Amended Memorandum Opinion granting Government’s Motion for Summary Judgment in Wuliger V. Office of the Comptroller of the Currency

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IN THE UNITED STATESDISTRICT COURT

FOR THE NORTHERN DISTRICT OF OHIO

WESTERN DMSION

WILLIAM T. WULIGER,

Phrinfifl:

Case No. 3:05 CV 108

-vs-

OFFICE OF THE COMPTROLLER

OF CURRENCY, et aI.,

AMENDED

MEMORANDUM

OPINION

Defendant

KATZ,1.

BACKGROUND

This case is one of many cases in the satellite litigation generated &om the Liberte

Capital v.

Capwill, 5:99 CV 0818 (N.D. Ohio) debacle. Without belaboring the a1ready familiar history of this

litigationl, a brief overview of the facts underlying this case is sufficient for purposes of this discussion.

James A. Capwill ("Capwill'') was the escrow agent who, along with his company Viatical Escrow

Services (''YES''), handled the investment funds for several investor groups. These investment funds

were used to fund various bank and brokerage accounts, ultimately to the detriment of the investors.

For a case chronology,see Liberte Capital Group v. Capwill, 299 F.Supp.2d 799,800-801 (N.D.

Ohio 2002).

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Followmg his appointment as Receiver, the Plaintiffhas initiated suits against various brokerage finns and

financial institutions. In actions against the financial institutions, the Receiver sought discovery of

Suspicious Activity Reports ("SARs") and the banks therein raised strenuous objections thereto.

In January 2005, William T. Wuliger ("Wuliger') as acting General Receiver, brought this

action against the affice of the Comptroller of Currency, Julie L. Williams, Acting Comptroller, Douglas

W. Roeder, Senior Deputy Comptroller (hereinafter collectively referred to as the "aCC'),

KeyBank

National Association, Liberty Bank, N.A., and Star Bank, N.A. ("the Banks").

In his complaint, the

Receiver seeks declaratory and injunctive relief concerning the acc's

authority regarding the Receiver's

accessto non-publicacc

infonnationfollowmgthe Plaintiff'sunsuccessfuladministrativerequest

Douglas

W. Roeder, Senior Deputy Comptroller (hereinafter collectively referred to as the "aCC'),

KeyBank

National Association, Liberty Bank, N.A., and Star Bank, N.A. ("the Banks").

In his complaint, the

Receiver seeks declaratory and injunctive relief concerning the acc's

authority regarding the Receiver's

accessto non-publicacc

infonnationfollowmgthe Plaintiff'sunsuccessfuladministrativerequest. A

determinationon the Receiver's abilityto accessthis infonnationvia the acc

is criticalto the bank

litigation previously referenced.

Pending before the Court are the: (1) acc's

motion to dismiss or, in the alternative, motion for

summary judgment; (2) Plaintiff's cross-motion for summary judgment; (3) the Defendant Banks' cross-

motion for summary judgment; and (4) a further statement of interest of the United States, presented by

the Department of Justice.

Also before the Court are the parties' responses to the various

motions/statements.

This Court has jurisdiction pursuant to 28 U.S.C. § 1331. With the matters having

been fully briefed, the Court now turns to the issues presented.

STANDARD OF REVIEW

A. Summary Judgment

Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories,

and admissions on file, together with the affidavits, if any, show there is no genuine issue as to any

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material fact and that the moving party is entitled to judgment as a matter of law." FED.R CIV.P. 56( C).

The moving party bears the initial responsibility of"infomring the district court of the basis for its motion,

and identifying those portions of 'the pleadings, depositions, answers to interrogatories, and admissions

on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of

materialfact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d

265 (1986)

responsibility of"infomring the district court of the basis for its motion,

and identifying those portions of 'the pleadings, depositions, answers to interrogatories, and admissions

on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of

materialfact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d

265 (1986). The movant may meet this burden by demonstrating the absence of evidence supporting

one or more essential elements of the non-movant's claim. Id. at 323-25. Once the movant meets this

burden, the opposing party "must set forth specific facts showing that there is a genuine issue for trial."

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S. Ct. 2505, 2541,91 L. Ed. 2d 202

(1986) (quoting FED.R CIV.P. 56(e)).

