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Some U.S. financial institutions wary of sharing suspicious information under Patriot Act shield 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. "I almost always encourage my clients to share information with another financial institution when their internal SAR investigations are inconclusive," Djinis said. FinCEN director James Freis Jr. said in a speech last month that Treasury inquiries revealed that the largest U.S. banks made "quite extensive" use of the Patriot Act provision, but found that among smaller institutions, there was "rather limited" use of the program. In an apparent effort to sell the program, Freis reminded his audience of Nebraska bankers that FinCEN issued guidance in 2009 that clarified the broad scope of the provision’s safe harbor. Freis pointed out that the guidance authorized the sharing of information on possible money laundering relating to "an array of underlying fraudulent and criminal activity." While the underlying crime can be any "specified unlawful activity" capable of prompting a money laundering prosecution pursuant to Title 18, US Code, Sections 1956 or 1957, a link to possible terrorist financing or money laundering must still exist in order for information to be safely shared under 314(b). The safe harbor provision would not, for example, cover sharing of information about a suspected fraud when there is no suggestion of money laundering or terrorism. Some financial institutions have been unnerved by these guidelines, which they consider too vague, Serino said. Financial institutions have been sharing information under 314(b) for roughly a decade, with no penalties, but some institutions remain uncomfortable. FinCEN spokesman Bill Grassano told Thomson Reuters that roughly 4,300 financial institutions are currently registered to share information under 314(b). That figure includes: banks, thrifts, credit unions, broker-dealers, mutual fund associations, insurance companies, holding companies, commodity trading advisors, operators of credit card systems, registered investment advisors, real estate closers/settlers, trust companies, and money service businesses. "The number has climbed over the years and has consistently been more than 4,000 institutions," Grassano said. FLAWED RULE? Chief amongst Serino's concerns is the requirement for a link to money laundering or terrorist financing. "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. The bank has to decide: Is this money laundering or bank fraud or check fraud? It's a great idea to have things to share and be protected, but I'm afraid 314(b) doesn't do what it could do," he said. Serino added that FinCEN's decision to create a 314(b) registration requirement "made absolutely no sense." "What benefit is it (the registration requirement) to the government? That is an unnecessary burden that creates a real hurdle for institutions using this," he said. VALUE OF INFORMATION SHARING Djinis said 314(b) information sharing is valuable to all parties involved. For example, if an institution is concerned about a client's source of funds – such as in loan payments or other recurring activity – it is often helpful to contact the institution where the funds are coming from, he said. And if that institution also has concerns about the customer's source of funds, such information would be important to the bank that is holding a large loan on the customer's behalf. "I can think of few instances where it would not be helpful – as part of SAR due diligence – to contact either the bank from which funds are coming from or where they are going to in order to determine if those institutions also had concerns about the customer's activity. Indeed, many large frauds have been discovered this way," Djinis said. "While the rules do not require such cooperation between institutions, sharing under 314(b) is sometimes the most effective, reliable and efficient way to conduct SAR due diligence." Because financial institutions have no obligation to share information, one that wishes to share information must request cooperation from its counterpart. A veteran anti-money laundering compliance officer told Thomson Reuters that most financial institutions will agree to such a request only if they already plan to close an account in question. "A bank will most likely not honor a request if they plan to keep the account open," said the compliance officer, who commented on condition of anonymity. "What's the upside to providing negative information on an account you plan to retain?" Still, the source said that 314(b) is "an extremely useful method for compliance officers to gather information on clients" and added that the safe harbor is "very effective." She also said she has found that granting other institutions' requests has benefited her institutions as well. "In addition to providing information to the other financial institution, we also work up a case on the entity. SARs have also been filed as a result of the requests, not because the questioned transactions