the credit union; or
``(II) at the time of a purchase and
assumption transaction between the
credit union and the Board as receiver
for a credit union in default.''.
SEC. 5082D. AMENDMENTS RELATING TO DISAFFIRMANCE OR REPUDIATION OF
QUALIFIED FINANCIAL CONTRACTS.
(a) FDIC-Insured Depository Institutions.--Section 11(e) of the
Federal Deposit Insurance Act (12 U.S.C. 1821(e)) is amended--
(1) by redesignating paragraphs (11) through (15) as
paragraphs (12) through (16), respectively;
(2) by inserting after paragraph (10) the following new
paragraph:
``(11) Disaffirmance or repudiation of qualified financial
contracts.--In exercising the rights of disaffirmance or
repudiation of a conservator or receiver with respect to any
qualified financial contract to which an insured depository
institution is a party, the conservator or receiver for such
institution shall either--
``(A) disaffirm or repudiate all qualified financial
contracts between--
``(i) any person or any affiliate of such
person; and
``(ii) the depository institution in default;
or
``(B) disaffirm or repudiate none of the qualified
financial contracts referred to in subparagraph (A)
(with respect to such person or any affiliate of such
person).''; and
(3) by adding at the end the following new paragraph:
``(17) Savings clause.--The meanings of terms used in this
subsection are applicable for purposes of this subsection only,
and shall not be construed or applied so as to challenge or
affect the characterization, definition, or treatment of any
similar terms under any other statute, regulation, or rule,
including the Gramm-Leach-Bliley Act, the Legal Certainty for
Bank Products Act of 2000, the securities laws (as that term is
defined in section 3(a)(47) of the Securities Exchange Act of
1934), and the Commodity Exchange Act.''.
(b) Insured Credit Unions.--Section 207(c) of the Federal Credit
Union Act (12 U.S.C. 1787(c)) is amended--
(1) by redesignating paragraphs (11), (12), and (13) as
paragraphs (12), (13), and (14), respectively;
(2) by inserting after paragraph (10) the following new
paragraph:
``(11) Disaffirmance or repudiation of qualified financial
contracts.--In exercising the rights of disaffirmance or
repudiation of a conservator or liquidating agent with respect
to any qualified financial contract to which an insured credit
union is a party, the conservator or liquidating agent for such
credit union shall either--
``(A) disaffirm or repudiate all qualified financial
contracts between--
``(i) any person or any affiliate of such
person; and
``(ii) the credit union in default; or
``(B) disaffirm or repudiate none of the qualified
financial contracts referred to in subparagraph (A)
(with respect to such person or any affiliate of such
person).''; and
(3) by adding at the end the following new paragraph:
``(15) Savings clause.--The meanings of terms used in this
subsection are applicable for purposes of this subsection only,
and shall not be construed or applied so as to challenge or
affect the characterization, definition, or treatment of any
similar terms under any other statute, regulation, or rule,
including the Gramm-Leach-Bliley Act, the Legal Certainty for
Bank Products Act of 2000, the securities laws (as that term is
defined in section (a)(47) of the Securities Exchange Act of
1934), and the Commodity Exchange Act.''.
SEC. 5082E. CLARIFYING AMENDMENT RELATING TO MASTER AGREEMENTS.
(a) FDIC-Insured Depository Institutions.--Section 11(e)(8)(D)(vii)
of the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)(D)(vii)) is
amended to read as follows:
``(vii) Treatment of master agreement as one
agreement.--Any master agreement for any
contract or agreement described in any
preceding clause of this subparagraph (or any
master agreement for such master agreement or
agreements), together with all supplements to
such master agreement, shall be treated as a
single agreement and a single qualified
financial contract. If a master agreement
contains provisions relating to agreements or
transactions that are not themselves qualified
financial contracts, the master agreement shall
be deemed to be a qualified financial contract
only with respect to those transactions that
are themselves qualified financial
contracts.''.
(b) Insured Credit Unions.--Section 207(c)(8)(D) of the Federal
Credit Union Act (12 U.S.C. 1787(c)(8)(D)) is amended by inserting
after clause (vi) (as added by section 5082A(f) of this subchapter) the
following new clause:
``(vii) Treatment of master agreement as one
agreement.--Any master agreement for any
contract or agreement described in any
preceding clause of this subparagraph (or any
master agreement for such master agreement or
agreements), together with all supplements to
such master agreement, shall be treated as a
single agreement and a single qualified
financial contract. If a master agreement
contains provisions relating to agreements or
transactions that are not themselves qualified
financial contracts, the master agreement shall
be deemed to be a qualified financial contract
only with respect to those transactions that
are themselves qualified financial
contracts.''.
SEC. 5082F. FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF
1991.
(a) Definitions.--Section 402 of the Federal Deposit Insurance
Corporation Improvement Act of 1991 (12 U.S.C. 4402) is amended--
(1) in paragraph (2)--
(A) in subparagraph (A)(ii), by inserting before the
semicolon ``, or is exempt from such registration by
order of the Securities and Exchange Commission''; and
(B) in subparagraph (B), by inserting before the
period ``, that has been granted an exemption under
section 4(c)(1) of the Commodity Exchange Act, or that
is a multilateral clearing organization (as defined in
section 408 of this Act)'';
(2) in paragraph (6)--
(A) by redesignating subparagraphs (B) through (D) as
subparagraphs (C) through (E), respectively;
(B) by inserting after subparagraph (A) the following
new subparagraph:
``(B) an uninsured national bank or an uninsured
State bank that is a member of the Federal Reserve
System, if the national bank or State member bank is
not eligible to make application to become an insured
bank under section 5 of the Federal Deposit Insurance
Act;''; and
(C) by amending subparagraph (C) (as redesignated) to
read as follows:
``(C) a branch or agency of a foreign bank, a foreign
bank and any branch or agency of the foreign bank, or
the foreign bank that established the branch or agency,
as those terms are defined in section 1(b) of the
International Banking Act of 1978;'';
(3) in paragraph (11), by inserting before the period ``and
any other clearing organization with which such clearing
organization has a netting contract'';
(4) by amending paragraph (14)(A)(i) to read as follows:
``(i) means a contract or agreement between 2
or more financial institutions, clearing
organizations, or members that provides for
netting present or future payment obligations
or payment entitlements (including liquidation
or close out values relating to such
obligations or entitlements) among the parties
to the agreement; and''; and
(5) by adding at the end the following new paragraph:
``(15) Payment.--The term `payment' means a payment of United
States dollars, another currency, or a composite currency, and
a noncash delivery, including a payment or delivery to
liquidate an unmatured obligation.''.
(b) Enforceability of Bilateral Netting Contracts.--Section 403 of
the Federal Deposit Insurance Corporation Improvement Act of 1991 (12
U.S.C. 4403) is amended--
(1) by striking subsection (a) and inserting the following:
``(a) General Rule.--Notwithstanding any other provision of State or
Federal law (other than paragraphs (8)(E), (8)(F), and (10)(B) of
section 11(e) of the Federal Deposit Insurance Act, paragraphs (8)(E),
(8)(F), and (10)(B) of section 207(c) of the Federal Credit Union Act,
or any order authorized under section 5(b)(2) of the Securities
Investor Protection Act of 1970), the covered contractual payment
obligations and the covered contractual payment entitlements between
any 2 financial institutions shall be netted in accordance with, and
subject to the conditions of, the terms of any applicable netting
contract (except as provided in section 561(b)(2) of title 11, United
States Code).''; and
(2) by adding at the end the following new subsection:
``(f) Enforceability of Security Agreements.--The provisions of any
security agreement or arrangement or other credit enhancement related
to one or more netting contracts between any 2 financial institutions
shall be enforceable in accordance with their terms (except as provided
in section 561(b)(2) of title 11, United States Code), and shall not be
stayed, avoided, or otherwise limited by any State or Federal law
(other than paragraphs (8)(E), (8)(F), and (10)(B) of section 11(e) of
the Federal Deposit Insurance Act, paragraphs (8)(E), (8)(F), and
(10)(B) of section 207(c) of the Federal Credit Union Act, and section
5(b)(2) of the Securities Investor Protection Act of 1970).''.
(c) Enforceability of Clearing Organization Netting Contracts.--
Section 404 of the Federal Deposit Insurance Corporation Improvement
Act of 1991 (12 U.S.C. 4404) is amended--
(1) by striking subsection (a) and inserting the following:
``(a) General Rule.--Notwithstanding any other provision of State or
Federal law (other than paragraphs (8)(E), (8)(F), and (10)(B) of
section 11(e) of the Federal Deposit Insurance Act, paragraphs (8)(E),
(8)(F), and (10)(B) of section 207(c) of the Federal Credit Union Act,
and any order authorized under section 5(b)(2) of the Securities
Investor Protection Act of 1970), the covered contractual payment
obligations and the covered contractual payment entitlements of a
member of a clearing organization to and from all other members of a
clearing organization shall be netted in accordance with and subject to
the conditions of any applicable netting contract (except as provided
in section 561(b)(2) of title 11, United States Code).''; and
(2) by adding at the end the following new subsection:
``(h) Enforceability of Security Agreements.--The provisions of any
security agreement or arrangement or other credit enhancement related
to one or more netting contracts between any 2 members of a clearing
organization shall be enforceable in accordance with their terms
(except as provided in section 561(b)(2) of title 11, United States
Code), and shall not be stayed, avoided, or otherwise limited by any
State or Federal law (other than paragraphs (8)(E), (8)(F), and (10)(B)
of section 11(e) of the Federal Deposit Insurance Act, paragraphs
(8)(E), (8)(F), and (10)(B) of section 207(c) of the Federal Credit
Union Act, and section 5(b)(2) of the Securities Investor Protection
Act of 1970).''.
(d) Enforceability of Contracts With Uninsured National Banks,
Uninsured Federal Branches and Agencies, Certain Uninsured State Member
Banks, and Edge Act Corporations.--The Federal Deposit Insurance
Corporation Improvement Act of 1991 (12 U.S.C. 4401 et seq.) is
amended--
(1) by redesignating section 407 as section 407A; and
(2) by inserting after section 406 the following new section:
``SEC. 407. TREATMENT OF CONTRACTS WITH UNINSURED NATIONAL BANKS,
UNINSURED FEDERAL BRANCHES AND AGENCIES, CERTAIN
UNINSURED STATE MEMBER BANKS, AND EDGE ACT
CORPORATIONS.
``(a) In General.--Notwithstanding any other provision of law,
paragraphs (8), (9), (10), and (11) of section 11(e) of the Federal
Deposit Insurance Act shall apply to an uninsured national bank or
uninsured Federal branch or Federal agency, a corporation chartered
under section 25A of the Federal Reserve Act, or an uninsured State
member bank which operates, or operates as, a multilateral clearing
organization pursuant to section 409 of this Act, except that for such
purpose--
``(1) any reference to the `Corporation as receiver' or `the
receiver or the Corporation' shall refer to the receiver
appointed by the Comptroller of the Currency in the case of an
uninsured national bank or uninsured Federal branch or agency,
or to the receiver appointed by the Board of Governors of the
Federal Reserve System in the case of a corporation chartered
under section 25A of the Federal Reserve Act or an uninsured
State member bank;
``(2) any reference to the `Corporation' (other than in
section 11(e)(8)(D) of such Act), the `Corporation, whether
acting as such or as conservator or receiver', a `receiver', or
a `conservator' shall refer to the receiver or conservator
appointed by the Comptroller of the Currency in the case of an
uninsured national bank or uninsured Federal branch or agency,
or to the receiver or conservator appointed by the Board of
Governors of the Federal Reserve System in the case of a
corporation chartered under section 25A of the Federal Reserve
Act or an uninsured State member bank; and
``(3) any reference to an `insured depository institution' or
`depository institution' shall refer to an uninsured national
bank, an uninsured Federal branch or Federal agency, a
corporation chartered under section 25A of the Federal Reserve
Act, or an uninsured State member bank which operates, or
operates as, a multilateral clearing organization pursuant to
section 409 of this Act.
``(b) Liability.--The liability of a receiver or conservator of an
uninsured national bank, uninsured Federal branch or agency, a
corporation chartered under section 25A of the Federal Reserve Act, or
an uninsured State member bank which operates, or operates as, a
multilateral clearing organization pursuant to section 409 of this Act,
shall be determined in the same manner and subject to the same
limitations that apply to receivers and conservators of insured
depository institutions under section 11(e) of the Federal Deposit
Insurance Act.
``(c) Regulatory Authority.--
``(1) In general.--The Comptroller of the Currency in the
case of an uninsured national bank or uninsured Federal branch
or agency and the Board of Governors of the Federal Reserve
System in the case of a corporation chartered under section 25A
of the Federal Reserve Act, or an uninsured State member bank
that operates, or operates as, a multilateral clearing
organization pursuant to section 409 of this Act, in
consultation with the Federal Deposit Insurance Corporation,
may each promulgate regulations solely to implement this
section.
``(2) Specific requirement.--In promulgating regulations,
limited solely to implementing paragraphs (8), (9), (10), and
(11) of section 11(e) of the Federal Deposit Insurance Act, the
Comptroller of the Currency and the Board of Governors of the
Federal Reserve System each shall ensure that the regulations
generally are consistent with the regulations and policies of
the Federal Deposit Insurance Corporation adopted pursuant to
the Federal Deposit Insurance Act.
``(d) Definitions.--For purposes of this section, the terms `Federal
branch', `Federal agency', and `foreign bank' have the same meanings as
in section 1(b) of the International Banking Act of 1978.''.
SEC. 5082G. BANKRUPTCY CODE AMENDMENTS.
(a) Definitions of Forward Contract, Repurchase Agreement, Securities
Clearing Agency, Swap Agreement, Commodity Contract, and Securities
Contract.--Title 11, United States Code, is amended--
(1) in section 101--
(A) in paragraph (25)--
(i) by striking ``means a contract'' and
inserting ``means--
``(A) a contract'';
(ii) by striking ``, or any combination
thereof or option thereon;'' and inserting ``,
or any other similar agreement;''; and
(iii) by adding at the end the following:
``(B) any combination of agreements or transactions
referred to in subparagraphs (A) and (C);
``(C) any option to enter into an agreement or
transaction referred to in subparagraph (A) or (B);
``(D) a master agreement that provides for an
agreement or transaction referred to in subparagraph
(A), (B), or (C), together with all supplements to any
such master agreement, without regard to whether such
master agreement provides for an agreement or
transaction that is not a forward contract under this
paragraph, except that such master agreement shall be
considered to be a forward contract under this
paragraph only with respect to each agreement or
transaction under such master agreement that is
referred to in subparagraph (A), (B), or (C); or
``(E) any security agreement or arrangement, or other
credit enhancement related to any agreement or
transaction referred to in subparagraph (A), (B), (C),
or (D), including any guarantee or reimbursement
obligation by or to a forward contract merchant or
financial participant in connection with any agreement
or transaction referred to in any such subparagraph,
but not to exceed the damages in connection with any
such agreement or transaction, measured in accordance
with section 562 of this title;'';
(B) in paragraph (46), by striking ``on any day
during the period beginning 90 days before the date
of'' and inserting ``at any time before'';
(C) by amending paragraph (47) to read as follows:
``(47) `repurchase agreement' (which definition also applies
to a reverse repurchase agreement)--
``(A) means--
``(i) an agreement, including related terms,
which provides for the transfer of one or more
certificates of deposit, mortgage related
securities (as defined in section 3 of the
Securities Exchange Act of 1934), mortgage
loans, interests in mortgage related securities
or mortgage loans, eligible bankers'
acceptances, qualified foreign government
securities (defined as a security that is a
direct obligation of, or that is fully
guaranteed by, the central government of a
member of the Organization for Economic
Cooperation and Development), or securities
that are direct obligations of, or that are
fully guaranteed by, the United States or any
agency of the United States against the
transfer of funds by the transferee of such
certificates of deposit, eligible bankers'
acceptances, securities, mortgage loans, or
interests, with a simultaneous agreement by
such transferee to transfer to the transferor
thereof certificates of deposit, eligible
bankers' acceptance, securities, mortgage
loans, or interests of the kind described in
this clause, at a date certain not later than 1
year after such transfer or on demand, against
the transfer of funds;
``(ii) any combination of agreements or
transactions referred to in clauses (i) and
(iii);
``(iii) an option to enter into an agreement
or transaction referred to in clause (i) or
(ii);
``(iv) a master agreement that provides for
an agreement or transaction referred to in
clause (i), (ii), or (iii), together with all
supplements to any such master agreement,
without regard to whether such master agreement
provides for an agreement or transaction that
is not a repurchase agreement under this
paragraph, except that such master agreement
shall be considered to be a repurchase
agreement under this paragraph only with
respect to each agreement or transaction under
the master agreement that is referred to in
clause (i), (ii), or (iii); or
``(v) any security agreement or arrangement
or other credit enhancement related to any
agreement or transaction referred to in clause
(i), (ii), (iii), or (iv), including any
guarantee or reimbursement obligation by or to
a repo participant or financial participant in
connection with any agreement or transaction
referred to in any such clause, but not to
exceed the damages in connection with any such
agreement or transaction, measured in
accordance with section 562 of this title; and
``(B) does not include a repurchase obligation under
a participation in a commercial mortgage loan;'';
(D) in paragraph (48), by inserting ``, or exempt
from such registration under such section pursuant to
an order of the Securities and Exchange Commission,''
after ``1934''; and
(E) by amending paragraph (53B) to read as follows:
``(53B) `swap agreement'--
``(A) means--
``(i) any agreement, including the terms and
conditions incorporated by reference in such
agreement, which is--
``(I) an interest rate swap, option,
future, or forward agreement, including
a rate floor, rate cap, rate collar,
cross-currency rate swap, and basis
swap;
``(II) a spot, same day-tomorrow,
tomorrow-next, forward, or other
foreign exchange or precious metals
agreement;
``(III) a currency swap, option,
future, or forward agreement;
``(IV) an equity index or equity
swap, option, future, or forward
agreement;
``(V) a debt index or debt swap,
option, future, or forward agreement;
``(VI) a total return, credit spread
or credit swap, option, future, or
forward agreement;
``(VII) a commodity index or a
commodity swap, option, future, or
forward agreement; or
``(VIII) a weather swap, weather
derivative, or weather option;
``(ii) any agreement or transaction that is
similar to any other agreement or transaction
referred to in this paragraph and that--
``(I) is of a type that has been, is
presently, or in the future becomes,
the subject of recurrent dealings in
the swap markets (including terms and
conditions incorporated by reference
therein); and
``(II) is a forward, swap, future, or
option on one or more rates,
currencies, commodities, equity
securities, or other equity
instruments, debt securities or other
debt instruments, quantitative measures
associated with an occurrence, extent
of an occurrence, or contingency
associated with a financial,
commercial, or economic consequence, or
economic or financial indices or
measures of economic or financial risk
or value;
``(iii) any combination of agreements or
transactions referred to in this subparagraph;
``(iv) any option to enter into an agreement
or transaction referred to in this
subparagraph;
``(v) a master agreement that provides for an
agreement or transaction referred to in clause
(i), (ii), (iii), or (iv), together with all
supplements to any such master agreement, and
without regard to whether the master agreement
contains an agreement or transaction that is
not a swap agreement under this paragraph,
except that the master agreement shall be
considered to be a swap agreement under this
paragraph only with respect to each agreement
or transaction under the master agreement that
is referred to in clause (i), (ii), (iii), or
(iv); or
``(vi) any security agreement or arrangement
or other credit enhancement related to any
agreements or transactions referred to in
clause (i) through (v), including any guarantee
or reimbursement obligation by or to a swap
participant or financial participant in
connection with any agreement or transaction
referred to in any such clause, but not to
exceed the damages in connection with any such
agreement or transaction, measured in
accordance with section 562 of this title; and
``(B) is applicable for purposes of this title only,
and shall not be construed or applied so as to
challenge or affect the characterization, definition,
or treatment of any swap agreement under any other
statute, regulation, or rule, including the Securities
Act of 1933, the Securities Exchange Act of 1934, the
Public Utility Holding Company Act of 1935, the Trust
Indenture Act of 1939, the Investment Company Act of
1940, the Investment Advisers Act of 1940, the
Securities Investor Protection Act of 1970, the
Commodity Exchange Act, the Gramm-Leach-Bliley Act, and
the Legal Certainty for Bank Products Act of 2000;'';
(2) in section 741(7), by striking paragraph (7) and
inserting the following:
``(7) `securities contract'--
``(A) means--
``(i) a contract for the purchase, sale, or
loan of a security, a certificate of deposit, a
mortgage loan or any interest in a mortgage
loan, a group or index of securities,
certificates of deposit, or mortgage loans or
interests therein (including an interest
therein or based on the value thereof), or
option on any of the foregoing, including an
option to purchase or sell any such security,
certificate of deposit, mortgage loan,
interest, group or index, or option, and
including any repurchase or reverse repurchase
transaction on any such security, certificate
of deposit, mortgage loan, interest, group or
index, or option;
``(ii) any option entered into on a national
securities exchange relating to foreign
currencies;
``(iii) the guarantee by or to any securities
clearing agency of a settlement of cash,
securities, certificates of deposit, mortgage
loans or interests therein, group or index of
securities, or mortgage loans or interests
therein (including any interest therein or
based on the value thereof), or option on any
of the foregoing, including an option to
purchase or sell any such security, certificate
of deposit, mortgage loan, interest, group or
index, or option;
``(iv) any margin loan;
``(v) any other agreement or transaction that
is similar to an agreement or transaction
referred to in this subparagraph;
``(vi) any combination of the agreements or
transactions referred to in this subparagraph;
``(vii) any option to enter into any
agreement or transaction referred to in this
subparagraph;
``(viii) a master agreement that provides for
an agreement or transaction referred to in
clause (i), (ii), (iii), (iv), (v), (vi), or
(vii), together with all supplements to any
such master agreement, without regard to
whether the master agreement provides for an
agreement or transaction that is not a
securities contract under this subparagraph,
except that such master agreement shall be
considered to be a securities contract under
this subparagraph only with respect to each
agreement or transaction under such master
agreement that is referred to in clause (i),
(ii), (iii), (iv), (v), (vi), or (vii); or
``(ix) any security agreement or arrangement
or other credit enhancement related to any
agreement or transaction referred to in this
subparagraph, including any guarantee or
reimbursement obligation by or to a
stockbroker, securities clearing agency,
financial institution, or financial participant
in connection with any agreement or transaction
referred to in this subparagraph, but not to
exceed the damages in connection with any such
agreement or transaction, measured in
accordance with section 562 of this title; and
``(B) does not include any purchase, sale, or
repurchase obligation under a participation in a
commercial mortgage loan;''; and
(3) in section 761(4)--
(A) by striking ``or'' at the end of subparagraph
(D); and
(B) by adding at the end the following:
``(F) any other agreement or transaction that is
similar to an agreement or transaction referred to in
this paragraph;
``(G) any combination of the agreements or
transactions referred to in this paragraph;
``(H) any option to enter into an agreement or
transaction referred to in this paragraph;
``(I) a master agreement that provides for an
agreement or transaction referred to in subparagraph
(A), (B), (C), (D), (E), (F), (G), or (H), together
with all supplements to such master agreement, without
regard to whether the master agreement provides for an
agreement or transaction that is not a commodity
contract under this paragraph, except that the master
agreement shall be considered to be a commodity
contract under this paragraph only with respect to each
agreement or transaction under the master agreement
that is referred to in subparagraph (A), (B), (C), (D),
(E), (F), (G), or (H); or
``(J) any security agreement or arrangement or other
credit enhancement related to any agreement or
transaction referred to in this paragraph, including
any guarantee or reimbursement obligation by or to a
commodity broker or financial participant in connection
with any agreement or transaction referred to in this
paragraph, but not to exceed the damages in connection
with any such agreement or transaction, measured in
accordance with section 562 of this title;''.
