[Federal Register Volume 62, Number 58 (Wednesday, March 26, 1997)]
[Proposed Rules]
[Pages 14376-14379]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-7560]


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DEPARTMENT OF THE TREASURY

Departmental Offices

31 CFR Part 1


Privacy Act of 1974; Proposed Rule Exempting a System of Records 
From Certain Provisions of the Privacy Act

AGENCY: Departmental Offices, Treasury.

ACTION: Proposed Rule.

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 SUMMARY: In accordance with the requirements of the Privacy Act of 
1974, as amended, 5 U.S.C. 552a, the Department of the Treasury gives 
notice of a proposed amendment to 31 CFR 1.36 to exempt a new system of 
records, the Suspicious Activity Reporting System (the ``SAR System''), 
Treasury/DO .212, from certain provisions of the Privacy Act. The 
exemptions are intended to increase the value of the system of records 
for law enforcement purposes, to comply with legal prohibitions against 
the disclosure of certain kinds of information, and to protect certain 
information about individuals maintained in the system of records.
DATES: Comments must be received no later than April 25, 1997.
ADDRESSES: Comments should be sent to Office of Legal Counsel, 
Financial Crimes Enforcement Network (``FinCEN''), 2070 Chain Bridge 
Road, Suite 200, Vienna, VA 22182-2536. Comments will be made available 
for inspection and copying by appointment. Persons wishing such an 
opportunity should call Eileen Dolan at (703) 905-3590.
FOR FURTHER INFORMATION CONTACT: Cynthia A. Langwiser, Attorney--
Advisor, Financial Crimes Enforcement Network, 2070 Chain Bridge Road, 
Suite 200, Vienna, VA 22182, (703) 905-3582.
SUPPLEMENTARY INFORMATION: The rules of FinCEN, 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

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(``FDIC''), the Office of Thrift Supervision (``OTS''), and the 
National Credit Union Administration (``NCUA'') (collectively, the 
Federal Supervisory Agencies),\1\ create an integrated process for 
reporting suspicious activity and known or suspected crimes at, by, or 
through depository institutions and certain of their affiliates. The 
process is based on a single uniform Suspicious Activity Report 
(``SAR''), filed with FinCEN.
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    \1\FinCEN and the Federal Supervisory Agencies have all 
published rules requiring such reporting. See the rules publshed by 
FinCEN, the Board, OCC, FDIC, OTS and NCUA, respectively, at: 61 FR 
4326 (February 5, 1996); 61 FR 4338 (February 5, 1996); 61 FR 4332 
(February 5, 1996); 61 FR 6095 (February 16, 1996); 61 FR 6100 
February 16, 1996); 61 FR 11526 (March 21, 1996).
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    A single information system for the use of SARs is a key part of 
the integrated system. The single information system will permit 
enhanced analysis and tracking of such information, and rapid 
dissemination of the reports to appropriate law enforcement agencies. 
In accordance with 31 U.S.C. 5318(g) and 5319, data from the SAR System 
is 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. The provisions of 31 U.S.C. 
5318(g)(4)(B) specifically require that the agency designated as 
repository for suspicious transaction reports refer those reports to 
any appropriate law enforcement or supervisory agency.
    Agencies to which information will be referred electronically, 
which in certain cases may involve electronic transfers of batch 
information, initially will include the Federal Supervisory Agencies, 
the Federal Bureau of Investigation, the Criminal Investigation 
Division of the Internal Revenue Service, the United States Secret 
Service, the United States Customs Service, and the Executive Office of 
United States Attorneys, the Offices of the 93 United States Attorneys, 
and state supervisory agencies and certain state law enforcement 
agencies that 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.) It is 
anticipated that information from the SAR system will also be 
disseminated to other appropriate federal, state or local law 
enforcement and regulatory agencies and also to non-United States 
financial regulatory agencies and law enforcement agencies. 
Organizations to which information from the SAR System is 
electronically disseminated are collectively referred to as ``SAR 
System Users.''
    The SAR System is housed at the Internal Revenue Service Computing 
Center (``DCC'') in Detroit, Michigan. The SAR System is managed by 
FinCEN, with the assistance of the staff of DCC.
    Pursuant to the Privacy Act of 1974, as amended, 5 U.S.C. 552a, the 
Department of the Treasury is publishing separately a notice of a 
proposed new system of records, Suspicious Activity Reporting System - 
Treasury/DO.212.
    Under 5 U.S.C. 552a(j)(2), the head of an agency may promulgate 
rules to exempt a system of records from certain provisions of 5 U.S.C. 
552a if the system of records is ``maintained by an agency or component 
thereof which performs as its principal function any activity 
pertaining to the enforcement of criminal laws, including police 
efforts to prevent, control, or reduce crime or to apprehend criminals, 
and the activities of prosecutors, courts, correctional, probation, 
pardon or parole authorities, and which consists of (A) information 
compiled for the purpose of identifying individual criminal offenders 
and alleged offenders and consisting only of identifying data and 
notations of arrests, the nature and disposition of criminal charges, 
sentencing, confinement, release, and parole and probation status; (B) 
information compiled for the purpose of a criminal investigation, 
including reports of informants and investigators, and associated with 
an identifiable individual; or (C) reports identifiable to an 
individual compiled at any stage of the process of enforcement of the 
criminal laws from arrest or indictment through release from 
supervision.''
    Under 5 U.S.C. 552a(k)(2), the head of an agency may promulgate 
rules to exempt a system of records from certain provisions of 5 U.S.C. 
552a if the system of records is ``investigatory material compiled for 
law enforcement purposes, other than material within the scope of 
subsection (j)(2) of this section.''
    The Department of the Treasury is hereby giving notice of a 
proposed rule to exempt the SAR System from certain provisions of the 
Privacy Act pursuant to 5 U.S.C. 552a(j)(2) and (k)(2) and the 
authority vested in the Assistant Secretary (Enforcement) by 31 CFR 
1.23(c). The reasons for exempting the system of records from sections 
(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 are set forth in the proposed rule.
    The Department of the Treasury has determined that this proposed 
rule is not a ``significant regulatory action'' under Executive Order 
12866.
    Pursuant to the requirements of the Regulatory Flexibility Act, 5 
U.S.C. 601-612, for the reasons set forth above it is hereby certified 
that this proposed rule will not have a significant economic impact on 
a substantial number of small entities.
    In accordance with the provisions of the Paperwork Reduction Act of 
1995, 44 U.S.C. 3507(d), the Department of the Treasury has determined 
that this proposed rule will not impose new record keeping, 
application, reporting, or other types of information collection 
requirements.

