US-based AML practitioners are familiar with FinCEN Guidance and Advisories. Most are probably not sure what the differences are between a Guidance document and an Advisory. But both seem to have something called “persuasive precedential effect”. What is persuasive precedential effect? Is it different from non-persuasive precedential effect? My spell check doesn’t recognize the word “precedential”, and Googling the phrase only brings back 74 hits.
Just what is “persuasive precedential effect”? Having just glanced at the title of the first search result – “Legitimacy Model for the Interpretation of Plurality Decisions” – I couldn’t bear to try to answer that question myself, so … could a financial institution subject to the BSA please seek an Administrative Ruling from FinCEN to get an answer to the question “what does the phrase ‘persuasive precedential effect’ actually mean?”
FinCEN’s Regulatory Releases – Regulations, Guidance, Statements of Policy, Advisories, and Enforcement Rulings
On May 9, 2019, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN), which has responsibility for the administration of the Bank Secrecy Act (BSA) under Treasury Order 180-01 (1992), issued formal Guidance (FIN-2019-G001) titled “Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies.”
Also on May 9th, FinCEN issued an Advisory (FIN-2019-A003) titled “Advisory on Illicit Activity Involving Convertible Virtual Currency”.
Why two documents? Why was one labeled “Guidance” and the other “Advisory”? The answers, in part, can be found at FinCEN’s “Regulatory Releases” page: FinCEN Regulatory Releases
According to FinCEN, it has authority to issue regulations, regulatory interpretations and guidance, advisories, and enforcement assessments/consent assessments. As explained by FinCEN:
Regulations implementing the Bank Secrecy Act codified in title 31 of the Code of Federal Regulations, Chapter X (31 CFR Chapter X). Related publications include:
- Final rules
- Interim final rules
- Notices of proposed rulemakings (known as “NPRM”)
- Advance notices of proposed rulemakings (known as “ANPRM”)
Final rules, interim final rules, and any subsequent corrections to these rules, are binding obligations on individuals and entities within the scope of such rules.
II. Regulatory Interpretations and Guidance
According to FinCEN, it “routinely issue[s] interpretations of BSA regulations as well as guidance to financial institutions on complying with our regulations.” There are three categories that fall into this bucket:
1. Administrative Rulings
The authority, process, and effect of Administrative Rulings is contained in subpart G of Part X of Title 31 of the code of Federal regulations – 31 CFR § 1010.710-717. Although FinCEN’s website provides that “published letter rulings often express an opinion about a new issue, apply an established theory or analysis to a set of facts that differs materially from facts or circumstances that have been previously considered, or provide a new interpretation of Title 31 of the United States Code, or any other statute granting FinCEN authority”, the regulation itself is somewhat more direct. It provides:
The result? If FinCEN publishes an Administrative Ruling, it shall have precedential value and may be relied upon by financial institutions “similarly situated” as the requestor.
2. Interpretive Guidance
FinCEN provides three examples of interpretive guidance:
- Interpretive releases, including written responses to informal inquires on the application of 31 CFR Chapter X that are not made and submitted to the Financial Crimes Enforcement Network consistent with the procedures outlined at 31 CFR § 1010.711
- Frequently Asked Questions
- Staff commentaries
Notably, interpretations of BSA regulations that are published on FinCEN’s public web site under the heading “Guidance” shall have persuasive precedential effect and, to that extent, may be relied upon by those financial institutions subject to the specific provision of the BSA regulation being interpreted until such interpretation is superseded, revoked, or amended.
FinCEN notes that “if written guidance is not published on FinCEN’s public web site under the heading “Guidance”, although not binding, such guidance provides useful insight into our view of the application of the Bank Secrecy Act and its implementing regulations at the time that the guidance is issued.”
3. Statements of Policy
This appears to cover guidance not published as “Guidance”, as well as “statements outlining or describing our policy with respect to specific issues arising under the Bank Secrecy Act.” According to FinCEN, “these statements provide useful insight into our view of the application of the Bank Secrecy Act and its implementing regulations at the time the statement is issued.”
Advisories are published to financial institutions “concerning money laundering or terrorist financing threats and vulnerabilities for the purpose of enabling financial institutions to guard against such threats.” If published on the FinCEN web site under the heading “Advisories” and to the extent they interpret BSA regulations , Advisories shall have persuasive precedential effect and may be relied upon by those financial institutions subject to the specific provision of the BSA regulation being interpreted until such interpretation is superseded, revoked, or amended.
And, like guidance not published under the heading “Guidance”, advisories not published under the heading “Advisory”, are not binding but provides “useful insight into [FinCEN’s] view of the application of the BSA and BSA regulations at the time that the advisory/guidance is issued.
IV. Enforcement Assessments and Consent Assessments
Public enforcement actions, often referred to as “Consent Orders” by the OCC and Federal Reserve and “Consent Assessments” by FinCEN because they are entered into with the (grudging) consent of the sanctioned entity, are binding on and apply exclusively to the sanctioned entity. However, as FinCEN notes, any “regulatory interpretations contained in such assessments shall have persuasive precedential effect and, to that extent, may be relied upon by those financial institutions subject to the specific provision of 31 CFR Chapter X being interpreted until such interpretation is superseded, revoked, or amended.”