(b) Definitions of Financial Institution, Financial Participant, and
Forward Contract Merchant.--Section 101 of title 11, United States
Code, is amended--
(1) by striking paragraph (22) and inserting the following:
``(22) `financial institution' means--
``(A) a Federal reserve bank, or an entity (domestic
or foreign) that is a commercial or savings bank,
industrial savings bank, savings and loan association,
trust company, federally-insured credit union, or
receiver or conservator for such entity and, when any
such Federal reserve bank, receiver, conservator or
entity is acting as agent or custodian for a customer
in connection with a securities contract (as defined in
section 741) such customer; or
``(B) in connection with a securities contract (as
defined in section 741) an investment company
registered under the Investment Company Act of 1940;'';
(2) by inserting after paragraph (22) the following:
``(22A) `financial participant' means--
``(A) an entity that, at the time it enters into a
securities contract, commodity contract, swap
agreement, repurchase agreement, or forward contract,
or at the time of the filing of the petition, has one
or more agreements or transactions described in
paragraph (1), (2), (3), (4), (5), or (6) of section
561(a) with the debtor or any other entity (other than
an affiliate) of a total gross dollar value of not less
than $1,000,000,000 in notional or actual principal
amount outstanding on any day during the previous 15-
month period, or has gross mark-to-market positions of
not less than $100,000,000 (aggregated across
counterparties) in one or more such agreements or
transactions with the debtor or any other entity (other
than an affiliate) on any day during the previous 15-
month period; or
``(B) a clearing organization (as defined in section
402 of the Federal Deposit Insurance Corporation
Improvement Act of 1991);''; and
(3) by striking paragraph (26) and inserting the following:
``(26) `forward contract merchant' means a Federal reserve
bank, or an entity the business of which consists in whole or
in part of entering into forward contracts as or with merchants
in a commodity (as defined in section 761) or any similar good,
article, service, right, or interest which is presently or in
the future becomes the subject of dealing in the forward
contract trade;''.
(c) Definition of Master Netting Agreement and Master Netting
Agreement Participant.--Section 101 of title 11, United States Code, is
amended by inserting after paragraph (38) the following new paragraphs:
``(38A) `master netting agreement'--
``(A) means an agreement providing for the exercise
of rights, including rights of netting, setoff,
liquidation, termination, acceleration, or close out,
under or in connection with one or more contracts that
are described in any one or more of paragraphs (1)
through (5) of section 561(a), or any security
agreement or arrangement or other credit enhancement
related to one or more of the foregoing, including any
guarantee or reimbursement obligation related to 1 or
more of the foregoing; and
``(B) if the agreement contains provisions relating
to agreements or transactions that are not contracts
described in paragraphs (1) through (5) of section
561(a), shall be deemed to be a master netting
agreement only with respect to those agreements or
transactions that are described in any one or more of
paragraphs (1) through (5) of section 561(a);
``(38B) `master netting agreement participant' means an
entity that, at any time before the filing of the petition, is
a party to an outstanding master netting agreement with the
debtor;''.
(d) Swap Agreements, Securities Contracts, Commodity Contracts,
Forward Contracts, Repurchase Agreements, and Master Netting Agreements
Under the Automatic-stay.--
(1) In general.--Section 362(b) of title 11, United States
Code, is amended--
(A) in paragraph (6), by inserting ``, pledged to,
under the control of,'' after ``held by'';
(B) in paragraph (7), by inserting ``, pledged to,
under the control of,'' after ``held by'';
(C) by striking paragraph (17) and inserting the
following:
``(17) under subsection (a), of the setoff by a swap
participant or financial participant of a mutual debt and claim
under or in connection with one or more swap agreements that
constitutes the setoff of a claim against the debtor for any
payment or other transfer of property due from the debtor under
or in connection with any swap agreement against any payment
due to the debtor from the swap participant or financial
participant under or in connection with any swap agreement or
against cash, securities, or other property held by, pledged
to, under the control of, or due from such swap participant or
financial participant to margin, guarantee, secure, or settle
any swap agreement;'';
(D) in paragraph (18) by striking the period at the
end and inserting ``; or''; and
(E) by inserting after paragraph (18) the following
new paragraph:
``(19) under subsection (a), of the setoff by a master
netting agreement participant of a mutual debt and claim under
or in connection with one or more master netting agreements or
any contract or agreement subject to such agreements that
constitutes the setoff of a claim against the debtor for any
payment or other transfer of property due from the debtor under
or in connection with such agreements or any contract or
agreement subject to such agreements against any payment due to
the debtor from such master netting agreement participant under
or in connection with such agreements or any contract or
agreement subject to such agreements or against cash,
securities, or other property held by, pledged to, under the
control of, or due from such master netting agreement
participant to margin, guarantee, secure, or settle such
agreements or any contract or agreement subject to such
agreements, to the extent that such participant is eligible to
exercise such offset rights under paragraph (6), (7), or (17)
for each individual contract covered by the master netting
agreement in issue.''.
(2) Limitation.--Section 362 of title 11, United States Code,
is amended by adding at the end the following:
``(i) The exercise of rights not subject to the stay arising under
subsection (a) pursuant to paragraph (6), (7), (17), or (19) of
subsection (b) shall not be stayed by any order of a court or
administrative agency in any proceeding under this title.''.
(e) Limitation of Avoidance Powers Under Master Netting Agreement.--
Section 546 of title 11, United States Code, is amended--
(1) in subsection (g) (as added by section 103 of Public Law
101-311)--
(A) by striking ``under a swap agreement'';
(B) by striking ``in connection with a swap
agreement'' and inserting ``under or in connection with
any swap agreement''; and
(C) by inserting ``or financial participant'' after
``swap participant'' each place such term appears; and
(2) by adding at the end the following:
``(i) Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and
548(b) the trustee may not avoid a transfer made by or to a master
netting agreement participant under or in connection with any master
netting agreement or any individual contract covered thereby that is
made before the commencement of the case, except under section
548(a)(1)(A) and except to the extent that the trustee could otherwise
avoid such a transfer made under an individual contract covered by such
master netting agreement.''.
(f) Fraudulent Transfers of Master Netting Agreements.--Section
548(d)(2) of title 11, United States Code, is amended--
(1) in subparagraph (C), by striking ``and'' at the end;
(2) in subparagraph (D), by striking the period and inserting
``; and''; and
(3) by adding at the end the following new subparagraph:
``(E) a master netting agreement participant that receives a
transfer in connection with a master netting agreement or any
individual contract covered thereby takes for value to the
extent of such transfer, except that, with respect to a
transfer under any individual contract covered thereby, to the
extent that such master netting agreement participant otherwise
did not take (or is otherwise not deemed to have taken) such
transfer for value.''.
(g) Termination or Acceleration of Securities Contracts.--Section 555
of title 11, United States Code, is amended--
(1) by amending the section heading to read as follows:
``Sec. 555. Contractual right to liquidate, terminate, or accelerate a
securities contract'';
(2) in the first sentence, by striking ``liquidation'' and
inserting ``liquidation, termination, or acceleration''.
(h) Termination or Acceleration of Commodities or Forward
Contracts.--Section 556 of title 11, United States Code, is amended--
(1) by amending the section heading to read as follows:
``Sec. 556. Contractual right to liquidate, terminate, or accelerate a
commodities contract or forward contract'';
(2) in the first sentence, by striking ``liquidation'' and
inserting ``liquidation, termination, or acceleration''; and
(3) in the second sentence, by striking ``As used'' and all
that follows through ``right,'' and inserting ``As used in this
section, the term `contractual right' includes a right set
forth in a rule or bylaw of a derivatives clearing organization
(as defined in the Commodity Exchange Act), a multilateral
clearing organization (as defined in the Federal Deposit
Insurance Corporation Improvement Act of 1991), a national
securities exchange, a national securities association, a
securities clearing agency, a contract market designated under
the Commodity Exchange Act, a derivatives transaction execution
facility registered under the Commodity Exchange Act, or a
board of trade (as defined in the Commodity Exchange Act) or in
a resolution of the governing board thereof and a right,''.
(i) Termination or Acceleration of Repurchase Agreements.--Section
559 of title 11, United States Code, is amended--
(1) by amending the section heading to read as follows:
``Sec. 559. Contractual right to liquidate, terminate, or accelerate a
repurchase agreement'';
(2) in the first sentence, by striking ``liquidation'' and
inserting ``liquidation, termination, or acceleration''; and
(3) in the third sentence, by striking ``As used'' and all
that follows through ``right,'' and inserting ``As used in this
section, the term `contractual right' includes a right set
forth in a rule or bylaw of a derivatives clearing organization
(as defined in the Commodity Exchange Act), a multilateral
clearing organization (as defined in the Federal Deposit
Insurance Corporation Improvement Act of 1991), a national
securities exchange, a national securities association, a
securities clearing agency, a contract market designated under
the Commodity Exchange Act, a derivatives transaction execution
facility registered under the Commodity Exchange Act, or a
board of trade (as defined in the Commodity Exchange Act) or in
a resolution of the governing board thereof and a right,''.
(j) Liquidation, Termination, or Acceleration of Swap Agreements.--
Section 560 of title 11, United States Code, is amended--
(1) by amending the section heading to read as follows:
``Sec. 560. Contractual right to liquidate, terminate, or accelerate a
swap agreement'';
(2) in the first sentence, by striking ``termination of a
swap agreement'' and inserting ``liquidation, termination, or
acceleration of one or more swap agreements'';
(3) by striking ``in connection with any swap agreement'' and
inserting ``in connection with the termination, liquidation, or
acceleration of one or more swap agreements''; and
(4) in the second sentence, by striking ``As used'' and all
that follows through ``right,'' and inserting ``As used in this
section, the term `contractual right' includes a right set
forth in a rule or bylaw of a derivatives clearing organization
(as defined in the Commodity Exchange Act), a multilateral
clearing organization (as defined in the Federal Deposit
Insurance Corporation Improvement Act of 1991), a national
securities exchange, a national securities association, a
securities clearing agency, a contract market designated under
the Commodity Exchange Act, a derivatives transaction execution
facility registered under the Commodity Exchange Act, or a
board of trade (as defined in the Commodity Exchange Act) or in
a resolution of the governing board thereof and a right,''.
(k) Liquidation, Termination, Acceleration, or Offset Under a Master
Netting Agreement and Across Contracts.--
(1) In general.--Title 11, United States Code, is amended by
inserting after section 560 the following:
``Sec. 561. Contractual right to terminate, liquidate, accelerate, or
offset under a master netting agreement and across
contracts; proceedings under Section 304
``(a) Subject to subsection (b), the exercise of any contractual
right, because of a condition of the kind specified in section
365(e)(1), to cause the termination, liquidation, or acceleration of or
to offset or net termination values, payment amounts, or other transfer
obligations arising under or in connection with one or more (or the
termination, liquidation, or acceleration of one or more)--
``(1) securities contracts, as defined in section 741(7);
``(2) commodity contracts, as defined in section 761(4);
``(3) forward contracts;
``(4) repurchase agreements;
``(5) swap agreements; or
``(6) master netting agreements,
shall not be stayed, avoided, or otherwise limited by operation of any
provision of this title or by any order of a court or administrative
agency in any proceeding under this title.
``(b)(1) A party may exercise a contractual right described in
subsection (a) to terminate, liquidate, or accelerate only to the
extent that such party could exercise such a right under section 555,
556, 559, or 560 for each individual contract covered by the master
netting agreement in issue.
``(2) If a debtor is a commodity broker subject to subchapter IV of
chapter 7--
``(A) a party may not net or offset an obligation to the
debtor arising under, or in connection with, a commodity
contract traded on or subject to the rules of a contract market
designated under the Commodity Exchange Act or a derivatives
transaction execution facility registered under the Commodity
Exchange Act against any claim arising under, or in connection
with, other instruments, contracts, or agreements listed in
subsection (a) except to the extent that the party has positive
net equity in the commodity accounts at the debtor, as
calculated under such subchapter; and
``(B) another commodity broker may not net or offset an
obligation to the debtor arising under, or in connection with,
a commodity contract entered into or held on behalf of a
customer of the debtor and traded on or subject to the rules of
a contract market designated under the Commodity Exchange Act
or a derivatives transaction execution facility registered
under the Commodity Exchange Act against any claim arising
under, or in connection with, other instruments, contracts, or
agreements listed in subsection (a).
``(3) No provision of subparagraph (A) or (B) of paragraph (2) shall
prohibit the offset of claims and obligations that arise under--
``(A) a cross-margining agreement or similar arrangement that
has been approved by the Commodity Futures Trading Commission
or submitted to the Commodity Futures Trading Commission under
paragraph (1) or (2) of section 5c(c) of the Commodity Exchange
Act and has not been abrogated or rendered ineffective by the
Commodity Futures Trading Commission; or
``(B) any other netting agreement between a clearing
organization (as defined in section 761) and another entity
that has been approved by the Commodity Futures Trading
Commission.
``(c) As used in this section, the term `contractual right' includes
a right set forth in a rule or bylaw of a derivatives clearing
organization (as defined in the Commodity Exchange Act), a multilateral
clearing organization (as defined in the Federal Deposit Insurance
Corporation Improvement Act of 1991), a national securities exchange, a
national securities association, a securities clearing agency, a
contract market designated under the Commodity Exchange Act, a
derivatives transaction execution facility registered under the
Commodity Exchange Act, or a board of trade (as defined in the
Commodity Exchange Act) or in a resolution of the governing board
thereof, and a right, whether or not evidenced in writing, arising
under common law, under law merchant, or by reason of normal business
practice.
``(d) Any provisions of this title relating to securities contracts,
commodity contracts, forward contracts, repurchase agreements, swap
agreements, or master netting agreements shall apply in a case under
section 304, so that enforcement of contractual provisions of such
contracts and agreements in accordance with their terms will not be
stayed or otherwise limited by operation of any provision of this title
or by order of a court in any case under this title, and to limit
avoidance powers to the same extent as in a proceeding under chapter 7
or 11 of this title (such enforcement not to be limited based on the
presence or absence of assets of the debtor in the United States).''.
(2) Conforming amendment.--The table of sections for chapter
5 of title 11, United States Code, is amended by inserting
after the item relating to section 560 the following:
``561. Contractual right to terminate, liquidate, accelerate, or offset
under a master netting agreement and across contracts; proceedings
under section 304.''.
(l) Commodity Broker Liquidations.--Title 11, United States Code, is
amended by inserting after section 766 the following:
``Sec. 767. Commodity broker liquidation and forward contract
merchants, commodity brokers, stockbrokers,
financial institutions, financial participants,
securities clearing agencies, swap participants,
repo participants, and master netting agreement
participants
``Notwithstanding any other provision of this title, the exercise of
rights by a forward contract merchant, commodity broker, stockbroker,
financial institution, financial participant, securities clearing
agency, swap participant, repo participant, or master netting agreement
participant under this title shall not affect the priority of any
unsecured claim it may have after the exercise of such rights.''.
(m) Stockbroker Liquidations.--Title 11, United States Code, is
amended by inserting after section 752 the following:
``Sec. 753. Stockbroker liquidation and forward contract merchants,
commodity brokers, stockbrokers, financial
institutions, financial participants, securities
clearing agencies, swap participants, repo
participants, and master netting agreement
participants
``Notwithstanding any other provision of this title, the exercise of
rights by a forward contract merchant, commodity broker, stockbroker,
financial institution, securities clearing agency, swap participant,
repo participant, financial participant, or master netting agreement
participant under this title shall not affect the priority of any
unsecured claim it may have after the exercise of such rights.''.
(n) Setoff.--Section 553 of title 11, United States Code, is
amended--
(1) in subsection (a)(2)(B)(ii), by inserting before the
semicolon the following: ``(except for a setoff of a kind
described in section 362(b)(6), 362(b)(7), 362(b)(17),
362(b)(19), 555, 556, 559, 560, or 561)'';
(2) in subsection (a)(3)(C), by inserting before the period
the following: ``(except for a setoff of a kind described in
section 362(b)(6), 362(b)(7), 362(b)(17), 362(b)(19), 555, 556,
559, 560, or 561 of this title)''; and
(3) in subsection (b)(1), by striking ``362(b)(14),'' and
inserting ``362(b)(17), 362(b)(19), 555, 556, 559, 560, 561,''.
(o) Securities Contracts, Commodity Contracts, and Forward
Contracts.--Title 11, United States Code, is amended--
(1) in section 362(b)(6), by striking ``financial
institutions,'' each place such term appears and inserting
``financial institution, financial participant,'';
(2) in sections 362(b)(7) and 546(f), by inserting ``or
financial participant'' after ``repo participant'' each place
such term appears;
(3) in section 546(e), by inserting ``financial
participant,'' after ``financial institution,'';
(4) in section 548(d)(2)(B), by inserting ``financial
participant,'' after ``financial institution,'';
(5) in section 548(d)(2)(C), by inserting ``or financial
participant'' after ``repo participant'';
(6) in section 548(d)(2)(D), by inserting ``or financial
participant'' after ``swap participant'';
(7) in section 555--
(A) by inserting ``financial participant,'' after
``financial institution,''; and
(B) by striking the second sentence and inserting the
following: ``As used in this section, the term
`contractual right' includes a right set forth in a
rule or bylaw of a derivatives clearing organization
(as defined in the Commodity Exchange Act), a
multilateral clearing organization (as defined in the
Federal Deposit Insurance Corporation Improvement Act
of 1991), a national securities exchange, a national
securities association, a securities clearing agency, a
contract market designated under the Commodity Exchange
Act, a derivatives transaction execution facility
registered under the Commodity Exchange Act, or a board
of trade (as defined in the Commodity Exchange Act), or
in a resolution of the governing board thereof, and a
right, whether or not in writing, arising under common
law, under law merchant, or by reason of normal
business practice'';
(8) in section 556, by inserting ``, financial participant,''
after ``commodity broker'';
(9) in section 559, by inserting ``or financial participant''
after ``repo participant'' each place such term appears; and
(10) in section 560, by inserting ``or financial
participant'' after ``swap participant''.
