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[FYI] (Fwd) FC: Know Your Customer -- the system behind it all

------- Forwarded Message Follows -------
Date:          Thu, 17 Dec 1998 13:36:56 -0500
To:            politech@vorlon.mit.edu
From:          Declan McCullagh <declan@well.com>
Subject:       FC: Know Your Customer -- the system behind it all
Reply-to:      declan@well.com

My "Banking with Big Brother" article:

This is the existing system that will keep track of "suspicious activities"
under the Know Your Customer proposed regulation. I described it in my
This Department of Justice published this description today.


System name:
    Suspicious Activity Reporting System (the ``SAR System'').

System location:
    The SAR System is housed at the Internal Revenue Service Computing 
Center (``DCC'') in Detroit, Michigan and is managed by the Financial 
Crimes Enforcement Network (``FinCEN''), 2070 Chain Bridge Road, Suite 
200, Vienna, VA 22182, with the assistance of the staff of DCC.

Categories of individuals covered by the system:
    The SAR System contains information about: (1) Individuals or 
entities that are known perpetrators or suspected perpetrators of a 
known or suspected federal criminal violation, or pattern of criminal 
violations, committed or attempted against a financial institution, or 
participants in a transaction or

[[Page 69745]]

transactions conducted through the financial institution, that has been 
reported by the financial institution, either voluntarily or because 
such a report is required under the rules of FinCEN, one or more of the 
Federal Supervisory Agencies (the Board of Governors of the Federal 
Reserve System (``the Board''), the Office of the Comptroller of the 
Currency (``OCC''), the Federal Deposit Insurance Corporation 
(``FDIC''), the Office of Thrift Supervision (``OTS''), and the 
National Credit Union Administration (``NCUA'') (collectively, the 
``Federal Supervisory Agencies'')), or both. (2) Individuals or 
entities that are participants in transactions, conducted or attempted 
by, at or through a financial institution, that have been reported 
because the institution knows, suspects, or has reason to suspect that: 
(a) The transaction involves funds derived from illegal activities, the 
transaction is intended or conducted to hide or disguise funds or 
assets derived from illegal activities as part of a plan to violate or 
evade any law or regulation or to avoid any transaction reporting 
requirement under Federal law; (b) the transaction is designed to evade 
any regulations promulgated under the Bank Secrecy Act, Pub. L. 91-508, 
as amended, codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 
U.S.C. 5311-5330; or (c) the transaction has no business or apparent 
lawful purpose or is not the sort in which the particular customer 
would normally be expected to engage, and the financial institution 
knows of no reasonable explanation for the transaction after examining 
the available facts, including the background and possible purpose of 
the transaction; (3) Individuals who are directors, officers, 
employees, agents, or otherwise affiliated with a financial 
institution; (4) Individuals or entities that are actual or potential 
victims of a criminal violation or series of violations; (5) 
Individuals who are named as possible witnesses in connection with 
matters arising from any such report; (6) Individuals or entities named 
as preparers of any such report; (7) Individuals or entities named as 
persons to be contacted for assistance by government agencies in 
connection with any such report; (8) Individuals or entities who have 
or might have information about individuals or criminal violations 
described above; and (9) Individuals or entities involved in evaluating 
or investigating any matters arising from any such report.

Categories of records in the system:
    The SAR System contains information reported to FinCEN by financial 
institutions on a Suspicious Activity Report (``SAR'') required under 
the authority of FinCEN or one or more of the Federal Supervisory 
Agencies, or both. SARs contain information about the categories of 
persons or entities specified in ``Categories of Individuals Covered by 
the System.'' The SAR System may also contain records pertaining to 
criminal prosecutions, civil actions, enforcement proceedings, and 
investigations resulting from or relating to SARs. Additionally, it 
will contain records pertaining to criminal prosecutions, civil 
actions, enforcement proceedings, and investigations relating to 
institutions required to file reports or under the supervision of one 
or more of the Federal Supervisory agencies.

