Whether a state court's imposition of a good faith requirement for termination of a customer account is repugnant to the statutory scheme embodied in the Bank Secrecy Act

QUESTION PRESENTED A recent decision from a New Jersey appellate court (which the New Jersey Supreme Court declined to review) joins a growing number of decisions across the country that are eroding the specific protections afforded to financial institutions under the Bank Secrecy Act of 1970 (“BSA”). If not curtailed, this trend will have a chilling effect on the willingness of financial institutions to report suspicious activity to federal regulators. Since 1996, to help prevent financial crimes, banks have been required to file a Suspicious Activity Report (“SAR”) whenever they identify any suspicious activity of a bank customer. See 31 U.S.C. § 5318. However, banks are absolutely forbidden to reveal to anyone that such a report has been filed, even in civil litigation. Congress recognized that banks have legitimate concerns about being held liable for a breach of customer privacy attributable to these reports. Accordingly, the BSA includes a safe harbor provision protecting a bank from civil liability for revealing suspicious account activity to governmental authorities. That federal protection is being eviscerated by decisions like the one in this case, which held the bank liable for closing a customer account unless it could demonstrate a good faith basis for the closure. That requirement places banks in a Hobson’s choice of violating their non-disclosure obligations under the BSA or facing civil liability for being unable to disclose the good faith basis for an account closure. This case presents the question whether, since a bank is prohibited from disclosing whether or not it filed a SAR, u a state court’s imposition of a good faith requirement for termination of a customer account is repugnant to the statutory scheme embodied in the BSA?