FinCEN initiates pilot SAR foreign branch sharing program

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Tax inspector doing financial auditing, businessman reading business report or contract footnotes disclaimer with magnifying glass, retro toned, selective focus

By Stephen Thomas

The Financial Crimes Enforcement Network or FinCEN, an agency of the Treasury Department, closed the public comment period Monday, March 28, for a proposed rule that would establish a limited-duration pilot program under which financial institutions voluntarily would be permitted to share their suspicious activity reports with their “foreign branches, subsidiaries, and affiliates for the purpose of combating illicit finance risk,” according to the notice of proposed rulemaking published in the Federal Register since January. The pilot program complies with the Anti-Money Laundering Act of 2020.

After FinCEN considers public comments it solicited through the Federal Register, the agency will conduct an analysis under the Regulatory Flexibility Act to certify that a proposed rule will not negatively economically affect “a substantial number of small entities.”

Under the Regulatory Flexibility Act, consistent with the Small Business Administration’s definition, “small entities” include commercial banks and savings institutions with no more than $600 million in total assets and trust companies with no more than $41.5 million in total assets.

As FinCEN published in the notice of proposed rulemaking, “because of the voluntary nature of the proposed rule, only financial institutions choosing to participate in the pilot program would be affected. FinCEN believes the proposed regulatory changes are unlikely to have a significant economic impact on a substantial number of small entities, as smaller entities are less likely to have foreign-based branches, subsidiaries, and affiliates.”

Unless Treasury Secretary Janet Yellen extends the pilot program for not more than two years, the pilot will end Jan. 1, 2024, which will be three years since the enactment of the Anti-Money Laundering Act of 2020.

The pilot program would prohibit SAR sharing with a foreign branch, subsidiary or affiliate based in the Russia, China, and a jurisdiction that the State Department has designated as a state sponsor of terrorism. The ban also applies to a jurisdiction that Treasury has determined cannot “reasonably protect the security and confidentiality of such information,” according to the notice of proposed rulemaking.

Not later than 360 days following the finalization of the rules, and annually thereafter for three years, Treasury must brief the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services on the pilot program’s effectiveness, to include the level of information-sharing undertaken.

FinCEN Acting Director Himamauli Das said in a statement on January 24, the day it promulgated its notice of proposed rulemaking, that the pilot program “builds on the experience that FinCEN has gained in administering existing pilot programs and once finalized, will assist financial institutions in further combating illicit finance risks.”

Stephen Thomas has public policy experience in state government and regulatory compliance experience in the private sector, reinforced with a Master of Jurisprudence degree from St. Mary’s University School of Law in Compliance, Business Law, and Risk.