were suspicious, but because in reviewing the history of the accounts, we came across activity we weren't comfortable with or the clients weren't able to provide an acceptable explanation we could confirm," she said. She added that some financial institutions use 314(b) ineffectively. For example, she said banks have been known to send out 314(b) requests to just one other bank to inquire about a customer's transactions, then wait for a response before sending additional requests to other financial institutions that interacted with the customer. "Does this make sense? What if that one bank never responds because they plan to keep the account open?" she said. There is anecdotal evidence that 314(b) information sharing can be an effective anti-fraud tool. An October 2010 report issued by FinCEN discussed a federal law enforcement investigation that was triggered by SAR filings, revealed a multimillion dollar Ponzi scheme and ultimately prompted a defendant to plead guilty to fraud charges. "The 314(b) provision of the Patriot Act enabled institutions to work together and share information, resulting in the closing of suspect accounts and slowing the spread of the fraud," the report stated. TO SHARE, OR NOT? Another late 2010 FinCEN report included an editorial about 314(b) written by Jeffrey Halperin, a vice president and anti-money laundering officer with MetLife. The item, aptly titled "Section 314(b): To Share or Not to Share?," examined the decision financial institutions must make. Halperin concluded: "Used properly, Section 314(b) expands the depth and scope of information available to firms in their effort to mitigate the risks posed by potential money launderers. In addition, firms that share information under Section 314(b) reduce their exposure to fraud and other costly financial crimes. "Most important, as noted by Director Freis on a number of occasions, the act of sharing information between financial institutions is essential to combating financial crime and ultimately increasing the integrity of the financial system." (Source: Reuters) Mexico seeks to fill drug war gap with focus on dirty money The evolving anti-laundering campaign could change the tone of the Mexican government's battle by striking at the heart of the cartels' financial empire, analysts say. Tainted drug money runs like whispered rumors all over Mexico's economy — in gleaming high-rises in beach resorts such as Cancun, in bustling casinos in Monterrey, in skyscrapers and restaurants in Mexico City that sit empty for months. It seeps into the construction sector, the night-life industry, even political campaigns. Piles of greenbacks, enough to fill dump trucks, are transformed into gold watches, showrooms full of Hummers, aviation schools, yachts, thoroughbred horses and warehouses full of imported fabric. Officials here say the tide of laundered money could reach as high as $50 billion, a staggering sum equal to about 3% of Mexico's legitimate economy, or more than all its oil exports or spending on prime social programs. Mexican leaders often trumpet their deadly crackdown against drug traffickers as an all-out battle involving tens of thousands of troops and police, high-profile arrests and record-setting narcotics seizures. The 5-year-old offensive, however, has done little to attack a chief source of the cartels' might: their money. Even President Felipe Calderon, who sent the army into the streets to chase traffickers after taking office in 2006, an offensive that has seen 43,000 people die since, concedes that Mexico has fallen short in attacking the financial strength of organized crime. "Without question, we have been at fault," Calderon said during a meeting last month with drug-war victims. "The truth is that the existing structures for detecting money-laundering were simply overwhelmed by reality." Experts say the unchecked flow of dirty money feeds a widening range of criminal activity as cartels branch into other enterprises, such as producing and trading in pirated merchandise. "All this generates more crime," said Ramon Garcia Gibson, a former compliance officer at Citibank and an expert in money-laundering. "At the end of the day, this isn't good for anyone." Officials on both sides of the border have begun taking tentative steps to stem the flow of dirty money. For Instance, last year Calderon proposed anti-laundering legislation, after earlier announcing restrictions on cash transactions in Mexico that used U.S. dollars. The evolving anti-laundering campaign could change the tone of the government's military-led crime crusade by striking at the heart of the cartels' financial empire, analysts say. But the effort will have to overcome a longtime lack of political will and poor coordination among Mexican law enforcement agencies that have only aggravated the complexity of the task at hand now. "If you don't take away their property, winning this war is impossible," said Sen. Ricardo Garcia Cervantes of the Senate security committee and Calderon's conservative National Action Party. "You