Demystifying Section 314: The Vital Link Between Community Banks and AML Prevention

At a glance

• The USA Patriot Act, specifically Section 314, provides the authority necessary for community banks, credit unions, money service businesses, and other financial institutions to communicate and share suspicious activity with each other and with law enforcement and stop it.
• There is some confusion about 314(a) provisions, which are mandatory, and 314(b) provisions, which are voluntary.
• Community banks and other Financial Institutions can strengthen their AML program and better prevent financial crimes by adhering to both parts of Section 314 of the USA Patriot Act.

At Aprio, our full suite of AML compliance services helps you safeguard operations, simplify financial crimes compliance, and benefit from adherence to Section 314 guidance.

The full story:

One of the many lessons the United States learned after the September 11 Terrorist Attacks was that law enforcement agencies needed to work together more effectively. The CIA, FBI, and others saw the effects of operating in silos.

A similar lesson applies to financial institutions. Banks learned that talking with each other about suspicious customer activity could aid in preventing money laundering and other financial crimes that fund terrorist or other illegal activity.

The USA Patriot Act, specifically Section 314, provides the authority necessary for community banks, credit unions, money service businesses, and other financial institutions to communicate and share suspicious activity with each other and with law enforcement and stop it.

This article explores the significance of Section 314 and its two subparts, 314(a) and 314(b), focusing on why community banks should actively participate in this vital information-sharing initiative.

7 key questions community banks ask about Section 314

Aprio’s AML team helps community banks and other financial institutions fine-tune their AML programs with independent assessments, transaction lookback reviews, SAR quality reviews and much more. Through that work, we’ve identified some common questions banks have about Section 314 of the USA Patriot Act.

Here are answers to seven of the most frequently asked questions financial institutions have about Section 314.

1. What is Section 314 of the USA Patriot Act?

Section 314 of the USA Patriot Act helps law enforcement “identify, disrupt and prevent terrorist acts and money laundering activities by encouraging further cooperation among law enforcement, regulators, and financial institutions to share information regarding those suspected of being involved in terrorism or money laundering.”

2. What’s the difference between Section 314(a) and Section 314(b)?

Mandatory requirements

Section 314(a) governs mandatory information-sharing responsibilities, beginning with the obligation to register with the Financial Crimes Enforcement Network (FinCEN). Section 314(a) aims to enhance the sharing of critical information between financial institutions and law enforcement to combat money laundering, terrorist financing, and other financial crimes.

Upon registration, banks become part of a network that enables law enforcement agencies to request information related to specific transactions or accounts. When a request is made, the bank must promptly provide the requested documentation and information to assist in the investigation.

This cooperation works; to date, the 314 Program Office has processed 6,272 requests pertinent to 782 cases of Terrorism or Terrorist Financing and 5,490 cases of Money Laundering.

Those results enable law enforcement to obtain critical evidence that advances investigations. FinCEN reports that 10 new accounts and 47 new transactions are identified per request; 10 follow-up initiatives are taken up by law enforcement with financial institutions per request; and 95 percent of 314(a) requests have contributed to arrests or indictments.

Voluntary compliance

In contrast to the mandatory requirements of Section 314(a), Section 314(b) empowers financial institutions to voluntarily share potentially crucial Bank Secrecy Act (BSA) information with each other.

This information-sharing is particularly important in cases where suspicious activities are detected, and collaboration with other financial institutions could provide a more comprehensive understanding of the potential risks involved.

3. Why do banks become confused between 314(a) and 314(b)?

One common source of confusion stems from the difference between the mandatory nature of Section 314(a) and the voluntary nature of Section 314(b).

While banks and Financial Institutions must comply with Section 314(a) and respond to information requests from law enforcement agencies, Section 314(b) offers an opportunity for financial institutions to engage in proactive collaboration, sharing information voluntarily with other institutions to combat financial crimes.

4. Who must comply with Section 314?

Section 314 compliance applies to all financial institutions. While larger banks are often targeted by regulators, community banks and smaller financial institutions should also actively participate in strengthening the collective effort against illicit financial activities.

5. Who is considered a financial institution?

An additional source of confusion may come with who exactly is considered a ‘financial institution.’ As the following enumeration of U.S. Code § 5312 shows, the list is expansive. Financial Institution means:

• An insured bank, commercial bank, or trust company; a private banker; agency or branch of a foreign bank in the United States
• Credit union
• Thrift institution
• Broker or dealer registered with the Securities and Exchange Commission; broker-dealer in securities or commodities
• An investment banker or investment company
• Currency exchange, or a business engaged in the exchange of currency, funds, or value that substitutes for currency or funds
• Issuer, redeemer, or cashier of travelers’ checks, checks, money orders, or similar instruments
• The operator of a credit card system
• Insurance company
• Dealer in precious metals, stones, or jewels; pawnbroker; loan or finance company
• Travel agency
• The licensed sender of money or any other person who engages as a business in the transmission of currency, funds, or value that substitutes for currency, including any person who engages as a business in an informal money transfer system or any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside of the conventional financial institutions system
• Telegraph company
• Businesses engaged in vehicle sales, including automobile, airplane, and boat sales.
• Persons involved in real estate closings and settlements
• The United States Postal Service;
• An agency of the United States Government or a State or local government carrying out a duty or power of a business.
• A casino, gambling casino, or gaming establishment with an annual gaming revenue of more than $1,000,000; or Indian gaming operation

In addition to that long list, there are two catchall categories that financial institutions encompass: “any business or agency which engages in any activity which the Secretary of the Treasury determines, by regulation, to be an activity which is similar to, related to, or a substitute for any activity in which any business described is authorized to engage; or any other business designated by the Secretary whose cash transactions have a high degree of usefulness in criminal, tax, or regulatory matters.”

6. What are the benefits of participating in Section 314?

There are several key benefits to proactively participating in Section 314, no matter your size of operations.

• Enhanced Investigation: By participating in Section 314, community banks gain access to a broader network of information, providing a more comprehensive view of an ongoing investigation. Sharing and receiving information from other banks and financial institutions can uncover connections and patterns that might have remained unnoticed, leading to more effective outcomes in combating financial crimes.
• Improved Compliance and Reduced Fines: Active participation in Section 314 reflects positively on a bank’s commitment to regulatory compliance. This could lead to a more favorable view from regulators and potentially reduce the risk of penalties or fines for non-compliance. Community banks can leverage this advantage to establish themselves as responsible and vigilant players in the financial sector.

7. What if your compliance needs exceed your team’s capacity?

As a leading provider of compliance and AML independent assessments and reviews, Aprio can play a crucial role in helping community banks navigate the intricacies of Section 314 participation. Banks can enhance their alert and monitoring processes by implementing an effective 314(b) program, leading to better-informed decisions and a more robust compliance framework.

A final word

Section 314 of the USA Patriot Act is a powerful tool in the fight against money laundering and terrorism financing. For community banks, active participation in 314(a) and 314(b) offers numerous benefits, from improved investigation capabilities to heightened compliance standing.

With FinCEN recently updating fact sheets related to Section 314(a), now is the opportune moment for community banks to take advantage of this crucial initiative and bolster their efforts in safeguarding the financial system from illicit activities.

Aprio’s experienced AML team of advisors is here to help you. Our full suite of AML compliance services help you safeguard operations, simplify financial crimes compliance, comply with Section 314, clear backlogged AML alerts and much more.