Understanding Suspicious Activity Reporting Requirements

Financial crime is ubiquitous and often difficult to detect. That’s why governments around the world require financial institutions to take measures that will flag suspicious transactions. Of course, this responsibility is a delicate one, since transactions that look suspicious may be perfectly legal while illegal transactions can sometimes appear to be legitimate.

However, the only way to determine if suspicious activity is truly corrupt or is actually legal is by flagging these transactions and investigating them.

A suspicious activity report (SAR) is an essential tool in the fight against financial crimes such as money laundering. The Financial Action Task Force (FATF), a global AML watchdog, recommends that all financial institutions implement a suspicious activity detection and reporting system.

In the U.S. specifically, financial institutions and associated businesses must file suspicious activity reports with FinCEN (the U.S. Treasury’s Financial Crime Enforcement Network) if they suspect illegal activities.

Keeping a close eye on transactions is a burden on these companies but one that is essential to minimizing financial crimes.

When Is a Suspicious Activity Report Required?

Carefully monitoring financial transactions is essential to following SAR requirements. Trained employees armed with sophisticated transaction monitoring software can detect potential problem transactions.

In the U.S., financial institutions and associated businesses must file a SAR in the event of the following:

Insider trading involving any amount of money. There is no minimum.
Aggregate transactions totaling $5,000 or more when a suspect is identifiable.
Aggregate transactions totaling $25,000 or more with or without potential suspects.
Aggregate transactions of $5,000 or more that are potential money laundering transactions or that violate other aspects of the BSA.

Financial institutions are also typically expected to file a SAR if they suspect money laundering or other criminal activity but the financial thresholds have not been met. This provision places even more pressure on banks and other businesses since they cannot rely on a clear threshold. They must more closely analyze these transactions.

Once the financial institution or associated business notices suspicious activity, it has 30 calendar days to file a SAR. If no suspect is identified, governments may grant an additional 30 days to file the SAR. If suspicious activity is ongoing, financial institutions should file an updated SAR every 90 days or less. To correctly follow the compliance program, SARs must be kept for five years after they are filed. Staying current with these regulations must be a priority for all financial institutions and businesses, but doing so demands many employee hours and other costs.

SARs are most often triggered by potential money-laundering transactions, including the excessive use of money orders, but other triggers include:

Insider trading
Potential terrorism financing
Unusual transactions such as a pawnshop paying a laundromat for catering
Transactions by individuals with ties to criminal organizations
Requests by law enforcement for surveillance

These suspicious transactions may turn out to be legitimate, but they must be reported so the government can investigate if necessary.

What Happens If Institutions Fail to File SARs?

Failure to comply with the SAR regulations can have severe consequences. They include both civil and criminal penalties such as huge fines, regulatory restrictions and the loss of the institution’s banking charter.

Finally, in certain extreme cases, bank and business administrators can go to prison. In any event, failure to file SARs will do great damage to the organization involved. At the very least, their reputation for ethical practices will be damaged.

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What Types of Businesses or Organizations Are Required to File SARs?

All banks and similar financial institutions are required to file SARs as well as associated businesses and organizations. Most of these organizations are a part of the financial industry and are well aware of their reporting requirements. FinCEN defines these as:

Banks, credit unions and any depository institution
Stockbrokers
Money services businesses
Some fintech companies
Casinos
Insurance companies
Mortgage businesses
Law enforcement organizations
Governments

Any business that has the potential to be used for money laundering, tax evasion or other financial crime must understand and follow AML regulations, including the requirement for filing suspicious activity reports.

Banks and financial businesses are responsible for staying current with the AML standards of any government agency that regulates financial transactions.

Who Usually Files Suspicious Activity Reports?

Often, well-trained employees begin the SAR reporting requirement. If someone notices a suspicious transaction, such as a large, anonymous off-shore money transfer into a usually “quiet” account, they would report that activity to their superiors.

Then, those in the administration of the bank or company would decide if a suspicious activity report was necessary. And while most reports are from employees, a member of the general public can also file an SAR. Anyone can be a filer if they suspect illegal financial activity.

How Are These Reports Filed?

The process for filing a SAR is typically pretty straightforward and usually completely digital.

They can be filed in a batch or individually, depending on the number of reports generated by a business or financial institution. As long as the SAR reporting requirements are followed, filing should be simple. However, a complete SAR report requires some time and effort.

What Information Is Contained in a Report?

To properly prepare the reporting form, the SAR requirements must be adhered to, which means including the names, addresses, social security numbers, birth dates, driver’s license numbers and other contact and personal information about the potential perpetrators.

The SAR forms ask for in-depth information on the incident or incidents as well as a written description of the financial activity. Filers should also identify the type of suspicious activity and provide any other supporting documentation that they have. In short, the reports should be comprehensive, which is somewhat time-consuming, especially if the company does not have all the tools it needs to stay compliant.

How Can Organizations Get Better at Finding & Flagging Suspicious Activity?

Fortunately, organizations have multiple ways to improve their awareness and reporting of suspicious activity. First, they need to stay current with all aspects of the compliance program so they can keep key personnel updated. These organizations must also provide ongoing education to their staff members about their legal obligations and new trends in financial criminal activity.

But education and awareness may not be enough to catch all suspicious financial activity. That’s why it’s imperative for your organization to use the latest and most advanced tools designed to prevent money launderers from ever gaining access to your platform. Jumio, for example, offers identity verification and AML screening software that helps you keep money launderers away from your business while providing a streamlined experience for legitimate customers.

AML compliance means practicing due diligence at all times and maintaining accurate transaction reports. Jumio understands the complexity of this task and can help your organization safeguard your business and stay in compliance with AML regulations.