[Federal Register Volume 74, Number 44 (Monday, March 9, 2009)]
[Proposed Rules]
[Pages 10139-10145]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-4701]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 563

[Docket ID OTS-2008-0015]
RIN 1550-AC26


Confidentiality of Suspicious Activity Reports

AGENCY: The Office of Thrift Supervision, Treasury (OTS).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The OTS is proposing to amend its regulations implementing the 
Bank Secrecy Act (BSA) governing the confidentiality of a Suspicious 
Activity Report (SAR) to: clarify the scope of the statutory 
prohibition on the disclosure by a financial institution of a report of 
a suspicious transaction, as it applies to savings associations and 
service corporations; address the statutory prohibition on the 
disclosure by the government of a report of a suspicious transaction, 
as that prohibition applies to the OTS's standards governing the 
disclosure of SARs; clarify the exclusive standard applicable to the 
disclosure of a SAR, or any information that would reveal the existence 
of a SAR, by the OTS is ``to fulfill official duties consistent with 
the purposes of the BSA''; and modify the safe harbor provision in its 
rules to include changes made by the Uniting and Strengthening America 
by Providing Appropriate Tools Required to Intercept and Obstruct 
Terrorism (USA PATRIOT) Act. These amendments are based upon a similar 
proposal being contemporaneously issued by the Office of Comptroller of 
the Currency (OCC) and the Financial Crimes Enforcement Network 
(FinCEN).

DATES: Comments must be received by June 8, 2009.

ADDRESSES: You may submit comments, identified by OTS-2008-0015 
(``docket number'') by any of the following methods:
    <bullet> Federal eRulemaking Portal:--``Regulations.gov'': Go to 
http://www.regulations.gov, under the ``More Search Options'' tab click 
next to the ``Advanced Docket Search'' option where indicated, select 
``Office of Thrift Supervision'' from the agency drop-down menu, then 
click ``Submit.'' In the

[[Page 10140]]

``Docket ID'' column, select ``OTS-2008-0015'' to submit or view public 
comments and to view supporting and related materials for this notice 
of proposed rulemaking. The ``How to Use This Site'' link on the 
Regulations.gov home page provides information on using 
Regulations.gov, including instructions for submitting or viewing 
public comments, viewing other supporting and related materials, and 
viewing the docket after the close of the comment period.
    <bullet> E-mail address: <a href="/cdn-cgi/l/email-protection#3f4d5a584c115c5052525a514b4c7f504b4c114b4d5a5e4c11585049"><span class="__cf_email__" data-cfemail="75071012065b161a1818101b0106351a01065b01071014065b121a03">[email protected]</span></a>. Please 
include OTS-2008-0015 in the subject line of the message and include 
your name and telephone number in the message.
    <bullet> Fax: (202) 906-6518.
    <bullet> Mail: Regulation Comments, Chief Counsel's Office, Office 
of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, 
Attention: OTS-2008-0015.
    <bullet> Hand Delivery/Courier: Guard's Desk, East Lobby Entrance, 
1700 G Street, NW., from 9 a.m. to 4 p.m. on business days, Attention: 
Regulation Comments, Chief Counsel's Office, OTS-2008-0015.
    Instructions: All submissions received must include the agency name 
and docket number or Regulatory Information Number (RIN) for this 
rulemaking. All comments received will be posted without change to the 
OTS Internet Site at http://www.ots.treas.gov/Supervision&Legal.Laws&Regulations, including any personal information 
provided. Comments received, including attachments and other supporting 
materials, are part of the public record and subject to public 
disclosure. Do not enclose any information in your comment or 
supporting materials that could be considered confidential or 
inappropriate for public disclosure.
    <bullet> Viewing Comments Electronically: Go to http://www.regulations.gov, under the ``More Search Options'' tab click next 
to the ``Advanced Document Search'' option where indicated, select 
``Office of Thrift Supervision'' from the agency drop-down menu and 
click ``Submit.'' In the ``Docket ID'' column, select ``[OTS-2008-
0015]'' to view public comments for this rulemaking action.
    <bullet> Viewing Comments On-Site: You may inspect comments at the 
OTS's Public Reading Room, 1700 G Street, NW., by appointment. To make 
an appointment call (202) 906-5922, send an e-mail to 
<a href="/cdn-cgi/l/email-protection#59653879312b3c3f64" http: public.info">public.info</a>@ots.treas.gov">public.info@ots.treas.gov</a>, or send a facsimile transmission to (202) 
906-6518. (Prior notice identifying the materials you will be 
requesting will assist us in serving you.) We schedule appointments on 
business days between 10 a.m. and 4 p.m. In most cases, appointments 
will be available the next business day following the date we receive a 
request.

FOR FURTHER INFORMATION CONTACT: Louise Batdorf, Analyst, BSA and 
Compliance Examinations (202-906-7087); Marvin Shaw, Senior Attorney, 
Regulations and Legislation (202-906-6639); Margaret McPartlin, Senior 
Attorney, Enforcement (202-906-6831); or Noelle Kurtin, Senior 
Attorney, Enforcement (202-906-6739).

