A recent case in Florida provides an excellent reminder of the confidentiality restrictions that govern the release of Suspicious Activity Reports (SARs) (pdf). By way of background, the Bank Secrecy Act (BSA) prohibits banks and other financial institutions from notifying any person involved in a suspicious transaction that the transaction has been reported. When a financial institution receives a subpoena or other request to disclose a SAR from any person (other than a law enforcement or bank supervisory agency), regulations implementing the BSA require the institution to decline to produce the SAR or any information that would disclose that a SAR has been prepared or filed.
FinCEN interprets the SAR confidentiality provisions of the BSA even more broadly than the confidentiality restrictions imposed by the regulations, and, last year, FinCEN issued a proposed rule (pdf) to codify its broad interpretation by requiring banks and other financial institutions to decline to produce to any person a SAR or any information that would reveal the existence of a SAR. The preamble to the proposed rule stated that this broader standard has been upheld by courts and that the BSA created an unqualified and non-waivable privilege in civil litigation. Several federal bank regulators, such as the OCC (pdf), proposed similar regulations contemporaneous with FinCEN’s proposed rule.
That brings us to Regions Bank, et al. v. Scott Allen, et al. (pdf), which was decided by the Fifth District Court of Appeal in Florida on March 12, 2010. Regions Bank sought review of a trial court’s order compelling the bank to produce documents in discovery despite the bank’s assertion of the SAR privilege. The plaintiffs sought “investigatory” material including the bank’s internal emails and communications regarding certain accounts. Following a hearing on the plaintiffs’ motion to compel, the trial court determined that any SAR, to the extent it existed, was privileged and could not be disclosed by the bank to the plaintiffs. However, the court ordered the bank to produce any other requested document. The bank could redact references to a SAR or any language disclosing whether a SAR existed or would be prepared, but the trial court held that the bank’s internal emails and communications could not be withheld in their entirety under the SAR privilege.
The court of appeal held that the trial court ruled properly with respect to the non-disclosure of the SARs, but that the trial court’s decision regarding the bank’s other internal documents was too broad. The appellate court found that “redaction will not be adequate to protect the confidentiality of a SAR investigation or the fact of a SAR’s preparation” because “[r]edaction of a document does not change its character.” Instead, the court ordered the trial court to conduct an in camera examination of documents that fell within the “grey area of disclosure.”
The Regions Bank case provides a useful reminder to banks and other financial institutions of the broad scope of SAR confidentiality and their obligation to invoke the SAR privilege in civil litigation.