OperationsSuspicious Activity Reports and Other Reports and Statements

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 563

[No. 96-6]

RIN 1550-AA62

Operations--Suspicious Activity Reports and Other Reports and

Statements

AGENCY: Office of Thrift Supervision, Treasury.

[[Page 6101]]

ACTION: Final rule.

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SUMMARY: The Office of Thrift Supervision (OTS) is amending its

regulations that require savings associations and service corporations

to file criminal referral and suspicious transaction reports. This

final rule streamlines reporting requirements by providing that savings

associations and service corporations file a new Suspicious Activity

Report (SAR) with the OTS and the appropriate federal law enforcement

agencies by sending SARs to the Financial Crimes Enforcement Network of

the Department of the Treasury (FinCEN) to report a known or suspected

criminal offense or a transaction that an institution suspects involves

money laundering or violates the Bank Secrecy Act (BSA).

EFFECTIVE DATE: April 1, 1996.

FOR FURTHER INFORMATION CONTACT: Richard Stearns, Deputy Chief Counsel,

Enforcement Division, (202) 906-7966, or Gary Sutton, Counsel (Banking

and Finance), Regulations and Legislation Division, (202) 906-5761,

Chief Counsel's Office; or Francis Raue, Policy Analyst, Supervision

Policy, (202) 906-5750, Office of Thrift Supervision, 1700 G Street,

NW., Washington DC 20552.

SUPPLEMENTARY INFORMATION:

Background

The OTS, the Office of the Comptroller of the Currency (OCC), the

Board of Governors of the Federal Reserve System (FRB) and the Federal

Deposit Insurance Corporation (FDIC) (collectively, the Agencies)

issued for public comment substantially similar proposals to revise

their regulations on the reporting of known or suspected criminal

conduct and suspicious activities by the institutions under their

supervision.1 The Department of the Treasury, through FinCEN,

issued for public comment a substantially similar proposal to require

the reporting of suspicious activities.2

\1\ 60 FR 36366 (July 17, 1995) (OTS), 60 FR 34476 (July 3,

1995) (OCC), 60 FR 34481 (July 3, 1995) (FRB) and 60 FR 47719

(September 14, 1995)(FDIC).

\2\ 60 FR 46556 (September 7, 1995).

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The OTS's proposed regulation noted that the interagency Bank Fraud

Working Group, consisting of representatives from the Agencies, law

enforcement agencies, and FinCEN, has been working on the development

of a single form, the SAR, for the reporting of known or suspected

federal criminal law violations and transactions that an institution

suspects involve money laundering or violate the BSA. The new SAR

reporting system will: (1) Combine the current criminal referral rules

of the Agencies with the Department of the Treasury's suspicious

activity reporting requirements; (2) create a uniform reporting form,

the new SAR, for use by financial institutions in reporting known or

suspected criminal offenses and transactions that an institution

suspects involve money laundering or violate the BSA; (3) provide a

system whereby an institution need only refer to the SAR and its

instructions in order to complete and file the form in conformance with

the Agencies' and FinCEN's reporting regulations; (4) require the

filing of only one form with FinCEN; (5) eliminate the need to file

supporting documentation with a SAR; (6) enable a filer, through

computer software that the OTS will provide to all savings

associations, to prepare a SAR on a computer and file it by mailing a

computer disc or tape; (7) establish a database that will be accessible

to the Federal and state financial institutions regulators and law

enforcement agencies; (8) raise the thresholds for mandatory reporting

in two categories and create a threshold for the reporting of

transactions that an institution suspects involve money laundering or

violate the BSA in order to reduce the reporting burdens on banking

organizations; and (9) emphasize recent changes in the law that provide

a safe harbor from civil liability to financial institutions and their

employees when they report known or suspected criminal offenses or

suspicious activities, by filing a SAR or by reporting by other means,

and that provide criminal sanctions for the disclosure of such a report

to any party involved in the reported transaction.

Comments Received

The OTS received letters from eight commenters, including four

savings associations, two holding companies, one trade association and

one law firm. We have also considered comments received by the other

Agencies. The large majority of commenters expressed general support

for the proposal. None of the commenters opposed the proposed new

suspicious activity reporting rules, although, as discussed below, a

number of commenters made suggestions for improving the rule and

requests for clarification.

