Our previous blog post focused on FinCEN’s 314(a) program and what this requirement means for firms. We now switch our focus to the FinCEN 314(b) program and its implications to firms.
As a reminder, Financial Crimes Enforcement Network (FinCEN) is a service driven by law enforcement to coordinate with covered Financial Institutions to help locate financial assets and transactions by subjects of criminal investigations, i.e. tax fraud or money laundering investigations. FinCEN is also a bureau of the U.S. Treasury Department. Below are frequently asked questions to help understand FinCEN 314(b) and differentiate it from FinCEN 314(a).
What is FinCEN 314(b)?
Section 314(b) of the USA PATRIOT Act provides financial institutions with the ability to share information with one another under a safe harbor that offers protections from liability. Overall, this equips financial institutions to better identify and report potential money laundering or terrorist activities.
Who is required to perform FinCEN reviews?
Currently, only broker-dealers are subject to FinCEN program 314(a) and 314(b) requirements. Registered investment advisors do not have a requirement to perform FinCEN reviews. Additionally, other covered financial institutions include:
- Casinos and Card Clubs;
- Money Services Businesses;
- Brokers or Dealers in Securities;
- Mutual Funds;
- Insurance Companies;
- Futures Commission Merchants and Introducing Brokers in Commodities;
- Dealers in Precious Metals, Precious Stones, or Jewels;
- Operators of Credit Card Systems;
- Loan or Finance Companies; and
- Associations consisting of the financial institutions above.
What is the difference between FinCEN 314(a) and 314(b)?
FinCEN program 314(a) relates to information sharing between financial institutions and law enforcement agencies. On the other hand, FinCEN program 314(b) deals with information sharing between approved financial entities only.
Are all firms required to participate in the FinCEN 314(b) Program?
No, this is a voluntary program. However, FinCEN strongly encourages participation.
What are the benefits of participation?
The primary benefit of the 314(b) program is that it allows firms to collect additional information on their customer base and transactions from other financial institutions. This is significant because privacy laws would otherwise prohibit it. This access supports firms in fulfilling their AML obligations.
Other key benefits include, but are not limited to:
- Shedding more light upon overall financial trails, especially if they are complex and appear to be layered amongst numerous financial institutions, entities, and jurisdictions.
- Building a more comprehensive and accurate picture of a customer’s activities of suspected potential money laundering or terrorist financing, which in turn allows for more precise decision-making in due diligence and transaction monitoring.
- Alerting other participating financial institutions to customers whose suspicious activities may not have been previously known.
- Facilitating efficient SAR reporting decisions – for example, when a financial institution obtains a more complete picture of activity through the voluntary information sharing process and determines that no SAR is required for transactions that may have initially appeared suspicious.
How do firms register?
1. Submit a registration request to FinCEN.
The designated contact (typically, the AML compliance officer or alternate) must be registered in the FinCEN SISS system. The user can navigate to the 314(b) tab and submit a 314(b) registration. All registrations are processed within two business days of receipt, and participants will receive an acknowledgment via e-mail.
2. Verify that a firm is on the participant list prior to sharing information.
Firms must take reasonable steps, such as checking the FinCEN 314(b) participant list, to verify that the other financial institution is also a 314(b) registrant. Updates to the list are in real-time, and designated contacts can access them in the 314(b) portal.
3. Safeguard shared information and use only for AML/CFT purposes.
Firms should only share information with participants to identify and report activity, determine whether to open or keep an account, and/or assist with AML requirements.
Since 314(b) participation is voluntary, sharing information without making sure that you satisfy the conditions listed above does not by itself subject a firm to penalty under FinCEN regulations. However, a financial institution will only benefit from the safe harbor protection if it follows the conditions for participation in the program.
What types of information are shared?
Firms may share information related to their clients with other approved firms under 314(b) for the purposes of identifying and, where appropriate, reporting activities that may involve possible terrorist activity or money laundering. Where a firm suspects that transactions may be related to unlawful activities under AML statutes, the information and transactions may be shared under the protection of the 314(b) safe harbor.
MasterCompliance provides expert consulting, outsourcing, and implementation tools in planning and budgeting your firm’s compliance responsibilities. If there are any areas where you would like to explore additional assistance or services, please contact us.
To learn more about this topic, be sure to review our previous post about the FinCEN 314(a) program and the requirements for firms.