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We fired an employee for falsely inflating the hours she worked, resulting in overpayment. Do we need to file a suspicious activity report (SAR) regarding her conduct? We are a national bank. – IBA Compliance Connection

IBA Compliance Connection

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We fired an employee for falsely inflating the hours she worked, resulting in overpayment. Do we need to file a suspicious activity report (SAR) regarding her conduct? We are a national bank.

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In our view, a SAR is not required in this situation, but it might be prudent to file one in any event.

The OCC regulations require a SAR when a bank detects that an “insider” — such as a bank employee — has committed a federal crime against the bank, regardless of the amount involved. It is a federal crime when a bank employee “embezzles, abstracts, purloins or willfully misapplies any of the moneys, funds or credits” of their employer bank. We are not aware of any regulatory guidance or court decision that has considered whether an employee’s misrepresentation about the amount of hours they worked – resulting in overpayment to the employee — would be considered a violation of this law. However, at least one federal court in Illinois has ruled that a bank officer can be convicted of a crime for violating an employer’s intangible right to honest and loyal services of its employees – without any showing that employer suffered loss or risk of loss of property or money.

In this case, the employee’s conduct did cause your bank to suffer a small loss of money when you paid her more than she was owed. Consequently, it is conceivable (although difficult to predict) that a court could consider the employee’s conduct to be a federal criminal violation. Accordingly, we believe it would be prudent to file a SAR.

For resources related to our guidance, please see:

  • OCC SAR Regulations, 12 CFR 21.11(c)(1) (“The bank shall send the completed SAR to FinCEN in the following circumstances: (1) Insider abuse involving any amount. Whenever the national bank detects any known or suspected Federal criminal violation, or pattern of criminal violations, committed or attempted against the bank or involving a transaction or transactions conducted through the bank, where the bank believes that it was either an actual or potential victim of a criminal violation, or series of criminal violations, or that the bank was used to facilitate a criminal transaction, and the bank has a substantial basis for identifying one of its directors, officers, employees, agents or other institution-affiliated parties as having committed or aided in the commission of a criminal act, regardless of the amount involved in the violation.”)

  • Federal Criminal Code, 18 USC 656 (“Whoever, being an officer, director, agent or employee of, or connected in any capacity with any Federal Reserve bank, member bank, depository institution holding company, national bank, insured bank . . . embezzles, abstracts, purloins or willfully misapplies any of the moneys, funds or credits of such bank, branch, agency, or organization or holding company . . . shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both; but if the amount embezzled, abstracted, purloined or misapplied does not exceed $1,000, he shall be fined under this title or imprisoned not more than one year, or both.”)

  • U.S. v. Bates, 852 F.2d 212, 215 (7th Cir. 1988) (A bank officer can be convicted of willful misapplication of bank funds for violating his employer's intangible right to honest and loyal services of its employees, without any showing that employer suffered loss of property or money, or that risk of such loss was present.)