Statement of Interest filed by the United States in the case of Wuliger v. Office of the Comptroller of the Currency

~ THE UNITED STATES DISTRICT COURT

NORTHERN~ISTRICT OF OHIO

EASTERN DIVISION

WILLlAfv1 T. WUUGER, RECENER,

Case No. 1:O5CYOIO8

PJaintiff,

U.S. District Judge David A. Katz

vs,

OFFICE OF THE COMPTROLLER

OF THE CURRENCY,

~ ~,

Defendants.

STATEMENT 0

ES

Pursuant to 28 V.S.C. § 517,1 the United States Department of Justice, by its undersigned

attorneys, hereby submits this Statement of Interest to protect from unauthorized disclosure aT).Y

Suspicious Activity Reports (SARs) submitted by financial institutions under the Bank Secrecy Act, 31

V.S,C. §5318(g)(1), from unauthorized discl.osure.,2

I 28 U.S.C.§ 517 provides in pertinent part: "Any ofticer of the Department of Justice(] may

be sent by the Attorney Genera] to any. ..district of the United States to attend to the interests of the

United States in a suit pending in a court oitheUnited States[.l"

2 The Board of Governors ot' the Federal Reserve, the Office of Thrift Supervision, the Pedttal

Deposit Insurance Corporation, and the National Credit Union Administration concur with the

arguments set forTh herein.

Background

'FinCEN") is a bureau of the United States

The Financial Crimes Enforcement Nenvork

Department of the Treasury, whose mission is to safeguard the financial system from the abuses of

financial crime, including teITorist financlPg, money laundering, and other illicit activity- Pursuant to a

delegation of authority fIorn the Secretary of the Treasury, FinCEN administers the recordkeeping,

reporting, and anti-money laundering program requirements of the Bank Secrecy Act, 31 'U.S.C

§ § 5311, g.t. ~,

and maintains a government-wide data access service that includes reports collected

..

under this authority. ~ 31 V.S.C. § 310

This litigation involves an attempt by a private party to compel FinCEN's fellow Treasury

agency. the Office of the Comptroller of the CulTcncy ("OCC")

dkeeping,

reporting, and anti-money laundering program requirements of the Bank Secrecy Act, 31 'U.S.C

§ § 5311, g.t. ~,

and maintains a government-wide data access service that includes reports collected

..

under this authority. ~ 31 V.S.C. § 310

This litigation involves an attempt by a private party to compel FinCEN's fellow Treasury

agency. the Office of the Comptroller of the CulTcncy ("OCC"). to provide him with the most sensitive

type of report collected under the Bank Secrecy Act -the Suspicious Activity Report ("SAR";

The

Bank Secrecy Act provides specific limits on who may have access to any such reports collected under

its authority (generally, certain govemment agencies) aJ1d the use to which any such reports may be put

(criminal. tax, regulatory, and counter-tenorism). The Bank Secrecy Act extends special confidentiality

protection to SARs 3JId even to the fact that one has been filed. Under this authority, FinCEN, the

OCC, and the four other federal banking regulators al] have promulgated regulations strictly protecting

The complaint by its very nature calls into question

the confidentiality of these highly sensitive reports.

FinCEN's SAR regulations, and places at risk one of the pillars of the Suspicious Activity Reporting

system -its confidentiality. The United States, therefore, has an interest in protecting the SARs against

unauthorized disclosure, as set forth in the Bank Secrecy Act.

2

Plaintjff in this action seeks declaratory and injunctive relief compelling the OCC to provide him

with SARs, documentary material sl,lpporting any SARs, and any related information pertaining to

persons and entities allegedly involved in a viatical fraud scheme. The issue presented by the OCC's

entitled to such infornlation, may nonetheless compel its production despite the statutory and regulatory

prohibitions on its disclosure

claratory and injunctive relief compelling the OCC to provide him

with SARs, documentary material sl,lpporting any SARs, and any related information pertaining to

persons and entities allegedly involved in a viatical fraud scheme. The issue presented by the OCC's

entitled to such infornlation, may nonetheless compel its production despite the statutory and regulatory

prohibitions on its disclosure.

Statement of Facts

The United States adopts, and hereby incol1>°rates by ref(trence, the statement of facts from

the OCC's brief in support of its motion to dismiss or, in the alterative, for SillIlInary judgment.

