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KYC AML Guide: the Clock shows the average reeding time of the blog11 min Read

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KYC AML Guide: the Clock shows the average reeding time of the blogSeptember 11, 2023

What is Suspicious Activity Reporting (SAR)?

Financial Institutions and banks seek to acquire a variety of tools and techniques to fight against money laundering and other financial terrorism across the world. Reporting a financial crime to the authorities in a well-documented manner plays a critical role in delivering the sensitivity of the case. Therefore, these financial organizations are required to file suspicious activity reports first to properly mitigate these risks. SAR in AML can be filed by gathering particular information about money laundering activities and showing proper evidence. This article will guide you through each step of reporting anonymous activity and protect your business from financial crimes.

M Abd'al Bari

Research Associate

Suspicious Activity Reporting (SAR) Overview

Suspicious activity reporting, also known as SAR, is a tool offered under the Bank Secrecy Act (BSA) of 1970. The purpose of SAR is to keep track of anonymous and suspicious activities that are usually considered under other reports such as the Currency Transaction Report (CTR).

SAR filing has become mandatory for financial organizations in order to report financial crimes. SAR in AML (Anti-Money Laundering) can cover almost every activity that is unusual and suspicious. These activities include acts that may lead to the suspicious account holder attempting something to hide or making illegal transactions.

Significance of SAR Filing

SAR is one of the important parts of anti-money laundering compliance regulations that has become a standard since 2001. Nonetheless, the USA Patriot Act essentially boosted the SAR reporting requirements being a part of AML to fight against national and international terrorism. The objective of SAR and its consequential analysis is to identify clients who are engaged in money laundering, financing terrorism, and other fraudulent activities.

If the financial company fails to file SAR or discloses the customer’s identity, they may encounter huge penalties for both the people filing SAR reports and the institution. However, SAR allows law enforcement to observe any trends and patterns of fraudulent activities being conducted in an organized manner.

SAR for red Flags in Money Laundering (1)

Through the above explained process, financial organizations can monitor any criminal activity or fraudulent behavior, and combat it before it escalates into a bigger financial risk.

Also Read: Due Diligence Checklist 2023: A Guide To Ensure AML Compliance

FinCEN on Filing SAR

In 2022, FinCEN proposed a pilot program allowing financial institutions to share Suspicious Activity Reports (SARs) with foreign branches, subsidiaries, and affiliates to combat illicit finance risks. The program aimed to enhance risk management through improved SAR filing. FinCEN also asked for public opinion on this proposal.

UKFIU on SAR

UK’s financial intelligence unit under the wing of the National Crime Agency (NCA) publishes the SAR Reporter Booklet every three months. In the latest booklet of August 2023, the agency compiled case studies of SAR-filed reports. These case studies ranged from Drug trafficking, Money laundering, and Vulnerable Persons to Fraud.

SAR Reporting Requirements

The requirements for reporting suspicious transactions of money laundering have been expanded dramatically since 2021 along with the representation of the AML Act of 2020. If a financial institution wants to file a report against money laundering, it must do it within 30 days regardless of the type of fraudulent act that is not ordinary. However, the reporting time can be extended to up to 60 days, only if more evidence is required. Yet, the firm does not require any proof about the occurrence of the crime and the customer or account holder does not get notified about the SAR filing.

To file a suspicious activity report, the financial firm needs to fill out the SAR form and provide information about several factors of the crime being reported. These elements include:

  • Information about the person conducting suspicious activity.
  • If any specific tool or instrument is being used to conduct the crime.
  • The place where the crime took place.
  • The time when the event occurred.
  • The reason that the filer thinks the activity is suspicious.

SAR Statistics 2023: Insights and Predictions

In this section, we have summarized the key takeaways from the three publications by world-renowned regulatory authorities on SAR.

