There are several factors to consider when developing an internal Suspicious Activity Report decision-making process. The decision to file an SAR is inherently subjective. The primary focus of auditors and regulators is on whether a financial institution has an effective SAR decision-making process, not individual SAR decisions.
Regulatory examinations and third-party audit procedures may review individual SAR decisions 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.
Having said this, Financial Action Task Force or FATF Recommendation 20 only requires reporting suspicious activity in good faith, which does not equate to criminal liability.
General Red Flags in Suspicious Activity Report Decision-Making Process
Whether an 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 may trigger the SAR decision making-process can include the following:
- First, transactions showing evidence of potential money laundering or other illegal activity
- Secondly, transactions designed to evade the local anti-money laundering laws or their implementing regulations
- And thirdly, transactions with no business purpose or apparent lawful purpose 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 for the transaction.
If any of the these red flags apply or the minimum filing requirements according to local laws and regulations, an 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 through ongoing monitoring to aid in the SAR filing decision-making process. A comprehensive compliance and customer due diligence program should ensure that a financial institution can answer the following questions: Are the transactions consistent with the purpose of the account? 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 making their decision on whether or not to file a SAR.