What is a suspicious activity report (SAR)?

SARs offer invaluable insights into various criminal activities, providing intelligence that may not be readily visible to law enforcement otherwise. They are not exclusive to financial institutions; professionals like solicitors, accountants, and estate agents also play a role in submitting SARs. Private individuals can also submit SARs if they have suspicions or knowledge regarding money laundering or terrorist financing activities.

What is the purpose of Suspicious Activity Reports?

The main goal of Suspicious Activity Reports and the subsequent investigations they prompt is to pinpoint customers potentially involved in illicit activities such as money laundering, fraud, or terrorist financing. SARs play a crucial role in enabling law enforcement agencies to identify patterns and trends in organized and individual financial crimes, enabling them to prevent and get ahead of criminal and fraudulent behavior before it escalates.

In fact, SARs are a key element in the United States’ anti-money laundering (AML) statutes and regulations, which have strengthened since 2001. The Patriot Act, in particular, expanded SAR requirements to combat both global and domestic terrorism.

On various occasions, SARs have served as pivotal catalysts for law enforcement authorities to instigate or advance major investigations concerning money laundering, terrorist financing, and various other criminal cases. They are essential in AML efforts because they provide early detection mechanisms, allowing authorities to intervene swiftly and effectively in combating financial crimes and safeguarding national security interests.

When is Suspicious Activity Reporting required?

Determining when to file a Suspicious Activity Report (SAR) varies depending on jurisdiction and the policies of individual financial institutions. For example, the U.S. Financial Crimes Enforcement Network (FinCEN) sets forth specific circumstances where SAR filings are required. 

Financial institutions operating in the United States are required to file a SAR if they suspect insider trading activity by an employee or customer. However, SAR requirements extend beyond internal concerns; financial institutions also monitor customer transactions for signs of potential money laundering or violations of the Bank Secrecy Act (BSA), triggering mandatory reporting obligations.

Additional situations prompting SAR filings include incidents of computer hacking and instances where customers operate unlicensed money services businesses. Upon detecting potential criminal activity, financial institutions must submit SARs within 30 days. If further investigation is necessary, an extension of up to 60 days may be granted, but compliance with reporting deadlines is imperative.

Furthermore, SAR filings must be retained for a minimum of five years from the date of submission. Non-compliance with these regulations carries severe consequences, including civil and criminal penalties such as substantial fines, regulatory sanctions, forfeiture of banking charters, and even imprisonment. Therefore, adherence to suspicious activity reporting requirements is essential for financial institutions to effectively fulfill their legal obligations and combat illicit financial activities.

What information should be included in a Suspicious Activity Report?

FinCEN requires that SAR forms submitted by financial institutions include five crucial elements regarding the suspicious activity:

• Who: The individuals or entities involved in the suspicious activity.
• What: The instruments or mechanisms used in carrying out the suspicious activity.
• When: The time frame during which the suspicious activity occurred.
• Where: The location where the suspicious activity took place.
• Why: The rationale behind the filer’s belief that the activity is suspicious.

In addition to these five key elements, SARs must include the method of operation, that is, how the activity is being executed. Also, SAR filings typically contain comprehensive details such as names, addresses, social security numbers, birth dates, driver’s license or passport numbers, occupations, and phone numbers of the parties involved in the suspicious activity. This seeks to provide law enforcement agencies with the necessary information to investigate and combat financial crimes effectively.

When financial institutions detect any activity they deem suspicious or unusual, they are required to file a report within 30 days to the FinCEN, including all the information above. If further evidence is required, entities can request an extension of up to 60 days. 

However, it’s important to note that institutions are not required to possess concrete proof of criminal activity to file a SAR, and clients are not informed when a SAR is submitted concerning their account.

Who can file a Suspicious Activity Report?

Both financial institutions and individuals can file SARs. In financial institutions, suspicious activity reporting can be triggered by any employee, as they are typically trained to identify and investigate potential irregularities.

