SCOTUS Asked to Consider Absolute Immunity for SAR Filers
When a bank files a suspicious activity report (“SAR”), that bank has immunity from civil lawsuits. The U.S. Supreme Court has been asked to consider the extent of that immunity. Should immunity be absolute or only apply to disclosures made in good faith?1
The question stems from the federal Bank Secrecy Act (the “BSA”), 31 U.S.C. § 5318(g)(3)(A), which was enacted by Congress to encourage banks, other financial institutions, and their employees to report actual or suspected criminal activity. The BSA requires financial institutions to report “any suspicious transaction relevant to a possible violation of law or regulation” by filing a SAR with the federal government.2 The BSA also immunizes financial institutions from liability for filing these reports: “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 … for such disclosure.”3
The immunity issue made its way to the Supreme Court by virtue of a dispute involving allegations of stock-price manipulation. AER Advisors Inc. and its clients, executives of Deutsch Family Wine & Spirits (“DFWS”), sued Fidelity Brokerage Services LLC for damages that allegedly resulted from Fidelity’s filing of a SAR. This filing, which was submitted to the U.S. Treasury Department’s Financial Crimes Enforcement Network, triggered an SEC investigation. AER and the DFWS executives alleged that they spent hundreds of thousands of dollars defending themselves against the SEC as a result of Fidelity filing the SAR. Neither the SEC nor any state agency ultimately brought an enforcement action pursuant to the SAR. Nevertheless, DFWS allegedly suffered damages to its business, which negatively impacted the value of the executives’ equity in DFWS.4
On August 22, 2018, the District Court for the District of Massachusetts dismissed the allegations raised by AER and the DFWS executives, holding that under First Circuit precedent Fidelity was entitled to absolute immunity from any tort liability arising from its filing of a SAR under the BSA.5 On April 17, 2019, the Court of Appeals for the First Circuit affirmed.6
In September 2019, AER filed a petition for writ of certiorari, asking the Supreme Court to overturn the decision by the First Circuit.7 On January 6, 2020, Fidelity asked the Supreme Court to deny certiorari because “every court to consider claims … in which the only alleged wrongdoing was the filing of an allegedly wrongful suspicious activity report has held that a financial institution is absolutely immune from a private suit that is based on that filing.”8
Despite the Act’s ostensibly clear language and purpose, AER argued that there is a split of opinion as to its meaning, which the Supreme Court should resolve.9 AER’s position is that, while the Court of Appeals for the First and Second Circuits have held that the statute confers absolute immunity for disclosures of any crimes,10 the Court of Appeals for the Eleventh Circuit has instead limited the immunity to disclosures made in good faith.11 Fidelity, by contrast, argued that there is no circuit split because the Eleventh Circuit did not address a safe harbor provision at issue in the present case.12
If the Supreme Court denies certiorari, that decision could be read as a signal that financial institutions are absolutely immune from liability under the BSA for filing SARs. Conversely, if the Supreme Court grants certiorari, it suggests that the Supreme Court intends to clarify the scope of immunity for financial institutions under the BSA. Stay tuned.
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1 Pet. Writ Cert., AER Advisors Inc. v. Fidelity Brokerage Servs., LLC, No. 19-347 (Sept. 13, 2019).
2 31 U.S.C. § 5318(g)(1); 31 C.F.R. § 1023.320(a)(1), (b)(1).
3 31 U.S.C. § 5318(g)(3)(A).
4 AER Advisors Inc. v. Fidelity Brokerage Servs., LLC, 921 F.3d 282, 284-85 (1st Cir. 2019).
5 AER Advisors Inc. v. Fidelity Brokerage Servs., LLC, 327 F. Supp. 3d 278, 285 (D. Mass. 2018).
6 AER Advisors Inc., 921 F.3d at 294.
7 Pet. Writ Cert., supra. In addition to the immunity issue, the petition also asks the Court to consider a procedural question: whether in a diversity case, the transferee court, which is receiving jurisdiction pursuant to 28 U.S.C. § 1404(a) (because of witness convenience), must apply the law of the transferor court (including law concerning immunity defenses) or the law of its own court.
8 Br. Opp’n Pet. Writ Cert., AER Advisors Inc. v. Fidelity Brokerage Servs., LLC, No. 19-347, at 1 (Jan. 6. 2020).
9 Pet. Writ Cert., supra, at 12.
10 See Stoutt v. Banco Popular de Puerto Rico, 320 F.3d 26, 30 (1st Cir. 2003) (concluding that the immunity granted by the Act is absolute); Lee v. Bankers Trust Co., 166 F.3d 540, 544 (2d Cir. 1999) (“There is not even a hint that the statements must be made in good faith in order to benefit from immunity.”).
11 See Lopez v. First Union Nat’l Bank, 129 F.3d 1186, 1192-93 (11th Cir. 1997) (“In order to be immune from liability, it is sufficient that a financial institution have a good faith suspicion that a law or regulation may have been violated, even if it turns out in hindsight that none was.”).
12 Br. Opp’n Pet. Writ Cert., supra, at 12.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.