SUPPLEMENTARY INFORMATION: 

I. Background

    The BSA requires financial institutions, including savings 
associations and service corporations regulated by the OTS, to keep 
certain records and make certain reports that have been determined to 
be useful in criminal, tax, or regulatory investigations or 
proceedings, and for intelligence or counter intelligence activities to 
protect against international terrorism. In particular, the BSA and its 
implementing regulations require a financial institution to file a SAR 
when it detects a known or suspected violation of federal law or a 
suspicious transaction related to a money laundering activity or a 
violation of the BSA, terrorist financing, or other criminal 
activity.\1\
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    \1\ The Annunzio-Wylie Anti-Money Laundering Act of 1992 (the 
Annunzio-Wylie Act), amended the BSA and authorized the Secretary of 
the Treasury to require financial institutions to report suspicious 
transactions relevant to a possible violation of law or regulation. 
See Public Law 102-550, Title XV, Sec.  1517(b), 106 Stat. 4055, 
4058-9 (1992); 31 U.S.C. 5318(g)(1). The OCC, Board of Governors of 
the Federal Reserve System (FRB), the Federal Deposit Insurance 
Corporation (FDIC), the Office of Thrift Supervision (OTS), and the 
National Credit Union Administration (NCUA), (collectively referred 
to as the Federal bank regulatory agencies) subsequently issued 
virtually identical implementing regulations on suspicious activity 
reporting. See 12 CFR 21.11 (OCC); 12 CFR 208.62 (FRB); 12 CFR 353.3 
(FDIC); 12 CFR 563.180 (OTS) and 12 CFR 748.1 (NCUA).
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    SARs are used for law enforcement or regulatory purposes to combat 
terrorism, terrorist financing, money laundering and other financial 
crimes. For this reason, the BSA provides that a financial institution, 
and its officers, directors, employees, and agents are prohibited from 
notifying any person involved in a suspicious transaction that the 
transaction was reported. To encourage the reporting of possible 
violations of law and regulation, and the filing of SARs, the BSA also 
contains a safe harbor provision which shields financial institutions 
making such reports from civil liability. In 2001, the USA PATRIOT Act 
clarified that the safe harbor covers voluntary disclosure of possible 
violations of law and regulations to a government agency and expanded 
the scope of the limit on liability to cover any civil liability which 
may exist ``under any contract or other legally enforceable agreement 
(including any arbitration agreement.)'' \2\
    FinCEN \3\ has issued rules implementing SAR confidentiality 
provisions for various types of financial institutions that closely 
mirror the statutory language.\4\ In addition, the federal bank 
regulatory agencies implemented these provisions through similar 
regulations that provide that SARs are confidential and generally no 
information about or contained in a SAR may be disclosed.\5\ The 
regulations issued by FinCEN and the federal bank regulatory agencies 
also describe the applicability of the safe harbor provision to both 
voluntary reports of possible and known violations of law and 
regulation and the required filing of SARs.
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    \2\ See USA PATRIOT Act, section 351(a). Pub. L. 107-56, Title 
III, Sec.  351, 115 Stat. 272, 321 (2001).
    \3\ FinCEN is the agency designated by the Department of 
Treasury to administer the BSA, and with which SARS must be filed. 
See 31 U.S.C. 5318; 12 CFR 563.180(d).
    \4\ See, e.g., 31 CFR 103.18(e) (SAR confidentiality rule for 
banks); 31 CFR 103.19(e) (SAR confidentiality rule for brokers or 
dealers in securities).
    \5\ See 12 CFR 21.11(k) (OCC); 12 CFR 208.62(j) (FRB); 12 CFR 
353.3(g) (FDIC); 12 CFR 563.180(d)(12) (OTS); and 12 CFR 748.1 
(NCUA).
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    The USA PATRIOT Act of 2001 strengthened the confidentiality of 
SARs by adding to the BSA a new provision that prohibits officers or 
employees of the Federal government or any State, local, tribal, or 
territorial government within the United States from disclosing to any 
person involved in a suspicious transaction that the transaction was 
reported, other than as necessary to fulfill the official duties of 
such officer or employee.\6\ The USA PATRIOT Act also expanded the safe 
harbor provision shielding financial institutions from liability for 
voluntary reporting of possible violations of law and regulations, and 
the filing of SARs, to cover any civil liability which may exist 
``under any contract or other legally enforceable agreement (including 
any arbitration agreement).'' \7\
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    \6\ See USA PATRIOT Act, section 351(b). Public Law 107-56, 
Title III, Sec.  351, 115 Stat. 272, 321 (2001). 31 U.S.C. 
5318(g)(2).
    \7\ See USA PATRIOT Act, section 351(a). Public Law 107-56, 
Title III, Sec.  351, 115 Stat. 272, 321 (2001).
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    FinCEN is proposing to modify its SAR rule to interpret or further 
interpret the provisions of the BSA that relate to the confidentiality 
of SARs and the safe harbor for such reporting. The OTS is

[[Page 10141]]

proposing to amend its rule contemporaneously, based upon the proposal 
being issued by FinCEN, to clarify the manner in which these provisions 
apply to savings associations and service corporations and the OTS's 
own standards governing the disclosure of a SAR and any information 
that would reveal the existence of a SAR (referred to in this preamble 
as ``SAR information'').