Summary of Argument

Plaintiff in this action may not compel the production ofSARs, or even the acknowledgment of

The Bank Se{;recy Act authorizes FinCEN (as the Secretary of

their existence or non-existence.

Treasury's delegee) to require financial institutions to file reports, including reports of suspicious activity,

The Act further authorizes FinCEN to

for regulatory, tax, criminal, and collnter-teITorism purposes,

provide these reports to certain government agencies, to maintain them in a govenunent-wide data

access network, and to administer ti!le network according to applicable legal guidelines and policies,

Plaintiffs demand does not fall within these legal requirements.

SARs, moreover, are entitled to additional protection from disclosure. Financial institutions that

file them are statutorily prohibited irom disclosing to anyone involved in the transaction that the

transaction has been reported, Pursuant to this authority, FinCEN, the OCC, and the other federal

3

cable legal guidelines and policies,

Plaintiffs demand does not fall within these legal requirements.

SARs, moreover, are entitled to additional protection from disclosure. Financial institutions that

file them are statutorily prohibited irom disclosing to anyone involved in the transaction that the

transaction has been reported, Pursuant to this authority, FinCEN, the OCC, and the other federal

3

other than appropriate law eMorcement and regulatory agencies of the filing, Courtsna*~upheld these

regulations as reasonable interpretations oithe statute because disclosure, for example in litigation,

makes it more likely that the persons invdlvedin the transaction will be notified of thefi]m~,iA

derogation of the. Att!

In an a~pt

tOiend...rontllis prohibition, plaintiff has sought to compel

disclosure fromagovemmental agency -the OCC. But that disclosure, too, is prohibited. The Bank

Secrecy Act forbids governmental offic;:ials from making such disclosure, W11essthedisclo$~e is

neces5~ to fulfill their official duties. Plainly, the fact that a plaintiff might find an SAR (or the fact of its

existence or nonexistence) useful to its case has no bearing on the official need for a governnlental

official tod1scloSe it. Were it otherwise, the disclosure prohibition would be rendered meaningless

Congres$did not enact the Bank Secrecy Act to provide tools for civil discovery, and there is

no injuStice in honoring that choice. As FinCENiiflhe OCC, and the courts have noted in:tbe past, the

disclosure prohibitio!on

SARs doe~ not extend to the underlying transactional documents (such as

accoWlt records), and plaintiffs are free to seek such documents, question witnesses about them, and

ultimately,

to argue the inferences therefrom to the ultimate trier of fact. Accordingly, the OCC's

Imotion

to dismiss or, in the altem~tive, for summary judgment should be granted

ARGUMENT

A

past, the

disclosure prohibitio!on

SARs doe~ not extend to the underlying transactional documents (such as

accoWlt records), and plaintiffs are free to seek such documents, question witnesses about them, and

ultimately,

to argue the inferences therefrom to the ultimate trier of fact. Accordingly, the OCC's

Imotion

to dismiss or, in the altem~tive, for summary judgment should be granted

ARGUMENT

A.

The Statutoa and Regullitorv Framework

Congress enacted the Bank Secrecy Act in 1970 to authorize the Secretary of the Treasury to

require reporting and recordkeeping deemed to have a "high degree of usefulness" to governmental

Icriminal, tax, or regulatol)' investigations or proceedings. ~

31 V.S.C. §,3.11 (declaration of

Ii

purpose).) The implementing regulations, found at 31 C.F.R. Part 103, create a system of reporting

and recordkeeping obligations intended to provide a paper trail to enable government investigators to

:ollow the money. See gen~ra!ly Ca.Jifomia Bankers Ass'n v. Shul{~, 416

S. 21, 26-30 (1974)

Section 5319 of the Bank Secrecy Act requires the Secretary to provide infonnation contained in Bank

Secrecy Act reports to a governmental agency upon request.4 Implementing regulations prescribing

those governmental entities entitled to seek access to Bank Secrecy Act infom1ation, and the methods

for requ,~sting it. are found at 31 C.F .R. § 103.53,

The initial focus of the Bank Secrecy Act was the tracking of large currency transactions, and

the initial regulations required reporting of various transactions

over $10,000 in currency. ~

3

(

,R.