Once the burden of production has so shifted, the party opposing summaty judgment cannot rest

on its pleadings or merely reassert its previous allegations. It is not sufficient "simply [to] show that there

is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio

Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 1356,89 L. Ed. 2d 538 (1986). Rather, Rule 56(e)

"requires the nonmoving party to go beyond the pleadings" and present some type of evidential)' material

in support of its position. Celotex, 477 U.S. at 324, 106 S. Ct. at 2553; see also Harris v. General

Motors Corp., 201 F.3d 800, 802 (6th Cir. 2000). Summal)' judgment must be entered "against a

party who fails to make a showing sufficient to establish the existence of an element essential to that

party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322,

106 S. Ct. at 2552.

3

n. Celotex, 477 U.S. at 324, 106 S. Ct. at 2553; see also Harris v. General

Motors Corp., 201 F.3d 800, 802 (6th Cir. 2000). Summal)' judgment must be entered "against a

party who fails to make a showing sufficient to establish the existence of an element essential to that

party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322,

106 S. Ct. at 2552.

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"In considering a motion for summary judgment, the Court must view the facts and draw all

reasonable inferences therefrom in a light most favorable to the nonmoving party."

Williams

v.

Belknap,

154 F. Supp. 2d 1069,1071 (B.D. Mich. 2001) (citing 60 Ivy Street Corp. v. Alexander,

822 F.2d 1432, 1435 (6th Cir. 1987». However,"'at the summaryjudgment stagethejudge's function

is not himselfto weigh the evidence and determine the truth of the matter,'"

Wiley v. US., 20 F.3d 222,

227 (6th Cir. 1994) (quoting Anderson,

477 U.S. at 249); therefore, "[t]he Court is not required or

permitted . .. to judge the evidence or make findings of fact."

Williams, 154 F. Supp. 2d at 1071. The purpose of summary judgment "is not to resolve factual issues,

but to determine if there are genuine issues offact to be tried." Abercrombie

& Fitch Stores, Inc. v.

Am. Eagle Outfitters, Inc., 130F. Supp.2d 928,930 (S.D. Ohio 1999). Ultimately,this Court must

determine "whether the evidence presents a sufficient disagreement to require submission to a jUl)' or

whether it is so one-sided that one party must prevail as a matter oflaw."

Anderson,

477 U.S. at 251-

52; see also Atchley v. RK Co., 224 F.3d 537,539 (6th Cir. 2000).

B. Administrative Procedure Act

Judicial review of an agency decision is authorized under the Federal Administrative Procedure

Act ("APA"). 5 U.S.C. § 706. Under this statute the court, after review of the relevant legal questions

and, where necessary, sha1l-

(1) compel agency action unlawfully withheld or unreasonably delayed; and

52; see also Atchley v. RK Co., 224 F.3d 537,539 (6th Cir. 2000).

B. Administrative Procedure Act

Judicial review of an agency decision is authorized under the Federal Administrative Procedure

Act ("APA"). 5 U.S.C. § 706. Under this statute the court, after review of the relevant legal questions

and, where necessary, sha1l-

(1) compel agency action unlawfully withheld or unreasonably delayed; and

(2) hold unlawful and set aside agency action, findings, and conclusions found to be-

(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance

with law;

(B) contrary to constitutional right, power, privilege, or immunity;

(C) in excess of statutory jurisdiction, authority, or limitations, or short of

statutory right;

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(D) without observance of procedure required by law;

(E) unsupported by substantial evidence in a case subject to sections 556 and

557 of this title or othernrise reviewed on the record of an agency hearing provided by

statute; or

(F) unwarranted by the facts to the extent that the facts are subject to trial de

novo by the reviewing court.

In making the foregoing detenninations, the court shall review the whole record

or those parts of it cited by a party, and due account shall be taken of the rule of

prejudicial error.

As the noted recently by the Sixth Circuit, the standard of review is narrow and deferential as

"the court is not empowered to substitute its judgment for that of the agency." Northeast

Ohio Regional

Sewer District v. United States EPA, 411 F.3d 726, 733-732 (6th Cir. 2005), citing Citizens to

Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971). Moreover, the burden of proof is

on the aggrieved party seeking to establish the invalidity of the administrative action. Warren v. U.s.,

932 F.2d 582,586 (6thCir. 1991); Cape Hatteras Access Preservation Alliance v. u.s. Dept. Of

Interior, 344 F.Supp.2d 108, 119 (D.C.C. 2004); Carabell v

6, 733-732 (6th Cir. 2005), citing Citizens to

Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971). Moreover, the burden of proof is

on the aggrieved party seeking to establish the invalidity of the administrative action. Warren v. U.s.,

932 F.2d 582,586 (6thCir. 1991); Cape Hatteras Access Preservation Alliance v. u.s. Dept. Of

Interior, 344 F.Supp.2d 108, 119 (D.C.C. 2004); Carabell v. United States Army Corps of

Engineers, 257 F.Supp.2d 917,926 (E.D. Mich. 2003), aff'd 391 F.3d 704 (6thCir. 2004);

Burkholder

v. Wykle, 268 F.Supp.2d 835, 841 (N.D. Ohio 2002), aff'd 58 Fed. Appx. 94 (6th Cir.

