- A Financial Crimes Enforcement Network (FinCEN) proposal issued Monday would let U.S. banks share suspicious activity reports (SARs) with their own foreign branches, subsidiaries and affiliates under a pilot program meant to strengthen efforts against illicit finance.
- The pilot program, however, leaves participating banks open to the risk of enforcement action. As a condition of participation, banks would be required to submit quarterly reports to FinCEN, which may reveal internal control deficiencies that the agency could then share with the bank’s regulators.
- FinCEN is accepting comments through March 28, and at least two banking trade groups have signaled their support of the proposed program.
FinCEN guidance from 2010 bars U.S. banks from sharing SARs — or information that would reveal such a report’s existence — with its foreign branches. The agency deems foreign branches as affiliates, which are treated as foreign banks under the Bank Secrecy Act (BSA).
The pilot program, in theory, would make identifying illicit transactions more seamless across the bank and across borders. While FinCEN is conscious of that benefit, it also aims to keep personally identifiable information confidential and secure.
“We expect that the pilot program will provide valuable feedback to FinCEN as longer-term approaches toward SAR sharing with foreign affiliates are considered,” Himamauli Das, FinCEN’s acting director, said in a statement Monday. “We urge stakeholders to provide input to assist us in developing a program that will help combat illicit finance risks and promote enterprise-wide risk management, while ensuring adequate safeguards are in place.”
To participate, banks must submit a written application identifying the institution's point of contact, the foreign entities with which SARs should be shared, how and why they would use the information within a report, and a description of the internal controls the bank uses to prevent unauthorized disclosures of information.
FinCEN also would require participating banks to file quarterly reports detailing the number of SARs shared, a list of entities that received them, any legal and compliance issues the bank encountered, as well as technical difficulties and lessons learned. The agency asks banks to flag enhancements it would recommend making to its own anti-money laundering (AML) and counterterrorism programs.
But therein lies the double-edged sword. FinCEN could forward what banks divulge there to their regulators or to the Justice Department, potentially spurring an investigation or penalty.
FinCEN estimates about 100 banks will participate in the program, according to The Wall Street Journal. However, Nikhil Gore, a partner at Covington & Burling, told American Banker the lack of a safe harbor “may drive down participation in the program.”
The pilot would run through Jan. 1, 2024 — three years from the date the Anti-Money Laundering Act was put into effect. The Treasury secretary, who oversees FinCEN, could extend the program another two years after submitting a report to the Senate Banking Committee and the House Financial Services Committee, detailing the activity the program identified its importance to U.S. national interests and a projected budget.
The program would prohibit banks from sharing SARs with affiliates in Russia, China or any area deemed a state sponsor of terrorism.
Banking trade groups such as the Bank Policy Institute (BPI) and the American Bankers Association (ABA) indicated Monday they saw potential in the program’s aim to curb illicit finance.
“Banks serve on the front lines in the effort to combat money laundering, and BPI has long supported additional information sharing given the borderless nature of these crimes,” Angelena Bradfield, the organization’s senior vice president for AML/BSA sanctions and privacy, said in a statement.
The ABA was a tick more measured. “Although important steps must be taken to maintain SAR confidentiality, we believe the program will make it easier and more efficient to fight fraud and illicit finance while allowing banks to better manage enterprise-wide risk,” the organization said Monday.
In particular, FinCEN is looking for feedback regarding the program’s costs and burdens to banks, its benefits and technical challenges, as well as any hurdles banks find in keeping data private. Additionally, the agency wants to know how well it is balancing the need for data security amid the improved flow of information, and seeks comments on any other metrics that should be included in the mandatory quarterly reports.