Are You Hiring a Crook?
by Mary Beth Guard, Executive Editor
Steve had been a loan officer at a local bank for more than a dozen years, so when he approached one of its competitors and expressed an interest in changing jobs, the competing bank jumped at the chance to hire an experienced lender with tons of contacts. What the hiring bank doesn't know is that Steve's departure from the other bank wasn't voluntary. It came about after the institution discovered he had been taking kickbacks, falsifying loan applications, engaging in self-dealing, and using his own personal "Guido" to strong-arm delinquent borrowers who wouldn't have qualified for the credit they received had the real facts been known. Soon, the investigation will be concluded and serious charges will be filed against Steve. The local newspaper will undoubtedly point out his new place of employment when they write of his arrest.
Margaret was one of the most efficient, friendly, smart teller supervisors her bank had ever had. It seemed she could juggle multiple tasks at once without ever missing a beat, and she was always first at work and last to leave. Even when she took her mandatory vacations, she would visit the bank each day, bringing cookies or other treats, answering questions, and taking care of a few things while she was there. It was a shock to everyone at the bank when she was discovered to have embezzled millions. Within a week of her firing, she secured a job at another financial institution. When the news of her defalcation breaks, people all over the state will be buzzing about it.
There's nothing worse than watching helplessly as another institution unwittingly hires your crooked castoffs while the wheels of justice turn ever so slowly before any arrest is made. Well, maybe there is something worse -- being the institution that hires the future convicted felon. It doesn't have to happen.
What has traditionally stopped financial institutions from freely communicating information to other financial institutions about former employees who are believed to have engaged in illegal activity? Fear of liability. While an institution might want to keep the bad apple from further polluting the industry, the threat of a potential defamation suit or other cause of action has often been a deterrent. The good news is that it doesn't need to be any longer because there is a little-known provision in the USA PATRIOT Act that provides a means through which financial institutions can communicate information about such employees within a statutory safe harbor from liability.
When insider abuse occurs in any amount, a SAR must be filed. The PATRIOT Act amended the law relating to the prohibition on disclosure of SAR filings and the safe harbor provision to permit an institution to:
- disclose in a written employment reference or a written termination notice provided to a self-regulatory agency the information that has been reported as suspicious, and
- disclose suspicions of illegal activity to other insured depository institutions in written employment references.
You cannot disclose, however, in either instance, that a SAR was filed. (And it should be noted that you are not required to disclose suspicions of illegal activity in these written employment references. You are merely given the option to do so.)
Robert B. Serino, Senior Advisor for Financial Services, Watkins Consulting, detailed how this legal provision works in one of the issues of the SAR Activity Review, saying:
- [ this provision] gives financial institutions and their employees a qualified safe harbor protection from liability when they provide information to another institution about a former employee's employment record.
- To come within the act's protection, banks must strictly comply with its provisions.
- The requirements mandate that the disclosure be in writing and be in response to a request from another institution.
- The protection only exists for disclosures between financial institutions.
A disclosure made with malicious intent will not fall within the protection from liability.
Executive Steps:
- Consider utilizing this statute to request a written employment reference any time you are hiring an individual who formerly worked for another financial institution.
- Formulate a policy regarding responding to requests from other financial institutions about former employees of yours. Determine the circumstances under which you would be willing to release such information. If you elect to do so, your policy
should:
- Recognize that this safe harbor from liability applies only if the statute is followed. One of the requirements is that a SAR has already been filed. (Remember, however that the response cannot disclose a SAR has been filed. Whatever!)
- Require the request to be in writing;
- Require that your response be in writing (to satisfy the statute);
- Indicate who is in a position to approve such a request and who should review the information before it leaves your institution.
- Bone up on the statute (Section 355 of the PATRIOT Act), or have your counsel do so.
When the response is written, it can contain the allegations made in the SAR (without, of course, referring to any filing of a SAR). State what you know for sure. As to those things you are reading between the lines, indicate that is the case. Report the facts without flavoring them with emotion. Choose your words carefully to avoid the appearance of animosity toward the former employee. How you feel about the individual who abused your trust and battered your bottom line is not at issue and should be removed from the discussion. What matters is what the individual allegedly did.
This provision in the PATRIOT Act is important and underutilized. Whether you're asking for an employment reference or responding to one, if the individual at issue doesn't have the requisite character to work in a financial institution, you're doing the entire industry a service by making that fact clear.
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First published on BankersOnline.com 01/30/2008
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