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

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

R 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

(``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

ssemination 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

ted 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

f 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:

ting System

(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;

ledge 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.

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.

osure 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.

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

developed subsequently, often may prove helpful to an investigation.

eness 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

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.

tion 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.

m 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

on 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