2003). Where the agency detennination cannot be sustained, the court must remand for further

considerationof the request. See Camp v. Pitts, 411 U.S. 138, 143,93 S.Ct. 1241, 1244,36 L.Ed.2d

106 (1973).

A review under the APA contemplates consideration of the administrative record in existence as

opposed to a new record being made before the reviewing court.

Buckeye Forest Council v. U.S.

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Forest Service, _F.Supp.2d_,

2005 WL 1705084 *6 (S.D. Ohio July 20,2005), citing Florida

Power & Light Co. v. Lorion, 470 US. 729, 743-44 (1985).

In this case, the OCC has moved for disposition under Fed. R. Civ. P. l2(b)(6) and 56. The

Receiver has filed a cross-motion for summary judgment as have the Defendant Banks. However, given

the nature of this administrative review and the fact that the Receiver has not sought discovery necessary

to respond to the Defendants' motions, the appropriate vehicle for disposition is under Rule 56.

LAw ANDANALYSIS

A. Suspicious Activity Reports

The Bank Secrecy Act of 1970 ("BSA") requires financial institutions to maintain records and

provide reports to regulators which, in turn, assist in the investigation of criminal, tax or regulatory

proceedings. An underlying pmpose of the BSA was to counter money-laundering activities

motions, the appropriate vehicle for disposition is under Rule 56.

LAw ANDANALYSIS

A. Suspicious Activity Reports

The Bank Secrecy Act of 1970 ("BSA") requires financial institutions to maintain records and

provide reports to regulators which, in turn, assist in the investigation of criminal, tax or regulatory

proceedings. An underlying pmpose of the BSA was to counter money-laundering activities. To that

end, the Secretary of the Treasury is authorized to issue regulations in promoting this record-keeping

mandate as well as assisting in law enforcement or regulatory investigations.

12 US.c.

§ 153. Under

the 1992 Annunzio-Wylie Anti-Money Laundering Act, "[t]he Secretary may require any financial

institution. . . to report any suspicious transaction relevant to a possible violation of law or regulation."

31 US.C.

§ 53l8(g)(1).

The anti-money laundering laws were most recently expanded by the USA

Patriot Act of 200 12. Under the BSA, financial institutions are subject to civil and criminal penalties for

violations of the record-keeping requirements.

2

Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct

Terrorism ("USA Patriot Act"), Pub. L. 107-56, § 505, 115 Stat. 272 (Oct. 26, 2001).

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The Treasury Department enacted regulations requiring financial institutions to file Suspicious

Activity Reports ("SARs").

31 C.F.R. § 103.18. Each of the respective banking agencies then

promulgated regulations to comply with the BSA and SARs reporting requirement. See, 12 C.F.R. §

208.62 (Federal Reserve Board); 12 C.F.R. § 12.11 (OCe); and 12 C.F.R. § 563.180 (Office of Thrift

Supervision).

The BSA prohibits notification of a suspicious transaction report to "any person involved in the

transaction that has been reported," nor may an "officer or employee of the Federal Government.

omulgated regulations to comply with the BSA and SARs reporting requirement. See, 12 C.F.R. §

208.62 (Federal Reserve Board); 12 C.F.R. § 12.11 (OCe); and 12 C.F.R. § 563.180 (Office of Thrift

Supervision).

The BSA prohibits notification of a suspicious transaction report to "any person involved in the

transaction that has been reported," nor may an "officer or employee of the Federal Government.

. who

has any knowledge that such report was made may disclose to any person involved in the transaction that

the transaction has been reported. . ." 31 U.S.c. § 53l8(g)(2).

Confidentiality of SARs is addressed in OCC regulations as follows:

SARs are confidential. Any national bank 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 section, applicable law (e.g., 31 U.S.c. § 5318(g», or both, and shall

notify the OCC.

12 C.F.R. § 12.11(k). The regulations of the Federal Reserve Board3 and the Office of Thrift

Supervision4 are essentially identical.

The procedure for requesting non-public OCC documents is set forth at 12 C.F.R. § 4.33.

Consideration of a request for non-public OCC information and a denial thereto is contained at 12

12 C.F.R. § 208.620).

4

12 C.F.R. § 563.180(d)(12).

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C.F.R. § 4.35. Finally,the regulationaddressesthe acc's

discretionand holds such a detennination to

be a final agency decision. § 4.35(a)(1).