II. Overview of Proposal

    The proposed amendments to the OTS's rule include key changes that 
would (1) clarify the scope of the statutory prohibition on the 
disclosure by a financial institution of a report of a suspicious 
transaction, as it applies to savings associations and service 
corporations; (2) address the statutory prohibition on the disclosure 
by the government of a report of a suspicious transaction, which was 
added to the BSA by section 351(b) of the USA PATRIOT Act of 2001, as 
that prohibition applies to the OTS's standards governing the 
disclosure of SAR information; and (3) clarify that the exclusive 
standard applicable to the disclosure of SAR information by the OTS is 
``to fulfill official duties consistent with the purposes of the BSA,'' 
in order to ensure that SAR information is protected from inappropriate 
disclosures unrelated to the BSA purposes for which SARs are filed. In 
addition, the proposed amendments would modify the safe harbor 
provision in the OTS's SAR rules \8\ to include changes made by the USA 
PATRIOT Act.
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    \8\ 12 CFR 563.180(d)(13).
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    In addition, as described in Section III, FinCEN is issuing for 
notice and comment proposed guidance regarding the sharing of SARs with 
affiliates. FinCEN's proposed guidance interprets a provision of the 
proposed rulemaking, and, accordingly, should be read in conjunction 
with this notice.
    In a separate rulemaking, the OTS also is simultaneously proposing 
to amend its information disclosure regulation set forth in 12 CFR 
510.5, to clarify that the exclusive standard governing the release of 
a SAR is set forth in 12 CFR 563.180. The OTS is issuing this proposed 
amendment to 12 CFR part 510, at the same time, to make clear that the 
OTS will disclose SAR information only when necessary to satisfy the 
BSA purposes for which SARs are filed.

III. Section-by-Section Description of the Proposal

Section 563.180(d)(2)(iii): Definition of a SAR

    The primary purpose of the OTS's SAR rule is to ensure that a 
savings association or service corporation files a SAR when it detects 
a known or suspected violation of a federal law or a suspicious 
transaction related to a money laundering activity or a violation of 
the BSA. See 12 CFR 563.180. Incidental to this purpose, the OTS's SAR 
rule includes a section that addresses the confidentiality of SARs.
    Under the current SAR rule, the term ``SAR'' means ``a Suspicious 
Activity Report on the form prescribed by the OTS.'' The proposed rule 
simply defines a ``SAR'' generically as ``a Suspicious Activity 
Report.'' This change would extend the confidentiality provisions of 
the OTS's SAR rule to all SARs, including those filed on forms 
prescribed by FinCEN.\9\ As a consequence, a savings association or 
service corporation that obtained a SAR, for example, from a non-bank 
affiliate pursuant to the provisions of this proposed rule, would be 
required to safeguard the confidentiality of the SAR, even if the SAR 
had not been filed on a form prescribed by the OTS.
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    \9\ See, e.g., 31 CFR 103.19 (FinCEN regulations requiring 
brokers or dealers in securities to file reports of suspicious 
transactions on a SAR-S-F).
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Section 563.180(d)(3): SARs Required

    To clarify that a savings association or service corporation must 
file a SAR on a form ``prescribed by the OTS,'' the OTS is proposing to 
add this phrase to the introductory language of the section of the 
OTS's SAR rule that describes the procedures for filing of a SAR. 
Accordingly, the proposed rules require a savings association or 
service corporation to file a SAR with the appropriate Federal law 
enforcement agencies and the Department of the Treasury on the form 
prescribed by the OTS in accordance with the form's instructions, by 
sending a completed SAR to FinCEN.

Section 563.180(d)(12): Confidentiality of SARs

    The OTS is proposing to amend its rules regarding SAR 
confidentiality \10\ by modifying the introductory sentence, and 
dividing the remainder of the current provision into two sections. The 
first section would describe the prohibition on disclosure of SAR 
information by savings associations and service corporations, and the 
rules of construction applicable to this prohibition. The second 
section would describe the prohibition on the OTS's disclosure of SAR 
information.
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    \10\ 12 CFR 563.180(d)(12).
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    Currently, the OTS's rules prohibiting the disclosure of SARs 
begins with the statement that SARs are confidential. Over the years, 
the OTS has received numerous questions regarding the scope of the 
prohibition on the disclosure of a SAR in the OTS's current rules. 
Accordingly, the OTS is proposing to clarify the scope of SAR 
confidentiality by more clearly describing the information that is 
subject to the prohibition. Like FinCEN, the OTS believes that all of 
the reasons for maintaining the confidentiality of SARs are equally 
applicable to any information that would reveal the existence of a SAR.
    The OTS believes that the confidentiality of a SAR cannot be 
maintained unless any information that would reveal the existence of a 
SAR (such as the draft of a SAR that has been filed) is protected from 
disclosure. The confidentiality of SARs must be maintained for a number 
of compelling reasons. For example, the disclosure of a SAR could 
result in notification to persons involved in the transaction that is 
being reported, and compromise any investigations being conducted in 
connection with the SAR. In addition, even the occasional disclosure of 
a SAR could chill the willingness of a savings association or service 
corporation to file SARs, and to provide the degree of detail and 
completeness in describing suspicious activity in SARs that will be of 
use to law enforcement. If a savings association or service corporation 
believes that a SAR can be used for purposes unrelated to the law 
enforcement and regulatory purposes of the BSA, the disclosure of such 
information could adversely affect the timely, appropriate, and candid 
reporting of suspicious transactions. Savings associations and service 
corporations also may be reluctant to report suspicious transactions, 
or may delay making such reports, for fear that the disclosure of a SAR 
will interfere with its relationship with its customer. Further, a SAR 
may provide insight into how a savings association or service 
corporation uncovers potential criminal conduct that can be used by 
others to circumvent detection. The disclosure of a SAR also could harm 
the personal privacy interests of individuals and reputational 
interests of companies that may be named. Finally, the disclosure of a 
SAR for uses unrelated to the law enforcement and regulatory purposes 
for which SARs are intended increases the risk that savings 
associations' or service corporations' employees or others who

