The Board's Role in SAR Reporting

Answered by:

Question:

I recently read your response <a href="http://www.bankersonline.com/articles/v06n03/v06n03a17.html">Reporting SARs to the Board of Directory</a>. Is there some legal authority which I can show our Boarch of Director's secretary? Our Board has, in the past, seen SARs and decided on whether or not to file before they were sent in. What is your take on this? As compliance officer, I think they should not be informed until after the SAR has been submitted.

Answer:

The legal argument does not amount to a prohibition against the board making the decision, but it does indicate that it was not what was intended:

Each federal functional agency (other than the NCUA) requires that the board (or an appropriate committee) be informed of SAR filings. For example: "The management of a bank shall promptly notify its board of directors, or a committee thereof, of any report filed pursuant to this section." In every case, the regulation uses the past tense and requires notification, not consultation with the board. The language assumes the board is told of the filing after the fact - not that it would vote on the issue.

My personal opinion, strongly held, is that the boardroom is not the appropriate venue for discussion or decision on these issues.

Hopefully, your board members represent the best business minds in your community. However, this is not a business decision. As a matter of fact, business considerations must be excluded from the thought process. SAR filing decisions are difficult enough when every one of the participants brings years of experience in banking and its related legal structures to the discussion. Your board simply does not bring the right skill set to the table.

In addition, there are legal prohibitions on disclosing SAR filings. The smaller the circle of people aware of the filing, the less likely a disclosure, inadvertent or otherwise, will take place.

Also, any effective SAR filing process is going to evaluate a number of situations where no SAR will be filed. If you take every potential filing to the board you will eat up a lot of time. If you only take those where filing is recommended, the board becomes a "rubber stamp" or, worse, the group that decided not to file a SAR when it was recommended by management.

Finally, the decisions are going to be memorialized in the board minutes, both those approved and disapproved. It is the ultimate smoking gun fixing the board with direct knowledge and responsibility. If I were one of your directors, the first meeting where we voted on a SAR filing would be my last...

My recommendation is that the board receive notice of SAR filings in summary fashion only, with no mention of the names of those listed as suspects.

First published on BankersOnline.com 4/01/02