§ 103.22 (cun-ency transaction reports); 31 C.F.R. §lO3.23 (reports of transportation of

currency and monetary instruments); 31 C.F.R. § 103.24 (reports of foreign financial accounts).

Congress expanded this focus in 1992 with the passage of the Annunzio- Wylie Anti-Money Laundering

Act, Pub. L. 102-550, Title XV, § 1517(1992), which added 31 V.S.C. § 5318(g) to the Bank

Secrecy Act

cy. ~

3

(

,R.

§ 103.22 (cun-ency transaction reports); 31 C.F.R. §lO3.23 (reports of transportation of

currency and monetary instruments); 31 C.F.R. § 103.24 (reports of foreign financial accounts).

Congress expanded this focus in 1992 with the passage of the Annunzio- Wylie Anti-Money Laundering

Act, Pub. L. 102-550, Title XV, § 1517(1992), which added 31 V.S.C. § 5318(g) to the Bank

Secrecy Act. This provision authorizes the Secretary of the Treasury to "require any financial

institution, and any director, officer I cmployee or agent of any financial institution, to report any

Recognizing both the

suspicious transaction relevant to a possible violation of law or regulation

3 ill the USA Patriot Act of2001, Congress amended 31 U.S.C. 5311 to include-as a purpose

of the Bank Secrecy Act lithe conduct of intelligence or counterintelligence activities, including analysis,

to protect against international teITorisffi." Pub. L. 107-56, Title ill, Sec. 358(a) (October 26,2001).

4 The USA Patriot Act of2001 amended this provision to include within the defmition of

((agency" a self-regulatory organization registered with the SecuritIes and Exchange Commission or fue

Cornn10dities Futures Trading Commission. Pub. L. 107-56, Title III, section 358(c) (October 26,

2001).

sensitive nature of the infonnation and fue need to encourage the filing of these reports by the provision

of appropriate legal protection, Congress included in the new statutory authorization two important

First, it provided that filers and their agents "may not notify any person involved in the

provisions.

transaction that the transaction has been reported." 31 V.S.C. § 5318(g)(2)(A)(i)

2001).

sensitive nature of the infonnation and fue need to encourage the filing of these reports by the provision

of appropriate legal protection, Congress included in the new statutory authorization two important

First, it provided that filers and their agents "may not notify any person involved in the

provisions.

transaction that the transaction has been reported." 31 V.S.C. § 5318(g)(2)(A)(i). Second, it

provided a "safe harbor" for filers aJld their agents, under which they "shall not be liable to any person

under any law or regulation of the United States [or] any constitution, law or regulation of any State

for such~ disclosure or for any failure to provide notice of such disclosure to the person who is the

subject of such disclosure or to any other person identified in the disclosure." 31 U.S.C

§ 5318(g)(3)(A),

In the AnnWlZio- Wylie Act, Congress f~er

instructed the Secretary to designate a single

agency or official to whom SARs sltall be made. ~ 31 V.S.C. § 5318(g)( 4). The Secretary

designated FinCEN.S In 1996, FinCEN, along with the five federal banking regulators,

promulgated Suspicious Activity Reporting roles for banks.6 The rule requires that a bank file an SAR

with FinCEN on any transaction conducted or attempted to be conducted through it, which aggregates

at least $5,000, and which the bank knows, suspects or has reason to suspect: (i) involves funds

5 The Secretary's delegation of Bank Secrecy Act authority to FinCEN is now embodied in

Treasury Order 180-01 (available at Treasury's website, www.ustreas.gov).

6 See 31 C.F.R. 103.18. The five federal banking regulators are: the Office of the Comptroller

of the CUITency, the Board of Governors of the Federal Reserve, the Federal Deposit msurance

Corporation, the Office of Thrift Supervision, and the National Credit Union Administration. Each

agency promulgated a separate rule, although the rules are substantially similar, with the main difference

being special treatment for insider abuse in the banking agency rules

e: the Office of the Comptroller

of the CUITency, the Board of Governors of the Federal Reserve, the Federal Deposit msurance

Corporation, the Office of Thrift Supervision, and the National Credit Union Administration. Each

agency promulgated a separate rule, although the rules are substantially similar, with the main difference

being special treatment for insider abuse in the banking agency rules. More recently, FinCEN has

issued suspicious actjvity reporting rules for money services business; broker-dealers in securities; and

commodities futures commission merchants, all with the same disclosure restrictions discussed herein.

