Why Credit Unions Must Embrace Section 314(b)

Guest Editorial by Becki LaPorte, Founder and CEO of Exodus Partners Group

Financial crime doesn’t happen at one financial institution. Money moves from one institution to another, often in various jurisdictions, and we know that is intentional. It makes it harder to follow and harder to find the criminal source of the funds. Criminals often use huge networks to perpetrate their crimes from those committing the initial crime to those tasked with moving the money throughout the financial services system. They don’t worry about their victim’s privacy, proper documentation, or what the regulation tells them to do. These are just a few of the many reasons the criminals have the upper hand.

What Is 314(b)?

Becki LaPorte

Section 314(b) of the USA PATRIOT Act allows financial institutions (Fis) to voluntarily share information with each other within certain parameters under a safe harbor provision. FIs first must register with the Financial Crimes Enforcement Network (FinCEN). Registration must be renewed annually. This must be in force prior to sharing. The FI wanting to contact another FI will log into FinCEN’s 314(b) portal to determine if the other FI is registered and obtain contact information for the appropriate FI contact(s). If an FI is not registered, it cannot be contacted. Communication must occur strictly between registered contacts; reaching out to non-registered individuals—even friends—removes the protection of the safe harbor.

What Can Be Shared?

Through 314(b), registered Fis can discuss information as it relates to money laundering and all its predicate offences (e.g., fraud, human trafficking, tax evasion) and terrorist financing. Information about customers, including personally identifiable information (PII) and member activity can be shared. What cannot be shared is any information about the existence of a Suspicious Activity Report (SAR). All the underlying information that may inform the decision to file a SAR can be discussed, but neither FI can discuss the existence of a SAR or the intent to file a SAR. This would violate the SAR regulation found in Chapter X of the Code of Federal Regulation.

Why Should Credit Unions Participate?

There are credit unions who do participate, but anyone who has used 314(b) will assert that many credit unions, especially the smaller ones, are absent. Having surveyed some of those credit unions over the years, themes that emerge generally reside in risk. Many believe they “know” their members and feel their risk is almost non-existent that any would be involved in any criminal activity. Others have stated that participating opens the credit union to risk by prompting more investigations or investigations of a more complex nature. Many don’t have the structure or resources in place to manage either of those scenarios. Credit union compliance professionals often believe that by not opening that door, they are mitigating their risk.

These rationales don’t tell the full story, unfortunately. Anyone in the financial crime field knows that even the most trustworthy-looking members can become involved in illegal activities. Sometimes, they slip through onboarding undetected. Other times, personal misfortune—like job loss or a messy divorce—may push someone into questionable behavior.

Furthermore, your member could be a victim him/herself. Scam victims come in all shapes and sizes. The incoming funds could be the result of an employment scam. Your member thinks he has gotten a new job and is receiving funds to set up an office and pay vendors. In reality, he is serving as an unwitting money mule and the scam has been caught at the FI that sent the funds, but they can’t alert you because you are not 314(b) registered. It’s also possible that you have a member who is a victim of an account takeover. She had funds sent to another FI and you are currently conducting an investigation trying to determine who received the funds. If you are registered with 314(b), you may be able to gain a better understanding of the money movement. In some instances, you can work with the other FI to claw back funds that were sent as part of the fraud.

Utilizing 314(b) doesn’t increase risk. In many cases, it can mitigate risk and provide actionable intelligence that not only protect your members but determine if a SAR filing is warranted. Becoming an active participant in 314(b) will help reduce some of the opacity around money movement and allow you to work collaboratively with other FIs as part of your investigations. This can make it harder for criminals to move money through credit unions. Isn’t that a goal we all strive to achieve?  

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 Becki LaPorte is the Founder and CEO of Exodus Partners Group, LLC a boutique consulting firm supporting the financial services industry in the areas of financial crime investigation, education and prevention. She also serves as the Principal, AML Strategy and Innovation for FinScan an Innovative Systems Solution (www.innovativesystems.com). She provides insight and expertise into product marketing strategy and supports innovation in AML, sanctions screening and AI-driven compliance.