Description of the Final Rule and Responses to Comments Received

After consideration of the public comments received, the Agencies

are each promulgating a substantially identical final rule regarding

the filing of SARs. Under the OTS's final rule, savings associations

and service corporations need only follow the SAR instructions for

completing and filing the SAR to be in compliance with the OTS's and

FinCEN's reporting requirements.

This final rule adopts the proposal with a few additional changes

made in response to the comments received. The final rule makes several

changes that reduce unnecessary regulatory burden in addition to those

that were proposed. In particular, the final rule further reduces

burden by: (1) Adding a $5,000 threshold for reporting transactions

that an institution suspects involve money laundering or violate the

BSA; (2) eliminating the requirement that an institution report a

transaction that is ``suspicious for any reason'' by modifying the

description of the types of suspicious activity that must be reported;

(3) reducing the record retention period from ten years to five; and

(4) permitting an institution to maintain the business record

equivalent of a document rather than requiring that it maintain the

original.

Section-by-Section Discussion

Purpose and scope (Sec. 563.180(d)(1))

The proposal clarified the scope of the current rule. The OTS

received no comments on this paragraph, which is adopted as proposed.

Definitions (Sec. 563.180(d)(2))

The proposal added definitions for several terms used in the

operative provisions of the rule. The OTS received one comment on this

provision. The commenter argued that the use of the term ``institution-

affiliated party'' instead of ``affiliated person'' creates too broad a

coverage for the rule, and will result in the requirement that SARs

must be filed with respect to petty crimes by officers below the level

of vice president and non-officer employees. The OTS has considered

this comment and believes that the broader coverage is appropriate,

given the possibility that even petty crimes, if repetitive, may

require enforcement action. The definition of ``known or suspected

violation'' in the proposal has been incorporated into each of the

reporting requirement provisions in Sec. 563.180(d)(3) to conform the

rule to that of the other Agencies. This section is otherwise adopted

as proposed, with minor technical changes.

SARs required (Sec. 563.180(d)(3))

The proposal clarified and revised the provision in the current

rule that requires an institution to file reports, raised the dollar

thresholds that trigger filing requirements, modified the scope of

events that an institution must report,

[[Page 6102]]

and eliminated the requirement for multiple filings with several

Federal agencies.

Most of the comments received by the Agencies addressed this

provision. Many of the commenters encouraged the Agencies to change

proposed Sec. 563.180(d)(3)(iv)(C), which required institutions to

report all financial transactions that are suspicious ``for any

reason.'' The commenters stated that this language was too broad and

made meaningless the $5,000 reporting threshold of

Sec. 563.180(d)(3)(ii) (requiring institutions to report suspected

crimes committed by an identifiable suspect) and the $25,000 reporting

threshold of Sec. 563.180(d)(3)(iii) (requiring institutions to report

suspected crimes for which no suspect is identified). They asserted

that requiring institutions to report all financial transactions that

are suspicious for any reason required them to report transactions that

would otherwise fall under the appropriate threshold and therefore be

exempt from the reporting requirement. Several commenters also

encouraged the Agencies to adopt a threshold for reporting transactions

that are suspicious.

The OTS and the other Agencies agree with the concerns expressed by

these commenters. Section 563.180(d)(3)(iv) has been substantially

revised to add a $5,000 reporting threshold for transactions that are

suspicious and to clarify that this provision of the rule requires an

institution to report only transactions that it suspects involve money

laundering or violations of the BSA. Under the final rule, a savings

association or service corporation must file a SAR for any transaction

of $5,000 or more if it knows, suspects, or has reason to suspect that

the transaction: (A) involves money laundering; (B) is designed to

evade any regulations promulgated under the BSA; or (C) has no business

or apparent lawful purpose or is not the sort in which the particular

customer would normally be expected to engage, and the institution

knows of no reasonable explanation for the transaction after examining

the available facts, including the background and possible purpose of

the transaction. For purposes of Sec. 563.180(d)(3)(iv), the term

``transaction'' means a deposit, withdrawal, transfer between accounts,

exchange of currency, loan, extension of credit, or purchase or sale of

any stock, bond, certificate of deposit, or other monetary instrument

or investment security, or any other payment, transfer, or delivery by,

through or to a financial institution, by whatever means effected. The

text of this section recognizes that efforts to deter, substantially

reduce, and eventually eradicate money laundering are greatly assisted

when institutions report transactions that they suspect may involve

money laundering or violate the BSA. The requirements of this section

comply with the recommendations adopted by multi-country organizations

in which the United States is an active participant, including the

Financial Action Task Force of the G-7 nations and the Organization of

American States, and are consistent with the European Community's

directive on preventing money laundering through financial

institutions.