B. Undisputed Facts

It is undisputedthat on August 9, 2004,the Plaintiffsentlettersto the acc

regardingthe release

of non-public infonnation contained in those SARs which related to compliance by the Banks.

Specifically, the Receiver requested "infonnation contained in the SARs, all supporting documentation,

and all related correspondence, memos or other documents, ITomJanuary 1, 1998 through December

31,2000"

regarding numerous accounts. (CompI., Ex

2004,the Plaintiffsentlettersto the acc

regardingthe release

of non-public infonnation contained in those SARs which related to compliance by the Banks.

Specifically, the Receiver requested "infonnation contained in the SARs, all supporting documentation,

and all related correspondence, memos or other documents, ITomJanuary 1, 1998 through December

31,2000"

regarding numerous accounts. (CompI., Ex. 5.)

On December 21,2004, DefendantRoeder, on behalf of the acc,

denied the Receiver's

request.

C. Analysis

1. Reviewofacc Decision

Validity of the acc's

regulations prohibiting disclosure ofa SAR requires an analysis under the

Supreme Court's opinion in Chevron US.A., Inc. v. Natural Resources Defense

Council, Inc., 467

U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Where "Congress has not directly addressed the

precise question at issue, the court does not simply impose its own construction on the statute, as would

be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or

ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is

based on a permissible construction of the statute." Id at 843, 104 S.Ct. at 2782 (footnotes omitted).

As noted in Chevron, "[t]he power of an administrative agency to administer a congressionally

created . . . program necessarily requires the formulation of policy and the making of rules to fill any gap

8

respect to the specific issue, the question for the court is whether the agency's answer is

based on a permissible construction of the statute." Id at 843, 104 S.Ct. at 2782 (footnotes omitted).

As noted in Chevron, "[t]he power of an administrative agency to administer a congressionally

created . . . program necessarily requires the formulation of policy and the making of rules to fill any gap

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left,implicitlyor explicitly,by Congress." Id, quotingMorton v. Ruiz, 415 U.S. 199,231 (1974).

Where "Congress has explicitly left a gap for the agency to fill, there is an express delegation of authority

to the agency to elucidate a specific provision of the statute by regulation."

In those cases where ''the

legislative delegation to an agency on a particular question is implicit rather than explicit. . . a court may

not substitute its own construction of a statutory provision for a reasonable interpretation made by the

administratorof an agency." Id at 844, 104 S.Ct. at 2782.

Under the 1992 Annunzio- Wylie Anti-Money Laundering Act, Congress authorized the

Secretary of the Treasury to:

require a class of domestic financial institutions or nonfinancial trades or businesses to

maintain appropriate procedures to ensure compliance with this subchapter and

regulations prescribed under this subchapter or to guard against money laundering.

31 U.S.C. § 5318(a)(2).

Equally clear was Congress's intent on keeping the reporting of suspicious

transactions from being disclosed, with certain limited exceptions. § 5318(g)(2)(A) and (B). The

importance of confidentiality, necessary to combat money-laundering activities, is further reflected in the

safe harbor provisions of the Act. § 5318(g)(3).

It is clear that Congress was concerned that the reporting of suspicious transactions be

confidential

ntent on keeping the reporting of suspicious

transactions from being disclosed, with certain limited exceptions. § 5318(g)(2)(A) and (B). The

importance of confidentiality, necessary to combat money-laundering activities, is further reflected in the

safe harbor provisions of the Act. § 5318(g)(3).

It is clear that Congress was concerned that the reporting of suspicious transactions be

confidential. While it did not address the disclosure of this infonnation to third-parties, under Chevron

the delegation to the agency on this issue is considered to be implicit and prompts a reasonable

interpretation standard on behalf of the agency.

This situation differs from the circumstances presented to the Sixth Circuit in In re Bankers

Trust

Company,

61 F.3d 465 (6th Cir. 1995), the primary case relied upon by the Plaintiff. The subject of the

dispute there involved documents prepared by the non-party Federal Reserve and the defendant bank in

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the course of a bank examination and sought by the plaintiff company in a securities lawsuit. While the

regulations involved in Bankers Trust differ from the case at bar, the Sixth Circuit's guidance on analysis

is a starting point: "As long as the federal agency's regulation is based upon a permissible construction of

the enabling statute, the regulation should be enforced."