are not going to win this war with bullets." The good news for Mexican and Colombian traffickers is that drug sales in the United States generate enormous income, nearly all of it in readily spendable cash. The bad news is that this creates a towering logistical challenge: getting the proceeds back home to pay bills, buy supplies — from guns to chemicals to trucks — and build up the cartels' empires without detection. Laundering allows traffickers to disguise the illicit earnings as legitimate through any number of transactions, such as cash transfers, big-ticket purchases, currency exchanges and deposits. Much of that money still makes its way back into Mexico the old-fashioned way: in duffels stuffed into the trunks of cars. But Mexican drug traffickers are among the world's most savvy entrepreneurs, and launderers have proved nimble in evading authorities' efforts to catch them, adopting a host of new techniques to move the ill-gotten wealth. For example, Mexican traffickers are taking advantage of blind spots in monitoring the nearly $400 billion of legal commerce between the two countries. The so-called trade-based laundering allows crime groups to disguise millions of dollars in tainted funds as ordinary merchandise — say, onions or precious metals, as they are trucked across the border. In one case, the merchandise of choice was tons of polypropylene pellets used for making plastic. Exports of the product from the United States to Mexico appeared legitimate, but law enforcement officials say that by declaring a slightly inflated value, traders were able to hide an average of more than $1 million a month, until suspicious banks shut down the operation. The inventive ploys even include gift cards, such as the kind you get your nephew for graduation. A drug-trafficking foot soldier simply loads up a prepaid card with dollars and walks across the border without having to declare sums over the usual $10,000 reporting requirement, thus carrying a car trunk's worth of cargo in his wallet. Tainted cash is almost everywhere. In western Mexico, a minor-league soccer club known as the Raccoons was part of a sprawling cross-border empire — including car dealerships, an avocado export firm, hotels and restaurants — that U.S. officials said was used by suspect Wenceslao Alvarez to launder money for the Gulf cartel. Alvarez was arrested by Mexican authorities in 2008 in a rare blow against laundering and remains in prison while fighting the charges. Even the most unlikely street-corner businesses may be used to scrub money. A pair of tanning salons in the western state of Jalisco were among 225 properties seized from drug suspect Sandra Avila Beltran, the so-called Queen of the Pacific and one of the few women allegedly to reach upper cartel echelons. Avila, arrested in 2007, is still behind bars on the money-laundering charges as she also fights extradition to the U.S., but she has been exonerated of organized-crime and weapons charges.Mexican leaders often trumpet their deadly crackdown against drug traffickers as an all-out battle involving tens of thousands of troops and police, high-profile arrests and record-setting narcotics seizures. The 5-year-old offensive, however, has done little to attack a chief source of the cartels' might: their money. Even President Felipe Calderon, who sent the army into the streets to chase traffickers after taking office in 2006, an offensive that has seen 43,000 people die since, concedes that Mexico has fallen short in attacking the financial strength of organized crime. "Without question, we have been at fault," Calderon said during a meeting last month with drug-war victims. "The truth is that the existing structures for detecting money-laundering were simply overwhelmed by reality." Experts say the unchecked flow of dirty money feeds a widening range of criminal activity as cartels branch into other enterprises, such as producing and trading in pirated merchandise. "All this generates more crime," said Ramon Garcia Gibson, a former compliance officer at Citibank and an expert in money-laundering. "At the end of the day, this isn't good for anyone." Officials on both sides of the border have begun taking tentative steps to stem the flow of dirty money. For Instance, last year Calderon proposed anti-laundering legislation, after earlier announcing restrictions on cash transactions in Mexico that used U.S. dollars. The evolving anti-laundering campaign could change the tone of the government's military-led crime crusade by striking at the heart of the cartels' financial empire, analysts say. But the effort will have to overcome a longtime lack of political will and poor coordination among Mexican law enforcement agencies that have only aggravated the complexity of the task at hand now. "If you don't take away their property, winning this war is impossible," said Sen. Ricardo Garcia Cervantes of the Senate security committee and Calderon's conservative National Action Party. "You are not going to win this war with bullets." The good news for Mexican