 Lists of Subjects in 31 CFR Part 1

     Privacy.

    Part 1 of title 31 of the Code of Federal Regulations is amended as 
follows:

 PART 1--[AMENDED]

    1. The authority citation for Part 1 continues to read as follows:

    Authority: 5 U.S.C. 301 and 31 U.S.C. 321. Subpart A also issued 
under 5 U.S.C. 552 as amended. Subpart C also issued under 5 U.S.C. 
552a.

    2.Section 1.36 of Subpart C is amended by revising the heading 
``Office of the Assistant Secretary for Law Enforcement'' to read 
``Assistant Secretary (Enforcement)'' and under the Financial Crimes 
Enforcement Network by redesignating paragraph (g) as (l) and by adding 
paragraphs (g) thru (k) to read as follows:


Sec. 1.36 Systems exempt in whole or in part from the provisions of 5 
U.S.C. 552a and this part.

* * * * *

ASSISTANT SECRETARY (ENFORCEMENT)

Financial Crimes Enforcement Network
* * * * *
    (g) In general. The Assistant Secretary (Enforcement), exempts the 
system of records entitled ``Suspicious Activity Reporting System'' 
(Treasury/DO .212) from certain provisions of the Privacy Act of 1974, 
as amended, 5 U.S.C. 552a.
    (h)Authority. 5 U.S.C. 552a(j) and (k); 31 CFR 1.23(c).
    (i)General exemptions under 5 U.S.C. 552a(j)(2). Pursuant to 5 
U.S.C. 552a(j)(2), the Assistant Secretary (Enforcement), hereby 
exempts the Suspicious Activity Reporting System

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(SAR System) of records, maintained by FinCEN, an office reporting to 
the Assistant Secretary (Enforcement), from the following provisions of 
the Privacy Act of 1974:

     5 U.S.C. 552a(c)(3) and (4);
     5 U.S.C. 552a(d)(1), (2), (3), and (4);
    5 U.S.C. 552a(e)(1), (2), and (3);
    5 U.S.C. 552a(e)(4)(G), (H), and (I):
    5 U.S.C. 552a(e)(5) and (8);
    5 U.S.C. 552a(f); and
    5 U.S.C. 552a(g).

    (j)Specific exemptions under 5 U.S.C. 552a(k)(2). To the extent 
that the exemption under 5 U.S.C. 552a(j)(2) does not apply to the SAR 
System of records, the Assistant Secretary (Enforcement), hereby 
exempts the SAR System of records from the following provisions of 5 
U.S.C. 552a pursuant to 5 U.S.C. 552a(k)(2):

    5 U.S.C. 552a(c)(3);
    5 U.S.C. 552a(d)(1), (2), (3), and (4)
    5 U.S.C. 552a(e)(1)
    5 U.S.C. 552a(e)(4)(G), (H), and (I); and
    5 U.S.C. 552a(f).

