TIP: This Compliance Courier was prepared by one of The League’s Compliance Specialists – Terri Crisp. All of our specialists are CUNA-certified “Credit Union Compliance Experts.” To learn more about how the Compliance Specialist program could help your credit union, contact Paul Guttormsson.
Section 314(b) of the USA Patriot Act permits financial institutions to share information with each other in order to identify and report potential money laundering or terrorist activities.
Unlike Section 314(a), which is mandatory, participating in the Section 314(b) program is voluntary. However, financial institutions have been hesitant to sign up for several reasons, including fear of violating privacy laws, the added burden and cost of implementation, another area for regulatory examiners to review, or simply because it’s not required.
Institutions that comply with the requirements of Section 1010.540(b) of the FinCEN regulations will receive a safe harbor from civil liability that could otherwise arise from sharing the information. There are three basic requirements to receive the safe harbor:
- Notice requirement. The credit union must provide notice to FinCEN of its intent to participate. The notice is good for one year. Credit unions can register through FinCEN’s website.
- Verification requirement. Before a credit union can share information with another institution, it must “take reasonable steps” to verify that the other institution has also submitted notice to FinCEN of its intent to participate in 314(b) information sharing.
- Use and security of information. Credit unions are required to use information received under 314(b) sharing only for permissible purposes and must maintain adequate procedures to protect the “security and confidentiality” of the information. The regulation notes that the “security and confidentiality” requirement can be satisfied by protecting the information received in the same manner it would protect information under the Gramm-Leach-Bliley Act and Regulation P.
31 CFR 1010.540(b)(4)(i) provides the permissible uses of information received under section 314(b):
- “Identifying and, where appropriate, reporting on money laundering or terrorist activities;
- Determining whether to establish or maintain an account, or to engage in a transaction; or
- Assisting the financial institution in complying with any requirement of [the FinCEN regulations].”
As a participant, a credit union receiving an information request would be prompted to determine whether any transactions occurring at the credit union are also suspicious, which may aid in the detection of unusual activity at the credit union, which may not have been previously identified. The information shared, however, must still relate to suspected money laundering or terrorist financing, so sharing information about any suspected criminal activity – such as fraudulent checks transactions – may be inappropriate unless the credit union suspects the activity could be related to possible money laundering or terrorism. The Section 314(b) Fact Sheet provides guidance that clarifies the information sharing safe harbor.
If your credit union is considering participating in 314(b) information sharing, it will require internal controls that include:
- Establish policies, procedures, and processes.
- Create a tickler or designate an employee to be responsible for renewing the annual employee(s) registration. (Lack of annual registrations is a common audit finding.)
- Have processes to verify the other financial institution is registered before initiating/responding to a 314(b) request.
- Maintain logs of the information requests made and received. Consider including the financial institution’s name, date, and contact name, and perhaps a general description of the type of activity being considered.
- Ensure the nonpublic personal information of members is protected.
- Only use 314(b) channels to determine whether to establish or maintain an account, to engage in a transaction, or to assist in BSA compliance.
- Consider receipt of an information request as a red flag, prompting the credit union to conduct its own investigation of the mentioned account(s) to assess any unusual activity and document results.
- Indicate if information sharing assisted in identifying activity in the SAR narrative.
- Understand that the sharing of transaction and member information is protected by a safe harbor; the fact that a SAR is or was filed, or the SAR itself must not be shared. Discuss the activity, not the filing.
- Be aware of activity that requires immediate attention from law enforcement (such as terrorist activity). Contact law enforcement, then continue with your investigation and file a SAR, if warranted. Do not assume a SAR filing will come to anyone’s immediate attention.
If you are already a 314(b) participant, do not hesitate to take advantage of it. The information you receive could be extremely helpful in enhancing your understanding of your members’ activity.
While 314(b) requires a bit more recordkeeping, it also affords credit unions more resources and collaboration when it comes to evaluating suspicious activity. Credit unions may benefit from this network as it helps with due diligence, and ensures you understand your own members’ activities. The bottom line is that 314(b) promotes increased communication between financial institutions – communication that may keep fraud and other unwanted activity to a minimum.
League Legal Affairs Attorney’s Conference
Jul 25, 2023 9:00 AM – 3:00 PM, Madison WI – Information and Registration.
The League Legal Affairs Attorney’s Conference brings together attorneys from Wisconsin’s Credit Unions for a day of discussion around Compliance and Legal matters of importance to our members. Please invite your credit union attorney to attend!
- 9:00 am – 9:30 am
Welcome and Coffee
- 9:30 am – 10:15 am
Paul Guttormsson, Senior Vice President & General Counsel | The League
The New Reg. B Small Business Lending Rule
- 10:15 am – 10:30 am
Break
- 10:30 am – 12:00 pm
Tom Theune, Director | Office of Credit Unions, DFI
- 12:00 pm – 12:30 pm
Lunch
- 12:30 pm – 1:00 pm
John Engel, Director of Legal Affairs | The League
HELOC Compliance Tensions
- 1:00 pm – 2:00 pm
Melissa Caulum Williams | Senior Counsel | Husch Blackwell
HR Compliance Issues
- 2:00 pm – 2:30 pm
Kim Hoppe, Compliance Resource Analyst | The League
Remote Online Notarization
- 2:30 pm – 3:00 pm
Roundtable Discussion Adjourn