A few commenters encouraged the Agencies to raise the dollar

thresholds for known or suspected criminal conduct by non-insiders, and

several commenters urged the Agencies to establish a dollar threshold

for insiders. The OTS has considered these comments, but has concluded

that the thresholds, as proposed, properly balance the dual concerns of

prosecuting criminal activity involving savings associations and

service corporations and minimizing the burden on such institutions.

With respect to the suggestion that the OTS adopt a dollar threshold

for insider violations, the OTS notes that insider abuse has long been

a key concern and focus of enforcement efforts. With the development of

a new sophisticated and automated database, the OTS and law enforcement

agencies will have the benefit of a comprehensive and easily accessible

catalogue of known or suspected insider wrongdoing. When insiders are

involved, even small-scale offenses--for example, repetitive thefts of

small amounts of cash by an employee who frequently moves between

banking organizations--may undermine the integrity of such

organizations and warrant enforcement action or criminal prosecution.

Therefore, the OTS does not wish to limit the information it receives

regarding insider wrongdoing.

One commenter suggested an indexed threshold, based on the regional

differences in the various dollar thresholds below which the Federal,

state, and local prosecutors generally decline prosecution. Any

regional variations in the dollar amount of financial crimes generally

prosecuted involve issues pertaining to the exercise of prosecutorial

discretion that are not within the OTS's province to resolve. The OTS's

objective is to ensure that institutions place the relevant information

in the hands of the investigating and prosecuting authorities. In the

OTS's view, the dollar thresholds proposed and adopted in this final

rule best balance the interests of law enforcement authorities and

financial institutions. The OTS also believes that indexed thresholds

could generate additional regulatory burden for institutions by

creating a standard that is unclear and confusing.

One commenter noted that the OTS and OCC proposals keyed the

reporting thresholds to the amount of loss or potential loss to the

institution (which is the standard used in the OTS's current rule),

while the FRB keyed its reporting thresholds to events that ``involve

or aggregate'' more than the appropriate threshold. The commenter urged

all Agencies to use the proposed OTS and OCC standard. Upon further

consideration, the OTS believes that the standard used in the FRB's

proposal provides greater predictability in determining when to file a

SAR because the amount of loss or potential loss may differ from the

actual sum involved in the event and may be difficult to calculate in

many instances. The OTS believes that, were the Agencies to rely on the

amount of loss or potential loss, an institution might consider the

potential for recovery of funds to estimate loss. Instead, to avoid

potential uncertainty, the final rule conforms to the FRB's proposal

and requires an institution to file SARs whenever it detects a known or

suspected Federal criminal violation, or pattern of criminal

violations, committed or attempted against it or involving a

transaction conducted through it that involves or aggregates more than

the appropriate threshold.

One commenter expressed the concern that a banking organization

would need to establish probable cause before reporting crimes for

which an essential element of the proof of the crime was the intent of

the actor. This is not the case, however. Nothing in the rule requires

that savings associations assume the burden of proving illegal conduct;

rather, institutions are required only to report actual or suspected

crimes or suspicious activities for possible action by the appropriate

authorities.

One commenter requested clarification of whether the proposal

required an institution to file multiple SARs for a crime committed by

several individuals, multiple crimes by the same individual, or related

crimes committed by more than one individual. Financial institutions

should complete one SAR to describe a suspected or known criminal

offense committed by several individuals. The instructions to the SAR

permit institutions to report additional suspects by means of a

supplemental page. An institution

[[Page 6103]]

should file a separate SAR whenever an individual commits a suspected

or known crime. If the same individual commits multiple or related

crimes within the same reporting period, the institution may consider

reporting the crimes on one SAR if doing so will present clearly what

has occurred.

Savings associations and service corporations are encouraged to

file the SAR via magnetic media using the computer software to be

provided to them by the OTS. Savings associations and service

corporations that currently file currency transaction reports via

magnetic tape with FinCEN may also file SARs by magnetic tape. FinCEN

has advised the Agencies that it will be unable to accept filings via

telecopier.

Service corporations (Sec. 563.180(d)(4))

The proposal retained the current provision permitting a report

required of a service corporation to be filed by the service

corporation or by a savings association which wholly or partially owns

it. No comments addressed this provision and it is unchanged in the

final rule.

