CUNA Regulatory Comment Call

April 27, 2009

Proposed Amendments Regarding the Confidentiality of Suspicious Activity Reports

EXECUTIVE SUMMARY

Please feel free to fax your responses to CUNA at 202-638-7052; email them to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.com or to Federal Compliance Counsel Nichole Seabron at nseabron@cuna.com; or mail them to Mary or Nichole in c/o CUNA’s Regulatory Affairs Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004. You may also contact us at 800-356-9655 ext 6739, if you would like a copy of the proposed rule or you may access it here.

PROPOSAL DISCUSSION

Confidentiality of Suspicious Activity Reports

FinCEN proposes to clarify the Bank Secrecy Act’s non-disclosure provision regarding suspicious activity reports (SARs) by broadening the statutory prohibition against notifying a SAR target of a SAR filing. The proposal prohibits the disclosure of a SAR form or information revealing the existence of a SAR form to any person barring certain limited exceptions. FinCEN also proposes to modify the general introduction in the rules to reflect this broader interpretation of the SAR confidentiality provisions.

Disclosure by Financial Institutions

As under the current rule, the proposed rule continues to provide that any financial institution or its director, officer, employee or agent that is subpoenaed or otherwise requested to disclose a SAR or information revealing the existence of a SAR must decline to produce such information and must notify FinCEN of the request. The proposed rule amends the current rule by specifically providing that the disclosure prohibition includes any information that would reveal the existence of a SAR instead of the more limited language “any information that would disclose that a SAR has been prepared or filed.” The language of the proposed rule is intended to clearly describe the type of information covered by the prohibition. The proposed rule reflects the case law that concludes that financial institutions are broadly prohibited from disclosing a SAR or information that would reveal the existence of a SAR to any person and not just the person that is the subject of the SAR.

Rules of Construction

FinCEN is proposing rules of construction to address ongoing questions about the scope of the SAR disclosure prohibition and to implement statutory modifications to the Bank Secrecy Act made by the USA Patriot Act. The proposed rules of construction primarily describe situations that are not covered by the prohibition against the disclosure of SAR information.

The first proposed rule of construction makes clear that a financial institution or its directors, officers, employees or agents may disclose a SAR or existence of a SAR to FinCEN or any Federal, state, or local law enforcement agency or any Federal or state regulatory agency that examines the financial institution for BSA compliance. This first proposed rule of construction is intended to clarify that the prohibition against disclosure cannot be used to withhold information from governmental and examining authorities entitled to this information.

The second proposed rule of construction provides that the SAR disclosure prohibitions apply to the SAR itself or information revealing the existence of a SAR. However, the prohibitions do not apply to the underlying facts, transactions and documents upon which a SAR is based. Factual documents created in the ordinary course of business may be discoverable in civil litigation under the Federal Rules of Civil Procedure.

The third proposed rule of construction makes clear that the prohibition against disclosure of a SAR or the existence of a SAR does not limit the sharing by a financial institution or any director, officer, employee or agent of a financial institution within the institution’s organizational structure for purposes consistent with Title II of the Bank Secrecy Act (Recording and Reporting of Currency and Foreign Transactions). This rule of construction recognizes that it may be necessary to share this information to fulfill reporting obligations and to facilitate more effective enterprise-wide BSA monitoring.

FinCEN, NCUA and the other federal banking agencies also issued for notice and comment proposed guidance that further clarifies when SAR information can be shared with an institution’s affiliates for purposes consistent with the Bank Secrecy Act. A separate comment call has been drafted to address the proposed guidance.

Disclosures by Government Authorities

Section 351 of the USA Patriot Act previously amended the BSA by adding a provision that prohibited officers and employees of the government from disclosing SAR information except as necessary to fulfill their official duties.

FinCEN proposes to add a new section to the regulation that extends this prohibition against disclosure to all federal, state, local, territorial, or tribal government authorities and any director, officer, employee or agent of those authorities and allowing disclosure only to the extent necessary to fulfill official duties. The proposed rules interpret “official duties” to mean “official duties consistent with Title II of the BSA” and primarily referring to criminal, tax, or regulatory investigations or proceedings or intelligence or counterintelligence activities, including analysis, to protect against international terrorism. The term “official duties” shall not include requests for disclosure of non-public information or disclosures in response to a request in a private legal proceeding. The proposed interpretation is intended to prevent disclosure of SAR information for purposes unrelated to the BSA.

Disclosures by Self-Regulatory Organizations

The proposed rule provides that self-regulatory organizations registered with or designated by the Securities and Exchange Commission (SEC) or Commodity Futures Trading Commission (CFTC) that are tasked with examining broker-dealers, futures commission merchants and introducing brokers in commodities for compliance would be held to similar SAR disclosure provisions as those required of government authorities.

Liability Limitation

The proposed rule closely tracks the amendments to the safe harbor provisions made by Section 351 of the US Patriot Act. Under Section 351, the safe harbor provision was amended to include voluntary disclosures of possible violations of law and regulation and expand the scope of the limit on liability. The proposal clarifies that the safe harbor applies to disclosures made jointly with another institution and makes clear that all parties to a joint filing (not simply the party providing the form) fall within the scope of the safe harbor protection.

Compliance

The proposed rule specifies that SARs or information regarding the existence of a SAR can only be provided to FinCEN or its delegatees for the purpose of examining an institution for compliance with the SAR requirement. Failure to satisfy the requirements of the SAR rule may constitute a violation of the BSA and depository institutions subject to Title 12 SAR requirements that fail to meet those requirements may also be found in violation of the parallel Title 12 rules.

Technical Corrections and Harmonization

The proposed rule incorporates technical corrections to harmonize the seven SAR rules with rules being issued by some of the Federal bank regulatory agencies in an effort to simplify compliance with the SAR reporting requirements. The proposed changes would be reorganized in Chapter X, a new chapter that is to be created to house BSA regulations in a central location.

QUESTIONS REGARDING THE PROPOSAL

FinCEN welcomes comment on any part of the proposed rule, however, FinCEN specifically solicits comments on the following questions:

Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
Mary Mitchell Dunn • SVP & Deputy General Counsel • (202) 508-6736 • mdunn@cuna.com
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
Luke Martone • Senior Regulatory Counsel • (202) 508-6743 • lmartone@cuna.com