Recent Observations Regarding Suspicious Activity Reports
By: BEAU J. HURTIG
June 2005
Federal regulations require most types of financial institutions to file a Suspicious Activity Report (SAR) in certain situations. As stated in Whitney Nat’l. Bank v. Karam, 306 F.Supp.2d 678, 680 (S.D. TX 2004), a bank must generally file a SAR within 30 calendar days after it detects
any known or suspected Federal criminal violation, or pattern of criminal violations, committed or attempted against the bank or involving a transaction or transactions conducted through the bank . . . where the bank believes that it was either an actual or potential victim of a criminal violation, or series of criminal violations, or that the bank was used to facilitate a criminal transaction, and (1) a bank insider was involved; (2) over $5,000 was involved, and the bank can identify a suspect; (3) over $25,000 was involved, but the bank cannot identify a suspect; or (4) over $5,000, as well as potential money laundering or violations of the Bank Secrecy Act, were involved.
The above criteria are subjective, and bank officials and employees will have to make a tough decision on whether to report customers or employees to federal agencies. This decision is complicated by the fact that while banks wish to cooperate with law enforcement officials in combating money laundering schemes and other criminal activities, banks also have an interest in protecting their customers’ and employees’ privacy and avoiding lawsuits arising from the violation of such privacy. These conflicting interests often surface when bank officials encounter circumstances under which they must file a SAR. Fortunately, bank regulators recognize the difficulties such decisions involve. In an April 18, 2005 joint issuance, the regulators stressed that although they expect banks to use sound judgment in complying with SAR regulations, their approach in assessing compliance is not one of “zero tolerance.”
Congress and bank regulators have also attempted to comfort banks in deciding whether to file a SAR by providing a safe harbor from civil liability for bank officers and employees. The Annunzio-Wylie Anti-Money Laundering Act contains the Congressional authority for this safe harbor, and the bank regulators have implemented regulations affirming that banks and their employees will not face civil liability for filing SARs. This means that banks can generally file a SAR in the above circumstances without fear of being sued by the subjects of the SAR. The Treasury’s Financial Crimes Enforcement Network (FinCEN) recently stated that banks’ voluntary reports to other law enforcement agencies do not jeopardize this safe harbor even after a bank files a SAR.
The courts have struggled with the exact limits of the protection afforded by this safe harbor. Specifically, courts have disagreed on whether the bank and its officials must have a “good faith” belief that a violation occurred before filing a SAR. The Eleventh Circuit held that banks were not immune from civil liability after providing customers’ bank records to law enforcement officials who simply requested these records without a subpoena. See Lopez v. First Nat’l Bank of Florida, 129 F.3d 1186 (11th Cir. 1997). The court explained that law enforcement agencies requesting a customer’s bank records was not enough to raise a “good faith” suspicion of criminal activity, and the bank officials should have made their own “good faith” determination as to whether suspicious activity was occurring before complying with the request.
Addressing separate facts, the Eleventh Circuit also held that the bank would not have immunity from civil suit for turning over records relating to over 1,000 of customer’s accounts without a “good faith” belief that the accounts were linked to criminal activity. The bank turned over information relating to these other accounts after it suspected criminal activity relating to only one of customer’s accounts. In Lopez, the court held the bank was justified in producing information relating to the suspicious account, but reasoned the bank should not have produced records relating to the other accounts unless it believed the other accounts were also linked to criminal activity. In contrast, the vast majority of other courts have found that bank officials need not have such a “good faith” belief and provided banks and employees unqualified immunity from civil suit upon filing a SAR.
In summary, bank officials will be protected from civil suit for filing a SAR in most circumstances. Banks can also reduce the already slight odds that courts will allow a civil suit against them if they exercise common sense before filing the SAR. Banks should not turn over customer records to law enforcement officials blindly upon being requested to do so and should evaluate the circumstances independently. Also, banks should turn over only customers’ account records that the bank believes are suspicious.
Federal statutes also require bank officials and employees, as well as government employees, to keep the SAR confidential and prohibit notification of people involved with the transaction that the SAR has been filed. In Whitney, the court explained “the disclosure of a SAR could compromise an ongoing law enforcement investigation, provide information to a criminal wishing to evade detection, or reveal the methods by which banks are able to detect suspicious activity.” The court also stated the accepted idea that banks would be reluctant to cooperate if they feared retaliation from customers and that innocent customers could be harmed if knowledge spread that they were the subject of a SAR.
Under existing court precedent, statutes, and regulations, civil courts cannot compel the production of the SAR, documents that show the SAR exists, or the accompanying and subsequent bank communications with authorities. However, the courts can compel the bank to produce documents upon which the SAR was based if the bank creates such records in its ordinary course of business and the documents do not reveal the existence of a SAR.
Banks can generally file a SAR without fear the subject of the SAR will learn of its filing since the agency to which the SAR is given must keep the SAR confidential. Further, courts in civil suits cannot compel the production of documents and communications related to the SAR. Although the decision to file a SAR requires critical analysis, bank officials and employees may take some comfort in the fact that they have immunity from civil suit for filing the SAR in most cases and that the contents of the SAR and accompanying communications will be kept confidential by agencies to whom they are reported.