(p) Conforming Amendments.--Title 11, United States Code, is
amended--
(1) in the table of sections for chapter 5--
(A) by amending the items relating to sections 555
and 556 to read as follows:
``555. Contractual right to liquidate, terminate, or accelerate a
securities contract.
``556. Contractual right to liquidate, terminate, or accelerate a
commodities contract or forward contract.'';
and
(B) by amending the items relating to sections 559
and 560 to read as follows:
``559. Contractual right to liquidate, terminate, or accelerate a
repurchase agreement.
``560. Contractual right to liquidate, terminate, or accelerate a swap
agreement.'';
and
(2) in the table of sections for chapter 7--
(A) by inserting after the item relating to section
766 the following:
``767. Commodity broker liquidation and forward contract merchants,
commodity brokers, stockbrokers, financial institutions, financial
participants, securities clearing agencies, swap participants, repo
participants, and master netting agreement participants.'';
and
(B) by inserting after the item relating to section
752 the following:
``753. Stockbroker liquidation and forward contract merchants,
commodity brokers, stockbrokers, financial institutions, financial
participants, securities clearing agencies, swap participants, repo
participants, and master netting agreement participants.''.
SEC. 5082H. RECORDKEEPING REQUIREMENTS.
(a) FDIC-Insured Depository Institutions.--Section 11(e)(8) of the
Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)) is amended by
adding at the end the following new subparagraph:
``(H) Recordkeeping requirements.--The Corporation,
in consultation with the appropriate Federal banking
agencies and the National Credit Union Administration
Board, may prescribe regulations requiring more
detailed recordkeeping by any insured depository
institution with respect to qualified financial
contracts (including market valuations) only if such
insured depository institution is in a troubled
condition (as such term is defined by the Corporation
pursuant to section 32).''.
(b) Insured Credit Unions.--Section 207(c)(8) of the Federal Credit
Union Act (12 U.S.C. 1787(c)(8)) is amended by adding at the end the
following new subparagraph:
``(H) Recordkeeping requirements.--The Board, in
consultation with the appropriate Federal banking
agencies, may prescribe regulations requiring more
detailed recordkeeping by any insured credit union with
respect to qualified financial contracts (including
market valuations) only if such insured credit union is
in a troubled condition (as such term is defined by the
Board pursuant to section 212).''.
SEC. 5082I. EXEMPTIONS FROM CONTEMPORANEOUS EXECUTION REQUIREMENT.
Section 13(e)(2) of the Federal Deposit Insurance Act (12 U.S.C.
1823(e)(2)) is amended to read as follows:
``(2) Exemptions from contemporaneous execution
requirement.--An agreement to provide for the lawful
collateralization of--
``(A) deposits of, or other credit extension by, a
Federal, State, or local governmental entity, or of any
depositor referred to in section 11(a)(2), including an
agreement to provide collateral in lieu of a surety
bond;
``(B) bankruptcy estate funds pursuant to section
345(b)(2) of title 11, United States Code;
``(C) extensions of credit, including any overdraft,
from a Federal reserve bank or Federal home loan bank;
or
``(D) one or more qualified financial contracts, as
defined in section 11(e)(8)(D),
shall not be deemed invalid pursuant to paragraph (1)(B) solely
because such agreement was not executed contemporaneously with
the acquisition of the collateral or because of pledges,
delivery, or substitution of the collateral made in accordance
with such agreement.''.
SEC. 5082J. DAMAGE MEASURE.
(a) In General.--Title 11, United States Code, is amended--
(1) by inserting after section 561, as added by section
5082G(k)(1) of this subchapter, the following:
``Sec. 562. Timing of damage measurement in connection with swap
agreements, securities contracts, forward
contracts, commodity contracts, repurchase
agreements, and master netting agreements
``(a) If the trustee rejects a swap agreement, securities contract
(as defined in section 741), forward contract, commodity contract (as
defined in section 761), repurchase agreement, or master netting
agreement pursuant to section 365(a), or if a forward contract
merchant, stockbroker, financial institution, securities clearing
agency, repo participant, financial participant, master netting
agreement participant, or swap participant liquidates, terminates, or
accelerates such contract or agreement, damages shall be measured as of
the earlier of--
``(1) the date of such rejection; or
``(2) the date or dates of such liquidation, termination, or
acceleration.
``(b) If there are not any commercially reasonable determinants of
value as of any date referred to in paragraph (1) or (2) of subsection
(a), damages shall be measured as of the earliest subsequent date or
dates on which there are commercially reasonable determinants of value.
``(c) For the purposes of subsection (b), if damages are not measured
as of the date or dates of rejection, liquidation, termination, or
acceleration, and the forward contract merchant, stockbroker, financial
institution, securities clearing agency, repo participant, financial
participant, master netting agreement participant, or swap participant
or the trustee objects to the timing of the measurement of damages--
``(1) the trustee, in the case of an objection by a forward
contract merchant, stockbroker, financial institution,
securities clearing agency, repo participant, financial
participant, master netting agreement participant, or swap
participant; or
``(2) the forward contract merchant, stockbroker, financial
institution, securities clearing agency, repo participant,
financial participant, master netting agreement participant, or
swap participant, in the case of an objection by the trustee,
has the burden of proving that there were no commercially reasonable
determinants of value as of such date or dates.''; and
(2) in the table of sections for chapter 5, by inserting
after the item relating to section 561 (as added by section
5082G(k)(2) of this subchapter) the following new item:
``562. Timing of damage measure in connection with swap agreements,
securities contracts, forward contracts, commodity contracts,
repurchase agreements, or master netting agreements.''.
(b) Claims Arising From Rejection.--Section 502(g) of title 11,
United States Code, is amended--
(1) by inserting ``(1)'' after ``(g)''; and
(2) by adding at the end the following:
``(2) A claim for damages calculated in accordance with section 562
of this title shall be allowed under subsection (a), (b), or (c), or
disallowed under subsection (d) or (e), as if such claim had arisen
before the date of the filing of the petition.''.
SEC. 5082K. SIPC STAY.
Section 5(b)(2) of the Securities Investor Protection Act of 1970 (15
U.S.C. 78eee(b)(2)) is amended by adding at the end the following new
subparagraph:
``(C) Exception from stay.--
``(i) Notwithstanding section 362 of title
11, United States Code, neither the filing of
an application under subsection (a)(3) nor any
order or decree obtained by SIPC from the court
shall operate as a stay of any contractual
rights of a creditor to liquidate, terminate,
or accelerate a securities contract, commodity
contract, forward contract, repurchase
agreement, swap agreement, or master netting
agreement, as those terms are defined in
sections 101, 741, and 761 of title 11, United
States Code, to offset or net termination
values, payment amounts, or other transfer
obligations arising under or in connection with
one or more of such contracts or agreements, or
to foreclose on any cash collateral pledged by
the debtor, whether or not with respect to one
or more of such contracts or agreements.
``(ii) Notwithstanding clause (i), such
application, order, or decree may operate as a
stay of the foreclosure on, or disposition of,
securities collateral pledged by the debtor,
whether or not with respect to one or more of
such contracts or agreements, securities sold
by the debtor under a repurchase agreement, or
securities lent under a securities lending
agreement.
``(iii) As used in this subparagraph, the
term `contractual right' includes a right set
forth in a rule or bylaw of a national
securities exchange, a national securities
association, or a securities clearing agency, a
right set forth in a bylaw of a clearing
organization or contract market or in a
resolution of the governing board thereof, and
a right, whether or not in writing, arising
under common law, under law merchant, or by
reason of normal business practice.''.
SEC. 5082L. APPLICABILITY OF OTHER SECTIONS TO CHAPTER 9.
Section 901(a) of title 11, United States Code, is amended--
(1) by inserting ``555, 556,'' after ``553,''; and
(2) by inserting ``559, 560, 561, 562'' after ``557,''.
SEC. 5082M. EFFECTIVE DATE; APPLICATION OF AMENDMENTS.
(a) Effective Date.--This subchapter shall take effect on the date of
enactment of this Act.
(b) Application of Amendments.--The amendments made by this
subchapter shall apply with respect to cases commenced or appointments
made under any Federal or State law on or after the date of enactment
of this Act, but shall not apply with respect to cases commenced or
appointments made under any Federal or State law before the date of
enactment of this Act.
SEC. 5082N. SAVINGS CLAUSE.
The meanings of terms used in this subchapter are applicable for
purposes of this subchapter only, and shall not be construed or applied
so as to challenge or affect the characterization, definition, or
treatment of any similar terms under any other statute, regulation, or
rule, including the Gramm-Leach-Bliley Act, the Legal Certainty for
Bank Products Act of 2000, the securities laws (as that term is defined
in section 3(a)(47) of the Securities Exchange Act of 1934), and the
Commodity Exchange Act.
Subchapter B--Emergency Securities Response
SEC. 5086. SHORT TITLE.
This subchapter may be cited as the ``Emergency Securities Response
Act of 2004''.
SEC. 5087. EXTENSION OF EMERGENCY ORDER AUTHORITY OF THE SECURITIES AND
EXCHANGE COMMISSION.
(a) Extension of Authority.--Paragraph (2) of section 12(k) of the
Securities Exchange Act of 1934 (15 U.S.C. 78l(k)(2)) is amended to
read as follows:
``(2) Emergency.--(A) The Commission, in an emergency, may by
order summarily take such action to alter, supplement, suspend,
or impose requirements or restrictions with respect to any
matter or action subject to regulation by the Commission or a
self-regulatory organization under the securities laws, as the
Commission determines is necessary in the public interest and
for the protection of investors--
``(i) to maintain or restore fair and orderly
securities markets (other than markets in exempted
securities);
``(ii) to ensure prompt, accurate, and safe clearance
and settlement of transactions in securities (other
than exempted securities); or
``(iii) to reduce, eliminate, or prevent the
substantial disruption by the emergency of (I)
securities markets (other than markets in exempted
securities), investment companies, or any other
significant portion or segment of such markets, or (II)
the transmission or processing of securities
transactions (other than transactions in exempted
securities).
``(B) An order of the Commission under this paragraph (2)
shall continue in effect for the period specified by the
Commission, and may be extended. Except as provided in
subparagraph (C), the Commission's action may not continue in
effect for more than 30 business days, including extensions.
``(C) An order of the Commission under this paragraph (2) may
be extended to continue in effect for more than 30 business
days if, at the time of the extension, the Commission finds
that the emergency still exists and determines that the
continuation of the order beyond 30 business days is necessary
in the public interest and for the protection of investors to
attain an objective described in clause (i), (ii), or (iii) of
subparagraph (A). In no event shall an order of the Commission
under this paragraph (2) continue in effect for more than 90
calendar days.
``(D) If the actions described in subparagraph (A) involve a
security futures product, the Commission shall consult with and
consider the views of the Commodity Futures Trading Commission.
In exercising its authority under this paragraph, the
Commission shall not be required to comply with the provisions
of section 553 of title 5, United States Code, or with the
provisions of section 19(c) of this title.
``(E) Notwithstanding the exclusion of exempted securities
(and markets therein) from the Commission's authority under
subparagraph (A), the Commission may use such authority to take
action to alter, supplement, suspend, or impose requirements or
restrictions with respect to clearing agencies for transactions
in such exempted securities. In taking any action under this
subparagraph, the Commission shall consult with and consider
the views of the Secretary of the Treasury.''.
(b) Consultation; Definition of Emergency.--Section 12(k) of the
Securities Exchange Act of 1934 (15 U.S.C. 78l(k)) is further amended
by striking paragraph (6) and inserting the following:
``(6) Consultation.--Prior to taking any action described in
paragraph (1)(B), the Commission shall consult with and
consider the views of the Secretary of the Treasury, Board of
Governors of the Federal Reserve System, and the Commodity
Futures Trading Commission, unless such consultation is
impracticable in light of the emergency.
``(7) Definitions.--
``(A) Emergency.--For purposes of this subsection,
the term `emergency' means--
``(i) a major market disturbance
characterized by or constituting--
``(I) sudden and excessive
fluctuations of securities prices
generally, or a substantial threat
thereof, that threaten fair and orderly
markets; or
``(II) a substantial disruption of
the safe or efficient operation of the
national system for clearance and
settlement of transactions in
securities, or a substantial threat
thereof; or
``(ii) a major disturbance that substantially
disrupts, or threatens to substantially
disrupt--
``(I) the functioning of securities
markets, investment companies, or any
other significant portion or segment of
the securities markets; or
``(II) the transmission or processing
of securities transactions.
``(B) Securities laws.--Notwithstanding section
3(a)(47), for purposes of this subsection, the term
`securities laws' does not include the Public Utility
Holding Company Act of 1935 (15 U.S.C. 79a et seq.).''.
SEC. 5088. PARALLEL AUTHORITY OF THE SECRETARY OF THE TREASURY WITH
RESPECT TO GOVERNMENT SECURITIES.
Section 15C of the Securities Exchange Act of 1934 (15 U.S.C. 78o-5)
is amended by adding at the end the following new subsection:
``(h) Emergency Authority.--The Secretary may by order take any
action with respect to a matter or action subject to regulation by the
Secretary under this section, or the rules of the Secretary thereunder,
involving a government security or a market therein (or significant
portion or segment of that market), that the Commission may take under
section 12(k)(2) of this title with respect to transactions in
securities (other than exempted securities) or a market therein (or
significant portion or segment of that market).''.
SEC. 5089. JOINT REPORT ON IMPLEMENTATION OF FINANCIAL SYSTEM
RESILIENCE RECOMMENDATIONS.
(a) Report Required.--Not later than April 30, 2006, the Board of
Governors of the Federal Reserve System, the Comptroller of the
Currency, and the Securities and Exchange Commission shall prepare and
submit to the Committee on Financial Services of the House of
Representatives and the Committee on Banking, Housing, and Urban
Affairs of the Senate a joint report on the efforts of the private
sector to implement the Interagency Paper on Sound Practices to
Strengthen the Resilience of the U.S. Financial System.
(b) Contents of Report.--The report required by subsection (a)
shall--
(1) examine the efforts to date of covered private sector
financial services firms to implement enhanced business
continuity plans;
(2) examine the extent to which the implementation of
business continuity plans has been done in a geographically
dispersed manner, including an analysis of the extent to which
such firms have located their main and backup facilities in
separate electrical networks, in different watersheds, in
independent transportation systems, and using separate
telecommunications centers;
(3) examine the need to cover more financial services
entities than those covered by the Interagency Paper; and
(4) recommend legislative and regulatory changes that will--
(A) expedite the effective implementation of the
Interagency Paper by all covered financial services
entities; and
(B) maximize the effective implementation of business
continuity planning by all participants in the
financial services industry.
(c) Confidentiality.--Any information provided to the Federal Reserve
Board, the Comptroller of the Currency, or the Securities and Exchange
Commission for the purposes of the preparation and submission of the
report required by subsection (a) shall be treated as privileged and
confidential. For purposes of section 552 of title 5, United States
Code, this subsection shall be considered a statute described in
subsection (b)(3)(B) of such section 552.
(d) Definition.--The Interagency Paper on Sound Practices to
Strengthen the Resilience of the U.S. Financial System is the
interagency paper prepared by the Board of Governors of the Federal
Reserve System, the Comptroller of the Currency, and the Securities and
Exchange Commission that was announced in the Federal Register on April
8, 2003.
SEC. 5089A. PRIVATE SECTOR PREPAREDNESS.
It is the sense of the Congress that the insurance industry and
credit-rating agencies, where relevant, should carefully consider a
company's compliance with standards for private sector disaster and
emergency preparedness in assessing insurability and creditworthiness,
to ensure that private sector investment in disaster and emergency
preparedness is appropriately encouraged.
SEC. 5089B. REPORT ON PUBLIC/PRIVATE PARTNERSHIPS.
Before the end of the 6-month period beginning on the date of the
enactment of this Act, the Secretary of the Treasury shall submit a
report to the Committee on Financial Services of the House of
Representatives and the Committee on Banking, Housing, and Urban
Affairs of the Senate containing--
(1) information on the efforts the Department of the Treasury
has made to encourage the formation of public/private
partnerships to protect critical financial infrastructure and
the type of support that the Department has provided to these
partnerships; and
(2) recommendations for administrative or legislative action
regarding these partnerships as the Secretary may determine to
be appropriate.
Subtitle H--Other Matters
[Subtitle H of title V of the Amendment in the Nature of a Substitute
consists of subtitle H of title V of the bill H.R. 10, as introduced on
September 24, 2004]
Purpose and Summary
The portions of H.R. 10 within the jurisdiction of the
Financial Services Committee will authorize new funding for the
fight against the financing of terror, give the government new
tools to fight the funding of terrorism, take steps both to
help prevent an attack on the financial system and to make the
system and markets more resilient in case of another attack,
and establish tools to improve international cooperation in the
fight against terror funding. Among the major elements of the
legislation are: additional authorizations for the Treasury
Department's Financial Crimes Enforcement Network (FinCEN), to
reduce the Bank Secrecy Act compliance burden on financial
institutions while significantly increasing the usefulness of
FinCEN's data to law enforcement; a series of purely technical
corrections to the anti-terror finance title of the USA PATRIOT
Act; language to tighten laws governing the counterfeiting of
U.S. currency; authority for the Treasury Department to help
countries strengthen their own currencies against
counterfeiting; tools to close the Internet gambling loophole
which provides a dangerous opportunity for the financing of
terror; legislation to provide for the orderly unwinding of
certain financial contracts where one party becomes insolvent,
thus minimizing the risk of market disruption in the case of
attack; and language aimed at improving international
cooperation to combat the financing of terror, including a
requirement for the Treasury Secretary to report annually on
anti-terrorist financing initiatives and language supporting
codification of interagency cooperation before international
sessions held to set standards for anti-terrorist financing.
Background and Need for Legislation
On November 27, 2002, President Bush signed legislation
creating the National Commission on Terrorist Attacks Upon the
United States (9/11 Commission) (Public Law 107-306), which was
directed to investigate the ``facts and circumstances relating
to the terrorist attacks of September 11, 2001,'' including
those relating to intelligence agencies, law enforcement
agencies, diplomacy, immigration issues and border control, the
flow of assets to terrorist organizations, and the role of
congressional oversight and resource allocation. To fulfill its
mandate, the 9/11 Commission reviewed over 2.5 million pages of
documents, conducted interviews of some 1,200 individuals in
ten countries, and held 19 days of public hearings featuring
testimony from 160 witnesses. On July 22, 2004, the 9/11
Commission issued a 567-page report on its investigation.
On August 23, 2004, the Committee held a hearing on those
findings and recommendations of the 9/11 Commission that relate
to terrorist financing and other matters within the Committee's
purview. The Committee received testimony from 9/11 Commission
Vice-Chairman Lee Hamilton, as well as representatives of the
Treasury Department, the Department of Justice, and the
Department of Homeland Security.
The bulk of the 9/11 Commission's final report centers on
reorganizing and strengthening the Nation's intelligence
capabilities to prevent another large-scale terrorist attack.
While the 9/11 Commission made no specific legislative
recommendations on terrorist financing issues, both its final
report and Vice-Chairman Hamilton's August 23, 2004, testimony
contained findings that are of legislative interest to the
Committee, including the following:
Vigorous efforts to track terrorist financing must
remain front and center in U.S. counterterrorism efforts.
Since 9/11, the U.S. financial services sector and
some of its international counterparts have provided law
enforcement agencies with ``extraordinary cooperation'' to
support quickly developing counter-terrorism investigations.
Because financial institutions are in the best position to
understand and identify problematic transactions or accounts,
continued enforcement of the Bank Secrecy Act (BSA) rules for
financial institutions, particularly in the area of Suspicious
Activity Reporting, is necessary.
Investigators need the right tools to identify
customers and trace financial transactions in fast-moving
counterterrorism investigations.
While the financial provisions enacted after 9/11,
particularly those contained in title III of the USA PATRIOT
Act and subsequent regulations, have succeeded in addressing
obvious vulnerabilities in the domestic financial system, the
U.S. has been less successful in persuading other countries to
adopt financial regulations that would permit the tracing of
financial transactions.