Time for reporting (Sec. 563.180(d)(5))

Proposed Sec. 563.180(d)(5) substantially modified the current

requirements with respect to the timing of the reporting of known or

suspected criminal offenses and transactions that an institution

suspects involve money laundering or violate the BSA. It required an

institution to file a SAR within 30 calendar days after detecting the

act triggering the reporting requirement, provided that if no suspect

is identified at such time, the institution may delay filing for an

additional 30 days after identification of a suspect, but filing may

not be delayed for more than 60 days after initial detection.

Several commenters requested that the Agencies clarify the

application of the filing deadline for SARs when no suspect is

identified at the initial detection of the suspicious activity, the

amount of the transaction is less than the applicable $25,000 mandatory

reporting threshold, and the institution later identifies a suspect.

For example, some commenters wondered if they would be in violation of

the rule if a suspect were identified after 60 days had passed.

These comments reflect a misunderstanding of how the filing

requirements operate. The time period for reporting commences only at

the point in time when an institution identifies a potential violation

that fits within the thresholds. Therefore, if an institution uncovers

a transaction involving less than $25,000 (but more than $5,000), but

does not identify a potential suspect until after the passage of 60

days, the 30-day period for filing a SAR would begin to run only when

the suspect is identified. To make this point clear, the final rule

inserts the word ``reportable'' and states that in no case shall

reporting be delayed more than 60 calendar days after the date of

initial detection of a reportable transaction, i.e., a transaction that

must be reported because the amount involved is greater than the

appropriate reporting threshold. OTS has also reorganized this

paragraph, to conform with the other Agencies' rules.

Section 563.180(d)(5) also requires an institution to notify law

enforcement authorities immediately in the event of an on-going

violation. The OTS wishes to clarify that immediate notification is

limited to situations involving ongoing violations, for example, when a

check kite or money laundering has been detected and may be continuing.

It is not feasible, however, for the OTS to contemplate all of the

possible circumstances in which it might be appropriate for a savings

association or service corporation to immediately advise state and

local law enforcement authorities. Savings associations and service

corporations should use their best judgment regarding when to alert

these authorities regarding on-going criminal offenses or suspicious

activities that involve money laundering or violate the BSA.

Reports to state and local authorities (Sec. 563.180(d)(6))

The proposal encouraged savings associations and service

corporations to file SARs with state and local law enforcement agencies

when appropriate. Some commenters expressed the concerns that banking

organizations and their institution-affiliated parties could be liable

under Federal and state laws, such as the Right to Financial Privacy

Act (12 U.S.C. 3401 et seq.)(RFPA), for filing SARs with respect to

conduct that is later found not to have been criminal, and that the

filing of SARs with state and local law enforcement agencies would

subject filers to claims under state law. Both of these concerns are

addressed by the scope of the safe harbor protection provided in 31

U.S.C. 5318(g) and, as discussed below, stated in new

Sec. 563.180(d)(13).

Exception (Sec. 563.180(d)(7))

Proposed Sec. 563.180(d)(8), which set forth one exception to the

SAR filing requirement, did not substantively change its predecessor

provision. The OTS received no comments on this section and adopts it

as proposed. The final rule, however, reverses the order of proposed

paragraphs (d)(7) and (d)(8) and changes the caption of proposed

paragraph (d)(8) from ``exemption'' to ``exception'', to conform with

the other Agencies' rules.

Retention of records (Sec. 563.180(d)(8))

The proposal required an institution to retain a copy of the SAR

and the original of any underlying documentation relating to the SAR

for ten years. Many commenters expressed the view that the 10-year

period for the retention of records was excessive, especially in light

of the BSA's five-year record retention requirement, and recommended

that the Agencies reduce the period to five years. The 10-year period

in the proposed regulation would have continued the OTS's existing

record retention requirement for criminal referral forms. However, in

recognition of the potential burden of document retention on financial

institutions, the OTS has reduced the record retention period to five

years.