and Colombian traffickers is that drug sales in the United States generate enormous income, nearly all of it in readily spendable cash. The bad news is that this creates a towering logistical challenge: getting the proceeds back home to pay bills, buy supplies — from guns to chemicals to trucks — and build up the cartels' empires without detection. Laundering allows traffickers to disguise the illicit earnings as legitimate through any number of transactions, such as cash transfers, big-ticket purchases, currency exchanges and deposits. Much of that money still makes its way back into Mexico the old-fashioned way: in duffels stuffed into the trunks of cars. But Mexican drug traffickers are among the world's most savvy entrepreneurs, and launderers have proved nimble in evading authorities' efforts to catch them, adopting a host of new techniques to move the ill-gotten wealth. For example, Mexican traffickers are taking advantage of blind spots in monitoring the nearly $400 billion of legal commerce between the two countries. The so-called trade-based laundering allows crime groups to disguise millions of dollars in tainted funds as ordinary merchandise — say, onions or precious metals, as they are trucked across the border. In one case, the merchandise of choice was tons of polypropylene pellets used for making plastic. Exports of the product from the United States to Mexico appeared legitimate, but law enforcement officials say that by declaring a slightly inflated value, traders were able to hide an average of more than $1 million a month, until suspicious banks shut down the operation. The inventive ploys even include gift cards, such as the kind you get your nephew for graduation. A drug-trafficking foot soldier simply loads up a prepaid card with dollars and walks across the border without having to declare sums over the usual $10,000 reporting requirement, thus carrying a car trunk's worth of cargo in his wallet. Tainted cash is almost everywhere. In western Mexico, a minor-league soccer club known as the Raccoons was part of a sprawling cross-border empire — including car dealerships, an avocado export firm, hotels and restaurants — that U.S. officials said was used by suspect Wenceslao Alvarez to launder money for the Gulf cartel. Alvarez was arrested by Mexican authorities in 2008 in a rare blow against laundering and remains in prison while fighting the charges. Even the most unlikely street-corner businesses may be used to scrub money. A pair of tanning salons in the western state of Jalisco were among 225 properties seized from drug suspect Sandra Avila Beltran, the so-called Queen of the Pacific and one of the few women allegedly to reach upper cartel echelons. Avila, arrested in 2007, is still behind bars on the money-laundering charges as she also fights extradition to the U.S., but she has been exonerated of organized-crime and weapons charges.The salons, with their all-cash, high-volume turnover, were allegedly used to hide drug money. The chain, called Electric Beach, has outlets all over Mexico City. Mexico's efforts against money-laundering are hobbled by staff shortages, a failure to investigate adequately and skimpy laws that have exempted from scrutiny a number of industries often used to clean dirty money, independent assessments by financial experts and academics have found. Javier Laynez Potisek, Mexico's fiscal prosecutor, lamented during a September conference on money-laundering, "Our system allows someone to come in with a suitcase full of money and buy four armored pickups for 600,000 pesos [about $42,000], and we don't have a minimum requirement to identify or report them." A 2009 report issued by the Financial Action Task Force, an international anti-money-laundering agency, noted that Mexican authorities had won only 25 convictions for money-laundering in the two decades it has been a crime. From the beginning of 2009 to mid-2010, as overall drug-war arrests soared, prosecutors won convictions of only 37 people for money-laundering. Part of the problem is that only Mexico's Finance Ministry has had access to financial data crucial to potential money-laundering inquiries, and prosecutors have not been allowed to open their own money-laundering investigations without a complaint from finance officials. There is also stubborn resistance among those who profit from their role as middlemen for big transactions. One such group is notaries, who in Mexico have a function much like attorneys in the U.S. They handle nearly all real estate transactions and have battled a proposal that would require them to report how each purchase was paid for. Notaries say launderers would probably respond by skipping the paperwork altogether when buying cars and houses, only adding to the black-market economy. "The only thing that worries us notaries is that [the proposed reporting requirements] would create an alternative market … that brings benefits to no one," said Hector Galeano, finance secretary of Mexico's notaries association. Some observers suggest that one reason