6

derived from illegal activities; (ii) is desigped to evade Bank Secrecy Act requirements~ or (iii) has no

business or apparent lawful purpose and i~ not the sort in which the 'customer should no~ally be

expected to engage and the bank knows o~ no reasonable explanation for the transaction, 31 C.F .R.

§ 103. 18(a)(2).

FinCEN's regulation places additj~nal disclosure restrictions on SARs. Specifically, ilie rule

requires that "any person subpoenaed or ofheI\vise requested to disclose a SAR or the infoffi1ation

contain...ed

in a SAR, except where such difclosure is requested by FinCEN or an appropriate law

enforcement agency or bank supervisory ~ency, shall decline to produce the 8AR or to provide any

infonnation that would disclose that a S4 has been prepared or filed," 31 C.F.R.§ lO3.18(e). The

OCC's suspicious activity reporting regul4tion.contains

similar language, ~ 12 C.F.R. § 21.11(k).

The USA Patriot Act codified Fin4EN's rolc in administering the collection, use, and

dissemination of Bank Secrecy Act repo~. ~

31 U.S.C. § 310. FinCEN is charged with

maintaining a government-wide data netwprkthat includes Bank Secrecy Act reports, 31 U.S.C.

§ 310(b)(B)(1); analyzing ana disseminatifg the material for certain purposes, 31 V.S.C

contains

similar language, ~ 12 C.F.R. § 21.11(k).

The USA Patriot Act codified Fin4EN's rolc in administering the collection, use, and

dissemination of Bank Secrecy Act repo~. ~

31 U.S.C. § 310. FinCEN is charged with

maintaining a government-wide data netwprkthat includes Bank Secrecy Act reports, 31 U.S.C.

§ 310(b)(B)(1); analyzing ana disseminatifg the material for certain purposes, 31 V.S.C. § 310(b)(C);

and, as the Secretary's delegee, prov.iding rppropriate standards and guidelines for who is to be given

access to the infonnation and the US~S to ,hich it may be put, 31 V.S..C. § 31 O( c )(2).

At the san1e time, Congress stren~hened the SAR confidentiality provisions, adding new

subsection 5318(g)(2)(A)(ii), which.provifes that "no officer or employee of the Federal Govenunent

or of any State, local, tribal, or territorial ~overnment within the United States, who has any knowledge

that such report was made may disclose tol any person involved in the transaction that the transaction

has been reported, other than as necessarylto fulfill the official duties of such officer or employee.

..

7

Consistent with its regulatory interpretation of § 5318(g)(::;'.)(A)(i), FinCEN interprets this provision to

prevent governmental officers and employees from makjng disclosures likely to lead to a disclosure to a

person involved in a reported transaction, with the added qualification of official necessity. FinCEN

interprets official necessity to mean necessary to accomplish a govenunental purpose entrusted to the

officer or employee, for example, disclosure at trial required by statute (such as the Jencks Act), or the

U.s. Constitution (such as exculpatory evidence),

B

ludic1

alified Privile

'cious Activit R arts

Not long after Suspicious Activity Reporting requirements became effective, plaintiffs in civil

litigation sought to obtain such reporrts and to hold banks liable for filing (or not filing) them

officer or employee, for example, disclosure at trial required by statute (such as the Jencks Act), or the

U.s. Constitution (such as exculpatory evidence),

B

ludic1

alified Privile

'cious Activit R arts

Not long after Suspicious Activity Reporting requirements became effective, plaintiffs in civil

litigation sought to obtain such reporrts and to hold banks liable for filing (or not filing) them. The

Second Circuit addressed the interplay between the SAR confidentiality provision aIld the safe harbor

provision in Lee v.Banker's Trust CIP., 166 F.3d 540 (2d Cir. 1999), affinning the djstrict court's

dismissal of a defamation claim against a bank based on its alleged filing of an SAR concerning the

plaintiff. Noting the confidentiality provision of the Federal Reserve's regulation, 12 C.F.R

§ 20S.20(k), which is identical to that ofFinCEN a11d the OCC, the court stated:

Our conclusion based on the language ofllie Act [that the filing of the SAR is protected

by the safe harbor] is bolstered by a common sense appraisal of the safe harbor's place w'ithin

the Act. Financial institutions ar~ required by law to file SARs, but are prohibited from

disclosing either that an SAR has been filed or the infom1ation contained therein. See 12

C.F.R. 203.20(k) (1998). Thus, even in a suit for damages based on disclosures allegedly

made in an SAR, a financial institution cannot reveal what disclosures it made in an SAR, .Q!

even whethe(jt filed an SAR at all.

