When an organization detects suspicious activities that indicate money laundering, it must report them to the authorities in most countries of the world. This is done to prevent potential criminal behavior, including money laundering or the financing of terrorism. This article elaborates on ‘What is a Suspicious Activity Report’.
A Suspicious Activity Report (SAR) is an instrument under the Bank Secrecy Act (BSA) of 1970 for observing suspicious activities. SARs can envelop almost any activity that is unusual. An activity may be included in the SAR if the activity give rise to a suspicion that the account holder is attempting any illegal transaction.
Understanding a Suspicious Activity Report (SAR)
The financial institution has the authority to file a report within 30 days concerning any account activity they adjudge to be suspicious or unusual. A 60 day extension may be applied if necessary to collect more evidence.
In most countries, the reporting of suspicious activity occurs via the submission of a suspicious activity report, or SAR, a document sent by an organization to the appropriate authority, according to compliance regulations.
Purpose of SAR
The purpose of a SAR is to report known or suspected violations of law or suspicious activity observed by organizations to the local financial intelligence unit or FIU. It does not have to be a direct connection to a predicate offense. That is for law enforcement to determine. You may not be able to link a SAR to terrorist financing but only to unusual behavior, but law enforcement may discover that key piece of information that defines the link.
But why do you need to file SARs? You may be thinking that SAR filing is like other financial crime prevention activities and should be the job of law enforcement. Organizations, especially financial institutions, are in a unique position with direct access to customers and transactions. This knowledge of customers and transactions is a crucial information source for law enforcement. The information from a SAR can initiate investigations, help with existing intelligence, and provide a missing piece in broader criminal or terrorist investigations.
Law Enforcement’s access to SARs
It cannot be emphasized enough that a SAR can be a minor incident for an institution and a major development for law enforcement. Law enforcement has access to all the SAR’s from all institutions plus whatever case information they have documented. The ability to see many different sources of information from various sources helps law enforcement build cases for prosecution.
In-House sources of SARs
Regular controls, name screening, look back exercises, and transaction monitoring are the remaining in-house sources of SARs. Institutions are required to monitor the huge amount of transactions each day. Monitoring systems are the main source for SARs simply due to the volume of cases those systems generate. Still, the conversion rate from the alerts to SARs is very low.
External sources of SARs
External sources of SARs are adverse media, law enforcement requests, and third parties. Let’s look at each one briefly. Adverse media is becoming an important source to investigate. Adverse media can be regarding one client or something like the Panama Paper – which led to huge investigations. Numerous SARs were filed after the Panama Papers publication.
Another source of potential adverse media is reporters asking financial institutions for background information ahead of publications. This can be serious and should initiate an investigation. Law enforcement requests like subpoenas or requests for information can lead to SARs and help with ongoing law enforcement investigations.
Third parties, like whistleblowers, a complaint from a person reporting to be the victim of a crime, or another financial institution asking for transaction information can also be sources for a SAR.
SARs are a part of AML statutes and regulations. The goal of SAR and the resulting investigation is to identify customers who are involved in money laundering, fraud or terrorist financing. This article elaborates on ‘Suspicious Activity Reports’.