SAR Slip-ups Result in CMP

by Mary Beth Guard, BOL Guru

- 29 wire transfers;
- from a foreign company;
- totaling $900,000;
- most wired out the following day to the customer's account at another bank;
- not normal activity for the customer's business.

-- Suspicious activity in the eyes of the regulators, yet no SAR was filed. And that's just one of the many complaints FinCEN has about Great Eastern Bank of Florida, a Miami financial institution. Great Eastern Bank recently consented to the assessment of a civil money penalty by FinCEN in connection with allegations that the bank had failed to file complete Suspicious Activity Reports in a timely manner for reportable transactions by at least 20 customers. The documentation of the assessment of civil money penalty covers three areas:

failure to file SARs;
failure to file complete SARs; and
willful violations

and it provides valuable insight into regulatory expectations for suspicious activity reporting.

The FDIC, the bank's primary federal regulator, had:

repeatedly warned the bank that it had seriously deficient BSA compliance procedures;
particularly noted deficiences in the area of Suspicious Activity Reporting;
entered into a Compliance Memorandum of Understanding with the bank back in 1995 that required the bank's board to implement a program to preclude future violations;
found additional BSA compliance deficiencies in 1998. A Cease and Desist Order was then put into place;
found, as late as 1999, that the bank's suspicious transaction monitoring procedures had only been partially implemented.

Analyzing Activity
Unless a financial institution has systems in place to identify the kinds of transactions that may be high risk for money laundering or that exhibit indicia of suspicious activity, it cannot be certain that it is reporting suspicious transactions as required by the Bank Secrecy Act. FinCEN says that the bank had information about its customers and their transactions that caused the bank to "know, suspect, or have reason to suspect" that many transactions were reportable suspicious transactions, but the bank failed to report them because "it did not have procedures to identify or analyze or report suspicious activity properly."

What systems do you have in place to identify suspicious transactions? Do you have procedures to collect, analyze, and maintain documentation of suspicious transactions in a level of detail necessary to comply with the SAR requirements?

High Risk Transactions
The bank had a wide-ranging customer base that included international businesses and customers who engaged in international transactions, but, according to FinCEN, it did not have procedures to identify potentially suspicious activity transactions that were a high risk for money laundering or transactions that exhibited characteristics of suspicious activity. It therefore failed to identify:

structuring of deposits to evade the CTR filing requirements;
the suspicious nature of large cash deposits followed immediately by international wire transfers (a practice the regulators say is known to present a high risk for money laundering);
large deposits of sequentially numbered money orders and traveler's checks as suspicious.

One customer had millions of dollars of incoming and outgoing wire transfers, many from the same source, yet the bank had not recognized there was no apparent business reason for the large amounts of wire transfer activity and it failed to file a SAR until the FDIC specifically told it to do so two years later.

Make sure your employees have been adequately trained on the nature and types of transactions that are believed to be suspicious or believed to be potentially indicative of money laundering. You'll find helpful examples in the SAR Activity Reviews and the BSA Examination manual. (Find the links under the BSA category on the BOL Launch Pad.)

Make sure the explanation is good enough
The SAR instructions emphasize the importance of the description of the suspicious activity. Failure to provide a complete description may result in a SAR not providing adequate information to alert law enforcement to the existence of potentially serious criminal activity. An institution is required to provide a "chronological and complete account" of the transaction. When monetary instruments are involved in the transaction, that means including a description of the monetary instruments.

FinCEN finds fault with the bank's failure to provide adequate details about the suspicious activity on many SARs that it filed. They give the following examples:

the bank filed a SAR describing wire transfers to a customer totaling over $900,000 that were wired out of the account almost immediately, but failed to report on identical transactions engaged in by the same customer in another account at the same bank, leaving the FinCEN with only a partial picture of the suspicious activity;
the bank filed a SAR covering a $71,250 deposit to an account that had minimal activity prior to the time of the deposit, but did not adequately describe the alleged suspicious activity. According to FinCEN, the bank should have noted, for example:
- that six of the checks in the deposit were sequentially numbered checks from a single account in even thousand dollar amounts,
- that the traveler's check portion of the deposit was made up of 236 checks from 10 banks.
- that wire transfers made shortly after this large deposit transferred the majority of the funds out of the account.
one SAR simply reported a $50,000 deposit of money orders. FinCEN says the report should have:
- described the monetary instruments by denomination, issuer, and place of origin;
- indicated that there was little activity in the account other than the deposit;
- indicate that the customer withdrew the funds soon after the deposit

In addition, the bank failed to maintain adequate supporting documentation on the SARs it filed, and some documents it did keep were not legible.

Reread the SAR instructions periodically to keep fresh in your mind precisely what's required. Set aside your documentation at the time of filing. Ask another employee involved in BSA compliance to review the documentation to look for any deficiencies.

Willful violations?
FinCEN states that:

A financial institution that fails to establish procedures to adequately identify, document, and report suspicious transactions, particularly after it was put on notice repeatedly of serious compliance deficiences, is following a course of conduct that shows a reckless disregard for compliance with the SAR provisions of the BSA.

FinCEN alleged that Great Eastern willfully violated the SAR reporting provisions of the BSA and the BSA regulation because:

it did not have procedures to identify or analyze even the most conspicuous suspicious activity;
it did not have procedures to enable it to recognize "red flags", such as successive wire transfers in and out of an account that are not consistent with the customer's operations;
it did not properly document, on many of the SARs it filed, the reasons for the SARs;
it was put on notice repeatedly of serious compliance deficiencies in this area;
it did not have procedures to properly document and maintain records for those it did report
it failed to comply with the SAR requirements in numerous instances.

When the regulators tell you your BSA compliance is not up to standards, take notice. Take prompt and appropriate correction action.

Copyright, 2002, Bankers Online. First published on BankersOnline.com 9/11/02.