Sheppard Mullin Financial Institutions Law Blog

Question: Federal law prohibits national banks from providing a "Suspicious Activity Report" in discovery. But are they also prohibited from producing internal reports generated as part of procedures for preparing SAR's?

Answer: Yes, according to the First District Court of Appeal in Union Bank of California, N.A. v. Superior Court, 05 C.D.O.S. 5259 (June 17, 2005).

In this case, plaintiffs sought discovery of Union Bank's internal Form 244 regarding a particular bank customer. The bank contended the sole purpose of the Form is to aid the bank in complying with its obligations under federal law to report suspicious activity and file SAR's - and hence was confidential under federal law (12 C.F.R. § 21.11(k)(2005)).

The trial court compelled discovery, finding that the Form 244's were "routine bank forms," used for "internal bank purposes as well as initiating investigations that might lead to a SAR." As a result, they were "supporting documentation," i.e., "factual documents which give rise to suspicious conduct and are subject to discovery," as opposed to "drafts of SAR's or other work product or privileged communications that relate to the SAR itself."

The court of appeal reversed. Although, "not all reports of suspicious activity are protected by the SAR privilege," it held that since the Form 244 was labeled a "Suspicious Activity Report," called for a "Description of Suspicious Transaction," and resulted in the filing of a SAR in more than 90 percent of the time, they "telegraph that a SAR was likely prepared and filed." And, as a result, its disclosure would violate federal law.

The court also held that while the Office of the Comptroller of the Currency "is indisputably the holder of the privilege," the Bank had standing to resist disclosure. "We find no support for the proposition that the OCC must intervene as a party in order for the court to give effect to the SAR privilege."

Click here to view a copy of the opinion