Many commenters asserted that the provision that required

institutions to disclose supporting documentation to law enforcement

agencies upon their request was either unclear or posed potential RFPA

liability. Some therefore questioned whether law enforcement agencies

would still need to subpoena relevant documents from a savings

association or service corporation. The final regulation requires

organizations filing SARs to identify, maintain and treat the

documentation supporting the report as if it were actually filed with

the SAR. This means that subsequent requests from law enforcement

authorities for the supporting documentation relating to a particular

SAR do not require the service of a subpoena or other legal process

normally associated with the provision of information to law

enforcement agencies. This treatment of supporting documentation is not

a substantive change from the current rule's requirement that

supporting documentation be filed with each referral, since it only

changes the timing of when an agency will have access to the supporting

documentation, not the fact that the information is assembled and made

available for law enforcement purposes. The Agencies therefore believe

that the final rule's treatment does not give rise to RFPA liability.

Proposed Sec. 563.180(d)(7) required the maintenance of supporting

documentation in its original form. A number of comments noted that

electronic storage of documents has become the rule rather than the

exception, and that requiring the storage

[[Page 6104]]

of paper originals would impose undue burdens on financial

institutions. Moreover, some records are retained only in a computer

database. The proposed regulation reflected the concerns of the law

enforcement agencies that the best evidence be preserved. However, this

can include the electronic storage of original documentation related to

the filing of a SAR. The OTS recognizes that a savings association or

service corporation will not always have custody of the originals of

documents and that some documents will not exist at the organization in

paper form. In those cases, preservation of the best available

evidentiary documents, for example, computer discs or photocopies, will

be acceptable. This has been reflected in the final rule by allowing

institutions to retain business record equivalents of supporting

documentation.

Several commenters criticized as inconsistent and vague the

proposed requirements that an institution maintain ``related''

documentation and make ``supporting'' documentation available to the

law enforcement agencies upon request. One commenter questioned whether

the OTS intended a substantive difference in meaning between these

terms. As a substantive difference is not intended, the OTS has

referred to ``supporting'' documentation in the final rule in stating

both the maintenance and production requirements. The OTS believes that

the use of the word ``supporting'' is more precise and limits the scope

of the information which must be segregated and retained to information

that would be relevant in proving the crime and identifying the

individuals involved. The OTS expects that savings associations and

service corporations will use their best judgment in determining the

scope of the information to be retained. It is not feasible for the OTS

to catalogue the precise types of information covered by this

requirement, because the scope necessarily depends upon the facts of a

particular case.

Notification to the board of directors (Sec. 563.180(d)(9))

The proposal reduced the burden on boards of directors to review

criminal referrals by allowing the management of an institution to

notify either the board of directors or a committee of directors or

executive officers designated by the board to receive notice of the

filing of a SAR. The proposal prohibited a savings association or

service corporation from giving notice of a SAR filing to any director

or officer who is a suspect with regard to such filing. The proposal

also required management to notify all directors, except the suspect,

when an executive officer or director is a suspect.

Most commenters supported this provision of the proposal. One

commenter, however, questioned whether the provision that required

prompt notification of the board of directors required notice prior to

the next board meeting. This commenter said that a requirement to

provide notice between board meetings would be more burdensome than the

current rule, which requires notification not later than the next board

meeting.

The OTS did not intend this change to be more burdensome than the

current rule and does not construe the requirement for prompt

notification to mean that notice must necessarily be provided before

the next board meeting. The final rule is intended to be flexible. For

example, the OTS expects that, with respect to serious crimes, the

appointed committee may consider it appropriate to make more immediate

disclosure to the full board. The final rule does not dictate the

content of the board or committee notification, and, in some cases,

such as when relatively minor non-insider crimes are to be reported, it

may be completely appropriate to provide only a summary listing of SARs

filed.

Compliance (Sec. 563.180(d)(10))

The proposal included a new provision stating that the failure to

file a SAR in accordance with the regulation and instructions may

result in supervisory actions, including enforcement actions. The OTS

received no comments on this section and adopts it as proposed.

Obtaining SARs (Sec. 563.180(d)(11))

The proposal added Sec. 563.180(d)(11), which provides savings

associations and service corporations with information on how to obtain

SARs. The OTS received no comments on this section and adopts it as

proposed.

Confidentiality of SARs (Sec. 563.180(d)(12))

The proposal contained a new provision preserving the confidential

nature of SARs and the information contained in SARs. One commenter

correctly noted that the proposed regulation is unclear as to whether

the confidential treatment applies only to the information contained on

the SAR itself, or also extends to the ``supporting'' documentation.

