The Supreme Court Declines To Address Whether Financial Institutions Are Entitled To Unqualified Immunity From Claims Arising From The Filing Of Suspicious Activity Reports

Last month, the U.S. Supreme Court denied the Petition for a Writ of Certiorari in Cummings v. Doughty, thereby leaving open a split among circuit courts regarding the scope of the immunity financial institutions that file suspicious activity reports ("SARs") are entitled to under federal law. As a result, financial institutions that file SARs will continue to run the risk that they will be exposed to litigation for simply complying with federal law.

The SAR Safe Harbor Clause

To assist the government in uncovering and preventing crime and terrorism, the Annunzio-Wylie Anti-Money Laundering Act (the "Act") authorizes the Secretary of the Treasury to "require any financial institution ... to report any suspicious transaction relevant to a possible violation of law or regulation." 31 U.S.C. § 5318 (g)(1). The Secretary has directed federal agencies and departments that regulate financial institutions to implement this provision, and the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Reserve System, the National Credit Union Administration, the Federal Trade Commission, and the Financial Crimes Enforcement Network all have promulgated regulations requiring the financial institutions they oversee to report certain questionable transactions by submitting SARs.

To encourage financial institutions to file mandatory SARs quickly and to voluntarily report other suspicious transactions, the Act contains a provision that immunizes financial institutions from liability for submitting SARs (the so-called "safe harbor" clause):

Any financial institution that makes a voluntary disclosure of any possible violation of law or regulation to a government agency or makes a disclosure pursuant to this subsection or any other authority ... shall not be liable to any person under any law or regulation of the United States, any constitution, law, or regulation of any State or political subdivision of any State, or under any contract or other legally enforceable agreement (including any arbitration agreement), for such disclosure ... .

31 U.S.C. § 5318(g)(3)(A).

The Circuit Split

Since the enactment of the Act in 1992, a split among circuits has developed with respect to whether the safe harbor provides financial institutions with absolute immunity, or only qualified immunity, from suit. The Eleventh Circuit, in Lopez v. First Union National Bank, 129 F.3d 1186 (11th Cir. 1997)...