61 F.3d at 469-470 citing Chevron, supra.

In this instance, it is not merely the enabling statute which must be considered but the authorizing

substantive regulation under the BSA. As noted above, the statute, 31 V.S.C. § 5318, is entitled,

"Compliance, exemptions and smnmons authority," and sets forth the general powers of the Secretary of

the Treasury. The statute also addresses reportable transactions and prohibited notifications as follows:

s instance, it is not merely the enabling statute which must be considered but the authorizing

substantive regulation under the BSA. As noted above, the statute, 31 V.S.C. § 5318, is entitled,

"Compliance, exemptions and smnmons authority," and sets forth the general powers of the Secretary of

the Treasury. The statute also addresses reportable transactions and prohibited notifications as follows:

(g) Reporting of suspicious transactions-

(1) In general-

The Secretary may 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.

(2) Notification

prohibited-

(A) 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-

(I) the financial institution, director, officer employee, or agent may not

notify any person involved in the transaction that the transaction has been reported; and

(ii) no officer or employee of the Federal Government or of any State,

local, tribal, or territorial government within the Vnited States, who has any 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.

§ 5318(g)(1) and (2). (Emphasis added.)

10

officer or employee of the Federal Government or of any State,

local, tribal, or territorial government within the Vnited States, who has any 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.

§ 5318(g)(1) and (2). (Emphasis added.)

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The statute also addresses exemptions in certain employment references.

§ 5318(g)(B)5.

Additionally, there is a safe harbor provision which protects SAR filers from civil liability. § 5318(g)(3).

It is this specific language within the statute upon which the SecretaIy derives his/her authority and the

OCC, as a bureau of the Department of Treasmy, is subject to direction therein.

The confidentiality provisions under the regulations have been upheld as consistent with the

statutory authority approved by Congress. In Weil v. Long Island Saving Bank, 195 F.Supp.2d

383

(B.D.N.Y. 2001), the district court prohibited disclosure of the SARs in a class action initiated by

borrowers who alleged an illegal kickback scheme involving the bank, the bank's CEO and a law firm.

There, the court found the enabling legislation as sufficiently specific to satisfy the Sixth Circuit's test in

Banker's

Trust.

Id. at 388. Despite the fact that one of the principals (of the defendant law firm) had

been prosecuted, in denying that part of the motion to compe~ the court succinctly noted, "the plain

language of the regulation requires this court to deny the production of the SAR itself." Id. at 390

found the enabling legislation as sufficiently specific to satisfy the Sixth Circuit's test in

Banker's

Trust.

Id. at 388. Despite the fact that one of the principals (of the defendant law firm) had

been prosecuted, in denying that part of the motion to compe~ the court succinctly noted, "the plain

language of the regulation requires this court to deny the production of the SAR itself." Id. at 390.

5

(I) Rule of construction-

Notwithstanding the application of subparagraph (A) in any

other context, subparagraph (A) shall not be construed as prohibiting any financial

institution, or any director, officer, employee, or agent of such institution, from including

information that was included in a report to which subparagraph (A) applies-

(I) in a written employment reference that is provided in accordance with

section 18(w) of the Federal Deposit Insurance Act in response to a request from

another financial institution; or (II) in a written termination notice or employment

reference that is provided in accordance with the rules of a self-regulatory organization

registered with the Securities and Exchange Commission or the Commodity Futures

Trading Commission, except that such written reference or notice may not disclose that

such information was also included in any such report, or that such report was made.

(ii) Information

not required-

Clause (i) shall not be construed, by itself, to

create any affirmative duty to include any information described in clause (i) in any

employment reference or termination notice referred to in clause (i).

11

mmission, except that such written reference or notice may not disclose that

such information was also included in any such report, or that such report was made.

(ii) Information

not required-

Clause (i) shall not be construed, by itself, to

create any affirmative duty to include any information described in clause (i) in any

employment reference or termination notice referred to in clause (i).

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A similar conclusion was reached by the district court in Cotton v. PrivateBank

and Trust Co.,

235 F.Supp.2d 809 (N.D. Ill. 2002). There, the bank/trustee moved to compel production of a SAR

upon the depository of a trust account. The court prohibited disclosure of the SAR after examining the

statute and regulations and agreed that 12 C.F.R. § 21.11(k) was" valid and consistent with U.S.C. §

5318(g)(2)." Id. at 815. (Citationsomitted.) While the court found businessrecords made in the

ordinary course of business to be subject to discovery, it prohibited disclosure of drafts of SARs or

communications related to SARs. Id.