Enacted shortly after the September 11, 2001, attacks,
title III of the USA PATRIOT Act (Public Law 107-56) represents
easily the most far-reaching anti-money laundering legislation
since the original Bank Secrecy Act was enacted in 1970. It
gives U.S. law enforcement agencies new tools with which to
attack the financial infrastructure of terrorism, and new
authority, to share information and better coordinate their
efforts with the intelligence community and the financial
services industry. The law enlists a broad range of commercial
entities beyond traditional depository institutions in the
financial war against terrorism, through provisions requiring
across-the-board implementation of anti-money laundering
programs and enhanced regulatory and law enforcement scrutiny
of informal or underground financial networks, such as the
hawala system used by al Qaeda and other terrorist groups.
Title III includes strong measures for tracking and
interrupting the flow of criminal funds through off-shore
secrecy havens, countries characterized by a lack of financial
transparency and minimal cooperation with U.S. law enforcement
efforts. The USA PATRIOT Act also imposes significant new
identification requirements on individuals seeking to open
accounts at financial institutions, designed to make it more
difficult for terrorists to gain entry to the U.S. financial
system.
The Committee has performed rigorous oversight of the
implementation of title III and other aspects of the
Government's efforts to combat terrorist financing, holding 14
full Committee and subcommittee hearings on those issues since
9/11. While the 9/11 Commission made no legislative
recommendations on issues that fall within the Committee's
jurisdiction, the Commission found that ``vigorous efforts to
track terrorist financing must remain front and center in U.S.
counterterrorism efforts,'' and that new ways of fostering
inter-agency and international cooperation are essential to the
fight against terrorist financing. The Commission also found
that ``terrorists have shown considerable creativity in their
methods for moving money.'' Expanding upon this point in his
August 23, 2004 testimony, 9/11 Commission Vice-Chairman
Hamilton stated:
While we have spent significant resources examining the
ways al Qaeda raised and moved money, we are under no illusions
that the next attack will use similar methods. As the
government has moved to close financial vulnerabilities and
loopholes, al Qaeda adapts. We must continually examine our
system for loopholes that al Qaeda can exploit, and close them
as they are uncovered. This will require constant efforts on
the part of this Committee, working with the financial
industry, their regulators and the law enforcement and
intelligence community.
The Committee believes that it is important to note the
rationale for two provisions which are included in its
recommended amendment which were not included in the introduced
version of the bill. The first, a provision prohibiting the use
of the payments system to conduct unlawful Internet gambling,
is the text of H.R. 2143 as it passed the House. This provision
responds to the 9/11 Commission's call for a continuous
examination of the financial system for loopholes which
terrorists such as al Qaeda can exploit. Enactment of this
provision will close a specific loophole that the Federal
Bureau of Investigation and the Department of Justice have both
identified in testimony before the Committee as being
vulnerable to use in terrorist financing schemes, largely
because of the speed and anonymity with which Internet gambling
can be conducted.
The second provision which deserves special mention is the
inclusion of provisions addressing the ``netting'' of financial
contracts. While these complicated but non-controversial
provisions were originally imagined as an important tool in
resolving the insolvency of financial firms, they have taken on
greater importance in the period since the events of September
11, 2001 and the specific targeting of several large financial
institutions by terrorists in recent months. The effects on the
Nation's economy of a successful attack on any sizable
financial firm could be catastrophic. With a single, well-
placed attack, literally tens of billions of dollars could
disappear from the Nation's economy. As Chairman of the Federal
Reserve Alan Greenspan wrote in a recent letter to the Chairman
of the Committee, ``Should a terrorist attack result in the
insolvency of one or more market participants, such uncertainty
would unnecessarily place the financial system at greater risk
in what unquestionably would be an especially dangerous
period.'' Without the tools contained in these provisions,
originally reported by the Committee as H.R. 2120, recovery
from such an attack could be far from certain.
The Committee's amendment to H.R. 10 constitutes its
response to the 9/11 Commission's call for constant vigilance,
and builds on landmarkprovisions of the USA PATRIOT Act that
the Commission concluded have significantly advanced efforts to combat
the financing of terrorism.
Hearings
The Committee on Financial Services held a hearing on
September 22, 2004 entitled ``Legislative Proposals to
Implement the Recommendations of the 9/11 Commission.'' Those
proposals formed the basis of the Committee's legislative
contributions to the legislation introduced as H.R. 10, the 9/
11 Recommendations mplementation Act. The following witnesses
testified: The Honorable Stuart A. Levey, Under Secretary for
the Office of Terrorism and Financial Intelligence, Department
of the Treasury and The Honorable Brian C. Roseboro, Under
Secretary for Domestic Finance, Department of the Treasury.
Committee Consideration
The Committee on Financial Services met in open session on
September 29, 2004, and ordered H.R. 10, the 9/11
Recommendations Implementation Act, favorably reported to the
House, with an amendment, by a voice vote.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. The
following amendments were considered by record vote. The names
of members voting for and against follow.
An amendment to the amendment in the nature of a substitute
by Mr. Paul, no. 1b, changing the standards under which a
financial institution must file a suspicious activity report,
was not agreed to by a record vote of 10 yeas and 58 nays
(Record vote no. FC-22).
RECORD VOTE NO. FC-22
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Oxley...................... ........ X ......... Mr. Frank (MA)... ........ X .........
Mr. Leach...................... ........ ........ ......... Mr. Kanjorski.... ........ X .........
Mr. Baker...................... ........ X ......... Ms. Waters....... X ........ .........
Mr. Bachus..................... ........ X ......... Mr. Sanders...... X ........ .........
Mr. Castle..................... ........ X ......... Mrs. Maloney..... ........ X .........
Mr. King....................... ........ X ......... Mr. Gutierrez.... ........ X .........
Mr. Royce...................... ........ X ......... Ms. Velazquez.... ........ X .........
Mr. Lucas (OK)................. ........ ........ ......... Mr. Watt......... X ........ .........
Mr. Ney........................ ........ X ......... Mr. Ackerman..... ........ X .........
Mrs. Kelly..................... ........ X ......... Ms. Hooley (OR).. ........ X .........
Mr. Paul....................... X ........ ......... Ms. Carson (IN).. ........ X .........
Mr. Gillmor.................... X ........ ......... Mr. Sherman...... ........ X .........
Mr. Ryun (KS).................. ........ X ......... Mr. Meeks (NY)... ........ X .........
Mr. LaTourette................. ........ X ......... Ms. Lee.......... X ........ .........
Mr. Manzullo................... X ........ ......... Mr. Inslee....... ........ X .........
Mr. Jones (NC)................. X ........ ......... Mr. Moore........ ........ X .........
Mr. Ose........................ ........ X ......... Mr. Capuano...... ........ X .........
Mrs. Biggert................... ........ X ......... Mr. Ford......... ........ X .........
Mr. Green (WI)................. ........ X ......... Mr. Hinojosa..... ........ X .........
Mr. Toomey..................... X ........ ......... Mr. Lucas (KY)... ........ X .........
Mr. Shays...................... ........ X ......... Mr. Crowley...... ........ X .........
Mr. Shadegg.................... ........ X ......... Mr. Clay......... ........ X .........
Mr. Fossella................... ........ X ......... Mr. Israel....... ........ X .........
Mr. Gary G. Miller (CA)........ ........ X ......... Mr. Ross......... ........ X .........
Ms. Hart....................... ........ X ......... Mrs. McCarthy ........ X .........
(NY).
Mrs. Capito.................... ........ X ......... Mr. Baca......... ........ X .........
Mr. Tiberi..................... ........ X ......... Mr. Matheson..... ........ X .........
Mr. Kennedy (MN)............... ........ X ......... Mr. Lynch........ ........ X .........
Mr. Feeney..................... ........ X ......... Mr. Miller (NC).. ........ X .........
Mr. Hensarling................. ........ X ......... Mr. Emanuel...... ........ X .........
Mr. Garrett (NJ)............... X ........ ......... Mr. Scott (GA)... ........ X .........
Mr. Murphy..................... ........ X ......... Mr. Davis (AL)... ........ X .........
Ms. Ginny Brown-Waite (FL)..... ........ X ......... Mr. Bell......... ........ X .........
Mr. Barrett (SC)............... ........ X ......... ................. ........ ........ .........
Ms. Harris..................... ........ X ......... ................. ........ ........ .........
Mr. Renzi...................... ........ X ......... ................. ........ ........ .........
Mr. Gerlach.................... ........ X ......... ................. ........ ........ .........
----------------------------------------------------------------------------------------------------------------
* Mr. Sanders is an independent, but caucuses with the Democratic Caucus.
An amendment to the amendment in the nature of a substitute
by Mr. Inslee, no. 1n, amending the Fair Credit Reporting Act
to change the procedures under which officials of certain law
enforcement and intelligence agencies may obtain credit
reports, was not agreed to by a record vote of 33 yeas and 35
nays (Record vote no. FC-23).
RECORD VOTE NO. FC-23
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Oxley...................... ........ X ......... Mr. Frank (MA)... X ........ .........
Mr. Leach...................... ........ ........ ......... Mr. Kanjorski.... X ........ .........
Mr. Baker...................... ........ X ......... Ms. Waters....... X ........ .........
Mr. Bachus..................... ........ X ......... Mr. Sanders...... X ........ .........
Mr. Castle..................... ........ X ......... Mrs. Maloney..... X ........ .........
Mr. King....................... ........ X ......... Mr. Gutierrez.... X ........ .........
Mr. Royce...................... ........ X ......... Ms. Velazquez.... X ........ .........
Mr. Lucas (OK)................. ........ ........ ......... Mr. Watt......... X ........ .........
Mr. Ney........................ ........ X ......... Mr. Ackerman..... X ........ .........
Mrs. Kelly..................... ........ X ......... Ms. Hooley (OR).. X ........ .........
Mr. Paul....................... ........ X ......... Ms. Carson (IN).. X ........ .........
Mr. Gillmor.................... ........ X ......... Mr. Sherman...... X ........ .........
Mr. Ryun (KS).................. ........ X ......... Mr. Meeks (NY)... X ........ .........
Mr. LaTourette................. ........ X ......... Ms. Lee.......... X ........ .........
Mr. Manzullo................... ........ X ......... Mr. Inslee....... X ........ .........
Mr. Jones (NC)................. ........ X ......... Mr. Moore........ X ........ .........
Mr. Ose........................ ........ X ......... Mr. Capuano...... X ........ .........
Mrs. Biggert................... ........ X ......... Mr. Ford......... X ........ .........
Mr. Green (WI)................. ........ X ......... Mr. Hinojosa..... X ........ .........
Mr. Toomey..................... ........ X ......... Mr. Lucas (KY)... X ........ .........
Mr. Shays...................... ........ X ......... Mr. Crowley...... X ........ .........
Mr. Shadegg.................... ........ X ......... Mr. Clay......... X ........ .........
Mr. Fossella................... ........ X ......... Mr. Israel....... X ........ .........
Mr. Gary G. Miller (CA)........ ........ X ......... Mr. Ross......... X ........ .........
Ms. Hart....................... ........ X ......... Mrs. McCarthy X ........ .........
(NY).
Mrs. Capito.................... ........ X ......... Mr. Baca......... X ........ .........
Mr. Tiberi..................... ........ X ......... Mr. Matheson..... X ........ .........
Mr. Kennedy (MN)............... ........ X ......... Mr. Lynch........ X ........ .........
Mr. Feeney..................... ........ X ......... Mr. Miller (NC).. X ........ .........
Mr. Hensarling................. ........ X ......... Mr. Emanuel...... X ........ .........
Mr. Garrett (NJ)............... ........ X ......... Mr. Scott (GA)... X ........ .........
Mr. Murphy..................... ........ X ......... Mr. Davis (AL)... X ........ .........
Ms. Ginny Brown-Waite (FL)..... ........ X ......... Mr. Bell......... X ........ .........
Mr. Barrett (SC)............... ........ X ......... ................. ........ ........ .........
Ms. Harris..................... ........ X ......... ................. ........ ........ .........
Mr. Renzi...................... ........ X ......... ................. ........ ........ .........
Mr. Gerlach.................... ........ X ......... ................. ........ ........ .........
----------------------------------------------------------------------------------------------------------------
* Mr. Sanders is an independent, but caucuses with the Democratic Caucus.
An amendment to the amendment in the nature of a substitute
by Mr. Royce, no. 1o, limiting the forms of identification that
may be accepted from non-United States persons by financial
institutions, was not agreed to by a record vote of 22 yeas and
47 nays (Record vote no. FC-24).
RECORD VOTE NO. FC-24
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Oxley...................... ........ X ......... Mr. Frank (MA)... ........ X .........
Mr. Leach...................... ........ X ......... Mr. Kanjorski.... ........ X .........
Mr. Baker...................... ........ X ......... Ms. Waters....... ........ X .........
Mr. Bachus..................... ........ X ......... Mr. Sanders...... ........ X .........
Mr. Castle..................... ........ X ......... Mrs. Maloney..... ........ X .........
Mr. King....................... ........ X ......... Mr. Gutierrez.... ........ X .........
Mr. Royce...................... X ........ ......... Ms. Velazquez.... ........ X .........
Mr. Lucas (OK)................. ........ ........ ......... Mr. Watt......... ........ X .........
Mr. Ney........................ X ........ ......... Mr. Ackerman..... ........ X .........
Mrs. Kelly..................... X ........ ......... Ms. Hooley (OR).. ........ X .........
Mr. Paul....................... X ........ ......... Ms. Carson (IN).. ........ X .........
Mr. Gillmor.................... X ........ ......... Mr. Sherman...... ........ X .........
Mr. Ryun (KS).................. X ........ ......... Mr. Meeks (NY)... ........ X .........
Mr. LaTourette................. X ........ ......... Ms. Lee.......... ........ X .........
Mr. Manzullo................... X ........ ......... Mr. Inslee....... ........ X .........
Mr. Jones (NC)................. X ........ ......... Mr. Moore........ ........ X .........
Mr. Ose........................ ........ X ......... Mr. Capuano...... ........ X .........
Mrs. Biggert................... ........ X ......... Mr. Ford......... ........ X .........
Mr. Green (WI)................. X ........ ......... Mr. Hinojosa..... ........ X .........
Mr. Toomey..................... ........ X ......... Mr. Lucas (KY)... ........ X .........
Mr. Shays...................... X ........ ......... Mr. Crowley...... ........ X .........
Mr. Shadegg.................... X ........ ......... Mr. Clay......... ........ X .........
Mr. Fossella................... ........ X ......... Mr. Israel....... ........ X .........
Mr. Gary G. Miller (CA)........ X ........ ......... Mr. Ross......... ........ X .........
Ms. Hart....................... ........ X ......... Mrs. McCarthy ........ X .........
(NY).
Mrs. Capito.................... X ........ ......... Mr. Baca......... ........ X .........
Mr. Tiberi..................... ........ X ......... Mr. Matheson..... ........ X .........
Mr. Kennedy (MN)............... ........ X ......... Mr. Lynch........ ........ X .........
Mr. Feeney..................... X ........ ......... Mr. Miller (NC).. ........ X .........
Mr. Hensarling................. ........ X ......... Mr. Emanuel...... ........ X .........
Mr. Garrett (NJ)............... X ........ ......... Mr. Scott (GA)... ........ X .........
Mr. Murphy..................... X ........ ......... Mr. Davis (AL)... ........ X .........
Ms. Ginny Brown-Waite (FL)..... X ........ ......... Mr. Bell......... ........ X .........
Mr. Barrett (SC)............... X ........ ......... ................. ........ ........ .........
Ms. Harris..................... X ........ ......... ................. ........ ........ .........
Mr. Renzi...................... X ........ ......... ................. ........ ........ .........
Mr. Gerlach.................... ........ X ......... ................. ........ ........ .........
----------------------------------------------------------------------------------------------------------------
* Mr. Sanders is an independent, but caucuses with the Democratic Caucus.
The following other amendments were also considered:
An amendment in the nature of a substitute by Mr. Oxley,
containing the legislative recommendations of the Committee on
Financial Services in response to the findings of the 9/11
Commission, was agreed to by a voice vote.
An amendment to the amendment in the nature of a substitute
by Mr. Kanjorski, no. 1a, providing for a joint report on
implementation of financial system resilience recommendations,
was agreed to by a voice vote.
A substitute amendment to the amendment in the nature of a
substitute by Mrs. Maloney, no. 1c, substituting the text of
the bill H.R. 5150, the National Intelligence Reform Act of
2004, was ruled out of order by the Chair.
An amendment to the amendment in the nature of a substitute
by Mrs. Biggert, no. 1d, providing for coordination with the
Secretary of the Treasury regarding international financial
institutions, was agreed to by a voice vote.
An amendment to the amendment in the nature of a substitute
by Mr. Baca, no. 1e, expressing the sense of Congress with
regard to private sector preparedness, was agreed to by a voice
vote.
An amendment to the amendment in the nature of a substitute
by Mrs. Biggert, no. 1f, expressing the sense of Congress with
regard to support for financial services industry preparedness
and response by the Department of the Treasury, was agreed to
by a voice vote.
An amendment to the amendment in the nature of a substitute
by Mrs. Maloney, no. 1g, establishing a critical infrastructure
support program, was withdrawn.
An amendment to the amendment in the nature of a substitute
by Ms. Harris, no. 1h, providing for an exclusion from the Fair
Credit Reporting Act for certain information exchange networks,
was withdrawn.
An amendment to the amendment in the nature of a substitute
by Mr. Inslee, no. 1i, clarifying the definition of ``lawful
transaction'', was agreed to by a voice vote.
An amendment to the amendment in the nature of a substitute
by Mr. Inslee, no. 1j, granting tribal authorities the same
exception as State and local authorities, was withdrawn.
An amendment to the amendment in the nature of a substitute
by Mrs. Kelly, no. 1k, requiring certain financial institutions
to report certain cross-border electronic transmittals of
funds, was agreed to by a voice vote.
An amendment to the amendment in the nature of a substitute
by Mr. Emanuel, no. 1l, requiring a report on public/private
partnerships, was agreed to by a voice vote.
An amendment to the amendment in the nature of a substitute
by Mrs. Kelly, no. 1m, establishing the office of terrorism and
financial intelligence in the Department of the Treasury, was
not agreed to by a voice vote.
An amendment to the amendment in the nature of a substitute
by Mr. Gutierrez, no. 1p, providing for post-employment
limitations on leading bank examiners, was agreed to by a voice
vote.
An amendment to the amendment in the nature of a substitute
by Mrs. Kelly, no. 1q, regarding certification procedures to
deter financial support for domestic or international
terrorism, was withdrawn.
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee held a hearing and made
findings that are reflected in this report.
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee establishes the
following performance related goals and objectives for this
legislation:
The Secretary of the Treasury and the appropriate financial
regulators will use the authority granted by this legislation
to improve the Nation's ability to detect, seize, and freeze
assets used in the financing of terrorist activities directed
at the United States at home and abroad.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee finds that this
legislation would result in no new budget authority,
entitlement authority, or tax expenditures or revenues.
Committee and Congressional Budget Office Cost Estimates
The cost estimate provided by the Congressional Budget
Office pursuant to section 402 of the Congressional Budget Act
of 1974 was not available for inclusion in this report. The
Chairman will cause such estimate to be printed in either a
supplemental report or the Congressional Record when it is
available.
Federal Mandates Statement
The estimate of Federal mandates prepared by the Director
of the Congressional Budget Office pursuant to section 423 of
the Unfunded Mandates Reform Act was not available for
inclusion in this report. The Chairman will cause such estimate
to be printed either in a supplemental report or the
Congressional Record when it is available.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Constitutional Authority Statement
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds that the
Constitutional Authority of Congress to enact this legislation
is provided by Article 1, section 8, clause 1 (relating to the
general welfare of the United States) clause 3 (relating to the
power to regulate interstate commerce) and clause 5 (relating
to the power to coin money).
Applicability To Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.
Section-By-Section Analysis of the Legislation
This section-by-section analysis contains only those
provisions in H.R. 10, as introduced, which fall within the
jurisdiction of the Committee on Financial Services, or added
by the Committee's amendment.
TITLE II--TERRORISM PREVENTION AND PROSECUTION
Subtitle E--Money Laundering and Terrorist Financing
Chapter 1--Funding to Combat Financial Crimes Including Terrorist
Financing
Section 2101. Additional authorization for FinCEN
This section authorizes funding for a series of technology
enhancements to (1) improve the usefulness of data maintained
by the Financial Crimes Enforcement Network, the Treasury's
anti-terror finance unit, while reducing the compliance burden
on financial institutions; and (2) initiate an office to
improve compliance with the requirements of the Bank Secrecy
Act (BSA), as enhanced by the USA PATRIOT Act. Among the
programs authorized by this section, the ``BSA Direct'' program
completely redesigns the way FinCEN accepts data from financial
institutions in compliance with the BSA, the way law
enforcement queries the database, and the way FinCEN, acting
with law enforcement, shares data with financial institutions
about particular individuals or entities of interest.