166 F .3d at 544 (emphasis added) This reasoning has been followed by a number of lower courts

faced with motions to compel the production ofSARs. In Weilv: Longl§land Savings Bank, 195 F.

Supp. 2d 383, 389 (E.D.N.Y. 2001). (he court found that the Suspicious Activity Reporting rules

8

a financial institution cannot reveal what disclosures it made in an SAR, .Q!

even whethe(jt filed an SAR at all.

166 F .3d at 544 (emphasis added) This reasoning has been followed by a number of lower courts

faced with motions to compel the production ofSARs. In Weilv: Longl§land Savings Bank, 195 F.

Supp. 2d 383, 389 (E.D.N.Y. 2001). (he court found that the Suspicious Activity Reporting rules

8

prohibit disclosure of SARs or their content, and that the confidentiality privilege created by the statute

and implementing regulations is not qualified and is not subject to waiver. Accor~ Grego~ v. Bank

One. Indiana. N.A., 200 F. Supp.2d lOOO, 1003 (S.D. Ind. 2002) ("There is no provision in the [Bank

Secrecy] Act or the Rule allowing a court-order exception to the unqualified privilege"); Cotton v.

Private Bank and Trost Co., 235 Po Supp.2d 809,815 (N.D. Ill. 2002); Whitne:y:~atiQnal Bank y.

'.

Karam, 306 F. Supp.2d 678,682 (S.D. Tex. 2004).7

Co~s have detennined that, although the statute specifically bars the disclosure of the SAR only to

the persons involved in the transaction, the regulations forbidding any disclosure are authorized by the

statute because a disclosure in litigation would make it more likely that the report would be disclosed to

the persons involved in the transaction. ~,~,

Q.QllQ.D.,

235 F. Supp.2d at 815 ~

In_re Bankers

Trust Co., 6.1 F.3d 465,469 (6th Cir. 1995), and Chevron USA. Inc. v. National Resources Defense

Council, 467 U.S. 837 (1984) ("federal regulations should be adhered to and given full force and effect

whenever possible"), As Cotton noted, a judicially-created exception to the non-disclosure rule would

harm the interests the BaI1k Secrecy Act was intended to promote, by compromising an ongoing

investigation, revealing methods by which banks are able to detect suspicious activity, deterring banks

from filing by subjecting SAR preparers to retaliation by customers, and harming the privacy interests of

innocent third parties whose names n!lay appear in a report

tion to the non-disclosure rule would

harm the interests the BaI1k Secrecy Act was intended to promote, by compromising an ongoing

investigation, revealing methods by which banks are able to detect suspicious activity, deterring banks

from filing by subjecting SAR preparers to retaliation by customers, and harming the privacy interests of

innocent third parties whose names n!lay appear in a report. ~

Indeed, the hann from disclosure of

7 Although Cotton notes that in one Freedom of Infonnation Act case a portion of a SAR was

ordered to be produced, DuDre v. Federal Bureau ofmvestieation, 2002 U.S. Dist. LEXIS 9622 (E.D.

La. May 22, 2002), after defendant filed an appeal an~ obtained a stay from the court of appeals, the

plaintiff withdrew the request and the case was dismissed as moot. Although this information does not

appear in the subsequent history, it can be found in that court's electronic case docketing system.

9

an SAR was recognized to be so serious, and the law protecting it to be so clear, that the Florida Court

of Appeals issued the rarely granted writ of certiorari to vacate a discovery order issued by a state

court. ~Inj~mational

BankofMi~i

v. Sbinitzkv, 849 So.2d 1188,1191-93 (Fla. Ct. App. 2003)

As FinCEN and the regulators always have acknowledged and the courts have recognized,

however, this prohibition does not extend to underlying transactional documents relevant to a claim or

defense. Financial institution business records, such as account statements and wire transfer advices,

are discoverable

under the standards of the Federal Rules of Civil Procedure.

