Although the USA PATRIOT Act was legislated more than a decade ago, it is interesting to note that one particular section – 314(b) information sharing – has become the subject of renewed focus.
Numerous regulatory and law enforcement agencies including the OCC (Office of the Comptroller of the Currency), DOJ (Department of Justice) and Treasury’s Office of Terrorism and Financial Intelligence have all recently advocated their support for 314(b) communications between financial institutions. And it appears there’s no stronger proponent of industry collaboration through 314(b) than FinCEN. The quotes below which are direct extracts from various FinCEN publications and speeches signal a growing reinforcement of the agency’s stance that it “strongly encourages information sharing through Section 314(b).”
Feedback from FinCEN Outreach Meetings: Banks Talk About Seeing “Panoramic View of Activity, Not Just a Snapshot”; “Very Efficient” Way to Share; and Urge Counterparts to Engage
“Banks found the 314(b) process very useful from an investigative perspective. Several banks noted that they often use the 314(b) process throughout the course of a SAR investigation, before filing a SAR, or making a decision to close an account. One bank’s investigative team characterized the 314(b) program as a very useful tool in obtaining additional information about a case, while another bank noted that its experience with 314(b) has allowed it to see a “panoramic view of activity, not just a snapshot”. Another bank characterized the 314(b) process as a “very efficient” way to share with other banks.
At the town hall meetings in particular, institutions participating in the 314(b) program strongly urged their counterparts to similarly engage in order to better protect their respective financial institutions.”
When Individual Institutions that “Can’t See Enough to Connect the Dots” Share Information – a Different Picture Emerges
“While several institutions see relatively small amounts lost to fraud, when they share information, a different picture emerges. What may look like a small time scammer could be in actuality a criminal enterprise that has pulled down millions because the activity is spread across a number of financial institutions, each of whom can’t see enough to connect the dots.”
Financial Institutions with Just a Small “Piece of the Puzzle” Can Augment Due Diligence and KYC Efforts
“The steady rise in 314(b) SAR filings underscores the recognition by financial institutions that the 314(b) process can significantly augment their internal due diligence and transaction monitoring efforts, enhancing their “Know Your Customer” efforts. Realizing that in many situations it may have only a small “piece of the puzzle,” the financial institution utilizing 314(b) communications is able to reach out to other financial institutions to gather additional invaluable information on customers and/or transaction trails of mutual interest.
Instead of just the limited set of information that a financial institution may have on a customer or activity, the 314(b) participant can obtain information about new accounts, activities, associates, and/or segments of complex financial trails, of which it was previously unaware. The newly obtained information allows the requesting financial institution to build a more comprehensive and accurate picture of its customer’s activities, providing for more accurate decision-making in the due diligence and transaction monitoring segments of its compliance efforts.”
314(b) Participation Encourages “Heads up” Exchange and Cooperation among
“A central benefit of participating in the 314(b) process is that a financial institution that is aware of suspicious activity can employ 314(b) communications not only to gather information, but to alert other financial institutions to suspicious customers and their activities. Incoming 314(b) requests alert the contacted financial institution to customers about whose suspicious activities it may not have been previously aware, and prompt the contacted institution to investigate further.
The sharing of information benefits the due diligence and transaction monitoring efforts not only of the requesting institution, but the contacted institution as well. In some cases, both the requesting and the contacted financial institutions file SARs on the same suspects and their activities, when no SAR would have been filed in the absence of the 314(b) request.”
Detecting Fraud through 314(b): Check Fraud Example
“Financial institutions appear to be using the 314(b) mechanism to verify information, such as a suspect’s identity, and the validity of checks or other documents issued by other financial institutions. For example, in a recent SAR, a financial services company described receiving a suspicious check from a client issued by another financial institution. The company placed a 314(b) request with the issuing financial institution. Through the response, the financial services company was informed that the routing number on the check was old and did not belong to the suspect trying to deposit the funds into their account.”
I highly encourage financial institutions that are interested in learning more about the growing upsweep in 314(b) communications to read FinCEN’s article The 314(b) Program – A Decade of Information Sharing: Stronger Than Ever. It is an extremely informative overview and also outlines the types of suspicious activities which institutions that are collaborating via 314(b) are reporting in associated SAR filings.