The OTS takes the position that only the SAR and the information on the

SAR are confidential under 31 U.S.C. 5318(g). However, as stated below

in the discussion of new Sec. 563.180(d)(13), the safe harbor

provisions of 31 U.S.C. 5318(g) for disclosure of information to law

enforcement agencies apply to both SARs and the supporting

documentation.

The OTS was encouraged to adopt regulations that would make SARs

undiscoverable in civil litigation, in order to avoid situations in

which a savings association or service corporation could be ordered by

a court to produce a SAR in civil litigation and could be confronted

with the prospect of having to choose between being found in contempt

or violating the OTS's rules. In the opinion of the OTS, 31 U.S.C.

5318(g) precludes the disclosure of SARs in discovery.3 However,

the final rule requires an institution that receives a subpoena or

other request for a SAR to notify the OTS so that the OTS can take

appropriate action. This notification requirement is consistent with 12

CFR 510.5.

\3\ Section 5318(g)(2) prohibits financial institutions and

directors, officers, employees, or agents of financial institutions

from notifying any person involved in a suspicious transaction that

the transaction has been reported.

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Safe harbor (Sec. 563.180(d)(13))

Several commenters expressed concern that disclosure of SARs and

supporting documentation to law enforcement agencies could give rise to

potential RFPA liability. In particular, the commenters questioned the

permissibility of filing SARs with state agencies or in situations in

which the amount of a transaction falls below the appropriate minimum

threshold for the known or suspected criminal conduct, or when a

transaction involving money laundering or the BSA does not meet the

requisite standards or thresholds. Commenters questioned the

applicability of the safe harbor provisions of 31 U.S.C. 5318(g) to

mandatory and voluntary filings alike.4

\4\ Section 5318(g)(3) states that a financial institution will

not be held liable to any person under any law or regulation of the

United States or any constitution, law, or regulation of any state

for making a disclosure of any possible violation of law or

regulation.

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The Agencies are of the opinion that the broad safe harbor

protections of 31 U.S.C. 5318(g)(3) include the reporting of known or

suspected criminal offenses or suspicious activities with state and

local law enforcement authorities, as well as with the Agencies and

FinCEN, regardless of whether such reports are filed pursuant to the

mandatory requirements of the OTS's regulations or are voluntary. The

OTS takes the same position with regard to the disclosure of

[[Page 6105]]

supporting documentation. The final rule adds new Sec. 563.180(d)(13),

which states this position.

Comments on information sharing

Comments to other Agencies suggested that the final regulations

should somehow facilitate the sharing of information among banking

organizations in order to better detect new fraudulent schemes. It is

anticipated that the Treasury Department, through FinCEN, and the

Agencies, will keep reporting entities apprised of recent developments

and trends in banking-related crimes through periodic pronouncements,

meetings, and seminars.

Regulatory Flexibility Act

Pursuant to section 605(b) of the Regulatory Flexibility Act, the

OTS hereby certifies that this final rule will not have a significant

economic impact on a substantial number of small entities. This final

rule primarily reorganizes the process for reporting crimes and

suspicious activities and has no material impact on savings

associations and service corporations, regardless of size. Accordingly,

a regulatory flexibility analysis is not required.

Executive Order 12866

The OTS has determined that this document is not a significant

regulatory action under Executive Order 12866.

Paperwork Reduction Act

The reporting and recordkeeping requirements contained in this

final rule were submitted to the Office of Management and Budget for

review at the proposed rule stage in accordance with the Paperwork

Reduction Act of 1995 (PRA) and were approved. Comments on the

collection of information should be sent to the Office of Management

and Budget (OMB), Paperwork Reduction Project (1550-0003), Washington,

DC 20503, with copies to the Office of Thrift Supervision, 1700 G

Street, NW., Washington, DC 20552.

The reporting and recordkeeping requirements in this final rule are

found in 12 CFR 563.180(d). The collection of information is necessary

for the proper performance of the OTS's functions and the information

has practical utility. The information is needed to inform appropriate

law enforcement agencies of known or suspected criminal or suspicious

activities that take place at or were perpetrated against financial

institutions.

The Unfunded Mandates Reform Act of 1995

The OTS has determined that this final rule will not result in

expenditure by State, local, or tribal governments or by the private

sector of more than $100 million. Accordingly, the Unfunded Mandates

Reform Act does not apply.

