Issue/Question

In the process of opening accounts at a branch of the Bank, a new customer asked very specific questions of tellers and platform personnel, such as how many people were employed at the Bank, how many employees were in each branch, what was the Chairman of the Board's name and where was he located, and which branch was the first to open. He also wanted to know the opening sequence of each branch, branch hours, and directions to the mall located nearby to another branch.

Later that same day, he went to the other branch, sat with a CSR and proceeded to open up the same type of accounts with the same amount of money in checks issued by another bank.  He asked similar questions, wanting to know which branches were opened in succession and how many people the Bank had working in the branch. He also asked staff how long they had been working for the Bank.  He stated that he already knew the Bank has been in operation for seven years and that he knew the Bank's President.

Would it be appropriate for the Bank to file an SAR?

 

Response Summary

If the behavior of a customer is unusual, as it is in this case, the Bank should go through its prescribed SAR procedures to determine whether it can be related to activities or transactions which are violations of the laws or regulations for which SARs are ordinarily filed. It should document the process and the basis on which the decision was made. If it concludes that it cannot tie the behavior to criminal activity or a violation of federal law, as prescribed by the rules for SARs, the filing of an SAR would probably not be appropriate. Nevertheless, the Bank may still want to file an SAR if the customer’s behavior is so out of the ordinary that criminal activity or a violation of federal law remains a possibility. In so doing, it would avail itself of the safe harbor granted it by federal law.

Response Detail

The Bank Secrecy Act (“BSA”) requires a bank to file a Suspicious Activity Report (“SAR”) with respect to:

• Criminal violations involving insider abuse in any amount
• Criminal violations aggregating $5,000 or more when a suspect can be identified
• Criminal violations aggregating $25,000 or more regardless of the potential suspect
• Transactions conducted or attempted by, at, or through the bank (or an affiliate) and aggregating $5,000 or more, if the bank or affiliate knows, suspects, or has reason to suspect that the transaction:
  • May involve potential money laundering or other illegal activity (e.g., terrorism financing)
  • Is designed to evade the BSA or its implementing regulations
  • Has no business or apparent lawful purpose or is not the type of transaction that the particular customer would normally be expected to engage in, and the bank knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction

A transaction includes:

• A deposit or withdrawal
• A transfer between accounts
• And exchange of currency
• An extension of credit
• A purchase or sale of any stock, bond, certificate of deposit, or other monetary instrument or investment security
• Any other payment, transfer, or delivery by, through, or to a bank. 12 CFR §353.3

The Bank should also be mindful of the safe harbor granted banks from civil liability for filing an SAR. A bank and its directors, officers, employees, or agents shall not be liable to any person or governmental authority under any law or regulation of the United States or any state for filing an SAR with the appropriate authorities regarding a possible violation of law or regulation 31 USC §318(q)(3). The purpose of the safe harbor is to encourage banks to file SARs when appropriate, and to allow law enforcement authorities to determine when to go forward with an investigation.

In this case, the customer’s behavior is decidedly odd, so much so that the Bank should consider whether or not to file an SAR. It should go through its prescribed SAR procedures to determine whether the customer’s behavior can be related to activities or transactions which are violations of the laws and regulations for which SARs are ordinarily filed. It should document the process and the basis on which its decision was made. If it concludes that it cannot tie the behavior to criminal activity or a violation of federal law, the filing of an SAR is probably not appropriate. Nevertheless, the Bank may want to file an SAR anyway when a customer’s behavior is so out of the ordinary that criminal activity or a violation of federal law remains a possibility. The purpose behind a person’s behavior may not be apparent in any particular transaction, but may become more so when there have been a number of transactions. A series of SARs may reveal a pattern and thus a purpose to the behavior. In filing an SAR in such a case, the Bank would avail itself of the safe harbor granted it by federal law.

This entry was posted on Monday, September 29th, 2014 at 6:12 pm.