The Suspicious Activity Report (SAR) was created by five federal financial agencies and the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). The purpose of the SAR is to report a suspicious transaction relevant to a possible violation of law or regulation. The SAR must be electronically filed through FinCEN’s Bank Secrecy Act (BSA) E-Filing System. Financial information retrieved from a SAR assists the US Government with combating terrorism, terrorist financing, money laundering, and other financial crimes.
The quality of information provided in a SAR narrative is important
In December 2018, Judge Denise Cote of the Southern District of New York ruled in favor of the Securities Exchange Commission (SEC) in Case 1:17-cv-04179-DLC Document 174 Filed 12/11/18 (U.S. SEC versus ALPINE SECURITIES CORPORATION regarding the type of information must be included in the narrative section of a SAR filing. Judge Cote concluded that the Defendant – Alpine Securities – violated Rule 17a-8 (Financial recordkeeping and reporting of currency and foreign transactions) by:
The takeaway from this ruling is that Financial Institutions ought to pay attention to the quality of their SAR narrative. It is in the best interest of a Financial Institution to ensure that the BSA filing process conforms with FinCEN’s Guidance on Preparing a Complete & Sufficient Suspicious Activity Report Narrative:
https://www.fincen.gov/sites/default/files/shared/sarnarrcompletguidfinal_112003.pdf and Keys to Writing a Complete & Sufficient SAR Narrative: https://www.fincen.gov/sites/default/files/shared/writingcompletesarnarrative_1103.ppt.
FinCEN states that the SAR Narrative should identify the essential elements of the information:
What is reported in a SAR?
Who Must File the SAR?
A SAR is confidential
A SAR and any information that would reveal its existence is confidential and may not be disclosed. No bank, and no director, officer, employee, or agent of a bank that reports a suspicious transaction may notify any person involved in the transaction that the transaction has been reported. A SAR and any information that would reveal the existence of a SAR is confidential, except as is necessary to fulfill BSA obligations and responsibilities.
The SAR may only be shared appropriately with:
(2) Federal, state, or local law enforcement agency;
(3) Federal regulatory agency that examines the depository institution for compliance with the BSA;
(4) State regulatory authority that examines the depository institution for compliance with state laws requiring compliance with the BSA.
(5) A U.S. bank or savings association may share a SAR with its controlling company (whether domestic or foreign). The sharing of a SAR or, more broadly, any information that would reveal the existence of a
SAR, with a head office or controlling company (including overseas) promotes compliance with
the applicable requirements of the BSA by enabling the head office or controlling company to
discharge its oversight responsibilities with respect to enterprise-wide risk management,
including oversight of a depository institution’s compliance with applicable laws and regulation.
What information on the SAR may appropriately be shared?
When is a SAR filing required?
Don’t be a victim of your own making
Identifying unusual activities can be a daunting task. Financial Institutions ought to review their internal policies, procedures, and processes for identifying, researching, and reporting suspicious activity and ensure that SARs are complete, through and submitted timely. In addition, Board Members at Financial Institutions ought to be consistently aware of their fiduciary duties as it relates to the privacy and confidentiality of the existence and content of a SAR. Financial Institutions ought to consult with specialized compliance advisors to ensure that the content of the SARs meet all the BSA requirements.