When a SAR is required: In general, a Suspected Activity Report or SAR is required1 if the filer knows or suspects that a transaction (or series of related transactions) conducted or attempted by a customer: (a) is a proceed of criminal activity; (b) is designed to evade the Bank Secrecy Act, including the transaction reporting requirements; (c) serves no known business or lawful purpose or is unusual for the customer, (the filer cannot explain the transaction); or (d) the transaction is meant to facilitate criminal activity.
This article examines the requirement and purpose of Suspected Activity Report (SAR) under US Anti-Money Laundering Laws.A SAR is required where the value of the transaction meets or exceeds specified thresholds, and the same varies by type of filer. For example, a SAR must be filed by a money services businesses, where the value of a transaction equals or exceeds $2,000 (for other filers the limit is $5,000).2
PURPOSE OF SAR FILING The purpose of filing SARs is to identify violations or potential violations of law for criminal investigation. This objective is accomplished by the filing of a SAR that identifies the activity of a person who is involved in a transactional crime. Banks and specified institutions are under a legal obligation to inform the law enforcement and the federal banking agencies. The banks should report suspicious activity by filing a SAR report at least every 90 days.3
This practice of reporting alerts the bank that it should continue to review the suspicious activities of their clients in order to curb money laundering and other offences.
EXAMPLES OF SUSPICIOUS ACTIVITY
---- Use of false ID or multiple IDs on different occasions.
---- Two or more customers use the same or similar IDs.
---- Where a large transaction is broken into two or more smaller transactions.
---- Where two or more locations are used by a customer on the same day to break one transaction into smaller transactions.
---- A customer frequently sends and receives money transfers of more than $2,000 to and from many different people.
---- Where customer's transaction amounts to $11,000, and the customer attempts to bribe bank employee not to file a Currency Transaction Report.
SAFE HEAVEN FOR BANKS The law provides protection from civil liability for all reports of suspicious transactions made to appropriate authorities, including supporting documentation, regardless of whether such reports are filed pursuant to the SAR instructions.4 Specifically, the law provides that a bank and its directors, officers, employees, and agents that make a disclosure to the appropriate authorities of any possible violation of law or regulation, including a disclosure in connection with the preparation of SARs, "shall not be liable to any action under any law or regulation, any constitution, law, or regulation of any State or political subdivision of any State, or under any contract or other legally enforceable agreement (including any arbitration agreement), for such disclosure or for any failure to provide notice of such disclosure to the person who is the subject of such disclosure or any other person identified in the disclosure."4A The safe harbour applies to SARs filed within the required reporting thresholds as well as to SARs filed voluntarily on any activity below the threshold.
SAR AND AML/CTF COMPLIANCE The Bank Secrecy Act of 1970 (the "BSA")5 empowers the Secretary of the Treasury (the "Secretary") to "require any financial institution, and any director, officer, employee, or agent of any financial institution, to report any suspicious transaction relevant to a possible violation of law or regulation."6 The reporting system under BSA as amended by The Patriot Act required financial institutions, and specified individuals related to those institutions (such individuals and financial institutions have collectively been termed as "financial institutions"), to file Suspicious Activity Reports ("SARs") with the Financial Crimes Enforcement Network ("FinCEN").7 This SAR reporting system has provided the government with a valuable pipeline of information concerning dubious financial conduct.8 Since the inception of the reporting system, these SARs and the wealth of information they represent have been a critical tool in the government's efforts against financial crimes.9
IDENTIFYING SUSPICIOUS ACTIVITY Suspicious activity monitoring and reporting are critical internal controls. Proper monitoring and reporting processes are essential to ensuring that the bank has an adequate and effective BSA compliance program. Appropriate policies, procedures, and processes should be in place to monitor and identify unusual activity. The sophistication of monitoring systems should be dictated by the bank's risk profile, with particular emphasis on the composition of higher-risk products, services, customers, entities, and geographies. The bank should ensure adequate staff is assigned to the identification, research, and reporting of suspicious activities, taking into account the bank's overall risk profile and the volume of transactions.
Generally, effective suspicious activity monitoring and reporting systems include four key components.10 An effective suspicious activity monitoring and reporting process leads to successful implementation of each component. Breakdowns in any one or more of these components may adversely affect SAR reporting and Bank Secrecy Law compliance. The four key components to an effective monitoring and reporting system are:
Identification of unusual activity (which may include: employee identification, law enforcement inquiries, other referrals, and transaction and surveillance monitoring system output).
---- Managing alerts.
---- Decision making about SAR.
---- SAR completion and filing.
Policies, procedures, and processes should describe the steps the bank takes to address each component and indicate the person(s) or departments responsible for identifying or producing an alert of unusual activity, managing the alert, deciding whether to file, and SAR completion and filing.
ABNORMAL BEHAVIOUR OF SUSPECTS Banks use a number of methods to identify potentially suspicious activity, including but not limited to activity identified by employees during day-to-day operations, law enforcement inquiries, or requests.11 The banks keep a close watch on the abnormal behaviour of their client so as to report it to the appropriate enforcement agency.
IDENTIFYING UNDERLYING CRIME Suspicious activities are reported by the banks and such activities may involve money laundering, BSA violations, terrorist financing,12 and crimes involving remittances beyond the prescribed dollar thresholds. However, banks are not obligated to investigate or confirm the underlying crime (eg, terrorist financing, money laundering, tax evasion, identity theft, and various types of fraud). Investigation is the responsibility of law enforcement. When evaluating suspicious activity and completing the SAR, banks make a serious effort to identify the characteristics of the suspicious activity.
SAR AND LEGAL ISSUES THE CONFIDENTIALITY OF SAR Upon receiving a request for information related to SARs from government agencies, financial institutions are posed with the task of determining whether the particular requestor is "appropriate" law enforcement, a question that can be a bit difficult to answer. Financial institutions that have received a request are supposed to disclose to the law enforcement and supervisory agencies and for that the backup support is that of SAR data.13 Even in the absence of any requests for information, financial institutions are allowed and encouraged to "share a Suspicious Activity Report, or the information contained therein, with" these appropriate agencies.14 FinCEN warns financial institutions to be cautious in determining whether a request is coming from an appropriate entity.15 Hence, this interplay between the general rule of non-disclosure and the requirement for and allowance of disclosure in the case of appropriate law enforcement or supervisory agencies results in financial institutions having to make determinations of whether particular government agencies are appropriate recipients of SAR information.
For example, financial institutions faced with requests for SARs from attorney general's office from election commission, both having typical powers and authority associated with their work, however, the institutions would normally consider the former a law enforcement agency, but would need to engage in a more detailed analysis to determine whether that agency is an appropriate one (ie has jurisdiction to investigate or prosecute persons or entities involved in the SAR transaction). It is generally believed that appropriate law enforcement agencies include, among others, the FBI, ATF, state AG's office or district attorney's office, the IRS or state tax enforcement agencies, or a US Attorney's Office.16
A review of the literature on the subjects reveals that within its definition of appropriate law enforcement agencies, fall an agency that under federal or state law has the authority to "investigate or prosecute" persons involved in the transaction described in the SAR. If the definition was limited to prosecutorial authorities, than appropriate law enforcement agencies would be restricted to authorities with the power to seek criminal penalties. However, the inclusion of authorities that "investigate" violations of law allows for a much larger range of entities that might qualify as an appropriate authority for purposes of SAR disclosures. Such determinations of whether a particular government agency has the authority to investigate violations of law, thereby qualifying as an appropriate law enforcement agency, are not always clear-cut.
(To be continued on Sunday)