Don't Get Caught In the Part 504 Trap – Like Deutsche Bank

Written By: Jay L. Hack


Do you remember Department of Financial Services Part 504? When proposed, it threatened criminal prosecution for Transaction Monitoring Program (TMP) violations. We (I drafted the comment letter for the Banking Law Committee of the NYS Bar Association) convinced DFS to remove that threat, but the rule retained teeth that may have bitten Deutsche Bank.
The New York Times reports that a senior officer of the bank countermanded a decision to file a SAR on the President’s son-in-law. Let’s ignore the politics, but this justifies a reminder to all New York chartered banks and foreign banks chartered by DFS. Your TMP must, in addition to everything else, describe the process you use to decide if an alert should result in a SAR. The TMP must also state who should make the decision and how the decision is documented. Annually, either the board or a senior officer must certify that the TMP complies with the rule. If a senior officer at Deutsche Bank not in the SAR chain of command countermanded a decision to file a SAR, the bank may have tripped over the rule. If there’s no documentation, that’s a second violation and a false annual certificate may be the third strike.

Today’s Takeaway? ALWAYS follow your TMP procedures when reviewing alerts. If you decide not to file a SAR, fully document that decision. Identify who made the decision. We recommend that if the TMP specifies that the buck stops at a specific officer level, and that officer decides to file a SAR, under no circumstances should that decision be countermanded by a higher-up not listed in the TMP as having authority. A higher-up can reverse a decision not to file and instead force a filing, but the documentation should discuss how the higher-up found out about the SAR issue and why that didn’t breach SAR-filing confidentiality protocols.

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