Compliance Blog

Written by Shari R. Pogach, Regulatory Paralegal

In August, Thomas P. Ott was selected to the associate director of enforcement for the Financial Crimes Enforcement Network (FinCEN).  In this capacity, Mr. Ott oversees FinCEN’s Bank Secrecy Act (BSA) compliance and enforcement program.  During a speech given a gaming industry conference in Las Vegas, Nevada, Mr. Ott talked about the importance and high value of Suspicious Activity Reports (SARs) to law enforcement and to regulators.  He specifically wanted to dispel some of what he referred to as the “common ‘myths’ and misconceptions” about SAR filings.  Although the speech was oriented to the gaming industry, I thought his comments would also be of interest to the BSA compliance folks in credit union land.

 â€œMyth #1: No one reads the SARs we file.

I can understand the origin of this myth. Everyone wants to know and be sure that their SAR filings are serving their purpose; assisting law enforcement investigations and stopping illicit behavior. There are certainly important reasons for some of the silence on this: SAR confidentiality, law enforcement sensitivities, intelligence concerns, among other reasons all can make it difficult to give feedback on specific filings by financial institutions. However, it bears repeating what both our former Director and my immediate predecessor have stated at conferences in the past: these files don’t go into a “black hole,” but rather are used to confront serious threats. Not every SAR results in a criminal prosecution. But, as a former prosecutor, I routinely used the same BSA data that your casinos and card clubs report to FinCEN to build my cases. We exercised the “enterprise theory” of investigation and prosecution to target entire conspiracies and organizations at all levels—including leadership. Now, in my role at FinCEN, I see how important our partner regulators and stakeholders also view this data.

Myth #2: Low-dollar SARs are meaningless to law enforcement.

This is a common myth across all financial sectors. And, I think this myth may stem from not fully appreciating or understanding how valuable a complete and accurately filed SAR can be in an investigation. It’s easy to think that filing a SAR on suspicious activity that has a low dollar amount, or even on an attempted transaction, may not look like it has the same appeal as one filed on a transaction for millions of dollars, but that is only part of the picture.

What does this mean for your SAR filed on a low-dollar amount transaction? Well, regardless of the amount, the reporting aids in expanding the scope of ongoing investigations by pointing to the identities of previously unknown subjects, exposing accounts and hidden financial relationships, or revealing other information such as common addresses or phone numbers that connect seemingly unrelated participants in a criminal or terrorist organization and, in some cases, even confirming the location of suspects. The reporting—even of transactions involving low dollar amounts—has served to unmask relationships between illicit actors and their financing networks, enabling law enforcement to target the underlying conduct of concern, and to disrupt their ability to operate. Your filing may just be the source of a missing piece of information that is needed in an investigation.

Law enforcement also uses the reporting to identify significant relationships, patterns, and trends. Your filings contribute to a more comprehensive picture that informs our understanding and analysis of criminal typologies. FinCEN includes an Intelligence Division that uses SARs and other reports to conduct strategic analysis to identify new trends and emerging threats in illicit finance. It assesses AML compliance across industries, identifying new illicit finance trends and developing typologies for illicit activity. The Intelligence Division then compiles much of this analysis into finished¬¬ intelligence products that are disseminated across FinCEN, the law enforcement community, and the federal government.

[I’ve left myth #3 out as it was specific to the gaming industry.]

Myth #4: SARs are subjective; based on the AML program size and risk-appetite of my institution.

This myth suggests that filing SARs are a matter of opinion, or that it’s relative to the make-up of the institution. But if that were true, then there is no way a financial institution can ever violate the statute—the defense would just be: “in my subjective opinion, that’s not SAR-worthy.” We would be left just to agree to disagree. Obviously, an effective AML system cannot work like that. Similarly, some financial institutions hold on to the myth that their AML program should be based on their risk appetite or risk tolerance. This view may be compounded by the misperception that SAR filings can be proportionally based on the size of an AML program.

These related myths are also contradicted by the rule [31 CFR 1021.320(a)(2)], that says “knows, suspects, or has a reason to suspect” illicit activity. So if you have a reason to suspect it, then you are required to file. It is that simple. Filing SARs does not depend on an AML program’s perceived risk appetite and it cannot be curtailed because of perceived AML program resource deficiencies.

This observation is not meant to spur specious or “defensive” filings; to the contrary, suspicious activity monitoring and SAR filing do require some judgment. Decisions are not always clear-cut. There are going to be times when someone says, “yeah, I think you probably should have filed a SAR, but it was not unreasonable to think otherwise.” If you act reasonably, and do your investigation, and—and this is important—think through and document your reasons for not filing a SAR, then we are not going to second-guess those reasonable decisions, even if FinCEN or an examiner may have made a different decision. However, I must emphasize financial institutions like yours and those of your clients must have appropriate risk-based AML programs in place.” (Emphasis is mine.)

The law enforcement community and government regulators continue to stress the importance of your SAR filings to their investigations.  They want as much information as possible to help build their cases.  Keep filing those SARs!

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BSA Blast.  The October 2016 issue of the BSA Blast is available today. (NAFCU login required).  The articles in this issue cover: Treasury’s Office of Foreign Assets Control (OFAC) designation of a payment processor as a transnational money launderer for mail fraudsters and recent enforcement actions for Bank Secrecy Act (BSA)/anti-money laundering (AML) and OFAC weaknesses and violations.  Also included is a new BSA quiz on FinCEN’s guidance regarding email fraud schemes.

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Programming Note. It’s time for some learning! Your compliance questions will be answered but we appreciate your patience as the team will be in and out of the office giving presentations this week at NAFCU’s concurrent BSA Seminar and Regulatory Compliance Seminar in New Orleans.