Featured Article

June 13, 2008
FinCEN ignores MSBs when issuing Patriot Act-related information requests

By Brian Monroe

The U.S. Treasury Department may be denying state and federal law enforcement authorities a critical source of information for money laundering and terrorist financing investigations by opting not to forward to money services businesses information requests authorized under the Patriot Act.

These Section 314(a) information requests allow law enforcement agencies to gather account and transaction information from financial institutions to aid in money laundering probes. The law enforcement agency is responsible for submitting the requests to the Treasury’s Financial Crimes Enforcement Network, which e-mails them to more than 27,000 financial institutions every two weeks.

The institutions must search their records for data matches and respond to FinCEN with any positive matches within two weeks.

FinCEN issues the requests to institutions including banks, broker-dealers and securities firms. An agency spokesperson acknowledged that FinCEN has not once in the past six years – since the 314(a) program was introduced in November 2002 – issued such an information request to an MSB.

Some anti-money laundering compliance professionals contend that excluding MSBs – a $100 billion a year worldwide industry replete with check cashers, currency exchangers, money transmitters and prepaid card sellers – from this process jeopardizes the success of law enforcement efforts to catch criminals and terrorists.

Such a stratagem leaves a “huge hole” in the nation’s defenses against money launders and terrorists, and represents a “missed opportunity” for federal investigators to nab more suspects, said Martin Ficke, director of investigations for SES Resources International in New York.

MSBs have been a “weak link in the financial chain all along,” and recent cases clearly show they have been “used and abused by criminals. It’s a real void not to include them in the 314(a) inquiries,” Ficke said. MSBs which were labeled by federal banking regulators as “higher risk,” for money laundering, have been struggling to repair their reputation with banks and other institutions. Regulators have since backed off that broad characterization.

Wrong Hands’

One reason FinCEN might be reluctant to forward information on sensitive investigations to MSBs is that they are “worried it will fall into the wrong hands,” Ficke said, adding that many MSBs are small operations, with many workers giving little thought to Bank Secrecy Act provisions.

Yet, many bank branches are small as well, so “that’s not enough to leave them off the table,” Ficke said. “The industry that is apt to be most exploited by criminals should be held to a higher standard, not a lower standard.”

MSBs should not be left out of the 314(a) gauntlet because they are “certainly one of the primary outlets” for moving illicit cash inside and outside the United States,” said Fred Graessle, founder of Integrity Assurance, an investigative firm in Valparaiso, Ind., and a former FBI special agent.

Graessle said it would be a challenge for some MSBs to respond to a 314(a) request, resulting in “a lot of false hits, but that’s not any reason why you wouldn’t do it,” if there is a chance to make a break in a major investigation or crack a drug or money laundering ring.

‘Too Overwhelming’

“Some issues need to be worked through,” chiefly that MSBs don’t “generally have the same relationship with customers as depository institutions do…and many small MSBs may not have the needed staff or technical resources” to respond to such requests, said FinCEN spokesman Steve Hudak in an e-mail.

He added that, as with any law enforcement request for data from a financial institution, investigators can always subpoena an MSB, which would be forced to yield information on a particular individual or set of transactions or face legal sanctions.

Connie Fenchel, an AML consultant and former deputy director at FinCEN, agreed that FinCEN likely won’t bring MSBs under section 314(a) in the near future.

Fenchel, who actively helped shape the legislation, said FinCEN “purposely” left out MSBs because they “really don’t have customers. We felt it would be too overwhelming for MSBs to comply or for FinCEN to even track it.”

“For FinCEN to add MSBs, they would have to reconfigure everything and I don’t think anyone is ready to take that on,” Fenchel said.

Institutions that receive requests must search their records for matches of accountholder names and other information and respond to FinCEN within two weeks if they had banked the subject within the previous year or conducted transactions for the person in the previous six months.

When the program was introduced in November 2002, banks said the requests placed too great a research burden on them. As a result, FinCEN halted the requests after just two weeks. It resumed the requests in February 2003.

Tick the Box?

Thus far under 314(a), some 17 federal law enforcement agencies have issued 826 requests to financial institutions, garnering nearly 49,000 positive matches and 41convictions, a rate of about 5 percent, according to FinCEN, which is responsible for analyzing, approving and issuing the requests to financial institutions.

The requests have also contributed to closing 25 cases, FinCEN said. Roughly half of the time FinCEN issues a request from a federal agency, the information leads to either an arrest or an indictment, according to a report released this month.

Ficke said one solution could be to add a line or box for MSBs on the 314(a) request form. That would give authorities the flexibility to include or exclude MSBs for certain investigations where the information likely would result in a cooperating witness or undercover officer being uncovered.

“That takes the responsibility away from FinCEN,” he said. “I am sure this is being looked at to be modified.”

Graessle said information requests to MSBs would likely have to pose a “low risk of danger or physical retaliation,” for the informants or officers already running active investigations.

Even if undercover officers don’t get their cover blown, there is always the possibility that a corrupt money transmitter tips a person or organization that they are on the list, and the suspect could “change their behavior, and we would be back to square one,” he said.