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FinCEN’s BSA Value Project is A Year Old … How Is It Going?

In January 2019, FinCEN launched its “BSA Value Project” – an effort to “catalogue the value of BSA reporting across the entire value chain of its creation and use” and “result in a comprehensive and quantitative understanding of the broad value of BSA reporting and other BSA information to all types of consumers of that information” (quoting the prepared remarks of FinCEN Director Kenneth A. Blanco delivered at the 12th annual Law Vegas AML Conference for casinos and card clubs, August 13, 2019, available at Director Blanco Remarks 8-13-2019).

FinCEN is now one year into the BSA Value Project … how is that project going?

Again, quoting from Director Blanco’s remarks last August, “so far, the study has confirmed there are extensive and extremely varied uses of BSA information across all stakeholders (including by the private sector) consistent with their missions.”

It appears that there are, indeed, extensive uses of BSA information by the public sector, as Director Blanco has told us that almost one in four FBI and IRS-CI investigations use BSA data. Director Blanco made the following remarks (again, on August 13, 2019) on the usefulness of BSA data:

“All FBI subject names are run against the BSA database. More than 21 percent of FBI investigations use BSA data, and for some types of crime, like organized crime, nearly 60 percent of FBI investigations use BSA data. Roughly 20 percent of FBI international terrorism cases utilize BSA data. The Internal Revenue Service-Criminal Investigation section alone conducts more than 126,000 BSA database inquiries each year. And as much as 24 percent of its investigations involving criminal tax, money laundering, and other BSA violations are directly initiated by, or associated with, a BSA report.

In addition to providing controlled access to the data to law enforcement, FinCEN also proactively pushes certain information to them on critical topics. On a daily basis, FinCEN takes the suspicious activity reports and we run them through several categories of business rules or algorithms to identify reports that merit further review by our analysts. Our terrorist financing-related business rules alone generate over 1,000 matches each month for review and further dissemination to our law enforcement and regulatory partners in what we call a Flash report. These Flash reports enable the FBI, for example, to identify, track, and disrupt the activities of potential terrorist actors. It is incredibly valuable information.”

Four months later, in prepared remarks delivered at the American Bankers Association/American Bar Association Financial Crimes Conference (December 10, 2019, available at Director Blanco at ABA December 10 2019) Director Blanco provided another perspective on the public sector use of BSA data:

“FinCEN grants more than 12,000 agents, analysts, and investigative personnel from over 350 unique federal, state, local, and tribal agencies across the United States with direct access to this critical reporting by financial institutions. There are approximately 30,000 searches of the BSA data each day. Further, there are more than 100 Suspicious Activity Report (SAR) review teams and financial crimes task forces across the country, bringing together prosecutors and investigators from different agencies to review BSA reports. Collectively, these teams reviewed approximately 60% of all SARs filed. Each day, FinCEN, law enforcement, regulators, and others query this data—that equates to an average of 7.4 million queries per year. Those queries identify an average of 18.2 million filings that are responsive or useful to ongoing investigations, examinations, victim identification, analysis and network development, sanctions development, and U.S. national security activities, among many, many other uses that help protect our nation, deter crime, and save lives.”

But Which BSA Filings are Providing Real Value to Law Enforcement?

There is no doubt that the (roughly) 20 million BSA reports that are filed each year provide great value to law enforcement. But questions remain about the utility of those filings, and the costs of preparing them. Some of those questions include: (i) which of those reports provide value? (ii) what kind of value is being provided – tactical and/or strategic? (iii) can financial institutions eliminate the “no value” filings and deploy those resources to higher-value filings? (iv) can financial institutions automate the preparation and filing of the low value filings and deploy those resources to the highest-value filings?

FinCEN’s BSA Value Project, and its “Value Quantification Model”, May Answer Those Questions

In his December 2019 remarks, Director Blanco updated us on the BSA Value Project and revealed the “value quantification model” FinCEN is building:

FinCEN is using the BSA Value Project to improve how we communicate the value and use of BSA information, and to develop metrics to track and measure the value of its use on an ongoing basis. The project has involved the gathering and review of reams of data, statistics, case studies, and other information, as well as holding detailed interviews with a wide range of government and private-sector stakeholders, including many of the organizations in this room today. That information has informed us about how each stakeholder uses and gains value from BSA reporting and the value-add activities of other stakeholders. This “value chain” of BSA reporting is being developed for each type of stakeholder:  FinCEN, law enforcement, industry, regulators, and others.

We are validating these results with the agencies and firms that have contributed to their development, and soon we will be talking with some of you about the value chain that has been developed for financial institutions to ensure it captures every aspect properly.

As of today, the team has identified over 500 different metrics that are being incorporated into the valuation model. We expect the model to show us the relative value of specific forms and even key fields—what is seen as more valuable and what is seen as less valuable.

    • This value quantification model will help us assess how the regulatory and compliance changes we are considering making with our government partners will affect the value of BSA reporting—we want any changes to lead to more effective outcomes and increase the value of BSA reporting, not just provide greater industry efficiency.
    • It will help us provide you better and more targeted feedback on the information you report so you can identify whether it is the automated tools and databases or the more manual work of your internal financial intelligence units and investigators that is driving that value creation in specific instances.
    • The project also is showing us specific challenges that we need to address, particularly in the area of communication and the development of shared AML priorities on which we can focus our efforts.

I also want to make very clear that the value of BSA data is not just confined to FinCEN, law enforcement, or the government. Industry also benefits. Financial institutions and other reporting entities derive important value from their BSA compliance and reporting activities. Throughout the study, industry consistently has confirmed that their BSA obligations, while incurring costs, also help them:

    • Identify and exit bad actors to avoid reputational and financial risks;
    • Manage risks more effectively to permit greater responsible revenue generation;
    • Secure partnerships and investment opportunities domestically and internationally in a responsible, risk-sensitive manner, something particularly important for emerging entrants in the financial services arena; and, of course;
    • Avoid financial, operational, and reputational costs from non-compliance.

I want to stress that we intend to be as transparent and public facing as possible about the results from this project. FinCEN hopes to show the tremendous variety of uses we have for your reporting.”

Conclusion

Kudos to Director Blanco and his FinCEN team for their initiative and efforts around the BSA Value Project. The results of the Project, notably the BSA Value Quantification Model, could be a game-changer for the financial industry’s BSA/AML programs. The industry is being inundated with calls to apply machine learning and artificial intelligence to make their AML programs more effective and efficient. But if those institutions don’t know which of their filings provide value, and arguably only one in four is providing value, they cannot effectively use machine learning or AI.

The entire industry is looking forward to the results of FinCEN’s BSA Value Project!

For other articles on the need for better reporting on the utility of SAR filings, see:

BSA Value Project August 19 2019

SAR Feedback 314(d) – July 30 2019

BSA Reports and Federal Criminal Cases – June 5 2019

The TSV SAR Feedback Loop – June 4 2019