Finding Jobs through SARs

SARS (Severe Acute Respiratory Syndrome) is a virulent disease.  SARS (Suspicious Activity Reports) can also be a cure for legal unemployment, underemployment, or just plain lousy employment. Here's how.

What are SARs?

A Suspicious Activity Report (or SAR) is a report regarding suspicious or potentially suspicious activity, filed with the Financial Crimes Enforcement Network (FinCEN), a rather obscure agency of the U.S. Treasury Department. SARs are required by the Bank Secrecy Act, as amended, and its implementing regulations.

The purpose of SARs is to report known or suspected violations of law or suspicious activity observed by financial institutions subject to Bank Secrecy Act regulations. SARs often lead law enforcement organizations to launch financial fraud, money laundering, or terrorist financing investigations, as well as other criminal cases. SARs filings also enable  FinCEN to identify emerging financial crimes trends and behavior.

Many diverse financial industries must file SARs, including depository institutions (banks, S&Ls, bank holding companies, credit unions, non-bank subsidiaries of bank holding companies, U.S. branches and agencies of foreign banks, and Edge and Agreement corporations); money services businesses such as check cashing outfits and issuers, sellers and redeemers of money orders and travelers checks; securities firms; the futures industry; casinos; currency dealers and exchangers; and insurance companies. A proposal is in the works to add mutual fund operators to this list. A unique SARs form is specifically designed for each type of financial institutions

FinCEN requires a SARs report to be filed whenever the financial institution suspects: insider abuse by an employee; violations of law aggregating over $5,000 or more where a subject can be identified; violations of law aggregating over $25,000 or more regardless of a potential subject; transactions aggregating $5,000 or more that involve potential money laundering or violations of the Bank Secrecy Act; computer intrusion; or when a financial institution knows that a customer is operating as an unlicensed money services business. Many financial institutions file thousands of SARs each year. SARs are confidential.

Penalties for non-compliance with the SARs filing requirement are severe. They include both corporate and individual employee sanctions, i.e., large fines, imprisonment, regulatory restrictions, and loss of banking charter.

How SARs Create Legal Jobs

Since SARs lead to investigations and prosecutions by federal, state and local law enforcement, they naturally involve attorneys representing government, financial institutions, corporations, and individuals who are the subject of a SARs report.

In addition, the trends and patterns reported by FinCEN often prompt financial institutions and law firms to bolster their legal hiring in anticipation of more vigorous enforcement activity.

Also, the more SARs reports, the more reliance by the reporting entity on attorneys to investigate the suspicious activity and draft and review the SARs report prior to filing. Moreover, since the filing requirements include very short filing deadlines, attorneys get involved in the process early and often.

These often dramatic increases in SARs filings and valuable information on their origins can be a solid indicator of near-term legal hiring activity, intelligence that you can use to frame your job search campaign.

The Latest SARs Trends and Patterns

FinCEN released the latest edition of its SAR Activity Review – By the Numbers on January 22, 2010. The report covers the first six months of 2009 and indicates the following

Suspected check fraud (including travelers' checks and counterfeit checks) increased significantly in 2009 in every industry required to file SARs. Depository institution check fraud SARs were up 19 percent; counterfeit check SARs increased 36 percent; suspected travelers' check fraud zoomed up 76 percent; casino check fraud reports were up18 percent; and securities and futures industry check fraud increased by 19 percent.

Securities and futures industry SARs filings increased 29 percent over 2008.

Mail fraud filings increased by 52 percent, and wire fraud was up 56 percent. Foreign currency futures fraud and foreign currencies fraud reports skyrocketed up 2,600 percent and 300 percent, respectively.

Suspected mortgage loan fraud rose just one percent from the corresponding period in 2008, but remains at a historically high level following six consecutive years of double-digit growth.

FinCEN also recently released a separate report on insurance industry suspicious activity reporting (complete only through April 2008), indicating that filings almost doubled from the prior year, with most of the filing activity emanating from New York, California, New Jersey, Florida and Texas.

