The Bank Secrecy Act prohibits financial institutions from producing Suspicious Activity Reports and documents related to internal monitoring and investigations that are intended to “detect fraud and money laundering.” The BSA’s prohibitions were given an unequivocal endorsement in a new Washington State appellate court. Norton v. U.S. Bank N.A., — P.3d –, 2014 WL 627509 (Div. I, 2014).
The case arose from a swindle perpetrated by a former US Bank employee, one Jose Nino de Guzman. After Nino de Guzman left the bank’s employment, he set up a series of fraudulent schemes that purported investment in Peruvian real estate. Nino de Guzman’s victims included the Nortons, who invested $11 million in his schemes and lost it all.
The Nortons then sued US Bank, alleging that Nino de Guzman had enlisted other bank employees (and paid them commissions) to find investors and had failed to supervise those employee agents of Nino de Guzman; and – most relevant here – that the bank had initiated a money laundering investigation that had uncovered Nino de Guzman’s fraudulent activities (including the scheme’s use of US Bank accounts), but failed to take action to stop it.
In response to the Nortons’ requests for production documents, US Bank produced all customer records such as account statements and copies of processed items and wire transfers. However, the bank refused to produce any documents “generated by the bank in internal investigations relating to Nino de Guzman’s accounts,” on the grounds that such production was “prohibited” by the Bank Secrecy Act, 31 U.S.C. §5318(g). Beyond refusing to produce documents, the bank also refused, again on BSA grounds, to answer an interrogatory asking the bank to describe “any due diligence, investigation and/or inquiry conducted by or on behalf of U.S. Bank regarding the background and/or conduct of Nino de Guzman and/or his Affiliated Entities.” And further, the bank refused to answer an interrogatory seeking a statement of the bank’s “methods and policies for monitoring suspicious activity and detecting money laundering.”
The trial court ordered the production, but the Court of Appeals, deciding the matter on a special interlocutory review, reversed, and solidly supported the bank’s refusal to produce the documents and answer the interrogatories.
The Norton v. U.S. Bank opinion, in addition to providing a useful survey of case law on this issue, could not be more favorable to financial institutions resisting production on BSA grounds. The Norton holding supports a very broad interpretation of the BSA, makes clear that the BSA covers both investigatory documents and information about the investigations themselves.
The case wholeheartedly adopts the statement of policy rationales offered by the Comptroller of the Currency for BSA prohibitions on disclosure. See, Confidentiality of Suspicious Activity Reports, 75 Fed. Reg. 75,576, 75,578 (Dec. 3, 2010).
The Norton Court said:
[P]ermitting the release of a Suspicious Activity Report through civil discovery jeopardizes the law enforcement interests the act was intended to promote. “Release of an SAR could compromise an ongoing law enforcement investigation, tip off a criminal wishing to evade detection, or reveal the methods by which banks are able to detect suspicious activity. Furthermore, banks may be reluctant to prepare an SAR if it believes that its cooperation may cause its customers to retaliate. Moreover, the disclosure of an SAR may harm the privacy interests of innocent people whose names may be contained therein.”
2014 WL 627509 at 4, quoting Cotton v. PrivateBank & Trust Co., 235 F.Supp.2d 809, 815 (N.D.III.2002).
Finally, the Court rejected the Nortons’ request that the documents at issue at least be required to be produced to the trial court for in camera review.
The Norton v. U.S. Bank opinion is important and useful for its clarity and unqualified broad enforcement of the prohibitions against disclosure of investigatory documents and information provided by the Bank Secrecy Act.