[[Page 10142]]

are involved in the preparation or filing of a SAR could become targets 
for retaliation by persons whose criminal conduct has been reported.
    These reasons for maintaining the confidentiality of SARs also 
apply to any information that would reveal the existence of a SAR. 
Therefore, like FinCEN, the OTS is proposing to modify the general 
introduction in its rules to state that confidential treatment must 
also be afforded to ``any information that would reveal the existence 
of a SAR.'' The introduction also would indicate that SAR information 
may not be disclosed, except as authorized in the narrow circumstances 
that follow.

Section 563.180(d): Prohibition on Disclosure by Savings Associations

    The OTS's current rules provide that any institution or person 
subpoenaed or otherwise requested to disclose a SAR or the information 
contained in a SAR must (1) decline to produce the SAR or to provide 
any information that would disclose that a SAR has been prepared or 
filed, and (2) notify the OTS.
    The proposed rules more specifically address the prohibition on the 
disclosure of a SAR by a savings association or service corporation. 
The rules provide that the prohibition includes ``any information that 
would reveal the existence of a SAR'' instead of using the phrase ``any 
information that would disclose that a SAR has been prepared or 
filed.'' The OTS, like FinCEN and the OCC, believes that this phrase 
more clearly describes the type of information that is covered by the 
prohibition on the disclosure of a SAR. In addition, the proposed rules 
incorporate the specific reference in 31 U.S.C. 5318(g)(2)(A)(i) to 
``directors, officers, employees and agents,'' in order to clarify that 
the prohibition on disclosure extends to those individuals in a savings 
association or service corporation who may have access to SAR 
information.
    Although 31 U.S.C. 5318(g)(2)(A)(i) states that a ``person involved 
in the transaction may not be notified that the transaction has been 
reported,'' the proposed rules continue to reflect case law that has 
consistently concluded in accordance with applicable regulations, that 
financial institutions are broadly prohibited from disclosing a SAR or 
information that would reveal existence of a SAR to any person. 
Accordingly, these cases have held that, in the context of discovery in 
connection with civil lawsuits, financial institutions are prohibited 
from disclosing a SAR or information that would reveal the existence of 
a SAR, because section 5318(g) and its implementing regulations have 
created an unqualified discovery and evidentiary privilege for such 
information that cannot be waived by financial institutions.\11\ 
Consistent with case law and current regulation, the texts of the 
proposed rules do not limit the prohibitions on disclosure only to the 
person involved in the transaction. Permitting disclosure to any 
outside party may make it likely that SAR information would be 
disclosed to a person involved in the transaction, which is absolutely 
prohibited by the statute.
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    \11\ See Whitney Nat'l Bank v. Karam, 306 F. Supp. 2d 678, 682 
(S.D. Tex. 2004); Cotton v. Private Bank and Trust Co., 235 F.Supp. 
2d 809, 815 (N.D. Ill. 2002).
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    The proposed rules continue to provide that any savings 
association, or any director, officer, employee or agent of a savings 
association, subpoenaed or otherwise requested to disclose SAR 
information must decline to provide the information, citing this 
section of the rules and 31 U.S.C. 5318(g)(2)(A)(i), and must give 
notice of the request to the OTS. In addition, the proposed rules 
require the savings association or service corporation to notify the 
OTS of its response to the request, and require the savings association 
or service corporation, to provide the same information to FinCEN. This 
new notification requirement was added to the proposed rules so that 
either or both agencies can intervene to prevent the disclosure of SAR 
information by a savings association or service corporation, if 
necessary.