The state courts considering this issue have also found a SAR privilege to exist based upon the

treatment by the above federal courts. See Union Bank of California, N.A. v. Superior

Court, 130

Cal. AppAth 378, 29 Cal. Rptr.3d 894 (June 17,2005); International

Bank of Miami v. Shinkitzky,

849 So.2d 1188 (Fla. Ct. App. 2003).

Additionally, those federal courts considering the safe harbor provisions have also been steadfast

in holding a SAR to be prohibited from discovery. See Whitney National Bank v. Karam, 306

F.Supp.2d 678 (S.D. Tex. 2004); Lee v. Bankers

Trust Co., 166 F.3d 540 (2d Cir. 1999); Gregory

v. Bank One, 200 F.Supp.2d

1000 (S.D. Ind. 2002)

l

Bank of Miami v. Shinkitzky,

849 So.2d 1188 (Fla. Ct. App. 2003).

Additionally, those federal courts considering the safe harbor provisions have also been steadfast

in holding a SAR to be prohibited from discovery. See Whitney National Bank v. Karam, 306

F.Supp.2d 678 (S.D. Tex. 2004); Lee v. Bankers

Trust Co., 166 F.3d 540 (2d Cir. 1999); Gregory

v. Bank One, 200 F.Supp.2d

1000 (S.D. Ind. 2002).

In the ace's

description of the rule and comments (preceding enactment of the regulation),

confidentiality of the SARs is discussed as follows:

The proposal preserved the confidential nature of criminal referral reports by stating that

a SAR and the infonnation contained in a SAR are confidential.

One commenter correctly noted that the proposed regulation is unclear as to whether the

confidential treatment applies only to the infonnation contained on the SAR itself or also

extends to the "supporting" documentation.

The acc

takes the position that only the

SAR and the infonnation on the SAR are confidential under 31 U.S.c. 5318(g).

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However, as stated below in the discussion of new § 21.11(1), the safe harbor

provisions of3l

U.S.C. 5318(g) for disclosure of infonnation to law enforcement

agencies apply to both SARs and the supporting documentation.

Several commenters urged the acc

to adopt regulations that would make SARs

undiscoverable in civil litigation, in order to avoid situations in which a financial institution

could be ordered by a court to produce a SAR in civil litigation and could be comronted

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

acc's

rules. Intheopinionoftheacc, 31D.S.e. 53l8(g)precludesthedisclosureof

SARs in discovery. However,the finalrulerequiresa bank that receivesa subpoena or

otherrequestfor a SARto notifYthe acc

so that the acc

may intervenein litigationif

appropriate

to produce a SAR in civil litigation and could be comronted

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

acc's

rules. Intheopinionoftheacc, 31D.S.e. 53l8(g)precludesthedisclosureof

SARs in discovery. However,the finalrulerequiresa bank that receivesa subpoena or

otherrequestfor a SARto notifYthe acc

so that the acc

may intervenein litigationif

appropriate.

This notificationrequirementis consistentwiththe approachthe acc

has recentlytaken

in the finalrevisionsto part 4 of its regulations. In part4, the acc

requiresthat a person

or entityservedin civillitigationwitha subpoenato providenon-publicacc

information

notifYthe acc

so thatthe acc

can detenninewhetherit shouldintervenein the

proceedings.

Minimum Security Devices and Procedures, Reports of Suspicious Activities, and BSA Compliance

Program, 61 Fed. Reg. 4332,4336 (Feb. 5, 1996)(footnote omitted).

In viewing the statute and administrative regulations, the prohibition on disclosure of SARs was

not undertakenlightly,eitherby Congressor the ace.

In fact,the acc's

policy emphasizingthe

confidentiality of non-public information is further evidenced in the regulations imposing criminal penalties

for improper disclosure.

See 12 C.F.R. § 4.37(b)(1)(ii)6.

A court's review of an agency's detennination must be considered in light of the Supreme

Court's guidance:

6

Any person who discloses or uses non-public acc

infonnation except as expressly permitted by the

Comptroller of the Currency or as ordered by a Federal court, under paragraph (b)(1)(1) of this section,

may be subject to the penalties provided in 18 U.S.C. 641.

13

2 C.F.R. § 4.37(b)(1)(ii)6.

A court's review of an agency's detennination must be considered in light of the Supreme

Court's guidance:

6

Any person who discloses or uses non-public acc

infonnation except as expressly permitted by the

Comptroller of the Currency or as ordered by a Federal court, under paragraph (b)(1)(1) of this section,

may be subject to the penalties provided in 18 U.S.C. 641.

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Nonnally, an agency rule would be arbitrary and capricious if the agency has relied on

factors which Congress has not intended to consider, entirely failed to consider an

important aspect of the problem, offered an explanation for its decision that runs counter

to the evidence before the agency, or is so implausible that it could not be ascribed to a

difference in view or the product of agency expertise.