~,

li,

Whitney,

235

..

F. Supp.2d at 682-83; Cotton. 235 F. Supp.2d at 815-16. Plaintiffis free to seek such documents,

What he CaImot do is invade the confidentiality of the Suspicious Activity Reporting system jtself.

Perhaps recognizing the strength of this body of law, plaintiff has not sought SARs from banks, but

from one of their regulators

ndards of the Federal Rules of Civil Procedure.

~,

li,

Whitney,

235

..

F. Supp.2d at 682-83; Cotton. 235 F. Supp.2d at 815-16. Plaintiffis free to seek such documents,

What he CaImot do is invade the confidentiality of the Suspicious Activity Reporting system jtself.

Perhaps recognizing the strength of this body of law, plaintiff has not sought SARs from banks, but

from one of their regulators. If the confidentiality pTotections for SARs were held not to apply in such

circumstances, then they would be rendered meaningless; a plaintiff could always circwnvent these

protections by asking the government, rather than the filers, for the reports. The reports would then

routinely be obtainable in civil litigation. This \vouldyield the type of absurd result forbidden by the

principles of statutory construction. ~,U,.,

UnitedStatesv. X-Citement Video. Inc., 513 U.S. 64,

69-70 (1994).

Section 5318(g)(2)(B) of Title 31 clarifies that this is not the res'ult Congress intended. Rather,

government officials are subject to the same disclosure restrictions as filers, except willi respect to

disclosures necessary to the perfonn~ce of their official duties. There is no legal basis for finding that

disclosure of an SAR to a plaintiff in a civil lawsuit is necessary tQ the perfOmlance of a bank

regulator's official duties. Seeking a court order to convert such disclosure into an official duty is

10

bootstrapping in the extreme. Rather, this is a narrow category.- examples of necessary official

disclosures would include prosecutorial disclosures mandated by statute or the U.S, Constitution, such

as where a report may contain a statement of a government witness to be called at trialJ impeachment

material of such a witness, or materiil1 exculpatory of the defendant.

Plaintiff does not fall within the categories of persons entitled to disclosure of an SAR, nor does

private civil litigation constitute a p~itted

use under the Bank Sec.recy Act

andated by statute or the U.S, Constitution, such

as where a report may contain a statement of a government witness to be called at trialJ impeachment

material of such a witness, or materiil1 exculpatory of the defendant.

Plaintiff does not fall within the categories of persons entitled to disclosure of an SAR, nor does

private civil litigation constitute a p~itted

use under the Bank Sec.recy Act. SARs are not

discoverable in civil litigation, either from the filers or from the government agencies that regulate the

..

filers. In the Bank Secrecy Act) Congress carefully balanced the interests of the government users and

filers to craft a reporting system that would provide the appropriate incentive to encourage reports of

wrongdoing while protecting law enforcement confidentiality and individual privacy interests. These

interests also have been carefully ba]anced by FinCEN and the bank regulators in issuing and

interpre.ting the implementing Suspicious Activity Reporting regulations.

CONCLUSION

For the foregoing reasons, the United States respectfully requests that this Court protect against the

unwarranted disclosure of SARs sought by plaintiff.

Respectfully submltted,

PETER D. KEISLER

Assistant Attorney General

ARTHUR R. GOLDBERG

Assistant Branch Director

1

1st Herb~nE. Forr~st

HERBERT E. FORREST

Lead Attorney -Attorney to Be Noticed

Federal Programs Branch

Civil Division -Room 7112

U.S. Department of Justice

20 Massachusetts Avenue, N.W.

Washington, D"C. 20530

Telephone: (202) 514-2809

Facsimile: (202) 616-8470

herbert. forrest@usdoj.gov

D.C. Bar No. 4432

OF COUNSEL:

JUDITHR STARR

Chief Counsel

Financial Crimes Enforcement Network

P. O. Box 39

Vierma, Virginia 222183

Telephone: (703) 905-3534

Facsimile: (703) 905-3735

Attorneys for the United States

April 5, 2005

12