VIDEO: Reporting a SAR on a Director to the Board
In this Compliance Clip (video), Adam discusses options for reporting a SAR to the board of directors when the SAR is on a director. He also discusses what to do if the SAR is on a member of senior management, like the president of the financial institution. This is a must-watch video for any BSA professional.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about reporting to the board a Suspicious Activity Report that is on a director. The question we have is, how do you report a Suspicious Activity Report that's filed on a director to the board?
Now this is a complex question, so we're gonna take a look at our answer in the BSA Exam Manual, and specifically, we can look at footnote 76 to give us some direction.
Let's talk about this rule briefly. What the rule requires is this, it says that financial institutions must report SARs that are filed to the board of directors. Of course, the challenge becomes what do you do when you are filing a Suspicious Activity Report on a director and then you have to report the suspicious activity reports to your directors, who the director is filed on, of course, is a director. The problem, of course, in all of this is that you're not allowed to let anybody know that a Suspicious Activity Report has been filed on them. So if one of your directors has a SAR filed on them, you're not allowed to tell them. Therefore, what do you do? How do you report this?
Well, we really have two options. The first option is to do a full SAR disclosure, which would be problematic. You're not gonna do that in this case. When we report SARs, we have two options. We do a full SAR disclosure or an abbreviated SAR. If your financial institution has a habit of doing a full SAR disclosure, which you're permitted to do, then this puts you between a rock and a hard place. And we'll talk about a solution in just a minute for footnote 76. For this reason, this is one of the big reasons, as well as the fact that the more hands you have in a cookie jar the more problems you potentially have. Meaning the more directors who know who SARs have been filed on, the more likely it is to leak that information. For this reason, I always recommend that financial institutions only report basic information about the SAR. For example, they say, we reported SAR number 427. We filed SAR number 427 and this was filed for potential structuring or potential currency exchanges or something like that. And just keep it general. Don't include the name of the person the SAR has been filed on. So that's what I always recommend is the abbreviated SAR. That is what I consider the best practice because if you end up always filing full SARs, not only could you have a privacy breach at some point, but you also could have an instance where a director has a SAR filed on them, then you're stuck between a rock and a hard place.
Now, you're not gonna suddenly give an abbreviated SAR if your procedure and policy is to always provide full SARs. What we can do is look at footnote 76 of the 2014 version of Suspicious Activity Reporting of the BSA exam manual. At the time of this recording, the BSA Exam Manual is being updated, but the SAR section still is referenced and still the 2014 version. So if this gets updated, we'll probably create another video on this at some time. But what's footnote 76 says is this, it says, “In the rare instance when a suspicious activity is related to an individual in the organization, such as the president of the bank or credit union, or one of the members of the board of directors, the established policy that would require notification of a SAR filing to such individual should not be followed.” So even though they want you to report SARs to your directors, you should not be reporting a SAR where somebody's gonna figure out that a SAR was filed on them.
Footnote 76 goes on to say that eviations to the established policies and procedures so as to avoid notification of a SAR filing to a subject of the SAR should be documented and appropriate uninvolved senior organizational personnel should be advised. So if it's a SAR on the director, you should let your president know, document it, have all of that information ready for your examiners so that they can see it when they come in. Cause they're already gonna know of the SAR since they can review your SARs before they come in, but make sure you notify senior management. If it's the president. Figure out a way to maybe bring this up with your audit committee chair or somebody who is gonna understand confidentiality and understand this. Document your conversation and you'll be good.
Now, if you have questions on this, of course, on how to do this, I always recommend to contact your regulator for guidance in this specific case because they're the ones who are gonna come in and evaluate you on your processes and procedures. The bottom line is you need to make sure that the person who the SAR was filed on never learns of that SAR filing.
That's it for this Compliance Clip.