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Finally! You Can Tell! Only with Great Caution (for now)

By John Byrne, Esq.

When the USA PATRIOT Act of 2001 was signed into law, it created new tools and imposed additional requirements on the federal government and the financial services industry to address the dual threats of terrorism and money laundering.

There will be some additional burdens on financial institutions from some of the Act's changes, while other changes will protect them and their employees from liability if they choose to supply information in an attempt to keep dishonest individuals out of the banking industry.

By expanding the safe harbor that now protects us from being held liable by individuals on whom we have filed Suspicious Activity Reports, the USA PATRIOT Act now also protects us when we disclose information in certain employee references.

It is illegal for us to knowingly employ an individual who was removed from a financial institution for crimes of dishonesty, breaches of trust, or money laundering. That person is banned, by law, from ever working in another depository institution. If we knowingly hire one of these persons we could be criminally prosecuted, or penalized up to $1 million for each day the violation continues.

The problem is exacerbated if there has been no formal action or prosecution of the individual. In order to protect ourselves from employee abuse, financial institutions must have a due diligence program to evaluate the background of individuals before they are employed. One of the sources of information is the previous employer, especially if that entity was another financial institution.We have been troubled for years with the problem of the employee who is terminated for cause, but is not prosecuted. Very often another financial institution that knows nothing about the problems at the prior employment employs that person. Unfortunately, financial institutions are reluctant to share adverse information for fear of being sued.

Now, thanks to the USA PATRIOT Act, if certain criteria are met, financial institutions may share information about an employee, even if there has been no prosecution involved. The Act only pertains to disclosures between financial institutions, including uninsured branches and agencies of foreign banks. The provisions are few, but important in detail:

  1. The individual in question is one on which you have already filed a Suspicious Activity Report. You cannot disclose the fact that you filed the SAR, but your response can contain the allegations made in the report.
  2. The request for information must come only from another financial institution (preferably in writing).
  3. The disclosure must be in writing, and should only be in response to a request. It should recite only facts - nothing more.
  4. Most importantly, it must be made without "malicious intent."

One caution you should keep in mind. Records should be maintained on all the facts, responses, meetings, etc. in a file. But do not keep the SAR or a copy of it in that file. If the file is subpoenaed, you are prohibited from producing the SAR.

The USA PATRIOT Act provides us with "qualified" safe harbor protection from liability when we provide information to another institution about a former employee's employment record. "Qualified", because the Act provides that any disclosure made with "malicious intent" will not be shielded from liability. If sued, the financial institution will be required to defend whatever information is shared by establishing that its actions and responses were made without malice.

This could prove to be the stumbling block for many financial institutions that would otherwise be willing to cooperate and take advantage of the ability to share information. An ex-employee could sue for defamation, and may claim the bank and/or its employees made the statements out of personal animosity and without factual proof. Experts advise both only providing actual admissions of guilt (rather than suspicions) and having the responses reviewed by counsel, which could assure more objective, less personal, negative references.

Let's hope we can find a way to make this new tool work for us.

John Byrne is Senior Counsel and Compliance Manager at the American Bankers Association in Washington, DC. A veteran of many years of working with government agencies and the legislature, John frequently writes articles for the HOTLINE making sense of new laws and regulations. He has been an advisor to this newsletter for over eleven years.

Copyright © 2002 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 12, No. 4, 5/02

First published on 05/01/2002

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