Take Note of this Landmark Ruling for Plaintiffs

Obtaining key discovery materials related to a financial institution’s internal fraud investigations remains a major hurdle for plaintiffs’ litigators navigating the complexities of financial litigation. Historically, financial firms have broadly asserted the Bank Secrecy Act (BSA) and its Suspicious Activity Report (SAR) privilege to shield vast swaths of internal documents, alerts, and investigatory files from discovery. However, a 2025 decision out of the United States District Court for the Southern District of Florida, Fanny B. Millstein and Martin Kleinbart v. Wells Fargo Bank, N.A. (Case No. 1:24-cv-22142), serves as a critical course correction, significantly limiting the permissible scope of the SAR privilege. Importantly, as several clients already know, VEGA experts have opined in several reports and live testimony on the limitations of SAR privilege. We now have a federal court effectively ratifying that opinion.

The Dispute: Overbroad Assertions of SAR Privilege

In Millstein, the plaintiffs alleged that Wells Fargo aided and abetted a purported Ponzi scheme. During discovery, the bank withheld significant portions of its Financial Crimes Investigation files, arguing that these internal evaluations were protected under the BSA and SAR privilege because they reflected the bank’s process for determining whether to file a SAR, even though it did not reveal the actual existence of a SAR filing or not. Wells Fargo asserted that revealing these investigatory files, or even internal processes like an Unusual Activity Report, might indirectly provide a “roadmap” to its Anti-Money Laundering programs or reveal whether a SAR was actually filed.

To justify this expansive withholding, the bank relied heavily on interpretative guidance issued by the Financial Crimes Enforcement Network (FinCEN) and the Office of the Comptroller of the Currency, which suggests that confidentiality should extend to material prepared as part of a bank’s process to detect and report suspicious activity.

On separate cases, a VEGA expert heard similar arguments, and rebutted with language from the FinCEN’s own Electronic Filing Instructions, which note, “31 CFR Chapter X clarifies that the following activity does not constitute a prohibited disclosure…Disclosure of the underlying facts, transactions, and documents upon which a FinCEN SAR is based.”

The Court’s Academic and Textual Analysis

Magistrate Judge Jonathan Goodman flatly rejected the bank’s expansive interpretation. Emphasizing a strict textualist approach, the court noted that the governing regulation—31 C.F.R. § 1020.320(e)(1)(i)—only prohibits the disclosure of “a SAR or any information that would reveal the existence of a SAR.” Crucially, the court struck down the bank’s reliance on the agency Interpretative Guidance by applying the United States Supreme Court’s precedent in Kisor v. Wilkie. Under Kisor, courts cannot defer to agency interpretations unless the underlying regulation is “genuinely ambiguous.” Finding no ambiguity in the regulation’s text, the court determined that the agency commentaries attempting to expand the privilege were inapplicable and offered no authoritative weight. As the court definitively stated, the relevant regulation bars only the disclosure of information that “would” reveal the existence of a SAR; it does not protect information
that “could” or “might” reveal its existence.

Practical Implications for Plaintiff’s Lawyers

For plaintiffs seeking to establish a financial institution’s actual knowledge of fraud or money laundering, this ruling provides a framework to compel critical discovery. The court’s order delineates clear boundaries for what a bank must produce:

  • Unusual Activity Reports: Wells Fargo had to produce its internal UARs. The court reasoned that such reports are utilized in the ordinary course of business to evaluate transactions, regardless of whether a SAR is ultimately filed.
  • Investigatory Factual Narratives: The factual discussion of transactions and account activities compiled by an investigator must be produced, up to the point where a direct recommendation regarding a SAR filing is made.
  • Internal System Fields: System flags such as Wells Fargo’s “SAR Address Fields,” “Hold References,” and “Suspicious Activity References” cannot be withheld simply because a sophisticated reviewer might theoretically speculate about a SAR filing.

In effect, the court preserved privilege only for the actual SARs and draft SARs. It allowed for the redaction of recommendations evaluating whether to file a SAR. The mere presence of the word “suspicious” in an internal document does not justify wholesale withholding.

Conclusion

Financial institutions can no longer withhold vital, inculpatory evidence of their internal knowledge by funneling its fraud investigations into a proprietary SAR evaluation system. By returning the focus to the unambiguous text of the BSA regulations, the Millstein order closes the case (in Florida, at least) on the legal fiction that all investigatory conduct is shielded by the SAR privilege.

As the landscape of financial litigation continues to evolve, targeted expertise is essential to dismantling improper discovery roadblocks. VEGA Compliance experts continue to offer preeminent expertise in a range of cases alleging financial fraud – including KYC/due diligence, suitability, customer protections, governance, market manipulation, Ponzi schemes, money laundering, and other financial crimes.

Link to Order on PACER: https://ecf.flsd.uscourts.gov/doc1/051128263084