On December 10, 2020, FinCEN Director Kenneth Blanco delivered prepared remarks at the ABA’s annual Financial Crimes Enforcement Conference. At the outset, Director Blanco addressed the importance of U.S. national security amidst the unprecedented environment created by the COVID-19 pandemic. In his remarks, Director Blanco announced “important guidance” and “much needed clarity” concerning FinCEN’s voluntary Section 314(b) information sharing program.
Section 314(b) of the USA PATRIOT Act provides financial institutions safe harbor from civil liability when sharing with another financial institution information regarding customers suspected of possible terrorist financing or money laundering activities. 31 C.F.R. § 1010.540(b)(1). Financial institutions share information under this provision to facilitate investigations of suspicious activity and assist in preparing more complete Suspicious Activity Reports (“SARs”).
Director Blanco recognized that financial institutions have called for predictability and clarity regarding the Section 314(b) information sharing program in order to better achieve their anti-money laundering/counter-terrorist financing (“AML/CFT”) goals. In an effort to enhance the overall effectiveness of the program, Blanco announced a new Section 314(b) Fact Sheet, effectively a set of FAQs that replaces prior guidance and a prior administrative ruling. See FinCEN Guidance, Section 314(b) Fact Sheet (Dec. 10, 2020).
The Director highlighted three key clarifications from FinCEN that are articulated in the Fact Sheet.
Sharing of Personally Identifiable Information. First, Director Blanco stated that there is no limitation under Section 314(b) on the sharing of personally identifiable information or any restriction on how the information can be shared. Financial institutions may share information about activities that they suspect may involve possible terrorist financing, money laundering, or the proceeds of a specified unlawful activity (“SUA”). Of particular importance: specific proceeds of an SUA do not have to be identified, financial institutions do not need to have made a conclusive determination that a given activity is suspicious, and financial institutions may share information about activities as described, even if such activities do not constitute a “transaction.” This includes, for example, an attempted transaction or an attempt to induce another to engage in a transaction. Finally, there is no limitation on how information may be shared between institutions. For instance, information may be shared orally.
Non-Financial Institution Information Sharing. Second, an entity that is not itself a financial institution under the Bank Secrecy Act may form and operate an association of financial institutions whose members share information under Section 314(b). Among such contemplated entities are compliance service providers.
Unincorporated Associations of Financial Institutions. Third, Director Blanco noted that an unincorporated association of financial institutions governed by a contract between its financial institution members may engage in information sharing under Section 314(b).
To participate in the Section 314(b) information sharing program, a financial institution (or association of financial institutions, as noted above) must follow specific conditions:
- Register with FinCEN: Unless already registered, financial institutions interested in participating in the Section 314(b) information sharing program must first register with FinCEN’s Secure Information Sharing System (“SISS”). Registrations are processed within two business days of receipt, and participants receive an acknowledgment of registration. Information regarding the Section 314(b) registration process is available on FinCEN’s website.
- Verify and share information only with Section 314(b)-registered participants: Prior to sharing information under Section 314(b), financial institutions must take “reasonable steps,” such as checking the FinCEN 314(b) participant list, to verify that the receiving financial institution is also a Section 314(b) registrant. To facilitate the identification of Section 314(b) program participants, SISS provides tools to search the Section 314(b) participant list for other participants or download the participant list in its entirety.
- Safeguard shared information and use information only for AML/CFT purposes: Financial institutions must establish and maintain procedures to safeguard the security and confidentiality of shared information and must only use shared information for the purpose of: identifying and, where appropriate, reporting on activities that may involve terrorist financing or money laundering; determining whether to establish or maintain an account, or to engage in a transaction; or assisting in compliance with AML/CFT requirements.
While information sharing pursuant to Section 314(b) is voluntary, there are multiple benefits to both financial institutions and law enforcement. Participation in Section 314(b)’s information sharing program helps financial institutions strengthen compliance with their AML/CFT obligations. It does this by enhancing their ability to gather supplemental information on customers or transactions potentially related to money laundering or terrorist financing, including previously unknown accounts, activities, and associated entities or individuals. Of course, this relies on a “two-way street” of sharing by financial institutions.
The Section 314(b) information sharing program also assists financial institutions in making more informed decisions. For example, it can help them determine whether to establish a new account or to maintain an existing account, or whether to engage in a particular transaction. The program also aids financial institutions’ internal investigations and SAR decisions. The more information a financial institution has about the customer, transaction, and suspicious activity, the stronger and more detailed the SAR is likely to be. In some situations, because of voluntary information sharing pursuant to Section 314(b), a financial institution may obtain a more complete picture of activity and determine that no SAR is required for a transaction that may have initially appeared suspicious. Finally, when financial institutions identify suspicious activity through collaboration, pursuant to Section 314(b), they may consider whether filing a joint SAR would be a more efficient way to provide the information to FinCEN.
FinCEN’s new Section 314(b) Fact Sheet expands prior information-sharing guidance provided under Section 314(b) of the USA PATRIOT Act. This new guidance provides for broader information sharing and expands the types of entities that are eligible for the Section 314(b) safe harbor. Compliance officers and in-house counsel for financial institutions will want to review this updated guidance and ensure information sharing is considered as a part of a sound AML/CFT program.