On February 28, and in connection with the start of tax season, the Financial Crimes Enforcement Network (FinCEN) issued an advisory to remind financial institutions about tax refund fraud and the required reporting of such activity through the filing of a Suspicious Activity Report (SAR). According to FinCen, “identity theft can be a precursor to tax refund fraud because individual income tax returns filed in the United States are tracked and processed by Taxpayer Identification Numbers (TINs) and the individual taxpayer names associated with these numbers. Criminals can obtain TINs through various methods of identity theft, including phishing schemes and the establishment of fraudulent tax preparation businesses.”
Financial institutions “are critical in identifying tax refund fraud because the methods for tax refund distribution - issuance of paper checks, and direct deposit into demand deposit or prepaid access card accounts - often involve various financial services providers. The number of tax refunds being distributed via direct deposit has increased significantly over the past several years and continues to increase annually.”
To see the red flags listed by FinCEN to assist financial institutions to identify potential tax fraud, click here.
If a financial institution “knows, suspects, or has reason to suspect that a transaction conducted or attempted by, at, or through the financial institution involves funds derived from illegal activity or an attempt to disguise funds derived from illegal activity, is designed to evade regulations promulgated under the Bank Secrecy Act (BSA), or lacks a business or apparent lawful purpose,” the financial institution may well be required to file a SAR.