The Bank Secrecy Act: The Not-so-Safe Harbor Provision and the Whitney Rule’s Double Standard for SAR Supporting Documentation

Financial Fraud Law Report, Vol. 3, No. 7, p. 608, 2011

27 Pages Posted: 27 Jun 2011

See all articles by Philip J. Ruce

Philip J. Ruce

Thomas Jefferson School of Law

Date Written: July/August 2011

Abstract

The Bank Secrecy Act (B.S.A.) was created to fight money laundering through reporting and record-keeping requirements. Chief among these requirements is the Suspicious Activity Report (SAR). SARs may be filed according to mandatory filing requirements, or voluntarily when a financial institution deems a transaction to be suspicious. Congress, realizing the discomfort a financial institution might feel in secretly filing customer information with the government, created a safe harbor provision protecting an institution from liability from filing a SAR, and mandating that any SAR filing remain confidential and not be disclosed to any person.

The legislation and rules are silent, however, on the treatment of SAR supporting documentation. FinCEN has stated that a report includes all supporting documentation, including the underlying transactional information such as proprietary wire transfer forms, etc. It would seem, therefore, that the entire SAR and all of its documentation would fall within the safe harbor provision, as all of that documentation is considered to be a part of the “report.” The courts have held otherwise, indicating in the Whitney case that only supporting documentation referring directly to the SAR, and not supporting transactional information, is safe from disclosure via discovery.

A reasonable mind could determine from transactional information whether a SAR has been filed, and likely at least some of its contents. This seems to fly in the face of the spirit of the safe harbor: filings and their contents are to remain confidential so as to protect the financial institution creating the report.

Banks tend to over-file SARs. As more and more SARs are filed, this ambiguity becomes more important. Very little has been written about SAR supporting documentation, let alone the ambiguities found within the reporting requirements. This paper first explores the history and development of SARs, including the Whitney rule on supporting documentation. Noting this overlooked ambiguity, the paper suggests judicial in camera review of all supporting documentation when a SAR is at issue during litigation, thereby protecting the bank from revealing anything relating to a SAR filing. As more litigation on the subject seems inevitable, the paper concludes that further legislation is needed to clarify what is defined as “supporting documentation,” and how it should be treated under the B.S.A. safe harbor provision.

Keywords: Suspicious Activity Report, SAR, B.S.A., Bank Secrecy, Whitney, Compliance, Money Laundering, AML

Suggested Citation

Ruce, Philip J., The Bank Secrecy Act: The Not-so-Safe Harbor Provision and the Whitney Rule’s Double Standard for SAR Supporting Documentation (July/August 2011). Financial Fraud Law Report, Vol. 3, No. 7, p. 608, 2011, Available at SSRN: https://ssrn.com/abstract=1866455

Philip J. Ruce (Contact Author)

Thomas Jefferson School of Law ( email )

701 B Street
Suite 110
San Diego, CA 92101
United States

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