SAR decision making process is inherently subjective. The primary focus from auditors and regulators essentially is on whether a financial institution has an effective SAR decision-making process, not individual SAR decisions.
The SAR Decision Making Process
Regulatory examinations and third-party audit procedures may review individual SAR decisions as a means to test the effectiveness of the SAR monitoring, reporting, and decision-making process; however, in those instances where a financial institution has an established SAR decision-making process, has followed existing policies, procedures, and processes, and has determined not to file a SAR, it should not be criticized for the failure to file a SAR unless the failure is significant or accompanied by evidence of bad faith.
Whether a SAR investigation is prompted by notification from front-line personnel, through an automated surveillance monitoring system alert, as a result of another internal monitoring method, or through an external source, such as the newspaper or other media, a financial institution’s SAR decision-making process should start with the minimum filing requirements according to local laws and regulations.
General Red Flags That Triggers The SAR Decision Making Process
General red flags that may trigger the SAR decision making-process can include the following:
- First of all, transactions that show indicia potential money laundering or other illegal activity
- Secondly, transactions are designed to evade the local anti-money laundering laws or their implementing regulations.
- Third, transactions with no business purpose or apparent lawful purpose or are not expected activity for the consumer relationship. After examining the available facts, including the background and possible purpose of the transaction, the institution knows no reasonable explanation.
If any of the above apply or the minimum filing requirements according to local laws and regulations, a SAR investigation should be performed, eventually leading to a SAR filing. It should be noted that the reason “no loss to the financial institution or the consumer” is not a valid reason for not filing.
For instances that may fall into a grey area, a financial institution should incorporate the information received at account opening and ongoing monitoring to aid in the SAR filing decision-making process. Comprehensive compliance and customer due diligence programs should ensure that a financial institution can answer the following questions:
Are the transactions consistent with the account’s purpose? Is there a reasonable explanation for the transactions that occurred? And what other information is available to aid in the decision? The answers to these questions should guide financial crime professionals in deciding whether or not to file a SAR.
Questions To Address Before Designing The SAR Decision Making Process
Before designing and implementing the SAR decision-making process, there are numerous questions to address, including:
- How do you document something you didn’t do, such as not filing a SAR?
- What is required to back up a filed SAR?
- Who should make decisions on SAR filings?
- How much time is allowed to file a report on an identified unusual activity?
- When does the “clock” on SAR filings begin to tick?
Meticulous Identification And Monitoring Requirements
A transaction monitoring system typically targets specific types of transactions, most notably those involving large sums of cash and/or transactions from foreign geographies, and includes a manual review of various reports to identify unusual activity. Currency activity reports, funds transfers reports, monetary instrument sales reports, significant balance change reports, ATM transaction reports, nonsufficient funds (NFS) reports, and other reports are among them. The procedure entails reviewing daily reports, reports covering a specific time period, or a combination of the two.
This presents a number of difficulties:
- Large data volume handling: Most legacy systems are incapable of analyzing and storing large data volumes.
- Updates to identification rules: Banks use a specific set of filters or rules to help identify suspicious’ behavior. Because the definition of “suspicious” is constantly changing, updating the system with new rules can be time consuming and complex.
- Numerous data sources: When creating reports, the system refers to data from various sources, necessitating frequent backtracking and cross-checking. When dealing with large amounts of data, data lineage and linkage issues may arise, leading to the next challenge.
- Data Accuracy: To ensure that the data is accurate, reviewers must constantly cross-check the data source and compare it to the data fetched in reports. Because SAR requires suspicious activities to be reported within a specific timeframe, data quality becomes even more important.
- Frequent Report Generation and Updating: Although FinCEN has simplified the reporting format requirement, bank generated reports must be updated on a regular basis to remain current.
It is also critical to keep track of SAR filing decisions. Thorough documentation serves as a record of the SAR decision-making process and is a sign of a strong BSA program. When your institution is faced with a SAR investigation, keep these guidelines in mind when deciding whether or not to file.