Spitzer SAR Filings: “Business as Usual” or Retaliation?
By: BEAU J. HURTIG
June 2008
The New York Times reported in its March 13, 2008 article entitled “Spitzer Fall Began with Bank Reports” that Eliot Spitzer’s recent resignation originated with a pair of Suspicious Activity Reports (“SARs”) filed by North Fork Bank and HSBC Bank. As reported by the New York Times, “both the North Fork Bank and HSBC had faced inquiries into their lending practices led by Mr. Spitzer when he was New York attorney general.” Were the banks’ SAR filings business as usual or retaliation?
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.”
On their face, these criteria provide banks enough discretion that the question may be raised as to whether North Fork Bank and HSBC filed the SARs regarding Mr. Spitzer in retaliation for the prior investigations he initiated. However, our experience since Enron, 9-11, and the recent subprime crisis indicates regulators have a very low threshold in determining what constitutes suspected criminal activity. Also, high-ranking officials may be more likely to undergo an investigation upon the filing of a SAR, given our country’s interest in avoiding corruption. Accordingly, North Fork Bank and HSBC’s filings were likely not cases of retaliation, since under the circumstances, the safe and appropriate course of action was to file the SARs.
Banking officials generally face a tough decision whether to file a SAR. Banks wish to cooperate with law enforcement officials in combating money laundering schemes and other criminal activities. On the other hand, banks also have an interest in protecting their customers’ and employees’ privacy and avoiding lawsuits arising from the violation of such privacy. However, Congress and banking regulators strongly encourage, if not require, banks to file SARs in most instances where there is even the slightest chance of criminal activity.
Congress and bank regulators have attempted to protect banks filing a SAR by providing a safe harbor from civil liability for bank officers and employees. This means that banks can generally file a SAR without fear of being sued by the subjects of the SAR. Although, 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, civil courts cannot compel the production of a SAR, documents that show a SAR exists, or the accompanying and subsequent bank communications with authorities. In addition, federal statutes require bank officials and employees, as well as government employees, to keep SARs confidential and prohibit notification of people involved with the transaction that a SAR has been filed.
Takeaway
Banks collectively file thousands of SARs each day. Although the vast majority of SARs are not investigated and likely do not involve illegal activity, they provide an important tool for law enforcement in some cases of money laundering, tax evasion, and bribery.