Everything You Need To Know About Suspicious Activity Report (SAR)

FinCEN reviewed data from Bank Secrecy Act ("BSA") submissions in the 2021 calendar year. According to FinCEN's analysis, around 1.6 million "BSA filings," most likely comprising mainly Suspicious Activity Report ("SAR"), were linked to identity issues, totaling 2 billion in suspicious activity. These filings accounted for 42% of the total submissions for that year, indicating that roughly 3.8 million SARs were submitted in 2021.

In this read, we will explain the core aspects of SARs in Anti-Money Laundering (AML) compliance. Initially, you'll grasp the what, who, when, and why. Lastly, we will introduce you to an advanced solution that helps companies and financial institutions with SARs. 

What Are Suspicious Activity Report?

A Suspicious Activity Report (SAR) serves as a heads-up document filed by financial professionals to inform and notify law enforcement about seemingly fishy transactions. These shady transactions raise suspicions of being linked to money laundering or terrorism financing.

Further, originating in the United States through the Bank Secrecy Act (BSA) of 1970, SARs have evolved into standard protocols for reporting suspicious activities, including fraud, money laundering, and other financial crimes.

Internationally, however, SARs may be known as Suspicious Transaction Reports (STRs). Nonetheless, their purpose remains consistent across jurisdictions. Regardless of terminology, these reports are instrumental in monitoring finance-related industries for any unusual or potentially illicit activities that could pose threats to public safety.

It is important to note that filing an SAR is not a voluntary choice; on the contrary, regulatory bodies and professionals working in the financial sector are mandated to file SARs as soon as they notice any suspicious activity. You can always check out the latest financial trends analyses, which are published periodically by the FINCEN.

When To File An SAR?

A Suspicious Activity Report (SAR) should be filed when financial institutions (FIs) identify transactions that raise suspicions of potential links to money laundering or terrorism financing. Firms also utilize SAR reports to address weaknesses or failures in their Anti-Money Laundering (AML) compliance programs or transaction monitoring, aligning with AML and Counter-Terrorism Financing (CTF) frameworks.

The vast number of daily transactions processed by financial institutions necessitates the reliance on anti-money laundering technology to detect and highlight suspicious activities warranting SAR filings. Law enforcement officials emphasize the utility of SARs, even if not directly used in a specific investigation, as they contribute to identifying new money laundering typologies.

The timeline for submitting an SAR involves timely reporting, with specific requirements varying by country. In the UAE, for example, financial institutions are expected to file an STR/SAR within a maximum of 35 business days from the date of an automated alert generation. They are filed confidentially to provide timely information to regulatory authorities.

Additionally, determining when to report suspicious activity involves recognizing certain criteria, including extremely high-value deposits, unusual transactions in terms of sender, receiver, location, and volume, high-value transactions across countries, abnormal customer behavior, and non-commercial transactions. The challenge lies in the varying nature of suspicious activity for different individuals and entities, requiring a case-by-case evaluation.

According to the Federal Deposit Insurance Corporation: “With limited exceptions, SARs are used to report all types of suspicious activity affecting depository institutions, including but not limited to cash transaction structuring, money laundering, check fraud and kiting, computer intrusion, wire transfer fraud, mortgage and consumer loan fraud, embezzlement, misuse of position or self-dealing, identity theft, and terrorist financing.”

An Illustrative Example

Let’s take a look at the following hypothetical illustrative suspicious activity report example. Let’s imagine a scenario where Ahmad works at X Bank as a bank analyst. One day, Ahmad notices a series of unusually large transactions from a customer's account. Ahmad observes a deviation from this customer’s regular spending patterns. He also detects that the transactions made involve multiple international wire transfers within a short timeframe. Ahmad tries to understand the reason behind these huge and sudden transactions but no apparent explanation for the unusual surge in activity.

In this case, Ahmad recognizes a potential red flag. Therefore, he files a Suspicious Activity Report (SAR) with the financial institution's compliance department to ensure SAR compliance. This action triggered an investigation, revealing that the customer's account was compromised, and the funds were being rapidly transferred to offshore accounts.

What we get from this example is that filing a Suspicious Activity Report allows the authorities to intervene promptly, preventing a substantial financial loss and potentially uncovering a broader criminal network.

How to File a Suspicious Activity Report (SAR)?

Filing a Suspicious Activity Report (SAR) involves a systematic process to ensure accurate and timely reporting of potential financial crimes. Consider the following when filing an SAR:

1. Identification of Suspicious Activity

• Recognize any unusual or suspicious transactions during routine monitoring.

• Look for patterns that deviate from normal customer behavior.

2. Gather Relevant Information

• Collect comprehensive details about the suspicious activity.

• Include names, addresses, birthdates, social security numbers, and any other identifying information.

3. Document Suspicious Event Details

• Provide a detailed written description of the suspicious activity.

• Specify the date, time, and nature of the transactions.

4. Complete SAR Form

• Fill out the SAR form thoroughly with all pertinent information.

• Attach additional documents or resources supporting the report.

5. Utilize Reporting Software

• If available, use reporting software to streamline and automate the SAR filing process.

• Ensure the software complies with regulatory requirements.

6. Submit to Regulatory Authorities

• Submit the completed SAR to the appropriate regulatory authorities, such as the Financial Crimes Enforcement Network (FinCEN) in the U.S.

• Ensure adherence to the designated time frame for filing.

7. Maintain Records

• Keep records of the filed SAR for the required retention period.

• This documentation may be needed for future reference or regulatory inquiries.

8. No Disclosure of Filing

• Adhere to confidentiality requirements; do not disclose the existence of the SAR filing to anyone mentioned in the report.

What are the Common Patterns of Suspicious Activity?

