Note to Government Personnel: Don’t Disclose SARs
This week, major developments unfolded in the cases against two former federal government employees for their respective roles in disclosing Suspicious Activity Reports (“SARs”) in violation of the Bank Secrecy Act (“BSA”).
Historically, prosecutions pertaining to improper SAR disclosures have been supremely rare, so the fact that two court hearings involving this issue occurred in a single week is particularly notable. Both involve defendants allegedly acting on their own perceived sense of duty – perceptions which ran afoul of the law.
First, Natalie Mayflower Sours Edwards, a former senior advisor at the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”), pleaded guilty to one felony count of conspiring to unlawfully disclose SARs related to Paul Manafort, Richard Gates, Maria Butina, Prevezon Alexander, and the Russian Embassy to a reporter. Second, John C. Fry, a former employee of the Internal Revenue Service (“IRS”), was sentenced to five years of supervised probation and ordered to pay a $5,000 fine after similarly pleading guilty to his role in disclosing SARs to embattled attorney Michael Avenatti that related to likewise-embattled attorney Michael Cohen. Both prosecutions underscore the seriousness with which federal authorities view such disclosures. Likewise, they reflect that potentially subjective good intentions – of course – still don’t excuse violations of the carefully-crafted prohibitions in the BSA against the disclosure of SARs.
Under the BSA, financial institutions are required to generate SARs to flag potentially suspicious transactions and provide these SARs to FinCEN. FinCEN, in turn, maintains a centralized database of this SAR data that is available to law enforcement. The BSA and its corresponding regulations prohibit federal employees or agents of government authorities – as well as a financial institution (or its employee or agent) that is filing a SAR — from “disclos[ing] a SAR, or any information that would reveal the existence of a SAR, except as necessary to fulfill official duties consistent with [the BSA].” Willful violations constitute a felony and result in criminal penalties.
On January 13, 2020, Edwards pled guilty in the Southern District of New York to conspiring to unlawfully disclose SARs (about which we have blogged about here). Between October 2017 and her arrest in October 2018, Edwards disclosed multiple SARs to an unidentified reporter, who in turn published the substance of the SARs in 12 articles. These SARs related to, among other things, former Trump campaign manager Manafort, Gates, Butina, Alexander, and the Russian Embassy. Edwards, who had access to these reports due to her position at FinCEN, saved SARs and thousands of other sensitive files to a flash drive. She then took pictures of the information and texted the images to the reporter through an encrypted application. Edwards also sent or described internal FinCEN emails and sensitive memoranda relating to SARs to the reporter.
In announcing Edwards’ guilty plea, U.S. Attorney Geoffrey S. Berman emphasized that maintaining the confidentiality of SARs “is essential to permit them to serve their statutory function, and the defendant’s conduct violated the integrity of that critical system and the law.” Edwards is scheduled to be sentenced on June 9, 2020 and she faces up to five years incarceration.
Two days later, on January 15, 2020, a federal judge in the Northern District of California sentenced Fry to five years of supervised probation and a $5,000 fine for disclosing SARs to Avenatti. Over the course of a few days in May 2018, Fry, who worked for IRS Criminal Investigation in San Francisco, allegedly ran several searches for SARs tied to Cohen on a database and downloaded five SARs linked to him. Fry allegedly then unlawfully provided screenshots of these SAR narratives to Avenatti, revealing that a shell company tied to Cohen allegedly had received (1) millions of dollars from multinational companies that were seeking to gain access to the Trump White House; and (2) $500,000 from a company linked to a Russian oligarch. Avenatti subsequently published the substance of the reports on Twitter, and authorities ultimately traced the leak back to Fry.
In imposing supervised probation and a fine, the judge declined to adopt prosecutors’ recommendation of three months in prison and a $10,000 fine. In their sentencing memorandum, prosecutors alleged that Fry disregarded his “training and experience, and committed crimes in violation of the law he was sworn to uphold.” The judge likewise refused to award any restitution to Cohen, who had requested over $14 million in equitable relief, because he failed to prove that he or his business were harmed by Fry’s disclosure.