FEDS MAY TAP INTO MUTUAL FUND FIRMS' INFO

WASHINGTON - Mutual fund companies would have to file reports on
suspicious financial transactions as part of an effort to catch drug
dealers, terrorists and others who launder money, federal regulators
recommended Tuesday.If implemented, the recommendation by the Treasury
Department, the Securities and Exchange Commission and the Federal
Reserve would bring mutual fund companies more in line with banks,
securities firms, money-service businesses and other companies that
are required to file similar reports with the government.

A draft of the recommendation is being written and could be offered
soon, according to a Treasury Department official who said the
proposal would be similar to rules that now apply to banks and other
financial companies.

The Securities Industry Association had no immediate
comment.

The recommendation came in a report to Congress regarding
implementation of the USA Patriot Act, passed in response to the Sept.
11, 2001, attacks.

Among other steps, the law seeks to crack down on money laundering and
thwart terrorist financiers.

Money laundering involves the movement of profits from drug or arms
trafficking, political corruption, prostitution and other illegal
activities through a series of accounts or businesses to disguise them
as the proceeds of legitimate business.

The issue took on heightened importance after the terrorist attacks,
which prompted the government to launch a campaign to cut off
terrorists from their sources of funding.

Mutual fund companies already are subject to other anti-money
laundering regulations.

Mutual funds are a popular investment for individual investors, with
shares in these funds being held by more than half of U.S. households,
according to the report.

More than 8,300 mutual funds with about $7 trillion in assets were
registered with the SEC last year, the report said.

Also in Tuesday's report, the Treasury Department, the SEC and the Fed
recommended that "unregistered investment companies" - such as hedge
funds, venture capital funds, real-estate investment trusts and
commodity pools - be required to set up procedures verifying the
identity of customers when they open accounts, a provision that
applies to other financial institutions.