By Samuel Rubenfeld
February 2, 2022
The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) recently proposed a pilot program that would allow a financial institution to share reports of suspicious activity (SAR) with foreign branches, subsidiaries and affiliates, to combat illicit finance risks.
The pilot, required as part of the Anti-Money Laundering Act of 2020, would last for three years, according to the proposal from FinCEN. To participate in the pilot program, a financial institution would have to apply in writing, specifying, among other things, the foreign entities with which it intends to share the information and the nature of its internal controls to prevent unauthorized disclosures, the proposal said. Feedback on the proposal is due by March 28, FinCEN said.
“We expect that the pilot program will provide valuable feedback to FinCEN as longer-term approaches towards SAR sharing with foreign affiliates are considered,” said FinCEN Acting Director Himamauli Das. “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 protect SAR confidentiality.”
FinCEN put forth a number of rules in recent months to implement aspects of the Anti-Money Laundering Act, including initial proposals on certain real-estate purchases and a requirement for companies to identify their beneficial owners.
Under U.S. anti-money laundering (AML) rules, financial institutions regulated by FinCEN, such as banks, casinos and money services businesses, are required to file a SAR if it knows or suspects a transaction is suspicious. FinCEN received more than 3 million SARs in 2021, and 17.5 million total since 2014, according to data on its website.
The existence of a SAR is generally prohibited from being disclosed, FinCEN noted in the proposed rule. Natalie Mayflower Sours Edwards, a former Treasury employee, was recently released from prison after serving a sentence for sharing SAR information with a journalist in a leak that became known as the FinCEN Files.
Within a corporate structure required to file a SAR, however, the rules are somewhat different: Prior guidance from FinCEN instructed financial institutions that a SAR could be shared with foreign head offices, controlling companies and domestic affiliates. The pilot program, if finalized, would provide FinCEN with feedback on the value of sharing SARs, the agency said.
Participants in the program would be required to report quarterly to FinCEN on the number of SARs shared; the name and jurisdiction of each entity that received them; any legal and compliance issues they encountered in the process; enhancements to the compliance program and other things, according to the proposal.
The program would not grant financial institutions a blank check to share their SARs across their operations, however. Under the pilot, a participating financial institution can’t share SAR or related information with a foreign branch, subsidiary or affiliate in Russia, China, or a jurisdiction designated as a state sponsor of terrorism or subject to sanctions, according to the proposal.
Participation in the program could offer “unique benefits,” the law firm Squire Patton Boggs said on its Anticorruption Blog. “Sharing of information across borders may create synergies and improve the AML function overall by helping global banks have an international view of a customer and better understand cross-border money laundering typologies,” the blog post said.
FinCEN could terminate a financial institution’s participation at any time and for any reason, the proposal said. Grounds for termination include actual or unreasonable risk of unauthorized SAR disclosures, internal controls deficiencies, failure to adhere to the pilot’s requirements or other issues, according to the proposal.
“Participating financial institutions may be viewed more favorably by regulators and examiners for seeking to address enterprise-wide risk,” the law firm Holland & Knight said to clients. “Not surprisingly, however, the pilot project will impose new reporting and internal control obligations, and participating financial institutions may find themselves subject to penalties if mistakes are made.”