File a SAR for Something Said?

Issue/Question

Is the Bank required to file a SAR if a customer mentions that he does not claim all of his income on his returns? The Bank does not know whether this statement is correct and, in any case, it does not use this income for any DTI calculations.

Response Summary

The Bank is not required to file a SAR for a statement that is unrelated to any transaction with the Bank. Nevertheless, if the Bank reports the statement in a SAR anyway, it will have a safe harbor from civil liability.

Response Detail

Failing to report all of one’s income to the Internal Revenue Service may be tax evasion and a crime. Whether a financial institution is required to report it in a suspicious activity report (“SAR”) depends on other factors.

Under Federal regulations, a financial institution is required to file a SAR with the Financial Crimes Enforcement Network for, among other things, transactions conducted or attempted at or through the financial institution and aggregating $5,000 or more, if the financial institution knows, suspects, or has reason to suspect that:

• The transaction may involve potential money laundering or other illegal activity
• The transaction is designed to evade the Bank Secrecy Act or its implementing regulations
• The transaction has no business or apparent lawful purpose or is not the type of transaction the particular customer would be expected to engage in, and the financial institution knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction [12 CFR §353].

In this case, the customer has stated that he does not report all of his income on his federal income tax return. If this were true, there might be circumstances when a failure to report all income on an income tax return would be an illegal activity for which a SAR should be filed, as when the customer sought to have the Bank rely on an inaccurate filing in determining whether he qualified for a loan or deposit program. It is a crime under Federal law to knowingly make a false statement or report for the purpose of influencing in any way the actions of a financial institution whose accounts are insured by the Federal Deposit Insurance Corporation [18 U.S.C. §1014].

Whether or not the customer’s statement reflects illegal activity, however, it was not related to any transaction conducted, attempted at, or through the Bank. For that reason, the Bank is not required to report the statement in a SAR.

If the Bank files a SAR reporting the statement anyway, it will have a “safe harbor” under the Bank Secrecy Act, which is accorded all financial institutions and their directors, officers, employees, and agents that make a disclosure to the appropriate authorities of any possible violation of the law or regulations [31 U.S.C. §5318(g)(3)].

This entry was posted on Friday, February 13th, 2015 at 5:29 pm.