    (k) Reasons for exemptions under 5 U.S.C. 552a(j)(2) and (k)(2). 
(1) 5 U.S.C. 552a(e)(4)(G) and (f)(1) enable individuals to inquire 
whether a system of records contains records pertaining to them. 
Application of these provisions to the SAR System would allow 
individuals to learn whether they have been identified as suspects or 
possible subjects of investigation. Access by individuals to such 
knowledge would seriously hinder the law enforcement purposes that the 
SAR System is created to serve, because individuals involved in 
activities that are violations of law could:
    (i) Take steps to avoid detection;
    (ii) Inform associates that an investigation is in progress;
    (iii) Learn the nature of the investigation;
    (iv) Learn whether they are only suspects or identified as 
violators of law;
    (v) Begin, continue, or resume illegal conduct upon learning that 
they are not identified in the system of records, or
    (vi) Destroy evidence needed to prove the violation.
    (2) 5 U.S.C. 552a(d)(1), (e)(4)(H) and (f)(2), (f)(3) and (f)(5) 
grant individuals access to records containing information about them. 
The application of these provisions to the SAR System would compromise 
the ability of the component agencies of the SAR System to use the 
information effectively for purposes of law enforcement.
    (i) Permitting access to records contained in the SAR System would 
provide individuals with information concerning the nature of any 
current investigations and would enable them to avoid detection or 
apprehension, because they could:
    (A) Discover the facts that would form the basis of an arrest;
    (B) Destroy or alter evidence of criminal conduct that would form 
the basis of their arrest, and
    (C) Delay or change the commission of a crime that was about to be 
discovered by investigators.
    (ii) Permitting access to either on-going or closed investigative 
files would also reveal investigative techniques and procedures, the 
knowledge of which could enable individuals planning crimes to 
structure their operations so as to avoid detection or apprehension.
    (3) 5 U.S.C. 552a(d)(2), (d)(3) and (d)(4), (e)(4)(H) and (f)(4) 
permit an individual to request amendment of a record pertaining to him 
or her and require the agency either to amend the record or note the 
disputed portion of the record and, if the agency refuses to amend the 
record, to provide a copy of the individual's statement of disagreement 
with the agency's refusal, to persons or other agencies to whom the 
record is thereafter disclosed. Because these provisions depend on the 
individual's having access to his or her records, and since these rules 
exempt the SAR System from the provisions of 5 U.S.C. 552a relating to 
access to records, for the reasons set out in paragraph (e)(2) these 
provisions do not apply to the SAR System.
    (4) 5 U.S.C. 552a(c)(4) requires an agency to inform any person or 
other agency about any correction or notation of dispute that the 
agency made in accordance with 5 U.S.C. 552a(d) to any record that the 
agency disclosed to the person or agency, if an accounting of the 
disclosure was made. Because this provision depends on an individual's 
having access to and an opportunity to request amendment of records 
pertaining to him or her, and because these rules exempt the SAR System 
from the provisions of 5 U.S.C. 552a relating to access to and 
amendment of records, for the reasons set forth in paragraphs (e)(2) 
and (3), this provision does not apply to the SAR System.
    (5) 5 U.S.C. 552a(c)(3) requires an agency to make the accounting 
of any disclosures of records required by 5 U.S.C. 552a(c)(1) available 
to the individual named in the record upon his or her request. The 
accounting must state the date, nature, and purpose of each disclosure 
of the record and the name and address of the recipient.
    (i) The application of this provision would impair the effective 
use of information collected in the SAR System. Making an accounting of 
disclosures available to the subjects of an investigation would alert 
them to the fact that another agency is conducting an investigation 
into their criminal activities and could reveal the geographic location 
of the other agency's investigation, the nature and purpose of that 
investigation, and the dates on which that investigation was active. 
Violators possessing such knowledge would be able to take measures to 
avoid detection or apprehension by altering their operations, by 
transferring their criminal activities to other geographical areas, or 
by destroying or concealing evidence that would form the basis for 
arrest.
    (ii) Moreover, providing an accounting to the subjects of 
investigations would alert them to the fact that FinCEN has information 
regarding possible criminal activities and could inform them of the 
general nature of that information. Access to such information could 
reveal the operation of the information-gathering and analysis systems 
of FinCEN, the Federal Supervisory Agencies and other SAR System Users 
and permit violators to take steps to avoid detection or apprehension.
    (6) 5 U.S.C. 552a(e)(4)(I) requires an agency to publish a general 
notice listing the categories of sources for information contained in a 
system of records. The application of this provision to the SAR System 
could compromise FinCEN's and the Federal Supervisory Agencies' ability 
to provide useful information to law enforcement agencies, because 
revealing sources for the information could:
    (i) Disclose investigative techniques and procedures,
    (ii) Result in threats or reprisals against informers by the 
subjects of investigations, and
    (iii) Cause informers to refuse to give full information to 
criminal investigators for fear of having their identities as sources 
disclosed.
    (7) 5 U.S.C. 552a(e)(1) requires an agency to maintain in its 
records only such information about an individual as is relevant and 
necessary to accomplish a purpose of the agency required to be 
accomplished by statute or executive order. The application of this 
provision to the SAR System could impair the effectiveness of law 
enforcement because in many cases, especially in the early stages of 
investigation, it may be impossible immediately to determine whether 
information collected is relevant and necessary, and information that 
initially appears irrelevant and unnecessary, upon further evaluation 
or upon collation with information