Motor Vehicles Mfrs. Ass 'n v. State Farm Mut., 463 U.S. 29, 43, 103 S.Ct. 2856, 2867, 77 L.Ed.2d

443 (1983).

In this instance, the acc

responded to the request in a three page letter accompanied by two

supporting interagency advisories. In its decision, the acc

began by reiterating the public policy against

disclosure of a SAR, noting its confidentiality as reflected in the statutes. The decision then touched on

the regulations addressing the confidentiality of a SAR and the court decisions upholding this stance.

Based upon the statutory, regulatory and case law, the acc

denied Plaintiffs request for the SARs.

The acc

also addressed the Receiver's alternate request for supporting documentation related to the

SARs and other infonnation kept in the ordinary course of business, noting that the acc

did not have

the infonnation described and that such a request should be directed to the Banks.

Having reviewed the statute, the regulatory process and case law on this issue, as well as the

ace's

decision,the Court cannotfind that the ace's

determinationrises to an arbitraryor capricious

level

n related to the

SARs and other infonnation kept in the ordinary course of business, noting that the acc

did not have

the infonnation described and that such a request should be directed to the Banks.

Having reviewed the statute, the regulatory process and case law on this issue, as well as the

ace's

decision,the Court cannotfind that the ace's

determinationrises to an arbitraryor capricious

level. Stated differently, this Court finds § 21.1l(k) to be consistent with the authorizing legislation under

31 U.S.C. § 53l8(g)(2) and a reasonable implementation of the statutory provision regarding reporting

and disclosure of SARs.

2. St4)aration of Powers

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The Plaintiff further argues that § 5318 violates the separation of powers as ''the statute and/or

regulation impennissibly invade[s] the province of the judiciary and [is] unconstitutional."

(Doc. No. 36

at p. 26.)

This Court does not find Plaintiff's position to be well taken.

It is clear that Congress, under the BSA, delegated broad powers to the Secretary to implement

regulations regarding maintenance of records and reports (by financial institutions) which would be useful

in investigating money laundering activities.

Having determined that Congress authorized the Secretary

of the Treasury to ensure reporting of suspicious transactions under § 5318, the acc's

regulations are a

proper exercise of that statutory delegation. As noted in the regulations, a purpose of the acc's

administrative procedure is to:

Afford an orderlymechanismforthe acc

to processexpeditiouslyrequestsfor non-

public acc

information;to addressthe releaseof non-publicacc

informationwithout

a request; and when appropriate,for the acc

to assertevidentiaryprivilegesin litigation;

12 C.F.R. § 4.31(a)(I)

a

proper exercise of that statutory delegation. As noted in the regulations, a purpose of the acc's

administrative procedure is to:

Afford an orderlymechanismforthe acc

to processexpeditiouslyrequestsfor non-

public acc

information;to addressthe releaseof non-publicacc

informationwithout

a request; and when appropriate,for the acc

to assertevidentiaryprivilegesin litigation;

12 C.F.R. § 4.31(a)(I).

The regulations aimed at the confidentiality provisions, enacted in February

1996, reflect concerns regarding confidentiality as follows:

The proposal preserved the confidential nature of criminal referral reports by stating that

a SAR and the information contained in a SAR are confidential.

61 Fed. Reg. 4336. Subject to the delegation of authority of Congress under the 1992 Annuzio-Wylie

Anti-Money Laundering Act, the agencies' ultimate adoption of this provision was an appropriate

exercise of their administrative authority.

Moreover, the regulations and comments preceding their

enactment reflect the acc's

stance that "only the SAR and the information on the SAR are confidential

under 31 US.C. 5318(g)." Id.

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Under the APA, administrative detenninations are subjected to judicial review and the regulations

contemplate the agency's participation in the litigation process challenging disclosure of such non-public

infonnation. See 12 C.F.R § 4.31(a)(1).

Many courts reviewing these challenges have characterized

the non-disclosure of a SAR as an evidentiary privilege. Whitney National Bank v. Karam,

306

F.Supp.2d at 682, citing Gregory v. Bank One, 200 F.Supp.2d at 1002.

While challenges as to

the production of a SAR have been largely unsuccessfut7, the courts confronting these discovery issues

have found the records (of the financial institutions) kept in the ordinary course of business (and which

may have given rise to creation of a SAR) are not exempt from discovery.

See Whitney National Bank

v. Karam, 306 F.Supp.2d at 682-683; Cotton v

, 200 F.Supp.2d at 1002.