Section 563.180(d)(12)(ii): Rules of Construction

    The OTS, like FinCEN and the OCC, is proposing rules of 
construction to address issues that have arisen over the years about 
the scope of the SAR disclosure prohibition, and to implement statutory 
modifications to the BSA made by the USA PATRIOT Act. The proposed 
rules of construction primarily describe situations that are not 
covered by the prohibition on disclosure of SAR information by a 
savings association or service corporation. The introduction to these 
rules makes clear that the rules of construction are each qualified by 
the statutory mandate that no person involved in any reported 
suspicious transaction can be notified that the transaction has been 
reported.
    The first proposed rule of construction states that a savings 
association or service corporation, or any director, officer, employee 
or agent of a savings association or service corporation may disclose 
SAR information to FinCEN or any Federal, state, or local law 
enforcement agency; or any federal or state regulatory agency that 
examines the financial institution for compliance with the BSA. 
Although the permissibility of such disclosures may be readily 
apparent, the proposal contains this statement to clarify that a 
savings association or service corporation cannot use the prohibition 
on disclosure of SAR information to withhold this information from 
governmental authorities that are otherwise entitled by law to receive 
SARs and to examine for and investigate suspicious activity.
    The second proposed rule of construction provides that SAR 
information does not include the underlying facts, transactions, and 
documents upon which a SAR is based. This statement reflects case law 
which has recognized that, while a financial institution is prohibited 
from producing documents in discovery that evidence the existence of a 
SAR, factual documents created in the ordinary course of business (for 
example, business records and account information, upon which a SAR is 
based), may be discoverable in civil litigation under the Federal Rules 
of Civil Procedure.\12\
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    \12\ See Cotton v. Private Bank and Trust Co., 235 F. Supp. 2d 
809, 815 (N.D. Ill. 2002).
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    This proposed rule of construction includes some illustrative 
examples of situations where a savings association or service 
corporation may disclose the underlying facts, transactions, and 
documents upon which a SAR is based. The first example clarifies that a 
savings association or service corporation may disclose this 
information \13\ to another financial institution, or any director, 
officer, employee or agent of the financial institution, for the 
preparation of a joint SAR.\14\ The second example

[[Page 10143]]

simply codifies a rule of construction added to the BSA by section 351 
of the USA PATRIOT Act which provides that such underlying information 
may be disclosed in certain written employment references and 
termination notices.\15\
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    \13\ The underlying facts, transactions, and documents upon 
which a SAR is based do not include previously filed SARs that were 
not jointly filed.
    \14\ On December 21, 2006, FinCEN and the Federal bank 
regulatory agencies announced that the format for the SAR form for 
depository institutions had been revised to support a new joint 
filing initiative to reduce the number of duplicate SARs filed for a 
single suspicious transaction. ``Suspicious Activity Report (SAR) 
Revised to Support Joint Filings and Reduce Duplicate SARs,'' Joint 
Release issued by FinCEN, the FRB, the OCC, the OTS, the FDIC, and 
NCUA (Dec. 21, 2006). On February 17, 2006, FinCEN and the Federal 
bank regulatory agencies published a joint Federal Register notice 
seeking comment on proposed revisions to the SAR form. See 71 FR 
8640. On April 26, 2007, FinCEN announced a delay in implementation 
of the revised SAR form until further notice. See 72 FR 23891. 
Although joint filing of SARs by depository institutions is not 
permitted at this time, this proposal would amend the agencies' 
regulations to enable depository institutions to make disclosures 
necessary to effectuate joint SAR filings, in the event that the 
revised SAR form becomes effective.
    \15\ 31 U.S.C. 5318(b)(2)(B).
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    The third proposed rule of construction makes clear that the 
prohibition on the disclosure of SAR information by a savings 
association or service corporation does not include the sharing by a 
savings association or service corporation, or any director, officer, 
employee or agent of such a financial institution, of SAR information 
within the institution's corporate organizational structure, for 
purposes consistent with Title II of the BSA, as determined by 
regulation or in published guidance. This proposed rule recognizes that 
a savings association or service corporation may find it necessary to 
share SAR information to fulfill its reporting obligations under the 
BSA, and to facilitate more effective enterprise-wide BSA monitoring 
and reporting, consistent with Title II of the BSA.
    FinCEN and the Federal bank regulatory agencies have already issued 
joint guidance making clear that the U.S. branch or agency of a foreign 
bank may share a SAR with its head office, and that a U.S. bank or 
savings association may share a SAR with its controlling company 
(whether domestic or foreign). This guidance stated that the sharing of 
a SAR with a head office or controlling company both facilitates 
compliance with the applicable requirements of the BSA and enables the 
head office or controlling company to discharge its oversight 
responsibilities with respect to enterprise-wide risk management and 
compliance with applicable laws and regulations.\16\ Concurrent with 
this proposed rulemaking, FinCEN is issuing additional guidance for 
notice and comment that further elaborates on sharing of SAR 
information within a corporate organization that FinCEN considers to be 
``consistent with the purposes of the BSA.'' FinCEN has indicated that 
the proposed guidance would generally permit sharing of SAR information 
by depository institutions with their affiliates \17\ that are subject 
to a SAR.\18\ Consistent with the BSA and the proposed rules of 
construction, the proposed guidance also states that a financial 
institution may not share SAR information if the institution has reason 
to believe that the SAR may be disclosed to any person involved in the 
suspicious activity that is the subject of the SAR.
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    \16\ ``Interagency Guidance on Sharing Suspicious Activity 
Reports with Head Offices and Controlling Companies'' (January 20, 
2006).
    \17\ Under the proposed guidance, an ``affiliate'' of a 
depository institution means any company under common control with, 
or controlled by, that depository institution.
    \18\ See, e.g., 12 CFR 21.11 (SAR rule applicable to national 
banks).
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Section 563.180(d)(12): Prohibition on Disclosure by the OTS

