You may have noticed the recent trend encouraging financial institutions to share information related to BSA/AML investigations. Information sharing was a prominent feature of FinCEN’s Advance Notice of Rulemaking back in September and a significant element of the BSA/AML reforms that are part of the pending National Defense Authorization Act that was recently passed by both houses of Congress. On December 10, 2020, we received new guidance related to the voluntary sharing provisions of Section 314(b) of the USA PATRIOT Act, in the form of a Fact Sheet issued by FinCEN.
As you may recall, Section 314(b) allows financial institutions to share information related to potential money laundering or terrorist activities with each other and avoid potential liability for doing so. The safe harbor under the rule requires participants to register through FinCEN’s Secure Information Sharing System (SISS) and take reasonable steps to verify that the other financial institution they are sharing with is also registered. Participants must also have reasonable procedures to safeguard the security and confidentiality of shared information and may only use shared information for:
- 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 anti-money laundering requirements.
Since information sharing under 314(b) is voluntary and comes with administration burdens as well as the potential for regulatory criticism, many banks have been hesitant to participate. In addition, there’s a glaring lack of clarity as to how to comply with the rule and risk that a compliance error could open the bank up to liability. The Fact Sheet replaces and rescinds previous guidance (from 2009, 2012 and 2016) and is a clear attempt to clarify the requirements and encourage financial institutions to participate in the program.
The Fact Sheet opens by describing the rule in general and explaining the benefits of voluntary information sharing. The guidance confirms that banks have significant flexibility in the types of information that can be shared, and that financial institutions need to only have a reasonable basis to believe the information shared is related to activities that may involve money laundering or terrorist activity to fall under the rule.
There are several other helpful clarifications and confirmations that help alleviate concerns about the safe harbor and make it clear that financial institutions may form and operate associations of financial institutions (governed by a contract) to share information between members.
Catching and reporting money laundering is an inherently difficult task and the benefits of sharing information between financial institutions is obvious. The clarity around this rule is a welcome development and may encourage banks who have not been participating in the program to take the step in that direction.
If you want more on this and other timely BSA issues, be sure to join us for our BSA/AML New Year Update webinar on January 7th!
Find out more resources for BSA/AML here – https://www.bankerscompliance.com/regulations-we-cover/the-bank-secrecy-act-bsa/