Authority for maintenance of the system:
    The system is established and maintained in accordance with 31 
U.S.C. 5318(g); 31 CFR part 103; 31 U.S.C. 321; and Department of the 
Treasury Order 105-08.

    The requirements of FinCEN and the Federal Supervisory Agencies 
create an integrated process for reporting suspicious activity and 
known or suspected crimes by, at, or through depository institutions 
and certain of their affiliates. The process is based on a single 
uniform SAR filed with FinCEN.
    The SAR System has been created, as a key part of this integrated 
reporting process, to permit coordinated and enhanced analysis and 
tracking of such information, and rapid dissemination of SAR 
information to appropriate law enforcement and supervisory agencies. 
The provisions of 31 U.S.C. 5318(g)(4)(B) specifically require that the 
agency designated as repository for SARs refer those reports to any 
appropriate law enforcement or supervisory agency.
    Data from the SAR System will be exchanged, retrieved, and 
disseminated, both manually and electronically among FinCEN, the 
Federal Supervisory Agencies, appropriate federal, state, and local law 
enforcement agencies, and state banking supervisory agencies. Agencies 
to which information will be referred electronically, which in certain 
cases may involve electronic transfers of batch information, include 
the Federal Supervisory Agencies, the Federal Bureau of Investigation 
(FBI), the Criminal Investigation Division of the Internal Revenue 
Service, the United States Secret Service, the United States Customs 
Service, the Executive Office of the United States Attorneys and the 
Offices of the 93 United States Attorneys, and state bank supervisory 
agencies and certain state law enforcement agencies, which have entered 
into appropriate agreements with FinCEN. (The FBI and Secret Service 
may receive electronic transfers of batch information as forms are 
filed to permit those agencies more efficiently to carry out their 
investigative responsibilities.) Organizations to which information is 
regularly disseminated are referred to as SAR System Users. It is 
anticipated that information from the SAR system will also be 
disseminated to other appropriate federal, state, or local law 
enforcement organizations and regulatory agencies that enter into 
appropriate agreements with FinCEN. In addition, information may be 
disseminated to non-United States financial regulatory and law 
enforcement agencies.

Routine uses of records maintained in the system, Including Categories 
of Users and the Purposes of Such Uses:
    These records and information in these records may be used to: (1) 
Provide information or records, electronically or manually, to SAR 
System Users relevant to the enforcement and supervisory programs and 
operations of those Users; (2) Provide SAR System Users and their 
Executive Departments with reports that indicate the number, amount, 
individual identity, and other details concerning potential violations 
of the law that have been the subject of Suspicious Activity Reports; 
(3)Provide information or records to any appropriate domestic or non-
United States governmental agency or self-regulatory organization 
charged with the responsibility of administering law or investigating 
or prosecuting violations of law, or charged with the responsibility of 
enforcing or implementing a statute, rule, regulation, order, or 
policy, or charged with the responsibility of issuing a license, 
security clearance, contract, grant, or benefit, when relevant to the 
responsibilities of these agencies or organizations; (4) Provide 
information or records, when appropriate, to international and foreign 
governmental authorities in accordance with law and formal or informal 
international agreement; (5) Disclose on behalf of a SAR System User, 
the existence, but not necessarily the content, of information or 
records to a third party, in cases where a SAR System User is a party 
or has a direct interest and where the SAR System User has concluded 
that such disclosure is necessary; (6)Provide information or records to 
the Department of Justice, or in a

