In a move to further global financial transparency and collaboration, the Financial Crimes Enforcement Network (FinCEN) is launching a pilot program to share Suspicious Activity Reports (SARs) with foreign financial intelligence units. This will create new pathways for cross-border cooperation in understanding threats such as money laundering, terrorist financing, and other illicit activities that take place in multiple jurisdictions. This international information-sharing initiative aims to give law enforcement agencies and financial institutions greater visibility into suspicious activity worldwide, supporting more effective investigations and stronger outcomes. This blog post explains how FinCEN’s pilot program enables SAR sharing with overseas entities and outlines the types of data that institutions may exchange under this framework.
Overview
The Financial Crimes Enforcement Network (FinCEN) recently launched a pilot program to allow financial institutions to share Suspicious Activity Reports (SARs) with their foreign affiliates. While other countries have already implemented similar regulations, FinCEN is the first agency in the US to do so. This pilot program is designed to make it easier for regulated entities to access and report potential suspicious or illegal activity across borders without delay caused by information-sharing inconsistencies. It also enables domestic Financial Institutions (FIs) to more quickly investigate cross-border behavior of customers, which could aid in blocking fraud or money laundering schemes from taking place. The SARs that can be shared under this program are limited but include those involving insider trading, cyber threats and trafficking in illicit narcotics. Results of the pilots’ implementation will help FinCEN determine how best to expand its scope through final rules on international data sharing .
What has changed ?
Financial institutions may share Suspicious Activity Reports and related information with certain affiliates, as defined in prior guidance, but they may not share this information with their non-U.S. branches or affiliates.
As part of the pilot program, FinCEN allows certain approved financial institutions to share SARs and related information with non-U.S. entities, subject to defined monitoring obligations, requirements, and limitations.
Participation in the Pilot Program
Under the Pilot Program, financial institutions may share SARs and related information with foreign branches, subsidiaries, and affiliates if they submit an application, meet data security and privacy standards for personally identifiable information, and comply with reporting and recordkeeping requirements.
FinCEN will evaluate each application by considering the financial institution’s internal controls, the entities involved in information sharing, and the jurisdictions where those entities operate. FinCEN aims to issue a response within 90 days. After approval, participants must provide FinCEN with a program start date. FinCEN may terminate a financial institution’s participation at any time at its sole discretion.
Application requirements and procedure
Banks, casinos, card clubs, money service businesses, brokers or dealers in securities, mutual funds, insurance companies, futures commission merchants, introducing brokers in commodities, loan or finance companies, and government-sponsored enterprises in housing are among the financial institutions that are eligible to apply for the Pilot Program. A formal application procedure determines who can participate in the Pilot Program. The following details must be included in the written application:
- The applicant’s point of contact for communications regarding the Pilot Program
- A list of the overseas branches, subsidiaries, and affiliates that the applicant plans to exchange SARs and related information with, together with information on their operational countries and whether they will be providing the applicant with reciprocal information
- The intended uses of SARs and related information by international branches, subsidiaries, and affiliates
- An approximate start date for the applicant’s involvement in the pilot program
- a list of any internal measures the applicant has put in place to guard against unapproved disclosures of SARs and associated data.
When a request to participate in the Pilot Program is received, FinCEN will seek to respond within 90 days.
Reporting requirements
FinCEN will require periodic reporting from participants in the Pilot Program on their usage of shared SARs. Reports are expected to include the following metrics:
- The number of SARs disseminated, including whether they were sent or received and the time it took to communicate them
- The total dollar amount associated with transmitted SARs
- An overview of the type and nature of suspicious activity reported
- The number of times data was shared between non-US branches and affiliates
- A summary of any changes to internal policies or procedures in response to the Pilot Program
- The overall impact of the Pilot Program on an institution’s ability to detect and deter money laundering, terrorist financing, fraud, and other financial crimes.
- technical difficulties and challenges
- Details about AML/CFT program improvements made possible by participation in the pilot program for the financial institution
- any shortcomings the participating financial institution has found in its own compliance program
The Proposed Rule states that the quarterly reports give FinCEN important information and data regarding the effectiveness of the Pilot Program. FinCEN will share the reported information with the relevant federal functional regulators, enabling the agencies to identify internal control weaknesses tied to the Pilot Program that institutions must address to continue participation.
Restrictions on international jurisdictions
The Proposed Rule, in accordance with AMLA, forbids participant financial institutions from disclosing SARs or associated information to foreign affiliates based in the following countries: the People’s Republic of China, the Russian Federation, states that sponsor terrorism, countries that are subject to U.S. Government sanctions, and countries where the Secretary of the Treasury has determined that it is not reasonably possible to maintain the security and confidentiality of such information.
Termination
FinCEN would have the authority to revoke a financial institution’s membership in the program at any time and for any reason under the proposed rule. “Actual or unreasonable risk of unauthorized disclosures of SARs and relating information; significant internal control deficiencies identified while participating in the pilot program, failure to comply with the specific requirements for participation; or any other issues that indicate a participant financial institution is unable to adequately safeguard against unauthorized disclosures of SARs and related information,” are just a few of the reasons for termination.
Duration of the Pilot Program
Unless the Treasury Secretary (the “Secretary”) requests an extension from Congress for a maximum of two years, the program would conclude on January 1, 2024.
Benefits of the Program in Strengthening International AML Efforts
The FinCEN pilot program provides a much-needed mechanism for cross-border financial intelligence sharing. By allowing institutions to quickly and securely share SARs with foreign affiliates, it opens up new pathways of investigation that can help prevent transnational criminal organizations from operating with impunity. This is especially true in cases involving cybercrime, money laundering and terrorist financing, where the sources of funds or the ultimate destination may be located in different countries. By eliminating delays caused by inconsistent information-sharing practices between different countries, law enforcement can more quickly investigate and take action against criminal networks operating across borders. In addition, this program also helps to strengthen existing anti-money laundering (AML) regulations by providing better insights into suspicious activity, thereby enabling FIs to more effectively detect and disrupt criminal activities.
Conclusion
The proposal for this pilot program has potential benefits as well as disadvantages, just like any new initiative. Financial institutions may find the ability to exchange SARs and SAR information to be a useful compliance tool, but some may discover that the constraints outweigh any possible benefits to their BSA compliance processes.
There are many financial institutions operating in riskier regions around the globe. The capacity to share SARs and SAR information with greater flexibility may enable those financial institutions to more effectively manage that risk. By having access to a larger pool of shared information about suspicious activity, AML compliance procedures may be better able to identify and stop money laundering. since as the pilot program would benefit in that way, it may support numerous AML compliance procedures.
Financial institutions now have the chance to close the gap they identified in their ability to share SARs with foreign affiliates, which they believe has hindered their Bank Secrecy Act (BSA) and AML procedures. Regulators and examiners may give participating financial institutions special consideration for addressing enterprise-wide risk while strengthening individual programs. However, the pilot project introduces additional reporting and internal control requirements, and participating institutions may face fines if they make errors.
Financial institutions should consider whether the advantages of taking part in the Pilot Program exceed the additional compliance obligations and make sure they can fulfill the program’s rather strict requirements. Through FinCEN’s notice and comment process, stakeholders can raise specific concerns about regulatory burdens or other aspects of the Proposed Rule, and FinCEN may revise the rule based on industry feedback.
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