Expansion of a federal banking regulation that will make it easier for state, local and even foreign law enforcement agencies investigating terrorism and money laundering to request information from U.S. financial institutions — including customer accounts — is drawing fire from a powerful coalition of domestic and international bankers.

The controversy centers on a recurring debate this decade: The benefits of international and inter-agency cooperation in combating these crimes versus the cost to banks who will be saddled with additional privacy concerns and a further drain on their compliance resources.

Currently, only federal law enforcement agencies can request such information through the Financial Crimes Enforcement Network (FinCEN). Known as the 314(a) rule, the law requires a U.S. financial institution to search its records to determine whether it has done business with individuals or organizations suspected of terrorism or money laundering.

Opening the process to foreign law enforcement will allow the federal government to satisfy international treaty obligations and get reciprocal benefits from those countries — most of them in the European Union.

The proposed rule will also broaden the definition of “money laundering,” a change that will be particularly significant to foreign law enforcement agencies since it gives them a much broader avenue to acquire information.

All agencies filing a 314(a) inquiry must certify that a money laundering case is “significant” and they have been unable to acquire the information through other means of investigation.

But many influential banking groups are not sold on the changes, which FinCEN can implement without Congressional approval.

That includes the Miami-based Florida International Bankers Association, which says the rule changes violate privacy while allowing for a global “Big Brother” in international banking circles.

While FinCEN has said that financial information could only be accessed if a person is “reasonably suspected” of engaging in terrorist activity or significant money laundering, FIBA general counsel Clemente Vazquez-Bello argues that it will open up innocent people to misidentification (John Smith could be the wrong John Smith), and concerns that some government agencies “could use this access for personal vendettas.”

There is also insufficient safeguards that data accessed by a “safe” foreign country won’t find its way to hostile interests, he said.

Foreign investigators have always had some access to U.S. banking records, through tax information and mutual legal assistance treaties, rogatory letters issued by foreign courts or subpoenas issued by federal district courts. In these cases, however, the subject of the investigation generally receives notice of and can seek judicial review of the request — protection the subject would not have under the proposed 314(a) changes.

“These are laws that are there to make sure there is no unwarranted access to the information about our financial information from our own government,” Vazquez-Bello said. “We, to some extent, trust our government that when our government investigates matters and gets records, that our government is acting in good faith and there is probable cause. I trust my government. I don’t necessarily trust foreign governments.”

Granting foreign law enforcement agencies “secret and unchallenged” access to the financial records of persons in a U.S. financial institution is “incomprehensible and unconscionable,” Vazquez-Bello wrote in a public comment letter on FIBA’s behalf. “It amounts to an abrogation of federal and state laws enacted over the years to protect [customers] from unwanted government intrusion, in the case, no less, from a foreign government.”

Although the public comment period for the proposed rule changes ran for only a month, that was enough time for heavyweights like the American Bankers Association, the Independent Community Bankers of America and the Credit Union National Association, among other groups, to file strenuous objections.

While opposing groups restated their commitment to fighting terrorism and money laundering, “those efforts should be properly balanced with the increasing regulatory burdens placed on banks as well as the privacy rights of individual customers,” said Lilly Thomas, ICBA’s regulatory counsel. “The relationship between community banks and their customers is built on trust and a long standing commitment to protect the privacy of their customers.”

Thomas argued that the proposal could increase substantially the compliance burdens on community banks and whittle away at their customers’ trust.

“While the information sharing rules provide law enforcement with the means to locate quickly accounts and transactions associated with suspected terrorists and money launderers,” she said. “We are concerned that expanding access to the program would increase the volume of inquiries to an unmanageable level that is disproportionate to the benefits obtained by law enforcement.”

Thomas said that while many banks have automated their searches, other community banks still conduct information requests either manually or with a manual component, including international wires and funds transfers.

Even for automated banks, verification of a “false positive” is conducted manually, as is often required when limited information about the suspect was provided.

“While FinCEN has taken positive steps in minimizing the burdens to banks, increasing the volume of information requests as proposed would substantially increase the employee-hours required to complete the searches, Thomas said.

Comparatively little objection has been raised to expanding the program to state and local governments.

“FinCEN knows U.S. laws,” Vazquez-Bello said. “My concern is FinCEN does not know foreign laws, for Germany or Italy or all of these countries. We don’t know what is equal or not equal to our due process.”

Foreign residents in the U.S. could be subjected to searches from governments in their country of origin attempting to access their data for political persecution or vendettas, Vazquez-Bello said.

The CUNA is no more enthusiastic about the proposal, echoing many of FIBA’s concerns.

CUNA’s federal compliance counsel Nichole Seabron called for FinCEN to “engage in additional industry outreach to fully gauge the impact.”


Robert G. Rowe III, senior counsel for the American Bankers Association, said the proposal lacks the necessary controls to prioritize and manage “zealous U.S. and foreign law enforcement agencies [and] threatens to redefine criminal due process protections in the field of financial crime by administrative fiat without a Congressional mandate.”

Rowe called for FinCEN to maintain a list of countries that can access the system, limited to those countries that are treaty signatories so that there is “a workable judicial process” in place for any such country to pursue account identification information returned in response to the country’s authorized request.

“End runs by foreign jurisdictions that would use their own judicial process against U.S. banks with operations in those jurisdictions rather than follow treaty procedures cannot be permitted,” he said.

“While U.S. financial institutions must maintain confidentiality on these requests, nothing in the proposal suggests that the same confidentiality applies to foreign law enforcement agencies that receive information.”

Rowe also objected to the new access for state and local law enforcement, noting that different state laws establish different qualifications for what constitutes a law enforcement agency.

“For example, if a local transit authority is designated with certain law enforcement powers does that mean it can submit a request?” Rowe asked.

Other suggestions from commentaries on the proposal include that FinCEN be required to destroy or to return the information once the foreign law enforcement entity has completed its use of the data, and required certification from the foreign law enforcement agency that they will not forward the information to any other agency, either within or outside of their nation.

It is not clear when FinCEN will actually implement the new rules. For opponents, the next likely step will be to bring the changes to the attention of Congress, Vazquez-Bello said.

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