SAR Reporting and Related DisclosuresProhibition on Disclosure of SAR-Related Information Plaintiffs in civil litigation increasingly request discovery of SAR-related information from financial institutions. However, the BSA imposes a categorical prohibition against notifying “any person involved in the transaction that the transaction has been reported[,]” 31 U.S.C. §5318(g)(2)(A), and a BSA regulation more broadly prohibits the production of “a SAR or any information that would reveal the existence of a SAR.” The relevant regulation also states that any bank, or any agent of the bank, which receives a subpoena or is otherwise requested to disclose a “SAR or any information that would reveal the existence of a SAR, shall decline to produce the SAR or such information . . . .”

Fundamentally, FinCEN highlights two alternate, proposed rules. One proposed option, promulgated under 31 U.S.C § 5318(a)(2), would involve implementing specific and relatively limited reporting requirements, similar to those currently required of title insurance companies in the non-financed real estate market. This rule would require covered persons to collect and report certain prescribed information, such as, presumably, beneficial ownership.

AMLA § 6314 (adding 31 U.S.C. § 5323(g)).Id.AMLA § 6105 (adding 31 U.S.C. § 310(e)).AMLA § 1605.AMLA §§ 6106, 6107, 6108.31 U.S.C. § 5318(k)(3)(A)(i).AMLA § 6308 (adding 31 U.S.C. § 5318(k)(3)(A)(i)).AMLA § 6308 (adding 31 U.S.C. § 5318(k)(3)(A)(ii)).AMLA § 6308 (adding 31 U.S.C. § 5318(k)(D)).AMLA § 6308 (adding 31 U.S.C. § 5318(k)(E)).

Contrast these penalties with those imposed for civil BSA violations deemed to be “willful.” For example, under Section 5321(a)(1), a willful civil violation of the requirement to implemment and maintain an effective AML policy, imposed under 31 U.S.C. §§ 5318(a)(2) and (h), can result in a penalty of $100,000 being imposed upon either a business or an individual, per each day of the alleged violation: A domestic financial institution or nonfinancial trade or business, and a partner, director, officer, or employee of a domestic financial institution or nonfinancial trade or business, willfully violating this subchapter or a regulation prescribed or order issued under this subchapter . . . , is liable to the United States Government for a civil penalty of not more than the greater of the amount (not to exceed $100,000) involved in the transaction (if any) or $25,000. For a violation of section 5318(a)(2) of this title or a regulation prescribed under section 5318(a)(2), a separate violation occurs for each day the violation continues and at each office, branch, or place of business at which a violation occurs or continues.

Rather, the Report would apply only to transactions involving a covered entity or trust as the transferee.The NPRM refers to the Report as “a streamlined version of a Suspicious Activity Report (SAR)[.]” But the Report is nothing like a SAR, the filing of which requires, among other things, the exercise of judgment and discretion; a determination that a transaction is “suspicious;” and, typically, an entire BSA/AML program to continually monitor transactions and customers in order to identify suspicious activity. Indeed, the NPRM observes that “[b]ecause of the streamlined nature of these Real Estate Reports compared to traditional SARs, as well as the flexible ‘cascade’ framework, persons subject to this reporting requirement would not need to maintain the types of AML programs otherwise required of financial institutions under the BSA.” It appears that FinCEN characterizes the Report as a “streamlined” SAR because it is promulgating the Report pursuant to its statutory authority at 31 U.S.C. § 5318(g), which pertains to SARs.Consistent with the above, the NPRM does not propose that a Report verify reported BO information or identify any Politically Exposed Persons, or PEPs, involved in a deal. Such duties “would require reporting persons to undertake independent research that would represent a dramatically increased burden, compared to collecting information from the transferee.”The Report: ContentsGeneralizing greatly, the proposed definition of a reportable BO for a transferee entity approximates the definition of a reportable BO for the purposes of the Corporate Transparency Act (“CTA”): a person who owns or controls at least 25 percent of the transferee’s ownership interests, or anyone who exercises “substantial control” over the transferee entity – a concept that is very broadly defined. For a transferee trust, a BO would be any individual who is a trustee or who has other, various and specifically-defined rights and powers regarding the trust or its assets.The NPRM and FinCEN

