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Banking Interpretations

 Public Officers Law([POL) 87(2)(a), Part 300 GRBB and Supervisory Procedure G 106

May 6, 2005

Re: Appeal from the Denial of Freedom of Information Law ("FOIL") Request

This letter is in response to the appeal you filed, on or about April 21, 2005, in response to the New York State Banking Department's March 28, 2005 denial of your FOIL request.

In your March 28, 2005 FOIL request, you sought disclosure of copies of "any Suspicious Activity Reports filed with your agency by [ ]." Your request was denied, by letter dated the same day, on the basis that any such documents that might or might not exist were exempt from disclosure under Public Officers Law ("POL") 87 (2)(a). That section provides that a state agency may deny a FOIL request that is "specifically exempted from disclosure by state or federal statute." The denial letter also cited 31 U.S.C. 5318 (g) as the federal statute which made the documents exempt from disclosure under POL 87 (2) (a).

According to your appeal, the Banking Department's decision denying your appeal was erroneous for a number of reasons. First, you contend that the federal statutory provision in issue-31 U.S.C. § 5318 (g)(2)(A)(ii)-prohibits disclosure of suspicious activity reports ("SARS") only until the fact that an SAR has been filed "is known". In factual support of your argument, you refer to portions of a transcript of a sentencing hearing in which [ ………….]. As we understand your argument, this reference by [………..] resulted in a waiver of SAR confidentiality.

Your next argument is that section 5318 (g)(2)(A)(ii) prohibits disclosure of the fact that an SAR has been filed with a government agency, but that the Banking Department is not a government agency within the meaning of the statute. Lastly, you contend that even if the Banking Department is a government agency within the meaning of the statute, "to qualify as a withholding provision, a statute must be the 'product of congressional appreciation of the dangers inherent in airing particular data' and must 'incorporate [ ] a formula whereby the administrator may determine precisely whether the disclosure in any instance would pose the hazard that Congress foresaw.'"

ARGUMENT

By way of background, Congress enacted the Bank Secrecy Act ("BSA") in 1970 to authorize the Secretary of the Treasury to require reporting and recordkeeping deemed to have a "high degree of usefulness" to government criminal, tax, and regulatory investigations or proceedings." 31 U.S.C. 5311. The implementing regulations, set forth at 31 CFR Part 103, create a system of reporting and recordkeeping obligations designed to provide a paper trail that would allow government to track and connect transactions that might constitute evidence of criminal activity.

In 1992, with the passage of the Annunzio-Wylie Anti-Money Laundering Act, section 5318 (g) was added to the BSA. This provision authorizes the Secretary of the Treasury to "require any financial institution, and any director, officer, employee or agent of any financial institution to report any suspicious transaction relevant to a possible violation of law or regulation. Because of the sensitive nature of the information likely to be provided, Congress also included provisions in the legislation that would ensure that reported information would not be revealed beyond the government agencies that would use the information to accomplish the intended objectives. These provisions are set forth in 31 U.S.C. 5318 (g) (2), and provide in relevant part as follows:

  1. Notification Prohibited.
  1. In general. If a financial institution or any director, officer, employee, or agent of any financial institution, voluntarily or pursuant to this section or any other authority, reports a suspicious transaction to a government agency-
  1. the financial institution, director, officer, employee, or agent may not notify any person involved in the transaction that the transaction has been reported; and
  2. no officer or employee of the Federal government or of any State…government within the United States, who has knowledge that such report was made may disclose to any person involved in the transaction that the transaction has been reported, other than as necessary to fulfill the official duties of such officer or employee.

As if to emphasize the importance of confidentiality to the SAR filing system, in 1996, the Financial Crimes Enforcement Network ("FinCEN"), which was designated by the Secretary of the Treasury as the agency with whom SARS were to be filed (Treasury Order 180-01), promulgated a regulation that requires that "any person subpoenaed or otherwise requested to disclose a SAR or the information contained in a SAR, except where such disclosure is requested by FinCEN or an appropriate law enforcement agency or bank supervisory agency, shall decline to produce the SAR or to provide any information that would disclose that a SAR has been prepared or filed." 31 CFR § 103.18 (e). We note that, at about the same time, the five federal banking agencies promulgated similar SAR reporting rules for banks.

Addressing your first argument, your contention seems to be that government entities in possession of suspicious activity reports that have been filed by financial institutions are barred from disclosing them only so long as the fact of their filing remains unknown outside such government entities. From that platform, you contend that because the purported existence of certain SARS that you seek have been made known in a public court proceeding, the Banking Department is no longer bound by the disclosure prohibition contained in section 5318 (g) (2)(A)(ii). Put another way, you contend that confidentiality has been waived.