Various financial entities need to be aware of their requirement to file SARs. This includes banks, credit unions, stock, and mutual fund brokers, as well as money service businesses like check cashing entities and money order providers. Moreover, casinos, card clubs, precious metals or gems dealers, insurance companies, and participants in the mortgage sector are all subject to the provisions outlined in the BSA.

On the other hand, while the majority of SARs stem from the financial sector, individuals from various backgrounds, including law enforcement personnel, public safety workers, city or state officials, business owners, and even members of the general public, can submit suspicious activity reports. The reporting process is the same regardless of the type of reporter and the nature of the activity being reported, whether financial or not.

After they are submitted, SARs are shared with local, state, and federal agencies via fusion centers. These centers serve as hubs for coordinating and sharing information among relevant agencies affected by the flagged activity, ensuring that pertinent details reach the appropriate authorities for further investigation and action.

What can trigger a Suspicious Activity Report?

FinCEN identifies various patterns of suspicious activity that can trigger a SAR filing. These include:

• Parties involved in transactions that lack evidence of legitimate business activities or business operations.
• Unusual financial connections and transactions that occur between businesses of different industries, such as a food importer engaging with an auto parts exporter.
• Transactions that do not align with the stated business type or exhibit unusual volumes compared to similar businesses operating locally.
• Abnormal wire transfers, either in unusually large numbers or volumes or displaying repetitive patterns.
• Complex sequences of transactions involving multiple accounts, banks, and parties.
• Transactions involving bulk cash or monetary instruments.
• Uncommon deposits of mixed funds into a business account.
• Sudden spikes in transaction activity within short timeframes, particularly in dormant accounts.
• Transactional activities or volumes inconsistent with the intended purpose of the account or the activity level as initially indicated by the account holder during the account’s opening.
• Attempts to circumvent reporting and recordkeeping requirements by altering transaction structures or values.

It’s important to note that this list is not exhaustive, and other types of activities could trigger a SAR filing if they are deemed suspicious by a financial institution or individual.

Are Suspicious Activity Reports confidential?

Yes, suspicious activity reports are confidential. In fact, the confidentiality of SARs is crucial for their effectiveness in combating financial crimes. Individuals under investigation are not informed of the pending report, which helps preserve the integrity of ongoing investigations. Moreover, disclosing SAR-related information to external parties like media companies is considered a federal offense.

In addition, financial institutions filing SARs must follow strict procedures to protect the information’s confidentiality. This includes thorough reviews involving financial investigators, company management, and legal counsel before finalizing the SAR. Keeping confidentiality throughout this process is vital to maintaining the report’s integrity and effectiveness.

To recognize the importance of the role of SAR reporters, special privileges protect their identities and shield them from legal consequences. Reporters are not required to reveal their identities and have immunity for statements made in the SAR. These measures seek to create a safe environment that fosters honest reporting without fear of retaliation to facilitate the timely and accurate detection of financial crimes.

How do you submit a Suspicious Activity Report?

Since 2012, suspicious activity reports have been required to go through FinCEN’s BSA e-file system. This centralized system ensures greater uniformity and efficiency, particularly crucial in situations where public safety is at stake. 

When submitting a SAR, reporters are required to use the standard SAR form available on the BSA e-file system to input the required data, including basic details such as names, addresses, social security numbers, birth dates, driver’s license or passport numbers, occupations, and phone numbers of all parties involved. They also need to specify the dates of the incident and use specific codes to indicate the type of suspicious activity they are reporting.

The reporting process includes a final step where reporters are required to provide a written description of the suspicious activity to complement the data provided.

While anyone can access the standard SAR form via the BSA e-file system, there are several online tutorials and databases to help financial employees, legal professionals, and individuals without specialized training to navigate the ins and outs of the SAR reporting process.

Summary

• A Suspicious Activity Report (SAR) is a formal document that financial institutions and related entities are required to file whenever they suspect potential money laundering or fraudulent activities.
• The main goal of Suspicious Activity Reports and the subsequent investigations they prompt is to pinpoint customers potentially involved in illicit activities such as money laundering, fraud, or terrorist financing.
• Determining when to file a Suspicious Activity Report (SAR) varies depending on jurisdiction and the policies of individual financial institutions.