International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Saturday, August 16, 2014

One Million Uses of SARs/CTRs via FINCEN Query in First Six Months of Year

Remarks of the Director of FINCEN (AUGUST 12, 2014) available here, excerpted below.  Section title added. 

FINCENMoney Service Businesses (MSBs)

Recently, we have been hearing about instances of “de-risking,” where money services businesses (MSBs) are losing access to banking services because of perceived risks with this category of customer and concerns about regulatory scrutiny. Some financial institutions also state that the costs associated with maintaining these accounts outweigh the benefits. But just because a particular customer may be considered high risk does not mean that it is “unbankable” and it certainly does not make an entire category of customer unbankable. Banks and other financial institutions have the ability to manage high risk customer relationships. 

It is not the intention of the AML regulations to shut legitimate business out of the financial system. I think we can all agree that it is not possible for financial institutions to eliminate all risk. Rather, the goal is to provide banking services to legitimate businesses by understanding the applicable risks and managing them appropriately.

MSBs play a vital role in our economy and provide valuable financial services, especially to individuals who may not have easy access to the formal banking sector. In fact, FinCEN and our regulatory partners first addressed this issue in 2005 when we learned that MSBs were having difficulty maintaining bank account relationships.  In response, FinCEN and the Federal Banking Agencies issued joint guidance to assist banking organizations assess and minimize risks posed by providing banking services to MSBs.

MSBs' 490,000 SARs Valuable for Counterterrorism

In fact, MSBs submit to FinCEN a significant number of Suspicious Activity Reports (SARs). In 2013 alone, MSBs filed more than 490,000 SARs, compared to 713,000 filed by depository institutions. And while I am not able to discuss specifics, I can say that the BSA reporting provided by MSBs contains some of the most valuable counterterrorism information we receive.

Money Remittances Improvement Act of 2014

And we are looking forward to exploring how the Money Remittances Improvement Act of 2014, which was signed into law by the President last week and authorizes FinCEN to rely on examinations of financial institutions conducted by State supervisory agencies, can positively impact this issue.

All this is to say that a risk-based approach is not black and white. A key aspect of FinCEN’s mission is to collect reporting from financial institutions and get this information into the hands of our law enforcement and regulatory partners. The only way we can do our job is if businesses actually have bank accounts and their transactions are monitored and reported to FinCEN, as appropriate. This is critical to what we do, because of the indisputable value the BSA reporting provides to investigations. And for those of you who are not sure that the value BSA reporting provides to investigations is indisputable, hold that thought, because I will be returning to that topic in a moment.

Nothing illustrates this point better than FinCEN’s recent guidance on the provision of financial services to marijuana-related businesses in states where such business is legal under state law. Our overarching goal in issuing this guidance was to promote financial transparency, ensuring law enforcement receives the reporting from financial institutions that it needs to police this activity and making it less likely that the financial operations move underground and become more difficult to track. 

105 Financial Institutions Banking Marijuana Businesses Over 1/3 of USA

Since FinCEN’s guidance went into effect in February of this year, we have received more than 1,000 SARs that indicate banks are using our guidance and providing much needed transparency into their dealings with marijuana-related businesses. And based on a review of SARs filed between February 14 and August 8, 2014, there are currently 105 individual financial institutions from states in more than one third of the country engaged in banking relationships with marijuana-related businesses.

502 'Marijuana Limited' SARs

FinCEN’s guidance assists financial institutions in determining when and how to file a SAR based on eight law enforcement priorities identified by the U.S. Department of Justice. Financial institutions providing financial services to a marijuana-related business that it reasonably believes, based on its customer due diligence, does not implicate one of the eight priorities or violate state law should file a SAR using the phrase “Marijuana Limited” in the narrative. Since issuing the guidance, FinCEN has received 502 SARs marked as “Marijuana Limited.”  

123 'Marijuana Priority' SARs

A financial institution filing a SAR on a marijuana-related business that it reasonably believes, based on its customer due diligence, implicates one of the eight priorities or violates state law should file a SAR with the phrase “Marijuana Priority” in the narrative. To date, FinCEN has received 123 SARs indicating “Marijuana Priority.”

475 Marijuana Termination SARs

Lastly, if a financial institution deems it necessary to terminate a relationship with a marijuana-related business in order to maintain an effective anti-money laundering compliance program, it should file a SAR and note in the narrative the basis for the termination, using the term “Marijuana Termination” in the narrative. Just over 475 SARs filed to date reflect “Marijuana Termination.”

So, from our perspective the guidance is having the intended effect. It is facilitating access to financial services, while ensuring that this activity is transparent and the funds are going into regulated financial institutions responsible for implementing appropriate AML safeguards.

Law Enforcement Conducts Over One Million Uses of SARs/CTRs via FINCEN Query in First Six Months of Year

In the first six months of 2014 alone, over 350 unique agencies, representing a broad cross section of federal, state, and local law enforcement and regulators operating nationwide, accessed BSA reporting via FinCEN Query. Thousands of agents, analysts, and investigative personnel from each of these agencies have conducted in excess of 1 million queries against the database during that period. In fact, reviewing our numbers, it appears that more reports are likely reviewed by law enforcement and other users, on any given day, than are filed by financial institutions.

The Federal Bureau of Investigation (FBI), which is a very active user of BSA information, reports that in the past month alone, approximately 2,500 new BSA reports are directly relevant to over 1,100 of their ongoing investigations. Between March 2013 and April 2014, 34% of the FBI’s cases on organized crime and drug trafficking organizations were found in BSA filings. The same can be said for 28% of the Bureau’s transnational organized crime cases, as well as 15% of their international terrorism cases. And while we talk a great deal about the value of SARs, it should also be noted that over this same time period, the Bureau tells us that 73% of the BSA reports related to their investigations were actually Currency Transaction Reports.

International Exchange of FINCEN's Information 

 

Third, law enforcement uses the reporting to facilitate international information exchange and conduct enforcement in a globally connected world. The Egmont Group has developed mechanisms for the rapid exchange of sensitive information between 146 financial intelligence units (FIUs), like FinCEN, around the world. In FY 2014, based on current trends, it is estimated that FinCEN will receive approximately 1,300 incoming Egmont requests from foreign FIUs seeking information derived from BSA reporting and will make approximately 700 outgoing Egmont requests on behalf of U.S. law enforcement agencies seeking similar information from foreign FIUs.

https://lawprofessors.typepad.com/intfinlaw/2014/08/fincen-story-for-saturday.html

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