Failing to Report Suspicious Activity

You review the subpoena and, indeed, it asks only for Jones' account records and related documents. Your preliminary investigation and discussions with the prosecutor running the investigation make clear that the government is targeting Jones for bilking his investors, and there's no reason to believe anyone at the bank had knowledge of his illicit dealings. What do you do? Send some junior associates to gather the responsive documents and forget about it? Tell the GC everything's under control and there should be no problem?

Not so fast. Recent criminal investigations of banks show that prosecutors are increasingly taking a hard look at financial institutions that allow themselves to be used by wrongdoers, from scam artists to terrorists. Banks, and myriad other entities deemed “financial institutions” under federal law, have an obligation to report suspicious activity to law enforcement. In what some consider a dramatic change in policy, prosecutors are increasingly willing to investigate and prosecute financial institutions for failing to meet this obligation — even where the institution did not participate in the wrongdoing. Indeed, the apparent prevailing view at the Department of Justice (DOJ) is that it will prosecute financial institutions where it concludes there has been systemic failure of the institutions to comply with the legal obligations to report suspicious activity. The involvement of prosecutors in enforcing what has long been viewed as a civil regulatory regime has distressed some in the financial services community, including some of the banking regulators themselves, but this trend appears likely to continue, with significant consequences for financial institutions and their counsel.