List of Subjects in 12 CFR Part 563

Accounting, Advertising, Crime, Currency, Flood insurance,

Investments, Reporting and recordkeeping requirements, Savings

associations, Securities, Surety bonds.

Authority and Issuance

For the reasons set out in the preamble, part 563 of chapter V of

title 12 of the Code of Federal Regulations is amended as set forth

below:

PART 563--OPERATIONS

1. The authority citation for part 563 is revised to read as

follows:

Authority: 12 U.S.C. 375b, 1462, 1462a, 1463, 1464, 1467a, 1468,

1817, 1828, 3806; 31 U.S.C. 5318; 42 U.S.C. 4012a, 4104a, 4104b,

4106, 4128.

2. Section 563.180 is amended by revising the section heading and

paragraph (d) to read as follows:

Sec. 563.180 Suspicious Activity Reports and other reports and

statements.

* * * * *

(d) Suspicious Activity Reports--(1) Purpose and scope. This

paragraph (d) ensures that savings associations and service

corporations file a Suspicious Activity Report when they detect a known

or suspected violation of Federal law or a suspicious transaction

related to a money laundering activity or a violation of the Bank

Secrecy Act.

(2) Definitions. For the purposes of this paragraph (d):

(i) FinCEN means the Financial Crimes Enforcement Network of the

Department of the Treasury.

(ii) Institution-affiliated party means any institution-affiliated

party as that term is defined in sections 3(u) and 8(b)(9) of the

Federal Deposit Insurance Act (12 U.S.C. 1813(u) and 1818(b)(9)).

(iii) SAR means a Suspicious Activity Report on the form prescribed

by the OTS.

(3) SARs required. A savings association or service corporation

shall file a SAR with the appropriate Federal law enforcement agencies

and the Department of the Treasury in accordance with the form's

instructions, by sending a completed SAR to FinCEN in the following

circumstances:

(i) Insider abuse involving any amount. Whenever the savings

association or service corporation detects any known or suspected

Federal criminal violation, or pattern of criminal violations,

committed or attempted against the savings association or service

corporation or involving a transaction or transactions conducted

through the savings association or service corporation, where the

savings association or service corporation believes that it was either

an actual or potential victim of a criminal violation, or series of

criminal violations, or that it was used to facilitate a criminal

transaction, and it has a substantial basis for identifying one of its

directors, officers, employees, agents or other institution-affiliated

parties as having committed or aided in the commission of a criminal

act, regardless of the amount involved in the violation.

(ii) Violations aggregating $5,000 or more where a suspect can be

identified. Whenever the savings association or service corporation

detects any known or suspected Federal criminal violation, or pattern

of criminal violations, committed or attempted against the savings

association or service corporation or involving a transaction or

transactions conducted through the savings association or service

corporation and involving or aggregating $5,000 or more in funds or

other assets, where the savings association or service corporation

believes that it was either an actual or potential victim of a criminal

violation or series of criminal violations, or that it was used to

facilitate a criminal transaction, and it has a substantial basis for

identifying a possible suspect or group of suspects. If it is

determined prior to filing this report that the identified suspect or

group of suspects has used an alias, then information regarding the

true identity of the suspect or group of suspects, as well as alias

identifiers, such as drivers' license or social security numbers,

addresses and telephone numbers, must be reported.

(iii) Violations aggregating $25,000 or more regardless of

potential suspects. Whenever the savings association or service

corporation detects any known or suspected Federal criminal violation,

or pattern of criminal violations, committed or attempted against the

savings association or service corporation or involving a transaction

or transactions conducted through the savings association or service

corporation and involving or aggregating $25,000 or more in funds or

other assets, where the savings association or service corporation

believes that it was either an actual or potential victim of a criminal

violation or series of criminal violations, or that it was used to

[[Page 6106]]

facilitate a criminal transaction, even though there is no substantial

basis for identifying a possible suspect or group of suspects.

