CUNA Regulatory Comment Call

November 30, 2009

FinCEN's Notice of Proposed Rulemaking - Expansion of Special Information Sharing Procedures To Deter Money Laundering and Terrorist Activity

EXECUTIVE SUMMARY

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.com or to Federal Compliance Council 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, 6th floor, Washington, DC 20004. You may also contact us for a copy of the regulation or access it on the Internet here.

DISCUSSION

In October 2001, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism ("The Act") was signed into law. Title III of the Act amended the anti-money laundering provisions of the Bank Secrecy Act (BSA) to promote the prevention, detection and prosecution of international money laundering and terrorist financing. One of the Act's goals, among others, is the facilitation of information sharing among governmental entities and financial institutions in an effort to thwart terrorism and money laundering. Section 314 of the Act called for the adoption of regulations to encourage cooperation between financial institutions, their regulators and law enforcement authorities specifically as it pertains to information sharing regarding individuals, entities and organizations engaged in or reasonably suspected (based on credible evidence) of engaging in terrorist acts or money laundering activities.

Under the current rule, FinCEN has authority to require U.S. financial institutions to search their records to determine if they have maintained or conducted a transaction with a person that a Federal law enforcement agency has certified (based on credible evidence) is engaging in money laundering or terrorist activity. However, before processing an information request from law enforcement, FinCEN requires the requesting law enforcement agency to certify that the agency has been unable to locate the information sought through traditional investigatory methods and/or analysis. And, in the case of a money laundering information request, the law enforcement agency must also certify that the case involves a "significant" matter to justify the information request.

FinCEN notes that the 314(a) Information Sharing program has resulted in significant investigative benefits in major money laundering and terrorist financing cases. As such, FinCEN is seeking to broaden access to the program beyond federal law enforcement agencies.

Allowing Certain Foreign Law Enforcement Agencies to Initiate 314(a) Queries

FinCEN is proposing to extend the use of the 314(a) program beyond federal law enforcement agencies in an effort to satisfy the United States' treaty obligations with certain foreign governments. In 2003, the United States signed the Agreement on Mutual Legal Assistance between the United States and the European Union ("U.S.-EU MLAT"). The U.S. also entered into twenty-five bilateral implementing agreements with European Union (EU) Member States.

Article 4 of the U.S-EU MLAT obligates signatory states to search on a centralized basis for bank accounts, as well as non-bank financial institution accounts, within its territory that may be important to an investigation in the requesting signatory state. Article 4 also requires the U.S. and the EU to ensure that requested searches do not impose extraordinary burdens on states that receive the search requests. Article 4 contemplates a reciprocal relationship where EU states are expected to accommodate search requests from the U.S. and where the U.S. would provide EU states with access to the information sharing process under 314(a) of the Act.

FinCEN believes that granting this access the certain foreign law enforcement requesters will greatly benefit U.S. law enforcement agencies by providing reciprocal access to information in EU member states.

Foreign law enforcement agencies would be subject to the same conditions as U.S. federal law enforcement agencies when seeking to utilize the 314(a) process. Like federal agencies, foreign law enforcement agencies would have to certify, before initiating a 314(a) query that in the case of a money laundering investigation, that the matter is significant, and that it has been unable gain information through traditional investigative and/or analytical methods. FinCEN also anticipates that any foreign requests will be screened initially by the assigned federal law enforcement attaché'. This prescreening is designed to ensure that the 314(a) program is only utilized in significant investigations.

Allowing State and Local Law Enforcement Agencies to Initiate 314(a) Queries

Currently, the regulation only provides for federal law enforcement agency access to the 314(a) program. FinCEN limited access to the program due to concerns that providing access to non-federal agencies would unduly burden financial institutions. However, FinCEN has determined that over the years financial institutions have "made the necessary adjustments to comply with these rules and have developed more efficient ways to respond to 314(a) requests." FinCEN also notes that "money laundering and terrorist financing activity is not limited by jurisdiction or geography and that detection and deterrence of these crimes requires information sharing across all levels of investigative authorities." Finally, FinCEN notes that providing 314(a) program access to state and local law enforcement agencies will help them "more effectively and efficiently fill information gaps."

The proposed rule would provide 314(a) access to State and local law enforcement agencies. As with federal agencies, state and local law enforcement agencies will have to the certify, before initiating a 314(a) query, that in the case of a money laundering investigation that the matter is significant and that the agency has been unable to locate the needed information through traditional investigation and/or analysis.

Clarification of FinCEN's Ability to Use the 314(a) Program on Its Own Behalf or on Behalf of Appropriate Treasury Department Components

Under its statutory mandate, FinCEN works to assist law enforcement by identifying possible criminal activity, as well as providing advanced or specialized analysis of BSA data on significant money laundering and terrorist financing investigations. The agency also engages in proactive analyses to highlight trends, patterns and common activity using the information contained in BSA reports. FinCEN believes that use of the 314(a) program will enhance its efforts to provide law enforcement case support and assist in the delivery of "critical information about significant criminal activity on a timelier basis." FinCEN also asserts that access to the 314(a) program will provide a more comprehensive picture of financial transactions and mechanisms, as well as interrelationships between investigative subjects and financial transactions or entities that will be beneficial when creating future analytical products. Finally, FinCEN plans to use this access to provide analytical support to other appropriate components of the Department of Treasury.

Estimated Impact to Recordkeepers

FinCEN believes that the impact of this expansion of the 314(a) program would be minimal for recordkeepers (e.g. financial institutions). The agency anticipates that the number of request made by State and local law enforcement agencies would be relatively low due to the stringent standard for 314(a) program submissions. Additionally, FinCEN notes that most significant money laundering and terrorist financing cases are worked jointly with Federal investigators and are generally submitted under the federal process. As such, FinCEN estimates that the burden to financial institutions will be minimal with no more than 50 State and local law enforcement requests, 60 foreign law enforcement requests and 10 FinCEN and/or Treasury requests per year.

Based on the above estimates, FinCEN anticipates the average burden associated with complying with this proposed rule would be approximately 72 hours per financial institution per year.

QUESTIONS REGARDING THE PROPOSED RULEMAKING
FinCEN specifically invites 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