On June 3, 2022, the Financial Crimes Enforcement Network (“FinCEN”) issued an Advance Notice of Proposed Rulemaking (“ANPRM”) that seeks public comment on the implementation of a “no-action letter” process at FinCEN. The “no-action letter” is “a form of an exercise of enforcement discretion wherein an agency issues a letter indicating its intention not to take enforcement action against the submitting party for the specific conduct presented to the agency.” These no-action letters “address only prospective activity not yet undertaken by the submitting party.”
This proposal has been slowly winding its way through the agency rulemaking process. The Anti-Money Laundering Act of 2020 (“AMLA”) directed FinCEN to assess the feasibility of no-action letters. In July 2021, FinCEN issued an assessment (the “Assessment”) of a no-action letter process (which we covered here), finding in part that FinCEN should conduct a rulemaking to create such a process. Now nearly a year later, FinCEN is seeking public comment on myriad questions involving the specific of no-action letters. Currently, the public comment period closes August 5, 2022.
As we discuss, the ANPRM grapples with how to make the no-action letter process efficient, by avoiding the potential delays of consulting with its regulator counterparts, and effective, by establishing an advisory process that does not yield inconsistent results between regulators.
FinCEN’s Regulatory Toolkit
Currently, FinCEN has two tools to provide regulatory guidance: it may either issue administrative rulings that apply FinCEN’s interpretation of the Bank Secrecy Act (“BSA”) to specific facts before it, or it may provide exceptive/exemptive relief by granting exceptions or exemptions from the BSA’s requirements in specific circumstances. The no-action letter would be a third tool in FinCEN’s toolkit. In general, it would permit a submitting party to seek prospective guidance from FinCEN indicating whether FinCEN would pursue or recommend enforcement action for the specific conduct identified by the submitting party.
FinCEN identified several primary benefits of no-action letters, which include “promoting robust and productive dialogue with the public, spurring innovation among financial institutions, and enhancing the culture of compliance and transparency in the application and enforcement of the BSA.” Industry may benefit, too. No-action letters could provide a mechanism by which financial institutions avoid unnecessary and costly measures, such as derisking correspondent banking relationships, upon receiving guidance through a no-action letter. Emphasis on the word “could”—as summarized below, the ANPRM raises numerous questions on how to fashion an effective and efficient no-action letter system.
The Questions for Comment
The ANPRM lists 48 questions for public comment. In addition to general questions regarding the findings contained in the Assessment, the ANPRM seeks comments on several categories of questions, including: the contours and format of the no-action letter process; FinCEN’s jurisdiction; changed circumstances, revocation, denial, and withdrawal of no-action letters; confidentiality; and consultation. We highlight nine of those questions below:
- While FinCEN has no legal authority to prevent another agency, including a Federal functional regulator or the Department of Justice, from taking an enforcement action under the laws or regulations that it administers, are there additional points FinCEN should consider in assessing the viability of a cross-regulator 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 via regulation any limitations on which factual circumstances would be appropriate for a no-action letter? If yes, what should those limitations be?
- How should the no-action letter process apply to agents, third parties, domestic affiliates, and foreign affiliates that may be conducting [AML] or BSA functions on behalf of a financial institution either inside or outside the United States?
- Should a change in the overall business organization, such as 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 publicize standards governing the revocation of no-action letters, or should revocation be determined on a case-by-case basis?
- Should FinCEN maintain the confidentiality of no-action letters for a period of time, or indefinitely, after granting them? Under what circumstances should FinCEN maintain confidentiality?
- Should no-action letters be used as published precedents? If so, under what circumstances and conditions should they be precedential? 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 the desires of submitting parties for confidentiality and expediency?
- What topics, issues, transaction types, customer types, geographies, products, services, or other matters would be expected to be the subject of no-action letter requests to FinCEN?
While the ANPRM identifies concrete, specific questions about facets of the no-action letter process, it does not set forth with detail what FinCEN itself expects the process to look like. Will it resemble the no-action letter process already in place at the Securities and Exchange Commission? Has FinCEN developed its own preliminary expectations of the roles other agencies will play in its no-action letter process? We do not know, as the ANPRM does not provide any regulatory language to analyze.
At least two major themes emerge from the array of questions posed by FinCEN. First, FinCEN may be seeking to create a process that values efficiency. For example, questions of “who” no-action letters should apply to – not just the requesting party, but also its agents, third parties, partners, and the parent/subsidiary corporations – suggests a process by which a party could receive a single letter that could be relied upon by all relevant parties. Questions about other regulators’ involvement also appear efficiency-related. Because FinCEN is only one point in a cat’s cradle of federal and state regulators, a no-action letter from FinCEN does not preclude an enforcement action taken by another agency. The ANPRM continues to grapple with how to make the no-action letter process efficient, by avoiding the potential delays of consulting with its regulator counterparts, and effective, by establishing an advisory process that does not yield inconsistent results between regulators.
Second, the ANPRM’s questions identify unique confidentiality issues arising from BSA compliance. One can assume that many submissions will contain some combination of sensitive personal or proprietary information, details regarding Suspicious Activity Reports (“SARs”), or other information that cannot be disclosed to the public. Should FinCEN decide to publish its no-action letters or make the underlying requests public, it will need to develop a way to withhold sensitive information while still providing meaningful guidance (and precedent) in the no-action letter itself.