    As previously noted, section 351 of the USA PATRIOT Act, 31 U.S.C. 
5318(g)(2)(A)(ii), amended the BSA, and added a new provision 
prohibiting officers and employees of the government from disclosing a 
SAR except ``as necessary to fulfill the official duties of such 
officer or employee.'' The OTS is proposing rules to address this new 
section that are comparable to those being proposed by the OCC and 
FinCEN. The proposed rules provide that the OTS will not, and no 
officer, employee or agent of the OTS, shall disclose SAR information, 
``except as necessary to fulfill official duties consistent with Title 
II of the Bank Secrecy Act.''
    As stated in section 5318(g)(2)(A)(i), which prohibits a financial 
institution's disclosure of a SAR, section 5318(g)(2)(A)(ii) also 
prohibits the government from disclosing a SAR to ``any person involved 
in the transaction.'' The OTS, like the OCC and FinCEN, is proposing to 
address sections 5318(g)(2)(A)(i) and (A)(ii) in a consistent manner, 
because disclosure by a governmental authority of SAR information to 
any outside party may make it likely that the information will be 
disclosed to a person involved in the transaction. Accordingly, the 
section of the rules that address the disclosure of SAR information by 
the OTS and its officers, employees and agents is broad, and does not 
simply prohibit disclosure to ``any person involved in the 
transaction.''
    Section 5318(g)(2)(A)(ii) narrowly permits governmental disclosures 
as necessary to ``fulfill official duties,'' a phrase that is not 
defined in the BSA. Consistent with the rules being proposed by FinCEN 
and the OCC, the OTS is proposing to construe this phrase in the 
context of the BSA, in light of the purpose for which SARs are filed. 
Accordingly, the proposed rules interpret ``official duties'' to mean 
``official duties consistent with the purposes of Title II of the 
BSA,'' namely, for ``criminal, tax, or regulatory investigations or 
proceedings, or in the conduct of intelligence or counterintelligence 
activities, including analysis, to protect against international 
terrorism.'' \19\ This standard would permit, for example, disclosures 
responsive to a grand jury subpoena; a request from an appropriate 
federal or State law enforcement or regulatory agency; a request from 
an appropriate Congressional committee or subcommittee; and 
prosecutorial disclosures mandated by statute or the Constitution, in 
connection with the statement of a government witness to be called at 
trial, the impeachment of a government witness, or as material 
exculpatory of a criminal defendant.\20\ This proposed interpretation 
of section 5318(g)(2)(A)(ii) would ensure that SAR information will not 
be disclosed for a reason that is unrelated to the purposes of the BSA. 
For example, this standard would not permit disclosure of SAR 
information to the media.
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    \19\ 31 U.S.C. 5311 (setting forth the purposes of the BSA).
    \20\ See, e.g., Giglio v. United States, 405 U.S. 150, 153-54 
(1972); Brady v. State of Maryland, 373 U.S. 83, 86-87 (1963); 
Jencks v. United States, 353 U.S. 657, 668 (1957).
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    The proposed rules also specifically provide that ``official 
duties'' shall not include the disclosure of SAR information in 
response to a request for use in a private legal proceeding or in 
response to a request for disclosure of unpublished information under 
12 CFR 510.3. This statement, which corresponds to a similar provision 
in FinCEN's proposed rules, clearly establishes that the OTS will not 
disclose SAR information to a private litigant for use in a private 
legal proceeding, or pursuant to 12 CFR 510.3, because such a request 
cannot be consistent with any of the purposes enumerated in Title II of 
the BSA. The BSA exists, in part, to protect the public's interest in 
an effective reporting system that benefits the nation by helping to 
ensure that the U.S. financial system will not be used for criminal 
activity or to support terrorism. The OTS, like FinCEN, believes that 
this purpose would be undermined by the disclosure of SAR information 
to a private litigant for use in a civil lawsuit for the reasons 
described earlier, including, that such disclosures will chill full and 
candid reporting by financial institutions, including savings 
associations.
    Finally, the proposed rules would apply to the OTS, in addition to 
its officers, employees, and agents. Comparable to a provision being 
proposed by FinCEN and the OCC, the OTS is proposing to include the 
agency itself in the scope of coverage, because

[[Page 10144]]

requests for SAR information are typically directed to the agency, 
rather than to individuals within the OTS with authority to respond to 
the request. In addition, agents are included in the proposed paragraph 
because agents of the OTS may have access to SAR information. 
Accordingly, this proposed interpretation would more comprehensively 
cover disclosures by the OTS, agents of the OTS, and protect the 
confidentiality of SAR information.

