In financial regulation, a Suspicious Activity Report (SAR) or Suspicious Transaction Report (STR) is a report made by a financial institution about suspicious or potentially suspicious activity as required under laws designed to counter money laundering, financing of terrorism and other financial crimes. The criteria to decide when a report must be made varies from country to country, but generally is any financial transaction that either a) does not make sense to the financial institution; b) is unusual for that particular client; or c) appears to be done only for the purpose of hiding or obfuscating another, separate transaction. The report is filed with that country's Financial Intelligence Unit, which is typically a specialist agency designed to collect and analyse transactions and then report these to relevant law enforcement teams.
Front line staff in the financial institution have the responsibility to identify transactions that may be suspicious and these are reported to a designated person that is responsible for reporting the suspicious transaction. This means that the front line staff can ask questions and in some cases refuse the transaction. However the financial institution is not allowed to inform the client or parties involved in the transaction that a SAR has been lodged, otherwise known as tipping off under the Financial Action Task Force's Recommendations. [1]
The Financial Action Task Force's Recommendations are widely recognized as the international standard in anti-money laundering and countering financing terrorism with endorsements from 180 nations. [2] FATF Recommendations set forth essential measures to combat money laundering and to protect domestic and international monetary systems including the application of preventive measures for the financial sector and other designated sectors; and establishment of powers and responsibilities for the relevant competent authorities (e.g., investigative, law enforcement and supervisory authorities), including guidelines regarding suspicious activity reports. [3]
Most countries have laws that require financial institutions to report suspicious transactions and will have a designated agency to receive them. The agency to which a report is required to be filed for a given country is typically part of the law enforcement or financial regulatory department of that country. For example, in the United States, suspicious transaction reports [4] must be reported to the Financial Crimes Enforcement Network (FinCEN), an agency of the United States Department of the Treasury. FinCEN maintains a team of analysts who meticulously review these Suspicious Activity Reports to detect potential money laundering activities. They also supply informational support to local law enforcement, along with national and international bodies including the International Association of Chiefs of Police (IACP), the National White-Collar Crime Center (NWCCC), and the National Association of Attorneys General (NAAG), facilitating further actions. [5]
In Australia the Suspicious Matter Report must be reported to Australian Transaction Reports and Analysis Centre (AUSTRAC), an Australian government agency. A 2020 Bank Policy Institute study found that American SARs elicited a response from law enforcement in a median of 4% of reports, and that a tiny subset of those responses resulted in arrest and conviction, suggesting that 90% to 95% of SARs reports were false positives of unlawful activity. [6]
In 1992, the requirement to file suspicious activity reports (as well as the accompanying implied gag order) in the United States was added by Section 1517(b) of the Annunzio-Wylie Anti-Money Laundering Act (part of the Housing and Community Development Act of 1992, Pub. L. 102–550, 106 Stat. 3762, 4060).
SARs include detailed information about transactions that are or appear to be suspicious. The goal of SAR filings is to help the government identify individuals, groups and organizations involved in fraud like terrorist financing, money laundering, and other crimes.
The purpose of a suspicious activity report is to detect and report known or suspected violations of law or suspicious activity observed by financial institutions subject to the regulations (for example, the United States Bank Secrecy Act (BSA)). In many instances, SARs have been instrumental in enabling law enforcement to initiate or supplement major money laundering or terrorist financing investigations and other criminal cases. [7] Information provided in SAR forms also presents governments with a method of identifying emerging trends and patterns associated with financial crimes. The information about those trends and patterns is vital to law enforcement agencies and provides valuable feedback to financial institutions. [7]
Under the United States Bank Secrecy Act (BSA), financial institutions are required to assist U.S. government agencies in detecting and preventing money laundering, such as:
The report can start with any employee of a financial services institution. The employees are trained to be alert for suspicious activity, such as situations where people are trying to wire money out of the country without identification, or activity by someone with no job who starts depositing large amounts of cash into an account. Employees are trained to ask questions about the transaction and communicate their suspicion up their chain of command where further decisions are made about whether to file a report or not.[ citation needed ]
Many different types of finance-related industries are required to file SARs. These include: [8]
Most countries also require other types of transactions to be reported. For example in the United States, FinCEN requires businesses and individuals report: [8] [9]
In most countries, unauthorized disclosure of a SAR filing is an offense. In the United States, it is specifically a federal criminal offense. [10] [11]
Financial institutions are required to undertake an investigation process prior to filing a SAR to ensure that the information reported is appropriate, complete, and accurate. This process will often include review by financial investigators, management and/or attorneys prior to filing.
