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  • Elizabeth A. McMorrow

FinCEN Looking Toward Digital IDs

On September 7, 2022, Jimmy Kirby, Acting Deputy Director of the Financial Crimes Enforcement Network (FinCEN) spoke at the 2022 Federal Identity Forum & Exposition (FedID). Mr. Kirby discussed the importance of digital identity to FinCEN focusing on emerging threats, responsible innovation, and expansion of partnerships and feedback loops.

What Is FinCEN?

The U.S. Financial Crimes Enforcement Network (FinCEN) is a bureau of the U.S. Department of the Treasury. FinCEN’s goal is to safeguard the financial system from illicit use and combat money laundering and promote national security.

Identity Is Key

Acting Deputy Director Kirby stated, “Identity is fundamental to the effectiveness of every financial institution’s AML/CFT [anti-money laundering/countering the financing of terrorism program].” However, as financial services and verification processes have gone online, it is important to look to identity solutions that “preserve privacy and security, promote financial inclusion, and protect the integrity of the financial system.” Kirby provided an example: “Consumer permissioned identity evidence that is stored cryptographically and accessed via token exchange offers a high degree of potential to foster innovation and solve some of our current challenges, including protection of personal information that balances the transparency goals of AML/CFT laws and regulations with privacy concerns.”

ID Verification Breakdown

FinCEN staff analyzed over three million Suspicious Activity Reports (SARs) filed in 2021 and found the majority of SARs filed include reference to potential breakdowns in the identity verification process. The identity fraud was not discovered at the time of the transaction in many instances but only after additional review. Additionally, there were over one million attempts to completely evade verification through impersonation and identify compromise (such as unauthorized access to accounts or personal information).

Given the significant increase in identity verification, impersonation, and compromise-related suspicious activity, Acting Deputy Director Kirby emphasized the importance of the financial industry ensuring coordination between its cyber security, fraud, and financial crime areas. FinCEN is exploring ways to counter the ID verification breakdown by leveraging emerging government digital identity services including state mobile driver’s licenses, the Social Security Administration’s attribute validation service, and the Department of Homeland Security’s verifiable credentials.

FinCEN Private Sector Partnerships

Acting Deputy Director Kirby discussed the continuing engagement across FinCEN, other regulators and the private sector. Kirby also stressed the usefulness of creating feedback loops including in the area of digital identity. Kirby stated, “Getting identity “right” means implementing building blocks like Privacy Enhancing Technologies to protect personally identifiable or other sensitive information while still being able to detect anomalous transactions, as well as using other data in new ways to analyze identity-related crime, including fraud and cyber events.”

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