Section 2102. Money laundering and financial crimes strategy
reauthorization
This section contains a short-term reauthorization of
provisions first enacted in 1998 (Public Law 105-310) which
require the Secretary of the Treasury, in consultation with the
Attorney General and a number of other Federal financial
regulators and Federal and State law enforcement agencies, to
submit to Congress a national strategy for combating money
laundering and related financial crimes, to include efforts
directed at the prevention, detection, and prosecution of the
funding of acts of international terrorism.
The Committee believes that the potential exists for terror
organizations to self-finance with counterfeit currency, and
strongly encourages the Department of Treasury to consider that
possibility as part of its implementation of a national money
laundering strategy.
The section also authorizes the appropriation of $15
million in both fiscal years 2004 and 2005, to fund the
designation of high risk money laundering areas that warrant
enhanced scrutiny by Federal, State, and local law enforcement
officials, as well as a grant program designed to support State
and local law enforcement initiatives to detect and prevent
money laundering and related financial crimes.
Chapter 2--Enforcement Tools to Combat Financial Crimes Including
Terrorist Financing
SUBCHAPTER A--MONEY LAUNDERING ABATEMENT AND FINANCIAL ANTITERRORISM
TECHNICAL CORRECTIONS
Section 2111. Short title
This section establishes the short title of the subtitle,
the ``Money Laundering Abatement and Financial Antiterrorism
Technical Corrections Act of 2004''.
Section 2112. Technical corrections to Public Law 107-56
This section makes a number of typographical and
grammatical corrections to title III of the USA PATRIOT Act
(relating to terrorist financing and money laundering) to
ensure that those provisions work as intended and can be
enforced by the relevant Federal agencies.
Section 2113. Technical corrections to other provisions of law
This section makes a number of typographical and
grammatical corrections to title 31 of the U.S. Code and other
provisions of Federal law, as amended by title III of the USA
PATRIOT Act (relating to terrorist financing and money
laundering), to ensure that those provisions work as intended
and can be enforced by the relevant Federal agencies.
Among other changes, this section corrects a typographical
error in 31 U.S.C. Sec. 5324. Subsection (b) of that statute
makes it an offense to evade the currency reporting
requirements set forth in ``section 5333.'' There is in fact no
such section. The intended reference was to section 5331. That
section requires any person who receives more than $10,000 in
coins or currency, in one transaction or in two or more related
transactions in the course of that person's trade or business,
to file a report with respect to that transaction with the
Financial Crimes Enforcement Network (FinCEN). Correcting the
typographical error would make it possible for any person who
violates this requirement to be subject to criminal and civil
forfeitures under 31 U.S.C. Sec. 5317(c)(2), in addition to
civil and criminal penalties.
The U.S. Supreme Court's decision in United States v.
Bajakajian, 524 U.S. 321 (1998) established legal precedents
that protect against potentially unfair civil forfeitures. The
Committee notes that these precedents now form the basis for
more fair civil and criminal forfeitures and serve as guiding
principles that Federal prosecutors should observe when
enforcing failure-to-file violations under 31 U.S.C. Sec. 5331.
The Committee also notes that all of the due process
protections enacted as part of the Civil Asset Forfeiture
Reform Act of 2000 apply to forfeitures under 31 U.S.C.
Sec. 5317(c), including the protection against forfeitures that
are grossly disproportional to the gravity of the offense. See
18 U.S.C. Sec. 983(g), which codified the Supreme Court's
decision in Bajakajian.
In the Bajakajian case, the Court ruled it unconstitutional
under the Eighth Amendment's Excessive Fines Clause for the
government to seize $357,144 in currency that an individual
attempted to transport out of the United States without filing
a report required by law. As the majority opinion stated, ``The
forfeiture serves no remedial purpose, is designed to punish
the offender, and cannot be imposed on innocent owners.''
Bajakajian, 524 U.S. at 332.
The Court found that the failure to file a report required
by Federal law was the only offense committed by the
respondent. The forfeiture of the entire amount of the currency
in question ``would be grossly disproportional to the gravity
of his offense.'' Bajakajian, 524 U.S. at 339-40. It is
permissible to move currency out of the country as long as it
is reported. Moreover, the majority opinion also stated that
the money came from legal activity and was to be used to repay
a lawful debt. Lastly, the Court majority argued that the harm
caused by the defendant's failure to file was minimal, in that
there was no fraud on the Federal government, and no cost to
the taxpayers of the failure to file. ``Had his crime gone
undetected,'' wrote the Court, ``the Government would have been
deprived only of the information that $357,144 had left the
country.'' Bajakajian, 524 U.S. at 339.
The Committee therefore notes that the civil and criminal
forfeitures provided for under 31 U.S.C. Sec. 5317(c) for
violations of 31 U.S.C. Sec. 5331 are governed by the legal
precedents established in United States v. Bajakajian.
Section 2114. Repeal of review
This section makes permanent the provisions of title III of
the USA PATRIOT Act by repealing section 303 of the Act.
Section 303 provides that the provisions of title III will
terminate after September 30, 2004, if both Houses of Congress
enact a joint resolution to that effect.
Section 2115. Effective date
This section provides that the amendments made by this
subtitle to Public Law 107-56, the United States Code, the
Federal Deposit Insurance Act, and any other provision of law
shall take effect as if such amendments had been included in
Public Law 107-56, as of the date of the enactment of that
public law, and no amendment made by that public law that is
inconsistent with an amendment made by this subtitle will be
deemed to have taken effect.
SUBCHAPTER B--ADDITIONAL ENFORCEMENT TOOLS
Section 2121. Bureau of Engraving and Printing security printing
This section authorizes the Secretary of the Treasury to
produce currency and other security documents at the request of
foreign governments on a reimbursable basis, as a way of
strengthening those currencies and the economies of developing
countries that do not have the capacity to print secure notes
themselves.
Section 2122. Conduct in aid of counterfeiting
This section amends the criminal code to equate the
possession of anti-counterfeiting technology or components
thereof, with the actual act of counterfeiting. It takes into
account the fact that as currency anti-counterfeiting
technology is improved, traditional counterfeiters may have to
``subcontract'' the manufacture of a necessary component.
Section 2123. Reporting of cross-border transmittal of funds
This section directs the Secretary of the Treasury, in
consultation with the Federal Reserve Board of Governors, to
prescribe regulations requiring those financial institutions
the Secretary deems appropriate to report certain crossborder
transmittals of funds relevant to Treasury's anti-money
laundering and anti-terrorist financing efforts to the
Financial Crimes Enforcement Network (FinCEN). Before
prescribing the regulations, the Secretary is required to
delegate the task of producing a report to the Secretary and
the Congress to the Bank Secrecy Act Advisory Group. The
report, due within one year of the date of enactment, must
identify the information in cross-border electronic
transmittals of funds relevant to anti-money laundering and
counter-terrorist financing efforts, recommend the appropriate
form, manner, content and frequency of filing of the required
reports, and identify the technology necessary for FinCEN to
receive, maintain, exploit and disseminate information from
reports of cross-border electronic transmittals of funds.
The Secretary must prescribe final regulations pursuant to
this section within 3 years of the date of enactment of this
Act. The Secretary may not prescribe regulations before
certifying to Congress that FinCEN has the technological
systems in place to receive, maintain, exploit and disseminate
information from reports of cross-border electronic
transmittals of funds to law enforcement and other entities
engaged in efforts against money laundering and terrorist
financing.
Financial institutions required to submit reports on
certain cross-border electronic transmittals of funds pursuant
to this section are relieved of the recordkeeping requirements
regarding such transmittals imposed by section 21(b)(3) of the
Federal Deposit Insurance Act.
Section 2124. Enhanced effectiveness of examinations, including anti-
money laundering programs
This section amends section 10 of the Federal Deposit
Insurance Act (12 U.S.C. Sec. 1820) by imposing post-employment
restrictions on leading bank examiners. Specifically, this
section prohibits an officer or employee of a Federal banking
agency or Federal Reserve Bank, who has served as the examiner-
in-charge, or a functionally equivalent position, for two or
more months during the final eighteen months of his employment
for a particular depository institution or depository
institution holding company, from holding any office or
position, or becoming a consultant or controlling shareholder,
at this institution for a period of one year. Violators of this
section are subject to suspension or an industry-wide
prohibition, among other penalties which may apply to Federal
employees.
The Federal banking regulators are charged with developing
regulations that determine what constitutes a leading examiner.
In prescribing the regulations, the agencies are directed to
take into account the manner in which the examiners are
distributed among institutions and holding companies; the
number of institutions an examiner is involved with; the period
of time an examiner is assigned to an institution or holding
company; the size of the institutions or holding companies for
which each examiner is responsible; and any other factors the
agency determines to be appropriate.
A Federal banking agency may waive the restrictions of this
section on a case-by-case basis if the agency head certifies in
writing that such a waiver would not be inconsistent with the
public interest and if the waiver is provided in advance of the
examiner becoming affiliated with the institution or holding
company.
This section also amends the Federal Credit Union Act to
require similar post-employment limitations on examiners of
Federally insured credit unions.
This section also requires the Federal banking and credit
union regulators to study efforts and proposals for the
retention of experienced and highly qualified examiners. The
regulators must also study continuing efforts to attract
examiners and supervisors. A report on the results of this
study is required within one year of the enactment of this
legislation.
SUBCHAPTER C--UNLAWFUL INTERNET GAMBLING FUNDING PROHIBITION
Section 2131. Short title
This section provides the short title of the subchapter,
the ``Unlawful Internet Gambling Funding Prohibition Act''.
Section 2132. Findings
This section provides certain Congressional findings. In
particular, Congress finds that: (1) Internet gambling is
primarily funded through the use of personal banking
instruments and plays a large role in the creation of
ultimately uncollectible personal debt; and (2) Internet
gambling is susceptible to abuse by money launderers.
Section 2133. Policies and procedures required to prevent payments for
unlawful internet gambling
Subsection (a) requires the Federal functional regulators
to prescribe regulations within six months requiring any
designated payment system to establish policies and procedures
reasonably designed to identify and prevent restricted
transactions.
Subsection (b) requires the Federal functional regulators,
in prescribing regulations, to identify types of policies and
procedures which would be reasonably designed to identify,
block or prevent a restricted transaction; to the extent
practical permit any participant in a payment system to choose
among alternative means of compliance; and consider exempting
restricted transactions where it is not reasonably practical to
identify and block, or otherwise prevent, such transactions.
Subsection (c) provides that a creditor, credit card
issuer, financial institution, operator of a terminal at which
an electronic fund transfer may be initiated, money
transmitting business, or international, national, regional, or
local network utilized to effect a credit transaction,
electronic fund transfer, or money transmitting service, or a
participant in such network, is in compliance with subsection
(a) if such person operates in reliance on procedures
established by the payment system pursuant to subsection (a).
Subsection (d) requires that this section be enforced by
the Federal functional regulators and the Federal Trade
Commission, and sets out factors to be considered in any
enforcement action against any payment system, or any
participant in a payment system that is a creditor, credit card
issuer, financial institution, operator of a terminal at which
an electronic fund transfer may be initiated, money
transmitting business, or international, national, regional, or
local network utilized to effect a credit transaction,
electronic fund transfer, or money transmitting service, or a
participant in such network.
Section 2134. Definitions
This section defines the terms ``restricted transaction'',
``designated payment system'', ``Federal functional
regulator'', ``Internet'', ``unlawful Internet gambling'',
``credit'', ``creditor'' and ``credit card'', ``electronic fund
transfer'', ``financial institution'', and ``money transmitting
business'' and ``money transmitting service.'' Paragraph (2)
defines the term ``bets or wagers'' as the staking or risking
by any person of something of value upon the outcome of a
contest of others, a sporting event, or a game subject to
chance with the agreement that the winner will receive
something of greater value than the amount staked or risked.
This subsection clarifies that ``bets or wagers'' does not
include a bona fide business transaction governed by the
securities laws; a transaction subject to the Commodity
Exchange Act; an over-the-counter derivative instrument and any
other transaction exempt from State gaming or bucket shop laws
pursuant to the Commodity Exchange Act or Securities Exchange
Act; a contract of indemnity or guarantee; a contract for life,
health, or accident insurance; a deposit with a depository
institution; certain participation in a simulation sports game
or education game; or a lawful transaction with a business
licensed or authorized by a State, defined for these purposes
as any transaction that is lawful under all applicable Federal
laws and all applicable State laws of both the State in which
the licensed or authorized business is located and the State
where the bet is initiated.
Section 2135. Common sense rule of construction
This section provides that no provision of this legislation
may be construed as altering, limiting, extending, changing the
status of, or otherwise affecting any law relating to,
affecting, or regulating gambling within the United States.
TITLE IV--INTERNATIONAL COOPERATION AND COORDINATION
Subtitle B--Prevent the Continued Growth of Terrorism
Chapter 2--United States Multilateral Diplomacy
Section 4033. Leadership and membership of international organizations
This section requires that the President, acting through
the Secretary of State, the relevant United States chiefs of
mission, and, where appropriate, the Secretary of the Treasury,
use the voice, vote, and influence of the United States to
prevent countries subject to United Nations Security Council
sanctions from becoming members or serving in leadership roles
in all United Nation bodies and at other international
organizations and multilateral institutions of which the United
States is a member. The purpose of including the Secretary of
the Treasury is to enable the Secretary to direct conforming
action through instructions to U.S. Executive Directors to the
International Monetary Fund, the International Bank for
Reconstruction and Development, the regional development banks,
and other more informal multilateral financial policymaking
bodies in which the Department of the Treasury is the lead
representative and lead negotiator for the United States.
Section 4035. Implementation and establishment of office of
multilateral negotiations
This section creates an office within the State Department
and a Special Representative for Multilateral Negotiations,
appointed by the President and carrying Ambassador-at-large
status. The duties of the Special Representative include
assisting in the organization of, and preparation for, United
States participation in multilateral negotiations and, at the
direction of the Secretary of State, serving as a member of a
United States delegation to any multilateral negotiation. The
section further requires the Special Representative to
coordinate and consult with the Secretary of the Treasury
regarding initiatives associated with international financial
institutions and multilateral financial policymaking bodies,
and clarifies that the Secretary of the Treasury is the lead
representative and negotiator for those entities, including the
International Monetary Fund, the development banks, the
Financial Action Task Force, and the Group of Eight.
Subtitle D--Afghanistan Freedom Support Act Amendments of 2004
Section 4061. Short title
This section establishes the short title of the subtitle,
the ``Afghanistan Freedom Support Act Amendments of 2004''.
Section 4062. Coordination of assistance for Afghanistan
This section creates a coordinator to unify and create
assistance plans for Afghanistan. The coordinator is required
to work with the international community, including
multilateral organizations and international financial
institutions, and the government of Afghanistan to ensure that
assistance to Afghanistan is implemented in a coherent,
consistent, and efficient manner to prevent duplication and
waste. To effectuate these responsibilities within the
international financial institutions, as defined in section
1701(c)(2) of the International Financial Institutions Act, the
coordinator is required to work through the Secretary of the
Treasury and the U.S. Executive Directors at the international
financial institutions.
It is expected that the U.S. Executive Directors and the
Department of the Treasury will provide all necessary
assistance to the coordinator in order to ensure that bilateral
U.S. aid packages are designed and delivered to Afghanistan in
the most efficient and effective manner possible. There may be
cases in which it the coordinator will need to meet with staff
of relevant multilateral financial institutions. This provision
is not intended to rule out the possibility of such meetings.
However, the provision makes clear that any such meetings
should be undertaken in consultation with the appropriate
Treasury officials.
Subtitle H--Improving International Standards and Cooperation To Fight
Terrorist Financing
Section 4111. Sense of the Congress regarding success in multilateral
organizations
Subsection (a) sets forth findings that detail United
States successes in creating a set of international standards
for fighting terrorist financing through the Financial Action
Task Force (FATF). They also describe the success of United
States leadership in providing a mechanism in the International
Monetary Fund and the development banks for identifying
deficiencies in financial systems and for directing development
funds to support changes in emerging market financial systems
that want to comply with the international FATF standards.
Subsection (b) expresses the sense of Congress that the
Secretary of the Treasury should continue to promote the
dissemination of international anti-money laundering (AML) and
counter-terrorist financing (CTF) standards, and to press for
full implementation of the FATF 40 + 8 recommendations by all
countries.
Section 4112. Expanded reporting and testimony requirements for the
Secretary of the Treasury
This section amends the International Financial
Institutions Act to require the Secretary of the Treasury to
work with the International Monetary Fund (IMF) to foster
strong global AML/CTF regimes and ensure that country
performance under the FATF AML/CTF standards is monitored
effectively. The section also directs the Secretary to work
with the IMF to ensure that AML/CTF issues are a part of
regular reviews of country progress and these measures are to
be considered indispensable elements of sound financial
systems. Finally, the section requires the Treasury Department
to emphasize the importance of sound AML/CTF regimes to global
growth and development. The Committee notes that all of these
actions currently are undertaken and, thus, the section seeks
only to codify existing practice.
Section 1503(a) of the International Financial Institutions
Act (22 U.S.C. 262o-2(a)) requires the Secretary of the
Treasury to report to Congress during the first quarter of each
year on the state of the international financial system. This
section adds one more specific item to be included in the
annual report: a progress report on the Secretary's efforts to
fight terrorist financing through international financial
institutions and multilateral policymaking bodies.
Since the events of September 11, 2001, the Secretary of
the Treasury has provided these status reports, thus this
section codifies existing practice. This section also defines
the term ``other multilateral policymaking bodies'' in order to
ensure that Group of Eight and FATF initiatives are included in
the annual report in addition to international financial
institution initiatives. In establishing this additional
requirement, the Committee does not intend to diminish the
importance of the development and financial stability work
undertaken by the international institutions. Rather, the
provision will ensure that the efforts to strengthen standards
against money laundering and terrorist financing are properly
understood within the overall context of strengthening
financial system resilience and institutional strength.
Section 4113. Coordination of United States government efforts
This section codifies existing practice by authorizing the
Secretary of the Treasury to continue convening the interagency
U.S. Government FATF working group. The Committee notes that
since the events of September 11, 2001, the Department of the
Treasury has spearheaded efforts to cooperate with other
agencies of the United States government to ensure that its
negotiations within FATF, the Group of Eight, and other
international fora are consistent and compatible with broader
U.S. government objectives. The 9/11 Commission Report and the
accompanying staff Monograph on terrorist financing acknowledge
the unprecedented level of cooperation within the Federal
government on anti-terrorist financing measures since September
11, 2001, but also express concern that such cooperation could
wane ``as memories fade'' and as relevant personnel move on to
other projects. In addition, the 9/11 Commission Report
recommended that ``information procedures should provide
incentives for sharing, to restore a better balance between
security and shared knowledge * * *. We propose that
information be shared horizontally, across new networks that
transcend individual agencies.''
By including this provision, the Committee intends to make
the strong interagency cooperation and communication on
international financial standard-setting matters related to
anti-terrorist financing where the Treasury Department is in
the lead permanent. Currently, the Secretary of the Treasury,
or his designee, acts as the lead United States Government
official to FATF. The section makes clear that the Secretary
will continue to convene the interagency United States
Government FATF working group.
This interagency working group has a flexible membership
that permits the Secretary of the Treasury to draw on the
resources of a range of U.S. government agencies for the
purposes of preparing for international financial policy
standard-setting negotiations at the multilateral level. For
example, if FATF were considering establishing international
standards concerning law enforcement-related issues, the
Secretary would have formal authority under this section to
incorporate into pre-negotiation meetings law enforcement
agencies within the U.S. Federal government so that the
Treasury Department position is consistent with U.S. government
practice or priorities. If the issue for consideration relates
instead to a specific financial sector, such as banking,
securities, or insurance, the Secretary has the formal
authority under this section to include financial regulators.
The Committee anticipates that in some years there will be
no major standard-setting activities within the various
international groups in which the Secretary of the Treasury has
the lead. In those instances, the section requires that the
interagency working group meet annually to advise the Secretary
on policies to be pursued by the United States regarding the
development of common international anti-money laundering and
counter-terrorist financing standards.
Section 4114. Definitions
This section clarifies terms used throughout this title. It
incorporates by reference the definition of the term
``international financial institution'' which already exists in
section 1701(c)(2) of the International Financial Institutions
Act. This section also defines the term ``Financial Action Task
Force.''