previous Mexican governments were slow to attack money-laundering was fear of harming the rest of the economy. Edgardo Buscaglia, a scholar who studies organized crime, estimates that in a nation where three-quarters of all transactions are cash, drug money has infiltrated 78% of the sectors constituting the formal economy. In Sinaloa, the prosperous coastal state considered the cradle of the Mexican narcotics trade, economist Guillermo Ibarra estimates that drug money sustains nearly a fifth of the region's economy, from fancy subdivisions dotted with "narco-mansions" to vast farms. Sinaloa is a well-known produce grower; in fact, its license plate features a tomato. But it would take an awful lot of tomatoes to account for the kind of over-the-top opulence on display in the state. The moves to turn the tide in dirty money have generally taken place out of public view. But they could mark an important shift in the drug-war strategy. A year ago, a small group of Mexican officials and U.S. counterparts met and selected six money-laundering cases to investigate jointly in an experimental offensive. U.S. agents here say the first arrests, involving a network in the northern border state of Chihuahua, could come by year's end. Separately, U.S. Customs officials familiar with sophisticated money-laundering techniques have begun training Mexican tax inspectors who will be assigned to ferret out launderers. In addition, nearly 500 individuals and Mexican companies, from mines to milk producers, have been placed on a U.S. Treasury Department blacklist for alleged laundering activities. And the Mexican Congress, after years of government inaction on the issue, is weighing a series of legislative proposals based on Calderon's anti-laundering package that would make it more difficult to cleanse dirty money. In the meantime, the restrictions on the use of U.S. cash in Mexico appear to be altering the flow of drug-tainted dollars for the first time, officials on both sides of the border say. Under the proposed legislation, a specialized unit added to the attorney general's office, with advice from U.S. officials, would be authorized to take the lead in money-laundering cases and inspect a wide variety of businesses in search of illicit profits. In addition, the government nearly a year ago replaced the Finance Ministry official in charge of such cases with a veteran Washington-based diplomat, Jose Alberto Balbuena, who had spent many months working with U.S. financial officials and is said to have a better grasp of what's at stake and a good working relationship with top prosecutors. To date, Mexican reporting requirements have applied only to banks. Under legislation approved by the Senate last year and now before the lower Chamber of Deputies, a range of other industries would also be required to report large cash or suspicious transactions using unexplained funds. These include real estate, car dealerships, betting parlors, art galleries, notaries, and, possibly, religious institutions. Mirroring "know your customer" regulations in the banking world, the rules would require disclosure of cash purchases for more than 200,000 pesos, or about $14,000, of numerous goods and place a cap of 1 million pesos, or about $70,000, on cash purchases of real estate. Law enforcement experts say the proposed legislation could fill a yawning gap in Mexico's crime fight. "It's going to counteract the financial and economic power of the criminals," said Ricardo Gluyas, a professor at the National Institute of Criminal Sciences, which trains Mexico's organized-crime prosecutors. "The new law has teeth. It covers a broad spectrum." One potentially powerful tool, an asset-forfeiture law that allows authorities to seize property and accounts of traffickers and launderers, was approved by Congress in 2008. A similar law made a big difference in crime fights in Colombia and Italy, allowing authorities in those countries to confiscate and resell properties of drug traffickers and Mafiosi. "Without firing a shot, you can generate a lot more results by seizing the fortunes of the big capos," Gluyas said. But critics say the Mexican asset-forfeiture law threatens the due-process rights of owners. So far, it has been little used: Courts had approved only two cases by late this summer, with more than a dozen pending. Perhaps more than any other measure, the government's move last year to restrict bank deposits of U.S. cash appears to have slowed the entry of dollars to Mexico's financial system. Bank-account holders were no longer allowed to deposit more than $4,000 a month. In response, traffickers and their launderers are shifting tactics, including keeping money in the United States, officials say. And U.S. officials say that since Mexico announced the new rules, more money appears to be going elsewhere, especially to the Caribbean and Guatemala, where officials have detected a surge in circulating U.S. bank notes. "That's the big question," Balbuena said. "Where is the money?" A possible explanation can perhaps be