A new customer comes to a bank and opens a joint CD for exactly $10,000 in cash. The bank prints a signature card for the joint account-holder to take home and get signed. Joint account holder appears at the bank the next day with the signed signature card. When the bank asked the person for their drivers license, the person refused and ended up closing the account.

Should a SAR be filed in this instance? SARs should be filed if a person refuses to provide information necessary for the bank to make reports or keep records required by the BSA or other anti-money laundering regulations. As a part of the bank's anti-money laundering program, they obtain DL # and other information on all customers.

How did you close the account without getting the person's ID?

I trust you imposed an early withdrawal penalty?

Let's see -- cash deposit just under CTR threshold; refusal of one party to provide ID. Payment of a 7-day's interest penalty (see above) rather than provide the ID.

Sounds like SAR material to me!

I agree with John. I would also like to add two more things. One is what does your Know Your Customer Policy state? What does the policy require before opening an account? Second, it appears that your procedures permit a signature card to leave the bank. Do you require the signature to be notarized? If not, how do you verify that it was truly that individual that signed the card?

These are just some things I look for in our procedures.

Opinions are mine not my employer.

Not to go off on a tangent, but I'm a bit fuzzy on what actually happened here. So the person that brought the sig card back and refused ID was not the same person that opened the account? I trust that ID was obtained from the primary signer at account opening, and certainly hope that the closout transaction was completed only for this person. Either way, I would agree that a SAR is warranted.

The decision is up to you, but I think you answered your own question. Based on the facts (1)$10,000 cash (2)joint acct. requested, but only 1 person present (3) when requested, other accountholder refuses to comply with bank's request for ID. File the SAR. Law enforcement will likely review this and put it aside, unless these joint applicants are part of a bigger scheme.

I am not certain a penalty is in order. From the initial post, I question whether the CD was actually opened (booked) without the signatures. If it was booked, the penalty should be charged and that is likely one mad customer-wannabe.

If there is no reasonable explanation for the actions, it does sound suspicious. As was noted above, unless these names are being sought out, this won't hit anyones radar screen. But that doesn't mean you shouldn't file. Obviously you too are suspicious or we wouldn't have seen the post in the first place.

I will say that in our recent exam, we were asked about cases where we thought a SAR may be required but decided against it, and why. Similar to Reg. Z, you may adopt a process of "when in doubt, disclose".

Andy- It's rare that I take exception with your positions, but I totally disagree with your views about the penalty. First, I'd impose all the penalty I could in a case where the customers jerked me around and wasted my time and resources.

Next, if Brainey and Smurfette are laundering cash (and this looks like a quick & dandy way!) a "penalty" of 7 days' interest leaves them with a HUGE profit for their two act performance. Let's say the bank is trying to corner the market on 60 month CD's and pays a whopping 4% interest (APY = 4.08%). Do the math:

Penalty:
$10,000 X 4% / 365 = $1.10 per day X 7 days = $7.70

Gross profit (laundering fee):
$10,000 X 20% = $2,000

Net profit:
$2,000 - $7.70 = $1,992.30 (tax free)

Crime pays.

Thank you so much for your input on this. Although my question was whether or not to file a SAR, this situation has lots of other implications (KYC, penalties, etc.) that need to be looked at. This is such a great forum!

I hadn't done the math, Richard, it is enlightening.

Note though that I said if the CD was booked, I'd charge the penalty. We are not of differing opinions on this. If the CD wasn't booked, because the signatures were not yet in place (that was my question) then I don't believe there is any contractual right to impose the penalty. In my shop, I would hope we wouldn't have yet taken the deposit or booked it precisely for the reasons above. However, in retrospect, in the interest of meeting new account quotas and in not letting a deposit go away, this is conceivable. I think it may be a good training example.

We also charge a separate fee for closing an account early. Although I had not not intended it for CDs in my mind, it could apply. It is compensation for the time to EDD, disclose, book, etc. and that is all done here as well.

Andy, I think the penalty has to be charged in any case. The CD is essentially a contract to deposit funds for a specified period. The contract was executed at the time the funds were deposited. The fact that the CD balance is in a deposit clearing G/L account because the account hasn't been set up on the CD system is, IMHO, not material to whether a deposit relationship exists. If it were, banks would not pay interest until accounts were set up on the subsidairy ledger system.

I would charge the penalty and file the SAR.

In some banks, when the second party is not present to sign the signature card, the deposit is not accepted until the second signer completes the contract by signing it and providing ID. Either the customer retains the funds until everything is set, or it sits at the new accounts desk waiting.

In that case, I'd say the account never opened, and no penalty.

John phrased it better than I. Years ago we'd have the one person sign and allow the sig card to be taken out to another party. We'd do some minimal verification and open the account. Those years are long gone. My point was that it shouldn't have been "opened" without everything in place first. But I can see the bank not wanting to let it "get away" so to speak.

Again, I think it could be a valuable training example.

In the scenario John described, I agree. But I think you have to be careful about what sits on the bankers desk waiting for the signature card to come back. "Retaining the funds" could be a tricky situation.

If the material sitting on the desk includes a check from the depositor, I would argue you have accepted the deposit account, and have opened the account.

All this goes to reinforce your point, Andy, that this scenario would be a good training exercise.

Where was the $10,000 cash in the meantime? Did the first person take it with them along with the signature card for the "other" person to sign, or did he/she leave it with you and just take the card?

I wish I knew more of the details. I am a consultant and do not work at the bank; this question was merely posed to me. I felt that the situation was SAR-worthy, but was curious what others would say about the KYC aspects (taking sig card away & no ID immediately). I hadn't given much thought to the other issue about whether funds were received & whether the account was actually closed & do not know what the bank actually did. I have forwarded all of the responses to this thread to the bank as an FYI since so many good points have been raised.