CrimProf Blog

Editor: Kevin Cole
Univ. of San Diego School of Law

Saturday, December 24, 2011

Ruce on criminal liability of banks for suspicious activity by customers

Philip J. Ruce has posted The Bank Secrecy Act: Considerations for Continuing Banking Relationships after the Filing of a Suspicious Activity Report (Quinnipiac Law Review, Vol. 30, No. 1, 2011) on SSRN. Here is the abstract:

Law enforcement has a vested interest in catching alleged money launderers. Suspicious Activity Reports (SARs) filed by financial institutions are a useful tool in this endeavor and can potentially direct law enforcement to criminal enterprises. But SARs are just that — reports of suspicious activity. A financial institution will not generally conduct a complex investigation of every SAR it files; there are far too many reports for that.

But financial institutions face a dilemma that has not been solved via the courts or academia: despite the Bank Secrecy Act (BSA) safe harbor provision, filing a SAR does not excuse a financial institution from liability for continuing to transact business with a client. The institution may in effect be aiding and abetting a criminal if it continues to transact business with an alleged money launderer. But closing the account would likely tip off the alleged wrongdoer that his or her suspicious activity has been spotted, thereby thwarting an otherwise golden opportunity for investigators.

This Article first reviews the BSA and its suspicious activity reporting requirements, as well as the safe harbor provision shielding a financial institution from liability for filing these reports. The Article reviews case-law and statutory definitions of aiding and abetting, and distinguishes “aiding and abetting” legal theory from “conspiracy.” The Article then discusses the Financial Action Task Force on Money Laundering’s relevant recommendations on bank liability for tipping off a client. The Article concludes that it is unlikely that a bank will be held liable for conducting business with a client it only suspects of criminal activity, as long as a bank has no actual knowledge of unlawful behavior. Because this difference can oftentimes be subtle, a financial institution should be careful to document these ongoing relationships and apply special due diligence when appropriate.

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