While challenges as to

the production of a SAR have been largely unsuccessfut7, the courts confronting these discovery issues

have found the records (of the financial institutions) kept in the ordinary course of business (and which

may have given rise to creation of a SAR) are not exempt from discovery.

See Whitney National Bank

v. Karam, 306 F.Supp.2d at 682-683; Cotton v. PrivateBank and Trust Co., 235 F.Supp.2d at 815;

Weil v. Long Island Bank, 195 F.Supp.2d at 389 (agency regulation prohibiting disclosure did not

conflict with the Federal Rules of Civil Procedure).

While disclosure of the SAR is prohibited, the court's ability to manage and direct discovery is

not impinged upon as it still can direct production of those documents which might support the filing of a

SAR.

Additionally, there has been no showing that the BSA is unconstitutional and nor has any court

held either 31 U.S.c. § 53l8(g) or 12 C.F.R 21.l1(k) to constitutean improper separation of powers

upon the judiciary.

Because the court can direct production of financial records kept in the ordinary

7

As noted by the DOl, in its Statement of Interest, the court in Cotton noted the case of Dupre v.

Federal Bureau of Investigation,

2002 WL 1042073 (E.D. La. 2002), wherein a portion of a SAR

was ordered produced by the court. There the information was sought under the Freedom of

Information Act and the court ordered only 2 pages of information contained in the SAR to be disclosed

as the information contained therein did not fall under any of the FOIA's exceptions. Id. at *2.

Thereafter, on appeal, the party seeking the information withdrew the request and the case was dismissed

as moot.

16

rdered produced by the court. There the information was sought under the Freedom of

Information Act and the court ordered only 2 pages of information contained in the SAR to be disclosed

as the information contained therein did not fall under any of the FOIA's exceptions. Id. at *2.

Thereafter, on appeal, the party seeking the information withdrew the request and the case was dismissed

as moot.

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course of business, and the regulation only pertains to the SAR itself, the Plaintiff's position on separation

of powers is not compelling.

3. Retroactivity

Finally, the Receiver's argument alleging a prohibited retroactive effect fails because §

53l8(g)(2)(A)(ii)

was

amended prior to the present litigation, including the Receiver's separate actions

againstthe Banks. In Landgrafv. USI Film Products, 511 U.S. 244, 280, 114 S.Ct. 1483, 1505,

128 L.Ed.2d 229 (1994), the Supreme Court reiterated the presumption against retroactivity and set

forth the test for rebutting that presumption:

When a case implicates a federal statute enacted after the events in suit, the court's first

task is to determine whether Congress has expressly prescribed the statute's proper

reach. If Congress has done so, of course, there is no need to resort to judicial default

rules. When, however, the statute contains no such express command, the court must

determine whether the new statute would impair rights a party possessed when he acted,

increase a party's liability for past conduct, or impose new duties with respect to

transactions already completed.

If the statute would operate retroactively, our traditional

presumption teaches that it does not govern absent clear congressional intent favoring

such a result.

Assuming arguendo that the movant meets the first two prongs of a Landgraf

analysis, a court

must also ascertain whether there is clear congressional intent which supports retroactivity

ties with respect to

transactions already completed.

If the statute would operate retroactively, our traditional

presumption teaches that it does not govern absent clear congressional intent favoring

such a result.

Assuming arguendo that the movant meets the first two prongs of a Landgraf

analysis, a court

must also ascertain whether there is clear congressional intent which supports retroactivity. In this

instance, the legislative history supports the acc's

position that those amendments applied to reports in

existence at the time of the amendment 8. In addition, the federal regulations at issue regarding

8

See 12 V.S.C. § 1829b Historical and Statutory Notes; 31 U.s.c.

§ 5319(g)(2)(A) Historical and

Statutory Notes (referencing Historical and Statutory Notes of 12 US.C. § l829b), noting:

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confidentiality of the reports were in effect as of 1996, well before the time ftame pertinent to the case

sub judice.

Therefore, as there is a clear legislative intent to support application of the statute to existing

records, the Receiver's argument as to retroactivity is without merit.

CONCLUSION

In sum, having reviewed the Plaintiff's administrative requests, and the acc's

decision in the

context of the BSA and agency regulations, this Court does not find the administrative decision by the

OCC to have violated 5 U.S.c. § 706. For these reasons, Defendants' motions for summary judgment

(Doc. Nos. 25 and 42) are granted and the Plaintiff's motion for summary judgment (Doc. No. 36) is

denied.

IT IS SO ORDERED.

S/ David A. Katz

DAVID A. KATZ

SENIOR U. S. DISTRICT JUDGE

18