To encourage complete candor and cooperation, there are disclosure and evidentiary privileges that protect SAR filers. First, an individual or organization is precluded from discovering the existence or contents of a SAR that includes the individual or organization's name. SARs filers are immune from the discovery process. [12] Second, SAR filers enjoy immunity for all statements made in their SARs, regardless of whether those statements were allegedly made in bad faith. [13] [14]
In most countries financial institutions and their employees face civil and criminal penalties for failing to properly file suspicious activity reports, including any combination of fines, [15] regulatory restrictions, loss of banking charter, or imprisonment.
Money laundering is the process of illegally concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdictions with varying definitions. It is usually a key operation of organized crime.
The Financial Crimes Enforcement Network (FinCEN) is a bureau of the United States Department of the Treasury that collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing, and other financial crimes.
The Bank Secrecy Act of 1970 (BSA), also known as the Currency and Foreign Transactions Reporting Act, is a U.S. law requiring financial institutions in the United States to assist U.S. government agencies in detecting and preventing money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, file reports if the daily aggregate exceeds $10,000, and report suspicious activity that may signify money laundering, tax evasion, or other criminal activities.
Structuring, also known as smurfing in banking jargon, is the practice of executing financial transactions such as making bank deposits in a specific pattern, calculated to avoid triggering financial institutions to file reports required by law, such as the United States' Bank Secrecy Act (BSA) and Internal Revenue Code section 6050I. Structuring may be done in the context of money laundering, fraud, and other financial crimes. Legal restrictions on structuring are concerned with limiting the size of domestic transactions for individuals.
The Financial Action Task Force (on Money Laundering) ('FATF, aka "Fatfee"), also known by its French name, Groupe d'action financière (GAFI), is an intergovernmental organisation founded in 1989 on the initiative of the G7 to develop policies to combat money laundering and to maintain certain interest. In 2001, its mandate was expanded to include terrorism financing.
Australian Transaction Reports and Analysis Centre (AUSTRAC) is an Australian government financial intelligence agency responsible for monitoring financial transactions to identify money laundering, organised crime, tax evasion, welfare fraud and terrorism financing. AUSTRAC was established in 1989 under the Financial Transaction Reports Act 1988. It implements in Australia the recommendations of the Financial Action Task Force on Money Laundering (FATF), which Australia joined in 1990.
A currency transaction report (CTR) is a report that U.S. financial institutions are required to file with FinCEN for each deposit, withdrawal, exchange of currency, or other payment or transfer, by, through, or to the financial institution which involves a transaction in currency valued at more than $10,000. Used in this context, currency means the coin and/or paper money of any country that is designated as legal tender by the country of issuance. Currency also includes U.S. silver certificates, U.S. notes, Federal Reserve notes, and official foreign bank notes. Contrary to popular misunderstanding, these reports do not apply to, and are not used for, non-currency transactions such as checks, nor for electronic transfers such as wire and ACH/EFT.
The USA PATRIOT Act was passed by the United States Congress in 2001 as a response to the September 11, 2001 attacks. It has ten titles, each containing numerous sections. Title III: International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 is actually an act of Congress in its own right as well as being a title of the USA PATRIOT Act, and is intended to facilitate the prevention, detection and prosecution of international money laundering and the financing of terrorism. The title's sections primarily amend portions of the Money Laundering Control Act of 1986 and the Bank Secrecy Act of 1970.
