Avoiding Common Errors in Suspicious Activity Reports
By FinCEN?s Office of Compliance and Office of Outreach Resources
In 2007, FinCEN published suggestions for addressing common errors in SARs.17 In this update, we include new information on identifying suspicious activity, including the category and character of the activity, and provide new information on errors in fields of critical value. Updating this information on common errors will help financial institutions improve the quality of the information in their SARs.
Accurate and complete SARs are critical to the utility of BSA data in combating financial crimes, terrorist financing and other illicit activity. The value of any SAR filing is impaired when it is not accurate and complete. SAR information is a valuable tool for FinCEN, law enforcement, regulatory authorities, and intelligence agencies (collectively ?users?), allowing identification of larger patterns of suspicious activity which might not otherwise be detected. When combined with other sources, the information generated by SAR filings plays an important role in identifying illegal activities. However, lack of accurate and complete information limits the value of BSA data for users.
Identifying Suspicious Activity
Some filers develop strategies for identifying suspicious activity, such as asking customers to explain the purpose of an unusual transaction. This allows the filer to evaluate whether a transaction may be suspicious. Other strategies merely generate a high volume of SARs without identifying suspicious activities. Two such strategies are filing SARs based on the dollar amount of the transaction and filing SARs because the transaction was ?unusual? without explaining why.
Dollar Amount. Some financial institutions have policies requiring a SAR filing for transactions where the dollar amount meets or exceeds a certain dollar level. For such SARs, the narrative may state only that the dollar amount was suspicious, or exceeded an amount set by company policy. However, no dollar amount is suspicious in and of itself ? only the total circumstances of the transaction can be suspicious. As such, the SAR narrative should explain in detail why a particular transaction is suspicious, not merely that the dollar amount involved meets or exceeds a certain dollar level.
Unusual Transactions. Financial institutions frequently file SARs in which the narrative may state that the transaction is unusual or is a type not normally conducted by the customer ? even though there may be a reasonable explanation for the transaction. For example, a filer submits a SAR because a customer deposited cash from the sale of a boat or car.
SAR instructions state that financial institutions should file a SAR when a transaction exceeds or aggregates above a defined threshold18 and there is no reasonable explanation for the transaction. Again, the SAR narrative should explain the circumstances surrounding the transaction that lead the filer to believe that it was suspicious. Using the example above, the reporting financial institution should explain in the narrative why a cash deposit involving a sale of a boat or car was suspicious.
Responses in Fields of Critical Value
The quality of information provided in fields marked by an asterisk (*) on FinCEN forms 101, 102 and 109 ? fields designated as being of critical value to users of BSA data ? is of the utmost importance. Some common errors, such as incorrect use of special responses in these fields, are described below.
Unauthorized Special Responses. Unauthorized special responses (such as ?N/A,? ?UNK,? or ?Same as above?) in critical fields may appear as real data in the BSA database, distorting the data.19 For example, entering ?N/A? for ?Not Applicable? in some last name fields creates a SAR where the last name of the subject is ?N? and the first name is ?A? because the database reads the slash bar as a name separator. Entering ?NA? for ?Not Applicable? in a State field creates false data because ?NA? is a foreign address designation. Filers should follow form instructions and FinCEN guidance and input the proper responses for unavailable information.
Failure to use Special Responses. Special responses, such as ?XX? in certain critical fields, should be entered on the SAR form when the required data is unknown.20 SARs filed using special responses informs users of the data that the required data was unknown. Filers should follow form instructions and, in particular, FinCEN guidance21 in using special responses in critical fields to denote that required data is unknown.
Invalid Subject Social Security Number (SSN) or EIN. Entries using repeated numbers such as ?000000000? are unauthorized special responses that filers also incorrectly use to show that a required number is not known. The SAR instructions for FinCEN forms 101, 102 and 109 instruct filers to enter ?XX? in the first two spaces of this field if the data is unknown. Filers should not enter hyphens, slashes, alpha characters, or invalid entries such as repeated numbers in these fields.
17 See Suggestions for Addressing Common Errors Noted in Suspicious Activity Report at http://www.fincen.gov/statutes_regs/guidance/pdf/SAR_Common_Errors_Web_P..., (October 10, 2007)
18 Further clarification of industry-specific requirements can be found under 31 C.F.R. Part 103 and on the industry-specific SAR forms.
19 FinCEN guidance prohibits abbreviation of special responses. See ?General Tips for Using These Types of Responses In SARs,? The SAR Activity Review ? Trends, Tips & Issues, Issue 6, p. 52 (November 2003).
20 Some critical fields require a special response in certain circumstances and should be left blank in other circumstances. For example, in the SAR-MSB a special response is only required when a currency exchange was recorded and some of the required data was unknown. If no currency exchange is recorded, then the required currency exchange fields are left blank. Filers should review both form instructions and applicable FinCEN guidance before using critical fields in SARs.
Excerpted from SAR Activity Review Issue 16, page 50
First published on 10/01/2009