Section 314(b) Information Sharing Revisited

The USA PATRIOT Act was signed into law by President George W. Bush on October 26, 2001. It was enacted as a result of the terrorist attack of September 11, 2001 (9/11). With the thought of 9/11 in mind, the PATRIOT Act was intended to help safeguard the United States from terrorism by affording law enforcement added authority to collect intelligence information in counterterrorism investigations. It also expanded the United States Secretary of the Treasury’s authority to regulate financial transactions.

Title III of the PATRIOT Act was intended to facilitate the prevention, detection and prosecution of international money laundering and the financing of terrorism. It basically amended portions of the Money Laundering Control Act of 1986 and the Bank Secrecy Act of 1970. Section 314 of Title III was titled Cooperative Efforts to Deter Money Laundering. It was a serious measure intended to help law enforcement identify, disrupt, and prevent terrorist acts and money laundering activity by encouraging further cooperation among law enforcement, regulators, and financial institutions to share information regarding those suspected of being involved in terrorism or money laundering.

On September 26, 2002, regulations implementing Section 314(b) of the PATRIOT Act became effective. Section 314(b) permitted two or more financial institutions to voluntarily share information with each other regarding individuals, entities, organizations and countries suspected of possible terrorist or money laundering activities. It afforded financial institutions that participated in this information sharing initiative with safe harbor from liability for sharing information.

Now that Section 314(b) has been in effect for 10 years, a simple, yet important, question needs to be asked. Was Section 314(b) worth it?

The answer is YES.

The terrorism attack we encountered on 9/11 was devastating. Our comprehensive and continuous response has been decisive. A major component of the success of that response was derived through financial information developed through law enforcement working closely with financial institutions to make timely use of financial intelligence.

Partnerships between financial institutions with each other, and with law enforcement, that facilitate information sharing, are critically important to law enforcement’s efforts at identifying, disrupting, and preventing terrorist acts and preventing money laundering activity.

Finance and communications are the biggest vulnerabilities to terrorist and criminal organizations. When it comes to the finance piece, financial institutions are key. They serve as the repository for valuable financial intelligence. The 314(b) process enhances financial intelligence that is beneficial to law enforcement in their efforts to thwart terrorists and criminals. The better the information sharing, the greater the chances of disruption and prevention.

When financial institutions participate in Section 314(b) information sharing, they have an opportunity to obtain information regarding customers who pose concerns to them. It enables them to go back in the direction of the source of funds and get closer to the origin and to go forward to the use and get closer to the point of distribution. This information, which is provided by other participating financial institutions, can assist in making decisions to file suspicious activity reports (SARs). It will also provide better details to include in SAR narratives. Better quality SARs provides law enforcement with better opportunity to develop investigative evidence.

Unfortunately, there have been long-standing apprehensions about participating in the 314(b) process. There have been numerous complaints and concerns that the 314(b) safe harbor provisions are not clear, there are concerns about regulatory criticism and/or concern about cost burdens. Such can be legitimate concerns. These considerations have probably kept a number of financial institutions from participating in the voluntary 314(b) process. Perception aside, the 314(b) process is a valuable tool and law enforcement is the ultimate beneficiary.

On June 16, 2009, FinCEN issued guidance to clarify 314(b) information sharing. The guidance was intended to clarify the scope of permissible information sharing covered by the Section 314(b) safe harbor. At the time, former FinCEN Director James H. Fries, Jr. stated that, “The more information bankers and brokers can share the more the integrity of our financial system will be protected and law enforcement can gain additional sources of valuable information.”

Encouragingly, there has been a consistent incremental increase in the number of banks that participate in the 314(b) process. Interestingly, it appears that larger banks are more inclined to participate, while smaller banks are less inclined. To better understand the use of the 314(b), FinCEN should conduct a survey of financial institutions to determine why financial institutions do or do not participate in the 314(b) process. They should also focus on the disparity between participation of large and small banks.

Those anti-money laundering compliance professionals who actively participate in the 314(b) process have played a major role in our fight against terrorism and transnational organized crime. We need to encourage more financial institutions to participate. These are the unsung heroes who enable law enforcement to diminish the prospect of terrorist attacks and financial losses caused by transnational criminal groups.

The better the information flow and sharing, the more likely the prospects for law enforce­ment success stories

We need to go back to the intent of Section 314 in general and 314(b) in particular. The intent was to assist law enforcement in their ability to identify, disrupt, and prevent terrorist acts and money laundering activity. Financial institutions are the most important lynchpins in this process. They are truly on the front line, since they serve as the repository for financial intelligence.

The better the information flow and sharing, the more likely the prospects for law enforcement success stories. The more likely financial investigative success, the less likely we can be hurt by terrorist and criminal organizations. Section 314(b) is one mechanism to accomplish this.

Dennis M. Lormel, CAMS, president & CEO, DML Associates, LLC, Lansdowne, VA, USA,

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