On June 3, 2022, the Financial Crimes Enforcement Network (“FinCEN”) issued a Notice of Proposed Rulemaking (“ANPRM”) seeking public comment on the implementation of a “no action letter” process at FinCEN. A “no-action letter” is “a form of exercise of enforcement discretion in which an agency issues a letter indicating its intention not to take enforcement action against the party submitting the specific conduct presented to the agency”. These no-action letters “address only potential activities not yet undertaken by the party submitting them.”
This proposal slowly worked its way through the agency’s rulemaking process. The Anti-Money Laundering Act of 2020 (“AMLA”) directed FinCEN to assess the feasibility of No Action Letters. In July 2021, FinCEN published an evaluation (the “Evaluation”) of a No Action Letter process (which we covered here), concluding in part that FinCEN should proceed with regulation to create such a process. Nearly a year later, FinCEN is seeking public comment on a myriad of issues involving the detail of the no-action letters. Currently, the public comment period ends on August 5, 2022.
As we chat, ANPRM wonders how to make the No Action Letter process efficientavoiding potential delays related to consultation with its regulatory counterparts, and efficientestablishing a consultative process that does not yield inconsistent results between regulators.
FinCEN Regulatory Toolkit
Currently, FinCEN has two tools to provide regulatory guidance: it can either issue administrative rulings that apply FinCEN’s interpretation of the Bank Secrecy Act (“BSA”) to specific facts before it, or it can provide exceptional/exemptive relief by granting exceptions or exemptions. BSA requirements in specific circumstances. The no-action letter would be a third tool in FinCEN’s toolbox. Generally, this would allow a filing party to seek forward-looking advice from FinCEN as to whether FinCEN would pursue or recommend enforcement actions for the specific behavior identified by the filing party.
FinCEN has identified several key benefits of no-action letters, including “promoting robust and productive dialogue with the public, spurring innovation among financial institutions, and strengthening the culture of compliance and transparency.” in the application and application of the BSA”. Industry can also benefit. No-action letters could provide a mechanism by which financial institutions avoid unnecessary and costly measures, such as de-risking correspondent banking relationships, after receiving advice through a no-action letter . The emphasis on the word “could” – as summarized below, ANPRM raises many questions about how to design an effective and efficient no-action letter system.
Questions to comment on
The ANPRM lists 48 questions for public comment. In addition to general questions regarding the findings contained in the assessment, the ANPRM invites comments on several categories of questions, including: the outlines and format of the no-action letter process; the jurisdiction of FinCEN; change of circumstances, revocation, refusal and withdrawal of letters of no action; privacy; and consultations. We highlight nine of these issues below:
- Although FinCEN has no legal authority to prevent any other agency, including a federal functional regulator or the Department of Justice, from taking enforcement action under the laws or regulations it administers, there are Are there any additional points that FinCEN should consider when evaluating the viability of a regulator’s no-action letter process? What is the value of establishing a FinCEN No Action Letter process if other regulators with jurisdiction over the same entity do not issue a similar No Action Letter?
- Should FinCEN establish by regulation limits on the factual circumstances that would be appropriate for a no-action letter? If so, what should those limits be?
- How should the no action letter process apply to agents, third parties, domestic affiliates and foreign affiliates who may conduct [AML] or BSA operates on behalf of a financial institution inside or outside the United States?
- Should a change in the overall organization of the company, for example when two entities merge or one entity acquires another, cause a no-action letter to lose its effect? If so, under what circumstances? If not, how would such a no-action letter continue to apply
- Should FinCEN publish the standards governing the revocation of no-action letters, or should revocation be determined on a case-by-case basis?
- Should FinCEN keep No Action Letters confidential for a period of time, or indefinitely, after granting them? Under what circumstances must FinCEN maintain confidentiality?
- Should no-action letters be used as published precedents? If so, under what circumstances and conditions should they set a precedent? Should no-action letters be applicable beyond the requesting institutions, and under what circumstances and conditions?
- How can FinCEN best balance the need to consult other regulators or law enforcement with bidding parties’ desires for confidentiality and expediency?
- What topics, issues, types of transactions, types of customers, geographies, products, services, or other matters should be the subject of No Action Letter requests to FinCEN?
Take away food
While the ANPRM identifies concrete and specific questions about facets of the No Action Letter process, it does not spell out in detail what FinCEN itself expects the process to look like. Will it be like the no-action letter process already in place at the Securities and Exchange Commission? Has FinCEN developed its own preliminary expectations regarding the roles that other agencies will play in its no-action letter process? We don’t know, because the ANPRM does not provide any regulatory language to parse.
At least two broad themes emerge from the range of questions posed by FinCEN. First, FinCEN may seek to create a process that values efficiency. For example, questions of “to whom” no-action letters should apply – not just the requesting party, but also its agents, third parties, partners, and parent/subsidiary companies – suggest a process by which a party could receive a single letter on which all parties involved could rely. Questions about the involvement of other regulators also seem to be related to efficiency. Since FinCEN is just a point in the cradle of a spade of federal and state regulators, a no-action letter from FinCEN does not preclude an enforcement action taken by another agency. ANPRM continues to seek to make the No Action Letter process efficient, avoiding potential delays in consultation with fellow regulators, and effective, establishing a consultative process that does not yield inconsistent results between regulators.
Second, the ANPRM questions identify unique privacy issues arising from BSA compliance. Presumably, many Submissions will contain some combination of sensitive personal or proprietary information, Suspicious Activity Report (“SAR”) details, or other information that cannot be disclosed to the public. If FinCEN decides to release its no-action letters or make the underlying demands public, it will need to develop a way to withhold sensitive information while providing meaningful guidance (and precedent) in the no-action letter. herself.