(iv) Transactions aggregating $5,000 or more that involve potential

money laundering or violations of the Bank Secrecy Act. Any transaction

(which for purposes of this paragraph (d)(3)(iv) means a deposit,

withdrawal, transfer between accounts, exchange of currency, loan,

extension of credit, purchase or sale of any stock, bond, certificate

of deposit, or other monetary instrument or investment security, or any

other payment, transfer, or delivery by, through, or to a financial

institution, by whatever means effected) conducted or attempted by, at

or through the savings association or service corporation and involving

or aggregating $5,000 or more in funds or other assets, if the savings

association or service corporation knows, suspects, or has reason to

suspect that:

(A) The transaction involves funds derived from illegal activities

or is intended or conducted in order to hide or disguise funds or

assets derived from illegal activities (including, without limitation,

the ownership, nature, source, location, or control of such funds or

assets) as part of a plan to violate or evade any law or regulation or

to avoid any transaction reporting requirement under Federal law;

(B) The transaction is designed to evade any regulations

promulgated under the Bank Secrecy Act; or

(C) The transaction has no business or apparent lawful purpose or

is not the sort in which the particular customer would normally be

expected to engage, and the institution knows of no reasonable

explanation for the transaction after examining the available facts,

including the background and possible purpose of the transaction.

(4) Service corporations. When a service corporation is required to

file a SAR under paragraph (d)(3) of this section, either the service

corporation or a savings association that wholly or partially owns the

service corporation may file the SAR.

(5) Time for reporting. A savings association or service

corporation is required to file a SAR no later than 30 calendar days

after the date of initial detection of facts that may constitute a

basis for filing a SAR. If no suspect was identified on the date of

detection of the incident requiring the filing, a savings association

or service corporation may delay filing a SAR for an additional 30

calendar days to identify a suspect. In no case shall reporting be

delayed more than 60 calendar days after the date of initial detection

of a reportable transaction. In situations involving violations

requiring immediate attention, such as when a reportable violation is

ongoing, the savings association or service corporation shall

immediately notify, by telephone, an appropriate law enforcement

authority and the OTS in addition to filing a timely SAR.

(6) Reports to state and local authorities. A savings association

or service corporation is encouraged to file a copy of the SAR with

state and local law enforcement agencies where appropriate.

(7) Exception. A savings association or service corporation need

not file a SAR for a robbery or burglary committed or attempted that is

reported to appropriate law enforcement authorities.

(8) Retention of records. A savings association or service

corporation shall maintain a copy of any SAR filed and the original or

business record equivalent of any supporting documentation for a period

of five years from the date of the filing of the SAR. Supporting

documentation shall be identified and maintained by the savings

association or service corporation as such, and shall be deemed to have

been filed with the SAR. A savings association or service corporation

shall make all supporting documentation available to appropriate law

enforcement agencies upon request.

(9) Notification to board of directors--(i) Generally. Whenever a

savings association (or a service corporation in which the savings

association has an ownership interest) files a SAR pursuant to this

paragraph (d), the management of the savings association or service

corporation shall promptly notify its board of directors, or a

committee of directors or executive officers designated by the board of

directors to receive notice.

(ii) Suspect is a director or executive officer. If the savings

association or service corporation files a SAR pursuant to this

paragraph (d) and the suspect is a director or executive officer, the

savings association or service corporation may not notify the suspect,

pursuant to 31 U.S.C. 5318(g)(2), but shall notify all directors who

are not suspects.

(10) Compliance. Failure to file a SAR in accordance with this

section and the instructions may subject the savings association or

service corporation, its directors, officers, employees, agents, or

other institution-affiliated parties to supervisory action.

(11) Obtaining SARs. A savings association or service corporation

may obtain SARs and the instructions from the appropriate OTS Regional

Office listed in 12 CFR 516.1(b).

(12) Confidentiality of SARs. SARs are confidential. Any

institution or person subpoenaed or otherwise requested to disclose a

SAR or the information contained in a SAR shall decline to produce the

SAR or to provide any information that would disclose that a SAR has

been prepared or filed, citing this paragraph (d), applicable law

(e.g., 31 U.S.C. 5318(g)), or both, and shall notify the OTS.

(13) Safe harbor. The safe harbor provision of 31 U.S.C. 5318(g),

which exempts any financial institution that makes a disclosure of any

possible violation of law or regulation from liability under any law or

regulation of the United States, or any constitution, law or regulation

of any state or political subdivision, covers all reports of suspected

or known criminal violations and suspicious activities to law

enforcement and financial institution supervisory authorities,

including supporting documentation, regardless of whether such reports

are filed pursuant to this paragraph (d), or are filed on a voluntary

basis.

* * * * *

Dated: February 5, 1996.

By the Office of Thrift Supervision.

Jonathan L. Fiechter,

Acting Director.

[FR Doc. 96-3110 Filed 2-15-96; 8:45 am]

BILLING CODE 6720-01-P