Skip to content

Broker-Dealer Suspicious Activity Reports? The First Year

Broker-Dealer Suspicious Activity Reports ? The First Year

The broker-dealer suspicious activity reporting requirement became effective January 1, 2003 for broker-dealers not affiliated with banks or bank holding companies. To provide feedback to the broker-dealer community as part of its ongoing efforts to enhance suspicious activity reporting quality, FinCEN undertook a two-pronged feedback project. First, FinCEN surveyed law enforcement agencies to determine how broker-dealer Suspicious Activity Reports are being used, whether they add value to cases, and where improvement is needed. Second, FinCEN reviewed its own proactive targeting efforts to determine how brokerdealer Suspicious Activity Reports have helped to develop leads for law enforcement. The results of the feedback project are described below.

Law Enforcement Feedback

FinCEN asked federal law enforcement users whether they regularly review brokerdealer Suspicious Activity Reports, how they use broker-dealer Suspicious Activity Reports, whether any cases have been initiated in which a broker-dealer Suspicious Activity Report contributed useful information, and whether there are any areas where Suspicious Activity Report quality could be improved.

At the time of the survey, not all law enforcement agencies regularly reviewed all broker-dealer Suspicious Activity Report filings, although one of the results of this survey was to stimulate interest in implementing a regular review process. Those investigators that regularly review broker-dealer Suspicious Activity Reports do so in a number of ways, including retrieval by type of violation the agency is interested in, and sampling for trends and investigative analysis. Some multi-agency groups reported reviewing all Suspicious Activity Reports filed for their geographic district. The most frequent use of broker-dealer Suspicious Activity Reports this past year was to add value to ongoing cases. For example, one agent found a broker-dealer Suspicious Activity Report helpful in clarifying events and dates in an ongoing investigation; this led him to conduct interviews that would not have been considered important and may have been overlooked prior to reviewing the Suspicious Activity Report. Another interesting example of the value of broker-dealer Suspicious Activity Reports to ongoing investigations is their use in tracing illicit proceeds, as described below.

Case #1: In a fraud/money laundering investigation, investigators found a Suspicious Activity Report filed by a broker-dealer on the target of the investigation that described the quick movement of money in and out of a brokerage account. The identifiers on the Suspicious Activity Report were used to search the database, generating other Suspicious Activity Reports, a Currency Transaction Report and a Report of Foreign Bank and Financial Accounts. This trail led to the discovery of a bank account in another country into which the illicit proceeds had been deposited. The investigation is ongoing.

Case #2: A broker-dealer Suspicious Activity Report contributed to the jailing of a fraud defendant subject to an order requiring the payment of millions of dollars to the government. Investigators found a broker-dealer Suspicious Activity Report filed on the defendant describing activity inconsistent with the nature of the account. They followed the money trail from the Suspicious Activity Report to a bank where the defendant purchased money orders. The money orders, in turn, were used to purchase postal money orders, which were then deposited into a bank account in the United States. The defendant then transferred these funds to an offshore account. The defendant, who had concealed, transferred, and lied about his assets, was found in contempt of court and jailed. The funds are in the process of being repatriated.

Case #3: Suspicious Activity Reports filed by a depository institution and brokerdealers led to the successful prosecution of a union official who had misappropriated union funds. Discrepancies in several of the union?s accounts resulted in the filing of a Suspicious Activity Report that initiated an investigation by the Federal Bureau of Investigation, which uncovered evidence of a multi-million dollar embezzlement. A subsequent search through Gateway24 revealed two broker-dealer Suspicious Activity Reports showing suspicious wire transfer activity. According to the case agent, the broker-dealer Suspicious Activity Reports saved a great deal of time in ?following the money.? The agent handling the case commented that, without the assistance of the Suspicious Activity Reports, he never would have thought to look for the money in the direction where the reports indicated. Several subpoenas were issued as a result of the broker-dealer Suspicious Activity Reports, which led to valuable information. To date, this case has resulted in the filing of charges against three defendants, one conviction, and millions in court-ordered forfeiture.

