On January 24, 2022, the Financial Crimes Enforcement Network (“FinCEN”) published a Notice of Proposed Rulemaking (“NPRM”) to establish a pilot program that permits certain financial institutions to share Suspicious Activity Reports (“SARs”) in alignment with Section 6212(a) of the Anti-Money Laundering (“AML”) Act of 2020. The pilot program would permit financial institutions with SARs reporting obligations to share SARs and SARs information with its foreign branches, subsidiaries, and affiliates for the purpose of combating illicit finance risks.
The proposed rule largely excludes the sharing of SARs and SARs information with foreign affiliates in The People’s Republic of China, the Russian Federation, and any jurisdiction that is a state sponsor of terrorism, that is subject to United States sanctions, or that the Secretary of the Treasury has determined cannot reasonably protect the security of SARs and SARs information. A “state sponsor of terrorism” is a jurisdiction so determined by the United States Department of Justice.
In addition, the proposed rule would require participating financial institutions to report certain information to FinCEN on a quarterly basis. This information includes the total number of SARs and SARs information shared, the name and jurisdiction of each entity that received such information, the relationship between the entity and the participating financial institution, the purposes for sharing the SARs and SARs information, any legal and compliance issues encountered, any technical difficulties encountered, enhancements to the financial institution’s AML program enabled as a result of the pilot program, and any identified inefficiencies in the institution’s AML program.
Emphasizing the importance of balancing SARs confidentiality concerns while combating illicit financing risks, FinCEN Acting Director Himamauli Das urges “stakeholders to provide input to assist us in developing a program that will help combat illicit finance risks and promote enterprise-wide risk management, while ensuring adequate safeguards are in place to protect SAR confidentiality.”
Financial institutions wishing to participate in the pilot program must file an application and establish certain compliance requirements. The application to FinCEN must identify the financial institution’s point of contact for pilot program-related correspondence and specify the particular foreign branch, subsidiary, or affiliate with which the financial institution plans to share SARs and SARs information. Moreover, the application must explain how those foreign affiliates would use the SARs and SARs information. This information must include the operational jurisdiction of the foreign affiliates, and whether the foreign affiliates would provide reciprocal information to the applying financial institution. In addition, the application must provide an estimated commencement date for the pilot program. and must describe the internal controls in place to prevent unauthorized disclosures of SARs and SARs information. In general, financial institutions should create compliance requirements that include establishing procedures, policies, and internal controls that are reasonably designed to ensure that the financial institution’s foreign subsidiaries, branches, or affiliates guard against unauthorized disclosures of SARs or SARs related information.
The full article in its original form can be found here.
James Mangiaracina (LAW ’20) is an associate in the Ballard Spahr’s Litigation Department, focusing his practice on commercial litigation matters.