Posted by Douglas Wood, Editor. http://www.linkedin.com/in/dougwood
FinCEN today (November 1, 2013) released a fact sheet regarding data sharing between financial institutions under the Section 314(b) of the US Patriot Act.
314(b) provides financial institutions with the ability to share information with one another, under a safe harbor that offers protections from liability, in order to better identify and report potential money laundering or terrorist activities. 314(b) information sharing is a voluntary program, and FinCEN has always encouraged its use.
A few years ago, I spent considerable time looking at the overall 314(b) program. I interviewed dozens of Chief Compliance Officers (CCO) and AML/Fraud experts. I found that, despite the benefits to financial institutions – reduction of fraud loss, more complete SARs filings, shedding light on financial trails, etc – the program was not particularly well-utilized. The system, for all it’s good intentions, is very manual.
Imagine you are a 314(b) officer at a financial institution. Your job is to facilitate the data sharing amongst the community. So, much of your time is spent interacting with your CCO on which specific cases should be shared, and with whom. When you get that information, you open up you financial crimes investigation tools, and begin contacting your counterparts across the U.S. and asking them “Hey, do you know anything about Douglas Wood?” You’re calling the other officers completely blind with no idea whatsoever if they know Doug. In the meantime, your voicemail inbox is being flooded with other calls from other institutions asking if you know a bunch of other people (or entities).
Finding the institutions that know Douglas Wood is a lot like looking for a needle in a haystack… except you don’t know which haystacks to look in. The system too often grinds to a halt, despite some excellent work being done by 314(b) officers across the country. There has to be a better way, and some have proposed a data contribution system where financial institutions upload their bad guy data into one large third-party haystack, making the needle a little easier to find. As an advocate for the use of technology in the fight against financial crimes, I hope that model finds some success. The problem, of course, is that banks are LOATHED to put their data in the hands of a third party. Also, it’s typically up to each individual bank to decide if and when they choose to upload their data to be inter-mingled with other institutions. Far too often, it is not entirely reliable and not particularly current.
There is a better way. Several years ago, working with some tech-savvy employees, I envisioned a member-based 314(b) program where each institution maintained total control of their data. The model does not require individual banks to contribute their data for inter-mingling. All ‘bad guy’ data sits and remains securely behind the banks’ respective firewalls. When an individual bank sends out a request to find out who, if anyone, may have information about a suspicious entity, the request is systematically sent out to all members using a secure network such as SWIFT, for example. That electronic search returns to the querying bank only a risk score which indicates the likelihood that another member is investigating the same entity.
No personally identifiable information (PII) is ever shared, yet the search is productive. The enquiring bank now knows that the person of interest was found in the bad guy data from other participating institutions. With this information in hand, the respective 314(b) officers can move their voicemail exchanges from “Have you ever heard of Douglas Wood” to “We’re both investigating Douglas Wood… let’s do it together.” The time-consuming, manual efforts are dramatically reduced and more bad guys are put away.
So if the question is to 314(b) or not to 314(b), perhaps the answer lies in data privacy compliant technology.