MINNEAPOLIS and WASHINGTON, D.C. -

The Financial Crimes Enforcement Network (FinCEN), which is a part of the Treasury Department, is encouraging banks and credit unions to share information about financial crimes.

ID Insight, a Minneapolis-based firm that develops solutions to prevent account takeover and new-account fraud, announced this week that it is applying its award-winning fraud-mitigation technology to launch the Fraud Investigation Network, creating what it hopes is an “unprecedented” level of industry collaboration needed to detect and shut down fraud rings and schemes that target financial institutions.

Fraud was the focus of the annual American Bankers Association/American Bar Association Financial Crimes Enforcement Conference in December.

FinCEN director Kenneth Blanco discussed how information sharing is critical to identifying, reporting, and preventing financial crime. In his prepared remarks during the conference, Blanco provided important clarification on FinCEN’s information sharing program under Section 314(b) of the USA Patriot Act, and announced that FinCEN is issuing a new 314(b) Fact Sheet and rescinding previously issued guidance (FIN-2009-G002) as well as a former administrative ruling (FIN-2012-R006) (parts of which are incorporated into the guidance in the new 314(b) Fact Sheet).

“At the end of the day, we all want the same thing: to be effective, to be efficient, to confront and address risk, to prioritize, to protect our national security, and to protect our families and communities from harm,” Blanco said.

Blanco explained Section 314(b) of the USA Patriot Act is an important tool for combatting financial crime. He noted that it provides financial institutions with the ability to share information with one another, under a safe harbor provision that offers protections from civil liability, in order to better identify and report potential money laundering or terrorist financing. 

After carefully considering feedback from the financial industry, FinCEN provided three main clarifications, including:

— A financial institution may share information relating to activities that it suspects may involve possible terrorist financing or money laundering.  Although this may include circumstances in which a financial institution has information about activities it suspects involve the proceeds of a specified unlawful activity (SUA), financial institutions do not need to have specific information that these activities directly relate to proceeds of an SUA, or to have identified specific laundered proceeds of an SUA. Nor do financial institutions need to have made a conclusive determination that the activity is suspicious in order to benefit from the statutory safe harbor. Further, financial institutions may share information about activities as described, even if the activities do not constitute a “transaction.” This can include an attempted transaction, or an attempt to induce others to engage in such a transaction.  This allows financial institutions to avail themselves of Section 314(b) information sharing to address incidents of fraud or cybercrime, and other predicate offenses, where appropriate.  In addition, there is no limitation under Section 314(b) on the sharing of personally identifiable information, or the type or medium of information shared, to include sharing information verbally.

— An entity that is not itself a financial institution under the Bank Secrecy Act may form and operate an association of financial institutions whose members share information under Section 314(b). Notably, this includes compliance service providers.

— An unincorporated association governed by a contract among the group of financial institutions that constitutes its members may engage in information sharing under Section 314(b).

Blanco went on to note that financial institutions subject to an anti-money laundering program requirement under FinCEN regulations, and any qualifying association of such financial institutions, are eligible to share information under Section 314(b).  Although sharing information pursuant to Section 314(b) is voluntary, he said FinCEN “strongly encourages” financial institutions to participate to enhance their compliance with anti-money laundering/counter-financing of terrorism requirements. 

For additional questions related to 314(b) information sharing, institutions can contact FinCEN at (866) 326-8314 or sys314a@fincen.gov.

More details about Financial Institution Fraud Investigation Network

In light of what Blanco and FinCEN shared, ID Insight highlighted that the Fraud Investigation Network expands upon its fraud intelligence platform utilized by thousands of financial institutions across the country. For more than 15 years, banks and credit unions have improved their fraud detection by leveraging ID Insight solutions with a built-in velocity network that captures the repeated submission of identity attributes across participating institutions nationwide.

With this new level of collaboration, ID Insight said fraud investigators nationwide will now easily and automatically benefit from the investigative efforts and insights of their industry peers as they fight together to stop sophisticated fraud rings and schemes related to account takeover and new-account fraud.

The firm indicated that available investigation insights around suspicious behavior from other institutions in the network are automatically shared in real-time as alerts and messages to the entire network, bringing added authority to every inquiry result.

According to ID Insight co-founder and president Adam Elliott, because completed investigations can be marked in one of two ways, either “fraud” or “not fraud,” it is possible to convert investigation results into a simple, binary variable — a 1 or a 0.

“Each 1 or 0 packs an incredible predictive punch,” Elliott said in a news release. “Because our fraud intelligence platform already captures and codifies how investigations are ultimately resolved, all participating banks will benefit when these warning signals are provided back to other investigators in the network.”

Elliott emphasized that fraud investigators are critical to the ecosystem of fraud prevention and detection, working on the front lines to save banking systems millions of dollars each year.

 “The Fraud Investigation Network utilizes and amplifies their expertise for the entire network in the most efficient way possible. The outcome — for both financial institutions and the entire industry — is truly greater than the sum of its parts,” Elliott said.

With the launch of the Fraud Investigation Network, Elliott thinks financial institutions will improve the fraud catch rate, reduce fraud losses, reduce customer friction through fewer false-positive results and improve the fraud investigators’ efficiency by pinpointing where they should focus their investigations.

ID Insight’s analysis identified multiple benefits for network users to defend against both new-account fraud and account takeover.

One example: Through the use of this network, one major banking system would have found 4,000 additional fraudulent account opening cases representing more than $600,000 in fraud savings over the course of one month.

Because of the real-time alerts, ID Insight said financial institutions using the network will be able to act more quickly to prevent new-account fraud loss. Investigators are informed of likely fraud that happened up to several months before an inquiry, and ongoing monitoring alerts them to fraud found by peers up to several weeks afterward.

ID Insight added that it is important to note that no immediate adverse action is taken based solely on what investigators have shared as part of the Fraud Investigation Network. Although investigators will use the data to focus their investigations, they will still conduct full due diligence, reviewing all aspects of the case before determining whether it is “fraud” or “not fraud.”

ID Insight pointed out that its fraud screening solutions come after and are distinct from the various consumer reporting/decisioning solutions governed by the Fair Credit Reporting Act (FCRA).

“Account takeover fraud continues to be a challenge, and more information sharing across departments as well as across institutions is necessary to thwart fraud across the board,” said Tracy Kitten, director of fraud and cybersecurity at Javelin Strategy & Research. “Receiving information about emerging fraud schemes in real-time can only stand to benefit fraud and cyber teams.”

To view a short demonstration of the Fraud Investigation Network, watch this four-minute video, or contact the firm for more information or to schedule a personalized demo. To learn more about ID Insight, visit idinsight.com.