ST. LOUIS, Nov. 14 (Thomson Reuters Accelus) – Continued wariness over a U.S. anti-terrorism provision meant to encourage financial institutions to share suspicious information with each other may be limiting its use, at a time banks and others are struggling to uncover mortgage fraud, Ponzi schemes and other financial crimes.
Current and former regulatory officials, and financial lawyers, say a provision of the USA Patriot Act that shields financial institutions from liability over privacy and confidentiality violations when they share information may be too vague or demanding to be useful to bankers.
“The banks are reluctant to use it because it doesn’t do much for them and it may not even protect them if they used it,” said Bob Serino, a former enforcement and money-laundering official with the Office of the Comptroller of the Currency. Serino, now an attorney for Buckley Sandler and director of Watkins Consulting, said financial institutions would be wise to think twice before sharing information under the provision.
Use of the program has been “limited” among smaller institutions, said the head of the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN).
However, the number of institutions sharing suspicious information has edged higher, a FinCEN spokesman said. Other experts encourage the practice, and there are signs that sharing enabled by the shield has helped uncover evidence of financial crime.
The information-sharing provision was created by Section 314(b) of the Patriot Act, which was passed after the Sept. 11, 2001 attacks. It provides “safe harbor” shielding from civil liability so that financial institutions can share information aimed at combating money laundering and terrorist financing without fear of violating privacy laws or customer confidentiality obligations.
FinCEN issued a final rule to implement it in September 2002. Banks, broker-dealers and other financial institutions that choose to share information must register annually with FinCEN, and can only exchange information with other registered institutions.
“I have heard recently that some institutions are reticent about sharing information under 314(b). Some contend the standards for sharing are vague or that reliance on the civil safe harbor is risky,” Peter Djinis, who formerly served as both a federal prosecutor and a regulatory policy official at FinCEN and is now in private practice, told Thomson Reuters.
Djinis added, however, that he is unworried. He said the provision is a useful tool when a financial institution is considering whether to file an official Suspicious Activity Report (SAR), but is unable to assemble internally a clear picture of a customer’s activities. Federal law requires banks and other institutions to file SARs when they suspect a transaction is linked to criminal activity.
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