gleaned from an Oct. 5 incident: Customs inspectors in Tijuana stopped an armored car full of plastic bags stuffed with $915,000 in cash. There was no documentation for the money, law enforcement sources familiar with the discovery said. But it wasn't headed into Mexico. It was headed north, into San Diego. (Source: Los Angeles Times) Swiss Banks Face Sanctions Swiss regulator Finma may discipline four banks for having what it called lax controls on accepting money from foreign public officials associated with deposed Middle Eastern and North African leaders, but generally found that the country's lenders complied with anti-money-laundering rules. In a report released as Switzerland struggles to shed a reputation as a haven for kleptocrats looking to stash funds abroad, Finma said Thursday it found serious shortcomings in how four banks dealt with accounts held by foreign officials tied to former governments in Tunisia, Egypt and Libya, including one bank that accepted seven-figure deposits from a public official who claimed to be semiretired. Finma, which declined to name the banks, will now consider disciplinary action. Generally, Finma generally found little fault with the way Swiss banks handled money coming from these regimes, despite charges from activists that the country's banks don't do enough to keep out money from corrupt foreign officials and criminals. Finma's findings are also in contrast to a June inquiry by U.K. regulators, which found poor anti-money laundering practices at about three-fourths of British banks. Early this year, following the toppling of regimes in Tunisia, Libya and Egypt, the Switzerland moved quickly to order banks to freeze assets associated with the governments, an action that ultimately affected about 830 million Swiss francs ($912 million). While the government's move was aimed at showing that Switzerland no longer welcomes money from corrupt public officials, the large amounts gave new life to accusations that Swiss banks do too little to ensure they are not accepting money from such people. For decades, Switzerland's lax money-laundering standards and strict bank secrecy made it a favorite hiding place for corrupt foreign money. But under enormous international pressure, Switzerland—the world's largest offshore banking center with $2.1 trillion in foreign money under management—-has brought its money-laundering laws up to international standards over the last decade. In the wake of Bern's order to freeze Egyptian, Tunisian and Libyan money, Finma examined whether the 20 Swiss banks that held such funds had complied with rules regulating the treatment of accounts held by foreign public officials. Those rules require banks to check on the origin of such funds to ensure the money doesn't come from illicit activity. The 20 banks froze accounts belonging to 29 Tunisian, Egyptian and Libyan officials. The government freezing order affected dozens of officials and family members tied to leaders in the three countries. Switzerland's Federal Prosecutor recently opened a corruption investigation into money associated with former Tunisian President Zine al-Abidine Ben Ali. The Finma investigation, which began in March, found that most of the 20 banks complied with the rules, with minor shortcomings at only a handful of banks. However, it found serious lapses at four banks, including one case in which seven-figure deposits weren't adequately investigated. Another bank failed to report an account held by a public official who was on the Swiss government's freeze list, while another took on a client after a rival bank terminated the relationship because of illegal transactions, Finma said. While Switzerland generally complies with international anti-money standards, it has been criticized for the low number of suspicious transaction reports filed by banks, given the enormous amount of offshore money in Switzerland. The banking lobby has protested the government's orders to freeze assets this year and is pushing for limits on Bern's power to do so in the future. Andre Rothenbuhler, head of Swiss activist group Aktion Finanzplatz Schweiz, criticized Finma for only examining the banks involved in this year's freeze. "We are disappointed by the results," he said. "They haven't gone very far." He also urged Finma to publish the names of the four banks found to be deficient once the inquiry is finished. Finma rarely names banks that are subject to regulatory action. A Finma spokesman said the regulatory body examines how banks deal with foreign public officials as part of its annual supervisory reviews. The Swiss findings are mild in comparison to the results of an inquiry by the U.K.'s Financial Services Authority, which found widespread deficiencies in anti-money laundering practices at British banks. In June, the FSA said it would likely pursue enforcement action against at least two banks. (Source: Wall Street Journal) FinCEN Increasingly Using Database Queries to Connect Agencies Pursuing Related Cases A little more than two years ago, investigators for a large