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Suspicious Activity Reports: A Comparative Analysis of the Filing Activity of Depository Institutions Related to the Reporting of Unlicensed/Unregistered Money Services Businesses Prior to and Following April 2005 FinCEN Guidance

The SAR Activity Review ? Trends, Tips & Issues, Issue 10 conveyed the results of a FinCEN study examining suspicious activities involving possible unregistered money services businesses (MSBs) reported in depository institution Suspicious Activity Reports (SARs) filed between January 1, 2002 and April 30, 2005. On April 26, 2005, FinCEN and the Federal banking agencies, issued interagency interpretive guidance to depository institutions on providing banking services to MSBs operating in the United States. Subsequently, FinCEN conducted a post-guidance study, similar to the previous study, to examine depository institution SARs filed from May 1, 2005 through February 28, 2006 to assess the impact of the guidance and compare the results of the pre-and post-guidance assessments.

The second study identified 2,934 depository institution SARs related to potentially unregistered MSBs. This reflected a 47 percent increase over the initially identified 1,996 SARs filed for similar reasons during the full 40-month period preceding May 1, 2005.

Comparative Analysis of Pre and Post-Guidance SAR Data
While significantly more SARs were filed in the 10-month post-guidance period than in the 40-months preceding the guidance, even more striking is the decrease in the number of SARs remaining for analysis after screening. Of 1,996 SARs initially identified for the pre-guidance study, 1,214 (60.82%) SARs were actually analyzed. Of 2,934 SARs initially identified for the post-guidance study, 36.74% (1,078) remained for analysis after review. This decrease is explainable after a comparison of the pre- and post-guidance SAR narratives.

Narratives in SARs filed after the guidance was issued indicated that depository institutions became much more aware of the registration and licensing requirements, more diligent in dealing with customers believed to be operating as unregistered MSBs, and more encouraging with such customers to register as MSBs. According to SAR narratives in 90-day updates to initial SARs, some depository institutions directed customers to FinCEN?s website for the necessary registration forms, while many other institutions provided these forms directly to their customers. In many instances, depository institutions set deadlines by which customers were required to either register with FinCEN as an MSB, or complete an affidavit affirming they would cease MSB activities. The only alternative offered by many depository institutions was account relationship termination, which was reported in a number of SAR narratives. Increased diligence by filing institutions subsequent to issuance of the guidance to identify and encourage registration of customers operating as unregistered MSBs allowed FinCEN to screen many more SARs out of the post-guidance study prior to analysis.

In addition, reporting of MSB activities in post-guidance SAR narratives showed a trend of filing institutions being more specific in identifying reasons why the filing institution believed its customer was operating as an unregistered MSB.

Suspicious Activity Trends with MSBs
Categories of suspicious activity trends included:

  • Check cashing aggregating to more than $1,000 per customer per day comprised 34.94% of total reported activity in the post-guidance study, up from 27.87% of total reported activity in the pre-guidance study.
  • Specific references to money laundering increased to 3.29% of total reported activity in the post-guidance study, up from 0.97% of total reported activity in the pre-guidance study.
  • Non-specific references to check cashing fell from 27.38% of total reported activity in the pre-guidance study to 14.33% of total reported activity in the post-guidance study.
  • Non-specific references to MSB activities declined from 10.58% of total reported activity in the pre-guidance study to 4.33% of total reported activity in the post-guidance study.

On the other hand, trends in reported activity involving all informal value transfer systems and illicit activities associated with the operation of unregistered MSBs, excluding money laundering, remained virtually static.

  • Before the guidance was issued, informal value transfer system-related activity accounted for 4.12% of total reported activity, compared to 4.08% of total reported activity after the guidance was issued.
  • Non-money laundering illicit activities associated with the operation of unregistered MSBs accounted for 1.21% of all reported activity pre-guidance and 1.40% of all reported activity post-guidance.

Comparison of the incidence of suspicious money transmission reported in SAR narratives between the two studies declined as a percentage of aggregate reported activity from 24.96% in the pre-guidance study to 14.44% in the post-guidance study.










Excerpted from SAR Activity Review Issue 11, page 5

First published on 05/01/2007

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