Dynamic Securities Analytics, Inc.
Dynamic Securities Analytics, Inc.
Anti-Money Laundering FinCEN Money Laundering Enforcement SARs Suspicious Activity Reports

1st rule of SARs: You do not talk about SARs. 2nd rule of SARs: You do NOT talk about SARs.

by |Published

SARs Rules

#1 Do not talk about SARs

#2 Do NOT talk about SARs

 

It may seem odd but the Suspicious Activity Report (SAR) confidentiality  rules are almost identical to the Fight Club rules.

While there are confidentiality exemptions for sharing information within a financial services institution or with law enforcement, there remains a hard and fast line prohibiting disclosures of SARs in response to private litigation.

 

SAR Rules

 

SAR Confidentiality

FinCEN issued guidance in March 2012 titled SAR Confidentiality Reminder for Internal and External Counsel of Financial Institutions. A couple of key quotes are listed below:

“FinCEN is concerned that an increasing number of private parties, who are not authorized to know of the existence of filed SARs, are seeking SARs from financial institutions for use in civil litigation and other matters.”

“This obligation {maintaining SAR confidentiality} applies not only to the SAR itself, but also to information that would reveal the existence (or non-existence) of the SAR.”

“{SAR disclosure} Violations may be enforced through civil penalties of up to $100,000 for each violation and criminal penalties of up to $250,000 and/or imprisonment not to exceed five years.”

Catch 22

The SAR confidentiality rule results in a weird, Catch-22 world during civil litigation. FinCEN advises financial institutions not to admit or deny the existence of a SAR. The disclosure bar remains even “if the discovery is necessary to raise an affirmative defense.”1 During discovery in civil litigation, underlying documents related to the SAR may be disclosed, but the SAR itself cannot be.2

So what is an Anti Money Laundering Compliance Officer to say when they are on the stand during a civil lawsuit? The AMLCO could say red flags were noticed and investigated but she would have to dance around the issue of whether a SAR was or was not filed. The AMLCO could refer to account documents but could not cite emails discussing  the wording of a SAR. Such a witness is placed in an extremely difficult position of being required to answer questions under oath while not violating SAR confidentiality laws. Also, what instructions do judges provide juries when a witness can’t answer a question due to SAR confidentiality?

The confidentiality requirement leaves a lot to the imagination of a jury.  Perhaps the bank did an excellent job investigating the red flag, filed a SAR and helped shut down an international cyber-crime conglomerate.  The jury may never hear it. On the other hand, maybe the bank looked the other way in order to generate fees. But since the bank can’t disclose that a SAR was not filed, there’s no way to know for sure.

 

 

 

 

 

1 Excerpted from SAR Activity Review Issue 5, page 66

2 Bingham Legal Alert 2/23/11

You may also like