TITLE V--GOVERNMENT RESTRUCTURING
Subtitle G--Emergency Financial Preparedness
Chapter 1--Emergency Preparedness for Fiscal Authorities
Section 5081. Delegation authority of the Secretary of the Treasury
This section authorizes Treasury's Fiscal Assistant
Secretary, which operates as the U.S. government's money
manager, to delegate to subordinates the authority to authorize
cash movements and approve and sign changes to debt security
terms and conditions.
Section 5081A. Treasury support for financial services preparedness and
response
Subsection (a) provides a finding that the Secretary of the
Treasury has successfully communicated and coordinated with the
private-sector financial services industry about counter-
terrorist financing activities and preparedness; successfully
reached out to State and local governments and regional public-
private partnerships that protect employees and critical
infrastructure by enhancing communication and coordinating
plans for disaster preparedness and business continuity; and
has set an example for the Department of Homeland Security and
other Federal agency partners, whose active participation is
vital on these issues.
Subsection (b) expresses the sense of the Congress that the
Secretary of the Treasury, in consultation with the Secretary
of Homeland Security and other Federal agency partners, should
furnish resources and submit annual reports to Congress on
Federal efforts to educate consumers and employees of the
financial services industry about domestic counter-terrorist
financing activities, including how the public and private
sector organizations involved in counter-terrorist financing
activities can help to combat terrorism and simultaneously
protect the lives and civil liberties of consumers and
financial services employees, and how those consumers and
employees can assist the public and private sector
organizations involved in counter-terrorist financing
activities.
Chapter 2--Market Preparedness
SUBCHAPTER A--NETTING OF FINANCIAL CONTRACTS
Section 5082. Short title
This section provides the short title of the subchapter,
the ``Financial Contracts Bankruptcy Reform Act of 2002.''
Section 5082A. Treatment of certain agreements by conservators or
receivers of insured depository institutions
Subsections (a) through (f) of this section amend the
Federal Deposit Insurance Act's (FDIA) definitions of
``qualified financial contract,'' ``securities contract,''
``commodity contract,'' ``forward contract,'' ``repurchase
agreement'' and ``swap agreement'' to make them consistent with
the definitions in the Bankruptcy Code and to reflect the
enactment of the Commodity Futures Modernization Act of 2000
(CFMA). It is intended that the legislative history and case
law surrounding those terms, to the date of this amendment, be
incorporated into the legislative history of the FDIA.
Subsection (b) amends the definition of ``securities
contract'' expressly to encompass margin loans, to clarify the
coverage of securities options and to clarify the coverage of
repurchase and reverse repurchase transactions. The inclusion
of ``margin loans'' in the definition is intended to encompass
only those loans commonly known in the securities industry as
``margin loans,'' such as arrangements where a securities
broker or dealer extends credit to a customer in connection
with the purchase, sale, or trading of securities, and does not
include loans that are not commonly referred to as ``margin
loans.'' The reference in subsection (b) to a ``guarantee by or
to any securities clearing agency'' is intended to cover other
arrangements, such as novation, that have an effect similar to
a guarantee. The reference to a ``loan'' of a security in the
definition is intended to apply to loans of securities, whether
or not for a ``permitted purpose'' under margin regulations.
The reference to ``repurchase and reverse repurchase
transactions'' is intended to eliminate any inquiry under the
qualified financial contract provisions of the FDIA as to
whether a repurchase or reverse repurchase transaction is a
purchase and sale transaction or a secured financing.
Repurchase and reverse repurchase transactions meeting certain
criteria are already covered under the definition of
``repurchase agreement'' in the FDIA (and a regulation of the
Federal Deposit Insurance Corporation (FDIC)). Repurchase and
reverse repurchase transactions on all securities (including,
for example, equity securities, asset-backed securities,
corporate bonds and commercial paper) are included under the
definition of ``securities contract.'' Subsection (b) also
specifies that purchase, sale and repurchase obligations under
a participation in a commercial mortgage loan do not constitute
``securities contracts.'' While a contract for the purchase,
sale or repurchase of a participation may constitute a
``securities contract,'' the purchase, sale or repurchase
obligation embedded in a participation agreement does not make
that agreement a ``securities contract.''
A number of terms used in the qualified financial contract
provisions, but not defined therein, are intended to have the
meanings set forth in the analogous provisions of the
Bankruptcy Code or Federal Deposit Insurance Corporation
Improvement Act (FDICIA), such as, for example, ``securities
clearing agency''. The term ``person,'' however, is intended to
have the meaning set forth in section 1 of title 1 of the
United States Code.
Subsection (c) amends the definition of ``commodity
contract'' in section 11(e)(8)(D)(iii) of the Federal Deposit
Insurance Act. Subsection (d) amends section 11(e)(8)(D)(iv) of
the Federal Deposit Insurance Act with respect to its
definition of a ``forward contract.''
Subsection (e) amends the definition of ``repurchase
agreement'' to codify the substance of the FDIC's 1995
regulation defining repurchase agreement to include those on
qualified foreign government securities. The term ``qualified
foreign government securities'' is defined to include those
that are direct obligations of, or fully guaranteed by, central
governments of members of the Organization for Economic
Cooperation and Development (OECD), as determined by rule of
the appropriate Federal banking agency. Subsection (e) reflects
developments in the repurchase agreement markets, which
increasingly use foreign government securities as the
underlying asset. The securities are limited to those issued by
or guaranteed by full members of the OECD, as well as countries
that have concluded special lending arrangements with the
International Monetary Fund associated with the Fund's General
Arrangements to Borrow. (See 12 C.F.R. 360.5.) Subsection (e)
also amends the definition of ``repurchase agreement'' to
include those on mortgage-related securities, mortgage loans
and interests therein, and to include principal and interest-
only U.S. government and agency securities as securities that
can be the subject of a ``repurchase agreement.'' The reference
in the definition to United States government- and agency-
issued or fully guaranteed securities is intended to include
obligations issued or guaranteed by Fannie Mae and the Federal
Home Loan Mortgage Corporation (Freddie Mac) as well as all
obligations eligible for purchase by Federal Reserve banks
under the similar language of section 14(b) of the Federal
Reserve Act. This amendment is not intended to affect the
status of repos involving securities or commodities as
securities contracts, commodity contracts, or forward
contracts, and their consequent eligibility for similar
treatment under the qualified financial contract provisions. In
particular, an agreement for the sale and repurchase of a
security would continue to be a securities contract as defined
in the FDIA, even if not a ``repurchase agreement'' as defined
in the FDIA. Similarly, an agreement for the sale and
repurchase of a commodity, even though not a ``repurchase
agreement'' as defined in the FDIA, would continue to be a
forward contract for purposes of the FDIA.
Subsection (e), like subsection (b) for ``securities
contracts,'' specifies that repurchase obligations under a
participation in a commercial mortgage loan do not make the
participation agreement a ``repurchase agreement.'' Such
repurchase obligations embedded in participations in commercial
loans (such as recourse obligations) do not constitute a
``repurchase agreement.'' A repurchase agreement involving the
transfer of participations in commercial mortgage loans with a
simultaneous agreement to repurchase the participation on
demand or at a date certain 1 year or less after such transfer,
however, would constitute a ``repurchase agreement'' as well as
a ``securities contract''.
Subsection (f) amends the definition of ``swap agreement''
to include an ``interest rate swap, option, future, or forward
agreement, including a rate floor, rate cap, rate collar,
cross-currency rate swap, and basis swap; a spot, same day-
tomorrow, tomorrow-next, forward, or other foreign exchange or
precious metals agreement; a currency swap, option, future, or
forward agreement; an equity index or equity swap, option,
future, or forward agreement; a debt index or debt swap,
option, future, or forward agreement; a total return, credit
spread or credit swap, option, future, or forward agreement; a
commodity index or commodity swap, option, future, or forward
agreement; or a weather swap, weather derivative, or weather
option.'' As amended, the definition of ``swap agreement'' will
update the statutory definition and achieve contractual netting
across economically similar transactions that are the subject
of recurring dealings in the swap agreements.
The definition of ``swap agreement'' was originally
intended to provide sufficient flexibility to avoid the need to
amend the definition as the nature and uses of swap
transactions matured. To that end, the phrase ``or any other
similar agreement'' was included in the definition. (The phrase
``or any similar agreement'' has been added to the definitions
of ``forward contract,'' ``commodity contract,'' ``repurchase
agreement'' and ``securities contract'' for the same reason.)
To clarify this, subsection (f) expands the definition of
``swap agreement'' to include ``any agreement or transaction
that is similar to any other agreement or transaction referred
to in [section 11(e)(8)(D)(vi) of the FDIA] and is of a type
that has been, is presently, or in the future becomes, the
subject of recurrent dealings in the swap markets * * * and
that is a forward, swap, future, or option on one or more
rates, currencies, commodities, equity securities or other
equity instruments, debt securities or other debt instruments,
quantitative measures associated with an occurrence, extent of
an occurrence, or contingency associated with a financial,
commercial, or economic consequence, or economic or financial
indices or measures of economic or financial risk or value.''
The definition of ``swap agreement,'' however, should not
be interpreted to permit parties to document non-swaps as swap
transactions. Traditional commercial arrangements, such as
supply agreements, or other non-financial market transactions,
such as commercial, residential or consumer loans, cannot be
treated as ``swaps'' under either the FDIA or the Bankruptcy
Code simply because the parties purport to document or label
the transactions as ``swap agreements.'' In addition, these
definitions apply only for purposes of the FDIA and the
Bankruptcy Code. These definitions, and the characterization of
a certain transaction as a ``swap agreement,'' are not intended
to affect the characterization, definition, or treatment of any
instruments under any other statute, regulation, or rule
including, but not limited to, the statutes, regulations or
rules enumerated in subsection (f). Similarly, a new paragraph
of section 11(e) of the FDIA provides that the definitions of
``securities contract,'' ``repurchase agreement,'' ``forward
contract,'' and ``commodity contract,'' and the
characterization of certain transactions as such a contract or
agreement, are not intended to affect the characterization,
definition, or treatment of any instruments under any other
statute, regulation, or rule including, but not limited to, the
statutes, regulations or rules enumerated in subsection (f).
The definition also includes any security agreement or
arrangement, or other credit enhancement, related to a swap
agreement, including any guarantee or reimbursement obligation
related to a swap agreement. This ensures that any such
agreement, arrangement or enhancement is itself deemed to be a
swap agreement, and therefore eligible for treatment as such
for purposes of termination, liquidation, acceleration, offset
and netting under the FDIA and the Bankruptcy Code. Similar
changes are made in the definitions of ``forward contract,''
``commodity contract,'' ``repurchase agreement'' and
``securities contract.''
The use of the term ``forward'' in the definition of ``swap
agreement'' is not intended to refer only to transactions that
fall within the definition of ``forward contract.'' Instead, a
``forward'' transaction could be a ``swap agreement'' even if
not a ``forward contract.''
Subsection (g) amends the FDIA by adding a definition for
``transfer,'' which is a key term used in the FDIA, to ensure
that it is broadly construed to encompass dispositions of
property or interests in property. The definition tracks that
in section 101 of the Bankruptcy Code.
Subsection (h) makes clarifying technical changes to
conform the receivership and conservatorship provisions of the
FDIA. It also clarifies that the FDIA expressly protects rights
under security agreements, arrangements or other credit
enhancements related to one or more qualified financial
contracts (QFCs). An example of a security arrangement is a
right of setoff, and examples of other credit enhancements are
letters of credit, guarantees, reimbursement obligations and
other similar agreements.
Subsection (i) clarifies that no provision of Federal or
state law relating to the avoidance of preferential or
fraudulent transfers (including the anti-preference provision
of the National Bank Act) can be invoked to avoid a transfer
made in connection with any QFC of an insured depository
institution in conservatorship or receivership, absent actual
fraudulent intent on the part of the transferee.
Section 5082B. Authority of the FDIC and NCUAB with respect to failed
and failing institutions
This section provides that no provision of law, including
FDICIA, shall be construed to limit the power of the FDIC to
transfer or to repudiate any QFC in accordance with its powers
under the FDIA. As discussed below, there has been some
uncertainty regarding whether or not FDICIA limits the
authority of the FDIC to transfer or to repudiate QFCs of an
insolvent financial institution. This section, as well as other
provisions in the Act, clarify that FDICIA does not limit the
transfer powers of the FDIC with respect to QFCs.
This section denies enforcement to ``walkaway'' clauses in
QFCs. A walkaway clause is defined as a provision that, after
calculation of a value of a party's position or an amount due
to or from one of the parties upon termination, liquidation or
acceleration of the QFC, either does not create a payment
obligation of a party or extinguishes a payment obligation of a
party in whole or in part solely because of such party's status
as a non-defaulting party.
Section 5082C. Amendments relating to transfers of qualified financial
contracts
This section amends the FDIA to expand the transfer
authority of the FDIC to permit transfers of QFCs to
``financial institutions'' as defined in FDICIA or in
regulations. This provision will allow the FDIC to transfer
QFCs to a non-depository financial institution, provided the
institution is not subject to bankruptcy or insolvency
proceedings.
The new FDIA provision specifies that when the FDIC
transfers QFCs that are cleared on or subject to the rules of a
particular clearing organization, the transfer will not require
the clearing organizationtion to accept the transferee as a
member of the organization. This provision gives the FDIC flexibility
in resolving QFCs cleared on or subject to the rules of a clearing
organization, while preserving the ability of such organizations to
enforce appropriate risk reducing membership requirements. The
amendment does not require the clearing organization to accept for
clearing any QFCs from the transferee, except on the terms and
conditions applicable to other parties permitted to clear through that
clearing organization. ``Clearing organization'' is defined to mean a
``clearing organization'' within the meaning of FDICIA (as amended both
by the CFMA and by section 5082F of this Act).
The new FDIA provision also permits transfers to an
eligible financial institution that is a non-U.S. person, or
the branch or agency of a non-U.S. person or a U.S. financial
institution that is not an FDIC-insured institution if,
following the transfer, the contractual rights of the parties
would be enforceable substantially to the same extent as under
the FDIA. It is expected that the FDIC would not transfer QFCs
to such a financial institution if there were an impending
change of law that would impair the enforceability of the
parties' contractual rights.
Subsection (b) amends the notification requirements
following a transfer of the QFCs of a failed depository
institution to require the FDIC to notify any party to a
transferred QFC of such transfer by 5 p.m. (Eastern Time) on
the business day following the date of the appointment of the
FDIC acting as receiver or following the date of such transfer
by the FDIC acting as a conservator. This amendment is
consistent with the policy statement on QFCs issued by the FDIC
on December 12, 1989.
Subsection (c) amends the FDIA to clarify the relationship
between the FDIA and FDICIA. There has been some uncertainty
whether FDICIA permits counterparties to terminate or liquidate
a QFC before the expiration of the time period provided by the
FDIA during which the FDIC may repudiate or transfer a QFC in a
conservatorship or receivership. Subsection (c) provides that a
party may not terminate a QFC based solely on the appointment
of the FDIC as receiver until 5 p.m. (Eastern Time) on the
business day following the appointment of the receiver or after
the person has received notice of a transfer under FDIA section
11(d)(9), or based solely on the appointment of the FDIC as
conservator, notwithstanding the provisions of FDICIA. This
provides the FDIC with an opportunity to undertake an orderly
resolution of the insured depository institution.
Subsection (c) also prohibits the enforcement of rights of
termination or liquidation that arise solely because of the
insolvency of the institution or are based on the ``financial
condition'' of the depository institution in receivership or
conservatorship. For example, termination based on a cross-
default provision in a QFC that is triggered upon a default
under another contract could be rendered ineffective if such
other default was caused by an acceleration of amounts due
under that other contract, and such acceleration was based
solely on the appointment of a conservator or receiver for that
depository institution. Similarly, a provision in a QFC
permitting termination of the QFC based solely on a downgraded
credit rating of a party will not be enforceable in an FDIC
receivership or conservatorship because the provision is based
solely on the financial condition of the depository institution
in default. However, any payment, delivery or other
performance-based default, or breach of a representation or
covenant putting in question the enforceability of the
agreement, will not be deemed to be based solely on financial
condition for purposes of this provision. The amendment is not
intended to prevent counterparties from taking all actions
permitted and recovering all damages authorized upon
repudiation of any QFC by a conservator or receiver, or from
taking actions based upon a receivership or other financial
condition-triggered default in the absence of a transfer (as
contemplated in Section 11(e)(10) of the FDIA). The amendment
allows the FDIC to meet its obligation to provide notice to
parties to transferred QFCs by taking steps reasonably
calculated to provide notice to such parties by the required
time. This is consistent with the existing policy statement on
QFCs issued by the FDIC on December 12, 1989.
Finally, the amendment permits the FDIC to transfer QFCs of
a failed depository institution to a bridge bank or a
depository institution organized by the FDIC for which a
conservator is appointed either (i) immediately upon the
organization of such institution or (ii) at the time of a
purchase and assumption transaction between the FDIC and the
institution. This provision clarifies that such institutions
are not to be considered financial institutions that are
ineligible to receive such transfers under FDIA section
11(e)(9). This is consistent with the existing policy statement
on QFCs issued by the FDIC on December 12, 1989.
Section 5082D. Amendments relating to disaffirmance or repudiation of
qualified financial contracts
This section limits the disaffirmance and repudiation
authority of the FDIC with respect to QFCs so that such
authority is consistent with the FDIC's transfer authority
under FDIA section 11(e)(9). This ensures that no
disaffirmance, repudiation or transfer authority of the FDIC
may be exercised to ``cherry-pick'' or otherwise treat
independently all the QFCs between a depository institution in
default and a person or any affiliate of such person. The FDIC
has announced that its policy is not to repudiate or disaffirm
QFCs selectively. This unified treatment is fundamental to the
reduction of systemic risk.
Section 5082E. Clarifying amendment relating to master agreements
This section specifies that a master agreement for one or
more securities contracts, commodity contracts, forward
contracts, repurchase agreements or swap agreements will be
treated as a single QFC under the FDIA (but only with respect
to underlying agreements that are themselves QFCs). This
provision ensures that cross-product netting pursuant to a
master agreement, or pursuant to an umbrella agreement for
separate master agreements between the same parties, each of
which is used to document one or more qualified financial
contracts, will be enforceable under the FDIA. Cross-product
netting permits a wide variety of financial transactions
between two parties to be netted, thereby maximizing the
present and potential future risk-reducing benefits of the
netting arrangement between the parties. Express recognition of
the enforceability of such cross-product master agreements
furthers the policy of increasing legal certainty and reducing
systemic risks in the case of an insolvency of a large
financial participant.
Section 5082F. Federal Deposit Insurance Corporation Improvement Act of
1991
Subsection (a)(1) amends the definition of ``clearing
organization'' to include clearinghouses that are subject to
exemptions pursuant to orders of the Securities and Exchange
Commission or the Commodity Futures Trading Commission and to
include multilateral clearing organizations (the definition of
which was added to FDICIA by the CFMA).
FDICIA provides that a netting arrangement will be enforced
pursuant to its terms, notwithstanding the failure of a party
to the agreement. The current netting provisions of FDICIA,
however, limit this protection to ``financial institutions,''
which include depository institutions. Subsection (a)(2) amends
the FDICIA definition of covered institutions to include (i)
uninsured national and State member banks, irrespective of
their eligibility for deposit insurance and (ii) foreign banks
(including the foreign bank and its branches or agencies as a
combined group, or only the foreign bank parent of a branch or
agency). The latter change will extend the protections of
FDICIA to ensure that U.S. financial organizations
participating in netting agreements with foreign banks are
covered by the bill, thereby enhancing the safety and soundness
of these arrangements. It is intended that a non-defaulting
foreign bank and its branches and agencies be considered to be
a single financial institution for purposes of the bilateral
netting provisions of FDICIA (except to the extent that the
non-defaulting foreign bank and its branches and agencies on
the one hand, and the defaulting financial institution, on the
other, have entered into agreements that clearly evidence an
intention that the non-defaulting foreign bank and its branches
and agencies be treated as separate financial institutions for
purposes of the bilateral netting provisions of FDICIA).
Subsection (a)(3) amends FDICIA to provide that, for
purposes of FDICIA, two or more clearing organizations that
enter into a netting contract are considered ``members'' of
each other. This assures the enforceability of netting
arrangements involving two or more clearing organizations and a
member common to all such organizations, thus reducing systemic
risk in the event of the failure of such a member. Under the
current FDICIA provisions, the enforceability of such
arrangements depends on a case-by-case determination that
clearing organizations could be regarded as members of each
other for purposes of FDICIA.
Subsection (a)(4) amends the FDICIA definition of netting
contract and the general rules applicable to netting contracts.
