Important Court Decision Deep In The Heart Of Texas

Simplified Suspicious Activity Report (SAR) Safe To Use
During 1991 the two customers, a couple, frequently, on a regular basis, came into the financial institution office and deposited large amounts of cash. They were very careful to always keep the deposits below $10,000 so the tellers were not required to file a Currency Transaction Report. The tellers, however, noticed the frequency and the amounts of the deposits, and reported the activity as being suspicious.

The officers in charge of compliance at the financial institution agreed, as the customers were obviously structuring the deposits so they would fall below the reporting limit.

The decision was made to file a Criminal Referral Form (CRF) documenting the suspicious activity. The form and pertinent copies of transactions were filed with the appropriate law enforcement and government agencies.

The customers were ultimately arrested and charged with money laundering. One of them pleaded guilty to structuring. The charges against the other individual were eventually dropped. Then, in 1994, the couple sued the financial institution for violating their Right to Financial Privacy by reporting their transactions to the government on a Criminal Referral Form. The lawsuit eventually wound up in court.

The decision of the court follows:
by John Byrne
In a major victory for financial institutions that have been concerned about violating customer privacy for following the law, on June 9, the United States District Court for the Western District of Texas handed down a decision clarifying that a financial institution is required by law to file a Criminal Referral Form (CRF) and thus protected from customer liability under the federal Right to Financial Privacy Act (RFPA) for reporting possible violations of law on the form.

In Velasquez-Campuzano and Chavez-Lujan v. Marfa National Bank, the court addressed plaintiffs' claims that the financial institution, by filing a CRF, violated the RFPA even though one of the plaintiffs pleaded guilty to structuring cash transactions to avoid the Bank Secrecy Act reporting requirements. Before the Annunzio-Wylie Act?

The activities in question occurred in 1991 and were thus not covered by the blanket immunity provided to financial institutions in the 1992 Annunzio-Wylie Anti-Money Laundering Act. However, this decision makes it clear that even pre-1992 disclosures of possible illegal activities are protected from customer liability if the disclosure is in response to the Criminal Referral Form requirements.

Disclosure required by law
The court ruled that under 12 USC 3413 (d) of the RFPA, federal laws that compel disclosure are free from the restrictions of the Act. That section states in part that "nothing in this chapter shall authorize the withholding of financial records or information required to be reported in accordance with any federal statute or rule promulgated thereunder."

Since the bank was filing a CRF because it suspected customer structuring, the court stated that "there can be no question that, on these facts, the disclosure made by the Bank was required by law."

Submitting Documents OK
In addition, and possibly more importantly, the court made clear that attaching documents to the CRF was not violative of the RFPA because an institution, with knowledge or suspicions of criminal activity must file a CRF and "answer the questions on the Form responsively." Thus, according to the court, plaintiff "cannot be heard to complain that [the bank] improperly furnished detailed information, since detailed information was exactly what the law required."

Important decision?
This is an important decision in a number of ways.

First, financial institutions should feel free to file CRFs without fear of liability under the RFPA. This also becomes important as the regulators revamp the old CRF into the Suspicious Activity Report (SAR). The regulatory agencies, in the proposed rulemaking publication regarding the instructions for the new SAR, have removed the requirement for financial institutions to attach documents to the form. The financial institution must identify, retain and "must make all supporting documentation available to appropriate law enforcement agencies upon request." This language will protect institutions from liability under section 3413.

Secondly, the court, while it did not allow retroactive application of the 1992 Annunzio-Wylie safe harbor (12USC5318), did state that the 1992 law was an act by Congress to "explicitly [provide] blanket immunity from civil liability for a bank's disclosure of information required by Federal law."

"?One For All"
Financial institutions should understand the American Bankers Association would consider supporting any case where customers are seeking to challenge our longstanding requirement to report possible violations of law by filing briefs and working to get the assistance of the government (such as the Justice Department did here) to protect the institution.

John Byrne is Senior Federal Legislative Counsel for ABA and a BANKERS' HOTLINE Advisor.

Copyright © 1995 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 5, No. 10, 7/95