Case #4: A broker-dealer Suspicious Activity Report aided in an investigation conducted jointly by the Federal Bureau of Investigation and Internal Revenue Service Criminal Investigation of an embezzlement scheme perpetrated by an accountant for a construction company who had ?disappeared.? The investigation determined that before his disappearance, he had systematically embezzled funds from the company. The Federal Bureau of Investigation, with the assistance of agents with the Bureau of Customs and Border Protection (legacy United States Border Patrol), arrested the accountant. The subject agreed to cooperate and plead guilty to a superceding bill of information charging the original bank fraud charges as well as tax fraud and conspiracy to violate tax laws. Subsequent investigation discovered millions of dollars of unreported income as well as the involvement of other individuals in the criminal activities. Additional charges are anticipated. The information from the broker-dealer Suspicious Activity Report helped identify assets and sources of income. Substantial documents and account records identified and obtained as a result of the Suspicious Activity Report aided in identifying funds generated by the scheme. The investigating agent found the Suspicious Activity Report to be robust and detailed, containing much pertinent and valuable information necessary for effective follow-up.

Suspicious Activity Report Quality

In general, federal law enforcement investigators reported they were satisfied with the quality of the broker-dealer Suspicious Activity Reports they reviewed during calendar year 2003. The most frequently identified area for financial institutions? improvement was Suspicious Activity Report completeness. More specifically, when asset movement is reported, Suspicious Activity Reports sometimes do not include identifiers for the transferee, such as, where applicable, name and location of the receiving financial institution, and account name and number of the beneficiary. Having this information articulated in the Suspicious Activity Report can save valuable time and steps in an investigation, especially when assets are in motion. This information should be placed in the Suspicious Activity Report narrative section.

Proactive Targeting

FinCEN?s Proactive Targeting Unit has developed a number of cases through review, analysis, and data mining of broker-dealer Suspicious Activity Reports. Once developed, such cases are referred to the appropriate law enforcement agency. Two illustrative cases are described below.

The first case developed from broker-dealer Suspicious Activity Reports disclosing what appeared to be an ongoing fraud scheme by a group of individuals and entities purporting to operate a hedge fund. According to the Suspicious Activity Report narrative, the address given for the hedge fund turned out to be a post office outlet and the telephone number belonged to an answering service. Funds received in the account were the subject of numerous unexplained wire transfers to foreign countries. Research by FinCEN disclosed Currency Transaction Reports filed by financial institutions on the hedge fund showing large cash transfers made by the hedge fund to an individual. That individual, in turn, was the subject of Currency Transaction Report forms reporting that he moved $12 million in cash transactions through two different companies, both with the same Employer Identification Number and bank account. That same individual was the subject of numerous Currency Transaction Report by Casino filings during the same period. The individual, and the individual and corporate subjects of the Suspicious Activity Reports, were also named in several different criminal investigations.

FinCEN developed another proactive case as the result of analysis of two Suspicious Activity Reports that reported possible money laundering and wire transfers without economic purpose in brokerage accounts through which money moved between foreign pawnshops and the United States. The brokerage accounts had numerous third-party wires with minimal brokerage activity. There were also a limited number of large-dollar check transactions among the subjects involved in these transactions. FinCEN research discovered two Currency Transaction Report filings on a person with the same last name and foreign address as one of the subjects, who gave two different occupations to the two different bank filers. Commercial database research provided additional links among the various subjects.

FinCEN intends to continue monitoring the various categories of Suspicious Activity Reports, especially the new categories of filers, to provide ongoing feedback. In the next issue of The SAR Activity Review, we intend to focus on Suspicious Activity Reports filed by casinos, an industry with mandated Federal Suspicious Activity Report filing requirements effective March 2003.

Excerpted from SAR Activity Review Issue , page 20

First published on 01/01/2000

Filed under: 
Filed under security as: 

Search Topics