After the pilot program ends, the AML Act is silent on whether Congress and FinCEN will consider its permanent implementation or what might come next.Given the program’s potentially short duration, uncertainty about its future, regulatory burdens, and increased examiner scrutiny, eligible financial institutions will have to consider carefully the potential benefits and whether participation in the program is an efficient use of their limited resources.[1] 87 Fed. Reg. 3719 (proposed Jan. 25, 2022) (to be codified at 31 C.F.R. pt. 1010); see alsoFinCEN Issues Proposed Rule for Suspicious Activity Report Sharing Pilot Program to Combat Illicit Finance Risks, FinCEN (Jan. 24, 2022), https://www.fincen.gov/news/news-releases/fincen-issues-proposed-rule-suspicious-activity-report-sharing-pilot-program.[2] 31 U.S.C. § 5318(g)(8); see The William (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021, Pub. L. No. 116-283, 134 Stat. 3388, 4547-4633 (codified in sections of 31 U.S.C. §5311 et seq.), https://www.congress.gov/116/plaws/publ283/PLAW-116publ283.pdf.[3] 87 Fed. Reg. at 3719.[4] Unauthorized sharing of SAR information is generally a crime.

Fundamentally, FinCEN highlights two alternate, proposed rules. One proposed option, promulgated under 31 U.S.C § 5318(a)(2), would involve implementing specific and relatively limited reporting requirements, similar to those currently required of title insurance companies in the non-financed real estate market. This rule would require covered persons to collect and report certain prescribed information, such as, presumably, beneficial ownership.

31 U.S.C § 5311.In line with this goal, and to encourage banks to provide such reports, the Act provides immunity to banks and further prohibits disclosure of a suspicious activity reports (“SAR”) or any information that would reflect the existence of a report disclosing the fraud. See 31 U.S.C. § 5318(g)(2); 31 C.P.R. § 1020.320. Specifically, 31 U.S.C. § 5318(g)(2) expressly provides:(A) In general.

we discussed a significant prosecution of an individual, and two related corporate NPAs, involving the gaming industry. In our final post, we will discuss the prosecution and sentencing of a lawyer who allegedly became part of the fraud and money laundering scheme perpetrated by his crypto client.In this second post, we will discuss two unusual prosecutions involving, respectively, an individual executive of a bank and an alleged AML specialist working with small financial institutions. As we previously noted, all of these cases, although all unique, are also united in certain ways – particularly in regards to the need for institutions and professionals to perform sufficient due diligence regarding the conduct and source of funds of high-risk clients and customers.McVeyOn January 17, the U.S. Attorney’s Office for the Western District of Missouri announced that Peter McVey, the former Vice President and Director of Treasury Services at a bank in Missouri, pled guilty to violations of 31 U.S.C. §§ 5318(h) and 5322(b) and (e) of the BSA and 18 U.S.C. § 2 for aiding and abetting the willful failure to implement and maintain an appropriate AML program.McVey admitted that he was recruited by two bank officials to manage the bank’s automated clearing house processing systems for certain high-risk customers. The bank officials told him that the bank wanted to be a “billion dollar asset bank” as quickly as possible, and to achieve that goal, the bank planned to onboard and provide financial services to high-risk customers that had been pushed out of the system by other banks. This stated goal reflects the market pressures on smaller banks and how they can attempt to enlist the business of customers that have been de-risked by larger banks – a business plan that can increase profits, but which also increases compliance risks. It also reflects the related pressures which an institution’s upper management can place on employees to generate business.The bank entered into a Memorandum of Understan

Under such requirement attorneys, law firms, real estate agents and/or other client-interacting participants may be designated as mandated reporters.Two proposed rules relate to the recordkeeping requirements. The first, promulgated under 31 U.S.C. 5318(a)(2) involves implementing specific limited reporting requirements similar to those currently required of title insurance companies in the non-financed residential and commercial real estate markets. The second option involves imposing Anti-Money Laundering (“AML”) monitoring and reporting requirements, including the filing of Suspicious Activity Reports (SARs) and establishing AML/Countering the Financing of Terrorism programs under 31 U.S.C. § 5318(g)(1) and 31 U.S.C. § 5318(h).Consideration is being given as to the geographic scope of the regulation.