Treasury Proposes New Information-Sharing Regulations

By Ivan Schneider, Bank Systems & Technology.

The USA PATRIOT Act gave financial institutions and government agencies unprecedented leeway to share information. Following up with the details, the US Department of the Treasury published its proposed regulations for information-sharing in the Federal Register on Feb. 26, marking the start of a 30-day comment period before the groundbreaking regulations take effect.

The regulations describe how information will be shared among law enforcement agencies and financial institutions, and how financial institutions and associations can share information amongst themselves. (To review the regulations in their entirety, go to www.ustreas.gov/fincen/po1044.htm )

The new rules will create significant opportunities for financial technology firms to create linkages among the customer databases spanning the financial services industry, if only for the purpose of sharing suspicions held about their customers. It's an open question as to which industry associations or networks will take the lead in developing the communications networks permitted under the new regulations.

Under the proposed regulations, Federal law enforcement agencies would supply the Treasury Department's Financial Crimes Enforcement Network (FinCEN) with the names of individuals, entities or organizations "reasonably suspected based on credible evidence" of engaging in money laundering or terrorist activities. In turn, FinCEN would pass those names on to financial institutions, which would be required to search their records for matching accounts or transactions, going back as far as FinCEN requests.

If a match is found, the financial institution will have to provide information about the account or transaction, including "all identifying information provided by the account holder in connection with the establishment of each such account." FinCEN can request the information via e-mail or other designated means. Then, FinCEN will notify law enforcement, which would be able to follow up with the financial institution directly if necessary.

No other action would be required of the financial institution under the proposed regulations, meaning a bank or insurer could continue to do business as usual with the suspected money launderer or terrorist. However, that's not likely. Institutions would have explicit permission to use FinCEN's information to determine whether to establish or maintain an account, or to engage in a transaction. That means an organization could close an account based on FinCEN's information, as long as the former account holder wasn't told that FinCEN was involved.

Financial services firms also would be able to close accounts based on information from other financial institutions or from industry associations, based on their own research and analysis outside that received from FinCEN.

Additionally, financial institutions would be able to obtain an annual certification enabling them to share information with other certified entities. The Treasury chose to offer an annual certification instead of requiring case-by-case permission for each individual communication. "After considering both the need for flexibility for financial institutions as well as the need to ensure that the right to share information under this section is not being used improperly, Treasury and FinCEN determined that the certification should be effective for a one-year period on the date of the certification," according to the regs.

Shared information could only be used for "detecting, identifying or reporting on activities that the financial institution or association suspects may involve possible money laundering or terrorist activities," or for "determining whether to establish or maintain an account, or to engage in a transaction." If a financial institution is found to have misused shared information by using it in any other fashion, its certification will be revoked. That would cut off the institution from the flow of information with its peers, which may have damaging consequences to its reputation and to its ability to ferret out illegal activity.