You can use this information to target your job search to those areas of most interest to you.

Estate Planning's Comeback?

It sounds counterintuitive, but the temporary disappearance of the estate tax in 2010 may prove to be bonanza for attorneys interested in estate planning. At the moment, there is no estate tax, period. While this strange situation may not last long, there is a window of opportunity to consider.

How Did We Get Here?

Because Congress did not act with respect to estate and gift taxation by the end of 2009, both the estate tax and the generation-skipping transfer tax on assets given to grandchildren were automatically repealed at the end of 2009 has disappeared in 2010 (per Title V of the Economic Growth and Tax Relief Reconciliation Act of 2001). If Congress continues to ignore this issue this year, both taxes will re-emerge in 2011 at the old, higher rates (55 percent) and lower exemptions ($1 million) that prevailed ten years ago (the top rate in 2009 was 45 percent, with up to $3.5 million exempted).

The fiscal year 2010 budget, anticipating that Congress would act last year, expected $19 billion in estate and gift tax revenues this year. Not anymore.

Both taxes are scheduled to return in 2011 at the unfavorable rates that applied 10 years earlier. There is still a gift tax if an individual gives away more than $1 million during his or her lifetime, but the gift tax rate has been reduced from 45 percent to 35 percent.

Permitting a one-year repeal (think: Medicare Prescription Drug Act's infamous "donut hole" for a somewhat perverse analogy) to continue is going to cause all sorts of opportunity for fancy footwork on the part of wealthy individuals this year.  Continuing legal education providers and bar associations, cognizant of this quirk, are gearing up programs to alert attorneys to opportunities in estate and gift planning.

The Opportunity

Many wills and trusts are written based on the assumption that the estate tax exists. Consequently, a will that made sense up until December 31, 2009 could result in a surviving spouse getting shut out of his or her spouse's estate.

Another issue caused by this congressional neglect is that the cost basis of inherited assets has also changed. Heirs will now have to use a much more limited stepped-up basis for an asset when computing their tax liability, instead of the value upon the owner’s death. This could be enormously expensive and extremely difficult to document. Say for example, you inherited shares of IBM that your parent initially purchased 50 years ago and then reinvested dividends along the way. Hunting for all the relevant transaction slips and adjusting for stock splits along the way is likely to be a very daunting process. Moreover, you may owe capital gains tax on the appreciation when you sell the shares.

All of this means opportunity for attorneys, at least in the short-term, through

1. Advising clients to be prepared for the bookkeeping nightmare that might ensue should Congress fail to act.

2. Counseling older clients on how to organize their records to show the cost basis of their assets.

3. Alerting "next generation" clients on the importance of discussing recordkeeping with their parents and what, specifically, to discuss with them.

4. Reviewing client wills and living trusts for formula clauses inserted in these documents to take maximum advantage of the estate tax exemption, e.g., "that amount," "that portion," "that fraction," during the decade from 1999 to 2009 when it steadily increased from $650,000 to $3.5 million. Lawyers included this language so that wills and trusts would not have to be rewritten whenever the exemption changed. These documents may now have to be revised in order to reflect the client's intent.

5. Advising executors of existing estate plans are going to need advice on estate administration and distributions in 2010, and perhaps beyond.

There are also certain scenarios that could possibly skew client intent dramatically, such as family/bypass trust language. These are too complex to relate in this blog, other than to say that, in the absence of an estate tax, it is possible that one's entire estate could go into a bypass trust (e.g., a spouse gets nothing).

Given the topsy-turvy world of estate planning and administration spawned by Congress' inaction, attorneys may arguably have a duty to alert their clients to what is happening and what needs to be done.

What Might Happen

The Obama administration and congressional liberal Democrats have proposed making the 2009 rate and exemption permanent and indexing it to inflation in future years. Moderate Democrats have proposed reduced rates. Republicans generally want to eliminate estate, gift, and generation-skipping taxes altogether.