[[Page 14379]]

developed subsequently, often may prove helpful to an investigation.
    (8) 5 U.S.C. 552a(e)(2) requires an agency to collect information 
to the greatest extent practicable directly from the subject individual 
when the information may result in adverse determinations about an 
individual's rights, benefits, and privileges under federal programs. 
The application of this provision to the SAR System would impair 
FinCEN's ability to collect, analyze and disseminate to System Users 
investigative or enforcement information. The SAR System is designed to 
house information about known or suspected criminal activities or 
suspicious transactions that has been collected and reported by 
financial institutions, or their examiners or other enforcement or 
supervisory officials. It is not feasible to rely upon the subject of 
an investigation to supply information. An attempt to obtain 
information from the subject of any investigation would alert that 
individual to the existence of an investigation, providing an 
opportunity to conceal criminal activity and avoid apprehension. 
Further, with respect to the initial SAR, 31 U.S.C. 5318(g)(2) 
specifically prohibits financial institutions making such reports from 
notifying any participant in the transaction that a report has been 
made.
    (9) 5 U.S.C. 552a(e)(3) requires an agency to inform each 
individual whom it asks to supply information, on the form that it uses 
to collect the information or on a separate form that the individual 
can retain, the agency's authority for soliciting the information; 
whether disclosure of information is voluntary or mandatory; the 
principal purposes for which the agency will use the information; the 
routine uses that may be made of the information; and the effects on 
the individual of not providing all or part of the information. The 
application of these provisions to the SAR System would compromise the 
ability of the component agencies of the SAR System to use the 
information effectively for purposes of law enforcement.
    (10) 5 U.S.C. 552a(e)(5) requires an agency to maintain all records 
it uses in making any determination about any individual with such 
accuracy, relevance, timeliness, and completeness as is reasonably 
necessary to assure fairness to the individual in the determination. 
Application of this provision to the SAR System would hinder the 
collection and dissemination of information. Because Suspicious 
Activity Reports are filed by financial institutions with respect to 
known or suspected violations of law or suspicious activities, it is 
not possible at the time of collection for the agencies that use the 
SAR System to determine that the information in such records is 
accurate, relevant, timely and complete.
    (11) 5 U.S.C. 552a(e)(8) requires an agency to make reasonable 
efforts to serve notice on an individual when the agency makes any 
record on the individual available to any person under compulsory legal 
process, when such process becomes a matter of public record. 
Application of these requirements to the SAR System would prematurely 
reveal the existence of an ongoing investigation to the subject of 
investigation where there is need to keep the existence of the 
investigation secret. It would render ineffective 31 U.S.C. 5318(g)(2), 
which prohibits financial institutions and its officers, employees and 
agents from disclosing to any person involved in a transaction that a 
SAR has been filed.
    (12) 5 U.S.C. 552a(g) provides an individual with civil remedies 
when an agency wrongfully refuses to amend a record or to review a 
request for amendment, when an agency wrongfully refuses to grant 
access to a record, when any determination relating to an individual is 
based on records that are not accurate, relevant, timely and complete, 
and when an agency fails to comply with any other provision of 5 U.S.C. 
552a so as to adversely affect the individual. The SAR System should be 
exempted from this provision to the extent that the civil remedies 
relate to the provisions of 5 U.S.C. 552a from which paragraphs (k)(1) 
through (11) of this section exempt the SAR System. There should be no 
civil remedies for failure to comply with provisions from which this 
system of records is exempted. Exemption from this provision will also 
protect FinCEN from baseless civil court actions that might hamper its 
ability to collate, analyze and disseminate data.
* * * * *

    Dated: February 3, 1997.

Alex Rodriguez,
Deputy Assistant Secretary (Administration).

[FR Doc. 97-7560 Filed 3-25-97; 8:45 am]
BILLING CODE: 4820-03-F