Anti-Money Laundering (AML) refers to a set of policies and practices to ensure that financial institutions and other regulated entities prevent, detect, and report financial crime and especially money laundering activities. Anti-Money Laundering is often paired with the action against terrorism financing, or Combating the Financing of Terrorism, using the acronym AML-CFT. In addition arrangements intended to ensure that banks and other relevant firms duly report suspicious transactions, the AML policy framework includes financial intelligence units and relevant law enforcement operations.
Terrorism financing is the provision of funds or providing financial support to individual terrorists or non-state actors.
The USA PATRIOT Act was passed by the United States Congress in 2001 as a response to the September 11 attacks in 2001. It has ten titles, with the third title written to prevent, detect, and prosecute international money laundering and the financing of terrorism.
Financial intelligence (FININT) is the gathering of information about the financial affairs of entities of interest, to understand their nature and capabilities, and predict their intentions. Generally the term applies in the context of law enforcement and related activities. One of the main purposes of financial intelligence is to identify financial transactions that may involve tax evasion, money laundering or some other criminal activity. FININT may also be involved in identifying financing of criminal and terrorist organisations. Financial intelligence can be broken down into two main areas, collection and analysis. Collection is normally done by a government agency, known as a financial intelligence organisation or Financial Intelligence Unit (FIU). The agency will collect raw transactional information and Suspicious activity reports (SAR) usually provided by banks and other entities as part of regulatory requirements. Data may be shared with other countries through intergovernmental networks. Analysis, may consist of scrutinizing a large volume of transactional data using data mining or data-matching techniques to identify persons potentially engaged in a particular activity. SARs can also be scrutinized and linked with other data to try to identify specific activity.
A financial intelligence unit (FIU) is a national body or government agency which collect information on suspicious or unusual financial activity from the financial industry and other entities or professions required to report suspicious transactions, suspected of being money laundering or terrorism financing.
Anti-money laundering (AML) software is software used in the finance and legal industries to help companies comply with the legal requirements for financial institutions and other regulated entities to prevent or report money laundering activities. AML software can facilitate faster and more accurate compliance and investigations.
In financial regulation, a politically exposed person (PEP) is one who has been entrusted with a prominent public function. A PEP generally presents a higher risk for potential involvement in bribery and corruption by virtue of their position and the influence they may hold. The terms "politically exposed person" and senior foreign political figure are often used interchangeably, particularly in international forums.
Casinos in the United States which generate more than $1,000,000 in annual gaming revenues are required to report certain currency transactions to assist the Financial Crimes Enforcement Network (FinCEN) of the Internal Revenue Service (IRS) in uncovering money laundering activities and other financial crimes.
The Financial Monitoring Unit is the Financial Intelligence Unit (FIU) of Pakistan established under the provisions of Anti-Money Laundering Act, 2010. It is an independent intelligence service department of the Government of Pakistan and primarily responsible for analyzing transactions, money laundering cases, building efforts against the terrorist financing, and all sorts of financial crimes within the jurisdiction of financial laws of Pakistan.
The Qatar Financial Information Unit (QFIU) is a Qatari government regulatory agency responsible for financial intelligence efforts to combat money laundering and financing of terrorism. Like other national Financial Intelligence Units (FIU) around the world, it requires banks, investment companies, insurers and other financial institutions to report suspicious financial transactions. QFIU then analyzes the information and disseminates the relevant data to law enforcement authorities for further investigation and action.
The FinCEN Files are documents from the U.S. Treasury's Financial Crimes Enforcement Network (FinCEN), that have been leaked to BuzzFeed News and the International Consortium of Investigative Journalists (ICIJ), and published globally on 20 September 2020. The 2,657 leaked documents include 2,121 suspicious activity reports (SARs) covering over 200,000 suspicious financial transactions between 1999 and 2017 valued at over US$2 trillion by multiple global financial institutions.
The Anti-Money Laundering Improvement Act (AML) is a collection of regulations and laws in the United States aimed at combating money laundering and terrorist financing. The act builds upon the Bank Secrecy Act (BSA), the first anti-money laundering enforcement law.