state got a letter from a U.S. Treasury agency notifying them that the suspicious activity report they had accessed a few weeks earlier had also been viewed by a district attorney’s office in another state. That letter, from the Financial Crimes Enforcement Network (FinCEN), saved both agencies ―thousands of hours of work and allowed both jurisdictions to leverage resources and strengthen their respective cases‖ involving a complex financial crime, said one of the investigators at the large state. FinCEN – which is responsible for a database of tens of millions of financial filings sent by financial institutions – has made it a priority to connect local, state and federal agencies searching for the same subjects, entities or criteria, according to agency documents and former officials. Finding other law enforcement agencies running parallel investigations is ―wonderful, an unqualified good,‖ said the state investigator. ―It’s a magnificent feature and is one of the most potent benefits to broadened access to the database. ―The more people who use it means more participants gain a benefit over stove-piped law enforcement entities looking for actor X‖ and not realizing a corresponding local or federal entity already has months or years of data on that subject, said the person. And, the knowledge that another agency is pursuing an investigation can prevent one agency from accidentally sabotaging the other’s sensitive casework, the person added. Over the last year, FinCEN has brought together more than 1,000 agencies researching the same subject, according to Director James Freis, speaking in October before the Nebraska Bankers Association. FinCEN has had some form of this networking ability since it has had a database, but stated it was giving the initiative more attention in the last two years, according to a former Treasury official. In its 2010 annual report, released in December, FinCEN stated it had helped network agencies ―working cases with a commonality of subjects, more than 700 times during the year. In its 2009 annual report, FinCEN stated it was giving ―renewed focus on networking a range of law enforcement agencies that may be investigating the same target.Typically, FinCEN analysts charged with ensuring database search terms fall under the parameters of memoranda of understanding with users are the ones who discover that two or more agencies are searching for the same terms or viewing the same SAR, according to the former official. FinCEN then will send the agencies a letter, usually in a week to a month, to let each know what the other is doing and offering them the possibility of contacting the second agency, according to the person. Not all agencies want others involved in their cases, added the person. FinCEN being more proactive in connecting disparate agencies doing parallel investigations ―prevents one of the worst things that can happen on an investigation,‖ said Kevin Sullivan, an independent AML consultant who was an investigator for the New York High Intensity Financial Crime Areas (HIFCA). ―Imagine you are four months into an investigation and then you find out another agency is a year and a half into the same case,‖ he said. ―It’s horrible and could mean a massive waste of time. The worst part is it’s very common, even for a lot of the major intelligence agencies.‖ Most federal agencies have what is called de-confliction software ―so they don’t raid the same house that an undercover agent is in,‖ but there isn’t a similar system for money laundering and other financial crime investigations, Sullivan said. One shortcoming with the current initiative to connect agencies is that analyzing the terms can be ―very labor intensive‖ and, in some cases, it can be more than a month before either agency is contacted, said a second former Treasury official. And, historically, there was some resistance from the larger federal agencies who ―didn’t want smaller, local agencies to know what they were working on,‖ said an individual who worked on FinCEN’s database. In recent years, however, many of the larger agencies have become more comfortable with sharing information with local and state investigators, in some cases even calling on them to get information when the smaller agency took an interest in a subject first, said the person. ―Under tight budgets, maximizing resources has become a much greater priority for investigators at all levels of government,‖ said the person. In FinCEN’s fiscal year 2012 budget request, the agency sought to trim $1.4 million in annual expenditures by ending direct access for 142 state and local law enforcement agencies. Investigators associated with the agencies involved protested loudly to lawmakers and the plan was ultimately dropped in budget meetings in June and September. The importance of access for state and local law enforcement, along with the argument that more users creates a ―critical mass‖ of investigators that will find connections to each other’s cases, ―was one of the arguments we used to keep access to the database,‖ said