The United States District Court for the Eastern District of New York recently held that a bank was not liable to its customers for losses caused by the bank’s tips to the government that the customers’ safe deposit boxes may contain evidence of counterfeiting or drug trafficking, even after no evidence is found. See Tarazi v. Valley National Bank, et al., 11-cv-4464 (E.D.N.Y. Sept. 29, 2018). In April of 2009, Plaintiffs leased three safe deposit boxes from the bank in order to store coins and jewelry. One month later, Secret Service agents confronted one of the plaintiffs and asked to search the boxes based on a tip that they contained counterfeit currency. The search did not uncover any evidence of counterfeiting. Another month later, the DEA obtained a warrant to search the boxes based on a tip that they contained drugs or drug residue. Again, the boxes were searched but no evidence was found. In 2011, plaintiffs brought this lawsuit, claiming that the items were taken from the boxes and alleging negligence and breach of contract against the bank for allegedly reporting its unsubstantiated suspicions of counterfeiting and/or drug trafficking to the government. The bank filed a motion to dismiss.
The Court granted the bank’s motion. The Annunzio-Wylie Anti-Money Laundering Act includes a provision stating that “[a]ny financial institution that makes a voluntary disclosure of any possible violation of law or regulation to a government agency . . . shall not be liable to any person . . . for such disclosure or for any failure to provide notice of such disclosure[.]” 31 U.S.C. § 5318(g)(3)(A). Likewise, the Code of Federal Regulations states that “[t]he safe harbor provisions of 31 U.S.C. 5318(g), . . . covers all reports of suspected or known criminal violations and suspicious activities to law enforcement and financial institution supervisory authorities, including supporting documentation, regardless of whether such reports are filed pursuant to this section or are filed on a voluntary basis.” 12 C.F.R. § 208.62(a). Although plaintiffs argued that this safe harbor does not apply when the disclosure is made in bad faith, this argument was explicitly rejected by the Second Circuit in Lee v. Bankers Tr. Co., 166 F.3d 540 (2d Cir. 1999) and the Court likewise rejected it. Additionally, the Court found that this safe harbor applies even if the bank did not file an official Suspicious Activity Report. Finally, the Court held that even if plaintiffs’ theft-related claims were attenuated enough from the bank’s reporting to fall outside the safe harbor, plaintiffs failed to plead sufficient facts to support these claims, and the Court dismissed the action.