  • In 2022, the SAR filing exceptionally hiked to a 30.1 million monthly average. In 2023, the number increased to 30.2 million in just three months till March.
  • The projection of statistics from the report predicts that approximately 3.75 million SARs will be filed in 2023 on average.
  • FinCEN data revealed a shocking percentage increase of 373% in SAR filings of human smuggling and their proceeds being laundered from 2020 to 2021. The sharp rise also depicted an overall 32% increase in the same period.
  • The smuggling fee of human trafficking is paid by illegal migrants’ family members who are legal citizens in the US. They are then exposed to threats of forced labor and forced modern slavery for illicit gains. Such proceeds shown in SAR filing statistics reveal a big chunk of money laundering coming from human trafficking.
  • The report also presents the statistics of SARs filed against Child Exploitation which has increased by 35% in 2021. The UN and ACAMS partnered in March 2023 to train & empower law enforcement and AML professionals to better detect financial transactions linked to child exploitation.
  • Fraud of different categories has been reported with exploding numbers in recent years. 2.6 million fraud cases were reported in the 2020-2022 period. Ranging from check fraud to application fraud almost 10 types of financial fraud have been reported with increasing numbers in SAR Fraud Flags.

 

Furthermore, the National Anti-Money Laundering & Combating Terrorism Financing Committee of the UAE published a thematic review on Suspicious Activity Reporting this year. It focuses on the regulatory deficient practices & expectations from DNFBPs & LFIs (licensed financial institutions).

Industries that Require SAR

Suspicious Activities can occur in any business or industry that offer lucrative returns. Following is a list of industries that should consider Suspicious Activity Reporting as one of the crucial components of compliance & risk management strategies.

  • Financial Services
  • Real Estate
  • Casinos & Gaming
  • Jewelry & Precious Metals
  • Cryptocurrency Exchanges
  • High-value Retail Sector
  • Non-profit organizations
  • Law Firms
  • Insurance Companies
  • Automotive Dealers
  • Import & Export Businesses

3 Best Ways to Identify and File Suspicious Activities

If you witness any suspicious activity and want to file a report, there are three best ways to file suspicious activity reporting:

i. Educate your Team about SAR Principles

It is crucial to make sure that all employees dealing with clients’ accounts are knowledgeable about SAR regulations, principles, and common risks associated with it. Yet, the more people within an organization are aware of these money laundering red flags, the more convenient it would be to monitor and prevent suspicious activity in bank accounts or other institutions.

ii. Filing SAR as Soon as Possible

If you want to file a suspicious activity report, it is compulsory to do it within 30 days. However, this period can be extended to 60 days in case more evidence is required. However, if it is convenient for financial organizations to wait for weeks or so in order to complete the paperwork, it is crucial to file the report as early as possible. Nevertheless, while filing SAR report, financial firms should convey information about the transaction red flags to minimize the likelihood of facing future penalties.‍

iii. Record Unusual Transactions

There are numerous signs and red flags that can indicate money laundering or other mysterious activities. However, the most common one is unusual or suspicious transactions. It may include a significant amount of funds deposit, money transfers that are not relevant to the underlying business, or international transactions. Recording all these transactions and observing them makes it easier for financial companies to monitor and file against criminal activities.

In case if financial institutions or banks fail to file an SAR within the timeline, they might face legal consequences, increased risk of financial crimes, and reputational damage. So, it is crucial for businesses to value the importance of filing SAR in a timely manner.

Bottom Line

Suspicious activity reporting is a tool that helps financial institutions to file reports against money laundering and fraudulent activities. If financial firms observe any suspicious activity, it is mandatory to file a report against such occurrences while keeping the customer or account holder confidential. However, in case they fail to file against these acts or disclose user information, they may face huge penalties in the future. Thus, if you witness any criminal activity within a financial organization, there are various ways to report these events and prevent your business from further loss.

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M Abd'al Bari

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Muhammed Abd'al Bari is a certified Research Professional of KYC/AML Guide. Connect with Muhammed on LinkedIn