Way back in the Mesopotamia Era… well, ok, it was really only 1992, but it just feels like such a long time ago as so much has changed in the past 26 years. The Annunzio-Wylie Anti-Money Laundering Act of 1992 regulated financial institutions to report suspicious transactions by completing a Suspicious Activity Report (SAR). The US PATRIOT Act of 2001 upped the ante to include broker/dealers. The parade continued in 2006 as an amendment to the Bank Secrecy Act (BSA) mandated insurance companies and mutual funds to begin filing SAR’s and for the jewelry industry to develop AML programs. In 2014 the housing government sponsored enterprises were mandated to file SAR’s. We have come a long way from the pre-9/11world, and as each new technology unfolds, there will undoubtedly be more oversight and SAR filings will continue to grow.
Yes SAR, No SAR
You may ask yourself every time you complete a SAR, “Why am I doing this?” “Who reads them and what happens to them next?” Let’s follow that route and see where it takes us.
Assuming that a financial institution has decided to complete a SAR (within 30 days of first observing the suspicious activity) then you will be sending this form (electronically) to FinCEN. FinCEN gathers and stores all the SAR’s and the various other reportable forms. They further break down, categorize and analyze the SAR’s based upon the various check boxes that the reporter ticked off. (Moving to an all electronic form has made filtering and analyzing more efficient). FinCEN does not simply gather numbers, they will review each SAR and will look for various trends and patterns based upon the information that was provided. Subsequently, FinCEN publishes a downloadable file, for public consumption, called the SAR Activity Review. This report details the stats and results of their analysis. This helps pinpoint problematic geographical areas, methods being used, and the dynamics of the trends and patterns. This is just a small part of FinCEN’s duties and responsibilities, which as their mission statement reveals they protect the financial system via the administration of the Bank Secrecy Act. However, for the purpose of this article we are only concerned about the path of the SAR.
FinCEN makes the SAR’s available to certain federal, state and local law enforcement agencies. Just as the confidentiality of the SAR is mandated at the financial institution level, so it is at the law enforcement level. Law enforcement is allowed to discuss the SAR’s with each other in certain situations. Those would be for the purposes of a money laundering investigation and/or terrorist financing. Once a SAR is in law enforcement’s hands it is considered a “confidential” document and it is not to be revealed to the subject listed on the SAR or another financial institution.
In various individual geographical areas numerous Law Enforcement agencies will gather together to discuss the SAR’s that relate to their particular area of coverage. This is normally referred to as a SAR Review Meeting. These meetings are held periodically and are usually attended by representatives from various law enforcement federal, state and local agencies, federal and state prosecutors and regulators. Since there are close to a million SAR’s being completed each year, the need for a vetting and filtering process is paramount. Each jurisdiction has it’s own methods and nuances for review. I will detail the process of the New York HIFCA El Dorado Intelligence Center.In various individual geographical areas numerous Law Enforcement agencies will gather together to discuss the SAR’s that relate to their particular area of coverage. This is normally referred to as a SAR Review Meeting. These meetings are held periodically and are usually attended by representatives from various law enforcement federal, state and local agencies, federal and state prosecutors and regulators. Since there are close to a million SAR’s being completed each year, the need for a vetting and filtering process is paramount. Each jurisdiction has it’s own methods and nuances for review. I will detail the process of the New York HIFCA El Dorado Intelligence Center.
Start Spreading the News…
Currently, in New York, over 4000 BSA related SAR’s are downloaded each month. There is no advanced technology, multi-million dollar systems, or sophisticated SAR software that is used at this level. The reason for this is due to the fact that while there is uniformity in the reporting methods for SAR sections 1 and 2, which are basically the drop down boxes, the narrative section is a horse of a different color. While the vast majority of readers will have never seen a SAR written by another institution, I have had the opportunity to review SAR’s from hundreds of different institutions. Each narrative is constructed differently, and therefore would be difficult to simply process through a rules based system. There is little black and white in the narrative. Each SAR needs to be read and reviewed by human eyes. Those eyes must have a comprehensive understanding of money laundering, latest trends and patterns, law enforcement methods and prosecutorial guidelines. Each SAR must be filtered through those human eyes with an initial assessment as to the potential that SAR has to become a case. Is the SAR an obvious defensive filing? Does the SAR appear suspicious to the reader? Does the narrative detail a usual pattern seen before? The narrative is the one area that needs to be reviewed by experienced and qualified personnel, as it is a very subjective area.
Desktop Bounty Hunting
If the SAR passes through the first level filter (triage) and it still looks interesting to the law enforcement review team, then it goes to the next level. Due diligence is performed on those SAR’s. The subject of the SAR is checked for other financial reports (SAR’s, CTR’s, FBAR’s, 8300’s). The subject is checked for foreign travel and any criminal history. At this point the SAR is reviewed again. If the SAR still appears to have criminal potential, then additional or enhanced due diligence will be performed. Those checks consist of a complete array of database checks, some that are open source and others that are law enforcement only. I prefer to refer to this desktop bounty hunting. The review team may contact the author of the SAR and request the SAR supporting documents or records may be subpoena’d and/or 314a requests may be completed. The SAR is reviewed once again and a determination is made regarding its worthiness as actionable intelligence. A written report of all findings and results is completed.
The final phase of the process is the SAR review meeting, which was detailed above. At this point an individual law enforcement agency may adopt a case. From there, the SAR and all of the related work investigatorial work would be transferred to that adopting agency. The adopting agency would then decide to complete the investigation by completing a through field investigation which might include surveillance, wire taps, interviews, further subpoena’s and forensic accounting. For example, if the SAR was originally written to report possible counterfeiting, then most likely at the review meeting the U.S. Secret Service would adopt the case. At this point, not all cases get adopted, but the ones that do are done with the thought that this could be a major organized criminal enterprise or terrorist financier. Law enforcement would investigate to the best of their abilities and the end result could be the dismantling of a criminal group, an arrest, a prosecution and perhaps asset seizure and forfeiture.
Stay tuned for another article on writing the narrative of the SAR.
Kevin Sullivan, MS, MMBA, CAMS, was an Investigator with the New York State Police, and he coordinated NY state investigations at the NY HIFCA El Dorado Intelligence Center as a designated Federal Agent. Sullivan is a co-founder and former chair of the NY chapter of ACAMS and president of The AML Training Academy. Follow Kevin here.