The current FDICIA provisions require that the netting
agreement must be governed by the law of the United States or a
State to receive the protections of FDICIA. Many of these
agreements, however, particularly netting arrangements covering
positions taken in foreign exchange dealings, are governed by
the laws of a foreign country. This subsection broadens the
definition of ``netting contract'' to include those agreements
governed by foreign law, and preserves the FDICIA requirement
that a netting contract not be invalid under, or precluded by,
Federal law.
Subsections (b) and (c) establish two exceptions to
FDICIA's protection of the enforceability of the provisions of
netting contracts between financial institutions and among
clearing organization members. First, the termination
provisions of netting contracts will not be enforceable based
solely on (i) the appointment of a conservator for an insolvent
depository institution under the FDIA or (ii) the appointment
of a receiver for such institution under the FDIA, if such
receiver transfers or repudiates QFCs in accordance with the
FDIA and gives notice of a transfer by 5 p.m. on the business
day following the appointment of a receiver. This change is
made to confirm the FDIC's flexibility to transfer or repudiate
the QFCs of an insolvent depository institution in accordance
with the terms of the FDIA. This modification also provides
important legal certainty regarding the treatment of QFCs under
the FDIA, because the current relationship between the FDIA and
FDICIA is unclear.
The second exception provides that FDICIA does not override
a stay order under SIPA with respect to foreclosure on
securities (but not cash) collateral of a debtor (section
5082(k) makes a conforming change to the Securities Investor
Protection Act (SIPA)). There is also an exception relating to
insolvent commodity brokers. Subsections (b) and (c) also
clarify that a security agreement or other credit enhancement
related to a netting contract is enforceable to the same extent
as the underlying netting contract.
Subsection (d) adds a new section 407 to FDICIA. This new
section provides that, notwithstanding any other law, QFCs with
uninsured national banks, an uninsured Federal branch or agency
or Edge Act corporation, or an uninsured State member bank that
operates, or operates as, a multilateral clearing organization
will be treated in the same manner as if the contract were with
an insured national bank or insured Federal branch for which a
receiver or conservator was appointed. This provision will
ensure that parties to QFCs with these institutions will have
the same rights and obligations as parties entering into the
same agreements with insured depository institutions. The new
section also specifically limits the powers of a receiver or
conservator for such an institution to those contained in 12
U.S.C. 1821(e)(8), (9), (10), and (11), which address QFCs.
While the amendment would apply the same rules as apply to
insured institutions, the provision would not change the rules
that apply to insured institutions. Nothing in this section
would amend the International Banking Act, the Federal Deposit
Insurance Act, the National Bank Act, or other statutory
provisions with respect to receiverships of insured national
banks or Federal branches.
Section 5082G. Bankruptcy code amendments
This section makes a series of amendments to the Bankruptcy
Code. Subsection (a)(1) amends the Bankruptcy Code definitions
of ``repurchase agreement'' and ``swap agreement'' to conform
with the amendments to the FDIA contained in subsections 5082A
(e) and (f).
In connection with the definition of ``repurchase
agreement,'' the term ``qualified foreign government
securities'' is defined to include securities that are direct
obligations of, or fully guaranteed by, central governments of
members of the Organization for Economic Cooperation and
Development (OECD). This language reflects developments in the
repurchase agreement markets, which increasingly use foreign
government securities as the underlying asset. The securities
are limited to those issued by or guaranteed by full members of
the OECD, as well as countries that have concluded special
lending arrangements with the International Monetary Fund
associated with the Fund's General Arrangements to Borrow.
Subsection (a)(1) also amends the definition of
``repurchase agreement'' to include those on mortgage-related
securities, mortgage loans and interests therein, and to
include principal and interest-only U.S. Government and agency
securities as securities that can be the subject of a
``repurchase agreement.'' The reference in the definition to
United States government- and agency-issued or fully guaranteed
securities is intended to include obligations issued or
guaranteed by Fannie Mae and the Federal Home Loan Mortgage
Corporation (Freddie Mac) as well as all obligations eligible
for purchase by Federal Reserve banks under the similar
language of section 14(b) of the Federal Reserve Act.
This amendment is not intended to affect the status of
repos involving securities or commodities as securities
contracts, commodity contracts, or forward contracts, and their
consequent eligibility for similar treatment under other
provisions of the Bankruptcy Code. In particular, an agreement
for the sale and repurchase of a security would continue to be
a securities contract as defined in the Bankruptcy Code and
thus also would be subject to the Bankruptcy Code provisions
pertaining to securities contracts, even if not a ``repurchase
agreement'' as defined in the Bankruptcy Code. Similarly, an
agreement for the sale and repurchase of a commodity, even
though not a ``repurchase agreement'' as defined in the
Bankruptcy Code, would continue to be a forward contract for
purposes of the Bankruptcy Code and would be subject to the
Bankruptcy Code provisions pertaining to forward contracts.
Subsection (a)(1) specifies that repurchase obligations
under a participation in a commercial mortgage loan do not make
the participation agreement a ``repurchase agreement.'' These
repurchase obligations embedded in participations in commercial
loans (such as recourse obligations) do not constitute a
``repurchase agreement.'' However, a repurchase agreement
involving the transfer of participations in commercial mortgage
loans with a simultaneous agreement to repurchase the
participation on demand or at a date certain 1 year or less
after such transfer would constitute a ``repurchase agreement''
(as well as a ``securities contract'').
The definition of ``swap agreement'' is amended to include
an ``interest rate swap, option, future, or forward agreement,
including a rate floor, rate cap, rate collar, cross-currency
rate swap, and basis swap; a spot, same day-tomorrow, tomorrow-
next, forward, or otherforeign exchange or precious metals
agreement; a currency swap, option, future, or forward agreement; an
equity index or equity swap, option, future, or forward agreement; a
debt index or debt swap, option, future, or forward agreement; a total
return, credit spread or credit swap, option, future, or forward
agreement; a commodity index or commodity swap, option, future, or
forward agreement; or a weather swap, weather derivative, or weather
option.'' As amended, the definition of ``swap agreement'' will update
the statutory definition and achieve contractual netting across
economically similar transactions.
The definition of ``swap agreement'' was originally
intended to provide sufficient flexibility to avoid the need to
amend the definition as the nature and uses of swap
transactions matured. To that end, the phrase ``or any other
similar agreement'' was included in the definition. (The phrase
``or any similar agreement'' has been added to the definitions
of ``forward contract,'' ``commodity contract,'' ``repurchase
agreement,'' and ``securities contract'' for the same reason.)
To clarify this, subsection (a)(1) expands the definition of
``swap agreement'' to include ``any agreement or transaction
that is similar to any other agreement or transaction referred
to in [section 101(53B) of the Bankruptcy Code] and that is of
a type that has been, is presently, or in the future becomes,
the subject of recurrent dealings in the swap markets'' and
that ``is a forward, swap, future, or option on one or more
rates, currencies, commodities, equity securities or other
equity instruments, debt securities or other debt instruments,
quantitative measures associated with an occurrence, extent of
an occurrence, or contingency associated with a financial,
commercial, or economic consequence, or economic or financial
indices or measures of economic or financial risk or value.''
The definition of ``swap agreement'' in this subsection
should not be interpreted to permit parties to document non-
swaps as swap transactions. Traditional commercial
arrangements, such as supply agreements, or other non-financial
market transactions, such as commercial, residential or
consumer loans, cannot be treated as ``swaps'' under either the
FDIA or the Bankruptcy Code because the parties purport to
document or label the transactions as ``swap agreements.''
These definitions, and the characterization of a certain
transaction as a ``swap agreement,'' are not intended to affect
the characterization, definition, or treatment of any
instruments under any other statute, regulation, or rule
including, but not limited to, the statutes, regulations or
rules enumerated in subsection (a)(1)(C). Similarly, the
definitions of ``securities contract'', ``repurchase
agreement'', and ``commodity contract'' and the
characterization of certain transactions as such a contract or
agreement, are not intended to affect the characterization,
definition, or treatment of any instrument under any other
statute regulation, or rule including, but not limited to, the
statutes, regulations, or rules enumerated in subsection (f).
The definition also includes any security agreement or
arrangement, or other credit enhancement, related to a swap
agreement, including any guarantee or reimbursement obligation
related to a swap agreement. This ensures that any such
agreement, arrangement or enhancement is itself deemed to be a
swap agreement, and therefore eligible for treatment as such
for purposes of termination, liquidation, acceleration, offset
and netting under the Bankruptcy Code and the FDIA. Similar
changes are made in the definitions of ``forward contract,''
``commodity contract,'' ``repurchase agreement,'' and
``securities contract.'' An example of a security arrangement
is a right of setoff; examples of other credit enhancements are
letters of credit and other similar agreements. A security
agreement or arrangement or guarantee or reimbursement
obligation related to a ``swap agreement,'' ``forward
contract,'' ``commodity contract,'' ``repurchase agreement'' or
``securities contract'' will be such an agreement or contract
only to the extent of the damages in connection with such
agreement measured in accordance with Section 562 of the
Bankruptcy Code (added by the bill). This limitation does not
affect, however, the other provisions of the Bankruptcy Code
(including section 362(b)) relating to security arrangements in
connection with agreements or contracts that otherwise qualify
as ``swap agreements,'' ``forward contracts,'' ``commodity
contracts,'' ``repurchase agreements'' or ``securities
contracts.''
The use of the term ``forward'' in the definition of ``swap
agreement'' is not intended to refer only to transactions that
fall within the definition of ``forward contract.'' Instead, a
``forward'' transaction could be a ``swap agreement'' even if
not a ``forward contract.''
Subsections (a)(2) and (a)(3) amend the Bankruptcy Code
definitions of ``securities contract'' and ``commodity
contract,'' respectively, to conform them to the definitions in
the FDIA.
Subsection (a)(2), like the amendments to the FDIA, amends
the definition of ``securities contract'' expressly to
encompass margin loans, to clarify the coverage of securities
options and to clarify the coverage of repurchase and reverse
repurchase transactions. The inclusion of ``margin loans'' in
the definition is intended to encompass only those loans
commonly known in the securities industry as ``margin loans'',
such as arrangements where a securities broker or dealer
extends credit to a customer in connection with the purchase,
sale, or trading of securities, and does not include loans that
are not commonly referred to as ``margin loans.'' The reference
in subsection (b) to a ``guarantee'' by or to a ``securities
clearing agency'' is intended to cover other arrangements, such
as novation, that have an effect similar to a guarantee. The
reference to a ``loan'' of a security in the definition is
intended to apply to loans of securities, whether or not for a
``permitted purpose'' under margin regulations. The reference
to ``repurchase and reverse repurchase transactions'' is
intended to eliminate any inquiry under section 555 of the
Bankruptcy Code and related provisions as to whether a
repurchase or reverse repurchase transaction is a purchase and
sale transaction or a secured financing. Repurchase and reverse
repurchase transactions meeting certain criteria are already
covered under the definition of ``repurchase agreement'' in the
Bankruptcy Code. Repurchase and reverse repurchase transactions
on all securities (including, for example, equity securities,
asset-backed securities, corporate bonds and commercial paper)
are included under the definition of ``securities contract''. A
repurchase or reverse repurchase transaction which is a
``securities contract'' but not a ``repurchase agreement''
would thus be subject to the ``counterparty limitations''
contained in section 555 of the Bankruptcy Code (i.e., only
stockbrokers, financial institutions, securities clearing
agencies and financial participants can avail themselves of
section 555 and related provisions).
Subsection (a)(2) also specifies that purchase, sale and
repurchase obligations under a participation in a commercial
mortgage loan do not constitute ``securities contracts.'' While
a contract for the purchase, sale or repurchase of a
participation may constitute a ``securities contract,'' the
purchase, sale or repurchase obligation embedded in a
participation agreement does not make that agreement a
``securities contract.'' Subsection (a) clarifies the reference
to guarantee or reimbursement obligation.
Subsection (b) amends the Bankruptcy Code definitions of
``financial institution'' and ``forward contract merchant.''
The definition of ``financial institution'' adds Federally
insured credit unions to the list of existing financial
institutions.
Subsection (b) also adds a new definition of ``financial
participant'' to limit the potential impact of insolvencies
upon other major market participants. This definition will
allow such market participants to close out and net agreements
with insolvent entities under sections 362(b)(6), 555, and 556
of the Bankruptcy Code even if the creditor could not qualify
as, for example, a commodity broker. Sections 362(b)(6), 555
and 556 preserve the limitations of the right to close-out and
net such contracts, in most cases, to entities who qualify
under the Bankruptcy Code's counterparty limitations. However,
where the counterparty has transactions with a total gross
dollar value of at least $1 billion in notional or actual
principal amount outstanding on any day during the previous 15-
month period, or has gross mark-to-market positions of at least
$100 million (aggregated across counterparties) in one or more
agreements or transactions on any day during the previous 15-
month period, sections 362(b)(6), 555 and 556 and corresponding
amendments would permit it to exercise netting and related
rights irrespective of its inability otherwise to satisfy those
counterparty limitations. This change will help prevent
systemic impact upon the markets from a single failure, and is
derived from threshold tests contained in Regulation EE
promulgated by the Federal Reserve Board in implementing the
netting provisions of the Federal Deposit Insurance Corporation
Improvement Act. It is intended that the 15-month period be
measured with reference to the 15 months preceding the filing
of a petition by or against the debtor.
``Financial participant'' is also defined to include
``clearing organizations'' within the meaning of FDICIA (as
amended by the CFMA and section 5082F). This amendment,
together with the inclusion of ``financial participants'' as
eligible counterparties in connection with ``commodity
contracts,'' ``forward contracts'' and ``securities contracts''
and the amendments made in other sections of the bill to
include ``financial participants'' as counterparties eligible
for the protections in respect of ``swap agreements'' and
``repurchase agreements'', take into account the CFMA and will
allow clearing organizations to benefit from the protections of
all of the provisions of the Bankruptcy Code relating to these
contracts and agreements. This will further the goal of
promoting the clearing of derivatives and other transactions as
a way to reduce systemic risk. The definition of ``financial
participant'' (as with the other provisions of the Bankruptcy
Code relating to ``securities contracts,'' ``forward
contracts,'' ``commodity contracts,'' ``repurchase agreements''
and ``swap agreements'') is not mutually exclusive, i.e., an
entity that qualifies as a ``financial participant'' could also
be a ``swap participant,'' ``repo participant,'' ``forward
contract merchant,'' ``commodity broker,'' ``stockbroker,''
``securities clearing agency'' and/or ``financial
institution.''
Subsection (c) adds to the Bankruptcy Code new definitions
for the terms ``master netting agreement'' and ``master netting
agreement participant.'' The definition of ``master netting
agreement'' is designed to protect the termination and close-
out netting provisions of cross-product master agreements
between parties. Such an agreement may be used (i) to document
a wide variety of securities contracts, commodity contracts,
forward contracts, repurchase agreements and swap agreements or
(ii) as an umbrella agreement for separate master agreements
between the same parties, each of which is used to document a
discrete type of transaction. The definition includes security
agreements or arrangements or other credit enhancements related
to one or more such agreements and clarifies that a master
netting agreement will be treated as such even if it documents
transactions that are not within the enumerated categories of
qualifying transactions (but the provisions of the Bankruptcy
Code relating to master netting agreements and the other
categories of transactions will not apply to such other
transactions). A ``master netting agreement participant'' is
any entity that is a party to an outstanding master netting
agreement with a debtor before the filing of a bankruptcy
petition.
Subsection (d) amends section 362(b) of the Bankruptcy Code
to protect enforcement, free from the automatic stay, of setoff
or netting provisions in swap agreements and in master netting
agreements and security agreements or arrangements related to
one or more swap agreements or master netting agreements. This
provision parallels the other provisions of the Bankruptcy Code
that protect netting provisions of securities contracts,
commodity contracts, forward contracts, and repurchase
agreements. Because the relevant definitions include related
security agreements, the references to ``setoff'' in these
provisions, as well as in section 362(b)(6) and (7) of the
Bankruptcy Code, are intended to refer also to rights to
foreclose on, and to set off against obligations to return,
collateral securing swap agreements, master netting agreements,
repurchase agreements, securities contracts, commodity
contracts, or forward contracts. Collateral may be pledged to
cover the cost of replacing the defaulted transactions in the
relevant market, as well as other costs and expenses incurred
or estimated to be incurred for the purpose of hedging or
reducing the risks arising out of such termination. Enforcement
of these agreements and arrangements free from the automatic
stay is consistent with the policy goal of minimizing systemic
risk.
Subsection (d) also clarifies that the provisions
protecting setoff and foreclosure in relation to securities
contracts, commodity contracts, forward contracts, repurchase
agreements, swap agreements, and master netting agreements free
from the automatic stay apply to collateral pledged by the
debtor but that cannot technically be ``held by'' the creditor,
such as receivables and book-entry securities, and to
collateral that has been repledged by the creditor and
securities resold pursuant to repurchase agreements.
Subsections (e) and (f) amend sections 546 and 548(d) of
the Bankruptcy Code to provide that transfers made under or in
connection with a master netting agreement may not be avoided
by a trustee except where such transfer is made with actual
intent to hinder, delay or defraud and not taken in good faith.
This amendment provides the same protections for a transfer
made under, or in connection with, a master netting agreement
as currently is provided for margin payments, settlement
payments and other transfers received by commodity brokers,
forward contract merchants, stockbrokers, financial
institutions, securities clearing agencies, repo participants,
and swap participants under sections 546 and 548(d), except to
the extent the trustee could otherwise avoid such a transfer
made under an individual contract covered by such master
netting agreement.
Subsections (g), (h), (i), and (j) clarify that the
provisions of the Bankruptcy Code that protect (i) rights of
liquidation under securities contracts, commodity contracts,
forward contracts and repurchase agreements also protect rights
of termination or acceleration under such contracts, and (ii)
rights to terminate under swap agreements also protect rights
of liquidation and acceleration.
Subsection (k) adds a new section 561 to the Bankruptcy
Code to protect the contractual right of a master netting
agreement participant to enforce any rights of termination,
liquidation, acceleration, offset or netting under a master
netting agreement. These rights include rights arising (i) from
the rules of a derivatives clearing organization, multilateral
clearing organization, securities clearing agency, securities
exchange, securities association, contract market, derivatives
transaction execution facility or board of trade, (ii) under
common law, law merchant or (iii) by reason of normal business
practice. This reflects the enactment of the CFMA and the
current treatment of rights under swap agreements under section
560 of the Bankruptcy Code. Similar changes to reflect the
enactment of the CFMA have been made to the definition of
``contractual right'' for purposes of sections 555, 556, 559
and 560 of the Bankruptcy Code.
Subsections (b)(2)(A) and (b)(2)(B) of new section 561
limit the exercise of contractual rights to net or to offset
obligations where the debtor is a commodity broker and one leg
of the obligations sought to be netted relates to commodity
contracts traded on or subject to the rules of a contract
market designated under the Commodity Exchange Act or a
derivatives transaction execution facility registered under the
Commodity Exchange Act. Under subsection (b)(2)(A) netting or
offsetting is not permitted in these circumstances if the party
seeking to net or to offset has no positive net equity in the
commodity accounts at the debtor. Subsection (b)(2)(B) applies
only if the debtor is a commodity broker, acting on behalf of
its own customer, and is in turn a customer of another
commodity broker. In that case, the latter commodity broker may
not net or offset obligations under such commodity contracts
with other claims against its customer, the debtor. Subsections
(b)(2)(A) and (b)(2)(B) limit the depletion of assets available
fordistribution to customers of commodity brokers. Subsection
(b)(2)(C) provides an exception to subsections (b)(2)(A) and (b)(2)(B)
for cross-margining and other similar arrangements approved by, or
submitted to and not rendered ineffective by, the Commodity Futures
Trading Commission, as well as certain other netting arrangements.
For the purposes of Bankruptcy Code sections 555, 556, 559,
560 and 561, it is intended that the normal business practice
in the event of a default of a party based on bankruptcy or
insolvency is to terminate, liquidate or accelerate securities
contracts, commodity contracts, forward contracts, repurchase
agreements, swap agreements and master netting agreements with
the bankrupt or insolvent party. The protection of netting and
offset rights in sections 560 and 561 is in addition to the
protections afforded in sections 362(b)(6), (b)(7), (b)(17) and
(b)(28) of the Bankruptcy Code.
Under this Act, the termination, liquidation or
acceleration rights of a master netting agreement participant
are subject to limitations contained in other provisions of the
Bankruptcy Code relating to securities contracts and repurchase
agreements. In particular, if a securities contract or
repurchase agreement is documented under a master netting
agreement, a party's termination, liquidation and acceleration
rights would be subject to the provisions of the Bankruptcy
Code relating to orders authorized under the provisions of SIPA
or any statute administered by the SEC. In addition, the
netting rights of a party to a master netting agreement would
be subject to any contractual terms between the parties
limiting or waiving netting or setoff rights. Similarly, a
waiver by a bank or a counterparty of netting or setoff rights
in connection with QFCs would be enforceable under the FDIA.
