WASHINGTON — Banking industry groups welcomed a new Financial Crimes Enforcement Network proposal that would allow some U.S. banks to share suspicious activity reports with their business units in other countries. However, analysts say its hefty compliance requirements ultimately could dampen banks' interest in the program.
The proposal follows the enactment of the Anti Money Laundering Act of 2021, which
The proposal, issued Monday, “builds on the experience that Fincen has gained in administering existing pilot programs, and once finalized will assist financial institutions in further combating illicit finance risks,” said Fincen's acting director, Himamauli Das. “We expect that the pilot program will provide valuable feedback to Fincen as longer-term approaches towards SAR sharing with foreign affiliates are considered.”
The cost and burden of suspicious activity reporting, a key part of the nation’s AML and Bank Secrecy Act compliance framework, have for years been
“Large, internationally active banks and other financial institutions have for many years wanted to be able to share SARs throughout their global enterprise,” said Daniel Stipano, a partner at the law firm Davis Polk and a former attorney at the Office of the Comptroller of the Currency. “They have enterprise-wide AML programs, and being able to share SARs with their foreign affiliates would help those programs.”
The details of the pilot program won’t be set until after Fincen issues a final rule sometime after the March 28 deadline for public comment, but initial feedback from industry associations was positive.
A spokesperson for the American Bankers Association said the organization would “look forward to working with Fincen and our members to help make the new pilot program a success. Although important steps must be taken to maintain SAR confidentiality, we believe the program will make it easier and more efficient to fight fraud and illicit finance while allowing banks to better manage enterprise-wide risk."
The Bank Policy Institute, which represents many of the country's largest banks, said in a statement that the organization had "long supported additional information sharing given the borderless nature of these crimes. We look forward to working with Fincen as the rulemaking process proceeds and appreciate its attention to this important provision."
Admission into the pilot program would require a written application to Fincen, and participation would carry confidentiality, information-security and recordkeeping requirements. Analysts say that those compliance requirements appear to be significant and could affect how many banks ultimately choose to participate.
“There are some requirements in [the Fincen proposal] that could be burdensome, and I think the real question is going to be whether the benefits of participating in the program outweigh the additional compliance burdens,” Stipano said.
Those requirements could become “fair game for regulators when they examine an institution — there is no safe harbor” in the proposal, he said.
The program would require banks to submit quarterly reports detailing “any legal and compliance issues related to the financial institution’s participation in the pilot program" and "any technical difficulties and challenges encountered,” according to the proposal.
Without some kind of safe harbor protection, “these provisions mean that, to participate in the program, banks will have to provide fairly extensive information to the government, which the government might attempt to use against them in enforcement proceedings,” says Nikhil Gore, a partner at the law firm Covington & Burling.
“This may drive down participation in the program,” Gore said.
Still, trade groups welcomed the proposal and emphasized their willingness to work with government officials to shape the final product.
Briget Polichene, CEO of the Institute of International Bankers, called the plan "a first step to a sustained effort to share SARs and related information with banks’ foreign branches, subsidiaries and affiliates beyond their head office operations." She added: "We stand ready to work with Fincen throughout the rulemaking process to help ensure that the rules are workable for banks and achieve the proposed outcome."
The program would bar U.S. banks in the pilot program from including foreign offices or branches in China, Russia, any jurisdiction determined to be a state sponsor of terrorism and other locations determined by the Treasury secretary. The secretary could also make exceptions “on a case-by-case basis," according to the proposal.
Under the Anti Money Laundering Act of 2021, the program has an initial termination date of Jan. 1, 2024, though the Treasury secretary has the option to extend the program two additional years after submitting an initial report to financial services committees in both the House and Senate.
