The Lawletter Vol 37 No 5
Stringent federal anti-money-laundering laws, many of which were originally passed to control mob and other underground financial transactions and activities, have existed for some time. After September 11, 2001 and the passing of the USA PATRIOT Act, several of these laws were amended and expanded, although the connection with terrorism and the controls on domestic banking have long been questioned and scrutinized. See Megan Roberts, Big Brother Isn't Just Watching You, He's Also Wasting Your Tax Payer Dollars: An Analysis of the Anti-Money Laundering Provisions of the USA PATRIOT Act, 56 Rutgers L. Rev. 573 (Winter 2004).
Today, these federal laws are being reviewed by ordinary small bank customers and investors who are innocent victims of Ponzi schemes and other fraudulent investment scams. Some of the provisions are being looked at as a possible means of asserting claims against banks that may themselves be directly or indirectly involved in the scams, particularly when the fraudulent investment companies turn out to be insolvent and judgment-proof.
Title 31 U.S.C. § 5318 arises under the Department of the Treasury and sets forth the general powers of the Secretary of the Treasury to address and monitor monetary transactions. This statute, the Annunzio-Wylie Anti-Money Laundering Act, popularly known as the Bank Secrecy Act, requires banks to issue a Suspicious Activity Report ("SAR") to the Secretary of the Treasury to report suspicious financial transactional activity at their banks. It also provides immunity to financial institutions from civil liability for making the proper disclosures regarding both suspicious cash transactions and electronic transfers. See Gregory v. Bank One Corp., 200 F. Supp. 2d 1000 (S.D. Ind. 2002).
Numerous regulations have been promulgated under 31 U.S.C. § 5318(g) to implement the Bank Secrecy Act within the financial market. The regulation that pertains directly to banks is 12 C.F.R. § 21.11(k), which details regulations for national banks for filing a SAR.
Unfortunately, for the small investors caught up in one of the many Ponzi schemes that have arisen in recent years under the banks' so-called watchful eye, the Bank Secrecy Act's requirement that banks monitor activity and prepare SARs for the Treasury Department does not create a private right of action and does not impose a special duty of care on the banks upon which they could be liable. In re Agape Litig., 681 F. Supp. 2d 352 (E.D.N.Y. 2010); see also 2 Corporate Counsel Guidelines § 5:20 (Westlaw database updated Nov. 2011) (commentary on SARs required by federally insured financial institutions). In Union Bank of California, N.A. v. Superior Court, 29 Cal. Rptr. 3d 894 (Ct. App. 2005), the court addresses a bank's privilege under the federal law from producing into evidence any SARs it prepares.
In addition, apart from the Bank Secrecy Act, there are numerous decisions that hold that a bank's failure to investigate a customer's suspicious activity does not give rise to liability to a third-party, nonbank customer who has been injured by the customer's fraud. See Pub. Serv. Co. of Okla. v. A Plus, Inc., No. CIV-10-651-D, 2011 WL 3329181 (W.D. Okla. Aug. 2, 2011) (and citations therein).