New section 561 of the Bankruptcy Code clarifies that the
provisions of the Bankruptcy Code related to securities
contracts, commodity contracts, forward contracts, repurchase
agreements, swap agreements and master netting agreements apply
in a proceeding ancillary to a foreign insolvency proceeding
under section 304 of the Bankruptcy Code.
Subsections (l) and (m) clarify that the exercise of
termination and netting rights will not otherwise affect the
priority of the creditor's claim after the exercise of netting,
foreclosure and related rights.
Subsection (n) amends section 553 of the Bankruptcy Code to
clarify that the acquisition by a creditor of setoff rights in
connection with swap agreements, repurchase agreements,
securities contracts, forward contracts, commodity contracts
and master netting agreements cannot be avoided as a
preference. This subsection also adds setoff of the kinds
described in sections 555, 556, 559, 560, and 561 of the
Bankruptcy Code to the types of setoff excepted from section
553(b).
Subsection (o), as well as other subsections of the Act,
adds references to ``financial participant'' in all the
provisions of the Bankruptcy Code relating to securities,
forward and commodity contracts and repurchase and swap
agreements.
Section 5082H. Recordkeeping requirements
This section amends section 11(e)(8) of the Federal Deposit
Insurance Act to explicitly authorize the FDIC, in consultation
with appropriate Federal banking agencies, to prescribe
regulations on recordkeeping by any insured depository
institution with respect to QFCs only if the insured financial
institution is in a troubled condition (as such term is defined
in the FDIA).
Section 5082I. Exemptions from contemporaneous execution requirement
This section amends FDIA section 13(e)(2) to provide that
an agreement for the collateralization of governmental
deposits, bankruptcy estate funds, Federal Reserve Bank or
Federal Home Loan Bank extensions of credit or one or more QFCs
shall not be deemed invalid solely because such agreement was
not entered into contemporaneously with the acquisition of the
collateral or because of pledges, delivery or substitution of
the collateral made in accordance with such agreement.
This section codifies portions of policy statements issued
by the FDIC regarding the application of section 13(e), which
codifies the ``D'Oench Duhme'' doctrine. With respect to QFCs,
this codification recognizes that QFCs often are subject to
collateral and other security arrangements that may require
posting and return of collateral on an ongoing basis based on
the mark-to-market values of the collateralized transactions.
The codification of only portions of the existing FDIC policy
statements on these and related issues should not give rise to
any negative implication regarding the continued validity of
these policy statements.
Section 5082J. Damage measure
This section adds a new section 562 to the Bankruptcy Code
providing that damages under any swap agreement, securities
contract, forward contract, commodity contract, repurchase
agreement or master netting agreement will be calculated as of
the earlier of (i) the date of rejection of such agreement by a
trustee or (ii) the date or dates of liquidation, termination
or acceleration of such contract or agreement.
Section 562 provides an exception to the rules in (i) and
(ii) if there are no commercially reasonable determinants of
value as of such date or dates, in which case damages are to be
measured as of the earliest subsequent date or dates on which
there are commercially reasonable determinants of value.
Although it is expected that in most circumstances damages
would be measured as of the date or dates of either rejection
or liquidation, termination or acceleration, in certain unusual
circumstances, such as dysfunctional markets or liquidation of
very large portfolios, there may be no commercially reasonable
determinants of value for liquidating any such agreements or
contracts or for liquidating all such agreements and contracts
in a large portfolio on a single day. It is expected that
measuring damages as of a date or dates before the date of
liquidation, termination, or acceleration, will occur only in
very unusual circumstances.
The party determining damages is given limited discretion
to determine the dates as of which damages are to be measured.
Its actions are circumscribed unless there are no
``commercially reasonable'' determinants of value for it to
measure damages on the date or dates of either rejection or
liquidation, termination or acceleration. The references to
``commercially reasonable'' are intended to reflect existing
state law standards relating to a creditor's actions in
determining damages. New section 562 provides that if damages
are not measured as of either the date of rejection or the date
or dates of liquidation, termination or acceleration and the
trustee challenges the timing of the measurement of damages by
the non-defaulting party determining the damages, the non-
defaulting party, rather than the trustee, has the burden of
proving the absence of any commercially reasonable determinants
of value.
New section 562 is not intended to have any impact on the
determination under the Bankruptcy Code of the timing of
damages for contracts and agreements other than those specified
in section 562. Also, section 562 does not apply to proceedings
under the FDIA, and it is not intended that Section 562 have
any impact on the interpretation of the provisions of the FDIA
relating to timing of damages in respect of QFCs or other
contracts.
Section 5082K. SIPC stay
This section amends SIPA to provide that an order or decree
issued pursuant to SIPA shall not operate as a stay of any
right of liquidation, termination, acceleration, offset or
netting under one or more securities contracts, commodity
contracts, forward contracts, repurchase agreements, swap
agreements or master netting agreements (as defined in the
Bankruptcy Code and including rights of foreclosure on
collateral), except that such order or decree may stay any
right to foreclose on or dispose of securities (but not cash)
collateral pledged by the debtor or sold by the debtor under a
repurchase agreement or lent by the debtor under a securities
lending agreement. A corresponding amendment to FDICIA is made
by section 5082F. A creditor that was stayed in exercising
rights against such securities would be entitled to post-
insolvency interest to the extent of the value of such
securities.
Section 5082L. Applicability of other sections to chapter 9
This section clarifies that, with respect to municipal
bankruptcies, all the provisions of the Bankruptcy Code
relating to securities contracts, commodity contracts, forward
contracts, repurchase agreements, swap agreements and master
netting agreements (which by their terms are intended to apply
in all proceedings under title 11) will apply in a Chapter 9
proceeding for a municipality. Although sections 555, 556, 559
and 560 of the Bankruptcy Code provide that they apply in any
proceeding under the Bankruptcy Code, Section 502 makes a
technical amendment in Chapter 9 to clarify the applicability
of these provisions.
Section 5082M. Effective date; application of amendments
Subsection (a) provides that the amendments made by the
bill take effect on the date of enactment. Subsection (b)
provides that the amendments made by the bill shall not apply
with respect to cases commenced, or to conservator/receiver
appointments made, before the date of enactment. The amendments
would, however, apply to contracts entered into prior to the
date of enactment, so long as a Bankruptcy Code case were
commenced or a conservator/receiver appointment were made on or
after the date of enactment under any Federal or State law.
Section 5082N. Savings clause
This section provides that the meaning of terms used in the
Act are applicable for purposes of the Act only, and shall not
be construed or applied so as to challenge or affect the
characterization, definition, or treatment of any similar terms
under any other statute, regulation, or rule, including the
Gramm-Leach Bliley Act, the Legal Certainty for Bank Products
Act of 2000, the securities laws (as that term is defined in
Section 3(a)(47) of the Securities Exchange Act of 1934), and
the Commodity Exchange Act.
SUBCHAPTER B--EMERGENCY SECURITIES RESPONSE
Section 5086. Short title
This section states the short title of the subchapter, the
``Emergency Securities Response Act of 2004.''
Section 5087. Extension of emergency order authority of the Securities
Exchange Commission
This section modifies the authority of the Securities and
Exchange Commission to issue emergency orders under section
12(k)(2) of the Securities Exchange Act of 1934 (15 U.S.C.
78l(k)(2)). The section modifies section 12(k)(2) to grant the
Commission authority to take emergency action with respect to
any matter or action subject to regulation by the Commission or
a self-regulatory organization under the securities laws, not
just under the Securities Exchange Act of 1934. The Committee
recognizes that emergency conditions can necessitate emergency
relief under securities laws other than the Securities Exchange
Act of 1934 and is broadening the emergency measures the
Commission can take under section 12(k)(2) accordingly.
The section also modifies the findings required for the
Commission to enter an emergency order by adding a third
finding that may support emergency action. Under new section
12(k)(2)(A)(iii), the Commission may take emergency action if
it determines that action is necessary in the public interest
and for the protection of investors ``to reduce, eliminate, or
prevent the substantial disruption by the emergency of (I)
securities markets, investment companies, or any other
significant portion or segment of such markets, or (II) the
transmission or processing of securities transactions.''
The first of these two findings--section
12(k)(2)(A)(iii)(I)--covers situations in which emergency
relief is warranted to reduce, eliminate or prevent the
substantial disruption by the emergency of securities markets
broadly defined, including investment companies or any other
significant portion or segment of the securities markets (such
as broker-dealers or investment advisers, or a class thereof).
As illustrated by the aftermath of the terrorist attacks of
September 11, 2001, the effects of transportation and
communication problems, no less than market disruptions, can
require emergency relief. If transportation or communication
problems or other circumstances substantially disrupt or
threaten to substantially disrupt the operation of investment
companies, broker-dealers, or any other significant portion or
segment of the securities markets, and constitute an
``emergency'' under section 12(k)(6) of the Securities Exchange
Act of 1934 (15 U.S.C. 78l(k)(6)), section 12(k)(2)(A)(iii)(I)
allows the Commission to take emergency action under section
12(k)(2) even if the securities secondary-trading markets and
the national system for clearance and settlement of securities
transactions are not threatened or disrupted.
The second finding--section 12(k)(2)(A)(iii)(II)--covers
situations in which emergency relief is warranted to reduce,
eliminate or prevent the substantial disruption by the
emergency of the transmission or processing of securities
transactions. The Committee is aware that certain market
participants experienced difficulties in transmitting and
processing securities transactions, including government
securities transactions, in the aftermath of the attacks of
September 11, 2001. In the future, should these or other
circumstances substantially disrupt or threaten to
substantially disrupt the transmission or processing of
securities transactions and constitute an ``emergency'' under
section 12(k)(6), section 12(k)(2)(A)(iii)(II) allows the
Commission to take emergency action under section 12(k)(2) even
if the national system for clearance and settlement of
securities transactions is not threatened or disrupted.
The section also modifies the statute's definition of
``emergency'' to reflect the broader scope of findings that may
support an emergency order. Specifically, the definition of
``emergency'' in section 12(k)(6) of the Securities Exchange
Act (15 U.S.C. 78l(k)(6)) is modified to include a major
disturbance that substantially disrupts, or threatens to
substantially disrupt, the functioning of securities markets,
investment companies, or any other significant portion or
segment of such markets, or the transmission or processing of
securities transactions. This modification of section 12(k)(6)
mirrors the changes to the findings under section 12(k)(2)(A)
and, as discussed above, is designed to account for emergencies
that substantially disrupt, or threaten to substantially
disrupt, the securities markets broadly defined, including the
functioning of investment companies or any other significant
portion or segment of the securities markets or the
transmission or processing of securities transactions, even in
the absence of a major market disturbance under section
12(k)(6)(A).
The section also extends the duration of a Commission
emergency order to 30 business days, from the current 10
business days. The section also allows the Commission to extend
an emergency order for more than 30 business days, up to a
total of 90 calendar days, based upon certain findings.
Specifically, under new section 12(k)(2)(C) (15 U.S.C.
78l(k)(2)(C)), the Commission may extend the duration of an
emergency order beyond 30 business days if the Commission
finds, at the time of the extension, that the emergency still
exists, and determines that the continuation is necessary in
the public interest and for the protection of investors to
attain one of the three objectives that may support the
Commission's initial emergency action. The calendar day, as
opposed to business day, limit on total extensions of an
emergency order reflects the judgment that a total of
approximately three months is a reasonable limit on Commission
discretion, while providing sufficient latitude for the
Commission to provide appropriate immediate relief.
Finally, the section provides that, as used in the
subsection added by the legislation, the definition of
``securities laws'' excludes the Public Utility Holding Company
Act of 1935 (15 U.S.C. 79a et seq.).
Section 5088. Parallel authority of the Secretary of the Treasury with
respect to government securities
This section amends the Securities Exchange Act to provide
emergency authority for the Secretary of the Treasury to take
any action by order, involving a government security or a
market therein (or significant portion or segment of that
market), that the Commission may take under section 12(k)(2) of
this title with respect to transactions in securities (other
than exempted securities) or a market therein (or significant
portion or segment of that market).
Section 5089. Joint report on implementation of financial system
resilience recommendations
This section requires the Board of Governors of the Federal
Reserve System, the Office of the Comptroller of the Currency,
and the Securities and Exchange Commission to prepare and
submit to the Committee on Financial Services of the House of
Representatives and the Committee on Banking, Housing, and
Urban Affairs of the Senate a joint report on the efforts of
the private sector to implement the Interagency Paper on Sound
Practices to Strengthen the Resilience of the US Financial
System. The report must be submitted no later than April 30,
2006.
The report is to examine (1) covered private sector
financial services firms' efforts to implement enhanced
business continuity plans; (2) the extent to which the
implementation of business continuity plans has been done in a
geographically dispersed manner; and (3) the need to cover more
financial services entities than those covered by the
Interagency Paper. The agencies are also directed to recommend
legislative and regulatory changes that will maximize the
effective implementation of business continuity planning by the
financial services industry.
Section 5089A. Private sector preparedness
This section expresses the sense of the Congress that the
insurance industry and credit-rating agencies, where relevant,
should carefully consider a company's compliance with standards
for private sector disaster and emergency preparedness in
assessing insurability and creditworthiness, to ensure that
private sector investment in disaster and emergency
preparedness is appropriately encouraged.
Section 5089B. Report on public/private partnerships
This section requires the Secretary of the Treasury to
submit a report to the Committee on Financial Services of the
House of Representatives and the Committee on Banking, Housing,
and Urban Affairs of the Senate providing information on the
efforts that the Treasury Department has made to encourage the
formation of public/private partnerships to protect critical
financial infrastructure. The report shall discuss the type of
support that the Treasury has provided to these partnerships
and provide recommendations for administrative or legislative
action regarding these partnerships as the Secretary may
determine to be appropriate.
Changes in Existing Law Made by the Bill, as Reported
The comparative print required by clause 3(e)(2) of rule
XIII of the Rules of the House was not available in time for
the filing of this report.
DISSENTING VIEWS
The Committee on Financial Services' 9/11 legislation is
another attempt to address the threat of terrorism by giving
more power and money to the federal bureaucracy. Should this
legislation become law, Americans will not likely be
significantly safer, but they will definitely be less free.
Therefore, I urge my colleagues to vote against this bill. A
particularly disturbing provision of this bill repeals the
expedited procedure for Congress to debate repeal of the
PATRIOT Act's money laundering provisions. Since the PATRIOT
Act was rushed into law in the panicked atmosphere after the 9/
11 attacks and the anthrax scare and before many members had a
chance to even understand the PATRIOT Act, the ability to
revisit this issue by debating a resolution of repeal is very
important. This is especially so since many members, oftentimes
under pressure from their constituents who are concerned that
many provisions of the so-called PATRIOT Act threaten
constitutional liberties, have expressed regret about hastily
voting in favor of the act.
This legislation erodes one of the bulwarks of individual
liberty--the presumption of innocence and the corresponding
requirement that the government prove beyond a reasonable doubt
that an individual committed a crime. It does this by
criminalizing the mere possession of technology that may be
used in counterfeiting. The committee claims this is necessary
because of both improvements in counterfeiting technology and
the increased practice of ``contracting out'' counterfeiting
activities have made it more difficult to apprehend
counterfeiters. However, this is no excuse for relieving the
government of its obligation to prove that an individual was
involved in a crime, rather than that he was merely in
possession of technology that could be used in a crime, before
depriving that individual of his liberty.
This bill further infringes on individual liberty by
enacting an unconstitutional ban on internet gambling. Using
the spurious pretext that terrorists may use internet gambling
operations as a source of funds, supporters of banning internet
gambling have snuck the ban into this bill. However, terrorists
obtain funding from a wide variety of sources. During the
committee's hearing on the 9/11 commission it was mentioned
that some terrorists seek jobs in the mainstream economy to
raise funds. Therefore, following the committee's logic to its
natural conclusion, we should outlaw all private economic
activity.
Furthermore, prohibiting internet gambling will make it
more likely that criminal organizations, including groups
dedicated to international terrorism, will control internet
gambling. History, from the failed experiment of prohibition to
today's futile ``war on drugs,'' shows that the government
cannot eliminate demand for something like internet gambling
simply by passing a law. Instead, this bill will force those
who wish to gamble over the internet to patronize suppliers
willing to flaunt the ban. In many cases, providers of services
banned by the government will be members of criminal
organizations. After all, since the owners and patrons of
outlawed internet gambling could not rely on the police and
courts to enforce contracts and resolve other disputes, they
will be forced to rely on members of organized crime to perform
those functions. Thus, the profits of internet gambling will
flow into organized crime. Furthermore, outlawing an activity
will raise the price vendors are able to charge consumers.
Combined with the increased market share organized crime will
gain over gambling granted organized crime by the ban. This
could increase the profits flowing to organized crime. It is
bitterly ironic that a bill masquerading as an attack on crime
will actually increase organized crime's ability to control
internet gambling!
Instead of trusting financial markets to make the necessary
preparations and adjustments in the event of a terrorist
attack, the committee gives the Securities and Exchange
Commission (SEC) extended ``emergency'' powers to suspend
trading and otherwise interfere in the securities market in the
event of a terrorist attack. Granting the SEC this power
assumes that SEC officials will know exactly when trading needs
to be suspended and for how long. However, no individual or
small group of individuals can have such knowledge. Instead,
this knowledge is dispersed among all market actors and
coordinated though the free market. In addition, shutting down
trading after a terrorist attack, when markets need to adjust
in response to new conditions, will induce distortions in the
market and thus worsen the economic effects of a terrorist
attack.
Perhaps the most disturbing feature of the committee's 9/11
bill is the failure to address a major intrusion into financial
privacy, which also hinders an effective war on terrorism: the
requirement that financial institutions file suspicious
activity reports whenever a transaction's value exceeds
$10,000. The suspicious activity report requirement buries law
enforcement in a mountain of reports, making it difficult to
identify the reports that indicate behavior truly threatening
to our safety. There were over 300,000 suspicious activity
reports filed in 2002 alone. Expecting law enforcement to shift
through massive amounts of reports and identify the true
threats to our safety is the equivalent of asking law
enforcement to find a needle in a forest!
John Yoder, Director of the Department of Justice's Asset
Forfeiture Office during the Reagan Administration, told
investigative reporter John Berlau, for a story in Reason
magazine, that, ``It costs more to enforce and regulate them
[financial institutions subject to the Bank Secrecy Act's
reporting requirements] than the benefits that are received.
You're getting so much data on people who are absolutely
legitimate and who are doing nothing wrong. You have
investigators running around chasing innocent people, trying to
find something that they're doing wrong, rather than targeting
real criminals.''
Director Yoder also expressed concerns that this
information overload contributed to the failure to identify the
September 11 highjackers: ``We already had so much information
that we weren't really focusing on the right stuff. What good
does it do to gather more paperwork when you're already so
awash in paperwork that you're not paying attention to your own
currently existing intelligence gathering system?''
By expanding the reporting requirements to gold dealers,
pawns shops, jewelers, and even convenience stores that process
money orders, the PATRIOT Act increased the burden on law
enforcment, while further diminishing the financial privacy of
American citizens. The 9/11 commission expressed skepticism
over whether making 7-11s and Stop-and-Gos subject to the
Suspicious Activity Reports could help catch members of Al
Queda, since terrorists do not use money orders!
The suspicious activity reports also violate the Fourth
Amendment to the United States Constitution. The Fourth
Amendment guarantees the people the right to be secure in their
persons and papers, unless the government has probable cause to
believe the person is involved in criminal activities.
Requiring the filing of a suspicious activity report every time
a transaction's value exceeds $10,000 shreds the Fourth
Amendment. Government has no right or need to spy on the
financial transactions of every Americans whenever the value of
the transaction exceeds an arbitrary amount.
Justice William Douglas's criticism of suspicious activity
reports still rings true today: ``Delivery of the records
without the requisite hearing of probable cause breaches the
Fourth Amendment . . . . I am not yet ready to agree that
America is so possessed with evil that we must level all
constitutional barriers to give our civil authorities the tools
to catch criminals.''
The 9/11 Recommendations Implementation Act is yet another
in a series of bills that expands government power and restrict
individual liberty in the name of the war on terrorism.
Outlawing internet gambling, increasing the SEC's power to
suspend trading in the event of a terrorist attack, and
continuing to violate the Fourth Amendment by burying law
enforcement in suspicious activities reports will do little to
keep Americana safe. Therefore, I urge my colleagues to reject
this bill.
Ron Paul.