There are several typical scenarios or indicators of suspicious activity, including:

1. Unusual Transaction Volumes: Sudden and significant increases in transaction volumes that deviate from the customer's regular behavior.

2. Frequent Large Cash Deposits or Withdrawals: Repeated and substantial cash transactions, especially when inconsistent with the customer's typical behavior or business operations.

3. Structured Transactions: Deliberate structuring of transactions to evade reporting thresholds, such as making multiple smaller transactions to avoid triggering suspicion.

4. Rapid Movement of Funds: Swift movement of funds between accounts, especially across borders, without a clear business purpose.

5. Complex Layering of Transactions: Deliberate complexity in transaction structures obscures the origin or destination of funds, often associated with money laundering.

6. Frequent Currency Exchanges: Regular and large-scale currency exchanges, especially when unrelated to the customer's usual activities.

7. Use of Shell Companies: Involvement with shell companies or entities with little substance is often employed to conceal transactions' true beneficiaries. 

8. Unexplained Third-Party Payments: Transactions involving third parties with no apparent connection to the customer's business or usual financial activities.

9. Inconsistent Customer Information: Discrepancies or inconsistencies in customer-provided information, such as identification details or business affiliations.

10. High-Risk Business Relationships: Engaging in financial transactions with entities or individuals known for high-risk activities, including those in jurisdictions with weak regulatory frameworks.

11. Abnormal Transaction Times: Transactions conducted during non-business hours or at times inconsistent with standard practices.

How Can FOCAL Help Your Company with SAR?

FOCAL, a prominent AML compliance solution, provides a strong transaction monitoring tool designed to identify suspicious activities involving customers or individuals utilizing financial services. Further, FOCAL actively oversees all transactions conducted through your organization, utilizing advanced machine-learning algorithms to detect and highlight potential suspicious activities.

FOCAL extends its capabilities by offering customization options, empowering you to define rules and scenarios that align with your company's risk tolerance, scale, and industry. These rules are adaptable for various customer segments, allowing adjustments based on their individual risk levels. Once set up, FOCAL diligently tracks customer activities, issuing immediate alerts to your compliance team upon detecting any potentially suspicious transactions. 

To illustrate how FOCAL can help you, here is a suspicious activity report example. Let’s consider a scenario where one of your long-term customers has a history of unremarkable transactions and a positive standing with the financial institution. He underwent the customer due diligence onboarding process, and no warnings came up. All of a sudden, he or she engages in a series of transactions. Over a four-week period, this customer initiates eight transactions, each amounting to $4,500, accumulating to a total of $44,000.

While this could be an innocent attempt to transfer a significant sum over time, it also raises the possibility of intentionally staying below the $5,000 threshold to avoid automatic AML filings.

In this case, FOCAL could identify this unusual pattern, prompting further investigation. Depending on the outcome of the investigation, the case could be resolved without escalation or lead to the filing of a Suspicious Activity Report (SAR) if suspicions persist.

Conclusion

In conclusion, understanding the intricacies of SARs in AML compliance is crucial for protecting financial systems. In this article, we explained what is an SAR, and identified SAR in AML common patterns. It is worth noting that banks play a key role, collaborating with advanced cybersecurity measures to strengthen AML systems. As financial industries evolve, SAR compliance and staying informed about AML compliance becomes not just a necessity but a strategic imperative in combating financial crimes.

FAQs

Q1. Who Should File An SAR?

Filing a Suspicious Activity Report (SAR) is the responsibility of financial institutions and other regulated entities. These entities are typically tasked with initiating the SAR filing process.

Q2. What Can Be Considered a Suspicious Activity?

Determining what qualifies as suspicious activity, warranting the filing of a Suspicious Activity Report (SAR), is challenging due to the absence of a universal standard. The definition of suspicious activity may vary not only between countries but also within the United States, for instance.

Q3. Are SARs Confidential?

Yes, Suspicious Activity Reports (SARs) are confidential documents.

Q4. How Does the SAR Process Work?

The SAR process involves several steps, including identifying suspicious activity, completing a SAR form, submitting it to the appropriate authorities, and maintaining records for a designated period.

It is important to note that the SAR report process can vary significantly between countries. Different jurisdictions may have distinct reporting procedures, criteria, and requirements for filing Suspicious Activity Reports (SARs). It's essential to understand and comply with the specific regulations of the country in which the reporting is being conducted.

Q5. What Information Is Required To Submit An SAR File?

To submit a Suspicious Activity Report (SAR) file, the following information is necessary:

• Names, passport numbers, birth dates, addresses, social security numbers, and phone numbers of all parties involved in the suspicious event must be collected.
• Dates of suspicious events need to be documented, along with the inclusion of suspicious activity codes.
• Contact information for both the financial institution and the institution where the suspicious event occurred is required.
• A comprehensive written description of the suspicious activity event must be developed.
  

Q6. What Is The Role Of Banks In SARs?

Banks play an important role in the Suspicious Activity Report (SAR) ecosystem by serving as frontline guardians against financial crimes. Their responsibility involves implementing stringent Anti-Money Laundering (AML) measures, conducting due diligence, and filing SARs when detecting suspicious transactions.

Q7. What Is The Intersection Between Cybersecurity And SARs?

The intersection of cybersecurity with SAR is essential, as strong cybersecurity systems bolster banks' ability to prevent, detect, and respond to potential threats. Cybersecurity safeguards sensitive financial data, ensuring the integrity of SAR reporting and enhancing the overall resilience of the financial sector against evolving cyber threats linked to illicit activities.

Q8. What Is An STR?

An STR stands for Suspicious Transaction Report. It is a financial industry term used internationally in various countries. It is often used interchangeably with Suspicious Activity Report (SAR) in the United States.