[[Page 69746]]

proceeding before a court, adjudicative body, or other administrative 
body before which the SAR System User is authorized to appear, when (a) 
the SAR System User, or any component thereof; or (b) any employee of 
the SAR System User in his or her official capacity; or (c) any 
employee of the SAR System User, where the Department of Justice or the 
SAR System User has agreed to represent the employee; or (d) the United 
States is a party to litigation or has an interest in such litigation, 
when the SAR System User determines that litigation is likely to affect 
the SAR System User or any of its components and the use of such 
records by the Department of Justice or the SAR System User is deemed 
by the SAR System User to be relevant and necessary to the litigation, 
provided, however, that in each case it has been determined that the 
disclosure is compatible with the purpose for which the records were 
collected; (7) Disclose information or records to individuals or 
entities to the extent necessary to elicit information pertinent to the 
investigation, prosecution, or enforcement of civil or criminal 
statutes, rules, regulations, or orders; (8) In accordance with 
Executive Order 12968 (August 2, 1995), provide information or records 
to any appropriate government authority in connection with 
investigations and reinvestigations to determine eligibility for access 
to classified information to the extent relevant for matters that are 
by statute permissible subjects of inquiry; (9) Provide, when 
appropriate, information or records to a bar association, or other 
trade or professional organization performing similar functions, for 
possible disciplinary action; (10) Provide information or records to 
the Department of State and to the United States Intelligence 
Community, within the meaning of Executive Order 12333 (December 4, 
1981) to further those agencies' efforts with respect to national 
security and international narcotics trafficking; (11) Furnish analytic 
and statistical reports to government agencies and the public providing 
information about trends and patterns derived from information 
contained on Suspicious Activity Reports, in a form in which individual 
identities are not revealed; and (12) Disclose information or records 
to any person with whom FinCEN, the DCC or a SAR System User contracts 
to provide consulting, data processing, clerical, or secretarial 
functions relating to the official programs and operations of FinCEN, 
DCC, or the SAR System User.

Policies and practices for storing, Retrieving, Accessing, Retaining, 
and Disposing of Records in the System:
    Records are maintained in magnetic media and on hard paper copy.

    Data in the SAR System may be retrieved by sectionalized data 
fields (i.e., name of financial institution or holding company, type of 
suspected violation, individual suspect name, witness name, and name of 
individual authorized to discuss the referral with government 
officials) or by the use of search and selection criteria.

    The system is located in a guarded building that has restricted 
access. Access to the computer facilities and any paper records is 
subject to additional physical safeguards that restrict access. Access 
to any electronic records in the system is restricted by means of 
passwords and non-transferable identifiers issued to authorized SAR 
System Users. The system complies with all applicable security 
requirements of the Department of the Treasury.

Retention and Disposal:
    Records in this system will be updated periodically to reflect 
changes, and will be maintained in electronic form as long as needed 
for the purpose for which the information was collected. Records will 
then be disposed of in accordance with applicable law.

System Managers and Address:
    Deputy Director, Financial Crimes Enforcement Network, United 
States Department of the Treasury, 2070 Chain Bridge Road, Suite 200, 
Vienna, Virginia 22182.

Notification Procedure:
    This system is exempt from notification requirements, record access 
requirements, and requirements that an individual be permitted to 
contest its contents, pursuant to the provisions of 5 U.S.C. 552a(j)(2) 
and (k)(2).

Record Access Procedures:
    See ``Notification Procedure'' above.

Contesting Record Procedures:
    See ``Notification Procedure'' above.

Record Source Categories:
    Records in this system may be provided by or obtained from: 
Individuals; financial institutions and certain of their affiliates; 
Federal Supervisory Agencies; State financial institution supervisory 
agencies; domestic or foreign governmental agencies; foreign or 
international organizations; and commercial sources. Pursuant to the 
provisions of 5 U.S.C. 552a(j)(2) and (k)(2), this system is exempt 
from the requirement that the record source categories be disclosed.

Exemptions Claimed for the System:
    This system is exempt from 5 U.S.C. 552a(c)(3), (c)(4), (d)(1), 
(d)(2), (d)(3), (d)(4), (e)(1), (e)(2), (e)(3), (e)(4)(G), (e)(4)(H), 
(e)(4)(I), (e)(5), (e)(8), (f) and (g) of the Privacy Act pursuant to 5 
U.S.C. 552a(j)(2) and (k)(2).

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