December 11, 2012 –
SAR filers beware: Legal immunity for claims arising from SAR filings not absolute

With respect to certain suspicious transactions relevant to a possible violation of law or regulation, the Bank Secrecy Act requires banks (and most other financial institutions) to file Suspicious Activity Reports (SARs). A SAR must be filed with The Financial Crimes Enforcement Network (FinCEN) within 30 calendar days of a bank’s detection of the known or suspected violation of law or regulation.

The criteria that implicate this SAR filing requirement are, in essence, subjective. Therefore, a bank’s SAR compliance efforts often force the institution to make difficult decisions on whether or not to report suspicious activities of customers or employees to FinCEN.

Essentially, while banks have an interest in (and an obligation to) cooperate with law enforcement officials in combating money laundering schemes and other criminal activities, they also have an interest in (and an obligation to) protect their customers’ and employees’ privacy as well as in avoiding possible lawsuits/claims arising from disclosures and allegations made in SARs.

In an effort to ease these concerns, Congress and bank regulators have provided immunity from civil liability for banks, officers and employees for the filing of SARs, known as the “Safe Harbor.”

Generally, the Safe Harbor provides that any financial institution that makes a voluntary disclosure of “any possible violation of law or regulation… …shall not be liable under [state or federal law]… … for such disclosure.” 31 U.S.C. §5318(g)(3)(A); 31 C.F.R. §1020.320(f).

Notwithstanding this broad stamp of immunity, the federal courts have struggled with the exact limits of the protection afforded by the Safe Harbor. Specifically, federal courts have disagreed on whether a bank and its officers/employees must have a “good faith” belief that a violation of law  occurred before filing a SAR. Several federal circuit courts, including the 2nd and 1st Circuit Courts, have read the statute broadly, and have thus declined to read a “good faith” requirement into the Safe Harbor.

Significantly, however, the 11th Circuit Court, which binds Florida’s federal courts, and heavily influences its state courts, has taken the position that the Safe Harbor protects a bank or financial institution only when it has a “good faith” suspicion that a law or regulation may have been violated. Lopez vs. First Union National Bank of Florida, 129 F.3d 1186, (11th Cir, 1997) (the “Lopez Case”).

While the 11th Circuit Court’s holding in the Lopez Case occurred in 1997, recent developments indicate that its mandate remains in place.

In 2009, a Louisiana state appellate court, citing the 11th Circuit Court approvingly, denied a bank and its officers immunity under the Safe Harbor, holding that the protection would not apply where a bank’s disclosure of a suspicious transaction was not made in good faith.

Importantly, on December 2, 2012, the U.S. Supreme Court refused to hear an appeal of the Louisiana case, thus declining to remedy the apparent split between the federal circuit courts, and leaving the 11th Circuit Court decision in the Lopez Case intact.

Given the uncertainty with regard to the protection offered by the Safe Harbor, banks and financial institutions in the 11th Circuit Court’s jurisdiction should take care to ensure that in filing SARs, they do not leave themselves open to allegations that a SAR filing lacked a good faith justification (or, conversely, that the SAR filing was made in bad faith).

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Should you have any questions regarding SAR filings or the Safe Harbor, do not hesitate to contact Gunster’s Banking & Financial Services practice attorneys.