the state investigator. FinCEN declined to comment on the initiative. FinCEN is currently in the midst of an overhaul of its database, which is intended to streamline reporting by financial institutions and searches by investigators. The BSA IT Modernization project is scheduled to be completed by 2014. (Source: )Attention Law Enforcement Users of WebCBRS Changes Beginning December 12, 2011 The Financial Crimes Enforcement Network (FinCEN) is making mission critical improvements to the ways in which Bank Secrecy Act (BSA) data is collected from the filing community and how BSA information is stored and disseminated to the law enforcement and regulatory communities. FinCEN is making these improvements through its BSA Information Technology Modernization Program. The most visible impact to you will be when the new FinCEN Portal and FinCEN Query systems are available. The new FinCEN Portal will be the way you will access FinCEN/BSA-related data, including the new FinCEN Query system, which will eventually replace WebCBRS as the search tool for BSA information. FinCEN will begin the transition of users to the FinCEN Portal and FinCEN Query in mid-2012. Please look for additional information in the coming months, but if you’d like a preview of the new search tool, see page two. However, as a result of the BSA IT Modernization Program, there will be some impacts to WebCBRS and associated business process functions that you need to be aware of. Law enforcement users of WebCBRS can expect the following changes that will impact their use of WebCBRS and requests for BSA data: No new data will be loaded into WebCBRS from December 12 – 30, 2011. During this time, FinCEN will convert 11 years of data from WebCBRS to the new FinCEN System of Record. Law enforcement users will still be able to access WebCBRS for querying purposes, but there will not be any new data available during this time. Data will begin to be loaded sequentially on January 3, 2012 and it is anticipated that the backlog of data will be available in WebCBRS by the middle of January 2012. All BSA documents will receive a new BSA Identification Number. All BSA documents submitted after December 11, 2011 will receive a new identification number, called a ―BSA Identifier.‖ A BSA Identifier is a unique, incrementing numeric field, 14 characters in length. BSA documents filed via paper format will receive both a DCN and a BSA Identifier until such time that electronic filing of BSA forms is mandated (with limited exceptions). All converted documents to the new System of Record will contain the DCN and a BSA ID. Requests for Certified Documents will now come to FinCEN. Starting on January 3, 2012, law enforcement will need to contact FinCEN, rather than IRS, to request all certified copies of BSA documents. FinCEN will post instructions on how to request certified documents, as well as a sample request letter, on Secure Outreach prior to January 3, 2012. (NOTE: Generally, certified copies of BSA documents are not necessary unless the document(s) is being introduced as evidence in a trial. Facsimile copies, which can be downloaded from WebCBRS through FinCEN’s Secure Outreach Portal, can be used in investigative case files and reports, or to the Assistant United States Attorney, District Attorney, or grand jury. SARs should not be used in court proceedings, except in very rare circumstances. Any use of SARs must be approved in writing by the FinCEN Office of the Chief Counsel, and any requests for certified copies of SARs must have this approval letter attached to the request at the time of submission.) If you have additional questions regarding the process of requesting certified copies of BSA documents, please contact your agency’s liaison to FinCEN or Senior Special Agent Sheri Dunlop at Sheri.Dunlop@. New Suspicious Activity Report (SAR) and Currency Transaction Report (CTR) forms available. On January 3, 2012, these two new data collection tools will be available to the E-filing community to begin submitting to FinCEN. FinCEN is currently reviewing industry comments on the time frame for moving to the new SAR and CTR and will provide further guidance in the near future as to how long the legacy forms (e.g., SAR-MSB, CTR-C) will be accepted. Also, because WebCBRS is not being updated to accept the new forms, any new SARs or CTRs submitted will be converted to the corresponding legacy form (e.g. new CTR filed by a casino will be converted to a CTR-C). Data submitted on a new form will be converted to the corresponding fields on the legacy forms to be viewed in WebCBRS, and the facsimile will indicate at the top of the page that the document was converted from the new form to a legacy form. All new SARs and CTRs submitted will be available for query in the new FinCEN Query system to be rolled out in mid-2012. (Source: FinCEN) For any questions or comments please contact me below:Monty DolieslagerFinCEN Field RepresentativeSouthwest borderAustin, TX 78752512-424-7847 ................
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