3-1850
Banks, thrift institutions, bank holding
companies and non-bank subsidiaries, credit unions, the U.S. branches
and agencies of foreign banks, and certain other financial institutions
are required to file Suspicious Activity Reports (SARs) pursuant to
regulations issued by the five federal financial institutions supervisory
agencies and the U.S. Department of the Treasury’s Financial Crimes
Enforcement Network (FinCEN). The agencies’ SAR rules are authorized
by various federal laws, including the Bank Secrecy Act, and generally
require these financial institutions to file SARs with law enforcement
and bank supervisory authorities whenever they know or suspect suspicious
or potential criminal activity. The Bank Secrecy Act and the agencies’
SAR regulations also provide protection to financial institutions
and their employees from civil liability for filing a SAR or for making
disclosures in a SAR. The purpose of this advisory is to tell financial
institutions about a recent federal court case, Whitney Nat’l Bank
v. Karam, 306 F. Supp.2d 678 (S.D. Tex. 2004), that reaffirms
the scope of that statutory protection, generally referred to as a
“safe harbor.”Interagency Advisory on Safe Harbor and the Filing of
Suspicious-Activity Reports
In 1992, Congress passed the Annunzio-Wylie Anti-Money
Laundering Act and provided a safe harbor for financial institutions
and their employees from civil liability for reporting known or suspected
criminal offenses or suspicious activity by filing a SAR. This law
is codified at 31 U.S.C. 5318(g)(3) [
see 3-1776.7]. Each of the federal financial institutions supervisory agencies
and FinCEN incorporated the safe harbor provisions of the 1992 law
into its suspicious activity reporting regulations.
In recent years, several courts have disagreed
about the scope of the protection afforded by this safe harbor provision.
Some courts have limited the safe harbor protection to disclosures
based on a good faith belief that a violation has occurred, or have
declined to extend the protection to financial institutions that may
have misrepresented material facts to law enforcement.
1 However, the majority of courts have ruled that the safe harbor
provision provides unqualified protection to financial institutions
and their employees from civil liability for filing a SAR.
2
The federal district court in Whitney sided with
the majority of courts that have interpreted the safe harbor provision
to afford unqualified protection to financial institutions and their
employees from civil suit. In the Whitney case, individuals
filed a defamation suit against a bank, claiming that the bank wrongfully
accused them of illegal lending activity when it filed a SAR. In the
suit, the individuals sought discovery of any oral or written communications
the bank may have had with law enforcement concerning their suspected
illegal conduct. The individuals did not seek a copy of the SAR because
a clear provision of the Bank Secrecy Act prohibits such disclosure
to the people who are reported in the SAR, so instead they sought
information from the bank about any disclosures it may have made to
law enforcement surrounding the possible filing of a SAR. Several
of the federal financial institutions supervisory agencies jointly
filed a brief with the court arguing that a financial institution
that reports suspected crimes should not be subject to discovery of
its communications with law enforcement.
The Whitney court ruled that a bank may not produce
documents in discovery evidencing:
- the existence or contents of a SAR;
- communications pertaining to the filing of a SAR or
its contents;
- communications with government authorities that led
to the filing of a SAR or in preparation for the filing of a SAR;
- communications that follow the filing of a SAR intending
to explain or clarify the SAR; or
- the existence or content of oral communications to
authorities regarding suspected or possible violations of laws or
regulations that did not lead to the filing of SAR.
The court noted, however, that the safe harbor protections
do not apply to documents upon which a SAR was based that a bank may
have generated or received in its ordinary course of business, unless
producing these documents would confirm the existence of a SAR.
While the Whitney court ruled in a case involving
a national bank and the rules and regulations of the Office of the
Comptroller of the Currency, the five federal financial institutions
supervisory agencies and FinCEN believe that the court’s rulings apply
to all financial institutions that file SARs in accordance with suspicious
activity reporting rules.
In light of the
Whitney decision, the agencies
remain confident that financial institutions and their employees that
follow the prescribed agency regulations and SAR filing instructions
should be fully protected by the safe harbor provisions of the law.
The staffs of the agencies want to emphasize that all financial institutions
covered by the agencies’ SAR reporting rules should have internal
processes to handle the filing of SARs as well as requests for sensitive
information from law enforcement authorities and from litigants in
private lawsuits regarding suspicious activities and reporting to
law enforcement. Communicating with law enforcement authorities through
these processes, or in response to a subpoena from federal, state,
or local law enforcement agencies or other forms of compulsory process,
such as a request from FinCEN pursuant to section 314(a) of the USA
PATRIOT Act or the reporting of a blocked transaction to the U.S.
Department of the Treasury’s Office of Foreign Assets Control, will
provide maximum legal protection for financial institutions.
Issued jointly by the Board of Governors of the Federal
Reserve System, the Federal Deposit Insurance Corporation, the Financial
Crimes Enforcement Network, the National Credit Union Administration,
the Office of the Comptroller of the Currency, and the Office of Thrift
Supervision May 24, 2004 (SR-04-8).