Organizational Considerations in Suspicious Activities

Organizational Considerations

Organizational considerations comes with the obligations to detect suspicious activity and file them. Whether or not to file a suspicious activity report often involves weighing the aggravating and mitigating factors arising from the research conducted during the investigative process.

Financial institutions should draft procedures that document the factors to consider when determining whether an Suspicious Activity Report or SAR is appropriate. Properly trained personnel in charge of investigating and reporting suspicious activities must have a clear and concise procedure for escalating their findings to a compliance officer, manager, or other staff members with the authority to make the filing decision. The final decision should be documented and supported by the reasoning used to make the determination. Often, the reason not to file an Suspicious Transaction Report or STR maintains a similar level of importance as the reason to file an STR.

Organizational Considerations

Organizational Considerations to File An SAR

In essence, the ultimate decision to file an SAR should result from an accumulation of aggravating factors and a lack of mitigating factors in combination with the knowledge of expected activity for the institution’s client base, product offerings, and geographical area of service. The SAR filing should include the details of the suspicious activity and the related demographics and why the institution finds the activity suspicious.

The recipient of the SAR does not have intimate knowledge of what is expected activity for a particular institution, clients, and products and will only stand to benefit from the inclusion of this information. In addition, capturing any known typologies identified as part of the review should also be added.

If the institution decides to file an SAR following the investigation, it should notify the investigators or prosecutors as soon as possible. However, this may not be practical in certain jurisdictions due to the continuous nature of the SAR filing process and the reporting institution’s volume of reports. Establishing a filing timeline in concert with country guidelines is critical to avoiding institutional penalties or fines.

Failing to file timely reports is often cited in regulatory actions against financial institutions. The designated AML compliance officer or deputy should keep the management and board apprised of SAR filing metrics and any significant issues resulting from those filings, especially items that pose a regulatory or reputational risk to the institution. 

Organizational Considerations

Anti Money Laundering and Counter Terrorist Financing in SAR

In addition, you should also pay attention to the point of quality assurance. All financial institutions must file timely and complete STRs, and the quality of the STRs can indicate the quality of a financial institution’s Anti Money Laundering/Counter Terrorist Financing or AML/CTF program. At least, some regulators see it like this. Quality and consistency in the STR decision-making process are critical to ensuring the appropriate level of oversight in the investigative process.

A quality assurance review helps to ensure that STR filings are internally consistent, that the right decisions are being made, and that high-priority matters are identified and escalated to leadership. The larger the scale of the financial institution, its staff, and where it may be located, all impact the Quality Assurance or QA process. As a result, financial institutions that implement a QA process should document the requirements and qualifications of QA reviewers and regularly review the outcome of QA reviews to assess the quality of staff, training requirements, and the general health of the program. 

Final Thoughts

Considering the points of SAR oversight and escalation. An institution should have robust policies and procedures documenting the appropriate oversight of the investigation process and regulatory reporting requirements. It should include specific actions to be taken, such as escalation to senior management in cases where a customer-facing employee or individual in the AML/CTF chain of command is complicit or wilfully blind to suspicious financial activities.