The most logical expectation is that Congress will restore the estate, gift, and generation-skipping taxes retroactively and put the regime that applied in 2009 back in place. Court precedents tend to support such a retroactive restoration of the taxes, particularly if it is accomplished sooner rather than later.

However, we are talking about Congress, so logic may have nothing to do with it.

In the meantime and perhaps beyond, there is much that attorneys can do to help clients and their families navigate through the uncertain waters presented by Congress' inattentiveness.

Healthcare Reform Still Lives in the States

The possible demise (or scaling back) of federal healthcare reform legislation in light of the election of Republican Senator Scott Brown in Massachusetts this week is by no means the death knell for healthcare reform. States across the country have been moving in this direction for several years now, with more reform initiatives to follow, and are thereby generating legal job opportunities.

Comprehensive State Reform Efforts

As of the end of 2009, three states – Massachusetts, Maine, and Vermont – have enacted comprehensive healthcare reform bills, and 14 others are moving in that direction. They are: California, Colorado, Connecticut, Illinois, Iowa, Kansas, Minnesota, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Washington, and Wisconsin. While state reform proposals are all over the map, many include greatly expanded coverage, guaranteed issue (no pre-existing condition denials) and renewability, premium subsidies for low-income individuals, and expanded public programs. The Massachusetts, Maine and Vermont models all presage expanded demand for both public and private sector attorneys, compliance specialists, risk managers, ethicists, privacy professionals, and contract administrators.

Partial Reforms and New Agencies

Several states have already enacted incremental healthcare reforms that represent pieces of the omnibus healthcare reform proposals being considered at both the state and federal levels. California has established an Office of Health Information Integrity "to ensure the enforcement of state law mandating the confidentiality of medical information and to impose administrative fines for the unauthorized use of medical information." The state has also mandated that when insurers cancel a person’s coverage, they allow other members of the family to keep their coverage. Both initiatives require additional public sector legal staff and private sector compliance hires.

Other state actions that have – and continue to – generate legal employment opportunities include the following selections:

Last July, Colorado expanded public coverage to a greater number (approximately 100,000) of low-income children, parents, and childless adults.

Connecticut has eliminated pre-existing condition exclusions in health insurance policies.

Iowa has established a goal of universal health care coverage for all Iowa residents by 2013. The same law prevents private insurers from discriminating against individuals with pre-existing health conditions, improves electronic health information technology systems, and focuses on prevention, wellness, and chronic care management. A subsequent 2009 law created the Iowa Choice Insurance Exchange to develop a comprehensive health coverage plan for all children without coverage; design and implement a health coverage program, called Iowa Choice, which will offer private health coverage at three benefit package levels; and to submit its plan to the Insurance Commissioner and then to the Legislature by February 15, 2010. The same law also creates an Office of Health Reform in the Department of Public Health.

Oregon in 2009 established the Oregon Health Authority to be the policymaking and oversight entity for all health reform efforts to improve health care quality and coordination, and to contain costs. It also calls for the creation of a health insurance exchange and a quality care institute

Pennsylvania has established an Office of Health Equity in the Department of Public Health.

Other states have not been slouches when it comes to healthcare reform. States that have passed more modest healthcare reform efforts include:

Utah – The Utah Health Exchange (August 2009)

Florida – Cover Florida Health Care (January 2009)

28 states have established health insurance purchasing cooperatives or alliances to assist small businesses (generally up to 50 or 100 employees) to join together to create a larger purchasing pool, thus allowing negotiations for more favorable premium rates and broader benefit packages than they could otherwise obtain for their employees.

What This Means for Legal Careers

Here are three things you should take away from all of this "below-the-radar" state healthcare reform activity.

(1)   Don't fret about the possible failure of federal healthcare reform. There is a lot of action in the states, much of it saner and more rational than the feds 2,000+ page "all-or-nothing" approach.

(2)   There are going to be a lot of public and private sector legal job opportunities resulting from state healthcare reform initiatives.

(3)   There will also be a number of legal services contracting opportunities offered by these new state health entities and accompanying regulatory compliance requirements.