Section 563.180(d)(13): Safe Harbor/Limitation on Liability

    In 1992, the Annunzio-Wylie Act amended the BSA by providing a safe 
harbor for financial institutions and their employees from civil 
liability for the reporting of known or suspected criminal offenses or 
suspicious activity through the filing of a SAR.\21\ FinCEN, the OCC, 
and the OTS incorporated the safe harbor provisions of the 1992 law 
into their SAR rules.\22\ In Section 351 of the USA PATRIOT Act, 
Congress amended section 5318(g)(3) to clarify the scope of the safe 
harbor provision to include the voluntary disclosure of possible 
violations of law and regulations to a government agency, and to expand 
the scope of the limit on liability to include any liability which may 
exist ``under any contract or other legally enforceable agreement 
(including any arbitration agreement).'' The OTS has more closely 
tracked the statutory language in the proposed rule, particularly by 
stating that the safe harbor applies to ``disclosures'' (and not 
``reports'' as in some previous rulemakings) made by institutions. The 
OTS, like FinCEN and the OCC, has incorporated the statutory expansion 
of the safe harbor by placing a cross-reference to section 5318(g)(3) 
in the proposed rules.
---------------------------------------------------------------------------

    \21\ See footnote 1.
    \22\ See 31 CFR 103.18(e) (FinCEN), 12 CFR 21.11(l) (OCC), 12 
CFR 563.180(d)(13) (OTS). The safe harbor regulations are also 
applicable to oral reports of violations. In situations requiring 
immediate attention, a financial institution must immediately notify 
its regulator and appropriate law enforcement by telephone, in 
addition to filing a SAR. See, e.g., 12 CFR 563.180(d)(13).
---------------------------------------------------------------------------

    Additionally, to comport with the authorization to jointly file 
SARs, like FinCEN, the OTS is clarifying that the safe harbor also 
applies to ``a disclosure made jointly with another institution.'' This 
concept exists currently in those SAR rules where joint filing had been 
explicitly referenced, but has been revised to track more closely the 
statutory language. It has also been inserted for the sake of 
consistency into those SAR rules where it had been absent previously, 
clarifying that all parties to a joint filing, and not simply the party 
that provides the form to the OTS or FinCEN, fall within the scope of 
the safe harbor.

Conforming Amendments to 12 CFR Part 510

    The OTS is proposing to amend its release of unpublished OTS 
information rule set forth in 12 CFR part 510. Among other things, the 
proposal clarifies that the OTS's disclosure of SAR information will be 
governed exclusively by the standards set forth in the proposed 
amendments to the OTS's SAR rule set forth in 12 CFR 563.180. The 
effect of these proposed amendments is that the OTS: (i) Will not 
release SAR information to private litigants; and (ii) will only 
release SAR information to other government agencies, in response to a 
request or in the exercise of its discretion, when necessary to fulfill 
official duties consistent with the purposes of Title II of the BSA.

IV. Request for Comments

    The OTS welcomes comments on any aspect of these proposed 
amendments to the SAR rules.
    The OTS has timed the release of this proposal to coincide with the 
issuance of the proposed rule to amend the information disclosure rules 
set forth in 12 CFR part 510, so that commenters can consider each 
proposal in commenting on the other.

V. OTS Solicitation of Comments on Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act, Public Law 106-102, sec. 
722, 113 Stat. 1338, 1471 (Nov. 12, 1999), requires the OTS to use 
plain language in all proposed and final rules published after January 
1, 2000. Therefore, the OTS specifically invite your comments on how to 
make this proposal easier to understand. For example:
    <bullet> Have we organized the material to suit your needs? If not, 
how could this material be better organized?
    <bullet> Are the requirements in the proposed regulations clearly 
stated? If not, how could the regulations be more clearly stated?
    <bullet> Do the proposed regulations contain language or jargon 
that is not clear? If so, which language requires clarification?
    <bullet> Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulations easier to 
understand? If so, what changes to the format would make them easier to 
understand?
    <bullet> What else could we do to make the regulations easier to 
understand?

VI. OTS Regulatory Analysis

Regulatory Flexibility Act

    Under section 605(b) of the Regulatory Flexibility Act (RFA), 5 
U.S.C. 605(b), the regulatory flexibility analysis otherwise required 
under section 604 of the RFA is not required if the agency certifies 
that the rule will not have a significant economic impact on a 
substantial number of small entities and publishes its certification 
and a short, explanatory statement in the Federal Register along with 
its rule.
    The OTS has determined that the proposed rules do not impose any 
economic costs as they simply clarify the scope of the statutory 
prohibition against the disclosure by financial institutions and by the 
government of SAR information. Therefore, pursuant to Section 605(b) of 
the RFA, the OTS hereby certifies that this proposal will not have a 
significant economic impact on a substantial number of small entities. 
Accordingly, a regulatory flexibility analysis is not needed.

Executive Order 12866

    The OTS has determined that this proposal is not a significant 
regulatory action under Executive Order 12866. We have concluded that 
the changes that would be made by this proposed rule will not have an 
annual effect on the economy of $100 million or more. The OTS further 
concludes that this proposal does not meet any of the other standards 
for a significant regulatory action set forth in Executive Order 12866.

Paperwork Reduction Act

    The OTS has reviewed the proposed rule in accordance with the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3506; 5 CFR 1320, Appendix 
A.1) (PRA) and has determined that it does not contain any 
``collections of information'' as defined by the PRA.

Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (2 U.S.C. 1532) (Unfunded Mandates Act), requires that an agency 
prepare a budgetary impact statement before promulgating any rule 
likely to result in a Federal mandate that may result in the 
expenditure by State, local, and tribal governments, in the aggregate, 
or by the private sector of $100 million or more in any one year. The 
current inflation-adjusted expenditure threshold is $133 million. If a 
budgetary impact statement is required, section 205 of the Unfunded 
Mandates Act also requires

[[Page 10145]]

an agency to identify and consider a reasonable number of regulatory 
alternatives before promulgating a rule.
    The OTS has determined that this proposed rule will not result in 
expenditures by State, local, and tribal governments, or by the private 
sector, of $133 million or more in any one year. Accordingly, this 
proposal is not subject to section 202 of the Unfunded Mandates Act.

List of Subjects in 12 CFR Part 563

    Crime, Currency, Savings associations, Reporting and recordkeeping 
requirements, Security measures.

Authority and Issuance

    For the reasons set forth in the preamble, part 563 of title 12 of 
the Code of Federal Regulations is proposed to be amended as follows:

PART 563--SAVINGS ASSOCIATIONS--OPERATIONS

    1. The authority citation for part 563 continues to read as 
follows:

    Authority: 12 U.S.C. 375b, 1462a, 1463, 1464, 1467a, 1468, 1817, 
1828, 3806; 31 U.S.C 5318;

    2. Section 563.180 is amended by revising paragraphs (d)(2)(iii), 
(d)(3) introductory text, (d)(12), and (d)(13) to read as follows:


Sec.  563.180  Suspicious Activity Reports and Other Reports and 
Statements.

* * * * *
    (d) * * *
    (2) * * *
    (iii) SAR means a Suspicious Activity Report.
    (3) SARs required. A savings association or service corporation 
shall file a SAR with the appropriate Federal law enforcement agencies 
and the Department of the Treasury on the form prescribed by the OTS 
and in accordance with the form's instructions, by sending a completed 
SAR to FinCEN in the following circumstances:
* * * * *
    (12) Confidentiality of SARs. A SAR, and any information that would 
reveal the existence of a SAR, are confidential, and shall not be 
disclosed except as authorized in this paragraph (d)(12).
    (i) Prohibition on disclosure by savings associations--(A) General 
rule. No savings association or Service Corporation, and no director, 
officer, employee, or agent of a savings association or service 
corporation, shall disclose a SAR or any information that would reveal 
the existence of a SAR. Any savings association or service corporation, 
and any director, officer, employee, or agent of any savings 
association or service corporation that is subpoenaed or otherwise 
requested to disclose a SAR, or any information that would reveal the 
existence of a SAR, shall decline to produce the SAR or such 
information, citing this section and 31 U.S.C. 5318(g)(2)(A)(i), and 
shall notify the following of any such request and the response 
thereto:
    (1) Deputy Chief Counsel, Litigation Division, Office of Thrift 
Supervision; and
    (2) The Financial Crimes Enforcement Network (FinCEN).
    (ii) Rules of Construction. Provided that no person involved in any 
reported suspicious transaction is notified that the transaction has 
been reported, subparagraph (k)(1) shall not be construed as 
prohibiting:
    (A) The disclosure by a savings association or service corporation, 
or any director, officer, employee or agent of a savings association or 
service corporation of:
    (1) A SAR, or any information that would reveal the existence of a 
SAR, to FinCEN or any Federal, state, or local law enforcement agency; 
or any Federal or state regulatory authority that examines the savings 
association for compliance with the Bank Secrecy Act; or
    (2) The underlying facts, transactions, and documents upon which a 
SAR is based, including disclosures:
    (i) To another financial institution, or any director, officer, 
employee or agent of a financial institution, for the preparation of a 
joint SAR; or
    (ii) In connection with certain employment references or 
termination notices, to the full extent authorized in 31 U.S.C. 
5318(g)(2)(B); or
    (B) The sharing by a savings association, or any director, officer, 
employee, or agent of a savings association, of a SAR, or any 
information that would reveal the existence of a SAR, within the 
savings association's corporate organizational structure, for purposes 
consistent with Title II of the Bank Secrecy Act as determined by 
regulation or in published guidance.
    (iii) Prohibition on disclosure by OTS. Neither OTS (nor any 
officer, employee or agent of OTS) shall disclose a SAR, or any 
information that would reveal the existence of a SAR, except as 
necessary to fulfill official duties consistent with Title II of the 
Bank Secrecy Act. For purposes of this section, official duties shall 
not include the disclosure of a SAR, or any information that would 
reveal the existence of a SAR, in response to a request for use in a 
private legal proceeding or in response to a request for disclosure of 
non-public information under 12 CFR 510.5.
    (13) Limitation on liability. A savings association or service 
corporation and any director, officer, employee or agent of a savings 
association or service corporation that makes a voluntary disclosure of 
any possible violation of law or regulation to a government agency or 
makes a disclosure pursuant to this section or any other authority, 
including a disclosure made jointly with another institution, shall be 
protected from liability for any such disclosure, or for failure to 
provide notice of such disclosure to any person identified in the 
disclosure, or both, to the full extent provided by 31 U.S.C. 
5318(g)(3).
* * * * *

    Dated: November 18, 2008.

    By the Office of Thrift Supervision.
John M. Reich,
Director.

    Editorial Note: This document was received in the Office of the 
Federal Register on February 27, 2009.
 [FR Doc. E9-4701 Filed 3-6-09; 8:45 am]
BILLING CODE 6720-01-P


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