We emphasize first, in responding, that we neither confirm nor deny that any responsive SARS have been filed, consistent with our statutory and regulatory obligations. However, for the sake of responding, we note that you are not the first private party to seek disclosure of SAR filings. For example, in Weil v. Long Island Savings Bank, 195 F. Supp. 2d 383 (E.D.N.Y. 2001), the plaintiff unsuccessfully sought to compel the defendant bank to disclose an SAR that the bank had indirectly acknowledged filing in an unrelated case. The defendant was an entity that was regulated by the Office of Thrift Supervision and was thus subject to a federal regulation (12 CFR 563.180 (d)(12)) that was worded much like the FinCEN regulation cited above. That regulation required the bank to decline to produce in response to subpoenas and requests for production of SARS. Based on section 5318 (g) and the regulation, the court held that the confidentiality privilege is not qualified, and cannot be waived by a financial institution. Id. at 389. Even in a suit for damages based on disclosures allegedly made in an SAR, a financial institution is prohibited from revealing what disclosures it made in an SAR, or even whether it filed an SAR at all. Lee v. Bankers Trust Co., 166 F. 2d 540, 544 (2d Cir. 1999).

Nor can the privilege be waived by the courts. Gregory v. Bank One Indiana, N.A. (S.D. Ind. 2002). In Gregory, the defendant bank sought a court order requiring it to produce to the court under seal any SARS it might have filed in order to allow it to defend a defamation action brought by the plaintiff. The court denied the requested relief, noting that "there is no provision in the Act (the BSA) or the Rule (12 CFR 21.11-a similarly worded regulation barring disclosure of SARS by national banks) allowing a court-ordered exception to the unqualified privilege." Id at 1003. In fact, the court continued, "under the clear, unambiguous terms of the Act and the Rule, courts have an obligation to prevent disclosures of privileged information." Id.

And this makes perfect sense. The purpose of requiring SARS is to assist government agencies in conducting government investigations. It was not intended to provide a treasure trove of potential evidence to private persons engaged in private litigation or private disputes. Permitting exceptions to SAR confidentiality could result in the compromise of ongoing investigations, the revelation of methods used by banks to detect suspicious activity, and harm to innocent persons whose names appear in them. Cotton v. Privatebank and Trust Company, 235 F. Supp. 2d 809, 815 (N.D. Ill. 2002). Thus, confidentiality is intended not only to further government investigations, but also to protect innocent parties who might be unfairly tarnished by disclosure beyond government entities.

We note your reference to Dupre v. Federal Bureau of Investigation, 2002 U.S. Dist LEXIS 9622 (E.D. La. May 22, 2002), where a district court ordered production of a portion of a narrative contained in an SAR in response to a Freedom of Information Act request. Although it does not appear in the subsequent history of the case, after the defendant filed an appeal and obtained a stay from the court of appeals, the plaintiff withdrew the request and the case was dismissed as moot. This information can be found in the court's electronic case docketing system. In any event, the reasoning of this case is unpersuasive and is not binding on the Banking Department.

Because this is a matter of federal law, the Banking Department also incorporates the reasoning contained in the attached Statement of Interest of the United States, recently filed by FinCEN and the U.S. Department of Justice in Wuliger v. Office of the Comptroller of the Currency, et al, (Case No. 1:05CV0108-N.D. Ohio).

Based on the foregoing, I have concluded that confidentiality under the statute and related regulation has not been waived. This ground of your appeal is therefore rejected.

Your next contention-that section 5318 (g)'s disclosure prohibition applies only to SARS that have been filed with a "government agency", and that the Banking Department is not a "government agency" within the meaning of the statute is also without merit. Section 5318 (g) (4) (A) directed the Secretary of Treasury to designate a single officer or agency of the United States with whom SARS were to be filed. In Treasury Order 180-01, the Secretary designated FinCEN for that purpose. Thus, the government agency referred to in section 5318 (g) (2) (A), and the only agency that a financial institution can discharge its SAR filing requirement with is FinCEN. While financial institutions are permitted to share copies of SARS with their bank supervisors, 31 CFR 103.18 (e), such sharing is not the act of "filing" that is referred to in the statute. The same regulation while permitting such sharing with regulators, expressly directs persons subpoenaed or asked to provide SARS not to produce. Thus, SARS are not "filed" with the Banking Department within the meaning of section 5318. Financial institutions that share with their regulators copies of SARS that have been filed with FinCEN do not thereby slip outside the protected zone of confidentiality created by the statute and the applicable regulation. This ground of appeal, therefore, must also fail.

With respect to your contention that "to qualify as a withholding provision, a statute must be the product of Congressional appreciation of the dangers inherent in airing particular data…", I refer you to the analysis above which clearly demonstrates Congress' intent that SARS be held confidential and that such confidentiality cannot be waived.

Conclusion

For the foregoing reasons, your appeal of the Banking Department's denial of your FOIL request is denied.

Sincerely,

Sara A. Kelsey
Deputy Superintendent & Counsel

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