What Financial Institutions Need to Know About Suspicious Activity Reports
January 2, 2023
At a glance
- The main takeaway: Money-laundering crimes have grown, and the Suspicious Activity Report (SAR) is a tool that financial institutions and law enforcement can use to monitor and manage them.
- Impact on your business: There are several best practices that institutions should know to ensure their SARs are both optimal and effective.
- Next steps: Aprio’s anti-money laundering (AML) specialists can review SARs to help institutions comply with US regulatory requirements when filing with the Financial Crimes Enforcement Network (FinCEN).
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The full story:
Money laundering continues to be one of the most significant financial crimes committed globally today. Just how costly are these crimes? The United Nations estimates that between $800 billion to $2 trillion is laundered each year across the world, or around 2% to 5% of global GDP.
The United States was one of the first countries to introduce legislation to combat money laundering in 1970 with the Bank Secrecy Act (BSA). But as crimes have grown in prevalence and sophistication, US lawmakers and regulators have developed other tools to help financial institutions better manage the fall-out from money-laundering crimes.
The Suspicious Activity Report (SAR) is one of these tools. How exactly do SARs work and what best practices should you keep in mind to help ensure their proper usage? We provide a brief yet informative summary below.
What is a SAR, and why is it valuable?
The SAR was a tool that arose from the passage of the BSA. The goal is for financial institutions to file the report when they either suspect that financial crimes or money-laundering activity are taking place in their organization, or they suspect or know about clear violations of the BSA laws. Although institutions can use SARs to report other types of suspicious activity, they are most commonly used to report money-laundering violations or related illicit crimes.
To help provide clarity, the Federal Deposit Insurance Corporation (FDIC) and the Financial Crimes Enforcement Network (FinCEN) have published several different criteria that trigger the need for a SAR. Those criteria include:
- Suspicious transactions aggregating $5,000 or more ($2,000 for money service businesses) that involve potential money laundering or BSA violations.
- Financial crimes of any amount committed by an employee within the organization.
- Suspected incidences of terrorism, identity theft and other similar situations involving any dollar amount.
Note that institutions are legally required to file a SAR within 30 days after potential crimes have been detected. Institutions may be eligible for 60-day filing extensions if there are extenuating circumstances (for instance, if the institution needs time to identify and confirm the perpetrator of the crime). If you fail to file the SAR within the required timeline, then you may be subjected to costly fines.
SARs are valuable tools because they help law enforcement and investigators build patterns for suspicious activity that a perpetrator may be committing across multiple organizations. However, it’s still important to practice due diligence during the SAR-filing process. FinCEN’s intention for establishing the aforementioned thresholds is to maintain law enforcement’s focus and resources on activity that is actually suspicious. If you have reviewed the SAR thresholds and still have questions or concerns about the activity you are noticing in your organization, contact a forensic investigation team for help with determining whether or not a SAR makes sense.
Best practices for utilizing SARs
At Aprio, our forensic investigation team reviews and improves clients’ SARs to increase effectiveness and check compliance with the BSA. Here are some of the helpful tips and best practices we share with our clients during the reporting process:
- The devil is in the details: SARs must be detailed, accurate and well-organized to help streamline the investigation process. Make sure that your report includes a highly specific and orderly narrative of the events that took place, as well as the individuals who were involved and the amounts of the suspicious transactions. In some situations, we have seen institutions refile reports due to subpar initial reports, which both elongates and complicates the investigation.
- Healthy caution goes a long way: The saying “better safe than sorry” rings true here. We advise our clients to record all transactions that could potentially raise a red flag, even if they end up being legitimate at the end of the day. It is also important to keep detailed notes within your transaction monitoring system when reviewing any transactions for potentially suspicious activity, even if a SAR is not filed. Potential suspicious transactions may include those that take place overseas or large deposits in excess of $5,000─$10,000, to name a few examples. At the very least, keeping detailed records of these transactions will make the SAR-filing process much easier (if you have determined that a SAR is necessary) and enable you to better meet that required 30-day deadline.
- Train your staff appropriately: All of your employees, especially those who play a role in monitoring transactions, need to be fully educated on SAR best practices, the BSA regulations and requirements, and the most common warning signs to watch for. It is also a regulatory requirement per the BSA to train your employees on anti-money laundering (AML) matters and your institution’s AML program. Your employees need to be your boots on the ground, as it’s impossible for you and other organizational leaders to keep tabs on and spot every suspicious transaction.
The bottom line
Financial institutions and legal counsel choose Aprio to support their AML efforts and help facilitate SAR writing. As forensic accountants and expert witnesses, we assist with AML governance, policy, training, transaction monitoring, know your customer (KYC), suspicious activity reviews, investigations and remediation.
Schedule a complimentary consultation with us today to learn more.
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About the Author
Haley Beatty is a forensic accounting, financial crime reporting expert. Her specialties include Anti-Money Laundering (AML), Know Your Client (KYC) investigation and regulatory compliance. She has advised some of the largest financial institutions in the world and led teams of 500 investigators. Haley works closely with clients to establish and advance AML compliance, monitoring and reporting programs that exceed regulatory requirements. She has experience advising a broad spectrum of financial industry clients from FinTech companies to MSBs and transaction processors.