I’m always intrigued when the general public hears about suspicious activity reports (SARs) in any context. I watch reporters, commentators, and even some lawyers as they discuss this important pillar of effective AML/financial crime prevention.
Let’s just say, they usually don’t get it right.
Whistleblowers and the bigger picture
Case in point: The recent coverage of at least three SARs apparently filed on transactional activity of Trump lawyer Michael Cohen.
This issue surfaced last week in the wake of an article in The New Yorker, but there were previous public comments on SARs from the lawyer for adult film star Stormy Daniels, Michael Avenati. (Yes, it is strange writing that sentence…)
I am only going to focus on SARs, so hopefully you can keep reading…
Considering facts and history
So, a couple of facts. It doesn’t matter why, but if you release a SAR you have committed a felony.
You can argue that many facts are out in the public domain. But arguing to “release the SAR” is both uninformed and potentially damaging to the entire AML infrastructure.
Here are some relevant provisions:
“Prohibition on disclosures by government authorities. A Federal, State, local, territorial, or Tribal government authority, or any director, officer, employee, or agent of any of the foregoing, shall not disclose a SAR, or any information that would reveal the existence of a SAR, except as necessary to fulfill official duties consistent with Title II of the Bank Secrecy Act.”
Nothing in that provision says that you can disclose the existence of a SAR or the SAR itself because you “fear” that related SARs cannot be located or any other reason.
According to the New Yorker story, the whistleblower was concerned that only one Cohen SAR was found. However, sources have told me that they accept FinCEN’s comments that the bureau’s priority is rightly to protect SAR disclosures. And that is why any other Cohen SARs cannot be viewed by everyone with SAR access.
The above provision and related protections is also why Avenati’s call for releasing SARs is ill-advised, to say the least. One major reason is that releasing SARs will have a chilling effect on the private sector’s excellent response to this important aspect of reporting.
Why confidentiality remains critical
Congress recognized the need to encourage financial institutions in their reporting, even before the creation of SARs, with a provision in 1992 that provided a "safe harbor" for financial institutions and their employees. (This is part of the Annunzio-Wylie Anti-Money Laundering Act.)
According to an interagency guidance issued in 1998, the agencies pointed out:
“The ‘safe harbor’ provision, codified in 31 U.S.C. 5318(g)(3), provided for complete immunity from civil liability for the reporting of known or suspected criminal offenses or suspicious activity by the use of a Criminal Referral Form, and then its replacement, a SAR, or by reporting through other means. …..
“We are confident that financial institutions, and their employees, that follow the prescribed agency regulations and SAR filing instructions are fully protected by the ‘safe harbor,’ and we will assist any institution that has a question concerning its scope or application, or which seeks guidance on establishing a process for providing information to law enforcement agencies. Any institution that has a question or a problem in this area should contact its appropriate federal regulatory agency.”
The reason SARs maintain their value for law enforcement, the entire AML community, and society in general is both the safe harbor for reporting and the protection of the confidentiality of these filings.
Filers cannot be concerned about litigation for reports that denote suspicions of unusual financial activities.
I would note that in the early days of SARs, the financial sector had to go to several of our law enforcement partners with concerns. The agencies had been “visiting” customers and “mentioning” that SARs had been filed on them.
To their credit, once the financial sector objected, that practice quickly stopped. But this points to the danger of not following the letter and spirit of the laws on suspicious activity reporting.
No matter your politics or views on current events, upsetting the SAR regime must not occur—full stop.
* A popular Rolling Stones song, first released in 1969, and used by a particular presidential candidate—whom the Stones warned to stop using it. No surprise, 2018 “rallies” still use this song; a break from virtually every other politician who honored a band’s demand to stop using a particular song—but who is surprised?
- Why ‘Explainable AI’ is the Next Frontier in Financial Crime Fighting
- Regions Financial Corp. Catches the Eye of Institutional Investors
- Citizens Bank of Tennessee Expands its Employee Communications Capability
- FinTech Lending: Friend or Foe?
- What All Banks Can Learn from Credit Suisse Group AG’s Earnings Report